e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One) |
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
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For the Fiscal Year ended December 31, 2004. |
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OR |
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TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934. |
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For the transition period
from: to: . |
Commission file number 0-32809
Vialta, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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94-3337236 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
48461 Fremont Boulevard
Fremont, California 94538
(Address, including zip code, of Registrants principal
executive offices)
(510) 870-3088
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
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
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the
Form 10-K or any amendments to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 126-2) Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on June 30,
2004 (based on the average bid and ask price on the OTC
Bulletin Board as of such date) was approximately
$17,818,000.
The number of outstanding shares of the registrants common
stock, par value $0.001 per share, on March 7, 2005
was 83,052,852 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement
relating to its 2005 annual meeting of stockholders to be filed
with the Securities and Exchange Commission not later than
120 days after the end of the fiscal year to which this
Report relates, are incorporated by reference into Part III
of this Form 10-K Report.
VIALTA, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2004
INDEX
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve
risks and uncertainties. All statements contained in this report
that are not purely historical could be deemed forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this
report, words such as may, might,
will, should, expects,
plans, anticipates,
believes, estimates,
predicts, potential, intend,
continue, and similar expressions, are intended to
identify forward-looking statements. These forward-looking
statements might include, without limitation, projections of our
future financial performance, our anticipated growth and
anticipated trends in our businesses; the features, benefits and
advantages of our products; the development of new products,
enhancements or technologies; business and sales strategies;
developments in our target markets; matters relating to
distribution channels, proprietary rights, facilities needs,
competition and litigation; future gross margins and operating
expense levels; and capital needs. These statements reflect the
current views of Vialta or its management with respect to future
events and are subject to risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions proved incorrect, our actual
results, performance or achievements in fiscal 2005 and beyond
could differ materially from those expressed in, or implied by,
these forward-looking statements. Factors that could cause or
contribute to material differences include, but are not limited
to, the merger with Victory Acquisition Corp. not occurring or
not closing within the expected timeframe, those discussed below
in Item 7 under the heading Other Factors That May
Affect Our Business and Future Results: and the risks
discussed in our other filings with the Securities and Exchange
Commission. We encourage you to read that section carefully. You
should not regard the inclusion of forward-looking information
as a representation by us or any other person that the future
events, plans or expectations contemplated by us will be
achieved. Vialta undertakes no obligation to release publicly
any updates or revisions to any forward-looking statements to
reflect events or circumstances occurring after the date of this
report.
3
PART I
Item 1: Business
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call.
On March 29, 2005, we announced a definitive agreement to
merge with Victory Acquisition Corp., a newly formed entity
established by Fred S.L. Chan, Chairman of the Company, and
certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for
$0.36 per share in cash. The merger is expected to be
completed in the second quarter of 2005 and is subject to Vialta
shareholder and customary approvals.
We were incorporated in April 1999 as a wholly owned subsidiary
of ESS Technology, Inc. (ESS). In August 2001, we
were spun off from ESS Technology, Inc. and operate as a
stand-alone entity.
See Item 8 Financial Statements and Supplementary
Data for additional financial information regarding our
business.
Products
We have developed and introduced two distinct product lines:
Beamer videophones and VistaFrame, both designed to offer
greater convenience and ease-of-use to consumers.
Our Beamer videophone products include models that are
standalone (such as our first videophone product known as
Beamer) or connect through most televisions (the Beamer
TVtm),
and may include the ability to send and receive digital pictures
(the Beamer
FXtm).
All of our Beamer videophone products are compatible with any
home phone over any standard (analog) home phone line and
do not require any additional equipment (other than a compatible
television, in the case of Beamer TV) or wiring. In addition,
our Beamer videophone products provide the consumer with three
viewing options (the calling party, the receiving party, or
picture-in-picture) and the ability to adjust the level of
movement fluidity in relation to detail. Our videophone products
also have a snapshot feature that temporarily pauses
any new video transmission, resulting in a higher resolution
image on the LCD or television screen, depending on the model. A
video start feature gives users full control over
initiating the video transmission to another user, for complete
video privacy whenever desired. Beamer won a 2003 Best of
Innovations award in the telephone category from the
Consumer Electronics Association based on criteria consisting of
value to users, aesthetics, innovativeness, and contributions to
quality of life. Beamer also won a 2003 Good Buy
award from Good Housekeeping magazine based on criteria
including ingenuity, value and exceptional performance. In
addition, Beamer TV won a 2004 Best of Innovations Honoree
Award from the Consumer Electronics Association.
During 2004, we announced that we had developed a broadband
version of our Beamer videophone and that field-testing and
public availability of a broadband Beamer videophone would occur
before the end of 2004. We have delayed field-tests of our
broadband videophone products while we continue to refine and
test prototypes of these products. We currently expect to
field-test our broadband videophone products with a few select
broadband service providers in the second half of 2005. We
expect commercial introduction of broadband versions of our
Beamer videophone products to occur in 2006.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
4
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect.
Sales and Marketing
We began nationwide retail distribution of our first Beamer
videophone during the third quarter of 2002. Beamer TV, Beamer
FX and VistaFrame began nationwide retail distribution in the
third quarter of 2003. Our Beamer videophone products are
currently carried by retailers such as Best Buy, Frys
Electronics, The Good Guys, The Discovery Channel, Cinmar (The
Frontgate Catalog) and The Sharper Image, among others.
VistaFrame is currently carried by retailers such as The Sharper
Image, The Discovery Channel, Cinmar and The Good Guys. Sales to
The Sharper Image represented 23% and sales to CEC represented
12% of our total revenue in 2004. We market our Beamer
videophone products and VistaFrame to retailers and distributors
in the U.S. market through a combination of our direct
sales force and independent sales representatives. All of our
products may also be purchased directly by consumers from our
on-line web store. In 2004 our retail and marketing initiatives
included targeted print advertising such as in product circulars
and catalogs, special promotions and price rebates. In 2004 we
continued to expand our distribution for our Beamer videophone
products and VistaFrame in the international consumer market
through distributors and strategic partners in such countries as
China, Taiwan, Korea, Greece, Mexico, The Netherlands,
Switzerland, Turkey, The United Kingdom, France, India,
Indonesia, Portugal, South Africa, Spain and Belgium.
To continue to build consumer demand and acceptance for our
products, we expect to continue to provide for retail and
consumer initiatives, including direct mail, e-marketing
campaigns, special promotions and other initiatives. Whenever
possible, we will combine branding with product promotion
opportunities. In addition, we will continue to place an
emphasis on generating favorable press from industry analysts,
trade reporters and the general consumer media.
Product Development
Our product development efforts focus on bringing innovative
digital consumer electronics products to the retail marketplace.
Because much of the core development related to our Beamer
videophone products and VistaFrame has already been completed,
our engineers are engaged in the development of new products and
other improvements and modifications to our existing products.
We are currently continuing the development of our Beamer
videophone products for broadband. We currently expect to
field-test our broadband videophone products with a few select
broadband service providers in the second half of 2005 and we
expect commercial introduction of broadband versions of our
Beamer videophone products to occur in 2006.
Intellectual Property
We rely on a combination of patent, trademark and copyright law,
trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to
protect proprietary rights. We have filed two patent
applications, one to cover proprietary functions and digital
encoder and decoder solutions for ViDVD, a product we
discontinued in 2002 and another to cover audio compression
technology. In addition, we have filed similar applications in
Taiwan and under the Patent Cooperation Treaty. To date, none of
the patents have been issued.
We have filed trademark applications in the U.S., Brazil,
Canada, China, the European Union, Hong Kong, Japan, Singapore
and Taiwan. The marks for which we have filed applications
include, among others, the Vialta logo, Beamer, Phone Video
Station, PVS and Viewphone.
In connection with our spin-off by ESS, we entered into a master
technology ownership and license agreement with ESS, pursuant to
which we and ESS acknowledged the specific technology and
trademarks related to our business that are owned by us.
At the time of our formation, we entered into several
intellectual property agreements with ESS. We purchased from ESS
all of ESS proprietary rights and benefits conferred under
U.S. laws with respect to its videophone business. The
master technology ownership and license agreement supercedes
prior intellectual
5
property and research and development agreements between ESS and
us. In addition, we entered into a purchase agreement under
which ESS agreed to provide us with semiconductor products.
Financial information regarding our related party transactions
with ESS are set forth in Note 9 of the Notes to
Consolidated Financial Statements in Item 8 of this report.
Manufacturing
We have developed all of our products internally and outsource
manufacturing. Our Beamer videophone products and VistaFrame are
currently manufactured by two contract manufacturers located in
China. We believe these manufacturers will provide us with
sufficient manufacturing capacity to meet our current product
demand. Our quality assurance engineers are located in China to
oversee our contract manufacturers. We outsource import and
export logistics, including clearance of Chinese and
U.S. customs and ocean freight. We currently handle
warehousing and all shipments to retail distribution centers,
individual retailers and individual customers purchasing our
products online.
Seasonality
Our operating results are subject to seasonality and to
quarterly and annual fluctuations. Domestic consumer electronic
product sales have traditionally been much higher during the
holiday shopping season than during other times of the year. Our
domestic sales this past year reflected this anticipated
seasonality.
Competition
Our Beamer videophone products compete directly with several
other companies in the videophone market that offer products
delivering similar features. We believe none of these companies
has secured nationwide retail distribution relationships. The
majority of our competitors videophone products are
primarily available through specialized retailers and websites.
Furthermore, the majority of other videophone models have been
integrated with handsets and have a significantly higher per
unit retail price than our Beamer videophone products. We
believe the key competitive factors for videophone products are
price, cost to use, quality of the video (especially moving
images), retail distribution, brand awareness and ease of
installation and use. We believe that among manufacturers of
videophones that use analog phone lines, we compete favorably on
the basis of price, video quality, product availability and ease
of installation and use. In addition, we face competition from
other video communication products utilizing Internet and
broadband connections and digital camera cellular telephones.
Internet and broadband products, which frequently are priced
less than our Beamer videophone products, utilize a personal
computer or television, currently require subscription to an ISP
and may require additional subscription services. These products
may also be interoperable with users of competitive products,
provide multiple transmission and storage options, and act as a
digital camera. Digital camera cellular telephones only offer
still picture transmission or reception and require a digital
cellular connection. Many of the current and prospective
competitors in this market are larger, better known and have
greater resources and experience than us.
VistaFrame competes directly with several other companies in the
digital picture frame market that offer products that are
similar to VistaFrame. The majority of these products are
primarily available through specialized or regional retailers
and websites. In addition other digital picture frame products
either have limited digital camera memory card compatibility or
require a phone line connection and a fee-based subscription
service in order to download pictures into the frame.
Financial Information about Segments and Geographic Areas
We operate as one business segment in two geographic
areas domestic and international. Financial
information about our business and geographic areas is set forth
in Note 14 of the Notes to Consolidated Financial
Statements in Item 8 of this report.
6
Employees
As of February 28, 2005, we had 38 employees, including 11
in research and development, 6 in marketing, sales and support,
12 in manufacturing and operations and 9 in finance and
administration.
Item 2: Properties
As of February 28, 2005, our corporate headquarters
occupies approximately 31,000 square feet of a building
located in Fremont, California, under a lease from ESS that
expires in July 2005. We also lease office space for a
development center in Hong Kong. We believe that our existing
facilities are adequate for our current needs. We believe that,
if necessary, we will be able to renew our lease prior to its
expiration in July 2005 or we will be able to find adequate
office space elsewhere in the area at comparable rates.
Item 3: Legal
Proceedings
We are not a party to any litigation at the present time.
Item 4: Submission of
Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended
December 31, 2004.
7
PART II
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Item 5: |
Market for the Registrants Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity
Securities |
Our common stock has been quoted on the OTC Bulletin Board
under the symbol VLTA since August 21, 2001.
The following table sets forth the high and low bid prices for
the common stock as reported by the OTC Bulletin Board
during the periods indicated. Such prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
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High | |
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Low | |
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Fiscal 2002:
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First Quarter ended March 31, 2002
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$ |
1.50 |
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$ |
1.01 |
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Second Quarter ended June 30, 2002
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$ |
1.07 |
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$ |
0.45 |
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Third Quarter ended September 30, 2002
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$ |
1.18 |
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$ |
0.59 |
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Fourth Quarter ended December 31, 2002
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$ |
0.72 |
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$ |
0.26 |
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Fiscal 2003:
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First Quarter ended March 31, 2003
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$ |
0.45 |
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$ |
0.30 |
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Second Quarter ended June 30, 2003
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$ |
0.51 |
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$ |
0.28 |
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Third Quarter ended September 30, 2003
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$ |
0.49 |
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$ |
0.33 |
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Fourth Quarter ended December 31, 2003
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$ |
0.81 |
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$ |
0.35 |
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Fiscal 2004:
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First Quarter ended March 31, 2004
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$ |
0.70 |
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$ |
0.32 |
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Second Quarter ended June 30, 2004
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$ |
0.39 |
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$ |
0.32 |
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Third Quarter ended September 30, 2004
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$ |
0.35 |
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$ |
0.23 |
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Fourth Quarter ended December 31, 2004
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$ |
0.25 |
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$ |
0.16 |
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As of March 7, 2005, there were approximately 329 record
holders of our common stock.
We have never declared or paid any cash dividends on our common
stock. We currently anticipate that we will retain any earnings
for use in our business, and we do not anticipate paying any
cash dividends in the foreseeable future.
8
Item 6: Selected
Consolidated Financial Data
You should read the selected consolidated financial data set
forth below in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
related notes included elsewhere in this report. The selected
consolidated statement of operations data set forth below is
derived from our audited consolidated financial statements. The
information below is not necessarily indicative of the results
of operations to be expected for any future period.
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Years Ended December 31, | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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2000 | |
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(In thousands, except per share amounts) | |
Consolidated Statement of Operations Data:
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Revenue, net
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$ |
12,747 |
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$ |
10,331 |
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$ |
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$ |
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$ |
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|
Cost of good sold
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8,022 |
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2,941 |
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Gross profit
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4,725 |
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7,390 |
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Operating expenses:
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Product costs
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10,421 |
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Engineering and development
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1,247 |
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2,557 |
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13,264 |
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25,250 |
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19,558 |
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Sales and marketing
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2,011 |
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4,427 |
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3,100 |
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3,738 |
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2,927 |
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General and administrative
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4,573 |
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5,753 |
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5,643 |
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9,301 |
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6,699 |
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Amortization and impairment of content licenses
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11,395 |
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Total operating expenses
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7,831 |
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12,737 |
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43,823 |
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38,289 |
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29,184 |
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Operating loss
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(3,106 |
) |
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(5,347 |
) |
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(43,823 |
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(38,289 |
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(29,184 |
) |
Interest income, net
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717 |
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733 |
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1,244 |
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3,606 |
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7,688 |
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Gain on investment
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571 |
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Other income (expense)
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(1,266 |
) |
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(1,682 |
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Loss before income tax benefit
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(2,389 |
) |
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(4,043 |
) |
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(42,579 |
) |
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(35,949 |
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|
(23,178 |
) |
Income tax benefit
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260 |
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Net loss
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$ |
(2,389 |
) |
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$ |
(4,043 |
) |
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$ |
(42,579 |
) |
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$ |
(35,949 |
) |
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$ |
(22,918 |
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Net loss per share:
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Basic and diluted
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$ |
(0.03 |
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$ |
(0.05 |
) |
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$ |
(0.51 |
) |
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$ |
(0.83 |
) |
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$ |
(3.68 |
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Weighted average common shares outstanding:
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Basic and diluted
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82,930 |
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|
82,285 |
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|
83,578 |
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|
43,248 |
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|
6,222 |
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December 31, | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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2000 | |
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(In thousands) | |
Consolidated Balance Sheet Data:
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Cash and cash equivalents and short-term investments
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$ |
18,402 |
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$ |
24,308 |
|
|
$ |
32,701 |
|
|
$ |
67,428 |
|
|
$ |
136,490 |
|
Restricted cash
|
|
|
3,057 |
|
|
|
2,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
22,261 |
|
|
|
25,365 |
|
|
|
30,201 |
|
|
|
66,830 |
|
|
|
109,870 |
|
Total assets
|
|
|
29,402 |
|
|
|
37,114 |
|
|
|
40,327 |
|
|
|
83,866 |
|
|
|
153,691 |
|
Total current liabilities
|
|
|
3,753 |
|
|
|
9,061 |
|
|
|
7,949 |
|
|
|
3,587 |
|
|
|
33,594 |
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,600 |
|
Total stockholders equity (deficit)
|
|
|
25,649 |
|
|
|
28,053 |
|
|
|
32,378 |
|
|
|
80,279 |
|
|
|
(22,503 |
) |
9
Item 7: Managements
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion includes forward-looking statements
with respect to our future financial performance. Actual results
may differ materially from those currently anticipated depending
on a variety of factors, including those described below under
the sub-heading, Cautionary Statement Regarding
Forward-Looking Statements as well as Other Factors
That May Affect Our Business and Future Results and the
risks discussed in our most recent filing with the Securities
and Exchange Commission. This following discussion should be
read in conjunction with the Selected Consolidated Financial
Data and the Consolidated Financial Statements and notes thereto
that appear elsewhere in this report.
Overview
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call. Our Beamer videophone products include
models that are standalone (such as our first videophone product
known as Beamer) or connect through most televisions (the Beamer
TVtm),
and may include the ability to send and receive digital pictures
(the Beamer
FXtm).
Our Beamer videophone products are currently carried by
retailers such as Best Buy, Frys Electronics, The Good
Guys, The Discovery Channel, Cinmar (The Frontgate Catalog) and
The Sharper Image, among others.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect. VistaFrame is currently carried by retailers
such as The Sharper Image, The Discovery Channel, Cinmar and The
Good Guys.
Since our inception, we have financed our operations primarily
from funds raised in private offerings of convertible preferred
stock and common stock and through vendor credit. For the years
ended December 31, 2004, 2003, and 2002 we had net losses
of $2.4 million, $4.0 million and $42.6 million,
respectively, and expect to incur losses in 2005. As of
December 31, 2004, we had an accumulated deficit of
$109.1 million.
On March 29, 2005, we announced a definitive agreement to
merge with Victory Acquisition Corp., a newly formed entity
established by Fred S.L. Chan, Chairman of the Company, and
certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for
$0.36 per share in cash. The merger is expected to be
completed in the second quarter of 2005 and is subject to Vialta
shareholder and customary approvals.
Results of Operations
|
|
|
For the year ended December 31, 2004 compared with
the year ended December 31, 2003 |
Net revenue. Net revenue was $12.7 million for the
year ended December 31, 2004 compared to $10.3 million
for the year ended December 31, 2003. The revenue growth
was substantially driven by an increase in units sales
volume. Net revenue included $9.3 million in domestic sales
for 2004 compared to $7.1 million for 2003 and
$3.4 million in international sales for 2004 compared to
$3.2 million for 2003. Net revenue from sales of our Beamer
videophone products accounted for 73% of total net revenue. The
increase in net revenue reflected the recognition in 2004 of
$5.2 million of revenue deferred at December 31, 2003,
compared to $3.2 million of revenue that was deferred at
December 31, 2002 and that was recognized in fiscal 2003.
At December 31, 2004 the Company had $3.1 million in
deferred revenue. For the fiscal year 2004, The Sharper Image
and CEC accounted for approximately 23% and 12%, respectively,
of our net revenue. For the
10
fiscal year 2003, Best Buy and CEC accounted for approximately
18% and 16%, respectively, of our net revenue.
Cost of goods sold. Cost of goods sold was
$8.0 million for the year ended December 31, 2004
compared to $2.9 million for the year ended
December 31, 2003. This increase is primarily due to
additional inventory reserves of $3.4 million on raw
material and finished goods inventory, which was recorded during
the third quarter of 2004. In addition, during the second half
of 2004 product costs were recorded at full cost as compared to
the first half of 2004 and fiscal 2003 where 56% and 83%,
respectively, of our inventory costs for our Beamer videophone
products were expensed in prior periods. At September 30,
2002, we had no historical experience selling Beamer (our first
videophone Product) and there was significant uncertainty
regarding our ability to recover costs incurred in building
inventories related to Beamer. As a result, we expensed Beamer
inventory costs as incurred through the third quarter of 2002.
Following the nationwide commercial launch of Beamer, we began
to capitalize the additional value of Beamer inventory costs in
the fourth quarter of 2002. Because a significant portion of our
inventory for raw materials and finished goods for our Beamer
videophone products was expensed in prior periods, cost of goods
sold for the years ended December 31, 2004 and 2003 was
lower than what would otherwise have been recorded.
Gross profit. Gross profit was $4.7 million for the
year ended December 31, 2004 compared to $7.4 million
for the year ended December 31, 2003. If we had not
previously expensed inventory costs, our gross profit would have
been approximately $2.0 million for the year ended
December 31, 2004.
Engineering and development. Engineering and development
expenses were $1.2 million for the year ended
December 31, 2004, compared to $2.6 million for the
year ended December 31, 2003. The decrease was primarily
due to reductions in engineering and development personnel and a
decrease in depreciation expense due to equipment being fully
depreciated. We expect engineering and development expenses to
remain constant in future periods.
Sales and marketing. Sales and marketing expenses were
$2.0 million for the year ended December 31, 2004,
compared to $4.4 million for the year ended
December 31, 2003. The decrease is primarily due to a
decrease of $2.1 million in television advertising and
promotional campaigns that occurred in the fourth quarter of
2003. There were no comparable television advertising expenses
for the year ended December 31, 2004 and promotion campaign
expenses were lower in the fourth quarter of 2004 compared to
the fourth quarter of 2003. We do not expect an increase in
sales and marketing expenses in future periods, and we currently
do not have the resources to support a significant and sustained
national advertising and consumer awareness program which may be
necessary to maintain or significantly increase sales.
General and administrative. General and administrative
expenses were $4.6 million for the year ended
December 31, 2004, compared to $5.8 million for the
year ended December 31, 2003. The decrease was primarily
due to a reduction in general and administrative personnel, and
decreases in legal expense, insurance and office rent. We expect
general and administrative expenses to remain constant in future
periods.
Interest income and other, net. Interest income and
other, net, was $717,000 for the year ended December 31,
2004, compared to $733,000 for the year ended December 31,
2003.
Gain on Investment. During the fourth quarter of 2003, we
recorded a gain on investments of $571,000. The gain on
investments was attributable to a cash dividend paid to us on
preferred shares we previously acquired in an unrelated company.
Our original investment in this company had been written down to
zero in a prior period. There is no comparable gain for the year
ended December 31, 2004.
|
|
|
For the year ended December 31, 2003 compared with
the year ended December 31, 2002 |
Net revenue. Net revenue was $10.3 million for the
year ended December 31, 2003. There was no revenue for the
year ended December 31, 2002. Included in net revenue for
2003 was approximately $7.1 million in domestic sales and
approximately $3.2 million from international sales. In
addition to revenue generated from our first videophone product,
Beamer, we also recorded domestic net revenue during the fourth
quarter of 2003 from sales activity related to our new products
BeamerTV, BeamerFX (which was introduced in the fourth quarter
of 2003 on a very limited basis) and VistaFrame. Net revenue
from sales of our Beamer
11
videophone products accounted for 97% of total net revenue for
the year ended December 31, 2003. During the first quarter
of 2003, we began to recognize revenue on sales of Beamer, net
of estimated warranty claims and estimated returns. We began
nationwide distribution of Beamer during the third quarter of
2002 and more significant shipments during the fourth quarter of
2002. For most of these shipments, the standard warranty and
return period had not been completed as of December 31,
2002. Due to a limited history of warranty and sales returns for
Beamer, we did not recognize revenue for sales through
December 31, 2002. As a result, revenue for the year ended
December 31, 2003, includes the recognition of deferred
revenue of approximately $3.2 million related to shipments
of Beamer, which were made during the third and fourth quarters
of 2002.
Cost of goods sold. Cost of goods sold was
$2.9 million for the year ended December 31, 2003.
There was no similar expense for the year ended
December 31, 2002. Because a significant portion of our
inventory for raw materials and finished goods for our Beamer
videophone products was expensed in prior periods, cost of goods
sold for the year ended December 31, 2003 was lower than
what would otherwise have been recorded. If we had not
previously expensed inventory costs, our cost of goods sold
would have been $7.8 million for the year ended
December 31, 2003.
Gross profit. Gross profit was $7.4 million for the
year ended December 31, 2003. If we had not previously
expensed inventory costs, our gross profit would have been
approximately $2.5 million for the year ended
December 31, 2003.
Product Costs. Product costs were $10.4 million for
the year ended December 31, 2002. Product costs represent
inventory expenditures for raw materials and finished goods
related to our Beamer videophone products. At September 30,
2002, we had no historical experience selling Beamer (our first
videophone product) and there was significant uncertainty
regarding our ability to recover costs incurred in building
inventories related to Beamer. As a result, we expensed Beamer
inventory costs as incurred through the third quarter of 2002.
Following the nationwide commercial launch of Beamer, we began
to capitalize the additional value of Beamer inventory costs in
the fourth quarter of 2002.
Engineering and development. Engineering and development
expenses were $2.6 million for the year ended
December 31, 2003, compared to $13.3 million for the
year ended December 31, 2002. The decrease was primarily
due to reductions in engineering and development personnel and
other development expenditures as we shifted our focus to sales
and marketing efforts from core development activities. Included
in engineering and development expenses for the year ended
December 31, 2002 were development expenses related to
ViDVD and ViMagazine as well as expenses related to our Internet
Service Provider, known as ViZip. Since all development
activities related to ViDVD, ViMagazine and ViZip were
discontinued during 2002, there were no comparable expenses for
the year ended December 31, 2003.
Sales and Marketing. Sales and marketing expenses were
$4.4 million for the year ended December 31, 2003,
compared to $3.1 million for the year ended
December 31, 2002. The increase in sales and marketing
expenses is primarily due to $2.1 million in television
commercials that aired in certain markets (Los Angeles and
San Francisco) and in-store demonstration programs (in
selected stores and regions), which occurred, in the fourth
quarter of 2003. This increase was partially offset by an
overall decrease in sales and marketing expenses for the year
ended December 31, 2003 when compared to the prior fiscal
year.
General and Administrative. General and administrative
expenses were $5.8 million for the year ended
December 31, 2003, compared to $5.6 million for the
year ended December 31, 2002.
Amortization and Impairment of Content Licenses.
Amortization and impairment of content licenses for ViMagazine
was $11.4 million in the year ended December 31, 2002.
During January 2002, we licensed feature film content from
Artisan Entertainment for $10.0 million to use as part of
our ViMagazine. Starting in the first quarter of 2002, we began
to expense our content licenses, based on the greater of the
royalty amounts due or amortization on a straight-line basis
over an estimated life of three years. During the fourth quarter
of 2002, we concluded that the content licenses had suffered a
permanent decline in value, as a result of our decision not to
market ViMagazine, and the remaining unamortized balance of
$8.3 million was written down to zero. The
$10.0 million license fee to Artisan Entertainment included
a $5.0 million note that matures in April 2005 and would
convert to a license fee if certain events occurred. We continue
to receive current
12
interest payments on the note and, since conversion is unlikely,
we may receive the principal at maturity. If we were to be paid
at maturity we would recognize a gain at that time. There is no
comparable expense for the year ended December 31, 2003.
Interest Income, Net. Interest income was $733,000 for
the year ended December 31, 2003, compared to
$1.2 million for the year ended December 31, 2002. The
decrease in interest income was primarily due to lower cash
balances and lower yields on available-for-sale securities
during the year ended December 31, 2003 as compared to the
year ended December 31, 2002.
Gain on Investment. During the fourth quarter of 2003 we
recorded a gain on investments of $571,000. The gain on
investments was attributable to a cash dividend paid to us on
preferred shares we previously acquired in an unrelated company.
Our original investment in this company had been written down to
zero in a prior period.
Off-Balance Sheet Arrangements
In January 2000, we entered into a three-year non-cancelable
lease agreement for our headquarters with ESS. In July 2003, we
amended the lease. The terms of the amendment include a 60%
reduction in the amount of square footage leased, a reduction in
the monthly rent to current market rates and an extension of the
term from December 31, 2003 to June 30, 2005. Under
the terms of this and other leases, with various expiration
dates through 2006, our future minimum rental payments as of
December 31, 2004 are as follows: $351,000 and $141,000 for
the years 2005 and 2006 respectively.
Apart from operating leases disclosed above, we do not have any
off-balance sheet arrangements.
Liquidity and Capital Resources
As of December 31, 2004, we had $21.5 million in cash
and cash equivalents, restricted cash and short-term investments
compared to $26.5 million as of December 31, 2003,
representing a decrease of $5.0 million.
Our principal sources of liquidity are cash and cash equivalents
and investments. Net cash used in operating activities was
$5.9 million for the year ended December 31, 2004
compared to $7.9 million for the year ended
December 31, 2003, representing a decrease of approximately
$2.0 million. The decrease in cash used in operating
activities was primarily due to a significant reduction in our
operating expenses, combined with cash received from sales of
our products. In addition, our cash flow from operations for the
year ended December 31, 2004 benefited from a decrease in
inventory.
Net cash provided by investing activities for the year ended
December 31, 2004 was $3.8 million compared to
$2.4 million of cash used in investing activities for the
year ended December 31, 2003 representing an increase of
approximately $6.2 million. The increase in net cash
provided by investing activities for the year ended
December 31, 2004 compared to net cash used in investing
activities for the year ended December 31, 2003 was
primarily due to a reduction in purchases and sales of
short-term investments.
Net cash provided by financing activities was insignificant for
the year ended December 31, 2004 compared to
$285,000 net cash used in financing activities for the year
ended December 31, 2003, which was primarily related to
repurchases of our common stock.
Capital expenditures for the 12-month period ending
December 31, 2005 are anticipated to be approximately
$100,000, primarily to acquire capital equipment.
In September 2001, the Board of Directors authorized the
repurchase of up to 10,000,000 shares of our common stock
in open market or private transactions over a twelve-month
period. In June 2002, the Board of Directors authorized the
existing stock repurchase program be extended to include the
repurchase of up to an additional 10,000,000 shares of
common stock. Through December 31, 2003, we repurchased
approximately 11,964,000 shares of common stock at an
aggregate cost of $9.4 million. There were no common stock
repurchases during the year ended December 31, 2004. As of
December 31, 2004, approximately 8,036,000 shares
remain authorized for repurchase.
13
We believe that our existing cash and cash equivalents and
investments will be sufficient to fund our operations through
December 31, 2005. However, to continue our operations
beyond that date, or if our current level of operations change,
or to achieve our longer-term goals of introducing additional
products to consumers, we believe we will need to raise
additional capital, which may not be available on acceptable
terms, if at all. We have historically used vendor credit as
well as private offerings of convertible preferred stock and
common stock to fund operations and provide for capital
requirements. However, the price per share of any future
equity-related financing will be determined at the time the
offering is made and cannot be anticipated at this time. If
additional funds are raised through the issuance of equity
securities, the percentage ownership of current stockholders is
likely to or will be reduced and such equity securities may have
rights, preferences or privileges better than those of current
stockholders. We cannot assure you that any additional financing
will be available or that, if available, it will be sufficient
or it can be obtained on terms favorable to us or our
stockholders. If adequate funds are not available if and when
needed, we would be required to delay, limit or eliminate some
or all of our proposed operations.
Critical Accounting Policies and Estimates
The preparation of financial statements and the related
disclosures in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We base our
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. On an ongoing basis, we evaluate our estimates to
ensure that our estimates remain reasonable under current
conditions. Actual results may differ from these estimates,
which may have a material impact on our results of operations
and financial condition.
Critical accounting policies that require significant judgments
and estimates for the preparation of our consolidated financial
statements are as follows:
Revenue recognition
We generally recognize revenue on products sold to end customers
upon shipment provided that we have no post-sale obligations, we
can reliably estimate and accrue warranty costs and sales
returns, the price is fixed or determinable and collection of
the resulting receivable is reasonably assured. For sales to
international distributors and strategic partners we generally
recognize revenue based on the above criteria and upon receipt
of payment in full. For sales to end customers that do not meet
the above criteria, revenue is deferred until such criteria are
met.
Products sold to retailers and distributors are subject to
rights of return. We defer recognition of revenue on products
sold to retailers and distributors until the retailers and
distributors sell the products to their customers. Revenue is
also deferred for the initial thirty-day period during which our
direct customers, retailers and distributors have the
unconditional right to return products. We recognize revenue
from distributors and some retailers according to information on
shipments to their customers provided by those distributors and
retailers. In determining the appropriate amount of revenue to
recognize, we use this data and apply judgment in reconciling
differences between their reported inventories and activities.
If distributors and retailers incorrectly report their
inventories or activities, or if our judgment is in error, it
could lead to inaccurate reporting of our revenues and deferred
income and net income.
Allowances for sales returns and for doubtful accounts
Sales return allowances are recorded at the time when revenue is
recognized based on historical returns, current economic trends
and changes in customer demands. Such allowances are adjusted
periodically to reflect actual experience and anticipated
returns.
Allowance for doubtful accounts is our best estimate of the
amount of probably credit losses in our existing accounts
receivable. We determine the allowance based on historical
write-off experience. We review our allowance for doubtful
accounts monthly. Past due balances over 90 days and over
are reviewed individually for collectibility. Account balances
are charged off against the allowance when we feel it is
probable that receivable will not be recovered.
14
If these considered factors fail to represent future returns of
our products or collectibility of our accounts receivable, or if
our judgment is in error, it could lead to inaccurate reporting
of our accounts receivables, revenues, deferred profit and net
income.
The following is a summary of activities in allowance for
doubtful accounts and returns (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
Write-offs | |
|
|
|
|
Beginning | |
|
|
|
Net of | |
|
Balance at End | |
|
|
of Year | |
|
Additions | |
|
Recoveries | |
|
of Year | |
|
|
| |
|
| |
|
| |
|
| |
December 31, 2004
|
|
$ |
63 |
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
77 |
|
December 31, 2003
|
|
$ |
30 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
63 |
|
December 31, 2002
|
|
$ |
665 |
|
|
$ |
|
|
|
$ |
(635 |
) |
|
$ |
30 |
|
Warranty
We provide a limited warranty on our products for periods
ranging from 90 days to 12 months from the date of
sale to the end customers. We estimate warranty costs based on
historical experience and accrue for estimated costs as a charge
to cost of sales when revenue is recognized. If these considered
factors fail to represent our future warranty expenses or if our
judgment is in error, it could lead to inaccurate reporting of
our cost of sales and net income.
The following table shows the details of the product warranty
accrual, as required by FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, for the years ended December 31, 2004 and
2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Beginning balance
|
|
$ |
484 |
|
|
$ |
|
|
Accruals for warranties issued during the year
|
|
|
564 |
|
|
|
814 |
|
Settlements made during the year
|
|
|
(649 |
) |
|
|
(330 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
399 |
|
|
$ |
484 |
|
|
|
|
|
|
|
|
Inventories are stated at the lower of cost or market, with cost
being determined by the first-in, first-out method. We record
our inventory reserve for estimated losses based on assumptions
about future demand and market conditions. If actual demand or
market conditions are less favorable than those projected by
management, additional inventory reserves may be required.
We expensed $10.4 million of inventory costs on our Beamer
videophone products, through September 30, 2002. We began
capitalizing our inventory costs in the fourth quarter of 2002
following commercial introduction of our products.
Following the analysis of inventory quantity on hand and
expected demand, additional inventory reserves of
$3.4 million were recorded in fiscal 2004. Additional
inventory reserves may be needed if actual demand or market
conditions are less favorable than managements projections.
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is generally
computed using the straight-line method over the estimated
useful lives of the assets.
|
|
|
|
|
Computer equipment
|
|
|
3-5 years |
|
Furniture and fixtures
|
|
|
5 years |
|
Software and web site development costs
|
|
|
1-3 years |
|
Repairs and maintenance costs are expensed as incurred.
15
The recoverability of property and equipment is evaluated
whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable, primarily
based on estimated selling prices, appraised values or projected
undiscounted cash flows. Our cash flow estimates are based on
historical results adjusted for estimated current industry
trends, the economy and operating conditions. Significant
changes in these estimates and assumptions could result in
impairment changes in the future.
We account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion
No. 25, or APB No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market
price of its stock at the date of grant over the exercise price
of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. We provide
additional pro forma disclosures as required under
SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting
for Stock-Based Compensation, Transition and Disclosure.
Recent Accounting Pronouncements
In November 2004, the FASB has issued FASB Statement
No. 151, Inventory Costs, and Amendment of ARB
No. 43, Chapter 4
(FAS No. 151). The amendments made by
FAS No. 151 are intended to improve financial
reporting by clarifying that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges
and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production
facilities.
The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during
fiscal years beginning after November 23, 2004. The
provisions of FAS No. 151 will be applied
prospectively. We do not expect the adoption of
FAS No. 151 to have material impact on our
consolidated financial position, results of operations or cash
flows.
In December 2004, the FASB issued FASB Statement No. 123R,
Share-Based Payment, an Amendment of FASB Statement
No. 123 (FAS No. 123R).
FAS No. 123R requires companies to recognize in the
statement of operations the grant-date fair value of stock
options and other equity-based compensation issued to employees.
FAS No. 123R is effective beginning our third quarter
of fiscal 2005. We are currently evaluating the impact of
FAS No. 123R on our financial position and results of
operations.
In December 2004, the FASB issued SFAS Statement
No. 153, Exchanges of Nonmonetary Assets. The
Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
impact on its financial statements. We do not expect the
adoption of FAS No. 153 to have material impact on our
consolidated financial position, results of operations or cash
flows.
Other Factors That May Affect Our Business and Future
Results
Our future business, operating results and financial condition
are subject to various risks and uncertainties, including those
described below.
|
|
|
If our products do not achieve broad market acceptance, we
may not be able to continue operating our business. |
We are currently marketing a limited number of products. As a
result, our success is highly dependent upon consumer acceptance
of these products. Consumer acceptance requires, among other
things, that we:
|
|
|
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educate consumers on the advantages of our Beamer videophone
products and VistaFrame; |
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commit a substantial amount of human and financial resources to
support the retail distribution of our products; |
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continue to develop our sales, marketing and support activities
to consumers and retailers; and |
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expand the number and location of retailers carrying our
products. |
We may not achieve any or all of these objectives. As a result
despite our national retail presence, consumers may not be aware
of our products. This could delay or prevent our ability to
achieve broad market acceptance of our products. We do not
currently have the resources to support a significant and
sustained national advertising and consumer awareness program
which may be necessary to significantly increase sales. The
failure of our products to achieve sufficient consumer and
retailer acceptance would impair our ability to continue
operating our business.
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We have incurred net losses and may never achieve
significant revenues or profitability. |
We have incurred losses and have had negative cash flow since
our inception. As of December 31, 2004, we had
$21.5 million in cash and cash equivalents, restricted cash
and short-term investments. For the fiscal year ended
December 31, 2004, we had a net loss of $2.4 million.
We expect to continue to incur losses for the foreseeable
future. The size of these net losses will depend in part on any
future product launches, any growth in sales of our products and
the rate of increase in our expenses. As a result, we will need
to generate significant revenues to achieve profitability.
Several factors, including consumer acceptance, retailer
arrangements and competitive factors make it impossible to
predict when or whether we will generate significant revenues or
attain profitability. Consequently, we may never achieve
significant revenues or profitability, and even if we do, we may
not sustain or increase profitability on a quarterly or annual
basis in the future.
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It may take a substantial amount of time and resources to
achieve broad market acceptance of our products, and we cannot
be sure that these efforts will generate the level of broad
market acceptance necessary to generate sufficient revenues to
sustain our business. |
The current videophone end-user market is relatively small.
Although videophones have been commercially available for many
years, previous videophone models have had high retail prices,
limited retail distribution, limited functionality, poor video
quality and have been integrated with a handset. Even though we
believe our Beamer videophone products have addressed many of
the limitations associated with videophones and videophone
technology, consumer demand remains low and may not increase.
Similar to the videophone end-user market, the digital picture
frame market is small and only a recent phenomenon resulting
from the growth of the digital camera market. Although
VistaFrame is compatible with most standard digital camera
memory card formats and does not require a camera or computer
connection, special wiring or web based services, consumer
demand is low and may not increase. Even after educating
consumers on the features of our products, consumers may still
perceive little or no benefit or may already own other products
that provide similar benefits or functionality. As a result,
consumers may not value, or may be unwilling to purchase, our
products at profitable prices. We also do not have an
established brand image, and the expense of a national
advertising campaign to build and sustain brand awareness is not
within our reach. Accordingly, to develop market acceptance of
our products, we will need to devote a substantial amount of
resources to educate consumers about the features and benefits
of our products via alternative means including targeted public
relations, promotional campaigns and extensive retail
distribution. However, we cannot assure you that this commitment
of resources will be successful in generating the revenues
required to sustain our business. If we are unsuccessful, the
future of our Company will be in doubt.
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If we are unable to raise additional capital on acceptable
terms, our ability to develop and market our products and
operate our business could be harmed. |
To introduce follow-on products and sustain and grow our
business, we must continue to make significant investments to
develop, enhance and market our products. We will also need
significant working capital to take advantage of future
opportunities and to respond to competitive pressures or
unanticipated requirements. We expect that our existing capital
resources will be sufficient to meet our cash requirements
through
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December 31, 2005, although our current resources could be
exhausted more quickly depending on the payment terms that we
are able to negotiate with our vendors and suppliers and our
success in generating and collecting on accounts receivable. The
magnitude of our future capital requirements will depend on many
factors, including, among others, promotional campaigns,
investments in working capital, and the amount of income, if
any, generated by operations.
When we do need to raise additional capital, that capital may
not be available on acceptable terms, or at all. If we cannot
raise necessary additional capital on acceptable terms, we may
not be able to develop or enhance our products, take advantage
of future opportunities, respond to competitive pressures or
unanticipated requirements or even continue operating our
business.
If additional capital is raised through the issuance of equity
securities, the percentage ownership of our existing
stockholders will decline. Also, if any securities are issued,
our stockholders may experience dilution in net book value per
share, and these securities may have rights, preferences or
privileges superior to those of the holders of our common stock.
Any debt financing, if available, may also require limitations
or restrictions on our operations or future opportunities.
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Our limited operating history may make it difficult for us
or investors to evaluate trends and other factors that affect
our business. |
We were incorporated in April 1999 and have a limited operating
history. As a result of our limited operations, our historical
financial and operating information is of limited value in
evaluating our future potential operating results. In addition,
any evaluation of our business and prospects must be made in
light of the risks and difficulties encountered by start-up
companies developing products in new and rapidly evolving
markets. For example, it may be difficult to accurately predict
our future revenues, costs of revenues, expenses or results of
operations. Our Beamer videophone products, VistaFrame and any
other future products represent new products for most consumers.
It may be difficult to predict the creation of any market or the
growth rate, if any, or size of the market for our existing
products or other new products we may develop. We may be unable
to accurately forecast customer needs or behavior or recognize
or respond to emerging trends, changing preferences or
competitive factors facing us. As a result, we may be unable to
make accurate financial forecasts or adjust our spending in a
timely manner to compensate for any unexpected changes or
revenue shortfall. This inability could cause our results of
operations in a given quarter to be worse than expected, and
could cause the price of our stock to decline.
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We face intense competition from participants in the
consumer electronics market, which may impair our revenues and
ability to generate customers. |
The consumer electronics market is intensely competitive and
rapidly evolving. Existing participants and new entrants in this
market currently offer and may develop and offer additional
products that will compete directly with our existing products
or future products that we may develop.
The consumer electronics industry in particular is characterized
by rapid technological innovation and intense price competition.
The competition for consumer spending and acceptance is also
intense. Our Beamer videophone products compete directly with
several other companies in the videophone market. All of these
companies currently offer videophone products to consumers that
operate over standard (analog) phone lines with no
additional cost to the user, similar to our Beamer videophone
products. In addition to these companies, we face competition
from a competitively priced videophone product that utilizes a
consumers broadband connection (as opposed to a
standard phone line) to deliver a video image over a
consumers television during a phone call. Our Beamer
videophone products also face competition from PC-based Internet
video and from digital camera cellular telephones manufacturers
and potential future offerings from current telephone
manufacturers. Like our Beamer videophones, VistaFrame competes
directly with several other companies in the digital picture
frame marketplace. Although lacking some of the features of our
VistaFrame product, these companies offer digital picture frame
products which provide features similar to VistaFrame.
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In addition, many of the manufacturers and distributors of these
competing products have substantially greater brand recognition,
market presence, distribution channels, financial resources and
promotional and other strategic partners than us.
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If we fail to create consumer demand and consumer
acceptance of our Beamer videophone products and VistaFrame, we
may not be able to generate sufficient revenues to sustain our
business. |
The success of our existing products depends on a number of
factors, including, but not limited to, strategic allocation of
our limited financial and technical resources, accurate
forecasting of consumer demand, timely completion of product
development and introduction to market, and market and industry
acceptance of our future and existing products.
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If we are unable to develop and introduce new products, we
may not be able to generate sufficient revenues to sustain and
grow our business. |
We develop and engineer all of our products in-house. To
introduce follow-on products as well as new products, we must
continue to make investments in product development and
engineering. The development of new products is a time consuming
process and may result in products which, although technically
feasible, may not be commercially viable. In addition,
competitors with greater resources may be able to develop and
introduce new products that could eclipse our development
initiatives and prevent us from introducing similar products. If
we fail to develop new products, we may not be able to sustain
our business.
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We depend on two contract manufacturers and a limited
number of other third parties, including ESS, to manufacture and
supply critical components for our products, and we may be
unable to operate our business if those parties do not perform
their obligations. |
We rely on two contract manufacturers located in China to meet
our current product demand. We also rely on ESS and a limited
number of other third party suppliers for a number of key
components for our products, including modem chips, video chips
and LCD screens. We do not have long-term agreements in place
with our suppliers. We do not control the time and resources
that these suppliers devote to our business. We cannot be sure
that these suppliers will perform their obligations as expected
or that any revenue, cost savings or other benefits will be
derived from the efforts of these parties. Our need for
semiconductors as a key component of our products indirectly
subjects us to a number of risks relating to ESS and any
other future semiconductor suppliers reliance on
independent foundries to produce those semiconductors, including
the absence of adequate capacity, the unavailability of, or
interruption in access to, certain process technologies and
reduced control over delivery schedules, manufacturing yields
and costs, and risks related to the international location of
most major foundries. If any of our third party suppliers
breaches or terminates its agreement with us or otherwise fails
to perform its obligations in a timely manner, we may be delayed
or prevented from launching or marketing our products. Because
our relationships with these parties are non-exclusive, they may
also support products that compete directly with ours, or offer
similar or greater support to our competitors. Any of these
events could require us to undertake unforeseen additional
responsibilities or devote additional resources to commercialize
our products. This outcome would harm our ability to compete
effectively and quickly achieve market acceptance and brand
recognition.
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We may have potential business conflicts of interest with
ESS with respect to the companies ongoing relationships,
and we may not be able to resolve these conflicts on terms
favorable to us. |
Conflicts of interest may arise between ESS and us in a number
of areas relating to ongoing relationships between the
companies, including:
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Although we entered into agreements with ESS that govern our
business relationship after the distribution of our stock to ESS
shareholders, ESS has no obligation to extend the terms of those
agreements beyond their stated duration; |
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ESS may supply semiconductors to competitors, which may affect
ESS capacity to supply semiconductors to us; |
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We may compete with ESS with respect to business opportunities
that are attractive to both companies, and ESS is not restricted
from competing with our business. |
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If we are unable to maintain satisfactory relationships
with, or increase the number of, retailers and distributors that
sell our products, our business will suffer. |
In order to maintain our relationships with retailers and
distributors we may be required to accept arrangements and
terms, which may not be favorable to us. Such terms may include
consignment arrangements, pricing concessions, marketing
incentives, aggressive return allowances, commissions and other
requirements, which could adversely affect the profitability of
our products. In addition, we expect that our retailers and
distributors will sell products offered by our competitors. If
our competitors offer retailers and distributors more favorable
terms or have more products available to meet their needs, those
retailers and distributors may decline to carry or may not
adequately promote our products. Although we are attempting to
increase the number of retailers that market our products to
consumers, there can be no assurance that we will be able to do
so. If we are unable to maintain successful relationships with
distributors and retailers or to expand our distribution
channels, our business may fail.
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We may need to expand our operations for future growth,
and our failure to manage any such growth could disrupt business
and impair our ability to generate revenues. |
We may need to expand our headcount, facilities and
infrastructure to support potential sales growth and to allow us
to pursue market opportunities. This potential expansion could
place a significant strain on our management, operational and
financial resources and systems. Specific risks we face as our
business expands include:
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We may need to attract and retain qualified personnel, and any
failure to do so may impair our ability to offer new products or
grow our business. We may be unable to successfully attract,
integrate or retain sufficiently qualified personnel. If we are
unable to hire, train, retain or manage the necessary personnel,
we may be unable to successfully introduce new products or
otherwise implement our business strategy. |
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We may need to provide acceptable customer support, and any
inability to do so will impair our ability to develop consumer
acceptance of our products. We expect that some of our customers
will require support when using our products. We also anticipate
that purchasers of any future products will require support in
their use of such products. We do not have experience with
widespread deployment of our products to a diverse customer
base, and we may not have adequate personnel to provide the
levels of support that our customers will require. Our failure
to provide adequate customer support for our products will
damage our reputation in the consumer electronics marketplace
and strain our relationships with customers and strategic
partners. This could prevent us from gaining new or retaining
existing customers and could harm our reputation and brand. |
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We may need to improve our operational and financial systems,
procedures and controls to support our expected growth, and any
inability to do so will adversely impact our ability to grow our
business. Our current and planned systems, procedures and
controls may not be adequate to support our future operations
and expected growth. Delays or problems associated with any
improvement or expansion of our operational systems and controls
could adversely impact our relationships with customers and harm
our reputation and brand. |
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Product defects, system failures or interruptions may have
a negative impact on our revenues, reputation and ability to
attract new customers. |
Errors and product defects can result in significant warranty
and repair problems, which could cause customer relations
problems. Correcting product defects requires significant time
and resources, which could delay product releases and affect
market acceptance of our products. Any delivery by us of
products with undetected material product defects could harm our
credibility and market acceptance of our products.
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Our future results could be harmed by economic, political,
regulatory and other risks associated with our reliance on
international sales and operations. |
Our products are currently manufactured, assembled and tested by
two contract manufacturers located in China. In addition, most
of our suppliers are located in China, Hong Kong and Taiwan.
Because of our international operations and relationships, and
our reliance on foreign third-party manufacturing, assembly and
testing operations, we are subject to the risks of conducting
business outside of the United States, including:
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changes in political and strategic relations between China,
Taiwan and the U.S.; |
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changes in foreign currency exchange rates; |
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changes in a specific countrys or regions political
or economic conditions, particularly in China, Taiwan and other
emerging Asian markets; |
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trade protection measures and import or export licensing
requirements; |
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potentially negative consequences from changes in tax laws; |
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difficulty in managing widespread sales and manufacturing
operations; |
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less effective protection of intellectual property. |
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Our success partly depends on our ability to secure and
protect our proprietary rights. |
Our success and ability to compete are partly dependent upon our
internally developed technology. We rely on patent, trademark
and copyright law, trade secret protection and confidentiality
or license agreements with our employees, customers, partners
and others to protect our proprietary rights. However, the steps
we take to protect our proprietary rights may be inadequate. We
have filed two U.S. patent applications, one to cover ViDVD
proprietary functions and digital encoder and decoder solutions
and another to cover digital audio signal compression and
processing. In addition, we have filed corresponding
applications in Taiwan and with the patent cooperation treaty,
which reserves the right to file in foreign countries. To date,
no patents have been issued, and we cannot assure you that any
patents will ever be issued, that any issued patents will
protect our intellectual property or that third parties will not
challenge any issued patents. Moreover, other parties may
independently develop similar or competing technologies designed
around any patents that may be issued to us.
The laws of certain foreign countries in which our products are
or may be designed, manufactured or sold, including various
countries in Asia, may not protect our products or intellectual
property rights to the same extent as do the laws of the U.S.,
and thus make the possibility of piracy of our technology more
likely. We cannot assure you that the steps taken by us to
protect our proprietary information will be adequate to prevent
misappropriation of our technology or that our competitors will
not independently develop technologies that are substantially
equivalent or superior to our technology. Our failure to protect
our proprietary rights could harm our business.
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We may be subject to claims that our intellectual property
infringes upon the proprietary rights of others, and a
successful claim could harm our ability to sell and develop our
products. |
If other parties claim that our products infringe upon their
intellectual property, we could be forced to defend ourselves or
our customers, manufacturers or suppliers against those claims.
We could incur substantial costs to prosecute or defend those
claims. A successful claim of infringement against us, or any
failure or inability of us to develop non-infringing technology
or license the infringed technology on acceptable terms and on a
timely basis, could harm our business, financial condition and
results of operations.
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If we lose key management personnel, we may not be able to
successfully operate our business. |
Our future performance is substantially dependent on the
continued services of our senior management, especially our
Chairman, Fred S.L. Chan, our President and Chief Executive
Officer, Didier Pietri, and other
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key personnel. The loss of any members of our executive
management team and our inability to hire additional executive
management could harm our business and results of operations. We
employ our key personnel on an at-will basis. We do not maintain
key person insurance policies on any of the members of our
executive management team.
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Any future business acquisitions may disrupt our business,
dilute stockholder value or distract management
attention. |
As part of our ongoing business strategy, we may consider
acquisitions of, or significant investments in, additional
businesses that offer or develop products and technologies
complementary to our own. Such acquisitions could materially
adversely affect our operating results and/or the price of our
stock. Acquisitions also entail numerous risks, including:
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difficulty of integrating the operations, products and personnel
of the acquired businesses; |
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potential disruption of our ongoing business; |
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unanticipated costs associated with the acquisition; |
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inability of management to manage the financial and strategic
position of acquired or developed products and technologies; |
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inability to maintain uniform standards, controls, policies and
procedures; and |
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impairment of relationships with employees and customers that
may occur as a result of integration of the acquired business. |
To the extent that shares of our stock or other rights to
purchase stock are issued in connection with any future
acquisitions, dilution to our existing stockholders may result
and our earnings per share may suffer. Any future acquisitions
or strategic investments may not generate additional revenue or
provide any benefit to our business, and we may not achieve a
satisfactory return on our investment in any acquired businesses.
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Laws or regulations that govern the consumer electronics
industry, the telecommunications industry, copyrighted works or
the Internet could expose us to legal action if we fail to
comply or could require us to change our business. |
Because our products are expected to provide our customers with
access to a variety of methods of electronic communication, it
is difficult to predict what laws or regulations will be
applicable to our business. Therefore, it is difficult to
anticipate the impact of current or future laws and regulations
on our business. Among the many regulations that may be
applicable to our business are the following:
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Federal Communications Commission regulations relating to the
electronic emissions of consumer products; |
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Federal Communications Commission regulations relating to
consumer products that connect to the public telephone network; |
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federal export regulations relating to the export of sensitive
computer technologies such as encryption and authentication
software. |
Changes in the regulatory climate or the enforcement or
interpretation of existing laws could expose us to legal action
if we fail to comply. In addition, any of these regulatory
bodies could promulgate new regulations or interpret existing
regulations in a manner that would cause us to incur significant
compliance costs or force us to alter the features or
functionality of our products.
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Our stock may be subject to the requirements for penny
stocks, which could adversely affect your ability to sell and
the market price of our shares. |
Our stock may fit the definition of a penny stock. The
Securities and Exchange Act of 1934 defines a penny stock as any
equity security that is not traded on a national securities
exchange or authorized for
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quotation on The NASDAQ National Market and that has a market
price of less than $5.00 per share, with certain
exceptions. Penny stocks are subject to Rule 15g under the
Securities and Exchange Act of 1934, which imposes additional
sales practice requirements on broker-dealers who sell such
securities. In general, a broker-dealer, prior to a transaction
in a penny stock, must deliver a standardized risk disclosure
document that provides information about penny stocks and the
risks in the penny stock market. The broker-dealer must provide
the customer with current bid and offer quotations for the penny
stock, information about the commission payable to the
broker-dealer and its salesperson in the transaction and monthly
statements that disclose recent price information for each penny
stock in the customers account. Finally, prior to any
transaction in a penny stock, the broker-dealer must make a
special written suitability determination for the purchaser and
receive the purchasers written consent to the transaction
prior to sale. All of these requirements may restrict your
ability to sell our stock and could limit the trading volume of
our stock and adversely affect the price investors are willing
to pay for our stock.
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Our quarterly operating results may fluctuate
significantly, which may adversely affect the market prices of
our stock and could lead to us becoming the target of costly
securities class action litigation. |
We expect our operating results, including any revenues we may
generate, to fluctuate significantly due to a number of factors,
many of which are outside of our control. Therefore, you should
not rely on period-to-period comparisons of results of
operations as an indication of our future performance. It is
possible that in some future periods our operating results may
fall below the expectations of market analysts and investors. In
this event, the market prices of our stock would likely fall.
Factors that may affect our quarterly operating results include:
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consumer awareness and demand for our products; |
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ongoing demand and supply for our products; |
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seasonality and other consumer and advertising trends; |
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changes in the economic terms of our relationships with our
strategic partners; |
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shortfalls in the supply of components necessary for the
manufacture of our products; |
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changes in our pricing policies, the pricing policies of our
competitors and general pricing trends in the consumer
electronics market; |
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unanticipated shortfalls in revenue due to the fact that our
expenses precede associated revenues; |
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changes in estimates of our financial performance or changes in
recommendations by securities analysts; |
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release of new or enhanced products or services or introduction
of new marketing initiatives by us or our competitors; |
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announcements by us or our competitors of the creation or
termination of significant strategic partnerships, joint
ventures, significant contracts, or acquisitions; |
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the market price generally for consumer electronics and retail
industry stocks; |
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market conditions affecting the consumer electronics industry; |
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additions or departures of key personnel; |
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demand for and consumer acceptance of other anticipated future
products offerings; and |
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general economic conditions. |
In the past, securities class action litigation has often been
brought against a company following stock price declines. We may
be the target of similar litigation in the future if the price
of our common stock declines. Securities litigation could result
in substantial costs and diversion of management attention and
resources, all of which could materially harm our business,
financial condition and results of operations.
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Seasonal trends may cause our quarterly operating results
to fluctuate, which may adversely affect the market price of our
stock. |
Domestic consumer electronic product sales have traditionally
been much higher during the holiday shopping season than during
other times of the year. Although predicting consumer demand for
our products and any future products will be very difficult, we
believe that sales of our existing products will be higher
during the holiday shopping season when compared to other times
of the year. We believe we have adequate capital to continue to
operate for the 12-month period ending December 31, 2005.
However, if we are unable to generate sufficient revenues during
the 2005 holiday shopping season, or any future season, we may
not be able to continue our business
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Our historical financial information may not be
representative of our future operating results as a separate
company. |
Our historical financial information does not necessarily
reflect what our financial position, operating results and cash
flows would have been had we been a stand-alone entity during
the periods presented. In addition, our historical information
is not necessarily indicative of what our operating results,
financial position and cash flows will be in the future.
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Conflicts of interest may arise because our Chairman is
also the Chairman of ESS and both he and another director own
securities of both companies. |
Fred S.L. Chan, our Chairman, owns a significant amount of ESS
stock and our stock and options to purchase ESS stock and our
stock. In addition, Matthew K. Fong, a member of our board of
directors, owns ESS stock and options to purchase ESS stock.
Mr. Chan is the Chairman of ESS. These factors could
create, or appear to create, potential conflicts of interest
when these directors are faced with decisions that could have
different implications for ESS and us.
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ESS submitted a request to the Internal Revenue Service
(IRS) to rule that its distribution of our shares to ESS
shareholders was tax-free. The IRS determined that it would not
provide such a ruling. |
The IRS decision not to provide a ruling on the distribution
does not mean that the distribution is taxable. We believe that
the distribution is tax-free. ESS has advised us that they
reported the distribution as tax-free in its federal income tax
filings. ESS has also advised us that it is seeking an opinion
from its tax advisors that the distribution is tax-free. No
assurance can be given that such an opinion will be obtained or
the level of assurance such opinion will provide.
Even if such an opinion is obtained, no assurance can be given
that the IRS will not determine at a later date that the
distribution is taxable. If the IRS determines that the
distribution is taxable, recipients of our stock in distribution
may be required to pay income taxes as a result of the
distribution, with the amount of ordinary income and gain
dependent upon the value of the stock they received and their
share of ESS earnings and profits. Determining whether or
not the distribution will qualify for tax-free status requires a
complex analysis of many factors, including, among others, the
business purpose for the distribution, the nature of the
business to be engaged in by ESS and us following the
distribution, and the extent to which ESS remains in control of
us following the distribution. Because of the fact-intensive
nature of this analysis, there will be substantial uncertainty
as to whether the distribution will qualify for tax-free
treatment.
ACCORDINGLY, WE CANNOT ASSURE RECIPIENTS OF OUR STOCK IN THE
DISTRIBUTION THAT THE IRS WILL NOT SUCCESSFULLY ASSERT THAT THE
DISTRIBUTION IS TAXABLE. IN ADDITION, SUCH RECIPIENTS MAY BE
TAXED BY THE STATE, LOCAL OR FOREIGN JURISDICTION IN WHICH THEY
RESIDE. ACCORDINGLY, ALL RECIPIENTS OF OUR STOCK IN THE
DISTRIBUTION ARE STRONGLY URGED TO CONSULT WITH THEIR OWN
FINANCIAL ADVISORS REGARDING THE POTENTIAL TAX IMPACT TO THEM OF
THE DISTRIBUTION AND TO PREPARE FOR THE SIGNIFICANT POSSIBILITY
THAT THE TRANSACTION WILL BE TAXABLE TO THEM.
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If the distribution is taxable to them, the value of the shares
they received will be treated as taxable ordinary income, return
of cost or as taxable capital gain up to the value of the stock
distributed. If the distribution is taxable, they will incur
this tax whether or not they decide to sell the shares they
receive in the distribution. Unless a recipient of shares in the
distribution is required to make quarterly estimated tax
payments to the IRS, this tax would generally have to be paid on
or before the April 15, 2002 due date for the 2001 tax
return. If such recipients do not have the cash available to pay
the tax at or before the time it is due, they may have to sell
all or a portion of their shares of our stock to pay the tax or
risk incurring interest and penalties imposed by the IRS. If
holders of a significant percentage our stock are also forced to
sell in order to pay their taxes, or if there is for any other
reason, a decline in the trading price of our shares following
the distribution, recipients of our stock in the distribution
may have to sell their shares of our stock at a lower price than
they might otherwise have obtained.
Item 7A: Quantitative
and Qualitative Disclosure About Market Risk
Interest Rate Risks. We invest in short-term investments.
Consequently, we are exposed to fluctuations in interest rates
on these investments. Increases or decreases in interest rates
generally translate into decreases and increases in the fair
value of these investments. In addition, the credit worthiness
of the issuer, relative values of alternative investments, the
liquidity of the instrument, and other general market conditions
may affect the fair values of interest rate sensitive
investments. In order to reduce the risk from fluctuation in
rates, we invest in highly liquid governmental notes and bonds
with contractual maturities of less than two years. All of the
investments have been classified as available for sale, and at
December 31, 2004, are recorded at market values.
Fixed income securities are subject to interest rate risk. The
fair value of our investment portfolio would not be
significantly impacted by either a 100 basis point increase
or decrease in interest rate due mainly to the short-term nature
of the major portion of our investment portfolio.
Foreign Exchange Risks. Because our products are
manufactured primarily in Asia, we are exposed to market risk
from changes in foreign exchange rates, which could affect our
results of operations and financial condition. In order to
reduce the risk from fluctuation in foreign exchange rates, our
product sales and all of our arrangements with our third party
manufacturers and component vendors are denominated in
U.S. dollars. We do not engage in any currency hedging
activities.
25
Item 8: Financial
Statements and Supplementary Data
The following documents are filed as part of this Report:
|
|
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|
|
|
|
|
Page | |
|
|
| |
|
|
|
27 |
|
|
|
|
28 |
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|
29 |
|
|
|
|
30 |
|
|
|
|
31 |
|
|
|
|
32 |
|
Financial Statements Schedules
|
|
|
|
|
|
All schedules have been omitted because they are not applicable,
not required, or the information required is included in the
financial statements or notes thereto |
|
|
|
|
|
|
|
47 |
|
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Vialta, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders equity and of cash flows present fairly, in
all material respects, the financial position of Vialta, Inc.
and its subsidiaries at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements 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, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
San Jose, California
March 30, 2005
27
VIALTA, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
7,296 |
|
|
$ |
9,356 |
|
|
Restricted cash
|
|
|
3,057 |
|
|
|
2,226 |
|
|
Short-term investments
|
|
|
11,106 |
|
|
|
14,952 |
|
|
Accounts receivable, net
|
|
|
2,761 |
|
|
|
3,941 |
|
|
Inventories
|
|
|
4,500 |
|
|
|
5,196 |
|
|
Prepaid expenses and other current assets
|
|
|
351 |
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
29,071 |
|
|
|
36,400 |
|
Property and equipment, net
|
|
|
302 |
|
|
|
685 |
|
Other assets
|
|
|
29 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
29,402 |
|
|
$ |
37,114 |
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
373 |
|
|
$ |
1,915 |
|
|
Accrued expenses and other current liabilities
|
|
|
2,070 |
|
|
|
3,149 |
|
|
Deferred profit
|
|
|
1,310 |
|
|
|
3,997 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,753 |
|
|
|
9,061 |
|
|
|
|
|
|
|
|
Commitments (Note 15)
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, $0.001 par value;
30,000 shares authorized, no shares issued and outstanding
(Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 400,000 shares
authorized, 95,017 and 94,702 shares issued, 83,053 and
82,738 shares outstanding
|
|
|
95 |
|
|
|
95 |
|
|
Additional paid-in capital
|
|
|
144,122 |
|
|
|
144,114 |
|
|
Treasury stock
|
|
|
(9,458 |
) |
|
|
(9,458 |
) |
|
Accumulated deficit
|
|
|
(109,098 |
) |
|
|
(106,709 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
(12 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
25,649 |
|
|
|
28,053 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders equity
|
|
$ |
29,402 |
|
|
$ |
37,114 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
28
VIALTA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share | |
|
|
amounts) | |
Revenue, net
|
|
$ |
12,747 |
|
|
$ |
10,331 |
|
|
$ |
|
|
Cost of goods sold
|
|
|
8,022 |
|
|
|
2,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,725 |
|
|
|
7,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
|
|
|
|
|
|
|
|
10,421 |
|
|
Engineering and development
|
|
|
1,247 |
|
|
|
2,557 |
|
|
|
13,264 |
|
|
Sales and marketing
|
|
|
2,011 |
|
|
|
4,427 |
|
|
|
3,100 |
|
|
General and administrative
|
|
|
4,573 |
|
|
|
5,753 |
|
|
|
5,643 |
|
|
Amortization and impairment of content licenses
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,831 |
|
|
|
12,737 |
|
|
|
43,823 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,106 |
) |
|
|
(5,347 |
) |
|
|
(43,823 |
) |
Interest income, net
|
|
|
717 |
|
|
|
733 |
|
|
|
1,244 |
|
Gain on investment
|
|
|
|
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
82,930 |
|
|
|
82,285 |
|
|
|
83,578 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
29
VIALTA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
Accumulated | |
|
Total | |
|
|
|
|
(See Note 8) | |
|
Additional | |
|
|
|
|
|
Other | |
|
Stockholders | |
|
|
|
|
| |
|
Paid In | |
|
Treasury | |
|
Accumulated | |
|
Comprehensive | |
|
Equity | |
|
Comprehensive | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Stock | |
|
Deficit | |
|
Income | |
|
(Deficit) | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at December 31, 2001
|
|
|
85,625 |
|
|
$ |
92 |
|
|
$ |
144,164 |
|
|
$ |
(4,046 |
) |
|
$ |
(60,087 |
) |
|
$ |
156 |
|
|
$ |
80,279 |
|
|
|
|
|
Shares transferred to ESS Technology, Inc
|
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stapled stock options
|
|
|
1,419 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
69 |
|
|
|
1 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
Repurchase of common stock
|
|
|
(4,969 |
) |
|
|
|
|
|
|
|
|
|
|
(5,117 |
) |
|
|
|
|
|
|
|
|
|
|
(5,117 |
) |
|
|
|
|
Income tax benefit on disqualified disposition of stock options
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,579 |
) |
|
|
|
|
|
|
(42,579 |
) |
|
$ |
(42,579 |
) |
|
Unrealized losses on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148 |
) |
|
|
(148 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(42,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
82,756 |
|
|
|
94 |
|
|
|
144,105 |
|
|
|
(9,163 |
) |
|
|
(102,666 |
) |
|
|
8 |
|
|
|
32,378 |
|
|
|
|
|
Exercise of stapled stock options
|
|
|
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
40 |
|
|
|
1 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
Repurchase of common stock
|
|
|
(759 |
) |
|
|
|
|
|
|
|
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
(295 |
) |
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,043 |
) |
|
|
|
|
|
|
(4,043 |
) |
|
$ |
(4,043 |
) |
|
Unrealized gains on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
82,738 |
|
|
|
95 |
|
|
|
144,114 |
|
|
|
(9,458 |
) |
|
|
(106,709 |
) |
|
|
11 |
|
|
|
28,053 |
|
|
|
|
|
Exercise of stapled stock options
|
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
32 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,389 |
) |
|
|
|
|
|
|
(2,389 |
) |
|
$ |
(2,389 |
) |
|
Unrealized losses on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
|
|
(23 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
83,053 |
|
|
$ |
95 |
|
|
$ |
144,122 |
|
|
$ |
(9,458 |
) |
|
$ |
(109,098 |
) |
|
$ |
(12 |
) |
|
$ |
25,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
30
VIALTA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
389 |
|
|
|
1,638 |
|
|
|
6,036 |
|
|
|
Amortization and impairment of content license fees
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables, net
|
|
|
1,180 |
|
|
|
(2,579 |
) |
|
|
(1,362 |
) |
|
|
|
Related party receivables/payables, net
|
|
|
(154 |
) |
|
|
248 |
|
|
|
97 |
|
|
|
|
Inventories
|
|
|
696 |
|
|
|
(2,362 |
) |
|
|
(2,834 |
) |
|
|
|
Prepaid expense and other assets
|
|
|
378 |
|
|
|
540 |
|
|
|
1,672 |
|
|
|
|
Restricted cash deposit
|
|
|
(831 |
) |
|
|
(2,226 |
) |
|
|
|
|
|
|
|
Deferred profit
|
|
|
(2,687 |
) |
|
|
767 |
|
|
|
3,115 |
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2,467 |
) |
|
|
97 |
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities
|
|
|
(5,885 |
) |
|
|
(7,920 |
) |
|
|
(23,323 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(11,448 |
) |
|
|
(25,835 |
) |
|
|
(36,677 |
) |
|
Proceeds from sales of short-term investments
|
|
|
15,271 |
|
|
|
23,624 |
|
|
|
33,397 |
|
|
Purchase of content licenses
|
|
|
|
|
|
|
|
|
|
|
(10,053 |
) |
|
Acquisition of property and equipment
|
|
|
(6 |
) |
|
|
(191 |
) |
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities:
|
|
|
3,817 |
|
|
|
(2,402 |
) |
|
|
(13,503 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
8 |
|
|
|
10 |
|
|
|
20 |
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(295 |
) |
|
|
(5,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities:
|
|
|
8 |
|
|
|
(285 |
) |
|
|
(5,097 |
) |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,060 |
) |
|
|
(10,607 |
) |
|
|
(41,923 |
) |
Cash and cash equivalents, beginning of the period
|
|
|
9,356 |
|
|
|
19,963 |
|
|
|
61,886 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$ |
7,296 |
|
|
$ |
9,356 |
|
|
$ |
19,963 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale investments
|
|
$ |
(23 |
) |
|
$ |
3 |
|
|
$ |
(148 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
31
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call. Our Beamer videophone products include
models that are standalone (such as our first videophone product
known as Beamer) or connect through most televisions (the Beamer
TV), and may include the ability to send and receive digital
pictures (the Beamer FX). Beamer videophone products are carried
by such retailers as Best Buy, Frys Electronics, The Good
Guys, The Discovery Channel, The Sharper Image and Cinmar (The
Frontgate Catalog), among others.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect. VistaFrame is currently available through
retailers such as The Discovery Channel, The Sharper Image, The
Good Guys and Cinmar, among others.
Since our inception, we have incurred substantial losses and
negative cash flows from operations. We expect operating losses
and negative cash flows from operations to continue for the
foreseeable future and anticipate that losses may increase from
current levels because of additional costs and expenses related
to sales and marketing activities, expansion of operations,
expansion of product offerings and development of relationships
with other businesses. We believe that we have sufficient cash
and cash equivalents, restricted cash and investments to fund
our existing operations through December 31, 2005. However,
in the longer term, failure to generate sufficient revenues,
raise additional capital or reduce spending could have a
material adverse effect on our ability to continue to operate
our business.
|
|
Note 2 |
Summary of Significant Accounting Policies |
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
Vialta, Inc. and our subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
|
|
|
Cash Equivalents and Investments |
We consider all highly liquid investments with an initial
maturity of 90 days or less to be cash equivalents. Cash
equivalents primarily represent money market accounts, recorded
at cost, which approximate their fair value.
32
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments are comprised primarily of debt instruments that
have been classified as available-for-sale. Management
determines the appropriate classification of securities at the
time of purchase and re-evaluates the classification at each
reporting date. Marketable equity and debt securities are
carried at their fair market value based on quoted market prices
as of the balance sheet date. Realized gains or losses are
determined using the specific identification method and are
reflected in income. Net unrealized gains or losses are recorded
directly in stockholders equity except those unrealized
losses that are deemed to be other than temporary, which are
reflected in investment losses.
Investments with maturity dates of 90 days or more at the
date of purchase are classified as short-term investments since
we have the ability to redeem them within the year.
Approximately $3.1 million and $2.2 million of cash at
December 31, 2004 and 2003, respectively is restricted as
collateral for letters of credit to a contract manufacturer and
raw materials supplier.
|
|
|
Fair Value of Financial Instruments |
The reported amounts of certain of our financial instruments,
including cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued expenses and
other current liabilities approximated fair value due to their
short maturities.
Inventories are stated at the lower of cost or market, with cost
being determined by the first-in, first-out method.
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is generally
computed using the straight-line method over the estimated
useful lives of the assets.
|
|
|
|
|
Computer equipment
|
|
|
3-5 years |
|
Furniture and fixtures
|
|
|
5 years |
|
Software and web site development costs
|
|
|
1-3 years |
|
Repairs and maintenance costs are expensed as incurred.
We review long-lived assets based upon an undiscounted cash flow
basis and record an impairment charge whenever events or changes
in circumstances indicate the carrying amount of the assets may
not be fully recoverable. If an asset is considered impaired,
the asset is written down to its estimated fair market value.
|
|
|
Comprehensive Income (Loss) |
Comprehensive income (loss) is defined to include all changes in
equity during a period from non-owner sources. Other
comprehensive income (loss) for the years ended
December 31, 2004 and 2003 was comprised of unrealized
gains (losses) on available-for-sale investment and amounted to
($23,000) and $3,000, respectively.
Products sold to retailers and distributors are subject to
rights of return. We defer recognition of revenue on products
sold to retailers and distributors until the retailers and
distributors sell the products to their
33
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customers. Revenue is also deferred for the initial thirty-day
period during which our end customers, retailers and
distributors have the unconditional right to return products.
For products sold to end customers we generally recognize
revenue upon shipment provided that we have no post-sale
obligations, we can reliably estimate and accrue warranty costs
and sales returns, the price is fixed or determinable and
collection of the resulting receivable is reasonably assured.
For sales to international distributors we generally recognize
revenue based on the above criteria and upon receipt of payment
in full. For sales to end customers that do not meet the above
criteria, revenue is deferred until such criteria are met.
|
|
|
Allowances for Sales Return and for Doubtful
Accounts |
Sales return allowances are recorded at the time when revenue is
recognized based on historical returns, current economic trends
and changes in customer demand. Such allowances are adjusted
periodically to reflect actual experience and anticipated
returns.
Allowance for doubtful accounts is our best estimate of the
amount of probable credit losses in our existing accounts
receivable. We determine the allowance based on historical
write-off experience. We review our allowance for doubtful
accounts monthly. Past due balances over 90 days and over are
reviewed individually for collectibility. Account balances are
charged off against the allowance when we feel it is probable
that receivable will not be recovered.
The following is a summary of activities in allowance for
doubtful accounts and returns (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
Write-offs | |
|
|
|
|
Beginning | |
|
|
|
Net of | |
|
Balance at | |
|
|
of Year | |
|
Additions | |
|
Recoveries | |
|
End of Year | |
|
|
| |
|
| |
|
| |
|
| |
December 31, 2004
|
|
$ |
63 |
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
77 |
|
December 31, 2003
|
|
$ |
30 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
63 |
|
December 31, 2002
|
|
$ |
665 |
|
|
$ |
|
|
|
$ |
(635 |
) |
|
$ |
30 |
|
We provide a limited warranty on our products for periods
ranging from 90 days to 12 months from the date of
sale to the end customers. We estimate warranty costs based on
historical experience and accrue for estimated costs as a charge
to cost of sales when revenue is recognized. The following table
shows the details of the product warranty accrual, as required
by FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, for the
years ended December 31, 2004 and 2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Beginning balance
|
|
$ |
484 |
|
|
$ |
|
|
Accruals for warranties issued during the year
|
|
|
564 |
|
|
|
814 |
|
Settlements made during the year
|
|
|
(649 |
) |
|
|
(330 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
399 |
|
|
$ |
484 |
|
|
|
|
|
|
|
|
34
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Engineering and Development |
Engineering and development costs are expensed as incurred.
Advertising production costs are expensed as incurred. Total
advertising and promotional expenses were approximately
$397,000, $2.3 million, and $430,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
We account for income taxes under the asset and liability
approach that requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences
of timing differences between the carrying amounts and the tax
bases of assets and liabilities. During 2004, we established a
full valuation allowance against our deferred tax assets because
we determined it is more likely than not that these deferred tax
assets will not be realized in the foreseeable future.
|
|
|
Foreign Currency Translation |
The functional currencies of our foreign subsidiaries are the
local currencies. Accordingly, all assets and liabilities of the
foreign operations are translated to U.S. dollars at
current period end exchange rates, and revenues and expenses are
translated to U.S. dollars using average exchange rates in
effect during the period. Currency transaction and translation
gains and losses have not been significant.
Basic net loss per share excludes dilution and is computed by
dividing net loss by the weighted average number of common
shares outstanding for the period. Diluted net income per share
reflects the potential dilution that would occur if securities
or other contracts to issue common stock were exercised or
converted into common stock.
We account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion
No. 25, or APB No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market
price of its stock at the date of grant over the exercise price
of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. We provide
additional pro forma disclosures as required under
SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting
for Stock-Based Compensation, Transition and Disclosure.
35
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on our net loss and
net loss per share if we had recorded compensation costs based
on the estimated grant date fair value as defined by
SFAS No. 123 for all granted stock-based awards (in
thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net loss, as reported
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
Deduct: Stock-based employee compensation expense determined
under fair value based method for all awards
|
|
|
(672 |
) |
|
|
(1,738 |
) |
|
|
(3,208 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(3,061 |
) |
|
$ |
(5,781 |
) |
|
$ |
(45,787 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
|
Pro forma
|
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.55 |
) |
|
|
|
Revision in Classification of Certain Securities |
In connection with preparation of these financial statements, we
concluded that it was appropriate to classify our auction rate
securities as current investments. Previously, such investments
had been classified as cash and cash equivalents. Accordingly,
we have revised the classification to exclude $5.3 million
and $4.4 million from cash and cash equivalents at
December 31, 2004 and 2003, respectively, and to include
such amounts as short-term investments. In addition, we have
made corresponding revisions to the accompanying statements of
cash flows to reflect the purchases and proceeds form sale of
the auction rate securities as investing activities. These
revisions resulted in a net decrease in cash provided by
investing activities of $900,000 in 2004, net increase in cash
used in investing activities of $2.5 million in 2003 and
net increase in cash used in investing activities of
$1.9 million in 2002. These revisions had no impact on
previously reported results of our operation, operating cash
flows or working capital.
|
|
|
Recent Accounting Pronouncements |
In November 2004, the FASB has issued FASB Statement
No. 151, Inventory Costs, and Amendment of ARB
No. 43, Chapter 4
(FAS No. 151). The amendments made by
FAS No. 151 are intended to improve financial
reporting by clarifying that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges
and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production
facilities.
The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during
fiscal years beginning after November 23, 2004. The
provisions of FAS No. 151 will be applied
prospectively. We do not expect the adoption of
FAS No. 151 to have material impact on our
consolidated financial position, results of operations or cash
flows.
In December 2004, the FASB issued FASB Statement No. 123R,
Share-Based Payment, an Amendment of FASB Statement
No. 123 (FAS No. 123R).
FAS No. 123R requires companies to recognize in the
statement of operations the grant-date fair value of stock
options and other equity-based compensation issued to employees.
FAS No. 123R is effective beginning our third quarter
of fiscal 2005. We are currently evaluating the impact of
FAS No. 123R on our financial position and results of
operations.
In December 2004, the FASB issued SFAS Statement
No. 153, Exchanges of Nonmonetary Assets. The
Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
impact on its financial statements. We do not expect the
adoption of
36
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FAS No. 153 to have material impact on our
consolidated financial position, results of operations or cash
flows.
|
|
Note 3 |
Risks and Uncertainties |
We operate in a single business segment that is characterized by
rapid technological advances, changes in customer requirements
and evolving industry standards. Any failure by us to anticipate
or respond to changes in demand could have a material adverse
effect on our business and operating results.
Certain of our products contain critical components supplied by
a single or a limited number of third parties. We have been
required to purchase and inventory certain of the components
around which we design our products to ensure an available
supply of products for our customers. Any significant shortage
of critical components or the failure of the third party
suppliers to maintain or enhance these products could materially
adversely affect our results of operations.
Currently, we rely on two third party manufacturers for the
manufacture of our products. Reliance on third-party
manufacturers involves a number of risks, including the lack of
control over the manufacturing process and the potential absence
or unavailability of adequate capacity. If our third party
manufacturers cannot or will not manufacture our products in
required volumes, on a cost-effective basis, in a timely manner,
or at all, we will have to secure additional manufacturing
capacity. Even if the additional capacity is available at
commercially acceptable terms, the qualification process could
be lengthy and could cause interruptions in product shipments.
Factors that could impact our future business, consolidated
financial position, results of operations or cash flows and
cause future results to differ from our expectations include the
following: the merger with Victory Acquisition Corp. not
occurring or not closing within the expected time frame; the
ability to achieve revenues and profitability; the ability to
raise additional capital; competition; pricing pressures; the
dependence on a limited number of products and the need to
develop new products and features; the success of our existing
products and other consumer products we may develop; component
supply shortages; potential conflicts with ESS Technology, Inc.,
our former parent; the success of current distribution and
retail relationships and the ability to enter into additional
distribution agreements; risks associated with the expansion of
our business, including increased costs and the strain on
management and other resources; the risk of product defects,
system failures or interruptions; general economic, political
and regulatory changes including in Asia; claims by third
parties of intellectual property infringement; dependence on key
management personnel and the need to attract and retain
additional qualified personnel; risks associated with possible
business acquisitions; regulatory changes that affect consumer
electronics, telecommunications, copyrights or the internet;
quarterly fluctuations in operating results; risks of class
action lawsuits based on fluctuations in our stock price; and
seasonal trends.
Three customers comprise 62% of our gross accounts receivable
balance of $2.8 million at December 31, 2004. These
customers represented 9%, 24% and 29% of total accounts
receivable. Three customers comprise 44% of our net revenue of
$12.7 million for the year ended December 31, 2004.
These customers represented 23%, 12% and 9% of total net revenue.
37
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4 |
Marketable Securities |
Our portfolio of marketable securities at December 31,
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Available-for-Sale Securities | |
|
Available-for-Sale Securities | |
|
|
| |
|
| |
|
|
|
|
Gross |
|
Gross | |
|
|
|
|
|
Gross | |
|
Gross |
|
|
|
|
|
|
Unrealized |
|
Unrealized | |
|
|
|
|
|
Unrealized | |
|
Unrealized |
|
|
|
|
Cost | |
|
Gains |
|
Losses | |
|
Fair Value | |
|
Cost | |
|
Gains | |
|
Losses |
|
Fair Value | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
Money market funds
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2 |
|
Commercial paper
|
|
|
2,542 |
|
|
|
|
|
|
|
|
|
|
|
2,542 |
|
|
|
4,101 |
|
|
|
|
|
|
|
|
|
|
|
4,101 |
|
Cash
|
|
|
4,750 |
|
|
|
|
|
|
|
|
|
|
|
4,750 |
|
|
|
5,253 |
|
|
|
|
|
|
|
|
|
|
|
5,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$ |
7,296 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,296 |
|
|
$ |
9,356 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market auction preferred securities
|
|
$ |
5,300 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,300 |
|
|
$ |
4,400 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,400 |
|
U.S. government debt securities
|
|
|
4,741 |
|
|
|
|
|
|
|
(10 |
) |
|
|
4,731 |
|
|
|
3,470 |
|
|
|
10 |
|
|
|
|
|
|
|
3,480 |
|
Corporate debt securities
|
|
|
1,077 |
|
|
|
|
|
|
|
(2 |
) |
|
|
1,075 |
|
|
|
7,071 |
|
|
|
1 |
|
|
|
|
|
|
|
7,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$ |
11,118 |
|
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
11,106 |
|
|
$ |
14,941 |
|
|
$ |
11 |
|
|
$ |
|
|
|
$ |
14,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 |
Content Licenses |
During 2002 and 2001, we entered into licensing agreements with
various entertainment content providers in connection with
ViMagazine, a proprietary, encrypted, magazine-style DVD-format
disk, which was designed to contain a wide variety of
entertainment that could be used exclusively with our ViDVD
players. Starting in January 2002, we amortized prepaid content
licenses based on the greater of the royalty amounts due or
amortization on a straight-line basis over an estimated life of
three years. In December 2002 we concluded that content licenses
had suffered a permanent decline in value, as a result of our
decision not to market ViMagazine, and the remaining unamortized
balance was written down to zero. The total amortization and
impairment charge on content licenses recognized by us during
the year ended December 31, 2002 was $11.4 million.
In connection with the acquisition of certain content licenses
in 2002, we received a note receivable of $10 million, of
which $5 million remained outstanding as of
December 31, 2004 and 2003. This note bears interest at
7.5% per annum, compounded quarterly. This note was fully
reserved in 2002 due to uncertainties regarding its collection.
If we collect this note, we will record a gain in the period in
which it is collected. During years ended December 31,
2004, 2003 and 2002, we received interest payments on this note
of $384,000, $380,000 and $286,000, respectively.
38
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6 |
Inventories and Product Costs |
The following table summarizes the activity in inventories and
reserves for the years ended December 31, 2003 and 2004 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Reserve | |
|
Net | |
|
|
| |
|
| |
|
| |
As of December 31, 2002
|
|
$ |
11,866 |
|
|
$ |
(9,032 |
) |
|
$ |
2,834 |
|
|
Purchase of inventories
|
|
|
5,369 |
|
|
|
|
|
|
|
5,369 |
|
|
Shipments, net
|
|
|
(7,361 |
) |
|
|
4,603 |
|
|
|
(2,758 |
) |
|
Use or disposal of inventories
|
|
|
(542 |
) |
|
|
293 |
|
|
|
(249 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003
|
|
|
9,332 |
|
|
|
(4,136 |
) |
|
|
5,196 |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of inventories
|
|
|
10,906 |
|
|
|
|
|
|
|
10,906 |
|
|
Additional reserves
|
|
|
|
|
|
|
(3,390 |
) |
|
|
(3,390 |
) |
|
Shipments, net
|
|
|
(10,205 |
) |
|
|
2,395 |
|
|
|
(7,810 |
) |
|
Use or disposal of inventories
|
|
|
(493 |
) |
|
|
91 |
|
|
|
(402 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004
|
|
$ |
9,540 |
|
|
$ |
(5,040 |
) |
|
$ |
4,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Raw material
|
|
$ |
4,041 |
|
|
$ |
(1,615 |
) |
|
$ |
2,426 |
|
|
Finished goods
|
|
|
5,499 |
|
|
|
(3,425 |
) |
|
|
2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,540 |
|
|
$ |
(5,040 |
) |
|
$ |
4,500 |
|
|
|
|
|
|
|
|
|
|
|
Included in cost of goods sold for the year ended
December 31, 2004 was $3.4 million in additional
reserves for slow moving and obsolete finished goods inventory
related to our products. During the year ended December 31,
2004 cost of goods sold was higher than what would have been
recognized had these additional reserves not been recorded. In
addition, because a portion of our inventory costs for our
Beamer videophone products were expensed in prior periods, the
cost of goods sold for the years ended December 31, 2004
and 2003 was lower than what would have been recorded had
inventory costs not been previously expensed.
Prior to September 30, 2002, all inventory costs were fully
reserved because of the significant uncertainties regarding
realization. As there were no sales, the expense was classified
as product cost under operating expenses in the statement of
operations.
39
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7 |
Other Balance Sheet Components (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Short-term investments
|
|
|
|
|
|
|
|
|
US Government debt securities
|
|
$ |
4,731 |
|
|
$ |
3,480 |
|
Market auction preferred securities
|
|
|
5,300 |
|
|
|
4,400 |
|
Corporate debt securities
|
|
|
1,075 |
|
|
|
7,072 |
|
|
|
|
|
|
|
|
|
|
$ |
11,106 |
|
|
$ |
14,952 |
|
|
|
|
|
|
|
|
Due after one year
|
|
$ |
3,385 |
|
|
$ |
3,989 |
|
Due within one year
|
|
|
7,721 |
|
|
|
10,963 |
|
|
|
|
|
|
|
|
|
|
$ |
11,106 |
|
|
$ |
14,952 |
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
2,838 |
|
|
$ |
4,004 |
|
Less: Allowance for doubtful accounts
|
|
|
(77 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,761 |
|
|
$ |
3,941 |
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$ |
207 |
|
|
$ |
308 |
|
Other receivables from supplier
|
|
|
|
|
|
|
296 |
|
Other current assets
|
|
|
144 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
$ |
351 |
|
|
$ |
729 |
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$ |
1,037 |
|
|
$ |
5,918 |
|
Furniture and fixtures
|
|
|
551 |
|
|
|
561 |
|
Software and web site development cost
|
|
|
259 |
|
|
|
5,323 |
|
|
|
|
|
|
|
|
|
|
|
1,847 |
|
|
|
11,802 |
|
Less: Accumulated depreciation
|
|
|
(1,545 |
) |
|
|
(11,117 |
) |
|
|
|
|
|
|
|
|
|
$ |
302 |
|
|
$ |
685 |
|
|
|
|
|
|
|
|
Accrued liabilities and other
|
|
|
|
|
|
|
|
|
Accrued compensation costs
|
|
$ |
880 |
|
|
$ |
1,241 |
|
Customer deposits
|
|
|
12 |
|
|
|
764 |
|
Product return/warranty liability
|
|
|
399 |
|
|
|
484 |
|
Accrued charges, related party
|
|
|
127 |
|
|
|
281 |
|
Professional fees
|
|
|
274 |
|
|
|
216 |
|
Other current liabilities
|
|
|
378 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
$ |
2,070 |
|
|
$ |
3,149 |
|
|
|
|
|
|
|
|
Deferred profit
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$ |
3,086 |
|
|
$ |
5,198 |
|
Deferred costs
|
|
|
(1,776 |
) |
|
|
(1,201 |
) |
|
|
|
|
|
|
|
Deferred profit
|
|
$ |
1,310 |
|
|
$ |
3,997 |
|
|
|
|
|
|
|
|
40
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8 |
Spin-Off and Recapitalization of Equity |
Prior to August 21, 2001, we were a subsidiary of ESS
Technology, Inc. (ESS). On July 24, 2001, we
were re-capitalized, pursuant to which we separated our common
stock into Class A common stock with 3.8 votes per share
and Class B common stock with one vote per share. Upon
exchange of 5,892,000 shares of common stock for
Class B common stock, we issued 589,000 additional shares
of Class B common stock to non-ESS common stockholders.
Except for the voting power, Class A and Class B
stockholders had the same rights. We authorized
30,000,000 shares of preferred stock and
400,000,000 shares of common stock, 100,000,000 shares
of which are designated Class A common stock, 50,000,000 of
which are designated Class B common stock and 250,000,000
of which are designated non-classified common stock.
As part of the August 21, 2001 spin-off transaction, all
preferred stock owned by ESS converted to Class A common
stock based on a conversion ratio of 1 to 1. All other preferred
stock converted to Class B common stock at a ratio of 1 to
1.1. As a result, 91,000,000 shares of preferred stock were
converted to 60,000,000 shares of Class A common stock
and 34,100,000 shares of Class B common stock.
As part of the spin-off transaction, ESS returned approximately
9,840,000 shares of Class A common stock to us at no
cost. These shares are reserved by us for issuance upon exercise
of stapled options that were granted by us to ESS optionees as
part of the spin-off transaction. In accordance with
FIN No. 44, no compensation expense has been or will
be recorded in conjunction with these stock option grants.
The table below summarizes the effect of the these conversions
of common stock outstanding at December 31, 2001 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A | |
|
Class B | |
|
|
|
|
Preferred | |
|
Conversion | |
|
Common | |
|
Common | |
|
Outstanding | |
Capital Stock |
|
Shares | |
|
Ratio | |
|
Stock | |
|
Stock | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Series A ESS owned
|
|
|
40,000 |
|
|
|
1 to 1 |
|
|
|
40,000 |
|
|
|
|
|
|
|
40,000 |
|
Series B ESS owned
|
|
|
20,000 |
|
|
|
1 to 1 |
|
|
|
20,000 |
|
|
|
|
|
|
|
20,000 |
|
Series B third party owned
|
|
|
31,000 |
|
|
|
1.1 to 1 |
|
|
|
|
|
|
|
34,100 |
|
|
|
34,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,000 |
|
|
|
|
|
|
|
60,000 |
|
|
|
34,100 |
|
|
|
94,100 |
|
Shares returned to Vialta by ESS, reserved for issuance upon
exercise of stapled options
|
|
|
|
|
|
|
|
|
|
|
(9,840 |
) |
|
|
|
|
|
|
(9,840 |
) |
Additional shares transferred by ESS as part of the spin-off
transaction
|
|
|
|
|
|
|
|
|
|
|
(612 |
) |
|
|
|
|
|
|
(612 |
) |
Issuance of common stock upon exchange of third party owned
common stock for Class B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589 |
|
|
|
589 |
|
Conversion of original common stock to Class A and
Class B common stock
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
5,892 |
|
|
|
6,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total effect of re-capitalization and spin-off transaction on
Class A and Class B common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
49,948 |
|
|
|
40,581 |
|
|
|
90,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July 2002, each share of our outstanding Class A and
Class B common stock converted into a single class of
common stock in accordance with the provisions of our Articles
of Incorporation. As a result of the above onversion,
approximately 53,141,000 shares, including 10,169,000 of
shares held by us as treasury stock, of issued Class A
common stock and approximately 40,580,000 shares of issued
Class B common stock were converted into approximately
93,721,000 shares of the non-classified common stock.
Holders of the non-classified common stock are entitled to one
vote per share on all matters.
41
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2002, we returned approximately 612,000 shares
to ESS at no cost. These shares were originally returned by ESS
to us as part of spin-off transaction in August 2001.
|
|
Note 9 |
Related Party Transactions |
The following is a summary of major transactions between us and
ESS Technology, Inc., which was our parent company prior to
August 2001, for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net receivables (payables) at beginning of period
|
|
$ |
(281 |
) |
|
$ |
(33 |
) |
|
$ |
64 |
|
Charges by Vialta to ESS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative & management service fees
|
|
|
|
|
|
|
|
|
|
|
223 |
|
|
Other
|
|
|
26 |
|
|
|
4 |
|
|
|
77 |
|
Charges by ESS to Vialta:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative & management service fees
|
|
|
(14 |
) |
|
|
(73 |
) |
|
|
(201 |
) |
|
Purchase of products
|
|
|
(782 |
) |
|
|
(412 |
) |
|
|
(1,403 |
) |
|
Building lease
|
|
|
(502 |
) |
|
|
(1,182 |
) |
|
|
(1,852 |
) |
Cash receipts from ESS
|
|
|
(26 |
) |
|
|
(4 |
) |
|
|
(424 |
) |
Cash payments made to ESS
|
|
|
1,452 |
|
|
|
1,419 |
|
|
|
3,483 |
|
|
|
|
|
|
|
|
|
|
|
Net payables at end of period
|
|
$ |
(127 |
) |
|
$ |
(281 |
) |
|
$ |
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 |
Net Loss Per Share |
Basic and diluted net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding
for the periods (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
Basic and diluted weighted average common shares outstanding
|
|
|
82,930 |
|
|
|
82,285 |
|
|
|
83,578 |
|
Basic and diluted net loss per share
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
The following table sets forth potential shares of common stock
that are not included in the diluted net loss per share
calculation above because to do so would be anti-dilutive for
the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Effect of potential shares of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
11,609 |
|
|
|
12,149 |
|
|
|
11,255 |
|
|
|
|
|
|
|
|
|
|
|
Total potential shares of common stock
|
|
|
11,609 |
|
|
|
12,149 |
|
|
|
11,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 |
Common Stock and Stock Options |
In September 2001, our Board of Directors authorized us to
repurchase up to 10 million shares of our common stock in
the open market.
42
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2002, the Board of Directors authorized an additional
10 million shares for repurchase. During fiscal 2002, we
repurchased a total of 4,969,000 shares of common stock for
an aggregate cost of $5.1 million. During fiscal 2003, we
repurchased approximately 759,000 shares of common stock
for an aggregate cost of approximately $295,000. No shares were
repurchased during fiscal 2004.
|
|
|
1999 Stock Incentive Plan |
In August 1999, we adopted the 1999 stock incentive plan. Under
the 1999 Plan, our incentive stock options may be granted to our
employees, directors, non-employee directors and consultants.
The aggregate number of shares reserved for awards under the
1999 Plan shall not exceed 10,000,000 shares. The exercise
price of the 1999 Plan shall not be less than 100% of the fair
market value (110% for 10 percent shareholders); the
exercise price of a non-incentive stock option shall not be less
than 85% of the fair market value (110% for 10 percent
shareholders). Options shall generally vest over a four-year
period.
|
|
|
2000 Directors Stock Option Plan |
In February 2000, we adopted the 2000 Directors Stock
Option Plan. Under the 2000 Director Plan, our nonqualified
stock options may be granted to nonemployee members of the board
of directors. The aggregate number of shares reserved for
issuance is 300,000 shares subject to adjustment as
provided in this 2000 Director Plan. Each nonemployee
director will automatically be granted an option for
32,000 shares. The exercise price of the option shall be
the fair market value at the time the option is granted. Options
shall generally vest over a four-year period.
On June 17, 2003 our shareholders approved the Amended and
Restated 2000 Directors Stock Option plan, which increased
the maximum number of shares under the plan from
300,000 shares to 600,000 shares, decreased the
initial grant of options from 32,000 shares to
20,000 shares, and increased each annual grant to
nonemployee directors from 8,000 shares to
20,000 shares.
|
|
|
2001 Non-Statutory Stock Option Plan |
In August 2001, we adopted the 2001 non-statutory option plan.
Under the 2001 Plan, our non-statutory stock options may be
granted to our employees, directors, non-employee directors and
consultants. The aggregate number of shares reserved for awards
under the 2001 Plan shall not exceed 10,000,000 shares. The
exercise price of a non-statutory stock option shall not be less
than 85% of the fair market value (110% for 10 percent
shareholders). Options shall generally vest over a four-year
period.
43
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the activities in the 1999 Plan, the
2000 Director Plan and the 2001 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
|
|
|
| |
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
Average | |
|
|
Available for | |
|
Numbers of | |
|
Exercise | |
|
|
Grant | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
Balance at December 31, 2001
|
|
|
5,789,995 |
|
|
|
13,106,606 |
|
|
|
0.29 |
|
Granted
|
|
|
(913,957 |
) |
|
|
913,957 |
|
|
|
0.85 |
|
Cancelled
|
|
|
1,277,205 |
|
|
|
(1,277,205 |
) |
|
|
0.79 |
|
Exercised
|
|
|
|
|
|
|
(1,488,670 |
) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
6,153,243 |
|
|
|
11,254,688 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(2,510,595 |
) |
|
|
2,510,595 |
|
|
|
0.35 |
|
Cancelled
|
|
|
875,842 |
|
|
|
(875,842 |
) |
|
|
0.71 |
|
Exercised
|
|
|
|
|
|
|
(740,697 |
) |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
4,518,490 |
|
|
|
12,148,744 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(210,009 |
) |
|
|
210,009 |
|
|
|
0.21 |
|
Cancelled
|
|
|
434,474 |
|
|
|
(434,474 |
) |
|
|
0.49 |
|
Exercised
|
|
|
|
|
|
|
(314,341 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
4,742,955 |
|
|
|
11,609,938 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
The options outstanding and currently exercisable at
December 31, 2004 are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
|
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
Exercise Price |
|
Outstanding | |
|
Life (Years) | |
|
Price | |
|
Exercisable | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$0.00
|
|
|
4,995,312 |
|
|
|
3.60 |
|
|
$ |
|
|
|
|
4,622,488 |
|
|
$ |
|
|
$0.25 $0.34
|
|
|
3,201,750 |
|
|
|
7.21 |
|
|
|
0.32 |
|
|
|
2,386,792 |
|
|
|
0.31 |
|
$0.36 $1.18
|
|
|
3,250,876 |
|
|
|
7.08 |
|
|
|
0.70 |
|
|
|
2,389,973 |
|
|
|
0.76 |
|
$1.20 $1.95
|
|
|
100,000 |
|
|
|
6.41 |
|
|
|
1.69 |
|
|
|
98,000 |
|
|
|
1.70 |
|
$2.01
|
|
|
62,000 |
|
|
|
4.07 |
|
|
|
2.01 |
|
|
|
62,000 |
|
|
|
2.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,609,938 |
|
|
|
5.60 |
|
|
$ |
0.31 |
|
|
|
9,559,253 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The options with a $0.00 exercise price represent stapled
options (see Note 8)
The weighted average fair value of options granted in fiscal
years 2004, 2003 and 2002 was $0.21, $0.27 and $0.59,
respectively. Options exercisable were 9,559,253, 6,481,763 and
4,470,834 as of December 31, 2004, 2003 and 2002,
respectively.
44
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each employee stock option grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Expected dividend yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Risk-free interest rate
|
|
|
3.69 |
% |
|
|
1.29 |
% |
|
|
3.50 |
% |
Expected volatility
|
|
|
88 |
% |
|
|
99 |
% |
|
|
96 |
% |
Expected life (in years)
|
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option-pricing models require the input of highly subjective
assumptions, including expected stock price volatility. Because
our employee stock options have characteristics significantly
different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair
value estimate, in managements opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of our employee stock options.
There was no federal, state or foreign income tax provision in
2004, 2003 and 2002 because our operations resulted in pre-tax
losses.
A reconciliation between the benefit from (provision for) income
taxes computed at the federal statutory rate of 35% for the
years ended December 31, 2004, 2003 and 2002 and the
benefit from (provision for) income taxes is as follows (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Benefit from income taxes at statutory rate
|
|
$ |
836 |
|
|
$ |
1,415 |
|
|
$ |
14,903 |
|
State income taxes net of federal tax benefit
|
|
|
45 |
|
|
|
232 |
|
|
|
1,971 |
|
Other
|
|
|
(448 |
) |
|
|
636 |
|
|
|
359 |
|
Tax losses not benefited
|
|
|
(433 |
) |
|
|
(2,283 |
) |
|
|
(17,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and those used for
federal and state income tax purposes.
45
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of deferred tax assets for federal and
state income taxes are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Net operating loss carryforwards
|
|
$ |
33,919 |
|
|
$ |
31,161 |
|
Depreciation and amortization
|
|
|
2,102 |
|
|
|
3,519 |
|
Accruals and reserves
|
|
|
3,140 |
|
|
|
3,806 |
|
Federal and state credits carryforward
|
|
|
1,121 |
|
|
|
1,232 |
|
Other
|
|
|
3,211 |
|
|
|
3,209 |
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
43,493 |
|
|
|
42,927 |
|
Valuation allowance
|
|
|
(43,493 |
) |
|
|
(42,927 |
) |
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
At December 31, 2004, we had approximately
$90.2 million and 40.8 million of federal and state
net operating loss carryforward, respectively. These losses will
begin expiring in 2020 and 2007, respectively. We also had
approximately $744,000 of federal and $580,000 of state research
and development tax credits available to offset future tax. The
federal credits begin to expire in 2020 for federal purposes if
not utilized. State credits carry forward indefinitely.
|
|
Note 13 |
Employee Benefit Plans |
In August 2001, the Vialta, Inc. 401(k) Plan was adopted. Under
the terms of the 401(k) plan, eligible employees may elect to
contribute a portion of their compensation as salary deferral
contributions to the 401(k) plan, subject to certain statutorily
prescribed limits. The 401(k) plan also permits, but does not
require, us to make discretionary matching contributions and
discretionary profit-sharing contributions. As a tax-qualified
plan, contributions to the 401(k) plan are generally deductible
by us when made, and are not taxable to participants until
distributed from the 401(k) plan. Under the 401(k) plan,
participants may direct the trustees to invest their accounts in
selected investment options. We did not make any matching
contributions or discretionary profit-sharing contributions in
the years ended December 31, 2004, 2003 and 2002.
|
|
Note 14 |
Segment and Geographic Information |
We have operated as one segment since our inception on
April 20, 1999 through December 31, 2004. Therefore,
results of operations are reported on a consolidated basis for
purposes of segment reporting. As of December 31, 2004,
2003 and 2002, long-lived assets held outside the United States
of America were not material.
Consolidated net revenue for the year ended December 31,
2004 was $12.7 million, consisting of domestic net revenue
of $9.3 million and international net revenue of
$3.4 million. Consolidated net revenue for the year ended
December 31, 2003 was $10.3 million, consisting of
domestic net revenue of $7.1 million and international net
revenue of $3.2 million. Companies in China accounted for
approximately 12% and 16% of net revenue for the years ended
December 31, 2004 and 2003, respectively.
|
|
Note 15 |
Commitments and Contingencies |
In January 2000, we entered into a three-year non-cancelable
lease agreement for our headquarters with ESS. In July 2003, we
amended the lease. The terms of the amendment include a 60%
reduction in the amount of square footage leased, a reduction in
the monthly rent to current market rates and an extension of the
term from December 31, 2003 to June 30, 2005. Under
the terms of this and other leases, with various
46
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expiration dates through 2006, our future minimum rental
payments as of December 31, 2004 are as follows: $351,000
and $141,000 for the years 2005 and 2006 respectively.
Apart from operating leases disclosed above, we do not have any
off-balance sheet arrangements.
Rent expense was approximately $557,000, $1.4 million and
$2.3 million for the years ended December 31, 2004,
2003 and 2002, respectively.
From time to time, we are involved in litigation in the normal
course of business. We do not believe that the outcome of
matters to date will have a material adverse impact on our
consolidated financial position, results of operations or cash
flows.
|
|
Note 16 |
Subsequent Events |
On March 29, 2005, we announced a definitive agreement to
merge with Victory Acquisition Corp., a newly formed entity
established by Fred S.L. Chan, Chairman of the Company, and
certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for $0.36 per
share in cash. The merger is expected to be completed in the
second quarter of 2005 and is subject to Vialta shareholder and
customary approvals.
Selected Quarterly Operation Results (unaudited):
The following table presents un-audited quarterly financial
information for each of our last eight quarters. This
information has been derived from our un-audited financial
statements and has been prepared on the same basis as the
audited Consolidated Financial Statements appearing elsewhere in
this Form 10-K. In the opinion of management, all necessary
adjustments, consisting only of normal recurring adjustments,
have been included to present fairly the quarterly results (in
thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
4,974 |
|
|
$ |
2,782 |
|
|
$ |
1,365 |
|
|
$ |
3,626 |
|
Cost of goods sold
|
|
|
1,396 |
|
|
|
997 |
|
|
|
3,718 |
|
|
|
1,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
3,578 |
|
|
|
1,785 |
|
|
|
(2,353 |
)1 |
|
|
1,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
336 |
|
|
|
266 |
|
|
|
321 |
|
|
|
324 |
|
Sales and marketing
|
|
|
605 |
|
|
|
511 |
|
|
|
284 |
|
|
|
611 |
|
General and administrative
|
|
|
1,360 |
|
|
|
1,333 |
|
|
|
845 |
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,301 |
|
|
|
2,110 |
|
|
|
1,450 |
|
|
|
1,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,277 |
|
|
|
(325 |
) |
|
|
(3,803 |
) |
|
|
(255 |
) |
Interest income, net
|
|
|
209 |
|
|
|
160 |
|
|
|
171 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,486 |
|
|
$ |
(165 |
) |
|
$ |
(3,632 |
) |
|
$ |
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common
shares basic & diluted
|
|
$ |
0.02 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
82,803 |
|
|
|
82,907 |
|
|
|
82,985 |
|
|
|
83,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
3,843 |
|
|
$ |
2,520 |
|
|
$ |
1,284 |
|
|
$ |
2,684 |
|
Cost of goods sold
|
|
|
863 |
|
|
|
570 |
|
|
|
517 |
|
|
|
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,980 |
|
|
|
1,950 |
|
|
|
767 |
|
|
|
1,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
968 |
|
|
|
621 |
|
|
|
480 |
|
|
|
488 |
|
Sales and marketing
|
|
|
442 |
|
|
|
641 |
|
|
|
547 |
|
|
|
2,797 |
|
General and administrative
|
|
|
1,730 |
|
|
|
1,974 |
|
|
|
1,091 |
|
|
|
958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,140 |
|
|
|
3,236 |
|
|
|
2,118 |
|
|
|
4,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(160 |
) |
|
|
(1,286 |
) |
|
|
(1,351 |
) |
|
|
(2,550 |
) |
Interest income, net
|
|
|
188 |
|
|
|
178 |
|
|
|
168 |
|
|
|
199 |
|
Gain on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
28 |
|
|
$ |
(1,108 |
) |
|
$ |
(1,183 |
) |
|
$ |
(1,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common
shares basic & diluted
|
|
$ |
0.0 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
82,238 |
|
|
|
82,151 |
|
|
|
82,227 |
|
|
|
82,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The gross loss for the three months ended September 30,
2004 includes additional inventory reserves of $3.4 million
on raw materials and finished good inventory. |
48
Item 9: Changes In and
Disagreements with Accountants on Accounting and Financial
Disclosure
None
Item 9A: Controls and
Procedures
Our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation as of
the end of the period covered by this quarterly report, that our
disclosure controls and procedures are effective to ensure that
material information required to be disclosed by us in reports
filed or submitted by us under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and
reported within the time period specified in the SECs
rules and forms, and includes controls and procedures designed
to ensure that material information required to be disclosed by
us in such reports is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There have been no significant changes in our internal controls
or in other factors that could significantly affect these
controls during our most recent fiscal quarter.
49
PART III
Certain information required by Part III is omitted from
this Report since we plan to file with the Securities and
Exchange Commission the definitive proxy statement for our 2005
Annual Meeting of Shareholders (the Proxy Statement)
not later than 120 days after the end of the fiscal year
covered by this Report, 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 is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
Item 11: Executive
Compensation
The information required by this Item is incorporated by
reference to the sections in our Proxy Statement entitled
Executive Compensation, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
|
|
Item 12: |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
The following table summarizes information with respect to
options under our equity compensation plans at December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Number of Securities | |
|
|
Securities to be | |
|
|
|
Remaining Available for | |
|
|
Issued upon Exercise | |
|
Weighted Average | |
|
Future Issuance under | |
|
|
of Outstanding | |
|
Exercise Price of | |
|
Equity Compensation Plans | |
|
|
Options, Warrants | |
|
Outstanding Options, | |
|
(Excluding Securities | |
|
|
and Rights(1) | |
|
Warrants and Rights | |
|
Reflected in Column (a)) | |
|
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
11,609,938 |
|
|
$ |
0.31 |
|
|
|
4,742,955 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,609,938 |
|
|
$ |
0.31 |
|
|
|
4,742,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes only options outstanding under our stock option plans,
as no stock warrants or rights were outstanding as of
December 31, 2004. |
Item 13: Certain
Relationships and Related Transactions
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
Item 14: Principle
Accountant Fees and Services
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
50
PART IV
|
|
Item 15: |
Exhibits, Financial Statement Schedules |
(a)(1) Financial Statements
See the Consolidated Financial Statements and Supplementary Data
at Item 8 of this report.
(2) Financial Statement Schedules
No schedules have been filed because the information required to
be set forth therein is not applicable or is shown in the
Consolidated Financial Statements and Supplementary Data or
notes thereto at Item 8 of this report.
(3) Exhibits
See Exhibit Index for the exhibits filed as part of or
incorporated by reference into this report.
(b) Reports on Form 8-K
We did not file any Reports on Form 8-K during the fourth
quarter of 2004.
With the exception of the information incorporated by reference
to our Proxy Statement for the 2005 Annual Meeting of
Shareholders in Items 10, 11, 12 and 13 of
Part III, the Proxy Statement is not deemed to be filed as
part of this Report.
51
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.
|
|
|
|
|
Didier Pietri |
|
Chief Executive Officer |
Date: March 31, 2005
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/ Didier Pietri
Didier
Pietri |
|
Chief Executive Officer
(principal executive officer) |
|
March 31, 2005 |
|
/s/ William M.
Scharninghausen
William
M. Scharninghausen |
|
Chief Financial Officer
(principal financial officer) |
|
March 31, 2005 |
|
/s/ Fred S.L. Chan
Fred
S.L. Chan |
|
Chairman of the Board |
|
March 31, 2005 |
|
/s/ George M. Cain
George
M. Cain |
|
Director |
|
March 31, 2005 |
|
/s/ Herbert Chang
Herbert
Chang |
|
Director |
|
March 31, 2005 |
|
/s/ Michael S. Dubester
Michael
S. Dubester |
|
Director |
|
March 31, 2005 |
|
/s/ Matthew K. Fong
Matthew
K. Fong |
|
Director |
|
March 31, 2005 |
52
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
2 |
.1 |
|
Form of Master Distribution Agreement between the Registrant and
ESS Technology, Inc. (Exhibit No. 2.1 to Form 10 File No.
000-32809) |
|
2 |
.2 |
|
Form of Master Technology Ownership and License Agreement
between the Registrant and ESS Technology, Inc. (Exhibit
No. 2.2 to Form 10 File No. 000-32809) |
|
|
2 |
.3 |
|
Form of Employee Matters Agreement between the Registrant and
ESS Technology, Inc. (Exhibit No. 2.3 to Form 10 File No.
000-32809) |
|
|
2 |
.4 |
|
Form of Tax Sharing and Indemnity Agreement between the
Registrant and ESS Technology, Inc. (Exhibit No. 2.4 to
Form 10 File No. 000-32809) |
|
|
2 |
.5 |
|
Form of Real Estate Matters Agreement between the Registrant and
ESS Technology, Inc. (Exhibit No. 2.5 to Form 10 File No.
000-32809) |
|
|
2 |
.6 |
|
Form of Master Confidential Disclosure Agreement between the
Registrant and ESS Technology, Inc. (Exhibit No. 2.6 to
Form 10 File No. 000-32809) |
|
|
2 |
.7 |
|
Form of Master Transitional Services Agreement between the
Registrant and ESS Technology, Inc. (Exhibit No. 2.7 to
Form 10 File No. 000-32809) |
|
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the
Registrant (Exhibit No. 4.1 to Form S-8 File
No. 333-65752) |
|
|
3 |
.2 |
|
Amended and Restated Bylaws of the Registrant (Exhibit
No. 4.2 to Form S-8 File No. 333-65752) |
|
|
4 |
.1 |
|
Form of Class A Common Stock Certificate of the Registrant
(Exhibit No. 4.1 to Form 10 File No. 000-32809) |
|
|
4 |
.2 |
|
Form of Class B Common Stock Certificate of the Registrant
(Exhibit No. 4.2 to Form 10 File No. 000-32809) |
|
|
10 |
.1 |
|
1999 Stock Incentive Plan (Exhibit No. 10.1 to Form 10 File
No. 000-32809)* |
|
|
10 |
.2 |
|
2000 Directors Stock Option Plan, as amended and restated
(Exhibit No. 10.2 to Form 10 File No. 000-32809)* |
|
|
10 |
.3 |
|
2001 Nonstatutory Stock Option Plan, as amended on
August 1, 2001 (Exhibit No. 10.3 to Form 10 File No.
000-32809)* |
|
|
10 |
.4 |
|
2001 Employee Stock Purchase Plan (Exhibit No. 10.4 to Form
10 File No. 000-32809)* |
|
|
10 |
.5 |
|
Lease Agreement between the Registrant and ESS Technology, Inc.
for the premises located at 48461 Fremont Boulevard, Fremont,
California (Exhibit No. 10.5 to Form 10 File No. 000-32809) |
|
|
10 |
.6 |
|
Purchase Agreement between the Registrant and ESS Technology,
Inc. (Exhibit No. 10.6 to Form 10 File No. 000-32809) |
|
|
10 |
.7 |
|
DVD Manufacturing License Agreement between the Registrant and
Macrovision Corporation (Exhibit No. 10.7 to Form 10 File
No. 000-32809) |
|
|
10 |
.8 |
|
Offer Letter Agreement between the Registrant and Charles Root
(Exhibit No. 10.8 to Form 10 File No. 000-32809)* |
|
|
10 |
.9 |
|
Lease Agreement between the Registrant and 235 Investments
Limited for the premises located at 235 Yorkland Boulevard,
Ontario, Canada (Exhibit No. 10.9 to Form 10 File No.
000-32809) |
|
|
10 |
.10 |
|
Lease Agreement between Vialta.com Hong Kong Company Limited and
Upcentre Investments Limited for the premises located at 238
Nathan Road, Kowloon, Hong Kong (Exhibit No. 10.10 to Form
10 File No. 000-32809) |
|
|
10 |
.11 |
|
Trademark License Agreement between the Registrant and Digital
Theater Systems, Inc. (Exhibit No. 10.11 to Form 10 File
No. 000-32809) |
|
|
10 |
.12 |
|
Software License Agreement between the Registrant and EnReach
Technology, Inc. (Exhibit No. 10.12 to Form 10 File No.
000-32809) |
|
|
10 |
.13 |
|
Offer Letter Agreement between the Registrant and Didier Pietri
(Exhibit No. 10.13 to Form 10 File No. 000-32809)* |
53
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description of Exhibit |
| |
|
|
|
|
10 |
.14 |
|
Offer Letter Agreement between the Registrant and Steve Charng
(Exhibit No. 10.5 to Form 10 File No. 000-32809) |
|
|
10 |
.15 |
|
Offer Letter Agreement between the Registrant and Michael Wang
(Exhibit No. 10.9 to Form 10 File No. 000-32809) |
|
|
10 |
.16 |
|
Agreement and Plan of Reorganization, dated March 28, 2005,
by and between Victory Acquisition Corp. and Vialta, Inc.
(Exhibit No. 10.1 to Form 8-K filed March 31,
2005). |
|
|
21 |
.1 |
|
Subsidiaries of the Registrant (Exhibit No. 21.1 to Form 10
File No. 000-32809) |
|
|
23 |
.1 |
|
Consent of PricewaterhouseCoopers LLP (filed herewith) |
|
|
31 |
.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
31 |
.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
32 |
.1 |
|
Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32 |
.2 |
|
Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
* |
Indicates a management contract or compensatory plan. |
54