Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
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: 0-17739
RAMTRON INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 84-0962308 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1850 Ramtron Drive, Colorado Springs, CO | 80921 | |
(Address of principal executive offices) | (Zip Code) |
(Registrants telephone number, including area code: (719) 481-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares of the issuers outstanding common stock, as of the latest practicable date:
34,634,783 shares |
As of October , 2011 | |
Common Stock, $0.01 par value |
Table of Contents
PART I - FINANCIAL INFORMATION
Page | ||||||
Item 1 - | Financial Statements: | |||||
Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 | 3 | |||||
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2011 and 2010 | 4 | |||||
Consolidated Statement of Stockholders Equity for the Nine Months ended September 30, 2011 | 5 | |||||
Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2011 and 2010 | 6 | |||||
Notes to Financial Statements | 7 | |||||
Item 2 - | Managements Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 4 - | Controls and Procedures | |||||
PART II-OTHER INFORMATION | ||||||
Item 1- |
Legal Proceedings | |||||
Item 1A - | Risk Factors | |||||
Item 2 - | Unregistered Sales of Equity Securities and Use of Proceeds | |||||
Item 6 - | Exhibits |
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ITEM 1. | FINANCIAL STATEMENTS |
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Amounts in thousands, except par value and share amounts)
September 30, 2011 |
December 31, 2010 |
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(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: |
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Cash and cash equivalents |
$ | 13,243 | $ | 9,945 | ||||
Accounts receivable, less allowances of $ and $1,814, respectively |
10,745 | 9,910 | ||||||
Inventories |
5,771 | 5,412 | ||||||
Deferred income taxes, net |
305 | 368 | ||||||
Other current assets |
1,908 | 2,332 | ||||||
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Total current assets |
31,972 | 27,967 | ||||||
Property, plant and equipment, net |
18,350 | 21,170 | ||||||
Intangible assets, net |
2,717 | 2,746 | ||||||
Long-term deferred income taxes, net |
4,828 | 4,551 | ||||||
Other assets |
400 | 398 | ||||||
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Total assets |
$ | 58,267 | $ | 56,832 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
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Accounts payable |
$ | 6,339 | $ | 5,995 | ||||
Accrued liabilities |
3,157 | 1,843 | ||||||
Deferred revenue |
645 | 564 | ||||||
Current portion of long-term debt |
3,323 | 3,284 | ||||||
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Line of credit |
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Total current liabilities |
13,464 | 11,686 | ||||||
Other long-term liabilites |
86 | 218 | ||||||
Long-term debt, less current portion |
9,654 | 6 | ||||||
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Total liabilities |
23,204 | 8,924 | ||||||
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20,834 | ||||||||
Contingencies (Note 5) | ||||||||
Stockholders equity: |
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Preferred stock, $.01 par value, 10,000,000 shares authorized: 0 shares issued and outstanding |
| | ||||||
Common stock, $.01 par value, 50,000,000 shares authorized: 34,634,783 and 27,539,562 shares issued and outstanding, respectively |
274 | 275 | ||||||
Additional paid-in capital |
252,807 | 253,280 | ||||||
Accumulated other comprehensive loss |
(335 | ) | (345 | ) | ||||
Accumulated deficit |
(217,683 | ) | (217,212 | ) | ||||
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Total stockholders equity |
35,063 | 35,998 | ||||||
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Total liabilities and stockholders equity |
$ | 58,267 | $ | 56,832 | ||||
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See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended September 30, 2011 |
Three Months Ended September 30, 2010 |
Nine Months Ended September 30, 2011 |
Nine Months Ended September 30, 2010 |
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Revenue: |
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Product sales |
0 | $ | 19,678 | 0 | $ | 53,469 | ||||||||||
License and development fees |
0 | 204 | 0 | 605 | ||||||||||||
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0 | 19,882 | 0 | 54,074 | |||||||||||||
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Costs and expenses: |
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Cost of product sales |
0 | 9,370 | 0 | 26,186 | ||||||||||||
Research and development |
0 | 4,895 | 0 | 12,705 | ||||||||||||
Sales and marketing |
0 | 2,478 | 0 | 6,770 | ||||||||||||
General and administrative |
0 | 1,941 | 0 | 5,614 | ||||||||||||
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0 | 18,684 | 0 | 51,275 | |||||||||||||
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Operating income (loss) |
0 | 1,198 | 0 | 2,799 | ||||||||||||
Interest expense |
0 | (250 | ) | 0 | (578 | ) | ||||||||||
Other income (expense), net |
0 | (385 | ) | 0 | (406 | ) | ||||||||||
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Income (loss) before income tax (provision) benefit |
0 | 563 | 0 | 1,815 | ||||||||||||
Income tax (provision) benefit |
0 | (221 | ) | 0 | (701 | ) | ||||||||||
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Net income (loss) |
0 | $ | 342 | 0 | $ | 1,114 | ||||||||||
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Other comprehensive (loss), net of tax: |
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Foreign currency translation adjustments |
0 | (7 | ) | 0 | (31 | ) | ||||||||||
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Comprehensive income (loss) |
0 | $ | 335 | 0 | $ | 1,083 | ||||||||||
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Net income (loss) per common share: |
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Basic and diluted: |
0 | $ | 0.01 | 0 | $ | 0.04 | ||||||||||
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Weighted average common shares outstanding: |
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Basic |
0 | 27,100 | 0 | 27,056 | ||||||||||||
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Diluted |
0 | 28,364 | 0 | 27,932 | ||||||||||||
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See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
(in thousands, except par value amounts)
(Unaudited)
Common Stock | Additional Paid-in Capital |
Accumulated Other Comprehensive (Loss) |
Accumulated Deficit |
Stockholders Equity |
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($.01 Par Value) | ||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balances, December 31, 2010 |
27,539 | $ | 275 | $ | 253,280 | $ | (345 | ) | $ | (217,212 | ) | $ | 35,998 | |||||||||||
Exercise of options |
663 | 7 | 1,308 | 1,315 | ||||||||||||||||||||
Stock-based compensation expense |
788 | 788 | ||||||||||||||||||||||
Issuance of restricted stock |
240 | 2 | (65 | ) | (63 | ) | ||||||||||||||||||
Foreign currency translation adjustments |
(21 | ) | (21 | ) | ||||||||||||||||||||
Net income |
(3,062 | ) | (3,062 | ) | ||||||||||||||||||||
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Balances, September 30, 2011 |
28,442 | $ | 284 | $ | 255,311 | $ | (366 | ) | $ | (220,274 | ) | $ | 34,955 | |||||||||||
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See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Unaudited)
(Amounts in thousands)
September 30, 2011 |
September 30, 2010 |
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Cash flows from operating activities: |
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Net income (loss) |
0 | $ | 1,114 | |||||
Adjustments used to reconcile net income to net cash used in operating activities: |
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Depreciation |
0 | 1,358 | ||||||
Amortization |
0 | 188 | ||||||
Bad debt recovery |
0 | (111 | ) | |||||
Net loss from asset disposition |
0 | 398 | ||||||
Stock-based compensation |
0 | 1,236 | ||||||
Deferred income taxes |
0 | 660 | ||||||
Imputed interest on note payable |
0 | 33 | ||||||
Inventory write-off and scrap |
0 | 1,014 | ||||||
Changes in assets and liabilities: |
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Accounts receivable |
0 | (2,655 | ) | |||||
Inventories |
0 | 53 | ||||||
Accounts payable and accrued liabilities |
0 | 3,614 | ||||||
Deferred revenue |
0 | (478 | ) | |||||
Other |
0 | (686 | ) | |||||
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Net cash provided by operating activities |
0 | 5,738 | ||||||
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Cash flows from investing activities: |
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Purchase of property, plant and equipment |
0 | (4,516 | ) | |||||
Purchase of intellectual property |
0 | (105 | ) | |||||
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Net cash used in investing activities |
0 | (4,621 | ) | |||||
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Cash flows from financing activities: |
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Proceeds from line of credit |
0 | 2,000 | ||||||
Payments on line of credit |
0 | (2,000 | ) | |||||
Proceeds from long term debt |
0 | 6,000 | ||||||
Principal payments on long term debt |
0 | (1,670 | ) | |||||
Issuance of common stock |
0 | 285 | ||||||
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Net cash (used) provided by financing activities |
0 | 4,615 | ||||||
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Effect of foreign currency |
0 | (30 | ) | |||||
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Net increase (decrease) in cash and cash equivalents |
0 | 5,702 | ||||||
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Cash and cash equivalents, beginning of period |
0 | 7,541 | ||||||
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Cash and cash equivalents, end of period |
0 | $ | 13,243 | |||||
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
0 | $ | 541 | |||||
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Cash paid for income taxes |
0 | $ | 69 | |||||
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Property, plant and equipment financed by capital leases |
0 | $ | 1,400 | |||||
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See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business. We are a fabless semiconductor company that designs, develops and markets specialized semiconductor memory, microcontroller, and integrated semiconductor solutions, used in many markets for a wide range of applications. We pioneered the integration of ferroelectric materials into semiconductor products, which enabled the development of a new class of nonvolatile memory, called ferroelectric random access memory (F-RAM). F-RAM products merge the advantages of multiple memory technologies into a single device that retains information without a power source, can be read from and written to at very fast speeds, written to many times, consumes low amounts of power, and can simplify the design of electronic systems. In many cases, we are the sole provider of F-RAM enabled semiconductor products, which facilitates close customer relationships, long application lifecycles and the potential for high-margin sales.
We also integrate wireless communication capabilities as well as analog and mixed-signal functions such as microprocessor supervision, tamper detection, timekeeping, and power failure detection into our devices. This has enabled new classes of products that address the growing market need for more functional, efficient and cost effective semiconductor products.
Our revenue is derived from the sale of our products and from license, development and royalty arrangements entered into with a limited number of established semiconductor manufacturers involving the development and sale of specific applications and products of the Companys technologies. Product sales have been made to various customers for use in a variety of applications including utility meters, office equipment, automobiles, electronics, telecommunications, disk array controllers, and industrial control devices, among others.
The accompanying unaudited, interim consolidated financial statements at September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010, and the audited balance sheet at December 31, 2010 have been prepared from the books and records of Ramtron International Corporation (the Company, we, our, or us).
The preparation of our consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make estimates and judgments that affect the amounts reported in our financial statements and accompanying notes. Examples include the estimate of useful lives of our property, plant and equipment, and intellectual property costs, valuation allowances associated with our deferred tax assets, valuation allowance for sales returns associated primarily with our sales to distributors, fair value estimates used in our intangible asset impairment tests, and the valuation of stock-based compensation. The statements reflect all normal recurring adjustments, which, in the opinion of the Companys management, are necessary for the fair presentation of financial position, results of operations and cash flows for the periods presented.
The accompanying financial statements should be read in conjunction with the Companys annual report on Form 10-K for the year ended December 31, 2010, which includes all disclosures required by GAAP. The results of operations for the period ended September 30, 2011 are not necessarily indicative of expected operating results for the full year.
Certain amounts reported in prior periods have been reclassified to conform to the current presentation.
NOTE 2. INVENTORIES
Inventories consist of:
(in thousands) | September 30, 2011 |
December 31, 2010 |
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Finished goods |
0 | $ | 733 | |||||
Work in process |
0 | 4,679 | ||||||
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0 | $ | 5,412 | ||||||
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NOTE 3. OTHER CONSOLIDATED FINANCIAL STATEMENT DETAIL
Other Current Assets consist of:
(in thousands) | September 30, 2011 |
December 31, 2010 |
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Prepaid expenses |
$ | 1,121 | $ | 1,604 | ||||
Supplies inventory |
435 | 353 | ||||||
Income tax receivable |
122 | 334 | ||||||
Other |
12 | 41 | ||||||
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Total |
$ | 1,690 | $ | 2,332 | ||||
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Accrued Liabilities consist of:
(in thousands) | September 30, 2011 |
December 31, 2010 |
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Accrued property taxes |
$ | 116 | $ | 196 | ||||
Severance-related liabilities |
346 | | ||||||
Compensation-related liabilities |
1,230 | 1,204 | ||||||
Other |
535 | 443 | ||||||
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Total |
$ | 2,227 | $ | 1,843 | ||||
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NOTE 4. SIGNIFICANT CUSTOMERS
For the year to date and period ended September 30, 2011 and December 31, 2010, sales for our largest distributors and direct customers are as follows:
Percentage of Company Total | ||||||||
Nine Months Ending September 30, 2011 |
Nine Months Ending December 31, 2010 |
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Customer A |
14 | % | 10 | % | ||||
Customer B |
10 | % | 5 | % |
NOTE 5. CONTINGENCIES
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property rights. We cannot be certain that third parties will not make a claim of infringement against us or against our semiconductor company licensees in connection with their use of our technology. Any claims, even those without merit, could be time consuming to defend, result in costly litigation and diversion of technical and management personnel, or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us or one of its semiconductor manufacturing licensees in connection with use of our technology could materially impact the Companys results of operations.
In June 2009, the Company received a summons by the trustee in the bankruptcy of Finmek S.p.A. and its affiliates (Finmek) to appear before the Padua, Italy court overseeing the bankruptcy. The claims of the trustee in bankruptcy are that payments totaling approximately $2.8 million made to the Company for products shipped to Finmek prior to its bankruptcy filing in May 2004 are recoverable based on an alleged awareness of the Finmek affiliates insolvency at the time the payments were made. The first hearing in the Finmek case was held in January 2010 and at the request of both parties, the hearing was moved to April 2011. At the April 2011 hearing, the judge moved the
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hearing to March 2013, at which time all parties are to submit their final motions. We intend to vigorously contest the trustees claims. We are unable to estimate a range of possible liability, if any, that we may incur as result of the trustees claims and have not recorded any expense or liability in the consolidated financial statements as of September 30, 2011.
The Company is involved in other legal matters in the ordinary course of business. Although the outcomes of any such legal actions cannot be predicted, management believes that there are no pending legal proceedings against or involving the Company for which the outcome would likely to have a material adverse effect upon the Companys financial position or results of operations.
NOTE 6. LONG-TERM DEBT
(in thousands) | September 30, 2011 |
December 31, 2010 |
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Long-term debt: |
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Capital leases |
0 | $ | 2,674 | |||||
National Semiconductor promissory note |
0 | 697 | ||||||
Mortgage note |
0 | 3,587 | ||||||
Term loan |
0 | 5,250 | ||||||
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0 | 12,208 | |||||||
Long-term debt current maturities |
0 | (3,284 | ) | |||||
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Long-term debt less total current portion |
0 | $ | 8,924 | |||||
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On June 28, 2010, the Company and Silicon Valley Bank (SVB) executed a Second Amendment (Amendment) to the Companys Amended Loan Agreement dated August 18, 2009. The Amendment provides for a $6.0 million term loan with a fixed interest rate of 6.5% per annum. The term of the loan is four years with fixed principal payments of $125,000 per month plus accrued interest. We paid a one-time commitment fee of $60,000 at signing. We have used the proceeds from our term loan facility for working capital and to fund our capital requirements.
During June, 2011, the Company and SVB determined that the Company was not in compliance with its liquidity ratio covenant for the months of April and May of 2011. As a result, on June 30, 2011 the Company and SVB executed a Default Waiver and Fifth Amendment to the Companys Amended Loan Agreement dated August 18, 2009 (Fifth Amendment). SVB waived compliance with the liquidity ratio covenant for the months of April and May and adjusted the minimum liquidity ratio and EBITDA covenants. As of September 30, 2011, the Company was in compliance with such covenants which will be measured on a monthly basis through October 31, 2011. The expiration date of our revolving line of credit was extended from August 18, 2011 to October 31, 2011. The Fifth Amendment also provides for an increase in the working capital line of credit from $6.0 million to $7.5 million, a reduction of the letter of credit, foreign exchange and cash management services sublimits to $1,750,000, and a reduction of the borrowing base to be 50% of the outstanding balance of the Companys existing term loan. In connection with the Fifth Amendment, the Company also replaced its existing Export-Import (EX-IM) Loan Agreement with a new EX-IM Loan Agreement that will guarantee advances of eligible foreign accounts. The Companys borrowing base associated with EX-IM guarantee is the lessor of $7.5 million or up to 90% of EX-IM foreign accounts that are payable in US dollars, plus up to 65% of EX-IM eligible inventory. The Company paid a fee of $20,000 in connection with the Fifth Amendment.
At September 30, 2011 the Company had $1.5 million outstanding under its secured line of credit facility and a remaining availability of $3.0 million under this line of credit.
The Company entered into four capital leases during 2009 and 2010 totaling approximately $4.3 million with terms between two and three years with effective interest rates between 9% and 10%. We currently have three leases outstanding with a book value of $1.9 million and standby letters of credit in favor of two of the lessors for approximately $1.25 million.
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In April 2004, we entered into a patent interference settlement agreement with National Semiconductor Corporation. The Company is required to pay National Semiconductor Corporation $250,000 annually through 2013. As of September 30, 2011, the present value of this promissory note is $465,000. We recorded this note at the discounted present value assuming an annualized discount rate of 5.75%. The face value of this note as of September 30, 2011 was $500,000.
On December 15, 2005, the Company, through its subsidiary, Ramtron LLC, for which Ramtron International Corporation serves as sole member and sole manager, closed on its mortgage loan facility with American National Insurance Company. Ramtron LLC entered into a promissory note evidencing the loan with the principal amount of $4,200,000, with a maturity date of January 1, 2016, bearing interest at 6.17%. We are obligated to make monthly principal and interest payments of $30,500 until January 2016 and a balloon payment of $2,757,000 in January 2016. Ramtron LLC also entered into an agreement for the benefit of American National Insurance Company securing our real estate as collateral for the mortgage loan facility.
Payments of our outstanding promissory notes and leases are as follows as of September 30, 2011:
(in thousands) | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | |||||||||||||||||||||
Term loan |
$ | 750 | $ | 1,500 | $ | 1,500 | $ | 750 | $ | | $ | | $ | 4,500 | ||||||||||||||
National Semiconductor promissory note |
| 250 | 250 | | | | 500 | |||||||||||||||||||||
Mortgage note |
77 | 158 | 168 | 179 | 190 | 2,743 | 3,515 | |||||||||||||||||||||
Capital leases |
724 | 1,340 | | | | | 2,064 | |||||||||||||||||||||
Less amount representing interest on the capital leases and promissory note |
(166 | ) | ||||||||||||||||||||||||||
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Total debt |
$ | 10,413 | ||||||||||||||||||||||||||
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The carrying amounts and estimated fair values of our long-term debt, which are our only material financial instruments, are as follows:
September 30, 2011 | December 31, 2010 | |||||||||||||||
(in thousands) | Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value |
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Term loan |
$ | 4,500 | $ | 4,503 | $ | 5,250 | $ | 5,244 | ||||||||
National Semiconductor promissory note |
465 | 457 | 697 | 685 | ||||||||||||
Capital leases |
1,933 | 1,978 | 2,674 | 2,747 | ||||||||||||
Mortgage note |
3,515 | 3,450 | 3,587 | 3,500 | ||||||||||||
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$ | 10,413 | $ | 10,388 | $ | 12,208 | $ | 12,176 | |||||||||
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The above fair values were estimated based on discounted future cash flows. Differences from carrying amounts are attributable to interest rate changes subsequent to when the transactions occurred.
NOTE 7. STOCK-BASED COMPENSATION
Stock-based Compensation Plans
We grant stock options and restricted stock under the 2005 Incentive Award Plan (as amended, the 2005 Plan). The previous and expired 1995 Stock Option Plan (the 1995 Plan) and 1999 Stock Option Plan, as amended, are only relevant to grants outstanding under these plans or in respect of the 1995 Stock Option Plan, forfeitures that increase the available shares under the 2005 Plan. The 2005 Plan reserves a total of 6,603,544 shares of our common stock for issuance, of which 1,603,544 shares were incorporated from our 1995 Plan. The additional shares
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from the 1995 Plan were incorporated into the 2005 Plan because the shares had not been issued, were subject to awards under the 1995 Plan that had expired, or were forfeited or became unexercisable for any reason. In accordance with the terms of the 2005 Plan, the shares were carried forward to and included in the reserve of shares available for issuance pursuant to the 2005 Plan. The exercise price of all non-qualified stock options must be no less than 100% of the Fair Market Value on the effective date of the grant under the 2005 Plan, and the maximum term of each grant is ten years. The 2005 Plan permits the issuance of incentive stock options, the issuance of restricted stock, and other types of awards. The exercise of stock options and issuance of restricted stock and restricted stock units is satisfied by issuing authorized unissued common stock or treasury stock. As of September 30, 2011, we had not granted any incentive stock options.
The number of shares available for future grant under the 2005 Plan was 1,398,045 as of September 30, 2011.
Total stock-based compensation recognized in our consolidated statement of income was as follows:
(in thousands) | Three Months Ended September 30, 2011 |
Three Months Ended September 30, 2010 |
Nine Months Ended September 30, 2011 |
Nine Months Ended September 30, 2010 |
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Income Statement Classifications: |
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Cost of Sales |
$ | 26 | $ | 77 | ||||||||
Research and development |
92 | 272 | ||||||||||
Sales and marketing |
67 | 194 | ||||||||||
General and administrative |
232 | 693 | ||||||||||
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Total |
$ | 417 | $ | 1,236 | ||||||||
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Stock Options
Stock options granted become exercisable in installments pursuant to the terms of each agreement evidencing options granted. As of June 30, 2011, there was approximately $1,052,000 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested options granted to our employees and directors, which will be recognized over a weighted-average period of 2.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.
For grants issued during 2011, the fair value for stock options was estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions. Expected volatility was estimated based on the historical volatility of our stock over the past 6 years, which approximates the calculated expected term of our options over the past 10 years, a period we considered a fair indicator of future exercises. We based the risk-free interest rate that we use in the option valuation model on U.S. Treasury Notes with remaining terms similar to the expected terms on the options. Forfeitures are estimated at the time of grant based upon historical experience. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model.
The assumptions used to value option grants for the quarter ended June 30, 2011 are as follows:
Risk free interest rate |
2.2 | % | ||
Expected dividend yield |
0 | % | ||
Expected term (in years) |
5.5 yrs | |||
Expected volatility |
68 | % |
The weighted average fair value per share of options granted during the six months ended June 30, 2011 and 2010 were $2.17 and $1.26, respectively.
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The following table summarizes stock option activity related to our plans for the six months ended June 30, 2011:
Number of Stock Options |
Weighted Average Exercise Price Per Share |
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(in thousands) | ||||||||
Outstanding at December 31, 2010 |
5,758 | $ | 2.90 | |||||
Granted |
436 | $ | 2.80 | |||||
Forfeited |
(440 | ) | $ | 2.33 | ||||
Exercised |
(663 | ) | $ | 1.95 | ||||
Expired |
(821 | ) | $ | 4.02 | ||||
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Outstanding at June 30, 2011 |
4,270 | $ | 2.89 | |||||
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The intrinsic value of the outstanding options at June 30, 2011 was $1.8 million and was calculated as the difference between the market value as of June 30, 2011 and the exercise price of the options. The closing market value as of June 30, 2011 was $2.98 as reported by the Nasdaq Global Market.
Cash received from option exercises for the six months ended June 30, 2011 was approximately $1.3 million.
NOTE 8. INCOME TAXES
The Company accounts for income taxes using the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards.
A valuation allowance is required to the extent it is more likely than not that a deferred tax asset will not be realized. 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 operations in the period that includes the enactment date.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment.
For the nine months ended September 30, 2011, the Company incurred an operating loss and recorded a $1,625,000 income tax benefit. The benefit recorded was a non-cash transaction.
For the nine months ended September 30, 2011, the Companys effective income tax rate was approximately 35%, as the Companys non-deductible items had a minimal impact to the effective tax rate.
Any significant increase or reduction in estimated future taxable income may require the Company to record additional adjustments to the valuation allowance against the remaining deferred tax assets. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on the periods earnings.
NOTE 9. EARNINGS PER SHARE
Basic net income (loss) per share is computed by dividing reported net income (loss) available to common stockholders by weighted average shares outstanding. Diluted net income per share reflects the potential dilution assuming the issuance of common shares for all dilutive potential common shares outstanding during the period.
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The following table sets forth the calculation of net income (loss) per common share for the three and nine months ended September 30, 2011 and 2010:
(in thousands, except per share amounts) | Three Months Ended September 30, 2011 |
Three Months Ended September 30, 2010 |
Nine Months Ended September 30, 2011 |
Nine Months Ended September 30, 2010 |
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Net income (loss) |
0 | $ | 342 | 0 | $ | 1,114 | ||||||||||
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Common shares outstanding: |
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Historical common shares outstanding at beginning of period |
0 | 27,357 | 0 | 27,170 | ||||||||||||
Less: Non-vested restricted stock at beginning of period |
0 | (282 | ) | 0 | (232 | ) | ||||||||||
Weighted average common shares issued during period |
0 | 25 | 0 | 118 | ||||||||||||
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Weighted average common shares at end of period basic |
0 | 27,100 | 0 | 27,056 | ||||||||||||
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Effect of other dilutive securities: |
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Options |
0 | 937 | 0 | 606 | ||||||||||||
Restricted stock |
0 | 327 | 0 | 270 | ||||||||||||
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Weighted average common shares at end of period diluted |
0 | 28,364 | 0 | 27,932 | ||||||||||||
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Net income (loss) per share: |
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- basic and diluted |
0 | $ | 0.01 | 0 | $ | 0.04 | ||||||||||
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As of September 30, 2011 and 2010, we had several equity instruments or obligations that could create future dilution to the Companys common stockholders and are not currently classified as outstanding common shares of the Company. The following table details the shares of common stock that are excluded from the calculation of earnings per share (prior to the application of the treasury stock method) due to their impact being anti-dilutive:
(in thousands) | Three Months Ended September 30, 2011 |
Three Months Ended September 30, 2010 |
Nine Months Ended September 30, 2011 |
Nine Months Ended September 30, 2010 |
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Stock Options |
0 | 2,810 | 0 | 3,398 | ||||||||||||
Restricted stock/units |
0 | | 0 | |
NOTE 10. SEGMENT INFORMATION
Our continuing operations are conducted through one business segment. Our business develops, manufactures and sells ferroelectric nonvolatile random access memory products, microcontrollers, integrated products, and licenses the technology related to such products.
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