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, 2009
[ ]
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
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94-2672609
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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490
N. McCarthy Boulevard #100 Milpitas, California
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95035
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(Address
of principal executive offices)
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(Zip
Code)
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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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). YES
¨
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 the definitions of “accelerated filer",
"large accelerated filer" and "smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
¨
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Accelerated
filer
x
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Non-accelerated
filer
¨
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Smaller
reporting company
¨
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(Do
not check if a smaller reporting company)
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|
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, 2008 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $69.4 million
based on the closing price for the common stock on the NASDAQ National Market on
such date. As of September 30, 2008, the number of shares of the registrant’s
common stock outstanding held by non-affiliates was 23.2 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, 2009, the number of shares of the registrant’s common stock, $0.001 par
value, outstanding was 22,917,914.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s Proxy Statement in connection with its 2009 Annual Meeting
of Shareholders are incorporated by reference into Part III to the extent stated
in Part III.
Exhibit
Index is on Page 82
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Total
number of pages is 85
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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, based on a
constant mix of products, will decline at the rate of 12% to 15% per year; (2)
our having a target gross margin of 38% to 40%; (3) our expectation that our
future environmental compliance costs will be minimal; (4) our anticipation that
our existing cash and cash equivalents will be sufficient to meet our
anticipated cash needs over the next 12 months; (5) our having a long term
target for research and development expenses of 9% to 10% of sales but expecting
to exceed this target especially in the first half of fiscal 2010 driven
by continuing development efforts for our products until sales
increase substantially; (6) 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
especially in the first half of fiscal 2010; (7) our expectation of future
interest income to continue to be at a reduced level or even decline unless
interest rates increase materially or we change the instruments in which we
invest;
(8) the
size forecast by iSuppli Corporation for 2011 of the three markets we focus on;
(9) our objective to be a leading supplier of protection devices for the mobile
handset, digital consumer electronics and personal computer as well as high
brightness light emitting diodes (HBLED) markets and of serial interface display
electronics for the mobile handset market and our strategy to accomplish that
objective; (10) our belief that the fiscal 2010 demand picture is beginning to
improve as we believe revenue has bottomed and is likely to begin growing again
in the second quarter of fiscal 2010 assuming increasing economic stability and
seasonal growth in end demand ; (11) our expectation that our international
sales will continue to represent a majority of our sales in the foreseeable
future; and (12) our expectation that we will not pay within one year any of our
liability for uncertain tax positions or associated interest and tax
penalties.
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 in developing new products which our customers will design into their
products and whether our 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;
whether
we will incur any large unanticipated expenses;
and whether we will 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.
CA
LIFORNIA MICRO DEVICES CORPORATION
FORM
10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2009
INDEX
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Page
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PART
I.
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Item 1.
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5
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Item 1A.
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12
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Item 1B.
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27
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Item
2.
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27
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Item
3.
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27
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Item
4.
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27
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PART
II.
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Item
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28
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Item
6.
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30
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Item
7.
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31
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Item
7A.
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46
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Item
8.
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47
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Item
9.
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79
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Item
9A.
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79
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Item
9B.
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80
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PART
III.
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Item
10.
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81
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Item
11.
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81
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Item
12.
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81
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Item
13.
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81
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Item
14.
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81
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PART
IV.
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Item
15.
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82
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85
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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
as well as application
specific protection devices in the high brightness light emitting diodes (HBLED)
market. These protection devices provide Electromagnetic Interference (EMI)
filtering and/or Electrostatic Discharge (ESD) protection. 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 complementary 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
September 15, 2006, we reincorporated in Delaware.
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 electromagnetic interference (EMI) and protecting against
electrostatic discharge (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 Display Serial Interface
(DSI) 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. In December 2008, we introduced a MDDI to MIPI bridge controller that
allows customers using a MDDI based CPU to interface to a MIPI based display
module. Products in development include 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:
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Mobile handsets
. There
were 1.2 billion mobile handsets sold globally in 2008, making mobile
handsets the most widely adopted mobile devices today. By 2011, the number
of mobile handsets sold globally is expected to grow to over 1.4 billion
units.
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•
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Digital consumer
electronics,
which includes products such as digital televisions,
DVD players and recorders, and digital set top boxes. OEM shipments in
2008 for products in this market included 99 million digital televisions,
136 million DVD players and recorders and 133 million digital set top
boxes. By 2011, OEM shipments in these markets are expected to be 155
million digital televisions, 102 million DVD players and recorders and 174
million digital set top boxes.
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•
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Personal computers,
which includes notebook and desktop computers and peripherals such as
printers and flat panel monitors. Sales in 2008 for products in this
market included 305 million desktop and notebook computers, 102 million
printers and 160 million flat panel monitors. By 2011, these markets are
expected to grow to 347 million desktop and notebook computers, 119
million printers and 192 million flat panel
monitors.
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The two
major protection challenges facing designers of products for these markets
are:
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•
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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.
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•
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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 featuring much lower
levels of capacitance than traditional solutions and, in some cases,
impedance matching to ensure that signal integrity is not
compromised.
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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 as well as high
brightness light emitting diodes (HBLED) 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. An example of this is our serial interface display
controller product line which we developed internally.
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, and 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® family of inductor based filters is 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 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 full portfolio of
LuxGuard
TM
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 commercial and residential 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. In 2008, we introduced CM5160, the industry’s first MDDI to
MIPI bridge and display controller. The device enables advanced
handsets that utilize CPUs and application processors with on-chip MDDI
compatible hosts to interface with liquid crystal display (LCD) modules that
feature either MDDI or MIPI™ compatible clients. Products in development include
a serial interface display controller that will support the MIPI Alliance
standard.
Customers
We target
market and technology leaders in each of our markets. In fiscal 2009, 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 2009,
two OEM customers, Samsung and Motorola, and one distributor, RSL
Microelectronics 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 87% of
net sales in fiscal 2009. 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.
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. Our
LuxGuard
TM
ESD protection products for HBLED lighting applications typically ship to
customers in wafer form.
As of
March 31, 2009, we had $1.2 million of test and packaging equipment on
consignment in India and $0.5 million of test equipment on consignment in
Thailand. In addition, the majority of our inventory was also located in Asia as
of March 31, 2009.
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 also use contract engineering services for certain
specialized design work. In November 2007, we opened a small 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 April 2008, we opened a design center in
Phoenix, Arizona to focus on products for the HBLED market.
We spent
$10.3, $7.1 and $8.0 million on research and development activities in fiscal
2009, 2008 and 2007, 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, 2009, we had been granted 44
U.S. and foreign 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,
LuxGuard, MediaGuard and OptiGuard are our trademarks and Praetorian, PicoGuard,
PicoGuard XP, PicoGuard XS, XtremeESD and our corporate logo 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,
personal computer and HBLED markets, we compete primarily with NXP, ON
Semiconductor Corporation, Semtech Corporation, STMicroelectronics, N.V. and
Texas Instruments 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 Renesas Technology, Samsung, Sharp
Electronics Corporation, Solomon Systech, Texas Instruments and Toshiba
Corporation.
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, breadth of product offering,
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
At March
31, 2009, our backlog amounted to $5.6 million, compared with backlog of $11.0
million at March 31, 2008. 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.
With the
global economic downturn, during the second half of our last fiscal year,
customers have reduced their inventories and so customer backlog has declined
and customer demand has become more difficult to predict.
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. 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, 2009, we had 103 full-time and part-time employees, including 36 in
sales and marketing, 21 in research and development activities, 29 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.
You may
also read or copy any materials that we file with the SEC at their Public
Reference Room at 100 Fifth Street, NE, Washington, DC 20549. You may obtain
additional information about the Public Reference Room by calling the SEC at
1-800-SEC-0330. Additionally, you will find these materials on the SEC Internet
site at
http://www.sec.gov
that contains reports, proxy statements and other
information regarding issuers that file electronically with the
SEC.
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 II, Item 1A of our Form 10-Q for
the quarter ended December 31, 2008. 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 eight out of the last twelve most recent fiscal
quarters. We may not be able to attain or sustain profitability in
the future.
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 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 primarily from sales of circuit
protection devices. For example, during fiscal 2009, 88% 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, or integration of circuit
protection functionality into other circuit elements, our revenues could
decline.
During
fiscal 2009, 61% of our revenue was from sales to the mobile handset market,
with the balance coming from digital consumer electronics and personal computers
and peripherals and HBLED markets. 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.
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
2009, two customers primarily in the mobile handset market represented 40% of
our net sales and in the future we expect to increase net sales to a top five
OEM customer we began selling to during the second half of fiscal 2008. There
can be no assurance that these customers will purchase our products in the
future in the quantities we have forecasted, or at all.
During
fiscal 2009, one distributor represented 11% of our net sales. If we were to
lose the distributor, 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 as well as HBLED market, we compete primarily with
NXP, ON Semiconductor Corporation, Semtech Corporation, STMicroelectronics, N.V.
and Texas Instruments 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 and we focused on high end applications as a result. However, we have
also begun to see 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 Renesas Technology, Samsung, Sharp
Electronics Corporation, Solomon Systech, Texas Instruments and Toshiba
Corporation. 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.
Management
assessed and determined, and the auditors attested, that there was no material
weakness in our internal control over financial reporting as of March 31, 2007,
2008 and 2009. 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, investors could lose confidence in the accuracy and
completeness of our financial reports, which could have an adverse effect on our
stock price.
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.
Adverse and uncertain global economic conditions make forecasting
demand difficult and may harm our business
.
Unfavorable
global economic conditions, including the recession and recent disruptions to
the credit and financial markets, could cause consumer and capital spending to
continue to slow down, which may decrease demand for our customers’ products and
hence our products and our revenues would be adversely affected. In addition,
during challenging economic times, our customers may face issues gaining timely
access to sufficient credit, which may impair the ability of our customers to
pay for products they have purchased which could cause us to increase our
allowance for doubtful accounts and write-offs of accounts
receivable. Furthermore, the uncertainty in when the global
economy will recover means uncertain demand for our products which makes it more
difficult to manage inventories so that we can timely respond to our customers
if and when their demand for our products increases and may lead to greater
write-offs of inventory. In addition, such uncertainty in demand
makes planning more difficult and subject to error which could impact our
decision-making and have a material adverse effect on our business, results of
operations, financial condition and cash flows.
Our
revenues are subject to macroeconomic cycles and therefore are more likely to
decline if the current economy worsens or if there is another economic
downturn.
As our
mobile handset protection devices penetration have increased, our revenues have
become increasingly susceptible to macroeconomic cycles because our revenue
growth has become more dependent on growth in the overall market rather than
primarily on increased penetration, as had been the case in the
past.
Our
reliance on foreign customers could cause fluctuations in our operating
results.
During
fiscal 2009, international sales accounted for 87% 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:
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changes
in regulatory requirements;
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tariffs
and other barriers;
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timing
and availability of export
licenses;
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political
and economic instability;
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the
impact of regional and global illnesses such as severe acute respiratory
syndrome infections (SARS);
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difficulties
in accounts receivable collections;
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difficulties
in staffing and managing foreign
operations;
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difficulties
in managing distributors;
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difficulties
in obtaining foreign governmental approvals, if those approvals should
become required for any of our
products;
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limited
intellectual property protection;
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foreign
currency exchange fluctuations;
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the
burden of complying with and the risk of violating a wide variety of
complex foreign laws and treaties;
and
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potentially
adverse tax consequences.
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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 2009, 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:
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reduced
control over delivery schedules and
quality;
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the
impact of regional and global illnesses such as SARS or Avian flu
pandemic;
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the
potential lack of adequate capacity during periods when industry demand
exceeds available capacity;
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difficulties
finding and integrating new
subcontractors;
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limited
warranties on products supplied to
us;
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potential
increases in prices due to capacity shortages, currency exchange
fluctuations and other factors; and
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potential
misappropriation of our intellectual
property.
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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:
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political
and economic instability;
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changes
in our cost structure due to changes in local currency values relative to
the U.S. dollar;
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potential
difficulty in enforcing agreements and recovering damages for their
breach;
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inability
to obtain and retain manufacturing capacity and priority for our business,
especially during industry-wide times of capacity
shortages;
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exposure
to greater risk of misappropriation of intellectual
property;
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disruption
to air transportation from Asia;
and
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changes
in tax laws, tariffs and freight
rates.
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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 $1.2 million of test and
packaging equipment on consignment in India and $0.5 million of test equipment
on consignment in Thailand as of March 31, 2009. 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:
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rapidly
changing technologies;
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changing
customer needs;
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evolving
industry standards;
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frequent
new product introductions and
enhancements;
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increased
integration with other functions;
and
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rapid
product obsolescence.
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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
and management personnel 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 VLSI 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.
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.
Not all
of our design wins 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 material annual product sales 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.
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 for dollar amounts significantly higher than the revenues
and profits we receive from the sale of 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. We are sometimes
not able to limit our liability contractually as much as we desire and believe
is reasonable and there can be no assurances 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 our insurers will handle any claims on the
basis we desire, 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 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 which
caused us to recognize an expense associated with our
employee equity awards that decreased our
earnings. There may be other future changes in FASB
rules or 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 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
stockholders 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 stockholder 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
stockholder 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 stockholder 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 stockholders, 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 stockholders. 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 stockholder 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 stockholders.
Further,
our stockholders 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 stockholders in connection with the previous year’s
annual meeting to nominate a candidate for director or present a proposal to our
stockholders at a meeting. These notice requirements could inhibit a takeover by
delaying stockholder action.
After
our board of directors refused to take actions suggested by one of our larger
stockholders, that stockholder nominated four persons for election to our
currently six-member board. This could lead to a costly and distracting
proxy fight and, depending on the results, a board which is divided and less
effective or which favors actions the current board does not believe are in our
best interests.
One of
our largest stockholders, funds managed by Dialectic Capital Management, LLC
(“Dialectic”), made two SEC filings in which it expressed its displeasure with
the Company’s management and board of directors and requested that the Company
pay a substantial cash dividend and then engage an investment banker to sell the
Company. Dialectic also requested that the Board restructure management’s
economic incentives to be more aligned with the interests of all of the
Company's stockholders. The Company’s board of directors responded in
January that it believes the Company should retain its cash and that it was not
the time to explore a sale of the Company when the stock market and its stock
price is close to its low point over the past several years and when the Company
has solid plans for growth, driven by new products under development and
potentially by acquisition of synergistic product lines or companies. The
Company’s management has met with representatives of Dialectic and has been
unable to resolve their differences of opinion. Dialectic subsequently has
nominated four persons for election as directors at our upcoming annual
stockholders meeting. Unless our board chooses to nominate these
persons as well, which is unlikely because our board of
directors believes it would not be in the interests of the Company or its
stockholders to pursue the courses of action recommended by Dialectic and
presumably its nominees, we would expect a proxy fight and to vigorously contest
any such efforts by Dialectic to further its agenda. A proxy
fight would detract management time and attention from the business of the
Company and would cost the Company substantial monies to contest. If Dialectic
is successful as to all four directors, it could result in the Company
being compelled to take actions which its board of directors currently does not
believe are in the Company’s best interests and if Dialectic is successful as to
between one and three directors, it could lead to a less effective
Board.
We
may incur increased costs as a result of future changes in laws and regulations
relating to corporate governance matters and public disclosure.
There
have been and continue to be 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. These often have in the past and may in the future
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 have invested
substantial resources to comply with evolving standards and may be required to
do so in the future. Any such future 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. 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 expect to take steps to comply
with future enacted laws and regulations and accounting pronouncements 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 successful 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 expensed or 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 26,800 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 and
design center. 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
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
3.60
|
|
|
$
|
3.24
|
|
|
$
|
2.91
|
|
|
$
|
2.43
|
|
Low
|
|
$
|
2.85
|
|
|
$
|
2.90
|
|
|
$
|
1.48
|
|
|
$
|
1.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
5.24
|
|
|
$
|
4.64
|
|
|
$
|
4.80
|
|
|
$
|
4.60
|
|
Low
|
|
$
|
4.05
|
|
|
$
|
3.62
|
|
|
$
|
3.44
|
|
|
$
|
2.91
|
|
No
dividends were paid in fiscal 2009 or 2008. We expect to continue that policy in
the foreseeable future although we currently have no restrictions against paying
dividends. As of May 31, 2009 there were 1,359 holders of record of our common
shares and a substantially greater number of beneficial owners.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
The table
below shows purchases of equity securities by us during the fourth quarter of
fiscal 2009:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Purchased as
|
|
|
Maximum
Number of
|
|
|
|
|
|
|
|
|
|
Part
of Publicly
|
|
|
Shares
that May Yet be
|
|
|
|
Total
Number of
|
|
|
Average
Price
|
|
|
Announced
Plans or
|
|
|
Purchased
Under the
|
|
Period
|
|
Shares
Purchased (1)
|
|
|
Paid
Per Share
|
|
|
Programs
|
|
|
Plans
or Programs
|
|
01/01/09
- 01/31/09
|
|
|
116,139
|
|
|
$
|
2.13
|
|
|
|
116,139
|
|
|
|
428,836
|
|
02/01/09
- 02/28/09
|
|
|
48,327
|
|
|
|
2.09
|
|
|
|
48,327
|
|
|
|
380,509
|
|
03/01/09
- 03/31/09
|
|
|
53,832
|
|
|
|
2.16
|
|
|
|
53,832
|
|
|
|
326,677
|
|
|
|
|
218,298
|
|
|
$
|
2.13
|
|
|
|
218,298
|
|
|
|
326,677
|
|
(1) Our
current share repurchase program, under which we repurchased 218,298 and 673,323
shares during the three and twelve months ended March 31, 2009, respectively,
has been in place since August 21, 2008, when it was adopted by our board of
directors and was publicly announced. These shares were purchased in open market
transactions. This repurchase program has no expiration date, other
than, unless extended, when an aggregate of 1,000,000 shares have been
repurchased. Neither this program nor any other repurchase program or plan has
expired during the fourth fiscal quarter ended March 31, 2009 nor have we
decided to terminate any repurchase plan or program prior to expiration. There
are no existing repurchase plans or programs under which we do not intend to
make further purchases.
We did
not issue any securities that had not been registered under the Federal
Securities Act of 1933, as amended, during fourth quarter of fiscal
2009.
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 and the S & P 500
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, 2004
and its relative performance is tracked through March 31, 2009. (California
Micro Devices has not historically paid dividends.)
* $100
invested on March 31, 2004 in stock or index including re-investment of
dividends.
Fiscal year
ended March 31.
|
|
|
3/04
|
|
|
|
3/05
|
|
|
|
3/06
|
|
|
|
3/07
|
|
|
|
3/08
|
|
|
|
3/09
|
|
California
Micro Devices Corporation
|
|
$
|
100.00
|
|
|
$
|
37.71
|
|
|
$
|
59.07
|
|
|
$
|
34.95
|
|
|
$
|
21.96
|
|
|
$
|
18.15
|
|
NASDAQ
Composite
|
|
|
100.00
|
|
|
|
100.25
|
|
|
|
117.33
|
|
|
|
121.43
|
|
|
|
114.29
|
|
|
|
76.65
|
|
S&P
500
|
|
$
|
100.00
|
|
|
$
|
104.83
|
|
|
$
|
114.97
|
|
|
$
|
126.16
|
|
|
$
|
117.45
|
|
|
$
|
70.85
|
|
The
stock price performance included in this graph is not necessarily indicative of
future stock price performance.
The
information contained in this Item 5 under the heading “Performance Graph”
(i) is being furnished and shall not be deemed “filed” for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that section, and (ii) shall not be
incorporated by reference into any registration statement or other document
pursuant to the Securities Exchange Act of 1934, as amended, or the Securities
Act of 1933, as amended, except as shall be expressly set forth by specific
reference in such filing to this Item 5 Performance Graph
information.
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,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
49,273
|
|
|
|
|
|
$
|
59,217
|
|
|
|
|
|
$
|
68,006
|
|
|
|
|
|
$
|
70,241
|
|
|
|
|
|
$
|
65,869
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(13,851
|
)
|
|
|
(1,2
|
)
|
|
|
(518
|
)
|
|
|
(1
|
)
|
|
|
546
|
|
|
|
(1,3
|
)
|
|
|
7,460
|
|
|
|
|
|
|
4,167
|
|
|
|
(5
|
)
|
Net
income (loss)
|
|
|
(15,162
|
)
|
|
|
(1,2,4
|
)
|
|
|
(1,414
|
)
|
|
|
(1,4
|
)
|
|
|
(81
|
)
|
|
|
(1,3,4
|
)
|
|
|
10,035
|
|
|
|
(4
|
)
|
|
|
4,042
|
|
|
|
(5
|
)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.65
|
)
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
0.45
|
|
|
|
|
|
|
|
0.19
|
|
|
|
|
|
Diluted
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term investments
|
|
$
|
45,605
|
|
|
|
|
|
|
$
|
51,596
|
|
|
|
|
|
|
$
|
49,024
|
|
|
|
|
|
|
$
|
49,746
|
|
|
|
|
|
|
$
|
36,075
|
|
|
|
|
|
Working
capital
|
|
|
49,939
|
|
|
|
(4
|
)
|
|
|
56,560
|
|
|
|
(4
|
)
|
|
|
55,259
|
|
|
|
(4
|
)
|
|
|
57,858
|
|
|
|
(4
|
)
|
|
|
40,562
|
|
|
|
|
|
Total
assets
|
|
|
59,913
|
|
|
|
(4
|
)
|
|
|
78,085
|
|
|
|
(4
|
)
|
|
|
75,883
|
|
|
|
(4
|
)
|
|
|
73,732
|
|
|
|
(4
|
)
|
|
|
57,677
|
|
|
|
|
|
Long-term
obligations
|
|
|
221
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
Total
shareholders’ equity
|
|
$
|
53,358
|
|
|
|
|
|
|
$
|
67,414
|
|
|
|
|
|
|
$
|
66,046
|
|
|
|
|
|
|
$
|
61,872
|
|
|
|
|
|
|
$
|
46,661
|
|
|
|
|
|
______________
(1)
Includes $2.0 million, $2.3 million and $3.1 million of employee stock based
compensation expense in fiscal 2009, 2008 and 2007, respectively.
(2)
Includes $5.3 million of goodwill impairment.
(3)
Includes $2.2 million of In-process research and development (IPR&D)
expense.
(4)
Includes $1.3 million, $0.7 million and $0.5 million of additional
valuation allowance against deferred tax assets in fiscal 2009, 2008 and
2007, respectively and $2.7 million of partial release of valuation
allowance against deferred tax assets in fiscal 2006.
(5)
Includes $1.3 million of restructuring and asset impairment
charges.
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, based on a
constant mix of products, will decline at the rate of 12% to 15% per year; (2)
our having a target gross margin of 38% to 40%; (3) our expectation that our
future environmental compliance costs will be minimal; (4) our anticipation that
our existing cash and cash equivalents will be sufficient to meet our
anticipated cash needs over the next 12 months; (5) our having a long term
target for research and development expenses of 9% to 10% of sales but expecting
to exceed this target especially in the first half of fiscal 2010 driven
by continuing development efforts for our products until sales
increase substantially; (6) 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
especially in the first half of fiscal 2010; (7) our expectation of future
interest income to continue to be at a reduced level or even decline unless
interest rates increase materially or we change the instruments in which we
invest
; (8) the
size forecast by iSuppli Corporation for 2011 of the three markets we focus
on; (9) our objective to be a leading supplier of protection devices
for the mobile handset, digital consumer electronics and personal computer as
well as high brightness light emitting diodes (HBLED) markets and of serial
interface display electronics for the mobile handset market and our strategy to
accomplish that objective; (10) our belief that the fiscal 2010 demand picture
is beginning to improve as we believe revenue has bottomed and is likely to
begin growing again in the second quarter of fiscal 2010 assuming increasing
economic stability and seasonal growth in end demand; (11) our expectation that
our international sales will continue to represent a majority of our sales in
the foreseeable future; and (12) our expectation that we will not pay within one
year any of our liability for uncertain tax positions or associated interest and
tax penalties
. 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 in 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;
whether
we will incur any large unanticipated expenses;
and whether we will 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 design
and sell application specific protection devices and display electronics devices
for high volume applications in the mobile handset, digital consumer electronics
and personal computer markets as well as application specific protection devices
in the high brightness light emitting diodes (HBLED) market. These protection
devices provide Electromagnetic Interference (EMI) filtering and Electrostatic
Discharge (ESD) protection. The display electronic devices include serial
interface display controllers. 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.
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 economic
downturn, 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
2009 key financial highlights
The
following are key financial highlights;
Net Sales:
Our net sales were
$49.3 million in 2009, down 17% from $59.2 million a year
ago.
Gross Margin:
Our gross
margin was $14.8 million (30% of our net sales) in fiscal 2009 as compared to
gross margin of $19.6 million (33% of our net sales) a year ago.
Net Loss per Share - Basic and
Diluted:
Our net loss, basic and diluted, was $0.65 per share in fiscal
2009 whereas our net loss per share, basic and diluted, was $0.06 a year
ago.
Cash Provided by or Used in
Operating Activities:
We used operating cash of $5.7 million in
fiscal 2009 compared to cash provided by operations of $4.4 million a year
ago.
Net Cash
*
Position:
We ended the fiscal
year 2009 with a net cash position of $45.6 million as compared to $51.6
million a year ago.
*Net Cash
= Cash and cash equivalents + Short-term investments
Major
Accomplishments in Fiscal 2009
Fiscal
2009 was certainly a challenging business environment due to the world-wide
economic downturn. However, we accomplished a number of important things during
the year that will help to strengthen our position going
forward.
·
|
In
fiscal 2009, we were successful in expanding our customer base to include
all of the top 5 handset manufacturers and three of the top 5 digital TV
manufacturers.
|
·
|
We
grew our display controller revenue and began sampling two new
products.
|
·
|
We
introduced the third generation of CMD’s industry leading Praetorian®
filters for handsets.
|
·
|
We
also introduced the XtremeESD™ family of ESD protection devices providing
new levels of protection and signal integrity for high speed data
interfaces.
|
·
|
In
addition, we also introduced the LuxGuard™ family of ESD protection and
thermal management devices for High Brightness
LEDs.
|
·
|
We
established the Phoenix Design Center to strengthen development capability
for protection devices.
|
·
|
During
the year, we sold LED driver assets for $1.3
million.
|
·
|
We
repurchased 673,000 shares out of a 1 million share program authorized by
our board.
|
·
|
We
ended the year with $45.6 million in cash and cash
equivalents.
|
In the
last fiscal year, adverse economic conditions around the world impacted many
customers and consumers and resulted in lower total demand in the markets we
serve. However, as we look forward into fiscal 2010, we see the demand picture
beginning to improve. Orders in the fourth quarter of fiscal 2009
were well above the depressed levels of third quarter of fiscal 2009 and orders
so far in the first quarter of fiscal 2010 are running well ahead of fourth
quarter of fiscal 2009. From what we can tell, most of our customers
are no longer aggressively liquidating inventory but are still taking a cautious
approach with respect to adding inventory. We believe that revenue
has bottomed and is likely to begin growing again in the second quarter of
fiscal 2010 assuming increasing economic stability and seasonal growth in end
demand.
Results
of Operations
The table
below shows our net sales, cost of sales, gross margin, expenses and net loss,
both in dollars and as a percentage of net sales, for fiscal 2009, 2008 and 2007
(in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
Net
sales
|
|
$
|
49,273
|
|
|
|
100
|
%
|
|
$
|
59,217
|
|
|
|
100
|
%
|
|
$
|
68,006
|
|
|
|
100
|
%
|
Cost
of sales
|
|
|
34,425
|
|
|
|
70
|
%
|
|
|
39,599
|
|
|
|
67
|
%
|
|
|
42,790
|
|
|
|
63
|
%
|
Gross
margin
|
|
|
14,848
|
|
|
|
30
|
%
|
|
|
19,618
|
|
|
|
33
|
%
|
|
|
25,216
|
|
|
|
37
|
%
|
Research
and development
|
|
|
10,303
|
|
|
|
21
|
%
|
|
|
7,097
|
|
|
|
12
|
%
|
|
|
7,977
|
|
|
|
12
|
%
|
Selling,
general and administrative
|
|
|
14,652
|
|
|
|
30
|
%
|
|
|
15,264
|
|
|
|
26
|
%
|
|
|
16,757
|
|
|
|
25
|
%
|
Goodwill
impairment
|
|
|
5,258
|
|
|
|
10
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
In-process
research and development
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
2,210
|
|
|
|
3
|
%
|
Amortization/Impairment
of intangible assets
|
|
|
133
|
|
|
|
0
|
%
|
|
|
165
|
|
|
|
0
|
%
|
|
|
158
|
|
|
|
0
|
%
|
Operating
loss
|
|
|
(15,498
|
)
|
|
|
(31
|
%)
|
|
|
(2,908
|
)
|
|
|
(5
|
%)
|
|
|
(1,886
|
)
|
|
|
(3
|
%)
|
Other
income, net
|
|
|
1,647
|
|
|
|
3
|
%
|
|
|
2,390
|
|
|
|
4
|
%
|
|
|
2,432
|
|
|
|
4
|
%
|
Income
(loss) before income taxes
|
|
|
(13,851
|
)
|
|
|
(28
|
%)
|
|
|
(518
|
)
|
|
|
(1
|
%)
|
|
|
546
|
|
|
|
1
|
%
|
Provision
for income taxes
|
|
|
1,311
|
|
|
|
3
|
%
|
|
|
896
|
|
|
|
1
|
%
|
|
|
627
|
|
|
|
1
|
%
|
Net
loss
|
|
$
|
(15,162
|
)
|
|
|
(31
|
%)
|
|
$
|
(1,414
|
)
|
|
|
(2
|
%)
|
|
$
|
(81
|
)
|
|
|
(0
|
%)
|
Net
Sales
Fiscal
2009 versus 2008
Net sales
by market were as follows (in millions):
|
|
Year
ended March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As
% of
|
|
|
|
|
|
As
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
$
Change
|
|
|
%
Change
|
|
Mobile
handset
|
|
$
|
30.2
|
|
|
|
61
|
%
|
|
$
|
37.3
|
|
|
|
63
|
%
|
|
$
|
(7.1
|
)
|
|
|
(19
|
%)
|
Digital
consumer electronics and personal computers
|
|
|
14.8
|
|
|
|
30
|
%
|
|
|
18.7
|
|
|
|
32
|
%
|
|
|
(3.9
|
)
|
|
|
(21
|
%)
|
HBLED
|
|
|
4.3
|
|
|
|
9
|
%
|
|
|
3.2
|
|
|
|
5
|
%
|
|
|
1.1
|
|
|
|
34
|
%
|
Total
|
|
$
|
49.3
|
|
|
|
100
|
%
|
|
$
|
59.2
|
|
|
|
100
|
%
|
|
$
|
(9.9
|
)
|
|
|
(17
|
%)
|
Net sales
for fiscal 2009 were $49.3 million, a decrease of $9.9 million or 17% from $59.2
million of net sales in fiscal 2008. During fiscal 2009, sales from products for
the mobile handset market decreased by $7.1 million or 19% and sales from
products for the digital consumer electronics and personal computer market
decreased by 3.9 million or 21% as compared to a year ago. Lower sales of both
product lines were primarily driven by the weak global economy during the
second half of the fiscal year. Sales from products for the HBLED market
increased to $4.3 million during fiscal 2009 from $3.2 million in the same
period a year ago, up $1.1 million or 34%. Net sales during the first half of
fiscal 2009 were approximately 4% greater than the net sales during the first
half of fiscal 2008 while net sales during the second half of fiscal 2009 were
down approximately 37% compared to net sales during the second half of fiscal
2008.
In fiscal
2009, the total number of units sold decreased to 613 million units from 757
million units in fiscal 2008.
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
|
|
|
18.7
|
|
|
|
32
|
%
|
|
|
18.6
|
|
|
|
27
|
%
|
|
|
0.1
|
|
|
|
1
|
%
|
HBLED
|
|
|
3.2
|
|
|
|
5
|
%
|
|
|
1.3
|
|
|
|
2
|
%
|
|
|
1.9
|
|
|
|
146
|
%
|
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 marginally to $18.7
million in fiscal 2008 from $18.6 million in fiscal 2007, up $0.1 million or 1%.
Sales from products for the HBLED market increased to $3.2 million during
fiscal 2008 from $1.3 million in the same period a year ago, up $1.9 million or
146%.
In fiscal
2008 the total number of units sold decreased to 757 million units from 907
million units in fiscal 2007.
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
United
States
|
|
$
|
6.5
|
|
|
|
13
|
%
|
|
$
|
5.5
|
|
|
|
9
|
%
|
|
$
|
4.4
|
|
|
|
6
|
%
|
China
|
|
|
17.8
|
|
|
|
36
|
%
|
|
|
15.9
|
|
|
|
27
|
%
|
|
|
28.2
|
|
|
|
42
|
%
|
Korea
|
|
|
11.1
|
|
|
|
23
|
%
|
|
|
19.6
|
|
|
|
33
|
%
|
|
|
16.5
|
|
|
|
24
|
%
|
Taiwan
|
|
|
8.1
|
|
|
|
16
|
%
|
|
|
11.2
|
|
|
|
19
|
%
|
|
|
10.4
|
|
|
|
15
|
%
|
Singapore
|
|
|
2.5
|
|
|
|
5
|
%
|
|
|
4.2
|
|
|
|
7
|
%
|
|
|
6.7
|
|
|
|
10
|
%
|
Others
|
|
|
3.3
|
|
|
|
7
|
%
|
|
|
2.8
|
|
|
|
5
|
%
|
|
|
1.8
|
|
|
|
3
|
%
|
Total
net sales
|
|
$
|
49.3
|
|
|
|
100
|
%
|
|
$
|
59.2
|
|
|
|
100
|
%
|
|
$
|
68.0
|
|
|
|
100
|
%
|
Fiscal
2009 versus 2008
International
sales decreased from 91% of our net sales in fiscal 2008 to 87% of our net sales
in fiscal 2009. The decrease in revenue is primarily coming from the Korea
region which is partially offset by increase in demand from China region as
compared to a year ago. We expect that our international sales will continue to
represent a majority of our sales in the foreseeable future.
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 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.
Gross
Margin
Fiscal
2009 versus 2008
Gross
margin decreased by $4.8 million in fiscal 2009 to $14.8 million from $19.6
million in fiscal 2008 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
|
|
$
|
(6.1
|
)
|
Volume,
mix and other factors
|
|
|
(2.2
|
)
|
Cost
reductions of our products on a constant mix
|
|
|
3.5
|
|
|
|
$
|
(4.8
|
)
|
The gross
margin decrease was primarily driven by price declines of our products and lower
shipments, partially offset by product cost reductions. Our ASP
declined 10% based on a constant mix of products in fiscal 2009 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. The
cost reductions of our products were primarily driven by outsourcing
with lower cost subcontractors, migrating from 6" to 8" wafer size and
continued improvement in our assembly and testing processes.
Gross
margin as a percentage of net sales decreased to 30% in fiscal 2009 as compared
to 33% in fiscal 2008. 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
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. 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.
Research
and Development
Research
and development expenses consist primarily of compensation and 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 2009 compared to fiscal 2008, and for fiscal
2008 compared to fiscal 2007, were as follows:
|
|
Fiscal
2009
|
|
|
Fiscal
2008
|
|
|
|
compared
to
|
|
|
compared
to
|
|
Expense
increase (decrease) compared to prior fiscal year (in
thousands):
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
Outside
services
|
|
$
|
864
|
|
|
$
|
89
|
|
Engineering
supplies and tooling
|
|
|
774
|
|
|
|
(658
|
)
|
Product
related costs
|
|
|
416
|
|
|
|
(360
|
)
|
Salaries
and benefits and other costs
|
|
|
1,152
|
|
|
|
49
|
|
|
|
$
|
3,206
|
|
|
$
|
(880
|
)
|
Fiscal
2009 versus 2008
Research
and development expenses increased by $3.2 million, or 45%, during fiscal
2009 as compared with fiscal 2008, primarily due to increased
spending for our serial interface display controller line of
products.
As a
percentage of sales, research and development expenses increased from 12% in
fiscal 2008 to 21% in fiscal 2009. Our long term target for research and
development expenses is 9% to 10% of sales. However, research and development
expenses will continue to exceed our target range and represent more than 20% of
sales until sales increase substantially, driven by continuing
development efforts for our products, especially during the first half of
fiscal 2010.
Fiscal
2008 versus 2007
Research
and development expenses decreased by $0.9 million, or 11%, 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 of research and
development expenses during fiscal 2008 was temporary as serial interface
display controller and protection devices development activity ramped 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.
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 2009 compared to fiscal 2008, and for
fiscal 2008 compared to fiscal 2007, were as follows:
|
|
Fiscal
2009
|
|
|
Fiscal
2008
|
|
|
|
compared
to
|
|
|
compared
to
|
|
Expense
increase (decrease) compared to prior fiscal year (in
thousands):
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
Commissions,
salaries and benefits
|
|
$
|
(226
|
)
|
|
$
|
(270
|
)
|
Employee
stock based compensation expense
|
|
|
(224
|
)
|
|
|
(515
|
)
|
Outside
services
|
|
|
(49
|
)
|
|
|
(446
|
)
|
Marketing
samples, travel and other expenses
|
|
|
(113
|
)
|
|
|
(262
|
)
|
|
|
$
|
(612
|
)
|
|
$
|
(1,493
|
)
|
Fiscal
2009 versus 2008
Selling,
general and administrative expenses decreased by $0.6 million, or 4%, in fiscal
2009 as compared with a year ago, primarily due to a decrease in sales
commissions, employee stock-based compensation expense, professional services
and travel expenses. Decrease in sales commission was due to reduced sales
during fiscal 2009 as compared with a year ago and decrease in travel expenses,
professional services and marketing samples was the result of cost cutting
measures taken by the Company to reduce discretionary spending.
As a
percentage of sales, selling, general and administrative expenses increased from
26% in fiscal 2008 to 30% in fiscal 2009, primarily as a result of lower 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, especially during the first half of fiscal
2010.
Fiscal
2008 versus 2007
Selling,
general and administrative expenses decreased by $1.5 million, or 9%, 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.
Goodwill
Impairment
Goodwill
impairment was $5.3 million during fiscal 2009. As a result of
adverse economic conditions, our operating results, and the sustained decline in
our market valuation, we performed an interim goodwill analysis during our third
fiscal quarter ended December 31, 2008. The analysis indicated that
the estimated fair value was less than the corresponding carrying amount and the
full amount of goodwill was no longer recoverable and fully
impaired. Our entity is deemed as a single reporting unit for our
impairment analysis. The fair value was estimated using present value of
estimated future cash flows which was consistent with a market-based approach.
For additional information regarding goodwill, see Note 5 of Notes to
Consolidated Financial Statements in this Form 10-K.
IPR&D
There was
no IPR&D expense recorded during each of the fiscal years 2009 and 2008.
IPR&D expense in fiscal 2007 of $2.2 million was related to the Arques
acquisition. IPR&D was expensed upon acquisition in fiscal 2007 because
technological feasibility had not been established and no future alternative
uses existed. For further discussion of IPR&D, see Note 4 of Notes to
Consolidated Financial Statements in this Form 10-K.
Amortization
and Impairment of Intangible Assets
Amortization
of intangible assets was $78,000, $165,000 and $158,000, respectively during
fiscal 2009, 2008 and 2007. The intangible assets were related to the Arques
acquisition in fiscal 2007.
The
decrease in amortization expense in fiscal 2009 as compared to a year ago was
primarily due to the sale of intangible assets, related to our line of LED
Drivers during fiscal 2009. An impairment charge of $55,000 was also recorded
during fiscal 2009. For further discussion of intangible assets, see Notes 4 and
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 2009, 2008 and 2007.
Fiscal
2009 versus 2008
Interest
income decreased to $0.7 million in fiscal 2009 from $2.5 million a year ago
primarily as a result of decline in interest rates and our moving the majority
of our short-term investments into treasury bills and to a lesser extent due to
our reduced total amount of cash, cash equivalents and short-term investments.
We expect interest income, in the near future, to remain at this reduced level
or even decline unless interest rates increase materially or we change the
instruments in which we invest. Other non-operating income increased by $1.0
million in fiscal 2009 as compared to a year ago primarily due to the gain on
sale of LED Driver intellectual property and related fixed assets.
Interest
expense was immaterial for fiscal years 2009 and 2008.
Fiscal
2008 versus 2007
Interest
income remained at a consistent level of $2.5 million and interest expense was
immaterial for both fiscal years 2008 and 2007.
Income
Taxes
Income
tax expense is comprised of a current and deferred component.
The current tax provision in fiscal 2009 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 2009 tax provision was $1.2 million and represents
the net change to our valuation allowance to reflect the expected
future tax benefits of our net operating losses and other
credits. Fiscal year ended March 31, 2009 total expense of $1.3
million compares with an income tax provision of $0.9 million recorded a
year ago. Our income tax provision increased during the fiscal year ended March
31, 2009 compared to a year ago, primarily as a result of our estimates in our
ability to utilize loss carry forwards and the valuation allowance of the
deferred tax assets. 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 in this Form 10-K for further
discussion.
Critical
Accounting Policies and Estimates
The
preparation of financial statements, in conformity with U.S. 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 changes 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 future 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
customer credit worthiness. 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. When we sell such 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”. We receive
periodic reports from our distributors of their inventory of our products and
when we test our inventory in order to determine the extent, if any, to which we
have excess or obsolete inventory, we also test the inventory held by our
distributors. For our custom products and 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.
We
typically have written agreements with our distributors which provide that (1)
if we lower our distributor list price, our distributors may request
for a limited time period a credit for the differential of
eligible product in the distributor's inventory and (2) periodically, our
distributors have the right to return eligible product to us, provided
that the amount returned must be limited to a certain
agreed percentage of the value of our shipments to them during such
period. Product over a certain age may not be returned and there is a restocking
charge if the distributor has not placed a recent commensurate replacement
stocking order.
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.
Impairment
of goodwill is tested at the reporting unit level by comparing the reporting
unit’s carrying amount, including goodwill, to the fair value of the reporting
unit. The fair value was estimated using present value of estimated future cash
flows which was consistent with a market-based approach. If the carrying amount
of the reporting unit exceeds its fair value, goodwill is considered impaired
and a second step is performed to measure the amount of impairment loss, if any.
Because the Company has one reporting unit under SFAS No. 142, it utilizes
the entity-wide approach to assess goodwill for impairment. Due to the current
economic environment, our operating results, and the sustained decline in our
market valuation, we performed an interim goodwill impairment analysis during
the third quarter of fiscal 2009 pursuant to the steps and requirements under
SFAS No. 142. The analysis indicated that the estimated fair value of the
reporting unit is less than the corresponding carrying amount and the goodwill
is no longer recoverable. Therefore, we determined that goodwill is fully
impaired.
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 the
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 the 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, 2009, 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 carryforwards 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 in this Form 10-K for
further discussion.
Litigation
We are,
on occasion, 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, 2009, there
was no accrual for 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)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
provided by (used in) operating activities
|
|
$
|
(5,705
|
)
|
|
$
|
4,400
|
|
|
$
|
6,725
|
|
Cash
provided by (used in) investing activities
|
|
|
19,408
|
|
|
|
26,231
|
|
|
|
(15,580
|
)
|
Cash
provided by (used in) financing activities
|
|
|
(1,023
|
)
|
|
|
386
|
|
|
|
975
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
12,680
|
|
|
$
|
31,017
|
|
|
$
|
(7,880
|
)
|
Cash,
cash equivalents and short-term investments
Total
cash, cash equivalents and short-term investments were $45.6 million as of March
31, 2009, compared to $51.6 million at March 31, 2008, a decrease of $6.0
million or 11.6%, primarily due to cash used in operating activities and
repurchase of Company’s outstanding common stock under the stock repurchase
program partially offset by proceeds from the sale of LED Driver assets
(including patents, related fixed assets and inventory) and proceeds from the
issuance of common stock under our employee stock benefit plans.
Operating
activities
Cash
provided by (used in) operating activities consists of net loss adjusted for
certain non-cash items and changes in assets and liabilities.
During
fiscal 2009, cash used in operating activities was $5.7 million. The net loss of
$15.2 million during fiscal 2009 included non-cash items, such as employee
stock-based compensation expense of $2.0 million, goodwill impairment loss of
$5.3 million and depreciation of fixed assets and amortization of intangible
assets aggregating to $2.5 million. Accounts receivable decreased to $4.2
million at March 31, 2009 compared to $6.2 million at March 31, 2008, mainly
attributable to lower shipments. Receivables days of sales outstanding were
38 days and 42 days at March 31, 2009 and March 31, 2008, respectively. Net
inventory was $5.2 million as of March 31, 2009, compared to $6.4 million as of
March 31, 2008. Annual inventory turns decreased to 5.9 at March 31, 2009
as compared to 6.8 at March 31, 2008 primarily as a result of lower sales
of our products. Accounts payable and accrued liabilities totaled $5.4 million
at March 31, 2009 compared to $8.3 million at March 31, 2008. Days payables
outstanding were 48 days and 54 days at March 31, 2009 and
March 31, 2008, respectively. Deferred margin on shipments to distributors
decreased to $1.0 million as of March 31, 2009 from $1.9 million as of
March 31, 2008.
During
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 42 days and 49 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 payables outstanding were 54 days and 49 days as of March 31, 2008
and March 31, 2007, respectively. 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 $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.
Investing
activities
Investing
activities during fiscal 2009 provided $19.4 million of cash, primarily due to
net sales and maturities of short-term investments, which were not re-invested
but rather held as cash and cash equivalents, and $1.2 million of proceeds from
the sale of LED Driver intellectual property and related fixed assets partially
offset by payment towards 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 $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 $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 $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.
Financing
activities
Net cash
used in financing activities in fiscal 2009 was $1.0 million and was the result
of repurchase of $1.4 million of Company’s outstanding common stock under the
stock repurchase program and repayment of capital lease obligations of $0.1
million, partially offset by proceeds from the issuance of common stock under
the ESPP of $0.5 million.
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.
The
following table summarizes our contractual obligations as of March 31, 2009,
(fiscal years ended March 31, in thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
2010
|
|
|
Fiscal
2011
|
|
|
Beyond
2011
|
|
|
Total
|
|
Operating
lease obligations
|
|
$
|
385
|
|
|
$
|
193
|
|
|
$
|
-
|
|
|
$
|
578
|
|
Purchase
obligations
|
|
|
353
|
|
|
|
-
|
|
|
|
-
|
|
|
|
353
|
|
|
|
$
|
738
|
|
|
$
|
193
|
|
|
$
|
-
|
|
|
$
|
931
|
|
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, 2009, the
liability for uncertain tax positions was $193,000 in addition to the interest
and tax penalties of $62,000, 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 and cash equivalents of $45.6 million as of
March 31, 2009 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 loss during fiscal 2009, 2008 and 2007.
ITEM 7A
.
Quantitative and Qualitative
Disclosures about Market Risk.
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.
We have
little exposure to foreign currency risk as all our sales are denominated in US
dollars as is most of our spending.
We are
exposed to financial market risks primarily due to changes in interest
rates. We do not use derivatives to alter the interest
characteristics of our investment securities. As of March 31, 2009, we had
no short term investments and our cash and cash equivalents were comprised
primarily of money market funds. Our short-term investments and cash
and cash equivalents generated interest income of $0.7 million and $2.5 million
in fiscal year 2009 and 2008, respectively. Based on our short-term
investments and cash and cash equivalent balances as of March 31, 2009 and March
31, 2008, one percentage point change in interest rates would cause change in
our annual interest income in an amount of approximately $0.46 million compared
to $0.52 million as of March 31, 2008.
ITEM 8
.
Financial Statements and
Supplementary Data.
Index
to Consolidated Financial Statements and Schedules
|
|
Page
|
|
|
|
Numbers
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
48
|
|
|
|
|
50
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
|
|
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, 2009 and
2008, and the related consolidated statements of operations, shareholders’
equity, and cash flows for each of the three years in the period ended March 31,
2009.
Our audits
of the basic financial statements included the financial statement schedule
listed in the appendix 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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of California Micro Devices
Corporation as of March 31, 2009 and 2008, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2009 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), California Micro Devices Corporation’s internal
control over financial reporting as of March 31, 2009, 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
9, 2009 expressed an unqualified opinion thereon.
/s/ GRANT
THORNTON LLP
San Jose,
California
June 9,
2009
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, 2009, based on criteria
established in
Internal
Control—Integrated Fram
ework 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,
2009, 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, 2009 and 2008, and the
related consolidated statements of operations, shareholders’ equity, and cash
flows for each of the three years in the period ended March 31, 2009. Our audits
of the basic financial statements included the financial statement schedule
listed in the index appearing under Item 15. Our report dated June 9,
2009 expressed an unqualified opinion thereon.
/s/ GRANT
THORNTON LLP
San Jose,
California
June 9,
2009
CALIF
ORNIA MICRO DEVICES
CORPORATION
|
CONSOLIDATED
BALANCE SHEETS
|
(amounts
in thousands, except share data)
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
45,605
|
|
|
$
|
32,925
|
|
Short-term
investments
|
|
|
-
|
|
|
|
18,671
|
|
Accounts
receivable, net
|
|
|
4,168
|
|
|
|
6,155
|
|
Inventories
|
|
|
5,228
|
|
|
|
6,434
|
|
Deferred
tax assets
|
|
|
183
|
|
|
|
1,508
|
|
Prepaid
expenses and other current assets
|
|
|
1,089
|
|
|
|
1,188
|
|
Total
current assets
|
|
|
56,273
|
|
|
|
66,881
|
|
Property,
plant and equipment, net
|
|
|
3,525
|
|
|
|
5,596
|
|
Goodwill
|
|
|
-
|
|
|
|
5,258
|
|
Intangible
assets, net
|
|
|
23
|
|
|
|
267
|
|
Other
long-term assets
|
|
|
92
|
|
|
|
83
|
|
TOTAL
ASSETS
|
|
$
|
59,913
|
|
|
$
|
78,085
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,775
|
|
|
$
|
6,120
|
|
Accrued
liabilities
|
|
|
1,585
|
|
|
|
2,165
|
|
Deferred
margin on shipments to distributors
|
|
|
974
|
|
|
|
1,904
|
|
Current
maturities of capital lease obligations
|
|
|
-
|
|
|
|
132
|
|
Total
current liabilities
|
|
|
6,334
|
|
|
|
10,321
|
|
Other
long-term liabilities
|
|
|
221
|
|
|
|
350
|
|
Total
liabilities
|
|
|
6,555
|
|
|
|
10,671
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock - 10,000,000 shares authorized; none issued
|
|
|
|
|
|
|
|
|
and
outstanding as of March 31, 2009 and March 31, 2008
|
|
|
-
|
|
|
|
-
|
|
Common
stock and additional paid-in capital - $0.001 par value;
|
|
|
|
|
|
|
|
|
50,000,000
shares authorized; 23,553,019 shares issued and
|
|
|
|
|
|
|
|
|
22,879,696
shares outstanding as of March 31, 2009 and
|
|
|
|
|
|
|
|
|
23,302,274
shares issued and outstanding as of March 31, 2008
|
|
|
120,383
|
|
|
|
117,806
|
|
Accumulated
other comprehensive income
|
|
|
-
|
|
|
|
48
|
|
Accumulated
deficit
|
|
|
(65,602
|
)
|
|
|
(50,440
|
)
|
|
|
|
54,781
|
|
|
|
67,414
|
|
Treasury
stock, at cost; 673,323 shares as of March 31, 2009
|
|
|
|
|
|
|
|
|
and
none as of March 31, 2008
|
|
|
(1,423
|
)
|
|
|
-
|
|
Total
shareholders' equity
|
|
|
53,358
|
|
|
|
67,414
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
59,913
|
|
|
$
|
78,085
|
|
The
accompanying notes are an integral part of these financial
statements.
CAL
IFORNIA MICRO DEVICES CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(amounts
in thousands, except per share data)
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$
|
49,273
|
|
|
$
|
59,217
|
|
|
$
|
68,006
|
|
Cost
of sales
|
|
|
34,425
|
|
|
|
39,599
|
|
|
|
42,790
|
|
Gross
margin
|
|
|
14,848
|
|
|
|
19,618
|
|
|
|
25,216
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
10,303
|
|
|
|
7,097
|
|
|
|
7,977
|
|
Selling,
general and administrative
|
|
|
14,652
|
|
|
|
15,264
|
|
|
|
16,757
|
|
Goodwill
impairment
|
|
|
5,258
|
|
|
|
-
|
|
|
|
-
|
|
In-process
research and development
|
|
|
-
|
|
|
|
-
|
|
|
|
2,210
|
|
Amortization/Impairment
of intangible assets
|
|
|
133
|
|
|
|
165
|
|
|
|
158
|
|
Total
operating expenses
|
|
|
30,346
|
|
|
|
22,526
|
|
|
|
27,102
|
|
Operating
loss
|
|
|
(15,498
|
)
|
|
|
(2,908
|
)
|
|
|
(1,886
|
)
|
Other
income, net
|
|
|
1,647
|
|
|
|
2,390
|
|
|
|
2,432
|
|
Income
(loss) before income taxes
|
|
|
(13,851
|
)
|
|
|
(518
|
)
|
|
|
546
|
|
Provision
for income taxes
|
|
|
1,311
|
|
|
|
896
|
|
|
|
627
|
|
Net
loss
|
|
$
|
(15,162
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share–basic and diluted
|
|
$
|
(0.65
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
Weighted
average common shares outstanding–basic and diluted
|
|
|
23,246
|
|
|
|
23,233
|
|
|
|
23,027
|
|
The
accompanying notes are an integral part of these financial
statements.
CALI
FORNIA MICRO DEVICES CORPORATION
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY
(amounts in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
Stock
|
|
|
Accumulated
|
|
|
Treasury
Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Shares
|
|
|
At
Cost
|
|
|
Income
(Loss)
|
|
|
Total
|
|
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
|
)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
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
|
|
Issuance
of common stock through employee stock purchase plan
|
|
|
251
|
|
|
|
532
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
532
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
2,045
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,045
|
|
Repurchase
of outstanding common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(673
|
)
|
|
|
(1,423
|
)
|
|
|
-
|
|
|
|
(1,423
|
)
|
Components
of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,162
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,162
|
)
|
Unrealized
loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
(48
|
)
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,210
|
)
|
Balance
at March 31, 2009
|
|
|
23,553
|
|
|
$
|
120,383
|
|
|
$
|
(65,602
|
)
|
|
|
(673
|
)
|
|
$
|
(1,423
|
)
|
|
$
|
-
|
|
|
$
|
53,358
|
|
The
accompanying notes are an integral part of these financial
statements.
CAL
IFORNIA MICRO DEVICES CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(amounts
in thousands)
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(15,162
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
Adjustments
to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
(used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,441
|
|
|
|
2,095
|
|
|
|
1,582
|
|
Accretion
of investment purchase discounts
|
|
|
(86
|
)
|
|
|
(1,144
|
)
|
|
|
(1,495
|
)
|
Amortization
of intangible assets
|
|
|
78
|
|
|
|
165
|
|
|
|
158
|
|
Goodwill
impairment
|
|
|
5,258
|
|
|
|
-
|
|
|
|
-
|
|
Impairment
of intangible assets
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
In-process
research and development
|
|
|
-
|
|
|
|
-
|
|
|
|
2,210
|
|
Stock-based
compensation
|
|
|
2,045
|
|
|
|
2,365
|
|
|
|
3,143
|
|
Tax
benefit from share-based payment arrangement
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(7
|
)
|
(Gain)
loss on sale of fixed assets and intangible assets
|
|
|
(960
|
)
|
|
|
24
|
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
1,987
|
|
|
|
1,359
|
|
|
|
3,106
|
|
Inventories
|
|
|
1,206
|
|
|
|
(1,262
|
)
|
|
|
130
|
|
Deferred
tax assets
|
|
|
1,325
|
|
|
|
693
|
|
|
|
510
|
|
Accounts
payable and other current liabilities
|
|
|
(3,015
|
)
|
|
|
1,194
|
|
|
|
(1,617
|
)
|
Deferred
margin on shipments to distributors
|
|
|
(930
|
)
|
|
|
425
|
|
|
|
(1,205
|
)
|
Other
assets and liabilities
|
|
|
53
|
|
|
|
(98
|
)
|
|
|
291
|
|
Net
cash provided by (used in) operating activities
|
|
|
(5,705
|
)
|
|
|
4,400
|
|
|
|
6,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of short-term investments
|
|
|
(28,910
|
)
|
|
|
(112,680
|
)
|
|
|
(168,947
|
)
|
Sales
and maturities of short-term investments
|
|
|
47,619
|
|
|
|
142,317
|
|
|
|
163,289
|
|
Payments
for acquisition, net of cash acquired
|
|
|
-
|
|
|
|
(1,031
|
)
|
|
|
(6,994
|
)
|
Capital
expenditures
|
|
|
(447
|
)
|
|
|
(2,375
|
)
|
|
|
(2,928
|
)
|
Proceeds
from sale of fixed assets and intangible assets
|
|
|
1,146
|
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
19,408
|
|
|
|
26,231
|
|
|
|
(15,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
of capital lease obligations
|
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Proceeds
from employee stock compensation plans
|
|
|
532
|
|
|
|
516
|
|
|
|
1,100
|
|
Repurchase
of outstanding common stock
|
|
|
(1,423
|
)
|
|
|
-
|
|
|
|
-
|
|
Tax
benefit from share-based payment arrangement
|
|
|
-
|
|
|
|
2
|
|
|
|
7
|
|
Net
cash provided by (used in) financing activities
|
|
|
(1,023
|
)
|
|
|
386
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
12,680
|
|
|
|
31,017
|
|
|
|
(7,880
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
32,925
|
|
|
|
1,908
|
|
|
|
9,788
|
|
Cash
and cash equivalents at end of period
|
|
$
|
45,605
|
|
|
$
|
32,925
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
13
|
|
Income
taxes
|
|
$
|
107
|
|
|
$
|
47
|
|
|
$
|
139
|
|
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 protection devices and display electronics devices
for high volume applications in the mobile handset, digital consumer electronics
and personal computer markets as well as application specific protection devices
in high brightness light emitting diodes (HBLED) market. 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 2009, 2008 and 2007 refer
to the twelve months ended March 31, 2009, 2008 and 2007 respectively. Certain
immaterial prior year amounts in the financial statements and notes thereto have
been reclassified to conform to the fiscal 2009 presentation.
The
consolidated financial statements include the accounts of California Micro
Devices Corporation and its wholly owned subsidiary, Arques Technology Taiwan,
Inc. 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 used to invest our
excess cash in high quality financial instruments. We classified our marketable
securities as available for sale securities. Our available for sale securities
have been 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 is 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.
Fair
Value Measurement – Definition and Hierarchy
On April
1, 2008, we adopted Statement of Financial Accounting Standards 157, “
Fair Value Measurements
,”
(SFAS No. 157). SFAS No. 157 defines fair value as the price that
would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, we consider the principal or most
advantageous market in which we would transact and we consider assumptions that
market participants would use when pricing the asset or liability, such as
inherent risk, transfer restrictions, and risk of nonperformance.
Fair
Value Hierarchy
SFAS
No. 157 discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income
or cash flow), and the cost approach (cost to replace the service capacity of an
asset or replacement cost). SFAS No. 157 establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. SFAS
No. 157 establishes three levels of inputs that may be used to measure fair
value:
Level 1 -
Valuation is based upon quoted prices for identical instruments traded in active
markets.
Level 2 -
Valuation is based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant
assumptions are observable in the market.
Level
3
- Valuation is
generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions reflect own estimates
of assumptions that market participants would use in pricing the asset or
liability. Valuation techniques include use of option pricing models, discounted
cash flows models and similar techniques.
Determination
of Fair Value
As of
March 31, 2009, our cash equivalents of $44.9 million include money market funds
and are classified as Level 1 because these securities are valued based on
unadjusted quoted market prices in active markets for identical
securities.
Inventories
Inventories
are stated at the lower of cost, determined on a first-in first-out basis, or
market.
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. 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 2009, 2008 and 2007 was $1.7 million, $1.7 million and
$1.6 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 of goodwill 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 estimated fair value is less than 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.
Due to
the economic environment, our operating results, and the sustained decline in
our market valuation, we have performed an interim goodwill impairment analysis
during the third quarter of fiscal 2009 pursuant to the steps and requirements
under SFAS No. 142. The analysis indicated that the estimated fair value of
the reporting unit is less than the corresponding carrying amount and the
goodwill is no longer recoverable. Therefore, we determined that goodwill is
fully impaired during fiscal 2009.
For
further discussion of goodwill, see Note 5 to these consolidated financial
statements.
Intangible
assets consisted of developed and core technology and distributor
relationships. Developed and core technology is 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
was 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. When we sell such 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”. We receive
periodic reports from our distributors of their inventory of our products and
when we test our inventory in order to determine the extent, if any, to which we
have excess or obsolete inventory, we also test the inventory held by our
distributors. For our custom products and 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.
We
typically have written agreements with our distributors which provide that (1)
if we lower our distributor list price, our distributors may request
for a limited time period a credit for the differential of
eligible product in the distributor's inventory and (2) periodically, our
distributors have the right to return eligible product to us, provided
that the amount returned must be limited to a certain
agreed percentage of the value of our shipments to them during such
period. Product over a certain age may not be returned and there is a restocking
charge if the distributor has not placed a recent commensurate replacement
stocking order.
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, 2009 and March 31, 2008 was
$1,000 and $19,000 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 2009, 2008 and
2007.
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
Loss Per Share
Basic and
diluted net loss per share was computed using the net loss and weighted
average number of common shares outstanding during the period.
The
following table sets forth the computation of basic and diluted net loss per
share:
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(15,162
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding used in
|
|
|
|
|
|
|
|
|
|
|
|
|
calculation
of net loss per share - Basic and diluted:
|
|
|
23,246
|
|
|
|
23,233
|
|
|
|
23,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - Basic and diluted
|
|
$
|
(0.65
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
The
weighted average common stock outstanding used in the calculations of both basic
and diluted net loss per share for each fiscal year 2009, 2008 and 2007 is the
same due to the net loss for all the fiscal years. In fiscal 2009, 2008 and
2007, all of the stock options outstanding to purchase 5,413,000, 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.
Stock-Based
Compensation
On April
1, 2006, we adopted Statement of Financial Accounting Standards No. 123
(revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) and used the modified
prospective transition method.
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 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, 2009, 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, 2009 and March 31, 2008,
was $0 and $48,000 respectively. For the years ended March 31, 2009 and March
31, 2008, amounts classified out of accumulated other comprehensive income into
statement of operations were $48,000 and $0 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. As of March 31, 2009, a full 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, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). Under FIN 48, the Company recognizes 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 December
2007, the FASB issued Statement No.
141(R), “
Business
Combinations
”
(SFAS 141(R)) which expands the
definition of
transactions
and 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
go
odwill; changes 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 estim
a
ted useful life. Adoption of SFAS
141(R) is required for fiscal years beginning after
December 15, 2008
. Ea
rl
y adoption and retroactive application
of SFAS 141(R) to fiscal years preceding the effective date are not
permitted. We believe that there is no
i
mpact of SFAS 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.
In May
2009, the FASB issued Statement No. 165, “Subsequent Events
”
(SFAS 165) which
establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued.
It also requires the disclosure of the date
through which subsequent events are evaluated and the basis for that date, that
is, whether that date represents the date the financial statements are issued or
are available to be issued. The effective date for SFAS 165 is for
interim or annual periods ending on or after June 15, 2009. We believe that
there is no material impact of SFAS 165 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,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
|
|
$
|
740
|
|
|
$
|
602
|
|
Money
market funds
|
|
|
44,865
|
|
|
|
32,323
|
|
Total
cash and cash equivalents
|
|
$
|
45,605
|
|
|
$
|
32,925
|
|
There
were no short-term investments as of March 31, 2009. Short-term investments as
of March 31, 2008 include $12.1 million of U.S Agency notes, $1.5 million of
Commercial paper and $5.1 million of Asset-backed securities.
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 $8.4 million, comprised of (a) $5.6 million paid at
closing to Arques shareholders, (b) $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 $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 is 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
was 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 annual
basis, or earlier if events or circumstances indicate the carrying value may not
be recoverable. We usually perform our annual test for impairment of goodwill
during our fourth fiscal quarter. However, during the quarter ended December 31,
2008, the Company saw indicators of potential impairment of goodwill, including
the current economic environment, our operating results, and the sustained
decline in our market valuation, which caused the Company to perform an interim
goodwill impairment analysis. The analysis indicated that the estimated fair
value was less than the corresponding carrying amount and the full amount of
goodwill was no longer recoverable. Our entity is deemed as a single reporting
unit for our impairment analysis. The fair value was estimated using present
value of estimated future cash flows which was consistent with a market-based
approach. As such, we determined that goodwill of $5.3 million was
fully impaired.
Intangible
Assets
The
components of intangible assets, net were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Developed
and core technology:
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$
|
260
|
|
|
$
|
520
|
|
Less
accumulated amortization
|
|
|
(237
|
)
|
|
|
(255
|
)
|
Net
carrying amount
|
|
$
|
23
|
|
|
$
|
265
|
|
|
|
|
|
|
|
|
|
|
Distributor
relationships:
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$
|
-
|
|
|
$
|
70
|
|
Less
accumulated amortization
|
|
|
-
|
|
|
|
(68
|
)
|
Net
carrying amount
|
|
$
|
-
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
23
|
|
|
$
|
267
|
|
Developed
and core technology and distributor relationships have been 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 $78,000,
$165,000 and $158,000 for the fiscal years ended March 31, 2009, 2008 and 2007,
respectively.
During
fiscal 2009, we performed 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. We have assessed the recoverability of intangible assets by
comparing the projected undiscounted net cash flows associated with the related
assets over their remaining lives against their respective carrying
amounts. The review indicated that the estimated fair value is less
than its corresponding carrying amount. Therefore, we recognized $55,000
impairment charges during fiscal 2009. No impairment charges were recorded
during fiscal 2008 and 2007. 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 additional impairment charges
for these assets.
Based on
intangible assets recorded at March 31, 2009, and assuming no subsequent
additions to, or impairment of, the underlying assets, the future estimated
amortization expense is $23,000 in fiscal year 2010.
6. BALANCE
SHEET COMPONENTS
Balance
sheet components were as follows (in thousands):
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Accounts
receivable, net:
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
4,265
|
|
|
$
|
6,265
|
|
Less
allowance for doubtful accounts
|
|
|
(1
|
)
|
|
|
(19
|
)
|
Less
sales allowances and return reserves
|
|
|
(96
|
)
|
|
|
(91
|
)
|
|
|
$
|
4,168
|
|
|
$
|
6,155
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work
in process
|
|
$
|
2,812
|
|
|
$
|
1,819
|
|
Finished
goods
|
|
|
2,416
|
|
|
|
4,615
|
|
|
|
$
|
5,228
|
|
|
$
|
6,434
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment:
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
$
|
11,388
|
|
|
$
|
11,370
|
|
Computer
equipment and related software
|
|
|
4,893
|
|
|
|
4,518
|
|
Construction
in progress
|
|
|
17
|
|
|
|
405
|
|
|
|
|
16,298
|
|
|
|
16,293
|
|
Less:
accumulated depreciation and amortization
|
|
|
(12,773
|
)
|
|
|
(10,697
|
)
|
|
|
$
|
3,525
|
|
|
$
|
5,596
|
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
Accrued
salaries and benefits
|
|
$
|
1,043
|
|
|
$
|
1,183
|
|
Other
accrued liabilities
|
|
|
542
|
|
|
|
982
|
|
|
|
$
|
1,585
|
|
|
$
|
2,165
|
|
7. CONCENTRATIONS
OF CREDIT RISK
Concentrations
of credit risk consist primarily of cash equivalents 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.
At March
31, 2009 and 2008, our three largest customer receivable balances accounted for
an aggregate of 45% and 58% 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 as well as HBLED 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 2009, two of our end customers represented a combined 40% of our revenue,
and one of our distributors represented 11% of our revenue. During
fiscal 2008, two of our end customers represented a combined 41% of our revenue,
and two of our distributors represented a combined 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.
We also
have a geographical concentration, with international sales accounting for 87%,
91% and 94% of our net sales in fiscal 2009, 2008 and 2007, 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 manmade 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.
There was
no capital lease obligation as of March 31, 2009. The carrying and estimated
fair value of our capital lease obligations as of March 31, 2008 was
$132,000. The fair value of our capital lease obligations was based
on the estimated market rate of interest for similar instruments with the same
remaining maturities.
10. CAPITAL
LEASE OBLIGATIONS
Capital
Lease Obligations
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 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 2009, 2008 and 2007 was $11,000, $11,000
and $4,000, respectively.
Total
fixed assets purchased under capital leases and the associated accumulated
amortization is classified in computer equipment and related
software and was as follows (in thousands):
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Capitalized
cost
|
|
$
|
396
|
|
|
$
|
396
|
|
Accumulated
amortization
|
|
|
(319
|
)
|
|
|
(187
|
)
|
Net
book value
|
|
$
|
77
|
|
|
$
|
209
|
|
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, 2009 are as follows
(fiscal years ending March 31, in thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
2010
|
|
|
Fiscal
2011
|
|
|
Beyond
2011
|
|
|
Total
|
|
Operating
lease obligations
|
|
$
|
385
|
|
|
$
|
193
|
|
|
$
|
-
|
|
|
$
|
578
|
|
Operating
lease obligations do not include common area maintenance (“CAM”), insurance and
tax payments. Total expense related to CAM, insurance and taxes for fiscal 2009,
2008 and 2007 was $190,000, $216,000 and $204,000 respectively. Rent expense was
$550,000, $485,000 and $462,000 in fiscal 2009, 2008 and 2007, respectively.
There was no sublease income in fiscal 2009, 2008 and 2007.
Purchase
Obligations
Non-cancelable
purchase obligations are for wafer fabrication services. As of March 31, 2009,
our non-cancelable purchase obligations were as follows (fiscal year ending
March 31, in thousands):
|
|
Payments
due by period
|
|
|
|
Fiscal
2010
|
|
|
Beyond
2010
|
|
|
Total
|
|
Purchase
obligations
|
|
$
|
353
|
|
|
$
|
-
|
|
|
$
|
353
|
|
12. CAPITAL
STOCK
Common
Stock
We have
50,000,000 shares of common stock authorized with a par value of $0.001 per
share. As of March 31, 2009, 23,553,019 shares were issued and 22,879,696 shares
were outstanding. As of March 31, 2008, 23,302,274 shares were issued and
outstanding.
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, 2009 and 2008.
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.
Stock
Repurchase Program: Treasury Stock
In the second quarter of
fiscal 2009, the Company announced that its board of directors had authorized a
program to repurchase up to 1 million shares of its outstanding common stock,
the exact amount and timing of which will be subject to market conditions, legal
requirements and management's judgment as well as other factors. The repurchase
transactions may take place in the open market or via private negotiations. The
repurchase program may be modified, extended or terminated by the board of
directors at any time. During the fiscal year ended
March 31, 2009
, we repurchased 673,000
shares under this program for $1,423,000.
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, 2009, 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, 2009, 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, 2009, no
shares remained available for future grant.
As of
March 31, 2009, 9,000 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, 2009, 890,000 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-Stockholder
Approved Options
During
fiscal 2009, no stock options were granted outside of our stockholder approved
2004 Plan. During fiscal 2008, we granted 150,000 stock options outside of our
2004 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 outside of our 2004
Plan. The weighted average exercise price of these options was $7.18 per
share.
All
options granted outside our stockholder-approved plans 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 options granted outside our stockholder-approved plans did not
require the approval of, and were not approved by, our
stockholders.
Equity
Incentive Plan Activities
The
following is a summary of stock option activity and related information,
including Non-Shareholder Approved Options:
|
|
Shareholder
|
|
|
Non-Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
Plans
|
|
|
Approved
Options
|
|
|
All
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Intrinsic
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Value
|
|
|
Shares
(in
|
|
|
Exercise
|
|
|
Shares
(in
|
|
|
Exercise
|
|
|
Shares
(in
|
|
|
Exercise
|
|
Term
|
|
(in
|
|
|
thousands)
|
|
|
Price
|
|
|
thousands)
|
|
|
Price
|
|
|
thousands)
|
|
|
Price
|
|
(in
years)
|
|
thousands)
|
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
|
|
|
|
(209
|
)
|
|
|
3.30
|
|
|
|
|
Canceled/forfeited/expired
|
|
|
(730
|
)
|
|
|
6.37
|
|
|
|
(64
|
)
|
|
|
5.03
|
|
|
|
(794
|
)
|
|
|
6.26
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
3,493
|
|
|
|
5.96
|
|
|
|
818
|
|
|
|
7.42
|
|
|
|
4,311
|
|
|
|
6.24
|
|
|
|
|
Granted
|
|
|
1,157
|
|
|
|
3.80
|
|
|
|
150
|
|
|
|
3.36
|
|
|
|
1,307
|
|
|
|
3.75
|
|
|
|
|
Exercised
|
|
|
(25
|
)
|
|
|
3.18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
3.18
|
|
|
|
|
Canceled/forfeited/expired
|
|
|
(396
|
)
|
|
|
5.03
|
|
|
|
(251
|
)
|
|
|
7.81
|
|
|
|
(647
|
)
|
|
|
6.11
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
4,229
|
|
|
|
5.48
|
|
|
|
717
|
|
|
|
6.43
|
|
|
|
4,946
|
|
|
|
5.61
|
|
|
|
|
Granted
|
|
|
1,111
|
|
|
|
3.00
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,111
|
|
|
|
3.00
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Canceled/forfeited/expired
|
|
|
(453
|
)
|
|
|
4.91
|
|
|
|
(191
|
)
|
|
|
8.71
|
|
|
|
(644
|
)
|
|
|
6.04
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
4,887
|
|
|
$
|
4.97
|
|
|
|
526
|
|
|
$
|
5.60
|
|
|
|
5,413
|
|
|
$
|
5.03
|
|
6.71
|
|
$
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,211
|
|
|
$
|
6.00
|
|
5.38
|
|
$
-
|
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 $2.43 as of March 31, 2009 (the last trading day of our
fiscal 2009), 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, 2007
|
|
|
1,963
|
|
|
$
|
7.06
|
|
March
31, 2008
|
|
|
2,625
|
|
|
|
6.63
|
|
March
31, 2009
|
|
|
3,211
|
|
|
$
|
6.00
|
|
The
following table summarizes the ranges of the exercise prices of outstanding and
exercisable options at March 31, 2009:
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1.78
|
|
|
|
-
|
|
|
$
|
4.00
|
|
|
|
2,376
|
|
|
|
8.56
|
|
|
$
|
3.33
|
|
|
|
608
|
|
|
$
|
3.55
|
|
|
4.01
|
|
|
|
-
|
|
|
|
6.00
|
|
|
|
1,437
|
|
|
|
6.12
|
|
|
|
4.96
|
|
|
|
1,116
|
|
|
|
5.11
|
|
|
6.01
|
|
|
|
-
|
|
|
|
8.00
|
|
|
|
1,309
|
|
|
|
4.76
|
|
|
|
6.69
|
|
|
|
1,196
|
|
|
|
6.68
|
|
|
8.01
|
|
|
|
-
|
|
|
|
10.00
|
|
|
|
147
|
|
|
|
2.92
|
|
|
|
8.27
|
|
|
|
147
|
|
|
|
8.27
|
|
|
10.01
|
|
|
|
-
|
|
|
|
22.50
|
|
|
|
144
|
|
|
|
3.80
|
|
|
|
15.29
|
|
|
|
144
|
|
|
|
15.29
|
|
$
|
1.78
|
|
|
|
-
|
|
|
$
|
22.50
|
|
|
|
5,413
|
|
|
|
6.71
|
|
|
$
|
5.03
|
|
|
|
3,211
|
|
|
$
|
6.00
|
|
No stock
options were exercised during fiscal 2009. During fiscal 2008 and 2007, the
number of stock options that were exercised was 25,000 and 208,000,
respectively, which had intrinsic value of $22,000 and $301,000,
respectively.
ESPP
ESPP, as
amended most recently on August 21, 2008, 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 1,940,000 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, 2009, 266,000 shares were available for future
issuance under ESPP.
The
following is a summary of stock purchased under the plan:
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Aggregate
purchase price
|
|
$
|
532,000
|
|
|
$
|
436,000
|
|
|
$
|
412,000
|
|
Shares
purchased
|
|
|
250,745
|
|
|
|
126,021
|
|
|
|
87,565
|
|
Employee
participants
|
|
|
47
|
|
|
|
43
|
|
|
|
39
|
|
Shares
Available for Future Issuance under Employee Benefit Plans
As of
March 31, 2009, 1,165,000 shares were available for future issuance, which
included 266,000 shares of common stock available for issuance under our ESPP,
9,000 under our 1995E Sub-Plan and 890,000 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,
2009, 2008 and 2007 (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cost
of sales
|
|
$
|
334
|
|
|
$
|
349
|
|
|
$
|
472
|
|
Research
and development
|
|
|
549
|
|
|
|
599
|
|
|
|
683
|
|
Selling,
general and administrative
|
|
|
1,162
|
|
|
|
1,385
|
|
|
|
1,916
|
|
Stock-based
compensation expense before income taxes
|
|
|
2,045
|
|
|
|
2,333
|
|
|
|
3,071
|
|
Tax
benefit
|
|
|
-
|
|
|
|
2
|
|
|
|
7
|
|
Stock-based
compensation expense, net of tax
|
|
$
|
2,045
|
|
|
$
|
2,331
|
|
|
$
|
3,064
|
|
The
effect of recording employee stock-based compensation expense for the years
ended March 31, 2009, 2008 and 2007 was as follows (in thousands, except per
share amounts):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Impact
on income (loss) before income taxes
|
|
$
|
(2,045
|
)
|
|
$
|
(2,333
|
)
|
|
$
|
(3,071
|
)
|
Impact
on net loss
|
|
|
(2,045
|
)
|
|
|
(2,331
|
)
|
|
|
(3,064
|
)
|
Impact
on basic and diluted net loss per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.13
|
)
|
No stock
options were exercised during fiscal 2009. Net cash proceeds from the exercise
of stock options were $80,000 and $688,000 during fiscal 2008 and 2007,
respectively. Income tax benefit realized from employee stock option exercises
during fiscal 2008 and 2007 was $2,000 and $7,000 respectively.
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, 2009, 2008
and 2007, respectively:
|
|
Employee
Stock Options
|
|
|
Employee
Stock Purchase Plan
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Weighted
average fair value
|
|
$
|
1.49
|
|
|
$
|
1.85
|
|
|
$
|
2.92
|
|
|
$
|
0.75
|
|
|
$
|
1.23
|
|
|
$
|
1.57
|
|
Expected
life in years
|
|
|
4.36
|
|
|
|
4.11
|
|
|
|
4.03
|
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
0.50
|
|
Volatility
|
|
|
0.63
|
|
|
|
0.64
|
|
|
|
0.70
|
|
|
|
0.53
|
|
|
|
0.48
|
|
|
|
0.48
|
|
Risk-free
interest rate
|
|
|
2.79
|
%
|
|
|
4.05
|
%
|
|
|
4.81
|
%
|
|
|
1.33
|
%
|
|
|
4.61
|
%
|
|
|
5.09
|
%
|
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 19%, 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, 2009, we had $1.2 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 3 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 2009,
2008 and 2007, we expensed $276,000, $275,000 and $268,000, respectively,
relating to our contributions under the plan.
14.
COMPREHENSIVE LOSS
Comprehensive
loss is principally comprised of net loss and unrealized gain (loss) on our
available for sale securities. Comprehensive loss for the years ended March 31,
2009, 2008 and 2007 was as follows (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
loss
|
|
$
|
(15,162
|
)
|
|
$
|
(1,414
|
)
|
|
$
|
(81
|
)
|
Unrealized
gain (loss) on available for sale securities
|
|
|
(48
|
)
|
|
|
48
|
|
|
|
5
|
|
Comprehensive
loss
|
|
$
|
(15,210
|
)
|
|
$
|
(1,366
|
)
|
|
$
|
(76
|
)
|
15. OTHER
INCOME, NET
Other
income, net includes interest income, gain (loss) on sale of fixed assets and
intangible assets and other non-operating income (expense). Interest income
reflects the amounts earned from investments in cash equivalents and short-term
securities. Significant components of other income, net, were as
follows (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Interest
income
|
|
$
|
668
|
|
|
$
|
2,465
|
|
|
$
|
2,511
|
|
Gain
(loss) on sale of fixed assets and intangible assets
|
|
|
960
|
|
|
|
(24
|
)
|
|
|
-
|
|
Other
non-operating income (expense), net
|
|
|
19
|
|
|
|
(51
|
)
|
|
|
(79
|
)
|
Other
income, net
|
|
$
|
1,647
|
|
|
$
|
2,390
|
|
|
$
|
2,432
|
|
16. INCOME
TAXES
Our
income tax provision consisted of the following (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(47
|
)
|
|
$
|
18
|
|
|
$
|
92
|
|
State
|
|
|
2
|
|
|
|
4
|
|
|
|
(2
|
)
|
Foreign
|
|
|
109
|
|
|
|
80
|
|
|
|
26
|
|
|
|
$
|
64
|
|
|
$
|
102
|
|
|
$
|
116
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,180
|
|
|
$
|
683
|
|
|
$
|
469
|
|
State
|
|
|
67
|
|
|
|
111
|
|
|
|
42
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,247
|
|
|
$
|
794
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
1,311
|
|
|
$
|
896
|
|
|
$
|
627
|
|
The
provision 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, 2009, 2008 and 2007. The principal reasons for this difference are as
follows (in thousands):
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Income
tax expense at U.S. statutory rate
|
|
$
|
(4,709
|
)
|
|
$
|
(176
|
)
|
|
$
|
185
|
|
Valuation
allowance
|
|
|
3,191
|
|
|
|
871
|
|
|
|
395
|
|
Goodwill
|
|
|
1,788
|
|
|
|
-
|
|
|
|
-
|
|
IPR&D
|
|
|
-
|
|
|
|
-
|
|
|
|
751
|
|
Losses
(benefitted)/no current benefit
|
|
|
1,247
|
|
|
|
32
|
|
|
|
(1,095
|
)
|
Other
|
|
|
(206
|
)
|
|
|
169
|
|
|
|
391
|
|
Provision
for income taxes
|
|
$
|
1,311
|
|
|
$
|
896
|
|
|
$
|
627
|
|
In fiscal
2009, 2008, and 2007, income (loss) before income taxes included $115,000,
($408,000), and ($582,000), respectively, of net income (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,
|
|
|
|
2009
|
|
|
2008
|
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
Net
operating losses
|
|
$
|
21,038
|
|
|
$
|
19,651
|
|
Research
and other credits
|
|
|
1,311
|
|
|
|
1,170
|
|
Write
down of inventory
|
|
|
266
|
|
|
|
199
|
|
Stock-based
compensation
|
|
|
2,442
|
|
|
|
1,779
|
|
Other
non-deductible accruals and reserves
|
|
|
1,348
|
|
|
|
1,740
|
|
Total
deferred tax assets
|
|
|
26,405
|
|
|
|
24,539
|
|
Valuation
allowance
|
|
|
(26,222
|
)
|
|
|
(23,031
|
)
|
Net
deferred tax assets
|
|
|
183
|
|
|
|
1,508
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Tax
over book depreciation
|
|
|
135
|
|
|
|
165
|
|
Intangible
assets
|
|
|
48
|
|
|
|
96
|
|
Total
net deferred tax assets
|
|
$
|
-
|
|
|
$
|
1,247
|
|
As of
March 31, 2009, we had net operating loss carryforwards for federal and state
income tax purposes of $61 million and $19 million, respectively, which expire
in the years 2013 through 2029 for the federal and state losses, and federal and
state research and development credits of $790,000 and $2,174,000, respectively.
The federal research and development
tax credits began to
expire in fiscal 2009, while the state research and development tax credits
carryforward indefinitely. There were no foreign net operating loss
carryforwards as of March 31, 2009.
Utilization
of our net operating loss 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 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 believed that
it is more likely than not that $1.2 million of the deferred tax assets as of
March 31, 2008 will be realized in the following year. As of March 31 2009, a
full valuation allowance of $26.2 million was recorded against the deferred tax
assets. The valuation allowance increased by $3.2 million during the
year ended March 31, 2009 and increased by $0.9 million during the year ended
March 31, 2008.
At March
31, 2009 and 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.
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 2010, as deemed sufficiently reliable, on
a jurisdiction by jurisdiction basis.
We file
income tax returns in the U.S. federal jurisdiction and in several states and
foreign jurisdictions. As of March 31, 2009, the federal returns for the years
ended March 31, 2006 through the current period and certain state returns for
the years ended March 31, 2004 through the current period are still open to
examination. However, due to the fact the Company had net operating losses and
credits carried forward in most jurisdictions, certain items attributable to
technically closed years are still subject to adjustment by the relevant taxing
authority through an adjustment to tax attributes carried forward to open
years.
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, 2008,
the Company has accrued tax liabilities for unrecognized tax benefits of
$167,000 in addition to interest and penalty of $51,000.
A
reconciliation of the beginning and ending unrecognized tax benefit amounts for
March 31, 2009 are as follows (in thousands):
|
|
Year
Ended
|
|
|
|
March
31, 2009
|
|
Unrecognized
tax benefits at April 1, 2008
|
|
$
|
167
|
|
Increases
in tax positions for current year
|
|
|
44
|
|
Increases
in tax positions for prior years
|
|
|
-
|
|
Lapse
in statute of limitations
|
|
|
(18
|
)
|
Unrecognized
tax benefits at March 31, 2009
|
|
$
|
193
|
|
In
addition, interest and penalties resulting from unrecognized tax benefits was
$62,000 at March 31, 2009. The unrecognized tax benefits of $193,000 at March
31, 2009, 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, 2009 to change significantly in the next twelve months.
17. CONCENTRATION
AND SEGMENT INFORMATION
Our
operations are classified into one operating segment. A significant portion of
our net sales is derived from a relatively small number of customers. Our
net sales from customers and distributors, individually representing more than
10% of total net sales during fiscal 2009, 2008 and 2007 were as
follows:
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Original
Equipment Manufacturers:
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
|
19
|
%
|
|
|
25
|
%
|
|
|
17
|
%
|
Customer
B
|
|
|
21
|
%
|
|
|
16
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor
A
|
|
|
11
|
%
|
|
|
13
|
%
|
|
|
*
|
|
Distributor
B
|
|
|
*
|
|
|
|
12
|
%
|
|
|
10
|
%
|
_____________
*
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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
United
States
|
|
$
|
6.5
|
|
|
|
13
|
%
|
|
$
|
5.5
|
|
|
|
9
|
%
|
|
$
|
4.4
|
|
|
|
6
|
%
|
China
|
|
|
17.8
|
|
|
|
36
|
%
|
|
|
15.9
|
|
|
|
27
|
%
|
|
|
28.2
|
|
|
|
42
|
%
|
Korea
|
|
|
11.1
|
|
|
|
23
|
%
|
|
|
19.6
|
|
|
|
33
|
%
|
|
|
16.5
|
|
|
|
24
|
%
|
Taiwan
|
|
|
8.1
|
|
|
|
16
|
%
|
|
|
11.2
|
|
|
|
19
|
%
|
|
|
10.4
|
|
|
|
15
|
%
|
Singapore
|
|
|
2.5
|
|
|
|
5
|
%
|
|
|
4.2
|
|
|
|
7
|
%
|
|
|
6.7
|
|
|
|
10
|
%
|
Others
|
|
|
3.3
|
|
|
|
7
|
%
|
|
|
2.8
|
|
|
|
5
|
%
|
|
|
1.8
|
|
|
|
3
|
%
|
Total
net sales
|
|
$
|
49.3
|
|
|
|
100
|
%
|
|
$
|
59.2
|
|
|
|
100
|
%
|
|
$
|
68.0
|
|
|
|
100
|
%
|
All
Property and equipment including equipment on consignment are stated at cost and
depreciated over their estimated useful lives using the straight-line method.
For equipment on consignment, the Company also requires an agreement with
the consignee. A detailed list of the consigned equipment, if any, must be
included with the agreement. In fiscal 2008, we entered into an agreement with
SPEL, one of our sub-contractors in India, for consigning test and packaging
equipment to them, in order to increase their production capacity, in return for
periodic repayments and lower product pricing. As of March 31, 2009, we have
$1.2 million of test and packaging equipment on consignment in India and $0.5
million of test equipment on consignment in Thailand. Property, plant and
equipment by geographic location is summarized as follows (in
millions):
|
|
|
Net
Book Value as of March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
USA
|
|
|
$
|
1.4
|
|
|
$
|
2.0
|
|
India
|
|
|
|
1.2
|
|
|
|
1.9
|
|
Thailand
|
|
|
0.5
|
|
|
|
1.2
|
|
Others
|
|
|
0.4
|
|
|
|
0.5
|
|
|
Total
|
|
$
|
3.5
|
|
|
$
|
5.6
|
|
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. The accrual for
settlement offers was $0 and $20,000 as of March 31, 2009 and March 31, 2008,
respectively.
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, 2009 and
2008. 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
2009, for the Quarter Ended
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
|
March
31
|
|
|
|
(In
thousands, except for per share amounts)
|
|
Net
sales
|
|
$
|
14,099
|
|
|
$
|
16,343
|
|
|
$
|
9,659
|
|
|
$
|
9,172
|
|
Gross
margin
|
|
|
4,744
|
|
|
|
5,104
|
|
|
|
2,475
|
|
|
|
2,525
|
|
Net
loss
|
|
|
(919
|
)
|
|
|
(1,965
|
)
|
|
|
(8,911
|
)
|
|
|
(3,367
|
)
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.04
|
)
|
|
|
(0.08
|
)
|
|
|
(0.38
|
)
|
|
|
(0.15
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
ITEM 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.
ITEM 9A
.
Controls and
Procedures
(a)
Evaluation of Disclosure Controls and Procedures
(i)
Disclosure
Controls and Procedures
.
We
maintain disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) 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, taking into account the totality of
the circumstances. Our disclosure controls and procedures have been designed to
meet the 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.
Our principal
executive officer and principal financial officer have evaluated our disclosure
controls and procedures as of March 31, 2009, and have determined that they were
effective at the reasonable assurance level.
(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, 2009. 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, 2009, 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, 2009. 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
Our
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding
the reliability of our financial reporting and preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. There was no change in our internal control
over financial reporting identified in connection with the evaluation described
in Item 9A(a)(iii) above that occurred during our fourth quarter of fiscal 2009
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
(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.
ITEM 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 2009 Annual
Meeting of Shareholders (the “2009 Proxy Statement”).
ITEM 10
.
Directors, Executive Officers and
Corporate Governance
The
information required by this Item is set forth in the 2009 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 2009 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 2009 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 2009 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 2009 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 2009 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 2009 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 2009
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 2009 Proxy Statement under
the caption “Ratification of Independent Authors—Audit and Non-Audit Fees” and
is incorporated herein by reference.
PART
IV
ITEM 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.
3.
Exhibit
Index:
Exhibit
Number
|
|
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.
|
|
|
|
|
|
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.
|
Exhibit
Number
|
|
Description
|
|
Incorporated
by reference from
|
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
|
|
Exhibit
10.30 to the Company’s Annual Report on Form 10-K for the year ended March
31, 2008 filed on June 11, 2008
|
|
|
|
|
|
10.31*
|
|
Amended
and Restated Executive Severance Plan dated February 6,
2008
|
|
Exhibit
10.31 to the Company’s Annual Report on Form 10-K for the year ended March
31, 2008 filed on June 11, 2008
|
|
|
|
|
|
10.33
|
|
Lease
with The Irvine Company dated May 13, 2005
|
|
Exhibit
10.33 to our Quarterly Report on Form 10-Q for the quarter ended December
31, 2008 filed on February 9, 2009
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries is filed herewith.
|
23.1
|
|
Consent
of Grant Thornton LLP, Independent Registered Public Accounting Firm,
dated June 9, 2009 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
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.
SCHEDULE II
CALIFORNIA
MICRO DEVICES CORPORATION
VALUATION
AND QUALIFYING ACCOUNTS
Years
Ended March 31, 2009, 2008 and 2007
(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
2009
|
|
$
|
23,031
|
|
|
$
|
3,191
|
|
|
$
|
-
|
|
|
$
|
26,222
|
|
Fiscal
2008
|
|
|
22,160
|
|
|
|
871
|
|
|
|
-
|
|
|
|
23,031
|
|
Fiscal
2007
|
|
|
18,961
|
|
|
|
3,199
|
|
|
|
-
|
|
|
|
22,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
19
|
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
1
|
|
Fiscal
2008
|
|
|
320
|
|
|
|
-
|
|
|
|
(301
|
)
|
|
|
19
|
|
Fiscal
2007
|
|
|
146
|
|
|
|
174
|
|
|
|
-
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
allowances and return reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
91
|
|
|
|
5
|
|
|
|
-
|
|
|
|
96
|
|
Fiscal
2008
|
|
|
70
|
|
|
|
21
|
|
|
|
-
|
|
|
|
91
|
|
Fiscal
2007
|
|
$
|
112
|
|
|
$
|
-
|
|
|
$
|
(42
|
)
|
|
$
|
70
|
|
CALIFORNIA
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 15th day of June
2009.
|
|
|
|
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 15th day of June 2009.
By:
|
|
|
|
|
|
|
/S/
ROBERT V. DICKINSON
|
|
President,
Chief Executive Officer and Director
|
|
|
_________________________________________
|
|
|
|
|
Robert
V. Dickinson
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/ KEVIN
J. BERRY
|
|
Chief
Financial Officer
|
|
|
_________________________________________
|
|
|
|
|
Kevin
J. Berry
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/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
|
|
|