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, 1996
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, 1996 there were 10,172,014 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
Condensed Consolidated Balance Sheets
July 31, 1996 and January 31, 1996 ----------- 3
Condensed Consolidated Statements of
Operations Three Months and Six Months
Ended July 31, 1996 and 1995 ------------ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 31, 1996 and 1995 ------- 5
Notes to Condensed Consolidated 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
July 31, 1996 January 31, 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 83 $ 4,647
Short term investments 12,134 10,966
Accounts receivable (net) 10,117 4,789
Inventories 3,262 2,044
Prepaid expenses and other 526 760
-------- --------
TOTAL CURRENT ASSETS 26,122 23,206
EQUIPMENT - Net 1,156 1,497
OTHER ASSETS 133 140
-------- --------
TOTAL $27,411 $24,843
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 6,646 $ 6,392
Accounts payable 3,890 2,869
Accrued liabilities 1,299 2,066
Accrued facilities 356 418
--------- --------
TOTAL CURRENT LIABILITIES 12,191 11,745
ACCRUED FACILITIES - long term 412 517
SHAREHOLDERS' EQUITY:
Common stock 49,419 47,575
Deferred stock compensation (164) (164)
Shareholder note receivable (80) (80)
Unrealized gain on securities
available for sale 31 19
Accumulated deficit (34,398) (34,769)
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 14,808 12,581
---------- ---------
TOTAL $27,411 $24,843
========== =========
See accompanying notes
SIGMA DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended Six Months Ended
July 31 July 31
1996 1995 1996 1995
------------------ ----------------
NET SALES $10,078 $ 4,893 $18,814 $12,903
COST AND EXPENSES:
Cost of sales 6,484 7,518 12,253 16,317
Sales and marketing 1,442 2,756 2,716 5,146
Research and development 1,055 1,066 2,270 2,049
General & administrative 789 461 1,415 2,825
------- ------- ------ ------
TOTAL COST AND EXPENSES 9,770 11,801(1) 18,654 26,337(2)
------- ------- ------ ------
INCOME (LOSS) FROM OPERATIONS 308 (6,908) 160 (13,434)
INTEREST AND OTHER
INCOME (EXPENSE) 41 863 85 702
------- ------- ------ ------
NET INCOME (LOSS) $ 349 $(6,045) 245 (12,732)
======= ======= ====== ======
NET INCOME (LOSS) PER COMMON
AND EQUIVALENT SHARE $ 0.03 $ (0.80) $ 0.02 $ (1.69)
======= ======= ====== ======
Shares used in computation 11,377 7,522 11,059 7,512
======= ======= ====== ======
Note(1): Includes $4,500 reserves for obsolete inventories and other
costs related to plans to focus on chipset and OEM sales.
Note(2): Includes $3,800 in the first quarter related to the write down
of certain assets of SDIS to net realizable value in connection with the
sales of assets and liabilities of SDIS.
See accompanying notes
SIGMA DESIGNS, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
July 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 245 $ (12,662)
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 259 359
Active Design loss for the month of Feb.,1996 126 -
Gain on sales of long term investment - (666)
Write off of title development costs - 734
Changes in assets and liabilities:
Accounts receivable (5,328) 7,974
Inventories (1,218) 7,503
Prepaid expenses and other 234 102
Accounts payable 1,022 (7,654)
Accrued liabilities (634) (367)
--------- ---------
Net cash used for operating activities (5,294) (4,677)
--------- ---------
INVESTING ACTIVITIES:
Purchase of short-term investments (12,103) -
Maturity of short-term investments 10,947 7,412
Equipment additions (218) (151)
Title development costs - (236)
Sales of long term investment - 1,560
Other 7 (65)
--------- --------
Net cash provided by(used for)investing
activities (1,367) 8,520
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold 1,843 122
Borrowings under lines of credit 254 3,258
--------- --------
Net cash provided by financing activities 2,097 3,380
--------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (4,564) 7,223
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 4,647 881
--------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 83 $ 8,104
=====================
INTEREST PAID $ 242 $ 231
See accompanying notes
SIGMA DESIGNS,INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Balance sheet information as of January 31, 1996 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, 1996 are not
necessarily indicative of results to be expected for the
entire year. All financial information included herein has been
restated to reflect the combined operating results and financial
position of both Sigma Designs and Active Design Corporation
(Active Design) in connection with the merger transaction described
in Note 4, below.
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, 1996 and notes thereto
included in the Form 10-K Annual Report previously filed
with the Commission.
2. Inventories consisted of the following:
July 31, 1996 January 31, 1996
(In thousands)
Finished goods $1,495 $1,497
Work-in process 2,112 1,524
Raw materials 2,109 2,477
Less reserves (2,454) (3,454)
---------- ----------
Total inventories $ 3,262 $2,044
=========== ==========
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. The increase in the number of
shares for the period ended July 31, 1996 was due the common share
equivalents of outstanding options, the shares issued in the private
placement completed in the fourth quarter of fiscal 1996 and the shares
issued in the acquisition of Active Design completed in the second
quarter of fiscal 1997.
4. On May 3, 1996, the Company completed its merger with Active
Design in a transaction accounted for as a pooling of interests.
Active Design's primary activity since inception on May 17, 1995
has been the development of semiconductor chips for use in PC
graphics applications and the establishment of relationships with
potential OEM customers. The pooling-of-interests method of accounting
requires the Company to report financial results as though the
transaction had occurred at the beginning of all periods presented.
Accordingly, the Company's financial information for all periods
reflects the combined financial position and results of operations
of both companies.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had a net income of $349,000 ($0.03 per share) on net
sales of $10,078,000 for the fiscal quarter ended July 31, 1996
compared to a net loss of $6,045,000 ($0.80 per share) on net
sales of $4,893,000 for the same quarter in the prior year. The
prior period net loss included $4,500,000 of accruals for obsolete
inventories and other costs related to plans to focus on chipset
and OEM sales.
Sales of multimedia chipsets represented 56% of net sales as compared
with 3% for the same quarter last year which is consistent with
the Company's plans to focus chipset and OEM sales. Sales to one
domestic customer accounted for 11% while sales to one international
customers accounted for 28% of total net sales respectively in the
quarter ended July 31, 1996. The Company's international sales
represented 63% of net sales in the second quarter of fiscal 1997 as
compared with 56% in the comparable quarter of the prior year.
The increase in percentage of international sales was due primarily to
stronger market acceptance of the Company's multimedia chipsets in Asia.
Sales for the quarter ended July 31, 1996 also included some amounts
of graphics chips that have been under development by Active Design.
The Company's gross margin as a percentage of net sales for the quarter
ended July 31, 1996 increased to 35.7% from -53.6% (21.9% after
excluding $3,700,000 inventory reserves which were included in the cost
of goods sold) reported in the same period of the prior year.
The increase was primarily due to a change in product mix, particularly,
to chipset sales which have higher profit margins.
Sales and marketing expenses decreased by $1,314,000 (47.7%)
as compared to the corresponding period of the prior year.
The decrease was due to a royalty write off in the prior period
and the decision by the Company to focus
less on the retail channels which require more advertising,
promotion and trade show expenses and more on OEM and chipset sales.
Research and development expenses remain at approximately the same level
as compared to the same period of the prior year with the decrease
in Sigma Designs expenses being offset by the addition of expenses
by Active Design. General and administrative expenses increased by
$328,000 (71.1%) as compared to the same corresponding period of the
prior year. The increase in general and administrative costs included
the expenses related to the acquisition of Active Design and also
reflected the impact of the reversal in the corresponding period
of the prior year of amounts that had been accrued in connection with
the sale of SDIS.
During the quarter, Mr. Julien Nguyen, an executive officer of the
Company, was transferred from a full-time to a part-time consulting
basis. In addition, Mr. Nguyen will also continue to serve the Company
in his role as a member of the Board of Directors.
FINANCIAL CONDITION
The Company had cash and short term investments of $12.2 million
at July 31, 1996, as compared with $ 15.6 million at January 31,
1996. The Company's primary sources of funds to date have been
cash generated from operations, proceeds from previous stock
offerings and bank borrowings under lines of credit. The Company
believes that its current cash and short term investments reserve
combined with the availability of funds under its existing cash
and asset-based banking arrangements will be sufficient to satisfy
its needs for the next twelve months. Beyond the next twelve months,
the Company believes that to the extent it does not generate
positive cash flow from operations that it may have to raise
additional capital through either public or private offerings of
its common stock or from additional bank financing.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's quarterly results have been in the past and may be in
the future vary due to a number of factors, including but not limited
to new product introduction by the Company and its competitors;
market acceptance of the Company's products; shift in demand for
the Company's products; gains or losses of significant customers;
reduction in selling prices; inventories obsolescence; an interrupted
or inadequate supply of semiconductor chips; the Company's inability
to protect its intellectual properties or a loss of key personnel.
Any unfavorable change in the foregoing or other factors could have
a material 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 level
anticipated by security 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 shortfall until late in a fiscal quarter, which
could result in 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 filed Form 8-K with the Securities
and Exchange Commission relating to the acquisition of Active Design.
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: August 26, 1996 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)