-----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, Ca75o9M3D4/j51ifzUPqhVdTaMTrmPFyiS7fGmO8ipkHyOKJyocV3LczOkeLD5GZ qK6o29hoBBjW7Lkg1ddRhg== 0000891618-97-003480.txt : 19970815 0000891618-97-003480.hdr.sgml : 19970815 ACCESSION NUMBER: 0000891618-97-003480 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97663367 BUSINESS ADDRESS: STREET 1: 6360 SAN IGNACIO AVE CITY: SAN JOSE STATE: CA ZIP: 95119 BUSINESS PHONE: 4083610333 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 FOR THE PERIOD ENDED 6/30/97 1 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 June 30, 1997 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 San Jose, CA 95119-1231 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (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 June 30, 1997: 16,764,624 2 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES INDEX
Pages ----- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1997 and June 30, 1997 (unaudited) 3 Consolidated Statements of Operations - Three Months Ended June 30, 1996 and 1997 (unaudited) 4 Consolidated Condensed Statements of Cash Flows - Three Months Ended June 30, 1996 and 1997 (unaudited) 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Part II. OTHER INFORMATION 13-15 Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Securities Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signatures 16 Exhibit 27. Financial Data Schedule 17
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
Assets March 31, 1997 June 30, 1997 - ------ -------------- ------------- (Unaudited) Current Assets: Cash and cash equivalents $ 2,064 $ 3,623 Accounts receivable, net of allowances of $150 in each period 1,129 1,188 Prepaid expenses and other current assets 453 301 --------- -------- 3,646 5,112 Fixed assets, net 879 814 Other assets, net 3,952 2,033 --------- -------- $ 8,477 $ 7,959 ======== ======= Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 515 $ 582 Accrued expenses 1,443 1,043 Deferred revenue 1,018 1,030 Current portion of long-term debt 189 216 --------- -------- 3,165 2,871 Long-term debt 254 244 --------- -------- 3,419 3,115 --------- -------- Contingencies (Note 7) 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: 12,227 shares at March 31, 1997 and 16,765 shares at June 30, 1997 (Note 6) 32,375 36,253 Accumulated deficit (27,308) (31,303) Cumulative translation adjustment (9) (106) --------- -------- 5,058 4,844 --------- -------- $ 8,477 $ 7,959 ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 4 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended June 30, 1996 1997 ---------- --------- Revenue: License fees and other $ 1,569 $ 242 Maintenance fees 653 471 ------- ------- Total revenue 2,222 713 ------- ------- Cost of revenue: License fees and other 119 1,318 Maintenance fees 99 106 ------- ------- Total cost of revenue 218 1,424 ------- ------- Gross profit 2,004 (711) ------- ------- Operating expenses: Engineering, research and development 668 625 Selling and marketing 1,568 1,341 General and administrative 408 303 Impairment loss on prepaid royalty (Note 7) --- 1,217 ------- ------- Total operating expenses 2,644 3,486 ------- ------- Operating loss (640) (4,197) ------- ------- Other income (expense): Interest income 112 71 Interest expense (8) (4) Other, net 1 136 ------- ------- Total other income 105 203 ------- ------- Loss before provision for income taxes (535) (3,994) Provision for income taxes --- --- ------- ------- Net loss $ (535) $(3,994) ======= ======= Net loss per share $ (0.05) $(0.25) ======= ====== Shares used in per share calculation 11,378 15,964 ====== ======
The accompanying notes are an integral part of these consolidated financial statements. 5 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended June 30, 1996 1997 --------- --------- Cash Flows from Operating Activities: Net loss $ (535) $ (3,994) Adjustments to reconcile net loss to net cash used in operating activities: Provision for impairment of prepaid marketing royalty --- 1,217 Amortization of software development costs 136 1,204 Depreciation and amortization 120 11 Changes in assets and liabilities, net: Accounts receivable 1,863 (57) Prepaid expenses and other current assets (530) 154 Accounts payable 460 66 Accrued expenses (337) (414) Deferred revenue (119) (27) Other, net (1,284) 204 --------- --------- Net cash used in operating activities (226) (1,636) --------- --------- Cash Flows from Investing Activities: Acquisition of fixed assets (137) (3) Capitalization of software development costs and purchase of software licenses (1,758) (567) --------- --------- Net cash used in investing activities (1,895) (570) --------- --------- Cash Flows from Financing Activities: Principal payments of long-term debt (34) (45) Proceeds from issuance of common stock 129 3,878 --------- --------- Net cash provided by financing activities 95 3,833 --------- --------- Effect of exchange rate changes on cash (3) (68) --------- --------- Net increase (decrease) in cash and cash equivalents (2,029) 1,559 Cash and cash equivalents at beginning of period 10,238 2,064 --------- --------- Cash and cash equivalents at end of period $ 8,209 $ 3,623 ============== ============
The accompanying notes are an integral part of these consolidated financial statements. 6 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997- UNAUDITED (IN THOUSANDS) 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 the opinion of management, the consolidated financial statements include all adjustments (consisting only of normal recurring 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. 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 that in accordance with the Company's accounting policies. The financial statements for the three months ended June 30, 1996 include the effect of the restatement referred to above. NOTE 2: EARNINGS PER SHARE The calculation of net loss per share is based upon the weighted average number of shares outstanding during the period. During the three month period ended June 30, 1997 and 1996, the common equivalent shares were antidilutive due to losses and, accordingly, were excluded from the computation of net loss per share. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share". This Statement is effective for the Company's fiscal year ending March 31, 1998. The Statement redefines earnings per share under generally accepted accounting principles. Under the new standard, primary earnings per share is replaced by basic earnings per share and fully diluted earnings per share is replaced by diluted earnings per share. The Company does not expect the adoption of this Statement to have a significant impact on the previously reported loss per share. NOTE 3: STATEMENT OF CASH FLOWS INFORMATION
Three Months Ended June 30, 1996 1997 ---- ---- Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 8 $ 4 Income Taxes 13 ---
7 SILICON VALLEY RESEARCH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) JUNE 30, 1997- UNAUDITED (IN THOUSANDS) NOTE 4: BALANCE SHEET COMPONENTS
March 31, June 30, 1997 1997 ---- ---- Other Assets: Software development costs $ 2,163 $ 1,685 Software licenses 2,388 2,421 ---------- --------- 4,551 4,106 Less accumulated amortization (2,425) (2,754) ---------- --------- 2,126 1,352 Prepaid royalties, net 1,592 417 Other 234 264 ---------- --------- $ 3,952 $ 2,033 ========== ========= Accrued Expenses: Payroll and related costs $ 434 $ 362 Taxes payable 108 106 Other 901 575 ---------- --------- $ 1,443 $ 1,043 ========== =========
NOTE 5: BANK LINE OF CREDIT In June 1997, the Company entered into an additional line of credit with its bank. The revolving line of credit will provide for borrowings up to $2,000 with available borrowings limited to certain percentages of eligible accounts receivable. Interest at prime plus one percent will be due monthly with principal due in one year. As of June 30, 1997, no amounts had been borrowed under the line of credit. NOTE 6: CAPITAL STOCK On April 16, 1997, the Company completed a private placement of units comprising 4,517 shares of Common Stock and warrants to purchase an additional 4,517 shares of Common Stock at an exercise price of $1.31 per share, with proceeds to the Company of approximately $4,000. The shares of Common Stock are unregistered. The Company will file a registration statement with the Securities and Exchange Commission to become effective on or before October 14, 1997 as part of the private placement agreement. One director, one officer/director and two officers participated in the private placement. NOTE 7: CONTINGENCIES The Company is subject to various types of litigation during its normal course of business. In January 1997, Gambit Automated Design, Inc. ("Gambit"), a competitor of the Company, filed a complaint 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 a former employee of Gambit who is a current employee of the Company. Gambit seeks injunctive relief, compensation and punitive damages, restitution and attorneys' fees and costs. The parties are currently engaged in discovery. The Company believes the lawsuit is without merit and intends to defend itself vigorously. In June 1996, the Company entered into an agreement whereby the Company 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 would co-market with Bell Labs' existing distributors. Pursuant to the four year agreement, the Company made prepaid royalty payments of $1,750. The agreement also provides for future prepaid royalty payments of: $1,250 in fiscal 1998 and $1,000 in fiscal 1999. Despite active marketing efforts, the product had limited success due to product issues and to strong competitive factors. Accordingly, the Company recognized an impairment loss on the balance of unamortized prepaid royalties totalling $1,217 during the three months ended June 30, 1997. In July and August 1997, both parties sent notices of termination, alleging breach of the agreement by the other 8 party. The agreement provides that any dispute, controversy or claim arising out of the agreement shall be resolved through good faith consultation. If the dispute is not resolved by consultation, it shall be referred to and finally resolved by arbitration. Consultations between the parties continues. Arbitrators have not been appointed. The disputes are in the very early stages and the ultimate outcome cannot presently be determined. Accordingly, no provision for any recovery or any liability that may result upon resolution has been made in the consolidated financial statements. 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 first quarter of fiscal year 1998, which ended June 30, 1997, was $713, a decrease from $2,222 in the first quarter a year ago. The 68% decrease in revenues was due to lower license and maintenance revenue during the quarter ended June 30, 1997, primarily resulting from a reduction in capital investment and increased competition. International sales, primarily Japan and the Far East accounted for 28% of total revenue in the first quarter of fiscal 1998 compared to 12% in the first 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 June 30, 1997, 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 first quarter of fiscal year 1998 was $1,318, compared to $119 in the first quarter of fiscal 1997. Cost of sales of license fees is primarily the amortization of software development costs and amortization of prepaid royalty payments to third parties. As a result of the significant reduction in revenue and due to the Company's expanded product development program, the Company wrote-off $1,036 of unamortized software development costs in the three months ended June 30, 1997. Cost of maintenance fees for the first quarter of fiscal year 1998 was $106 compared to $99 in the first quarter of fiscal 1997. Cost of maintenance fees is primarily the cost of providing technical support and technical documentation. 9 ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES Engineering, research and development expenses for the first quarter of fiscal year 1998 were $625 compared to $668 in the first quarter a year ago. Comparing the first quarter of fiscal 1998 and the first quarter of fiscal 1997, engineering, research and development expenses were 88% and 30% of total revenue, respectively. SELLING AND MARKETING EXPENSES Selling and marketing expenses for the first quarter of fiscal year 1998 decreased to $1,341 from $1,568 in the first quarter a year ago. In the first quarter of fiscal 1998 and the first quarter of fiscal 1997, selling and marketing expenses were 188% and 71% of total revenue, respectively. The dollar decrease is due to lower sales commissions resulting from reduced revenue in the first quarter of fiscal 1998. The percentage increase is also due to lower revenues levels. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased to $303 for the first quarter of fiscal year 1998 from $408 in the first quarter a year ago. In the first quarter of fiscal 1998 and the first quarter of fiscal 1997, general and administrative expenses were 42% and 18% of total revenue, respectively. The percentage increase is due to reduced revenues. IMPAIRMENT LOSS ON PREPAID ROYALTY In June 1996, the Company entered into an agreement whereby the Company was granted the exclusive marketing rights to Bell Labs' CLOVER line of deep submicron verification products worldwide, with the exception of Japan and Taiwan. Pursuant to the four year agreement, the Company has made prepaid royalty payments of $1,750. Despite active marketing efforts, the product had limited success due to product issues and to strong competitive factors. Accordingly, the Company recently ceased sales of the product line. Provision was made in the accompanying financial statements to expense the full amount of unamortized prepaid royalty of $1,217, the future value of which was considered impaired. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily through sales of equity securities and to a lesser extent, cash generated from operations. To date in fiscal 1998, the Company has received net cash of $3,878 from the private placement of equity securities and the exercise of warrants and options to purchase Common Stock ("financing activities"). During the three months ended June 30, 1997, cash and cash equivalents increased $1,559 from $2,064 to $3,623. This increase resulted from cash provided by the financing activities of $3,833 less cash used by operations of $1,636 and $570 of cash used for investing activities. The Company incurred a significant loss in the first quarter of fiscal 1998 and expects operating losses to continue, at least in the near term, as it expands its product development and marketing capabilities. The achievement of profitability is primarily dependent upon the continued development and commercial acceptance of the Company's products, the successful management of the business and management's ability to strategically focus the Company. There can be no assurance as to whether or when achievement of profitable operations will occur. In addition, the Company is experiencing negative cash flow from operations and it is expected that it will continue to experience negative cash flow at least through mid-fiscal 1998 and potentially thereafter. 10 The Company's primary unused sources of funds at June 30, 1997 consisted of cash and cash equivalents of $3,623 and an unused line of credit of $2,000 from its bank. The Company believes its cash and cash generated from operations and available borrowings will be sufficient to finance its operations at least through its 1998 fiscal year. Nevertheless, the Company may require additional financing. Management is exploring financing alternatives to supplement the Company's cash position. Potential sources of additional financing include private equity financings, mergers, strategic investments, strategic partnerships or various forms of debt financings. The Company may be prevented or restricted from raising additional funds by issuing equity securities or securities convertible into Common Stock unless the Company amends its Articles of Incorporation to increase the number of authorized shares of Common Stock. The Company is seeking shareholder approval to increase the Company's authorized shares of Common Stock at its next annual shareholder meeting. However, no assurance can be given as to whether such shareholder approval will be obtained in a timely manner, if at all. The Company has no commitments or arrangements to obtain any additional funding and there can be no assurance that the required financing of the Company will be available on acceptable terms, if at all. The unavailability or timing of any financing could prevent or delay the continued development and marketing of the products of the Company and could require substantial curtailment of operations of the Company. OTHER FACTORS AFFECTING FUTURE RESULTS DEPENDENCE ON SINGLE PRODUCT LINE. Revenues from sales of the SVR GARDS family of products have historically represented a substantial majority of the Company's revenues. Although the Company has introduced its SVR SonIC family of products, the Company expects that revenues from the sale of SVR GARDS products will continue to account for at least a significant portion of the Company's 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. NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS. 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. The Company has recently released significant upgrades to GARDS to provide a new Power Router, to SonIC to provide a new placer and new routing capabilities, and to SC to provide a rewritten Global Router and fast new placement. There can be no assurance that these 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 11 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. There can be no assurance that the introduction or announcement of new product offerings by the Company, or one or more of its competitors, will not cause customers to defer purchases of existing Company products. 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. DEPENDENCE ON CERTAIN CUSTOMERS AND RESELLERS. A small number of customers account for a significant percentage of the Company's total revenue. In fiscal 1995, HAL Computer Systems, Inc., a subsidiary of Fujitsu Ltd ("HAL"), accounted for 12% and Sony Corporation and Yamaha Corporation ("Yamaha") each accounted for 10% of the Company's total revenue. In fiscal 1996, HAL accounted for 16% and Motorola and Yamaha each accounted for 11% of the Company's total revenue. In fiscal 1997, HAL accounted for 14%, Lucent Technologies accounted for 19% and Motorola, Inc. accounted for 13% 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 overseas, other than in Japan and Taiwan, through a limited number of distributors. The Company has a limited history of performance by its distributors. In addition, there can be no assurance that the new 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 an adverse effect on the Company's business. 12 POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Numerous factors may materially and unpredictably affect operating results of the Company, including the uncertainties of 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. Any unfavorable change in these or other factors could have a material adverse effect on the Company's operating results for a particular quarter. Many of the Company's customers order on an as-needed basis and often delay delivery of firm purchase orders until their project commencement dates are determined, and, as a result, the Company operates with no significant backlog. Quarterly revenue and operating results will therefore depend on the volume and timing of orders received during the quarter, which are difficult to forecast accurately. Historically, the Company has often recognized a substantial portion of its license revenues in the last month of the quarter, with these revenues frequently concentrated in the last two weeks of the quarter. Operating results would be disproportionately affected by a reduction in revenue because only a small portion of the Company's expenses vary with its revenue. Operating results in any period should not be considered indicative of the results to be expected for any future period, and there can be no assurance that the Company's revenues will increase or that the Company will achieve profitability. LENGTHY SALES CYCLE. 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 a variety 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. DEPENDENCE UPON SEMICONDUCTOR AND ELECTRONICS INDUSTRIES; GENERAL ECONOMIC AND MARKET Conditions. 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'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. COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS; DISCLOSURE RELATING TO LOW-PRICED STOCK The Company's Common Stock is quoted on the Nasdaq National Market ("The National Market"). However, in order to continue to be included in the National Market, a company must meet certain maintenance criteria. Continued inclusion also requires two market makers and a minimum bid price of $1.00 per share; provided, however, that if a company falls below such minimum bid price, it will remain eligible for continued inclusion in the National Market if the market value of the public float is at least $3,000,000 and the company has $4,000,000 in net tangible assets. The Nasdaq Stock Market, Inc. ("Nasdaq") has recently proposed new maintenance criteria which, if implemented, would eliminate the exception to the $1.00 per share minimum bid price and require, among other things, $4,000,000 in net tangible assets and $5,000,000 market value of the public float. Failure to meet these maintenance criteria in the future may result in the delisting of the Company's Common Stock from the National Market and the quotation of the Company's Common Stock on the Nasdaq SmallCap Market (the "SmallCap Market") if the requirements for inclusion on the Small Cap Market are met. As a result of quotation on the SmallCap Market, an investor may find it more difficult to dispose of the Company's Common Stock. 13 Failure to meet the SmallCap Market inclusion criteria, or the failure to meet the SmallCap Market maintenance criteria if the initial SmallCap Market inclusion criteria are met, may result in the delisting of the Company's Common Stock from Nasdaq. Trading, if any, in the Company's Common Stock would thereafter be conducted in the non-Nasdaq over-the-counter market. As a result of such delisting, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's Common Stock. MANAGEMENT TRANSITION The Company is experiencing a period of management transition that has placed, and may continue to place, a significant strain on its resources, including its personnel. Robert R. Anderson resumed the role of Chief Executive Officer in December 1996 and has assembled a new senior management team. The Company's ability to manage growth successfully will require its new management personnel to work together effectively and will require the Company to improve its operations, management and financial systems and controls. If the Company management is unable to manage this transition effectively, the Company's business, competitive position, results of operations and financial condition will be materially and adversely affected. PART II. OTHER INFORMATION Item 1. Legal Proceedings: In June 1996, the Company entered into an agreement whereby the Company 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 would co-market with Bell Labs' existing distributors. Pursuant to the four year agreement, the Company made prepaid royalty payments of $1,750. The agreement also provides for future prepaid royalty payments of: $1,250 in fiscal 1998 and $1,000 in fiscal 1999. In July and August 1997, both parties sent notices of termination, alleging breach of the agreement by the other party. The agreement provides that any dispute, controversy or claim arising out of the agreement shall be resolved through good faith consultation. If the dispute is not resolved by consultation, it shall be referred to and finally resolved by arbitration. Consultations between the parties continues. Arbitrators have not been appointed nor has demand for arbitration been made. The disputes are in the very early stages and the ultimate outcome cannot presently be determined. Accordingly, no provision for any recovery or any liability that may result upon resolution has been made in the consolidated financial statements. 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 14 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 bylaws, as amended to date (incorporated by reference to Exhibit 4.01 of the 1984 Registration Statement). 10.01* Registrant's 1990 Directors Stock Option Plan (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated July 10, 1990). 10.02 Stock Purchase Agreement dated May 16, 1991 between the Registrant and Intergraph Corporation (incorporated by reference to Exhibit 4.01 of Registrant's Report on Form 8-K dated June 7, 1991). 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 Form10-KSB for the fiscal year ended March 31, 1993). 10.04 Warrant Agreement dated March 31, 1992 between the Registrant and Intergraph Corporation (incorporated by reference to Exhibit 10.18 of Registrant's Annual Report on Form10-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). 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 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). 15 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.14* Change of Control and Severance Benefits Agreement as of February 19, 1997 between the Registrant and Laurence G. Colegate, Jr. (incorporated by reference to Exhibit 10.14 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997). 10.15 Stock Transfer Terms and Conditions dated February 24, 1997 between the Registrant and Mentor Graphics, Inc. (incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form S-3 (File No. 333-26599) filed May 7, 1997) 10.16 Form of Unit Purchase Agreement among the Company and several investors dated as of April 16, 1997 (incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-3 (File No. 333-26599) filed May 7, 1997.) 10.17 Form of Warrant to Purchase Common Stock among the Company and several investors dated as of April 16, 1997 (incorporated by reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-3 (File No. 333-26599) filed May 7, 1997.) 27.00 Financial Data Schedule *Management Contract or Compensatory Plan or Arrangement (B) REPORTS ON FORM 8-K: NONE FILED DURING PERIOD 16 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, INC. Date: August 14, 1997 /s/ Robert R. Anderson --------------- ---------------------- Robert R. Anderson Chief Executive Officer and Chairman of the Board /s/ Laurence G. Colegate, Jr. Laurence G. Colegate, Jr. Senior Vice President, Finance and Administration (Chief Financial and Accounting Officer) 17 EXHIBIT INDEX 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 bylaws, as amended to date (incorporated by reference to Exhibit 4.01 of the 1984 Registration Statement). 10.01* Registrant's 1990 Directors Stock Option Plan (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated July 10, 1990). 10.02 Stock Purchase Agreement dated May 16, 1991 between the Registrant and Intergraph Corporation (incorporated by reference to Exhibit 4.01 of Registrant's Report on Form 8-K dated June 7, 1991). 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 Form10-KSB for the fiscal year ended March 31, 1993). 10.04 Warrant Agreement dated March 31, 1992 between the Registrant and Intergraph Corporation (incorporated by reference to Exhibit 10.18 of Registrant's Annual Report on Form10-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). 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 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). 18 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.14* Change of Control and Severance Benefits Agreement as of February 19, 1997 between the Registrant and Laurence G. Colegate, Jr. (incorporated by reference to Exhibit 10.14 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997). 10.15 Stock Transfer Terms and Conditions dated February 24, 1997 between the Registrant and Mentor Graphics, Inc. (incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form S-3 (File No. 333-26599) filed May 7, 1997) 10.16 Form of Unit Purchase Agreement among the Company and several investors dated as of April 16, 1997 (incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-3 (File No. 333-26599) filed May 7, 1997.) 10.17 Form of Warrant to Purchase Common Stock among the Company and several investors dated as of April 16, 1997 (incorporated by reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-3 (File No. 333-26599) filed May 7, 1997.) 27.00 Financial Data Schedule *Management Contract or Compensatory Plan or Arrangement EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-1998 JUN-30-1997 3,623 0 1,338 150 0 5,112 2,952 2,138 7,959 2,871 0 0 0 36,253 (31,409) 7,959 242 713 1,318 3,486 0 0 4 (3,994) 0 (3,994) 0 0 0 (3,994) (0.25) (0.25)
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