United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________
FORM
10-K
______________
(Mark
One)
|
[x]
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended: March 31, 2008
|
[ ]
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 0-15449
__________________
CALIFORNIA
MICRO DEVICES CORPORATION
(Exact
name of registrant as specified in its charter)
__________________
Delaware
|
|
94-2672609
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
490
N. McCarthy Boulevard #100 Milpitas, California
|
|
95035
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
(408)
263-3214
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes
¨
No
x
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
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or smaller reporting company. See definition of “accelerated filer, large
accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
¨
|
Accelerated
filer
x
|
Non-accelerated
filer
¨
|
Smaller
reporting company
¨
|
|
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
The
approximate aggregate market value of the registrant’s common stock held by
non-affiliates as of September 30, 2007 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $101.5 million
based on the closing price for the common stock on the NASDAQ National Market on
such date. As of September 30, 2007, the number of shares of the registrant’s
common stock outstanding held by non-affiliates was 23.1 million. For purposes
of this disclosure, common stock held by persons who hold more than 10% of the
outstanding voting shares and common stock held by executive officers and
directors of the registrant have been excluded in that such persons may be
deemed to be “affiliates” as that term is defined under the rules and
regulations promulgated under the Securities Act of 1933. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As
of May 31, 2008, the number of shares of the registrant’s common stock, $0.001
par value, outstanding was 23,408,920.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s Proxy Statement in connection with its August 21, 2008
Annual Meeting of Shareholders are incorporated by reference into Part III to
the extent stated in Part III.
Exhibit
Index is on Page 82
|
Total
number of pages is 107
|
Forward-looking
Statements
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Such forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts and are based on current
expectations, estimates, and projections about our industry; our beliefs and
assumptions; and our goals and objectives. Words such as “anticipates,”
“expects,” “intends,” “plans,” “believes,” “seeks,” and “estimates,” and
variations of these words and similar expressions are intended to identify
forward-looking statements. Examples of the kinds of forward-looking statements
in this report include statements regarding the following: (1) our expectation
that our ASP (“Average Selling Prices”) for similar products will decline at the
rate of 12% to 15% per year; (2) our having a target gross margin of 38% to 40%,
which
we may fail to achieve
; (3) our expectation that our future
environmental compliance costs will be minimal; (4) our anticipation that our
existing cash, cash equivalents and short-term investments will be sufficient to
meet our anticipated cash needs over the next 12 months; (5) our expectation not
to pay dividends in the foreseeable future; (6) our having a long term target
for research and development expenses of 9% to 10% of sales
,
however, expecting such expenses for fiscal 2009 to be higher due to our
increased planned spending on serial interface display controller products and
continued significant investment in protection products
; (7) our having a
long term target for selling, general and administrative expenses of 15% to 16%
of sales but expecting to exceed this target until our sales increase
substantially; (8) our expectation of further cost reductions of our products in
future; (9) our expectation of future interest income to reduce significantly as
a result of decline in interest rates;
(10)
the iSupply estimates for growth in our target markets; (11) our six-element
strategy to achieve our objective to be a leading supplier of protection devices
for the mobile handset, digital consumer electronics and personal computer
markets and of serial interface display electronics for the mobile handset
market; and (12) our expectation for fiscal 2009 revenue to grow both for
protection products and display controller devices, including for our mobile
handset devices and low capacitance ESD protection devices used in digital TVs,
other digital consumer electronics and personal computers
. These
statements are only predictions, are not guarantees of future performance, and
are subject to risks, uncertainties, and other factors, some of which are beyond
our control, are difficult to predict, and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties include, but are not limited to, whether our
target markets continue to experience their forecasted growth and whether such
growth continues to require the devices we supply; whether we will be able to
increase our market penetration; whether our product mix changes, our unit
volume decreases materially, we experience price erosion due to competitive
pressures, or our contract manufacturers and assemblers raise their prices to us
or we experience lower yields from them or we are unable to realize expected
cost savings in certain manufacturing and assembly processes; whether there will
be any changes in tax accounting rules; whether we will be successful developing
new products which our customers will design into their products and whether
design wins and bookings will translate into orders; whether we encounter any
unexpected environmental clean-up issues with our former Tempe facility; whether
we discover any further contamination at our former Topaz Avenue Milpitas
facility; and whether we will incur unexpected expenses or have large
unanticipated cash requirements, as well as other risk factors detailed in this
report, especially under Item 1A, Risk Factors. Except as required by law, we
undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events, or otherwise.
In
this report, “CMD,” “we,” “us” and “our” refer to California Micro Devices
Corporation. All trademarks appearing in this report are the property of their
respective owners.
CALIFORNIA
MICRO DEVICES CORPORATION
FORM
10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2008
INDEX
|
|
|
Page
|
|
|
PART
I.
|
|
|
|
Item 1.
|
|
|
|
1
|
|
Item 1A.
|
|
|
|
9
|
|
Item 1B.
|
|
|
|
24
|
|
Item
2.
|
|
|
|
24
|
|
Item
3.
|
|
|
|
24
|
|
Item
4.
|
|
|
|
24
|
|
|
|
|
|
|
|
|
PART
II.
|
|
|
|
|
Item
5.
|
|
|
|
25
|
|
Item
6.
|
|
|
|
27
|
|
Item
7.
|
|
|
|
28
|
|
Item
7A.
|
|
|
|
44
|
|
Item
8.
|
|
|
|
45
|
|
Item
9.
|
|
|
|
79
|
|
Item
9A.
|
|
|
|
79
|
|
Item
9B.
|
|
|
|
80
|
|
|
|
|
|
|
|
|
PART
III.
|
|
|
|
|
Item
10.
|
|
|
|
81
|
|
Item
11.
|
|
|
|
81
|
|
Item
12.
|
|
|
|
81
|
|
Item
13.
|
|
|
|
81
|
|
Item
14.
|
|
|
|
81
|
|
|
|
|
|
|
|
|
PART
IV.
|
|
|
|
|
Item
15.
|
|
|
|
82
|
|
|
|
|
|
85
|
|
PART
I
ITEM 1
.
Business.
We
design and sell application specific circuit protection devices and display
electronics devices for high volume applications in the mobile handset, digital
consumer electronics and personal computer markets. We are a leading supplier of
protection devices for mobile handsets that provide Electromagnetic Interference
(EMI) filtering and Electrostatic Discharge (ESD) protection, and of low
capacitance ESD protection devices for digital consumer electronics and personal
computers. Both types of protection devices are typically used to protect
various interfaces, both external and internal, used in our customers’ products.
Our protection products are built using our proprietary silicon manufacturing
process technology and provide the function of multiple discrete passive
components in a single silicon chip. They occupy significantly less space, cost
our customers less on a total cost of ownership basis, offer higher performance
and are more reliable than traditional solutions based on discrete passive
components. Some of these devices also include active circuit analog elements
that provide additional functionality.
We
also offer serial interface display electronic devices for the mobile handset
market. Our serial interface display controller products offer the industry’s
smallest form factor plus unique audio and video features. Our display
controllers are designed using industry standard complimentary metal oxide
semiconductor (CMOS) process technology.
End
customers for our semiconductor products are original equipment manufacturers
(OEMs). We sell to some of these end customers through original design
manufacturers (ODMs) and contract electronics manufacturers (CEMs). We use a
direct sales force, manufacturers’ representatives and distributors to sell our
products.
Our
manufacturing is completely outsourced and we use merchant foundries to
fabricate our wafers and subcontractors to do backend processing and to ship to
our customers.
We
have one operating segment and most of our physical assets are located outside
the United States. Assets located outside the United States include product
inventories and manufacturing equipment consigned to our wafer foundries and
backend subcontractors.
We
were incorporated in California in 1980 and have been a public company since
1986. On April 13, 2006, we acquired Arques Technology, Inc. (“Arques”) and
in the process, Arques Technology Taiwan, Inc. became our sole subsidiary. On
September 15, 2006, we reincorporated in Delaware by merging into a newly
created wholly owned Delaware corporation subsidiary.
Circuit
Protection
Circuit
protection devices are widely used in mobile handsets, digital consumer
electronics and personal computers. The two most important protection functions
are filtering out EMI and protecting against ESD. The need for robust circuit
protection has increased as data rates and processing speeds have increased
resulting in the generation of increased levels of EMI and integrated circuits
have become more susceptible to damage from ESD strikes as they have migrated to
increasingly advanced process technologies. In addition, as the number of
external and internal interfaces in these products has increased, the number of
protection devices required has correspondingly increased.
The
design of protection devices requires significant system design expertise and
application knowledge combined with extensive circuit, device and process design
skills. We have been developing and marketing EMI filters and ESD protection
devices since the early 1990s and have introduced a number of major innovations
in their design and application.
Display
Electronics
As
mobile handsets have incorporated increasingly higher resolution displays to
enhance their multimedia capabilities, the traditional parallel data interface
between the central processing unit or CPU and the display has become larger,
consumed more power and generated more EMI. High speed serial interfaces solve
many of these issues by reducing the number of electrical connections from as
many as thirty to as few as four, making the display interface cable
significantly smaller and less expensive. Additionally, by utilizing low voltage
differential signaling, power consumption is dramatically reduced and EMI is
effectively eliminated. High speed serial interfaces including the Video
Electronics Standard Association’s (VESA) Mobile Display Digital Interface
(MDDI) standard for Code Division Multiple Access (CDMA) and Wideband CDMA
(WCDMA) handsets and the Mobile Industry Processor Interface (MIPI) Alliance
standard for Global System for Mobile communications (GSM) handsets are expected
to replace traditional parallel interfaces for high resolution displays in
mobile handsets.
We
began to develop high speed serial interface display controllers for mobile
handsets in 2004. We introduced our first product, based on the MDDI standard in
October 2006. Products in development include enhanced versions of this product
as well as a serial interface display controller for the MIPI standard. Our
products feature the industry’s smallest footprint, unique audio and video
features and support for the control of other components in the display
subsystem such as white LED backlight drivers and touch screen
controllers.
Our
Target Markets
The
three high volume markets on which we focus are as follows, with all market size
date from iSuppli Corporation:
|
•
|
|
Mobile handsets
. There
were 1.2 billion mobile handsets sold globally in 2007, making mobile
handsets the most widely adopted mobile devices today. By 2010, the number
of mobile handsets sold globally is expected to grow to over 1.5 billion
units.
|
|
•
|
|
Digital consumer
electronics,
which includes products such as digital televisions,
DVD players and recorders, and digital set top boxes. OEM shipments in
2007 for products in this market included 118 million digital televisions,
156 million DVD players and recorders and 124 million digital set top
boxes. By 2010, OEM shipments in these markets are expected to be 197
million digital televisions, 142 million DVD players and recorders and 193
million digital set top boxes.
|
|
•
|
|
Personal computers,
which includes notebook and desktop computers and peripherals such as
printers and flat panel monitors. Sales in 2007 for products in this
market included 261 million desktop and notebook computers, 123 million
printers and 149 million flat panel monitors. By 2010, these markets are
expected to grow to 340 million desktop and notebook computers, 142
million printers and 195 million flat panel
monitors.
|
The
two major protection challenges facing designers of products for these markets
are:
|
•
|
|
EMI filtering.
EMI
refers to the interference of one electronic product with the operation of
another resulting from electromagnetic signals generated by the first and
picked up by the second. These signals emanate from and are picked up by
the internal and external data interfaces. High performance EMI filters
prevent the electromagnetic signals generated within a product from
interfering with its own operation and the operation of other products and
from being interfered with by external EMI
sources.
|
|
•
|
|
ESD protection.
An ESD
event is the transfer of energy between two bodies at different
electrostatic potentials, either through direct contact or an air
discharge in the form of a spark. Many electronic products require ESD
protection for internal and external data interfaces to avoid damage or
disruption of their operation. Standard ESD protection devices typically
have relatively high capacitance levels that can distort high speed
signals, compromising their integrity and interfering with the accurate
transfer of information across those interfaces. The mobile handset,
digital consumer electronics and personal computer markets are employing
increasingly faster data interfaces to satisfy growing performance and
functionality requirements. These high speed data interfaces have created
the need for a new class of ESD protection devices that feature much lower
levels of capacitance than traditional solutions and, in some cases,
impedance matching to ensure that signal integrity is not
compromised.
|
In
mobile handsets, both EMI filtering and ESD protection are commonly required for
external interfaces while EMI filtering is commonly required for internal
interfaces such as parallel interfaces between the baseband processor with the
display and camera. The filtering requirements for the latter are especially
stringent because of the high data rates employed.
In
digital consumer electronics products and personal computers and peripherals,
ESD protection featuring very low capacitance and matched impedance levels is
essential due to the use of high speed digital interfaces such as HDMI, Display
Port and USB 2.0 to interconnect them.
Our
Strategy
Our
objective is to be a leading supplier of protection devices for the mobile
handset, digital consumer electronics and personal computer markets and of
serial interface display electronics for the mobile handset market. Our strategy
includes the following key elements:
Develop
Innovative Application Specific Products.
We
identify specific applications that are important to our customers and develop
products that are optimized for those applications based on leading edge
technology.
Focus on Industry
Leaders in Our Target Markets.
We target market
and technology leaders in our target markets since we believe that products
developed to meet their needs will be adopted by other customers as well and
that doing business with the leaders will enhance our credibility as a
supplier.
Broaden Product
Offerings in Our Target Markets.
We plan to
develop and/or acquire additional product lines for the markets we serve in
order to leverage the customer relationships and channels that we have
established. The first two examples of this are our new serial
interface display controller product line which we developed internally and our
acquisition of Arques Technology.
Leverage Benefits
of CSP.
Wherever applicable we plan to offer our products in
CSP to provide our customers with solutions that have lower cost, smaller
footprints and, in many cases, superior electrical performance.
Provide
Superior
Service to our
Customers.
Because of our relatively small size and our tight
market and customer focus, we believe that we can be more responsive to customer
needs from product definition to delivery schedules than our larger
competitors.
Outsource
Manufacturing and Relentlessly Reduce Product Cost.
We believe
that by outsourcing our manufacturing to partners who are specialists we can
achieve greater flexibility and lower costs than our competitors who choose to
invest in captive manufacturing capabilities. This is particularly
true for wafer fabrication but applies to backend processing as
well.
Products
EMI Filters with
ESD Protection for Mobile Handsets.
We offer a broad portfolio
of protection devices for the mobile handset market that combine EMI filtering
with ESD protection. Consistent with our application specific approach, they are
optimized for specific applications including: display interfaces, imager
interfaces, speaker, headphone and microphone interfaces; smart card
interfaces, including Secure Digital (SD) and Multimedia Card (MMC), and
subscriber identification module (SIM) card interfaces, and USB 2.0 interfaces.
In order to meet the range of filter requirements represented by these
applications, we offer a broad line of filters that are optimized for filter
performance at different data rates and at different cost points. For example,
our Praetorian® I and II families of inductor based filters are designed to
address the most demanding filtering requirements of high speed interfaces for
high resolution color LCD displays and high resolution imager
modules.
ESD Protection
Devices for Mobile Handsets.
In addition to EMI filters with
ESD protection, we also offer a line of ESD only protection devices for mobile
handsets. These protection products provide ESD protection for a variety of
applications including high speed serial data interfaces such as USB 2.0, MDDI
and MIPI, keypad interfaces, battery terminals and antenna
switches.
Standard ESD
Protection Devices for Personal Computers.
We offer a broad
portfolio of standard ESD protection devices that provide robust protection for
a number of standard data interfaces found on desktop and notebook
computers. Our standard ESD protection devices are typically designed
with our Centurion
TM
zener
architecture and provide high levels of ESD protection at lower levels of
capacitance than traditional zener ESD protection devices. These
products protect data interfaces such as USB, IEEE 1284 or parallel port, smart
card interfaces and audio ports. In addition to data interfaces, we
also provide devices that protect the keyboard, battery terminals and user
interface devices such as buttons. Our products are available in
traditional plastic packages as well as small form factor chipscale
packaging.
Low Capacitance
ESD Protection Devices for Digital Consumer Electronics and Personal
Computers.
Our PicoGuard
TM
family
of low capacitance ESD protection devices provides robust ESD protection without
compromising signal integrity for high speed data interfaces such as USB 2.0,
gigabit Ethernet, DisplayPort and Serial ATA. Our recently announced
XtremeESD
TM
family
of low capacitance protection devices including the
PicoGuard XP
TM
and the
PicoGuard XS
TM
architectures include devices with industry leading ESD protection and signal
integrity. Our MediaGuard
TM
family
of HDMI video port protector devices integrates PicoGuard
TM
low
capacitance ESD protection with active analog components that provide voltage
level shifting, backdrive and overcurrent protection. These devices protect HDMI
interfaces in digital televisions, DVD players and recorders and digital set top
boxes. Our MediaGuard
TM
and
PicoGuard XS
TM
devices
also offer significant advantages over discrete solutions in achieving HDMI
compliance.
ESD Protection
Devices for High Brightness Light Emitting Diodes (HBLEDs).
We
offer a portfolio of ESD protection devices that provide high levels of ESD
protection for high brightness LEDs. High brightness LEDs are
increasingly being utilized in a variety of lighting applications
including: LCD display backlighting, automotive headlamps and cockpit
lighting, wide area electronic signs and interior lighting. High
power and high brightness LEDs are highly susceptible to damage from ESD
strikes.
In addition
to ESD protection, our products can also provide a sub-mount for the LED within
the lighting sub-assembly that can provide benefits of ease of handling in a
manufacturing environment and improved thermal dissipation.
Serial Interface
Display Controllers.
The CM5100, our first serial interface
display controller, based upon the MDDI standard, was introduced in October
2006. This device featured a die size that was up to 60% smaller than
competing products and featured compelling audio and video features that enhance
video playback and support broad interconnectivity and control of components in
the display subsystem such as white LED backlight drivers and touch screen
controllers. Products in development include a serial interface display
controller that will support the upcoming MIPI Alliance standard for GSM based
handsets.
Customers
We
target market and technology leaders in each of our markets. In fiscal 2008,
approximately 60% of our net sales came from the sale of our products directly
to OEMs, ODMs and CEMs; and 40% came from the sale of our products through
distributors. In fiscal 2008, two OEM customers, Samsung and Motorola, and two
distributors, RSL Microelectronics Co. Ltd. and Aeco Technology Co. Ltd. each
contributed more than 10% of our net sales.
Sales
and Marketing
Our
sales channels consist of a small direct sales force and a larger network of
independent regional sales representatives and distributors managed by our sales
force. Our direct sales force is headquartered in Milpitas, California with
regional sales offices in the United States, Europe and Asia. Major mobile
handset customers primarily buy our devices directly.
International
sales, based on the location where we shipped the product, accounted for 91% of
net sales in fiscal 2008. We use independent foreign sales representatives and
distributors to provide international sales support, along with our employees
based abroad. We expect that international sales will continue to represent a
majority of our sales for the foreseeable future. Our sales are denominated in
U.S. dollars. Refer to Item 7 of this Form 10-K for information
related to sales by geographic region.
Our
products are primarily specified through contact with customers’ engineering
departments, as well as their procurement and manufacturing personnel. Most of
the systems into which our products are designed have short life cycles. As a
result, in order to maintain and grow revenue, we require a significant number
of new design wins on an ongoing basis so that our products are incorporated
into next generation systems of our customers.
Manufacturing
We
are completely fabless and use several wafer foundries in Asia. We use third
party independent subcontractors to perform CSP ball drop and the assembly and
test of packaged products. These partners are located in China, India,
Philippines, Taiwan and Thailand. A limited number of products ship to customers
in wafer form. In October 2004, we discontinued manufacturing semiconductor
wafers in our Tempe facility and subsequently sold the Tempe facility to
Microchip Technology in June 2005.
As
of March 31, 2008, we have $1.9 million of test and packaging equipment on
consignment in India and $1.2 million of test equipment on consignment in
Thailand. In addition, a substantial portion of our inventory was also located
in Asia as of March 31, 2008.
Research
and Development
Our
research and development programs consist primarily of developing new products
and processes in response to identified market needs. Additionally, we redesign
existing products to reduce costs and enhance their capabilities and
performance, or to make them capable of being produced in multiple foundries.
The majority of our design activity is conducted at our headquarters in
Milpitas, California. We have continued to upgrade our engineering resources and
plan to add additional engineers in Milpitas. We also use contract engineering
services for certain specialized design work. In November 2007, we opened a
design center in India in collaboration with GDA Technologies, a strategic ASIC
design partner. The design center’s activities are focused on development of our
serial interface controller products. In addition, we have recently opened a
design center in Phoenix, Arizona to focus on products for the diversified
protection market.
We
spent approximately $7.1, $8.0 and $6.8 million on research and development
activities in fiscal 2008, 2007 and 2006, respectively.
Intellectual
Property
We
rely on trade secrets, close customer relationships and being designed into our
customers’ products to protect our market position. Our policy is to apply for
patent protection for our unique products and manufacturing processes where that
protection is warranted. As of March 31, 2008, we had been granted
approximately 44 U.S. patents, a substantial portion of which relate to current
and planned protection devices. Our patents are generally of limited importance
to us, due in part to the variety of our products versus the limited scope of
our patents, the limited lifespan of certain of our products and the ability of
our competitors to design around our patents. Process technologies are more
often designated as trade secrets. We protect our trade secrets by having our
employees sign confidentiality and non-disclosure agreements as part of our
personnel policy. We selectively register our mask works. It is not our
intention to rely solely on protection of intellectual property rights to deter
competition. However, when and where appropriate, we have taken aggressive
action to protect our intellectual property rights. CMD, ASIP, Centurion,
XtremeESD, PicoGuard, PicoGuard XP, PicoGuard XS, MediaGuard, OptiGuard and our
corporate logo are our trademarks and FlexBoost®, Praetorian®, and PhotonIC® are
our registered trademarks.
Competition
Competition
is based on a number of factors, including product performance, price, form
factor, time to market, established customer relationships, manufacturing
capabilities, product development and customer support. We face different
competitors in each of the target markets we serve. With respect to the
protection devices for the mobile handset, digital consumer electronics and
personal computer markets, we compete with ON Semiconductor Corporation, NXP,
Semtech Corporation and STMicroelectronics, N.V. as well as other smaller
companies. For EMI filter devices used in mobile handsets, we also compete with
ceramic devices based on high volume Multi-Layer Ceramic Capacitor (MLCC)
technology from companies such as Amotek Company, Ltd., AVX Corporation,
Innochip Technology, Inc., Murata Manufacturing Co., Ltd., and TDK Corp. With
respect to serial interface display controllers, our competitors include Toshiba
Corporation, Samsung, Sharp Electronics Corporation, Renesas Technology, and
Solomon Systech.
Our
target markets are intensely competitive. Our products are generally
not sold pursuant to long term contracts, enabling our customers to switch
suppliers if they choose and making us more vulnerable to
competitors. Our customers select vendors and products based on a
number of factors including product specifications, price and the ability of a
vendor to reliably provide high quality product in high volume on a timely
basis. The weighting of these factors varies depending on the specific
needs of a customer at any given point in time. Most of our competitors
are larger, more vertically integrated and more diversified than we are and, in
some cases, may have a lower cost structure than we do. We compete
primarily on the basis of product innovation and responsiveness to changing
needs of customers, including both product specifications and delivery
requirements. Also, since our manufacturing is completely outsourced we
believe that, in many cases, we are able to move more quickly in adopting new
manufacturing processes and in moving production to low cost locations. In
addition, since we do not own our own manufacturing facilities we are not faced
with their fixed costs when demand is low.
Backlog
and Design Wins
At
March 31, 2008, our backlog amounted to $10.2 million, compared with backlog of
$8.7 million at March 31, 2007. Our backlog on a specific date represents firm
orders received from customers for delivery within six months of that date. Our
backlog at any particular time is not necessarily indicative of actual sales for
any succeeding period because our customers can cancel their orders or change
delivery dates at little or no cost to them. A reduction of backlog during any
particular period, or the failure of our backlog to result in future revenue,
could harm our business.
We
count as a design win each decision by one of our customers to use one of our
parts in one of their products that, based on their projected usage, will
generate more than $100,000 of sales annually for us when their product is in
production. The number of design wins in fiscal 2008 was 1,497, including
increases for low capacitance ESD protection and Praetorian LC EMI filters, as
compared with 1,716 in fiscal 2007. While design win trends are a qualitative
indicator of future revenue trends, design wins do not correlate directly with
revenue, since they vary in size and in some cases may not result in
revenue.
Inventory,
Right of Return and Seasonality
Our
practice is to carry a reasonable amount of inventory located at sub-contractors
and at customers’ hubs and to require our distributors to carry sufficient
inventory in order to meet our customers’ delivery requirements in a manner
consistent with industry standards. We typically plan our production and our
inventory levels, and the inventory levels of our distributors, based on
internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. Therefore, we often order materials and at least
partially complete products in anticipation of customer
requirements.
In
the last few years, there has been a trend toward vendor managed inventory among
many large customers. In such situations, we do not recognize revenue until the
customer draws product from that inventory or otherwise becomes obligated to
retain our product. This imposes the burden upon us of carrying additional
inventory that is stored on or near our customers’ premises and is subject in
many instances to return to our premises if not used by the
customer.
We
permit customer and distributor returns under certain circumstances in order to
remain competitive with current industry practices.
Our
target markets, mobile handsets, digital consumer electronics and personal
computers are typically subject to seasonal demand patterns. Demand for our
products is typically strongest in our second and third fiscal
quarters.
Environmental
Since
we have been completely fabless for the past few years, our environmental
compliance costs are minimal.
Employees
As
of March 31, 2008, we had 108 full-time and part-time employees, including 42 in
sales and marketing, 22 in research and development activities, 27 in production
operations and 17 in administration. None of our employees is subject to a
collective bargaining agreement. We consider our relations with our employees to
be good.
Website
Access to Company Reports
Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports are available free of charge on our
website at
www.cmd.com
as soon as reasonably practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission. Also, copies of our
annual report will be made available, free of charge, upon written request. The
content on any website referred to in this Form 10-K is not incorporated by
reference into this Form 10-K unless expressly noted.
ITEM 1A
.
Risk Factors
A
revised description of the risk factors associated with our business is set
forth below. This description supersedes the description of the risk factors
associated with our business previously disclosed in Part I, Item 1A of our
Form 10-Q for the quarter ended December 31, 2007. Because of these risk
factors, as well as other factors affecting the Company’s business and operating
results and financial condition, including those set forth elsewhere in this
report, our actual future results could differ materially from the results
contemplated by the forward-looking statements contained in this report and our
past financial performance should not be considered to be a reliable indicator
of future performance, so that investors should not use historical trends to
anticipate results or trends in future periods.
Our
operating results may fluctuate significantly because of a number of factors,
many of which are beyond our control and are difficult to predict. These
fluctuations may cause our stock price to decline.
Our
operating results may fluctuate significantly for a variety of reasons,
including some of those described in the risk factors below, many of which are
difficult to control or predict. While we believe that quarter to quarter and
year to year comparisons of our revenue and operating results are not
necessarily meaningful or accurate indicators of future performance, our stock
price historically has been susceptible to large swings in response to short
term fluctuations in our operating results. Should our future operating results
fall below our guidance or the expectations of securities analysts or investors,
the likelihood of which is increased by the fluctuations in our operating
results, the market price of our common stock may decline.
We
had losses in four out of the last eight most recent fiscal quarters, including
the first and fourth quarters of fiscal 2008 and 2007, although we were
profitable during the second and third quarters of fiscal 2008 and
2007. We may not be able to attain or sustain profitability in the
future.
We
were profitable for the four quarters during fiscal 2006 until we sustained a
substantial loss of nine cents per share during the first quarter of fiscal
2007. This loss would have been a one cent per share profit but for
the one time in-process research and development (IPR&D) charge we incurred
due to our acquisition of Arques Technology, Inc. We returned to
profitability during the second and third quarters of fiscal 2007, followed by
losses during fourth quarter of fiscal 2007 and first quarter of fiscal 2008. We
were then profitable during the second and third quarters of fiscal 2008
followed by a loss during fourth quarter of fiscal 2008. There are many factors
that affect our ability to sustain profitability including the health of the
mobile handset, digital consumer electronics and personal computer markets on
which we focus, continued demand for our products from our key customers,
availability of capacity from our manufacturing subcontractors, ability to
reduce manufacturing costs faster than price decreases thereby attaining a
healthy gross margin, continued product innovation and design wins, competition,
interest rates and our continued ability to manage our operating expenses. In
order to obtain and sustain profitability in the long term, we will need to
continue to grow our business in our target markets and to reduce our product
costs rapidly enough to maintain our gross margin. The semiconductor industry
has historically been cyclical, and we may be subject to such cyclicality, which
could lead to our incurring losses again.
We currently are heavily concentrated
in terms of product types (protection devices), markets (mobile handsets), and
customers (certain top tier OEMs). Our revenue could suffer
materially if the demand or price for protection devices decreases, if the
market for mobile handsets stops growing, or if our key customers lose market
share.
Our
revenues in recent periods have been derived almost exclusively from sales of
circuit protection devices. For example, during fiscal 2008, 97% of
our revenue was derived from such sales. With the introduction of our
new serial interface display controller, we have several products which could
help us reduce our dependence upon circuit protection devices; although for the
next several years we expect to derive most of our revenues from circuit
protection devices. Should the need for such devices decline, for
example because of changes in input and output circuitry, our revenues could
decline.
During
fiscal 2008, 63% of our revenue was from sales to the mobile handset market,
with the balance coming from digital consumer electronics and personal computers
and peripherals. In order for us to be successful, we must continue
to penetrate these markets, both by obtaining more business from our current
customers and by obtaining new customers. Due to our narrow market focus, we are
susceptible to materially lower revenues due to material adverse changes to one
of these markets, particularly the mobile handset market. We expect
much of our future revenue growth to be in the mobile handset market where more
complex mobile handsets have meant increased adoption of and demand for
protection devices. Should the rate of adoption of protection devices decelerate
in the mobile handset market, our planned rate of increase in penetration of
that market would also decrease, thereby reducing our future growth in that
market. In addition, a reduction in our market share of
protection devices sold into that market would also decrease our future
growth and could even lead to declining revenue from that
market. During fiscal 2008, our revenue from the mobile handset
market declined $10.8 million from $48.1 million to $37.3 million which was the
major component of our $8.8 million decline in overall revenue from $68.0
million to $59.2 million.
Our
sales strategy has been to focus on customers with large market share in their
respective markets. As a result, we have several large customers. During fiscal
2008, two customers primarily in the mobile handset market represented 41% of
our net sales. There can be no assurance that these two customers will purchase
our products in the future in the quantities we have forecasted, or at
all. During fiscal 2007, our two top customers primarily in the
mobile handset market represented 54% of our net sales. While our
revenue concentration was less during fiscal 2008, the decrease in market share
by one of our two top customers was the leading cause of our revenue decline
during fiscal 2008 relative to fiscal 2007.
During
fiscal 2008, two distributors represented 25% of our net sales. If we were to
lose these distributors, we might not be able to obtain other distributors to
represent us or the new distributors might not have sufficiently strong
relationships with the current end customers to maintain our current level of
net sales. Additionally, the time and resources involved with the changeover and
training could have an adverse impact on our business in the short
term.
The
markets in which we participate are intensely competitive and our products are
not sold pursuant to long term contracts, enabling our customers to replace us
with our competitors if they choose. In addition, our competitors
have in the past and may in the future reverse engineer our most successful
products and become second sources for our customers, which could decrease our
revenues and gross margins.
Our
target markets are intensely competitive. Our ability to compete successfully in
our target markets depends upon our being able to offer attractive, high quality
products to our customers that are properly priced and dependably supplied. Our
customer relationships do not generally involve long term binding commitments
making it easier for customers to change suppliers and making us more vulnerable
to competitors. Our customer relationships instead depend upon our past
performance for the customer, their perception of our ability to meet their
future need, including price and delivery and the timely development of new
devices, the lead time to qualify a new supplier for a particular product, and
interpersonal relationships and trust. Furthermore, many of our
customers are striving to limit the number of vendors they do business with and
because of our small size and limited product portfolio they could decide to
stop doing business with us.
Our
most successful products are not covered by patents and have in the past and may
in the future be reverse engineered. Thus, our competitors can become second
sources of these products for our customers or our customers’ competitors, which
could decrease our unit sales or our ability to increase unit sales and also
could lead to price competition. This price competition could result in lower
prices for our products, which would also result in lower revenues and gross
margins. Certain of our competitors have announced products that are pin
compatible with some of our most successful products, especially in the mobile
handset market, where many of our largest revenue generating products have been
second sourced. To the extent that the revenue secured by these competitors
exceeds the expansion in market size resulting from the availability of second
sources, this decreases the revenue potential for our products. Furthermore,
should a second source vendor attempt to increase its market share by dramatic
or predatory price cuts for large revenue products, our revenues and margins
could decline materially.
Because
we operate in different semiconductor product markets, we generally encounter
different competitors in our various market areas. With respect to the
protection devices for the mobile handset, digital consumer electronics and
personal computer markets, we compete with ON Semiconductor Corporation, NXP,
Semtech Corporation and STMicroelectronics, N.V. as well as other smaller
companies. For EMI filter devices used in mobile handsets, we also compete with
ceramic devices based on high volume Multi-Layer Ceramic Capacitor (MLCC)
technology from companies such as Amotek Company, Ltd., AVX Corporation,
Innochip Technology, Inc., Murata Manufacturing Co., Ltd., and TDK Corp. MLCC
devices are generally low cost and our revenues would suffer if their features
and performance meet the requirements of our customers and we are unable to
reduce the cost of our protection products sufficiently to be competitive. We
have seen ceramic filters obtain significant design wins for low end
applications in the mobile handset market. We have also seen the use of higher
performance ceramic filters and if we are not able to demonstrate superior
performance at an acceptable price with our devices then our revenues would also
suffer. With respect to serial interface display controllers, our competitors
include Toshiba Corporation, Samsung, Sharp Electronics Corporation, Renesas
Technology, and Solomon Systech. Many of our competitors are larger than we are,
have substantially greater financial, technical, marketing, distribution and
other resources than we do and have their own facilities for the production of
semiconductor components.
Deficiencies
in our internal controls could cause us to have material errors in our financial
statements, which could require us to restate them. Such restatement could have
adverse consequences on our stock price, potentially limiting our access to
financial markets.
As
of March 31, 2005, management identified, and the auditors attested to, material
weaknesses in the Company’s internal control over financial reporting in the
operating effectiveness within a portion of the revenue cycle and in the
controls over the proper recognition of subcontractor invoices related to
inventory and accounts payable. Although management believed it had
subsequently remediated these material weaknesses, it was later discovered that
they continued through the third quarter of fiscal 2006. Management
subsequently assessed and determined, and the auditors attested, that these
material weaknesses had been remediated as of March 31, 2006, 2007 and 2008.
However, should we or our auditors discover that we have a material weakness in
our internal control over financial reporting at another time in the future,
especially considering that we have had material weaknesses in the past which we
incorrectly believed had been remediated, investors could lose confidence in the
accuracy and completeness of our financial reports, which could have an adverse
effect on our stock price.
Within
the past five years, we have also had to restate our financial statements twice
because of these material weaknesses. In part due to our new ERP system,
and new personnel and training regimen, we believe that we will not have a
material weakness in our internal control over financial reporting which would
lead to material errors in our financial statements. Nonetheless, there
can be no assurance that we will not have errors in our financial
statements. Such errors, if material, could require us to restate our
financial statements, having adverse effects on our stock price, potentially
causing additional expense, and could limit our access to financial
markets.
In
the future our revenues will become increasingly subject to macroeconomic cycles
and more likely to decline if there is an economic downturn.
As
mobile handset protection devices penetration increases, our revenues will
become increasingly susceptible to macroeconomic cycles because our revenue
growth may become more dependent on growth in the overall market rather than
primarily on increased penetration, as has been the case in the
past.
Our
reliance on foreign customers could cause fluctuations in our operating
results.
During
fiscal 2008, international sales accounted for 91% of our net sales.
International sales include sales to U.S. based customers if the product was
delivered outside the United States.
International
sales subject us to the following risks:
|
•
|
|
changes
in regulatory requirements;
|
|
•
|
|
tariffs
and other barriers;
|
|
•
|
|
timing
and availability of export
licenses;
|
|
•
|
|
political
and economic instability;
|
|
•
|
|
the
impact of regional and global illnesses such as severe acute respiratory
syndrome infections (SARS);
|
|
•
|
|
difficulties
in accounts receivable collections;
|
|
•
|
|
difficulties
in staffing and managing foreign
operations;
|
|
•
|
|
difficulties
in managing distributors;
|
|
•
|
|
difficulties
in obtaining foreign governmental approvals, if those approvals should
become required for any of our
products;
|
|
•
|
|
limited
intellectual property protection;
|
|
•
|
|
foreign
currency exchange fluctuations;
|
|
•
|
|
the
burden of complying with and the risk of violating a wide variety of
complex foreign laws and treaties;
and
|
|
•
|
|
potentially
adverse tax consequences.
|
Because
sales of our products have been denominated in United States dollars, increases
in the value of the U.S. dollar could increase the relative price of our
products so that they become more expensive to customers in the local currency
of a particular country. Furthermore, because some of our customer purchase
orders and agreements are influenced, if not governed, by foreign laws, we may
be limited in our ability to enforce our rights under these agreements and to
collect damages, if awarded.
If
our distributors experience financial difficulty and become unable to pay us or
choose not to promote our products, our business could be harmed.
During
fiscal 2008, 40% of our sales were through distributors, primarily in Asia. Our
distributors could reduce or discontinue sales of our products or sell our
competitors’ products. They may not devote the resources necessary to sell our
products in the volumes and within the time frames that we expect. In addition,
we are dependent on their continued financial viability, and some of them are
small companies with limited working capital. If our distributors experience
financial difficulties and become unable to pay our invoices, or otherwise
become unable or unwilling to promote and sell our products, our business could
be harmed.
We
have outsourced our wafer fabrication, and assembly and test
operations. Due to our size, we depend on a limited number of foundry
partners and assembly and test subcontractors and there is limited available
capacity for plastic assembly and test contractors which limits our
choices. As a result, we are exposed to a risk of manufacturing
disruption or uncontrolled price changes and we may encounter difficulties in
expanding our capacity.
We
have adopted a fabless manufacturing model that involves the use of foundry
partners and assembly and test subcontractors to provide our production
capacity. We chose this model in order to reduce our overall manufacturing costs
and thereby increase our gross margin, reduce the impact of fixed costs when
volume is low, provide us with upside capacity in case of short-term demand
increases and provide us with access to newer process technology, production
facilities and equipment. During the past four years we have outsourced our
wafer manufacturing and assembly and test operations overseas in Asia and we
continue to seek additional foundry and assembly and test capacity to provide
for growth and lower cost. If we experience delays in securing additional or
replacement capacity at the time we need it, we may not have sufficient product
to fully meet the demand of our customers.
Given
the current size of our business, we believe it is impractical for us to use
more than a limited number of foundry partners and assembly and test
subcontractors as it would lead to significant increases in our costs.
Currently, we have five foundry partners and rely on limited number of
subcontractors. Some of our products are sole sourced at one of our
foundry partners in China, Japan or Taiwan. There is also a limited capacity of
plastic assembly and test contractors, especially for Thin Dual Flat No-Lead
Plastic Package (TDFN) and Ultra-Thin Dual Flat No-Lead Plastic Package (UDFN),
for which customer demand is increasing. Our ability to secure sufficient
plastic assembly and test capacity, especially the fast ramping TDFN and
UDFN offerings, may limit our ability to satisfy our customers’
demand. If the operations of one or more of our partners or
subcontractors should be disrupted, or if they should choose not to devote
capacity to our products in a timely manner, our business could be adversely
impacted as we might be unable to manufacture some of our products on a timely
basis. In addition, the cyclicality of the semiconductor industry has
periodically resulted in shortages of wafer fabrication, assembly and test
capacity and other disruption of supply. We may not be able to find sufficient
capacity at a reasonable price or at all if such disruptions occur. As a result,
we face significant risks, including:
|
•
|
|
reduced
control over delivery schedules and
quality;
|
|
•
|
|
the
impact of regional and global illnesses such as SARS or Avian flu
pandemic;
|
|
•
|
|
the
potential lack of adequate capacity during periods when industry demand
exceeds available capacity;
|
|
•
|
|
difficulties
finding and integrating new
subcontractors;
|
|
•
|
|
limited
warranties on products supplied to
us;
|
|
•
|
|
potential
increases in prices due to capacity shortages, currency exchange
fluctuations and other factors; and
|
|
•
|
|
potential
misappropriation of our intellectual
property.
|
We
rely upon foreign suppliers and have consigned substantial equipment at our
foreign subcontractors in order to obtain price concessions. This
exposes us to risks associated with international operations, including the risk
of losing this equipment should the foreign subcontractor go out of
business.
We
use foundry partners and assembly and test subcontractors in Asia, primarily in
China, India, Japan, Korea, Philippines, Taiwan and Thailand for our products.
Our dependence on these foundries and subcontractors involves the following
substantial risks:
|
•
|
|
political
and economic instability;
|
|
•
|
|
changes
in our cost structure due to changes in local currency values relative to
the U.S. dollar;
|
|
•
|
|
potential
difficulty in enforcing agreements and recovering damages for their
breach;
|
|
•
|
|
inability
to obtain and retain manufacturing capacity and priority for our business,
especially during industry-wide times of capacity
shortages;
|
|
•
|
|
exposure
to greater risk of misappropriation of intellectual
property;
|
|
•
|
|
disruption
to air transportation from Asia;
and
|
|
•
|
|
changes
in tax laws, tariffs and freight
rates.
|
These
risks may lead to delayed product delivery or increased costs, which would harm
our profitability, financial results and customer relationships. In addition, we
maintain significant inventory at our foreign subcontractors that could be at
risk.
We
also drop ship product from some of these foreign subcontractors directly to
customers. This increases our exposure to disruptions in operations that are not
under our direct control and may require us to continue to enhance our computer
and information systems to coordinate this remote activity.
In
order to obtain price concessions, we have consigned substantial equipment at
our foreign contractors. For example, we have $1.9 million of test
and packaging equipment on consignment in India and $1.2 million of test
equipment on consignment in Thailand as of March 31, 2008. Should our
business relationship with these partners cease, whether due to our switching to
alternate lower cost suppliers, quality or capacity issues with our current
partners, or if they experience a natural disaster or financial difficulty, we
may have trouble repossessing this equipment. Even if we are able to
repossess this equipment, it may not be in good condition and we may not be able
to realize the dollar value of this equipment then recorded on our
books. Any such inability to repossess consigned equipment or to
realize its recorded value on our books would reduce our assets.
Our
markets are subject to rapid technological change. Therefore, our success
depends on our ability to develop and introduce new
products. It is possible that a significant portion our
research and development expenditures will not yield products with meaningful
future revenue.
The
markets for our products are characterized by:
|
•
|
|
rapidly
changing technologies;
|
|
•
|
|
changing
customer needs;
|
|
•
|
|
evolving
industry standards;
|
|
•
|
|
frequent
new product introductions and
enhancements;
|
|
•
|
|
increased
integration with other functions;
and
|
|
•
|
|
rapid
product obsolescence.
|
Our
competitors or customers may offer new products based on new technologies,
industry standards or end user or customer requirements, including products that
have the potential to replace or provide lower cost or higher performance
alternatives to our products. The introduction of new products by our
competitors or customers could render our existing and future products obsolete
or unmarketable. In addition, our competitors and customers may introduce
products that eliminate the need for our products. Our customers are constantly
developing new products that are more complex and miniature, increasing the
pressure on us to develop products to address the increasingly complex
requirements of our customers’ products in environments in which power usage,
lack of interference with neighboring devices and miniaturization are
increasingly important.
To
develop new products for our target markets, we must develop, gain access to,
and use new technologies in a cost effective and timely manner, and continue to
expand our technical and design expertise. In addition, we must have our
products designed into our customers’ future products and maintain close working
relationships with key customers in order to develop new products that meet
their changing needs.
We
may not be able to identify new product opportunities, to develop or use new
technologies successfully, to develop and bring to market new products, or to
respond effectively to new technological changes or product announcements by our
competitors. There can be no assurance even if we are able to do so that our
customers will design our products into their products or that our customers’
products will achieve market acceptance. Our pursuit of necessary technological
advances may require substantial time and expense and involve engineering risk.
Failure in any of these areas could harm our operating results.
We
are attempting to develop one or more new display controller products which are
mixed signal integrated circuit products which have a higher development cost
than our protection device products. This limits how many of such products we
can undertake at any one time increasing our risk that such efforts will not
result in a working product for which there is a substantial demand at a price
which will yield good margins. We are becoming increasingly engaged with third
parties to assist us with these developments, in particular through our India
design center, and have also added personnel with new skills to our engineering
group. These third parties and new personnel may not be successful and we have
less control over outsourced personnel in a remote location. These new product
developments involve technology in which we have less expertise which also
increases the risk of failure. On the other hand, we believe that the potential
payoff from these products makes it reasonable for us to take such risks.
Even if our devices work as planned, we may not have success with them in the
market. This risk is greater than with our protection device products
because many of these new devices are product types for which we don't have
material customer traction or market experience.
We
may be unable to reduce the costs associated with our products quickly enough
for us to meet our margin targets or to retain market share.
In
the mobile handset market our competitors have been second sourcing many of our
products and as a result this market has become more price competitive. We are
seeing the same trend develop in our low capacitance ESD devices for digital
consumer electronics, personal computers and peripherals. We need to be able to
reduce the costs associated with our products in order to achieve our target
gross margins. We have in the past achieved and may attempt in the future to
achieve cost reductions by obtaining reduced prices from our manufacturing
subcontractors, using larger sized wafers, adopting simplified processes, and
redesigning parts to require fewer pins or to make them smaller. There can be no
assurance that we will be successful in achieving cost reductions through any of
these methods, in which case we will experience lower margins and/or we will
experience lower sales as our customers switch to our competitors.
Our
future success depends in part on the continued service of our key engineering,
especially analog chip designers, and management personnel, including our new
Vice President of Sales, and our ability to identify, hire and retain additional
personnel.
There
is intense competition for qualified personnel in the semiconductor industry, in
particular for the highly skilled design, applications and test engineers
involved in the development of new analog integrated circuits. Competition is
especially intense in the San Francisco Bay area, where our corporate
headquarters and a portion of our engineering group is
located. For that reason, in part, we have opened a design
center in India focused on analog products and in Phoenix focused on protection
devices. We may not be able to continue to attract and retain
engineers or other qualified personnel necessary for the development of our
business or to replace engineers or other qualified personnel who may leave our
employment, or the employment of our India design center in the future. This is
especially true for analog chip designers since competition is fierce for
experienced engineers in this discipline. Growth is expected to place increased
demands on our resources and will likely require the addition of management and
engineering personnel, and the development of additional expertise by existing
management personnel. The loss of services and/or changes in our management
team, in particular our CEO, or our key engineers, or the failure to recruit or
retain other key technical and management personnel, could cause additional
expense, potentially reduce the efficiency of our operations and could harm our
business. We also recruited a new Vice President of Sales during the
fourth quarter of fiscal 2008 and whether he is well-suited for the position and
performs well will be critical to our success as well.
When
we acquired Arques Technology, Inc. in April, 2006, we recorded approximately
$5.3 million as goodwill on our balance sheet. We may incur an
impairment charge to the extent we determine that we no longer have
substantial goodwill as an enterprise.
When
we acquired Arques Technology, Inc. in April, 2006, we recognized approximately
$5.3 million as goodwill on our balance sheet. We may need to incur
an impairment charge to the extent we determine that we no longer have
substantial goodwill as an enterprise, which would be the case
if our market capitalization no longer materially exceeded the book value
of our assets. We are required to make such an assessment of
our enterprise goodwill at least annually. Any such
impairment charge will correspondingly decrease our profitability and could lead
to a decline in our stock price.
Due
to the volatility of demand for our products, our inventory may from time to
time be in excess of our needs, which could cause write downs of our inventory
or of inventory held by our distributors.
Generally
our products are sold pursuant to short-term releases of customer purchase
orders and some orders must be filled on an expedited basis. Our backlog is
subject to revisions and cancellations and anticipated demand is constantly
changing. Because of the short life cycles involved with our customers’
products, the order pattern from individual customers can be erratic, with
inventory accumulation and liquidation during phases of the life cycle for our
customers’ products. We face the risk of inventory write-offs if we manufacture
products in advance of orders. However, if we do not make products in advance of
orders, we may be unable to fulfill some or all of the demand to the detriment
of our customer relationships because we have insufficient inventory on hand and
at our distributors to fill unexpected orders and because the time required to
make the product may be longer than the time that certain customers will wait
for the product.
We
typically plan our production and our inventory levels, and the inventory levels
of our distributors, based on internal forecasts of customer demand, which are
highly unpredictable and can fluctuate substantially. Therefore, we often order
materials and at least partially fabricate product in anticipation of customer
requirements. Furthermore, due to long manufacturing lead times, in order to
respond in a timely manner to customer demand, we may also make products or have
products made in advance of orders to keep in our inventory, and we may
encourage our distributors to order and stock products in advance of orders that
are subject to their right to return them to us.
In
the last few years, there has been a trend toward vendor managed inventory among
some large customers. In such situations, we do not recognize revenue until the
customer withdraws inventory from stock or otherwise becomes obligated to retain
our product. This imposes the burden upon us of carrying additional inventory
that is stored on or near our customers’ premises and is subject in many
instances to return to our premises if not used by the customer.
We
value our inventories on a part by part basis to appropriately consider excess
inventory levels and obsolete inventory primarily based on backlog and
forecasted customer demand, and to consider reductions in sales price. For the
reasons described above, we may end up carrying more inventory than we need in
order to meet our customers’ orders, in which case we may incur charges when we
write down the excess inventory to its net realizable value, if any, should our
customers for whatever reason not order the product in our
inventory.
Our
design wins may not result in customer products utilizing our devices and our
backlog may not result in future shipments of our devices. During a typical
quarter, a substantial portion of our shipments are not in our backlog at the
start of the quarter, which limits our ability to forecast in the near
term.
We
count as a design win each decision by one of our customers to use one of our
parts in one of their products that, based on their projected usage, will
generate more than $100,000 of sales annually for us when their product is in
production. Not all of the design wins that we recognize will result in revenue
as a customer may cancel an end product for a variety of reasons or subsequently
decide not to use our part in it. Even if the customer’s end product does go
into production with our part, it may not result in annual product sales of
$100,000 by us and the customer’s product may have a shorter life than expected.
In addition, the length of time from design win to production will vary based on
the customer’s development schedule. Finally, the revenue from design wins
varies significantly. Consequently, the number of design wins we obtain is not a
quantitative indicator of our future sales.
Due
to possible customer changes in delivery schedules and cancellations of orders,
our backlog at any particular point in time is not necessarily indicative of
actual sales for any succeeding period. A reduction of backlog during any
particular period, or the failure of our backlog to result in future shipments,
could harm our business. Much of our revenue is based upon orders placed with us
that have short lead time until delivery or sales by our distributors to their
customers (in most cases, we do not recognize revenue on sales to our
distributors until the distributor sells the product to its customers). As a
result, our ability to forecast our future shipments and our ability to increase
manufacturing capacity quickly may limit our ability to fulfill customer orders
with short lead times.
The
majority of our operating expenses cannot be reduced quickly in response to
revenue shortfalls without impairing our ability to effectively conduct
business.
The
majority of our operating expenses are labor related and therefore cannot be
reduced quickly without impairing our ability to effectively conduct business.
Much of the remainder of our operating costs such as rent is relatively fixed.
Therefore, we have limited ability to reduce expenses quickly in response to any
revenue shortfalls. Consequently, our operating results will be harmed if our
revenues do not meet our projections. We may experience revenue shortfalls for
the following and other reasons:
|
•
|
|
significant
pricing pressures that occur because of competition or customer
demands;
|
|
•
|
|
sudden
shortages of raw materials or fabrication, test or assembly capacity
constraints that lead our suppliers to allocate available supplies or
capacity to other customers and, in turn, harm our ability to meet our
sales obligations; and
|
|
•
|
|
rescheduling
or cancellation of customer orders due to a softening of the demand for
our customers’ products, replacement of our parts by our competitors or
other reasons.
|
We
may not be able to protect our intellectual property rights adequately and we
may be harmed by litigation involving our intellectual property
rights.
Our
ability to compete is affected by our ability to protect our intellectual
property rights. We rely on a combination of patents, trademarks, copyrights,
mask work registrations, trade secrets, confidentiality procedures and
nondisclosure and licensing arrangements to protect our intellectual property
rights. Despite these efforts, the steps we take to protect our proprietary
information may not be adequate to prevent misappropriation of our technology,
and our competitors may independently develop technology that is substantially
similar or superior to our technology.
To
the limited extent that we are able to seek patent protection for our products
or processes, our pending patent applications or any future applications may not
be approved. Any issued patents may not provide us with competitive advantages
and may be challenged by third parties. If challenged, our patents may be found
to be invalid or unenforceable, and the patents of others may have an adverse
effect on our ability to do business. Furthermore, others may independently
develop similar products or processes, duplicate our products or processes, or
design around any patents that may be issued to us.
As
a general matter, the semiconductor and related industries are characterized by
substantial litigation regarding intellectual property rights, and in
particular patents. We may be accused of infringing the intellectual property
rights of third parties. Furthermore, we may have certain indemnification
obligations to customers with respect to the infringement of third party
intellectual property rights by our products. Infringement claims by third
parties or claims for indemnification by customers or end users of our products
resulting from infringement claims may be asserted in the future and such
assertions, if proven to be true, may harm our business.
Any
litigation relating to the intellectual property rights of third parties,
whether or not determined in our favor or settled by us, would at a minimum be
costly and could divert the efforts and attention of our management and
technical personnel. In the event of any adverse ruling in any such litigation,
we could be required to pay substantial damages, cease the manufacturing, use
and sale of infringing products, discontinue the use of certain processes or
obtain a license under the intellectual property rights of the third party
claiming infringement. A license might not be available on reasonable terms, or
at all.
By
supplying parts in the past which were used in medical devices that help sustain
human life, we are vulnerable to product liability claims.
We
have in the past supplied products predominantly to Guidant and to a much lesser
extent to Medtronic for use in implantable defibrillators and pacemakers, which
help sustain human life. While we have not sold products into the Medical market
since fiscal year 2005, large numbers of our products are or will be used in
implanted medical devices, which could fail and expose us to claims. Should our
products cause failure in the implanted devices, we may be sued and ultimately
have liability, although under federal law Guidant and Medtronic would be
required to defend and take responsibility in such instances until their
liability was established, in which case we could be liable for that part of
those damages caused by our willful misconduct or, in the case of Medtronic
only, our negligence.
If
our products contain defects, fail to achieve industry reliability standards, or
infringe third party intellectual rights or if there are delays in delivery or
other unforeseen events which lead to our customers incurring damages, then our
reputation may be harmed, and we may incur significant unexpected expenses and
lose sales
.
We
face an inherent business risk of exposure to claims in the event that our
products fail to perform as warranted or expected or if we are late in
delivering them. Our customers might seek to recover from us any perceived
losses, both direct and indirect, which could include their lost sales or
profit, a recall of their products, or defending them against third party
intellectual property claims. Such claims might be significantly higher than the
revenues and profits we receive from our products involved as we are usually a
component supplier with limited value content relative to the value of the
ultimate end-product. We attempt to protect ourselves through a combination of
quality controls, contractual provisions, business insurance, and self
insurance. There is no assurance that we will always be able to limit our
liability contractually or that any such limits that we negotiate will be
enforceable. There can be no assurance that we will obtain the insurance
coverage we seek, both in terms of dollar amount insured or scope of exclusions
to the coverage, or that the self insured claims will not be larger than we
expect. A successful claim against us could have material adverse effects
on our results of operations and financial condition. Beyond the potential
direct cost, loss of confidence by major customers could cause sales of our
other products to drop significantly and harm our business.
Our
failure to comply with environmental regulations or the discovery of
contaminants at our prior manufacturing sites could result in substantial
liability to us.
We
are subject to a variety of federal, state and local laws, rules and regulations
relating to the protection of health and the environment. These include laws,
rules and regulations governing the use, storage, discharge, release, treatment
and disposal of hazardous chemicals during and after manufacturing, research and
development and sales demonstrations, as well as the maintenance of healthy and
environmentally sound conditions within our facilities. If we fail to comply
with applicable requirements, we could be subject to substantial liability for
cleanup efforts, property damage, personal injury and fines or suspension or
cessation of our operations. Should contaminants be found at either of our
prior manufacturing sites at a future date, a government agency or future owner
could attempt to hold us responsible, which could result in material
expenses.
Earthquakes,
other natural disasters and shortages, or man-caused disasters such as future
terrorist activity, may damage our business.
Our
California facilities and some of our suppliers are located near major
earthquake faults that have experienced earthquakes in the past. In the event of
a major earthquake or other natural disaster near our headquarters, our
operations could be harmed. Similarly, a major earthquake or other natural
disaster near one or more of our major suppliers, like the ones that occurred in
Taiwan in September 1999 and in Japan in October 2004, could disrupt the
operations of those suppliers, limit the supply of our products and harm our
business. The October 2004 earthquake in Japan temporarily shut down operations
at one of the wafer fabrication facilities at which our products were being
produced. We have since transferred that capacity to other fabs. Power shortages
have occurred in California in the past and a wafer fabrication contractor of
ours in China experienced a power outrage during 2007. We cannot assure that if
power interruptions or shortages occur in the future, they will not adversely
affect our business. The September 11, 2001 attack may have adversely
affected the demand for our customers’ products, which in turn reduced their
demand for our products. In addition, terrorist activity interfered with
communications and transportation networks, which adversely affected us. Future
terrorist activity or war could similarly adversely impact our
business.
Implementation
of the new FASB rules for the accounting of employee equity and the issuance of
new laws or other accounting regulations, or reinterpretation of existing laws
or regulations, could materially impact our business or stated
results.
From
time to time, the government, courts and financial accounting boards issue new
laws or accounting regulations, or modify or reinterpret existing
ones. For example, starting with the first quarter of fiscal 2007, we
implemented Financial Accounting Standards Board (“FASB”) financial accounting
standard 123(R) for the accounting for share based payments. These
regulations cause us to recognize an expense associated with our employee and
director stock options and our employee stock purchase plan which will decrease
our earnings. We have chosen to have lower earnings rather than not to use
options as widely for our employees, which we believe would adversely impact our
ability to hire and retain key employees. There may be other future changes in
laws, interpretations or regulations that would affect our financial results or
the way in which we present them. Additionally, changes in the laws or
regulations could have adverse effects on hiring and many other aspects of our
business that would affect our ability to compete, both nationally and
internationally.
Our
stock price may continue to be volatile, and our trading volume may continue to
be relatively low and limit liquidity and market efficiency. Should significant
shareholders desire to sell their shares within a short period of time, our
stock price could decline.
The
market price of our common stock has fluctuated significantly. In the future,
the market price of our common stock could be subject to significant
fluctuations due to general market conditions and in response to quarter to
quarter variations in:
|
•
|
|
our
anticipated or actual operating
results;
|
|
•
|
|
announcements
or introductions of new products by us or our
competitors;
|
|
|
|
|
|
•
|
|
decreased
market share of our major
customers;
|
|
•
|
|
technological
innovations or setbacks by us or our
competitors;
|
|
•
|
|
conditions
in the semiconductor and passive components
markets;
|
|
•
|
|
the
commencement of litigation;
|
|
•
|
|
changes
in estimates of our performance by securities
analysts;
|
|
•
|
|
announcements
of merger or acquisition transactions;
and
|
|
•
|
|
general
economic and market conditions.
|
In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have affected the market prices of many high technology
companies, particularly semiconductor companies, that have often been unrelated
or disproportionate to the operating performance of the companies. These
fluctuations, as well as general economic and market conditions, may harm the
market price of our common stock. Furthermore, our trading volume is often
small, meaning that a few trades have disproportionate influence on our stock
price. In addition, someone seeking to liquidate a sizable position in our stock
may have difficulty doing so except over an extended period or privately at a
discount. Thus, if a shareholder were to sell or attempt to sell a large number
of its shares within a short period of time, this sale or attempt could cause
our stock price to decline. Our stock is followed by a relatively small number
of analysts and any changes in their rating of our stock could cause significant
swings in its market price.
Our
shareholder rights plan, together with the anti-takeover provisions of our
certificate of incorporation, may delay, defer or prevent a change of
control.
Our
board of directors adopted a shareholder rights plan in autumn 2001 to encourage
third parties interested in acquiring us to work with and obtain the support of
our board of directors. The effect of the rights plan is that any person who
does not obtain the support of our board of directors for its proposed
acquisition of us would suffer immediate dilution upon achieving ownership of
more than 15% of our stock. Under the rights plan, we have issued rights to
purchase shares of our preferred stock that are redeemable by us prior to a
triggering event for a nominal amount at any time and that accompany each of our
outstanding common shares. These rights are triggered if a third party acquires
more than 15% of our stock without board of director approval. If triggered,
these rights entitle our shareholders, other than the third party causing the
rights to be triggered, to purchase shares of the company’s preferred stock at
what is expected to be a relatively low price. In addition, these rights may be
exchanged for common stock under certain circumstances if permitted by the board
of directors.
In
addition, our board of directors has the authority to issue up to 10,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges and restrictions, including voting rights of those shares without any
further vote or action by our shareholders. The rights of the holders of common
stock will be subject to, and may be harmed by, the rights of the holders of any
shares of preferred stock that may be issued in the future, including the
preferred shares covered by the shareholder rights plan. The issuance of
preferred stock may delay, defer or prevent a change in control. The terms of
the preferred stock that might be issued could potentially make more difficult
or expensive our consummation of any merger, reorganization, sale of
substantially all of our assets, liquidation or other extraordinary corporate
transaction. In addition, the issuance of preferred stock could have a dilutive
effect on our shareholders.
Further,
our shareholders must give written notice delivered to our executive offices no
less than 120 days before the one year anniversary of the date our proxy
statement was released to shareholders in connection with the previous year’s
annual meeting to nominate a candidate for director or present a proposal to our
shareholders at a meeting. These notice requirements could inhibit a takeover by
delaying shareholder action.
We
will incur increased costs as a result of recently enacted and proposed changes
in laws and regulations relating to corporate governance matters and public
disclosure.
Recently
enacted and proposed changes in the laws and regulations affecting public
companies, including the provisions of the Sarbanes-Oxley Act of 2002, rules
adopted or proposed by the SEC and by the NASDAQ National Market and new
accounting pronouncements will result in increased costs to us as we evaluate
the implications of these laws, regulations and standards and respond to their
requirements. To maintain high standards of corporate governance and public
disclosure, we intend to invest substantial resources to comply with evolving
standards. This investment may result in increased general and administrative
expenses and a diversion of management time and attention from strategic revenue
generating and cost management activities. For example, we spent approximately
an incremental $800,000 versus our prior financial audit only fees on internal
control documentation, testing, and auditing to complete our first annual review
associated with filing of 10-K for the year ended March 31, 2005 to comply with
section 404 of the Sarbanes-Oxley Act. We also spent a significant
but not separately determinable amount in fiscal 2008, fiscal 2007 and fiscal
2006 in internal control documentation, testing, and auditing. In
addition, these new laws and regulations could make it more difficult or more
costly for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of
directors, on our board committees or as executive officers. We are taking steps
to comply with the recently enacted laws and regulations in accordance with the
deadlines by which compliance is required, but cannot predict or estimate the
amount or timing of additional costs that we may incur to respond to their
requirements.
In
the future we may make strategic acquisitions of technology, product lines, or
companies and any future acquisitions and strategic alliances may harm our
operating results or cause us to incur debt or assume contingent
liabilities.
We
may in the future acquire, or form strategic alliances relating to, other
businesses, product lines or technologies. Successful acquisitions and alliances
in the semiconductor industry are difficult to accomplish because they require,
among other things, efficient integration and alignment of product offerings and
manufacturing operations and coordination of sales and marketing and research
and development efforts. We have no recent experience in making such
acquisitions or alliances. The difficulties of integration and alignment may be
increased by the necessity of coordinating geographically separated
organizations, the complexity of the technologies being integrated and aligned
and the necessity of integrating personnel with disparate business backgrounds
and combining different corporate cultures. The integration and alignment of
operations following an acquisition or alliance requires the dedication of
management resources that may distract attention from the day to day business,
and may disrupt key research and development, marketing or sales
efforts. In connection with future acquisitions and alliances, we may
not only acquire assets which need to be amortized, but we may also incur debt
or assume contingent liabilities which could harm our operating results. Without
strategic acquisitions and alliances we may have difficulty meeting future
customer product and service requirements.
A
decline in our stock price could result in securities class action litigation
against us which could divert management attention and harm our
business.
In
the past, securities class action litigation has often been brought against
public companies after periods of volatility in the market price of their
securities. Due in part to our historical stock price volatility, we could in
the future be a target of such litigation. Securities litigation could result in
substantial costs and divert management’s attention and resources, which could
harm our ability to execute our business plan.
ITEM 1B
.
Unresolved Staff
Comments.
Not
applicable.
ITEM 2
.
Properties.
We
currently lease our headquarters, approximately 26,000 square feet of office and
lab space in Milpitas, California, pursuant to a sixty-three month lease
agreement we entered into with the Irvine Company that started on September 1,
2005 for a current monthly rent payment of $23,000 plus operating expenses. We
also rent office facilities for our domestic and international sales
offices. We believe that our existing facilities are adequate for our
current and foreseeable future needs.
ITEM 3
.
Legal
Proceedings.
We
are, on occasion, a party to lawsuits, claims, investigations and proceedings,
including commercial and employment matters, which are being handled and
defended in the ordinary course of business. We review the current status of any
pending or threatened proceedings with our outside counsel on a regular basis
and, considering all the other known relevant facts and circumstances, recognize
any loss that we consider probable and estimable as of the balance sheet date.
For these purposes, we consider settlement offers we may make to be indicative
of such a loss under certain circumstances.
ITEM 4
.
Submission of Matters to a Vote of
Security Holders.
Not
applicable.
PART
II
ITEM 5
.
Market for Registrant’s Common
Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
Our
common stock trades on the NASDAQ Global Market tier of The NASDAQ Stock Market
under the symbol “CAMD”. The following table shows the high and low closing
prices for our common stock as reported by the NASDAQ Stock Market:
|
|
Common
Stock
|
|
|
|
|
Q1
|
|
|
|
Q2
|
|
|
|
Q3
|
|
|
|
Q4
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
5.24
|
|
|
$
|
4.64
|
|
|
$
|
4.80
|
|
|
$
|
4.60
|
|
Low
|
|
|
4.05
|
|
|
|
3.62
|
|
|
|
3.44
|
|
|
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
8.10
|
|
|
|
5.49
|
|
|
|
5.72
|
|
|
|
5.42
|
|
Low
|
|
$
|
3.92
|
|
|
$
|
3.51
|
|
|
$
|
4.18
|
|
|
$
|
4.42
|
|
No
dividends were paid in fiscal 2008 or 2007. We expect to continue that policy in
the foreseeable future although we currently have no restrictions against paying
dividends. As of May 31, 2008 there were 1,370 holders of record of our common
shares and a substantially greater number of beneficial owners.
We
did not repurchase any of our outstanding shares or other securities during the
fourth quarter of fiscal 2008, nor did we issue any securities that had not been
registered under the Federal Securities Act of 1933, as amended.
Securities
Authorized for Issuance under Equity Compensation Plans
The
information required by this Item is included under Item 12 of Part III of this
Annual Report on Form 10-K.
Stock
Performance Graph
The
following graph compares the cumulative 5-year total return provided
shareholders on California Micro Devices Corporation's common stock relative to
the cumulative total returns of the NASDAQ Composite index, the S & P 500
index, and the S & P Information Technology index. An investment of $100
(with reinvestment of all dividends) is assumed to have been made in our common
stock and in each of the indexes on March 31, 2003 and its relative performance
is tracked through March 31, 2008. (California Micro Devices has not
historically paid dividends.)
|
|
|
3/03
|
|
|
|
3/04
|
|
|
|
3/05
|
|
|
|
3/06
|
|
|
|
3/07
|
|
|
|
3/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
Micro Devices Corporation
|
|
$
|
100.00
|
|
|
$
|
338.99
|
|
|
$
|
127.85
|
|
|
$
|
200.25
|
|
|
$
|
118.48
|
|
|
$
|
74.43
|
|
NASDAQ
Composite
|
|
|
100.00
|
|
|
|
151.01
|
|
|
|
152.38
|
|
|
|
181.06
|
|
|
|
189.63
|
|
|
|
177.49
|
|
S&P
500
|
|
|
100.00
|
|
|
|
135.12
|
|
|
|
144.16
|
|
|
|
161.07
|
|
|
|
180.13
|
|
|
|
170.98
|
|
S&P
Information Technology
|
|
$
|
100.00
|
|
|
$
|
144.06
|
|
|
$
|
140.47
|
|
|
$
|
159.47
|
|
|
$
|
164.42
|
|
|
$
|
163.72
|
|
The
stock price performance included in this graph is not necessarily indicative of
future stock price performance.
ITEM 6
.
Selected Financial
Data.
The
selected financial data set forth below should be read in connection with our
financial statements and notes thereto and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included elsewhere in this
Form 10-K. Historical results are not necessarily indicative of future
results.
|
|
Year
Ended March 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(in
thousands, except per share data)
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
59,217
|
|
|
|
|
$
|
68,006
|
|
|
|
|
$
|
70,241
|
|
|
|
|
$
|
65,869
|
|
|
|
|
$
|
59,560
|
|
|
Income
(loss) before income taxes
|
|
|
(518
|
)
|
(1
|
)
|
|
|
546
|
|
(2
|
)
|
|
|
7,460
|
|
|
|
|
|
4,167
|
|
(4
|
)
|
|
|
3,572
|
(5
|
)
|
Net
income (loss)
|
|
|
(1,414
|
)
|
(1
|
)
|
|
|
(81
|
)
|
(2
|
)
|
|
|
10,035
|
|
(3
|
)
|
|
|
4,042
|
|
(4
|
)
|
|
|
3,572
|
(5
|
)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.06
|
)
|
|
|
|
|
(0.00
|
)
|
|
|
|
|
0.45
|
|
(3
|
)
|
|
|
0.19
|
|
|
|
|
|
0.20
|
|
|
Diluted
|
|
$
|
(0.06
|
)
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
$
|
0.44
|
|
(3
|
)
|
|
$
|
0.18
|
|
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term investments
|
|
$
|
51,596
|
|
|
|
|
$
|
49,024
|
|
|
|
|
$
|
49,746
|
|
|
|
|
$
|
36,075
|
|
|
|
|
$
|
20,325
|
|
|
Working
capital
|
|
|
56,560
|
|
|
|
|
|
55,259
|
|
|
|
|
|
57,858
|
|
(3
|
)
|
|
|
40,562
|
|
|
|
|
|
19,621
|
|
|
Total
assets
|
|
|
78,085
|
|
|
|
|
|
75,883
|
|
|
|
|
|
73,732
|
|
(3
|
)
|
|
|
57,677
|
|
|
|
|
|
41,127
|
|
|
Long-term
obligations
|
|
|
350
|
|
|
|
|
|
303
|
|
|
|
|
|
8
|
|
|
|
|
|
111
|
|
|
|
|
|
4,717
|
|
|
Total
shareholders’ equity
|
|
$
|
67,414
|
|
|
|
|
$
|
66,046
|
|
|
|
|
$
|
61,872
|
|
|
|
|
$
|
46,661
|
|
|
|
|
$
|
22,118
|
|
|
________
(1)
Includes $2.3 million of employee stock-based compensation expense.
(2)
Includes $3.1 million of employee stock-based compensation expense and $2.2
million of IPR&D expense.
(3)
Includes $2.7 million of partial release of valuation allowance against deferred
tax assets.
(4)
Includes $1.3 million of restructuring and asset impairment
charges.
(5)
Includes $1.0 million of charges related to realigning and reducing internal
manufacturing operations.
ITEM 7
.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Such forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts and are based on current
expectations, estimates, and projections about our industry; our beliefs and
assumptions; and our goals and objectives. Words such as “anticipates,”
“expects,” “intends,” “plans,” “believes,” “seeks,” and “estimates,” and
variations of these words and similar expressions are intended to identify
forward-looking statements. Examples of the kinds of forward-looking statements
in this report include statements regarding the following: (1) our expectation
that our ASP (“Average Selling Prices”) for similar products will decline at the
rate of 12% to 15% per year; (2) our having a target gross margin of 38% to 40%,
which
we may fail to achieve
; (3) our expectation that our future
environmental compliance costs will be minimal; (4) our anticipation that our
existing cash, cash equivalents and short-term investments will be sufficient to
meet our anticipated cash needs over the next 12 months; (5) our expectation not
to pay dividends in the foreseeable future; (6) our having a long term target
for research and development expenses of 9% to 10% of sales
,
however, expecting such expenses for fiscal 2009 to be higher due to our
increased planned spending on serial interface display controller products and
continued significant investment in protection products
; (7) our having a
long term target for selling, general and administrative expenses of 15% to 16%
of sales but expecting to exceed this target until our sales increase
substantially; (8) our expectation of further cost reductions of our products in
future; (9) our expectation of future interest income to reduce significantly as
a result of decline in interest rates;
(10)
the iSupply estimates for growth in our target markets; (11) our six-element
strategy to achieve our objective to be a leading supplier of protection devices
for the mobile handset, digital consumer electronics and personal computer
markets and of serial interface display electronics for the mobile handset
market; and (12) our expectation for fiscal 2009 revenue to grow both for
protection products and display controller devices, including for our mobile
handset devices and low capacitance ESD protection devices used in digital TVs,
other digital consumer electronics and personal computers
. These
statements are only predictions, are not guarantees of future performance, and
are subject to risks, uncertainties, and other factors, some of which are beyond
our control, are difficult to predict, and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties include, but are not limited to, whether our
target markets continue to experience their forecasted growth and whether such
growth continues to require the devices we supply; whether we will be able to
increase our market penetration; whether our product mix changes, our unit
volume decreases materially, we experience price erosion due to competitive
pressures, or our contract manufacturers and assemblers raise their prices to us
or we experience lower yields from them or we are unable to realize expected
cost savings in certain manufacturing and assembly processes; whether there will
be any changes in tax accounting rules; whether we will be successful developing
new products which our customers will design into their products and whether
design wins and bookings will translate into orders; whether we encounter any
unexpected environmental clean-up issues with our former Tempe facility; whether
we discover any further contamination at our former Topaz Avenue Milpitas
facility; and whether we will incur unexpected expenses or have large
unanticipated cash requirements, as well as other risk factors detailed in this
report, especially under Item 1A, Risk Factors. Except as required by law, we
undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events, or otherwise.
In
this discussion, “CMD,” “we,” “us” and “our” refer to California Micro Devices
Corporation. All trademarks appearing in this discussion are the property of
their respective owners. This discussion should be read in conjunction with the
other financial information and financial statements and related notes contained
elsewhere in this report.
Executive
Overview
We
have one operating segment and primarily serve mobile handset, digital
electronics and personal computer markets. We are a leading supplier of
protection devices for mobile handsets that provide EMI filtering and ESD
protection, and of low capacitance ESD protection devices for digital consumer
electronics and personal computers. We also offer display electronics ICs for
mobile handset displays including serial interface display controllers. End
customers for our semiconductor products are OEMs. We sell to some of these end
customers through ODMs and CEMs. We use a direct sales force, manufacturers’
representatives and distributors to sell our products. Our manufacturing is
completely outsourced and we use merchant foundries to fabricate our wafers and
subcontractors to do backend processing and to ship to our customers. Most of
our physical assets are located outside the United States including product
inventories and manufacturing equipment consigned to our wafer foundries and
backend subcontractors.
Industry
Overview
The
semiconductor industry is characterized by rapid technological change, intense
competitive pressure, price erosion, periodic oversupply conditions, occasional
shortages of materials, volatile demand patterns, capacity constraints,
variation in manufacturing efficiencies and significant expenditures for capital
equipment and product development. Market disruptions caused by new
technologies, entry of new competitors into markets we serve and other factors
introduce volatility into our operating performance and cash flow from
operations.
Fiscal
2008 key financial highlights
The
following are key financial highlights;
Net Sales of $59.2 Million:
Our net sales were $59.2 million in fiscal 2008, down 13% from
$68.0 million in 2007. Sales in the mobile handset market were $10.8
million lower and sales in the digital consumer electronics and personal
computer market were $2.0 million higher than a year ago.
Gross Margin of $19.6
Million:
Our gross margin was $19.6 million (33% of our net sales) in
fiscal 2008 as compared to gross margin of $25.2 million (37% of our net sales)
a year ago.
Net Loss of $0.06 per Share - Basic
and Diluted:
Our net loss, basic and diluted, was $0.06 per share in
fiscal 2008 whereas our net loss per share, basic and diluted, rounded to $0.00
a year ago.
Cash Provided by Operating
Activities of $4.4 Million:
We generated operating cash flow of
$4.4 million in fiscal 2008 and $6.7 million a year ago.
Net Cash
*
Position:
We ended the fiscal
year 2008 with a net cash position of $51.6 million as compared to $49.0
million a year ago.
*Net Cash
= Cash and cash equivalents + Short-term investments
Major
Accomplishments in Fiscal 2008
In
fiscal 2008 we began shipping to our fourth Top 5 handset maker. We also started
production shipments of our new display controller for CDMA handsets to our
customers, including a top 5 handset OEM. We experienced rapid growth in the
sales of packaged handset protection products. In addition, we introduced the
XtremeESD
TM
device
family that includes architectures optimized for the maximum protection of
advanced system integrated circuits as well as for the highest speed data
interfaces. We also introduced our Praetorian II family of EMI filters during
fiscal 2008.
In
addition, we also made considerable progress on our major cost reduction
initiatives which include outsourcing with lower cost subcontractors, migration
from six inch to eight inch wafers for many of our products, migration of low
capacitance ESD products to the lower cost sinker process and continued
improvement in our assembly and testing processes.
Based
on our analysis of future customer needs, backlog and our recent and anticipated
design wins, we expect revenue in fiscal 2009 to grow for both our protection
products and display controller devices. We expect the demand to increase for
both our mobile handset devices and low capacitance ESD protection devices used
in digital TVs, other digital consumer electronics and personal
computers.
We
continue to invest in new products and are committed to increasing our research
and development efforts in order to provide our customers with continued
improvements in functionality and features. We plan to invest significantly in
our display controller product family as well as our protection
products.
Results
of Operations
The
table below shows our net sales, cost of sales, gross margin, expenses and net
income, both in dollars and as a percentage of net sales, for fiscal 2008, 2007
and 2006 (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
Net
sales
|
|
$
|
59,217
|
|
|
|
100
|
%
|
|
$
|
68,006
|
|
|
|
100
|
%
|
|
$
|
70,241
|
|
|
|
100
|
%
|
Cost
of sales
|
|
|
39,599
|
|
|
|
67
|
%
|
|
|
42,790
|
|
|
|
63
|
%
|
|
|
44,068
|
|
|
|
63
|
%
|
Gross
margin
|
|
|
19,618
|
|
|
|
33
|
%
|
|
|
25,216
|
|
|
|
37
|
%
|
|
|
26,173
|
|
|
|
37
|
%
|
Research
and development
|
|
|
7,097
|
|
|
|
12
|
%
|
|
|
7,977
|
|
|
|
12
|
%
|
|
|
6,817
|
|
|
|
10
|
%
|
Selling,
general and administrative
|
|
|
15,264
|
|
|
|
26
|
%
|
|
|
16,757
|
|
|
|
25
|
%
|
|
|
13,387
|
|
|
|
19
|
%
|
In-process
research and development
|
|
|
-
|
|
|
|
0
|
%
|
|
|
2,210
|
|
|
|
3
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Amortization
of intangible assets
|
|
|
165
|
|
|
|
0
|
%
|
|
|
158
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Other
income, net
|
|
|
(2,390
|
)
|
|
|
(4
|
%)
|
|
|
(2,432
|
)
|
|
|
(4
|
%)
|
|
|
(1,491
|
)
|
|
|
(2
|
%)
|
Income
(loss) before income taxes
|
|
|
(518
|
)
|
|
|
(1
|
%)
|
|
|
546
|
|
|
|
1
|
%
|
|
|
7,460
|
|
|
|
10
|
%
|
Provision
(benefit) for income taxes*
|
|
|
896
|
|
|
|
1
|
%
|
|
|
627
|
|
|
|
1
|
%
|
|
|
(2,575
|
)
|
|
|
(4
|
%)
|
Net
income (loss)
|
|
$
|
(1,414
|
)
|
|
|
(2
|
%)
|
|
$
|
(81
|
)
|
|
|
(0
|
%)
|
|
$
|
10,035
|
|
|
|
14
|
%
|
*Includes
$2.7 million of partial release of valuation allowance against deferred tax
assets for fiscal 2006.
Net
Sales
Fiscal
2008 versus 2007
Net
sales by market were as follows (in millions):
|
|
Year
ended March 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As
% of
|
|
|
|
|
|
As
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
$
Change
|
|
|
%
Change
|
|
Mobile
handset
|
|
$
|
37.3
|
|
|
|
63
|
%
|
|
$
|
48.1
|
|
|
|
71
|
%
|
|
$
|
(10.8
|
)
|
|
|
(22
|
%)
|
Digital
consumer electronics and personal computers
|
|
|
21.9
|
|
|
|
37
|
%
|
|
|
19.9
|
|
|
|
29
|
%
|
|
|
2.0
|
|
|
|
10
|
%
|
Total
|
|
$
|
59.2
|
|
|
|
100
|
%
|
|
$
|
68.0
|
|
|
|
100
|
%
|
|
$
|
(8.8
|
)
|
|
|
(13
|
%)
|
Net
sales for fiscal 2008 were $59.2 million, a decrease of $8.8 million or 13% from
$68.0 million of net sales in fiscal 2007. Sales from products for the mobile
handset market decreased by $10.8 million or 22% for fiscal 2008, as compared to
fiscal 2007, primarily due to two factors: a) lower sales to a major customer as
a result of share shifts in the mobile handset market and competition as well as
b) price decreases of our products. These declines were partially offset by
increases in unit sales to other customers. Sales from products for the digital
consumer electronics and personal computer market increased to $21.9 million in
fiscal 2008 from $19.9 million in fiscal 2007, up $2.0 million or 10%, which was
primarily driven by increased sales of our low capacitance and HBLED ESD
products.
In
fiscal 2008 the total number of units sold decreased to 701 million units from
877 million units in fiscal 2007. The shipments of packaged handset protection
devices increased to 323 million units in fiscal 2008 from 184 million units in
fiscal 2007.
Fiscal
2007 versus 2006
Net
sales by market were as follows (in millions):
|
|
Year
ended March 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
As
% of
|
|
|
|
|
|
As
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
$
Change
|
|
|
%
Change
|
|
Mobile
handset
|
|
$
|
48.1
|
|
|
|
71
|
%
|
|
$
|
53.4
|
|
|
|
76
|
%
|
|
$
|
(5.3
|
)
|
|
|
(10
|
%)
|
Digital
consumer electronics and personal computers
|
|
|
19.9
|
|
|
|
29
|
%
|
|
|
16.8
|
|
|
|
24
|
%
|
|
|
3.1
|
|
|
|
18
|
%
|
Total
|
|
$
|
68.0
|
|
|
|
100
|
%
|
|
$
|
70.2
|
|
|
|
100
|
%
|
|
$
|
(2.2
|
)
|
|
|
(3
|
%)
|
Net
sales for fiscal 2007 were $68.0 million, a decrease of $2.2 million or 3% from
$70.2 million of net sales in fiscal 2006. Sales from products for the mobile
handset market decreased by $5.3 million or 10% for fiscal 2007, as compared to
fiscal 2006, as a result of increased competition, lower demand from one of our
major customers and price decreases of our products. Sales from
products for the digital consumer electronics and personal computer market
increased to $19.9 million in fiscal 2007 from $16.8 million in fiscal 2006, up
$3.1 million or 18%, which was primarily driven by increased sales of our low
capacitance ESD products.
In
fiscal 2007 the number of units sold increased to 877 million units from 792
million units in fiscal 2006. However, there was a marked shift from CSP to
packaged parts in shipments of our products for the mobile handset market during
fiscal 2007. Sales of packaged parts for the mobile handset market increased to
23% in 2007 from 8% in 2006.
Sales
by Region
Net
sales by geographic region were as follows (in millions), based on where we ship
our products rather than where the customers’ headquarters are
located:
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
United
States
|
|
$
|
5.5
|
|
|
|
9
|
%
|
|
$
|
4.4
|
|
|
|
6
|
%
|
|
$
|
3.8
|
|
|
|
5
|
%
|
Korea
|
|
|
19.6
|
|
|
|
33
|
%
|
|
|
16.5
|
|
|
|
24
|
%
|
|
|
14.6
|
|
|
|
21
|
%
|
China
|
|
|
15.9
|
|
|
|
27
|
%
|
|
|
28.2
|
|
|
|
42
|
%
|
|
|
32.6
|
|
|
|
47
|
%
|
Taiwan
|
|
|
11.2
|
|
|
|
19
|
%
|
|
|
10.4
|
|
|
|
15
|
%
|
|
|
9.2
|
|
|
|
13
|
%
|
Singapore
|
|
|
4.2
|
|
|
|
7
|
%
|
|
|
6.7
|
|
|
|
10
|
%
|
|
|
8.6
|
|
|
|
12
|
%
|
Others
|
|
|
2.8
|
|
|
|
5
|
%
|
|
|
1.8
|
|
|
|
3
|
%
|
|
|
1.4
|
|
|
|
2
|
%
|
Total
net sales
|
|
$
|
59.2
|
|
|
|
100
|
%
|
|
$
|
68.0
|
|
|
|
100
|
%
|
|
$
|
70.2
|
|
|
|
100
|
%
|
Fiscal
2008 versus 2007
International
sales decreased from 94% of our net sales in fiscal 2007 to 91% in fiscal
2008. In fiscal 2008, revenue from the China region was approximately
27% of our total sales as compared to 42% a year ago, primarily as a result of
lower demand from one of our major customers. We expect that our international
sales will continue to represent a majority of our sales in the foreseeable
future.
Fiscal
2007 versus 2006
International
sales decreased from 95% of our net sales in fiscal 2006 to 94% in fiscal
2007. In fiscal 2007, revenue from the China region was approximately
42% of our total sales as compared to 47% in fiscal 2006, primarily as a result
of lower demand from one of our major customers.
Gross
Margin
Fiscal
2008 versus 2007
Gross
margin decreased by $5.6 million in fiscal 2008 to $19.6 million from $25.2
million in fiscal 2007 due to the following reasons:
Gross
margin increase (decrease) compared to prior period (in
millions):
|
|
|
|
Price
change of products based on a constant mix for target
markets
|
|
$
|
(7.5
|
)
|
Volume,
mix and other factors
|
|
|
(4.0
|
)
|
Cost
reductions of our products on a constant mix
|
|
|
5.9
|
|
|
|
$
|
(5.6
|
)
|
The
gross margin decrease was primarily driven by decreases in prices and volume of
our products as well as change in our product mix, partially offset by product
cost reductions. Our ASP declined 12% based on a constant mix of
products in fiscal 2008 as compared to a year ago. In the future we expect our
ASP for similar products, based on a constant mix of products, to decline at the
rate of 12% to 15% per year. Units sold in mobile handset market decreased by
27% and units sold in digital consumer electronics and personal computer markets
increased by 15% during fiscal 2008 as compared to a year ago. The cost
reductions of our products were primarily due to outsourcing with lower cost
subcontractors, migration of low capacitance ESD products to the lower cost
sinker process and continued improvement in our assembly and testing
processes.
Gross
margin as a percentage of net sales decreased to 33% in fiscal 2008 as compared
to 37% in fiscal 2007. Our long-range gross margin target remains 38%
to 40%. However, our gross margin could fail to achieve this target range or
could decline.
Fiscal
2007 versus 2006
Gross
margin decreased by $1.0 million in fiscal 2007 to $25.2 million from $26.2
million in fiscal 2006 due to the following reasons:
Gross
margin increase (decrease) compared to prior period (in
millions):
|
|
|
|
Price
change of products based on a constant mix for target
markets
|
|
$
|
(10.3
|
)
|
Cost
reductions of our products on a constant mix
|
|
|
6.9
|
|
Volume,
mix and other factors
|
|
|
2.9
|
|
Employee
stock-based compensation expense
|
|
|
(0.5
|
)
|
|
|
$
|
(1.0
|
)
|
The
gross margin decrease was driven by decrease in prices of our products for
target markets and recognition of SFAS 123(R) stock-based compensation expense
during fiscal 2007, partially offset by the increase in the volume of products
sold, cost reductions and similar other factors. Our ASP declined 13% based on a
constant mix of products in fiscal 2007 as compared to fiscal 2006. The cost
reductions of our products were primarily due to outsourcing with lower cost
subcontractors and continued improvement in our assembly, testing and packaging
processes. In fiscal 2007 unit sales increased to approximately 877 million
units from approximately 792 million units in fiscal 2006. We recognized
employee stock-based compensation expense in fiscal 2007 in accordance with SFAS
123(R) beginning on April 1, 2006. As a result of SFAS 123(R), our cost of sales
increased by approximately $0.5 million in fiscal 2007 as compared to fiscal
2006.
Gross
margin as a percentage of net sales was 37% in both fiscal years 2007 and
2006.
Research
and Development
Research
and development expenses consist primarily of compensation and other related
costs for employees, prototypes, masks and other expenses for the development of
new products, process technology and packages. The changes in research and
development expenses for fiscal 2008 compared to fiscal 2007, and for fiscal
2007 compared to fiscal 2006, were as follows:
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
|
compared
to
|
|
|
compared
to
|
|
Expense
increase (decrease) compared to prior fiscal year (in
thousands):
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
Engineering
supplies
|
|
$
|
(658
|
)
|
|
$
|
282
|
|
Product
related costs
|
|
|
(360
|
)
|
|
|
363
|
|
Salaries
and benefits, outside services and other costs
|
|
|
222
|
|
|
|
(168
|
)
|
Employee
stock-based compensation expense
|
|
|
(84
|
)
|
|
|
683
|
|
|
|
$
|
(880
|
)
|
|
$
|
1,160
|
|
Fiscal
2008 versus 2007
Research
and development expenses decreased by $0.9 million during fiscal 2008 as
compared with fiscal 2007, primarily due to the timing of our new product
development projects in both our serial interface display
controller product and protection devices. This decline is considered
temporary as serial interface display controller and protection devices
development activity will ramp up during fiscal 2009.
As
a percentage of sales, research and development expenses were flat at 12% in
fiscal 2008 as compared to a year ago primarily due to decrease in our sales.
Our long term target for research and development expenses is 9% to 10% of
sales. However, research and development expenses may exceed our target range
and represent more than 10% of sales as we expect to be the case in fiscal 2009,
due primarily to our increased planned spending on serial interface display
controller products.
Fiscal
2007 versus 2006
Research
and development expenses increased by $1.2 million during fiscal 2007 as
compared with fiscal 2006, primarily due to the impact of employee stock-based
compensation expense and increase in our product design and development efforts,
specifically for new display controller products in mobile handset market.
Engineering supplies, prototypes and other product related research and
development expenses increased as we hired additional engineers and incurred
costs in order to increase our in-house product development activities. Outside
service expenses decreased in fiscal 2007 as compared with fiscal 2006 due to a
decline in outsourced development costs for our serial interface display
controller.
As
a percentage of sales, research and development expenses increased from 10% in
fiscal 2006 to 12% in fiscal 2007.
Selling,
General and Administrative
Selling,
general and administrative expenses consist primarily of compensation and other
employee related costs, sales commissions, marketing expenses, legal,
accounting, and information technology expenses. The changes in selling, general
and administrative expense for fiscal 2008 compared to fiscal 2007, and for
fiscal 2007 compared to fiscal 2006, were as follows:
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
|
compared
to
|
|
|
compared
to
|
|
Expense
increase (decrease) compared to prior fiscal year (in
thousands):
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
Outside
services
|
|
$
|
(446
|
)
|
|
$
|
745
|
|
Employee
stock-based compensation expense
|
|
|
(531
|
)
|
|
|
1,916
|
|
Marketing
samples, travel and other expenses
|
|
|
(246
|
)
|
|
|
236
|
|
Commissions,
salaries and benefits
|
|
|
(270
|
)
|
|
|
473
|
|
|
|
$
|
(1,493
|
)
|
|
$
|
3,370
|
|
Fiscal
2008 versus 2007
Selling,
general and administrative expenses decreased by approximately $1.5 million in
fiscal 2008 as compared with a year ago, primarily due to a decrease in employee
stock-based compensation expense, professional services, and sales commissions
as a result of reduced sales. Others factors included reduced spending for
marketing samples and reduction in legal charges incurred during fiscal 2008 as
compared with a year ago.
As
a percentage of sales, selling, general and administrative expenses increased
from 25% in fiscal 2007 to 26% in fiscal 2008, primarily as a result of reduced
sales. Our long term target for selling, general and administrative expenses is
15% to 16% of sales. However, selling, general and administrative expenses will
continue to exceed our target range and represent more than 16% of sales until
our sales increase substantially.
Fiscal
2007 versus 2006
Selling,
general and administrative expenses increased by $3.4 million in fiscal 2007 as
compared with fiscal 2006, primarily due to the impact of employee stock-based
compensation expense and increased professional services. During fiscal 2007, we
used significantly more outside services than we typically use due to changes in
management personnel in our finance group and one-time projects related to our
acquisition of Arques. Salaries and benefits spending also increased
significantly due to the increase in headcount in sales and marketing department
from the Arques acquisition. Total headcount in selling, general and
administrative departments increased by approximately 16% in fiscal 2007 as
compared with fiscal 2006. Travel expenses increased due to our increased
marketing activities to sell our new products and expand our customer base. On
the other hand, product sample expenses decreased as we effectively implemented
a cost-savings program during fiscal 2007.
As
a percentage of sales, selling, general and administrative expenses increased
from 19% in fiscal 2006 to 25% in fiscal 2007.
IPR&D
IPR&D
expense in fiscal 2007 of $2.2 million was related to the Arques acquisition.
There was no IPR&D expense recorded during each of the fiscal years 2008 and
2006. IPR&D was expensed upon acquisition in fiscal 2007 because
technological feasibility had not been established and no future alternative
uses existed.
Amortization
of Intangible Assets
At
March 31, 2008 and 2007, intangible assets consisted of developed and core
technology and distributor relationships acquired as a part of the acquisition
of Arques Technology, Inc. during fiscal 2007. Developed and core technology and
distributor relationships are amortized on a straight-line basis over their
useful lives of four years and two years, respectively. We recorded amortization
expense of $165,000 in fiscal 2008 and $158,000 in fiscal 2007. There were no
such charges recorded in fiscal 2006. For further discussion of intangible
assets, see Note 5 of Notes to Consolidated Financial Statements in this Form
10-K.
Other
Income, Net
Other
income, net includes interest income, interest expense and other non-operating
income and expense in fiscal 2008, 2007 and 2006.
Interest
income remained at a consistent level of $2.5 million in fiscal years 2008 and
2007. We expect future interest income to decrease significantly as a result of
recent declines in interest rates.
Interest
income increased to approximately $2.5 million in fiscal 2007 from $1.6 million
during fiscal 2006. The increase in interest income resulted from higher average
interest rates in fiscal 2007 along with a higher average cash balance as a
result of positive cash flow from operations and issuance of common stock under
our employee stock option and employee stock purchase plans, partially offset by
cash outflow for our investing activities.
Interest
expense was immaterial for fiscal years 2008, 2007 and 2006,
respectively.
Income
Taxes
Income
tax expense is comprised of a current and deferred component.
The current tax provision in fiscal 2008 was $0.1 million and primarily consists
of cash payments made to taxing authorities and accruals under FIN 48 for
potential additional tax in certain jurisdictions. The deferred
component of the fiscal 2008 tax provision was $0.8 million and represents
the net change to our tax accruals to reflect the expected
future tax benefits of our net operating losses and other
credits. Fiscal year ended March 31, 2008 total expense of $0.9
million compares with an income tax provision of $0.6 million recorded a
year ago. Our income tax provision increased during fiscal year ended March 31,
2008 compared to a year ago, primarily as a result of our estimates in our
ability to utilize loss carry forwards. During the fiscal year ended March 31,
2006, we reduced $2.7 million of the valuation allowance against
deferred tax assets, resulting in a net tax benefit of $2.6 million. See Note 16
of the Notes to Consolidated Financial Statements of this Form 10-K for further
discussion.
Critical
Accounting Policies and Estimates
The
preparation of financial statements, in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect amounts reported in our financial statements and
accompanying notes. We base our estimates on historical experience and the known
facts and circumstances that we believe are relevant. We have not made any
material change in the accounting methodology used to establish
our estimates and assumptions during the past three fiscal years. We
do not believe there is a reasonable likelihood that there will be a material
change in the accounting methodology used to establish our estimates or
assumptions.
However,
actual results may differ materially from our estimates. Our significant
accounting policies are described in Note 2 of Notes to Consolidated Financial
Statements in this Form 10-K. The significant accounting policies that we
believe are critical, either because they relate to financial line items that
are key indicators of our financial performance such as revenue or because their
application requires significant management judgment, are described in the
following paragraphs.
Revenue
recognition
We
recognize revenue when persuasive evidence of an arrangement exists, delivery or
customer acceptance, where applicable, has occurred, the fee is fixed or
determinable, and collection is reasonably assured.
Revenue
from product sales to end user customers, or to distributors that do not receive
price concessions and do not have return rights, is recognized upon shipment and
transfer of risk of loss, if we believe collection is reasonably assured and all
other revenue recognition criteria are met. We assess the probability of
collection based on a number of factors, including past transaction history and
the customer’s creditworthiness. If we determine that collection of a receivable
is not probable, we defer recognition of revenue until the collection becomes
probable, which is generally upon receipt of cash. Reserves for sales returns
and allowances from end user customers are estimated based on historical
experience and management judgment, and are provided for at the time of
shipment. The sufficiency of the reserves for sales return and allowances is
assessed at the end of each reporting period.
Revenue
from sales of our standard products to distributors whose terms provide for
price concessions or for product return rights is recognized when the
distributor sells the product to an end customer. For our end of life products,
if we believe that collection is probable, we recognize revenue upon shipment to
the distributor, because our contractual arrangements provide for no right of
return or price concessions for those products.
When
we sell products to distributors, we defer our gross selling price of the
product shipped and its related cost and reflect such net amounts on our balance
sheet as a current liability entitled “deferred margin on shipments to
distributors”.
Inventories
Forecasting
customer demand is the factor in our inventory policy that involves significant
judgments and estimates. We estimate excess and obsolete inventory based on a
comparison of the quantity and cost of inventory on hand to management’s
forecast of customer demand for the next twelve months. In forecasting customer
demand, we make estimates as to, among other things, the timing of sales, the
mix of products sold to customers, the timing of design wins and related volume
purchases by new and existing customers, and the timing of existing customers’
transition to new products. We also use historical trends as a factor in
forecasting customer demand, especially that from our distributors. We review
our excess and obsolete inventory on a quarterly basis considering the known
facts. Once inventory is written down, it is valued as such until it is sold or
otherwise disposed of. To the extent that our forecast of customer demand
materially differs from actual demand, our cost of sales and gross margin could
be impacted.
Impairment
of long lived assets
Long
lived assets are reviewed for impairment whenever events indicate that their
carrying value may not be recoverable. An impairment loss is recognized if the
sum of the expected undiscounted cash flows from the use of the asset is less
than the carrying value of the asset. The amount of impairment loss is measured
as the difference between the carrying value of the assets and their estimated
fair value.
We
have accounted for goodwill and other intangible assets in accordance with
Statement of Financial Accounting Standards No. 142 “Goodwill and Other
Intangible Assets” (“SFAS 142”). SFAS 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives and requires that
these assets be reviewed for impairment at the reporting unit level at least
annually and more frequently if there are indicators of impairment. The amount
of impairment loss is measured as the difference between the carrying value of
the assets and their estimated fair value. An impairment loss for an intangible
asset is recognized if the sum of the expected undiscounted cash flows from the
use of the asset is less than the carrying value of the asset. Significant
judgment required to estimate the fair value of an intangible asset includes
estimating future cash flows and other assumptions. Changes in these estimates
and assumptions could materially affect the determination of fair value. Any
impairment loss recorded in the future could have an adverse impact on our
financial condition and results of operations.
Our
last annual impairment analysis of goodwill, which was performed during the
fourth quarter of fiscal 2008, indicated that the estimated fair value exceeded
its corresponding carrying amount. Our entity is deemed as a single reporting
unit for our impairment analysis. We computed fair value of our company to be
equal to the market capitalization and compared it to the carrying value of the
net assets of the company including goodwill and other intangible assets. The
market capitalization is based on the quoted closing market price of our stock
as traded on NASDAQ as of the date of our impairment analysis. As such, we
determined that no impairment exists. The process for evaluating the potential
impairment of goodwill is highly subjective and requires significant judgment at
many points during the analysis. Should actual results differ from our
estimates, revisions to the recorded amount of goodwill could be required. We
cannot predict the occurrence of future events that might lead to impairment nor
the impact such events might have on these reported asset values. We plan to
examine goodwill for impairment at least annually.
Stock-based
compensation
In
accordance with the fair value recognition provisions of SFAS 123(R), we
estimate the stock-based compensation cost at the grant date based on the fair
value of the award and recognize it as an expense on a graded vesting
schedule over the requisite service period of the award.
We
estimate the value of employee stock options on the date of grant using a
Black-Scholes model. The determination of fair value of stock-based payment
awards on the date of grant using an option-pricing model is affected by our
stock price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to, the
expected stock price volatility over the term of the awards and actual and
projected employee stock option exercise behaviors. The use of a Black-Scholes
model requires the use of extensive actual employee exercise behavior data and a
number of complex assumptions including expected volatility, risk-free interest
rate and expected dividends.
Our
computation of expected volatility is based on a combination of historical and
market-based implied volatility. Our computation of expected life is based on a
combination of historical exercise patterns and certain assumptions regarding
the exercise life of unexercised options adjusted for job level and
demographics. The interest rate for periods within the contractual life of the
award is based on the U.S. Treasury yield curve in effect at the time of grant.
The dividend yield assumption is based on our history and expectation of
dividend payouts.
As
stock-based compensation expense recognized in the consolidated statement of
operations for the years ended March 31, 2008 and March 31, 2007 is based on
awards ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on an average of
historical forfeitures. The expense that we recognize in future periods could
differ significantly from the current period and/or our forecasts due to
adjustments in assumed forfeiture rates or change in our
assumptions.
Income
Taxes
We
account for income taxes under the asset and liability method, which requires
significant judgments in making estimates for determining certain tax
liabilities and recoverability of certain deferred tax assets, including the tax
effects attributable to net operating loss carry forwards and temporary
differences between the tax and financial statement recognition of revenue and
expenses, as well as the interest and penalties relating to these uncertain tax
positions.
On
a quarterly basis, we evaluate our ability to recover our deferred tax assets,
including but not limited to our past operating results, the existence of
cumulative losses in the most recent fiscal years, and our forecast of future
taxable income on a jurisdiction by jurisdiction basis. In the event that actual
results differ from our estimates in the future, we will adjust the amount of
the valuation allowance that may result in a decrease or increase in income tax
expense in those periods.
In
the first quarter of fiscal 2008, we adopted Financial Accounting Standards
Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–an
interpretation of FASB Statement No. 109” (FIN 48). As a result of the
implementation of FIN 48, we recognize liabilities for uncertain tax positions
based on a two-step process prescribed within the interpretation. The first step
is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position
will be sustained on examination, including resolution of any related appeals or
litigation processes, if any. The second step requires us to estimate and
measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon ultimate settlement.
It
is inherently difficult and subjective to estimate such amounts, as this
requires us to determine the probability of various possible outcomes. We will
evaluate these uncertain tax positions on a quarterly basis. A change in
recognition or measurement in the future may result in the recognition of a tax
benefit or an additional charge to the tax provision in the period.
See
Note 16 in the Notes to Consolidated Financial Statements of this Form 10-K for
further discussion.
Litigation
We
are, on occasions, a party to lawsuits, claims, investigations, and proceedings,
including commercial and employment matters, which are being addressed in the
ordinary course of business. We review the current status of any pending or
threatened proceedings with our outside counsel on a regular basis and,
considering all the known relevant facts and circumstances, we recognize any
loss that we consider probable and estimable as of the balance sheet date. For
these purposes, we consider settlement offers we may make to be indicative of
such a loss under certain circumstances. As of March 31, 2008 and
2007, we accrued $20,000 for our litigation-related matters.
Liquidity
and Capital Resources
We
have historically financed our operations through a combination of debt and
equity financing and cash generated from operations. As highlighted in the
consolidated statements of cash flows, the Company’s liquidity and available
capital resources are impacted by the following key components: (i) cash and
cash equivalents, (ii) operating activities, (iii) investing activities, and
(iv) financing activities.
|
|
Year
Ended March 31,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
provided by operating activities
|
|
$
|
4,400
|
|
|
$
|
6,725
|
|
|
$
|
7,007
|
|
Cash
provided by (used in) investing activities
|
|
|
26,231
|
|
|
|
(15,580
|
)
|
|
|
(16,048
|
)
|
Cash
provided by financing activities
|
|
|
386
|
|
|
|
975
|
|
|
|
4,999
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
31,017
|
|
|
$
|
(7,880
|
)
|
|
$
|
(4,042
|
)
|
Cash,
cash equivalents and short-term investments
Total
cash, cash equivalents and short-term investments were $51.6 million as of March
31, 2008, compared to $49.0 million at March 31, 2007, an increase of $2.6
million or 5%, primarily due to positive operating cash flow and net proceeds
from the issuance of common stock under our employee stock benefit plans,
partially offset by cash payments for the purchase of manufacturing equipment
and the final Arques escrow payment.
Our
cash and cash equivalents increased $31.0 million and short-term investments
decreased by $28.4 million as of March 31, 2008 as compared to March 31, 2007
which primarily reflects our moving of assets from short-term
investments to cash and cash equivalents.
Operating
activities
Cash
provided by operating activities consists of net income or loss adjusted for
certain non-cash items and changes in assets and liabilities.
In
fiscal 2008, cash provided by operating activities was $4.4 million. The net
loss of $1.4 million for fiscal year 2008 included non-cash items, such as
employee stock-based compensation expense of $2.4 million, and depreciation and
amortization of fixed assets and amortization of intangible assets aggregating
to $1.9 million.
Accounts
receivable decreased to $6.2 million at March 31, 2008 compared to $7.5 million
at March 31, 2007, mainly as a result of faster collections and change in our
customer mix. Receivables days of sales outstanding were 38 days and
40 days at March 31, 2008 and 2007, respectively. Net inventory was
$6.4 million as of March 31, 2008, compared to $5.2 million as of March 31,
2007. Annual inventory turns were 6.8 at March 31, 2008 as compared to 8.0 at
March 31, 2007. Accounts payable and accrued liabilities totaled $8.3 million at
March 31, 2008 compared to $7.9 million at March 31, 2007. Days payable
outstanding increased to 49 in fiscal 2008 from 41 in fiscal 2007. Deferred
margin on shipments to distributors increased to $1.9 million as of March 31,
2008 from $1.5 million as of March 31, 2007, primarily as a result of higher
shipments to the distributors.
During
fiscal 2007, operating activities provided $6.7 million of cash. The net loss of
$0.1 million for fiscal year 2007 included non-cash charges such as stock-based
compensation of approximately $3.1 million, in-process research and development
expense of $2.2 million from the Arques acquisition and depreciation and
amortization of fixed assets and amortization of intangible assets aggregating
to $1.7 million. Accounts receivables decreased by $3.1 million, accounts
payable and other current liabilities decreased by $1.6 million and deferred
margin on shipments to distributors decreased by $1.2 million as compared to
fiscal 2006.
During
fiscal 2006, operating activities provided $7.0 million of cash. The net income
of $10.0 million for fiscal year 2006 included non-cash charges such as
depreciation and amortization of $1.3 million. There was an increase in accounts
payable and other current liabilities of $0.8 million, decrease in inventory of
$1.0 million, an increase in accounts receivable of $3.1 million and a release
in the valuation allowance against deferred tax assets of $2.7 million as
compared to fiscal 2005.
Investing
activities
The
most significant components of the Company’s investing activities in fiscal
2008, 2007 and 2006 include: (i) purchases and sales of short-term investments,
(ii) payments for acquisitions, (iii) proceeds from sale of fixed assets, and/or
(iv) other capital expenditures.
Investing
activities during fiscal 2008 provided $26.2 million of cash primarily due to
movement of assets from short-term investments to cash and cash equivalents,
partially offset by the payment towards capital expenditure for purchase of
fixed assets and the final Arques escrow payment. Net sales and maturity of
short-term investments mainly includes commercial paper, corporate bonds and
certificates of deposit. Our capital expenditure during fiscal 2008 includes
payment of $1.2 million towards the equipment purchased for SPEL, one of our
sub-contractors, in order to increase their production capacity in return for
periodic repayments and lower product pricing. We acquired Arques for a total
purchase consideration of $8.4 million in fiscal 2007, out of which the final
escrow payable balance of approximately $1.0 million was paid during fiscal
2008.
Investing
activities during fiscal 2007 used $15.6 million of cash primarily due to
payment towards Arques acquisition, net purchase of short-term investments and
capital expenditure for purchase of fixed assets. We acquired Arques for a total
purchase consideration of $8.4 million, out of which approximately $7.0 million
was paid during fiscal 2007. Net purchase of short-term investments of $5.6
million mainly includes corporate bonds, asset-backed securities and certificate
of deposits. Our capital expenditure during fiscal 2007 includes payment of
approximately $1 million towards the equipment purchase for SPEL, one of our
sub-contractors, in order to increase their production capacity in return for
periodic repayments and lower product pricing.
During
fiscal 2006, investing activities used $16.0 million of cash, primarily for the
net purchase of short-term investments including the investment of the $1.7
million of net proceeds from the sale of our Tempe facility.
Financing
activities
The
most significant components of the Company’s financing activities in fiscal
2008, 2007 and 2006 include: (i) proceeds from employees stock compensation
plans, (ii) proceeds from the exercise of common stock warrants, and/or (iii)
capital lease obligations.
Cash
provided by financing activities in fiscal 2008 was $0.4 million and was
primarily the result of net proceeds of $0.5 million from issuance of common
stock under employee stock purchase plan and exercise of common stock options,
partially offset by repayment of capital lease obligations of $0.1
million.
Cash
provided by financing activities in fiscal 2007 was $1.0 million and was
primarily the result of $1.1 million of net proceeds from issuance of common
stock under employee stock purchase plan and exercise of common stock options,
partially offset by repayment of capital lease obligations of $0.1
million.
Net
cash provided by financing activities during fiscal 2006 was $5.0 million and
was the result of $5.1 million of net proceeds from the issuance of common stock
under our employee stock purchase plan and the exercise of common stock options
and common stock warrants, partially offset by repayment of capital lease
obligations of $0.1 million.
The
following table summarizes our contractual obligations as of March 31, 2008, (in
thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Beyond
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
Total
|
|
Capital
lease obligations*
|
|
$
|
132
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
132
|
|
Operating
lease obligations
|
|
|
467
|
|
|
|
385
|
|
|
|
193
|
|
|
|
-
|
|
|
|
1,045
|
|
Purchase
obligations
|
|
|
467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
467
|
|
|
|
$
|
1,066
|
|
|
$
|
385
|
|
|
$
|
193
|
|
|
$
|
-
|
|
|
$
|
1,644
|
|
____________
*
Excludes interest and maintenance payments on the capital leases aggregating to
$30,000 in fiscal 2009.
Effective
April 1, 2007, we adopted the provisions of FIN 48. Refer to Note 16 of Notes to
Consolidated Financial Statements in this Form 10-K. As of March 31, 2008, the
liability for uncertain tax positions was approximately $167,000 in addition to
the interest and tax penalties of $51,000, of which none is expected to be paid
within one year. We are unable to estimate when cash settlement with a taxing
authority may occur.
We
expect to fund all of these obligations with cash on hand or cash provided from
operations.
We
anticipate that our existing cash, cash equivalents and short-term investments
of $51.6 million as of March 31, 2008 will be sufficient to meet our anticipated
cash needs for the next twelve months. Should we desire to expand our level of
operations more quickly, either through increased internal development or
through the acquisition of product lines from other entities, we may need to
raise additional funds through public or private equity or debt financing. The
funds may not be available to us, or if available, we may not be able to obtain
them on terms favorable to us.
Recent
Accounting pronouncements
Refer
to Note 2 of Notes to Consolidated Financial Statements in this Form 10-K for a
discussion of the expected impact of recently issued accounting
pronouncements.
Off-Balance
Sheet Arrangements
We
do not have off balance sheet arrangements as defined in Item 303(a)(4)(ii) of
SEC Regulation S-K that have, or are reasonably likely to have, a current or
future effect upon our financial condition, revenue, expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to our investors, other than contractual obligations shown
above.
Impact
of Inflation and Changing Prices
Although
we cannot accurately determine the precise effect of inflation on our
operations, we do not believe inflation has had a material effect on net sales
or net income during fiscal 2008, 2007 and 2006.
ITEM
7A.
Quantitative and Qualitative
Disclosures about Market Risk.
As
of March 31, 2008 we held $18.7 million of investments in short term, liquid
debt securities. Due to the short duration and investment grade credit ratings
of these instruments, we do not believe that there is a material exposure to
interest rate risk in our investment portfolio. We do not own derivative
financial instruments nor do we own auction rate securities.
We
have evaluated the estimated fair value of our financial instruments. The
amounts reported as cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short term maturities. Historically,
the fair values of short-term investments are estimated based on quoted market
prices.
The
table below presents principal amounts and related weighted average interest
rates by year of maturity for our capital leases and the fair value as of March
31, 2008 and 2007. The fair value of our capital lease is based on the estimated
market rate of interest for similar instruments with the same remaining
maturities.
At
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods
of Maturity
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Beyond
|
|
|
|
|
|
Fair
Value as of
|
|
(In
thousands)
|
|
|
|
2009
|
|
|
2009
|
|
|
Total
|
|
|
March
31, 2008
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
|
|
$
|
132
|
|
|
$
|
-
|
|
|
$
|
132
|
|
|
$
|
132
|
|
Weighted
average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods
of Maturity
|
|
|
|
|
|
|
|
Fiscal
|
|
Fiscal
|
|
|
Beyond
|
|
|
|
|
|
|
Fair
Value as of
|
|
(In
thousands)
|
|
2008
|
|
2009
|
|
|
2009
|
|
|
Total
|
|
|
March
31, 2007
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
$132
|
|
$
|
132
|
|
|
$
|
-
|
|
|
$
|
264
|
|
|
$
|
264
|
|
Weighted
average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
We have
little exposure to foreign currency risk as all our sales are denominated in US
dollars as is most of our spending.
ITEM 8
.
Financial Statements and
Supplementary Data.
Index
to Consolidated Financial Statements and Schedules
|
|
Page
|
|
|
|
Numbers
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
46
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
|
|
Consolidated
Financial Statement Schedule:
|
|
|
|
|
|
|
|
84
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The
Board of Directors and Shareholders
California
Micro Devices Corporation
We
have audited the accompanying consolidated balance sheets of California Micro
Devices Corporation (the “Company”), a Delaware Corporation, as of March 31,
2008 and 2007, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three years in the period
ended March 31, 2008. Our audits of the basic financial statements included the
financial statement schedule listed in the index appearing under Item
15. These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of California Micro
Devices Corporation as of March 31, 2008 and 2007, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 2008 in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of California
Micro Devices Corporation’s internal control over financial reporting as of
March 31, 2008, based on criteria established in
Internal
Control—Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
June 11, 2008, expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
As
discussed in Note 2 to the consolidated financial statements, effective April 1,
2006, the Company adopted Statement of Financial Accounting Standards No.
123(R), “Share Based Payment”, on the modified prospective basis.
/S/ GRANT
THORNTON LLP
San
Jose, California
June
11, 2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders
California
Micro Devices Corporation
We
have audited California Micro Devices Corporation’s (a Delaware Corporation),
internal control over financial reporting as of March 31, 2008, based on
criteria established in
Internal
Control—Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). California Micro
Devices Corporation’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on California Micro
Devices Corporation’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our opinion, California Micro Devices Corporation maintained, in all material
respects, effective internal control over financial reporting as of March 31,
2008, based on criteria established in
Internal
Control—Integrated Framework
issued by COSO.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the accompanying consolidated
balance sheets of California Micro Devices Corporation as of March 31, 2008 and
2007, and the related consolidated statements of operations, shareholders’
equity, and cash flows for each of the three years in the period ended March 31,
2008
. Our
audits of the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15. Our report dated June 11,
2008 expressed an unqualified opinion on those financial statements and
financial statement schedule.
/S/ GRANT
THORNTON LLP
San
Jose, California
June
11, 2008
CA
LIFORNIA MICRO DEVICES
CORPORATION
|
CONSOLIDATED
BALANCE SHEETS
|
(amounts
in thousands, except share data)
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
32,925
|
|
|
$
|
1,908
|
|
Short-term
investments
|
|
|
18,671
|
|
|
|
47,116
|
|
Accounts
receivable, net
|
|
|
6,155
|
|
|
|
7,514
|
|
Inventories
|
|
|
6,434
|
|
|
|
5,172
|
|
Deferred
tax assets
|
|
|
1,508
|
|
|
|
2,201
|
|
Prepaid
expenses and other current assets
|
|
|
1,188
|
|
|
|
882
|
|
Total
current assets
|
|
|
66,881
|
|
|
|
64,793
|
|
Property,
plant and equipment, net
|
|
|
5,596
|
|
|
|
4,840
|
|
Goodwill
|
|
|
5,258
|
|
|
|
5,258
|
|
Intangible
assets, net
|
|
|
267
|
|
|
|
432
|
|
Other
long-term assets
|
|
|
83
|
|
|
|
560
|
|
TOTAL
ASSETS
|
|
$
|
78,085
|
|
|
$
|
75,883
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
6,120
|
|
|
$
|
4,654
|
|
Accrued
liabilities
|
|
|
2,165
|
|
|
|
3,269
|
|
Deferred
margin on shipments to distributors
|
|
|
1,904
|
|
|
|
1,479
|
|
Current
maturities of capital lease obligations
|
|
|
132
|
|
|
|
132
|
|
Total
current liabilities
|
|
|
10,321
|
|
|
|
9,534
|
|
Other
long-term liabilities
|
|
|
350
|
|
|
|
303
|
|
Total
liabilities
|
|
|
10,671
|
|
|
|
9,837
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock - 10,000,000 shares authorized; none issued
|
|
|
|
|
|
|
|
|
and
outstanding as of March 31, 2008 and March 31, 2007
|
|
|
-
|
|
|
|
-
|
|
Common
stock and additional paid-in capital - $0.001 par value;
|
|
|
|
|
|
|
|
|
50,000,000
shares authorized; shares issued and outstanding:
|
|
|
|
|
|
|
|
|
23,302,274
and 23,151,103 as of March 31, 2008 and
|
|
|
|
|
|
|
|
|
March
31, 2007, respectively
|
|
|
117,806
|
|
|
|
114,923
|
|
Accumulated
other comprehensive income
|
|
|
48
|
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(50,440
|
)
|
|
|
(48,877
|
)
|
Total
shareholders' equity
|
|
|
67,414
|
|
|
|
66,046
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
78,085
|
|
|
$
|
75,883
|
|
The accompanying notes are
an integral part of these financial statements.
CA
LIFORNIA MICRO DEVICES CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(amounts
in thousands, except per share data)
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
sales
|
|
$
|
59,217
|
|
|
$
|
68,006
|
|
|
$
|
70,241
|
|
Cost
of sales
|
|
|
39,599
|
|
|
|
42,790
|
|
|
|
44,068
|
|
Gross
margin
|
|
|
19,618
|
|
|
|
25,216
|
|
|
|
26,173
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
7,097
|
|
|
|
7,977
|
|
|
|
6,817
|
|
Selling,
general and administrative
|
|
|
15,264
|
|
|
|
16,757
|
|
|
|
13,387
|
|
In-process
research and development
|
|
|
-
|
|
|
|
2,210
|
|
|
|
-
|
|
Amortization
of intangible assets
|
|
|
165
|
|
|
|
158
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
22,526
|
|
|
|
27,102
|
|
|
|
20,204
|
|
Operating
income (loss)
|
|
|
(2,908
|
)
|
|
|
(1,886
|
)
|
|
|
5,969
|
|
Other
income, net
|
|
|
2,390
|
|
|
|
2,432
|
|
|
|
1,491
|
|
Income
(loss) before income taxes
|
|
|
(518
|
)
|
|
|
546
|
|
|
|
7,460
|
|
Provision
(benefit) for income taxes
|
|
|
896
|
|
|
|
627
|
|
|
|
(2,575
|
)
|
Net
income (loss)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
|
$
|
10,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share–basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.45
|
|
Weighted
average common shares outstanding–basic
|
|
|
23,233
|
|
|
|
23,027
|
|
|
|
22,128
|
|
Net
income (loss) per share–diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.44
|
|
Weighted
average common shares and share
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents
outstanding – diluted
|
|
|
23,233
|
|
|
|
23,027
|
|
|
|
22,777
|
|
The
accompanying notes are an integral part of these financial
statements.
CA
LIFORNIA MICRO DEVICES CORPORATION
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY
(amounts
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Income
(Loss)
|
|
|
Total
|
|
Balance
at March 31, 2005
|
|
|
21,605
|
|
|
$
|
105,494
|
|
|
$
|
(58,831
|
)
|
|
$
|
(2
|
)
|
|
$
|
46,661
|
|
Exercise
of stock options
|
|
|
908
|
|
|
|
3,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,905
|
|
Exercise
of common stock warrants
|
|
|
236
|
|
|
|
837
|
|
|
|
-
|
|
|
|
-
|
|
|
|
837
|
|
Issuance
of common stock through employee stock purchase plan
|
|
|
106
|
|
|
|
365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
365
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
Tax
benefit to equity
|
|
|
-
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43
|
|
Components
of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
10,035
|
|
|
|
-
|
|
|
|
10,035
|
|
Unrealized
loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,032
|
|
Balance
at March 31, 2006
|
|
|
22,855
|
|
|
$
|
110,673
|
|
|
$
|
(48,796
|
)
|
|
$
|
(5
|
)
|
|
$
|
61,872
|
|
Exercise
of stock options
|
|
|
208
|
|
|
|
688
|
|
|
|
-
|
|
|
|
-
|
|
|
|
688
|
|
Issuance
of common stock through employee stock purchase plan
|
|
|
88
|
|
|
|
412
|
|
|
|
-
|
|
|
|
-
|
|
|
|
412
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
3,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,143
|
|
Tax
benefit to equity
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
Components
of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(81
|
)
|
|
|
-
|
|
|
|
(81
|
)
|
Unrealized
gain on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
Balance
at March 31, 2007
|
|
|
23,151
|
|
|
$
|
114,923
|
|
|
$
|
(48,877
|
)
|
|
$
|
0
|
|
|
$
|
66,046
|
|
Exercise
of stock options
|
|
|
25
|
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
Issuance
of common stock through employee stock purchase plan
|
|
|
126
|
|
|
|
436
|
|
|
|
-
|
|
|
|
-
|
|
|
|
436
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
2,365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,365
|
|
Tax
benefit to equity
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Cumulative
effect related to the initial adoption of FIN 48
|
|
|
-
|
|
|
|
-
|
|
|
|
(149
|
)
|
|
|
-
|
|
|
|
(149
|
)
|
Components
of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,414
|
)
|
|
|
-
|
|
|
|
(1,414
|
)
|
Unrealized
gain on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
48
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,366
|
)
|
Balance
at March 31, 2008
|
|
|
23,302
|
|
|
$
|
117,806
|
|
|
$
|
(50,440
|
)
|
|
$
|
48
|
|
|
$
|
67,414
|
|
The
accompanying notes are an integral part of these financial
statements.
CA
LIFORNIA MICRO DEVICES CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(amounts in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
|
$
|
10,035
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,095
|
|
|
|
1,582
|
|
|
|
1,279
|
|
Accretion
of investment purchase discounts
|
|
|
(1,144
|
)
|
|
|
(1,495
|
)
|
|
|
(866
|
)
|
Amortization
of intangible assets
|
|
|
165
|
|
|
|
158
|
|
|
|
-
|
|
In-process
research and development
|
|
|
-
|
|
|
|
2,210
|
|
|
|
-
|
|
Stock-based
compensation
|
|
|
2,365
|
|
|
|
3,143
|
|
|
|
29
|
|
Tax
benefit from share-based payment arrangement
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
-
|
|
Deferred
tax assets
|
|
|
693
|
|
|
|
510
|
|
|
|
(2,711
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
1,359
|
|
|
|
3,106
|
|
|
|
(3,093
|
)
|
Inventories
|
|
|
(1,262
|
)
|
|
|
130
|
|
|
|
1,024
|
|
Accounts
payable and other current liabilities
|
|
|
1,194
|
|
|
|
(1,617
|
)
|
|
|
844
|
|
Deferred
margin on shipments to distributors
|
|
|
425
|
|
|
|
(1,205
|
)
|
|
|
164
|
|
Other
assets and liabilities
|
|
|
(74
|
)
|
|
|
291
|
|
|
|
302
|
|
Net
cash provided by operating activities
|
|
|
4,400
|
|
|
|
6,725
|
|
|
|
7,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of short-term investments
|
|
|
(112,680
|
)
|
|
|
(168,947
|
)
|
|
|
(174,045
|
)
|
Sales
and maturities of short-term investments
|
|
|
142,317
|
|
|
|
163,289
|
|
|
|
157,195
|
|
Payments
for acquisition, net of cash acquired
|
|
|
(1,031
|
)
|
|
|
(6,994
|
)
|
|
|
-
|
|
Capital
expenditures
|
|
|
(2,375
|
)
|
|
|
(2,928
|
)
|
|
|
(1,103
|
)
|
Proceeds
from sale of fixed assets
|
|
|
-
|
|
|
|
-
|
|
|
|
1,905
|
|
Net
cash provided by (used in) investing activities
|
|
|
26,231
|
|
|
|
(15,580
|
)
|
|
|
(16,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
of capital lease obligations
|
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
(108
|
)
|
Proceeds
from exercise of common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
837
|
|
Proceeds
from employee stock compensation plans
|
|
|
516
|
|
|
|
1,100
|
|
|
|
4,270
|
|
Tax
benefit from share-based payment arrangement
|
|
|
2
|
|
|
|
7
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
386
|
|
|
|
975
|
|
|
|
4,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
31,017
|
|
|
|
(7,880
|
)
|
|
|
(4,042
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
1,908
|
|
|
|
9,788
|
|
|
|
13,830
|
|
Cash
and cash equivalents at end of period
|
|
$
|
32,925
|
|
|
$
|
1,908
|
|
|
$
|
9,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
11
|
|
|
$
|
13
|
|
|
$
|
16
|
|
Income
taxes
|
|
$
|
47
|
|
|
$
|
139
|
|
|
$
|
94
|
|
Supplemental
disclosure of non-cash investing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
asset acquired under capital lease
|
|
$
|
-
|
|
|
$
|
396
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
CALI
FORNIA MICRO DEVICES CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
AND BASIS OF PRESENTATION
We
design and sell application specific circuit protection devices and display
electronics devices for high volume applications in the mobile handset, digital
consumer electronics and personal computer markets. End customers for our
semiconductor products are original equipment manufacturers (OEMs). We use a
direct sales force, manufacturers’ representatives and distributors to sell our
products.
In
the accompanying consolidated financial statements, fiscal 2008, 2007 and 2006
refer to the twelve months ended March 31, 2008, 2007 and 2006 respectively.
Certain prior year amounts in the financial statements and notes thereto have
been reclassified to conform to the fiscal 2008 presentation.
The
consolidated financial statements include the accounts of California Micro
Devices Corporation and its wholly owned subsidiary. Intercompany accounts and
transactions have been eliminated.
2. SIGNIFICANT
ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Our estimates are based on historical experience,
input from sources outside of the company, and other relevant facts and
circumstances. Actual results could differ from those estimates.
Foreign
Currency Translation
The
assets and liabilities of our foreign subsidiary are translated using currency
exchange rates at fiscal year end. Income statement items are translated at
average exchange rates prevailing during the period. The translation and
transaction gains and losses are included in the statement of operations for the
period and have been insignificant.
Cash
and Cash Equivalents
Cash
and cash equivalents represent cash and money market funds.
Short-
term Investments
Short-term
investments represent investments in certificates of deposits and debt
securities with remaining maturities less than 360 days. We invest our excess
cash in high quality financial instruments. We have classified our marketable
securities as available for sale securities. Our available for sale securities
are carried at fair value, with unrealized gains and losses reported in a
separate component of shareholders’ equity. Realized gains and losses and
declines in value judged to be other than temporary, if any, on available for
sale securities are included in interest income. Interest on securities
classified as available for sale is also included in interest and other income,
net. The cost of securities sold is based on the specific identification
method.
Inventories
Inventories
are stated at the lower of cost, determined on a first-in first-out basis, or
market.
We
evaluate inventory for excess quantities and obsolescence, which is estimated
based on a comparison of the quantity and cost of inventory on hand to
management’s forecast of customer demand. Customer demand is dependent on many
factors and requires us to use significant judgment in our forecasting process.
We must also make assumptions regarding the rate at which new products will be
accepted in the marketplace and at which customers will transition from older
products to newer products. We also use historical trends as a factor in
forecasting customer demand, especially that from our distributors. Generally,
inventories in excess of twelve months demand are written down and the related
charge is recorded to cost of sales. Once inventory is written down, it is
valued as such until it is sold or otherwise disposed of, even if in subsequent
periods we forecast demand for this product.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation. Additions,
improvements and major renewals are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. Depreciation is computed using the
straight-line method over the estimated useful life of the assets. Depreciation
expense of fiscal years 2008, 2007 and 2006 was $1.7 million, $1.6 million and
$1.3 million respectively.
Estimated
useful lives of assets are as follows:
Machinery
and equipment
|
2
to 7 years
|
Computer
equipment and related software
|
2
to 5 years
|
When
assets are retired or otherwise disposed of, the related costs and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations in the period realized.
We
review our long lived assets for impairment whenever events or changes in
circumstances indicate that their carrying value may not be recoverable. Factors
that could trigger an impairment review include adverse operating results or a
change in business strategy. An impairment loss is recognized if the sum of the
undiscounted projected future cash flows from the use of the asset over its
remaining life is less than the carrying value of the asset. The impairment loss
is the difference between the carrying value of the asset and its fair
value.
Goodwill
and Other Intangible Assets
Goodwill
is recorded when the purchase price of an acquisition exceeds the estimated fair
value of the net identified tangible and intangible assets acquired. We perform
an annual impairment review using a fair value approach in accordance with
Statement of Financial Accounting Standards No. 142 “Goodwill and Other
Intangible Assets” (“FAS 142”). FAS 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives and requires that
these assets be reviewed for impairment at the reporting unit level at least
annually and more frequently if there are indicators of impairment. An
impairment loss is recognized if the market capitalization no longer materially
exceeds the carrying value of goodwill. The amount of impairment loss is
measured as the difference between the carrying value of goodwill and its
estimated fair value. For further discussion of goodwill, see Note 5 to these
consolidated financial statements.
Intangible
assets consist of developed and core technology and distributor
relationships. Developed and core technology will be amortized over
an estimated useful life of four years. The value attributed to the distributor
relationships was based upon the expected costs to replace such customers and
will be amortized over its estimated useful life of two years. In the quarter
following the period in which intangible assets become fully amortized, the
fully amortized balances are removed from the gross asset and accumulated
amortization amounts. For further discussion of intangible assets, see Note 5 to
these consolidated financial statements. We perform an annual review of our
intangible assets to determine if facts and circumstances exist which indicate
that the useful life is shorter than originally estimated or that the carrying
amount of assets may not be recoverable. If such facts and circumstances do
exist, we assess the recoverability of intangible assets by comparing the
projected undiscounted net cash flows associated with the related asset or group
of assets over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets.
Revenue
Recognition
We
recognize revenue when persuasive evidence of an arrangement exists, delivery or
customer acceptance, where applicable, has occurred, the fee is fixed or
determinable, and collection is reasonably assured.
Revenue
from product sales to end user customers, or to distributors that do not receive
price concessions and do not have return rights, is recognized upon shipment and
transfer of risk of loss, if we believe collection is reasonably assured and all
other revenue recognition criteria are met. We assess the probability of
collection based on a number of factors, including past transaction history and
the customer’s creditworthiness. If we determine that collection of a receivable
is not probable, we defer recognition of revenue until the collection becomes
probable, which is generally upon receipt of cash. Reserves for sales returns
and allowances from end user customers are estimated based on historical
experience and management judgment, and are provided for at the time of
shipment. The sufficiency of the reserves for sales return and allowances is
assessed at the end of each reporting period.
Revenue
from sales of our standard products to distributors whose terms provide for
price concessions or for product return rights is recognized when the
distributor sells the product to an end customer. For our end of life products,
if we believe that collection is probable, we recognize revenue upon shipment to
the distributor, because our contractual arrangements provide for no right of
return or price concessions for those products.
When
we sell products to distributors, we defer our gross selling price of the
product shipped and its related cost and reflect such net amounts on our balance
sheet as a current liability entitled “deferred margin on shipments to
distributors”.
Allowance
for Doubtful Accounts
We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. We provide an
allowance for specific customer accounts receivable balances where collection is
doubtful plus a general allowance against other accounts receivable based on our
historical collections experience. Our policy is to partially or fully reserve
receivables that are 90 days old or more while at the same time continuing
efforts to collect payment from the customer. If we determine that a customer
invoice cannot be collected, we write off the invoice against the allowance for
doubtful accounts. If a receivable that has been written off is subsequently
collected, we record a benefit to the income statement.
The
allowance for doubtful accounts as of March 31, 2008 and March 31, 2007 was
$19,000 and $320,000 respectively.
Other
We
typically provide a one-year warranty that our products will be free from
defects in material and workmanship and will substantially conform in all
material respects to our most recently published applicable specifications
although sometimes we provide shorter or longer warranties. We have experienced
minimal warranty claims in the past, and we accrue for such contingencies in our
sales allowances and return reserves.
We
expense all research and development and advertising costs as incurred.
Advertising expense was immaterial for fiscal years 2008, 2007 and
2006.
We
generally pay for the cost of shipping our products to our customers. These
costs are charged to cost of sales or selling expenses, as
appropriate.
Net
Income (Loss) Per Share
Basic
net income (loss) per share was computed using the net income (loss) and
weighted average number of common shares outstanding during the period. Diluted
earnings per common share incorporate the additional shares issuable upon the
assumed exercise of stock options.
The
following table sets forth the computation of basic and diluted net income
(loss) per share:
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
|
$
|
10,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding used in calculation of net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
23,233
|
|
|
|
23,027
|
|
|
|
22,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
603
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
Effect
of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
649
|
|
Dilutive
shares
|
|
|
23,233
|
|
|
|
23,027
|
|
|
|
22,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.44
|
|
In
fiscal 2008 and 2007, the weighted average common stock outstanding used in the
calculation of basic and diluted net loss per share is the same due to the net
loss for the fiscal year. In fiscal 2008 and 2007, all of the stock options
outstanding to purchase 4,946,000 and 4,311,000, respectively of the company’s
common stock were excluded from the computation of diluted net loss per share as
their effect would be anti-dilutive. In fiscal 2006, options to purchase
1,370,888 shares of the company’s common stock were excluded from the
calculation of diluted earnings per share because the effect was
antidilutive.
Stock-Based
Compensation
Prior
to April 1, 2006, we accounted for awards granted under our equity incentive
plans using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and
related interpretations, and provided the required pro forma disclosures
prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”), as amended. On April 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
123(R)”). In accordance with SFAS 123(R), we used the modified prospective
transition method and therefore have not restated our financial results for the
year ended March 31, 2006.
In
accordance with the fair value recognition provisions of SFAS 123(R), we
estimate the stock-based compensation cost at the grant date based on the fair
value of the award and recognized as expense on a graded vesting schedule over
the requisite service period of the award. We estimate the value of employee
stock options on the date of grant using a Black-Scholes model. The
determination of fair value of stock-based payment awards on the date of grant
using an option-pricing model is affected by our stock price as well as
assumptions regarding a number of highly complex and subjective variables. These
variables include, but are not limited to the expected stock price volatility
over the term of the awards, and actual and projected employee stock option
exercise behaviors. The use of a Black-Scholes model requires the use of
extensive actual employee exercise behavior data and complex assumptions
including expected volatility, risk-free interest rate and expected
dividends.
As
stock-based compensation expense recognized in the consolidated statements of
operations for the years ended March 31, 2008 and 2007 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Forfeitures were estimated based on an average of historical
forfeitures.
Accumulated
Other Comprehensive Income
Accumulated
other comprehensive income, presented in the accompanying balance sheets,
consists of the accumulated net unrealized gains on available for sale
securities.
The
accumulated other comprehensive income as at March 31, 2008 and March 31, 2007,
was $48,000 and $0 respectively. For the years ended March 31, 2008 and March
31, 2007, amounts classified out of accumulated other comprehensive income into
statement of operations were $0 and $5,000 respectively.
Income
Taxes
Statement
of Financial Accounting Standard No. 109 ("SFAS 109") provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Management believes, based on a number of factors, that it is more
likely than not that a portion of the deferred tax asset at fiscal 2008 year end
will be realized in the following four quarters. As of March 31,
2008, a partial valuation allowance was recorded against the deferred tax
assets. We will continue to assess the realizability of the deferred
tax asset based on actual and forecasted operating results.
As
of April 1, 2007, we adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes – An interpretation of FASB Statement No. 109 (FIN
48). Under FIN 48, we recognize the effect of income tax positions only if those
positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50%
likely of being realized. Changes in the recognition or measurement
are reflected in the period in which the change in judgment
occurs. Prior to the adoption of FIN 48, the Company recognized the
effect of income tax positions only if such positions were probable of being
sustained.
The
Company continues to record interest and penalties related to unrecognized tax
benefits in income tax expense.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework and gives
guidance regarding the methods used for measuring fair value, and expands
disclosures about fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years.
Our
adoption of SFAS No. 157 is not expected to materially impact our financial
position and results of operations.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”) which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
Our
adoption of SFAS No. 159 is not expected to materially impact our financial
position and results of operations.
In December
2007, the FASB issued Statement No.
141(R), “
Business
Combinations”
(“
S
FAS 141(R)”
) which expands the definition of
transactions a
nd events
that qualify as business combinations; requires that the
acquired
assets and
liabilities, including contingencies, be recorded at the fair value determined
on the acquisition date and changes thereafter reflected in
earnings
, not goodwill; change
s the recognition timing for
restructuring costs; and requires acquisition costs to be expensed as
incurred.
In addition,
acquired in-process research and development (
IPR
&D) is capitalized as an intangible
asset and amortized over its estimated useful lif
e.
Adoption of
S
FAS 141(R) is required for
combinations after
December 15, 2008
. Early adoption and retroactive
application of
S
FAS 141(R) to fiscal years
preceding the effective date are not permitted. We believe that there is no
impact of
S
FAS 141(R) on
our financial position and results of
operations.
In
December 2007, the FASB issued Statement No. 160, “
Noncontrolling Interest in
Consolidated Financial Statements”
(“SFAS 160”) which
re-characterizes minority interests in consolidated subsidiaries as
non-controlling interests and requires the classification of minority interests
as a component of equity. Under SFAS 160, a change in control will be measured
at fair value, with any gain or loss recognized in earnings. The effective date
for SFAS 160 is for annual periods beginning on or after December 15, 2008.
Early adoption and retroactive application of SFAS 160 to fiscal years preceding
the effective date are not permitted. We believe that there is no impact of SFAS
160 on our financial position and results of operations.
3. CASH,
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash
and cash equivalents represent cash and money market funds as follows (in
thousands);
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
|
|
$
|
602
|
|
|
$
|
-
|
|
Money
market funds
|
|
|
32,323
|
|
|
|
1,908
|
|
Total
cash and cash equivalents
|
|
$
|
32,925
|
|
|
$
|
1,908
|
|
Short-term
investments were as follows (in thousands):
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
U.S.
Agency notes
|
|
$
|
12,061
|
|
|
$
|
-
|
|
Corporate
bonds
|
|
|
-
|
|
|
|
9,280
|
|
Commercial
paper
|
|
|
1,486
|
|
|
|
31,327
|
|
Asset-backed
securities
|
|
|
5,124
|
|
|
|
4,009
|
|
Certificate
of deposits
|
|
|
-
|
|
|
|
2,500
|
|
Total
short-term investments
|
|
$
|
18,671
|
|
|
$
|
47,116
|
|
4.
BUSINESS COMBINATIONS
On
April 13, 2006, we acquired Arques Technology, Inc. (“Arques”) a
privately-held California corporation and fabless manufacturer of analog
semiconductor devices. The acquisition added white LED drivers for mobile
handsets and double data rate (DDR) memory voltage regulators for digital
consumer electronics products to our product line and enabled us to leverage
Arques’ proprietary FlexBoost® technology. Additionally, our research and
development resources were increased with the Arques acquisition.
The
cost of the acquisition was approximately $8.4 million, comprised of
(a) approximately $5.6 million paid at closing to Arques shareholders,
(b) approximately $1.8 million related to costs of the transaction,
including assumption of Arques transaction-related costs in lieu of a portion of
the payment due to the shareholders and (c) another approximately $1.0
million which CMD retained at the time of acquisition and paid to Arques
shareholders in 12 months, during fiscal 2008, as reduced by intervening
indemnification obligations of Arques to CMD. In addition, the definitive merger
agreement called for CMD to pay an earn-out, 80% to Arques shareholders and 20%
to certain Arques employees, in approximately 18 months, as reduced by
intervening unpaid indemnification obligations of Arques to CMD, if certain
conditions, on which the earn-out payment was based, were met. There was no
earn-out payment made to the Arques shareholders and employees because the
conditions, on which the payout was based, were not met.
We
had allocated the purchase price to tangible assets, liabilities and
identifiable intangible assets acquired, as well as IPR&D, based on their
estimated fair values. The excess of purchase price over the aggregate fair
values was recorded as goodwill. None of the goodwill resulting from this
acquisition will be tax deductible. The fair value assigned to the intangible
assets was based on estimates and assumptions determined by management. The
intangible assets are being amortized on a straight-line basis over their
respective useful lives. The allocation of the purchase price is as follows (in
thousands):
Goodwill
|
|
$
|
5,258
|
|
IPR&D
|
|
|
2,210
|
|
Developed
and core technology
|
|
|
520
|
|
Net
book value of acquired assets and liabilities which approximates fair
value
|
|
|
387
|
|
Distributor
relationships
|
|
|
70
|
|
Total
|
|
$
|
8,445
|
|
The
value of IPR&D, which was expensed immediately, was determined based on the
expected cash flow attributed to the in-process projects, taking into account
revenue that was attributable to previously developed technology, the level of
effort to date in the in-process research and development, the percentage of
completion of the project and the level of risk associated with commercializing
the in-process technology. The projects identified as in-process were those that
were underway as of the acquisition date and that would, post acquisition,
require additional effort in order to establish technological feasibility and
that would have no alternative future uses. The cash flows derived from the
in-process technology projects were discounted at a rate of 23%. We believed the
rate used was appropriate given the risks associated with the technologies for
which commercial feasibility had not been established and there was no
alternative use. These projects had identifiable technological risk factors that
indicated at the time of acquisition that even though successful completion was
expected, it was not assured.
Intangible
assets consist of developed and core technology and distributor
relationships. Developed and core technology are being amortized over
an estimated useful life of four years. The value attributed to the distributor
relationships was based upon the expected costs to replace such customers and is
being amortized over its estimated useful life of two years. These intangible
assets were valued using discount rates ranging from 18% to 23%. Refer to Note 5
of these financial statements for further discussion of intangible
assets.
5.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
In
accordance with Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets: ("SFAS 142") goodwill is
tested for impairment on an annual basis, or earlier if indicators of impairment
exist. During our fourth quarter ended March 31, 2008, we performed an
annual test for impairment and determined that no impairment charge was required
based on our assumptions in accordance with SFAS 142.
Intangible
Assets
The
components of intangible assets, net were as follows (in
thousands):
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Developed
and core technology:
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$
|
520
|
|
|
$
|
520
|
|
Less
accumulated amortization
|
|
|
(255
|
)
|
|
|
(125
|
)
|
Net
carrying amount
|
|
$
|
265
|
|
|
$
|
395
|
|
|
|
|
|
|
|
|
|
|
Distributor
relationships:
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$
|
70
|
|
|
$
|
70
|
|
Less
accumulated amortization
|
|
|
(68
|
)
|
|
|
(33
|
)
|
Net
carrying amount
|
|
$
|
2
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
267
|
|
|
$
|
432
|
|
Developed
and core technology and distributor relationships are amortized on a
straight-line basis over their estimated useful lives of four years and two
years, respectively. The amortization expense for intangible assets was
$165,000, $158,000 and $0 for the fiscal years ended March 31, 2008, 2007 and
2006, respectively. Based on intangible assets recorded at March 31, 2008,
and assuming no subsequent additions to, or impairment of, the underlying
assets, the future estimated amortization expense is approximately $131,000,
$131,000 and $5,000 in fiscal years 2009, 2010 and 2011,
respectively.
During
fiscal years ended March 31, 2008, 2007 and 2006, we did not record any
impairment charges. In assessing the recoverability of intangible assets, we
must make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. It is reasonably possible
that these estimates, or their related assumptions, may change in the future, in
which case we may be required to record impairment charges for these
assets.
6. BALANCE
SHEET COMPONENTS
Balance
sheet components were as follows (in thousands):
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Accounts
receivable, net:
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
6,265
|
|
|
$
|
7,904
|
|
Less
allowance for doubtful accounts
|
|
|
(19
|
)
|
|
|
(320
|
)
|
Less
sales allowances and return reserves
|
|
|
(91
|
)
|
|
|
(70
|
)
|
|
|
$
|
6,155
|
|
|
$
|
7,514
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work
in process
|
|
$
|
1,819
|
|
|
$
|
2,161
|
|
Finished
goods
|
|
|
4,615
|
|
|
|
3,011
|
|
|
|
$
|
6,434
|
|
|
$
|
5,172
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment:
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
$
|
11,370
|
|
|
$
|
8,971
|
|
Computer
equipment and related software
|
|
|
4,518
|
|
|
|
3,805
|
|
Construction
in progress
|
|
|
405
|
|
|
|
1,008
|
|
|
|
|
16,293
|
|
|
|
13,784
|
|
Less:
accumulated depreciation and amortization
|
|
|
(10,697
|
)
|
|
|
(8,944
|
)
|
|
|
$
|
5,596
|
|
|
$
|
4,840
|
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
Accrued
salaries and benefits
|
|
$
|
1,183
|
|
|
$
|
1,366
|
|
Other
accrued liabilities
|
|
|
982
|
|
|
|
1,903
|
|
|
|
$
|
2,165
|
|
|
$
|
3,269
|
|
7. CONCENTRATIONS
OF CREDIT RISK
Concentrations
of credit risk consist primarily of cash equivalents, short-term investments and
trade accounts receivable.
We
use primarily one financial institution for our banking activities and place our
cash in short-term money markets funds. Our balances exceed those insured by the
Federal Deposit Insurance Corporation.
Our
short-term investments are in investment grade debt instruments with maturities
of less than 360 days. Our investment policy limits the exposure to a single
issuer to 10% of our portfolio or $1 million, whichever is greater.
At
March 31, 2008 and 2007, our three largest customer receivable balances
accounted for an aggregate of approximately 58% and 73% of net accounts
receivable, respectively. We extend credit to these customers, and management
believes that the receivable balances from these large customers are collectible
based on our assessment of their financial condition and our past collection
experience. However, these customers represent a significant exposure if one or
more of them were unable to pay.
8. CONCENTRATION
OF OTHER RISKS
Markets
We
sell our products into the mobile handset, digital consumer electronics and
personal computer markets, which are characterized by rapid technological
change, intense competitive pressure and volatile demand patterns. Each of these
factors either singularly or together in one or more of these markets could
result in a rapid change in demand for our products which could result in
reduced revenue, operating losses and the obsolescence of our
inventory.
Customers
We
focus our sales effort on the leaders in our target markets and depend on a few
customers for a large portion of our revenue. In addition, our sales are not
subject to long term contracts but rather to customer purchase orders which are
placed with a short lead time to shipment.
During
fiscal 2008, two of our end customers represented a combined 41% of our revenue,
and two of our distributors represented 25% of our revenue. During
fiscal 2007, two of our end customers represented a combined 54% of our revenue,
and one of our distributors represented 10% of our revenue. During fiscal 2006,
one of our end customers represented 40% of our revenue, and one of our
distributors represented another 13% of our revenue.
We
also have a geographical concentration, with international sales accounting for
91%, 94% and 95% of our net sales in fiscal 2008, 2007 and 2006, respectively.
Disruptions in international markets could have a substantial negative effect on
our revenues and profitability.
Foundry
Partners and Subcontractors
Our
manufacturing is completely outsourced and we use merchant foundries to
fabricate our wafers and subcontractors to do backend processing and to ship to
our customers. These partners are located in China, India, Japan,
Korea, Philippines, Taiwan and Thailand.
Supplier
and industry risks associated with outsourced manufacturing that could limit our
suppliers’ ability to supply products to us involve production capacity,
delivery schedules, quality assurance and production costs. Other
risks include the potential for unfavorable economic conditions, political
strife, prolonged work stoppages, natural or man-made disasters, power shortages
and other phenomena.
9. FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
amounts reported as cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short term maturities. Historically,
the fair values of short-term investments are based on quoted market
prices.
The
carrying and estimated fair values of our capital lease obligations are as
follows (in thousands):
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair
Value
|
|
|
Value
|
|
|
Fair
Value
|
|
Capital
Lease Obligations
|
|
$
|
132
|
|
|
$
|
132
|
|
|
$
|
264
|
|
|
$
|
264
|
|
The
fair value of our capital lease obligations is based on the estimated market
rate of interest for similar instruments with the same remaining
maturities.
10. CAPITAL
LEASE OBLIGATIONS
Capital
Lease Obligations
Capital
lease obligations consisted of the following (in thousands):
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Capital
lease obligations
|
|
$
|
132
|
|
|
$
|
264
|
|
Less
current maturities
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Long
term obligation
|
|
$
|
-
|
|
|
$
|
132
|
|
In
October 2006, we entered into three year software lease agreements with two
vendors for which the capitalized amounts were $362,000 and $34,000,
respectively. The imputed interest rate for each of these leases is
approximately 8%. Both leases have three year durations, with three annual lease
payments in October 2006, October 2007 and October 2008, totaling to $132,000
annually. Interest expense on these leases during fiscal 2008, 2007 and 2006 was
$11,000, $4,000 and $0, respectively.
Future
maturities of capital lease obligations at March 31, 2008 are as follows (in
thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
2009
|
|
|
Beyond
2009
|
|
|
Total
|
|
Capital
lease obligations *
|
|
$
|
132
|
|
|
$
|
-
|
|
|
$
|
132
|
|
_____________
*
Excludes interest and maintenance payments on the capital leases aggregating to
$30,000 in fiscal 2009.
Total
fixed assets purchased under capital leases and the associated accumulated
amortization is classified in machinery and equipment and was as follows (in
thousands):
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Capitalized
cost
|
|
$
|
396
|
|
|
$
|
396
|
|
Accumulated
amortization
|
|
|
(187
|
)
|
|
|
(55
|
)
|
Net
book value
|
|
$
|
209
|
|
|
$
|
341
|
|
Amortization
expense for fixed assets purchased under capital leases is included in the line
item titled “depreciation and amortization” on our consolidated statements of
cash flows.
11. COMMITMENTS
Operating
Leases
We
lease our headquarters and sales offices under operating leases. In May 2005 we
entered into a new lease for our headquarters through November
2010.
The
lease for our Milpitas headquarters office includes a rent escalation provision.
We recognize rent expense on a straight line basis.
Future
minimum lease payments under non cancelable operating lease agreements having an
initial or remaining term in excess of one year at March 31, 2008 are as follows
(fiscal years ending March 31, in thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Beyond
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
Total
|
|
Operating
lease obligations
|
|
$
|
467
|
|
|
$
|
385
|
|
|
$
|
193
|
|
|
$
|
-
|
|
|
$
|
1,045
|
|
Operating
lease obligations do not include common area maintenance (“CAM”), insurance and
tax payments. Total expense related to CAM, insurance and taxes for fiscal 2008,
2007 and 2006 was $216,000, $204,000 and $232,000 respectively. Rent expense was
approximately $485,000, $462,000 and $398,000 in fiscal 2008, 2007 and 2006,
respectively. There was no sublease income in fiscal 2008, 2007 or
2006.
Purchase
Obligations
Non-cancelable
purchase obligations are for wafer fabrication services. As of March 31, 2008,
our non-cancelable purchase obligations were as follows (in
thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
2009
|
|
|
Beyond
2009
|
|
|
Total
|
|
Purchase
obligations
|
|
$
|
467
|
|
|
$
|
-
|
|
|
$
|
467
|
|
12. CAPITAL
STOCK
Common
Stock
We
have 50,000,000 shares of common stock authorized with a par value of $0.001 per
share and 23,302,274 and 23,151,103 shares of common stock issued and
outstanding as of March 31, 2008 and March 31, 2007, respectively.
Preferred
Stock
We
have 10,000,000 shares of preferred stock authorized, of which 400,000 shares
are designated Series A Participating Preferred Stock. The Board of Directors
has the authority to issue the Preferred Stock and to fix the rights,
privileges, preferences and restrictions related to the Preferred Stock. No
shares of preferred stock were outstanding at March 31, 2008 and
2007.
Shareholder
Rights Plan
In
September 2001, our Board of Directors adopted a shareholder rights plan,
pursuant to which one preferred stock purchase right (a “Right”) was distributed
for each share of common stock held as of October 12, 2001. Each Right, when
exercisable, will entitle the holder to purchase from us one one-thousandth of a
share of our Series A Participating Preferred Stock at a price of $50.00 (the
“Purchase Price”).
The
Rights entitle the holder to receive, upon exercise, shares of common stock (and
in certain circumstances, a combination of securities or other assets) having a
value of twice the Purchase Price if a person or group acquires beneficial
ownership of 15% or more of our outstanding common stock, subject to certain
exceptions for existing shareholders. Additionally, if we are involved in a
business combination or sale of 50% or more of our assets or earning power, each
Right will entitle the holder to receive, upon exercise, shares of common stock
of the acquiring entity having a value of twice the Purchase Price. Our Board of
Directors has the right to cause each Right to be exchanged for common stock or
substitute consideration.
We
have the right to redeem the Rights at a price of $0.001 per Right in certain
circumstances. The Rights expire on September 24, 2011.
13. EMPLOYEE
BENEFIT PLANS
Employee
Equity Incentive Plan
Our
equity incentive program is a long-term retention program that is intended to
attract and retain qualified management and technical employees and align
shareholder and employee interests. In our equity incentive program we are able
to grant restricted share awards, options, stock units, and stock appreciation
rights; however, to date we have only granted options. Under our current equity
incentive program, stock options have varying vesting periods typically over
four years and are generally exercisable for a period of ten years from the date
of issuance and are granted at prices equal to the fair market value of the
Company’s common stock at the grant date. As of March 31, 2008, our equity
incentive plans consisted of the 2004 Omnibus Incentive Compensation Plan (2004
Plan), 1995 Employee Stock Option Plan (“1995E Plan”), 1995 Non-Employee
Directors Plan (the “1995D Plan”) and sub-plan of 1995E Plan for employees and
consultants of the United Kingdom (“1995E Sub-Plan”). However, upon the adoption
of the 2004 Plan, no further options may be granted under the 1995E Plan and
1995D Plan except up to 50,000 options to UK employees under the 1995 E
Sub-Plan, although options already outstanding under the 1995E Plan and 1995D
Plan remain outstanding.
Additionally, we have
the 1995 Employee Stock Purchase Plan (“ESPP”) that allows employees to purchase
shares of common stock at 85% of the fair market value of the common stock at
certain defined points in the plan offering periods.
1995E
Plan and 1995D Plan
The
1995E Plan was administered by a compensation committee consisting of not
less than two independent directors. The 1995D Plan was administered by
not less than three members of the Board of Directors and the amount of
shares granted to the directors on an annual basis were fixed in amount,
as approved by the shareholders.
|
Under
our 1995E Plan, nonqualified stock options were granted to employees and
consultants at prices not less than 85% of the fair market value of our common
stock on the date of grant. Incentive stock options could also be granted to key
employees at prices not less than 100% of the fair market value of our common
stock on the date of grant. Since August 2004, our 2004 Plan succeeded the 1995E
Plan. As of March 31, 2008, no shares remained available for future
grant.
The
1995D Plan provided for a fixed issuance amount to the directors at prices not
less than 100% of the fair market value of the common stock at the time of the
grant. Since August 2004, the 2004 Plan succeeded 1995D Plan. As of March 31,
2008, no shares remained available for future grant.
As
of March 31, 2008, 17,000 shares remained available for future grants under
1995E Sub-Plan for our employees and consultants in the United
Kingdom.
Generally,
options under the 1995E and 1995D Plans become exercisable and vest over varying
periods ranging up to four years as specified by the Board of Directors. Option
terms do not exceed ten years from the date of the grant and all plans expire
within twenty years of date of adoption. Usually, unexercised options expire
upon, or within, three months of termination of employment, depending upon the
circumstances surrounding termination.
2004
Plan
In
August 2004 our shareholders approved the 2004 Plan, which succeeded the 1995E
Plan and the 1995D Plan and no further awards were to be made under the 1995E
Plan and 1995D Plan other than awards covering up to 50,000 shares of common
stock under the 1995E Sub-Plan. The 2004 Plan provides for the grant of
restricted share awards, options, stock units and stock appreciation rights, any
of which may or may not require the satisfaction of performance objectives, with
respect to shares of our common stock to directors, officers, employees and
consultants of the Company and subsidiaries. The 2004 Plan is administered by
the Compensation Committee of the Board of Directors, which has complete
discretion to select the participants and to establish the terms and conditions
of each award, subject to the provisions of the 2004 Plan.
Options
granted under the 2004 Plan may be incentive stock options or nonqualified
options. As of March 31, 2008, 590,000 shares were available for future issuance
under the 2004 Plan. In addition, if any outstanding option under the 1995E Plan
or the 1995D Plan expires or terminates for any reason without having been
exercised in full, then the un-purchased shares subject to that option will be
available for additional awards under the 2004 Plan. Any shares granted as
options or stock appreciation rights are counted against this limit as one share
for every one share granted. Any shares granted as awards other than options or
stock appreciation rights are counted against this limit as two shares for every
one share granted. If any award granted under the 2004 Plan is forfeited or
expires for any reason, then the shares subject to that award will once again be
available for additional awards.
Shares offered under the 2004
Plan must be authorized but un-issued shares.
Under the 2004 Plan, the
exercise price of incentive stock options may not be less than 100% of the fair
market value of the Common Stock as of the date of grant (110% of the fair
market value if the grant is to an employee who owns more than 10% of the total
combined voting power of all classes of our capital stock). Non-statutory stock
options may be granted under the 2004 Plan at an exercise price of not less than
100% of the fair market value of the Common Stock on the date of grant. There is
no limitation on the amount of common stock to which non-statutory grants may
first become exercisable in any calendar year. Re-pricing a stock option or
stock appreciation right is not permitted without shareholder approval. Subject
to the limitations contained in the 2004 Plan, the Compensation Committee sets
the terms of each option grant. Any options that were not exercisable on the
date of termination of employment immediately terminate at that time. Usually,
exercisable options on the date of termination expire upon, or within, three
months of date of termination and, under certain circumstances, exercisable
options on the date of termination and incremental options that would have been
exercisable had the termination deemed to have happened twelve months after the
date of termination, may expire upon twelve months of termination of employment,
but not beyond the term of the options. Options granted under the 2004 Plan
may not be exercised more than 10 years after the date of grant (five years
after the date of grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of our
capital stock).
Non-Shareholder
Approved Plan
During
fiscal 2008, we granted 150,000 stock options under a non-shareholder approved
plan to one of our officers upon joining the company. The weighted average
exercise price of these options was $3.36 per share. During fiscal 2007, we
granted 371,000 stock options to former employees of Arques under a
non-shareholder approved plan. The weighted average exercise price of these
options was $7.18 per share. During fiscal 2006, we granted 125,000 stock
options to one of our officers upon joining the company under a non-shareholder
approved plan. The weighted average exercise price of these options was $9.19
per share.
All
non-shareholder approved plan options were granted at exercise prices equal to
the fair market value on the date of grant, have vesting periods of four years
and expire in ten years. Usually, exercisable options on the date of termination
expire upon, or within, three months of date of termination and, under certain
circumstances, exercisable options on the date of termination and incremental
options that would have been exercisable had the termination deemed to have
happened twelve months after the date of termination, may expire upon twelve
months of termination of employment, but not beyond the term of the
options. Our non-shareholder approved plan options did not require the approval
of, and were not approved by, our shareholders.
Equity
Incentive Plan Activities
The
following is a summary of stock option activity and related information,
including Non-Shareholder Approved Plan Options:
|
|
Shareholder
|
|
|
Non-Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
Plans
|
|
|
Approved
Plan
|
|
|
All
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
|
Shares
(in
|
|
|
Exercise
|
|
|
Shares
(in
|
|
|
Exercise
|
|
|
Shares
(in
|
|
|
Exercise
|
|
Term
|
|
Intrinsic
|
|
|
thousands)
|
|
|
Price
|
|
|
thousands)
|
|
|
Price
|
|
|
thousands)
|
|
|
Price
|
|
(in
years)
|
|
Value
|
Balance
at March 31, 2005
|
|
|
3,058
|
|
|
$
|
6.33
|
|
|
|
573
|
|
|
$
|
5.28
|
|
|
|
3,631
|
|
|
$
|
6.17
|
|
|
|
|
Granted
|
|
|
1,131
|
|
|
|
6.79
|
|
|
|
125
|
|
|
|
9.19
|
|
|
|
1,256
|
|
|
|
7.02
|
|
|
|
|
Exercised
|
|
|
(788
|
)
|
|
|
4.33
|
|
|
|
(120
|
)
|
|
|
4.07
|
|
|
|
(908
|
)
|
|
|
4.30
|
|
|
|
|
Canceled
/ forfeited
|
|
|
(414
|
)
|
|
|
9.04
|
|
|
|
-
|
|
|
|
0.00
|
|
|
|
(414
|
)
|
|
|
9.04
|
|
|
|
|
Balance
at March 31, 2006
|
|
|
2,987
|
|
|
$
|
6.66
|
|
|
|
578
|
|
|
$
|
6.38
|
|
|
|
3,565
|
|
|
$
|
6.61
|
|
|
|
|
Granted
|
|
|
1,378
|
|
|
|
4.42
|
|
|
|
371
|
|
|
|
7.18
|
|
|
|
1,749
|
|
|
|
5.14
|
|
|
|
|
Exercised
|
|
|
(142
|
)
|
|
|
3.49
|
|
|
|
(67
|
)
|
|
|
2.90
|
|
|
|
(208
|
)
|
|
|
3.30
|
|
|
|
|
Canceled
/ forfeited
|
|
|
(730
|
)
|
|
|
6.37
|
|
|
|
(64
|
)
|
|
|
5.03
|
|
|
|
(795
|
)
|
|
|
6.26
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
3,493
|
|
|
$
|
5.96
|
|
|
|
818
|
|
|
$
|
7.42
|
|
|
|
4,311
|
|
|
$
|
6.24
|
|
|
|
|
Granted
|
|
|
1,156
|
|
|
|
3.80
|
|
|
|
150
|
|
|
|
3.36
|
|
|
|
1,306
|
|
|
|
3.75
|
|
|
|
|
Exercised
|
|
|
(25
|
)
|
|
|
3.18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
3.18
|
|
|
|
|
Canceled
/ forfeited
|
|
|
(396
|
)
|
|
|
5.03
|
|
|
|
(250
|
)
|
|
|
7.81
|
|
|
|
(646
|
)
|
|
|
6.11
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
4,228
|
|
|
$
|
5.48
|
|
|
|
718
|
|
|
$
|
6.43
|
|
|
|
4,946
|
|
|
$
|
5.61
|
|
7.28
|
|
$5,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,625
|
|
|
$
|
6.63
|
|
5.95
|
|
$5,770
|
The
aggregate intrinsic value in the table above represents the total pretax
intrinsic value, based on options with an exercise price less than the Company’s
closing stock price of $2.94 as of March 31, 2008 (the last trading day of our
fiscal 2008), which would have been received by the option holders had all
option holders with in-the-money options exercised and sold their options as of
that date.
The
following table summarizes information about options exercisable and the
weighted average exercise price:
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
|
Exercisable
|
|
|
Exercise
|
|
|
|
(in
thousands)
|
|
|
Price
|
|
March
31, 2006
|
|
|
1,909
|
|
|
$
|
6.89
|
|
March
31, 2007
|
|
|
1,963
|
|
|
|
7.06
|
|
March
31, 2008
|
|
|
2,625
|
|
|
$
|
6.63
|
|
The
following table summarizes the ranges of the exercise prices of outstanding and
exercisable options at March 31, 2008:
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
(thousands)
|
|
|
Life
|
|
|
Price
|
|
|
(thousands)
|
|
|
Price
|
|
$
|
2.75
|
|
-
|
|
$
|
4.00
|
|
|
|
1,405
|
|
|
|
8.99
|
|
|
$
|
3.62
|
|
|
|
175
|
|
|
$
|
3.35
|
|
|
4.01
|
|
-
|
|
|
6.00
|
|
|
|
1,636
|
|
|
|
7.42
|
|
|
|
4.91
|
|
|
|
931
|
|
|
|
5.16
|
|
|
6.01
|
|
-
|
|
|
8.00
|
|
|
|
1,481
|
|
|
|
6.05
|
|
|
|
6.74
|
|
|
|
1,095
|
|
|
|
6.69
|
|
|
8.01
|
|
-
|
|
|
10.00
|
|
|
|
272
|
|
|
|
5.62
|
|
|
|
8.69
|
|
|
|
272
|
|
|
|
8.69
|
|
|
10.01
|
|
-
|
|
|
22.50
|
|
|
|
152
|
|
|
|
4.86
|
|
|
|
15.21
|
|
|
|
152
|
|
|
|
15.21
|
|
$
|
2.75
|
|
-
|
|
$
|
22.50
|
|
|
|
4,946
|
|
|
|
7.28
|
|
|
$
|
5.61
|
|
|
|
2,625
|
|
|
$
|
6.63
|
|
During
the fiscal years ended March 31, 2008, 2007 and 2006, the number of stock
options that were exercised were 25,000, 208,000 and 908,000, respectively,
which had an intrinsic value of $22,000, $301,000 and $3,984,000,
respectively.
ESPP
ESPP,
as amended most recently on August 25, 2005, is available for all full-time
employees possessing less than 5% of the Company’s common stock on a fully
diluted basis. The ESPP provides for the issuance of up to 1,740,000 shares at
85% of the fair market value of the common stock at certain defined points in
the plan offering periods. Purchase of the shares is made through employees’
payroll deductions and may not exceed 15% of their total compensation. ESPP
terminates on August 7, 2013 or earlier at the discretion of our Board of
Directors. As of March 31, 2008, 317,000 shares were available for future
issuance under the Purchase Plan.
The
following is a summary of stock purchased under the plan:
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Aggregate
purchase price
|
|
$
|
436,000
|
|
|
$
|
412,000
|
|
|
$
|
365,000
|
|
Shares
purchased
|
|
|
126,021
|
|
|
|
87,565
|
|
|
|
106,065
|
|
Employee
participants
|
|
|
43
|
|
|
|
39
|
|
|
|
38
|
|
Shares
Available for Future Issuance under Employee Benefit Plans
As
of March 31, 2008, 924,000 shares were available for future issuance, which
included 317,000 shares of common stock available for issuance under our ESPP,
17,000 under our 1995E Sub-Plan and 590,000 under our 2004 Plan.
Stock-Based
Compensation
Effective
April 1, 2006, we adopted the provisions of SFAS 123(R) as discussed in Note 2:
Significant Accounting Policies. The following table sets forth the total
stock-based compensation expense resulting from employee stock options and ESPP
included in our consolidated statements of operations for years ended March 31,
2008 and 2007 (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cost
of sales
|
|
$
|
349
|
|
|
$
|
472
|
|
Research
and development
|
|
|
599
|
|
|
|
683
|
|
Selling,
general and administrative
|
|
|
1,385
|
|
|
|
1,916
|
|
Stock-based
compensation expense before income taxes
|
|
|
2,333
|
|
|
|
3,071
|
|
Tax
benefit
|
|
|
2
|
|
|
|
7
|
|
Stock-based
compensation expense, net of tax
|
|
$
|
2,331
|
|
|
$
|
3,064
|
|
The
effect of recording employee stock-based compensation expense for the years
ended March 31, 2008 and 2007 was as follows (in thousands, except per share
amounts):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Income
before income taxes
|
|
$
|
(2,333
|
)
|
|
$
|
(3,071
|
)
|
Net
income
|
|
|
(2,331
|
)
|
|
|
(3,064
|
)
|
Basic
and diluted net earnings per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.13
|
)
|
Net
cash proceeds from the exercise of stock options were $80,000 for the year ended
March 31, 2008, compared to $688,000 for the year ended March 31, 2007.
Income tax benefit realized from employee stock option exercises during fiscal
2008 and 2007 was $2,000 and $7,000 respectively.
The
following table illustrates the effect on net income after tax and net income
per common share as if we had applied the fair value recognition provisions of
SFAS 123 to stock-based compensation during the year ended March 31, 2006 (in
thousands, except per share amounts):
|
|
Year
Ended
|
|
|
|
March
31, 2006
|
|
Net
income
|
|
|
|
As
reported
|
|
$
|
10,035
|
|
Add:
stock-based consultant compensation expense included in reported
results
|
|
|
29
|
|
Deduct:
total stock-based employee compensation expense determined under fair
value method for all awards, net of related tax effects
|
|
|
(3,740
|
)
|
Pro
forma net income
|
|
$
|
6,324
|
|
|
|
|
|
|
Basic
net income per share
|
|
|
|
|
As
reported
|
|
$
|
0.45
|
|
Pro
forma
|
|
$
|
0.29
|
|
|
|
|
|
|
Diluted
net income per share
|
|
|
|
|
As
reported
|
|
$
|
0.44
|
|
Pro
forma
|
|
$
|
0.28
|
|
The
fair value of stock-based awards was estimated using the Black-Scholes model
with the following weighted average assumptions for the years ended March 31,
2008, 2007 and 2006, respectively:
|
|
Employee
Stock Options
|
|
|
Employee
Stock Purchase Plan
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Weighted
average grant date fair value
|
|
$
|
1.85
|
|
|
$
|
2.92
|
|
|
$
|
3.91
|
|
|
$
|
1.23
|
|
|
$
|
1.57
|
|
|
$
|
1.90
|
|
Expected
life in years
|
|
|
4.11
|
|
|
|
4.03
|
|
|
|
4.11
|
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
0.50
|
|
Volatility
|
|
|
0.64
|
|
|
|
0.70
|
|
|
|
0.70
|
|
|
|
0.48
|
|
|
|
0.48
|
|
|
|
0.57
|
|
Risk-free
interest rate
|
|
|
4.05
|
%
|
|
|
4.81
|
%
|
|
|
4.14
|
%
|
|
|
4.61
|
%
|
|
|
5.09
|
%
|
|
|
3.69
|
%
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Our
computation of expected volatility is based on a combination of historical and
market-based implied volatility. Our computation of expected life is based on a
combination of historical exercise patterns and certain assumptions regarding
the expected life of unexercised options adjusted for job level and
demographics. The interest rate for periods within the contractual life of the
award is based on the U.S. Treasury yield curve in effect at the time of grant.
The dividend yield assumption is based on our history and expectation of
dividend payouts.
SFAS
123(R) also requires us to develop an estimate of the number of stock-based
awards which will be forfeited due to employee turnover. Forfeitures are to be
estimated at the time of grant and revised if necessary in subsequent periods if
actual forfeitures differ from those estimates. We currently estimate our
forfeiture rate to be 17%, which is based on an average of historical
forfeitures.
SFAS
123(R) requires the use of option pricing models that were not developed for use
in valuing employee stock options. The Black-Scholes option pricing model was
developed for use in estimating the fair value of short-lived exchange-traded
options that have no vesting restrictions and are fully transferable. In
addition, option pricing models require the input of highly subjective
assumptions, including the option’s expected life and the price volatility of
the underlying stock. The weighted average fair value of shares issued under the
ESPP is related to option element of the ESPP stock grant and 15% discount
provided to employees.
As
of March 31, 2008, we had $1.9 million of total unrecognized compensation
expense, net of estimated forfeitures, related to employee stock options that
will be recognized over the weighted average period of 2.7 years.
401(K)
Savings Plan
We
maintain a 401(k) Savings Plan covering substantially all of our employees.
Under the plan, contributions from eligible employees are matched by the Company
at a rate of 50% up to a maximum of 6% of the employee’s compensation.
Employees’ contributions are fully vested at all times, and the Company’s
contributions vest incrementally over a two year period. During fiscal 2008,
2007 and 2006, we expensed $275,000, $268,000 and $186,000, respectively,
relating to our contributions under the plan.
14.
COMPREHENSIVE INCOME (LOSS)
Comprehensive
income (loss) is principally comprised of net income (loss) and unrealized gain
(loss) on our available for sale securities. Comprehensive income (loss) for the
years ended March 31, 2008, 2007 and 2006 was as follows (in
thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
income (loss)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
|
$
|
10,035
|
|
Unrealized
gain (loss) on available for sale securities
|
|
|
48
|
|
|
|
5
|
|
|
|
(3
|
)
|
Comprehensive
income (loss)
|
|
$
|
(1,366
|
)
|
|
$
|
(76
|
)
|
|
$
|
10,032
|
|
15. INTEREST
AND OTHER INCOME (EXPENSE), NET
Interest
and other income (expense), net, were as follows (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Interest
income
|
|
$
|
2,465
|
|
|
$
|
2,511
|
|
|
$
|
1,575
|
|
Other
expenses, net
|
|
|
(75
|
)
|
|
|
(79
|
)
|
|
|
(84
|
)
|
Net
other income
|
|
$
|
2,390
|
|
|
$
|
2,432
|
|
|
$
|
1,491
|
|
Interest
income reflects the amounts earned from investments in cash equivalents and
short-term securities. Other income (expense), net mainly includes interest
expense and other non-operating income and expense.
16. INCOME
TAXES
Our
income tax provision consisted of the following (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
18
|
|
|
$
|
92
|
|
|
$
|
128
|
|
State
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
8
|
|
Foreign
|
|
|
80
|
|
|
|
26
|
|
|
|
-
|
|
|
|
$
|
102
|
|
|
$
|
116
|
|
|
$
|
136
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
683
|
|
|
$
|
469
|
|
|
$
|
(2,491
|
)
|
State
|
|
|
111
|
|
|
|
42
|
|
|
|
(220
|
)
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
794
|
|
|
$
|
511
|
|
|
$
|
(2,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
$
|
896
|
|
|
$
|
627
|
|
|
$
|
(2,575
|
)
|
The
provision (benefit) for income taxes differs from the amount computed by
applying the U.S. statutory rate of 34% to the income before income taxes for
the years ended March 31, 2008, 2007 and 2006. The principal reasons for this
difference are as follows (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income
tax expense at U.S. statutory rate
|
|
$
|
(176
|
)
|
|
$
|
185
|
|
|
$
|
2,523
|
|
IPR&D
|
|
|
-
|
|
|
|
751
|
|
|
|
-
|
|
Valuation
allowance
|
|
|
903
|
|
|
|
(700
|
)
|
|
|
(5,260
|
)
|
Other
|
|
|
169
|
|
|
|
391
|
|
|
|
162
|
|
Provision
(benefit) for income taxes
|
|
$
|
896
|
|
|
$
|
627
|
|
|
$
|
(2,575
|
)
|
In
fiscal 2008, 2007, and 2006, income before income taxes included $408,000,
$582,000, and $0, respectively, of net loss of our foreign subsidiary, Arques
Technology Taiwan, Inc. Deferred income taxes reflect the tax effects of net
operating loss and credit carryforwards and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of
our deferred tax assets and liabilities are as follows (in
thousands):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
Net
operating losses
|
|
$
|
19,651
|
|
|
$
|
20,660
|
|
Research
and other credits
|
|
|
1,170
|
|
|
|
1,290
|
|
Write
down of inventory
|
|
|
199
|
|
|
|
390
|
|
Stock-based
compensation
|
|
|
1,779
|
|
|
|
1,080
|
|
Other
non-deductible accruals and reserves
|
|
|
1,740
|
|
|
|
1,531
|
|
Total
deferred tax assets
|
|
|
24,539
|
|
|
|
24,951
|
|
Valuation
allowance
|
|
|
(23,031
|
)
|
|
|
(22,160
|
)
|
Net
deferred tax assets
|
|
|
1,508
|
|
|
|
2,791
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Tax
over book depreciation
|
|
|
165
|
|
|
|
430
|
|
Intangible
assets
|
|
|
96
|
|
|
|
160
|
|
Total
net deferred tax assets
|
|
$
|
1,247
|
|
|
$
|
2,201
|
|
As
of March 31, 2008, we had net operating loss carryforwards for federal, state
and foreign income tax purposes of approximately $54.4 million, $15.6 million
and $3.5 million, respectively, which expire in the years 2013 through 2027 for
the federal and state losses, and federal and state research and development
credits of approximately $751,000 and $1,846,000, respectively. The federal
research and development
tax credits begin to
expire in fiscal 2008, while the state research and development tax credits
carryforward indefinitely.
Utilization
of our net operating loss carryforward is subject to annual limitations due to
the ownership change provisions of the Internal Revenue Code and similar state
provisions. The annual limitations could result in the inability to
fully offset future annual taxable income and could result in the expiration of
the net operating loss carryforwards before utilization.
Statement
of Financial Accounting Standard No. 109 ("FAS 109") provides that deferred tax
assets may be established by the company for the future benefit of net operating
losses, research and development credits, and certain other items, subject to a
valuation allowance. The valuation allowance is necessary if based on
available evidence that it is more likely than not that some portion or all of
the deferred tax asset will not be realized. Management believes that
it is more likely than not that approximately $1.2 million and $2.2 million of
the deferred tax assets as of March 31, 2008 and 2007 will be realized in the
following year, respectively. As of March 31 2008, a valuation
allowance of $23.0 million was recorded against the deferred tax
assets. The valuation allowance increased by approximately $0.9
million during the year ended March 31, 2008 and increased by approximately $3.2
million during the year ended March 31, 2007.
At
March 31, 2008, $3.5 million of the valuation allowance for deferred tax assets
relates to benefits of stock option deductions which, when recognized, will be
directly credited to paid in capital as compared to $3.4 million at March 31,
2007.
In
evaluating our ability to realize our net deferred tax assets, management
considered all available positive and negative evidence, including historical
operating results, the existence of cumulative losses in the most recent fiscal
years and earnings estimates in fiscal 2009, as deemed sufficiently reliable, on
a jurisdiction by jurisdiction basis.
The
Company’s federal, California, Arizona, Illinois, and Texas tax returns are
subject to examination by the various tax authorities. These tax returns are no
longer subject to examinations by tax authorities for years before March 31,
2003.
As
a result of the adoption of FIN 48, the Company recognized a $149,000 increase
in the liability for uncertain tax positions, which was accounted for as an
increase to the April 1, 2007 balance of accumulated deficit. At April 1, 2007,
the Company has accrued tax liabilities for unrecognized tax benefits of
approximately $126,000, in addition to interest and penalty of
$49,000.
A
reconciliation of the beginning and ending unrecognized tax benefit amounts for
March 31, 2008 are as follows (in thousands):
|
|
Year
Ended
|
|
|
|
March
31, 2008
|
|
Unrecognized
tax benefits at April 1, 2007
|
|
$
|
126
|
|
Increases
in tax positions for current year
|
|
|
53
|
|
Increases
in tax positions for prior years
|
|
|
3
|
|
Lapse
in statute of limitations
|
|
|
(15
|
)
|
Unrecognized
tax benefits at March 31, 2008
|
|
$
|
167
|
|
In
addition, interest and penalties resulting from unrecognized tax benefits was
$51,000 at March 31, 2008 and $49,000 at March 31, 2007. The unrecognized tax
benefits of $167,000 at March 31, 2008, if recognized, will not impact our
annual effective tax rate. The Company does not expect the total amount of
unrecognized tax benefit as of March 31, 2008 to change significantly in the
next twelve months.
17. SEGMENT
INFORMATION
Our
operations are classified into one operating segment. We are completely fabless
and use several wafer foundries in Asia. We use third party independent
subcontractors to perform CSP ball drop and the assembly and test of packaged
products. These partners are located in China, India, Philippines, Taiwan and
Thailand. Substantially all of our business operations are in the United States
and we have sales operations in Asia and Europe. At March 31, 2008, a
substantial portion of our inventory and fixed assets resided in
Asia.
Our
net sales from customers and distributors, individually representing more than
10% of total net sales during years ended March 31, 2008, 2007 and 2006, were as
follows;
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Original
Equipment Manufacturers:
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
25
|
%
|
|
|
17
|
%
|
|
|
*
|
|
Customer
B
|
|
|
16
|
%
|
|
|
37
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor
A
|
|
|
13
|
%
|
|
|
*
|
|
|
|
13
|
%
|
Distributor
B
|
|
|
12
|
%
|
|
|
10
|
%
|
|
|
*
|
|
_____________
*
Customer or distributor accounted for less than 10% of total net sales during
the period.
Net
sales to geographic regions reported below are based on the customers’ ship to
locations (amounts in millions):
|
|
Year
Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
United
States
|
|
$
|
5.5
|
|
|
|
9
|
%
|
|
$
|
4.4
|
|
|
|
6
|
%
|
|
$
|
3.8
|
|
|
|
5
|
%
|
Korea
|
|
|
19.6
|
|
|
|
33
|
%
|
|
|
16.5
|
|
|
|
24
|
%
|
|
|
14.6
|
|
|
|
21
|
%
|
China
|
|
|
15.9
|
|
|
|
27
|
%
|
|
|
28.2
|
|
|
|
42
|
%
|
|
|
32.6
|
|
|
|
47
|
%
|
Taiwan
|
|
|
11.2
|
|
|
|
19
|
%
|
|
|
10.4
|
|
|
|
15
|
%
|
|
|
9.2
|
|
|
|
13
|
%
|
Singapore
|
|
|
4.2
|
|
|
|
7
|
%
|
|
|
6.7
|
|
|
|
10
|
%
|
|
|
8.6
|
|
|
|
12
|
%
|
Others
|
|
|
2.8
|
|
|
|
5
|
%
|
|
|
1.8
|
|
|
|
3
|
%
|
|
|
1.4
|
|
|
|
2
|
%
|
Total
net sales
|
|
$
|
59.2
|
|
|
|
100
|
%
|
|
$
|
68.0
|
|
|
|
100
|
%
|
|
$
|
70.2
|
|
|
|
100
|
%
|
Property,
plant and equipment by geographic location is summarized as follows (in
millions):
|
|
|
Net
Book Value
|
|
|
|
|
as
of March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
USA
|
|
|
$
|
2.0
|
|
|
$
|
2.1
|
|
India
|
|
|
|
1.9
|
|
|
|
0.6
|
|
Thailand
|
|
|
1.2
|
|
|
|
1.9
|
|
Others
|
|
|
0.5
|
|
|
|
0.2
|
|
|
Total
|
|
$
|
5.6
|
|
|
$
|
4.8
|
|
18. LITIGATION
We
are, on occasions, a party to lawsuits, claims, investigations and proceedings,
including commercial and employment matters, which are being handled and
defended in the ordinary course of business. We review the current status of any
pending or threatened proceedings with our outside counsel on a regular basis
and, considering all the other known relevant facts and circumstances, recognize
any loss that we consider probable and estimable as of the balance sheet date.
For these purposes, we consider settlement offers we may make to be indicative
of such a loss under certain circumstances. There was an accrual of
$20,000 for settlement offers as of March 31, 2008 and 2007.
19. ENVIRONMENTAL
We
have been subject to a variety of federal, state and local regulations in
connection with the discharge and storage of certain chemicals used in our
manufacturing processes, which are now fully outsourced to independent contract
manufacturers. We have obtained all necessary permits for such discharges and
storage, and we believe that we have been in substantial compliance with the
applicable environmental regulations. Industrial waste generated at our
facilities was either processed prior to discharge or stored in double-lined
barrels until removed by an independent contractor. With the completion of our
Milpitas site remediation and the closure of our Tempe facility during fiscal
2005, we now expect our environmental compliance costs to be
minimal.
20. GUARANTEES
We
enter into certain types of contracts from time to time that require us to
indemnify parties against third party claims. These contracts primarily relate
to (1) certain agreements with our directors and officers under which we may be
required to indemnify them for the liabilities arising out of their efforts on
behalf of the company; and (2) agreements under which we have agreed to
indemnify our contract manufacturers and customers for claims arising from
intellectual property infringement or in some instances from product defects or
other issues. The conditions of these obligations vary and generally
a maximum obligation is not explicitly stated. Because the obligated amounts
under these types of agreements often are not explicitly stated, the overall
maximum amount of the obligations cannot be reasonably estimated. We have not
recorded any associated obligations at March 31, 2008 and 2007. We
carry coverage under certain insurance policies to protect ourselves in the case
of any unexpected liability; however, this coverage may not be
sufficient.
21. QUARTERLY
FINANCIAL DATA (UNAUDITED)
Fiscal
2008, for the Quarter Ended
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
|
March
31
|
|
|
|
(In
thousands, except for per share amounts)
|
|
Net
sales
|
|
$
|
13,123
|
|
|
$
|
16,122
|
|
|
$
|
14,955
|
|
|
$
|
15,017
|
|
Gross
margin
|
|
|
4,087
|
|
|
|
5,269
|
|
|
|
4,850
|
|
|
|
5,412
|
|
Net
income (loss)
|
|
|
(1,056
|
)
|
|
|
557
|
|
|
|
230
|
|
|
|
(1,145
|
)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.05
|
)
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
(0.05
|
)
|
Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007, for the Quarter Ended
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
|
March
31
|
|
|
|
(In
thousands, except for per share amounts)
|
|
Net
sales
|
|
$
|
16,072
|
|
|
$
|
18,733
|
|
|
$
|
17,736
|
|
|
$
|
15,465
|
|
Gross
margin
|
|
|
6,083
|
|
|
|
7,505
|
|
|
|
6,343
|
|
|
|
5,285
|
|
Net
income (loss)
|
|
|
(2,075
|
)
|
|
|
1,377
|
|
|
|
673
|
|
|
|
(56
|
)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.09
|
)
|
|
|
0.06
|
|
|
|
0.03
|
|
|
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.09
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
(0.00
|
)
|
IT
EM 9.
Changes in and Disagreements with
Accountant on Accounting and Financial Disclosure
There
have been no disagreements with our accountant on accounting and financial
disclosure.
ITE
M 9A.
Controls and
Procedures
(a)
Evaluation of Disclosure Controls and Procedures
(i)
Disclosure
Controls and Procedures
. We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
(ii)
Limitations
on the Effectiveness of Disclosure Controls
.
In designing and evaluating
our disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Our disclosure controls and procedures
have been designed to meet, and management believes that they meet, reasonable
assurance standards. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
(iii)
Evaluation
of Disclosure Controls and Procedures
.
The Company’s principal
executive officer and principal financial officer have evaluated the Company’s
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of March 31, 2008, and have determined that they were
effective at the reasonable assurance level taking into account the totality of
the circumstances, including the limitations described above in subpart (a)(ii)
and below in subpart (d).
(b) Management’s Annual Report on
Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over our financial reporting, which is designed to provide reasonable
assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of our
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial
statements.
Our
management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, assessed the effectiveness of our internal control over
financial reporting as of March 31, 2008. In making this assessment we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in
Internal
Control — Integrated Framework.
Based on the assessment using
those criteria, management concluded that, as of March 31, 2008, our internal
control over financial reporting was effective.
Our
independent registered public accounting firm, Grant Thornton LLP, audited the
financial statements included in this Annual Report on Form 10-K and
also audited and expressed an unqualified opinion on the effectiveness of our
internal control over financial reporting as of March 31, 2008. Each
of the report on the audit of internal control over financial reporting and the
report on the audit of the financial statements appear elsewhere in this Annual
Report on Form 10-K.
(c)
Changes in Internal Control over Financial Reporting
There
were no significant changes in the Company’s internal control over financial
reporting that occurred during our fourth quarter of fiscal 2008 that have
materially affected, or are reasonably likely to materially affect, such
control.
(d)
Inherent Limitations on Effectiveness
of Controls
Our
management, including our Chief Executive Officer and our Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all errors and
all fraud. Any control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. The design of a control system must reflect the fact
that there are resource constraints and competing use of resources, and the
benefits of controls must be considered relative to their costs in light of
competing demands on limited resources. Further, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be circumvented by the
individual acts or omissions of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
IT
EM 9B. Other Information
PART
III
Certain
information required by Part III is incorporated by reference from our
definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the solicitation of proxies for our 2008 Annual
Meeting of Shareholders to be held on August 21, 2008 (the “2008 Proxy
Statement”).
ITEM 10
.
Directors, Executive Officers and
Corporate Governance
The
information required by this Item is set forth in the 2008 Proxy Statement under
the captions “Directors and Executive Officers of the Registrant” and “Executive
Compensation” and is incorporated herein by reference, except that
(1) where
this Item calls for disclosure of any known late filings or failure by an
insider to file a report required by Section 16(a) of the Securities Act, such
information is contained in the 2008 Proxy Statement under the caption “Section
16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by
reference.
(2) where
this Item calls for disclosure regarding our nominating and corporate governance
committee and audit committee of our Board of Directors and whether or not we
have a financial expert serving on the audit committee of our Board of
Directors, and if so who that individual is, such information is contained in
the 2008 Proxy Statement under the caption “Board Meetings and Committees and
Audit Committee Financial Expert” and is incorporated herein by
reference.
We
have adopted a code of ethics that applies to all of our employees. A copy of
the code of ethics is accessible, free of charge, at our Internet website at
www.calmicro.com. We will also provide a printed copy to any person who so
requests without charge. Requests should be directed in writing to
California Micro Devices Corporation, 490 North McCarthy Blvd #100, Milpitas,
CA 95035-5112, Attention Investor Relations. Information
on our website is not part of this report.
ITEM 11
.
Executive
Compensation
The
information required by this Item is set forth in the 2008 Proxy Statement under
the caption “Executive Compensation”, “Director Compensation”, “Compensation
Committee Report” and “Compensation Committee Interlocks and Insider
Participation” and is incorporated herein by reference.
ITEM 12.
Security Ownership of Certain
Beneficial Owners and Management and Related Shareholder
Matters
Information
related to security ownership of certain beneficial owners and security
ownership of management is set forth in the 2008 Proxy Statement under the
caption “Security Ownership of Certain Beneficial Owners and Management” and is
incorporated herein by reference and information related to our equity
compensation plans is set forth in the 2008 Proxy Statement under the caption
“Equity Compensation Plan Information” and is incorporated herein by
reference.
ITEM 13
.
Certain Relationships and Related
Transactions, and Director Independence
Information
related to certain relationships and related transactions, and director
independence is set forth in the 2008 Proxy Statement under the caption “Certain
Relationships and Related Transactions” and is incorporated herein by reference
and information regarding our corporate governance is set forth in the 2008
Proxy Statement under the captions “Directors and Executive Officers of the
Registrant” and “Director Independence” and is incorporated herein by
reference.
ITEM 14.
Principal Accountant Fees and
Services
The
information required by this Item is set forth in the 2008 Proxy Statement under
the caption “Ratification of Independent Auditors—Audit and Non-Audit Fees” and
is incorporated herein by reference.
PART
IV
ITE
M 15.
Exhibit and Financial Statement
Schedules
a. The
following documents are filed as a part of this Report:
1. See
Item 8 for a list of financial statements filed herein.
|
2. See
Item 8 for a list of financial statement schedules filed. All other
schedules have been omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
the notes thereto.
|
Exhibit
No.
|
|
Description
|
|
Incorporated
by reference from
|
3(i)
|
|
Amended
and Restated Certificate of Incorporation.
|
|
Exhibit
3.1 to our Current Report on Form 8-K dated September 15, 2006, filed on
September 21, 2006.
|
|
|
|
3(ii)
|
|
Amended
and Restated By-laws.
|
|
Exhibit
3.2 to our Current Report on Form 8-K dated September 15, 2006, filed on
September 21, 2006.
|
|
|
|
4.1*
|
|
1995
Employee Stock Option Plan and 1995 Non-Employee
Directors’
Stock Option Plan, both as most recently amended
August
8, 2003 and August 7, 2002, respectively.
|
|
Exhibit
4.1 to Registration Statement on Form S-8, filed on September 2,
2003.
|
|
|
|
4.2*
|
|
1995
Employee Stock Purchase Plan, as most recently
amended
August 8, 2003
|
|
Exhibit
4.2 to Registration Statement on Form S-8, filed on September 2,
2003.
|
|
|
|
4.3
|
|
Sample
Common Stock Certificate of Registrant
|
|
Exhibit
4.1 to our Current Report on Form 8-K dated April 27, 2004, filed on April
28, 2004.
|
|
|
|
4.4*
|
|
2004
Omnibus Incentive Compensation Plan
|
|
Exhibit
4.1 to our Registration Statement on Form S-8, filed on November 9,
2004.
|
|
|
|
10.12
|
|
Wafer
Manufacturing Agreement between the Company and Advanced Semiconductor
Manufacturing Corporation, dated February 20, 2002.**
|
|
Exhibit
10.12 to the Company’s Annual Report on Form 10-K for the year ended March
31, 2002 filed on June 25, 2002.
|
|
|
|
10.18
|
|
Wafer
Manufacturing Agreement with Sanyo Electric Co., Ltd. Semiconductor
Company**
|
|
Exhibit
10.18 to our Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, filed on August 6, 2004.
|
|
|
|
10.20
|
|
Amended
and Restated Loan and Security Agreement with Silicon Valley Bank dated
September 30, 2004.**
|
|
Exhibit
10.20 to our Quarterly Report on Form 10-Q for the quarter ended September
30, 2004, filed on November 8, 2004.
|
|
|
|
10.21
|
|
Purchase
Agreement between Registrant and Microchip Technology Incorporated dated
May 20, 2005, as amended effective June 15, 2005
|
|
Exhibit
10.21 to our Quarterly Report on Form 10-Q for the quarter ended June 30,
2005, filed on November 9, 2005.
|
|
|
|
|
|
10.22
|
|
Exhibit
10.22, First Amendment to Loan and Security Agreement between Registrant
and Silicon Valley Bank entered into on October 24, 2005.
|
|
Exhibit
10.22 to our Current Report on Form 8-K dated October 24, 2005, filed on
October 27, 2005.
|
|
|
|
Exhibit
No.
|
|
Description
|
|
Incorporated
by reference from
|
10.23
|
|
Agreement
and Plan of Merger dated March 16, 2006 by and among the Registrant,
Arques Technology, Inc., ARQ Acquisition Corporation and, for purposes of
Article 11 only, Gerome Tseng, as the Representative.
|
|
Exhibit
10.23 to our Current Report on Form 8-K dated March 16, 2006, filed on
March 22, 2006.
|
|
|
|
10.24*
|
|
Consulting
Agreement dated as of March 17, 2006, between Registrant and Kevin
Berry.
|
|
Exhibit
10.24 to our Current Report on Form 8-K dated March 17, 2006, filed on
March 23, 2006.
|
|
|
|
10.25*
|
|
Memo
to Employees and Consultants, including David Casey and David Sear,
Accelerating Their Underwater Unvested Options and Imposing Resale
Restrictions.
|
|
Exhibit
10.25 to our Current Report on Form 8-K dated March 28, 2006, filed on
April 3, 2006.
|
|
|
|
10.26*
|
|
Letter
Agreement dated as of July 7, 2006, between Registrant and Kevin
Berry.
|
|
Exhibit
10.26 to our Current Report on Form 8-K dated July 7, 2006, filed on July
10, 2006.
|
|
|
10.27*
|
|
Supplemental
Employment Terms Agreement during
November
2006 between
Registrant
and an employee
of
the registrant
|
|
Exhibit
10.27 to our Quarterly Report on Form 10-Q for the quarter ended December
31, 2006, filed on February 9, 2007
|
|
|
|
10.28*
|
|
Executive
Severance Plan dated November 9, 2006
|
Exhibit
10.28 to our Quarterly Report on Form 10-Q for the quarter ended December
31, 2006, filed on February 9, 2007
|
|
|
|
|
10.29**
|
Equipment
Acquisition Agreement, as amended,
and
Post-Consignment
Services
Pricing
Agreement, with SPEL
|
Exhibit
10.29 to our Quarterly Report on Form 10-Q for the quarter ended September
30, 2007 filed on November 9, 2007
|
10.30*
|
|
Amendment
to Supplemental Employment Terms Agreement dated February 6, 2008 is filed
herewith.
|
|
|
|
10.31*
|
|
Amended
and Restated Executive Severance Plan dated February 6, 2008 is filed
herewith.
|
|
|
|
21.1
|
|
List
of Subsidiaries is filed herewith.
|
23.1
|
|
Consent
of Grant Thornton LLP, Independent Registered Public Accounting Firm,
dated June 11, 2008 is filed
herewith.
|
|
|
24
|
|
Power
of attorney is filed herewith.
|
|
|
31.1
|
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 is filed
herewith.
|
|
|
31.2
|
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 is filed
herewith.
|
|
|
32.1
|
|
Certifications
under Section 906 of the Sarbanes-Oxley Act of 2002 are filed
herewith.
|
_______
*
|
Denotes
a management contract or compensatory plan or
arrangement.
|
**
|
Portions
were omitted pursuant to a request for confidential
treatment.
|
b. Exhibits
10.30, 10.31, 21.1, 23.1, 24, 31.1, 31.2 and 32.1 are filed
herewith.
c. Schedule
II to the Company’s financial statements is on page 84.
SCHE
DULE II
CALIFORNIA
MICRO DEVICES CORPORATION
VALUATION
AND QUALIFYING ACCOUNTS
Years
Ended March 31, 2008, 2007 and 2006
(in
thousands)
|
|
Balance
at
|
|
|
Charged
to
|
|
|
|
|
|
Balance
at
|
|
|
|
beginning
of
|
|
|
expenses
or
|
|
|
Deductions
|
|
|
end
of
|
|
|
|
fiscal
year
|
|
|
other
accounts
|
|
|
or
write off
|
|
|
fiscal
year
|
|
Valuation
allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
$
|
22,160
|
|
|
$
|
871
|
|
|
$
|
-
|
|
|
$
|
23,031
|
|
Fiscal
2007
|
|
|
18,961
|
|
|
|
3,199
|
|
|
|
-
|
|
|
|
22,160
|
|
Fiscal
2006
|
|
|
24,763
|
|
|
|
-
|
|
|
|
(5,802
|
)
|
|
|
18,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
320
|
|
|
|
-
|
|
|
|
(301
|
)
|
|
|
19
|
|
Fiscal
2007
|
|
|
146
|
|
|
|
174
|
|
|
|
-
|
|
|
|
320
|
|
Fiscal
2006
|
|
|
74
|
|
|
|
73
|
|
|
|
(1
|
)
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
allowances and return reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
70
|
|
|
|
21
|
|
|
|
-
|
|
|
|
91
|
|
Fiscal
2007
|
|
|
112
|
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
70
|
|
Fiscal
2006
|
|
$
|
117
|
|
|
$
|
-
|
|
|
$
|
(5
|
)
|
|
$
|
112
|
|
CALIFOR
NIA MICRO DEVICES CORPORATION
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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 on the 11th day of June
2008.
|
|
|
|
CALIFORNIA
MICRO DEVICES CORPORATION
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
By:
|
|
/S/
ROBERT V. DICKINSON
|
|
|
|
|
__________________________________________________
|
|
|
|
|
Robert
V. Dickinson
|
|
|
|
|
President,
Chief Executive Officer and
Director
|
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Robert V. Dickinson and Kevin J. Berry, and each of
them individually, as his or her attorney-in-fact, each with full power of
substitution, for him or her in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his or her substitute, may do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 11th day of June 2008.
By:
|
|
|
|
|
|
|
|
|
/S/
ROBERT V. DICKINSON
|
|
President,
Chief Executive Officer and Director
|
|
|
|
|
_________________________________________
|
|
(Principal
Executive Officer)
|
|
|
|
|
Robert
V. Dickinson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/ KEVIN
J. BERRY
|
|
Chief
Financial Officer
|
|
|
|
|
_________________________________________
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
Kevin
J. Berry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/
WADE F. MEYERCORD
|
|
Chairman
of the Board
|
|
|
|
|
_________________________________________
|
|
|
|
|
|
|
Wade
F. Meyercord
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/
EDWARD C. ROSS
|
|
Director
|
|
|
|
|
_________________________________________
|
|
|
|
|
|
|
Edward
C. Ross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/
JOHN L. SPRAGUE
|
|
Director
|
|
|
|
|
_________________________________________
|
|
|
|
|
|
|
John
L. Sprague
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/
DAVID L. WITTROCK
|
|
Director
|
|
|
|
|
_________________________________________
|
|
|
|
|
|
|
David
L. Wittrock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/S/
DAVID W. SEAR
|
|
Director
|
|
|
|
|
_________________________________________
|
|
|
|
|
|
|
David
W. Sear
|
|
|
|
|
- 85
-
California Micro Devices Corp. (MM) (NASDAQ:CAMD)
Historical Stock Chart
From Jun 2024 to Jul 2024
California Micro Devices Corp. (MM) (NASDAQ:CAMD)
Historical Stock Chart
From Jul 2023 to Jul 2024