<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1997
REGISTRATION NO. 333-33359
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SMART MODULAR TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 3674 77-0200166
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4305 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
(510) 623-1231
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
AJAY SHAH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SMART MODULAR TECHNOLOGIES, INC.
4305 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
(510) 623-1231
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
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TOR R. BRAHAM, ESQ. JOSHUA L. GREEN, ESQ.
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304-1050 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 854-4488
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If the only securities being registered on this form are being offered
pursuant to dividend or reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued August 28, 1997
2,070,000 Shares
LOGO
COMMON STOCK
------------------------
OF THE 2,070,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,100,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 970,000 SHARES ARE BEING SOLD BY THE SELLING
SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING SHAREHOLDERS.
THE COMPANY'S COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "SMOD." ON AUGUST 27, 1997, THE LAST SALE PRICE FOR THE COMMON STOCK AS
REPORTED ON THE NASDAQ NATIONAL MARKET WAS $61 15/16 PER SHARE. SEE "PRICE RANGE
OF COMMON STOCK."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Per Share............................. $ $ $ $
Total(3).............................. $ $ $ $
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $340,000.
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 310,500
additional Shares at the price to public less underwriting discounts
and commissions for the purpose of covering over-allotments, if any. If
the Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions, and proceeds to Company
will be $ , $ , and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Venture Law Group, A Professional Corporation, counsel for the Underwriters.
It is expected that delivery of the Shares will be made on or about ,
1997, at the office of Morgan Stanley & Co. Incorporated, New York, N.Y.,
against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
COWEN & COMPANY
MONTGOMERY SECURITIES
, 1997
<PAGE> 3
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING SHAREHOLDERS OR BY
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
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PAGE
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Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary.............................. 3
The Company..................................... 4
Risk Factors.................................... 5
Use of Proceeds................................. 12
Dividend Policy................................. 12
Price Range of Common Stock..................... 12
Capitalization.................................. 13
Selected Consolidated Financial Data............ 14
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PAGE
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Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business........................................ 23
Management...................................... 35
Principal and Selling Shareholders.............. 38
Underwriters.................................... 40
Legal Matters................................... 41
Experts......................................... 41
Available Information........................... 42
</TABLE>
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-26942) pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are incorporated in this Prospectus by reference: (i) the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1996;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended January
31, 1997; (iii) the Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997; (iv) the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1997; and (v) the description of the Company's Common
Stock contained in the Company's Registration Statement on Form 8-A filed under
Section 12 of the Exchange Act, including any amendment or report updating such
description.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document (all such documents, and the documents enumerated above, being
hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the Incorporated
Documents, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference therein. Requests for such copies should
be directed to SMART Modular Technologies, Inc., 4305 Cushing Parkway, Fremont,
California 94538, Attention: Charles W. Welch, General Counsel (telephone: (510)
623-1231). The information relating to the Company contained in this Prospectus
does not purport to be comprehensive and should be read together with the
information contained in the Incorporated Documents.
------------------------
Apex, Apex Data, SMART and Design and SMART Modular Technologies are
registered trademarks of the Company. This Prospectus also refers to trademarks
held by other corporations.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITERS."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the detailed information and the financial statements
appearing elsewhere in this Prospectus or incorporated herein by reference.
Unless otherwise indicated, the information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Prospective investors
should consider carefully the factors described under "Risk Factors."
THE COMPANY
SMART Modular Technologies, Inc. is a leading independent manufacturer of
specialty and standard memory modules and Flash memory cards and also
manufactures high performance embedded computer modules, as well as
communication card solutions in PC card and other form factors. SMART offers
more than 500 products to leading OEMs in the computer, networking and
telecommunications industries. The Company's principal customers include Cisco,
Compaq, Data General, Fujitsu, Hewlett-Packard, IBM, Motorola, NCR and
Solectron.
THE OFFERING
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Common Stock offered.............................. 2,070,000 shares, including
1,100,000 shares by the Company and
970,000 shares by the Selling Shareholders
Common Stock to be outstanding after the 20,478,452 shares(1)
offering........................................
Use of proceeds................................... For capital expenditures, facilities expansion,
working capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol..................... SMOD
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, JULY 31,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
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CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.......................................... $163,849 $274,592 $401,774 $295,481 $477,187
Income from operations............................. 9,940 20,426 37,653 27,182 44,996
Net income......................................... 6,159 12,567 25,131 18,024 30,630
Net income per share(2)............................ $ .37 $ .72 $ 1.20 $ .87 $ 1.42
Weighted average common and common equivalent
shares outstanding(2)............................ 16,537 17,565 20,874 20,784 21,637
</TABLE>
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<CAPTION>
JULY 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments............................... $ 43,162 $107,376
Working capital................................................................. 99,664 163,878
Total assets.................................................................... 211,725 275,939
Capital lease obligations, net of current portion............................... 434 434
Total shareholders' equity...................................................... 122,078 186,292
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding as of July 31,
1997. Excludes, as of July 31, 1997, (i) 3,668,444 shares of Common Stock
available for issuance pursuant to the Company's 1989 Incentive Stock Plan,
of which options to purchase 2,279,172 shares were outstanding; (ii)
2,958,575 shares of Common Stock available for issuance pursuant to the
Company's 1995 Stock Plan, of which options to purchase 1,016,301 shares
were outstanding; (iii) 100,000 shares of Common Stock available for
issuance pursuant to the Company's 1995 Director Option Plan, of which
options to purchase 7,200 shares were outstanding; and (iv) 470,884 shares
of Common Stock available for issuance pursuant to the Company's Employee
Stock Purchase Plan.
(2) See Note 2 of Notes to Consolidated Financial Statements incorporated herein
by reference for an explanation of the determination of the number of shares
used in computing net income per share. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128") which requires
disclosure of basic earnings per share and diluted earnings per share and is
effective for periods ending subsequent to December 15, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Accounting Pronouncement."
(3) Adjusted to reflect the sale of 1,100,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $61 15/16 per
share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company.
3
<PAGE> 5
THE COMPANY
SMART Modular Technologies, Inc. ("SMART" the "Company") is a leading
independent manufacturer of specialty and standard memory modules and Flash
memory cards and also manufactures high performance embedded computer modules,
as well as communication card solutions in PC card and other form factors. SMART
offers more than 500 products to leading OEMs in the computer, networking, and
telecommunications industries.
In July 1995, the Company increased its focus on the PC card business and
its presence in the computer reseller channel through its acquisition of Apex
Data, Inc. ("Apex"), which designs and markets wireless and wireline
communication card products. The Company further extended its product line to
include embedded computers through the acquisition of RISQ Modular Systems, Inc.
("RISQ") in July 1996. SMART has developed extensive design and manufacturing
expertise which the Company believes enables it to respond to its customers'
rapidly changing product and service requirements; provide its customers with
timely access to new higher speed or higher performance modules or subsystems;
reduce its customer's time-to-market and capital requirements; and decrease its
customers' production and inventory costs.
The demand for semiconductor memory devices and other subsystems in digital
electronic systems has grown dramatically over the last several years as a
result of the increasing importance of both of these components in determining
system performance. The demand for greater overall system performance, as well
as the increasing number and variety of electronic devices, has required that
electronics manufacturers increase the number and functionality of memory
devices and the performance of other subsystems.
The factors contributing to the increasing demand for memory devices and
communications and embedded computer subsystems include the expanding unit sales
of PCs in the business and consumer market segments; the increasing use of PCs
to perform memory-intensive graphics and multimedia functions; the volume of
memory required to support faster microprocessors; the proliferation of
increasingly complex operating system and applications software; the increased
use of local area network and wide area network routing and switching equipment,
which incorporate complex memory and embedded computer subsystems; the growth in
on-line communications, such as e-mail and the Internet; and, in general, the
increasing performance requirements of workstations, servers and networking and
telecommunications equipment.
As the variety of memory devices and subsystems available to address
specific applications has expanded, the design and manufacture of memory
modules, PC cards and embedded computer subsystems have increasingly become
areas in which electronics OEMs employ outsourcing strategies. OEM outsourcing
practices for memory products range from contract manufacturing, in which the
OEM may turn to an outside supplier to procure third-party components and for
the design, manufacture and distribution of a specific product for the OEM on a
turnkey basis, to consignment, in which the OEM employs the outside supplier to
design and manufacture a product using memory or other components supplied by
the OEM. OEMs may also purchase memory modules or subsystems which have been
designed by a supplier for a specific application. The Company's memory module
products can be manufactured on a turnkey basis or on a consignment basis,
depending on the needs of the OEM.
The Company's principal customers include Cisco Systems, Inc. ("Cisco"),
Compaq Computer Corporation ("Compaq"), Data General Corporation ("Data
General"), Fujitsu Microelectronics ("Fujitsu"), Hewlett-Packard Company
("Hewlett-Packard"), IBM Corporation ("IBM"), Motorola, Inc. ("Motorola"), NCR
Corp. ("NCR") and Solectron Corp. ("Solectron").
The Company was originally incorporated as Precision SMT Incorporated under
the laws of the State of California in August 1988 and changed its name to SMART
Modular Technologies, Inc. in March 1989. SMART's executive offices are located
at 4305 Cushing Parkway, Fremont, California 94538 and its telephone number is
(510) 623-1231. As used herein, "SMART" and the "Company" mean SMART Modular
Technologies, Inc. and its subsidiaries, unless the context otherwise requires.
4
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. Prospective investors in the Common Stock offered hereby should
carefully consider the following risk factors in addition to the other
information contained in this Prospectus.
Significant Customer Concentration. A relatively small number of customers
have accounted for a significant percentage of the Company's net sales. For the
nine months ended July 31, 1997, fiscal 1996 and fiscal 1995, the Company's ten
largest customers accounted for 86%, 71% and 68% of net sales, respectively. For
the nine months ended July 31, 1997, the Company's three largest customers were
Compaq, Cisco and Hewlett-Packard, which accounted for 50%, 13% and 11% of net
sales, respectively. In fiscal 1996, the Company's three largest customers were
Cisco, Hewlett-Packard and IBM, which accounted for 19%, 15% and 12% of net
sales, respectively. In fiscal 1995, the Company's three largest customers were
Cisco, IBM and Hewlett-Packard, which accounted for 18%, 15% and 10% of net
sales, respectively. During these periods, no other customers accounted for more
than 10% of net sales. The Company expects that sales to relatively few
customers will continue to account for a significant percentage of its net sales
in the foreseeable future. However, there can be no assurance that any of these
customers or any of the Company's other customers will continue to utilize the
Company's products at current levels, if at all. The Company has experienced
significant changes in the composition of its major customer base and expects
that this variability will continue in the future. For example, sales to Compaq,
which represented under 10% of net sales in fiscal 1996 and fiscal 1995,
represented 50% of the Company's net sales in the first nine months of fiscal
1997. The loss of any major customer or any reduction in orders by any such
customer would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has no firm long-term volume commitments from any of its major
customers and generally enters into individual purchase orders with its
customers, in certain cases under master agreements governing the terms and
conditions of the relationship. The Company has experienced cancellations of
orders and fluctuations in order levels from period to period and expects it
will continue to experience such cancellations and fluctuations in the future.
Customer purchase orders may be canceled and order volume levels can be changed,
canceled or delayed with limited or no penalties. The replacement of canceled,
delayed or reduced purchase orders with new business cannot be assured. In
addition, under the terms of the Company's master agreement with Compaq, the
Company has granted Compaq certain rights to manufacture the Company's memory
module products and a license to certain intellectual property of the Company,
which Compaq may exercise under certain circumstances if the Company does not
have the manufacturing capacity to satisfy Compaq's forecasted production
requirements. Moreover, the Company's business, financial condition and results
of operations will depend in significant part on its ability to obtain orders
from new customers, as well as on the financial condition and success of its
customers. Therefore, any adverse factors affecting any of the Company's major
customers or their customers could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Customers, Sales and Marketing."
Product Concentration; Dependence on Memory Market. A substantial majority
of the Company's net sales is derived from memory products. The market for
memory products is characterized by frequent transitions in which products
rapidly incorporate new features and performance standards. A failure to develop
products with required feature sets or performance standards or a delay as short
as a few months in bringing a new product to market could significantly reduce
the Company's net sales for a substantial period, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The market for semiconductor memory devices has been cyclical. The industry
has experienced significant economic downturns at various times, characterized
by diminished product demand, accelerated erosion of average selling prices and
production overcapacity. During fiscal 1996, there were significant declines in
DRAM and SRAM semiconductor prices and declines in Flash semiconductor prices.
Since the fiscal 1996 year end, there have been continued declines in certain
DRAM and Flash semiconductor prices. Because a substantial portion of the
Company's net sales are attributable to the resale of semiconductor
5
<PAGE> 7
memory devices, future price declines could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Fluctuations in Operating Results."
Dependence on Semiconductor, Computer, Telecommunications and Networking
Industries. The Company may experience substantial period-to-period fluctuations
in future operating results due to factors affecting the semiconductor,
computer, telecommunications and networking industries. From time to time, each
of these industries has experienced downturns, often in connection with, or in
anticipation of, declines in general economic conditions. A decline or
significant shortfall in growth in any one of these industries could have a
material adverse impact on the demand for the Company's products and therefore a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, changes in end user demand for the products
sold by any individual OEM customer can have a rapid and exaggerated effect on
demand for the Company's products from that customer in any given period,
particularly in the event that the OEM customer has accumulated excess
inventories of products purchased from the Company. There can be no assurance
that the Company's net sales and results of operations will not be materially
and adversely affected in the future due to changes in demand from individual
customers or cyclical changes in the semiconductor, computer,
telecommunications, networking or other industries utilizing the Company's
products.
Intense Competition. The memory module, PC card and embedded computer
industries are intensely competitive. Each of these markets includes a large
number of competitive companies, several of which have achieved a substantial
market share. Certain of the Company's competitors in each of these markets have
substantially greater financial, marketing, technical, distribution and other
resources, greater name recognition, lower cost structures and larger customer
bases than the Company. In the memory module market, the Company competes
against semiconductor manufacturers that maintain captive memory module
production capabilities, including Micron Electronics, Inc. (a subsidiary of
Micron Technology, Inc.) and Samsung Electronics Company Ltd. ("Samsung"). The
Company also competes with independent memory module manufacturers, including
Celestica Inc., PNY Electronics, Inc. and Simple Technology Incorporated. In the
computer systems reseller market for memory modules, the Company primarily
competes with companies such as Kingston Technology, Inc., Viking Technology,
Inc. and Vision Tek, Inc. In the PC card market, the Company competes with Hayes
Communications, Inc. and U.S. Robotics, Inc. (a subsidiary of 3Com Corporation),
among others. In the embedded computer subsystem market, the Company competes
with Force Computers Inc. (a subsidiary of Solectron), Motorola and Radisys
Corporation, among others. The Company faces competition from current and
prospective customers that evaluate the Company's capabilities against the
merits of manufacturing products internally. In addition, certain of the
Company's competitors, such as Samsung, are significant suppliers to the
Company. These suppliers may have the ability to manufacture competitive
products at lower costs than the Company as a result of their higher levels of
integration. The Company also faces competition from new and emerging companies
that have recently entered or may in the future enter the markets in which the
Company participates.
The Company expects its competitors to continue to improve the performance
of their current products, to reduce their current product sales prices and to
introduce new products that may offer greater performance and improved pricing,
any of which could cause a decline in sales or loss of market acceptance of the
Company's products. There can be no assurance that enhancements to or future
generations of competitive products will not be developed that offer better
prices or technical performance features than the Company's products. To remain
competitive, the Company must continue to provide technologically advanced
products and manufacturing services, maintain quality levels, offer flexible
delivery schedules, deliver finished products on a reliable basis, reduce
manufacturing and testing costs and compete favorably on the basis of price. In
addition, increased competitive pressure has led in the past and may continue to
lead to intensified price competition, resulting in lower prices and gross
margin, which could materially adversely affect the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to compete successfully in the future. See
"Business -- Competition."
Fluctuations in Operating Results. The Company's results of operations and
gross margin have fluctuated significantly from period to period in the past and
may in the future continue to fluctuate significantly from period to period. The
primary factors that have affected and may in the future affect the
6
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Company's results of operations include the loss of a principal customer or the
reduction in orders from a customer due to excess product inventory accumulation
by such customer, adverse changes in the mix of products sold by the Company and
the inability to procure required components. Other factors that may affect the
Company's results of operations in the future include fluctuating market demand
for and declines in the selling prices of the Company's products, market
acceptance of new products and enhanced versions of the Company's products,
delays in the introduction of new products and enhancements to existing
products, and manufacturing inefficiencies associated with the start up of new
product introductions. In addition, the Company's operating results may be
affected by the timing of new product announcements and releases by the Company
or its competitors, the timing of significant orders, the ability to produce
products in volume, delays, cancellations or reschedulings of orders due to
customer financial difficulties or other events, inventory obsolescence,
including the reduction in value of the Company's inventories due to unexpected
price declines, unexpected product returns, the timing of expenditures in
anticipation of increased sales, cyclicality in the Company's targeted markets,
and expenses associated with acquisitions. In particular, declines in DRAM, SRAM
and Flash semiconductor prices could affect the valuation of the Company's
inventory which could result in adverse changes in the Company's business,
financial condition and results of operations. The concentration of the
Company's assets in its Fremont, California facility could make the Company's
exposure to business disruptions greater than if the Company's assets were more
geographically dispersed.
The Company's net sales and gross margin has varied and will continue to
vary significantly based on a variety of factors, including the mix of products
sold and the manufacturing services provided, the channels through which the
Company's products are sold, changes in product selling prices and component
costs, the level of manufacturing efficiencies achieved and pricing by
competitors. The selling prices of the Company's existing products have declined
in the past and the Company expects that prices will continue to decline in the
future. In particular, during fiscal 1996, the selling prices of the Company's
existing products declined due to significant declines in DRAM and SRAM
semiconductor prices and declines in Flash semiconductor prices. Moreover, since
the fiscal 1996 year end, declines in the selling prices of certain of the
Company's existing products have continued due to further declines in certain
DRAM and Flash semiconductor prices. Because a substantial portion of the
Company's turnkey sales are attributable to the resale of semiconductor devices,
a continued decline in the prices of these components could have a material
adverse effect on the Company's net sales. Accordingly, the Company's ability to
maintain or increase net sales will be highly dependent upon its ability to
increase unit sales volumes of existing products and to introduce and sell new
products in quantities sufficient to compensate for the anticipated declines in
selling prices. Declining product selling prices may also materially and
adversely affect the Company's gross margin unless the Company is able to reduce
its cost per unit to offset declines in product selling prices. There can be no
assurance that the Company will be able to increase unit sales volumes,
introduce and sell new products or reduce its cost per unit. In addition, the
Company's business has in the past been subject to seasonality, although the
Company believes such seasonality has been masked by its growth. The Company
expects that its business will experience more significant seasonality as it
expands its sales and marketing efforts in Europe.
Sales of the Company's individual products and product lines toward the end
of a product's life cycle are typically characterized by steep declines in
sales, pricing and gross margin, the precise timing of which may be difficult to
predict. The Company could experience unexpected reductions in sales of products
as customers anticipate new product purchases. In addition, to the extent that
the Company manufactures products in anticipation of future demand that does not
materialize, or in the event a customer cancels outstanding orders during a
period of either declining product selling prices or decreasing demand, the
Company could experience an unanticipated decrease in sales of products. These
factors could give rise to charges for obsolete or excess inventory, returns of
products by distributors, or substantial price protection charges or discounts.
In the past, the Company has had to write-down and write-off excess or obsolete
inventory. To the extent that the Company is unsuccessful in managing product
transitions, its business, financial condition and results of operations could
be materially and adversely affected.
The need for continued significant expenditures for capital equipment
purchases, research and development and ongoing customer service and support,
among other factors, will make it difficult for the Company to reduce its
operating expenses in any particular period if the Company's expectations for
net sales for that
7
<PAGE> 9
period are not met. The Company has significantly increased its expense levels
to support its recent growth, and there can be no assurance that the Company
will maintain its current level of net sales or rate of growth for any period in
the future. Accordingly, there can be no assurance that the Company will be able
to continue to be profitable. The Company believes that period-to-period
comparisons of the Company's financial results are not necessarily meaningful
and should not be relied upon as indications of future performance. Due to the
foregoing factors, it is likely that in some future period the Company's
operating results will be below the expectations of public market analysts or
investors. In such event, the market price of the Company's securities would be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Sole or Limited Sources of Supply. The Company is dependent
on certain suppliers, including limited and sole source suppliers, to provide
key components used in the Company's products. In particular, the Company is
dependent in significant part upon certain limited or sole source suppliers for
critical components in the Company's memory module, PC card and embedded
computer module products. The Company also depends on sole source third party
manufacturers to produce certain of the Company's embedded computer module
products. The electronics industry has experienced in the past, and may
experience in the future, shortages in semiconductor devices, including DRAM,
SRAM and Flash memory. The Company has experienced and may continue to
experience delays in component deliveries and quality problems with respect to
certain component deliveries which have caused and could in the future cause
delays in product shipments and have required and could in the future require
the redesign of certain products. The Company generally has no written
agreements with its suppliers. There can be no assurance that the Company will
receive adequate component supplies on a timely basis in the future. The
inability to continue to obtain sufficient supplies of components as required,
or to develop alternative sources if required, could cause delays, disruptions
or reductions in product shipments or require product redesigns which could
damage relationships with current or prospective customers, could increase costs
and/or prices and could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Design, Manufacturing and Test."
Management of Growth; Expansion of Operations. The Company has
significantly expanded its operations over the last several years. This growth
has resulted in a significant increase in responsibility for existing management
which has placed, and may continue to place, a significant strain on the
Company's limited personnel and management, manufacturing and other resources.
The Company's ability to manage the recent and any possible future growth will
require a significant expansion of its manufacturing capacity, accounting and
other internal management systems and the implementation of a variety of
procedures and controls. There can be no assurance that significant problems in
these areas will not occur. Any failure to expand these systems and implement
such procedures and controls in an efficient manner and at a pace consistent
with the Company's business could have a material adverse effect on the
Company's business, financial condition and results of operations.
In connection with the Company's recent growth, the Company's operating
expenses have increased significantly, and the Company anticipates that
operating expenses will continue to increase in absolute dollars in the future.
In particular, in order to continue to provide quality products and customer
service and to meet any anticipated demand of its customers, the Company will be
required to continue to increase staffing and other expenses, including
expenditures on capital equipment, sales and marketing. Should the Company
increase its expenditures in anticipation of a future level of sales that does
not materialize, the Company's business, financial condition and results of
operations would be materially and adversely affected. Certain customers have
required and may continue to require rapid increases in production and
accelerated delivery schedules which have placed and may continue to place a
significant burden on the Company's resources. In order to achieve anticipated
sales levels and profitability, the Company will continue to be required to
manage its assets and operations efficiently. In addition, should the Company
continue to expand geographically, it may experience certain inefficiencies from
the management of geographically dispersed facilities.
The Company anticipates that future demand for its products will require
expansion of its current operations and the addition of new production lines in
the future. Specifically, the Company currently expects that it will relocate
its manufacturing operations in Puerto Rico from a 23,000 square foot facility
in Arecibo,
8
<PAGE> 10
Puerto Rico into a new 83,000 square foot facility in Aguada, Puerto Rico.
Should the Company's relocation to this facility be delayed or should the
Company experience any unexpected disruptions associated with this transition,
the Company's results of operations could be materially and adversely affected.
There can be no assurance that any such expansion will be completed
successfully.
Rapid Technological Change. The semiconductor, computer, telecommunications
and networking industries are subject to rapid technological change, short
product life cycles, frequent new product introductions and enhancements,
changes in end-user requirements and evolving industry standards. The Company's
ability to be competitive in these markets will depend in significant part upon
its ability to invest significant amounts of resources for research and
development efforts, to successfully develop, introduce and sell new products
and enhancements on a timely and cost-effective basis and to respond to changing
customer requirements that meet evolving industry standards. For example, the
semiconductor memory market is currently transitioning from fast page mode
("FPM") and EDO memory to SDRAM, and the industry standard modem is currently
changing from a 33.6 kbps synchronous modem to a 56 kbps asynchronous modem. The
Company is currently focusing its research and development resources on the
development of SDRAM, Flash and SRAM products, 56 kbps asynchronous modem
products and various embedded computer modules. The success of the Company in
developing new and enhanced products will depend upon a variety of factors,
including integration of the various elements of its complex technology, timely
and efficient completion of product design, timely and efficient implementation
of manufacturing and assembly processes, availability of production capacity,
achievement of acceptable manufacturing yields and product performance, quality
and reliability. The Company has experienced, and may in the future experience,
delays from time to time in the development and introduction of new products.
Moreover, there can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or enhancements.
There can be no assurance that defects or errors will not be found in the
Company's products after commencement of commercial shipments, which could
result in the delay in market acceptance of such products. The inability of the
Company to introduce new products or enhancements that contribute to sales could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Research and Development."
Dependence on Key Personnel. The Company's future operating results depend
in significant part upon the continued contributions of its key technical and
senior management personnel, many of whom would be difficult to replace. None of
such persons, including the executive officers, has an employment agreement with
the Company. The Company's future operating results also depend in significant
part upon its ability to attract, train and retain qualified management,
manufacturing and quality assurance, engineering, marketing, sales and support
personnel. The Company is actively recruiting such personnel. However,
competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, training or retaining such
personnel now or in the future. There may be only a limited number of persons
with the requisite skills to serve in these positions and it may be increasingly
difficult for the Company to hire such persons over time. The loss of any key
employee, the failure of any key employee to perform in his or her current
position, the Company's inability to attract, train and retain skilled employees
as needed or the inability of the officers and key employees of the Company to
expand, train and manage the Company's employee base could materially and
adversely affect the Company's business, financial condition and results of
operations.
International Sales. International sales accounted for 14%, 8% and 14% of
net sales in fiscal 1995, fiscal 1996 and the first nine months of fiscal 1997,
respectively. The Company anticipates that international sales will increase in
future periods and will account for an increasing portion of net sales. As a
result, an increasing portion of the Company's sales will be subject to certain
risks, including changes in regulatory requirements, tariffs and other barriers,
timing and availability of export licenses, political and economic instability,
difficulties in accounts receivable collections, natural disasters, difficulties
in staffing and managing foreign subsidiary and branch operations, difficulties
in managing distributors, difficulties in obtaining governmental approvals for
telecommunications and other products, foreign currency exchange fluctuations,
the burden of complying with a wide variety of complex foreign laws and treaties
and potentially adverse tax consequences. The Company is also subject to the
risks associated with the imposition of legislation and regulations relating
9
<PAGE> 11
to the import or export of high technology products. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of the Company's products will be implemented by the
United States or other countries. Because sales of the Company's products have
been denominated to date primarily in U.S. dollars, increases in the value of
the U.S. dollar could increase the price of the Company's products so that they
become relatively more expensive to customers in the local currency of a
particular country, leading to a reduction in sales and profitability in that
country. Future international activity may result in increased foreign currency
denominated sales. Gains and losses on the conversion to U.S. dollars of
accounts receivable, accounts payable and other monetary assets and liabilities
arising from international operations may contribute to fluctuations in the
Company's results of operations. Some of the Company's customer purchase orders
and agreements are governed by foreign laws, which may differ significantly from
U.S. laws. Therefore, the Company may be limited in its ability to enforce its
rights under such agreements and to collect damages, if awarded. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's business, financial condition and results of operations.
Uncertainty Regarding Protection of Proprietary Rights. In the
semiconductor, computer, telecommunications and networking industries, it is
typical for companies to receive notices from time to time alleging infringement
of patents, copyrights or other intellectual property rights of others. While
there is currently no material pending intellectual property litigation
involving the Company, the Company has been and may from time to time continue
to be notified of claims that it may be infringing patents, copyrights or other
intellectual property rights owned by third parties. There can be no assurance
that these or other companies will not in the future pursue claims against the
Company with respect to the alleged infringement of patents, copyrights or other
intellectual property rights. In addition, litigation may be necessary to
protect the Company's intellectual property rights and trade secrets, to
determine the validity of and scope of the proprietary rights of others or to
defend against third party claims of invalidity. Any litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that infringement, invalidity, right to use or
ownership claims by third parties or claims for indemnification resulting from
infringement claims will not be asserted in the future. The Company has entered
into license agreements in the past regarding certain alleged infringement
claims asserted by third parties. If any other claims or actions are asserted
against the Company, the Company may again seek to obtain a license under a
third party's intellectual property rights. There can be no assurance, however,
that a license will be available under reasonable terms or at all. The failure
to obtain a license under a patent or intellectual property right from a third
party for technology used by the Company could cause the Company to incur
substantial liabilities and to suspend the manufacture of the products utilizing
the intellectual property. In addition, should the Company decide to litigate
such claims, such litigation could be extremely expensive and time consuming and
could materially and adversely affect the Company's business, financial
condition and results of operations, regardless of the outcome of the
litigation.
The Company attempts to protect its intellectual property rights through a
variety of measures including non-disclosure agreements, trademarks, trade
secrets and to a lesser extent, patents. There can be no assurance, however,
that such measures will provide adequate protection for the Company's trade
secrets or other proprietary information, that disputes with respect to the
ownership of its intellectual property rights will not arise, that the Company's
trade secrets or proprietary technology will not otherwise become known or be
independently developed by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights. See
"Business -- Intellectual Property."
Risks Associated with Acquisitions. As part of its business strategy, the
Company expects to make acquisitions of, or significant investments in,
businesses that offer complementary products and technologies. Any such future
acquisitions or investments would expose the Company to the risks commonly
encountered in acquisitions of businesses. Such risks include, among others,
difficulty of assimilating the operations, information systems and personnel of
the acquired businesses, the potential disruption of the Company's ongoing
business, the inability of management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
employees and customers, the maintenance of uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
10
<PAGE> 12
customers as a result of any integration of new management personnel. There can
be no assurance that any potential acquisition will be consummated or, if
consummated, that it will not have a material adverse effect on the Company's
business, financial condition and results of operations.
Volatility of Stock Prices. There has been a history of significant
volatility in the market prices of the common stock of technology companies,
including the Common Stock of the Company, and it is likely that the market
price of the Company's Common Stock will continue to be subject to significant
fluctuations. Factors such as the timing and market acceptance of new product
introductions by the Company, demand for products of the Company's customers,
the introduction of new products by the Company's competitors, variations in
quarterly operating results, changes in securities analysts' recommendations
regarding the Company's Common Stock, developments in the technology industry
and general economic conditions may have a significant impact on the market
price of the Company's Common Stock. In addition, the equity markets in recent
years have experienced significant price and volume fluctuations that have
affected the market prices of technology companies and that have often been
unrelated to the operating performance of such companies.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,100,000 shares of
Common Stock offered by the Company hereby (at an assumed public offering price
of $61 15/16 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company) hereby are
estimated to be approximately $64.2 million ($82.4 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any of
the proceeds from the sale of shares by the Selling Shareholders.
The principal purpose of this offering is to obtain additional capital
which the Company expects will be used for capital expenditures and facilities
expansion. The balance of the net proceeds will be used for general corporate
purposes, including working capital requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company may also use a portion of the proceeds for the
acquisition of complementary businesses or product lines, although no particular
acquisition is currently being negotiated or is contemplated. See "Risk
Factors -- Risks Associated with Acquisitions." Pending such uses, the Company
will invest the net proceeds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. Certain
financial covenants set forth in the Company's bank line of credit agreement
prohibit the Company from paying dividends.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SMOD." The following table sets forth, for the periods indicated,
the high and low closing sale prices for the Common Stock as reported by the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended October 31, 1996
First Quarter (from November 17, 1995)................................... $12 5/8 $ 9 1/2
Second Quarter........................................................... 22 5/8 10 5/8
Third Quarter............................................................ 24 1/8 9 3/8
Fourth Quarter........................................................... 21 1/4 12 1/4
Fiscal year ending October 31, 1997
First Quarter............................................................ 31 7/16 19 3/8
Second Quarter........................................................... 34 23 1/4
Third Quarter............................................................ 47 3/8 31 7/8
Fourth Quarter (through August 27, 1997)................................. 65 1/8 45 1/4
</TABLE>
On August 27, 1997, the reported last sale price for the Common Stock on
the Nasdaq National Market was $61 15/16 per share. At January 6, 1997, the
Company had approximately 171 holders of record of the Common Stock and the
approximate number of beneficial holders of the Common Stock was 5,800.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1997, and as adjusted to give effect to the sale of 1,100,000 shares of
Common Stock offered by the Company hereby (at an assumed public offering price
of $61 15/16 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company).
<TABLE>
<CAPTION>
JULY 31, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Capital lease obligations, net of current portion....................... $ 434 $ 434
-------- --------
Shareholders' equity:
Preferred Stock, no par value; 15,000,000 shares authorized; no shares
issued and outstanding, actual; no shares issued and outstanding,
as adjusted........................................................ -- --
Common Stock, no par value; 100,000,000 shares authorized; 19,378,452
shares issued and outstanding, actual; 20,478,452 shares issued and
outstanding, as adjusted(1)........................................ 41,698 105,912
Retained earnings..................................................... 80,380 80,380
-------- --------
Total shareholders' equity......................................... 122,078 186,292
-------- --------
Total capitalization............................................. $122,512 $ 186,726
======== ========
</TABLE>
- ---------------
(1) Excludes, as of July 31, 1997, (i) 3,668,444 shares of Common Stock
available for issuance pursuant to the Company's 1989 Incentive Stock Plan,
of which options to purchase 2,279,172 shares were outstanding; (ii)
2,958,575 shares of Common Stock available for issuance pursuant to the
Company's 1995 Stock Plan, of which options to purchase 1,016,301 shares
were outstanding; (iii) 100,000 shares of Common Stock available for
issuance pursuant to the Company's 1995 Director Option Plan, of which
options to purchase 7,200 shares were outstanding; and (iv) 470,884 shares
of Common Stock available for issuance pursuant to the Company's Employee
Stock Purchase Plan.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of income
data and balance sheet data for the Company. The following information has been
derived from the Company's consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports incorporated herein by reference. The selected consolidated
statement of income data shown below for the nine months ended July, 31, 1996
and July 31, 1997 and the selected consolidated balance sheet data as of July
31, 1997 have been derived from the unaudited consolidated financial statements
of the Company incorporated herein by reference which, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such interim periods. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company incorporated herein by
reference. The results for the nine months ended July 31, 1997 are not
necessarily indicative of results that may be expected for the full fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, JULY 31,
-------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA(1):
Net sales......................................... $15,991 $80,810 $163,849 $274,592 $401,774 $295,481 $477,187
Cost of sales..................................... 10,435 63,542 132,826 224,931 329,644 242,734 399,539
------- ------- -------- -------- -------- -------- --------
Gross profit...................................... 5,556 17,268 31,023 49,661 72,130 52,747 77,648
------- ------- -------- -------- -------- -------- --------
Operating expenses:
Research and development........................ 1,199 2,224 5,891 5,283 5,933 4,327 6,390
Sales, general and administrative............... 3,935 9,629 15,192 23,952 28,544 21,238 26,262
------- ------- -------- -------- -------- -------- --------
Total operating expenses.................. 5,134 11,853 21,083 29,235 34,477 25,565 32,652
------- ------- -------- -------- -------- -------- --------
Income from operations............................ 422 5,415 9,940 20,426 37,653 27,182 44,996
Other income (expense), net....................... 73 9 (143) (515) 2,238 1,428 1,421
------- ------- -------- -------- -------- -------- --------
Income before provision for income taxes.......... 495 5,424 9,797 19,911 39,891 28,610 46,417
Provision for income taxes........................ 203 2,134 3,759 7,344 14,760 10,586 15,787
------- ------- -------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle............................ 292 3,290 6,038 12,567 25,131 18,024 30,630
Cumulative effect of change in accounting
principle....................................... -- -- 121 -- -- -- --
------- ------- -------- -------- -------- -------- --------
Net income........................................ $ 292 $ 3,290 $ 6,159 $ 12,567 $ 25,131 $ 18,024 $ 30,630
======= ======= ======== ======== ======== ======== ========
Net income per share(2)(3)........................ $ .02 $ .23 $ .37 $ .72 $ 1.20 $ .87 $ 1.42
======= ======= ======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding(3)........................... 13,498 14,339 16,537 17,565 20,874 20,784 21,637
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------------------------------- JULY 31,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Cash, cash equivalents and short-term
investments..................................... $2,153 $ 8,134 $ 5,065 $13,059 $ 61,062 $ 43,162
Working capital................................... 2,136 5,719 12,185 21,464 74,324 99,664
Total assets...................................... 7,439 34,752 45,612 91,976 172,185 211,725
Capital lease obligations, net of current
portion......................................... 6 142 632 1,599 1,241 434
Total shareholders' equity........................ 2,513 6,598 13,665 26,234 86,619 122,078
</TABLE>
- ---------------
(1) On July 28, 1995, a wholly-owned subsidiary of the Company merged with Apex
which resulted in Apex becoming a wholly-owned subsidiary of the Company.
The merger was accounted for as a pooling of interests. Accordingly, the
consolidated financial statements of the Company have been restated to
include the financial statements of Apex from its inception in May 1992. On
July 31, 1996, a wholly-owned subsidiary of the Company merged with RISQ
which resulted in RISQ becoming a wholly-owned subsidiary of the Company.
The merger was accounted for as a pooling of interests. Given the
immateriality of this acquisition to the Company's consolidated financial
position and results of operations, RISQ has been included in the Company's
consolidated results of operations as of the beginning of fiscal 1996
(November 1, 1995) and amounts presented for periods prior to fiscal 1996
have not been restated to include RISQ's historical results of operations.
(2) The cumulative effect of the change in accounting principle did not
materially impact net income per share. See the Consolidated Financial
Statements incorporated herein by reference.
(3) See Note 2 of Notes to the Consolidated Financial Statements incorporated
herein by reference for an explanation of the determination of the number of
shares used in computing net income per share. In February 1997, the
Financial Accounting Standards Board issued SFAS 128 which requires
disclosure of basic earnings per share and diluted earnings per share and is
effective for periods ending subsequent to December 15, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Accounting Pronouncement."
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to other areas of this Management's Discussion and Analysis of
Financial Condition and Results of Operations, the fourth and fifth paragraphs
of the Overview Section, the first paragraph of the Gross Profit Section, the
first paragraph of the Research and Development Section, the first paragraph of
the Sales, General and Administrative Section, and the first and third
paragraphs of the Liquidity and Capital Resources Section contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth in "Risk
Factors." In particular, note the factors entitled "Significant Customer
Concentration," "Product Concentration; Dependence on Memory Market,"
"Dependence on Semiconductor, Computer, Telecommunications and Networking
Industries," "Intense Competition," "Fluctuations in Operating Results,"
"Dependence on Sole or Limited Sources of Supply" and "Rapid Technological
Change." The discussion of those factors is incorporated herein by this
reference as if said discussion was fully set forth at this point.
OVERVIEW
The Company commenced operations in 1989 and initially focused on the
design and manufacture of standard memory modules for OEMs and semiconductor
manufacturers. Standard memory modules implement industry standard
specifications, primarily utilize DRAM and are designed to be incorporated into
a wide variety of electronic equipment. In 1991, the Company expanded its
design, manufacturing and marketing efforts to offer specialty memory modules
and PC card memory products. The Company expanded its PC card communication
product line through the acquisition of Apex in July 1995. The Company further
expanded its product line to include embedded computer modules through the
acquisition of RISQ in July 1996.
The Company's net sales and gross profit have increased substantially over
the last three fiscal years. Over the last seven fiscal quarters, SMART's gross
margin has ranged from 15.3% to 18.3%. One of the primary factors affecting
gross margin has been the proportion of the Company's memory products
manufactured on either a turnkey or consignment basis. Products manufactured on
a turnkey basis are designed and manufactured by the Company with purchased
memory devices. Products manufactured on a consignment basis are generally
designed and manufactured by the Company with memory devices which are owned and
supplied by the customer. While products manufactured on a turnkey basis
typically have lower gross margin than products manufactured on a consignment
basis, products manufactured on a turnkey basis generally contribute greater net
sales and higher gross profit per unit than products manufactured on a
consignment basis. Currently, a substantial majority of the Company's net sales
is derived from sales of products manufactured on a turnkey basis.
The other primary factor affecting the Company's gross margin has been the
mix between sales of specialty memory modules, standard memory modules, PC cards
and embedded computer modules. A majority of the Company's net sales are
currently derived from the sales of its standard memory modules, which typically
have lower gross margin than the Company's specialty memory modules. The
Company's embedded computer modules currently generate the Company's highest
gross margin, followed by the Company's PC card communication products. Both of
these product lines currently contribute a relatively small portion of the
Company's net sales.
The Company expects that its gross margin will continue to vary based on
these and other factors, including changes in the selling prices for its
products, pricing by competitors and suppliers and the level of manufacturing
efficiencies achieved. Selling prices of certain of SMART's products have
declined in the past and SMART expects that some prices will continue to decline
in the future. Accordingly, SMART's ability to maintain or increase gross profit
and gross margin will be highly dependent upon its ability to increase unit
sales volumes of existing products and to introduce and sell new products in
quantities and with gross margin sufficient to compensate for the anticipated
declines in selling prices.
The Company primarily sells its products to OEMs and semiconductor
manufacturers in the computer, networking and telecommunications industries. For
the nine months ended July 31, 1997, fiscal 1996 and fiscal
15
<PAGE> 17
1995, the Company's ten largest customers accounted for 86%, 71% and 68% of the
Company's net sales, respectively. For the nine months ended July 31, 1997, the
Company's three largest customers were Compaq, Cisco and Hewlett-Packard, which
accounted for 50%, 13% and 11% of net sales, respectively. In fiscal 1996, the
Company's three largest customers were Cisco, Hewlett-Packard and IBM, which
accounted for 19%, 15% and 12% of net sales, respectively. In fiscal 1995, the
Company's three largest customers were Cisco, IBM and Hewlett-Packard, which
accounted for 18%, 15% and 10% of net sales, respectively. During these periods,
no other customers accounted for more than 10% of net sales. The Company expects
that sales to relatively few customers will continue to account for a
significant percentage of its net sales in the foreseeable future. The Company
has added new OEM customers and programs in recent periods and its strategy is
to increase its sales to both existing and new OEM customers. In addition, the
Company's strategy calls for further expansion of its geographic operations,
particularly in Europe. International sales accounted for 14%, 8% and 14% of the
Company's net sales for the nine months ended July 31, 1997, fiscal 1996 and
fiscal 1995, respectively.
In July 1995, the Company expanded its PC card communication products with
the acquisition of Apex. Apex designs and markets wireless and wireline
communication card products into both the computer reseller and OEM channels.
The Company acquired Apex in a stock for stock transaction that was accounted
for as a pooling-of-interests. Accordingly, the Company's historical results of
operations include Apex's historical results of operations.
In July 1996, the Company expanded its specialized technical capabilities
with the acquisition of RISQ. RISQ designs and manufactures embedded computer
modules and products in both standard and custom form factors for OEMs in the
telecommunications, networking, industrial control and image processing markets.
The Company acquired RISQ in a stock for stock transaction that was accounted
for as a pooling-of-interests. Given the immateriality of this acquisition to
the Company's consolidated financial position and results of operations, RISQ
has been included in the Company's consolidated results of operations as of the
beginning of fiscal 1996 (November 1, 1995) and amounts presented for periods
prior to fiscal 1996 have not been restated to include RISQ's historical results
of operations.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of income
data of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, JULY 31,
----------------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 81.1 81.9 82.0 82.1 83.7
----- ----- ----- ----- -----
Gross profit............................... 18.9 18.1 18.0 17.9 16.3
Operating expenses:
Research and development................. 3.6 1.9 1.5 1.5 1.3
Sales, general and administrative........ 9.3 8.7 7.1 7.2 5.5
----- ----- ----- ----- -----
Total operating expenses......... 12.9 10.6 8.6 8.7 6.8
----- ----- ----- ----- -----
Income from operations..................... 6.1 7.4 9.4 9.2 9.4
Other income (expense), net................ (.1) (.2) .6 .5 .3
----- ----- ----- ----- -----
Income before provision for income taxes... 6.0 7.3 9.9 9.7 9.7
Provision for income taxes................. 2.3 2.7 3.7 3.6 3.3
----- ----- ----- ----- -----
Income before cumulative effect of change
in accounting principle.................. 3.7 4.6 6.3 6.1 6.4
Cumulative effect of change in accounting
principle................................ .1 -- -- -- --
----- ----- ----- ----- -----
Net income................................. 3.8% 4.6% 6.3% 6.1% 6.4%
===== ===== ===== ===== =====
</TABLE>
NET SALES
Nine Months Ended July 31, 1997 vs. 1996. Net sales consist of sales of
specialty and standard memory products, PC cards, embedded computer modules and
communication card products, less returns and discounts. Net sales for the nine
months ended July 31, 1997 increased 61.5% to $477.2 million from $295.5 million
for the comparable period of fiscal 1996, reflecting an overall increase in
demand for the Company's products from new customers and certain existing
customers. In addition, increases in sales of products manufactured on a turnkey
basis as compared to products manufactured on a consignment basis further
contributed to the increase in net sales as compared to the same period of
fiscal 1996.
Fiscal Year 1996 vs. 1995. Net sales increased 46.3% to $401.8 million in
fiscal 1996 from $274.6 million in fiscal 1995. The increase was primarily due
to an increase in sales of specialty memory products and, to a lesser extent due
to an increase in sales of standard memory products to both existing and new
customers.
Fiscal Year 1995 vs. 1994. Net sales increased 67.6% to $274.6 million in
fiscal 1995 from $163.8 million in fiscal 1994. The increase was primarily due
to an increase in sales of specialty memory products, such as L2 cache memory
modules, to both existing and new customers. The Company's sales of PC cards to
both new and existing customers also increased significantly in fiscal 1995 over
fiscal 1994. These increases were partially offset by a reduction in sales of
standard memory products due to limitations in the availability of certain
semiconductor memory devices and the Company's strategy to focus on specialty
memory products.
GROSS PROFIT
Nine Months Ended July 31, 1997 vs. 1996. Cost of sales includes the costs
of semiconductor devices and other components and materials purchased by the
Company for its products, as well as the direct labor and overhead costs
associated with manufacturing. Gross profit for the nine months ended July 31,
1997 increased 47.2% to $77.6 million from $52.7 million for the comparable
period of fiscal 1996. Gross margin decreased to 16.3% for the first nine months
of fiscal 1997 from 17.9% for the comparable period of fiscal 1996. The decrease
in gross margin for the nine month period ended July 31, 1997 was due in large
part to an increase in the proportion of products manufactured on a turnkey
basis versus those products manufactured on
17
<PAGE> 19
a consignment basis as compared to the same period of fiscal 1996. Further
contributing to the decline in gross margin was an increase in the proportion of
the Company's net sales derived from its lower margin standard memory products
as compared to the same period of fiscal 1996. The Company currently anticipates
that a substantial majority of the Company's memory products will continue to be
manufactured on a turnkey basis in the near term.
Fiscal Year 1996 vs. 1995. Gross profit increased 45.2% to $72.1 million in
fiscal 1996 from $49.7 million in fiscal 1995. Gross margin decreased to 18.0%
in fiscal 1996 from 18.1% in fiscal 1995. The decrease in gross margin was
principally due to an increase in the proportion of sales of memory products
manufactured on a turnkey basis compared to products manufactured on a
consignment basis. The decrease was partially offset by an increase in the
percentage of net sales derived from higher margin specialty memory products as
compared to standard memory products in fiscal 1996 over fiscal 1995.
Fiscal Year 1995 vs. 1994. Gross profit increased 60.1% to $49.7 million in
fiscal 1995 from $31.0 million in fiscal 1994. Gross margin decreased to 18.1%
in fiscal 1995 from 18.9% in fiscal 1994. The decrease in gross margin was
principally due to an increase in the proportion of sales of specialty memory
products manufactured on a turnkey basis compared to products manufactured on a
consignment basis. The decrease was partially offset by a significant increase
in the percentage of net sales derived from higher margin specialty memory
products as compared to standard memory products in fiscal 1995 over fiscal
1994.
RESEARCH AND DEVELOPMENT
Nine Months Ended July 31, 1997 vs. 1996. Research and development expenses
consist primarily of the costs associated with the design and testing of new
products. These costs relate primarily to compensation of personnel involved
with development efforts, materials and outside design and testing services. For
the nine months ended July 31, 1997, research and development expenses increased
47.7% to $6.4 million from $4.3 million for the comparable period of fiscal
1996. As a percentage of net sales, research and development expenses were 1.3%
and 1.5% for the first nine months of fiscal 1997 and fiscal 1996, respectively.
The Company expects that its research and development expenses will increase in
absolute dollars in future periods to the extent the Company expands its
research and development efforts.
Fiscal Year 1996 vs. 1995. Research and development expenses increased
12.3% to $5.9 million in fiscal 1996 from $5.3 million in fiscal 1995. As a
percentage of net sales, research and development expenses decreased to 1.5% in
fiscal 1996 from 1.9% in fiscal 1995 primarily due to a change in the Company's
bonus structure which rewards the development efforts of certain key management
employees, partially offset by an overall increase in non-compensation based
research and development expenses.
Fiscal Year 1995 vs. 1994. Research and development expenses decreased
10.3% to $5.3 million in fiscal 1995 from $5.9 million in fiscal 1994. As a
percentage of net sales, research and development expenses decreased to 1.9% in
fiscal 1995 from 3.6% in fiscal 1994 primarily due to the completion of the
Company's obligation to fund certain research and development costs of an
affiliated party.
SALES, GENERAL AND ADMINISTRATIVE
Nine Months Ended July 31, 1997 vs. 1996. Sales, general and administrative
expenses consist primarily of personnel costs (including salaries,
performance-based bonuses, commissions and employee benefits), facilities and
equipment costs, costs related to advertising and marketing and other support
costs including utilities, insurance and professional fees. Sales, general and
administrative expenses increased 23.7% to $26.3 million during the first nine
months of fiscal 1997 from $21.2 million for the comparable period of fiscal
1996. Sales, general and administrative expenses totalled 5.5% and 7.2% of net
sales for the first nine months of fiscal 1997 and fiscal 1996, respectively.
The decrease in sales, general and administrative expenses as a percentage of
net sales was principally due to the growth in net sales generated by certain
OEM customers, which sales generally require lower incremental levels of selling
and marketing expenses. The Company expects that its sales, general and
administrative expenses will increase in absolute dollars in future periods to
the extent the Company expands its staffing, information systems and other
systems and personnel in connection with the expansion of the Company's
infrastructure.
18
<PAGE> 20
Fiscal Year 1996 vs. 1995. Sales, general and administrative expenses
increased 19.2% to $28.5 million during fiscal 1996 from $24.0 million in fiscal
1995. As a percentage of net sales, sales, general and administrative expenses
decreased to 7.1% for fiscal 1996 from 8.7% in fiscal 1995, due primarily to the
elimination of significant operating costs related to Apex's operations, which
were integrated into the Company's operations during the final quarter of fiscal
1995, and to a lesser extent, a change in the Company's bonus structure for
certain key employees.
Fiscal Year 1995 vs. 1994. Sales, general and administrative expenses
increased 57.7% to $24.0 million during fiscal 1995 from $15.2 million in fiscal
1994. As a percentage of net sales, sales, general and administrative expenses
decreased to 8.7% for fiscal 1995 from 9.3% in fiscal 1994. The increase in
absolute dollars was primarily due to the costs incurred to integrate Apex's
operations into the Company's operations, and costs associated with the opening
of a new facility in Puerto Rico during fiscal 1995.
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists primarily of interest income, less
interest expense. Interest expense is attributable to the Company's utilization
of its lines of credit and interest paid on certain lease obligations.
Subsequent to the fiscal 1995 year end, the Company repaid nearly all
outstanding balances on its then existing lines of credit. Interest income from
the proceeds of the Company's initial public offering, as well as cash generated
from operations has resulted in a significant increase in other income through
fiscal 1996. Interest income declined for the nine months ended July 31, 1997
due to lower cash balances.
PROVISION FOR INCOME TAXES
Provisions for income taxes were $14.8 million and $7.3 million in fiscal
1996 and fiscal 1995, respectively, and $15.8 million and $10.6 million for the
first nine months ended July 31, 1997 and 1996, respectively. The Company's
effective tax rates for these periods were 37.0% and 36.9%, respectively, and
34.0% and 37.0%, respectively. The decrease in the Company's consolidated
effective tax rate for the nine months ended July 31, 1997 was principally due
to an increase in the amount of income contributed to the Company from its
Puerto Rican and international operations compared to the same period of fiscal
1996.
19
<PAGE> 21
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statement of
income data in dollars and as a percentage of net sales for each of SMART's last
seven fiscal quarters. This information has been derived from the Company's
unaudited consolidated financial statements incorporated herein by reference. In
management's opinion, this unaudited information has been prepared on the same
basis as the audited consolidated financial statements incorporated herein by
reference, and includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation thereof. The unaudited quarterly
information should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto incorporated by reference
herein. The growth in net sales and improvement in operating results experienced
by the Company during the Company's last seven fiscal quarters are not
necessarily indicative of future results. The Company's results of operations
and gross margin have fluctuated significantly in the past and may in the future
continue to fluctuate significantly from period to period based on a number of
factors. See "Risk Factors -- Fluctuations in Operating Results."
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
----------------------------------------------- ----------------------------------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31,
1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Net sales............................ $90,317 $104,116 $101,048 $106,293 $131,612 $143,652 $201,923
Cost of sales........................ 73,779 86,227 82,728 86,910 108,981 119,511 171,047
------- -------- -------- -------- -------- -------- --------
Gross profit......................... 16,538 17,889 18,320 19,383 22,631 24,141 30,876
Operating expenses:
Research and development........... 1,414 1,508 1,405 1,606 1,829 2,066 2,496
Sales, general and
administrative................... 6,829 7,378 7,031 7,306 8,126 8,209 9,926
------- -------- -------- -------- -------- -------- --------
Total operating expenses..... 8,243 8,886 8,436 8,912 9,955 10,275 12,422
------- -------- -------- -------- -------- -------- --------
Income from operations............... 8,295 9,003 9,884 10,471 12,676 13,866 18,454
Other income (expense), net.......... 429 431 568 810 529 480 412
------- -------- -------- -------- -------- -------- --------
Income before provision for income
taxes.............................. 8,724 9,434 10,452 11,281 13,205 14,346 18,866
Provision for income taxes........... 3,279 3,476 3,831 4,174 4,495 4,878 6,414
------- -------- -------- -------- -------- -------- --------
Net income........................... $ 5,445 $ 5,958 $ 6,621 $ 7,107 $ 8,710 $ 9,468 $ 12,452
======= ======== ======== ======== ======== ======== ========
Net income per share................. $ .27 $ .28 $ .31 $ .34 $ .41 $ .44 $ .57
======= ======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding...... 20,313 20,979 21,061 21,143 21,462 21,640 21,810
AS A PERCENT OF NET SALES:
Net sales............................ 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 81.7 82.8 81.9 81.8 82.8 83.2 84.7
------- -------- -------- -------- -------- -------- --------
Gross profit......................... 18.3 17.2 18.1 18.2 17.2 16.8 15.3
Operating expenses:
Research and development........... 1.6 1.4 1.4 1.5 1.4 1.4 1.2
Sales, general and
administrative................... 7.6 7.1 7.0 6.9 6.2 5.7 4.9
------- -------- -------- -------- -------- -------- --------
Total operating expenses..... 9.1 8.5 8.3 8.4 7.6 7.2 6.2
------- -------- -------- -------- -------- -------- --------
Income from operations............... 9.2 8.6 9.8 9.9 9.6 9.7 9.1
Other income (expense), net.......... .5 .4 .6 .8 .4 .3 .2
------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes... 9.6 9.1 10.3 10.6 10.0 10.0 9.3
Provision for income taxes........... 3.7 3.3 3.8 3.9 3.4 3.4 3.2
------- -------- -------- -------- -------- -------- --------
Net income........................... 6.0 % 5.7% 6.6% 6.7% 6.6% 6.6% 6.2%
======= ======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
Since inception, SMART has used funds generated primarily from operations,
certain borrowings, capital leases and equity financings to support its
operations, acquire capital equipment and finance inventory and accounts
receivable. The Company generated cash from operations totaling $27.0 million
and $11.0 million in fiscal 1996 and fiscal 1995, respectively. The Company used
cash from operating activities totaling $6.1 million for the nine months ended
July 31, 1997 as a result of increases in inventories and accounts receivable,
compared to cash provided by operations totaling $5.8 million for the comparable
period of fiscal 1996. At July 31, 1997, the Company had $43.2 million of cash,
cash equivalents and short-term investments, and $99.7 million of working
capital. The Company primarily funds its liquidity requirements from amounts
borrowed under its existing line of credit and utilization of existing cash
balances. The Company expects to fund any future liquidity requirements from a
combination of available cash balances, the proceeds of this offering and
certain short-term borrowings under its line of credit. The Company currently
anticipates that its working capital requirements will continue to increase in
future periods to the extent that the Company's operations continue to expand.
The Company has a revolving line of credit agreement (the "Credit Line")
with a term expiring May 30, 1998. Borrowings under the Credit Line are limited
to $20.0 million. Borrowings under the Credit Line bear interest at either the
bank's prime rate or a spread over LIBOR, at the Company's option. The Company
is required to maintain specified levels of tangible net worth and comply with
certain other covenants. The Credit Line is unsecured and no borrowings were
outstanding under the Credit Line as of July 31, 1997.
Capital expenditures totaled $12.9 million for the nine months ended July
31, 1997. For the fiscal years ended 1996 and 1995, capital expenditures totaled
$9.0 million and $5.4 million, respectively. These expenditures were primarily
for manufacturing and test equipment and the expansion of the Company's existing
manufacturing facilities. The Company's fiscal 1996 capital expenditure total
reflects expenditures related to the addition of a manufacturing facility in
East Kilbride, Scotland. SMART anticipates spending between $18.0 million and
$20.0 million on capital expenditures in fiscal 1997 related to the continued
expansion of the Company's manufacturing facilities and related equipment.
SMART has entered into certain capital lease arrangements. The outstanding
principal on these obligations was $1.5 million and $2.7 million at July 31,
1997 and October 31, 1996, respectively. See Note 4 of Notes to Consolidated
Financial Statements incorporated herein by reference.
From time to time, the Company evaluates acquisitions of businesses,
products or technologies that complement its business. Currently, the Company
has no present understandings, commitments or agreements with respect to any
material acquisitions of other businesses, products or technologies. Any such
transactions, if consummated, may use a portion of the Company's working capital
or require the issuance of debt or equity.
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<PAGE> 23
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128")
which requires disclosure of basic earnings per share and diluted earnings per
share and is effective for periods ending subsequent to December 15, 1997. The
pro forma effect of adoption of SFAS 128 is included in the table below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, JULY 31,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AS REPORTED:
Net income per share........................ $.37 $.72 $1.20 $.87 $1.42
Weighted average number of common and common
equivalent shares outstanding............ 16,537 17,565 20,874 20,784 21,637
PRO FORMA:
Basic net income per share.................. $.46 $.87 $1.38 $1.00 $1.60
Weighted average number of common shares
outstanding.............................. 13,438 14,493 18,230 18,039 19,148
Diluted net income per share................ $.37 $.72 $1.20 $.87 $1.42
Weighted average number of common and common
equivalent shares outstanding............ 16,537 17,565 20,874 20,784 21,637
</TABLE>
22
<PAGE> 24
BUSINESS
SMART is a leading independent manufacturer of specialty and standard
memory modules and Flash memory cards and also manufactures high performance
embedded computer modules, as well as communication card solutions in PC card
and other form factors. SMART offers more than 500 products to leading OEMs in
the computer, networking and telecommunications industries. The Company's
principal customers include Cisco, Compaq, Data General, Fujitsu,
Hewlett-Packard, IBM, Motorola, NCR and Solectron.
SMART has developed extensive design, manufacturing, testing and logistics
expertise that the Company believes enables it to respond to its customers'
rapidly changing product and service requirements; provide its customers with
timely access to new higher speed or higher performance modules or subsystems;
reduce its customers' time-to-market and capital requirements; and decrease its
customers' production and inventory costs.
INDUSTRY BACKGROUND
The demand for semiconductor memory devices and other subsystems in digital
electronic systems has grown dramatically over the last several years as a
result of the increasing importance of both of these components in determining
system performance. The demand for greater overall system performance, as well
as the increasing number and variety of electronic devices, has required that
electronics manufacturers increase the number and functionality of memory
devices and the performance of other subsystems.
The factors contributing to the increasing demand for memory devices and
communications and embedded computer subsystems include the expanding unit sales
of PCs in the business and consumer market segments; the increasing use of PCs
to perform memory-intensive graphics and multimedia functions; the volume of
memory required to support faster microprocessors; the proliferation of
increasingly complex operating system and applications software; the increased
use of local area network and wide area network routing and switching equipment
that incorporates complex memory and embedded computer subsystems; the growth in
on-line communications, such as e-mail and the Internet; and, in general, the
increasing performance requirements of workstations, servers and networking and
telecommunications equipment.
Memory integrated circuits ("ICs") and subsystems encompass several types
of devices designed to perform specific functions within computer and other
electronic systems. The three most significant categories of memory ICs are
DRAM, SRAM and non-volatile memory, including Flash. DRAM provides large
capacity "main" memory; SRAM provides specialized high speed memory; and Flash
and other non-volatile memory provide low power memory that retains data after a
system is turned off. Within each of these broad categories of memory products,
semiconductor manufacturers are offering an increasing variety of memory devices
that are designed for different application and performance requirements. For
example, the variety of DRAM memory ICs has increased in recent years with the
introduction and adoption of architectures such as SDRAM, Rambus DRAM, SGRAM,
VRAM, FPM and EDO. This increase in the variety of memory ICs has placed greater
demands on OEMs to maintain a current knowledge base and expertise. In addition,
other specialized subsystems, such as modems, networking devices and embedded
computer solutions, enable critical data transfer and data processing functions.
MARKETS
Memory Module Market. Memory modules are compact circuit board assemblies
consisting of DRAM, SRAM, Flash or other semiconductor memory devices and
related circuitry. Electronic systems increasingly employ memory modules as
building blocks in system design as a result of the many advantages memory
modules offer OEMs and end users. The use of memory modules enables OEMs to
easily configure a system with a variety of different levels of memory, thus
increasing their flexibility to address multiple price points or applications
with a single base system design. In addition, the use of memory modules enables
OEMs to offer a relatively easy path for upgradeability of a PC or workstation,
a feature of system design that is increasingly required by end-users. To
achieve this flexibility and upgradeability, both PC and communications OEMs
frequently design their systems to use memory modules as a "daughter card,"
reducing the need to include
23
<PAGE> 25
memory devices on the motherboard. This design structure frees up space on the
motherboard and enables the OEM to use a single motherboard as a common central
element for a variety of different systems, resulting in significant cost
savings. The use of memory modules further reduces costs by reducing OEMs'
work-in-process inventories by allowing them to add expensive and increasingly
diverse memory devices to products during the final stages of the manufacturing
process.
The market for memory modules includes both standard and specialty modules.
The high volume standard memory module market includes modules that can be
sourced from many module suppliers, and are designed to be incorporated into a
wide variety of equipment. These modules employ designs meeting widely used
industry specifications and are available with a variety of options to address
the needs of multiple OEMs. Standard memory modules are typically used in
desktop PCs and printers and are sold both to OEMs and through computer
resellers directly to end users.
Specialty memory modules include both custom and application specific
modules. The varying requirements of different electronic systems and the
increased number of memory device options have resulted in a market for
specialized memory modules that are designed to enhance the performance of a
particular system or a set of applications. These modules are based on either
DRAM, SRAM or Flash technologies and may include additional control circuitry.
Specialty memory modules are typically sourced from a limited number of
suppliers. Application specific and custom memory modules are generally used in
mobile computers, workstations and telecommunications devices, such as routers
and switches, and are primarily sold to OEMs.
PC Card Market. PC cards are small form factor cards conforming to the
Personal Computer Memory Card International Association ("PCMCIA") standards and
are used as peripheral devices in products such as notebook and subnotebook
computers, personal digital assistants ("PDAs"), cellular phones, pagers and
digital cameras. The Company believes that growth in the mobile computing market
will expand the market for mobile computing peripherals, including PC cards for
memory (primarily Flash memory) and communications (wireline and wireless
data/fax modems). Increasingly important aspects of PC card modem functionality
are the abilities to be easily configurable for use internationally and to
provide high speed connections over wireline and wireless networks such as ISDN,
switched cellular, digital cellular and personal communications services.
Embedded Computer Subsystem Market. Unlike PCs or workstations that serve as
general purpose computers, embedded computer subsystems are integrated into
larger systems and perform a single function or a closely related group of
functions such as input/output ("I/O") and data processing with high degrees of
repeatability, accuracy and reliability. Embedded computer subsystems are
incorporated into an ever-increasing array of products used in a variety of
markets, including telecommunications, networking, imaging, simulation, command
and control, industrial control and desktop publishing. Examples of embedded
computer subsystem applications include Digital Satellite Systems, set-top
boxes, video games, laser printers, scanners, network routers and switches,
robots, computer guided missiles, paint mixing systems, medical imaging
analyzers, automated toll collection systems and Global Positioning System
receivers. With current market conditions requiring shorter design cycles and
the options for implementation becoming more varied and complex, OEMs are
increasingly outsourcing their requirements for embedded computer subsystems to
specialists that complement the value added by the OEM.
Opportunity for Manufacturers of Memory Modules and Subsystems. As the variety
of memory devices and subsystems available to address specific applications has
expanded, the design and manufacture of memory modules, PC cards and embedded
computer subsystems have increasingly become areas in which electronics OEMs
employ outsourcing strategies. OEM outsourcing practices for memory products
range from contract manufacturing, in which the OEM may turn to an outside
supplier to procure third-party components and design, manufacture and
distribute a specific product for the OEM on a turnkey basis, to consignment, in
which the OEM employs the outside supplier to design and manufacture a product
using memory or other components supplied by the OEM. OEMs may also purchase
memory modules or subsystems which have been designed by a supplier for a
specific application.
24
<PAGE> 26
The use of outsourcing strategies has many benefits for OEMs. By
outsourcing design, manufacturing, testing and logistics functions, OEMs are
able to focus their resources on activities and technologies in which they add
the greatest value, such as system design, sales, marketing and distribution. In
addition, OEMs can reduce their time to market by utilizing the manufacturing
and logistics expertise of specialized manufacturers. In particular, the
increasing trend under which large PC OEMs are implementing build-to-order and
direct sales distribution strategies may create opportunities for independent
suppliers of memory modules, as these strategies place increased reliance on the
manufacturing, logistics and inventory management functions of these suppliers.
Moreover, as memory modules, PC card, embedded computer subsystems and other
subsystems become more complex and differentiated, the design, manufacturing and
test processes become increasingly automated and more complex, requiring a
greater level of investment in capital equipment and skilled engineers and
specialists. Outsourcing enables OEMs to gain access to advanced manufacturing
facilities, thereby reducing the OEMs' overall capital equipment requirements.
Also, the proliferation of a wide variety of DRAM, SRAM and Flash memory devices
combined with frequent product design changes, short product life cycles and
component price fluctuations, have created increasing difficulties for OEMs in
planning, procuring and managing their inventories efficiently. By using a
manufacturing specialist's volume procurement capabilities and expertise in
inventory management, OEMs can reduce production and inventory costs.
THE SMART SOLUTION
SMART is a leading independent manufacturer of specialty and standard
memory modules and Flash memory cards and also manufactures high performance
embedded computer modules, as well as communication card solutions in PC card
and other form factors. SMART offers more than 500 products to leading OEMs in
the computer, networking and telecommunications industries. SMART has developed
extensive design, manufacturing, testing and logistics expertise that the
Company believes enables it to respond to its customers' rapidly changing
product and service requirements; provide its customers with timely access to
new higher speed or higher performance modules or subsystems; reduce its
customers' time-to-market and capital requirements; and decrease its customers'
production and inventory costs.
STRATEGY
SMART's objective is to strengthen its position as a leading supplier of
memory products and to become a leading supplier of communication card products
and embedded computer modules in high growth markets. The Company believes that
its specialization in each of these areas provides it with significant
competitive advantages. The following are key elements of the Company's
strategy:
Maintain Technological Leadership in Memory Module Design. SMART believes
it is a leader in the design of custom, application specific and standard memory
modules. Through its experience with substantially all types of memory devices
supplied by a wide range of leading semiconductor manufacturers, SMART has
developed significant expertise in memory module design and component selection.
The Company uses its extensive library of product designs and layouts of memory
modules to increase its speed and efficiency in introducing new products, which
enables it to provide its OEM customers with time to market advantages. The
Company's strategy is to apply its design expertise to continue to develop new
memory modules that address emerging opportunities utilizing DRAM, SRAM and
Flash memory technologies. SMART has also developed a substantial base of
proprietary testing routines and parameters that enable it to diagnose problems
in system design or memory components, to characterize the performance of new
products and to provide high quality products in volume.
Expand Manufacturing Capacity and Expertise. The Company intends to further
expand and automate its manufacturing capability while maintaining and improving
its responsiveness to OEMs with shorter design cycles and more rapid turnaround.
The Company believes that it benefits from certain economies of scale in
procurement and equipment utilization due to its high volume manufacturing of a
wide variety of memory module and PC card products. The Company has developed an
experienced manufacturing staff and has established automated specialized
surface mount lines that enable the Company to manufacture its products in a
cost-effective manner. An important aspect of the Company's manufacturing
strategy is to focus
25
<PAGE> 27
intensively on product quality to address the stringent requirements of leading
electronics OEMs worldwide. In addition, the Company believes that it has
established particular expertise in materials management and logistics through
efficient procurement and inventory tracking and control systems.
Broaden OEM Relationships. The Company's applications engineers regularly
work with OEMs to seek, develop and support multiple design-in opportunities
over multiple generations of products. The Company believes that large OEMs may
increasingly seek to expand outsourcing relationships beyond contract
manufacturing services alone to include additional services such as technical
development, design collaboration and logistical support. The Company is
currently developing comprehensive programs to better enable OEMs to directly
address before-sale and after-market demand for the Company's products. Without
outsourcing, OEMs face significant challenges in terms of procurement,
manufacturing, inventory and distribution. The Company believes that the number
of OEMs that can meet these demanding requirements is limited. The Company's
programs are designed to enable OEMs to better implement highly-efficient
build-to-order production processes and to lower costs.
The Company plans to continue to develop relationships with new OEM
customers, as well as expand those with existing customers, both domestically
and internationally. In support of this strategy, the Company is expanding its
sales force to address new opportunities with OEM customers worldwide. The
Company has historically opened and anticipates that it will continue to open
new manufacturing facilities in proximity to major OEMs in order to provide
greater customer service and support with services such as "just-in-time"
delivery and logistical support. Within the last few years, the Company has
opened facilities in Puerto Rico and Scotland.
Address New Opportunities in Subsystem Markets. The Company believes that
it has significant expertise in the design and manufacture of electronic
subsystems, which require a high density of components in a small form factor.
The Company intends to leverage this expertise in the emerging and high growth
segments of other subsystem markets, such as the embedded computer module
markets. The Company seeks to increase its market share in such markets by
offering customers the same breadth of services and complete solutions, from
design to manufacturing and logistical support, that it currently offers
customers in the memory module market. In the market for PC card products
incorporating memory, data communications functionality and networking
connectivity, the Company intends to continue to focus on increasing the
penetration of its PC card products at major OEMs, which it believes are looking
for solutions to reduce the number of suppliers and SKUs required to service the
needs of their end customers. In the fragmented embedded computer subsystem
market, the Company believes that its relationships, infrastructure, large scale
production capabilities and financial resources, relative to many smaller
competitors, offer a competitive advantage in securing large OEM customers.
PRODUCTS
The Company designs and markets products consisting of memory modules, PC
cards and embedded computer modules. The Company's memory modules include DRAM,
SRAM and Flash memory-based products. The Company offers custom and application
specific memory modules, as well as standard memory modules that comply with
industry standards established by the Joint Electronic Development Engineering
Council ("JEDEC"). The Company's PC cards comply with PCMCIA standards and
include memory cards, wireless and wireline data communication modem cards,
network connectivity cards and other I/O cards. The Company's embedded computer
module products include a range of standard and perfect fit embedded computers
for use in a variety of specialized computing applications.
MEMORY MODULES
DRAM Modules. The Company offers a comprehensive line of DRAM memory
modules, including a wide range of single in-line memory modules ("SIMMs"), dual
in-line memory modules ("DIMMs") and small outline dual in-line memory modules
("SO DIMMs"). The Company's DRAM modules are available in various configurations
of up to 200 pins and densities of up to 256 MBytes. Many of these products are
offered in both 5.0 volt and 3.3 volt versions, with FPM, EDO, SDRAM and SGRAM
architectures.
26
<PAGE> 28
The following table summarizes certain of the Company's DRAM module product
offerings:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DRAM
PRODUCT FAMILIES DENSITY FEATURES SPEED (MHZ) APPLICATIONS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
72 Pin SIMMs 4-64 MBytes FPM, EDO 10-33 Desktop PCs, Printers, Embedded
Controllers, Routers, Servers
- -----------------------------------------------------------------------------------------------------
100 Pin DIMMs 4-64 MBytes FPM, EDO, 66-133 Networking, Printers
SDRAM
- -----------------------------------------------------------------------------------------------------
144 Pin SO DIMMs 4-64 MBytes FPM, EDO 10-33 Notebook PCs, Printers,
---------------------------------------------------------------
SDRAM, SGRAM 66-133 X-Window Terminals, 3D Graphics
- -----------------------------------------------------------------------------------------------------
168 Pin DIMMs 8-256 MBytes FPM, EDO 10-33 Workstations, Routers, PCs
---------------------------------------------------------------
SDRAM 66-133 Servers, Telecom Equipment, PCs
- -----------------------------------------------------------------------------------------------------
Registered 168 Pin 8-256 MBytes SDRAM 66-133 Workstations, Servers, Routers
DIMMs
- -----------------------------------------------------------------------------------------------------
200 Pin DIMMs 16-64 MBytes FPM, SDRAM 10-150 Workstations, Super Computers
- -----------------------------------------------------------------------------------------------------
VRAM Modules 2-16 MBytes RAM, High 60-200 High Performance Graphics for
Speed SRAM Workstations
- -----------------------------------------------------------------------------------------------------
VME Bus Modules 256 KBytes- FPM, Low 10-33 Industrial Control Systems
Profile
16 MBytes
- -----------------------------------------------------------------------------------------------------
Custom 1-256 MBytes Per Customer Per Customer Embedded Controllers, Telecom
Specifications Specifications Switches, Notebook PCs
- -----------------------------------------------------------------------------------------------------
</TABLE>
SRAM Modules. The Company offers a comprehensive line of SRAM memory
modules, including L2 cache modules and other high speed and low power SRAM
modules. The Company's L2 cache modules are available in speeds from 33 to 83
MHz, in asynchronous and synchronous versions, with burst, pipelined burst and
serial access operating modes and in densities from 256 KBytes to 8 MBytes.
The following table summarizes certain of the Company's high speed SRAM L2
cache module product offerings:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SRAM L2 CACHE CHIPSET
PRODUCT FAMILIES DENSITY COMPATIBILITY SPEED (MHZ) APPLICATIONS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Synchronous 64 Bit 256 KBytes-1 MByte Intel, SIS, OPTi, 66-83 Desktop PCs, Embedded
VLSI Controllers
- -------------------------------------------------------------------------------------------------------------
Synchronous 72 Bit 256 KBytes-1 MByte Intel, SIS, OPTi, 66-83 Desktop PCs, Workstations,
VLSI Servers, Routers
- -------------------------------------------------------------------------------------------------------------
Asynchronous 64 Bit 256 KBytes-1 MByte Intel, OPTi, VLSI 50-66 Desktop PCs, Embedded
Controllers
- -------------------------------------------------------------------------------------------------------------
Asynchronous 72 Bit 256 KBytes-1 MByte Intel, OPTi, VLSI 50-66 Desktop PCs, Workstations,
Servers, Routers
- -------------------------------------------------------------------------------------------------------------
Custom 256 KBytes-8 MBytes Per Customer Per Customer Desktop PCs
Specifications Specifications
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 29
The following table summarizes certain of the Company's other high speed
and low power SRAM module product offerings:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SRAM
PRODUCT
FAMILIES DENSITY SPEED (NS) APPLICATIONS
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
8 Bit I/O 256 KBytes-2 MBytes 100-20 Point of Sale Terminals, Electronic
Verification Equipment, Industrial
Instrumentation
- --------------------------------------------------------------------------------------------------
16 Bit I/O 32 KBytes-1 MByte 120-15 Disk Drives, Medical Instruments
- --------------------------------------------------------------------------------------------------
18 Bit I/O 768 KBytes 25-15 Disk Drives, Medical Instruments
- --------------------------------------------------------------------------------------------------
24 Bit I/O 960 KBytes 25-15 Servers, Graphics
- --------------------------------------------------------------------------------------------------
32 Bit I/O 32 KBytes-1 MByte 100-12 Graphics, Industrial Instrumentation
- --------------------------------------------------------------------------------------------------
36 Bit I/O 32 KBytes-1 MByte 35-15 Servers, Workstations
- --------------------------------------------------------------------------------------------------
44 Bit I/O 1.4-5.5 MBytes 20-15 Minicomputers
- --------------------------------------------------------------------------------------------------
</TABLE>
Flash Modules. The Company offers a comprehensive line of Flash modules,
including 72 Pin DRAM-like SIMMs, 80 Pin synchronous SIMMs, 80 Pin asynchronous
SIMMs and 168 Pin synchronous and asynchronous DIMMs. The Company's Flash
modules are available in densities of up to 64 MBytes. The Company also offers
additional options such as an on-board active reset control, system reset
control and DC to DC power conversion which allows the use of 12.0 volt
components in a 5.0 volt system.
The following table summarizes certain of the Company's Flash module
product offerings:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FLASH PRODUCT FAMILIES DENSITY FEATURES APPLICATIONS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
72 Pin DRAM-like SIMMs 4-8 MBytes Reads like DRAM Embedded Controllers
Plugs into DRAM Socket
- -----------------------------------------------------------------------------------------------------------
80 Pin Synchronous SIMMs 8-32 MBytes Synchronized to System Clock Embedded Controllers
- -----------------------------------------------------------------------------------------------------------
80 Pin Asynchronous 1-32 MBytes 12.0 Volt/5.0 Volt Programming Routers, Servers,
SIMMs 5.0 Volt/3.3 Volt Read Voltage Telecom Switches
5.0 Volt Only
3 Reset Options
- -----------------------------------------------------------------------------------------------------------
168 Pin Asynchronous 4-64 MBytes 5.0 Volt/3.3 Volt Read Voltage Telecom Switches, Routers
DIMMs
- -----------------------------------------------------------------------------------------------------------
Custom 1-64 MBytes Per Customer Specifications Industrial Applications
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Sales of memory modules accounted for a substantial majority of the
Company's net sales during the nine months ended July 31, 1997 and during fiscal
1996 and fiscal 1995.
PC CARD PRODUCTS
The Company sells PC card products that provide both memory, I/O and
communication functions. The Company's PC cards are marketed under the "SMART"
and "Apex Data" brand names. The Company offers a comprehensive line of memory
PC card products, including 68 Pin PC cards with densities ranging from 2 MBytes
to 32 MBytes and 68 Pin ATA Flash memory PC cards with densities ranging from 2
MBytes to 112 MBytes. These cards provide additional memory for notebook and
subnotebook computers and PDAs. The Company's memory PC cards are PCMCIA Type I
compatible.
28
<PAGE> 30
The following table summarizes certain of the Company's PC card memory
product offerings:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PC CARD MEMORY
PRODUCT FAMILIES DENSITY FEATURES APPLICATIONS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
68 Pin Linear 2-32 MBytes Plug & Play, Software Driver PDAs, Notebook PCs, Networking,
Flash Included Portable Medical Equipment
- ----------------------------------------------------------------------------------------------------------
68 Pin ATA 2-112 MBytes 5.0 Volt, 3.3 Volt PDAs, Notebook PCs, Networking
Flash ATA Compliant
- ----------------------------------------------------------------------------------------------------------
Compact Flash 2-16 MBytes 5.0 Volt, 3.3 Volt PDAs, Cellular Phones, Pagers,
ATA ATA Compliant Digital Cameras
- ----------------------------------------------------------------------------------------------------------
Miniature 2-4 MBytes 5.0 Volt, 3.3 Volt PDAs, Cellular Phones, Pagers,
16 Bit Data Interface Digital Cameras
MCIF Specification Compliant
- ----------------------------------------------------------------------------------------------------------
Custom 128 KBytes-20 MBytes Per Customer Specifications Portable Medical Equipment
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company also offers a comprehensive line of modem and communications
products. These products include a full line of PC card data/fax modems for
notebook and PDA devices, as well as, beginning in 1997, internal (ISA) modems
for desktop computers. The Company currently offers 56 kbps modems utilizing the
K56flex(TM) technology supported by Lucent Technologies, Inc. and Rockwell
International Corporation ("Rockwell"). To address the needs of users demanding
international mobility, the Company's world-approved modems allow users to have
one modem that can be used worldwide. In addition, the Company has added digital
GSM technology to its world-approved modems providing users with secure,
digital, wireless communications.
The following chart summarizes certain of the Company's communications
product offerings:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
COMMUNICATION CARD PRODUCT FAMILIES FEATURES
- ---------------------------------------------------------------------------------------------
<S> <C>
MODEMS
- ---------------------------------------------------------------------------------------------
Mobile Plus V.34 33.6 kbps PC Card Landline and Cellular-ready
Supports over 50 different types of analog cellular
phones
- ---------------------------------------------------------------------------------------------
ClipperCom World V.34 33.6 kbps PC Internal DAA certified in over 50 countries
Card w/GSM Country Select GUI software
Digital GSM wireless capabilities
- ---------------------------------------------------------------------------------------------
Winperformer V.34 33.6 kbps PC Card HSP technology
Win95, NT
- ---------------------------------------------------------------------------------------------
Rapid Transit 56 kbps PC Card K56flex(TM) technology
Software upgradable
- ---------------------------------------------------------------------------------------------
Rapid Transit 56 kbps Internal (ISA) K56flex(TM) technology
Software upgradable
Full duplex speakerphone
- ---------------------------------------------------------------------------------------------
NETWORKING
- ---------------------------------------------------------------------------------------------
Ethernet Adapter 10BaseT or 10Base2
- ---------------------------------------------------------------------------------------------
VIDEO ADAPTER
- ---------------------------------------------------------------------------------------------
Media Express MPEG 1 ZV Port compatible
Full screen, full motion video
- ---------------------------------------------------------------------------------------------
</TABLE>
EMBEDDED COMPUTER MODULES
The Company's SMARTengine family of products helps accelerate time to
market, reduce system cost, lower power requirements and provide a clear upgrade
path for OEMs. The Company offers a line of standard
29
<PAGE> 31
and perfect-fit embedded computers with complete software support that offer
varying price/performance and industry standard bus interfaces. The Company's
product line is processor independent and operates in systems using 32 and 64
bit CPUs from several vendors. This compatibility enhances flexibility to match
price, performance and power requirements to the customer's application. The
Company has also used industry standard buses, including ISA, EISA, PCI and
Compact PCI, as well as custom buses, where required. All products are supported
by on-board software for development and real-time operating systems support.
The following table summarizes certain of the Company's SMARTengine
embedded computer module product offerings:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
EMBEDDED COMPUTER
MODULE FAMILIES FEATURES APPLICATIONS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SMARTengine/50PCI R5000, Compact PCI, 8-128 MBytes DRAM, ATM Switch, Ethernet Switch
FLASH, PROM, Ethernet, SCSI, RTC,
DUART
- -------------------------------------------------------------------------------------------
SMARTengine/43PCI R4300, 8 MBytes EDO DRAM, FLASH, PROM, Imaging, Game, Publishing
RTC, 3 PCI slots
- -------------------------------------------------------------------------------------------
SMARTengine 43hPCI, R4300, 8 MBytes DRAM, FLASH, Networking, Printers,
PROM, RTC Datacom, Test and
Measurement
- -------------------------------------------------------------------------------------------
SMARTengine/43NET R4300, 2 Ethernets, 8 MBytes DRAM, Networking, Ethernet Switch
FLASH, PROM, RTC, DUART
- -------------------------------------------------------------------------------------------
SMARTengine/47PCI R4700, 2 PCI buses, 8-128 MBytes DRAM, Imaging
FLASH, PROM, RTC, DUART
- -------------------------------------------------------------------------------------------
SMARTengine/30ISA R3081, ISA bus, 8 MBytes DRAM Simulation
- -------------------------------------------------------------------------------------------
Custom Perfect-fit embedded computer for the Various
customer's application
- -------------------------------------------------------------------------------------------
</TABLE>
CUSTOMERS, SALES AND MARKETING
The Company's principal customers include major computing, networking and
telecommunication OEMs and semiconductor manufacturers. For the nine months
ended July 31, 1997, fiscal 1996 and fiscal 1995, the Company's ten largest
customers accounted for approximately 86%, 71% and 68% of the Company's net
sales, respectively. For the nine months ended July 31, 1997, the Company's
three largest customers were Compaq, Cisco and Hewlett-Packard, which accounted
for 50%, 13% and 11% of net sales, respectively. In fiscal 1996, the Company's
three largest customers were Cisco, Hewlett-Packard and IBM, which accounted for
19%, 15% and 12% of net sales, respectively. In fiscal 1995, the Company's three
largest customers were Cisco, IBM, and Hewlett-Packard, which accounted for 18%,
15% and 10% of net sales, respectively. No other customers accounted for more
than 10% of net sales in these periods.
The Company primarily sells its memory and embedded computer module
products directly to major OEM customers and uses a network of independent sales
representatives located throughout North America and Europe for sales to other
OEM customers. The Company's direct sales and marketing efforts are conducted in
an integrated process involving direct salespeople, customer service
representatives and senior executives. An important aspect of the Company's
sales and marketing efforts is that the Company's experienced applications
engineers work closely with OEM customers in designing the Company's products
into the OEM's systems. The Company's sales offices are located in California,
Colorado, Texas, Massachusetts, North Carolina, England, Australia and Germany.
To address the needs of its OEM customers, the Company has developed and
maintains relationships with leading vendors of memory devices located in the
United States, Japan and South Korea. These include limited and sole source
suppliers of certain products, such as NEC Corporation, IBM, Intel, Oki
Semiconductor, Inc., Rockwell and Samsung. The Company frequently works jointly
with these vendors in bidding for
30
<PAGE> 32
customers' design-in opportunities. The Company's OEM marketing activities
include advertising in technical journals and direct mail solicitation.
The Company sells PC card products to OEMs and corporate end users, as well
as to small office/home office ("SOHO") and consumer end users. The Company's
OEM customers integrate the Company's PC cards into their end products.
Corporate end users typically buy the Company's PC card products for mobile
computing applications through computer resellers, such as distributors and
VARs. Distributors in North America include Ingram Micro Inc., Merisel Inc.,
Microage, Inc. and Tech Data Corp. The Company sells to SOHO and consumer end
users through catalog sales organizations and retailers including Mobile Planet
in North America.
Sales are generally made pursuant to standard purchase orders. The Company
includes in its backlog only those customer orders for which it has accepted
purchase orders and it expects to ship within the next 12 months. Since orders
constituting the Company's current backlog are subject to changes in delivery
schedules and are subject to cancellation with only limited or no penalties,
backlog is not necessarily an accurate indication of future net sales. There can
be no assurance that current backlog will necessarily lead to net sales in any
future period. The Company's total backlog was $51.8 million and $37.6 million
as of July 31, 1997 and 1996, respectively.
DESIGN, MANUFACTURING AND TEST
The Company has a staff of engineers for applications development,
component selection, schematic design, layout, firmware and software driver
development. The layouts for memory modules, PC cards and embedded computer
modules are specialized due to their high component and trace densities,
particularly for high speed memory modules. To further enhance its design
capability, the Company established in fiscal 1995 a design center in Bangalore,
India.
The Company believes that the efficiency of its manufacturing operations
has benefited from its extensive experience and its library of proven designs
which stress high manufacturability and quality. Through its extensive library
of memory module designs and its experience in designing and manufacturing
memory modules, the Company is able to work closely with its customers and
suppliers to design competitive solutions to system memory problems and shorten
the time it takes its customers to get their products to market.
The Company's manufacturing processes rely on a high level of automation
and involve the use of a substantial base of fine pitch surface mount equipment
which is specialized for the production of memory modules and PC cards. The
Company's surface mount manufacturing lines have been optimized to support the
placement and configuration of a high number of ICs on each board, in contrast
to surface mount equipment used in less specialized electronics manufacturing
which typically involves a fewer number of ICs and a greater number of passive
components on each printed circuit board. The Company also has developed
automated methods for PC card case assembly and test. As a result of its design
efficiencies, high level of automation and general manufacturing expertise, the
Company believes that it achieves relatively high manufacturing yields. In
addition, due to the high level of automation in the Company's manufacturing
approach, the Company maintains a relatively low percentage of direct labor
costs. The Company believes that it has achieved and maintains a rapid
manufacturing cycle and is able to offer its customers quick turnaround of both
small and large projects. The Company is frequently able to provide turnaround
on major customer orders within days or weeks.
An important aspect of the Company's manufacturing operations is its focus
on product testing. The Company tests 100% of its memory modules, PC cards and
embedded computer modules for full functionality, in contrast with many other
suppliers which the Company believes may test only at the system level. The
Company believes that it has established substantial technical expertise in the
testing of memory modules, PC cards and embedded computer modules. The Company
further believes that test capability will grow in importance as the speed and
complexity of memory devices and modules utilizing those devices increase. The
Company has a group of experienced test engineers that develop proprietary
testing routines and parameters which, combined with the Company's continued
investment in advanced test equipment, enable it to diagnose
31
<PAGE> 33
problems in system design or memory components, to characterize the performance
of new products and to provide high quality products in volume.
The Company currently manufactures and tests the majority of its products
in a 62,250 square foot facility in Fremont, California. In addition, the
Company utilizes a 23,000 square foot manufacturing and test facility in
Arecibo, Puerto Rico and, since its opening in September 1996, a 25,000 square
foot manufacturing and test facility in East Kilbride, Scotland. The Company
operates multiple production lines at these facilities. The Company currently
plans to add additional manufacturing and test capacity in each of its
manufacturing and test sites. The Company subcontracts a limited amount of
production requirements to third party manufacturers.
RESEARCH AND DEVELOPMENT
The Company believes that the timely development of new memory modules, PC
cards and embedded computer modules is essential to maintaining the Company's
competitive position. In the memory market, the Company's research and
development activities are focused primarily on new high speed memory modules,
the continual improvement in test routines and software and the ongoing
improvement in manufacturing processes and technologies. In particular, the
Company is focusing its research and development resources on the development of
SDRAM, Flash and SRAM products. The Company plans to continue to devote
substantial research and development efforts to the design of new memory module
products which address the requirements of OEMs and corporate end users.
In the PC card market, the Company's research and development efforts are
focused primarily on the design and introduction of new PC card products which
provide improved memory, connectivity and communications functionality. The
Company's research and development efforts in the embedded computer market are
focused on the design of standard and custom embedded computer modules based
primarily on the MIPS and PowerPC computing architectures and standard or custom
bus architectures.
The Company's research and development expenses for the nine months ended
July 31, 1997, fiscal 1996 and fiscal 1995 were $6.4 million, $5.9 million and
$5.3 million, respectively.
COMPETITION
The memory module, PC card and embedded computer subsystem industries are
intensely competitive. Each of these markets comprises a large number of
competitive companies, several of which have achieved a substantial share of
their respective markets. Certain of the Company's competitors in each of these
markets have substantially greater financial, marketing, technical, distribution
and other resources, greater name recognition, lower cost structures and larger
customer bases than the company. In the memory module market, the Company
competes against semiconductor manufacturers that maintain captive memory module
production capabilities, including Micron Electronics, Inc. (a subsidiary of
Micron Technology Inc.) and Samsung. The Company also competes with independent
memory module manufacturers, including Celestica Inc., PNY Electronics, Inc. and
Simple Technology Incorporated. In the computer systems reseller market for
memory modules, the Company primarily competes with companies such as Kingston
Technology, Inc., Viking Technology, Inc. and Vision Tek, Inc. In the PC card
market, the Company competes with Hayes Communications, Inc. and U.S. Robotics,
Inc. (a subsidiary of 3Com Corporation), among others. In the embedded computer
subsystem market, the Company competes with Force Computers, Inc. (a subsidiary
of Solectron), Motorola and Radisys Corporation, among others. The Company faces
competition from current and prospective customers that evaluate the Company's
capabilities against the merits of manufacturing products internally. In
addition, certain of the Company's competitors, such as Samsung, are significant
suppliers to the Company. These suppliers may have the ability to manufacture
competitive products at lower costs than the Company as a result of their higher
levels of integration. The Company also faces competition from new and emerging
companies that have recently entered or may in the future enter the markets in
which the Company participates.
The Company expects its competitors to continue to improve the performance
of their current products, to reduce their current product sales prices and to
introduce new products that may offer greater performance and improved pricing,
any of which could cause a decline in sales or loss of market acceptance of the
Company's products. There can be no assurance that enhancements to or future
generations of competitive
32
<PAGE> 34
products will not be developed that offer better prices or technical performance
features than the Company's products. To remain competitive, the Company must
continue to provide technologically advanced products and manufacturing
services, maintain quality levels, offer flexible delivery schedules, deliver
finished products on a reliable basis, reduce manufacturing and testing costs
and compete favorably on the basis of price. In addition, increased competitive
pressure has led in the past and may continue to lead to intensified price
competition, resulting in lower prices and gross margin, which could materially
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully in the future.
INTELLECTUAL PROPERTY
The Company has one issued patent. The Company expects to file new patent
applications where appropriate to protect its proprietary technologies; however,
the Company believes that its continued success depends primarily on factors
such as the technological skills and innovation of its personnel rather than on
patent protection. In the semiconductor, computer, telecommunications and
networking industries, it is typical for companies to receive notices from time
to time alleging infringement of patents, copyrights or other intellectual
property rights of others. While there is currently no material pending
intellectual property litigation involving the Company, the Company has been and
may from time to time continue to be notified of claims that it may be
infringing patents, copyrights or other intellectual property rights owned by
third parties. There can be no assurance that these or other companies will not
in the future pursue claims against the Company with respect to the alleged
infringement of patents, copyrights or other intellectual property rights. In
addition, litigation may be necessary to protect the Company's intellectual
property rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against third party claims of
invalidity. Any litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations.
There can be no assurance that infringement, invalidity, right to use or
ownership claims by third parties or claims for indemnification resulting from
infringement claims will not be asserted in the future. The Company has also
entered into license agreements in the past regarding certain alleged
infringement claims asserted by third parties. If any other claims or actions
are asserted against the Company, the Company may again seek to obtain a license
under a third party's intellectual property rights. There can be no assurance,
however, that a license will be available under reasonable terms or at all. The
failure to obtain a license under a patent or intellectual property right from a
third party for technology used by the Company could cause the Company to incur
substantial liabilities and to suspend the manufacture of the products utilizing
the intellectual property. In addition, should the Company decide to litigate
such claims, such litigation could be extremely expensive and time consuming and
could materially and adversely affect the Company's business, financial
condition and results of operations, regardless of the outcome of the
litigation.
The Company attempts to protect its intellectual property rights through a
variety of measures including non-disclosure agreements, trademarks, trade
secrets and to a lesser extent, patents. There can be no assurance, however,
that such measures will provide adequate protection for the Company's trade
secrets or other proprietary information, that disputes with respect to the
ownership of its intellectual property rights will not arise, that the Company's
trade secrets or proprietary technology will not otherwise become known or be
independently developed by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights.
EMPLOYEES
As of July 31, 1997, the Company had 625 regular, full time employees of
which 444 were in manufacturing (including test, quality assurance and materials
work), 68 were in design and product development, 60 were in marketing and sales
and 53 were in finance and administration. The Company's future results depend
in significant part upon its ability to attract, train and retain qualified
management, manufacturing and quality assurance, engineering, marketing, sales
and support personnel. The Company's employees are not represented by any
collective bargaining agreements and the Company has never experienced a work
stoppage. The Company believes that its employee relations are good.
33
<PAGE> 35
FACILITIES
The Company's corporate headquarters and a manufacturing facility are
located in a 62,250 square foot facility in Fremont, California. The lease on
this facility expires in January 2003. The Company leases an additional 25,000
square foot facility in Fremont, California. The lease on this facility expires
in January 2003. The Company also leases a 23,000 square foot manufacturing
facility in Arecibo, Puerto Rico and a 25,000 square foot manufacturing facility
in East Kilbride, Scotland. The leases on these facilities expire in May 2005
and September 2006, respectively. In addition, the Company leases various small
facilities for its sales offices. The Company currently expects that it will
relocate its facility in Arecibo, Puerto Rico into a new 83,000 square foot
manufacturing facility in Aguada, Puerto Rico.
LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company may be a party to litigation and claims
incident to the ordinary course of its business. Although the results of
litigation and claims cannot be predicted with certainty, the Company believes
that the final outcome of such matters will not have a material adverse effect
on the Company's business, financial condition and results of operations.
34
<PAGE> 36
MANAGEMENT
The following table sets forth certain information concerning the executive
officers, officers and directors of the Company as of July 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ---- -------------------------------------------------
<S> <C> <C>
Ajay Shah(1)................. 37 Chairman of the Board of Directors, President and
Chief Executive Officer
Mukesh Patel................. 39 Vice President and General Manager
Memory/Processor Product Line and Director
Lata Krishnan................ 36 Vice President, Business Development and
Administration and Secretary
David B. Mullin.............. 43 Vice President, Finance and Chief Financial
Officer
Alan Marten.................. 37 Vice President, Product Line Manager Memory
Products
Jim Northington.............. 50 Vice President, Quality Assurance and Corporate
Development
Pranatharthi Haran........... 37 Vice President, Research and Development
Eric Taborek................. 40 Vice President, OEM Sales
William C. Johnson........... 65 Vice President, Marketing
Nageeen Sharma............... 37 Vice President, Product Line Manager, Embedded
Computer Products
Jeff Miller.................. 35 Vice President, Engineering
Paul Mercadante.............. 36 Vice President, Product Line Manager
Communications Division
Charles W. Welch............. 32 General Counsel
Erik Anderson(1)(2).......... 39 Director
Tor R. Braham(1)(2).......... 39 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
The directors of the Company are elected at the annual meeting of
shareholders of the Company. Each director of the Company holds office until his
successor is elected and qualified or until his earlier death, resignation or
removal. The executive officers of the Company serve at the discretion of the
Board of Directors. Ajay Shah and Lata Krishnan are married to each other. There
are no other family relationships among the directors and executive officers of
the Company. The Company has obtained and is the beneficiary of a $1.0 million
insurance policy on the life of Ajay Shah, the Company's Chairman of the Board,
President and Chief Executive Officer, and a $1.0 million insurance policy on
the life of Mukesh Patel, Vice President and General Manager Memory/Processor
Product Line and a director of the Company.
Ajay Shah co-founded the Company and has served as the Company's President
and Chief Executive Officer and as a director since its inception. In July 1995,
Mr. Shah became the Company's Chairman of the Board of Directors. Mr. Shah holds
an M.S. degree in Engineering Management from Stanford University and a B.S.
degree in Engineering with a major in Mechanical Engineering from the University
of Baroda, India. Mr. Shah also serves on the Board of Directors of Krypton
Isolation, Inc. ("Krypton"), a semiconductor company, and Proactive Networks,
Inc., a network monitoring tool company.
Mukesh Patel co-founded the Company and has served as the Company's Vice
President and General Manager Memory/Processor Product Line since August 1995
and as a director since the Company's inception. From February 1989 until July
1995, Mr. Patel served as the Company's Vice President, Engineering. Mr. Patel
holds a B.S. degree in Engineering with emphasis on digital electronics from
Bombay University, India. Mr. Patel also serves on the Board of Directors of
Krypton.
Lata Krishnan co-founded the Company and has served as the Company's Vice
President, Business Development since September 1996 and Vice President
Administration and Secretary since the Company's
35
<PAGE> 37
inception. From September 1996 until July 1997, Ms. Krishnan served as the
Company's Vice President, Business Development. From the Company's inception
until September 1996, Ms. Krishnan served as the Company's Vice President,
Finance and Chief Financial Officer. Ms. Krishnan holds a B.S. degree from the
London School of Economics and is a member of the Institute of Chartered
Accountants in England and Wales.
David B. Mullin has served as Vice President, Finance and Chief Financial
Officer of the Company since September 1996. From November 1995 until September
1996, Mr. Mullin served as Borland International, Inc.'s Vice President Finance
and Administration and Chief Financial Officer. From September 1990 until
November 1995, Mr. Mullin served in various capacities at Conner Peripherals,
Inc. ("Conner"), the most recent of which were Director of Corporate Financial
Planning & Analysis and Chief Financial Officer of Arcada Software, Inc., a
subsidiary of Conner. Mr. Mullin holds a B.A. degree from San Francisco State
University, and is licensed as a certified public accountant in California.
Alan Marten joined the Company in February 1990 and has served as Vice
President, Product Line Manager Memory Product Line since July 1995. From
February 1990 until January 1997, Mr. Marten served as the Company's Vice
President, Sales. Mr. Marten holds an M.B.A. degree from San Jose State
University and a B.S. degree in Economics and Computer Science from Santa Clara
University.
Jim Northington has served as Vice President, Quality Assurance and
Corporate Development of the Company since January 1997. From November 1994
until January 1997, Mr. Northington served as the Company's Vice President,
Operations. From July 1989 until October 1994, Mr. Northington was a principal
at APS Products, Inc., an electronics manufacturing consulting firm. From June
1986 until July 1989, Mr. Northington served as Western Digital Corporation's
Vice President of Manufacturing for North America and Hong Kong. Mr. Northington
holds a B.S. degree in Industrial Technology from California State University,
Long Beach.
Pranatharthi Haran has served as Vice President, Research and Development
of the Company since March 1993. From May 1986 until February 1993, Mr. Haran
was the Vice President of Engineering at Omnitel, Inc., a data communications
company. Mr. Haran holds an M.S. degree in Electrical Engineering from Kansas
State University and a B.S. degree in Electrical Engineering from the Indian
Institute of Technology in Madras, India.
Eric Taborek has served as Vice President, OEM Sales of the Company since
February 1997. For the 14 years prior to joining SMART, Mr. Taborek served in
various product engineering and sales capacities at Advanced Micro Devices,
Inc., the most recent of which was Director of Sales, Western Area, North
America. Mr. Taborek holds a B.S. degree in Business/Computer Science from the
University of California, Berkeley and an M.B.A. degree in Finance/Operations
from the University of Michigan.
William C. Johnston has served as Vice President, Marketing of the Company
since February 1997. From March 1993 until February 1997, Mr. Johnston served as
the Company's Director, Marketing. For the nine years prior to joining SMART,
Mr. Johnston served in various marketing capacities at Samsung Semiconductor,
Inc. Mr. Johnston holds a B.S. degree and an M.S. degree in Electrical
Engineering from the University of Illinois.
Nageen Sharma has served as Vice President, Product Line Manager, Embedded
Computer Products since the Company's acquisition of RISQ in July 1996. From
March 1991 until July 1996, Mr. Sharma served as Chief Executive Officer of
RISQ, Mr. Sharma holds a B.S. degree in Electrical Engineering from the
University of Delhi, India, an M.S. degree in Electrical Engineering from the
University of Maryland and an M.B.A. degree from National University.
Jeff Miller has served as Vice President, Engineering since the Company's
acquisition of RISQ in July 1996. From March 1991 until July 1996, Mr. Miller
served as President of RISQ. Mr. Miller holds a B.S. degree in Electrical
Engineering from the University of California, Santa Barbara and an M.S. degree
in Systems Management from the University of Southern California.
36
<PAGE> 38
Paul Mercadante has served as Vice President, Product Line Manager,
Communication Division since the Company's acquisition of Apex in July 1995.
From August 1993 until July 1995, Mr. Merdacante served as Vice President,
Operations of Apex. From September 1991 until July 1993, Mr. Mercadante served
as Director of Program Management at Rose Communication, Inc. Mr. Mercadante
holds a B.A. degree in Economics from the New York State University.
Charles W. Welch has served as General Counsel of the Company since October
1995. From October 1995 until July 1997, Mr. Welch also served as the Director,
Investor Relations of the Company. From September 1994 until October 1995, Mr.
Welch practiced law with Wilson Sonsini Goodrich & Rosati, Professional
Corporation. Mr. Welch holds a J.D. degree from the University of California,
Berkeley -- Boalt Hall School of Law, a Master of Real Estate Development degree
from the University of Southern California and a B.S. degree in Civil
Engineering from Virginia Tech.
Erik Anderson has served as a director of the Company since November 1994.
Since January 1996, Mr. Anderson has served as Chief Executive Officer of
Trillium Corp. ("Trillium"), a diversified investment company. From February
1994 until January 1996, Mr. Anderson served in various executive capacities at
Trillium. Mr. Anderson has also served as a director of Trillium since February
1994. From March 1992 until January 1994, Mr. Anderson was a principal with
Fraizer Management LLC, a medical technology investment company. From October
1990 until March 1992, Mr. Anderson served as the Vice President and Treasurer
of Services Group of America, an investment holding company, and from February
1985 until October 1990, he served as a Vice President of Goldman Sachs &
Company, an investment banking firm. Mr. Anderson holds an M.S. degree and a
B.S. degree in Industrial Engineering from Stanford University and a B.A. degree
in Economics from Claremont McKenna College. Mr. Anderson also serves as
Chairman of the Board of Directors of Gargoyles Performance Eyewear, Inc., a
manufacturer of sunglasses.
Tor R. Braham has served as a director of the Company since July 1995. Mr.
Braham is a member of the law firm of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, where he has been practicing since 1984. Mr. Braham
holds a J.D. degree from New York University School of Law and a B.A. degree
from Columbia College. Mr. Braham also serves on the Board of Directors of OPTi
Inc., a semiconductor company, and 3Dlabs Inc., Ltd., a 3D graphics processor
company.
37
<PAGE> 39
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 31, 1997 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each of the Company's directors, (iii) the Company's Chief
Executive Officer and each of the Named Executive Officers, and (iv) all
directors and executive officers as a group. A total of 19,378,452 shares of the
Company's Common Stock was issued and outstanding as of July 31, 1997.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERING(1)
NAME AND ADDRESS ---------------------- BEING ---------------------
OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------- ---------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Ajay Shah(2)............................ 5,911,250 29.4% 580,000 5,331,250 25.2%
Lata Krishnan(3)........................ 5,911,250 29.4 580,000 5,331,250 25.2
Mukesh Patel(4)......................... 3,802,500 19.2 350,000 3,452,500 16.5
Alan Marten(5).......................... 429,000 2.2 40,000 389,000 1.9
David B. Mullin(6)...................... 21,988 * -- 21,988 *
Bayside Development Corporation(7)...... 1,790,000 9.2 -- 1,790,000 8.7
c/o International Service Co.
Apartado 7440
Panama
Attention: Dr. Sharma
Barclays Private Trust (BVI) Limited as
Trustee of the Indira Trusti.......... 1,000,000 5.2 -- 1,000,000 4.9
c/o C.J. Couzens
P.O. Box 70
Roadtown
Tortola, British Virgin Islands
Erik Anderson(8)........................ 26,000 * -- 26,000 *
Tor R. Braham(9)........................ 33,500 * -- 33,500 *
All directors and executive officers as
a group (7 persons)(10)............... 10,224,238 49.2 970,000 9,254,238 42.3
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of July 31, 1997 are
deemed outstanding. To the Company's knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws,
each party named in the table has sole voting and investment power with
respect to the shares set forth opposite such party's name. Except as
otherwise indicated, the address of each of the parties in this table is as
follows: c/o SMART Modular Technologies, Inc., 4305 Cushing Parkway,
Fremont, California 94538.
(2) Includes 2,832,591 shares held by Mr. Shah and 450,000 shares owned by Mr.
Shah in the form of immediately exercisable options, some of which, if
exercised and issued, would be subject to a repurchase right of the Company
that lapses over time. Includes 876,659 shares held by Ms. Krishnan and
250,000 shares owned by Ms. Krishnan in the form of immediately exercisable
options, some of which, if exercised and issued, would be subject to a
repurchase right of the Company that lapses over time. Also includes
1,500,000 shares which are held in Krishnan-Shah Family Partners, LP, a
California limited partnership, in which Mr. Shah and Ms. Krishnan are the
general partners. 580,000 shares of the 1,500,000 shares held by the
Krishnan Shah Family Partnership are included in the shares being offered,
as indicated. Mr. Shah and Ms. Krishnan are married to each other.
38
<PAGE> 40
(3) Includes 578,659 shares held by Ms. Krishnan and 250,000 shares owned by
Ms. Krishnan in the form of immediately exercisable options, some of which,
if exercised and issued, would be subject to a repurchase right of the
Company that lapses over time. Includes 2,832,591 shares held by Mr. Shah
and 450,000 shares owned by Mr. Shah in the form of immediately exercisable
options, some of which, if exercised and issued, would be subject to a
repurchase right of the Company that lapses over time. Also includes
1,500,000 shares which are held in Krishnan-Shah Family Partners, LP, a
California limited partnership, in which Mr. Shah and Ms. Krishnan are the
general partners. 580,000 shares of the 1,500,000 shares held by the
Krishnan Shah Family Partnership are included in the shares being offered,
as indicated. Mr. Shah and Ms. Krishnan are married to each other.
(4) Includes 450,000 shares owned by Mr. Patel in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time. Also
includes 1,270,000 shares which are held in Patel Family Partners, LP, a
California limited partnership, in which Mr. Patel and his spouse are the
general partners.
(5) Includes 180,000 shares owned by Mr. Marten in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time. Also
includes 4,000 shares owned by Mr. Marten in the form of options
exercisable as of July 31, 1997 or within 60 days thereafter.
(6) Includes 20,000 shares owned by Mr. Mullin in the form of options
exercisable as of July 31, 1997 or within 60 days thereafter.
(7) Bayside Development Corporation is beneficially owned by Tej Kaur Sharma.
(8) Includes 1,000 shares owned by Mr. Anderson in the form of options
exercisable as of July 31, 1997 or within 60 days thereafter.
(9) Includes 30,000 shares owned by Mr. Braham in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time. Also
includes 1,000 shares owned by Mr. Braham in the form of options
exercisable as of July 31, 1997 or within 60 days thereafter.
(10) Includes 1,360,000 shares owned by the seven directors and executive
officers listed above in the form of immediately exercisable options, some
of which, if exercised and issued, would be subject to a repurchase right
of the Company that lapses over time. Also includes 26,000 shares owned by
certain of the directors and executive officers listed above in the form of
options exercisable as of July 31, 1997 or within 60 days thereafter.
39
<PAGE> 41
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, Cowen & Company and
Montgomery Securities are acting as Representatives (the "Representatives"),
have severally agreed to purchase, and the Company and Selling Shareholders have
agreed to sell to them, severally, the respective number of shares of Common
Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------------- -----------
<S> <C>
Morgan Stanley & Co. Incorporated........................................
Donaldson, Lufkin & Jenrette Securities Corporation......................
Cowen & Company..........................................................
Montgomery Securities....................................................
---------
Total.......................................................... 2,070,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $. a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $. a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 310,500
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock set forth next to the names of all Underwriters in the preceding
table.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Each of the Company and the directors, executive officers and certain other
shareholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the
40
<PAGE> 42
Underwriters, it will not, during the period ending 90 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer, lend or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. However, the
executive officers of the Company may, without such consent, sell an aggregate
of up to 50,000 shares, which shall include no more than 20,000 shares by any
one person. Additionally, the Company may, without such consent, (i) grant
options or issue stock upon the exercise of outstanding stock options pursuant
to the Company's stock option plans and (ii) issue stock upon the exercise of
outstanding warrants.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters and dealers may engage in passive market marking
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission (the "Commission"). In
general, a passive market maker may not bid for, or purchase, the Common Stock
at a price that exceeds the highest independent bid. In addition, the net daily
purchases made by any passive market maker generally may not exceed 30% of its
average daily trading volume in the Common Stock during a specified two month
prior period, or 200 shares, whichever is greater. A passive market maker must
indemnify passive market making bids as such on the Nasdaq electronic
inter-dealer reporting system. Passive market making may stabilize or maintain
the market price of the Common Stock above independent market levels.
Underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters relating
to this offering will be passed upon for the Underwriters by Venture Law Group,
A Professional Corporation, Menlo Park, California, counsel for the
Underwriters. As of the date of this Prospectus, 33,500 shares of Common Stock
issuable upon the exercise of Stock options was beneficially owned by certain
members of Wilson Sonsini Goodrich & Rosati, Professional Corporation. Tor R.
Braham, a member of the firm of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, is one of the Company's directors.
EXPERTS
The financial statements and schedule incorporated by reference in this
Prospectus and Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their reports. In those reports,
that firm states, with respect to certain subsidiaries, its opinion is based on
the report of other independent public accountants, namely BDO Seidman, LLP. The
financial statements and supporting schedules referred to above have been
incorporated by reference herein in reliance upon the authority of those firms
as experts in giving said reports.
41
<PAGE> 43
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements, and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C., as well as the regional
offices of the Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, and Seven World Trade Center, Suite 1300, New
York, New York. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's Common Stock is listed on the Nasdaq
National Market. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements, and other information filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval System. This
Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and such Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. Copies of the Registration
Statement, including all exhibits thereto, may be inspected without charge at
the Commission's principal office in Washington, D.C., and copies of all or any
part thereof may be obtained from the Public Reference Section, Securities and
Exchange Commission, Washington, D.C. 20549, upon payment of the prescribed
fees.
42
<PAGE> 44
LOGO
<PAGE> 45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses other than
underwriting discounts and commissions, payable by the Company in connection
with the Common Stock being registered. All amounts are estimates except the
Registration Fee, the NASD Filing Fee and the Nasdaq Notification for Listing
Additional Shares Fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY THE
COMPANY
------------
<S> <C>
SEC Registration Fee................................................... $ 32,462
NASD Filing Fee........................................................ 11,213
Nasdaq Notification for Listing Additional Shares Fee.................. 17,500
Printing and Engraving................................................. 60,000
Legal Fees and Expenses................................................ 125,000
Accounting Fees and Expenses........................................... 40,000
Blue Sky Fees and Expenses............................................. 5,000
Transfer and Custody Agent Fees........................................ 20,000
Miscellaneous.......................................................... 28,825
--------
Total........................................................ $340,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Article IV of the Registrant's
Articles of Incorporation and Article VI of the Registrant's Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the California Corporations Code. In addition, the
Registrant has entered into Indemnification Agreements with its officers and
directors and certain employees. Reference is also made to Section 12 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, with respect to the
indemnification of officers and directors of the Registrant against certain
liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C> <C>
(a) Exhibits
1.1* Form of Underwriting Agreement among the Registrant, Morgan
Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Cowen & Company and Montgomery
Securities.
2.1(1) Agreement and Plan of Reorganization among the Registrant,
Apex Data, Inc. and SMART Acquisition Inc. dated April 24,
1995.
4.2(1) Registrant's specimen stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Registrant.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Independent Certified Public Accountants.
23.3* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (included on page II-3).
</TABLE>
II-1
<PAGE> 46
- ---------------
* Previously filed
(1) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-97748) filed October 4, 1995,
Amendment No. 1 thereto filed October 24, 1995, Amendment No. 2 thereto
filed November 6, 1995, Amendment No. 3 thereto filed November 14, 1995 and
Amendment No. 4 thereto filed November 16, 1995, which Registration
Statement became effective November 16, 1995.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
SMART Modular Technologies, Inc., a corporation organized and existing under the
laws of the State of California, certifies that it has reasonable grounds to
believe that it meets all the requirements for filing on Form S-3 and has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on the 27th day of 1997.
SMART MODULAR TECHNOLOGIES, INC.
By: /s/ AJAY SHAH
--------------------------------------
Ajay Shah
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ----------------
<C> <S> <C>
/s/ AJAY SHAH President, Chief Executive August 27, 1997
- ----------------------------------------------- Officer and Chairman of
Ajay Shah the Board of Directors
(Principal Executive
Officer)
/s/ *MUKESH PATEL Vice President and General August 27, 1997
- ----------------------------------------------- Manager Memory Product
Mukesh Patel Line and Director
/s/ *DAVID B. MULLIN Vice President, Finance and August 27, 1997
- ----------------------------------------------- Chief Financial Officer
David B. Mullin (Principal Financial and
Accounting Officer)
/s/ *ERIK ANDERSON Director August 27, 1997
- -----------------------------------------------
Erik Anderson
/s/ *TOR R. BRAHAM Director August 27, 1997
- -----------------------------------------------
Tor R. Braham
*By: /s/ AJAY SHAH
- -----------------------------------------------
Ajay Shah,
Attorney-in-fact
</TABLE>
II-3
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
---------
<S> <C> <C> <C>
1.1* Form of Underwriting Agreement among the Registrant, Morgan Stanley
& Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Cowen & Company and Montgomery Securities.
2.1(1) Agreement and Plan of Reorganization among the Registrant, Apex
Data, Inc. and SMART Acquisition Inc. dated April 24, 1995.
4.2(1) Registrant's specimen stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Registrant.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Independent Certified Public Accountants.
23.3* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney (included on page II-3).
</TABLE>
- ---------------
* Previously filed
(1) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-97748) filed October 4, 1995,
Amendment No. 1 thereto filed October 24, 1995, Amendment No. 2 thereto
filed November 6, 1995, Amendment No. 3 thereto filed November 14, 1995 and
Amendment No. 4 thereto filed November 16, 1995, which Registration
Statement became effective November 16, 1995.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated November 27, 1996
included in SMART Modular Technologies, Inc.'s Form 10-K for the year ended
October 31, 1996 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
August 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SMART Modular Technologies, Inc.
Fremont, California
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report, dated
September 8, 1995, relating to the consolidated financial statements of Apex
Data, Inc. and Subsidiary for the year ended December 31, 1994, appearing in the
Annual Report of Smart Modular Technologies, Inc. on Form 10-K for the year
ended October 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
San Francisco, California
August 27, 1997
