UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the Month of July 2005
Commission file number: 0-30910
O2 MICRO INTERNATIONAL LIMITED
(Translation of registrant's name into English)
Grand Pavilion Commercial Centre, West Bay Road
P.O. Box 32331 SMB, George Town
Grand Cayman, Cayman Islands
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): [ ]
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): [ ]
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K if submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
-----------
INDEX
O2 MICRO INTERNATIONAL LIMITED
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 AND
DECEMBER 31, 2004 3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND
MARCH 31, 2004 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2005 AND MARCH 31, 2004 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 15
PART II OTHER INFORMATION
Item 1. EXHIBITS 16
EXHIBIT INDEX 16
SIGNATURE 17
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousand U.S. Dollars, Except Per Share Amounts)
March 31, December 31,
2005 2004
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 46,526 $ 56,320
Restricted cash 2,113 1,887
Short-term investments 70,238 63,768
Accounts receivable, net 9,533 9,431
Inventories 9,314 11,231
Prepaid expenses and other current assets 8,037 4,491
-------- --------
Total Current Assets 145,761 147,128
-------- --------
LONG-TERM INVESTMENTS 17,296 11,781
-------- --------
LAND, PROPERTY AND EQUIPMENT, NET 10,784 10,758
-------- --------
RESTRICTED ASSETS 13,841 13,873
-------- --------
OTHER ASSETS 1,517 1,656
-------- --------
TOTALS $189,199 $185,196
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and accounts payable $ 3,335 $ 3,635
Income taxes payable 3,728 3,751
Accrued expenses and other current liabilities 9,326 7,029
-------- --------
Total Current Liabilities 16,389 14,415
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preference shares at $0.001 par value per share
Authorized - 5,000,000 shares -- --
Ordinary shares at $0.001 par value per share
Authorized - 95,000,000 shares
Issued - 39,141,757 shares and 39,188,062 shares as of
March 31, 2005 and December 31, 2004, respectively 39 39
Additional paid-in capital 139,456 139,581
Accumulated other comprehensive income (loss) 403 (110)
Retained earnings 32,912 31,271
-------- --------
Total Shareholders' Equity 172,810 170,781
-------- --------
TOTAL $189,199 $185,196
======== ========
The accompanying notes are an integral part of the financial statements.
3
O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In Thousand U.S. Dollars, Except Per Share Amounts)
Three Months Ended
March 31
------------------
2005 2004
------- -------
NET SALES $23,277 $22,196
COST OF SALES 8,930 9,400
------- -------
GROSS PROFIT 14,347 12,796
------- -------
OPERATING EXPENSES
Research and development 5,330 4,561
Selling, general and administrative 4,664 3,651
Patent litigation 2,536 608
------- -------
Total Operating Expenses 12,530 8,820
------- -------
INCOME FROM OPERATIONS 1,817 3,976
------- -------
NON-OPERATING INCOME (EXPENSES)
Interest income 608 231
Gain on sale of long-term investments -- 340
Foreign exchange gain (loss), net (10) 222
Other, net (12) 3
------- -------
Total Non-operating Income 586 796
------- -------
INCOME BEFORE INCOME TAX 2,403 4,772
INCOME TAX EXPENSE 314 566
------- -------
NET INCOME 2,089 4,206
------- -------
OTHER COMPREHENSIVE INCOME (LOSS)
Translation adjustments on subsidiaries 229 170
Unrealized gain (loss) on available-for-sale securities 284 (86)
------- -------
Total Other Comprehensive Income (Loss) 513 84
------- -------
COMPREHENSIVE INCOME $ 2,602 $ 4,290
======= =======
EARNINGS PER SHARE:
Basic $ 0.05 $ 0.11
======= =======
Diluted $ 0.05 $ 0.10
======= =======
SHARES USED IN EARNINGS PER SHARE CALCULATION:
Basic (in thousands) 39,178 39,054
======= =======
Diluted (in thousands) 39,571 40,617
======= =======
The accompanying notes are an integral part of the financial statements.
4
O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousand U.S. Dollars)
Three Months Ended
March 31,
-------------------
2005 2004
-------- --------
OPERATING ACTIVITIES:
Net income $ 2,089 $ 4,206
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 791 688
Amortization of stock options granted for services 66 37
Amortization of discount on short-term investments (102) --
Gain on sale of long-term investments -- (340)
Deferred income tax 309 58
Changes in operating assets and liabilities:
Accounts receivable, net (102) (1,728)
Inventories 1,917 1,474
Prepaid expenses and other current assets (3,832) (145)
Notes and accounts payable (300) (1,099)
Income taxes payable (23) 558
Accrued expenses and other current liabilities 2,277 (383)
-------- --------
Net Cash Provided by Operating Activities 3,090 3,326
-------- --------
INVESTING ACTIVITIES
Other current assets -- 37
Acquisitions of:
Land, property and equipment (740) (498)
Short-term investments (28,570) (43,307)
Long-term investments (5,235) (320)
(Increase) decrease in:
Restricted assets -- (484)
Restricted cash (226) (9)
Other assets 8 (72)
Proceeds from:
Sale of short-term investments 22,220 32,986
Sale of long-term investments -- 1,020
-------- --------
Net Cash Used in Investing Activities (12,543) (10,647)
-------- --------
5
Three Months Ended
March 31,
------------------
2005 2004
------- -------
FINANCING ACTIVITIES:
Acquisitions of treasury stock (694) (172)
Proceeds from exercise of stock options 118 830
Payment of principal on capital leases -- (1)
------- -------
Net Cash Provided by (Used in) Financing Activities (576) 657
------- -------
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATE 235 104
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,794) (6,560)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 56,320 66,489
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $46,526 $59,929
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Cash paid for interest $ 0 $ 1
Cash paid for income taxes $ 28 $ 16
NON-CASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on investments accounted for
available-for-sale $ 284 ($86)
The accompanying notes are an integral part of the financial statements.
6
O//2//MICRO INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars Unless Otherwise Noted)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in management's opinion, include
all adjustments, consisting only of normal recurring accruals necessary to
fairly present the resulting operations for the indicated periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 20-F for the
year ended December 31, 2004 as filed with the SEC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(R) "Share-Based Payment."
SFAS No. 123(R) requires that companies recognize compensation expense
equal to the fair value of stock options or other share based payments for
the annual reporting period that begins after June 15, 2005. SFAS No.
123(R) applies to all awards granted after January 1, 2006, and prior
period's awards that are modified, repurchased, or cancelled after January
1, 2006. The impact on the Company's net income will include the remaining
amortization of the fair value of existing options currently disclosed as
pro forma expense in Note 2 and is contingent upon the number of future
options granted, the selected transition method and the selection of either
the Black-Scholes or the binominal lattice model for valuing options. The
adoption of this standard will have no impact on the Company's cashflows.
3. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities:
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited)
-----------
(In Thousands)
US treasury bills $28,875 $19,967
Time deposits 20,722 23,038
Corporate bonds 16,223 17,014
Foreign government bonds 4,393 3,724
7
Others 25 25
------- -------
$70,238 $63,768
======= =======
Available-for-sale securities by contractual maturity are as follows:
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited)
-----------
(In Thousands)
Due within one year $67,484 $61,023
Due after one year through two years 1,702 1,698
Due after two years 1,052 1,047
------- -------
$70,238 $63,768
======= =======
The Company's gross unrealized gains and losses for the three months ended March
31, 2005 were $199,000 and $84,000, respectively and at December 31, 2004 were
$293,000 and $182,000, respectively
4. ACCOUNTS RECEIVABLE, NET
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited)
-----------
(In Thousands)
Accounts receivable $9,940 $9,838
Allowances for:
Doubtful receivables (90) (90)
Sales returns and discounts (317) (317)
------ ------
$9,533 $9,431
====== ======
5. INVENTORIES
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited)
-----------
(In Thousands)
Finished goods $3,268 $ 2,844
Work-in-process 3,542 4,336
Raw materials 2,504 4,051
------ -------
$9,314 $11,231
====== =======
6. LONG-TERM INVESTMENTS
8
In January 2005, the Company purchased 180,769 Series D Preference shares
of 360 Degree Web at $1.30 per share. As of March 31, 2005, the Company's
ownership was 19.52%.
9
In January 2005, the Company purchased 5,882,353 ordinary shares of a
privately owned foundry company at $0.85 per share for a total amount of
$5,000,000. The Company held 9.16% ownership of this company as of March
31, 2005.
In August 2004, the Company invested in CSMC's ordinary shares which are
listed in Hang Seng Stock Market in Hong Kong. CSMC is a semiconductor
foundry company. The Company held 70,200,000 shares acquired for a purchase
price of $4,547,000, which represents approximately 2.67% ownership of
CSMC. As of March 31, 2005, the Company recognized unrealized gains of
$16,000.
7. INCOME TAXES
The effective income tax rate for three months ended March 31 was 13.1% in
2005 and 11.9% in 2004, respectively.
8. EARNINGS PER SHARE
The following table shows the calculation of basic and diluted
earnings per share:
All numbers in thousands except earnings per share
Three Months Ended
March 31,
------------------
2005 2004
------- -------
(Unaudited)
Basic earnings per share:
Net income $ 2,089 $ 4,206
======= =======
Weighted average shares outstanding - basic 39,178 39,054
Earnings per share - basic $ 0.05 $ 0.11
======= =======
Diluted earnings per share:
Net income $ 2,089 $ 4,206
======= =======
Weighted average shares outstanding - basic 39,178 39,054
Effect of dilutive securities:
Options 393 1,563
------- -------
Weighted average shares outstanding - diluted 39,571 40,617
======= =======
Earnings per share - diluted $ 0.05 $ 0.10
======= =======
9. RELATED PARTY TRANSACTIONS
In 2001, James Keim, one of the Company's directors, accepted the assignment of
Head of Marketing and Sales in the Cayman Islands, and moved to the Cayman
Islands in December 2001. In
10
connection with the move and to assist Mr. Keim to purchase a residence in the
Cayman Islands, the Company entered into a term loan agreement with Mr. Keim in
February 2002, under which the Company made an interest free, unsecured loan in
the amount of $400,000 to Mr. Keim. The loan is repayable in February 2007. As
of March 31, 2005, $18,000 had been repaid.
10. CONTINGENCIES
Monolithic Power Systems, Inc. ("MPS"), a company based in Los Gatos,
California, USA has alleged that our OZ960, OZ961, OZ969 and OZ970 products
infringe on one of their patents and a continuation of that patent. Litigation
on such claim is pending in the United States District Court in the Northern
District of California. We have answered MPS' claims, denying all of their
substantive allegations. In addition, given the results of the claims
constructions adopted by the Court on November 26, 2001 and December 27, 2002,
we believe that we have meritorious defenses against MPS' allegations. On May
28, 2004, the Court granted our motion for summary judgment that MPS lacked
evidence of damages. As the judgment currently stands, MPS will not be able to
recover damages at trial but may only attempt to seek injunctive relief and
attorneys' fees. Trial on these claims commenced in June 2005. On July 18, 2005,
we received a jury verdict that our 0Z960, 0Z961, 0Z969 and 0Z970 products did
not infringe any of MPS' asserted claims and that all such asserted claims were
invalid. The verdict is subject to post-trial motions by MPS to overturn the
verdict, entry of judgment by the Court and possible subsequent appeal by MPS.
In January 2004, we filed a lawsuit in the U.S. District Court in the Eastern
District of Texas against Beyond Innovation Technology Co., Ltd., SPI Electronic
Co., Ltd., FSP Group and Lien Chang Electronic Enterprise Co., Ltd. The lawsuit
asserts that those companies infringe one or more claims of U.S. Patent Nos.
6,259,615 and 6,396,722 and in an amended complaint, U.S. Patent No. 6,804,129.
They have counterclaimed for antitrust violations and interference. Trial on
these claims is currently scheduled to commence December 2005.
In October 2004, we filed a lawsuit in the U.S. District Court in the Eastern
District of Texas against MPS alleging infringement of one or more claims of
U.S. Patent No. 6,804,129. MPS has counterclaimed for antitrust violations and
unfair competition.
While the Company cannot make any assurance regarding the eventual resolution of
these matters, the Company does not believe the final outcome will have a
material adverse effect on its consolidated results of operations or financial
condition.
The Company, as a normal course of business, is a party to various litigation
matters, legal proceedings and claims. These actions may be in various
jurisdictions, and may involve patent protection and/or patent infringement.
While the results of such litigations and claims cannot be predicted with
certainty, the final outcome of such matters is not expected to have a material
adverse effect on its consolidated financial position or results of operations.
No assurance can be given, however, that these matters will be resolved without
the Company becoming obligated to make payments or to pay other costs to the
opposing parties, with the potential for having an adverse effect on the
Company's financial position or its results of operations.
11. SEGMENT INFORMATION
11
The Company designs, develops and markets innovative power management and
security components for mobile communication, computer, information appliance
and LCD products. The Company's integrated circuit products are produced with
digital, analog, and mixed signal integrated circuit manufacturing processes.
The Company's Chief Operating Decision Maker ("CODM"), the Chief Executive
Officer, reviews information on an enterprise-wide basis to assess performance
and allocate resources so the Company has one reporting segment.
Net revenues from unaffiliated customers by geographic region are based on the
customer's ship-to location and were as follows:
Three Months Ended March 31
---------------------------
2005 2004
------- -------
(Unaudited)
(In Thousands)
Asia $23,263 $22,191
United States 14 5
------- -------
$23,277 $22,196
======= =======
Long-lived assets consist of land, property and equipment and are based on the
physical location of the assets at the end of each period.
March 31, 2005 December 31, 2004
-------------- -----------------
(Unaudited)
-----------
(In Thousands)
Taiwan $ 2,603 $ 2,772
U.S.A. 6,529 6,551
Singapore 263 327
People's Republic of China 852 757
Others 537 351
------- -------
$10,784 $10,758
======= =======
For the three months ended March 31, 2005, one customer accounted for 10.5% of
net revenues. For the three months ended March 31, 2004, one customer accounted
for 10.4% of net revenues.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this quarterly
report and with Operating and Financial Review and Prospects contained in the
Company's Annual Report on Form 20-F (the "Annual Report").
Overview
We design, develop and market high performance mixed signal integrated
circuits for power management, power saving applications and computer security
applications. Our net sales have been derived primarily from the sale of
integrated circuit products to customers in the computer, consumer
12
electronics, industrial and communications markets. Products in these markets
include notebook computers, liquid crystal displays, mobile phones, portable
intelligent devices, global positioning systems and portable DVD players. Our
system-level expertise, proprietary design methodologies and extensive
experience with power management systems allow us to develop products quickly so
that our customers can achieve rapid time to market with new devices. Our
products are used in electronic devices currently sold by large computer and
consumer electronics companies.
We utilize a "fabless" semiconductor business model, which means we focus
on designing, developing and marketing products, while having these products
manufactured by large independent semiconductor foundries. Because we are a
fabless semiconductor company, we do not need to invest significant capital to
manufacture semiconductor devices, and can take advantage of some of the
cost-efficiencies of third-party foundries. We place purchase orders with third
parties for specific quantities of packaged semiconductor devices or wafers at
set prices. We also use third parties to test and assemble our products, which
reduces the capital we need to invest in these activities.
Results of Operations
Net Sales. Net sales for the three months ended March 31, 2005 were $23.3
million, an increase of $1.1 million or 4.9% from $22.2 million for the three
months ended March 31, 2004. The increase in net sales reflects the stronger
demand in the computer and consumer electronics market that comprise the
majority of the revenue.
Gross Profit. Gross profit for the three months ended March 31, 2005 was
$14.3 million, an increase of $1.6 million or 12.1% from $12.8 million for the
three months ended March 31, 2004. This change was due to the continuous efforts
on reducing costs. We expect that our gross profit as a percentage of net sales
will fluctuate in the future as a result of the stages of our products in their
life cycles, variations in our product mix, the timing of our product
introductions and specific product manufacturing costs.
Research and Development Expenses. Research and development expenses for
the three months ended March 31, 2005 were $5.3 million, an increase of $769,000
or 16.9% from $4.6 million for the three months ended March 31, 2004. This
increase was primarily due to hiring of additional personnel and re-arrangement
of several shuttle runs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 2005 were $4.7
million, an increase of $1.0 million or 27.7% from $3.7 million for the three
months ended March 31, 2004. This increase in absolute dollar amount was
primarily due to increased expenses relating to intellectual property protection
activities, hiring of additional personnel, traveling, and other expenses
associated with the hiring of additional personnel.
Patent Litigation Expenses. Patent litigation expenses consist primarily of
fees paid to outside counsel and consultants engaged by outside counsel. Patent
litigation expenses for three months ended March 31, 2005 were $2.5 million, an
increase of $1.9 million or 317.1% from $608,000 for three months ended March
31, 2004. The increase in absolute dollars was primarily due to increased
litigation activity in existing cases and filing of additional litigation by us.
Non-operating Income-net. Non-operating income-net for the three months
ended March 31, 2005 was $586,000, a decrease of $210,000 from $796,000 for the
three months ended March 31, 2004, primarily reflecting increased interest
income and offset by foreign exchange loss recognized due to the foreign
currency fluctuation.
13
Income Taxes. Income tax expenses for the three months ended March 31, 2005
was $314,000, a decrease of $252,000 from $566,000 for the three months ended
March 31, 2004. The effective income tax rate for three months ended March 31,
2005 was 13.1% and 11.9% for the three months ended March 31, 2004. The
effective rate was higher for the three months ended March 31, 2005 primarily
due to the quarterly evaluation of deferred income tax assets based on the
future possible realization of profit.
Our quarterly results of operations have fluctuated significantly in the
past and may continue to fluctuate in the future based on a number of factors,
not all of which are in our control. In particular, our results of operations
have fluctuated in the past due to, among other things, changes in demand for
devices that use our products; general business conditions in the semiconductor
industry and the economy as a whole; general economic conditions; currency
fluctuations; changes in the volume of product sales and in the mix of sales of
higher margin products and lower margin products; competitive pressures on
selling prices; the timing and cancellation of customer orders; lengthy sales
cycles; pricing concessions on volume sales; product pricing from foundries; the
availability of foundry capacity; our ability to develop, introduce and market
new products and technologies on a timely basis; introduction of products and
technologies by our competitors; and market acceptance of our and our customers'
products. As a result of the foregoing factors, we believe period to period
comparisons are not necessarily meaningful and should not be relied upon as
indicative of future results.
Liquidity and Capital Resources
On March 31, 2005, we had $145.8 million in total current assets, including
$46.5 million in cash and cash equivalents and $70.2 million in short-term
investments. Our operating activities provided $3.1 million cash during the
three months ended March 31, 2005. Additionally, our investing activities
consumed cash of $12.5 million in the three months ended March 31, 2005 and our
financing activities consumed cash of $576,000 in the three months ended March
31, 2005. As of March 31, 2005, we have deposited $13.8 million with the Taiwan
courts for court bonds in connection with preliminary injunction actions and
related provisional attachment actions that we are pursuing against various
parties in Taiwan. The court bonds provide security for the enjoined party to
claim damages against in the event we do not ultimately prevail in the
underlying infringement action associated with the particular preliminary
injunction action or provisional attachment action. While the results of such
litigation cannot be predicted with certainty, the final outcome of such matters
is not expected to have a material adverse effect on our consolidated financial
position or results of operations. No assurance can be given, however, that
these matters will be resolved without us becoming obligated to make payments or
to pay other costs to the opposing parties, with the potential for having an
adverse effect on our financial position or its results of operations.
We expect our operating activities will continue to generate additional
cash but we expect to continue to deposit more cash with the Taiwan courts for
preliminary injunctions and provisional attachment actions.
Disclosure Regarding Forward-Looking Statements
This Form 6-K contains statements of a forward-looking nature. These
statements are made under the "safe harbor" provisions of the U.S. Private
Securities Litigation Reform Act of 1995. You can identify these forward-looking
statements by terminology such as "may," "will," "expects," "should," "could,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms and other comparable
terminology. These forward-looking statements include statements relating to our
ability to develop products in a timely manner to meet customer demands, our
ability to take advantage of cost-efficiencies associated with the "fabless"
semiconductor business model,
14
our future gross profits, continued expansion of engineering, research and
development resources, our efforts to reduce costs and expenses, our future
research and development expenses and our future selling, general and
administrative expenses. The forward-looking statements contained in this Form
6-K involve known and unknown risks, uncertainties and other factors that may
cause our or the industry's actual results, levels of activity, performance or
achievements to be materially different from the future results, levels of
activity, performance or achievements expressed or implied by these statements.
Such risks and uncertainties include: changes in demand for devices that use our
products; market conditions in the semiconductor industry and the economy as a
whole; the stages of our products in their life cycles, variations in our
product mix, the timing of our product introductions, specific product
manufacturing costs, increased competition, introduction of new competing
technologies and the increase of unexpected expenses. These factors also
include, among other things, those risks outlined in our filings with the
Securities and Exchange Commission, including our Annual Report, that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. We assume no obligation to update or revise any
forward-looking information, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss related to adverse changes in market
prices, including interest rates and foreign exchange rates, of financial
instruments. In the normal course of business, our financial position is
routinely subject to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non-U.S. dollar
denominated assets and liabilities, as well as collectibility of accounts
receivable.
We regularly assess these financial instruments and their ability to
address market risk and have established policies and business practices to
protect against the adverse effects of these and other potential exposures.
Interest Rate Risk
Our major market risk exposure is changing interest rates. Our exposure to
market risk for changes in interest rates relates primarily to our investments
in US treasury bills, time deposits, government and corporate bonds.
We maintain an investment portfolio consisting mainly of fixed income
securities. These securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market rates were to increase
immediately and uniformly by 10.0% from the levels at March 31, 2005, the fair
value of the portfolio would decline by an immaterial amount. We presently
intend to treat our fixed income investments as available for sale, and
therefore we do not expect our operating results or cash flows to be affected to
any significant degree by the effect of a sudden short-term change in market
interest rate exposures. We did not purchase or hold any derivative financial
instruments for trading purposes.
The table below provides information about our financial instruments whose
maturity dates are greater than three months as of March 31, 2005.
15
Expected Maturity Dates
-------------------------------------------------------------
Total
2009 and Carrying Fair
2005 2006 2007 2008 thereafter Value Value
----- ----- ----- ---- ---------- -------- ------
(in thousands)
US Treasury Bills
Fixed rate (US$) -- -- -- -- -- -- --
Government Bonds:
Fixed rate (US$) -- 4,197 6,953 -- 1,671 12,821 12,608
Time Deposits:
Fixed rate (US$) 1,169 6,331 -- -- -- 7,500 7,500
Corporate Bonds
Fixed rate (US$) -- -- -- -- -- -- --
Others
Fixed rate (US$) -- -- -- -- -- -- --
Foreign currency risk
Fluctuations in exchange rates may adversely affect our financial results.
The functional currencies for our foreign subsidiaries are their local
currencies. As a result, certain of our assets and liabilities, including
certain bank accounts, accounts receivable, restricted assets and accounts
payable, exist in non-U.S. dollar denominated currencies such as New Taiwan
Dollar, which are sensitive to foreign currency exchange rate fluctuations. As
of March 31, 2005, we held approximately $18.7 million in government bonds,
certificates of deposits, time deposits and demand accounts denominated in New
Taiwan Dollars.
We have not engaged in hedging techniques designed to mitigate foreign
currency exposures and we may experience economic loss as a result of foreign
currency exchange fluctuations. In the three month period ended March 31, 2005,
we experienced losses of $10,000 due to foreign currency exchange fluctuations,
which are reflected in our results of operations.
PART II. OTHER INFORMATION
Item 1. Exhibits
(a) Exhibits:
The Exhibit Index attached hereto is hereby incorporated by reference to
this Item.
(b)
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------- -------------
99 Press Release
16
SIGNATURES
Pursuant to the requirements 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.
O2 MICRO INTERNATIONAL LIMITED
Date: July 20, 2005 /S/ STERLING DU
-------------------------------
Name: Sterling Du
Title: Chief Executive Officer
17