<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
-
Exchange Act of 1934
For the quarterly period ended December 31, 1999 or
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________to________
Commission File No. 0-13836
SILICON VALLEY RESEARCH, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
California 94-2743735
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6360 San Ignacio Avenue San Jose, CA 95119-1231
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(Address of principal executive offices) (Zip Code)
(408) 361-0333
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___
---
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date.
Common Shares Outstanding at December 31, 1999: 30,534,068
Transitional Small Business Disclosure Statement Format (Check One) YES __ NO X
This report contains 22 pages. The exhibit Index is on page 20.
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Part I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1999 (unaudited) 3
Consolidated Statements of Operations -
Three and Nine Months Ended December 31, 1998 and 1999 (unaudited) 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended December 31, 1998 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. OTHER INFORMATION 19-20
-----------------
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Securities Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures 21
Exhibit 27. Financial Data Schedule 22
</TABLE>
Page 2 of 22
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Assets March 31, 1999 December 31, 1999
- ------ -------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 247 $ 642
Accounts receivable, net of allowances of
$150 at March 31, 1999 and
$85 at December 31, 1999 444 595
Prepaid expenses and other current assets 109 86
-------- ----------
800 1,323
Fixed assets, net 290 149
Other assets, net 969 540
-------- ----------
$ 2,059 $ 2,012
======== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term borrowing $ 225 $ --
Current portion of long-term debt 137 --
Notes payable 50 25
Accounts payable 450 263
Accrued expenses 478 395
Deferred revenue 235 6
-------- ----------
1,575 689
-------- ----------
Long-term debt, less current portion -- 1,000
-------- ----------
Deferred tax liability 24 24
-------- ----------
Commitments and Contingencies (Note 8)
Shareholders' Equity:
Preferred stock, no par value:
Authorized: 1,000 shares
Issued and outstanding: none -- --
Common stock, no par value:
Authorized: 60,000 shares
Issued and outstanding:
26,214 shares at March 31, 1999
and 30,534 shares at December 31, 1999 43,930 44,754
Accumulated deficit (43,587) (44,586)
Cumulative translation adjustment 117 131
-------- ----------
460 299
-------- ----------
$ 2,059 $ 2,012
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 22
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
License fees and other $ 26 $ 420 $ 408 $ 496
Maintenance and services 343 406 914 1,042
------- ------- ------- -------
Total revenue 369 826 1,322 1,538
------- ------- ------- -------
Cost of revenue:
License fees and other 80 80 259 240
Maintenance and services 196 253 542 609
------- ------- ------- -------
Total cost of revenue 276 333 801 849
------- ------- ------- -------
Gross margin 93 493 521 689
------- ------- ------- -------
Operating expenses:
Engineering, research and development 469 289 1,876 1,005
Selling and marketing 511 30 1,685 270
General and administrative 158 154 801 475
------- ------- ------- -------
Total operating expenses 1,138 473 4,362 1,750
------- ------- ------- -------
Operating income (loss) (1,045) 20 (3,841) (1,061)
------- ------- ------- -------
Other income (expense):
Interest income 7 -- 52 --
Interest expense (13) (25) (42) (46)
Other, net 18 37 (17) 108
------- ------- ------- -------
Total other income 12 12 (7) 62
------- ------- ------- -------
Income (loss) before provision for
income taxes (1,033) 32 (3,848) (999)
Provision for income taxes -- -- -- --
------- ------- ------- -------
Net income (loss) $(1,033) $ 32 $(3,848) $ (999)
======= ======= ======= =======
Net income (loss) per basic share $ (0.04) $ 0.00 $ (0.15) $ (0.04)
======= ======= ======= =======
Weighted-average common shares
outstanding (basic) 26,208 27,013 25,597 26,484
======= ======= ======= =======
Net income (loss) per diluted share $ (0.04) $ 0.00 $ (0.15) $ (0.04)
======= ======= ======= =======
Weighted-average common shares
outstanding (diluted) 26,208 33,023 25,597 26,484
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 22
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
December 31,
1998 1999
------- -------
Cash Flows from Operating Activities:
Net loss $(3,848) $ (999)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization:
Fixed assets 232 106
Software licenses and development costs 525 379
Gain on cancellation of debt -- (96)
Loss on sale of fixed assets 15 41
Changes in assets and liabilities, net:
Accounts receivable 40 (151)
Prepaid expenses and other current assets 147 23
Accounts payable 20 (187)
Accrued expenses (233) (83)
Deferred maintenance revenue (95) (229)
Other, net 77 49
------- -------
Net cash used in operating activities (3,120) (1,147)
------- -------
Cash Flows from Investing Activities:
Acquisition of fixed assets (52) (16)
Proceeds from sale of fixed assets 31 11
Capitalization of software development costs and
purchase of software licenses (12) --
------- -------
Net cash used in investing activities (33) (5)
------- -------
Cash Flows from Financing Activities:
Proceeds from subordinated debt financing -- 1,000
Principal payments of long-term debt (164) (135)
Principal payments on notes payable (150) (25)
Proceeds from issuance of common stock and warrants 2,095 693
------- -------
Net cash provided by financing activities 1,781 1,533
------- -------
Effect of exchange rate changes on cash 32 14
------- -------
Net increase (decrease) in cash and
cash equivalents (1,340) 395
Cash and cash equivalents at beginning
of period 1,926 247
------- -------
Cash and cash equivalents at end
of period $ 586 $ 642
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 22
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 - Unaudited
(In thousands)
Note 1: Basis of Presentation and Financial Statement Information
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial statements. Therefore, they do not include all
the disclosures which were presented in the Company's annual report on Form 10-
K. These financial statements do not include all disclosures required by
generally accepted accounting principles and accordingly, should be read in
conjunction with the consolidated financial statements and notes included as
part of the Company's latest annual report on Form 10-K.
In the opinion of management, the consolidated financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial position, results of operations and
cash flows for the interim period. The results of operations presented are not
necessarily indicative of the results to be expected for the full year or for
any other period.
The report of Moss Adams LLP on the Company's fiscal 1999 consolidated
financial statements dated June 10, 1999 included an explanatory paragraph
regarding the Company's ability to continue as a going concern. There can be no
assurance that the Company will not continue to incur significant operating
losses or that required additional financing will be available to meet the
Company's business plans in fiscal 2000 and beyond.
Note 2: Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" (FAS 128). Under FAS 128, the Company presents two EPS
amounts. Basic EPS is calculated based on income or loss to common shareholders
and the weighted-average number of shares outstanding during the reported
period. Diluted EPS includes additional dilution from common stock equivalents,
such as stock issuable pursuant to the exercise of stock options and warrants.
Common stock equivalents were not included in the computation of diluted
earnings per share when the Company reported a loss because to do so would have
been antidilutive for the periods presented.
The following is a reconciliation of the computation for basic and diluted
EPS:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1999 1998 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net income (loss) $(1,033) $ 32 $(3,848) $ (999)
======= ======= ======= =======
Weighted-average common shares
outstanding (basic) 26,208 27,013 25,597 26,484
Weighted-average common stock equivalents:
Stock options -- 1,168 -- --
Warrants -- 4,842 -- --
------- ------- ------- -------
Weighted-average common shares
outstanding (diluted) 26,208 33,023 25,597 26,484
======= ======= ======= =======
</TABLE>
Page 6 of 22
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1999 - Unaudited
(In thousands)
Note 3: Comprehensive Income (Loss)
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This Statement requires that all items
recognized under accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. This Statement also requires
that an entity classify items of other comprehensive earnings by their nature in
an annual financial statement. Other comprehensive earnings in these financial
statements include foreign currency translation adjustments. Annual financial
statements for prior periods will be reclassified, as required. The Company's
total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(1,033) $ 32 $(3,848) $ (999)
Other comprehensive (loss) gain 6 -- 33 14
------- ------- ------- -------
Total comprehensive income (loss) $(1,027) $ 32 $(3,815) $ (985)
======= ======= ======= =======
</TABLE>
Note 4: Statement of Cash Flows Information
Nine Months Ended
December 31,
1998 1999
---- ----
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 32 $ --
Income Taxes -- --
Note 5: Balance Sheet Components
March 31, December 31,
1999 1999
---- ----
Other Assets:
Software development costs $ 799 $ 799
Software licenses 979 979
------- -------
1,778 1,778
Less accumulated amortization (1,087) (1,466)
------- -------
691 312
Prepaid royalties, net 25 25
Goodwill 195 159
Other 58 44
------- -------
$ 969 $ 540
======= =======
Accrued Expenses:
Payroll and related costs $ 228 $ 240
Taxes payable 106 106
Accrued professional fees 108 21
Other 36 28
------- -------
$ 478 $ 395
======= =======
Page 7 of 22
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SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1999 - Unaudited
(In thousands)
Note 6: Bank Lines of Credit
On June 8, 1998, the Company's $2,000 line of credit with its bank expired
and the $285 outstanding under the line of credit became due and payable. $225
of this amount remained outstanding as of May 11, 1999. In addition, $137
outstanding on an equipment line with the same lender also became due and
payable. The amounts outstanding under its line of credit and equipment line of
credit are classified as current in the March 31, 1999 balance sheets. On May
11, 1999, the Company entered into a Settlement Agreement with the lender
whereby SVR agreed to issue a cash payment for a portion of the debt and to
issue warrants to purchase common stock ("Warrants") for cancellation of the
remainder. The Settlement Agreement required that SVR make the cash payment and
deliver the Warrants to the lender by June 8, 1999, which the Company did in
complete settlement of the debt.
Note 7: Subordinated Debt Financing
In June 1999, the Company began a subordinated debt/warrant financing. The
financing included approximately $1,000 of three-year notes and the sale of
approximately 8,000 Warrants at $0.01 per Warrant. The debt bears simple
interest of 10% and the Warrants have a five-year term with an exercise price
per share of $0.125. This financing transaction consists of two closings. The
first closing took place on June 7, 1999. The Company received $768 cash
proceeds from this closing. This included $711 of three-year notes and the sale
of approximately 5,700 Warrants at $0.01 per Warrant. The second closing was to
have taken place on July 15, 1999. The closing was extended until September 24,
1999 pending negotiation of a workout with the Creditors' Committee through the
Credit Managers' Association to resolve accounts payable issues that was
satisfactory to the majority of the investors. An agreement was reached and the
Company received approximately $312 cash proceeds from the second closing. The
Company has used part of the proceeds from the financing to complete the
Settlement Agreement with its lender and to pay other accounts payable and
intends to use the balance of the proceeds to help fund its operations. The
Company's CEO, the Company's Chairman of the Board, an affiliate of a Company
director and two Company 10% shareholders participated in the financing.
Note 8: Commitments and Contingencies
As with other companies in industries similar to Silicon Valley Research,
Inc., the Company is subject to the risk of adverse claims and litigation on a
variety of matters, including infringement of intellectual property, intentional
and/or negligent misrepresentation of material facts and breach of fiduciary
duties. In the past, several of the Company's vendors initiated collection
actions against the Company because of its inability to pay its vendors due to
its previous cash shortage. Through the Credit Managers' Association, the
Company settled with 95% of its creditors during the fiscal quarter ended
September 30, 1999. The Company settled with the remaining 5% of its creditors
at a rate of 30% of their unsecured claims for a total amount of $5.
Note 9: Recent Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Statement of Position 98-1
provides guidance for determining whether computer software is internal-use
software and on capitalization of the costs associated with internal-use
computer software. It also provides guidance on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. The Company has not yet determined the impact,
if any, of adopting this statement. The disclosures prescribed by Statement of
Position 98-1 will be effective for the year ending March 31, 2000 consolidated
financial statements.
Page 8 of 22
<PAGE>
SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1999 - Unaudited
(In thousands)
Note 10: Year 2000 Issues
The "Year 2000 Issue" arises because most computer systems and programs
were designed to handle only a two-digit year, as opposed to a four-digit year.
When the year 2000 begins, these computers may interpret "00" as the year 1900
and could either stop processing date-related computations or could process them
incorrectly. As the Company's customers and potential customers devote resources
to this issue, resources previously allocated to other information systems
requirements may be redirected to address Y2K problems and issues. To the extent
that the Company's products are not selected as part of customers' overall Y2K
solution, redirection of these customer resources could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, the Y2K Issue creates risk for the Company from unforeseen problems in
its internal computer systems and from interaction with third parties. Failure
on the Company's part, or on the part of third parties' computer systems could
have a material impact on the Company's ability to conduct its business and to
process and account for the transfer of funds electronically.
Page 9 of 22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands)
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements, which reflect the
Company's current view with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed in the Other Factors Affecting Future Results section
of this Item 2, elsewhere in this Form 10-QSB and as set forth in the Company's
form 10-K on file with the SEC, that could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words "anticipates," "believes," "expects," "intends," "future," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
RESULTS OF OPERATIONS
REVENUE
Revenue for the third quarter of fiscal year 2000, which ended December 31,
1999, was $826, an increase from $369 in the third quarter a year ago. Revenue
for the nine month period ended December 31, 1999 increased to $1,538 from
$1,322 over the nine month period ended December 31, 1998. Several key factors
contributed to the increase in revenue, including the Company's new distribution
agreement with The Shearwater Group, a global distributor and reseller of EDA
(Electronic Design Automation) software, the reorganization efforts made during
calendar 1999 and an increase in new license revenue resulting from sales of the
Company's new Linux based products. The sales improvement came as customers
upgraded products in anticipation of Y2K concerns and from steady sales of
design services as well as from sales of the Company's recent porting of its
existing software to Red Hat Linux 6.1. International sales, primarily in Europe
and the Far East, accounted for 3% of total revenue in the third quarter of
fiscal 2000 compared to international sales comprising 20% of the Company's
total revenue in the third quarter a year ago.
A substantial portion of the Company's revenues in each quarter results
from shipments during the last month of that quarter, and for that reason among
others, the Company's revenues are subject to significant quarterly
fluctuations. If revenue levels are below expectations, operating results may
be materially and adversely affected. In addition, the Company's quarterly and
annual results may fluctuate as a result of many factors, including the size and
timing of software license fees and service contracts, timing of co-development
projects with customers, timing of operating expenditures, increased
competition, new product announcements and releases by the Company and its
competitors, gain or loss of significant customers or distributors, expense
levels, renewal of maintenance contracts, pricing changes by the Company or its
competitors, personnel changes, foreign currency exchange rates, and economic
conditions generally and in the electronics industry specifically.
The Company's expense levels are based, in part, on its expectations as to
future revenue levels, which are difficult to predict.
COST OF REVENUE
Cost of license fees and other for the third quarter of fiscal year 2000
was $80 just as in the third quarter of fiscal 1999. Cost of license fees and
other for the nine months ended December 31, 1999 was $240, compared to $259 for
the nine months ended December 31, 1998. Cost of sales of license fees and
other is primarily the amortization of software development costs and is not a
function of revenue.
Cost of maintenance and services for the third quarter of fiscal year 2000
was $253 compared to $196 in the third quarter of fiscal 1999. Cost of
maintenance and services for the nine months ended December 31, 1999 was $609
compared to $542 for the nine months ended December 31, 1998. Cost of
maintenance and services is primarily the cost of providing design services,
technical support and technical documentation. Cost
Part 10 of 22
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of maintenance and services includes the design services costs of Quality I.C.
Corporation, which was acquired by the Company on March 31, 1998.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
Engineering, research and development expenses for the third quarter of
fiscal year 2000 were $289 compared to $469 in the third quarter a year ago.
Comparing the third quarter of fiscal 2000 and the third quarter of fiscal 1999,
engineering, research and development expenses were 35% and 127% of total
revenue, respectively. Engineering, research and development expenses for the
nine months ended December 31, 1999 were $1,005 compared to $1,876 for the nine
months ended December 31, 1998. Comparing these periods, engineering, research
and development expenses were 65% and 142% of total revenue, respectively. The
decrease in engineering, research and development expenses is due to cost-
cutting measures instituted by management, including a reduction in personnel,
while maintaining an emphasis on new product research and development.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses for the third quarter of fiscal year 2000
decreased to $30 from $511 in the third quarter a year ago. In the third
quarter of fiscal 2000 and the third quarter of fiscal 1999, selling and
marketing expenses were 4% and 138% of total revenue, respectively. Selling and
marketing expenses for the nine months ended December 31, 1999 decreased to $270
from $1,685 for the nine months ended December 31, 1998. Comparing the nine-
month periods, selling and marketing expenses were 18% and 127% of total
revenue, respectively. The decrease is due to the effects of the engagement of
The Shearwater Group as the Company's worldwide distributor and the Company's
cost-cutting measures, including a reduction in salaries and occupancy costs
due to the closure of the Company's sales offices in Japan and Taiwan. The
Company will use a distributor to service the Japan and Taiwan markets in the
future. Costs for the third quarter of fiscal 1999 include approximately $100
for one-time costs associated with the closing of a sales office in Japan.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased to $154 for the third quarter
of fiscal year 2000 from $158 in the third quarter a year ago. In the third
quarter of fiscal 2000 and the third quarter of fiscal 1999, general and
administrative expenses were 19% and 43% of total revenue, respectively.
General and administrative expenses for the nine months ended December 31, 1999
decreased to $475 from $801 for the nine months ended December 31, 1998.
Comparing the nine month periods, general and administrative expenses were 31%
and 61% of total revenue, respectively. The decrease is due to the effects of
the Company's cost-cutting measures, including a reduction in salaries and
professional fees.
OTHER INCOME (EXPENSE)
Other income for the first nine months of fiscal year 2000 includes $133
gain recognized on the cancellation of indebtedness. See Notes 6 and 8 to the
Consolidated Financial Statements
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities and to a lesser extent, cash generated from
operations. To date in fiscal 2000, the Company has received approximately
$1,000 cash proceeds from a subordinated debt/warrant financing. During the
nine months ended December 31, 1999, cash and cash equivalents increased $395
from $247 to $642. This increase resulted from cash provided by the financing
activities of $1,533 less cash used by operations of $1,147 and $5 of cash used
for investing activities. The Company received approximately $613 from the
exercise of outstanding warrants. A possible future source of cash for the
Company is the potential exercise of outstanding warrants if the Company's stock
price were to increase.
The Company incurred a loss for the nine months ended December 31, 1999.
At December 31, 1999, the Company had an accumulated deficit of $44,586. For
the quarter ended December 31, 1999, the Company
Page 11 of 22
<PAGE>
reported net income of $32. The continuance of profitability is primarily
dependent upon the continued development and commercial acceptance of the
Company's products, the successful management of the business, management's
ability to strategically focus the Company and the distributor's marketing and
sales ability. There can be no assurance that profitable operations will
continue. In addition, the Company is experiencing negative cash flow from
operations and may continue to experience negative cash flow from operations
through fiscal 2000 and potentially thereafter.
The Company's primary unused sources of funds at December 31, 1999
consisted of cash and cash equivalents of $642. On June 8, 1998, the Company's
$2,000 line of credit with its bank expired and the $285 outstanding under the
line of credit became due and payable. $225 of this amount remained outstanding
as of May 11, 1999. In addition, $137 outstanding on an equipment line with the
same lender also became due and payable. On May 11, 1999, the Company entered
into a Settlement Agreement with the lender whereby SVR agreed to issue a cash
payment for a portion of the debt and to issue warrants to purchase common stock
("Warrants") for cancellation of the remainder. The Settlement Agreement
required that SVR make the cash payment and deliver the Warrants to the lender
by June 8, 1999, which the Company did in full settlement of the debt.
In June 1999, the Company began a subordinated debt/warrant financing. The
financing included approximately $1,000 of three-year notes and the sale of
approximately 8,000 Warrants at $0.01 per Warrant. The debt bears simple
interest of 10% and the Warrants have a five-year term with an exercise price
per share of $0.125. This financing transaction consists of two closings. At the
first closing, which took place on June 7, 1999, the Company received $768 cash
proceeds. This included $711 of three-year notes and the sale of approximately
5,700 Warrants at $0.01 per Warrant. The second closing was scheduled for July
15, 1999. The second closing was extended until September 24, 1999, pending
negotiation of a workout with the Creditors' Committee through the Credit
Managers' Association to resolve accounts payable issues. An agreement was
reached and the Company received approximately $312 cash proceeds from the
second closing. The Company used part of the proceeds from the financing to
complete the Settlement Agreement with its lender and to pay other accounts
payable. The Company intends to use the balance of the proceeds to help fund its
operations. The Company's CEO, the Company's Chairman of the Board, an affiliate
of a Company director and two Company 10% shareholders participated in the
financing.
The Company's operations have required substantial cash in the past; for
example, $1,147 during the first nine months of fiscal 2000. Management has
implemented cost reducing measures and expects revenues to increase during the
remainder of fiscal 2000. However, the Company is required to pay several
creditors approximately $177 during calendar year 2000 in settlement of a
workout agreement. Assuming management is successful with their cost reduction
and revenue achievement programs, the Company expects to fund future
operations without requiring additional financing. However, it is possible
that it could require additional financing to fund future operations.
The Company may issue a series of Preferred Stock with rights, preferences,
or privileges senior to those of the Common Stock. It has no commitments or
arrangements to obtain any additional funding and there is no assurance that the
amount of capital required will be available on acceptable terms, if at all.
However, because its Common Stock was delisted from trading on the NASDAQ
national market in November, 1998, and now trades in the over-the-counter
market, its ability to sell Common Stock or securities convertible into Common
Stock may be adversely affected. See "Delisting From NASDAQ; Disclosure Relating
to Low-Priced Stock" below for possible effect of current common stock trading
on future issuances.
The unavailability or timing of any financing could prevent or delay the
Company's continued development and marketing of our products and services. In
addition, substantial curtailment of its operations may be required which could
result in bankruptcy.
OTHER FACTORS AFFECTING FUTURE RESULTS
Recent and Expected Losses; Accumulated Deficit. Although for the quarter ended
- -----------------------------------------------
December 31, 1999 the Company reported net income of $32, for the nine months
ended December 31, 1999, we incurred a net loss of approximately $999. We had
an accumulated deficit of approximately $44,586 as of December 31, 1999. We may
incur future losses. There is no assurance that we will generate positive cash
flow from operations or that
Page 12 of 22
<PAGE>
we will sustain profitability in the future. To the extent we grow or incur
losses, our operating and investing activities may use cash and, consequently,
require us to obtain additional sources of financing in the future or to reduce
operating expenses.
Need for Future Financing. As described above, under Management Discussion and
- -------------------------
Analysis-Liquidity and Capital Resources, as long as our revenues continue to
increase as anticipated, we do not expect to require additional financing to
fund our operations in the future. However, if we cannot achieve anticipated
revenues, we may require additional funding due to the cash requirements to
service our current debt and any negative cash flow from operations. There can
be no assurance that we will be able to raise such financing or that any such
financing we are able to conduct will be on attractive terms.
Going Concern Assumptions. Our independent accountants' report on our
- -------------------------
consolidated financial statements as of and for the years ended March 31, 1997,
1998 and 1999 contain an explanatory paragraph indicating that our historical
operating losses and limited capital resources raise substantial doubt about our
ability to continue as a going concern. We may require substantial additional
funds in the near future. If we are unable to generate sufficient cash from
operations or if necessary, raise sufficient funds to cover the cost of our
operations, it is likely that any independent accountant's report on our future
financial statements will include a similar explanatory paragraph.
Dependence on Certain Customers and Resellers. We have entered into an
- ---------------------------------------------
agreement with The Shearwater Group that provides that The Shearwater Group
will be the exclusive worldwide distributor for all of our products for a
minimum term of one year, such exclusivity may be extended upon the achievement
of certain sales goals for an additional one year period. While The Shearwater
Group has a financial incentive to sell our products and their initial sales
performance has been good, they have no contractual obligation to sell our
products. We cannot offer you assurance that the distributor will be able to
successfully distribute and support our products on a timely basis or that
such distributor will not reduce their efforts devoted to selling our
products. The loss of, or changes in, the relationship with, or performance
by, our distributor could have an adverse effect on our business. A small
number of customers account for a significant percentage of our total revenue.
PERCENTAGE OF OUR TOTAL REVENUE BY CUSTOMER
<TABLE>
<CAPTION>
CUSTOMER FISCAL 1997 FISCAL 1998 FISCAL 1999
-------- ----------- ----------- -----------
<S> <C> <C> <C>
HAL Computer Systems, Inc., a subsidiary of 14% N/A N/A
Fujitsu Ltd.
Lucent Technologies 19% N/A N/A
Motorola, Inc. 13% 13% 18%
Aspec Technology N/A 20% N/A
</TABLE>
We cannot assure you that sales to these entities, individually or as a
group, will reach or exceed historical levels in any future period. Any
substantial decrease in sales to one or more of these customers could have a
material adverse effect on our business, operating results or financial
condition.
New Products and Rapid Technological Change; Risk of Product Defects. The
- --------------------------------------------------------------------
Electronic Design Automation ("EDA") industry is characterized by the following:
- -- extremely rapid technological change
- -- frequent new product introductions and enhancements
- -- evolving industry standards
- -- rapidly changing customer requirements.
The development of more complex integrated circuits with new technologies
will require more sophisticated design tools. The success of our future
operations partly depends upon our ability to enhance
Page 13 of 22
<PAGE>
our current products and to develop and introduce new products on a timely and
cost-effective basis. Our products and services must keep pace with
technological developments and evolving industry standards and methodologies, as
well as address the increasingly sophisticated needs of our customers. It is
possible that in the future, we may experience delays in new product development
and product enhancements. We have experienced similar delays in the past.
We announced a new product named DCP (Design Cockpit Platform). However,
there is no guarantee that:
- -- this new product will gain market acceptance
- -- we will be successful in developing and marketing product enhancements
- -- we will be successful in developing other new products that respond to
technological change, evolving industry standards and changing customer
requirements
- -- we will not experience difficulties that could delay or prevent the
successful development introduction and marketing of these products or
product enhancements
- -- our new products and product enhancements will adequately meet the
requirements of the marketplace and achieve any significant degree of
market acceptance
All of our present products operate in the Unix and Linux operating
systems and we intend for all of our future products to operate in the Unix
operating system as well as the Linux operating system. In the event that
another operating system, such as Windows NT, were to achieve broad acceptance
in the EDA industry, we would be required to port our products. This would be
costly and time consuming and could have a material adverse effect on our
business, operating results or financial condition. If we fail to develop and
introduce new products and product enhancements in a timely and cost-effective
manner, for technological or other reasons, it could also have material and
adverse effects on our business, operating results and financial condition.
Introducing or even announcing new products by us or our competitors,
including new technologies or changes in industry standards or customer
requirements, could render some or all of our existing products obsolete or
unmarketable. Furthermore, customers might defer purchases due to the
introduction or announcement, which would also have a material adverse effect
on our business, operating results or financial condition.
Complex software products, such as those we offer, can contain defects or
even fail when introduced or released. We have, in the past, discovered defects
in certain of our products. We may experience delays or lost revenue in
connection with repairs and corrections of defects we find in the future.
Although to date we have not experienced material adverse effects resulting from
defects, it is possible in the future that despite testing, errors will go
undiscovered in new products or releases until after shipment. These errors may
result in loss of market share or failure to achieve market acceptance. If this
were to occur, it could have a material adverse effect upon our business,
operating results or financial condition.
Delisting From NASDAQ; Disclosure Relating to Low-Priced Stock. Our common
- --------------------------------------------------------------
stock was delisted from trading on the NASDAQ National Market November 16, 1998.
Our common stock immediately began trading on the OTC Bulletin Board. As a
result, our ability to obtain additional financing through the issuance of
common stock or securities convertible into common stock may be adversely
affected. You might find that disposing of our common stock is more difficult
than is has been in the past. The trading price of our common stock is currently
less than $5.00 per share. Because of our common stock falls into the category
defined as penny stock, trading in the common stock is currently subject to
certain rules promulgated under the Exchange Act, which require additional
disclosure by broker-dealers. These rules require us, in advance of trading, to
provide you with disclosure schedules, which explain the penny stock market and
associated risks. The rules impose various sales practice requirements on
broker-dealers who sell penny stock. Broker-dealers engaging in some types of
these transactions must make a special suitability determination and obtain your
written consent prior to sale. This additional burden may discourage broker-
dealers from actively effectuating common stock transactions, which in turn
could have the adverse effect of severely limiting the marketability of our
common stock. Therefore, the ability of Silicon Valley Research, Inc.
shareholders to resell their stock would be limited. In turn, this could
adversely effect our ability to obtain future equity financing.
Page 14 of 22
<PAGE>
Possible Volatility of Stock Price. The market price of our common stock has
- ----------------------------------
been volatile. The following events could cause the market price of our common
stock to fluctuate substantially:
- - future announcements concerning our competitor's or our quarterly variations
in operating results
- - the introduction of technological innovations, new products, or changes in
product pricing policies
- - proprietary rights or other litigation, or
- - changes in earnings estimates by analysts or other factors
The stock market has from time to time experienced significant price and
volume fluctuations that have particularly affected the market prices for the
common stocks of technology companies like us. These fluctuations have often
been unrelated to the operating performance of particular companies.
In the past, shareholder class action suits have been filed against
companies following periods of volatility of stock price. Litigation of this
nature could occur in our future. Litigation often diverts management attention
and resources and is costly to the company. If we were placed in this position,
it could have a material adverse effect on our business, financial condition and
operation results. Significant liabilities are always possible effects of
litigation.
Potential Fluctuations in Quarterly Operating Results. Numerous factors may
- -----------------------------------------------------
materially and unpredictably affect our operating results, including:
- - uncertainties of the size and timing of software license fees
- - timing of co-development projects with customers
- - timing of operating expenditures
- - increased competition
- - new product announcements and releases by us and our competitors
- - gain or loss of significant customers or distributors
- - expense levels
- - renewal of maintenance contracts
- - pricing changes by us or our competitors
- - personnel changes
- - foreign currency exchange rates
- - economic conditions generally and in the electronics industry specifically
Any unfavorable change in these or other factors could have a material
adverse effect on our operating results for a particular quarter. Many of our
customers order on an as-needed basis and often delay delivery of firm purchase
orders until their project commencement dates are determined. As a result, we
operate with no significant backlog. Therefore, quarterly revenue and operating
results will depend on the volume and timing of orders received during the
quarter, which are difficult to forecast accurately. Historically, we have
often recognized a substantial portion of our license revenues in the last month
of the quarter, with these revenues frequently concentrated in the last two
weeks of the quarter. Our operating results would be disproportionately
affected by a reduction in revenue because only a small portion of expenses vary
with revenue. Operating results in any period should not be considered
indicative of the results to be expected for any future period. Our revenues
may or may not increase and we may or may not become profitable.
Lengthy Sales Cycle. The licensing and sale of our software products generally
- -------------------
involve a significant commitment of capital from prospective customers. Delays
are frequently associated with large capital expenditures and lengthy acceptance
procedures. For these and other reasons, the sales cycle associated with the
licensing of our products is typically lengthy and subject to a number of
significant risks over which we have little or no control. Because the timing
of customer orders is hard to predict, we believe that our quarterly operating
results are likely to vary significantly in the future. Our actual results
could vary materially as a result of a variety of factors, including, without
limitation:
- - the high average selling price and long sales cycle for our products
- - the relatively small number of orders per quarter
Page 15 of 22
<PAGE>
- - dependence on sales to a limited number of large customers
- - timing of receipt of orders
- - successful product introduction
- - acceptance of our products and increased competition
Dependence Upon Semiconductor and Electronics Industries; General Economic and
- ------------------------------------------------------------------------------
Market Conditions. At Silicon Valley Research, Inc., we are dependent upon the
- -----------------
semiconductor and, more generally, the electronics industries. Each of these
industries is characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing. Each of these
industries is highly volatile and has periodically experienced significant
downturns. Often in connection with, or in anticipation of, declines in general
economic conditions, the number of new integrated circuit design projects often
decreases. Our customers' purchases of new licenses from us are largely
dependent upon the commencement of new design projects. Factors negatively
affecting any of these industries could have a material adverse effect on our
business, operating results or financial condition. Our business, operating
results and financial condition may in the future reflect substantial
fluctuations from period to period due to patterns and general economic
conditions in either the semiconductor or electronics industry.
International Sales. International sales, primarily in Japan and Taiwan,
- -------------------
accounted for approximately 25% of the total revenue in fiscal 1997, 32% in
1998, 36% in 1999 and 2% in the first nine months of 2000. Declining revenues
from international sales were a result of the reduction in capital expenditures
by semiconductor manufacturers, particularly in Asia, as a result of the current
financial crisis in that region, and increased competition in the EDA software
market. We expect that international sales through our distributor will
continue to account for a significant portion of our revenue. However, this
revenue involves a number of inherent risks, including:
- - economic downturn in the electronics industry in Asia
- - traditionally slower adoption of the our products internationally
- - general strikes or other disruptions in working conditions
- - generally longer receivables collection periods
- - unexpected changes in or impositions of legislative or regulatory
requirements
- - reduced protection for intellectual property rights in some countries
- - potentially adverse taxes
- - delays resulting from difficulty in obtaining export licenses for certain
technology
- - other trade barriers
The factors listed above may have a material adverse effect on our future
international sales and, consequently, on our operating results.
Effective December 1998, we discontinued operating our Tokyo office and in
March 1999, we discontinued operating our Taiwan office. In the future, we will
use The Shearwater Group or another distributor to service the Japanese and
Taiwanese markets.
Competition. The EDA software market in which Silicon Valley Research, Inc.
- -----------
competes is intensely competitive and subject to rapid technological change. We
currently face competition from EDA vendors, including Cadence, which currently
holds the dominant share of the market for integrated circuit physical design
software, Avant! and Synopsys. These EDA vendors have significantly greater
financial, technical and marketing resources, greater name recognition and a
larger installed customer base than we do. These companies also have
established relationships with current and potential customers of ours and can
devote substantial resources aimed at preventing us from enhancing relationships
with existing customers or establishing relationships with potential customers.
We believe that competitive factors in the EDA software market include:
- - product performance
- - price
Page 16 of 22
<PAGE>
- - support of industry standards
- - ease of use
- - delivery schedule
- - product enhancement
- - customer technical support and service
Competition from other EDA companies that choose to enter the integrated
circuit physical design market could present particularly formidable competition
due to their large installed customer base and their ability to offer a complete
integrated circuit design solution. We expect additional competition from other
established and emerging companies. In addition, the EDA industry has become
increasingly concentrated in recent years as a result of consolidations,
acquisitions and strategic alliances. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. We cannot assure you that we will be able to compete
successfully against current and future competitors or that competitive
pressures faced by us will not have a material adverse effect on our business,
operating results and financial condition.
Management Transition. Here at Silicon Valley Research, Inc., we are
- ---------------------
experiencing a period of management transition that has placed, and may continue
to place, a significant strain on our resources, including our personnel. James
O. Benouis joined the Company in March 1998 as our President and Chief Operating
Officer. On August 4, 1998, Mr. Benouis was appointed our Chief Executive
Officer. Effective April 2, 1999, Laurence G. Colegate, Jr. resigned as Chief
Financial Officer.
Our ability to manage growth successfully will require our management
personnel to work together effectively and will require us to improve our
operational, management and financial systems and controls. If our management
is unable to bring about this transition effectively, our business, competitive
position, results of operations and financial condition will be materially and
adversely affected. See "Dependence on Key Personnel" below.
Dependence on Key Personnel. Our success depends to a significant extent upon a
- ---------------------------
number of key technical and management employees, in particular, Robert R.
Anderson, Chairman, and James O. Benouis, President and Chief Executive Officer.
We do not currently have "key man" life insurance on Mr. Anderson or Mr.
Benouis. The loss of services of Mr. Anderson or Mr. Benouis or any of our
other key employees could have a material adverse effect on us. See "Management
Transition" above.
Also, our success depends in large part on our ability to attract and
retain highly skilled technical, managerial, sales and marketing personnel.
Competition for such talented personnel is intense. We cannot assure you that
we will be successful in retaining our key technical and management personnel or
in attracting and retaining the personnel we require now in order to grow.
Proprietary Rights. Silicon Valley Research, Inc. relies on contract, trade
- ------------------
secret and copyright law to protect its technology. Competitors may develop
similar or superior technologies or duplicate our technology. We generally
enter into confidentiality or license agreements with our employees,
distributors and customers, and limit access to and distribution of our
software, documentation and other proprietary information. Despite these
precautions, it is possible for a third party to copy or otherwise obtain and
use our products or technology without authorization, or to develop similar
technology independently. In addition, effective copyright and trade protection
may be unavailable or limited in certain foreign countries.
There has been substantial industry litigation regarding patents and other
intellectual property rights involving technology companies. In the future,
litigation may be necessary to protect and enforce our intellectual property
rights, to defend us against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. Any such
litigation could be costly and could divert management's attention, which could
have a material adverse effect on our business, results of operations or
financial condition regardless of the outcome of the litigation. In addition,
third parties making claims against us with respect to intellectual property
infringement may block our ability to sell products in the United States and
abroad, and could result in an award of substantial damages. In the event of a
claim of infringement, Silicon Valley Research, Inc. and our customers could be
required to obtain one or more licenses from third parties.
Page 17 of 22
<PAGE>
We cannot assure you that either our customers or we could obtain necessary
licenses from third parties at a reasonable cost or at all.
Concentration of Stock Ownership. Our present directors, executive officers and
- --------------------------------
5% shareholders and their affiliates beneficially own approximately 56% of the
outstanding common stock as of December 31, 1999. As a result, these
shareholders may be able to exercise significant influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of Silicon Valley
Research, Inc.
Depressive Effect of Warrants. We have a substantial number of common stock
- -----------------------------
warrants outstanding with an exercise price of $0.125 (5,216) and of $0.37
(1,983). These warrants may have the effect of causing our stock price to be
lower than it would be otherwise. During the third fiscal quarter of 2000, the
Company received approximately $613 from the exercise of warrants.
Effect of Certain Charter Projections; Blank Check Preferred Stock. Our Board
- ------------------------------------------------------------------
of Directors has the authority to issue up to 1,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, without any further vote or action by shareholders.
The rights of the holders of the common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock.
Inflation. To date, inflation has not had a significant impact on the results
- ---------
of our operations.
Recent Accounting Pronouncements. In April 1998, the American Institute of
- --------------------------------
Certified Public Accountants issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
Statement of Position 98-1 provides guidance for determining whether computer
software is internal-use software and on capitalization of the costs associated
with internal-use computer software. It also provides guidance on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. We have not yet
determined the impact, if any, of adopting this statement. The disclosures
prescribed by Statement of Position 98-1 will be effective for the year ending
March 31, 2000 consolidated financial statements.
Year 2000 Issue. The "Year 2000 Issue" arises because most computer systems and
- ---------------
programs were designed to handle only a two-digit year, as opposed to a four-
digit year. When the year 2000 begins, these computers may interpret "00" as
the year 1900 and could either stop processing date-related computations or
could process them incorrectly. As our customers and potential customers devote
resources to this issue, resources previously allocated to other information
systems requirements may be redirected to address Y2K problems and issues. To
the extent that our products are not selected as part of customers' overall Y2K
solution, redirection of these customer resources could have a material adverse
effect on our results of operations and financial condition. In addition, the
Y2K Issue creates risk for us from unforeseen problems in our internal computer
systems and from interaction with third parties. Failure on our part, or on the
part of third parties' computer systems could have a material impact on our
ability to conduct our business and to process and account for the transfer of
funds electronically. The Company's management has evaluated the effect of Y2K
on its systems and software products and does not anticipate any material
adverse effects from Y2K on its operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
Page 18 of 22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
As with other companies in industries similar to Silicon Valley
Research, Inc., the Company is subject to the risk of adverse claims
and litigation on a variety of matters, including infringement of
intellectual property, intentional and/or negligent misrepresentation
of material facts and breach of fiduciary duties. In the past, several
of the Company's vendors initiated collection actions against the
Company because of its inability to pay its vendors due to its
previous cash shortage. Through the Credit Managers' Association, the
Company settled with 95% of its creditors during the fiscal quarter
ended September 30, 1999. The Company settled with the remaining 5% of
its creditors at a rate of 30% of their unsecured claims for a total
amount of $5,000.
Item 2. Changes in Securities and Use of Proceeds:
In June 1999, the Company began a subordinated debt/warrant financing.
The financing included approximately $1,000,000 of three-year notes
and the sale of approximately 8,000,000 Warrants at $0.01 per Warrant.
The debt bears simple interest of 10% and the Warrants have a five-
year term with an exercise price per share of $0.125. This financing
transaction consists of two closings. The first closing took place on
June 7, 1999. The Company received $768,200 cash proceeds from this
closing. This included $711,000 of three-year notes and the sale of
approximately 5,700,000 Warrants at $0.01 per Warrant. The second
closing was to have taken place on July 15, 1999. The closing was
extended until September 24, 1999 pending negotiation of a workout
with the Creditors' Committee through the Credit Managers' Association
to resolve accounts payable issues that was satisfactory to the
majority of the investors. An agreement was reached and the Company
received approximately $311,800 cash proceeds from the second closing.
The Company used part of the proceeds from the financing to complete
the Settlement Agreement with its lender and to pay other accounts
payable and intends to use the balance of the proceeds to help fund
its operations. The Company's CEO, the Company's Chairman of the
Board, an affiliate of a Company director and two Company 10%
shareholders participated in the financing.
The Company received $504,380.50 from the exercise of 4,035,044
warrants, which were issued at an exercise price of $0.125 per share.
The Company received $86,046.83 from the exercise of 232,559 warrants,
which were issued at an exercise price of $0.37 per share. The Company
received $22,260.00 from the exercise of 42,000 warrants, which were
issued at an exercise price of $0.53 per share.
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Securities Holders: Not Applicable
Item 5. Other Information: Not Applicable
Page 19 of 22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits:
Exhibit
Number Description of Exhibit
- ------ ----------------------
(a)(1) The financial statements filed as part of this Report at Item 1 are
listed in the Index to Financial Statements and Financial Statement
Schedules on page 2 of this Report.
(a)(2) The following exhibits are filed with this Quarterly Report on Form
10-Q:
3.01 Registrant's Articles of Incorporation as amended to date
(incorporated by reference to Exhibit 3.01 of Registrant's
Registration Statement on Form S-1 (File No. 2-89943) filed March 14,
1984, as amended (the "1984 Registration Statement")).
3.02 Registrant's amendment to Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 3.02 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
3.03 Registrant's bylaws, as amended to date (incorporated by reference to
Exhibit 4.01 of the 1984 Registration Statement).
3.05 Amendment to Bylaws dated November 12, 1996 (incorporated by reference
to Exhibit 3.04 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996).
10.03 Contract with The Shearwater Group, Inc. dated November 11, 1999
27.00 Financial Data Schedule
(B) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter covered by this report.
Page 20 of 22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICON VALLEY RESEARCH, INC.
Date: February 14, 2000 /s/ James O. Benouis
----------------- ---------------------------------
James O. Benouis
President and
Chief Executive Officer
(Chief Financial and Accounting
Officer)
Page 21 of 22
<PAGE>
Exhibit 10.03
THE SHEARWATER GROUP, INCORPORATED
CONTRACT FOR
PRODUCT DISTRIBUTION
November 11, 1999
THIS AGREEMENT is entered into as of November 11, 1999 at Seattle, Washington by
and between Silicon Valley Research, Inc., a California Corporation with its
principal place of business at 6360 San Ignacio Avenue, San Jose, California
95119, hereinafter referred to as "CLIENT", and THE SHEARWATER GROUP, INC., a
Washington Corporation with its principal place of business at 3233 SW Avalon
Way, Suite 101, Seattle, Washington 98126, hereinafter referred to as "TSG".
ARTICLE 1. GRANT
1.01. Exclusivity. CLIENT grants TSG the exclusive and sole right to market,
------------
sell, and distribute the products of CLIENT as defined in ATTACHMENT "C" of this
agreement and as defined in the "Schedule of Products". In consideration of
----------------------
this grant, TSG will receive a commission payment from the sales of all CLIENT
software products or an equivalently discounted purchase price for CLIENT
software products when products are purchased for bundling or resale.
1.02. TERM. This agreement will become effective on the date first stated
----
above and will continue in effect for a period of 1 year or until terminated by
ATTACHMENT "B" of this agreement, "Acquisition or Merger Provision" or
automatically extended by ATTACHMENT "F" of this agreement, "Extension".
Initial__________________Initial_________________________
<PAGE>
II
ARTICLE 2. SERVICES TO BE PERFORMED
2.01. Specific Services. TSG agrees to perform the services specified in the
------------------
Attachment "A" "Description of Services" attached to this agreement and
incorporated by reference herein.
2.02. Method of Performing Services. TSG will determine the method, details,
------------------------------
and means of performing the above described services.
2.03. Employment of Assistants. TSG may, at its own expense employ such
-------------------------
employees as it deems necessary to perform the services required of it by this
agreement. CLIENT may not control, direct or supervise TSG assistants or
employees in the performance of their services.
2.04. Pricing. Pricing for all products of CLIENT as defined in ATTACHMENT "C"
--------
of this agreement, and distributed in the United States will be determined
solely by CLIENT. Pricing for products of the CLIENT resold outside of the
United States will be determined solely by TSG.
2.05. Expenses. Any and all expenses incurred by TSG shall be the
---------
responsibility of TSG.
2.06. Order Administration. Order acceptance and processing will be at TSG's
---------------------
sole discretion and governed by TSG normal operating procedures. TSG agrees to
provide CLIENT a complete statement of policies for order acceptance and
processing, and said statement of policies shall be a part of this agreement
marked ATTACHMENT "H" and ATTACHMENT "J".
ARTICLE 3. COMPENSATION
3.01. Method of Compensation. CLIENT will pay a commission to TSG, or offer a
-----------------------
commensurate discount from U.S. Domestic List Price, for each product sold and
for each maintenance contract sold. The commission will be a percentage of the
net sale amount and will be paid in accordance with the following schedule of
commission payment. Commission to be paid for the sale of custom engineering,
network, site, and corporate licensing will be negotiated between TSG and CLIENT
at the time of sale. For the purpose of this agreement a net sale is defined as
the amount paid to either TSG or CLIENT by the customer less sales tax and
shipping charges.
Initial__________________Initial_________________________
<PAGE>
III
Schedule of Commission Payment or Equivalent Purchase Discounts
- ---------------------------------------------------------------
<TABLE>
<S> <C>
Sale of Software Licenses.................................. * commission or discount to TSG
Domestic New Maintenance Contract Sales.................... * commission or discount to TSG
Domestic Unbroken Renewal Maintenance Contract Sales....... * commission or discount to TSG
International Unbroken Renewal Maintenance Contract Sales.. * commission or discount to TSG
Y2K Upgrade Contract Sales................................. * commission or discount to TSG
</TABLE>
* The portions so omitted has been filed separately with the Securities and
Exchange Commission.
3.02. Date for Payment of Compensation. All orders will be issued by the
---------------------------------
Customer to TSG. TSG will issue a purchase order to CLIENT for the net amount
of the sale, less commission or resale discount. Upon payment by the Customer,
TSG will provide payment to CLIENT within 3 working days.
3.03.0 Accounts and Territories Included in Commission Agreement. Any and all
----------------------------------------------------------
sales of CLIENT's products to the accounts and territories as defined in 3.03.1
of this agreement will be subject to commission payment to TSG in the amounts
agreed upon in section 3.01. of this agreement, and CLIENT agrees that any and
all sales in any form within the territory of any products as defined in
ATTACHMENT "C" and except those sales which are excluded in ATTACHMENT "D" of
this agreement will be sold only by TSG or by permission of TSG through its sub-
distributors.
3.03.1 Definition of Territory
-----------------------
LICENSE AND MAINTENANCE. TSG is granted the exclusive and sole right, except as
- ------------------------
excluded in ATTACHMENT "D" of this agreement to sell, market, and distribute the
products as defined in ATTACHMENTS "C" and ATTACHMENT "E" of this agreement in
all areas of the world.
3.04 Calculations of Sales. For the purpose of this agreement, the receipt of
----------------------
payment by CLIENT or TSG for the sale of any CLIENT product as defined in
ATTACHMENT "C" of this agreement or payment received for the providing of any
service relating to software or hardware maintenance of products as defined in
ATTACHMENT "C" of this agreement to the territories listed in 3.03. of this
agreement, will be considered a sale, except as excluded by both parties.
Initial__________________Initial_________________________
<PAGE>
IV
3.05. Cancellation of Order. TSG and CLIENT will recognize a sale when payment
----------------------
has been received from the customer. After recognition of the sale by TSG or
CLIENT all sales are considered final, and orders may not be canceled, except by
mutual consent of TSG and CLIENT.
ARTICLE 4. OBLIGATIONS OF TSG
4.01. Limitation of Service. TSG may represent, perform services for, and be
----------------------
employed by additional clients, persons or companies provided that the products
sold do not compete or conflict with the described products listed in ATTACHMENT
"C" of this agreement.
4.02. Worker's Compensation. TSG agrees to provide worker's compensation
----------------------
insurance for its employees and agrees to hold harmless and indemnify CLIENT for
any and all claims arising out of any injury, disability, or death of any of the
employees of TSG.
4.03. Limited Liability. Neither party will be liable to the other party, or
------------------
to anyone who may claim any right due to a relationship with either party, for
any acts or omissions in the performance of services under the terms of this
agreement or on the part of the employees or agents of either party unless such
acts of omissions are due to willful misconduct.
4.04. Assignment. Neither this agreement nor any duties or obligations under
-----------
this agreement may be assigned by either party without prior written consent of
the other party.
4.05. Approval of Materials. TSG agrees that all printed materials that will
----------------------
be utilized by TSG in the sales of products of the CLIENT will be required to be
approved in advance by the CLIENT.
ARTICLE 5. OBLIGATIONS OF CLIENT
5.01. Cooperation. Both parties agree to comply with the reasonable requests
------------
of the other party and provide access to all documents reasonably necessary to
the performance of its duties under this agreement.
Initial__________________Initial_________________________
<PAGE>
V
5.02. Assignment. Neither this agreement nor any duties or obligations under
-----------
this agreement may be assigned by either party without the prior written consent
of the other party.
5.03. Right to Use Trademarks. CLIENT agrees that during the term of this
------------------------
agreement TSG will have the right to use all trademarks of CLIENT which relate
to the products sold under this agreement.
ARTICLE 6. TERMINATION OF AGREEMENT
6.01. Termination of Agreement. Unless otherwise terminated as provided here-
-------------------------
in, this agreement shall continue in force for a period of one year.
6.02. Termination on Occurrence of Stated Events. This agreement shall
-------------------------------------------
terminate automatically on the Occurrence of any of the following events:
(1) Bankruptcy or insolvency of either party
(2) Dissolution of either party
6.03. Termination by Client for Default of TSG. Should TSG default in the
-----------------------------------------
performance of this agreement or materially breach any of its provisions,
CLIENT, at CLIENT's option, may terminate this agreement by giving written
notification to TSG. For the purposes of this section, material breaches of
this agreement shall include but not be limited to the following:
(A) If TSG is convicted of any illegal act by a court of proper
jurisdiction which would materially affect the ability of TSG to
fulfill the obligations of this agreement
6.04. Termination by TSG for Default of Client. Should CLIENT default in the
-----------------------------------------
performance of this agreement or materially breach any of its provisions, TSG,
at its option, may terminate this agreement by giving written notice to CLIENT.
For the purposes of this section, material breaches
Initial__________________Initial_________________________
<PAGE>
VI
of this agreement shall include but not be limited to the following:
(A) If CLIENT is convicted of any illegal act by a court of proper
jurisdictions which would cause damage to TSG of reputation or
materially affect the ability of TSG to perform the obligations of
this agreement.
6.05. Termination for Failure To Make Agreed Upon Payments. Should CLIENT fail
-----------------------------------------------------
to pay TSG all or any part of this compensation set forth in Articles 3.01.,
3.02., 3.03.0, 3.03.1, and 3.04. of this agreement on the date due, TSG, at its
option, may terminate this agreement if the failure is not remedied by CLIENT
within thirty (30) days from the date payment is due.
ARTICLE 7. EXPORT CONTROL
7.01. United States Export And Re Export Controls. TSG acknowledges that the
--------------------------------------------
products of SILICON VALLEY RESEARCH, INC. are of United States origin and
undertakes to comply with all United States laws and all rules, regulations,
orders, licenses and other forms of administrative action, and all judicial
decisions, issued taken or continued in effect pursuant thereto ("United States
Law"), relating to the export (including "re export" within the meaning of
United States laws) of goods, technology or other information subject to the
jurisdiction of the United States. Such United States laws include but are not
limited to the Export Administration Act and the AMS Export Control Act, as may
be amended from time to time and the rules, regulation, orders, licenses and
other forms of administrative action, and judicial decisions thereunder.
Respective Obligations of SILICON VALLEY RESEARCH, INC. and TSG To Each Other
Under United States Export and Re Export Controls. SILICON VALLEY RESEARCH, INC.
shall apply to the responsible United States Government agency for all required
export Licenses, authorizations or other forms of permission to export the
products of SILICON VALLEY RESEARCH, INC. and shall diligently prosecute each
such application. But SILICON VALLEY RESEARCH, INC. and TSG acknowledge their
understanding that the United States Government asserts wide discretion under
United States laws relating to export and re export of United States origin
goods, technology or other information subject to the jurisdiction of the United
States, and SILICON VALLEY
Initial__________________Initial_________________________
<PAGE>
VII
RESEARCH, INC. undertakes only to prosecute such application diligently.
Notwithstanding the provisions of paragraph 3.0, SILICON VALLEY RESEARCH, INC.
shall have no duty to deliver or install the products of SILICON VALLEY
RESEARCH, INC. until all required U.S. Government Licenses, authorizations or
other permission, denying export or re export privileges to TSG or other persons
related thereto, or otherwise limiting or restricting SILICON VALLEY RESEARCH,
INC. ability lawfully to export or re export the U.S. origin goods, technology
or other information, shall constitute an event of force majeure excusing
SILICON VALLEY RESEARCH, INC. from further obligations under this agreement.
TSG shall cooperate with SILICON VALLEY RESEARCH, INC. in the prosecution of all
application for required United States export Licenses, authorizations or other
permissions. Such cooperation shall include but not be limited to obtaining,
executing and transmitting to SILICON VALLEY RESEARCH, INC. all documentation
requested to be executed and submitted by the consignee or Purchase of export-
controlled U.S. origin goods, technology or other information, and all documents
such as International Import Certificates required to be obtained from TSG's own
government or the government of a third country.
TSG shall be regarded as the Consignee or Purchaser of the products of SILICON
VALLEY RESEARCH, INC. within the meaning of United States laws relating to
exports of U.S. origin goods, technology or other information subject to the
jurisdiction of the United States.
TSG shall be responsible for prosecuting all applications to the responsible
United States Government agency for licenses, authorizations or other
permissions to export or re export any portion thereof.
"Re export" shall have the meaning set forth in United States Laws relating to
the export of goods, technology or other information subject to the jurisdiction
of the United States, as more fully described in paragraph 7.01.
Initial__________________Initial_________________________
<PAGE>
VIII
ARTICLE 8. GENERAL PROVISIONS
8.01. Notices. Any notices to be given hereunder by either party to the other
--------
may be effected either by the personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses set forth below, but
each party may change the address by written notice in accordance with this
paragraph. Notices delivered personally will be deemed communicated as of actual
receipt; mailed notices will be deemed communicated as of two (2) days after
mailing.
If to: Shearwater Technology Group
3233 SW Avalon Way, Suite 101
Seattle, Washington, 98126
United States of America
If to Client: Silicon Valley Research, Inc.
6360 San Ignacio Avenue
San Jose, CA 95119
United State of America
8.02. Entire Agreement of the Parties. This agreement supersedes any and all
--------------------------------
agreements, either oral or written, between the parties hereto with respect to
the rendering of services by TSG for CLIENT and contains all of the covenants
and agreements between the parties with respect to the rendering of such
services in any manner whatsoever. Each party to this agreement acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have been made by either party, or anyone acting on behalf of either
party, which are not embodied here-in, and that no other agreement, statement or
promise not contained in this agreement shall be valid or binding. Any
modifications of this agreement will be effective only if it is in writing
signed by the party to be charged.
8.03. Partial Invalidity. If any provision in this agreement is held by a court
-------------------
of competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions will nevertheless continue in full force without being impaired or
invalidated in any way.
Initial__________________Initial_________________________
<PAGE>
IX
8.04. Arbitration. Any controversy between the parties hereto involving the
------------
construction or application of any of the terms, covenants, or conditions of
this agreement will, on the written consent of one party served on the other, be
submitted to arbitration. The arbitration will comply with and be governed by
the provisions of Washington State, King County.
The parties will each appoint one person to hear and determine the dispute
and if they are unable to agree, then the two persons so chosen will select a
third impartial arbitrator whose decision will be final and conclusive on both
parties. This cost of arbitration will be borne in such proportions as the
arbitrators decide.
8.05. Attorneys' Fees. If any action at law or in equity, including an action
----------------
for declaratory relief, is brought to enforce or interpret the provisions of
this agreement, the prevailing party will be entitled to reasonable attorneys'
fees, which may be set by the court in the same action or in a separate action
brought for that purpose, in addition to any other relief to which the party may
be entitled.
8.06. Governing Law. this agreement will be governed by and construed in
--------------
accordance with the laws of the State of Washington.
Executed at Seattle, Washington on the date and year first above written.
By:_________________________ By:_________________________
The Shearwater Group, Inc. Silicon Valley Research, Inc.
Initial__________________Initial_________________________
<PAGE>
X
ATTACHMENT "A"
--------------
DESCRIPTION OF SERVICES
-----------------------
Services to be performed for CLIENT are as follows:
- ---------------------------------------------------
(A) Sales of products of SILICON VALLEY RESEARCH, INC. to the companies
and territories listed in Schedule 3.03.0 and 3.03.1 of this
agreement.
(B) Account management and business development of accounts and
territories described in 3.03.0 and 3.03.1 of this agreement.
(C) Development of planning and forecasting information for accounts
described in 3.03.0 and 3.03.1 of this agreement.
(D) Design and publication of advertising material, administrative sales
materials, and software operating manuals.
(E) All other sales activities including pre sales support, post sales
support, customer training, benchmark evaluation, shipment of
products, printing of product manuals, and generation of temporary
software keys.
Initial__________________Initial_________________________
<PAGE>
XI
ATTACHMENT "B"
--------------
ACQUISITION OR MERGER PROVISION*
-------------------------------
* The portion so omitted has been filed separately with the Securities and
Exchange Commission.
Initial__________________Initial_________________________
<PAGE>
XII
ATTACHMENT "C"
--------------
LIST OF SILICON VALLEY RESEARCH, INC. PRODUCTS
-----------------------------------------------
DCP
QIC/APR
QIC PLACE
QIC ROUTE
GARDS
FLOORPLACER
SC
JET
HUNTER (JET ON-LINE DRC)
Includes all options, add-on's and upgrades for the products mentioned above.
Initial__________________Initial_________________________
<PAGE>
XIII
ATTACHMENT "D"
--------------
LIST OF EXCLUSION OF TERRITORIES AND ACCOUNTS*
---------------------------------------------
* The portion so omitted has been filed separately with the Securities and
Exchange Commission.
Accounts not included under this agreement and not subject to commission payment
Territories not included under this agreement
NONE
Initial__________________Initial_________________________
<PAGE>
XIV
ATTACHMENT "E"
--------------
EXCLUSION OF EXISTING AGREEMENTS
--------------------------------
No sales are excluded as a result of existing agreements.
ATTACHMENT "F"
--------------
EXTENSION OF AGREEMENT
----------------------
Automatic Extension of Agreement
- --------------------------------
If during the initial term of this agreement, Silicon Valley Research, Inc.
received purchase orders for software licenses and annual software maintenance
either from the territories of The Shearwater Group, Inc. or through OEM
subdistributors equal to or greater than * U.S. dollars, this agreement will
automatically extend for an additional one year.
* The portion so omitted has been filed separately with the Securities and
Exchange Commission.
ATTACHMENT "H"
--------------
ORDER ACCEPTANCE AND PROCESSING POLICIES
----------------------------------------
1. All orders must be accompanied by a fully executed purchase order from the
customer.
2. All payment terms are net 30 days from shipment or a 2% discount for payment
in 10 days.
3. Software is keyed for 30 days to allow payment and then permanently keyed
after payment.
4. All orders are final and not subject to return after warranty period.
5. All software is sold warranted to meet only the data sheet description and
performance.
6. All orders are recognized as sales only after receipt of payment from the
customer.
7. No orders are accepted for custom development only without approval of
CLIENT.
8. Warranty period commences at receipt of the software by the customer.
Initial__________________Initial_________________________
<PAGE>
XV
ATTACHMENT "I"
--------------
LIST PRICE OF SILICON VALLEY RESEARCH, INC. PRODUCTS*
----------------------------------------------------
* The portion so omitted has been filed separately with the Securities and
Exchange Commission.
Initial__________________Initial_________________________
<PAGE>
XVI
ATTACHMENT "J"
--------------
ELECTRONIC SHIPMENT PROVISION
-----------------------------
CLIENT agrees that for all sales within the United States of America that the
tangible product that is shipped by TSG or CLIENT is electronic data to be
shipped by internet. This data is to include a manual, software program,
permission key, and license agreement. CLIENT agrees that no physical media or
manual will be sent to a customer as part of a sales transaction, but may be
supplied by CLIENT at CLIENT's discretion at no charge. CLIENT further agrees
that annual software support updates will not be send to customers in California
unless requested, but rather will post such updates on a download site for
optional use by the customer.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 642
<SECURITIES> 0
<RECEIVABLES> 680
<ALLOWANCES> 85
<INVENTORY> 0
<CURRENT-ASSETS> 1,323
<PP&E> 2,381
<DEPRECIATION> 2,232
<TOTAL-ASSETS> 2,012
<CURRENT-LIABILITIES> 689
<BONDS> 0
0
0
<COMMON> 44,754
<OTHER-SE> (44,455)
<TOTAL-LIABILITY-AND-EQUITY> 2,012
<SALES> 496
<TOTAL-REVENUES> 1,538
<CGS> 240
<TOTAL-COSTS> 1,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (999)
<INCOME-TAX> 0
<INCOME-CONTINUING> (999)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (999)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
