Document And Entity Information
9 Months Ended
Sep. 30, 2011
Nov. 11, 2011
Document and Entity Information [Abstract]
Entity Registrant Name
MEMSIC INC
Document Type
10-Q
Current Fiscal Year End Date
--12-31
Entity Common Stock, Shares Outstanding
23,983,813
Amendment Flag
FALSE
Entity Central Index Key
0001386198
Entity Current Reporting Status
Yes
Entity Voluntary Filers
No
Entity Filer Category
Smaller Reporting Company
Entity Well-known Seasoned Issuer
No
Document Period End Date
Sep. 30, 2011
Document Fiscal Year Focus
2011
Document Fiscal Period Focus
Q3
Consolidated Balance Sheets (Unaudited)(USD $)
Sep. 30, 2011
Dec. 31, 2010
Current assets:
Cash and cash equivalents
$52,526,619
$55,694,205
Restricted cash
3,783,441
2,928,933
Short-term investments
1,414,008
Accounts receivable, net of allowance for doubtful accounts of $6,441 as of September 30, 2011 and December 31, 2010
7,387,858
3,664,444
Inventories
9,528,049
8,923,127
Other assets
2,564,794
2,537,445
Total current assets
77,204,769
73,748,154
Property and equipment, net
30,743,881
22,015,502
Long-term investments
4,620,000
5,020,000
Goodwill
5,047,953
4,919,513
Intangible assets, net
11,276,779
11,894,328
Other assets
9,844
67,599
Total assets
128,903,226
117,665,096
Current liabilities:
Accounts payable
7,931,325
4,563,420
Accrued expenses
2,717,747
2,969,839
Advance research funding
3,783,441
2,928,933
Current portion of long-term debt
500,000
Total current liabilities
14,932,513
10,462,192
Note payable to bank, net of current portion
17,430,000
17,930,000
Building liability
7,996,237
Deferred rent
132,457
90,036
Total other liabilities
25,558,694
18,020,036
Common stock, $0.00001 par value; authorized, 45,000,000 shares; 23,983,813 and 23,810,613 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
240
238
Additional paid-in capital
100,930,240
99,615,378
Accumulated other comprehensive income
3,775,636
3,029,372
Accumulated deficit
(16,628,813)
(13,823,565)
MEMSIC, Inc. stockholders' equity
88,077,303
88,821,423
Non-controlling interest related to joint venture in Japan
334,716
361,445
Total stockholders' equity
88,412,019
89,182,868
Total liabilities and stockholders equity
$128,903,226
$117,665,096
Consolidated Balance Sheets (Unaudited) (Parentheticals)(USD $)
Sep. 30, 2011
Dec. 31, 2010
Allowance for doubtful accounts (in Dollars)
$6,441
$6,441
Common stock, par value; (in Dollars per share)
$0.00001
$0.00001
Common stock, authorized, shares;
45,000,000
45,000,000
Common stock, shares issued
23,983,813
23,810,613
Common stock, shares outstanding
23,983,813
23,810,613
Consolidated Statements of Operations (Unaudited)(USD $)
3 Months Ended
Sep.30,		 9 Months Ended
Sep.30,
2011
2010
2011
2010
Net sales
$18,357,300
$10,844,719
$46,684,854
$27,212,338
Cost of goods sold
12,155,533
6,751,194
30,543,197
16,584,892
Gross profit
6,201,767
4,093,525
16,141,657
10,627,446
Operating expenses:
Research and development
2,200,240
2,377,649
6,610,213
6,386,394
Sales and marketing
1,881,240
1,376,893
4,875,893
3,557,223
General and administrative
2,799,433
2,212,399
7,573,663
6,525,484
Amortization expense
403,835
406,561
1,212,001
1,146,844
Total operating expenses
7,284,748
6,373,502
20,271,770
17,615,945
Operating loss
(1,082,981)
(2,279,977)
(4,130,113)
(6,988,499)
Other income:
Interest and dividend income
153,227
99,026
335,082
319,803
Foreign exchange gain
328,639
305,732
848,114
359,809
Other, net
323,587
19,342
406,007
70,552
Total other income
805,453
424,100
1,589,203
750,164
Loss before income taxes
(277,528)
(1,855,877)
(2,540,910)
(6,238,335)
Provision for (benefit from) income taxes
58,343
36,392
172,653
(79,102)
Net loss
(335,871)
(1,892,269)
(2,713,563)
(6,159,233)
Less: net income attributable to non-controlling interest
32,895
39,004
91,685
66,093
Net loss attributable to MEMSIC, Inc.
$(368,766)
$(1,931,273)
$(2,805,248)
$(6,225,326)
Net loss per common share to MEMSIC, Inc.:
Basic (in Dollars per share)
$(0.02)
$(0.08)
$(0.12)
$(0.26)
Diluted (in Dollars per share)
$(0.02)
$(0.08)
$(0.12)
$(0.26)
Weighted average shares outstanding used in calculating net loss per common share:
Basic (in Shares)
23,825,134
23,805,072
23,822,587
23,802,357
Diluted (in Shares)
23,825,134
23,805,072
23,822,587
23,802,357
Consolidated Statement of Stockholders' Equity(USD $)
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings [Member]
Parent [Member]
Noncontrolling Interest [Member]
Total
Balance at December 31, 2010 at Dec. 31, 2010
$238
$99,615,378
$3,029,372
$(13,823,565)
$88,821,423
$361,445
$89,182,868
Balance at December 31, 2010 (in Shares) at Dec. 31, 2010
23,810,613
Net loss
(2,805,248)
(2,805,248)
91,685
(2,713,563)
Foreign currency translation adjustment
946,834
946,834
(3,025)
943,809
Unrealized loss onauction-rate securities
(200,000)
(200,000)
(200,000)
Comprehensive loss
746,264
(2,805,248)
(2,058,984)
88,660
(1,970,324)
Exercise of options to purchase common stock
1
55,661
55,662
55,662
Exercise of options to purchase common stock (in Shares)
33,200
Issuance of restricted stock award
1,000,000
(1,000,000)
Issuance of restricted stock award (in Shares)
140,000
Stock compensation expense
1,259,202
1,259,202
1,259,202
Dividend paid to non-controlling interest
(115,389)
(115,389)
Balance at September 30, 2011 at Sep. 30, 2011
$240
$100,930,240
$3,775,636
$(16,628,813)
$88,077,303
$334,716
$88,412,019
Balance at September 30, 2011 (in Shares) at Sep. 30, 2011
23,983,813
Consolidated Statements of Cash Flows (Unaudited)(USD $)
9 Months Ended
Sep.30,
2011
2010
Net loss
$(2,713,563)
$(6,159,233)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation
2,293,162
1,675,823
Amortization
1,240,241
1,146,844
Stock compensation expense
1,259,202
1,106,815
Deferred rent
42,421
(9,394)
Deferred income taxes
46,483
(53,050)
Changes in operating assets and liabilities, net of the effects of business acquisition:
Restricted cash
(773,318)
(1,702,007)
Accounts receivable
(3,711,949)
(1,159,455)
Inventories
(338,568)
(1,234,045)
Other assets
(104,043)
(1,478,022)
Advance research funding
773,318
1,702,007
Accounts payable and accrued expenses
3,212,975
4,317,624
Net cash (used in) provided by operating activities
1,226,361
(1,846,093)
Cash flows from investing activities:
Purchase of short-term investments
(1,414,578)
(500,000)
Proceeds from sale of long-term investments
200,000
180,000
Purchase of property and equipment
(2,502,862)
(8,022,260)
Acquisition payment, net of acquired cash of $352,247
(17,647,753)
Net cash used in investing activities
(3,717,440)
(25,990,013)
Cash flows from financing activities:
Cash dividend paid to non-controlling interest
(115,389)
(52,144)
Proceeds from exercise of options to purchase common stock
55,662
13,905
Proceeds from note payable to bank
17,930,000
Net cash (used in) provided by financing activities
(59,727)
17,891,761
Effect of exchange rate changes on cash and cash equivalents
(616,780)
(270,320)
Net decrease in cash and cash equivalents
(3,167,586)
(10,214,665)
Cash and cash equivalents beginning of period
55,694,205
66,970,736
Cash and cash equivalents end of period
52,526,619
56,756,071
Building liability
$7,996,237
Consolidated Statements of Cash Flows (Unaudited) (Parentheticals)(USD $)
9 Months Ended
Sep.30,
2011
2010
Acquired cash
$0
$352,247
Note 1 - Nature of the Business and Operations
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
1. NATURE OF THE BUSINESS AND OPERATIONS

MEMSIC, Inc. (the Company) was incorporated on March 3, 1999 as a Delaware corporation. The Company is a leading provider of semiconductor sensor systems solutions based on micro electromechanical systems (MEMS) technology and advanced integrated circuit design. The Company has integrated a MEMS technology-based inertial sensor, commonly known as an accelerometer, with mixed signal processing circuitry onto a single chip using a standard complementary metal-oxide-semiconductor (CMOS) process. This proprietary technology has allowed for sensor solutions at lower cost, higher performance and improved functionality. Utilizing a standard CMOS process allows easy integration of additional functions and the creation of new sensors to expand into magnetic, touch and flow sensors, as well as other MEMS application areas beyond accelerometers. Any application that requires the control or measurement of motion is a potential application for accelerometers. The Company’s sensor and solution products have a wide range of applications for consumer electronics, mobile phones, automotive (airbags, rollover detection, electronic stability control and navigation systems), as well as business, industrial and medical applications.

MEMSIC, Inc. maintains its corporate headquarters in Massachusetts. All manufacturing operations are provided by its wholly-owned subsidiary, MEMSIC Semiconductor (Wuxi) Company Limited (MEMSIC Semiconductor) and its indirect wholly owned subsidiary, MEMSIC Transducer Systems Company Limited, (MTS), which are located in the People’s Republic of China (PRC).

Note 2 - Summary of Significant Accounting Policies
Significant Accounting Policies [Text Block]
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company, MEMSIC Semiconductor, MTS and its majority owned and controlled joint venture, Crossbow Japan Limited (Crossbow Japan). The Company presents all of Crossbow Japan’s assets, liabilities, revenue and expenses, as well as the non-controlling interest in Crossbow Japan (representing the 49% equity interest in the entity not owned by the Company) in its consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying interim consolidated financial statements are unaudited.  These financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, which is on file with the Securities and Exchange Commission (SEC).

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such SEC rules and regulations.  In the opinion of management, the unaudited interim consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and include all adjustments (consisting of normal, recurring adjustments) necessary for the fair presentation of the Company’s financial position at September 30, 2011, results of operations for the three and nine months ended September 30, 2011 and 2010 and cash flows for the nine months ended September 30, 2011 and 2010.  The interim periods are not necessarily indicative of results to be expected for any other interim periods or for the full year.

Reclassification

Certain amounts in the accompanying 2010 financial statements related to amortization expense and foreign exchange gain have been reclassified to permit comparison with the accompanying interim 2011 financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect at the date of the financial statements the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Actual results could differ from these estimates.

Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.

Advance Research Funding

Advance research funding represents research funding granted by the Chinese government for specific research and development projects the Company is taking on. The amount received is initially recorded as a liability and subsequently recognized as a credit to research and development expenses in the statements of operations or property and equipment in the balance sheets as the Company performs the projects and has complied with the conditions or performance obligations attached to the related government grants.  There are no conditions under which amounts utilized are required to be refunded under the terms of the grants.

Advance research funding activities for the nine months ended September 30, 2011 are as follows:

Balance at January 1, 2011
  $ 2,928,933  
Funds received
    1,677,642  
Research and development activities
    (259,956 )
Property and equipment expenditures
    (563,178 )
Balance at September 30, 2011
  $ 3,783,441  

Foreign Currency
The Company’s manufacturing operations and certain other operations are conducted by MEMSIC Semiconductor and MTS. The functional currency of MEMSIC Semiconductor and MTS is the Renminbi. Financial transactions between the Company, MEMSIC Semiconductor and MTS are conducted in United States (U.S.) dollars. At September 30, 2011 and December 31, 2010, the underlying currency for approximately 55.2% and 51.1% of consolidated assets, respectively, was the Renminbi. The functional currency of Crossbow Japan is the Japanese Yen. Financial transactions between the Company and Crossbow Japan are conducted in U.S. dollars. At September 30, 2011 and December 31, 2010, the underlying currency for approximately 1.1% of consolidated assets was the Japanese Yen. The Company has not utilized hedging strategies with respect to its foreign exchange exposure.

The financial statements of MEMSIC Semiconductor, MTS and Crossbow Japan are translated into U.S. dollars in accordance with U.S. GAAP. The functional currencies of MEMSIC Semiconductor, MTS and Crossbow Japan are translated into U.S. dollars utilizing the following method: assets and liabilities are translated at the exchange rate in effect at the end of the period, and revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains and losses are included as a separate component of stockholders’ equity and reported as a part of comprehensive income. Transaction gains and losses are included in the consolidated statements of operations as incurred.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable, notes payable and accrued expenses, approximate their fair values due to the short-term nature of the instruments.

Net Loss per Common Share

Basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted-average common shares and potentially dilutive securities outstanding during the period using the treasury stock method.

Income Taxes

Deferred tax assets and liabilities relate to temporary differences between the financial reporting basis and the tax basis of assets and liabilities, the carryforward tax losses and available tax credits. Such assets and liabilities are measured using tax rates and laws expected to be in effect at the time of their reversal or utilization. Valuation allowances are established, when necessary, to reduce the net deferred tax asset to an amount more likely than not to be realized. For interim reporting periods, the Company uses the estimated annual effective tax rate except with respect to discrete items, whose impact is recognized in the interim period in which the discrete item occurred.

Inventories

Inventories are stated at the lower of cost (weighted average FIFO) or market. The Company evaluates its inventory for potential excess and obsolete inventories based on forecasted demands and records a provision for such amounts as necessary. At September 30, 2011 and December 31, 2010, the Company’s total inventory reserve balances were $457,000 and $482,000, respectively.

Revenue Recognition

The Company recognizes revenue from the sale of its products to its customers when all of the following conditions have been met: (i) evidence exists of an arrangement with the customer, typically consisting of a purchase order or contract; (ii) the Company’s products have been shipped and risk of loss has passed to the customer; (iii) the Company has completed all of the necessary terms of the purchase order or contract; (iv) the amount of revenue to which the Company is entitled is fixed or determinable; and (v) the Company believes it is probable that it will be able to collect the amount due from the customer based upon an evaluation of the customer’s creditworthiness. To the extent that one or more of these conditions has not been satisfied, the Company defers recognition of revenue. An allowance for estimated future product returns and sales price allowances is established at the date of revenue recognition. An allowance for uncollectible receivables is established by a charge to operations when, in the opinion of the Company, it is probable that the amount due to the Company will not be collected.

The Company sells its products to distributors as well as to end customers. Sales to distributors are made pursuant to distributor agreements, which allow for the return of goods under certain circumstances. Accordingly, the Company follows the following criteria for recognition of sales to distributors: (i) the selling price to the distributor is fixed or determinable at the date of shipment; (ii) the distributor’s obligation to pay the selling price is not contingent on resale of the product; (iii) the Company’s product has been shipped and risk of loss has passed to the distributor; (iv) it is probable that the amount due from the distributor will be collected; (v) the Company does not have significant future obligations to directly assist in the distributor’s resale of the product; and (vi) the amount of future returns can be reasonably estimated. Once these criteria are met, the Company recognizes revenue upon shipment to the distributor and estimates returns based on historical sales returns.

Stock-Based Compensation

The Company accounts for share-based payments to employees based on requirements that all share-based payments to employees, including grants of employee stock options, shall be recognized in the financial statements based on their fair values. The cost of equity-based service awards is based on the grant-date fair value of the award and is recognized over the period during which the employee is required to provide service in exchange for the award (vesting period). Stock-based compensation arrangements with non-employees are accounted for utilizing the fair value method or, if a more reliable measurement, the value of the services or consideration received. The resulting compensation expense is recognized for financial reporting purposes over the term of performance or vesting.

Recent Accounting Pronouncements

In September 2011, the FASB amended ASC 350, Intangibles — Goodwill and Other. This amendment is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The amended provisions are effective for reporting periods beginning on or after December 15, 2011. However, early adoption is permitted if an entity’s financial statements for the most recent annual or interim period have not yet been issued. This amendment impacts testing steps only and, therefore, adoption will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In June 2011, the FASB amended ASC 220, Comprehensive Income. This amendment was issued to enhance comparability between entities that report under GAAP and International Financial Reporting Standards (IFRS) and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity. The amendment requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two separate but consecutive statements. It eliminates the option to report other comprehensive income and its components as part of the statement of changes in shareholders’ equity. The amended provisions are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, and full retrospective application is required. This amendment impacts presentation and disclosure only, and therefore adoption will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU No. 2011-04). The amendments in this update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. ASU No. 2011-04 does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRS. ASU No. 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU No. 2011-04 clarifies the FASB’s intent about the application of existing fair value measurements. The amendments in this update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company does not expect the provisions of ASU No. 2011-04 to have a material effect on its financial position, results of operations or cash flows.

In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements.  ASU No. 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption is permitted. A company may elect, but will not be required, to adopt the amendments in ASU No. 2009-13 retrospectively for all prior periods. The adoption of ASU 2009-13 did not have a material impact on the Company’s financial position or statement of operations.

Note 3 - Long-Term Investments
Investment Holdings [Text Block]
3. LONG-TERM INVESTMENTS

Long-term investments held by the Company at September 30, 2011 and December 31, 2010 consisted primarily of auction rate securities, or ARS, and are considered available for sale. These securities reset the interest or dividend rates by auctions held at intervals of 7, 28, 35 or 49 days, and at such dates the Company has the option to sell such securities. The auction rate securities held by the Company have contractual maturities of greater than 10 years.

These investments are carried at fair value, with the unrealized gains and losses, if any, net of tax, reported in other comprehensive income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities are included in interest and dividend income. Quarterly, management reviews the valuation of investments and considers whether any decline in value is deemed to be other than a temporary decline.

At September 30, 2011, the Company held two ARS investments: Illinois Educational Facilities Authority Select Auction Variable Rate Securities having a value at par of $3.0 million with a maturity date in 2028 and Montana Health Facility Authority Select Auction Variable Rate Securities having a value at par of $2.2 million with a maturity date in 2017.  The Company has classified these investments as long-term assets due to liquidity issues that have been experienced in global credit and capital markets as well as failed auctions since the first quarter of 2008. A failed auction means that the amount of securities submitted for sale at auction exceeded the amount of purchase orders. If an auction fails, the issuer becomes obligated to pay interest at penalty rates, and all of the auction rate securities the Company holds continue to pay interest in accordance with their stated terms. However, the failed auctions create uncertainty as to the liquidity of these securities.

Based on the Company’s expected operating cash flows, and other sources of cash, the Company does not expect the potential lack of liquidity in these investments to affect its ability to execute its current business plan in the near term.

Fair Value Measurement

The Company accounts for assets and liabilities recognized or disclosed in the financial statements at fair value on a recurring basis in accordance with the provisions of ASC Topic 820.

ASC Topic 820 provides that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

 
Level 1:
Observable inputs such as quoted prices for identical assets or liabilities in active markets

 
Level 2:
Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs

 
Level 3:
Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants would price the assets or liabilities

The valuation techniques that may be used to measure fair value are as follows:

 
A.
Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

 
B.
Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method

 
C.
Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)

The Company’s assets measured at fair value on a recurring basis during the period include (in thousands):

   
Carrying amount as of
September 30, 2011
   
Level 1
   
Level 2
   
Level 3
 
Valuation
Technique
                           
Auction rate securities
    $4,620       $-       $-       $4,620  
(B)

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):

   
Auction Rate Securities
 
       
Balance at January 1, 2011
  $ 5,020  
Redemptions
    (200 )
Transfers to Level 3
    -  
Gains and losses:
       
Reported in earnings
    -  
Reported in other comprehensive loss
    (200 )
Balance at September 30, 2011
  $ 4,620  

 The Company historically accounted for the ARS held in its portfolio as available-for-sale investments. The carrying value of these ARS approximated fair value due to the frequent resetting of the interest rate. While the Company continues to earn interest at the specified contractual rate on those investments involved in failed auctions, due to the illiquidity of these securities under current market conditions, the Company has considered whether par value continues to be a reasonable basis for estimating the fair value of these ARS at September 30, 2011 and December 31, 2010.  The Company estimated the fair value of these securities at September 30, 2011 and December 31, 2010 using broker valuations and internally-developed models of the expected future cash flows related to the securities as well as referencing a third party specialist’s valuation. One of the more significant assumptions made in the Company’s internally-developed models was the term of expected cash flows of the underlying auction rate securities and the discount related to the illiquidity of the investments. The Company developed several scenarios for the liquidation of the auction rate securities over periods that ranged from 3 to 7 years. In estimating the fair value of these investments, the Company considered the financial condition and near-term prospects of the issuers, the magnitude of the losses compared to the investments' cost, the length of time the investments have been in an unrealized loss position, the low probability that the Company will be unable to collect all amounts due according to the contractual terms of the security, whether the security has been downgraded by a rating agency, and the Company’s ability and intent to hold these investments until the anticipated recovery in market value occurs. Based on its estimated operating cash flows and other sources of cash, the Company intends to hold these auction rate securities for the foreseeable future, if necessary.

The Company’s valuation analysis in the third quarter of 2011 resulted in an additional charge of $200,000 to the unrealized impairment loss on record at December 31, 2010.  As of September 30, 2011, the unrealized impairment loss is $600,000.  The Company continues to monitor the market for auction rate securities and to assess its impact on the fair value of the Company’s investments. If current market conditions deteriorate further, the Company may be required to record additional temporary unrealized losses in other comprehensive loss or, if the decline in fair value is judged to be other-than-temporary, the cost basis of the individual security may be written down to fair value as a new cost basis and the amount of the write-down would be reflected as a charge to earnings.

Note 4 - Inventories
Inventory Disclosure [Text Block]
4. INVENTORIES

Inventories consist of the following:

   
September 30,
   
December 31,
 
   
2011
   
2010
 
Raw materials
  $ 4,608,906     $ 3,583,679  
Work in process
    3,189,021       3,276,095  
Finished units
    1,730,122       2,063,353  
Total
  $ 9,528,049     $ 8,923,127  

Note 5 - Goodwill and Intangible Assets
Goodwill and Intangible Assets Disclosure [Text Block]
5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess cost of the Crossbow asset acquisition over the net fair value allocated to the tangible assets acquired and liabilities assumed and to the acquired intangible asset that does not qualify for separate recognition according to ASC 805. The Company reported goodwill of $5,047,953 at September 30, 2011 which includes foreign exchange impact of $128,440 for the nine months ended September 30, 2011.

 The Company performed an annual impairment test for goodwill during the fourth quarter of 2010 and concluded that no impairment existed as of December 31, 2010.  It is the Company’s opinion that there has been no change in circumstances that would indicate a potential impairment as of September 30, 2011.  The Company will continue to perform an annual impairment test for goodwill during the fourth quarter of each fiscal year, and more frequently if an event or circumstances indicate that an impairment loss has been incurred. Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset.

Intangible Assets

Intangible assets relate to issued and applied-for patents on the Company’s core technology and gas meter processing know-how purchased in May 2008, as well as trademarks, customer relationships and developed technology acquired from Crossbow Technology, Inc. on January 15, 2010.

As of September 30, 2011, intangible assets consisted of the following:

   
Gross carrying amount
   
Accumulated amortization
   
Net carrying amount
   
Expected life (Years)
 
                         
Patents
  $ 1,216,039     $ (328,854 )   $ 887,185       15  
Know-how
    584,552       (374,263 )     210,289       5  
Trademarks
    396,730       (279,387 )     117,343       2  
Customer relationships
    4,777,164       (878,991 )     3,898,173       8-10  
Developed technology
    7,445,442       (1,281,653 )     6,163,789       8-10  
    $ 14,419,927     $ (3,143,148 )   $ 11,276,779          

Amortization expense expected over the next five years is approximately $1.4 million per year. Amortization expense amounted to $1.2 million and $1.1 million respectively for the nine months ended September 30, 2011 and 2010.

The Company has considered the cash flows associated with the valuation of the definite-lived intangible assets and concluded that the straight line method best approximates the economic pattern of usefulness of those assets.

Note 6 - Note Payable to Bank
Debt Disclosure [Text Block]
6.  NOTE PAYABLE TO BANK

On June 30, 2010, MTS, a wholly owned subsidiary of MEMSIC Semiconductor, entered into a five-year project loan agreement with Agricultural Bank of China. The total loan available is $20 million, of which $15 million was used by the Company for the purchase of substantially all the assets acquired from Crossbow Technology, Inc., $3 million for working capital purposes and $2 million for the purchase of equipment to be used in the manufacture of the Company’s system solution products.

The loan is collateralized by the buildings and land owned by MEMSIC Semiconductor as well as the land and intellectual property owned by MTS. The interest rate of the loan is a variable rate, adjusted semi-annually based on the LIBOR rate plus 4.00%. MTS has obtained agreement from the local government in Wuxi, China to fully subsidize the interest expense on a quarterly basis. There are no financial covenants required for this loan. As of September 30, 2011, MTS has withdrawn an amount of $17.9 million and has $2.1 million available for borrowing. Interest expense paid and subsidized by the Wuxi government for the three and nine months ended September 30, 2011 was $0.2 million and $0.6 million respectively.  Based on the terms of the agreement, there are no circumstances in which amounts previously subsidized by the Wuxi government are repayable by the Company.  In the remote event the Wuxi government is unable to fulfill its obligation, the Company would recognize the interest expense in its income statement. The repayment schedule of the principal amount is as follows:

Date
 
Payment Amount
 
June 29, 2012
  $ 500,000  
June 29, 2013
  $ 1,000,000  
June 29, 2014
  $ 2,500,000  
June 29, 2015
  $ 13,930,000  
    $ 17,930,000  

Note 7 - Building Liability
Building Liability [Text Block]
7. BUILDING LIABILITY
At September 30, 2011, the Company recorded a building liability in the amount of $8.0 million related to the construction of the new MTS facility in Wuxi, China, which is based upon an estimate of total construction costs incurred to date. The construction site is located on the same property as the Company’s June 2010 land purchase. Construction of the facility started in August of 2010 and is completed as of September 2011. The construction is financed by the local Chinese government. Per agreement with the local Chinese government, at the completion of the building, the Company can either lease the building for five years or purchase the building at cost from the government within five years.  The Company is in the process of determining which alternative provides the best result for the Company.  The Company anticipates reaching a final agreement with the local Chinese government during the fourth quarter of 2011.

Note 8 - Stock Based Compensation
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
8. STOCK BASED COMPENSATION

Description of Plan

On March 29, 2000, the Company’s stockholders and board of directors approved the 2000 Omnibus Stock Plan (the “2000 Plan”), as amended, under which 2,969,000 shares of the Company’s common stock were reserved for issuance to directors, officers, employees, and consultants.  With the adoption of the 2007 Plan discussed below, the Company no longer grants awards under the 2000 Plan.

On August 22, 2007, the Company’s board of directors approved the 2007 Stock Incentive Plan (the “2007 Plan”), under which up to 3,000,000 shares of the Company’s common stock may become available for issuance. At the adoption date, 1,526,425 shares were reserved for issuance. The reserved amount will increase by 300,000 shares at each of the five anniversaries of the adoption date, for a maximum of 3,000,000 shares issuable under the 2007 Plan.

Options granted under the 2000 Plan and the 2007 Plan may be incentive stock options or nonqualified stock options. Both the 2000 Plan and the 2007 Plan provide that the exercise price of incentive stock options must be at least equal to the market value of the Company’s common stock at the date such option is granted. For incentive stock option grants to an employee who owns more than 10% of the outstanding shares of common stock of the Company, the exercise price on the incentive stock option must be 110% of market value at the time of grant. Granted options expire in ten years or less from the date of grant and vest based on the terms of the awards, generally ratably over four years.

Prior to December 19, 2007, there was no public market for the Company’s common stock. Accordingly, the board of directors determined the market value of the common stock at the date of grant by considering a number of relevant factors, including the Company’s operating and financial performance and corporate milestones achieved, the prices at which shares of convertible preferred stock in arm’s-length transactions were sold, the composition of and changes to the management team, the superior rights and preferences of securities senior to the common stock at the time of each grant and the likelihood of achieving a liquidity event for the shares of common stock underlying stock options.

On December 9, 2009, the Company’s board of directors approved the 2009 Nonqualified Inducement Stock Option Plan (the “2009 Plan”) with an effective date on January 15, 2010, the closing date of the acquisition of Crossbow assets. Under the 2009 Plan, up to 1,250,000 shares of the Company’s common stock may become available for issuance. On December 23, 2010, the Company’s board of directors approved an Amended and Restated 2009 Nonqualified Inducement Stock Option Plan (the “Amended and Restated Plan”) and an increase in shares of the Company’s common stock available for issuance under the Amended and Restated Plan from 1,250,000 to 2,500,000. Except as otherwise determined by the Compensation Committee of the Company’s board of directors, the form of option to be employed under the Amended and Restated Plan shall be substantially identical to the form of nonqualified option customarily used under the Company’s 2007 Stock Incentive Plan.

On June 29, 2011 at its Annual Meeting of Stockholders, the Company’s stockholders and board of directors approved the amendment and restatement of the Company’s 2007 Plan. The Amended and Restated 2007 Plan

 
·
permits the granting of restricted stock units (“RSU”), performance-based stock awards and stock appreciation rights;

 
·
eliminates the ability to reprice options;

 
·
extends the expiration date of the plan to June 29, 2021;

 
·
provides that awards may qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended; and

 
·
incorporates certain other administrative provisions.

The approval of the amendment and restatement of the 2007 Plan does not change the number of shares available for awards under the 2007 Plan.

Valuation of Stock Options

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an option award. The weighted-average fair value per share of the options granted during the nine months ended September 30, 2011 was $1.97, while the weighted-average fair values per share of the options granted during the three and nine months ended September 30, 2010 were $2.35 and $3.23, respectively, utilizing the following assumptions:

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Volatility *
 
NA
      65%       64%       65% - 70%  
Expected dividend yield
  0%       0%       0%       0%  
Expected life *
 
NA
   
6.0 years
   
5.6 - 5.8 years
   
5.0 - 6.0 years
 
Risk free interest rate *
 
NA
      1.76%       2.20% - 2.34%       1.76%-2.65%  
Forfeitures
  36%       36%       36% - 37%       36%- 37%  
                                 
* The company only granted restricted stock units in the third quarter of 2011 and did not have option grants.
 

The Company is responsible for estimating volatility and has considered a number of factors, including analysis of volatility data for a peer group of companies. The Company determined the volatility for options granted in the nine months ended September 30, 2011 based on the historical volatility of the Company’s common stock, which the Company believes results in the best estimate of the grant-date fair value of employee stock options because it reflects the market’s current expectations of future volatility. Prior to January 1, 2010, due to limited historical information on the volatility of the Company’s common stock, the Company determined the volatility for options based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility for options granted was determined using an average of the historical volatility measures of this peer group of companies for a period equal to the expected life of the option. 

The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero.

The Company uses historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option, and generally its employees exhibit similar exercise behavior.

The risk-free interest rate is based on a zero coupon United States treasury instrument whose term is consistent with the expected life of the stock options.  The Company applies an estimated forfeiture rate, based on its historical forfeiture experience, in determining the expense recorded in the Company’s consolidated statement of operations.

For the three months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense of $464,972 and $433,109, respectively.  For the nine months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense of $1,259,202 and $1,106,815, respectively.  Stock-based compensation expense related to stock options and RSUs for the three and nine months ended September 30, 2011 and 2010 was allocated as follows:

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Research and development
  $ 41,464     $ 102,544     $ 226,043     $ 167,631  
Sales and marketing
    47,917       44,082       135,845       129,139  
General and administrative
    375,591       286,483       897,314       810,045  
Total
  $ 464,972     $ 433,109     $ 1,259,202     $ 1,106,815  

The Company has historically accounted for stock options granted to consultants using the fair value method for the calculation of compensation cost. The Company has no compensation expense for stock option grants to consultants in the first nine months of 2011 and 2010.

The Company accounted for restricted stock awards (“RSA”) and RSUs using the fair value at the date of the grant for the calculation of compensation cost. For the three and nine months ended September 30, 2011, the Company recorded compensation expense for RSAs and RSUs in the amount of $122,000 and $186,000.

At September 30, 2011, total unrecognized stock-based compensation expense for stock options, RSAs and RSUs granted to the Company’s employees and directors was estimated to approximate $4.2 million.

The stock option, RSA and RSU activity under the 2000, 2007 and 2009 Plans for the nine months ended September 30, 2011 is as follows:

   
Options
Outstanding
   
Weighted
Average
Exercise Price
   
Remaining
Contractual
Term in Years
   
Aggregrate
Intrinsic Value
 
                         
Options outstanding at December 31, 2010
    2,588,080     $ 4.76       7.4     $ 1,863,883  
                                 
Granted
    951,000       1.09                  
Exercised
    (33,200 )     1.68                  
Cancelled
    (444,588 )     3.12                  
                                 
Options outstanding at September 30, 2011
    3,061,292     $ 3.89       7.4     $ 2,419,609  
                                 
Options exercisable at September 30, 2011
    1,272,568     $ 4.45       5.8     $ 741,558  
                                 
Options available for grant at September 30, 2011
    2,638,363                          

The intrinsic values (aggregate market value of the underlying common stock minus aggregate exercise price) of stock options exercised during the three and nine months ended September 30, 2011 were $22,000 and $27,000, respectively. The total fair value of options which became exercisable during the three and nine months ended September 30, 2011 were approximately $498,000 and $687,000, respectively. The total fair value of options which became exercisable during the three and nine months ended September 30, 2010 were approximately $386,000 and $705,000, respectively.

Note 9 - Comprehensive Loss
Comprehensive Income (Loss) Note [Text Block]
9. COMPREHENSIVE LOSS

Comprehensive loss is defined to include all changes in stockholders’ equity during the period other than those changes that result from investments by and distributions to stockholders. For the three and nine months ended September 30, 2011 and 2010, the Company’s comprehensive loss is the sum of net loss, unrealized loss on investment and the foreign currency translation adjustment, as follows:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net loss attributable to MEMSIC, Inc.
  $ (368,766 )   $ (1,931,273 )   $ (2,805,248 )   $ (6,225,326 )
Other comprehensive income (loss):
                               
  Unrealized gain (loss) on investments
    241       -       (570 )     -  
  Foreign currency translation adjustment
    398,169       364,368       946,834       549,613  
  Unrealized impairment loss on auction rate securities
    (200,000 )     (153,000 )     (200,000 )     (153,000 )
                                 
Comprehensive loss attributable to MEMSIC, Inc.
    (170,356 )     (1,719,905 )     (2,058,984 )     (5,828,713 )
Net income (loss) attributable to noncontrolling interest
    32,895       39,004       91,685       66,093  
  Foreign currency translation adjustment
    -       -       (3,025 )     -  
Comprehensive loss attributable to noncontrolling interest
    32,895       39,004       88,660       66,093  
Total comprehensive loss
  $ (137,461 )   $ (1,680,901 )   $ (1,970,324 )   $ (5,762,620 )

Note 10 - Common Stock
Shareholders' Equity and Share-based Payments [Text Block]
10. COMMON STOCK

The Company reserved 5,699,655 and 4,206,577 shares at September 30, 2011 and 2010, respectively for issuance upon exercise of options to purchase common stock and RSUs.

Note 11 - Net Loss Per Common Share
Earnings Per Share [Text Block]
11. NET LOSS PER COMMON SHARE

The calculation of the numerator and denominator for basic and diluted net loss per common share is as follows:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Numerator:
                       
  Net loss attributable to MEMSIC, Inc.
  $ (368,766 )   $ (1,931,273 )   $ (2,805,248 )   $ (6,225,326 )
                                 
Denominator:
                               
  Basic weighted average shares
    23,825,134       23,805,072       23,822,587       23,802,357  
  Dilutive effect of common stock equivalents
    -       -       -       -  
  Diluted weighted average shares
    23,825,134       23,805,072       23,822,587       23,802,357  
                                 
Net loss per common share
  $ (0.02 )   $ (0.08 )   $ (0.12 )   $ (0.26 )

During the nine months ended September 30, 2011 and 2010, the Company had 1.8 million and 2.1 million, respectively, dilutive potential common shares in the form of stock options which were not included in the computation of net loss per diluted share because these stock options would be anti-dilutive.

Note 12 - Segment Information
Segment Reporting Disclosure [Text Block]
12. SEGMENT INFORMATION

The Company conducts its operations and manages its business in two reporting segments. The Company develops, designs, manufactures and markets (i) semiconductor sensor products (“sensor products”) based on MEMS technology and advanced integrated circuit design, and (ii) sensor system solution products (“system solution products”) which incorporates sensors with on-board computing, wireless communications and systems and application software solutions. In making operating decisions, the Company’s chief executive officer, who is the chief operating decision maker, considers the gross profit results of the sensor product unit and the system solution product unit separately, but utilizes enterprise wide operating expense and earning results.

Revenues and gross profit by reportable segment

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenue
                       
Sensor products
  $ 15,935,106     $ 8,192,684     $ 38,913,453     $ 19,446,787  
System solution products
    2,422,193       2,652,035       7,771,400       7,765,551  
Total
  $ 18,357,300     $ 10,844,719     $ 46,684,854     $ 27,212,338  
                                 
                                 
   
Three months ended September 30,
   
Nine months ended September 30,
 
      2011       2010       2011       2010  
Gross Profit
                               
Sensor products
  $ 4,919,964     $ 2,805,563     $ 11,957,813     $ 6,958,068  
System solution products
    1,281,803       1,287,962       4,183,844       3,669,378  
Total
  $ 6,201,767     $ 4,093,525     $ 16,141,657     $ 10,627,446  

Revenues by product application
The categorization of revenue by product application is determined using a variety of data points including the technical characteristics of the product, the end customer product and application into which the Company’s product will be incorporated.

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Mobile phone
  $ 9,737,128     $ 2,647,989     $ 21,889,987     $ 4,746,569  
Consumer
    1,991,405       2,086,800       4,623,725       4,756,194  
Automotive
    3,766,068       2,922,593       11,066,547       8,560,266  
Industrial/other
    2,862,699       3,187,337       9,104,595       9,149,309  
Total
  $ 18,357,300     $ 10,844,719     $ 46,684,854     $ 27,212,338  

Revenues by geographical region

Revenue by geographic region, based upon customer location, for the three and nine months ended September 30, 2011 and 2010 was as follows:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Asia (excluding Japan)
  $ 10,513,338     $ 3,657,276     $ 25,430,554     $ 8,697,456  
Europe
    897,630       875,130       2,581,518       2,615,094  
Japan
    2,441,347       1,729,084       5,668,284       4,263,666  
North America
    4,459,558       3,873,645       12,795,129       10,683,770  
Other
    45,427       709,584       209,369       952,352  
Total
  $ 18,357,300     $ 10,844,719     $ 46,684,854     $ 27,212,338  

Total Assets by geographical region

Total assets by geographical region are as follows:

   
September 30,
   
December 31,
 
   
2011
   
2010
 
             
United States
  $ 56,322,340     $ 56,250,073  
China
    71,182,696       60,172,360  
Japan
    1,398,190       1,242,663  
Total
  $ 128,903,226     $ 117,665,096  

Total long-lived assets by geographical region are as follows:
   
September 30,
   
December 31,
 
   
2011
   
2010
 
             
United States
  $ 898,511     $ 1,034,156  
China
    29,844,321       20,980,268  
Japan
    1,049       1,078  
Total
  $ 30,743,881     $ 22,015,502  

Note 13 - Contingencies
Commitments and Contingencies Disclosure [Text Block]
13. CONTINGENCIES
The Company may be subject to claims that arise out of the ordinary course of business in legal disputes. In management’s opinion, these matters will not have a material adverse effect on the financial position of the Company.

Note 14 - Subsequent Events
Subsequent Events [Text Block]
14. SUBSEQUENT EVENTS

The Company evaluated subsequent events occurring after September 30, 2011 through the date of filing these financial statements, and concluded that there was no event of which management was aware that occurred after the balance sheet date that would require any adjustment to the accompanying consolidated financial statements.