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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-30539
TVIA, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0549628
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
4001 Burton Drive, Santa Clara, California
95054 (408) 982-8588
(Address of principal executive offices) (Registrant's telephone number, including
area code)
Securities registered to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of Common Stock held by non-affiliates (based
upon the closing sale price on the Nasdaq National Market on May 31, 2001 was
approximately $36,275,935.
As of May 31, 2001 there were 21,829,688 shares of Common Stock, $0.001 per
share par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors and Section 16(a) Beneficial Ownership Reporting
Compliance), 11, 12 and 13 of Part III incorporate by reference information
from the registrant's proxy statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
registrant's 2001 Annual Meeting of Stockholders to be held on August 21,
2001.
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TVIA, INC. AND SUBSIDIARY
TABLE OF CONTENTS
2001 FORM 10-K
Page
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PART I.................................................................. 1
Item 1. Business................................................... 1
Item 2. Properties................................................. 8
Item 3. Legal Proceedings.......................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........ 8
PART II................................................................. 9
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Consolidated Financial Data....................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 8. Financial Statements and Supplementary Data................ 27
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 52
PART III................................................................ 52
Item 10. Directors and Executive Officers of the Registrant......... 52
Item 11. Executive Compensation..................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 53
Item 13. Certain Relationships and Related Transactions............. 53
PART IV................................................................. 54
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 54
i
PART I
Item 1. Business
When used in this Report, the words "expects," "anticipates," "estimates,"
"believes," "plans," and similar expressions are intended to identify forward-
looking statements. These are statements that relate to future periods and
include statements as to the Company's anticipated revenues, expenses, gross
profit and loss; market acceptance of our products; the features and benefits
of our products; our commitment of resources to research and development; our
relationships with our customers; the expertise and knowledge of our
employees; our ability to compete in our target markets; increases in
competition in our target markets; the relationship between backlog and future
revenue levels; our patent strategy; our relationship with our employees; the
adequacy of our facilities; our ability to achieve further product
integration; the status of evolving technologies and their growth potential;
our production capacity; and our ability to migrate to smaller process
geometries. Forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected.
These risks and uncertainties include, but are not limited to, those risks
discussed below, as well as risks related to slower than anticipated emergence
of the interactive television market; general economic conditions and specific
conditions in the markets we address; the timing, rescheduling or cancellation
of significant customer orders; the loss of a key customer; our ability to
specify, develop or acquire, complete, introduce, market and transition to
volume production new products and technologies in a timely manner; the volume
of our product sales and pricing concessions on volume sales; the
qualification, availability and pricing of competing products and technologies
and the resulting effects on sales and pricing of our products; the
availability and pricing of foundry and assembly capacity and raw materials;
fluctuations in the manufacturing yields of our third party semiconductor
foundries and other problems or delays in the fabrication, assembly, testing
or delivery of our products; problems or delays that we may face in shifting
our products to smaller geometry process technologies and in achieving higher
levels of design integration; the effects of new and emerging technologies;
the risks and uncertainties associated with our international operations;
changes in our products or customer mix; the risk that excess inventory may
result in write-offs, price erosion and decreased demand; the level of orders
received that can be shipped in a fiscal quarter; and the risks set forth
below under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors That May Affect Results." These
forward-looking statements speak only as of the date hereof. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
All references to "Tvia," "we," "us," "our" or the "Company" mean Tvia,
Inc. and its subsidiary, except where it is made clear that the term means
only the parent company.
We own various trademarks and trade names used in our business. These
include CyberPro, FlexiBus, Tvia and the Tvia logo. Other trademarks
referenced herein are the property of their respective owners.
Overview
We design, develop and market semiconductors for the Internet appliance,
broadband set-top box and digital television markets. Our semiconductor
solutions process rich media content streams available from the Internet and
from television and enable consumers to have a customized and interactive
television viewing experience.
Our products are compatible with various microprocessors, operating systems
and applications software and accept multiple data types from various
transmission pipes, including analog or digital broadcast, cable, microwave,
satellite, digital subscriber line and ethernet connection. We believe our
products also allow easy software upgrades, and are programmable and
customizable. Our semiconductors, software and reference designs enable our
original equipment manufacturers, or OEMs, to accelerate their time to market
by reducing their systems engineering development.
Originally incorporated in California as Integraphics Systems, Inc. in
March 1993, we changed our name to IGS Technologies in August 1997. In March
2000, we changed our name to Tvia, Inc. In August 2000, we reincorporated into
Delaware. Tvia operates in one principal industry segment.
1
Industry Background
In recent years there has been an increase in demand for high speed
Internet access to information and entertainment, or rich media content, which
combines audio, video, voice, text, graphics, pictures and animation. This
demand is driven by the growth of rich media content available from the
Internet and through television broadcasts and accessible via phone lines and
via broadband transmission pipes such as television antenna (analog or digital
broadcast), cable, microwave, satellite, digital subscriber line, or DSL, and
ethernet connection. Demand has also been stimulated by the increasing
availability, affordability and ease of use of consumer appliances and other
devices that feature integrated Internet access.
No longer limited to the personal computer, Internet access is now
available through a variety of devices including Internet appliances,
broadband set-top boxes and digital televisions. Internet appliances include
any kind of consumer electronics device that has expanded functionality
through a connection to the Internet, such as Internet set-top boxes, web
access appliances, mobile telephones, personal video recorders and next
generation digital versatile disks, or DVD. Broadband set-top boxes permit
consumer access to high-speed networks through broadband transmission pipes.
Digital televisions are televisions where a digital or analog signal is
processed digitally and enhanced with resolutions ranging from standard
resolution to high definition television, or HDTV.
As rich media content becomes more pervasive, users are demanding faster
access to the Internet. In an effort to meet demand for faster access to rich
media content, the communications industry has begun to deploy new broadband
access technologies that can deliver data at a rate of tens of megabits per
second, or up to 700 times faster than today's 56 kilobits per second, or
Kbps, dial up modems. Users of dial up analog modems over standard telephone
lines with maximum transmission rates of 56 Kbps often experience lengthy
delays, failure of transmission and limitations on the volume of data that can
be transmitted in real time. The slow speed of the telephone modem is
frustrating to mainstream consumers who are accustomed to the immediate point
and click interface of a television remote control. These customers may find
the speed of broadband connections more satisfying.
Access to the Internet, which was originally confined to personal computer
users, is now available to the mass consumer through the television. The
television is the ubiquitous consumer product that people are comfortable
using for entertainment and information due to its sound and display
qualities. Internet appliances, broadband set-top boxes and digital
televisions can now act as the medium to access the Internet and traditional
television broadcasts, and combine the rich media content and services for an
interactive television experience.
Interactive television enables consumers to watch a commercial and access,
at the click of a button, additional information coming from the Internet or
an interactive program. This information, such as an e-commerce website, could
be displayed on a transparent window that would allow the consumer to continue
viewing the commercial, access additional information and complete the
purchase of advertised merchandise. Or, a consumer could be watching a
television program while chatting, emailing or instant messaging with friends.
In addition, interactive television users could access selected additional
information such as personalized stock quotes or program guide information.
Consumers could also play along with a game show and win prizes if they
respond faster and more accurately than the contestants on television, or they
could compete against other online players. This could be done by providing
discrete windows for the interactive content and the main program, or by
providing transparent windows that overlay the main program without
obstructing it. Interactive content windows could be customized and
configured, allowing the consumer to control the viewing experience.
Our Solution
Our semiconductor solutions allow the consumer to customize the appearance
of the television screen and manipulate the rich media content streams to
create an interactive television experience. We believe our streaming media
gateway integrated circuits offer the following advantages:
. High Performance Processing of Rich Media Content. Our solutions act as
a gateway that processes multiple streams of rich media content that
converge from different transmission pipes and format
2
standards enabling a high quality, clear display. With the advent of
digital transmission, the convergence of multiple rich media content
streams transported by the broadband network requires a process to unify
and match the multiple transmission standards. For example, some of the
broadcast streams are formatted with different resolution and screen
size dimensions than Internet streams, thereby resulting in a distorted
picture. Our technology converts these varying streams into a uniform
stream and delivers an undistorted, high quality picture. The streams
are then merged and blended to offer visual effects such as picture in
picture, or transparency or the overlay of multiple content types, all
enhancing the consumer's viewing experience. In order to support real
time processing of multiple streams, our processor provides high
bandwidth with some internal data rates exceeding six gigabits per
second.
. Support for Multiple Data Types, Transmission Pipes, Microprocessors,
Operating Systems and Applications Software. Our integrated circuits can
accept any standard rich media content input signals through standard
telephone lines and any broadband transmission pipes. Further, our
products are designed with a flexible architecture that can work with
most television formats and display types. These modules have been
successfully ported to multiple platforms based on industry standard
microprocessors, operating systems and content application software. Our
focus on compatibility gives our OEM customers flexibility in design and
allows devices using our solution to work with the end-users' existing
television equipment.
. Upgradeable Platform. Our applications software provides Internet
appliance, broadband set-top box and digital television manufacturers
with a platform that can be expanded and upgraded over time by the
consumer with only a software change, which can be downloaded over a
network. We believe this helps to reduce the risk of product
obsolescence and enables the integration of new features and
technologies as they are developed.
. Programmable and Customizable Platform. Our semiconductor solutions are
programmable and allow manufacturers to add new features and customize
the on screen user interface of their products. For example,
manufacturers may program their Internet appliance, broadband set-top
box or digital television to allow varying modes of transparency,
multiple independent media window displays, multiple or combined audio
streams, multiple display sizes and multiple horizontal and vertical
resolutions and screen refresh rates, which affect the quality of the
image and the amount of flicker on the screen.
. Accelerated Time to Market. We believe our streaming media integrated
circuits, software and reference designs enable our OEM customers to
accelerate their time to market by reducing their systems engineering
development. We have developed a number of platforms running with
multiple microprocessors, operating systems and applications software
which enable our customers to leverage these predeveloped hardware and
software platforms to reduce their system engineering efforts. Our
software development kits include modules that enable rapid
customization and porting, which allow our customers to speed up their
product development time. Our engineers work closely with our customers'
engineers to facilitate systems design. This benefit enables our OEM
customers to bring products with rich features and differentiated
systems to market quickly.
Products
Our products are based on advanced architecture integrated circuits and
system designs that provide real time, cost effective, high quality streaming
media and display processing. We currently offer three product families: the
CyberPro 2010 family, introduced in calendar year 1997; the CyberPro 5000
family, introduced in calendar year 1998; and the CyberPro 5300 family,
introduced in calendar year 1999. Our semiconductor solutions include
different features, which OEMs can select for inclusion in their products.
The CyberPro 2010, designed for Internet appliances, has high performance
text, graphics and video processing engines. With its direct interface to
multiple microprocessors and an installed base of worldwide television
formats, CyberPro 2010 provides high functionality at a low cost.
3
The CyberPro 5000 is the first product of the CyberPro 5000 family designed
for broadband digital set-top boxes and digital televisions. The CyberPro 5000
has enhanced text, graphics and video processing engines and faster memory
access interface than our CyberPro 2010 product. It also includes two video
ports for two simultaneous video streams, high picture quality of broadband
video on television, hardware magnified view of web pages on television, and a
flexible transparency algorithm for blending multiple video, text, graphics,
pictures and animation on screen.
The CyberPro 5005 is designed for broadband set-top boxes and digital
televisions with Internet and DVD capability. In addition to CyberPro 5000
features, the 5005 provides MacroVision encryption for copy protection.
The CyberPro 5050 is designed for broadband set-top boxes and digital
television which have integrated audio capability. It includes an audio
digital signal processor engine with audio synthesis, MIDI, I2S, PCM and
stereo audio.
The CyberPro 5055 combines all of the features of our CyberPro 5000, 5005
and 5050 products. The CyberPro 5055 provides a solution for broadband set-top
boxes and digital televisions that process multiple media streams including
DVD and full duplex audio.
The CyberPro 5300 is the first product in the CyberPro 5300 family designed
for broadband set-top boxes that require 3D animation, 3D effects or 3D
graphics processing capability.
The CyberPro 5305, 5350 and 5355 are similar to our CyberPro 5005, 5050 and
5055 products, but also provide 3D animation, 3D effects or 3D graphics
processing capability.
Software
Our software products and services are part of our semiconductor solutions.
Our software products and services are divided into three categories: software
development kits, applications modules and custom software services. Our
product strategy is based on providing OEMs a complete hardware and software
solution, which we believe reduces both their system engineering time and
their time to market. Our streaming media gateway solutions are configurable
and flexible, and our software is key in enabling our customers to take
advantage of this flexibility. Finally, our software modules enable us to
provide our OEM customers with the capability to offer systems with
differentiated features that enhance the television experience.
Our software development kits are a set of software modules designed to be
easily and quickly ported on multiple hardware and software platforms. These
kits are modularized in order to cater to different system requirements while
minimizing the size of the software code. These modules have been successfully
ported to multiple platforms based on industry standard microprocessors,
operating systems and content application software.
Finally, by leveraging the comprehensive experience of our software design
team, we provide custom software development for customers using our
semiconductors.
Customers
We target customers in the Internet appliance, broadband set-top box and
digital television markets. We began to focus on the Internet appliance market
in 1997, and later expanded our focus to include the broadband set-top box and
digital television markets. Therefore, the majority of our sales to date have
been in the Internet appliance market. However, many of our customers
manufacture or distribute products in more than one of our target markets.
In fiscal 2001, sales to Prediwave Corporation, an OEM, and Kanematsu
Semiconductor Corp. and Weikeng Industrial Co., Ltd., two of our distributors,
accounted for 12.3%, 11.8% and 10.3% of revenues, respectively.
4
Sales to Yao Wei, an OEM, and to Weikeng Industrial Co., Ltd., accounted for
approximately 12.0% and 16.2% of our revenues, respectively, for fiscal year
2000.
In fiscal 2001, sales to customers in Taiwan, the United States, Japan and
Europe comprised 34%, 33%, 11% and 11% of revenues, respectively. In fiscal
2000, sales to customers in Taiwan, the United States and Korea comprised 41%,
29% and 12% of revenues, respectively.
Sales and Marketing
We sell and market our integrated circuits through our direct sales force,
sales representatives and distributors. For our software products, we also use
value added resellers and system integrators that package and use our software
products for resale as standard products or custom software development
services.
Our products are marketed primarily through reference platforms and
evaluation kits designed internally and with industry leading microprocessor,
real time operating systems and other strategic partners directly or
indirectly through our partners' channels to OEMs for evaluation and
development. These reference platforms and evaluation kits (hardware and
software) have proven to be vital to our success in obtaining new design wins.
We also promote our products through trade shows, articles, press releases and
joint promotions with our strategic partners.
Our personnel work closely with customers, sales representatives and
authorized distributors to define product features, performance, price and
market timing of new products. We provide technical support and design
assistance directly to OEM customers, regardless of the sales channels used.
We believe that a high level of customer support is necessary to successfully
develop and maintain long-term relationships with our customers. These
relationships begin at the design in phase and develop, as customer needs
change and evolve. We provide support through both on site customer service
and remote support from our facilities.
As of March 31, 2001, we employed a sales and marketing force of 17 people.
We believe these personnel have the technical expertise and industry knowledge
necessary to support a lengthy and complex sales process. Our sales and
marketing organization includes four field applications engineers that assist
customers in designing, testing and qualifying system designs that incorporate
our integrated circuits and software products. We believe that the depth and
quality of this design support are key to improving our customers' time to
market and maintaining a high level of customer satisfaction. Our three direct
sales offices are located in Santa Clara, California; Taipei, Taiwan and
Hefei, People's Republic of China. All of our sales offices also provide
hardware and software applications support.
Research and Development
Our research and development efforts are focused on three areas: device
architecture and logic design, physical layer design software development and
device testing. As of March 31, 2001, our research and development staff
consisted of 228 employees, (53 of which are located in the United States and
175 of which are located in the People's Republic of China), including
facility support personnel. Our research and development efforts have been
focused on architecture design, streaming media processing modes, high-speed
digital and mixed signal design and software.
We conduct research and development at our design centers in Santa Clara,
California and Hefei, People's Republic of China. Our People's Republic of
China facility is located in a science park near Hefei University of
Technology, and employee costs are lower than in the San Francisco Bay Area.
Our research and development expenses for fiscal years 2001, 2000 and 1999
were $6.8 million, $3.4 million and $3.4 million, respectively. Research and
development expenses consist mainly of personnel and other costs associated
with the development of product designs, process technology, software and
programming hardware. We anticipate that we will continue to commit
substantial resources to research and development in the future.
5
Manufacturing
We have adopted a fabless semiconductor manufacturing model and we
outsource all of our semiconductor manufacturing and assembly. This approach
allows us to focus our resources on the design, development, testing and
marketing of our products and significantly reduces our capital requirements.
We develop our designs to be compatible with two foundries, Taiwan
Semiconductor Manufacturing Corporation, or TSMC, and United Manufacturing
Corporation, or UMC, both of which are located in Hsin Chu, Taiwan. This
allows us to shift production from one facility to the other in the event of a
capacity constraint at one foundry. We currently use 0.5 micron, 0.35 and 0.3
micron technology for production. Our goal is to use 0.18 micron technology
for future products.
We internally design and optimize digital and analog cells through our
physical layer design group. We believe this allows us to reduce the size of
the semiconductor and therefore the cost. This also gives us greater control
over the quality and reliability of our streaming media gateway integrated
circuits.
Assembly of our devices is performed by Caesar Technology Incorporated and
Siliconware Precision Industries Ltd., both of which are located in Hsin Chu,
Taiwan, and Advance Semiconductor Engineering, Inc. in Kaohsiung, Taiwan.
Final testing is primarily performed by us at our subsidiary in Hefei,
People's Republic of China and in Santa Clara, California.
Competition
The semiconductor industry in general, and the market for integrated
circuits for Internet appliances, broadband set-top boxes and digital
televisions, in particular, is highly competitive. We believe we compete
favorably in each of the key competitive factors in our target markets. These
factors are:
. functionality;
. performance;
. time to market;
. price;
. conformity to industry standards;
. product road maps; and
. technical support.
Our current and primary competitors in our target markets are ATI
Technologies, Inc., Broadcom Corporation and TeraLogic, Inc. In addition to
these competitors, we expect other major semiconductor manufacturers will
enter the market as the Internet appliance, broadband set-top box and digital
television markets develop. A number of companies, including International
Business Machines Corporation, STMicroelectronics N.V., National
Semiconductor, Equator Technologies, Inc. and TeleCruz Technology, Inc., have
announced that they are developing or plan to introduce competing products in
the Internet appliance, broadband set-top box or digital television market
which could result in significant competition. We expect competition to
intensify as current competitors expand their product offerings and new
competitors enter the market.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret
laws and contractual restrictions to establish and protect our intellectual
property and proprietary rights that we develop and license from others.
We have filed applications for United States patents containing claims
covering various aspects of combining digital streams of video and graphics
for presentation on an output display and for changing the size
6
of graphic data for presentation on a television output display. We expect to
file patent applications as we deem appropriate to protect our technology and
products. We cannot be sure that our patent applications will result in the
issuance of patents, or that any issued patents will provide commercially
significant protection to our technology.
We also license from others certain audio, graphics and semiconductor
technology that is incorporated in our semiconductors and certain intellectual
property rights. These licenses are perpetual and survive the termination of
the agreements under which we obtained such licenses. The protections we
receive from others against infringement under the terms of these licensing
agreements is limited and we cannot assure you that alternative technology
exists.
In December 2000, we entered into an agreement with Oak Technology, Inc.,
which has proprietary 3D graphics technology that permits incorporation of the
3D graphics function onto our chips. As a result of our agreement, we were
granted the right to use this 3D graphics technology for 3D graphics
integration in our products and to manufacture, distribute and sublicense
products using the 3D graphics technology.
In March 2000, we entered into a cross license agreement with Innovative
Semiconductors, Inc. ("Innovative"), who has developed proprietary
semiconductor circuit and logic designs. Pursuant to our agreement, Innovative
licensed to us the right to use their proprietary cores to develop and market
semiconductors and we licensed to Innovative the right to use and market our
cores and test benches with their products.
In June 1997, we entered into an agreement with T-Square Design, Inc.,
which has proprietary technology that permits incorporation of the audio
function onto graphics controller chips. As a result of our agreement, we were
granted the right to use this audio technology for graphics/audio integration
in our products and to manufacture, distribute and sublicense products using
the audio technology.
We attempt to avoid infringing known proprietary rights of third parties in
our product development efforts. It is difficult to proceed with certainty in
a rapidly evolving technological environment in which there may be numerous
patent applications pending, many of which are confidential when filed, with
regard to similar technologies. If our products violate third party
proprietary rights, we might not be able to obtain licenses to continue
offering these products without substantial reengineering. Efforts to
undertake this reengineering might not be successful, licenses might be
unavailable on commercially reasonable terms, if at all, and litigation might
not be avoided or settled without substantial expense and damage awards.
CyberPro is a registered trademark, and Tvia and FlexiBus are trademarks
pending registration of Tvia in the United States. In addition, the Tvia logo
is a trademark of Tvia in the United States and other jurisdictions.
Backlog
Our sales are made primarily pursuant to standard purchase orders for
delivery of products. Due to industry practice which allows customers to
cancel or change orders with limited advance notice prior to shipment, we
believe that backlog is not a reliable indicator of future revenue levels.
Employees
As of March 31, 2001, we had 275 full time employees including 228 engaged
in research and development, 17 engaged in sales and marketing, 18 engaged in
manufacturing and 12 engaged in general management and administration
activities. Of these employees, 93 work in our Santa Clara facility, 7 work in
our Taiwan office and 175 work at our facility in the People's Republic of
China. Our employees are not represented by any collective bargaining
agreement and we have never experienced a work stoppage. We believe our
relations with our employees are good.
7
Item 2. Properties
Our headquarters, which also serves as our principal administrative,
selling, marketing, customer support, applications engineering and product
development facility, is located in Santa Clara, California, and consists of
two buildings of approximately 19,800 square feet under leases that expire in
July 2003. We also lease a sales, marketing and customer support office in
Taipei, Taiwan of approximately 1,500 square feet under a lease that expires
in February 2002 and a building located in Hefei, People's Republic of China
of approximately of 15,000 square feet under a lease that expires in June 2005
for our research and development operations in China.
We believe our existing facilities are adequate to meet our needs for the
near future and that future growth can be accomplished by leasing additional
or alternative space on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time the Company may be involved in litigation relating to
claims arising in the ordinary course of business. As of the date of this
prospectus, there are no material legal proceedings pending against the
Company or, to the best of its knowledge, threatened against it.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock, par value $0.001 ("Common Stock"), is traded on
the Nasdaq National Market ("Nasdaq") under the symbol "TVIA." The following
table sets forth, for the periods indicated, the range of high and low sales
prices for the Common Stock on Nasdaq, since August 8, 2000, the date of the
Company's initial public offering, as reported in its consolidated transaction
reporting system.
High Low
------ -----
2000 Quarter Ended:
September 30................................................ $20.00 $8.50
December 31................................................. 18.25 3.38
2001 Quarter Ended:
March 31.................................................... 4.25 1.50
As of May 31, 2001, the Common Stock was held by 322 stockholders of
record. The Company has never declared or paid dividends on its capital stock
and does not anticipate paying any dividends in the foreseeable future. The
Company currently intends to retain future earnings for the development of its
business.
9
Item 6. Selected Consolidated Financial Data
The data set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 of this Report and the Consolidated Financial Statements
and related Notes included in Item 8 of this Report.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
our consolidated statements of operations data for each of the three years in
the period ended March 31, 2001, and with respect to our consolidated balance
sheets at March 31, 2001 and 2000 are derived from our Consolidated Financial
Statements and related Notes that have been audited by Arthur Andersen LLP,
independent public accountants, which are included in this Form 10-K. The
selected consolidated statements of operations data for the years ended
March 31, 1998 and 1997 and our consolidated balance sheet data at March 31,
1999, 1998 and 1997 are derived from our audited consolidated financial
statements not included in this Form 10-K. The data set forth below should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and related Notes included in this Form 10-K.
Year Ended March 31,
-------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(in thousands, except per share data)
Consolidated Statements of
Operations Data:
Revenues:
Product sales................... $12,743 $ 6,528 $ 1,432 $ 2,597 $ 1,028
Development contracts and
other.......................... 701 529 90 861 1,324
------- ------- ------- ------- -------
Total revenues................. 13,444 7,057 1,522 3,458 2,352
------- ------- ------- ------- -------
Cost of revenues:
Product sales................... 7,650 3,622 1,257 2,458 1,879
Development contracts and
other.......................... 68 185 51 526 757
------- ------- ------- ------- -------
Total cost of revenues......... 7,718 3,807 1,308 2,984 2,636
------- ------- ------- ------- -------
Gross profit (loss)............... 5,726 3,250 214 474 (284)
------- ------- ------- ------- -------
Operating expenses:
Research and development........ 6,774 3,390 3,357 3,199 1,876
Sales, general and
administrative................. 5,695 3,370 2,062 2,203 1,202
Amortization of deferred stock
compensation................... 2,701 1,499 2 -- --
------- ------- ------- ------- -------
Total operating expenses....... 15,170 8,259 5,421 5,402 3,078
------- ------- ------- ------- -------
Operating loss.................. (9,444) (5,009) (5,207) (4,928) (3,362)
Other expense (income), net:
Interest income................. (2,105) (49) (7) (29) --
Interest expense................ 132 328 173 75 55
Amortization of debt guarantee
debt and other................. 327 753 298 28 --
------- ------- ------- ------- -------
Other expense (income), net..... (1,646) 1,032 464 74 55
------- ------- ------- ------- -------
Net loss before extraordinary
item............................. (7,798) (6,041) (5,671) (5,002) (3,417)
Extraordinary item, net of income
taxes............................ 672 -- -- -- --
------- ------- ------- ------- -------
Net loss.......................... $(8,470) $(6,041) $(5,671) $(5,002) $(3,417)
======= ======= ======= ======= =======
Dividend related to convertible
preferred stock.................. $ (671) $(2,161) $ -- $ -- $ --
------- ------- ------- ------- -------
Net loss attributable to common
stockholders..................... $(9,141) $(8,202) $(5,671) $(5,002) $(3,417)
======= ======= ======= ======= =======
Basic and diluted net loss
attributable to common
stockholders before extraordinary
item............................. $ (0.56) $ (2.63) $ (2.56) $ (2.32) $ (1.66)
Extraordinary item, net of income
taxes............................ $ (0.05) $ -- $ -- $ -- $ --
------- ------- ------- ------- -------
Basic and diluted net loss
attributable to common
stockholders..................... $ (0.61) $ (2.63) $ (2.56) $ (2.32) $ (1.66)
======= ======= ======= ======= =======
Shares used in computing basic and
diluted net loss per share to
common stockholders before and
after extraordinary item......... 15,052 3,118 2,219 2,156 2,058
10
Year Ended March 31,
--------------------------------------------
2001 2000 1999 1998 1997
------- -------- -------- ------- -------
(in thousands, except per share data)
Consolidated Balance Sheet Data:
Cash and cash equivalents,
restricted cash and short-term
investments.................... $46,682 $ 6,864 $ -- $ 8 $ 514
Working capital (deficit)....... 50,305 5,915 (3,476) (2,439) (547)
Total assets.................... 57,435 11,368 730 1,795 2,344
Long term debt.................. -- 2,959 -- -- --
Redeemable convertible preferred
stock.......................... -- 16,594 9,704 5,212 2,325
Stockholders' equity (deficit).. 53,422 (14,266) (12,978) (7,326) (2,326)
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and
related Notes included elsewhere in this Report.
When used in this discussion, the words "expects," "anticipates,"
"believes," "estimates" and similar expressions are intended to identify
forward-looking statements. These statements, which include statements as to
Company's expected revenues, operating expenses, gross profit and loss;
expansion of its research and development functions and expenditures in both
the United States and People's Republic of China, the effect of certain
accounting principles, the effect of changes in foreign currency exchange
rates, growth in operations, the ability to commercialize new technologies,
the performance and utility of products and services and anticipated use of
funds, are subject to risks and uncertainties that could cause actual results
to differ materially from those projected. These risks and uncertainties
include, but are not limited to, those risks discussed below, as well as risks
relating to as slower than anticipated emergence of the interactive television
market; general economic conditions and specific conditions in the markets we
address; the loss of a key customer; our ability to specify, develop or
acquire, complete, introduce, market and transition to volume production new
products and technologies in a timely manner; the volume of our product sales
and pricing concessions on volume sales; the qualification, availability and
pricing of competing products and technologies and the resulting effects on
sales and pricing of our products; fluctuations in the manufacturing yields of
our third party semiconductor foundries and other problems or delays in the
fabrication, assembly, testing or delivery of our products; changes in our
products or customer mix; the risk that excess inventory may result in write-
offs, price erosion and decreased demand; the level of orders received that
can be shipped in a fiscal quarter , and the matters discussed in "Factors
that May Affect Results." These forward-looking statements speak only as of
the date hereof. The Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any statement is based.
Overview
Tvia currently has three product families: the CyberPro 2010 family,
introduced in calendar year 1997; the CyberPro 5000 family, introduced in
calendar year 1998; and the CyberPro 5300 family, introduced in calendar year
1999. These product families currently generate most of our revenues.
From our inception through 1996, we were primarily engaged in product
development and the establishment of strategic customer and foundry
relationships. During this period, we generated the majority of our total
revenues from development contracts and the shipment of integrated circuits
for the personal computer market. These development contracts required us to
design semiconductor devices for other companies. In 1996 we began to
transition our focus away from the personal computer market to the Internet
appliance, broadband set-top box and digital television markets. As a result
of this transition, product revenues from the personal computer market, along
with total revenues, declined. Sales of products for the personal computer
market accounted for none, 2% and 20% of total revenues in fiscal years 2001,
2000 and 1999, respectively. As of March 31, 2001, we were focused on the
Internet appliance, broadband set-top box and digital television markets.
Sales to customers in these targeted markets accounted for 100%, 83% and 50%
of total revenues in fiscal years 2001, 2000 and 1999, respectively.
We sell our products through three channels. First, we sell our products
directly to original equipment manufacturers, or OEMs, and recognize revenues
at the time of shipment to these OEMs. Second, we sell our products through
sales representatives who receive a commission. Finally, we sell our products
to a number of distributors who have contractual rights to earn a negotiated
margin on the sale of our products. We defer recognition of revenues for sales
to our distributors until after they have sold our products to OEMs. As a
result, we provide allowances for warranty costs upon shipment to OEMs and
upon sell through by distributors. We also generate revenues from development
contracts and licensing software. Since 1997, revenues from
12
development contracts and software licensing have decreased as a percentage of
total revenues and we believe that those revenues will continue to constitute
a low percentage of total revenues in the future.
Approximately 67%, 71% and 81% of our total revenues for the fiscal years
ended March 31, 2001, 2000 and 1999, respectively, were derived from customers
located outside the United States. All of our revenues to date have been
denominated in United States dollars. Historically, a relatively small number
of customers and distributors have accounted for a significant portion of our
product sales. Our top five customers, including distributors, accounted for
51%, 45% and 56% of product sales in the fiscal years ended March 31, 2001,
2000 and 1999, respectively. Sales to two distributors, Weikeng Industrial Co.
Ltd. and Kanematsu Semiconductor Corp., and sales to an OEM, Prediwave
Corporation, accounted for 12%, 10% and 12% of our total revenues for fiscal
year 2001.
Various factors have affected and may continue to affect our gross margin.
These factors include, but are not limited to, our product mix, the position
of our products in their respective life cycles, final test yields and the mix
of our product sales and development contracts and other revenues. For
example, newly introduced products generally have higher average selling
prices and generate higher gross margins. Both average selling prices and the
related gross margins typically decline over product life cycles due to
competitive pressures and volume price agreements. Our gross margin and
operating results in the future may continue to fluctuate as a result of these
and other factors.
The sales cycle for the test and evaluation of our products can range from
three months to nine months or more, with an additional three to nine months
or more before an OEM customer commences volume production of equipment
incorporating our products. Due to these lengthy sales cycles, we may
experience a delay between incurring operating expenses and inventory costs
and the generation of revenues from design wins.
We have sustained losses on a quarterly and annual basis since inception.
As of March 31, 2001, we had an accumulated deficit of $36.0 million. These
losses resulted from significant costs incurred in the planning and
development of our technology and services and from significant marketing
costs. We expect to experience significant growth in our operating expenses,
particularly in research and development, as we design and market new
technologies.
We anticipate lower revenues for at least the next quarter as compared to
the same period in the prior fiscal year. We believe that this is due to a
slowdown in the interactive television industry caused by a slower than
anticipated emergence of the interactive television market, a general industry
inventory correction, delay in customer product introductions in order to
incorporate additional third-party features, and general economic uncertainty.
Due to anticipated lower revenues and continued increased spending on research
and development, we anticipate that we will continue to incur net losses at
the level incurred in the quarter ended March 31, 2001 or higher for at least
the next four quarters.
In connection with the grant of stock options to employees, we have
recorded stock based compensation related to stock options granted below
deemed fair market value through March 31, 2001 of approximately $6.4 million.
Of this amount, we amortized approximately $4.2 million through March 31,
2001. This amount represents the difference between the exercise price of
these stock option grants and the deemed fair value of the common stock at the
time of grant. The remaining $2.2 million will be amortized over the remaining
vesting period of the options, generally four years or less. As a result, the
amortization of stock based compensation will impact our reported results of
operations through fiscal year 2004.
In connection with the extension of a credit facility and the guarantee of
other credit facilities by related parties, we have issued warrants and
options for which fair value was calculated at $1.7 million, using the Black-
Scholes model, and was recorded as a deferred debt issuance cost. Of this
amount, we amortized approximately $1.0 million as interest expense during
fiscal 2001 and 2000. Following the repayment of all amounts outstanding under
the credit facilities, the remaining $0.7 million was recorded as an
extraordinary item in the second quarter of fiscal 2001 as an early
extinguishment of debt.
13
We have a subsidiary in the People's Republic of China which performs
research and development, and a branch office in Taipei, Taiwan which is
primarily engaged in sales efforts.
Results of Operations
The following tables set forth, for the periods indicated, certain
consolidated statement of operations data reflected as a percentage of
revenues. Our results of operations are reported as a single business segment.
Year Ended March 31,
--------------------------
2001 2000 1999
------ ------- -------
Consolidated Statement of Operations Data:
Revenues:
Product sales.................................... 94.7 % 92.5 % 94.1 %
Development contracts and other.................. 5.3 7.5 5.9
------ ------- -------
Total revenues................................. 100.0 100.0 100.0
------ ------- -------
Cost of revenues:
Product sales.................................... 56.9 51.3 82.5
Development contracts and other.................. 0.5 2.6 3.4
------ ------- -------
Total cost of revenues......................... 57.4 53.9 85.9
------ ------- -------
Gross profit....................................... 42.6 46.1 14.1
------ ------- -------
Operating expenses:
Research and development......................... 50.4 48.0 220.6
Sales, general and administrative................ 42.4 47.8 135.5
Amortization of deferred stock compensation...... 20.1 21.2 0.1
------ ------- -------
Total operating expenses....................... 112.9 117.0 356.2
------ ------- -------
Operating loss..................................... (70.3) (70.9) (342.1)
------ ------- -------
Other expense (income), net:
Interest income.................................. (15.7) (0.7) (0.5)
Interest expense................................. 1.0 4.6 11.4
Amortization of debt guarantee and other......... 2.5 10.7 19.6
------ ------- -------
Other expense (income), net...................... (12.2) 14.6 30.5
------ ------- -------
Net loss before extraordinary item................. (58.1) (85.5) (372.6)
Extraordinary item, net of income taxes............ 5.0 -- --
------ ------- -------
Net loss........................................... (63.1) (85.5) (372.6)
------ ------- -------
Dividend related to convertible preferred stock.... (5.0) (30.6) --
------ ------- -------
Net loss attributable to common stockholders....... (68.1)% (116.1)% (372.6)%
====== ======= =======
Results of Operations for the Fiscal Years Ended March 31, 2001, 2000 and 1999
Revenues. Revenues were $13.4 million, $7.1 million and $1.5 million for
the fiscal years ended March 31, 2001, 2000 and 1999, respectively. Revenues
increased by $6.3 million from fiscal year 2000 to fiscal year 2001, an
increase of 91%. This increase in revenues was primarily due to increased
sales of our CyberPro 5000 series of semiconductors for the Internet
appliance, broadband set-top box and digital television markets. Revenues
increased by $5.6 million from fiscal 1999 to fiscal 2000 as a result of the
Company's revenue growth in the Internet appliance, broadband set-top box and
digital television markets in fiscal 2000, as compared to revenues generated
from the personal computer markets in fiscal 1999. Much of this increase
reflected revenues from design wins with new OEMs which rely on third-party
manufacturers or distributors to provide inventory management and purchasing
functions.
14
Export revenues, consisting primarily of product sales and development
contracts to OEMs and distributors in Asia, represented 67%, 71% and 81% of
total revenues in fiscal years 2001, 2000 and 1999, respectively. All export
revenues are denominated in United States dollars. We believe export sales
will continue to represent a majority of our revenues in the foreseeable
future.
Gross margin. Gross margin was 42.6%, 46.1% and 14.1% for the fiscal years
ended March 31, 2001, 2000 and 1999, respectively. Gross margin decreased from
46.1% in fiscal 2000 to 42.6% in fiscal 2001 primarily as a result of a
$500,000 increase in the inventory reserve provision in the fourth quarter of
fiscal 2001 related to quantities of an older product line. The improvement in
gross margin in fiscal 2000 compared to fiscal 1999 was attributable primarily
to shipments of our CyberPro 2010 and CyberPro 5000 series of products, which
generated higher margins than our personal computer products, improved
production yields achieved by our third-party foundries, cost reduction
efforts by moving to smaller die sizes and higher revenues over relatively
fixed production costs.
Research and development. Research and development expenses include
personnel and other costs associated with the development of product designs,
process technology, software and programming hardware. Our research and
development expenses reflect our continuing efforts to develop and bring to
market innovative and cost effective semiconductors that process the rich
media content available on the Internet and the broadband network. Research
and development expenses were $6.8 million, $3.4 million and $3.4 million for
the fiscal years ended March 31, 2001, 2000 and 1999, respectively. As a
percentage of revenues, research and development expenses represented 50.4%,
48.0% and 220.6% for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively. The increase in research and development expenses in absolute
dollars and as a percentage of revenues from fiscal year 2000 to fiscal year
2001 is primarily attributable to the hiring of 32 additional engineers in
Santa Clara, California and the establishment of a research and development
operation in the People's Republic of China. Our research and development
activities in the People's Republic of China provide software and application
specific integrated circuit development support to our domestic operations. We
employed 175 engineers and supporting staff in the People's Republic of China
at March 31, 2001 and we intend to significantly expand our headcount at this
design center in fiscal 2002. In the foreseeable future, we expect absolute
research and development expenses to increase as we continue to expand our
research and development efforts into new products.
Sales, general and administrative. Sales, general and administrative
expenses consist primarily of personnel and other costs associated with the
management of our business and with the sale and marketing of our products.
Sales, general and administrative expenses were $5.7 million, $3.4 million and
$2.1 million for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively. As a percentage of revenues, sales, general and administrative
expenses were 42.4%, 47.8% and 135.5% for the fiscal years ended March 31,
2001, 2000 and 1999, respectively. The decrease in sales, general and
administrative expenses as a percentage of revenues from fiscal year 2000 to
fiscal year 2001 was primarily attributable to the increase in revenues. The
increase in sales, general and administrative expenses in absolute dollars
from year to year was primarily due to increased headcount, including hiring
executive officers, expansion of our domestic and international sales force,
the building of our general and administrative infrastructure and the
Company's participation at trade shows.
Deferred stock compensation. We grant stock options to hire, motivate and
retain employees. We incurred stock compensation expense of $2.7 million, $1.5
million and $2,000 for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively.
Other expense (income), net. Other expense (income), net consists primarily
of interest income, interest expense and amortization of guarantee debt costs.
Other income, net was $1.6 million for the fiscal year 2001 compared to other
expense, net of $1.0 million and $464,000 for the fiscal years ended March 31,
2000 and 1999, respectively. Other income, net, generated in the fiscal year
ended March 31, 2001 was primarily a result of interest income earned from our
investments which increased significantly in fiscal 2001 as a result of
investments made using the proceeds from our initial public offering, and to a
lesser extent, the repayment of our outstanding debt, partially offset by
amortization of guarantee debt. Other expense, net, in the fiscal years
15
ended December 31, 2000 and 1999 consisted mostly of the amortization of
deferred interest related to warrants and options issued to guarantors of our
debt, and interest expense on this debt. The increase in interest expense,
net, in fiscal year 2000 from fiscal year 1999 was due primarily to the
interest on a $2.2 million bank line of credit and costs of the related
guarantee.
Provision for income taxes. We are taxed in our jurisdictions of operations
based on the extent of taxable income generated in each jurisdiction. For
income tax purposes, revenues are attributed to the taxable jurisdiction where
the sales transactions generating the revenues were initiated. We incurred
operating losses for each of the fiscal years ended March 31, 2001, 2000 and
1999, and therefore made no provision for income tax in these fiscal years. As
of March 31, 2001, we had federal and state net cumulative operating losses of
approximately $25.0 million and $4.0 million, respectively, which are
available to offset future taxable income. If not used, these net operating
losses will expire through 2021 and 2006, respectively.
Extraordinary item. In August 2000, we used a portion of the proceeds of
our initial public offering to repay approximately $4.0 million of debt that
was outstanding at that time. As a result of this early extinguishment of
debt, the unamortized portion of the debt guarantee costs was recorded as
extraordinary item, net of income taxes, in the amount of $0.7 million for the
year ended March 31, 2001.
Preferred stock dividend. During the fiscal years ended March 31, 2001 and
2000, we recorded a preferred stock dividend of $0.7 million and $2.2 million,
respectively, representing the value of the beneficial conversion feature on
the issuance of convertible preferred stock. The beneficial conversion feature
was calculated at the commitment date based on the difference between the
conversion price of $3.75 per share and the estimated fair value of the common
stock at that date.
Liquidity and Capital Resources
During the fiscal years ended March 31, 2001, 2000 and 1999, we used $9.6
million, $3.1 million and $4.2 million, respectively, for operating
activities, primarily due to operating losses and increased working capital
requirements.
Purchases of property and equipment were $2.2 million, $0.2 million and
$0.4 million for the fiscal years ended March 31, 2001, 2000 and 1999. As of
March 31, 2001, we did not have any significant capital expenditure
commitments.
Net cash flows from financing activities was $54.7 million, $7.1 million
and $4.6 million for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively. Net cash flows from financing activities in fiscal 2001 resulted
primarily from the proceeds from the issuance of common stock in our initial
public offering completed in August 2000, the sale of 409,992 shares of Series
I convertible preferred stock, and the sale of common stock to Wind River,
partially offset by the repayment of outstanding debt and the repurchase of
our common stock. Net cash provided by the sale of preferred and common stock
was $7.9 million in the fiscal year ended March 31, 2000. Proceeds from bank
lines of credit were $3.3 million and $3.0 million for the fiscal years ended
March 31, 2000 and 1999, respectively. Net cash provided by the sale of
preferred and common stock was $4.3 million in the fiscal year ended March 31,
1999. As of March 31, 2001, our principal source of liquidity consisted of
cash and cash equivalents and short-term investments totaling $46.7 million.
Working capital at March 31, 2001 was $50.3 million.
Based on our current expectations, we believe that our cash and cash
equivalents and short-term investment balances will be sufficient to meet our
working capital and capital requirements through the next twelve months. As a
result of anticipated net losses and purchases of capitalized assets, we
anticipate that we will utilize a significant amount of our available cash and
cash equivalents and short-term investments by March 31, 2002. We may also
utilize cash to acquire or invest in complementary businesses or to obtain the
use of complementary technologies.
16
Inflation
The impact of inflation on our business has not been material for the
fiscal years ended March 31, 2001, 2000 and 1999.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Financial
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," which amends SFAS No. 133 to be effective for all fiscal
years beginning after June 15, 2000. In June 2000, SFAS No. 133 was amended by
SFAS No. 138, "Accounting for Certain Derivative Financial Instruments and
Certain Hedging Activities", which amended or modified certain issues
discussed in SFAS No. 133. SFAS No. 138 is also effective for all fiscal years
beginning after June 15, 2000. SFAS No. 133 and SFAS No. 138 establish
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either as an asset or a liability measured
at its fair value. The statements also require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company does not expect the adoption of
SFAS No. 133 and SFAS No. 138 to have a material impact on its financial
statements.
17
FACTORS THAT MAY AFFECT RESULTS
We expect continuing losses and may not achieve profitability which could
affect our ability to expand our business.
We have incurred significant operating losses in each year since our
inception and expect to continue to incur net losses for the foreseeable
future, primarily as a result of increases in expenses for research and
development. Our losses increased as we transitioned our focus away from the
personal computer market toward the Internet appliance, broadband set-top box
and digital television markets in 1996. We have incurred net losses
attributable to common stockholders of approximately $36.0 million from our
inception in March 1993 through March 31, 2001. If we continue to incur net
losses, we may not be able to expand our business as quickly as we would like.
We do not know when or if we will become profitable and if we do become
profitable, we may not be able to sustain or increase our profitability.
Our operating expenses will increase as we build our business and these
increased expenses may impact our ability to become profitable.
We have made substantial expenditures on research and development and
organizational infrastructure consisting of an executive team, finance and
management information systems departments and our design center located in
the People's Republic of China. For the fiscal years ended March 31, 2001,
2000 and 1999, research and development expenses represented 50.4%, 48.0% and
220.6% of our revenues, respectively. We expect to continue to spend
substantial financial and other resources on developing and introducing new
products and services, and on expanding our research and development, our
operating infrastructure and our sales and marketing. We expect that our
operating expenses will continue to increase in absolute dollars and may
increase as a percentage of revenues. If our revenues do not increase, our
business and results of operations could suffer. We base our expense levels in
part on our expectations regarding future revenues. If our revenues for a
particular quarter are lower than we expect, we may be unable to
proportionately reduce our operating expenses for that quarter.
Because the emergence of the interactive television market has been slower
than anticipated, we may not be able to sell our products or sustain our
business.
Our semiconductor solutions are incorporated into products that allow
interactive television. The concept of interactive television and the market
for products that facilitate it are new and developing. As a result, our
profit potential is unproven and may never materialize. Broad acceptance of
Internet appliances, broadband set-top boxes and digital televisions will
depend on the extent to which consumers use devices other than personal
computers to access the Internet. To date, the market for these products has
not developed as quickly as our customers or we had previously anticipated.
Consequently, certain of our customers have significant inventory of our
semiconductors or products that incorporate our semiconductors, thereby
limiting the opportunity to sell additional semiconductors to these customers
until their present inventories are depleted. Our success will also depend on
the ability of original equipment manufacturers, or OEMs, and service
providers that work with our OEMs to create demand for and market the products
incorporating our semiconductors. Unless a sufficiently large market for
Internet appliances, broadband set-top boxes, digital televisions and other
products that are used for interactive television develops, demand for
products incorporating our semiconductor solutions may not be sufficient to
sustain our business.
Because of our long product development process and sales cycle, we incur
substantial expenses before we generate revenues and may not recover our
expenditures.
To develop market acceptance of our products, we must dedicate significant
resources to research and development, production and sales and marketing. We
develop products based on forecasts of demand and we incur substantial product
development expenditures prior to generating associated revenues. Our
customers typically perform numerous tests and extensively evaluate our
products before incorporating them into their
18
systems. The time required for testing, evaluating and designing our products
into a customer's equipment can take up to nine months or more, with an
additional three to nine months or more before an OEM customer commences
volume production of equipment incorporating our products, if ever. Because of
this lengthy development cycle, we may experience a delay between the time we
accrue expenses for research and development and sales and marketing efforts
and the time when we generate revenues, if any.
Furthermore, achieving a design win with a customer does not necessarily
mean that this customer will order large volumes of our products. A design win
is not a binding commitment by a customer to purchase our products. Rather, it
is a decision by a customer to use our products in the design process. In
addition, our customers can choose at any time to discontinue using our
products in that customer's designs or product development efforts. If our
products are chosen to be incorporated into a customer's products, we may
still not realize significant revenues from that customer if that customer's
products are not commercially successful. As a result, our profitability from
quarter to quarter and from year to year may be materially affected by the
number and timing of our new product introductions in any period and the level
of acceptance gained by these products.
If we fail to successfully develop, introduce and sell new products, we may be
unable to effectively compete in the future.
We operate in a highly competitive, quickly changing environment marked by
new and emerging products and technologies. Our success depends on our ability
to develop, introduce and successfully market new products and enhance our
existing products in the Internet appliance, broadband set-top box and digital
television markets. The development of these new products is highly complex
and, from time to time, we have experienced delays in completing their
development and introduction. Any one of the following factors could affect
our ability to develop, introduce and sell new products and could materially
harm our business:
. our failure to complete new product designs in a timely manner;
. our inability to manufacture our new products according to design
specifications;
. our inability to deliver our products to our customers in a timely
manner for any reason, including a lack of manufacturing capacity or the
failure of our contracted foundries to meet targeted manufacturing
yields; and
. our sales force's and independent distributors' inability to create
adequate demand for our products.
Our future operating results are likely to fluctuate and may fail to meet
expectations which could cause our stock price to decline.
Our operating results have varied in the past and are likely to do so in
the future as we attempt to meet consumer demand in the emerging markets for
Internet appliances, broadband set-top boxes and digital televisions. Our
future operating results will depend on many factors and may fail to meet our
expectations for a number of reasons. Any failure to meet these expectations
or those of securities analysts or investors could cause our stock price to
fluctuate or decline significantly. A number of factors, including those
listed below, may cause fluctuations in our operating results and stock price:
. the general condition of the semiconductor industry market;
. fluctuations in the volume of product sales, changes in product mix and
pricing concessions on sales;
. the timing, rescheduling or cancellation of significant customer orders;
. the timing of investments in, and the results of, research and
development;
. changes in industry standards;
. introduction of interactive television services by service providers;
. availability of manufacturing capacity and raw materials;
19
. product introductions and price changes by our competitors;
. our ability to specify, develop, introduce and market new products with
smaller geometries, more features and higher levels of design
integration in accordance with design requirements and design cycles;
. the level of orders received that can be shipped in a given period;
. changes in earning estimates or investment recommendations by analysts;
and
. changes in investors perceptions.
Our industry is highly competitive, and we cannot assure you that we will be
able to effectively compete.
The market for Internet appliances, broadband set-top boxes and digital
televisions in particular, and the semiconductor industry in general, are
highly competitive. We compete with a number of domestic and international
suppliers of semiconductors in our targeted markets. We expect competition to
intensify as current competitors expand their product offerings and new
competitors enter our targeted markets. We believe that we must compete on the
basis of a variety of factors, including:
. functionality;
. performance;
. time to market;
. price;
. conformity to industry standards;
. product road maps; and
. technical support.
We currently compete with ATI Technologies, Inc., Broadcom Corporation, and
TeraLogic, Inc. In addition to these competitors, we expect other major
semiconductor manufacturers will enter our targeted markets as the Internet
appliance, broadband set-top box and digital television markets become more
established. A number of companies, including International Business Machines
Corporation, STMicroelectronics N.V., National Semiconductor Corporation,
Equator Technologies, Inc. and TeleCruz Technology, Inc., have announced that
they are developing or plan to introduce competing products in the Internet
appliance, broadband set-top box and digital television markets which could
result in significant competition.
Some of our current and potential competitors operate their own fabrication
facilities or have a longer operating history and significantly greater
financial, sales and marketing resources. They may also have preexisting
relationships with our customers or potential customers. As a result, these
competitors may be able to adapt more quickly to new or emerging products,
develop new technologies, or address changes in customer requirements or
devote greater resources to the development and promotion of strategic
relationships among themselves or with existing or potential customers. It is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. Increased competition could harm our
business, results of operations and financial condition by, for example,
increasing pressure on our profit margin or causing us to lose sales
opportunities.
We depend on two independent foundries to manufacture our products based on
our forecasts, which could result in an oversupply or undersupply of products.
We do not own or operate our own fabrication facility. We currently depend
upon two outside foundries, Taiwan Semiconductor Manufacturing Corporation, or
TSMC, and United Manufacturing Corporation, or UMC.
20
We do not have long-term supply agreements with these foundries to manufacture
our semiconductor products. Both of these foundries are located in Taiwan and
each has limited manufacturing capacity.
The foundries require us to provide forecasts of our anticipated
manufacturing orders in advance of receiving purchase orders from our
customers. This may result in product shortages or excess product inventory.
Obtaining additional supply in the face of product shortages may be costly or
not possible, especially in the short-term. Excess inventory may result in
write-offs, price erosion and decreased demand. Our failure to adequately
forecast demand for our products would materially harm our business. The
foundries may allocate capacity to the production of other companies' products
while reducing delivery to us on short notice.
If we have to qualify new independent foundries for any of our products and do
not have sufficient supply of our products on hand, we may lose revenues and
damage our customer relationships.
Processes used to manufacture our products are complex, customized to our
specifications and can only be performed by a limited number of manufacturing
facilities. The foundries we use have from time to time experienced lower than
anticipated manufacturing yields, particularly in connection with the
introduction of new products and the installation and start up of new process
technologies. In addition, the foundries we use are located in a seismically
active area, and earthquakes have caused these foundries to close for repairs,
resulting in a delay in manufacturing our products.
Although we primarily utilize two independent foundries, most of our
components are not manufactured at both foundries at any given time. The
inability of one of the foundries to provide components could result in
significant delays and harm our business. In the event either foundry
experienced manufacturing or financial difficulties or suffered any damage or
destruction to its facilities, or in the event of any other disruption of
foundry capacity, we may not be able to qualify alternative manufacturing
sources for existing or new products in a timely manner. For example, in
September 1999, Taiwan experienced a major earthquake. The earthquake and its
resulting aftershocks caused power outages and significant damage to Taiwan's
infrastructure. In addition, as a result of the rapid growth of the
semiconductor industry based in the industrial park where both foundries are
located, severe constraints have been placed on the water and electricity
supply in that region. Any shortages of water or electricity or a natural
disaster could adversely affect these foundries' ability to supply our
products, which could have a material adverse effect on our operating results.
Even our current outside foundries would need to have manufacturing
processes qualified in the event of a disruption at the other foundry, which
we may not be able to accomplish in a timely manner sufficient to prevent an
interruption in the supply of the affected products. We cannot assure you that
any existing or new foundries would be able to produce integrated circuits
with acceptable manufacturing yields in the future, or will continue to have
sufficient capacity to meet our needs. If our manufacturing requirements are
not satisfied, our business would be materially harmed.
A significant amount of our revenues comes from a few OEMs and any decrease in
revenues from these few customers could significantly impact our financial
results.
Historically we have been, and we expect to continue to be, dependent on a
relatively small number of OEMs for a significant portion of our total
revenues. Most sales to these customers are through distributors. Sales to two
of our distributors, Weikeng Industrial Co., Ltd. and Kanematsu Semiconductor
Corp., accounted for approximately 11.8% and 10.3% of our total revenues for
fiscal year 2001, respectively. For the quarter and the fiscal year ended
March 31, 2001 sales to Prediwave Corporation, an OEM, accounted for
approximately 71.1% and 12.3% of our total revenues, respectively. We may not
be able to retain our largest customers or to obtain additional key accounts.
Any reduction or delay in sales of our products to one or more of our key
customers or our inability to successfully develop relationships with
additional key customers could have a material adverse effect on our business.
21
Customers may cancel or defer significant purchase orders, or our distributors
may return our products, which would cause our inventory levels to increase
and our revenues to decline.
We sell our products on a purchase order basis through our direct sales
channel, sales representatives and distributors, and our customers may cancel
or defer purchase orders at any time with little or no penalty. We recognize
revenues from sales to our distributors when they have sold our products to
their customers. We recognize revenues on sales to our OEM customers when we
ship our products to the OEM. We generally permit our distributors to return
products to us. If our customers cancel or defer significant purchase orders
or our distributors return our products, our inventories would increase and
our revenues would decrease, which would materially harm our business. Refusal
of OEM customers to accept shipped products or delays or difficulties in
collecting accounts receivable could have an adverse effect on our business.
We may encounter periods of semiconductor oversupply, resulting in pricing
pressure, as well as undersupply, resulting in a risk that we could be unable
to fulfill our customers' requirements.
The semiconductor industry has historically been characterized by wide
fluctuations in the demand for, and supply of, its products. These
fluctuations have resulted in circumstances when supply and demand for the
industry's products have been widely out of balance. Our operating results may
be materially harmed by industry wide semiconductor oversupply, which could
result in severe pricing pressure. On the other hand, in a market with
undersupply, we would have to compete with larger companies for limited
manufacturing capacity. If material shortages occur, we may incur additional
costs to procure the scarce components or be unable to have our products
manufactured in a timely manner or in quantities necessary to meet our
requirements. Since we outsource all of our manufacturing, we are particularly
vulnerable to supply shortages. As a result, we may be unable to fill orders
and may lose customers. Any future industry wide oversupply or undersupply of
semiconductors would materially harm our business and have a negative impact
on our earnings.
Our semiconductors are complex to manufacture and may have errors or defects
which could be costly to correct.
The manufacture of semiconductors is a complex process. Foundries may not
achieve acceptable product yields from time to time due to the complexity of
the integrated circuit design, inadequate manufacturing processes and other
reasons. We refer to the proportion of final acceptable integrated circuits
that have been processed, assembled and tested relative to the gross number of
integrated circuits that could have been produced from the raw materials as
our product yields. Identifying defects and determining the reason for low
yields may be discovered after production has begun and at various stages of
the production cycle. Our failure to discover defects early in the production
cycle will result in higher costs and may require a diversion of our technical
personnel and resources away from product development in order to correct the
defect. In addition, defective products that have been released into the
market and distributed to our customers and end users may result in harm to
our reputation, significant warranty costs, diversion of our technical and
managerial resources and potential product liability claims that would be
costly to defend.
Our software is complex and may have bugs or defects, which could be costly to
correct.
Our products depend on complex software that we develop internally and
license from others. Complex software often contains defects, particularly
when first introduced or when new versions are released. Determining whether
our software has defects may occur after our products are released into the
market and distributed to our customers and end users, and may result in harm
to our reputation, significant warranty costs, diversion of our technical
resources and potential product liability claims that would be costly to
defend and divert managerial resources.
We face foreign business, political and economic risks because a majority of
our sales are to customers outside of the United States.
Sales of our products to our OEM customers and to distributors located
outside the United States accounted for 67%, 71% and 81% of our total revenues
in fiscal years 2001, 2000 and 1999, respectively. Sales of our
22
products in Asia accounted for 55%, 70% and 65% of our total revenues in
fiscal years 2001, 2000 and 1999. We anticipate that sales to customers
located outside the United States will continue to represent a significant
portion of our total sales in future periods. In addition, many of our
domestic customers sell their products outside of North America, thereby
indirectly exposing us to risks associated with foreign commerce. Asian
economic instability impacts the sales of products manufactured by our
customers, as does the Chinese New Year, during which time many manufacturers
and businesses close their operations. We could also experience greater
difficulties collecting accounts receivable from customers outside of the
United States. Accordingly, our operations and revenues are subject to a
number of risks associated with foreign commerce.
To date, we have denominated sales of our products in foreign countries
exclusively in United States dollars. As a result, any increase in the value
of the United States dollar relative to the local currency of a foreign
country will increase the price of our products in that country so that our
products become relatively more expensive to customers in the local currency
of that foreign country. As a result, sales of our products in that foreign
country may decline. To the extent any of these types of risks materialize,
our business would be materially harmed.
The rapid growth of our business and operations has strained and will continue
to strain our administrative, operational and financial resources, and our
failure to manage our future growth could affect our operations and our future
ability to expand.
We are currently experiencing rapid growth and expansion in our business
and operations. For example, we are expanding our research and development
facilities in the People's Republic of China. Our growth has placed, and will
continue to place, a significant strain on our administrative, operational and
financial resources and increased demands on our systems and controls. To
accommodate our growth, we must implement a variety of new and upgraded
operational and financial systems, procedures and controls, including
improvement of our accounting and other internal management systems, all of
which are likely to require substantial managerial effort. We cannot assure
you that these efforts can be accomplished successfully. Our growth has
resulted in a continuing increase in the level of responsibility for both
existing and new management personnel, and will require that we recruit, hire
and train a substantial number of new personnel. Our failure to manage our
growth could prevent us from successfully achieving market acceptance for our
products, disrupt our operations, delay our expansion and harm our business.
We depend on key personnel, the loss of whom would impair or inhibit the
growth of our business.
Our success depends on the skills, experience and performance of our
executive officers and other key management and technical personnel, many of
whom would be difficult to replace. We are particularly dependent on Kenny
Liu, our Chairman and Chief Executive Officer, and Jack Guedj, our President.
We also depend upon our experienced business development personnel, marketing
personnel, systems application engineers, circuit designers, logic engineers
and software engineers. The competition for employees with these skills is
intense, particularly in the San Francisco Bay Area, and we may not be able to
attract and retain a sufficient number of such qualified new personnel in the
future. The loss of the service of one or more of our key employees, or our
failure to attract, retain and motivate qualified personnel would inhibit the
growth of our business.
We rely on strategic relationships to commercialize our products, and these
relationships may require that we expend significant resources without
guarantees that our endeavors will be profitable.
We rely on strategic relationships with some of our customers who we
believe are the market leaders in our target markets. These relationships
often involve the proposed development by us of new products involving
significant technological challenges. Since the proposed products under
development may offer potential competitive advantages to our customers,
considerable pressure is frequently placed on us to meet development
schedules. While an essential element of our strategy involves establishing
such relationships, these projects require substantial amounts of our limited
resources, with no guarantee of revenues to us, and could materially detract
from or delay the completion of other important development projects. Delays
in development could impair the relationship between us and our customers and
negatively impact sales of the products under
23
development. Moreover, our customers may develop their own solutions for
products currently supplied by us, which could have an adverse effect on our
business.
We depend on third party subcontractors for assembly of our semiconductors
which reduces our control over the delivery, quantity, quality or cost of our
products.
Substantially all of our products are assembled by one of two
subcontractors, both of which are located in Taiwan. Typically, we procure
services from these subcontractors on a purchase order basis. Their
availability to assemble our products could be adversely affected if either
subcontractor experiences financial difficulties or suffers any damage or
destruction to its facilities or any other disruption of its assembly
capacity. Because we rely on third party subcontractors for assembly of our
products, we cannot directly control product delivery schedules. We have
experienced in the past, and may experience in the future, product shortages
or quality assurance problems that could increase the cost of manufacturing or
testing of our products. It is time consuming and difficult to find and
qualify alternative assemblers. If we are forced to find substitute
subcontractors, shipments of our products could be delayed. Any problems
associated with the delivery, quantity or cost of our products could harm our
business.
Political instability in the People's Republic of China or Taiwan could harm
our manufacturing and research and development capabilities and negatively
impact our product sales.
We operate a facility and are in the process of expanding our research and
development operations in the People's Republic of China. In addition, almost
all of our products are manufactured and assembled outside of the United
States at facilities operated by third parties in Taiwan. The political and
economic conditions in the region, including the People's Republic of China's
dispute with Taiwan, may adversely impact our operations including manufacture
and assembly of our products and research and development efforts. We cannot
assure you that restrictive laws or policies on the part of either the
People's Republic of China or the United States will not constrain our ability
to operate in both countries. If we are required to relocate our facilities,
our business will be disrupted and our costs associated with research and
development will increase.
If our competitors use our intellectual property and proprietary rights, our
ability to compete would be impaired.
Our success depends in part upon our rights in proprietary technology and
processes that we develop and license from, and to, others. We rely on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality agreements with our employees, consultants and strategic
partners in order to protect proprietary technologies that use our products.
We cannot assure you that these measures will provide meaningful protection
for our proprietary technologies and processes, and they do not prevent
independent third party development of competitive products. In addition, it
is difficult to monitor unauthorized use of technology, particularly in
foreign countries where laws may not protect our proprietary rights as fully
as in the United States.
We currently have patent applications pending in the United States, and we
may seek additional patents in the future. Because the content of patent
applications in the United States is not publicly disclosed until the patent
is issued, applications may have been filed which relate to our products or
processes. We cannot assure you that our current patent applications or any
future patent applications will result in a patent being issued with the scope
of the claims we seek, if at all, or whether any patents we have or may
receive will be challenged or invalidated. The failure of any patents to
provide protection to our technology would make it easier for our competitors
to offer similar products.
We may face intellectual property infringement claims that could be costly and
could result in the loss of proprietary rights which are necessary to our
business.
Other parties may assert patent infringement claims against us, including
claims against technology that we license from others, and our products or
processes may infringe issued patents of others. Litigation is common
24
in the semiconductor industry and any litigation could result in significant
expense to us. Litigation would also divert the efforts of our technical and
management personnel, whether or not the litigation is determined in our
favor. Litigation could also require us to develop non-infringing technology
or enter into royalty or license agreements. These royalty or license
agreements may not be available on acceptable terms, including limitations on
representations and warranties regarding infringement and indemnification in
the event of infringement claims. Our failure or inability to develop non-
infringing technology, license the proprietary rights on a timely basis or
receive appropriate protection on licensed technology would harm our business.
Regulation of our customers' products may slow the process of introducing new
products and could impair our ability to compete.
The Federal Communications Commission, or the FCC, has broad jurisdiction
over our target markets. Various international entities or organizations may
also regulate aspects of our business or the business of our customers.
Although our products are not directly subject to regulation by any agency,
the transmission pipes, as well as much of the equipment into which our
products are incorporated, are subject to direct government regulation. For
example, before they can be sold in the United States, Internet appliances,
broadband set-top boxes and digital televisions must be tested and certified
by Underwriters Laboratories and meet FCC regulations. Accordingly, the
effects of regulation on our customers or the industries in which our
customers operate may, in turn, harm our business. FCC regulatory policies
affecting the ability of cable operators or telephone companies to offer
certain services and other terms on which these companies conduct their
business may impede sales of our products. In addition, our business may also
be adversely affected by the imposition of tariffs, duties and other import
restrictions on systems of suppliers or by the imposition of export
restrictions on products that we sell internationally. Changes in current laws
or regulations or the imposition of new laws or regulations in the United
States or elsewhere could harm our business.
We may experience power blackouts and higher electricity prices as a result of
California's current energy crisis, which could disrupt our operations and
increase our expenses.
California is in the midst of an energy crisis that could disrupt our
manufacturing operations and increase our expenses. We rely on the major
Northern California public utility, Pacific Gas & Electric Company, or
PG&E, to supply electric power to our facilities in Northern California. Due
to problems associated with the deregulation of the power industry in
California and shortages in wholesale electricity supplies, customers of PG&E
have been faced with increased electricity prices, power shortages and rolling
blackouts. Increased energy prices will increase our expenses which will
increase our cost of revenues and decrease our gross profits. If blackouts
interrupt our power supply, we may be temporarily unable to continue
operations at our California facilities. Any such interruption in our
operations could delay our ability to develop new products, or to do the final
testing on our products. Also, such disruptions could damage our reputation
and result in lost revenue, either of which could substantially harm our
business and results of operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Discussion of Market Interest Rate Risk
Our cash equivalents and short-term investments are exposed to financial
market risk due to fluctuation in interest rates, which may affect our
interest income and, in the future, the fair market value of our investments.
We manage the exposure to financial market risk by performing ongoing
evaluations of our investment portfolio and we presently invest entirely in
short-term investment grade government and corporate securities. These
securities are highly liquid and generally mature within 12 months from the
purchase date. Due to the short maturities of our investments, the carrying
value should approximate the fair value. In addition, we do not use our
investments for trading or other speculative purposes. We have performed an
analysis to assess the potential effect of reasonably possible near term
changes in interest and foreign currency exchange rates. The effect of any
change in foreign currency exchange rates is not expected to be material to
our results of operations, cash flows or financial condition. Due to the short
duration of our investment portfolio, an immediate 10% change in
25
interest rates would not have a material effect on the fair market value of
our portfolio. Therefore, we would not expect our operating results or cash
flows to be affected to any significant degree by the effect of a sudden
change in market interest rates on our securities portfolio.
Foreign Currency Exchange Risk
We are an international company, selling our products globally and, in
particular, in Japan, Korea, the People's Republic of China and Taiwan.
Although we transact our business in United States dollars, we cannot assure
you that future fluctuations in the value of the United States dollar will not
affect the competitiveness of our products, gross profits realized, and
results of operations. Further, we incur expenses in the People's Republic of
China, Taiwan and other countries that are denominated in currencies other
than United States dollars. We cannot estimate the effect that an immediate
10% change in foreign currency exchange rates would have on our future
operating results or cash flows as a direct result of changes in exchange
rates. However, we do not believe that we currently have any significant
direct foreign currency exchange rate risk and have not hedged exposures
denominated in foreign currencies or any derivative financial instruments.
26
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
----
Consolidated Financial Statements of Tvia, Inc.
Report of Independent Public Accountants................................ 28
Consolidated Balance Sheets............................................. 29
Consolidated Statements of Operations................................... 30
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)......................................... 31
Consolidated Statements of Cash Flows................................... 33
Notes to Consolidated Financial Statements.............................. 34
27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Tvia, Inc.:
We have audited the accompanying consolidated balance sheets of Tvia, Inc.
and subsidiary (a Delaware corporation) as of March 31, 2001 and 2000, and the
related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit) and cash flows for each of
the three years in the period ended March 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tvia, Inc.
and subsidiary as of March 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 2001, in conformity with generally accepted accounting
principles in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements as a whole. The schedule listed under Item 14(a) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied to our audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements as a whole.
/s/ Arthur Andersen LLP
San Jose, California
April 30, 2001
28
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31,
------------------
2001 2000
-------- --------
ASSETS
------
Current Assets:
Cash and cash equivalents................................ $ 21,267 $ 3,789
Restricted cash.......................................... -- 3,075
Short-term investments................................... 25,415 --
Accounts receivable, net of allowance for doubtful
accounts of $439 and $55, respectively.................. 1,941 1,010
Inventories.............................................. 4,343 1,327
Other current assets and prepaid expenses................ 1,352 965
Deferred debt costs...................................... -- 981
-------- --------
Total current assets................................... 54,318 11,147
Property and Equipment, net................................ 1,974 221
Other Assets............................................... 1,143 --
-------- --------
Total assets........................................... $ 57,435 $ 11,368
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities:
Loan payable guaranteed by related party................. $ -- $ 1,070
Accounts payable......................................... 1,132 1,762
Accrued liabilities and other............................ 2,881 2,400
-------- --------
Total current liabilities.............................. 4,013 5,232
-------- --------
Commitments and contingencies (Note 5)
Long-Term Liabilities:
Loan payable guaranteed by related party................. -- 2,959
Redeemable convertible preferred stock................... -- 16,594
Warrants to purchase redeemable convertible preferred
stock................................................... -- 849
-------- --------
Total long-term liabilities............................ -- 20,402
-------- --------
Stockholders' Equity (Deficit):
Convertible preferred stock, no par value: 17,916,403
shares authorized; none and 5,305,454 shares
outstanding, respectively............................... -- 5
Common stock, $0.001 par value: 150,000,000 shares
authorized; 21,829,688 and 5,233,806 shares outstanding,
respectively............................................ 22 5
Additional paid-in capital............................... 90,976 17,078
Warrants to purchase common stock........................ 1,099 --
Deferred stock compensation.............................. (2,167) (4,499)
Accumulated comprehensive income......................... 148 --
Accumulated deficit...................................... (35,996) (26,855)
Treasury stock........................................... (660) --
-------- --------
Total stockholders' equity (deficit)................... 53,422 (14,266)
-------- --------
Total liabilities and stockholders' equity (deficit)... $ 57,435 $ 11,368
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
29
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended March 31,
-------------------------
2001 2000 1999
------- ------- -------
Revenues:
Product sales..................................... $12,743 $ 6,528 $ 1,432
Development contracts and other................... 701 529 90
------- ------- -------
Total revenues.................................. 13,444 7,057 1,522
------- ------- -------
Cost of revenues:
Product sales (excluding amortization of deferred
compensation of $36, $20 and $1, respectively)... 7,650 3,622 1,257
Development contracts and other................... 68 185 51
------- ------- -------
Total cost of revenues.......................... 7,718 3,807 1,308
------- ------- -------
Gross profit........................................ 5,726 3,250 214
------- ------- -------
Operating expenses:
Research and development (excluding amortization
of deferred compensation of $996, $261 and $1,
respectively).................................... 6,774 3,390 3,357
Sales, general and administrative (excluding
amortization of deferred compensation of $1,669,
$1,218 and $0, respectively)..................... 5,695 3,370 2,062
Amortization of deferred stock compensation....... 2,701 1,499 2
------- ------- -------
Total operating expenses........................ 15,170 8,259 5,421
------- ------- -------
Operating loss...................................... (9,444) (5,009) (5,207)
------- ------- -------
Other expense (income), net:
Interest income................................... (2,105) (49) (7)
Interest expense.................................. 132 328 173
Amortization of debt guarantee costs and other.... 327 753 298
------- ------- -------
Other expense (income), net....................... (1,646) 1,032 464
------- ------- -------
Net loss before extraordinary item.................. (7,798) (6,041) (5,671)
Extraordinary item, net of income taxes............. 672 -- --
------- ------- -------
Net loss............................................ $(8,470) $(6,041) $(5,671)
======= ======= =======
Dividend related to convertible preferred stock..... $ (671) $(2,161) $ --
------- ------- -------
Net loss attributable to common stockholders........ $(9,141) $(8,202) $(5,671)
======= ======= =======
Basic and diluted net loss attributable to common
stockholders:
Net loss attributable to common stockholders
before extraordinary item........................ $ (0.56) $ (2.63) $ (2.56)
Extraordinary item, net of income taxes........... (0.05) -- --
------- ------- -------
Net loss attributable to common stockholders...... $ (0.61) $ (2.63) $ (2.56)
======= ======= =======
Shares used in computing basic and diluted net loss
attributable to common stockholders before and
after extraordinary item........................... 15,052 3,118 2,219
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
30
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
Redeemable Convertible Convertible Accu-
Preferred Stock Preferred Stock Common Stock Additional Deferred mulated
--------------------------- ---------------- ---------------- Paid-in Stock Compre- Accu-
Par Capital Compen- hensive mulated
Shares Amount Warrants Shares Amount Shares amount Amount Warrants sation Income Deficit
---------- ------- -------- --------- ------ --------- ------ ---------- -------- -------- ------- --------
Balance, March
31, 1998........ 12,319,107 $ 5,212 $111 5,305,454 $5,525 2,087,746 $ -- $ 131 $ -- $ -- $ -- $(12,982)
Issuance of
Series G
Redeemable
Convertible
Preferred Stock
at $3.00 per
share, net of
issuance costs
of $8........... 1,499,998 4,492 -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- 34,757 -- 4 -- -- -- --
Issuance of
common stock for
services
rendered........ -- -- -- -- -- 111,055 -- 13 -- -- -- --
Deferred stock
compensation.... -- -- -- -- -- -- -- 32 -- (32) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- 2 -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- (5,671)
---------- ------- ---- --------- ------ --------- ---- ------ ---- ------- ----- --------
Balance, March
31, 1999........ 3,819,105 9,704 111 5,305,454 5,525 2,233,558 -- 180 -- (30) -- (18,653)
Issuance of
preferred
warrants and
options to
guarantor of
line of credit.. -- -- 738 -- -- -- -- 1,001 -- -- -- --
Issuance of
Series G
Redeemable
Convertible
Preferred
Stock........... 83,333 250 -- -- -- -- -- -- -- -- -- --
Issuance of
Series H
Redeemable
Convertible
Preferred Stock,
net of issuance
cost of $39..... 1,204,947 4,479 -- -- -- -- -- -- -- -- -- --
Issuance of
Series I
Redeemable
Convertible
Preferred Stock,
net of issuance
cost of $8...... -- -- -- 496,658 3,717 -- -- -- -- -- -- --
Deferred stock
compensation.... 5,968 -- (5,968) -- --
Fair value of
options issued
for services
rendered........ -- -- -- -- -- -- -- 89 -- -- -- --
Issuance of
common stock for
services
rendered........ -- -- -- -- -- 40,035 -- 200 -- -- -- --
Exercise of
options......... -- -- -- -- -- 2,960,213 -- 408 -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- 1,499 -- --
Dividend related
to redeemable
convertible
preferred
stock........... -- 2,161 -- -- -- -- -- -- -- -- -- (2,161)
Net loss........ -- -- -- -- -- -- -- -- -- -- -- (6,041)
---------- ------- ---- --------- ------ --------- ---- ------ ---- ------- ----- --------
Balance, March
31, 2000........ 5,107,385 16,594 849 5,802,112 9,242 5,233,806 -- 7,846 -- (4,499) -- (26,855)
Stock-
holders'
Treasury Equity
Stock (Deficit)
-------- ----------
Balance, March
31, 1998........ $ -- $ (7,326)
Issuance of
Series G
Redeemable
Convertible
Preferred Stock
at $3.00 per
share, net of
issuance costs
of $8........... -- --
Exercise of
options......... -- 4
Issuance of
common stock for
services
rendered........ -- 13
Deferred stock
compensation.... -- --
Amortization of
deferred
compensation.... -- 2
Net loss........ -- (5,671)
-------- ----------
Balance, March
31, 1999........ -- (12,978)
Issuance of
preferred
warrants and
options to
guarantor of
line of credit.. -- 1,001
Issuance of
Series G
Redeemable
Convertible
Preferred
Stock........... -- --
Issuance of
Series H
Redeemable
Convertible
Preferred Stock,
net of issuance
cost of $39..... -- --
Issuance of
Series I
Redeemable
Convertible
Preferred Stock,
net of issuance
cost of $8...... -- 3,717
Deferred stock
compensation.... -- --
Fair value of
options issued
for services
rendered........ -- 89
Issuance of
common stock for
services
rendered........ -- 200
Exercise of
options......... -- 408
Amortization of
deferred
compensation.... -- 1,499
Dividend related
to redeemable
convertible
preferred
stock........... -- (2,161)
Net loss........ -- (6,041)
-------- ----------
Balance, March
31, 2000........ -- (14,266)
31
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
(In thousands, except share data)
Redeemable Convertible Convertible Accu-
Preferred Stock Preferred Stock Common Stock Additional Deferred mulated
------------------------------ ------------------- ------------------ Paid-in Stock Compre-
Par Capital Compen- hensive
Shares Amount Warrants Shares Amount Shares amount Amount Warrants sation Income
---------- -------- -------- ---------- ------- ---------- ------ ---------- -------- -------- -------
Conversion of
common stock
from no par to
$0.001 par
value........... -- -- -- -- -- -- 5 (5) -- -- --
Dividend related
to redeemable
convertible
preferred
stock........... -- 671 -- -- -- -- -- -- -- -- --
Shares issued in
initial public
offering, net of
costs........... -- -- -- -- -- 5,675,050 6 55,230 -- -- --
Conversion of
preferred stock
to common
stock........... (5,107,385) (17,265) (5,802,112) (9,242) 10,909,497 11 26,496 -- -- --
Conversion of
preferred stock
warrants to
common stock
warrants........ -- -- (849) -- -- -- -- -- 849 -- --
Fair value of
preferred stock
warrants issued
to WindRiver.... -- -- -- -- -- -- -- -- 250 -- --
Deferred stock
compensation.... -- -- -- -- -- -- -- 367 -- (369) --
Issuance of
common stock for
bonus........... -- -- -- -- -- -- -- 28 -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- 2,701 --
Sale of common
stock to
WindRiver....... -- -- -- -- -- 90,909 -- 1,000 -- -- --
Repurchase of
common stock.... -- -- -- -- -- (22,369) -- (2) -- -- --
Common stock
issued under
employee stock
purchase plan... -- -- -- -- -- 1,685 -- 16 -- -- --
Exercise of
options......... -- -- -- -- -- 1,110 -- -- -- -- --
Purchase of
treasury stock.. -- -- -- -- -- (60,000) -- -- -- -- --
Accumulated
comprehensive
income.......... -- -- -- -- -- -- -- -- -- -- 148
Net loss........ -- -- -- -- -- -- -- -- -- -- --
---------- -------- ----- ---------- ------- ---------- --- ------- ------ ------- ----
Balance, March
31, 2001........ -- $ -- $ -- -- $ -- 21,829,688 $22 $90,976 $1,099 $(2,167) $148
========== ======== ===== ========== ======= ========== === ======= ====== ======= ====
Stock-
Accu- holders'
mulated Treasury Equity
Deficit Stock (Deficit)
--------- -------- ---------
Conversion of
common stock
from no par to
$0.001 par
value........... -- -- --
Dividend related
to redeemable
convertible
preferred
stock........... (671) -- (671)
Shares issued in
initial public
offering, net of
costs........... -- -- 55,236
Conversion of
preferred stock
to common
stock........... -- -- 17,265
Conversion of
preferred stock
warrants to
common stock
warrants........ -- -- 849
Fair value of
preferred stock
warrants issued
to WindRiver.... -- -- 250
Deferred stock
compensation.... -- -- (2)
Issuance of
common stock for
bonus........... -- -- 28
Amortization of
deferred
compensation.... -- -- 2,701
Sale of common
stock to
WindRiver....... -- -- 1,000
Repurchase of
common stock.... -- -- (2)
Common stock
issued under
employee stock
purchase plan... -- -- 16
Exercise of
options......... -- -- --
Purchase of
treasury stock.. -- (660) (660)
Accumulated
comprehensive
income.......... -- -- 148
Net loss........ (8,470) -- (8,470)
--------- -------- ---------
Balance, March
31, 2001........ $(35,996) $(660) $53,422
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
32
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended March 31,
--------------------------
2001 2000 1999
-------- ------- -------
Cash Flows from Operating Activities:
Net loss......................................... $ (8,470) $(6,041) $(5,671)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 437 318 503
Common stock and options issued for bonus
and/or services rendered...................... 28 289 13
Amortization of deferred stock compensation.... 2,701 1,499 2
Non-cash amortization of guarantee costs and
other......................................... 1,126 753 83
Changes in assets and liabilities:
Accounts receivable.......................... (931) (947) 80
Inventories.................................. (3,016) (1,011) 721
Prepaid expenses and other current assets.... (1,279) (106) 50
Accounts payable............................. (630) 1,196 (545)
Accrued liabilities and other................ 481 952 521
-------- ------- -------
Net cash used in operating activities...... (9,553) (3,098) (4,243)
-------- ------- -------
Cash Flows from Investing Activities:
Purchase of available-for-sale investments....... (25,415) -- --
Purchase of property and equipment............... (2,190) (225) (380)
-------- ------- -------
Net cash used in investing activities...... (27,605) (225) (380)
-------- ------- -------
Cash Flows from Financing Activities:
Proceeds from loans payable...................... 159 3,306 2,973
Payments on loans payable........................ (4,188) (991) (2,674)
Proceeds from issuance of common stock........... 1,014 312 4
Proceeds from convertible and redeemable
convertible preferred stock, net................ -- 7,560 4,312
Purchase of treasury stock....................... (660) -- --
Proceeds from initial public offering, net....... 55,236 -- --
Restricted funds from stock subscription for
convertible preferred stock..................... 3,075 (3,075) --
-------- ------- -------
Net cash provided by financing activities.. 54,636 7,112 4,615
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 17,478 3,789 (8)
Cash and cash equivalents at beginning of period... 3,789 -- 8
-------- ------- -------
Cash and cash equivalents at end of period......... $ 21,267 $ 3,789 $ --
======== ======= =======
Supplemental Cash Flow Information:
Interest paid.................................... $ 132 $ 126 $ 148
Conversion of accrued salary to redeemable
convertible preferred stock (Note 8)............ -- 244 180
Fair value of warrant and options issued to
guarantors of lines of credit................... -- 738 --
Conversion of accrued salary upon exercise of
options (Note 8)................................ -- 96 --
Conversion of debt to subscription for Series I
shares.......................................... -- 500 --
Purchase of technology license through conversion
of Series I shares.............................. -- 150 --
Costs incurred related to initial public
offering........................................ -- 671 --
Fair value of warrants issued to WindRiver....... 250 -- --
Issuance of common stock for bonus............... 28 -- --
The accompanying notes are an integral part of these consolidated financial
statements.
33
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Tvia, Inc., formerly known as IGS Technologies, Inc. ("the Company") was
incorporated in California in March 1993 and reincorporated as a Delaware
Corporation in August 2000. Tvia designs, develops and markets semiconductors
for the Internet appliance, broadband set-top box and digital television
markets. The Company's semiconductor solutions, which consist of integrated
circuits and proprietary software, process rich media content streams from the
Internet and television. The Company sells its integrated circuits to
manufacturers of Internet appliances, broadband set-top boxes and digital
televisions. The Company has a branch in Taiwan that operates as a sales
office and a subsidiary in the People's Republic of China that supports the
Company's research and development activities. The Company is subject to the
risks associated with similar technology companies. These risks include, but
are not limited to: history of operating losses, dependence on a small number
of key individuals, customers and suppliers, competition from larger, more
established companies, the impact of rapid technological changes and changes
in customer demand/requirements.
Initial Public Offering
On August 14, 2000, the Company closed its initial public offering in which
it sold 5,000,000 shares of its common stock at $11.00 per share, and granted
the underwriters an option to purchase up to 750,000 shares to cover over-
allotments. Upon the closing of the offering, all of the Company's 10,909,497
shares of preferred stock automatically converted into common stock, and
warrants to purchase 288,330 shares of preferred stock automatically converted
into warrants to purchase common stock. On September 11, 2000, the
underwriters exercised the over-allotment option to purchase 675,050 shares of
common stock at $11.00 per share. Proceeds from the offering were $55.2
million, net of all initial public offering costs.
A loan payable guaranteed by a related party of $3.0 million was repaid
from proceeds of the initial public offering and, as a result of the early
extinguishment of debt, the unamortized portion of the debt guarantee cost was
recorded as an extraordinary item, net of income taxes, which totaled to
$672,000. (Note 4)
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the financial statements include
inventory reserves and income tax valuation allowances.
Consolidation
The consolidated financial statements herein presented include the results
and financial position of Tvia and its wholly-owned subsidiary in China. The
functional currency of the Chinese subsidiary is the U.S. dollar; accordingly,
all gains and losses arising from foreign currency transactions in currencies
other than the U.S. dollar are included in the consolidated statements of
operations. All intercompany transactions and balances have been eliminated in
consolidation.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less from the date of purchase to be cash and
cash equivalents. Management determines the appropriate classification of
short-term investments at the time of purchase and evaluates such designations
as of each
34
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
balance sheet date. To date, all short-term investments have been classified
as available-for-sale and are carried at fair value with unrealized gains and
losses, if any, included as a component of accumulated comprehensive income in
stockholders' equity, net of any related tax effects. Interest, dividends and
realized gains and losses are included in other expense (income), net in the
consolidated statements of operations. The value of the Company's investments
by major security type is as follows:
As of March 31, 2001
-----------------------------------------
Aggregate
Amortized Fair Unrealized Unrealized
Cost Value Gain Loss
--------- --------- ---------- ----------
(in thousands)
U.S. government and agency
securities..................... $ 2,408 $ 2,407 $ -- $(1)
U.S. corporate and bank debt.... 22,859 23,008 149 --
------- ------- ----- ---
$25,267 $25,415 $ 149 $(1)
======= ======= ===== ===
Revenue Recognition
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue
when the terms of the sale include customer acceptance provisions or an
obligation of the seller to install the product. In such instances, SAB 101
generally requires that revenue recognition occur at completion of
installation and/or upon customer acceptance. The Company has reviewed its
revenue recognition policies and determined that they are in compliance with
SAB 101. Accordingly, there was no impact on the Company's financial
statements from adopting SAB 101 in fiscal 2001.
Revenue consists primarily of sales of products to original equipment
manufacturers ("OEMs") and distributors. Revenues from sales to OEMs are
recognized upon shipment. The Company has agreements with certain distributors
which do not contain rights of return and price protection rights, however, a
number of distributor agreements do contain rights to return slow moving
inventory or discontinued products held in inventory by the distributor which
have not sold through to an end user. The Company defers revenue recognition
relating to sales to distributors until such products are sold through to the
end customer by the distributor, or if sell through information is not
available from the distributor, when cash is received from the distributors.
Receipt of cash from those distributors which do not provide sell through
information has historically been indicative of sell through to an end user by
that distributor. Management is not aware of any circumstances that would
require the return of cash to a distributor once payment from a distributor
has been received.
The Company also generates revenues from custom software services
contracts. Revenues from custom software services contracts are recognized as
contract milestones are achieved which approximates the percentage completion
of the contract. Costs incurred on custom software services contracts, which
are primarily payroll costs, are recorded as cost of sales. At March 31, 2001,
management's estimates of future contract revenues and contractual costs did
not indicate a loss on any contract; therefore no provision for losses on
these contracts is required as of March 31, 2001. If the Company invoices the
customer in advance of services performed under the custom software services
contracts, the invoiced amount is recorded as deferred revenue.
The Company also sells software development kits and application modules to
OEMs. The Company recognizes sales of software development kits and
application modules in accordance with the American Institute of Certified
Public Accountants Statement of Position 97-2 "Software Revenue Recognition"
("SOP 97-2"), as amended by SOP 98-4 and SOP 98-9. Under SOP 97-2, software
revenues are recognized when an agreement has been executed or a definitive
purchase order has been received and the product has been delivered, no
significant obligations with regard to implementation remain, the fee is fixed
and determinable and collectibility
35
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
is probable. For the years ended March 31, 2001, 2000 and 1999, revenues from
the sale of software development kits and application modules were less than
10% of net revenues.
Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods, are summarized as follows:
For the Year
Ended March 31,
---------------------
2001 2000 1999
----- ----- -----
Customer A........................................... 10% 16% 14%
Customer B........................................... * * 14%
Customer C........................................... 12% * *
Customer D........................................... * 12% *
Customer E........................................... 12% * *
Customer F........................................... * * 14%
- --------
(* = less than 10%)
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
Company has expensed all software development costs to date as such
development costs have substantially all been incurred prior to the Company's
products attaining technological feasibility.
Research and Development Expenses
Research and development expenses consist primarily of salaries and related
costs of employees engaged in research, design and development activities. The
Company expenses all research and development related expenses in the period
in which such expenses are incurred.
Comprehensive Loss
Effective April 1, 1998, the Company adopted SFAS, No. 130 "Reporting
Comprehensive Income" which establishes standards for reporting and displaying
comprehensive income in a full set of financial statements. Comprehensive
income or loss includes unrealized investment gains that have been previously
excluded from net loss and reflected instead as a component of accumulated
comprehensive income or loss in stockholders' equity. A summary of
comprehensive loss is as follows (in thousands):
For the Year Ended
March 31,
-------------------------
2001 2000 1999
------- ------- -------
Net loss........................................ $(9,141) $(8,202) $(5,671)
Unrealized gain on available-for-sale
investments.................................... 148 -- --
------- ------- -------
Comprehensive loss.............................. $(8,993) $(8,202) $(5,671)
======= ======= =======
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value method of accounting for issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is
36
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Pursuant of SFAS No. 123, companies are not required to adopt the fair value
method of accounting for employee stock-based transactions. Companies are
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
(APB Opinion 25) but are required to disclose in a note to the consolidated
financial statements pro forma net income and per share amounts as if the
Company had applied the methods prescribed by SFAS No. 123. The Company
applies APB Opinion 25 and related interpretations in accounting for its plans
and has complied with the disclosure requirements of SFAS No. 123.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN44),
"Accounting for Certain Transactions involving Stock Compensation--an
interpretation of APB Opinion No. 25" (FIN 44). FIN 44 is effective July 1,
2000. The interpretation clarifies the application of APB Opinion No. 25 for
certain issues, specifically, (a) the definition of an employee, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) fixed stock option or award, and (d) the accounting for an exchange or
stock compensation awards in a business combination. The Company has reviewed
its policies regarding accounting for certain transactions involving stock
compensation and determined they are in compliance with FIN 44. Accordingly,
there was no impact on the Company's financial statements from adopting FIN 44
in fiscal 2001.
Stock Split
In June 2000, the Company's board of directors approved a 1-for-3 stock
split of the Company's common and preferred stock. All references in the
accompanying consolidated financial statements to earnings per share and the
number of shares have been retroactively restated to reflect the stock split.
Net Loss Per Share
Historical net loss per share has been calculated in accordance with the
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share."
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted loss per share information is the
same as basic net loss per share since common shares issuable upon conversion
of the redeemable convertible preferred stock, convertible preferred stock,
stock options and warrants are antidilutive. The total number of shares
excluded from diluted loss per share relating to these securities was
3,094,441, 11,073,866 and 11,452,288 for the years ended March 31, 2001, 2000
and 1999, respectively.
37
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the calculation of basic and pro forma basic
net loss per share (in thousands, except per share data):
Year Ended March 31,
-------------------------
2001 2000 1999
------- ------- -------
Historical:
Net loss attributable to common stockholders
before extraordinary item....................... $(8,469) $(8,202) $(5,671)
Extraordinary item, net of income taxes.......... (672) -- --
------- ------- -------
Net loss attributable to common stockholders..... $(9,141) $(8,202) $(5,671)
======= ======= =======
Basic and diluted:
Weighted average shares of common stock
outstanding................................... 15,779 3,199 2,219
Less: Weighted average shares of common stock
subject to repurchase......................... (727) (81) --
------- ------- -------
Weighted average shares used in computing basic
and diluted net loss per share before and after
extraordinary item.............................. 15,052 3,118 2,219
======= ======= =======
Basic and dilutive net loss per share
attributable to common stockholders before
extraordinary item.............................. $ (0.56) $ (2.63) $ (2.56)
Extraordinary item, net of income taxes.......... (0.05) -- --
------- ------- -------
Basic and dilutive net loss attributable to
common stockholders per shares.................. $ (0.61) $ (2.63) $ (2.56)
======= ======= =======
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of bank deposits and
accounts receivable. The Company places its cash and cash equivalents in
checking and money market accounts in financial institutions. The Company's
accounts receivable are derived primarily from sales to OEMs and distributors.
The Company performs ongoing credit evaluations of its customers and maintains
an allowance for potential doubtful accounts.
As of March 31, 2001 and 2000, accounts receivable were concentrated with
customers as follows:
March 31,
----------
2001 2000
---- ----
Accounts Receivable:
Customer A........................................................ * 30%
Customer B........................................................ * 17%
Customer C........................................................ * 19%
Customer D........................................................ 74% *
Customer E........................................................ * 11%
At March 31, 2001, accounts receivable from customer D were guaranteed by a
non-revocable letter of credit from a major domestic bank. The Company
collected its receivable from customer D in May 2001.
Vendor Concentration
The Company does not own or operate a fabrication facility, and accordingly
relies substantially on two outside foundries, United Manufacturing
Corporation ("UMC") and Taiwan Semiconductor Manufacturing
38
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporation ("TSMC") to supply all of the Company's semiconductor
manufacturing requirements. There are significant risks associated with the
Company's reliance on outside foundries, including the lack of ensured wafer
supply; limited control over delivery schedules, quality assurance and
control, manufacturing yields and production costs; and the unavailability of
or delays in obtaining access to key process technologies. Any inability of
one of the foundries to provide the necessary components could result in
significant delays and could have a material adverse effect on the Company's
business, financial condition and results of operations. In the event either
foundry suffers financial difficulties or suffers any damage or destruction to
its respective facilities, or in the event of any other disruption of foundry
capacity, the Company may not be able to qualify alternative manufacturing
sources for existing or new products in a timely manner.
Substantially all of the Company's products are assembled and tested by one
of three third-party subcontractors, Caesar Technology Incorporated,
Siliconware Precision Industries Ltd., and Advance Semiconductor Engineering,
Inc., all located in Taiwan. The availability of assembly and testing services
from these subcontractors could be adversely affected in the event any
subcontractor experiences financial difficulties or suffers any damage or
destruction to its respective facilities, or in the event of any other
disruption of assembly and testing capacity. As a result of this reliance on
third-party subcontractors for assembly and testing of its products, the
Company cannot directly control product delivery schedules, which has in the
past, and could in the future, result in product shortages or quality
assurance problems that could increase the cost of manufacture, assembly or
testing of the Company's products.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137
"Accounting for Derivative Instruments and for Hedging Activities--Deferral of
the Effective Date for FASB Statement No. 133," which amends SFAS No. 133 to
be effective for all fiscal years beginning after June 15, 2000. In June 2000,
SFAS No. 133 was amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which amended or modified certain
issues discussed in SFAS No. 133. SFAS No. 138 is also effective for all
fiscal years beginning after June 30, 2000. SAFS No. 133 and SAFS No. 138
establish accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its value. The statements also require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company adopted SFAS No. 133 and SFAS
No. 138 on April 1, 2001. The Company does not hold any derivative instruments
and accordingly does not expect a material impact on its financial statements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include materials, labor and overhead. Provisions when required are made
to reduce excess inventories to their estimated net realizable values. Due to
competitive pressures and technological innovation, it is possible that
estimates of net realizable value would change in the near term. Inventories
consist of the following:
March 31,
-------------
2001 2000
------ ------
(in
thousands)
Raw materials.................................................. $2,598 $ 640
Work in process................................................ 243 639
Finished goods................................................. 1,502 48
------ ------
Total........................................................ $4,343 $1,327
====== ======
39
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are carried at cost and are depreciated using the
straight-line method over the assets' estimated useful life. (Useful lives
range from 24 months to five years.) Management has determined asset lives
based on their historical experience of technical obsolescence of equipment
and the short life of tooling that is specific to certain product families.
Property and equipment consist of the following:
March 31,
----------------
2001 2000
------- -------
(in thousands)
Furniture and fixtures (Useful life of 24 months).......... $ 69 $ 53
Machinery and equipment (Useful life of 24 months)......... 1,091 1,209
Software (Useful life of 24 to 60 months).................. 2,347 862
------- -------
3,507 2,124
Less: Accumulated depreciation and amortization............ (1,533) (1,903)
------- -------
$ 1,974 $ 221
======= =======
Accrued Liabilities and Other
Accrued liabilities consist of the following:
March 31,
-------------
2001 2000
------ ------
(in
thousands)
Deferred revenue.............................................. $ -- $ 69
Accrued software maintenance.................................. 531 --
Accrued expenses.............................................. 1,063 1,440
Accrued vacation.............................................. 277 284
Accrued bonus and commissions................................. 575 79
Accrued payroll and related taxes............................. 435 528
------ ------
$2,881 $2,400
====== ======
3. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recorded or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that includes the enactment date.
As a result of the Company's continued losses, there was no provision for
income taxes for any of the years ended March 31, 2001, 2000 and 1999.
40
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred income tax asset were as follows:
March 31,
-----------------
2001 2000
-------- -------
(in thousands)
Net operating losses..................................... $ 8,999 $ 6,433
Reserves and accruals not deductible for tax purposes.... 1,045 749
Available tax credit carryforwards....................... 1,337 903
Other timing differences................................. 2,315 690
-------- -------
13,696 8,775
Valuation allowance...................................... (13,696) (8,775)
-------- -------
Net deferred tax asset................................... $ -- $ --
======== =======
At March 31, 2001, the Company had net cumulative operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $25.0 million and $4.0 million, respectively. The federal net
operating loss carryforwards expire on various dates through 2021. The state
net operating loss carryforwards expire on various dates through 2006. As of
March 31, 2001, the Company had federal and state research and development tax
credit carryforwards of approximately $1.3 million and California
Manufacturers' Investment tax credit carryforwards of approximately $39,000
available to offset future taxes. Utilization of net operating losses may be
subject to annual limitations due to ownership change limitations imposed by
the Internal Revenue Service and similar state provisions. A valuation
allowance has been recorded for the entire deferred tax asset as a result of
uncertainty regarding the realization of the asset balance due to the net
losses incurred and lack of taxable income.
4. Loans Payable
Loans Payable Guaranteed by Related Parties
The Company entered into two separate line of credit agreements with a bank
which, in aggregate, provide for a $3,000,000 revolving credit facility.
Borrowings under the line of credit agreements carry interest at the three-
month commercial paper rate plus 2.30% (7.05% as of March 31, 2001). The line
of credit agreements have a maturity date of July 31, 2001. The line of credit
agreements are guaranteed by a pledge of trust assets where the Chief
Executive Officer of the Company and his wife are both the trustor and trustee
of this trust. In consideration for providing the guarantee, an individual
related to the Chief Executive Officer of the Company receives a guarantee fee
based on the maximum amount available on the line of credit agreements.
In connection with the guarantee given for the period from December 31,
1997 to December 31, 1999, the related party was issued a warrant to acquire
73,333 shares of Series G redeemable convertible preferred stock for $3.00 per
share in December 1997, a warrant to acquire 26,666 shares of Series G
redeemable convertible preferred stock for $3.00 per share in July 1999 and an
option to acquire 80,000 shares of common stock at $0.12 per share in July
1999. The price per share, as defined in the respective warrant agreements,
was variable up to December 31, 1999, at which point it became fixed.
41
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In January 2000, the Company committed to grant the related party an
additional warrant to acquire 106,666 shares of Series H redeemable
convertible preferred stock for $3.75 per share and granted an option to
purchase 106,666 shares of common stock at $0.375 per share pursuant to an
extension of the guarantee over the line of credit agreements to April 30,
2001. The Company has calculated the fair value of the warrants and options
using the Black-Scholes model and the following assumptions:
Risk-free interest rate............................................ 6.00%
Average computed life of warrants/options.......................... 3-5 years
Dividend yield..................................................... 0%
Volatility of common stock......................................... 70%
The aggregate fair value of the warrants and options issued prior to
December 31, 1999 was calculated at approximately $426,000. This amount was
recognized as a deferred debt issuance cost over the term of the guarantee.
For the years ended March 31, 2001, 2000 and 1999, interest expense included
$981,000, $753,000 and $83,000, respectively, of amortized debt issuance costs
related to these warrants and options issued prior to December 31, 1999. In
addition, the Company paid $215,000 to the guarantor, in cash, related to the
guarantee for fiscal year 1999. The aggregate fair value of the warrants and
option issued in January 2000 were calculated at approximately $922,000. This
amount was recognized as a deferred debt issuance cost and recorded over the
term of the guarantee. As of March 31, 2001, there was no amount outstanding
under this line of credit.
In April 1999, the Company entered into an additional line of credit
agreement with a different bank for a $1.0 million credit facility. Borrowings
under the line of credit facility carry interest at a fixed rate of 7.63%, and
the line of credit has no fixed maturity date. The line of credit is
guaranteed by a venture capital firm, which is both a shareholder in the
Company and related to a former director of the Company. In consideration for
providing the guarantee, the guarantor receives an annual guarantee fee based
on the maximum amount available on the line of credit. As of March 31, 2001,
there was no amount outstanding under this line of credit.
In connection with the guarantee under this line of credit for the period
from April 30, 1999 to April 30, 2000, a director was issued a warrant to
acquire 33,333 shares of Series G convertible preferred stock for $3.75 per
share in April 1999. The price per share, as defined in the warrant agreement,
was variable up to December 31, 1999, at which point it became fixed. The
director was also issued an option to acquire 26,666 shares of common stock at
$0.12 per share in July 1999.
In January 2000, the Company committed to grant an additional warrant to
the director to acquire 26,666 shares of Series H redeemable convertible
preferred stock for $3.75 per share and granted an option to purchase 26,666
shares of common stock at $0.375 per share pursuant to an extension of the
guarantee over the line of credit agreement to April 30, 2001. The Company has
calculated the fair value of the warrant and option using the Black-Scholes
model and the following assumptions:
Risk-free interest rate........................................... 6.00%
Average computed life of warrants/options......................... 4-5 years
Dividend yield.................................................... 0%
Volatility of common stock........................................ 70%
The aggregate fair value of the warrant and option issued prior to December
31, 1999 was calculated at approximately $162,000. Interest expense included
$148,000 of amortized debit issuance related to the warrant and option issued
prior to December 31, 1999. The aggregate fair value of the warrant and option
issued in January 2000 was calculated at approximately $230,000. This amount
was recognized as a deferred debt issuance cost and recorded as additional
interest expense over the term of the guarantee. As of March 31, 2001, there
was no amount outstanding under this line of credit.
42
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan Payable to Bank
In June 1999, the Company entered into a line of credit facility with a
bank for $500,000, bearing interest at a prime lending rate of 8.25% plus
1.50%, and with a maturity date of January 31, 2000. On March 30, 2000, the
loan balance was exchanged for a subscription for Series I preferred stock
(see Note 9). The credit facility was guaranteed and secured by a pledge of
the Company's assets. In June 1999 and December 1999, the Company issued
warrants to the bank to acquire 13,333 and 8,333 shares of Series G redeemable
convertible preferred stock, respectively. The price per share of the warrants
to purchase 13,333 and 8,333 shares was $3.00 and $3.75, respectively. The
Company has calculated the fair value of the warrants using the Black-Scholes
model and the following assumptions:
Risk-free interest rate........................................... 6.00%
Average computed life of warrants................................. 4-5 years
Dividend yield.................................................... 0%
Volatility of common stock........................................ 70%
The aggregate fair value of the warrants was approximately $110,000. This
amount was recognized as additional interest expense over the term of the
loan. As of March 31, 2001, there was no amount outstanding under this line of
credit.
In August 2000, the Company used some of the proceeds from the initial
public offering to repay the outstanding balances under these three lines of
credit. As a result of this early extinguishment of debt, the unamortized
amount of debt guarantee costs was recorded an extraordinary item, net of
income taxes, in the amount of $0.7 million in the second quarter of fiscal
2001. All warrants issued in connection with these lines of credit were
converted into warrants to purchase common stock at the time of the initial
public offering.
5. Commitments and Contingencies
Leases
The Company leases its facilities under non-cancelable operating leases
expiring at various dates through July 2004. Under the terms of the leases,
the Company is responsible for a portion of the facilities' operating
expenses, insurance and property taxes. Future minimum lease payments under
all non-cancelable facility and operating leases as of March 31, 2001 were as
follows (in thousands):
2002.................................................................. $ 512
2003.................................................................. 443
2004.................................................................. 168
2005.................................................................. 33
2006.................................................................. 11
2007 and thereafter................................................... --
------
$1,167
======
Rent expense under operating leases for the years ended March 31, 2001,
2000 and 1999, was approximately $407,000, $344,000 and $344,000,
respectively.
Litigation
The Company is subject to various claims which arise in the normal course
of business. In the opinion of management, the Company is unaware of any
claims which would have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
43
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Development Contract Commitment
In March 2000, the Company entered into a license agreement with a vendor.
Under the terms of the agreement, the Company is required to pay a license fee
of $330,000. As of March 31, 2001, the Company satisfied $303,000 of the
obligation by issuing 20,000 shares of Series I preferred stock at $7.50 per
share, and paying $153,000 in cash. The Company has recorded the $303,000 as
license fees in Other Assets. These license fees will be amortized over the
estimated life of the products when they are completed. The Company will make
further payments of $27,000 in cash in fiscal year 2002 as various licenses
and related technologies are received from the vendor.
6. Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock comprised the following:
March 31,
-------------
2001 2000
----- -------
(in
thousands)
Series F--2,319,107 shares authorized and outstanding at March
31, 2000; no shares authorized, issued and outstanding at
March 31, 2001............................................... $ -- $ 5,212
Series G--4,750,000 shares authorized, 1,583,331 shares issued
and outstanding at March 31, 2000; no shares authorized,
issued and outstanding at March 31, 2001..................... -- 4,742
Series H--4,200,000 shares authorized, 1,204,947 shares issued
and outstanding at March 31, 2000; no shares authorized,
issued and outstanding at March 31, 2001..................... -- 6,640
----- -------
$ -- $16,594
===== =======
In June 1999, the Company authorized the issuance and sale of up to
4,200,000 shares of Series H Preferred Stock ("Series H"). In March 2000, the
Company completed the issuance of 1,139,881 shares of Series H redeemable
convertible preferred stock at $3.75 per share for cash and 65,066 shares of
Series H upon the conversion of $244,000 of accrued salary of the Chief
Executive Officer of the Company. Shares of Series H were sold to members of
the board of directors and entities associated with members of management
under the same terms and conditions as all other unrelated accredited
investors. The Company recorded a preferred stock dividend of $2,161,000 and
$671,000 representing the value of the beneficial conversion feature on the
issuance of a convertible preferred stock in March 2000 and June 2000,
respectively. The beneficial conversion was calculated at the commitment date
based on the difference between the conversion price of $3.75 per share and
the estimated fair value of the common stock at that date.
Upon the closing of the Company's initial public offering, all of the
Company's 5,107,385 shares of redeemable preferred stock automatically
converted into common stock, and warrants to purchase 288,330 shares of
convertible preferred stock automatically converted into warrants to purchase
common stock.
44
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity
Convertible Preferred Stock
Convertible preferred stock consisted of the following, net of issuance
costs:
March 31,
------------
2001 2000
----- ------
(in
thousands)
Series A--600,000 shares authorized; 0 and 199,999
outstanding, respectively.................................... $ -- $ 110
Series B--4,800,000 shares authorized; 0 and 1,599,995
outstanding, respectively.................................... -- 1,107
Series C--1,266,667 shares authorized; 0 and 422,220
outstanding, respectively.................................... -- 376
Series D--4,602,500 shares authorized; 0 and 1,534,164
outstanding, respectively.................................... -- 1,841
Series E--4,647,332 shares authorized; 0 and 1,549,076
outstanding, respectively.................................... -- 2,091
Series I--2,000,000 shares authorized; 0 and 496,658 shares
subscribed, respectively..................................... -- 3,717
----- ------
$ -- $9,242
===== ======
On April 3, 2000, the Company authorized the issuance and sale of up to
2,000,000 shares of Series I convertible preferred stock ("Series I"). The
Company received approximately $3,075,000 in cash proceeds for 409,992 shares
of Series I in March 2000, and these shares were treated as subscribed
convertible preferred stock at March 31, 2000. In addition, in March 2000,
$150,000 in license fees acquired were exchanged for a subscription of 20,000
shares of Series I and $500,000 outstanding under a line of credit at March
31, 2000 was converted into 66,666 shares of Series I. Shares of Series I were
sold to members of the board of directors and entities associated with members
of management under the same terms and conditions as all other unrelated
accredited investors. The Company recorded a preferred stock dividend of
$671,000 in the first quarter of fiscal 2001 representing the value of the
beneficial conversion feature on the issuance of Series I.
Upon the closing of the Company's initial public offering, all of the
Company's 5,802,112 shares of convertible preferred stock automatically
converted into common stock.
At March 31, 2001, the Company had reserved the following shares of its
common stock for future issuance as follows:
2000 Stock Incentive Plan.......................................... 4,486,671
2000 Employee Stock Purchase Plan.................................. 331,648
Stock Option Plans
2000 Stock Incentive Plan and 2000 Employee Stock Purchase Plans
The 2000 Stock Incentive Plan (the "2000 Plan") provides for the issuance
of up to 2,333,333 shares of the Company's common stock to directors,
employees and consultants. The 2000 Plan provides for the issuance of
incentive stock options or non-qualified stock options. Pursuant to the 2000
Plan, the exercise price for incentive stock options is at least 100% of the
fair market value on the date of grant or for employees owning in excess of
10% of the voting power of all classes of stock, 110% of the fair market value
on the date of grant. For non-qualified stock options, the exercise price is
no less than 85% of the fair market value on the date of grant. Options
generally expire in 10 years. Options generally vest ratably over four years
beginning the date of grant. As of March 31, 2001, 1,725,614 options are
available for grant under the 2000 Plan.
45
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 2000, the Board of Directors adopted an Employee Stock Purchase
Plan (the "ESPP"). Eligible employees may contribute up to 15% of cash
compensation toward the semi-annual purchase of the Company's common stock.
Under the terms of the ESPP, 333,333 shares of the Company's common stock were
reserved for purchase at 85% of the fair market value at the beginning of the
six-month period at which an eligible employee enrolled, or the end of each
six-month offering period, whichever is lower. Under this ESPP, 1,685 shares
of the Company's common stock were purchased through March 31, 2001.
1999 Stock Incentive Plan
The Stock Incentive Plan (the "1999 Plan") provides for the issuance of up
to 4,600,000 shares of the Company's common stock to directors, employees and
consultants. The 1999 Plan provides for the issuance of restricted stock
bonuses, restricted stock purchase rights, incentive stock options or non-
qualified stock options. Pursuant to the 1999 Plan, the exercise price for
incentive stock options is at least 100% of the fair market value on the date
of grant or for employees owning in excess of 10% of the voting power of all
classes of stock, 110% of the fair market value on the date of grant. For non-
qualified stock options, the exercise price is no less than 85% of the fair
market value on the date of grant.
Options generally expire in 10 years. Vesting periods are determined by the
Board of Directors; however, options generally vest ratably over four years
beginning one year after the date of grant. Options may be exercised prior to
full vesting. Any unvested shares so purchased are subject to a repurchase
right in favor of the Company with the repurchase price to be equal to the
original purchase price of the stock. The right to repurchase at the original
price shall lapse at a minimum rate of 20% per year over five years from the
date the options granted. The 2000 Plan is the successor to the 1999 Plan.
Since the 2000 Plan became effective, no further grants were made under the
1999 Plan.
1994 Stock Option Plan
The Stock Option Plan (the "1994 Plan") provides for the issuance of
options to acquire the Company's common stock to directors, employees and
consultants. The 1994 Plan provides for the issuance of incentive stock
options or non-qualified stock options. Pursuant to the 1994 Plan, the
exercise price for incentive stock options is at least 100% of the fair market
value on the date of grant or for employees owning in excess of 10% of the
voting power of all classes of stock, 110% of the fair market value on the
date of grant. For non-qualified stock options, the exercise price is no less
than 85% of the fair market value on the date of grant. Options generally
expire in 10 years. Options generally vest ratably over five years beginning
the date of grant. In June 1999, all options outstanding under the 1994 Plan
were cancelled and reissued under the 1999 Plan with the same terms and
conditions as the previous options.
46
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Company's stock option
plans:
Outstanding Weighted Average
Options Exercise Price
----------- ----------------
Balance at March 31, 1998...................... 2,293,675 $0.12
Granted...................................... 176,000 0.12
Exercised.................................... (34,757) 0.12
Cancellations................................ (58,550) 0.12
---------- -----
Balance at March 31, 1999...................... 2,376,368 0.12
Granted...................................... 2,795,960 2.18
Exercised.................................... (2,960,213) 0.14
Cancellations................................ (724,351) 0.12
---------- -----
Balance at March 31, 2000...................... 1,487,764 3.98
Granted...................................... 1,448,977 5.98
Exercised.................................... (1,110) 0.12
Cancellations................................ (174,574) 5.06
---------- -----
Balance at March 31, 2001...................... 2,761,057 $4.97
========== =====
Options Outstanding and Exercisable
-----------------------------------------------------------------------
Number Weighted Average Exercise Price and
Outstanding at Remaining Weighted Average
March 31, 2001 Contractual Life Exercise Price
-------------- ---------------- ------------------
295,981 7.77 $ 0.12
381,413 8.82 0.38
105,333 9.92 2.25
397,970 9.65 2.63
309,573 9.76 3.75
339,988 8.96 6.75
326,663 8.98 8.85
371,406 9.33 9.00
232,730 9.33 11.00
--------- ---- ------
2,761,057 9.12 $ 4.97
========= ==== ======
The Company accounts for these Plans under APB Opinion No. 25, "Accounting
for Stock Issued to Employees," under which no compensation expense has been
recognized as the grant price equaled the fair market value at date of grant.
Had compensation expense for the stock plans been determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the impact on the Company's net loss would be as follows
(in thousands, except per share data):
For the Year Ended
March 31,
-------------------------
2001 2000 1999
------- ------- -------
Net loss:
As reported.................................... $(8,470) $(6,041) $(5,671)
Pro forma...................................... $(8,574) $(9,633) $(5,677)
Basic and diluted net loss per share:
As reported.................................... $ (0.56) $ (1.94) $ (2.56)
Pro forma...................................... $ (0.57) $ (2.40) $ (2.56)
47
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average fair value of options granted in fiscal years 2001,
2000 and 1999 was $4.97. The fair value of each option grant is estimated on
the date of the grant using the Black-Scholes option pricing model with the
following assumptions:
March 31,
-------------------------
2001 2000 1999
------- ------- -------
Risk-free Interest Rate........................... 6.00% 6.00% 6.07%
Expected Life of Options from Grant Date.......... 4 years 4 years 4 years
Expected Dividend Yield........................... 0.0% 0.0% 0.0%
Expected Stock Volatility......................... 103.0% 0.0% 0.0%
Deferred Stock Compensation
Deferred stock compensation represents the aggregate difference, at the
grant date, between the respective exercise price of stock options and the
fair value of the underlying stock. The deferred stock compensation expense is
amortized on an accelerated basis over the vesting period of the individual
award, generally four years. This method is in accordance with Financial
Accounting Standards Board Interpretation No. 28. The Company had recorded
unearned stock-based compensation of approximately $369,000, $5,968,000 and
$32,000 in the fiscal years ended March 31, 2001, 2000 and 1999, respectively,
and amortized deferred stock compensation of $2,701,000, $1,499,000 and
$2,000, in these periods, respectively.
The amount of deferred stock compensation expense to be recorded in future
periods could decrease if options for which accrued but unvested compensation
has been recorded are forfeited.
Stock Repurchase Agreements
In connection with the exercise of options pursuant to the 1999 Plan,
employees entered into restricted stock purchase agreements with the Company.
Under the terms of these agreements, the Company has a right to repurchase any
shares at the original exercise price of the shares upon termination of
employment. The repurchase right lapses ratably over the vesting term of the
original grant. As of March 31, 2001, 382,879 shares were subject to
repurchase by the Company.
Options Granted to Non-employees
In fiscal year 2000, the Company granted options to purchase 75,000 shares
of common stock to consultants under the 1999 Plan. These options had an
exercise price of $0.375 per share and were vested, exercisable and
nonforfeitable upon grant. The Company recorded deferred compensation of
$459,000 based on the fair value of the option at the date of the grant
calculated using the Black-Scholes model.
In July 1999, the Company granted an option to purchase 8,333 shares of
common stock to a consultant under the 1999 Plan. The option had an exercise
price of $0.12 per share and vested upon grant. The Company recorded research
and development expense of approximately $26,000 based on the fair value of
the option at the date of grant calculated using the Black-Scholes model.
The following assumptions were used in the Black Scholes model for
calculating the fair value of the options granted:
Risk-free interest rate.............................................. 6.00%
Average computed life of option...................................... 1 year
Dividend yield....................................................... 0%
Volatility of common stock........................................... 70%
48
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Issued for Services Rendered
For the years ended March 31, 2001, 2000 and 1999, the Company issued none,
40,035 and 111,055 shares of common stock, respectively, in exchange for
services rendered. The Company recorded approximately none, $200,000 and
$13,000 of operating expense, respectively, based on the fair value of the
Company's common stock on the date of issuance. There were no options issued
for services rendered in fiscal year 2001.
8. 401(K) Plan
Substantially all of the Company's employees are eligible to participate in
the Tvia 401(k) Plan. The Company contributed $8,929 to the 401(k) Plan for
the year ended March 31, 2001. There were no matching contributions for the
years ended March 31, 2000 and 1999.
9. Related Party Transactions
Accrued Salary Converted into Preferred Stock or Used to Exercise Options
For the years ended March 31, 2000 and 1999, the Chief Executive Officer of
the Company elected to have a portion of his accrued salary forgiven to pay
the exercise price of options upon exercise or converted into convertible
preferred stock. In the year ended March 31, 2001, the Chief Executive Officer
elected to receive his compensation in cash. For the year ended March 31,
2000, the Chief Executive Officer converted $244,000 into a subscription for
65,066 shares of Series H redeemable convertible preferred stock at $3.75 per
share and converted $96,000 upon exercise of options at $0.12 per share. For
the year ended March 31, 1999, the Chief Executive Officer converted $150,000
into 66,666 shares of Series F redeemable convertible preferred stock at $2.25
per share and $30,000 into 10,000 shares of Series G redeemable convertible
preferred stock at $3.00 per share.
Commission Payments
In the year ended March 31, 2000, the President of the Company was entitled
to receive a 1.75% commission on the amount of third party participation in
the issuance of Series I preferred stock. The commission was payable in a
combination of shares of convertible preferred stock and cash of approximately
$56,000.
Sales to Related Parties
A member of the Board of Directors is an officer of a company which is an
affiliate company of a major customer. Sales to this customer were $43,000,
$292,000 and $18,000 for the years ended March 31, 2001, 2000 and 1999,
respectively.
Purchases from Related Parties
A former member and a current member of the Board of Directors are officers
of companies which are affiliated to the Company's major vendors UMC and TSMC,
respectively. Total combined purchases from UMC and TSMC amounted to
$7,062,000, $2,041,000 and $514,000, respectively, for the years ended March
31, 2001, 2000 and 1999, respectively. The total combined accounts payable
outstanding to UMC and TSMC as of March 31, 2001, 2000 and 1999 was $312,000,
$781,000 and $35,000, respectively.
Another member of the Board of Directors received $10,500 in the year ended
March 31, 2001 for providing management consulting services.
49
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Segment and Geographic Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," establishes standards for disclosures about operating segments,
products and services, geographic areas and major customers. The Company is
organized and operates in one reportable segment which is the development,
manufacture and sales of streaming media integrated circuits for the set-top
box, digital television and internet appliance markets.
The Company has operations in the United States, Taiwan and China. The
operating expenses of the Taiwan branch and China subsidiary for the years
ended March 31, 2001, 2000 and 1999, and the total assets as of the respective
dates in Taiwan and China were not material to the Company's consolidated
financial statements.
The following table summarizes revenue by geographic area as a percentage
of total revenues:
For the Year
Ended March 31,
---------------------
2001 2000 1999
----- ----- -----
Taiwan............................................... 34% 41% 36%
Singapore............................................ * * 14%
Japan................................................ 11% * *
United States........................................ 33% 29% 19%
Korea................................................ * 12% *
Europe............................................... 11% * *
- --------
(* Less than 10%)
50
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Selected Quarterly Financial Data (unaudited)
The following table presents selected quarterly information for 2001 and
2000 (in thousands, except per share data).
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2001:
Total revenues............................. $ 3,533 $ 4,331 $ 3,254 $ 2,326
Gross margin............................... 1,657 2,064 1,464 541
Net loss attributable to common
stockholders before extraordinary item.... (2,150) (1,261) (2,061) (2,997)
Extraordinary item, net of income taxes.... -- (672) -- --
Net loss attributable to common
stockholders.............................. (2,150) (1,933) (2,061) (2,997)
Basic and diluted net loss per share
attributable to common stockholders before
extraordinary item........................ $ (0.42) $ (0.09) $ (0.10) $ (0.14)
Extraordinary item, net of income taxes.... -- (0.05) -- --
Basic and diluted net loss attributable to
common stockholders per share............. $ (0.42) $ (0.14) $ (0.10) $ (0.14)
Shares used in computing basic and fully
diluted net loss attributable to common
stockholders per share.................... 5,152 13,557 21,317 21,381
2000:
Total revenues............................. $ 561 $ 1,381 $ 2,170 $ 2,945
Gross margin............................... 232 617 1,022 1,379
Net loss................................... (1,362) (1,476) (1,569) (1,634)
Net loss attributable to common
stockholders.............................. (1,362) (1,476) (1,569) (3,795)
Basic and diluted net loss per share....... $ (0.71) $ (0.66) $ (0.40) $ (0.38)
Basic and diluted net loss attributable to
common stockholders per share............. $ (0.71) $ (0.66) $ (0.40) $ (0.89)
Shares used in computing basic and fully
diluted net loss attributable to common
stockholders per share.................... 1,926 2,239 3,940 4,283
51
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "Election of
Directors" contained in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the Company's 2001 Annual Meeting of Stockholders to be held on
August 21, 2001 (the "Proxy Statement").
Item 405 of Regulation S-K calls for disclosure of any known late filing or
failure by an insider to file a report required by Section 16 of the Exchange
Act. This disclosure is contained under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement and is incorporated
herein by reference.
The executive officers of the Company are as follows:
Kenny Liu, 47, has served as our Chairman of the Board and Chief Executive
Officer since January 1995. From January 1989 to March 1994, Mr. Liu served as
Chairman and Chief Executive Officer of OPTi Inc., a manufacturer of core
logic chip sets for the personal computer market. Mr. Liu received a B.S. in
Electrical Engineering from National Cheng-Kung University in Taiwan, an M.S.
in Computer Science from Santa Clara University and an M.S. in Electrical
Engineering from Ohio State University.
Jack Guedj, 42, has served as our President since May 1999. From February
1997 to April 1999, Dr. Guedj was President of HTMC, a consulting firm
specializing in advising startup companies. From June 1996 to February 1997,
Dr. Guedj was Vice President of Sales and Marketing for Faroudja, Inc., a
manufacturer of video image enhancement products for the professional home
theater, broadcast, and consumer markets. From June 1994 to June 1996, Dr.
Guedj was Director of Digital Media/Broadband Strategic Market Segment at
National Semiconductor Corporation. Dr. Guedj received an M.B.A. from the
University of California, Los Angeles and a Ph.D. in Electrical Engineering
from University of Paris.
Michael Hoberg, 49, has served as our Chief Financial Officer since
February 2000. From November 1998 to January 2000, Mr. Hoberg served as the
Chief Financial Officer of U.S. Cancer Care, Inc., a radiation oncology
company. From December 1996 to June 1998, Mr. Hoberg served as Chief Financial
Officer of Faroudja, Inc., a manufacturer of video image enhancement products
for the professional home theater, broadcast, and consumer markets, and as an
advisor to the Chief Executive Officer from July 1998 to November 1998. From
March 1995 to December 1996, Mr. Hoberg was the Principal Accounting Officer
of DSP Group, Inc., a digital signal processing semiconductor company. From
January 1994 to March 1995, Mr. Hoberg served as DSP's Corporate Controller.
Mr. Hoberg received a B.B.A. in Accounting from the University of Wisconsin at
Madison and is a Certified Public Accountant.
Jhi-Chung Kuo, 48, a cofounder of the Company, has served as our Chief
Technology Officer since July 2000. From March 1993 to June 2000, he served as
our Vice President of Engineering. Mr. Kuo received a B.S. in Physics from
National Central University in Taiwan and an M.S. in Electrical Engineering
from Mississippi State University.
James Tao, 51, has served as Vice President of Business Development since
November 1999. He joined us in June 1997 as Senior Director of Business
Development, and is responsible for business development in Japan and Korea
and with major domestic customers. From March 1989 to May 1997, Mr. Tao served
as Vice President of Sales and Marketing at Focus Information Systems, a
personal computer peripheral product company. Mr. Tao received an M.B.A. in
Telecommunication Management from Golden Gate University and an M.S. in
Computer Science from the University of Hawaii.
52
Yee Wong, 48, a cofounder of the Company, has served as our Vice President
of Operations since January 1995. From March 1993 to December 1994, Mr. Wong
served as our President. Prior to founding the Company, Mr. Wong served as an
ASIC Design Manager for Everex Systems, Inc. and Senior Staff Engineer with
Intel Corporation. Mr. Wong received a B.S. in Electrical Engineering from
National Cheng-Kung University in Taiwan and an M.S. in Electrical Engineering
from the University of Michigan.
Johnson Yan, 51, has served as Vice President of Engineering since July
2000. From August 1999 to July 2000, Mr. Yan served as Senior Vice President
of Engineering for Arithmos, Inc., a LCD monitor semiconductor company. From
April 1998 to July 1999, Mr. Yan served as Vice President, ATI Technologies,
Inc., a graphics system and semiconductor company. From January 1995 to March
1998, Mr. Yan served as General Manager, Graphics Business Unit of Oak
Technologies. Mr. Yan received his B.S. in Electrical Engineering from the
University of Texas at Austin and his M.S. in Electrical Engineering from the
University of California at Berkeley.
The key employees of the Company are as follows:
Bo Liu, 47, has served as Vice President of Software Development since
November 1999. He joined us as Software Manager in June 1993, serving in that
position until June 1998. From June 1998 to November 1999, Mr. Liu was our
Director of Software Development. Prior to joining us, Mr. Liu held software
development positions at both Micronics Computers, Inc. and Oak Technology,
Inc. Mr. Liu was a candidate for a Ph.D. in Electrical and Computer
Engineering at the University of Wisconsin at Madison and received an M.S. in
Electrical Engineering from Wichita State University and a B.S. in Electrical
Engineering from Hefei University of Technology in the People's Republic of
China.
Vahe Akay, 45, has served as Vice President of Marketing since June 2000.
From October 1997 to June 1999, Mr. Akay was the general manager at Dynarc,
Inc., a provider of optical networking equipment. From December 1996 to
September 1997, Mr. Akay was the Senior Director of Worldwide Marketing and
Sales for Chips & Technologies/Intel, Broadband Media division, a developer of
silicon solutions for digital television and set top boxes. From March 1994 to
November 1996, Mr. Akay held the position of Vice President of Worldwide
Marketing and Sales at Hyundai Digital Media Division/Odeum Microsystems, a
developer of MPEG-2 and demodulation solutions for set top boxes and DVDs.
Prior to Hyundai, Mr. Akay held management positions at National
Semiconductor, Fujitsu Microelectronics and C-Cube Microsystems. Mr. Akay
received a B.S. in Electrical Engineering from San Jose State University, and
an M.B.A. from the College of Notre Dame.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
information under the captions "Election of Directors--Director Compensation,"
"Executive Compensation," and "Election of Directors--Compensation Committee
Interlocks and Insider Participation" contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Relationships and Related
Party Transactions" contained in the Proxy Statement.
53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements of
Tvia, Inc., under Item 8 of Part II hereof.
(2) Financial Statement Schedules
The following financial statement schedule of Tvia, Inc. is filed as
part of this Form 10-K included in Item 8 of Part II:
Schedule II--Valuation and Qualifying Accounts
All other financial statement schedules 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 Notes thereto.
(3) Exhibits
See Item 14(c) below. Each management contract or compensatory plan or
arrangement required to be filed has been identified.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fiscal year ended March
31, 2001.
(c) Exhibits
Exhibit
Number Description of Document
------- -----------------------
3(i).1 Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.3 to Amendment No. 5 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
3(ii).1 Amended and Restate Bylaws of the Registrant (incorporated by
reference to Exhibit 3.4 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 to Amendment No. 2 to the Company's Registration Statement on Form
S-1 (File No. 333-34024)).
4.2 Form of Amended and Restated Registration Rights Agreement dated as of
April 3, 2000 (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.3 Warrant to Purchase Stock issued December 31, 1997 to C.Y. Lee
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.4 Warrant to Purchase Stock issued April 30, 1999 to James Mah
(incorporated by reference to Exhibit 4.4 to Company's Registration
Statement on Form S-1 (File No. 333-34024)).
4.5 Warrant to Purchase Stock issued June 21, 1999 to Far East National
Bank (incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.6 Warrant to Purchase Stock issued June 21, 1999 to Far East National
Bank (incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.7 Warrant to Purchase Stock issued December 30, 1999 to Far East
National Bank (incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
54
Exhibit
Number Description of Document
------- -----------------------
4.8 Warrant to Purchase Stock issued January 2000 to C.Y. Lee
(incorporated by reference to Exhibit 4.8 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.9 Warrant to Purchase Stock issued January 2000 to James Mah
(incorporated by reference to Exhibit 4.9 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.10 Warrant to Purchase Stock issued July 27, 2000 to Wind River Systems,
Inc. (incorporated by reference to Exhibit 4.10 to Amendment No. 7 to
the Company's Registration Statement on Form S-1 (File No. 333-
34024)).
10.1# Amended and Restated 1999 Stock Incentive Plan of Tvia, Inc.
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.2# Amended and Restated 2000 Stock Incentive Plan of Tvia, Inc.
(incorporated by reference to Exhibit 10.2 to Amendment No. 5 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.3# 2000 Employee Stock Purchase Plan of Tvia, Inc. (incorporated by
reference to Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (File No. 333-48572)).
10.4 Form of Directors and Officers' Indemnification Agreement
(incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.5 TSMC Terms and Conditions dated November 15, 1999 (incorporated by
reference to Exhibit 10.5 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.6 UMC Wafer Foundry Standard Terms and Conditions (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.7+ Caesar International, Inc. Quotation dated August 20, 1998
(incorporated by reference to Exhibit 10.7 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.8+ Joint Development Agreement dated October 29, 1999 between IGS
Technologies, Inc. and Coreum Technology, Inc. (incorporated by
reference to Exhibit 10.8 to Amendment No. 10 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.9 Form of Executive Severance Agreement (incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (File No. 333-34024)).
10.10 Letter Agreement dated July 27, 2000 between Tvia, Inc. and Wind River
Systems, Inc. (incorporated by reference to Exhibit 10.10 to Amendment
No. 7 to the Company's Registration Statement on Form S-1 (File No.
333-34024)).
10.11+ Audio Technology Licensing Agreement dated June 26, 1997 between T-
Square Design, Inc. and InteGraphics Systems, Inc. (incorporated by
reference to Exhibit 10.11 to Amendment No. 10 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.12+ Technology License Agreement dated July 1, 1997 between Reality
Simulation Systems Acquisition Corporation and InteGraphics Systems,
Inc. (incorporated by reference to Exhibit 10.12 to Amendment No. 12
to the Company's Registration Statement on Form S-1 (File No. 333-
34024)).
10.13 Multi-Tenant Single-Building Modified-Net Lease dated October 27, 1995
between Koll/Intereal Bay Area and Intergraphics System, Inc.
(incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.14 First Amendment to Lease Agreement dated January 15, 1999 between
Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (File No. 333-34024)).
55
Exhibit
Number Description of Document
------- -----------------------
10.15 Second Amendment to Lease Agreement dated May 6, 1999 between
Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-1 (File No. 333-34024)).
10.16* Consulting Confidentiality Agreement dated January 29, 2001 between
Tvia, Inc. and R. David Dicioccio.
21.1* Subsidiaries of the Company.
23.1* Consent of Arthur Andersen LLP, Independent Public Accountants.
24.1 Power of Attorney (see page 58 of this Form 10-K).
- --------
# Indicates management contact or compensatory plan or arrangement.
+ Confidential treatment has been granted with respect to certain portions of
these agreements.
* Filed herewith.
(d) Financial Statement Schedules.
See Item 14(a)(i) and (a)(2) above.
56
TVIA, INC. AND SUBSIDIARY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
- -------- ---------- ---------- ---------- ---------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------- ---------- ---------- ---------- ---------
Year Ended March 31, 2001:
Allowance for doubtful accounts.... $ 55 $ 428 $ 44 $ 439
Inventory reserve.................. $ 120 $ 714 $ -- $ 834
Allowance for sales returns........ $ -- $ 344 $ 300 $ 44
Year Ended March 31, 2000:
Allowance for doubtful accounts.... $ 5 $ 50 $ -- $ 55
Inventory reserve.................. $ -- $ 120 $ -- $ 120
Allowance for sales returns........ $ -- $ -- $ -- $ --
Year Ended March 31, 1999:
Allowance for doubtful accounts.... $ 5 $ -- $ -- $ 5
Inventory reserve.................. $ -- $ -- $ -- $ --
Allowance for sales returns........ $ -- $ -- $ -- $ --
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TVIA, INC.
Date: June 28, 2001
/s/ Kenny Kiu
By __________________________________
Kenny Liu
Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenny Liu and Michael Hoberg, and each of them,
his true and lawful attorneys-in-fact, each with full power of substitution,
for him or her in any and all capacities, to sign any amendments to this
report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact or their substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kenny Liu Chief Executive Officer June 28, 2001
____________________________________ (Principal Executive
Kenny Liu Officer) and Chairman of
the Board
/s/ Michael Hoberg Vice President of Finance June 28, 2001
____________________________________ and Chief Financial Officer
Michael Hoberg (Principal Financial and
Accounting Officer)
/s/ R. David Dicioccio Director June 28, 2001
____________________________________
R. David Dicioccio
/s/ Steven Cheng Director June 28, 2001
____________________________________
Steven Cheng
/s/ James Bunker Director June 28, 2001
____________________________________
James Bunker
/s/ Eli Porat Director June 28, 2001
____________________________________
Eli Porat
Director
____________________________________
Mark Mangiola
58
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
3(i).1 Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.3 to Amendment No. 5 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
3(ii).1 Amended and Restate Bylaws of the Registrant (incorporated by
reference to Exhibit 3.4 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (File No. 333-34024)).
4.2 Form of Amended and Restated Registration Rights Agreement dated as
of April 3, 2000 (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.3 Warrant to Purchase Stock issued December 31, 1997 to C.Y. Lee
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.4 Warrant to Purchase Stock issued April 30, 1999 to James Mah
(incorporated by reference to Exhibit 4.4 to Company's Registration
Statement on Form S-1 (File No. 333-34024)).
4.5 Warrant to Purchase Stock issued June 21, 1999 to Far East National
Bank (incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.6 Warrant to Purchase Stock issued June 21, 1999 to Far East National
Bank (incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
4.7 Warrant to Purchase Stock issued December 30, 1999 to Far East
National Bank (incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.8 Warrant to Purchase Stock issued January 2000 to C.Y. Lee
(incorporated by reference to Exhibit 4.8 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.9 Warrant to Purchase Stock issued January 2000 to James Mah
(incorporated by reference to Exhibit 4.9 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
4.10 Warrant to Purchase Stock issued July 27, 2000 to Wind River Systems,
Inc. (incorporated by reference to Exhibit 4.10 to Amendment No. 7 to
the Company's Registration Statement on Form S-1 (File No. 333-
34024)).
10.1# Amended and Restated 1999 Stock Incentive Plan of Tvia, Inc.
(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.2# Amended and Restated 2000 Stock Incentive Plan of Tvia, Inc.
(incorporated by reference to Exhibit 10.2 to Amendment No. 5 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.3# 2000 Employee Stock Purchase Plan of Tvia, Inc. (incorporated by
reference to Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (File No. 333-48572)).
10.4 Form of Directors and Officers' Indemnification Agreement
(incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.5 TSMC Terms and Conditions dated November 15, 1999 (incorporated by
reference to Exhibit 10.5 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
Exhibit
Number Description of Document
------- -----------------------
10.6 UMC Wafer Foundry Standard Terms and Conditions (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.7+ Caesar International, Inc. Quotation dated August 20, 1998
(incorporated by reference to Exhibit 10.7 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (File No. 333-34024)).
10.8+ Joint Development Agreement dated October 29, 1999 between IGS
Technologies, Inc. and Coreum Technology, Inc. (incorporated by
reference to Exhibit 10.8 to Amendment No. 10 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.9 Form of Executive Severance Agreement (incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (File No. 333-34024)).
10.10 Letter Agreement dated July 27, 2000 between Tvia, Inc. and Wind River
Systems, Inc. (incorporated by reference to Exhibit 10.10 to Amendment
No. 7 to the Company's Registration Statement on Form S-1 (File No.
333-34024)).
10.11+ Audio Technology Licensing Agreement dated June 26, 1997 between T-
Square Design, Inc. and InteGraphics Systems, Inc. (incorporated by
reference to Exhibit 10.11 to Amendment No. 10 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.12+ Technology License Agreement dated July 1, 1997 between Reality
Simulation Systems Acquisition Corporation and InteGraphics Systems,
Inc. (incorporated by reference to Exhibit 10.12 to Amendment No. 12
to the Company's Registration Statement on Form S-1 (File No. 333-
34024)).
10.13 Multi-Tenant Single-Building Modified-Net Lease dated October 27, 1995
between Koll/Intereal Bay Area and Intergraphics System, Inc.
(incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (File No. 333-34024)).
10.14 First Amendment to Lease Agreement dated January 15, 1999 between
Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (File No. 333-34024)).
10.15 Second Amendment to Lease Agreement dated May 6, 1999 between
Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-1 (File No. 333-34024)).
10.16* Consulting Confidentiality Agreement dated January 29, 2001 between
Tvia, Inc. and R. David Dicioccio.
21.1* Subsidiaries of the Company.
23.1* Consent of Arthur Andersen LLP, Independent Public Accountants.
24.1 Power of Attorney (see page 58 of this Form 10-K).
- --------
# Indicates management contact or compensatory plan or arrangement.
+ Confidential treatment has been granted with respect to certain portions of
these agreements.
* Filed herewith.