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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 
(Mark one)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                          to                         
 
Commission File Number: 000-33477
 
 
GENESIS MICROCHIP INC.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
  
77-0584301
(I.R.S. Employer
Identification No.)
2150 Gold Street
P.O. Box 2150
Alviso, California
(Address of principal executive offices)
  
95002
(Zip Code)
 
Registrant’s Telephone Number, Including Area Code:  (408) 262-6599
 
Former name, former address and former fiscal year if changed since last report.
 
Former address:  N/A
 
Former Fiscal Year:  N/A
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨
 
There were 31,148,196 shares of the registrant’s common shares issued and outstanding as of June 30, 2002.
 

Table of Contents
GENESIS MICROCHIP INC.
 
FORM 10-Q
Three Months Ended June 30, 2002
 
INDEX
 
Item Number
   
Page
Part I:    Financial Information
     
Item 1.
   
Financial Statements
     
       
1
       
2
       
3
       
4
Item 2.
      
7
Item 3.
      
19
Part II:    Other Information
     
Item 1.
      
20
Item 2.
   
Changes in Securities
   
*
Item 3.
   
Defaults Upon Senior Securities
   
*
Item 4.
   
Submission of Matters to a Vote of Security Holders
   
*
Item 5.
   
Other Information
   
*
Item 6.
      
21
  
21
 
*
 
No information has been provided because this item is not applicable.

Table of Contents
PART I:    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
GENESIS MICROCHIP INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
 
    
June 30, 2002
     
March 31, 2002
  
    
(unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
101,240
 
   
$
106,564
 
Short-term investments
   
 
5,789
 
   
 
4,802
 
Accounts receivable trade, net of allowance for doubtful accounts of $413 at June 30 and $391 at March 31
   
 
22,652
 
   
 
32,326
 
Inventories
   
 
30,780
 
   
 
20,046
 
Other
   
 
7,485
 
   
 
6,185
 
    
  
Total current assets
   
 
167,946
 
   
 
169,923
 
Property and equipment
   
 
13,474
 
   
 
11,733
 
Acquired intangibles
   
 
44,638
 
   
 
47,248
 
Goodwill
   
 
193,546
 
   
 
198,909
 
Other
   
 
100
 
   
 
578
 
    
  
Total assets
   
$
419,704
 
   
$
428,391
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
15,147
 
   
$
14,318
 
Accrued liabilities
   
 
10,838
 
   
 
14,272
 
Income taxes payable
   
 
1,286
 
   
 
571
 
Current portion of lease liability
   
 
967
 
   
 
1,040
 
Current portion of loan payable
   
 
94
 
   
 
89
 
    
  
Total current liabilities
   
 
28,332
 
   
 
30,290
 
Long-term liabilities:
                  
Deferred income taxes
   
 
3,915
 
   
 
5,183
 
Lease liability
   
 
8,678
 
   
 
9,019
 
Loan payable
   
 
273
 
   
 
328
 
    
  
Total liabilities
   
 
41,198
 
   
 
44,820
 
Stockholders’ equity:
                  
Capital Stock:
                  
Preferred stock:
                  
Authorized—5,000 preferred shares, $0.001 par value Issued and outstanding—none at June 30 or March 31
                  
Common shares:
                  
Authorized—100,000 common shares, $0.001 par value Issued and outstanding—31,148 at June 30 and 31,133 at March 31
   
 
31
 
   
 
31
 
Additional paid-in capital
   
 
384,030
 
   
 
388,467
 
Cumulative other comprehensive loss
   
 
(94
)
   
 
(94
)
Deferred stock-based compensation
   
 
(14,178
)
   
 
(17,587
)
Retained earnings
   
 
8,717
 
   
 
12,754
 
    
  
Total stockholders’ equity
   
 
378,506
 
   
 
383,571
 
    
  
Total liabilities and stockholders’ equity
   
$
419,704
 
   
$
428,391
 
    
  
 
See accompanying notes to condensed consolidated financial statements.

1

Table of Contents
 
GENESIS MICROCHIP INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
(unaudited)
 
    
Three Months Ended
    
June 30,
2002
     
June 30,
2001
Revenues
   
$
41,559
 
   
$
21,306
Cost of revenues
   
 
25,491
 
   
 
11,445
    
  
Gross profit
   
 
16,068
 
   
 
9,861
Operating expenses:
                
Research and development
   
 
9,429
 
   
 
4,224
Selling, general and administrative
   
 
8,697
 
   
 
4,216
Amortization of acquired intangibles
   
 
2,665
 
   
 
—  
    
  
Total operating expenses
   
 
20,791
 
   
 
8,440
    
  
Income (loss) from operations
   
 
(4,723
)
   
 
1,421
Interest income
   
 
388
 
   
 
354
Imputed interest on lease liability
   
 
(165
)
   
 
—  
    
  
Net interest income
   
 
223
 
   
 
354
    
  
Income (loss) before income taxes
   
 
(4,500
)
   
 
1,775
Provision for (recovery of) income taxes
   
 
(463
)
   
 
178
    
  
Net income (loss)
   
$
(4,037
)
   
$
1,597
    
  
Earnings (loss) per share:
                
Basic
   
$
(0.13
)
   
$
0.08
Diluted
   
$
(0.13
)
   
$
0.08
Weighted average number of common shares outstanding:
                
Basic
   
 
31,062
 
   
 
19,719
Diluted
   
 
31,062
 
   
 
21,244
 
 
See accompanying notes to condensed consolidated financial statements.

2

Table of Contents
 
GENESIS MICROCHIP INCORPORATED
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
 
    
Three Months Ended
  
    
June 30,
2002
     
June 30,
2001
  
Cash flows from operating activities:
                  
Net income (loss)
   
$
(4,037
)
   
$
1,597
 
Adjustments to reconcile net income (loss) to cash used in operating activities:
                  
Depreciation and amortization
   
 
1,333
 
   
 
699
 
Amortization of acquired intangible assets
   
 
2,665
 
   
 
—  
 
Non-cash stock-based compensation
   
 
1,785
 
   
 
30
 
Deferred income taxes
   
 
(1,268
)
   
 
(94
)
Other
   
 
194
 
   
 
—  
 
Change in operating assets and liabilities:
                  
Accounts receivable trade
   
 
9,674
 
   
 
(618
)
Inventories
   
 
(10,734
)
   
 
(1,772
)
Other current assets
   
 
(1,300
)
   
 
(109
)
Accounts payable
   
 
829
 
   
 
(1,703
)
Accrued liabilities
   
 
(3,434
)
   
 
233
 
Income taxes recoverable
   
 
715
 
   
 
569
 
    
  
Net cash used in operating activities
   
 
(3,578
)
   
 
(1,168
)
Cash flows from investing activities:
                  
Purchase of short-term investments
   
 
(3,034
)
   
 
—  
 
Proceeds on sales and maturities of short-term investments
   
 
2,047
 
   
 
—  
 
Additions to property and equipment
   
 
(3,083
)
   
 
(937
)
Proceeds on disposal of property and equipment
   
 
—  
 
   
 
147
 
Other
   
 
(176
)
   
 
(26
)
    
  
Net cash used in investing activities
   
 
(4,246
)
   
 
(816
)
Cash flows from financing activities:
                  
Proceeds from issue of common stock
   
 
2,550
 
   
 
5,041
 
Repayment of loans payable
   
 
(55
)
   
 
(56
)
    
  
Net cash from financing activities
   
 
2,495
 
   
 
4,985
 
Effect of currency translation on cash balances
   
 
5
 
   
 
3
 
    
  
Increase (decrease) in cash and cash equivalents
   
 
(5,324
)
   
 
3,004
 
Cash and cash equivalents, beginning of period
   
 
106,564
 
   
 
32,827
 
    
  
Cash and cash equivalents, end of period
   
$
101,240
 
   
$
35,831
 
    
  
 
See accompanying notes to condensed consolidated financial statements.

3

Table of Contents
GENESIS MICROCHIP INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.    Basis of presentation
 
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles and according to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Consequently, they do not include all of the information and footnotes required by United States generally accepted accounting principles for a complete set of annual financial statements. These condensed financial statements should be read in conjunction with our financial statements and notes thereto for the year ended March 31, 2002 that are included in our most recent Annual Report on Form 10-K/A filed with the Securities and Exchange Commission. We believe that the accompanying financial statements reflect all adjustments, consisting solely of normal, recurring adjustments, that are necessary for fair presentation of the results for the interim periods presented. The results of operations for the period ended June 30, 2002 are not necessarily indicative of the results to be expected for the full fiscal year.
 
2.    Recent accounting pronouncements
 
In July 2001, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), effective for fiscal years beginning after December 15, 2001. SFAS 142 changed the accounting for goodwill from an amortization method to an impairment-only approach. For any acquisitions completed after June 30, 2001, goodwill and intangible assets with an indefinite life are not amortized.
 
Acquisitions completed by Genesis during the year ended March 31, 2002 were accounted for in accordance with SFAS 142. Genesis will be performing the first of the required SFAS 142 impairment tests during the fourth quarter of its 2003 fiscal year. There can be no assurance that future goodwill impairment tests will not result in a charge to net earnings (loss).
 
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing such losses on such operations. Genesis adopted the provisions of SFAS 144 effective April 1, 2002. The adoption of SFAS 144 has not had a material effect on the business, results of operations and financial condition of Genesis.
 
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“Issue 94-3”). SFAS 146 requires that a liability be recognized for those costs associated with an exit or disposal activity only when the liability is incurred. In contrast, under Issue 94-3, a liability for an exit cost was recognized when the company committed to the exit plan. SFAS 146 also establishes fair value as th