<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
October 27, 2000
Date of Report (Date of earliest event reported)
Numerical Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 000-30005 94-3232104
------------------------------- ----------------------- --------------------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
70 W. Plumeria Drive
San Jose, California 95134
(Address of principal executive offices)
(408) 919-1910
(Registrant's telephone number, including area code
<PAGE>
This Form 8-K/A amends Item 7 of the Current Report on Form 8-K filed by
Numerical Technologies, Inc. with the Securities and Exchange Commission on
November 2, 2000,solely for the purpose of filing the financial information set
forth below.
Item 7. Financial Statements, Pro Forma Information and Exhibits
The following financial statements, pro forma financial information and exhibits
are filed as part of this report.
(a) Financial statements of business acquired:
Independent Auditors' Report
Consolidated Balance Sheets as at September 30, 2000 and 1999
Consolidated Statements of Operations for years ended September 30, 2000
and 1999
Consolidated Statements of Cash Flows for years ended September 30, 2000
and 1999
Consolidated Statements of Shareholder's Equity for years ended September
30, 2000 and 1999
Notes to The Consolidated Financial Statements for years ended September
30, 2000 and 1999
(b) Pro forma financial information required:
Numerical Technologies, Inc. Unaudited Pro Forma Condensed Combined
Balance Sheet as of September 30, 2000
Numerical Technologies, Inc. Unaudited Pro Forma Condensed Combined
Statement of Operations for the Nine Months Ended September 30, 2000
Numerical Technologies, Inc. Unaudited Pro Forma Condensed Combined
Statement of Operations for the year ended December 31, 1999
(c) Exhibits
Number Description
2.1 Agreement and Plan of Amalgamation, Dated as of
September 5, 2000, by and among Numerical Technologies,
Inc., Numerical Nova Scotia Company, Numerical
Acquisition Limited, 3047725 Nova Scotia Limited,
Cadabra Design Automation Inc., Martin Lefbvre, and
Faysal Sohail.*
99.1 Press release by Numerical Technologies dated October
31, 2000.**
* Previously filed as Exhibit 2.1 of the Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 16,
2000.
** Previously filed as Exhibit 99.1 of the Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 2, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NUMERICAL TECHNOLOGIES, INC.
Dated: December 22, 2000
By: /s/ Yagyensh C. Pati
---------------------------------
Yagyensh C. Pati
President and
Chief Executive Officer
By: /s/ Richard Mora
---------------------------------
Richard Mora
Chief Financial Officer and
Vice President, Operations
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
(c) Exhibits
Number Description
2.1 Agreement and Plan of Amalgamation, Dated as of September 5,2000
by and among Numerical Technologies, Inc., Numerical Nova Scotia
Company, Numerical Acquisition Limited, 3047725 Nova Scotia
Limited, Cadabra Design Automation Inc., Martin Lefbvre, and
Faysal Sohail.*
99.1 Press release by Numerical Technologies dated October 31, 2000.**
* Previously filed as Exhibit 2.1 of the Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 16, 2000.
** Previously filed as Exhibit 99.1 of the Current Report on Form 8-K filed with
the Securities and Exchange Commission on November 2, 2000
(a) Financial Statements of Business Acquired
Independent Auditors' Report
To the Shareholders of
Cadabra Design Automation Inc.
We have audited the consolidated balance sheets of Cadabra Design Automation
Inc. as at September 30, 2000 and 1999 and the consolidated statements of
operations, shareholders' equity and of cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
2000 and 1999 and its cash flows for the years ended September 30, 2000 and 1999
in accordance with accounting principles generally accepted in the United States
of America.
/S/ DELOITTE & TOUCHE LLP
Ottawa, Canada
November 17, 2000
<PAGE>
CADABRA DESIGN AUTOMATION INC.
Consolidated Balance Sheets
as at September 30, 2000 and 1999
(in US dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 7) $ 554,994 $ 751,071
Marketable securities (Note 3) 4,099,041 6,243,397
Accounts receivable (net of allowance for doubtful
accounts of $NIL and $198,000) 17,964 342,830
Income taxes receivable 190,066 198,611
Prepaid expenses 141,905 110,514
-------------------------------------------------------------------------------------------------
5,003,970 7,646,423
CAPITAL ASSETS (Note 4) 488,251 534,500
OTHER ASSETS - 7,190
DEFERRED INCOME TAXES (Note 5) - 1,198,223
-------------------------------------------------------------------------------------------------
$ 5,492,221 $ 9,386,336
-------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 15,850 $ 157,489
Accrued liabilities 1,355,974 213,535
Deferred revenue 671,370 380,621
-------------------------------------------------------------------------------------------------
2,043,194 751,645
-------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCY (Note 8)
SHAREHOLDERS' EQUITY
Share capital (Note 6)
Class A preference shares (1,600,000 shares authorized and
outstanding with no par value; 1999 - 1,600,000) 1,444,008 1,444,008
Class B preference shares (2,905,625 shares authorized and
outstanding with no par value; 1999 - 2,905,625) 6,189,816 6,189,816
Common shares (30,000,000 shares authorized; 10,630,883
outstanding with no par value; 1999 - 8,775,333) 658,875 296,386
Deferred stock compensation (66,553) (101,233)
Accumulated other comprehensive income (loss) (245,334) (45,869)
Retained earnings (deficit) (4,531,785) 851,583
-------------------------------------------------------------------------------------------------
3,449,027 8,634,691
-------------------------------------------------------------------------------------------------
$ 5,492,221 $ 9,386,336
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CADABRA DESIGN AUTOMATION INC.
Consolidated Statements of Operations
years ended September 30, 2000 and 1999
(in US dollars)
--------------------------------------------------------------------------------
September 30, September 30,
2000 1999
------------- -------------
Revenues
License $ 2,387,452 $ 2,227,001
Service 1,275,025 1,756,198
------------------------------------------------------------------------------
3,662,477 3,983,199
------------------------------------------------------------------------------
Cost of revenues
Cost of license - royalties 32,859 40,818
Cost of service 384,788 506,583
------------------------------------------------------------------------------
417,647 547,401
------------------------------------------------------------------------------
Gross profit 3,244,830 3,435,798
------------------------------------------------------------------------------
Expenses
Selling and marketing 2,646,837 2,433,618
Research and development 3,207,288 2,264,831
General and administrative 2,016,823 1,482,712
------------------------------------------------------------------------------
7,870,948 6,181,161
------------------------------------------------------------------------------
Operating loss (4,626,118) (2,745,363)
Interest income 334,694 238,284
Interest expense (23,321) (5,804)
Foreign exchange gain (loss) 174,738 (251,733)
------------------------------------------------------------------------------
Loss before income taxes (4,140,007) (2,764,616)
------------------------------------------------------------------------------
Income tax expense (benefit)
Current 45,138 (132,640)
Deferred 1,198,223 (1,227,261)
------------------------------------------------------------------------------
1,243,361 (1,359,901)
------------------------------------------------------------------------------
NET LOSS $ (5,383,368) $ (1,404,715)
------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
<PAGE>
CADABRA DESIGN AUTOMATION INC.
Consolidated Statements of Cash Flows
years ended September 30, 2000 and 1999
(in US dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,383,368) $ (1,404,715)
Amortization of other assets 7,184 931
Amortization of capital assets 369,530 356,771
Deferred income taxes 1,198,223 (1,263,708)
Deferred stock compensation 34,680 37,599
Loss on disposal of fixed assets 7,953 33,081
Changes in non-cash operating working capital items
Decrease in accounts receivable 324,866 1,312,357
Decrease (increase) in income taxes receivable 8,545 (193,988)
Increase in prepaid expenses (31,391) (41,554)
Increase (decrease) in accounts payable (141,639) 78,911
Increase (decrease) in accrued liabilities 1,142,439 (83,925)
Increase (decrease) in deferred revenue 290,749 (141,495)
-------------------------------------------------------------------------------------
Net cash used in operating activities (2,172,229) (1,309,735)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds on sale of capital assets 5,300 -
Purchase of capital assets (353,266) (364,565)
Purchase of marketable securities (44,836,088) (7,333,046)
Proceeds on maturity of marketable securities 46,980,444 2,121,687
-------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,796,390 (5,575,924)
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of preferred shares - 6,189,816
Issuance of common shares 362,489 37,837
Repayment of obligations under capital leases - (517)
-------------------------------------------------------------------------------------
Net cash provided by financing activities 362,489 6,227,136
-------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,350) (658,523)
Effect of foreign currency translation on cash flows (182,727) 315,500
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 751,071 1,094,094
-------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 554,994 $ 751,071
-------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CADABRA DESIGN AUTOMATION INC.
Consolidated Statements of Shareholders' Equity
years ended September 30, 2000 and 1999
(in U.S. dollars)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock Class A preference shares Class B preference shares
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1998 8,647,000 $ 119,717 1,600,000 $1,444,008 - $ -
Common shares issued 128,333 37,837 - - - -
Class B preference shares issued - - - - 2,905,625 6,250,000
Share capital issuance costs - - - - - (93,442)
Future tax benefit - - - - - 33,258
Options granted for consulting services - 138,832 - - - -
Amortization of deferred compensation - - - - - -
Components of comprehensive income
Translation adjustment - - - - - -
Net loss - - - - - -
------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)
Balances at September 30, 1999 8,775,333 296,386 1,600,000 1,444,008 2,905,625 6,189,816
Common shares issued 1,855,550 2,112,489 - - - -
Loan granted in exchange for issuance of
options - (1,750,000) - - - -
Amortization of deferred compensation - - - - - -
Components of comprehensive income
Translation adjustment - - - - - -
Net loss - - - - - -
------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss)
Balances at September 30, 2000 10,630,883 $ 658,875 1,600,000 $1,444,008 2,905,625 $6,189,816
==============================================================================================================================
<CAPTION>
Accumulated
Deferred other Total
stock comprehensive Retained shareholders'
compensation income (loss) earnings equity (deficit)
------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
Balances at September 30, 1998 $ - $ (361,369) $ 2,256,298 $ 3,458,654
Common shares issued - - - 37,837
Class B preference shares issued - - - 6,250,000
Share capital issuance costs - - - (93,442)
Future tax benefit - - - 33,258
Options granted for consulting services (138,832) - - -
Amortization of deferred compensation 37,599 - - 37,599
Components of comprehensive income
Translation adjustment - 315,500 - 315,500
Net loss - - (1,404,715) (1,404,715)
-------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) (1,189,215)
--------------
Balances at September 30, 1999 (101,233) (45,869) 851,583 8,634,691
Common shares issued - - - 2,112,489
Loan granted in exchange for issuance of
options - - - (1,750,000)
Amortization of deferred compensation 34,680 - - 34,680
Components of comprehensive income
Translation adjustment - (199,465) - (199,465)
Net loss - - (5,383,368) (5,383,368)
-------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) (5,582,833)
--------------
Balances at September 30, 2000 $ (66,553) $ (245,334) $(4,531,785) $ 3,449,027
=======================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CADABRA DESIGN AUTOMATION INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2000 and 1999
(in US dollars)
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Cadabra Design Automation Inc. (the "Company"), formerly known as Cadabra
Design Libraries Inc., was incorporated under the Canada Business
Corporations Act in 1994. On April 1, 1999 the Company was continued under
the Companies Act of Nova Scotia.
The Company was founded to design, produce and market specialized design
automation software for use by the electronics industry.
2. ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles and include the
following significant accounting policies:
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Cadabra Design Automation (USA) Inc. (in
United States) and Cadabra (Europe) SARL (in France). All intercompany
transactions have been eliminated.
Cash and cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company's
cash and cash equivalents are maintained with a bank and brokerage
institution.
Marketable securities
Marketable securities consist of investments in US dollar corporate bonds
and Government of Canada treasury bills. The Company has the intent and
ability to hold all investments until maturity. Therefore, all such
investments are classified as held to maturity investments and stated at
cost plus accrued interest. At September 30, 2000 and 1999, the amortized
cost of the Company's investments approximated fair value.
Revenue recognition
The Company's revenue recognition policy is consistent with Statement of
Position No. 97-2, as amended. License revenues are comprised of fees for
the Company's software products. Revenue from license fees is recognized
when an agreement has been signed, delivery of the product has occurred, no
significant Company obligations remain, the fee is fixed or determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate a portion of the total fee to any undelivered elements of the
arrangement. For electronic delivery, the software is considered to have
been delivered when the Company has provided the customer with the access
codes that allow for immediate possession of the software. If the fee due
from the customer is not fixed or determinable, revenue is recognized as
payments become due from the customer. If collectibility is not considered
probable, revenue is recognized when the fee is collected. License and
maintenance revenue on short-term time-based licenses are recognized
ratably over the license period.
<PAGE>
Support and maintenance arrangements do not provide specified upgrade
rights and provide technical support and the right to unspecified upgrades
on an if-and-when-available basis. Revenue from support arrangements is
recognized on a straight-line basis over life of the related agreement,
which is typically one year. If support, consulting services or training
are included in an arrangement that includes a license agreement, amounts
related to support, consulting services, training and the licenses are
allocated based on vendor-specific objective evidence. Vendor-specific
objective evidence for support, professional services and license
agreements is based on the price when such elements are sold separately,
or, when not sold separately, the price is established by management having
the relevant authority. Where discounts are offered on multiple element
arrangements, a proportionate amount of that discount is applied to each
element included in the arrangement based on each element's fair value.
Consulting and training revenue is recognized when provided to the
customer. Revenues from custom development projects are recognized on the
percentage of completion basis. Customer advances and billed amounts due
from customers in excess of revenue recognized are recorded as deferred
revenue.
Cost of goods sold
Cost of maintenance support consists primarily of salaries, benefits and
allocated overhead costs related to customer support personnel.
Investment tax credits
Investment tax credits related to research and development expenses are
recorded as a reduction to the income tax expense. Investment tax credits
related to capital assets are recorded as a reduction of the cost of
capital assets. The benefits are recognized when the Company has complied
with the terms and conditions of the applicable tax legislation or approved
grant program.
Capital and other assets and amortization
Capital and other assets are recorded at cost. Amortization is provided on
a straight-line basis over the anticipated useful lives of the assets as
follows:
Computer hardware 3 years
Computer software 2 years
Furniture and fixtures 5 years
Patents 10 years
Leasehold improvements over term of lease
Capital lease equipment lesser of useful life or term of lease
When assets are sold or retired, the cost and related accumulated
amortization are removed from the accounts and any resulting gain or loss
is included in operations. Maintenance and repairs are charged to
operations as incurred.
Assets are reviewed for impairment on the basis of undiscounted cash flows.
If the cash flows are less than the asset's carrying value, the asset is
written down to its fair value.
Foreign currency translation
The accounts of the Company's subsidiaries have been translated into US
dollars. Assets and liabilities have been translated at the exchange rates
in effect at the balance sheet date. Revenues, expenses and cash flow
amounts are translated at average rates for the period. The resulting
translation adjustments are included in other comprehensive income as a
separate component of shareholders' equity. Gains and losses from foreign
currency transactions are included in the determination of net earnings.
The Company's functional currency is the Canadian Dollar. FASB Statement
No. 52, "Foreign Currency Translation", requires companies to translate
functional-currency financial statements into reporting currency using the
current exchange rate method whereby the rates in effect on the balance
sheet date for assets and liabilities and the weighted average rate for
statement of earnings elements are used. Any translation adjustments,
resulting from the process of translating the financial statements from the
Canadian dollar functional currency to the US dollar reporting currency,
are excluded from the determination of net earnings and are reported in
other comprehensive income.
Use of accounting estimates
<PAGE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates that affect the reported amounts of assets and liabilities as at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods presented. Actual results could
differ from the estimates made by management.
Accounting for stock-based compensation
The United States Financial Accounting Standards Board ("FASB") Statement
of Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," encourages (but does not require) that the compensation cost
for stock-based plans should be measured using a fair value based method.
The Company currently calculates the compensation cost for its Stock Option
Plan in compliance with the provisions of the United States Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees," which recommends that compensation cost should be recorded if
the exercise price of the options granted is below the fair market value of
the Company's stock as at the date of grant. As permitted by SFAS 123, the
Company applies APB 25 to its stock-based compensation awards to employees
and discloses in Note 6 the required pro forma effect on net earnings and
earnings per share.
Income taxes
The Company uses the asset and liability method to account for income
taxes. Deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the carrying
amounts of existing assets and liabilities for accounting purposes, and
their respective tax bases. Deferred income tax assets and liabilities are
measured using statutory tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred income tax assets and liabilities of a
change in statutory tax rates is recognized in net earnings in the year of
change. A valuation allowance is recorded for those deferred income tax
assets whose recoverability is not sufficiently likely.
Comprehensive income
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to shareholders' equity. The Company's
other comprehensive income is primarily comprised of foreign currency
translation adjustments.
Recent pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes
accounting and reporting standards for derivative instruments. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. The Company is in
the process of evaluating the impact of the reporting requirements of SFAS
133.
In December 1999, the Securities Exchange Commission issued Staff
Accounting Bulletin No. 101 on "Revenue Recognition" ("SAB 101"), which
provides the SEC's views in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 is effective for
fiscal year ends beginning after December 15, 1999. The Company is in the
process of evaluating the impact of SAB 101 on its financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation: an interpretation of APB
Opinion No. 25, ("FIN 44"), which clarifies the application of Opinion 25
for certain issues. The Interpretation is effective July 1, 2000. There has
been no impact of the adoption of this Interpretation on the Company's
financial statements.
3. MARKETABLE SECURITIES
The Company's investments consist of the following:
<PAGE>
2000 1999
----------- -----------
Corporate bonds $ 4,099,041 $ 5,103,285
Government of Canada treasury bills - 1,140,112
---------------------------
$ 4,099,041 $ 6,243,397
===========================
These investments mature within one year.
4. CAPITAL ASSETS
2000
-------------------------------------
Accumulated Net Book
Cost Amortization Value
-------------------------------------
Computer hardware $ 1,103,500 $ 799,176 $ 304,324
Computer software 265,662 191,028 74,634
Furniture and fixtures 168,883 91,012 77,871
Leasehold improvements 62,793 31,371 31,422
Capital lease equipment 5,347 5,347 -
-------------------------------------
$ 1,606,185 $1,117,934 $ 488,251
=====================================
1999
-------------------------------------
Accumulated Net Book
Cost Amortization Value
-------------------------------------
Computer hardware $ 902,374 $ 565,144 $ 337,230
Computer software 223,684 117,590 106,094
Furniture and fixtures 149,299 74,079 75,220
Leasehold improvements 32,944 16,988 15,956
Capital lease equipment 5,478 5,478 -
-------------------------------------
$ 1,313,779 $ 779,279 $ 534,500
=====================================
Capital assets are recorded net of accumulated investment tax credits of
$108,184 (1999 - $95,981).
5. INCOME TAXES
Deferred income taxes result from differences in the timing of recognition
of certain items for tax and financial statement purposes. Significant
components of the Company's temporary differences and the related deferred
income taxes are as follows:
2000 1999
------------ ---------
Tax depreciation in excess of accounting
Depreciation $ (32,714) $ 14,436
Investment tax credits available and research
and development expenses deducted for
accounting purposes in excess of tax,
net of tax effect of investment tax credits 1,035,762 466,943
Losses available to offset future
<PAGE>
income taxes 1,783,005 586,547
Expenses deductible in future years 5,887 90,427
Preferred share issue costs deductible
for tax purposes 29,890 39,870
-----------------------------
2,821,830 1,198,223
Less valuation allowance (2,821,830) -
-----------------------------
Deferred income tax benefit $ - $ 1,198,223
=============================
During the year the Company increased the valuation allowance as the
continuing operating losses have resulted in it no longer being more likely
than not that the deferred tax asset will be realizable.
At September 30, 2000, the Company has net operating loss carryforwards of
approximately $1,900,000 (1999 - $350,000) for federal and state income tax
purposes. These carryforwards expire beginning in 2019. The Company has
Canadian federal and provincial tax loss carryforwards of approximately
$2,380,000 and $2,985,000 (1999 - $680,000 and $995,000) which expire in
2005 available to reduce future years' taxable income.
At September 30, 2000, the Company also has scientific research and
development expenditures of approximately $1,579,000 (1999 - $850,000)
which are available, without expiry to reduce future federal and provincial
taxable income.
6. SHARE CAPITAL
On April 1, 1999, the shareholders of the Company approved the creation of
2,905,625 shares, to be designated as Class B preference shares; cancelled
the existing class of Class B common shares; cancelled the existing Series
I and II preference shares; re-designated the Series III preference shares
as Class A preference shares limiting the number of authorized Class A
preference shares to 1,600,000 and amended the share provisions attaching
to such shares; re-designated the issued and unissued Class A common shares
as common shares and limited the number of authorized shares to 30,000,000.
Class A and B preference shares have a retraction privilege 5 years from
the date of issue of the Class B preference shares (April, 2004). On
retraction, each of the classes of preference shares would receive the
amount originally paid and would only receive annual non-cumulative
dividends of 7% if these dividends are declared by the Company's Board of
Directors (the Board); each of the classes of preference shares will also
be entitled to receive the same dividends as are paid on any other classes
of shares. The Class A and B preference shares are convertible by the
holder at any time to common shares at CDN $1.25 and US $2.151,
respectively. The conversion amount is based on the Class A and B
retraction amounts. In the event of a Qualified initial public offering in
which over US $20,000,000 in new capital is raised and at a price per
common share of at least US $5.00, the preference shares will convert to
common shares on a one-for-one basis. The Class A and B preference shares
have voting rights equivalent to the number of common stock into which it
is convertible. The Class B preference shareholders, voting separately as a
class, have the right to elect one member of the Board. In the event of
liquidation, dissolution or wind up of the Company, the holders of Class A
and B preference shares shall receive the retraction price and the
remaining assets of the Company shall be distributed to the holders of
common shares.
Authorized
30,000,000 common shares
1,600,000 Class A preference shares
2,905,625 Class B preference shares
Stock options
<PAGE>
The Company has established a Stock Option Plan (the "Plan") applicable to
full-time employees, directors and consultants of the Company and its
subsidiaries. The options under the Plan generally vest over a four-year
period and expire on the tenth anniversary or upon termination of
employment. Options granted under the Plan prior to September 3, 1999
generally vest over a four-year period and expire on the fifth anniversary
or upon termination of employment. The number of options authorized, which
may be granted under the Plan, is 2,500,000.
The Company has established a US Stock Option Plan (the "US Plan")
applicable to full-time employees, directors and consultants of the Company
and its subsidiaries. Options granted under the US Plan may be either
nonstatutory stock options or options intended to constitute incentive
stock options under the Internal Revenue Code. The options under the Plan
generally vest over a four-year period and expire on the tenth anniversary
or upon termination of employment. The number of options authorized, which
may be granted under the US Plan, is 2,900,000.
Options outstanding under the plan at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Option price Price
------- ------------ -----
<S> <C> <C> <C>
Options outstanding at September 30, 1998
(817,000 options exercisable at a
weighted average exercise price
of $0.22) 3,194,600 $0.05 - $1.40 $ 0.68
Options granted during the year 2,114,000 $1.34 - $1.40 $ 1.40
Options cancelled during the year (1,081,667) $0.11 - $1.40 $ 1.20
Options exercised during the year (128,333) $0.11 - $1.40 $ 0.30
-----------------------------------------------
Options outstanding at September 30, 1999
(1,346,533 options exercisable at a
weighted average exercise price of
$0.50 per exercisable share) 4,098,600 $0.04 - $1.40 $ 1.05
Options granted during the year 1,304,900 $1.40 - $3.40 $ 1.41
Options cancelled during the year (547,800) $0.84 - $1.40 $ 1.33
Options exercised during the year (1,855,550) $0.04 - $1.40 $ 1.14
-----------------------------------------------
Options outstanding at September 30, 2000
(1,232,887 options exercisable at a
weighted average exercisable price of
$0.70 per exercisable share) 3,000,150 $0.11 - $3.40 $ 1.09
===============================================
</TABLE>
The options expire at various dates through September 30, 2009.
Additional information regarding options outstanding as of September 30,
2000 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.11 431,000 0.2 $0.11 431,000 $0.11
0.22 155,000 0.5 0.22 155,000 0.22
0.34 40,000 1.0 0.34 40,000 0.34
0.67 40,000 1.0 0.67 40,000 0.67
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
0.84 111,000 1.5 0.84 82,800 0.84
1.375 240,000 2.1 1.375 161,833 1.375
1.40 1,976,150 8.8 1.40 322,254 1.40
3.40 7,000 9.9 3.40 - -
-----------------------------------------------------------------------------------
$ 0.11 - $3.40 3,000,150 6.9 $ 1.09 1,232,887 $ 0.70
===================================================================================
</TABLE>
The Company had 140,000 (1999 - 140,000) nonstatutory stock options
outstanding to consultants at September 30, 2000. The fair value of the
unvested portions of such grants of $66,533, (1999 - $101,233) is being
amortized over the vesting period. The fair value attributable to the
unvested portion of such options is subject to adjustment based upon the
future value of the Company's common stock.
Stock-based compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, in accounting
for its employee stock option plan. Accordingly, no compensation expense
has been recognized for its employee stock-based compensation. Had
compensation cost for the Company's employee stock option plan been
determined based on the fair value at the grant date for awards under the
plan, consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss would have changed to the pro forma
amounts indicated below:
2000 1999
---- ----
Net loss as reported $ (5,383,368) $ (1,404,715)
Estimated stock-based
compensation costs
under SFAS 123 (397,304) (320,601)
------------------------------
Pro forma net earnings (loss) $ (5,780,672) $ (1,725,316)
------------------------------
The weighted average fair value of all employee options granted during 2000
and 1999 was estimated as of the date of grant using the minimum value
option pricing model with the following weighted average assumptions:
2000 1999
---- ----
Expected option life (years) - US plan 7 7
Expected option life (years) - Canadian plan 7 4.5
Volatility - -
Risk free interest rate 6.3% 5.1%
Dividend yield - -
The weighted and average fair value at date of grant, for stock options
granted during 2000 and 1999 was $0.50 and $0.23 respectively per option
under the Canadian plan $0.50 and $0.35 under the US plan.
The minimum value method used by the Company to calculate option values, as
well as other currently accepted option valuation models, were developed to
estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the Company's
stock option awards. These models also require highly subjective
assumptions, including expected time until exercise, which greatly affect
the calculated values. Accordingly, management believes that this model
does not necessarily provide a reliable single measure of the fair value of
the Company's stock option awards.
7. CASH FLOW INFORMATION
2000 1999
---- ----
<PAGE>
Cash and cash equivalents are comprised of:
Cash on hand and balances with banks $ 216,533 $ 86,633
Term deposits with banks 338,461 664,438
---------------------
Total cash and cash equivalents $ 554,994 $ 751,071
=====================
Other
Interest received, net $ 258,311 $ 182,696
=====================
Income taxes paid $ 103,220 $ 58,571
=====================
8. COMMITMENTS AND CONTINGENCY
Until March 31, 2003, the Company is obligated to pay a royalty to Carleton
University in consideration of an assignment of intellectual property
rights in prototype software developed at the University. Royalties will be
based on the licenses of the Company's software product derived from this
prototype software, at a rate of one percent (1%) of the net selling price
of such products. Royalties for the years ended September 30, 2000 and
September 30, 1999 were $32,859 and $40,818 respectively.
The Company leases administrative and sales offices and certain computer
equipment under noncancellable operating leases expiring through 2005.
Total rent expense under such leases for the years ended September 30, 2000
and 1999 was $549,248 and $400,783, respectively. At September 30, 2000,
the future minimum lease payments under operating leases were as follows:
2001 $ 598,048
2002 457,021
2003 366,924
2004 379,914
2005 95,804
During fiscal 1999, the Company initiated legal proceedings against a
customer who has failed to make payments of $1,386,000 owing to the Company
under the terms of a software license agreement. The customer has filed a
countersuit claiming $448,000 already paid under the contract. Included in
accounts receivable for the year ended September 30, 1999 is a net amount
of $198,000 owing under the terms of the agreement. Further amounts for the
year ended September 30, 1999 owing under the contract of $740,000 had not
been recorded in the financial statements pending resolution of the
litigation.
In February 2000, an amount of $600,000 was received from the customer in
full settlement of this claim. This amount has been recorded as revenue and
a reduction of bad debt expense in the September 30, 2000 financial
statements.
9. FINANCIAL INSTRUMENTS
There is a risk to the Company's earnings that arises from fluctuations in
interest rates and foreign exchange rates, and the degree of volatility of
these rates. The Company currently does not use derivative instruments to
reduce its exposure to foreign currency risk; however, the exposure is
primarily limited to fluctuations in the Canadian dollar compared to the
United States dollar.
In addition, the Company is exposed to credit risk from customers. The
Company's accounts receivable are due principally from a few large
corporations in the semiconductor industry. The Company has credit
evaluation, approval and monitoring processes intended to mitigate
potential credit risk.
<PAGE>
10. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) tax-deferred savings plan, whereby
eligible employees may contribute a percentage of their eligible
compensation. Company contributions are discretionary; no such Company
contributions have been made since inception of this plan.
11. SUBSEQUENT EVENT
On October 27, 2000 the Company was acquired by Numerical Technologies,
Inc., a US public company. The transaction was effected through the
issuance of Numerical shares and stock options in exchange for the
Company's shares and stock options. As part of the transaction, all of the
Company's preference shares were exchanged for common shares. Also as part
of the transaction, the loan granted in exchange for issuance of common
shares in the amount of $1,750,000 has been forgiven by the Company.
(b) Unaudited Pro Forma condensed Combined Consolidated Financial Information
and Notes thereto.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
give effect to the merger between Numerical Technologies, Inc. (Numerical)
and Cadabra Design Automation Inc. (Cadabra)using the purchase method of
accounting and includes the pro forma adjustments described in the
accompanying notes.
On October 27, 2000, Numerical acquired Cadabra, a Nova Scotia limited
liability company. Cadabra is a developer of automated cell creation
technology for the semiconductor industry. Under the terms of the
acquisition, Numerical issued approximately 3,200,000 shares and options to
purchase Numerical common stock for all of the outstanding stock and
options of Cadabra. The Cadabra acquisition is being accounted for using
the purchase method of accounting. The Pro Forma Financial Statements have
been prepared on the basis of assumptions described herein.
The Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet gives
effect to the acquisition of Cadabra as if such transaction had occurred on
September 30, 2000, by combining the balance sheets of Numerical and
Cadabra as of September 30, 2000.
The Unaudited Pro Forma Condensed Combined Consolidated Statements of
Operations are presented as if the combination had taken place on January
1, 1999. The Unaudited Pro Forma Condensed Combined Consolidated Statement
of Operations for the nine months ended September 30, 2000 combines the
historical financial statements for that period of Numerical and Cadabra,
after giving effect to the merger with Cadabra under the purchase method of
accounting and the assumptions and adjustments described in the
accompanying Notes to the Unaudited Pro Forma Condensed Combined
Consolidated Financial Information.
Effective January 1, 2000, Numerical Technologies acquired Transcription
Enterprises Limited ("Transcription") in a transaction accounted for as a
purchase. Accordingly, the historical statement of operations for Numerical
for the year ended December 31, 1999 does not include the results of
operations for Transcription for that period.
The Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended December 31, 1999 is based on the Unaudited
Pro Forma Condensed Combined Consolidated Statement of Operations of
Numerical that gives effect to the combination of Numerical and
Transcription and were included in Form S-1 filed April 7, 2000 combined
with the consolidated statement of operations of Cadabra for the twelve
months ended September 30, 1999 after giving effect to the merger with
Cadabra under the purchase method of accounting and the assumptions and
adjustments described in the
<PAGE>
accompanying Notes to the Unaudited Pro Forma Condensed Combined
Consolidated Financial Information.
The unaudited pro forma condensed combined consolidated financial
information should be read in conjunction with the historical financial
statements of Numerical and Cadabra and the Unaudited Pro Forma Condensed
Combined Consolidated Statement of Operations of Numerical included in Form
S-1 filed April 7, 2000 (combining Numerical and Transcription.) The pro
forma information does not purport to be indicative of the results that
would have been reported if the above transaction had been in effect for
the period presented or which may result in the future.
<PAGE>
________________________________________________________________________________
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
As of September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Numerical Cadabra Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,410 $ 555 $ 25,965
Short-term investments 28,376 4,099 32,475
Accounts receivable 5,206 18 5,224
Prepaid and other 1,486 332 1,818
-------- ------- -------- --------
Total current assets 60,478 5,004 65,482
Property and equipment, net 2,594 488 3,082
Intangible assets 72,374 104,983 (1) 177,357
Other assets 247 247
-------- ------- -------- --------
Total assets $ 135,693 $ 5,492 $ 104,983 $ 246,168
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,925 $ 16 $ 3,941
Accrued expenses 4,280 1,356 2,700 (1) 8,336
Deferred revenue 6,119 671 (265) (2) 6,525
-------- ------- -------- --------
Total current liabilities 14,324 2,043 2,435 18,802
-------- ------- -------- --------
Stockholders' equity:
Preferred Stock 7,634 (7,634) (3)
Common Stock 3 659 (659) (3) 3
Additional paid-in capital 198,953 107,627 (1) 319,175
12,595 (1)
Receivable from stockholders (4,083) (4,083)
Deferred stock compensation (22,773) (67) 67 (3) (35,368)
(12,595) (1)
Accumulated deficit (50,731) (4,532) 4,532 (4) (52,361)
(1,630) (4)
Accumulated other comprehensive income
(loss) (245) 245 (3)
-------- ------- -------- --------
Total stockholders' equity 121,369 3,449 102,548 227,366
-------- ------- -------- --------
Total liabilities and
stockholders' equity $ 135,693 $ 5,492 $ 104,983 $ 246,168
======== ======= ======== ========
</TABLE>
<PAGE>
________________________________________________________________________________
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro forma
Numerical Cadabra Adjustments Combined
<S> <C> <C> <C> <C>
Revenue 14,834 3,258 18,092
------------ ------------ ------------
Cost and expenses:
Cost of revenue 1,221 333 1,554
Research and development 9,235 2,499 11,734
Sales and marketing 6,364 2,023 8,387
General and administrative 3,366 1,510 (550) (7) 4,326
Depreciation and amortization 14,571 279 20,165 (5) 35,015
Amortization of deferred stock compensation 15,606 26 6,310 (6) 21,942
------------ ------------ ------------ ------------
Total costs and expenses 50,363 6,670 25,925 82,958
------------ ------------ ------------ ------------
Loss from operations (35,529) (3,412) (25,925) (64,866)
Interest income, net 1,067 243 1,310
Foreign exchange gain 284 284
------------ ------------ ------------ ------------
Loss before provision for income taxes (34,462) (2,885) (25,925) (63,272)
Provision for income taxes 107 1,683 1,790
------------ ------------ ------------ ------------
Net loss $ (34,569) $ (4,568) (25,925) $ (65,062)
============ ============ ============ ============
Net loss per share:
Basic and diluted $ (1.80) $ (3.02)
============ ============
Weighted average shares 19,625 2,143 (8) 21,768
============ ============
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro forma
Numerical Cadabra Adjustments Combined
<S> <C> <C> <C> <C>
Revenue 19,159 3,983
23,142
------------- ------------- --------------- -------------
Cost and expenses:
Cost of revenue 2,837 547 3,384
Research and development 7,259 2,158 9,417
Sales and marketing 8,803 2,327 11,130
General and administrative 2,317 1,302 3,619
Depreciation and amortization 11,865 357 26,886 (5) 39,108
Amortization of deferred stock compensation 3,990 38 7,687 (6) 11,715
------------- ------------- ------------- ------------
Total costs and expenses 37,071 6,729 34,573 78,373
------------- ------------- ------------- ------------
Loss from operations (17,912) (2,746) (34,573) (55,231)
Interest income, net (2,772) 232 (2,540)
Foreign exchange loss (252) (252)
------------- ------------- ------------- ------------
Loss before provision for income taxes (20,684) (2,766) (34,573) (58,023)
Provision for income taxes (1,360) (1,360)
------------- ------------- ------------- ------------
Net loss $ (20,684) $ (1,406) (34,573) $ (56,663)
============= ============= ============= ============
Net loss per share:
Basic and diluted $ (2.95) $ (6.18)
============= ============
Weighted average shares 7,019 2,143 (8) 9,162
============= ============= ============
Pro forma net loss per share assuming
Conversion of all outstanding preferred
stock and warrants:
Basic and diluted $ (1.17) $ (2.86)
============= ============
Weighted average shares 17,695 2,143 (8) 19,838
============= ============= ============
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Information
The pro forma financial information give effect to the following pro forma
adjustments:
(1) In accordance with the merger agreement, Cadabra became a wholly owned
subsidiary of Numerical, and all outstanding shares of its common and
preferred stock were converted into shares of Numerical common stock.
The Cadabra merger is being accounted for using the purchase method of
accounting. The merger agreement provided for the exchange of 0.1745 shares
of Numerical common stock for each outstanding share of Cadabra preferred
and common stock. In addition, Numerical issued options to purchase
Numerical common stock to replace options to purchase Cadabra common stock
with the number of shares and the exercise price appropriately adjusted by
the exchange ratio.
The purchase price of $37.83 per share was based on the average closing
price of Numerical's stock for the period August 22, 2000 through September
19, 2000, a range of ten trading days before and after the announcement
date of September 5, 2000. Approximately 528,000 shares of Numerical stock
issued in exchange for the shares of Cadabra are being held in an
employment escrow account. These shares will be released in accordance with
a three-year vesting schedule which is contingent to the continued
employment of two key officers of Cadabra. As the vesting of these shares
is contingent upon the continued employment of these individuals these
shares have been accounted for as restricted stock. Accordingly the value
of the employment escrow shares at the closing date has been deducted from
the fair value of the consideration issued and will be amortized as
deferred compensation over the vesting period.
Numerical issued options to purchase approximately 528,000 shares of
Numerical common stock at a weighted average exercise price of $6.18 as
replacement for outstanding Cadabra options to purchase Cadabra common
stock at the time of the merger. Pursuant to Financial Accounting Standards
Board Interpretation Number 44 these options are included as part of the
purchase price based on their fair value at the announcement date less the
portion of the intrinsic value at the closing date relating to unvested
options that will be deemed to be earned over the remaining vesting period
of those options. The intrinsic value of unvested options that is deemed to
be earned over the remaining vesting period of those options will be
amortized as deferred compensation over that remaining vesting period. The
fair value of the options issued is based on the Black-Scholes model using
the following assumptions:
. Fair market value of the underlying shares is based on the average
closing price of Numerical's common stock on September 5, 2000 and the ten
trading days prior and subsequent to such date.
. Expected life of 4 years
. Expected volatility of 142%
. Risk free interest rate of 5.85% to 6.32%
. Expected dividend rate of 0%
Below is a table of the total purchase price, purchase price allocation to
the fair value of net assets, goodwill and other intangible assets acquired
and annual amortization of the goodwill and intangible assets acquired (in
thousands, except for asset life);
The total estimated purchase cost of the Cadabra merger is as follows
(in thousands):
Shares Fair Value
------ ----------
Value of securities issued 2,672 $101,057
Assumption of Cadabra options 528 19,165
Direct transaction costs and expenses 2,700
----- --------
Total consideration 3,200 122,922
Less deferred stock compensation ===== 12,595
--------
Total purchase Price $110,327
========
<PAGE>
________________________________________________________________________________
Purchase price allocation:
<TABLE>
<CAPTION>
Estimated Annual
Acquisition Asset Life Amortization of
Cost (in years) Intangibles
----------- ---------- ---------------
<S> <C> <C> <C>
Historical value of net assets
acquired of Cadabra at September 30,
2000................................ $ 3,449 N/A
Adjustment to state net assets at
fair market value................. 265 N/A
In-process technology................ 1,630 N/A N/A
Developed technology................. 660 4 165
Customer base........................ 5,040 4 1,260
Covenants-not-to-compete............. 2,290 3 763
Work force........................... 1,800 2 900
Goodwill............................. 95,193 4 23,798
-------- -------
110,327 $26,886
Deferred compensation................ 12,595 =======
--------
Total.............................. $122,922
========
</TABLE>
An independent appraiser performed an allocation of the total purchase
price of Cadabra to its individual assets. The purchase price allocation is
preliminary and, therefore, subject to change based on further analysis.
Tangible assets of Cadabra acquired in the merger principally include cash
and cash equivalents, offset by assumed liabilities of approximately $2.1
million. Of the total purchase price, $1.63 million has been allocated to
in-process research and development and charged to expense in the quarter
ending December 31, 2000. Due to their non-recurring nature, the in-process
research and development related to the Cadabra transaction has been
excluded in the pro forma statements of operations.
After allocating value to the in-process research and development projects
and Cadabra's tangible assets, specific intangible assets were then
identified and valued. The related amortization of the identifiable
intangible assets is reflected as a pro forma adjustment to the Unaudited
Pro Forma Condensed Combined Consolidated Statement of Operations. The
identifiable assets include existing technology, customer base, covenants
not to compete and assembled workforce.
The value assigned to developed technology and acquired in-process research
and development was determined through extensive interviews, analysis of
data provided by Cadabra concerning developmental products, their stage of
development, the time and resources needed to complete them, if applicable,
their expected income generating ability, target markets and associated
risks. The Income Approach, which includes an analysis of the markets, cash
flows and risks associated with achieving such cash flows, was the primary
technique utilized in valuing the developed technology and in-process
research and development.
The acquired existing technology, which is comprised of products that are
already technologically feasible, includes Classic-SC, an automated
transistor layout solution. Numerical is amortizing the acquired existing
technology of approximately $660,000 on a straight-line basis over an
average estimated remaining useful life of 4 years.
Cadabra's existing customer base is expected to account for a substantial
portion of future sales. The value of the customer base was derived by
considering, among other factors, the historical costs to develop customer
relationships, the expected income, and the associated risks. Associated
risks included the inherent difficulties and uncertainties in transitioning
business relationships. Numerical is amortizing the value assigned to the
customer base of approximately $5 million on a straight-line basis over an
estimated remaining useful life of 4 years.
Certain founders and key employees are covered under noncompete agreements.
Numerical is amortizing the value assigned to covenants not to compete of
approximately $2.3 million on a straight-line basis over an estimated
remaining useful life of 3 years.
The acquired assembled workforce is comprised of 54 skilled employees
across Cadabra's general and administration, engineering and technology,
and sales and marketing groups. Numerical is amortizing the value assigned
to the assembled workforce of approximately $1.8 on a straight-line basis
over an estimated remaining useful life of 2 years.
<PAGE>
________________________________________________________________________________
Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying
net identifiable assets, is being amortized on a straight-line basis over
its estimated remaining useful life of 4 years.
The value of deferred compensation of approximately $12.6 million was
derived using the guidance of Financial Accounting Standards Board
Interpretation Number 44, the intrinsic value of unvested options and
employment escrow shares, and the remaining vesting periods of unvested
options and the employment escrow shares. The deferred compensation is
being amortized on a graded basis using the multiple options method over
the remaining estimated lives of the options and the escrow period of the
employment escrow shares.
Due to its non-recurring nature, the in-process research and development
attributed to the Cadabra transaction has been excluded in the pro forma
statements of operations. Cadabra engineers are currently developing new
products and processes that qualify as in-process research and development.
The in-process research and development acquired from Cadabra in the
transaction consists primarily of technology related to replacement and
enhancement of Cadabra's core technology, principally cell layout design
tools.
The projects identified as in-process technology at Cadabra are those that
were underway at the time of the Cadabra merger and will, after
consummation of the Cadabra merger, require additional effort to establish
technological feasibility. These projects have identifiable technological
risk factors which indicate that even though successful completion is
expected, it is not assured. If an identified project is not successfully
completed, there is no alternative future use for the project and the
expected future income will not be realized.
(2) The pro forma adjustment to deferred revenue is to adjust the deferred
revenue balance to reflect the cost and normal profit margin of the
remaining service under existing contracts as of September 30, 2000.
(3) The pro forma adjustment to preferred stock, common stock, additional paid
in capital, receivable from stockholders, deferred stock compensation and
accumulative translation adjustment reflects elimination of Cadabra's
equity accounts ($8.1 million).
(4) The proforma adjustment to accumulated deficit reflects the elimination of
Cadabra's accumulated deficit ($4.5 million) and the inclusion of
in-process technology charge ($1.6 million).
(5) The proforma adjustment is for the amortization of goodwill, developed
technology, customer base, covenants-not-to-compete and work force.
(6) The pro forma adjustment is for the amortization of deferred compensation.
(7) The pro forma adjustment is to reverse acquisition related costs incurred
by Cadabra through September 30, 2000.
(8) The pro forma basic and dilutive net loss per share are based on the
weighted average number of shares of Numerical Technologies, Inc. common
stock outstanding during each period and weighted average number of Cadabra
shares of common stock outstanding multiplied by the exchange ratio.
Dilutive securities including the replacement Cadabra options, restricted
stock under the employment escrow arrangement, and shares subject to
repurchase are not included in the computation of pro forma dilutive net
loss per share as their effect would be anti-dilutive.
