UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------------------
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
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: 0 - 15116
SIGMA DESIGNS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2848099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organozation) Identification No.)
46501 Landing Parkway
Fremont, California 94538
(Address of principal executive offices)
Telephone No. (510) 770 - 0100
-----------------------------------------
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 _______________
As of July 31, 1995 there were 7,535,287 shares of the
registrant's common stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Items 2. Management's Discussion and
Provide the information required Analysis of FinancialCondition and
by Rule 10-01 of Regulation S-X Results of Operations.
(17CFR Part 210) Furnish the information required
by Item 303 of Regulation S-K
(#229.303 of this Chapter).
SIGMA DESIGNS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 : Financial Statements
Consolidated Condensed Balance Sheets
July 31, 1995 and January 31, 1995 ----------- 3
Consolidated Condensed Statements of
Operations Three Months and Six Months
Ended July 31, 1995 and 1994 ------------ 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended July 31, 1995 and 1994 ------- 5
Notes to Consolidated Condensed Financial
Statements ----------------------------- 6
Item 2 : Management's Discussion and Analysis of Financial
Condition and Results of Operations ----------- 7-8
PART II. OTHER INFORMATION
Item 6 : Exhibits and Reports on Form 8-K -------------- 9
Signatures ---------------------------------- 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SIGMA DESIGNS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
July 31, 1995 January 31, 1995
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 8,104 $ 881
Short term investment - 7,349
Accounts receivable (net) 3,984 11,958
Inventories 2,233 9,736
Prepaid expenses and other 486 1,086
-------- --------
TOTAL CURRENT ASSETS 14,807 31,010
EQUIPMENT - Net 1,135 1,343
OTHER ASSETS 208 1,034
-------- --------
TOTAL $16,150 $33,387
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 4,968 $ 1,710
Accounts payable 1,679 9,333
Accrued liabilities 1,684 1,748
Accrued facilities 578 773
--------- --------
TOTAL CURRENT LIABILITIES 8,909 13,564
ACCRUED FACILITIES - long term 994 1,102
SHAREHOLDERS' EQUITY:
Common stock 38,942 38,820
Accumulated deficit (32,695) (20,099)
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 6,247 18,721
---------- ---------
TOTAL $16,150 $33,387
========== =========
See accompanying notes
SIGMA DESIGNS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended Six Months Ended
July 31 July 31
1995 1994 1995 1994
------------------ ----------------
NET SALES $ 4,893 $ 9,344 $12,903 $20,384
COST AND EXPENSES:
Cost of sales 7,518 8,068 16,317 15,489
Sales and marketing 2,756 1,902 5,146 3,772
Research and development 995 1,052 1,978 2,067
General & administrative 461 720 2,825 1,456
-------- ------- ------- -------
TOTAL COST AND EXPENSES 11,730 11,742 26,266 22,784
LOSS FROM OPERATIONS 6,837 2,398 13,363 2,400
INTEREST AND OTHER INCOME 863 728 701 798
-------- ------- ------- ------
NET LOSS $ 5,974 $ 1,670 $12,662 $ 1,602
======== ======= ======= =======
NET LOSS PER COMMON
AND EQUIVALENT SHARE $ 0.79 $ 0.23 $ 1.69 $ 0.22
======== ======= ======= =======
Shares used in computation 7,522 7,411 7,512 7,394
======== ======= ======= =======
See accompanying notes
SIGMA DESIGNS, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
July 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($12,662) ($1,602)
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 359 361
Gain on sales of long-term investment (666) (205)
Write off of title development costs 734 -
Changes in assets and liabilities:
Accounts receivable 7,974 (4,851)
Inventories 7,503 2,412
Prepaid expenses and other 102 (131)
Accounts payable (7,654) (1,824)
Accrued liabilities (367) (1,675)
--------- ---------
Net cash used for operating activities (4,677) (7,515)
--------- ---------
INVESTING ACTIVITIES:
Purchase of short-term investments - (9,972)
Maturity of short-term investments 7,412 2,581
Equipment additions (151) (352)
Title development costs (236) -
Sales of long-term investment 1,560 844
Other (65) 61
--------- --------
Net cash provided by(used for)investing
activities 8,520 (6,838)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold 122 13,099
Borrowings under lines of credit 3,258 1,805
--------- --------
Net cash provided by financing activities 3,380 14,904
--------- --------
INCREASE IN CASH AND EQUIVALENTS 7,223 551
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 881 1,808
--------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 8,104 $ 2,359
=====================
INTEREST PAID $ 231 $ 17
INCOME TAXES PAID $ 4 $ -
See accompanying notes
SIGMA DESIGNS,INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Balance sheet information as of January 31, 1995 was
derived from the Company's audited consolidated financial
statements. All other information is unaudited, but in the
opinion of management, includes all adjustments (consisting
only of normal recurring adjustments) necessary to present
fairly the results of the interim period. The results of
operations for the quarter ended July 31, 1995 are not
necessarily indicative of results to be expected for the
entire year.
This report on form 10-Q should be read in conjunction
with the Company's audited consolidated financial statements
for the year ended January 31, 1995 and notes thereto
included in the Form 10-K Annual Report previously filed
with the Commission.
2. Inventories consisted of the following:
July 31, 1995 January 31, 1995
(In thousands)
Finished goods $1,545 $3,787
Work-in process 2,827 4,590
Raw materials 3,005 6,979
Less reserves (5,144) (5,620)
---------- ----------
Total inventories $ 2,233 $9,736
=========== ==========
3. Net loss per share was based on the weighted
average common shares and dilutive common share equivalents.
Common equivalent shares were excluded in periods with
losses as they were anti-dilutive.
4. Interest and other income for the three months ended
July 31, 1995 includes a $886,000 gain from the sale of
investment in Silicon Magic Corporation, a semiconductor
company.
5. The net losses for the three months and six months ended
July 31, 1995 include $4.5 million that was accrued for
obsolete inventories and other related costs in connection
with plans to focus on chip set and OEM sales for the next
generation of REALmagic products. The net loss for the six
months ended July 31, 1995 also includes $3.9 million that
was recorded in the first quarter of fiscal 1996 related to
the write down of certain assets of SDIS to net realizable
value in connection with the sale of SDIS' assets and liabilities.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had a net loss of $6.0 million ($0.79 per share)
on net sales of $4.9 million for the fiscal quarter ended
July 31, 1995 compared to net loss of $1.7 million ($0.23
per share) on net sales of $9.3 million for the same quarter
in the prior year. The loss for the quarter was primarily due
to accruals for obsolete inventories and other costs related to
plan to focus on chip set and OEM sales, and lower than expected
sales. Sales of multimedia products represented 95% of net sales
as compared with 70% for the same quarter last year. Sales of
high-resolution display systems accounted for 5% of net
sales as compared with 14% for the same quarter in the prior
year. Sales to one of domestic retail customer accounted for
15% of net sales in the quarter ended July 31, 1995. The
Company's international sales represented 56% of net sales in
the second fiscal quarter ended July 31, 1995 as compared with
17% in the comparable quarter of the prior year. The increase
in the percentage of international sales was primarily due to
stronger market acceptance of REALmagic products in Asia as
compared to domestic markets. Sales to two international retail
customers accounted for 13% and 15% of net sales each in the
fiscal quarter ended July 31, 1995.
In July, in connection with efforts to reduce operating costs
and focus in the direction of chip set and OEM sales, the Company
reduced its work force by approximately 20%. This effort was
necessary in order for the Company to focus its resources in the
areas where potentials for sustained growth and profitability
exist.
Also in July, the Company announced that its subsidiary, Sigma
Designs Imaging Systems,Inc., sold substantially all of its
assets and liabilities to Sigma Interactive Solutions, Corp.,
a Delaware Company. After the transaction, Sigma Designs no
longer participates in the document image management market;
this is consistent with the Company's corporate objective of
focusing its resources and efforts in the MPEG-based multimedia
market where the Company believes that it will receive the
highest expected return for its investment.
The Company's gross margin as a percentage of net sales for
the quarter ended July 31, 1995 increased to 20.9%
(excluding $3.7 million of inventory reserve which
was included in the cost of goods sold) from 13.7% in the
same period of the prior year. The increase was primarily
due to a change in product mix to include sales of REALmagic
producer which has a higher profit margin.
Sales and marketing expenses increased by $854,000 (44.9%)
in the quarter ended July 31, 1995 as compared to the
corresponding period of the prior year. Most ofthe increase
was due to $734,000 write off of advance royalties that had
been paid to software developers and other costs related to
plans to focus on chip set and OEM sales. Research and
development expenses for the quarter ended July 31, 1995
decreased by $57,000 (5.4%) as compared to the same period of
the prior year. The decrease was due to reduced research and
development efforts on new display systems by SDIS. General
and administrative expenses for the second fiscal quarter ended
July 31, 1995 decreased by $259,000 (36.0%) as compared to the
same corresponding period of the prior year. The decrease was
primarily due to reductions in costs related to the sale of
SDIS, and the reversal of previously established reserves and
accruals for accounts receivable and commitments that were
assumed by the purchaser of SDIS.
Interest and other income of $863,000 primarily consist of a
$886,000 gain from the sale of investment in Silicon Magic
Corporation, a semiconductor company.
FINANCIAL CONDITION
The Company had cash and equivalents and short term investments
of $8.1 million at July 31, 1995, as compared with $ 8.2
million at January 31, 1995. The Company's primary sources of
funds to date have been cash generated from operations and
proceeds from previous stock offerings. The Company requires
substantial funds to continue to develop the market for its
MPEG technology and to take advantage of the opportunities in
this market. The Company believes that its current cash and
cash equivalents, its existing $6.0 million cash-secured line
of credit and a $6.0 million assets-secured line of credit will
be sufficient to satisfy its needs until such time as the
Company begins to generate cash from operations. However, there
can be no assurance that the Company will not require additional
financing, or that required funding will be available on terms
acceptable to the Company. In the event that such financing is
required by the Company but cannot be raised on acceptable terms,
the Company could scale back the levels of investment in the
development of these markets and continue to satisfy its needs
with existing resources for the next twelve months.
PART II. OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
No report on Form 8-K was filed with the Securities and
Exchange Commission during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Date: September 14, 1995 SIGMA DESIGNS,INC.
/S/ Thinh Q. Tran
-----------------------
Thinh Q. Tran
President and Chief
Executive Officer
/S/ Q. Binh Trinh
-----------------------
Q. Binh Trinh
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)