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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 31, 2004
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 000-31863
COMPUTER ACCESS TECHNOLOGY CORPORATION
(exact name of registrant as specified in its charter)
Delaware 77-0302527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3385 Scott Boulevard, Santa Clara
California 95054
(Address of principal executive offices) (Zip Code)
(408) 727-6600
(Registrant's telephone number, including area code)
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 [_] No [X]
As of April 30, 2004, there were 19,517,787 shares of the registrant's
Common Stock outstanding.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER ACCESS TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
MARCH 31, DECEMBER 31,
2004 2003
-------- -----------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 23,161 $ 34,116
Short-term investments ......................... 630 1,055
Trade accounts receivable, net ................. 2,884 3,180
Inventories .................................... 1,059 907
Other current assets ........................... 582 675
-------- --------
Total current assets ....................... 28,316 39,933
Long-term investments .............................. 21,760 9,367
Property and equipment, net ........................ 793 768
Purchased intangibles .............................. 133 167
Other assets ....................................... 128 114
-------- --------
$ 51,130 $ 50,349
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 326 $ 393
Accrued expenses ............................... 2,977 2,921
Accrued restructuring .......................... 23 29
Deferred revenue ............................... 607 535
Total current liabilities .................. 3,933 3,878
-------- --------
Stockholders' equity:
Common stock ................................... 20 19
Additional paid-in capital ..................... 52,901 52,595
Deferred stock-based compensation .............. -- (32)
Unrealized gain on investments ................. 26 --
Accumulated deficit ............................ (5,750) (6,111)
-------- --------
Total stockholders' equity ................. 47,197 46,471
-------- --------
$ 51,130 $ 50,349
======== ========
See accompanying notes.
2
COMPUTER ACCESS TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTERS ENDED
MARCH 31,
-------------------
2004 2003
-------- --------
Revenue ....................................................................... $ 4,645 $ 3,262
Cost of revenue ............................................................... 824 673
-------- --------
Gross profit .................................................................. 3,821 2,589
-------- --------
Operating expenses:
Research and development (exclusive of amortization of deferred stock-based
compensation of $19 and $32 for the quarters ended March 31, 2004 and
2003, respectively ..................................................... 1,603 1,308
Sales and marketing (exclusive of amortization of deferred stock-based
compensation of $2 and $19 for the quarters ended March 31, 2004 and
2003, respectively ..................................................... 1,281 1,144
General and administrative (exclusive of amortization of deferred
stock-based compensation of $5 and $8 for the quarters ended March
31, 2004 and 2003, respectively ........................................ 682 676
Amortization of purchased intangibles ..................................... 26 26
Amortization of deferred stock-based compensation ......................... 26 59
-------- --------
Total operating expenses .............................................. 3,618 3,213
-------- --------
Income (loss) from operations ................................................. 203 (624)
Other income, net ............................................................. 158 161
-------- --------
Income (loss) before income taxes ............................................. 361 (463)
Income taxes .................................................................. -- --
-------- --------
Net income (loss) ............................................................. $ 361 $ (463)
======== ========
Net income (loss) per share:
Basic and diluted ......................................................... $ 0.02 $ (0.02)
======== ========
Weighted average shares outstanding:
Basic ..................................................................... 19,479 19,443
======== ========
Diluted ................................................................... 20,643 19,443
======== ========
See accompanying notes.
3
COMPUTER ACCESS TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
QUARTERS ENDED
MARCH 31,
--------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income (loss) ..................................................... $ 361 $ (463)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................................... 161 195
Provision for doubtful accounts .................................... -- 9
Amortization of acquired developed technology ...................... 8 --
Amortization of purchased intangibles .............................. 26 26
Amortization of deferred stock-based compensation .................. 32 62
Amortization of premium on investments ............................. 78 --
Changes in assets and liabilities:
Trade accounts receivable ....................................... 296 (317)
Inventories ..................................................... (152) 97
Other assets .................................................... 93 77
Accounts payable ................................................ (67) (633)
Accrued expenses ................................................ 50 (276)
Accrued restructuring ........................................... (6) (113)
Deferred revenue ................................................ 72 (63)
Deferred rent ................................................... 6 --
-------- --------
Net cash provided by (used in) operating activities ...... 958 (1,399)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment ................................. (186) (124)
Other long-term assets ................................................ (14) --
Purchase of short-term investments .................................... (633) (4,274)
Sale of short-term investments ........................................ 1,053 1,000
Purchase of long-term investments ..................................... (12,440) --
-------- --------
Net cash used in investing activities .................... (12,220) (3,398)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options .............................. 180 7
Proceeds from employee stock purchase plan ........................... 127 70
Repurchases of common stock .......................................... -- (40)
-------- --------
Net cash provided by financing activities ................ 307 37
-------- --------
Net decrease in cash and cash equivalents ................................ (10,955) (4,760)
Cash and cash equivalents at beginning of period ......................... 34,116 30,486
-------- --------
Cash and cash equivalents at end of period ............................... $ 23,161 $ 26,086
======== ========
See accompanying notes.
4
NOTE 1 - BUSINESS
Business
Computer Access Technology Corporation is a provider of advanced
verification systems for existing and emerging digital communications standards.
Our products are used by semiconductor, device, system and software companies at
each phase of their products' lifecycles from development through production and
market deployment.
We have expertise in the Bluetooth, Ethernet, Fibre Channel, IEEE 1394,
InfiniBand, PCI Express, SCSI, Serial ATA, Serial Attached SCSI and USB
standards and are actively engaged with our customers throughout their
development and production processes in order to deliver solutions that meet
their needs. Utilizing our easy to use, color-coded expert analysis software,
the CATC Trace(TM), our development products generate, capture, filter and
analyze high-speed communications traffic, allowing our customers to quickly
discover and correct persistent and intermittent errors and flaws in their
product design. Our production products are used during the manufacturing
process to ensure that our customers' products comply with standards and operate
with other devices, as well as assist system manufacturers to download software
onto new computers.
We have two reportable operating segments: development products and
production products. Further segment and geographic information is included in
Note 7 of the Notes to Condensed Consolidated Financial Statements included in
this report.
Computer Access Technology Corporation was incorporated in California in
1992 and reincorporated in Delaware in 2000. Our headquarters are located at
3385 Scott Boulevard, Santa Clara, California 95054. We maintain a World Wide
Web site at www.catc.com. The reference to this World Wide Web site address does
not constitute incorporation by reference of the information contained therein.
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports, and the Proxy Statement
for our annual meeting of stockholders are made available, free of charge, on
our website, www.catc.com, as soon as reasonably practicable after the reports
have been filed with or furnished to the Securities and Exchange Commission (the
"SEC").
Interim Financial Information and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
as of March 31, 2004, and for the quarters ended March 31, 2004 and 2003, have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial statements and pursuant to the
rules and regulations of the SEC and include the accounts of Computer Access
Technology Corporation and its wholly owned subsidiaries (collectively,
"Computer Access Technology Corporation" or the "Company"). Intercompany
accounts and transactions have been eliminated in consolidation. Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to SEC rules and regulations. In the opinion of management, the unaudited
condensed consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
condensed consolidated balance sheet at March 31, 2004, the condensed
consolidated operating results for the quarters ended March 31, 2004 and 2003,
and the condensed consolidated cash flows for the quarters ended March 31, 2004
and 2003. These unaudited condensed consolidated financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto for the year ended December 31, 2003.
The unaudited condensed consolidated balance sheet at December 31, 2003
has been derived from the audited consolidated financial statements at that date
but does not include all of the information and footnotes required by generally
accepted accounting principles in the United States of America for complete
financial statements.
Concentrations of credit risk
Revenue and accounts receivable from customers comprising more than 10%
of revenue or trade accounts receivable are summarized as follows:
5
QUARTERS ENDED
MARCH 31,
-------------------------
2004 2003
--------- ------------
Revenue:
Company A............................... 22% 21%
Company B............................... 15% 19%
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
Accounts receivable:
Company A............................... 24% 15%
Company B............................... 13% 13%
Company C............................... * 10%
- ---------
* less than 10% of revenue or trade accounts receivable for the period.
NOTE 2 - COMPREHENSIVE LOSS
Comprehensive loss is defined as changes in equity of a company from
transactions, other events and circumstances, excluding transactions resulting
from investments by owners and distributions to owners. There is no difference
between net loss and comprehensive loss for the Company in any of the periods
presented.
NOTE 3 - STOCK-BASED COMPENSATION
Stock-based compensation
In connection with certain stock option grants in 2000, 1999 and 1998,
the Company recorded deferred stock-based compensation totaling $14,393,000
which represented the difference between the exercise price and the deemed fair
value at the date of grant and is being recognized over the vesting period of
the related options. Amortization of deferred stock-based compensation was
$32,000 in the quarter ended March 31, 2004 of which $6,000 was included in cost
of revenue in the quarter ended March 31, 2004. Amortization of deferred
stock-based compensation was $62,000 in the quarter ended March 31, 2003 of
which $3,000 was included in cost of revenue in the quarter ended March 31,
2003.
Fair value disclosures
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standard ("SFAS") No. 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation and requires prominent disclosure in both the
annual and interim financial statements of the method of accounting used and the
financial impact of stock-based compensation. As permitted by SFAS No. 123, the
Company accounts for stock options granted as prescribed under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
which recognizes compensation cost based upon the intrinsic value of the award.
The weighted-average fair values of options granted during the quarters
ended March 31, 2004 and 2003, were $2.17 and $1.31, respectively. In
determining the fair value of options granted in each of the periods, the
Company used the Black Scholes option pricing model and assumed the following:
QUARTERS ENDED
MARCH 31,
---------------------------------
2004 2003
-------------- ----------------
Expected life (in years) ........... 5 5
Risk-free interest rate ............ 3.01% 2.29%-6.88%
Volatility ......................... 42% 53%
Dividend yield...................... 0% 0%
6
Had compensation costs been determined based upon the fair value at the
grant date for awards under the Plan, consistent with the methodology prescribed
under SFAS No. 123, the Company's pro forma net loss and pro forma basic and
diluted net loss per share under SFAS No. 123 would have been (in thousands,
except per share data):
QUARTERS ENDED
MARCH 31,
------------------
2004 2003
------- -------
Net income (loss), as reported ..................... $ 361 $ (463)
Add: Amortization of deferred stock-based
compensation included in reported net income
(loss) ......................................... 32 62
Deduct: Stock-based employee compensation
expense determined under fair value based method
for all grants ................................. (499) (684)
------- -------
Net loss, pro forma ............................ $ (106) $(1,085)
======= =======
Net income (loss) per share, as reported
Basic and diluted .............................. $ 0.02 $ (0.02)
======= =======
Net income (loss) per share, pro forma
Basic and diluted .............................. $ (0.01) $ (0.06)
======= =======
NOTE 4 - NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance with
SFAS No. 128, "Earnings per Share," and SEC Staff Accounting Bulletin ("SAB")
No. 98. Under the provisions of SFAS No. 128 and SAB No. 98, basic net income
(loss) per share is computed by dividing net income (loss) for the period by the
weighted average number of shares of common stock outstanding during the period.
The calculation of diluted net loss per share excludes potential common stock if
its effect is anti-dilutive. Potential common stock consists of incremental
common shares issuable upon the exercise of stock options.
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated (in thousands except per share
data):
QUARTERS ENDED
MARCH 31,
--------------------
2004 2003
-------- --------
Numerator:
Net income (loss) .................................... $ 361 $ (463)
======== ========
Denominator:
Weighted average shares outstanding .................. 19,479 19,443
-------- --------
Denominator for basic calculation .................... 19,479 19,443
Dilutive effect of stock options ..................... 1,164 --
--------
Denominator for diluted calculation .................. 20,643 19,443
======== ========
Net income (loss) per share:
Basic ................................................ $ 0.02 $ (0.02)
======== ========
Diluted .............................................. $ 0.02 $ (0.02)
======== ========
Total common stock equivalents, related to options
outstanding, excluded from the computation of earnings
per share as their effect is anti-dilutive ........... 2,397 3,378
======== ========
7
NOTE 5 - INVENTORIES
Inventories consist of the following (in thousands):
MARCH 31, DECEMBER 31,
2004 2003
--------- ------------
Raw materials ...................................... $ 380 $ 334
Work in progress ................................... 321 250
Finished goods...................................... 358 323
------ ------
$1,059 $ 907
====== ======
NOTE 6 - INCOME TAXES
The Company's effective rate was 0.0% in the quarters ended March 31,
2003 and 2004 as the Company provided a full valuation allowance against its net
deferred tax assets through March 31, 2004. As of March 31, 2004, the Company
continued to carry a full valuation against its net deferred tax assets, as it
has determined that it is more likely than not that such amounts will not be
realized through taxable income from future operations, or by carry-back to
prior year's taxable income.
NOTE 7 - REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION
The Company has two reportable segments categorized by product type:
development products and production products. Development products are advanced
verification systems that assist product developers to efficiently design
reliable and interoperable systems and devices. Production products are
production verification systems and connectivity solutions designed to assist
manufacturers in the volume production of reliable devices and systems. The
Company has no inter-segment revenue.
The Company analyzes segment revenue and cost of revenue, but does not
allocate operating expenses, including stock-based compensation, or assets to
segments. Accordingly, the Company has presented only revenue and gross profit
by segment.
Segment information (in thousands):
UNALLOCATED
STOCK-BASED
DEVELOPMENT PRODUCTION COMPENSATION
PRODUCTS PRODUCTS EXPENSE TOTAL
----------- ---------- ------------ ------
Quarter Ended March 31, 2004
Segment revenue ............ $4,416 $ 229 $ -- $4,645
Segment gross profit ....... $3,683 $ 144 $ (6) $3,821
Quarter Ended March 31, 2003
Segment revenue ............ $2,799 $ 463 $ -- $3,262
Segment gross profit ....... $2,330 $ 262 $ (3) $2,589
Geographic information (in thousands):
REVENUE LONG-LIVED ASSETS
------- -----------------
Quarter Ended March 31, 2004
North America .............................. $ 2,120 $22,814
Europe ..................................... 564 --
Asia ....................................... 1,961 --
Rest of world .............................. -- --
------- -------
Total ................................... $ 4,645 $22,814
======= =======
Quarter Ended March 31, 2003
North America ............................. $ 1,260 $ 1,283
Europe .................................... 440 --
Asia ...................................... 1,556 --
Rest of world ............................. 6 --
------- -------
Total ................................... $ 3,262 $ 1,283
======= =======
8
Revenues are attributed to countries based on delivery locations. Sales to
international customers accounted for 54.4% and 61.4% of revenue during the
quarters ended March 31, 2004 and 2003, respectively.
NOTE 8 - WARRANTIES
The Company offers warranties on certain products and records at the
time of shipment an estimate for the future costs associated with warranty
claims. The Company accrues these costs based upon historical experience and its
estimate of the level of future warranty costs. The Company assesses the
adequacy of its warranty reserve on a quarterly basis and makes adjustments, if
needed.
The following table reconciles the changes in our warranty reserve for
the quarter ended March 31, 2004 (in thousands):
Balance as of December 31, 2003 ......................... $ 125
Accrual for warranty reserve for sales made during
the quarter ended March 31, 2004 ...................... 174
Warranty costs for the quarter ended March 31, 2004 ..... --
Warranty expirations during the quarter ended
March 31, 2004 ........................................ (174)
-----
Total ................................................... $ 125
=====
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
During December 2003, the SEC released Staff Accounting Bulleting ("SAB") No.
104, "Revenue Recognition", which supercedes SAB No. 101, "Revenue Recognition
in Financial Statements". SAB No. 104 updates portions of the interpretive
guidance included in Topic 13 of staff accounting bulletin "Revenue Recognition"
in order to make this interpretive guidance consistent with current
authoritative accounting guidance. The principle revisions relate to the
deletion of interpretive material that is no longer necessary because of private
sector development in U.S. generally accepted accounting principles. The revenue
recognition principles of SAB No. 101, however, remain largely unchanged by the
issuance of SAB No. 104, which was effective upon issuance. The Company does not
believe that SAB No. 104 will have a material effect on it on its financial
position or results of operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q and certain information incorporated herein by
reference contain forward-looking statements within the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. All statements
contained in this Report on Form 10-Q that are not purely historical are
forward-looking statements, including, without limitation, statements regarding
our expectations, objectives, anticipations, plans, hopes, beliefs, intentions,
or strategies regarding the future. Forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements. Forward-looking statements include, without
limitation, the statements regarding:
o Our anticipation that revenue from sales of our Universal Serial Bus
(USB) products will decrease as the markets for our USB products
mature and that in order to generate growth in revenue our new product
offerings in other communications standards will have to offset any
shortfalls in revenues from the USB standard;
o Our belief that the development of emerging communications standards
and technological change has influenced and is likely to continue to
influence our quarterly and annual revenue and results of operations;
o Our expectation that our operating cash flow requirements will
increase in the future in connection with the expanding scope and
level of our activities;
o Our belief that our current cash, cash equivalents and short-term
investments together with funds generated from operations will be
sufficient to meet our working capital and capital expenditure
requirements for at least the next 12 months;
o Our expectation that a significant percentage of our revenue will
continue to be derived from Universal Serial Bus (USB) product sales
for the foreseeable future, notwithstanding our expectation that USB
product sales will decline due to the maturity of the product line;
o Our belief that our quarterly and annual operating results are likely
to fluctuate significantly in the future;
o Our belief that our future revenue growth relies on our ability to
successfully design, manufacture and sell new products into new and
established markets;
o Our belief that we must work closely with core or promoter companies
in our target markets to gain valuable insights into new market
demands, obtain early access to standards as they develop and help us
design new or enhanced products;
o Our expectation that we will encounter increased competition as we
expand our product portfolio into new and existing markets;
o Our anticipation that the average selling prices of our products will
decrease in the future in response to such things as product
introductions or enhancements by us or our competitors, product
discounting on volume purchase orders or additional pricing pressures;
o Our belief that we must continue to develop and introduce on a timely
basis new products that incorporate features that can be sold at
higher average selling prices;
o Our belief that developments related to the Sarbanes-Oxley Act of 2002
will increase our legal compliance and financial reporting costs, make
it more difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to accept reduced
coverage or incur substantially higher costs to obtain coverage;
o Our expectations to continue to review opportunities to acquire other
businesses or technologies that complement our current products,
expand our markets, enhance our technical capabilities or that might
otherwise offer growth opportunities;
o Our intent to continue development and expansion of our direct sales
organization and our indirect distribution channels domestically and
internationally;
o Our anticipation that revenue from international operations will
continue to represent a substantial portion of our revenue;
10
o Our belief that our products do not infringe any other party's
intellectual property rights in any way that would have a material
adverse effect on our operation;
o Our anticipation that all of our earnings, if any, will be retained
for development and expansion of our business;
o Our belief that that as the economy expands the demand for certain key
components used in our products will increase such that we may need to
order larger quantities of these components earlier than forecasted or
risk shipment delays of products to our customers; and
o Our anticipation that we will not pay any cash dividends on our common
stock in the foreseeable future.
These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those stated or
implied by the forward-looking statements. For a detailed description of the
risks associated with our business that could cause actual results to differ
from those stated or implied in such forward-looking statements, see the
disclosure contained under the heading "Risk Factors" in this Quarterly Report
as well as such other risks and uncertainties as are detailed in our Securities
and Exchange Commission reports and filings. All forward-looking statements
included in this Form 10-Q are based on information available to us on the date
of this Report on Form 10-Q, and we assume no obligation to update the
forward-looking statements, or to update the reasons why actual results could
differ from those projected in the forward-looking statements.
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
in Item 1 of this report and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in our Form 10-K filed with the
Securities and Exchange Commission on February 20, 2004, as amended by our Form
10-K/A filed on March 3, 2004.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our consolidated financial
statements in conformity with generally accepted accounting principles requires
our management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. We base our estimates on historical
experience and on various other assumptions 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. We believe the following critical
accounting policies, among others, affect the more significant judgments and
estimates used in the preparation of our consolidated financial statements.
REVENUE RECOGNITION. Due to the significant software content of our
products, we have adopted Statement of Position ("SOP") 97-2, Software Revenue
Recognition. Under SOP 97-2, we recognize revenue on sales to distributors,
resellers and direct customers upon shipment, provided that there is persuasive
evidence of an arrangement, the product has been delivered and title has passed,
the fee is fixed or determinable and collection of the resulting receivable is
reasonably assured. We do not provide distributors, resellers or direct
customers price protection, and only provide limited rights of return or
exchange. Generally, our distributors do not maintain inventory; however, to the
extent they do, we have the right, but not the obligation, under the terms of
our distributor agreements to repurchase inventory at the sales price upon
termination of the relationship. We review distributor inventory levels, if any,
quarterly to ensure that any potential repurchases are not material. When we
have shipped products but some elements essential to the functionality of the
products have not been completed, revenue and associated cost of revenue are
deferred until all essential elements have been delivered. Software maintenance
support revenue is deferred and recognized ratably over the maintenance support
period. Provisions for warranty costs are recorded at the time products are
shipped.
CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM INVESTMENTS. Our
cash equivalents, and short-term and long-term investments are placed in
portfolios managed by professional money management firms under investment
guidelines we have established. These guidelines address the critical objectives
of preservation of principal, avoiding inappropriate concentrations, meeting
liquidity requirements and maximizing after-tax returns. We classify all highly
11
liquid investments purchased with an original maturity of 90 days or less to be
cash equivalents. Those with a maturity greater than 90 days but less than one
year are classified as short-term investments, and those with an original
maturity greater than one year are classified as long-term investments. Our cash
equivalents, short-term and long-term investments consist principally of
investments in commercial paper, investment quality corporate and municipal
bonds, money market funds, collateralized mortgage obligations, and U.S.
government agency securities.
INCOME TAXES. We account for income taxes under the liability method,
which requires, among other things, that we record deferred tax assets and
liabilities for temporary differences between the tax bases of our assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carry-forwards. A full
valuation allowance is provided against deferred tax assets unless it is more
likely than not that they will be realized. In the quarter ended December 31,
2002, we provided a full valuation allowance for our net deferred tax assets. As
of March 31, 2004, we continue to maintain a full valuation allowance against
our net deferred tax assets.
INTANGIBLE ASSETS. Our purchased intangible assets total $133,000 as of
March 31, 2004. We are required to reduce the carrying value of these assets
whenever events or changes in circumstances indicate that the carrying value of
these assets may not be recoverable. In order to make such adjustments, we are
required to make assumptions about the value of these assets in the future
including future prospects for earnings and cash flows of the businesses
underlying these investments. Judgments and assumptions about the future are
complex, subjective and can be affected by a variety of factors including
industry and economic trends, our market position and the competitive
environment in which we operate. Although we believe our judgments and
assumptions are reasonable and appropriate, different judgments and assumptions
could materially impact our reported financial results.
OVERVIEW
We are a provider of advanced verification systems for existing and
emerging digital communications standards such as Bluetooth, Fibre Channel, IEEE
1394, InfiniBand, PCI Express, SCSI, Serial ATA, Serial Attached SCSI and USB.
Our products are used by semiconductor, computer systems, software,
data storage, communications, automotive and aerospace companies at each phase
of their products' lifecycles from development through production and market
deployment. Our verification systems consist of development and production
products that accurately monitor communications traffic and diagnose operational
problems to ensure that products comply with standards and operate with other
devices. We currently outsource most of the manufacturing of our products so
that we may concentrate our resources on the design, development and marketing
of our existing and new products.
We report our revenue and gross profit in two business segments:
development products and production products. In the quarter ended March 31,
2004, revenue from our development products was $4.4 million and revenue from
our production products was $229,000. Historically, we have generated a majority
of our revenue from products for the USB standard. We anticipate that revenue
from sales of our USB products will decrease as the markets for our USB products
mature. Consequently, in order to generate growth in revenue our new product
offerings in other communications standards will have to offset any shortfalls
in revenues from the USB standard.
We sell our products to technology, infrastructure and application
companies through our direct sales force and indirectly through our distributors
and manufacturer's representatives. Historically, a substantial portion of our
revenue has been derived from customers outside of North America. In the quarter
ended March 31, 2004, 54.4% of our revenue was derived from international
customers, of which 22.3% was derived from customers in Japan, 19.9% was derived
from customers in other parts of Asia, and 12.1% was derived from customers in
Europe. All of our revenue and accounts receivable are denominated in U.S.
dollars. Although seasonality affects many of our target markets, to date our
revenue and financial condition as a whole have not been materially impacted by
seasonality. However, as we continue to expand our product offerings into new
markets, seasonality effects may become material.
The development of emerging communications standards and technological
change has influenced and is likely to continue to influence our quarterly and
annual revenue and results of operations. Our future revenue is dependent upon
the continued growth in capital spending by our existing and potential customers
for our types of products. Our product development and marketing strategies are
focused on working closely with promoter companies and communications standards
groups to gain early access to new communications standards and technologies. We
12
have invested significantly in the research, development and marketing of our
products for emerging communications standards, often before these standards
have gained widespread industry acceptance and in advance of generating
substantial revenue related to these investments. Additionally, the adoption
rates for our new products by customers in our target markets are unpredictable
and subject to substantial risk, most of which are beyond our control.
Accordingly, if the markets for our new products do not materialize or
materialize later than we expect, our ability to sustain and increase revenue
may be harmed.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data for
the periods indicated as a percentage of revenue:
QUARTERS ENDED MARCH 31,
2004 2003
-------- ---------
Consolidated Statement of Operations Data:
Revenue .............................................. 100.0% 100.0%
Cost of Revenue ...................................... 17.8 20.6
----- -----
Gross profit ................................... 82.2 79.4
----- -----
Operating expenses:
Research and development ........................... 34.5 40.1
Sales and marketing ................................ 27.6 35.1
General and administrative ......................... 14.7 20.7
Amortization of purchased intangibles .............. 0.6 0.8
Amortization of deferred stock-based compensation .. 0.6 1.8
----- -----
Total operating expenses ....................... 78.0 98.5
----- -----
Income (loss) from operations ........................ 4.2 (19.1)
Other income, net .................................... 3.4 4.9
Income (loss) before income taxes .................... 7.6 (14.2)
Income taxes ......................................... -- --
----- -----
Net income (loss) .................................... 7.6% (42.2)%
===== =====
RESULTS OF OPERATIONS IN THE QUARTERS ENDED MARCH 31, 2004 AND 2003
Revenue. Our revenue was $4.6 million in the quarter ended March 31,
2004, compared to $3.3 million in the quarter ended March 31, 2003, an increase
of 42.4%. New product revenue increases of $1.5 million were partially offset by
decreases in sales of certain existing products of $185,000. The decrease in
sales of existing products was primarily the result of reduced demand for USB
production products due to the maturity and stability of the protocol components
incorporated into end-user products. Going forward, we expect continuing
declines in certain USB development and production product revenue as the USB
communication standard continues to mature. Revenue from international customers
represented 54.4% of revenue in the quarter ended March 31, 2004 and 61.4% of
revenue in the quarter ended March 31, 2003.
Cost of Revenue and Gross Profit. Our gross profit was $3.8 million in
the quarter ended March 31, 2004 compared to $2.6 million in the quarter ended
March 31, 2003, an increase of 47.6%. Our gross margin percentage was 82.2% in
the quarter ended March 31, 2004 and 79.4% in the quarter ended March 31, 2003.
The increase in gross margin percentage was primarily the result of an increase
in development product sales as a percentage of total revenue. Our higher margin
business segment, development products, increased as a percentage of revenue by
9.3%.
Research and Development. Our research and development expenses were
$1.6 million in the quarter ended March 31, 2004 compared to $1.3 million in the
quarter ended March 31, 2003, an increase of 22.6%. Research and development
expenses represented 34.5% of revenue in the quarter ended March 31, 2004 and
40.1% of revenue in the quarter ended March 31, 2003. The increase in expenses
was primarily due to increased personnel and related costs of approximately
13
$194,000 and approximately $110,000 for certain customer service costs that were
included in sales and marketing expenses prior to the first quarter of 2004
resulting from a reorganization of our technical services department. The
percentage of revenue decrease for the quarter ended March 31, 2004 was
primarily due to the impact of increased revenues partially offset by the
increase in expenses noted in this paragraph when compared to the quarter ended
March 31, 2003.
Sales and Marketing. Our sales and marketing expenses were $1.3 million
in the quarter ended March 31, 2004 compared to $1.1 million in the quarter
ended March 31, 2003, an increase of 12.0%. Sales and marketing expenses
represented 27.6% of revenue in the quarter ended March 31, 2004 and 35.1% of
revenue in the quarter ended March 31, 2003. The increase in expenses was
primarily due to increased personnel and related costs of approximately
$156,000, an increase in the commissions earned by our manufacturer's
representatives of $102,000, partially offset by a reduction of approximately
$110,000 for certain customer service costs that were included in sales and
marketing expenses prior to the first quarter of 2004 and are now included in
research and development expenses and decreases in marketing programs of
approximately $76,000. The percentage of revenue decrease for the quarter ended
March 31, 2004 was primarily due to the impact of increased revenues partially
offset by the increase in expenses noted in this paragraph when compared to the
quarter ended March 31, 2003.
General and Administrative. Our general and administrative expenses
were $682,000 in the quarter ended March 31, 2004 compared to $676,000 in the
quarter ended March 31, 2003, an increase of 0.9%. General and administrative
expenses represented 14.7% of revenue in the quarter ended March 31, 2004 and
20.7% in the quarter ended March 31, 2003. The percentage of revenue decrease
for the quarter ended March 31, 2004 was primarily due to the impact of
increased revenues when compared to the quarter ended March 31, 2003.
Amortization of Deferred Stock-based Compensation. Amortization of
deferred stock-based compensation was $32,000 in the quarter ended March 31,
2004 of which $6,000 was included in cost of revenue. Amortization of deferred
stock-based compensation was $62,000 in the quarter ended March 31, 2003, of
which $3,000 was included in cost of revenue. Amortization of deferred
stock-based compensation represented 0.6% and 1.8% of revenue in the quarters
ended March 31, 2004 and March 31, 2003, respectively.
Other Income. Other income was $158,000 in the quarter ended March 31,
2004 compared to $161,000 in the quarter ended March 31, 2003, a decrease of
1.9%. This decrease resulted primarily from declining interest income earned on
the investment of excess cash balances associated with lower interest rates.
Income Taxes. We have incurred no provision for income taxes for the
quarters ended March 31, 2004 and March 31, 2003. As of March 31, 2004, we
continue to maintain a full valuation allowance against our net deferred tax
assets as we have determined that it is more likely than not that such amounts
will not be realized through taxable income from future operations, or by
carry-back to prior years' taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Generally, we expect our operating cash flow requirements to increase
in the future in connection with the expanding scope and level of our
activities. Since our inception, we have financed our operations primarily
through cash flows from operating activities. In November 2000, we received net
proceeds of $38.3 million from the initial public offering of our Common Stock.
In the quarter ended March 31, 2004, cash provided by operating
activities of $958,000 was primarily the result of net income of $361,000,
non-cash expenses associated with depreciation of $161,000, decreases in related
assets and liabilities for working capital purposes of $292,000, amortization of
premium on investments of $78,000, amortization of deferred stock based
compensation of $32,000, amortization of acquired intangibles of $26,000 and
amortization of other acquired developed technology of $8,000. Cash used in
investing activities was $12.2 million, primarily relating to the purchase of
long-term investments of $12.4 million, the purchase of short-term investments
of $633,000 and capital expenditures of $186,000, partially offset by the sale
of short-term investments of $1.1 million. Cash provided by financing activities
was $307,000, consisting of the proceeds from the exercise of stock options of
$180,000 and the sale of stock pursuant to our employee stock purchase plan of
$127,000.
In the quarter ended March 31, 2003, cash used in operating activities
of $1.4 million was primarily the result of a net loss of $463,000 and an
increase in related assets and liabilities for working capital purposes of $1.2
million, offset by non-cash expenses associated with depreciation expenses of
$195,000, amortization of deferred stock-based compensation of $62,000,
14
amortization of other purchased intangibles of $26,000 and the amortization of
other acquired developed technology of $9,000. Cash used in investing activities
was $3.4 million, related to the purchase of short-term investments of $4.3
million, capital expenditures of $124,000, offset by proceeds from the sale of
short-term investments of $1.0 million. Cash provided by financing activities
was $37,000, consisting of the sale of stock pursuant to our employee stock
purchase plan of $70,000, proceeds from the exercise of stock options of $7,000,
offset by repurchases of common stock of $40,000.
As of March 31, 2004, we had cash, cash equivalents and investments of
$45.6 million, working capital of $24.4 million and no debt. We have no capital
lease obligations, and we had future minimum lease payments under our operating
leases of approximately $1.6 million.
We believe that our current cash, cash equivalents and short-term
investments together with funds generated from operations will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next 12 months. In the more distant future, we may find it necessary to obtain
additional equity or debt financing. If we are required to raise additional
funds, we may not be able to do so on acceptable terms or at all. In addition,
if we issue new securities, stockholders might experience dilution and the
holders of the new securities might have rights, preferences or privileges
senior to those of existing stockholders.
RISK FACTORS
Stated below, elsewhere in this Quarterly Report, and in other documents we
file with the Securities and Exchange Commission (SEC) are risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained in this report.
The occurrence of any of the developments or risks identified below may make the
occurrence of one or more of the other risk factors below more likely to occur.
RISKS RELATED TO OUR BUSINESS
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND LIKELY TO FLUCTUATE FROM
QUARTER TO QUARTER. IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS
OR INVESTORS, OUR STOCK PRICE WOULD LIKELY DECLINE SIGNIFICANTLY.
Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a number of factors,
some of which are wholly or partially outside our control. Accordingly, we
believe that period-to-period comparisons of our results of operations should
not be relied upon as indications of future performance. Some of the factors
that could cause our operating results to fluctuate include:
o changes in the volume of our product sales;
o changes in the average selling prices of our products;
o the timing, reduction, or deferral of customer orders or purchases;
o seasonality in some of our target markets;
o competitive product announcements;
o the amount and timing of our operating expenses and capital
expenditures;
o the effectiveness of our product cost reduction efforts;
o variability of our customers' product lifecycles;
o shifts in our sales toward lower-margin products; and
o cancellations, changes or delays of deliveries to us by our
manufacturers and suppliers.
If our operating results fall below the expectations of securities analysts
or investors, the trading price of our Common Stock would likely decline,
possibly significantly.
WE DEPEND UPON WIDESPREAD MARKET ACCEPTANCE OF OUR PRODUCTS, AND OUR RESULTS OF
OPERATIONS WILL SUFFER IF THE MARKET DOES NOT ACCEPT OUR PRODUCTS.
A significant percentage of our revenue derives from Universal Serial Bus
(USB) product sales, notwithstanding that we expect a decline in USB product
sales due to the maturity of the product line and we expect that will continue
15
for the foreseeable future. Factors that may affect our USB product sales
include the continued growth of markets for the development of USB compliant
devices, the performance and pricing of our USB products, and the availability,
functionality and price of competing products. Many of these factors are beyond
our control.
Our future revenue growth relies on our ability to successfully design,
manufacture and sell new products into new and established markets. The
competition for product sales in these markets is typically substantial and
often firmly established. If we are unable to gain significant market share in
these markets, our ability to increase revenue is likely to be adversely
effected. If we are unable to grow revenue our operating results will suffer and
the trading price of our common stock may decline significantly.
IF WE FAIL TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE.
The markets for our products are characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. We may cease to be competitive if we fail to timely
introduce new products or product enhancements that address these factors. To
continue to introduce new products and product enhancements on a timely basis,
we must:
o quickly identify emerging technological trends in our target markets,
including new communications standards;
o accurately define and design new products or product enhancements to
meet market needs;
o develop or license the underlying core technologies necessary to
create new products and product enhancements; and
o respond effectively to technological changes and product introductions
by our competitors.
If we fail to timely identify, develop, manufacture, market or support new
or enhanced products successfully, our competitors could gain market share or
our new or enhanced products might not gain market acceptance.
DELAYS IN THE DEVELOPMENT OF NEW OR ENHANCED PRODUCTS COULD HARM OUR OPERATING
RESULTS AND OUR COMPETITIVE POSITION.
The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation, highly skilled
engineering and development personnel and accurate anticipation of technological
and market trends. Consequently, product development delays are typical in our
industry. If we fail to timely introduce a product for an emerging standard or
customers defer or cancel orders expecting the release of a new or enhanced
product, our operating results could suffer. Product development delays may
result from numerous factors, including:
o changing product specifications and customer requirements;
o unanticipated engineering complexities;
o difficulties with or delays by contract manufacturers or suppliers of
key components or technologies;
o difficulties in allocating engineering resources and overcoming
resource limitations; and
o difficulties in hiring and retaining necessary technical personnel.
IF WE DEVOTE RESOURCES TO DEVELOPING PRODUCTS FOR EMERGING COMMUNICATIONS
STANDARDS THAT ULTIMATELY ARE NOT WIDELY ACCEPTED, OUR BUSINESS COULD BE HARMED.
Our future growth depends upon our ability to develop, manufacture and sell
in volume advanced verification systems for existing, emerging and yet
unforeseen communications standards. We have little or no control over the
conception, development or adoption of new standards. Moreover, even as it
relates to currently emerging standards, the markets are rapidly evolving and we
have virtually no ability to impact the adoption of those standards. As a
result, there is significant uncertainty as to whether markets for new and
emerging standards ultimately will develop at all or, if they do develop, their
potential size or future growth rate. We may incur significant expenses and
dedicate significant time and resources to develop products for standards that
fail to gain broad acceptance. For example, we spent four years from 1992 to
1995 developing products for the ACCESS.bus technology, a standard designed to
16
connect peripheral devices to computers, which did not gain market acceptance.
Failure of a standard for which we devote substantial resources to gain
widespread acceptance would likely harm our business.
INCREASED COMPETITION, NEW PRODUCT INTRODUCTIONS BY COMPETITORS, AND OUR ENTRY
INTO NEW AND ESTABLISHED MARKETS MAY DECREASE THE AVERAGE SELLING PRICES OF OUR
PRODUCTS, REVENUE AND MARKET SHARE.
The markets for advanced verification products for emerging communications
standards are highly competitive. We compete with multiple companies in each of
our various markets and we expect the number of competitors, some of which may
be current customers, and the intensity of competition to increase. Any of these
existing or future competitors may have substantially greater financial,
technical, marketing and distribution resources and brand name recognition. If
companies develop competing products or form alliances with or acquire companies
offering competing products, any of which address our target markets more
effectively, or at a lower cost, even if those products do not have capabilities
comparable to our products, they could be formidable competitors.
We continue to experience increased competition in our principal markets
and, as we expand our product portfolio into other new and existing markets, we
expect to encounter similar competitive forces in those markets. Increased
competition could result in significant price erosion, reduced revenue, lower
margins and loss of market share, any of which would significantly harm our
business. As a result, we anticipate that the average selling prices of our
products will decrease in the future in response to such things as product
introductions or enhancements by us or our competitors, product discounting on
volume purchase orders or additional pricing pressures. We believe we must
continue to develop and introduce on a timely basis new products that
incorporate features that can be sold at higher average selling prices. Failure
to do so would likely cause our revenue and gross margins to decline.
WE CONTINUE TO FACE UNCERTAINTY RELATING TO ECONOMIC CONDITIONS AFFECTING OUR
CUSTOMERS.
We face uncertainty in the degree to which the current global economic
climate will continue to negatively affect growth and capital spending by our
existing and potential customers. We continue to experience instances of
customers delaying or deferring orders and longer lead times to close sales. If
global economic conditions do not improve, or if they worsen, our business,
operating results and financial condition will continue to be adversely
impacted.
VARIATIONS IN OUR REVENUE MAY CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS.
We may experience delays generating or recognizing revenue for a number of
reasons. Historically, we carry little backlog and our revenue in any quarter
has depended upon orders booked and shipped in that quarter. Customers may delay
scheduled delivery dates and cancel orders without significant penalty. In
addition, even if we ship orders, generally accepted accounting principles may
require us to defer recognition of revenue until a later date. Because we budget
our operating expenses on anticipated revenue trends and a high percentage of
our expenses are fixed in the short term, any delay in generating forecasted
revenue could have a significant negative impact on our operating results.
IF WE FAIL TO MAINTAIN AND EXPAND OUR RELATIONSHIPS WITH THE CORE OR PROMOTER
COMPANIES IN OUR TARGET MARKETS, WE MAY HAVE DIFFICULTY DEVELOPING AND MARKETING
OUR PRODUCTS.
It is important to our success to establish, maintain and expand our
relationships with technology and infrastructure leader companies developing
emerging communications standards in our target markets. We believe we must work
closely with these companies to gain valuable insights into new market demands,
obtain early access to standards as they develop and help us design new or
enhanced products. Generally, we do not enter into contracts obligating these
companies to work or share their technology. Industry leaders could choose to
work with other companies in the future. If we fail to establish, maintain and
expand our industry relationships, we could lose first-mover advantage with
respect to emerging standards and it would likely be more difficult for us to
develop and market products that address these standards.
OUR EXECUTIVE OFFICERS, DIRECTORS, PHILIPS SEMICONDUCTORS AND CERTAIN ENTITIES
AFFILIATED WITH THEM OWN A LARGE PERCENTAGE OF OUR VOTING STOCK, WHICH COULD
HAVE THE EFFECT OF DELAYING OR PREVENTING A CHANGE IN OUR CONTROL.
As of April 30, 2004, our executive officers, directors, Philips
Semiconductors and certain entities affiliated with or beneficially controlled
by them owned approximately 7,157,734 shares or approximately 36.67% of our
outstanding shares of common stock, excluding 398,047 shares of common stock
held in our treasury acquired primarily pursuant to our Stock Repurchase
Program. These stockholders, acting together, can exercise significant control
regarding matters requiring stockholder approval, including the election or
removal of directors and the approval of mergers or other business combination
transactions. This concentration of ownership could have the effect of delaying
17
or preventing a change in our control or otherwise discouraging potential
acquirers from attempting to obtain control, which in turn could have an adverse
effect on the market price of our common stock or prevent our stockholders from
realizing a premium over the market price for their shares of common stock. Our
repurchase of shares of our common stock pursuant to our Stock Repurchase
Program discussed under the caption in "Part I, Item 1, Note 12" in our annual
report on Form 10-K for the year ended December 31, 2003, filed with the
Securities and Exchange Commission (SEC) on February 20, 2004, as amended by our
Form 10-K/A filed with the SEC on March 3, 2004, may increase their control over
us.
A TRANSITION IN OUR MANAGEMENT COULD CAUSE SUBSTANTIAL DISRUPTIONS TO OUR
BUSINESS AND OPERATIONS.
On November 17, 2003, we announced that our Chief Financial Officer,
Carmine Napolitano, was promoted to President and assumed day-to-day management
of the Company from one of our co-founders, Dan Wilnai, while concurrently
maintaining his position as Chief Financial Officer. Mr. Wilnai continues to act
as our Chief Executive Officer and Chairman of the Board and our other
co-founder, Peretz Tzarnotzky, currently holds the title of Executive Vice
President Engineering and is a director of the Company. Given Messrs. Wilnai and
Tzarnotzky's tenure with the Company they may decide to retire in the future.
The departure of one or more of these key management employees or an
inability to recruit and retain qualified personnel to replace them, could cause
substantial disruptions to our business and operations.
INCREASED COSTS ASSOCIATED WITH CORPORATE GOVERNANCE COMPLIANCE MAY
SIGNIFICANTLY IMPACT OUR RESULTS OF OPERATIONS.
The Sarbanes-Oxley Act of 2002 (the "Act") requires changes in some of our
corporate governance and securities disclosure or compliance practices. That Act
also requires the SEC to promulgate new rules on a variety of subjects, in
addition to rule proposals already made, and Nasdaq has revised and continues to
revise its requirements for companies that are Nasdaq-listed. We expect these
developments to increase our legal compliance and financial reporting costs. We
also expect these developments to make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we may be required to
accept reduced coverage or incur substantially higher costs to obtain coverage.
These developments could make it more difficult for us to attract and
retain qualified members of our board of directors, or qualified executive
officers. We are presently evaluating and monitoring regulatory developments and
cannot estimate the timing or magnitude of additional costs we may incur as a
result. To the extent these costs are significant, our general and
administrative expenses are likely to increase as a percentage of revenue and
our results of operations will be negatively impacted.
THE LOSS OF KEY MANAGEMENT PERSONNEL, ON WHOSE KNOWLEDGE, LEADERSHIP AND
TECHNICAL EXPERTISE WE RELY, WOULD CAUSE SIGNIFICANT DISRUPTIONS IN OUR
OPERATIONS AND HARM OUR ABILITY TO EXECUTE OUR BUSINESS PLAN.
Our success depends heavily upon the continued contributions of our key
management personnel, whose knowledge, leadership and technical expertise may be
time-consuming and difficult to replace. Moreover, all of our personnel,
including our executive staff, are employed on an "at will" basis. We maintain
no key person insurance on any of our personnel. If we were to terminate or lose
the services of any of our key personnel and were unable to hire qualified
replacements, our ability to execute our business plan would be harmed. Even if
we were able to hire qualified replacements, we would expect to experience
operational disruptions and inefficiencies. In addition, employees who leave our
company may subsequently compete against us.
OUR PRODUCTS MAY CONTAIN DEFECTS THAT CAUSE US TO INCUR SIGNIFICANT CORRECTIVE
COSTS, DIVERT OUR ATTENTION FROM PRODUCT DEVELOPMENT EFFORTS AND RESULT IN A
LOSS OF CUSTOMERS.
Highly complex products such as our verification systems frequently contain
defects when they are first introduced or as new versions are released. If any
of our products contain defects or have reliability, quality or compatibility
problems, our reputation may be damaged and customers may be reluctant to buy
our products. In addition, these defects could interrupt or delay sales. We may
have to invest significant capital and other resources to alleviate these
problems. If any problem remains undiscovered until after we have commenced
commercial production of a new product, we may be required to incur additional
development costs and product recall, repair or replacement costs. These
problems may also result in claims against us by our customers or others. In
addition, these problems may divert our technical and other resources from other
development efforts.
18
IF WE FAIL TO MAINTAIN AND EXPAND OUR RELATIONSHIPS WITH THE CORE OR PROMOTER
COMPANIES IN OUR TARGET MARKETS, WE MAY HAVE DIFFICULTY DEVELOPING AND MARKETING
OUR PRODUCTS.
It is important to our success to establish, maintain and expand our
relationships with technology and infrastructure leader companies developing
emerging communications standards in our target markets. We believe we must work
closely with these companies to gain valuable insights into new market demands,
obtain early access to standards as they develop and help us design new or
enhanced products. Generally, we do not enter into contracts obligating these
companies to work or share their technology. Industry leaders could choose to
work with other companies in the future. If we fail to establish, maintain and
expand our industry relationships, we could lose first-mover advantage with
respect to emerging standards and it would likely be more difficult for us to
develop and market products that address these standards.
IF OUR DISTRIBUTORS AND MANUFACTURER'S REPRESENTATIVES DO NOT ACTIVELY SELL OUR
PRODUCTS, OUR PRODUCT SALES MAY DECLINE.
Historically, we have relied on manufacturer's representatives to sell our
products domestically and have relied on our distributors to sell our products
internationally. A substantial number of our products are sold through our
distributors and manufacturer's representatives. Our distributors and
manufacturer's representatives generally offer products from multiple
manufacturers. Accordingly, there is a risk that our distributors and
manufacturer's representatives may give higher priority to selling products from
other suppliers and reduce their efforts to sell our products. Our distributors
and manufacturer's representatives may not market our products effectively or
continue to devote the resources necessary to effectively sell, market and
provide technical support for our products. Our distributors may on occasion
build inventories in anticipation of substantial growth in sales and, if growth
does not occur as rapidly as anticipated, they may subsequently decrease their
product orders. A slowdown in orders from our distributors or manufacturer's
representatives could reduce our revenue in any given quarter and cause
fluctuations in our operating results.
In addition, sales to our distributors are initiated by purchase orders
rather than long-term commitments. The loss of any major distributor, the delay
of significant orders from our distributors, or the failure of our distributors
to timely pay for products purchased could result in decreased or deferred
recognition of revenue.
SHIFTS IN OUR PRODUCT MIX MAY RESULT IN DECLINES IN GROSS MARGINS.
Our gross margins vary by product, with gross margins generally higher on
our development products than our production products. Our overall gross margins
might fluctuate from period to period as a result of shifts in product mix, the
channels through which we sell our products, or the introduction of new products
and product costs.
WE DEPEND ON CONTRACT MANUFACTURERS FOR SUBSTANTIALLY ALL OF OUR MANUFACTURING
REQUIREMENTS AND IF THESE MANUFACTURERS FAIL TO PROVIDE US WITH ADEQUATE
SUPPLIES OF HIGH-QUALITY PRODUCTS, OUR COMPETITIVE POSITION, REPUTATION AND
BUSINESS COULD BE HARMED.
We currently rely on four contract manufacturers for all of our
manufacturing requirements except for final assembly, testing and quality
assurance on our lower volume, higher margin products. We do not have long-term
contracts with any of these manufacturers. All purchase commitments and
obligations between us and our contract manufacturers are on a purchase order
basis. As a result, our manufacturers could refuse to continue to manufacture
all or some of our products or attempt to change the terms under which they
manufacture our products. Previously, we experienced delays in product shipments
from some of our manufacturers, which forced us to delay product shipments. We
may experience similar future delays or other problems, such as inferior quality
and insufficient quantity of products, any of which could significantly harm our
business, which will require that we rapidly achieve volume production by
coordinating our efforts with those of our suppliers and contract manufacturers.
The inability of our manufacturers to provide adequate supplies of high quality
products or the loss of any manufacturer would cause a delay in our ability to
timely fulfill orders.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS.
We expect to continue to review opportunities to acquire other businesses
or technologies that complement our current products, expand our markets,
enhance our technical capabilities or that might otherwise offer growth
opportunities. If we make any acquisitions, we could issue stock that would
19
dilute the percentage ownership of our existing stockholders, incur substantial
debt or assume contingent liabilities. For example, we issued 360,000 shares of
our common stock in connection with our acquisition of Verisys in June 2002. In
addition, in the quarter ended September 30, 2002, we recorded a goodwill
impairment of $1.4 million, and a partial impairment write-down of $194,000 of
purchased intangible assets, arising from our purchase of Verisys. Moreover, the
Verisys acquisition and other potential acquisitions involve numerous risks,
including:
o assimilating the purchased operations, technologies or products;
o costs or accounting charges associated with the acquisition;
o diversion of management's attention from our existing business;
o adverse effects on existing business relationships with suppliers and
customers;
o entering markets in which we have little or no prior experience; and
o potential loss of key employees of purchased businesses.
IF WE FAIL TO ACCURATELY FORECAST OUR SUPPLY NEEDS, OUR COSTS MAY INCREASE OR WE
MAY BE UNABLE TO TIMELY SHIP PRODUCTS.
We purchase components used in the manufacture of our products from several
key sources. We depend on these sources to timely deliver components based on
twelve-month rolling forecasts that we provide. Lead times for materials and
components vary significantly and depend on factors such as specific supplier
requirements, contract terms and current market demand. We believe that as the
economy expands the demand for certain key components used in our products will
increase such that we may need to order larger quantities of these components
earlier than forecasted or risk shipment delays of products to our customers. If
we overestimate our component requirements, we may develop excess inventory,
which would increase costs. If we underestimate our component requirements, we
may not be able to timely fulfill orders.
WE DEPEND ON SOLE SOURCE SUPPLIERS FOR SEVERAL KEY PRODUCT COMPONENTS AND WE MAY
LOSE SALES IF THEY FAIL TO TIMELY MEET OUR NEEDS.
We obtain some parts, components and packaging used in our products from
sole sources of supply. If these suppliers were unable to meet our demand for
components at reasonable costs or if we are unable to obtain an alternative
source at an equivalent price, our ability to timely and cost-effectively ship
our products would be harmed. In addition, because we rely on purchase orders
rather than long-term contracts with our sole source suppliers, we cannot
predict with certainty our ability to obtain components in the long term.
Furthermore, qualifying additional suppliers could be time-consuming, expensive,
and may increase the likelihood of errors or defects. If we are unable to obtain
components or receive a smaller allocation of components than necessary to meet
demand, customers could choose to purchase competing products.
IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATIONS AND INDIRECT SALES
CHANNELS OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR OPERATIONS
MAY BE HARMED.
We intend to continue development and expansion of our direct sales
organization and our indirect distribution channels domestically and
internationally. Managing our sales organization and distribution channels has
become more complex as we have expanded both our product lines and our
geographic presence. As a result, it has also become increasingly critical that
we optimize our sales operations around complementary products and users. We may
not be able to expand our direct sales organization or distribution channels
successfully or manage them optimally, and the cost of any expansion may exceed
the revenue generated.
IF WE ARE UNABLE TO RETAIN AND MOTIVATE OUR PERSONNEL, OUR OPERATIONS WILL BE
IMPAIRED.
To be successful and maintain a high level of quality, we will need to
retain and motivate highly skilled personnel. If we are unable to retain a
sufficient number of qualified employees, our operations may be impaired. We may
have even greater difficulty retaining employees if employees perceive the
equity component of our compensation package to be less valuable as a result of
market fluctuations in the price of our common stock.
20
ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS COULD ADVERSELY AFFECT SALES.
Because we sell our products worldwide, our business is subject to risks
associated with doing business internationally. We recognized 54.4% of our
revenue from sales to international customers in the quarter ended March 31,
2004. We anticipate that revenue from international operations will continue to
represent a substantial portion of our revenue. In addition, several of our
manufacturers' facilities and suppliers are located outside the United States of
America. Accordingly, our future results could be harmed by a variety of
factors, including:
o changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
o trade protection measures and import or export licensing requirements;
o potentially negative consequences from changes in tax laws;
o difficulty in staffing and managing widespread operations;
o ongoing health epidemics (e.g. Severe Acute Respiratory Syndrome
(SARS));
o changes in foreign currency exchange rates;
o differing labor regulations;
o war, actual or threatened acts of terrorism, other international
conflicts and the resulting military, economic and political responses
(including, without limitation, war between sovereign nations) as well
as heightened security measures which may cause significant disruption
to commerce worldwide;
o differing protection of intellectual property; and
o unexpected changes in regulatory requirements.
IF WE FAIL TO MANAGE OUR OPERATIONS EFFECTIVELY, OUR BUSINESS COULD SUFFER.
Our ability to offer products and implement our business plan successfully
in a rapidly evolving market requires effective planning and management. Failure
by our management or personnel to properly allocate resources to meet our
current and existing needs as well as unforeseen complications and
inefficiencies in planning our operations can adversely impact the morale of our
personnel and lead to further complications and operational inefficiencies. If
this were to occur, our profitability or financial position could be negatively
impacted and our operating results could suffer.
OUR HEADQUARTERS AND OUR CONTRACT MANUFACTURERS ARE LOCATED IN NORTHERN
CALIFORNIA, ASIA AND OTHER AREAS WHERE NATURAL DISASTERS MAY OCCUR.
Currently, our corporate headquarters and some of our contract
manufacturers are located in Northern California and our other contract
manufacturers are located in Asia. Northern California and Asia historically
have been vulnerable to natural disasters and other risks, such as earthquakes,
fires, floods, power loss and telecommunications failure, which at times have
disrupted the local economy and posed physical risks to our and our
manufacturers' properties. We do not have redundant, multiple site capacity in
the event of a natural disaster.
CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR PRODUCTS.
Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent litigation, especially regarding patent rights. We
cannot be certain that our products do not or will not infringe issued patents
or the intellectual property rights of others. In fact, we expect that we will
be subject to infringement claims as the number of products and competitors in
our markets grow and the functionality of products further overlap.
Historically, patent applications in the United States of America have not been
publicly disclosed until the patent is issued, and we may not be aware of filed
patent applications that relate to our products or technology. If patents are
later issued in connection with these applications, we may be liable for
infringement. Periodically, other parties, including some of our competitors,
may assert patent, copyright and other rights to technologies in various
jurisdictions that are important to our business. Any claims asserting that our
products infringe or may infringe the rights of third parties, including claims
arising through our contractual indemnification of our customers, regardless of
their merit or resolution, would likely be costly and time-consuming, divert the
efforts of our technical and management personnel, cause product shipment delays
21
or require us to enter into royalty or licensing agreements. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all.
At present, we do not believe that our products infringe any other party's
intellectual property rights in any way that would have a material adverse
effect on our operations. However, if any material claims do arise and if these
claims cannot be resolved through a license or similar arrangement, we could
become a party to litigation. The results of any litigation are inherently
uncertain. In the event of an adverse result in any litigation with third
parties that could arise in the future, we could be required to pay substantial
damages, including treble damages if we are held to have willfully infringed, to
cease the manufacture, use and sale of infringing products, to expend
significant resources to develop non-infringing technology, or to obtain
licenses to the infringing technology. In addition, lawsuits, regardless of
their success, would likely be time-consuming and expensive to resolve and would
divert management time and attention from our business.
ANY FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY MAY SIGNIFICANTLY
HARM OUR BUSINESS.
We protect our proprietary processes, software, know-how and other
intellectual property and related rights through copyrights, patents, trademarks
and the maintenance of trade secrets, including entering into confidentiality
agreements. Our success and ability to compete depend in part on our proprietary
technology. However, we cannot provide any assurance that other companies will
not develop technologies that are similar to our technology. We currently do not
have any registered patents. Although we have six patent applications pending,
patents may not issue as a result of these or other patent applications. Any
patents that ultimately issue may be successfully challenged or invalidated, or
may not provide us with a significant competitive advantage. Despite our efforts
to protect our intellectual property rights, existing laws in the United States
of America and in differing international jurisdictions and our contractual
arrangements provide only limited protection. Unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology. Third parties
may breach confidentiality agreements or other protective contracts with us and
we may not be able to enforce our rights in the event of these breaches.
Monitoring unauthorized use of our products is difficult and may be
expensive, and we cannot be certain that the steps we have taken will prevent
unauthorized use of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States of America. We may be required to spend significant resources to protect
our intellectual property rights, including pursuing remedies in court. We may
become involved in legal proceedings against other parties, which may also cause
other parties to assert claims against us. In the future we may not be able to
detect infringements and may lose competitive position in our markets before we
do so. In addition, competitors may design around our technologies or develop
competing technologies. The laws of other countries in which we market our
products might offer little or no effective protection of our proprietary
technology. Reverse engineering, unauthorized copying or other misappropriation
of our proprietary technology could enable third parties to benefit from our
technology without payment, which could significantly harm our business. Our
failure to enforce and protect our intellectual property rights or any adverse
change in the laws protecting intellectual property rights could harm our
business. Furthermore, we may become involved in legal proceedings against other
parties, which may also cause other parties to assert claims against us.
CHANGES IN CURRENT LAWS OR REGULATIONS OR THE ENACTMENT OF NEW LAWS OR
REGULATIONS COULD IMPEDE THE SALE OF OUR PRODUCTS.
We and many of our customers and their products are subject to regulations
and standards set by the Federal Communications Commission (FCC).
Internationally, many of our customers and their products may also be required
to comply with regulations established by authorities in various countries. We
are required to determine to what extent our products may be subject to FCC
standards and regulations and to what extent we are required to obtain
authorizations from the FCC directly or from a third-party authorized by the FCC
to issue such authorizations. We are also required to maintain in good standing
any equipment authorization we receive from the FCC or an FCC-approved party. In
addition, the regulations in force both in the United States of America and in
foreign jurisdictions may change. Failure to comply with regulations established
by regulatory authorities or to obtain timely domestic or foreign regulatory
approvals or certificates could significantly harm our business.
22
RISKS RELATED TO OUR EQUITY
FUTURE SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK BY US OR BY OUR EXISTING
STOCKHOLDERS COULD CAUSE OUR STOCK PRICE TO FALL.
Additional equity financings or other share issuances by us could adversely
affect the market price of our common stock. Sales by existing stockholders of a
large number of shares of our common stock in the public trading market (or in
private transactions) including sales by our executive officers, directors or
Philips Semiconductors Inc. and the sale of shares issued in connection with
strategic alliances, or the perception that such additional sales could occur,
could cause the market price of our Common Stock to drop.
LOW DAILY TRADING VOLUMES FOR OUR COMMON STOCK MAY MAKE IT DIFFICULT TO PURCHASE
OR SELL OUR COMMON STOCK AND CAN RESULT IN SIGNIFICANT PRICE VOLATILITY.
The market price of our common stock has been highly volatile and is likely
to continue to be volatile. We receive only limited attention by securities
analysts and there frequently occurs an imbalance between supply and demand in
the public trading market for our common stock due to limited trading volumes.
Investors should consider an investment in our common stock as risky and should
only purchase our common stock if they can withstand significant losses. Factors
affecting our common stock price include:
o fluctuations in our operating results;
o announcements of technological innovations or new commercial products
by us or our competitors;
o published reports by securities analysts;
o general market conditions;
o announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
o our cash position and cash commitments; and
o additions or departures of key personnel.
Additionally, some companies that have had volatile market prices for their
securities have been subject to securities class action lawsuits filed against
them. If a suit were to be filed against us, regardless of the merits or the
outcome, it could result in substantial costs and a diversion of our
management's attention and resources. This could have a material adverse effect
on our business, results of operations, financial condition and the price of our
common stock.
WE DO NOT ANTICIPATE PAYING DIVIDENDS FOR THE FORESEEABLE FUTURE.
We currently anticipate that all of our earnings, if any, will be retained
for development and expansion of our business. We do not anticipate paying any
cash dividends on our common stock in the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objectives of our investment activities are to preserve
principal and maximize the after-tax income we receive from our investments
without significantly increasing risk. Some of the securities in which we invest
may be subject to market risk. This means that a change in prevailing interest
rates may cause the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with an interest rate fixed at
the then-prevailing rate and interest rates later rise, the principal amount of
our investment will probably decline. We have the ability to hold our fixed
income investments until maturity, and therefore, we would not expect to
recognize any adverse impact in income or cash flows in the event of rising
interest rates previously mentioned. Cash equivalents, short-term and long-term
investments consist principally of investments in commercial paper, investment
quality corporate and municipal bonds, money market funds, collateralized
mortgage obligations, and U.S. government agency securities, we believe there is
no material market risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report, we
carried out an evaluation, under the supervision and with the participation of
our Chief Executive Officer (principal executive officer) and Chief Financial
23
Officer (principal financial officer), of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic SEC filings. It
should be noted that the design of any system of controls 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, regardless of how remote.
There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
our most recent evaluation of our internal controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings. However,
we are periodically subject to legal proceedings and claims that arise in the
ordinary course of our business. While management currently believes the amount
of ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, or if protracted litigation were to ensue, the
impact could be material to the Company.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The following table presents information concerning the repurchase by
us of shares of our common stock during the period ending March 31, 2004:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
------------- ---------- ------------ ------------
MAXIMUM
NUMBER (OR
TOTAL NUMBER APPROXIMATE
OF SHARES DOLLAR VALUE)
(OR UNITS) OF SHARES
PURCHASED (OR UNITS)
AS PART OF THAT MAY YET
TOTAL NUMBER AVERAGE PUBLICLY BE PURCHASED
OF SHARES (OR PRICE PAID ANNOUNCED UNDER THE
UNITS) PER SHARE PLANS OR PLANS OR
PERIOD PURCHASED (OR UNIT) PROGRAMS PROGRAMS
------ ------------- ---------- ------------ ------------
Month #1 (January 1 to January 31) 0 $ -- $ -- $ --
Month #2 (February 1 to February 29) 0 $ -- $ -- $ --
Month #3 (March 1 to March 31) 12,953 $ 5.00 $ -- $ --
------ ------- ------- -----
Total 12,953 $ 5.00 $ -- $ --
(1) In satisfaction of certain indemnification obligations under the
Agreement and Plan of Merger between the Verisys shareholders and the Company,
the Verisys shareholders released to the Company 12,953 shares of the Company's
common stock held in escrow since the close of the Company's acquisition of
Verisys in June 2002.
24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT NAME
----------- -------------
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant.
4.1* Specimen Certificate of the Registrant's common stock.
10.1* Form of Indemnification Agreement entered into between the
Registrant and its directors and executive officers.+
10.2* 1994 Stock Option Plan, as amended.+
10.3* 2000 Stock Option/Stock Issuance Plan.+
10.4* 2000 Stock Incentive Plan.+
10.5* 2000 Employee Stock Purchase Plan.+
10.6* Employment Agreement dated December 5, 1997, by and between
Albert Lee and the Registrant.+
10.7* Employment Agreement dated April 16, 2002, by and between Kevin
Fitzgerald and the Registrant.+
10.8* Employment Agreement dated July 22, 2002, by and between Carmine
Napolitano and the Registrant.+
31.1 Section 302 Certification of Principal Executive Officer.
31.2 Section 302 Certification of Principal Financial Officer.
32.1 Section 906 Certification of Principal Executive Officer.
32.2 Section 906 Certification of Principal Financial Officer.
- ----------
* Previously filed as an exhibit, with the corresponding exhibit number, to
the Registrant's Registration Statement on Form S-1 (Registration No.
333-43866) as filed with the SEC on August 16, 2000, as subsequently
amended, and incorporated in this annual report be reference.
+ Denotes management contract or compensation plan, contract or arrangement.
b. Reports on Form 8-K
On January 29, 2004, we filed a Form 8-K disclosing our earnings
for the quarter ended December 31, 2003.
On March 17, 2004, we filed a Form 8-K disclosing the pricing of
a secondary offering of common stock by certain selling
stockholders of the Company.
On April 22, 2004, we filed a Form 8-K disclosing our earnings
for the quarter ended March 31, 2004.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date May 13, 2004 COMPUTER ACCESS TECHNOLOGY CORPORATION
By: /s/ CARMINE J. NAPOLITANO
--------------------------------------
Carmine J. Napolitano
President, Chief Financial Officer and
Secretary (Principal Financial Officer
and Principal Accounting Officer)
26