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 October 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 October 31, 1995 there were 7,551,959 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 Financial Condition 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
October 31, 1995 and January 31, 1995 ---------- 3
Consolidated Condensed Statements of
Operations Three Months and Nine Months
Ended October 31, 1995 and 1994 ------------ 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended October 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)
October 31, 1995 January 31, 1995
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 535 $ 881
Short term investments 7,562 7,349
Accounts receivable (net) 4,358 11,958
Inventories 2,148 9,736
Prepaid expenses and other 466 1,086
-------- --------
TOTAL CURRENT ASSETS 15,069 31,010
EQUIPMENT - Net 1,013 1,343
OTHER ASSETS 171 1,034
-------- --------
TOTAL $16,253 $33,387
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 5,976 $ 1,710
Accounts payable 2,324 9,333
Accrued liabilities 1,533 1,748
Accrued facilities 524 773
--------- --------
TOTAL CURRENT LIABILITIES 10,357 13,564
ACCRUED FACILITIES - long term 858 1,102
SHAREHOLDERS' EQUITY:
Common stock 38,981 38,820
Accumulated deficit (33,943) (20,099)
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 5,038 18,721
---------- ---------
TOTAL $16,253 $33,387
========== =========
See accompanying notes
SIGMA DESIGNS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended Nine Months Ended
October 31 October 31
1995 1994 1995 1994
------------------ ----------------
NET SALES $ 6,210 $12,312 $19,113 $32,696
COST AND EXPENSES:
Cost of sales 4,230 8,736 20,547 24,225
Sales and marketing 1,661 2,107 6,807 5,877
Research and development 989 1,163 2,967 3,230
General & administrative 555 840 3,380 2,297
Restructuring charges(Recovery) - (517) - (517)
-------- ------- ------- -------
TOTAL COST AND EXPENSES 7,435 12,329 33,701 35,112
INCOME (LOSS) FROM OPERATIONS (1,225) (17) (14,588) (2,416)
INTEREST & OTHER INCOME (EXP.) (23) 24 678 821
-------- ------- ------- ------
NET INCOME (LOSS) $(1,248) $ 7 $(13,910) $(1,595)
======== ======= ======= =======
NET INCOME (LOSS) PER COMMON
AND EQUIVALENT SHARE $ (0.17) $ 0.00 $ (1.85) $ (0.22)
======== ======= ======= =======
Shares used in computation 7,548 7,443 7,524 7,253
======== ======= ======= =======
See accompanying notes
SIGMA DESIGNS, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
October 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($13,910) ($1,595)
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 510 533
Gain on sales of long-term investment (666) (205)
Provision for restructuring costs (517)
Changes in assets and liabilities:
Accounts receivable 7,600 (10,354)
Inventories 7,588 1,054
Prepaid expenses and other 237 (553)
Accounts payable (7,009) 2,976
Accrued liabilities (707) (1,950)
Others (29) -
--------- ---------
Net cash used for operating activities (6,386) (10,611)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (7,562) (10,472)
Maturity of short-term investments 7,412 5,056
Equipment additions (180) (528)
Title development costs 498 -
Sales of long-term investment 1,560 844
Other (115) (218)
--------- --------
Net cash provided by (used for) investing
activities 1,613 (5,318)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold 161 13,128
Payment of E-Motions obligation (see note 5) - (1,626)
Borrowings under lines of credit 4,266 3,099
--------- --------
Net cash provided by financing activities 4,427 14,601
--------- --------
DECREASE IN CASH AND EQUIVALENTS (346) (1,328)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 881 1,808
--------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 535 $ 480
=====================
INTEREST PAID $ 335 $ 56
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 October 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:
October 31, 1995 January 31, 1995
(In thousands)
Finished goods $1,647 $3,787
Work-in process 1,978 4,590
Raw materials 2,423 6,979
Less reserves (3,900) (5,620)
---------- ----------
Total inventories $ 2,148 $9,736
=========== ==========
3. Net income (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. The net loss for the nine months ended October 31, 1995
includes $4.5 million that was accrued in the second quarter
ended July 31, 1995 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; also included in
this loss was $3.9 million that was recorded in the first
quarter ended April 30, 1995 related to the write down of certain
assets of SDIS to net realizable value in connection with the
sale of SDIS' assets and liabilities.
5. In connection with the terms of the agreement for the
July 29, 1993 acquisition of E-Motions, Inc., the Company became
obligated during the quarter ended July 31, 1994 to make a cash
payment of approximately $1.9 million to the former shareholders
and option holders of E-Motions, Inc. and a payment of $1.6 million
of this amount was made on August 22, 1994. See Note 3 to the
Company's consolidated financial statements for the year ended
January 31, 1994.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had a net loss of $1.25 million ($0.17 per share)
on net sales of $6.2 million for the fiscal quarter ended
October 31, 1995 compared to break even results on net sales of
$12.3 million (including $3.0 million related to non-REALmagic
products) for the same quarter in the prior year. The loss for
the quarter was primarily due to the fact that net sales were
below break-even point resulting in gross profits which were not
adequate to cover all operating expenses. Sales of multimedia
products represented 100% of net sales as compared with 77% for
the same quarter last year. The Company's international sales
represented 75% of net sales in the third fiscal quarter ended
October 31, 1995 as compared with 34% in the comparable quarter
of the prior year. The increase in the percentage of international
sales was primarily due to the continued stronger market acceptance
of REALmagic products in Asia as compared to domestic markets.
Sales to three international customers accounted for 13%, 13% and
17% of net sales each in the fiscal quarter ended October 31, 1995.
As part of the new strategic direction of selling chipsets to add-on
card and computer manufacturers, the Company announced in October
that the REALmagic Pro chipset will be available in January 1996.
This chipset will enable other companies to manufacture 100% OM-1
and REALmagic compatible MPEG playback cards that will be capable
of playing the growing number of MPEG titles on the market.
In addition, in early November 1996, the Company released the
REALmagic Explorer chipset, which will allow OEM customers to build
type II ZV-port compatible PCMCIA cards for MPEG-1 video and audio
playback and thus bring MPEG technology to notebook computers for
the first time. The new strategic direction is expected to
significantly broaden the Company's customer base and enhance the
Company's position as the leading supplier of interactive digital
video for PC.
The Company's gross margin as a percentage of net sales for
the quarter ended October 31, 1995 increased to 31.9% from 29.0% in
the same period of the prior year. The increase was primarily
due to a change in product mix and the sale of certain REALmagic
products which had been reserved in previous quarters.
Sales and marketing expenses decreased by $446,000 (21.2%) in the
quarter ended October 31, 1995 as compared to the corresponding period
of the prior year. Most of the decrease was due to the reduction in
headcount and lower advertising and promotion expenses resulting from
a more focused marketing strategy. Research and development expenses
for the quarter ended October 31, 1995 decreased by $174,000 (15.0%)
as compared to the same period of the prior year. General and
administrative expenses for the third fiscal quarter ended October 31,
1995 decreased by $285,000 (33.9%) as compared to the same corresponding
period of the prior year. The decreases in research and development
and in general and administrative expenses were both primarily due
to reductions in costs related to the sale of SDIS.
Interest and other expense of $23,000 was a net number which includes
$81,000 of interest income from short term investments.
FINANCIAL CONDITION
The Company had cash and equivalents and short term investments of
$8.1 million at October 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, proceeds from previous stock
offerings and borrowings under lines of credit. 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.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's quarterly results have in the past and may be in the
future vary due to a number of factors, including but not limited to
new products introduction by the Company and its competitors; market
acceptance of the Company's products; shifts in demand for the Company's
products; gains or losses of significant customers; reduction in selling
prices; inventory obsolescence; an interrupted or inadequate supply
of semiconductor chips; the Company's ability to protect its
intellectual properties; a loss of key personnel. Any unfavorable
change in the foregoing or other factors could have a material adverse
effect on the Company's business, financial and results of operations.
Due to the factors noted above, the Company's 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 from the levels anticipated by
securities analysts could have an immediate and significant adverse
effect on the trading price of the Company's Common Stock in any given
period. Additionally, the Company may not learn of such shortfalls
until late in a fiscal quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's
Common Stock. Further, the Company operates in a highly dynamic
industry which often results in volatility of the Company's Common
Stock price.
PART II. OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
During the quarter, the Company file Form 8-K dated July 21, 1995
with the Securities and Exchange Commission dealing with the sale
of assets and liabilities by its subsidiary, Sigma Designs Imaging
Systems, Inc. (SDIS).
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: December 12, 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)