<PAGE>
As filed with the Securities and Exchange Commission on November 13, 2000
Registration No. 333-47452
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
SiRF TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 3812 77-0557635
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
148 E. Brokaw Road
San Jose, California 95112
(408) 467-0410
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
--------------
Jackson Hu
President and Chief Executive Officer
SiRF TECHNOLOGY, INC.
148 E. Brokaw Road
San Jose, California 95112
(408) 467-0410
(Name, address, including zip code and telephone number, including area code,
of agent for service of process)
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Copies to:
<TABLE>
<S> <C>
Jorge del Calvo, Esq. Jeffrey R. Vetter, Esq.
Allison Leopold Tilley, Esq. Scott J. Leichtner, Esq.
Davina K. Kaile, Esq. Fenwick & West LLP
Pillsbury Madison & Sutro LLP Two Palo Alto Square
2550 Hanover Street Palo Alto, CA 94306
Palo Alto, CA 94304
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF FILING FEE
<TABLE>
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------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Securities to be Offering Price Aggregate Registration
To Be Registered Registered(1) Per Share Offering Price(2) Fee(3)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value
per share...................... 5,750,000 $12.00 $69,000,000 $18,216
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 750,000 shares subject to an over-allotment option granted to the
underwriters.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) A filing fee of $22,770 was previously paid by the Registrant.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued November 13, 2000
5,000,000 Shares
[SiRF LOGO]
COMMON STOCK
-----------
SiRF Technology, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $10 and
$12 per share.
-----------
We have filed an application for our common stock to be quoted on the Nasdaq
National Market under the symbol "SIRF."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Discounts Proceeds
Price to and to
Public Commissions SiRF
-------- ------------ --------
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total............................................ $ $ $
</TABLE>
SiRF has granted the underwriters the right to purchase up to an additional
750,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
ROBERTSON STEPHENS
UBS WARBURG LLC
, 2000
<PAGE>
Inside front Cover
------------------
"Location Awareness Application & Services" appears at top to the right of the
page
Under this is a picture of: a PDA navigator, a young girl, a tracking device in
"Helping Loved Ones" a wrist watch. Next to the devices on the right appears
"Child/Elderly/Pet Locator" "Helping Loved Ones"
Under that appears
In the center appears a picture of a car, a cell phone and a steering wheel.
Under the car appears "Car Navigation & Road-Side Assistance Systems," "Linking
Auto To Information Highway"
Next to the car appears "Drivable"
Next to that on the left hand side of that appears "Safety & Security", "Mobile
Information Access" and "Convenience"
Next to the devices on the left appears "Wearable"
On the bottom of the page appears a picture of two different personal navigation
devices. Under the two devices appears "Finding Our Way Around" and "Personal
Navigation Systems." Next to the devices appears "Holdable"
<PAGE>
Left Side of the Gatefold
-------------------------
In the center of the page appears "Mobile Internet". Under that appears pictures
of several communication towers and "Communications Network with Location
Intelligence"
To the right appears several pictures under which appears "Location Sensitive
Control & Services"
At the bottom of both the left side and the right side of the gatefold appears
"Location Awareness Infrastructure"
<PAGE>
Right side of the gatefold
--------------------------
In the center and on the right side appears "GPS Enabled Mobile Systems"
Across the top of the page appears "Portable Computing," "PDA Navigator," "Theft
Prevention/Location Lock" and a picture of a PDA and a personal navigator
In center and on the left side appears "E911/SOS Phone," "Phone Navigator,"
"Wireless," "Recreational GPS Handheld," "Embedded Consumer," "GPS Wrist watch"
and a picture of a GPS wrist watch and a GPS handheld device
At the bottom of the page appears a picture of a car and the words "Automotive,"
"Car Security Systems," "Emerging Response Systems," "Fleet Management Tracking"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................. 18
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Selected Consolidated Financial
Data............................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 32
Management....................... 42
Related Party Transactions....... 50
Principal Stockholders........... 52
Description of Capital Stock..... 54
Shares Eligible For Future Sale.. 58
Underwriters..................... 60
Legal Matters.................... 63
Experts.......................... 63
Where You Can Find More
Information..................... 63
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this prospectus or
of any sale of the common stock.
Until , 2001, 25 days after commencement of this offering, all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement
is in addition to the dealer's obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and related notes appearing
elsewhere in this prospectus. You should read the entire prospectus carefully,
especially the risks described in "Risk Factors," before making a decision
whether to purchase our common stock.
SiRF Technology, Inc. develops and markets semiconductor and software
products designed to provide location awareness capabilities in high-volume
mobile consumer devices and commercial applications. Location awareness
capabilities allow a device to determine and use information regarding its
location. Our products use the Global Positioning System, which is a system of
more than 24 satellites that transmit longitude, latitude and time information
to Global Positioning System devices anywhere in the world. Our products have
been integrated into mobile consumer devices such as personal digital
assistants and handheld navigation devices, and into commercial applications
such as automobile navigation systems and property tracking devices.
We market and sell our products in four target markets: wireless handheld,
automotive, portable computing devices such as personal digital assistants, and
embedded consumer applications such as digital cameras and watches. We had
total revenue of $5.3 million in 1999 and $9.9 million for the nine months
ended September 30, 2000. We incurred a net loss of $15.4 million in 1999 and
$11.8 million for the nine months ended September 30, 2000.
Mobile communications devices that use the wireless infrastructure are
gaining broader acceptance among consumers. For example, according to
International Data Corporation, the number of new mobile telephones sold is
expected to increase from 225 million in 1999 to over 539 million in 2003.
Dataquest estimates that the number of handheld and notebook computers sold
will increase from 3.9 million in 1998 to approximately 21 million in 2003. The
ability of these devices to access the Internet is allowing data such as e-mail
and real-time news and information to be delivered to consumers through these
mobile devices. Recent technological advances have created the potential for
location awareness capabilities to be added to mobile devices.
High-volume consumer and commercial applications of location awareness can
be generally classified into three groups: convenience, safety and security and
mobile information access. An example of a convenience application is a
handheld device that provides personal navigation and map capabilities.
Personal safety and security can be enhanced through the ability to locate and
track lost persons using a specifically designed device or a mobile telephone.
Mobile devices that can access the Internet can use location awareness
capabilities to filter information relevant to the user based on his or her
location.
We offer our semiconductors and software in three forms. First, our chip
sets are designed to enable our customers to quickly integrate distinct Global
Positioning System capabilities into their products. Chip sets are the
semiconductor devices used to receive and process signals from Global
Positioning System satellites. Second, customers that need to quickly add
Global Positioning System functionality to devices designed primarily for other
functions may purchase modules based on our chip sets from our value-added
manufacturer customers. Third, we offer licenses of our intellectual property
cores to companies with high-volume requirements. Our intellectual property
cores consist of the design code for our semiconductors and the source code for
the software embedded into our semiconductors. Purchasing our products in this
manner enables our customers to integrate location technology into their
products at a low cost because they do not have to purchase separate chip sets.
Key benefits of our products include their very small size and low power
consumption and heat dissipation, which make them well-suited for mobile
devices. We believe our products can detect and use signals one-tenth the
strength of normal Global Positioning System satellite signals. We believe
products incorporating our technology can acquire signals quickly and
significantly improve the performance of Global Positioning System devices in
urban areas, indoors and under dense foliage.
4
<PAGE>
We do not own a fabrication facility, but use third-party contractors to
perform manufacturing, assembly and test functions. We introduced our first
generation architecture, SiRFstarI, in late 1996. Our architecture is the core
hardware and software used to detect Global Positioning System satellites and
receive and process information from the satellites to determine location. We
introduced a low power product line, called SiRFstarI/LX, in October 1997. We
recently introduced our SiRFstarII architecture in both chip set and
intellectual property core form. We initiated production of our first product
family, called SiRFstarIIe, based on this architecture in August 2000.
We were incorporated in February 1995 and reincorporated in Delaware in
November 2000. Our headquarters are located at 148 E. Brokaw Road, San Jose, CA
95112 and our telephone number is (408) 467-0410. In this prospectus, "SiRF,"
"we," "us" and "our" refer to SiRF Technology, Inc. and its subsidiaries and
not to the underwriters.
SiRF(R) and the SiRF logo are our registered trademarks and SiRFstarI(TM),
SiRFstarII(TM), SiRFLoc(TM), SiRFDRive(TM), WinSiRF(TM), SnapLock(TM),
SnapStart(TM), FoliageLock(TM), SingleSat(TM), Dual Multipath Rejection(TM),
TricklePower(TM) and Push-to-Fix(TM) are our trademarks. This prospectus also
includes trade names, trademarks and service marks of other companies and
organizations.
THE OFFERING
<TABLE>
<C> <S>
Common stock offered............................... 5,000,000 shares
Common stock to be outstanding after the offering.. 27,969,267 shares
Use of proceeds.................................... We intend to use the net
proceeds from this
offering for general
corporate purposes,
including working capital.
We may also use a portion
of the net proceeds to
acquire complementary
technologies or
businesses. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. SIRF
</TABLE>
Unless otherwise indicated, the number of shares of our common stock to be
outstanding after this offering is based on shares outstanding as of September
30, 2000, reflects the conversion of all outstanding shares of preferred stock
into 16,565,460 common stock, including 1,200,000 shares of our series F
preferred stock issued in October 2000 and assumes no exercise of the
underwriters' over-allotment option.
The number of shares of our common stock to be outstanding after the
offering excludes:
. 4,322,254 shares issuable upon exercise of options outstanding as of
September 30, 2000 at a weighted average exercise price of $1.85 per
share;
. 582,336 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $7.45 per share; and
. 6,022,644 additional shares reserved for future issuance under our stock
plans.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The pro forma basic and diluted calculations below reflect the conversion,
upon completion of this offering, of all outstanding shares of preferred stock
into shares of common stock as if the conversion occurred on the dates of
original issuance.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- -------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenue................ $ 1,123 $ 2,611 $ 5,267 $ 3,792 $ 9,926
Gross profit (1)............. 156 555 1,868 1,442 4,998
Total operating expenses..... 7,316 8,856 17,296 8,143 17,311
Loss from operations......... (7,160) (8,301) (15,428) (6,701) (12,313)
Net loss..................... (7,017) (8,205) (15,386) (6,690) (11,840)
Net loss per share, basic and
diluted..................... $ (1.78) $ (2.05) $ (3.24) $ (1.39) $ (2.10)
Weighted average shares,
basic and diluted........... 3,934 4,283 4,958 4,879 5,643
Pro forma net loss per share,
basic and diluted
(unaudited)................. $ (.93) $ (.57)
Pro forma weighted average
shares, basic and diluted
(unaudited)................. 17,266 20,865
</TABLE>
--------
(1) Excludes amortization of deferred stock compensation.
The consolidated balance sheet data below are shown:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into common stock upon completion
of this offering, including the 1,200,000 shares of series F preferred
stock sold in October 2000; and
. on a pro forma as adjusted basis to further reflect our sale of the
5,000,000 shares of common stock in this offering at an assumed initial
public offering price of $11.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
As of September 30, 2000
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 9,464 $21,464 $70,864
Working capital................................. 11,003 23,003 72,403
Total assets.................................... 18,677 30,677 80,077
Long-term and capital lease obligations, less
current portion................................ 5,976 5,976 5,976
Convertible preferred stock..................... 48,207 -- --
Total stockholders' equity (deficit)............ (41,447) 18,760 68,160
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to invest in shares of our
common stock. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer. In these
circumstances, the market price of our common stock could decline, and you may
lose all or part of your investment.
Risks Related to Our Business
We have a history of losses and may not become profitable.
We have incurred net losses in each quarter since our inception. As of
September 30, 2000, we had an accumulated deficit of approximately $48.4
million. We intend to significantly increase our research and development,
sales and marketing and administrative expenses. We also expect to incur
substantial stock-based compensation charges, which may further increase our
net losses. If we continue to incur net losses and cannot raise additional
capital, our ability to maintain or increase our number of employees or our
investment in sales, marketing and research and development programs could be
impaired. We may not become profitable. If we do achieve profitability, we may
not sustain or increase profitability in the future and may not be able to
continue to operate. If we do not become profitable within the time frame
expected by securities analysts or investors, the market price of our common
stock will likely decline. The revenue and income potential of our business
and market are unproven. Our revenue may not continue to increase at
historical rates. Any evaluation of our business and our prospects must be
considered in light of our historical losses.
The market for Global Positioning System, or GPS, based location awareness
capabilities in high-volume consumer and commercial applications is
emerging, and if this market does not develop as quickly as we expect, the
growth and success of our business will be limited.
The market for GPS-based location awareness technology in high-volume
consumer and commercial applications is new and its potential is uncertain.
Many of these GPS-based applications have not been commercially introduced or
have not achieved widespread acceptance. Our success depends on the rapid
development of this market. We cannot predict the growth rate, if any, of this
market. The development of this market depends on several factors, including
the development of location awareness infrastructure by wireless network
operators and the availability of location-aware content and services. The
failure of the market for high-volume consumer and commercial GPS-based
applications to develop in a timely manner would limit the growth and success
of our business.
If we are unable to fund the development of new products to keep pace with
rapid technological change, we will be unable to expand our business.
The market for high-volume consumer and commercial GPS-based applications
is characterized by rapidly changing technology. This requires us to
continuously develop new products and enhancements for existing products to
keep pace with evolving industry standards and rapidly changing customer
requirements. We may not have the financial resources necessary to fund future
innovations. If we are unable to successfully define, develop and introduce
competitive new products and enhance existing products, we may not be able to
successfully compete in our market.
Development and delivery schedules for technology products are difficult to
predict, and if we do not achieve timely initial customer shipments of new
products, our reputation may suffer and our revenue may decline.
Our ability to develop and deliver new products successfully will depend on
various factors, including our ability to:
. accurately predict market requirements and evolving industry standards
for the high-volume GPS-based applications industry;
. anticipate changes in technology standards, such as wireless
technologies;
7
<PAGE>
. develop and introduce new products that meet market needs in a timely
manner;
. select proper manufacturing technology; and
. attract and retain engineering personnel.
If we do not achieve timely initial customer shipment of new products, our
reputation may suffer and our revenue may decline.
Our quarterly revenue and operating results are difficult to predict, and
if we do not meet quarterly financial expectations, our stock price will
likely decline.
Our quarterly revenue and operating results are difficult to predict, and
have in the past, and may in the future, fluctuate from quarter to quarter. It
is possible that our operating results in some quarters will be below market
expectations. This would likely cause the market price of our common stock to
decline. Our quarterly operating results may fluctuate because of many
factors, including:
. our ability to successfully develop, introduce and sell new or enhanced
GPS-based products in a timely manner;
. changes in the relative volume of sales of our SiRFstarI/LX, SiRFstarIIe
or other products, which may have significantly different gross margins;
. unpredictable volume and timing of customer orders;
. the availability, pricing and timeliness of delivery of other components,
such as flash memory, used in our customers' products;
. the timing of new product announcements or introductions by us or by our
competitors;
. product obsolescence and our ability to manage product transitions; and
. decreases in the average selling prices of our products.
We base our planned operating expenses in part on our expectations of
future revenue, and our expenses are relatively fixed in the short term. If
revenue for a particular quarter is lower than we expect, we may be unable to
proportionately reduce our operating expenses for that quarter, which would
harm our operating results for that quarter.
Our lengthy sales cycle makes it difficult for us to forecast revenue and
increases the variability of quarterly fluctuations, which could cause our
stock price to decline.
We have a lengthy sales process. First, we typically must obtain a design
win, where our product is incorporated into a customer's initial product
design. After we have developed and delivered a product to a customer, our
customer often tests and evaluates our product before designing its own
product to incorporate our technology. Our customer may need three to six
months or longer to test and evaluate our technology and an additional 12
months or more to begin volume production of products that incorporate our
technology. Because of this lengthy sales cycle, we may experience delays from
the time we increase our operating expenses and our investments in committing
capacity until the time that we generate revenue from these products. Also, a
design win may never result in volume shipments. It is possible that we may
not generate sufficient, if any, revenue from these products to offset the
cost of selling and completing the design work.
Our success depends on our customers' abilities to successfully sell their
products incorporating our technology.
Even if a customer selects our technology to incorporate into its product,
the customer may not ultimately market and sell its product successfully. A
cancellation or change in plans by a customer could cause us to lose sales
that we had anticipated. Also, our business and operating results could suffer
if a significant customer reduces or delays orders during our sales cycle or
chooses not to release products that contain our technology.
8
<PAGE>
Our operating results depend significantly on sales of our SiRFstarI/LX and
SiRFstarIIe product lines.
To date, we have derived most of our revenue from sales of our SiRFstarI/LX
product line. We recently introduced our SiRFstarIIe product line. If our
SiRFstarIIe product line does not achieve market acceptance, we will continue
to depend on sales of our SiRFstarI/LX product line. Any decline in sales of
our SiRFstarI/LX product line will adversely affect our revenue and operating
results.
We depend on three independent foundries to manufacture substantially all
of our current products, and any failure to obtain sufficient foundry
capacity could significantly delay our ability to ship our products and
damage our customer relationships.
We do not own or operate a fabrication facility. We rely on third parties
to manufacture our semiconductor products. Three outside foundries, United
Microelectronics in Taiwan, Samsung in South Korea and NEC in Japan, currently
manufacture substantially all of our products. We do not have any contracts
with these manufacturers that guarantee capacity and all of our manufacturing
is done on a purchase order basis.
Because we rely on outside foundries with limited capacity, we face several
significant risks, including:
. lack of manufacturing capacity and higher prices;
. limited control over delivery schedules, quality assurance and control,
manufacturing yields and production costs; and
. the unavailability of, or potential delays in obtaining access to, key
process technologies.
The ability of each foundry to provide us with semiconductors is limited by
its available capacity. We do not have a guaranteed level of production
capacity with any of these foundries and it is difficult to accurately
forecast our capacity needs. We place our orders on the basis of our
customers' purchase orders; however, the foundries can allocate capacity to
the production of other companies' products and reduce deliveries to us on
short notice. It is possible that foundry customers that are larger and better
financed than we are, or that have long-term agreements with the foundries,
may induce our foundries to reallocate capacity to them. Any reallocation
could impair our ability to secure the supply of semiconductors that we need.
Each of our semiconductor products is manufactured at only one foundry and
if any one foundry is unable to provide the capacity we need, we may be
delayed in shipping our products, which could damage our customer
relationships and result in reduced revenue.
Although we use three separate foundries, each of our semiconductor
products is manufactured at one of these foundries. If one of our foundries is
unable to provide us with capacity as needed, we could experience significant
delays delivering the semiconductor product being manufactured for us solely
by that foundry. Also, if any of our foundries experiences financial
difficulties, if they suffer any damage to their facilities or in the event of
any other disruption of foundry capacity, we may not be able to qualify an
alternative foundry in a timely manner. If we choose to use a new foundry or
process for a particular semiconductor product, it would typically take us
several months to qualify the new foundry or process before we can begin
shipping products. If we cannot accomplish this qualification in a timely
manner, we may still experience a significant interruption in supply of the
affected products.
The facilities of the independent foundries upon which we rely to
manufacture all of our semiconductors are located in regions that are
subject to earthquakes and other natural disasters.
The outside foundries upon which we rely to manufacture all of our
semiconductors are located in countries that are subject to earthquakes. For
example, Taiwan, where one of our foundries is located, experienced a major
earthquake in September 1999, which caused power outages and significant
damage to Taiwan's infrastructure. Any earthquake or other natural disaster in
these countries could materially disrupt these foundries' production
capabilities and could result in our experiencing a significant delay in
delivery, or substantial shortage, of our products.
9
<PAGE>
We place binding manufacturing orders based on our forecasts and if we fail
to adequately forecast demand for our products, we may incur product
shortages or excess product inventory.
Our third-party manufacturers require us to provide forecasts of our
anticipated manufacturing orders and place binding manufacturing orders in
advance of receiving purchase orders from our customers. This may result in
product shortages or excess product inventory because we cannot easily
increase or decrease our forecasts. Obtaining additional supply in the face of
product shortages may be costly or impossible, particularly in the short term.
Our failure to adequately forecast demand for our products could cause our
quarterly operating results to fluctuate and cause our stock price to decline.
We may experience lower than expected manufacturing yields, which would
delay the production of our semiconductor products.
The manufacture of semiconductors is a highly complex process. Minute
impurities in a silicon wafer can cause a substantial number of wafers to be
rejected or cause numerous die on a wafer to be nonfunctional. Semiconductor
companies often encounter difficulties in achieving acceptable product yields
from their manufacturers. Our foundries have from time to time experienced
lower than anticipated manufacturing yields, including for our products. This
often occurs during the production of new products or the installation and
start-up of new process technologies. We may also experience yield problems as
we migrate our manufacturing processes to smaller geometries. If we do not
achieve planned yields, our product costs could increase and product
availability would decrease.
The loss of any of the three third-party subcontractors that assemble and
test all of our current products could disrupt our shipments, harm our
customer relationships and reduce our sales.
Three third-party subcontractors assemble and test all of our current
products. As a result, we do not directly control our product delivery
schedules, assembly and testing costs, quality assurance and control. If any
of these subcontractors experiences capacity constraints or financial
difficulties, if any subcontractor suffers any damage to its facilities or if
there is any other disruption of assembly and testing capacity, we may not be
able to obtain alternative assembly and testing services in a timely manner.
We do not have long-term agreements with any of these subcontractors. We
typically procure services from these suppliers on a per-order basis. Because
of the amount of time that it usually takes us to qualify assemblers and
testers, we could experience significant delays in product shipments if we are
required to find alternative assemblers or testers for our semiconductor
products. Any problems that we may encounter with the delivery, quality or
cost of our products could damage our reputation and result in a loss of
customers.
We have relied, and expect to continue to rely, on a limited number of
customers for a significant portion of our total revenue, and our revenue
could decline due to the delay or loss of significant customer orders.
Four customers together accounted for approximately 56% of our total
revenue in 1999, and two customers together accounted for approximately 46% of
our total revenue for the nine months ended September 30, 2000. Revenue from
these customers as a percentage of our total revenue are as follows:
<TABLE>
<S> <C>
Year ended December 31, 1999
Tyco..................................................................... 18%
Alliant.................................................................. 13
Leadtek.................................................................. 13
Insight.................................................................. 12
Nine months ended September 30, 2000
Tyco..................................................................... 34%
Leadtek.................................................................. 12
</TABLE>
10
<PAGE>
We expect that we will continue to depend upon a relatively small number of
customers for a substantial portion of our total revenue for the foreseeable
future. If we fail to successfully sell our products to one or more of our
significant customers in any particular period, or if a large customer
purchases less of our products, defers orders or fails to place additional
orders with us, our revenue could decline and our operating results may not
meet market expectations.
We have derived a substantial majority of our total revenue from sales to
the wireless handheld and automotive applications markets. If we fail to
generate continued revenue from these markets or from additional markets,
our revenue could decline.
We have derived a substantial majority of our total revenue from sales to
the wireless handheld and automotive applications markets. The demand for our
products in these markets is uncertain and may decline. If we cannot sustain
or increase sales of our products into these markets or if we fail to generate
revenue from additional markets, our revenue could decline.
If the products of our value-added manufacturer customers are not
successful, sales of our products could be harmed.
Many of our customers are value-added manufacturers who incorporate some of
our semiconductor and software products as part of their products. If these
value-added manufacturers cannot successfully sell their products, or produce
high quality products, we may sell fewer products than we originally
anticipated.
Our future success depends on building relationships with customers that
are market leaders. If we cannot establish these relationships or if these
customers develop their own systems or adopt a competitor's products
instead of buying our products, our business may not succeed.
We intend to continue to pursue customers who are leaders in our target
markets. We may not succeed in establishing these relationships because these
companies may develop their own systems or adopt one of our competitors'
products. These relationships often require us to develop new software that
involves significant technological challenges. These types of customers also
frequently place considerable pressure on us to meet their tight development
schedules. We may have to devote a substantial amount of our limited resources
to these relationships, which could detract from or delay our completion of
other important development projects. Delays in development of these projects
could impair our relationships with other customers and negatively impact
sales of the products under development.
Because competition for qualified personnel is intense in our industry and
in our geographic regions, we may not be able to recruit and retain
necessary personnel, which could impact the development or sales of our
products.
Our success will depend on our ability to attract and retain senior
management, engineering, sales, marketing and other key personnel. Because of
the intense competition for these personnel, particularly in the San Francisco
Bay Area and Los Angeles, it is possible that we will fail to attract and
retain key technical and managerial personnel. If we are unable to retain our
existing personnel, or attract and train additional qualified personnel, our
growth may be limited due to our lack of capacity to develop and market our
products. We do not have long-term employment agreements with our key
employees. The loss of any of these key employees could slow our product
development processes and sales efforts or harm investors' perception of our
business. We may also incur increased operating expenses and be required to
divert the attention of other senior executives to recruit replacements for
key personnel. Also, we may have more difficulty attracting personnel after we
become a public company because of the perception that the stock option
component of our compensation package may not be as valuable.
11
<PAGE>
Our rapid growth and the process of building our management team has placed
a significant strain on us, and if we fail to manage this growth or
successfully integrate our management team, our business may not succeed.
The rapid growth that we have experienced has placed a significant strain on
our management, administrative and financial resources. For example, Walter
Amaral, our Senior Vice President and Chief Financial Officer, and Robert Bohn,
our Vice President of Engineering, joined us within the past few months and we
plan to continue to build our management team. We have also significantly
expanded our operations in the United States and internationally, and we plan
to continue to expand the geographic scope of our operations. To manage our
growth, we must implement and improve additional and existing administrative,
financial and operations systems, procedures and controls. Our failure to
manage growth could disrupt our operations and could limit our ability to
pursue potential market opportunities. Further, if we need additional space, it
may be difficult and expensive to find a satisfactory corporate location in the
very competitive San Francisco Bay Area office leasing market. We are currently
seeking additional space in the San Francisco Bay Area and the Los Angeles area
where some of our engineering and product development operations are located.
Additional space may not be available on commercially reasonable terms or at
all.
Defects in our products could result in a decrease of customers and revenue,
unexpected expenses and loss of market share.
Our products are complex and must meet stringent quality requirements.
Products as complex as ours may contain undetected errors or defects,
especially when first introduced or when new versions are released. For
example, our software products may contain errors which are not detected until
after they are shipped because we cannot test for all possible scenarios.
Errors or defects may not be detected until after commercial shipments, which
could result in customers' rejection of our products, damage to our reputation,
lost revenue, diverted development resources and increased customer service and
support costs and warranty claims.
The limited warranty provisions in our agreements with some customers
exposes us to risks from product liability claims.
Our agreements with some customers contain limited warranty provisions,
which provide the customer with a right to damages if a defect is traced to our
products or if we cannot correct errors reported during the warranty period. If
our contractual limitations are unenforceable in a particular jurisdiction or
if we are exposed to product liability claims that are not covered by
insurance, a successful claim could require us to pay substantial damages.
Personal privacy concerns may limit the growth of the high-volume consumer
and commercial GPS-based applications and demand for our products.
GPS-based consumer and commercial applications rely on the ability to
receive, analyze and store location information. Consumers may not accept GPS
applications because of the fact that their location can be tracked by others
and that this information could be collected and stored. Also, federal and
state governments may disallow specific uses of GPS technology for privacy or
other reasons or could subject this industry to regulation. If consumers view
GPS-based applications as a threat to their privacy, demand for GPS-based
products, and therefore our products, could decline.
We intend to evaluate acquisitions or investments in complementary
technologies and businesses and we may not realize the anticipated benefits
of these acquisitions or investments.
As part of our business strategy, we plan to evaluate acquisitions of, or
investments in, complementary technologies and businesses. We may be unable to
identify suitable acquisition candidates or be able to make these acquisitions
on a commercially reasonable basis, or at all. Any future acquisitions and
investments would have several risks, including:
. our inability to successfully integrate acquired technologies or
operations;
. diversion of management's attention;
12
<PAGE>
. potentially dilutive issuances of equity securities or the incurrence of
debt, contingent liabilities or expenses related to amortization of
goodwill or other intangible assets;
. loss of key employees of acquired businesses; and
. our inability to recover the costs of acquisitions or investments.
We may not realize the anticipated benefits of any acquisition or
investment.
We may not obtain sufficient patent protection, which could harm our
competitive position and increase our expenses.
Our success and ability to compete depends to a significant degree upon the
protection of our proprietary technology. As of September 30, 2000, we had
nine issued patents, 35 patent applications pending in the United States, and
seven foreign patent applications pending. Our patent applications may not
result in issued patents. Any patents issued may provide only limited
protection for our technology and the rights that may be granted under any
future patents that may be issued may not provide competitive advantages to
us. Also, patent protection in foreign countries may be limited or unavailable
where we need this protection. It is possible that competitors may
independently develop similar technologies or design around our patents and
competitors could successfully challenge any issued patent.
We rely upon trademark, copyright and trade secret laws and contractual
restrictions to protect our proprietary rights, and if these rights are not
sufficiently protected, it could harm our ability to compete and generate
revenue.
We also rely on a combination of trademark, copyright and trade secret
laws, and contractual restrictions, such as confidentiality agreements and
licenses, to establish and protect our proprietary rights. Our ability to
compete and grow our business could suffer if these rights are not adequately
protected. We seek to protect our source code for our software, and design
code for our semiconductors, documentation and other written materials under
trade secret and copyright laws. We license our software and IP cores under
signed license agreements, which impose restrictions on the licensee's ability
to utilize the software and IP cores. We also seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to
our proprietary information to execute confidentiality agreements. The steps
taken by us to protect our proprietary information may not be adequate to
prevent misappropriation of our technology. Our proprietary rights may not be
adequately protected because:
. laws and contractual restrictions may not prevent misappropriation of our
technologies or deter others from developing similar technologies; and
. policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of any unauthorized use.
The laws of other countries in which we market our products, such as some
countries in the Asia/Pacific region, may offer little or no protection of our
proprietary technologies. Reverse engineering, unauthorized copying or other
misappropriation of our proprietary technologies could enable third parties to
benefit from our technologies without paying us for doing so, which would harm
our competitive position and market share.
We may face intellectual property infringement claims that could be time-
consuming, costly to defend and result in our loss of significant rights.
Other parties may assert intellectual property infringement claims against
us, and our products may infringe the intellectual property rights of third
parties. For example, we recently entered into a settlement with a third party
regarding patent infringement under which we agreed to pay approximately $5.0
million and issued warrants to purchase shares of our common stock. We may
also initiate claims to defend our intellectual property. Intellectual
property litigation is expensive and time-consuming and could divert
management's attention from
13
<PAGE>
our business. If there is a successful claim of infringement, we may be
required to pay substantial damages, develop non-infringing technology or
enter into royalty or license agreements that may not be available on
acceptable terms, if at all. Our failure to develop non-infringing
technologies or license the proprietary rights on a timely basis would harm
our business. Also, we may be unaware of filed patent applications that relate
to our products. Parties making infringement claims may be able to obtain an
injunction, which could prevent us from selling our products.
Risks Related to Our Industry
Because many companies in the market for GPS-based products are more
established than SiRF, we must compete successfully to gain market share.
The market for our products is competitive and rapidly evolving. We expect
competition to increase. Increased competition may result in price reductions,
reduced margins or loss of market share. We may be unable to compete
successfully against current or future competitors. Within each of our
markets, we face competition from public and private companies as well as our
customers' in-house design efforts. For chip sets, our main competitors
include Analog Devices, Conexant, Motorola, Philips, QUALCOMM, Sony,
STMicroelectronics and Trimble. For modules, our main competitors are
Conexant, JRC, Motorola and Trimble. For licensed IP cores, our competitors
include Parthus, QUALCOMM and Trimble. Licensees of our competitors' products
may also compete against us.
In the wireless market, we compete against products based on alternative
location technologies that do not rely on GPS such as wireless infrastructure
based systems. These systems are based on technologies that compute a caller's
location by measuring the differences of signals between individual base
stations. If these technologies become more widely adopted, market acceptance
of our products may decline. Competitors in these areas include CellLoc,
Cambridge Positioning System, TruePosition and US Wireless. Further,
alternative satellite-based navigation systems such as Galileo, which is being
considered by European governments, may reduce the demand for GPS-based
applications or cause customers to postpone decisions on whether to integrate
GPS capabilities into their products.
Many of our competitors have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than we do. We also
believe that our success depends on our ability to establish and maintain
relationships with established system providers and industry leaders. Our
failure to establish and maintain these relationships, or the preemption of
relationships by the actions of other competitors or us will harm our ability
to penetrate emerging markets.
We derive a substantial portion of our revenue from international sales and
economic, political and other risks may harm our international sales and
cause our revenue to decline.
For the nine months ended September 30, 2000, we derived approximately 77%
of our total revenue from sales to international customers. We also maintain
sales offices in Europe and the Asia/Pacific region. Risks we face in
conducting business internationally include:
. difficulties and costs of staffing and managing international operations;
. longer sales cycles and collection periods;
. changes in currency exchange rates and controls;
. potentially reduced protection for intellectual property rights,
particularly in China;
. unexpected changes in regulatory requirements, tariffs and other
barriers;
. potentially adverse tax consequences; and
. international economic or political conditions, such as potential
political turmoil in Taiwan.
Also, there may be reluctance in some foreign markets to purchase products
based on GPS technology, due to the control of GPS by the United States
government.
14
<PAGE>
The GPS market could be subject to governmental and other regulations that
may increase our cost of doing business or decrease demand for our
products.
GPS technology is restricted and its export is controlled. The United
States government may restrict specific uses of GPS technology in some
applications for privacy or other reasons. The United States government may
also block the civilian GPS signal at any time or in hostile areas. In
addition, the policies of the United States government for the use of GPS
without charge may change. The growth of the GPS market could be limited by
government regulation or other action. These regulations or actions could
interrupt or increase our cost of doing business. Although the Federal
Communications Commission has issued a mandate to implement location
technology that can provide the location of all 911 callers, it may postpone
the effective dates or cancel this mandate. This would likely reduce demand
for location awareness technology.
Reallocation of the radio frequency bands used by GPS technology may harm
the utility and reliability of our products.
GPS technology uses radio frequency bands that are globally allocated for
radio navigation satellite services. International allocations of radio
frequency bands are made by the International Telecommunications Union, a
specialized technical agency of the United Nations. These allocations are
further governed by radio regulations which have treaty status and which are
subject to modification every two to three years by the World Radio
Communication Conference. Any reallocation of radio frequency bands, including
frequency band segmentation or spectrum sharing, may negatively affect the
utility and reliability of GPS-based products. Also, unwanted emissions from
mobile satellite services and other equipment operating in adjacent frequency
bands or inband from licensed and unlicensed devices may negatively affect the
utility and reliability of GPS-based products. The Federal Communications
Commission continually receives proposals for new technologies and services
which may seek to operate in, or across, the radio frequency bands currently
used by the GPS and other public services. For example, in May 2000, the
Federal Communications Commission issued a proposed rule for the operation of
ultra-wideband radio devices on an unlicensed basis in the frequency bands
allocated to GPS signals. If these rules become final, ultra-wideband devices
might cause interference with the reception of GPS signals. This could reduce
demand for GPS-based products, which could reduce our sales and revenue.
Adverse decisions by the Federal Communications Commission that result in
harmful interference to the delivery of the GPS signals may harm the utility
and reliability of GPS-based products.
Our technology relies on the GPS satellite network and any disruption in
this network would impair the viability of our business.
The satellites and ground support systems that provide GPS signals are
complex electronic systems subject to electronic and mechanical failures and
possible sabotage. The satellites were originally designed to have lives of
six to seven years and are subject to damage by the hostile space environment
in which they operate. However, of the current deployment of more than 24
satellites in orbit, some have already been in place for 11 years. To repair
damaged or malfunctioning satellites is currently not economically feasible.
If a significant number of satellites were to become inoperable, there could
be a substantial delay before they are replaced with new satellites, or at
all. A reduction in the number of operating satellites would impair the
current utility of GPS and the growth of current and additional market
opportunities. The United States government may not remain committed to the
maintenance of GPS satellites over a long period.
Risks Related to this Offering
Because our industry is new, it may be difficult to evaluate the prospects
of companies in our industry. As a result, our stock price may be volatile
and you may not be able to sell your shares at or above the offering price.
Before this offering, our common stock has not been publicly traded, and an
active trading market may not develop or be sustained after this offering. You
may not be able to sell your shares at or above the offering price.
15
<PAGE>
It may be difficult to evaluate the prospects of companies such as SiRF
because our industry is new. As a result, the price at which our common stock
will trade after this offering is likely to be highly volatile. Our stock
price may fluctuate substantially because of:
. conditions and trends in our industry, the industries of our customers
and the economy as a whole;
. actual or anticipated fluctuations in our operating results;
. changes in or our failure to meet investors' expectations;
. hiring or departures of key personnel;
. speculation in the press or investment community; and
. general volatility in stock market price and volume, which is
particularly common among securities of software, semiconductor and other
high technology companies.
After this offering, our directors, executive officers and principal
stockholders will own 40.4% of our common stock and this concentration of
ownership may allow them to elect all of our directors and could delay or
prevent a change in control of SiRF.
After this offering, our directors, executive officers and stockholders who
currently own over 5% of our common stock will collectively beneficially own
approximately 40.4% of our outstanding common stock. These stockholders, if
they vote together, will be able to significantly influence all matters
requiring stockholder approval. For example, they may be able to elect all of
our directors, delay or prevent a transaction in which stockholders might
receive a premium over the market price for their shares or prevent changes in
control or management.
Most of our outstanding shares of common stock may be sold in the market
shortly after this offering, which may cause our stock price to decline.
Sales of a substantial number of shares of common stock, including shares
issued upon the exercise of outstanding options and warrants, in the public
market after this offering or after the expiration of lockup and holding
periods could cause the market price of our common stock to decline. Even the
perception that significant sales could occur may cause our stock price to
decline. All of the shares sold in this offering, including any shares sold if
the underwriters exercise their overallotment options, will be freely
tradable. The remaining 22,969,267 shares of common stock outstanding after
this offering are restricted securities. Substantially all of these shares are
under lock-up agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Morgan Stanley & Co. Incorporated may, in
its sole discretion, release any or all of these shares before expiration of
the 180-day lockup period. Immediately after the 180-day lockup period,
21,665,264 shares will become available for sale. The sale of some of these
shares may be restricted by volume limitations. For a further discussion of
the amounts and manner in which additional shares will be available for public
sale, please see "Shares Eligible For Future Sale."
Our stock price may decline significantly because of stock market
fluctuations that affect the prices of technology stocks. A decline in our
stock price could result in securities class action litigation against us,
that could divert management's attention and harm our ability to execute
our business plan.
The stock market has experienced significant price and volume fluctuations
that have adversely affected the market prices of common stock of technology
companies. These broad market fluctuations may reduce the market price of our
common stock, regardless of our actual operating performance. In the past,
securities class action litigation has often been brought against a company
after periods of volatility in the market price of its securities. We may in
the future be a target of similar litigation. Securities litigation could
result in substantial costs and divert management's attention and resources,
which could harm our ability to execute our business plan.
16
<PAGE>
We may need additional capital and if funds are not available on acceptable
terms, we may not be able to hire and retain employees, fund our expansion
or compete effectively.
If our capital requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. For example,
because our industry is emerging and is characterized by rapidly changing
technology, we may need to spend greater than expected amounts to develop new
products and enhancements to meet changing industry standards and customer
requirements. Additional financing may not be available in sufficient amounts
on terms acceptable to us, or at all, and may be dilutive to existing
stockholders. Also, newly issued securities in any financing might have
rights, preferences, or priorities senior to those of existing stockholders.
If adequate funds are not available or are not available on acceptable terms,
our ability to hire, train or retain employees, fund our expansion, take
advantage of unanticipated opportunities, develop or enhance our products or
respond to competitive pressures would be significantly limited.
We have no specific business plan for the net proceeds from this offering.
Our management will therefore have significant flexibility in using the net
proceeds of this offering, and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used
appropriately.
We intend to use the net proceeds from this offering for general corporate
purposes, including working capital. We may also use a portion of the net
proceeds to acquire or invest in businesses, products and technologies that we
believe will complement our business. However, depending on future
developments and circumstances, we may use some of the proceeds for other
purposes. We do not have more specific plans for the net proceeds from this
offering. Therefore, our management will have significant flexibility in
applying the net proceeds of this offering. The net proceeds could be applied
in ways that do not improve our operating results. The actual amounts and
timing of these expenditures will vary significantly depending on a number of
factors, including the amount of cash used in or generated by our operations
and the market response to the introduction of any new product offerings.
You will incur immediate and substantial dilution in this offering.
The initial public offering price for our common stock will be
substantially higher than the net tangible book value per share of our common
stock immediately after this offering. This dilution arises because our
earlier investors paid less than the public offering price when they purchased
shares of our common stock. You will incur additional dilution to the extent
stock options or warrants are exercised. Assuming an initial public offering
price of $11.00 per share, you will incur immediate and substantial dilution
of $8.56 in the net tangible book value per share of the common stock you
purchase in this offering.
Our certificate of incorporation and bylaws and Delaware law contain
provisions that could discourage takeovers of SiRF.
Provisions of our certificate of incorporation and bylaws may delay,
discourage or prevent a merger or acquisition that stockholders may consider
favorable. These provisions include:
. authorizing our board of directors to issue "blank check" preferred
stock;
. eliminating the ability of stockholders to act by written consent rather
than at a meeting;
. advance notice procedures for stockholder proposals and board nominations
for candidates other than those nominated by our board of directors; and
. limiting the persons who may call special meetings of stockholders.
Our certificate of incorporation also establishes a classified board in
which only a third of our total board members will be elected at each annual
stockholders' meeting. We are governed by section 203 of the Delaware General
Corporation Law. Section 203 may prohibit large stockholders, in particular
those owning 15% or more of our outstanding voting stock, from consummating a
merger or business combination involving us. The provisions of our certificate
of incorporation, bylaws and section 203 could limit the price that investors
might be willing to pay for our common stock.
17
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to our, and in some cases our customers', future plans, objectives,
expectations, intentions and financial performance. In some cases, you can
identify forward-looking statements because they use terms such as
"anticipates," "believes," "continue," "could," "would," "estimates,"
"forecasts," "expects," "intends," "may," "might," "plans," "potential,"
"predicts," "should" or "will" or the negative of those terms or other
comparable words. These statements involve risks and uncertainties that may
cause industry trends or our actual results, activities or achievements to be
materially different from those expressed or implied by these statements.
These factors include those listed under Risk Factors and elsewhere in this
prospectus.
Although we believe that expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. These statements represent management's
estimates as of the date of this prospectus. Except as required by law, we
are under no duty to update any of the forward-looking statements after the
date of this prospectus to conform these statements to actual results or
changes in our expectations. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this
prospectus.
18
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from our sale of the 5,000,000
shares of common stock in this offering will be approximately $49.4 million at
an assumed initial public offering price of $11.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is
exercised in full, we estimate that our net proceeds will be approximately
$57.1 million.
We intend to use the net proceeds for general corporate purposes, including
working capital. We do not have more specific plans for the net proceeds from
this offering. We may also use a portion of the net proceeds to acquire
businesses, products and technologies that we believe will complement our
business. We are not currently engaged in any negotiations for any
acquisitions.
The amounts and timing of any expenditures will vary depending on the
amount of cash generated by our operations, competitive and technological
developments and the rate of growth, if any, of our business. We will retain
broad discretion in the allocation of the net proceeds of this offering.
Pending the uses described above, we will invest the net proceeds of this
offering in short-term, interest bearing, investment-grade securities. We may
not invest the proceeds to yield a favorable return.
DIVIDEND POLICY
We have never declared or paid cash dividends. We do not anticipate paying
cash dividends in the near future. Our bank line of credit currently prohibits
the payment of dividends without the prior consent of our lender.
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<PAGE>
CAPITALIZATION
The following table shows our capitalization as of September 30, 2000:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into common stock, including the 1,200,000 shares of
series F preferred stock issued in October 2000, and the amendment of our
certificate of incorporation upon completion of this offering;
. on a pro forma as adjusted basis to further reflect the sale of the
common stock offered in this offering at an assumed initial public
offering price of $11.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
As of September 30, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Long-term and capital lease obligations, less
current portion............................... $ 121 $ 121 $ 121
-------- -------- -------
Convertible preferred stock, $.0001 par value
per share; 20,000,000 shares authorized,
15,365,460 shares issued and outstanding,
actual; no shares authorized, issued and
outstanding, pro forma and pro forma as
adjusted...................................... 48,207 -- --
-------- -------- -------
Stockholders' equity (deficit):
Preferred stock, $.0001 par value per share;
no shares authorized, issued and outstanding,
actual; 5,000,000 shares authorized, no
shares issued and outstanding, pro forma and
pro forma as adjusted........................ -- -- --
Common stock, $.0001 par value per share;
35,000,000 shares authorized, 6,403,807
shares issued and outstanding, actual;
55,000,000 shares authorized, 22,969,267
shares issued and outstanding, pro forma;
250,000,000 shares authorized, 27,969,267
shares issued and outstanding, pro forma as
adjusted..................................... 24,320 2 3
Additional paid-in capital.................... -- 84,525 133,924
Deferred stock compensation................... (17,414) (17,414) (17,414)
Accumulated deficit........................... (48,353) (48,353) (48,353)
-------- -------- -------
Total stockholders' equity (deficit)......... (41,447) 18,760 68,160
-------- -------- -------
Total capitalization....................... $ 6,881 $ 18,881 $68,281
======== ======== =======
</TABLE>
The number of shares shown as issued and outstanding in the table above
excludes:
. 582,336 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $7.45 per share;
. 4,322,254 shares of common stock issuable upon exercise of options
outstanding as of September 30, 2000 at a weighted average exercise price
of $1.85 per share; and
. 6,022,644 additional shares of common stock reserved for future issuance
under our stock plans.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 2000 was
approximately $18.8 million or $.82 per share of common stock. Our pro forma
net tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the total number of shares of our
common stock outstanding on September 30, 2000, assuming the conversion of all
of our outstanding shares of preferred stock, including the 1,200,000 shares
of series F preferred stock issued in October 2000, into shares of common
stock.
After giving effect to our sale of the 5,000,000 shares of common stock in
this offering at an assumed initial public offering price of $11.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book
value as of September 30, 2000 would have been approximately $68.2 million or
$2.44 per share. This represents an immediate increase in pro forma net
tangible book value of $1.62 per share to existing stockholders and an
immediate dilution of $8.57 per share to new investors. Dilution is determined
by subtracting pro forma net tangible book value per share after the offering
from the assumed initial public offering price per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share as of September 30,
2000........................................................... $ .82
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 1.62
-----
Pro forma net tangible book value per share after this offering... 2.44
------
Dilution per share to new investors............................... $ 8.56
======
</TABLE>
The following table summarizes, on the pro forma basis described above, as
of September 30, 2000, the number of shares of common stock purchased from us,
the total cash consideration paid or to be paid, and the average price per
share paid or to be paid by existing stockholders and by new investors before
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 22,969,267 82.1% $ 48,514,495 46.9% $ 2.11
New investors................. 5,000,000 17.9 55,000,000 53.1 11.00
---------- ----- ------------ -----
Total....................... 27,969,267 100.0% $103,514,495 100.0%
========== ===== ============ =====
</TABLE>
This discussion and table assume no exercise of any outstanding stock
options or warrants. The exercise of outstanding options or warrants having an
exercise price less than the offering price would increase dilution to new
investors.
If the underwriters exercise their over-allotment option in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately 80.0% of the total number of shares of our
common stock outstanding upon completion of this offering; and
. the number of shares of common stock held by new investors will increase
to 5,750,000, or approximately 20.0% of the total number of shares of our
common stock outstanding upon completion of this offering.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read with our
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The selected consolidated financial
data as of December 31, 1998 and 1999 and for each of the three years in the
period ended December 31, 1999 are derived from the consolidated financial
statements included elsewhere in this prospectus, which have been audited by
Deloitte & Touche LLP, independent auditors. The selected consolidated
financial data as of December 31, 1995 and 1996 and for the period from
February 3, 1995 (inception) through December 31, 1995 and the year ended
December 31, 1996 are derived from our audited consolidated financial
statements not included in this prospectus. The selected consolidated
financial data as of September 30, 2000 and for the nine month periods ended
September 30, 1999 and 2000 are derived from unaudited consolidated financial
statements included elsewhere in this prospectus. We have prepared the
unaudited information on the same basis as the audited consolidated financial
statements and have included all adjustments, consisting of only normal
recurring adjustments that we consider necessary for a fair presentation of
our operating results. Results for the nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the full
fiscal year. For a discussion of pro forma stockholders' equity, please see
note 1 of notes to consolidated financial statements.
<TABLE>
<CAPTION>
Nine Months
Period from Ended
February 3, 1995 Year Ended December 31, September 30,
(inception) through ------------------------------------------- -----------------
December 31, 1995 1996 1997 1998 1999 1999 2000
------------------- --------- --------- --------- ---------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product................ $ -- $ -- $ 434 $ 1,324 $ 4,377 $ 3,124 $ 9,663
Development contracts.. 528 582 592 884 590 423 213
Other.................. -- -- 97 403 300 245 50
------- --------- --------- --------- ---------- ------- --------
Total revenue......... 528 582 1,123 2,611 5,267 3,792 9,926
------- --------- --------- --------- ---------- ------- --------
Cost of revenue
(exclusive of
amortization of
deferred stock
compensation).......... -- -- 967 2,056 3,399 2,350 4,928
------- --------- --------- --------- ---------- ------- --------
Gross profit.......... 528 582 156 555 1,868 1,442 4,998
------- --------- --------- --------- ---------- ------- --------
Operating expenses:
Research and
development........... 1,527 2,986 4,760 4,848 5,231 3,626 5,221
Sales and marketing
(exclusive of
amortization of
deferred stock
compensation)......... 204 593 1,712 2,906 3,990 2,898 3,805
General and
administrative
(exclusive of
amortization of
deferred stock
compensation)......... 337 485 844 1,102 1,904 1,374 2,301
Amortization of
deferred stock
compensation*......... -- -- -- -- 454 245 5,346
Litigation settlement
expense............... -- -- -- -- 5,717 -- 638
------- --------- --------- --------- ---------- ------- --------
Total operating
expenses............. 2,068 4,064 7,316 8,856 17,296 8,143 17,311
------- --------- --------- --------- ---------- ------- --------
Loss from operations.... (1,540) (3,482) (7,160) (8,301) (15,428) (6,701) (12,313)
------- --------- --------- --------- ---------- ------- --------
Other income (expense),
net.................... 305 29 143 96 42 11 473
------- --------- --------- --------- ---------- ------- --------
Net loss................ $(1,235) $ (3,453) $ (7,017) $ (8,205) $ (15,386) $(6,690) $(11,840)
======= ========= ========= ========= ========== ======= ========
Net loss per share--
basic and diluted(1)... $ (.38) $ (.99) $ (1.78) $ (2.05) $ (3.24) $ (1.39) $ (2.10)
======= ========= ========= ========= ========== ======= ========
Weighted average
shares--basic and
diluted(1)............. 3,223 3,479 3,934 4,283 4,958 4,879 5,643
======= ========= ========= ========= ========== ======= ========
Pro forma basic and
diluted net loss per
share (unaudited)(2)... $ (.93) $ (.57)
========== ========
Shares used to compute
pro forma basic and
diluted net loss per
share (unaudited)(2)... 17,266 20,865
========== ========
* Amortization of
deferred stock
compensation:
Cost of revenue....... $ 51 $ 21 $ 722
Research and
development.......... 251 156 1,527
Sales and marketing... 135 56 1,626
General and
administrative....... 17 12 1,471
---------- ------- --------
$ 454 $ 245 $ 5,346
========== ======= ========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of
----------------------------------------- September 30,
1995 1996 1997 1998 1999 2000
------ ------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents........... $3,109 $7,746 $ 977 $ 2,134 $12,865 $ 9,464
Working capital........ 2,888 7,202 144 2,389 12,369 11,003
Total assets........... 3,766 8,822 2,714 4,624 15,923 18,677
Long-term obligations,
less current portion.. 173 191 496 474 5,878 5,976
Convertible preferred
stock................. 4,333 12,301 12,301 22,950 42,952 48,207
Total stockholders'
equity (deficit)...... (1,231) (4,639) (11,546) (20,205) (35,397) (41,447)
Pro forma unaudited
stockholders' equity:
Common stock........... $ 2
Additional paid-in
capital............... 72,525
Deferred stock
compensation.......... (17,414)
Accumulated deficit.... (48,353)
--------
Total pro forma
stockholders'
equity............. $ 6,760
========
</TABLE>
--------
(1) The diluted net loss per share computation excludes potential shares of
common stock issuable upon conversion of convertible preferred stock and
exercise of options to purchase common stock, as well as common stock
subject to repurchase rights held by us, as their effect would be
antidilutive. See Notes 1 and 7 of notes to consolidated financial
statements for a detailed explanation of the determination of the shares
used in computing basic and diluted net loss per share.
(2) Includes the weighted average number of shares resulting from the assumed
conversion of all outstanding shares of convertible preferred stock upon
the completion of this offering. See note 1 of notes to consolidated
financial statements for a detailed explanation of the determination of
the shares used in computing pro forma net loss per share. The diluted pro
forma net loss per share computation excludes potential shares of common
stock issuable upon exercise of options to purchase common stock, as well
as common stock subject to repurchase rights held by us, as their effect
would be antidilutive.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read with the consolidated financial
statements and related notes beginning on page F-1 of this prospectus. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of some
events may differ materially from those expressed in these forward-looking
statements because of several factors, including, but not limited to, those
set forth in the section entitled "Risk Factors" appearing elsewhere in this
prospectus.
Overview
We were founded in 1995 and introduced our first generation GPS
architecture, SiRFstarI, in late 1996 with a focus on automotive applications.
The first product line based on this architecture went into volume production
in August 1997. We introduced a low power product line, called SiRFstarI/LX,
based on this architecture in October 1997. The LX family is currently in
volume production. We recently introduced our SiRFstarII architecture in both
chip set and IP core form. We initiated production of the first product
family, called SiRFstarIIe, based on this architecture in August 2000.
Our target markets have long design cycles and very high quality
requirements and require significant up-front investments in design-in support
and vendor qualification. We market and sell our products worldwide through a
combination of direct sales, independent sales representatives and
distributors. We also sell to value-added manufacturers which incorporate our
chip sets into modules. We have a wholly-owned subsidiary that provides GPS
technologies for military applications. We do not expect to generate
significant revenue from our military business in the future.
We generate revenue from product sales, development services and license
fees and support. We recognize revenue from product sales upon shipment to
direct customers. We record allowances at the time of sale for warranty costs
and estimated sales returns. We defer revenue from shipments to distributors
under agreements allowing rights of return until our distributors sell the
products to their customers. Development contract revenue consists of fees
earned under development contracts and is recognized at the time the services
are performed. Other revenue consists of fees from licensing our IP cores and
support services revenue. Revenue from license fees is recognized upon
delivery of the software. Support revenue is recognized ratably over the term
of the contract.
Cost of revenue consists primarily of the cost of manufacturing our
products and salary and related costs of engineers associated with technical
services, including quality assurance and test engineering. Research and
development expense consists primarily of salaries, bonuses and benefits for
engineering personnel, depreciation of engineering equipment, costs of outside
engineering services from contractors and consultants and costs associated
with test wafers and mask sets. Development costs are expensed as incurred
until technological feasibility in the form of a working model has been
established. Sales and marketing expense consists primarily of salaries,
bonuses, benefits and related costs for sales and marketing personnel, sales
commissions, public relations, tradeshows, advertising and other marketing
activities. General and administrative expense consists primarily of salaries,
bonuses, benefits and related costs for finance and administrative personnel
and for outside service expenses including legal, accounting and recruiting.
Amortization of deferred stock compensation results from the grant of stock
options at exercise prices less than the deemed fair value of the underlying
common stock on the grant date for directors, officers and employees and the
deemed fair value of stock options granted to consultants. We recorded
cumulative deferred stock-based compensation costs of approximately $23.2
million as of September 30, 2000 from the grant of stock options to officers,
employees and consultants. We are amortizing deferred stock compensation on an
accelerated basis, using a multiple option valuation approach under FASB
Interpretation No. 28, over the vesting period, which is generally four years.
Amortization of deferred stock compensation expense was $0 in 1997 and 1998,
$454,000 in 1999 and $5.3 million for the nine months ended September 30,
2000. After September 30, 2000,
24
<PAGE>
we expect to record deferred stock compensation of at least $17.4 million. We
expect to incur deferred stock compensation of at least $3.4 million for the
remainder of 2000, $8.3 million in 2001, $3.9 million in 2002, $1.6 million in
2003 and $204,000 in 2004. Of the $454,000 of amortization of deferred stock
compensation expense in 1999, $51,000 was allocated to cost of revenue,
$251,000 was allocated to research and development expense, $135,000 was
allocated to sales and marketing expense and $17,000 was allocated to general
and administrative expense. Of the $5.3 million of amortization of deferred
stock compensation expense for the nine months ended September 30, 2000,
$722,000 was allocated to cost of revenue, $1.5 million was allocated to
research and development expense, $1.6 million was allocated to sales and
marketing expense and $1.5 million was allocated to general and administrative
expense. The amortization amounts were allocated among the operating expense
categories based on the primary activity of the individuals who received the
option grants. In October 2000, we will record $1.2 million of deferred stock
compensation for additional stock options granted, the future amortization for
which is $120,000 for the three months ended December 31, 2000, $665,000 for
2001, $274,000 for 2002, $128,000 for 2003 and $31,000 for 2004.
Litigation settlement expense results from the settlement of litigation in
September 2000. We recorded $5.7 million, consisting of $5.0 million in cash
payments and $717,000, the approximate fair value of a warrant granted for the
year ended December 31, 1999, and $638,000 for the approximate increase in the
fair value of the warrant granted for the nine months ended September 30,
2000.
We issued 1,200,000 shares of series F preferred stock in October 2000.
Upon completion of this offering, the shares of series F preferred stock will
convert into 1,200,000 shares of common stock at a conversion price of $10.00
per share. The amount of the deemed dividend represents the difference between
the assumed initial public offering price and $10.00. Based on an assumed
initial public offering price of $11.00 per share, we will recognize a non-
cash deemed dividend of $1.2 million from the beneficial conversion of the
series F preferred stock into common stock. The deemed dividend will be
recorded in the period in which our proposed initial public offering is
completed.
Other income (expense), net consists of interest earned on our cash and
cash equivalents, offset by interest expense associated with our debt
obligations, and minimal income tax expense.
We have incurred significant losses since inception and had an accumulated
deficit of $48.4 million as of September 30, 2000. Our limited operating
history makes the prediction of future operating results very difficult. We
believe that period-to-period comparisons of operating results should not be
relied upon as predictive of future performance.
25
<PAGE>
Quarterly Results of Operations
The following tables present our unaudited quarterly consolidated results
of operations, in dollars and as a percentage of total revenue, for the six
quarters ended September 30, 2000. This information has been presented on the
same basis as the audited financial statements appearing elsewhere in this
prospectus and, in the opinion of management, reflects all adjustments,
consisting only of normal recurring adjustments, that we consider necessary
for a fair presentation of this information in accordance with generally
accepted accounting principles. For purposes of these tables, cost of revenue,
gross profit, research and development expense, sales and marketing expense
and general and administrative expense do not include amortization of deferred
stock compensation. The results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1999 1999 1999 2000 2000 2000
-------- --------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product............... $ 1,148 $ 1,168 $ 1,253 $ 1,925 $ 3,399 $ 4,339
Development
contracts............ 118 180 167 180 33 --
Other................. 60 30 55 50 -- --
------- ------- ------- ------- ------- --------
Total revenue....... 1,326 1,378 1,475 2,155 3,432 4,339
------- ------- ------- ------- ------- --------
Cost of revenue......... 786 872 1,049 1,395 1,417 2,116
------- ------- ------- ------- ------- --------
Gross profit........ 540 506 426 760 2,015 2,223
Operating expenses:
Research and
development.......... 1,183 1,378 1,605 1,593 1,599 2,029
Sales and marketing... 983 1,033 1,092 1,076 1,343 1,386
General and
administrative....... 515 453 530 634 808 859
Amortization of
deferred stock
compensation......... 19 225 209 210 2,270 2,866
Litigation settlement
expense.............. -- -- 5,717 253 217 168
------- ------- ------- ------- ------- --------
Total operating
expenses........... 2,700 3,089 9,153 3,766 6,237 7,308
------- ------- ------- ------- ------- --------
Loss from operations.... (2,160) (2,583) (8,727) (3,006) (4,222) (5,085)
Other income (expense),
net.................... (10) 17 31 132 190 151
------- ------- ------- ------- ------- --------
Net loss................ $(2,170) $(2,566) $(8,696) $(2,874) $(4,032) $ (4,934)
======= ======= ======= ======= ======= ========
<CAPTION>
Three Months Ended
----------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1999 1999 1999 2000 2000 2000
-------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenue:
Revenue:
Product............... 87 % 85 % 85 % 89 % 99 % 100 %
Development
contracts............ 9 13 11 9 1 --
Other................. 4 2 4 2 -- --
------- ------- ------- ------- ------- --------
Total revenue....... 100 100 100 100 100 100
------- ------- ------- ------- ------- --------
Cost of revenue......... 59 63 71 65 41 49
------- ------- ------- ------- ------- --------
Gross profit.......... 41 37 29 35 59 51
Operating expenses:
Research and
development.......... 89 100 109 74 47 47
Sales and marketing... 74 75 74 50 39 32
General and
administrative....... 39 33 36 29 24 20
Amortization of
deferred stock
compensation......... 1 16 14 10 66 66
Litigation settlement
expense.............. -- -- 388 12 6 4
------- ------- ------- ------- ------- --------
Total operating
expenses........... 204 224 621 175 182 168
------- ------- ------- ------- ------- --------
Loss from operations.... (163) (187) (592) (140) (123) (117)
Other income (expense),
net.................... (1) 1 2 6 6 4
------- ------- ------- ------- ------- --------
Net loss................ (164)% (186)% (590)% (134)% (117)% (114)%
======= ======= ======= ======= ======= ========
</TABLE>
26
<PAGE>
Comparison of the Six Quarters Ended September 30, 2000
Product revenue. Product revenue increased in each quarter as shipments of
our SiRFstarI/LX product increased, partially offset by decreasing selling
prices. The larger increase in product revenue in the second quarter of 2000
was primarily due to several customers reaching production volumes of our
SiRFstarI/LX product. The increase in product revenue in the third quarter of
2000 was primarily due to the initial production of our SiRFstarII product.
Development contracts revenue. Development contracts revenue has fluctuated
on a quarterly basis primarily due to the timing of contracts. The decrease in
development contracts revenue in the second quarter of 2000, as compared to
prior quarters, was primarily due to the completion of a single large contract
in the previous quarter.
Other revenue. Other revenue has fluctuated on a quarterly basis primarily
due to achievement of specific deliverables under a licensing and support
agreement. This agreement was completed in the first quarter of 2000.
Cost of revenue and gross profit. Cost of revenue increased in each quarter
as our product shipments increased each quarter. We had higher costs as a
percentage of total revenue in the fourth quarter of 1999 because we built
more system development kits and evaluation kits and because of higher labor
and facilities costs. Gross profit fluctuated quarter to quarter depending on
volume, overhead costs and average selling prices. Gross margin decreased to
29% in the fourth quarter of 1999 from 37% in the third quarter of 1999 due to
lower selling prices as we started high volume shipments to customers and due
to the higher cost of system development tool kits and higher labor and
facilities costs as compared to prior periods. Gross profit has increased in
each quarter of 2000 due to lower costs per unit attributed to higher volumes.
Gross margin decreased from 59% in the second quarter of 2000 to 51% in the
third quarter of 2000 due to the initial production of our SiRFstarII product.
Research and development. Research and development expense has generally
increased in each of the six quarters ended September 30, 2000 due to the
timing of product development activities. Before releasing new products, we
incur one-time charges for test wafers and mask set revisions. We have also
incurred additional expenses related to hiring contractors to assist in our
development efforts. Also, the number of our full-time employees has increased
over the six quarters ended September 30, 2000, as have related overhead
expenses. We expect to continue to increase our research and development
expenses in absolute dollars.
Sales and marketing. Sales and marketing expense generally increased in
each of the six quarters ended September 30, 2000. This increase was primarily
due to an increase in sales and marketing personnel and commissions associated
with the higher revenue. We expect sales and marketing expense to increase in
absolute dollars as we increase our sales and marketing activities.
General and administrative. General and administrative expense generally
increased in each of the six quarters ended September 30, 2000 as the number
of our employees and our related overhead expenses associated with our overall
growth have increased. Fluctuations in general and administrative expense were
primarily due to the timing of legal fees and other professional services. We
expect general and administrative expense to increase in absolute dollars as
we add personnel and incur additional costs related to being a public company.
Our quarterly revenue and operating results are difficult to predict, and
have in the past and may in the future fluctuate from quarter to quarter. We
base our planned operating expenses in part on our expectations of future
revenue, and our expenses are relatively fixed in the short term. If revenue
for a particular quarter is lower than we expect, we may be unable to
proportionately reduce our operating expenses for that quarter, which would
harm our operating results for that quarter.
27
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of total revenue represented by selected items reflected in our consolidated
financial statements. For purposes of this table, cost of revenue, gross
profit, research and development expense, sales and marketing expense and
general and administrative expense do not include amortization of deferred
stock compensation. The results for any interim period are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
--------------------------- ---------------
1997 1998 1999 1999 2000
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenue:
Revenue:
Product...................... 39 % 51 % 83 % 82% 97%
Development contracts........ 53 34 11 11 2
Other........................ 8 15 6 7 1
------- ------- ------- ------ ------
Total revenue.............. 100 100 100 100 100
------- ------- ------- ------ ------
Cost of revenue................ 86 79 64 62 50
------- ------- ------- ------ ------
Gross profit................. 14 21 36 38 50
Operating expenses:
Research and development..... 424 186 99 96 53
Sales and marketing.......... 152 111 76 76 38
General and administrative... 75 42 37 36 23
Amortization of deferred
stock compensation.......... -- -- 9 6 54
Litigation settlement
expense..................... -- -- 109 -- 6
------- ------- ------- ------ ------
Total operating expenses... 651 339 328 215 174
------- ------- ------- ------ ------
Loss from operations........... (638) (318) (293) (176) (124)
Other income (expense), net.... 13 4 1 -- 5
------- ------- ------- ------ ------
Net loss....................... (625)% (314)% (292)% (176)% (119)%
======= ======= ======= ====== ======
</TABLE>
Comparison of the Nine Months Ended September 30, 1999 and 2000
Product revenue. Product revenue increased from $3.1 million for the nine
months ended September 30, 1999 to $9.7 million for the nine months ended
September 30, 2000. This increase was primarily due to an increase in the
shipments of our SiRFstarI L/X and SiRFstarII products as several of our
customers achieved volume production.
Development contracts revenue. Development contracts revenue decreased from
$423,000 for the nine months ended September 30, 1999 to $213,000 for the nine
months ended September 30, 2000. This decrease was primarily due to completion
of a single large contract.
Other revenue. Other revenue decreased from $245,000 for the nine months
ended September 30, 1999 to $50,000 for the nine months ended September 30,
2000. This decrease was primarily due to the completion of a licensing and
support agreement in 1999.
Cost of revenue and gross profit. Cost of revenue increased from $2.4
million for the nine months ended September 30, 1999 to $4.9 million for the
nine months ended September 30, 2000. This increase was primarily due to
higher shipment levels. Gross margin increased from 38% for the nine months
ended September 30, 1999 to 50% for the nine months ended September 30, 2000.
This increase was due to an increase in sales volumes and the absorption of
fixed costs, including overhead, over a larger unit volume.
28
<PAGE>
Research and development. Research and development expense increased from
$3.6 million for the nine months ended September 30, 1999 to $5.2 million for
the nine months ended September 30, 2000. This increase was primarily due to
an increase in personnel and the cost of contractors and consultants and
associated overhead expenses.
Sales and marketing. Sales and marketing expense increased from $2.9
million for the nine months ended September 30, 1999 to $3.8 million for the
nine months ended September 30, 2000. This increase was primarily due to an
increase in personnel and commissions associated with the higher revenue.
General and administrative. General and administrative expense increased
from $1.4 million for the nine months ended September 30, 1999 to $2.3 million
for the nine months ended September 30, 2000. This increase was primarily due
to an increase in personnel and higher legal fees and other professional
services fees.
Comparison of the Years Ended December 31, 1997, 1998 and 1999
Product revenue. Product revenue increased from $434,000 in 1997 to $1.3
million in 1998 and to $4.4 million in 1999. This increase was primarily due
to an increase in product shipments, specifically our SiRFstarI and SiRFstarI
L/X products.
Development contracts revenue. Development contracts revenue increased from
$592,000 in 1997 to $884,000 in 1998 and decreased to $590,000 in 1999. The
increase from 1997 to 1998 was primarily due to a large development contract
from one customer. The decrease from 1998 to 1999 was primarily due to the
completion of this development contract in 1998.
Other revenue. Other revenue increased from $97,000 in 1997 to $403,000 in
1998 and decreased to $300,000 in 1999. The increase from 1997 to 1998 was
primarily due to the signing of a licensing and support agreement and the
achievement of specific deliverables under that agreement. The decrease from
1998 to 1999 was primarily due to the completion of this licensing and support
agreement in 1999.
Cost of revenue and gross profit. Cost of revenue increased from $967,000
in 1997 to $2.1 million in 1998 and to $3.4 million in 1999. This increase was
primarily due to an increase in product shipments and the associated costs to
produce and support these higher volumes. Gross margin increased from 14% in
1997 to 21% in 1998 to 36% in 1999. The improvement in gross profit was due to
the maturing of our products, an increase in sales volumes and the absorption
of fixed costs, including overhead, over a larger unit volume.
Research and development. Research and development expense increased from
$4.8 million in 1997 to $4.8 million in 1998 and to $5.2 million in 1999. This
increase was primarily due to increases in hiring of engineers and consultants
and, to a lesser extent, to our increasing investment in hardware and software
design tools used to develop and test new products.
Sales and marketing. Sales and marketing expense increased from $1.7
million in 1997 to $2.9 million in 1998 and to $4.0 million in 1999. The
increase was primarily due to an increase in personnel and related expenses.
Also, over this period, commissions increased because of higher product
revenue levels, and higher marketing expenses associated with the introduction
of new products.
General and administrative. General and administrative expense increased
from $844,000 in 1997 to $1.1 million in 1998 and to $1.9 million in 1999. The
increase was primarily due to an increase in personnel, higher professional
services fees and increased occupancy costs.
Income Taxes
We have incurred net losses since inception for federal and state tax
purposes and have not recognized any tax benefit. We are in a net deferred tax
asset position, which has been fully reserved. We will continue to provide a
valuation allowance for our net deferred tax assets until it becomes more
likely than not that the net deferred tax assets will be realized.
29
<PAGE>
Federal and state income taxes were minimal during the years ended December
31, 1997, 1998 and 1999 as a result of our net operating losses. As of
December 31, 1999, we had available federal net operating loss carryforwards
of approximately $27.1 million and state net operating loss carryforwards of
approximately $15.3 million. We also had research and development tax credit
carryforwards of approximately $1.4 million. Federal net operating loss
carryforwards will expire, if not used, at various times beginning in 2010
through 2019. State net operating loss carryforwards will expire, if not used,
at various times beginning in 2003 through 2004. As of December 31, 1999, we
had deferred tax assets of approximately $14.6 million, for which no benefit
has been recorded in our financial statements, and which consist primarily of
net operating loss and research and development tax credit carryforwards. This
deferred tax asset will be recognized in future periods as any taxable income
is realized and consistent profits are reported.
Liquidity and Capital Resources
Since our incorporation in February 1995, we have financed our operations
primarily through private sales of our common and preferred stock, and, to a
lesser extent, through our bank line of credit and equipment lease lines. As
of September 30, 2000, we had $9.5 million in cash and cash equivalents. In
October 2000, we issued 1,200,000 shares of our series F preferred stock for
net proceeds of $12.0 million.
Net cash used in operating activities was $6.5 million in 1997, $8.6
million in 1998, $8.1 million in 1999 and $[8.2 million] for the nine months
ended September 30, 2000. Cash used in operating activities consisted
primarily of cash used to fund operating losses and working capital.
Net cash used in investing activities was $863,000 in 1997, $294,000 in
1998, $715,000 in 1999 and $1.0 million for the nine months ended September
30, 2000. Cash used in investing activities was primarily for the purchase of
property and equipment.
Net cash provided by financing activities was $614,000 in 1997, $10.0
million in 1998, $19.6 million in 1999 and $5.8 million for the nine months
ended September 30, 2000. In all cases, the cash was primarily from the net
proceeds from the sale of common and preferred stock.
We have borrowed a total of $500,000 under our $3.0 million bank line of
credit as of September 30, 2000. Amounts outstanding under this facility bear
interest at the bank's prime interest rate plus 1.25% (10.75% at September 30,
2000) and are secured by substantially all of our assets. We also have two
equipment loan agreements. We had outstanding borrowings under one of these
equipment loan agreements of $304,000 as of September 30, 2000. Borrowings
under this equipment loan agreement bear interest at the bank's prime rate
(8.5% at September 30, 2000). Under the second equipment loan agreement, we
had outstanding borrowings of $49,000 as of September 30, 2000. Borrowings
under this equipment loan agreement bear interest at an annual effective rate
of 15.4%. Amounts under these equipment loan agreements are collateralized by
our capital equipment.
As of September 30, 2000, our principal commitments consisted of
obligations outstanding under the bank line of credit, equipment loans,
capital and operating leases and the litigation settlement obligation. As of
September 30, 2000, future lease commitments for our office facilities for the
remainder of 2000 were $164,000, $665,000 in 2001, $680,000 in 2002, $574,000
in 2003 and $549,000 in 2004. Additionally, as of September 30, 2000, future
minimum litigation settlement obligations are $300,000 in 2001 and $500,000
annually through 2010. Although we have no material commitments for capital
expenditures, we anticipate an increase in our capital expenditures and lease
commitments consistent with our anticipated growth.
We believe that the net proceeds from the sale of common stock in this
offering, our existing cash and cash equivalents and our bank line of credit
will be sufficient to meet our working capital and capital expenditure
requirements for at least the next 12 months. If we require additional capital
resources to grow our business internally or to acquire complementary
technologies and businesses at any time in the future, we may seek to sell
additional equity or debt securities. The sale of additional equity or
convertible debt securities could result in more dilution to our stockholders.
Financing arrangements may not be available to us, or may not be available in
amounts or on terms acceptable to us.
30
<PAGE>
Qualitative and Quantitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market risks for changes in interest rates relates
primarily to our investment portfolio. As of September 30, 2000, our cash and
investment portfolio consisted of money market funds and other investment-
grade investments with maturities of less than 60 days and did not include
fixed-income securities. Due to the short-term nature of our investment
portfolio, an immediate 10% increase in interest rates would not have a
material effect on the fair market value of our portfolio. Since we believe we
have the ability to liquidate this portfolio, we do not expect our operating
results or cash flows to be materially affected to any significant degree by
the effect of a sudden change in market interest rates on our investment
portfolio.
Foreign Currency Exchange Risk
Our exposure to adverse movements in foreign currency exchange rates is
primarily related to our subsidiaries' operating expenses, primarily in the
United Kingdom and Taiwan, denominated in the respective local currency. A
hypothetical change of 10% in foreign currency exchange rates would not have a
material impact on our consolidated financial statements or results of
operations. All of our sales are transacted in U.S. dollars.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, 133, "Accounting for
Derivative Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments, including some
derivative instruments embedded in other contracts, and for hedging
activities. It requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Accounting for changes in
the values of those derivatives depends on the intended use of the derivatives
and whether they qualify for hedge accounting. SFAS 133, as amended by SFAS
137 and SFAS 138, is effective for fiscal years beginning after June 15, 2000.
Historically, we have not entered into derivatives contracts either to hedge
existing risks or for speculative purposes. We have not completed our
assesment of the impact of SFAS No. 133 on our financial position, results of
operations or cash flows.
In December 1999, the Securities and Exchange Commission published Staff
Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and provides interpretations regarding the application of generally accepted
accounting principles to revenue recognition where there is an absence of
authoritative literature addressing a specific arrangement or a specific
industry. SAB 101 is effective for us in the fourth quarter of fiscal 2000. We
believe our revenue recognition practices comply with the applicable guidance
in SAB 101 and therefore we do not expect the adoption of SAB 101 to have a
material effect on our financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44,
"Accounting for Certain Transactions involving Stock Compensation," an
interpretation of APB 25. FIN 44 provides guidance on the application of APB
25 for stock compensation involving employees. FIN 44 is effective July 1,
2000, but some of its conclusions cover specific events that occur after
either December 15, 1998 or January 12, 2000. We believe that the impact of
FIN 44 did not have a material effect on our financial statements.
31
<PAGE>
BUSINESS
Overview
We develop and market semiconductor and software products which are
designed to utilize GPS to enable location awareness in high-volume mobile
consumer devices and commercial applications. We market and sell our products
in four target markets: wireless handheld, automotive, portable computing and
embedded consumer applications.
Industry Background
Rapid technological advances in wireless communications are enabling
greater mobile connectivity among individuals. Mobile telephones, and the
networks that support them, now allow people to communicate from almost
anywhere. According to International Data Corporation, 225 million new mobile
telephones were sold in 1999, a number expected to grow to over 539 million
new mobile telephones in 2003. Dataquest estimates that 3.9 million handheld
and notebook computers were sold in 1998, and projects that approximately 21
million will be sold in 2003. In addition to their primary functions, these
devices are increasingly able to access the Internet through the wireless
infrastucture.
As small, relatively inexpensive Internet access devices gain broader
acceptance among consumers, a range of new data services can be tailored to
individual needs and delivered to consumers through these mobile devices. For
example, e-mail and real-time news and information can be delivered to
Internet-enabled cellular telephones and personal digital assistants, or PDAs.
While remote access to these services can provide significant convenience and
other benefits, the value of data services such as these would be greatly
enhanced by the ability of a mobile device to determine its location, and
potentially transmit that information or receive information relevant to a
person based on the person's location. This capability is frequently referred
to as location awareness. For example, emergency services can be delivered
quickly to a stranded motorist if the motorist's location is known.
Location technologies are in use today for sophisticated commercial and
military applications. Aircraft, ships and munitions rely on complex
navigation systems to guide them to their destinations, and surveying and
precision agriculture require systems that calibrate location very accurately.
In addition, location technologies are beginning to be used for fleet
management and automatic vehicle location in commercial fleets. Traditional
systems for these commercial applications are sold in relatively low volumes
and are generally very expensive.
The Global Positioning System
Most location-aware applications today rely upon GPS. GPS is based on a
system of more than 24 satellites that transmit longitude, latitude, altitude
and time information to GPS receiving and processing devices anywhere in the
world. The system initially was developed in the 1980s for defense
applications and is maintained by the United States Department of Defense. The
GPS satellites broadcast two types of signals. One is restricted for military
uses, while access to the second signal is available for commercial uses free
of charge. The typical accuracy of commercial GPS in outdoor environments with
full satellite visibility is approximately 10-15 meters.
GPS in High-Volume Consumer and Commercial Applications
Recent technological advances have created the potential for location
technologies to be widely deployed in high-volume consumer and commercial
applications. High-volume consumer and commercial applications can be
generally classified into three groups: convenience, safety and security and
mobile information access. An example of a convenience application is the many
handheld devices available today that provide personal navigation and map
capabilities. Personal safety and security can be enhanced through the ability
to locate and track lost persons and those in need of medical attention,
particularly children and the elderly. According to a 1998 article in GPS
World, 25% of people calling 911 on their cellular phones cannot accurately
describe their
32
<PAGE>
locations to the dispatcher. Location awareness also provides the ability to
locate and track valuable property. Mobile information access would be useful,
for example, to a driver trying to locate the closest gas station or looking
for real-time traffic information.
A number of trends are accelerating the adoption of location technologies
in consumer and commercial applications. Many wireless carriers offering
Internet access through cellular telephones are providing additional services
as a way to differentiate themselves in a competitive market. For example, in
Japan, NTT DoCoMo, which has announced 11 million subscribers for its i-mode
data services delivered to mobile devices, has recently developed a system
known as DoCoMo Location Platform, or DLP, to provide, among other things,
location-based services and content to a range of mobile devices. Also, the
United States Federal Communications Commission has issued a mandate known as
E911 which requires that wireless carriers phase in, starting in October 2001,
location technologies that are capable of providing the location of 911
callers within a range of 50 to 300 meters. In addition, several automobile
manufacturers are integrating location technology for navigation and emergency
response applications into their vehicles. According to Dataquest,
approximately three million GPS-based automotive navigation systems were sold
in 1999. Dataquest expects this number to increase to 13 million by 2003.
To successfully use GPS technology for high-volume consumer and commercial
applications, a number of significant challenges must be met. The GPS
satellites transmit very weak signals and traditional receiving devices
require direct lines of sight to multiple satellites. As a result, traditional
GPS devices designed for open sky environments do not function effectively in
obstructed environments such as urban areas, indoors and under dense foliage.
In contrast to military and professional applications of GPS that require low
volumes of expensive GPS systems, consumer devices must be manufactured in
high volumes and at low cost. Many battery-powered mobile devices are small
and have stringent power consumption and heat dissipation requirements. The
manufacturers of these devices must bring them to market quickly and therefore
need standardized GPS products that can be readily integrated with other
systems and networks, as opposed to larger stand-alone GPS products. High-
volume consumer and commercial applications also typically require very fast
access to location information and short start-up times. Traditional
architectures are not designed to meet the size, cost, performance and needs
of the high-volume consumer and commercial applications market.
The SiRF Solution
We develop and market semiconductor and software products based on GPS
which are designed to enable location awareness in high-volume mobile consumer
devices and commercial applications. Key benefits of our solution include the
following:
Small size and low power consumption facilitate integration of location
awareness into portable mobile devices. Most portable devices must be small
and lightweight and have stringent power consumption requirements. Our
semiconductors integrate digital signal processing functions, enabling GPS
receivers to be as small as a postage stamp. We continually work to further
reduce the size of our products using advanced manufacturing and packaging
techniques. Using these techniques, as well as our power management
technologies, we can also reduce average power consumption and heat
generation.
High-performance signal processing enables increased availability of
location information in obstructed environments. In urban areas, indoors and
under dense foliage, a significant constraint on the effectiveness of GPS is
the intermittent availability and degradation of satellite signals because the
signals can be physically blocked or reflected. We have designed our products
to use sophisticated algorithms and software and efficient hardware designs to
enable them to detect and use signals less than one-tenth the strength of
normal GPS satellite signals. Our products also have hardware and software
features that can process reflected signals for greater accuracy. We have also
developed rapid signal acquisition capabilities that can significantly improve
the performance of GPS devices in urban areas, indoors and under dense
foliage.
33
<PAGE>
Architecture facilitates efficient integration of GPS capabilities into
multiple devices. We develop standardized products for high-volume
applications. Our software architecture and hardware interfaces are designed
to be portable and modular, enabling them to be easily integrated with a range
of system configurations. In contrast to traditional GPS devices, which were
designed to provide only GPS functions, our architecture is designed to enable
GPS capabilities to be incorporated as a separate additional function.
Alternatively, one of our architectures incorporates processing capabilities,
which eliminates the need for the host device to supply central processing
capabilities and can reduce device size and cost.
Tool kits and value-added manufacturer relationships enable fast time to
market. Many of our customers in high-volume consumer and commercial markets
need to bring their products to market quickly with minimal engineering
investment in GPS technology. Customers that require GPS functionality to be
added quickly to devices designed primarily for other functions can purchase
GPS modules or boards that include our chip sets from our value-added
manufacturer customers. By purchasing our products as chip sets or modules,
our customers can focus on developing their products and bringing them to
market quickly. Our reference designs, tool kits and technical support enable
these customers to more easily incorporate GPS technology in their products.
Designed for high-volume applications. For most high-volume consumer and
commercial GPS applications, an accuracy of 10-15 meters is sufficient. Our
products deliver this level of performance at a relatively low cost, in
contrast to GPS solutions that provide centimeter-level accuracy at a
correspondingly higher cost. For applications which require greater accuracy,
we also provide support for differential GPS, or DGPS, technology, which can
improve the accuracy of a standard GPS device to one to five meters.
Cost-effective solution. Our hardware and software architectures are
designed to enable our customers to integrate GPS into their products cost-
effectively. We offer licenses of our IP cores to companies with high-volume
requirements. This enables them to integrate location technology into their
products at a low cost because they do not have to purchase separate chip
sets. We have dedicated engineering resources to support the integration of
our technology into customer products.
Our Strategy
Our objective is to be the leading provider of innovative and cost-
effective semiconductor and software products for location awareness in high-
volume consumer and commercial applications and wireless communications. To
achieve this objective, we plan to:
Continue to target markets which we believe have high-volume and high-
growth potential. We intend to continue to focus on markets which we believe
have the potential for high product volumes such as wireless handheld,
automotive, portable computing and embedded consumer applications. We plan to
take advantage of our engineering expertise to design our products for
specific platforms. We also intend to use our existing industry relationships
and sales channels to extend our market reach and expand our indirect sales
channels by establishing relationships with leading value-added manufacturers
and semiconductor vendors which have a strong presence in these markets.
Maintain technological leadership. We believe that we have developed some
of the most advanced GPS signal detection and processing technologies
available for high-volume consumer and commercial applications. Since our
inception in February 1995, our technical team has grown to over 70 employees,
and we intend to continue to make substantial investments in research and
development. We believe we have industry-leading design cycle times, having
introduced our first generation GPS product line in 1996 and introduced our
third generation product line in 1999. We intend to strengthen our market
position by incorporating the latest technology and through rapid product
development cycles.
Strengthen and expand relationships with industry leaders. We have
relationships with industry leaders in our target markets. These relationships
provide us with insights as to future customer requirements, wireless
34
<PAGE>
communications trends and emerging technologies. We intend to continue to work
closely with these companies to anticipate industry trends and future product
requirements.
Help to develop industry standards to increase demand for location
awareness applications. We intend to continue to actively participate in the
standardization efforts for the integration of location technology into the
wireless infrastructure in order to increase demand for location awareness
devices. We also intend to continue our active participation in wireless
standards-setting bodies such as the Telecommunication Industry Association
and the European Telecommunications Standards Institute, as well as with
carriers that influence industry standards such as NTT DoCoMo.
Leverage fabless semiconductor model. We intend to continue to use third
parties to manufacture our chip sets. This fabless model allows us to focus
more of our resources on our product design and marketing and eliminates the
high cost of owning and operating a semiconductor fabrication facility. By
using third party manufacturers, we can take advantage of the research and
development efforts of leading manufacturers and maintain flexibility in
choosing suppliers that meet our technology and cost requirements. We intend
to work with multiple third party manufacturers to ensure multiple sources
for, and the cost-effectiveness, quality and high performance of, our
products.
Strengthen our market presence through selected acquisitions. We intend to
actively pursue acquisitions of companies or technologies that can add to or
complement our solutions. We believe this approach can enable us to increase
our market penetration and broaden our technology and product offerings.
Products
We offer two lines of semiconductor products, as well as software products
which help integrate our semiconductors into our customers' products. We
introduced our first generation product architecture, called SiRFstarI, in
1996 with a focus on automotive applications. We introduced a low power
product line, called SiRFstarI/LX, based on this architecture in late 1997. We
recently introduced our SiRFstarII architecture in both IP core and chip set
forms. SiRFstarIIe is our first chip set product line based on this
architecture.
Each of our product lines consists of two integrated circuits--a radio
frequency integrated circuit and digital signal processing circuit--and core
GPS software. The radio frequency integrated circuit is a semiconductor that
detects and handles radio frequency signals from GPS satellites. The digital
signal processing circuit is a semiconductor that helps process those signals
to create data. The core GPS software searches satellite signals and uses
satellite data to calculate location. In addition to chip sets and core
software, we also provide software designed for different customer platforms
such as wireless handheld and automotive applications.
35
<PAGE>
Our products are currently used in automobile navigation systems, property
tracking devices, fleet management systems, GPS-based portable computing
peripheral devices and handheld GPS navigation devices for outdoor activities.
The following table summarizes the features of our products.
<TABLE>
<CAPTION>
Products Description
<C> <S>
SiRFstarI/LX product line . Radio frequency integrated circuit
. Digital signal processing circuit
. Core GPS software
. External processor and memory
--------------------------------------------------------------------------
SiRFstarIIe product line . Radio frequency integrated circuit
. Enhanced digital signal processing circuit
with built in differential GPS processor
. Core GPS software
. Internal processor and memory
--------------------------------------------------------------------------
SiRFLoc . Software for wireless devices that provides
enhanced location information using the
capabilities of the wireless networks.
--------------------------------------------------------------------------
SiRFDRive . Software for automotive applications that
enhances positioning by using other sensors
such as an odometer.
--------------------------------------------------------------------------
WinSiRF . Software for portable computing devices that
shares resources with the host platform.
</TABLE>
Our SiRFstarI/LX and SiRFstarIIe product lines are available to our
customers in three forms: modules, chip sets and as licensed IP cores.
Customers which require GPS functionality to be added quickly to devices
designed primarily for other functions may purchase complete GPS modules based
on our chip sets from our value-added manufacturer customers. These modules
consist of our semiconductors mounted on a board that can be readily added to
a device. For customers with high-volume requirements or unique system
requirements, we sell our products as chip sets, which can be integrated into
the designs of their products. For customers that have very high-volume, cost-
sensitive applications such as cellular phones, we offer our technology in IP
core form, consisting of the design code for our semiconductors and the source
code for our embedded software.
We are developing platform-specific software products which are designed to
enable our semiconductors to be more easily integrated into specific
applications. SiRFLoc is software for wireless devices that takes advantage of
the capabilities of wireless networks to enhance the weak signal receiving
capability of GPS devices. SiRFDRive is software for automotive applications
which uses inputs form the gyroscope, odometer and other sensors in the
automobile to complement the GPS satellite signal. WinSiRF enables the
navigation function to be performed by the host processor, which can reduce
the cost of the GPS sub-system.
In addition to our semiconductor and software products, we provide two
types of tool kits: evaluation kits and system development kits. Evaluation
kits consist of our products and other components needed to build a GPS module
as well as software, enabling potential customers to evaluate the performance
of our products for their specific environment and application. System
development kits are designed to make it easier for our customers to
incorporate our GPS technology into their products and reduce their time to
market. System development kits consist of hardware reference design
information, a software development platform and software tools to link our
software to the customer's system software. We also offer utility software to
our customers to assist them in high-volume manufacturing and testing.
36
<PAGE>
Technology
Our SiRFstar GPS architectures are designed to rapidly acquire satellite
signals to determine location, receive weak signals, use low amounts of power,
generate low amounts of heat and provide greater accuracy in a cost-effective
structure.
The following are the key SiRFstar GPS architectural features implemented in
our hardware and software products.
<TABLE>
<CAPTION>
Features Description Customer Benefit
<C> <S> <C>
SnapLock Signal Acquisition . Reacquires satellite Rapid response time
signals rapidly after
emerging from an
obstructed area, for
example, when an
automobile passes
through intersections
in an urban area.
. Re-establishes
position quickly using
re-acquired signal.
----------------------------------------------------------------------------------------
SnapStart Fast Start . Obtains a position fix Rapid response time
in two to three
seconds, even after
the receiver has been
idle for up to 30
minutes.
----------------------------------------------------------------------------------------
FoliageLock Signal Sensitivity . Detects signals with Improved signal availability
less than 10% of
normal strength.
. Continues operating in
dense foliage.
----------------------------------------------------------------------------------------
SingleSat Positioning . Enables automotive GPS Improved signal availability
applications to
operate during short
intervals when only
one satellite is
visible.
. Permits continued
navigation in urban
areas.
----------------------------------------------------------------------------------------
Dual Multipath Rejection . Reduces errors caused Improved accuracy
by reflected signals.
. Improves GPS accuracy
in obstructed
environments.
----------------------------------------------------------------------------------------
Differential GPS Support . Corrects errors in Improved accuracy
standard GPS signals
using supplementary
signals.
. Supports Federal
Aviation
Administrations's wide
area augmentation
system.
. Improves GPS accuracy
to one to five meters.
----------------------------------------------------------------------------------------
TricklePower Power Management . Reduces power Lower power consumption
consumption and heat
dissipation.
. Increases battery life
and allows smaller
device sizes.
----------------------------------------------------------------------------------------
Push-to-Fix Mode . Reduces average power Lower power consumption
consumption for on-
demand position
applications such as
E911 and personal
locators.
</TABLE>
37
<PAGE>
Semiconductor Design Methodologies
We use advanced design tools and manufacturing process technologies in our
design methodology, which helps reduce die size, power consumption, heat
generation and cost for a given function. We further integrate specialized
tools to accelerate design and verification time and to reduce the number of
modification iterations.
Several factors must be taken into account in the design of GPS-based
semiconductors. Because the GPS satellite system employs a very high carrier
frequency and very low signal strength, handling noise interference is
difficult and requires custom semiconductor design. In addition, reliability
concerns, such as electrical static discharge and electromigration, further
complicate the design considerations. We have adopted a design approach, known
as the custom own tooling approach, for our radio frequency semiconductors to
address these issues. Under the custom own tooling approach, our engineers
design the entire circuit and layout, which are delivered to our foundries as
a physical layout database. These foundries use the database to fabricate the
wafers which they then send to us. Because we design the entire circuit and
layout ourselves, rather than using a third party, we believe we can reduce
these types of design problems.
For our digital signal processing semiconductors, we use bulk CMOS process
technology and the turnkey design approach, which takes advantage of existing
IP cores and cell libraries offered by our foundries. We deliver to the
foundries fully simulated netlists, which are instructions for using these IP
cores and cell libraries, and we receive fully tested and packaged parts.
Software Test Methodologies
Because the GPS satellites are constantly in motion, continuous position
fixes at the same physical location do not necessarily result in identical
outputs. Moreover, different terrestrial environments will produce different
test results. Laboratory simulation cannot predict all possible scenarios,
making automated test and complete test coverage for GPS products difficult.
We have developed extensive test methodologies for both laboratory and road
testing to assure the quality of our software products.
Customers
We target four major markets: wireless handheld, automotive, portable
computing and embedded consumer applications. The following is a list of our
top direct and indirect customers in each of our four target markets, based on
orders placed during the first half of 2000:
<TABLE>
<CAPTION>
Market Customer
<S> <C>
Wireless Handheld Applications CSI Wireless Link
Ericsson
Nokia
Tyco
------------------------------------------------------------------
Automotive Applications Aisin AW
Axiom Navigation
QUALCOMM
Time Management
------------------------------------------------------------------
Portable Computing Applications Global Stat
Pharos Science & Applications
Royal Tek
Taiwan Falcon Aerospace
------------------------------------------------------------------
Embedded Consumer Applications C-Map Italia
Leadtek
Raytheon Marine
Silva Production
</TABLE>
38
<PAGE>
These customers accounted from approximately 1% to 34% of our total revenue
for the nine months ended September 30, 2000. Tyco, Alliant, Leadtek and
Insight each accounted for at least 10% of our total revenue in 1999. Tyco and
Leadtek each accounted for at least 10% of our total revenue for the nine
months ended September 30, 2000.
Manufacturing
We use independent semiconductor manufacturers to fabricate our chip sets.
By contracting our manufacturing, we are able to focus more of our resources
on product design and eliminate the high cost of owning and operating a
semiconductor fabrication facility. This fabless business model also allows us
to take advantage of the research and development efforts of leading
manufacturers and to maintain flexibility in choosing suppliers that meet our
technology and cost requirements. We manufacture our products using
complementary metal oxide semiconductor, or CMOS, bipolar or a combination of
bipolar and CMOS process technologies.
We design our products to be compatible with industry standard
manufacturing processes, allowing us to work with multiple manufacturers. Our
foundries are United Microelectronics in Taiwan, Samsung in South Korea and
NEC in Japan. Each foundry currently manufactures only one of our
semiconductors. We prequalify each manufacturing plant that we intend to use
by having our quality assurance team evaluate each plant. We maintain an
operations and quality engineering group that manages manufacturing logistics,
including product planning, work-in-progress control, shipping and receiving
and our relationships with contractors. While we believe we have adequate
capacity to support our current sales levels, we intend to continue to work
with our existing foundries to obtain more production capacity and we intend
to qualify new foundries to provide additional production capacity. Because we
use independent foundries to manufacture our semiconductor products, we may
face risks such as lack of manufacturing capacity and limited control over
delivery schedules, quality assurance, production costs and manufacturing
yields.
Assembly and Test
ASAT of Hong Kong, ASE of Taiwan and Samsung conduct our assembly and
testing. All testing is performed on standardized equipment using proprietary
programs developed by our test engineering group. We use standard, readily
available packages for all of our products.
Quality Assurance
We focus on product reliability from the initial stage of the design cycle
through each specific design process. We review quality and reliability data
from our foundries and assembly subcontractors through each stage of the
production cycle. We closely monitor foundry production to enhance product
quality and reliability and yield levels. Each of our software products
undergoes three test cycles, which are known as alpha, beta and production. We
believe this testing allows us to improve the quality and reliability of our
software products. In the alpha cycle, we test the samples of the products
with tests that simulate the use of the product in real-life environments. In
the beta cycle, after the product has been validated in the alpha cycle, we
send the product to a select number of customers who test the product in
diverse environments and provide us with feedback. In the production cycle,
after feedback from our beta testing, we make any appropriate changes and re-
validate the functionality and performance of a product before it is released.
We also have a software quality assurance organization. We are certified by
the International Standards Organization quality standard called ISO9001 and
we actively monitor emerging quality standards.
Sales and Marketing
We market and sell our products worldwide though a combination of direct
sales, independent sales representatives and distributors. For customers which
want modules that incorporate our chip sets, we refer them to our value-added
manufacturer customers. We have four direct sales offices in the United
States, the United Kingdom and Taiwan. We also have distributors in the United
States, Europe and the Asia/Pacific region. We have a number of marketing
programs to support the sale of our products and to increase brand awareness,
39
<PAGE>
including participation in industry tradeshows, technical conferences and
technology seminars, sales training, advertising and public relations. As of
September 30, 2000, we had 29 people in our sales and marketing organization.
Research and Development
We devote a substantial portion of our resources to developing new products
and enhancing our existing products, conducting product testing and quality
assurance testing, improving our core technology and strengthening our
technological expertise in the GPS market. Our engineering team has expertise
in architecture design, wireless communication algorithms, system engineering,
digital signal processing circuit design, radio frequency integrated circuit
design and software engineering. We have dedicated engineering teams for
systems design, digital signal processing circuit design, radio frequency
integrated circuit design, software design and product test and validation. As
of September 30, 2000, our research and development group included 50
engineers. Our research and development expenditures were approximately $4.8
million in 1997, $4.8 million in 1998, $5.2 million in 1999 and $5.2 million
for the nine months ended September 30, 2000.
Competition
The market for our products is competitive and rapidly evolving. We expect
competition to increase, which may result in price reductions, reduced margins
or loss of market share. We may be unable to compete successfully against
current or future competitors.
Within each of our markets, we face competition from public and private
companies as well as our customers' in-house design efforts. For chip sets,
our main competitors include Analog Devices, Conexant, Motorola, Philips,
QUALCOMM, Sony, STMicroelectronics and Trimble. For modules, our main
competitors are Conexant, JRC, Motorola and Trimble. For licensed IP cores,
our main competitors include Parthus, QUALCOMM and Trimble. Licensees of
intellectual property from our competitors may also compete against us.
In the wireless market, we compete against solutions based on alternative
location technologies such as wireless infrastructure based systems. These
systems are based on technologies that compute a caller's location by
measuring the differences of signals between individual base stations. If
these technologies become more widely adopted, market acceptance of our
products may decline. Competitors in these areas include CellLoc, Cambridge
Positioning System, TruePosition and US Wireless. Further, alternative
satellite-based navigation systems such as Galileo, which is being considered
by European governments, may reduce the demand for GPS-based applications or
cause customers to postpone decisions on whether to integrate GPS into their
products.
We believe that the key competitive factors in our market include:
. the cost effectiveness of the location technology;
. performance in terms of availability, accuracy and time required to fix a
location;
. low power consumption;
. high integration to reduce the size of the product;
. system development tool kits and design support to enable rapid time to
market;
. the ability to provide products in the form of chip sets, modules and
licensed intellectual property; and
. the ability to ship products in high volumes.
In addition, in the wireless market, the ability to support location in
both handsets as well as the wireless network is an important competitive
factor in the wireless market. We believe we compete favorably with respect to
each of these factors.
Many of our competitors have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than we do. We also
believe that our success depends on our ability to establish and maintain
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<PAGE>
relationships with established system providers and industry leaders. Our
failure to establish and maintain these relationships, or the preemption of
relationships by the actions of other competitors or us will harm our ability
to penetrate emerging markets.
Intellectual Property
As of September 30, 2000, we had nine issued patents and 35 patent
applications pending in the United States, and we intend to seek additional
patents in the future. We also have seven foreign patent applications pending.
We do not know if our patent applications or any future patent application
will result in a patent being issued with the scope of the claims we seek, if
at all, or whether any patents we may receive will be challenged or
invalidated. We intend to continue to assess appropriate occasions for seeking
patent protection for those aspects of our technology that we believe provide
significant competitive advantages.
Our success also depends on our other rights in proprietary technology. We
rely on a combination of copyright, trade secret, trademark and contractual
protection to establish and protect our proprietary rights that are not
protected by patents, and we enter into confidentiality agreements with our
employees and consultants. We generally require our customers to enter into
confidentiality and nondisclosure agreements before we disclose any sensitive
aspects of our products, technology or business plans. Despite our efforts to
protect our proprietary rights through confidentiality and license agreements,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. It is difficult to monitor unauthorized use of
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States. In addition, our
competitors may independently develop technology similar to ours. These
precautions may not prevent misappropriation or infringement of our
intellectual property.
Third parties could infringe or misappropriate our copyrights, trademarks
and similar proprietary rights. In addition, other parties may assert
infringement claims against us. Although we have not received notice of any
alleged infringement, our products may infringe issued patents that may relate
to our products. In addition, because patent applications in the United States
are not publicly disclosed until the patent is issued, applications may have
been filed which relate to our products. We may be subject to legal
proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties. We may also be required to resort to
litigation to enforce our intellectual property rights. Intellectual property
litigation is expensive and time-consuming and could divert management's
attention away from running our business. This litigation could also require
us to develop non-infringing technology or enter into royalty or license
agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all, in the event of a successful claim
of infringement. Our failure or inability to develop non-infringing technology
or license the proprietary rights on a timely basis would harm our business.
Employees
As of September 30, 2000, we had 121 full-time employees, including 50 in
research and development, 29 in sales and marketing, 23 in operations and 19
in general and administrative. None of our employees is covered by a
collective bargaining agreement. We believe our relations with our employees
are good.
Legal Proceedings
We are not a party to any material legal proceeding. We may be subject to
various claims and legal actions arising in the ordinary course of business.
Facilities
Our corporate headquarters are located in San Jose, California, where we
occupy approximately 25,000 square feet under a lease expiring in November
2003. We also lease approximately 7,050 square feet in Los Angeles,
California, which serves as one of our engineering and product development
locations. This lease expires in March 2003. We are currently seeking to lease
additional space in Los Angeles and San Jose. Additional space may not be
available on commercially reasonable terms, if at all.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The names of our executive officers and directors and their ages as of
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jackson Hu.............. 51 Chief Executive Officer, President and Director
Diosdado Banatao........ 54 Chairman of the Board and Founder
Walter D. Amaral........ 49 Senior Vice President and Chief Financial Officer
Robert H. Bagheri....... 44 Vice President of Operations, Quality and Reliability
Robert E. Bohn.......... 55 Vice President of Engineering
Kanwar Chadha........... 40 Vice President of Marketing, Director and Founder
Mark S. Scheible........ 50 Vice President of Sales
Filemon T. Berba, Jr.... 62 Director
Oscar M. Lopez.......... 70 Director
James Smaha............. 65 Director
Fred Wong............... 49 Director
</TABLE>
Jackson Hu. Mr. Hu has served as our Chief Executive Officer and President
and as one of our directors since October 1996. Prior to joining SiRF, from
June 1989 to August 1996, Mr. Hu served as senior vice president and general
manager at S3 Incorporated, a designer and manufacturer of graphics and video
accelerators for personal computers and peripheral products. Mr. Hu holds a
B.S. in electrical engineering from National Taiwan University, a Ph.D. in
computer science from the University of Illinois and an M.B.A. from Santa
Clara University.
Diosdado Banatao. Mr. Banatao co-founded SiRF in February 1995 and has
served as our Chairman since our inception. Mr. Banatao has served as a
managing partner of Tallwood Venture Capital, a venture capital firm, since
June 2000. From January 1998 to May 2000, Mr. Banatao served as a venture
partner at Mayfield Fund, a venture capital firm. Mr. Banatao founded S3,
where he served as President and Chief Executive Officer from 1989 until 1992
and as Chairman from 1992 to December 1997. Mr. Banatao also serves on the
board of directors of Marvell Technology Group, Ltd. Mr. Banatao holds a B.S.
in electrical engineering from the Mapua Institute of Technology and an M.S.
in electrical engineering and computer science from Stanford University.
Walter D. Amaral. Mr. Amaral has served as our Senior Vice President and
Chief Financial Officer since August 2000. Prior to joining SiRF, from August
1997 to August 2000, Mr. Amaral served as Senior Vice President and Chief
Financial Officer at S3. From April 1995 to August 1997, Mr. Amaral served as
Senior Vice President and Chief Financial Officer at NetManage, Inc., a
software company. Mr. Amaral holds a B.S. in Accounting from San Jose State
University.
Robert H. Bagheri. Mr. Bagheri has served as our Vice President of
Operations, Quality and Reliability since April 1999 and as our Director of
Operations, Quality and Reliability from January 1997 to April 1999. From May
1995 to January 1997, Mr. Bagheri served as Director of Product and Test
Engineering at S3. Mr. Bagheri holds a B.S. in electrical engineering from the
Cleveland Institute of Technology.
Robert E. Bohn. Mr. Bohn has served as our Vice President of Engineering
since July 2000. Prior to joining SiRF, Mr. Bohn served as Vice President of
Engineering and General Manager of the GPS Consumer Products Group of
Magellan, a satellite access products company, from August 1997 to April 2000.
From September 1996 to June 1997, Mr. Bohn served as the Vice President of
Systems for ELMS Systems Corporation, a CD library company. From July 1993 to
August 1996, Mr. Bohn served as the Director of Engineering for desktop and
server systems at AST Computers, a personal computer company. Mr. Bohn holds a
B.S. in electrical engineering and mathematics from the University of Michigan
and an M.S. in management science from West Coast University.
Kanwar Chadha. Mr. Chadha co-founded SiRF in February 1995 and has served
as our Vice President of Marketing and as one of our directors since our
inception. Prior to founding SiRF, Mr. Chadha served as Director
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<PAGE>
of Strategic Marketing at S3 and started the multimedia group at S3. Mr.
Chadha holds a B.S. in electrical engineering from the Indian Institute of
Technology, New Delhi, an M.S. degree in computer and information science from
the University of Pennsylvania and an M.B.A. from the Wharton School of
Business.
Mark S. Scheible. Mr. Scheible has served as our Vice President of Sales
since January 1997. Prior to joining SiRF, Mr. Scheible served as Vice
President of Worldwide Field Sales for S3 from February 1995 to January 1997
and as Director of Worldwide Field Sales for S3 from April 1990 to February
1995. Mr. Scheible holds a B.S. in industrial engineering from San Jose State
University.
Filemon T. Berba, Jr. Mr. Berba has served as one of our directors since
June 1995. Since January 1991, Mr. Berba has served as senior managing
director of Ayala Corporation, a conglomerate based in the Philippines. Since
January 1991, Mr. Berba has served as Vice-Chairman and Chief Executive
Officer of Integrated Microelectronics, an electronics manufacturing
subcontractor. Mr. Berba also serves on the board of directors of the Manila
Water Company, Inc. Mr. Berba holds a B.S. in electrical engineering from the
University of the Philippines and an M.B.A. from the Wharton School of
Business.
Oscar M. Lopez. Mr. Lopez has served as one of our directors since August
1995. Since 1986, Mr. Lopez has served as the Chairman of the Lopez Group, a
company engaged in power and energy, telecommunications, television, radio
broadcasting and cable, infrastructure and real estate and manufacturing
businesses. Mr. Lopez also serves as chairman of several subsidiaries within
the Lopez Group. Mr. Lopez holds a B.A. from Harvard University and a M.A. in
Public Administration from Harvard's Littauer School of Public Administration.
James Smaha. Mr. Smaha has served as one of our directors since September
2000. Mr. Smaha is a 30 year veteran of the semiconductor industry. Since
1989, Mr. Smaha has served as an independent consultant. From 1983 to 1989,
Mr. Smaha served as President and Executive Vice-President of the
Semiconductor Group of National Semiconductor Corporation, a semiconductor
company. Mr. Smaha holds a B.A. in mathematics from the University of Maine.
Fred Wong. Mr. Wong has served as one of our directors since December 1996.
Mr. Wong currently serves as a partner of InveStar Capital, Inc., a venture
capital firm. From 1996 to December 1997, Mr. Wong was the Principal of Wong &
Associates Consulting Co., a consulting firm. From 1992 to 1996, Mr. Wong was
the Vice President and General Manager of Varian Associates, a consulting
company. Mr. Wong holds a B.S., M.S. and Ph.D. in physics from Southern
Methodist University, and an M.B.A. from the University of Texas at Dallas.
There are no family relationships among any of our directors or executive
officers.
Board Composition
We currently have seven directors. Our certificate of incorporation will
provide for a classified board consisting of three classes of directors, each
serving staggered three-year terms. This classification of the board of
directors may delay or prevent a change in control of our company or in our
management. Our series A preferred stockholders, voting separately as a class,
have the right to elect one member to our board of directors. Diosdado Banatao
is the director currently elected by our series A preferred stockholders. Our
series B and series C preferred stockholders, each voting separately as a
class, have the right to elect two members to our board of directors. Oscar
Lopez and Filemon Berba, Jr. are the two directors currently elected by our
series B preferred stockholders. James Smaha and Fred Wong are the two
directors currently elected by our series C preferred stockholders. Upon
completion of this offering, our certificate of incorporation will no longer
provide for these rights.
Board Committees
Our board of directors has a compensation committee and an audit committee.
Compensation Committee
The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for our directors and executive
officers. Messrs. Banatao, Smaha and Wong are the current members of our
compensation committee.
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<PAGE>
Audit Committee
Our audit committee is responsible for reviewing our financial statements
and internal controls and appointing our independent auditors. The audit
committee reviews our annual audit and meets with our independent auditors to
review our internal controls and financial management practices. Messrs.
Berba, Smaha and Wong are the current members of our audit committee.
Director Compensation
Except for the grant of stock options, we do not currently compensate our
directors for their services as directors. Directors who are also employees
will be eligible to participate in our 2000 stock incentive plan and our 2000
employee stock purchase plan. Our 2000 stock incentive plan provides that non-
employee directors will be eligible to receive automatic option grants to
purchase shares of our common stock. We also reimburse each member of our
board of directors for out-of-pocket expenses incurred with attending board
meetings.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists, or has existed in the past, between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company. We do not currently have a
compensation committee. To date, all compensation matters have been determined
by our entire board of directors.
Executive Compensation
This table provides summary information concerning compensation earned by
or paid to our chief executive officer and to our four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000, for services rendered in all capacities to us during 1999. These
individuals are referred to as the named executive officers. Walter D. Amaral,
our Chief Financial Officer, and Robert E. Bohn, our Vice President of
Engineering, who are also executive officers, did not join us until 2000.
Other than the salary and bonus information described below, we did not pay
any executive officer named in the summary compensation table any fringe
benefits, perquisites or other compensation in excess of 10% of that executive
officer's salary and bonus in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Securities
Compensation Underlying
------------ Options All Other
Name and Principal Position Salary ($) (#)(a) Compensation ($)
--------------------------- ------------ ------------ ----------------
<S> <C> <C> <C>
Jackson Hu......................... $158,509 -- $ --
President and Chief Executive
Officer
Robert Bagheri..................... 130,894 150,000 --
Vice President of Operations,
Quality and Reliability
Kanwar Chadha...................... 146,773 100,000 --
Vice President of Marketing
Mark Scheible...................... 135,665 30,000 30,525(b)
Vice President of Sales
Jerry Knight(c).................... 126,369 45,000 --
</TABLE>
--------
(a) We granted additional options to purchase a total of 1,034,700 shares to
Messrs. Hu, Bagheri, Chadha and Scheible during the first half of 2000.
(b) Represents sales commissions paid to Mr. Scheible in 1999.
(c) Mr. Knight, our former Vice President of Engineering, resigned from our
company in April 2000.
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<PAGE>
Option Grants in Last Fiscal Year
The table below presents information regarding each grant of stock options
during 1999 to the named executive officers. The percentage of total options
granted is based on a total of 826,330 options granted in 1999. The exercise
price on the date of grant was equal to the fair market value on the date of
grant as determined by our board of directors. Options granted under our 1995
stock option plan have a maximum term of 10 years but may terminate earlier
for specified events related to cessation of employment.
The dollar values have been calculated by (a) determining the difference
between the fair market value of the securities underlying the options at
December 31, 1999 and the exercise prices of the options, (b) multiplying that
number by the number of shares of common stock underlying the option and (c)
assuming that the aggregate stock value from that calculation compounds at the
annual 5% and 10% rates for the entire 10-year option term. The 5% and 10%,
assumed rates of appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of the
future stock price. The values presented in the table may never be achieved.
Solely for purposes of determining the value of the options at December 31,
1999, we have assumed that the fair market value of each share of common stock
issuable upon exercise of each option was $11.00 per share, the assumed
initial public offering price.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------ Annual Rates of
Number Stock Price
of Securities % of Exercise Appreciation
Underlying Total Options Price Per for Option Term
Options Granted in Share Expiration ---------------------
Name Granted(#) Fiscal 2000 ($/Sh) Date 5%($) 10%($)
---- ------------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jackson Hu.............. -- --% $ -- -- $ -- $ --
Robert Bagheri.......... 4,000 .5 .60 1/20/09 69,271 111,725
10,000 1.2 1.20 5/14/09 167,178 273,312
40,000 4.8 1.80 7/27/09 644,714 1,069,247
Kanwar Chadha........... 100,000 12.1 1.80 7/27/09 1,611,784 2,673,117
Mark Scheible........... 10,000 1.2 1.80 7/27/09 161,178 267,312
20,000 2.4 1.80 12/3/09 322,357 534,623
Jerry Knight............ 5,000 .6 .60 1/20/09 86,589 139,656
40,000 4.8 1.80 7/27/09 644,714 1,069,247
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table presents information regarding stock option exercises
by our named executive officers during our last fiscal year and options
outstanding at the end of the last fiscal year. This table assumes a per-share
fair market value equal to $11.00 per share.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised Options the-Money Options
Shares at December 31, 1999(#) at December 31, 1999($)
Acquired on Value ---------------------------------- -------------------------
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jackson Hu.............. 200,000 $2,200,000 -- -- $ -- $ --
Robert Bagheri.......... -- -- 110,000 40,000 1,154,000 368,000
Kanwar Chadha........... -- -- -- 100,000 -- 920,000
Mark Scheible........... 190,300 2,093,300 -- 30,000 -- 276,000
Jerry Knight............ 70,000 770,000 5,000 40,000 52,000 368,000
</TABLE>
--------
(a) The shares acquired by Messrs. Hu, Scheible and Knight are subject to our
right of repurchase if they are terminated, which right lapses over time.
Shares exercisable by Messrs. Bagheri and Knight are subject to our right
of repurchase if they are terminated, which right lapses over time.
45
<PAGE>
1995 STOCK OPTION PLAN
Our 1995 stock option plan was adopted by our board of directors in March
1995 and was subsequently approved by our stockholders.
As of September 30, 2000, 8,670,001 shares of common stock have been
reserved for issuance under the 1995 stock option plan. As of September 30,
2000, options to purchase a total of 4,322,254 shares of common stock were
outstanding under the 1995 stock option plan at a weighted average exercise
price of $1.85 per share.
Upon the completion of this offering, the 1995 stock option plan will be
terminated and no shares of our common stock will remain available for future
issuance under the 1995 stock option plan. Shares that are subject to expired,
terminated, cancelled or ungranted options under the 1995 stock option plan
will be available for option grants or share issuances under our 2000 stock
incentive plan after this offering is completed.
2000 STOCK INCENTIVE PLAN
GENERAL
The 2000 stock incentive plan was adopted by our board of directors in
September 2000 and will be submitted to our stockholders for approval before
this offering is completed.
ADMINISTRATION
The 2000 stock incentive plan will be administered by our compensation
committee. The 2000 stock incentive plan provides for the direct award or sale
of shares of common stock and for the grant of options to purchase shares of
our common stock. The 2000 stock incentive plan provides for the grant of
incentive stock options as defined in Section 422 of the Internal Revenue Code
and the grant of nonstatutory stock options and stock purchase rights to
employees, non-employee directors, advisors and consultants.
The board of directors will be able to amend or modify the 2000 stock
incentive plan at any time, with stockholder approval, if required.
AUTHORIZED SHARES
3,000,000 shares of common stock have been authorized for issuance under
the 2000 stock incentive plan. However, no participant in the 2000 stock
incentive plan can receive option grants or direct stock issuances for more
than a total of 2,000,000 shares in any fiscal year. The number of shares
reserved for issuance under the 2000 stock incentive plan will be increased on
the first day of each of our fiscal years from 2001 through 2010 by the lesser
of:
. 2,000,000;
. 5% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
PLAN FEATURES
Under the 2000 stock incentive plan:
. qualified employees will be eligible for the grant of incentive stock
options to purchase shares of our common stock;
. qualified non-employee directors will be eligible to receive automatic
option grants to purchase shares of our common stock at an exercise price
equal to 100% of the fair market value of those shares on the date of
grant;
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<PAGE>
. the compensation committee will determine the exercise price of options
or the purchase price of stock purchase rights, but the option price for
incentive stock options will not be less than 100% of the fair market
value of our common stock on the date of grant; and
. the exercise price or purchase price may, at the discretion of the
compensation committee, be paid in cash, cash equivalents, full-recourse
promissory notes, past services or future services.
Vesting
Shares subject to options granted under our 2000 stock incentive plan
generally vest over four years, with 25% of the shares vesting after one year
and the remaining shares vesting in equal monthly increments over the
following 36 months. The 2000 stock incentive plan will include change in
control provisions that may result in the accelerated vesting of outstanding
option grants and stock issuances. The compensation committee may grant
options or stock purchase rights in which all or some of the shares shall
become vested if there is a change in control of SiRF. Change in control is
defined under the 2000 stock incentive plan as
. a change in the composition of the board of directors, as a result of
which fewer than one-half of the incumbent directors are directors who
either:
-- had been directors for 24 months before the change; or
-- were elected, or nominated for election, to our board with the
affirmative votes of at least a majority of the directors who had been
directors 24 months before the change and who were still in office at
the time of the election or nomination; or
. an acquisition or aggregation of securities by a person, including two or
more persons acting together, resulting in the person becoming the
beneficial owner of 50% or more of the voting power of our outstanding
securities.
2000 Employee Stock Purchase Plan
General
The board of directors adopted our 2000 employee stock purchase plan in
September 2000, to be effective on completion of this offering. Our 2000
employee stock purchase plan will be submitted to our stockholders for
approval before this offering is completed. A total of 2,000,000 shares of
common stock have been reserved for issuance under our employee stock purchase
plan. The number of shares reserved for issuance under the 2000 employee stock
purchase plan will be increased on the first day of each of our fiscal years
from 2001 through 2010 by the lesser of:
. 1,000,000 shares;
. 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
Administration
Our 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, will be administered by our board of
directors or by a committee appointed by the board. Employees, including our
officers and employee directors, but excluding 5% or greater stockholders, are
eligible to participate if they are customarily employed for more than 20
hours per week and for at least five months in any calendar year. Our 2000
employee stock purchase plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 10% of an employee's
total compensation. The maximum number of shares a participant may purchase
during a single participation period is 1,000 shares.
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<PAGE>
Offering and Participation Periods
The 2000 employee stock purchase plan will be implemented by a series of
overlapping offering periods of 24 months' duration, with new offering
periods, other than the first offering period, beginning in May and November
of each year. Our board of directors will establish participation periods for
our 2000 employee stock purchase plan, none of which will exceed six months.
During each participation period, payroll deductions will accumulate, without
interest. On the purchase dates set by our board of directors for each
participation period, accumulated payroll deductions will be used to purchase
common stock. The initial offering period is expected to begin on the date of
this offering and end on April 30, 2003. The initial participation period is
expected to begin on the date of this offering and end on April 30, 2001.
The purchase price will be equal to 85% of the fair market value per share
of our common stock on either the first day of the participation period or on
the last day of the participation period, whichever is less. Employees may
withdraw their accumulated payroll deductions at any time. Participation in
our 2000 employee stock purchase plan ends automatically on termination of
employment with us. Immediately before a corporate reorganization, the
participation period then in progress shall terminate and stock will be
purchased with the accumulated payroll deductions, unless the 2000 employee
stock purchase plan is assumed by the surviving corporation or its parent
corporation under the plan of merger or consolidation.
401(k) Plan
We have established a tax-qualified employee savings and retirement plan
for which our employees will generally be eligible. Under our 401(k) Plan,
employees may elect to reduce their compensation and have the amount of this
reduction contributed to the 401(k) Plan. We do not make matching
contributions. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code, so that contributions to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn
from the 401(k) Plan, and so that contributions by us, if any, will be
deductible by us when made.
Limitation of Liability and Indemnification Matters
Delaware Law
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Certificate of Incorporation and Bylaws
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to purchase insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his actions as an
officer, director, employee or agent of ours, regardless of whether the bylaws
would permit indemnification.
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<PAGE>
Indemnification Agreements
Before this offering is completed, we will also enter into agreements to
indemnify our directors and executive officers. We believe that these
provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers. We also provide insurance for our
officers and directors for any liability arising out of his or her actions in
that capacity regardless of whether Delaware law would permit indemnification.
Employment Agreements and Change in Control Arrangements
We do not have formal employment agreements with any of our executive
officers. We have standard offer letters with each of our named executive
officers and Walter Amaral, our Senior Vice President and Chief Financial
Officer and Robert Bohn, our Vice President of Engineering, which set forth
each officer's salary and bonus. The stock options granted to Walter Amaral
will immediately vest as to 50% of the then outstanding unvested shares in the
event of a change in control of SiRF and Mr. Amaral is terminated without
cause in connection with the change in control.
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<PAGE>
RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described in "Management," and the transactions described below, since
February 1995 there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
. in which the amount involved exceeded or will exceed $60,000; and
. in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
SALES OF COMMON AND PREFERRED STOCK
Between March 1995 and September 2000, we issued and sold the securities
listed below:
. March 1995: 3,333,333 shares of common stock at a price of $.001 per
share to Diosdado Banatao, Kanwar Chadha and Sanjai Kohli;
. March 27, 1995: 2,666,666 shares of series A preferred stock at a price
of $.23 per share;
. June 2, 1995: 5,000,000 shares of series B preferred stock at a price of
$.80 per share;
. November 29, 1996 to December 31, 1996: 2,000,000 shares of series C
preferred stock at a price of $4.00 per share;
. January 16, 1998 to July 31, 1998: 1,688,001 shares of series D preferred
stock at a price of $6.00 per share; and
. February 18, 1999 to February 15, 2000: 4,010,793 shares of series E
preferred stock at a price of $6.15 per share.
When this offering is completed, each share of preferred stock will convert
into one share of common stock.
The table below summarizes purchases, in excess of $60,000, of shares of
our capital stock by our directors, executive officers and entities owning
more than 5% of our outstanding capital stock:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
---------------------------------------------
SERIES
INVESTOR SERIES A SERIES B C SERIES D SERIES E
-------- --------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Diosdado Banatao (1)............. 2,211,472 -- -- -- 81,300
Filemon Berba, Jr. (2)........... -- 625,000 55,000 61,500 81,300
Oscar Lopez (3).................. 10,000 2,000,000 125,000 83,333 81,298
Fred Wong (4).................... -- -- 500,000 83,333 --
5% STOCKHOLDERS:
F.P.H.C. International, Inc...... -- 1,875,000 125,000 83,333 81,298
Tallwood Partners, L.P........... 1,105,736 -- -- -- 40,650
Sanjai Kohli..................... 337,444 -- -- -- --
</TABLE>
--------
(1) Includes shares held by Tallwood Partners, L.P. Diosdado Banatao, one of
our directors, is a managing partner of Tallwood Venture Capital, a
venture fund associated with Tallwood Partners, L.P.
(2) Represents shares held by Ayala Corporation. Filemon Berba, Jr., one of
our directors, is the senior managing director of Ayala Corporation.
(3) Includes shares held by F.P.H.C. International, Inc. Oscar Lopez, one of
our directors, is Chairman of F.P.H.C. International, Inc.
(4) Represents shares held by InveStar Semiconductor Development Fund, Inc.
and its affiliated entities. Fred Wong, one of our directors, is a partner
of InveStar Capital Inc., a venture fund associated with InveStar
Semiconductor Development Fund, Inc. and its affiliated entities.
50
<PAGE>
F.P.H.C. International, Inc. received warrants to purchase 8,333 shares of
series D preferred stock. Ayala Corporation received warrants to purchase
6,150 shares of series D preferred stock. InveStar Semiconductor Development
Fund, Inc. and its affiliated entities received warrants to purchase 8,334
shares of series D preferred stock. These affiliates purchased the securities
described above at the same price and on the same terms and conditions as the
unaffiliated investors in the private financings.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information regarding beneficial ownership of
common stock as of September 30, 2000, by:
. each person or entity known to us to own beneficially more than 5% of our
common stock;
. each of the named executive officers;
. each of our directors; and
. all executive officers and directors as a group.
Applicable percentage ownership is based on 22,969,267 shares of common
stock outstanding as of September 30, 2000, including 1,200,000 shares of
series F preferred stock issued in October 2000, assuming the conversion of
our preferred stock into 16,565,460 shares of common stock when this offering
is completed, and 27,969,267 shares outstanding immediately after this
offering is completed.
Beneficial ownership is determined based on the rules and regulations of
the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
exercisable or exercisable within 60 days of September 30, 2000 are counted as
outstanding. These shares, however, are not counted as outstanding for the
purposes of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and under applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite that
stockholder's name.
Unless otherwise indicated, the address for the following stockholders is
c/o SiRF Technology, Inc., 148 E. Brokaw Road, San Jose, CA 95112.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------
Number of Shares Before After
Name and Address of Beneficial Owner Beneficially Owned Offering Offering
------------------------------------ ------------------ ---------- ----------
<S> <C> <C> <C>
5% Stockholders:
F.P.H.C. International, Inc.(1).. 2,172,964 9.5% 7.8%
Tallwood Partners, L.P.(2)....... 1,146,386 5.0 4.1
Sanjai Kohli(3).................. 1,143,926 5.0 4.1
Executive Officers and Directors:
Jackson Hu(4).................... 1,300,000 5.6 4.6
Robert H. Bagheri(5)............. 325,000 1.4 1.2
Kanwar Chadha(6)................. 1,464,111 6.3 5.2
Mark Scheible(7)................. 390,000 1.7 1.4
Jerry Knight..................... 68,750 * *
Diosdado Banatao(8).............. 3,403,883 14.8 12.2
Filemon T. Berba, Jr.(9)......... 828,950 3.6 3.0
Oscar M. Lopez(10)............... 2,307,964 10.0 8.3
James Smaha...................... 0 * *
Fred Wong(11).................... 591,667 2.6 2.1
All executive officers and
directors as a group
(11 persons)(12)................. 10,680,325 44.1 36.5
</TABLE>
--------
* Less than 1%
(1) Principal address is Exchange Road, Cor. Meralco Ave., Benpress Building,
6th Floor, Pasig City, Philippines. Includes 8,333 shares issuable under
warrants that are immediately exercisable.
(2) Principal address is 635 Waverley Street, Palo Alto, California 94301.
52
<PAGE>
(3) Principal address is 7799 Leesburg Pike, Office #900 North, Falls Church,
Virginia 22043. Includes 50,000 shares held in trust for Mr. Kohli's
family.
(4) Includes 400,000 shares under immediately exercisable options and 506,251
shares subject to our right of repurchase.
(5) Includes 252,836 shares under immediately exercisable options and 231,044
shares subject to our right of repurchase.
(6) Includes 390,000 shares under immediately exercisable options and 369,167
shares subject to our right of repurchase. Includes 30,000 shares held in
trust for Mr. Chadha's family.
(7) Includes 199,700 shares under immediately exercisable options and 221,766
shares subject to our right of repurchase.
(8) Includes 1,146,386 shares held in trust for Mr. Banatao's family. Also
includes 1,146,386 shares held by Tallwood Partners, L.P. Mr. Banatao
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest in Tallwood Partners, L.P.
(9) Represents 828,950 shares held by Ayala Corporation, of which 6,150
shares are issuable under warrants that are immediately exercisable. Mr.
Berba disclaims beneficial ownership of these shares except to the extent
of his pecuniary interest in Ayala Corporation.
(10) Includes 2,172,964 shares held by F.P.H.C. International, Inc., of which
8,333 shares are issuable under warrants that are immediately
exercisable. Mr. Lopez disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in F.P.H.C. International,
Inc.
(11) Represents 591,667 shares held by InveStar Semiconductor Development
Fund, Inc. and its affiliated entities, of which 8,334 shares are
issuable under warrants that are immediately exercisable. Mr. Wong
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest in InveStar Semiconductor Development Fund, Inc.
and its affiliated entities.
(12) Includes 1,242,536 shares under immediately exercisable options, and
1,328,228 shares subject to our right of repurchase. Also includes 22,817
shares issuable under warrants that are immediately exercisable.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
When this offering is completed and after the filing of our amended and
restated certificate of incorporation, our authorized capital stock will
consist of 250,000,000 shares of common stock, par value $.0001 per share and
5,000,000 shares of preferred stock, par value $.0001 per share. The following
information assumes the filing of our amended and restated certificate of
incorporation and the conversion of all outstanding shares of preferred stock
into shares of common stock upon completion of this offering.
Common Stock
As of September 30, 2000, there were 22,969,267 shares of common stock
outstanding held by approximately 277 stockholders of record. The shares of
common stock to be outstanding after this offering, including the shares of
common stock to be sold in this offering, will be fully paid and non-
assessable.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to:
Dividends
Holders of common stock are entitled to receive dividends out of assets
legally available for the payment of dividends at the times and in the amounts
as the board of directors may determine.
Voting
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, including the election of
directors, and will not have cumulative voting rights unless SiRF is subject
to Section 2115 of the California Corporations Code.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of
the shares voted can elect all of the directors then standing for election.
Preemptive Rights, Conversion and Redemption
Our common stock is not entitled to preemptive rights and is not subject to
conversion or redemption.
Liquidation, Dissolution and Winding-up
Upon our liquidation, dissolution or winding-up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation of any preferred stock.
Preferred Stock
The board of directors is authorized, without action by our stockholders,
to designate and issue up to 5,000,000 shares of preferred stock in one or
more series. The board of directors can fix the rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock.
The issuance of preferred stock could delay, defer or prevent a change in
control of SiRF. We have no current plans to issue any shares of preferred
stock.
54
<PAGE>
Warrants
We issued these warrants to purchase a total of 582,336 shares of preferred
stock:
. 17,500 shares of series C preferred stock at an exercise price of $4.00
per share;
. 164,850 shares of series D preferred stock at an exercise price of $6.00
per share;
. 187,190 shares of series E preferred stock at an exercise price of $6.15
per share; and
. 212,796 shares of series F preferred stock at an exercise price of $10.00
per share.
Registration Rights
When this offering is completed, the holders of 17,147,796 shares of common
stock issuable upon conversion of our outstanding preferred stock and upon the
exercise of warrants will have the right to cause us to register these shares
under the Securities Act based on:
. Demand registration rights. At the earlier of five years after the date
of the investor rights agreement or one year after this offering, one or
more holders of 30% of the common stock issued upon conversion of our
preferred stock may request that we register their shares.
. Piggyback registration rights. The holders of registrable securities may
request to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others subject to a pro rata cutback to a minimum of 25%
of any offering other than our initial public offering.
. S-3 registration rights. The holders of registrable securities have the
right to request registrations on Form S-3 if we are eligible to use Form
S-3 and have not already registered shares twice on an S-3 registration
statement within the past 12 months and if the total proceeds are at
least $8,000,000.
Registration of shares of common stock because of the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
under the Securities Act would result in the holders being able to trade these
shares without restriction under the Securities Act when the registration
statement is declared effective. We will pay all registration expenses, other
than underwriting discounts and commissions, related to any registration.
These registration rights terminate five years after this offering is
completed.
Section 2115 of the California Corporations Code
We are subject to Section 2115 of the California Corporations Code. Section
2115 provides that, regardless of a company's legal domicile, some provisions
of California corporate law will apply to that company if more than 50% of its
outstanding voting securities are held of record by persons having addresses
in California and the majority of the company's operations occur in
California. For example, while we are subject to Section 2115, stockholders
may cumulate votes in electing directors. This means that each stockholder may
vote the number of votes equal to the number of candidates multiplied by the
number of votes to which the stockholder's shares are normally entitled in
favor of one candidate. This potentially allows minority stockholders to elect
some members of our board of directors. When we are no longer subject to
Section 2115, cumulative voting will not be allowed and a holder of 50% or
more of our voting stock will be able to control the election of all of our
directors. Section 2115 also:
. enables removal of directors with majority stockholder approval;
. places limitations on the distribution of dividends;
. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares;
and
. provides for information rights and required filings if there is a sale
of assets or a merger.
55
<PAGE>
We anticipate that our common stock will be qualified for trading on the
Nasdaq National Market. If we have at least 800 stockholders of record by the
record date for our 2001 annual meeting of stockholders, then we will no
longer be subject to Section 2115 as of the record date for our 2001 annual
meeting of stockholders.
Delaware Anti-Takeover Law and Charter Provisions
Delaware Takeover Statute
We are governed by Section 203 of the Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder,
unless:
. before this date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction began, excluding for purposes of determining the number
of shares outstanding those shares owned by persons who are directors and
also officers or which can be issued under employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or after this date, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66-2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines an interested stockholder as any entity or
person who, with affiliates and associates owns, or within three years, did
own beneficially 15% or more of the outstanding voting stock of the
corporation. Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to specified exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that increases the
proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Certificate of Incorporation and Bylaws
Undesignated preferred stock. Under our certificate of incorporation, our
board of directors has the power to authorize the issuance of up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
further vote or action by our stockholders. The issuance of preferred stock
may:
. delay, defer or prevent a change in control;
. discourage bids for our common stock at a premium over the market price
of our common stock;
. adversely affect the voting and other rights of the holders of our common
stock; and
. discourage acquisition proposals or tender offers for our shares and, as
a consequence, inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts.
56
<PAGE>
Advance notice provisions. Our bylaws establish advance notice procedures
for stockholder proposals and nominations of candidates for election as
directors other than nominations made by or at our direction of our board of
directors or a committee of the board.
Special meeting requirements. Our bylaws provide that special meetings of
stockholders be called by our chief executive officer or our board of
directors.
Stockholder written consent. Our certificate of incorporation will also
prohibit stockholder action by written consent.
These provisions may only be amended by approval of the holders of at least
66-2/3% of the outstanding common stock and may deter a hostile takeover or
delay a change in control or management of SiRF.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and we cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price of our common
stock. As described below, only a limited number of shares will be available
for sale shortly after this offering due to contractual and legal restrictions
on resale. Sales of substantial amounts of our common stock in the public
market after the restrictions lapse could cause the market price of our common
stock to decline.
When this offering is completed, we will have a total of 27,969,267 shares
of common stock outstanding, assuming no exercise of outstanding options and
warrants. The 5,000,000 shares offered by this prospectus will be freely
tradable unless they are purchased by a person that directly or indirectly
controls, is controlled by or is under common control with, us. These persons
are considered to be affiliates of ours under Rule 144 of the Securities Act
of 1933. The remaining 22,969,267 shares are restricted, which means they were
originally sold in offerings that were not registered under a registration
statement filed with the Securities and Exchange Commission. These restricted
shares may be resold only through registration under the Securities Act of
1933 or under an available exemption from registration, including Rule 144.
Lock-up Agreements
The holders of substantially all of the 22,969,267 restricted shares have
agreed, subject to limited exceptions, not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of
common stock for a period of 180 days after the date of this prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. This
generally means that they cannot sell these shares during the 180 days after
the date of this prospectus. Morgan Stanley & Co. Incorporated, in its sole
discretion, may release some or all of these shares before the expiration of
the lock-up period. Regardless of possible earlier eligibility for sale under
the provisions of Rules 144, 144(k) and 701, shares under lock-up agreements
will not be salable until these agreements expire or are waived. Taking into
account the lock-up agreements and the provisions of Rules 144, 144(k) and
701, the following restricted shares will be eligible for sale in the public
market at the following times:
. approximately 833,905 shares will be eligible for sale before 180 days
after the date of this prospectus;
. approximately 21,665,264 shares will be eligible for sale immediately
when the 180-day lock-up period expires, of which 9,371,222 shares are
held by affiliates, 12,294,042 shares are held by non-affiliates and of
which 5,818,934 shares may be sold under Rule 144(k);
. approximately 1,200,000 shares will be eligible for sale in October 2001;
and
. approximately 104,003 shares will be eligible for sale at various times
after 180 days after the effective date of the offering;
Rule 144
Under Rule 144, beginning 90 days after the date of this prospectus, a
person or persons, including affiliates, whose shares are aggregated, who has
beneficially owned restricted securities for at least one year, including the
holding period of any holder who is not an affiliate, is entitled to sell
within any three-month period a number of our shares of common stock that does
not exceed the greater of:
. 1% of the outstanding shares of our common stock at that time, which will
equal approximately 279,693 shares upon completion of this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before the date on which
notice of sale is filed with the Securities and Exchange Commission.
58
<PAGE>
Sales under Rule 144 are subject to restrictions relating to manner of
sale, notice and the availability of public information about us.
Rule 144(k)
A person who is not an affiliate of SiRF at any time during the 90 days
before a sale and who has beneficially owned shares for at least two years,
including the holding period of any prior owner who is not an affiliate, would
be entitled to sell shares following this offering under Rule 144(k) without
complying with the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions of Rule 144. Any employee, officer or
director or consultant who purchased his shares under a written compensatory
plan or contract may rely on the resale provisions of Rule 701. Under Rule
701:
. affiliates can sell Rule 701 shares without complying with the holding
period requirements of Rule 144;
. non-affiliates can sell these shares in reliance on Rule 144 without
having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144; and
. Rule 701 shares must be held at least 90 days after the date of this
prospectus before they can be resold.
However, all shares issued by us under Rule 701 are subject to lock-up
provisions and will only become eligible for sale 180 days after the date of
this prospectus.
Registration
Immediately after this offering, we intend to file a registration statement
on Form S-8 under the Securities Act covering shares of common stock under
outstanding options under our 1995 stock option plan and shares reserved for
future issuance under our 2000 stock incentive plan and our 2000 employee
stock purchase plan. This registration statement will automatically become
effective upon filing. Shares registered under this registration statement
will be available for sale in the open market, subject to the lock-up
agreements described above, although sales of shares held by our affiliates
will be limited by Rule 144 volume limitations. Based on the number of shares
subject to outstanding options under our 1995 stock option plan as of
September 30, 2000 and the number of shares reserved for issuance under our
2000 stock incentive plan and 2000 employee stock purchase plan, this
registration statement would cover approximately 6,022,644 shares.
Also, holders of 17,147,796 shares of our preferred stock and warrants to
purchase preferred stock have registration rights for the common stock
issuable upon conversion of the preferred stock.
59
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Robertson Stephens, Inc. and UBS
Warburg LLC are acting as representatives, have severally agreed to purchase,
and we have agreed to sell to them, severally, the respective number of shares
indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated................................
Robertson Stephens, Inc..........................................
UBS Warburg LLC..................................................
---------
Total.......................................................... 5,000,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for
all of the shares of common stock offered by this prospectus, other than those
covered by the over-allotment option described below, if any of the shares are
taken. Morgan Stanley Dean Witter Online, an affiliate of Morgan Stanley & Co.
Incorporated, is acting as a selected dealer in connection with the offering
and will be the sole distributor of shares of common stock over the Internet
to its eligible account holders.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. No underwriter will allow, and no dealer will reallow, any
concession to other underwriters or to other dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives of the
underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 750,000 additional shares of
common stock at the initial public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock
offered by this prospectus. To the extent this allotment option is exercised,
each underwriter will become obligated, subject to limited conditions, to
purchase approximately the same percentage of additional shares of common
stock as the number listed next to the underwriter's name in the preceding
table bears to the total number of shares of common stock listed next to the
names of all underwriters in the preceding table. If the underwriters' option
is exercised in full, the total price to the public would be $ . The total
underwriting discounts and commissions would be $ and total proceeds to
SiRF would be $ .
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
60
<PAGE>
We and our officers, directors and substantially all of our stockholders
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, or otherwise during the period
ending 180 days after the date of this prospectus, we will not:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The foregoing restrictions shall not apply to:
. the sale of any shares to the underwriters,
. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares if no filing under Section 16 of
the Exchange Act is required,
. the transfer of shares of common stock by gift, or by will or intestate
succession to a spouse or lineal descendant, or
. the transfer of shares of common stock to a trust by a stockholder for
its benefit or the benefit of a family member.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to approximately shares of common stock
offered hereby to directors, officers, employees and persons with whom we have
business relationships. There can be no assurance that any of the reserved
shares will be purchased. The number of shares of common stock available for
sale to the general public will be reduced to the extent these individuals
purchase the reserved shares. Any reserved shares that are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
Pricing of the Offering
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares
of common stock will be determined by negotiations between us and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:
. our record of operations;
61
<PAGE>
. our current financial position and future prospects;
. the experience of our management;
. the economics of our industry in general;
. the general condition of the equity securities markets;
. sales, earnings and other financial and operating information of SiRF in
recent periods; and
. the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of ours.
The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
62
<PAGE>
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus will be passed upon for SiRF Technology, Inc. by
Pillsbury Madison & Sutro LLP, Palo Alto, California. Some attorneys of
Pillsbury Madison & Sutro LLP and an investment partnership comprised of
partners and former partners of that firm beneficially own an aggregate of
6,166 shares of our common stock. Legal matters in connection with this
offering will be passed upon for the underwriters by Fenwick & West LLP, Palo
Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus and the related consolidated financial schedule included
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act for the common stock offered. This prospectus, which is a part
of the registration statement, does not contain all of the information this
prospectus in the registration statement or the exhibits and schedules which
are part of the registration statement.
For more information about SiRF and the common stock offered by this
prospectus, we refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. You may read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, and
will file periodic reports, proxy statements and other information with the
SEC. These periodic reports, proxy statements and other information will be
available for inspection and copying at the SEC's public reference rooms and
the web site of the SEC.
63
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999, and
September 30, 2000 (unaudited).......................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999 and Nine Months Ended September 30, 1999 (unaudited)
and 2000 (unaudited).................................................... F-4
Consolidated Statements of Convertible Preferred Stock and Stockholders'
Equity (Deficit) for the Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 2000 (unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and Nine Months Ended September 30, 1999 (unaudited)
and 2000 (unaudited).................................................... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1997, 1998 and 1999 and Nine Months Ended September 30, 1999
(unaudited) and 2000 (unaudited)........................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
SiRF Technology, Inc.:
We have audited the accompanying consolidated balance sheets of SiRF
Technology, Inc. (the Company) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, convertible preferred stock and
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
September 29, 2000
(November 9, 2000 as to Note 14)
F-2
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
(Note 1)
Stockholders'
December 31, Equity at
------------------ September 30, September 30,
1998 1999 2000 2000
-------- -------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 2,134 $ 12,865 $ 9,464
Trade and contracts
receivable (net of
allowances of $67 in 1998,
$120 in 1999 and $118 in
2000)...................... 1,125 1,442 2,138
Inventories................. 362 443 4,381
Prepaid expenses and other
current assets............. 172 109 961
-------- -------- --------
Total current assets...... 3,793 14,859 16,944
Property and equipment, net... 804 845 1,517
Other long-term assets........ 27 219 216
-------- -------- --------
Total assets.............. $ 4,624 $ 15,923 $ 18,677
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 173 $ 688 $ 2,173
Accrued payroll and related
benefits................... 466 615 698
Other accrued liabilities... 344 517 892
Deferred revenue............ 69 195 1,023
Current portion of long-term
and capital lease
obligations................ 353 275 855
Current portion of
litigation settlement
obligation................. -- 200 300
-------- -------- --------
Total current
liabilities.............. 1,405 2,490 5,941
Long-term and capital lease
obligations.................. 474 361 121
Litigation settlement
obligation................... -- 5,517 5,855
Commitments and contingencies
(Note 13)
Convertible preferred stock,
$0.0001 par value per share;
20,000,000 shares authorized,
11,354,667, 14,511,883 and
15,365,460 shares issued and
outstanding at December 31,
1998, 1999 and September 30,
2000, respectively, (actual);
and no shares authorized,
issued and outstanding at
September 30, 2000 (pro
forma) (aggregate liquidation
preference of $47,394)....... 22,950 42,952 48,207
Stockholders' equity
(deficit):
Common stock, $0.0001 par
value per share; 35,000,000
shares authorized;
5,010,311, 5,882,865 and
6,403,807 shares
outstanding at December 31,
1998, 1999 and September
30, 2000, respectively,
(actual); and 250,000,000
shares authorized,
21,769,267 shares issued
and outstanding at
September 30, 2000 (pro
forma) .................... 266 2,134 24,320 $ 2
Additional paid-in capital.. -- -- -- 72,525
Deferred stock
compensation............... -- (1,018) (17,414) (17,414)
Accumulated deficit......... (20,471) (36,513) (48,353) (48,353)
-------- -------- -------- --------
Total stockholders' equity
(deficit)................ (20,205) (35,397) (41,447) $ 6,760
-------- -------- -------- ========
Total liabilities and
stockholders' equity
(deficit)................ $ 4,624 $ 15,923 $ 18,677
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- -------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product .................... $ 434 $ 1,324 $ 4,377 $ 3,124 $ 9,663
Development contracts ...... 592 884 590 423 213
Other ...................... 97 403 300 245 50
------- ------- -------- -------- ---------
Total revenue............. 1,123 2,611 5,267 3,792 9,926
Cost of revenue (exclusive of
amortization of deferred
stock compensation).......... 967 2,056 3,399 2,350 4,928
------- ------- -------- -------- ---------
Gross profit (exclusive of
amortization of deferred
stock compensation) ..... 156 555 1,868 1,442 4,998
Operating expenses:
Research and development
(exclusive of amortization
of deferred stock
compensation).............. 4,760 4,848 5,231 3,626 5,221
Sales and marketing
(exclusive of amortization
of deferred stock
compensation).............. 1,712 2,906 3,990 2,898 3,805
General and administrative
(exclusive of amortization
of deferred stock
compensation).............. 844 1,102 1,904 1,374 2,301
Amortization of deferred
stock compensation*........ -- -- 454 245 5,346
Litigation settlement
expense.................... -- -- 5,717 -- 638
------- ------- -------- -------- ---------
Total operating expenses.. 7,316 8,856 17,296 8,143 17,311
------- ------- -------- -------- ---------
Loss from operations.......... (7,160) (8,301) (15,428) (6,701) (12,313)
Interest income............... 215 189 157 95 553
Interest expense.............. (70) (100) (98) (71) (76)
Other income (expense), net... (2) 7 (17) (13) (4)
------- ------- -------- -------- ---------
Net loss...................... $(7,017) $(8,205) $(15,386) $ (6,690) $ (11,840)
======= ======= ======== ======== =========
Net loss per share--basic and
diluted ..................... $ (1.78) $ (2.05) $ (3.24) $ (1.39) $ (2.10)
======= ======= ======== ======== =========
Shares used to compute basic
and
diluted net loss per share... 3,934 4,283 4,958 4,879 5,643
======= ======= ======== ======== =========
Net loss per share--pro forma
basic and diluted
(unaudited).................. $ (0.93) $ (0.57)
======== =========
Shares used to compute pro
forma basic and diluted net
loss per share (unaudited)... 17,266 20,865
======== =========
* Amortization of deferred
stock compensation:
Cost of revenue............. $ 51 $ 21 $ 722
Research and development.... 251 156 1,527
Sales and marketing......... 135 56 1,626
General and administrative.. 17 12 1,471
-------- -------- ---------
$ 454 $ 245 $ 5,346
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
-----------------------------------------------------
Convertible
Preferred Stock Common Stock Deferred
------------------ ------------------ Stock Accumulated
Shares Amount Shares Amount Compensation Deficit Total
---------- ------- --------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997.... 9,666,666 $12,302 4,139,294 $ 49 $ -- $ (4,688) $ (4,639)
Exercise of stock options.... 953,754 114 114
Repurchase of common stock... (126,626) (4) (4)
Net loss..................... (7,017) (7,017)
---------- ------- --------- ------- -------- -------- --------
Balances, December 31, 1997.. 9,666,666 12,302 4,966,422 159 -- (11,705) (11,546)
Issuance of Series D
preferred stock (net of
issuance costs of $63)...... 1,688,001 10,060
Exercise of stock options.... 362,665 112 112
Repurchase of common stock... (318,776) (5) (5)
Issuance of Series C
preferred warrants.......... 27
Issuance of Series D
preferred warrants.......... 561 (561) (561)
Net loss..................... (8,205) (8,205)
---------- ------- --------- ------- -------- -------- --------
Balances, December 31, 1998.. 11,354,667 22,950 5,010,311 266 -- (20,471) (20,205)
Issuance of Series E
preferred stock (net of
issuance costs of $71)...... 3,157,216 19,346
Stock option grants.......... 1,472 (1,472) --
Exercise of stock options.... 954,743 412 412
Repurchase of common stock... (82,189) (16) (16)
Issuance of Series E
preferred warrants.......... 656 (656) (656)
Amortization of deferred
stock compensation.......... 454 454
Net loss..................... (15,386) (15,386)
---------- ------- --------- ------- -------- -------- --------
Balances, December 31, 1999.. 14,511,883 42,952 5,882,865 2,134 (1,018) (36,513) (35,397)
Issuance of Series E
preferred stock (net of
issuance costs of $(4))
(unaudited)................. 853,577 5,255
Stock option grants
(unaudited)................. 21,742 (21,742) --
Exercise of stock options
(unaudited)................. 554,692 458 458
Repurchase of common stock
(unaudited)................. (33,750) (14) (14)
Amortization of deferred
stock compensation
(unaudited)................. 5,346 5,346
Net loss (unaudited)......... (11,840) (11,840)
---------- ------- --------- ------- -------- -------- --------
Balances, September 30, 2000
(unaudited)................. 15,365,460 $48,207 6,403,807 $24,320 $(17,414) $(48,353) $(41,447)
========== ======= ========= ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
-------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(7,017) $(8,205) $(15,386) $(6,690) $(11,840)
Reconciliation to net cash used in
operating activities:
Depreciation and amortization...... 406 571 481 348 401
Loss from the sale of equipment.... -- -- 1 -- --
Amortization of fair value of
warrants.......................... -- 12 8 -- 7
Amortization of deferred stock
compensation ..................... -- -- 454 245 5,346
Litigation settlement expense...... -- -- 5,717 -- 638
Changes in operating assets and
liabilities:
Accounts receivable................ (55) (727) (317) 36 (696)
Inventory.......................... (51) (311) (81) (251) (3,938)
Prepaid expenses :and other
current assets.................... (98) 24 55 (89) (859)
Accounts payable................... (290) ( 74) 515 119 1,485
Accrued and other current
liabilities....................... 382 119 322 733 458
Deferred revenue................... 203 (135) 126 (6) 828
------- ------- -------- ------- --------
Net cash used in operating
activities....................... (6,520) (8,578) (8,105) (5,555) (8,170)
------- ------- -------- ------- --------
Cash flows from investing activities:
Purchases of property and
equipment.......................... (843) (297) (525) (295) (1,073)
Proceeds from sale of equipment..... -- -- 2 -- --
Other long-term assets.............. (20) 3 (192) (96) 3
------- ------- -------- ------- --------
Net cash used in investing
activities....................... (863) (294) (715) (391) (1,070)
------- ------- -------- ------- --------
Cash flows from financing activities:
Issuance of common stock, net of
repurchases........................ 110 107 396 373 444
Issuance of preferred stock, net of
issuance costs..................... -- 10,060 19,346 6,326 5,255
Proceeds from borrowings............ 924 369 172 68 570
Principal payments on long-term
obligations........................ (420) (507) (363) (256) (230)
Payment on litigation settlement
obligation......................... -- -- -- -- (200)
------- ------- -------- ------- --------
Net cash provided by financing
activities....................... 614 10,029 19,551 6,511 5,839
------- ------- -------- ------- --------
Net increase (decrease) in cash and
cash equivalents.................... (6,769) 1,157 10,731 565 (3,401)
Cash and cash equivalents at
beginning of period................. 7,746 977 2,134 2,134 12,865
------- ------- -------- ------- --------
Cash and cash equivalents at end of
period.............................. $ 977 $ 2,134 $ 12,865 $ 2,699 $ 9,464
======= ======= ======== ======= ========
Noncash investing and financing
activities:
Issuance of preferred stock warrants
in connection with lease
transactions....................... $ -- $ 27 $ -- $ -- $ --
======= ======= ======== ======= ========
Supplemental cash flow information:
Cash paid during the period for
income taxes....................... $ 1 $ 2 $ 3 $ 7 $ 6
======= ======= ======== ======= ========
Cash paid during the period for
interest........................... $ 70 $ 100 $ 98 $ 71 $ 76
======= ======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Note 1--Business and Summary of Significant Accounting Policies
Organization
SiRF Technology, Inc. (the "Company") develops and markets semiconductor
and software products which are designed to enable location awareness in high-
volume mobile consumer devices and commercial applications. The Company was
incorporated in California in February 1995.
Basis of Presentation
The consolidated financial statements include the Company and its wholly-
owned subsidiaries: Software Technology & Systems, Inc. (STS), a business
engaged in the design of Global Positioning System ("GPS") products and
related consulting services to the U.S. Government; SiRF International, Inc.
(SII), a wholly-owned subsidiary with two branch offices in Taiwan and the
United Kingdom; and SiRF Technology (Cayman), Ltd. All significant
intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of consolidated 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,
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain Significant Risks and Uncertainties
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control, that could
have a material adverse effect on the Company's business, operating results,
and financial condition. These risks include, among others: variability and
uncertainty of revenues and operating results; the emerging nature of its
market; its reliance on third parties to manufacture and assemble its
products; product and customer concentration; technological changes and new
product development risks; competition; intellectual property and related
risks; management of growth; dependence on key personnel; acquisitions and
investments; international operations; regulatory requirements; and expansion
of distribution channels.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and
accounts receivable. The Company invests only in investment grade instruments.
The Company performs periodic evaluations of its customers' financial
condition, but generally does not require collateral for sales on credit. The
Company maintains reserves for estimated potential credit losses.
Cash and Cash Equivalents
The Company considers all highly liquid investments and debt instruments
with a remaining maturity of three months or less when purchased to be cash
equivalents. Cash equivalents consist of commercial paper and debt
instruments.
F-7
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Trade and Contracts Receivable
A portion of the Company's accounts receivable at December 31, 1998 and
1999, and September 30, 2000 are from the U.S. government and its
subcontractors. Contracts receivable are billed in accordance with the terms
and conditions of the related contracts, which may allow progress billings
upon costs incurred, completion, or other billing arrangements.
Fair Value of Financial Instruments
The Company's financial instruments include cash equivalents and long-term
obligations. Cash equivalents are stated at cost which approximates fair
market value based on quoted market prices. The recorded carrying amount of
the Company's long-term obligations approximates fair value since related debt
instruments bear interest at approximately market rates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using standard costs which approximate actual costs under the first-in first-
out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over their estimated
useful lives of three to seven years. Leasehold improvements are amortized
over the shorter of seven years or the remaining life of the lease.
Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. When the sum of the undiscounted future net cash flows
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount an impairment loss would be measured based on
the discounted cash flows compared to the carrying amount. No impairment
charge has been recorded in any of the periods presented.
Revenue Recognition
Product sales are generally recognized upon shipment to direct customers.
The Company records allowances at the time of sale for warranty costs and
estimated sales returns. The Company defers the recognition of revenue and the
related cost of revenue on shipments to distributors that have rights of
return and price protection privileges on unsold merchandise until the
merchandise is sold by the distributor to their customers. Development
contract revenue under cost-plus-fixed fee contracts is recognized at the time
the services are performed. Other revenue, which includes license fees and
support revenue are recognized upon delivery of the software and ratably over
the term of the contract, respectively.
Research and Development and Software Development Costs
Research and development expenses are expensed as incurred. To the extent
research and development costs include the development of embedded software,
the Company believes that software development is an integral part of the
semiconductor design and such costs are expensed as incurred until
technological feasibility has been
F-8
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
established, at which time any additional costs will be capitalized in
accordance with Statement of Financial Accounting Standard (SFAS) No. 86,
Computer Software To Be Sold, Leased or Otherwise Marketed. The Company
considers technological feasibility to be established upon completion of a
working model of the software and the related hardware. The costs to develop
such software have not been capitalized as the Company believes its current
software development process is essentially completed concurrent with the
establishment of technological feasibility.
Additionally, the development contracts with the U.S. Government and other
commercial customers generated development contracts and other revenues,
respectively, that enabled the Company to accelerate its own product
development efforts. Such development contracts and other revenues have only
partially funded the Company's product development activities, and the Company
generally retains ownership of the products developed under these
arrangements. As a result, the Company classifies all development costs
related to these contracts as research and development expenses.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach. Valuation allowances are provided when necessary to reduce net
deferred tax assets to the amount expected to be realized.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees, and to nonemployees
using the fair value method in accordance with Statement of SFAS No. 123,
Accounting for Stock-Based Compensation.
Comprehensive Loss
For the years ended December 31, 1997, 1998 and 1999 and for the nine
months ended September 30, 2000, net loss is equivalent to comprehensive loss,
as the Company had no additional items of comprehensive loss.
Net Loss Per Share
Basic net loss per share excludes dilution and is computed by dividing net
loss allocable to common stockholders by the weighted average number of common
shares outstanding, excluding the weighted average unvested common shares
subject to repurchase. Diluted net loss per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock (convertible preferred stock, warrants and common stock options) were
exercised or converted into common stock. Common share equivalents are
excluded from the computation in loss periods as their effect would be
antidilutive.
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma net loss per share, basic and diluted, is computed by
dividing net loss allocable to common stockholders by the weighted average
number of common shares outstanding for the period and the weighted average
number of shares outstanding for the period resulting from the assumed
conversion of convertible preferred stock.
F-9
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Foreign Currency
The functional currency of the Company's foreign subsidiaries is the local
currency. As of December 31, 1999 and September 30, 2000, translation gains
and losses were insignificant and, as such, recorded in the consolidated
statements of operations. Gains and losses from transactions denominated in
currencies other than the functional currencies of the Company are included in
the consolidated statements of operations.
Segment Reporting
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the reporting of information about
operating segments, including related disclosures about products and services,
geographic areas and major customers, and requires disclosures about products
and services, geographic areas and major customers, and requires selected
information about operating segments in interim financial statements. The
Company operates in only one reportable segment under SFAS No. 131.
Unaudited Pro Forma Information
The unaudited pro forma information in the accompanying consolidated
balance sheet assumes that the outstanding shares of convertible preferred
stock as of September 30, 2000 had been converted as of that date into an
aggregate of 15,365,460 shares of common stock resulting from the completion
of the Company's initial public offering. Common stock issued in the initial
public offering and its related estimated net proceeds are excluded from such
pro forma information.
Unaudited Interim Financial Information
The interim financial information for the nine months ended September 30,
1999 and 2000 is unaudited and has been prepared on the same basis as the
audited consolidated financial statements. In the opinion of management, such
unaudited information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
information. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
Reclassifications
Certain 1998 and 1999 amounts have been reclassified to conform with the
September 30, 2000 presentation. Such reclassifications had no impact on the
operating loss, net loss or stockholders' deficit of prior years.
Recently Adopted Accounting Standard
In March 2000, the FASB issued Interpretation No. 44 (FIN 44), Accounting
for Certain Transactions Involving Stock Compensation, an interpretation of
APB 25. FIN 44 provides guidance on the application of APB 25 for stock
compensation involving employees. FIN No. 44 became effective July 1, 2000 and
did not have a material effect on the Company's financial statements.
F-10
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for the Company's fiscal year ending December 31,
2001. The Company has not completed its assessment of the impact of this
statement on the Company's financial position, results of operations or cash
flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principals to revenue recognition in financial
statements and provides interpretations regarding the application of generally
accepted accounting principles to revenue recognition where there is an
absence of authoritative literature addressing a specific arrangement or a
specific industry. SAB 101 is effective for the Company in the fourth quarter
of 2000. Management believes the Company's revenue recognition practices
comply with the applicable guidance in SAB 101 and, therefore, does not expect
the adoption of SAB 101 to have a material effect on its financial statements.
Note 2--Inventories
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1998 1999 2000
------- ------- -------------
<S> <C> <C> <C>
Raw materials............................... $ 108 $ 89 $ 541
Work in-process............................. 56 51 875
Finished goods.............................. 198 303 2,965
------- ------- -------
$ 362 $ 443 $ 4,381
======= ======= =======
Note 3--Property and Equipment
Property and equipment consist of (in thousands):
<CAPTION>
December 31,
---------------- September 30,
1998 1999 2000
------- ------- -------------
<S> <C> <C> <C>
Computer equipment.......................... $ 997 $ 1,194 $ 1,918
Test equipment.............................. 680 851 1,119
Furniture and fixtures...................... 256 375 416
Leasehold improvements...................... 69 102 142
------- ------- -------
2,002 2,522 3,595
Accumulated depreciation and amortization... (1,198) (1,677) (2,078)
------- ------- -------
$ 804 $ 845 $ 1,517
======= ======= =======
</TABLE>
F-11
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Note 4--Long-Term Obligations
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1998 1999 2000
------ ------ -------------
<S> <C> <C> <C>
Bank loan agreement............................ $ 154 $ -- $ 500
Equipment term loan............................ 673 562 353
Capitalized lease (Note 13).................... -- 74 123
------ ------ -----
827 636 976
Current portion................................ (353) (275) (855)
------ ------ -----
Long-term portion.............................. $ 474 $ 361 $ 121
====== ====== =====
</TABLE>
The Company has an available short-term revolving line of credit under
which it may borrow up to $3.0 million, including $1.5 million in the form of
letters of credit, with an interest rate equal to the lender's prime rate plus
1.25% (10.75% as of September 30, 2000). The revolving line of credit is
secured by substantially all assets of the Company. As of September 30, 2000,
the Company has outstanding borrowings of $500,000. The facility matures on
March 24, 2001.
The Company has two equipment term loan agreements. One of the loans has
outstanding borrowings of $304,000 on September 30, 2000 at the bank's prime
rate (8.5% at September 30, 2000). Borrowings are payable in 42 monthly
installments, plus interest. Under a second agreement, the Company has
outstanding borrowings of $49,000 on September 30, 2000 at the average annual
effective rate of 15.4%. Borrowings are payable in 36 monthly installments
plus interest. Amounts are collateralized by the Company's capital equipment.
Principal repayments for the borrowings are due as follows: remainder of 2000,
$49,000; 2001, $236,000 and 2002, $68,000.
The Company is not in compliance with certain negative covenants in one of
the equipment loan agreements. As such, all related outstanding borrowings
have been classified as current in the accompanying consolidated balance
sheet. See Note 14.
Note 5--Convertible Preferred Stock
The Company has authorized 20,000,000 shares of preferred stock and at
September 30, 2000, the net proceeds from the sale, designated shares, issued
and outstanding shares and liquidation preference of the Series A, B, C, D and
E preferred stock are as follows (in thousands, except for number of shares):
<TABLE>
<CAPTION>
Net Issued and Liquidation
Series Proceeds Designated Outstanding Preferences
------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
A................................ $ 354 2,666,666 2,666,666 $ 600
B................................ 3,978 5,000,000 5,000,000 4,000
C................................ 7,996 2,017,500 2,000,000 8,000
D................................ 10,621 1,852,851 1,688,001 10,128
E................................ 25,258 4,197,983 4,010,793 24,666
------- ---------- ---------- -------
$48,207 15,735,000 15,365,460 $47,394
======= ========== ========== =======
</TABLE>
F-12
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Significant terms of the Series A, B, C, D and E preferred stock are as
follows:
. Each share is convertible into one share of common stock (subject to
adjustments for events of dilution) at the option of the holder;
conversion is automatic in the event of a public offering of common stock
meeting certain criteria.
. Each share has voting rights equal to the number of shares of common
stock into which it may convert.
. In the event of liquidation or merger, preferred stockholders shall first
receive $0.225 per share for Series A, $0.80 per share for Series B,
$4.00 for Series C, $6.00 for Series D and $6.15 for Series E, plus any
declared and unpaid dividends; after such distribution, any remaining
amounts are to be distributed pro rata among the common and preferred
stockholders on an as-converted basis. In addition, in the event of a
merger or other form of corporate reorganization in which the existing
stockholders are not the majority stockholders of the surviving
corporation, or a sale of substantially all of the Company's assets, the
preferred stockholders shall be entitled to receive at the closing, cash,
securities or other property in settlement of these liquidation amounts,
as further defined in the agreements.
. Annual per share noncumulative dividends of $0.03 on Series A, $0.08 on
Series B, $0.40 on Series C, $0.60 on Series D and $0.615 on Series E,
when and if declared, must be paid prior to any common stock dividends.
. The Series B and C preferred stockholders, voting separately as a class,
have the right to elect two members each to the Board of Directors. The
Series A preferred stockholders, voting as a class, have the right to
elect one member to the Board of Directors.
. The preferred stockholders have certain registration rights.
Warrant Arrangements
In September 2000, in connection with a settlement agreement described in
Note 14, the Company agreed to grant warrants to purchase 212,796 shares of
Series F preferred stock at an exercise price of $10.00 per share. These
warrants expire five years after the closing date of any public offering of
the Company's shares of stock. Litigation settlement expense includes $717,000
and $638,000 for the year ended December 31, 1999 and nine months ended
September 30, 2000, respectively, for the estimated fair value of these
warrants.
In 1999, the Company issued warrants to purchase 187,190 shares of Series E
preferred stock at $6.15 per share to investors in the Series E preferred
stock financing. The $656,000 fair value of these warrants was recorded as a
deemed dividend to Series E preferred stockholders. These warrants expire in
2004.
In 1998, the Company issued warrants to purchase 164,850 shares of Series D
preferred stock at $6.00 per share to investors in the Series D preferred
stock financing. The $561,000 fair value of these warrants was recorded as a
deemed dividend to Series D preferred stockholders. These warrants expire in
2003.
In connection with certain lease transactions in 1998, the Company issued
warrants to purchase 17,500 shares of Series C preferred stock at $4.00 per
share. These warrants expire in 2002. An expense of $27,000 was recorded for
the fair value of these warrants when they were issued.
F-13
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
The estimated fair values of these warrants were determined at the date of
grant using methods specified by SFAS No. 123 with the following assumptions:
<TABLE>
<CAPTION>
Per Share
Fair
Interest Dividend Expected Market Total
Series Rate Yield Volatility Term Value Fair Value
------ -------- -------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
F................ 6.1% 0.0% 60% 5 years $10.79 $1,355,000
E................ 5.7% 0.0% 60% 5 years 6.15 656,000
D................ 5.7% 0.0% 60% 5 years 6.00 561,000
C................ 5.6% 0.0% 50% 3 years 4.00 27,000
</TABLE>
Note 6--Stockholders' Equity (Deficit)
Stock Option Plan
The Company has an stock option plan under which incentive and nonqualified
stock options to purchase shares of common stock at the fair market value on
the date of issuance may be granted to employees and independent contractors.
In September 2000, the Board of Directors approved an increase in the total
number of shares of common stock reserved for issuance under this plan to
8,670,001. As of September 30, 2000, 1,022,644 shares of common stock were
available for future grant under this plan. A summary of plan activity is as
follows:
<TABLE>
<CAPTION>
Outstanding Stock Options
---------------------------
Weighted Average
Number of Exercise Price
Shares per Share
--------- ----------------
<S> <C> <C>
Balances, January 1, 1997...................... 1,523,177 $0.10
Granted (weighted average fair value of $0.06
per share).................................. 1,082,712 0.40
Exercised.................................... (953,754) 0.12
Canceled..................................... (172,168) 0.17
---------
Balances at December 31, 1997.................. 1,479,967 0.28
Granted (weighted average fair value of $0.06
per share).................................. 1,149,623 0.60
Exercised.................................... (362,665) 0.31
Canceled..................................... (168,306) 0.21
---------
Balances at December 31, 1998.................. 2,098,619 0.45
Granted (weighted average fair value of $2.38
per share).................................. 826,330 1.68
Exercised.................................... (954,743) 0.48
Canceled..................................... (173,252) 0.80
---------
Balances at December 31, 1999.................. 1,796,954 0.97
Granted (weighted average fair value of $8.08
per share).................................. 3,163,287 2.15
Exercised.................................... (554,692) 0.83
Canceled..................................... (83,295) 1.32
---------
Balances at September 30, 2000................. 4,322,254 $1.85
=========
</TABLE>
F-14
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
The following table summarizes information about options granted under the
stock option plan and outstanding at September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- --------------------
Weighted Weighted Weighted
Number of Average Average Number of Average
Exercise Options Remaining Life Exercise Options Exercise
Prices Outstanding (in Years) Price Exercisable Price
-------- ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.08 123,885 5.9 $0.08 121,714 $0.08
$0.40 - $0.60 482,480 7.4 0.52 260,256 0.49
$1.20 - $1.80 578,789 8.8 1.67 139,680 1.64
$2.00 - $2.25 3,000,850 9.7 2.09 32,140 2.00
$3.50 136,250 10.0 3.50 3,000 3.50
--------- -------
$0.04 - $3.50 4,322,254 9.2 $1.85 556,790 $0.79
========= =======
</TABLE>
These options generally vest over a period of four years and generally
become exercisable beginning six months from the date of employment or grant.
Options expire ten years from the date of grant. Common stock sold to
employees, directors and consultants under stock purchase agreements is
subject to repurchase at the Company's option upon termination of their
employment or services at the original purchase price. This right to
repurchase expires ratably over the vesting period.
Deferred Stock Compensation
In connection with options granted to purchase common stock, the Company
recorded deferred stock compensation of $1,472,000 and $21,742,000 for the
year ended December 31, 1999 and the nine months ended September 30, 2000,
respectively. Such amounts represent, for employee stock options, the
difference between the exercise price and the fair market value of the
Company's common stock at the date of grant, and, for non-employee options,
the deemed fair value of the option at the date of vesting. The deferred
charges for employee and non-employee options are being amortized to expense
over the vesting period, using a multiple option valuation approach, an
accelerated basis in accordance with FASB Interpretation No. 28, through the
year 2004. Stock-based compensation expense of $454,000 and $5,346,000 were
recognized in the year ended December 31, 1999 and the nine months ended
September 30, 2000, respectively. The future amortization of deferred stock
compensation is as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
Remainder of 2000................................................. $ 3,408
2001.............................................................. 8,304
2002.............................................................. 3,906
2003.............................................................. 1,592
2004.............................................................. 204
-------
$17,414
=======
</TABLE>
Options Granted to Non-Employees
The Company has granted options to non-employees for consulting services
performed. The initial vesting period for these options ranged from immediate
vesting to vesting over four years and the option exercise period is ten
years. Stock options issued to non-employees are accounted for in accordance
with provisions of SFAS
F-15
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
No. 123, "Accounting for Stock-Based Compensation", and Emerging Issues Task
Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." The fair value of stock options issued to non-employees was
calculated using a risk free interest rate of 6%, expected volatility of 60%
and the actual length of the option.
For the years ended December 31, 1996, 1997 and 1998, options for 168,000,
92,334 and 21,664 shares were granted at an exercise price of $0.08, $0.40 and
$0.60, respectively. The fair value related to these options was not
significant. All options granted to these non-employees vest immediately,
except for options to purchase 115,000 shares granted in 1996. At September
30, 2000, unvested options totaled 1,772 shares.
For the year ended December 31, 1999, options for 29,900 shares were
granted at an exercise price of $1.80. In connection with these options, the
Company recorded deferred stock compensation of $101,000 and amortized $84,000
as an expense for the year ended December 31, 1999 and the Company recorded
deferred stock compensation of $15,000 and amortized $16,000 as an expense for
the nine months ended September 30, 2000, using the multiple option valuation
approach. At September 30, 2000, unvested options totaled 2,845 shares and
unamortized deferred stock-based compensation related to unvested options
totaled $16,000.
For the nine months ended September 30, 2000, options for 500 shares were
granted at an exercise price of $2.00 and options for 53,000 shares were
granted at an exercise price of $3.50. In connection with these options, the
Company recorded deferred stock compensation of $512,000 and amortized $36,000
as an expense for the nine months ended September 30, 2000, using the multiple
option valuation approach. At September 30, 2000, unvested options totaled
53,500 shares and unamortized stock-based compensation related to unvested
options totaled $476,000.
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees, and its related interpretations.
F-16
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income (loss) had the Company adopted the fair
value method. Under SFAS No. 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including expected time to exercise, which greatly
affect the calculated values. The fair value of stock-based awards to
employees has been calculated utilizing option pricing models using the
minimum value method with the following weighted average assumptions: expected
life, four years; risk-free interest rates ranging from 6.31% in 2000, 6.34%
in 1999 and 4.94% in 1998; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach, and
forfeitures are recognized as they occur. If the computed fair values of the
stock awards had been amortized to expense over the vesting period of the
awards, the effect on reported net loss would have been as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- -------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported............. $(7,017) $(8,205) $(15,386) $ (6,690) $ (11,840)
Pro forma............... (7,035) (8,247) (15,531) (6,770) (13,185)
Basic and diluted net loss
per share:
As reported............. $ (1.78) $ (2.05) $ (3.24) $ (1.39) $ (2.10)
Pro forma............... (1.79) (2.06) (3.26) (1.41) (2.34)
</TABLE>
Common Stock Reserved for Issuance
At September 30, 2000, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Reserved under Stock Option Plan.................................. 5,344,898
Conversion of Series A preferred stock............................ 2,666,666
Conversion of Series B preferred stock............................ 5,000,000
Conversion of Series C preferred stock and warrants............... 2,017,500
Conversion of Series D preferred stock and warrants .............. 1,852,851
Conversion of Series E preferred stock and warrants............... 4,197,983
----------
21,079,898
==========
</TABLE>
Common Stock Subject to Repurchase
The Company permits certain employees to exercise their unvested options
and purchase shares covered by their option agreements. The Company has the
right to repurchase these shares at the original sale price based on the
vesting schedule of the original option agreements. At December 31, 1998 and
1999, and September 30, 2000, 549,120, 612,856 and 458,532, shares of stock
were subject to a repurchase right at weighted average prices of $0.21, $0.38
and $0.75, respectively.
F-17
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Note 7--Net Loss Per Share
Historical
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- -------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net loss...................... $(7,017) $(8,205) $(15,386) $ (6,690) $ (11,840)
Deemed dividend on convertible
preferred stock warrants..... -- (561) (656) (113) --
------- ------- -------- -------- ---------
Net loss allocable to common
stockholders................. $(7,017) $(8,766) $(16,042) $ (6,803) $ (11,840)
======= ======= ======== ======== =========
Shares (denominator):
Weighted average common
shares outstanding......... 4,827 4,945 5,744 5,711 6,176
Weighted average common
shares outstanding subject
to repurchase.............. (893) (662) (786) (832) (533)
------- ------- -------- -------- ---------
Shares used in net loss per
common share, basic and
diluted...................... 3,934 4,283 4,958 4,879 5,643
------- ------- -------- -------- ---------
Net loss per share, basic and
diluted...................... $ (1.78) $ (2.05) $ (3.24) $ (1.39) $ (2.10)
======= ======= ======== ======== =========
</TABLE>
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per common share in the future,
but were excluded from the computation of diluted net loss per common share in
the periods presented, as their effect would have been antidilutive. Such
outstanding securities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
-------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Convertible preferred stock............. 9,667 11,355 14,512 12,392 15,365
Shares of common stock subject to
repurchase............................. 781 549 613 724 459
Outstanding options..................... 1,480 2,099 1,797 1,830 4,322
Warrants................................ -- 182 370 215 370
------ ------ ------ ------ ------
Total................................... 11,928 14,185 17,292 15,161 20,516
====== ====== ====== ====== ======
</TABLE>
Unaudited Pro Forma Net Loss Per Share
The unaudited pro forma per share amounts included in the accompanying
consolidated statement of operations for the year ended December 31, 1999 and
the nine months ended September 30, 2000 have been computed assuming the sale
and conversion of the Series A through Series E preferred stock occurred at
the beginning of the period presented or at the date of original issuance, if
later, and using the average number of common shares resulting from the
automatic conversion of all outstanding preferred shares.
F-18
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Pro forma basic and diluted earnings per share for the year ended December
31, 1999 and nine months ended September 30, 2000 were computed for the
following periods (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1999 2000
------------ -------------
<S> <C> <C>
Net loss......................................... $(15,386) $(11,840)
Deemed dividend on convertible preferred stock
warrants........................................ (656) --
-------- --------
Net loss allocable to common stockholders........ $(16,042) $(11,840)
======== ========
Basic diluted shares amounts:
Average basic and diluted shares outstanding... 4,958 5,643
Additional shares from preferred stock
conversion.................................... 12,308 15,222
-------- --------
Pro forma basic and diluted shares outstanding... 17,266 20,865
-------- --------
Pro forma basic and diluted net loss per share
amounts......................................... $ (0.93) $ (0.57)
======== ========
</TABLE>
Note 8--Income Taxes
The Company's income tax expense for the periods presented were
insignificant. The Company's deferred income tax assets consist of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Net deferred tax assets:
Net operating loss carryforwards and research and
development credits...................................... $ 7,964 $ 11,331
Capitalized research and development costs................ 251 493
Reserves and accruals not currently deductible............ 71 2,769
Other..................................................... 36 54
------- --------
8,322 14,647
Valuation allowance......................................... (8,322) (14,647)
------- --------
Total....................................................... $ -- $ --
------- --------
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net
operating losses and tax credit carryforwards. Due to the uncertainty
surrounding the realization of benefits of its favorable tax attributes in
future tax returns, the Company has fully reserved its net deferred tax
assets.
The valuation allowance increased by approximately $3,553,000 and
$6,325,000 for the years ended December 31, 1998 and 1999, respectively.
F-19
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
The Company's effective tax benefit differs from the expected benefit at
the federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Federal statutory tax benefit.................... $(2,455) $(2,871) $(5,385)
State tax benefit................................ (403) (471) (884)
Research and development credits................. (278) (234) (293)
Amortization of deferred stock compensation...... -- -- 151
Valuation allowance.............................. 2,964 3,553 6,325
Other............................................ 172 23 86
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $27,146,000 for federal and $15,317,000 for California state
income tax purposes. Federal net operating loss carryforwards will expire, if
not utilized, in 2010 through 2019. State net operating loss carryforwards
will expire, if not utilized, in 2003 through 2004. In addition, the Company
has research and development credit carryforwards of $815,000 for federal and
$549,000 for California state tax purposes. Federal research and development
tax credit carryforwards expire in 2010 through 2014.
The utilization of these carryforwards depends upon the future
profitability of the Company. Furthermore, the U.S. Tax Reform Act of 1986, as
amended, imposes substantial restrictions on the utilization of net operating
loss and tax credit carryforwards in the event of an "ownership change," as
defined by the Internal Revenue Code. If there should be an ownership change,
the Company's ability to utilize the above stated carryforwards could be
limited.
Note 9--Employee Benefit Plan
The Company has a 401(k) employee savings and retirement plan (the Plan)
covering substantially all employees of the Company. The Plan is a Group
Annuity Contract in accordance with Section 401 of the Internal Revenue Code.
The Company has not made any contributions to the Plan.
Note 10--Segment and Geographical Information
As discussed in Note 1, the Company follows the requirements of SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. As
defined in SFAS No. 131, the Company operates in one reportable industry
segment. The Company develops and markets semiconductor and software products
designed to utilize GPS technology that enables location awareness in high
volume mobile and consumer devices and commercial applications. The Company's
product line includes two semiconductor products that are generally offered
for sale as a single chip set (SiRFstar) with platform specific software
(SiRFLoc, SiRFDRive and WinSiRF) selected by the customer to meet its product
design needs. The non-recurring engineering contracts are performed
concurrently with the Company's product development or with the integration of
the semiconductor into the customers' products. While the Company's chief
operating decision-maker ("CODM") monitors the sales of chip sets and kits,
development contract revenues and other non-recurring engineering contracts
revenues, operations are managed and financial information is evaluated based
upon the Company's combined revenues employing common research and development
resources, independent manufacturers, sales and marketing, and administrative
support. There is no current allocation to various products and services for
all shared expenses.
F-20
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
The detail level of reported sales monitored by the CODM is not significantly
different from those depicted in the Company's historical general financial
statements. No individual foreign country accounted for greater than 10% of
long-lived assets in any of the periods presented. The following table
summarizes total net revenue and long-lived assets attributed to significant
countries:
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
----------------------- --------------
1997 1998 1999 1999 2000
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Total revenue:
United States...................... $ 769 $ 1,333 $ 1,710 $ 1,075 $2,312
Export sales from United States:
Taiwan........................... 262 854 1,378 1,135 2,336
Germany.......................... -- 171 1,029 702 3,421
Japan............................ -- -- 494 493 538
Other............................ 92 253 656 387 1,319
------- ------- ------- ------- ------
Total revenue........................ $ 1,123 $ 2,611 $ 5,267 $ 3,792 $9,926
======= ======= ======= ======= ======
Long-lived assets:
United States...................... $ 800 $ 837 $ 743 $1,510
Foreign............................ 4 8 6 7
------- ------- ------- ------
Total long-lived assets.............. $ 804 $ 845 $ 749 $1,517
======= ======= ======= ======
</TABLE>
Note 11--Major Customers
The following table summarizes total revenue and accounts receivable for
customers which accounted for 10% or more of total revenue or accounts
receivable (in thousands):
<TABLE>
<CAPTION>
Accounts Receivable Total Revenue
------------------------------- ----------------------------------
Nine Months
Year Ended Ended
December 31, December 31, September 30,
--------------- September 30, ---------------- ----------------
1998 1999 2000 1997 1998 1999 1999 2000
------ ------ ------------- ---- ---- ---- ------- ------
Customer:
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A......... -- -- 27% -- -- 12% -- --
B......... -- 18% -- -- -- 18% 17% 34%
C......... 67% 12% -- 53% 34% 13% 11% --
D......... -- -- -- -- 10% 13% 16% 12%
F......... -- 10% -- -- -- -- -- --
G......... -- -- -- 16% -- -- -- --
H......... -- -- -- -- 16% -- -- --
I......... -- -- 17% -- -- -- -- --
</TABLE>
F-21
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
Note 12--Related Party Transactions
For the year ended December 31, 1998, the Company paid $48,000 to a
consulting firm for which an officer of the Company is on the consulting
firm's board of directors. In 1998, such officer terminated his employment
relationship with the Company.
In 1999, the Company recognized product revenue of $437,000 and $49,000,
respectively, to two companies that are investors. For the nine months ended
September 30, 2000 the Company recognized product revenue of $538,000 and
$115,000 to the same investors, respectively.
Note 13--Commitments and Contingencies
Leases
The Company leases its facilities and certain equipment under operating
lease agreements, which require it to pay property taxes, insurance and normal
maintenance costs and a capital lease agreement, respectively. Future minimum
rental payments required under the Company's capital and operating leases and
the present value of annual minimum lease payments under capital leases as of
September 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
Remainder of 2000.......................................... $ 10 $ 164
2001....................................................... 79 665
2002....................................................... 75 680
2003....................................................... 16 574
2004....................................................... -- 549
Thereafter................................................. -- 1,093
---- ------
Future minimum lease payments.............................. 180 $3,725
======
Less amount representing interest.......................... (57)
----
Present value of minimum lease payments.................... $123
====
</TABLE>
Rental expense under operating leases for the years ended December 31,
1997, 1998 and 1999, and the nine months ended September 30, 2000, was
approximately $347,000, $431,000, $628,000 and $649,000, respectively.
Letters of Credit
The Company has established irrevocable letters of credit with a bank. The
total amount of letters of credit outstanding as of December 31, 1998 and
1999, and September 30, 2000 was approximately $10,000, $100,000 and $549,000,
respectively. The letters of credit were secured by pledge of short-term
deposits with the bank.
Royalty Agreements
In June 1995, the Company entered into a software license and distribution
agreement which provides the Company with a nonexclusive worldwide license to
certain third-party technology. The Company is required to pay specified
royalties based on the lesser of a number of copies made or a certain
percentage of sales of the product. Further, the Company has an option to
obtain a perpetual royalty-free license when the Company has
F-22
<PAGE>
SiRF TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997, 1998 and 1999
and Nine Months Ended September 30, 1999 (Unaudited) and 2000 (Unaudited)
paid a cumulative amount of $100,000. The payment limit was reached by the
Company during the first quarter of 2000; accordingly, there are no future
royalties due under this arrangement.
In May 1997, the Company entered into a production development database and
license agreement which provides the Company use of the database in its
production. The Company is required to pay specified royalties at a certain
percentage of the Company's gross margin on the sale of a certain product for
a period of seven years or until cumulative royalties paid total $500,000.
Total royalty expense under these agreements for the years ended December
31, 1997, 1998, 1999 and for the nine months ended September 30, 2000 are $0,
$56,000, $81,000 and $48,000, respectively.
Note 14--Subsequent Events
Settlement of Lawsuit
The Company was a defendant in a lawsuit regarding certain patent rights.
On September 8, 2000, the Company entered into a settlement agreement, the
terms of which include, among other things, total payments of $5.0 million
consisting of $200,000 due on the agreement date, quarterly payments of
$100,000 through July 30, 2001, and minimum quarterly payments of $125,000
commencing on January 30, 2002. Further, the Company agreed to issue warrants
to purchase 212,796 shares of Series F preferred stock at an exercise price of
$10.00 per share.
In December 1999, the Company recorded litigation settlement expense of
$5,717,000, which consists of the $5.0 million in cash payments and $717,000
for the deemed fair value of the warrants. For the nine months ended September
30, 2000, $638,000 of additional expense was recorded for the estimated
increase in the deemed fair value of the warrants.
Reincorporation
On September 27, 2000, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. This reincorporation
became effective on November 9, 2000. In addition, upon the completion of the
proposed initial public offering of the Company's common stock, the Board of
Directors approved a change in its authorized capital stock to 250,000,000
shares of common stock, $0.0001 par value and 5,000,000 shares of undesignated
preferred stock, $0.0001 par value.
Stock Incentive Plan and Employee Stock Purchase Plan
On September 27, 2000, the Company's Board of Directors adopted the 2000
Stock Incentive Plan and the 2000 Employee Stock Purchase Plan. A total of
3,000,000 and 2,000,000 shares of common stock have been authorized and
reserved for issuance under the 2000 Stock Incentive Plan and the 2000
Employee Stock Purchase Plan, respectively.
Private Placement of Securities
On October 3, 2000, the Company sold 1.2 million shares of its Series F
preferred stock. Proceeds from these sales totaled $12.0 million, net of
expenses. These shares of preferred stock include, among other items,
conversion rights into shares of common stock on a one for one basis in
connection with a proposed initial public offering of the Company's common
stock. The Company will recognize a deemed dividend for the Series F preferred
stock resulting from its beneficial conversion into common stock. A portion of
the proceeds was used to pay in full one of the equipment loan's remaining
balance of $291,000.
Stock Option Grants
On October 19, 2000, the Board of Directors approved grants of options to
purchase 188,800 shares of common stock to employees and consultants. The
Company will record $1,218,000 and $120,000 of related deferred stock
compensation and stock-based compensation expense, respectively, in the
quarter ended December 31, 2000. Future amortization for such grant is:
$665,000 for 2001; $274,000 for 2002; $128,000 for 2003; and $31,000 for 2004.
F-23
<PAGE>
Inside back cover
-----------------
In the center appears a circle with "Core GPS Software." Under the circle
appear two chips and "GPS Chips"
Above the circle appears three smaller circles from left to right
The left circle has a picture of a car and "SiRFDrive" and "Automotive" appear
below this circle
In the center circle appears a picture of a personal navigator device and
"SiRFLoc" and "Wireless"
In the left circle appears a picture of a personal digital assistant and
"WinSiRF" along with "Portable Computing"
At the bottom appears "Our Technologies"
<PAGE>
[SiRF LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee.............................................. $ 18,216
National Association of Securities Dealers, Inc. filing fee....... 7,400
Nasdaq National Market listing fee................................ 95,000
Accounting fees and expenses...................................... 550,000
Legal fees and expenses........................................... 650,000
Printing and engraving expenses................................... 350,000
Blue Sky fees and expenses........................................ 5,000
Registrar and Transfer Agent's fees............................... 15,000
Miscellaneous fees and expenses................................... 59,384
---------
Total........................................................... 1,750,000
=========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article X of the Registrant's
Amended and Restated Certificate of Incorporation (Exhibit 3.1 hereto) and
Article 6 of the Registrant's Amended and Restated Bylaws (Exhibit 3.2 hereto)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The Registrant also intends to enter into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent allowed. The Underwriting Agreement (Exhibit 1.1) provides for
indemnification by the underwriters of the Registrant, its directors and
officers, and by the Registrant of the underwriters, for certain liabilities,
including liabilities arising under the Act and affords certain rights of
contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities
Since our inception, we have issued and sold the following securities:
(a) From March 23, 1995 to September 30, 2000, the Registrant sold an
aggregate of 7,002,263 shares of common stock to directors, officers,
employees, former employees and consultants at prices ranging from $0.001
to $3.50 per share, for aggregate cash consideration of approximately
$2,471,407.
(b) On March 27, 1995, the Registrant issued and sold 2,666,666 shares
of series A preferred stock to two investors at $.23 per share for
aggregate cash consideration of $613,333.18.
(c) On June 2, 1995, the Registrant issued and sold 5,000,000 shares of
series B preferred stock to 17 investors at $.80 per share for aggregate
cash consideration of $4,000,000.
II-1
<PAGE>
(d) From November 29, 1996 through December 31, 1996, the Registrant
issued and sold 2,000,000 shares of series C preferred stock to 24
investors at $4.00 per share for aggregate cash consideration of
$8,000,000.
(e) On June 10, 1997, the Registrant issued a warrant to purchase 17,500
shares of series C preferred stock to one investor at an exercise price of
$4.00 per share.
(f) From January 16, 1998 through July 31, 1998, the Registrant issued
and sold 1,688,001 shares of series D preferred stock to 27 investors at
$6.00 per share for aggregate cash consideration of $10,128,006.
(g) From January 16, 1998 through June 5, 1998, the Registrant issued
warrants to purchase 164,850 shares of series D preferred stock to 20
investors at an exercise price of $6.00 per share.
(h) From February 18, 1999 through February 15, 2000 the Registrant
issued and sold 4,010,793 shares of series E preferred stock to 98
investors at $6.15 per share for aggregate cash consideration of
$24,666,377.
(i) From June 30, 1999 through November 18, 1999, the Registrant issued
warrants to purchase 187,190 shares of series E preferred stock to 34
investors at an exercise price of $6.15 per share.
(j) On October 2, 2000, the Registrant issued and sold 1,200,000 shares
of series F preferred stock to three investors at $10.00 per share for
aggregate cash consideration of $12,000,000.
(k) On October 2, 2000, the Registrant issued warrants to purchase
212,796 shares of series F preferred stock at an exercise price of $10.00
per share.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each of these transactions
represented their intention to acquire the securities for investment only and
not with view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationship with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of
the Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
The following consolidated financial statement schedule is filed as part of
this registration statement and should be read with the consolidated financial
statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts S--2
</TABLE>
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the consolidated financial statements or the related notes.
II-2
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) The Registrant will provide to the underwriters at the closing(s)
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California, on the 13th day of November, 2000.
Sirf Technology, Inc.
/s/ Jackson Hu
By: _________________________________
Jackson Hu
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Jackson Hu President, Chief Executive November 13, 2000
____________________________________ Officer and Director
Jackson Hu (Principal Executive
Officer)
/s/ Walter D. Amaral Chief Financial Officer November 13, 2000
____________________________________ (Principal Financial
Walter D. Amaral Officer and Principal
Accounting Officer)
* Director November 13, 2000
____________________________________
Diosdado Banatao
* Director November 13, 2000
____________________________________
Kanwar Chadha
* Director November 13, 2000
____________________________________
Filemon T. Berba, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
* Director November 13, 2000
____________________________________
Oscar M. Lopez
/s/ James Smaha Director November 13, 2000
____________________________________
James Smaha
* Director November 13, 2000
____________________________________
Fred Wong
*By: /s/ Walter D. Amaral
____________________________________
Walter D. Amaral
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors of SiRF Technology, Inc.:
We have audited the consolidated balance sheets of SiRF Technology, Inc. (the
Company) as of December 31, 1998 and 1999, and the related consolidated
statements of operations, convertible preferred stock and shareholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated September 29, 2000
(November 9, 2000 as to Note 14) (included elsewhere in this registration
statement). Our audits also included the consolidated financial statement
schedule listed in Item 16(b) of this registration statement. The consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
September 29, 2000
S-1
<PAGE>
SIRF TECHNOLOGY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts:
<TABLE>
<CAPTION>
Balance at Charged to Deduction Balance
Beginning Costs and Write-Off at End
Year ended: of Period Expenses of Accounts of Period
----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1999................ 67 56 (3) 120
December 31, 1998................ 15 52 -- 67
December 31, 1997................ -- 15 -- 15
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation, to be effective upon
consummation of this offering.
3.2** Amended and Restated Bylaws, to be effective upon consummation of this
offering.
3.3** Amended and Restated Articles of Incorporation.
3.4** Bylaws.
4.1 Form of Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, dated October 4,
2000, by and among the Registrant and the parties who are signatories
thereto.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1** Form of Directors and Officers' Indemnification Agreement.
10.2 Registrant's 2000 Stock Incentive Plan.
10.3 Registrant's 2000 Employee Stock Purchase Plan.
10.4** Amended and Restated 1995 Stock Plan.
10.5** Lease, dated September 23, 1999, between the Registrant and San Jose
Technology, LLC.
10.6** Lease, dated December 23, 1996, between the Registrant and Oma Del
Aire Properties, L.P.
10.7** Lease, dated December 5, 1997 between the Registrant and Oma Del Aire
Properties, L.P.
21.1** Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Pillsbury Madison & Sutro LLP (contained in their opinion
filed as Exhibit 5.1).
24.1** Power of Attorney.
24.2 Power of Attorney for James Smaha.
27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
** Previously filed.
