##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-30539
 TVIA, INC.
  Delaware
    
    
    
    94-3175152(State or other jurisdiction of
incorporation or organization)
    
    
    
    (I.R.S. employer
identification number)4001 Burton Drive, Santa Clara, California
(Address of Principal Executive Offices)
    
    
    
    95054
(Zip Code)
  
 þ o
  o o þ
 o þ




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##### 



TVIA, INC. AND SUBSIDIARY
 FORM 10-Q
 QUARTERLY PERIOD ENDED JUNE 30, 2006
 INDEX
 PagePart I: Financial InformationItem 1: Financial StatementsUnaudited Condensed Consolidated Balance Sheets
    
    
    1Unaudited Condensed Consolidated Statements of Operations
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4: Controls and Procedures
    
    
    19Part II: Other InformationItem 1: Legal Proceedings
    
    
    20Item 1A: Risk Factors
    
    
    21Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3: Defaults Upon Senior Securities
    
    
    21Item 4: Submission of Matters to a Vote of the Security Holders
    
    
    21Item 5: Other Events
    
    
    22Item 6: Exhibits and Reports on Form 8-K
    
    
    22SIGNATURES
    
    
    24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  i




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 TVIA, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Unaudited
 June 30,
    
    
    March 31,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,767
    
    
    $
    8,455Investments
    
    
    3,995
    
    
    
    4,502Accounts receivable, net
    
    
    7,436
    
    
    
    3,662Inventories, net
    
    
    2,058
    
    
    
    2,601Other current assets and prepaid expenses
    
    
    656
    
    
    
    902Total current assets
    
    
    18,912
    
    
    
    20,122Property and equipment, net
    
    
    1,244
    
    
    
    928Other assets
    
    
    303
    
    
    
    303Total assets
    
    $
    20,459
    
    
    $
    21,353LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    778
    
    
    $
    802Accrued liabilities and other
    
    
    2,431
    
    
    
    2,600Short-term portion of notes payable
    
    
    462
    
    
    
    541Cash settled stock appreciation rights
    
    
    904
    
    
    
    566Total current liabilities
    
    
    4,575
    
    
    
    4,509Long-term portion of notes payable
    
    
    
    
    
    
    211Total liabilities
    
    
    4,575
    
    
    
    4,720Commitments and contingencies (Note 8)Stockholders equityCommon stock, $0.001 par value: 125,000 shares authorized;
and 23,916 and 23,866 shares outstanding, respectively
    
    
    24
    
    
    
    24Additional paid-in-capital
    
    
    95,923
    
    
    
    95,395Accumulated other comprehensive income
    
    
    36
    
    
    
    28Accumulated deficit
    
    
    (79,349
    )
    
    
    (78,064
    )Treasury stock: 204,400 shares
    
    
    (750
    )
    
    
    (750
    )Total stockholders equity
    
    
    15,884
    
    
    
    16,633Total liabilities and stockholders equity
    
    $
    20,459
    
    
    $
    21,353
  1




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TVIA, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
 Three Months EndedJune 30,2006
    
    
    2005Revenues
    
    $
    5,071
    
    
    $
    1,108Cost of revenues
    
    
    2,518
    
    
    
    610Gross profit
    
    
    2,553
    
    
    
    498Operating expenses:Research and development
    
    
    1,551
    
    
    
    1,282Sales and marketing
    
    
    1,397
    
    
    
    542General and administrative
    
    
    1,124
    
    
    
    814Total operating expenses
    
    
    4,072
    
    
    
    2,638Operating loss
    
    
    (1,519
    )
    
    
    (2,140
    )Cumulative effect for forfeiture rate change
    
    
    121
    
    
    
    Other income, net
    
    
    112
    
    
    
    98Net loss
    
    $
    (1,286
    )
    
    $
    (2,042
    )Basic and diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.09
    )Shares used in computing basic and diluted net loss per share
    
    
    23,901
    
    
    
    23,191
  2




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##### Table of Contents



TVIA, INC. AND SUBSIDIARY
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)  (Unaudited)
 Three months endedJune 30,2006
    
    
    2005Cash Flows from Operating Activities:Net (loss)
    
    $
    (1,286
    )
    
    $
    (2,042
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and Amortization
    
    
    253
    
    
    
    332Net Gain on the Sale of Assets
    
    
    2
    
    
    
    Change in inventory reserve
    
    
    (31
    )
    
    
    64Stock compensation expense  equity plans
    
    
    477
    
    
    
    280Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,774
    )
    
    
    (426
    )Inventories
    
    
    574
    
    
    
    (346
    )Other current assets and prepaid expenses
    
    
    151
    
    
    
    (31
    )Other long-term assets
    
    
    (47
    )Accounts payable
    
    
    (24
    )
    
    
    130Accrued liabilities and others
    
    
    (169
    )
    
    
    (573
    )Cash settled stock appreciation rights
    
    
    338
    
    
    
    Net cash used in operating activities
    
    
    (3,536
    )
    
    
    (2,612
    )Cash Flows from Investing Activities:Purchase of available-for-sale investments
    
    
    (2,483
    )
    
    
    (2,240
    )Proceeds from sale of available-for-sale investments
    
    
    3,000
    
    
    
    6,650Purchase of property and equipment
    
    
    (435
    )
    
    
    (19
    )Net cash provided by investing activities
    
    
    82
    
    
    
    4,391Cash Flows from Financing Activities:Repayments of notes payable
    
    
    (284
    )
    
    
    (115
    )Proceeds from issuance of common stock
    
    
    50
    
    
    
    107Net cash used in financing activities
    
    
    (234
    )
    
    
    (8
    )Net increase (decrease) in cash and cash equivalents
    
    
    (3,688
    )
    
    
    1,771Cash and cash equivalents at beginning of period
    
    
    8,455
    
    
    
    4,078Cash and cash equivalents at end of period
    
    $
    4,767
    
    
    $
    5,849Supplemental Cash Flow Information:Interest paid
    
    $
    16
    
    
    $
    10
  3




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TVIA, INC. AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1. INTERIM STATEMENTS
   NOTE 2. SUMMARY OF SIGNIFICANT POLICIES
 Use of Estimates
   Principles of Consolidation
  Cash and Cash Equivalents and Short-Term Investments
  4




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Allowance for Sales Returns and Doubtful Accounts
  Inventories
  Property and Equipment
  Impairment of Long-Lived Assets
  Revenue Recognition
 Revenues.
  :
 Customer
Acceptance Requirements or Significant Obligations
 New Product Acceptance
 5




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##### Table of Contents



Software Development Costs
  Research and Development Expenses
  Income Taxes
 Accounting for Income Taxes.
 Comprehensive Income (Loss)
  For the Three Months EndedJune 302006
    
    
    2005Net loss
    
    $
    (1,286
    )
    
    $
    (2,042
    )Change in unrealized gain on available-for-sale-investments
    
    
    8
    
    
    
    44Comprehensive loss
    
    $
    (1,278
    )
    
    $
    (1,998
    )
 6




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##### Table of Contents



Recent Accounting Pronouncements
 Accounting for Uncertainty in
Income Taxes: an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Foreign Currency Translation
  Net Loss Per Share
  For the Three Months Ended June 302006
    
    
    2005Net loss
    
    $
    (1,286
    )
    
    $
    (2,042
    )Weighted average shares used in
computing basic and diluted net
loss per share
    
    
    23,901
    
    
    
    23,191Basic and diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.09
    )Options and warrants excluded from
the computation of diluted net loss
per share
    
    
    7,437
    
    
    
    6,833
  7




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Note 3. Stock and Share-Based Payments
 Share-Based Compensation
   8




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Note 4. Balance Sheet Components (in thousands)
 June 30, 2006
    
    
    March 31, 2006Accounts receivable, netTrade receivables
    
    $
    7,446
    
    
    $
    3,672Less: Allowance for doubtful accounts
    
    
    (10
    )
    
    
    (10
    )$
    7,436
    
    
    $
    3,662Inventories (net of reserves):Work in process
    
    $
    1,621
    
    
    $
    1,716Finished goods
    
    
    437
    
    
    
    885$
    2,058
    
    
    $
    2,601Property and equipment, net:Furniture and fixtures
    
    $
    188
    
    
    $
    175Machinery and equipment
    
    
    3,465
    
    
    
    3,123Software
    
    
    3,019
    
    
    
    2,9436,672
    
    
    
    6,241Less: Accumulated depreciation and amortization
    
    
    (5,428
    )
    
    
    (5,313
    )$
    1,244
    
    
    $
    928For the three months ended June 30, 2006 and 2005,
depreciation expense was $115 and $212,
respectively.Other assets:License technology
    
    $
    833
    
    
    $
    833Less: Amortization
    
    
    (563
    )
    
    
    (563
    )License technology, net
    
    $
    270
    
    
    
    270Deposits
    
    
    33
    
    
    
    33$
    303
    
    
    $
    303Accrued liabilities and others:Accrued compensation costs
    
    $
    1,530
    
    
    $
    1,476Accrued audit and legal
    
    
    148
    
    
    
    193Accrued inventory
    
    
    454
    
    
    
    777Other
    
    
    299
    
    
    
    154$
    2,431
    
    
    $
    2,600
 9




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##### Table of Contents



Note 5. Short-term Investments
  Mature Less Than 12 MonthsCost
    
    
    Aggregate
    
    
    UnrealizedValue
    
    
    Fair Value
    
    
    Gain/(Loss)(In thousands)As of June 30, 2006U.S. Corporate and Bank Debt
    
    $
    3,996
    
    
    $
    3,995
    
    
    $
    (1
    )As of March 31, 2006U.S. Corporate and Bank Debt
    
    $
    4,505
    
    
    $
    4,502
    
    
    $
    (3
    )
 Note 6. Certain Risks
  Significant customers
  For the Three Months EndedJune 30,2006
    
    2005Customer A
    
    
    62
    %
    
    
    *Customer B
    
    
    *
    
    
    
    33
    %Customer C
    
    
    *
    
    
    
    14
    %Customer D
    
    
    *
    
    
    
    12
    %
  10




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##### Table of Contents



Revenue by product
  For the Three Months EndedJune
30,Product Family
    
    2006
    
    20055700 TrueView
    
    
    41
    %
    
    
    15
    %5600 TrueView
    
    
    45
    %
    
    
    30
    %5300 CyberPro
    
    
    
    
    
    
    3
    %5200 CyberPro
    
    
    12
    %
    
    
    34
    %5000 CyberPro
    
    
    2
    %
    
    
    17
    %NRE and other
    
    
    
    
    
    
    1
    %100
    %
    
    
    100
    %
 Concentration of Credit Risk
   June 30,
    
    March 31,2006
    
    2006Customer A
    
    
    42
    %
    
    
    *Customer B
    
    
    11
    %
    
    
    17
    %Customer C
    
    
    10
    %
    
    
    24
    %Customer D
    
    
    *
    
    
    
    11
    %Customer E
    
    
    *
    
    
    
    11
    %
 
  Vendor Concentration
  11




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##### Table of Contents



Note 7. Segment and Geographic Information
    For the Three Months EndedJune 30,2006
    
    2005China
    
    
    81
    %
    
    
    54
    %Europe
    
    
    *
    
    
    
    *Japan
    
    
    *
    
    
    
    *United States
    
    
    *
    
    
    
    20
    %Taiwan
    
    
    *
    
    
    
    12
    %
 
  Note 8. Commitments and Contingencies
 Stock Repurchase
   Litigation
  12




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##### Table of Contents



Lease Commitments
     Notes
    
    
    OperatingFiscal Year
    
    Payable
    
    
    Leases
    
    
    Total2007
    
    $
    250
    
    
    $
    249
    
    
    $
    4992008
    
    
    225
    
    
    
    206
    
    
    
    4312009
    
    
    
    
    
    
    32
    
    
    
    32Total minimum payments
    
    
    475
    
    
    $
    487
    
    
    $
    962Less: Amount representing interest
    
    
    (13
    )Present value of minimum payments
    
    
    462Less: Current portion
    
    
    (462
    )Long-term portion
    
    $
    
 13




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##### Table of Contents



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
   Overview
       14




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##### Table of Contents



Critical Accounting Policies and Estimates
  Results of Operations
  For the Three Months EndedJune 30,2006
    
    
    2005Revenues
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    50
    
    
    
    55Gross profit
    
    
    50
    
    
    
    45Operating expenses:31
    
    
    
    116Sales and marketing
    
    
    27
    
    
    
    49General and administrative
    
    
    22
    
    
    
    73Total operating expenses
    
    
    80
    
    
    
    238Operating loss
    
    
    (30
    )
    
    
    (193
    )Cumulative effect of error correction
    
    
    3
    
    
    
    Interest income
    
    
    2
    
    
    
    9Net loss
    
    
    (25
    )
    
    
    (184
    )
 15




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##### Table of Contents



Revenues
 Gross margin
 Research and development
 Sales and marketing.
 General and administrative
  Other income, net. .
 Provision for income tax
 16




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##### Table of Contents



Liquidity and Capital Resources
       Purchase of Equity Securities by the Issuer and Affiliated Purchasers
   17




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##### Table of Contents



Off-Balance Sheet Arrangements
    ContractualObligations
    
    Total
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 yearsNotes Payable
    
    $
    475
    
    
    $
    250
    
    
    $
    225
    
    
    $
    
    
    
    $
    Operating Lease
Obligations
    
    
    487
    
    
    
    249
    
    
    
    238
    
    
    
    
    
    
    
    Total
    
    $
    962
    
    
    $
    499
    
    
    $
    463
    
    
    $
    
    
    
    $
    
  18




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##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative and Qualitative Discussion of Market Interest Rate Risk and Foreign Currency Exchange
Risk
 Quantitative and Qualitative Discussion of Market Interest Rate Risk
  Foreign Currency Exchange Risk
  
 ITEM 4: CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 19




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##### Table of Contents



Changes in internal controls
  Item 9B. Other Information
  
 PART II:
 PART III: OTHER INFORMATION
 
 Item 1: Legal Proceedings
   20




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##### Table of Contents



Item 1A: Risk Factors
  
 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3: Defaults Upon Senior Securities
  
 Item 4: Submission of Matters to a Vote of Security Holders
   Nominee
    
    For
    
    WithholdMark Mangiola
    
    
    20,713,606
    
    
    
    816,758Dr. Baichuan Du
    
    
    21,407,967
    
    
    
    122,397
  21




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##### Table of Contents



Elected throughR. David Dicioccio
    
    2007 Annual MeetingEli Porat
    
    2007 Annual MeetingJames Bunker
    
    2008 Annual MeetingYves Faroudja
    
    2008 Annual MeetingTom Oswold
    
    2008 Annual Meeting
  BrokerFor
    
    Against
    
    Abstain
    
    Non-votes21,450,987
    
    
    1,600
    
    
    
    77,777
    
    
    
  BrokerFor
    
    Against
    
    Abstain
    
    Non-votes7,757,316
    
    
    2,795,983
    
    
    
    2,217
    
    
    
    10,974,848
 
 Item 5: Other Events
  
 Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Title3(i).1
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.3 to Amendment No. 8 to the Companys
Registration Statement on Form S-1 (File No. 333-34024)).3(ii).1
    
    Amended and Restated Bylaws of Tvia, Inc. (incorporated by
reference to Exhibit 3(ii)1 to the Companys Annual Report on Form
10-K for the fiscal year ended March 31, 2006 (File No.
000-30539)).4.1
    
    Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Companys Registration
Statement on Form S-1 (File No. 333-34024)).4.2
    
    Form of Amended and Restated Registration Rights Agreement dated as
of April 3, 2000 (incorporated by reference to Exhibit 4.2 to the
Companys Registration Statement on Form S-1 (File No. 333-34024)).31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
 22




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##### Table of Contents



ExhibitNumber
    
    Exhibit Title32.1
    
    Certification of Principal Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **32.2
    
    Certification of Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **
 
 **
    
    In accordance with Item 601(b) (32) (ii) of Regulation S-K and SEC Release Nos. 33-8238 and
34-47986, Final Rule: Managements Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in
Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed filed
for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to
the extent that the registrant specifically incorporates it by reference. 23




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##### Table of Contents



SIGNATURES
  TVIA, INC.August 11, 2006
    
    By:
    
    /s/ Diane BjorkstromDiane BjorkstromChief Financial Officer and Vice President, Administration(Principal Financial Officer andDuly Authorized Signatory)
 24




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber3(i).1
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.3 to Amendment No. 8 to the Companys
Registration Statement on Form S-1 (File No. 333-34024)).3(ii).1
    
    Amended and Restated Bylaws of Tvia, Inc. . (incorporated by
reference to Exhibit 3(ii)1 to the Companys Annual Report on Form
10-K for the fiscal year ended March 31, 2006 (File No.
000-30539)).4.1
    
    Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Companys Registration
Statement on Form S-1 (File No. 333-34024)).4.2
    
    Form of Amended and Restated Registration Rights Agreement dated as
of April 3, 2000 (incorporated by reference to Exhibit 4.2 to the
Companys Registration Statement on Form S-1 (File No. 333-34024)).31.1
    
    Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **32.2
    
    Certification of Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **
 
 **
    
    In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and
34-47986, Final Rule: Managements Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in
Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed filed
for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to
the extent that the registrant specifically incorporates it by reference.