<PAGE>
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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 March 31, 1999
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 0-23107
FAROUDJA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 77-0444978
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
750 PALOMAR AVENUE, SUNNYVALE, CA 94086
------------------------------------------------------------
(Address of Principal Executive Offices, including zip code)
(408) 735-1492
----------------------------------------------------
(Registrant's telephone number, including area code)
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 May 12, 1999, there were 12,242,597 shares of Common Stock ($.001 par
value per share) outstanding.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION...................................................................................1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)......................................................................1
CONDENSED CONSOLIDATED BALANCE SHEETS...........................................................................1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME.....................................................................2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................................3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999............................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............................................11
PART II. OTHER INFORMATION................................................................................12
ITEM 1. LEGAL PROCEEDINGS....................................................................................12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................12
ITEM 5. OTHER INFORMATION....................................................................................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................................................12
SIGNATURES.......................................................................................................13
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FAROUDJA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited) (Note)
----------------------- -----------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $20,301 $20,419
Accounts receivable, net 1,844 1,764
Inventories 3,272 3,348
Deferred tax assets - 738
Prepaid expenses and other current assets 345 441
-------- --------
Total current assets 25,762 26,710
Property and equipment, net 1,637 1,778
Other assets 206 233
-------- --------
Total assets $27,605 $28,721
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,011 $1,125
Accrued compensation and benefits 464 587
Income tax payable 515 -
Other current liabilities 495 511
-------- --------
Total current liabilities 2,485 2,223
Commitments
Stockholders' equity
Preferred Stock, par value $0.001 per share:
Authorized - 5,000 shares; none issued and
outstanding - -
Common Stock, par value $0.001 per share:
Authorized - 50,000 shares; Issued and outstanding -
12,243 shares at March 31, 1999 and 12,205 shares at
December 31, 1998 12 12
Additional paid-in capital 30,114 30,027
Deferred compensation (161) (173)
Retained earnings (accumulated deficit) (4,845) (3,368)
--------- ---------
Total stockholders' equity 25,120 26,498
-------- ---------
Total liabilities and stockholders' equity $27,605 $28,721
======== =========
</TABLE>
Note - The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
1
<PAGE>
FAROUDJA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1999 1998
-------------------- ----------------
<S> <C> <C>
Revenues:
Product sales $2,435 $2,608
License and royalty revenues - 750
-------- -------
Total revenues 2,435 3,358
Cost of product sales 1,585 1,104
-------- -------
Gross profit 850 2,254
Operating expenses:
Research and development 1,090 1,077
Sales and marketing 792 752
General and administrative 676 690
-------- -------
Total operating expenses 2,558 2,519
-------- -------
Operating loss (1,708) (265)
Other income, net 230 278
-------- -------
(Loss) income before provision for
income taxes (1,478) 13
Provision for income taxes - 5
-------- -------
Net (loss) income ($1,478) $8
======== =======
Net (loss) income per share:
Basic ($0.12) $0.00
Diluted ($0.12) $0.00
Number of shares used in per share computation:
Basic 12,167 12,079
Diluted 12,167 12,766
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
FAROUDJA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------------ ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $(1,478) $ 8
Adjustment to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 217 168
Amortization of deferred compensation 12 3
Changes in operating assets and liabilities:
Accounts receivable (80) 77
Inventories 76 (179)
Income taxes receivable 738 -
Prepaid expenses and other current assets 96 198
Accounts payable (114) (773)
Accrued compensation and benefits (123) (692)
Income tax payable 515 (198)
Other accrued liabilities (16) (222)
--------- --------
Net cash used in operating activities (157) (1,610)
Cash Flows from Investing Activities:
Purchases of equipment (48) (168)
Maturities of short-term investments - (3)
Other assets - 14
--------- --------
Net cash used in investing activities (48) (157)
Cash Flows from Financing Activities:
Issuance of Common Stock 87 90
--------- --------
Net cash provided by financing activities 87 90
Decrease in cash and cash equivalents (118) (1,677)
Cash and cash equivalents at beginning of period 20,419 23,272
--------- --------
Cash and cash equivalents at end of period $20,301 $21,595
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FAROUDJA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For
further information, reference is made to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
NOTE B - INVENTORIES
Raw materials, work-in-process and finished goods inventories are stated at
the lower of standard cost (which approximates actual cost) or market value.
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------- ----------------------
<S> <C> <C>
Raw materials $ 852 $1,072
Work-in-process 1,184 1,048
Finished goods 1,236 1,228
------ ------
$3,272 $3,348
====== ======
</TABLE>
4
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NOTE C - NET INCOME (LOSS) PER SHARE
Basic net income per share is computed using the weighted average number of
shares of Common Stock outstanding during the period. Diluted net income per
share also gives effect to the dilutive effect of stock options and warrants
(using the treasury stock method). A reconciliation of shares used in the
calculation follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------------------
<S> <C> <C>
Weighted average shares outstanding 12,167 12,079
Dilutive effect of stock options and warrants - 687
---------- ----------
Weighted average shares used in diluted net
income per share 12,167 12,766
========== ==========
</TABLE>
Options and warrants to purchase 1,991,905 shares of the Company's common
stock would have been anti-dilutive for the three month period ended March
31, 1999 and were, therefore, excluded from the diluted calculation in such
period.
NOTE D - INCOME TAXES
The Company did not recognize an income tax benefit on its pre-tax loss for
the quarter ended March 31, 1999, due to the uncertainties related to the
utilization of the resulting net operating loss. During the quarter ended
March 31, 1998, the Company's effective tax rate was 38%. FAS 109 provides
for the recognition of deferred tax assets if realization of such assets is
more likely than not. Based on the weight of available evidence, the Company
has provided a full valuation allowance against its deferred tax assets. The
Company will continue to evaluate the realization of the deferred tax assets
on a quarterly basis.
NOTE E - SIGNIFICANT CUSTOMERS
Total revenues from one customer accounted for 12.2% and 5.5% of revenues for
the three months ended March 31, 1999 and 1998, respectively. Additionally,
royalty revenues from S3 Incorporated ("S3") represented 22.3% of revenues in
the first quarter of 1998. There were no revenues from S3 for the same
quarter of 1999.
NOTE F - COMPREHENSIVE INCOME (LOSS)
Comprehensive loss approximated net loss for the three months ended March 31,
1999 and comprehensive income approximated net income for the three months
ended March 31, 1998.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CONCERNING THE COMPANY'S
PRODUCTS, EXPENSES, REVENUE, LIQUIDITY AND CASH NEEDS AS WELL AS THE
COMPANY'S PLANS AND STRATEGIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS ARE
BASED UPON CURRENT EXPECTATIONS. THE COMPANY'S ACTUAL RESULTS AND TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THE DESCRIPTIONS IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE
SET FORTH BELOW. PLEASE REFER TO THE COMPANY'S SEC REPORTS, INCLUDING THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998.
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of income expressed as a percentage of total revenues for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product sales 100% 78%
License and royalty revenues - 22
---- ----
Total revenues 100 100
Cost of product sales 65 33
---- ----
Gross margin 35 67
Operating expenses:
Research and development 45 32
Sales and marketing 32 22
General and administrative 28 21
---- ----
Total operating expenses 105 75
---- ----
Operating loss (70) (8)
Other income 9 8
---- ----
Income (loss) before provision for income taxes (61) 0
Provision for income taxes 0 0
---- ----
Net income (loss) (61)% 0%
---- ----
</TABLE>
Total revenues for the first quarter of 1999 were approximately $2.4 million,
a decrease of approximately $0.9 million, or 27%, from total revenues of
approximately $3.4 million for the first quarter of 1998. This revenue
decrease for the quarter as compared to the prior year was due primarily to
two factors. First, S3's decision to discontinue royalty payments necessary
to maintain S3's exclusive license rights with respect to any periods after
March 31, 1998, resulted in a decrease in royalty revenues for the first
three months of 1999 of $0.8 million. Second, revenues from line multiplier
sales were down from the prior year period. The decrease in line multiplier
revenues was primarily due to lower selling prices for most of the Company's
6
<PAGE>
line multiplier products. Specifically, in the low end of the line multiplier
product family, line doublers faced heavy competition from other
manufacturers' line processors and from certain projector manufacturers that
built line doublers into their projectors. The Company reduced the prices of
its lower end line multipliers in the third quarter of 1998. As a result,
unit volumes for line multiplier products increased in the period ended March
31, 1999 over the period ended March 31, 1998, but revenues from these
products declined from the prior year period. In subsequent quarters of 1999,
the Company anticipates that sales of line multiplier products will increase
slightly from the first quarter of 1999, both in unit volumes and revenues,
but represent a lower percentage of total sales.
Sales of Digital Format Translators-TM- were lower in the first quarter of
1999 than in the last two quarters of 1998. Television broadcasters, the
initial customers for these products, are rolling out HDTV more slowly than
had been expected. Sales of broadcast equipment, specifically Digital Format
Translator products, are expected to increase in the second and third
quarters of 1999 with the continued rollout of HDTV broadcasting in the USA.
The Company continues to pursue new licensing opportunities, but there can be
no assurance that the Company will enter into additional license agreements.
The Company anticipates that revenues in subsequent quarters of 1999 will be
higher than revenues in the first quarter of 1999.
Sales outside the United States accounted for approximately 20% and 18% of
net product sales for the first quarter of 1999 and 1998, respectively. The
Company intends to pursue efforts to increase its export sales in the future,
however, there can be no assurance that any growth in export sales will be
achieved. All sales are denominated in U.S. dollars. However, the Company's
export sales are subject to risk in the event of changes in currency exchange
rates, which may result in the Company's products being less price
competitive.
The Company's gross margin as a percentage of net sales decreased to 35% for
the first quarter of 1999 from 67% in the first quarter of 1998. The year
over year first quarter margin was most negatively affected by the lack of
high margin licensing revenue from S3. Also, the margin percentage decreased
due to the price reductions in the Company's line multiplier products. During
the first quarter of 1999, the Company introduced the InFocus-Registered
Trademark- LS700-TM- LCD projector for large screen television applications.
This product introduction included discounts for dealers that also resulted
in the Company achieving lower gross margins. The Company expects its gross
margins as a percentage of sales to increase in future quarters due to the
improved mix of higher margin broadcast product sales and the introduction of
new enhanced line multiplier products.
Research and development expenses remained constant at $1.1 million for the
first quarter of 1999 and 1998. The Company expects that research and
development expenses will increase in absolute dollars during the remaining
quarters of fiscal 1999.
Sales and marketing expenses were $.8 million for both the first quarter of
1999 and the first quarter of 1998. The Company believes that in absolute
dollars terms, sales and marketing expenses will increase in the second
quarter of 1999 due to trade show expenses and then run slightly higher than
the first quarter expenses during the second half of fiscal 1999.
7
<PAGE>
General and administrative expenses remained at the same level of $.7 million
for the first quarter of 1999 compared to the first quarter of 1998. The
Company believes that in absolute dollars terms, general and administrative
expenses will remain at levels comparable to the first quarter during the
remainder of fiscal 1999.
Interest and other income/expense was $0.2 million in the first quarter of
1999, down slightly from the first quarter of 1998. This slight decrease in
interest income is due to year over year lower balances of cash and cash
equivalents. The original source of these cash and cash equivalent balances
include the investment of the $15.6 million net proceeds from the Company's
initial public offering completed in October 1997, and the $5 million
investment by S3 in the Company in June 1997.
The Company did not book any tax provisions in the first quarter of 1999 due
to the loss position.
The Company did not recognize an income tax benefit on its pre-tax loss for
the quarter ended March 31, 1999, due to the uncertainties related to the
utilization of the resulting net operating loss. During the quarter ended
March 31, 1998, the Company's effective tax rate was 38%. FAS 109 provides
for the recognition of deferred tax assets if realization of such assets is
more likely than not. Based on the weight of available evidence, the Company
has provided a full valuation allowance against its deferred tax assets. The
Company will continue to evaluate the realization of the deferred tax assets
on a quarterly basis.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company designs and develops products that dramatically improve video
image quality, producing cinema quality images on a wide variety of displays.
The Company is recognized as a world leader in innovative high performance
video processing technologies for markets requiring superior image quality
solutions. These markets currently include HDTV broadcast and large screen
home theater, and are starting to expand into markets being created by new
video display devices such as digital televisions and flat panel displays,
and markets resulting from new applications such as PC/TV convergence. Due to
the relative size of the customers in some of these markets, particularly the
broadcast and PC/TV convergence markets, sales in any one market could
fluctuate dramatically on a quarter to quarter basis.
The Company's operating results have varied in the past and are likely to
vary significantly in the future from period to period as a result of a
number of factors, including the volume and timing of orders received during
the period, fluctuations in the amount and timing of license and royalty
revenues, if achieved, competitive products and technologies, the timing of
new product introductions by the Company and its competitors, demand for, and
market acceptance of, the Company's products, product line maturation, the
impact of price competition on the Company's average selling prices, delays
encountered by the Company's strategic partners, the availability and pricing
of components for the Company's products, changes in product or distribution
channel mix and product returns or price protection charges from customers.
Many of these factors are beyond the Company's control. In addition, due to
the short product life cycles that characterize the markets for the Company's
products, the Company's failure to introduce new, competitive products
consistently and in a timely manner could materially adversely affect
operating results for one or more product cycles. The Company introduced its
new family of
8
<PAGE>
Digital Format Translators in April 1998. There is no assurance as to the
eventual demand for this product, the size of the digital broadcast market,
or that the digital broadcast market will develop in the timeframe currently
mandated by the Federal Communications Commission.
The Company expects that a significant portion of its annual revenues and
profits in the future will depend on strategic relationships. The Company
depends on companies like Vidikron of America, Inc. ("Vidikron") to buy, and
In Focus Systems, Inc. to manufacture, products which incorporate the
Company's technology and a failure by these companies to do so will adversely
affect the Company's total revenues in the future. Vidikron has recently
undergone a change in control. The Company does not know what effect, if any,
this will have on sales to Vidikron.
The Company received quarterly prepaid license fees from S3 to maintain
exclusivity under its license agreement with the Company through March 31,
1998. No prepayments will be made by S3 with respect to any periods after
March 31, 1998. There can be no assurance as to the amount of royalties, if
any, the Company will receive in the future as the Company does not have any
other license agreements in effect pursuant to which it expects to receive
substantial royalties.
The Company's success depends in part on its ability to enhance existing
products and introduce new high technology products. The Company must also
bring its products to market at competitive price levels. Unexpected changes
in technical standards, customer demand and pricing of competitive products
could adversely affect the Company's operating results if the Company is
unable to effectively and timely respond to such changes. The industry is
also dependent to a large extent on proprietary intellectual property rights.
From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
patents, trademarks and other intellectual property rights. Consequently,
from time to time, the Company will be required to prosecute or defend
against alleged infringements of such rights.
The Company intends to increase both engineering and sales and marketing
efforts in the design, development and sale of board and chip level products
while continuing the sale of stand-alone products for the high-end home
theater, industrial and broadcast markets. Consequently, without a
corresponding increase in revenues, net income will be adversely impacted.
The Company's success also depends to a significant extent upon the
contributions of key sales, marketing, engineering, manufacturing, and
administrative employees, and on the Company's ability to attract and retain
highly qualified personnel, who are in great demand. Unless personnel
vacancies are promptly filled, the loss of current key employees or the
Company's inability to attract and retain other qualified employees in the
future could have a material adverse effect on the Company's business,
financial condition and results of operations.
Year 2000
Certain computers, software and equipment with embedded computing capability
recognize only the last two, rather than all four digits of the year in any
date. As a result they may fail to recognize and properly process date
information or otherwise malfunction unless they are reprogrammed or replaced
at the turn of the century (the "Year 2000 Problem"). The Company is
dependent upon computers, software and equipment with embedded computing
capability for
9
<PAGE>
all phases of its operations including production, distribution and
accounting. The Company has developed a plan to determine the impact of the
Year 2000 Problem on its operations. This plan covers an assessment of
internal and external Year 2000 Problems, formal contacts with the Company's
significant suppliers, customers, financial organizations, service providers
and others to determine their Year 2000 readiness, remediation of problems
where found, and a contingency plan for problems which cannot be solved on a
timely or cost-effective basis.
The Company has completed an assessment of the products it designs,
manufactures and distributes and believes that the performance and
functionality of such products will not be affected by Year 2000 Problems.
With regard to internal risks associated with Year 2000 Problems, the Company
recently completed a major upgrade of its main business computer systems,
which replaced a majority of its existing systems, and plans to complete this
system upgrade during the first half of 1999. The system selected is Year
2000 compliant and is expected to eliminate most of the Company's internal
Year 2000 Problems. The Company will test its main operations computer
systems and continue testing other internal systems, including engineering
workstations and desktop computers, for Year 2000 compliance. The Company
intends to address any problems identified immediately and to replace any
deficient element of its systems that cannot be made Year 2000 compliant by
other means. The Company believes that any significant Year 2000 Problems
will be solved by the fourth quarter of 1999. The Company has developed a
contingency plan for its operations activities that involves a full detail
paper backup for its production, purchase order and inventory requirements
for the first six months of the year 2000. While it is not presently possible
to precisely quantify the overall cost of this work, the Company does not
believe that the cost of addressing the Year 2000 Problem, as it relates to
the Company's internal systems, will have a material adverse effect on the
Company's financial position, liquidity or results of operations. The Company
has incurred total costs to date of approximately $70,000 to address Year
2000 Problems and expects that such costs will not exceed an additional
$30,000 for the remainder of 1999.
In addition to the Company's own systems and equipment, the Company relies,
directly and indirectly, on the systems and equipment of its suppliers,
distributors, customers, creditors, financial organizations, utility
companies, telecommunication service companies and other service providers.
Some of these third parties may have Year 2000 Problems outside of the
Company's control that could adversely affect the Company.
There can be no assurance that the Company will identify all of its Year 2000
Problems, resolve its internal Year 2000 Problems on a timely or
cost-effective basis, or be successful in avoiding the impact of business
disruptions which may be experienced by the Company's suppliers, service
providers and other third parties as a result of Year 2000 Problems. Failure
by the Company or third parties doing business with the Company to identify
and resolve Year 2000 problems on a timely basis could have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
In summary, the Company's net sales and operating results in any particular
quarter may fluctuate as a result of a number of factors, including
competition in the markets for the Company's products, delays in new product
introductions by the Company, market acceptance of new products such as the
Digital Format Translator, changes in product pricing, the status of
10
<PAGE>
strategic relationships, material costs or customer discounts, the size and
timing of customer orders, dealer and end-user purchasing cycles, variations
in the mix of product sales, manufacturing delays or disruptions in sources
of supply, economic conditions and seasonal purchasing patterns specific to
the broadcast, display, PC and home theater industries, and risk associated
with year 2000 Problems. The Company's future operating results will depend,
to a large extent, on its ability to anticipate and successfully react to
these and other factors.
Successfully addressing the factors discussed above, which are subject to
various risks discussed in this Form 10-Q report, the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, and other SEC filings, as
well as other factors which generally affect the market for stocks of high
technology companies, will affect the price of the Company's stock and could
cause such stock price to fluctuate over relatively short periods of time.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had approximately $20.3 million of cash and
cash equivalents, and working capital of approximately $23.3 million.
The cash and cash equivalents are predominantly held in three types of cash
investments. The cash equivalents include obligations issued by U.S. federal
agencies, money market funds which subject the Company to limited interest
rate or credit risk, and commercial paper of U.S. corporations with A1/P1
credit ratings.
Cash and cash equivalents at March 31, 1999 declined by $.1 million from the
balances at December 31, 1998. The cash outflow resulting from the operating
loss along with modest changes in several balance sheet accounts, was offset
by the receipt of an income tax refund and modest changes in other balance
sheet accounts.
In April 1998, the Company renewed its bank line of credit. Covenants under
the Company's line of credit require the Company to maintain certain minimum
levels of liquidity, net worth, and financial ratios. No borrowings were made
under the line of credit agreement in either 1999 or 1998. The Company
expects to renew the bank line of credit in the second quarter.
The Company believes that current cash and cash equivalents and available
borrowings are sufficient to fund its operations and meet anticipated capital
requirements for at least the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change in the Company's market risk since
December 31, 1998.
11
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, filed with the Securities and Exchange Commission.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1999.
12
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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.
FAROUDJA, INC.
(Registrant)
By: /s/ R.A. Sheffield
--------------------------------
R.A. Sheffield, Vice President of
Finance and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 17, 1999
-------------------
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT INCLUDED IN ITEM 1 OF FORM 10Q DATED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,301
<SECURITIES> 0
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0
0
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</TABLE>
