-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AD7WPp8eksjvqqMSqgj0VoVY817hbh2UQjj+91ZYhYN9D1g3T77tNlY/TixKVxQX //60U0jTt+xLK9or8wCzAA== 0001032210-97-000018.txt : 19970222 0001032210-97-000018.hdr.sgml : 19970222 ACCESSION NUMBER: 0001032210-97-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970219 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON VALLEY RESEARCH INC CENTRAL INDEX KEY: 0000708367 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942743735 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13836 FILM NUMBER: 97538356 BUSINESS ADDRESS: STREET 1: 6360 SAN IGNACIO AVE CITY: SAN JOSE STATE: CA ZIP: 95119 BUSINESS PHONE: 4159623000 MAIL ADDRESS: STREET 1: 6360 SAN INGACIO AVE CITY: SAN JOSE STATE: CA ZIP: 95119 FORMER COMPANY: FORMER CONFORMED NAME: SILVAR LISCO DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------- FORM 10-Q ---------------- (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996 OR [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-13836 SILICON VALLEY RESEARCH, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 94-2743735 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6360 SAN IGNACIO AVENUE 95119-1231 SAN JOSE, CA (Zip Code) (Address of principal executive offices) (408) 361-0333 Registrant's telephone number, including area code (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No --- --- Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. Common Shares Outstanding at December 31, 1996: 11,584,019 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES INDEX
PAGES ----- Part I. FINANCIAL INFORMATION Item 1. Financial Statements................................ 3-7 Consolidated Balance Sheets--March 31, 1996 and December 31, 1996 (unaudited)........................................... 3 Consolidated Statements of Operations--Three and Nine Months Ended December 31, 1995 and 1996 (unaudited)..................... 4 Consolidated Condensed Statements of Cash Flows--Three and Nine Months Ended December 31, 1995 and 1996 (unaudited)... 5 Notes to Consolidated Financial Statements.................. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 8-11 Part II. OTHER INFORMATION........................................... 11-13 Item 1 Legal Proceedings.................................... 11 Item 2 Changes in Securities................................ 12 Item 3 Defaults Upon Senior Securities...................... 12 Item 4 Submission of Matters to a Vote of Securities Holders.................................................... 12 Item 5 Other Information.................................... 12 Item 6 Exhibits and Reports on Form 8-K..................... 12 Signature................................................... 14 Exhibit 27. Financial Data Schedule..................................... 15
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, ASSETS 1996 1996 ------ --------- ------------ (UNAUDITED) Current Assets: Cash and cash equivalents............................... $ 10,238 $ 3,379 Accounts receivable, net of allowances of $25 and $571, respectively........................................... 4,650 1,682 Prepaid expenses and other current assets............... 286 526 -------- -------- 15,174 5,587 Fixed assets, net....................................... 537 939 Other assets, net....................................... 1,381 3,831 -------- -------- $ 17,092 $ 10,357 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable........................................ $ 321 $ 222 Accrued expenses........................................ 1,329 2,794 Deferred revenue........................................ 1,537 922 Current portion of long-term debt....................... 139 179 -------- -------- 3,326 4,117 Long-term debt.......................................... 38 71 -------- -------- 3,364 4,188 -------- -------- Shareholders' Equity: Preferred stock, no par value: Authorized: 1,000 shares Issued and outstanding: none.......................... -- -- Common stock, no par value: Authorized: 25,000 shares Issued and outstanding: 11,308 shares at March 31, 1996 and 11,584 shares at December 31, 1996.......... 31,171 31,540 Accumulated deficit..................................... (17,423) (25,330) Cumulative translation adjustment....................... (20) (41) -------- -------- 13,728 6,169 -------- -------- $ 17,092 $ 10,357 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, --------------- --------------- 1995 1996 1995 1996 ------ ------- ------ ------- Revenue: License fees and other....................... $2,029 $ 616 $5,537 $ 2,380 Maintenance fees............................. 773 649 2,404 2,050 ------ ------- ------ ------- Total revenue............................ 2,802 1,265 7,941 4,430 ------ ------- ------ ------- Cost of revenue: Cost of license fees and other............... 107 522 261 819 Cost of maintenance fees..................... 70 144 292 380 ------ ------- ------ ------- Total cost of revenue.................... 177 666 553 1,199 ------ ------- ------ ------- Gross margin................................. 2,625 599 7,388 3,231 ------ ------- ------ ------- Operating expenses: Engineering, research and development........ 827 1,193 2,461 2,705 Selling and marketing........................ 1,200 1,498 3,784 4,714 General and administrative................... 429 2,845 813 3,948 ------ ------- ------ ------- Total operating expenses................. 2,456 5,536 7,058 11,367 ------ ------- ------ ------- Operating income (loss)...................... 169 (4,937) 330 (8,136) ------ ------- ------ ------- Other income (expense): Interest income............................ 14 52 35 251 Interest expense........................... (32) (8) (78) (24) Other, net................................. -- -- (3) 2 ------ ------- ------ ------- Total other income (expense)............. (18) 44 (46) 229 ------ ------- ------ ------- Income (Loss) before provision for income taxes....................................... 151 (4,893) 284 (7,907) Provision for income taxes................... -- -- -- -- ------ ------- ------ ------- Net income (loss)............................ $ 151 $(4,893) $ 284 $(7,907) ====== ======= ====== ======= Net income (loss) per share.................. $ 0.01 $ (0.42) $ 0.03 $ (0.69) ====== ======= ====== ======= Shares used in per share calculation......... 10,504 11,520 10,108 11,473 ====== ======= ====== =======
The accompanying notes are an integral part of these consolidated financial statements. 4 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED DECEMBER 31, ---------------- 1995 1996 ------- ------- Cash Flows from Operating Activities: Net income (loss)........................................... $ 284 $(7,907) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................. 602 1,069 Provision for doubtful accounts........................... 546 Changes in assets and liabilities: Accounts receivable....................................... (1,814) 2,357 Prepaid expenses and other current assets................. (294) (252) Accounts payable.......................................... 210 (95) Accrued expenses.......................................... (390) 1,477 Deferred revenue.......................................... (271) (583) Other, net................................................ -- (1,463) ------- ------- Net cash used in operating activities....................... (1,673) (4,851) ------- ------- Cash Flows from Investing Activities: Acquisition of fixed assets................................. (310) (577) Software production costs and software licenses............. (601) (1,787) Proceeds from sale of fixed assets.......................... 843 -- ------- ------- Net cash used in investing activities....................... (68) (2,364) ------- ------- Cash Flows from Financing Activities: Principal payments of long-term debt and other liabilities.. (390) (35) Proceeds from issuance of common stock...................... 3,464 369 ------- ------- Net cash provided by financing activities................... 3,074 334 ------- ------- Effect of exchange rate changes on cash..................... 27 22 ------- ------- Net increase (decrease) in cash and cash equivalents........ 1,360 (6,859) Cash and cash equivalents at beginning of period............ 1,248 10,238 ------- ------- Cash and cash equivalents at end of period.................. $ 2,608 $ 3,379 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 5 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996--UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNT) NOTE 1: BASIS OF PRESENTATION AND FINANCIAL STATEMENT INFORMATION The accompanying consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial statements. Therefore, they do not include all the disclosures which were presented in the Company's annual report on Form 10-K. These financial statements do not include all disclosures required by generally accepted accounting principles and, accordingly, should be read in conjunction with the consolidated financial statements and notes included as part of the Company's latest annual report on Form 10-K. In February 1997, the Company restated its unaudited consolidated financial statements for the quarters ended June 30, 1996 and September 30, 1996 to reverse certain transactions and related expenses which were recognized other than in accordance with the Company's accounting policies. The Company has filed Forms 10Q/A for the quarters ended June 30, 1996 and September 30, 1996. The results of operations for the nine months ended December 31, 1996 include the effect of the restatements referred to above. In the opinion of management, the consolidated financial statements include all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows for the interim period. The results of operations presented are not necessarily indicative of the results to be expected for the full year or for any other period. NOTE 2: STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED DECEMBER 31, ------------- 1995 1996 ------ ------ Supplemental Cash Flow Information: Cash paid during the period for: Interest................................................. $ 78 $ 24 Income taxes............................................. $ -- $ 13
NOTE 3: BALANCE SHEET COMPONENTS
MARCH 31, DECEMBER 31, 1996 1996 --------- ------------ Other Assets: Software development costs......................... $ 1,133 $ 1,697 Software licenses.................................. 1,211 2,735 ------- ------- 2,344 4,432 Less accumulated amortization...................... (1,330) (2,185) ------- ------- 1,014 2,247 Prepaid royalties, net............................. -- 1,359 Other.............................................. 367 225 ------- ------- $ 1,381 $ 3,831 ======= =======
6 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996--UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNT) Accrued Expenses:
MARCH 31, DECEMBER 31, 1996 1996 --------- ------------ Payroll and related costs................................ $ 650 $ 362 Taxes payable............................................ 324 170 Litigation settlement and legal expenses................. 34 1,465 Severance costs.......................................... -- 302 Other.................................................... 321 495 ------ ------ $1,329 $2,794 ====== ======
In June 1996, the Company entered into an agreement whereby Silicon Valley Research was granted the exclusive marketing rights to Bell Labs' CLOVER line of deep submicron verification products worldwide, with the exception of Japan and Taiwan, where the Company will co-market with Bell Labs' existing distributors. Pursuant to the four year agreement, the Company has made prepaid royalty payments of $1,500 and has the following quaranteed future royalty payments due to Bell Labs as follows: $250 on January 1, 1997, $1,250 in fiscal 1998, and $1,000 in fiscal 1999. NOTE 4: REPRICING OF STOCK OPTIONS On November 21, 1996, the Compensation Committee of the Board of Directors approved a proposal under which all employees could elect to amend certain options with exercise prices in excess of $2.50 to change the exercise price to the fair market value of the Company's common stock on that date, which was $2.50, with continuation of the existing vesting schedule. Options for the purchase of a total of 1,182 shares were amended. NOTE 5: LITIGATION The Company is subject to litigation in its normal course of business. In December 1994, the Company was named as defendant in an action brought by a competitor in the Santa Clara County Superior Court alleging unfair competition and breach of contract. The third amended complaint, the operative pleading, alleges unfair competition, breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment and fraud. The plaintiff is seeking attorneys' fees and damages, and enforcement of the contract. The Company has entered into settlement discussions with the plaintiffs and based on the information currently available to management, the Company has established an accrual for the estimated cost of settling the litigation. There can be no assurance that the Company will be able to resolve the litigation on terms acceptable to the Company. On January 10, 1997, a competitor filed a complaint in Santa Clara County Superior Court, alleging misappropriation of trade secrets, breach of contract, inducing breach of contract, breach of fiduciary duty, unfair competition and unjust enrichment against the Company and Anton Krouglyanskiy, a former employee of the competitor and a current employee of the Company. The plaintiff seeks injunction relief, compensation and punitive damages, restitution and attorneys' fees and costs. The parties are engaged in discovery. The Company believes the lawsuit is without merit and intends to defend itself vigorously. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS) This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements which reflect the Company's current view with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed in the Other Factors section of this Item 2, elsewhere in this Form 10-Q and as set forth in the Company's form 10- K on file with the SEC that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates," "believes," "expects," "intends," "future," and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. RESULTS OF OPERATIONS REVENUE Revenue for the third quarter of fiscal year 1997, which ended December 31, 1996, was $1,265, a decrease from $2,802 in the third quarter a year ago. The 55% decrease in revenues was due to lower license revenue during the quarter ended December 31, 1996, resulting primarily from a reduction in capital investment, particularly by customers in Asia, and increased competition. Revenue for the nine month period endedDecember 31, 1996, was $4,430, a decrease from $7,941 over the nine month period ended December 31, 1995. This 44% decrease is the result of the lower than anticipated revenues in the quarter ended December 31, 1996, also primarily as a result of the reduction in capital expenditures by semiconductor manufacturers, particularly in Asia, and increased competition in the EDA marketplace. International sales, primarily Japan and the Far East accounted for 30% of total revenue in the third quarter of fiscal 1997 compared to 42% in the third quarter a year ago. The Company's expense levels are based, in part, on its expectations as to future revenue levels, which are difficult to predict. A substantial portion of the Company's revenues in each quarter results from shipments during the last month of that quarter, and for that reason among others, the Company's revenues are subject to significant quarterly fluctuations. If revenue levels are below expectations, as in the quarter ended December 31, 1996, operating results may be materially and adversely affected. In addition, the Company's quarterly and annual results may fluctuate as a result of many factors, including the size and timing of software license fees, timing of co- development projects with customers, timing of operating expenditures, increased competition, new product announcements and releases by the Company and its competitors, gain or loss of significant customers or distributors, expense levels, renewal of maintenance contracts, pricing changes by the Company or its competitors, personnel changes, foreign currency exchange rates, and economic conditions generally and in the electronics industry specifically. COST OF REVENUE Cost of license fees and other revenue for the third quarter of fiscal year 1997 was $522, compared to $107 in the third quarter of fiscal 1996. Cost of sales of license fees for the nine months ended December 31, 1996 was $819, compared to $261 in the nine months ended December 31, 1995. Cost of sales of license fees is primarily the amortization of software development costs and amortization of prepaid royalty payments due to third parties and both increased for the quarter and nine months ended December 31, 1996. Cost of maintenance fees for the third quarter of fiscal year 1997 was $144 compared to $70 in the third quarter of fiscal 1996. Cost of maintenance fees for the nine months ended December 31, 1996 was $380 compared to $292 for the nine months ended December 31, 1995. Cost of maintenance fees is primarily the cost of providing technical support and technical documentation which increased in fiscal 1997. 8 ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES Engineering, research and development expenses for the third quarter of fiscal year 1997 were $1,193 compared to $827 in the third quarter a year ago. Comparing the third quarter of fiscal 1997 and the third quarter of fiscal 1996, engineering, research and development expenses were 94% and 30% of total revenue, respectively. The dollar and percentage increase in engineering, research and development expenses during this period is due to depreciation of improved capital equipment and software acquisitions and lower capitalized software development costs. Engineering, research and development expenses for the nine months ended December 31, 1996, were $2,705 compared to $2,461 for the nine months ended December 31, 1995. Comparing these periods, engineering, research and development expenses were 61% and 31% of total revenue, respectively. The percentage increases were primarily due to lower revenues. The Company continues to strengthen its engineering capabilities with increased staffing and increased emphasis on development of new technology. SELLING & MARKETING EXPENSES Selling and marketing expenses for the third quarter of fiscal year 1997 increased to $1,498 from $1,200 in the third quarter a year ago. In the third quarter of fiscal 1997 and the third quarter of fiscal 1996, selling and marketing expenses were 118% and 43% of total revenue, respectively. Selling and marketing expenses for the nine months ended December 31, 1996, increased to $4,714 from $3,784 in the nine months ended December 31, 1995. Comparing the nine month periods, selling and marketing expenses were 106% and 48% of total revenue, respectively. The dollar and percentage increases are due to the addition of sales and marketing personnel. The percentage increase is also due to lower revenues. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased to $2,845 for the third quarter of fiscal year 1997, from $429 in the third quarter a year ago. In the third quarter of fiscal 1997 and the third quarter of fiscal 1996, general and administrative expenses were 225% and 15% of total revenue, respectively. General and administrative expenses for the nine months ended December 31, 1996, increased to $3,948 from $813 in the nine months ended December 31, 1995. Comparing the nine month periods, general and administrative expenses were 89% and 10% of total revenue, respectively. The dollar and percentage increases are attributed to approximately $2,400 of significant nonrecurring charges associated with severance arrangements, litigation accruals, costs associated with the Company's restatement of its first and second quarter of fiscal 1997 unaudited consolidated financial statements and additional provisions to the allowance for doubtful accounts receivable recorded during the quarter ended December 31, 1996. The percentage increase is also due to reduced revenues. The Company expects general and administrative expenses to decline in future quarters. OTHER INCOME (EXPENSE) Other income (expense) increased to $44 from $(18) comparing the third quarter of fiscal year 1997 to the third quarter of fiscal 1996. Other income (expense) increased to $229 from $(46) comparing the nine months ended December 31, 1996 with the nine months ended December 31, 1995. Other expenses are primarily interest income and expense and the increases are due to investing the proceeds received in the secondary offering. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended December 31, 1996, cash and cash equivalents decreased $6,859 from $10,238 to $3,379. This decrease resulted primarily from cash used by operating activities of $4,851 and $2,364 of cash used for investing activities. The Company's primary unused sources of funds at December 31, 1996, consisted of cash and cash equivalents of $3,379. The Company is obligated to make royalty payments of $2,500 over the next two years. The Company is actively pursuing financing alternatives including debt and equity financings. Should the Company be unable to secure additional financing or the timing of the financing is significantly delayed, the Company will reduce discretionary spending as appropriate. There can be no assurance that such financing can be obtained at favorable terms, if at all. 9 The Company is currently engaged in litigation with two competitors. Regardless of the outcome of this pending litigation, the litigation may result in substantial cost and expenses to the Company and significant diversion of efforts by the Company's technical and management personnel. In addition, adverse rulings in the litigation could have a material adverse effect on the Company's business, operating results or financial condition. See Note 5 to the Consolidated Financial Statements and Part II, Item 1 "Litigation". OTHER FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS Revenues from license of the SVR GARDS family of products have historically represented a substantial majority of the Company's license revenues. Although the Company has recently introduced its SVR FloorPlacer and SVR SonIC products, the Company expects that revenues from the license of SVR GARDS products will continue to account for a significant portion of the Company's license revenues for the foreseeable future. The life cycles of the Company's products are difficult to predict due to the effect of new product introductions or product enhancements by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products and competition in the Company's marketplace. Declines in the demand for the SVR GARDS family of products, whether as a result of competition, technological change, price reductions or otherwise, could have a material adverse effect on the Company's business, operating results and financial condition. The EDA industry is characterized by extremely rapid technological change, frequent new product introductions and enhancements, evolving industry standards and rapidly changing customer requirements. The development of more complex ICs embodying new technologies will require increasingly sophisticated design tools. The Company's future results of operations will depend, in part, upon its ability to enhance its current products and to develop and introduce new products on a timely and cost-effective basis that will keep pace with technological developments and evolving industry standards and methodologies, as well as address the increasingly sophisticated needs of the Company's customers. The Company has in the past and may in the future experience delays in new product development and product enhancements. There can be no assurance that new products will gain market acceptance or that the Company will be successful in developing and marketing product enhancements or other new products that respond to technological change, evolving industry standards and changing customer requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products or product enhancements, or that its new products and product enhancements will adequately meet the requirements of the marketplace and achieve any significant degree of market acceptance. In addition, all of the Company's current products operate in, and planned future products will operate in, the Unix operating system. In the event that another operating system, such as Windows NT, were to achieve broad acceptance in the EDA industry, the Company would be required to port its products to such an operating system, which would be costly and time consuming and could have a material adverse effect on the Company's business, operating results or financial condition. Failure of the Company, for technological or other reasons, to develop and introduce new products and product enhancements in a timely and cost-effective manner would have a material and adverse effect on the Company's business, operating results and financial condition. In addition, the introduction or even announcement of products by the Company or one or more of its competitors embodying new technologies or changes in industry standards or customer requirements could render the Company's existing products obsolete or unmarketable. Such deferment of purchases could have a material adverse effect on the Company's business, operating results or financial condition. Software products as complex as those offered by the Company may contain defects or failures when introduced or when new versions are released. The Company has, in the past, discovered software defects in certain of its products and may experience delays or lost revenue to correct such defects in the future. Although the Company has not experienced material adverse effects resulting from any such defects to date, there can be no assurance that, despite testing by the Company, errors will not be found in new products or releases after commencement of commercial shipments, resulting in loss of market share or failure to achieve market acceptance. Any such occurrence could have a material effect upon the Company's business, operating results or financial condition. 10 A small number of customers account for a significant percentage of the Company's total revenue. There can be no assurance that sales to these entities, individually or as a group, will reach or exceed historical levels in any future period. Any substantial decrease in sales to one or more of these customers could have a material adverse effect on the Company's business, operating results or financial condition. The Company currently sells and markets its products internationally, other than in Japan, through a limited number of distributors. The Company hired new distributors in Europe and Singapore within the last year and is in the process of replacing a distributor in Korea. The Company has little history of performance by its new distributors. In addition, there can be no assurance that the distributors will be able to successfully distribute and support the Company's products on a timely basis or that such distributors will not reduce their efforts devoted to selling the Company's products or terminate their relationship with the Company as a result of competition with other suppliers' products. The loss of or changes in the relationship with or performance by one or more of the Company's international distributors could have a material adverse effect on the Company's business, results of operations and financial condition. There can also be no assurance that the Company's distributor strategy will be successful or that the Company will be able to retain current distributors or to identify new distributors in the future that are acceptable to the Company. The licensing and sales of the Company's software products generally involves a significant commitment of capital by prospective customers, with the attendant delays frequently associated with large capital expenditures and lengthy acceptance procedures. For these and other reasons, the sales cycle associated with the licensing of the Company's products is typically lengthy and subject to a number of significant risks over which the Company has little or no control. Because the timing of customer orders is hard to predict, the Company believes that its quarterly operating results are likely to vary significantly in the future. Actual results of the Company could vary materially as a result of factors, including, without limitation, the high average selling price and long sales cycle for the Company's products, the relatively small number of orders per quarter, dependence on sales to a limited number of large customers, timing of receipt of orders, successful product introduction and acceptance of the Company's products and increased competition. The Company is dependent upon the semiconductor and more generally, the electronics industries. Each of these industries is characterized by rapid technological change, short product life cycles, fluctuations in manufacturing capacity and pricing and gross margin pressures. Each of these industries is highly cyclical and has periodically experienced significant downturns, often in connection with, or in anticipation of declines in general economic conditions during which the number of new IC design projects often decreases. Purchases of new licenses from the Company are largely dependent upon the commencement of new design projects, and factors negatively affecting any of these industries could have a material adverse effect on the Company's business, operating results or financial condition. The Company has experienced some order delays as the semiconductor industry is experiencing a slowdown. The Company's business, operating results and financial condition may, in the future, reflect substantial fluctuations from period to period as a consequence of patterns and general economic conditions in either the semiconductor or electronics industry. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: In December 1994, Mentor Graphics, Inc., a competitor of the Company, filed an action against the Company in Santa Clara County Superior Court. The third amended complaint, the operative pleading, alleges unfair competition, breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment and fraud. The plaintiff is seeking enforcement of the contract, attorney's fees and damages. Mentor Graphics filed a motion for summary adjudication with the court on August 21, 1996. A hearing was held on the motion on November 7, 1996, and the motion was denied. The Company is engaged in settlements negotiations with plaintiff; however, there can be no assurance that there will be any resolution of the litigation on terms acceptable to the Company. On January 10, 1997, Gambit Automated Design, Inc., a competitor, filed a complaint in Santa Clara County Superior County (Cv 773345), alleging misappropriation of trade secrets, breach of contract, inducing breach of contract, breach of fiduciary duty, unfair competition and unjust enrichment against the Company and Anton 11 Krouglyanskiy, a former employee of Gambit and a current employee of the Company. Plaintiff seeks injunction relief, compensation and punitive damages, restitution and attorneys fees and costs. The parties are engaged in discovery. The Company believes the lawsuit is without merit and intends to defend itself vigorously. ITEM 2. CHANGES IN SECURITIES: Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES: Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS: Not Applicable ITEM 5. OTHER INFORMATION: Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (A) Exhibits:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- (a)(1) The financial statements filed as part of this Report at Item 1 are listed in the Index to Financial Statements and Financial Statement Schedules on page 2 of this Report. (a)(2) The following exhibits are filed with this Quarterly Report on Form 10-Q: 3.01 Registrant's Articles of Incorporation as amended to date (incorporated by reference to Exhibit 3.01 of Registrant's Registration Statement on Form S-1 ( File No. 2-89943) filed March 14, 1984, as amended (the "1984 Registration Statement")). 3.02 Registrant's Certificate of Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.02 of Registrant's Registration Statement on Form S-2 filed December 6, 1995. 3.03 Registrant's bylaws, as amended to date (incorporated by reference to Exhibit 4.01 of the 1984 Registration Statement). 3.04 Amendment to Bylaws dated November 12, 1996. 10.01* Registrant's 1990 Directors Stock Option Plan (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated July 10, 1990). 10.03* Registrant's 1988 Stock Option Plan, as amended to date, including the stock option grant form and the stock option exercise notice and agreement (incorporated by reference to Exhibit 10.15 of Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993). 10.05* Registrant's 1993 Employee Stock Purchase Plan, as amended to date (incorporated by reference to Exhibit 10.20 of Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993). 10.06 Stock Purchase Agreement dated February 12, 1993 between the Registrant and several investors (incorporated by reference to Exhibit 4.01 of Registrant's current report on Form 8-K filed on April 15, 1993). 10.07 Stock Purchase Agreement dated January 19, 1994 between the Registrant and several investors (incorporated by reference to Exhibit 4.01 of Registrant's current report on Form 8-K filed on February 4, 1994). 10.08 Warrant Agreement dated March 22, 1994 between the Registrant and Prutech Research and Development Partnership II (incorporated by reference to Exhibit 10.22 of Registrant's Annual Report on Form 10- KSB for the fiscal year ended March 31, 1994). 10.09 Subordination debt agreement dated September 15, 1994 between the registrant and several investors (incorporated by reference to Exhibit 4.01 of Registrant's current report on Form 8-K filed on November 4, 1994). 10.10* Employment Agreement dated October 31, 1995 between the Registrant and Glenn E. Abood (incorporated by reference to Exhibit 10.10 of Registrant's Registration Statement on Form S-2 filed December 6, 1995).
12
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.11 Stock Purchase Agreement dated June 6, 1995 between the Registrant and several investors (incorporated by reference to Exhibit 10.10 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1995). 10.12 Security and Loan Agreement dated September 15, 1995 by and among Imperial Bank and the Registrant (incorporated by reference to Exhibit 10.12 of the Registrant's Registration Statement on Form SB-2 filed December 6, 1995). 10.13 Master Equipment Lease Agreement dated November 9, 1995 by and between Financing for Science International, Inc. and the Registrant (incorporated by reference to Exhibit 10.13 of the Registrant's Registration Statement on Form SB-2 filed December 6, 1995). 27.00 Financial Data Schedule
- -------- * Management Contract or Compensatory Plan or Arrangement (B) Reports on Form 8-K: None filed during period 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SILICON VALLEY RESEARCH Date: February 18, 1997 /s/ Robert R. Anderson ------------------------------------- Robert R. Anderson Chairman and Chief Executive Officer 14 EX-3.04 2 RESOLUTIONS AMENDING BYLAWS EXHIBIT 3.04 RESOLUTIONS AMENDING BY-LAWS REGARDING TELEPHONIC MEETING ADOPTED BY THE BOARD OF DIRECTORS OF SILICON VALLEY RESEARCH, INC. NOVEMBER 12, 1996 WHEREAS, Section 307 of the California General Corporations Law has recently been amended to provide for alternative means of Board meetings through conference telephone, electronic screen communications or other communications equipment and to require the Company to develop a procedure for verification of the identity of directors participating by various media in a directors' meeting. RESOLVED, that Section 11.6 of the Company's Bylaws be amended and restated in its entirety to read as forth below: Section 11.6: Meetings By Conference Telephone or Other Communications Equipment. So long as permitted by statute, directors may participate in a regular or special meeting through any means of communication, including conference telephone, electronic screen communication or other communications equipment. Participation in a meeting pursuant to this Section 11.6 constitutes presence in person at that meeting if each participating director is provided the means to communicate with all of the other directors concurrently and (1) the meeting is held by conference telephone or video conferencing or other communication mode enabling participants to determine, through voice or image recognition, that a participant is or is not a director entitled to participate in the meeting or (2) another verification device (determined in the discretion of the chairman of the meeting) is used to determine that each person participating in the meeting is in fact a director. Such verification method may include (at the discretion of the chairman of the meeting) use of passwords or similar codes for gaining access to the meeting. RESOLVED FURTHER, that "Silvar-Lisco" shall be replaced by "Silicon Valley Research, Inc." EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS MAR-31-1997 DEC-31-1996 3,379 0 2,253 571 0 5,587 2,826 1,887 10,357 4,117 71 0 0 31,540 (25,371) 10,357 2,380 4,430 1,199 11,367 0 0 24 (7,907) 0 (7,907) 0 0 0 (7,907) (0.69) (0.69)
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