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As filed with the Securities and Exchange Commission on October 4, 2000
Registration No. 333-33920
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3 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 (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
<S> <C> <C>
</TABLE>
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
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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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Common Stock, no par value per share.. 4,600,000 shares $11.00 $50,600,000 $13,359
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(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) Previously paid.
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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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated October 4, 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
[INTRINSIX 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 4.
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Per Share Total
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Price to the public.................................... $ $
Underwriting discount..................................
Proceeds to Intrinsix Corp.............................
</TABLE>
Intrinsix and Romas P. Rudis, one of our founders, have granted an over-
allotment option to the underwriters. Under this option, the underwriters may
elect to purchase a maximum of 500,000 additional shares from us and 100,000
additional shares from Mr. Rudis within 30 days following the date of this
prospectus to cover over-allotments. We will not receive any of the proceeds
from the sale of shares by Mr. Rudis.
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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 Robertson Stephens
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>
Table of Contents
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Page
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Prospectus Summary....................................................... 1
Risk Factors............................................................. 4
Special Note Regarding Forward-Looking Statements........................ 12
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 29
Certain Transactions..................................................... 38
Principal and Selling Stockholders....................................... 39
Description of Capital Stock............................................. 40
Shares Eligible for Future Sale.......................................... 43
Underwriting............................................................. 45
Legal Matters............................................................ 48
Experts.................................................................. 48
Where You Can Find More Information...................................... 48
Index to Financial Statements............................................ F-1
Unaudited Pro Forma Condensed Consolidated Statement of Operations....... P-1
</TABLE>
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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.
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>
Prospectus 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.
The Company
We are an independent provider of advanced electronic and semiconductor design
services to 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 original equipment manufacturers, or 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;
1
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. 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.
The Offering
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Common stock offered.............. 4,000,000 shares
Common stock to be outstanding
after the offering.............. 14,313,949 shares
Over-allotment option............. 600,000 shares, to be satisfied first by us
up to 500,000 shares, with the balance of
up to 100,000 shares to be satisfied by
Romas P. Rudis
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
symbol.......................... ITRX
</TABLE>
Common stock outstanding after the offering is based on the number of shares
outstanding as of June 30, 2000, and except as otherwise noted, all information
in this prospectus:
. excludes 4,051,410 shares issuable upon the exercise of outstanding
options with a weighted-average exercise price of $1.53 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.
2
<PAGE>
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.
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Six Months
Year Ended December 31, Ended June 30,
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1995 1996 1997 1998 1999 1999 2000
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Statement of Operations
Data:
Revenues................ $8,117 $11,814 $16,330 $23,475 $30,657 $14,825 $21,373
Gross profit............ 2,300 3,349 5,692 9,298 12,156 5,646 9,238
Operating income........ 851 960 856 1,001 1,613 633 1,046
Net income.............. 509 594 506 601 928 367 425
Net income per share:
Basic earnings per
share................ $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.09 $ 0.04 $ 0.04
Diluted earnings per
share................ $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.08 $ 0.03 $ 0.03
Shares for basic
computation.......... 8,854 8,986 9,502 9,668 9,925 9,884 10,190
Shares for diluted
computation.......... 8,854 8,986 9,531 10,316 12,365 11,719 13,528
</TABLE>
The following table presents a summary of our balance sheet at June 30, 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.
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June 30, 2000
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Actual As Adjusted
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Balance Sheet Data:
Cash and cash equivalents................................ $ 76 $32,776
Working capital.......................................... 2,119 37,335
Total assets............................................. 12,020 44,720
Long-term obligation..................................... 884 --
Stockholders' equity..................................... 4,406 40,506
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3
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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.
4
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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 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 six
months ended June 30, 2000 and 1999, and the years ended December 31, 1999,
1998 and 1997, our six largest customers accounted for approximately 51.7%,
43.1%, 56.7%, 43.7% and 50.0% of our revenues, respectively, of which Texas
Instruments represented 25.0%, 17.7%, 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.
5
<PAGE>
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 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
6
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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
. 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.
7
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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.
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 242 as of June 30, 2000 and the number of our design centers from six
as of December 31, 1997 to 19 as of June 30, 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 Germany, Israel, 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
8
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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
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.
9
<PAGE>
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;
. 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
10
<PAGE>
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.
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
56.7% 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 10,313,949 shares of our common stock that are not being
sold in the offering, but which were outstanding as of June 30, 2000, will be
eligible for sale into the public market:
. after the completion of this offering, 160,090 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 10,313,949
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 4,051,410 shares issuable upon exercise of outstanding
options to purchase our common stock outstanding as of June 30, 2000,
approximately 2,265,904 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.
11
<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.
12
<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 $36.1 million, at an assumed
initial public offering price of $10.00 per share, after deducting the
estimated underwriting discounts, commissions and offering expenses payable by
us. If the underwriters exercise their over-allotment option in full, we
estimate that our net proceeds will be approximately $40.8 million. If Romas P.
Rudis sells any shares of common stock in connection with the underwriter's
exercise of their over-allotment option, Romas P. Rudis will receive all of the
net proceeds from the sale of his shares. We will not receive any of the
proceeds from the sale of shares by Romas P. Rudis. 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 $3.2 million as of June
30, 2000, repayment of a promissory note payable to a former director of ours,
which had an outstanding balance of $145,886 as of June 30, 2000 and the
remaining payments owed to a former director of ours under a noncompete
agreement, which payments totaled $20,565 as of June 30, 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 conditions and other factors as our board of directors may
deem relevant. In addition, our bank line of credit prohibits the payment of
cash dividends.
13
<PAGE>
Capitalization
The following table describes our capitalization as of June 30, 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>
June 30, 2000
-------------------
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 76 $32,776
====== =======
Current portion of long-term debt...................... $ 362 $ --
------ -------
Line of credit......................................... 2,154 --
------ -------
Long-term debt--less current portion................... 884 --
------ -------
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; 70,000,000 shares
authorized, actual; 11,755,253 shares issued actual;
15,755,253 shares issued, as adjusted............... 682 36,782
Retained earnings..................................... 3,749 3,749
Treasury stock, 1,441,304 shares at cost.............. (13) (13)
Accumulated other comprehensive loss.................. (12) (12)
------ -------
Total stockholders' equity........................... 4,406 40,506
------ -------
Total capitalization................................. $7,806 $40,506
====== =======
</TABLE>
--------
(1) Excludes 4,051,410 shares of common stock issuable upon the exercise of
stock options at a weighted-average exercise price of $1.53 per share
outstanding as of June 30, 2000.
14
<PAGE>
Dilution
The net tangible book value of our common stock as of June 30, 2000 was $3.2
million, or $0.31 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
June 30, 2000 would have been $39.3 million or $2.74 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 June 30, 2000. This offering will result in an increase in net tangible book
value per share of $2.43 to existing stockholders and dilution in net tangible
book value per share of $7.26 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 June 30, 2000........... $0.31
Increase attributable to sale of common stock in this
offering................................................... 2.43
-----
Net tangible book value per share after this offering........ 2.74
------
Dilution per share to new investors........................... $ 7.26
======
</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
$2.96 per share, the increase in net tangible book value per share to existing
stockholders would be $2.65 per share and the dilution to persons who purchase
shares in the offering would be $7.04 per share.
The following table summarizes, as of June 30, 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.. 10,313,949 72% 466,083 1% $ 0.05
Shares purchased in this
offering............... 4,000,000 28 40,000,000 99 $10.00
---------- --- ----------- ---
Total................... 14,313,949 100% $40,466,083 100% $ 2.83
========== === =========== ===
</TABLE>
These tables assume no exercise of stock options outstanding as of June 30,
2000. At June 30, 2000, there were 4,051,410 shares of common stock issuable
upon exercise of outstanding stock options at a weighted-average exercise price
of $1.53 per share. Had such options all been exercised as of June 30, 2000,
the net tangible book value per share would have been $0.65. 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 $2.48,
representing dilution of $7.52 per share to investors purchasing stock in the
offering.
15
<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 June 30, 2000 and for the six months ended June 30, 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 Discussion 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>
Six Months
Ended
Years Ended December 31,(1) June 30,
----------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- -------
(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 $14,825 $21,373
Cost of revenues........ 5,817 8,465 10,638 14,177 18,501 9,179 12,135
------ ------- ------- ------- ------- ------- -------
Gross profit............ 2,300 3,349 5,692 9,298 12,156 5,646 9,238
Research and development
expenses.............. -- -- 284 723 979 538 704
Selling, general and
administrative
expenses.............. 1,449 2,389 4,552 7,574 9,564 4,475 7,488
------ ------- ------- ------- ------- ------- -------
Operating income........ 851 960 856 1,001 1,613 633 1,046
Other income (expense).. (19) (14) 50 (17) (16) (15) (90)
------ ------- ------- ------- ------- ------- -------
Income before income tax
provision............. 832 946 906 984 1,597 618 956
Income tax provision.... 323 352 400 383 669 251 531
------ ------- ------- ------- ------- ------- -------
Net income.............. $ 509 $ 594 $ 506 $ 601 $ 928 $ 367 $ 425
====== ======= ======= ======= ======= ======= =======
Net income per share:
Basic earnings per
share................ $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.09 $ 0.04 $ 0.04
Diluted earnings per
share................ $ 0.06 $ 0.07 $ 0.05 $ 0.06 $ 0.08 $ 0.03 $ 0.03
Shares for basic
computation.......... 8,854 8,986 9,502 9,668 9,925 9,884 10,190
Shares for diluted
computation.......... 8,854 8,986 9,531 10,316 12,365 11,719 13,528
</TABLE>
<TABLE>
<CAPTION>
June
December 31, 30,
---------------------------------- -------
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........ $ 633 $ 466 $ 431 $ 236 $ 231 $ 76
Working capital.................. 748 1,129 991 1,209 1,636 2,119
Total assets..................... 1,761 2,445 3,708 4,379 7,633 12,020
Long-term obligation............. 327 225 222 182 1,016 884
Stockholders' equity............. 622 1,296 1,693 2,387 3,403 4,406
</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.
16
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
You should read this discussion together with the financial statements and
other financial information included in this prospectus.
Overview
We are an independent provider of advanced electronic design services to
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 June 30, 2000, we
employed 189 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 on fixed fee contracts have exceeded amounts billed.
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.
17
<PAGE>
Results of Operations
The following table sets forth our operating results as a percentage of revenue
for the periods indicated:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
------------------- ------------
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 61.9 56.8
----- ----- ----- ----- -----
Gross profit............................ 34.9 39.6 39.7 38.1 43.2
Research and development expenses....... 1.7 3.1 3.2 3.6 3.3
Selling, general and administrative
expenses.............................. 27.9 32.3 31.2 30.2 35.0
----- ----- ----- ----- -----
Operating income........................ 5.2 4.3 5.3 4.3 4.9
Other income (expense).................. 0.3 (0.1) -- (0.1) (0.4)
----- ----- ----- ----- -----
Income before income tax provision...... 5.5 4.2 5.2 4.2 4.5
Income tax provision.................... (2.4) (1.6) (2.2) (1.7) (2.5)
----- ----- ----- ----- -----
Net income.............................. 3.1 2.6 3.0 2.5 2.0
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1999 and June 30, 2000
Revenues. Revenues increased from $14.8 million in the six months ended June
30, 1999 to $21.4 million in the six months ended June 30, 2000. The principal
reasons for the revenue growth were an increase in the number of engineers
engaged on billable projects from 119 at June 30, 1999 to 174 at June 30, 2000
and an increase in the average billings per engineer during the six months
ended June 30, 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 $5.6 million and $9.2 million in the six months
ended June 30, 1999 and June 30, 2000, respectively, an increase of 63.6%. This
resulted in gross margin of 38.1% and 43.2%, 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 10.5% 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 $538,000 and $704,000 in
the six months ended June 30, 1999 and June 30, 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 $4.5 million in the six months ended June 30, 1999 to $7.5
million in the six months ended June 30, 2000. This increase was primarily due
to an increase in selling, general and administrative staff from 37 to 53
people, and related recruiting expenses between the two periods.
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 $25,000 in the six months ended June 30, 1999
to $89,000 in the six months ended June 30, 2000 due to higher levels of
borrowings on our lines of credit during the year.
18
<PAGE>
Income Tax Provision. Our effective income tax rates were 55.5% for the six
months ended June 30, 2000 compared to 40.7% for the six months ended June 30,
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
19
<PAGE>
factors, in 1999, we recognized the benefits of Seva's operating loss incurred
during the six months 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 June 30, 2000,
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
-------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1999 1999 1999 1999 2000 2000
--------- -------- -------- -------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $6,321 $6,199 $7,210 $7,614 $7,722 $8,111 $9,930 $11,443
Cost of revenues........ 3,663 3,747 4,411 4,768 4,496 4,826 5,745 6,390
------ ------ ------ ------ ------ ------ ------ -------
Gross profit............ 2,658 2,452 2,799 2,846 3,226 3,285 4,185 5,053
Research and development
expenses............... 265 215 272 266 196 245 278 426
Selling, general and
administrative
expenses............... 1,960 2,132 2,104 2,370 2,360 2,730 3,425 4,063
------ ------ ------ ------ ------ ------ ------ -------
Operating income........ 433 105 423 210 670 310 482 564
Other income (expense).. (9) (4) (14) (1) -- (1) (31) (59)
------ ------ ------ ------ ------ ------ ------ -------
Income before income tax
provision.............. 424 101 409 209 670 309 451 505
Income tax provision.... (164) (41) (163) (88) (269) (149) (270) (261)
------ ------ ------ ------ ------ ------ ------ -------
Net income.............. $ 260 $ 60 $ 246 $ 121 $ 401 $ 160 $ 181 $244
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
The following table sets forth the unaudited quarterly total expenses as a
percentage of unaudited quarterly revenue.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1999 1999 1999 1999 2000 2000
--------- -------- -------- -------- --------- -------- -------- --------
<S> <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%
Cost of revenues........ 57.9 60.5 61.2 62.6 58.2 59.5 57.8 55.8
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 42.1 39.6 38.8 37.4 41.8 40.5 42.2 44.2
----- ----- ----- ----- ----- ----- ----- -----
Research and development
expenses............... 4.2 3.5 3.8 3.5 2.5 3.0 2.8 3.7
Selling, general and
administrative
expenses............... 31.0 34.4 29.2 31.1 30.6 33.7 34.5 35.5
----- ----- ----- ----- ----- ----- ----- -----
Operating income........ 6.9 1.7 5.9 2.8 8.7 3.8 4.9 4.9
Other income (expense).. (0.1) (0.1) (0.2) -- -- -- (0.3) (0.5)
----- ----- ----- ----- ----- ----- ----- -----
Income before income tax
provision.............. 6.7 1.6 5.7 2.7 8.7 3.8 4.5 4.4
Income tax provision.... (2.6) (0.7) (2.3) (1.2) (3.5) (1.8) (2.7) (2.3)
----- ----- ----- ----- ----- ----- ----- -----
Net income.............. 4.1 1.0 3.4 1.6 5.2 2.0 1.8 2.1
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
20
<PAGE>
Over the eight quarters presented, our quarterly revenues increased from $6.3
million to $11.4 million. Revenues decreased in the quarter ended December 31,
1998 due to a decrease in customer engagements. Gross margins fluctuated over
the eight quarter period with an absolute increase of 2.0% 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 $2.0 million
for the quarter ended September 30, 1998 to $4.1 million for the quarter ended
June 30, 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
owed Telexis Corporation up to $175,000 at June 30, 2000. We remitted the
remaining portion of the purchase price to Telexis Corporation in
September 2000.
At June 30, 2000, our primary sources of liquidity consisted of cash of
approximately $76,000 and accounts receivable, both billed and unbilled, of
approximately $7.2 million. In addition, we have a credit agreement with
BankBoston under which the amounts outstanding at June 30, 2000 were $2.2
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 $1.1 million at June 30, 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, $353,000 and $(1,525,000) in each of the three years ended
December 31, 1997, 1998 and 1999 and the six months ended June 30, 1999 and
2000, respectively. Cash generated by operations was primarily attributable to
our net income before depreciation and amortization during those periods,
offset by an increase in accounts receivable. The increase in accounts
receivable was due to increased revenue growth during the periods presented and
some significant sales occurring at the end of the periods thus affecting the
timing of collections of accounts receivable from these customers. Our stated
terms extended to all customers require payment of invoiced amounts within 30
days. Some larger customers may, as part of their cash management strategies,
delay payment for short periods beyond these terms. As a result, depending on
when revenue is recognized during a quarter, our collection experience may
either improve or deteriorate slightly. Over time, however, we do not expect
our collection experience to differ materially from that we have enjoyed in the
past. The cash used by operations in the first six months of 2000 was primarily
attributable to the continued increase in accounts receivable offset by our net
income before depreciation and amortization during those periods.
21
<PAGE>
Cash used in investing activities was $409,000, $1.2 million, $1.9 million,
$283,000 and $824,000 in each of the three years ended December 31, 1997, 1998
and 1999 and the six months ended June 30, 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.
Cash provided by or used in financing activities was $91,000, $267,000,
$830,000, $(77,000) and $2.2 million in each of the three years ended 1997,
1998 and 1999 and the six months ended June 30, 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.
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which sets forth the SEC's views on appropriate revenue
recognition practices. We believe that our current revenue recognition
practices are in accordance with accounting principles generally accepted in
the United States of America and do not expect any material impact when the
bulletin becomes effective.
22
<PAGE>
Business
Overview
We are an independent provider of advanced electronic design services to
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;
23
<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
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 189 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 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.
24
<PAGE>
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.
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
25
<PAGE>
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.
26
<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 six months ended June 30, 2000,
Texas Instruments represented 25.0% and 3Com represented 6.5% 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
Nortel Networks Switching, DSL Modems, Cable Modems, Home
Networking, V.90 Modems
Fujitsu
Digital Media Applications
Nokia
Set-top Boxes, Digital Television, 3D
Alcatel Graphics, Voice Switching, Audio
Processing, Video Compression and Editing,
Image Processing, Ultrasound Imaging,
Digital Light Processing
Silicon Graphics
Avici Systems
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
27
<PAGE>
papers, presentations and product demonstrations. In addition, we encourage our
engineers to author and 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 June 30, 2000, we had 242 employees, including 189 in engineering, 15 in
sales and marketing and 38 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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<PAGE>
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 August 30, 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
Wallace A. Cataldo (1)(2)..... 50 Director
Robert J. Richardson (3)...... 54 Director
</TABLE>
--------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Audit Committee effective upon the closing of this offering.
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 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
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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 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.
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.
Robert J. Richardson has served as a director since July 2000. Since January
2000, Mr. Richardson has been a semiconductor industry consultant. From
November 1997 to January 2000, he was the Chairman, Chief Executive Officer and
President of Unitrode Corporation, a power management semiconductor
manufacturer. From June 1992 to November 1997, he served in various positions
at Silicon Valley Group, Inc. including President Lithography Systems,
President Track Systems Division and Corporate Vice President New Business
Development and Marketing. Mr. Richardson currently serves as a director of
Genus, Inc., a semiconductor capital equipment manufacturer. Mr. Richardson
received a BSEE in Computer Design from St. Louis University and an MBA from
Southern Illinois University.
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 Richardson),
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.
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.
Committees of the Board of Directors
Our board of directors has a compensation committee, an audit committee and a
stock option committee. The compensation committee is composed of Messrs. Bowen
and Cataldo and makes recommendations concerning salaries and incentive
compensation for our employees and administers and grants stock options under
our stock option plans. The audit committee is composed of Messrs. Bowen and
Cataldo. Our board has elected Mr. Richardson as a member of the audit
committee effective upon the closing of this offering. The audit committee
reviews our annual financial statements prior to their submission to our board
of directors, consults with our independent auditors, and examines and
considers such other matters in relation to the internal and
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<PAGE>
external audit of our account and in relation to our financial affairs and its
accounts, including the selection and retention of independent auditors. The
stock option committee is composed of Messrs. Beal, Gobes and Meeks. The stock
option committee grants stock options, subject to certain limitations, 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.
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Bowen and
Cataldo. 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.
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<PAGE>
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>
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 June 30, 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 3,795,751 shares of common
stock at a weighted-average exercise price of $1.26 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.
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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 termination immediate termination of all options
by the participant without our consent
termination for any reason other than those three months from date of termination
listed above
</TABLE>
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.
Assuming the closing of this offering, we do not intend to grant any additional
options under this plan, although under the terms of the plan, we are permitted
to grant options until March 26, 2007. The vesting and effectiveness of options
previously granted may extend beyond March 2007.
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 June 30, 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 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 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.
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<PAGE>
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.
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. As of June 30, 2000, options to
purchase 211,250 shares of common stock at a weighted-average exercise price of
$6.80 per share were outstanding under this 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
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<PAGE>
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.
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
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<PAGE>
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 June 30, 2000, approximately 238 of our employees were
eligible to participate in the 2000 Employee Stock Purchase Plan.
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) 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 and (ii) $2,083.33, which
is one-twelfth of $25,000. Under current federal tax law, an employee may not
purchase more than $25,000 of stock (based on the fair market value of the
stock at the start of the purchase period) per year under a tax-advantaged
employee stock purchase plan. 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.
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<PAGE>
401(k) Plan
We offer a 401(k) plan to our United States employees who have completed three
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.
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<PAGE>
Certain Transactions
In October 1994, we repurchased 3,141,825 shares of our common stock from
Gintaras Subatis, a former 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
June 30, 2000, we had repaid a total of $276,138 in principal and interest to
Mr. Subatis with a remaining balance of $145,886. 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 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. Under the terms of the noncompete
agreement, we are required to retain Mr. Subatis as a director for so long as
the promissory note remains in effect. However, in August 2000, Mr. Subatis
resigned from our board of directors.
The note issued to Mr. Subatis is subordinated to the Loan and Security
Agreement dated January 13, 2000 between us and BankBoston, N.A., as amended,
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 and Selling Stockholders
The following table sets forth information regarding the beneficial ownership
of our common stock as of June 30, 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 June 30, 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(1)................ 3,094,950 30.0% 3,094,950 21.6%
Mark A. Beal(2).................. 3,116,325 30.1 3,116,325 21.7
James A. Gobes, Jr.(3)........... 1,938,525 18.7 1,938,525 13.4
Brian C. Meeks(4)................ 26,250 * 26,250 *
W. Kent Bowen.................... -- * -- *
Wallace A. Cataldo............... -- * -- *
Robert J. Richardson............. -- * -- *
All directors and executive
officers as a group
(7 persons)(5)................. 8,176,050 78.4% 8,176,050 56.7%
</TABLE>
--------
* Represents beneficial ownership of less than 1% of the outstanding shares of
common stock.
(1) If the underwriters exercise the over-allotment option in full, Mr. Rudis
will sell 100,000 shares. Following the exercise of the underwriters'
over-allotment option, Mr. Rudis will beneficially own 2,994,950 shares,
or 20.2% of our shares after this offering.
(2) Includes 28,125 shares issuable upon the exercise of options exercisable
within sixty days of June 30, 2000.
(3) Includes 56,250 shares issuable upon the exercise of options exercisable
within sixty days of June 30, 2000.
(4) Consists of 26,250 shares issuable upon the exercise of options exercisable
within sixty days of June 30, 2000.
(5) Includes 110,625 shares issuable upon the exercise of options exercisable
within sixty days of June 30, 2000.
39
<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 June 30, 2000 shares of our common stock were held of record by 124
stockholders.
After giving effect to this offering and based upon our outstanding stock,
there will be 14,313,949 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
40
<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.
41
<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.
42
<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
June 30, 2000, we will have 14,313,949 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 10,313,949 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 98.4% of the remaining 10,313,949 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, 160,090 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 10,313,949
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 years, is entitled to
sell shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
43
<PAGE>
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 June 30, 2000, there were outstanding options for the
purchase of 4,051,410 shares of common stock, and options to purchase 955,399
of these shares were exercisable.
44
<PAGE>
Underwriting
We and Romas P. Rudis have entered into an underwriting agreement with the
underwriters named below. CIBC World Markets Corp., Robertson Stephens, Inc.
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. ..........................................
Robertson Stephens, Inc. ..........................................
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 and Romas P. Rudis 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 500,000
additional shares from us first and 100,000 additional shares from Romas P.
Rudis 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 $40.8 million
and the total proceeds to Romas P. Rudis will be $930,000, 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 and Romas P. Rudis.
<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. ........
Romas P. Rudis..........
---- --------- ---------
Total..................
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $1.1 million.
45
<PAGE>
We and Romas P. Rudis 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 and will not be subject to the lock up arrangement with CIBC
World Markets Corp. 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.
. 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.
46
<PAGE>
. 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.
In order to facilitate the offering of our common stock, the underwriters may
engage in transactions that stabilize, maintain, or otherwise affect the market
price of our common stock. The underwriters may over-allot shares of our common
stock in connection with this offering, thus creating a short position for
their own account. Short sales involve sales by the underwriters of a greater
number of shares than they are committed to purchase in the offering. A short
sale position may involve either "covered" short sales or "naked" short sales.
Covered short sales are sales made in an amount not greater than the
underwriters' overallotment option to purchase additional shares in the
offering described above. The underwriters may close out any covered short
position by either exercising their overallotment option or purchasing shares
in the open market. In determining the source of shares to close the covered
short position, the underwriters will consider, among other things, the price
of shares available for purchase in the open market as compared to the price at
which they may purchase shares through the overallotment option. Naked short
sales are sales in excess of the overallotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be a downward pressure on the price of the shares in
the open market after pricing that could adversely affect investors who
purchase in the offering.
Accordingly, to cover these short sales positions or to stabilize the market
price of our common stock, the underwriters may bid for, and purchase, shares
of our common stock in the open market. These transactions may be effected on
the Nasdaq National Market or otherwise. Additionally, the representatives, on
behalf of the underwriters, may also reclaim selling concessions allowed to an
underwriter or dealer. Similar to other purchase transactions, the
underwriters' purchases to cover the syndicate short sales or to stabilize the
market price of our common stock may have the effect of raising or maintaining
the market price of our common stock or preventing or mitigating a decline in
the market price of our common stock. As a result, the price of the shares of
our common stock may be higher than the price that might otherwise exist in the
open market. The underwriters are not required to engage in these activities
and, if commenced, may end any of these activities at any time.
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.
We have applied for the listing of our common stock on the Nasdaq National
Market under the symbol "ITRX."
47
<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.
48
<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) June 30, 2000.............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and 1999 and (unaudited) the six months ended June 30, 1999 and
2000................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999 and (unaudited) the six months ended
June 30, 2000.......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and (unaudited) the six months ended June 30, 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,
---------------------- June 30,
1998 1999 2000
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 235,504 $ 231,302 $ 75,763
Accounts receivable, net of allowance for
doubtful accounts of $15,000, $133,000
and $229,000 in 1998, 1999 and 2000,
respectively........................... 2,489,237 3,329,033 6,648,297
Unbilled accounts receivable............. 15,726 888,836 532,729
Prepaid expenses and other current
assets................................. 219,288 401,108 1,592,663
---------- ---------- -----------
Total current assets.................... 2,959,755 4,850,279 8,849,452
Property and equipment, net............... 1,301,240 1,349,525 1,763,252
Other assets.............................. 40,886 59,062 171,236
Deferred tax assets....................... 1,960 -- --
Goodwill.................................. 74,799 1,374,547 1,236,402
---------- ---------- -----------
Total assets............................ $4,378,640 $7,633,413 $12,020,342
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ $ 54,674 $ 359,212 $ 361,620
Line of credit........................... 350,000 -- 2,154,122
Accounts payable......................... 360,357 983,402 1,597,399
Accrued compensation and benefits........ 525,218 952,937 1,581,442
Accrued income taxes..................... 97,536 529,106 198,777
Other accrued expenses................... 247,396 334,148 781,220
Deferred tax liabilities................. 115,973 55,657 55,657
---------- ---------- -----------
Total current liabilities............... 1,751,154 3,214,462 6,730,237
---------- ---------- -----------
Long-term debt, less current portion...... 181,701 1,015,689 884,264
---------- ---------- -----------
Deferred tax liabilities.................. 58,692 -- --
---------- ---------- -----------
Commitments and contingencies (Note 9)....
Stockholders' equity:
Common stock, no par value, 70,000,000
shares authorized; 11,755,253 shares
issued in 1998, 1999 and 2000........... 226,510 272,798 681,909
Retained earnings......................... 2,396,124 3,324,235 3,749,416
Treasury stock, 1,881,004, 1,713,446 and
1,441,304 shares at cost in 1998, 1999
and 2000, respectively.................. (235,541) (193,771) (13,300)
Accumulated other comprehensive loss...... -- -- (12,184)
---------- ---------- -----------
Total stockholders' equity.............. 2,387,093 3,403,262 4,405,841
---------- ---------- -----------
Total liabilities and stockholders'
equity............................... $4,378,640 $7,633,413 $12,020,342
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INTRINSIX CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended June
Year Ended December 31, 30,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $16,329,847 $23,474,943 $30,656,863 $14,824,523 $21,372,858
Cost of revenues
(includes stock-based
compensation of
$30,213 for the year
ended December 31,
1999 and $295,116 for
the six months ended
June 30, 2000)........ 10,638,264 14,176,582 18,500,931 9,178,947 12,134,982
----------- ----------- ----------- ----------- -----------
Gross profit........... 5,691,583 9,298,361 12,155,932 5,645,576 9,237,876
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and
development
expenses............. 283,575 723,437 978,545 537,828 704,425
Selling, general and
administrative
expenses (includes
stock-based
compensation of
$16,075 for the year
ended December 31,
1999 and $113,995 for
the six months ended
June 30, 2000)....... 4,551,782 7,574,043 9,564,004 4,474,552 7,487,882
----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 4,835,357 8,297,480 10,542,549 5,012,380 8,192,307
----------- ----------- ----------- ----------- -----------
Operating income........ 856,226 1,000,881 1,613,383 633,196 1,045,569
----------- ----------- ----------- ----------- -----------
Other income (expense):
Other income........... 88,823 31,865 19,404 10,038 --
Interest expense....... (38,722) (49,303) (35,345) (25,067) (89,367)
----------- ----------- ----------- ----------- -----------
Total other income
(expense)........... 50,101 (17,438) (15,941) (15,029) (89,367)
----------- ----------- ----------- ----------- -----------
Income before income tax
provision............. 906,327 983,443 1,597,442 618,167 956,202
Income tax provision.... 400,529 382,709 669,331 251,254 531,021
----------- ----------- ----------- ----------- -----------
Net income.............. $ 505,798 $ 600,734 $ 928,111 $ 366,913 $ 425,181
=========== =========== =========== =========== ===========
Basic earnings per
share................. $ 0.05 $ 0.06 $ 0.09 $ 0.04 $ 0.04
=========== =========== =========== =========== ===========
Diluted earnings per
share................. $ 0.05 $ 0.06 $ 0.08 $ 0.03 $ 0.03
=========== =========== =========== =========== ===========
Shares for basic
computation........... 9,501,820 9,668,281 9,925,488 9,883,533 10,189,819
=========== =========== =========== =========== ===========
Shares for diluted
computation........... 9,531,188 10,316,240 12,364,656 11,718,775 13,527,808
=========== =========== =========== =========== ===========
</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 272,142
shares of common
stock (including
261,642 on exercise
of options).......... -- -- -- 180,471 -- 180,471
Stock-based
compensation......... -- 409,111 -- -- -- 409,111
Comprehensive income
(loss):
Foreign currency
translation loss..... -- -- -- -- (12,184) $(12,184) (12,184)
Net income............. -- -- 425,181 -- -- 425,181 425,181
--------
Comprehensive income... -- -- -- -- -- $412,997 --
---------- -------- ---------- --------- -------- ======== ----------
BALANCE, JUNE 30, 2000
(UNAUDITED)........... 11,755,253 $681,909 $3,749,416 $ (13,300) $(12,184) $4,405,841
========== ======== ========== ========= ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
INTRINSIX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------- ----------------------
1997 1998 1999 1999 2000
--------- ----------- ----------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net income........... $ 505,798 $ 600,734 $ 928,111 $ 366,913 $ 425,181
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization...... 231,976 494,547 787,276 304,405 548,751
Bad debt expense.... 7,249 255,008 139,526 50,000 95,638
Gain on disposal of
assets............ -- -- (5,652) -- --
Stock-based
compensation...... -- -- 46,288 -- 409,111
Deferred income
taxes............. 65,439 70,213 (117,052) -- --
Changes in assets
and liabilities
(net of effect
from
acquisitions):
Accounts
receivable....... (602,052) (733,436) (979,322) (971,252) (3,414,902)
Unbilled accounts
receivable....... -- 105,621 (873,110) (256,428) 356,107
Prepaid expenses
and other current
assets........... (478,993) 170,188 (199,997) (14,461) (1,303,729)
Accounts payable... 456,322 (168,940) 623,045 241,324 613,997
Accrued expenses... 36,565 28,466 289,111 557,170 1,075,577
Accrued income
taxes............ 60,474 (109,264) 431,570 75,298 (330,329)
--------- ----------- ----------- --------- -----------
Net cash provided
by (used for)
operating
activities..... 282,778 713,137 1,069,794 352,969 (1,524,598)
Cash flows from
investing
activities:
Purchase of property
and equipment...... (408,595) (1,084,454) (696,102) (282,550) (824,333)
Disposal of property
and equipment...... -- -- 6,410 -- --
Acquisition of a
business........... -- (90,850) (1,214,600) -- --
--------- ----------- ----------- --------- -----------
Net cash used for
investing
activities..... (408,595) (1,175,304) (1,904,292) (282,550) (824,333)
Cash flows from
financing
activities:
Net increase
(decrease) in line
of credit.......... -- 350,000 (350,000) (50,000) 2,154,122
Issuance of long-term
debt............... 200,000 -- 1,200,000 -- --
Repayments of long-
term debt.......... (113,282) (177,018) (61,474) (33,592) (129,017)
Repurchase of shares
of common stock.... -- (6,249) -- -- --
Issuance of common
stock from treasury
for cash........... 4,212 99,944 41,770 6,094 180,471
--------- ----------- ----------- --------- -----------
Net cash provided
by financing
activities..... 90,930 266,677 830,296 (77,498) 2,205,576
--------- ----------- ----------- --------- -----------
Effect of currency
rate changes in
cash................ -- -- -- -- (12,184)
--------- ----------- ----------- --------- -----------
Net increase
(decrease) in cash.. (34,887) (195,490) (4,202) (7,079) (155,539)
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 $ 228,425 $ 75,763
========= =========== =========== ========= ===========
Supplemental cash flow
information:
Cash paid for
interest........... $ 36,867 $ 46,028 $ 34,934 $ 29,997 $ 107,559
========= =========== =========== ========= ===========
Cash paid for income
taxes.............. $ 253,969 $ 445,852 $ 354,813 $ 176,517 $ 862,338
========= =========== =========== ========= ===========
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 June 30, 2000 and the
unaudited consolidated statements of operations and cash flows for the six
month periods ended June 30, 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 June 30, 1999, there was no item of comprehensive income other than
net income. As of June 30, 2000, the cumulative translation adjustment was
($12,184).
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>
Six Months
Years Ended December 31, Ended June 30,
------------------------------------------------ ----------------------------
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% 18% 25% 16%
Customer B.............. -- -- -- 13% 4% 11% 7% 16%
Customer C.............. 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>
Six Months
Years Ended December 31, Ended June 30,
------------------------------- ---------------------
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 9,883,533 10,189,819
Potential common shares
from options.......... 29,368 647,959 2,439,168 1,835,242 3,337,989
--------- ---------- ---------- ---------- ----------
Shares used in diluted
computation........... 9,531,188 10,316,240 12,364,656 11,718,775 13,527,808
========= ========== ========== ========== ==========
</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.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which sets forth the SEC's views on appropriate revenue
recognition practices. The Company believes that its current revenue
recognition practices are in accordance with accounting principles generally
accepted in the United States of America and does not expect any material
impact when the bulletin becomes effective.
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 $12,100,685
Seva.................................. 1,688,429 2,000,143 1,295,814
------------ ------------ -----------
Combined............................. $ 16,329,847 $ 23,474,943 $13,396,499
============ ============ ===========
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 concluded that payment of the amounts retained was virtually
certain, the amount retained was accrued as part of the initial recording of
the transaction. The Company remitted the remaining portion of the purchase
price to Telexis Corporation in September 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, June 30,
------------------------ ----------
1998 1999 2000
----------- ----------- ----------
<S> <C> <C> <C>
Computer equipment and software........... $ 2,086,143 $ 2,627,082 $3,433,553
Furniture and fixtures.................... 280,919 383,717 266,342
Leasehold improvements.................... 49,796 55,569 190,845
----------- ----------- ----------
Total.................................... 2,416,858 3,066,368 3,890,740
Less accumulated depreciation............. (1,115,618) (1,716,843) (2,127,488)
----------- ----------- ----------
Property and equipment, net............... $ 1,301,240 $ 1,349,525 $1,763,252
=========== =========== ==========
</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 (subsequently increased in April 2000 to $2.5 million).
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 June 30, 2000, the
Company had borrowed $2,154,122 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>
Six Months Ended
Years Ended December 31, June 30,
--------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Current:
Federal........................ $267,247 $266,020 $ 668,425 $195,011 $410,228
State.......................... 67,843 46,476 117,958 55,459 120,793
-------- -------- --------- -------- --------
Total......................... 335,090 312,496 786,383 250,470 531,021
-------- -------- --------- -------- --------
Deferred:
Federal........................ 55,573 59,771 (99,494) 608 --
State.......................... 9,866 10,442 (17,558) 176 --
-------- -------- --------- -------- --------
Total......................... 65,439 70,213 (117,052) 784 --
-------- -------- --------- -------- --------
Provision for income taxes...... $400,529 $382,709 $ 669,331 $251,254 $531,021
======== ======== ========= ======== ========
</TABLE>
A reconciliation of the statutory federal income tax rate and the
effective rate for the following periods consists of the following:
<TABLE>
<CAPTION>
Six
Months
Year Ended Ended
December 31, June 30,
-------------- ---------
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% -- % 16%
Other................................................ 3% (2)% 1% 1% -- %
--- ---- --- ---- ----
Effective rate...................................... 44% 39 % 42% 41% 56%
=== ==== === ==== ====
</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 as well as options granted under the 2000 Stock Incentive
Plan described in Note 11. 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................................................... 1,087,999 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................................................... 729,875 4.31
Exercised................................................. (261,642) 0.45
Cancelled................................................. (115,312) 1.48
---------
Outstanding at June 30, 2000............................... 4,051,410 $1.53
=========
</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 six months ended June
30, 2000 aggregated $46,000 and $367,111, 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 six months ended June 30, 1999
and 2000, the Company contributed $149,521, $242,155, $375,359, $166,446 and
$268,942, 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, $331,001 and $468,728 for the years ended December 31, 1997, 1998 and
1999 and the six months ended June 30, 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)................ 1,613 339 234 (80) 1,767
Total other income
(expense)............. (16) -- -- (108)(4) (124)
------- ------ ------ ----- -------
Income (loss) before
income tax provision.. 1,597 339 234 (188) 1,643
Income tax provision.... 669 -- -- 18 (5) 687
------- ------ ------ ----- -------
Net income (loss)...... $ 928 $ 339 $ 234 $(206) $ 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 concluded that payment of the amounts retained was
virtually certain, the amount retained was accrued as part of the initial
recording of the transaction. The Company remitted the remaining portion
of the purchase price to Telexis Corporation in September 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...................................................... 1,351,604
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 Westboro, 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
------------------------------------------------------------------
[LOGO OF INTRINSIX CORP.]
4,000,000 Shares
Common Stock
--------------
PROSPECTUS
--------------
, 2000
CIBC World Markets
Robertson Stephens
Adams, Harkness & Hill
--------------------------------------------------------------------------------
You should rely only on the information contained or incorporated by reference
in this prospectus. No dealer, salesperson or other person is authorized to
give information that is not contained in this prospectus. This prospectus is
not an offer to sell nor is it seeking an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. The information
contained in this prospectus is correct only as of the date of this prospectus,
regardless of the time of the delivery of this prospectus or any sale of these
securities.
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.
<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..................................... 350,000
Legal fees and expenses.......................................... 425,000
Printing and mailing expenses.................................... 150,000
Miscellaneous.................................................... 46,081
----------
Total........................................................... $1,100,000
==========
</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 June 30, 2000, options to purchase 682,950 shares of common stock
had been exercised for a consideration of $202,617 under the Registrant's stock
option plans and options to purchase 4,051,410 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; 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>
--------
** 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 Post-Effective Amendment No. 3 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Westboro, Massachusetts, on this 4th day of October, 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 Post-
Effective Amendment No. 3 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, October 4, 2000
______________________________________ Chairman of the Board of
James A. Gobes, Jr. Directors and Director
(principal executive
officer)
* Chief Financial Officer, October 4, 2000
______________________________________ Treasurer, Clerk and
Brian C. Meeks Director (principal
accounting officer)
* Chief Technical Officer October 4, 2000
______________________________________ and Director
Mark A. Beal
* Director, Design Center October 4, 2000
______________________________________ Operations and Director
Romas P. Rudis
* Director October 4, 2000
______________________________________
Wallace A. Cataldo
* Director October 4, 2000
______________________________________
H. Kent Bowen
Director October 4, 2000
______________________________________
Robert J. Richardson
</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>
--------
** Previously filed.
