SEEQ TECHNOLOGY INC, 10-Q, 1995-02-08

SEEQ TECHNOLOGY INC
10-Q, 1995-02-08
SEMICONDUCTORS & RELATED DEVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________

FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended DECEMBER 31, 1994

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: 0-11778
_________________________

SEEQ TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)

DELAWARE 94-2711298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

_________________________

47131 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 226-7400
(Address, including zip code, of Registrant's principal
executive offices and 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 ___

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

COMMON STOCK, $0.01 PAR VALUE 25,818,152
(Class of common stock) (Shares outstanding at

December 31, 1994)

_________________________________________________________________

Page 1 of 19 pages
Exhibit Index on page 16

<PAGE>

SEEQ TECHNOLOGY INCORPORATED
INDEX

PART I. FINANCIAL INFORMATION PAGE

Item 1. Financial Statements

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS -- Three
Months Ended December 31, 1994 and 1993, unaudited . . . 2

CONSOLIDATED CONDENSED BALANCE SHEETS -- December 31, 1994
and September 30, 1994, unaudited. . . . . . . . . . . . 3

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -- Three
Months Ended December 31, 1994 and 1993, unaudited . . . 4

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
unaudited. . . . . . . . . . . . . . . . . . . . . . . 5-8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . .9-14

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . .15-16

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . .17-18

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 19

<PAGE>

<TABLE>

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
<CAPTION>
SEEQ TECHNOLOGY INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

Three months ended

Dec. 31, Dec. 31,
1994 1993
<S> <C> <C>
Revenues $6,180 $5,828
Costs and expenses:
Cost of revenues 4,330 4,728
Research and development 836 740
Marketing, and general and administrative 855 2,059
Restructuring (benefit) and other, net (285) -

Total costs and expenses 5,736 7,527
Income (loss) from operations 444 (1,699)
Interest expense (87) (132)
Interest and other income, net 142 46
Income (loss) before income taxes 499 (1,785)
Provision for income taxes (5) -
Net income (loss) $ 494 $(1,785)
Net income (loss) per share $0.02 $(0.08)
Average common shares and equivalents 25,820 21,803
outstanding
</TABLE>

See notes to consolidated condensed financial statements

<PAGE>

<TABLE>
<CAPTION> SEEQ TECHNOLOGY INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

Dec. 31, Sept. 30,
1994 1994
<S> <C> <C>

Assets

Current assets:
Cash and cash equivalents $1,713 $2,253
Restricted cash 3,000 3,000
Accounts receivable, less allowances 4,519 3,254
Inventories 3,210 2,138
Other current assets 950 950
Total current assets 13,392 11,595
Property and equipment, at cost 9,382 11,214
Less: Accumulated depreciation and amortization (8,211) (9,915)
Property and equipment, net 1,171 1,299
Other assets 4,189 4,413
Total assets $18,752 $17,307

Liabilities and Stockholders' Equity
Current liabilities:
Note payable to bank $3,000 $3,000
Current portion of long-term obligations 526 892
Accounts payable 5,126 3,185
Accrued salaries, wages and employee benefits 822 786
Other accrued liabilities 3,089 2,824
Total current liabilities 12,563 10,687
Long-term obligations 1,621 2,564
Stockholders' equity:
Common stock, $0.01 par value; 40,000,000
shares authorized, 25,818,152 and 25,799,535
shares outstanding 258 258
Additional paid-in capital 117,529 117,511
Accumulated deficit (113,219) (113,713)
Total stockholders' equity 4,568 4,056
Total liabilities and stockholders' equity $18,752 $17,307
</TABLE>

See notes to consolidated condensed financial statements

<PAGE>

<TABLE>
<CAPTION>
SEEQ TECHNOLOGY INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Increase/(Decrease) in cash and cash equivalents, in thousands)

(Unadited)

Three months ended
Dec. 31, Dec. 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 494 $(1,785)
Adjustments to reconcile net income
(loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 184 395
Provision (benefit) for restructuring (285) -
(Gain) on equipment disposal (32) -
Forgiveness of officer loans - 88
Changes in assets and liabilities:
Accounts receivable (1,265) 1,144
Inventories (1,072) (633)
Other current assets - 113
Other assets 224 141
Accounts payable 1,941 (216)
Accrued salaries, wages and employee
benefits 36 (58)
Other accrued liabilities (292) 18
Other long-term obligations (349) 14
Net cash (used for) operating
activities (416) (809)
Cash flows from investing activities:
Capital expenditures, net (57) (207)
Proceeds on disposal of equipment 33 -
Net cash (used for) investing activities (24) (207)
Cash flows from financing activities:
Short-term borrowings - 989
Payments of capital lease obligations (118) (403)
Proceeds from issuance of stock 18 321
Net cash provided by (used for)
financing activities (100) 907
Net income (decrease) in cash and cash
equivalents (540) (109)
Cash and cash equivalents at beginning of
period 2,253 774
Cash and cash equivalents at end of period $1,713 $665

Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 102 $121
</TABLE>

See notes to consolidated condensed financial statements

<PAGE>

SEEQ TECHNOLOGY INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Quarterly Data

The unaudited consolidated condensed interim financial
statements included herein have been prepared by SEEQ Technology
Incorporated ("SEEQ" or the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. These
financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments,
except for those adjustments related to certain restructuring and
other expenses) necessary to present fairly the financial position
and results of operations as of and for the periods indicated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading.

For purposes of presentation, the Company has indicated its
fiscal quarters as ending on December 31, March 31, June 30 and
September 30; whereas, in fact, the Company operates on a 52/53-
week fiscal year ending on the last Sunday in September of each
year. The fiscal quarter ends are actually December 25, March 26,
June 25 and September 24 for fiscal 1995 and December 26, March 27,
June 26, and September 25 for fiscal 1994.

The accompanying consolidated condensed financial statements
should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended September 30, 1994.

The results of operations for the three months ended
December 31, 1994 are not necessarily indicative of the results
expected for the year ending September 30, 1995.

2. Balance Sheet Detail

The following tables set forth the inventories and property
and equipment during the periods indicated:

<TABLE> Dec. 31, Sep. 30,
1994 1994
(in thousands)
<S> <C> <C>
Inventories:
Raw material $ 82 $ 928
Work in process 2,027 1,162
Finished goods 1,101 48
Total inventories $3,210 $2,138

Property and equipment:
Machinery and equipment $6,586 $6,795
Furniture and fixtures 2,601 4,224
Leasehold improvements 195 195
Total property and equipment, at cost 9,382 11,214
Less: Accumulated depreciation and
amortization (8,211) (9,915)
Total property and equipment, net $1,171 $1,299
</TABLE>

<PAGE>

3. Net Income (Loss) Per Share

Net income (loss) per share is computed using the weighted
average number of common shares outstanding and dilutive common
equivalent shares outstanding. Dilutive common equivalent shares
include stock options and warrants using the treasury stock method.

Common equivalent shares that result from the assumed exercise of
stock options and warrants were not included in the calculation of
net loss per share since their effect is antidilutive.

4. Sale of EEPROM Assets and Seeq Common Stock to Atmel

Pursuant to the Asset Purchase Agreement dated February 7,
1994 (the "Asset Purchase Agreement"), by and between SEEQ and
Atmel Corporation ("Atmel"), Atmel purchased the assets of SEEQ
related to its electrically erasable programmable read-only memory
("EEPROM") products (the "EEPROM Asset Sale"). Under the terms of
the Asset Purchase Agreement, Atmel acquired all of SEEQ's rights
in assets related to SEEQ's EEPROM products, including intellectual
property, equipment, inventory and a portion of the accounts
receivable. The purchase price for such assets consisted of
135,593 shares of Atmel's common stock and $481,632 in cash. In
addition, Atmel assumed certain liabilities under equipment leases
for equipment used in producing EEPROM products.

During the third quarter of fiscal 1994, SEEQ sold the 135,593
shares of Atmel common stock it received in the EEPROM Asset Sale
for total proceeds of $5,593,000, reflecting a gain on the sale of
$1,693,000. A significant portion of the proceeds from the stock
sale is currently on deposit in two escrow accounts subject to
claims of indemnity by Atmel under the Asset Purchase Agreement.
One escrow account, containing $600,000 (recorded as other current
assets), is subject to claims by Atmel with respect to the
equipment, inventory and accounts receivable sold to Atmel in the
EEPROM Asset Sale. Atmel asserted a claim for the full amount
deposited in this escrow account. SEEQ notified Atmel that it
disagreed with the claim. On January 30, 1995, the Company entered
into an agreement with Atmel to settle Atmel's claim. Under this
agreement, out of the $600,000 in the escrow account, $250,000 has
been distributed to Atmel and the remaining $350,000 has been
distributed to SEEQ. All interest earned on the funds in such
escrow account has been distributed proportionately between SEEQ
and Atmel. The second escrow account, which originally contained
$4,405,859 (recorded as other assets), is subject to any future
claims that may be made by Atmel with respect to the EEPROM
technology sold to Atmel in the EEPROM Asset Sale. During the
first quarter of fiscal 1995, $300,000 was distributed to SEEQ from
the second escrow account, leaving $4,105,859 on deposit therein.
Atmel has notified SEEQ that, based on certain claims asserted by
Hualon Microelectronics Corporation ("Hualon"), one of SEEQ's
former foundries and joint development partners, that SEEQ
previously granted Hualon certain license rights to the EEPROM
technology, Atmel believes it may be entitled to assert a claim
against this escrow account, although Atmel has not done so to
date. The funds in this escrow account will remain in escrow until
February 1999, or until a determination is made that SEEQ is
entitled to such funds under any release condition in the escrow
agreement, or if Atmel makes a claim prior to February 1999 under
such escrow, then until such claim is resolved by a court.

5. Restructurings

In fiscal 1992, the Company entered into a wafer fabrication
foundry agreement with International Microelectronics Products,
Inc. ("IMP") which allows the Company to perform all of its pre-
production and process development activities at outside foundries.

As a result of the IMP agreement, the Company made a decision to
completely phase out its fabrication operations and close its wafer
manufacturing facility. In fiscal

<PAGE>

1993, certain litigation arose as a result of the Company's
decision to abandon its fabrication facility and the Company
recorded a reserve to offset its exposure. See
"Business-Litigation."

As more fully described in note 4, during the quarter ended
March 31, 1994, the Company sold its assets related to its EEPROM
products to Atmel in the EEPROM Asset Sale.

In connection with the EEPROM Asset Sale and the Company's
decision in the second quarter of fiscal 1994 to discontinue its
end-user Ethernet adapter board product line, the Company adopted a
restructuring plan. The following table summarizes the activities
under this restructuring plan during the quarter ended December 31,
1994 (in thousands):

<TABLE> Increase/(Decrease)

Utilization
Reserve at of Reserve/ Reserve at
Sep. 30, Change in Payments made Dec. 31,
1994 Estimate in the Period 1994
<S> <C> <C> <C> <C>
Facility lease, inventory and other
equipment costs $ (616) $ -- $ (32) $ (648)
EEPROM Asset Sales restructuring:
EEPROM Asset Sale (55) (195) -- (250)
Excess facilities (2,534) 842 663 (1,029)
Discontinued inventories (150) -- 17 (133)
Other costs (292) (329) 47 (574)
(3,031) 318 727 (1,986)
End-user Ethernet adapter board
products write-off:
Other costs -- (33) -- (33)
Total $(3,647) $ 285 $ 695 $(2,667)

</TABLE>

Facility Lease, Inventory and Other Equipment Costs

In the first quarter of fiscal 1995, the Company sold $32,000
of equipment that had been previously written off.

EEPROM Asset Sale Restructuring

In connection with the EEPROM Asset Sale, the Company incurred
certain restructuring costs or realized certain benefits during the
first quarter of fiscal 1995 as follows:

EEPROM Asset Sale. On January 30, 1995, the Company and Atmel
entered into a settlement agreement to settle Atmel's claims made
against the $600,000 escrow previously established. Under the
settlement agreement, $250,000 was distributed to Atmel and the
remaining $350,000 was distributed to the Company. As a result,
the Company recorded $195,000 charge.

<PAGE>

representing the Company's estimate of the difference between the
rent payable by the Company under the lease and the anticipated
rent payable to the Company under a sublease. During the first
quarter of fiscal 1995, the Company sublet the entire facility in
which its headquarters and operations are currently located at a
higher rental rate than previously estimated, and as a result
recorded an $842,000 reduction to its restructuring reserves. The
Company also recorded $663,000 of facility lease payments and
broker fees in connection with the sublease.

Discontinued inventories. As a result of the EEPROM Asset
Sale, the Company discontinued certain inventories, and, in the
first quarter of fiscal 1995, the Company paid $17,000 to a foundry
for inventories.

Other costs. The Company recorded other costs, primarily
reflecting anticipated legal fees in connection with the litigation
against Hualon. The Company also recorded $47,000 of payments to
an outside foundry for memory product process development and lease
payments for certain equipment related to EEPROM products.

End-user Ethernet Adapter Board Products Write-off

During the quarter ended March 31, 1994, the Company
discontinued its end-user Ethernet adapter board product line, and
recorded restructuring costs during the first quarter of fiscal
1995 as follows:

Other costs. The Company recorded as other costs a reserve of
$33,000 reflecting the settlement of certain litigation relating to
end-user Ethernet adapter board products.

<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in conjunction with
the Quarterly Financial Information and Notes thereto and the SEEQ
Technology Incorporated Annual Report and Form 10-K for the fiscal
year ended September 30, 1994.

Overview

During the second quarter of fiscal 1994, the Company sold its
assets related to its electrically erasable programmable read-only
memory ("EEPROM") products (the "EEPROM Asset Sale") to Atmel
Corporation ("Atmel"). Under the terms of the Asset Purchase
Agreement dated February 7, 1994 between SEEQ and Atmel, Atmel
acquired all rights in SEEQ's assets related to EEPROM products,
including intellectual property, equipment, inventory and a portion
of the accounts receivable. The purchase price for such assets
consisted of 135,593 shares of Atmel's common stock and $481,632 in
cash. In addition, Atmel assumed certain liabilities under
equipment leases for equipment used in producing EEPROM products.

<PAGE>

<TABLE> Increase/(Decrease)

</TABLE>

Facility Lease, Inventory and Other Equipment Costs

In the first quarter of fiscal 1995, the Company sold $32,000
of equipment that had been previously written off.

EEPROM Asset Sale Restructuring

In connection with the EEPROM Asset Sale, the Company incurred
certain restructuring costs or realized certain benefits during the
first quarter of fiscal 1995 as follows:

Excess facilities. The Company determined that its current
headquarters' office and manufacturing space was substantially in
excess of the facilities necessary to operate the Company's
continuing business. Since the Company occupies these facilities
under a lease with a remaining term of approximately eight years,
the Company decided to sublease its facilities for the remaining
term of the lease. The Company recorded reserves representing the
Company's estimate of the difference between the rent payable by
the Company under the lease and the anticipated rent payable to the
Company under a sublease. During the first quarter of fiscal 1995,
the Company sublet the entire facility in which its headquarters
and operations are currently located at a higher rental rate than
previously estimated, and as a result recorded an $842,000
reduction to its restructuring reserves. The Company also recorded
$663,000 of facility lease payments and broker fees in connection
with the sublease.

<PAGE>

End-user Ethernet Adapter Board Products Write-off

Other costs. The Company recorded as other costs a reserve of
$33,000 reflecting the settlement of certain litigation relating to
end-user Ethernet adapter board products.

Results of Operations

Revenues

The Company's revenues for the first quarter of fiscal 1995
were $6,180,000, an increase of 6% from $5,828,000 for the first
quarter of fiscal 1994. Since the EEPROM Asset Sale on February 7,
1994, the Company has derived its sales exclusively from the sale
of data communication products. Consequently, there were no EEPROM
sales for the first quarter of fiscal 1995 compared to EEPROM sales
of $2,433,000 for the first quarter of fiscal 1994. Local area
network ("LAN") integrated circuit product sales increased
$818,000, or 25%, to $4,055,000 for the first quarter of fiscal
1995 as compared to the first quarter of fiscal 1994 due to a 41%
increase in unit sales volumes, partially offset by an 11% decrease
in average selling prices. LAN subsystem product sales were
$2,125,000 for the first quarter of fiscal 1995 as compared to
$129,000 for the first quarter of fiscal 1994. The increase in LAN
subsystem product sales for the first quarter of fiscal 1995 was
due solely to shipments of proprietary transceiver products to
Apple Computer, which began in March 1994. The Company has been
notified by Apple Computer that orders for the proprietary
transceiver products will cease in the second quarter of fiscal
1995 as Apple Computer begins manufacturing of its internally
developed product. The Company is actively marketing its LAN
integrated circuits to Apple Computer for the transceiver products
and other data communication applications. The proprietary
transceiver product sales to Apple Computer represented 34% of the
Company's revenues for the first quarter of fiscal 1995. Although
the Company believes that it will be able to substantially replace
such sales with sales of LAN integrated circuits to Apple Computer,
additional sales of the Company's existing product line to other
customers, and sales of new products, there can be no assurance
that the Company will be successful in doing so.

Gross Margins

Gross margins increased for the first quarter of fiscal 1995
to 33% as compared to 19% for the first quarter of fiscal 1994.
The improvement in margins primarily reflects the change in product
mix, as the Company's revenues were attributable to sales of LAN
products during the first quarter of fiscal 1995 as compared to a
combination of both LAN and memory products sold during the first
quarter of fiscal 1994. As a result of the EEPROM Asset Sale in
the second quarter of fiscal 1994, the Company substantially
reduced its work force, reduced its facility requirements and
eliminated its lower margin products during the second quarter of
fiscal 1994. The effect of these actions contributed to improved
economies of scale. Gross margins in future periods will be
affected primarily by sales levels and product mix, average selling
prices, wafer yields, the introduction of new products and
improvements in manufacturing costs.

<PAGE>

Research and Development

Research and development expenditures for the first quarter of
fiscal 1995 increased $96,000, or 13%, to $836,000 due primarily to
engineering materials and contracting expenses associated with the
development of the Company's next generations of LAN integrated
circuits (Fast Ethernet and Asynchronous Transfer Mode), partially
offset by lower payroll costs as a result of the termination of
personnel associated with EEPROM products from the EEPROM Asset
Sale. As a percentage of revenues, research and development
expenditures were 14% for the first quarter of fiscal 1995 compared
to 13% for the first quarter of fiscal 1994. The Company
anticipates that the dollar amount of its research and development
expenditures will be slightly higher in future periods as a result
of increased development efforts on new LAN products.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses for the first
quarter of fiscal 1995 decreased $1,204,000, or 58%, to $855,000
from the first quarter of fiscal 1994. This decrease was
attributable primarily to a decrease in payroll, selling and
administrative expenses after the Company substantially reduced its
work force and terminated operations of sales offices no longer
needed after the EEPROM Asset Sale. As a percentage of revenues,
marketing, general and administrative expenses were 14% for the
first quarter of fiscal 1995 compared to 35% for the first quarter
of fiscal 1994. The Company anticipates that the dollar amount of
its marketing, general and administrative expenses will remain
fairly constant in the near future as increased marketing expenses
associated with the next generations of LAN integrated circuits is
offset with continued efforts to reduce general and administrative
expenses.

Interest Expense

Interest expense has resulted primarily from borrowings under
the Company's credit facility and from leases of capitalized
equipment.

Income Taxes

The Company's estimated effective income tax rate for 1995 is
2%. The estimated effective income tax rate for 1995 is based on
utilization of available net operating loss carryforwards and tax
credits, offset by the alternative minimum tax. The Company did
not record an income tax expense in 1994 due to the operating loss
for the year.

Factors Affecting Future Operating Results

The semiconductor industry is highly cyclical. The industry
is characterized by rapid technological change, fluctuations in
end-user demand and price erosion. Accordingly, a particular
company's operating results may be affected not only by industry-
wide demand, but also by timely introduction of new products,
market acceptance of competitive products, price competition and
the distribution channels for its products. The Company's future
quarterly operating results may also fluctuate as a result of other
Company specific factors, such as price competition for mature
products, growth of the Ethernet LAN segment of the electronics
market and acceptance of the Company's newly introduced products
for that market segment, variation in manufacturing yields for its
products, significant expenditures for new products and process
development, and dependence on certain customer product shipment
demands. With specific reference to customer product shipment
demands, the increase in LAN subsystem product sales for the first
quarter of fiscal 1995 was primarily due solely to shipments of
proprietary transceiver products to Apple Computer which began in
March 1994. The Company has been notified by Apple Computer that
orders for the proprietary transceiver products will cease in the
second quarter of fiscal 1995 as Apple Computer begins
manufacturing of its internally developed product. The

<PAGE>

Company is actively marketing its LAN integrated circuits to Apple
Computer for the transceiver products and other data communication
applications. The proprietary transceiver products shipments
represented 34% of the Company's revenues for the first quarter of
fiscal 1995. The Company cannot predict the long-term future
requirements of this customer with any degree of certainty. Due to
the foregoing and other factors, past results may not be indicative
of future results.

In addition, the securities of many high-technology companies
have historically been subject to extreme price and volume
fluctuations. The Company may be subject to these same
fluctuations which may adversely affect the market price of the
Company's common stock.

Liquidity and Capital Resources

The Company has financed its operations and met its capital
requirements through cash provided by operations, private and
public placements of equity and debt securities, capital leases and
bank lines of credit.

Management believes that existing sources of liquidity,
anticipated cash flow from operations, and borrowings under the
Company's credit facility will be adequate to satisfy its projected
working capital expenditures at least through the end of fiscal
1995. However, there can be no assurance that the Company will
have adequate resources to satisfy such requirements. It may
become necessary for the Company to raise additional funds from
debt and/or equity financing. There can be no assurance that such
funds will be available on terms acceptable to the Company, if at
all.

The Company's cash and cash equivalents balance decreased from
$2,253,000 as of September 30, 1994 to $1,713,000 as of December
31, 1994, primarily from cash used for operating activities and for
payments on capital lease obligations.

In connection with the EEPROM Asset Sale, the Company received
$4,917,000 in proceeds from the issuance and sale of its common
stock to Atmel. In November 1993, the Company entered into a two-
year line of credit agreement with The CIT Group. Although the
Company was not required to make use of the bank line of credit,
during the second quarter of fiscal 1994 it used cash resources to
reduce its effective short-term credit borrowings interest rate by
borrowing the minimum required borrowings of $3,000,000 under a
secured bank line of credit with CIT, and investing the proceeds in
a short-term certificate of deposit. The revolving credit facility
is secured by the assets of the Company and requires the Company to
maintain certain restrictive and financial covenants, including
covenants requiring the Company to maintain working capital of
$750,000 and a net worth of $3,000,000, and prohibiting the Company
from incurring or agreeing to incur capital expenditures of in
excess of $1,200,000 in any fiscal year. The Company is currently
in compliance with such covenants. Interest on borrowings is
payable at the lender's reference prime rate plus 2.25% per annum,
with a minimum quarterly interest charge based on average
borrowings of $3,000,000, and is payable monthly. The credit
facility has an initial term of two years and is subject to renewal
thereafter.

Operating Activities

Cash flows used for operating activities for the first quarter
of fiscal 1995 were $416,000 compared to $809,000 for the first
quarter of fiscal 1994. The decrease in cash flows used by
operating activities was due primarily to the profits generated by
the Company in the first quarter of fiscal 1995 as compared to the
loss incurred in the first quarter of fiscal 1994.

Investing Activities

<PAGE>

Cash flows used for investing activities for the first quarter
of fiscal 1995 were $24,000, reflecting cash invested in property
and equipment acquisitions of $57,000, partially offset by cash
provided by proceeds on disposal of equipment of $33,000. Cash
flows used for investing activities for the first quarter of fiscal
1994 were $207,000 for property and equipment acquisitions. The
Company anticipates an increase in capital expenditures in future
periods associated with test operations and its research and
development activities.

Financing Activities

Cash flows used for financing activities for the first quarter
of fiscal 1995 were $100,000 compared to cash flows provided by
financing activities of $907,000 for the first quarter of fiscal
1994. During the first quarter of fiscal 1995, the Company made
payments on capital lease obligations totalling $118,000, offset
partially by proceeds of $18,000 from the issuance of stock
pursuant to the exercise of stock options. During the first
quarter of fiscal 1994 cash flows provided by financing activities
included an increase of $989,000 in short-term borrowings under a
bank line of credit with The CIT Group and proceeds from issuance
of stock of $321,000. The Company also made payments on capital
lease obligations totaling $403,000 during the first quarter of
fiscal 1994.

<PAGE>

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

On March 30, 1994, the Company filed a lawsuit in the United
States District Court for the Northern District of California
against Hualon Microelectronics Corporation, one of the Company's
former foundries and joint development partners. In the lawsuit,
the Company originally sought injunctive relief from the court to
prevent Hualon from using certain of the nonvolatile memory
technology sold by the Company to Atmel pursuant to the Asset
Purchase Agreement, to which Hualon has asserted certain license
rights under an alleged license agreement. In response to the
Company's claims, Hualon asserted affirmative defenses and
counterclaims seeking a declaration by the court that the alleged
license agreement is valid and seeking specific performance of the
alleged license agreement and other agreements previously entered
into by the two parties. Hualon filed a motion for summary
judgment and the Company's initial claim was subsequently dismissed
by the court. Hualon has subsequently amended its counterclaims to
include additional claims in the proceeding, including claims for
damages for breach of, and for money owed pursuant to, other
agreements between the Company and Hualon. The Company has
subsequently amended its original complaint to include a number of
additional claims against Hualon, including claims for damages for
breach of, and for money owed pursuant to, such other agreements.
Under the terms of one of the escrow agreements entered into with
Atmel in connection with the EEPROM Asset Sale, under which
$4,029,000 is currently on deposit in escrow, the Company will be
entitled to receive such funds if it is determined that the alleged
license agreement is invalid, or, if no such determination is made,
to the extent that any claims made by Atmel that Atmel has suffered
damages as a result of the alleged license agreement are
unsuccessful, if Atmel fails to make a claim to such funds by
February 1999, or as otherwise agreed by the Company and Atmel.
The Company intends to vigorously prosecute its claims in this
lawsuit and to defend the claims made by Hualon. The Company
believes that its claims and defenses in this lawsuit are
meritorious. However, there can be no assurance as to the possible
outcome of this proceeding. In the event that the Company is not
successful in invalidating the alleged license agreement, Atmel may
assert a claim against the Company under the Asset Purchase
Agreement, including a claim for damages, if suffered by Atmel as a
result of Hualon's use of any of such technology, and, in the event
any such claim by Atmel is determined to be valid, Atmel may
recover any such damages from the escrow described above. The
Company believes that, in the event of any claim by Atmel, the
amount of damages that may be payable by the Company upon a
resolution thereof will not have a material adverse effect on the
Company's cash flow, financial position or results of operations.
However, there can be no assurance as to such matters.

On September 4, 1992, an action was filed against the Company
by GOCO Realty Fund I, a previous landlord, for rent and damages
under a lease of the premises previously occupied by the Company.
The Company vacated the premises in July 1992. The claims asserted
in this action were subsequently assigned to Brazos Partners L.P.
("Brazos"). In the action, plaintiff is seeking rent through the
original expiration date of the lease, which was September 9, 1994.

The lease provided for monthly rental payments of $106,142 from
July 1992 through September 1992, $111,449 from October 1992
through September 1993 and $117,021 from October 1993 through
September 1994. In addition, plaintiff is seeking certain
additional rent and specified damages and costs, including
attorneys' fees and court costs incurred in the litigation. In
April 1994, the Company proposed a settlement of this action, and
Brazos indicated such a settlement would be acceptable to Brazos.
The terms of the settlement would provide for the payment by the
Company of $37,500, the issuance by the Company to Brazos of
375,000 shares of its common stock, and the assignment by the
Company to plaintiff of a $360,000 promissory note and the $75,000
security deposit on such premises which are both currently due to
the Company. Since April 1994, the Company has been in the process
of preparing the final settlement agreement and registering the
Shares under the Securities Act. In November 1994, Brazos filed an
additional lawsuit against the Company alleging that Brazos has
incurred certain damages because the Company and Brazos have not
yet entered into a final settlement agreement. The Company
believes that this additional lawsuit is without merit. Promptly
following the date of this Prospectus, the Company plans to enter
into a final settlement of the

<PAGE>

litigation with Brazos. Upon the execution of the settlement
agreement and the fulfillment of the terms thereof, all such
actions and related claims against the Company will be dismissed.
The Company believes that a settlement agreement containing such
terms will be executed and that the terms of such settlement
agreement will be fulfilled by the Company. In the event that such
a settlement agreement were not executed or the terms of such
settlement agreement were not fulfilled by the Company, these
actions would proceed and, in the event the Company were not
successful in these actions and it were determined that the
plaintiff is entitled to recover damages from the Company, the
Company's results of operations and financial conditions would be
materially and adversely affected.

In addition, SEEQ is involved in certain other routine
litigation in the ordinary course of its business. SEEQ is not
involved in any legal proceedings which it believes will have a
material adverse effect on its financial position or results of
operations.

<PAGE>

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Form of Indemnification Agreement with Directors and
Officers (incorporated herein by reference to Registrant's Form 8-B
filed on June 2, 1987).

10.2 Executive Compensation Plans and Arrangements.

10.2.1 Restated Periodic Purchase Plan, as amended
(incorporated herein by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991).

10.2.2 Notice of Periodic Purchase Plan Offerings
(incorporated herein by reference to Registrant's Form S-8
Registration Statement (Registration No. 33-27419) filed on March
7, 1989).

10.2.3 Restated 1982 Stock Option Plan, as amended
(incorporated herein by reference to Registrant's Form S-8
Registration Statement (Registration No. 33-6544) filed on July 2,
1993).

10.2.4 1989 Non-Employee Director Stock Option Plan
(incorporated herein by reference to Registrant's Form S-8
Registration Statement (Registration No. 33-35838) filed on July
11, 1990).

10.2.5 Kodiak Technology Incorporated 1989 Stock Option
Plan, and related Stock Option and Stock Purchase Agreements
(incorporated herein by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1989).

10.2.6 Separation Agreement dated as of October 1, 1993,
between the Company and J. Daniel McCranie.

10.2.7 Separation Agreement dated as of March 4, 1994,
between the Company and Michael E. Villott.

10.3 Build to Suit Lease dated as of October 15, 1982, as
amended ("1982 Lease"), between the Company and David W. Mariani
Investment Partnership dba Mariani Financial Co. (incorporated
herein by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1986).

10.4 Stock Purchase Agreement dated as of July 16, 1990
between the Company and Hualon Microelectronics Corporation
(incorporated herein by reference to Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1990).

10.5 Technology Transfer and Foundry Agreement dated as of
July 16, 1990 between the Company and Hualon Microelectronics
Corporation (subject to confidential treatment) (incorporated
herein by reference to Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1990).

10.6 Business Loan Agreement with Silicon Valley Bank dated as
of August 2, 1991 (incorporated herein by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1991).

<PAGE>

10.7 Amendment to Business Loan Agreement with Silicon Valley
Bank as of February 24, 1993 (incorporated herein by reference to
Registrant's Registration Statement on Form S-1 (Registration No.
33-47985)).

10.8 Warrant Purchase Agreement dated as of August 2, 1991
with Silicon Valley Bank and warrant issued pursuant thereto
(incorporated herein by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991).

10.9 Foundry Agreement dated as of November 15, 1991 between
the Company and International Microelectronic Products Inc.
(subject to request for confidential treatment) (incorporated
herein by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1991).

10.10 Loan and Security Agreement with CIT Group/Credit
Finance, Inc. dated November 22, 1993 (incorporated by reference
herein to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993).

10.11 Warrant Agreement dated January 29, 1992 between the
Company and certain stockholders (incorporated by reference herein
to Registrant's Registration Statement on Form S-1 (Registration
No. 33-64822)).

10.12 Warrant Agreement dated April 27, 1993 between the
Company and certain stockholders (incorporated by reference herein
to Registrant's Registration Statement on Form S-1 (Registration
No. 33-64822)).

10.13 Form of Warrant issued by the Company to certain
stockholders on July 30, 1993 (incorporated by reference herein to
Registrant's Registration Statement on Form S-1 (Registration No.
33-64822)).

10.14 Stock Purchase Agreement and Exhibits thereto dated
January 10, 1992 between the Company and certain stockholders
(incorporated by reference herein to Registrant's Registration
Statement on Form S-1 (Registration No. 33-64822)).

10.15 Asset Purchase Agreement dated February 7, 1994
between the Company and Atmel Corporation (incorporated by
reference to the Company's Form 8-K dated February 7, 1994).

10.16 Stock Purchase Agreement dated February 7, 1994
between the Company and Atmel Corporation (incorporated by
reference to the Company's Form 8-K dated February 7, 1994).

10.17 Escrow Agreement dated February 7, 1994 between the
Company, Atmel Corporation and Wilson, Sonsini, Goodrich & Rosati,
P.C. (incorporated by reference to the Company's Form 8-K dated
February 7, 1994).

10.18 Escrow Agreement dated April 14, 1994 between the
Company, Atmel and Bank of America NT&SA (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1994).

27.1 Financial Data Schedule

(b) Reports on Form 8-K. None

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.

SEEQ TECHNOLOGY INCORPORATED
(Registrant)

Dated: February 6, 1995 By: Phillip J. Salsbury
_____________________________________

Phillip J. Salsbury
President and Chief Executive Officer

Dated: February 6, 1995 By: Ralph J. Harms
____________________________________

Ralph J. Harms
Vice President, Finance and
Administration, Chief
Financial Officer and Secretary

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