e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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For the quarterly period ended June 30, 2005. |
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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 Registrant’s principal executive offices)
(510) 870-3088
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes R No £
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No R
The number of outstanding shares of the registrant’s common stock, par value $0.001 per
share, on August 5, 2005 was 83,108,921 shares.
VIALTA, INC.
FORM 10-Q: QUARTER ENDED JUNE 30, 2005
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
VIALTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
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June 30, 2005 |
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December 31, 2004 |
Assets |
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Current assets: |
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Cash and cash equivalents |
|
$ |
23,594 |
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$ |
7,296 |
|
Restricted cash |
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35 |
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|
3,057 |
|
Short-term investments |
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|
1,499 |
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|
11,106 |
|
Accounts receivable, net |
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277 |
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2,761 |
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Inventories |
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4,302 |
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|
4,500 |
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Prepaid expenses and other |
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202 |
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351 |
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Total current assets |
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29,909 |
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29,071 |
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Property and equipment, net |
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236 |
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302 |
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Other assets |
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30 |
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29 |
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Total assets |
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$ |
30,175 |
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$ |
29,402 |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
31 |
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$ |
373 |
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Accrued liabilities and other |
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1,175 |
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|
2,070 |
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Deferred profit |
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320 |
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|
1,310 |
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Total current liabilities |
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1,526 |
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3,753 |
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Stockholders’ equity: |
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Common stock |
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95 |
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95 |
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Additional paid-in capital |
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144,126 |
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144,122 |
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Treasury stock |
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(9,458 |
) |
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(9,458 |
) |
Accumulated deficit |
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(106,111 |
) |
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(109,098 |
) |
Accumulated other comprehensive loss |
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|
(3 |
) |
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(12 |
) |
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Total stockholders’ equity |
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28,649 |
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25,649 |
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Total liabilities and stockholders’ equity |
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$ |
30,175 |
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$ |
29,402 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
VIALTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2005 |
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2004 |
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2005 |
|
2004 |
Net revenue |
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$ |
676 |
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$ |
2,782 |
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$ |
3,634 |
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$ |
7,756 |
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Cost of goods sold |
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718 |
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997 |
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2,888 |
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2,393 |
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Gross profit (loss) |
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(42 |
) |
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1,785 |
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|
746 |
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5,363 |
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Operating expenses and recovery: |
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Engineering and development |
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285 |
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266 |
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|
577 |
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602 |
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Sales and marketing |
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125 |
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511 |
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417 |
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1,116 |
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General and administrative |
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882 |
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1,333 |
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2,360 |
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2,693 |
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Recovery of prior period impairment charges |
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(5,000 |
) |
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— |
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(5,000 |
) |
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— |
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Total operating expenses and recovery |
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(3,708 |
) |
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2,110 |
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(1,646 |
) |
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4,411 |
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Operating income (loss) |
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3,666 |
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(325 |
) |
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2,392 |
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952 |
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Interest income and other: |
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Interest, net |
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298 |
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|
160 |
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|
501 |
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|
369 |
|
Gain on investment |
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|
94 |
|
|
|
— |
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|
94 |
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|
— |
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|
|
|
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|
|
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Total interest income and other |
|
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392 |
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|
|
160 |
|
|
|
595 |
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|
|
369 |
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|
|
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|
|
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|
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Net income (loss) |
|
$ |
4,058 |
|
|
$ |
(165 |
) |
|
$ |
2,987 |
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|
$ |
1,321 |
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Net income (loss) per share: |
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Basic |
|
$ |
0.05 |
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$ |
(0.00 |
) |
|
$ |
0.04 |
|
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$ |
0.02 |
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Diluted |
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$ |
0.05 |
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$ |
(0.00 |
) |
|
$ |
0.03 |
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$ |
0.01 |
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Weighted average common shares outstanding: |
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Basic |
|
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83,092 |
|
|
|
82,907 |
|
|
|
83,085 |
|
|
|
82,855 |
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|
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Diluted |
|
|
88,213 |
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82,907 |
|
|
|
87,508 |
|
|
|
88,068 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
VIALTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six months ended |
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June 30, |
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2005 |
|
2004 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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|
|
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Net income |
|
$ |
2,987 |
|
|
$ |
1,321 |
|
Adjustments to reconcile net income to net cash used in
operating activities: |
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|
|
|
|
|
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Depreciation |
|
|
66 |
|
|
|
285 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
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Accounts receivable, net |
|
|
2,484 |
|
|
|
2,887 |
|
Inventories |
|
|
198 |
|
|
|
(1,943 |
) |
Prepaid expenses and other |
|
|
148 |
|
|
|
(223 |
) |
Deferred profit |
|
|
(990 |
) |
|
|
(2,887 |
) |
Accounts payable and accrued liabilities and other |
|
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(1,237 |
) |
|
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(2,334 |
) |
|
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Net cash provided by (used in) operating activities |
|
|
3,656 |
|
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(2,894 |
) |
|
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|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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|
|
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Purchases of short-term investments |
|
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(516 |
) |
|
|
(8,800 |
) |
Proceeds from sales of short-term investments |
|
|
10,132 |
|
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|
11,162 |
|
Restricted cash deposit |
|
|
3,022 |
|
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(815 |
) |
Acquisitions of property and equipment |
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|
— |
|
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|
(6 |
) |
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|
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|
|
|
|
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Net cash provided by investing activities: |
|
|
12,638 |
|
|
|
1,541 |
|
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|
|
|
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Issuance of shares of common stock |
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4 |
|
|
|
8 |
|
|
|
|
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Net cash provided by financing activities: |
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4 |
|
|
|
8 |
|
|
|
|
|
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Net increase (decrease) in cash and cash equivalents |
|
|
16,298 |
|
|
|
(1,345 |
) |
Cash and cash equivalents, beginning of the period |
|
|
7,296 |
|
|
|
9,356 |
|
|
|
|
|
|
|
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Cash and cash equivalents, end of the period |
|
$ |
23,594 |
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|
$ |
8,011 |
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|
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|
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. THE COMPANY
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 Beamerä personal videophone line and the VistaFrameä 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, Fry’s 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 VistaFrame’s 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. In addition, losses may increase from current levels due to expansion of operations,
expansion of product offerings, decreased sales 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 June 30, 2006. 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
On March 28, 2005, we announced execution of a definitive merger agreement with Victory Acquisition
Corp., a newly formed entity established by Fred S.L. Chan, Chairman of Vialta, and certain of his
family members. Pursuant to the agreement, Victory will merge into Vialta and holders of the
approximately 60% of our stock not owned by Victory will receive $0.36 per share in cash. The
proposed merger is expected to be completed in the third quarter of 2005 and is subject to Vialta
shareholder and customary approvals.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by
us pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited condensed interim financial statements contain all adjustments, all of which
are normal and recurring in nature, necessary to fairly present our financial position, operating
results and cash flows. These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes thereto for the year
ended December 31, 2004, included in our Annual Report on Form 10-K filed on March 31, 2005. The
results of operations for the three and six months ended June 30, 2005 are not necessarily
indicative of the results that may be expected for any other period or for the fiscal year ending
December 31, 2005.
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.
6
Cash equivalents, restricted cash 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.
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 of cash at June 30, 2004 was restricted as collateral for letters
of credit to a contract manufacturer and raw materials supplier.
Revenue recognition
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 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 returns
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
are reviewed individually for collectibility. Account balances are charged off against the
allowance when we feel it is probable that the receivable will not be recovered.
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 customer. 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 (in thousands):
| |
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|
|
|
|
|
|
|
| |
|
June 30, |
|
June 30, |
| |
|
2005 |
|
2004 |
Beginning balance |
|
$ |
399 |
|
|
$ |
484 |
|
Accruals for warranties issued during the period |
|
|
228 |
|
|
|
656 |
|
Settlements made during the period |
|
|
(300 |
) |
|
|
(372 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
327 |
|
|
$ |
768 |
|
|
|
|
|
|
|
|
|
|
7
Comprehensive gain (loss)
Comprehensive gain (loss) is defined to include all changes in equity during a period from
non-owner sources. Other comprehensive gain (loss) for the six months ended June 30, 2005 and 2004
was comprised of unrealized gain (loss) on available-for-sale investment and amounted to $9,000 and
($29,000), respectively.
Stock-based compensation
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.”
The following table illustrates the effect on our net income and net income 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).
| |
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|
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|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income (loss), as reported |
|
$ |
4,058 |
|
|
$ |
(165 |
) |
|
$ |
2,987 |
|
|
$ |
1,321 |
|
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects |
|
|
(54 |
) |
|
|
(179 |
) |
|
|
(123 |
) |
|
|
(413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
4,004 |
|
|
$ |
(344 |
) |
|
$ |
2,864 |
|
|
$ |
908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
|
$ |
(0.00 |
) |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
Diluted |
|
$ |
0.05 |
|
|
$ |
(0.00 |
) |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
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 at December 31, 2004.
Previously, such investments had been classified as cash and cash equivalents. Accordingly, we have
revised the classification to exclude $5.8 million from cash and cash equivalents at June 30, 2004,
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 $1.4 million for the six months ended June 30,
2004.
Recent Accounting Pronouncements
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting
Changes and Error Corrections” (SFAS 154) which changes the requirements for the accounting for and
reporting of voluntary changes in accounting principle. SFAS 154 requires retrospective application
to prior periods financial statements of changes in accounting principle unless impracticable.
SFAS 154 supersedes Accounting Principles Board Opinion No. 20, Accounting Change (APB 20), which
previously required that most voluntary changes in accounting principle be recognized by including
in the current period’s net income the cumulative effect of changing to the new accounting
principle. SFAS 154 also makes a distinction between retrospective application of an accounting
principle and the restatement of financial statements to reflect correction of an error. SFAS 154
carries forward without change the guidance contained in APB 20 for reporting the correction of an
error in previously issued financial statements and a change in accounting estimate. SFAS 154
applies to voluntary changes in accounting principle that are made in fiscal years beginning after
December 15, 2005. The Company does not expect the adoption of SFAS 154 to have a significant
impact on its financial condition or results of operations.
NOTE 3. RECOVERY OF PRIOR PERIOD IMPAIRMENT CHARGES
In connection with the acquisition of certain content licenses in 2002, we received a note
receivable of $10.0 million of which $5.0
8
million remained outstanding as of March 31, 2005. This note was fully reserved in 2002 due to
uncertainties regarding its collection. On April 28, 2005, we collected the outstanding balance of
$5.0 million on this note and we recorded the $5.0 million as a component of operating income in
the quarter ended June 30, 2005.
NOTE 4. 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):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net payables at beginning of period |
|
$ |
(97 |
) |
|
$ |
(314 |
) |
|
$ |
(127 |
) |
|
$ |
(281 |
) |
Charges by Vialta to ESS |
|
|
— |
|
|
|
55 |
|
|
|
208 |
|
|
|
55 |
|
Charges by ESS to Vialta: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of products |
|
|
— |
|
|
|
(383 |
) |
|
|
(12 |
) |
|
|
(722 |
) |
Building lease |
|
|
(127 |
) |
|
|
(123 |
) |
|
|
(252 |
) |
|
|
(247 |
) |
Other |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(10 |
) |
Cash receipts from ESS |
|
|
— |
|
|
|
(18 |
) |
|
|
(208 |
) |
|
|
(18 |
) |
Cash payments made to ESS |
|
|
139 |
|
|
|
564 |
|
|
|
308 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payables at end of period |
|
$ |
(87 |
) |
|
$ |
(223 |
) |
|
$ |
(87 |
) |
|
$ |
(223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5. MARKETABLE SECURITIES
Our portfolio of marketable securities at June 30, 2005 consisted of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 30, 2005 |
|
December 31, 2004 |
| |
|
Available-for-Sale Securities |
|
Available-for-Sale Securities |
| |
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
| |
|
|
|
|
|
Unrealized |
|
Unrealized |
|
|
|
|
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
| |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
|
Cost |
|
Gains |
|
Losses |
|
Value |
Money market funds |
|
$ |
18,366 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18,366 |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4 |
|
Commercial paper |
|
|
2,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2,000 |
|
|
|
2,542 |
|
|
|
— |
|
|
|
— |
|
|
|
2,542 |
|
Cash |
|
|
3,228 |
|
|
|
— |
|
|
|
— |
|
|
|
3,228 |
|
|
|
4,750 |
|
|
|
— |
|
|
|
— |
|
|
|
4,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
23,594 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23,594 |
|
|
$ |
7,296 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market auction preferred securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,300 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,300 |
|
U.S. government debt securities |
|
|
977 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
976 |
|
|
|
4,741 |
|
|
|
— |
|
|
|
(10 |
) |
|
|
4,731 |
|
Corporate debt securities |
|
|
525 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
523 |
|
|
|
1,077 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
$ |
1,502 |
|
|
$ |
— |
|
|
$ |
(3 |
) |
|
$ |
1,499 |
|
|
|
11,118 |
|
|
$ |
— |
|
|
$ |
(12 |
) |
|
$ |
11,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,385 |
|
Due within one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTE 6. INVENTORIES
The following table summarizes the activity in inventories and reserves for the six months
ended June 30, 2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross |
|
Reserve |
|
Net |
As of December 31, 2004 |
|
$ |
9,540 |
|
|
$ |
(5,040 |
) |
|
$ |
4,500 |
|
Purchase of inventories |
|
|
751 |
|
|
|
— |
|
|
|
751 |
|
Shipments and returns |
|
|
(751 |
) |
|
|
— |
|
|
|
(751 |
) |
Use or disposal of inventories |
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2005 |
|
$ |
9,537 |
|
|
$ |
(5,040 |
) |
|
$ |
4,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of inventories |
|
|
177 |
|
|
|
— |
|
|
|
177 |
|
Additional reserves |
|
|
— |
|
|
|
(8 |
) |
|
|
(8 |
) |
Shipments and returns |
|
|
(346 |
) |
|
|
— |
|
|
|
(346 |
) |
Use or disposal of inventories |
|
|
(18 |
) |
|
|
— |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005 |
|
$ |
9,350 |
|
|
$ |
(5,048 |
) |
|
$ |
4,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw material |
|
$ |
2,513 |
|
|
$ |
(1,615 |
) |
|
$ |
898 |
|
Finished goods |
|
|
6,837 |
|
|
|
(3,433 |
) |
|
|
3,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,350 |
|
|
$ |
(5,048 |
) |
|
$ |
4,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7. OTHER BALANCE SHEET COMPONENTS (in thousands)
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
December 31, |
| |
|
2005 |
|
2004 |
Accounts receivable, net |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
329 |
|
|
$ |
2,838 |
|
Less: Allowance for doubtful accounts |
|
|
(52 |
) |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
277 |
|
|
$ |
2,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other |
|
|
|
|
|
|
|
|
Prepaid insurance |
|
$ |
52 |
|
|
$ |
207 |
|
Other current assets |
|
|
150 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
202 |
|
|
$ |
351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
Machinery and equipment |
|
$ |
1,037 |
|
|
$ |
1,037 |
|
Furniture and fixtures |
|
|
551 |
|
|
|
551 |
|
Software and web site development cost |
|
|
259 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,847 |
|
|
|
1,847 |
|
Less: Accumulated depreciation |
|
|
(1,611 |
) |
|
|
(1,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
236 |
|
|
$ |
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and other |
|
|
|
|
|
|
|
|
Accrued compensation costs |
|
$ |
153 |
|
|
$ |
880 |
|
Professional fees |
|
|
394 |
|
|
|
274 |
|
Other current liabilities |
|
|
214 |
|
|
|
390 |
|
Product return/warranty liability |
|
|
327 |
|
|
|
399 |
|
Accrued charges, related party |
|
|
87 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,175 |
|
|
$ |
2,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred profit |
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
809 |
|
|
$ |
3,086 |
|
Deferred costs |
|
|
(489 |
) |
|
|
(1,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
320 |
|
|
$ |
1,310 |
|
|
|
|
|
|
|
|
|
|
10
NOTE 8. COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing the net income (loss) for the three
and six months ended June 30, 2005 and June 30, 2004 by the weighted average number of shares of
common stock outstanding during the periods.
Diluted net income per share is calculated by using the weighted average number of common
shares outstanding for the three and six months ended June 30, 2005 and June 30, 2004 and gives
effect to all dilutive potential common shares outstanding for the three and six months ended June
30, 2005 and June 30, 2004. The reconciling difference between the computation of basic and diluted
net income per share for the three and six months ended June 30, 2005 and June 30, 2004 presented
is the inclusion of the dilutive effect of stock options issued to employees under employee stock
option plans.
Diluted net income per share excludes out-of-the-money stock options totaling 3.4 million
shares and 2.3 million shares for the three months ended June 30, 2005 and June 30, 2004,
respectively and 6.1 million shares and 3.8 million shares for the six months ended June 30, 2005
and June 30, 2004, respectively. While these options are currently anti-dilutive, they could be
dilutive in the future. A reconciliation of basic and diluted income per share is presented below
(in thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the three months ended |
|
For the six months ended |
| |
|
June 30, |
|
June 30, |
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,058 |
|
|
$ |
(165 |
) |
|
$ |
2,987 |
|
|
$ |
1,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
83,092 |
|
|
|
82,907 |
|
|
|
83,085 |
|
|
|
82,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.05 |
|
|
$ |
(0.00 |
) |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,058 |
|
|
$ |
(165 |
) |
|
$ |
2,987 |
|
|
$ |
1,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
83,092 |
|
|
|
82,907 |
|
|
|
83,085 |
|
|
|
82,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of dilutive securities: stock options |
|
|
5,121 |
|
|
|
— |
|
|
|
4,423 |
|
|
|
5,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted shares outstanding |
|
|
88,213 |
|
|
|
82,907 |
|
|
|
87,508 |
|
|
|
88,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
0.05 |
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$ |
(0.00 |
) |
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$ |
0.03 |
|
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$ |
0.01 |
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11
ITEM 2: Management’s 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. There is no assurance that the proposed merger will
be consummated, that the diversion of management time necessary to complete the proposed merger or
the costs associated with the proposed merger will not affect our results of operations or that
actions we take in anticipation on the proposed merger may be undone if the merger is not
consummated.
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 Beamerä personal videophone line and the VistaFrameä 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 FXä). Our Beamer
videophone products are currently carried by retailers such as Best Buy, Fry’s 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 VistaFrame’s 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 three
and six months ended June 30, 2005 we had a net income of $4.1 million and $3.0 million,
respectively and expect to incur losses for at least the remainder of fiscal 2005. As of June 30,
2005, we had an accumulated deficit of $106.1 million.
On March 28, 2005, we announced execution of a definitive merger agreement with Victory
Acquisition Corp., a newly formed entity established by Fred S.L. Chan, Chairman of Vialta, and
certain of his family members. Pursuant to the agreement, Victory will merge into Vialta and
holders of the approximately 60% of our stock not owned by Victory will receive $0.36 per share in
cash. The proposed merger is expected to be completed in the third quarter of 2005 and is subject
to Vialta shareholder and customary approvals.
Results of Operations
For the three months ended June 30, 2005 compared with three months ended June 30, 2004
Net revenue. Net revenue was $676,000 for the three months ended June 30, 2005 compared to
$2.8 million for the three months ended June 30, 2004. Net revenue included $617,000 and $1.7
million in domestic sales for the three months ended June 30, 2005 and 2004, respectively, and
$59,000 and $1.1 million in international sales for the three months ended June 30, 2005 and 2004,
respectively. Revenue for the second quarter of 2005 includes the recognition of deferred revenue
of approximately $1.0 million, that was deferred at March 31, 2005. Revenue for the second quarter
of 2004 includes the recognition of deferred revenue of approximately $2.6 million, that was
deferred at March 31, 2004. The decrease in revenue is the result of significantly lower unit sales
for our Beamer videophone products in both the domestic and
international market. These lower sales are believed to result from a
decrease in sales and promotion campaigns and an overall decrease in sales and marketing personnel.
For the three months ended June 30, 2005, Best Buy and The Shaper Image accounted for approximately
24% and 23%, respectively, of our net revenue. For the three months ended June 30, 2004, CEC and
The Sharper Image accounted for approximately 27% and 21%, respectively, of our net revenue.
12
Cost of goods sold. Cost of goods sold was $718,000 for the three months ended June 30, 2005
compared to $997,000 for the three months ended June 30, 2004. The decrease is primarily due to the
result of lower unit sales for our Beamer videophone products as mentioned above. During the second
quarter of 2005 product costs were recorded at full cost as compared to the second quarter of 2004
where our inventory costs for our Beamer videophone products were expensed in prior periods.
Although cost of goods sold is lower compared to the second quarter of 2004, it is higher than
revenue for the three months ended June 30, 2005 due to fixed expenses for manufacturing overhead
which are included in cost of goods sold. 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 three months ended June 30, 2004 was lower than what would otherwise have
been recorded.
Gross profit (loss). Gross loss was $42,000 for the three months ended June 30, 2005 compared
to gross profit of $1.8 million for the three months ended June 30, 2004. If we had not previously
expensed inventory costs, our gross profit for the second quarter of 2004 would have been
approximately $1.1 million.
Engineering and development. Engineering and development expenses were $285,000 for the three
months ended June 30, 2005, compared to $266,000 for the three months ended June 30, 2004. The
increase was primarily due to an increase in engineering expenses related to the development of a
broadband videophone product partially offset by reductions in engineering and development personnel. We
expect engineering and development expenses to be relatively constant in future periods.
Sales and marketing. Sales and marketing expenses were $125,000 for the three months ended
June 30, 2005, compared to $511,000 for the three months ended June 30, 2004. The decrease was
primarily due to reductions in sales and marketing personnel and an overall decrease in certain
marketing and promotion initiatives such as e-marketing, direct mail and print advertising. We
expect sales and marketing expenses to be relatively constant 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. Without these
programs, we may experience further declines in revenue.
General and administrative. General and administrative expenses were $882,000 for the three
months ended June 30, 2005 compared to $1.3 million for the three months ended June 30, 2004. The
decrease was primarily due to reductions in general and administrative personnel and decreases in
depreciation due to assets becoming fully depreciated. These
decreases were partially offset by increases in
legal expenses and outside services in connection with the proposed merger with Victory Acquisition
Corp. We expect to incur additional expenses for legal and other professional services related to
the proposed merger.
Recovery of prior period impairment charges. In connection with the acquisition of certain
content licenses in 2002, we received a note receivable of $10.0 million of which $5.0 million
remained outstanding as of March 31, 2005. This note was fully reserved in 2002 due to
uncertainties regarding its collection. On April 28, 2005, we collected the outstanding balance of
$5.0 million on this note and we recorded the $5.0 million as a component of operating income in
the quarter ending June 30, 2005.
Interest income and other, net. Interest income and other, net, was $392,000 for the three
months ended June 30, 2005, compared to $160,000 for the three months ended June 30, 2004. The
increase was primarily due to the collection of the remaining interest related to the note
receivable mentioned above. In addition we received cash of $94,000 during the second quarter of
2005 on preferred shares we previously acquired in an unrelated company which was recorded as a
gain on investment. Our original investment in this company had been written down to zero in a
prior period.
For the six months ended June 30, 2005 compared with six months ended June 30, 2004
Net revenue. Net revenue was $3.6 million for the six months ended June 30, 2005 compared to
$7.8 million for the six months ended June 30, 2004. Net revenue included $3.0 million and $5.8
million in domestic sales for the six months ended June 30, 2005 and 2004, respectively, and
$553,000 and $2.0 million in international sales for the six months ended June 30, 2005 and 2004,
respectively. Revenue for the six months ended June 30, 2005 includes the recognition of deferred
revenue of approximately $3.1 million, that was deferred at December 31, 2004. Revenue for the six
months ended June 30, 2004 includes the recognition of deferred revenue of approximately $5.2
million, that was deferred at December 31, 2004. The decrease in revenue is the result of
significantly lower unit sales for our Beamer videophone products in both the domestic and
international market. These lower sales are believed to result from a decrease in sales and promotion campaigns and an overall
decrease in sales and marketing personnel. For the six months ended June 30, 2005, Best Buy and The
Shaper Image accounted for approximately 32% and 16%, respectively, of our net revenue. For the six
months ended June 30, 2004, CEC and The Sharper Image accounted for approximately 19% and 15%,
respectively, of our net revenue.
13
Cost of goods sold. Cost of goods sold was $2.9 million for the six months ended June 30, 2005
compared to $2.4 million for the six months ended June 30, 2004. The increase is primarily due to
during the six months ended June 30, 2005 product costs were recorded at full cost as compared to
the six months ended June 30, 2004 where our inventory costs for our Beamer videophone products
were expensed in prior periods. 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 six months ended June 30, 2004 was lower than what would otherwise have been recorded.
Gross profit. Gross profit was $746,000 for the six months ended June 30, 2005 compared to
$5.4 million for the six months ended June 30, 2004. If we had not previously expensed inventory
costs, our gross profit for the six months ended June 30, 2004 would have been approximately $2.8
million.
Engineering and development. Engineering and development expenses were $577,000 for the six
months ended June 30, 2005, compared to $602,000 for the six months ended June 30, 2004. The
decrease was primarily due to reductions in engineering personnel offset by an increase in
engineering expenses related to the development of a broadband videophone product. We expect
engineering and development expenses to be relatively constant in future periods.
Sales and marketing. Sales and marketing expenses were $417,000 for the six months ended June
30, 2005, compared to $1.1 million for the six months ended June 30, 2004. The decrease was
primarily due to reductions in sales and marketing personnel and an overall decrease in certain
marketing and promotion initiatives such as e-marketing, direct mail and print advertising. We
expect sales and marketing expenses to be relatively constant 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. Without these
programs, we may experience further declines in revenue.
General and administrative. General and administrative expenses were $2.4 million for the six
months ended June 30, 2005 compared to $2.7 million for the six months ended June 30, 2004. The
decrease is primarily due to reductions in general and administrative personnel, decreases in
depreciation due to assets becoming fully depreciated. These
decreases were partially offset by increases in
legal expenses and outside services in connection with the proposed merger with Victory Acquisition
Corp. We expect to incur additional expenses for legal and other professional services related to
the proposed merger.
Recovery of prior period impairment charges. In connection with the acquisition of certain
content licenses in 2002, we received a note receivable of $10.0 million of which $5.0 million
remained outstanding as of March 31, 2005. This note was fully reserved in 2002 due to
uncertainties regarding its collection. On April 28, 2005, we collected the outstanding balance of
$5.0 million on this note and we recorded the $5.0 million as a component of operating income in
the quarter ending June 30, 2005.
Interest income and other, net. Interest income and other, net, was $595,000 for the six
months ended June 30, 2005, compared to $369,000 for the six months ended June 30, 2004. The
increase was primarily due to the collection of the remaining interest related to the note
receivable mentioned above. In addition we received cash of $94,000 during the second
quarter of 2005 on preferred shares we previously acquired in an unrelated company which was
recorded as a gain on investment. Our original investment in this company had been written down to
zero in a prior period.
Liquidity and Capital Resources
As of June 30, 2005, we had $25.1 million in cash and cash equivalents, restricted cash and
short-term investments compared to $21.5 million as of December 31, 2004, representing an increase
of $3.6 million.
Our principal sources of liquidity are cash and cash equivalents and investments. Net cash
provided by operating activities was $3.7 million for the six months ended June 30, 2005 compared
to $2.9 million net cash used in operating activities for the six months ended June 30, 2004,
representing an increase of approximately $6.6 million. The increase in cash provided by operating
activities during the six months ended June 30, 2005 compared to the six months ended June 30,
2004, was primarily due to the $5.0 million received by us for repayment of a note receivable, a
significant decrease in purchases of inventory and a
decrease in deferred profit and accounts payable.
Net cash provided by investing activities for the six months ended June 30, 2005 was $12.6
million compared to $1.5 million for the six months ended June 30, 2004 representing an increase of
approximately $11.1 million. Net cash provided by investing activities for the six months ended June
30, 2005 and 2004 was primarily due to a reduction in purchases and an increase in sales of
short-term investments and release of $3.0 million in restricted cash.
14
Net cash provided by financing activities for the six months ended June 30, 2005 was $4,000
compared to $8,000 for the six months ended June 30, 2004.
Capital expenditures for the 12-month period ending December 31, 2005 are anticipated to be
approximately $50,000, primarily to acquire 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 and
the six months ended June 30, 2005. As of June 30, 2005, approximately 8,036,000 shares remain
authorized for repurchase.
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 amended lease agreement for our
headquarters with ESS expired June 30, 2005. We have recently negotiated a new amendment to the
lease with ESS. The terms of the new amendment include a significant reduction in the amount of
square footage leased and a lease term on a month to month basis with a 60 day cancellation notice
by either party to the lease. If we stay in our headquarters at the new amended rate, rental
payments to ESS will be $58,000 and $76,000 for the six months ended
December 31, 2005 and for the year ended
2006, respectively. Under the terms of our other leases, with various expiration dates through
2006, our future minimum rental payments as of June 30, 2005 for our other lease are $98,000 and
$141,000 for the six months ended December 31, 2005 and for the year ended 2006, respectively
We believe that our existing cash and cash equivalents and investments will be sufficient to
fund our operations through June 30, 2006. 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.
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 at December 31, 2004.
Previously, such investments had been classified as cash and cash equivalents. Accordingly, we have
revised the classification to exclude $5.8 million from cash and cash equivalents at June 30, 2004,
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 from
sale of the auction rate securities as investing activities. These revisions resulted in a net
decrease in cash provided by investing activities of $1.4 million for the six months ending June
30, 2004.
Critical Accounting Policies
Our critical accounting policies were disclosed in Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” of our Form 10-K for the year ended
December 31, 2004. On an ongoing basis, we re-evaluate our judgments and estimates including those
related to valuation of inventories, valuation of long-lived assets and certain risks and
concentrations. We base our estimates and judgments on our historical experience, knowledge of
current conditions and our beliefs of what could occur in the future considering available
information. Actual results may differ from these estimates under different assumptions or
conditions. We apply our estimates and judgments consistently for all periods presented.
Other Factors That May Affect Our Business and Future Results
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 ability to achieve revenues and profitability; the risks and expenses of
15
the proposed merger with Victory; 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; seasonal trends identified in
the our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and other filings
with the Securities and Exchange Commission.
ITEM 3: 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 June 30, 2005, 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.
ITEM 4: 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 SEC’s 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 subsequent to the date of our evaluation.
16
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
| (a) |
|
Exhibits. We incorporate by reference all exhibits filed in connection with our annual report
on Form 10K for the year ended December 31, 2004. |
| |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
| |
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
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| |
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 |
17
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.
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VIALTA, INC. (Registrant) |
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Date:
August 15, 2005
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By:
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/s/ Didier Pietri
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Didier Pietri |
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Chief Executive Officer |
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By:
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/s/ William M. Scharninghausen |
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William M. Scharninghausen |
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Chief Financial Officer |
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18
EXHIBIT INDEX
| |
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| Exhibit |
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| Number |
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Description |
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
31.2
|
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Certification of Chief Financial Officer 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 |
19