0001437749-21-019176.txt : 20210809 0001437749-21-019176.hdr.sgml : 20210809 20210809165528 ACCESSION NUMBER: 0001437749-21-019176 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20210531 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20210809 DATE AS OF CHANGE: 20210809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CEVA INC CENTRAL INDEX KEY: 0001173489 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 770556376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-49842 FILM NUMBER: 211157244 BUSINESS ADDRESS: STREET 1: 15245 SHADY GROVE ROAD STREET 2: SUITE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 240-308-8328 MAIL ADDRESS: STREET 1: 15245 SHADY GROVE ROAD STREET 2: SUITE 400 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: CEVA INC DATE OF NAME CHANGE: 20031208 FORMER COMPANY: FORMER CONFORMED NAME: PARTHUSCEVA INC DATE OF NAME CHANGE: 20021101 FORMER COMPANY: FORMER CONFORMED NAME: CEVA INC DATE OF NAME CHANGE: 20020515 8-K/A 1 ceva20210806_8ka.htm FORM 8-K/A ceva20210806_8ka.htm
Form 8-K/A date of report 05-31-21 true 0001173489 0001173489 2021-05-31 2021-05-31
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K/A
(Amendment No. 1)
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported): May 31, 2021
 
CEVA, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation)
 
000-49842
(Commission File Number)
77-0556376
(I.R.S. Employer Identification No.)
   
15245 Shady Grove Road, Suite 400, Rockville, MD
(Address of Principal Executive Offices)
20850
(Zip Code)
 
(240)-308-8328
(Registrant’s Telephone Number, Including Area Code)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.001 per share
CEVA
The NASDAQ Stock Market LLC
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Security Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 

 
 
EXPLANATORY NOTE
 
On June 1, 2021, CEVA, Inc. (the “Company”) filed with the Securities and Exchange Commission (the “SEC”) a Current Report on Form 8-K (the “Initial 8-K”) to disclose the completion on May 31, 2021 of its previously announced acquisition of Intrinsix Corp., a Massachusetts corporation (“Intrinsix”), pursuant to the Agreement and Plan of Merger, dated as of May 9, 2021 (the “Merger Agreement”), by and among Intrinsix, the Company, Northstar Merger Sub, Inc., a Massachusetts corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and Shareholder Representative Services LLC, a Colorado limited liability company (“Sellers’ Representative”). Pursuant to the terms of the Merger Agreement, Merger Sub was merged with and into Intrinsix (the “Merger”), with Intrinsix surviving the Merger and continuing as a wholly owned subsidiary of the Company.
 
This Form 8-K/A amends the Initial 8-K to include the historical audited financial statements of Intrinsix and the unaudited pro forma combined financial information required by Items 9.01(a) and 9.01(b) of Form 8-K, which were excluded from the Initial 8-K in reliance on the instructions to such items.
 
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
 
(a) Financial Statements of Businesses Acquired
 
The historical audited consolidated balance sheet of Intrinsix as of December 31, 2020, the related consolidated statements of operations and cash flows as of December 31, 2020, and the accompanying notes thereto, are filed herewith as Exhibit 99.1.
 
The historical unaudited balance sheet of Intrinsix as of March 31, 2021, the related statements of operations and cash flows for the three months ended March 31, 2021 and the accompanying notes thereto, are filed herewith as Exhibit 99.2.
 
(b) Pro Forma Financial Information
 
An unaudited pro forma condensed combined balance sheet of the combined company as of June 30, 2021 has not been presented as the Merger and related financing transactions have been fully reflected in the condensed consolidated balance sheet included in Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2021, filed with the SEC on August 9, 2021.
 
The unaudited pro forma condensed combined statement of operations of the combined company for the year ended December 31, 2020 and the six months ended June 30, 2021, and the accompanying notes thereto (collectively, the “Unaudited Pro Forma Financial Information”) are filed herewith as Exhibit 99.3. The Unaudited Pro Forma Financial Information gives effect to the Merger and related financing transactions as if they had occurred on January 1, 2020.
 
The Unaudited Pro Forma Condensed Combined Financial Information has been presented for informational purposes only, as required by Form 8-K. It is not intended to represent and does not purport to be indicative of what the combined company’s results of operations would have been had the Merger and related financing transactions occurred at an earlier date. In addition, the Unaudited Pro Forma Condensed Combined Financial Information does not purport to project the future financial condition and results of operations of the combined company. The actual results of the combined company may differ significantly from those reflected in the Unaudited Pro Forma Condensed Combined Financial Information.
 
(d) Exhibits.
 
23.1
99.1
99.2
99.3
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
 
 

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
CEVA, INC.
 
       
 
Date: August 9, 2021
 
 
By:
/s/ Yaniv Arieli
 
   
Yaniv Arieli
Chief Financial Officer
 
 
 
EX-23.1 2 ex_272661.htm EXHIBIT 23.1

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-239813, 333-219868, 333-206274, 333-176207, 333-101553, 333-107443, 333-115506, 333-141355 and 333-160866) pertaining to the 2011 Stock Incentive Plan, 2002 Stock Incentive Plan, 2002 Employee Stock Purchase Plan, 2000 Stock Incentive Plan, Parthus Technologies 2000 Share Incentive Plan, Chicory Systems, Inc. 1999 Employee Stock Option/Stock Issuance Plan, and Amended and Restated 2003 Director Stock Option Plan of CEVA Inc. (formerly ParthusCeva, Inc.) of CEVA, Inc. of our report dated May 6, 2021, with respect to the consolidated financial statements of Intrinsix Corp. for the year ended December 31, 2020, incorporated by reference in this Current Report on Form 8-K/A of CEVA, Inc.

 

/s/ AAFCPAs, Inc.

 

Boston, Massachusetts

August 9, 2021

 

 

 
EX-99.1 3 ex_273171.htm EXHIBIT 99.1 ex_273171.htm

Exhibit 99.1

 

 

 

 

 

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AND SUBSIDIARIES

 

Consolidated Financial Statements

December 31, 2020

 

 

 

 

 

 

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Contents

December 31, 2020

 

 

Pages

 

Independent Auditor's Report 1
   
Consolidated Financial Statements:  
   
Consolidated Balance Sheet 2
   
Consolidated Statement of Income 3
   
Consolidated Statement of Changes in Stockholders’ Equity 4
   
Consolidated Statement of Cash Flows 5
   
Notes to Consolidated Financial Statements 6 - 16

 

 

 

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Independent Auditor’s Report

 

 

 

To the Board of Directors and Stockholders of

Intrinsix Corp. and Subsidiaries:

 

 

We have audited the accompanying consolidated financial statements of Intrinsix Corp. and Subsidiaries, which comprise the consolidated balance sheet as of December 31, 2020, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

 

Managements Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors Responsibility

 

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intrinsix Corp. and Subsidiaries as of December 31, 2020, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

 

a03.jpg

Boston, Massachusetts

May 6, 2021

 

Page 1

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Balance Sheet

December 31, 2020

 

 

Assets

 

2020

 
         

Current Assets:

       

Cash and cash equivalents

  $ 3,660,638  

Accounts receivable, net of allowance for doubtful accounts of approximately $221,000

    2,731,778  

Unbilled accounts receivable

    457,482  

Current portion of prepaid tool maintenance

    3,176,222  

Prepaid expenses and other current assets

    210,992  

Total current assets

    10,237,112  
         

Accounts Receivable, net of current portion

    4,560  
         

Convertible Notes Receivable

    592,221  
         

Deferred Tax Asset, net

    144,000  
         

Property and Equipment, net

    88,086  
         

Deposits

    40,905  
         

Total assets

  $ 11,106,884  
         

Liabilities and Stockholders' Equity

       
         

Current Liabilities:

       

Accounts payable

  $ 200,492  

Deferred revenue

    1,032,221  

Accrued compensation and benefits

    629,942  

Other accrued expenses

    300,571  

Current portion of accrued tool maintenance

    3,109,572  

Income tax payable

    216,594  

Total current liabilities

    5,489,392  
         

Paycheck Protection Program Loan

    1,406,250  
         

Total liabilities

    6,895,642  
         

Stockholders' Equity:

       

Common stock, no par value; 70,000,000 shares authorized; 26,034,336 issued and outstanding

    2,472,439  

Due from stockholders

    (82,163 )

Additional paid-in capital

    68,137  

Retained earnings (accumulated deficit)

    1,752,829  

Total stockholders’ equity

    4,211,242  
         

Total liabilities and stockholders' equity

  $ 11,106,884  

 

The accompanying notes are in integral part of these consolidated statements.

  Page 2

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Statement of Income

For the Years Ended December 31, 2020

 

 

   

2020

 
         

Revenues

  $ 21,722,130  
         

Cost of Revenues

    14,872,222  
         

Gross profit

    6,849,908  
         

Operating Expenses:

       

Research and development

    711,543  

Selling, general and administrative

    3,955,642  
         

Total operating expenses

    4,667,185  
         

Income from operations

    2,182,723  
         

Other Income (Expense):

       

Interest income

    33,855  
         

Total other income (expense)

    33,855  
         

Income before provision for income taxes

    2,216,578  
         

Provision for Income Taxes

    (249,258 )
         

Net income

  $ 1,967,320  

 

The accompanying notes are in integral part of these consolidated statements.

  Page 3

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Statement of Changes in Stockholders’ Equity

For the Years Ended December 31, 2020

 

 

   

Common Stock

                                 
                                   

Retained

         
   

Shares

                   

Additional

   

Earnings

         
   

Issued and

           

Due from

   

Paid-In

   

(Accumulated

         
   

Outstanding

   

Amount

   

Stockholders

   

Capital

   

Deficit)

   

Total

 
                                                 

Balance, December 31, 2019

    26,006,336       2,469,639       (81,348 )     61,750       (214,491 )     2,235,550  
                                                 

Stock-based compensation

    -       -       -       6,387       -       6,387  
                                                 

Options exercised

    28,000       2,800       -       -       -       2,800  
                                                 

Accrued interest on stock purchase loans

    -       -       (815 )     -       -       (815 )
                                                 

Net income

    -       -       -       -       1,967,320       1,967,320  
                                                 

Balance, December 31, 2020

    26,034,336     $ 2,472,439     $ (82,163 )   $ 68,137     $ 1,752,829     $ 4,211,242  

 

The accompanying notes are in integral part of these consolidated statements.

  Page 4

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Statement of Cash Flows

For the Years Ended December 31, 2020

 

 

   

2020

 

Cash Flows from Operating Activities:

       

Net income

  $ 1,967,320  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

       

Depreciation

    39,246  

Loss on sale of property and equipment

    -  

(Recovery) provision for bad debt

    118,698  

Stock-based compensation

    6,387  

Deferred income taxes

    (60,000 )

Accrued interest on notes receivable due from stockholders

    (815 )

Changes in operating assets and liabilities:

       

Accounts receivable

    (837,547 )

Unbilled accounts receivable

    (333,657 )

Prepaid expenses and other assets

    (64,433 )

Deposits

    -  

Income tax payable

    170,002  

Accounts payable

    29,137  

Prepaid and accrued tooling, net

    137,346  

Deferred revenue

    (540,615 )

Accrued compensation and benefits and other accrued expenses

    280,542  
         

Net cash provided by (used in) operating activities

    911,611  
         

Cash Flows from Investing Activities:

       

Issuance of convertible note receivable

    (212,740 )

Purchase of property and equipment

    (58,261 )
         

Net cash used in investing activities

    (271,001 )
         

Cash Flows from Financing Activities:

       

Proceeds from Paycheck Protection Program Loan

    1,406,250  

Exercise of stock options

    2,800  
         

Net cash provided by financing activities

    1,409,050  
         

Net Change in Cash and Cash Equivalents

    2,049,660  
         

Cash and Cash Equivalents:

       

Beginning of year

    1,610,978  
         

End of year

  $ 3,660,638  
         

Supplemental Cash Flow Information:

       

Cash paid for income taxes

  $ 139,256  
         

Supplemental Disclosure of Non-Cash Investing Transaction:

       

Cost of disposed property and equipment

  $ 25,002  

 

The accompanying notes are in integral part of these consolidated statements.

  Page 5

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

1.

OPERATIONS

 

Intrinsix Corp. and Subsidiaries (collectively, the Company), incorporated in 1985, are providers of advanced electronic design services to systems of original equipment manufacturers and semiconductor companies. The Company designs semiconductor devices, as well as the accompanying system-level hardware and software that comprise advanced electronic products.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting standards and principles (U.S. GAAP) established by the Financial Accounting Standards Board (FASB). References to U.S. GAAP in these notes are to the FASB Accounting Standards Codification (ASC).

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Intrinsix Corp. and its wholly-owned subsidiaries, Intrinsix Federal Systems Corp. and Intrinsix Silicon Solutions Corp. All significant intercompany accounts and transactions have been eliminated.

 

Recently Adopted Accounting Pronouncement

 

In June 2018, the FASB issued an Accounting Standards Update (ASU) 2018-07 intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees. The Company adopted the provisions of ASU 2018-07, Improvements of Nonemployee Share-Based Payment Accounting, on January 1, 2020. This standard allowed for measurement of nonemployee awards within the scope of ASC 718, Compensation - Stock Compensation, to be measured at grant-date fair value. This standard did not have an impact on the Company’s stock-based compensation expense for the year ended December 31, 2020, as the Company had no outstanding options to non-employees.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company’s revenue contains a single performance obligation, revenue is recognized over time as the services are rendered, provided that no significant obligations remain and collection of the receivable is considered probable. For time-and-materials contracts, the performance obligation is satisfied and revenue is recognized over time as the services are performed. Generally, contracts call for billings on a time-and-materials basis; however, in instances when a fixed-fee contract is signed, revenue is recognized over time, based on an input method of labor costs expended, relative to total expected labor costs to complete the contract.

 

Page 6

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

 

None of the fixed-fee contracts entered into by the Company require retainage or holdbacks of any portion of the agreed-upon fee. In the event that costs to complete a given contract would exceed the related revenues, a loss would be recognized for those excess costs when such a loss is determined to have occurred.

 

Contract Balances

 

The timing of revenue recognition, billings and cash collections, results in unbilled receivables (contract assets), customer advances and deposits and deferred revenue (contract liabilities) on the accompanying consolidated balance sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms. Generally, the Company is able to receive certain billings in advance or deposits from customers before revenue is recognized, resulting in contract liabilities; these amounts are recorded as deferred revenue. The Company records billings that occur subsequent to revenue recognition as a contract asset that is presented as unbilled receivables.

 

The contract balances were as follows at December 31, 2020:

 

   

2020

 

Unbilled accounts receivable

  $ 457,482  

Deferred revenue

  $ 1,032,221  

 

Cost of Revenues

 

Cost of revenues consists primarily of personnel and material costs related to the provision of services.

 

Cost to Obtain Contracts

 

The Company incurs commission fees as a result of obtaining contracts. As a practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of income.

 

Research and Development Expenses

 

Research and development costs associated with the development of proprietary products and design methodologies are expensed as incurred. The Company has developed proprietary software tools for use by its consultants. The Company incurred $711,543 of research and development costs in 2020.

 

Cash and Cash Equivalents

 

For the purpose of the consolidated statements of cash flows, management considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents.

 

Page 7

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Property and Equipment and Depreciation

 

Property and equipment consist of leasehold improvements, computer equipment, software costs, and furniture and fixtures, and are stated at cost, net of accumulated depreciation and amortization.

 

Renewals and betterments are capitalized, while repairs and maintenance are expensed as they are incurred. Depreciation is computed using the straight-line method over the following estimated useful lives:

 

Computer equipment and software (in years)

    3  

Furniture and fixtures (in years)

   7 - 10

 

Leasehold improvements are depreciated using the straight-line method over the lesser of the estimated life of the improvement or the remaining life of the lease.

 

Prepaid and Accrued Expenses Tool Maintenance

 

The Company purchases large quantities of Electronic Design Automation tools (tools) in advance of its projects. These tools are used to perform design services and internal research and development. The Company charges customers for the tools at a premium. When purchased, the tools are recorded as both a prepaid asset and accrued expense, as the Company has both a future benefit of the tools and future expense and cash obligation. The accrued tools are reduced as the Company receives invoices for the installment. Long-term accrued expenses represent payment commitments to tool vendors in excess of one year. Long-term prepaid tool maintenance represents tools the Company expects to use for future contracts in excess of one year. The accrued and prepaid tools are presented gross on the accompanying consolidated balance sheets as they did not meet the criteria for offsetting in accordance with ASC 210-20, Balance Sheet Offsetting, as there are no contractual rights that exist for offsetting.

 

The total costs of the tools are allocated across the Company’s contracts once deployed to a customer and amortized on a straight-line basis over the life of the contracts. Any billings in excess of revenue recognized are recorded to deferred revenue.

 

Impairment of Long-Lived Assets

 

The Company evaluates the recoverability of its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is present, the Company compares the estimated undiscounted future cash flows to be generated by the asset to its carrying amount. Recoverability measurement and estimation of undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset group, the Company records an impairment loss equal to the excess of the asset group’s carrying amount over its fair value. The fair value is determined based on valuation techniques, such as a comparison to fair values of similar assets or using a discounted cash flow analysis. There were no impairments recognized during the year ended December 31, 2020.

 

Page 8

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Stock-Based Compensation

 

The Company’s stock option plan allows for the grant of time-based stock options for a fixed number of shares of common stock to its employees, directors, and non-employee contractors, with an exercise price greater than or equal to the fair market value of its common stock at the date of the grant. The Company’s stock-based compensation arrangements vest either immediately or over periods of up to four years.

 

The Company also grants performance based stock options for a fixed number of shares of common stock to its directors and senior management, with an exercise price greater than or equal to the fair market value of its common stock at the date of the grant. These stock-based compensation arrangements vest based upon the occurrence of a specific milestone as outlined in the respective agreements.

 

Stock-based compensation to employees is measured at the grant date based upon the fair value of the award and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the grant). Upon adoption of ASU 2018-07 Improvements to Nonemployee Share-Based Payment Accounting is similarly measured and recognized. As noted previously, the Company has not granted options to non-employees.

 

The Company estimates the fair value of stock options using a Black-Scholes valuation model. Key inputs used to estimate the fair value of stock options include the estimated fair value of the underlying stock, the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of its stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

 

Income Taxes

 

The Company accounts for income taxes according to the liability method. The differences between the consolidated financial statement amounts and the tax bases of assets and liabilities are determined annually. Deferred tax assets and liabilities are computed for those differences that will result in taxable or deductible amounts in future periods using currently enacted tax laws and rates that apply to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that will more-likely-than-not be realized. Income tax expense is the tax payable or refundable for the current period, plus or minus the change, during the period in deferred income tax assets and liabilities.

 

Page 9

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Income Taxes (Continued)

 

The Company accounts for uncertainty in income taxes in accordance with ASC Topic 740, Income Taxes. This standard clarifies the accounting for uncertainty in tax positions and prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. Management of the Company has determined that there are no uncertain tax positions which qualify for either recognition or disclosure in the accompanying consolidated financial statements at December 31, 2020. The Company’s income tax returns are subject to examination by the appropriate taxing jurisdictions.

 

Accounts Receivable

 

Accounts receivable is recorded at the invoiced amount and is non-interest bearing. The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Allowances are based on management’s judgment, which considers historical experience and specific knowledge of accounts where collectability may not be probable.

 

The Company makes provisions based on historical bad debt experience, a specific review of all significant outstanding invoices, and an assessment of general economic conditions. If the financial condition of a customer deteriorates, resulting in an impairment of its ability to make payments, additional allowances may be required. The allowance for doubtful accounts is $221,000 at December 31, 2020. A portion of accounts receivable is presented as long-term based on negotiated payment terms.

 

Investment in Non-Marketable Securities

 

During 2018, the Company formed Owl Autonomous Imaging, Inc. (OWL), a wholly-owned subsidiary. During 2019, OWL issued additional shares of common stock to its founders equal to 60% ownership in the subsidiary. As a result of the issuance of stock, Intrinsix Corp.’s ownership in OWL was reduced from 100% to 40%. This was treated as a deconsolidation of a subsidiary in accordance with ASC Topic Consolidation. The Company covered certain start-up and operating costs for OWL during 2020 and 2019, and has contributed financing to OWL, both of which resulted in related party notes receivable (see below). The Company retained an investment in OWL and accounts for the investment under the equity method. Under the equity method, the Company records its proportionate share of the net income and net loss of OWL. At December 31, 2020, the carrying value of the Company’s 40% investment in OWL is zero as OWL has had losses since inception.

 

Convertible Notes Receivable

 

Convertible notes receivable are stated at cost, less an allowance for amounts that may be uncollectable, based on the payors ability to meet their obligation. The balance at December 31, 2020, relates primarily to principal and interest on notes receivable from OWL. During 2020, the notes were reissued under two separate convertible note agreements which accrue interest at an annual rate of 7% and mature on July 31, 2021. The notes are convertible at a discount upon the occurrence of a future qualified financing as defined in the agreement. The amount due from OWL, including principal and accrued interest, totaled $490,884 as of December 31, 2020.

 

Page 10

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Convertible Notes Receivable (Continued)

 

In 2020, the Company entered into a convertible note receivable with a customer. The note accrues interest at 4% and matures at the earlier of twenty-four months or the customer’s next financing closing, at which the outstanding note receivable balance, including principal and accrued interest, will be automatically converted into common shares of the customer. In March 2021, the customer completed a financing closing through completion of its Initial Public Offering on the NASDAQ stock exchange. As a result, the full balance outstanding was converted into common stock of the customer in the amount 39,989 shares. The amount due from the customer related to this note, including principal and accrued interest, totaled $101,337 as of December 31, 2020.

 

Subsequent Events

 

Subsequent events were evaluated through May 6, 2021, which is the date the consolidated financial statements were available to be issued. See Notes 2, 6, 7, 12 and 14 for subsequent events which met the criteria for disclosure to the consolidated financial statements.

 

3.

PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at December 31:

 

   

2020

 

Computer equipment and software

  $ 131,271  

Leasehold improvements

    17,795  

Furniture and fixtures

    1,147  
      150,213  

Less - accumulated depreciation

    62,127  
    $ 88,086  

 

Depreciation expense for the year ended December 31, 2020, was $39,246.

 

4.

INCOME TAXES

 

The components of the income tax (benefit) expense for the year ended December 31, 2020, are as follows:

 

   

2020

 

Current:

       

Federal

  $ 196,187  

State

    113,071  
      309,258  
         

Deferred:

       

Federal

    275,000  

State

    (15,000 )

Change in valuation allowance

    (320,000 )

Total deferred

    (60,000 )
         

Total income tax expense

  $ 249,258  

 

Page 11

 

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

4.

INCOME TAXES (Continued)

 

The Company’s deferred tax assets and liabilities consist of the following at December 31, 2020:

 

   

2020

 
         

Accrued expenses and other

  $ 168,000  

Federal and state research credits

    162,000  

State net operating losses

    -  

Depreciation

    (24,000 )
         

Total

    306,000  
         

Valuation allowance

    (162,000 )
         

Net deferred tax assets

  $ 144,000  

 

Utilization of the research credits may be subject to a substantial annual limitation or due to ownership change limitations that could occur in the future. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The deferred tax valuation allowance decreased by $320,000 for the year ended December 31, 2020, as a result of actual or planned usage of tax assets.

 

5.

CONCENTRATION OF CREDIT RISK

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. The Company maintains cash deposits with financial institutions that at times exceed applicable insurance limits. The Company reduces this risk by maintaining such deposits with high-quality financial institutions that management believes are creditworthy. With respect to accounts receivable, credit risk is mitigated by the Company’s ongoing credit evaluation of its customers’ financial condition.

 

Two customers accounted for approximately 55% of the Company’s revenues for the year ended December 31, 2020. Two customers accounted for approximately 73% of the Company’s accounts receivable as of December 31, 2020.

 

6.

LINE OF CREDIT

 

The Company has a line of credit agreement with a bank with borrowings not to exceed $1,000,000, as amended in December 2019. Balances outstanding under the note bear interest at 3.75% as of December 31, 2020. The line of credit is secured by the Company’s assets and expired on October 31, 2020. Subsequent to year end, in February 2021, the line of credit was retroactively extended from October 31, 2020 through October 31, 2021. As of December 31, 2020, no amounts were outstanding under this agreement.

 

Page 12

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

7.

PAYCHECK PROTECTION PROGRAM LOAN

 

The Company applied for and was awarded a forgivable loan of $1,406,250 from the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) through a bank.  The funds were used to pay certain payroll costs, including benefits, as well as rent and utilities during the covered period as defined in the CARES Act.  A portion of these funds may be forgiven, as defined in the agreement, at the end of the covered period and the remainder of the funds will be due over a two-year period with interest at 1%. Any repayment will be deferred until the Small Business Administration notifies the lender of the amount of the loan that will be forgiven, provided that the Company submits the application for forgiveness within ten months after the completion of the covered period. The balance of the note, if not forgiven, plus interest, will be due in equal monthly payments through the maturity date as defined by the bank.  There are no covenants with which to comply and the note is not secured by any collateral as of December 31, 2020. There was no accrued interest on the note payable as of December 31, 2020, as it would be immaterial to the overall financial statements.

 

Subsequent to year end, in April 2021, the Company applied for and was awarded full forgiveness of the loan, including the principal balance and accrued interest. The balance of the loan has been classified as a long-term liability in the accompanying balance sheet as of December 31, 2020.

 

8.

STOCKHOLDERS EQUITY

 

Common Stock

 

The holders of common stock are entitled to one vote for each share of common stock held and entitled to dividends, when and if declared by the Board.

 

9.

STOCK-BASED COMPENSATION

 

The Company has a stock plan (the “Plan”) that provides for the issuance of options to purchase shares of common stock to employees and non-employees. The Plan provides for the issuance of up to 5,000,000 shares of common stock as of December 31, 2020. The exercise price of the options is established by the Board and cannot be less than the estimated fair value of the common shares as of the grant date. The options vest over service periods ranging from two to four years and have a term not-to-exceed ten years. As of December 31, 2020, there were 2,018,815 shares available for future issuance under the Plan.

 

The weighted-average assumptions used in valuing the stock options granted during the year ended December 31, 2020, using the Black-Scholes option-pricing model and a discussion of the Company’s assumptions, are as follows:

 

   

Time Based

   

Performance

Based

 

Risk-free interest rate

    0.63 %     0.63 %

Expected life of options (in years)

    6.25       3.75  

Dividend yield

    - %     - %

Expected volatility

    41 %     41 %

 

Page 13

 

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

9.

STOCK-BASED COMPENSATION (Continued)

 

As there is not a public market for the Company’s common stock, the Company has determined the volatility for options granted based on a study of reported data for a guideline group of companies that issued options with substantially similar terms. The risk-free interest rate is based on a zero-coupon United States Treasury instrument with terms consistent with the expected life of the stock options. The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to be zero. Forfeitures are accounted for when they occur.

 

The Company utilizes the simplified method for estimating the expected term, which is the period of time that the options granted are expected to remain outstanding.

 

In determining the exercise prices for options granted, the Board has considered the fair value of the common stock as of the measurement date. The fair value of the common stock has been determined by the Board after considering a broad range of factors, including the results of various valuation techniques, the illiquid nature of an investment in the Company’s common stock, the Company’s historical financial performance and financial position, the Company’s future prospects, and transactions of comparable companies.

 

A summary of options issued under the Plan is below:

 

   

Options

   

Weighted-

Average

Exercise

Price

   

Weighted-

Average

Remaining

Contractual

Life

(in Years)

 
Outstanding, December 31, 2019     1,651,772       0.11       8.00  
                         
Granted     1,255,500       0.15          
Exercised     (28,000 )     0.10          
Forfeited     (8,000 )     0.14          
                         

Outstanding, December 31, 2020

    2,871,272       0.13       6.86  
                         

Exercisable at December 31, 2020

    1,501,022       0.13       6.86  
                         

Vested and expected to vest at December 31, 2020

    2,871,272       0.13       6.86  

 

The Company recorded stock-based compensation expense of $6,387 for the year ended December 31, 2020 which is included in selling, general and administrative expense in the accompanying consolidated statements of income. As of December 31, 2020 , there was approximately $55,703 unrecognized compensation cost related to non-vested share-based compensation arrangements.  This cost is expected to be recognized over a weighted-average period of 3.43 years.

 

Page 14

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

10.

RETIREMENT SAVINGS PLAN

 

The Company participates in a retirement savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) covering all employees. Under the provisions of the Plan, employees may contribute 1% to 100% of their compensation within certain limitations. The Company may make matching contributions equal to a discretionary percentage as determined by the Company, annually. Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company’s contribution portion of their accounts is based on years of continuous service. A participant is 100% vested after two years of credited service. During the year ended December 31, 2020, the Company did not contribute to the Plan.

 

11.

OPERATING LEASE

 

The Company leases its headquarters in Massachusetts under a non-cancelable operating lease that expires in 2022. This lease generally provides for renewal options and escalation increases, and the Company recognizes rent expense under such arrangements on a straight-line basis.

 

Future minimum payments under the lease agreement are as follows for the years ending December 31:

 

2021

  $ 327,407  

2022

    110,451  
         

Total

  $ 437,858  

 

Total rent expense was $312,293 for the year ended December 31, 2020.

 

12.

RELATED PARTY

 

The Company provides financings for employees to purchase stock or exercise stock options. In accordance with ASC 718-10, Stock Compensation, these loans are considered non-recourse as they are structured in a way that the loans are collateralized only by the stock purchased and accrue interest at a rate of 3% per annum. In accordance with the topic, these loans are classified as additional paid-in capital. Total outstanding loans collateralized by stock totaled $82,163 at December 31, 2020 and are included in additional paid-in capital in the accompanying consolidated statement of changes in stockholders’ equity and consolidated balance sheet.

 

The Company provides OWL convertible notes (see Note 2) for startup operating costs. The notes accrue interest at 6% per annum and mature in July 2021. At maturity, the notes have a convertible feature in which the outstanding principal balance and any accrued but unpaid interest will be converted into shares of financing securities. During 2020, the notes were reissued under two separate note agreements (see page 10). The amount due from OWL, including principal and accrued interest, totaled $490,884 as of December 31, 2020.

 

The Company also has trade receivables due from OWL. There was $2,719 outstanding from OWL as of December 31, 2020, which is included in accounts receivable in the accompanying consolidated balance sheet. The Company recognized revenue from OWL of $27,148 for the year ended December 31, 2020.

 

Page 15

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

December 31, 2020

 

 

12.

RELATED PARTY (Continued)

 

The Company entered into a convertible note receivable with a customer in 2020 which converted into equity in March 2021 (see Note 2). Trade receivables outstanding from this customer were $175,435 December 31, 2020. Revenue recognized from this customer totaled $2,173,850 for the year ended December 31, 2020.

 

13.

COVID-19 CONTINGENCY

 

In March 2020, the COVID-19 pandemic emerged in the United States triggering widespread government mandated and voluntary business closures, which in turn led to substantial interruptions in financial markets, employment and the economy as a whole. Though the potential financial effects cannot be reasonably estimated at this time, these circumstances may have adverse effects on the Company, its operations and future financial statements.

 

Management of the Company is monitoring these events closely to assess the financial impact of the situation and determine appropriate courses of action. As of the date of this report, the Company is unable to accurately predict how COVID-19 will affect the results of its operations because the disease’s severity and the duration of the outbreak are uncertain.

 

14.

SUBSEQUENT EVENT

 

In March 2021, the Company executed a nonbinding letter of intent in which the Company is to be acquired through a reverse triangular merger with an initial purchase price of $33,000,000. The purchase price is subject to various adjustments for working capital as set forth in the agreement. The transaction has a target closing date in May 2021.

 

Page 16
EX-99.2 4 ex_273172.htm EXHIBIT 99.2 ex_273172.htm

Exhibit 99.2

 

 

 

 

 

logo.jpg

AND SUBSIDIARIES

 

Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

 

 

 

 

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Contents

March 31, 2021 (Unaudited)

 

 

Pages

 

Consolidated Financial Statements (Unaudited):  
   
Consolidated Balance Sheet (Unaudited)   1
   
Consolidated Statement of Income (Unaudited) 2
   
Consolidated Statement of Cash Flows (Unaudited)  3
   
Notes to Consolidated Financial Statements (Unaudited) 4 - 14

 

 

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Balance Sheet

March 31, 2021 (Unaudited)

 

 

   

Unaudited

 

Assets

 

2021

 
         

Current Assets:

       

Cash and cash equivalents

  $ 3,740,968  

Accounts receivable, net of allowance for doubtful accounts of approximately $288,000 at March 31, 2021

    3,807,852  

Unbilled accounts receivable

    370,954  

Equity securities

    415,439  

Current portion of prepaid tool maintenance

    1,342,528  

Prepaid expenses and other current assets

    220,850  

Total current assets

    9,898,591  
         

Accounts Receivable, net of current portion

    9,800  
         

Convertible Notes Receivable

    498,845  
         

Deferred Income Taxes, net

    154,000  
         

Property and Equipment, net

    113,545  
         

Prepaid Tool Maintenance, net of current portion

    274,655  
         

Deposits

    40,905  
         

Total assets

  $ 10,990,341  
         

Liabilities and Stockholders' Equity

       
         

Current Liabilities:

       

Accounts payable

  $ 428,671  

Deferred revenue

    1,041,437  

Accrued compensation and benefits

    711,133  

Other accrued expenses

    253,868  

Current portion of accrued tool maintenance

    1,990,383  

Income tax payable

    346,474  

Total current liabilities

    4,771,966  
         

Paycheck Protection Program Loan

    1,406,250  
         

Accrued Tool Maintenance, net of current portion

    116,667  
         

Total liabilities

    6,294,883  
         

Stockholders' Equity:

       

Common stock, no par value; 70,000,000 shares authorized; 26,034,336 shares issued and outstanding at March 31, 2021

    2,472,439  

Treasury stock

    -  

Due from stockholders

    (82,364 )

Additional paid-in capital

    70,047  

Retained earnings

    2,235,336  

Total stockholders’ equity

    4,695,458  
         

Total liabilities and stockholders' equity

  $ 10,990,341  

 

The accompanying notes are in integral part of these consolidated statements.

    Page 1

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Statement of Income

For the Three Months Ended March 31, 2021 (Unaudited)

 

 

   

Unaudited

 
   

2021

 
         

Revenues

  $ 5,812,212  
         

Cost of Revenues

    4,019,813  
         

Gross profit

    1,792,399  
         

Operating Expenses:

       

Research and development

    346,073  

Selling, general and administrative

    988,360  
         

Total operating expenses

    1,334,433  
         

Income from operations

    457,966  
         

Other Income:

       

Unrealized gains on equity securities

    138,116  

Interest income

    6,306  
         

Total other income

    144,422  
         

Income before provision for income taxes

    602,388  
         

Provision for Income Taxes

    (119,881 )
         

Net income

  $ 482,507  

 

The accompanying notes are in integral part of these consolidated statements.

    Page 2

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2021 (Unaudited)

 

 

   

Unaudited

 
   

2021

 

Cash Flows from Operating Activities:

       

Net income

  $ 482,507  
         

Adjustments to reconcile net income to net cash provided by operating activities:

       

Depreciation

    12,063  

Provision for bad debt

    67,373  

Stock-based compensation

    1,910  

Deferred income taxes

    (10,000 )

Unrealized gain on equity securities

    (138,116 )

Accrued interest on notes receivable due from stockholders

    (201 )

Changes in operating assets and liabilities:

       

Accounts receivable

    (1,148,687 )

Unbilled accounts receivable

    86,528  

Prepaid expenses and other assets

    (9,858 )

Income tax payable

    129,880  

Accounts payable

    228,179  

Prepaid tool maintenance

    1,559,039  

Deferred revenue

    9,216  

Accrued tool maintenance

    (1,002,522 )

Accrued compensation and benefits and other accrued expenses

    34,488  

Net cash provided by operating activities

    301,799  
         

Cash Flows from Investing Activities:

       

Issuance of convertible note receivable

    (8,947 )

Purchase of equity securities

    (175,000 )

Purchase of property and equipment

    (37,522 )

Net cash used in investing activities

    (221,469 )
         

Net Change in Cash and Cash Equivalents

    80,330  
         

Cash and Cash Equivalents:

       

Beginning of period

    3,660,638  
         

End of period

  $ 3,740,968  
         

Supplemental Cash Flow Information:

       

Cash paid for interest

  $ -  
         

Cash paid for income taxes

  $ 139,256  
         

Supplemental Disclosure of Non-Cash Investing Transaction:

       

Conversion of convertible notes receivable to equity securities

  $ 102,323  

 

The accompanying notes are in integral part of these consolidated statements.

    Page 3

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

1.

OPERATIONS

 

Intrinsix Corp. and Subsidiaries (collectively, the Company), incorporated in 1985, are providers of advanced electronic design services to systems of original equipment manufacturers and semiconductor companies. The Company designs semiconductor devices, as well as the accompanying system-level hardware and software that comprise advanced electronic products.

 

On May 9, 2021, the Company entered into an agreement and plan of merger in which the Company is to be acquired through a merger with an initial purchase price of $33,000,000. The purchase price is subject to various adjustments for working capital as set forth in the agreement. The acquisition does not include certain assets and liabilities related to certain investments, convertible notes and equity securities which will be divested before closing of the transaction. On May 9, 2021, the merger agreement was fully executed.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting standards and principles (U.S. GAAP) established by the Financial Accounting Standards Board (FASB). References to U.S. GAAP in these notes are to the FASB Accounting Standards Codification (ASC).

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Intrinsix Corp. and its wholly-owned subsidiaries, Intrinsix Federal Systems Corp. and Intrinsix Silicon Solutions Corp. All significant intercompany accounts and transactions have been eliminated.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company’s revenue contains a single performance obligation, revenue is recognized over time as the services are rendered, provided that no significant obligations remain and collection of the receivable is considered probable. For time-and-materials contracts, the performance obligation is satisfied, and revenue is recognized over time as the services are performed. Generally, contracts call for billings on a time-and-materials basis; however, in instances when a fixed-fee contract is signed, revenue is recognized over time, based on an input method of labor costs expended, relative to total expected labor costs to complete the contract.

 

None of the fixed-fee contracts entered into by the Company require retainage or holdbacks of any portion of the agreed-upon fee. In the event that costs to complete a given contract would exceed the related revenues, a loss would be recognized for those excess costs when such a loss is determined to have occurred.

 

Page 4

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

 

Contract Balances

 

The timing of revenue recognition, billings and cash collections, results in unbilled receivables (contract assets), customer advances and deposits and deferred revenue (contract liabilities) on the accompanying consolidated balance sheet. Amounts are billed as work progresses in accordance with agreed-upon contractual terms. Generally, the Company is able to receive certain billings in advance or deposits from customers before revenue is recognized, resulting in contract liabilities; these amounts are recorded as deferred revenue. The Company records billings that occur subsequent to revenue recognition as a contract asset that is presented as unbilled receivables.

 

The contract balances were as follows at March 31, 2021:

 

Unbilled accounts receivable

  $ 370,954  

Deferred revenue

  $ 1,041,437  

 

Cost of Revenues

 

Cost of revenues consists primarily of personnel and material costs related to the provision of services.

 

Cost to Obtain Contracts

 

The Company incurs commission fees as a result of obtaining contracts. As a practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses in the accompanying consolidated statement of income.

 

Research and Development Expenses

 

Research and development costs associated with the development of proprietary products and design methodologies are expensed as incurred. The Company has developed proprietary software tools for use by its consultants. The Company incurred $346,073 of research and development costs for the three months ended March 31, 2021.

 

Cash and Cash Equivalents

 

For the purpose of the consolidated statement of cash flows, management considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents.

 

Page 5

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Property and Equipment and Depreciation

 

Property and equipment consist of leasehold improvements, computer equipment, software costs, and furniture and fixtures, and are stated at cost, net of accumulated depreciation and amortization.

 

Renewals and betterments are capitalized, while repairs and maintenance are expensed as they are incurred. Depreciation is computed using the straight-line method over the following estimated useful lives:

 

Computer equipment and software (in years)

    3  

Furniture and fixtures (in years)

   7 - 10

 

Leasehold improvements are depreciated using the straight-line method over the lesser of the estimated life of the improvement or the remaining life of the lease.

 

Prepaid and Accrued Expenses Tool Maintenance

 

The Company purchases large quantities of Electronic Design Automation tools (tools) in advance of its projects. These tools are used to perform design services and internal research and development. The Company charges customers for the tools at a premium. When purchased, the tools are recorded as both a prepaid asset and accrued expense, as the Company has both a future benefit of the tools and future expense and cash obligation. The accrued tools are reduced as the Company receives invoices for the installment. Long-term accrued expenses represent payment commitments to tool vendors in excess of one year. Long-term prepaid tool maintenance represents tools the Company expects to use for future contracts in excess of one year. The accrued and prepaid tools are presented gross on the accompanying consolidated balance sheet as they did not meet the criteria for offsetting in accordance with ASC 210-20, Balance Sheet Offsetting, as there are no contractual rights that exist for offsetting.

 

The total costs of the tools are allocated across the Company’s contracts once deployed to a customer and amortized on a straight-line basis over the life of the contracts. Any billings in excess of revenue recognized are recorded to deferred revenue.

 

Impairment of Long-Lived Assets

 

The Company evaluates the recoverability of its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is present, the Company compares the estimated undiscounted future cash flows to be generated by the asset to its carrying amount. Recoverability measurement and estimation of undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset group, the Company records an impairment loss equal to the excess of the asset group’s carrying amount over its fair value. The fair value is determined based on valuation techniques, such as a comparison to fair values of similar assets or using a discounted cash flow analysis. There were no impairments recognized during the three months ended March 31, 2021.

 

Page 6

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Stock-Based Compensation

 

The Company’s stock option plan allows for the grant of time-based stock options for a fixed number of shares of common stock to its employees, directors, and non-employee contractors, with an exercise price greater than or equal to the fair market value of its common stock at the date of the grant. The Company’s stock-based compensation arrangements vest either immediately or over periods of up to four years.

 

The Company also grants performance based stock options for a fixed number of shares of common stock to its directors and senior management, with an exercise price greater than or equal to the fair market value of its common stock at the date of the grant. These stock-based compensation arrangements vest based upon the occurrence of a specific milestone as outlined in the respective agreements.

 

Stock-based compensation to employees is measured at the grant date based upon the fair value of the award and is recognized as an expense over the employee’s requisite service period (generally, the vesting period of the grant).

 

The Company estimates the fair value of stock options using a Black-Scholes valuation model. Key inputs used to estimate the fair value of stock options include the estimated fair value of the underlying stock, the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of its stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

 

Income Taxes

 

The Company accounts for income taxes according to the liability method. The differences between the consolidated financial statement amounts and the tax bases of assets and liabilities are determined annually. Deferred tax assets and liabilities are computed for those differences that will result in taxable or deductible amounts in future periods using currently enacted tax laws and rates that apply to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount that will more-likely-than-not be realized. Income tax expense is the tax payable or refundable for the current period, plus or minus the change, during the period in deferred income tax assets and liabilities.

 

The Company accounts for uncertainty in income taxes in accordance with ASC Topic 740, Income Taxes. This standard clarifies the accounting for uncertainty in tax positions and prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. Management of the Company has determined that there are no uncertain tax positions which qualify for either recognition or disclosure in the accompanying consolidated financial statements at March 31, 2021. The Company’s income tax returns are subject to examination by the appropriate taxing jurisdictions.

 

Page 7

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Accounts Receivable

 

Accounts receivable is recorded at the invoiced amount and is non-interest bearing. The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Allowances are based on management’s judgment, which considers historical experience and specific knowledge of accounts where collectability may not be probable.

 

The Company makes provisions based on historical bad debt experience, a specific review of all significant outstanding invoices, and an assessment of general economic conditions. If the financial condition of a customer deteriorates, resulting in an impairment of its ability to make payments, additional allowances may be required. The allowance for doubtful accounts is $288,000 at March 31, 2021. A portion of accounts receivable is presented as long-term based on negotiated payment terms.

 

Investment in Non-Marketable Securities

 

The Company has a 40% ownership interest in Owl Autonomous Imaging, Inc. (OWL) and accounts for the investment under the equity method. Under the equity method, the Company records its proportionate share of the net income and net loss of OWL. At December 31, 2020, the carrying value of the Company’s 40% investment in OWL is zero as OWL has had losses since inception. The Company provided additional financing through Convertible Notes Receivable during 2020 and 2019.

 

Convertible Notes Receivable

 

Convertible notes receivable are stated at cost, less an allowance for amounts that may be uncollectable, based on the payors ability to meet their obligation. The balance at March 31, 2021, relates to principal and interest on notes receivable from OWL. The notes accrue interest at an annual rate of 7% and mature on July 31, 2021. The notes are convertible at a discount upon the occurrence of a future qualified financing as defined in the agreement. The amount due from OWL, including principal and accrued interest, totaled $498,845 as of March 31, 2021.

 

Investment in Equity Securities

 

In 2020, the Company entered into a convertible note receivable with a customer. The note accrued interest at 4% and matured at the earlier of twenty-four months or the customer’s next financing closing, at which the outstanding note receivable balance, including principal and accrued interest, will be automatically converted into common shares of the customer. In March 2021, the customer completed its Initial Public Offering on the NASDAQ stock exchange. As a result, the full balance outstanding was converted into common stock of the customer in the amount 39,989 shares. In March 2021, the Company purchased additional shares of the customer’s common stock.

 

Equity securities consist of the Company’s interest in securities held for investment purposes. These investments are carried at fair value. Realized gains and losses on equity securities are recorded in net income. Unrealized gains and losses on investments in equity securities are recorded in net income for the three months ended March 31, 2021.

 

Page 8

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Fair Value Measurements

 

The Company follows the accounting and disclosure standards pertaining to ASC Topic, Fair Value Measurements, for qualifying assets and liabilities. Fair value is defined as the price that the Company would receive upon selling an asset or pay to settle a liability in an orderly transaction between market participants.

 

The Company uses a framework for measuring fair value that includes a hierarchy that categorizes and prioritizes the sources used to measure and disclose fair value. This hierarchy is broken down into three levels based on inputs that market participants would use in valuing the financial instruments based on market data obtained from sources independent of the Company. Inputs refer broadly to the assumptions that market participants would use in pricing the financial instrument, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the financial instrument developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset developed based on the best information available.  

 

The three-tier hierarchy of inputs is summarized in three broad levels as follows:

 

Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets at the measurement date.

 

Level 2 - Inputs other than quoted prices that are observable for the asset either directly or indirectly, including inputs in markets that are not considered to be active.

 

Level 3 - Inputs that are unobservable and which require significant judgment or estimation.

 

An asset or liability's level within the framework is based upon the lowest level of any input that is significant to the fair value measurement (see Note 4).

 

Subsequent Events

 

Subsequent events were evaluated through May 27, 2021, which is the date the consolidated unaudited financial statements were available to be issued. See Notes 1, 7 and 8 for a subsequent event which met the criteria for disclosure to the consolidated financial statements.

 

3.

PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at March 31, 2021:

 

Computer equipment and software

  $ 168,793  

Leasehold improvements

    17,795  

Furniture and fixtures

    1,147  
      187,735  

Less - accumulated depreciation

    74,190  
    $ 113,545  

 

Depreciation expense for the three months ended March 31, 2021, was $12,063.

 

Page 9

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

4.

FAIR VALUE

 

The fair value and amortized cost of the Company’s equity securities at March 31, 2021, are as follows:

 

   

Amortized

Cost

   

Fair

Value

 

Equity Securities:

               

Stock

  $ 277,323     $ 415,439  

 

Unrealized gains and losses for the three months ended March 31, 2021, are reported within net income. Unrealized gains on equity securities for the three months ended March 31, 2021, was $138,116. All stock is valued using level 1 inputs.

 

Equity securities are not insured and are subject to on-going market fluctuations.

 

The table below sets forth the Company’s assets measured at fair value by level within the fair value hierarchy. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

Description

 

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Stock

  $ 415,439     $ -     $ -     $ 415,439  

 

5.

INCOME TAXES

 

The components of the income tax (benefit) expense for the three months ended March 31, 2021, are as follows:

 

Current:

       

Federal

  $ 92,572  

State

    37,309  
      129,881  
         

Deferred:

       

Federal

    (3,000 )

State

    41,000  

Change in valuation allowance

    (48,000 )

Total deferred

    (10,000 )
         

Total provision for income taxes

  $ 119,881  

 

The Company’s deferred tax assets and liabilities consist of the following at March 31, 2021:

 

Accrued expenses and other

  $ 185,000  

Federal and state research credits

    114,000  

Depreciation

    (31,000 )
         

Total

    268,000  
         

Valuation allowance

    (114,000 )
         

Net deferred tax assets

  $ 154,000  

 

Page 10

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

5.

INCOME TAXES (Continued)

 

Utilization of the research credits may be subject to a substantial annual limitation or due to ownership change limitations that could occur in the future. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The deferred tax valuation allowance decreased by $48,000 for the three months ended March 31, 2021, as a result of actual or planned usage of tax assets.

 

6.

CONCENTRATION OF CREDIT RISK

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. The Company maintains cash deposits with financial institutions that at times exceed applicable insurance limits. The Company reduces this risk by maintaining such deposits with high-quality financial institutions that management believes are creditworthy. With respect to accounts receivable, credit risk is mitigated by the Company’s ongoing credit evaluation of its customers’ financial condition.

 

Two customers accounted for approximately 66% of the Company’s revenues for the three months ended March 31, 2021. Two customers accounted for approximately 65% of the Company’s accounts receivable as of March 31, 2021.

 

7.

LINE OF CREDIT

 

The Company has a line of credit agreement with a bank with borrowings not-to-exceed $1,000,000, as amended in December 2019. Balances outstanding under the note bear interest at 3.75% as of March 31, 2021, and expires on October 31, 2021. As of March 31, 2021, no amounts were outstanding under this agreement. Subsequent to the quarter end, the Company terminated the line of credit with the bank.

 

8.

PAYCHECK PROTECTION PROGRAM LOAN

 

The Company applied for and was awarded a forgivable loan of $1,406,250 from the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) through a bank.  The funds were used to pay certain payroll costs, including benefits, as well as rent and utilities during the covered period as defined in the CARES Act.  A portion of these funds may be forgiven, as defined in the agreement, at the end of the covered period and the remainder of the funds will be due over a two-year period with interest at 1%. Any repayment will be deferred until the Small Business Administration notifies the lender of the amount of the loan that will be forgiven, provided that the Company submits the application for forgiveness within ten months after the completion of the covered period. The balance of the note, if not forgiven, plus interest, will be due in equal monthly payments through the maturity date as defined by the bank.  There are no covenants with which to comply, and the note is not secured by any collateral as of March 31, 2021. There was no accrued interest on the note payable as of March 31, 2021, as it would be immaterial to the overall consolidated financial statements.

 

Subsequent to the period-end, in April 2021, the Company applied for and was awarded full forgiveness of the loan, including the principal balance and accrued interest. The balance of the loan has been classified as a long-term liability in the accompanying consolidated balance sheet as of March 31, 2021.

 

Page 11

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

9.

STOCKHOLDERS EQUITY

 

Common Stock

 

The holders of common stock are entitled to one vote for each share of common stock held and entitled to dividends, when and if declared by the Board.

 

10.

STOCK-BASED COMPENSATION

 

The Company has a stock plan (the “Plan”) that provides for the issuance of options to purchase shares of common stock to employees and non-employees. The Plan provides for the issuance of up to 5,000,000 shares of common stock as of March 31, 2020. The exercise price of the options is established by the Board and cannot be less than the estimated fair value of the common shares as of the grant date. The options vest over service periods ranging from two to four years and have a term not-to-exceed ten years. As of March 31, 2021, there were 1,914,815 shares available for future issuance under the Plan.

 

The weighted-average assumptions used in valuing the stock options granted during the three months ended March 31, 2021, using the Black-Scholes option-pricing model and a discussion of the Company’s assumptions, are as follows:

 

   

Time Based

   

Performance

Based

 

Risk-free interest rate

    0.81 %     0.81 %

Expected life of options (in years)

    6.25       3.75  

Dividend yield

    - %     - %

Expected volatility

    39 %     39 %

 

As there is not a public market for the Company’s common stock, the Company has determined the volatility for options granted based on a study of reported data for a guideline group of companies that issued options with substantially similar terms. The risk-free interest rate is based on a zero-coupon United States Treasury instrument with terms consistent with the expected life of the stock options. The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to be zero. Forfeitures are accounted for when they occur.

 

The Company utilizes the simplified method for estimating the expected term, which is the period of time that the options granted are expected to remain outstanding.

 

In determining the exercise prices for options granted, the Board has considered the fair value of the common stock as of the measurement date. The fair value of the common stock has been determined by the Board after considering a broad range of factors, including the results of various valuation techniques, the illiquid nature of an investment in the Company’s common stock, the Company’s historical financial performance and financial position, the Company’s future prospects, and transactions of comparable companies.

 

Page 12

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

10.

STOCK-BASED COMPENSATION (Continued)

 

A summary of options issued under the Plan is below:

 

   

Options

   

Weighted-

Average

Exercise

Price

   

Weighted-

Average

Remaining

Contractual

Life

(in Years)

 

Outstanding, December 31, 2020

    2,871,272       0.11       6.86  
                         

Granted

    104,000       0.14          

Exercised

    -       -          

Forfeited

 

-

      -          
                       

Outstanding, March 31, 2021

    2,975,272       0.12       6.57  
                         

Exercisable at March 31, 2021

    1,512,147       0.12       6.57  
                         

Vested and expected to vest at March 31, 2021

    2,975,272       0.12       6.57  

 

The Company recorded stock-based compensation expense of $1,910 for the three months ended March 31, 2021, which is included in selling, general and administrative expense in the accompanying consolidated statement of income. As of March 31, 2021, there was approximately $59,949 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.  This cost is expected to be recognized over a weighted-average period of 1.93 years.

 

During 2021, the Company issued 100,000 performance based options with a conditional vesting upon the closing of a sale transaction. In total there are 1,300,000 performance based options outstanding at March 31, 2021, with a performance condition related the sale. The accounting for the performance based options will be recorded in the period the transaction occurs.

 

11.

RETIREMENT SAVINGS PLAN

 

The Company participates in a retirement savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) covering all employees. Under the provisions of the Plan, employees may contribute 1% to 100% of their compensation within certain limitations. The Company may make matching contributions equal to a discretionary percentage as determined by the Company, annually. Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company’s contribution portion of their accounts is based on years of continuous service. A participant is 100% vested after two years of credited service. During the three months ended March 31, 2021, the Company did not contribute to the Plan.

 

12.

OPERATING LEASE

 

The Company leases its headquarters in Massachusetts under a non-cancelable operating lease that expires in 2022. This lease generally provides for renewal options and escalation increases, and the Company recognizes rent expense under such arrangements on a straight-line basis.

 

13

 

INTRINSIX CORP. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

March 31, 2021 (Unaudited)

 

 

12.

OPERATING LEASE (Continued)

 

Future minimum payments under the lease agreement are as follows for the calendar years ended December 31:

 

2021

  $ 247,067  

2022

    110,451  
         

Total

  $ 357,518  

 

Total rent expense was $80,340 for the three months ended March 31, 2021.

 

13.

RELATED PARTY

 

The Company provides financings for employees to purchase stock or exercise stock options. In accordance with ASC 718-10, Stock Compensation, these loans are considered non-recourse as they are structured in a way that the loans are collateralized only by the stock purchased and accrue interest at a rate of 3% per annum. In accordance with the topic, these loans are classified as additional paid-in capital. Total outstanding loans collateralized by stock totaled $82,364 at March 31, 2021, and are included in additional paid-in capital in the accompanying consolidated statement of changes in stockholders’ equity and consolidated balance sheet.

 

The Company provided OWL convertible notes (see Note 2) for startup and operating costs. The notes accrue interest at 7% per annum and mature in July 2021. At maturity, the notes have a convertible feature in which the outstanding principal balance and any accrued but unpaid interest will be converted into shares of financing securities. The amount due from OWL, including principal and accrued interest, totaled $498,845 as of March 31, 2021.

 

The Company also has trade receivables due from OWL. There was $46,389 outstanding from OWL as of March 31, 2021, which is included in accounts receivable in the accompanying consolidated balance sheet. The Company recognized revenue from OWL of $50,710 for the three months ended March 31, 2021.

 

The Company entered into a convertible note receivable with a customer in 2020 which converted into equity in March 2021 (see Note 2). The Company now holds common stock in this customer at March 31, 2021. Trade receivables outstanding from this customer were $88,500 at March 31, 2021. Revenue recognized from this customer totaled $194,932 for the three months ended March 31, 2021.

 

14.

CONTINGENCY

 

In March 2020, the COVID-19 pandemic emerged in the United States triggering widespread government mandated and voluntary business closures, which in turn led to substantial interruptions in financial markets, employment and the economy as a whole. Though the potential financial effects cannot be reasonably estimated at this time, these circumstances may have adverse effects on the Company, its operations and future financial statements.

 

Management of the Company is monitoring these events closely to assess the financial impact of the situation and determine appropriate courses of action. As of the date of this report, the Company is unable to accurately predict how COVID-19 will affect the results of its operations because the disease’s severity and the duration of the outbreak are uncertain.

 

Page 14
EX-99.3 5 ex_273217.htm EXHIBIT 99.3 ex_273217.htm

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information and related notes present the historical condensed combined financial information of CEVA, Inc. (herein referred to as the “Company”, “our”, and similar terms unless the context indicates otherwise) and Intrinsix Corp. (“Intrinsix”), after giving effect to the acquisition of Intrinsix pursuant to the Agreement and Plan of Merger, made and entered into on May 9, 2021, and which closed on May 31, 2021. The acquisition was accounted for as a business combination in accordance with the guidance contained in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The unaudited pro forma condensed combined financial information gives effect to the acquisition of Intrinsix based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.

 

The unaudited condensed combined statements of income (loss) for the year ended December 31, 2020 and for the six months ended June 30, 2021 are presented as if the acquisition had occurred on January 1, 2020. An unaudited pro forma balance sheet has not been presented as the acquisition have already been fully reflected in the condensed consolidated balance sheet included in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2021, filed on August 9, 2021.

 

The unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” and is subject to a number of uncertainties and assumptions as described in the accompanying notes. The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the business combination and has been prepared for informational purposes only. The following unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2021 and the year ended December 31, 2020 are based on the historical financial statements of CEVA, Inc. and Intrinsix.

 

The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had been affected on the dates previously set forth, nor is it indicative of the future operating results or financial position in combination. The pro forma adjustments are based on the information available and certain assumptions that management believes are reasonable under the circumstances. Our preliminary purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses that are not yet final. As a result, the unaudited pro forma purchase price adjustments related to the acquisition are preliminary and subject to further adjustments as additional information becomes available and as additional analyses are performed during the applicable measurement period under ASC 805 (up to one year from the acquisition date). There can be no assurances that any final valuations will not result in material adjustments to our preliminary estimated purchase price allocation. Further, the unaudited pro forma condensed combined financial information does not give effect to the potential impact of anticipated synergies, operating efficiencies, cost savings or transaction and integration costs that may result from the acquisition.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and their accompanying notes presented in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the six months ended June 30, 2021, as well as the historical audited financial statements of Intrinsix for the year ended December 31, 2020, each of which were filed with our Quarterly Report on Form 10-Q for the six months ended June 30, 2021.

 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (LOSS)

FOR THE SIX MONTHS ENDED JUNE 30, 2021

 

U.S. dollars in thousands, except per share data

 

   

Historical information

                           
                                           
   

CEVA,

Inc.

   

Intrinsix

(From January 1,

2021 to May 31,

2021)

   

Combined

   

Pro Forma
Transaction
Accounting
Adjustments

   

Pro forma

Combined

 

Notes

Revenues:

                                         

Licensing, NRE and related revenue

  $ 29,932     $ 8,691     $ 38,623     $ -     $ 38,623    

Royalties

    25,927       -       25,927       -       25,927    

Total revenues

    55,859       8,691       64,550       -       64,550    
                                           

Cost of revenues

    6,074       5,585       11,659       -       11,659    
                                           

Gross profit

    49,785       3,106       52,891       -       52,891    

Operating expenses:

                                         

Research and development, net

    35,050       576       35,626       543       36,169  

3(a)

Sales and marketing

    6,195       494       6,689       -       6,689    

General and administrative

    7,039       3,891       10,930       -       10,930  

3(b)

Amortization of intangible assets

    1,243       -       1,243       456       1,699  

3(c)

                                           

Total operating expenses

    49,527       4,961       54,488       999       55,487    
                                           

Operating income (loss)

    258       (1,855 )     (1,597 )     (999 )     (2,596 )  
                                           

Financial income, net

    392       18       410       (12 )     398  

3(d)

Other income

    -       1,999       1,999       (593 )     1,406  

3(e)

                                           

Income (loss) before taxes on income

    650       162       812       (1,604 )     (792 )  

Income tax expense (benefit)

    3,965       417       4,382       (171 )     4,211  

3(e)

                                           

Net loss

  $ (3,315 )   $ (255 )   $ (3,570 )   $ (1,433 )   $ (5,003 )  
                                           

Basic net loss per share

  $ (0.15 )                           $ (0.22 )  

Diluted net loss per share

  $ (0.15 )                           $ (0.22 )  
                                           

Weighted-average shares used to compute net loss per share (in thousands):

                                         

Basic

    22,685                               22,685    

Diluted

    22,685                               22,685    

 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (LOSS)

FOR THE YEAR ENDED DECEMBER 31, 2020

 

U.S. dollars in thousands, except per share data

 

   

Historical information

                           
   

CEVA,

Inc.

   

Intrinsix

   

Combined

   

Pro Forma
Transaction
Accounting
Adjustments

   

Pro forma

Combined

 

Notes

Revenues:

                                         

Licensing, NRE and related revenue

  $ 52,513     $ 21,722     $ 74,235     $ -     $ 74,235    

Royalties

    47,813       -       47,813       -       47,813    

Total revenues

    100,326       21,722       122,048       -       122,048    
                                           

Cost of revenues

    10,749       14,872       25,621       -       25,621    
                                           

Gross profit

    89,577       6,850       96,427       -       96,427    

Operating expenses:

                                         

Research and development, net

    62,010       712       62,722       1,303       64,025  

3(a)

Sales and marketing

    11,907       1,033       12,940       -       12,940    

General and administrative

    14,116       2,923       17,039       -       17,039    

Amortization of intangible assets

    2,307       -       2,307       1,094       3,401  

3(c)

                                           

Total operating expenses

    90,340       4,668       95,008       2,397       97,405    
                                           

Operating income (loss)

    (763 )     2,182       1,419       (2,397 )     (978 )  
                                           

Financial income, net

    3,284       34       3,318       (33 )     3,285  

3(d)

                                           

Income (loss) before taxes on income

    2,521       2,216       4,737       (2,430 )     2,307    

Income tax expense

    4,900       249       5,149       -       5,149    
                                           

Net income (loss)

  $ (2,379 )   $ 1,967     $ (412 )   $ (2,430 )   $ (2,842 )  
                                           

Basic loss per share

  $ (0.11 )                           $ (0.13 )  

Diluted loss per share

  $ (0.11 )                           $ (0.13 )  
                                           

Weighted-average shares used to compute net loss per share (in thousands):

                                         

Basic

    22,107                               22,107    

Diluted

    22,107                               22,107    

 

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

(in thousands, except share data)

 

NOTE 1:

BASIS OF PRO FORMA PRESENTATION AND ACCOUNTING PERIODS PRESENTED:

 

a. Basis of pro forma presentation:

 

On May 31, 2021 (the “Closing Date”), CEVA, Inc. (the “Company”) acquired 100% of the equity shares of Intrinsix Corp. (“Intrinsix”), a leading chip design specialist. The Company acquired Intrinsix pursuant to the Agreement and Plan of Merger, made and entered into on May 9, 2021 (the “Merger Agreement”), by and among the Company, Northstar Merger Sub, Inc., Intrinsix and Shareholder Representative Services LLC.

 

The unaudited pro forma condensed combined statements of income (loss) for the six months ended June 30, 2021 and for the year ended December 31, 2020 combine our historical condensed consolidated statements of income (loss) with the condensed consolidated statements of income (loss) of Intrinsix as if the acquisition had occurred on January 1, 2020. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the acquisition; and (ii) factually supportable.

 

b. Accounting periods presented:

 

The acquisition has been accounted in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 805, “Business Combinations.” Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets of Intrinsix acquired in the acquisition, based on their fair values on the closing date. The estimated fair values are preliminary and based on information that was available as of the Closing Date. The Company believes that the information provides a reasonable basis for estimating the fair values, but the Company is waiting for additional information necessary to finalize these amounts, particularly with respect to the estimated fair value of intangible assets. Thus, the preliminary measurements of fair value reflected are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the closing date.

 

NOTE 2:

PELIMINARY ESTIMATED PURCHASE CONSIDERATION AND PRELIMINARY PURCHASE PRICE ALLOCATION:

 

a. Preliminary Estimated Purchase Consideration:

 

At the Closing Date, the Company acquired Intrinsix for $33,569 in cash (“the Merger Consideration”), with $26,704 paid at closing and $4,260 held in escrow to satisfy indemnification claims, if any. As part of the Merger Agreement, the Company entered into holdback agreements with the Chief Executive Officer and the Chief Technology Officer of Intrinsix pursuant to which $2,605, representing 25% of the Merger Consideration payable to each of them in respect of their equity in Intrinsix, is being held back and, subject to their respective continued employment with the Company, released to them over a period of twenty-four (24) months after closing of the acquisition (the “Holdback Merger Consideration”).

 

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

(in thousands, except share data)

 

NOTE 2:

PELIMINARY ESTIMATED PURCHASE CONSIDERATION AND PRELIMINARY PURCHASE PRICE ALLOCATION )CONT.(:

 

b. Preliminary Purchase Price Allocation

 

The preliminary purchase price allocation for the acquisition has been determined as follows:

 

Net assets (including cash in the amount of $600)

  $ 755  

Intangible assets

    5,300  

Goodwill

    24,909  

Total assets

  $ 30,964  

 

This preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations as described in more detail in the explanatory notes below. The final allocation could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include changes in allocations to intangible assets as well as goodwill and other changes to assets and liabilities.

 

NOTE 3:

PRO FORMA ADJUSTMENTS:

 

The following unaudited pro forma financial information presents combined results of operations for the periods presented, as if the Company had completed the acquisition on January 1, 2020. The unaudited pro forma financial information has been calculated after adjusting the Company’s results and those of Intrinsix, including:

 

(a)

Pro forma adjustment to reflect new compensation arrangements related to the Holdback Merger Consideration in connection with the business combination.

 

(b)

Transaction costs of $3,502 are included in the historical income statement of the combined statement of income (loss) for the six months ended 30 June 2021. These costs will not affect the Company’s income statement beyond 12 months after the acquisition date.

 

(c)

Reflects the adjustment to record amortization expense related to identifiable intangible assets based on the preliminary determination of the estimated useful lives and amortization method.

 

(d)

Pro forma adjustment to eliminate interest income related to convertible notes held by Intrinsix pre acquisition.

 

(e)

Pro forma adjustment to eliminate unrealized gains on equity securities included in the statement of income of Intrinsix, which were specifically excluded from the acquisition of Intrinsix, and the respective income tax effects of such adjustments.

 

 
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DE 000-49842 77-0556376 15245 Shady Grove Road Suite 400 Rockville MD 20850 240 308-8328 false false false false Common Stock CEVA NASDAQ false XML 15 R1.htm IDEA: XBRL DOCUMENT v3.21.2
Document And Entity Information
May 31, 2021
Document Information [Line Items]  
Entity, Registrant Name CEVA, INC.
Document, Type 8-K/A
Document, Period End Date May 31, 2021
Entity, Incorporation, State or Country Code DE
Entity, File Number 000-49842
Entity, Tax Identification Number 77-0556376
Entity, Address, Address Line One 15245 Shady Grove Road
Entity, Address, Address Line Two Suite 400
Entity, Address, City or Town Rockville
Entity, Address, State or Province MD
Entity, Address, Postal Zip Code 20850
City Area Code 240
Local Phone Number 308-8328
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock
Trading Symbol CEVA
Security Exchange Name NASDAQ
Entity, Emerging Growth Company false
Amendment Description Form 8-K/A date of report 05-31-21
Amendment Flag true
Entity, Central Index Key 0001173489
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