<PAGE>
As filed with the Securities and Exchange Commission on August 7, 2000
Registration No. 333-34024
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
AMENDMENT NO. 10
To
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
TVIA, INC.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<C> <S> <C>
Delaware 3674 77-0549628
(Primary Standard
(State or other jurisdiction Industrial (I.R.S. Employer
of incorporation or Classification Code Identification No.)
organization) Number)
</TABLE>
4001 Burton Drive
Santa Clara, CA 95054
(408) 982-8588
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
Kenny Liu
Chief Executive Officer
Tvia, Inc.
4001 Burton Drive
Santa Clara, CA 95054
(408) 982-8588
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Gabriella A. Lombardi, Esq. Christopher L. Kaufman, Esq.
Jeffrey S. Harrell, Esq. Bryant B. Edwards, Esq.
P. Christine Lillquist, Esq. Stephen B. Richards, Esq.
Pillsbury Madison & Sutro LLP Latham & Watkins
2550 Hanover Street 135 Commonwealth Drive
Palo Alto, CA 94304 Menlo Park, CA 94025
</TABLE>
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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 of
1933 (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, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 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 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,
please check the following box. [_]
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
<CAPTION>
Class of Proposed Maximum Proposed Maximum
Securities to be Amount to Offering Price Aggregate
Registered be Registered(1) Per Share(2) Offering Price(2) Filing Fee(3)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock no par
value ................ 5,750,000 $13.00 $74,750,000 $19,734
------------------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
(1) Includes 750,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a).
(3) Includes $17,160 previously paid.
-------------------
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.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed without +
+notice. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell securities and we are not soliciting +
+offers to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED August 7, 2000
5,000,000 Shares
[TVIA, INC. LOGO APPEARS HERE]
Common Stock
--------------
Tvia, Inc. is offering 5,000,000 shares of its common stock in an initial
public offering. No public market currently exists for our common stock. We
anticipate that the initial public offering price will be between $11.00 and
$13.00 per share.
--------------
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "TVIA."
--------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discounts and Commissions......................... $ $
Proceeds to Tvia, Inc. ........................................ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Tvia, Inc. has granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of its common stock to cover over-allotments. The
underwriters can exercise this right at any time within 30 days after the
offering. Banc of America Securities LLC expects to deliver the shares of
common stock to investors on , 2000.
--------------
Banc of America Securities LLC
Dain Rauscher Wessels
CIBC World Markets
U.S. Bancorp Piper Jaffray
--------------
The date of this prospectus is , 2000.
<PAGE>
[INSIDE COVER]
Screen shot page
The top of the page has the Tvia logo complete with stylized television.
Three screen shots depicting various displays of rich media content using the
Tvia streaming media gateway solution with:
-- Microsoft TV
-- WindRiver VxWorks (complete with WindRiver logo above)
-- Liberate Screen.
The following text appears below the television screens:
"Consumers with an Internet appliance, broadband set-top box or digital
television incorporating our streaming media gateway solution will be able to
watch a football game, look up player statistics, email, chat or instant
message with other fans and arrange for tickets and airfare to next week's
game."
<PAGE>
Gatefold
The top of the page has the Tvia logo complete with the stylized television.
The left section of the picture depicts multiple input content and sources and
multiple transmission media funneling into the "Tvia Streaming Media
Integrated Circuits." The multiple media content and sources shown are:
movies, electronic program guide, Internet audio and video, interactive menu,
digital versatile disk/video compact disk/compact disk, digital video
recorder/video cassette recorder/compact disk, video camera and 3D graphics
animation. The multiple transmission methods shown are: television antenna
(analog or digital terrestrial broadcast), cable television, satellite
television, digital subscriber line/analog 56K modem and Ethernet.
The right section depicts various output transmission media, formats,
receiving sources and display, that funnel out of the "Tvia Streaming Media
Integrated Circuits." The output transmission media and formats shown are:
digital audio/video, various international and domestic television
transmission standards, digital consumer electronics and digital serial data.
The receiving sources shown are: standard television and liquid crystal
display television, digital video recorder/video cassette recorder, video
camera, kiosk display, stereo audio, digital television and high definition
television.
On the bottom of the page, in the middle of the picture, the following text
appears:
"Our streaming media gateway solution which includes our proprietary software,
processes, reformats, animates and blends multiple rich media content streams
from different transmission sources. These content streams are then output to
numerous displays through industry standard interfaces.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Note Regarding Forward-Looking Statements................................ 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 20
Business................................................................. 28
Management............................................................... 40
Certain Transactions..................................................... 48
Principal Stockholders................................................... 50
Private Placement........................................................ 51
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 63
Experts.................................................................. 63
Where You Can Find Additional Information................................ 63
Index to Financial Statements............................................ F-1
</TABLE>
We own various trademarks and trade names used in our business. These
include CyberPro, FlexiBus, Tvia and the Tvia logo. This prospectus also makes
reference to trademarks and trade names of other companies.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and consolidated financial statements, and the notes to those
consolidated financial statements, appearing elsewhere in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
anticipated in those forward-looking statements as a result of the factors
described under the heading "Risk Factors" and elsewhere in this prospectus.
Our Business
Tvia designs, develops and markets semiconductors for the Internet
appliance, broadband set-top box and digital television markets. Our
semiconductor solutions, which consist of integrated circuits and proprietary
software, process rich media content streams available from the Internet and
television. Rich media content streams, or streaming media, are a combination
of audio, video, voice, text, graphics, pictures and animation which are
transmitted over various transmission pipes such as television broadcast,
cable, satellite or digital subscriber lines. Our products act as a gateway for
streaming media by capturing, processing and transmitting rich media content to
various communication output devices such as a television or a digital video
recorder. Our products, which are currently available in selected markets,
enable consumers to have a customized and interactive television viewing
experience. For example, a consumer with an Internet appliance, broadband set-
top box or digital television incorporating one of our products will be able to
watch a football game, look up player statistics, email, chat or instant
message with other fans and arrange for tickets and airfare to next week's
game.
According to Nielsen Media Research, virtually all United States households
have television sets. With the addition of a simple and affordable appliance
incorporating one of our solutions, consumers can gain access to the Internet
and experience interactive television. For example, Gartner Group estimates
that the number of Internet-enabled set-top boxes worldwide will grow from
398,000 in 1999 to approximately 23.9 million in 2003. IDC estimates the
worldwide market for Internet appliances in 2003 will be $15.0 billion.
Dataquest estimates that in 2003 the market for digital set-top boxes will be
$7.2 billion and the market for digital televisions will be $5.0 billion. Our
underwriters pay subscription fees to Nielsen Media Research, Forrester
Research, IDC, Gartner and Dataquest.
Our semiconductor solutions are compatible with various microprocessors,
operating systems and applications software and accept multiple data types from
various transmission pipes. Our solutions also allow easy software upgrades,
and are programmable and customizable. The combination of our semiconductors,
software and reference designs enable our original equipment manufacturers, or
OEMs, to accelerate their time to market by reducing their systems engineering
development time.
Our objective is to be the leading provider of high performance streaming
media gateway solutions for the Internet appliance, broadband set-top box and
digital television markets. The key elements of our strategy include the
following:
. focus on television centric broadband consumer market applications;
. continue to be an innovator in the development of streaming media
gateway technology;
. maintain our focus on software development;
. expand alliances with major microprocessor and operating system
vendors;
. maintain flexibility to support rapidly evolving applications;
. target leading OEM customers; and
. leverage our technology into new applications.
4
<PAGE>
Corporate Information
We were formed as a California corporation in March 1993. In August 2000,
we reincorporated in Delaware. Our principal executive office is located at
4001 Burton Drive, Santa Clara, California 95054, and our telephone number at
this address is (408) 982-8588.
The Offering
<TABLE>
<C> <S>
Common stock offered................................ 5,000,000 shares
Common stock to be outstanding after this offering.. 21,556,632 shares
Use of proceeds..................................... We intend to use the
offering proceeds for
working capital, general
corporate purposes and to
repay an aggregate of
$4.0 million of
indebtedness.
Proposed Nasdaq National Market symbol.............. TVIA
</TABLE>
---------------
The common stock outstanding after this offering is based on the number of
shares outstanding as of March 31, 2000 and excludes:
. 1,487,764 shares subject to outstanding options as of March 31, 2000 at
a weighted average exercise price of $3.98 per share;
. 101,685 additional shares available for grant under our stock option
plan as of March 31, 2000; and
. 288,330 shares subject to outstanding warrants as of March 31, 2000 at
a weighted average exercise price of $3.39 per share.
Except as otherwise noted, all information in this prospectus assumes:
. the automatic conversion of our outstanding and subscribed preferred
stock as of March 31, 2000 into common stock immediately prior to the
closing of this offering;
. that the underwriters' over-allotment option will not be exercised; and
. a 1-for-3 stock split prior to the completion of this offering.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues......................... $ 1,819 $ 2,352 $ 3,458 $ 1,522 $ 7,057
Gross profit (loss).............. 391 (284) 474 214 3,250
Operating loss................... (1,728) (3,362) (4,928) (5,207) (5,009)
Net loss......................... $(1,793) $(3,417) $(5,002) $(5,671) $(6,041)
======= ======= ======= ======= =======
Dividend related to convertible
preferred stock................ -- -- -- -- $(2,161)
======= ======= ======= ======= =======
Net loss attributable to common
stockholders................... $(1,793) $(3,417) $(5,002) $(5,671) $(8,202)
======= ======= ======= ======= =======
Basic and diluted net loss per
share (/1/) ................... $ (0.88) $ (1.66) $ (2.32) $ (2.56) $ (2.63)
======= ======= ======= ======= =======
Shares used in computing basic
and diluted net loss per
share.......................... 2,032 2,058 2,156 2,219 3,118
Pro forma basic and diluted net
loss per share (unaudited)..... $ (0.66)
=======
Shares used in computing pro
forma basic net loss per share
(unaudited).................... 12,426
</TABLE>
The pro forma net loss per share is calculated assuming that all
outstanding and subscribed shares of preferred stock are converted into common
stock at the beginning of the periods presented, or on the date of issuance of
the preferred stock, whichever is later.
(1) Assuming repayment of approximately $4 million of outstanding debt from the
proceeds of this offering, the net loss and basic and diluted net loss per
share, reflecting pro forma adjustments for the elimination of interest
expense and amortization of debt guarantee costs for fiscal year 2000,
would have been $5,028 and $1.61 per share, respectively.
<TABLE>
<CAPTION>
March 31, 2000
---------------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents and restricted cash............. $ 6,864 $58,775
Working capital........................................... 5,915 57,915
Total assets.............................................. 11,368 62,298
Redeemable convertible preferred stock.................... 16,594 --
Stockholders' equity (deficit)............................ (14,266) 59,113
</TABLE>
The consolidated balance sheet data at March 31, 2000, as adjusted, gives
effect to our receipt of the net proceeds from the sale of 83,333 shares of
common stock in a proposed private placement at the assumed initial public
offering price of $12.00 per share that is expected to close at the same time
as this offering and the sale of 5,000,000 shares of common stock offered
hereby at the assumed initial public offering price of $12.00 per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us. In addition, the as adjusted balance sheet data
reflects the exercise of 283,330 warrants to purchase common stock at a
weighted average exercise price of $3.39 per share and the exercise of 41,666
warrants to purchase common stock at the assumed initial public offering price
of $12.00 per share.
6
<PAGE>
RISK FACTORS
Any investment in our shares of common stock involves a high degree of
risk. You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding to invest in
shares of our common stock. If any of these risks and uncertainties occur, our
business, results of operations and financial condition would likely suffer. In
that case, the market price of our common stock could decline, and you could
lose all or part of your investment. Additional risks and uncertainties not
presently known to us, or that may be currently considered by us to be
immaterial, may also impair our business operations.
Risks Related to Our Business
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 $26.9 million from our inception in March 1993 through March 31,
2000. If we continue to incur net losses, we may not be able 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 and
2000, research and development expenses represented 92.5%, 220.6% and 48.0% 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.
7
<PAGE>
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;
8
<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.
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
9
<PAGE>
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. For the fiscal year ended
March 31, 2000 sales to Allwell Corporation, an OEM, accounted for
approximately 11.6% of our total revenues. 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.
10
<PAGE>
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% and 71% of our total revenues
in fiscal years 1998, 1999 and 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
11
<PAGE>
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.
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
12
<PAGE>
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.
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.
13
<PAGE>
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.
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.
Risks Related to this Offering
Our common stock has not been publicly traded and we expect that the price of
our stock may fluctuate substantially.
Prior to this offering, there has been no public market for shares of our
common stock. An active public trading market may not develop following
completion of this offering or, if developed, may not be sustained. The initial
public offering price has been determined through negotiations between the
underwriters and us. This price will not necessarily reflect the market price
of the common stock following this offering. You may not be able to resell your
shares at or above the initial public offering price due to a number of
factors, including:
. the announcement of new products or product enhancements by us or our
competitors;
. actual or anticipated fluctuations in our operating results;
. changes in expectations as to our future financial performance;
. changes in financial estimates of securities analysts;
. developments in our industry; and
. the operating and stock price performance of other comparable
companies.
In addition, stock prices for technology companies similar to ours have
been highly volatile and valuations have often been unrelated to the operating
performance of the companies. Such factors and
14
<PAGE>
fluctuations may materially and adversely affect the market price of our stock
and reduce the value of your investment.
Management may apply the proceeds of this offering to uses that may not
increase our profits or market value.
Our management will have considerable discretion in the application of the
proceeds from this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately. The proceeds may be used for corporate purposes that may not
increase our profitability or our market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value.
Future sales of our common stock may cause the market price of our stock price
to decline.
We will have approximately 21,556,632 shares of common stock outstanding
immediately after the offering. The shares sold in the offering will be freely
transferable. Additional shares may be sold in the public market to the extent
permitted by Rule 144 or exemptions under the Securities Act. Lock-up
agreements executed by our stockholders limit the number of shares of common
stock that may be sold in the public markets. However, Banc of America
Securities LLC may, in its sole discretion, release all or some portion of the
securities subject to the lock-up agreements. The market price of our common
stock could decline as a result of sales of a large number of shares of our
common stock in the market after the offering, or the perception that such
sales could occur. These factors also could make it more difficult for us to
raise funds through future offerings of common stock. See "Shares Eligible for
Future Sale."
The holders of an aggregate of approximately 10,909,497 shares of our
common stock, assuming conversion of our preferred stock into common stock,
have registration rights, including the right to require us to register the
sale of their shares and the right to include their shares in public offerings
we undertake in the future.
Our principal stockholders have significant voting power and may take actions
that may not be in the best interests of our other stockholders.
After this offering, our officers, directors and principal stockholders
will together beneficially own approximately 18.4% of our outstanding common
stock. These stockholders, if they act together, will be able to control our
management and affairs and all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This influence over our affairs might be adverse to the interests
of other stockholders. In addition, this concentration of ownership may delay
or prevent a change in control and might affect the market price of our common
stock.
Provisions in our charter documents and Delaware law may delay or prevent a
change in control even if the change in control would be beneficial to our
stockholders.
Our certificate of incorporation and our bylaws and Delaware law contain
provisions that could delay or prevent a change in control of Tvia. These
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. Some of these provisions:
. authorize the issuance of preferred stock that can be created and
issued by the board of directors without prior stockholder approval,
commonly referred to as "blank check" preferred stock, with rights
senior to those of common stock; and
. prohibit stockholder action by written consent.
Section 203 of the Delaware General Corporation Law limits business
combination transactions with 15% stockholders that have not been approved by
our board of directors. These provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock.
15
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
prospectus regarding markets for our products and trends in revenues, gross
margin and anticipated expense levels, and any statement that contains the
words "anticipate," "believe," "plan," "estimate," "expect," "intend," "seek"
and other similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks,
including those risks identified in "Risk Factors" and elsewhere in this
prospectus and our actual results of operations may differ significantly from
those contained in the forward-looking statements because of such risks. The
cautionary statements made in this prospectus apply to all forward-looking
statements wherever they appear in this prospectus.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,000,000 shares of
common stock that we are offering will be approximately $54.4 million, assuming
an initial public offering price of $12.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters fully exercise their over-allotment option, we
estimate the net proceeds will be approximately $62.8 million.
We intend to use the net proceeds primarily for working capital
expenditures associated with the purchase of additional inventory related to
the growth of our business and increased receivables and for general corporate
purposes. We also intend to use approximately $4.0 million to repay the
outstanding balance under three lines of credit. Borrowings under two lines of
credit bear interest at the three month commercial paper rate plus 2.3%. The
amount outstanding under these lines of credit was approximately $3.0 million
as of March 31, 2000. Borrowings under the third line of credit bear interest
at a fixed rate of 7.63%. The amount outstanding under this line of credit was
approximately $1.1 million as of March 31, 2000. Although we may use a portion
of the net proceeds to acquire technology or businesses that are complementary
to our business, we have no current plans in this regard. Until we use the net
proceeds, we plan to invest the funds in short term, interest bearing,
investment grade securities. Another purpose of this offering is to create a
public market for our common stock and to facilitate our future access to
public capital markets.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We do not
intend to pay any dividends in the foreseeable future. We currently plan to
retain any earnings for use in the operation of our business and to fund future
growth.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of all
outstanding shares of preferred stock (including subscribed preferred
stock) and the exercise of warrants to purchase preferred stock into
common stock; and
. on the same pro forma basis as adjusted to reflect:
. the application of the net proceeds from this offering, assuming
an initial public offering price of $12.00 per share and after
deducting estimated underwriting discounts and commissions and
estimated offering expenses, and the repayment of approximately
$4.0 million of the outstanding amounts under lines of credit; and
. the application of the net proceeds from the proposed sale of
83,333 shares of common stock in a private placement that is
expected to close at the same time as this offering and the
assumed exercise of warrants to purchase 41,666 shares of common
stock, each assuming an initial public offering price of $12.00
per share.
The pro forma as adjusted balance sheet data as of March 31, 2000 also
reflects the write off of deferred debt issuance costs related to the debt to
be repaid with the proceeds of this offering.
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------------
Pro Forma
Actual Pro Forma (1) As Adjusted
-------- ------------- -----------
(in thousands, except share data)
<S> <C> <C> <C>
Long term debt: $ 2,959 $ 2,959 $ --
Redeemable convertible preferred stock:
Series F, G, and H:
15,907,332 shares authorized; 5,107,385
shares outstanding at March 31, 2000; no
shares outstanding pro forma or pro forma
as adjusted................................ 16,594 --
Warrants to purchase redeemable convertible
preferred stock............................ 849 --
-------- -------- -------
Stockholders' deficit: 17,443 -- --
Series A, B, C, D, E and I convertible
preferred stock: 17,916,403 shares
authorized; 5,305,454 shares outstanding at
March 31, 2000; 496,658 shares subscribed
at March 31, 2000; no shares outstanding
pro forma or pro forma as adjusted......... 9,242 --
Common stock: 125,000,000 authorized pro
forma as adjusted; 5,233,806 shares
outstanding at March 31, 2000; 16,431,633
shares outstanding pro forma, 21,556,632
shares outstanding pro forma as adjusted... 7,846 35,508 91,448
Deferred stock compensation.................. (4,499) (4,499) (4,499)
Accumulated deficit.......................... (26,855) (26,855) (27,836)
-------- -------- -------
Total stockholders' deficit.................. (14,266) 4,154 59,113
-------- -------- -------
Total capitalization....................... $ 6,136 $ 7,113 $59,113
======== ======== =======
</TABLE>
(1)The pro forma stockholders' equity presented in the consolidated balance
sheet excludes the exercise of outstanding preferred stock warrants.
The information in the table above excludes:
. 1,487,764 shares subject to outstanding options as of March 31, 2000
at a weighted average exercise price of $3.98 per share; and
. 101,685 additional shares available for grant under our stock option
plans as of March 31, 2000.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Management--
Employee Benefit Plans" and the consolidated financial statements and related
notes included elsewhere in this prospectus.
17
<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 2000 was approximately
$3,173,000 or $0.19 per share after giving effect to the conversion of all
outstanding shares of our preferred stock into shares of common stock upon
completion of this offering and the assumed exercise of warrants to purchase
288,330 shares of preferred stock at a weighted average exercise price of $3.39
per share and the subsequent conversion into common stock prior to this
offering. Pro forma net tangible book value per share is equal to our total
tangible assets less total liabilities, divided by the total number of shares
of our common stock outstanding after the conversion of our preferred stock and
exercise of warrants. After giving effect to the proposed sale of 83,333 shares
of common stock in a private placement that is expected to close at the same
time as this offering and the exercise of warrants to purchase 41,666 shares of
common stock each at the assumed initial public offering price of $12.00 per
share and after giving effect to the sale of the 5,000,000 shares of our common
stock offered in this offering at an initial public offering price of $12.00
per share, our pro forma as adjusted net tangible book value at March 31, 2000
would have been approximately $59,113,000 or $2.74 per share. This represents
an immediate increase in net tangible book value of $2.55 per share to existing
stockholders and immediate dilution of $9.26 per share to new investors
purchasing shares of our common stock in this offering. The following table
illustrates this per share dilution to the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $12.00
Pro forma net tangible book value per share at March 31, 2000.... 0.19
Increase in pro forma net tangible book value per share
attributable to this offering.................................. 2.55
----
Pro forma net tangible book value per share as adjusted after the
offering......................................................... 2.74
------
Dilution per share to new investors in this offering............... $ 9.26
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
the difference between existing stockholders and new investors with respect to
the number of shares of our common stock purchased from us, the total
consideration paid to us, and the average price per share. The consideration
paid by new investors is before deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
The information in the following table excludes:
. 1,487,764 shares subject to outstanding options as of March 31, 2000
at a weighted average exercise price of $3.98 per share;
. 101,685 additional shares available for grant under our stock option
plans as of March 31, 2000.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 16,431,633 76.2% $22,952,000 27.2% $ 1.40
New investors.......... 5,124,999 23.8% 61,500,000 72.8% 12.00
---------- ---- ----------- ----
Total................ 21,556,632 100% $84,452,000 100%
========== ==== =========== ====
</TABLE>
The information in the table above assumes conversion of all shares of
preferred stock outstanding and subscribed as of March 31, 2000 into common
stock and the exercise of the warrants. The information in the table above also
includes the proposed sale of 83,333 shares of common stock in a private
placement that is expected to close at the same time as this offering and the
assumed exercise of warrants to purchase 41,666 shares of common stock.
If we assume that the 1,487,764 shares subject to outstanding options are
exercised at a weighted average exercise price of $3.98 per share, the dilution
per share to new investors would be $9.18. In addition, the shares purchased
and total consideration would be 23,044,396 and $90,373,000, respectively.
The table should be read in conjunction with "Capitalization,"
"Management--Employee Benefit Plans" and the consolidated financial statements
and related notes included elsewhere in this prospectus.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements, the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the fiscal years ended March 31, 1998, 1999 and 2000 and
consolidated balance sheet data at March 31, 1999 and 2000, are derived from
our audited financial statements included in this prospectus. The consolidated
statement of operations data for the years ended March 31, 1996 and 1997 and
consolidated balance sheet data at March 31, 1996 and 1997, are derived from
our audited financial statements not included in this prospectus.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Product sales................... $ 1,819 $ 1,028 $ 2,597 $ 1,432 $ 6,528
Development contracts and
other.......................... -- 1,324 861 90 529
------- ------- ------- ------- -------
Total revenues................. 1,819 2,352 3,458 1,522 7,057
------- ------- ------- ------- -------
Cost of revenues:
Product sales................... 1,428 1,879 2,458 1,257 3,622
Development contracts and
other.......................... -- 757 526 51 185
------- ------- ------- ------- -------
Total cost of revenues......... 1,428 2,636 2,984 1,308 3,807
------- ------- ------- ------- -------
Gross profit (loss).............. 391 (284) 474 214 3,250
------- ------- ------- ------- -------
Operating expenses:
Research and development........ 1,724 1,876 3,199 3,357 3,390
Sales, general and
administrative................. 395 1,202 2,203 2,062 3,370
Amortization of deferred stock
compensation................... -- -- -- 2 1,499
------- ------- ------- ------- -------
Total operating expenses....... 2,119 3,078 5,402 5,421 8,259
------- ------- ------- ------- -------
Operating loss................... (1,728) (3,362) (4,928) (5,207) (5,009)
------- ------- ------- ------- -------
Interest expense, net............ 65 55 74 464 1,032
------- ------- ------- ------- -------
Net loss......................... $(1,793) $(3,417) $(5,002) $(5,671) $(6,041)
======= ======= ======= ======= =======
Dividend related to convertible
preferred stock................. -- -- -- -- $(2,161)
======= ======= ======= ======= =======
Net loss attributable to common
stockholders.................... $(1,793) $(3,417) $(5,002) $(5,671) $(8,202)
======= ======= ======= ======= =======
Basic and diluted net loss per
share........................... $ (0.88) $ (1.66) $ (2.32) $ (2.56) $ (2.63)
======= ======= ======= ======= =======
Shares used in computing basic
net loss per share.............. 2,032 2,058 2,156 2,219 3,118
Pro forma basic net loss per
share (unaudited)............... $ (0.66)
=======
Shares used in computing pro
forma basic net loss per share
(unaudited)..................... 12,426
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents and
restricted cash................. $ 367 $ 514 $ 8 $ -- $ 6,864
Working capital (deficit)........ (977) (547) (2,439) (3,476) 5,915
Total assets..................... 1,484 2,344 1,795 730 11,368
Long term debt................... -- -- -- -- 2,959
Redeemable convertible preferred
stock........................... -- 2,325 5,212 9,704 16,594
Stockholders' deficit............ (1,005) (2,326) (7,326) (12,978) (14,266)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion with our financial statements and
the related notes included elsewhere in this prospectus. The results described
below are not necessarily indicative of the results to be expected in any
future period. Some statements in this discussion and analysis are forward-
looking statements within the meaning of the federal securities laws. These
forward-looking statements are subject to risk and uncertainties that could
cause actual results to differ materially from historical results or our
predictions. See "Note Regarding Forward-Looking Statements."
Overview
Tvia currently has 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.
From our inception through 1996, we were primarily engaged in product
development and the establishment of strategic customer and foundry
relationships. During this period, we generated the majority of our total
revenues from development contracts and the shipment of integrated circuits for
the personal computer market. These development contracts required us to design
semiconductor devices for other companies. In 1996 we began to transition our
focus away from the personal computer market to the Internet appliance,
broadband set-top box and digital television markets. As a result of this
transition, product revenues from the personal computer market, along with
total revenues, declined. Sales of products for the personal computer market
accounted for 68%, 20% and 2% of total revenues in fiscal years 1998, 1999 and
2000, respectively. As of March 31, 2000, we were focused on the Internet
appliance, broadband set-top box and digital television markets. Sales to
customers in these targeted markets accounted for 7%, 50% and 83% of total
revenues in fiscal years 1998, 1999 and 2000, respectively.
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. Since 1997, revenues from development
contracts and software licensing have decreased as a percentage of total
revenues and we believe that those revenues will continue to constitute a low
percentage of total revenues in the future.
Approximately 71% and 81% of our total revenues for the fiscal years ended
March 31, 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. Our
top five customers, including distributors, accounted for 45% and 56% of
product sales in the fiscal years ended March 31, 2000 and 1999, respectively.
Recently, 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.
20
<PAGE>
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 March 31, 2000, we had an accumulated deficit of $26.9 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 growth 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 March 31, 2000 of approximately $6.0 million. Of this
amount, we amortized approximately $1.5 million through March 31, 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 $4.5 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 March 31, 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 $753,000 through March 31, 2000. The remaining $981,000
will be amortized as additional interest expense over the remaining term of the
guarantee.
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
The following tables set forth, for the periods indicated, certain
consolidated statement of operations data reflected as a percentage of
revenues. Our results of operations are reported as a single business segment.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Product sales...................................... 75.1% 94.1% 92.5 %
Development contracts and other.................... 24.9 5.9 7.5
------ ------ ------
Total revenues.................................... 100.0 100.0 100.0
------ ------ ------
Cost of revenues:
Product sales...................................... 71.1 82.5 51.3
Development contracts and other.................... 15.2 3.4 2.6
------ ------ ------
Total cost of revenues............................ 86.3 85.9 53.9
------ ------ ------
Gross profit (loss)................................. 13.7 14.1 46.1
------ ------ ------
Operating expenses:
Research and development........................... 92.5 220.6 48.0
Sales, general and administrative.................. 63.7 135.5 47.8
Amortization of deferred stock compensation........ -- 0.1 21.2
------ ------ ------
Total operating expenses.......................... 156.2 356.2 117.0
------ ------ ------
Operating loss...................................... (142.5) (342.1) (70.9)
------ ------ ------
Interest expense, net............................... 2.1 30.5 14.6
------ ------ ------
Net loss............................................ (144.6) (372.6) (85.5)
------ ------ ------
Dividend related to convertible preferred stock..... -- -- (30.6)
------ ------ ------
Net loss attributable to common stockholders........ (144.6)% (372.6)% (116.1)%
====== ====== ======
</TABLE>
21
<PAGE>
Results of Operations for the Fiscal Years Ended March 31, 2000, 1999 and 1998
Revenues. Revenues were $7.1 million, $1.5 million and $3.5 million for the
fiscal years ended March 31, 2000, 1999 and 1998, respectively. Revenues
increased by $5.5 million from fiscal year 1999 to fiscal year 2000, an
increase of 364%. This increase in revenues was primarily due to increased
sales of our CyberPro 2010 and CyberPro 5000 series of semiconductors for the
Internet appliance, broadband set-top box and digital television markets.
Revenues from OEMs, distributors, and through sales representatives in fiscal
year 2000 were $3.9 million, $1.8 million and $1.4 million, respectively.
Revenues decreased by $2.0 million from fiscal year 1998 to fiscal year 1999.
Product revenues decreased $1.2 million from fiscal year 1998 to fiscal year
1999, reflecting the phase out of the personal computer based product line.
Development contract revenues for fiscal year 1999 decreased to $90,000 from
$861,000 for fiscal year 1998, reflecting the substantial completion of a large
development contract with a foreign customer in fiscal year 1998. We anticipate
that development contract revenues in future periods will be lower than those
in fiscal year 2000 and will continue to decline relative to revenues from
sales.
Export revenues, consisting primarily of product sales and development
contracts to OEMs and distributors in Asia, represented 71%, 81% and 90% of
total revenues in fiscal years 2000, 1999 and 1998, respectively. All export
revenues are denominated in United States dollars. We believe export sales will
continue to represent a majority of our revenues in future periods.
Gross margin. Gross margin was 46.1%, 14.1% and 13.7% for the fiscal years
ended March 31, 2000, 1999 and 1998, respectively. The improvement in gross
margin between periods is attributable primarily to shipments of our CyberPro
2010 and CyberPro 5000 series of products, which have higher margins than our
personal computer products, 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 were $3.4 million, $3.4 million and $3.2 million for the
fiscal years ended March 31, 2000, 1999 and 1998, respectively. As a percentage
of revenues, research and development expenses represented 48.0%, 220.6% and
92.5% for the fiscal years ended March 31, 2000, 1999 and 1998, respectively.
The decrease in research and development expenses as a percentage of revenues
from fiscal year 1999 to fiscal year 2000 is primarily attributable to the
increase in revenues between periods. During fiscal year 1999, in conjunction
with the reorganization of our research and development activities, we reduced,
by 15, the personnel supporting the personal computer market and expanded, by
34, the personnel for the Internet appliance, broadband set-top box and digital
television markets. Part of this personnel expansion is due to the
establishment of a research and development operation in the People's Republic
of China. Our research and development activities in the People's Republic of
China provide software and application specific integrated circuit development
support to our domestic operation. We employed 26 engineers in the People's
Republic of China at March 31, 2000 and intend to significantly expand our
headcount at this design center in future periods. Although we expect absolute
research and development expenses to increase, 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 were $3.4 million, $2.1 million and
$2.2 million for the fiscal years ended March 31, 2000, 1999 and 1998,
respectively. As a percentage of revenues, sales, general and administrative
expenses were 47.8%, 135.5% and 63.7% for the fiscal years ended March 31,
2000, 1999 and 1998, respectively. The decrease in sales, general and
administrative expenses as a percentage of revenues from fiscal year 1999 to
fiscal year 2000 is primarily attributable to the increase in revenues between
periods. The increase in sales, general and administrative expenses as a
percentage of revenues from fiscal year 1998 to fiscal
22
<PAGE>
year 1999 is primarily attributable to the decrease in revenues between
periods. The $1.3 million increase in sales, general and administrative
expenses from fiscal year 1999 to fiscal year 2000 was primarily due to
increased headcount, including hiring executive officers, legal and accounting
expenses associated with our financing activities and $200,000 of expense
associated with stock compensation to our sales channels. We anticipate that
absolute levels of general and administrative expenses will increase in future
periods due to the costs associated with being a public company. Although we
expect sales and marketing expenses to increase in absolute dollars, we expect
these expenses to decrease as a percentage of revenues.
Deferred stock compensation. We grant stock options to hire, motivate and
retain employees. We incurred stock compensation expense of $1.5 million and
$2,000 for the fiscal years ended March 31, 2000 and 1999, respectively. No
stock compensation expense was incurred for the fiscal year ended March 31,
1998.
Interest expense, net. We incurred interest expenses of $1.0 million,
$464,000 and $74,000 for the fiscal years ended March 31, 2000, 1999 and 1998,
respectively. The increase in interest expense in fiscal year 2000 from fiscal
year 1999 was primarily due to $753,000 of costs related to the guarantee of a
line of credit by a party related to us. The increase in interest expense in
fiscal year 1999 from fiscal year 1998 was due primarily to the interest on a
$2.2 million bank line of credit obtained in December 1997 and costs of the
related guarantee.
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 for each of the fiscal years ended March 31, 2000, 1999 and
1998, and therefore made no provision for income tax in these fiscal years. As
of March 31, 2000, we had federal and state net cumulative operating losses of
approximately $18.1 million and $5.0 million, respectively, which are available
to offset future taxable income. If not used, these net operating losses will
expire through 2020.
Preferred stock dividend. During the year ended March 31, 2000, we recorded
a preferred stock dividend of $2.2 million representing the value of the
beneficial conversion feature on the issuance of convertible preferred stock in
March 2000. The beneficial conversion feature was calculated at the commitment
date based on the difference between the conversion price of $3.75 per share
and the estimated fair value of the common stock at that date.
23
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited selected quarterly results of
operations data for the eight quarters ended March 31, 2000, as well as such
data expressed as a percentage of revenues. This data has been derived from our
unaudited financial statements that, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of such information for the periods presented. The statement
of operations data should be read in conjunction with our audited consolidated
financial statements and the related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------
June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- --------
(unaudited)
(in thousands and as a percentage of revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Product sales.......... $ 447 $ 524 $ 197 $ 264 $ 517 $ 1,147 $ 2,167 $ 2,697
Development contracts
and other............ -- 46 44 -- 44 234 3 248
------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 447 570 241 264 561 1,381 2,170 2,945
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Product sales.......... 385 455 242 175 310 706 1,147 1,459
Development contracts
and other............ -- 26 25 -- 19 58 1 107
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues........... 385 481 267 175 329 764 1,148 1,566
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)..... 62 89 (26) 89 232 617 1,022 1,379
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 941 798 778 840 728 787 960 915
Sales, general and
administrative....... 555 458 406 643 719 734 869 1,048
Amortization of
deferred stock
compensation......... -- -- -- 2 88 308 423 680
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 1,496 1,256 1,184 1,485 1,535 1,829 2,252 2,643
------- ------- ------- ------- ------- ------- ------- -------
Operating loss.......... (1,434) (1,167) (1,210) (1,396) (1,303) (1,212) (1,230) (1,264)
------- ------- ------- ------- ------- ------- ------- -------
Interest expense, net... 93 136 146 89 59 264 339 370
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,527) $(1,303) $(1,356) $(1,485) $(1,362) $(1,476) $(1,569) $(1,634)
======= ======= ======= ======= ======= ======= ======= =======
Dividend related to
convertible preferred
stock................. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $(2,161)
======= ======= ======= ======= ======= ======= ======= =======
Net loss attributable to
common stockholders... $(1,527) $(1,303) $(1,356) $(1,485) $(1,362) $(1,476) $(1,569) $(3,795)
======= ======= ======= ======= ======= ======= ======= =======
As a Percentage of
Revenues:
Revenues:
Product sales.......... 100.0 % 91.9 % 81.7 % 100.0 % 92.2 % 83.1 % 99.9 % 91.6 %
Development contracts
and other............ -- 8.1 18.3 -- 7.8 16.9 0.1 8.4
------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Product sales.......... 86.1 79.8 100.4 66.3 55.3 51.1 52.9 49.5
Development contracts
and other............ -- 4.6 10.4 -- 3.4 4.2 -- 3.6
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues........... 86.1 84.4 110.8 66.3 58.7 55.3 52.9 53.1
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)..... 13.9 15.6 (10.8) 33.7 41.3 44.7 47.1 46.9
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 210.5 140.0 322.8 318.1 129.8 57.0 44.2 31.1
Sales, general and
administrative....... 124.2 80.4 168.5 243.6 128.1 53.1 40.0 35.6
Amortization of
deferred stock
compensation......... -- -- -- 0.8 15.7 22.3 19.5 23.1
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 334.7 220.4 491.3 562.5 273.6 132.4 103.7 89.8
------- ------- ------- ------- ------- ------- ------- -------
Operating loss.......... (320.8) (204.8) (502.1) (528.8) (232.3) (87.7) (56.6) (42.9)
------- ------- ------- ------- ------- ------- ------- -------
Interest expense, net... 20.8 23.9 60.6 33.7 10.5 19.1 15.6 12.6
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ (341.6)% (228.7)% (562.7)% (562.5)% (242.8)% (106.8)% (72.2)% (55.5)%
======= ======= ======= ======= ======= ======= ======= =======
Dividend related to
convertible preferred
stock................. -- % -- % -- % -- % -- % -- % -- % (73.4)%
======= ======= ======= ======= ======= ======= ======= =======
Net loss attributable to
common stockholders... (341.6)% (228.7)% (562.7)% (562.5)% (242.8)% (106.8)% (72.2)% (128.9)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
As a result of our transition to solutions for the Internet appliance,
broadband set-top box and digital television markets, product sales from the
personal computer market declined in the last two quarters of the fiscal year
ended March 31, 1999 from levels achieved in the first two quarters of fiscal
year 1999. We also experienced fluctuations in quarterly revenues due to
seasonal factors. In particular, product sales are impacted in the fourth
fiscal quarter, or first calendar quarter, by holidays in Asia and the United
States, as occurred in our fourth quarter of fiscal year 1999. The sequential
increase in revenues in the four quarters of fiscal year 2000 was primarily due
to volume shipments of our CyperPro 2010 product, which was first released in
1997, as well as shipment of our CyberPro 5000 product family.
Gross profits and gross margins were depressed in the first three quarters
of fiscal year 1999 due to declining selling prices on our older products for
the personal computer market and lower production yields on our new products.
Gross profit and gross margins improved sequentially from the fourth quarter of
fiscal year 1999 through the third quarter of fiscal year 2000 due to a
favorable shift in product mix as the newer, higher margin products for the
Internet appliance, broadband set-top box and digital television markets
comprised a higher percentage of our overall revenues.
The increase in selling, general and administrative expenses in the second,
third and fourth quarters of fiscal year 2000 was primarily due to increased
headcount, including hiring executive officers, legal and accounting expenses
associated with our financing activities and, in the fourth quarter of fiscal
year 2000, $177,000 of expense associated with stock compensation to our sales
channel. The sequential decrease in research and development expenses in the
fourth quarter of fiscal year 2000 was due primarily to work by our engineers
on development contracts which are expensed in cost of revenues.
Interest expenses represented bank interest and costs related to the
guarantee of a related party. The increase in interest expense in the second,
third and fourth quarters of fiscal year 2000 was primarily due to the
amortization of deferred compensation related to warrants and options issued to
guarantors of our debt. In the fourth quarter of fiscal year 2000, we recorded
a preferred stock dividend of $2.2 million representing the value of the
beneficial conversion feature on the issuance of convertible preferred stock in
March 2000.
We believe that period to period comparisons of our operating results
should not be relied upon as an indication of our future performance. Our past
operating results have been, and our future operating results will be, subject
to fluctuations due to a number of factors, including seasonality of the buying
patterns of our OEM customers, the mix of services and products sold, the
concentration of sales to large customers, dependence upon capital spending
budgets and fluctuations in general economic conditions. For a more detailed
discussion of these and other factors, see the section entitled "Risk Factors."
Liquidity and Capital Resources
Since inception, we have financed our operating losses principally through
the sale of preferred stock, which totaled approximately $25.8 million as of
March 31, 2000. In March 2000, we issued and sold approximately 1,204,947
shares of Series H preferred stock to investors for gross proceeds of
approximately $4.5 million. In March 2000, we issued and sold 409,992 shares of
Series I preferred stock for cash proceeds of $3.1 million and issued
approximateiy 66,666 shares for the conversion of $500,000 in debt. In
addition, we exchanged 20,000 shares of Series I preferred stock for $150,000
of licensing fees payable to Innovative Semiconductors, Inc. Both the Series H
and the Series I preferred stock will convert to common stock on a one for one
basis upon completion of this offering. During the fiscal years ended March 31,
2000, 1999 and 1998, we used $3.1 million, $4.2 million and $4.8 million,
respectively, for operating activities, primarily due to operating losses and
increased working capital requirements.
Net cash used in investing activities was $225,000, $380,000 and $506,000
for the fiscal years ended March 31, 2000, 1999 and 1998, respectively,
primarily for the purchase of computers and engineering equipment. As of March
31, 2000, we did not have any significant capital expenditure commitments.
25
<PAGE>
Net cash provided from financing activities was $7.1 million, $4.6 million
and $4.8 million for the fiscal years ended March 31, 2000, 1999 and 1998,
respectively. Net cash provided by the sale of preferred and common stock was
$7.9 million in the fiscal year ended March 31, 2000. Net cash provided by the
sale of preferred and common stock was $4.3 million in the fiscal year ended
March 31, 1999. Net cash provided by the sale of preferred stock was $2.9
million during fiscal year 1998. Proceeds from bank lines of credit were
$3.3 million, $3.0 million and $1.9 million for the fiscal years ended March
31, 2000, 1999 and 1998, respectively.
As of March 31, 2000, we had $3.8 million of cash and cash equivalents and
$3.1 million of restricted cash. At March 31, 2000, we had two separate line of
credit agreements with a bank which, in aggregate, provide for a $3.0 million
revolving credit facility. Borrowings under the line of credit agreements carry
interest at the three month commercial paper rate plus 2.30% (8.08% as of March
31, 2000). The line of credit agreements have a maturity date of July 31, 2001.
As of March 31, 2000, we had $3.0 million outstanding under the line of credit
agreements. We also had an additional line of credit agreement with a different
bank for $1.0 million. Borrowings under this line of credit facility carry
interest at a fixed rate of 7.63%, and the line of credit has no fixed maturity
date. As of March 31, 2000, we had $1.1 million outstanding under the line of
credit agreement. All three of these lines are guaranteed by parties who have
been compensated with options and warrants in our company. We intend to use a
portion of the net proceeds of this offering to repay all of the presently
outstanding lines of credit.
We believe that the net proceeds of the sale of common stock offered in
this offering, together with existing cash resources, will be sufficient to
meet our capital requirements through the next 12 months.
We may raise additional capital during the next 12 months. Our future
capital requirements will depend on many factors, including the rate of growth
in revenues, profitability, timing and extent of spending to support research
and development programs, expansion of selling and marketing and administrative
activities, timing or introduction of new products and product enhancements and
market acceptance of our products. We expect that we may need to raise
additional capital in the future. We cannot assure you that additional equity
or debt financing, if required, will be available on acceptable terms, or at
all. In the event that we raise additional equity financing, stockholders will
be further diluted.
From time to time, we may evaluate acquisitions of business, products, or
technologies that complement our business. Although we have no current plans in
this regard, any transactions, if consummated, may consume a portion of our
working capital or require the issuance of equity securities that may result in
further dilution to existing stockholders.
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.
26
<PAGE>
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.
Inflation
The impact of inflation on our business has not been material for the
fiscal years ended March 31, 2000, 1999 and 1998.
Recently Issued 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," 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 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
an obligation of the seller to install the product. In such instances, SAB 101
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.
Recent Financial Results
For the three months ended June 30, 2000, our net revenue was $3.5 million,
our net loss was $2.2 million and our net loss attributable to common
stockholders per share was $(0.42), as compared with net revenue of $0.6
million, net loss of $1.4 million and a net loss attributable to common
stockholders per share of $(0.71) for the three months ended June 30, 1999. The
increase in net revenue resulted primarily from increased sales of our CyberPro
2010 and CyberPro 5000 series of semiconductors for the Internet appliance,
broadband set-top box and digital television markets. The increase in net loss
is primarily due to increases in stock compensation expense and preferred stock
dividend.
27
<PAGE>
BUSINESS
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. For example, a consumer with an Internet
appliance, broadband set-top box or digital television incorporating one of our
products will be able to watch a football game, look up player statistics,
email, chat or instant message with other fans and arrange for tickets and
airfare to next week's game.
Our products are compatible with various microprocessors, operating systems
and applications software and accept multiple data types from various
transmission pipes, including analog or digital broadcast, cable, microwave,
satellite, digital subscriber line and ethernet connection. Our products also
allow easy software upgrades, and are programmable and customizable. Our
semiconductors, software and reference designs enable our original equipment
manufacturers, or OEMS, to accelerate their time to market by reducing their
systems engineering development.
Originally incorporated as Integraphics Systems, Inc. in March 1993, we
changed our name to iGS Technologies in August 1997. In March 2000, we changed
our name to Tvia, Inc. In August 2000, we reincorporated in Delaware.
Industry Background
Demand for High Speed Access to Rich Media Content
In recent years there has been a dramatic increase in demand for high speed
Internet access to information and entertainment, or rich media content, which
combines audio, video, voice, text, graphics, pictures and animation. This
demand is driven by the growth of rich media content available from the
Internet and through television broadcasts and accessible via phone lines and
via broadband transmission pipes such as television antenna (analog or digital
broadcast), cable, microwave, satellite, digital subscriber line, or DSL, and
ethernet connection. Demand has also been stimulated by the increasing
availability, affordability and ease of use of consumer appliances and other
devices that feature integrated Internet access.
No longer limited to the personal computer, Internet access is now
available through a variety of devices including Internet appliances, broadband
set-top boxes and digital televisions. Internet appliances include any kind of
consumer electronics device that has expanded functionality through a
connection to the Internet, such as Internet set-top boxes, web access
appliances, mobile telephones, personal video recorders and next generation
digital versatile disks, or DVD. Broadband set-top boxes permit consumer access
to high speed networks through broadband transmission pipes. Digital
televisions are televisions where a digital or analog signal is processed
digitally and enhanced with resolutions ranging from standard resolution to
high definition television, or HDTV. The demand for these alternate devices
that provide access to the Internet is expected to exceed demand for personal
computers over the next three years. Forrester Research, Inc. estimates that in
the United States from 2000 to 2003, the percentage of households with digital
set-top box access to the Internet will grow from 15.3% to over 33.9%,
representing a compound annual growth rate of 30.4%.
As rich media content becomes more pervasive, users are demanding faster
access to the Internet. In an effort to meet increasing demand for faster
access to rich media content, the communications industry has begun to deploy
new broadband access technologies that can deliver data at a rate of tens of
megabits per second, or up to 700 times faster than today's 56 kilobits per
second, or Kbps, dial up modems. Users of dial up analog modems over standard
telephone lines with maximum transmission rates of 56 Kbps often experience
lengthy delays, failure of transmission and limitations on the volume of data
that can be transmitted in real time. The slow speed of the telephone modem is
frustrating to mainstream consumers who are accustomed to the immediate point
and click interface of a television remote control and will find broadband
connections much more satisfying.
28
<PAGE>
The New Paradigm of Interactive Television
Access to the Internet, which was originally confined to personal computer
users, is now available to the mass consumer through the television. The
television is the ubiquitous consumer product that people are comfortable using
for entertainment and information due to its sound and display qualities.
According to Nielsen Media Research, virtually all United States households
have at least one television set, and three out of every four have multiple
sets. Nielsen estimates that in the average household, the television set is on
more than seven and a half hours a day, every day of the year. In addition,
according to Nielsen, over 75% of United States households have access to
broadband television connections through cable or satellite television.
Internet appliances, broadband set-top boxes and digital televisions can now
act as the medium to access the Internet and traditional television broadcasts
and combine the rich media content and services for an interactive television
experience.
According to Cahners In-Stat Group, in 1999, 31.1 million households
worldwide used digital television technologies and services. Cahners estimates
the number of these households will increase to 100.8 million by the end of
2004. According to Forrester, television viewing will change from a primarily
passive activity of watching live or scheduled programming, to a more
interactive experience. By 2005, Forrester estimates that 50% of a viewer's
time will be spent watching on demand video content, 8% on communicating, 7%
viewing or interacting with data, and 5% navigating services, with only 30% of
the time spent watching the standard scheduled or live programming.
Interactive television enables consumers to watch a commercial and access,
at the click of a button, additional information coming from the Internet or an
interactive program. This information, such as an e-commerce website, could be
displayed on a transparent window that would allow the consumer to continue
viewing the commercial, access additional information and complete the purchase
of advertised merchandise. Or, a consumer could be watching a television
program while chatting, emailing or instant messaging with friends. In
addition, interactive television users could access selected additional
information such as personalized stock quotes or program guide information.
Consumers could also play along in a game show and win prizes if they respond
faster and more accurately than the contestants on television, or they could
compete against other online players. This could be done by providing discrete
windows for the interactive content and the main program, or by providing
transparent windows that overlay the main program without obstructing it.
Interactive content windows could be customized and configured, allowing the
consumer to control the viewing experience.
The Challenges to Manufacturers of Internet Appliances, Broadband Set-Top
Boxes and Digital Televisions
The growth of the Internet and the increase in rich media content have
resulted in the convergence of a variety of data from multiple sources. Rich
media content and multiple data streams require high bandwidth and dedicated
processors to allow the consumer to access the wide range of content available
through the broadband network. Manufacturers of products designed to bring rich
media content to the consumer on a single device, such as Internet appliances,
broadband set-top boxes and digital televisions, face an array of challenges.
These challenges include the following:
Technical Challenges:
. High Bandwidth Requirements. The simultaneous processing of real time
rich media content streams requires a significant amount of processing
power, generally through dedicated stream processing engines. A
microprocessor generally can process Internet content consisting
mainly of text and graphics. For streaming video, however, processors
need high bandwidth to handle multiple input streams.
. Ability to Handle a Variety of Input Data Types. The information and
entertainment available to consumers via the Internet, broadcast
services, or local sources such as DVD or video cassette recorder, or
VCR, come in a variety of types, formats, aspect ratios and
resolutions, and can be in analog or digital format. Consumers want to
be able to simultaneously access audio, video, voice, text, graphics,
pictures and animation through their Internet appliance, broadband
set-top box or digital television.
29
<PAGE>
. Support for a Variety of Applications Software and Operating
Systems. Different input data types may require different applications
software or operating systems in order to decode the rich media
content available to the consumer. For example, an Internet browser,
such as Netscape Navigator, is required in order to view Internet
text. Similarly, applications software capable of reading file formats
such as gif for graphics, JPEG for pictures, Shockwave for animation,
MPEG for video and MP3 for audio, are necessary to support various
rich media content streams. In addition, OEMs generally do not want to
be reliant on one operating system and therefore most Internet
appliances and broadband set-top boxes are designed with the
capability of running more than one operating system.
. Connectivity to a Variety of Transmission Pipes. The streaming rich
media content available to consumers may be received through a variety
of transmission pipes, all of which must be considered by the
manufacturer of the Internet appliance, broadband set-top box or
digital television. Consumers can choose to access information and
entertainment through telephone lines or broadband transmission pipes
such as television antenna (analog or digital broadcast), cable,
microwave, satellite, DSL and ethernet connection, or any combination
thereof.
. Compatibility with a Variety of Output Standards. Manufacturers must
make their products compatible with different standards in different
regions and countries. For example, manufacturers must account for
varying output requirements in designing their devices, including
output interfaces, audio formats, display formats conforming to
regional standards and various display types. In addition, more and
more, the rich media content streams may be transported to other local
communications interfaces including home network, storage devices or a
return communications channel used to send information back through
the broadband network, each of which operate with different standards.
Quality of Consumer Experience. As the methods of delivery of information
and entertainment content converge, consumers will demand the ability to
instantaneously receive varying content on a single platform or through a
single device. For example, consumers may want the ability to watch a
television program, check email and surf the Internet simultaneously on the
same display. In addition, it is essential that these appliances are easy to
use, maintain high picture quality, and allow consumers to interact with and
manipulate the available information and entertainment services.
Market Considerations. While competitive pressures are forcing
manufacturers to bring increasingly complex products to market rapidly,
consumers do not want to purchase products which will quickly become obsolete.
As more advanced information and services become available through the
Internet, manufacturers need to design products which are flexible and
intelligent enough to access the new content. In most cases, products need to
be upgradeable via software download in order to limit obsolescence. Finally,
consumers favor reasonably priced devices which produce quality images.
Product Differentiation. In addition to providing the functions and product
attributes required by consumers, manufacturers must differentiate their
products from those of their competitors in order to retain their brand
identity. This is more and more difficult as, with the shift to digital
technology, communications interfaces become standardized. The main remaining
element enabling system differentiation in an Internet appliance, broadband
set-top box or digital television resides in the hardware and applications
software that enables display configuration and the user interface, or the look
and feel, which is customizable to increase ease of use and consumer
personalization.
Our Solution
Our semiconductor solutions allow the consumer to customize the appearance
of the television screen and manipulate the rich media content streams to
create an interactive television experience. We believe that we are well
positioned to be the leading provider of streaming media gateway integrated
circuits by offering the following advantages:
. High Performance Processing of Rich Media Content. Our solutions act
as a gateway that processes multiple streams of rich media content
that converge from different transmission pipes
30
<PAGE>
and format standards enabling a high quality, clear display. With the
advent of digital transmission, the convergence of multiple rich media
content streams transported by the broadband network requires a
process to unify and match the multiple transmission standards. For
example, some of the broadcast streams are formatted with different
resolution and screen size dimensions than Internet streams, thereby
resulting in a distorted picture. Our technology converts these
varying streams into a uniform stream and delivers an undistorted,
high quality picture. The streams are then merged and blended to offer
visual effects such as picture in picture, or transparency or the
overlay of multiple content types, all enhancing the consumer's
viewing experience. In order to support real time processing of
multiple streams, our stream processor provides high bandwidth with
some internal data rates exceeding six gigabits per second.
. Support for Multiple Data Types, Transmission Pipes, Microprocessors,
Operating Systems and Applications Software. Our integrated circuits
can accept any standard rich media content input signals through
standard telephone lines and any broadband transmission pipes.
Further, our products are designed with a flexible architecture that
can work with most television formats and display types. These modules
have been successfully ported to multiple platforms based on industry
standard microprocessors, operating systems and content application
software. Our focus on compatibility gives our OEM customers
flexibility in design and allows devices using our solution to work
with the end users' existing television equipment.
. Upgradeable Platform. Our applications software provides Internet
appliance, broadband set-top box and digital television manufacturers
with a platform that can be expanded and upgraded over time by the
consumer with only a software change which can be downloaded over a
network. This helps to reduce the risk of product obsolescence and
enables the integration of new features and technologies as they are
developed.
. Programmable and Customizable Platform. Our semiconductor solutions
are programmable and allow manufacturers to add new features and
customize the on screen user interface of their products. For example,
manufacturers may program their Internet appliance, broadband set-top
box or digital television to allow varying modes of transparency,
multiple independent media window displays, multiple or combined audio
streams, multiple display, display sizes and multiple horizontal and
vertical resolutions and screen refresh rates, which affect the
quality of the image and the amount of flicker on the screen.
. Accelerated Time to Market. Our streaming media integrated circuits,
software and reference designs enable our OEM customers to accelerate
their time to market by reducing their systems engineering
development. We have developed a number of platforms running with
multiple microprocessors, operating systems and applications software
which enable our customers to leverage these predeveloped hardware and
software platforms to reduce their system engineering efforts. Our
software development kits include modules that enable rapid
customization and porting, which allow our customers to speed up their
product development time. Our engineers work closely with our
customers' engineers to facilitate systems design. This benefit
enables our OEM customers to bring products with rich features and
differentiated systems to market quickly.
Our Strategy
Our objective is to be the leading provider of high performance streaming
media gateway solutions for the Internet appliance, broadband set-top box and
digital television markets. The key elements of our strategy include the
following:
. Focus on Television-Centric Broadband Consumer Market
Applications. According to Nielsen, television sets are in virtually
all United States households, and three out of four households have
multiple sets. Cable television provides up to eight gigabits per
second of bandwidth compared to the 56 kilobits per second of
bandwidth of a dial up telephone modem. This is up to 140,000 times
more bandwidth than dial up modems. We believe that the television
provides the platform of choice for
31
<PAGE>
delivering rich media content into the home, as consumers are
comfortable using the television for entertainment and information. As
a result, we intend to continue to focus our efforts on television-
centric applications such as Internet appliances, broadband set-top
boxes and digital televisions.
. Maintain Our Leadership in Streaming Media Gateway Technology. We
intend to continue to invest in our research and development in order
to build upon our leadership as a provider of high performance
streaming media gateway solutions. We intend to continue to refine
picture quality through development of advanced digital and mixed
signal processing techniques including enhancements such as higher
resolution processing and doubling the number of display lines. We
plan to continue to expand the bandwidth of our streaming media
gateway solution to handle a larger number of rich media content
streams simultaneously. Finally, we plan to continue to integrate
additional features into our solution in order to provide additional
value to system manufacturers as well as to aid in system cost
reduction.
. Maintain Our Focus on Software Development. We believe our easy to use
software development kits and our custom software services are key
differentiating factors which enable our OEM customers to reduce their
systems engineering development and shorten their time to market. We
expect to continue to offer our OEM customers a variety of software
modules and the system engineering support necessary to simplify
design and development processes that permit our OEM customers to
differentiate their products through custom configurations.
. Expand Alliances with Major Microprocessor and Operating System
Vendors. We intend to continue to nurture our relationships with
operating system, applications software and microprocessor industry
leaders in order to enable new features or new content types on our
streaming media gateway hardware. Over the last four years, we have
developed alliances to provide our OEM customers with ready to use
hardware and software reference platforms. These relationships have
allowed us to minimize our customers' evaluation and system
engineering time, thereby accelerating their time to market.
. Maintain Flexibility to Support Rapidly Evolving Applications. We
intend to continue to maintain flexibility as new features and
upgrades become available so that our products interface with and
fully utilize complementary hardware, such as microprocessors and
broadband interface integrated circuits, operating systems and content
applications software. We believe this flexibility has and will
continue to enable our customers to design products that are field
upgradeable via software download. In addition, we plan to develop our
future products to support and be compatible with emerging
communications and television standards.
. Target Leading OEM Customers. We focus our system applications
engineers and our sales and marketing efforts to support leading
manufacturers of Internet appliances, broadband set-top boxes and
digital televisions. We work with industry leading OEMs in the United
States, Europe and Asia. Our efforts initially focused on achieving
early design wins with companies we believed would drive product
innovation and volume in each of our target markets. We are currently
designing our next generation products with the input of these OEMs.
We believe this strategy allows us to provide OEMs with a roadmap to
enhance their products, to reduce their system size and costs with
greater integration and to maintain compatibility to current hardware
features, software and display look and feel provided by our streaming
media gateway solutions.
. Leverage Our Technology into New Applications. We intend to extend our
streaming media gateway technology to switch and route rich media
streams to and from new applications such as displays, storage
devices, home networking systems and connecting with other consumer
electronics equipment. For example, a television broadcast stream
could be merged with a video stream coming from a digital camera
through a communications port and be displayed on a television while,
simultaneously, the digital camera information is being routed to a
printer and the broadcast program is recorded on a VCR.
32
<PAGE>
Our Products
Our products are based on advanced architecture integrated circuits and
system designs that provide real time, cost effective, high quality streaming
media and display processing. We currently offer 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. Our semiconductor solutions include different
features which OEMs can select for inclusion in their products. The following
table describes our current products and their key features:
<TABLE>
<CAPTION>
Features CyberPro
-------------------------------------
2010 5000 5005 5050 5055 5300 5305 5350 5355
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2D Graphics/Text
Two dimensional text, graphics
and animation engine X X X X X X X X
-------------------------------------------------------------------------------
DuoVision
Simultaneous display of same or
different content on two
displays X X X X X X X X X
-------------------------------------------------------------------------------
FlexiBus
Direct interface to multiple
microprocessors X X X X X X X X X
-------------------------------------------------------------------------------
TVDirect
Integrated television output
processor with broadcast
picture quality on television
for animation, text and
graphics X X X X X X X X X
-------------------------------------------------------------------------------
Video Port (Number)
Direct interface port to
broadcast or broadband video
streams such as MPEG-2, DVD,
video compact disk 1 2 2 2 2 3 3 3 3
-------------------------------------------------------------------------------
Video Processor
Video processing engine to
manipulate multiple video
streams X X X X X X X X X
-------------------------------------------------------------------------------
eView
High picture quality of
broadcast or broadband video on
television X X X X X X X X
-------------------------------------------------------------------------------
mView
Hardware magnified view of
text, graphics and web pages on
television X X X X X X X X
-------------------------------------------------------------------------------
tView
Flexible display transparency
modes applied to multiple media
streams X X X X X X X X
-------------------------------------------------------------------------------
Audio Processor
Audio digital signal processor
to process various audio
formats such as MP3, wavetable,
MIDI, PCM, I2S, stereo audio X X X X
-------------------------------------------------------------------------------
MacroVision
Industry standard encryption
for copy protection X X X X
-------------------------------------------------------------------------------
3D Graphics/Text
Three dimensional text,
graphics and animation engine X X X X
-------------------------------------------------------------------------------
Digital Link
Digital interface (or output)
for display output or
transmission X X X X
</TABLE>
The CyberPro 2010, designed for Internet appliances, has high performance
text, graphics and video processing engines. With its direct interface to
multiple microprocessors and installed base of worldwide television formats,
CyberPro 2010 provides high functionality at a low cost.
The CyberPro 5000 is the first product of the CyberPro 5000 family designed
for broadband digital set-top boxes and digital televisions. The CyberPro 5000
has enhanced text, graphics and video processing engines
33
<PAGE>
and faster memory access interface than our CyberPro 2010 product. It also
includes two video ports for two simultaneous video streams, high picture
quality of broadband video on television, hardware magnified view of web pages
on television, and a flexible transparency algorithm for blending multiple
video, text, graphics, pictures and animation on screen.
The CyberPro 5005 is designed for broadband set-top boxes and digital
televisions with Internet and DVD capability. In addition to CyberPro 5000
features, the 5005 provides MacroVision encryption for copy protection.
The CyberPro 5050 is designed for broadband set-top boxes and digital
televisions which have integrated audio capability. It includes an audio
digital signal processor engine with audio synthesis, MIDI, I2S, PCM and stereo
audio.
The CyberPro 5055 combines all features of our CyberPro 5000, 5005 and 5050
products. The CyberPro 5055 provides a solution for broadband set-top boxes and
digital televisions that process multiple media streams including DVD and full
duplex audio.
The CyberPro 5300 is the first product in the CyberPro 5300 family designed
for broadband set-top boxes that require 3D animation, 3D effects or 3D
graphics processing capability.
The CyberPro 5305, 5350 and 5355 are similar to our CyberPro 5005, 5050 and
5055 products, but also provide 3D animation, 3D effects or 3D graphics
processing capability.
We are currently working on products that integrate new technologies,
features and enhancements that allow consumers to access, at the click of a
button, high bandwidth rich media content and services with improved picture
quality.
Software
Our software products and services are part of our semiconductor solutions.
Our software products and services are divided into three categories: software
development kits, applications modules and custom software services. Our
product strategy is based on providing OEMs a complete hardware and software
solution which reduces both their system engineering time and their time to
market. Our streaming media gateway solutions are configurable and flexible,
and our software is key in enabling our customers to take advantage of this
flexibility. Finally, our software modules enable us to provide our OEM
customers with the capability to offer systems with differentiated features
that enhance the television experience.
Our software development kits are a set of software modules designed to be
easily and quickly ported on multiple hardware and software platforms. These
kits are modularized in order to cater to different system requirements while
minimizing the size of the software code. These modules have been successfully
ported to multiple platforms based on industry standard microprocessors,
operating systems and content application software.
Finally, by leveraging the comprehensive experience of our software design
team, we provide custom software development for customers using our
semiconductors. In addition, in many cases, we work closely with third party
system integrators to provide our OEM customers with accelerated system
software development and faster time to market.
34
<PAGE>
Technology
The processing and delivery of rich media content requires the capability to
process multiple streams simultaneously. It also requires that technology
merge, reformat and route these disparate streams into a unified stream for
storage, transmission and display. Moreover, the stream needs to be compliant
to the multiple input and output requirements including over six output
interfaces, four audio formats, 12 display formats conforming to different
regional standards and four display types.
The following illustrates the processing flow of our streaming media gateway
integrated circuit:
TVIA STREAMING MEDIA GATEWAY PROCESSING
[GRAPHIC APPEARS HERE]
Stream Input Processor. In this section of our semiconductors, multiple
engines work in parallel to capture and process the various rich media content
streams. Separate parallel engines are used for the capture of multiple audio,
video, voice, text, graphics, pictures and animation content. The capture
occurs through multiple separate video and audio ports as well as through a
configurable microprocessor interface. This interface has the flexibility to
provide a direct connection to the multitude of processor types being used in
Internet appliance, broadband set-top box and digital television applications.
Stream Data Flow Processor. The various rich media content streams can be
input to our streaming media gateway at different input rates. Before they are
merged into a single stream for display, storage or transmission, the flow of
data of the streams needs to be adjusted to match the output data rate.
Typically, our semiconductors perform this adjustment in conjunction with
external memory and retiming circuitry.
High Bandwidth Stream Processor. The convergence of multiple streams
transported by the broadband network requires a processor to unify the streams
and match the multiple transmission standards. For example, some of the
broadcast streams are formatted with different resolutions and display sizes
than the Internet streams, thereby resulting in a distorted picture. Our
spatial processing technology optimally converts these varying streams into a
uniform stream while delivering a high quality picture. The streams are then
scaled, merged and blended to offer visual effects such as picture in picture
or transparency overlay of multiple content
35
<PAGE>
types to enhance the viewing experience. In order to support real time
processing of multiple streams, our stream processor provides high bandwidth
with some internal data rates exceeding six gigabits per second.
Stream Output Processor. This section contains the physical layer output
transmission circuitry for the output transmission of the streams as well as
the routing of the streams to the different output ports. We have designed our
proprietary high speed, mixed signal complementary metal oxide semiconductor,
or CMOS, functions to interface with digital and analog output streams. Our
multiple generations of high speed, low jitter, high precision frequency
generators, operating in excess of 800MHz, enable precise timing of the output
streams and capability to handle the streaming media bandwidth. Along with our
broadcast quality digital to analog converter, our stream output processor
enables excellent picture quality.
Software Technology and Software Support Expertise. Our software modules
enable our OEMs to speed up their system development and to fully utilize our
streaming media gateway solution. Moreover, our team of software engineers
assists our OEM customers to customize their platform to the desired consumer
interface and look and feel.
System Specific Applications Expertise. Our semiconductor and system design
teams solve problems related to designing systems using broadcast quality audio
and video performance. Our gateway solution interfaces with a number of
surrounding audio, video, data busses and mixed signal circuits. Our expertise
in solving audio and video compliance related problems enables us to make our
semiconductor solutions easier for our OEM customers to design into their
systems.
Customers
We target customers in the Internet appliance, broadband set-top box and
digital television markets. We began to focus on the Internet appliance market
in 1997, and later expanded our focus to include the broadband set-top box and
digital television markets. Therefore, the majority of our sales to date have
been in the Internet appliance market. However, many of our customers
manufacture or distribute products in more than one of our target markets. The
following table illustrates, for the fiscal year ended March 31, 2000, what we
believe is the primary focus of our largest OEM customers by revenue in each of
the target markets that we address:
<TABLE>
<CAPTION>
Internet Appliance Broadband Set-Top Box Digital Television
------------------ --------------------- ------------------
<S> <C> <C>
Acer Acer Hitachi
Allwell Cisco Loewe
ClickTV General Instrument Mitsubishi
eNote.com Hughes Samsung
LG Electronics Sony
MyTurn
Neon
Philips
Samsung
Vestelkom
</TABLE>
Sales to one of our distributors, Weikeng Industrial Co., Ltd., accounted
for approximately 16.2% of our total revenues for fiscal year 2000.
Sales and Marketing
We sell and market our integrated circuits through our direct sales force,
sales representatives and distributors. For our software products, we also use
value added resellers and system integrators that package and use our software
products for resale as standard products or custom software development
services.
Our products are marketed primarily through reference platforms and
evaluation kits designed internally and with industry leading microprocessor,
real time operating systems and other strategic partners directly or
36
<PAGE>
indirectly through our partners' channels to OEMs for evaluation and
development. These reference platforms and evaluation kits (hardware and
software) have proven to be vital to our success in obtaining new design wins.
We also promote our products through trade shows, articles, press releases and
joint promotions with our partners.
Our personnel work closely with customers, sales representatives and
authorized distributors to define product features, performance, price and
market timing of new products. We provide technical support and design
assistance directly to OEM customers, regardless of the sales channels used. We
believe that a high level of customer support is necessary to successfully
develop and maintain long term relationships with our customers. These
relationships begin at the design in phase and develop as customer needs change
and evolve. We provide support through both on site customer service and remote
support from our facilities.
As of March 31, 2000, we employed a sales and marketing force of eight
people. These personnel have the technical expertise and industry knowledge
necessary to support a lengthy and complex sales process. Our sales and
marketing organization includes four field applications engineers that assist
customers in designing, testing and qualifying system designs that incorporate
our integrated circuits and software products. We believe that the depth and
quality of this design support are key to improving our customers' time to
market and maintaining a high level of customer satisfaction. Our two direct
sales offices are located in Santa Clara, California and Taipei, Taiwan. Both
of these sales offices also provide hardware and software applications support.
Research and Development
Our research and development efforts are focused on three areas: device
architecture and logic design, physical layer design software development and
device testing. As of March 31, 2000, our research and development staff
consisted of 52 employees. Our research and development efforts have been
focused on architecture design, streaming media processing modes, high speed
digital and mixed signal design and software. Our software engineering staff
represents approximately 45% of our design engineering staff and gets involved
early in the design process to ensure software compatibility. On a new product,
the majority of our hardware engineers are involved in high speed digital and
mixed signal designs and verification.
We conduct research and development at our design centers in Santa Clara,
California and Hefei, People's Republic of China. Our People's Republic of
China facility is located in a science park near Hefei University of
Technology, and employee costs are lower than those in the San Francisco Bay
Area.
Our research and development expenses for fiscal years 1998, 1999 and 2000
were $3.4 million, $3.4 million and $3.2 million, respectively. Research and
development expenses consist mainly of personnel and other costs associated
with the development of product designs, process technology, software and
programming hardware. We anticipate that we will continue to commit substantial
resources to research and development in the future.
Manufacturing
We have adopted a fabless semiconductor manufacturing model and we
outsource all of our semiconductor manufacturing and assembly. This approach
allows us to focus our resources on the design, development, testing and
marketing of our products and significantly reduces our capital requirements.
We develop our designs to be compatible with two foundries, Taiwan
Semiconductor Manufacturing Corporation, or TSMC, and United Manufacturing
Corporation, or UMC, both of which are located in Hsin Chu, Taiwan. This allows
us to shift production from one facility to the other in the event of a
capacity constraint at one foundry. We currently use 0.5 micron, 0.35 and 0.3
micron technology for production. We intend to use 0.18 micron technology for
new products.
We internally design and optimize digital and analog cells through our
physical layer design group. This allows us to reduce the size of the
semiconductor and therefore the cost. This also gives us greater control over
the quality and reliability of our streaming media gateway integrated circuits.
37
<PAGE>
Assembly of our devices is primarily performed by Caesar Technology
Incorporated and Siliconware Precision Industries Ltd., both of which are
located in Hsin Chu, Taiwan. Final testing is primarily performed by us in
Santa Clara, California. However, we are currently exploring additional
outsourcing of the testing function.
Competition
The semiconductor industry in general, and the market for integrated
circuits for Internet appliances, broadband set-top boxes and digital
televisions, in particular, is highly competitive. We believe we compete
favorably in each of the key competitive factors in our target markets. These
factors are:
. functionality;
. performance;
. time to market;
. price;
. conformity to industry standards;
. product road maps; and
. technical support.
Our current and primary competitors in our target markets are ATI, Broadcom
and TeraLogic. In addition to these competitors, we expect other major
semiconductor manufacturers will enter the market as the Internet appliance,
broadband set-top box and digital television markets develop. A number of
companies, including IBM, STMicroelectronics, National Semiconductor and
TeleCruz, have announced that they are developing or plan to introduce
competing products in the Internet appliance, broadband set-top box or digital
television market which could result in significant competition. We expect
competition to intensify as current competitors expand their product offerings
and new competitors enter the market.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret
laws and contractual restrictions to establish and protect our intellectual
property and proprietary rights that we develop and license from others.
We have filed applications for United States patents containing claims
covering various aspects of combining digital streams of video and graphics for
presentation on an output display and for changing the size of graphic data for
presentation on a television output display. We expect to file patent
applications as we deem appropriate to protect our technology and products. We
cannot be sure that our patent applications will result in the issuance of
patents, or that any issued patents will provide commercially significant
protection to our technology.
We also license from others certain audio, graphics and semiconductor
technology that is incorporated in our semiconductors and certain intellectual
property rights. These licenses are perpetual and survive the termination of
the agreements under which we obtained such licenses. The protections we
receive from others against infringement under the terms of these licensing
agreements is limited and we cannot assure you that alternative technology
exists.
In October 1999, we entered into an agreement with Coreum Technology, Inc.,
one of our vendors, for the joint development of new technology related to our
next generation of products that we anticipate will provide a higher level of
integration and reduced OEM system costs. Under the terms of the agreement
Coreum may have the right to purchase 39,999 shares of our common stock. The
conditions that must be met before Coreum has the right to purchase the shares
of common stock are discussed in the notes to our financial statements on page
F-16.
38
<PAGE>
In March 2000, we entered into a cross license agreement with Innovative
Semiconductors, Inc., which has developed proprietary semiconductor circuit and
logic designs. Pursuant to our agreement, Innovative will license to us the
right to use their proprietary cores to develop and market semiconductors and
we will license to Innovative the right to use and market our cores and test
benches with their products.
In June 1997, we entered into an agreement with T-Square Design, Inc.,
which has proprietary technology that permits incorporation of the audio
function onto graphics controller chips. As a result of our agreement, we were
granted the right to use this audio technology for graphics/audio integration
in our products and to manufacture, distribute and sublicense products using
the audio technology.
In July 1997, we entered into a licensing arrangement with Reality
Simulation Systems Acquisition Corporation, which developed a graphics
technology for use in consumer electronics products. Our agreement permits us
to license the use of their software for use and incorporation in our CyberPro
3000 products. We are currently engaged in discussions with RSS regarding our
business relationships and the terms of the license.
We attempt to avoid infringing known proprietary rights of third parties in
our product development efforts. It is difficult to proceed with certainty in a
rapidly evolving technological environment in which there may be numerous
patent applications pending, many of which are confidential when filed, with
regard to similar technologies. If our products violate third party proprietary
rights, we might not be able to obtain licenses to continue offering these
products without substantial reengineering. Efforts to undertake this
reengineering might not be successful, licenses might be unavailable on
commercially reasonable terms, if at all, and litigation might not be avoided
or settled without substantial expense and damage awards. CyberPro is a
registered trademark, and Tvia and FlexiBus are trademarks pending registration
of Tvia in the United States. In addition, the Tvia logo is a trademark of Tvia
in the United States and other jurisdictions.
Employees
As of March 31, 2000, we had 102 full time employees including 52 engaged
in research and development, eight engaged in sales and marketing, 22 engaged
in manufacturing and 20 engaged in general management and administration
activities. Of the current employees, 45 work in our Santa Clara facility, six
work in our Taiwan office and 51 work at our facility in the People's Republic
of China. Our employees are not represented by any collective bargaining
agreement and we have never experienced a work stoppage. We believe our
relations with our employees are good.
Facilities
Our headquarters, which also serves as our principal administrative,
selling, marketing, customer support, applications engineering and product
development facility, is located in Santa Clara, California, and consists of
approximately 16,500 square feet under a lease that expires in July 2003. We
also lease a sales, marketing and customer support office in Taiwan under a
lease that expires in February 2001. We currently use the services of a
subcontractor to manage facilities and employment for our research and
development operation in the People's Republic of China.
We believe our existing facilities are adequate to meet our needs for the
immediate future and that future growth can be accomplished by leasing
additional or alternative space on commercially reasonable terms.
Legal Proceedings
As of March 31, 2000, we were not a party to any litigation.
39
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of Tvia, and their ages
as of July 25, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------------ --- -----------------------------------------------------
<S> <C> <C>
Kenny Liu(1)............ 46 Chairman and Chief Executive Officer
Jack Guedj.............. 41 President
Michael Hoberg.......... 48 Vice President of Finance and Chief Financial Officer
Jhi-Chung Kuo........... 47 Vice President of Engineering
Mike Raghavan........... 43 Vice President of Marketing
James Tao............... 50 Vice President of Business Development
Yee Wong................ 47 Vice President of Manufacturing Operations
Johnson Yan............. 50 Vice President of Hardware Engineering
Bo Liu(3)............... 46 Vice President of Software Development
James Bunker(1)(2)...... 65 Director
Steven Cheng............ 59 Director
R. David
Dicioccio(1)(2)....... 42 Director
Ming-Kai Tsai(2)........ 50 Director
</TABLE>
--------
(1) Member of compensation committee.
(2) Member of audit committee.
(3) Key employee.
Kenny Liu has served as our Chairman of the Board and Chief Executive
Officer since January 1995. From January 1989 to March 1994, Mr. Liu served as
Chairman and Chief Executive Officer of OPTi Inc., a manufacturer of core logic
chip sets for the personal computer market. Mr. Liu received a B.S. in
Electrical Engineering from National Cheng-Kung University in Taiwan, an M.S.
in Computer Science from Santa Clara University and an M.S. in Electrical
Engineering from Ohio State University.
Jack Guedj has served as our President since May 1999. From February 1997
to April 1999, Dr. Guedj was President of HTMC, a consulting firm specializing
in advising startup companies. From June 1996 to February 1997, Dr. Guedj was
Vice President of Sales and Marketing for Faroudja, Inc., a manufacturer of
video image enhancement products for the television and broadcast markets. From
June 1994 to June 1996, Dr. Guedj was Director of Multimedia/Consumer Strategic
Market Segment at National Semiconductor Corporation. Dr. Guedj received an
M.B.A. from the University of California, Los Angeles and a Ph.D. in Electrical
Engineering from University of Paris.
Michael Hoberg has served as our Chief Financial Officer since February
2000. From November 1998 to January 2000, Mr. Hoberg served as the Chief
Financial Officer of U.S. Cancer Care, Inc., a radiation oncology company. From
December 1996 to June 1998, Mr. Hoberg served as Chief Financial Officer of
Faroudja, Inc., a manufacturer of video image enhancement products for the
television and broadcast markets, and as an advisor to the Chief Executive
Officer from July 1998 to November 1998. From March 1995 to December 1996, Mr.
Hoberg was the Principal Accounting Officer of DSP Group, Inc., a digital
signal processing semiconductor company. From January 1994 to March 1995, Mr.
Hoberg served as DSP's Corporate Controller. Mr. Hoberg received a B.B.A. in
Accounting from the University of Wisconsin at Madison and is a Certified
Public Accountant.
Jhi-Chung Kuo, a cofounder of the Company, has served as our Vice President
of Engineering since our inception in March 1993. Mr. Kuo received a B.S. in
Physics from National Central University in Taiwan and an M.S. in Electrical
Engineering from Mississippi State University.
Mike Raghavan has served as Vice President of Marketing since November
1999. He joined us as Senior Director of Marketing in February 1996. From
February 1994 to February 1996, Mr. Raghavan served as Senior Marketing Manager
at Trident Microsystems, Inc., a multimedia semiconductor company. From 1991 to
1994, Mr. Raghavan was a Founder and Vice President of Sales and Marketing at
Nexel Corporation, a
40
<PAGE>
manufacturer of board accelerators. Mr. Raghavan has an M.S. in Industrial
Engineering from the University of Iowa and a B.S. in Mechanical Engineering
from the Indian Institute of Technology in India.
James Tao has served as Vice President of Business Development since
November 1999. He joined us in June 1997 as Senior Director of Business
Development, and is responsible for business development in Japan, Korea and
with major domestic customers. From March 1989 to May 1997, Mr. Tao served as
Vice President of Sales and Marketing at Focus Information Systems, a personal
computer peripheral product company. Mr. Tao received an M.B.A. in
Telecommunication Management from Golden Gate University and an M.S. in
Computer Science from the University of Hawaii.
Yee Wong, a cofounder of the Company, has served as our Vice President of
Manufacturing Operations since January 1995. From March 1993 to December 1994,
Mr. Wong served as our President. Prior to founding the Company, Mr. Wong
served as an ASIC Design Manager for Everex Systems, Inc. and Senior Staff
Engineer with Intel Corporation. Mr. Wong received a B.S. in Electrical
Engineering from National Cheng-Kung University in Taiwan and an M.S. in
Electrical Engineering from the University of Michigan.
Johnson Yan has served as Vice President of Hardware Engineering since July
2000. From August 1999 to July 2000, Mr. Yan served as Senior Vice President of
Engineering for Arithmos, Inc. From April 1998 to July 1999, Mr. Yan served as
Vice President, ATI Research West of ATI Technologies Inc. From January 1995 to
March 1998, Mr. Yan served as General Manager, Graphics Business Unit of Oak
Technologies. Mr. Yan received his B.S. in Electrical Engineering from the
University of Texas at Austin and his M.S. in Electrical Engineering from the
University of California at Berkeley.
Bo Liu has served as Vice President of Software Development since November
1999. He joined us as Software Manager in June 1993, serving in that position
until June 1998. From June 1998 to November 1999, Mr. Liu was our Director of
Software Development. Prior to joining us, Mr. Liu held software development
positions at both Micronics Computers, Inc. and Oak Technology, Inc. Mr. Liu
was a candidate for a Ph.D. in Electrical and Computer Engineering at the
University of Wisconsin at Madison and has an M.S. in Electrical Engineering
from Wichita State University and a B.S. in Electrical Engineering from Hefei
University of Technology in the People's Republic of China.
James Bunker has served as a Director since February 2000. From January
1997 to the present, Mr. Bunker has served as a director of Assured Digital,
Inc., a telecommunications company, and as a director of Viasat, Inc., a
telecommunications company. From January 1998 to present Mr. Bunker has served
as a director of VNCI, Inc., a video distributor. From July 1998 to December
1999, Mr. Bunker served as President and Chief Executive Officer of Video
Network Communications, Inc. and has served as its Chairman of the Board of
Directors since December 1999. From January 1994 to July 1999, Mr. Bunker was a
consultant to high technology companies. Mr. Bunker received a B.S. in
Electrical Engineering from Northwestern University.
Steven Cheng has served as a Director since October 1998. Dr. Cheng has
served as President of Hontung Venture Capital Corp. since October 1998. Since
August 1997, Dr. Cheng has served as Chief Technology Officer of Communications
at Acer, Inc. From July 1990 to January 1997, Dr. Cheng was General Director of
Computer and Communication Research Laboratories at Industrial Technology
Research Institute. Dr. Cheng has a Ph.D. in Physics from the California
Institute of Technology.
R. David Dicioccio has served as a Director since February 2000. Since
November 1998, Mr. Dicioccio has served as President of RDD Associates, LLC, an
investor in and strategic advisor to early stage and established technology
companies. From 1992 to 1998, Mr. Dicioccio served as a Managing Director and
Head of the Technology and Communications Investment Banking practice at
PaineWebber Incorporated. Mr. Dicioccio received an A.B. in Political Science
from Stanford University and an M.B.A. from Harvard University.
Ming-Kai Tsai has served as a Director since October 1998. Since May 1993,
Mr. Tsai has served as the Chairman of Faraday Technology Corp., an application
specific integrated circuit design services company.
41
<PAGE>
From May 1983 to July 1997, Mr. Tsai served at UMC in various capacities
including president and vice president of business units. Mr. Tsai received a
B.S. in Electronic Engineering from Taiwan University and an M.S. in Electronic
Engineering from the University of Cincinnati.
Board of Directors and Committees
Our bylaws currently provide that our board of directors consists of no
fewer than five but no more than seven members with the exact number set at six
by our board of directors. Currently, our board is comprised of five members.
Immediately following the offering, our board will consist of five directors
divided into three classes, each class serving for a term of three years,
except for the first two classes which initially will serve for one and two
year terms, respectively, as follows:
<TABLE>
<CAPTION>
Class Expiration Name
----- ---------- ---------------------------
<S> <C> <C>
Class I........................... 2001 R. David Dicioccio
Class II.......................... 2002 James Bunker, Stephen Cheng
Class III......................... 2003 Kenny Liu, Ming-Kai Tsai
</TABLE>
Directors whose terms are expiring will be elected at each annual meeting
of stockholders by a vote of the holders of a majority of the voting power
represented at the meeting.
Compensation Committee. Our compensation committee is responsible for,
among other things, determining salaries, incentives and other forms of
compensation for directors, officers and other employees of Tvia and
administering various incentive compensation and benefit plans. As of March
2000, our compensation committee is comprised of James Bunker, R. David
Dicioccio and Kenny Liu. Mr. Liu will be excluded from decisions regarding his
own salary and incentive compensation.
Audit Committee. Our audit committee reviews our annual audit and meets
with our independent auditors to review our internal controls and financial
management practices. As of March 2000, our audit committee is comprised of
James Bunker, R. David Dicioccio and Ming-Kai Tsai. Within 90 days from the
date we complete this offering, we will comply with the Nasdaq National Market
requirements for the appointment of our audit committee.
Director Compensation and Other Arrangements
Except for an initial grant of 25,000 stock options upon becoming a member
of our board and an annual grant of 7,500 stock options for each year the
director remains on our board, we do not currently compensate our directors for
their services as directors. Directors who are also employees are eligible to
participate in our 1999 Stock Incentive Plan. We also reimburse each member of
our board of directors for out-of-pocket expenses incurred in connection with
attending board meetings.
Compensation Committee Interlocks and Insider Participation
With the exception of Mr. Liu, none of the members of the compensation
committee is currently, or has ever been at any time since our formation, one
of our officers or employees. No member of the compensation committee serves as
a member of the board of directors or compensation committee of any entity that
has one or more officers serving as a member of our board of directors or
compensation committee.
42
<PAGE>
Executive Compensation
The following table provides summary information concerning compensation
earned by or paid to our chief executive officer and each of our four other
most highly compensated executive officers, whose total annual salary and bonus
exceeded $100,000, for services rendered in all capacities during the fiscal
year ended March 31, 2000, as well as for our chief financial officer. These
individuals are referred to as the "named executive officers." Other than the
salary and bonus described below, we did not pay any executive officer named in
the Summary Compensation Table any fringe benefits, perquisites or other
compensation in excess of 10% of that executive officer's salary and bonus
during the fiscal year ended March 31, 2000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual
Compensation Securities
----------------- Underlying All Other
Name and Principal Position Salary Bonus Options (#) Compensation
--------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Kenny Liu.......................... $466,000(1) -- 100,000 --
Chief Executive Officer
Jack Guedj......................... $105,288 -- 420,159 $56,000(2)
President
Michael Hoberg..................... $ 22,308(3) -- 213,333 --
Vice President of Finance
and Chief Financial Officer
Jhi-Chung Kuo...................... $142,847 -- 83,333 --
Vice President of Engineering
James Tao.......................... $102,326 -- 120,000 --
Vice President of Business
Development
Yee Wong........................... $145,385 -- 75,000 --
Vice President of Manufacturing
Operations
</TABLE>
-------------------------
(1) Includes $326,000 paid in fiscal year 2000 for services performed in prior
years.
(2) Represents a commission on third party participation in the sale of Series
I preferred stock. The commission was paid in cash and stock.
(3) Mr. Hoberg commenced employment in February 2000 at an annual salary of
$145,000.
43
<PAGE>
Option Grants in Last Fiscal Year
The percentage of total options granted is based on an aggregate of
approximately 2,795,960 options granted in fiscal year 2000. The exercise price
on the date of grant was equal to the fair market value on the date of grant as
determined by the board of directors. Options have a maximum term of five years
subject to earlier termination related to cessation of employment.
The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent Tvia's estimate or
projection of future stock price. The dollar values have been calculated by
determining the difference between the fair market value of the securities
underlying the options at March 31, 2000 and the exercise prices of the
options. Solely for purposes of determining the value of the options at March
31, 2000, we have assumed that the fair market value of shares of common stock
issuable upon exercise of options was $12.00 per share, the midpoint of the
initial public offering range, since the common stock was not traded in an
established market prior to the offering.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
--------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term
Options Employees Exercise Expiration ----------------------
Name Granted in Fiscal Year Price Date 5% 10%
---- ---------- -------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenny Liu............... 100,000 3.58% $ 8.85 3/19/05 $ 513,102 $ 817,029
Jack Guedj.............. 420,159 15.02 0.12 6/02/04 8,130,609 12,946,637
Michael Hoberg.......... 213,333 7.63 0.375 1/31/05 4,039,652 6,432,471
Jhi-Chung Kuo........... 8,333 0.30 0.12 7/29/04 161,254 256,770
75,000 2.68 8.85 3/19/05 384,826 612,772
James Tao............... 33,333 1.19 0.12 6/02/04 645,036 1,027,112
33,333 1.19 0.12 10/28/04 645,036 1,027,112
26,667 0.95 6.75 3/15/05 228,048 363,128
26,667 0.95 8.85 3/28/05 136,829 217,877
Yee Wong................ 75,000 2.68 8.85 3/19/05 384,826 612,772
</TABLE>
Aggregate Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth information regarding options that were
exercised by the named executive officers during fiscal year 2000 and the
number and value of unexercised, in the money options, assuming a fair market
value equal to $12.00, the midpoint of the initial public offering range:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Held at Options Held at
Shares Value March 31, 2000 March 31, 2000(1)
Acquired on Realized ----------------- -----------------
Name Exercise ($) Vested Unvested Vested Unvested
---- ----------- --------- ------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenny Liu........... 800,000(1) 9,504,000 -- 100,000(3) $ -- $ 315,000
Jack Guedj.......... 420,159(1) 4,991,481 -- -- -- --
Michael Hoberg...... 66,666(2) 775,004 -- 146,666(3) -- 1,704,992
Jhi-Chung Kuo....... 16,666(1) 197,992 -- 112,500(3) -- 354,375
James Tao........... 133,333(1) 1,583,996 -- -- -- --
-- -- -- 26,666(4) -- 139,397
-- -- -- 26,666(3) -- 83,998
Yee Wong............ -- -- -- 112,500(3) -- 354,375
</TABLE>
-------------------------
(1) The exercise price per share is $0.12.
(2) The exercise price per share is $0.375.
(3) The exercise price per share is $8.85.
(4) The exercise price per share is $6.75.
44
<PAGE>
Employee Benefit Plans
Amended and Restated 1999 Stock Incentive Plan
The board of directors in June 1999 adopted our Amended and Restated 1999
Stock Incentive Plan, which was amended on October 15, 1999 and amended and
restated on March 20, 2000. Our 1999 Stock Incentive Plan provides for the
grant of incentive stock options as defined in Section 422 of the Internal
Revenue Code to employees and the grant of nonstatutory stock options and stock
purchase rights to employees, nonemployee directors and consultants. A total of
4.6 million shares of common stock have been reserved for issuance under our
1999 Stock Incentive Plan as of March 31, 2000.
Our board of directors administers our 1999 Stock Incentive Plan. The board
of directors may amend our 1999 Stock Plan as desired without further action by
Tvia's stockholders except as required by applicable law. Our 1999 Stock
Incentive Plan will continue in effect until terminated by the board of
directors or for a term of 10 years from its amendment and restatement date,
whichever is earlier.
The consideration for each award under our 1999 Stock Incentive Plan will
be established by our board of directors, but in no event will the option price
for incentive stock options be less than 100% of the fair market value of the
stock on the date of grant. Awards will have such terms and be exercisable in
such manner and at such times as the board of directors or any committee
appointed to administer the 1999 Stock Incentive Plan may determine. However,
each incentive stock option must expire within a period of not more than five
years from the date of grant.
Generally, options granted under the 1999 Stock Incentive Plan vest over
five years, and are nontransferable other than by will or the laws of descent
and distribution. In the event of specified changes in control, the acquiring
or successor corporation may assume or substitute for options outstanding under
the 1999 Stock Incentive Plan, or these options will become fully vested and
exercisable, be released from any restrictions on transfer (other than transfer
restrictions applicable to options under the 1999 Stock Incentive Plan) and
repurchase or forfeiture rights will terminate. Stock options awarded under the
1999 Stock Incentive Plan fully accelerate upon a change in control of Tvia,
unless the acquiror or successor company assumes the stock options. As of March
31, 2000:
. 3,010,551 shares of common stock have been issued upon the exercise of
options; and
. 101,685 shares were available for future awards.
2000 Stock Incentive Plan
Our 2000 Stock Incentive Plan was adopted by our board of directors on
March 20, 2000 and will be submitted for approval by our stockholders prior to
the completion of this offering. The 2000 Stock Incentive Plan will be
administered by our compensation committee. The 2000 Stock Incentive Plan
provides for the direct award or sale of shares of common stock and for the
grant of options to purchase shares of common stock. The 2000 Stock Incentive
Plan provides for the grant of incentive stock options as defined in Section
422 of the Internal Revenue Code and the grant of nonstatutory stock options
and stock purchase rights to employees, non-employee directors, advisors and
consultants.
A total of 2,333,333 million shares of common stock have been authorized
for issuance under the 2000 Stock Incentive Plan.
The 2000 Stock Incentive Plan will have the following program features:
. qualified employees will be eligible for the grant of incentive stock
options to purchase shares of common stock;
. qualified non-employee directors will be eligible to receive automatic
option grants, to be made at periodic intervals, to purchase shares of
common stock at an exercise price equal to 100% of the fair market
value of those shares on the date of grant;
45
<PAGE>
. the compensation committee will determine the exercise price of
options or the purchase price of stock purchase rights, but in no
event will the option price for incentive stock options be less than
100% of the fair market value of the stock on the date of grant; and
. the exercise price or purchase price may, at the discretion of the
compensation committee, be paid in, among other things, cash, cash
equivalents, full recourse promissory notes, past services or future
services.
The 2000 Stock Incentive Plan will include change in control provisions
that may result in the accelerated vesting of outstanding option grants and
stock issuances. The committee may grant options or stock purchase rights in
which all or some of the shares will vest in the event of a change in control
of the company. Change in control is defined under the 2000 Stock Incentive
Plan as:
. A change in the composition of the board of directors, as a result of
which fewer than one-half of the incumbent directors are directors who
either:
. had been directors of Tvia 24 months prior to the change or at the
time of the adoption of the Plan, whichever is later; or
. were elected, or nominated for election, to the board with the
affirmative votes of at least a majority of the directors who had
been directors 24 months prior to the change and who were still in
office at the time of the election or nomination;
. the consummation of certain mergers or consolidations of Tvia with or
into another corporation;
. the sale, transfer or other disposition of all or substantially all of
our assets; or
. an acquisition or aggregation of securities by a person, as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, as a result of which the person becomes the beneficial owner
of 50% or more of the voting power of our outstanding securities.
The board of directors will be able to amend or modify the 2000 Stock
Incentive Plan at any time, subject to any required stockholder approval. The
2000 Stock Incentive Plan will terminate no later than March 20, 2010.
2000 Employee Stock Purchase Plan
The board of directors adopted our 2000 Employee Stock Purchase Plan on
March 20, 2000, to be effective upon completion of this offering. We will be
submitting it for approval by our stockholders prior to the completion of this
offering. A total of 333,333 shares of common stock have been reserved for
issuance under our employee stock purchase plan. The number of shares reserved
for issuance under the 2000 Employee Stock Purchase Plan will be increased on
the first day of each of our fiscal years from 2000 through 2009 by the lesser
of:
. 83,333 shares;
. 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, is administered by the board of
directors or by a committee appointed by the board. Employees (including
officers and employee directors of Tvia but excluding 5% or greater
stockholders) are eligible to participate if they are customarily employed for
more than 20 hours per week and for at least five months in any calendar year.
Our 2000 Employee Stock Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's compensation. The maximum number of shares a participant may
purchase during a single offering period is 1,000 shares.
46
<PAGE>
The 2000 Employee Stock Purchase Plan will be implemented by a series of
overlapping offering periods of 24 months' duration, with new offering periods,
other than the first offering period, commencing in April and October of each
year. The board of directors will establish participation periods for our 2000
Employee Stock Purchase Plan, none of which will exceed six months. During each
participation period, payroll deductions will accumulate, without interest. On
the purchase dates set by the board of directors for each participation period,
accumulated payroll deductions will be used to purchase common stock. The
initial accumulation period is expected to commence on the date of this
offering and end on September 30, 2000. The initial purchase period is expected
to begin on the date of this offering and end on March 31, 2001.
The purchase price will be equal to 85% of the fair market value per share
of common stock on either the first day of the participation period or on the
purchase date, whichever is less. Employees may withdraw their accumulated
payroll deductions at any time. Participation in our 2000 Employee Stock
Purchase Plan ends automatically on termination of employment with Tvia.
Immediately prior to the effective time of a corporate reorganization, the
participation period then in progress shall terminate and stock will be
purchased with the accumulated payroll deductions, unless the 2000 Employee
Stock Purchase Plan is assumed by the surviving corporation or its parent
corporation pursuant to the plan of merger or consolidation. Our 2000 Employee
Stock Purchase Plan will terminate in March 2010, unless sooner terminated by
the board of directors.
401(k) Plan
In January 1997, we established an amended tax-qualified employee savings
and retirement plan for which Tvia's employees will generally be eligible.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation and have the amount of the reduction contributed to the 401(k)
Plan. To date, Tvia has made no matching contributions. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by Tvia, if any, will be deductible by Tvia
when made.
Limitation of Liability and Indemnification Matters
Prior to completion of the offering, we intend to reincorporate as a
Delaware corporation. The following discussion assumes we are a Delaware
corporation. Our certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify its other officers and
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws would permit indemnification.
We are entering into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our certificate of
incorporation and bylaws. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
47
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Management and Others
Between March 31, 1997 and March 31, 2000, we sold an aggregate of
3,284,936 shares of preferred stock in the following rounds of financing:
. between September 1998 and July 1999, we sold 1,583,331 shares of Series
G preferred stock at a price of $3.00 per share;
. in March 2000, we sold 1,204,947 shares of Series H preferred stock at a
price of $3.75 per share; and
. in March 2000, we sold 496,658 shares of Series I preferred stock at a
price of $7.50 per share.
The following table summarizes purchases of shares of our preferred stock,
valued in excess of $60,000, by our directors and executive officers:
<TABLE>
<CAPTION>
Shares
--------------------------
Series G Series H Series I
-------- -------- --------
<S> <C> <C> <C>
Directors and Executive Officers:
Kenny Liu(1)......................................... 83,333 65,066 --
R. David Dicioccio(2)................................ -- 8,333 33,333
James Bunker(3)...................................... -- 8,333 10,000
</TABLE>
-------------------------
(1) Includes 83,333 shares of Series G preferred stock and 65,066 shares of
Series H preferred stock purchased by the Liu-Lee Family Trust, of which
Mr. Liu is a trustee and a beneficiary.
(2) Includes 8,333 shares of Series I preferred stock owned by a member of Mr.
Dicioccio's family.
(3) Includes 8,333 shares of Series H preferred stock and 10,000 shares of
Series I preferred stock held by Windsor Road Limited Partnership of which
Mr. Bunker is a general Partner.
These affiliates purchased the securities described above at the same price
and on the same terms and conditions as the unaffiliated investors in the
private financings.
In 1999, Mr. Liu exercised options to purchase 800,000 shares of our common
stock at a price of $0.12 per share for an aggregate purchase price of $96,000.
Business Relationships
From May 1983 to July 1997, one of our directors, M.K. Tsai, served in
various capacities at United Microelectronic Corporation, or UMC, most recently
as president. UMC is one of the two foundries we use to manufacture our
semiconductors. Payments to UMC for the fiscal years ended March 31, 1998, 1999
and 2000 were $84,200, $128,000 and $1,022,000, respectively.
We have two separate line of credit agreements with a bank which, in the
aggregate, provide for a $3.0 million revolving credit facility. These lines of
credit are guaranteed by a pledge of trust assets over which our chief
executive officer and his wife are both trustors and trustees. In consideration
for the guarantee, we paid a fee each year to C.Y. Lee, our chief executive
officer's father-in-law. The amount of the fee varied and has been paid in a
combination of cash, options and warrants, as follows: warrants to purchase
100,000 shares of Series G preferred stock at $3.00 per share in December 1997
and July 1999, an option to purchase 80,000 shares of common stock at $0.12 per
share in July 1999, and $215,000 in cash in 1998. The fee paid to Mr. Lee was
negotiated on an annual basis and was established based upon the credit risk of
Tvia at the time.
In January 2000, we committed to grant Mr. Lee a warrant to acquire 106,666
shares of Series H convertible preferred stock for $3.75 per share and granted
Mr. Lee an option to purchase 106,666 shares of
48
<PAGE>
common stock at $0.375 per share pursuant to an extension of the guarantee of
the line of credit agreements from December 31, 1999 to April 30, 2001.
Our third line of credit agreement for $1.0 million is guaranteed by James
Mah, a former director of the company. In consideration for providing the
guarantee, for the period from April 30, 1999 to April 30, 2000, Mr. Mah was
issued a warrant to acquire 33,333 shares of Series G convertible preferred
stock at $3.00 per share in April 1999 and an option to acquire 26,666 shares
of common stock at $0.12 per share in July 1999. The price per share, as
defined in the warrant agreement, was variable up to December 31, 1999, at
which point it became fixed.
In January 2000, we committed to grant Mr. Mah a warrant to acquire 26,666
shares of Series H convertible preferred stock for $3.75 per share and granted
Mr. Mah an option to acquire 26,666 shares of common stock at $0.375 per share
pursuant to an extension of the guarantee of the line of credit agreement to
April 30, 2001.
One of our directors, Dr. Steven Cheng, is President of Hontung Venture
Capital Corp. Dr. Cheng is also an executive officer of one of our customers,
Acer, Inc. An entity affiliated with Hontung and Acer has an equity investment
in Taiwan Semiconductor Manufacturing Corporation, or TSMC. Payments by Tvia to
TSMC for the fiscal years ended March 31, 1998, 1999 and 2000 were $1,291,563,
$386,000 and $1,018,719, respectively. Sales by Tvia to Acer for the fiscal
years ended March 31, 1999 and 2000 were $18,000 and $292,000, respectively.
Our chief executive officer, Mr. Kenny Liu, was a director of T-Square
Design. We license audio technology from T-Square. In the fiscal year ended
March 31, 1998, we paid T-Square $100,000.
We believe the transactions described above are on terms no less favorable
than could have been obtained from unaffiliated third parties.
In March 2000, the board of directors authorized Tvia to enter into
severence agreements with our executive officers. Under the agreements, 25% of
an executive officer's unvested options will vest upon our acquisition.
Following such acquisition, 100% of the options granted will vest upon an
executive officer's termination, or constructive termination, within 24 months.
In addition, 100% of an executive officer's options granted will vest upon the
executive officer's death or disability.
Our chief executive officer, Kenny Liu, and our President, Jack Guedj, will
receive 18 months' salary upon termination following a change in control. Some
of our vice presidents, namely Michael Hoberg, Jhi-Chung Kuo, James Tao and Yee
Wong, will receive nine months' salary upon termination following a change in
control.
Indebtedness of Management
Our current policy is that all transactions between us and our officers,
directors, 5% stockholders and their affiliates will be entered into only if
these transactions are approved by a majority of the disinterested directors,
are on terms no less favorable to us than could be obtained from unaffiliated
parties and are reasonably expected to benefit us.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership of
our common stock, assuming the conversion of all our outstanding preferred
stock, as of June 30, 2000 by the following individuals or groups:
. each person or entity who is known by us to own beneficially more than
5% of the outstanding shares of our common stock;
. each of our executive officers;
. each of our directors; and
. all directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals listed in
the table is c/o Tvia, Inc., 4001 Burton Drive, Santa Clara, California 95054.
Except as indicated, and subject to community property laws where applicable,
the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities, subject to community property laws, where
applicable. Shares of our common stock subject to options that are presently
exercisable or exercisable within 60 days of June 30, 2000 are deemed to be
outstanding and beneficially owned by the person holding such options for the
purpose of computing the percentage of ownership of such persons but are not
treated as outstanding for the purpose of computing the percentage of any other
person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. Applicable percentage ownership is based on
approximately 16,431,633 shares of common stock outstanding as of June 30, 2000
and 5,000,000 shares of common stock sold in this offering.
<TABLE>
<CAPTION>
Amount and Nature of Shares of
Common Stock Beneficially Owned
-------------------------------------------------------------------------
Shares Issuable Percent of
Shares Subject to Pursuant to Options Outstanding Shares
Outstanding a Right of Exercisable Within --------------------
Shares of Repurchase as of 60 Days of June 30, Before the After the
Common Stock June 30, 2000(1) 2000 Offering Offering
------------ ----------------- ------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
5% Stockholders:
Liu-Lee Family Trust
(2).................... 884,412 -- -- 5.4% 4.1%
Director and Executive
Officers:
Kenny Liu(2)(3)......... 1,017,744 -- 100,000 6.2 4.7
Jack Guedj.............. 420,159(4) 420,159(5) -- 2.6 2.0
Michael Hoberg.......... 66,666 66,666 146,667 * 1.0
Jhi-Chung Kuo........... 362,666 -- 75,000 2.2 2.0
James Tao............... 133,332 95,883 53,332 * *
Yee Wong................ 941,666 -- 75,000 5.7 4.7
James Bunker(6)......... 43,333 23,612(7) -- * *
Steven Cheng(8)......... 740,740 -- 16,666 4.5 3.5
R. David Dicioccio...... 83,333 45,834(9) -- * *
M.K. Tsai............... -- -- 16,666 * *
All directors and
executive officers as a
group (11 persons)..... 3,910,471 670,715 463,329 23.8 19.9
</TABLE>
-----------------
* Less than 1%.
(1) Shares of common stock issued under a repurchase agreement under which we
retain the right to repurchase those shares at a per share purchase price
equal to the original per share purchase price if the holder's employment
is terminated.
(2) Mr. Liu and his wife, Li-Chiu Lee, as trustees of the Liu-Lee Family Trust,
may exercise voting and dispositive control over the shares held by the
Liu-Lee Family Trust.
50
<PAGE>
(3) Consists of 884,412 shares held by the Liu-Lee Family Trust of which Mr.
Liu is a trustee and a beneficiary, and 133,332 shares held in the name of
Mr. Liu's minor children. Mr. Liu is our chief executive officer.
(4) Includes 13,332 shares held in the name of Mr. Guedj's minor children. Mr.
Guedj is our president.
(5) Includes 46,653 shares that will become vested upon closing of this
offering.
(6) Includes 8,333 shares of Series H preferred stock and 10,000 shares of
Series I preferred stock held by Windsor Road Limited Partnerships of which
Mr. Bunker is the General Partner. The address for Windsor Road Limited
Partnerships is Zero Old Penzance Rd., Rockport, MA 01966.
(7) Includes 8,333 shares that will become vested upon closing of this
offering.
(8) Consists of 740,740 shares held by Hontung Venture Capital Corp. Dr. Cheng,
a director, is the president of Hontung. As such, Dr. Cheng has voting and
dispositive power with respect to the shares held by Hontung. The address
for Hontung Venture Capital Corp. is 17F, 106, SEC.1, Hsih Tai Wu Rd.,
Taiwan, R.O.C.
(9) Includes 16,666 share that will become vested upon closing of this
offering.
PRIVATE PLACEMENT
Tvia has entered into a common stock and warrant purchase agreement with
Wind River Systems, Inc. Wind River will buy shares of common stock equal to
$1,000,000 and receive a warrant to purchase common stock equal to $500,000,
each divided by the initial public offering price. At an assumed initial public
offering price of $12.00, representing the midpoint of the filing range, we
will sell Wind River 83,333 shares of common stock, and the warrant will
entitle them to purchase an additional 41,666 shares of common stock for $12.00
per share. If we sell shares of our common stock in this offering for more than
$12.00, the number of shares of our common stock that we will sell to Wind
River will decrease, and the number of shares of our common stock issuable upon
the exercise of the warrant held by Wind River will also decrease. Likewise, if
we sell our common stock in this offering for less than $12.00, the number of
shares of our common stock that we will sell to Wind River will increase and
the warrant held by Wind River will be exercisable for more shares of our
common stock. The common stock and warrant purchase agreement may be terminated
by either party if the initial public offering of Tvia's common stock does not
occur within sixty days of July 27, 2000.
The warrant held by Wind River has a provision which allows the holder in
certain circumstances to pay the exercise price of the warrant by surrendering
a portion of the common stock issuable upon the exercise of the warrant. The
amount of common stock surrendered will depend on how much the fair market
value our common stock exceeds the exercise price of the warrant at the time
the warrant is exercised. If Wind River chooses to exercise the warrant by this
method, we will issue fewer shares to Wind River than had Wind River paid the
exercise price in cash. In connection with the private placement, Wind River
and Tvia have entered into a letter agreement which provides, among other
things, for the parties to work together to develop drivers optimized for Tvia
chips and to discuss other mutually beneficial future joint technology
developments. The private placement is contingent upon and would occur at the
same time as the closing of this offering.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
Upon completion of this offering, assuming reincorporation in Delaware, and
after giving effect to the conversion of all outstanding preferred stock into
common stock and the amendment of our certificate of incorporation, our
authorized capital stock will consist of 125,000,000 shares of common stock,
par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share. Upon consummation of this offering, no shares of preferred
stock and approximately 20,556,632 shares of common stock (22,306,632 shares if
the underwriters' over-allotment option is exercised in full) will be
outstanding. The following summary is qualified in its entirety by reference to
our certificate of incorporation and bylaws, copies of which are filed as
exhibits to the registration statement of which this prospectus is a part.
Under our 1999 Stock Incentive Plan, 4,600,000 shares of common stock have
been reserved for issuance and options to purchase 1,487,764 shares were
outstanding as of March 31, 2000.
Common Stock
As of March 31, 2000, there were approximately 5,233,806 shares of common
stock outstanding held by approximately 144 stockholders of record.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to the
following:
Dividends. Holders of common stock are entitled to receive dividends out of
assets legally available for the payment of dividends at the times and in the
amounts as the board of directors from time to time may determine.
Voting. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders, including the election
of directors, and will not have cumulative voting rights unless cumulative
voting for the election of directors is authorized by our certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election.
Preemptive rights, conversion and redemption. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Liquidation, dissolution and winding up. Upon liquidation, dissolution or
winding up of Tvia, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation of any
preferred stock.
Preferred Stock
The board of directors is authorized, without action by the stockholders,
to designate and issue preferred stock in one or more series. The board of
directors can fix the number of shares, rights, preferences and privileges of
the shares of each series and any qualifications, limitations or restrictions
on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could have the effect of delaying, deferring or preventing a
change in control of Tvia. We have no current plans to issue any shares of
preferred stock.
52
<PAGE>
Series H and Series I Redeemable Preferred Stock
Upon completion of this offering, all currently outstanding shares of
preferred stock will automatically be converted into common stock, and the
following provision will no longer be applicable. Subject to preferences that
may be applicable to any other series of preferred stock outstanding at the
time, the holders of Series H and Series I preferred stock are entitled to the
following:
Dividends. Holders of Series H and Series I preferred stock are entitled to
receive dividends out of assets legally available for the payment of dividends
at a rate of 8% of $3.75 and $7.50, respectively, per annum on each outstanding
share of Series H and Series I preferred stock. Such dividends are payable only
when, as and if declared by the board of directors and are non-cumulative.
Voting. Holders of Series H preferred stock are entitled to one vote for
each share held on all matters submitted to a vote of stockholders, including
the election of directors, and will not have cumulative voting rights unless
cumulative voting for the election of directors is authorized by our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. Holders
of Series H preferred stock, voting as a single class, are entitled to elect
one member of the board of directors and must approve amendments to our
certificate of incorporation, business combinations, the redemption or
repurchase of our common stock,changes in the size of our board of directors,
certain amendments to our bylaws and any dividends or distributions to holders
of our common stock or preferred stock.
Holders of Series I preferred stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders, including the election
of directors, and will not have cumulative voting rights unless cumulative
voting for the election of directors is authorized by our certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election.
Preemptive rights, conversion and redemption. Holders of Series H and
Series I preferred stock are entitled to convert shares of Series H and Series
I preferred stock into shares of common stock at any time and are subject to
automatic conversion upon the earlier of the closing of a public offering of
our common stock or upon the majority vote of the outstanding shares of Series
H and Series I preferred stock, respectively. The Series H and Series I
preferred stock are not entitled to preemptive rights. The Series H preferred
stock is subject to redemption and the Series I preferred stock is not subject
to redemption.
Liquidation, dissolution and winding up. Upon liquidation, dissolution or
winding up of Tvia, the holders of Series H and Series I preferred stock are
entitled to be paid out of assets legally available for distribution before any
payments are made to holders of our common stock, an amount equal to $3.75 and
$7.50 per share of Series H and Series I preferred stock, respectively and to
share ratably in all remaining assets.
Warrants
From December 1997 to January 2000, we issued warrants to purchase an
aggregate of 141,665 shares of Series G preferred stock at an exercise price of
$3.00 per share and 146,665 shares of Series H preferred stock at an exercise
price of $3.75 per share. These warrants expire between December 2002 and
January 2005. Upon completion of this offering, all of our warrants to purchase
preferred stock will convert into the right to purchase the equivalent number
of shares of common stock at the same exercise price per share.
Registration Rights
Upon completion of this offering, the holders of 10,909,497 shares of
common stock issuable upon conversion of the Series A through I preferred stock
and upon the exercise of warrants have the right to cause us to register these
shares under the Securities Act as follows:
. Demand Registration Rights. At the earlier of July 31, 2001 or six
months after this offering, the holders of 20% of the common stock
issued upon conversion of Series F, G, H or I preferred stock
53
<PAGE>
may request that we register their shares with respect to all or part
of their registrable securities having aggregate gross proceeds
exceeding $10.0 million.
. Piggyback Registration Rights. The holders of common stock issuable
upon conversion of the Series A through I preferred stock may request
to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others subject to a pro rata cutback to a minimum of
25% of any offering.
. S-3 Registration Rights. The holders of common stock issued upon
conversion of the Series F, G, H and I have the right to request up to
three registrations on Form S-3 if we are eligible to use Form S-3 and
have not already effected such an S-3 registration within the past 12
months, and if the aggregate proceeds are at least $1.0 million.
Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
under the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon the
effectiveness of such registration. See "Shares Eligible for Future Sale" and
"Certain Transactions."
Tvia will pay all registration expenses, other than underwriting discounts
and commissions, in connection with any registration. The registration rights
terminate upon completion of this offering, provided that all shares of
registrable securities held or entitled to be held upon conversion by such
holders of registrable securities may immediately be sold under Rule 144
during any 90-day period, or on such date after completion of this offering as
all shares of registrable securities held or entitled to be held upon
conversion by such holder of registrable securities may immediately be sold
under Rule 144 during any 90-day period.
Section 2115
We are subject to Section 2115 of the California General Corporation Law.
Section 2115 provides that, regardless of a company's legal domicile, some
provisions of California corporate law will apply to that company if more than
50% of its outstanding voting securities are held of record by persons having
addresses in California and the majority of the company's operations occur in
California. For example, while we are subject to Section 2115, stockholders
may cumulate votes in electing directors. This means that each stockholder may
vote the number of votes equal to the number of candidates multiplied by the
number of votes to which the stockholder's shares are normally entitled in
favor of one candidate. This potentially allows minority stockholders to elect
some members of the board of directors. When we are no longer subject to
Section 2115, cumulative voting will not be allowed and a holder of 50% or
more of our voting stock will be able to control the election of all
directors. Section 2115 also:
. enables removal of directors with majority stockholder approval;
. places limitations on the distribution of dividends;
. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
. provides for information rights and required filings if there is a
sale of assets or a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have
at least 800 stockholders of record by the record date for our 2001 annual
meeting of stockholders. If these two conditions occur, then we will no longer
be subject to Section 2115 as of the record date for our 2001 annual meeting
of stockholders.
Delaware Law and Charter Provisions
Delaware Anti-Takeover Law and Charter Provisions
We are governed by Section 203 of the Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder,
unless:
54
<PAGE>
. before this date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
. upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction began, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers, and (b) employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
. on or after this date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of
at least 66-2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
In general, Section 203 defines an interested stockholder as any entity or
person who, with affiliates and associates owns, or within three years, did own
beneficially 15% or more of the outstanding voting stock of the corporation.
Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the
interested stockholder and any sale, transfer, pledge or other
disposition of 10% or more of the assets of the corporation involving
the interested stockholder;
. subject to specified exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
. any transaction involving the corporation that increases the
proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
Certificate of Incorporation and Bylaws
The following discussion describes provisions of our charter documents to
be effective following this offering.
Under our certificate of incorporation, the board of directors has the
power to authorize the issuance of up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
stockholders. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, may:
. delay, defer or prevent a change in control of Tvia;
. discourage bids for the common stock at a premium over the market
price of our common stock;
. adversely affect the voting and other rights of the holders of our
common stock; and
. discourage acquisition proposals or tender offers for our shares and,
as a consequence, inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts.
Our certificate of incorporation does not provide for cumulative voting in
the election of directors. An amendment to our certificate of incorporation to
allow cumulative voting must be approved by holders of at least 66-2/3% of our
outstanding common stock.
55
<PAGE>
Our bylaws provide that:
. stockholder action may not be taken without a stockholders' meeting;
. special meetings of stockholders may only be called by the chairman of
the board, the chief executive officer or the president;
. advance notice must be given for stockholder proposals and nominations
of candidates for election as directors other than nominations made by
or at the direction of the board of directors or a committee of the
board; and
. non-cumulative voting is used in the election of directors.
Amendments to our bylaws to change the advance notice provisions or to
allow cumulative voting must be approved by holders of at least 66-2/3% of our
outstanding common stock or at least 66-2/3% of the number of authorized
directors on our board.
The provisions described above, together with the ability of the board of
directors to issue preferred stock may have the effect of deterring a hostile
takeover or delaying a change in control or management of Tvia.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could cause the
market price of our common stock to decline.
When this offering is completed, we will have a total of 21,556,632 shares
of common stock outstanding, assuming no exercise of outstanding options. The
5,000,000 shares offered by this prospectus will be freely tradable unless they
are purchased by our "affiliates," as defined in Rule 144 under the Securities
Act of 1933. The remaining 16,431,633 shares are "restricted," which means they
were originally sold in offerings that were not subject to a registration
statement filed with the Securities and Exchange Commission. These restricted
shares may be resold only through registration under the Securities Act of 1933
or under an available exemption from registration, such as provided through
Rule 144.
Lock-up Agreements
The holders of approximately 18,011,227 shares of common stock have agreed
to a 180-day "lock-up" with respect to these shares. This generally means that
they cannot sell these shares during the 180 days following the date of this
prospectus. After the 180-day lock-up period, these shares may be sold in
accordance with Rule 144.
Rule 144
In general, under Rule 144, a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any holder who is not an affiliate, is
entitled to sell within any three month period a number of our shares of common
stock that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock, which will
equal approximately 223,066 shares upon completion of this offering;
or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are subject to restrictions relating to manner of
sale, notice and the availability of current public information about us. Under
Rule 144 and subject to volume limitations, approximately 14,226,300 of the
restricted shares will be eligible for sale beginning 180 days after the date
of the final prospectus, and the remaining restricted shares will become
salable at various times thereafter.
Rule 144(k)
A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years, including the holding period of any prior owner who is not an affiliate,
would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions, including the holding period requirement, of
Rule 144. Any employee, officer or director or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract may be entitled
57
<PAGE>
to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell such shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait 90 days after the
date of this prospectus before selling such shares. However, all shares issued
by us pursuant to Rule 701 are subject to lock-up provisions and will only
become eligible for sale upon the expiration of 180 days after the date of this
prospectus.
Registration
Following this offering, we intend to file a registration statement under
the Securities Act covering shares of common stock subject to outstanding
options or issued or issuable under our 1999 Stock Incentive Plan, 2000 Stock
Incentive Plan and our 2000 Employee Stock Purchase Plan. Based on the number
of shares subject to outstanding options at March 31, 2000, and currently
reserved for issuance under these plans, this registration statement would
cover approximately 4,256,115 shares.
This registration statement will automatically become effective upon
filing. Accordingly, shares registered under this registration statement will,
subject to Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the expiration of the
180-day lock-up agreements. Also beginning 180 days after the date of this
prospectus, holders of 18,011,277 shares of common stock will be entitled to
registration rights. See "Description of Capital Stock--Registration Rights."
58
<PAGE>
UNDERWRITING
We are offering shares of common stock described in this prospectus through
a number of underwriters. Banc of America Securities LLC, Dain Rauscher
Incorporated, CIBC World Markets Corp. and U.S. Bancorp Piper Jaffray Inc. are
the representatives of the underwriters and will negotiate on behalf of the
underwriters and will enter into the underwriting agreement with us. Subject to
the terms and conditions of the underwriting agreement, we have agreed to sell
to the underwriters, and each of the underwriters has agreed to purchase, the
number of shares of common stock listed next to its name in the following
table:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Banc of America Securities LLC.......................................
Dain Rauscher Incorporated...........................................
CIBC World Markets Corp. ............................................
U.S. Bancorp Piper Jaffray Inc. .....................................
---------
Total.............................................................. 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. The conditions contained in the
underwriting agreement include, among others, the requirements that:
. the representations and warranties made by us to the underwriters are
true;
. there is no material change in the financial markets;
. we deliver to the underwriters customary closing documents such as
various certificates and opinions of counsel; and
. this registration statement has been declared effective by the SEC.
The underwriting agreement also provides that the underwriters are
obligated to purchase all of the shares of common stock in the offering if any
are purchased, other than those shares covered by the over-allotment option
described below.
We have granted an option to the underwriters to buy up to 750,000
additional shares of common stock. These additional shares would cover sales of
shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.
The representatives of the underwriters have advised us that the
underwriters propose initially to offer the shares of common stock to the
public at the price set forth on the cover page of this prospectus, and to
dealers, such as stockbrokers, at that price less a concession not in excess of
$ per share of common stock. The underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of common stock to other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
The following table shows the per share and total underwriting discount to
be paid by us to the underwriters and the proceeds before expenses to us. This
information is presented assuming both no exercise and full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
With
Per Share Without Option Option
--------- -------------- ------
<S> <C> <C> <C>
Public offering price...........................
Underwriting discount...........................
Proceeds, before expenses.......................
</TABLE>
59
<PAGE>
The underwriting fee will be an amount equal to the offering price per
share to the public of the common stock, less the amount paid by the
underwriters to Tvia per share of common stock. The underwriting fee currently
is not expected to exceed 7% of the initial public offering price. The expenses
of the offering, exclusive of the underwriting discount, are estimated at
$1,360,000 and are payable entirely by us. The expenses consist of the
following:
. a registration fee of $17,160;
. an NASD filing fee of $7,975;
. Nasdaq application and listing fee of $95,000;
. estimated blue sky qualification fees and expenses of $7,500;
. estimated printing and engraving expenses of $200,000;
. estimated legal fees and expenses of $500,000;
. estimated accounting fees and expenses of $500,000;
. estimated registrar and transfer agent fees of $10,000;
. estimated miscellaneous fees and expenses of $172,365;
On April 3, 2000, Banc of America Securities LLC purchased 16,666 shares of
the Company's Series I preferred stock at $7.50 per share. DRW Venture Partners
L.P. also purchased 16,666 shares of the Company's Series I preferred stock at
$7.50 per share on April 3, 2000. DRW Venture Partners L.P. is exclusively
managed and partially owned by Dain Rauscher Corporation, the parent company of
Dain Rauscher Incorporated. Both Banc of America Securities LLC and DRW Venture
Partners L.P. purchased such shares at the same price as all other purchasers
at that time. Banc of America Securities LLC and DRW Venture Partners LLC have
entered into lock-up agreements under which they have agreed not to sell,
transfer, assign, pledge or hypothecate these shares until the date 180 days
after the effective date of this offering, except for any transfer of such
shares by operation of law or by reason of reorganization of the issuer. Banc
of America Securities LLC and DRW Venture Partners L.P. have agreed that any of
these shares deemed to be underwriting compensation will not be sold,
transferred, assigned, pledged or hypothecated by any person, except under
limited circumstances as provided in section 2710(c)(7)(A) of the National
Association of Securities Dealers Rules of Conduct regarding underwriter
compensation, for a period of one year following the effective date of this
offering.
We and holders of substantially all of our stock prior to this offering, as
well as holders of substantially all of our stock options, have entered into
lock-up agreements with the underwriters. Under those agreements, we and those
holders of stock and options may not dispose of or hedge any common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 180 days after the date of this
prospectus. At any time and without notice, Banc of America Securities LLC may,
in its sole discretion, release all or some of the securities from these lock-
up agreements.
We have agreed to indemnify the underwriters against liabilities, including
liabilities for misstatements and omissions under the Securities Act of 1933
and liabilities arising from breaches of the representations and warranties
contained in the underwriting agreement, and to contribute to payments that the
underwriters may be required to make for these liabilities.
Rules of the SEC 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.
Stabilization transactions may cause the price of the shares to be higher
than it would be in the absence of such transactions.
60
<PAGE>
. Over-allotments and syndicate covering transactions--In connection with
the offering, the underwriters may make short sales of shares of our
stock and may purchase shares of our stock on the open market to cover
positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an
amount not greater than the underwriters' "overallotment" option to
purchase additional shares in the offering. 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 out 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 downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering. Similar to other purchase transactions, the
underwriters' purchases to cover the syndicate short sales may have the
effect of raising or maintaining the market price of our stock or
preventing or retarding a decline in the market price of our stock. As a
result, the price of our stock may be higher than the price that might
otherwise exist in the open market.
. Penalty bids--Penalty bids occur when a particular underwriter repays to
the other underwriters a portion of the underwriting discount received by
it because the representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or covering 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.
. Passive market making--Market makers in the shares who are underwriters
or prospective underwriters may make bids for or purchases of shares,
subject to certain limitations, until the time, if ever, at which a
stabilizing bid is made.
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 transactions may occur on the Nasdaq National Market or
otherwise. If these transactions are commenced, they may be discontinued
without notice at any time.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between us and the
underwriters. The primary factors to be considered in such negotiations are:
. our history and prospects, and the history and prospects of the industry
in which we compete;
. our past and present financial performance;
. an assessment of our management;
. the present state of our development;
. our prospects for future earnings;
. the prevailing market conditions of the applicable United States
securities market at the time of this offer;
. market valuations of publicly traded companies that we and the
representatives believe to be comparable to us; and
. other factors deemed relevant, such as the evaluation of the above
factors in relation to the market valuation of companies in related
businesses.
61
<PAGE>
The underwriters have reserved up to 5% of the common stock offered hereby
for sale to our employees, families and friends of directors and executive
officers, faculty members and other employees of our customers and vendors at
the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus, and will be required
to sign a 60 day lock-up agreement with the Company. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase these reserved shares.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more underwriters or securities dealers. The
representatives of the underwriters may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders. Internet
distribution will be allocated by the representatives to underwriters that may
make Internet distributions on the same basis as other allocations. In
addition, shares may be sold by the underwriters to securities dealers who
resell shares to online brokerage account holders.
62
<PAGE>
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus are being passed upon for Tvia by Pillsbury Madison
& Sutro LLP, Palo Alto, California. An entity in which attorneys and former
attorneys of Pillsbury Madison & Sutro LLP are members and certain attorneys of
Pillsbury Madison & Sutro LLP beneficially own an aggregate of 39,000 shares of
Tvia common stock. Legal matters in connection with this offering will be
passed upon for the underwriters by Latham & Watkins, Menlo Park, California.
Latham & Watkins represents Tvia in its negotiations of a licensing agreement.
EXPERTS
The audited consolidated financial statements and schedule included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which are part of the
registration statement. Statements contained in this prospectus regarding the
contents of any contract or other document are not necessarily complete. For
further information with respect to Tvia and the common stock offered by this
prospectus, we refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. You may read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms and the Web site of the SEC referred to
above.
63
<PAGE>
TVIA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit.................................................. F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Tvia, Inc.:
We have audited the accompanying consolidated balance sheets of Tvia, Inc.
(a California corporation) as of March 31, 2000 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows for each of the three years in the
period ended March 31, 2000. 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 generally accepted auditing
standards in the United States. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tvia, Inc.
as of March 31, 2000 and March 31, 1999, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 2000,
in conformity with generally accepted accounting principles in the United
States.
/s/ Arthur Andersen LLP
San Jose, California
April 28, 2000
F-2
<PAGE>
TVIA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, 2000
March 31, Pro Forma
------------------ Stockholders'
1999 2000 Equity (Note 7)
-------- -------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............ $ -- $ 3,789
Restricted cash...................... -- 3,075
Accounts receivable, net of allowance
for doubtful accounts of $5 and $55,
respectively........................ 63 1,010
Inventories.......................... 316 1,327
Prepaid expenses..................... 38 82
Other assets......................... -- 883
Deferred debt costs.................. -- 981
-------- --------
Total current assets................ 417 11,147
Property and Equipment, net............ 313 221
-------- --------
Total assets........................ $ 730 $ 11,368
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Loan payable guaranteed by related
party............................... $ 2,214 $ 1,070
Accounts payable..................... 210 1,762
Accrued liabilities and other........ 1,469 2,400
-------- --------
Total current liabilities........... 3,893 5,232
-------- --------
Commitments and contingencies (Note 5)
Long-Term Liabilities:
Loan payable guaranteed by related
party............................... -- 2,959
Redeemable convertible preferred
stock--Series F, G and H; no par
value, aggregate liquidation
preference of $14,487
Authorized--15,907,332 at March 31,
2000 and pro forma.................
Outstanding--3,819,105 and 5,107,385
shares at March 31, 1999, and 2000;
no shares outstanding pro forma.... 9,704 16,594 $ --
Warrants to purchase redeemable
convertible preferred stock......... 111 849 849
-------- -------- --------
Total long-term liabilities......... 9,815 20,402 849
-------- --------
Stockholders' Deficit:
Series A, B, C, D, E and I
convertible preferred stock, no par
value; aggregate liquidation
preference of $5,632:
Authorized --15,916,403 and
17,916,403 shares at March 31, 1999
and 2000;
Outstanding--5,305,454 shares at
March 31, 1999 and 2000; 496,658
subscribed at March 31, 2000; no
shares outstanding pro forma....... 5,525 9,242 --
Common stock, no par value:
Authorized--150,000,000 at March 31,
2000 and pro forma.................
Outstanding--2,233,558 and 5,233,806
at March 31, 1999 and March 31,
2000; and 16,431,633 shares
outstanding pro forma.............. 180 7,846 33,682
Deferred stock compensation.......... (30) (4,499) (4,499)
Accumulated deficit.................. (18,653) (26,855) (26,855)
-------- -------- --------
Total stockholders' deficit......... (12,978) (14,266) $ 2,328
-------- -------- ========
Total liabilities and stockholders'
deficit............................ $ 730 $ 11,368
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TVIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product sales..................................... $ 2,597 $ 1,432 $ 6,528
Development contracts and other................... 861 90 529
------- ------- -------
Total revenues................................. 3,458 1,522 7,057
------- ------- -------
Cost of Revenues:
Product sales (excluding amortization of deferred
stock compensation of $0, $1 and $20 in 1998,
1999 and 2000) ................................. 2,458 1,257 3,622
Development contracts and other................... 526 51 185
------- ------- -------
Total cost of revenues......................... 2,984 1,308 3,807
------- ------- -------
Gross profit .................................. 474 214 3,250
------- ------- -------
Operating Expenses:
Research and development (excluding amortization
of deferred stock compensation of $0, $1 and
$261 in 1998, 1999 and 2000) ................... 3,199 3,357 3,390
Sales, general and administrative (excluding
amortization of deferred stock compensation of
$0, $0 and $1,218 in 1998, 1999 and 2000)....... 2,203 2,062 3,370
Amortization of deferred stock compensation....... -- 2 1,499
------- ------- -------
Total operating expenses....................... 5,402 5,421 8,259
------- ------- -------
Operating loss.................................... (4,928) (5,207) (5,009)
------- ------- -------
Interest Expense, net:
Bank interest, net................................ 46 166 279
Amortization of debt guarantee costs and other.... 28 298 753
------- ------- -------
Total interest expense, net.................... 74 464 1,032
------- ------- -------
Net loss............................................ $(5,002) $(5,671) $(6,041)
======= ======= =======
Dividend related to convertible preferred stock..... $ -- $ -- $(2,161)
======= ======= =======
Net loss attributable to common stockholders........ $(5,002) $(5,671) $(8,202)
======= ======= =======
Basic and diluted net loss per share................ $ (2.32) $ (2.56) $ (2.63)
======= ======= =======
Shares used in computing basic net loss per share... 2,156 2,219 3,118
Pro forma basic and diluted net loss per share
(unaudited)....................................... $ (0.66)
=======
Shares used in computing pro forma basic and diluted
net loss per share (unaudited).................... 12,426
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TVIA, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(In thousands, except share data)
<TABLE>
<CAPTION>
Redeemable Convertible Convertible
Preferred Stock Preferred Stock Common Stock Deferred
-------------------------- ---------------- ---------------- Stock Accumulated Stockholders'
Shares Amount Warrants Shares Amount Shares Amount Compensation Deficit Deficit
--------- ------- -------- --------- ------ --------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1997............. 1,033,334 $ 2,325 $ -- 5,305,454 $5,525 2,066,316 $ 129 $ -- $ (7,980) $ (2,326)
Issuance of
warrants to
guarantor of
line of credit.. -- -- 111 -- -- -- -- -- -- --
Issuance of
Series F
Redeemable
Convertible
Preferred Stock
at $2.25 per
share, net of
issuance costs
of $6........... 1,285,773 2,887 -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- 2,430 -- -- -- --
Issuance of
common stock for
services
rendered........ -- -- -- -- -- 19,000 2 -- -- 2
Net loss......... -- -- -- -- -- -- -- -- (5,002) (5,002)
--------- ------- ---- --------- ------ --------- ------ ------- -------- --------
Balance, March 31,
1998............. 2,319,107 5,212 111 5,305,454 5,525 2,087,764 131 -- (12,982) (7,326)
Issuance of
Series G
Redeemable
Convertible
Preferred Stock
at $3.00 per
share, net of
issuance costs
of $8........... 1,499,998 4,492 -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- 34,757 4 -- -- 4
Issuance of
common stock for
services
rendered........ -- -- -- -- -- 111,055 13 -- -- 13
Deferred stock
compensation.... -- -- -- -- -- -- 32 (32) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 2 -- 2
Net loss......... -- -- -- -- -- -- -- -- (5,671) (5,671)
--------- ------- ---- --------- ------ --------- ------ ------- -------- --------
Balance, March 31,
1999............. 3,819,105 9,704 111 5,305,454 5,525 2,233,558 180 (30) (18,653) (12,978)
Issuance of
preferred
warrants and
options to
guarantor of line
of credit........ -- -- 738 -- -- -- 1,001 -- -- 1,001
Issuance of
Series G
Redeemable
Convertible
Preferred
Stock........... 83,333 250 -- -- -- -- -- -- -- --
Issuance of
Series H
Redeemable
Convertible
Preferred Stock,
net of issuance
costs of $39.... 1,204,947 4,479 -- -- -- -- -- -- -- --
Subscription for
Series I
Convertible
Preferred Stock,
net of issuance
cost of $8 ..... -- -- -- 496,658 3,717 -- -- -- -- 3,717
Deferred stock
compensation.... -- -- -- -- -- -- 5,968 (5,968) -- --
Fair value of
options issued
for services
rendered........ -- -- -- -- -- -- 89 -- -- 89
Issuance of
common stock for
services
rendered........ -- -- -- -- -- 40,035 200 -- -- 200
Exercise of
options......... -- -- -- -- -- 2,960,213 408 -- -- 408
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 1,499 -- 1,499
Dividend related
to redeemable
convertible
preferred
stock........... -- 2,161 -- -- -- -- -- -- (2,161) (2,161)
Net loss......... -- -- -- -- -- -- -- -- (6,041) (6,041)
--------- ------- ---- --------- ------ --------- ------ ------- -------- --------
Balance, March 31,
2000............. 5,107,385 $16,594 $849 5,802,112 $9,242 5,233,806 $7,846 $(4,499) $(26,855) $(14,266)
========= ======= ==== ========= ====== ========= ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TVIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $(5,002) $(5,671) $(6,041)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 494 503 318
Common stock and options issued for services
rendered........................................ 2 13 289
Amortization of deferred stock compensation...... -- 2 1,499
Non-cash amortization of guarantee costs......... 28 83 753
Changes in assets and liabilities:
Accounts receivable............................ (133) 80 (947)
Inventories.................................... 201 721 (1,011)
Prepaid expenses and other current assets...... (13) 50 (106)
Accounts payable............................... (254) (545) 1,196
Accrued liabilities and other.................. (125) 521 952
------- ------- -------
Net cash used in operating activities........ (4,802) (4,243) (3,098)
------- ------- -------
Cash Flows from Investing Activities:
Purchase of property and equipment................ (506) (380) (225)
------- ------- -------
Net cash used in investing activities.......... (506) (380) (225)
------- ------- -------
Cash Flows from Financing Activities:
Proceeds from loans payable....................... 1,915 2,973 3,306
Payments on loans payable......................... -- (2,674) (991)
Proceeds from issuance of common stock............ -- 4 312
Proceeds from convertible and redeemable
convertible preferred stock, net................. 2,887 4,312 7,560
Restricted funds from stock subscription for
convertible preferred stock...................... -- -- (3,075)
------- ------- -------
Net cash provided by financing activities...... 4,802 4,615 7,112
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ (506) (8) 3,789
Cash and cash equivalents at beginning of period.... 514 8 --
------- ------- -------
Cash and cash equivalents at end of period.......... $ 8 $ -- $ 3,789
======= ======= =======
Supplemental Cash Flow Information:
Interest paid..................................... $ 43 $ 148 $ 126
======= ======= =======
Conversion of accrued salary to redeemable
convertible preferred stock (Note 8)............. $ -- $ 180 $ 244
======= ======= =======
Fair value of warrant and options issued to
guarantors of lines of credit.................... $ 111 $ -- $ 738
======= ======= =======
Conversion of accrued salary upon exercise of
options (Note 8)................................. $ -- $ -- $ 96
======= ======= =======
Conversion of debt to subscription for Series I
shares........................................... $ -- $ -- $ 500
======= ======= =======
Purchase of technology license through conversion
of Series I shares............................... $ -- $ -- $ 150
======= ======= =======
Costs incurred related to initial public
offering......................................... $ -- $ -- $ 671
======= ======= =======
</TABLE>
The accompanying notes are in integral part of these financial statements.
F-6
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Tvia, Inc., formerly known as IGS Technologies, Inc. ("the Company") was
incorporated in California in March 1993. Tvia designs, develops and markets
semiconductors for the Internet appliance, broadband set-top box and digital
television markets. The Company's semiconductor solutions, which consist of
integrated circuits and proprietary software, process rich media content
streams from the Internet and television. The Company sells its integrated
circuits to manufacturers of Internet appliances, broadband set-top boxes and
digital televisions. The Company has a branch in Taiwan that operates as a
sales office and a subsidiary in the People's Republic of China that supports
the Company's research and development activities.
The Company is subject to the risks associated with similar technology
companies. These risks include, but are not limited to: history of operating
losses, dependence on a small number of key individuals, customers and
suppliers, competition from larger, more established companies, the continued
need for additional financing, the impact of rapid technological changes and
changes in customer demand/requirements.
As shown in the consolidated financial statements, in the years ended March
31, 2000, 1999 and 1998, the Company incurred net losses attributable to common
stockholders of $8,202,000, $5,671,000 and $5,002,000, respectively. The
Company's continuing operations are dependent upon its ability to generate
sufficient cash flow from operations, to raise additional financing as may be
required, and ultimately to attain profitability. The Company issued 1,204,947
shares of Series H preferred stock in March 2000 and 496,658 shares of Series I
preferred stock in April 2000 for total gross cash proceeds of $7.3 million,
all of which was received prior to March 31, 2000 and recorded in the
accompanying balance sheet. The Company has received guarantees from related
parties over its existing line of credit facilities. These guarantees expire in
April 2001. As of March 31, 2000, $4,029,000 was outstanding under these
facilities.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the financial statements include
inventory reserves and income tax valuation allowances.
Consolidation
The consolidated financial statements herein presented include the results
and financial position of Tvia and its wholly-owned subsidiary in China. The
functional currency of the Chinese subsidiary is the U.S. dollar; accordingly,
all gains and losses arising from foreign currency transactions in currencies
other than the U.S. dollar are included in the consolidated statements of
operations. All intercompany transactions and balances have been eliminated in
consolidation.
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.
Revenue Recognition
Revenue consists primarily of sales of products to original equipment
manufacturers ("OEMs") and distributors. Revenues from sales to OEMs are
recognized upon shipment. The Company has agreements with
F-7
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
certain distributors which do not contain rights of return and price protection
rights. However, a limited number of distributor agreements do contain rights
to return slow moving inventory or discontinued products held in inventory by
the distributor which have not sold through to an end user. The Company defers
revenue recognition relating to sales to distributors until such products are
sold through to the end customer by the distributor, or if sell through
information is not available from the distributor, when cash is received from
the distributors. Receipt of cash from those distributors which do not provide
sell through information has historically been indicative of sell through to an
end user by that distributor. Management are not aware of any circumstances
that would require the return of cash to a distributor, once payment from a
distributor has been received.
The Company also generates revenues from custom software services
contracts. Revenues from custom software services contracts are recognized as
contract milestones are achieved which approximates the percentage completion
of the contract. Costs incurred on custom software services contracts, which
are primarily payroll costs, are recorded as cost of sales. At March 31, 2000,
management's estimates of future contract revenues and contractual costs did
not indicate a loss; therefore no provision for losses on these contracts is
required as of March 31, 2000. If the Company invoices the customer in advance
of services performed under the custom software services contracts, the
invoiced amount is recorded as deferred revenue.
The Company also sells software development kits and application modules to
OEMs. The Company recognizes sales of software development kits and application
modules in accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-
2"), as amended. Under SOP 97-2, software revenues are recognized when an
agreement has been executed or a definitive purchase order has been received
and the product has been delivered, no significant obligations with regard to
implementation remain, the fee is fixed and determinable and collectibility is
probable. For the years ended March 31, 1998, 1999 and 2000, revenues from the
sale of software development kits and application modules were less than 10% of
net revenues.
Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods, are summarized as follows:
<TABLE>
<CAPTION>
For the Year
Ended
March 31,
----------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................... 11% * *
Customer B.................................................... 22% 14% 16%
Customer C.................................................... * 14% *
Customer D.................................................... * 14% *
Customer E.................................................... 25% * *
Customer F.................................................... 14% * *
Customer G.................................................... * * 12%
(* = less than 10%)
</TABLE>
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
Company has expensed all software development costs to date as such development
costs have substantially all been incurred prior to the Company's products
attaining technological feasibility.
F-8
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and Development Expenses
Research and development expenses consist primarily of salaries and related
costs of employees engaged in research, design and development activities. The
Company expenses all research and development related expenses in the period in
which such expenses are incurred.
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.
Stock-Based Compensation
The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion ("APB") No. 25. Companies that elect to employ APB No.
25 are required to disclose the pro forma net income (loss) that would have
resulted from using the fair value method described in SFAS No. 123,
"Accounting for Stock-Based Compensation," to value stock-based compensation.
Note 7 to the financial statements contains a summary of the disclosure
provisions under SFAS No. 123.
Stock Split
In June 2000, the Company's board of directors approved a 1-for-3 stock
split of the Company's common and preferred stock. All references in the
accompanying consolidated financial statements to earnings per share and the
number of shares have been retroactively restated to reflect the stock split.
Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share
Historical net loss per share has been calculated under SFAS No. 128,
"Earnings Per Share." Basic net loss per share on a historical basis 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 consolidated statements of operations since common shares issuable
upon conversion of the redeemable convertible preferred stock, convertible
preferred stock, stock options and warrants are antidilutive. The total number
of shares excluded from diluted loss per share relating to these securities was
9,869,596, 11,452,288, and 11,073,866 for the years ended March 31, 1998, 1999
and 2000, respectively.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, redeemable convertible preferred stock, convertible preferred
stock and common stock issued or granted for nominal consideration prior to the
anticipated effective date of the initial public offering ("IPO") must be
included in the calculation of basic and diluted net loss per common share as
if they had been outstanding for all periods presented. To date, Tvia has not
had any issuances or grants for nominal consideration.
F-9
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the calculation of basic and pro forma basic
net loss per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Net loss............................................ $(5,002) $(5,671) $(8,202)
======= ======= =======
Basic:
Weighted average shares of common stock
outstanding..................................... 2,156 2,219 3,199
Less: Weighted average shares of common stock
subject to repurchase........................... -- -- (81)
------- ------- -------
Weighted average shares used in computing basic net
loss per share.................................... 2,156 2,219 3,118
======= ======= =======
Basic and dilutive net loss per share............... $ (2.32) $ (2.56) $ (2.63)
======= ======= =======
Pro forma:
Net loss.......................................... $(8,202)
=======
Shares used above................................... 3,118
Pro forma adjustment to reflect weighted average
effect of assumed conversion of redeemable
convertible preferred stock and convertible
preferred stock (unaudited)....................... 9,308
-------
Weighted average shares used in computing pro forma
basic net loss per share (unaudited).............. 12,426
=======
Pro forma basic net loss per share (unaudited)...... $ (0.66)
=======
</TABLE>
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of bank deposits and accounts
receivable. The Company places its cash and cash equivalents in checking and
money market accounts in financial institutions. The Company's accounts
receivable are derived primarily from sales to OEMs and distribution channel
partners. The Company performs ongoing credit evaluations of its customers and
maintains an allowance for potential doubtful accounts.
As of March 31, 1999 and 2000, accounts receivable were concentrated with
customers as follows:
<TABLE>
<CAPTION>
March 31,
----------
1999 2000
---- ----
<S> <C> <C>
Accounts Receivable:
Customer A....................................................... 30%
Customer B....................................................... 17%
Customer C....................................................... 19%
Customer D....................................................... 13%
Customer E....................................................... 12%
Customer F....................................................... 16%
Customer G....................................................... 10%
Customer H....................................................... 11%
</TABLE>
Vendor Concentration
The Company does not own or operate a fabrication facility, and accordingly
relies substantially on two outside foundries, United Manufacturing Corporation
("UMC") and Taiwan Semiconductor Manufacturing
F-10
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporation ("TSMC") to supply all of the Company's semiconductor manufacturing
requirements. There are significant risks associated with the Company's
reliance on outside foundries, including the lack of ensured wafer supply;
limited control over delivery schedules, quality assurance and control,
manufacturing yields and production costs; and the unavailability of or delays
in obtaining access to key process technologies. Any inability of one of the
foundries to provide the necessary components could result in significant
delays and could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event either foundry
suffers financial difficulties or suffers any damage or destruction to its
respective facilities, or in the event of any other disruption of foundry
capacity, the Company may not be able to qualify alternative manufacturing
sources for existing or new products in a timely manner.
Substantially all of the Company's products are assembled and tested by one
of two third-party subcontractors, Caesar Technology Incorporated and
Siliconware Precision Industries Ltd., both located in Taiwan. The availability
of assembly and testing services from these subcontractors could be adversely
affected in the event either subcontractor experiences financial difficulties
or suffers any damage or destruction to its respective facilities, or in the
event of any other disruption of assembly and testing capacity. As a result of
this reliance on third-party subcontractors for assembly and testing of its
products, the Company cannot directly control product delivery schedules, which
has in the past, and could in the future, result in product shortages or
quality assurance problems that could increase the cost of manufacture,
assembly or testing of the Company's products.
Fair Value of Financial Instruments
For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate fair value due to the relatively short maturity period. Based on
interest rates available to the Company for debt with comparable maturities,
the carrying values of the Company's loans payable approximate fair values.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative and Similar Financial Instruments and for Hedging
Activities", which require companies to value derivative financial instruments,
including those used for hedging foreign currency exposures, at current market
value with the impact of any change in market value being charged against
earnings. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000, and cannot be applied retroactively. The Company does not believe that
SFAS No. 133 will have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue
when the terms of the sale include customer acceptance provisions or an
obligation of the seller to install the product. In such instances, SAB 101
generally requires that revenue recognition occur at completion of installation
and/or upon customer acceptance. The Company believes that its current revenue
recognition practices comply with SAB 101.
Proposed Initial Public Offering
The Board of Directors has approved a plan to file a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed IPO. Costs incurred by the Company related
to the IPO have been recorded as a current asset within other assets. If the
Company is not able to complete the IPO, these capitalized costs would be
expensed in the consolidated statements of operations.
F-11
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include materials, labor and overhead. Provisions when required are made to
reduce excess inventories to their estimated net realizable values. Due to
competitive pressures and technological innovation, it is possible that
estimates of net realizable value would change in the near term. Inventories
consist of the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
---------------
(in thousands)
<S> <C> <C>
Raw materials................................................ $ 268 $ 640
Work in process.............................................. 37 639
Finished goods............................................... 11 48
------ --------
Total........................................................ $ 316 $1,327
====== ========
</TABLE>
Property and Equipment
Property and equipment are carried at cost and are depreciated using the
straight-line method over the assets' estimated useful life. (Useful lives
range from 18 months to two years.) Management has determined asset lives based
on their historical experience of technical obsolescence of equipment and the
short life of tooling that is specific to certain product families. Assets
acquired under capital leases are recorded at the present value of the related
lease obligations and are depreciated on a straight-line basis over the shorter
of the estimated useful life or lease term. Property and equipment consist of
the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------- ------
(in thousands)
<S> <C> <C>
Furniture and fixtures...................................... $ 47 $ 53
Machinery and equipment..................................... 1,104 1,209
Software.................................................... 813 862
------- ------
1,964 2,124
Less: Accumulated depreciation and amortization............. (1,651) (1,903)
------- ------
$ 313 $ 221
======= ======
</TABLE>
Assets acquired under capital lease obligations included in property and
equipment consist of the following:
<TABLE>
<CAPTION>
March 31,
----------------
1999 2000
------- -------
(in thousands)
<S> <C> <C>
Cost....................................................... $ 467 $ 467
Less: Accumulated amortization............................. (467) (467)
------- -------
$ -- $ --
======= =======
</TABLE>
F-12
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued Liabilities and Other
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------- -------
(in thousands)
<S> <C> <C>
Deferred revenue............................................ $ -- $ 69
Accrued expenses............................................ 109 1,057
Accrued payroll and related taxes........................... 696 607
Accrued vacation............................................ 233 284
Other liabilities........................................... 431 383
------- -------
$ 1,469 $ 2,400
======= =======
</TABLE>
3. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 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 each of the years ended March 31, 1999 and 2000.
The components of the net deferred income tax asset were as follows:
<TABLE>
<CAPTION>
March 31,
----------------
1999 2000
------- -------
(in thousands)
<S> <C> <C>
Net operating losses....................................... $ 5,686 $ 6,433
Reserves and accruals not deductible for tax purposes...... 269 749
Available tax credit carryforwards......................... 638 903
Other timing differences................................... 305 690
------- -------
6,898 8,775
Valuation allowance........................................ (6,898) (8,775)
------- -------
Net deferred tax asset..................................... $ -- $ --
======= =======
</TABLE>
At March 31, 2000, the Company had net cumulative operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $18,100,000 and $5,000,000, respectively. The federal net
operating loss carryforwards expire on various dates through 2020. The state
net operating loss carryforwards expire on various dates through 2004. As of
March 31, 2000, the Company had federal and state research and development tax
credit carryforwards of approximately $903,000 and California Manufacturers'
Investment tax credit carryforwards of approximately $39,000 available to
offset future taxes. Utilization of net operating losses may be subject to
annual limitations due to ownership change limitations provided by the Internal
Revenue Service and similar state provisions. A valuation allowance has been
recorded for the entire deferred tax asset as a result of uncertainty regarding
the realization of the asset balance due to the net losses incurred and lack of
taxable income.
F-13
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LOANS PAYABLE
Loans Payable Guaranteed by Related Parties
The Company has entered into two separate line of credit agreements with a
bank which, in aggregate, provide for a $3,000,000 revolving credit facility.
Borrowings under the line of credit agreements carry interest at the three
month commercial paper rate plus 2.30% (8.08% as of March 31, 2000). The line
of credit agreements have a maturity date of July 31, 2001. As of March 31,
2000, the Company had $2,959,000 outstanding under the line of credit
agreements. The line of credit agreements are guaranteed by a pledge of trust
assets where the Chief Executive Officer of the Company and his wife are both
the trustor and trustee of this trust. In consideration for providing the
guarantee, an individual related to the Chief Executive Officer of the Company
receives a guarantee fee based on the maximum amount available on the line of
credit agreements.
In connection with the guarantee given for the period from December 31,
1997 to December 31, 1999, the related party was issued a warrant to acquire
73,333 shares of Series G redeemable convertible preferred stock for $3.00 per
share in December 1997, a warrant to acquire 26,666 shares of Series G
redeemable convertible preferred stock for $3.00 per share in July 1999 and an
option to acquire 80,000 shares of common stock at $0.12 per share in July
1999. The price per share, as defined in the respective warrant agreements, was
variable up to December 31, 1999, at which point it became fixed.
In January 2000, the Company committed to grant the related party an
additional warrant to acquire 106,666 shares of Series H convertible preferred
stock for $3.75 per share and granted an option to purchase 106,666 shares of
common stock at $0.375 per share pursuant to an extension of the guarantee over
the line of credit agreements to April 30, 2001. The Company has calculated the
fair value of the warrants and options using the Black-Scholes model and the
following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate............................................ 6.00%
Average computed life of warrants/options.......................... 3-5 years
Dividend yield..................................................... 0%
Volatility of common stock......................................... 70%
</TABLE>
The aggregate fair value of the warrants and options issued prior to
December 31, 1999 was calculated at approximately $426,000. This amount has
been recognized as a deferred debt issuance cost over the term of the
guarantee. For years ended March 31, 1998, 1999 and 2000, interest expense
included $28,000, $83,000 and $315,000 of amortized debt issuance costs related
to these warrants and options issued prior to December 31, 1999 respectively.
In addition, the Company paid $215,000 to the guarantor, in cash, related to
the guarantee for fiscal year 1999. The aggregate fair value of the warrants
and option issued in January 2000 were calculated at approximately $922,000.
This amount has been recognized as a deferred debt issuance cost and is being
recorded over the term of the guarantee. For the year ended March 31, 2000, the
interest expense included $173,000 of amortized debt issuance costs related to
these warrants and options issued in January 2000.
In April 1999, the Company entered into an additional line of credit
agreement with a different bank for a $1.0 million credit facility. Borrowings
under the line of credit facility carry interest at a fixed rate of 7.63%, and
the line of credit has no fixed maturity date. As of March 31, 2000, the
Company had $1,070,000 outstanding under the line of credit agreement. The line
of credit is guaranteed by a venture capital firm, which is both a shareholder
in the Company and related to a former director of the Company. In
consideration for providing the guarantee, the guarantor receives an annual
guarantee fee based on the maximum amount available on the line of credit.
F-14
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the guarantee under this line of credit for the period
from April 30, 1999 to April 30, 2000, a director was issued a warrant to
acquire 33,333 shares of Series G convertible preferred stock for $3.75 per
share in April 1999. The price per share, as defined in the warrant agreement,
was variable up to December 31, 1999, at which point it became fixed. The
director was also issued an option to acquire 26,666 shares of common stock at
$0.12 per share in July 1999.
In January 2000, the Company committed to grant an additional warrant to
the director to acquire 26,666 shares of Series H convertible preferred stock
for $3.75 per share and granted an option to purchase 26,666 shares of common
stock at $0.375 per share pursuant to an extension of the guarantee over the
line of credit agreement to April 30, 2001. The Company has calculated the fair
value of the warrant and option using the Black-Scholes model and the following
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate............................................ 6.00%
Average computed life of warrants/options.......................... 4-5 years
Dividend yield..................................................... 0%
Volatility of common stock......................................... 70%
</TABLE>
The aggregate fair value of the warrant and option issued prior to December
31, 1999 was calculated at approximately $162,000. Interest expense included
$148,000 of amortized debit issuance related to the warrant and option issued
prior to December 31, 1999. The aggregate fair value of the warrant and option
issued in January 2000 was calculated at approximately $230,000. This amount
will be recognized as a deferred debt issuance cost and is being recorded as
additional interest expense over the term of the guarantee.
Loan Payable to Bank
In June 1999, the Company entered into a line of credit facility with a
bank for $500,000, bearing interest at a prime lending rate of 8.25% plus
1.50%, and with a maturity date of January 31, 2000. On March 30, 2000, the
loan balance was exchanged for a subscription for Series I preferred stock (see
Note 10). The credit facility was guaranteed and secured by a pledge of the
Company's assets. In June 1999 and December 1999, the Company issued warrants
to the bank to acquire 13,333 and 8,333 shares of Series G redeemable
convertible preferred stock, respectively. The price per share of the warrants
to purchase 13,333 and 8,333 shares was $3.00 and $3.75, respectively. The
Company has calculated the fair value of the warrants using the Black-Scholes
model and the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate............................................ 6.00%
Average computed life of warrants.................................. 4-5 years
Dividend yield..................................................... 0%
Volatility of common stock......................................... 70%
</TABLE>
The aggregate fair value of the warrants was approximately $110,000. This
amount has been recognized as additional interest expense over the term of the
loan in the year ended March 31, 2000.
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under non-cancelable operating leases
expiring at various dates through July 2004. Under the terms of the leases, the
Company is responsible for a portion of the facilities' operating
F-15
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expenses, insurance and property taxes. Future minimum lease payments under all
non-cancelable leases as of March 31, 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001.............................................................. $ 361
2002.............................................................. 364
2003.............................................................. 389
2004.............................................................. 142
2005.............................................................. 2
------
$1,258
======
</TABLE>
Rent expense under operating leases for the years ended March 31, 1998,
1999 and 2000, was approximately $344,000, $344,000 and $344,000, respectively.
Litigation
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.
Development Contract Commitment
In October 1999, the Company entered into a development contract with a
vendor. Under the terms of this contract, the Company is required to make a
$25,000 upfront payment and, following commencement of the development work,
six monthly payments of $60,000. As of March 31, 2000, the Company has accrued
$188,000 related to services provided by the vendor prior to the period end.
The Company has also granted this vendor a right to 6,666 shares of common
stock if the development work required under the contract is completed in less
than six months. The Company has recorded research and development expense of
$59,000 in accordance with EITF 96:18 "Accounting for Equity Instruments that
are issued to other than Employees for Acquiring, or in conjunction with
Selling Goods or Services", for the 6,666 shares of common stock based on the
fair market value of the Company's stock in March 2000. Any changes in the fair
market value between March 2000 and the date of the development contract will
be recorded as additional research and development expense. The Company has
also given the vendor a right to receive 33,333 shares of Company common stock,
at the fair market value of common stock in October 1999, if at least one of
the vendor's employees joins the Company after the development work is
completed and remains an employee of the Company for at least one year. If the
shares are issued, the Company will record additional expense related to the
difference between the fair market value of common stock at the date of
issuance and the October 1999 fair value per share. As of March 31, 2000, no
employees of the vendor had become employees of the Company.
In March 2000, the Company entered into a license agreement with a vendor.
Under the terms of the agreement, the Company is required to pay a license fee
of $330,000. In March 2000, the Company satisfied $150,000 of the obligation by
issuing 20,000 shares of Series I preferred stock at $7.50 per share. The
Company has recorded the $150,000 as license fees in Other Assets. The Company
will make further payments of $180,000 in cash in fiscal year 2001 as various
licenses and related technologies are received from the vendor.
F-16
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock comprised the following:
<TABLE>
<CAPTION>
March 31,
--------------
1999 2000
------ -------
(in thousands)
<S> <C> <C>
Series F--6,957,332 shares authorized and outstanding........ $5,212 $ 5,212
Series G--4,750,000 shares authorized, no shares outstanding
at March 31, 1999; and 1,583,331 shares issued and
outstanding at March 31, 2000.............................. 4,492 4,742
Series H--no shares authorized, issued and outstanding at
March 31, 1999; 4,200,000 shares authorized, 1,204,947
shares issued and outstanding at March 31, 2000............ -- 6,640
------ -------
$9,704 $16,594
====== =======
</TABLE>
In June 1999, the Company authorized the issuance and sale of up to
4,200,000 shares of Series H Preferred Stock ("Series H"). In March 2000, the
Company completed the issuance of 1,139,881 shares of Series H redeemable
convertible preferred stock at $3.75 per share for cash and 65,066 shares of
Series H upon the conversion of $244,000 of accrued salary of the Chief
Executive Officer of the Company. Shares of Series H were issued to members of
the board of directors and entities associated with members of management under
the same terms and conditions as all other unrelated accredited investors. The
Company has recorded a preferred stock dividend of $2,161,000 representing the
value of the beneficial conversion feature on the issuance of a convertible
preferred stock in March 2000. The beneficial conversion was calculated at the
commitment date based on the difference between the conversion price of $3.75
per share and the estimated fair value of the common stock at that date.
The rights, preferences, and privileges of the holders of Series F, G and H
redeemable convertible preferred stock are as follows:
. Dividends are non-cumulative and payable only upon declaration by the
Board of Directors.
. Holders of Series F, G and H redeemable convertible preferred stock have
a liquidation value of $2.25, $3.00 and $3.75 per share, respectively.
. Each holder of redeemable preferred stock has voting rights equal to
common stock on an "as-if-converted" basis.
. Each share of Series F, G and H redeemable preferred stock may be
converted into common stock at the option of the holder on a one-for-
one-basis, subject to adjustment to protect against dilution. Automatic
conversion of Series F, G and H will occur upon either the option of the
holder or upon completion of a public offering of common stock in which
the aggregate gross cash proceeds is at least $10,000,000 and the
offering price is at least $8.25 per share.
. The holders of a majority of the outstanding shares of Series F, G or H
may require the Company to redeem their shares at the original issue
price at any time after July 31, 2003, if the Company has not completed
a public offering of more than $10,000,000 of Company stock at not less
than $8.25 per share.
F-17
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Convertible preferred stock consist of the following, net of issuance
costs:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------- -------
(in thousands)
<S> <C> <C>
Series A--600,000 shares authorized and 199,999
outstanding.............................................. $ 110 $ 110
Series B--4,800,000 shares authorized and 1,599,995
outstanding.............................................. 1,107 1,107
Series C--1,266,667 shares authorized and 422,220
outstanding.............................................. 376 376
Series D--4,602,500 shares authorized and 1,534,164
outstanding.............................................. 1,841 1,841
Series E--4,647,332 shares authorized and 1,549,076
outstanding.............................................. 2,091 2,091
Series I--2,000,000 shares authorized and 496,658 shares
subscribed............................................... -- 3,717
------- -------
$ 5,525 $9,242
======= =======
</TABLE>
On April 3, 2000, the Company authorized the issuance and sale of up to
2,000,000 shares of Series I convertible preferred stock ("Series I"). The
Company received approximately $3,075,000 in cash proceeds for 409,992 shares
of Series I in March 2000, and these shares were treated as subscribed
convertible preferred stock at March 31, 2000. In addition, in March 2000,
$150,000 in license fees acquired were exchanged for a subscription of 20,000
shares of Series I and $500,000 outstanding under a line of credit at March 31,
2000 was converted into 66,666 shares of Series I. Shares of Series I were
issued to members of the board of directors and entities associated with
members of management under the same terms and conditions as all other
unrelated accredited investors. The rights, restrictions and preferences of
Series I are substantially the same as the Company's previously issued shares
of convertible preferred stock as described in Note 6. The Company will record
a preferred stock dividend in the first quarter of fiscal 2001 representing the
value of the beneficial conversion feature on the issuance of Series I. The
Company estimates the value of this dividend at $671,000.
The rights, preferences, and privileges of the holders of Series A, B, C,
D, E and I convertible preferred stock are as follows:
. Dividends are non-cumulative and payable only upon declaration by the
Board of Directors.
. Holders of Series A, B, C, D, E and I preferred stock have a liquidation
value of $0.60, $0.75, $0.90, $1.20, $1.35 and $7.50 per share,
respectively.
. Each holder of preferred stock has voting rights equal to common stock
on an "as-if-converted" basis.
. Each share of preferred stock may be converted into common stock at the
option of the holder on a one-for-one-basis, subject to adjustment to
protect against dilution. Automatic conversion will occur upon either
the option of the holder or upon completion of a public offering of
common stock in which the aggregate gross cash proceeds is at least
$10,000,000 and the offering price is at least $8.25 per share.
F-18
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Shares Reserved for Conversion to Common Stock
At March 31, 2000, the Company had reserved the following shares of its
common stock for future issuance as follows:
<TABLE>
<CAPTION>
Conversion of Series A Preferred Stock........................... 199,999
<S> <C>
Conversion of Series B Preferred Stock........................... 1,599,995
Conversion of Series C Preferred Stock........................... 422,220
Conversion of Series D Preferred Stock........................... 1,534,164
Conversion of Series E Preferred Stock........................... 1,549,076
Conversion of Series F Redeemable Convertible Preferred Stock.... 2,319,107
Conversion of Series G Redeemable Convertible Preferred Stock.... 1,583,331
Conversion of Series H Redeemable Convertible Preferred Stock 1,204,947
1999 Stock Option Plan........................................... 1,598,449
Warrants to purchase redeemable preferred stock.................. 288,330
----------
12,299,618
==========
</TABLE>
Unaudited Pro Forma Stockholders' Equity
In March 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed IPO. If the IPO is
consummated under the terms presently anticipated, (1) all of the currently
outstanding and subscribed convertible preferred stock will be converted into
5,802,112 shares of common stock upon the closing of the IPO and (2) all of the
currently outstanding redeemable convertible preferred stock will be converted
into 5,107,385 shares of common stock upon the closing of the IPO. The effect
of the conversions has been reflected as unaudited pro forma shareholders
equity in the accompanying balance sheet as of March 31, 2000.
401(k) Plan
Substantially all of the Company's employees are eligible to participate in
the Tvia 401(k) Plan. There were no matching contributions for the years ended
March 31, 1998, 1999 and 2000.
Stock Option Plans
2000 Stock Incentive and Employee Stock Purchase Plan
In March 2000, the Board of Directors approved, subject to stockholder
approval, the following:
. adoption of the 2000 Stock Incentive Plan, under which 2,333,333
shares of common stock have been reserved.
. adoption of the 2000 Employee Stock Purchase Plan, under which 333,333
shares of common stock have been reserved to be effective as of the
IPO of the Company's common stock.
1999 Stock Incentive Plan
The Stock Incentive Plan (the "1999 Plan") provides for the issuance of up
to 4,600,000 shares of the Company's common stock to directors, employees and
consultants. The 1999 plan provides for the issuance of restricted stock
bonuses, restricted stock purchase rights, incentive stock options or non-
qualified stock options. Pursuant to the 1999 Plan, the exercise price for
incentive stock options is at least 100% of the fair market value on the date
of grant or for employees owning in excess of 10% of the voting power of all
classes of stock, 110% of the fair market value on the date of grant. For non-
qualified stock options, the exercise price is no less than 85% of the fair
market value on the date of grant.
F-19
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Options generally expire in 10 years. Vesting periods are determined by the
Board of Directors; however, options generally vest ratably over four years
beginning one year after the date of grant. Options may be exercised prior to
full vesting. Any unvested shares so purchased are subject to a repurchase
right in favor of the Company with the repurchase price to be equal to the
original purchase price of the stock. The right to repurchase at the original
price shall lapse at a minimum rate of 20% per year over five years from the
date the options granted. As of March 31, 2000, 101,685 shares are available
for grant under the 1999 Plan.
1994 Stock Option Plan
The Stock Option Plan (the "1994 Plan") provides for the issuance of
options to acquire the Company's common stock to directors, employees and
consultants. The 1994 Plan provides for the issuance of incentive stock options
or non-qualified stock options. Pursuant to the 1994 Plan, the exercise price
for incentive stock options is at least 100% of the fair market value on the
date of grant or for employees owning in excess of 10% of the voting power of
all classes of stock, 110% of the fair market value on the date of grant. For
non-qualified stock options, the exercise price is no less than 85% of the fair
market value on the date of grant. Options generally expire in 10 years.
Options generally vest ratably over five years beginning the date of grant. In
June 1999, options outstanding under the 1994 plan were cancelled and reissued
under the 1999 plan with the same terms and conditions as the previous options.
The following table summarizes activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
Outstanding Weighted Average
Options Exercise Price
----------- ----------------
<S> <C> <C>
Balance at March 31, 1997...................... 1,909,717 $0.12
Granted...................................... 413,333 0.12
Exercised.................................... (2,430) 0.12
Cancellations................................ (26,945) 0.12
---------- -----
Balance at March 31, 1998...................... 2,293,675 0.12
Granted...................................... 176,000 0.12
Exercised.................................... (34,757) 0.12
Cancellations................................ (58,550) 0.12
---------- -----
Balance at March 31, 1999...................... 2,376,368 0.12
Granted...................................... 2,795,960 2.18
Exercised.................................... (2,960,213) 0.14
Cancellations................................ (724,351) 0.12
---------- -----
Balance at March 31, 2000...................... 1,487,764 $3.98
========== =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------
Number Weighted Average Exercise Price and
Outstanding at Remaining Weighted Average
March 31, 2000 Contractual Life Exercise Price
-------------- ---------------- ------------------
<S> <C> <C>
349,731 8.75 $ 0.12
395,718 9.82 $0.375
398,986 9.96 $ 6.75
343,329 9.98 $ 8.85
--------- ---- ------
1,487,764 9.64 $ 3.98
========= ==== ======
</TABLE>
F-20
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company accounts for these Plans under APB Opinion No. 25, "Accounting
for Stock Issued to Employees," under which no compensation expense has been
recognized as the grant price equaled the fair market value at date of grant.
Had compensation expense for the stock plans been determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the impact on the Company's net loss would be as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
For the Year Ended
March 31,
-------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(5,002) $(5,671) $(6,041)
Pro forma...................................... $(5,007) $(5,677) $(9,633)
Basic and diluted net loss per share:
As reported.................................... $ (2.32) $ (2.56) $ (1.94)
Pro forma...................................... $ (2.32) $ (2.56) $ (2.40)
</TABLE>
The weighted average fair value of options granted in fiscal years 1998,
1999 and 2000 was $1.03. The fair value of each option grant is estimated on
the date of the grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
March 31,
-----------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Risk-free Interest Rate................................. 5.34% 6.07% 6.00%
Expected Life of Options from Grant Date................ 4 years 4 years 4 years
Expected Dividend Yield................................. 0.0% 0.0% 0.0%
Expected Stock Volatility............................... 0.0% 0.0% 0.0%
</TABLE>
Deferred Stock Compensation
Deferred stock compensation represents the aggregate difference, at the
grant date, between the respective exercise price of stock options and the fair
value of the underlying stock. The deferred stock compensation expense is being
amortized on an accelerated basis over the vesting period of the individual
award, generally four years. This method is in accordance with Financial
Accounting Standards Board Interpretation No. 28. The Company had recorded
unearned stock-based compensation of approximately $32,000 in the year ended
March 31, 1999 and approximately $5,968,000 for the year ended March 31, 2000,
and amortized deferred stock compensation of $2,000 and $1,499,000,
respectively.
The total unearned stock-based compensation recorded for all options
through March 31, 2000 will be amortized as follows: $2,415,000 for the year
ending March 31, 2001, $1,338,000 for the year ending March 31, 2002, $582,000
for the year ending March 31, 2003, and $164,000 for the year ending
March 31, 2004. The amount of deferred stock compensation expense to be
recorded in future periods could decrease if options for which accrued but
unvested compensation has been recorded are forfeited. Subsequent to March 31,
2000, the board of directors approved the grant of 312,166 options that will
result in additional deferred compensation of $936,000. This amount will be
amortized over the vesting term of four years.
Stock Repurchase Agreements
In connection with the exercise of options pursuant to the 1999 Plan,
employees entered into restricted stock purchase agreements with the Company.
Under the terms of these agreements, the Company has a right to repurchase any
shares at the original exercise price of the shares upon termination of the
employee. The repurchase right lapses ratably over the vesting term of the
original grant. As of March 31, 2000, 623,375 shares were subject to repurchase
by the Company.
F-21
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Options Granted to Non-employees
In July 1999, the Company granted an option to purchase 8,333 shares of
common stock to a consultant under the 1999 Plan. The option had an exercise
price of $0.12 per share and vested upon grant. The Company recorded research
and development expense of approximately $26,000 based on the fair value of the
option at the date of grant calculated using the Black-Scholes model.
In fiscal year 2000, the Company granted options to purchase 75,000 shares
of common stock to consultants under the 1999 plan. These options had an
exercise price of $0.375 per share and were vested, exercisable and non-
forfeitable upon grant. The Company recorded deferred compensation of $459,000
based on the fair value of the option at the date of the grant calculated using
the Black-Scholes model.
The following assumptions were used in the Black Scholes model for
calculating the fair value of the options granted:
<TABLE>
<S> <C>
Risk-free interest rate............................................ 6.00%
Average computed life of option.................................... 1 year
Dividend yield..................................................... 0%
Volatility of common stock......................................... 70%
</TABLE>
As of March 2000, the Company had amortized approximately $40,000 of
deferred compensation as operating expense based on the straight line method
over the life of the service agreement.
Stock Issued for Services Rendered
For the years ended March 31, 1998, 1999 and 2000, the Company issued,
19,000, 111,055 and 40,035 shares of common stock, respectively, in exchange
for services rendered. The Company recorded approximately $2,000, $13,000 and
$200,000 of operating expense, respectively, based on the fair value of the
Company's common stock on the date of issuance.
8. RELATED PARTY TRANSACTIONS
Accrued Salary Converted into Preferred Stock or Used to Exercise Options
The Chief Executive Officer of the Company has elected to have a portion of
his accrued salary forgiven to pay the exercise price of options upon exercise
or converted into convertible preferred stock. For the year ended March 31,
1997, the Chief Executive Officer converted $94,333 into 69,877 shares of
Series E convertible preferred stock at $1.35 per share. For the year ended
March 31, 1999, the Chief Executive Officer converted $150,000 into 66,666
shares of Series F redeemable convertible preferred stock at $2.25 per share
and $30,000 into 10,000 shares of Series G redeemable convertible preferred
stock at $3.00 per share. For the year ended March 31, 2000, the Chief
Executive Officer converted $244,000 into a subscription for 65,066 shares of
Series H redeemable preferred stock at $3.75 per share and converted $96,000
upon exercise of options at $0.12 per share. As of March 31, 2000, the Company
has accrued salary payable of approximately $35,000 to the Chief Executive
Officer.
Commission Payments
The President of the Company is entitled to receive a 1.75% commission on
the amount of third party participation in the issuance of Series I preferred
stock. The commission is payable in a combination of shares of convertible
preferred stock and cash of approximately $56,000 which is accrued for at year
end.
Sales to Related Parties
A member of the Board of Directors is an officer of a company which is an
affiliate company of a major customer. Sales to this customer were $18,000 and
$292,000 for the years ended March 31, 1999 and 2000, respectively.
F-22
<PAGE>
TVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Purchases from Related Parties
Members of the Board of Directors are officers of companies which are
affiliated to the Company's major vendors UMC and TSMC. Total combined
purchases from UMC and TSMC amounted to $514,000 and $2,040,719, for the years
ended March 31, 1999 and 2000, respectively. The total combined accounts
payable outstanding to UMC and TSMC as of March 31, 1999 and March 31, 2000 was
$35,000 and $780,900, respectively.
9. SEGMENT AND GEOGRAPHIC INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," establishes standards for disclosures about operating segments,
products and services, geographic areas and major customers. The Company is
organized and operates in one reportable segment which is the development,
manufacture and sales of streaming media integrated circuits for the set-top
box, digital television and internet appliance markets.
The Company has operations in the United States, Taiwan and China. The
operating expenses of the Taiwan branch and China subsidiary for the years
ended March 31, 1998, 1999 and 2000, and the total assets as of the respective
dates in Taiwan and China were not material to the Company's consolidated
financial statements.
The following table summarizes revenue by geographic area as a percentage
of total revenues:
<TABLE>
<CAPTION>
For the Year Ended
March 31,
------------------------
1998 1999 2000
------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Taiwan............................................ 44% 36% 41%
Singapore......................................... * 14% *
Japan............................................. 26% * *
Hong Kong......................................... 14% * *
United States..................................... 10% 19% 29%
Korea............................................. * * 12%
(* Less than 10%)
</TABLE>
10. SUBSEQUENT EVENTS (unaudited)
In July 2000, the Company entered into a common stock and warrant purchase
agreement with Wind River Systems, Inc. ("Wind River"). Wind River will buy
shares of common stock equal to $1,000,000 and receive a warrant to purchase
common stock equal to $500,000, each divided by the IPO price. At an assumed
IPO price of $12.00, representing the midpoint of the filing range, the Company
will sell Wind River 83,333 shares of common stock, and the warrant will
entitle them to purchase an additional 41,666 shares of common stock for $12.00
per share. In conjunction with the stock purchase agreement, the Company
entered into a Mutual Collaboration Agreement ("Agreement") with Wind River,
which provides, among other things, for the parties to work together to develop
drivers optimized for Tvia chips and to discuss other mutually beneficial
future joint technology developments. The private placement is contingent upon
and would occur at the same time of the Company's IPO. At the IPO date, the
Company will record the fair value of the warrant as a license fee/deferred
cost related to the Agreement. This license fee/deferred cost will be amortized
over the two year term of the Agreement.
F-23
<PAGE>
[INSIDE BACK COVER]
Product Page
The top of the page has the Tvia logo complete with stylized television. Below
the logo the following title appears:
Internet Appliances, broadband set-top boxes and digital televisions using
Tvia streaming media gateway solution
The page show various Internet appliances, broadband set-top boxes and digital
televisions using the Tvia streaming media gateway solution positioned in a
circle around an integrated circuit with the Tvia logo printed on its face.
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5,000,000 Shares
[TVIA, INC. LOGO APPEARS HERE]
---------------------
Prospectus
, 2000
---------------------
Banc of America Securities LLC
Dain Rauscher Wessels
CIBC World Markets
U.S. Bancorp Piper Jaffray
Until , 2000 (25 days after the date of this offering), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus when acting as an
underwriter and with respect to 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 expected to be
incurred by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee, the National Association of Securities Dealers,
Inc. filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee............................................. $ 19,734
National Association of Securities Dealers, Inc. filing fee...... 7,975
Nasdaq National Market listing fee............................... 95,000
Accounting fees and expenses..................................... 500,000
Legal fees and expenses.......................................... 500,000
Printing and engraving expenses.................................. 200,000
Blue Sky fees and expenses....................................... 7,500
Registrar and Transfer Agent fees................................ 10,000
Miscellaneous fees and expenses.................................. 172,365
----------
Total.......................................................... $1,512,574
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify these persons under specified circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933 (the "Act"). Article VIII.B. of the Registrant's
Amended and Restated Certificate of Incorporation (Exhibit 3.1 hereto) and
Article 5 of the Registrant's Amended and Restated Bylaws (Exhibit 3.2 hereto)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. We have entered into agreements to indemnify
our directors and executive officers, in addition to indemnification provided
for in our bylaws. These agreements, among other things, provide for
indemnification of our directors and executive officers for certain expenses
(including attorney's fees), judgments, fines and settlement amounts incurred
by any such person in any action or proceeding, including any action by or in
the right of Tvia, arising out of such person's services as a director or
executive officer of Tvia, any of our subsidiaries or any other company or
enterprise to which the person provides services at the request of Tvia. The
Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for specified liabilities, including
liabilities arising under the Act and affords rights of contribution with
respect thereto.
Item 15. Recent Sales of Unregistered Securities
Since March 28, 1997, we have issued and sold the following unregistered
securities:
1. Since March 28, 1997, we issued and sold 256,580 shares of Common
Stock to employees, directors and consultants at prices ranging from
$0.12 to $0.36 per share.
2. Since March 28, 1997 we issued options to purchase 3,370,273 shares of
our common stock to directors, employees and consultants pursuant to
the Registrant's 1999 Stock Incentive Plan.
3. From September 25, 1998, we sold 1,583,331 shares of Series G
preferred stock to six investors for an aggregate purchase price of
$4,250,000.
4. On March 22, 2000, we sold 1,204,947 shares of Series H preferred
stock to 28 investors for an aggregate purchase price of
$4,518,586.25.
II-1
<PAGE>
5. On March 29, 2000, we sold 496,658 shares of Series I preferred stock
to 21 investors for an aggregate purchase price of $3,735,000. The
number of shares sold includes 66,666 shares issued for the conversion
of $500,000 in debt.
6. From December 31, 1997 to January 31, 2000, we issued warrants to
purchase an aggregate of 141,665 shares of Series G preferred stock at
a purchase price of $3.00 per share and 146,665 shares of Series H
preferred stock at an exercise price of $3.75 per share.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder (with respect to items
3, 4, 5 and 6), or Rule 701 (with respect to items 1 and 2) promulgated under
Section 3(b) of the Securities Act, as transactions by an issuer not involving
a public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as 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 view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationship with the
Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of
the Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedules other than those referred to above have been omitted because
they are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, 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 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 Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, 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 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 of 1933, as amended, 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.
(3) The Registrant will provide to the underwriters at the closing(s)
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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on the 7th day of August, 2000.
TVIA, INC.
/s/ Kenny Liu
By __________________________________
Kenny Liu
Chief Executive Officer and
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Kenny Liu Chief Executive Officer August 7, 2000
______________________________________ and Chairman of the
Kenny Liu Board (Principal
Executive Officer)
/s/ Michael Hoberg Vice President of August 7, 2000
______________________________________ Finance and Chief
Michael Hoberg Financial Officer
(Principal Financial
Officer and Accounting
Officer)
* Director August 7, 2000
______________________________________
R. David Dicioccio
Director August , 2000
______________________________________
Steven Cheng
* Director August 7, 2000
______________________________________
James Bunker
* Director August 7, 2000
______________________________________
M. K. Tsai
</TABLE>
/s/ Michael Hoberg
*By: ____________________________
Michael Hoberg
Attorney-in-fact
II-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders
of Tvia, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Tvia, Inc. included in this
Registration Statement and have issued our report thereon dated April 28, 2000.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
as a whole.
/s/ Arthur Andersen LLP
San Jose, California
April 28, 2000
S-1
<PAGE>
TVIA, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------------- ---------- ---------- ---------- --------
Balance
Balance at Charged to at End
Beginning Costs and of
Description of Period Expenses Deductions Period
------------------------------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Year Ended March 31, 1998
Allowance for doubtful accounts...... $ 5 $ -- $-- $ 5
Year Ended March 31, 1999
Allowance for doubtful accounts...... $ 5 $ -- $-- $ 5
Year Ended March 31, 2000
Allowance for doubtful accounts...... $ 5 $ 50 $-- $55
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Amended and Restated Articles of Incorporation.
3.2** Amended and Restated Bylaws.
3.3** Amended and Restated Certificate of Incorporation, to be effective
upon consummation of this offering.
3.4** Amended and Restated Bylaws, to be effective upon consummation of this
offering.
4.1** Form of Common Stock certificate.
4.2** Form of Amended and Restated Registration Rights Agreement dated as of
April 3, 2000.
4.3** Warrant to Purchase Stock issued December 31, 1997 to C.Y. Lee.
4.4** Warrant to Purchase Stock issued April 30, 1999 to James Mah.
4.5** Warrant to Purchase Stock issued June 21, 1999 to Far East National
Bank.
4.6** Warrant to Purchase Stock issued July 8, 1999 to C.Y. Lee.
4.7** Warrant to Purchase Stock issued December 30, 1999 to Far East
National Bank.
4.8** Warrant to Purchase Stock issued January 25, 2000 to C.Y. Lee.
4.9** Warrant to Purchase Stock issued January 25, 2000 to James Mah.
4.10** Warrant to Purchase Stock issued July 27, 2000 to Wind River Systems,
Inc.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1** Amended and Restated 1999 Stock Incentive Plan of Tvia, Inc.
10.2** Amended and Restated 2000 Stock Incentive Plan of Tvia, Inc.
10.3** 2000 Employee Stock Purchase Plan of Tvia, Inc.
10.4** Form of Directors and Officers' Indemnification Agreement.
10.5** TSMC Terms and Conditions dated November 15, 1999.
10.6** UMC Wafer Foundry Standard Terms and Conditions.
10.7**+ Caesar International, Inc. Quotation dated August 20, 1998.
10.8+ Joint Development Agreement dated October 29, 1999 between IGS
Technologies, Inc. and Coreum Technology, Inc.
10.9** Form of Executive Severance Agreement.
10.10** Letter Agreement dated July 27, 2000 between Tvia, Inc. and Wind River
Systems, Inc.
10.11+ Audio Technology Licensing Agreement dated June 26, 1997 between T-
Square Design, Inc. and InteGraphics Systems, Inc.
10.12+ Technology License Agreement dated July 1, 1997 between Reality
Simulation Systems Acquisition Corporation and InteGraphics Systems,
Inc.
10.13** Multi-Tenant Single-Building Modified-Net Lease dated October 27, 1995
between Koll/Intereal Bay Area and Intergraphics System, Inc.
10.14** First Amendment to Lease Agreement dated January 15, 1999 between
Koll/Intereal Bay Area and IGS Technologies, Inc.
10.15** Second Amendment to Lease Agreement dated May 6, 1999 between
Koll/Intereal Bay Area and IGS Technologies, Inc.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.3 Consent of Pillsbury Madison & Sutro LLP (contained in their opinion
filed as Exhibit 5.1).
24.1** Power of Attorney. Reference is made to Page II-4.
27.1** Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
+ Confidential Treatment Requested.
