United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ x ] Quarterly Report Pursuant To Section 13 Or 15(d) of The Securities Exchange Act Of 1934 For the Period Ended June 30, 1995 or [ ] Transition Report Pursuant to Section 10 or 15(d) of The Securities Exchange Act of 1934 For the Transition Period From ________ to _________ Commission File Number 0-15449 CALIFORNIA MICRO DEVICES CORPORATION (Exact name of registrant as specified in its charter) California 94-2672609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 215 Topaz Street, Milpitas, California 95035-5430 Address of principal executive offices) (Zip Code) (408) 263-3214 (Registrant's telephone number, including area code) Not applicable (Former name, former address, and former fiscal year if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No __ Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes: X No __ Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of June 30, 1995, there were outstanding 10,181,404 shares of Issuer's Common Stock. 1 CALIFORNIA MICRO DEVICES CORPORATION INDEX PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements Statements of Operations Three Months Ended June 30, 1995 and 1994 2 Balance Sheets June 30, 1995 and March 31, 1995 3 Statements of Cash Flows Three Months Ended June 30, 1995 and 1994 4 Notes to Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 9 Item 6. Exhibits and Reports on Form 8-K 9 Signature 10 i PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements. CALIFORNIA MICRO DEVICES CORPORATION STATEMENTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data) (Unaudited) Three Months Ended June 30, 1995 1994 (restated) Revenues: Net product sales $ 8,344 $ 6,378 Technology related sales 303 5,720 ------- ------- Total revenues 8,647 12,098 Cost and expenses: Cost of sales 4,753 16,415 Research and development 866 893 Selling, marketing and administrative 2,474 2,560 ------- ------ Total costs and expenses 8,093 19,868 ------- ------ Operating income (loss) 554 (7,770) Other expense, net 37 246 ------ ------- Income (loss) before income taxes 517 (8,016) Income taxes (benefit) - (628) ------ ------ Net income (loss) $ 517 $(7,388) Net income (loss) per share $ 0.05 $ (0.92) ====== ======= Weighted average common shares and share equivalents outstanding 9,782 8,020 2 CALIFORNIA MICRO DEVICES CORPORATION BALANCE SHEETS (Amounts in Thousands, Except Share Data) (Unaudited) June 30, March 31, 1995 1995 ASSETS: Current assets: Cash and cash equivalents $ 9,698 $10,556 Short-term securities 8,250 8,404 Accounts receivable, less allowance for doubtful accounts of $1,022 and $832 3,813 3,203 Inventories 4,575 4,747 Refundable income taxes and other assets 5,284 5,445 ------- ------- Total current assets 31,620 32,355 Property and equipment, net 7,267 6,665 Restricted cash 1,230 989 Other long-term assets 679 679 ------- ------- Total assets $40,796 $40,688 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,978 $ 2,725 Accrued salaries and benefits 783 560 Other accrued liabilities 3,766 3,748 Deferred margin on shipments to distributors 1,066 1,157 Current maturities of long-term debt and capital lease obligations 2,353 2,516 ------- ------- Total current liabilities 10,946 10,706 Long-term debt, less current maturities 7,840 7,923 Capital lease obligations less current maturities 792 1,278 Deferred income 108 136 ------- ------- Total liabilities 19,686 20,043 Shareholders' equity: Common stock - no par value; authorized 25,000,000; issued and outstanding 10,181,404 shares 54,947 54,947 Retained earnings (33,837) (34,302) ------- ------- Total shareholders' equity 21,110 20,645 ------- ------- Total liabilities and shareholders' equity $40,796 $40,688 ======= ======= 3 CALIFORNIA MICRO DEVICES CORPORATION STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited) Three Months Ended June 30, 1995 1994 (restated) Cash flows from operating activities: Net income (loss) $ 517 $ (7,389) Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 360 596 Net change in inventories 172 10,372 Net change in accounts receivable (610) 599 Net change in prepaid expenses and other current assets 161 246 Net change in trade accounts payable and other current liabilities 232 (165) Net change in other long-term assets - 374 Deferred margin on distributor sales 91 - ------- ------- Net cash provided by operating activities 923 4,633 ------- ------- Cash used in investing activities: Net security purchases 154 (3,000) Capital expenditures (962) (1,096) Net change in restricted cash (241) (241) ------- ------- Net cash used in investing activities (1,049) (4,337) ------- ------- Cash (used) provided by financing activities: Payment of capital lease obligations (648) (459) Payment of long-term debt (84) (82) Proceeds from sale/leaseback - 1,383 Proceeds from issuance of common stock - 15,389 ------- ------- Net cash (used) provided by financing activities (732) 16,231 ------- ------- Net increase (decrease) in cash and cash equivalents (858) 16,527 Cash and cash equivalents at the beginning of period 10,556 10,561 ------- ------- Cash and cash equivalents at the end of period $ 9,698 $27,088 ======= ======= Supplemental disclosure of cash flow information: Interest paid $ 148 $ 114 Income taxes paid $ - $ 210 Supplemental disclosure of non-cash investing and financing activities: Unrealized loss on securities $ (54) $ - Capital expenditures financed through capital lease obligations - $ 403 4 CALIFORNIA MICRO DEVICES CORPORATION Notes to Financial Statements 1. Basis of Presentation In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly its financial position as of June 30, 1995, results of operations for the three month periods ended June 30, 1995 and 1994, and cash flows for the three-month periods ended June 30, 1995 and 1994. Results for the quarter are not necessarily indicative of fiscal year results. The condensed financial statements should be read in conjunction with the California Micro Devices Corporation financial statements included with the Company's annual report on Form 10-K for the nine months ended March 31, 1995. 2. Change in Method of Accounting for Shipments to Distributors Effective July 1, 1994, the Company changed its accounting method of recognizing revenue on shipments to distributors until final sale by the distributor. Previously, including the quarter ended June 30, 1994, the Company recognized revenue at the time of shipment to the distributor. Distributor agreements allow the distributors certain rights of return and price protection on unsold merchandise. As a result, the Company believes that deferral of the recognition of distributor sales and related gross margins until the merchandise is resold by the distributors results in a more meaningful measurement of operations and is a preferable method of accounting for such shipments. Information to compute the proforma effect of this accounting change on the quarter ended June 30, 1994 is not available. 3. Litigation On August 4, 1995, Judge Vaughn Walker of the U. S. District Court for Northern California, issued an order regarding the securities class action lawsuits filed against the Company. Judge Walker, in ruling on the bids by two law firms to represent the propose class action of shareholders, rejected one bid and required the other law firm to undertake an evaluation of class members' affirmative support of the terms of the previously announced proposed settlement and that firm's attorney fee proposal. Judge Walker's order states that if the terms of the proposed settlement are not affirmatively supported by a significant portion of the prospective class, the court will disapprove the proposed class settlement, and will solicit bids from other law firms who seek to represent the prospective class. The order further states that if no other law firms bid for the right to represent the prospective class, the court will deny certification of the class. On May 5, 1995, the Company sued Chan Desaigoudar, its former CEO and Chairman of the Board, for fraud, negligent misrepresentation, breach of fiduciary duty, constructive trust and for injunctive relief, based on his actions as a corporate officer. Mr. Desaigoudar generally denied the allegations of the complaint, and on August 3, 1995, served his cross complaint against the Company for alleged breach of Mr. Desaigoudar's employment agreement 5 and other related alleged wrongs. The Company believes Mr. Desaigoudar's cross complaint to be without merit, and intends to vigorously pursue its action against him. 6 ITEM 2. Management's Discussion And Analysis of Financial Condition and Results of Operations. Results of Operations Product sales for the quarter ended June 30, 1995, increased by $1,966,000 or 31% compared to the quarter ended June 30, 1994, due primarily to increased sales of thin film products. Thin film products represented 61% of net product sales for the quarter ended June 30, 1995 as compared with 55% for the nine months ended March 31, 1995 and 45% for the twelve months ended June 30, 1994. Technology related revenue for the quarter ended June 30, 1995 related to engineering projects partially funded by Hitachi Metals, Ltd. (HML). Technology related revenue for the quarter ended June 30, 1994 relates to a one-time sale of rights to previously developed technology in connection with the initial alliance with HML. Cost of sales for the quarter June 30, 1995, are not comparable to the year-earlier period. Cost of sales for the quarter ended June 30, 1994, included a $10.2 million charge for obsolete and slow moving inventory and a $1.7 million warranty charge. Without those charges, cost of goods for the quarter ended June 30, 1994 would have been 71% of product sales as compared with 57% of product sales for the quarter ended June 30, 1995. This equates to a gross margin of 29% in the 1994 quarter as compared to 43% in the 1995 quarter. The improvement in product gross margins is attributable to higher mix of thin film products, improved factory utilization, and cost reduction programs. Research and development expenditures for the quarter ended June 30, 1995 were 10% of product sales compared to 14% of product sales for the quarter ended June 30, 1994. In dollar terms, however, research and development expenditures were relatively constant: $865,000 in the 1995 quarter compared to $893,000 in 1994. Selling, marketing, and administrative costs decreased as a percentage of sales to 30% in the quarter ended June 30, 1995 from 40% in the quarter ended June 30, 1994. The year-earlier quarter included a $1.3 million bad debt write-off and the June 30, 1995 quarter included over $200,000 of legal costs related to shareholder litigation and related matters. Absent these costs, selling, marketing and administrative costs would have been 27% in the quarter ended June 30, 1995 and 20% in the year earlier quarter. This increase is due primarily to higher audit and consulting costs associated with an ongoing clean-up of the Company's administrative affairs. As a result of the factors discussed above, operating income for the quarter ended June 30, 1995 was $554,000 compared to an operating loss of $7.8 million for the year earlier quarter. Other expense decreased to $37,000 in the 1995 quarter from $246,000 in the quarter ended June 30, 1994, primarily due to increased interest income from investments and also due to reduced interest expense on leased equipment. No income taxes were accrued for the quarter ended June 30, 1995, due to the availability of tax loss carryforwards. An income tax benefit of $628,000 was recognized for the quarter ended June 30, 1994, representing the amount of available tax loss carrybacks. 7 The weighted average of common shares outstanding increased to 9.8 million shares in the June 30, 1995 quarter compared to 8.0 million shares for the quarter ended June 30, 1994, primarily due to the issuance of 1.5 million shares held in trust for the tentative settlement of shareholder class action lawsuits and 100,000 shares issued to Hitachi Metals, Ltd. Liquidity and Capital Resources The Company's cash and cash equivalents decreased by $1,012,000, from $18,960,000 at March 31, 1995 to $17,948,000 at June 30, 1995, primarily due to capital expenditures of $962,000, which included end-of-lease equipment buy-outs of $258,000. The remaining capital expenditures of $704,000 are made up primarily of selected investments to enhance manufacturing efficiency and capacity and investments in new computer systems and software. Accounts receivable increased by $610,000 due to increased sales. Based on product sales, net days sales outstanding were 41 days for the 1995 quarter compared with 45 days for the three months ended June 30, 1994. Inventories remained relatively constant in dollars while sales increased 31%. Inventory management has been strengthened and will continue to be an area of focus. The Company expects to be able to fund its liquidity needs for at least the next twelve months through its existing cash balances, cash flows from operations, and bank borrowings under its line of credit. The Company has a bank line of credit, expiring July 31, 1996, under which it can borrow up to $3,000,000, at prime, collateralized by short term investments managed by the bank. There have been no borrowings against this line of credit. 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. On August 4, 1995, Judge Vaughn Walker of the U. S. District Court for Northern California, issued an order regarding the securities class action lawsuits filed against the Company. Judge Walker, in ruling on the bids by two law firms to represent the propose class action of shareholders, rejected one bid and required the other law firm to undertake an evaluation of class members' affirmative support of the terms of the previously announced proposed settlement and that firm's attorney fee proposal. Judge Walker's order states that if the terms of the proposed settlement are not affirmatively supported by a significant portion of the prospective class, the court will disapprove the proposed class settlement, and will solicit bids from other law firms who seek to represent the prospective class. The order further states that if no other law firms bid for the right to represent the prospective class, the court will deny certification of the class. On May 5, 1995, the Company sued Chan Desaigoudar, its former CEO and Chairman of the Board, for fraud, negligent misrepresentation, breach of fiduciary duty, constructive trust and for injunctive relief, based on his actions as a corporate officer. Mr. Desaigoudar generally denied the allegations of the complaint, and on August 3, 1995, served his cross complaint against the Company for alleged breach of Mr. Desaigoudar's employment agreement and other related alleged wrongs. The Company believes Mr. Desaigoudar's cross complaint to be without merit, and intends to vigorously pursue its action against him. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 11 Computation of Per Share Earnings (b) Reports on Form 8-K On August 1, 1995, the Company filed a report on Form 8-K, reporting the resignation of Mr. Chan Desaigoudar as a director of the Company. 9 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CALIFORNIA MICRO DEVICES CORPORATION (Registrant) Date: August 10, 1995 /s/ John E. Trewin John E. Trewin Vice President and Chief Financial Officer 10 EXHIBIT 11 CALIFORNIA MICRO DEVICES CORPORATION Computation of Per Share Earnings (Amounts in Thousands, Except Share Data) (Unaudited) Three Months Ended June 30, 1995 1994 (restated) Net income (loss) $ 517 $(7,388) ======= ======= PRIMARY: Weighted average common shares outstanding 9,346 8,020 Common equivalents attributable to: Options and warrants 436 - ------- ------- Total weighted average common and common equivalent shares outstanding 9,782 8,020 ======= ======= Net income (loss) per share $ 0.05 $ (0.92) ======= ======= FULLY DILUTED Weighted average common shares 9,346 8,020 Common equivalent attributable to: Options and warrants - using quarter-end market price 482 - ------- ------- Total weighted average common and common equivalent shares outstanding 9,828 8,020 ======= ======= Net income (loss) per share $ 0.05 $ (0.92) ======= ======== 11