<PAGE>
As filed with the Securities and Exchange Commission on June 23, 2000
Registration No. 333-33920
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTRINSIX CORP.
(Exact name of registrant as specified in its charter)
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Massachusetts 3674 04-2891898
(State or Other
Jurisdiction of
Incorporation or
Organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer
Identification Number)
33 Lyman Street
Westboro, Massachusetts 01581
(508) 836-4100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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James A. Gobes, Jr.
Chief Executive Officer
INTRINSIX CORP.
33 Lyman Street
Westboro, Massachusetts 01581
(508) 836-4100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
Peter B. Tarr, Esq. Timothy C. Maguire, Esq.
Hale and Dorr LLP Testa, Hurwitz & Thibeault, LLP
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
Telephone: (617) 526-6000 Telephone: (617) 248-7000
Telecopy: (617) 526-5000 Telecopy: (617) 248-7100
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered(1) Per Share Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, no par value per share.. 4,600,000 shares $11.00 $50,600,000 $13,359
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</TABLE>
(1) Includes 600,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act
of 1933.
(3) A registration fee of $12,144 was previously paid in connection with the
original filing of this Registration Statement on April 3, 2000.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated June 23, 2000
The information contained in this prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
4,000,000 Shares
[LOGO]
Common Stock
$ per share
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This is an initial public offering of common stock of Intrinsix Corp. Intrinsix
Corp. is offering 4,000,000 shares.
We expect that the price to the public in the offering will be between $9.00
and $11.00 per share. The market price of the shares after the offering may be
higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "ITRX."
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 3.
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Price to the public.................................... $ $
Underwriting discount.................................. $ $
Proceeds to Intrinsix Corp............................. $ $
</TABLE>
We have granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 600,000 additional
shares from us within 30 days following the date of this prospectus to cover
over-allotments.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CIBC World Markets Adams, Harkness & Hill, Inc.
The date of this prospectus is , 2000.
<PAGE>
The top third of the page contains a heading with our logo and the words
"Electronic Design Services: The fusion of advanced semiconductor technology
with strategic outsourcing. System on Chip Integration." Below the heading, a
cluster of four partially overlapping squares depict (1) strands of wire,
titled "Broadband," (2) a color television, titled "Digital Media," (3) a
cellular telephone, titled "Wireless," and (4) rack-mounted computer networking
equipment, titled "Networking." Two silicon wafers appear in the background of
the page. Logos of our customers are shown at the bottom of the page.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, "Intrinsix
Corp.," "we," "us" and "our" refer to Intrinsix Corp., together with its wholly
owned subsidiaries Intrinsix Canada Co. and Seva Technologies, Inc. unless the
context otherwise requires.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 3
Special Note Regarding Forward-Looking Statements........................ 11
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 22
Management............................................................... 28
Certain Transactions..................................................... 36
Principal Stockholders................................................... 37
Description of Capital Stock............................................. 38
Shares Eligible for Future Sale.......................................... 41
Underwriting............................................................. 43
Legal Matters............................................................ 46
Experts.................................................................. 46
Where You Can Find More Information...................................... 46
Index to Consolidated Financial Statements............................... F-1
Unaudited Pro Forma Condensed Consolidated Statement of Operations....... P-1
</TABLE>
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Intrinsix is a registered trademark owned by us. Prism, Prism Acoustics,
VHDL Technology Group, Designers' Introduction to VHDL, Dragster, Dragster-Pro,
Esprimo and Intrinsix microPlatform and some other forms of the name Intrinsix
are trademarks of Intrinsix. We have applied for trademark registrations for
microPlatform, uPlatform and UPlatform. All other trademarks and service marks
used in this prospectus are the property of their respective owners.
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
Our Company
We are an independent provider of advanced electronic design services to
top-tier systems OEMs and semiconductor companies such as Texas Instruments,
3Com, Siemens, Intel and Lucent. We design semiconductor devices, as well as
the accompanying system-level hardware and software that comprise advanced
electronics products. We deliver these design services through three engagement
models: outsourcing, insourcing and real-time remote collaboration using
Internet technology, or E sourcing. We sell our services primarily through our
direct sales force. We were founded in 1985 and began opening remote design
centers in 1995. We currently operate 19 design centers throughout the United
States and Canada and have recently begun operations in Europe. We have been
profitable every year since 1991.
The market for electronic products is proliferating as new technologies
and applications are being introduced at rapid rates. The explosive growth of
Internet usage, the ubiquity of communications and the convergence of digital
media and communications technology have driven the increase of electronic
content in various types of products. Electronic content is increasingly
included in a wide range of products, from the traditional personal computer to
the communications infrastructure equipment that drives the Internet to
everyday devices such as home appliances, automobiles and hand-held wireless
devices. The increase in the number of semiconductor devices being designed,
coupled with the increasing acceptance of outsourcing within the electronics
industry, has created a new industry -- electronics design services. We are a
leader in this emerging industry.
The growth of the electronic design services industry can be largely
attributed to the emergence of system-on-chip, or SoC, technologies. SoC
designs integrate many technologies into a single chip thus lowering costs and
increasing performance. Traditionally, these technologies were integrated into
a system using many discrete devices. Systems OEMs and semiconductor companies
are increasingly relying on strategic design partners that understand the
complexity of these SoC designs. These customers need partners that can provide
high quality technical expertise on a where- and when-needed basis.
We design electronics for a broad range of products in applications such
as networking, telecommunications, wireless, broadband, digital media and
storage. We have worked on over 300 semiconductor and systems design projects
since our inception in 1985. We focus on providing design services rather than
selling or licensing products, allowing us to maintain our independence and
leverage our strong industry relationships. We maintain close relationships
with our customers by employing distributed engineering teams located
geographically near our customers. Our 19 design centers are interconnected
through our corporate intranet. These local design centers are supported by an
infrastructure that includes electronic design software tools, data management
and remote collaboration software. Using this infrastructure, we can rapidly
respond to changing or specialized customer needs, differentiating us from our
competitors.
Our goal is to become the leading independent provider of electronic
design services. We believe this requires a global presence with interconnected
design centers in every key geographic market. We plan to achieve this goal by
continuing to:
. target high growth markets;
. attract and retain highly qualified design engineers;
. invest in the training of our engineers to maintain a technological
advantage over our competitors;
. pursue strategic acquisitions;
. expand internationally;
. leverage our branded design methodologies;
. expand strategic relationships with leading technology suppliers; and
. expand our E-service offerings.
Our Address
Our principal executive offices are located at 33 Lyman Street, Westboro,
Massachusetts 01581 and our telephone number at that location is (508) 836-
4100. Our website is located at www.intrinsix.com. Information contained in our
website is not part of this prospectus.
1
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered.............. 4,000,000 shares
Common stock to be outstanding 14,228,930 shares
after the offering..............
Use of proceeds................... Repayment of indebtedness, expansion of our
business and operations, research and
development expenses, potential
acquisitions and other general corporate
purposes.
Proposed Nasdaq National Market ITRX
symbol..........................
</TABLE>
Common stock outstanding after the offering is based on the number of
shares outstanding as of March 31, 2000, and except as otherwise noted, all
information in this prospectus:
. excludes 3,962,864 shares issuable upon the exercise of outstanding
options with a weighted- average exercise price of $0.93 per share;
. excludes 2,000,000 shares available for issuance under our 2000 Stock
Incentive Plan;
. reflects a 3-for-2 stock split of all of our outstanding shares of
common stock effected in the form of a stock dividend, the increase of
our authorized common stock to 70,000,000 shares and the authorization
of 5,000,000 shares of preferred stock, effective April 19, 2000; and
. assumes no exercise of the underwriters' over-allotment option.
Summary Consolidated Financial Information
(dollars in thousands, except per share data)
The summary consolidated financial information below sets forth a summary
of the results of our operations and certain information about our assets,
liabilities and capital. You should read this information along with our
discussion in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and notes to
those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
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1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $8,117 $11,814 $16,330 $23,475 $30,657 $ 7,210 $9,930
Gross profit............. 2,300 3,349 5,692 9,298 12,156 2,799 4,185
Operating income......... 851 960 856 1,001 1,613 423 482
Net income............... 509 594 506 601 928 242 181
Net income per share:
Basic earnings per
share................ $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.09 $ 0.02 $ 0.02
Diluted earnings per
share................ $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.08 $ 0.02 $ 0.01
Shares for basic
computation.......... 8,854 8,986 9,502 9,668 9,925 9,881 10,115
Shares for diluted
computation.......... 8,854 8,986 9,531 10,307 12,365 11,619 13,407
</TABLE>
The following table presents a summary of our balance sheet at March 31,
2000:
. on an actual basis; and
. on an as adjusted basis to reflect the sale of 4,000,000 shares of
common stock in this offering at an assumed initial public offering
price of $10.00 per share after deducting the estimated underwriting
discounts and commissions and offering expenses and the application of
the estimated net proceeds from this offering.
<TABLE>
<CAPTION>
March 31, 2000
-------------------
Actual As Adjusted
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<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 454 $33,993
Working capital....................................... 2,014 37,162
Total assets.......................................... 10,029 43,568
Long-term obligation.................................. 1,001 --
Stockholders' equity.................................. 3,884 40,034
</TABLE>
2
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks that are not yet identified or that we currently think
are immaterial may also impair our business operations. Our business, operating
results and financial condition could be adversely affected by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
consolidated financial statements and the related notes.
Risks Related to Our Business
We Experience Fluctuations in Our Operating Results Due to a Number of
Frequently Changing Business Conditions, Which May Cause Our Stock Price to
Decline.
We experience fluctuations in our operating results due to a variety of
factors, including:
. the timing and size of engagements with our customers, including
cancellations and reschedulings;
. the gain or loss of significant customers, including as a result of
industry consolidation;
. the gain or loss of engineers or other significant employees;
. increases in personnel and other costs;
. the cyclical nature of some of our target markets;
. the seasonality in revenue generation due to employee and customer
vacations;
. unanticipated delays in our ability to complete customer engagements;
. changes in the mix of services we provide;
. changes in demand by the end users of our customers' products;
. market acceptance of our current and future services;
. variability of our customers' product life cycles;
. cancellations, changes or delays of deliveries to us by our
suppliers, including workstation manufacturers, software tool
providers, semiconductor manufacturers and intellectual property
providers; and
. general economic conditions.
As a result of the factors listed above and our dependence on relatively
few customers whose order cycles vary significantly, our operating results
could fluctuate significantly.
We cannot accurately forecast all of the above factors. As a result, we
believe that period-to-period comparisons of our financial results are not
indicative of our future performance. Our operating results in a future quarter
or quarters may fall below the expectations of public market analysts or
investors. If this were to occur, the price of our common stock could decline.
The Failure to Hire and Retain Additional Qualified Personnel Could Impair our
Ability to Develop and Market Our Services.
Competition for highly skilled engineering, sales and management
personnel in the electronic design services industry is intense, and we may not
succeed in attracting and retaining these personnel. We experience competition
from a wide variety of other technology companies. Many of these companies have
substantially greater ability, either through cash or equity, to attract,
retain and compensate qualified people. If we lose key
3
<PAGE>
personnel or are unable to attract key personnel we will not be able to
maintain our position in the market or expand our business.
The Loss of Key Management Could Affect Our Ability to Run Our Business.
Our success depends to a significant degree upon the continued
contributions of our key management, particularly James A. Gobes, Jr., our
Chief Executive Officer, and Mark A. Beal, our Chief Technical Officer. The
loss of any of our key management could adversely affect our business. We do
not have employment contracts with our key personnel.
Our Revenues and Profits May Decrease if We Lose Any of Our Significant
Customers.
Historically, a relatively small number of customers have accounted for a
significant portion of our revenues in any particular period. The loss of any
significant customer could cause our revenues or profits to decline. In the
three months ended March 31, 2000 and 1999, and the years ended December 31,
1999, 1998 and 1997, our six largest customers accounted for approximately
53.4%, 49.9%, 56.7%, 43.7% and 50.0% of our revenues, respectively, of which
Texas Instruments represented 26.3%, 18.6%, 24.0%, 18.2% and 16.9%,
respectively. We anticipate that sales of our services to relatively few
customers will continue to account for a significant portion of our revenues.
We do not have any long-term purchase commitments with our significant
customers. Therefore, these customers could cancel design services contracts
with limited notice and with little or no penalty.
Our dependence on a small number of customers increases the risks
associated with our potential loss of customers resulting from business
combinations or consolidations. If a customer or potential customer were
acquired or combined with another company, the resulting company could cancel
development efforts or purchase orders as part of the integration process.
Although no major project has been cancelled to date for this reason, it could
occur in the future as technology companies consolidate regularly.
Our Failure to Provide Services Incorporating Current Technologies Could Impair
Our Ability to Attract and Retain Customers.
The electronic design services industry is characterized by rapidly
changing technology, ongoing demands for greater speed and functionality,
evolving industry standards and changing customer needs. Therefore, to be
competitive, we must:
. identify emerging technological trends and industry standards in our
target markets;
. quickly and effectively incorporate leading edge technologies in our
services;
. develop new and innovative services and enhance our current services
in ways that differentiate our services from those of our
competitors;
. bring services to market on a timely basis at competitive prices;
. respond effectively to technological changes or new service offerings
by others; and
. market and sell our services.
We cannot assure you that we will be able to meet the development and
market introduction schedules for our new services or enhancements to our
existing services or that these services will achieve market acceptance.
We Face Intense Competition in the Market For Electronic Design Services.
Competition in the market for electronic design services is intense, and
we expect it to increase in the future. We face competition from:
. internal design service groups of electronic design automation, or
EDA, companies such as Avant!, Cadence, Mentor Graphics and Synopsys,
electronic manufacturing services, or EMS, companies
4
<PAGE>
such as Flextronics and Solectron, application specific integrated
circuit, or ASIC, companies such as Actel, LSI Logic and Philips, and
intellectual property and embedded software companies such as ARM,
Artisan, SiCAN and Wind River Systems; and
. independent design services companies such as Accent Design, Advanced
Digital Design, ASIC Alliance, ASIC International, First Pass, I2P and
Qualis.
Furthermore, many of our existing and potential customers have the
resources and capability to internally perform electronic design services. If
these customers decided to expand and focus on the development of their
internal electronic design services, we would lose sales opportunities.
Many of the companies with internal design services groups, as well as
potential new competitors, may have longer operating histories, greater brand
recognition, larger customer bases or greater financial and marketing
resources than we do. They may therefore be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
They may also be able to devote greater resources than we can to developing
and promoting their technologies and services. In addition, we may face
competition from low-cost design services groups internationally.
Our Failure to Protect Our Proprietary Rights, or the Costs of Protecting
These Rights, May Harm Our Ability to Compete.
We depend upon a combination of trademark laws, license agreements, non-
disclosure and other contractual provisions to protect proprietary rights in
our methodologies and other confidential information. Our failure to
adequately protect those rights could result in others offering similar
capabilities, potentially resulting in the loss of a competitive advantage and
decreased revenues. In addition, we attempt to protect our proprietary
information through confidentiality and license agreements with our employees
and others. However, we may not have an adequate remedy in the event these
agreements are breached, or any remedy, if our trade secrets are independently
developed by others. Despite our efforts to protect our proprietary rights,
existing intellectual property laws afford only limited protection. In
addition, the laws of some foreign countries provide only limited proprietary
rights protection.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. This litigation could result in
substantial costs and diversion of resources.
We Could Be Subject to Claims of Infringement of Third-Party Intellectual
Property, Which Could Result in Significant Expense and Loss of Intellectual
Property Rights.
The electronic design services industry is characterized by uncertain
and conflicting intellectual property claims and frequent intellectual
property litigation, especially regarding patent rights. From time to time,
third parties assert patent, copyright, trademark and other intellectual
property rights to technologies that are important to our business. We may
receive notices of claims that the solutions we have developed infringe or may
infringe the rights of third parties. Any litigation to determine the validity
of these claims, including claims arising through our contractual
indemnification of our customers, regardless of their merit or resolution,
would likely be costly and divert the efforts and attention of our management
and technical personnel. We cannot assure you that we would prevail in this
litigation given the complex technical issues and inherent uncertainties in
intellectual property litigation. If this litigation resulted in an adverse
ruling, we could be required to:
. pay substantial damages to our customers or third parties;
. cease the use or sale of infringing services;
. discontinue the use of certain technology; or
5
<PAGE>
. obtain a license under the intellectual property rights of the third
party claiming infringement, which license may not be available on
reasonable terms, or at all.
In addition, our business often involves the development of software
applications, hardware components and methodologies for specific client
engagements. We generally retain the right to use any intellectual property
that is developed during a client engagement that is of general applicability
and is not specific to the client's project. We also develop software
applications for our own internal use and we retain ownership of these
applications. There can be no assurance that clients will not demand assignment
of ownership or restrictions on our use of the work that we produce for clients
in the future. Issues relating to the ownership of rights to use software can
be complicated and there can be no assurance that disputes will not arise that
affect our ability to reuse this software which could harm our business
results.
If We Fail to Satisfy the Expectations of Our Customers, Our Business
Reputation Will Be Harmed, and We May Incur Significant Unexpected Expenses and
Lose Sales Opportunities.
Our services may prove to be inadequate or ineffective, or be based upon
design imperfections or flawed methodologies. If this happens, we may
experience:
. injury to our reputation;
. project cancellations and loss of sales;
. diversion of engineering, management and financial resources; or
. increased project costs.
In addition, because our services relate to critical products, systems
and services, we may be subject to significant liability claims. Our customer
engagements restrict our ability to disclose or use proprietary information of
our customers. If we violate these restrictions, we could be subject to
significant liability claims. Our agreements with customers typically contain
provisions intended to limit our exposure to liability claims. These
limitations may not, however, preclude all potential claims from being made.
Although we have liability insurance, this coverage may not be sufficient to
cover claims sought against us. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages. As a
result, any of these claims, whether or not successful, could seriously damage
our reputation and our business.
Our Lengthy Sales Cycle Makes it Difficult For Us to Predict If or When a Sale
Will Be Made.
The timing of our sales may be difficult to predict because of the length
of the sales cycle and the variability of the duration of the engagements for
our services. While potential customers are evaluating our services and before
they commit a project to us, we may incur sales and marketing expenses and
expend significant management effort. Often customers can cancel an ongoing
engagement on short notice without penalty. The cancellation or reduction of
our services could cause our revenues or profits to decline.
If We Fail to Establish and Maintain Our Relationships with Key Participants in
Our Target Markets, We May Have Difficulty Marketing Our Services.
It is important to our success to establish and maintain relationships
with companies that are key technology suppliers to our customers. We believe
that we need to work closely with these suppliers to gain valuable insights
into market demands for new services and to identify and gain access to the
latest semiconductor technologies, the most advanced software tools and
methodologies and advanced intellectual property offerings. We do not have
written agreements ensuring the continued existence of these relationships. If
we fail to establish and maintain these relationships, it would become more
difficult for us to develop and market services required by our customers.
6
<PAGE>
Our Rapid Growth Has Strained Our Resources, and We May Not Be Able to Manage
Future Growth.
We have experienced a period of rapid growth and expansion, which has
placed, and continues to place, a significant strain on our resources. This
growth has required us to increase the number of our employees from 87 as of
December 31, 1997 to 229 as of March 31, 2000 and the number of our design
centers from six as of December 31, 1997 to 19 as of March 31, 2000. This
expansion has resulted in increased responsibilities for our management and the
need to implement additional controls over our operations, some of which are
still in the process of being implemented. If we continue to expand our
operations, we may significantly strain our management, financial, information
systems and other resources. Moreover, we cannot be certain that our systems,
procedures, controls and existing physical facilities will be adequate to
support our operations.
As We Establish International Operations, We Will Face New Business Risks That
We Have Not Encountered Previously.
Historically, we have not derived a significant portion of our revenues
from sales to customers outside the United States. We have one design center in
Canada. Over the next several years, we plan to establish design centers and
operations in Europe and Asia, including India and Japan. This expansion will
require additional resources and management attention and will subject us to
new regulatory, economic and political risks. Given our limited experience in
international markets, we cannot be sure that our international expansion will
be successful. In addition, we will face new risks in doing business
internationally. These risks could reduce demand for our services, lower the
prices at which we can sell our services, or otherwise have an adverse effect
on our operating results. Among the risks we believe are most likely to affect
us are:
. longer payment cycles and problems in collecting accounts receivable;
. adverse changes in trade and tax regulations;
. the absence or significant lack of legal protection for intellectual
property rights;
. the adoption of data privacy laws or regulations;
. increase in seasonality of revenues;
. political and economic instability; and
. foreign currency exchange rate fluctuations.
We May Engage in Acquisitions That May Harm Our Operating Results, Dilute Our
Stockholders and Cause Us to Incur Debt or Assume Contingent Liabilities.
As part of our business strategy, we may make investments in
complementary companies, services or technologies that we believe would be
advantageous to the development of our business. If we acquire a company, we
could have difficulty in assimilating that company's personnel and operations.
In addition, the key personnel of the acquired company may decide not to become
our employees. If we make other types of acquisitions, we could have difficulty
in assimilating the acquired services and technologies into our operations.
These difficulties could disrupt our ongoing business, distract our management
and employees and increase our expenses. Furthermore, we may issue equity
securities to pay for any future acquisitions, which could be dilutive to our
existing stockholders. We may also incur debt or assume contingent liabilities
in connection with acquisitions, which could harm our operating results.
If We Fail to Integrate Our Recently Completed Acquisitions Effectively, It
Could Adversely Affect Our Operating Expenses and Could Cause Us to Fail to
Achieve the Benefits We Expected.
In 1999, we merged with Seva Technologies of Fremont, California and
acquired the assets of the Design Division of Telexis Corporation of Kanata,
Ontario. The integration of these entities may be disruptive, divert management
time and attention and result in a failure to realize the expected benefits of
these
7
<PAGE>
acquisitions. The problems may be accentuated since both of these entities are
located far from our headquarters and since one company is a foreign entity. If
we do not integrate these acquisitions effectively, we could fail to achieve
the benefits we expected and our business may be adversely affected.
Risks Related to Our Industry
The Cyclicality of the Semiconductor Industry May Impact Our Operating Results.
Our industry is highly dependent on the growth and performance of the
semiconductor industry which is highly cyclical and subject to rapid
technological change. From time to time, the semiconductor industry has
experienced significant economic downturns, characterized by diminished product
demand, rapid price drops and excess production capacity. This likely would
affect customers' demands for our services. Accordingly, our operating results
may vary significantly as a result of general conditions in the semiconductor
industry.
Our Success Depends on the Continued Growth of the Global Communications
Infrastructure, including the Internet.
We derive a significant portion of our revenues by providing electronic
design services to electronics and semiconductor companies whose primary
markets are in telecommunications, data communications and the Internet. We
depend on the continued growth of these markets, which largely dictates the
demand for the electronic components, devices and subsystems to which our
services relate. The continued growth of this global communications
infrastructure depends on various factors, nearly all of which are outside our
control. Related risks include that:
. this infrastructure may not be able to support the demands placed on
it;
. the performance and reliability of the networks in this infrastructure
may decline as usage grows; and
. privacy, security and authentication concerns with respect to the
transmission of confidential information over the Internet may result
in decreased usage.
Although our target markets have experienced significant growth in recent
years, they may not continue to grow as rapidly or at all. If they fail to
grow, grow more slowly than expected or decline, our operating results could be
harmed.
In addition, we rely on the Internet to deliver services to many of our
customers. If the ability of our engineers to communicate and collaborate with
our customers using Internet technology diminishes, our operating results could
suffer.
Risks Related to this Offering
Our Stock Price May Be Volatile, and You May Not Be Able to Resell Your Shares
At or Above the Offering Price.
The market for the securities of companies in the technology and emerging
growth sectors has been highly volatile. The price of our common stock may
fluctuate widely in the future. Factors that could affect the trading price of
our common stock include:
. quarterly variations in our operating results;
. changes in the general conditions of the electronic design services,
semiconductor or related markets;
. changes in financial estimates or recommendations by stock market
analysts regarding us or our competitors;
8
<PAGE>
. our sales of common stock or other securities in the future;
. the hiring or departure of our key personnel;
. announcements by us or our competitors of significant contracts, new
services or enhancements to existing solutions, acquisitions,
partnering relationships or joint ventures; and
. changes in market valuations of other electronic design services
companies.
We Could Be Subject to Class Action Litigation Due to Stock Price Volatility,
Which, If It Occurs, Will Distract Our Management and Could Result in
Substantial Costs or Large Judgments Against Us.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could cause serious harm to our
business, operating results and financial condition or dilution to our
stockholders.
Purchasers of Common Stock in This Offering Will Suffer Immediate and
Substantial Dilution.
The initial public offering price is substantially higher than the book
value per share of our common stock. As a result, you will experience immediate
and substantial dilution in the pro forma net tangible book value per share.
This dilution is in large part because our earlier investors paid substantially
less than the initial public offering price in this offering when they
purchased their shares of common stock. You will experience additional dilution
upon exercise of outstanding stock options.
Management Has Broad Discretion on How to Use the Proceeds From This Offering
and May Not Apply the Proceeds in a Manner That Increases the Value of Your
Investment.
Management will have broad discretion with respect to the expenditure of
the net proceeds from this offering. The proceeds have not been allocated for
specific purposes. You will be entrusting your funds to our management, upon
whose judgment you must depend, with limited information concerning the
specific working capital requirements and general corporate purposes to which
the funds will ultimately be applied. We may not be able to yield a significant
return on any investment of the proceeds.
Provisions of Our Amended and Restated Articles of Organization and Amended and
Restated Bylaws or Massachusetts Law May Delay or Prevent a Change of Control
Transaction and, Therefore, Depress the Market Price of Our Stock.
Massachusetts corporate law and our Amended and Restated Articles of
Organization and Amended and Restated Bylaws contain provisions that could
delay, defer or prevent a change in control of our company on terms which you
may deem advantageous. These provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock. These
provisions:
. authorize the issuance of "blank check" preferred stock, which is
preferred stock that our board of directors can create and issue
without prior stockholder approval, with rights senior to those of
common stock;
. provide for a board of directors with staggered terms; and
. prohibit stockholder action by written consent.
9
<PAGE>
A Limited Number of Stockholders Will Have the Ability to Influence the Outcome
of Director Elections and Other Matters Requiring Stockholder Approval.
After completion of this offering, our officers and directors and parties
affiliated with or related to these persons or to us will own approximately
57.7 % of the outstanding shares of our common stock. Accordingly, these
stockholders will likely determine the outcome of director elections and other
matters submitted to our stockholders for approval, including potential mergers
or acquisitions and amendments to our Restated Articles of Organization.
Stockholders other than these principal stockholders are therefore likely to
have little or no influence on decisions regarding these matters.
The Price of Our Stock Could Decrease as a Result of Shares Being Sold in the
Market After the Offering.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
lockup agreements that our stockholders have entered into with the
underwriters, and with us. Those lockup agreements restrict our stockholders
from selling, pledging or otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
CIBC World Markets Corp. However, CIBC World Markets Corp. may, in its sole
discretion, release all or any portion of the common stock from the
restrictions of the lockup agreements. The following table indicates
approximately when the 10,228,931 shares of our common stock that are not being
sold in the offering, but which were outstanding as of March 31, 2000, will be
eligible for sale into the public market:
. after the completion of this offering, shares will be eligible
for sale, subject to volume, manner of sale and other limitations
under Rule 144;
. beginning 180 days after the completion of this offering, all
10,228,931 shares will be eligible for sale in the public market
subject to the provisions of Rule 144, Rule 144(k) or Rule 701 under
the Securities Act.
Additionally, of the 3,962,864 shares issuable upon exercise of
outstanding options to purchase our common stock outstanding as of March 31,
2000, approximately shares will be vested and eligible for sale 180 days
after the date of this prospectus. For a further description of the eligibility
of shares for sale into the public market following the offering, see "Shares
Eligible for Future Sale."
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the 2,000,000 shares of common stock reserved for
issuance under our 2000 Stock Incentive Plan, 1,000,000 shares of common stock
reserved for issuance under our 2000 Employee Stock Purchase Plan, 200,000
shares of common stock reserved for issuance under our 2000 Outside Director
Stock Option Plan, and for shares of common stock issued under our other stock
option plans.
10
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terms such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," or "continue," or the negative
of such terms or other comparable terminology. The forward-looking statements
contained in this prospectus involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, level of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these statements. These factors include those listed under "Risk
Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements. You should not place undue reliance
on these forward-looking statements, which apply only as of the date of this
prospectus.
11
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 4,000,000 shares of
common stock we are offering will be approximately $36.2 million, at an assumed
initial public offering price of $10.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us. If the
underwriters exercise their over-allotment option in full, we estimate that our
net proceeds will be approximately $41.7 million. The primary purposes of this
offering are to obtain additional equity capital, create a public market for
our common stock and facilitate future access to public markets.
We intend to use a portion of the net proceeds we receive from this
offering for repayment of bank debt which totaled approximately $2.6 million as
of March 31, 2000, repayment of a promissory note payable to a director of
ours, which had an outstanding balance of $95,000 as of March 31, 2000 and the
remaining payments owed to a director of ours under a noncompete agreement,
which payments totaled $22,000 as of March 31, 2000. For a description of the
terms of the bank debt and the promissory note, respectively, see note 5 to our
financial statements and "Certain Transactions." We will use our remaining net
proceeds for expansion of our business and operations, including the opening of
new design centers, research and development expenses, potential acquisitions
and other general corporate purposes. The amounts that we expend for these
purposes will depend on a number of factors, including future revenue growth,
if any, and the amount of cash we generate from operations. As a result, we
will retain broad discretion in the allocation of the net proceeds of this
offering. We have no agreements with respect to any acquisition. Pending these
uses, we intend to invest the net proceeds of this offering in investment
grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock.
We currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
on our financial condition, results of operations, capital requirements,
general business condition and other factors as our board of directors may deem
relevant. In addition, our bank line of credit prohibits the payment of cash
dividends.
12
<PAGE>
CAPITALIZATION
The following table describes our capitalization as of March 31, 2000:
. on an actual basis, without any adjustments to reflect subsequent
events or anticipated events; and
. on an as adjusted basis to reflect the sale of the shares of common
stock offered by us in this offering at an assumed initial public
offering price of $10.00 per share and our receipt of the estimated
net proceeds, after deducting underwriting discounts and commissions
and the estimated offering expenses that we expect to pay in
connection with this offering and the repayment of debt as discussed
in Use of Proceeds.
The capitalization information set forth in the table below is qualified
by the more detailed Consolidated Financial Statements and Notes thereto
included elsewhere in this prospectus and should be read in conjunction with
the Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
March 31, 2000
-------------------
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents.................................. $ 454 $33,993
====== =======
Current portion of long-term debt.......................... $ 359 $ --
------ -------
Line of credit............................................. 1,250 --
------ -------
Long-term debt--less current portion....................... 1,001 --
------ -------
Stockholders' equity(1):
Preferred stock, $.01 par value; no shares authorized,
actual; 5,000,000 shares authorized as adjusted; no
shares issued and outstanding, actual and as
adjusted............................................... -- --
Common stock, no par value; 12,000,000 shares
authorized, actual; 70,000,000 shares authorized, as
adjusted; 11,755,253 shares issued actual; 15,755,253
shares issued and outstanding, as adjusted............. 479 36,629
Retained earnings........................................ 3,505 3,505
Treasury stock, 1,526,323 shares at cost................. (97) (97)
Accumulated other comprehensive loss..................... (3) (3)
------ -------
Total stockholders' equity............................ 3,884 40,034
------ -------
Total capitalization.................................. $6,494 $40,034
====== =======
</TABLE>
--------
(1) Excludes 3,962,864 shares of common stock issuable upon the exercise of
stock options at a weighted-average exercise price of $0.93 per share
outstanding as of March 31, 2000.
13
<PAGE>
DILUTION
The net tangible book value of our common stock as of March 31, 2000 was
$2.6 million, or $0.25 per share. After giving effect to the issuance and sale
of 4,000,000 shares of common stock offered by this prospectus at an assumed
initial public offering price of $10.00 per share, after deducting estimated
underwriting discounts and offering expenses, our net tangible book value at
March 31, 2000 would have been $38.7 million or $2.72 per share.
Net tangible book value per share before the offering has been determined
by dividing net tangible book value (total tangible assets less total
liabilities) by the number of shares of common stock outstanding, net of
treasury stock, as of March 31, 2000. This offering will result in an increase
in net tangible book value per share of $2.47 to existing stockholders and
dilution in net tangible book value per share of $7.28 to new investors who
purchase shares in this offering. The following table illustrates this
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $10.00
Net tangible book value per share at March 31, 2000............... $0.25
Increase attributable to sale of common stock in this offering.... 2.47
-----
Net tangible book value per share after this offering............. 2.72
Dilution per share to new investors................................ $ 7.28
======
</TABLE>
If the underwriters exercise their option to purchase additional shares
in this offering, the net tangible book value per share after the offering
would be $2.99 per share, the increase in net tangible book value per share to
existing stockholders would be $2.74 per share and the dilution to persons who
purchase shares in the offering would be $7.01 per share.
The following table summarizes, as of March 31, 2000, the differences
between the consideration paid, both cash and non-cash in the aggregate, and
the average price per share paid by the existing stockholders and the new
investors purchasing shares of common stock in this offering before deducting
estimated underwriting discounts and commissions and offering expenses payable
by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders, net of
treasury stock.............. 10,228,930 72% $ 285,612 1% $ 0.03
Shares purchased in this
offering.................... 4,000,000 28 40,000,000 99 $10.00
---------- --- ----------- ---
Total....................... 14,228,930 100% $40,285,612 100% $ 2.83
========== === =========== ===
</TABLE>
These tables assume no exercise of stock options outstanding as of March
31, 2000. At March 31, 2000, there were 3,962,864 shares of common stock
issuable upon exercise of outstanding stock options at a weighted-average
exercise price of $0.93 per share. Had such options all been exercised as of
March 31, 2000, the net tangible book value per share would have been $0.44. In
addition, the net tangible book value per share after the offering, excluding
the effects of exercise of the underwriters' overallotment option, would have
been $2.33, representing dilution of $7.67 per share to investors purchasing
stock in the offering.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December
31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and 1999 have
been derived from our audited consolidated financial statements, included
elsewhere in this prospectus. Selected consolidated financial data as of
December 31, 1995, 1996 and 1997 and for the years ended December 31, 1995 and
1996 have been derived from our unaudited consolidated financial statements,
which are not included in this prospectus. Selected consolidated financial data
as of March 31, 2000 and for the three months ended March 31, 1999 and 2000
have been derived from our unaudited consolidated financial statements,
included elsewhere in this prospectus. In the opinion of management, the
unaudited consolidated financial statements include all adjustments necessary
for a fair presentation of such information in accordance with generally
accepted accounting principles. The information set forth below should be read
along with our "Management's Discussions and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31,(1) March 31,
----------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $8,117 $11,814 $16,330 $23,475 $30,657 $ 7,210 $ 9,930
Cost of revenues........ 5,817 8,465 10,638 14,177 18,501 4,411 5,745
------ ------- ------- ------- ------- ------- -------
Gross profit............ 2,300 3,349 5,692 9,298 12,156 2,799 4,185
Research and development
expenses.............. -- -- 284 723 979 272 278
Selling, general and
administrative
expenses.............. 1,449 2,389 4,552 7,574 9,564 2,104 3,425
------ ------- ------- ------- ------- ------- -------
Operating income........ 851 960 856 1,001 1,613 423 482
Other income (expense).. (19) (14) 50 (17) (16) (15) (31)
------ ------- ------- ------- ------- ------- -------
Income before income tax
provision............. 832 946 906 984 1,597 408 451
Income tax provision.... 323 352 400 383 669 166 270
------ ------- ------- ------- ------- ------- -------
Net income.............. $ 509 $ 594 $ 506 $ 601 $ 928 $ 242 $ 181
====== ======= ======= ======= ======= ======= =======
Net income per share:
Basic earnings per
share............... $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.09 $ 0.02 $ 0.02
Diluted earnings per
share............... $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.08 $ 0.02 $ 0.01
Shares for basic
computation......... 8,854 8,986 9,502 9,668 9,925 9,881 10,115
Shares for diluted
computation......... 8,854 8,986 9,531 10,316 12,365 11,619 13,407
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------- March 31,
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ 633 $ 466 $ 431 $ 236 $ 231 $ 454
Working capital................... 748 1,129 991 1,209 1,636 2,014
Total assets...................... 1,761 2,445 3,708 4,379 7,633 10,029
Long-term obligation.............. 327 225 222 182 1,016 1,001
Stockholders' equity.............. 622 1,296 1,693 2,387 3,403 3,884
</TABLE>
--------
(1) We have entered into various business combinations during the periods
presented above which are described in note 3 of our consolidated
financial statements. We do not believe that these business combinations
have had a material impact on the comparability of the results of
operations.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements, the related notes and the other financial
information appearing elsewhere in this prospectus. In addition to historical
information, the following discussion and other parts of this prospectus
contain forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by such forward-
looking information due to competitive factors, risks associated with our
expansion plans and other factors discussed under "Risk Factors" and elsewhere
in this prospectus.
Overview
We are an independent provider of advanced electronic design services to
top-tier systems OEMs and semiconductor companies. We design semiconductor
devices, as well as the accompanying system-level hardware and software that
comprise advanced electronics products. We deliver these design services
through three engagement models. In our outsourcing model, employees perform
services at our design centers, with limited interaction or collaboration with
our customers. In our insourcing model, employees perform services at our
customers' facilities, with daily interaction with our customers. In our E
sourcing model, we use Internet technology to allow our design engineers to
collaborate with our customers remotely from our design centers. We sell our
services primarily through our direct sales force. We were founded in 1985 and
began opening remote design centers in 1995. We currently operate 19 design
centers throughout the United States and Canada and have recently begun
operations in Europe. Our growth has been driven principally by increasing
personnel at existing design centers and opening new design centers. As of
March 31, 2000, we employed over 175 highly skilled design engineers. We have
been profitable every year since 1991.
In May 1998, we acquired substantially all of the assets of Prism
Acoustics, Inc. d/b/a The VHDL Technology Group of Bethlehem, Pennsylvania.
This acquisition was accounted for as a purchase and had an insignificant
impact on our financial statements. In June 1999, we completed our merger with
Seva Technologies, Inc. of Fremont, California. The merger has been accounted
for as a pooling of interests. Accordingly, our financial statements for prior
periods have been restated to include the operating results and financial
position of Seva for all periods presented. In December 1999, we acquired the
assets of the Design Division of Telexis Corporation of Kanata, Ontario. Please
see our consolidated financial statements for further information on the pro
forma impact of this acquisition.
We generate revenues principally from providing electronic design
services which are typically billed on a time and materials basis and, in
limited instances, on a milestone-based fixed price basis. Revenues are
recognized upon provision of the services under time and materials contracts.
Revenues under long-term fixed- price contracts are recognized using the
percentage-of-completion method based on labor costs expended relative to total
expected labor costs to complete a contract. Revenues recognized in excess of
billed amounts are accumulated as unbilled receivables and are generally billed
in accordance with prearranged schedules negotiated with the client. Billings
in excess of revenues earned would be accumulated as deferred revenue; however,
to date, revenues recognized as fixed fee contracts have exceeded amounts
billed. None of the fixed fee contracts entered into by the Company require
retainage or holdbacks of any portion of the agreed fee. To date, there have
been no losses on fixed fee contracts. Our cost of revenues is primarily
comprised of compensation paid to our design engineers. Other components of our
cost of revenues include engineering management compensation, software design
tools, technical training, and compensation paid to a limited number of
contract design engineers.
16
<PAGE>
Results of Operations
The following table sets forth our operating results as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
Three
Months
Year Ended Ended
December 31, March 31,
------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 65.1 60.4 60.3 61.2 57.8
----- ----- ----- ----- -----
Gross profit............................... 34.9 39.6 39.7 38.8 42.2
Research and development expenses.......... 1.7 3.1 3.2 3.8 2.8
Selling, general and administrative
expenses................................. 27.9 32.3 31.2 29.2 34.5
----- ----- ----- ----- -----
Operating income........................... 5.2 4.3 5.3 5.9 4.9
Other income (expense)..................... 0.3 -- -- (0.2) (0.3)
----- ----- ----- ----- -----
Income before income tax provision......... 5.6 4.2 5.2 5.7 4.5
Income tax provision....................... (2.5) (1.6) (2.2) (2.3) (2.7)
----- ----- ----- ----- -----
Net income................................. 3.1 2.6 3.0 3.4 1.8
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1999 and March 31, 2000
Revenues. Revenues increased from $7.2 million in the three months ended
March 31, 1999 to $9.9 million in the three months ended March 31, 2000. The
principal reasons for the revenue growth were an increase in the number of
engineers engaged on billable projects from 129 at March 31, 1999 to 179 at
March 31, 2000 and an increase in the average billings per engineer during the
three months ended March 31, 2000.
Cost of Revenues and Gross Profit. Cost of revenues includes compensation
paid to engineers and engineering management, software design tools, and
technical training. Gross profit was $2.8 million and $4.2 million in the three
months ended March 31, 1999 and March 31, 2000, respectively, an increase of
49.6%. This resulted in gross margin of 38.8% and 42.2%, respectively, for
those periods. The increase in the gross profit between these periods was due
to hiring additional design engineers and an increase in average billable
rates. The principal reason for the increase in gross margin between these
periods was also due to hiring additional design engineers and, to a lesser
extent, an increase in the average billable rates of 7.8% between these
periods.
Research and Development Expenses. Research and development expenses
result from the development of our proprietary software tools and design
methodologies. Research and development expenses were $272,000 and $278,000 in
the three months ended March 31, 1999 and March 31, 2000, respectively.
The slight increase in research and development expenses and decline in
research and development expenses as a percentage of revenues between these two
periods was primarily a result of the relatively stable expenditures between
these two periods on staff dedicated to or participating in research and
development efforts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include accounting and finance department expenses,
sales and marketing expenses, corporate management expenses, and facilities and
infrastructure-related expenses. Selling, general and administrative expenses
increased from $2.1 million in the three months ended March 31, 1999 to $3.4
million in the three months ended March 31, 2000. This increase was primarily
due to an increase in selling, general and administrative staff from 37 people
at March 31, 1999 to 50 people at March 31, 2000 and infrastructure costs
related to this growth.
Other Income (Expense). Other income or expense consists primarily of
interest earned on investable cash and interest payments related to long-term
debt. Interest expense increased from $17,000 in the three months ended March
31, 1999 to $31,000 in the three months ended March 31, 2000 due to higher
levels of borrowings on our lines of credit during the year.
17
<PAGE>
Income Tax Provision. Our effective tax rate was 59.9% for the three
months ended March 31, 2000 compared to 40.6% for the three months ended March
31, 1999. This increase in our effective tax rate was caused by a significant
increase in stock compensation cost, which is generally nondeductible for tax
purposes.
Years Ended December 31, 1997, 1998 and 1999
Revenues. Our revenues for 1997, 1998 and 1999 were $16.3 million, $23.5
million and $30.7 million, respectively, representing growth of 43.8% from 1997
to 1998 and 30.6% from 1998 to 1999. The principal reasons for the revenue
growth for both years were an increase in the number of engineers engaged on
billable projects from 94 in January 1998 to 105 in December 1998 and from 121
in January 1999 to 151 in December 1999 and an increase in the average billings
per engineer. These engineers were added to handle an increase in the number of
customers.
Cost of Revenues and Gross Profit. Gross profit was $5.7 million,
$9.3 million and $12.2 million in 1997, 1998 and 1999, respectively, an
increase of 63.4% from 1997 to 1998 and 30.7% from 1998 to 1999. This resulted
in gross margins of 34.9%, 39.6% and 39.7% for those periods. The growth of the
gross profit in both years was due to hiring additional design engineers and an
increase in average billable rates. The principal reason for the increase in
gross margin from 1997 to 1998 was an increase of 16.6% in the average billable
rate. The billing rate increases resulted from a concerted effort by our sales
force to create annual and regular increases of rates with both new and long-
term customers. Amortization charges and maintenance expenses related to
software tools are included in cost of revenues allocated by project usage from
a centralized selling, general and administrative account. Depreciation and
computer hardware expenses are not allocated to cost of revenues.
Research and Development Expenses. Research and development expenses were
$284,000, $723,000 and $979,000 in 1997, 1998 and 1999, respectively. The
increase in research and development expenses from 1997 to 1998 of $439,000 and
from 1998 to 1999 of $256,000 was primarily a result of the development of a
design reuse department and investments in our proprietary software tools and
design methodologies. Salaries and benefits of research and development
engineers represent the single largest component of research and development
expense. Increases, therefore, in year-over-year research and development
expenses are comprised primarily of increased use of engineers for research and
development functions, especially in the design reuse department. Starting in
mid-1998, approximately $80,000 in annualized expenses for facility and related
costs were added to support our design reuse department.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $4.6 million, $7.6 million and $9.6 million in
1997, 1998 and 1999, respectively. The 1998 increase of approximately $3.0
million was a result of opening seven new design centers at an approximate
average first year cost of $200,000, per design center, and an increase in
selling, general and administrative staff from 22 to 28 people. The 1999
increase of approximately $2.0 million was primarily due to an increase in
selling, general and administrative staff from 28 to 44 people.
Other Income (Expense). Interest income declined from 1997 to 1998 and
from 1998 to 1999 due to lower cash balances during these periods. Interest
expense increased from 1997 to 1998 due to higher levels of borrowings on our
lines of credit during the year. Interest expense declined from 1998 to 1999
due to lower levels of borrowings on our lines of credit during the year. In
December 1999, we borrowed $1.2 million on our line of credit to facilitate the
acquisition of the Design Division of Telexis Corporation. In January 2000,
this borrowing on our line of credit was converted into a term loan payable
over a four year period.
Income Tax Provision. Our effective income tax rates were 44.2%, 38.9%,
and 41.9% in each of 1997, 1998 and 1999, respectively. Changes in our
effective tax rate are primarily caused by movements of income between the
various states and, more significantly, non-deductible expenses such as
goodwill and stock compensation. See note 6 to our consolidated financial
statements for further information. In addition to these factors, in 1999, we
recognized the benefits of Seva's operating loss incurred during the six months
18
<PAGE>
prior to consummation of the merger. This loss aggregated $138,000
(approximately $52,000 tax benefit) and is considered likely to be recovered.
The loss carryforward is available for federal and state purposes and expires
in 2019.
Quarterly Results
The following table presents our unaudited results of operations for each
of our last eight quarters up to and including the quarter ended December 31,
1999, and also presents such information as a percentage of our total revenue
for the periods indicated. The unaudited results of operations have been
prepared on substantially the same basis as the audited statements of income
contained in this prospectus and include all adjustments, consisting of normal
recurring accruals, that we consider necessary to present this information
fairly when read in conjunction with our financial statements and accompanying
notes appearing elsewhere in this prospectus. The operating results in any
quarter are not necessarily indicative of the results that may be expected for
any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $5,209 $5,746 $6,321 $6,199 $7,210 $7,614 $7,722 $8,111 $9,930
Cost of revenues........ 3,219 3,548 3,663 3,747 4,411 4,768 4,496 4,826 5,745
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 1,990 2,198 2,658 2,452 2,799 2,846 3,226 3,285 4,185
Research and development
expenses.............. 80 163 265 215 272 266 196 245 278
Selling, general and
administrative
expenses.............. 1,615 1,867 1,960 2,132 2,104 2,370 2,360 2,730 3,425
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income........ 295 168 433 105 423 210 670 310 482
Other income (expense).. 9 (13) (9) (4) (14) -- (1) (1) (31)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income tax
provision............. 304 155 424 101 409 210 669 309 451
Income tax provision.... (117) (61) (164) (41) (163) (85) (272) (149) (270)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income.............. $ 187 $ 94 $ 260 $ 60 $ 246 $ 125 $ 397 $ 160 $ 181
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the unaudited quarterly total expenses as
a percentage of unaudited quarterly revenue.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 61.8 61.7 57.9 60.5 61.2 62.6 58.2 59.5 57.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 38.2 38.3 42.1 39.6 38.8 37.4 41.8 40.5 42.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Research and development
expenses.............. 1.5 2.8 4.2 3.5 3.8 3.5 2.5 3.0 2.8
Selling, general and
administrative
expenses.............. 31.0 32.5 31.0 34.4 29.2 31.1 30.6 33.7 34.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income........ 5.7 2.9 6.9 1.7 5.9 2.8 8.7 3.8 4.9
Other income (expense).. 0.2 (0.2) (0.1) (0.1) (0.2) -- -- -- (0.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income tax
provision............. 5.8 2.7 6.7 1.6 5.7 2.8 8.7 3.8 4.5
Income tax provision.... (2.3) (1.1) (2.6) (0.7) (2.3) (1.1) (3.5) (1.8) (2.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income.............. 3.6 1.6 4.1 1.0 3.4 1.6 5.1 2.0 1.8
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
19
<PAGE>
Over the nine quarters presented, our quarterly revenues increased from
$5.2 million to $9.9 million. Revenues decreased in the quarter ended December
31, 1998 due to a decrease in customer engagements. Gross margins fluctuated
over the nine quarter period with an absolute increase of 4.0% over that
period. The reasons for this gross margin increase included a decrease in the
use of contract design engineers, who typically have higher costs than
employees, an increase in utilization of our engineering staff and higher
billable rates to customers. Cost of revenues decreased in the third quarter of
1999 as a result of a decreased rate of hiring of design engineers and
decreased use of contract design engineers.
Selling, general and administrative expenses have increased from $1.6
million for the quarter ended March 31, 1998 to $3.4 million for the quarter
ended March 31, 2000. The increase in selling, general and administrative
expenses for the quarter ended December 31, 1998 was primarily a result of an
increase in bad debt reserve. The increase in selling, general and
administrative expenses for the quarter ended December 31, 1999 was primarily a
result of hiring additional recruiting personnel and related recruiting
expenses.
Research and development expenses primarily represent investment in
design and information reuse which, over time, increases the value and
efficiency of services provided to customers. In the second quarter of 1998, we
initiated our design reuse effort. This expense has fluctuated quarterly based
upon our needs to develop software design tools and methodologies.
Liquidity and Capital Resources
Since 1986, our primary source of funding has been cash generated from
operations. In December 1999, we borrowed $1.2 million from BankBoston for use
in financing the expenses associated with the purchase of the assets of the
Design Division of Telexis Corporation. This loan will be repaid with proceeds
from the offering. Furthermore, in connection with the Telexis transaction, we
owe Telexis Corporation up to $175,000, which has been accrued. The exact
amount due to Telexis Corporation, if any, will be determined and paid in July
2000.
At March 31, 2000, our primary sources of liquidity consisted of cash of
approximately $454,000 and accounts receivable, both billed and unbilled, of
approximately $5.9 million. In addition, we have a credit agreement with
BankBoston under which the amounts outstanding at March 31, 2000 were $1.3
million. The line of credit provides for borrowings of up to $2.5 million,
based on eligible accounts receivable. In addition, we have a term loan with
the bank with a principal balance of $1.2 million at March 31, 2000. Amounts
outstanding under the term loan are repayable in monthly installments of
$25,000, plus interest, at the bank's prime rate plus 0.5% through 2004.
Borrowings under the line of credit and term loan agreement are collateralized
by all of our assets. The agreement contains financial performance requirements
related to minimum levels of defined cash flow and quarterly net profit, and
maximum amounts of total leverage. Under the terms of the agreement, we are
precluded from paying cash dividends. The line of credit facility contained in
the agreement expires in May 2001. We are required to repay any outstanding
borrowings under the credit agreement with a portion of the proceeds of this
offering.
Our operating activities have generated or (used) cash of $283,000,
$713,000, $1.1 million, $(126,000) and $(770,000) in each of the three years
ended December 31, 1997, 1998 and 1999 and the three months ended March 31,
1999 and 2000, respectively. The cash generated by operations was primarily
attributable to our net income before depreciation and amortization during
those periods, offset by continued investment in accounts receivable due to
revenue growth. The cash used by operations in first quarters of 1999 and 2000
was primarily attributable to our continued investment in accounts receivable
offset by our net income before depreciation and amortization during those
periods.
Cash used in investing activities was $409,000, $1.2 million, $1.9
million, $172,000 and $336,000 in each of the three years ended December 31,
1997, 1998 and 1999 and the three months ended March 31, 1999 and 2000,
respectively. In 1997 and 1998, this use of cash was principally for additions
of computer equipment and furniture needed to equip our engineers in the field.
In 1999, we continued to acquire computer equipment and furniture; in addition,
approximately $1.2 million was spent to acquire the Design Division of Telexis
Corporation in December 1999. This acquisition was funded by borrowings on our
line of credit with BankBoston, which were subsequently converted to a term
loan as described above.
20
<PAGE>
Cash provided by financing activities was $91,000, $267,000, $830,000,
$235,000 and $1.3 million in each of the three years ended 1997, 1998 and 1999
and the three months ended March 31, 1999 and 2000, respectively. These cash
inflows are primarily attributable to borrowings on available lines of credit,
net, which are used to fund the working capital growth required by our
continued expansion of the business and our revenues.
We anticipate that cash generated by operations, supplemented by our
available line of credit and the expected net proceeds of this offering, will
be sufficient to meet our anticipated cash needs for at least the next 12
months.
Market Risk
We do not currently utilize any type of derivative instrument which would
subject us to significant amounts of market risk. We do utilize a line of
credit for seasonal funding of working capital, which bears interest at the
bank's prime rate plus 0.5%. The impact of a 10% increase or decrease in
interest rates during 1999 would have resulted in an insignificant change in
interest expense due to limited amounts of debt outstanding during 1999. As we
discussed earlier, in December 1999, we borrowed $1.2 million to fund the
acquisition of the Design Division of Telexis Corporation. This increased
borrowing will lead to increased interest expense in 2000; however, the
borrowings under this agreement will be repaid from the proceeds of this
offering.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. We will be required
to implement SFAS No. 133 for the year ending December 31, 2001. We have not
entered into any foreign currency exchange rate hedging activities to date. We
are currently evaluating the impact, if any, of this statement.
21
<PAGE>
BUSINESS
Overview
We are an independent provider of advanced electronic design services to
top-tier systems OEMs and semiconductor companies. We design semiconductor
devices, as well as the accompanying system-level hardware and software that
comprise advanced electronics products. We deliver these design services
through three engagement models: outsourcing, insourcing and E sourcing, or
real-time remote collaboration using Internet technology. We sell our services
primarily through our direct sales force, and our customers include Texas
Instruments, 3Com, Siemens, Intel and Lucent. We were founded in 1985 and began
opening remote design centers in 1995. We currently operate 19 design centers
throughout the United States and Canada and have recently begun operations in
Europe. We have been profitable every year since 1991.
Industry Background
The Electronics Industry
The market for electronic products is proliferating as new technologies
and applications are being introduced at rapid rates. The advent of system-on-
chip, or SoC, technology has driven down the cost of advanced electronic
products. The explosive growth of Internet usage, the ubiquity of
communications and the convergence of digital media and communications
technology have driven the increase of electronic content in various types of
products. Electronic content is increasingly included in a wide range of
products, from the traditional personal computer to the communications
infrastructure equipment that drives the Internet to everyday devices such as
home appliances, automobiles and hand-held wireless devices.
Central to the development of these electronic products are systems OEMs
and semiconductor companies. As with the progression of many fast growing
industries, there has been a trend toward specialization in suppliers to the
electronics industry. Different firms are focusing on specific aspects of the
product creation process, thereby resulting in a disaggregation of the value
chain in the electronics industry. This disaggregation has created entirely new
industries. For example, many semiconductor companies have made the strategic
decision to focus on their core competencies and outsource their manufacturing
to third-party semiconductor fabrication facilities. Examples of other
industries that have been created by disaggregation of the electronics value
chain include semiconductor capital equipment, electronic design automation,
electronic manufacturing services, component packaging, embedded operating
software and intellectual property licensing. New industries, such as third-
party electronic design services, continue to emerge as a result of this
disaggregation trend.
Electronic Design Services
A critical element of the electronics value chain is the design and
engineering of semiconductors, software, printed circuit boards, packaging,
enclosures and systems. Traditionally, these design services have been
performed in-house by systems OEMs and semiconductor companies. Constraints on
engineering capability of these companies create obstacles to meeting critical
time to market deadlines resulting in a need for outside design services
providers. These outside design services often have been performed by small,
specialized providers that support local customers. Another source of outside
design services has been groups within electronic design automation, or EDA,
electronic manufacturing services, or EMS, or application-specific integrated
circuit, or ASIC, companies. Recently, the demand for outsourced design
services has grown rapidly. For example, Dataquest reports that 22% of system
designers indicated that they planned to use outsourced design services in
2000. Dataquest forecasts that the market for SoC devices will grow from
approximately $15 billion in 2000 to $32 billion in 2003.
The demand for outsourced design services has been driven by the:
. shortened lifecycle of electronic products;
. need to respond quickly to changing market conditions;
22
<PAGE>
. demand for SoC integration to reduce size, cost and power consumption;
. acceptance of standardized processes for SoC design;
. new capability for design engineers to collaborate remotely via the
Internet; and
. increasing acceptance of strategic design outsourcing by systems OEMs
and semiconductor companies.
This growing market opportunity has not been adequately served by
traditional outside service providers. Smaller independent design services
companies lack the resources necessary to develop the infrastructure required
to undertake sophisticated, complex designs. On the other hand, design service
business units within EDA, EMS and ASIC companies continually face conflicts
arising from the potential of competing with their customers. In addition, the
design methodologies of these providers may not be independent from their
primary product or service offerings. This may limit the architecture,
performance, choice of design software and component suppliers available to
their customers. As a result, traditional providers of design services lack the
depth, breadth or focus to be a strategic outsourcing partner to systems OEMs
and semiconductor companies with wide-ranging and changing needs.
Systems OEMs and semiconductor companies need strategic design partners
that are independent, large and sophisticated and can provide high quality
services on a where- and when-needed basis. A strategic design partner must
also have the depth and breadth of experience to deploy design processes that
easily integrate with customers' internal teams and other key suppliers.
Solution
We are a leading independent provider of advanced electronic design
services to top-tier systems OEMs and semiconductor companies. We help these
companies produce a broad range of technically advanced, semiconductor-related
end products, especially system-on-chip, or SoC, integrated circuits. We
believe that our scalable organizational and sales and marketing strategies
allow us to offer competitive solutions. Our dedication to providing
independent electronic design services allows us to service a broad range of
customers, including industry leaders such as Texas Instruments, 3Com, Siemens,
Intel and Lucent. The following are key elements of our solution:
Depth and Breadth of Design Expertise. We design electronics for a broad
range of products in applications such as networking, telecommunications,
wireless, broadband, digital media and storage. We have worked on over 300
semiconductor and systems design projects since our inception in 1985. We
employ over 175 highly skilled design engineers. Our engineers have an average
of over 15 years of experience. We staff most of our engagements with senior
and principal-level design engineers. We employ relatively few entry level
designers, unlike conventional consulting firms that tend to have relatively
few experienced individuals managing many junior consultants. Our model is
designed to yield high quality solutions for our customers.
Independence and Focus. We focus on providing design services rather than
selling or licensing products. This focus gives us the independence needed to
objectively select the optimal mix of technologies for our customers, unlike
EDA, EMS and ASIC companies which may be limited to using internal
technologies. This independence enables us to develop deep and broad
relationships with leading suppliers to the electronics industry. Our model is
designed to foster client trust and lasting industry relationships.
Local Design Centers. We maintain close relationships with our customers
by employing distributed engineering teams located geographically near our
customers. We have 19 design centers in the United States and Canada. This
proximity to our customers enables us to be more responsive to their needs and
inspires confidence through one-on-one interactions. We perform our services
either at our customers' premises or at
23
<PAGE>
our design centers. All design centers are connected by a corporate intranet
and have access to a suite of advanced semiconductor and software development
tools.
Scalability and Flexibility through Remote Collaboration. We provide
scalable and flexible solutions to our customers by employing a large base of
engineers with a variety of specialized skills. We augment our local design
centers with our corporate-wide infrastructure which includes internetworking,
data management and collaboration software. While we operate local design
centers as a way to establish and maintain customer relationships, we also
provide our customers with the services of engineers in remote offices. Using
this infrastructure, we can rapidly respond to changing or specialized
customer needs, differentiating us from our competitors.
Proven Engagement Models. We offer our customers the following three
distinct engagement models:
. outsourcing work to our design centers;
. insourcing teams that work at our customers' facilities and integrate
with our customers' design groups; and
. E sourcing, or real-time remote collaboration between our design
centers and our customers using Internet technology.
Strategy
Our goal is to become the leading independent provider of electronic
design services. Key elements of our strategy to achieve this goal are to
continue to:
Target High Growth Markets. We focus on vertical markets that are growing
rapidly. Markets on which we are currently focused include networking,
wireless, broadband and digital media. We are developing teams across our
design centers with technological expertise for these and other specific
markets. Each team develops specific software toolkits and methodologies to
accelerate product development for customers in its market. We have the
ability to provide entire product design outsourcing in specific markets. We
believe that we are well positioned to leverage this capability as our
customers accelerate their outsourcing.
Attract and Retain Highly Qualified Design Engineers. We will continue to
attract and retain highly qualified design engineers by offering them
attractive professional development and compensation opportunities. We recruit
engineers who have significant technical expertise and offer them the ability
to accelerate their career development by working with sophisticated
technologies in complex multi-vendor environments. We leverage our 19 design
centers to recruit engineers from diverse locations. We employ seven full-time
professional recruiters who maintain long-term relationships within the
industry. We plan to expand our recruiting organization both domestically and
internationally.
Invest in the Advanced Technical Skills of our Engineers. We will
continue to invest in the technical skills of our engineers so that they
continue to develop strong capabilities in deploying advanced technologies.
Our professional development program is designed to ensure high quality
service offerings for our customers and also fosters job satisfaction for our
engineers. We will continue to offer college tuition reimbursement, advanced
technology training, internally developed training, seminars and internal
technology forums. In addition, we work on technically challenging projects
that expose our engineers to the latest offerings of leading technology
suppliers.
Pursue Strategic Acquisitions. We intend to continue to acquire
businesses that will extend our services offerings or expand our geographic
presence. We have acquired three businesses since May 1998. These acquisitions
have extended our technical capabilities and service offerings and expanded
our geographic presence in Silicon Valley and Ottawa, Canada.
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<PAGE>
Expand Internationally. We intend to offer services and open design
centers in new geographic markets. We expect to broaden our operations in the
United States and Canada principally by expanding our existing infrastructure.
We recently initiated operations in Europe, and we plan to establish a presence
in Asia, including India and Japan.
Leverage Our Branded Design Methodologies. We intend to leverage the
skills of our distributed design teams by continuing to reuse, expand and
exploit branded design methodologies. For example, we have developed and
branded differentiated service offerings for complex system-on-chip, or SoC,
designs and multi-million transistor ASIC designs. These branded design
methodologies include the Intrinsix microPlatform methodology, the Intrinsix
convergence methodology and the Intrinsix SoC verification methodology.
Expand Strategic Relationships. We seek to continue to develop
relationships with leading suppliers of technology solutions such as
intellectual property, EDA and ASIC suppliers. These relationships provide us
with business opportunities and access to emerging technologies.
Expand E-services. Our e-services initiative provides us with new
delivery mechanisms for our existing services by collaborating with our
customers via the Internet. New e-services offerings will enable real-time,
short-term, high value-added consulting engagements and Internet-enabled
solutions for specific segments of the design process.
Service Offerings
We deliver the following electronic design services:
Systems Architectural Design. We offer systems architectural services
within our four vertically oriented applications groups: networking, wireless,
broadband and digital media. These services include system level analysis of
product feature set requirements, computing and communications bandwidth
analysis, hardware/software partitioning, cost, schedule and usability.
ASIC and SoC Design. ASIC and SoC design services include
microarchitectural design, behavioral design, register transfer level, or RTL,
design, logic synthesis, power management, design for test, or DFT, timing
analysis and closure, formal verification and physical design.
System Verification. Our system verification services include behavioral
simulation, logic simulation, simulation environment development, test-case
development and compliance testing. We provide these services using hardware
description languages such as Verilog and VHDL, C/C++ and specialized, high-
level verification automation, or HLVA, languages and tools.
Embedded Software Development. Our embedded software design services
include design, implementation and porting of applications, protocols, run-time
kernels, digital signal processing, or DSP, device drivers, diagnostics, chip
support packages and other firmware. Our embedded software engineers work
closely with integrated circuit design teams, using hardware, software and DSP
co-development methodologies.
Intellectual Property Integration. Our intellectual property integration
services include selecting architectures and designing systems comprised of
reusable intellectual property. This intellectual property may be implemented
in hardware, such as a microprocessor, or in software, such as a real-time
operating system. We integrate intellectual property from semiconductor
companies, third-party providers and our customers' intellectual property
portfolios. We maintain close business and technical relationships with leading
suppliers of third-party intellectual property.
Printed Circuit Board and FPGA Design. Our printed circuit board and
field programmable gate array, or FPGA, services include FPGA design, FPGA
simulation, microprocessor systems design, DSP systems design, board-level
design and layout, and board-level verification.
25
<PAGE>
Mixed-Signal Design. Our mixed-signal integrated circuit design services
include analog and radio frequency, or RF, architecture, modeling, design,
layout and verification. We specialize in low-power, high-frequency wireless
transmitters and receivers, analog-to-digital converters and digital-to-analog
converters. Our services also include the integration of analog, RF, digital
logic, third-party intellectual property and software into a single SoC
integrated circuit.
Customers
We have developed a strong customer base among systems OEMs and
semiconductor companies that use our design services. In the three months ended
March 31, 2000, Texas Instruments represented 26.3% and 3Com represented 8.4%
of revenues, respectively. In 1999, Texas Instruments represented 24.0% and
3Com represented 13.0% of revenues. In 1998, Texas Instruments represented
18.2% of revenues. In 1997, Texas Instruments represented 16.9% and Genuity
(formerly GTE Internetworking and BBN) represented 10.3% of revenues. The
following chart provides a representative list of our major customers and some
of the applications in each industry in which customers use our services.
Customers Networking Applications
Gigabit Ethernet Switching, Embedded
Texas Instruments Ethernet, ATM/SONET, Terabit Routing,
Central Office IP Switching, Voice over
Internet Protocol (VoIP), Network
Processors, FibreChannel, Storage Area
Networking
3Com
United States Government
Siemens (now includes Infineon) Wireless Applications
Intel
3G Cellular, Bluetooth, Wireless
Networking, Wireless Messaging, Satellite
Television, Satellite Data Communications,
GPS Receivers, Data Security
Lucent
Motorola
Broadband Applications
IBM
Optical Network Interfaces, Optical Network
Switching, DSL Modems, Cable Modems, Home
Networking, V.90 Modems
Nortel Networks
Fujitsu
Digital Media Applications
Conexant
Set-top Boxes, Digital Television, 3D
Graphics, Voice Switching, Audio
Processing, Video Compression and Editing,
Image Processing, Ultrasound Imaging,
Digital Light Processing
Nokia
Sales and Marketing
We market our services via a direct sales force of nine experienced sales
professionals, the majority of whom have experience selling for leading EDA
companies. We use a top-down selling approach targeted at CEO and Vice
President levels to identify opportunities. Once an opportunity is identified,
we deploy a sales team comprised of a salesperson and a project manager to
price, propose and close engagements with the customer at the project manager
level. We offer our sales and project managers financial incentives for
business development.
We build market awareness through a variety of programs, including public
relations and leadership activities such as media relations, analyst relations
and speaking engagements. We attract potential customers through lead
generation activities that include trade shows, seminars, conferences and
website marketing. We also produce materials to help support sales to
prospective customers such as brochures, product sheets, white papers,
presentations and product demonstrations. In addition, we encourage our
engineers to author and
26
<PAGE>
publish technical articles. We generally limit our print advertising to high
profile relationships with the key print media in our industry. These
relationships consist of supplying editorial content, articles and technical
reviews in exchange for advertising space.
We believe that our relationships with intellectual property, EDA and
ASIC suppliers are strategic to the growth of our customer base. These
suppliers benefit from our relationship because we are independent, large and
sophisticated and can provide high quality services on a where- and when-needed
basis. These relationships are developed and maintained by both our sales force
at the local level and our marketing team at the corporate level.
Competition
Competition in the electronic design services market is intense. We
expect competition to increase in the future. We face competition from:
. internal design service groups of EDA companies such as Avant!,
Cadence, Mentor Graphics and Synopsys, EMS companies such as
Flextronics and Solectron, ASIC companies such as Actel, LSI Logic
and Philips, and intellectual property and embedded software
companies such as ARM, Artisan Components, SiCAN and Wind River
Systems; and
. independent design services companies such as Accent Design, Advanced
Digital Design, ASIC Alliance, ASIC International, First Pass, I2P
and Qualis.
Furthermore, many of our existing and potential customers have the
resources and capability to internally perform electronic design services. If
these customers decided to expand and focus on developing their internal
electronic design services, we would lose sales opportunities.
Factors on which we compete include design and application expertise and
experience, reputation, responsiveness, price, presence in diverse locations
and ability to meet schedules. We believe that we compete favorably on these
factors.
Employees
As of March 31, 2000, we had 229 employees, including 179 in engineering,
14 in sales and marketing and 36 in general and administrative capacities. Our
employees are not represented by a labor union or subject to a collective
bargaining agreement. We believe that our employee relations are good.
Facilities
We occupy as a tenant at will approximately 11,560 square feet of space
at our headquarters in Westboro, Massachusetts. We occupy a total of
approximately 47,879 square feet of space in 19 design centers and sales
offices. We intend to expand our existing facilities to meet our growing needs
and believe that suitable additional space will be available.
Legal Proceedings
We are not a party to any material legal proceedings. From time to time,
we may become a party to legal proceedings incidental to the conduct of our
business.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth information with respect to our executive
officers, directors and key employee as of March 31, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James A. Gobes, Jr............... 41 Chief Executive Officer, Chairman of the
Board of Directors and Director
Mark A. Beal..................... 39 Chief Technical Officer and Director
Brian C. Meeks................... 54 Chief Financial Officer, Treasurer, Clerk
and Director
Romas P. Rudis................... 43 Director of Design Center Operations and
Director
Maurice D. Hiers, Jr............. 48 Key Employee, Vice President of Sales
H. Kent Bowen (1)(2)............. 58 Director
Gintaras R. Subatis (1)(2)....... 47 Director
Wallace A. Cataldo (1)(2)........ 50 Director
</TABLE>
--------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
James A. Gobes, Jr. joined us in June 1986. He has served as our
President since May 1993. Mr. Gobes served as our Vice President, Sales from
1987 to 1993. He became our Chief Executive Officer and chairman of the board
of directors in February 2000. Mr. Gobes has served as a director since June
1987. Prior to joining us, he held a sales position at Texas Instruments, a
semiconductor company. Mr. Gobes received a BS in Management Computer Science
from Worcester Polytechnic Institute.
Mark A. Beal joined us in August 1986. He served as our Vice President,
Engineering from 1987 to February 2000. Mr. Beal became our Chief Technical
Officer in February 2000. He has served as a director since June 1987. Prior to
joining us, Mr. Beal served as a design center manager for LSI Logic, a
semiconductor company. He received a BS in Electrical Engineering from
Worcester Polytechnic Institute.
Brian C. Meeks has served as our Chief Financial Officer and Treasurer
since June 1998, as Assistant Treasurer and Clerk since October 1996, and as a
director since June 1997. Prior to joining us, he served as Chief Financial
Officer for Dove Associates, a strategic marketing and distribution consulting
firm from February 1995 to May 1996. From April 1985 to December 1992, Mr.
Meeks served as Chief Financial Officer of William M. Mercer's Eastern Region,
an employee benefit consulting firm. From January 1983 to April 1985, he served
as Chief Financial Officer for CTM Limited, an international electrical
engineering consulting firm. Mr. Meeks received a Bachelor of Commerce from
Concordia University and is a Canadian Chartered Accountant and a Massachusetts
licensed CPA.
Romas P. Rudis founded Intrinsix in 1985 and served as our President
until May 1993. He served as our Director of Strategic Engineering until 1996
and has served as our Director of Design Center Operations since then. Mr.
Rudis has served as a director since 1985 and served as chairman of the board
of directors from May 1993 to February 2000. Prior to founding Intrinsix, he
held technical positions at Advanced Micro Devices, a semiconductor company,
and Data General, a computer company. Mr. Rudis received a BS and an MS in
Electrical Engineering and a BS in Computer Science from the University of
Michigan, as well as an MBA from Boston University.
Maurice D. Hiers, Jr. has served as our Vice President of Sales since
February 1999. Before joining us, he served as Vice President, North American
Sales for MatrixOne, a provider of Internet business collaboration software
from October 1997 to January 1999. From September 1996 to September 1997, Mr.
Hiers served as the Director of Eastern Sales for Quickturn, a provider of
verification products and engineering services for the design of electronic
systems. From July 1995 to August 1996, he served as Vice President, Sales for
Sente, a supplier of software and services for the estimation, analysis and
reduction of power in
28
<PAGE>
integrated circuit designs. Prior to that time, Mr. Hiers served as Vice
President, Eastern Sales for Viewlogic Systems, a provider of electronic
product design software and services for advanced electronic systems, from
March 1986 to July 1995. He received a BBA from New Mexico State University.
H. Kent Bowen has served as a director since December 1999. He has been
the Bruce Rauner Professor of Technology and Operations Management at Harvard
Business School since 1992. Prior to joining Harvard Business School, Dr. Bowen
was a professor of engineering at the Massachusetts Institute of Technology
from 1970 to 1992. He currently serves as a director of Ceramics Process
Systems, a provider of components for microelectronic devices. Dr. Bowen
received a BS in Engineering from the University of Utah and a PhD in
Engineering from the Massachusetts Institute of Technology.
Gintaras R. Subatis has served as a director since 1985 and as our
Treasurer and Chief Financial Officer from November 1985 to October 1994. Since
December 1987, he has been a Project Manager and Assistant Vice President for
Putnam Investments, an investment management company. Mr. Subatis co-founded
Interlynx Technology Corporation, a web-based software company, in October 1994
and served in a senior management capacity until December 1995. He received a
BSBA in Accounting from Suffolk University.
Wallace A. Cataldo has served as a director since December 1999. From
June 1975 to August 1999, he served in several capacities for Keane, a provider
of custom software services, most recently serving as Vice President, Finance
and Administration and Chief Financial Officer. Mr. Cataldo received a BS in
Accounting from Bentley College.
Board Composition
Following this offering, our board of directors will be divided into
three staggered classes, each of whose members will serve for a three-year
term. The board will consist of two Class I Directors (Messrs. Meeks and
Subatis), three Class II Directors (Messrs. Beal, Bowen and Rudis) and two
Class III Directors (Messrs. Cataldo and Gobes). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The
terms of the Class I Directors, Class II Directors and Class III Directors will
expire upon the election and qualification of successor directors at the annual
meeting of stockholders to be held during 2001, 2002 and 2003, respectively.
In October 1994, we issued a promissory note to Mr. Subatis, a director
of ours. In connection with the issuance of this note, we also entered into a
noncompete agreement with Mr. Subatis. The arrangement requires us to retain
Mr. Subatis as a director for so long as the note remains in effect. We intend
to use a portion of the proceeds of this offering to repay the outstanding
balance of this note at the closing of this offering.
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.
Compensation Committee
The board of directors has a compensation committee composed of Messrs.
Bowen, Cataldo and Subatis, which makes recommendations concerning salaries and
incentive compensation for our employees and administers and grants stock
options under our stock option plans.
Director Compensation
We reimburse each director for reasonable out-of-pocket expenses incurred
in attending meetings of the board of directors and any of its committees.
Currently, non-employee directors receive compensation in the amount of $250
for each board meeting or committee meeting attended. Following this offering,
non-employee directors will receive compensation in the amount of $1,000 for
each board meeting attended including telephonic meetings. Non-employee
directors will be eligible for formula option grants under our 2000 Outside
Director Stock Option Plan.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Bowen,
Cataldo and Subatis. In 1999, the members of the compensation committee were
Messrs. Beal, Gobes and Rudis, each of whom is an executive officer of ours. No
executive officer has served as a director or member of the compensation
committee, or other committee serving an equivalent function, of any other
entity whose executive officers served as a member of the compensation
committee of our board of directors. Prior to the formation of the compensation
committee, the board of directors as a whole made decisions relative to the
compensation of executive officers.
Executive Compensation
The following table presents the compensation earned by our chief
executive officer and our other two executive officers who were serving as
executive officers on December 31, 1999 and whose salary and bonus for the year
ended December 31, 1999 exceeded $100,000, referred to as the named executive
officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Securities
Underlying All Other
Salary Bonus Options Compensation
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
James A. Gobes, Jr................... $160,000 $29,187 -- $583(1)
Chief Executive Officer
Mark A. Beal......................... 160,000 29,172 -- 583(1)
Chief Technical Officer
Brian C. Meeks....................... 128,750 22,736 60,000 583(1)
Chief Financial Officer
</TABLE>
--------
(1) Represents reimbursement for disability premiums paid by the respective
individual.
Option Grants In Last Fiscal Year
The following table presents each grant of stock options made to each of
the named executive officers during the fiscal year ended December, 1999. These
options vest in four equal annual installments on each of the first, second,
third and fourth anniversaries of the date of grant, and the exercise price per
share of each option was equal to the fair market value of the common stock on
the date of grant, as determined by our board of directors.
Potential realizable value is calculated assuming that the stock price on
the date of grant appreciates at the indicated rate compounded annually until
the option is exercised and sold on the last day of its term for the
appreciated stock price. The 5% and 10% assumed rates of appreciation are
required by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of the future common stock price.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise or Option Term
Options Employees in Base Price Expiration --------------------
Name Granted Fiscal Year Per Share Date 5% 10%
---- ---------- ------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
James A. Gobes, Jr...... -- -- -- -- -- --
Mark A. Beal............ -- -- -- -- -- --
Brian C. Meeks.......... 15,000 1.1% $1.60 04/01/09 $ 15,093 $ 38,250
45,000 3.2 2.03 09/28/09 57,450 145,588
</TABLE>
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<PAGE>
Option Exercises and Year-End Option Values
The following table presents option exercises and the value realized from
those exercises during fiscal 1999, as well as unexercised options that were
held at the end of fiscal 1999 by each named executive officer. The value
realized represents the aggregate market value of the underlying securities on
the exercise date, as determined by the board of directors, minus the aggregate
exercise price paid for those shares. Also presented is the value of in-the-
money options, which represents the aggregate market value of the underlying
securities based on the assumed initial offering price of $10.00 per share,
minus the aggregate exercise price payable for those shares.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Securities Year-End Year-End
Acquired on Value ------------------------- -------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Gobes, Jr...... -- -- 56,250 168,750 $530,625 $1,591,875
Mark A. Beal............ -- -- 28,125 84,375 265,313 795,938
Brian C. Meeks.......... -- -- 22,500 127,500 213,450 1,124,850
</TABLE>
Stock Plans
Incentive Stock Option Plan. Our Incentive Stock Option Plan was
initially adopted by our board of directors in March 1997 and approved by our
stockholders in March 1997. As of March 31, 2000, 4,500,000 shares of common
stock were authorized for issuance upon exercise of outstanding options under
this plan, and options to purchase an aggregate of 3,918,455 shares of common
stock at a weighted-average exercise price of $0.93 per share were outstanding
under this plan.
Under the Incentive Stock Option Plan eligible persons may be granted
options intended to qualify as incentive stock options, under Section 422 of
the Internal Revenue Code, and options that are not intended to so qualify. In
accordance with present law, incentive stock options and options intended to
qualify as performance-based compensation may not be granted at an exercise
price less than the fair market value of the common stock on the date of grant.
The plan is administered by the compensation committee of the board of
directors.
The terms of the stock options granted under this plan may not exceed ten
years. The exercise price of options granted under this plan is determined by
the board of directors. Options may only be granted to our officers and other
employees, including members of the board of directors who are also employees.
Under present law, however, incentive stock options may only be granted to
employees.
Options granted under this plan vest at the rate specified in each option
agreement, which historically have specified vesting ratably over four years.
Incentive stock options may only be exercised by the participant in the order
in which they were granted. No stock option may be transferred by the
participant other than by will or the laws of descent and distribution. Any
shares of common stock acquired upon exercise of options under this plan are
subject to our right of first refusal contained in our Bylaws.
A participant whose relationship with us ceases for the reasons set forth
below may exercise his or her options as follows:
<TABLE>
<CAPTION>
Reason for Termination of Employment Period of Exercisability
------------------------------------ ------------------------
<S> <C>
death or disability of the participant one year from date of termination
termination for cause, voluntary immediate termination of all options
termination by the participant without
our consent
termination for any reason other than three months from date of termination
those listed above
</TABLE>
31
<PAGE>
The board of directors may also terminate options granted to a
participant if it determines that such participant has engaged in any act that
is or has been deleterious to our best interests.
The exercise price of incentive stock options granted to an option holder
who owns stock possessing more than 10% of the voting power of our outstanding
capital stock must be at least equal to 110% of the fair market value of the
common stock on the date of grant, and such option holder must exercise his or
her option within five years from the date of the grant of such option.
No participant in the Incentive Stock Option Plan may receive incentive
stock options vesting in a calendar year having a fair market value at the time
granted of more than $100,000.
This plan provides for the full vesting and immediate exercisability of
all options outstanding upon any of the following:
. a merger or consolidation where we are not the surviving corporation;
and
. the transfer, during any 12-month period, of at least 50% of the
voting power of our outstanding capital stock to persons or entities
who, prior to such 12-month period, did not own any shares of our
capital stock.
No options may be granted under this plan after March 26, 2007, but the
vesting and effectiveness of options previously granted may extend beyond that
date. Assuming the closing of this offering, Intrinsix does not intend to grant
any additional options under this plan.
Seva Technologies 1997 Stock Plan. In connection with our merger with
Seva Technologies, we assumed the obligations of Seva Technologies under its
1997 Stock Plan. As of March 31, 2000, options to purchase 44,409 shares of
common stock were outstanding under this plan at a weighted-average exercise
price of $0.31 per share. No additional options will be granted under this
plan.
Under the Seva Technologies 1997 Stock Plan, eligible persons have been
granted options intended to qualify as incentive stock options, unless Section
422 of the Internal Revenue Code, and options that are not intended to so
qualify. In accordance with present law, incentive stock options and options
intended to qualify as performance-based compensation may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant. The plan is administered by the compensation committee of the board
of directors.
The terms of the stock options granted under this plan will not exceed
ten years. The exercise price of options granted under this plan was determined
by the board of directors of Seva Technologies. The compensation committee of
our board of directors has discretion to determine the terms and conditions of
any options granted under this plan.
The exercise price of incentive stock options granted to an optionholder
who owns stock possessing more than 10% of the voting power of our outstanding
capital stock must be equal to at least 110% of the fair market value of the
common stock on the date of grant, and such option holder must exercise his or
her option within five years from the date of the grant of such option.
No participant in the Seva Technologies 1997 Stock Plan may receive
incentive stock options vesting in a calendar year having a fair market value
at the time granted of more than $100,000.
In the event of our merger with or into another corporation, or the sale
of substantially all of our assets, each outstanding option granted under the
Seva Technologies 1997 Stock Plan shall be assumed; exchanged for an equivalent
option or right substituted by the successor corporation; or shall terminate in
accordance with the plan.
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<PAGE>
2000 Stock Incentive Plan. Our 2000 Stock Incentive Plan was adopted by
our board of directors in March 2000 and approved by our stockholders in April
2000. A maximum of 2,000,000 shares of common stock have been made available
for grant under the 2000 Stock Incentive Plan.
The 2000 Stock Incentive Plan provides for the grant of incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code,
nonstatutory stock options, restricted stock awards and other stock-based
awards.
Our employees, officers, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 2000 Stock Incentive
Plan. Under present law, however, incentive stock options may be granted only
to employees. Under the 2000 Incentive Stock Option Plan, no participant may
receive an award for more than 200,000 shares, subject to adjustment in the
event of stock splits and other similar events, in any calendar year.
In accordance with present law, incentive stock options and options
intended to qualify as performance-based compensation may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant. The exercise price of incentive stock options granted to an option
holder who owns stock possessing more than 10% of the voting power of our
outstanding capital stock must be at least equal to 110% of the fair market
value of the common stock on the date of grant, and such option holder must
exercise his or her option within five years from the date of the grant of such
option. We may grant nonstatutory options at an exercise price less than, equal
to or greater than the fair market value of the common stock on the date of
grant.
Optionees may pay the exercise price of their options by cash, check or
delivery of shares of our common stock owned by the optionee for at least six
months prior to their delivery, valued at their fair market value as determined
by our board of directors. Our board of directors, in its discretion, may
permit payment of the option exercise price by delivery of an irrevocable
undertaking by a creditworthy broker, delivery by the optionee of a copy of
irrevocable instructions to a creditworthy broker, delivery of a promissory
note of the option holder, payment of other lawful consideration, or any
combination of the permitted forms of payment.
Our board of directors administers the 2000 Stock Incentive Plan. Our
board of directors has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the 2000 Stock
Incentive Plan and to interpret its provisions. Our board may delegate
authority under the 2000 Stock Incentive Plan to one or more of its committees
and, subject to certain limitations, to one or more of our executive officers.
Our board of directors has authorized the compensation committee to administer
the 2000 Stock Incentive Plan, including the granting of options to our
executive officers. Subject to any applicable limitations contained in the 2000
Stock Incentive Plan, our board of directors, our compensation committee or any
other committee or executive officer to whom our board of directors delegates
authority, as the case may be, selects the recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the duration of options;
. the exercise price of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
Our board of directors may at any time provide for the acceleration of
the vesting of any options, the removal of restrictions on any restricted stock
awards and the acceleration of the vesting of or the removal of restrictions on
any other stock-based awards, as the case may be.
33
<PAGE>
In the event of an acquisition event, our board of directors must provide
that all outstanding options under the 2000 Stock Incentive Plan be assumed or
substituted for by the acquiror. If the acquiror does not agree to the
assumption or substitution of outstanding options, then our board of directors
must provide for the full acceleration of all outstanding options for a
specified period of time followed by termination of any unexercised options.
However, in the event of an acquisition event involving a cash payment to our
stockholders, our board of directors may instead provide for the termination of
all outstanding options upon the acquisition event in exchange for a cash
payment by us to all option holders.
Upon an acquisition event, our repurchase and other rights under
outstanding restricted stock awards shall inure to the benefit of our
successor. Our board of directors shall specify the effect of an acquisition
event on any other stock-based award at the time of grant of such award.
For purposes of the 2000 Stock Incentive Plan, an "acquisition event"
means the occurrence of a merger, consolidation or statutory share exchange
transaction.
No option may be granted under the 2000 Stock Incentive Plan after March
2010, but the vesting and effectiveness of options previously granted may
extend beyond that date. The board of directors may amend, suspend or terminate
the 2000 Stock Incentive Plan or any portion thereof at any time, except that,
no award granted after an amendment to the 2000 Stock Incentive Plan and
designated as subject to Section 162(m) of the Internal Revenue Code by our
board of directors shall become exercisable, realizable or vested, to the
extent such amendment was required to grant such award, unless and until such
amendment is approved by our stockholders.
2000 Outside Director Stock Option Plan. Our 2000 Outside Director Stock
Option Plan was adopted by our board of directors in March 2000 and approved by
our stockholders in April 2000. Under the terms of the 2000 Outside Director
Stock Option Plan, directors who are not our employees or employees of our
subsidiaries receive non-qualified options to purchase shares of our common
stock. A total of 200,000 shares of our common stock may be issued upon
exercise of options granted under the 2000 Outside Director Stock Option Plan.
The board of directors has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the 2000 Outside
Director Stock Option Plan. Under the terms of the 2000 Outside Director Stock
Option Plan, each non-employee director continuing as a director following this
offering will receive an option to purchase 5,000 shares of our common stock on
the effective date of this offering at a price per share equivalent to the
initial offering price. In addition, each such non-employee director will
receive an option to purchase 2,500 shares of our common stock on the date of
each annual meeting of stockholders commencing with the 2001 annual meeting of
stockholders, at an exercise price per share equal to the closing price of our
common stock on the date of grant. In addition, individuals who become
directors after this offering and are not our employees will receive an option
to purchase 5,000 shares of common stock on the date of his or her initial
election to the board of directors and an option to purchase 2,500 shares of
our common stock on the date of each annual meeting of stockholders after his
or her election. The exercise price per share of such options will be the
closing price per share of our common stock on the date of the grant. All
options granted under the 2000 Outside Director Stock Option Plan will be fully
vested upon grant.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted by our board of directors in March 2000 and approved by our
stockholders in April 2000. The 2000 Employee Stock Purchase Plan authorizes
the issuance of up to a total of 1,000,000 shares of common stock to
participating employees.
All of our employees, whose customary employment is more than 20 hours
per week for more than five months in any calendar year, including our
directors who are employees, and all employees of any participating
subsidiaries, are eligible to participate in the 2000 Employee Stock Purchase
Plan. Employees who would immediately after the grant own five percent or more
of the total combined voting power or value of our stock or any subsidiary are
not eligible to participate. As of March 31, 2000, approximately 234 of our
employees were eligible to participate in the 2000 Employee Stock Purchase
Plan.
34
<PAGE>
On the first day of a designated payroll deduction period, the offering
period, we will grant to each eligible employee who has elected to participate
in the 2000 Employee Stock Purchase Plan an option to purchase shares of common
stock as follows: the employee may authorize an amount, up to 10% of his or her
base pay to be deducted from his or her base pay during the offering period. On
the last day of the offering period, the employee is deemed to have exercised
the option, at the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the 2000 Employee Stock Purchase Plan, the
option price is an amount equal to 85% of the average market price per share of
the common stock on either the first day or the last day of the offering
period, whichever is lower. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares
determined by dividing the product of (i) $2,083.33 and (ii) the number of full
months in the offering period by the closing market price of a share of common
stock on the commencement date of the offering period or such other lower
number as may be determined by the board prior to the commencement date of the
offering period. The compensation committee may, in its discretion, choose an
offering period of 12 months or less for each offering and may choose a
different offering period for each offering.
An employee who is not a participant on the last day of the offering
period is not entitled to exercise any option, and the employee's accumulated
payroll deductions will be refunded. However, upon termination of employment
because of death, the employee's beneficiary has certain rights to elect to
exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.
Because participation in the 2000 Employee Stock Purchase Plan is
voluntary, currently we cannot determine the number of shares of common stock
to be purchased by any particular current executive officer, by all current
executive officers as a group or by non-executive employees as a group.
401(k) Plan
We offer a 401(k) plan to our United States employees who have completed
six months of service with us. Under the terms of the plan, employees may
contribute 1% to 20% of their compensation within certain limitations. Each
year, we make matching contributions equal to 50% of each participant's
elective deferral up to a maximum of 6% of the participant's yearly
compensation. During 1997, 1998 and 1999, we contributed approximately
$150,000, $242,000 and $375,000, respectively, to the 401(k) plan.
Change in Control Arrangements
Our Incentive Stock Option Plan provides for the full vesting and
immediate exercisability of all options outstanding upon a merger or
consolidation where Intrinsix is not the surviving corporation and the
transfer, during any 12-month period, of at least 50% of the voting power of
our outstanding capital stock to persons or entities who, prior to such 12-
month period, did not own any shares of our capital stock.
In the event of our merger with or into another corporation, or the sale
of substantially all of our assets our board of directors must provide that
each outstanding option granted under the Seva Technologies 1997 Stock Plan be
assumed; exchanged for an equivalent option or right substituted by the
successor corporation; or terminate in accordance with the plan.
Our board of directors may at any time provide for the acceleration of
the vesting of any options, the removal of restrictions on any restricted stock
awards and the acceleration of the vesting of or the removal of restrictions on
any other stock-based awards, as the case may be.
In the event of an acquisition event, our board of directors must provide
that all outstanding options under the 2000 Stock Incentive Plan be assumed or
substituted for by the acquiror. If the acquiror does not agree to the
assumption or substitution of outstanding options, our board of directors must
provide for the full acceleration of all outstanding options for a specified
period of time followed by termination of any unexercised options. However, in
the event of an acquisition event involving a cash payment to our stockholders,
our board of directors may instead provide for the termination of all
outstanding options upon the acquisition event in exchange for a cash payment
by us to all option holders.
35
<PAGE>
CERTAIN TRANSACTIONS
In October 1994, we repurchased 3,141,825 shares of our common stock from
Gintaras Subatis, a director of ours, pursuant to an Agreement dated October 1,
1994 between us and Mr. Subatis. In connection with this repurchase, we issued
to Mr. Subatis a promissory note in the amount of $418,910 with an 8.0% annual
interest rate. This note is secured by certain of our assets pursuant to a
Security Agreement dated November 22, 1994 between us and Mr. Subatis. The
principal and interest on the note is payable in monthly installments of $5,922
with the final payment due on September 1, 2002. As of April 1, 2000, we had
repaid a total of $264,294 in principal and interest to Mr. Subatis with a
remaining balance of $155,686. We intend to use a portion of the proceeds of
this offering to prepay the outstanding balance of this note at the closing of
this offering.
In connection with the repurchase of common stock held by Mr. Subatis, we
also entered into a noncompete agreement, barring Mr. Subatis from entering
into competition with us. In exchange for this commitment, we have ongoing
monthly payments of $835 through September 2002. We are also required to retain
Mr. Subatis as a director for so long as the promissory note remains in effect.
We intend to use a portion of the proceeds of this offering to prepay the
remaining payments under the noncompete agreement at the closing of this
offering.
The note issued to Mr. Subatis is subordinated to the Loan and Security
Agreement dated January 13, 2000 between us and BankBoston, N.A. pursuant to a
Subordination Agreement (Debts) dated January 13, 2000 between us and Mr.
Subatis and a Subordination Agreement (Liens) dated January 13, 2000 between us
and Mr. Subatis.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 2000, by:
. each stockholder known to us to be the beneficial owner of more than
5% of common stock;
. each of our directors;
. each named executive officer; and
. all of our directors and executive officers as a group.
The address of each beneficial owner listed below is c/o Intrinsix Corp.,
33 Lyman Street, Westboro, Massachusetts 01581.
All options exercisable within 60 days of March 31, 2000, are reported as
currently exercisable. The shares issuable under these options are treated as
if outstanding for computing the percentage ownership of the person holding
these options but are not treated as if outstanding for the purposes of
computing the percentage ownership of any other person.
This table assumes that the underwriters do not exercise their over-
allotment option.
Except as otherwise indicated, each stockholder listed in the table has
sole voting and investment powers over the common stock owned by him or share
such powers with his spouse. Beneficial ownership is determined under the rules
of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
the Offering the Offering
-------------------- --------------------
Name Number Percentage Number Percentage
---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Romas P. Rudis...................... 3,094,950 30.3% 3,094,950 21.6%
Mark A. Beal(1)..................... 3,144,450 30.7 3,144,450 22.1
James A. Gobes, Jr.(2).............. 1,996,275 19.4 1,996,275 14.0
Brian C. Meeks(3)................... 26,250 * 26,250 *
W. Kent Bowen....................... -- * -- *
Wallace A. Cataldo.................. -- * -- *
Gintaras R. Subatis................. -- * -- *
All directors and executive officers
as a group (7 persons)(4)......... 8,261,925 80.0% 8,261,925 57.7%
</TABLE>
--------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Includes 28,125 shares issuable upon the exercise of options exercisable
within sixty days of March 31, 2000.
(2) Includes 56,250 shares issuable upon the exercise of options exercisable
within sixty days of March 31, 2000.
(3) Consists of 26,250 shares issuable upon the exercise of options exercisable
within sixty days of March 31, 2000.
(4) Includes 110,625 shares issuable upon the exercise of options exercisable
within sixty days of March 31, 2000.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of:
. 70,000,000 shares of common stock; and
. 5,000,000 shares of preferred stock, all of which are undesignated
and remain available for issuance.
As of March 31, 2000 shares of our common stock were held of record by
105 stockholders.
After giving effect to this offering and based upon our outstanding
stock, there will be 14,228,930 shares of common stock outstanding, excluding
shares of common stock reserved for issuance upon the exercise of options
granted under our stock option plans. All of these shares will be fully paid
and nonassessable. No shares of preferred stock will be outstanding at the
closing of this offering.
Common Stock
Holders of common stock are entitled to one vote per share in all matters
to be voted upon by stockholders and do not have cumulative voting rights.
Subject to rights of any outstanding preferred stock, holders of common stock
are entitled to receive ratably any dividends that may be declared by the board
of directors out of legally available funds. Upon our liquidation, dissolution
or winding up, holders of common stock are entitled to share ratably in all
assets remaining after payment of our debts and other liabilities and any
preference payments on any outstanding preferred stock.
Holders of common stock have no preemptive rights or other subscription
rights and no rights to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common
stock. All of the outstanding shares of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may issue in the future.
Preferred Stock
Our board of directors is authorized, without any further vote or action
by the stockholders, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix, before issuance, the number of shares to be included
in any series. The board of directors can also designate the relative powers,
preferences and rights and qualifications, limitations or restrictions of all
shares of any series.
Our board of directors has the authority to determine any of the
following for each series:
. the number of shares and the designation to distinguish the shares
from any other series;
. the voting powers;
. the redemption provisions, including the redemption price or prices
to be paid;
. the dividend rate, whether or not any dividends will be cumulative,
and the dates and preferences of dividends;
. the rights upon our voluntary or involuntary dissolution, or upon any
distribution of our assets;
. any provisions permitting shares to be converted into, or exchanged
for, shares of any other class or any other series of the same or any
other class of stock, or any other security, of ours or any other
corporation, and the prices or the applicable rates of exchange;
. any right to subscribe for or to purchase any of our securities or
those of any other corporation;
. any provisions of a sinking fund applicable to that series; and
38
<PAGE>
. any other relative, participating, optional or other special powers,
preferences, rights, qualifications, limitations or restrictions.
The issuance of preferred stock could adversely affect the rights of
holders of common stock. For example, the issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to
holders of common stock. In addition, any issuance could have the effect of
delaying or preventing a change in control and could make the removal of our
present management more difficult. Upon the closing of this offering, there
will be no shares of preferred stock outstanding and we have no present plans
to issue shares of preferred stock.
Massachusetts Law and Certain Provisions of our Amended and Restated Articles
of Organization and Amended and Restated Bylaws
Our Amended and Restated Articles of Organization provide that we will be
subject to Chapter 110F of the Massachusetts General Laws, an anti-takeover
law, following this offering. In general, this statute prohibits a publicly
held Massachusetts corporation from engaging in a business combination with an
interested stockholder for a period of three years after the date of the
transaction which results in the stockholder becoming an interested
stockholder, unless:
. our board of directors approves the business combination or
transaction which results in the stockholder becoming an interested
stockholder prior to such event; or
. the interested stockholder acquires at least 90% of our outstanding
voting stock, excluding shares held by certain of our directors who
also serve as our officers and by certain employee stock plans, at the
time it becomes an interested stockholder; or
. the business combination is approved by both the board of directors
and the holders of two-thirds of our outstanding voting stock at a
meeting of stockholders, excluding shares held by the interested
stockholder.
Under Massachusetts General Laws, you would be deemed to be an interested
stockholder of ours if you, together with your affiliates and associates, own
(or at any time within the prior three years have owned) 5% or more of our
outstanding voting stock. Massachusetts General Laws defines the term business
combination to include a merger, a stock or asset sale, and certain other
transactions resulting in a financial benefit to the interested stockholder.
Since we are a publicly-held Massachusetts corporation, Massachusetts
General Laws Chapter 156B, Section 50A requires us to have a classified board
of directors consisting of three classes as nearly equal in size as possible,
unless we elect to opt out of the statute's coverage. Our Amended and Restated
Bylaws contain provisions which give effect to Section 50A.
Our Amended and Restated Bylaws include a provision excluding us from the
applicability of Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions." In general, this statute provides that any
stockholder of a corporation subject to this statute who acquires 20% or more
of the outstanding voting stock of a corporation may not vote such stock unless
the stockholders of the corporation so authorize. Our board of directors may
amend our Amended and Restated Bylaws at any time to subject us to this statute
prospectively.
Our Amended and Restated Bylaws require us to call a special stockholders
meeting at the request of stockholders holding at least 80% of our voting
power. Any stockholder seeking to solicit requests to call a special meeting of
stockholders must notify us by notice in writing.
39
<PAGE>
Our Amended and Restated Articles of Organization provide that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Massachusetts law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with service for or on behalf of us. In addition, our Amended and Restated
Articles of Organization provide that our directors will not be personally
liable for monetary damages to us for breaches of their fiduciary duty as
directors, unless they
. violated their duty of loyalty to us or our stockholders;
. acted in bad faith;
. knowingly or intentionally violated the law;
. authorized legal dividends or redemptions; or
. derived an improper personal benefit from their action as directors.
We intend to increase the coverage of our insurance policy which insures
our directors and officers against certain losses and which insures us against
certain of our obligations to indemnify such directors and officers.
Our Amended and Restated Articles of Organization provide that the
following corporate actions may be authorized by the approval of the holders of
a majority of the shares of each class of stock entitled to vote thereon,
rather than by two-thirds as otherwise provided by statute, provided that the
transactions have been authorized by a majority of the members of the board of
directors and the requirements of any other applicable provisions of our
Amended and Restated Articles of Organization have been met:
. any amendment to our Amended and Restated Articles of Organization;
. the sale, lease or exchange of all or substantially all of our
property and assets; or
. our merger or consolidation with or into another corporation.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental
Stock Transfer & Trust, New York, New York.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price of our common stock and impair our
ability to raise equity capital in the future.
Upon the closing of this offering based on the number of shares
outstanding at March 31, 2000, we will have 14,228,930 outstanding shares of
common stock. Of these shares, the 4,000,000 shares sold in the offering, plus
any shares issued upon exercise of the underwriters' over-allotment option,
will be freely tradable without restriction under the Securities Act, unless
purchased by our affiliates. The term affiliate is defined in Rule 144 under
the Securities Act. In general, affiliates include officers, directors or 10%
stockholders.
The remaining 10,228,930 shares outstanding are restricted securities
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 under the Securities Act, which are summarized
below. Sales of restricted securities in the public market, or the availability
of these shares for sale, could adversely affect the market price of the common
stock.
Holders of approximately % of the remaining 10,228,930 shares
outstanding, including all of our officers and directors, have entered into
lock-up agreements which generally provide that they will not offer, sell,
contract to sell or grant any option to purchase or transfer or dispose of our
common stock or any securities exercisable for or convertible into our common
stock owned by them for a period of 180 days after the date of this prospectus
without the prior written consent of CIBC World Markets Corp.
Notwithstanding possible earlier eligibility for sale under the
Securities Act, shares subject to lock-up agreements will not be salable until
these agreements expire or are waived by CIBC World Markets Corp. Taking into
account the lock-up agreements, and assuming CIBC World Markets Corp. does not
release stockholders from these agreements, the following restricted shares
will be eligible for sale in the public market at the following times:
. after the completion of this offering, shares will be eligible for
sale, subject to volume, manner of sale and other limitations under
Rule 144; and
. beginning 180 days after the completion of this offering, all
10,228,930 shares will be eligible for sale in the public market,
subject to the provisions of Rule 144, Rule 144(k) or Rule 701 under
the Securities Act.
In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after the offering;
or
. the average weekly trading volume of the common stock during the four
calendar weeks immediately before the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not considered to have been our
affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two
41
<PAGE>
years, is entitled to sell shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Our employees, officers, directors or consultants who purchased shares
under a written compensatory plan or contract may be entitled to resell these
shares in reliance upon Rule 701. Rule 701 provides that affiliates may sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell their shares in reliance on Rule
144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
those shares.
We intend to file registration statements under the Securities Act as
promptly as possible after the effective date of this prospectus to register
shares to be issued under our employee benefit plans. As a result, any options
or rights exercised under any of our existing stock option plans after the
effectiveness of the registration statements will also be freely tradable in
the public market, subject to the 180-day lockup agreements. However, shares
held by affiliates will still be subject to the volume limitation, manner of
sale, notice and public information requirements of Rule 144 unless otherwise
exempt under Rule 701. As of March 31, 2000, there were outstanding options for
the purchase of 3,962,864 shares of common stock, and options to purchase
733,388 of these shares were exercisable.
42
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters
named below. CIBC World Markets Corp. and Adams, Harkness & Hill, Inc. are
acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number
of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares. Subject to the terms
and conditions of the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
CIBC World Markets Corp...........................................
Adams, Harkness & Hill, Inc. .....................................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by
this prospectus (other than those covered by the over-allotment option
described below) if any are purchased. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase shares, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated, depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The underwriters are offering the
shares subject to various conditions and may reject all or part of any order.
The representatives have advised us that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to other securities dealers at such price less a concession of
$ per share. The underwriters may also allow, and such dealers may reallow, a
concession not in excess of $ per share to other dealers. After the shares
are released for sale to the public, the representatives may change the
offering price and other selling terms at various times.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 600,000 additional shares
from us to cover over-allotments. If the underwriters exercise all or part of
this option, they will purchase shares covered by the option at the initial
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full, the total price
to public will be $46.0 million, the total proceeds to us will be $41.7
million, assuming an initial public offering price of $10 per share. The
underwriters have severally agreed that, to the extent the over-allotment
option is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the foregoing
table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us.
<TABLE>
<CAPTION>
Total Without Exercise of Total With Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- ------------------------- ---------------------------
<S> <C> <C> <C>
Intrinsix Corp..........
---- ------ ------
Total...................
</TABLE>
43
<PAGE>
We estimate that our total expenses of the offering, excluding the
underwriting discount, will be approximately $1.1 million.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We, our officers and directors and substantially all other stockholders
have agreed to a 180-day "lock up" with respect to shares of common stock that
they beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that, subject to certain exceptions, for a period of
180 days following the date of this prospectus, we and such persons may not
offer, sell, pledge or otherwise dispose of these securities without the prior
written consent of CIBC World Markets Corp.
The representatives have informed us that they do not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
The underwriters have reserved for sale up to 200,000 shares for
employees, directors and other persons associated with us. These reserved
shares will be sold at the initial public offering price that appears on the
cover page of this prospectus. The number of shares available for sale to the
general public in the offering will be reduced to the extent reserved shares
are purchased by such persons. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by such persons.
There is no established trading market for the shares. The offering price
for the shares has been determined by us and the representatives, based on the
following factors:
. the history and prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future business and earning potential;
. our management;
. the general condition of the securities markets at the time of this
offering;
. the recent market prices of securities of generally comparable
companies; and
. the market capitalization and stages of development of other companies
which we and the representatives believe to be comparable to us.
Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
. Stabilizing transactions -- The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the price
of the shares, so long as stabilizing bids do not exceed a specified
maximum.
. Over-allotments and syndicate covering transactions -- The
underwriters may create a short position in the shares by selling more
shares than are set forth on the cover page of this prospectus. If a
short position is created in connection with the offering, the
representatives may engage in syndicate covering transactions by
purchasing shares in the open market. The representatives may also
elect to reduce any short position by exercising all or part of the
over-allotment options.
44
<PAGE>
. Penalty bids -- If the representatives purchase shares in the open
market in a stabilizing transaction or syndicate covering transaction,
they may reclaim a selling concession from the underwriters and
selling group members who sold those shares as part of this offering.
. Passive market making -- Market makers in the shares who are
underwriters or prospective underwriters may make bids for or
purchases of shares of common stock, subject to limitations, until the
time, if ever, at which a stabilizing bid is made.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as
to the effect that the transactions described above may have on the price of
the shares. These transations may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
Michael Gobes, an employee of CIBC World Markets Corp., beneficially owns
1,500 shares of our common stock. Pursuant to the Rules of the National
Association of Securities Dealers, the shares held by Michael Gobes will be
restricted from sale, transfer, assignment, or hypothecation for a period of
one year from the effective date of the offering except to NASD members
participating in the offering and the officers or partners thereof.
Listing
We have applied for the listing of our common stock on the Nasdaq
National Market under the symbol "ITRX."
45
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
will be passed upon for Intrinsix Corp. by Hale and Dorr LLP, Boston,
Massachusetts, and for the underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Intrinsix Corp. as of December
31, 1998 and 1999 and for each of the three years in the period ended December
31, 1999 included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the restatement of the consolidated financial statements to reflect
a merger accounted for as a pooling-of-interests), and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The statement of revenues and direct expenses of the Design Division of
Telexis Corporation for the year ended December 31, 1999, included in this
prospectus has been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein (which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the restatement
described in note 6), and has been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act to offer shares of our common
stock. This prospectus is only a part of the registration statement and does
not contain all of the information included in the registration statement.
Further information about us and our common stock can be found in the
registration statement. The rules and regulations of the Securities and
Exchange Commission allow us to omit various information from the prospectus
that is included in the registration statement. Statements made in this
prospectus about the contents of any contract, agreement or other document are
summaries. If we filed any of those documents as exhibits to the registration
statement, you may read the document itself for a complete description of its
terms.
The registration statement and the related exhibits and schedules filed
by us with the Securities and Exchange Commission can be inspected and copies
obtained at prescribed rates from the public reference facilities maintained by
the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
You may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains a website that
contains reports, proxy and information statements and other information about
registrants that file electronically with the Securities and Exchange
Commission, like us, at http://www.sec.gov.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTRINSIX CORP.
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and
(unaudited) March 31, 2000.............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and 1999 and (unaudited) the three months ended March 31, 1999 and
2000.................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999 and (unaudited) the three months ended
March 31, 2000.......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and (unaudited) the three months ended March 31,
1999 and 2000........................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
THE DESIGN DIVISION OF TELEXIS CORPORATION
Independent Auditors' Report.............................................. F-17
Statement of Revenues and Direct Expenses................................. F-18
Notes to Statement of Revenues and Direct Expenses........................ F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Intrinsix Corp.:
We have audited the accompanying consolidated balance sheets of Intrinsix
Corp. and its subsidiaries (the "Company") as of December 31, 1998 and 1999,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
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 the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.
As described in Note 3 to the consolidated financial statements, the
consolidated financial statements have been restated to reflect a merger
accounted for as a pooling-of-interests.
Deloitte & Touche LLP
Boston, Massachusetts
March 17, 2000 (April 19, 2000 as to the effects of the stock split described
in Note 2)
F-2
<PAGE>
INTRINSIX CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1998 1999 2000
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 235,504 $ 231,302 $ 453,801
Accounts receivable, net of allowance for
doubtful accounts of $15,000, $133,000
and $148,000 in 1998, 1999 and 2000,
respectively........................... 2,489,237 3,329,033 5,303,436
Unbilled accounts receivable............. 15,726 888,836 448,906
Prepaid expenses and other current
assets................................. 219,288 401,108 952,079
---------- ---------- -----------
Total current assets.................... 2,959,755 4,850,279 7,158,222
Property and equipment, net............... 1,301,240 1,349,525 1,492,520
Other assets.............................. 40,886 59,062 65,507
Deferred tax assets....................... 1,960 -- --
Goodwill.................................. 74,799 1,374,547 1,312,915
---------- ---------- -----------
Total assets............................ $4,378,640 $7,633,413 $10,029,164
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ $ 54,674 $ 359,212 $ 359,212
Line of credit........................... 350,000 -- 1,250,000
Accounts payable......................... 360,357 983,402 1,240,732
Accrued compensation and benefits........ 525,218 952,937 1,280,974
Accrued income taxes..................... 97,536 529,106 668,436
Other accrued expenses................... 247,396 334,148 289,418
Deferred tax liabilities................. 115,973 55,657 55,340
---------- ---------- -----------
Total current liabilities............... 1,751,154 3,214,462 5,144,112
---------- ---------- -----------
Long-term debt, less current portion...... 181,701 1,015,689 1,001,326
---------- ---------- -----------
Deferred tax liabilities.................. 58,692 -- --
---------- ---------- -----------
Commitments and contingencies (Note 9)....
Stockholders' equity:
Common stock, no par value, 12,000,000
shares authorized; 11,755,253 shares
issued in 1998, 1999 and 2000........... 226,510 272,798 478,798
Retained earnings......................... 2,396,124 3,324,235 3,505,647
Treasury stock, 1,881,007, 1,713,448 and
1,526,323 shares at cost in 1998, 1999
and 2000, respectively.................. (235,541) (193,771) (97,436)
Accumulated other comprehensive loss...... -- -- (3,283)
---------- ---------- -----------
Total stockholders' equity.............. 2,387,093 3,403,262 3,883,726
---------- ---------- -----------
Total liabilities and stockholders'
equity............................... $4,378,640 $7,633,413 $10,029,164
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INTRINSIX CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------- ----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $16,329,847 $23,474,943 $30,656,863 $7,210,045 $9,929,698
Cost of revenues
(includes stock-based
compensation of
$30,213 for the year
ended December 31,
1999 and $148,600 for
the three months ended
March 31, 2000)....... 10,638,264 14,176,582 18,500,931 4,410,840 5,744,312
----------- ----------- ----------- ---------- ----------
Gross profit........... 5,691,583 9,298,361 12,155,932 2,799,205 4,185,386
----------- ----------- ----------- ---------- ----------
Operating expenses:
Research and
development
expenses............. 283,575 723,437 978,545 272,072 279,106
Selling, general and
administrative
expenses (includes
stock-based
compensation of
$16,075 for the year
ended December 31,
1999 and $57,400 for
the three months
ended March 31,
2000)................ 4,551,782 7,574,043 9,564,004 2,104,116 3,424,606
----------- ----------- ----------- ---------- ----------
Total operating
expenses............ 4,835,357 8,297,480 10,542,549 2,376,188 3,703,712
----------- ----------- ----------- ---------- ----------
Operating income........ 856,226 1,000,881 1,613,383 423,017 481,674
----------- ----------- ----------- ---------- ----------
Other income (expense):
Other income........... 88,823 31,865 19,404 2,593 --
Interest expense....... (38,722) (49,303) (35,345) (17,371) (30,811)
----------- ----------- ----------- ---------- ----------
Total other income
(expense)........... 50,101 (17,438) (15,941) (14,778) (30,811)
----------- ----------- ----------- ---------- ----------
Income before income tax
provision............. 906,327 983,443 1,597,442 408,239 450,863
Income tax provision.... 400,529 382,709 669,331 165,771 269,451
----------- ----------- ----------- ---------- ----------
Net income.............. $ 505,798 $ 600,734 $ 928,111 $ 242,468 $ 181,412
=========== =========== =========== ========== ==========
Basic earnings per
share................. $ 0.05 $ 0.06 $ 0.09 $ 0.02 $ 0.02
=========== =========== =========== ========== ==========
Diluted earnings per
share................. $ 0.05 $ 0.06 $ 0.08 $ 0.02 $ 0.01
=========== =========== =========== ========== ==========
Shares for basic
computation........... 9,501,820 9,668,281 9,925,488 9,881,198 10,114,811
=========== =========== =========== ========== ==========
Shares for diluted
computation........... 9,531,188 10,316,240 12,364,656 11,618,565 13,407,040
=========== =========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INTRINSIX CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------- Retained Treasury Comprehensive Comprehensive
Shares Amount Earnings Stock Income (Loss) Income Total
---------- -------- ---------- --------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1997.................. 11,755,253 $226,510 $1,289,592 $(333,448) $ -- $1,182,654
Issuance of 23,648
shares of common
stock (including 75
on exercise of
options)............. -- -- -- 4,212 -- 4,212
Net
income/comprehensive
income............... -- -- 505,798 -- -- $505,798 505,798
---------- -------- ---------- --------- ------- ======== ----------
BALANCE, DECEMBER 31,
1997.................. 11,755,253 226,510 1,795,390 (329,236) -- 1,692,664
Issuance of 263,542
shares of common
stock on exercise of
options and 150,000
shares of common
stock for a business
combination.......... -- -- -- 99,944 -- 99,944
Repurchase of 41,118
shares............... (6,249) (6,249)
Net
income/comprehensive
income............... -- -- 600,734 -- $600,734 600,734
---------- -------- ---------- --------- ------- ======== ----------
BALANCE, DECEMBER 31,
1998.................. 11,755,253 226,510 2,396,124 (235,541) -- 2,387,093
Issuance of 167,558
shares of common
stock (including
157,690 on exercise
of options).......... -- -- 41,770 -- 41,770
Stock-based
compensation......... -- 46,288 -- -- -- 46,288
Net
income/comprehensive
income............... -- -- 928,111 -- -- $928,111 928,111
---------- -------- ---------- --------- ------- ======== ----------
BALANCE, DECEMBER 31,
1999.................. 11,755,253 272,798 3,324,235 (193,771) -- 3,403,262
Unaudited:
Issuance of 187,125
shares of common
stock (including
176,625 on exercise
of options).......... -- -- -- 96,335 -- 96,335
Stock-based
compensation......... -- 206,000 -- -- -- 206,000
Comprehensive income
(loss):
Foreign currency
translation loss..... -- -- -- -- (3,283) $ (3,283) (3,283)
Net income............. -- -- 181,412 -- -- 181,412 181,412
--------
Comprehensive income... -- -- -- -- -- $178,129 --
---------- -------- ---------- --------- ------- ======== ----------
BALANCE, MARCH 31, 2000
(UNAUDITED)........... 11,755,253 $478,798 $3,505,647 $ (97,436) $(3,283) $3,883,726
========== ======== ========== ========= ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
INTRINSIX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------------- ----------------------
1997 1998 1999 1999 2000
--------- ----------- ----------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net income........... $ 505,798 $ 600,689 $ 928,111 $ 242,468 $ 181,412
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization...... 231,976 494,547 787,276 132,856 254,543
Bad debt expense.... 7,249 255,008 139,526 5,000 14,573
Gain on disposal of
assets............ -- -- (5,652) -- --
Stock-based
compensation...... -- -- 46,288 -- 206,000
Deferred income
taxes............. 65,439 70,213 (117,052) (16,836) (317)
Changes in assets
and liabilities
(net of effect
from
acquisitions):
Accounts
receivable....... (602,052) (733,436) (979,322) (781,807) (1,988,976)
Unbilled accounts
receivable....... -- 105,621 (873,110) (333,566) 439,930
Prepaid expenses
and other current
assets........... (478,993) 170,188 (199,997) (39,329) (557,416)
Accounts payable... 456,322 (168,940) 623,045 158,797 257,330
Accrued expenses... 36,565 28,466 289,111 340,948 283,307
Accrued income
taxes............ 60,474 (109,264) 431,570 165,442 139,330
--------- ----------- ----------- --------- -----------
Net cash provided
by (used for)
operating
activities..... 282,778 713,092 1,069,794 (126,027) (770,284)
Cash flows from
investing
activities:
Purchase of property
and equipment...... (408,595) (1,084,409) (696,102) (171,862) (335,506)
Disposal of property
and equipment...... -- -- 6,410 -- --
Acquisition of a
business........... -- (90,850) (1,214,600) -- --
--------- ----------- ----------- --------- -----------
Net cash used for
investing
activities..... (408,595) (1,175,259) (1,904,292) (171,862) (335,506)
Cash flows from
financing
activities:
Net increase in line
of credit.......... -- 350,000 (350,000) 253,896 1,250,000
Issuance of long-term
debt............... 200,000 -- 1,200,000 -- --
Repayments of long-
term debt.......... (113,282) (177,018) (61,474) (20,063) (14,363)
Repurchase of shares
of common stock.... -- (6,249) -- -- --
Issuance of common
stock from treasury
for cash........... 4,212 99,944 41,770 1,236 96,335
--------- ----------- ----------- --------- -----------
Net cash provided
by financing
activities..... 90,930 266,677 830,296 235,069 1,331,972
--------- ----------- ----------- --------- -----------
Effect of currency
rate changes in
cash................ -- -- -- -- (3,683)
--------- ----------- ----------- --------- -----------
Net increase
(decrease) in cash.. (34,887) (195,490) (4,202) (62,820) 222,499
Cash and cash
equivalents,
beginning of period
.................... 465,881 430,994 235,504 235,504 231,302
--------- ----------- ----------- --------- -----------
Cash and cash
equivalents, end of
period.............. 430,994 235,504 231,302 172,684 453,801
========= =========== =========== ========= ===========
Supplemental cash flow
information:
Cash paid for
interest........... $ 36,867 $ 46,028 $ 34,934 $ 14,393 $ 15,527
========= =========== =========== ========= ===========
Cash paid for income
taxes.............. $ 253,969 $ 445,852 $ 354,813 $ 17,165 $ 130,438
========= =========== =========== ========= ===========
Issuance of common
stock from treasury
for business
combination........ $ -- $ 57,000 $ -- $ -- $ --
========= =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Intrinsix Corp. and its subsidiaries, together referred to as the
"Company," are providers of advanced electronic design services to systems
original equipment manufacturers and semiconductor companies. The Company
designs semiconductor devices, as well as the accompanying system-level
hardware and software that comprise advanced electronic products. The Company
operates primarily in the United States of America, and has recently opened
facilities in Canada and Europe.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Stock Split--The accompanying financial statements reflect a 3-for-2
split of the Company's common stock which was effected on April 19, 2000. All
share and per share information herein has been retroactively restated to
reflect this split.
Unaudited Interim Information--In the opinion of management, the
accompanying unaudited consolidated balance sheet as of March 31, 2000 and the
unaudited consolidated statements of operations and cash flows for the three
month periods ended March 31, 1999 and 2000, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the interim periods presented. The operating results for the
interim periods presented are not necessarily indicative of the results which
would be expected for the full year.
Significant Accounting Policies
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Intrinsix Corp. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates--The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition--Revenues from design services are recognized as the
services are provided, provided that no significant obligations remain and
collection of the receivable is considered probable. Generally, contracts call
for billings on a time and materials basis; however, in instances when a fixed
fee contract is signed, revenue is recognized on a percentage-of-completion
basis based on labor costs expended relative to total expected labor costs to
complete the contract. Revenues recognized in excess of billed amounts are
accumulated as unbilled receivables, and are generally billed in accordance
with prearranged schedules negotiated with the client. Billings in excess of
revenues earned would be accumulated as deferred revenue; however, to date,
revenues recognized on fixed fee contracts have exceeded amounts billed. None
of the fixed fee contracts entered into by the Company requires retainage or
holdbacks of any portion of the agreed fee. In the event that costs to complete
a given contract would exceed the related revenues, a loss would be recognized
for those excess costs when such a loss is determined to have occurred; to
date, there have been no losses on fixed fee contracts.
Cost of Revenues--Cost of revenues consists primarily of personnel costs
related to the provision of services.
F-7
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and Development Expenses--Research and development costs
associated with the development of proprietary products and design
methodologies are expensed as incurred. The Company has developed proprietary
software tools for use by its consultants. Costs incurred to develop such tools
have not been material to date and have been expensed as incurred.
Comprehensive Income (Loss)--The only item that the Company records as
comprehensive income or loss, other than net income or loss, is the change in
the cumulative translation adjustment resulting from the changes in exchange
rates and the effect of those changes upon translation of the financial
statements of the Company's foreign operations. As of December 31, 1997, 1998,
1999 and March 31, 1999, there was no item of comprehensive income other than
net income. As of March 31, 2000, the cumulative translation adjustment was
($3,283).
Foreign Operations--The functional currency for most of the Company's
foreign operations is the applicable local currency. Assets and liabilities of
foreign operations are translated into U.S. dollars at the exchange rate on the
balance sheet date. The results of operations of foreign operations are
translated using average rates of exchange during each reporting period. Gains
and losses upon translation are deferred and reported as other comprehensive
income.
Concentration of Credit Risk--The majority of the Company's revenues are
from customers in technology industries that are not required to provide
collateral. The Company's customers are dispersed over a wide geographic area
and are subject to periodic review under the Company's credit policies. The
Company does not believe that it is subject to any unusual credit risks, other
than the normal level of risk attendant to operating its business.
Major customers accounted for the following percentages of the Company's
revenues and accounts receivable as follows:
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
------------------------------------------------ ----------------------------
1997 1998 1999 1999 2000
-------- ------------------- ------------------- -------- -------------------
Accounts Accounts Accounts
Revenues Revenues Receivable Revenues Receivable Revenues Revenues Receivable
-------- -------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A.............. 17% 18% 8% 24% 6% 19% 26% 19%
Customer B.............. -- -- -- 13% 4% 12% -- --
Customer C.............. 10% -- -- -- -- -- -- --
Customer D.............. -- -- -- -- -- -- 6% 10%
</TABLE>
No other customers accounted for more than 10% of revenue or accounts
receivable in any of the periods presented.
Cash Equivalents--Cash equivalents consist of short-term highly liquid
investments purchased with a remaining maturity of three months or less.
Financial Instruments--A financial instrument is defined as cash,
evidence of an ownership in an entity, and certain contracts to exchange cash
or other financial instruments. For financial instruments such as accounts
receivable, accounts payable and accrued expenses, which are settled generally
within three months of the reporting date, carrying amount approximates fair
value. At December 31, 1998 and 1999, the carrying amounts of long-term debt
approximate their fair values, since the majority of long-term debt bears
interest at a rate similar to that which the Company could obtain. SFAS No. 107
"Disclosures about Fair Value of Financial Instruments" excludes from its scope
certain financial instruments and all nonfinancial instruments including
property, plant and equipment, retirement benefit obligations and leases.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying fair value of the Company. The carrying amount of cash and cash
equivalents approximates fair value.
F-8
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment--Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful lives of
the various assets, generally three years. Leasehold improvements are amortized
using the straight-line method over the lesser of the estimated life of the
improvement or the remaining life of the lease.
Long-Lived Assets--Upon occurrence of certain events or changes in
circumstances, the Company reviews the carrying value of its long-lived assets
to determine if impairment has occurred and if necessary, adjusts the carrying
value to fair market value. No adjustments have been required to date.
Income Taxes--Deferred income taxes are provided for differences between
the financial statement carrying amounts and tax bases of the Company's assets
and liabilities, using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are provided to the
extent realization of deferred tax assets is not considered more likely than
not. Income tax provisions during interim periods are recorded using the
estimated effective rate for the full year.
Stock-Based Compensation--Compensation expense associated with awards of
stock or options to employees is measured using the intrinsic-value method.
(See Note 7)
Earnings Per Share--Net income per share has been computed using the
weighted-average number of shares of common stock outstanding during each
period. Diluted amounts per share include the impact of the Company's
outstanding options.
The following is a reconciliation of shares used in the basic computation
to shares used in the diluted computation:
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
------------------------------- ---------------------
1997 1998 1999 1999 2000
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Shares used in basic
computation........... 9,501,820 9,668,281 9,925,488 9,881,198 10,114,811
Potential common shares
from options.......... 29,368 647,959 2,439,168 1,737,367 3,292,229
--------- ---------- ---------- ---------- ----------
Shares used in diluted
computation........... 9,531,188 10,316,240 12,364,656 11,618,565 13,407,040
========= ========== ========== ========== ==========
</TABLE>
Segments--The Company operates in a single operating segment.
Substantially all of the Company's activities to date have been conducted in
the United States of America.
Newly Issued Accounting Standards--During 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued by the Financial
Accounting Standards Board. This statement is effective for fiscal years
beginning after June 15, 2000. The Company is currently evaluating the impact,
if any, of this statement.
3. Business Combinations
Pooling of Interests--In June 1999, the Company issued 750,000 shares of
common stock in exchange for all of the outstanding common shares of Seva
Technologies, Inc. ("Seva"), a design services company. In addition, the
Company assumed Seva's outstanding obligations to issue shares on exercise of
options held by Seva employees, which options had been issued in 1997. These
Seva options converted to options to acquire Company common stock on the same
terms and conditions present in the options prior to the combination, adjusted
only for changes in the number of shares and exercise price due to the exchange
ratio presented in the merger agreement. The merger with Seva was accounted for
as a pooling of interests and, accordingly, the accompanying consolidated
financial statements include the accounts and balances of Seva for all periods
presented. There were no adjustments required to conform the accounting
policies of the two companies.
F-9
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information regarding the revenues and results of operations of the
Company and Seva prior to the combination are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, Period from
------------------------- January 1 to
1997 1998 June 11, 1999
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Company............................... $ 14,641,418 $ 21,474,800 $13,528,716
Seva.................................. 1,688,429 2,000,143 1,295,814
------------ ------------ -----------
Combined............................. $ 16,329,847 $ 23,474,943 $14,824,530
============ ============ ===========
Net income (loss):
Company............................... $ 470,799 $ 528,317 $ 505,169
Seva.................................. 34,999 72,417 (264,307)
------------ ------------ -----------
Combined............................. $ 505,798 $ 600,734 $ 240,862
============ ============ ===========
</TABLE>
Asset Purchases
Telexis Corporation--On December 29, 1999, the Company acquired the
operating assets of a design services division of a Canadian company, the
Design Division of Telexis Corporation, for a purchase price of $1,386,000. The
acquisition has been accounted for as a purchase and the purchase price has
been preliminarily allocated to the assets acquired based upon the estimated
fair values. Upon completion of appraisal activities, which are currently being
undertaken, the purchase price will be reallocated to the assets acquired based
upon the final estimated fair value. Goodwill generated by the transaction is
expected to be amortized to expense using the straight-line method over 10
years, its estimated useful life. Operating activity related to these assets
for the two days ended December 31, 1999 was immaterial. The results of
operations from these assets are included in the consolidated results from the
date of the acquisition forward.
On a preliminary basis, the purchase price for the Design Division of
Telexis Corporation has been allocated to the assets acquired based on
management's estimate of their fair value, as described in the following table.
Following completion of an independent appraisal, the purchase price will be
reallocated based on the results of that appraisal.
<TABLE>
<S> <C>
Fixed assets................................................... $ 87,675
Goodwill....................................................... 1,351,604
Costs of acquisition accrued................................... (53,279)
Additional purchase price accrued.............................. (172,000)
----------
Total cash paid................................................ $1,214,000
==========
</TABLE>
Of the total purchase price of $1,386,000, $1,214,000 was paid in cash at
closing, and $172,000 was retained pending satisfaction of certain
representations and warranties contained in the purchase agreement. Because
management has concluded that payment of the amounts retained is virtually
certain, the amount retained was accrued as part of the initial recording of
the transaction. The Company expects to remit the remaining portion of the
purchase price to Telexis Corporation in June 2000.
Prism Acoustics, Inc.--In 1998, the Company acquired the assets of Prism
Acoustics, Inc., a design services company. The purchase price consisted of
cash of $90,850 and the issuance of 150,000 shares of common stock from
treasury with an estimated fair value of $0.38 per share at the time of
issuance. The purchase price was allocated to the assets acquired based on
estimated fair value. The results of operations of the assets acquired are
included with those of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized to expense using the
straight-line method over a two year period.
F-10
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Information (Unaudited)--Had the purchase combinations
described above occurred on January 1, of each year, the consolidated results
of operations would have been as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenues............................................... $25,660,263 $32,654,029
Net income............................................. $ 480,176 $ 956,111
Basic earnings per share.............................. $ 0.05 $ 0.10
Diluted earnings per share............................ $ 0.05 $ 0.08
</TABLE>
This pro forma information is not necessarily indicative of the results
of operations which would have been recorded had such acquisitions occurred at
the dates indicated.
4. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
------------------------ -----------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Computer equipment and software.......... $ 2,086,143 $ 2,627,082 $ 2,912,715
Furniture and fixtures................... 280,919 383,717 422,818
Leasehold improvements................... 49,796 55,569 66,340
----------- ----------- -----------
Total................................... 2,416,858 3,066,368 3,401,873
Less accumulated depreciation............ (1,115,618) (1,716,843) (1,909,353)
----------- ----------- -----------
Property and equipment, net.............. $ 1,301,240 $ 1,349,525 $ 1,492,520
=========== =========== ===========
</TABLE>
5. Long-term Debt
Line of Credit--The Company has a line of credit with a bank providing
for borrowings of up to $1.5 million, of which $1.2 million has been drawn down
at December 31, 1999, all to fund the purchase of assets from Telexis
Corporation (see Note 3). Borrowings under the line bear interest at the bank's
base rate plus 0.5% (9.0% at December 31, 1999) and are collateralized by a
first security interest in all of the Company's assets. At December 31, 1999,
$300,000 was available for borrowing under the line of credit. In January 2000,
the line of credit agreement was amended as follows:
. Amounts outstanding under the line of credit on the date of amendment
(January 13, 2000) were converted to a term loan of $1.2 million. The
term loan is payable in $25,000 monthly installments through January
2004, with interest at the bank's prime rate plus 0.5%. Amounts due
under this arrangement at December 31, 1999 have been classified in
accordance with the terms of the amendment.
. A new revolving line of credit facility was provided, allowing for
borrowings of up to $1.5 million, based on eligible accounts
receivable. Borrowings under the revolving line of credit facility
bear interest at the bank's prime rate plus 0.5%. The amended
revolving line of credit facility expires on May 31, 2001. At March
31, 2000, the Company had borrowed $1,250,000 under the new revolving
line of credit facility.
. The amended agreements with the bank contain covenants with which the
Company must comply, including minimum levels of defined cash flow
and quarterly net profit, and maximum amounts of allowable leverage.
Under the amended agreements, the Company is precluded from paying
cash dividends on its common stock. In addition, the amended
agreements require that all outstanding term debt be retired with a
portion of the proceeds of an initial public offering.
F-11
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note Payable--In connection with the repurchase of common stock held by
two members of the board of directors in 1994, the Company entered into notes
payable agreements. At December 31, 1999, one of these agreements remained
outstanding, with a balance of $174,901. The note payable calls for monthly
payments of $5,922, including interest at a fixed rate of 8.0%. The note is
subordinated to the line of credit and is collateralized by all of the assets
of the Company.
Principal payments due for the note payable and the term loan are as
follows for the years ending December 31:
<TABLE>
<S> <C>
2000............................................................ $ 359,212
2001............................................................ 415,689
2002............................................................ 300,000
2003............................................................ 300,000
----------
Total.......................................................... $1,374,901
==========
</TABLE>
6. Provision for Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
--------------------------- --------------------
1997 1998 1999 1999 2000
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal.................... $267,247 $266,020 $ 668,425 $ 155,216 $ 229,302
State...................... 67,843 46,476 117,958 27,391 40,465
-------- -------- --------- --------- ---------
Total..................... 335,090 312,496 786,383 182,607 269,767
-------- -------- --------- --------- ---------
Deferred:
Federal.................... 55,573 59,771 (99,494) (14,311) (316)
State...................... 9,866 10,442 (17,558) (2,525) --
-------- -------- --------- --------- ---------
Total..................... 65,439 70,213 (117,052) (16,836) (316)
-------- -------- --------- --------- ---------
Provision for income taxes.. $400,529 $382,709 $ 669,331 $ 165,771 $269,451
======== ======== ========= ========= =========
</TABLE>
A reconciliation of the statutory federal income tax rate and the
effective rate for the following periods consists of the following:
<TABLE>
<CAPTION>
Three
Months
Year Ended Ended
December 31, March 31,
-------------- ---------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate.................... 34% 34 % 34% 34% 34 %
State income taxes--net of federal income tax
benefit............................................ 6% 6 % 6% 6% 6 %
Permanent differences, principally compensation cost
for stock options in 2000.......................... 1% 1 % 1% 1% 20 %
Other................................................ 3% (2)% 0% 1% (1)%
--- ---- --- --- ----
Effective rate...................................... 44% 39 % 41% 41% 59 %
=== ==== === === ====
</TABLE>
F-12
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effect of significant items comprising the Company's net deferred
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
--------- --------
<S> <C> <C>
Accounts receivable....................................... $(155,271) $(96,596)
Accrued expenses.......................................... 41,262 35,954
Property and equipment.................................... (61,487) (76,363)
Intangible assets......................................... 2,791 29,412
Loss carryforwards........................................ -- 51,936
--------- --------
Deferred tax liabilities................................. $(172,705) $(55,657)
========= ========
</TABLE>
Tax loss carryforwards available for federal and state (California)
purposes to reduce future taxable income aggregate $138,000 and expire in 2019.
7. Stockholders' Equity
Stock Option Plans--The Company's Incentive Stock Option Plan (the
"Plan"), established in March 1997, provides for grants of options to purchase
up to 4,500,000 shares of common stock. Grants may be in the form of incentive
stock options or nonqualified options. Exercise prices and vesting periods are
determined by the board of directors on the date of grant. Options generally
vest ratably over a four-year period. Included within the option activity
presented below are obligations to issue shares on exercise of options held by
former Seva employees. These Seva options were converted to options to acquire
Company common stock on the same terms and conditions present in the options
prior to the combination, adjusted only for changes in the number of shares and
exercise price due to the exchange ratio present in the merger agreement. A
summary of activity in the plans are as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number Exercise
of Shares Price
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997............................. -- $ --
Granted................................................... 1,071,999 0.17
Exercised................................................. (75) 0.16
Cancelled................................................. (19,500) 0.18
---------
Outstanding at December 31, 1997........................... 1,068,424 0.17
Granted................................................... 1,919,397 0.47
Exercised................................................. (263,542) 0.16
Cancelled................................................. (97,275) 0.28
---------
Outstanding at December 31, 1998........................... 2,627,004 0.39
Granted................................................... 1,396,537 1.76
Exercised................................................. (157,690) 0.26
Cancelled................................................. (167,362) 0.50
---------
Outstanding at December 31, 1999........................... 3,698,489 0.90
Granted................................................... 518,625 3.31
Exercised................................................. (176,625) 0.35
Cancelled................................................. (77,625) 1.19
---------
Outstanding at March 31, 2000.............................. 3,962,864 $0.93
=========
</TABLE>
F-13
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth information regarding options outstanding
and vested at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
-------------------------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Life Exercise Exercise
Shares Exercise Price (in years) Price Shares Price
--------- -------------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
598,722 $0.16--$0.18 7.37 $0.18 299,361 $0.18
706,309 $0.28--$0.38 8.30 $0.36 187,827 $0.36
1,016,419 $0.51--$0.70 8.75 $0.54 254,104 $0.54
790,875 $1.16--$1.60 9.23 $1.40 4,782 $1.16
586,164 $2.03--$2.46 9.76 $2.24 -- --
---------
--------- -------
3,698,489 746,074
========= =======
</TABLE>
The Company accounts for stock-based compensation under the provisions of
Accounting Principles Board (APB) Opinion No. 25. During 1999 and 2000, the
Company granted options with exercise prices less than the fair market value of
the stock at the date of grant. For those grants, compensation cost aggregated
$3.2 million, which will be amortized to expense on a straight-line basis over
the vesting period of the affected grants (four years). Compensation cost
related to these option grants recognized in 1999 and the three months ended
March 31, 2000 aggregated $46,000 and $164,000, respectively. In addition, in
February 2000, the Company sold shares of common stock to a third party at a
price less than fair market value. The difference between fair market value and
the price paid, $42,000, was also recorded as compensation cost.
If compensation cost for stock option grants had been determined based on
the fair value of the grant for 1997, 1998 and 1999 consistent with the method
prescribed by SFAS No. 123, the Company's fiscal 1997, 1998 and 1999 net income
and earnings per share on a pro forma basis would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
As reported................................... $505,798 $600,734 $928,111
Pro forma..................................... $484,886 $525,404 $644,611
Pro forma basic earnings per share .......... $0.05 $0.05 $0.06
Pro forma diluted earnings per share......... $0.05 $0.05 $0.05
The weighted-average fair market value of options granted was $0.16,
$0.41 and $2.70 per share for the years ended 1997, 1998 and 1999,
respectively, measured using the assumptions and methodology described below.
The fair value of the options on their grant date was measured using the
Black-Scholes option pricing model. Key assumptions used to apply this option
pricing model are as follows:
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate....................... 5.77% 4.75% 5.00%
Expected life of option grants................ 9.75 years 9.75 years 9.75 years
Expected dividend payment rate, as a
percentage of the stock price on the date of
the grant................................... 0% 0% 0%
Assumed volatility............................ 40% 40% 40%
</TABLE>
F-14
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The option-pricing model used was designed to value readily tradeable
stock options with relatively short lives. However, management believes that
the assumptions used to value the options and the model applied yield a
reasonable estimate of the fair value of the grants made under the
circumstances.
Reserved Shares--At December 31, 1999, 4,078,693 shares of common stock
were reserved for issuance upon exercise of options.
8. Retirement Savings Plan
In 1994, the Company established a 401(k) retirement savings plan
covering all employees who have completed six months of service. Under the
provisions of the plan, employees may contribute 1% to 20% of their
compensation within certain limitations. Each year, the Company will make
matching contributions equal to 50% of each participant's elective deferral up
to a maximum of 6% of the participant's yearly compensation. During the years
ended December 31, 1997, 1998 and 1999 and the three months ended March 31,
1999 and 2000, the Company contributed $149,521, $242,155, $375,359, $79,056
and $126,875, respectively, to the plan.
9. Commitments and Contingencies
Noncompete Agreement--In connection with the repurchase of common stock
held by a member of the board of directors, the Company entered into a
noncompete agreement, barring such member of the board of directors from
entering into competition with the Company. In exchange for this commitment,
the Company agreed to pay the member of the board of directors $1,184 per month
through March 1996. In April 1996, the Company made a one-time payment to this
member of the board of directors of $22,284, with ongoing monthly payments
subsequent to that date of $835 through September 2002. Since continued payment
is conditional upon the member of the board of directors' compliance with the
agreement, payments made have been charged to expense on a current basis.
Expense recorded related to this agreement amounted to $10,018 for the years
ended December 31, 1997, 1998 and 1999.
Operating Leases--The Company leases certain of its office facilities
under noncancelable operating leases expiring through 2004. The Company's
headquarters and certain other facilities are leased on a month-to-month basis.
Total rent expense, including month-to-month leases, was $291,003, $483,028,
$731,587, $187,684 and $169,365 for the years ended December 31, 1997, 1998 and
1999 and the three months ended March 31, 1999 and 2000, respectively.
Future minimum payments under noncancelable operating leases for the
years ending December 31 are as follows:
<TABLE>
<S> <C>
2000................................................................ $385,102
2001................................................................ 300,592
2002................................................................ 199,397
2003................................................................ 100,537
2004................................................................ 82,397
</TABLE>
Legal Proceedings--The Company is not a party to any material legal
proceedings. From time to time, the Company may become a party to legal
proceedings incidental to the conduct of its business. The outcome of any
current legal proceeding is not expected, either individually or in the
aggregate, to be material to either financial position or the results of
operations of the Company.
F-15
<PAGE>
INTRINSIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Qualifying Accounts
The Company maintains allowances for potential uncollectible accounts.
Activity within this allowance is as follows:
<TABLE>
<S> <C>
Balance, January 1, 1997......................................... $ --
Provisions for uncollectible accounts............................ 7,249
Writeoffs of uncollectible accounts.............................. (7,249)
--------
Balance, December 31, 1997....................................... --
Provisions for uncollectible accounts............................ 255,008
Writeoffs of uncollectible accounts.............................. (240,008)
--------
Balance, December 31, 1998....................................... 15,000
Provisions for uncollectible accounts............................ 139,526
Writeoffs of uncollectible accounts.............................. (21,112)
--------
Balance, December 31, 1999....................................... 133,414
</TABLE>
11. Subsequent Events
Change in Capital Structure--In April 2000, the Company's articles of
organization were amended to increase the number of authorized shares of common
stock to 70,000,000. In addition, 5,000,000 shares of preferred stock were
authorized, all of which are undesignated and are available for issuance.
Employee Benefit Plans
In April 2000, the stockholders of the Company approved the 2000 Stock
Incentive Plan. Under the terms of this plan, the Company may issue incentive
stock options, non statutory stock options, restricted stock awards, and other
stock-based awards. Awards covering up to 2,000,000 shares of common stock may
be made under the terms of the 2000 Stock Incentive Plan. Incentive stock
options granted under this plan must possess exercise prices equal to at least
the fair market value of the underlying common stock on the date of grant. Non
statutory awards may be granted at any price deemed reasonable by the board of
directors.
In April 2000, the stockholders of the Company also approved the 2000
Outside Director Stock Option Plan. Under the terms of this plan, non-employee
directors may be granted options to purchase up to 200,000 shares of common
stock as compensation for their services as directors. Each non-employee
director serving as a director after consummation of the proposed stock
offering will receive a grant to acquire 5,000 shares of common stock at an
exercise price equal to the initial public offering price. In addition, new
directors will receive a one-time grant of 5,000 options, at an exercise price
of fair market value on the date of grant, on the date of his or her initial
election to the board of directors. Each non-employee director will receive an
annual grant of 2,500 options, at an exercise price of fair market value on the
date of grant, on the date of the Company's annual meetings, commencing with
the 2001 annual meeting of stockholders. Any options granted under this plan
will vest immediately upon issuance.
In April 2000, the stockholders approved the 2000 Employee Stock Purchase
Plan. The plan provides for the purchase of up to 1,000,000 shares of common
stock at 85% of the lower of the fair market value on the first day or the last
day of each offering period. The compensation committee of the board of
directors has the discretion to choose any length of offering period, not to
exceed 12 months.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Intrinsix Corp.:
We have audited the accompanying statement of revenues and direct
expenses of the Design Division of Telexis Corporation for the year ended
December 31, 1999 prepared pursuant to the sale of this division to Intrinsix
Corp. under the Purchase Agreement described in Note 2. This statement is the
responsibility of Telexis Corporation's management. Our responsibility is to
express an opinion on this statement based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance whether the statement of revenues and direct
expenses of the Design Division of Telexis Corporation is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of revenues and direct expenses.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statement of revenues and direct expenses.
The accompanying statement of revenues and direct expenses of the Design
Division of Telexis Corporation was prepared solely to provide information
about the revenues and direct expenses of the Design Division of Telexis
Corporation and is not intended to be a complete presentation of the results of
operations of the Design Division of Telexis Corporation in accordance with
United States generally accepted accounting principles.
In our opinion, the accompanying statement presents fairly, in all
material respects, the revenues and direct expenses of the Design Division of
Telexis Corporation for the year ended December 31, 1999 pursuant to the sale
of this division to Intrinsix Corp. under the Purchase Agreement described in
Note 2, in conformity with United States generally accepted accounting
principles.
Deloitte & Touche LLP
Ottawa, Canada
March 29, 2000 (Except for Note 6, which is as of June 23, 2000)
F-17
<PAGE>
THE DESIGN DIVISION OF TELEXIS CORPORATION
Statement of Revenues and Direct Expenses
Year Ended December 31, 1999
(in thousands of Canadian dollars)
(Restated, see Note 6)
<TABLE>
<S> <C>
Revenues........................................................... $2,889
Cost of revenues................................................... 2,032
------
Gross profit....................................................... 857
Direct expenses ................................................... 518
------
Excess of revenues over direct expenses............................ $ 339
======
</TABLE>
See notes to statement of revenues and direct expenses.
F-18
<PAGE>
THE DESIGN DIVISION OF TELEXIS CORPORATION
NOTES TO THE STATEMENT OF REVENUES AND DIRECT EXPENSES
Year Ended December 31, 1999
(in thousands of Canadian dollars)
1. SALE OF THE DESIGN DIVISION
On December 29, 1999, the Telexis Corporation (the "Company") sold its
Design Division to Intrinsix Corp. The Company received gross proceeds of
$1,750 and recorded a gain of $1,585 on the transaction. The Company is
entitled to additional compensation of up to $250 subject to the Design
Division meeting certain targets for the six-month period January 1, 2000 to
June 30, 2000.
2. BASIS OF PRESENTATION
The accompanying statement of revenues and direct expenses of the Design
Division of Telexis Corporation was prepared for the purpose of complying with
the purchase agreement and is not intended to be a complete presentation of the
results of operations of the Design Division of Telexis Corporation. Prior to
the purchase, the Design Division was an integral part of Telexis Corporation's
operations and did not constitute a legal or reporting entity for which
financial statements were prepared.
Revenues represent charges for engineering services, complex multimedia
integration projects including custom hardware, software and firmware
development applications as well as turnkey project management. Cost of sales
includes engineering salaries and material purchases related to the above
mentioned projects.
Direct expenses include training, sales and administrative compensation,
consultants, travel-related expenses, telephone, depreciation, software and
supplies. Since a portion of corporate overhead expenses are accumulated and
accounted for in Telexis Corporation's accounting system without regard to the
division incurring these expenses, these expenses have been allocated to the
Design Division based upon the percentage of workforce in the Design Division
to the total Telexis Corporation workforce. Allocated corporate overhead
amounted to approximately $400 for the year ended December 31, 1999. Corporate
overhead costs have not been included in the accompanying financial statement
of revenues and direct expenses. Management believes that the allocation method
employed is reasonable in the circumstances, however; such amounts may not
necessarily be indicative of amounts incurred had the Design Division been
operated as an unaffiliated company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Revenue from service and installation are recognized when the services
are performed, or for fixed-price contracts on percentage-of-completion basis.
Percentage of completion is estimated using contract costs incurred to date in
relation to estimated total contract costs.
Foreign currency translation
Foreign currency revenues and direct expenses are translated at rates in
effect during the year. Gains and losses from translation are included in the
statement of revenues and direct expenses in the year in which they occur.
Use of accounting estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires the
Company's management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period presented. Actual results could differ from those estimates.
F-19
<PAGE>
THE DESIGN DIVISION OF TELEXIS CORPORATION
NOTES TO THE STATEMENT OF REVENUES AND DIRECT EXPENSES--(Continued)
Year Ended December 31, 1999
(in thousands of Canadian dollars)
4. RELATED PARTY TRANSACTIONS
During 1999, the Design Division of Telexis Corporation had sales of $381
to Newbridge Networks Corporation, a shareholder of the Company.
5. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. Although the change in date has occurred, it is
not possible to conclude that all aspects of the Year 2000 Issue that may
affect the Company, including those related to customers, suppliers, or other
third parties, have been fully resolved.
6. RESTATEMENT
Subsequent to the issuance of the Company's Statement of Revenues and
Direct Expenses for the year ended December 31, 1999, the Company determined
that depreciation of $82 should have been included in Direct expenses. As a
result, the accompanying financial statement has been restated as follows:
<TABLE>
<CAPTION>
As Previously As
Reported Restated
------------- --------
<S> <C> <C>
Direct expenses..................................... $436 $518
Excess of revenues over direct expenses............. $421 $339
</TABLE>
F-20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
The following unaudited pro forma condensed consolidated statement of
operations gives effect to our acquisition of the assets of the Design Division
of Telexis Corporation as though the acquisition had occurred on January 1,
1999. An unaudited pro forma condensed consolidated balance sheet is not
provided, as we acquired the assets of the Design Division of Telexis
Corporation on December 29, 1999, and this transaction is already reflected, on
a preliminary basis, in our consolidated balance sheet.
The pro forma as adjusted condensed consolidated statement of operations
information gives effect to our proposed stock offering and the use of proceeds
thereof to repay indebtedness incurred to fund the acquisition of the assets of
the Design Division of Telexis Corporation in the amount of $1.2 million.
This unaudited pro forma condensed consolidated statement of operations,
including the notes to the unaudited pro forma condensed consolidated statement
of operations, is qualified in its entirety by reference to, and should be read
in conjunction with, our consolidated financial statements and the notes
thereto included elsewhere in this prospectus.
The following unaudited pro forma condensed consolidated statement of
operations is presented for illustrative purposes only and is not necessarily
indicative of the actual results of operations that would have been realized
had we acquired the assets of the Design Division of Telexis Corporation on
January 1, 1999. In addition, as discussed in the notes to the unaudited pro
forma condensed consolidated statement of operations, the purchase price
allocation is preliminary and could change upon completion of appraisal
activities.
P-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(1)
(dollars in thousands, except per share data)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Historical Design Design Pro
Intrinsix Division of Division of Forma Pro
Corp. Telexis Corp. Telexis Corp. Entries Forma
-------------- --------------------- ----------------- ------- -------
(U.S. Dollars) (Canadian Dollars)(7) (U.S. Dollars)(2)
<S> <C> <C> <C> <C> <C>
Revenues................ $30,657 $2,889 $1,997 $ -- $32,654
Cost of revenues........ 18,501 2,032 1,405 -- 19,906
------- ------ ------ ----- -------
Gross profit........... 12,156 857 592 -- 12,748
------- ------ ------ ----- -------
Operating expenses:
Research and
development
expenses............. 979 -- -- -- 979
Selling, general and
administrative
expenses............. 9,564 518 358 80 (3) 10,002
------- ------ ------ ----- -------
Total operating
expenses............ 10,543 518 358 80 10,981
------- ------ ------ ----- -------
Operating income
(loss)................ 1,613 339 224 (80) 1,767
Total other income
(expense)............. (16) -- -- (108)(4) (124)
------- ------ ------ ----- -------
Income (loss) before
income tax provision.. 1,597 339 224 (178) 1,643
Income tax provision.... 669 -- -- 18 (5) 687
------- ------ ------ ----- -------
Net income (loss)...... $ 928 $ 339 $ 224 $(196) $ 956
======= ====== ====== ===== =======
Basic earnings per
share................. $ 0.09 $ 0.10
======= =======
Diluted earnings per
share................. $ 0.08 $ 0.08
======= =======
Shares for basic
computation........... 9,925 9,925
======= =======
Shares for diluted
computation........... 12,365 12,365
======= =======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
P-2
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
1. On December 29, 1999, we acquired the operating assets of the Design
Division of Telexis Corporation, a Canadian company, for consideration of
approximately US$1.4 million. We accounted for this acquisition as a
purchase and the purchase price has been preliminarily allocated to the
assets acquired based upon their estimated fair values. Upon completion of
appraisal activities, which are currently being undertaken, the purchase
price will be reallocated to the assets acquired based upon the estimated
fair value. Goodwill generated by the transaction is expected to be
amortized to expense using the straight-line method over 10 years, its
estimated useful life.
Of the total purchase price of $1,386,000, $1,214,000 was paid in cash at
closing, and $172,000 was retained pending satisfaction of certain
representations and warranties contained in the purchase agreement.
Because management has concluded that payment of the amounts retained is
virtually certain, the amount retained was accrued as part of the initial
recording of the transaction. The Company expects to remit the remaining
portion of the purchase price to Telexis Corporation in June 2000.
On a preliminary basis, the purchase price for the Design Division of
Telexis Corporation has been allocated to the assets acquired based on
management's estimate of their fair value, as described in the following
table. Following completion of an independent appraisal, which is in
process, the purchase price will be reallocated based on the results of
that appraisal.
<TABLE>
<S> <C>
Fixed assets.................................................. $ 87,675
Goodwill...................................................... 1,31,604
Costs of acquisition accrued.................................. (53,279)
Additional purchase price accrued............................. (172,000)
----------
Total cash paid............................................... $1,214,000
==========
</TABLE>
2. Telexis Corporation operates in Canada and keeps its books and records in
Canadian dollars. For purposes of this unaudited pro forma condensed
consolidated statement of operations, we translated the results of
operations of the Design Division of Telexis Corporation using the average
1999 exchange rate of 0.693 U.S. dollar per Canadian dollar.
3. Adjustment records amortization expense related to the intangible assets
acquired through the acquisition (preliminarily goodwill) based on their
estimated useful lives of 10 years. As discussed in Note 1, the purchase
price allocation is preliminary and could change upon completion of final
appraisals. As a result, the amount of amortization cost incurred could
change.
The pro forma adjustment consists of two items as follows:
<TABLE>
<S> <C>
Reversal of historical depreciation................................ $(57)
Estimated amortization and depreciation of acquired assets......... 137
----
Pro forma adjustment............................................... $ 80
====
</TABLE>
4. Adjustment records on a pro forma basis interest expense incurred related
to borrowings used to fund the acquisition of the assets of the Design
Division of Telexis Corporation ($1.2 million) at the rate carried by the
debt at December 31, 1999 (9.0%).
5. Adjustment records the estimated tax effect of the amortization of the
intangible assets acquired and incremental interest expense (savings) at
the estimated effective tax rate of 40.0%.
6. As described in "Use of Proceeds," the Company is required to repay
amounts outstanding under its bank credit facilities in the amount of
$1,200,000 at December 31, 1999. Had the effect of such repayment been
reflected in the pro forma statement of operations, income before income
tax provision would have been $1,751,000, the income tax provision would
have been $731,000, and net income would have been $1,020,000.
7. Amounts have been restated to include allocated depreciation expense of
$82. See Note 6 to the Design Division of Telexis Corporation's statement
of revenues and direct expenses included elsewhere herein.
P-3
<PAGE>
The inside back cover contains a map of the United States and Canada showing
the location of our 19 design centers and our corporate headquarters in
Marlboro, Massachusetts. Our logo appears at the top of the page. The caption
"19 Networked Design Centers" appears below the map. Silicon wafers and two
shaded desktop globes appear in the background of the page.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 13,359
NASD filing fee.................................................. 5,560
Nasdaq National Market listing fee............................... 95,000
Blue Sky fees and expenses....................................... 10,000
Transfer Agent and Registrar fees................................ 5,000
Accounting fees and expenses..................................... 300,000
Legal fees and expenses.......................................... 425,000
Printing and mailing expenses.................................... 150,000
Miscellaneous.................................................... 46,081
----------
Total........................................................... $1,050,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Article VI of the Registrant's Amended and Restated Articles of
Organization provide that no director of the Registrant shall be personally
liable for any monetary damages for any breach of fiduciary duty as a director,
except to the extent that the Massachusetts General Laws prohibit the
elimination or limitation of liability of directors for breach of fiduciary
duty.
Article VI of the Registrant's Amended and Restated Articles of
Organization provide that the Registrant shall indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was, or has agreed to
become, a director or officer of the corporation, or is or was serving, or has
agreed to serve, at the request of the corporation, as a director or officer
of, or in a similar capacity with, another organization or in any capacity with
respect to any employee benefit plan of the corporation, each an Indemnitee, or
by reason of any action alleged to have been taken or omitted in such capacity,
against all expenses including attorneys' fees, judgments and fines incurred by
him or on his behalf in connection with such action, suit or proceeding and any
appeal therefrom, unless the Indemnitee shall be finally adjudicated in such
action, suit or proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Registrant or, to the
extent such matter relates to service with respect to an employee benefit plan,
in the best interests of the participants or beneficiaries of such employee
benefit plan. Except as otherwise set forth in the Amended and Restated
Articles of Organization, the Registrant shall not indemnify an Indemnitee
seeking indemnification in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
board of directors of the Registrant. The Registrant shall not indemnify an
Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of
insurance, and in the event the Registrant makes any indemnification payments
to an Indemnitee and the Indemnitee is subsequently reimbursed from the
proceeds of insurance, such Indemnitee shall promptly refund such
indemnification payments to the corporation to the extent of such insurance
reimbursement. The right to indemnification shall include the right to be paid
by the Registrant for amounts paid in settlement of any such action, suit or
proceeding and any appeal therefrom, and all expenses, including attorneys'
fees, incurred in connection with such settlement, pursuant to a consent decree
or otherwise, unless
II-1
<PAGE>
the Indemnitee did not act in good faith in the reasonable belief that his
action was in the best interests of the Registrant or, to the extent such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article VI of the Registrant's Amended and Restated Articles of
Organization further provide that the indemnification provided therein is not
exclusive, and provides that in the event that the Massachusetts General Laws
are amended to expand the indemnification permitted to directors or officers,
the Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 67 of Chapter 156B of the Massachusetts General Laws provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of
the corporation in related capacities, including with respect to any employee
benefit plan, against expenses incurred in defending a civil or criminal action
or proceeding in advance of the final disposition of such action or proceeding,
provided that the indemnified person:
. undertakes to repay such payment to the corporation if a court
determines that he is not entitled to indemnification; and
. acted in good faith in the reasonable belief that his action was in
the best interest of the corporation or the participants or
beneficiaries of the relevant employee benefit plan, as applicable.
The corporation may provide for indemnification as follows:
. in its articles of organization;
. in its bylaws;
. by a vote adopted by the holders of a majority of the shares of
capital stock entitled to vote on the election of directors; or
. in the case of indemnified persons who are not directors of the
corporation, by authorization of its directors.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of
common stock issued and options granted by the Registrant since April 1, 1997.
Further included is the consideration, if any, received by the Registrant for
such shares and options and information relating to the section of the
Securities Act, or rule of the Securities and Exchange Commission under which
exemption from registration was claimed.
II-2
<PAGE>
(a) Issuances of Capital Stock.
In May 1998, the Registrant issued 150,000 shares of common stock as part
of the purchase price for the assets of Prism Acoustics, Inc.
In June 1999, the Registrant issued an aggregate of 750,000 shares of
common stock as part of an Agreement and Plan of Merger dated June 11, 1999 by
and among the Registrant, Intrinsix Merger Corp. and Seva Technologies, Inc. Of
these shares, 74,918 shares were placed in reserve with State Street Bank and
Trust Company pursuant to an Escrow Agreement dated June 11, 1999 by and among
the Registrant, Yatin Trivedi, Larry F. Saunders and State Street Bank and
Trust Company, as Escrow Agent, to satisfy claims for indemnification by the
Registrant. In May 2000, all of the escrowed shares were released to Mr.
Trivedi and Mr. Saunders pursuant to the terms of the Escrow Agreement.
(b) Certain Grants and Exercises of Stock Options.
As of March 31, 2000, options to purchase 597,933 shares of common stock
had been exercised for a consideration of $145,586 under the Registrant's stock
option plans and options to purchase 3,962,864 shares of common stock were
outstanding under the Registrant's stock option plans. No options to purchase
shares of common stock are outstanding under any of the following plans:
. 2000 Outside Director Stock Option Plan;
. 2000 Stock Incentive Plan; or
. 2000 Employee Stock Purchase Plan.
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from Securities Act registration
set forth in Sections 3(b) and 4(2) of the Securities Act, or any regulations
promulgated thereunder, relating to sales by an issuer not involving any public
offering, or (ii) in the case of certain options to purchase shares of common
stock and shares of common stock issued upon the exercise of such options, such
offers and sales were made in reliance upon an exemption from registration
under Rule 701 of the Securities Act. No underwriters were involved in the
foregoing sales of securities
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Articles of Organization of Intrinsix Corp., as amended, as currently
in effect
3.2 Form of Amended and Restated Articles of Organization of Intrinsix
Corp., to be filed with the Secretary of State of the Commonwealth of
Massachusetts and effective upon the effectiveness of the registration
statement
3.3** Bylaws of Intrinsix Corp., as amended, as currently in effect
3.4* Form of Amended and Restated Bylaws of Intrinsix Corp. to be effective
upon the effectiveness of the registration statement
4.1 Specimen Certificate for shares of common stock of Intrinsix Corp.
5.1* Opinion of Hale and Dorr LLP
10.1** Incentive Stock Option Plan (1997)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.2** 2000 Stock Incentive Plan
10.3** 2000 Outside Director Stock Option Plan
10.4** 2000 Employee Stock Purchase Plan
10.5** Loan and Security Agreement dated January 13, 2000 between
Intrinsix Corp. and BankBoston, N.A.
10.6** Revolving Line of Credit Note dated January 13, 2000 payable to
BankBoston, N.A.
10.7** Term Note dated January 13, 2000 payable to BankBoston, N.A.
10.8** Subordination Agreement (Debts) dated January 13, 2000 between
Intrinsix Corp. and Gintaras Subatis
10.9** Subordination Agreement (Liens) dated January 13, 2000 between
Intrinsix Corp. and Gintaras Subatis
10.10** Asset Purchase Agreement by and among Intrinsix Corp., Prism
Acoustics, Inc. (d/b/a The VHDL Technology Group) and William D.
Billowitch dated May 18, 1998
10.11** Agreement and Plan of Merger among Intrinsix Corp., Intrinsix
Merger Corp. and Seva Technologies, Inc. dated June 11, 1999
10.12** Asset Purchase Agreement by and between Intrinsix Canada Co. and
Telexis Corp. dated December 29, 1999
10.13** Escrow Agreement dated June 30, 1999 by and among Intrinsix Corp.,
Yatin Trivedi, Larry F. Saunders and State Street Bank and Trust
Company
10.14** Bill of Sale dated May 18, 1998 by Prism Acoustics, Inc. (d/b/a
The VHDL Technology Group) and William D. Billowitch to Intrinsix
Corp.
10.15** Instrument of Assumption of Liabilities dated May 18, 1998 by
Intrinsix Canada Co. in favor of Prism Acoustics, Inc. (d/b/a The
VHDL Technology Group)
10.16** Trademark Assignment by Prism Acoustics, Inc. (d/b/a The VHDL
Technology Group) to Intrinsix Corp.
10.17** Bill of Sale dated December 29, 1999 by Telexis Corporation to
Intrinsix Canada Co.
10.18** Instrument of Assumption of Liabilities dated December 29, 1999 by
Intrinsix Canada Co. in favor of Telexis Corporation
10.19** License dated December 29, 1999 between Telexis Corporation and
Intrinsix Canada Co.
10.20** Agreement dated October 1, 1994 by and between Gintaras Subatis
and Intrinsix Corporation
10.21** Promissory Note dated October 1, 1994 of Intrinsix Corp. payable
to Gintaras Subatis
10.22** Security Agreement dated November 22, 1994 in favor of Gintaras
Subatis
10.23** Seva Technologies, Inc. 1997 Stock Plan
21.1** Subsidiaries of Intrinsix Corp.
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP - Intrinsix Corp.
23.3 Consent of Deloitte & Touche LLP - Design Division of Telexis
Corporation
27.1** Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Registrant's Financial Statements or
Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Articles of Organization of the Registrant and the laws of the Commonwealth of
Massachusetts, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities, other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Westboro, Massachusetts, on this 23rd day of June, 2000.
Intrinsix Corp.
/s/ James A. Gobes
By:__________________________________
James A. Gobes, Jr.
Chief Executive Officer
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James A. Gobes Chief Executive Officer, June 23, 2000
______________________________________ Chairman of the Board of
James A. Gobes, Jr. Directors and Director
(principal executive
officer)
* Chief Financial Officer, June 23, 2000
______________________________________ Treasurer, Clerk and
Brian C. Meeks Director (principal
accounting officer)
* Chief Technical Officer June 23, 2000
______________________________________ and Director
Mark A. Beal
* Director, Design Center June 23, 2000
______________________________________ Operations and Director
Romas P. Rudis
* Director June 23, 2000
______________________________________
Wallace A. Cataldo
* Director June 23, 2000
______________________________________
H. Kent Bowen
* Director June 23, 2000
______________________________________
Gintaras R. Subatis
</TABLE>
* By: /s/ James A. Gobes
------------------------------
James A. Gobes, Jr.
As Attorney-In-Fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Articles of Organization of Intrinsix Corp., as amended, as currently
in effect
3.2 Form of Amended and Restated Articles of Organization of Intrinsix
Corp., to be filed with the Secretary of State of the Commonwealth of
Massachusetts and effective upon the effectiveness of the registration
statement
3.3** Bylaws of Intrinsix Corp., as amended, as currently in effect
3.4* Form of Amended and Restated Bylaws of Intrinsix Corp. to be effective
upon the effectiveness of the registration statement
4.1 Specimen Certificate for shares of common stock of Intrinsix Corp.
5.1* Opinion of Hale and Dorr LLP
10.1** Incentive Stock Option Plan (1997)
10.2** 2000 Stock Incentive Plan
10.3** 2000 Outside Director Stock Option Plan
10.4** 2000 Employee Stock Purchase Plan
10.5** Loan and Security Agreement dated January 13, 2000 between Intrinsix
Corp. and BankBoston, N.A.
10.6** Revolving Line of Credit Note dated January 13, 2000 payable to
BankBoston, N.A.
10.7** Term Note dated January 13, 2000 payable to BankBoston, N.A.
10.8** Subordination Agreement (Debts) dated January 13, 2000 between
Intrinsix Corp. and Gintaras Subatis.
10.9** Subordination Agreement (Liens) dated January 13, 2000 between
Intrinsix Corp. and Gintaras Subatis.
10.10** Asset Purchase Agreement by and among Intrinsix Corp., Prism
Acoustics, Inc. (d/b/a The VHDL Technology Group) and William D.
Billowitch dated May 18, 1998
10.11** Agreement and Plan of Merger among Intrinsix Corp., Intrinsix Merger
Corp. and Seva Technologies, Inc. dated June 11, 1999
10.12** Asset Purchase Agreement by and between Intrinsix Canada Co. and
Telexis Corp. dated December 29, 1999
10.13** Escrow Agreement dated June 30, 1999 by and among Intrinsix Corp.,
Yatin Trivedi, Larry F. Saunders and State Street Bank and Trust
Company
10.14** Bill of Sale dated May 18, 1998 by Prism Acoustics, Inc. (d/b/a The
VHDL Technology Group) and William D. Billowitch to Intrinsix Corp.
10.15** Instrument of Assumption of Liabilities dated May 18, 1998 by
Intrinsix Canada Co. in favor of Prism Acoustics, Inc. (d/b/a The VHDL
Technology Group)
10.16** Trademark Assignment by Prism Acoustics, Inc. (d/b/a The VHDL
Technology Group) to Intrinsix Corp.
10.17** Bill of Sale dated December 29, 1999 by Telexis Corporation to
Intrinsix Canada Co.
10.18** Instrument of Assumption of Liabilities dated December 29, 1999 by
Intrinsix Canada Co. in favor of Telexis Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.19** License dated December 29, 1999 between Telexis Corporation and
Intrinsix Canada Co.
10.20** Agreement dated October 1, 1994 by and between Gintaras Subatis and
Intrinsix Corporation
10.21** Promissory Note dated October 1, 1994 of Intrinsix Corp. payable to
Gintaras Subatis
10.22** Security Agreement dated November 22, 1994 in favor of Gintaras
Subatis
10.23** Seva Technologies, Inc. 1997 Stock Plan
21.1** Subsidiaries of Intrinsix Corp.
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP - Intrinsix Corp.
23.3 Consent of Deloitte & Touche LLP - Design Division of Telexis
Corporation
27.1** Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
