UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number 000-15116
Sigma Designs, Inc.
(Exact name of Registrant as Specified in its Charter)
1221 California Circle
Milpitas, California 95035
(Address of Principal Executive Offices including Zip Code)
(408) 262-9003
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $82,138,620 as of April 22, 2002 based on the closing price of the Common Stock as reported on The Nasdaq Stock Market for that date. There were16,427,724 shares of the Registrant's Common Stock issued and outstanding on April 22, 2002.
EXPLANATORY NOTE
This Annual Report on Form 10-K/A is being filed as Amendment No. 1 to Sigma Designs, Inc.'s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 2, 2002 ("Form 10-K") for the following purposes:
This amendment does not otherwise update the disclosures set forth in these items as originally filed and does not otherwise reflect events occurring after the original filing of the Form 10-K.
Sigma Designs, Inc.
2002 ANNUAL REPORT ON FORM 10-K/A
TABLE OF CONTENTS
| PART II | Page No. |
| Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 8. Consolidated Financial Statements and Supplementary Data | |
| PART IV | |
| Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K | |
| Signatures |
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, ABOUT THE MARKETS IN WHICH WE OPERATE AND OUR BUSINESS AND PROSPECTS, INCLUDING STATEMENTS ABOUT THE SUFFICIENCY OF OUR CURRENT RESERVE OF CASH AND CASH EQUIVALENTS, OUR SHORT-TERM INVESTMENTS AND OUR BANK LINES OF CREDIT TO MEET OUR WORKING CAPITAL REQUIREMENTS, AND THE EFFECT OF INTEREST RATE CHANGES ON THE VALUE OF OUR SHORT-TERM INVESTMENTS, OUR BANK LINES OF CREDIT AND OUR FOREIGN CURRENCY CASH BALANCES. THESE STATEMENTS ARE SUBJECT TO MANY RISKS AND UNCERTAINTIES WHICH MAY RESULT IN DIFFERENT OR DISAPPOINTING FUTURE BUSINESS AND FINANCIAL RESULTS. MANY OF THESE RISKS AND UNCERTAINTIES ARE DISCUSSED IN THIS REPORT, INCLUDING UNDER "FACTORS AFFECTING FUTURE OPERATING RESULTS".
Results of Operations
For the fiscal year ended January 31, 2002, our net revenues decreased 54% to $13.4 million from $29.5 million reported for fiscal 2001. This decrease in revenues was primarily attributable to the continuing slowdown of the general economic conditions, and the continuing decline in demand for our MPEG chipset and board products in PC add-in market due to the prevalence of DVD-enabling software provided as original equipment in many PCs. Even though overall total net revenues from sales of MPEG chipset and board products were significantly decreased year-over-year, revenues from sales of our new streaming video console and board products to commercial streaming video market and sales of our chipset products to consumer appliance market increased in fiscal 2002 as compared to fiscal 2001. Our revenues from sales of streaming video console and board products for the commercial steaming video market and sales of chipset products in the set top boxes for the consumer appliance market represented a relatively significant portion of our total net revenues while our revenues from sales of chipset and board products to PC add-in market represented a relatively insignificant portion of our total net revenues for fiscal 2002. The continuing decline in demand for chipsets and boards in PC add-in market, the slower than anticipated emergence of the set top box market, and delays in the deployment of streaming video applications which utilize our products may continue. Should they continue, this decline and these delays would continue to reduce our revenues and harm our business.
Net loss for the fiscal year ended January 31, 2002 was $10.4 million as compared to net loss of $6.9 million for the prior fiscal year. The net loss for fiscal 2002 was primarily caused by the decline in revenues. The net loss for fiscal 2002 included a charge of approximately $927,000 of impairment losses related to an investment of a start-up company, and a specific provision for bad debt allowance in the amount of approximately $121,000 (net of recovery $329,000) due to collectibility issues relating to one of our customers. The net loss for fiscal 2001 included a charge of $1.9 million to write down certain PC-DVD and video networking related inventories due to the decline in demand for those products, and a provision for bad debt allowance in the amount of $2.2 million due to collectibility issues relating to one of our customers and non-payment by another customer for customization services that we provided.
During the third quarter of fiscal 2001, our primary U.S. distributor contacted us to request a large and unusual product return in excess of their stock rotation rights under our distributor agreement with this distributor. Due to this distributor's prominence in the market and our desire to continue our business relationship with them, we accepted the product returns. Consequently, the distributor returned approximately $2.7 million of product during the third quarter of fiscal 2001, which we recorded as a reduction of revenue for that quarter. As a result of these significant returns, effective in the third quarter of fiscal 2001, we concluded that we no longer had a reasonable basis to estimate sales returns from this distributor and modified our policy to recognize revenue upon resale to the distributor's end-customers. Consequently, in the third quarter of fiscal 2001, we deferred revenue of $593,000, for third quarter product shipments to this distributor that had not sold thro ugh to the distributor's end-customers as of the end of that quarter. Although we had other accounts receivable from this distributor at the end of the third quarter of 2001 for products that were still in the distributor's inventory at the end of that quarter, we fully intended to exercise our collection rights on these receivables. Therefore, we did not record an additional sales return reserve at that time.
In the fourth quarter of fiscal 2001, the above-mentioned distributor contacted us again to request a product return for $1.4 million. After extensive discussions with the distributor, we agreed to the product returns. As a result of these significant returns, in the fourth quarter of fiscal 2001, we recorded a sales return reserve of $887,000, which along with the $593,000 revenue deferral referred to in the previous paragraph, provided for the maximum product return exposure from this distributor at the end of fiscal 2001.
Our current agreement with this distributor, executed in the first quarter of fiscal 2002, allows for the right of return and price protection. The right of return allows our primary U.S. distributor to return any product in the original packaging for full credit up to 180 days after the earlier of the termination or early expiration of the distribution agreement in accordance with its terms.
The following table shows certain items as a percentage of net revenues, which are included in our Consolidated Statement of Operations:
Fiscal Fiscal Fiscal
2002 2001 2000
--------- --------- ---------
Net revenues............................ 100% 100% 100%
Cost of revenues........................ 59% 70% 69%
--------- --------- ---------
Gross margin............................ 41% 30% 31%
Operating expenses:
Research and development.............. 60% 25% 13%
Sales and marketing................... 32% 14% 9%
General and administrative............ 21% 15% 6%
Other (income) expense.................. 5% -1% -1%
--------- --------- ---------
Net income (loss)....................... -77% -23% 5%
Dividends on preferred stock............ -- -- -1%
--------- --------- ---------
Net income (loss) available to
common shareholders................ -77% -23% 4%
========= ========= =========
Net Revenues
The following table sets forth our net revenues in each product group for the last three years:
(Dollars in thousands) Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------- -------------- --------------
Boards.................... $6,961 52% $13,575 46% $22,940 46%
Chipsets.................. 3,858 29% 12,936 44% 25,831 51%
Other..................... 2,618 19% 2,965 10% 1,553 3%
--------- --------- ---------
TOTAL NET REVENUES...... $13,437 $29,476 $50,324
========= ========= =========
Our board level product lines are targeted at OEM customers to address the DVD upgrade market and system integrators to address the computer-based training, kiosks, and corporate video-on-demand markets. Our chipsets are targeted toward manufacturers and large volume OEM customers building interactive multimedia products for business and consumer markets. The "other" category includes our new product, Netstream consoles for the commercial streaming video market, set-top box products and accessories targeted at the consumer internet information appliance market - a market which we entered in fiscal 2000, and development revenues under agreements for the customization of certain MPEG decoding chips. The costs related to development revenues were included in research and development expenses.
The table below sets forth our revenues by market segment for each of the last three fiscal years:
(Dollars in thousands) Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------- -------------- --------------
Commercial streaming video market $6,944 52% $6,673 23% $12,012 24%
Consumer appliance market..... 3,921 29% 2,775 9% 1,180 2%
PC add-in market.............. 2,166 16% 17,799 60% 36,675 73%
Other market.................. 406 3% 2,229 8% 457 1%
--------- --------- ---------
TOTAL NET REVENUES.......... $13,437 $29,476 $50,324
========= ========= =========
Revenues from sales to Commercial streaming video market accounted for 52% of our net revenues in fiscal 2002, 23% in fiscal 2001, and 24% in fiscal 2000. Revenues from sales to Consumer appliance market accounted for 29% of our net revenues in fiscal 2002, 9% in fiscal 2001, and 2% in fiscal 2000. PC add-in market accounted for 16% of our net revenues in fiscal 2002, 60% in fiscal 2001, and 73% in fiscal 2000. Revenues from sales to Other market accounted for 3% of our net revenues in fiscal 2002, 8% in fiscal 2001, and 1% in fiscal 2000. Revenues from sales to commercial streaming video market increased 4% to $6.9 million in fiscal 2002 from $6.7 million in fiscal 2001. Revenue from sales to consumer appliance market increased 41% to $3.9 million in fiscal 2002 from $2.8 million in fiscal 2001. Revenues from PC add-in market decreased 88% to $2.2 million in fiscal 2002 from $17.8 million in fiscal 2001. Revenues from other market decreased 82% to $0.4 million in fiscal 2002 from $2.2 million in fiscal 2001. The increase in revenues from sales of our products to commercial streaming video market in fiscal 2002 as compared to fiscal 2001 is mainly attributable to increased sales of our MPEG board products and the introduction of our new console products in corporate streaming video market. We expect our revenues from commercial streaming video market to continue to fluctuate year over year primarily due to the project-oriented nature of sales of our products to our corporate streaming video market. The increase in revenues from sales of our products to consumer appliance market in fiscal 2002 is attributable to increased sales of our MPEG chipset products to set-top box manufacturers. The consumer appliance market remains in an emerging phase and we expect fluctuating revenues to continue. The decrease in revenues from sales of our products to PC add-in market in fiscal 2002 is due to the continuing decline in demand for products in the PC add-in market. We expect our revenues from PC add-in market to be relatively insignificant in future periods as a result of our decision to focus on the video-on-demand and consumer appliance market. The category "Other market" in the above table consists of development fees under agreements relating to the development for customization of certain MPEG decoding chip technology and accessories for projects and products for various market segments. The overall decrease in net revenues from other market in fiscal 2002 as compared to fiscal 2001 is attributable to a decrease in development fees due to fewer development projects and the increasingly complex nature which requires longer development time. We expect that net revenues from other market will continue to fluctuate.
The table below sets forth our revenues by geographic region for each of the last three fiscal years:
(Dollars in thousands) Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------- -------------- --------------
United States.................. $7,750 58% $10,241 35% $16,535 33%
Asia........................... 3,239 24% 17,326 59% 29,142 58%
Europe......................... 2,401 18% 1,574 5% 4,114 8%
Canada......................... 12 0% 16 0% 296 1%
Other regions.................. 35 0% 319 1% 237 0%
--------- --------- ---------
TOTAL NET REVENUES........... $13,437 $29,476 $50,324
========= ========= =========
Our U.S. revenues as a percentage of total net revenues were 58% in fiscal 2002, 35% in 2001, and 33% in fiscal 2000. Total U.S. revenues in fiscal 2002 decreased 24% to $7.8 million, from $10.2 million in fiscal 2001. Total Asia revenues as a percentage of total revenues were 24% in fiscal 2002, 59% in fiscal 2001 and 58% in fiscal 2000. Total Asia revenues in fiscal 2002 decreased 81% to $3.2 million in fiscal 2002, from $17.3 million in fiscal 2001. Total Europe revenues as a percentage of total revenues were 18% in fiscal 2002, 5% in fiscal 2001 and 8% in fiscal 2000. Total Europe revenues in fiscal 2002 increased 53% to $2.4 million in fiscal 2002, from $1.6 million in fiscal 2001. Our Asia revenues were derived predominantly from customers in Taiwan. Revenues generated from Taiwan in fiscal 2002 accounted for 10% of our total net revenues, as compared to 19% for fiscal 2001 and 30% for fiscal 2000. Three customers based in U.S and one customer based in Europe accounted for 49% of our total net revenues in fiscal 2002, as compared to two customers based in U.S and three customers based in Asia accounting for 55% of our total net revenues in fiscal 2001 and three customers based in Asia accounting for 41% of our total net revenues in fiscal 2000. The overall year-to-year decrease in revenues from fiscal 2001 to fiscal 2002 was primarily attributable to the global economic downturn and the continuing decline in demand of our PC-DVD upgrade products in the PC market.
Gross Margin
Our gross margin as a percentage of net revenues was approximately 41% in fiscal 2002, 30% in fiscal 2001, and 31% in fiscal 2000. Excluding development revenues of $0.4 million, the gross margin was approximately 39% in fiscal 2002. This increase was a result of increased sales of our products to streaming video market and chipset products to the set top box consumer appliance market which have relatively high gross margins and the decreased sales of our products to PC add-in market which have relatively low gross margins. We expect our gross margins will vary from period to period due to changes in the mix of product sales and provisions for inventory obsolescent.
Operating Expenses
Sales and marketing expenses increased $166,000 or 4% in fiscal 2002 over fiscal 2001. This increase was largely due to increased headcount and expenses associated the expansion of our product marketing and sales development group. The same expenses decreased $338,000, or 8%, in fiscal 2001 over fiscal 2000. The decrease was the result of a reduction of our business development group personnel, an elimination of outside public relations services, and reduced sales commissions in connection with reduced revenues. We believe that our sales and marketing expenses will increase in future periods as we intend to increase headcount in our sales and marketing organization and to expand our product marketing and sales development.
Research and development expenses increased $739,000 or 10% in fiscal 2002 over fiscal 2001 and $987,000, or 15% in fiscal 2001 over fiscal 2000. The increase in fiscal 2002 over fiscal 2001 was primarily attributable to additional engineering staff at our headquarters as well as at our development center in France, consulting services, and capital equipment related to product development. The increase in fiscal 2001 was largely due to increases in technical development support, and the research and development center established in France during the fourth quarter of fiscal 2000. We expect to continue our efforts in the development of our proprietary MPEG based products, and research and development expenses will likely increase accordingly year-over-year.
Our general and administrative expenses decreased $1.8 million or 39% in fiscal 2002 from fiscal 2001. The decrease was mainly attributable to the significant reduction of approximately $2.2 million of bad debt expense from last fiscal year. Excluding the specific provision for bad debt of approximately $121,000 (net of recovery $329,000) and $1.9 million respectively, in fiscal 2002 and 2001, general and administrative expenses in fiscal 2002 was comparable to fiscal 2001. The same expense increased $1.6 million or 57% in fiscal 2001 from fiscal 2000. Excluding provision for bad debt of approximately $1.9 million in fiscal 2001, general and administrative expenses decreased $293,000 or 10% as compared to fiscal 2000. The decrease was largely due to the refund by our insurance company of costs previously expensed related to a shareholder lawsuit resolved in fiscal 2001 and reduction of legal expenses in general. We expect our general and administrative expenses will increase relatively in future periods due to the continually increasing cost of insurance, professional services and other expenditures associated with our business.
Liquidity and Capital Resources
As of January 31, 2002, our principal sources of liquidity included cash, cash equivalents, restricted cash, and short-term investments of $18.0 million, a decrease of $4.3 million compared with $22.3 million at January 31, 2001. This decrease resulted from operating activities that utilized cash of approximately $3.8 million, acquisition of fixed assets of $172,000, repayment of capital lease obligations of $321,000 and cash used for other investing activities of $118,000 which was partially offset by proceeds of $100,000 from the issuance of our common stock under our stock option plan and employee stock purchase plan.
As of January 31, 2002, we had $12.0 million outstanding under a $12.0 million bank revolving line of credit that expires in October 2002, bears interest at the U.S treasury bill rate (1.48% at January 31, 2002) plus 0.85%, and is collateralized by funds on deposit in accounts that have been assigned to the lender and is included in our consolidated balance sheet at January 31, 2002 as restricted cash. We also have a $6.0 million bank line of credit available that expires in October 2002 and is collateralized by our accounts receivable, inventories, equipment, and intangibles. As of January 31, 2002, we had utilized $178,000 of the standby letter of credit under this second line of credit. The lines of credit contain certain covenants that, among other things, required us to maintain certain levels of tangible net worth plus subordinated debt based on our projected operating results. At January 31, 2002, we were required to maintain total net equity worth of at least $11.5 million. As of that date, we were not in compliance with this covenant and subsequently obtained a modification to amend this covenant to $10.5 million.
Our primary sources of funds to date have been cash generated from operations, proceeds from preferred and common stock issuances, capital lease arrangements, and bank borrowings under lines of credit. It is likely that our operation will continue to consume cash in the foreseeable future. Based on our cash projection, we believe that our current reserve of cash and cash equivalents and short- term investments will be sufficient to meet anticipated working capital requirements and other cash needs for the next twelve months. In addition, we believe that we will be able to comply with or make modifications to the current covenants to maintain the availability of funds under our existing asset-based banking agreements. To insure that we have adequate working capital, we intend to raise additional funding through either public or private offerings of our common or preferred stock or from additional bank financing during the next twelve months. There is no assurance that such capital will be available to us. The estimate of time our cash and other resources will last is a forward-looking statement that is subject to the risks and uncertainties set forth below, as well as other factors, and actual results may differ as a result of such factors.
Factors Affecting Future Operating Results
Our annual and quarterly results have in the past and may in the future vary significantly due to a number of factors, including but not limited to new product introductions by us and our competitors; the ability of our REALmagic MPEG silicon to compete with other technologies in these merging markets; market acceptance of the technology embodied in our products generally and our products in particular; customer acceptance of our products; shifts in demand for the technology embodied in our products generally and our products in particular and/or those of our competitors; gains or losses of significant customers; reduction in average selling prices and gross margins, which may occur either gradually or precipitously; inventory obsolescence; write-downs of accounts receivable; an interrupted or inadequate supply of semiconductor chips or other materials-for example, our source of supply for silicon wafers was interrupted in fiscal 2000, and may continue to be interrupted in the future because of earthquakes in Taiwan; our inability to protect our intellectual property; loss of key personnel; technical problems in the development, ramp up, and manufacture of products causing shipping delays; and availability of third-party manufacturing capacity for production of certain of our products. We derive a substantial portion of our revenues from sales to the Asia Pacific region, a region of the world that is subject to increased economic instability. There can be no assurance that such instability will not have a material adverse effect on our future international revenues. Any adverse change in the foregoing or other factors could have a material adverse effect on our business, financial condition, and results of operations.
Due to the factors noted above, our future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends of future periods. Any shortfall in revenue or earnings could have an immediate and significant adverse effect on the trading price of our common stock. Additionally, we may not learn of such shortfall until late in a fiscal quarter, which could result in even more immediate and adverse effect on the trading price of our common stock. Further, we operate in a highly dynamic industry, which often results in volatility of our common stock price.
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accounts receivable, and inventories. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition - Revenues consist of product and development revenue. Revenues from product sales to OEMs, distributors and end users are generally recognized upon shipment, as our shipping terms are FOB shipping point, except that revenues are deferred when the Company cannot reasonably estimate the amount of returns or where collectibility is not assured. In those situations, revenue is recognized when collection subsequently becomes probable and returns are estimable, generally upon resale by distributors to end-customers. Allowances for sales returns, price protection and warranty costs are recorded at the time that revenues are recognized. As further discussed under the caption "Net Revenues" in this Item 7, in fiscal 2001, we began recognizing revenue from our primary U.S. distributor upon resale to end-customers. This practice resulted from significant sales returns, which we accepted from the distributor outside of the terms of our prior distribution agreemen t. Under terms of the current distribution agreement entered into with the distributor in fiscal 2002, the Company has granted the distributor the right of return and price protection, which allows the distributor to return any product, which is in the original packaging, for full credit up to 180 days after the earlier of the agreement expiration or early termination. The price protection provision allows the distributor to receive a credit for the difference between the original price and the reduced price of our products within their inventory. Although returns have not been frequent, we have not been reasonably able to estimate returns from this distributor regarding our video networking products. Consequently, pursuant to our above policy, revenue from this distributor is recognized upon resale to the distributor's end-customers.
Revenues from product development agreements are recognized using the percentage of completion method. Estimates are reviewed and revised periodically throughout the lives of the contracts. Any revisions are recorded in the accounting period in which the need for revisions becomes evident. The Company classifies all development costs related to such agreements as research and development expenses. Development revenues were $406,000, $1,852,000, and $60,000 for fiscal 2002, 2001 and 2000, respectively.
Accounts Receivable-During industry downturns, certain of our customers have difficulty with their cash flows. For certain customers, typically those with whom we have long-term relationships, may delay their payments by 40-60 days beyong the original terms. We review the ability of our customers to pay the indebtedness they incur with us. We defer recognition of revenue and related receivable when we cannot reasonably estimate collectibility is assured at the time products and services are delivered to our customer. We provide an allowance for doubtful accounts for all specific receivables that we judge to be unlikely for collection. In addition, we record a reserve based on the size and age of all receivable balances against which we have not established a specific reserves. These estimated allowances are periodically reviewed, analyzing the customer's payment history and information regarding customer's credit worthiness known to us. In fiscal 2002 and 2001, we recorded a provision for general and specific bad debt allowance in the total amount of $121,000 (net of recovery of $329,000) and $2.2 million respectively.
Inventories- With the dramatic decrease in revenue during fiscal 2002 and 2001, we continue to monitor our inventory levels in light of product development changes and expectations of an eventual market upturn. We may be required to take additional charges for excess and obsolete inventories if the current industry downturn extends further into the future than we have currently estimated or we make changes in our current product development plans. We estimate inventory reserves for excess and obsolete inventories based on our assessments of future product sales giving considerations for factors such as the cyclical nature of our industry. These forecasts require us to estimate our ability to see demand for current and further products and compare those estimates with our current inventory levels. If these forecasts or estimates change adversely, or our product roadmaps change, then we would need to further write down inventory.
Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Stanford Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations", or SFAS No. 141, and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to the acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized. However, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested at least annually for impairment. The Company is required to adopt SFAS No. 142 effective February 1, 2002 and does not expect the effect of adoption to have a material impact on the Company's financial position, results of operations or cash flows.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001. The Company is required to adopt SFAS No. 144 on February 1, 2002. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Sigma's consolidated financial statements, the notes thereto, and the independent auditors' report appear on pages F-1 through F-23 and S-1 of this Annual Report on Form 10-K/A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8- K
(a)
1. Consolidated Financial Statements
The following documents are filed as part of this Annual Report on Form 10-K/A:
Page | |
Independent Auditors' Report | |
Consolidated Balance Sheets as of January 31, 2002 and 2001 | |
Consolidated Statements of Operations for the years ended January 31, 2002, 2001, and 2000 | |
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended January 31, 2002, 2001, and 2000 | |
Consolidated Statements of Cash Flows for the years ended January 31, 2002, 2001 and 2000 | |
Notes to Consolidated Financial Statements |
2. Consolidated Financial Statements Schedules
The following financial statement schedule is filed as part of this Annual Report on Form 10-K/A:
Schedule II-Valuation and Qualifying Accounts and Reserves |
All other schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended January 31, 2002.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits immediately following the financial statement schedules are incorporated by reference into this Annual Report on Form 10-K/A.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Amendment No.1 on From 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Milpitas, State of California, on the 13th day of December 2002.
| SIGMA DESIGNS, INC. | |
| By:/s/ Thinh Q. Tran | |
| Chairman of the Board, | |
| President, and Chief Executive Officer |
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1934, this Amendment No. 1 on Form 10-K/A has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: :
Signature | Title | Date |
/s/ Thinh Q. Tran Thinh Q. Tran | Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer) | December 13, 2002 |
/s/ Kit Tsui Kit Tsui | Chief Financial Officer and Secretary | December 13, 2002 |
/s/ William J. Almon William J. Almon | Director | December 13, 2002 |
/s/ William Wang William Wang | Director | December 13, 2002 |
/s/ Julien Nguyen Julien Nguyen | Director | December 13, 2002 |
* By: /s/ Thinh Q. Tran Thinh Q. Tran | December 13, 2002 |
CERTIFICATIONS
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thinh Tran, certify that:
1. I have reviewed this annual report on Form 10-K/A of Sigma Designs, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
Date: December 13, 2002
/s/ Thinh Tran
Thinh Tran
Chairman of the Board, President and Chief Executive Officer
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kit Tsui, certify that:
1. I have reviewed this annual report on Form 10-K/A of Sigma Designs, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
Date: December 13, 2002
/s/ Kit Tsui
Kit Tsui
Chief Financial Officer and Secretary
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Thinh Tran, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Sigma Designs, Inc. on Form 10-K/A for the fiscal year ended Febuary 2, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K/A fairly presents in all material respects the financial condition and results of operations of Sigma Designs, Inc.
Date: December 13, 2002
By:/s/ Thinh Tran
Name: Thinh Tran
Title: Chairman of the Board, President and Chief Executive Officer
Certification of the Senior Vice President, Finance and Administration and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Kit Tsui, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Sigma Designs, Inc. on Form 10-K/A for the fiscal year ended Feburary 2, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K/A fairly presents in all material respects the financial condition and results of operations of Sigma Designs, Inc.
Date: December 13, 2002
By:/s/ Kit Tsui
Name: Kit Tsui
Title: Chief Financial Officer and Secretary
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sigma Designs, Inc.:
We have audited the accompanying consolidated balance sheets of Sigma Designs, Inc. and subsidiaries as of January 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss) and cash flows for each of the three years in the period ended January 31, 2002. Our audits also include the financial statement schedule listed in Item 14(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sigma Designs, Inc. and subsidiaries at January 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
San Jose, California
March 26, 2002 (April 17, 2002 as to the last sentence of Note 6)
SIGMA DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2002 and 2001 (In thousands, except share data)
2002 2001
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 5,056 $ 5,422
Short-term investments.................................. 943 4,907
Accounts receivable (net of allowances of
$1,664 in 2002 and $2,124 in 2001).................... 2,168 5,122
Inventories............................................. 4,482 8,159
Restricted cash......................................... 12,000 12,000
Prepaid expenses and other.............................. 521 296
--------- ---------
Total current assets........................... 25,170 35,906
EQUIPMENT - net.......................................... 831 1,346
OTHER ASSETS............................................. 273 1,082
--------- ---------
TOTAL..................................................... $ 26,274 $ 38,334
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit..................................... $ 12,000 $ 12,000
Accounts payable........................................ 1,115 2,423
Accrued liabilities..................................... 1,336 1,448
Current portion of capital lease obligations............ 244 329
--------- ---------
Total current liabilities...................... 14,695 16,200
--------- ---------
CAPITAL LEASE OBLIGATIONS................................. 113 349
OTHER LONG TERM LIABILITIES............................... -- 4
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Common stock - no par value: 35,000,000
shares authorized; shares outstanding:
2002, 16,378,042; 2001, 16,313,464..................... 67,884 67,785
Shareholder notes receivable............................ -- (1)
Accumulated other comprehensive income.................. 31 54
Accumulated deficit..................................... (56,449) (46,057)
--------- ---------
Shareholders' equity 11,466 21,781
--------- ---------
TOTAL..................................................... $ 26,274 $ 38,334
========= =========
See notes to consolidated financial statements.
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands, except share data)
2002 2001 2000
--------- --------- ---------
NET REVENUES............................ $ 13,437 $ 29,476 $ 50,324
COSTS AND EXPENSES:
Cost of revenues...................... 7,909 20,661 34,481
Research and development.............. 8,123 7,384 6,397
Sales and marketing................... 4,318 4,152 4,490
General and administrative............ 2,758 4,511 2,869
--------- --------- ---------
Total costs and expenses..... 23,108 36,708 48,237
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (9,671) (7,232) 2,087
Interest income....................... 773 1,355 929
Interest expense...................... (584) (936) (770)
Other income (expense), net........... (906) (53) 162
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... (10,388) (6,866) 2,408
PROVISION FOR INCOME TAXES.............. (4) (2) (60)
--------- --------- ---------
NET INCOME (LOSS)....................... (10,392) (6,868) 2,348
DIVIDENDS ON PREFERRED STOCK............ -- -- 85
--------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS.......................... $ (10,392) $ (6,868) $ 2,263
========= ========= =========
NET INCOME (LOSS) PER SHARE AVAILABLE
TO COMMON SHAREHOLDERS:
Basic................................. $ (0.64) $ (0.42) $ 0.14
========= ========= =========
Diluted............................... $ (0.64) $ (0.42) $ 0.13
========= ========= =========
SHARES USED IN COMPUTATION:
Basic................................. 16,317 16,262 15,728
========= ========= =========
Diluted............................... 16,317 16,262 17,704
========= ========= =========
See notes to consolidated financial statements.
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (In thousands)
Accumu-
lated
Share- Other Total
holder Compre- Compre-
Preferred Stock Common Stock Notes hensive Accumu- hensive
------------------ ----------------------- Receiv- Income lated Income
Shares Amount Shares Amount able (Loss) Deficit Total (Loss)
-------- -------- ----------- ---------- -------- -------- ---------- -------- --------
Balances, February 1, 1999..... 1,900 $ 1,536 15,435,094 $ 64,699 $ (12) $ - $ (41,452) $ 24,771
Net income..................... - - - - - - 2,348 2,348 $ 2,348
Unrealized gain on
investments.................. - - - - - 142 - 142 142
--------
Comprehensive income........... $ 2,490
========
Common stock issued under
stock plans.................. - - 418,570 987 - - - 987
Exercise of common stock
warrants..................... - - 40,000 207 - - - 207
Conversion of Series C
preferred stock.............. (1,900) (1,536) 330,416 1,536 - - - -
Dividends on Series C
preferred stock.............. - - - - - - (85) (85)
Cancellation of Active
Designs shares............... - - (3,300) (1) 1 - - -
Tax benefit of employee
stock transactions........... - - - 33 - - - 33
-------- -------- ----------- ---------- -------- -------- ---------- --------
Balances, January 31, 2000..... - - 16,220,780 67,461 (11) 142 (39,189) 28,403
Net loss....................... - - - - (6,868) (6,868) $ (6,868)
Unrealized loss on investments. - - - - (114) (114) (114)
Accumulated translation
adjustment................... - - - - 26 26 26
--------
Comprehensive loss............. $ (6,956)
========
Common stock issued under
stock plans.................. - - 131,684 308 - - - 308
Exercise of common stock
warrants..................... - - 5,000 26 - - - 26
Cancellation of Active
Designs shares............... - - (44,000) (10) 10 - - -
-------- -------- ----------- ---------- -------- -------- ---------- --------
Balances, January 31, 2001..... - - 16,313,464 67,785 (1) 54 (46,057) 21,781
Net loss....................... - - - - (10,392) (10,392) $(10,392)
Unrealized loss on investments. - - - - (15) (15) (15)
Accumulated translation
adjustment................... - - - - (8) (8) (8)
--------
Comprehensive loss............. $(10,415)
========
Common stock issued under
stock plans.................. - - 69,859 100 - - - 100
Cancellation of Active
Designs shares............... - - (5,281) (1) 1 - - -
-------- -------- ----------- ---------- -------- -------- ---------- --------
Balances, January 31, 2002..... - $ - 16,378,042 $ 67,884 $ - $ 31 $ (56,449) $ 11,466
======== ======== =========== ========== ======== ======== ========== ========
See notes to consolidated financial statements.
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (In thousands)
2002 2001 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $(10,392) $ (6,868) $ 2,348
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization................. 665 789 720
Loss on disposal of assets.................... 22 13 22
Other noncash expenses........................ 927 51 --
Changes in operating assets and liabilities:
Accounts receivable......................... 2,954 7,931 595
Inventories................................. 3,677 (137) 2,396
Prepaid expenses and other.................. (225) 201 165
Accounts payable............................ (1,308) 146 (1,832)
Accrued liabilities and other............... (116) (59) 374
-------- -------- --------
Net cash provided by (used for)
operating activities..................... (3,796) 2,067 4,788
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment additions............................. (172) (364) (466)
Proceeds from sales of equipment................ -- -- 36
Purchases of short-term investments............. (6,773) (37,636) (29,118)
Maturity of short-term investments.............. 10,722 38,978 38,009
Other assets.................................... (118) (1,019) 42
-------- -------- --------
Net cash provided by (used for)
investing activities...................... 3,659 (41) 8,503
-------- -------- --------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Bank line of credit borrowings, net............. -- (41) (1,675)
Increase in restricted cash..................... -- -- (12,000)
Proceeds from sale of common stock.............. 100 334 1,194
Dividends paid.................................. -- -- (80)
Repayment of capital lease obligations.......... (321) (382) (217)
-------- -------- --------
Net cash used for
financing activities...................... (221) (89) (12,778)
-------- -------- --------
Effect of exchange rates changes on cash.......... (8) 26 --
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. (366) 1,963 513
CASH AND CASH EQUIVALENTS:
Beginning of year............................... 5,422 3,459 2,946
-------- -------- --------
End of year..................................... $ 5,056 $ 5,422 $ 3,459
======== ======== ========
CASH PAID FOR INTEREST............................ $ 584 $ 916 $ 707
======== ======== ========
CASH PAID FOR INCOME TAXES........................ $ 4 $ 2 $ 75
======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases......... $ -- $ 541 $ 244
======== ======== ========
Conversion of Series C preferred stock into
common stock.................................. $ -- $ -- $ 1,536
======== ======== ========
Cancellation of notes receivable and related
common stock.................................. $ 1 $ 10 $ 1
======== ======== ========
Tax benefit of employee stock transactions...... $ -- $ -- $ 33
======== ======== ========
Conversion of investment in private equity
securities into marketable equity securities.. $ -- $ -- $ 100
======== ======== ========
See notes to consolidated financial statements.
SIGMA DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Sigma Designs, Inc. (the Company) develops, manufactures and markets multimedia computer devices and products. The Company sells its products to computer manufacturers, distributors, value-added resellers and corporate customers.
Principle of Consolidation - The consolidated financial statements include Sigma Designs, Inc. and subsidiaries. Intercompany balances and transactions are eliminated.
Accounting Period- The Company's fiscal year ends on the Saturday closest to January 31. For convenience, the financial statements are shown as ending January 31, although the fiscal years ended on February 2, 2002, February 3, 2001, and January 29, 2000, respectively. Fiscal 2001 included 53 weeks, and fiscal 2002 and 2000 each included 52 weeks.
Pervasiveness of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk - Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The majority of the Company's cash and cash equivalents are on deposit with one financial institution. The Company's short-term investments are managed by a major domestic financial institution, in a portfolio with defined investment objectives of competitive money market returns, high liquidity and safety of capital. Its portfolio of short-term investments typically includes United States government obligations and corporate obligations. From time to time, the Company also makes investments in certificates of deposit with financial institutions, outside of its third-party managed portfolio. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains reserves for potential credit losses.
Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents.
Short-Term Investments - The Company's short-term investments represent debt securities which are stated at fair value. All short-term investments are classified as available-for-sale. Any temporary difference between an investment's cost and its market value is recorded as a separate component of shareholders' equity until such gains and losses are realized. Available-for-sale securities are classified in the balance sheet based on management's current intended use for the securities. Gains and losses on the sale of securities are computed using the specific identification method.
Inventories are stated at the lower of cost (first-in, first- out) or market.
Restricted Cashrepresents funds on deposit in accounts which have been assigned to the Company's lender under a bank line of credit (see note 6).
Investments in private equity securities of less than 20% owned companies are accounted for using the cost method unless the Company can exercise significant influence or the investee is economically dependent upon the Company, in which case the equity method is used. Included in other income (expense) for fiscal 2002 is a $927,000 charge related to impairment of an investment accounted for under the cost method.
Equipment is stated at cost. Depreciation and amortization are computed using the straight-line method based on the useful lives of the assets (three to five years) or the lease term if shorter.
Long Lived Assets- The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Revenue Recognition - Revenues consist of product and development revenue. Revenues from product sales to OEMs, distributors and end users are generally recognized upon shipment, as our shipping terms are FOB shipping point, except that revenues are deferred when the Company cannot reasonably estimate the amount of returns or where collectibility is not assured. In those situations, revenue is recognized when collection subsequently becomes probable and returns are estimable, generally upon resale by distributors to end-customers. Allowances for sales returns, price protection and warranty costs are recorded at the time that revenues are recognized. In the third quarter of fiscal 2001, we began recognizing revenue from our primary U.S. distributor upon resale to end-customers. This practice resulted from significant sales returns, which we accepted from the distributor outside of the terms of our prior distribution agreement. Under terms of the current distribution agreement entered int o with the distributor in fiscal 2002, the Company has granted the distributor the right of return and price protection, which allows the distributor to return any product, which is in the original packaging, for full credit up to 180 days after the earlier of the agreement expiration or early termination. The price protection provision allows the distributor to receive a credit for the difference between the original price and the reduced price of our products within their inventory. Although returns have not been frequent , we have not been reasonably able to estimate returns from this distributor regarding our video networking products. Consequently, pursuant to our above policy, revenue from this distributor is recognized upon resale to the distributor's end-customers.
Revenues from product development agreements are recognized using the percentage of completion method. Estimates are reviewed and revised periodically throughout the lives of the contracts. Any revisions are recorded in the accounting period in which the need for revisions becomes evident. The Company classifies all development costs related to such agreements as research and development expenses. Development revenues were $406,000, $1,852,000, and $60,000 for fiscal 2002, 2001 and 2000, respectively.
Research and Development expenses include costs and expenses associated with the design and development of new products. To the extent that such costs include the development of computer software, they are generally incurred prior to the establishment of the technological feasibility of the related product that is under development. Accordingly, software costs incurred after the establishment of technological feasibility have not been material and therefore have been expensed. All other research and development is expensed as incurred.
Income Taxes - Deferred income taxes are provided for temporary differences between financial statement and income tax reporting. Income taxes are accounted for under an asset and liability approach. Deferred tax liabilities are recognized for future taxable amounts and deferred tax assets are recognized for future deductions net of a valuation allowance to reduce deferred tax assets to amounts that are more likely than not to be realized.
Stock-Based Compensation - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and all of its interpretations and presents pro forma disclosures required by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation."
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 which requires that the fair value of such instruments be recognized as an expense over the period in which the related services are received.
Foreign Currency-The functional currency of the Company's foreign subsidiaries is the local currency of each country. Accordingly, gains and losses from the translation of the financial statements of the foreign subsidiaries are included in shareholders' equity. Transaction gains and losses, which are included in the other income (expenses) in the accompanying consolidated statements of operations, have not been significant for all years presented.
Net Income (Loss) per Share - Basic earnings per share (EPS) excludes dilution and is computed by dividing net income by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock (see Note 7).
Fair Value of Financial Instruments - The Company believes that carrying amounts reported in the balance sheet for cash, cash equivalents, restricted cash, investments and line of credit borrowings as of January 31, 2002 approximate fair market value.
Geographic Operating Information - SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," provides annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographical areas and major customers. The Company operates in one reportable segment (Note 12).
Derivatives- In June 1998, the Financial Accounting Standards Board, or the FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains and losses resulting from changes in the fair market values of those derivative instruments would be accounted for depending on the use of the instrument and whether it qualifies for hedge accounting. The Company adopted SFAS No. 133, as amended, on February 1, 2001. The adoption of this statement did not have an effect on the Company's financial position, results of operations or cash flows as the Company had no derivative financial instruments as of January 31, 2002 and historically has not entered into any derivative transactions.
As a matter of policy, the Company does not currently enter into transactions involving derivative financial instruments. In the event the Company enters into such transactions in the future, the Company will account for those transactions in accordance with SFAS No. 133, in which case the Company will formally document all relationships between the hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking such hedge transactions.
Recent Accounting Pronouncements - On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to the acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized. However, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be tested at least annually for impairment. The Company is required to adopt SFAS No. 142 effective February 1, 2002 and does not expect the effect of adoption to have a material impact on the Company's financial position, results of operations or cash flows.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of", and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001. The Company is required to adopt SFAS No. 144 on February 1, 2002. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
2. SHORT-TERM INVESTMENTS
Short-term investments included the following securities and gross unrealized losses and gains as of January 31, 2002 and 2001 (in thousands). Fair values are based on quoted market prices obtained from the Company's broker. All of the Company's short-term investments are classified as available for sale, since the Company intends to sell them as needed for operations. All of the Company's short-term investments mature in fiscal 2003.
Unrealized Unrealized
Loss on Gain on
Invest- Invest- Market
Cost ment ment Value
--------- ---------- ---------- ---------
January 31, 2002:
Corporate debt securities.. $930 $0 $13 $943
========= ========== ========== =========
January 31, 2001:
Corporate debt securities.. $4,879 $0 $28 $4,907
========= ========== ========== =========
3. INVENTORIES
Inventories at January 31 consist of (in thousands):
2002 2001
---------- ----------
Raw materials................................. $1,568 $3,635
Work in process............................... 1,338 2,325
Finished goods................................ 1,576 2,199
---------- ----------
Inventories - net............................. $4,482 $8,159
========== ==========
4. EQUIPMENT
Equipment at January 31 consists of (in thousands):
2002 2001
---------- ----------
Computers and test equipment.................. $4,387 $4,299
Furniture and fixtures........................ 654 622
Other......................................... 119 101
---------- ----------
Total......................................... 5,160 5,022
Accumulated depreciation and amortization..... (4,329) (3,676)
---------- ----------
Equipment - net............................... $831 $1,346
========== ==========
At January 31, 2002 and 2001, equipment with a net book value of $361,000 and $671,000 (net of accumulated amortization of $1,118,000 and $808,000, respectively), has been leased under capital leases.
5. ACCRUED LIABILITIES
Accrued liabilities at January 31 consist of (in thousands):
2002 2001
---------- ----------
Accrued salary and benefits................... $509 $539
Other accrued liabilities..................... 827 909
---------- ----------
Total......................................... $1,336 $1,448
========== ==========
6. BANK LINES OF CREDIT
The Company has $12,000,000 outstanding at January 31, 2002 under a $12,000,000 bank line of credit that expires in October 2002, bears interest at the U.S. Treasury Bill rate (1.48% at January 31, 2002) plus 0.85%, and is collateralized by funds on deposit in accounts which have been assigned to the lender and included in the Company's consolidated balance sheet as of January 31, 2002 as restricted cash.
The Company also has a $6,000,000 bank line of credit that expires in October 2002, and is collateralized by the Company's accounts receivable, inventories, equipment and intangibles. The Company has $178,000 of standby letters of credit outstanding as of January 31, 2002 under the same bank line of credit. Borrowings under this line of credit are generally limited to maximum 70% of eligible accounts receivable (as defined). Availability to utilize this $6,000,000 bank line of credit is dependent on the Company's ability to maintain compliance with covenants under the amended bank line of credit agreement.
The line of credit agreement contains certain covenants that, among other things, require the Company to maintain certain levels of tangible net worth plus subordinated debt (Tangible Net Worth). At January 31, 2002, the Company was required to maintain Tangible Net Worth of at least $11,500,000 and was not in compliance with this covenant. In April 2002, the Company obtained a modification to the line of credit agreement to amend this covenant to $10,500,000.
7. SHAREHOLDERS' EQUITYPreferred Stock
At January 31, 2000, warrants to purchase 64,285 shares of the Company's common stock issued in connection with the issuance of Series A nonvoting cumulative preferred stock were outstanding. The warrants were exercisable at $5.16 per share beginning in January 1998 and expired in fiscal 2001.
During fiscal 1999, the Company issued 5,000 shares of Series B nonvoting convertible preferred stock for $1,000 per share and warrants to purchase 50,000 shares of the Company's common stock. The warrants are exercisable at $5.16 per share and expired on April 30, 2001.
During fiscal 1999, the Company issued 1,900 shares of Series C nonvoting convertible preferred stock for $1,000 per share and warrants to purchase 95,000 shares of the Company's common stock at $5.16 per shares. In fiscal 2001 and 2000, warrants to purchase 5,000 and 40,000 shares of the Company's common stock were exercised for proceeds of approximately $26,000 and $207,000 respectively. The unexercised warrants expired in fiscal 2001.
Common Stock
The Company's common shareholders' rights agreement expired in fiscal 2000.
During fiscal year 2002, the Company increased the number of authorized shares of common stock by 15,000,000 shares from 20,000,000 to a total of 35,000,000 shares.
The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the periods presented (in thousands, except per-share data):
Years Ended January 31,
--------------------- ---------
2002 2001 2000
--------- --------- ---------
Numerator:
Net income (loss) available to
common shareholders, basic
and diluted......................... $ (10,392) $ (6,868) $ 2,263
--------- --------- ---------
Denominator:
Weighted average common shares
outstanding........................ 16,318 16,305 15,784
Weighted average common shares
outstanding subject to repurchase.. (1) (43) (56)
--------- --------- ---------
Shares used in computation, basic....... 16,317 16,262 15,728
Effect of dilutive securities:
Common shares subject to repurchase... -- -- 56
Stock options......................... -- -- 1,876
Warrants.............................. -- -- 44
--------- --------- ---------
Shares used in computation, diluted..... 16,317 16,262 17,704
--------- --------- ---------
Net income (loss) per share:
Basic................................. $ (0.64) $ (0.42) $ 0.14
========= ========= =========
Diluted............................... $ (0.64) $ (0.42) $ 0.13
========= ========= =========
The Company excluded certain potentially dilutive securities in fiscal 2002 and 2001 from its dilutive EPS computation because either the exercise price of the securities exceeded the average fair values of the Company's common stock or the Company had net losses, and, therefore, these securities were antidilutive.
A summary of the excluded potential dilutive securities as of the end of each fiscal year follows (in thousands):
Years Ended January 31,
--------------------- ---------
2002 2001 2000
--------- --------- ---------
Common shares subject to repurchase..... -- 5 --
Stock options........................... 4,108 3,421 --
Stock warrants.......................... -- 50 --
Stock Option Plan
During fiscal 2002, the Company adopted the 2001 employee stock option plan and reserved 500,000 shares of the Company's Common stock for issuance under the plan, with an automatic annual increase on the first day of the Company's fiscal year equal to the lesser of (i) 1,000,000 shares, (ii) 4% of the Company's outstanding common stock on such date or (iii) a lesser number of shares as determined by the Board of Directors. The annual increases begin in the fiscal year beginning February 1, 2002. The Company's 1994 stock option plan provides for the granting of options to purchase up to 4,400,000 shares of common stock. Generally, the 1994 and 2001 plans provide for the granting of options to purchase shares of common stock at the fair market value on the date of grant. Options granted under the 1994 and 2001 plans become exercisable over a five-year period and expire no more than ten years from the date of grant (all options outstanding at January 31, 2002 expire ten years from date of grant).
Stock option activity and balances are summarized as follow:
Weighted
Average
Exercise
Number Price
of Per
Shares Share
----------- ----------
Balances, February 1, 1999 (1,090,538
exercisable at a weighted-average price
of $2.36)..................................... 3,029,895 $2.25
Granted (weighted-average fair value of $4.09).. 335,500 5.70
Canceled........................................ (154,003) 2.40
Exercised....................................... (375,316) 2.23
----------- ----------
Balances, January 31, 2000 (1,360,270
exercisable at a weighted-average price
of $2.37)..................................... 2,836,076 2.65
Granted (weighted-average fair value of $2.59).. 960,500 3.57
Canceled........................................ (278,855) 3.79
Exercised....................................... (96,540) 2.34
----------- ----------
Balances, January 31, 2001 (1,733,336
exercisable at a weighted-average price
of $2.48)..................................... 3,421,181 2.83
Granted (weighted-average fair value of $0.93).. 837,500 1.28
Canceled........................................ (148,887) 2.97
Exercised....................................... (1,825) 1.00
----------- ----------
Balances, January 31, 2002...................... 4,107,969 $2.51
=========== ==========
At January 31, 2002, options to purchase 34,064 shares were available for future grant. Effective at the beginning of fiscal 2003, an additional 655,122 shares resulting from the automatic annual increase of 4% of the Company's outstanding common stock was added to the shares available for issuance under the 2001 plan.
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Number Number
Outstanding Weighted Weighted Exercisable Weighted
at Average Average at Average
Range of Exercise January 31, Remaining Exercise January 31, Exercise
Prices 2002 Life Price 2002 Price
- -------------------- ----------- ----------- ---------- ----------- ----------
$0.09 6,572 0.86 $0.09 6,572 $0.09
$1.00 - $1.25 1,151,716 8.69 $1.16 239,437 $1.01
$1.63 - $2.44 1,469,360 5.52 $2.28 1,312,565 $2.31
$2.56 - $3.81 986,988 7.07 $3.15 569,884 $3.01
$4.25 - $6.38 493,333 7.75 $5.06 213,580 $5.14
- -------------------- ----------- -----------
$0.09 - $6.38 4,107,969 7.04 $2.51 2,342,038 $2.60
==================== =========== ===========
The Company uses the intrinsic value method specified by APB No. 25 to calculate compensation expense associated with issuing stock options and, accordingly, has recorded no such expense through January 31, 2002 as such issuances have been at the fair value of the Company's common stock at the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of fiscal 1996. Under SFAS No. 123, the fair value of stock- based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions for fiscal 2002, 2001 and 2000, respectively: expected life, 18, 18 and 19 months following vesting; stock volatility, 104%, 100% and 97%; risk free interest rates, 4.67%, 4.84% and 5.5%; and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of awards had been amortized to expense over the vesting period of the awards, pro forma net income (loss) available to common shareholders would have been (in thousands, except per share amounts):
Years Ended January 31,
--------------------- ---------
2002 2001 2000
--------- --------- ---------
Net income (loss) available to
common shareholders:
As reported......................... $ (10,392) $ (6,868) $ 2,263
========= ========= =========
Pro forma........................... $ (11,635) $ (8,317) $ 1,279
========= ========= =========
Net income (loss) per share
available to common shareholders:
As reported:
Basic............................. $ (0.64) $ (0.42) $ 0.14
========= ========= =========
Diluted........................... $ (0.64) $ (0.42) $ 0.13
========= ========= =========
Pro forma:
Basic............................. $ (0.71) $ (0.51) $ 0.08
========= ========= =========
Diluted........................... $ (0.71) $ (0.51) $ 0.07
========= ========= =========
Employee Stock Purchase Plan
During fiscal 2002, the Company adopted the 2001 Employee Stock Purchase Plan and reserved 100,000 shares of the Company's Common stock for issuance under the plan, with an automatic annual increase on the first day of the Company's fiscal year equal to the lesser of (i) 500,000 shares, (ii) 2% of the Company's outstanding common stock on such date or (iii) a lesser number of shares as determined by the Board of Directors. The Company's 1986 Employee Stock Purchase Plan (1986 ESPP) provided for the sale of up to 300,000 shares of common stock. At January 31, 2001, all shares authorized for issuance under 1986 ESPP had been issued. Under both plans, eligible employees may authorize payroll deductions of up to 10% of their regular base salaries to purchase common stock at 85% of the fair market value at the beginning or end of each six-month offering period. During fiscal 2002, 2001 and 2000, 68,034, 35,144, and 43,254 shares were purchased at an average price of $1.45, $2.34, and $3.45 per share, respectively. At January 31, 2002, 31,966 shares under 2001 Purchase Plan remain available for future purchase. Effective at the beginning of fiscal 2003, an additional 327,561 shares was added to the shares available for issuance under the 2001 purchase plan resulting from the automatic annual increase of 2% of the Company's outstanding common stock.
8. INCOME TAXES
As a result of net losses and net operating loss carryforwards in fiscal 2002, 2001 and 2000, the Company has recorded no material income tax provision for all years presented.
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred taxes are as follows (in thousands):
January 31,
-------------------
2002 2001
--------- ---------
Deferred tax assets:
Net operating losses and tax credit carryforwards.. $25,333 $21,725
Reserves not currently deductible.................. 2,739 2,311
Capitalized research and development expenditures.. 1,027 713
Other.............................................. 153 61
--------- ---------
29,252 24,810
Valuation allowance.................................. (29,252) (24,810)
--------- ---------
Net deferred taxes................................... $ -- $ --
========= =========
SFAS No. 109 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, risks associated with its new product introduction including the dependence on rapid acceptance of new technology, the dependence on development of complimentary software by third parties and other risks, such as technological change in the industry, short product life cycles and reliance on a limited number of suppliers and manufacturing contractors, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not appropriate and, accordingly, has provided a valuation allowance.
Net operating losses and tax credit carryforwards as of January 31, 2002 are as follows (in thousands):
Expiration
Amount Years
--------- --------- ----------
Net operating losses, federal.... $ 57,859 2009 -2021
Net operating losses, state...... 2,635 2002 -2006
Tax credits, federal............. 2,256 2006 -2021
Tax credits, state............... 1,739 -
Net operating losses, foreign.... 5,016 -
Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, the Company's ability to utilize net operating loss and tax credit carryforwards may be limited as a result of such ownership change. Such a limitation could result in the expiration of carryforwards before they are utilized.
The effective tax rate of the Company's provision for income taxes differs from the federal statutory rate as follows (in thousands):
2002 2001 2000
--------- --------- ---------
Computed at 35%................... $ (3,636) $ (2,402) $ 842
State taxes, expiration of net
operating loss carryforwards.... 2 1 226
Valuation allowance............... 3,781 2,550 (1,386)
Other............................. (143) (147) 378
--------- --------- ---------
Total............................. $ 4 $ 2 $ 60
========= ========= =========
9. COMMITMENTS AND LEASES
Leases - The Company's primary facilities are leased under a noncancelable lease which expires in September 2002. Currently, we are in the process of negotiating a five-year lease of an approximately 40,000 square foot facility in Milpitas, California. In addition, the Company leases certain equipment under capital lease arrangements. Future minimum annual payments under capital and operating leases are as follows (in thousands):
Fiscal Year Ending Capital Operating
January 31, Leases Leases
------------------------------- ---------- ----------
2003..................................... $264 $239
2004..................................... 119 --
2005..................................... -- --
---------- ----------
Total minimum lease payments.................. 383 $239
Amount representing interest at a rates ==========
of 7.84% to 10.32%.......................... (26)
----------
Present value of minimum lease payments....... 357
Current portion............................... (244)
----------
Long-term portion............................. $113
==========
Rent expense was $504,000, $482,000, and $448,000 for fiscal 2002, 2001 and 2000, respectively.
Royalties - The Company pays royalties for the right to sell certain products under various license agreements. During fiscal 2002, 2001 and 2000, the Company recorded royalty expense of $85,000, $491,000, and $732,000, respectively.
Benefit Plan- The Company sponsors a 401(k) savings plan in which most employees are eligible to participate. The Plan commenced in fiscal 1994. The Company is not obligated to make contributions to the plan and no contributions have been made by the Company.
10. MAJOR CUSTOMERS
Three domestic customers accounted for 15%, 14% and 11% of net revenues in fiscal 2002, respectively. No domestic customer accounted for more than 10% of net revenues in fiscal 2001 and 2000. During fiscal 2002, no international customers accounted for more than 10% of net revenues. During fiscal 2001, three international customers accounted for 15%, 14% and 11% of net revenues, respectively. During fiscal 2000, two international customers accounted for 26% and 13% of net revenues, respectively.
11. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), which is displayed in the Consolidated Statements of Shareholders' Equity, represents net income (loss) available to common shareholders plus the results of certain shareholders' equity changes not reflected in the Consolidated Statements of Operations.
The components of accumulated other comprehensive income (loss) are as follows (in thousands):
Total
Accumulated
Unrealized Other
Accumulated Holding Comprehensive
Translation Gains/ Income/
Adjustment (Losses) (Loss)
----------- ---------- ------------
Beginning Balance, February 1, 1999. $ -- $ -- $ --
Current Year Change................. -- 142 142
----------- ---------- ------------
Ending Balance, January 31, 2000.... -- 142 142
Current Year Change................. 26 (114) (88)
----------- ---------- ------------
Ending Balance, January 31, 2001.... 26 28 54
Current Year Change................. (8) (15) (23)
----------- ---------- ------------
Ending Balance, January 31, 2002.... $ 18 $ 13 $ 31
=========== ========== ============
12. SEGMENT AND GEOGRAPHICAL INFORMATION
As discussed in Note 1, the Company follows the requirements of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." The Company's operating segments consist of its geographically based entities in the United States, Hong Kong and France. All such operating entities segments have similar economic characteristics, as defined in SFAS No. 131, and accordingly, the Company operates in one reportable segment: the development, manufacturing and marketing of multimedia computer devices and products.
For the years ended January 31, 2002, 2001 and 2000, the Company recorded sales to customers throughout the United States and Canada, Taiwan, Hong Kong, Singapore, Japan; Germany, Belgium, Denmark, Finland, The Netherlands, Norway, Sweden, The United Kingdom, France, Italy, Spain (collectively referred to as "Europe"); Korea, China, Thailand, New Zealand, Turkey, Israel and South Africa (collectively "Rest of Asia/New Zealand/Other Region")
The following table summaries total net revenues and long-lived assets attributed to significant countries as of and for the fiscal years ended January 31 (in thousands):
2002 2001 2000
--------- --------- ---------
Net revenues:
United States.......................... $ 7,750 $ 10,241 $ 16,535
Europe................................. 2,401 1,574 4,114
Taiwan................................. 1,298 5,469 15,021
Rest of Asia/New Zealand/Other Region.. 887 997 2,021
Hong Kong.............................. 811 2,916 2,754
Japan.................................. 191 3,330 1,375
Singapore.............................. 87 4,933 8,208
Canada................................. 12 16 296
--------- --------- ---------
Total net revenues*...................... $ 13,437 $ 29,476 $ 50,324
========= ========= =========
Long-lived assets:
United States.......................... $ 807 $ 1,331 $ 1,218
Hong Kong.............................. 16 -- 4
France................................. 8 15 21
--------- --------- ---------
Total long-lived assets.................. $ 831 $ 1,346 $ 1,243
========= ========= =========
* Net revenues are attributed to countries based on invoicing location of customer.
13. SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)
The follow table presents unaudited quarterly financial information for each of the Company's last eight quarters (in thousands, except per share data).
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Year ended January 31, 2002:
Net revenues........................... $ 3,222 $ 2,982 $ 3,416 $ 3,817
Income (loss) from operations.......... (2,674) (2,713) (1,703) (2,581)
Net income (loss) available to common
shareholders......................... (2,614) (2,610) (1,666) (3,502)
Net income (loss) per share available
to common shareholders:
Basic................................ $ (0.16) $ (0.16) $ (0.10) $ (0.21)
Diluted.............................. $ (0.16) $ (0.16) $ (0.10) $ (0.21)
Year ended January 31, 2001:
Net revenues........................... $ 10,401 $ 10,663 $ 5,479 $ 2,933
Income (loss) from operations.......... 101 419 (795) (6,958)
Net income (loss) available to common
shareholders......................... 189 482 (665) (6,874)
Net income (loss) per share available to
common shareholders:
Basic................................ $ 0.01 $ 0.03 $ (0.04) $ (0.42)
Diluted.............................. $ 0.01 $ 0.03 $ (0.04) $ (0.42)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance Deductions: Balance
at Write at
Beginning Offs of End of
Classification of Year Additions Accounts(1) Year
- ----------------------------- ------------ ----------- ------------ -----------
(in thousands)
Allowance for returns and
doubtful accounts, price
protection, and sales
returns:
Year ended January 31,
2002...................... $2,124 $60 $520 $1,664
2001...................... 414 2,152 442 2,124
2000...................... 3,306 274 3,166 414
Inventory reserves:
Year ended January 31,
2002...................... $4,091 $1,398 $21 $5,468
2001...................... 3,215 1,941 1,065 4,091
2000...................... 1,943 1,350 78 3,215
____________________
(1) Amount written off, net of recoveries for accounts receivable.
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
- -------- -----------------------------------------------------------
2.1(7) Agreement and Plan of Reorganization by and among the Registrant,
Sigma Acquisition Corporation and Active Design Corp. dated as of
April 23, 1996.
3.1(1) Second Restated Articles of Incorporation, as amended.
3.2(12) Certificate of Amendment to the Second Restated Articles of
Incorporation dated June 22, 2001.
3.3(8) Certificate of Determination of Preferences of Series A Preferred
Stock.
3.4(9) Certificate of Determination of Preferences of Series B Preferred
Stock.
3.5(10) Certificate of Determination of Preferences of Series C Preferred
Stock.
3.6(2) Bylaws of Registrant, as amended.
4.1(10) Form of Subscription Agreement by and between the Company and the
purchasers of the Series C Preferred Stock and warrants.
4.2(10) Form of Registration Rights Agreement by and between the Company
and the purchasers of the Series C Preferred Stock and warrants.
4.3(10) Form of Stock Purchase Warrant.
10.1(3) Distribution Agreement dated September 10, 1985.
10.2(4) Registrant's 1986 Employee Stock Purchase Plan, as amended, and
form of Subscription Agreement.
10.6(13) Sublease between the Registrant and Sun Microsystems, Inc.
10.7(5) Registrant's 1994 Stock Plan and form of Stock Option Agreement.
10.8(6) Registrant's 1994 Director Stock Option Plan and form of Director
Option Agreement.
10.9(11) Registrant's 1995 Business Loan Agreement with Silicon Valley
Bank, as amended.
10.10(12)Registrant's 2001 Employee Stock Option Plan.
10.11(12)Registrant's 2001 Employee Stock Purchase Plan and Form of
Subscription Agreement.
10.12(14)Registrant's 2001 Loan and Security Agreement with Silicon Valley
Bank, as amended
23.1 Independent Auditors' Consent.
24.1(14) Power of Attorney (See page 25).
(1) Incorporated by reference to exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 31,
1988.
(2) Incorporated by reference to exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 31,
1989.
(3) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-4131) filed March 19,
1986, Amendment No. 1 thereto filed April 28, 1986 and Amendment
No. 2 thereto filed May 15, 1986, which Registration Statement
became effective May 15, 1986.
(4) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (No. 333-61549) filed August
14, 1998.
(5) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (No. 33-81914) filed July 25,
1994.
(6) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-3 (No. 33-74308) filed on January
28, 1994, Amendment No. 1 thereto filed February 24, 1994,
Amendment No. 2 thereto filed March 3, 1994, Amendment No. 3
thereto filed March 4, 1994 and Amendment No. 4 thereto filed
March 8, 1994.
(7) Incorporated by reference to exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 31,
1996.
(8) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-3 (No. 333-33147) filed on August
7, 1997.
(9) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-3 (No. 333-47835) filed on March
12, 1998.
(10) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-3 (No. 333-77595) filed on
May 3, 1999.
(11) Incorporated by reference to exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 31,
1998.
(12) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (No. 333-64234) filed on June
29, 2001.
(13) Incorporated by reference to identically numbered exhibits to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999.
(14) Incorporated by reference to identically numbered exhibits to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 2, 2002.