The CyberPro 5000 is the first product of the
CyberPro 5000 family designed for broadband digital set-top boxes and advanced televisions. The CyberPro 5000 has enhanced text, graphics and video
processing engines. It also includes two video ports for two simultaneous video streams, high picture quality of broadband video on television,
hardware magnified view of web pages on television and a flexible transparency algorithm for blending multiple video, text, graphics, pictures and
animation on screen.
The CyberPro 5005 is designed for broadband set-top
boxes and advanced televisions with Internet and DVD capability. In addition to CyberPro 5000 features, the 5005 provides MacroVision encryption for
copy protection.
The CyberPro 5050 is designed for broadband set-top
boxes and advanced televisions that have integrated audio capability. Additional features include an audio digital signal processor engine with audio
synthesis, MIDI, I2S, PCM and stereo audio.
The CyberPro 5055 combines all of the features of
our CyberPro 5000, 5005 and 5050 products. The CyberPro 5055 provides a solution for broadband set-top boxes and advanced televisions that process
multiple media streams including DVD and full duplex audio.
Customers
We target customers in the advanced television and
emerging interactive display markets. We began to focus on the emerging interactive display market in 1997, and later expanded our focus to include the
advanced television markets. The majority of our sales in fiscal 2004 were to the broadband set-top box market portion of the emerging interactive
display market, primarily for video-on-demand applications. In prior years, the majority of our sales were to the emerging interactive display market.
Many of our customers manufacture or distribute products in more than one of our target markets.
In fiscal 2004, sales to Kanematsu Devices
Corporation, SMS Electronics, Ltd., Weikeng Industrial Co., and Fujitsu-Siemens Computers Gmbh represented 15%, 12%, 12% and 10% of revenues,
respectively. In fiscal 2003, sales to Siemens Communications Ltd., Kanematsu Devices Corporation and Micro Network Korea Co., Ltd. represented 24%,
17% and 10% of revenues, respectively. In fiscal 2002, sales to Prediwave Corporation and Motorola Broadband accounted for 62% and 14% of revenues,
respectively.
In fiscal 2004, sales to customers in the United
States, Europe, Taiwan and Japan comprised of 24%, 24%, 18%, and 15% of revenues, respectively. In fiscal 2003, sales to customers in Europe, Taiwan,
Japan, the United States and Korea comprised of 35%, 25%, 16%, 14% and 10% of revenues, respectively. In fiscal 2002, sales to customers in the United
States and Taiwan comprised 68% and 22% of revenues, respectively.
Sales and Marketing
We sell and market our display processors through
our direct sales force, sales representatives and distributors. For our software products, we also use value added resellers and system integrators
that package and use our software products for resale as standard products or custom software development services.
Our products are marketed primarily through
reference platforms and evaluation kits designed internally and with industry leading microprocessors, real-time operating systems and other strategic
partners directly or indirectly through our partners’ channels to OEMs for evaluation and development. These reference platforms and evaluation
kits (hardware and software) have proven to be vital to our success in obtaining new design wins. We also promote our products through our website,
trade shows, articles, press releases and joint promotions with our strategic partners.
Our personnel work closely with customers, sales
representatives and authorized distributors to define product features, performance, price and market timing of new products. We provide technical
support and design assistance directly to OEM customers, regardless of the sales channels used. We believe that a high level of customer support is
necessary to successfully develop and maintain long-term relationships with our customers. These relationships begin at the design phase and develop,
as customer needs change and evolve. We provide support through both on site customer service and remote support from our facilities.
As of March 31, 2004, we employed a sales and
marketing force of 11 people. We believe these personnel have the technical expertise and industry knowledge necessary to support a lengthy and complex
sales process.
4
We also employed four field applications engineers to assist customers in
designing, testing and qualifying system designs that incorporate our integrated circuits and software products. We believe that the depth and quality
of this design support team are key to improving our customers’ time to market and maintaining a high level of customer satisfaction. Our direct
sales offices are located in Santa Clara, California, Shenzhen and Hefei, People’s Republic of China. All of our sales offices provide hardware
and software applications support.
Research and Development
Our research and development efforts are focused on
four areas: device architecture and logic design, physical layer design, software development and device testing. As of March 31, 2004, our research
and development staff consisted of 88 employees, (15 of whom were located in the United States and 73 of whom were located in the People’s
Republic of China). Our research and development efforts have centered on architecture design, streaming media processing modes, high-speed digital and
mixed signal design and software.
We conduct research and development at our design
centers in Santa Clara, California and Hefei, People’s Republic of China. Our People’s Republic of China facility is located in a science
park near Hefei University of Technology, where employee costs are lower than in the San Francisco Bay Area.
Our research and development expenses for fiscal
years 2004, 2003 and 2002 were $6.8 million, $9.0 million and $12.7 million, respectively. Research and development expenses consist mainly of
personnel and other costs associated with the development of product designs, process technology, software and programming hardware. We anticipate that
we will continue to commit substantial resources to research and development in the future.
Manufacturing
We have adopted a fabless semiconductor
manufacturing model and therefore we outsource all of our semiconductor manufacturing and assembly. This approach allows us to focus our resources on
the design, development, testing and marketing of our products and significantly reduces our capital requirements. We develop our designs to be
compatible with three foundries, United Manufacturing Corporation, or UMC, and Taiwan Semiconductor Manufacturing Corporation, or TSMC, both of which
are located in Hsin Chu, Taiwan, and HuaHong NEC located in the People’s Republic of China. This allows us to shift production from one facility
to the other in the event of a capacity constraint at one foundry. We currently use 0.35 micron technology for production of our CyberPro 5000,
Cyberpro 5600 and Trueview 5700 families. We use 0.3 micron technology for production of our CyberPro 5300 family and 0.18 micron technology for
production of our CyperPro 5202 family.
We internally design and optimize digital and analog
cells through our physical layer design group. We believe this allows us to reduce the size of the semiconductor and therefore the cost. This also
gives us greater control over the quality and reliability of our multi-media display processors.
Assembly of our devices is performed by Advance
Semiconductor Engineering, Inc. in Kaohsiung, Taiwan, and Belling Corp., Ltd. in ShangHai, People’s Republic of China. We may also use Siliconware
Precision Industries Ltd., located in Hsin Chu, Taiwan. Final testing is primarily performed by us at our subsidiary in Hefei, People’s Republic
of China.
Competition
The semiconductor industry in general, and the
market for integrated circuits for advanced televisions and emerging interactive displays, in particular, is highly competitive. We believe we can
compete favorably in each of the key competitive factors in our target markets. These factors are:
• |
|
conformity to industry standards; |
5
Our current and primary competitors are ATI
Technologies, Inc., Broadcom Corporation, Genesis Microchip, Inc., Pixelworks, Inc., Trident Microsystems, Inc. and Silicon Image, Inc. In addition to
these competitors, we expect other major semiconductor manufacturers will enter the market as the advanced television and emerging interactive display
markets develop. A number of companies, including International Business Machines Corporation, STMicroelectronics N.V., National Semiconductor, Equator
Technologies, Inc., LSI Logic and Philips Electronics N.V., have announced that they are developing or plan to introduce competing products in the
advanced television and emerging interactive display markets which could result in significant competition. We expect competition to intensify as
current competitors expand their product offerings and new competitors enter the market.
Intellectual Property
We rely on a combination of patent, copyright,
trademark and trade secret laws and contractual restrictions to establish and protect our intellectual property and proprietary rights that we develop
and license from others.
We have been granted two United States patents,
containing claims covering various aspects of combining digital streams of video and graphics for presentation on an output display and for changing
the size of graphic data for presentation on a television output display. We expect to file patent applications as we deem appropriate to protect our
technology and products. We cannot be sure that our patent applications will result in the issuance of patents, or that any issued patents will provide
commercially significant protection to our technology.
We also license from others certain audio, graphics
and semiconductor technology that is incorporated in our semiconductors and certain intellectual property rights. These licenses are perpetual and
survive the termination of the agreements under which we obtained such licenses. The protections we receive from others against infringement under the
terms of these licensing agreements are limited and we cannot be sure that alternative technology exists.
In July 2000, we entered into an agreement with
Hitachi, Ltd., which has developed proprietary technology on system-on-a-chip SH-4 microprocessors , or SH-4. As a result of our agreement, Hitachi
licensed to us the right to use this SH-4 technology for system-on-a-chip integration in our products and to manufacture, distribute and sublicense
products using the SH-4 technology. In March 2002, we postponed the product related to this technology indefinitely; accordingly, we wrote off $0.5
million of license technology related to this SH-4 technology.
In December 2000, we entered into an agreement with
Oak Technology, Inc. or Oak, which has proprietary 3D graphics technology that permits incorporation of the 3D graphics function onto our chips. As a
result of our agreement, we were granted the right to use this 3D graphics technology for 3D graphics integration in our products and to manufacture,
distribute and sublicense products using the 3D graphics technology.
In April 2001, we amended the agreement with Oak, in
order to license Oak’s proprietary MPEG-2 technology that permits the incorporation of MPEG-2 decoding functions onto our chips. As a result of
our agreement, we were granted the right to use this MPEG-2 technology for MPEG-2 integration in our products and to manufacture, distribute and
sublicense products using the MPEG-2 decoding technology. In December 2003, we postponed the product related to this technology indefinitely;
accordingly, we wrote off $1.5 million of license technology related to this MPEG-2 technology.
In July 2003, we sold our software business and
software-related assets to MediaTek, Inc. The software assets were developed internally to support our products, including Home IT, advanced digital
video broadcasting, MPEG 4 software, SDK software and software drivers. In connection with this transaction, MediaTek granted to us a royalty-free
license to continue to use those software assets to support our existing products and fulfill our maintenance obligations to our existing
customers.
We attempt to avoid infringing known proprietary
rights of third parties in our product development efforts. It is difficult to proceed with certainty in a rapidly evolving technological environment
in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies. If our
products violate third party proprietary rights, we might not be able to obtain licenses to continue offering these products without substantial
reengineering. Efforts to undertake this reengineering might not be
6
successful, licenses might be unavailable on commercially reasonable terms, if at
all, and litigation might not be avoided or settled without substantial expense and damage awards.
CyberPro and Tvia are registered trademarks, and the
Tvia logo is a trademark of Tvia in the United States and other jurisdictions.
Backlog
Our sales are made primarily pursuant to standard
purchase orders for delivery of products. Due to industry practice which allows customers to cancel or change orders with limited advance notice prior
to shipment, we believe that backlog is not a reliable indicator of future revenue levels.
Seasonality
The electronics industry has historically been
subject to seasonal and cyclical fluctuations in demand for its products, and this trend may continue in the future. These industry downturns have
been, and may continue to be, characterized by diminished product demand, excess manufacturing capacity and subsequent erosion of average selling
prices.
Employees
As of March 31, 2004, we had 141 full time employees
including 88 engaged in research and development, 11 engaged in sales and marketing, 29 engaged in operations and 13 engaged in general management and
administration activities. Of these employees, 27 work in our Santa Clara facility and 114 work at our facility in the People’s Republic of China.
Our employees are not represented by any collective bargaining agreement and we have never experienced a work stoppage. We believe our relations with
our employees are good.
Available Information
Our internet address is www.tvia.com. We make
available free of charge through a hyperlink on its website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Forms
8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after the
material is furnished to the SEC. Our website and the information contained therein or connected thereto is not intended to be incorporated into this
Annual Report on From 10-K.
Item 2. Properties
Our headquarters, which also serves as our principal
administrative, selling, marketing, customer support, applications engineering and product development facility, is located in Santa Clara, California,
and consists of one building of approximately 16,500 square feet under a lease that expires in July 2005. We also lease a building located in Hefei,
People’s Republic of China of approximately 15,000 square feet under a lease that expires in June 2005 for our research and development operations
in China; and a building located in Shenzhen, People’s Republic of China of approximately 2,500 square feet under a lease that expires in November
2004 for our marketing and customer support in China.
We believe our existing facilities are adequate to
meet our needs for the near future and that future growth can be accomplished by leasing additional or alternative space on commercially reasonable
terms.
Item 3. Legal Proceedings
From time to time we may be involved in litigation
relating to claims arising in the ordinary course of business. As of the date of this filing, we do not believe that any of the legal proceedings
pending against us or, to the best of our knowledge, threatened against us, will have a significant adverse effect on our financial position or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
7
Executive Officers
The executive officers of the Company are as
follows:
Kenny Liu, 50, has served as our Chairman of
the Board since January 1995, and as Chief Executive Officer from January 1995 to November 2001. From January 1989 to March 1994, Mr. Liu served as
Chairman and Chief Executive Officer of OPTi Inc., a manufacturer of core logic chip sets for the personal computer market. Mr. Liu received a B.S. in
Electrical Engineering from National Cheng-Kung University in Taiwan, an M.S. in Computer Science from Santa Clara University and an M.S. in Electrical
Engineering from Ohio State University.
Eli Porat, 58, has served as our Chief
Executive Officer since November 2001and as President since February 2002. Mr. Porat has served as a director of our Company since March 2001. From
January 1997 to November 2001, Mr. Porat was Chief Executive Officer of OpenGrid, Inc., a mobile business solutions company. From 1991 to 1996, Mr.
Porat was Chief Executive Officer of DSP Group, an audio digital signal processing company. From 1972 to 1983, Mr. Porat was with Intel Corporation.
Mr. Porat earned a B.S. and M.S. degrees in Electrical Engineering and Computer Science from the University of California, Berkeley.
Arthur Nguyen, 52, has served as our Chief
Financial Officer since March 2003. He joined us as Corporate Controller in October 2000, serving in that position until February 2003. Prior to
joining us, he served as Director of Accounting at marchFIRST, an internet consulting company from November 1999 to September 2000. From July 1996 to
October 1999, Mr. Nguyen was Chief Financial Officer of Hayward Quartz Technology, Inc., a semiconductor component manufacturer. Mr. Nguyen received a
Master in Business Administration with a concentration in Accounting from the California State University — San Bernardino and a B.S. in Business
Administration from California State University — Sacramento. Mr. Nguyen is a Certified Public Accountant.
Jhi-Chung Kuo, 51, a cofounder of the
Company, has served as our Vice President of Engineering since April 2002. From July 2000 to March 2002, he served as our Chief Technology Officer.
From March 1993 to June 2000, Mr. Kuo served as our Vice President of Engineering. Mr. Kuo received a B.S. in Physics from National Central University
in Taiwan and an M.S. in Electrical Engineering from Mississippi State University.
James Tao, 53, has served as Vice President
of Sales and Marketing since March 2002. He joined us in June 1997 as Senior Director of Business Development, and served from November 1999 to March
2002 as Vice President of Business Development. From March 1989 to May 1997, Mr. Tao served as Vice President of Sales and Marketing at Focus
Information Systems, a personal computer peripheral product company. Mr. Tao received an M.B.A. in Telecommunication Management from Golden Gate
University and an M.S. in Computer Science from the University of Hawaii.
8
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder
Matters
The Company’s common stock, par value $0.001
(“Common Stock”), is traded on the Nasdaq National Market (“Nasdaq”) under the symbol “TVIA”, until December 4, 2002,
when it began to trade on the Nasdaq SmallCap Market under the same ticker symbol. The following table sets forth, for the periods indicated, the range
of high and low sales prices for the Common Stock on the Nasdaq National Market and SmallCap Market, applicable.
|
|
|
|
High
|
|
Low
|
2002 Quarter
Ended:
|
|
|
|
|
|
|
|
|
|
|
June
30 |
|
|
|
|
1.90 |
|
|
|
0.88 |
|
September
30 |
|
|
|
|
0.99 |
|
|
|
0.45 |
|
December
31 |
|
|
|
|
0.77 |
|
|
|
0.47 |
|
2003 Quarter
Ended:
|
|
|
|
|
|
|
|
|
|
|
March
31 |
|
|
|
|
0.70 |
|
|
|
0.51 |
|
June
30 |
|
|
|
|
1.08 |
|
|
|
0.65 |
|
September
30 |
|
|
|
|
2.20 |
|
|
|
1.03 |
|
December
31 |
|
|
|
|
3.25 |
|
|
|
1.57 |
|
2004 Quarter
Ended:
|
|
|
|
|
|
|
|
|
|
|
March
31 |
|
|
|
|
3.30 |
|
|
|
1.97 |
|
As of May 28, 2004, the Common Stock was held by 181
stockholders of record (not including beneficial holders of stock held in street name). The Company has never declared or paid dividends on its capital
stock and does not anticipate paying any dividends in the foreseeable future. The Company currently intends to retain future earnings for the
development of its business.
Securities Authorized for Issuance Under Compensation Plans
Information regarding securities authorized for
issuance under our equity compensation plans can be found under Item 12 of this Annual Report on Form 10-K.
Purchase of Equity Securities by the Issuer and Affiliated
Purchasers
During the year ended March 31, 2004, we did not
purchase any of the equity securities of Tvia, although we do have two repurchase programs in place.
On November 10, 2001, the Board of Directors
authorized a stock repurchase program to acquire outstanding common stock in the open market. Under this program, the Board of Directors authorized the
acquisition of up to 200,000 of our common stock. This program does not have a stock repurchase maximum amount or an expiration date. As of March 31,
2004, we had acquired 143,700 shares on the open market that we hold as treasury stock. At the March 31, 2004 stock price, the proceeds to be used to
acquire up to 56,300 shares of our common stock will have a minimal impact on our current cash, cash equivalent and short-term investment
balances.
On August 20, 2002, the Board of Directors
authorized an additional stock repurchase program to acquire up to 5 million shares of outstanding common stock in the open market for a maximum of
$0.50. This program does not have an expiration date. As of March 31, 2004, we had not repurchased any shares of common stock under this
program.
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth
below with respect to our consolidated statements of operations data for the years ended March 31, 2004, 2003 and 2002, and with respect to our
consolidated balance sheets at March 31, 2004 and 2003, are derived from our Consolidated Financial Statements and related Notes which are included in
this Form 10-K. The selected consolidated statements of operations data for the years ended March 31, 2001 and 2000 and our consolidated balance sheet
data at March 31, 2002, 2001 and 2000 are derived from our audited consolidated financial statements not included in this Form 10-K. The data set forth
below should
9
be read in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements and related Notes included in this Form 10-K.
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
(in thousands, except per share data)
|
|
Consolidated Statements of Operations Data:
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales |
|
|
|
$ |
2,042 |
|
|
$ |
1,771 |
|
|
$ |
11,342 |
|
|
$ |
12,743 |
|
|
$ |
6,528 |
|
Development
contracts and other |
|
|
|
|
267 |
|
|
|
461 |
|
|
|
498 |
|
|
|
701 |
|
|
|
529 |
|
Total
revenues |
|
|
|
|
2,309 |
|
|
|
2,232 |
|
|
|
11,840 |
|
|
|
13,444 |
|
|
|
7,057 |
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales |
|
|
|
|
1,235 |
|
|
|
1,460 |
|
|
|
8,522 |
|
|
|
7,650 |
|
|
|
3,622 |
|
Development
contracts and other |
|
|
|
|
88 |
|
|
|
83 |
|
|
|
109 |
|
|
|
68 |
|
|
|
185 |
|
Total cost of
revenues |
|
|
|
|
1,323 |
|
|
|
1,543 |
|
|
|
8,631 |
|
|
|
7,718 |
|
|
|
3,807 |
|
Gross
profit |
|
|
|
|
986 |
|
|
|
689 |
|
|
|
3,209 |
|
|
|
5,726 |
|
|
|
3,250 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
|
|
6,823 |
|
|
|
8,983 |
|
|
|
12,664 |
|
|
|
6,774 |
|
|
|
3,390 |
|
Sales,
general and administrative |
|
|
|
|
2,667 |
|
|
|
3,545 |
|
|
|
5,056 |
|
|
|
5,695 |
|
|
|
3,370 |
|
Amortization
of deferred stock compensation |
|
|
|
|
— |
|
|
|
595 |
|
|
|
1,572 |
|
|
|
2,701 |
|
|
|
1,499 |
|
Restructuring
costs |
|
|
|
|
— |
|
|
|
950 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
operating expenses |
|
|
|
|
9,490 |
|
|
|
14,073 |
|
|
|
19,292 |
|
|
|
15,170 |
|
|
|
8,259 |
|
Operating
loss |
|
|
|
|
(8,504 |
) |
|
|
(13,384 |
) |
|
|
(16,083 |
) |
|
|
(9,444 |
) |
|
|
(5,009 |
) |
Other income
(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
|
401 |
|
|
|
703 |
|
|
|
1,818 |
|
|
|
2,105 |
|
|
|
49 |
|
Interest
expense |
|
|
|
|
(11 |
) |
|
|
(14 |
) |
|
|
— |
|
|
|
(459 |
) |
|
|
(1,081 |
) |
Gain on sale
of software business |
|
|
|
|
9,075 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other income
(expense), net |
|
|
|
|
9,465 |
|
|
|
689 |
|
|
|
1,818 |
|
|
|
1,646 |
|
|
|
(1,032 |
) |
Net income
(loss) before extraordinary item |
|
|
|
|
961 |
|
|
|
(12,695 |
) |
|
|
(14,265 |
) |
|
|
(7,798 |
) |
|
|
(6,041 |
) |
Extraordinary
item, net of income taxes |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
672 |
|
|
|
— |
|
Income (loss)
before taxes |
|
|
|
|
961 |
|
|
|
(12,695 |
) |
|
|
(14,265 |
) |
|
|
(8,470 |
) |
|
|
(6,041 |
) |
Income
taxes |
|
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income
(loss) |
|
|
|
|
936 |
|
|
|
(12,695 |
) |
|
|
(14,265 |
) |
|
|
(8,470 |
) |
|
|
6,041 |
|
Dividend
related to convertible preferred stock |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
671 |
|
|
|
2,161 |
|
Net income
(loss) attributable to common stockholders |
|
|
|
$ |
936 |
|
|
$ |
(12,695 |
) |
|
$ |
(14,265 |
) |
|
$ |
(9,141 |
) |
|
$ |
(8,202 |
) |
Basic and
diluted net income (loss) attributable to common stockholders before extraordinary item |
|
|
|
$ |
0.04 |
|
|
$ |
(0.58 |
) |
|
$ |
(0.66 |
) |
|
$ |
(0.56 |
) |
|
$ |
(2.63 |
) |
Extraordinary
item, net of income taxes |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.05 |
|
|
|
— |
|
Basic and
diluted net income (loss) attributable to common stockholders |
|
|
|
$ |
0.04 |
|
|
$ |
(0.58 |
) |
|
$ |
(0.66 |
) |
|
$ |
(0.61 |
) |
|
$ |
(2.63 |
) |
Shares used
in computing basic net loss per share to common stockholders |
|
|
|
|
22,323 |
|
|
|
21,952 |
|
|
|
21,631 |
|
|
|
15,052 |
|
|
|
3,118 |
|
Shares used
in computing diluted net loss per share to common stockholders |
|
|
|
|
23,982 |
|
|
|
21,952 |
|
|
|
21,631 |
|
|
|
15,052 |
|
|
|
3,118 |
|
10
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
(in thousands, except per share data)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents and short-term investments |
|
|
|
$ |
27,206 |
|
|
$ |
24,417 |
|
|
$ |
35,505 |
|
|
$ |
46,682 |
|
|
$ |
6,864 |
|
Working
capital |
|
|
|
|
28,000 |
|
|
|
24,273 |
|
|
|
35,979 |
|
|
|
50,305 |
|
|
|
5,915 |
|
Total
assets |
|
|
|
|
31,403 |
|
|
|
31,193 |
|
|
|
43,387 |
|
|
|
57,435 |
|
|
|
11,368 |
|
Long term
liabilities |
|
|
|
|
— |
|
|
|
486 |
|
|
|
— |
|
|
|
— |
|
|
|
2,959 |
|
Redeemable
convertible preferred stock |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,594 |
|
Stockholders’ equity (deficit) |
|
|
|
$ |
30,059 |
|
|
$ |
28,766 |
|
|
$ |
40,925 |
|
|
$ |
53,422 |
|
|
$ |
(14,266 |
) |
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the
Company’s financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” and
the Consolidated Financial Statements and related Notes included elsewhere in this Report.
When used in this discussion, the words
“expects,” “anticipates,” “estimates,” and similar expressions are intended to identify forward-looking statements. These
statements relate to future periods and include statements as to expected revenues and sources of revenues, future profitability, the reasonableness of
our accounting assumptions and estimates, factors that may affect our gross margin, the effect of certain accounting principles on our consolidated
financial statements, future sales to key customers, the level of export sales, the level of our research and development expense, development of new
products, research and development in China, uses and adequacy of our current cash, cash equivalents and short-term investments, the impact of the
adoption of accounting pronouncements, reliance on a small number of original equipment manufacturers, future orders of our products, our ability to
compete, increasing competition in our markets and our competitors, sales to customers outside of the United States, effect of foreign currency
exchange rates, and changes in interest rates, are subject to risks and uncertainties that could cause actual results to differ materially from those
projected. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as risks relating to as slower than
anticipated emergence of the interactive television market; the effect of the terrorist attacks in the United States and any resulting conflicts or
similar events worldwide on our customers’ demand of our products; the impact of worldwide events on our operations in China; general economic
conditions and specific conditions in the markets we address; dependence on a key customer or OEM; the loss of a key customer; decreases in sales to a
key OEM; our ability to specify, develop or acquire, complete, introduce, market and transition to volume production new products and technologies in a
timely manner; the volume of our product sales and pricing concessions on volume sales; the qualification, availability and pricing of competing
products and technologies and the resulting effects on sales and pricing of our products; fluctuations in the manufacturing yields of our third party
semiconductor foundries and other problems or delays in the fabrication, assembly, testing or delivery of our products; purchases of capital assets;
changes in our products or customer mix; the risk that excess inventory may result in write-offs, price erosion and decreased demand; the level of
orders received that can be shipped in a fiscal quarter; the impact of foreign currency exchange rates; and the matters discussed in “Factors that
May Affect Results.” These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s
expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
Overview
We design, develop and market display processors for
the interactive-television market as well as a family of flexible, high-quality display processors tailored to the Asia Pacific television
manufacturers creating next-generation digital LCD, HD, and progressive-scan televisions.
We currently offer five product families: the
TrueView 5700 family, introduced in calendar year 2004; the CyberPro 5600 family, introduced in calendar year 2003; the CyberPro 5202 family,
introduced in calendar year 2002; the CyberPro 5300 family, introduced in calendar year 1999; and the CyberPro 5000 family, introduced
in
11
calendar year 1998. These product families currently generate most of our revenues.
We sell our products through two channels. First, we sell our products directly to original equipment manufacturers, or OEMs, and recognize revenues at
the time of shipment to these OEMs. Second, we sell our products to a number of distributors. We defer recognition of revenues for sales to our
distributors until they have sold our products to end-users. We also generate revenues from licensing software, which we believe will continue to
constitute a small percentage of total revenues in the future.
Historically, a relatively small number of customers
and distributors have accounted for a significant portion of our product sales. Our top four customers accounted for 15%, 12%, 12% and 10% of total
revenues in the fiscal year ended March 31, 2004. Our top three customers accounted for 24%, 17% and 10% of total revenues in the fiscal
year ended March 31, 2003. Our top two customers accounted for 62% and 14% of total revenues in the fiscal year ended March 31, 2002.
Various factors have affected and may continue to
affect our gross margin. These factors include, but are not limited to, our product mix, the position of our products in their respective life cycles,
yields and the mix of our product sales and development contracts and other revenues. For example, newly introduced products generally have higher
average selling prices and generate higher gross margins. Both average selling prices and the related gross margins typically decline over product life
cycles due to competitive pressures and volume price agreements. Our gross margin and operating results in the future may continue to fluctuate as a
result of these and other factors.
The sales cycle for the test and evaluation of our
products can range from three months to nine months or more, with an additional three to nine months or more before an OEM customer commences volume
production of equipment incorporating our products, if ever. Due to these lengthy sales cycles, we may experience a delay between incurring operating
expenses and inventory costs and the generation of revenues from design wins.
We have sustained operating losses on a quarterly
and annual basis since inception. As of March 31, 2004, we had an accumulated deficit of approximately $62.0 million. These losses resulted from
significant costs incurred in the planning and development of our technology and services and from significant marketing costs. We anticipate lower
revenues for at least the next several quarters as compared to the same period in the prior fiscal year. We believe that this is due to a slowdown in
the interactive television industry caused by a slower than anticipated emergence of the interactive television market, a general industry inventory
correction, delay in customer product introductions in order to incorporate additional third-party features, and general economic
uncertainty.
In connection with the grant of stock options to
employees, we have recorded stock-based compensation charge related to stock options granted below deemed fair market value cumulatively through March
31, 2003 of approximately $6.4 million. This amount represents the difference between the exercise price of these stock option grants and the deemed
fair value of the common stock at the time of grant and it was fully amortized through March 31, 2003. There was no stock-based compensation charge in
the fiscal year ended March 31, 2004.
We have a subsidiary in Hefei, People’s
Republic of China, which performs final test, sales and research and development, and an office in Shenzen, People’s Republic of China, to provide
complete system support including design and integration to our customers.
Critical Accounting Policies and Estimates
The preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of net revenue and expenses during the
reporting period. We regularly evaluate our estimates and assumptions related to allowances for doubtful accounts, sales returns and allowances,
inventory reserves, purchased intangible asset valuations, warranty reserves, and other contingencies. We base our estimates and assumptions on
historic experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material
differences between our estimates and the actual results, our future results of operations will be affected.
12
We believe the following critical accounting
policies, among others, affect the significant judgments and estimates we use in the preparation of our consolidated financial
statements:
• |
|
Revenues. We recognize revenues from product sales upon
shipment to OEMs and end users provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, title has transferred,
collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant
obligations. Reserves for sales returns and allowances are recorded at the time of shipment. Our sales to distributors are made under agreements
allowing for returns or credits under certain circumstances. We defer recognition of revenue on sales to distributors until products are resold by the
distributor to the end user. As part of our revenue recognition policy, we analyze various factors, including a review of specific transactions,
historical experience and current market and economic conditions. Changes in judgments on these factors could impact the timing and amount of revenue
recognized. |
• |
|
Receivables. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. |
• |
|
Inventory. We write down our inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions
about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory
write-downs could be required. |
• |
|
Impairment of Long-Lived Assets. We evaluate long-lived
assets used in operations, including purchased intangible assets, when indicators of impairment, such as reductions in demand or significant economic
slowdowns in the semiconductor industry, are present. Reviews are performed to determine whether the carrying value of assets is impaired based on
comparison to the undiscounted expected future cash flows. If the comparison indicates that there is impairment, the impaired asset is written down to
fair value. Impairment is based on the excess of the carrying amount over the fair value of those assets. Significant management judgment is required
in the forecast of future operating results that is used in the preparation of expected discounted cash flows. It is reasonably possible that the
estimates of anticipated future net revenue, the remaining estimated economic life of the products and technologies, or both, could differ from those
used to assess the recoverability of these assets. In that event, additional impairment charges or shortened useful lives of certain long-live assets
could be required. |
13
Results of Operations
The following tables set forth, for the periods
indicated, certain consolidated statement of operations data reflected as a percentage of revenues. Our results of operations are reported as a single
business segment.
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales |
|
|
|
|
88 |
% |
|
|
79 |
% |
|
|
96 |
% |
Development
contracts and other |
|
|
|
|
12 |
|
|
|
21 |
|
|
|
4 |
|
Total
revenues |
|
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales |
|
|
|
|
53 |
|
|
|
65 |
|
|
|
72 |
|
Development
contracts and other |
|
|
|
|
4 |
|
|
|
4 |
|
|
|
1 |
|
Total cost of
revenues |
|
|
|
|
57 |
|
|
|
69 |
|
|
|
73 |
|
Gross
profit |
|
|
|
|
43 |
|
|
|
31 |
|
|
|
27 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
|
|
295 |
|
|
|
402 |
|
|
|
107 |
|
Sales,
general and administrative |
|
|
|
|
116 |
|
|
|
159 |
|
|
|
43 |
|
Amortization
of deferred stock compensation |
|
|
|
|
— |
|
|
|
27 |
|
|
|
13 |
|
Restructuring
expenses |
|
|
|
|
— |
|
|
|
43 |
|
|
|
— |
|
Total
operating expenses |
|
|
|
|
411 |
|
|
|
631 |
|
|
|
163 |
|
Operating
loss |
|
|
|
|
(368 |
) |
|
|
(600 |
) |
|
|
(136 |
) |
Other income
(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
|
17 |
|
|
|
31 |
|
|
|
15 |
|
Interest
expense |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gain on sale
of software business |
|
|
|
|
393 |
|
|
|
— |
|
|
|
— |
|
Other income
(expense), net |
|
|
|
|
410 |
|
|
|
31 |
|
|
|
15 |
|
Net income
(loss) before taxes |
|
|
|
|
42 |
|
|
|
(569 |
) |
|
|
(121 |
) |
Income
taxes |
|
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
Net income
(loss) |
|
|
|
|
41 |
% |
|
|
(569 |
)% |
|
|
(121 |
)% |
Results of Operations for the Fiscal Years Ended March 31, 2004, 2003 and
2002
Revenues. Revenues were $2.3 million, $2.2
million and $11.8 million for the fiscal years ended March 31, 2004, 2003 and 2002, respectively. Revenues were relatively flat in fiscal year 2004
compared to fiscal year 2003, and decreased by $9.6 million from fiscal year 2002 to fiscal year 2003. These decreases in revenues in fiscal years 2004
and 2003 compared to fiscal 2002 were primarily due to a slower than anticipated emergence of the interactive television market and general economic
conditions in fiscal years 2004, 2003 and 2002. We generate most of our revenues from design wins with new OEMs that rely on third-party manufacturers
or distributors to provide inventory management and purchasing functions.
Export revenues, consisting primarily of product
sales and development contracts to OEMs, sales representatives and distributors in Asia, represented 76%, 86% and 32% of total revenues in fiscal years
2004, 2003 and 2002, respectively. All export revenues are denominated in United States dollars. We believe export sales will represent a majority of
our revenues in the foreseeable future.
Gross margin. Gross margin increased to 43%
in fiscal year 2004 compared to 31% in fiscal year 2003 primarily due to lower overhead burden and sale of inventories previously reserved for in
fiscal year 2002. The reduction in overhead burden was due to lower headcount and facilities costs. Gross margin increased to 31% in fiscal year 2003
from 27% in fiscal year 2002 resulting from a write off of $2.1 million of slow moving inventory in fiscal year 2002 and from higher margin non-product
revenues such as consulting revenue and software.
14
Research and development. Research and
development expenses include personnel and other costs associated with the development of product designs, process technology, software and programming
hardware. Historically, our research and development expenses reflect our continuing efforts to develop and bring to market innovative and cost
effective multi-media display processors that process the rich media content available on the broadband network. We are now focusing our research and
development efforts on display processors for the interactive television market.
Research and development expenses were $6.8 million,
$9.0 million and $12.7 million for the fiscal years ended March 31, 2004, 2003 and 2002, respectively. The decrease in research and development expense
in absolute dollars and as a percentage of revenues from fiscal 2003 to fiscal 2004 resulted from the sale of our software business unit to MediaTek,
Inc. in July 2003, partially offset by a write-off in license technology. The decrease in research and development expenses in absolute dollars from
fiscal year 2002 to fiscal year 2003 resulted primarily from a reduction of our research and development operations in Santa Clara, California. We now
employ 88 employees in research and development, of which 15 are located in the United States and 73 are located in the People’s Republic of
China, compared to 276 employees in fiscal year 2002. Our research and development activities in the People’s Republic of China provide software
and application specific integrated circuit development support to our domestic operations. The costs of our research and development activities in
China are substantially lower than the costs of our activities in Santa Clara. In the foreseeable future, we expect research and development expenses
in absolute dollars to slightly increase compared to the fourth quarter of fiscal 2004 expenses on an annualized basis.
Sales, general and administrative. Sales,
general and administrative expenses consist primarily of personnel and other costs associated with the management of our business and with the sale and
marketing of our products. Sales, general and administrative expenses were $2.7 million, $3.5 million and $5.1 million for the fiscal years ended March
31, 2004, 2003 and 2002, respectively. The decreases in sales, general and administrative expenses from fiscal year 2002 to fiscal year 2003 and from
fiscal year 2003 to fiscal year 2004 resulted from a reduction in workforce and other cost cutting measures. In a foreseeable future, we expect sales,
general and administrative expenses in absolute dollars to be higher. This increase is expected to be primarily associated with the costs of
implementing the provisions as required by section 404 of the Sarbanes-Oxley Act of 2002.
Amortization of deferred stock compensation.
We grant stock options to hire, motivate and retain employees. We incurred stock compensation expense of $0.0 million, $0.6 million and $1.6 million
for the fiscal years ended March 31, 2004, 2003 and 2002, respectively.
Gain on Sale of Software Unit. The Company
recorded a gain on a sale of its software business and software-related assets to MediaTek, Inc. in exchange for $10 million in cash in the fiscal year
ended March 31, 2004. Expenses related to this transaction amounted to $.9 million.
Restructuring Charges. During fiscal 2003,
the Company recorded a restructuring charge of $950,000 relating to a headcount reduction and an operating lease for an abandoned building. The
restructuring was recorded to align the cost structure with changing market conditions. The plan resulted in headcount reduction of approximately 49
employees, which was made up of 55% of research and development staff, 23% of operations staff, 16% of general and administrative staff and 6% of sales
and marketing staff. The charge in relation to the operating lease of the abandoned building represents the estimated difference between the total
non-discounted future sublease income and the non-discounted lease commitments relating to this building. The restructuring plan has been completed as
of March 31, 2004.
The following table summarizes the activity
associated with the restructuring liabilities (in thousands):
|
|
|
|
License
Technology
|
|
Leased
Facilities
|
|
Severances
and Benefits
|
|
Total
|
Balance at
March 31, 2002 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Additions |
|
|
|
|
69 |
|
|
|
162 |
|
|
|
719 |
|
|
|
950 |
|
Non-cash
charges |
|
|
|
|
(69 |
) |
|
|
— |
|
|
|
— |
|
|
|
(69 |
) |
Cash
charges |
|
|
|
|
— |
|
|
|
(139 |
) |
|
|
(719 |
) |
|
|
(858 |
) |
Balance at
March 31, 2003 |
|
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
23 |
|
Cash
charges |
|
|
|
|
— |
|
|
|
(23 |
) |
|
|
— |
|
|
|
— |
|
Balance at
March 31,2004 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
15
Other income (expense), net. Other income
(expense), net consists primarily of interest income, interest expense and the gain on sale of software unit. Other income, net was $9.5 million, $0.7
million and $1.8 million for fiscal years 2004, 2003 and 2002, respectively. Other income, net, generated in the fiscal years ended March 31, 2004
primarily resulted from a gain of $9.1 million on sale of our software business and software related assets to MediaTek, Inc. Other income, net,
generated in the fiscal years ended March 31, 2003 and 2002, was primarily a result of interest income earned from our investments. Other income, net
was further offset in fiscal years 2003 and 2002 by a lower return on our investments and declining levels of amount of cash and short-term
investments.
Provision for income taxes. We are taxed in
our jurisdictions of operations based on the extent of taxable income generated in each jurisdiction. For income tax purposes, revenues are attributed
to the taxable jurisdiction where the sales transactions generating the revenues were initiated. A provision for income tax for fiscal 2004 was
recorded despite of prior years’ net operating losses. This was attributable to the US federal alternative minimum tax applied on the gain of the
software business unit. We incurred operating losses for each of the fiscal years ended March 31, 2003 and 2002, and therefore made no provision for
income tax in these fiscal years. As of March 31, 2004, we had federal and state net cumulative operating losses of approximately $44 million and $16
million, respectively, which are available to offset future taxable income. If not used, these net operating losses will expire through 2024 and 2014,
respectively.
Liquidity and Capital Resources
During the fiscal year ended March 31, 2004, net
cash used in operating activities was $5.4 million, primarily due to operating loss of $8.5 million, a decrease in accrued expenses and accounts
payable of $0.7 million, partially offset by a gain on sale of software unit of $9.1 million and non-cash expenses of $3.0 million and a decrease of
$0.5 million in inventories. During the fiscal year ended March 31, 2003, net cash used in operating activities was $10.5 million, primarily due to net
loss of $12.7 million, a decrease in accrued expenses and accounts payable of $0.9 million and an increase in accounts receivable of $0.2 million,
partially offset by non-cash expenses of $2.0 million and decreases of $0.8 million and $0.5 million in prepaid expenses and other current assets, and
inventories, respectively. During the fiscal year ended March 31, 2002, net cash used in operating activities was $8.0 million, primarily due to net
loss of $14.3 million, a decrease in accrued expenses of $1.1 million, partially offset by non-cash expenses of $3.2 million and decreases of $1.8
million and $2.8 million in accounts receivable and inventories, respectively.
Cash flows used in investing activities were $2.4
million in the fiscal year 2004 compared to cash flows provided by investing activities of $15.3 million in fiscal year 2003. This decrease was
primarily due to the purchase of investments offset by the proceeds from the sale of the software unit. Cash flows provided by investing activities
were $15.3 million in the fiscal year 2003 compared to cash flows used in investing activities of $7.2 million in fiscal year 2002. This increase was
primarily due to the sale of investments. As of March 31, 2004, we did not have any significant capital purchase commitments.
Net cash flows used in financing activities were
$0.1 million and $0.2 million, including repayment of capital leases, for the fiscal years ended March 31, 2004 and 2003, respectively. They were
attributable to payments of capital leases, partially offset by the proceeds from the sale of common stock under our Incentive Stock and Employee Stock
Purchase Plans. Net cash flows provided by financing activities in fiscal 2002 resulted primarily from the proceeds from the sale of common stock under
our Incentive Stock and Employee Stock Purchase Plans.
As of March 31, 2004, our principal source of
liquidity consisted of cash and cash equivalents and short-term investments. Working capital at March 31, 2004 was $28.0 million.
The following represent our more significant working
capital commitments:
We lease its facilities under non-cancelable
operating leases expiring at various dates through July 2005. Under the terms of the leases, the Company is responsible for a portion of the
facilities’ operating expenses, insurance and property taxes. We lease certain fixed assets under capital leases expiring at various dates through
February 2005. We place purchase orders with wafer foundries throughout our normal course of business. As of March 31, 2004, we had approximately
$78,000 of outstanding purchase commitments with a supplier for the purchase of wafers and a packaging subcontractor. We expect to receive and pay for
the wafers, within the next six months, from our existing cash balances. Future working capital commitments as of March 31, 2004 were as follows (in
thousands):
16
Fiscal Year
|
|
|
|
Capital
Leases
|
|
Operating
Leases
|
|
Purchase
Commitments
|
|
Total
|
2005 |
|
|
|
|
490 |
|
|
|
171 |
|
|
|
78 |
|
|
|
739 |
|
2006 |
|
|
|
|
— |
|
|
|
47 |
|
|
|
— |
|
|
|
47 |
|
Total minimum
lease payments |
|
|
|
|
490 |
|
|
|
218 |
|
|
|
78 |
|
|
|
786 |
|
Based on our current expectations, we believe that
our cash and cash equivalents and short-term investment, which totaled $27.2 million at March 31, 2004, will be sufficient to meet our working capital
and capital requirements through at least the next twelve months. In the fiscal year ended March 31, 2004, excluding the cash received from the sale of
our software business to MediaTek, we used $5.6 million of cash and cash equivalents and short-term investments.
Recently Issued Accounting Pronouncements
Financial Accounting Standards Board
(“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. FIN
46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the
variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 are effective immediately
for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to February 1, 2003, the provisions of FIN 46 were
required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. However, in October 2003, the FASB
deferred the effective date of FIN 46 to the end of the first interim or annual period ending after December 31, 2003 for those arrangements entered
into prior to February 1, 2003. The adoption of this standard did not have a material impact on the Company’s consolidated financial position,
results of operations or cash flows.
In May 2003, the FASB issued Statement of Financial
Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in
some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material impact on the Company’s
consolidated financial position, results of operations or cash flows.
Interim Financial Information (unaudited)
The following table presents selected unaudited
quarterly results of operations data for each of the eight quarters in the period ended March 31, 2004. We believe that the historical quarterly
information has been prepared substantially on the same basis as the audited financial statements, and the necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts below to present fairly unaudited quarterly results of operation data (in thousands,
except per share data):
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
|
|
$ |
580 |
|
|
$ |
620 |
|
|
$ |
628 |
|
|
$ |
481 |
|
Gross
margin |
|
|
|
|
237 |
|
|
|
266 |
|
|
|
269 |
|
|
|
214 |
|
Net
loss |
|
|
|
|
(2,064 |
) |
|
|
7,442 |
|
|
|
(2,946 |
) |
|
|
(1,496 |
) |
Basic and
diluted net loss per share |
|
|
|
$ |
(0.09 |
) |
|
$ |
0.34 |
|
|
$ |
(0.13 |
) |
|
$ |
(0.07 |
) |
Diluted net
loss per share |
|
|
|
$ |
(0.09 |
) |
|
$ |
0.32 |
|
|
$ |
(0.13 |
) |
|
$ |
(0.07 |
) |
Shares used
in computing basic net loss per share |
|
|
|
|
22,145 |
|
|
|
22,198 |
|
|
|
22,374 |
|
|
|
22,500 |
|
Shares used
in computing fully diluted net loss per share |
|
|
|
|
22,145 |
|
|
|
23,612 |
|
|
|
22,374 |
|
|
|
22,500 |
|
17
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
|
|
$ |
706 |
|
|
$ |
587 |
|
|
$ |
438 |
|
|
$ |
501 |
|
Gross
margin |
|
|
|
|
250 |
|
|
|
110 |
|
|
|
134 |
|
|
|
195 |
|
Net
loss |
|
|
|
|
(3,712 |
) |
|
|
(4,109 |
) |
|
|
(2,818 |
) |
|
|
(2,056 |
) |
Basic and
diluted net loss per share |
|
|
|
$ |
(0.17 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.09 |
) |
Shares used
in computing basic and fully diluted net loss per share |
|
|
|
|
21,983 |
|
|
|
21,969 |
|
|
|
21,948 |
|
|
|
22,012 |
|
FACTORS THAT MAY AFFECT RESULTS
We expect continuing losses and may not achieve profitability which could affect
our ability to expand our business.
We have incurred significant operating losses in
each year since our inception , except in fiscal year 2004. The net income reported in fiscal year 2004 was primarily due to the sale of our software
business. We expect to continue to incur net losses for the foreseeable future, primarily as a result of expenses for research and development. Our
losses increased as we transitioned our focus away from the personal computer market toward the advanced television and display markets in 1996. We
have incurred net losses of approximately $62.0 million from our inception in March 1993 through March 31, 2004. If we continue to incur net losses, we
may not be able to expand our business as quickly as we would like. We do not know when or if we will become profitable and if we do become profitable,
we may not be able to sustain or increase our profitability.
Because the emergence of the interactive television market has been slower than
anticipated, we may not be able to sell our products or sustain our business.
Our multi-media display processors are incorporated
into products that allow interactive television. The concept of interactive television and the market for products that facilitate it are new and
developing. As a result, our profit potential is unproven and may never materialize. Broad acceptance of advanced televisions and emerging interactive
displays will depend on the extent to which consumers use devices other than personal computers to access the Internet. To date, the market for these
products has not developed as quickly as our customers and we had previously anticipated. Consequently, certain of our customers have significant
inventory of our semiconductors or products that incorporate our semiconductors, thereby limiting the opportunity to sell additional semiconductors to
these customers until their present inventories are depleted. Our success will also depend on the ability of OEMs and service providers that work with
our OEMs to create demand for and market the products incorporating our semiconductors. Unless a sufficiently large market for advanced televisions and
emerging interactive displays and other products that are used for interactive television develops, demand for products incorporating our semiconductor
solutions may not be sufficient to sustain our business.
A significant amount of our revenues comes from a few customers and any decrease
in revenues from these customers could significantly impact our financial results.
Historically we have been, and we expect to continue
to be, dependent on a relatively small number of customers for a significant portion of our total revenues. Sales to Kanematsu Devices Corporation, SMS
Electronics, Ltd., Weikeng Industrial Co., and Fujitsu-Siemens Computers Gmbh represented 15%, 12%, 12% and 10% of total revenues for the fiscal year
ended March 31, 2004, respectively. Sales to Siemens Communications Ltd., Kanematsu Devices Corporation and Micro Network Korea Co, Ltd. represented
24%, 17% and 10% of our total revenues for the fiscal year ended March 31, 2003, respectively. Sales to Prediwave Corporation and Motorola Broadband
accounted for approximately 62% and 14% of our total revenues for the fiscal year ended March 31, 2002, respectively. We may not be able to retain our
largest customers or to obtain additional key accounts. Any reduction or delay in sales of our products to any key customer or our inability to
successfully develop relationships with additional key customers could negatively impact our financial results.
Our operating expenses may increase as we build our business and these increased
expenses may impact our ability to become profitable.
We have made substantial expenditures on research
and development and organizational infrastructure consisting of an executive team, finance, sales, marketing and management information systems
departments and
18
our design center located in the People’s Republic of China. For the fiscal
years ended March 31, 2004, 2003 and 2002, research and development expenses represented 295%, 402% and 107% of our revenues, respectively. We expect
to continue to spend financial and other resources on developing and introducing new products and services, and on our research and development
activities in China. While we have implemented actions to reduce our operating expenses, our operating expenses may increase as a percentage of
revenues if our revenues decline. If our revenues do not increase, our business and results of operations could suffer. We base our expense levels in
part on our expectations regarding future revenues. If our revenues for a particular quarter are lower than we expect, we may be unable to
proportionately reduce our operating expenses for that quarter.
Customers may cancel or defer significant purchase orders, or our distributors
may return our products, which would cause our inventory levels to increase and our revenues to decline.
We sell our products on a purchase order basis
through our direct sales channel, sales representatives and distributors, and our customers may cancel or defer purchase orders at any time with little
or no penalty. We recognize revenues from sales to our distributors when they have sold our products to their customers. We recognize revenues on sales
to our OEM customers when we ship our products to the OEM. We permit certain of our distributors to return products to us. If our customers cancel or
defer significant purchase orders or our distributors return our products, our inventories would increase and our revenues would decrease, which would
materially harm our business as increases in inventory reserves could be required. Refusal of OEM customers to accept shipped products or delays or
difficulties in collecting accounts receivable could have an adverse effect on our business.
Because of our long product development process and sales cycle, we incur
substantial expenses before we generate revenues and may not recover our expenditures.
To develop market acceptance of our products, we
must dedicate significant resources to research and development, production and sales and marketing. We develop products based on forecasts of demand
and we incur substantial product development expenditures prior to generating associated revenues. Our customers typically perform numerous tests and
extensively evaluate our products before incorporating them into their systems. The time required for testing, evaluating and designing our products
into a customer’s equipment can take up to nine months or more, with an additional three to nine months or more before an OEM customer commences
volume production of equipment incorporating our products, if ever. Because of this lengthy development cycle, we may experience a delay between the
time we accrue expenses for research and development and sales and marketing efforts and the time when we generate revenues, if any.
Furthermore, achieving a design win with a customer
does not necessarily mean that this customer will order large volumes of our products. A design win is not a binding commitment by a customer to
purchase our products. Rather, it is a decision by a customer to use our products in the design process. In addition, our customers can choose at any
time to discontinue using our products in that customer’s designs or product development efforts. If our products are chosen to be incorporated
into a customer’s products, we may still not realize significant revenues from that customer if that customer’s products are not commercially
successful. As a result, our profitability from quarter to quarter and from year to year may be materially affected by the number and timing of our new
product introductions in any period and the level of acceptance gained by these products.
If we fail to successfully develop, introduce and sell new products, we may be
unable to effectively compete in the future.
We operate in a highly competitive, quickly changing
environment marked by new and emerging products and technologies. Our success depends on our ability to develop, introduce and successfully market new
products and enhance our existing products in the advanced television and emerging interactive display markets. The development of these new products
is highly complex and, from time to time, we have experienced delays in completing their development and introduction. Any one of the following factors
could affect our ability to develop, introduce and sell new products and could materially harm our business:
• |
|
our failure to complete new product designs in a timely
manner; |
• |
|
our inability to manufacture our new products according to
design specifications; |
19
• |
|
our inability to deliver our products to our customers in a
timely manner for any reason, including a lack of manufacturing capacity or the failure of our contracted foundries to meet targeted manufacturing
yields; and |
• |
|
our sales force’s and independent distributors’
inability to create adequate demand for our products. |
Our future operating results are likely to fluctuate and may fail to meet
expectations which could cause our stock price to decline.
Our operating results have varied in the past and
are likely to do so in the future as we attempt to meet consumer demand in the markets for advanced televisions and emerging interactive displays. Our
future operating results will depend on many factors and may fail to meet our expectations for a number of reasons. Any failure to meet these
expectations or those of securities analysts and investors could cause our stock price to fluctuate or decline significantly. A number of factors,
including those listed below, may cause fluctuations in our operating results and stock price:
• |
|
the general condition of the semiconductor industry
market; |
• |
|
fluctuations in the volume of product sales, changes in product
mix and pricing concessions on sales; |
• |
|
the timing, rescheduling or cancellation of significant customer
orders; |
• |
|
the timing of investments in, and the results of, research and
development; |
• |
|
changes in industry standards; |
• |
|
introduction of interactive television services by service
providers; |
• |
|
availability of manufacturing capacity and raw materials, and
inventory write-offs; |
• |
|
product introductions and price changes by our
competitors; |
• |
|
our ability to specify, develop, introduce and market new
products with smaller geometries, more features and higher levels of design integration in accordance with design requirements and design
cycles; |
• |
|
the level of orders received that can be shipped in a given
period; |
• |
|
changes in earning estimates or investment recommendations by
analysts; |
• |
|
changes in investors perceptions; and |
• |
|
the effect of the terrorist attacks in the United States and any
related conflicts or similar events worldwide. |
Our industry is highly competitive, and we cannot assure you that we will be
able to effectively compete.
The market for advanced televisions and emerging
interactive displays in particular, and the semiconductor industry in general, are highly competitive. We compete with a number of domestic and
international suppliers of semiconductors in our targeted markets. We expect competition to intensify as current competitors expand their product
offerings and new competitors enter our targeted markets. We believe that we must compete on the basis of a variety of factors,
including:
• |
|
conformity to industry standards; |
20
We currently compete with ATI Technologies, Inc.,
Broadcom Corporation, Genesis Microchip, Inc., Pixelworks, Inc., Trident Microsystems, Inc. and Silicon Image, Inc. In addition to these competitors,
we expect other major semiconductor manufacturers will enter our targeted markets as the broadband set-top box, advanced television and information
access device markets become more established. A number of companies, including International Business Machines Corporation, STMicroelectronics N.V.,
National Semiconductor Corporation, Equator Technologies, Inc., LSI Logic and Philips Electronics N.V., have announced that they are developing or plan
to introduce competing products in the advanced television and emerging interactive display markets which could result in significant
competition.
Some of our current and potential competitors
operate their own fabrication facilities or have a longer operating history and significantly greater financial, sales and marketing resources. They
may also have preexisting relationships with our customers or potential customers. As a result, these competitors may be able to adapt more quickly to
new or emerging products, develop new technologies, or address changes in customer requirements or devote greater resources to the development and
promotion of strategic relationships among themselves or with existing or potential customers. It is possible that new competitors or alliances among
competitors could emerge and rapidly acquire significant market share. Increased competition could harm our business, results of operations and
financial condition by, for example, increasing pressure on our profit margin or causing us to lose sales opportunities.
We depend on three independent foundries to manufacture our products based on
our forecasts, which could result in an oversupply or undersupply of products.
We do not own or operate our own fabrication
facility. We currently depend upon three outside foundries, United Manufacturing Corporation, or UMC, Taiwan Semiconductor Manufacturing Corporation,
or TSMC, both are located in Taiwan and HuaHong NEC in the People’s Republic of China. We do not have long term supply agreements with these
foundries to manufacture our semiconductor products and each has limited manufacturing capacity.
The foundries require us to provide forecasts of our
anticipated manufacturing orders in advance of receiving purchase orders from our customers. This may result in product shortages or excess product
inventory. Obtaining additional supply in the face of product shortages may be costly or not possible, especially in the short term. Our failure to
adequately forecast demand for our products would materially harm our business. For example, in fiscal 2002 we took an inventory charge related to slow
moving inventory. The foundries may allocate capacity to the production of other companies’ products while reducing delivery to us on short
notice.
We may encounter periods of semiconductor oversupply, resulting in pricing
pressure, as well as undersupply, resulting in a risk that we could be unable to fulfill our customers’ requirements.
The semiconductor industry has historically been
characterized by wide fluctuations in the demand for, and supply of, its products. These fluctuations have resulted in circumstances when supply and
demand for the industry’s products have been widely out of balance. Our operating results may be materially harmed by industry wide semiconductor
oversupply, which could result in severe pricing pressure or inventory write-downs. For example, in fiscal 2002 we took a charge for slow moving
inventory, which negatively impacted our gross margin for fiscal 2002. On the other hand, in a market with undersupply, we would have to compete with
larger companies for limited manufacturing capacity. If material shortages occur, we may incur additional costs to procure the scarce components or be
unable to have our products manufactured in a timely manner or in quantities necessary to meet our requirements. Since we outsource all of our
manufacturing, we are particularly vulnerable to supply shortages. As a result, we may be unable to fill orders and may lose customers. Any future
industry wide oversupply or undersupply of semiconductors would materially harm our business and have a negative impact on our
earnings.
If we have to qualify new independent foundries for any of our products and do
not have sufficient supply of our products on hand, we may lose revenues and damage our customer relationships.
Processes used to manufacture our products are
complex, customized to our specifications and can only be performed by a limited number of manufacturing facilities. The foundries we use have from
time to time experienced lower than anticipated manufacturing yields, particularly in connection with the introduction of new products
and
21
the installation and start up of new process technologies. In addition, the
foundries we use are located in a seismically active area, and earthquakes have caused these foundries to close for repairs, resulting in a delay in
manufacturing our products.
Although we primarily utilize two independent
foundries, most of our components are not manufactured at both foundries at any given time. The inability of one of the foundries to provide components
could result in significant delays and harm our business. In the event either foundry experienced manufacturing or financial difficulties or suffered
any damage or destruction to its facilities, or in the event of any other disruption of foundry capacity, we may not be able to qualify alternative
manufacturing sources for existing or new products in a timely manner. For example, in September 1999, Taiwan experienced a major earthquake. The
earthquake and its resulting aftershocks caused power outages and significant damage to Taiwan’s infrastructure. Similarly, in September 2001, a
typhoon hit Taiwan causing businesses in Taipei and the financial markets to close for two days. In addition, as a result of the rapid growth of the
semiconductor industry based in the industrial park where both foundries are located, severe constraints have been placed on the water and electricity
supply in that region. Any shortages of water or electricity or a natural disaster could adversely affect these foundries’ ability to supply our
products, which could have a material adverse effect on our operating results.
Even our current outside foundries would need to
have manufacturing processes qualified in the event of a disruption at the other foundry, which we may not be able to accomplish in a timely manner
sufficient to prevent an interruption in the supply of the affected products. We cannot assure you that any existing or new foundries would be able to
produce integrated circuits with acceptable manufacturing yields in the future, or will continue to have sufficient capacity to meet our needs. If our
manufacturing requirements are not satisfied, our business would be materially harmed.
Our semiconductors are complex to manufacture and may have errors or defects
which could be costly to correct.
The manufacture of semiconductors is a complex
process. Foundries may not achieve acceptable product yields from time to time due to the complexity of the integrated circuit design, inadequate
manufacturing processes and other reasons. We refer to the proportion of final acceptable integrated circuits that have been processed, assembled and
tested relative to the gross number of integrated circuits that could have been produced from the raw materials as our product yields. Identifying
defects and determining the reason for low yields may be discovered after production has begun and at various stages of the production cycle. Our
failure to discover defects early in the production cycle will result in higher costs and may require a diversion of our technical personnel and
resources away from product development in order to correct the defect. In addition, defective products that have been released into the market and
distributed to our customers and end users may result in harm to our reputation, significant warranty costs, diversion of our technical and managerial
resources and potential product liability claims that would be costly to defend.
Our software is complex and may have bugs or defects which could be costly to
correct.
Our products depend on complex software that we
develop internally and license from others. Complex software often contains defects, particularly when first introduced or when new versions are
released. Determining whether our software has defects may occur after our products are released into the market and distributed to our customers and
end users, and may result in harm to our reputation, significant warranty costs, diversion of our technical resources and potential product liability
claims that would be costly to defend and divert managerial resources.
We face foreign business, political and economic risks because a majority of our
sales are to customers outside of the United States.
Sales of our products to our OEM customers and to
distributors located outside the United States accounted for 76%, 86% and 32% of our total revenues in fiscal years 2004, 2003 and 2002. We anticipate
that sales to customers located outside the United States will continue to represent a significant portion of our total sales in future periods. In
addition, many of our domestic customers sell their products outside of North America, thereby indirectly exposing us to risks associated with foreign
commerce. Asian economic instability impacts the sales of products
22
manufactured by our customers, as does the Chinese New Year, during which time many
manufacturers and businesses close their operations. We may be negatively impacted by the terrorist attacks on the United States and the resulting
conflicts worldwide. We could also experience greater difficulties collecting accounts receivable from customers outside of the United States.
Accordingly, our operations and revenues are subject to a number of risks associated with foreign commerce.
To date, we have denominated sales of our products
in foreign countries exclusively in United States dollars. As a result, any increase in the value of the United States dollar relative to the local
currency of a foreign country will increase the price of our products in that country so that our products become relatively more expensive to
customers in the local currency of that foreign country. As a result, sales of our products in that foreign country may decline. To the extent any of
these types of risks materialize, our business would be materially harmed.
If the industries into which we sell our products experience recession or other
cyclical effects impacting our customers’ budgets, our operating results could be negatively impacted.
The primary customers for our products are companies
in the advanced television and emerging display device markets. Any significant downturn in these particular markets or in general economic conditions
which result in the cutback of research and development budgets or capital expenditures would likely result in the reduction in demand for our products
and services and could harm our business. For example, the United States economy, including the semiconductor industry, has experienced a recession,
which has negatively impact our business and operating results. A further decline in the United States economy could result from further terrorist
attacks in the United States. If the economy continues to decline as a result of the recent economic, political and social turmoil, existing and
perspective customers may continue to reduce their design budgets or delay implementation of our products, which could further harm our business and
operating results.
In addition, the markets of semiconductor products
are cyclical. In recent years, some Asian countries have experienced significant economic difficulties, including devaluation and instability business
failures and a depressed business environment. These difficulties triggered a significant downturn in the semiconductor market, resulting in reduced
budgets for chip design tools. In addition, the electronics industry has historically been subject to seasonal and cyclical fluctuations in demand for
its products, and this trend may continue in the future. These industry downturns have been, and my continue to be, characterized by diminished product
demand, excess manufacturing capacity and subsequent erosion of average selling prices. As a result, our future operating results may reflect
substantial fluctuations from period to period as a consequence of these industry patterns, general economic conditions affecting the timing of orders
from customers and other factors. Any negative factors affecting the semiconductor industry, including the downturns described here, could
significantly harm our business, financial condition and results of operations.
The rapid growth of our business and operations has strained and may continue to
strain our administrative, operational and financial resources, and our failure to manage our future growth could affect our operations and our future
ability to expand.
We have in the past and may in the future experience
rapid growth and expansion in our business and operations. Our growth has placed, and may continue to place, a significant strain on our
administrative, operational and financial resources and increased demands on our systems and controls. Our future growth may require the implementation
of a variety of new and upgraded operational and financial systems, procedures and controls, including improvement of our accounting and other internal
management systems, all of which may require substantial managerial effort. We cannot assure you that these efforts would be accomplished successfully.
Our growth has resulted in a continuing increase in the level of responsibility for both existing and new management personnel, and may require that we
recruit, hire and train a substantial number of new personnel. Our failure to manage our past and future growth could prevent us from successfully
achieving market acceptance for our products, disrupt our operations, delay our expansion and harm our business.
We depend on key personnel, the loss of whom would impair or inhibit the growth
of our business.
Our success depends on the skills, experience and
performance of our executive officers and other key management and technical personnel, many of whom would be difficult to replace. We are particularly
dependent on Eli Porat, our Chief Executive Officer and President. The competition for employees with technical skills is
23
intense, particularly in the San Francisco Bay Area, and we may not be able to
attract and retain a sufficient number of such qualified new personnel in the future. The loss of the service of one or more of our key employees, or
our failure to attract, retain and motivate qualified personnel would inhibit the growth of our business.
We rely on strategic relationships to commercialize our products, and these
relationships may require that we expend significant resources without guarantees that our endeavors will be profitable.
We rely on strategic relationships with some of our
customers who we believe are the market leaders in our target markets. These relationships often involve the proposed development by us of new products
involving significant technological challenges. Since the proposed products under development may offer potential competitive advantages to our
customers, considerable pressure is frequently placed on us to meet development schedules. While an essential element of our strategy involves
establishing such relationships, these projects require substantial amounts of our limited resources, with no guarantee of revenues to us, and could
materially detract from or delay the completion of other important development projects. Delays in development could impair the relationship between
our customers and us and negatively impact sales of the products under development. Moreover, our customers may develop their own solutions for
products currently supplied by us, which could have an adverse effect on our business.
We depend on third party subcontractors for assembly of our semiconductors which
reduces our control over the delivery, quantity, quality, or cost of our products.
Substantially all of our products are assembled by
one of three subcontractors, two of which are located in Taiwan, and one in Shanghai, People’s Republic of China. Typically, we procure services
from these subcontractors on a purchase order basis. Their availability to assemble our products could be adversely affected if either subcontractor
experiences financial difficulties or suffers any damage or destruction to its facilities or any other disruption of its assembly capacity. Because we
rely on third party subcontractors for assembly of our products, we cannot directly control product delivery schedules. We have experienced in the
past, and may experience in the future, product shortages or quality assurance problems that could increase the cost of manufacturing or testing of our
products. It is time consuming and difficult to find and qualify alternative assemblers. If we are forced to find substitute subcontractors, shipments
of our products could be delayed. Any problems associated with the delivery, quantity or cost of our products could harm our business.
Political instability in the People’s Republic of China or Taiwan could
harm our manufacturing and research and development capabilities and negatively impact our product sales.
We operate our research and development facility in
the People’s Republic of China. In addition, most all of our products are manufactured and assembled outside of the United States at facilities
operated by third parties in Taiwan. The political and economic conditions in the region, including the People’s Republic of China’s dispute
with Taiwan, may adversely impact our operations including manufacture and assembly of our products and research and development efforts. We cannot
assure you that restrictive laws or policies on the part of either the People’s Republic of China or the United States will not constrain our
ability to operate in both countries. If we are required to relocate our facilities, our business will be disrupted and our costs associated with
research and development will increase.
If our competitors use our intellectual property and proprietary rights, our
ability to compete would be impaired.
Our success depends in part upon our rights in
proprietary technology and processes that we develop and license from, and to, others. We rely on a combination of patent, copyright, trademark and
trade secret laws, as well as confidentiality agreements with our employees, consultants and strategic partners in order to protect proprietary
technologies that use our products. We cannot assure you that these measures will provide meaningful protection for our proprietary technologies and
processes, and they do not prevent independent third party development of competitive products. In addition, it is difficult to monitor unauthorized
use of technology, particularly in foreign countries where laws may not protect our proprietary rights as fully as in the United
States.
We currently have patent applications pending in the
United States, and we may seek additional patents in the future. Because the content of patent applications in the United States is not publicly
disclosed until the patent
24
is issued, applications may have been filed which relate to our products or
processes. We cannot assure you that our current patent applications or any future patent applications will result in a patent being issued with the
scope of the claims we seek, if at all, or whether any patents we have or may receive will be challenged or invalidated. The failure of any patents to
provide protection to our technology would make it easier for our competitors to offer similar products.
We may face intellectual property infringement claims that could be costly and
could result in the loss of proprietary rights which are necessary to our business.
Other parties may assert patent infringement claims
against us, including claims against technology that we license from others, and our products or processes may infringe issued patents of others.
Litigation is common in the semiconductor industry and any litigation could result in significant expense to us. Litigation would also divert the
efforts of our technical and management personnel, whether or not the litigation is determined in our favor. Litigation could also require us to
develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements may not be available on acceptable
terms, including limitations on representations and warranties regarding infringement and indemnification in the event of infringement claims. Our
failure or inability to develop non-infringing technology, license the proprietary rights on a timely basis or receive appropriate protection on
licensed technology would harm our business.
Regulation of our customers’ products may slow the process of introducing
new products and could impair our ability to compete.
The Federal Communications Commission, or the FCC,
has broad jurisdiction over our target markets. Various international entities or organizations may also regulate aspects of our business or the
business of our customers. Although our products are not directly subject to regulation by any agency, the transmission pipes, as well as much of the
equipment into which our products are incorporated, are subject to direct government regulation. For example, before they can be sold in the United
States, advanced televisions and emerging interactive displays must be tested and certified by Underwriters Laboratories and meet FCC regulations.
Accordingly, the effects of regulation on our customers or the industries in which our customers operate may, in turn, harm our business. FCC
regulatory policies affecting the ability of cable operators or telephone companies to offer certain services and other terms on which these companies
conduct their business may impede sales of our products. In addition, our business may also be adversely affected by the imposition of tariffs, duties
and other import restrictions on systems of suppliers or by the imposition of export restrictions on products that we sell internationally. Changes in
current laws or regulations or the imposition of new laws or regulations in the United States or elsewhere could harm our business.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Quantitative and Qualitative Discussion of Market Interest Rate
Risk
Our cash equivalents and short-term investments are
exposed to financial market risk due to fluctuation in interest rates, which may affect our interest income and, in the future, the fair market value
of our investments. We manage the exposure to financial market risk by performing ongoing evaluations of our investment portfolio and we presently
invest entirely in short-term investment grade government and corporate securities. These securities are highly liquid and generally mature within 12
months from the purchase date. Due to the short maturities of our investments, the carrying value should approximate the fair value. In addition, we do
not use our investments for trading or other speculative purposes. We have performed an analysis to assess the potential effect of reasonably possible
near term changes in interest and foreign currency exchange rates. The effect of any change in foreign currency exchange rates is not expected to be
material to our results of operations, cash flows or financial condition. Due to the short duration of our investment portfolio, an immediate 10%
change in interest rates would not have a material effect on the fair market value of our portfolio. Therefore, we would not expect our operating
results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities
portfolio.
Foreign Currency Exchange Risk
We are an international company, selling our
products globally and, in particular, in Japan, Korea, the People’s Republic of China and Taiwan. Although we transact our business in United
States dollars, we cannot assure you that future fluctuations in the value of the United States dollar will not affect the competitiveness of our
products,
25
gross profits realized, and results of operations. Further, we incur expenses in
the People’s Republic of China, Taiwan and other countries that are denominated in currencies other than United States dollars. We cannot estimate
the effect that an immediate 10% change in foreign currency exchange rates would have on our future operating results or cash flows as a direct result
of changes in exchange rates. However, we do not believe that we currently have any significant direct foreign currency exchange rate risk and have not
hedged exposures denominated in foreign currencies or any derivative financial instruments.
26
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
|
|
|
|
Page
|
Consolidated
Financial Statements of Tvia, Inc.
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
28 |
|
Consolidated
Balance Sheets |
|
|
|
|
29 |
|
Consolidated
Statements of Operations |
|
|
|
|
30 |
|
Consolidated
Statements of Stockholders’ Equity |
|
|
|
|
31 |
|
Consolidated
Statements of Cash Flows |
|
|
|
|
32 |
|
Notes to
Consolidated Financial Statements |
|
|
|
|
33 |
|
Financial
Statement Schedule
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
51 |
|
Schedule II:
Valuation and Qualifying Accounts for each of the three years in the period ended March 31, 2004 |
|
|
|
|
52 |
|
27
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Tvia, Inc.:
In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of operations, of stockholders’ equity and of cash flows present fairly, in all material
respects, the financial position of Tvia, Inc. and its subsidiary at March 31, 2004 and 2003, and the results of their operations and their cash flows
for each of the three years in the period ended March 31, 2004 in conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 14, 2004
28
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In
thousands)
|
|
|
|
March 31,
|
|
|
|
|
|
2004
|
|
2003
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
3,259 |
|
|
$ |
11,080 |
|
Short term
investments |
|
|
|
|
23,947 |
|
|
|
13,337 |
|
Accounts
receivable, net |
|
|
|
|
295 |
|
|
|
331 |
|
Inventories |
|
|
|
|
602 |
|
|
|
1,055 |
|
Prepaid
expenses and other current assets |
|
|
|
|
1,241 |
|
|
|
411 |
|
Total current
assets |
|
|
|
|
29,344 |
|
|
|
26,214 |
|
Property and
equipment, net |
|
|
|
|
1,947 |
|
|
|
3,209 |
|
Other
assets |
|
|
|
|
112 |
|
|
|
1,770 |
|
Total
assets |
|
|
|
$ |
31,403 |
|
|
$ |
31,193 |
|
|
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
|
$ |
201 |
|
|
$ |
351 |
|
Accrued
expenses |
|
|
|
|
657 |
|
|
|
1,175 |
|
Short-term
portion of capital leases |
|
|
|
|
486 |
|
|
|
415 |
|
Total current
liabilities |
|
|
|
|
1,344 |
|
|
|
1,941 |
|
Long-term
portion of capital leases |
|
|
|
|
— |
|
|
|
486 |
|
Total
liabilities |
|
|
|
|
1,344 |
|
|
|
2,427 |
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000 shares authorized;
none outstanding |
|
|
|
|
— |
|
|
|
— |
|
Common stock,
$0.001 par value; 125,000 shares authorized; 22,576 and 22,139 shares outstanding, respectively |
|
|
|
|
23 |
|
|
|
22 |
|
Additional
paid-in-capital |
|
|
|
|
92,798 |
|
|
|
92,444 |
|
Accumulated
comprehensive income |
|
|
|
|
8 |
|
|
|
6 |
|
Accumulated
deficit |
|
|
|
|
(62,020 |
) |
|
|
(62,956 |
) |
Treasury
stock |
|
|
|
|
(750 |
) |
|
|
(750 |
) |
Total
stockholders’ equity |
|
|
|
|
30,059 |
|
|
|
28,766 |
|
Total
liabilities and stockholders’ equity |
|
|
|
$ |
31,403 |
|
|
$ |
31,193 |
|
The accompanying notes are an integral part of these consolidated financial
statements.
29
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales |
|
|
|
$ |
2,042 |
|
|
$ |
1,771 |
|
|
$ |
11,342 |
|
Development
contracts and other |
|
|
|
|
267 |
|
|
|
461 |
|
|
|
498 |
|
Total
revenues |
|
|
|
|
2,309 |
|
|
|
2,232 |
|
|
|
11,840 |
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
(excluding amortization of deferred compensation of $0, $9 and $19, respectively) |
|
|
|
|
1,235 |
|
|
|
1,460 |
|
|
|
8,522 |
|
Development
contracts and other |
|
|
|
|
88 |
|
|
|
83 |
|
|
|
109 |
|
Total cost of
revenues |
|
|
|
|
1,323 |
|
|
|
1,543 |
|
|
|
8,631 |
|
Gross
profit |
|
|
|
|
986 |
|
|
|
689 |
|
|
|
3,209 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development (excluding amortization of deferred stock compensation of $0, $155 and $590, respectively) |
|
|
|
|
6,823 |
|
|
|
8,983 |
|
|
|
12,664 |
|
Sales,
general and administrative (excluding amortization of deferred stock compensation of $0, $431and $963, respectively) |
|
|
|
|
2,667 |
|
|
|
3,545 |
|
|
|
5,056 |
|
Amortization
of deferred stock compensation |
|
|
|
|
— |
|
|
|
595 |
|
|
|
1,572 |
|
Restructuring
charges |
|
|
|
|
— |
|
|
|
950 |
|
|
|
— |
|
Total
operating expenses |
|
|
|
|
9,490 |
|
|
|
14,073 |
|
|
|
19,292 |
|
Operating
loss |
|
|
|
|
(8,504 |
) |
|
|
(13,384 |
) |
|
|
(16,083 |
) |
|
Other income
(expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
|
401 |
|
|
|
703 |
|
|
|
1,818 |
|
Interest
expense |
|
|
|
|
(11 |
) |
|
|
(14 |
) |
|
|
— |
|
Sale of
software business |
|
|
|
|
9,075 |
|
|
|
— |
|
|
|
— |
|
Other income
(expense), net |
|
|
|
|
9,465 |
|
|
|
689 |
|
|
|
1,818 |
|
Income (loss)
before income taxes |
|
|
|
|
961 |
|
|
|
(12,695 |
) |
|
|
(14,265 |
) |
Provision for
income taxes |
|
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
Net income
(loss) |
|
|
|
$ |
936 |
|
|
$ |
(12,695 |
) |
|
$ |
(14,265 |
) |
Basic and
diluted net income (loss) per share: |
|
|
|
$ |
0.04 |
|
|
$ |
(0.58 |
) |
|
$ |
(0.66 |
) |
Shares used
in computing basic net income (loss) |
|
|
|
|
22,323 |
|
|
|
21,952 |
|
|
|
21,631 |
|
Shares used
in computing diluted net income (loss) |
|
|
|
|
23,982 |
|
|
|
21,952 |
|
|
|
21,631 |
|
The accompanying notes are an integral part of these consolidated financial
statements.
30
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(In thousands, except share data)
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Par
Amount
|
|
Additional
Paid-in
Capital
|
|
Deferred
Stock
Compensation
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Deficit
|
|
Treasury
Stock
|
|
Stockholders’
Equity
|
Balance at
March 31, 2001 |
|
|
|
|
21,853,833 |
|
|
$ |
22 |
|
|
$ |
92,075 |
|
|
$ |
(2,167 |
) |
|
$ |
148 |
|
|
$ |
(35,996 |
) |
|
$ |
(660 |
) |
|
$ |
53,422 |
|
Amortization of
deferred stock compensation |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,572 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,572 |
|
Issuance of
common stock under ESPP and through exercises of stock options |
|
|
|
|
307,915 |
|
|
|
— |
|
|
|
313 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
313 |
|
Unrealized loss
on available-for-sale investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(117 |
) |
|
|
— |
|
|
|
— |
|
|
|
(117 |
) |
Net
loss |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,265 |
) |
|
|
— |
|
|
|
(14,265 |
) |
Balance at
March 31, 2002 |
|
|
|
|
22,161,748 |
|
|
|
22 |
|
|
|
92,388 |
|
|
|
(595 |
) |
|
|
31 |
|
|
|
(50,261 |
) |
|
|
(660 |
) |
|
|
40,925 |
|
Amortization of
deferred stock compensation |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
595 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
595 |
|
Purchase of
treasury stock |
|
|
|
|
(143,700 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(90 |
) |
|
|
(90 |
) |
Repurchase of
common stock |
|
|
|
|
(93,691 |
) |
|
|
— |
|
|
|
(14 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14 |
) |
Issuance of
common stock under ESPP and through exercises of stock options |
|
|
|
|
238,865 |
|
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70 |
|
Unrealized loss
on available-for-sale investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25 |
) |
|
|
— |
|
|
|
— |
|
|
|
(25 |
) |
Net
loss |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,695 |
) |
|
|
— |
|
|
|
(12,695 |
) |
Balance at
March 31, 2003 |
|
|
|
|
22,163,222 |
|
|
|
22 |
|
|
|
92,444 |
|
|
|
— |
|
|
|
6 |
|
|
|
(62,956 |
) |
|
|
(750 |
) |
|
|
28,766 |
|
Issuance of
common stock under ESPP and through exercises of stock options |
|
|
|
|
412,767 |
|
|
|
1 |
|
|
|
354 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
355 |
|
Unrealized gain
on available-for-sale investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Net
income |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
936 |
|
|
|
— |
|
|
|
936 |
|
Balance at
March 31, 2004 |
|
|
|
|
22,575,989 |
|
|
$ |
23 |
|
|
$ |
92,798 |
|
|
$ |
— |
|
|
$ |
8 |
|
|
$ |
(62,020 |
) |
|
$ |
(750 |
) |
|
$ |
30,059 |
|
The accompanying notes are an integral part of these consolidated financial
statements.
31
TVIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Cash Flows
from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
|
|
$ |
936 |
|
|
$ |
(12,695 |
) |
|
$ |
(14,265 |
) |
Adjustments
to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
|
|
1,559 |
|
|
|
1,312 |
|
|
|
1,091 |
|
Amortization
of deferred stock compensation |
|
|
|
|
— |
|
|
|
595 |
|
|
|
1,572 |
|
Write-down of
license technology |
|
|
|
|
1,449 |
|
|
|
69 |
|
|
|
500 |
|
Gain on sale
of software unit |
|
|
|
|
(9,075 |
) |
|
|
— |
|
|
|
— |
|
Changes in
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
|
36 |
|
|
|
(167 |
) |
|
|
1,777 |
|
Inventories |
|
|
|
|
453 |
|
|
|
455 |
|
|
|
2,833 |
|
Prepaid
expenses and other current assets |
|
|
|
|
(80 |
) |
|
|
851 |
|
|
|
90 |
|
Accounts
payable |
|
|
|
|
(150 |
) |
|
|
(340 |
) |
|
|
(441 |
) |
Accrued
expenses |
|
|
|
|
(518 |
) |
|
|
(596 |
) |
|
|
(1,110 |
) |
Net cash used
in operating activities |
|
|
|
|
(5,390 |
) |
|
|
(10,516 |
) |
|
|
(7,953 |
) |
|
Cash Flows
from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
(purchase) of available-for-sale investments |
|
|
|
|
(10,608 |
) |
|
|
15,698 |
|
|
|
(3,762 |
) |
Proceeds from
sale of software unit |
|
|
|
|
8,373 |
|
|
|
— |
|
|
|
— |
|
Purchase of
property and equipment |
|
|
|
|
(92 |
) |
|
|
(366 |
) |
|
|
(2,062 |
) |
Purchase of
intangible assets |
|
|
|
|
(44 |
) |
|
|
(27 |
) |
|
|
(1,358 |
) |
Net cash
provided by (used in) investing activities |
|
|
|
|
(2,371 |
) |
|
|
15,305 |
|
|
|
(7,182 |
) |
|
Cash Flows
from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of
obligations under capital leases |
|
|
|
|
(415 |
) |
|
|
(120 |
) |
|
|
— |
|
Proceeds from
issuance of common stock |
|
|
|
|
355 |
|
|
|
56 |
|
|
|
313 |
|
Treasury
stock repurchase |
|
|
|
|
— |
|
|
|
(90 |
) |
|
|
— |
|
Net cash
provided by (used in) financing activities |
|
|
|
|
(60 |
) |
|
|
(154 |
) |
|
|
313 |
|
Net increase
(decrease) in cash and cash equivalents |
|
|
|
|
(7,821 |
) |
|
|
4,635 |
|
|
|
(14,822 |
) |
Cash and cash
equivalents at beginning of period |
|
|
|
|
11,080 |
|
|
|
6,445 |
|
|
|
21,267 |
|
Cash and cash
equivalents at end of period |
|
|
|
$ |
3,259 |
|
|
$ |
11,080 |
|
|
$ |
6,445 |
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid |
|
|
|
$ |
11 |
|
|
$ |
14 |
|
|
$ |
— |
|
Acquisition
of property and equipment under capital leases |
|
|
|
$ |
— |
|
|
$ |
1,021 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these consolidated financial
statements.
32
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Business
Tvia, Inc. (“the Company” or
“Tvia”) was incorporated in California in March 1993 and reincorporated as a Delaware corporation in August 2000. Tvia designs, develops and
markets multi-media display processors for the advanced television and emerging interactive display markets. The Company’s products, which consist
of integrated circuits and proprietary software, process video, graphics and audio signals from terrestrial broadcast, narrow band telephone lines,
cable, satellite and Ethernet and blend them together on one or more displays for a high quality, customized and interactive viewing experience. The
Company sells its multi-media display processors to manufacturers of advanced television and emerging interactive displays. The Company has a
subsidiary in the People’s Republic of China that supports the Company’s research and development activities and performs product testing and
sales and marketing functions.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in
accordance with generally accepted accounting principles accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences
could be material and affect the results of operations reported in future periods.
Consolidation
The consolidated financial statements herein
presented include the results and financial position of Tvia and its wholly-owned subsidiary in China. The functional currency of the Chinese
subsidiary is the U.S. dollar; accordingly, all gains and losses arising from foreign currency transactions in currencies other than the U.S. dollar
are included in the consolidated statements of operations. All intercompany transactions and balances have been eliminated in
consolidation.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investment
securities with original maturities of three months or less from the date of purchase to be cash and cash equivalents. Management determines the
appropriate classification of short-term investments at the time of purchase and evaluates such designations as of each balance sheet date. To date,
all short-term investments have been classified as available-for-sale and are carried at fair value with unrealized gains and losses, if any, included
as a component of accumulated comprehensive loss in stockholders’ equity, net of any related tax effects. Interest, dividends and realized gains
and losses are included in other expense (income) in the consolidated statements of operations.
Inventories
Inventories are stated at the lower of cost
(first-in, first-out) or market and include materials, labor and overhead. Allowances when required are made to reduce excess inventories to their
estimated net realizable values. Due to competitive pressures and technological innovation, it is possible that estimates of net realizable value would
change in the near term.
Property and Equipment
Property and equipment are carried at cost and are
depreciated using the straight-line method over the assets’ estimated useful life of two to five years. Leasehold improvements are amortized over
the shorter of the asset life or the remaining lease term. Management has determined asset lives based on their historical experience of technical
obsolescence of equipment and the short life of tooling that is specific to certain product families.
33
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Significant Accounting Policies (Continued)
Long-Lived Assets
The Company reviews long-lived assets and certain
identifiable intangibles for impairment. The Company reviews assets to be held and used whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. The Company measures recoverability of assets by comparing their carrying amount to the
future undiscounted cash flows that they are expected to generate. If an asset is considered to be impaired, the impairment reflects the amount by
which the carrying value of the asset exceeds its fair market value. The Company wrote off $1.5 million of licensed technology in the third quarter of
fiscal year 2004.
Revenue Recognition
The Company recognizes revenue from product sales
upon shipment to the original equipment manufacturers, or OEMs, and end users provided that persuasive evidence of an arrangement exists, the price is
fixed or determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements,
and there are no remaining significant obligations. Reserves for sales returns and allowances are recorded at the time of shipment. Our sales to
distributors are made under agreements allowing for returns or credits under certain circumstances. The Company defers recognition of revenue on sales
to distributors until products are resold by the distributor to the end user. The Company warrants its products; warranty claims historically have been
insignificant.
The Company also sells software development kits and
application modules to OEMs. The Company recognizes sales of software development kits and application modules when an agreement has been executed or a
definitive purchase order has been received and the product has been delivered, no significant obligations with regard to implementation remain, the
fee is fixed and determinable and collectibility is probable. The maintenance portion of the arrangements is recognized over the maintenance period on
a straight-line basis.
Software Development Costs
The Company accounts for software development costs
in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed.” The Company has expensed all software development costs to date as substantially all of such development
costs have been incurred prior to the Company’s products attaining technological feasibility.
Research and Development Expenses
Research and development expenses consist primarily
of salaries and related costs of employees engaged in research, design and development activities. The Company expenses all research and development
related expenses in the period in which such expenses are incurred.
Income Taxes
Income taxes are accounted for on the asset and
liability method. Under this method, deferred income taxes are recognized based on the estimated future tax effects of differences between the
financial and tax basis of assets and liabilities under the provision of enacted tax laws. The effects of deferred taxes of a change in tax rate is
recognized in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred taxes to the amounts
expected to be realized.
34
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Significant Accounting Policies (Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change
in equity during a period from transactions and events from non-owner sources. The primary component of comprehensive income (loss) for the Company
includes unrealized gains and losses are disclosed in the Consolidated Statement of Stockholders’ equity. A summary of comprehensive gain (loss)
is as follows (in thousands):
|
|
|
|
For the Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net income
(loss) |
|
|
|
$ |
936 |
|
|
$ |
(12,695 |
) |
|
$ |
(14,265 |
) |
Unrealized
gain (loss) on available-for-sale investments |
|
|
|
|
2 |
|
|
|
(25 |
) |
|
|
(117 |
) |
Comprehensive
income (loss) |
|
|
|
$ |
938 |
|
|
$ |
(12,720 |
) |
|
$ |
(14,382 |
) |
Stock-Based Compensation
The Company accounts for stock-based employee
compensation arrangements using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees” (“APB No. 25”) and Financial Accounting Standards Board Interpretation No. 44 “Accounting for Certain
Transactions Involving Stock Compensation” (FIN 44). Accordingly, compensation cost for stock options is measured as the excess, if any, of the
fair value of the Company’s stock at the date of grant over the stock option exercise price. Expense associated with stock-based compensation is
amortized on an accelerated basis over the vesting period of the individual award consistent with the method described in Financial Accounting
Standards Board Interpretation No. 28 (“FIN 28”). The Company accounts for stock issued to non-employees in accordance with the provisions of
Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and Emerging Issues
Task Force Consensus No. 96-18, “Accounting for Equity Instruments that are offered to other than employees for acquiring or in conjunction with
selling goods or services” (“EITF 96-18”). Under SFAS No. 123 and EITF 96-18, stock option awards issued to non-employees are accounted
for at their fair value, determined using the Black-Scholes option pricing method. The fair value of each non-employee stock option or award is
remeasured at each period end until a commitment date is reached, which is generally the vesting date. The following table illustrates the effect on
net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to the stock-based employee
compensation.
|
|
|
|
For the Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
(In thousands, except per share data)
|
|
Net income
(loss) as reported |
|
|
|
$ |
936 |
|
|
$ |
(12,695 |
) |
|
$ |
(14,265 |
) |
Add:
Stock-based employee compensation expense included in reported net income (loss) |
|
|
|
|
— |
|
|
|
595 |
|
|
|
1,572 |
|
Deduct: Total
stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
|
|
|
|
(1,315 |
) |
|
|
(2,195 |
) |
|
|
(3,765 |
) |
Pro forma net
income (loss) |
|
|
|
$ |
(379 |
) |
|
$ |
(14,295 |
) |
|
$ |
(16,458 |
) |
Basic and
diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported |
|
|
|
$ |
0.04 |
|
|
$ |
(0.58 |
) |
|
$ |
(0.66 |
) |
Pro
forma |
|
|
|
$ |
(0.02 |
) |
|
$ |
(0.65 |
) |
|
$ |
(0.76 |
) |
Net Income (Loss) Per Share
Historical net income (loss) per share has been
calculated in accordance with the Financial Accounting Standards Board Statement No. 128, “Earnings Per Share.” Basic net income (loss) per
share is computed using the weighted average number of shares of common stock outstanding. Diluted income (loss) per share information
35
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Significant Accounting Policies (Continued)
is the same as
basic net income (loss) per share since common shares issuable upon conversion of stock
options and warrants are antidilutive.
Recent Accounting Pronouncements
Financial Accounting Standards Board
(“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. FIN
46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the
variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 are effective immediately
for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to February 1, 2003, the provisions of FIN 46 were
required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. However, in October 2003, the FASB
deferred the effective date of FIN 46 to the end of the first interim or annual period ending after December 31, 2003 for those arrangements entered
into prior to February 1, 2003. The adoption of this standard did not have a material impact on the Company’s consolidated financial position,
results of operations or cash flows.
In May 2003, the FASB issued Statement of Financial
Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in
some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material impact on the Company’s
consolidated financial position, results of operations or cash flows.
3. Balance Sheet Components (in thousands)
|
|
|
|
March 31,
2004
|
|
March 31,
2003
|
Accounts
receivable, net:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
$ |
298 |
|
|
$ |
381 |
|
Less:
Allowance for doubtful accounts |
|
|
|
|
(3 |
) |
|
|
(50 |
) |
|
|
|
|
$ |
295 |
|
|
$ |
331 |
|
Allowance
for doubful accounts:
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of the year |
|
|
|
$ |
50 |
|
|
$ |
112 |
|
Addition |
|
|
|
|
15 |
|
|
|
8 |
|
Utilized |
|
|
|
|
(62 |
) |
|
|
(70 |
) |
Balance at
end of the year |
|
|
|
$ |
3 |
|
|
$ |
50 |
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and agency securities |
|
|
|
$ |
6,000 |
|
|
$ |
2,810 |
|
U.S.
corporate and bank debt |
|
|
|
|
17,947 |
|
|
|
10,527 |
|
|
|
|
|
$ |
23,947 |
|
|
$ |
13,337 |
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
Raw
materials |
|
|
|
$ |
165 |
|
|
$ |
446 |
|
Work-in-process |
|
|
|
|
42 |
|
|
|
3 |
|
Finished
goods |
|
|
|
|
395 |
|
|
|
606 |
|
|
|
|
|
$ |
602 |
|
|
$ |
1,055 |
|
36
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Balance Sheet Components (in thousands) (Continued)
|
|
|
|
March 31,
2004
|
|
March 31,
2003
|
Property
and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
Furniture and
fixtures (Useful life of two years) |
|
|
|
$ |
39 |
|
|
$ |
85 |
|
Machinery and
equipment (Useful life of two to five years) |
|
|
|
|
2,775 |
|
|
|
3,158 |
|
Software
(Useful life of two to five years) |
|
|
|
|
2,851 |
|
|
|
3,713 |
|
|
|
|
|
|
5,665 |
|
|
|
6,956 |
|
Less:
Accumulated depreciation and amortization |
|
|
|
|
(3,718 |
) |
|
|
(3,747 |
) |
|
|
|
|
$ |
1,947 |
|
|
$ |
3,209 |
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
License
technology (Amortized over five years) |
|
|
|
$ |
81 |
|
|
$ |
1,969 |
|
Less:
Amortization |
|
|
|
|
(1 |
) |
|
|
(231 |
) |
License
technology, net |
|
|
|
|
80 |
|
|
|
1,738 |
|
Deposits |
|
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
$ |
112 |
|
|
$ |
1,770 |
|
As a result of a recent change in the Company’s
product focus, the Company wrote off a licensed technology which had a cost of $1.9 million and accumulated amortization of $0.4
million.
Accrued
expenses:
|
|
|
|
|
|
|
|
|
|
|
Accrued
compensation costs |
|
|
|
$ |
421 |
|
|
$ |
593 |
|
Accrued
software maintenance |
|
|
|
|
13 |
|
|
|
99 |
|
Other |
|
|
|
|
223 |
|
|
|
483 |
|
|
|
|
|
$ |
657 |
|
|
$ |
1,175 |
|
4. Short-term Investments
The value of the Company’s investments by major
security type is as follows:
|
|
|
|
As of March 31, 2004
|
|
|
|
|
|
Amortized
Cost
|
|
Aggregate
Fair Value
|
|
Unrealized
Gain
|
|
|
|
|
(In thousands)
|
|
U.S.
government and agency securities |
|
|
|
$ |
6,000 |
|
|
$ |
6,000 |
|
|
$ |
— |
|
U.S.
corporate and bank debt |
|
|
|
|
17,939 |
|
|
|
17,947 |
|
|
|
8 |
|
Total |
|
|
|
$ |
23,939 |
|
|
$ |
23,947 |
|
|
$ |
8 |
|
|
|
|
|
As of March 31, 2003
|
|
|
|
|
|
Amortized
Cost
|
|
Aggregate
Fair Value
|
|
Unrealized
Gain
|
|
|
|
|
(In thousands)
|
|
U.S.
government and agency securities |
|
|
|
$ |
2,806 |
|
|
$ |
2,810 |
|
|
$ |
4 |
|
U.S.
corporate and bank debt |
|
|
|
|
10,525 |
|
|
|
10,527 |
|
|
|
2 |
|
Total |
|
|
|
$ |
13,331 |
|
|
$ |
13,337 |
|
|
$ |
6 |
|
37
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Sale of Software Business and Software-Related Assets
On July 3, 2003, the Company sold its software
business and software-related assets to MediaTek, Inc for $10.0 million. The software assets were developed internally to support the Company’s
products, including Home IT, advanced digital video broadcasting, MPEG 4 software, SDK software and software drivers. The development costs related to
the software assets were expensed as incurred. Under the agreement, MediaTek granted to the Company a royalty-free license to continue to use those
software assets to support its existing products and fulfill its maintenance obligations to its existing customers. The Company reported a gain of $9.1
million from this transaction in the results of operations in the fiscal year ended March 31, 2004. At March 31, 2004, $750,000 was in an escrow
account and was received in April 2004.
6. Restructuring Charges
During fiscal 2003, the Company recorded a
restructuring charge of $950,000 relating to a headcount reduction and an operating lease for an abandoned building. The restructuring was recorded to
align the cost structure with changing market conditions. The plan resulted in headcount reduction of approximately 49 employees, which was made up of
55% of research and development staff, 23% of operations staff, 16% of general and administrative staff and 6% of sales and marketing staff. The charge
in relation to the operating lease of the abandoned building represents the estimated difference between the total non-discounted future sublease
income and the non-discounted lease commitments relating to this building.
The following table summarizes the activity
associated with the restructuring liabilities (in thousands):
|
|
|
|
License
Technology
|
|
Leased
Facilities
|
|
Severances
and Benefits
|
|
Total
|
Balance at March
31, 2002 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Additions |
|
|
|
|
69 |
|
|
|
162 |
|
|
|
719 |
|
|
|
950 |
|
Non-cash
charges |
|
|
|
|
(69 |
) |
|
|
— |
|
|
|
— |
|
|
|
(69 |
) |
Cash
charges |
|
|
|
|
— |
|
|
|
(139 |
) |
|
|
(719 |
) |
|
|
(858 |
) |
Balance at March
31, 2003 |
|
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
23 |
|
Cash
charges |
|
|
|
|
— |
|
|
|
(23 |
) |
|
|
— |
|
|
|
— |
|
Balance at March
31,2004 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
7. Income Taxes
The Company recorded a provision of $25,000 for
Federal alternative minimum tax and none for state and foreign income taxes in the fiscal year ended March 31, 2004. There were no provisions for
income taxes in the fiscal years ended March 31, 2003 and 2002.
The components of the net deferred income tax asset
were as follows:
|
|
|
|
March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
|
|
|
(in thousands)
|
|
Net operating
losses |
|
|
|
$ |
16,073 |
|
|
$ |
16,052 |
|
Reserves and
accruals not deductible for tax purposes |
|
|
|
|
977 |
|
|
|
1,208 |
|
Available tax
credit carryforwards |
|
|
|
|
2,784 |
|
|
|
2,512 |
|
Other timing
differences |
|
|
|
|
1,870 |
|
|
|
1,775 |
|
|
|
|
|
|
21,704 |
|
|
|
21,547 |
|
Valuation
allowance |
|
|
|
|
(21,704 |
) |
|
|
(21,547 |
) |
Net deferred
tax asset |
|
|
|
$ |
— |
|
|
$ |
— |
|
38
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Income Taxes (Continued)
At March 31, 2004, the Company had net cumulative
operating loss carryforwards for federal and state income tax reporting purposes of approximately $44 million and $16 million, respectively. The
federal net operating loss carryforwards expire on various dates through 2024. The state net operating loss carryforwards expire on various dates
through 2014. As of March 31, 2004, the Company had federal and state research and development tax credit carryforwards of approximately $1.5 million
and $1.6 million, respectively, available to offset future taxes. Utilization of net operating losses may be subject to annual limitations due to
ownership change limitations imposed by the Internal Revenue Service and similar state provisions. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainty regarding the realization of the asset balance due to the net losses incurred and lack of taxable
income.
The China subsidiary of the Company has been granted
a full exemption from Enterprise Income Tax (“EIT”) in accordance with the China Law of Enterprise Income Tax, for the first two years and a
50% reduction in EIT for the next three years, commencing from the first profitable year after offsetting all tax losses carried forward (available for
carry forward for a maximum of five years). As of March 31, 2004, no EIT was payable.
The difference between the actual tax provision
(benefit) and the amount obtained by applying the U.S. Federal statutory rate to income (loss) before provision for income taxes (benefit) is as
follows:
|
|
|
|
March 31,
|
|
|
|
|
|
2004
|
|
2003
|
Tax provision
(benefit) at statutory rate |
|
|
|
|
34.0 |
% |
|
|
(34.0 |
%) |
Net operating
losses not currently benefited |
|
|
|
|
0.0 |
% |
|
|
33.8 |
% |
Valuation
allowance |
|
|
|
|
25.4 |
% |
|
|
(1.5 |
%) |
Other |
|
|
|
|
3.6 |
% |
|
|
1.7 |
% |
Utilization
of net operating losses |
|
|
|
|
(60.2 |
%) |
|
|
0.0 |
% |
|
|
|
|
|
2.8 |
% |
|
|
0.0 |
% |
8. Earnings per Share
The following table presents the calculation of
basic and diluted net loss per share (in thousands, except per share data):
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net income
(loss) |
|
|
|
$ |
936 |
|
|
$ |
(12,695 |
) |
|
$ |
(14,265 |
) |
Basic and
diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding |
|
|
|
|
22,340 |
|
|
|
22,053 |
|
|
|
21,925 |
|
Less:
Weighted average shares of common stock subject to repurchase |
|
|
|
|
(17 |
) |
|
|
(101 |
) |
|
|
(294 |
) |
Weighted
average shares used in computing basic net income (loss) per share |
|
|
|
|
22,323 |
|
|
|
21,952 |
|
|
|
21,631 |
|
Diluted
effect of common share equivalents |
|
|
|
|
1,659 |
|
|
|
— |
|
|
|
— |
|
Weighted
average shares used in computing diluted net income (loss) per share |
|
|
|
|
23,982 |
|
|
|
21,952 |
|
|
|
21,631 |
|
Basic and
diluted net income (loss) per share |
|
|
|
$ |
0.04 |
|
|
$ |
(0.58 |
) |
|
$ |
(0.66 |
) |
Options and
warrants excluded from the computation Of diluted net income (loss) per share |
|
|
|
|
1,364 |
|
|
|
4,710 |
|
|
|
4,162 |
|
39
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Stockholders’ Equity and Employee Compensation Plans
Stock Option Plans
2000 Stock Incentive Plan and 2000 Employee Stock Purchase Plan
The 2000 Stock Incentive Plan (the “2000
Plan”) provides for the issuance of shares of the Company’s common stock to directors, employees and consultants. The 2000 Plan provides for
the issuance of incentive stock options or non-qualified stock options. The 2000 Plan provides for the issuance of up to 2,333,333 shares of common
stock, plus, commencing on January 1, 2001, annual increases equal to the lesser of 73,000 shares (amended on August 21, 2001 to 730,000 shares), 3% of
the fully diluted outstanding common stock on January 1 of each year, or a lesser amount determined by the Board of Directors. Pursuant to the 2000
Plan, the exercise price for incentive stock options is at least 100% of the fair market value on the date of grant or for employees owning in excess
of 10% of the voting power of all classes of stock, 110% of the fair market value on the date of grant. For non-qualified stock options, the exercise
price is no less than 85% of the fair market value on the date of grant. Options generally expire in 10 years. Options generally vest ratably over four
years beginning the date of grant. As of March 31, 2004, 2,194,844 options were available for grant under the 2000 Plan.
In March 2000, the Board of Directors adopted an
Employee Stock Purchase Plan (the “ESPP”). A total of 333,333 shares (amended in May 2004 to 833,333 shares) of the Company’s common
stock were reserved for issuance under the ESPP, plus, commencing on April 1, 2001, annual increases equal to the lesser of 83,333 shares, 3% of the
outstanding common stock on such date, or a lesser amount determined by the Board of Directors. Each participant may purchase up to 4,000 shares on any
purchase date. The ESPP permits eligible employees to contribute up to 15% of cash compensation toward the semi-annual purchase of the Company’s
common stock. The purchase price is 85% of the fair market value on the day prior to the beginning of the six-month period at which an eligible
employee is enrolled, or the end of each six-month offering period, whichever is lower. Employees purchased 117,745, 39,851 and 251,289 in fiscal 2004,
2003 and 2002, respectively. As of March 31, 2004, 589,047 shares were available for purchase under the ESPP.
1999 Stock Incentive Plan
The Stock Incentive Plan (the “1999 Plan”)
provides for the issuance of up to 5,166,667 shares of the Company’s common stock to directors, employees and consultants. The 1999 Plan provides
for the issuance of restricted stock bonuses, restricted stock purchase rights, incentive stock options or non-qualified stock options. Pursuant to the
1999 Plan, the exercise price for incentive stock options is at least 100% of the fair market value on the date of grant or for employees owning in
excess of 10% of the voting power of all classes of stock, 110% of the fair market value on the date of grant. For non-qualified stock options, the
exercise price is no less than 85% of the fair market value on the date of grant.
Options generally expire in 10 years. Vesting
periods are determined by the Board of Directors; however, options generally vest ratably over four years beginning one year after the date of grant.
Options may be exercised prior to full vesting. Any unvested shares so exercised are subject to a repurchase right in favor of the Company with the
repurchase price to be equal to the original purchase price of the stock. The right to repurchase at the original price lapses at a minimum rate of 20%
per year over five years from the date the options granted. The 2000 Plan is the successor to the 1999 Plan. Since the 2000 Plan became effective, no
further grants were made under the 1999 Plan.
1994 Stock Option Plan
The Stock Option Plan (the “1994 Plan”)
provides for the issuance of options to acquire the Company’s common stock to directors, employees and consultants. The 1994 Plan provides for the
issuance of incentive stock options or non-qualified stock options. Pursuant to the 1994 Plan, the exercise price for incentive stock options is at
least 100% of the fair market value on the date of grant or for employees owning in excess of 10% of the voting power of all classes of stock, 110% of
the fair market value on the date of grant. For non-qualified stock
40
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Stockholders’ Equity and Employee Compensation Plans
(Continued)
options, the exercise price is no less than 85% of the fair market value on the
date of grant. Options generally expire in 10 years. Options generally vest ratably over five years beginning the date of grant. In June 1999, all
options outstanding under the 1994 Plan were cancelled and reissued under the 1999 Plan with the same terms and conditions as the previous
options.
Out of Plan Options
In November 2001, the Company issued two out of plan
non-qualified options to acquire the Company’s common stock. One grant was for 800,000 shares, vesting over a 4 year period. The second grant was
for 200,000 shares, vesting over a 6 year period but with a provision for earlier vesting one year after the grant date provided that certain criteria
are achieved. Both grants had an exercise price of $1.27 per share, the fair market value on the date of grant, and expire in 10
years.
The following table summarizes activity under all of
the Company’s stock option plans and out-of-plan options:
|
|
|
|
Outstanding
Options
|
|
Weighted Average
Exercise Price
|
Balance at
March 31, 2001 |
|
|
|
|
2,761,057 |
|
|
$ |
4.97 |
|
Granted |
|
|
|
|
2,530,324 |
|
|
|
1.66 |
|
Exercised |
|
|
|
|
(56,623 |
) |
|
|
0.26 |
|
Cancellations |
|
|
|
|
(1,073,105) |
(1) |
|
|
6.51 |
|
Balance at
March 31, 2002 |
|
|
|
|
4,161,653 |
|
|
|
2.62 |
|
Granted |
|
|
|
|
2,233,401 |
|
|
|
0.86 |
|
Exercised |
|
|
|
|
(199,014 |
) |
|
|
0.26 |
|
Cancellations |
|
|
|
|
(1,746,232 |
) |
|
|
2.81 |
|
Balance at
March 31, 2003 |
|
|
|
|
4,449,808 |
|
|
|
1.79 |
|
Granted |
|
|
|
|
1,347,333 |
|
|
|
1.43 |
|
Exercised |
|
|
|
|
(295,022 |
) |
|
|
0.64 |
|
Cancellations |
|
|
|
|
(607,736 |
) |
|
|
1.88 |
|
Balance at
March 31, 2004 |
|
|
|
|
4,894,383 |
|
|
$ |
1.74 |
|
| (1) |
|
Includes 624,028 options cancelled pursuant to the Company’s
agreements with certain officers and employees. |
Options Outstanding
|
|
|
Options Exercisable
|
|
Number
Outstanding at
March 31, 2004
|
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
Exercisable at
March 31, 2004
|
|
|
Weighted Average
Exercise Price
|
| 242,378 |
|
|
|
|
5.56 |
|
|
$ |
0.27 |
|
|
|
242,378 |
|
|
$ |
0.27 |
|
| 844,824 |
|
|
|
|
8.56 |
|
|
|
0.50 |
|
|
|
430,117 |
|
|
|
0.50 |
|
| 500,333 |
|
|
|
|
8.91 |
|
|
|
0.66 |
|
|
|
115,603 |
|
|
|
0.58 |
|
| 1,000,000 |
|
|
|
|
7.67 |
|
|
|
1.27 |
|
|
|
1,000,000 |
|
|
|
1.27 |
|
| 54,081 |
|
|
|
|
7.09 |
|
|
|
1.50 |
|
|
|
52,101 |
|
|
|
1.50 |
|
| 1,015,000 |
|
|
|
|
9.50 |
|
|
|
1.57 |
|
|
|
— |
|
|
|
— |
|
| 592,681 |
|
|
|
|
7.73 |
|
|
|
1.88 |
|
|
|
448,545 |
|
|
|
1.87 |
|
| 498,754 |
|
|
|
|
6.46 |
|
|
|
4.60 |
|
|
|
472,476 |
|
|
|
4.70 |
|
| 111,665 |
|
|
|
|
6.01 |
|
|
|
8.86 |
|
|
|
111,039 |
|
|
|
8.86 |
|
| 34,667 |
|
|
|
|
6.33 |
|
|
|
11.00 |
|
|
|
31,775 |
|
|
|
11.00 |
|
| 4,894,383 |
|
|
|
|
8.06 |
|
|
$ |
1.74 |
|
|
|
2,904,034 |
|
|
$ |
2.10 |
|
41
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Stockholders’ Equity and Employee Compensation Plans
(Continued)
The weighted average fair values of options granted in fiscal years 2004, 2003 and
2002 were $1.43, $0.86 and $1.66, respectively. The fair value of each option grant and stock purchase right is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
Stock Incentive Plans
March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Risk-free
Interest Rate |
|
|
|
|
2.65% |
|
|
|
1.25% |
|
|
|
4.12% |
|
Expected Life
of Options from Grant Date |
|
|
|
|
4 years |
|
|
|
4 years |
|
|
|
4 years |
|
Expected
Dividend Yield |
|
|
|
|
0.0% |
|
|
|
0.0% |
|
|
|
0.0% |
|
Expected
Stock Volatility |
|
|
|
|
92.0% |
|
|
|
90.0% |
|
|
|
115.0% |
|
|
|
|
|
Employee Stock Purchase Plans
March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Risk-free
Interest Rate |
|
|
|
|
0.94% |
|
|
|
1.25% |
|
|
|
2.71% |
|
Expected Life
of Options from Grant Date |
|
|
|
|
0.5 years |
|
|
|
0.5 years |
|
|
|
0.5 years |
|
Expected
Dividend Yield |
|
|
|
|
0.0% |
|
|
|
0.0% |
|
|
|
0.0% |
|
Expected
Stock Volatility |
|
|
|
|
85.0% |
|
|
|
90.0% |
|
|
|
54.0% |
|
The weighted average fair values of the purchase rights granted in fiscal years
2004, 2003 and 2002 were $0.48, $0.18 and $1.59, respectively.
Deferred Stock Compensation
Deferred stock compensation represents the aggregate
difference, at the grant date, between the respective exercise price of stock options and the fair value of the underlying stock. The deferred stock
compensation expense is amortized on an accelerated basis over the vesting period of the individual award, generally four years. This method is in
accordance with Financial Accounting Standards Board Interpretation No. 28. The Company had not recorded any unearned stock-based compensation in the
fiscal years ended March 31, 2004, 2003 and 2002, and has amortized deferred stock compensation of $0.0 million, $0.6 million and $1.6 million, in
these periods, respectively.
Stock Repurchase Agreements
In connection with the exercise of options pursuant
to the 1999 Plan, employees entered into restricted stock purchase agreements with the Company. Under the terms of these agreements, the Company has a
right to repurchase any shares at the original exercise price of the shares upon termination of employment. The repurchase right lapses ratably over
the vesting term of the original grant. As of March 31, 2004, no shares were subject to repurchase by the Company.
401(k) Plan
The Company maintains a retirement and deferred
savings plan for its employees in the United States of America (the “401(k) Plan”), who meet certain age and service requirements. The 401(k)
Plan provided that each participant may defer up to 15% of their annual compensation on a pre-tax basis, not to exceed the dollar limit that is set by
law, with the Company contributing a matching 25 percent of their contribution, up to 3 percent of their annual compensation. Substantially all of the
Company’s employees are eligible to participate in the Tvia 401(k) Plan. The Company contributed $59,000, $98,000 and $37,000 to the 401(k) Plan
for the fiscal years ended March 31, 2004, 2003 and 2002, respectively.
42
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Concentration of Certain Risks
The Company is subject to the risks associated with
similar technology companies. These risks include, but are not limited to: history of operating losses, dependence on a small number of key
individuals, customers and suppliers, competition from larger, more established companies, the impact of rapid technological changes and changes in
customer demand/requirements.
Revenues to significant customers, those
representing approximately 10% or more of total revenues for the respective periods, are summarized as follows:
|
|
|
|
For the Year
Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
Customer
A |
|
|
|
|
15 |
% |
|
|
17 |
% |
|
|
* |
|
Customer
B |
|
|
|
|
12 |
% |
|
|
24 |
% |
|
|
* |
|
Customer
C |
|
|
|
|
12 |
% |
|
|
* |
|
|
|
* |
|
Customer
D |
|
|
|
|
10 |
% |
|
|
* |
|
|
|
* |
|
Customer
E |
|
|
|
|
* |
|
|
|
10 |
% |
|
|
* |
|
Customer
F |
|
|
|
|
* |
|
|
|
* |
|
|
|
62 |
% |
Customer
G |
|
|
|
|
* |
|
|
|
* |
|
|
|
14 |
% |
(* = less than 10%)
Concentration of Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of bank deposits and accounts receivable. The Company places its cash and cash equivalents
in checking and money market accounts in financial institutions. The Company’s accounts receivable are derived primarily from sales to OEMs and
distributors. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential doubtful
accounts.
As of March 31, 2004 and 2003, accounts receivable
were concentrated with customers as follows:
|
|
|
|
March 31,
|
|
|
|
|
|
2004
|
|
2003
|
Accounts
Receivable:
|
|
|
|
|
|
|
|
|
|
|
Customer
A |
|
|
|
|
20 |
% |
|
|
* |
|
Customer
B |
|
|
|
|
15 |
% |
|
|
* |
|
Customer
C |
|
|
|
|
* |
|
|
|
48 |
% |
Customer
D |
|
|
|
|
17 |
% |
|
|
22 |
% |
Customer
E |
|
|
|
|
* |
|
|
|
21 |
% |
(* = less than 10%)
The Company recorded bad debt expense of $15,000 and
$8,000 for fiscal years 2004 and 2003, respectively.
Vendor Concentration
The Company does not own or operate a fabrication
facility, and accordingly relies substantially on three outside foundries, United Manufacturing Corporation (“UMC”) and Taiwan Semiconductor
Manufacturing Corporation (“TSMC”), both are located in Taiwan and HuaHong NEC in the People’s Republic of China, to supply all of the Company’s semiconductor manufacturing requirements. There are significant risks
associated with the Company’s reliance on outside foundries, including the lack of ensured wafer supply, limited control over delivery schedules,
quality assurance and control, manufacturing yields and production costs and the unavailability of or delays in obtaining access to key process
technologies. Any inability of one of the foundries to provide the necessary components could result in significant delays and could have a material
adverse effect on the Company’s business,
43
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Concentration of Certain Risks (Continued)
financial
condition and results of operations. In the event either foundry suffers financial
difficulties or suffers any damage or destruction to its respective facilities, or in
the event of any other disruption of foundry capacity, the Company may not be able to
qualify alternative manufacturing sources for existing or new products in a timely
manner.
Substantially all of the Company’s products are
assembled and tested by one of three third-party subcontractors, Siliconware Precision Industries Ltd., and Advance Semiconductor Engineering, Inc.,
both located in Taiwan, and Belling Corp., Ltd. in the People’s Republic of China. The availability of assembly and testing services from these
subcontractors could be adversely affected in the event any subcontractor experiences financial difficulties or suffers any damage or destruction to
its respective facilities, or in the event of any other disruption of assembly and testing capacity. As a result of this reliance on third-party
subcontractors for assembly and testing of its products, the Company cannot directly control product delivery schedules, which has in the past, and
could in the future, result in product shortages or quality assurance problems that could increase the cost of manufacture, assembly or testing of the
Company’s products.
11. Segment and Geographic Information
The Company is organized and operates in one
reportable segment, which is the development, manufacture and sale of streaming media integrated circuits for the advanced television and emerging
interactive display markets.
The Company has operations in the United States and
China. The operating expenses of the China subsidiary for the years ended March 31, 2004, 2003 and 2002, and the total assets as of the respective
dates in China were not material to the Company’s consolidated financial statements.
The following table summarizes revenues by
geographic area as a percentage of total revenues:
|
|
|
|
For the Year
Ended March 31,
|
|
|
|
|
|
2004
|
|
2003
|
|
2002
|
United
States |
|
|
|
|
24 |
% |
|
|
14 |
% |
|
|
68 |
% |
Europe |
|
|
|
|
24 |
% |
|
|
35 |
% |
|
|
* |
|
Taiwan |
|
|
|
|
18 |
% |
|
|
25 |
% |
|
|
22 |
% |
Japan |
|
|
|
|
15 |
% |
|
|
16 |
% |
|
|
* |
|
Korea |
|
|
|
|
* |
|
|
|
10 |
% |
|
|
* |
|
(* Less than 10%)
12. Commitments and Contingencies
Stock Repurchase
On November 10, 2001, the Board of Directors
authorized a stock repurchase program to acquire outstanding common stock in the open market. Under this program, the Board of Directors authorized the
acquisition of up to 200,000 of the Company’s common stock. As of March 31, 2004, the Company acquired 143,700 shares on the open market that it
holds as treasury stock.
On August 20, 2002, the Board of Directors
authorized an additional stock repurchase program to acquire outstanding common stock in the open market. Under this program, the Board of Directors
authorized the acquisition up to 5 million shares of common stock. As of March 31, 2004, we had not repurchased any shares of common stock under this
program.
Litigation
The Company is subject to various claims which arise
in the normal course of business. In the opinion of management, the Company is unaware of any claims which would have a material adverse effect on the
financial position, liquidity or results of operations of the Company.
44
TVIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. Commitments and Contingencies (Continued)
Leases Commitments
The Company leases its facilities under
non-cancelable operating leases expiring at various dates through July 2005. Under the terms of the leases, the Company is responsible for a portion of
the facilities’ operating expenses, insurance and property taxes. Rent expense under operating leases for the years ended March 31, 2004, 2003 and
2002, were approximately $0.2 million, $0.6 million and $0.6 million, respectively.
The Company leases certain fixed assets under
capital leases expiring at various dates through February 2005.
Future payments due under leases as of March 31,
2004 are as follows (in thousands):
Fiscal Year
|
|
|
|
Capital
Leases
|
|
Operating
Leases
|
2005 |
|
|
|
$ |
490 |
|
|
$ |
171 |
|
2006 |
|
|
|
|
— |
|
|
|
47 |
|
Total minimum
lease payments |
|
|
|
|
490 |
|
|
$ |
218 |
|
Less: Amount
representing interest |
|
|
|
|
(4 |
) |
|
|
|
|
Present value
of minimum payments |
|
|
|
|
486 |
|
|
|
|
|
Less: Current
portion |
|
|
|
|
(486 |
) |
|
|
|
|
Long-term
portion |
|
|
|
$ |
— |
|
|
|
|
|
45
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and
procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit
under the Exchange Act 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. In designing and evaluating our disclosure controls and procedures,
management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet, and
management believes that they meet, reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design
of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the
period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the
limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to us, including our
consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Annual Report on Form
10-K was being prepared.
(b) Changes in internal controls. There was no
change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the
evaluation described in Item 8A(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item (with respect
to Directors) is incorporated by reference from the information under the caption “Election of Directors” contained in the Company’s
Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Company’s 2004
Annual Meeting of Stockholders to be held on August 4, 2004 (the “Proxy Statement”). Certain information required by this item concerning
executive officers is set forth in Part I of this Report under the caption “Executive Officers of the Registrant.”
Item 405 of Regulation S-B calls for disclosure of
any known late filing or failure by an insider to file a report required by Section 16(a) of the Exchange Act. This disclosure is contained in the
section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by
reference.
The Company has a separately designated standing
Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are James Bunker
(Chairperson), R. David Dicciocio and Mark Mangiola, all of whom meet the independence standards established by The Nasdaq Stock Market for serving on
an audit committee. The Board of Directors has determined that R. David Dicciocio and Mark Mangiola are each an “audit committee financial
expert” as defined SEC regulations.
The Company’s Board of Directors adopted a Code
of Ethics for all of its directors and officers on March 22, 2004. The Company’s Code of Ethics is available on the Company’s website at
http://www.tvia.com. To date, there have been no waivers under the Company’s Code of Ethics. The Company will post any waivers, if and when
granted, under its Code of Ethics on the Company’s website at http://www.tvia.com.
46
Item 11. Executive Compensation
The information required by this item is
incorporated by reference from the information under the captions “Election of Directors — Director Compensation,” “Executive
Compensation,” and “Election of Directors —Compensation Committee Interlocks and Insider Participation” contained in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters
The information required by this item is
incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” and
“Equity Compensation Plan Information” contained in the Proxy Statement.
EQUITY COMPENSATION PLAN INFORMATION
Set forth in the table below is certain information
regarding the number of shares of Common Stock that were subject to outstanding stock options or other compensation plan grants and awards as of March
31, 2004.
Plan Category
|
|
|
|
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
|
|
Number of Securities
Remaining Available
for Future
Issuance
Under Equity
Compensation
Plans (Excluding
Securities Reflected
In Column (a))
|
Equity
compensation plans approved by security holders |
|
|
|
|
3,894,383 |
(1) |
|
$ |
1.94 |
|
|
|
2,850,891 |
|
Equity
compensation plans not approved by security holders |
|
|
|
|
1,214,997 |
(2)(3)(4) |
|
$ |
1.68 |
|
|
|
— |
|
Totals |
|
|
|
|
5,109,380 |
|
|
$ |
1.96 |
|
|
|
2,850,891 |
(5) |
| (1) |
|
Includes shares to be issued upon exercise of outstanding options
and warrants granted under the 1999 Plan and the 2000 Plan. Options or warrants to purchase shares of the Company’s Common Stock are no longer
granted under the 1999 Plan. |
| (2) |
|
In November 2001, the Company issued two out-of-plan
non-qualified options. The first grant is for 800,000 shares of Common Stock, with an exercise price of $1.27, the fair market value on the date of
grant. The option vests over a four year period. The second grant is for 200,000 shares of Common Stock, with an exercise price of $1.27, the fair
market value on the date of grant. If certain performance objectives are met, the second option will vest ratably over 48 months beginning on the last
day of the first month following the first anniversary of the vesting commencement date. If the performance objectives are not met, the option will
vest in full on the sixth anniversary of the vesting commencement date. |
| (3) |
|
Includes warrants to purchase 26,666 and 166,665 shares of Common
Stock at exercise prices of $3.00 and $3.75 per share, respectively. The warrants were issued between December 1997 and January 2000 to related party
guarantors of loans previously incurred by the Company. The loans were repaid. Each of the warrants has a term of five years and terminates between
April 2004 and January 2005. |
| (4) |
|
Includes warrants to purchase 13,333 and 8,333 shares of Common
Stock at exercise prices of $3.00 and $3.75 per share, respectively. The warrants were issued to a bank in June 1999 and in December 1999 in connection
with loans previously incurred by the Company. The loans were repaid. The warrants have a term of five years and terminate in June 2004 and December
2004. |
| (5) |
|
Includes 589,047 shares reserved for issuance under the
Company’s 2000 Employee Stock Purchase Plan (the “ESPP”). The number of shares reserved for issuance under the ESPP increases on April
1, of every year, by the lesser of: 83,333 shares; 3% of the outstanding Common Stock on such date; or a lesser amount determined by the Board of
Directors. Each participant may purchase up to 4,000 shares on any purchase date. The ESPP permits eligible employees to contribute up to 15% of cash
compensation toward the semi-annual purchase |
47
|
|
of the Company’s Common Stock. The purchase price is 85% of the fair market
value on the day prior to the beginning of the six-month period at which an eligible employee is enrolled, or the end of each six-month offering
period, whichever is lower. |
Item 13. Certain Relationships and Related Transactions
The information required by this item is
incorporated by reference from the information contained under the captions “Certain Relationships and Related Party Transactions” contained
in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is
incorporated by reference from the information under the caption “Ratification of Independent Auditors — Principal Accountant Fees and
Services” and “Pre-Approval Policies and Procedures” contained in the Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
| (a) |
|
Documents filed as part of this report: |
(1) Financial Statements
Reference is made to the Index to Consolidated
Financial Statements of Tvia, Inc., under Item 8 of Part II hereof.
(2) Financial Statement Schedules
The following financial statement schedule of Tvia,
Inc. is filed as part of this Form 10-K.
Schedule II — Valuation and Qualifying
Accounts
All other financial statement schedules have been
omitted because they are not applicable or not required or because the information is included elsewhere in the Consolidated Financial Statements or
the Notes thereto.
(3) Exhibits
See Item 15(c) below. Each management contract or
compensatory plan or arrangement required to be filed has been identified.
On February 3, 2004, the Company furnished a current
report on Form 8-K furnishing under Item 12 the Company’s press release relating to its financial results for the quarter ended December 31,
2003.
Exhibit
Number
|
|
|
|
Description of Document
|
3(i).1 |
|
|
|
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Amendment No. 8 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)). |
3(ii).1 |
|
|
|
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 3 to the Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
4.1 |
|
|
|
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on
Form S-1 (File No. 333-34024)). |
4.2 |
|
|
|
Form of Amended and Restated Registration Rights Agreement dated as of April 3, 2000 (incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
48
Exhibit
Number
|
|
|
|
Description of Document
|
4.3 |
|
|
|
Warrant to Purchase Stock issued April 30, 1999 to James Mah (incorporated by reference to Exhibit 4.4 to Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
4.4 |
|
|
|
Warrant to Purchase Stock issued June 21, 1999 to Far East National Bank (incorporated by reference to Exhibit 4.5 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)). |
4.5 |
|
|
|
Warrant to Purchase Stock issued July 8, 1998 to C. Y. Lee (incorporated by reference to Exhibit 4.6 to the Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
4.6 |
|
|
|
Warrant to Purchase Stock issued December 30, 1999 to Far East National Bank (incorporated by reference to Exhibit 4.7 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)) |
4.7 |
|
|
|
Warrant to Purchase Stock issued January 25,2000 to C.Y. Lee (incorporated by reference to Exhibit 4.8 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
4.8 |
|
|
|
Warrant to Purchase Stock issued January 25, 2000 to James Mah (incorporated by reference to Exhibit 4.9 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.1# |
|
|
|
Amended and Restated 1999 Stock Incentive Plan of Tvia, Inc. (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.2# |
|
|
|
Amended and Restated 2000 Stock Incentive Plan of Tvia, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2002). |
10.3# |
|
|
|
Amended and Restated 2000 Employee Stock Purchase Plan of Tvia, Inc. |
10.4 |
|
|
|
Form of Directors and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.5 |
|
|
|
TSMC Terms and Conditions dated November 15, 1999 (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)). |
10.6 |
|
|
|
UMC
Wafer Foundry Standard Terms and Conditions (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Company’s Registration Statement
on Form S-1 (File No. 333-34024)). |
10.7# |
|
|
|
Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
10.9 |
|
|
|
Multi-Tenant Single-Building Modified-Net Lease dated October 27, 1995 between Koll/Intereal Bay Area and Integraphics System, Inc.
(incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.10 |
|
|
|
First Amendment to Lease Agreement dated January 15, 1999 between Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by reference
to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.11 |
|
|
|
Second Amendment to Lease Agreement dated May 6, 1999 between Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by reference to
Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.12# |
|
|
|
Promissory Note entered by and between the Company and Jack Guedj dated April 11, 2001 (incorporated by reference to Exhibit 10.17 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001). |
49
Exhibit
Number
|
|
|
|
Description of Document
|
10.13# |
|
|
|
Option Agreement between the Company and Eli Porat dated November 30, 2001(incorporated by reference to Exhibit 10.18 to the Company’s
Quarterly Report on Form 10-Q for the period ended December 31, 2001). |
10.14# |
|
|
|
Option agreement between the Company and Eli Porat dated November 30, 2001(incorporated by reference to Exhibit 10.19 to the Company’s
Quarterly Report on Form 10-Q for the period ended December 31, 2001). |
10.15† |
|
|
|
Technology License Agreement by and between the Company and Oak Technology, Inc. dated December 29, 2000 (incorporated by reference to Exhibit
10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002). |
10.16† |
|
|
|
Addendum to Technology License Agreement by and between the Company and Oak Technology, Inc. dated April 25, 2001(incorporated by reference to
Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002). |
10.17# |
|
|
|
Agreement and Release of Claims by and between the Company and Jack Guedj dated January 31, 2002(incorporated by reference to Exhibit 10.21 to
the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002). |
21.1 |
|
|
|
Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2003). |
23.1 |
|
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. |
24.1 |
|
|
|
Power of Attorney (see page 53 of this Form 10-K). |
31.1 |
|
|
|
Rule 13a-14(a) certification of Chief Executive Officer |
31.2 |
|
|
|
Rule 13a-14(a) certification of Chief Financial Officer |
32.1** |
|
|
|
Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350). |
32.2** |
|
|
|
Statement of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350). |
| ** |
|
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC
Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure
in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be
deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
| # |
|
Indicates management contact or compensatory plan or
arrangement. |
| † |
|
Confidential treatment has been requested or granted with
respect to certain portions of these agreements. |
| (d) |
|
Financial Statement Schedules. |
See Item 15(a)(1) and (a)(2) above.
50
Report of Independent Registered Public Accounting Firm on Financial Statement
Schedule
To the Board of Directors and Stockholders of Tvia, Inc.:
Our audits of the consolidated financial statements
referred to in our report dated June 14, 2004 appearing in this Annual Report on Form 10-K of Tvia, Inc. also included an audit of the financial
statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 14, 2004
51
TVIA, INC. AND SUBSIDIARY
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS
(in thousands)
Description
|
|
|
|
Balance at
Beginning
of Period
|
|
Charged to
Costs and
Expenses
|
|
Deductions
|
|
Balance at
End of
Period
|
Year Ended
March 31, 2004
Allowance for doubtful accounts |
|
|
|
$ |
50 |
|
|
$ |
15 |
|
|
$ |
62 |
|
|
$ |
3 |
|
|
Year Ended
March 31, 2003
Allowance for doubtful accounts |
|
|
|
$ |
112 |
|
|
$ |
8 |
|
|
$ |
70 |
|
|
$ |
50 |
|
|
Year Ended
March 31, 2002
Allowance for doubtful accounts |
|
|
|
$ |
439 |
|
|
$ |
100 |
|
|
$ |
427 |
|
|
$ |
112 |
|
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
TVIA, INC. |
|
|
|
|
|
| Date: June 21, 2004 | |
| |
|
|
|
|
|
|
By /s/ ELI PORAT |
|
|
| |
|
|
Eli Porat | |
|
|
Chief Executive Officer and President | |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Eli Porat and Arthur Nguyen, and each of them, his true and lawful attorneys-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign any 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
each of said attorneys-in-fact or their substitute or substitutes 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 and on the dates
indicated.
Name
|
|
|
|
Title
|
|
Date
|
/s/ ELI
PORAT
Eli Porat |
|
|
|
Chief Executive Officer and President
(Principal Executive Officer) |
|
June 21,
2004 |
| |
/s/ ARTHUR
NGUYEN
Arthur Nguyen |
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
June 21,
2004 |
| |
/s/ KENNY
LIU
Kenny Liu |
|
|
|
Chairman of the Board |
|
June 21,
2004 |
| |
/s/ STEVEN
CHENG
Steven Cheng |
|
|
|
Director |
|
June 21,
2004 |
| |
/s/ JAMES
BUNKER
James Bunker |
|
|
|
Director |
|
June 21,
2004 |
| |
/s/ MARK
MANGIOLA
Mark Mangiola |
|
|
|
Director |
|
June 21,
2004 |
| |
/s/ R. DAVID
DICIOCCIO
R. David Dicioccio |
|
|
|
Director |
|
June 21,
2004 |
53
Exhibit Index
Exhibit
Number
|
|
|
|
Description of Document
|
3(i).1 |
|
|
|
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Amendment No. 8 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)). |
3(ii).1 |
|
|
|
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 3 to the Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
4.1 |
|
|
|
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on
Form S-1 (File No. 333-34024)). |
4.2 |
|
|
|
Form of Amended and Restated Registration Rights Agreement dated as of April 3, 2000 (incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
4.3 |
|
|
|
Warrant to Purchase Stock issued April 30, 1999 to James Mah (incorporated by reference to Exhibit 4.4 to Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
4.4 |
|
|
|
Warrant to Purchase Stock issued June 21, 1999 to Far East National Bank (incorporated by reference to Exhibit 4.5 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)). |
4.5 |
|
|
|
Warrant to Purchase Stock issued July 8, 1998 to C. Y. Lee (incorporated by reference to Exhibit 4.6 to the Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
4.6 |
|
|
|
Warrant to Purchase Stock issued December 30, 1999 to Far East National Bank (incorporated by reference to Exhibit 4.7 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)) |
4.7 |
|
|
|
Warrant to Purchase Stock issued January 25,2000 to C.Y. Lee (incorporated by reference to Exhibit 4.8 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
4.8 |
|
|
|
Warrant to Purchase Stock issued January 25, 2000 to James Mah (incorporated by reference to Exhibit 4.9 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.1# |
|
|
|
Amended and Restated 1999 Stock Incentive Plan of Tvia, Inc. (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.2# |
|
|
|
Amended and Restated 2000 Stock Incentive Plan of Tvia, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2002). |
10.3# |
|
|
|
Amended and Restated 2000 Employee Stock Purchase Plan of Tvia, Inc. |
10.4 |
|
|
|
Form of Directors and Officers’ Indemnification Agreement (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the
Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.5 |
|
|
|
TSMC Terms and Conditions dated November 15, 1999 (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Company’s
Registration Statement on Form S-1 (File No. 333-34024)). |
10.6 |
|
|
|
UMC
Wafer Foundry Standard Terms and Conditions (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Company’s Registration Statement
on Form S-1 (File No. 333-34024)). |
10.7# |
|
|
|
Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the Company’s Registration
Statement on Form S-1 (File No. 333-34024)). |
10.9 |
|
|
|
Multi-Tenant Single-Building Modified-Net Lease dated October 27, 1995 between Koll/Intereal Bay Area and Integraphics System, Inc.
(incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
54
Exhibit
Number
|
|
|
|
Description of Document
|
10.10 |
|
|
|
First Amendment to Lease Agreement dated January 15, 1999 between Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by reference
to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.11 |
|
|
|
Second Amendment to Lease Agreement dated May 6, 1999 between Koll/Intereal Bay Area and IGS Technologies, Inc. (incorporated by reference to
Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 333-34024)). |
10.12# |
|
|
|
Promissory Note entered by and between the Company and Jack Guedj dated April 11, 2001 (incorporated by reference to Exhibit 10.17 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001). |
10.13# |
|
|
|
Option Agreement between the Company and Eli Porat dated November 30, 2001(incorporated by reference to Exhibit 10.18 to the Company’s
Quarterly Report on Form 10-Q for the period ended December 31, 2001). |
10.14# |
|
|
|
Option agreement between the Company and Eli Porat dated November 30, 2001(incorporated by reference to Exhibit 10.19 to the Company’s
Quarterly Report on Form 10-Q for the period ended December 31, 2001). |
10.15† |
|
|
|
Technology License Agreement by and between the Company and Oak Technology, Inc. dated December 29, 2000 (incorporated by reference to Exhibit
10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002). |
10.16† |
|
|
|
Addendum to Technology License Agreement by and between the Company and Oak Technology, Inc. dated April 25, 2001(incorporated by reference to
Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002). |
10.17# |
|
|
|
Agreement and Release of Claims by and between the Company and Jack Guedj dated January 31, 2002(incorporated by reference to Exhibit 10.21 to
the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002). |
21.1 |
|
|
|
Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2003). |
23.1 |
|
|
|
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. |
24.1 |
|
|
|
Power of Attorney (see page 53 of this Form 10-K). |
31.1 |
|
|
|
Rule 13a-14(a) certification of Chief Executive Officer |
31.2 |
|
|
|
Rule 13a-14(a) certification of Chief Financial Officer |
32.1** |
|
|
|
Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350). |
32.2** |
|
|
|
Statement of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350). |
| ** |
|
In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC
Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure
in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be
deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
| # |
|
Indicates management contact or compensatory plan or
arrangement. |
| † |
|
Confidential treatment has been requested or granted with
respect to certain portions of these agreements. |
55