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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
____________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER: 0-27752
ANALOGY, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0892014
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9205 SW GEMINI DRIVE
PORTLAND, OREGON 97008
(Address of principal executive offices and zip code)
503-626-9700
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
____________________
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K, or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was $45,217,753 as of June 21, 1996
based upon the last sales price as reported by Nasdaq.
The number of shares outstanding of the Registrant's Common Stock
as of June 24, 1996 was 8,318,164 shares.
The Index to Exhibits appears on page 14 of this document.
____________________
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by
reference portions of its Proxy Statement, to be used in connection with
the Company's Annual Meeting of Shareholders to be held on or about
August 9, 1996.
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ANALOGY, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
----
Item 1 - Business 1
Item 2 - Properties 5
Item 3 - Legal Proceedings 5
Item 4 - Submission of Matters to a Vote
of Security Holders 5
PART II
Item 5 - Market for the Registrant's Common
Equity and Related Stockholder Matters 6
Item 6 - Selected Financial Data 6
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6
Item 8 - Financial Statements and Supplementary
Data 12
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
Item 10 - Directors and Executive Officers of the
Registrant 13
Item 11 - Executive Compensation 13
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 13
Item 13 - Certain Relationships and Related
Transactions 13
PART IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 13
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PART I
ITEM 1. BUSINESS
GENERAL
Analogy, Inc. (the "Company" or "Analogy") develops, markets and
supports high-performance software and model libraries for the top-down
design and behavioral simulation of mixed-signal and mixed-technology
systems. The Company's Saber simulator supports top-down design of
mixed-signal, mixed-technology systems using the Company's proprietary
analog hardware description language, MAST. The Saber simulator and its
accompanying MAST models are used in the design of electronic,
mechanical, hydraulic and optical components and systems, and
combinations of these systems, and are intended to provide manufacturers
of products incorporating mixed-signal, mixed-technology systems with
productivity increases similar to those Integrated Circuit ("IC")
designers experienced through the adoption of digital simulators. The
Saber simulator is used in many industries for products as diverse as
deep sub-micron ICs, video recorders, hydraulic presses, power windows
and seats in automobiles, anti-lock brake systems and avionics systems.
The Company was founded in 1985 and is incorporated under the laws
of the State of Oregon. Its executive offices are located at 9205 SW
Gemini Drive, Beaverton, Oregon, 97008.
PRODUCTS
The Company's software products are licensed to customers. The
Company's model libraries are provided on an annual subscription basis,
under which the customer receives periodic updates as new models are
generated. Support is provided based on annual or other periodic
contracts. A minimum, single-user configuration would include Saber,
SaberScope and either DesignStar or a Frameway Integration product. List
price of such a minimum configuration for a single user, plus a one-year
subscription to the Company's model libraries, would start at
approximately $38,000. Options can increase the single user price to
over $80,000. Minimum configuration multi-user systems start at $85,000
for three users.
SABER SIMULATOR. The Saber simulator is the core simulation engine
for the Company's product line. It processes the interaction of inputs
and outputs from differential equations based on MAST models. This
information provides the user with the ability to obtain performance
data on circuit or system operation in many areas. Saber is independent
of the models that run in it. It allows performance modeling from steady
state operating levels to operation over time, under stress, over
frequency, and in a wide variety of analytical modes. MAST is the
Company's Hardware Description Language ("HDL"), and it was the first
behavioral modeling HDL capable of handling both analog and digital
components. MAST enables the modeling of any physical device or
technology that can be represented in mathematical terms. Using MAST,
complex mixed-signal, mixed-technology systems can be designed and
analyzed in a top-down or bottom-up manner, enabling an iterative design
process. The models can be simple in content, as with those used in a
"proof of concept" high-level design, or highly detailed, as would be
required for new deep sub-micron devices developed in the IC industry.
CO-SIMULATION INTERFACES. The Company's co-simulation interface
products provide linkages to digital simulators widely used in the IC
design market, such as Cadence Design Systems' Verilog-XL, Mentor
Graphics' QuickSim II and Viewlogic's ViewSim. The co-simulation
interfaces allow customers requiring mixed-signal, mixed-technology
simulation to use models previously developed for one of these digital
simulators. Saber's co-simulation capabilities, combined with Saber's
bridging capability through its Frameway Integrations, has led to
support by the leading application specific integrated circuit ("ASIC")
manufacturers for the Company's products, as it has meant that ASIC
vendors could support all the leading electronic design automation
("EDA") design solutions with one set of analog and mixed-signal
component models.
TEMPLATE MODEL LIBRARIES. The Company's template models are
mathematical descriptions of device behavior with built-in flexibility
that allows designers to characterize specific components. Such
templates
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describe the behavior of devices, such as transistors, hydraulic pumps,
valves, motors or fiber optic cable. Each new template model broadens the
applicability of the Company's Saber simulator.
COMPONENT MODEL LIBRARIES. The Company's component models are
specific mathematical descriptions of device behavior. Component models
represent the catalog of parts available to the simulator user, and
include such things as diodes, transistors, opamps, regulators,
analog-to-digital converters, pulse width modulators, motors, lamps,
fuses and many non-electrical components such as fiber optic devices.
The Company has a constantly growing set of component models, with over
8,000 parts in its component libraries. The Company's internal model
development team has developed and refined techniques and special
hardware and software that the Company uses to characterize and to build
component models which account for behavioral changes caused by
variations in temperature, frequency, power and by statistical variation
in manufacture.
SABERDESIGNER ENVIRONMENT. SaberDesigner is a comprehensive
graphical design environment that provides a Windows-style integrated
tool set and user interface for design entry, simulation and analysis.
The SaberDesigner tool set consists of four basic elements: SaberGuide,
a graphical user interface to access and operate the simulator;
SaberScope, a graphical post-processing and waveform display program for
analyzing and viewing simulation results; SaberBook, the on-line
documentation package for Saber that allows guided access to relevant
user information on-line and SaberSketch, a schematic entry and drawing
package (currently scheduled for release in Autumn 1996). SaberSketch
will replace DesignStar as the Company's stand-alone design environment
offering. SaberGuide and SaberBook are included with Saber. These tools
are tightly integrated to enhance user convenience and the speed of the
design process. SaberDesigner is a tool set intended to provide the
power and capabilities of Saber simulation to the average or infrequent
user.
INSPECS ANALYSIS PACKAGE. The InSpecs analysis package is a set
of tools that helps design engineers analyze the results of their
simulations. Using this package, designers can identify and choose the
best combination of component values, tolerances and ratings to optimize
products, reduce costs and increase yields. This tool set uses stress
and sensitivity analyses to identify the critical parts in the design,
comprehensive measurements to acquire and distill data to assess
performance and statistical "Monte Carlo" analysis to provide insight
into the performance variations caused by component and parameter
tolerances experienced in manufacturing.
FRAMEWAY INTEGRATIONS. The Company's Frameway Integrations
provide interfaces to the design frameworks provided by Mentor Graphics,
Cadence Design Systems and Viewlogic. By using an Analogy Frameway
Integrations product, users of these other EDA frameworks can obtain the
benefits and capabilities of the Company's products while using their
standard design process and the accustomed look and feel of their host
EDA framework. These Frameway Integrations also give users of the
Company's simulation products the advantage of being able to move
models, designs and simulation data between different EDA vendor
environments. If one division or customer is using Mentor Graphics tools
and another division or customer is using Cadence tools, they can both
use Saber and, through the Frameway Integrations, share models or
designs across environments. This interoperability is not otherwise
easily accomplished and enables the Company's products to provide a
bridge between competing frameworks.
CUSTOMER SERVICE. The Company provides services in training,
on-site engineering and consulting and contract model development. The
Company maintains five world-wide training centers: in Beaverton,
Oregon; Ann Arbor, Michigan; Swindon, England; Paris, France and Munich,
Germany. A sixth center is provided through the Company's distributor in
Tokyo, Japan. Classes are taught regularly at these facilities on the
use of the simulation products and on modeling in the MAST language. The
Company also provides specialized component characterization services to
its customers. For large customers, classes are also provided at the
customer's location. The Company-trained applications engineers help
develop customer-proprietary models and templates, and the Company
maintains a staff of highly trained and experienced applications
engineers to consult on specialized design and modeling applications in
fields such as electrical, mechanical, ASIC and ICs, power supplies and
control systems.
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SALES AND MARKETING
The Company markets its products worldwide through a staff that, as of
March 31, 1996, consisted of 58 Company-employed field sales and support
personnel. The Company manages its worldwide sales operations from its
Beaverton, Oregon headquarters. The Company markets its products in North
America and Europe through a direct sales and support organization. U.S.
sales offices are located in these metropolitan areas: Boston, Chicago,
Cincinnati, Dallas, Detroit, Huntsville (Alabama), Los Angeles, Rochester
(New York), San Francisco and Washington, D.C., as well as at the Company's
headquarters in Beaverton, Oregon. In Europe the Company maintains, through
wholly-owned subsidiaries, sales and support offices near Paris, London,
Munich and Stockholm. The Company also sells through distributors in certain
markets, including Asia.
The Company also has a university program for purposes of
increasing the number of engineers trained in the use of the Saber
simulator, MAST modeling language and development of behavioral models.
The Company has made its software available to more than 70 universities
worldwide, many of which are conducting research in such areas as power
device modeling, mixed-technology simulation and design and failure mode
analysis. The results of this research are then made available to the
industrial community, which enables Saber to be more readily used by
these customers.
CUSTOMER SUPPORT AND SERVICE
The Company maintains and supports products through its own
operations, those of its subsidiaries and through its distributors. The
Company offers a technical support hotline to customers and
distributors. Support engineers answer the technical support calls and
generally provide same-day responses to questions that cannot be
resolved during the initial call. The Company's product licenses include
a limited initial term of product maintenance. Support and service
accounted for 28.4%, 31.8% and 29.1% of the Company's total revenue for
the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
RESEARCH AND DEVELOPMENT
The Company focuses its research and development efforts in the
areas of simulator development, model development techniques and product
accessibility. Research and development expenditures for the fiscal
years ended March 31, 1996, 1995 and 1994 were $4.5 million, $3.7
million and $2.5 million, respectively.
In simulator development, the Company is developing and has
announced its intention to release an Institute of Electrical and
Electronic Engineers ("IEEE") 1076.1 compliant HDL "single-kernel"
simulator, in which both digital and analog simulations are handled in
the same software engine. Research into personal computer level,
Windows-based software products is underway. New products and product
extensions are planned based on emerging simulation standards which the
Company has helped to develop.
In modeling, the Company continues to expand its model libraries,
and is developing model development tools. The Company believes that
continued enhancement of the depth, breadth and quality of its model
libraries will be critical to achieving and maintaining technological
and market leadership. To further its research and development efforts
in modeling techniques and model development consistent with its
strategic objectives, the Company pursues funded research and
development from governmental entities and corporations and has been
awarded a grant from the National Institute of Standards and Technology
("NIST") and has entered into model development contracts with certain
customers.
The Company is continuing to extend the applicability and
accessibility of its products by providing user interfaces that
incorporate the vocabulary and mathematical and display conventions of
engineers working in a variety of technologies. The Company continues to
focus resources on maintaining its framework integration and
co-simulation tools, as the products to which these tools are linked
evolve.
No assurance can be given that current research and development
efforts, including those described above, will be successful, or will
result in the introduction of new or enhanced products on any particular
timetable, or at
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all. In the face of technological change, a failure to introduce new or
enhanced products or a failure to introduce them in a timely manner could
have a material adverse impact on the Company's business, financial condition
and results of operations.
COMPETITION
In the design of ICs, the Company faces competition from many
vendors of simulation tools. However, most available simulators are
digital or SPICE-based (Simulation Program with Integrated Circuit
Emphasis) and are highly specialized to ICs and are therefore not
applicable to broader mixed-signal, mixed-technology systems. In the
broader systems markets, the Company does not believe that it currently
experiences significant competition. However, the design environments of
virtually all of the Company's major customers are based on one or
another of the major EDA vendors' design frameworks. This pattern drives
the need for and usefulness of the Company's Frameway Integration
products that permit data interchange between Saber and the products of
other vendors. Such other vendors typically have programs to encourage
other companies to integrate with the vendors' products and the Company
participates in these programs for frameworks it views as strategically
important. Many of these large EDA vendors have a significant operating
history and significantly greater financial, technical, and marketing
resources, greater name recognition, larger installed customer bases and
longer relationships with many of the Company's key existing and target
customers than does the Company. In addition, most have introduced
simulation products (including some analog and mixed-signal behavioral
modeling simulation products) to serve the IC designer particularly.
These major EDA companies or other companies may develop and introduce
new products which create significant competition for the Company and
its products. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that
competitive pressures faced by the Company will not have a material
adverse effect on its business, results of operations and financial
condition.
PROPRIETARY RIGHTS
The Company relies primarily on trade secret and ongoing
development efforts to protect its technology and augments those
strategies with patents, copyrights and trademarks where the Company
believes it is useful to do so. The Company has obtained five U.S. and
two Canadian patents on various aspects of its products, including
parameter extraction techniques, Calaveras synchronization techniques
for mixed mode simulation, waveform calculator and behavioral modeling.
Other patent applications are pending or in process. The Company's
policy has been to enter into confidentiality agreements with all
employees and signed license agreements that include nondisclosure
provisions with all distributors and customers. The Company limits
access to and distribution of its software, applicable documentation and
other proprietary information. The Company's software is protected as an
unpublished copyrighted work and is shipped with a software security
lock that limits software access to authorized users. Additionally,
access to the software source code is only provided for interface
products and selected models and only to major customers pursuant to
license agreements that include nondisclosure provisions. The Company
holds a worldwide, perpetual, fully paid-up license to use the Saber
trademark from its owner, American Airlines, Inc. The Company has United
States registrations for the following trademarks: Analogy, Analogy HDL,
Calaveras Algorithm, DesignStar, Frameway, Hypermodel, MAST,
PowerExpress and WaveCalc. The Company has European and Japanese
registrations for certain of these and other trademarks. The Company
asserts other common law trademarks and has a number of registrations
pending.
Despite the activities described above, no assurance can be given
that the steps taken by the Company will provide adequate protection of
its technology or that competitors will not be able to develop similar
or functionally equivalent technology. Additionally, copyright and trade
secret protection may be limited in certain foreign countries. The
Company believes, however, that because of the rapid pace of
technological change in the EDA industry, the legal intellectual
property protection for its products is a less significant factor in the
Company's success than the knowledge, creative abilities and
effectiveness of its engineering and marketing staff and the timeliness
and quality of its support services. Although the Company does not
believe that its products infringe the proprietary rights of others and
has not received any claims of infringement of the proprietary rights of
others, in the future the Company may receive notice of claims of
infringement of other parties' proprietary rights and there can be no
assurance that infringement or invalidity claims (or claims for
indemnification
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resulting from infringement claims against third parties, such as customers)
will not be asserted against the Company or that any such assertions will not
have a material adverse effect on the Company's business, financial condition
or results of operations.
EMPLOYEES
At March 31, 1996, the Company had 160 employees, including 74 in
marketing and sales, 63 in research, development and engineering and 23
in systems, administration and finance. The Company believes its future
success will depend on its continued ability to attract and retain
highly qualified technical, management and marketing personnel. The
Company's employees are not subject to a collective bargaining agreement
and the Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's executive offices, as well as its principal
manufacturing, engineering and marketing operations, are located in a leased
building of approximately 40,400 square feet in Beaverton, Oregon. The lease
expires on August 31, 2001. The Company has leased office space for eight
U.S. field sales offices located in these metropolitan areas: Boston,
Chicago, Cincinnati, Dallas, Detroit, Huntsville (Alabama), Los Angeles,
Rochester (New York), San Francisco and Washington, D.C. Lease commitments
for these facilities are short term, several being month to month and the
remainder having terms of 12 months or less other than the Detroit lease,
which runs through 1998. In addition, the Company has leased office space
near London, Munich, Paris and Stockholm. The Company believes that its
current space will be adequate for approximately the next 12 months.
ITEM 3. LEGAL PROCEEDINGS
As of June 21, 1996 there were no pending legal proceedings to which
the Company or its subsidiaries is a party or to which any of their
properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of the Company was held on
January 25, 1996 at which the following actions were taken:
1. The shareholders of the Company adopted the Third Restated
Articles of Incorporation (1,788,244 Common shares were voted
affirmatively, 1,500,500 Common shares were voted negatively, 3,563
Series A Preferred shares were voted affirmatively and no Series A
Preferred shares were voted negatively.)
2. The shareholders of the Company approved the changes to the 1993
Stock Incentive Plan and approved the restatement of that plan as the
Amended and Restated Analogy, Inc. 1993 Stock Incentive Plan (3,287,494
Common shares were voted affirmatively and 1,250 Common shares were
voted negatively).
3. The shareholders of the Company approved the adoption, by the
Company's Board of Directors, of the 1995 Stock Incentive Plan for
Nonemployee Directors (3,287,619 Common shares were voted affirmatively
and 500 Common shares were voted negatively).
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on March 22, 1996. The
high and low sales prices as reported on the Nasdaq National Market
System for the period from March 22, 1996 to March 31, 1996 were
$8 3/4 and $7 1/2, respectively.
The approximate number of shareholders of record and beneficial
shareholders at June 24, 1996 was 1800. The Company has never declared
or paid dividends on its common stock. The Company intends to retain
earnings from operations for use in the operation and expansion of its
business and does not anticipate paying cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The Company's Selected Consolidated Financial Data appears on page
F-1 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, markets and supports high-performance
software and model libraries for the top-down design and behavioral
simulation of mixed-signal and mixed-technology systems. The Company's
core simulator product, Saber, was introduced in 1987. In addition to
Saber, Analogy offers schematic capture and analysis tools and framework
integration products providing interfaces to the design environments of
major EDA companies.
The Company's product license revenue consists of license fees for
its software products and template and component model library
subscription fees. Service and other revenue consists of software
maintenance fees, training, consulting and contract model development.
The Company's software products are shipped only after the Company has
an executed software license agreement with a customer. Revenue from
software licenses is recognized upon shipment to the customer. Revenue
from library subscription fees is typically billed annually and the
related revenue is recognized ratably over the life of the contract,
usually twelve months. Maintenance is normally billed in advance and
recognized ratably over the life of the contract, which is usually
twelve months. Training, consulting, contract model development and
other services revenue is recognized as the services or portions thereof
have been completed. The Company has received a multi-year grant from
NIST and has entered into contracts with other parties that provide
funding to the Company for research and development. These contracts
generally provide that the Company will be paid for services performed
on a cost-plus basis. SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
The Company has focused substantial efforts on its international
business operations, particularly in Europe. The Company's international
operations accounted for 43.5%, 51.1%, and 45.1% of the Company's total
revenue for fiscal years 1996, 1995 and 1994, respectively. The majority
of the Company's international operations are conducted through the
Company's wholly-owned subsidiaries in Europe. SEE NOTE 10 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
FORWARD LOOKING STATEMENTS
All statements and trend analysis contained herein relative to
future size or degree of penetration of markets of the Company's
products and information relating to the rates of growth or decline of
revenue or expenses constitute "forward looking statements" as defined
in Section 27A of the Securities Act of 1933, as amended. These forward
looking statements are subject to the business and economic risks faced
by the Company and the Company's actual results of operations may differ
materially from those contained in the forward looking statements.
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Results of operations for the periods discussed below should not be
considered indicative of the results to be expected in any future
period, and fluctuations in operating results may also result in
fluctuations in the market price of the Company's Common Stock. Like
most high technology companies, the Company faces certain business risks
that could have adverse effects on the Company's results of operations.
The Company's quarterly operating results have in the past and may
in the future vary significantly depending on factors such as increased
competition, the timing of new product announcements, changes in pricing
policies by the Company or its competitors, lengthy sales cycles, lack
of market acceptance or delays in the introduction of new or enhanced
versions of the Company's products, the timing of significant orders,
seasonal factors, the mix of direct and indirect sales and general
economic conditions. In particular, the Company's quarterly operating
results have in the past fluctuated as a result of the large percentage
of orders that are not received by the Company until near the end of the
quarter. Substantially all of the Company's product licensing revenue in
each quarter results from orders booked in that quarter. The Company's
expense levels are based, in part, on its expectations as to future
revenue. If revenue levels are below expectations, net income may be
disproportionately affected because only a small portion of the
Company's expenses varies with its revenue. Seasonal factors,
particularly decreases in revenues in European markets in the second
fiscal quarter resulting from European holidays in July and August, and
cyclical economic patterns in the automotive or other end-user
industries also contribute to quarter-to-quarter fluctuations.
Additionally, a significant portion of the Company's revenue in a
quarter typically is received in the last few weeks of that quarter. As
a result, the Company may not learn of, or be able to confirm, revenue
or earnings shortfalls until late in the quarter or following the end of
the quarter. Any shortfall in revenue or earnings from expected levels
or other failure to meet expectations of the financial markets regarding
results of operations could have an immediate and significant adverse
effect on the trading price of the Company's Common Stock in any given
period.
The percentage of the Company's total United States sales revenue
derived from the automotive industry for fiscal 1996 and for fiscal 1995
was 40% and 42%, respectively. The automotive industry has historically
been characterized by high cyclicality, technological change,
fluctuations in manufacturing capacity and pricing and gross margin
pressures. This industry has from time to time experienced significant
economic downturns characterized by decreased product demand, production
over-capacity, price erosion, work slowdowns and layoffs. No assurance
can be given that the automotive industry will experience economic
growth, will not experience a downturn or that any downturn will not be
severe. In addition, sales to Electronic Data Systems Corp., which
serves as a distributor to certain automotive industry users, including
General Motors, accounted for 13.6% of the Company's revenue in fiscal
1996. Near term uncertainty regarding capital spending by General Motors
has resulted in reductions in orders from Electronic Data Systems. The
loss of these has had, and the loss of or any reduction in orders by any
other significant customer could have, an adverse effect on the
Company's business, financial condition and results of operations. No
assurance can be given that such risks will not affect the Company's
financial position or results of operations in the future.
The Company's operating results have depended, and will continue to
depend, upon designers of mixed-signal and mixed-technology systems
adopting methods of design analysis and simulation which use behavioral
modeling techniques. Product designers have historically relied on other
methods of design analysis and simulation such as prototyping and
simulation of the distinct components of a system. There is no assurance
that designers will be willing to change these established methods of
design analysis and simulation. Even if designers are willing to change
methodologies, there can be no assurance that they will be willing to
invest in the Company's behavioral modeling tools.
The design analysis and simulation industry is characterized by
rapid technological change, frequent new product introductions and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render
existing products obsolete and unmarketable. The Company's future
success will depend upon its ability to enhance its current products and
to develop or acquire new products that keep pace with technological
developments and emerging industry standards and address the
increasingly sophisticated needs of its customers.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
items of the Company's consolidated statements of operations as a
percentage of total revenue:
YEARS ENDED MARCH 31,
----------------------
1996 1995 1994
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenue:
Product licenses 71.6% 68.2% 70.9%
Service and other 28.4 31.8 29.1
----- ----- -----
Total revenue 100.0 100.0 100.0
Cost of revenue:
Product licenses 6.5 7.7 11.3
Service and other 4.6 3.2 4.9
----- ----- -----
Total cost of revenue 11.1 10.9 16.2
----- ----- -----
Gross profit 88.9 89.1 83.8
Operating expenses:
Research and development 20.8 23.0 21.0
Sales and marketing 49.3 57.4 63.4
General and administrative 10.9 14.4 19.8
----- ----- -----
Total operating expenses 81.0 94.8 104.2
----- ----- -----
Operating income (loss) 7.9 (5.7) (20.4)
Other expense, net (2.4) (2.5) (2.2)
----- ----- -----
Income (loss) before income taxes 5.5 (8.2) (22.6)
Income tax expense 1.7 1.2 0.4
----- ----- -----
Net income (loss) 3.8% (9.4)%(23.0)%
----- ----- -----
----- ----- -----
FISCAL YEARS 1996 AND 1995
REVENUE
Total revenue increased 33.7% from $16.3 million in fiscal year
1995 to $21.7 million in fiscal year 1996. This increase reflects the
effect of the Company's decision to expand its direct sales force in
fiscal year 1995, an increased level of experience with the Company's
products and markets by sales personnel and a larger installed base.
Product license revenue increased 40.3% from $11.1 million in fiscal
year 1995 to $15.6 million in fiscal year 1996. Product license revenue
increased largely due to an increase in unit sales of product licenses,
larger average order sizes, a relative change in the product mix to
include more comprehensive product configurations and an increased
number of licenses of the Company's newer, higher priced products.
Service and other revenue increased 19.6% from $5.2 million in fiscal
year 1995 to $6.2 million in fiscal year 1996, due to increased
maintenance revenue resulting from the growth in the Company's installed
base and billings to NIST under the grant awarded in fiscal year 1996.
Sales to Electronic Data Systems Corp., which serves as a
distributor to certain automotive industry users, accounted for 13.6% of
total revenue in fiscal 1996. The loss of or reduction in sales to
Electronic Data Systems Corp. could have a material adverse effect on
the Company's financial condition and results of operations. The Company
does not expect significant revenue growth in the first half of fiscal
year 1997 as compared to the first half of fiscal year 1996, due to near
term uncertainty regarding capital spending by General Motors, through
Electronic Data Systems Corp. SEE NOTE 1 OF NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
8
<PAGE>
Revenue from international operations was $9.4 million (43.5% of
total revenue) in fiscal year 1996 compared to $8.3 million (51.1% of
total revenue) in fiscal year 1995. Although revenue from international
operations increased, in absolute dollars, in fiscal 1996, revenue from
international operations has decreased as a percentage of total revenue.
This is primarily due to a significantly higher growth rate of 46.0% in
revenue from United States operations during this same period. SEE NOTE
10 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COST OF REVENUE
Cost of product licenses revenue consists primarily of
documentation expense, media manufacturing costs, supplies, shipping
expense and the amortization of component and template model library
costs. Cost of product licenses revenue decreased to 6.5% of total
revenue in fiscal year 1996 from 7.7% in fiscal year 1995, primarily due
to the 40.3% increase in product licenses revenue during the same period
and the resulting economies of scale. The Company does not capitalize
development costs for software products since the time between the
establishment of a working model of the software product and its
commercialization is typically of a short duration.
The cost of service and other revenue consists primarily of
maintenance and customer support expenses (including product
enhancements and improvements, bug fixes, telephone support,
installation assistance and on-site support), contract model development
costs and the direct cost of providing services such as training and
consulting. Cost of service and other revenue increased 94.5% to
$994,000 in fiscal 1996, from $511,000 in fiscal 1995, due primarily to
the Company's increased installed product base, increased investment in
training and the costs associated with the performance under the grant
received from NIST.
RESEARCH AND DEVELOPMENT
Research and development expense includes all costs associated with
development of new products, enhancements to existing products and
technology research. The costs classified in this category primarily
include such items as salaries, fringe benefits and depreciation of
capital equipment used in research and development. Research and
development expenses increased 20.9% to $4.5 million in fiscal year 1996
from $3.7 million in fiscal year 1995. The increase primarily resulted
from increased personnel and systems support expenses relating to the
Company's recent expansion of its research and development efforts. As
a percentage of total revenue, research and development costs decreased
to 20.8% in fiscal year 1996, from 23.0% in fiscal year 1995, primarily
due to a higher growth rate in revenue than in research and development
expense.
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries,
commissions and travel. Sales and marketing expenses increased 14.7% to
$10.7 million in fiscal year 1996, from $9.3 million in fiscal 1995. The
increase primarily resulted from the continuation of the Company's field
sales force expansion, which was substantially completed by the end of
September 1995. As a percentage of total revenue, sales and marketing
expenses decreased to 49.3% in fiscal year 1996, from 57.4% in fiscal
year 1995, due primarily to the increased efficiency and experience of
the recently expanded sales force and due to a higher growth rate in
revenue than in sales and marketing expense.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include costs associated with
the Company's executive staff, legal, accounting, corporate systems,
facilities and human resources departments. General and administrative
expenses remained relatively flat at approximately $2.3 million in both
fiscal year 1996 and 1995. As a percentage of total revenue, general and
administrative expenses decreased to 10.9% in fiscal 1996, from 14.4% in
fiscal year 1995, primarily due to a higher growth rate in revenue than
in general and administrative expense.
9
<PAGE>
OTHER EXPENSE, NET
Other expense, net primarily consists of interest expense
associated with short-term financing of accounts receivable, capital
leases and subordinated debt. Other expense, net increased 28.2% to
$523,000 in fiscal year 1996, from $408,000 in fiscal year 1995. The
majority of this increase is attributable to interest expense associated
with the Company's increased financing of accounts receivable under a
bank agreement during fiscal year 1996. SEE NOTE 9 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS. The increase in interest expense was
partially offset by a net foreign currency transaction gain of
approximately $113,000 in fiscal year 1996.
PROVISION FOR INCOME TAXES
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." As of March 31, 1996, the Company had federal net
operating loss carryforwards of $2.3 million. The federal net operating
loss carryforwards will expire at various dates beginning in 2002 and
ending in 2010, if not utilized. Utilization of $950,000 of federal net
operating losses is subject to annual limitations due to a change in the
Company's 1994 fiscal year. For financial reporting purposes the Company
has established a valuation allowance against its deferred tax assets
because of the uncertainty relating to the realization of such asset
values. SEE NOTE 7 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
For fiscal years 1996 and 1995, the Company provided for foreign
withholding and income taxes of $331,000 and $187,000, respectively.
Because of its tax loss carryforwards the Company did not make a
provision for U.S. federal income tax expense for fiscal year 1996.
FISCAL YEARS 1995 AND 1994
REVENUE
Total revenue in fiscal year 1995 was $16.3 million, or an increase
of 36.5% over the $11.9 million recorded in the prior fiscal year. This
revenue increase came primarily from the Company's international
operations, where revenue increased 54.6% in fiscal year 1995 compared
to fiscal year 1994. This increase can be attributed primarily to the
expanded sales force in the United Kingdom and Germany, improved
operations in France and increased penetration into major European
accounts.
COST OF REVENUE
Cost of revenue in fiscal year 1995 was $1.8 million compared to
$1.9 million recorded in the prior fiscal year. This reduction in cost,
even though total revenue was greater in fiscal year 1995, is due to
improved productivity of the Company's customer support resources.
RESEARCH AND DEVELOPMENT
Research and development expenses were $3.7 million and
$2.5 million in fiscal years 1995 and 1994, respectively. This increase
was due primarily to the personnel and infrastructure expansion
associated with the technology and product development efforts.
SALES AND MARKETING
Sales and marketing expenses in fiscal year 1995 were $9.3 million
compared to $7.5 million in the prior fiscal year. This $1.8 million
increase was primarily related to the Company's international
operations, where the Company incurred higher commissions and other
expenses attributable to increased sales and to the Company's transition
to a direct sales force in Europe. Sales and marketing expenses as a
percentage of revenue in fiscal year 1995 were 57.4% compared to 63.4%
for the preceding fiscal year.
10
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2.3 million and
$2.4 million in fiscal years 1995 and 1994, respectively. General and
administrative expenses as a percentage of total revenue decreased to
14.4% in fiscal year 1995 from 19.8% in fiscal year 1994, primarily due
to increases in revenue and to the fact that fiscal year 1994 general
and administrative expenses included approximately $500,000 in legal
fees incurred by the Company in connection with an intellectual property
lawsuit initiated by the Company that was settled in the spring of 1994.
OTHER EXPENSE, NET
Other expense, net was $408,000 and $267,000 in fiscal years 1995
and 1994, respectively. The increase of $141,000 from fiscal year 1994
to fiscal year 1995 was primarily due to interest on increased
borrowings by the Company throughout the fiscal year.
PROVISION FOR INCOME TAXES
In fiscal years 1995 and 1994, the Company provided $187,000 and
$98,000, respectively, for foreign withholding and income taxes. In
fiscal years 1995 and 1994, the Company incurred net losses and
consequently paid no U.S. income taxes in 1995 or 1994. In fiscal years
1995 and 1994, a tax benefit of $6,000 and $55,000, respectively, was
recorded for the carryback of the federal net operating loss that was
recorded for the applicable fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception with
private equity investments, cash from operations, subordinated debt,
bank loans, capital equipment leases and accounts receivable financing.
In March 1996 the Company completed an initial public offering resulting
in net proceeds to the Company of approximately $9.4 million.
Net cash provided by operating activities was $3.2 million in
fiscal 1996, primarily resulting from net income, adjustments for
depreciation and amortization, increases in unearned revenue and
accounts payable, offset by an increase in accounts receivable. The
increases in unearned revenue represent the cash pre-payments received
from customers for maintenance and library services. The increase in
accounts receivable was primarily attributable to increased revenue in
the same period.
Net cash used in investing activities was $2.3 million, which
included capital expenditures for furniture, fixtures and equipment
which were primarily related to workstations, personal computers and
furniture and capital expenditures associated with the investment in the
Company's component and template model libraries. Payments by the
Company under its existing capital equipment leases are expected to be
approximately $638,000 for fiscal year 1997. The Company has no other
material capital commitments.
Net cash provided by financing activities was $8.1 million, which
included the net proceeds from the Company's initial public offering and
proceeds from exercise of common stock options, offset by payments on
the Company's line of credit and capital leases.
During 1995, the Company established a revolving line of credit
with a bank for $2.0 million, of which $1.9 million was outstanding at
March 31, 1995. This facility was converted to a term loan on April 1,
1995 and was subsequently paid with the proceeds from a new $2.0 million
facility established with another bank. In September 1995, the Company
terminated this $2.0 million facility and entered in a new $3.0 million
annually renewable agreement with a new bank. In March 1996, this
agreement was terminated and amounts outstanding were paid in full from
proceeds received from sale of the Company's common stock in its March
1996 initial public offering.
11
<PAGE>
At March 31, 1996, the Company had cash and cash equivalents of
approximately $10.2 million. Other principal sources of liquidity are
the Company's equipment lease financing agreements, under which at March
31, 1996 approximately $35,000 was available to finance the Company's
acquisition of equipment. The Company believes that the net proceeds
from its initial public offering, together with available funds and the
cash flows expected to be generated by operations, will be sufficient to
meet its anticipated cash needs for working capital and capital
expenditures during the next year. Accordingly, the Company currently
has no outstanding borrowing facility.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995 SFAS No. 123 "Accounting for Stock Based
Compensation" was issued. The Company plans to retain the APB Opinion 25
method of accounting for stock based compensation expense and therefore
believes the statement will have no impact on the Company's financial
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included under
QUARTERLY CONSOLIDATED FINANCIAL DATA on page F-2 of this Report,
and as listed below:
Page No.
--------
Report of KPMG Peat Marwick LLP F-3
Consolidated Balance Sheets, March 31,
1996 and 1995 F-4
Consolidated Statements of Operations
for the years ended March 31, 1996, 1995
and 1994 F-5
Consolidated Statements of
Shareholders' Equity for the years
ended March 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows
for the years ended March 31, 1996, 1995
and 1994 F-7
Notes to Consolidated Financial
Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included under the
captions ELECTION OF DIRECTORS and MANAGEMENT in the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
EXECUTIVE COMPENSATION in the Company's Proxy Statement for its 1996
Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is included under the caption
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS in the Company's
Proxy Statement for its 1996 Annual Meeting of Shareholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
CERTAIN TRANSACTIONS AND RELATIONSHIPS in the Company's Proxy Statement
for its 1996 Annual Meeting of Shareholders and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
The information required by this item is included beginning on page
F-3 of this Report, and as listed in Item 8, Part II of this Report.
(a) (2) FINANCIAL STATEMENT SCHEDULES:
Schedules not listed under this item have been omitted because the
information required to be set forth therein is not applicable.
13
<PAGE>
(a) (3) EXHIBITS INCLUDED HEREIN:
NO. DESCRIPTION
---- -----------
3.l Third Restated Articles of
Incorporation of Analogy, Inc.+
3.2 Second Restated Bylaws of
Analogy, Inc.+
10.1 Form of Indemnity Agreement between
Analogy, Inc. and each of its executive
officers and directors+
10.2 Analogy, Inc. 1986 Stock Option Plan+
10.3 Amended and Restated 1993 Stock
Incentive Plan+
10.4 1995 Stock Option Plan for
Nonemployee Directors+
10.5 Form of Stock Option Agreement+
10.6 Control Change Agreement dated
effective August 18, 1995 between
Analogy, Inc. and Gary P. Arnold+
10.7 Factoring Agreement dated
September 20, 1995 between Silicon
Valley Financial Services and
Analogy, Inc., Analogy, U.K. Ltd.
and Analogy GmbH+
10.8 Conditional Assignment for
Security Purposes and Security
Agreement dated September 20, 1995
between Silicon Valley Financial
Services and Analogy, Inc.,
Analogy, U.K. Ltd. and Analogy
GmbH+
10.9 Trademark License Agreement
between American Airlines, Inc.
and Analogy, Inc.+
10.10 Business Park Lease dated
August 30, 1993, between
Analogy, Inc. and Petula
Associates Ltd. and Koll Creekside
Associates II+
10.11 Loan Agreement dated March 16,
1994, between the Company and
John H. Faehndrich+
10.12 Syndicated Loan Agreement dated
March 17, 1994, between the
Company and Paul Brandli and
Partners, as amended February 9,
1995+
10.13 Loan Agreement dated April 15,
1994, between the Company and
Martin and Irene Vlach+
10.14 U.S. Department of Commerce
Financial Assistance Award+
10.15 1996 Employee Stock Purchase Plan*
11.0 Statement re: computation of per
share earnings*
21.0 Subsidiaries of Analogy, Inc.+
27.0 Financial Data Schedule*
+ Incorporated by reference to Exhibits to the Company's
Registration Statement on Form S-1, as amended, effective March 22,
1996, Commission Registration No. 333-00266.
* Filed herewith
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 26th day of June 1996.
ANALOGY, INC.
By /s/ GARY P. ARNOLD
Gary P. Arnold
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities indicated, on the 26th day of
June 1996.
Signature Title
- - --------- -----
/s/ GARY P. ARNOLD Chairman of the Board, President
- - ----------------------- and Chief Executive Officer
Gary P. Arnold (Principal Executive Officer)
/s/TERRENCE A. RIXFORD Vice President, Finance and Administration
- - ----------------------- (Principal Financial Officer)
Terrence A. Rixford
Director
- - -----------------------
Paul Brandli
/s/ ROBERT L. CATTOI Director
- - -----------------------
Robert L. Cattoi
Director
- - -----------------------
John H. Faehndrich
/s/ NEIL E. GOLDSCHMIDT Director
- - -----------------------
Neil E. Goldschmidt
/s/ FRANK ROEHR Director
- - -----------------------
Frank Roehr
/s/ CHARLES E. SPORCK Director
- - -----------------------
Charles Sporck
/s/ DR. MARTIN VLACH Vice President, Chief Scientist
- - ----------------------- and Director
Dr. Martin Vlach
15
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product licenses................... $15,562 $11,090 $ 8,447 $ 8,275 $7,010
Service and other.................. 6,176 5,165 3,459 2,415 2,130
------- ------- ------- ------- ------
Total revenue..................... 21,738 16,255 11,906 10,690 9,140
Cost of revenue:
Product licenses................... 1,426 1,255 1,341 764 460
Service and other.................. 994 511 586 424 364
------- ------- ------- ------- ------
Total cost of revenue............. 2,420 1,766 1,927 1,188 824
------- ------- ------- ------- ------
Gross profit........................ 19,318 14,489 9,979 9,502 8,316
Operating expenses:
Research and development........... 4,518 3,735 2,497 2,283 1,551
Sales and marketing................ 10,708 9,332 7,543 5,247 3,579
General and administrative......... 2,373 2,345 2,357 2,006 2,166
------- ------- ------- ------- ------
Total operating expenses.......... 17,599 15,412 12,397 9,536 7,296
------- ------- ------- ------- ------
Operating income (loss)............. 1,719 (923) (2,418) (34) 1,020
Other income (expense), net......... (523) (408) (267) (17) 22
------- ------- ------- ------- ------
Income (loss) before income
taxes.............................. 1,196 (1,331) (2,685) (51) 1,042
Income tax expense (benefit)........ 370 196 53 (42) 314
------- ------- ------- ------- ------
Net income (loss)................... $ 826 $(1,527) $(2,738) $ (9) $ 728
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Net income (loss) per
common share....................... $ 0.11 $ (0.30) $ (0.63) $ -- $ 0.11
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Shares used in computing
net income (loss) per
common share....................... 7,820 5,088 4,334 4,183 6,504
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $10,208 $ 1,179 $ 1,622 $1,069 $2,030
Working capital..................... 6,631 (2,747) (1,228) 998 1,685
Total assets........................ 22,294 10,375 8,997 7,196 5,979
Long-term obligations, net
of current portion................. 578 1,640 1,415 294 215
Shareholders' equity................ 11,491 27 1,517 3,368 3,519
</TABLE>
F-1
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
QUARTERLY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR 1996
Total revenue................... $ 5,305 $ 5,323 $ 5,433 $ 5,677
Gross profit.................... $ 4,786 $ 4,846 $ 4,943 $ 4,743
Net income...................... $ 219 $ 232 $ 257 $ 118
FISCAL YEAR 1995
Total revenue................... $ 3,658 $ 3,544 $ 4,417 $ 4,636
Gross profit.................... $ 3,169 $ 3,111 $ 3,951 $ 4,258
Net income (loss)............... $ (474) $ (755) $ (329) $ 31
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Analogy, Inc.:
We have audited the accompanying consolidated balance sheets of Analogy,
Inc. and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the years in the three-year period ended March 31, 1996. 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. 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
Analogy, Inc. and subsidiaries as of March 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
May 13, 1996
F - 3
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 10,208 1,179
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 5,831 4,473
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . 817 309
--------------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . 16,856 5,961
Furniture, fixtures and equipment, net . . . . . . . . . . . . . . . . 3,113 2,303
Library costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . 2,116 1,941
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 170
---------------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 22,294 10,375
---------------- --------
---------------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,124 1,284
Line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,910
Current portion of capital leases . . . . . . . . . . . . . . . . . 537 571
Accrued salaries and benefits . . . . . . . . . . . . . . . . . . . 1,043 871
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 384 90
Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 5,208 3,982
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . 929 -
---------------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . 10,225 8,708
Non-current portion of capital leases. . . . . . . . . . . . . . . . . 423 491
Subordinated debt. . . . . . . . . . . . . . . . . . . . . . . . . . . - 998
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 155 151
Commitments
Shareholders' equity:
Preferred stock, no par value, authorized 1,000 shares:
Series A, authorized 8 shares; -0- and 4 shares issued
and outstanding at March 31, 1996 and 1995, respectively . . . . - 1,813
Common stock, no par value, authorized 35,000 shares; 8,293
and 4,468 shares issued and outstanding at March 31, 1996 and
1995, respectively . . . . . . . . . . . . . . . . . . . . . . . . 14,180 1,609
Foreign currency translation. . . . . . . . . . . . . . . . . . . . (78) 42
Retained deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (2,611) (3,437)
---------------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . 11,491 27
---------------- --------
Total liabilities and shareholders' equity . . . . . . . . . $ 22,294 10,375
---------------- --------
---------------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Product licenses. . . . . . . . . . . . . . . . . . . . . . $ 15,562 11,090 8,447
Service and other . . . . . . . . . . . . . . . . . . . . . 6,176 5,165 3,459
--------- ------ -------
Total revenue. . . . . . . . . . . . . . . . . . . . 21,738 16,255 11,906
--------- ------ -------
Cost of revenue:
Product licenses. . . . . . . . . . . . . . . . . . . . . . 1,426 1,255 1,341
Service and other . . . . . . . . . . . . . . . . . . . . . 994 511 586
--------- ------ -------
Total cost of revenue. . . . . . . . . . . . . . . . 2,420 1,766 1,927
--------- ------ -------
Gross profit . . . . . . . . . . . . . . . . . . . . 19,318 14,489 9,979
--------- ------ -------
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . 4,518 3,735 2,497
Sales and marketing . . . . . . . . . . . . . . . . . . . . 10,708 9,332 7,543
General and administrative. . . . . . . . . . . . . . . . . 2,373 2,345 2,357
--------- ------ -------
Total operating expenses . . . . . . . . . . . . . . 17,599 15,412 12,397
--------- ------ -------
Operating income (loss). . . . . . . . . . . . . . . 1,719 (923) (2,418)
--------- ------ -------
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . 33 28 20
Interest expense. . . . . . . . . . . . . . . . . . . . . . (669) (436) (173)
Foreign currency transaction gain (loss). . . . . . . . . . 113 - (114)
--------- ------ -------
(523) (408) (267)
--------- ------ -------
Income (loss) before income taxes. . . . . . . . . . 1,196 (1,331) (2,685)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 370 196 53
--------- ------ -------
Net income (loss). . . . . . . . . . . . . . . . . . $ 826 (1,527) (2,738)
--------- ------ -------
--------- ------ -------
Net income (loss) per common share . . . . . . . . . . . . . . $ 0.11 (0.30) (0.63)
--------- ------ -------
--------- ------ -------
Weighted average common shares outstanding . . . . . . . . . . 7,820 5,088 4,334
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended March 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
Foreign
Preferred stock Common stock currency Retained Total
------------------ ---------------- translation earnings shareholders'
Shares Amount Shares Amount adjustment (deficit) equity
------ ------ ------ ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993. . . . . . . . . 5 $ 2,625 3,483 $ 62 (147) 828 3,368
Exercise of stock options and warrants . . - - 30 66 - - 66
Issuance of common stock . . . . . . . . . - - 250 600 - - 600
Net loss . . . . . . . . . . . . . . . . . - - - - - (2,738) (2,738)
Foreign currency translation adjustment. . - - - - 221 - 221
--- -------- ------- -------- ----- ------ ------
Balance at March 31, 1994. . . . . . . . . 5 2,625 3,763 728 74 (1,910) 1,517
Preferred stock converted to common
stock . . . . . . . . . . . . . . . . . (1) (812) 630 812 - - -
Exercise of stock options and warrants . . - - 75 69 - - 69
Issuance of common stock . . . . . . . . . - - - - - - -
Net loss . . . . . . . . . . . . . . . . . - - - - - (1,527) (1,527)
Foreign currency translation adjustment. . - - - - (32) - (32)
--- -------- ------- -------- ----- ------ ------
Balance at March 31, 1995. . . . . . . . . 4 1,813 4,468 1,609 42 (3,437) 27
Preferred stock converted to common
stock . . . . . . . . . . . . . . . . . (4) (1,813) 1,534 1,813 - - -
Exercise of stock options and warrants . . - - 791 1,343 - - 1,343
Issuance of common stock, net of
offering costs of $1,047. . . . . . . . - - 1,500 9,415 - - 9,415
Net income . . . . . . . . . . . . . . . . - - - - - 826 826
Foreign currency translation adjustment. . - - - - (120) - (120)
--- -------- ------- -------- ----- ------ ------
Balance at March 31, 1996. . . . . . . . . - $ - 8,293 $ 14,180 (78) (2,611) 11,491
--- -------- ------- -------- ----- ------ ------
--- -------- ------- -------- ----- ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ 826 (1,527) (2,738)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 1,849 1,643 1,479
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (1,315) (1,597) 671
Prepaid expenses and other assets . . . . . . . . . . . . . . . (558) 40 (116)
Accounts payable and accrued expenses . . . . . . . . . . . . . 1,067 372 720
Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . 1,369 1,404 508
--------- ------ -----
Net cash provided by operating activities. . . . . . . . . 3,238 335 524
--------- ------ -----
Cash flows from investing activities:
Capital expenditures for furniture, fixtures and equipment . . . . . (1,285) (543) (429)
Capital expenditures for library costs . . . . . . . . . . . . . . . (1,016) (898) (1,312)
--------- ------ -----
Net cash used in investing activities. . . . . . . . . . . (2,301) (1,441) (1,741)
--------- ------ -----
Cash flows from financing activities:
Proceeds from line of credit . . . . . . . . . . . . . . . . . . . . - 12,088 800
Payments on line of credit . . . . . . . . . . . . . . . . . . . . . (1,910) (11,178) -
Proceeds from subordinated debt. . . . . . . . . . . . . . . . . . . 50 338 660
Principal payments on capital leases . . . . . . . . . . . . . . . . (645) (533) (355)
Proceeds from sale of common stock, net of offering costs. . . . . . 9,415 - 600
Proceeds from exercise of common stock options and warrants. . . . . 1,224 69 66
--------- ------ -----
Net cash provided by financing activities. . . . . . . . . 8,134 784 1,771
--------- ------ -----
Effect of exchange rate changes on cash and cash equivalents. . . . . . (42) (121) (1)
--------- ------ -----
Net change in cash and cash equivalents. . . . . . . . . . 9,029 (443) 553
--------- ------ -----
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . 1,179 1,622 1,069
--------- ------ -----
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . $ 10,208 1,179 1,622
--------- ------ -----
--------- ------ -----
Supplemental disclosures of cash flow information:
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 536 375 150
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 - -
--------- ------ -----
--------- ------ -----
Supplemental disclosure of non-cash investing and
financing activities:
Acquisition of equipment under capital lease obligations. . . . . . $ 543 363 1,182
Subordinated debt applied to exercise of warrants . . . . . . . . . 119 - -
Preferred stock converted to common stock . . . . . . . . . . . . . 1,813 812 -
--------- ----- -----
--------- ----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Analogy, Inc. and subsidiaries (the Company) develops, markets and
supports high-performance software and model libraries for the
top-down design and behavioral simulation of mixed-signal and
mixed-technology systems. The Company's Saber simulator is used in
many applications, ranging from the design of complex mixed-signal
application-specific integrated circuits to the design of consumer
electronics and automotive systems.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of the Company and its wholly-owned subsidiaries, Analogy
UK Ltd., Analogy GmbH, and Analogy France SARL. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
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 reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency in the Company's
foreign subsidiaries. Assets and liabilities of the foreign
subsidiaries are translated to U.S. dollars at current rates of
exchange, and revenues and expenses are translated using weighted average
rates during the year, in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation."
Foreign currency translation adjustments are included as a separate
component of shareholders' equity. Foreign currency transaction gains
and losses are included as a component of other income and expense.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to
concentration of credit risk consist primarily of accounts
receivable. At March 31, 1996 and 1995, European customers
accounted for approximately 53% and 65%, respectively, of accounts
receivable. To reduce credit risk, the Company performs ongoing
credit evaluations of its customers' financial condition. The
Company does not generally require collateral.
The Company historically has derived a significant portion of its revenue
from the automotive, aerospace and defense industries.
(Continued)
F - 8
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and temporary overnight
investments.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost. Furniture and
equipment under capital leases are stated at the lower of the
present value of minimum lease payments at the beginning of the
lease term or fair value of the leased assets at the inception of the
lease.
Depreciation on furniture, fixtures and equipment is calculated on
the straight-line method over the estimated useful lives of the
related assets, ranging from three to seven years. Furniture and
equipment held under capital leases are amortized on the straight-line
method over the shorter of the related lease term or estimated
economic life of the leased assets.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
To date, the Company has not capitalized software development costs
after technological feasibility has been established since the time
between product release and establishment of technological
feasibility is limited. During fiscal 1996, the Company was awarded a
research grant which covers a three year period, pursuant to which
the Company is obligated to provide matching indirect cost of
support up to $400,000 and to deliver research reports over the same
three year period. Reimbursed costs under this grant in fiscal
1996 were $373,000.
LIBRARY COSTS
Library costs consisting of development costs associated with creating
the library of component and template models are capitalized and
amortized on a straight-line basis over the estimated product life
of five years, or on the ratio of current revenues to total projected
product revenues, whichever is greater.
The Company recognized amortization expense of approximately
$841,000, $813,000 and $881,000 related to its capitalized library
costs during the years ended March 31, 1996, 1995 and 1994,
respectively.
REVENUE RECOGNITION
Software and license fee revenues are recognized at the time of
shipment. Software maintenance and library subscription agreements
are billed in advance and recorded as unearned revenue. Unearned
maintenance and library subscription revenues are recognized
ratably over the contractual period. Contract modeling and nonrecurring
engineering project revenues are recognized on the completed
contract method. Revenues from training and other service are
billed separately and recognized as the services are provided. Revenue
related to original equipment manufacturer (OEM) contracts is
recognized upon receipt of the OEM sales information. Product
licenses include a limited initial term of product maintenance, the
costs of which are insignificant.
(Continued)
F - 9
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and
liabilities are recognized for the 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 expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered 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.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding. Common equivalent
shares from stock options, warrants and preferred stock are
excluded from the computation if their effect is antidilutive, except
that, pursuant to Securities and Exchange Commission Staff
Accounting Bulletins, common and common equivalent shares issued at
prices below the public offering price during the twelve months
immediately preceding the initial filing date have been included in the
calculation as if they were outstanding for all periods presented
(using the treasury stock method and the initial public offering
price).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because of
the short-term nature of these instruments. The fair value of
subordinated debt is estimated by discounting the expected future cash
flows using market interest rates and does not differ significantly
from the carrying value reflected in the consolidated balance
sheets.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument when
available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
ADVERTISING COSTS
The costs of advertising are expensed the first time the
advertisement takes place. Advertising expense for fiscal 1996,
1995 and 1994 was approximately $147,000, $310,000 and $120,000,
respectively.
(Continued)
F - 10
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) FURNITURE, FIXTURES AND EQUIPMENT, NET
Furniture, fixtures and equipment, net consists of the following (in
thousands):
1996 1995
---- ----
Office furniture. . . . . . . . . . . . . . . . . . . . $ 541 302
Computer equipment. . . . . . . . . . . . . . . . . . . 2,782 1,976
Capital leases. . . . . . . . . . . . . . . . . . . . . 3,206 2,663
Software. . . . . . . . . . . . . . . . . . . . . . . . 550 339
-------- -----
7,079 5,280
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . 3,966 2,977
-------- -----
Furniture, fixtures and
equipment, net . . . . . . . . . . . . . . . . $ 3,113 2,303
-------- -----
-------- -----
(3) LEASES
The Company has entered into various capital leases for certain
furniture and equipment that expire at various dates during the next
five years. Several capital leases require that the Company remit
security deposits as collateral for the lease. Security deposits are
generally released by the leasing company at the rate of one-half at
twelve months and one-half at twenty-four months from the date of
lease inception.
Furniture, fixtures and equipment, net include the following capital
lease amounts (in thousands):
1996 1995
---- ----
Furniture and equipment . . . . . . . . . . . . . . . . $ 3,206 2,663
Less accumulated depreciation . . . . . . . . . . . . . (1,819) (1,279)
-------- -----
$ 1,387 1,384
-------- -----
-------- -----
The Company also leases its office facilities and certain office equipment
under non-cancelable operating lease agreements.
(Continued)
F - 11
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum lease payments under these leases are as follows (in
thousands):
Capital Operating
leases leases
------- ----------
Year ending March 31:
1997 . . . . . . . . . . . . . . . . . . . . $ 638 817
1998 . . . . . . . . . . . . . . . . . . . . 345 652
1999 . . . . . . . . . . . . . . . . . . . . 101 606
2000 . . . . . . . . . . . . . . . . . . . . 16 483
2001 . . . . . . . . . . . . . . . . . . . . - 383
Thereafter . . . . . . . . . . . . . . . . . - 287
------- ------
Total minimum lease payments. . . . . . 1,100 $ 3,228
------
------
Less amount representing interest . . . . . . . 140
------
Present value of net minimum capital
lease payments. . . . . . . . . . . . 960
Less current portion of capital leases. . . . . 537
------
Non-current portion of capital leases . $ 423
------
------
Rent expense from operating leases for the year ended March 31, 1996,
1995 and 1994 was approximately $1,266,000, $1,167,000 and $623,000,
respectively.
(4) SUBORDINATED DEBT
At March 31, 1996 and 1995, the Company had $929,000 and $998,000 of
subordinated debt, of which $288,000 is payable in Swiss francs, due
to certain shareholders, two of whom are directors of the Company.
The debt is subordinated to any loan or advance made by one of the
Company's banks (but not in excess of $3,000,000). The notes bear
interest at 4.5% above the closing mid-point rate of the Euro dollar
and Swiss franc quotations on December 30, 1994 (7.69% and 4.63%,
respectively) as published by the Financial Times London, or at 6.5%
whichever is greater, through maturity on May 31, 1996.
In connection with the subordinated debt, certain lenders obtained
rights to receive stock purchase warrants. During fiscal 1996 all
stock purchase warrants held by these lenders were exercised. See
note 6.
(Continued)
F - 12
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) SHAREHOLDERS' EQUITY
PREFERRED STOCK
In 1986, the Board designated the Series A preferred stock. Each
share automatically converted into 400 shares of common stock on
March 22, 1996, the effective date of the Company's initial public
offering.
STOCK SPLIT
The Board of Directors and shareholders of the Company approved a
one-for-four reverse stock split of all outstanding shares of the
Company's capital stock in May 1995. Options granted under the
Company's amended 1986 Stock Option and the 1993 Stock Incentive
Plans which had not been exercised or which were not expired as of the
effective date of the reverse split will be exercisable at .25
times the number of shares of common stock set forth in the option
certificate, and the option exercise price per share will be four times
the exercise price set forth in the option certificate. All
references in the accompanying consolidated financial statements to
the number of common and preferred shares outstanding, warrants and
options have been restated to reflect the effect of the stock split.
(6) STOCK OPTIONS AND WARRANTS
STOCK OPTION PLANS
In September 1986, the Company adopted the 1986 Stock Option Plan and
reserved 625,000 shares for issuance. In January 1993, the Company
simultaneously adopted the 1993 Stock Incentive Plan and reserved
535,005 shares for issuance. In June 1994, an additional 392,906
shares were reserved for the 1993 Stock Incentive Plan. The 1993 Stock
Incentive Plan is scheduled to expire in 2003 unless terminated
sooner by the Company or options have been granted and exercised on
all shares available under the Plan. The Board of Directors may
grant either incentive stock options with an exercise price of not less
than the fair market value of the common stock at the date of grant
or non-qualified stock options with an exercise price of not less
than 85% of the fair market value of the common stock at the date
of grant. The Board of Directors shall determine the period of each
option and the time or times at which options may be exercised and
any restrictions on the transfer of stock issued upon exercise of
any options. The options generally vest over a period of four years
and are exercisable over a period of ten years.
(Continued)
F - 13
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Number of Price
shares range
--------- ------------
<S> <C> <C>
Outstanding options March 31, 1993. . . 619,020 $.10 - 2.40
Granted . . . . . . . . . . . . . . . . 91,450 2.40
Exercised . . . . . . . . . . . . . . . (4,784) .80 - 1.40
Canceled. . . . . . . . . . . . . . . . (10,280) .80 - 1.40
-------- -------------
Outstanding options March 31, 1994. . . 695,406 .10 - 2.40
Granted . . . . . . . . . . . . . . . . 203,975 2.40 - 4.00
Exercised . . . . . . . . . . . . . . . (75,088) .10 - 2.40
Canceled. . . . . . . . . . . . . . . . (15,493) 1.20 - 2.40
-------- -------------
Outstanding options March 31, 1995. . . 808,800 .10 - 4.00
Granted . . . . . . . . . . . . . . . . 347,410 4.00 - 8.50
Exercised . . . . . . . . . . . . . . . (78,100) .12 - 2.40
Canceled. . . . . . . . . . . . . . . . (31,050) 1.20 - 2.40
-------- -------------
Outstanding options March 31, 1996. . . 1,047,060 $ .10 - 8.50
-------- -------------
-------- -------------
</TABLE>
At March 31, 1996, approximately 389,000 of the options outstanding were
exercisable.
STOCK WARRANTS
During the year ended March 31, 1994, the Company issued two sets of
exercisable warrants to preferred shareholders, the "1994 Issue" and
the "1995 Issue". Each issue was for 540,250 shares of common stock.
Each warrant allowed the shareholder, for every share of preferred
stock held, to receive 100 shares of common stock at the price of $2.40
and $4.00 for the 1994 and 1995 Issue, respectively.
During fiscal 1996 all warrants were surrendered or exercised for 713,294
common shares for aggregate consideration of approximately $1,261,000 of
which approximately $119,000 was from the forgiveness of subordinated debt.
(Continued)
F-14
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) INCOME TAXES
Income (loss) before income taxes was as follows (in thousands):
1996 1995 1994
---- ---- ----
United States . . . . . . . . . . . . . . . . . . $(1,336) (3,580) (3,234)
Foreign . . . . . . . . . . . . . . . . . . . . . 2,532 2,249 549
------- ------ ------
$ 1,196 (1,331) (2,685)
------- ------ ------
------- ------ ------
Income tax expense consists of the following (in thousands):
1996 1995 1994
---- ---- ----
Current:
Federal. . . . . . . . . . . . . . . . . . . . $ - (6) (55)
State. . . . . . . . . . . . . . . . . . . . . 28 15 10
Foreign. . . . . . . . . . . . . . . . . . . . 331 187 98
---- --- ---
. . . . . . . . . . . . . . . . . . . . . . 359 196 53
Deferred:
Federal. . . . . . . . . . . . . . . . . . . . - - -
State. . . . . . . . . . . . . . . . . . . . . - - -
Foreign. . . . . . . . . . . . . . . . . . . . 11 - -
---- --- ---
Total . . . . . . . . . . . . . . . . . . $ 370 196 53
---- --- ---
---- --- ---
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal corporate income tax rate of 34%
to net income (loss) before income taxes) as follows (in thousands):
1996 1995 1994
---- ---- ----
Computed expected income tax expense (benefit). . . . . . $ 407 (453) (913)
Increase (reduction) in income tax expense
(benefit) resulting from:
State income tax expense (benefit) . . . . . . . . . 39 (35) (49)
Foreign taxes. . . . . . . . . . . . . . . . . . . . 126 118 83
Benefit of tax credits . . . . . . . . . . . . . . . - (33) (89)
Change in tax method of accounting
for unearned revenue. . . . . . . . . . . . . . . - - 72
Increase (decrease) in valuation allowance . . . . . (237) 547 880
Other. . . . . . . . . . . . . . . . . . . . . . . . 35 52 69
----- ---- ----
Income tax expense. . . . . . . . . . . . . . . $ 370 196 53
----- ---- ----
----- ---- ----
(Continued)
F - 15
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below (in thousands):
1996 1995
---- ----
Deferred tax assets:
Unearned library and maintenance revenue . . . . . . $ 496 370
Federal and state net operating loss carryforwards . 881 1,063
Foreign net operating loss carryforwards . . . . . . 310 371
Research and experimentation credit carryforwards. . 185 185
Foreign tax credit carryforwards . . . . . . . . . . 152 152
Other. . . . . . . . . . . . . . . . . . . . . . . . 220 223
------ ------
Total gross deferred tax assets . . . . . . . 2,244 2,364
Less valuation allowance . . . . . . . . . . . . . . (1,190) (1,427)
------ ------
Net deferred tax assets . . . . . . . . . . . 1,054 937
------ ------
Deferred tax liabilities:
Furniture, fixtures and equipment, due
to differences in depreciation . . . . . . . . . . (242) (192)
Capitalized library costs. . . . . . . . . . . . . . (812) (745)
------ ------
Total gross deferred tax liabilities. . . . . (1,054) (937)
------ ------
Net deferred taxes. . . . . . . . . . . . . . $ - -
------ ------
------ ------
The valuation allowance for deferred tax assets as of March 31, 1996 was
approximately $1,190,000. The net change in the total valuation allowance
for the years ended March 31, 1996, 1995 and 1994 was an increase (decrease)
of approximately $(237,000), $547,000 and $880,000, respectively.
(Continued)
F - 16
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At March 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes which can be used to offset future
income subject to taxes. In addition, there are unused research and
experimentation and foreign tax credits which can be offset against future
federal income taxes after the loss carryforwards. Such loss carryforwards
and tax credits are summarized below (in thousands):
Expiration
Amount dates
------ ----------
Loss carryforwards:
Federal . . . . . . . . . . . . . . . . . . . . $2,260 2002-2010
State . . . . . . . . . . . . . . . . . . . . . 2,549 1998-2010
Research and experimentation credits
(federal only). . . . . . . . . . . . . . . . . 185 2001-2011
Foreign tax credits (federal only). . . . . . . . 152 1998-1999
In addition, the Company has foreign income tax net operating losses of
approximately $908,000, which expire in various years.
Due to the change in the Company's fiscal year end, federal and state net
operating losses of approximately $950,000 are to be deducted ratably over
the six year period from March 31, 1995 to March 31, 2000.
(8) PROFIT SHARING PLAN
Effective January 1, 1988, the Company adopted a profit sharing plan
covering substantially all employees. The plan has 401(k) provisions
whereby employees contribute to the plan through payroll deductions.
The Company may elect to make discretionary contributions to the plan which
are approved by the Board of Directors. The Company did not make a
discretionary contribution for the years ended March 31, 1996, 1995 or 1994.
(9) LINE OF CREDIT AND TERM LOAN AGREEMENT
During 1995, the Company established a revolving line of credit with a bank
for $2,000,000, which bore an interest rate of prime plus 1% to 2%, of which
$1,910,000 was outstanding at March 31, 1995. This facility was converted to
a term loan on April 1, 1995 and was subsequently paid with the proceeds from
a new $2,000,000 facility established with another bank. Under the new
facility the bank agreed to purchase up to $2,000,000 of domestic accounts
receivable at a discount rate of 2%.
In September 1995, the Company terminated this $2,000,000 facility and
entered into a new $3,000,000 annually renewable agreement with a new bank.
Under this agreement, the bank agreed to purchase up to $3,000,000 of
domestic and foreign accounts receivable at a discount rate of 1.60% per
month of the average daily balance outstanding. In March 1996, this
agreement was terminated and amounts outstanding were paid in full from
proceeds received from sale of the Company's common stock.
(Continued)
F - 17
<PAGE>
ANALOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, comprising the
systems design automation industry.
The Company's geographic revenues and operating income (loss) are
summarized as follows (in thousands):
1996 1995 1994
---- ---- ----
Geographic revenues:
United States. . . . . . . . . . . . . . . . $14,188 9,717 7,765
Europe . . . . . . . . . . . . . . . . . . . 7,550 6,538 4,141
------- ------ ------
$21,738 16,255 11,906
------- ------ ------
------- ------ ------
Export sales. . . . . . . . . . . . . . . . . . $ 1,911 1,766 1,230
------- ------ ------
------- ------ ------
Operating income (loss):
United States. . . . . . . . . . . . . . . . (814) (3,174) (2,955)
Europe . . . . . . . . . . . . . . . . . . . 2,533 2,251 537
------- ------ ------
$ 1,719 (923) (2,418)
------- ------ ------
------- ------ ------
Revenue from one customer accounted for 13.6% of total revenue for the year
ended March 31, 1996. There were no revenues from one customer which
accounted for more than 10% of total revenues for 1995 and 1994.
1996 1995
---- ----
Identifiable assets:
United States. . . . . . . . . . . . . . . . . . . $17,877 6,445
Europe . . . . . . . . . . . . . . . . . . . . . . 4,417 3,930
------- ------
$22,294 10,375
------- ------
------- ------
F - 18
<PAGE>
EXHIBIT 10.15
ANALOGY, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following provisions constitute the Analogy, Inc. 1996 Employee Stock
Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.
2. DEFINITIONS.
2.1 "ACCOUNT" shall mean each separate account maintained for a
Participant under the Plan, collectively or singly as the context requires.
Each Account shall be credited with a Participant's contributions, and shall be
charged for the purchase of Common Stock. A Participant shall be fully vested
in the cash contributions to his or her account at all times. The Plan
Administrator may create special types of accounts for administrative reasons,
even though the Accounts are not expressly authorized by the Plan.
2.2 "BOARD" shall mean the Board of Directors of the Company.
2.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "COMMITTEE" shall mean the Compensation Committee of the Board.
2.5 "COMMON STOCK" shall mean the Common Stock of the Company.
2.6 "COMPANY" shall mean Analogy, Inc., an Oregon corporation.
2.7 "COMPENSATION" shall mean all base straight time gross earnings
plus payments for overtime, shift premiums and sales commissions, but excluding
incentive compensation, incentive payments, bonuses, awards, and other
compensation.
2.8 "DESIGNATED SUBSIDIARY" shall mean each Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
2.9 "EMPLOYEE" shall mean an individual who renders services to the
Company or to a Designated Subsidiary pursuant to a regular-status employment
relationship with such employer. A person rendering services to the Company or
to a Designated Subsidiary purportedly as an independent consultant or
contractor shall not be an Employee for purposes of the Plan.
2.10 "ENROLLMENT DATE" shall mean the first day of each Offering
Period.
2.11 "FAIR MARKET VALUE"
2.11.1 If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sale
price for the Common Stock (or the mean of the closing bid and asked prices, if
no sales were reported), as quoted on such exchange (or the exchange with the
greatest volume of trading in Common Stock) or system on the last Trading Day
prior to the day of such determination, as reported in THE WALL STREET JOURNAL
or such other source as the Board deems reliable, or;
1
<PAGE>
2.11.2 If the Common Stock is quoted on the NASDAQ system (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the last Trading Day prior to the day of such determination, as
reported in THE WALL STREET JOURNAL or such other source as the Board deems
reliable, or;
2.11.3 In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
2.12 "NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotation System or such other quotation system that
supersedes it.
2.13 "OFFERING PERIOD" shall mean the period of approximately six
(6) months, commencing on the first Trading Day on or after a date designated
in advance by the Board and terminating on the last Trading Day in the period
ending six months later, during which an option granted pursuant to the Plan
may be exercised. The duration of Offering Periods may be changed pursuant to
Section 4 of this Plan.
2.14 "PARTICIPANT" shall mean any Employee who is participating in
this Plan by meeting the eligibility requirements of Section 3 and has
completed a Payroll Deduction Authorization Form.
2.15 "PAYROLL PARTICIPATION FORM" shall mean the form provided by
the Company on which a Participant shall elect to participate in the Plan and
designate the percentage of his or her Compensation to be contributed to his or
her Account through payroll deductions.
2.16 "PLAN" shall mean this Employee Stock Purchase Plan.
2.17 "PURCHASE DATE" shall mean the last day of each Offering Period.
2.18 "PURCHASE PRICE" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock (i) on the Enrollment Date or (ii) on
the Purchase Date, whichever is lower.
2.19 "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
2.20 "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company of a Subsidiary.
2.21 "TRADING DAY" shall mean a day on which national stock exchanges
and NASDAQ are open for trading.
3) ELIGIBILITY.
3.1 An Employee shall become eligible to participate in the Plan on
the first Enrollment Date on or after which he or she first meets all of the
following requirements; provided, however, that no one shall become eligible to
participate in the Plan prior to the Enrollment Date of the first Offering
Period provided for in Section 2.13:
3.1.1 The person's customary period of employment is for more
than twenty (20) hours per week;
3.1.2 The person's customary period of employment is for more
than five (5) months in any calendar year.
2
<PAGE>
3.2 Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after
the grant, such Employee (or any other person whose stock would be attributed
to such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans (under Section 423 of
the Code) of the Company and Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair
market value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
3.3 For purposes of the Plan, eligibility shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or
by contract, eligibility to participate in the Plan will be deemed to have
terminated on the 91st day of such leave.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with the first Offering Period commencing on a date designated
in advance by the Board, and continuing for six month periods thereafter until
terminated in accordance with Section 19 hereof. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
5.1 An eligible Employee may become a Participant in the Plan by
completing a Payroll Participation Form and filing it with the Company's Human
Resources Department (as set forth in Section 20 below) at least fifteen (15)
days prior to the applicable Enrollment Date, unless a later time for filing
the Payroll Participation Form is set by the Board for all eligible Employees
with respect to a given Offering Period.
5.2 Payroll deductions for a Participant shall commence on the first
payroll period following the Enrollment Date and shall end on the last payroll
period in the Offering Period, unless sooner terminated by the Participant as
provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
6.1 At the time a Participant files his or her Payroll Participation
Form, he or she shall elect to have payroll deductions made on each payday
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each payday during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed ten percent (10%) of the Participant's Compensation during
said Offering Period.
6.2 A Participant shall specify that he or she desires to make
contributions to the Plan in whole percentages not less than one percent (1%)
and not more than ten percent (10%) of the Participant's Compensation during
each pay period in the Offering Period, or such other minimum or maximum
percentage as the Board shall establish from time to time.
6.3 All payroll deductions made for a Participant shall be credited
to his or her Account under the Plan and will be withheld in whole percentages
only. A Participant may not make any additional payments into such Account.
6.4 A Participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by filing with the
Company (as set forth in Section 20 below) a new Payroll Participation Form
authorizing a change in payroll deduction rate. A Participant is limited to
making one change during an Offering Period. The change in rate shall be
effective as
3
<PAGE>
soon as practicable following the Company's receipt of a new Payroll
Participation Form. A Participant's Payroll Participation Form shall remain in
effect for successive Offering Periods unless terminated as provided in Section
10.
6.5 Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3.2 hereof, a Participant's
payroll deductions shall be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year (the "Current
Offering Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250 (85% of $25,000).
Payroll deductions shall recommence at the rate provided in such Participant's
Payroll Participation Form at the beginning of the first Offering Period which
is scheduled to end in the following calendar year, unless terminated by the
Participant as provided in Section 10.
6.6 At the time the option is exercised, or at the time some or all
of the Common Stock issued under the Plan is disposed of, the Participant must
make adequate provision for the Company's federal, state, or other tax
withholding obligations, if any, which arise upon the exercise of the option or
the disposition of the Common Stock. At any time, the Company may, but will
not be obligated to, withhold from the Participant's compensation the amount
necessary for the Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any tax deductions or
benefit attributable to sale or early disposition of Common Stock by the
Employee.
7. OPTION TO PURCHASE COMMON STOCK. On the Enrollment Date of each
Offering Period, each eligible Employee participating in such Offering Period
shall be granted an option to purchase on the Purchase Date of such Offering
Period (at the applicable Purchase Price) up to a number of shares of the
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Purchase Date and retained in the Participant's
account as of the Purchase Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Offering
Period more than a number of shares determined by dividing $12,500 by the Fair
Market Value of a share of the Common Stock on the Enrollment Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3.2 and 12 hereof. Purchase of the Common Stock shall occur
as provided in Section 8, unless the Participant has withdrawn pursuant to
Section 10, and the option shall expire on the last day of the Offering Period.
8. PURCHASE OF COMMON STOCK. Unless a Participant withdraws from the
Plan as provided in Section 10.1 below, his or her option for the purchase of
Common Stock will be exercised automatically on the Purchase Date, and the
maximum number of full shares subject to option shall be purchased for such
Participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares of Common Stock will be
purchased; any payroll deductions accumulated in a Participant's account which
are not sufficient to purchase a full share shall be retained in the
Participant's account for the subsequent Offering Period, subject to earlier
withdrawal by the Participant as provided in Section 10 hereof. During a
Participant's lifetime, a Participant's option to purchase shares of Common
Stock hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date, the
Company shall arrange the delivery to each Participant of a certificate for the
shares of Common Stock purchased with his or her payroll deductions.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
10.1 A Participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to purchase
shares of Common Stock under the Plan by giving written notice to the Company
(as set forth in Section 20 below) no less than 15 days immediately preceding a
Purchase Date. All of the Participant's payroll deductions credited to his or
her Account will be paid to such Participant as soon as practicable after
receipt of notice of withdrawal and such Participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period. If a
Participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the
Participant delivers to the Company a new Payroll Participation Form.
4
<PAGE>
10.2 Upon termination of a Participant's employment for any reason,
including death, disability or retirement, or a Participant failing to remain
an Employee of the Company for at least twenty (20) hours per week during an
Offering Period in which the Employee is a Participant, he or she will be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to such Participant's Account shall be returned to the Participant;
or, in the case of death, to the persons entitled thereto under Section 14, and
such Participant's option shall be automatically terminated.
11. INTEREST. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
12. STOCK.
12.1 The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 300,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18. If on a given Purchase Date the number of shares of Common
Stock eligible to be purchased exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
12.2 The Participant will have no interest or voting right in shares
covered by his or her option until such shares of Common Stock have been
purchased.
12.3 Common Stock to be delivered to a Participant under the Plan
will be registered in the name of the Participant or in the name of the
Participant and his or her spouse.
13. ADMINISTRATION.
13.1 ADMINISTRATIVE BODY. The Plan shall be administered by the
Committee. Subject to the terms of the Plan, the Committee shall have the
power to construe the provisions of the Plan, to determine all questions
arising thereunder, and to adopt and amend such rules and regulations for
administering the Plan as the Committee deems desirable.
13.2 RULE 16b-3 LIMITATIONS. Notwithstanding the provisions of
Subsection 13.1, in the event that Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor provision ("Rule 16b-3")
provides specific requirements for the administrators of plans of this type,
the Plan shall be only administered by such a body and in such a manner as
shall comply with the applicable requirements of Rule 16b-3.
14. DESIGNATION OF BENEFICIARY.
14.1 A Participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event of such Participant's death subsequent to a
Purchase Date on which the option is exercised but prior to delivery to such
Participant of such shares and cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
prior to a Purchase Date.
14.2 Such designation of beneficiary may be changed by the
Participant at any time by written notice as provided in Section 20 below. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by
5
<PAGE>
the Participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds from an Offering Period in accordance with
Section 10.
16. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each Participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER OR ASSET SALE.
18.1 CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the Reserves, as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option. The Board may, if it so determines in
the exercise of its sole discretion, make provision for adjusting the Reserves,
as well as the price per share of Common Stock covered by each outstanding
option, in the event the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of shares
of its outstanding Common Stock.
18.2 DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
18.3 MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed
or any equivalent option shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Period then in progress by
setting a new Purchase Date (the "New Purchase Date") or to cancel each
outstanding right to purchase and refund all sums collected from Participants
during the Offering Period then in progress. If the Board shortens the
Offering Period then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each Participant in
writing, at least ten (10) business days prior to the New Purchase Date, that
the Purchase Date for his option has been changed to the New Purchase Date and
that his option will be exercised automatically on the New Purchase Date,
unless prior to such date he has withdrawn from the Offering Period as provided
in Section 10 hereof. For purposes of this paragraph, an option granted under
the Plan shall be deemed to be assumed if, following the sale of assets or
merger, the option confers the right to purchase, for each share of option
stock subject to the option immediately prior to the sale of assets or merger,
the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
share of Common Stock held on the effective date of the transaction (and if
such holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the sale of assets or
merger was not solely common stock of the successor corporation or its parent
(as defined in Section 424(e) of the Code), the Board may, with the consent of
the successor corporation and the Participant, provide for the consideration to
be received upon exercise of the option to be solely common stock of the
successor corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the sale of assets or
merger.
19. AMENDMENT OR TERMINATION.
6
<PAGE>
19.1 The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 18, no such termination can affect
options previously granted, provided that an Offering Period may be terminated
by the Board on any Purchase Date if the Board determines that the termination
of the Plan is in the best interests of the Company and its stockholders.
Except as provided in Section 18, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
Participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law or regulation),
the Company shall obtain stockholder approval in such a manner and to such a
degree as required.
19.2 Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Committee shall be entitled to change the Offering Periods, limit the frequency
and/or number of changes in the amount withheld during an Offering Period,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount
designated by a Participant in order to adjust for delays or mistakes in the
Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each Participant properly correspond with amounts withheld from the
Participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
19.3 If required to qualify the Plan under Rule 16b-3, no amendment
shall be made more than once every six months that would change the amount,
price or timing of the options, other than to comport with changes in the Code,
or the rules and regulations promulgated thereunder; and provided, further,
that if required to qualify the Plan under Rule 16b-3, no amendment shall be
made without the approval of the Company's stockholders that would:
19.3.1 materially increase the number of shares of Common Stock
that may be issued under the Plan;
19.3.2 materially modify the requirements as to eligibility for
participation in the Plan; or
19.3.3 otherwise materially increase the benefits accruing to
participants under the Plan.
20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company by the Company's Chief
Financial Officer at the Company's corporate headquarters.
21. CONDITIONS UPON ISSUANCE OF SHARES OF COMMON STOCK. Common Stock
shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
As a condition to the purchase of Common Stock, the Company may
require the person purchasing such Common Stock to represent and warrant at the
time of any such purchase that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.
22. TERM OF PLAN.
22.1 The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated pursuant to Section 19.
22.2 Notwithstanding the above, the Plan is expressly made subject
(i) to the approval of the holders of a majority of the outstanding shares of
the Company within 12 months after the date the Plan is adopted and (ii) at its
7
<PAGE>
election, to the receipt by the Company from the Internal Revenue Service of a
ruling in scope and content satisfactory to counsel to the Company, affirming
the qualification of the Plan within the meaning of Section 423 of the Code.
If the Plan is not so approved by the stockholders within 12 months after the
date the Plan is adopted, and if, at the election of the Company a ruling from
the Internal Revenue Service is sought but is not received on or before one
year after the Plan's adoption by the Board, this Plan shall not come into
effect. In that case, the Account of each Participant shall forthwith be paid
to him or her.
23. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
8
<PAGE>
EXHIBIT 11.0
ANALOGY, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------
1996 1995 1994
----- ------- -------
<S> <C> <C> <C>
Net income (loss) $ 826 $(1,527) $(2,738)
----- ------- -------
----- ------- -------
Net income (loss) per share (1) $0.11 $ (0.30) $ (0.63)
----- ------- -------
----- ------- -------
Weighted average shares outstanding:
Common Stock 4,816 4,378 3,624
Dilutive stock options and warrants, using the
treasury stock method 3,004 710 710
----- ------- -------
Shares used in calculations 7,280 5,088 4,334
----- ------- -------
----- ------- -------
</TABLE>
(1) Fully diluted earnings per share is not disclosed on the consolidated
statements of operations as it is not more than three percent different from
primary earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-K FOR THE YEAR
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
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0
0
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