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 DECEMBER 31, 2004
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 | 77-0584301 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 2150 GOLD STREET P.O. BOX 2150 ALVISO, CALIFORNIA |
95002 | |
| (Address of principal executive offices) | (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes x No ¨
There were 33,434,311 shares of the registrant’s common shares issued and outstanding as of January 31, 2005.
FORM 10-Q
NINE MONTHS ENDED DECEMBER 31, 2004
Index
| Item Number |
Page | |||||
| Part I: Financial Information |
||||||
| Item 1. |
Financial Statements | |||||
| Condensed Consolidated Balance Sheets at December 31, 2004 and March 31, 2004 |
1 | |||||
| 2 | ||||||
| 3 | ||||||
| 4 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 30 | ||||
| Item 4. |
Controls and Procedures | 31 | ||||
| Part II: Other Information |
||||||
| Item 1. |
Legal Proceedings | 31 | ||||
| Item 2. |
Changes in Securities and Use of Proceeds | * | ||||
| Item 3. |
Defaults Upon Senior Securities | * | ||||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 33 | ||||
| Item 5. |
Other Information | * | ||||
| Item 6. |
Exhibits and Reports on Form 8-K | 33 | ||||
| 35 | ||||||
| * | No information has been provided because this item is not applicable. |
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share amounts)
| December 31, 2004 |
March 31, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 39,362 | $ | 19,241 | ||||
| Short-term investments |
91,957 | 98,981 | ||||||
| Accounts receivable trade, net of allowance for doubtful accounts of $ 536 at December 31 and $422 at March 31 |
26,428 | 28,325 | ||||||
| Inventories |
16,438 | 18,503 | ||||||
| Other |
5,902 | 6,472 | ||||||
| Total current assets |
180,087 | 171,522 | ||||||
| Property and equipment |
17,132 | 17,257 | ||||||
| Acquired intangibles |
19,659 | 26,731 | ||||||
| Goodwill |
189,997 | 189,152 | ||||||
| Deferred income taxes |
7,570 | 3,402 | ||||||
| Other |
3,581 | 2,662 | ||||||
| Total assets |
$ | 418,026 | $ | 410,726 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 7,647 | $ | 9,848 | ||||
| Accrued liabilities |
13,728 | 11,503 | ||||||
| Income taxes payable |
3,147 | 2,520 | ||||||
| Total current liabilities |
24,522 | 23,871 | ||||||
| Stockholders’ equity: |
||||||||
| Capital stock: |
||||||||
| Preferred stock: |
||||||||
| Authorized - 5,000 preferred shares, $0.001 par value Issued and outstanding - none at December 31 or March 31 |
||||||||
| Common stock: |
||||||||
| Authorized - 100,000 common shares, $0.001 par value Issued and outstanding - 33,250 shares at December 31 and 32,653 shares at March 31 |
33 | 32 | ||||||
| Additional paid-in capital |
402,919 | 395,837 | ||||||
| Cumulative other comprehensive loss |
(94 | ) | (94 | ) | ||||
| Deferred stock-based compensation |
(664 | ) | (2,833 | ) | ||||
| Deficit |
(8,690 | ) | (6,087 | ) | ||||
| Total stockholders’ equity |
393,504 | 386,855 | ||||||
| Total liabilities and stockholders’ equity |
$ | 418,026 | $ | 410,726 | ||||
See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
(unaudited)
| Three Months Ended December 31 |
Nine Months Ended December 31 |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues |
$ | 48,286 | $ | 56,498 | $ | 151,210 | $ | 158,548 | ||||||||
| Cost of revenues (1) |
26,609 | 34,146 | 87,116 | 94,013 | ||||||||||||
| Gross profit |
21,677 | 22,352 | 64,094 | 64,535 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development (2) |
7,928 | 7,417 | 24,677 | 22,522 | ||||||||||||
| Selling, general and administrative (3) |
14,625 | 9,515 | 36,571 | 28,826 | ||||||||||||
| Provision for costs associated with patent litigation |
989 | 3,529 | 2,356 | 9,583 | ||||||||||||
| Amortization of acquired intangibles |
2,654 | 2,654 | 7,962 | 7,962 | ||||||||||||
| Total operating expenses |
26,196 | 23,115 | 71,566 | 68,893 | ||||||||||||
| Loss from operations |
(4,519 | ) | (763 | ) | (7,472 | ) | (4,358 | ) | ||||||||
| Interest income |
534 | 314 | 1,253 | 786 | ||||||||||||
| Gain on sale of investment |
— | 663 | — | 663 | ||||||||||||
| Earnings (loss) before income taxes |
(3,985 | ) | 214 | (6,219 | ) | (2,909 | ) | |||||||||
| Provision for (recovery of) income taxes |
(2,985 | ) | 35 | (3,616 | ) | (643 | ) | |||||||||
| Net earnings (loss) |
$ | (1,000 | ) | $ | 179 | $ | (2,603 | ) | $ | (2,266 | ) | |||||
| Earnings (loss) per share: |
||||||||||||||||
| Basic and diluted |
$ | (0.03 | ) | $ | 0.01 | $ | (0.08 | ) | $ | (0.07 | ) | |||||
| Weighted average number of common shares outstanding: |
||||||||||||||||
| Basic |
33,151 | 31,948 | 32,969 | 31,655 | ||||||||||||
| Diluted |
33,151 | 33,201 | 32,969 | 31,655 | ||||||||||||
(1) Amount excludes amortization of acquired developed technology included in amortization of acquired intangibles |
$ | 1,925 | $ | 1,925 | $ | 5,775 | $ | 5,775 | ||||||||
| (2) Amount includes stock-based compensation expense |
$ | 408 | $ | 723 | $ | 1,605 | $ | 2,162 | ||||||||
| (3) Amount includes stock-based compensation expense |
$ | 2,057 | $ | 207 | $ | 2,457 | $ | 608 | ||||||||
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
| Nine Months Ended December 31 |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from (used in) operating activities: |
||||||||
| Net loss |
$ | (2,603 | ) | $ | (2,266 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: |
||||||||
| Depreciation and amortization |
5,281 | 3,569 | ||||||
| Amortization of acquired intangibles |
7,962 | 7,962 | ||||||
| Non-cash stock-based compensation |
4,062 | 2,770 | ||||||
| Deferred income taxes |
(4,168 | ) | (3,074 | ) | ||||
| Gain on sale of investment |
— | (663 | ) | |||||
| Other |
104 | (1 | ) | |||||
| Change in operating assets and liabilities: |
||||||||
| Accounts receivable trade |
1,897 | (621 | ) | |||||
| Inventories |
2,065 | (12,510 | ) | |||||
| Other current assets |
570 | (322 | ) | |||||
| Accounts payable |
(2,201 | ) | 15,841 | |||||
| Accrued liabilities |
2,225 | (5,679 | ) | |||||
| Income taxes payable |
627 | 1,753 | ||||||
| Net cash from operating activities |
15,821 | 6,759 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of short-term investments |
(174,683 | ) | (68,477 | ) | ||||
| Proceeds on sales and maturities of short-term investments |
181,707 | — | ||||||
| Additions to property and equipment |
(4,396 | ) | (6,991 | ) | ||||
| Other |
(3,518 | ) | 2,852 | |||||
| Net cash used in investing activities |
(890 | ) | (72,616 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issue of common stock |
5,190 | 8,569 | ||||||
| Net cash provided by financing activities |
5,190 | 8,569 | ||||||
| Increase (decrease) in cash and cash equivalents |
20,121 | (57,288 | ) | |||||
| Cash and cash equivalents, beginning of period |
19,241 | 113,138 | ||||||
| Cash and cash equivalents, end of period |
$ | 39,362 | $ | 55,850 | ||||
See accompanying notes to condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) 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, 2004 that are included in our most recent Annual Report on Form 10-K 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 a fair presentation of the results for the interim periods presented. The results of operations for the period ended December 31, 2004 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.
2. Stock-based compensation
We have elected to follow Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related interpretations, in accounting for employee stock options. Under APB 25, deferred stock-based compensation is recorded at the option grant date in an amount equal to the excess, if any, of the market value of a share of common stock over the exercise price of the option. Deferred stock-based compensation is amortized on a straight-line basis over the vesting period of the individual options, generally two to four years.
We apply the fair value method of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” for valuing options granted to non-employees. Stock compensation expense resulting from the issuance of options to non-employees is recognized as services are performed and the options are earned. The issuance of shares for consideration that is less than the market value of the shares results in compensation expense equal to the excess of the market value of the shares over the fair value of the consideration received.
In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation–Transition and Disclosure, an amendment of FASB Statement No. 123”. This Statement amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements.
SFAS 123, as amended, requires the disclosure of pro forma net income and earnings per share as if we adopted the fair value method for all stock option grants as of the beginning of its 1996 fiscal year. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from Genesis’ stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.
4
Genesis’ calculations were made using the Black-Scholes option-pricing model using a dividend yield of 0% and the assumptions noted in the following tables.