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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-30539
TVIA, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0549628
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4001 Burton Drive, Santa Clara, California 95054
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 982-8588
-------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes____ No X . /(1)/
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(1) The registrant has been subject to the filing requirements of the
Securities Exchange Act of 1934 since the effective date of its Registration
Statement on Form S-1 (August 8, 2000) and has filed all required reports since
the effective date.
On September 13, 2000, 22,243,046 shares of the Registrant's Common Stock,
$0.001 par value per share, were outstanding.
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TVIA, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
INDEX Page
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<S> <C>
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 and March 31, 2000 1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the
Three Months Ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3: Quantitative and Qualitative Disclosures About Market Risk and Interest Rate Risk 17
Part II: Other Information
Item 2: Changes in Securities and Use of Proceeds 18
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 6: Exhibits and Reports on Form 8-K 20
Signature 20
Exhibit Index 21
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TVIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
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(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,649 $ 3,789
Restricted cash -- 3,075
Accounts receivable, net 1,587 1,010
Inventories 2,315 1,327
Other assets and prepaid expenses 1,637 965
Deferred debt costs 754 981
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Total current assets 9,942 11,147
Property and equipment, at cost: 2,401 2,115
Less accumulated depreciation and amortization (2,000) (1,894)
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401 221
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Total Assets $ 10,343 $ 11,368
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loan payable guaranteed by related party $ 1,092 $ 1,070
Accounts payable 1,456 1,762
Accrued liabilities and other 2,439 2,400
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Total current liabilities 4,987 5,232
Long-term liabilities:
Loan payable guaranteed by related party 3,021 2,959
Redeemable convertible preferred stock 17,265 16,594
Warrants to purchase redeemable convertible preferred stock 849 849
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Total long-term liabilities 21,135 20,402
Commitments and contingencies (Note F)
Stockholders' deficit:
Series A, B, C, D, E and I convertible preferred stock, $0.001 par value;
aggregate liquidation preference of $9,357,178 liquidation preference as
of June 30, 2000:
Authorized -17,916,403 shares at June 30, 2000 and March 31, 2000
Outstanding - 5,802,112 and 5,305,454 shares at June 30, 2000 and March 31,
2000, respectively; 496,658 shares subscribed at March 31, 2000 6 5
Common stock, $0.001 par value:
Authorized - 150,000,000 shares at June 30, 2000 and March 31, 2000
Outstanding -5,233,806 shares at June 30, 2000 and March 31, 2000 5 5
Additional Paid-in-capital 17,304 17,078
Deferred stock compensation (4,089) (4,499)
Accumulated deficit (29,005) (26,855)
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Total stockholders' deficit (15,779) (14,266)
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Total liabilities and stockholders' deficit $ 10,343 $ 11,368
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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TVIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 2000
------------------------------------
unaudited
2000 1999
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<S> <C> <C>
Total revenues $ 3,533 $ 561
Cost of revenues (excluding amortization of
deferred stock compensation of $9 and $2
for the three months ended June 30, 2000
and 1999) 1,876 329
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Gross profit 1,657 232
Operating expenses:
Research and development (excluding amortization of deferred stock
compensation of $206 and $14 for the three months ended June 30,
2000 and 1999) 1,254 728
Sales, general and administrative (excluding amortization of
deferred stock compensation of $422 and $72 for the three
months ended June 30, 2000 and 1999) 988 719
Amortization of deferred stock compensation 637 88
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Total operating expenses 2,879 1,535
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Operating loss (1,222) (1,303)
Interest expense, net:
Bank interest, net 12 45
Amortization of debt guarantee costs and other 245 14
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Net loss $ (1,479) $ (1,362)
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Dividend related to convertible preferred stock 671 --
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Net loss attributable to common stockholders $ (2,150) $ (1,362)
======== ========
Basic and diluted net loss attributable to
common stockholders $ (0.42) $ (0.71)
======== ========
Shares used in computing basic and diluted net loss attributable to
common stockholders 5,152 1,926
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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TVIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 2000
------------------------------------
unaudited
2000 1999
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<S> <C> <C>
Net cash used in operating activities $(3,023) $(1,060)
Cash Flows From Investing Activities
Purchases of equipment (277) (73)
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Net cash used in investing activities (277) (73)
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Cash Flows From Financing Activities
Loan proceeds 159 1,855
Loan payments (74) (900)
Issue of preferred stock to investors -- 250
Restricted funds from stock subscription for
convertible preferred stock 3,075 --
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Net cash provided by financing activities 3,160 1,205
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Increase (decrease) in cash and cash equivalents $ (140) $ 72
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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TVIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended June 30, 2000,
are not necessarily indicative of the results that may be expected for the year
ended March 31, 2001.
Cash and Cash Equivalents
The Company considers all bank deposits with an original maturity of three
months or less from the date of purchase to be cash and cash equivalents.
Comprehensive Income
Effective April 1, 1998, the Company adopted SFAS, No. 130 "Reporting
Comprehensive Income" which establishes standards for reporting and displaying
comprehensive income in a full set of financial statements. For all periods
presented, comprehensive loss is the same as net loss included in the
accompanying consolidated statements of operations.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the average cost method. The Company periodically evaluates
the quantities on hand relative to current and historical selling prices and
historical and projected sales volume. Based on these evaluations, provisions
are made in each period to write inventory down to its net realizable value.
Inventories are composed of the following (in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
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<S> <C> <C>
Raw material $ 865 $ 640
Work-in-process 1,191 639
Finished goods 259 48
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$2,315 $1,327
====== ======
</TABLE>
4
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NOTE C - NET LOSS PER SHARE
Net loss per share has been calculated in accordance with the Financial
Accounting Standards Board Statement No. 128, "Earnings per Share" ("SFAS 128").
Basic net loss per share is computed using the weighted average number of shares
of common stock outstanding. No diluted loss per share information has been
presented in the accompanying condensed consolidated statement of operations
since common shares issuable upon conversion of redeemable convertible preferred
stock, convertible preferred stock, stock options and warrants are antidilutive.
The following table sets forth the computation of basic and pro forma basic
net loss per share (in thousands except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------
2000 1999
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<S> <C> <C>
Historical:
Net loss $(2,150) $(1,362)
Basic:
Weighted average shares of common stock outstanding 5,233 1,926
Less: Weighted average shares of common stock subject to
repurchase (81) --
------- -------
Weighted average shares used in computing basic net
loss per share 5,152 1,926
======= =======
Basic and diluted net loss per share $ (0.42) $ (0.71)
======= =======
</TABLE>
NOTE D - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recorded or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
As a result of the Company's continued losses, there was no provision for
income taxes for the three months ended June 30, 2000 and 1999.
5
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NOTE E - SIGNIFICANT CUSTOMERS
Revenues to significant distributors and customers, those representing
approximately 10% or more of total revenue for the respective periods, are
summarized as follows:
For the Three
Months Ended
June 30,
--------
2000 1999
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Customer A........................ 29% *
Customer B........................ * 14%
Customer C........................ * 18%
Customer D........................ * 19%
Customer E........................ 18% *
Customer F........................ 12% *
(* = less than 10%)
The loss of one or more major distributors or customers could have a
material adverse effect on our business, financial condition and results of
operations.
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims which arise in the normal course
of business. In the opinion of management, the Company is unaware of any claims
which would have a material adverse effect on the financial position, liquidity
or results of operations of the Company.
NOTE G - SUBSEQUENT EVENTS
In July 2000, the Company entered into a common stock and warrant purchase
agreement with Wind River Systems, Inc. ("Wind River"). On August 14, 2000,
Wind River purchased 90,909 shares of the Company's common stock and, in
connection with a licensing transaction, received a warrant to purchase 45,454
shares of the Company's common stock. In conjunction with the stock and warrant
purchase, the Company entered into a Mutual Collaboration Agreement (the
"Agreement") with Wind River for technology development over a term of two
years. As part of this Agreement, Wind River granted the Company a license to
use certain Wind River software. The Company recorded the fair value of the
warrant as a license fee/deferred cost related to the Agreement. The Company
has estimated the fair value of the warrant at approximately $250,000 using the
Black-Scholes model with the following assumptions: volatility of 70%; risk-
free interest rate of 6.00%; dividend yield of 0%; and a term of three years.
This license fee/deferred cost will be amortized over the two-year term of the
Agreement.
On August 14, 2000, the Company closed its initial public offering in which
it sold 5,000,000 shares of its common stock at $11.00 per share, and granted
the underwriters an over-allotment option to purchase up to 750,000 shares to
cover over-allotments. Upon the closing of the offering, all of the Company's
10,909,497 shares of preferred stock automatically converted into common stock
and warrants to purchase 288,330 shares of preferred stock automatically
converted into warrants to purchase common stock. On September 11, 2000, the
underwriters exercised the over-allotment option to purchase 675,050 shares of
common stock at $11.00 per share. Proceeds from the offering were $58.1
million, net of the underwriter's discounts and commissions. The loan payable
guaranteed by a related party was repaid from proceeds of the initial public
offering.
On August 2, 2000 the Company was reincorporated as a Delaware corporation,
and this change has been reflected in the shareholders' equity as of June 30,
2000 and March 31, 2000.
In August 2000, the Company entered into a five year full-recourse $660,000
note bearing interest at 6.15% with an executive officer of the Company in
connection with his purchase of 60,000 shares of the Company's common stock.
The note is secured by the stock acquired by the executive officer and may be
prepaid at any time.
6
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In July 2000, the stockholders of the Company approved by written consent
the following:
- approval of the Amended and Restated 2000 Stock Incentive Plan, under
which 2,333,333 shares of common stock were reserved;
- approval of the 2000 Employee Stock Purchase Plan, under which 333,333
shares of common stock were reserved;
- approval to increase the number of shares reserved for issuance under
the Amended and Restated 1999 Stock Incentive Plan to 5,183,333; and
- other actions as reflected in our registration statement on Form S-1
declared effective on August 8, 2000.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this report that are not purely historical are
forward-looking statements, including statements regarding our expectations,
beliefs, intentions, or strategies regarding the future. All forward-looking
statements included in this report are based upon information available to us as
of the date hereof, and we assume no obligation to update any such forward-
looking statements. Forward-looking statements involve risks and uncertainties,
which could cause actual results to differ materially from those projected.
These and other risks relating to our business are set forth under "Factors That
May Affect Future Results" and elsewhere in this report as well as in our
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission and declared effective on August 8, 2000.
Overview
We design, develop and market semiconductors for the Internet appliance,
broadband set-top box and digital television markets. Our semiconductor
solutions process rich media content streams available from the Internet and
from television and enable consumers to have a customized and interactive
television viewing experience.
We currently have three product families: the CyberPro 2010 family,
introduced in calendar year 1997; the CyberPro 5000 family, introduced in
calendar year 1998; and the CyberPro 5300 family, introduced in calendar year
1999. These product families currently generate most of our revenues. We sell
our products through three channels. First, we sell our products directly to
original equipment manufacturers, or OEMs, and recognize revenues at the time of
shipment to these OEMs. Second, we sell our products through sales
representatives who receive a commission. Finally, we sell our products to a
number of distributors who have contractual rights to earn a negotiated margin
on the sale of our products. We defer recognition of revenues for sales to our
distributors until after they have sold our products to OEMs. As a result, we
provide allowances for warranty costs upon shipment to OEMs and upon sell
through by distributors. We also generate revenues from development contracts
and licensing software which we believe will continue to constitute a low
percentage of total revenues in the future.
Approximately 76% and 60% of our total revenues for the three months ended
June 30, 2000 and 1999, respectively, were derived from customers located
outside the United States. All of our revenues to date have been denominated in
United States dollars. Historically, a relatively small number of customers and
distributors have accounted for a significant portion of our product sales.
Since June 30, 2000, the percentage of our revenues attributable to sales to
distributors has increased substantially. Much of this increase reflects
revenues from design wins with new OEMs which rely on third party manufacturers
or distributors to provide inventory management and purchasing functions.
Various factors have affected and may continue to affect our gross margin.
These factors include, but are not limited to, our product mix, the position of
our products in their respective life cycles, final test yields and the mix of
our product sales and development contracts and other revenues. For example,
newly introduced products generally have higher average selling prices and
generate higher gross margins. Both average selling prices and the related
gross margins typically decline over product life cycles due to competitive
pressures and volume price agreements. Our gross margin and operating results
in the future may continue to fluctuate as a result of these and other factors.
7
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The sales cycle for the test and evaluation of our products can range from
three months to six months or more, with an additional three to six months or
more before an OEM customer commences volume production of equipment
incorporating our products. Due to these lengthy sales cycles, we may
experience a delay between incurring operating expenses and inventory costs and
the generation of revenues from design wins.
We have sustained losses on a quarterly and annual basis since inception.
As of June 30, 2000, we had an accumulated deficit of $29.0 million. These
losses resulted from significant costs incurred in the planning and development
of our technology and services and from significant marketing costs. We expect
to experience significant increase in our operating expenses, particularly in
research and development, as we design and market new technologies.
In connection with the grant of stock options to employees, we have
recorded stock based compensation related to stock options granted below deemed
fair market value through June 30, 2000 of approximately $6.3 million. Of this
amount, we amortized approximately $2.2 million through June 30, 2000. This
amount represents the difference between the exercise price of these stock
option grants and the deemed fair value of the common stock at the time of
grant. The remaining $4.1 million will be amortized over the remaining vesting
period of the options, generally four years or less. As a result, the
amortization of stock based compensation will impact our reported results of
operations through fiscal year 2004.
In connection with the extension of a credit facility and the guarantee of
other credit facilities by related parties, we have issued warrants and options.
As of June 30, 2000, we have calculated the fair value of the warrants and
options using the Black-Scholes model to be $1.7 million and have recorded this
amount as a deferred debt issuance cost. Of this amount, we amortized
approximately $946,000 through June 30, 2000. The remaining $754,000 will be
amortized as additional interest expense in the three months ended September 30,
2000 due to the repayment of the related debt in August 2000 using a portion of
the proceeds from our initial public offering.
We have a subsidiary in the People's Republic of China which performs
research and development, and a branch office in Taiwan which is primarily
engaged in sales efforts.
Results of Operations
Revenues. Revenues increased to $3.5 million in the three months ended
June 30, 2000 from $561,000 in the three months ended June 30, 1999. The
increase was due to increased shipments of our CyberPro 2010 and CyberPro 5000
series of semiconductors for the Internet appliance, broadband set-top box and
digital television markets. Revenues from three customers, Weikeng Industrial
Co., Ltd., clickTV and Samsung Electronics Co. Ltd/FI accounted for 29%, 18% and
12%, respectively, of total revenues for the three months ended June 30, 2000.
Gross margin. Gross margin increased to 46.9% in the three months ended
June 30, 2000 from 41.3% in the three months ended June 30, 1999. The increase
in gross margin was primarily due to improved production yields achieved by our
third party foundries, cost reduction efforts by moving to smaller die sizes and
higher revenues over relatively fixed production costs.
Research and development. Research and development expenses include
personnel and other costs associated with the development of product designs,
process technology, software and programming hardware. Our research and
development expenses reflect our continuing efforts to develop and bring to
market innovative and cost effective semiconductors that process the rich media
content available on the Internet and the broadband network. Research and
development expenses increased to $1.3 million in the three months ended June
30, 2000 from $728,000 in the three months ended June 30, 1999. The increase was
primarily due to an increase in research and development personnel as compared
to the same period in fiscal 2000, and to higher levels of depreciation
resulting from acquisition of computers and lab equipment. Research and
development expenses as a percentage of total revenues were 35.5% in the first
three months of fiscal 2001 and 129.8% in the first three months of fiscal 2000.
The decrease in research and development expenses as a percentage of revenues is
primarily attributable to the increase in revenues between periods.
Our research and development activities in the People's Republic of China
provide software and application specified integrated circuit development
support to our domestic operations. While we employed 26 engineers in the
People's Republic of China at June 30, 2000, we hired an additional 93 engineers
at this center in
8
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July 2000. Although we expect research and development expenses to increase in
absolute terms, we expect research and development expenses as a percentage of
revenues to decrease.
Sales, general and administrative. Sales, general and administrative
expenses consist primarily of personnel and other costs associated with the
management of our business and with the sale and marketing of our products.
Sales, general and administrative expenses increased to $988,000 in the three
months ended June 30, 2000 from $719,000 in the three months ended June 30,
1999. The increase is primarily due to increased headcount, including hiring
executive officers. Sales, general and administrative expenses as a percentage
of total revenues was 28.0% in the first three months of fiscal year 2001 and
128.2% in the first three months of fiscal year 2000. The decrease in sales,
general and administrative expenses as a percentage of revenues is primarily
attributable to the increase in revenues between periods.
Deferred stock compensation. We grant stock options to hire, motivate and
retain employees. We incurred stock compensation expense of $637,000 in the
three months ended June 30, 2000, and $88,000 in the three months ended June 30,
1999.
Interest expense, net. Interest expense for the three months ended June 30,
2000 was $257,000, compared to $59,000 for the three months ended June 30, 1999.
The increase in interest expense was due to the amortization of deferred
compensation related to warrants and options issued to guarantors of our debt.
In August 2000, we used a portion of the proceeds of our initial public
offering to repay approximately $4 million of debt that was outstanding at that
time. Consequently, we plan to expense approximately $754,000 in the quarter
ended September 30, 2000 relating to the remaining cost of debt guarantees.
Provision for income taxes. We are taxed in our jurisdictions of
operations based on the extent of taxable income generated in each jurisdiction.
For income tax purposes, revenues are attributed to the taxable jurisdiction
where the sales transactions generating the revenues were initiated. We
incurred operating losses in the three months ended June 30, 2000 and for the
fiscal year ended March 31, 2000, and therefore made no provision for income tax
in these periods.
Preferred stock dividend. During the three months ended June 30, 2000, we
recorded a preferred stock dividend of $671,000 representing the value of the
beneficial conversion feature on the issuance of convertible preferred stock in
April 2000. The beneficial conversion was calculated based on the difference
between the conversion price of $7.50 per share and the estimated fair value of
the common stock at that date.
Liquidity and Capital Resources
During the three months ended June 30, 2000, we used $3.0 million of cash
and cash equivalents in our operating activities as compared to $1.1 million
during the three months ended June 30, 1999. This increase was mainly due to a
significant increase in inventory, receivables and prepaid assets during the
three months ended June 30, 2000 as compared to the three months ended June 30,
1999, as well as to a decrease of accounts payables between these periods.
Capital equipment purchases in the three months ended June 30, 2000 totaled
$277,000, compared to $73,000 in the three months ended June 30, 1999.
During the three months ended June 30, 2000, we received $3.1 million of
cash proceeds from the sale of 409,992 shares of Series I convertible preferred
stock.
At June 30, 2000, our principal source of liquidity consisted of cash and
cash equivalents deposits totaling $3.6 million. Working capital at June 30,
2000 was $5.0 million.
We believe that our current cash and cash equivalents, with the proceeds
from our initial public offering, will be sufficient to meet our cash
requirements through at least the next twelve months.
9
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for all fiscal
quarters for fiscal years beginning after June 15, 2000, and is not anticipated
to have a significant impact on our operating results or financial condition
when adopted.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44),
"Accounting for Certain Transactions involving Stock Compensation--an
interpretation of APB Opinion No. 25" (FIN 44). FIN 44 is effective July 1,
2000. The interpretation clarifies the application of APB Opinion No. 25 for
certain issues, specifically, (a) the definition of an employee, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) fixed stock option or award, and (d) the accounting for an exchange or
stock compensation awards in a business combination. We do not anticipate that
the adoption of FIN 44 will have a material impact on our financial position
or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin SAB 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 includes requirements for when shipments may be recorded as
revenue when the terms of the sale include customer acceptance provisions or
generally requires that revenue recognition occur at completion of installation
and/or upon customer acceptance. We believe that our current revenue recognition
practices comply with SAB 101.
Factors that May Affect Future Results
We expect continuing losses and may not achieve profitability which could affect
our ability to expand our business.
We have incurred significant operating losses in each year since our
inception and expect to continue to incur net losses for the foreseeable future,
primarily as a result of increases in expenses for research and development. Our
losses increased as we transitioned our focus away from the personal computer
market toward the Internet appliance, broadband set-top box and digital
television markets in 1996. We have incurred net losses of approximately $29.0
million from our inception in March 1993 through June 30, 2000. If we continue
to incur net losses, we may not be able to expand our business as quickly as we
would like. We do not know when or if we will become profitable and if we do
become profitable, we may not be able to sustain or increase our profitability.
Our operating expenses will increase as we build our business and these
increased expenses may impact our ability to become profitable.
We have made substantial expenditures on research and development and
organizational infrastructure consisting of an executive team, finance and
management information systems departments and our design center located in the
People's Republic of China. For the fiscal years ended March 31, 1998, 1999,
2000 and for the three months ended June 30, 2000, research and development
expenses represented 92.5%, 220.6%, 48.0% and 35.5% of our revenues,
respectively. We expect to continue to spend substantial financial and other
resources on developing and introducing new products and services, and on
expanding our research and development, our operating infrastructure and our
sales and marketing. We expect that our operating expenses will continue to
increase in absolute dollars and may increase as a percentage of revenues. If
our revenues do not increase, our business and results of operations could
suffer. We base our expense levels in part on our expectations regarding future
revenues. If our revenues for a particular quarter are lower than we expect, we
may be unable to proportionately reduce our operating expenses for that quarter.
If interactive television does not achieve market acceptance, we may not be able
to sell our products or sustain our business.
Our semiconductor solutions are incorporated into products that allow
interactive television. The concept of interactive television and the market for
products that facilitate it are new and developing. As a result, our profit
potential is unproven and may never materialize. Broad acceptance of Internet
appliances, broadband set-top boxes and digital televisions will depend on the
extent to which consumers use devices other than personal computers to access
the Internet. Our success will also depend on the ability of original equipment
manufacturers, or OEMs, and service providers that work with our OEMs to create
demand for and market the products incorporating our semiconductors. Unless a
sufficiently large market for Internet appliances, broadband set-top boxes,
digital televisions and other products that are used for interactive television
develops, demand for products incorporating our semiconductor solutions may not
be sufficient to sustain our business.
10
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Because of our long product development process and sales cycle, we incur
substantial expenses before we generate revenues and may not recover our
expenditures.
To develop market acceptance of our products, we must dedicate significant
resources to research and development, production and sales and marketing. We
develop products based on forecasts of demand and we incur substantial product
development expenditures prior to generating associated revenues. Our customers
typically perform numerous tests and extensively evaluate our products before
incorporating them into their systems. The time required for testing, evaluating
and designing our products into a customer's equipment can take up to six months
or more, with an additional three to six months or more before an OEM customer
commences volume production of equipment incorporating our products, if ever.
Because of this lengthy development cycle, we may experience a delay between the
time we accrue expenses for research and development and sales and marketing
efforts and the time when we generate revenues, if any.
Furthermore, achieving a design win with a customer does not necessarily
mean that this customer will order large volumes of our products. A design win
is not a binding commitment by a customer to purchase our products. Rather, it
is a decision by a customer to use our products in the design process. In
addition, our customers can choose at any time to discontinue using our products
in that customer's designs or product development efforts. If our products are
chosen to be incorporated into a customer's products, we may still not realize
significant revenues from that customer if that customer's products are not
commercially successful. As a result, our profitability from quarter to quarter
and from year to year may be materially affected by the number and timing of our
new product introductions in any period and the level of acceptance gained by
these products.
If we fail to successfully develop, introduce and sell new products, we may be
unable to effectively compete in the future.
We operate in a highly competitive, quickly changing environment marked by
new and emerging products and technologies. Our success depends on our ability
to develop, introduce and successfully market new products and enhance our
existing products in the Internet appliance, broadband set-top box and digital
television markets. The development of these new products is highly complex
and, from time to time, we have experienced delays in completing their
development and introduction. Any one of the following factors could affect our
ability to develop, introduce and sell new products and could materially harm
our business:
. our failure to complete new product designs in a timely manner;
. our inability to manufacture our new products according to design
specifications;
. our inability to deliver our products to our customers in a timely
manner for any reason, including a lack of manufacturing capacity or
the failure of our contracted foundries to meet targeted manufacturing
yields; and
. our sales force's and independent distributors' inability to create
adequate demand for our products.
Our future operating results are likely to fluctuate and may fail to meet
expectations which could cause our stock price to decline.
Our operating results have varied in the past and are likely to do so in
the future as we attempt to meet consumer demand in the emerging markets for
Internet appliances, broadband set-top boxes and digital televisions. Our
future operating results will depend on many factors and may fail to meet our
expectations for a number of reasons. Any failure to meet these expectations or
those of securities analysts and investors could cause our stock price to
fluctuate or decline significantly. A number of factors, including those listed
below, may cause fluctuations in our operating results:
. fluctuations in the volume of product sales, changes in product mix
and pricing concessions on sales;
. the timing, rescheduling or cancellation of significant customer
orders;
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<PAGE>
. the timing of investments in, and the results of, research and
development;
. changes in industry standards;
. introduction of interactive television services by service providers;
. availability of manufacturing capacity and raw materials;
. product introductions and price changes by our competitors;
. our ability to specify, develop, introduce and market new products
with smaller geometries, more features and higher levels of design
integration in accordance with design requirements and design cycles;
and
. the level of orders received that can be shipped in a given period.
Our industry is highly competitive, and we cannot assure you that we will be
able to effectively compete.
The market for Internet appliances, broadband set-top boxes and digital
televisions in particular, and the semiconductor industry in general, are highly
competitive. We compete with a number of domestic and international suppliers of
semiconductors in our targeted markets. We expect competition to intensify as
current competitors expand their product offerings and new competitors enter our
targeted markets. We believe that we must compete on the basis of a variety of
factors, including:
. functionality;
. performance;
. time to market;
. price;
. conformity to industry standards;
. product road maps; and
. technical support.
We currently compete with ATI Technologies, Inc., Broadcom Corporation, and
TeraLogic, Inc. In addition to these competitors, we expect other major
semiconductor manufacturers will enter our targeted markets as the Internet
appliance, broadband set-top box and digital television markets become more
established. A number of companies, including International Business Machines
Corporation, STMicroelectronics N.V., National Semiconductor Corporation and
TeleCruz Technology, Inc., have announced that they are developing or plan to
introduce competing products in the Internet appliance, broadband set-top box
and digital television markets which could result in significant competition.
Some of our current and potential competitors operate their own fabrication
facilities or have a longer operating history and significantly greater
financial, sales and marketing resources. They may also have preexisting
relationships with our customers or potential customers. As a result, these
competitors may be able to adapt more quickly to new or emerging products,
develop new technologies, or address changes in customer requirements or devote
greater resources to the development and promotion of strategic relationships
among themselves or with existing or potential customers. It is possible that
new competitors or alliances among competitors could emerge and rapidly acquire
significant market share. Increased competition could harm our business,
results of operations and financial condition by, for example, increasing
pressure on our profit margin or causing us to lose sales opportunities.
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We depend on two independent foundries to manufacture our products based on our
forecasts, which could result in an oversupply or undersupply of products.
We do not own or operate our own fabrication facility. We currently depend
upon two outside foundries, Taiwan Semiconductor Manufacturing Corporation, or
TSMC, and United Manufacturing Corporation, or UMC. We do not have long term
supply agreements with these foundries to manufacture our semiconductor
products. Both of these foundries are located in Taiwan and each has limited
manufacturing capacity.
The foundries require us to provide forecasts of our anticipated
manufacturing orders in advance of receiving purchase orders from our customers.
This may result in product shortages or excess product inventory. Obtaining
additional supply in the face of product shortages may be costly or not
possible, especially in the short term. Our failure to adequately forecast
demand for our products would materially harm our business. The foundries may
allocate capacity to the production of other companies' products while reducing
delivery to us on short notice.
If we have to qualify new independent foundries for any of our products and do
not have sufficient supply of our products on hand, we may lose revenues and
damage our customer relationships.
Processes used to manufacture our products are complex, customized to our
specifications and can only be performed by a limited number of manufacturing
facilities. Our foundries have from time to time experienced lower than
anticipated manufacturing yields, particularly in connection with the
introduction of new products and the installation and start up of new process
technologies. In addition, the foundries we use are located in a seismically
active area, and earthquakes have caused these foundries to close for repairs,
resulting in a delay in manufacturing our products.
Although we primarily utilize two independent foundries, most of our
components are not manufactured at both foundries at any given time. The
inability of one of the foundries to provide components could result in
significant delays and harm our business. In the event either foundry
experienced manufacturing or financial difficulties or suffered any damage or
destruction to its facilities, or in the event of any other disruption of
foundry capacity, we may not be able to qualify alternative manufacturing
sources for existing or new products in a timely manner. For example, in
September 1999, Taiwan experienced a major earthquake. The earthquake and its
resulting aftershocks caused power outages and significant damage to Taiwan's
infrastructure. In addition, as a result of the rapid growth of the
semiconductor industry based in the industrial park where both foundries are
located, severe constraints have been placed on the water and electricity supply
in that region. Any shortages of water or electricity or a natural disaster
could adversely affect our foundries' ability to supply our products, which
could have a material adverse effect on our operating results.
Even our current outside foundries would need to have manufacturing
processes qualified in the event of a disruption at the other foundry, which we
may not be able to accomplish in a timely manner sufficient to prevent an
interruption in the supply of the affected products. We cannot assure you that
any existing or new foundries would be able to produce integrated circuits with
acceptable manufacturing yields in the future, or will continue to have
sufficient capacity to meet our needs. If our manufacturing requirements are not
satisfied, our business would be materially harmed.
A significant amount of our revenues comes from a few OEMs and any decrease in
revenues from these few customers could significantly impact our financial
results.
Historically we have been, and we expect to continue to be, dependent on a
relatively small number of OEMs for a significant portion of our total revenues.
Most sales to these customers are through distributors. Sales to one of our
distributors, Weikeng Industrial Co., Ltd. accounted for approximately 16.2% of
our total revenues for fiscal year 2000, and 29% for the three months ended June
30, 2000. For the fiscal year ended March 31, 2000 sales to Allwell Corporation,
an OEM, accounted for approximately 11.6% of our total revenues. In the three
months ended June 30, 2000, Weikeng, a distributor, clickTV and Samsung, OEMs,
accounted for 29%, 18% and 12% of total revenue, respectively. We may not be
able to retain our largest customers or to obtain additional key accounts. Any
reduction or delay in sales of our products to one or more of our key customers
or our inability to successfully develop relationships with additional key
customers could have a material adverse effect on our business.
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Customers may cancel or defer significant purchase orders, or our distributors
may return our products, which would cause our inventory levels to increase and
our revenues to decline.
We sell our products on a purchase order basis through our direct sales
channel, sales representatives and distributors, and our customers may cancel or
defer purchase orders at any time with little or no penalty. We recognize
revenues from sales to our distributors when they have sold our products to
their customers. We recognize revenues on sales to our OEM customers when we
ship our products to the OEM. We generally permit our distributors to return
products to us. If our customers cancel or defer significant purchase orders or
our distributors return our products, our inventories would increase and our
revenues would decrease, which would materially harm our business. Refusal of
OEM customers to accept shipped products or delays or difficulties in collecting
accounts receivable could have an adverse effect on our business.
Our semiconductors are complex to manufacture and may have errors or defects
which could be costly to correct.
The manufacture of semiconductors is a complex process. Foundries may not
achieve acceptable product yields from time to time due to the complexity of the
integrated circuit design, inadequate manufacturing processes and other reasons.
We refer to the proportion of final acceptable integrated circuits that have
been processed, assembled and tested relative to the gross number of integrated
circuits that could have been produced from the raw materials as our product
yields. Identifying defects and determining the reason for low yields may be
discovered after production has begun and at various stages of the production
cycle. Our inability to discover defects early in the production cycle will
result in higher costs and may require a diversion of our technical personnel
and resources away from product development in order to correct the defect. In
addition, defective products that have been released into the market and
distributed to our customers and end users may result in harm to our reputation,
significant warranty costs, diversion of our technical and managerial resources
and potential product liability claims that would be costly to defend.
Our software is complex and may have bugs or defects which could be costly to
correct.
Our products depend on complex software that we develop internally and
license from others. Complex software often contains defects, particularly when
first introduced or when new versions are released. Determining whether our
software has defects may occur after our products are released into the market
and distributed to our customers and end users, and may result in harm to our
reputation, significant warranty costs, diversion of our technical resources and
potential product liability claims that would be costly to defend and divert
managerial resources.
We face foreign business, political and economic risks because a majority of our
sales are to customers outside of the United States.
Sales of our products to our OEM customers and to distributors located
outside the United States accounted for 90%, 81%, 71% and 76% of our total
revenues in fiscal years 1998, 1999, 2000 and for the three months ended June
30, 2000, respectively. We anticipate that sales to customers located outside
the United States will continue to represent a significant portion of our total
sales in future periods. In addition, many of our domestic customers sell their
products outside of North America, thereby indirectly exposing us to risks
associated with foreign commerce. Asian economic instability impacts the sales
of products manufactured by our customers, as does the Chinese New Year, during
which time many manufacturers and businesses close their operations. We could
also experience greater difficulties collecting accounts receivable from
customers outside of the United States. Accordingly, our operations and revenues
are subject to a number of risks associated with foreign commerce.
To date, we have denominated sales of our products in foreign countries
exclusively in United States dollars. As a result, any increase in the value of
the United States dollar relative to the local currency of a foreign country
will increase the price of our products in that country so that our products
become relatively more expensive to customers in the local currency of that
foreign country. As a result, sales of our products in that foreign country may
decline. To the extent any of these types of risks materialize, our business
would be materially harmed.
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The rapid growth of our business and operations has strained and will continue
to strain our administrative, operational and financial resources, and our
failure to manage our future growth could affect our operations and our future
ability to expand.
We are currently experiencing rapid growth and expansion in our business
and operations. For example, we are expanding our research and development
facilities in the People's Republic of China. Our growth has placed, and will
continue to place, a significant strain on our administrative, operational and
financial resources and increased demands on our systems and controls. To
accommodate our growth, we must implement a variety of new and upgraded
operational and financial systems, procedures and controls, including
improvement of our accounting and other internal management systems, all of
which are likely to require substantial managerial effort. We cannot assure you
that these efforts can be accomplished successfully. Our growth has resulted in
a continuing increase in the level of responsibility for both existing and new
management personnel, and will require that we recruit, hire and train a
substantial number of new personnel. Our failure to manage our growth could
prevent us from successfully achieving market acceptance for our products,
disrupt our operations, delay our expansion and harm our business.
We depend on key personnel, the loss of whom would impair or inhibit the growth
of our business.
Our success depends on the skills, experience and performance of our
executive officers and other key management and technical personnel, many of
whom would be difficult to replace. We are particularly dependent on Kenny Liu,
our Chairman and Chief Executive Officer, and Jack Guedj, our President. We are
also highly dependent on our founders, Jhi-Chung Kuo and Yee Wong, who run our
engineering and manufacturing operations. We also depend upon our experienced
business development personnel, marketing personnel, systems application
engineers, circuit designers, logic engineers and software engineers. The
competition for employees with these skills is intense, particularly in the San
Francisco Bay Area, and we may not be able to attract and retain a sufficient
number of such qualified new personnel in the future. The loss of the service
of one or more of our key employees, or our failure to attract, retain and
motivate qualified personnel would inhibit the growth of our business.
We may encounter periods of semiconductor oversupply, resulting in pricing
pressure, as well as undersupply, resulting in a risk that we could be unable to
fulfill our customers' requirements.
The semiconductor industry has historically been characterized by wide
fluctuations in the demand for, and supply of, its products. These fluctuations
have resulted in circumstances when supply and demand for the industry's
products have been widely out of balance. Our operating results may be
materially harmed by industry wide semiconductor oversupply, which could result
in severe pricing pressure. On the other hand, in a market with undersupply, we
would have to compete with larger companies for limited manufacturing capacity.
If material shortages occur, we may incur additional costs to procure the scarce
components or be unable to have our products manufactured in a timely manner or
in quantities necessary to meet our requirements. Since we outsource all of our
manufacturing, we are particularly vulnerable to supply shortages. As a result,
we may be unable to fill orders and may lose customers. Any future industry wide
oversupply or undersupply of semiconductors would materially harm our business
and have a negative impact on our earnings.
We rely on strategic relationships to commercialize our products, and these
relationships may require that we expend significant resources without
guarantees that our endeavors will be profitable.
We rely on strategic relationships with some of our customers who we
believe are the market leaders in our target markets. These relationships often
involve the proposed development by us of new products involving significant
technological challenges. Since the proposed products under development may
offer potential competitive advantages to our customers, considerable pressure
is frequently placed on us to meet development schedules. While an essential
element of our strategy involves establishing such relationships, these projects
require substantial amounts of our limited resources, with no guarantee of
revenues to us, and could materially detract from or delay the completion of
other important development projects. Delays in development could impair the
relationship between us and our customers and negatively impact sales of the
products under development. Moreover, our customers may develop their own
solutions for products currently supplied by us, which could have an adverse
effect on our business.
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We depend on third party subcontractors for assembly of our semiconductors which
reduces our control over the delivery, quantity, quality or cost of our
products.
Substantially all of our products are assembled by one of two
subcontractors, both of which are located in Taiwan. Typically, we procure
services from these subcontractors on a purchase order basis. Their availability
to assemble our products could be adversely affected if either subcontractor
experiences financial difficulties or suffers any damage or destruction to its
facilities or any other disruption of its assembly capacity. Because we rely on
third party subcontractors for assembly of our products, we cannot directly
control product delivery schedules. We have experienced in the past, and may
experience in the future, product shortages or quality assurance problems that
could increase the cost of manufacturing or testing of our products. It is time
consuming and difficult to find and qualify alternative assemblers. If we are
forced to find substitute subcontractors, shipments of our products could be
delayed. Any problems associated with the delivery, quantity or cost of our
products could harm our business.
Political instability in the People's Republic of China or Taiwan could harm our
manufacturing and research and development capabilities and negatively impact
our product sales.
We operate a facility and are in the process of expanding our research and
development operations in the People's Republic of China. In addition, almost
all of our products are manufactured and assembled outside of the United States
at facilities operated by third parties in Taiwan. The political and economic
conditions in the region, including the People's Republic of China's dispute
with Taiwan, may adversely impact our operations including manufacture and
assembly of our products and research and development efforts. We cannot assure
you that restrictive laws or policies on the part of either the People's
Republic of China or the United States will not constrain our ability to operate
in both countries. If we are required to relocate our facilities, our business
will be disrupted and our costs associated with research and development will
increase.
If our competitors use our intellectual property and proprietary rights, our
ability to compete would be impaired.
Our success depends in part upon our rights in proprietary technology and
processes that we develop and license from, and to, others. We rely on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality agreements with our employees, consultants and strategic
partners in order to protect proprietary technologies that use our products. We
cannot assure you that these measures will provide meaningful protection for our
proprietary technologies and processes, and they do not prevent independent
third party development of competitive products. In addition, it is difficult
to monitor unauthorized use of technology, particularly in foreign countries
where laws may not protect our proprietary rights as fully as in the United
States.
We currently have patent applications pending in the United States, and we
may seek additional patents in the future. Because the content of patent
applications in the United States is not publicly disclosed until the patent is
issued, applications may have been filed which relate to our products or
processes. We cannot assure you that our current patent applications or any
future patent applications will result in a patent being issued with the scope
of the claims we seek, if at all, or whether any patents we have or may receive
will be challenged or invalidated. The failure of any patents to provide
protection to our technology would make it easier for our competitors to offer
similar products.
We may face intellectual property infringement claims that could be costly and
could result in the loss of proprietary rights which are necessary to our
business.
Other parties may assert patent infringement claims against us, including
claims against technology that we license from others, and our products or
processes may infringe issued patents of others. Litigation is common in the
semiconductor industry and any litigation could result in significant expense to
us. Litigation would also divert the efforts of our technical and management
personnel, whether or not the litigation is determined in our favor. Litigation
could also require us to develop non-infringing technology or enter into royalty
or license agreements. These royalty or license agreements may not be available
on acceptable terms, including limitations on representations and warranties
regarding infringement and indemnification in the event of infringement claims.
Our failure or inability to develop non-infringing technology, license the
proprietary rights on a timely basis or receive appropriate protection on
licensed technology would harm our business.
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Regulation of our customers' products may slow the process of introducing new
products and could impair our ability to compete.
The Federal Communications Commission, or the FCC, has broad jurisdiction
over our target markets. Various international entities or organizations may
also regulate aspects of our business or the business of our customers.
Although our products are not directly subject to regulation by any agency, the
transmission pipes, as well as much of the equipment into which our products are
incorporated, are subject to direct government regulation. For example, before
they can be sold in the United States, Internet appliances, broadband set-top
boxes and digital televisions must be tested and certified by Underwriters
Laboratories and meet FCC regulations. Accordingly, the effects of regulation
on our customers or the industries in which our customers operate may, in turn,
harm our business. FCC regulatory policies affecting the ability of cable
operators or telephone companies to offer certain services and other terms on
which these companies conduct their business may impede sales of our products.
In addition, our business may also be adversely affected by the imposition of
tariffs, duties and other import restrictions on systems of suppliers or by the
imposition of export restrictions on products that we sell internationally.
Changes in current laws or regulations or the imposition of new laws or
regulations in the United States or elsewhere could harm our business.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND
INTEREST RATE RISK
Quantitative and Qualitative Discussion of Market Interest Rate Risk
Our cash equivalents and short term investments are exposed to financial
market risk due to fluctuation in interest rates, which may affect our interest
income and, in the future, the fair market value of our investments. We manage
the exposure to financial market risk by performing ongoing evaluations of our
investment portfolio and presently invest entirely in certificates of deposit
issued by banks, the value of which does not change based on changes in interest
rates. As our cash balances increase, we anticipate investing in short term
investment grade government and corporate securities. These securities will be
highly liquid and generally mature within 12 months from our purchase date. Due
to the short maturities of our investments, the carrying value should
approximate the fair value. In addition, we do not use our investments for
trading or other speculative purposes. We have performed an analysis to assess
the potential effect of reasonably possible near term changes in interest and
foreign currency exchange rates. The effect of any change in foreign currency
exchange rates is not expected to be material to our results of operations, cash
flows or financial condition. Due to the short duration of our investment
portfolio, an immediate 10% change in interest rates would not have a material
effect on the fair market value of our portfolio. Therefore, we would not expect
our operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our securities
portfolio.
Foreign Currency Exchange Risk
We are an international company, selling our products globally and, in
particular, in Japan, Korea, the People's Republic of China and Taiwan.
Although we transact our business in United States dollars, we cannot assure you
that future fluctuations in the value of the United States dollar would not
affect the competitiveness of our products, gross profits realized, and results
of operations. Further, we incur expenses in the People's Republic of China,
Taiwan and other countries that are denominated in currencies other than United
States dollars. We cannot estimate the effect that an immediate 10% change in
foreign currency exchange rates would have on our future operating results or
cash flows as a direct result of changes in exchange rate. However, we do not
believe that we currently have any significant direct foreign currency exchange
rate risk and have not hedged exposures denominated in foreign currencies or any
derivative financial instruments.
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PART II: OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Upon the closing of our initial public offering on August 14, 2000, all of
the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock, Series H Preferred Stock and Series I Preferred
Stock were automatically converted on a share-for-share basis into shares of our
Common Stock. Following that conversion, the Company filed an Amended and
Restated Certificate of Incorporation that reflects the deletion of provisions
relating to those series of preferred stock.
(c) Sales of Unregistered Securities
During the three months ended June 30, 2000, we issued and 496,658
shares of Series I Preferred Stock at a price of $7.50 per share.
The sales of the above securities were considered to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving a public offering or transactions under compensatory
benefit plans and contracts relating to compensation provided under Rule 701.
The recipients of securities in each of these transactions represented their
intention to acquire the securities for investment only and not with a view to
or for sale with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in these transactions. All
recipients had adequate access, through their relationship with the Registrant,
to information about the Registrant.
(d) Use of Proceeds from Sales of Registered Securities.
On August 14, 2000, the Company closed the sales of a total of 5,000,000
shares of our common stock, par value $0.001 per share, at a price of $11.00 per
share in a firm commitment underwritten public offering. In connection with the
offering to the underwriters to purchase an additional 750,000 shares for up to
30 days after the offering in connection with the exercise of the underwriters'
over-allotment option registered under the Registration Statement. On September
14, 2000, the Company closed the sale of a total of 675,050 shares of our common
stock at a price of $11.00 per share pursuant to the exercise of the
underwriters' over-allotment option. The offering was effected pursuant to a
Registration Statement on Form S-1 (File No. 333-34024), which the Securities
and Exchange Commission declared effective on August 8, 2000. The managing
underwriters in the offering were Banc of America Securities LLC, Dain Rauscher
Wessels, CIBC World Markets and U.S. Bancorp Piper Jaffray.
Of the $62,425,550 in aggregate proceeds raised by us in the offering:
1. approximately $4.4 million was paid to the underwriters in
connection with the underwriting discount;
2. approximately $2.6 million was paid by us in connection with
offering expenses, printing fees, listing fees, filing fees,
accounting fees and legal fees.
3. approximately $4.0 million was paid by us to retire notes payable
to two financial institutions.
4. the remainder of the proceeds from the offering has been invested
in investment grade securities.
We intend to use the net proceeds for general corporate purposes, including
working capital. We may also use a portion of the net proceeds to acquire
additional businesses, products and technologies that we believe will complement
our business. We do not have more specific plans for the net proceeds from this
offering. The amounts and timing of any expenditures will vary depending on the
amount of cash generated by our operations, competitive and technological
developments and the rate of growth, if any, of our business. We will retain
broad direction in the allocation of the net proceeds from this offering.
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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's stockholders approved by written consent in lieu of a
stockholders meeting the dated July 20, 2000 the following:
(a) Approval of the reincorporation into Delaware, including approval of
the Agreement and Plan of Merger and the three-for-one stock split
For Against Abstain
--- ------- -------
26,245,485 0 0
(b) Approval of our Amended and Restated Certificate of Incorporation
For Against Abstain
--- ------- -------
26,245,485 0 0
(c) Approval of our Amended and Restated Bylaws
For Against Abstain
--- ------- -------
26,245,485 0 0
(d) Approval of our Amended and Restated 2000 Stock Incentive Plan
For Against Abstain
--- ------- -------
26,245,485 0 0
(e) Approval our 2000 Employee Stock Purchase Plan
For Against Abstain
--- ------- -------
27,206,957 0 0
(f) Approval of our form of Indemnification Agreement
For Against Abstain
--- ------- -------
27,206,957 0 0
(g) Approval to increase the number of shares reserved for issuance under
our Amended and Restated Stock Incentive Plan to 14,800,000
For Against Abstain
--- ------- -------
24,792,127 0 40,000
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The Company's stockholders approved by written consent in lieu of a
stockholders' meeting dated July 26, 2000, the following:
(a) Approval to increase the number of shares reserved for issuance under
our Amended and Restated Stock Incentive Plan to 15,550,000
For Against Abstain
--- ------- -------
21,007,776 0 0
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index attached hereto, which is incorporated herein by
reference
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the three months ended June 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TVIA, INC.
September 19, 2000 By: /s/ MICHAEL HOBERG
----------------
Michael Hoberg
Vice President of Finance,
Chief Financial Officer and Secretary
(Principal Financial Officer and
Chief Accounting Officer)
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EXHIBIT INDEX TO TVIA, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
Exhibit No. Exhibit Description
---------- -------------------
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
4.1** Form of Stock Certificate
10.1 Amended and Restated 2000 Stock Incentive Plan. Filed to correct a
typographical error in Section 4(b)(v).
10.2 Promissory Note dated August 9, 2000 by and between Tvia, Inc. and
Johnson Yan
27.1 Financial Data Schedule
_________________
* Incorporated by reference from Exhibits 3.3 and 3.4 of Amendment No. 3 of
Registrant's Registration Statement on Form S-1 (File No. 333-34024) filed
with the Securities and Exchange Commission on July 14, 2000.
** Incorporated by reference from Exhibit 4.1 of Amendment No. 2 of
Registrant's Registration Statement on Form S-1 (File No. 333-34024) filed
with the Securities and Exchange Commission on July 7, 2000.
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