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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
______________________
FORM
10-K
|
ý |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
For
the fiscal year ended December 31, 2004
or
|
¨ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 |
For
the transition period from
to
Commission
File Number 000-50857
______________________
Volterra
Semiconductor Corporation
(Exact
name of registrant as specified in its charter)
|
Delaware |
94-3251865 |
|
(State
or other jurisdiction of
incorporation
or organization) |
(I.R.S.
Employer
Identification
No.) |
3839
Spinnaker Court
Fremont,
CA 94538
(Address
of principal executive offices, including zip code)
(510) 743-1200
(Registrant’s
telephone number, including area code)
______________________
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 par value per share
(Title
of class)
______________________
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 ý No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes ¨ No ý
The
aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of the common stock listed on the Nasdaq
National Market on January 31, 2005 was approximately $248,387,825, based on a
closing price of $17.86 per share, excluding 9,430,384 shares of the
registrant’s common stock held by current executive officers, directors and
stockholders whose ownership exceeds 5% of the common stock outstanding at
January 31, 2005. Exclusion
of such shares should not be construed to indicate that any such person
possesses the power, direct or indirect, to direct or cause the direction of the
management or policies of the registrant or that such person is controlled by or
under common control with the registrant. The registrant has elected to use
January 31, 2005 as the calculation date, as on June 30, 2004 (the last business
day of the registrant’s second fiscal quarter) the registrant was a privately
held concern.
As of
January 31, 2005, there were 23,337,877 shares of the registrant’s common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive Proxy Statement for the 2005 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal
year covered by this Form 10-K, are incorporated by reference in
Part III, Items 10-14 of this Form 10-K.
VOLTERRA
SEMICONDUCTOR CORPORATION
ANNUAL
REPORT ON FORM 10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2004
TABLE
OF CONTENTS
|
PART I |
1 |
| |
Item 1.
Business |
1 |
| |
Item 2.
Properties |
8 |
| |
Item 3.
Legal Proceedings |
8 |
| |
Item 4.
Submission of Matters to a Vote of Security Holders |
8 |
|
PART II |
8 |
| |
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities |
8 |
| |
Item 6.
Selected Financial Data |
9 |
| |
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations |
11 |
| |
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk |
32 |
| |
Item 8.
Financial Statements and Supplementary Data |
33 |
| |
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure |
51 |
| |
Item 9A.
Controls and Procedures |
51 |
| |
Item 9B.
Other Information |
51 |
|
PART III |
51 |
| |
Item 10.
Directors and Executive Officers of the Registrant |
51 |
| |
Item 11.
Executive Compensation |
51 |
| |
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
51 |
| |
Item 13.
Certain Relationships and Related Transactions |
52 |
| |
Item 14.
Principal Accountant Fees and Services |
52 |
|
PART IV |
52 |
| |
Item 15.
Exhibits and Financial Statement Schedules |
52 |
|
SIGNATURES |
55 |
Cautionary
Note Regarding Forward-Looking Statements
This
annual report on Form 10-K contains forward-looking statements that involve many
risks and uncertainties. These statements relate to future events and our future
performance and are based on current expectations, estimates, forecasts and
projections about the industries in which we operate and the beliefs and
assumptions of our management. In some cases, you can identify forward-looking
statements by terms such as “would,” “could,” “may,” “will,” “should,” “expect,”
“intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”
“targets,” “seek,” or “continue,” the negative of these terms or other
variations of such terms. In addition, any statements that refer to projections
of our future financial performance, our anticipated growth and trends in our
business and other characterizations of future events or circumstances, are
forward-looking statements. These statements are only predictions based upon
assumptions made that are believed to be reasonable at the time, and are subject
to risk and uncertainties. Therefore, actual events or results may differ
materially and adversely from those expressed in any forward-looking statement.
In evaluating these statements, you should specifically consider the risks
described under the caption “Factors that May Affect Future Operating Results”
and elsewhere in this Form 10-K. These factors may cause our actual results to
differ materially from any forward-looking statements. Except as required by
law, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
PART I
Item 1. Business
We
design, develop and market proprietary, high-performance analog and mixed-signal
power management semiconductors for the computing, storage, networking and
consumer markets. Our core products are integrated voltage regulator
semiconductors and scalable voltage regulator semiconductor chipsets that
transform, regulate, deliver and monitor the power consumed by digital
semiconductors. Through our proprietary power system architecture and
mixed-signal design techniques, we have integrated power, analog and digital
circuits onto a single complementary metal oxide silicon, or CMOS,
semiconductor, eliminating the need for a large number of discrete components
required by conventional power management solutions. We sell our products
primarily to original equipment manufacturers, or OEMs, original design
manufacturers, or ODMs, contract equipment manufacturers, or CEMs, and power
supply manufacturers, directly through our internal sales force or indirectly
through distributors and outsourced suppliers.
Analog
and Mixed-Signal Semiconductor Market
Semiconductor
components are the building blocks of electronic systems. Semiconductors are
generally classified as either “digital” or “analog.” Digital semiconductors,
such as microprocessors, graphics processors, digital signal processors and
memory, are used to process and store data in a binary format, using electrical
signals to represent the binary digits, “1” and “0.” Analog semiconductors, such
as voltage regulators and temperature sensors, monitor, regulate or transform
physical properties, including voltage, current, temperature, pressure, weight,
light, sound or speed, using electrical signals that have a continuous range of
values. Electronic systems rely on analog semiconductors to provide the
interface between digital semiconductors and the physical world. Mixed-signal
semiconductors combine elements of both analog and digital semiconductors, but
are generally classified as analog semiconductors because of their analog
content.
The
market for analog and mixed-signal semiconductors differs from the digital
semiconductor market in several significant respects. Digital semiconductors
provide processing functions in electronic systems and are therefore often
optimized for a particular application or market. Analog and mixed-signal
semiconductors are often used in a wider variety of applications and markets
where different users have unique requirements regarding performance
specifications such as size, speed, accuracy and efficiency. As a result, the
analog and mixed-signal semiconductor market is highly fragmented, providing
smaller companies an opportunity to compete successfully against larger
suppliers in certain market segments. Analog and mixed-signal semiconductors
also generally have longer product life cycles than digital semiconductors. The
market for digital semiconductors is usually characterized by rapid design
cycles and fast production lead times. In addition, while digital semiconductors
typically gain the performance benefit of leading-edge manufacturing process
technologies, analog and mixed-signal semiconductor companies typically benefit
from lower capital requirements through the use of more mature manufacturing
process technologies. Analog and mixed-signal semiconductor design has
traditionally been more dependent on individual design engineers who have the
training and experience to design complex analog and mixed-signal
semiconductors.
Moore’s
Law, which refers to the observation that the number of transistors per
semiconductor doubles every 18 months, is facilitating the development of
faster and more complex digital semiconductors at prices which allow their
proliferation in a broad variety of electronic systems. As digital
semiconductors become more advanced, the analog and mixed-signal semiconductors
that interface with them must also operate with greater speed, accuracy and
efficiency. These factors, coupled with growth in the electronic equipment
markets, are driving growth in the analog and mixed-signal
semiconductor market.
Power
Management Semiconductor Market
Every
digital semiconductor requires power to operate. This power is delivered by one
or more analog semiconductors known as power management semiconductors. These
power management semiconductors transform, regulate and monitor power throughout
electronic systems. Advances in digital semiconductors require power management
solutions with higher performance, measured by greater speed, accuracy and
efficiency. In addition, the demand for smaller electronic devices is driving
the need for power management solutions that deliver increased performance but
are smaller in size. At the same time, the increased complexity of electronic
systems is causing electronic system designers to adopt a new system
architecture, known as a distributed power architecture. This architecture
requires a larger number of power management semiconductors to meet the varied
power requirements throughout the system. We believe these trends exist across
multiple electronic equipment markets and are driving demand for greater
quantities of more sophisticated power management solutions.
As
Moore’s Law suggests, the size of each transistor is decreasing as the number of
transistors per semiconductor continues to increase. Smaller transistors require
lower operating voltages that must be delivered with greater accuracy. At the
same time, semiconductors are operating at faster speeds to achieve higher
performance levels. More transistors and higher speeds require higher current
and a more dynamic power supply. This means new power management solutions must
be capable of supporting lower voltages with improved accuracy, higher currents
and faster dynamic response.
Today,
high-performance computing, storage and networking systems use advanced digital
semiconductors with greater processing power and therefore require more
sophisticated power management solutions. However, with advances in
manufacturing process technology, more advanced digital semiconductors can be
offered at lower prices and, therefore, are being used in a wider variety of
higher-volume applications, such as consumer electronic devices that incorporate
audio, image, video and data processing, and wireless communication
capabilities. As a result, a broader variety of electronic equipment will
require new power management solutions.
Our
Solution
We
design, develop and market proprietary, high-performance analog and mixed-signal
power management semiconductors. Our core products are integrated voltage
regulator semiconductors and scalable voltage regulator semiconductor chipsets
that are used to transform, regulate, deliver and monitor the power consumed by
digital semiconductors, such as microprocessors, graphics processors, digital
signal processors and memory. Through our proprietary power system architecture
and mixed-signal design techniques, we have integrated power, analog and digital
circuits onto a single CMOS semiconductor, thereby eliminating the need for a
large number of discrete components included in conventional power management
solutions. We target the high-performance computing, storage, networking and
consumer markets where power management requirements are particularly
challenging.
The benefits of our solution to
our customers include:
| · |
Small
Form Factor.
Our proprietary system architecture integrates the functions of
controllers, power transistors and drivers found in conventional
solutions, and significantly reduces the quantity and size of the
remaining external components, such as inductors and capacitors.
|
| · |
High
Performance. Our
power management solutions are designed to meet or exceed the demanding
power requirements of advanced digital semiconductors.
|
| · |
Complete
System-Level Solutions.
Our highly-integrated products, extensive reference designs and
system-level applications expertise enable our customers to incorporate
our solutions into electronic systems quickly and easily.
|
| · |
Scalability.
Our solutions are scalable and reduce the complexity, time and cost of
system design for our customers. |
| · |
System
Management. Our
solutions provide system-level monitoring and control capabilities.
|
While we
believe that we compete favorably in the markets we serve, we face a variety of
challenges. In particular, many of our competitors have longer operating
histories, greater name recognition, more diversified product offerings and
greater resources than we do. In order to continue to grow our business, we must
continue to provide superior customer support, expand our product offerings and
attract and retain qualified engineers.
Our
Strategy
We intend
to become the leading provider of high-performance, highly-integrated analog and
mixed-signal power management solutions in the computing, storage, networking
and consumer markets by continuing to pursue the following
strategies:
| · |
Extend
Our Technology. We
intend to continue to develop leading-edge power management technology by
enhancing our proprietary power system architecture and advancing our
analog and mixed-signal and system-level design capabilities.
|
| · |
Expand
Our Presence in Our Existing Markets and Enter into New
Markets. We
intend to continue providing power management solutions in our current
markets and in new markets where power management is critical.
|
| · |
Focus
on Strategic Customers. We
focus on developing relationships with strategic customers that are
leaders in their respective markets. |
| · |
Build
Relationships with Leading Developers of Advanced Digital
Semiconductors. We
intend to continue building relationships with leading developers of
advanced digital semiconductors that are driving demand for new power
management solutions. |
| · |
Expand
Our Engineering Team. We
intend to continue to attract and retain qualified engineers with
experience in the design of analog and mixed-signal semiconductors and
expertise in power system and applications engineering.
|
Our
Products and Markets
We
design, develop and market proprietary, high-performance analog and mixed-signal
power management semiconductors for the computing, storage, networking and
consumer markets. Applications in these markets include data networking
equipment, desktop and notebook computers, digital cameras, enterprise storage
equipment, graphics cards, hard disk drives, mobile phones, optical drives,
printers, servers, telecommunications equipment, wireless local area network, or
LAN, cards, wireless personal digital assistants, or PDAs, and
workstations.
Our core
products are integrated voltage regulator semiconductors and scalable voltage
regulator semiconductor chipsets that are used to transform, regulate, deliver
and monitor the power consumed by digital semiconductors, such as
microprocessors, graphics processors, digital signal processors and memory. Our
products integrate multiple power, analog and digital functions that are
generally performed by numerous discrete components in conventional solutions to
maximize performance and minimize size. The demand for our products depends on
many factors, including downturns in the semiconductor industry, our ability to
introduce new products in a timely manner, the introduction of competing
products, our pricing strategies and the pricing strategies of our competitors
or a decline in demand for the electronic systems into which our products are
incorporated.
We have
two families of integrated voltage regulator semiconductors, VT100 and VT200,
and one family of scalable voltage regulator semiconductor chipsets, VT1000. We
classify our product families by specifications such as input voltage and output
voltage, both measured in Volts, and maximum current, measured in Amperes, or
Amps. We continually develop new products and new generations and versions of
our existing products to improve product performance and features while reducing
system cost and size.
Customers,
Sales and Marketing
The
electronics manufacturing industry is complex and disaggregated, with many
electronic system designers relying upon distributors and outsourced suppliers
to provide procurement, manufacturing, design and other supply chain related
services within the industry. We sell our products primarily to original
equipment manufacturers, or OEMs, original design manufacturers, or ODMs,
contract equipment manufacturers, or CEMs, and power supply manufacturers
through our internal sales force and indirectly through distributors. In 2004,
Lite-On Technologies, Metatech, nVidia, and IBM each accounted for over 10% of
our net revenue, and collectively accounted for 67% of our net revenue. In 2003,
IBM, Sabre, Solectron and Weikeng each accounted for over 10% of our net
revenue, and collectively accounted for 78% of our net revenue. In 2002,
Internix, Solectron and Weikeng each accounted for more than 10% of our net
revenue, and collectively accounted for 84% of our net revenue.
We
typically sell directly through our internal sales force to customers in North
America, and indirectly through distributors and outsourced suppliers in other
locations, though we do sell directly to some of our largest customers in Asia
and Europe. In 2004, 2003 and 2002, international sales comprised 92%, 87% and
90%, respectively, of our net revenue.
Our
products are generally incorporated into a customer’s product early in the
design phase. Once our products have been designed to perform a specific power
management function in our customer’s system, we are the sole source supplier
for that function. Our applications engineers provide technical support and
assistance to customers in designing, testing and qualifying systems that
incorporate our products. While our competitors typically sell individual power
management components, we engage in close customer interaction to enable a
system level sales process.
We devote
significant time and resources in working with system designers to get our
products designed into their systems. If system designers do not design our
products into their electronic systems, our business would be materially and
adversely affected. In addition, we often incur significant expenditures in the
development of a new product without any assurance that system designers will
select our product for use in their electronic systems. If we incur such
expenditures and fail to be selected, our operating results will be adversely
affected.
Manufacturing,
Assembly and Test
We design
and develop our proprietary products and utilize third-party foundries and
assembly and test subcontractors to manufacture, assemble and test these
products. By outsourcing our manufacturing, we believe that we are able to
reduce our capital requirements, lower our fixed costs, and focus our resources
on the design, development and marketing of our products. In addition, we
benefit from our suppliers’ manufacturing expertise and from the flexibility to
select those vendors that we believe offer the best capability and
value.
Our
mixed-signal power management semiconductors are manufactured on processes based
on widely-available, mature, standard CMOS technologies. This enables us to
produce cost-effective products and allows us to source our semiconductors from
multiple foundries. In 2004, our principal foundries were Taiwan Semiconductor
Manufacturing Corporation in Taiwan, Chartered Semiconductor Manufacturing
Corporation in Singapore and Samsung Electronics in South Korea.
Following
fabrication, our production silicon wafers are shipped to our subcontractors
where they are assembled into packages and electronically tested. We have
multiple sources for assembly and test of our products. In 2004, we used Amkor
Technology in South Korea and the Philippines, Advanced Semiconductor
Engineering in Taiwan and STATSCHIPac in Singapore.
We have
designed and implemented a structured product development process, which is
consistent with ISO 9001 specifications, and a quality management system to
provide the framework for quality, reliability and manufacturability of our
products. To ensure consistent product quality, reliability and yield, we
closely monitor the production cycle by reviewing electrical, parametric and
manufacturing process data from our foundries and assembly and test
subcontractors.
We
believe we have the resources in place and sufficient manufacturing capacity at
our subcontractors through our multiple sources of silicon wafer fabrication,
assembly and test to support our anticipated production requirements. However,
none of these third-party vendors are obligated to perform services or supply
products to us for any specific period, or in any specific quantities, except as
may be provided in a particular purchase order. If we do not successfully manage
these relationships, the quality of products shipped to our customers may
decline, which would damage our relationships with customers, decrease our net
revenue and negatively impact our growth.
Research
and Development
Our
research and development efforts are focused on maintaining our technical
position by continually enhancing our proprietary power system architecture and
expanding our mixed-signal and system-level design capabilities. We also intend
to further advance our CMOS wafer fabrication process expertise and enhance our
packaging technologies. Through these efforts, we seek to introduce
new products to address new market opportunities, to further reduce our design
and manufacturing cost and to continue to improve the cost effectiveness, size
and performance of our solutions. If we are
unable to identify and develop new products or new generations and versions of
our existing products that achieve market acceptance on a timely and
cost-effective basis, and to respond to changing requirements, our business,
operating results and financial condition would be negatively
affected.
We have
assembled a team of highly skilled engineers who have expertise in analog and
mixed-signal design, power system design, process engineering and package
engineering to collaborate on research and development efforts. We have also
established a separate, dedicated group within our research and development
organization that maintains forward-looking focus on new product architectures
and future technologies. They work closely with our customers, partners and
suppliers to align technology roadmaps and conduct extensive research to enhance
our future products.
In 2004,
2003 and 2002, we spent $13.1 million, $10.5 million and
$9.2 million, respectively, on research and development efforts. We intend
to invest a significant amount of resources into research and development
activities in the future, and expect to fund the cost of these activities from
current cash balances and funds generated from operations.
Intellectual
Property
We rely
primarily on our patents, trade secret laws, contractual provisions, licenses,
copyrights, trademarks and other proprietary rights to protect our intellectual
property. As of December 31, 2004, we had 29 issued patents and
14 applications pending in the United States. These patents have expiration
dates ranging from December 2017 to June 2023. In addition, we are
currently pursuing additional patent applications. We cannot guarantee that our
pending patent applications will be approved, that any issued patents will
protect our intellectual property or will not be challenged by third parties, or
that the patents of others will not have an adverse effect on our ability to do
business.
Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or obtain and use information that we regard as
proprietary. Competitors may also recruit our employees who have access to our
proprietary technologies. We cannot assure you that the measures we have
implemented to prevent misappropriation or infringement of our intellectual
property will be successful.
In the
future, we may receive communications from third parties alleging infringement
of patents, trade secrets or other intellectual property rights. Any lawsuits
resulting from such allegations could subject us to significant liability for
damages and invalidate our proprietary rights. From time to time, we may be
subject to legal proceedings and claims relating to our intellectual property.
As of the date of this report, we are not involved in any proceedings regarding
third party claims of intellectual property infringement.
Competition
The
markets for semiconductors generally, and power management semiconductors in
particular, are intensely competitive. Increased competition may result in price
pressure, reduced profitability and loss of market share, any of which could
seriously harm our business, revenue and operating results. Our ability to
compete effectively and to expand our business will depend on a number of
factors, including:
| · |
our
ability to continue to recruit and retain engineering
talent; |
| · |
our
ability to introduce new products in a timely
manner; |
| · |
the
pricing of components used in competing
solutions; |
| · |
the
pace at which our customers incorporate our products into their
systems; |
| · |
availability
of foundry, assembly and test capacity; |
| · |
protection
of our products by effective utilization of intellectual property laws;
and |
| · |
general
economic conditions. |
We
consider our primary competitors to include Analog Devices, International
Rectifier, Intersil, Linear Technology, Maxim Integrated Products, Semtech and
Texas Instruments. In addition, we compete with a number of other companies,
some of which may become significant competitors. We may also face competition
from new and emerging companies that may enter our existing or future markets.
Many of our competitors and potential competitors have longer operating
histories, greater name recognition, complementary product offerings, a larger
customer base, longer relationships with customers and distributors, and
significantly greater financial, sales, marketing, manufacturing, distribution,
technical and other resources than we do. We believe we compete favorably on the
basis of performance, integration and form factor.
Employees
As of
December 31, 2004, we had 115 full-time employees. There were
72 employees in research and development, 20 in sales, marketing and field
services, 14 in general, administrative and finance, and nine in operations
support. We believe we have good relations with our employees.
About
Volterra
We were
incorporated in Delaware in August 1996. We changed our corporate name from
Berkeley Integrated Technologies, Inc. to Volterra Semiconductor Corporation in
October 1997. Our principal executive offices are located at 3839 Spinnaker
Court, Fremont, California 94538, and our telephone number is (510) 743-1200.
Our web site address is www.volterra.com. The information on, or that can be
accessed through, our web site is not part of this report.
Executive
Officers of the Registrant
Our
executive officers, their ages and their positions as of January 31, 2005, are
as follows:
|
Name |
|
Age |
|
Position |
| |
|
|
|
|
|
Jeffrey
Staszak |
|
51 |
|
President,
Chief Executive Officer and Director |
|
Greg
Hildebrand |
|
34 |
|
Vice
President of Finance and Chief Financial Officer, Treasurer and
Secretary |
|
William
Numann |
|
48 |
|
Vice
President of Marketing |
|
Anthony
Stratakos |
|
34 |
|
Vice
President of Advanced Research and Development, Chief Technology Officer
and Director |
|
Craig
Teuscher |
|
37 |
|
Vice
President of Sales and Applications Engineering and
Director |
|
Daniel
Wark |
|
48 |
|
Vice
President of Operations |
Jeffrey
Staszak joined
Volterra as our President and Chief Operating Officer in March 1999, and
has been our Chief Executive Officer since August 2000 and a member of our board
of directors since April 2000. Prior to joining Volterra, Mr. Staszak
was Senior Vice President in the Storage Products Group of Texas Instruments
Inc., a semiconductor company, from July 1996 to March 1999. From
May 1993 to July 1996, Mr. Staszak served as Senior Vice
President and General Manager of the Storage Products Division of Silicon
Systems, Inc., a semiconductor company then affiliated with TDK Corporation.
Mr. Staszak holds a B.S. in Industrial Technology from the University of
Wisconsin — Stout and an M.B.A. from Pepperdine University.
Greg
Hildebrand co-founded
Volterra and has been our Treasurer since August 1996, our corporate
Secretary since December 1998, and our Vice President of Finance and Chief
Financial Officer since April 2004. From August 1996 to
April 2004, Mr. Hildebrand held various positions at Volterra, most
recently as our Director of Finance. Mr. Hildebrand holds a B.A. in
Philosophy and Economics and an M.B.A. from the University of California at
Berkeley.
William
Numann joined
Volterra as our Vice President of Marketing in November 2000. Prior to
joining Volterra, Mr. Numann was Vice President of Standard Products of
Supertex, Inc., a semiconductor company, from October 1997 to
October 2000. From June 1985 to September 1997, Mr. Numann
served as Product Marketing and Applications Director at Siliconix, Inc., a
semiconductor company. Mr. Numann holds a B.S.E.E. and an M.B.A. from
Rennselear Polytechnic Institute.
Anthony
Stratakos co-founded
Volterra and has been our Vice President of Advanced Research and Development
and Chief Technology Officer since October 1997 and a member of our board
of directors since September 1996. From August 1996 to
October 1997, Dr. Stratakos led our product development efforts.
Dr. Stratakos holds a B.S.E.E. and an M.S.E.E. from Johns Hopkins
University and a Ph.D. in electrical engineering from the University of
California at Berkeley.
Craig
Teuscher co-founded
Volterra and has been our Vice President of Sales and Applications Engineering
since January 2003 and a member of our board of directors since
September 1996. From July 1998 to January 2003, Dr. Teuscher
served as our Director of Applications Engineering. Dr. Teuscher holds a
B.S.E.E. from Princeton University and an M.S.E.E. and Ph.D. in electrical
engineering from the University of California at Berkeley.
Daniel
Wark joined
Volterra as our Vice President of Operations in September 2000. Prior to
joining Volterra, Mr. Wark was Vice President, Operations of Pericom
Semiconductor Corporation, a semiconductor company, from April 1996 to
September 2000. From May 1983 to December 1995, Mr. Wark
held various positions at Linear Technology Corporation, a semiconductor
company, most recently as Director of Corporate Services. Other positions that
Mr. Wark held at Linear included Managing Director of its Singapore
subsidiary, Linear Technology Pte. Ltd., and Production Control Manager.
Mr. Wark holds a B.S. in Business Administration from San Jose State
University.
Item 2. Properties
Our
principal offices and primary research and development, operations management
and Western U.S. sales office occupy approximately 20,000 square feet
in Fremont, California, under a lease that expires in 2007. Our regional
headquarters in Asia, research and development, operations management and sales
office, occupy approximately 5,000 square feet in Singapore under a lease
that expires in 2006. We also lease properties in New Hampshire, New Jersey,
North Carolina and Taiwan for use as sales and applications support offices. We
may change the size and location of our facilities from time to time based on
business requirements. We do not own any manufacturing facilities and we
contract to third parties the production and distribution of our products. We
believe our space is adequate for our current needs and that additional or
substitute space will be available to accommodate foreseeable expansion of our
operations.
Item 3. Legal
Proceedings
We are
not currently involved in any legal proceedings. However, from time to time we
may be subject to legal proceedings and claims in the ordinary course of
business.
Item 4. Submission
of Matters to a Vote of Security Holders
No
matters were submitted to a vote of our security holders during the quarter
ended December 31, 2004.
PART II
Item 5.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Market
Information and Stockholders
Our
common stock commenced trading on the Nasdaq National Market on July 29, 2004
under the symbol “VLTR.” The following table sets forth the high and low sales
prices of our common stock as reported on the Nasdaq National Market for the
periods indicated.
|
Fiscal
Year Ended December 31, 2004 |
|
High |
|
Low |
|
|
Third
quarter ended September 30, 2004 (from July 29, 2004) |
|
$ |
15.90 |
|
$ |
7.00 |
|
|
Fourth
quarter ended December 31, 2004 |
|
$ |
26.34 |
|
$ |
12.42 |
|
The
closing price for our common stock as reported by the Nasdaq National Market on
January 31, 2005 was $17.86 per share. As of January 31, 2005, there were
approximately 1,661 stockholders of record of our common stock.
Dividends
We have
never declared or paid any cash dividends on our capital stock. We currently
intend to retain any future earnings to fund the development and expansion of
our business, and therefore we do not anticipate paying cash dividends on our
common stock in the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors. None of our
outstanding capital stock is entitled to any dividends. Additionally, our
current credit facility prohibits the payment of dividends without the lender’s
consent.
Use
of Proceeds from the Sale of Registered Securities
On
July 28, 2004, our registration statement on Form S-1 (Registration No.
333-115614) was declared effective for our initial public offering. As of
January 31, 2005, we had invested the $31.9 million in net proceeds from
the offering in government agency securities and money market funds. We intend
to use these proceeds for general corporate purposes, including working capital,
research and development, general and administrative expenses and capital
expenditures. We may also use a portion of the net proceeds to fund possible
investments in, or acquisitions of, complementary businesses, products or
technologies or in establishing joint ventures.
Recent
Sales of Unregistered Securities
During
the year ended December 31, 2004, we sold and issued the following securities
which were not registered under the Securities Act of 1933:
(1) From
January 16 to August 5, 2004, we sold an aggregate of 259,260 shares of our
common stock (after giving effect to the one-for-two reverse split of our common
and preferred stock that took place on July 8, 2004) to employees, directors and
consultants for cash consideration in the aggregate amount of $795,512 upon the
exercise of stock options granted under our 1996 Stock Option Plan, none of
which have been repurchased. The 1996 Stock Option Plan was amended and restated
as our 2004 Equity Incentive Plan in connection with our initial public
offering.
(2) From
January 26 to July 28, 2004, we granted stock options to employees, directors
and consultants under our 1996 Stock Option Plan covering an aggregate of
1,126,130 shares of common stock at exercise prices ranging from $3.50 to $9.32
per share (after giving effect to the one-for-two reverse split of our common
and preferred stock that took place on July 8, 2004). One half of the shares
subject to one such option to purchase 20,000 shares at an exercise price of
$5.00 per share were fully vested upon the date of grant and the remaining
shares vest quarterly thereafter over four years. One quarter of the shares
subject to all other options vest one year after the date of grant and the
remaining shares vest quarterly thereafter over three years.
The
issuances described in paragraphs (1) and (2) above were deemed exempt from
registration under the Securities Act of 1933 in reliance on Rule 701
promulgated under the Securities Act of 1933 as offers and sales of securities
pursuant to certain compensatory benefit plans and contracts relating to
compensation in compliance with Rule 701.
Item 6. Selected
Financial Data
You
should read the following selected consolidated financial and operating
information for Volterra together with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial
statements and notes thereto included elsewhere in this Annual Report on Form
10-K.
The
consolidated statements of operations data for the years ended December 31,
2004, 2003 and 2002, and the consolidated balance sheet data as of December 31,
2004 and 2003 are derived from the audited consolidated financial statements
included elsewhere in this report. The consolidated statements of operations
data for the years ended December 31, 2001 and 2000, and the consolidated
balance sheet data as of December 31, 2002, 2001 and 2000 are derived from
audited consolidated financial statements not included in this report.
Historical results for any prior or interim period are not necessarily
indicative of the results to be expected for a full fiscal year or for any
future period.
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
| |
|
(in
thousands, except per share data) |
|
|
Consolidated
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue |
|
$ |
43,935 |
|
$ |
25,118 |
|
$ |
15,674 |
|
$ |
4,366 |
|
$ |
— |
|
|
Cost
of revenue |
|
|
19,635 |
|
|
14,543 |
|
|
11,514 |
|
|
5,134 |
|
|
— |
|
|
Gross
margin |
|
|
24,300 |
|
|
10,575 |
|
|
4,160 |
|
|
(768 |
) |
|
— |
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
13,062 |
|
|
10,460 |
|
|
9,241 |
|
|
9,388 |
|
|
11,414 |
|
|
Selling,
general and administrative |
|
|
5,584 |
|
|
4,148 |
|
|
4,443 |
|
|
3,406 |
|
|
2,007 |
|
|
Stock-based
compensation (1) |
|
|
682 |
|
|
— |
|
|
16 |
|
|
2 |
|
|
— |
|
|
Restructuring
charge (2) |
|
|
— |
|
|
142 |
|
|
— |
|
|
— |
|
|
— |
|
|
Total
operating expenses |
|
|
19,328 |
|
|
14,750 |
|
|
13,700 |
|
|
12,796 |
|
|
13,421 |
|
|
Income
(loss) from operations |
|
|
4,972 |
|
|
(4,175 |
) |
|
(9,540 |
) |
|
(13,564 |
) |
|
(13,421 |
) |
|
Interest
and other income |
|
|
385 |
|
|
162 |
|
|
320 |
|
|
510 |
|
|
1,684 |
|
|
Interest
and other expense |
|
|
(14 |
) |
|
(14 |
) |
|
(14 |
) |
|
(287 |
) |
|
(375 |
) |
|
Income
(loss) before income taxes |
|
|
5,343 |
|
|
(4,027 |
) |
|
(9,234 |
) |
|
(13,341 |
) |
|
(12,112 |
) |
|
Income
tax expense |
|
|
234 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net
income (loss) |
|
$ |
5,109 |
|
$ |
(4,027 |
) |
$ |
(9,234 |
) |
$ |
(13,341 |
) |
$ |
(12,112 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share |
|
$ |
0.40 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
$ |
(2.53 |
) |
$ |
(2.36 |
) |
|
Diluted
net income (loss) per share |
|
$ |
0.22 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
$ |
(2.53 |
) |
$ |
(2.36 |
) |
|
Shares
used in computing basic net income
(loss)
per share |
|
|
12,891 |
|
|
5,473 |
|
|
5,359 |
|
|
5,266 |
|
|
5,134 |
|
|
Shares
used in computing diluted net income
(loss)
per share |
|
|
23,100 |
|
|
5,473 |
|
|
5,359 |
|
|
5,266 |
|
|
5,134 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Stock-based
compensation consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue |
|
$ |
28 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Research
and development |
|
|
402 |
|
|
— |
|
$ |
16 |
|
|
— |
|
|
— |
|
|
Selling,
general and administrative |
|
|
252 |
|
|
— |
|
|
— |
|
$ |
2 |
|
|
— |
|
|
Total |
|
$ |
682 |
|
|
— |
|
$ |
16 |
|
$ |
2 |
|
|
— |
|
(2) See Note
10 of our Notes to consolidated financial statements for a description of the
restructuring charge.
| |
|
December
31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
| |
|
(in
thousands) |
|
|
Consolidated
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term investments |
|
$ |
44,733 |
|
$ |
10,129 |
|
$ |
10,148 |
|
$ |
16,574 |
|
$ |
16,604 |
|
|
Working
capital |
|
$ |
48,817 |
|
$ |
10,363 |
|
$ |
13,523 |
|
$ |
16,084 |
|
$ |
15,208 |
|
|
Total
assets |
|
$ |
54,138 |
|
$ |
16,116 |
|
$ |
18,163 |
|
$ |
20,978 |
|
$ |
21,501 |
|
|
Total
line of credit, long-term debt and
lease
obligations |
|
$ |
— |
|
$ |
1,800 |
|
$ |
— |
|
$ |
960 |
|
$ |
2,343 |
|
|
Convertible
preferred stock |
|
$ |
— |
|
$ |
60,818 |
|
$ |
60,325 |
|
$ |
54,132 |
|
$ |
39,543 |
|
|
Total
stockholders’ equity (deficit) |
|
$ |
50,265 |
|
$ |
(49,232 |
) |
$ |
(45,471 |
) |
$ |
(36,254 |
) |
$ |
(23,006 |
) |
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis of our financial condition and results of our
operations should be read in conjunction with the consolidated financial
statements and the notes to those statements included elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those contained in these forward-looking statements due to a number of factors,
including those discussed in “Factors that May Affect Future Operating Results”
and elsewhere in this report.
Overview
We
design, develop and market proprietary, high-performance analog and mixed-signal
power management semiconductors. We sell integrated voltage regulator
semiconductors and scalable voltage regulator semiconductor chipsets in the
computing, storage, networking and consumer markets. In 2004, most of our
revenue was derived from sales into the computing and storage
markets.
We
commenced operations in 1996. From 1996 to 2000, we were primarily involved in
developing our technology, recruiting personnel and raising capital. We made our
first commercial shipments of products in 2000 and began to recognize revenue in
the first quarter of 2001. As of December 31, 2004, we had an accumulated
deficit of $43.7 million. Our annual net revenue was $15.7 million,
$25.1 million and $43.9 million in 2002, 2003 and 2004, respectively. In
2004, we generated net income of $5.1 million, compared to a
$4.0 million net loss for 2003.
In
reviewing our performance, we focus on the following key non-financial factors:
customers and market penetration, product introductions and performance. We
evaluate our performance as to these non-financial factors against our operating
plans and internally developed goals. We also focus on the following key
financial factors: net revenue, and gross margin and income from operations as a
percentage of net revenue. The following table summarizes those key financial
factors over the last five quarters:
|
|
|
Three
Months Ended |
|
|
|
|
Dec.
31,
2004 |
|
Sept.
30,
2004 |
|
June
30,
2004 |
|
Mar.
31,
2004 |
|
Dec.
31,
2003 |
|
|
Net
revenue (in thousands) |
|
$ |
14,614 |
|
$ |
12,562 |
|
$ |
9,144 |
|
$ |
7,615 |
|
$ |
6,504 |
|
|
As
a percent of net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin |
|
|
58 |
% |
|
56 |
% |
|
54 |
% |
|
52 |
% |
|
47 |
% |
|
Income
(loss) from operations |
|
|
18 |
% |
|
12 |
% |
|
6 |
% |
|
4 |
% |
|
(8 |
%) |
While our
business will be influenced by factors affecting the semiconductor industry
generally and by conditions in each of the markets we serve, because of our
small scale relative to our markets, we believe our business will be influenced
principally by company-specific factors such as our execution in design
engineering, sales and operations. We expect any future changes in net revenue
to be driven principally by our penetration of new customers and markets and the
expansion or contraction of our market share within existing customers and
markets.
Our
lengthy sales cycles make forecasting the volume and timing of orders difficult.
The design phase of our sales cycle can take up to 12 months or longer to
complete. The commercial introduction of systems that use our products can take
an additional six to 12 months or longer to occur, if they are introduced at
all. Forecasting the timing, size and speed of commercial introductions of
systems that use our products is inherently difficult to estimate.
The sales
of our products are generally made pursuant to standard purchase orders rather
than long-term agreements. Purchase orders are frequently revised prior to
shipment to reflect changes in the customer’s requirements. Product deliveries
are scheduled upon our receipt of purchase orders. Generally, these orders allow
customers to reschedule delivery dates and cancel orders on relatively short
notice. In addition, in circumstances where we have achieved our financial
objectives in a period or when we have limited or insufficient inventory
available, we may delay shipment of orders.
We have
experienced an increasing percentage of our net revenue coming from orders
received and shipped within the same quarter, or our turns business, which is
inherently difficult to estimate. We estimate turns business as a percent of net
revenue as the ratio of net revenue less beginning backlog to net revenue making
adjustment for the effect of sales return reserves or other adjustments to net
revenue not included in backlog. We believe that the expansion in turns business
over the last few quarters has been a result of changes in both our sales
channels and our customer base. In 2004, we began direct sales to a number of
our Asian customers and as a result, the percentage of our revenue from
international distributors has fallen. In general, we have received less order
lead time from our new direct customers than we previously received from
international distributors resulting in higher levels of turns business.
Further, we have generally received less order coverage from our customers in
higher volume segments of the computing market, specifically in the graphics
space, as compared to customers in the server and communication space. As the
graphics space has become a larger proportion of our net revenue, our turns
business has increased. While historically, we had typically experienced turns
business below 30%, our turns business grew to between 30% and 40% of net
revenue in 2004. We expect this trend of increasing turns business to continue
and fluctuate in the future. As our turns business increases, forecasting
revenue becomes more difficult.
While our
limited operating history and recent rapid growth make it difficult for us to
assess the impact of seasonal factors on our business, we expect our business to
be subject to varying order patterns. We tend to experience a seasonally strong
fourth quarter due to year-end purchasing of electronic equipment. In addition,
we have recently begun to focus on higher-volume applications. In these
applications, we expect a disproportionate amount of our net revenue to be
generated during the second half of the year as a result of the December holiday
season. A strong fourth quarter in turn tends to cause seasonal adjustments in
the first quarter. This effect is compounded due to the lunar new year holidays
in Asia during the first quarter, during which time many of our customers,
manufacturers and subcontractors cease or significantly reduce their operations.
Our gross
margins have historically varied significantly, and are expected to continue to
vary, based on a variety of factors, including changes in the relative mix of
the products we sell, the markets and geographies in which we sell, the size and
nature of our customers in these markets, new product ramps, manufacturing
volumes and yields, and inventory and overhead costs. In addition, consistent
with the overall market for power management solutions, we expect to face price
pressure over time. In order to maintain or improve our gross margins, we need
to introduce new, lower cost products, increase volumes, reduce unit costs or
achieve a combination of these objectives.
While in
any period there may be fluctuations in our operating results, we expect total
operating expenses generally to grow in absolute dollars but decline as a
percentage of net revenue. Our research and development expenses can fluctuate
as a result of long design cycles with periods of relatively low expenses
punctuated with increased expenditures for prototypes and product development
toward the end of the design cycle. Our sales, general and administrative
expenses are expected to grow in absolute dollars reflecting among other factors
the higher costs of a publicly-traded company, including Sarbanes-Oxley
compliance.
Our sales
are concentrated with a small group of customers. In 2004, IBM, Lite-On
Technologies, Metatech and nVidia each accounted for 10% or more of our net
revenue, and collectively accounted for 67% of our net revenue. In 2003, IBM,
Sabre, Solectron and Weikeng each accounted for over 10% of our net revenue, and
collectively accounted for 78% of our net revenue. In 2002, Internix, Solectron
and Weikeng each accounted for more than 10% of our net revenue, and
collectively accounted for 84% of our net revenue.
We
typically sell directly through our internal sales force to customers in North
America, and indirectly through distributors and outsourced suppliers in other
locations, though we do sell directly to some of our customers in Asia and
Europe. We expect to change the sales channels we use and the mix of business
between distribution and direct sales to fluctuate over time as product
offerings and customers evolve. Our sales through distributors typically result
in lower gross margins, but also result in lower selling and collections
expenses than are associated with direct sales. As most of the systems that use
our products are manufactured outside of the United States, the percentage of
our net revenue generated outside the United States was 92% and 87% in 2004 and
2003, respectively. We report our net revenue by geographic areas according to
the destination to which we shipped our product. To date, substantially all of
our net revenue has been denominated in U.S. dollars and we expect to continue
this practice.
Because
we use third-party subcontractors to manufacture, assemble and test our
products, our business has relatively low capital requirements. We purchase our
inventory pursuant to standard purchase orders. As lead-times at our
manufacturing partners can be up to three months or more, we typically build
inventory based on our sales forecasts rather than customers’ orders, subjecting
us to potential inventory risk.
Net
Revenue. Net
revenue consists primarily of sales of our power management semiconductor
products. We have made no sales to U.S. distributors. Our sales to international
distributors are made under agreements that do not provide for price adjustments
after purchase and provide limited return rights in the event of product
failure. We recognize revenue on our sales upon shipment with a provision for
estimated sales returns and allowances.
Cost
of Revenue. Our cost
of revenue consists primarily of purchases of silicon wafers and related costs
of assembly, test and shipment of our products, and compensation and related
costs of personnel and equipment associated with production management and
quality assurance.
Research
and Development. Research
and development expenses consist primarily of compensation and related costs for
employees involved in the design and development of our products, prototyping
and other development expense, and the depreciation costs related to equipment
being used for research and development. All research and development costs are
expensed as incurred.
Selling,
General and Administrative. Selling,
general and administrative expenses consist primarily of compensation and
related costs for employees involved in general management, sales and marketing,
finance and information technology, as well as travel and entertainment
expenses, professional services expenses and insurance expenses.
Stock-Based
Compensation. In
connection with grants of stock options we recorded $0.9 million and $0 of
deferred stock-based compensation in 2004 and 2003, respectively. As of December
31, 2004, we had an aggregate of $0.5 million of deferred stock-based
compensation remaining to be amortized. We report employee stock-based
compensation separately, rather than including it in each expense
classification, as we believe this allows for more meaningful comparison of
operating expenses between periods and more consistent comparison of our
financial results with other companies.
Income Taxes.
Our
effective tax rate is based on our annual effective tax rate in accordance with
SFAS No. 109 Accounting
for Income Taxes. Our
annual effective tax rate is based on the mix of income between domestic and
international operations, as well as the utilization of available net operating
loss carry-forwards to offset taxable income in the U.S.
Critical
Accounting Policies
Our
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.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to sales returns and allowances, inventory valuation, stock-based
compensation and income taxes. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances and form the basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from the estimates under different
conditions.
We
believe the following critical accounting policies involve more significant
judgments used in the preparation of our financial statements.
Revenue
Recognition. We
recognize revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104,
Revenue Recognition in Financial Statements.
SAB 104 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or service has been rendered; (3) the fee is
fixed or determinable; and (4) collectibility is reasonably assured.
Determination of criterion (1) is based on a purchase order received from
the customer. Determination of criterion (2) is based on shipment when
title transfers to the customer. Determinations of criteria (3) and (4) are
based on the fixed price charged for products delivered adjusted for any
applicable discounts and management’s judgment regarding the collectibility of
the amounts billed. Should changes in conditions cause management to determine
these criteria are not met for certain transactions, revenue recognized for any
reporting period could be adversely impacted.
Revenue
from product sales is recognized upon shipment when title passes and a provision
is made for estimated returns and allowances. We have made no sales to
U.S. distributors. U.S. distributors typically receive sales price
rebates and have inventory return privileges. Our sales to international
distributors are made under agreements that do not provide for price adjustments
after purchase and provide for limited return rights in the event of a product
failure. Revenue
on these sales is recognized upon shipment at which time title
passes.
We track
historical rates of return by identifying the period in which the returned
products were originally shipped. We then compute a historical sales return rate
for prior quarterly periods, typically looking back three years. To determine
the estimated return rate for any period, this historical sales return rate is
adjusted for unusual past returns experience related to specific quality issues
or other unusual circumstances that are not expected to recur and consideration
of any current information about known product failure rates or business
developments. Sales returns from all customers must be authorized by us and are
generally limited to instances of potential product failure under our standard
warranty that provides that products will be free from defects for a period of
one year from shipment. While we believe our methodology enables us to make
reasonable estimates of sales returns related to our standard warranty
provision, because of the inherent nature of estimates and our limited
historical experience, there is a risk that there could be significant
differences between actual amounts and our estimates. A significant difference
between actual amounts and our estimates could significantly impact our reported
operating results.
Inventory
Valuation.
Inventory is valued at the lower of standard cost (which approximates actual
cost on a first-in-first-out basis) or market. We record provisions for
inventories for excess or obsolete work-in-process and finished goods. Newly
developed products are generally not valued until they have been qualified for
manufacturing and success in the marketplace has been demonstrated through sales
and backlog, among other factors. In addition to provisions based on newly
introduced parts, statistical and judgmental assessments are made for the
remaining inventory based on assumptions about future demand. We identify excess
and obsolete inventory by analyzing inventory aging, recent sales, order
backlog, and demand forecasts. Based on these and other factors, we estimate on
an individual product basis the net realizable value of our inventory. Net
realizable value is determined as the forecast sales of the product less the
estimated cost of disposal. We reduce the carrying value to estimated net
realizable value if it is less than standard cost. Once a provision is recorded
to reduce inventories to their net realizable value, it is not reversed until
the related inventory is disposed of or sold. While our estimates require us to
make significant judgments and assumptions about future events, we believe our
relationships with our customers, combined with our understanding of the markets
we serve, provide us with the ability to make reliable estimates. If actual
market conditions and resulting product sales were to be less favorable than our
projections, additional inventory provisions may be required that could
adversely affect our operating results.
Stock-Based
Compensation. We apply
the intrinsic-value-based method of accounting for employee stock-based
compensation as prescribed by Accounting Principles Board (APB) opinion
No. 25,
Accounting for Stock Issues to Employees, and
related interpretations including Financial Accounting Standards Board
(FASB) Interpretation (FIN) No. 44,
Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25, to
account for our fixed-plan stock options. Under this method, compensation
expense is recorded only if the deemed fair value of the underlying stock
exceeded the exercise price on the date of grant. Statement of Financial
Accounting Standard (SFAS) No. 123,
Accounting for Stock-Based Compensation, and
SFAS No. 148,
Accounting for Stock-Based Compensation — Transition and Disclosure, an
Amendment of FASB Statement No. 123,
established accounting and disclosure requirements using the fair-value-based
method of accounting for stock-based employee compensation plans. As permitted
by existing accounting standards, we elected to continue to apply the
intrinsic-value-based method of accounting described above, and have adopted
only the disclosure requirements of SFAS No. 123, as
amended.
From July
1, 2004 through December 31, 2004, the exercise price of all options granted was
equal to the fair value of the underlying shares. During the twelve-month period
ended June 30, 2004, we granted stock options with exercise prices as
follows:
|
Options
Granted During Three Months Ended: |
|
|
|
|
|
|
|
|
|
|
September
30, 2003 |
|
|
276,100 |
|
$ |
3.50 |
|
$ |
3.50 |
|
|
— |
|
|
December
31, 2003 |
|
|
49,050 |
|
$ |
3.50 |
|
$ |
5.02 |
|
$ |
1.52 |
|
|
March
31, 2004 |
|
|
557,250 |
|
$ |
4.95 |
|
$ |
6.20 |
|
$ |
1.25 |
|
|
June
30, 2004 |
|
|
166,812 |
|
$ |
7.87 |
|
$ |
8.82 |
|
$ |
0.95 |
|
The
exercise price of these option grants was set at the fair value of common stock
as determined by the board of directors contemporaneously with the grants. A
valuation analysis was performed by a member of the management team and reviewed
by the board. We did not obtain a contemporaneous valuation analysis by an
unrelated party because we believed the valuation methodology employed provided
a reasonable basis for estimating the fair value of the common
stock.
In the
absence of a public trading market for our common stock, we considered numerous
objective and subjective factors in determining the fair value of common stock
for the granting of stock options. These factors included: our financial and
operating performance; our progress in achieving our business plan and
performance targets; purchases and offers to purchase the our preferred stock;
enterprise value to sales ratios of a peer group of publicly traded analog
semiconductor companies; the liquidity of the common stock. Giving due
consideration to these and other factors, we estimated the enterprise value of
the company. The enterprise value of the company was estimated using actual and
forecast revenue of the company, an estimated enterprise value to revenue ratio
and an estimated liquidity discount. We applied the Current-Value Method to
allocate the estimated enterprise value to different classes of equity. The
Current-Value Method allocates enterprise value based on the liquidation
preferences, participation rights and other economic rights of the preferred
stockholders and common stockholders, and assumes the election by the preferred
stockholders of the conversion rights that result in maximum returns.
In 2004,
using the same methodology described above and in consideration of the improved
results and future prospects for our business, we re-evaluated the fair value of
our common stock for financial reporting purposes. As a result of this analysis,
we revised our estimate of the fair value of our common stock. From October 2003
through June 2004, we granted options for which the new deemed fair value of the
common stock exceeded the exercise price of these options and we recorded
deferred stock-based compensation of $0.9 million in 2004 related to these
options.
We
amortize deferred stock-based compensation on the graded vesting method over the
vesting periods of the stock options, which is generally four years. The graded
vesting method provides for vesting of portions of the overall awards at interim
dates and results in accelerated vesting as compared to the straight-line
method. Our stock-based compensation expense for stock options for which the new
deemed fair value of the common stock exceeded the exercise price was
$0.5 million in 2004 and will be $0.2 million in 2005,
$0.1 million in 2006 and $0.1 million in 2007.
Pro forma
information regarding net income (loss) and net income (loss) per share is
required in order to show our net income (loss) as if we had accounted for
employee stock options under the fair-value method of SFAS No. 123.
This information is contained in Note 2(k) to our consolidated financial
statements. The fair value of options issued pursuant to our option plan at the
grant date were estimated using the Black-Scholes option-pricing
model.
Accounting
for Income Taxes. We
account for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. Under
this method, we determine deferred tax assets and liabilities based upon the
difference between the amounts of assets and liabilities reported in the
financial statements and the tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to affect
taxable income.
The tax
consequences of most events recognized in the current year’s financial
statements are included in determining income taxes currently payable. However,
because tax laws and financial accounting standards differ in their recognition
and measurement of assets, liabilities, equity, revenue, expenses, gains and
losses, differences arise between the amount of taxable income and pretax
financial income for a year and between the tax basis of assets or liabilities
and their reported amounts in the financial statements. Because it is assumed
that the reported amounts of assets and liabilities will be recovered and
settled, respectively, a difference between the tax basis of an asset or a
liability and its reported amount in the balance sheet will result in a taxable
or a deductible amount in some future years when the related liabilities are
settled or the reported amounts of the assets are recovered, hence giving rise
to deferred tax assets and liabilities. We must then assess the likelihood that
our deferred tax assets will be recovered from future taxable income or tax
strategies
and to the extent we believe it is more likely than not that our deferred tax
assets will not be recovered, we must establish a valuation allowance. We
established a full valuation allowance against our deferred tax assets for all
periods since inception. If we continue to record profitable operations, a
reduction to our recorded valuation allowance may occur in future
periods.
Results
of Operations
The
following table sets forth our results of operations as a percentage of net
revenue for the periods indicated:
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Net
revenue |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
Cost
of revenue |
|
|
45 |
|
|
58
|
|
|
73 |
|
|
Gross
margin |
|
|
55 |
|
|
42 |
|
|
27 |
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
30 |
|
|
42 |
|
|
59 |
|
|
Selling,
general and administrative |
|
|
13 |
|
|
16 |
|
|
28 |
|
|
Stock-based
compensation |
|
|
1 |
|
|
— |
|
|
— |
|
|
Restructuring
charge |
|
|
— |
|
|
1 |
|
|
— |
|
|
Total
operating expenses |
|
|
44 |
|
|
59 |
|
|
87 |
|
|
Income
(loss) from operations |
|
|
11 |
|
|
(17 |
) |
|
(61 |
) |
|
Interest
and other income, net |
|
|
1 |
|
|
1 |
|
|
2 |
|
|
Income
(loss) before income taxes |
|
|
12 |
|
|
(16 |
) |
|
(59 |
) |
|
Income
tax expense |
|
|
— |
|
|
— |
|
|
— |
|
|
Net
income (loss) |
|
|
12 |
% |
|
(16 |
)% |
|
(59 |
)% |
Comparison
of Year Ended December 31, 2004 to Year Ended December 31,
2003
Net
Revenue. Net
revenue was $43.9 million for 2004 and $25.1 million for 2003, an increase
of 75%. Volume of shipments increased 76% for 2004 as compared to 2003,
primarily due to higher sales in the computing and storage markets.
In 2004,
we had no revenue from Weikeng, an international distributor, compared to 28% of
net revenue in 2003. Our operations were not impacted as the affected customers
either established direct relationships with us or began purchasing from our
other distributors. As a result, our sales to one of these distributors
increased such that it represented more than 10% of our net revenue in
2004.
Cost
of Revenue and Gross Margin. Cost of
revenue was $19.6 million in 2004 and $14.5 million in 2003. Cost of
revenue increased primarily due to the increased volume of shipments, partially
offset by declining costs per unit. Gross margin was $24.3 million in 2004 as
compared to $10.6 million in 2003, an increase of 129%. Gross margin as a
percent of net revenue increased to 55% in 2004 as compared to 42% in 2003. The
increase in gross margin was due primarily to changing sales mix resulting from
a lower proportion of our first generation products, which had lower gross
margins than our newer products.
Research
and Development. Research
and development expenses were $13.1 million in 2004 as compared to
$10.5 million in 2003, an increase of 25%. The increase was largely
associated with increased prototype expense, which increased by $1.8 million.
Selling,
General and Administrative. Selling,
general and administrative expenses were $5.6 million in 2004 as compared to
$4.1 million in 2003, an increase of 37%. The increase was due primarily to
increased wages and contractor fees of $0.6 million and additional costs
associated with being a publicly traded company including directors and officers
insurance, which increased by $0.2 million and professional services, which
increased by $0.3 million.
Stock-based
Compensation.
Stock-based compensation expense was $0.7 million in 2004 and $0 in 2003. The
increase was primarily due to options granted that were considered compensatory
because the fair market value of our stock determined for financial reporting
purposes was greater than the fair value determined by the board of directors on
the date of grant of the options.
Income
Tax Expense. Income
tax expense was $0.2 million for 2004 and $0 for 2003. Income tax expense in
2004 is based on our effective tax rate of 4%, an increase from 0% in 2003. The
increase in our effective tax rate was due to the commencement of profitable
operations. Our effective tax rate in 2004 was significantly less than statutory
rates because we utilized net operating loss carryforwards, from which no
previous benefit had been recognized to offset taxable income in the U.S. We
recorded no income tax expense or benefit in 2003 because of pre-tax losses and
a full valuation allowance recorded against net operating losses. Our effective
tax rate in future periods will fluctuate over time and increase if we continue
to sustain profitable operations.
Comparison
of Year Ended December 31, 2003 to Year Ended December 31,
2002
Net
Revenue. Net
revenue was $25.1 million for 2003 and $15.7 million for 2002, an
increase of 60%. Volume shipments increased 68% in 2003 as compared to 2002,
primarily due to higher sales in the computing market.
Revenue
from Weikeng was 28% of 2003 net revenue, down when compared to 62% of 2002 net
revenue. We began to reduce our activity with Weikeng in mid-2003 and
transitioned some of the affected customers to direct accounts while others
began purchasing from other distributors.
Cost
of Revenue and Gross Margin. Cost of
revenue was $14.5 million in 2003 as compared to $11.5 million in
2002. This increase was due primarily to increased unit sales, partially offset
by declining costs per unit. Gross margin was $10.6 million in 2003 as
compared to $4.2 million in 2002, an increase of 152%. Gross margin as a
percent of net revenue increased to 42% in 2003 as compared to 27% in 2002. The
increase in gross margin was due primarily to changing sales mix resulting from
a lower proportion of our first generation products, which had lower gross
margins than our newer products.
In 2002,
additional costs were incurred in connection with a manufacturing defect at one
of our foundries that caused lower manufacturing yields and increased customer
returns. We worked together with the foundry to identify the root cause of the
defect. It was determined that the defect was due to a manufacturing process and
design interaction. In 2003, the foundry refined the process to resolve the
issue and we do not expect any further impact related to this defect. We
estimate that this defect increased cost of revenue by $0.2 million in 2002
and by an immaterial amount in 2003. We are not aware of any current claims,
lawsuits or other contingencies relating to this defect.
Research
and Development. Research
and development expenses were $10.5 million in 2003 as compared to
$9.2 million in 2002, an increase of 14%. The increase was due primarily to
personnel costs associated with increased headcount of $0.6 million and
increased product development expenses of $0.2 million.
Selling,
General and Administrative. Selling,
general and administrative expenses were $4.1 million in 2003 as compared
to $4.4 million in 2002, a decrease of 7%. The decrease was due primarily
to reduced operating expenses following our restructuring in
June 2003.
Restructuring
Charge. We had a
restructuring charge of $0.1 million in 2003, comprised primarily of
severance payments to employees. The restructuring charge was the result of a
reduction in work force and represented 1% of operating expenses in
2003.
Liquidity
and Capital Resources
As of
December 31, 2004, we had working capital of $48.8 million, including cash and
cash equivalents of $24.9 million, compared to working capital of $10.4 million,
including cash and cash equivalents of $10.1 million, as of December 31, 2003.
Since our inception, we have financed our operations primarily through private
sales of equity securities totaling $60.8 million. In August 2004, we received
total proceeds of $31.9 million, net of related issuance fees and offering
costs, from our initial public offering. We currently have no debt and believe
that our current cash, cash equivalents and investments as well as cash flows
from operations will be sufficient to continue to fund our operations and meet
our capital needs for the foreseeable future.
Net cash
of $4.2 million was provided by operating activities in 2004, compared to net
cash used by operating activities of $2.3 million and $11.5 million in 2003 and
2002, respectively. The change is primarily due to an increase of $5.1 million
in net income in 2004, compared to a loss of $4.0 million in 2003, offset in
part by increases in inventory of $3.1 million related to increasing sales
volumes. In 2003, net cash used in operations resulted from our losses and
decreases in accounts payable, partially offset by reduction in accounts
receivable and inventory. In 2002, net cash used in operations resulted from our
losses and increases in accounts receivable and inventory, partially offset by
an increase in accounts payable as a result of increased sales.
Our
investing activities used net cash in the amounts of $20.6 million, $0.4
million, and $0.3 million in 2004, 2003 and 2002, respectively. In 2004, we
purchased $19.8 million of short-term investments using the proceeds of our
initial public offering. Other cash used in investing activities during these
periods was primarily for the acquisition of property and equipment. In 2005, we
expect to increase our capital expenditures as we upgrade our information
systems. We expect to fund these increases from operating cash
flows.
Our
financing activities provided $31.1 million, $2.6 million, and $5.3 million in
2004, 2003 and 2002 respectively. In 2004, we received net proceeds of $31.9
million from our initial public offering. In addition, proceeds of $1.1 million
were received from the issuance of common stock in connection with employee
exercises of stock options, partially offset by net payments on our line of
credit of $1.8 million. In 2003, the net cash provided by financing activities
was primarily due to net borrowings of $1.8 million under our line of credit and
$0.5 million from the issuance of preferred stock. In 2002, net cash provided by
financing activities was primarily due to issuances of preferred
stock.
In 2004,
we used our bank line of credit to generate an additional $3.4 million of debt
financing that was repaid in full within the same period. Our bank line of
credit allows us to borrow based on eligible accounts receivable up to a maximum
of $5.0 million. As of December 31, 2004, we had no outstanding amounts under
the bank line of credit, and $2.2 million remained available based on eligible
accounts receivable. Interest on borrowings under this line of credit accrues at
the prime rate plus 0.5%. This line of credit expires on June 24,
2005.
Contractual
Obligations
We depend
entirely upon third party foundries to manufacture our silicon wafers. Due to
lengthy foundry lead times, we must order these materials well in advance of
required delivery dates, and we are obligated to pay for the materials in
accordance with their payment terms, which typically require payment within
three months of shipment.
The
following table sets forth our contractual obligations as of December 31, 2004
and the years in which such obligations are expected to be settled (in
thousands):
| |
|
2005 |
|
2006 |
|
2007 |
|
2008
and
thereafter |
|
Total |
|
|
Future
minimum lease commitments |
|
$ |
458 |
|
$ |
448 |
|
$ |
270 |
|
$ |
— |
|
$ |
1,176 |
|
|
Inventory
purchase commitments |
|
|
1,725 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,725 |
|
| |
|
$ |
2,183 |
|
$ |
448 |
|
$ |
270 |
|
$ |
— |
|
$ |
2,901 |
|
Inventory purchase commitments are comprised of the
estimated obligation for in-process silicon wafers.
Recently
Issued Accounting Pronouncements
In
December 2004, the FASB issued SFAS 123R, Share-Based
Payment, which
requires the measurement of all share-based payments to employees, including
grants of employee stock options, using a fair-value-based method and the
recording of such expense in our consolidated statement of operations. The
accounting provisions of SFAS 123R are effective for reporting periods
beginning after June 15, 2005. We are required to adopt SFAS 123R in
the third quarter of 2005. The pro forma disclosures previously permitted under
SFAS 123 no longer will be an alternative to financial statement
recognition. Note 2(k) to our consolidated financial statements reports the pro
forma net income (loss) and net income (loss) per share amounts, for 2002
through 2004, as if we had used a fair-value-based method similar to the methods
required under SFAS 123R to measure compensation expense for employee stock
based compensation. Although we have not yet determined whether the adoption of
SFAS 123R will result in amounts that are similar to the current pro forma
disclosures under SFAS 123, we are evaluating the requirements under
SFAS 123R and expect the adoption to have a significant adverse impact on
our consolidated operating results.
In
December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (FAS 109-1),
Application
of FASB Statement No. 109, Accounting for Income Taxes, to the Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004. The
AJCA introduces a special 9% tax deduction on qualified production activities.
FAS 109-1 clarifies that this tax deduction should be accounted for as a special
tax deduction in accordance with Statement 109. We do not expect the adoption of
these new tax provisions to have a material impact on our consolidated financial
position, results of operations or cash flows.
In
December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (FAS 109-2),
Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004. The
AJCA introduces a limited time 85% dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer (repatriation
provision), provided certain criteria are met. FAS 109-2 provides accounting and
disclosure guidance for the repatriation provision. Although FAS 109-2 is
effective immediately, we do not have material amounts of unremitted foreign
earnings and do not expect the adoption of these new tax provisions to have a
material impact on our consolidated financial position, results of operations or
cash flows.
In
December 2003, the SEC issued Staff Accounting Bulletin No. 104 (SAB
104), Revenue
Recognition, which
superseded Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition in Financial Statements. The
primary purpose of SAB 104 was to rescind accounting guidance contained in SAB
101 related to multiple element revenue arrangements, which was superseded as a
result of the issuance of Emerging Issues Task Force 00-21 (EITF 00-21),
Accounting
for Revenue Arrangements with Multiple Deliverables. SAB 104
also incorporated certain sections of the SEC's Revenue
Recognition in Financial Statements—Frequently Asked Questions and
Answers
document. While the wording of SAB 104 has changed to reflect the issuance of
EITF 00-21, the revenue recognition principles of SAB 101, as they apply to us,
remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did
not have a material impact on our consolidated financial position, results of
operations or cash flows.
Factors
that May Affect Future Operating Results
You
should carefully consider the risks described below and elsewhere in this
report, which could materially and adversely affect our business, results of
operations or financial condition. In those cases, the trading price of our
common stock could decline and you may lose all or part of your
investment.
We
are an early stage semiconductor company with a limited operating history, which
makes it difficult to evaluate our current business and future prospects and may
increase the risk of your investment.
We have a
limited operating history. While our commercial operations began in
August 1996, our first products were not shipped until the first quarter of
2000 and most of our current products have been sold in significant quantities
for only a short time. You should consider our business and prospects in light
of the risks and difficulties we encounter as an early stage company. These
risks and difficulties include the following:
| · |
we
have limited historical financial data from which to predict our future
revenue and operating results; |
| · |
we
are subject to the highly cyclical nature of, and downturns in, the
semiconductor industry; |
| · |
we
depend on a small number of customers for substantially all of our net
revenue; |
| · |
we
have a limited number of products; and |
| · |
we
may face difficulties in managing growth in personnel and
operations. |
We may
not be able to successfully address any of these risks or others, including the
other risks related to our business and industry described below. Failure to
adequately do so could seriously harm our business and cause our operating
results to suffer.
Our
operating results have fluctuated in the past, and we expect a number of factors
to cause our operating results to fluctuate in the future, making it difficult
for us to accurately forecast our operating results.
In the
past, our net revenue and operating results have fluctuated from quarter to
quarter and year to year, and we expect them to continue to do so in the future.
As a result, it is difficult to predict our future revenue and operating
results. A number of factors, many of which are beyond our control, are likely
to cause our net revenue and operating results to fluctuate. These factors
include:
| · |
changes
in orders received and shipped during the quarter, or our turns business,
which is difficult to estimate and represents an increasing percentage of
our net revenue; |
| · |
changes
in the level of our expenses, including the cost of materials used to
manufacture our products; |
| · |
the
cyclical nature of the semiconductor
industry; |
| · |
the
loss of one or more key customers, or a significant reduction in sales to
one or more key customers; |
| · |
the
loss of one or more key distributors, or a significant reduction in orders
from one or more key distributors; |
| · |
demand
for our products or the electronic systems into which our products are
incorporated; |
| · |
our
ability to develop new products or new generations and versions of our
existing products that achieve market acceptance in a timely
manner; |
| · |
the
timing of introductions of competing products or
technologies; |
| · |
our
ability to adequately support our future
growth; |
| · |
disputes
regarding intellectual property rights; |
| · |
litigation
involving us or our products; |
| · |
our
ability to obtain sufficient capacity from foundries and other third-party
subcontractors to manufacture, assemble and test our products on a timely
and cost-effective basis; |
| · |
the
ability of our manufacturing subcontractors to obtain an adequate supply
of the raw materials used in the manufacture of our products on a timely
and cost-effective basis; |
| · |
changes
in the prices of our products or the electronic systems into which our
products are incorporated; |
| · |
our
ability to fulfill orders for our products in a timely manner, or at
all; |
| · |
customers’
failure to pay us on a timely basis; |
| · |
varying
order patterns in the markets in which we sell our
products; |
| · |
changes
in foreign currency rates; and |
| · |
changes
in accounting principles or policies, including an election by us, or a
requirement, to treat stock option grants as an operating
expense. |
Due to
these and other factors discussed in this report, you should not rely upon the
results of any prior quarter or year as an indication of our future operating
performance.
We
have a history of losses, have only recently experienced revenue growth and
become profitable and may not maintain profitability on a quarterly or annual
basis.
We
experienced profitability for the first time in 2004. We incurred net losses of
approximately $9.2 million and $4.0 million in 2002 and 2003,
respectively, and as of December 31, 2004, we had an accumulated deficit of
$43.7 million. We have recently experienced revenue growth. Specifically,
our annual net revenue increased 60% from $15.7 million in 2002 to
$25.1 million in 2003. Revenue increased 75% from $25.1 million in
2003 to $43.9 million in 2004. However, we do not expect to maintain
similar revenue growth rates in future periods. We may also incur losses in
future periods. Accordingly, you should not rely on the results of any prior
quarterly or annual periods as an indication of our future revenue growth or
financial results. Our ability to maintain profitability on a quarterly or
annual basis depends in part on the rate of growth of our target markets, the
continued acceptance of our and our customers’ products, the competitive
position of our products, our ability to develop new products, our ability to
secure adequate manufacturing capacity and our ability to manage expenses. We
may not maintain profitability on a quarterly or annual basis.
We
are subject to the highly cyclical nature of the semiconductor industry and any
future downturns could significantly harm our business.
Our
business is heavily influenced by the cyclical nature of the semiconductor
industry. The semiconductor industry has experienced significant downturns,
often in connection with, or in anticipation of, maturing product cycles of both
semiconductor companies and their customers and declines in general economic
conditions. These downturns have been characterized by production overcapacity,
high inventory levels and accelerated erosion of average selling prices. Any
future downturns could significantly harm our business or reduce our revenue
from one period to the next or for a prolonged period of time. From time to
time, the semiconductor industry also has experienced periods of increased
demand and production capacity constraints. We may experience substantial
changes in future operating results due to factors that affect the semiconductor
industry generally.
We
depend on a small number of customers for substantially all of our net revenue
and the loss of, or a significant reduction in orders from, any of them would
significantly reduce our net revenue and adversely affect our operating
results.
We sell
our products primarily to original equipment manufacturers, or OEMs, original
design manufacturers, or ODMs, contract equipment manufacturers, or CEMs, and
power supply manufacturers, either directly through our internal sales force or
indirectly through distributors and outsourced suppliers. In 2004, four
customers each accounted for more than 10% of our net revenue and collectively
accounted for 67% of our net revenue. We expect sales to a small number of
customers to continue to account for a substantial portion of our net revenue
for the foreseeable future. Consolidation among our customers may increase our
customer concentration. The loss of any of our major customers would have a
substantial negative impact on our business. In addition, our operating results
will be adversely affected if the electronic systems into which our relatively
few customers incorporate our products are not commercially
successful.
We
rely primarily on a small number of distributors to market and distribute our
products, and if we fail to maintain or expand these relationships, our net
revenue would likely decline.
While we
sell some of our products directly to certain of our customers, many purchases
of our products are made through a concentrated group of distributors. Sales to
these distributors account for a significant portion of our net revenue. Our
sales to distributors accounted for 56% of our net revenue for 2003 and 34% of
our net revenue for 2004.
None of
our distributors are required to purchase a specified minimum level of products
from us. Our sales to distributors are made pursuant to standard purchase orders
rather than long-term contracts and their orders may be cancelled or changed
more readily than if
we had long-term purchase commitments. In the event of a cancellation, reduction
or delay of an order, we may not have enough time to reduce operating expenses
to minimize the effect of the lost revenue on our business. We also rely on our
distributors to accurately and timely report to us their sales of our products.
Our inability to obtain accurate and timely reports from our distributors would
limit our visibility into demand for our products. We also rely on our
distributors to provide certain engineering support and other customer service
to our customers. If they fail to provide appropriate levels of support and
service to our customers on a timely basis, our relationships with our customers
will suffer.
We need
to maintain and expand our relationships with distributors, develop additional
channels for the distribution and sale of our products and effectively manage
these relationships. If we fail to do so, our distributors may decide not to
include our products among those that they sell or they may not make marketing
and selling our products a priority. In addition, our distributors may sell
product lines that are competitive with ours. If we fail to successfully manage
our relationships with distributors, our business would be harmed.
We
depend on a limited number of markets, and in these markets we have experienced
varying order patterns, and if demand for our products in these markets
declines, or if we are unable to adjust to the varying order patterns in these
markets or expand into new markets, our business would be
harmed.
In 2004,
most of our net revenue was derived from the sale of our products in the
high-performance computing and storage markets. If the demand for our products
in these markets declines, we would need to attempt to diversify our markets and
our inability to do so in a timely and cost-effective manner would harm our
business.
In
addition, we expect our business in these markets to be subject to varying order
patterns. In particular, our operating results have been negatively impacted
during the first quarter of each year due to the lunar New Year holidays in Asia
during late January or early February, during which time many of our customers,
manufacturers and subcontractors cease or significantly reduce their operations.
In the
future, we may address higher-volume applications across multiple markets such
as desktop and notebook computers, digital cameras, graphics cards, hard disk
drives, mobile phones, optical drives, printers, wireless local area network
cards and wireless personal digital assistants. In these
higher-volume markets, we expect a disproportionate amount of our net revenue to
be generated during the second half of the year as a result of the December
holiday season. If we are unable to adjust production of our products to address
changes in demand, our operating results would be harmed.
We
sell a limited number of products and a reduction in demand for these products
would harm our business and operating results.
We derive
substantially all of our net revenue from the sale of integrated voltage
regulator semiconductors and scalable voltage regulator semiconductor chipsets,
and we expect to continue to derive substantially all of our net revenue from
these products for the foreseeable future. If demand for these products declines
or does not grow, we may be forced to diversify our product offerings. Factors
that could cause the demand for our products to decline include downturns in the
semiconductor industry, the introduction of competing products, our pricing
strategies and the pricing strategies of our competitors, or a decline in demand
for the electronic systems into which our products are incorporated. Our
inability to diversify our products in a timely and cost-effective manner would
harm our business and operating results.
If
we are unable to timely develop new products or new generations and versions of
our existing products that achieve market acceptance, our operating results and
competitive position could be harmed.
Our
industry is characterized by intense competition, rapidly evolving technology
and continually changing requirements. These factors could render our existing
products obsolete. Accordingly, our ability to compete in the future will depend
in large part on our ability to identify and develop new products or new
generations and versions of our existing products that achieve market acceptance
on a timely and cost-effective basis, and to respond to changing requirements.
If we are unable to do so, our business, operating results and financial
condition could be negatively affected.
The
successful development and market acceptance of our products depend on a number
of factors, including:
| · |
our
accurate prediction of changing customer
requirements; |
| · |
timely
development of new designs; |
| · |
timely
qualification and certification of our products for use in electronic
systems; |
| · |
commercial
acceptance and production of the electronic systems into which our
products are incorporated; |
| · |
availability,
quality, price, performance and size of our products relative to competing
products and technologies; |
| · |
our
customer service and support capabilities and
responsiveness; |
| · |
successful
development of relationships with existing and potential new
customers; |
| · |
successful
development of relationships with key developers of advanced digital
semiconductors; and |
| · |
changes
in technology, industry standards or consumer
preferences. |
Products
we have recently developed and which we are currently developing may not achieve
market acceptance. If these products fail to achieve market acceptance, or if we
fail to timely develop new products that achieve market acceptance, our
business, operating results and competitive position could be adversely
affected.
We
have experienced, and may in the future experience, delays in the development
and introduction of our products, which may harm our business and operating
results.
The
development of our products is highly complex, costly and inherently risky. We
have experienced, and may in the future experience, delays in the development
and introduction of new products or new generations and versions of our existing
products. While we have implemented procedures designed to minimize these
delays, we cannot assure you that these procedures will be effective or that
delays may not occur in the future. Any delay in the introduction of new
products or new generations or versions of our existing products could harm our
business and operating results.
The
nature of the design process requires us to incur expenses prior to earning
revenue associated with those expenses, and we will have difficulty selling our
products and generating profits if system designers do not design our products
into their electronic systems.
We devote
significant time and resources in working with system designers to get our
products designed into their systems. If the system designer chooses a
competitor’s product for its electronic system, it becomes significantly more
difficult for us to sell our products for use in that electronic system because
changing suppliers involves significant cost, time, effort and risk for system
designers. If system designers do not design our products into their electronic
systems, our business would be materially and adversely affected.
We often
incur significant expenditures in the development of a new product without any
assurance that system designers will select our product for use in their
electronic systems. If we incur such expenditures and fail to be selected, our
operating results will be adversely affected. Furthermore, even if system
designers use our products in their electronic systems, we cannot be assured
that these systems will be commercially successful or that we will receive any
associated revenue.
Even if
our products are selected for design into a particular electronic system, a
substantial period of time will elapse before we generate revenue related to the
significant expenses we have incurred. The reasons for this delay generally
include the following:
| · |
it
can take up to 12 months or longer from the time our products are
selected to complete the design process; |
| · |
it
can take an additional six to 12 months or longer to complete
commercial introduction of the electronic systems that use our products,
if they are introduced at all; |
| · |
our
customers usually require a comprehensive technical evaluation of our
products before they incorporate them into their electronic
systems; |
| · |
OEMs
typically limit the initial release of their electronic systems to
evaluate performance and consumer demand;
and |
| · |
the
development and commercial introduction of products incorporating new
technology are frequently delayed. |
As a
result, we are unable to accurately forecast the volume and timing of our orders
and revenue. In addition, incurring expenses prior to generating revenue may
cause our operating results to fluctuate significantly from period to
period.
Our
products are highly complex and may require modifications to resolve undetected
errors or failures and meet our customers’ specifications, which could lead to
an increase in our costs, a loss of customers, a delay in market acceptance of
our products or product liability claims.
Our power
management products are highly complex and may contain undetected errors or
failures when first introduced or as new revisions are released. If we deliver
products with errors or defects, we may incur additional development, repair or
replacement costs, and our credibility and the market acceptance of our products
could be harmed. In the past, we have incurred costs in connection with the
replacement of products due to a manufacturing defect in our products. Defects
could also lead to liability for defective products as a result of lawsuits
against our customers or us. We have agreed to indemnify our customers in some
circumstances against liability from defects in our products. Although we
maintain insurance coverage consistent with customary industry practice to
defray potential costs from lawsuits, including lawsuits arising from product
liability, if liabilities arise that are not effectively limited or covered by
such insurance, a successful product liability claim could require us to pay a
significant amount of damages, which could have a material adverse impact on our
financial results and financial position.
Our
products comprise only part of the complex electronic systems in which they are
used. As a result, our products must operate according to specifications with
the other components in the electronic system. If other components of the
electronic system fail to operate properly with our products, we may be required
to incur additional development time and costs to enable interoperability of our
products with these other components.
We
face significant competition and many of our competitors have greater resources
than we have, and thus we may be unsuccessful in competing against current and
future competitors.
The
markets for semiconductors generally, and power management semiconductors in
particular, are intensely competitive, and we expect competition to increase and
intensify in the future. Increased competition may result in price pressure,
reduced profitability and loss of market share, any of which could seriously
harm our business, revenue and operating results. Our ability to compete
effectively and to expand our business will depend on a number of factors,
including:
| · |
our
ability to continue to recruit and retain engineering
talent; |
| · |
our
ability to introduce new products in a timely
manner; |
| · |
the
pricing of components used in competing
solutions; |
| · |
the
pace at which our customers incorporate our products into their
systems; |
| · |
the
availability of foundry, assembly and test capacity for our
products; |
| · |
protection
of our products by effective utilization of intellectual property laws;
and |
| · |
general
economic conditions. |
We
consider our primary competitors to include Analog Devices, International
Rectifier, Intersil, Linear Technology, Maxim Integrated Products, Semtech and
Texas Instruments. In addition, we compete with a number of other companies,
some of which may become significant competitors. We may also face competition
from new and emerging companies that may enter our existing or future
markets.
Many of
our competitors and potential competitors have longer operating histories,
greater name recognition, complementary product offerings, a larger customer
base, longer relationships with customers and distributors, and significantly
greater financial, sales, marketing, manufacturing, distribution, technical and
other resources than we do. As a result, they may be able to respond more
quickly to customer requirements, to devote greater resources to the
development, promotion and sales of their products and to influence industry
acceptance of their products better than we can. These competitors may also be
able to adapt more quickly to new or emerging technologies or standards and may
be able to deliver products with performance comparable or superior to that of
our products at a lower cost. In addition, in the event of a manufacturing
capacity shortage, these competitors may have or be able to obtain silicon wafer
fabrication capacity when we are unable to.
We expect
our competitors to continue to improve the performance of their current
products, reduce their prices and introduce new or enhanced technologies that
may offer greater performance and improved pricing, any of which could cause our
products to become obsolete or uncompetitive and harm our operating
results.
Our
dependence on third-party semiconductor manufacturers reduces our control over
the manufacture of our products, which could harm our
business.
We are a
fabless semiconductor company and, as such, we rely on third parties to
manufacture our products. In 2004, our principal third-party semiconductor
manufacturers, or foundries, were Taiwan Semiconductor Manufacturing
Corporation, Chartered Semiconductor Corporation and Samsung Electronics. The
ability of these foundries to provide silicon wafers to us is limited by their
available capacity. Moreover, the price of our silicon wafers has in the past
fluctuated and is expected to continue to fluctuate, based on changes in
available industry capacity. We do not have long-term supply contracts with any
of our foundries. Therefore, our manufacturers could
choose to prioritize capacity for other customers, particularly larger
customers, reduce or eliminate deliveries to us on short notice or increase the
prices they charge us. There are significant risks associated with our reliance
on these third-party manufacturers, including:
| · |
inability
to increase production and achieve acceptable yields on a timely
basis; |
| · |
reduced
control over delivery schedules and product
quality; |
| · |
inability
of our foundries to obtain an adequate supply of the raw materials used in
the manufacturing of our products on a timely and cost-effective
basis; |
| · |
increased
exposure to potential misappropriation of our intellectual
property; |
| · |
limited
warranties on silicon wafers or products supplied to
us; |
| · |
labor
shortages or labor strikes; |
| · |
natural
disasters affecting countries in which we conduct our business or in which
our products are manufactured; and |
| · |
political
instability in countries where our products are
manufactured. |
In
addition, because we work with foundries to make specified modifications to
their standard process technologies, transitioning the manufacturing of our
products to other foundries can require substantial lead time. Any such delay
resulting from such transition could negatively affect product performance,
delivery and yields or increase manufacturing costs. If we are not able to
obtain foundry capacity as required, our relationships with our customers would
be harmed and our net revenue would likely decline.
If
our foundries fail to achieve satisfactory yields or quality, our revenue and
operating results could decrease, and our relationships with our customers and
our reputation may be harmed.
The
manufacturing process of our products is technically challenging. Minor
deviations in the manufacturing process can cause substantial decreases in
yields, and in some cases, cause production to be suspended. When our products
are qualified with our foundries, minimum acceptable yields are established. If
actual yields are above the minimum, we incur the cost of the silicon wafers.
Manufacturing yields for our new products tend to be lower initially and
increase as we achieve full production. Poor yields from our foundries or
defects, integration issues or other performance problems in our products could
cause us significant customer relations and business reputation problems,
resulting in potential loss of revenue and lower profitability.
We
rely on third-party subcontractors to assemble and test our products and our
failure to successfully manage our relationships with these subcontractors could
damage our relationships with our customers, decrease our net revenue and limit
our growth.
We rely
on third-party subcontractors, such as Amkor Technology, Advanced Semiconductor
Engineering and STATSCHIPac, to assemble and test our products. None of these
third-party vendors are obligated to perform services or supply products to us
for any specific period, or in any specific quantities, except as may be
provided in a particular purchase order. Moreover, none of our assembly and test
subcontractors has provided contractual assurances to us that adequate capacity
will be available to us to meet future demand for our products. We are subject
to many of the same risks with these vendors as with our foundries. If we do not
successfully manage these relationships, the quality of products shipped to our
customers may decline, which would damage our relationships with customers,
decrease our net revenue and negatively impact our growth.
Any
disruption to our operations or the operations of our foundries or assembly and
test subcontractors resulting from earthquakes, droughts or other natural
disasters or public health issues could significantly delay the production or
shipment of our products.
Our
principal offices are located in California. In addition, we rely on foundries
in Taiwan, Singapore and South Korea, and assembly and test subcontractors in
Singapore, South Korea, the Philippines and Taiwan. The risk of an earthquake in
these Pacific Rim locations is significant. The occurrence of an earthquake,
drought or other natural disaster near our principal offices or our
subcontractors’ locations could result in damage, power outages and other
disruptions that impair our design, manufacturing and assembly capacity and
otherwise interfere with our ability to conduct our business. In addition,
public health issues could significantly delay the production or shipment of our
products. Any disruption resulting from such events could cause significant
delays in the shipment of our products until we are able to shift our
fabrication, assembling, testing or other operations from the affected
subcontractor to another third-party vendor.
The
average selling prices of our products could decrease rapidly, which may
negatively impact our net revenue and operating results.
The
average selling prices for power management solutions have historically declined
over time. Factors that we expect to cause downward pressure on the average
selling price for our products include competitive pricing pressures, the cost
sensitivity of our customers, particularly in the higher-volume markets, new
product introductions by us or our competitors and other factors. To maintain
acceptable operating results, we will need to offset any reduction in the
average selling prices of our products by developing and introducing new
products and developing new generations and versions of existing products on a
timely basis, increasing sales volume and reducing costs. If the average selling
prices for our products decline and we are unable to offset those reductions,
our operating results will suffer.
We
are subject to inventory risks and manufacturing costs that could negatively
impact our operating results.
To ensure
availability of our products for our customers, in some cases we start the
manufacturing of our products based on forecasts provided by these customers in
advance of receiving purchase orders. However, these forecasts do not represent
binding purchase commitments, and we do not recognize revenue from these
products until they are shipped to the customer. In addition, because we
primarily sell our products to distributors and not directly to system
designers, we have more limited visibility into ultimate product demand, which
makes forecasting more difficult for us. We incur inventory and manufacturing
costs in advance of anticipated revenue. Because demand for our products may not
materialize, manufacturing based on forecasts subjects us to risks of high
inventory carrying costs and obsolescence and may increase our costs. If we
overestimate customer demand for our products, if product changes occur or if
purchase orders are cancelled or shipments delayed, we may end up with excess
inventory that we cannot sell, which could result in the loss of anticipated
revenue without allowing us sufficient time to reduce our inventory and
operating expenses. Similarly, if we underestimate demand, we may not have
sufficient product inventory and may lose market share and damage customer
relationships, which also could harm our business.
We
have significant international activities and customers, and plan to continue
such efforts, which subjects us to additional business risks including increased
logistical complexity, political instability and currency
fluctuations.
In 2004,
92% of our net revenue was attributable to customers located outside of the
United States, primarily in Asia, and we anticipate that a significant portion
of our future revenue will be generated by sales to customers in Asia. We have
engineering, sales and operations personnel in Taiwan and Singapore. Our
foundries, assembly and test subcontractors and distributors are also primarily
located in Asia. Our international operations and sales are subject to a number
of risks, including:
| · |
cultural
and language barriers; |
| · |
increased
complexity and costs of managing international
operations; |
| · |
protectionist
laws and business practices that favor local competition in some
countries; |
| · |
multiple,
conflicting and changing laws and regulatory and tax
environments; |
| · |
potentially
longer and more difficult collection
periods; |
| · |
political
instability, international terrorism and anti-American sentiment,
particularly in emerging markets; |
| · |
highly
volatile economies in Asia; |
| · |
difficulty
in hiring qualified management, technical sales and applications
engineers; and |
| · |
less
effective protection of intellectual property than is afforded to us in
the United States. |
Substantially
all sales to international customers and purchases of production materials and
manufacturing services from international suppliers in 2004 were denominated in
U.S. dollars. An increase in the value of the U.S. dollar relative to foreign
currencies could make our products more expensive for our international
customers to purchase, thus rendering the prices of our products less
competitive.
Our
inability to overcome these risks could adversely affect our foreign operations,
and some of our customers and suppliers, and could harm our business and
operating results.
We
rely on the services of our key personnel, and if we are unable to retain our
current personnel and hire additional personnel, our ability to develop and
successfully market our products could be harmed.
We rely
upon the continued service and performance of a relatively small number of key
technical and senior management personnel. If we lose any of our key technical
or senior management personnel, such as Jeffrey Staszak, our President and Chief
Executive Officer, or are unable to fill key positions, our business could be
harmed. As a result, our future success depends on retaining our management team
and other key employees. We rely on these individuals for the management of our
company, development of our products and business strategy and management of our
strategic relationships. In addition, we rely on a relatively small number of
analog and mixed-signal design engineers who have the training and experience to
design our products. Any of these employees could leave our company with little
or no prior notice and would be free to work with a competitor. We do not have
“key person” life insurance policies covering any of our employees.
Additionally, there is a limited number of qualified technical personnel with
significant experience in the design, development, manufacture and sale of power
management semiconductors, and we may face challenges in hiring and retaining
these types of employees.
If
we do not effectively manage our growth, our resources, systems and controls may
be strained and our operating results may suffer.
In recent
periods, we have significantly increased the scope of our operations and the
size of our workforce. This growth has placed, and any future growth of our
operations will continue to place, a significant strain on our management
personnel, systems and resources. We anticipate that we will need to implement a
variety of new and upgraded operational and financial systems, procedures and
controls, including the improvement of our accounting and other internal
management systems. We also will need to continue to expand, train, manage and
motivate our workforce, and manage our customer and distributor relationships,
develop our internal sales force, and manage our foundry and assembly and test
subcontractors. All of these endeavors will require substantial management
effort and skill, and we anticipate that we will require additional personnel
and internal processes to manage these efforts. We plan to fund the costs of our
operational and financial systems, additional personnel and internal processes
from current cash balances and funds generated from operations. If we are unable
to effectively manage our expanding operations, our revenue and operating
results could be materially and adversely affected.
Our
ability to compete will be harmed if we are unable to adequately protect our
intellectual property.
We rely
primarily on a combination of patent, trademark, trade secret and copyright law
and contractual restrictions to protect our intellectual property. These afford
only limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to obtain, copy or use information that we
regard as proprietary, such as product design and manufacturing process
expertise. As of December 31, 2004, we had 29 issued patents and 14 patent
applications pending in the United States. These U.S. patents have expiration
dates ranging from December 2017 to June 2023. Our pending patent
applications and any future applications may not result in issued patents or may
not be sufficiently broad to protect our proprietary technologies. Moreover,
policing any unauthorized use of our products is difficult and costly, and we
cannot be certain that the measures we have implemented will prevent
misappropriation or unauthorized use of our technologies, particularly in
foreign jurisdictions where the laws may not protect our proprietary rights as
fully as the laws of the United States. The enforcement of patents by others may
harm our ability to conduct our business. Others may independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property. Our failure to effectively protect our
intellectual property could harm our business.
Assertions
by third parties of infringement by us of their intellectual property rights
could result in significant costs and cause our operating results to
suffer.
The
semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights and positions, which has resulted in protracted and
expensive litigation for many companies. In the future we may receive
communications from various industry participants alleging infringement of
patents, trade secrets or other intellectual property rights. Any lawsuits
resulting from such allegations could subject us to significant liability for
damages and invalidate our proprietary rights. These lawsuits, regardless of
their success, would likely be time-consuming and expensive to resolve and would
divert management’s time and attention. Any potential intellectual property
litigation also could force us to do one or more of the following:
| · |
stop
selling products or using technology that contain the allegedly infringing
intellectual property; |
| · |
pay
damages to the party claiming infringement; |
| · |
attempt
to obtain a license to the relevant intellectual property, which may not
be available on reasonable terms or at all;
and |
| · |
attempt
to redesign those products that contain the allegedly infringing
intellectual property. |
| · |
We
may also initiate claims or litigation against third parties for
infringement of our proprietary rights or to establish the validity of our
proprietary rights. We have agreed to indemnify customers for certain
claims of infringement arising out of the use of our
products. |
Any
potential dispute involving our patents or other intellectual property could
also include our customers, which could trigger our indemnification obligations
to them and result in substantial expense to us.
In any
potential dispute involving our patents or other intellectual property, our
customers could also become the target of litigation. Because we indemnify our
customers against claims made against them based on allegations that our
products infringe intellectual property rights, such litigation could result in
substantial expense for us. In addition to the time and expense required for us
to indemnify our customers, any such litigation could hurt our relations with
our customers and cause our operating results to be harmed.
We
may need to raise additional capital, which might not be available or which, if
available, may be on terms that are not favorable to us.
We
believe our existing cash balances and cash expected to be generated from our
operating activities will be sufficient to meet our working capital, capital
expenditures and other cash needs for at least the next 12 months. In the
future, we may need to raise additional funds, and we cannot be certain that we
will be able to obtain additional financing on favorable terms, if at all. If we
issue equity securities to raise additional funds, the ownership percentage of
our stockholders would be reduced, and the new equity securities may have
rights, preferences or privileges senior to those of existing holders of our
common stock. If we borrow money, we may incur significant interest charges,
which could harm our profitability. Holders of debt would also have rights,
preferences or privileges senior to those of existing holders of our common
stock. If we cannot raise needed funds on acceptable terms, we may not be able
to develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
seriously harm our business, operating results and financial
condition.
We
may undertake acquisitions to expand our business that may pose risks to our
business and dilute the ownership of our existing
stockholders.
We will
evaluate opportunities to acquire other businesses, products or technologies
that would complement our current offerings, expand the breadth of markets we
can address or enhance our technical capabilities. Acquisitions that we may
potentially make in the future entail a number of risks that could materially
and adversely affect our business, operating and financial results,
including:
| · |
our
lack of experience acquiring other
businesses; |
| · |
problems
integrating the acquired operations, technologies or products with our
existing business and products; |
| · |
diversion
of management’s time and attention from our core
business; |
| · |
the
need for financial resources above our planned investment
levels; |
| · |
overestimation
of potential synergies or a delay in realizing those
synergies; |
| · |
difficulties
in retaining business relationships with suppliers and customers of the
acquired company; |
| · |
risks
associated with entering markets in which we lack prior experience;
and |
| · |
the
potential loss of key employees of the acquired
company. |
Future
acquisitions also could cause us to incur debt or contingent liabilities or
cause us to issue equity securities that would reduce the ownership percentages
of existing stockholders. Furthermore, acquisitions could result in adverse tax
consequences, substantial depreciation, deferred compensation charges,
in-process research and development charges, impairment of goodwill or the
amortization of amounts related to deferred compensation and to identifiable
purchased intangible assets, any of which would negatively affect our operating
results.
Our
stock price will fluctuate and may be volatile, which could result in
substantial losses for investors and significant costs related to
litigation.
Investors
may be unable to resell their shares at or above the purchase price and this
could result in substantial losses for those investors. The market price of our
common stock may fluctuate significantly in response to a number of factors,
some of which are beyond our control. These factors include:
| · |
actual
or anticipated fluctuations in our revenue, operating results or growth
rate; |
| · |
failure
to meet the expectations of securities analysts or investors with respect
to our financial performance; |
| · |
actual
or anticipated fluctuations in our competitors’ operating results or
changes in their growth rates; |
| · |
sales
of our common stock or other securities in the
future; |
| · |
stock
market price and trading volume fluctuations of publicly-traded companies
in general and semiconductor companies in
particular; |
| · |
the
trading volume of our common stock; |
| · |
changes
in financial estimates and ratings by securities analysts for us, our
competitors or companies in the semiconductor industry
generally; |
| · |
changes
in the condition of the financial markets, the economy as a whole, the
semiconductor industry, our customers or our
competitors; |
| · |
publicity
about the semiconductor industry, our competitors or our customers;
and |
| · |
additions
or departures of key personnel. |
The stock
market in general, and the Nasdaq National Market in particular, have
experienced extreme price and volume fluctuations in recent years that have
often been unrelated or disproportionate to the operating performance of the
listed companies. Broad market and industry factors may materially harm the
market price of our common stock, regardless of our operating
performance.
In the
past, securities class action litigation has often been brought against
companies following periods of volatility and decline in the market price of
their securities. Technology companies have experienced stock price volatility
that is greater than that experienced by many other industries in recent years
and as a result have been subject to a greater number of securities class action
claims. If our stock price is volatile or declines, we may be the target of
similar litigation in the future. Securities litigation could result in
significant costs and divert management’s attention and resources, which could
seriously harm our business and operating results.
If
securities or industry analysts do not publish research or reports about our
business, or publish negative reports about our business, our stock price and
trading volume could decline.
The
trading market for our common stock will depend on the research and reports that
securities or industry analysts publish about us or our business. We do not have
any control over these analysts. If one or more of the analysts who cover us
downgrade our stock, our stock price would likely decline. If one or more of
these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could
cause our stock price or trading volume to decline.
Our
principal stockholders have significant voting power and may influence actions
that may not be in the best interests of our other
stockholders.
We
believe that our executive officers, directors and principal stockholders, in
the aggregate, beneficially own approximately 40% of our outstanding common
stock as of January 31, 2005. As a result, these stockholders, acting together,
may have the ability to exert substantial influence over matters requiring
approval of our stockholders, including the election and removal of directors
and the approval of mergers or other business combinations. This concentration
of beneficial ownership could be disadvantageous to other stockholders whose
interests are different from those of our executive officers, directors and
principal stockholders. For example, our executive officers, directors and
principal stockholders, acting together with stockholders owning a relatively
small percentage of our outstanding stock, could delay or prevent an acquisition
or merger even if the transaction would benefit other stockholders.
Being
a public company will increase our expenses and administrative
burden.
We
completed our initial public offering in August 2004. As a public company,
we will incur significant legal, accounting and other expenses that we did not
incur as a private company. In addition, our administrative staff will be
required to perform additional tasks. For example, in 2004, we created or
revised the roles and duties of our board committees, adopted additional
internal controls and disclosure controls and procedures, retained a transfer
agent and a financial printer, adopted an insider trading policy and will have
all of the internal and external costs of preparing and distributing periodic
public reports in compliance with our obligations under the securities
laws.
In
addition, changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and
related regulations implemented by the Securities and Exchange Commission and
the National Association of Securities Dealers, are creating uncertainty for
public companies, increasing legal and financial compliance costs and making
some activities more time consuming. We are currently evaluating and monitoring
developments with respect to new and proposed rules and cannot predict or
estimate the amount of the additional costs we may incur or the timing of such
costs. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a
result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. We intend to invest
resources to comply with evolving laws, regulations and standards, and this
investment may result in increased general and administrative expenses and a
diversion of management’s time and attention from revenue-generating activities
to compliance activities. If our efforts to comply with new laws, regulations
and standards differ from the activities intended by regulatory or governing
bodies due to ambiguities related to practice, regulatory authorities may
initiate legal proceedings against us and our business may be harmed. We also
expect that being a public company and these new rules and regulations will make
it 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 factors could also make it more difficult for us
to attract and retain qualified members of our board of directors, particularly
to serve on our audit committee, and qualified executive officers.
Our
internal controls over financial reporting may not be effective and our
independent auditors may not be able to certify as to their effectiveness, which
could have a significant and adverse effect on our
business.
We are
evaluating our internal controls over financial reporting in order to allow
management to report on, and our independent auditors to attest to, our internal
controls over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which we
collectively refer to as Section 404. We are currently performing the system and
process evaluation and testing required in an effort to comply with the
management assessment and auditor certification requirements of Section 404,
which will initially apply to us as of December 31, 2005. In the course of our
ongoing Section 404 evaluation, we have identified areas of internal controls
that may need improvement and have instituted remediation efforts where
necessary. Currently, none of our identified areas that need improvement have
been categorized as material weaknesses or significant deficiencies. However, we
are still in the evaluation process, and we may identify conditions that may
result in significant deficiencies or material weaknesses in the
future.
Anti-takeover
provisions of our charter documents and Delaware law could prevent or delay
transactions resulting in a change in control.
Our
certificate of incorporation and our bylaws may make more difficult or
discourage, delay or prevent a change in the ownership of our company or a
change in our management or our board of directors. The following are examples
of provisions that are included in our certificate of incorporation and bylaws
that might have those effects:
| · |
our
board of directors is classified so that not all members of our board may
be elected at one time; |
| · |
directors
may only be removed “for cause” and only with the approval of stockholders
holding a majority of our outstanding voting
stock; |
| · |
the
ability of our stockholders to call a special meeting of stockholders is
prohibited; |
| · |
advance
notice requirements for nominations for election to our board of directors
or for proposing matters that can be acted upon at stockholder
meetings; |
| · |
stockholder
action by written consent is prohibited, thereby requiring all stockholder
actions to be taken at a meeting of our stockholders;
and |
| · |
our
board of directors may designate the terms of and issue new series of
preferred stock, commonly referred to as “blank check” preferred stock,
with rights senior to those of common stock without stockholder
approval. |
In
addition, we are also subject to Section 203 of the Delaware General
Corporation Law, which provides, subject to enumerated exceptions, that if a
person acquires 15% or more of our voting stock, the person is an “interested
stockholder” and may not engage in “business combinations” with us for a period
of three years from the time the person acquired 15% or more of our voting
stock.
These
provisions may have the effect of entrenching our management team and may
deprive you of the opportunity to sell your shares to potential acquirors at a
premium over prevailing prices. This potential inability to obtain a premium
could reduce the price of our common stock.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
The
primary objective of our investment activities is to preserve principal while
maximizing income 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 market value of the investment to
fluctuate. To minimize this risk, we may maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, debt securities and certificates of
deposit. The risk associated with fluctuating interest rates is limited to our
investment portfolio and we do not believe that a 10% change in interest rates
would have a significant impact on our interest income. As of December 31, 2004,
all of our short-term investments were government agency securities and our cash
equivalents were held in checking accounts, money market accounts and government
agency securities.
Our
exposure to market risk also relates to the increase or decrease in the amount
of interest expense we must pay on our outstanding debt instruments, primarily
certain borrowings under our bank line of credit. The advances under this line
of credit bear a variable rate of interest based on the prime rate. The risk
associated with fluctuating interest expense is primarily limited to this debt
instrument and we do not believe that a 10% change in the prime rate would have
a significant impact on our interest expense. As of December 31, 2004, we had no
outstanding amounts under the bank line of credit, and $2.2 million
remained available based on eligible accounts receivable.
Item 8. Financial
Statements and Supplementary Data
Index
to Consolidated Financial Statements
| |
Page |
|
Consolidated
Balance Sheets as of December 31, 2004 and 2003 |
34 |
| |
|
|
Consolidated
Statements of Operations for the years ended December 31, 2004, 2003 and
2002 |
35 |
| |
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2003 and
2002 |
36 |
| |
|
|
Consolidated
Statements of Convertible Preferred Stock and Stockholders’ Equity
(Deficit) for the years ended
December
31, 2004, 2003 and 2002 |
37 |
| |
|
|
Notes
to Consolidated Financial Statements |
38 |
| |
|
|
Report
of Independent Registered Public Accounting Firm |
50 |
VOLTERRA
SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands except share data)
|
|
|
|
|
|
|
|
December
31, |
|
December
31, |
|
|
|
|
2004 |
|
2003 |
|
|
Assets |
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
24,895 |
|
$ |
10,129 |
|
|
Short-term
investments |
|
|
19,838 |
|
|
— |
|
|
Accounts
receivable, net of allowances for sales returns
and
doubtful accounts of $1,102 and $666, respectively |
|
|
2,097 |
|
|
2,430 |
|
|
Inventory |
|
|
5,134 |
|
|
2,002 |
|
|
Prepaid
expenses and other current assets |
|
|
726 |
|
|
332 |
|
|
Total
current assets |
|
|
52,690 |
|
|
14,893 |
|
|
Property
and equipment, net |
|
|
1,414 |
|
|
1,189 |
|
|
Other
assets |
|
|
34 |
|
|
34 |
|
|
Total
assets |
|
$ |
54,138 |
|
$ |
16,116 |
|
| |
|
|
|
|
|
|
|
|
Liabilities,
Convertible Preferred Stock and Stockholders’
Equity
(Deficit) |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
1,768 |
|
$ |
1,621 |
|
|
Accrued
liabilities |
|
|
2,105 |
|
|
1,109 |
|
|
Line
of credit |
|
|
— |
|
|
1,800 |
|
|
Total
current liabilities |
|
|
3,873 |
|
|
4,530 |
|
|
Commitments
and contingencies |
|
|
|
|
|
|
|
|
Convertible
preferred stock |
|
|
— |
|
|
60,818 |
|
|
Stockholders’
equity (deficit): |
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized, and none issued and
outstanding |
|
|
— |
|
|
— |
|
|
Common
stock, $0.001 par value; 200,000,000 shares authorized;
23,336,165
and 5,534,598 shares issued and outstanding, respectively |
|
|
23 |
|
|
6 |
|
|
Additional
paid-in capital |
|
|
94,412 |
|
|
1,160 |
|
|
Deferred
stock-based compensation |
|
|
(462 |
) |
|
— |
|
|
Notes
receivable from stockholders |
|
|
— |
|
|
(1,581 |
) |
|
Accumulated
deficit |
|
|
(43,708 |
) |
|
(48,817 |
) |
|
Total
stockholders’ equity (deficit) |
|
|
50,265 |
|
|
(49,232 |
) |
|
Total
liabilities, convertible preferred stock and stockholders’ equity
(deficit) |
|
$ |
54,138 |
|
$ |
16,116 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
VOLTERRA
SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
| |
|
|
|
|
|
|
|
| |
|
Years
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Net
revenue |
|
$ |
43,935 |
|
$ |
25,118 |
|
$ |
15,674 |
|
|
Cost
of revenue |
|
|
19,635 |
|
|
14,543 |
|
|
11,514 |
|
|
Gross
margin |
|
|
24,300 |
|
|
10,575 |
|
|
4,160 |
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
13,062 |
|
|
10,460 |
|
|
9,241 |
|
|
Selling,
general and administrative |
|
|
5,584 |
|
|
4,148 |
|
|
4,443 |
|
|
Stock-based
compensation (*) |
|
|
682 |
|
|
— |
|
|
16 |
|
|
Restructuring
charge |
|
|
— |
|
|
142 |
|
|
— |
|
|
Total
operating expenses |
|
|
19,328 |
|
|
14,750 |
|
|
13,700 |
|
|
Income
(loss) from operations |
|
|
4,972 |
|
|
(4,175 |
) |
|
(9,540 |
) |
|
Interest
and other income |
|
|
385 |
|
|
162 |
|
|
320 |
|
|
Interest
and other expense |
|
|
(14 |
) |
|
(14 |
) |
|
(14 |
) |
|
Income
(loss) before income taxes |
|
|
5,343 |
|
|
(4,027 |
) |
|
(9,234 |
) |
|
Income
tax expense |
|
|
234 |
|
|
— |
|
|
— |
|
|
Net
income (loss) |
|
$ |
5,109 |
|
$ |
(4,027 |
) |
$ |
(9,234 |
) |
|
Basic
net income (loss) per share |
|
$ |
0.40 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
|
Shares
used in computing basic net
income
(loss) per share |
|
|
12,891 |
|
|
5,473 |
|
|
5,359 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share |
|
$ |
0.22 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
|
Shares
used in computing diluted net
income
(loss) per share |
|
|
23,100 |
|
|
5,473 |
|
|
5,359 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
(*)
Stock-based compensation consists of: |
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue |
|
$ |
28 |
|
|
— |
|
|
— |
|
|
Research
and development |
|
|
402 |
|
|
— |
|
$ |
16 |
|
|
Selling,
general and administrative |
|
|
252 |
|
|
— |
|
|
— |
|
|
Total |
|
$ |
682 |
|
|
— |
|
$ |
16 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
VOLTERRA
SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
| |
|
|
|
| |
|
Years
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
5,109 |
|
$ |
(4,027 |
) |
$ |
(9,234 |
) |
|
Adjustments
to reconcile net income (loss) to net cash
provided
by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
514 |
|
|
490 |
|
|
723 |
|
|
Provision
for doubtful accounts |
|
|
22 |
|
|
130 |
|
|
85 |
|
|
Loss
on disposals of equipment |
|
|
— |
|
|
— |
|
|
5 |
|
|
Interest
income on stockholders’ notes receivable |
|
|
(53 |
) |
|
(87 |
) |
|
(82 |
) |
|
Stock-based
compensation |
|
|
682 |
|
|
— |
|
|
16 |
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
311 |
|
|
642 |
|
|
(2,288 |
) |
|
Inventory |
|
|
(3,132 |
) |
|
1,114 |
|
|
(1,830 |
) |
|
Prepaid
expenses and other current assets |
|
|
(394 |
) |
|
34 |
|
|
(40 |
) |
|
Accounts
payable |
|
|
147 |
|
|
(666 |
) |
|
1,143 |
|
|
Accrued
liabilities |
|
|
1,187 |
|
|
86 |
|
|
26 |
|
|
Other |
|
|
(4 |
) |
|
— |
|
|
— |
|
|
Net
cash provided by (used in) operating activities |
|
|
4,389 |
|
|
(2,284 |
) |
|
(11,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
of property and equipment |
|
|
(739 |
) |
|
(396 |
) |
|
(265 |
) |
|
Purchase
of short-term investments |
|
|
(19,838 |
) |
|
— |
|
|
— |
|
|
Other |
|
|
— |
|
|
15 |
|
|
(1 |
) |
|
Net
cash used in investing activities |
|
|
(20,577 |
) |
|
(381 |
) |
|
(266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Borrowings
under line of credit |
|
|
3,350
|
|
|
8,155 |
|
|
— |
|
|
Payments
on line of credit |
|
|
(5,150 |
) |
|
(6,355 |
) |
|
— |
|
|
Payments
on notes payable |
|
|
— |
|
|
— |
|
|
(960 |
) |
|
Proceeds
from initial public offering, net of offering expenses |
|
|
31,885 |
|
|
— |
|
|
— |
|
|
Proceeds
from issuance of common stock, net |
|
|
869 |
|
|
353 |
|
|
83 |
|
|
Proceeds
from issuance of preferred stock, net |
|
|
— |
|
|
493 |
|
|
6,193 |
|
|
Net
cash provided by financing activities |
|
|
30,954 |
|
|
2,646 |
|
|
5,316 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents |
|
|
14,766 |
|
|
(19 |
) |
|
(6,426 |
) |
|
Cash
and cash equivalents, beginning of period |
|
|
10,129 |
|
|
10,148 |
|
|
16,574 |
|
|
Cash
and cash equivalents, end of period |
|
$ |
24,895 |
|
$ |
10,129 |
|
$ |
10,148 |
|
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest |
|
$ |
14 |
|
|
14 |
|
|
14 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
Deferred
stock-based compensation |
|
$ |
917 |
|
$ |
— |
|
$ |
— |
|
|
Increase/Decrease
in liability for early option exercises, net |
|
$ |
(192 |
) |
$ |
192 |
|
$ |
— |
|
|
Cancellation
of notes receivable from stockholders in connection
with
stock repurchase |
|
$ |
1,634 |
|
$ |
— |
|
$ |
— |
|
|
Conversion
of convertible preferred stock to common stock |
|
$ |
60,818 |
|
$ |
— |
|
$ |
— |
|
VOLTERRA
SEMICONDUCTOR CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CONVERTIBLE PREFERRED STOCK
AND
STOCKHOLDERS’ EQUITY (DEFICIT)
Years
Ended December 31, 2004, 2003 and 2002
(In
thousands, except share amounts)
| |
|
|
|
Stockholders’
Equity (Deficit) |
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock- |
|
Notes |
|
|
|
|
|
|
|
Convertible |
|
|
|
Additional |
|
Based |
|
Receivable |
|
|
|
Total |
|
|
|
|
Preferred
Stock |
|
Common
Stock |
|
Paid-In |
|
Compen- |
|
From |
|
Accumulated |
|
Stockholders’ |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
sation |
|
Stockholders |
|
Deficit |
|
Equity
(Deficit) |
|
|
Balances
as of December 31, 2001 |
|
|
12,200,633 |
|
$ |
54,132 |
|
|
5,331,006 |
|
$ |
5 |
|
$ |
709 |
|
$ |
— |
|
$ |
(1,412 |
) |
$ |
(35,556 |
) |
$ |
(36,254 |
) |
|
Series
E preferred stock issued for cash, net of issuance costs of
$7 |
|
|
775,000 |
|
|
6,193 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common
stock issued for cash |
|
|
— |
|
|
— |
|
|
82,397 |
|
|
— |
|
|
83 |
|
|
— |
|
|
— |
|
|
— |
|
|
83 |
|
|
Interest
income on stockholder receivables |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(82 |
) |
|
— |
|
|
(82 |
) |
|
Fair
value of warrants and options issued to non-employees |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16 |
|
|
— |
|
|
— |
|
|
— |
|
|
16 |
|
|
Net
loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(9,234 |
) |
|
(9,234 |
) |
|
Balances
as of December 31, 2002 |
|
|
12,975,633 |
|
|
60,325 |
|
|
5,413,403 |
|
|
5 |
|
|
808 |
|
|
— |
|
|
(1,494 |
) |
|
(44,790 |
) |
|
(45,471 |
) |
|
Series
E preferred stock issued for cash, net of issuance costs of
$7 |
|
|
62,500 |
|
|
493 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common
stock issued for cash, net of repurchases and unvested early option
exercises |
|
|
— |
|
|
— |
|
|
121,195 |
|
|
1 |
|
|
352 |
|
|
— |
|
|
— |
|
|
— |
|
|
353 |
|
|
Interest
income on stockholder receivables |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(87 |
) |
|
— |
|
|
(87 |
) |
|
Net
loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,027 |
) |
|
(4,027 |
) |
|
Balances
as of December 31, 2003 |
|
|
13,038,133 |
|
|
60,818 |
|
|
5,534,598 |
|
|
6 |
|
|
1,160 |
|
|
— |
|
|
(1,581 |
) |
|
(48,817 |
) |
|
(49,232 |
) |
|
Common
stock issued for cash and vesting of early exercises, net of
repurchases |
|
|
— |
|
|
— |
|
|
366,003 |
|
|
— |
|
|
1,060 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,060 |
|
|
Deferred
stock-based compensation to
employees |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
917 |
|
|
(917 |
) |
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of deferred stock-based compensation |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
455 |
|
|
— |
|
|
— |
|
|
455 |
|
|
Stock-based
compensation to non-employees |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
227 |
|
|
— |
|
|
— |
|
|
— |
|
|
227 |
|
|
Interest
income on stockholder receivables |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(53 |
) |
|
— |
|
|
(53 |
) |
|
Repurchase
of common stock in retirement of notes receivable |
|
|
— |
|
|
— |
|
|
(327,500 |
) |
|
— |
|
|
(1,634 |
) |
|
— |
|
|
1,634 |
|
|
— |
|
|
— |
|
|
Initial
public offering, net of costs |
|
|
— |
|
|
— |
|
|
4,558,601 |
|
|
4 |
|
|
31,881 |
|
|
— |
|
|
— |
|
|
— |
|
|
31,885 |
|
|
Conversion
of preferred stock |
|
|
(13,038,133 |
) |
|
(60,818 |
) |
|
13,038,133 |
|
|
13 |
|
|
60,805 |
|
|
— |
|
|
— |
|
|
— |
|
|
60,818 |
|
|
Warrants
net exercised |
|
|
— |
|
|
— |
|
|
166,330 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Other |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(4 |
) |
|
Net
income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,109 |
|
|
5,109 |
|
|
Balances
as of December 31, 2004 |
|
|
— |
|
$ |
— |
|
|
23,336,165 |
|
$ |
23 |
|
$ |
94,412 |
|
$ |
(462 |
) |
$ |
— |
|
$ |
(43,708 |
) |
$ |
50,265 |
|
See
accompanying notes to consolidated financial statements.
VOLTERRA
SEMICONDUCTOR CORPORATION
AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per share data)
1.
Description of Business
Volterra
Semiconductor Corporation (the Company or Volterra) was incorporated in Delaware
in 1996, and its principal offices are located in Fremont, California. The
Company designs, develops and markets proprietary, high-performance analog and
mixed-signal power management semiconductors for the computing, storage,
networking and consumer markets. In August 2004, the Company completed its
initial public offering and received net proceeds of $31.9 million.
2.
Summary of Significant Accounting Policies
(a)
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation. The functional
currency of foreign subsidiaries is the U.S. dollar and foreign currency
transaction gains and losses are recorded in income. For all periods presented,
there have been no material foreign currency transaction gains and
losses.
(b)
Use of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
(c)
Financial Instruments and Concentrations of Credit
Risk
Financial
instruments consist of cash equivalents, short-term investments, accounts
receivable, accounts payable, a line of credit and convertible preferred stock.
The carrying value of the Company’s cash equivalents, short-term investments,
accounts receivable and accounts payable approximates their respective fair
value due to the relatively short maturities of these instruments. The carrying
value of the line of credit approximates fair value based on the terms and
interest rates in relation to current market rates for similar instruments. The
carrying value of convertible preferred stock approximates its fair value in a
liquidation scenario.
Cash
equivalents consist of highly liquid investments with original maturities of 90
days or less.
Short-term
investments are comprised of government agency debt securities with remaining
contractual maturities on the date of purchase greater than 90 days but less
than one year. These investments are classified as held-to-maturity and carried
at amortized cost.
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of investments and trade accounts
receivable.
The
Company maintains cash, cash equivalents and short-term investments with high
credit quality financial institutions.
The
Company sells its products to international distributors and original equipment
manufacturers (and their outsourced suppliers) in the computing, storage,
networking and consumer electronic industries. The Company performs continuing
credit evaluations of its customers’ financial condition and generally does not
require collateral from its customers. An allowance is provided for estimated
accounts receivable that may not be collected.
(d)
Segment Reporting and Significant Customers
The
Company is organized and operates as a single business segment: analog and
mixed-signal power management semiconductors. The Company’s chief operating
decision maker, the Chief Executive Officer, reviews financial information
presented on a consolidated basis for the purposes of making operating decisions
and assessing financial performance. Substantially all of the Company’s
long-lived assets are located in the United States.
Significant
customers are those customers accounting for more than 10% of the Company’s
total net revenue or accounts receivable. For each significant customer, net
revenue as a percentage of total net revenue and accounts receivable as a
percentage of total accounts receivable are as follows:
| |
|
Net
Revenue |
|
Accounts
Receivable |
|
|
Customer |
|
2004 |
|
2003 |
|
2002 |
|
Dec.
31, 2004 |
|
Dec.
31, 2003 |
|
|
A
|
|
|
20 |
% |
|
21 |
% |
|
* |
|
|
21 |
% |
|
36 |
% |
|
B |
|
|
17 |
% |
|
* |
|
|
* |
|
|
9 |
% |
|
23 |
% |
|
C
|
|
|
15 |
% |
|
* |
|
|
* |
|
|
43 |
% |
|
* |
|
|
D
|
|
|
15 |
% |
|
* |
|
|
* |
|
|
* |
|
|
* |
|
|
E |
|
|
* |
|
|
28 |
% |
|
62 |
% |
|
* |
|
|
* |
|
|
F |
|
|
* |
|
|
19 |
% |
|
11 |
% |
|
11 |
% |
|
13 |
% |
|
G |
|
|
* |
|
|
10 |
% |
|
* |
|
|
* |
|
|
14 |
% |
|
H
|
|
|
* |
|
|
* |
|
|
11 |
% |
|
* |
|
|
* |
|
|
*
Less than 10% |
|
|
|
|
|
|
|
|
|
|
|
|
The
Company reports its net revenue in geographic areas according to the destination
to which the product was shipped. Net revenue by geographic area was as
follows:
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
Singapore |
|
|
37 |
% |
|
35 |
% |
|
14 |
% |
|
Hong
Kong |
|
|
28 |
% |
|
1 |
% |
|
|
|
|
Taiwan |
|
|
14 |
% |
|
34 |
% |
|
62 |
% |
|
United
States |
|
|
8 |
% |
|
13 |
% |
|
10 |
% |
|
Japan |
|
|
7 |
% |
|
7 |
% |
|
11 |
% |
|
Other |
|
|
6 |
% |
|
10 |
% |
|
3 |
% |
The
geographic area to which a product was shipped is not necessarily the same
location in which the product is ultimately used. In all periods, substantially
all of the Company’s net revenue was denominated in U.S. dollars.
(e)
Inventory
Inventory
is stated at the lower of standard cost (which approximates actual cost on a
first-in, first-out basis) or market. Provisions, when required, are made to
reduce excess and obsolete inventories to their estimated net realizable values.
Once a provision is recorded to reduce the cost of inventory to net realizable
value, it is not reversed until the inventory is sold or disposed
of.
(f)
Property and Equipment
Property
and equipment are stated at cost and depreciated using the straight-line method
over their estimated useful lives. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the asset. Estimated
useful lives of assets are as follows:
| |
Computer
hardware and software |
3
years |
| |
Equipment
and furniture |
5
to 7 years |
| |
Leasehold
improvements |
7
years |
(g)
Revenue Recognition
Revenue
from the sale of semiconductor products is recognized upon shipment when title
transfers to the customer provided that persuasive evidence of an arrangement
exists, the price is fixed or determinable, and collection of the resulting
receivable is reasonably assured. An allowance is recorded at the time of sale
to provide for estimated future returns and allowances. The allowance is based
upon historical experience, current trends and the Company’s expectations
regarding future experience. Sales returns must be authorized by Volterra and
are generally limited to instances of potential product failure under the
Company’s standard warranty that provides that products will be free from
defects for a period of one year from shipment.
The
Company has made no sales to U.S. distributors. Volterra’s sales to
international distributors are made under agreements that do not provide for
price adjustments after purchase and provide limited return rights under the
Company’s standard warranty. Revenue on these sales is recognized upon shipment
when title passes to the distributor. Volterra estimates future international
distributor sales returns and allowances based on historical data and current
business expectations and reduces revenue for estimated future returns and
allowances through the allowance for sales returns. Sales returns from
distributors must be authorized by the Company and are generally limited to
instances of potential product failure under the same standard warranty
described above.
Costs of
shipping and handling for delivery of the Company’s products that are reimbursed
by its customers are recorded as revenue in the statement of operations.
Shipping and handling costs are charged to cost of revenue as incurred.
(h)
Advertising Costs
Advertising
costs are expensed as incurred and are included in selling, general and
administrative expense. For all periods presented, advertising costs were
immaterial.
(i)
Earnings Per Share
Basic net
income (loss) per share is calculated by dividing net income (loss) by the
weighted average shares of common stock outstanding during the period less
weighted average shares outstanding of restricted common stock subject to
repurchase during the period. Diluted net income (loss) per share is calculated
by dividing the net income (loss) by the weighted average shares outstanding of
common stock and dilutive potential common shares outstanding during the period.
Dilutive potential common shares consist of dilutive shares issuable upon the
exercise of outstanding stock options and warrants, computed using the treasury
stock method, and conversion of convertible preferred stock.
The
following table sets forth for all periods presented the computation of basic
and diluted net income (loss) per share, including the reconciliation of the
numerator and denominator used in the calculation:
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
5,109 |
|
$ |
(4,027 |
) |
$ |
(9,234 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares |
|
|
12,891,066 |
|
|
5,473,178 |
|
|
5,371,203 |
|
|
Unvested
restricted shares subject to repurchase |
|
|
— |
|
|
— |
|
|
(12,008 |
) |
|
Total
shares: Basic |
|
|
12,891,066 |
|
|
5,473,178 |
|
|
5,359,195 |
|
|
Effect
of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
Stock
options |
|
|
2,460,934 |
|
|
— |
|
|
— |
|
|
Convertible
preferred stock |
|
|
7,605,577 |
|
|
— |
|
|
— |
|
|
Convertible
preferred warrants |
|
|
142,462 |
|
|
— |
|
|
— |
|
|
Total
shares: Diluted |
|
|
23,100,039 |
|
|
5,473,178 |
|
|
5,359,195 |
|
|
Net
income (loss) per share — Basic |
|
$ |
0.40 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
|
Net
income (loss) per share — Diluted |
|
$ |
0.22 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
The
following securities outstanding were excluded from the calculation of diluted
net income (loss) per share in the periods below as they had an antidilutive
effect:
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Stock
options |
|
|
110,600
|
|
|
3,274,563
|
|
|
3,343,085
|
|
|
Convertible
preferred stock |
|
|
|
|
|
13,038,133
|
|
|
12,975,633
|
|
|
Convertible
preferred warrants |
|
|
|
|
|
181,692
|
|
|
181,692
|
|
|
Unvested
restricted shares subject to repurchase |
|
|
|
|
|
|
|
|
12,008
|
|
|
|
|
|
110,600
|
|
|
16,494,388
|
|
|
16,512,418
|
|
The
securities outstanding as of December 31, 2004 could dilute net income per share
in the future.
(j)
Income Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
established if it is more likely than not that a portion of deferred tax assets
will not be realized.
(k)
Accounting for Stock-Based Compensation
The
Company applies the intrinsic value based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and
related interpretations including Financial Accounting Standards Board (FASB)
Interpretation (FIN) No. 44, Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25, to
account for the Company’s fixed plan stock options. Under this method, deferred
stock-based compensation has been recorded only if the deemed fair value of the
underlying common stock exceeded the exercise price of options granted to
employees on the date of grant. Deferred stock-based compensation expense is
amortized on an accelerated basis over the vesting period of each grant using
the method prescribed by FASB FIN 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Awards
Plans.
Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, and SFAS
No. 148, Accounting
for Stock-Based Compensation — Transition and Disclosure, an Amendment of FASB
Statement No. 123,
established accounting and disclosure requirements using a fair value based
method of accounting for stock-based employee compensation plans. As permitted
by existing accounting standards, the Company has elected to continue to apply
the intrinsic value based method of accounting described above, and has adopted
only the disclosure requirements of SFAS No. 123, as amended. The following
table illustrates the effect on net income (loss) if the fair value based method
had been used in each period:
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
Net
income (loss) as reported |
|
$ |
5,109 |
|
$ |
(4,027 |
) |
$ |
(9,234 |
) |
|
Add:
stock-based compensation for employee awards included in the determination
of net income (loss), net of tax |
|
|
455 |
|
|
— |
|
|
— |
|
|
Less:
stock-based compensation for employee awards determined under the
fair-value method, net of tax |
|
|
(1,335 |
) |
|
(340 |
) |
|
(601 |
) |
|
Pro
forma net income (loss) |
|
$ |
4,229 |
|
$ |
(4,367 |
) |
$ |
(9,835 |
) |
|
Basic
net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
As
reported |
|
$ |
0.40 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
|
Pro
forma |
|
$ |
0.33 |
|
$ |
(0.80 |
) |
$ |
(1.84 |
) |
|
Diluted
net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
As
reported |
|
$ |
0.22 |
|
$ |
(0.74 |
) |
$ |
(1.72 |
) |
|
Pro
forma |
|
$ |
0.18 |
|
$ |
(0.80 |
) |
$ |
(1.84 |
) |
The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes valuation model. The following assumptions were used in the fair
value calculations:
|
|
2004 |
2003 |
2002 |
|
Expected
life |
4
years |
4
years |
4
years |
|
Expected
volatility |
0 -
60% |
— |
— |
|
Risk-free
interest rates |
2.7%
- 3.5% |
2.1%
- 2.9% |
2.7%
- 4.4% |
|
Expected
dividend yield |
— |
— |
— |
The per
share weighted average fair value of stock options granted to employees during
the years ended December 31, 2004, 2003 and 2002 was $3.21, $0.57 and $0.46,
respectively.
(l)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets held and used is measured by comparison of
the carrying value of the asset to future undiscounted net cash flows expected
to result from the use and eventual disposition of the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying value of the asset exceeds its fair value, as
determined by the discounted cash flows.
(m)
Comprehensive Income (Loss)
Under
SFAS No. 130, Reporting
Comprehensive Income,
comprehensive income (loss) is defined as the changes in financial position of
an enterprise excluding stockholder transactions. For the years ended December
31, 2004, 2003 and 2002, comprehensive income (loss) equaled net income
(loss).
3.
Inventory
Inventory
as of December 31, 2004 and 2003 consisted of the following:
| |
|
2004 |
|
2003 |
|
|
Work-in-process |
|
$ |
3,430 |
|
$ |
1,415 |
|
|
Finished
goods |
|
|
1,704 |
|
|
587 |
|
| |
|
$ |
5,134 |
|
$ |
2,002 |
|
4.
Property and Equipment
Property
and equipment as of December 31, 2004 and 2003 consisted of the
following:
| |
|
2004 |
|
2003 |
|
|
Computer
hardware |
|
$ |
966 |
|
$ |
889 |
|
|
Computer
software |
|
|
1,979 |
|
|
1,977 |
|
|
Equipment
and furniture |
|
|
2,107 |
|
|
1,475 |
|
|
Leasehold
improvements |
|
|
626 |
|
|
598 |
|
| |
|
|
5,678 |
|
|
4,939 |
|
|
Less
accumulated depreciation |
|
|
(4,264 |
) |
|
(3,750 |
) |
| |
|
$ |
1,414 |
|
$ |
1,189 |
|
Depreciation
expense for the years ended December 31, 2004, 2003 and 2002 was $514, $490 and
$723, respectively.
5.
Accrued Liabilities
Accrued
liabilities as of December 31, 2004 and 2003 consisted of the
following:
| |
|
2004 |
|
2003 |
|
|
Accrued
compensation |
|
$ |
726 |
|
$ |
484 |
|
|
Customer
prepayments |
|
|
500 |
|
|
— |
|
|
Professional
services |
|
|
260 |
|
|
154 |
|
|
Product
liability |
|
|
121 |
|
|
142 |
|
|
Employee
early option exercises |
|
|
— |
|
|
192 |
|
|
Other
accrued liabilities |
|
|
498 |
|
|
137 |
|
| |
|
$ |
2,105 |
|
$ |
1,109 |
|
Common
stock issued to employees upon early exercise of stock options is subject to the
repurchase right of the Company at a price equal to the exercise price in the
event of termination of the employee prior to vesting. In accordance with EITF
Issue No. 00-23, Issues
Related to the Accounting for Stock Compensation under APB Opinion No. 25 and
FASB Interpretation No. 44, the
proceeds from the early exercise of options after March 21, 2002 are accounted
for as a deposit from the employee and a liability of the Company until the
options vest. Deposits from employees included in accrued liabilities for the
early exercise of stock options totaled $0 and $192, as of December 31, 2004 and
2003, respectively.
6.
Line of Credit
The
Company has an agreement with a financial institution for a revolving line of
credit (the Agreement). The Agreement allows the Company to borrow based on
eligible accounts receivable up to a maximum of $5,000 and expires on June 24,
2005, at which time payment of any amount outstanding is due. Interest on
borrowings under the Agreement accrues at the bank’s prime rate plus 0.5%.
Borrowings under the Agreement are secured by substantially all of the tangible
assets of the Company. The Agreement contains covenants related to material
adverse changes, liquidity, and profitability. As of December 31, 2004, the
Company was in compliance with all covenants under the bank line of credit and
has no balance outstanding.
7.
Convertible Preferred Stock and Stockholders’ Equity
(Deficit)
(a)
Convertible Preferred Stock
Beginning
in November 1996 through January 1997, the Company issued 1,020,000 shares of
Series A convertible preferred stock at $0.50 per share in exchange for cash and
conversion of a note payable. Beginning in October 1997 through April 1998, the
Company issued 3,413,326 shares of Series B convertible preferred stock at $1.50
per share. In June 1999, the Company issued 3,191,544 shares of Series C
convertible preferred stock at $3.76 per share. In October and November 1999,
the Company issued 2,750,000 shares of Series D convertible preferred stock at
$8.00 per share. Beginning in October 2001 through April 2003, the Company
issued 2,663,250 shares of Series E convertible preferred stock at $8.00 per
share.
While
outstanding, the convertible preferred stock had special rights related to
conversion, voting and dividends and a liquidation preference over holders of
common stock. Upon the closing of the Company’s initial public offering in
August 2004, all outstanding shares of the Company’s convertible preferred stock
automatically converted into an aggregate of 13,038,133 shares of common stock
with the same rights as other common stockholders.
(b)
Common Stock
On July
8, 2004, the Company completed a one-for-two reverse stock split of the common
and preferred stock. All share and per share amounts have been retroactively
restated in the accompanying consolidated financial statements and notes for all
periods presented to reflect the reverse stock split.
In August
2004, the Company sold 4,558,601 shares of its common stock in its initial
public offering at an offering price of $8.00 per share. The Company received
total proceeds of $31.9 million, net of related issuance fees and estimated
offering costs.
The
Company has reserved shares of common stock for future issuance at December 31,
2004 as follows:
|
Stock
options outstanding |
|
|
4,097,170 |
|
|
Stock
options available for future grants |
|
|
3,452,119 |
|
|
Stock
purchase plan |
|
|
450,000 |
|
| |
|
|
7,999,289 |
|
(c)
Warrants
During
1997 and 1998, the Company issued warrants to lessors and creditors to purchase,
in aggregate, 31,250 shares of Series A preferred stock at a purchase price of
$0.50 per share and 150,442 shares of Series B preferred stock at purchase
prices ranging from $1.50 to $2.63 per share.
Upon the
closing of the Company’s initial public offering in August 2004, all outstanding
preferred stock warrants converted to common stock warrants. During 2004, all
outstanding warrants were net exercised resulting in the issuance of 166,330
shares of common stock.
(d)
Stock Option Plans
As of
December 31, 2004, the Company had authorized 9,688,750 shares of common stock
for issuance under all of the Company’s stock option plans.
In
October 1996, the Company authorized the 1996 Stock Option Plan (the 1996 Plan)
under which the board of directors may issue stock options to employees,
officers, directors, and consultants. Under the 1996 Plan, 6,733,750 shares of
the Company’s common stock were reserved for issuance of stock options.
Incentive and nonqualified options to purchase shares of common stock are
granted at not less than 100% and 85%, respectively, of the fair value of the
common stock at the date of grant as determined by the board of directors, and
expire no later than 10 years from the date of grant. Options granted under the
1996 Plan vest and become exercisable at the rate of at least 20% per year over
5 years from the date the option is granted. Any shares issued upon early
exercise of an option are subject to a right of repurchase in the Company’s
favor; however, such repurchase rights shall lapse at the rate of at least 20%
per year over 5 years from the date the option is granted.
In May
2004, the Company authorized the 2004 Equity Incentive Plan (the 2004 Plan) as
an amendment and restatement of the 1996 Stock Option Plan and the amendment
became effective upon the Company’s initial public offering. Options granted
under the 1996 Plan prior to its amendment and restatement will continue to be
subject to the terms and conditions as set forth in the agreements evidencing
such options and the terms of the 1996 Plan. In addition to the shares
authorized by the 1996 Plan, 1,750,000 additional shares were authorized upon
the Company’s initial public offering. Thus, under the 2004 Plan, 8,483,750
shares were initially authorized and the number of authorized shares will be
increased annually on December 31 of each year, from 2004 until 2013, by 5% of
the number of fully-diluted shares of common stock outstanding; provided,
however, that the Board of Directors may designate a smaller number of shares by
which the authorized number of shares will be increased on such
dates.
On
December 14, 2004, the Board of Directors approved an increase of 1,080,000
shares under the 2004 Plan
effective December 31, 2004, bringing the authorized shares to 9,563,750 of
common stock for issuance.
In May
2004, the Company authorized the 2004 Non-Employee Directors’ Stock Option Plan,
which became effective upon the Company’s initial public offering. The 2004
Non-Employee Directors’ Stock Option Plan provides for the automatic grant of
nonstatutory stock options to purchase shares of common stock to our
non-employee directors. The aggregate number of shares of common stock that may
be issued pursuant to options granted under the 2004 Non-Employee Directors’
Stock Option Plan is 125,000 shares, which will be increased annually on
December 31 of each year, from 2004 and until 2013, by no more than the number
of shares of common stock subject to options granted during that calendar year.
As of December 31, 2004, there were no shares issued under this
plan.
The
following table summarizes stock option activity under the plans during the
years 2002, 2003 and 2004:
| |
|
|
|
Options
Outstanding |
|
| |
|
Options
Available
for
Grant |
|
Number
of
Shares |
|
Weighted
Average
Exercise
Price |
|
|
Balances
as of December 31, 2001 |
|
|
512,312 |
|
|
2,733,275 |
|
$ |
2.17 |
|
|
Additional
shares authorized |
|
|
950,000 |
|
|
— |
|
|
— |
|
|
Granted |
|
|
(1,018,472 |
) |
|
1,018,472 |
|
$ |
3.28 |
|
|
Exercised |
|
|
— |
|
|
(82,397 |
) |
$ |
1.00 |
|
|
Canceled |
|
|
326,266 |
|
|
(326,266 |
) |
$ |
0.41 |
|
|
Balances
as of December 31, 2002 |
|
|
770,106 |
|
|
3,343,084 |
|
$ |
2.70 |
|
|
Granted |
|
|
(388,275 |
) |
|
388,275 |
|
$ |
3.50 |
|
|
Exercised |
|
|
— |
|
|
(185,269 |
) |
$ |
3.02 |
|
|
Canceled |
|
|
271,528 |
|
|
(271,528 |
) |
$ |
2.86 |
|
|
Balances
as of December 31, 2003 |
|
|
653,359 |
|
|
3,274,562 |
|
$ |
2.77 |
|
|
Additional
shares authorized |
|
|
3,905,000 |
|
|
— |
|
|
— |
|
|
Granted
|
|
|
(1,226,930 |
) |
|
1,226,930 |
|
$ |
7.51 |
|
|
Exercised
|
|
|
— |
|
|
(283,632 |
) |
$ |
3.08 |
|
|
Canceled
|
|
|
120,690 |
|
|
(120,690 |
) |
$ |
3.90 |
|
|
Balances
as of December 31, 2004 |
|
|
3,452,119 |
|
|
4,097,170 |
|
$ |
4.13 |
|
The
following table summarizes options outstanding as of December 31,
2004:
|
|
|
Options
Outstanding |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Options
Vested |
|
|
|
|
|
Remaining |
|
Weighted |
|
|
|
Weighted |
|
Range
of |
|
|
|
Contractual |
|
Average |
|
|
|
Average |
|
Exercise |
|
Shares |
|
Life |
|
Exercise |
|
Shares |
|
Exercise |
|
|
Prices |
|
Outstanding |
|
(Years) |
|
Price |
|
Vested |
|
Price |
|
|
$0.05
- $1.50 |
|
|
567,683 |
|
|
4.0 |
|
$ |
0.43 |
|
|
567,683 |
|
$ |
0.43 |
|
|
$3.20
- $3.50 |
|
|
2,337,870 |
|
|
6.7 |
|
$ |
3.26 |
|
|
1,714,827 |
|
$ |
3.23 |
|
|
$5.00
- $8.00 |
|
|
937,755 |
|
|
9.3 |
|
$ |
6.16 |
|
|
11,875 |
|
$ |
5.00 |
|
|
$8.10
- $24.95 |
|
|
253,862 |
|
|
9.6 |
|
$ |
12.80 |
|
|
— |
|
|
N/A |
|
|
$0.05-$24.95 |
|
|
4,097,170 |
|
|
7.1 |
|
$ |
4.13 |
|
|
2,294,385 |
|
$ |
2.55 |
|
Under the
intrinsic-value method of accounting for stock-based compensation arrangements
for employees, compensation cost is recognized to the extent the fair value of
the underlying common stock exceeds the exercise price of the stock options at
the date of grant. Deferred stock-based compensation, net of cancellations, of
approximately $917 was recorded during 2004, for the excess of fair value of the
common stock underlying the options at the date of grant over the exercise price
of the options. These amounts are being amortized over the vesting period.
Amortization of deferred stock-based compensation related to employee grants was
approximately $455 during 2004.
During
2002, options to purchase 7,380 shares were granted to non-employees with
immediate vesting; compensation expense resulting from these grants was $16. The
fair value of each option granted to non-employees was estimated on the date of
grant using the Black-Scholes option-pricing model. No stock options were
granted to non-employees in 2003. During 2004, options to purchase 30,000 shares
and 22,500 shares of restricted stock were granted to non-employees;
compensation expense in 2004 resulting from these grants was $184.
(e)
Employee Stock Purchase Plan
In June
2004, the Company authorized the 2004 Employee Stock Purchase Plan (the ESPP
Plan). The ESPP Plan authorizes the issuance of 450,000 shares of common stock
pursuant to purchase rights granted to employees or to employees of any
designated affiliates, which amount will be increased on December 31 of each
year, from 2004 until 2013, by the lesser of 1,000,000 shares of common stock or
1.75% of the fully-diluted number of shares of common stock outstanding on that
date; provided, however, that the Board of Directors may designate a smaller
number of shares by which the authorized number of shares will be increased on
such dates. As of December 31, 2004, the plan had not yet commenced initial
offerings.
(f)
Notes Receivable from Stockholders
In April
2004, the Company exercised its call options to repurchase 327,500 shares of
common stock from stockholders and offset the aggregate purchase price of $1,634
against indebtedness of the stockholders. As a result, the stockholders’ notes
receivable and accrued interest were retired in full and the repurchased shares
were retired.
8.
Income Taxes
The
components of income (loss) before income taxes are as follows:
| |
|
2004 |
|
2003 |
|
2002 |
|
|
United
States |
|
$ |
8,658 |
|
$ |
(407 |
) |
$ |
(9,234 |
) |
|
Foreign |
|
|
(3,315 |
) |
|
(3,620 |
) |
|
— |
|
|
Income
(loss) before income taxes |
|
$ |
5,343 |
|
$ |
(4,027 |
) |
$ |
(9,234 |
) |
Income
tax expense in 2004 is comprised of federal, state and foreign taxes. The
Company incurred no material income tax expense and did not recognize any income
tax benefits in periods prior to 2004. All state franchise taxes have been
recorded in selling, general and administrative expense in prior
periods.
The
components of the income tax expense are as follows:
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
188 |
|
$ |
— |
|
$ |
— |
|
|
State |
|
|
34 |
|
|
— |
|
|
— |
|
|
Foreign |
|
|
12 |
|
|
— |
|
|
— |
|
| |
|
|
234 |
|
|
— |
|
|
— |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
— |
|
|
— |
|
|
State |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
Total
income tax expense |
|
$ |
234 |
|
$ |
— |
|
$ |
— |
|
The
reconciliation of expected income tax expense (benefit) computed by applying the
statutory federal income tax rate to income (loss) before income taxes and
actual income tax expense recorded is as follows:
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
Income
tax expense (benefit) at statutory rate |
|
$ |
1,817 |
|
$ |
(1,369 |
) |
$ |
(3,140 |
) |
|
State
tax, net of federal benefit |
|
|
22 |
|
|
— |
|
|
— |
|
|
Foreign
tax |
|
|
12 |
|
|
— |
|
|
— |
|
|
Alternative
minimum tax |
|
|
188 |
|
|
— |
|
|
— |
|
|
Nondeductible
expenses |
|
|
127 |
|
|
6 |
|
|
16 |
|
|
Credits |
|
|
(516 |
) |
|
(532 |
) |
|
(361 |
) |
|
Valuation
allowance adjustments
related
to net operating losses |
|
|
(1,416 |
) |
|
1,895 |
|
|
3,485 |
|
|
Total
tax provision |
|
$ |
234 |
|
$ |
— |
|
$ |
— |
|
Deferred
tax assets consisted of the following as of December 31, 2004 and
2003:
|
|
|
2004 |
|
2003 |
|
|
Deferred
tax assets: |
|
|
|
|
|
|
Property
and equipment |
|
$ |
91 |
|
$ |
50 |
|
|
Accruals
and reserves |
|
|
1,834 |
|
|
1,055 |
|
|
Research
and development and MIC credits |
|
|
4,595 |
|
|
3,422 |
|
|
Capitalized
research and development costs |
|
|
8,590 |
|
|
9,694 |
|
|
Net
operating loss carryforwards |
|
|
2,318 |
|
|
6,698 |
|
|
Gross
deferred tax assets |
|
|
17,428 |
|
|
20,919 |
|
|
Valuation
allowance |
|
|
(17,428 |
) |
|
(20,919 |
) |
|
|
|
$ |
— |
|
$ |
— |
|
The
realization of the tax benefits of deferred tax assets is dependent on future
levels of taxable income in the periods the items are deductible or creditable.
For periods prior to 2004, the Company incurred a pre-tax loss in each period
since inception. Based on the available objective evidence, management believes
it is more likely than not that the net deferred tax assets will not be
realizable. Accordingly, the Company has provided a full valuation allowance
against its net deferred tax assets as of December 31, 2004 and 2003. The
valuation allowance for deferred tax assets as of December 31, 2004 and 2003 was
$17,428 and $20,919, respectively. The net increase (decrease) in the valuation
allowance was approximately $(3,491) and $1,911 for the years ended December 31,
2004 and 2003, respectively.
As of
December 31, 2004, the Company has net operating loss carryforwards of
approximately $6,196 for federal and $3,616 for state tax purposes. If not
utilized, these carryforwards will begin to expire in 2023 for federal tax
purposes and 2014 for state tax purposes.
As of
December 31, 2004, the Company has research credit carryforwards of
approximately $2,476 and $2,639 for federal and state tax purposes. If not
utilized, the federal carryforwards will expire in various amounts beginning in
2012. The California credit can be carried forward indefinitely. As of December
31, 2004, the Company has state manufacturer investment tax credits (MIC) of
$159, which begin to expire in 2009. As of December 31, 2004, the Company has a
federal alternative minimum tax credit of $272, which can be carried forward
indefinitely.
Under the
Tax Reform Act of 1986, the amount of benefit from net operating loss and tax
credit carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three-year period. At
December 31, 2004, the Company has not yet determined whether an ownership
change had occurred that would result in limitations on the current and future
utilization of its net operating loss carryforwards. An ownership change likely
occurred as a result of the initial public offering but is not expected to
impact the current utilization of our net operating loss
carryforwards..
9.
Commitments
The
Company leases its facilities under operating lease agreements expiring between
2005 and 2007. Rent expense for the years ended December 31, 2004, 2003 and 2002
was $485, $443 and $402, respectively.
The
following table sets forth the Company’s contractual obligations as of December
31, 2004 and the years in which such obligations are expected to be
settled:
|
|
|
2005 |
|
2006 |
|
2007 |
|
2008
and
thereafter |
|
Total |
|
|
Future
minimum lease commitments |
|
$ |
458 |
|
$ |
448 |
|
$ |
270 |
|
$ |
— |
|
$ |
1,176 |
|
|
Inventory
purchase commitments |
|
|
1,725 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,725 |
|
| |
|
$ |
2,183 |
|
$ |
448 |
|
$ |
270 |
|
$ |
— |
|
$ |
2,901 |
|
Inventory
purchase commitments are comprised of the estimated obligation for in-process
silicon wafers.
10.
Restructuring
Charge
In order
to improve operating efficiency, the Company initiated a restructuring plan in
June 2003. The restructuring plan was completed in July 2003. The restructuring
action involved a reduction-in-force, which eliminated 13 positions. Affected
employees were eligible for severance benefits upon their termination. In 2003,
the Company recorded a special charge of $142 for the severance costs of these
employee terminations. All liabilities relating to the restructuring plan were
paid as of December 31, 2003.
11.
Valuation
and Qualifying Accounts
|
Description |
|
Balance
at
beginning
of
period |
|
Additions
deducted
from
revenue/
charged
to
expense |
|
Deductions |
|
Balance
at
end
of
period |
|
|
Year
ended December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
$ |
129 |
|
$ |
22 |
|
$ |
— |
|
$ |
151 |
|
|
Sales
returns and allowances |
|
|
537 |
|
|
900 |
|
|
(486 |
) |
|
951 |
|
|
Deferred
tax asset valuation allowance |
|
$ |
20,919 |
|
$ |
— |
|
$ |
(3,491 |
) |
$ |
17,428 |
|
|
Year
ended December 31, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
$ |
98 |
|
$ |
31 |
|
$ |
— |
|
$ |
129 |
|
|
Sales
returns and allowances |
|
|
215 |
|
|
1,174 |
|
|
(852 |
) |
|
537 |
|
|
Deferred
tax asset valuation allowance |
|
$ |
19,008 |
|
$ |
1,911 |
|
$ |
— |
|
$ |
20,919 |
|
|
Year
ended December 31, 2002: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
$ |
40 |
|
$ |
58 |
|
$ |
— |
|
$ |
98 |
|
|
Sales
returns and allowances |
|
|
103 |
|
|
1,960 |
|
|
(1,848 |
) |
|
215 |
|
|
Deferred
tax asset valuation allowance |
|
$ |
15,462 |
|
$ |
3,546 |
|
$ |
— |
|
$ |
19,008 |
|
12.
Subsequent Events
(a)
Employee Stock Purchase Plan
In
February 2005, the Compensation Committee of the Company's Board of Directors
adopted initial offerings of the Company's common stock under the Company's 2004
Employee Stock Purchase Plan for employees of the Company and its wholly-owned
subsidiary.
The
initial offerings began on February 21, 2005 and will end on May 15, 2005 and
will consist of one purchase period. The purchase date for the initial offerings
is May 15, 2005. Employees who participate in the initial offerings may
contribute up to 15% of their earnings for the purchase of common stock, and may
purchase up to 1,250 shares of common stock, pursuant to the offerings, subject
to certain limitations. The price of the Company's common stock purchased
pursuant to the initial offerings is 85% of the lesser of the fair market value
of the common stock on February 21, 2005 or May 15, 2005.
13.
Selected
Quarterly Financial Information (unaudited)
|
2004 |
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
| |
|
|
|
|
|
|
|
|
|
|
Net
revenue |
|
$ |
7,615 |
|
$ |
9,144 |
|
$ |
12,562 |
|
$ |
14,614 |
|
|
Gross
margin |
|
$ |
3,957 |
|
$ |
4,902 |
|
$ |
6,993 |
|
$ |
8,448 |
|
|
Net
income |
|
$ |
269 |
|
$ |
566 |
|
$ |
1,540 |
|
$ |
2,734 |
|
|
Earnings
per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
$ |
0.10 |
|
$ |
0.09 |
|
$ |
0.12 |
|
|
Diluted |
|
$ |
0.01 |
|
$ |
0.03 |
|
$ |
0.06 |
|
$ |
0.10 |
|
|
2003 |
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
| |
|
|
|
|
|
|
|
|
|
|
Net
revenue |
|
$ |
6,069 |
|
$ |
6,237 |
|
$ |
6,308 |
|
$ |
6,504 |
|
|
Gross
margin |
|
$ |
2,349 |
|
$ |
2,216 |
|
$ |
2,943 |
|
$ |
3,067 |
|
|
Net
loss |
|
$ |
(1,200 |
) |
$ |
(1,487 |
) |
$ |
(791 |
) |
$ |
(548 |
) |
|
Loss
per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.22 |
) |
$ |
(0.27 |
) |
$ |
(0.14 |
) |
$ |
(0.10 |
) |
|
Diluted |
|
$ |
(0.22 |
) |
$ |
(0.27 |
) |
$ |
(0.14 |
) |
$ |
(0.10 |
) |
Basic and
diluted earnings (loss) per share are computed independently for each of the
quarters presented. Therefore, the sum of quarterly basic and diluted per share
information may not equal annual basic and diluted earnings (loss) per
share.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Volterra
Semiconductor Corporation:
We have
audited the accompanying consolidated balance sheets of Volterra Semiconductor
Corporation and subsidiaries (the Company) as of December 31, 2004 and 2003, and
the related consolidated statements of operations, convertible preferred stock
and stockholders’ equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2004. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Volterra Semiconductor
Corporation and subsidiaries as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
Mountain
View, California
January
28, 2005, except as to Note 12,
which is
as of February 21, 2005
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item 9A. Controls
and Procedures
As of the
end of the period covered by this report, an evaluation was performed under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer (collectively, our “certifying
officers”), of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on their evaluation, our certifying officers
concluded that these disclosure controls and procedures are effective in
providing reasonable assurance that the information required to be disclosed by
us in our periodic reports filed with the Securities and Exchange Commission
(“SEC”) is recorded, processed, summarized and reported within the time periods
specified by the SEC’s rules and SEC reports.
We
believe that a controls system, no matter how well designed and operated, is
based in part upon certain assumptions about the likelihood of future events,
and therefore can only provide reasonable, not absolute, assurance that the
objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
In
addition, we have reviewed our internal controls over financial reporting and
have made no changes during the quarter ended December 31, 2004, that our
certifying officers concluded materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other
Information
Not
applicable.
PART III
Certain
information required by Part III of this Form 10-K is omitted from
this report because the registrant will file a definitive Proxy Statement within
120 days after the end of its fiscal year pursuant to Regulation 14A
for its 2005 Annual Meeting of Stockholders (the “Proxy Statement”), and certain
information included therein is incorporated herein by reference.
Item 10. Directors
and Executive Officers of the Registrant
The
information required by this item, including such information regarding our
directors and executive officers and compliance with Section 16(a) of the
Securities Exchange act of 1934, is incorporated herein by reference from the
Proxy Statement. We have adopted a written code of ethics that applies to our
principal executive officer, principal financial officer and principal
accounting officer, or persons performing similar functions. The code of ethics
is posted on our website at www.voltera.com. Amendments to, and waivers from,
the code of ethics that applies to any of these officers, or persons performing
similar functions, and that relates to any element of the code of ethics
definition enumerated in Item 406(b) of Regulation S-K, will be disclosed at the
website address provided above and, to the extent required by applicable
regulations, on a Current Report on Form 8-K.
Item 11. Executive
Compensation
The
information required by this item is incorporated herein by reference from the
section entitled “Executive Compensation” in the Proxy Statement.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The
information required by this item is incorporated herein by reference from the
section entitled “Security Ownership of Certain Beneficial Owners and
Management” in the Proxy Statement.
Item 13. Certain
Relationships and Related Transactions
The
information required by this item is incorporated herein by reference from the
sections entitled “Certain Transactions” and “Equity Compensation Plan
Information” in the Proxy Statement.
Item 14. Principal
Accountant Fees and Services
The
information required by this item is incorporated herein by reference from the
section entitled “Proposal 2 — Ratification of Selection of
Independent Auditors” in the Proxy Statement.
Consistent with Section 10A(i)(2) of the Securities
Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002,
we are responsible for listing the non-audit services approved by our Audit
Committee to be performed by KPMG LLP, our independent registered public
accounting firm. Non-audit services are defined as services other than those
provided in connection with an audit or a review of our financial statements and
other than those services that are normally provided in connection with
statutory and regulatory filings or engagements. In the period covered by this
report, our Audit Committee pre-approved the following non-audit services
rendered, currently being rendered, or to be rendered, to us by KPMG LLP:
services rendered in connection with a Singapore grant application.
PART IV
Item 15. Exhibits
and Financial Statement Schedules
(a) 1.
Financial
Statements
See Index
to Consolidated Financial Statements in Item 8 of this Annual Report on
Form 10-K, which is incorporated herein by reference.
2. Financial
Statement Schedules
See Note
11 on page 48 in Notes to Consolidated Financial Statements.
3. Exhibits
|
Exhibit
Number |
|
Description
Of Document |
|
3.1(1) |
|
Amended
and Restated Certificate of Incorporation of Volterra Semiconductor
Corporation. |
|
3.2(2) |
|
Amended
and Restated Bylaws of Volterra Semiconductor
Corporation. |
|
4.1 |
|
Reference
is made to Exhibits 3.1 and 3.2. |
|
4.2(3) |
|
Specimen
Stock Certificate. |
|
10.1(3) |
|
Amended
and Restated Investor Rights Agreement, dated October 2, 2001, by and
among the Registrant and certain holders of the Registrant’s
securities. |
|
10.2(3) |
|
Amendment
to Amended and Restated Investor Rights Agreement, dated January 17, 2002,
by and among the Registrant and certain holders of the Registrant’s
securities. |
|
10.3(3)* |
|
1996
Stock Option Plan and forms of related agreements. |
|
10.4* |
|
2004
Equity Incentive Plan and forms of related agreements. |
|
10.5(3)* |
|
2004
Non-Employee Directors’ Stock Option Plan and form of related
agreement. |
|
10.6(3)* |
|
2004
Employee Stock Purchase Plan. |
|
10.7(3)* |
|
Form
of Indemnity Agreement entered into between the Registrant and certain of
its officers and directors. |
|
10.8(3)* |
|
Offer
letter between the Registrant and Jeffrey Staszak, dated February 24,
1999. |
|
10.9(3)* |
|
Offer
letter between the Registrant and William Numann, dated October 11,
2000. |
|
10.10(3)* |
|
Offer
letter between the Registrant and Daniel Wark, dated September 13,
2000. |
|
10.11(3)* |
|
Offer
letter between the Registrant and Anthony Stratakos, dated September 27,
1996. |
|
10.12(3)* |
|
Offer
letter between the Registrant and Craig Teuscher, dated September 27,
1996. |
|
10.13(3)* |
|
Offer
letter between the Registrant and Greg Hildebrand, dated September 27,
1996. |
|
10.14(4) |
|
Lease
Agreement, dated June 23, 2000, between ProLogis Limited Partnership — I
and the Registrant. |
|
10.15 |
|
First
Amendment to Lease Agreement, dated October 20, 2004, between ProLogis
Limited Partnership — I and the Registrant. |
|
10.16* |
|
2005
Management Bonus Plan. |
|
21.1(3) |
|
Subsidiaries
of the Registrant. |
|
23.1 |
|
Consent
of KPMG LLP. |
|
24.1 |
|
Power
of Attorney (included on the signature pages hereto). |
|
31.1 |
|
Certification
of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended. |
|
31.2 |
|
Certification
of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended. |
|
32.1(5) |
|
Certification
of Chief Executive Officer required under Rule 13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350. |
|
32.2(5) |
|
Certification
of Chief Financial Officer required under Rule 13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350. |
(1) Previously
filed as Exhibit 3.1 to Volterra Semiconductor Corporation’s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2004, as filed with the
Securities and Exchange Commission on September 9, 2004, and incorporated by
reference herein.
(2) Previously
filed as Exhibit 3.4 to Volterra Semiconductor Corporation’s Registration
Statement on Form S-1 (No. 333-115614), as filed with the Securities and
Exchange Commission on May 19, 2004, as amended, and incorporated by reference
herein.
(3) Previously
filed as the correspondingly numbered exhibit to Volterra Semiconductor
Corporation’s Registration Statement on Form S-1 (No. 333-115614), as filed with
the Securities and Exchange Commission on May 19, 2004, as amended, and
incorporated by reference herein.
(4) Previously
filed as Exhibit 10.15 to Volterra Semiconductor Corporation’s Registration
Statement on Form S-1 (No. 333-115614), as filed with the Securities and
Exchange Commission on May 19, 2004, as amended, and incorporated by reference
herein.
(5) The
certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report
on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not be deemed “filed” by Volterra Semiconductor Corporation for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
* Indicates
a management contract or compensatory plan or arrangement.
(b) Exhibits
See
Item 15(a) above.
(c) Financial
Statement Schedules
See
Item 15(a) above.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
| |
|
|
| |
VOLTERRA SEMICONDUCTOR
CORPORATION |
|
|
|
|
By: |
/s/ JEFFREY STASZAK |
| |
Jeffrey Staszak |
| |
President
and Chief Executive Officer |
Dated:
February 28, 2005
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jeffrey Staszak and Greg Hildebrand, and each of them,
acting individually, as his attorney-in-fact, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this annual report on
Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature |
|
Title |
|
Date |
| |
|
|
|
|
/s/
JEFFREY STASZAK
Jeffrey
Staszak |
|
President,
Chief Executive Officer and Director (Principal Executive
Officer) |
|
February
28, 2005 |
/s/
GREG HILDEBRAND
Greg
Hildebrand |
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer) |
|
February
28, 2005 |
/s/
CHRIS BRANSCUM
Chris
Branscum |
|
Director |
|
February
28, 2005 |
/s/
MEL FRIEDMAN
Mel
Friedman |
|
Director |
|
February
28, 2005 |
/s/
ALAN KING
Alan
King |
|
Director |
|
February
28, 2005 |
/s/
CHRISTOPHER PAISLEY
Christopher
Paisley |
|
Director |
|
February
28, 2005 |
/s/
EDWARD ROSS
Edward
Ross |
|
Director |
|
February
28, 2005 |
/s/
ANTHONY STRATAKOS
Anthony
Stratakos |
|
Director |
|
February
28, 2005 |
/s/
CRAIG TEUSCHER
Craig
Teuscher |
|
Director |
|
February
28, 2005 |
/s/
EDWARD WINN
Edward
Winn |
|
Director |
|
February
28, 2005 |
EXHIBIT
INDEX
|
Exhibit
Number |
|
Description
Of Document |
|
3.1(1) |
|
Amended
and Restated Certificate of Incorporation of Volterra Semiconductor
Corporation. |
|
3.2(2) |
|
Amended
and Restated Bylaws of Volterra Semiconductor
Corporation. |
|
4.1 |
|
Reference
is made to Exhibits 3.1 and 3.2. |
|
4.2(3) |
|
Specimen
Stock Certificate. |
|
10.1(3) |
|
Amended
and Restated Investor Rights Agreement, dated October 2, 2001, by and
among the Registrant and certain holders of the Registrant’s
securities. |
|
10.2(3) |
|
Amendment
to Amended and Restated Investor Rights Agreement, dated January 17, 2002,
by and among the Registrant and certain holders of the Registrant’s
securities. |
|
10.3(3)* |
|
1996
Stock Option Plan and forms of related agreements. |
|
10.4* |
|
2004
Equity Incentive Plan and forms of related agreements. |
|
10.5(3)* |
|
2004
Non-Employee Directors’ Stock Option Plan and form of related
agreement. |
|
10.6(3)* |
|
2004
Employee Stock Purchase Plan. |
|
10.7(3)* |
|
Form
of Indemnity Agreement entered into between the Registrant and certain of
its officers and directors. |
|
10.8(3)* |
|
Offer
letter between the Registrant and Jeffrey Staszak, dated February 24,
1999. |
|
10.9(3)* |
|
Offer
letter between the Registrant and William Numann, dated October 11,
2000. |
|
10.10(3)* |
|
Offer
letter between the Registrant and Daniel Wark, dated September 13,
2000. |
|
10.11(3)* |
|
Offer
letter between the Registrant and Anthony Stratakos, dated September 27,
1996. |
|
10.12(3)* |
|
Offer
letter between the Registrant and Craig Teuscher, dated September 27,
1996. |
|
10.13(3)* |
|
Offer
letter between the Registrant and Greg Hildebrand, dated September 27,
1996. |
|
10.14(4) |
|
Lease
Agreement, dated June 23, 2000, between ProLogis Limited Partnership — I
and the Registrant. |
|
10.15 |
|
First
Amendment to Lease Agreement, dated October 20, 2004, between ProLogis
Limited Partnership — I and the Registrant. |
|
10.16* |
|
2005
Management Bonus Plan. |
|
21.1(3) |
|
Subsidiaries
of the Registrant. |
|
23.1 |
|
Consent
of KPMG LLP. |
|
24.1 |
|
Power
of Attorney (included on the signature pages hereto). |
|
31.1 |
|
Certification
of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended. |
|
31.2 |
|
Certification
of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended. |
|
32.1(5) |
|
Certification
of Chief Executive Officer required under Rule 13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350. |
|
32.2(5) |
|
Certification
of Chief Financial Officer required under Rule 13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350. |
(1) Previously
filed as Exhibit 3.1 to Volterra Semiconductor Corporation’s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2004, as filed with the
Securities and Exchange Commission on September 9, 2004, and incorporated by
reference herein.
(2) Previously
filed as Exhibit 3.4 to Volterra Semiconductor Corporation’s Registration
Statement on Form S-1 (No. 333-115614), as filed with the Securities and
Exchange Commission on May 19, 2004, as amended, and incorporated by reference
herein.
(3) Previously
filed as the correspondingly numbered exhibit to Volterra Semiconductor
Corporation’s Registration Statement on Form S-1 (No. 333-115614), as filed with
the Securities and Exchange Commission on May 19, 2004, as amended, and
incorporated by reference herein.
(4) Previously
filed as Exhibit 10.15 to Volterra Semiconductor Corporation’s Registration
Statement on Form S-1 (No. 333-115614), as filed with the Securities and
Exchange Commission on May 19, 2004, as amended, and incorporated by reference
herein.
(5) The
certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report
on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not be deemed “filed” by Volterra Semiconductor Corporation for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
* Indicates
a management contract or compensatory plan or arrangement.