<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K/A (No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended January 31,1995
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to
-------------- -----------------
COMMISSION FILE NUMBER: 15116
SIGMA DESIGNS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2848099
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46501 LANDING PARKWAY, FREMONT, CALIFORNIA 94538
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (510) 770-0100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, no par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
form 10-K. [_]
As of August 22, 1996, the Registrant has outstanding 10,177,469 shares of
Common Stock. The market value of voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on August 22,
1996 on the Nasdaq National Market, was approximately $90,375,924 million.
Shares of common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
On May 3, 1996, subsequent to the filing on April 29, 1996 of the Company's
Annual Report on Form 10-K for the year ended January 31, 1996, Sigma Designs
completed a merger with Active Design, Inc. which was accounted for as a pooling
of interests with Sigma Designs as the surviving entity. Accordingly, the
Company's previously filed consolidated financial statements have been restated
to reflect the combined operations and financial position of the two companies
for all periods presented and are included herein, as described below.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Sigma Designs, Inc., a corporation
organized and existing under the laws of the State of California, has duly
caused this Report to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Fremont, State of California, on the 10th day of
September, 1996.
SIGMA DESIGNS, INC.
By: /s/ Q. BINH TRINH
---------------------------
Q. Binh Trinh
Vice President, Finance
Chief Financial Officer,
Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*/s/ THINH Q. TRAN
- ----------------------------------
Thinh Q. Tran Chairman of the Board, President and Chief September 10, 1996
Executive Officer (Principal
Executive Officer)
*/s/ JULIEN NGUYEN
- ----------------------------------
Julien Nguyen Co-Chairman of the Board and Chief September 10, 1996
Technical Officer
*/s/ Q. BINH TRINH
- ----------------------------------
Q. Binh Trinh Vice President, Finance, Chief Financial September 10, 1996
Officer, Secretary and Director (Chief
Financial and Accounting Officer)
- ----------------------------------
William J. Almon Director
- ----------------------------------
William Wang Director
*By: /s/ Q. BINH TRINH
- ----------------------------------
Q. Binh Trinh,
Attorney-In-Fact
</TABLE>
<PAGE>
PART II ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL FIVE-YEAR DATA
In thousands, except per share amount and number of employees.
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $ 26,374 $43,700 $ 34,989 $27,058 $27,567
Net loss (14,708) (8,773) (29,546) (7,166) (3,443)
Net loss per common share (1.85) (1.20) (5.15) (1.37) (0.67)
Working capital 11,461 17,446 15,117 33,696 41,515
Total assets 24,843 33,387 26,639 44,267 49,049
Shareholders' equity 12,581 18,721 16,499 37,788 44,755
Number of employees 70 138 151 195 197
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On May 2, 1996, the Company merged with Active Design Corporation (Active
Design) in a transaction that has been accounted for as a pooling of interests
with the Company as the surviving entity. Accordingly, the consolidated
financial statements for all periods presented have been restated to reflect the
combined operations and financial position of the two companies. Under the
merger agreement, Active Design exchanged all of its outstanding common stock
and preferred stock into approximately 1,124,000 shares of the Company's common
stock based on an exchange ratio of one share of Active Design into .22 share of
the Company. The Company also assumed all 1,092,000 outstanding options to
acquire shares of common stock of Active Design at the .22 exchange ratio,
resulting in options to acquire 240,240 shares of the Company's common stock.
Active Design was incorporated on May 17, 1995 and is a development stage
company in the business of developing products for the multimedia market and
accordingly, has not recorded revenues to date. Active Design's cumulative loss
from operations for the period from May 17, 1995 (inception) to February 29,
1996 was $846,000. The consolidated statement of operations for the year ended
January 31, 1996 includes the Company's results of operations for the year ended
January 31, 1996 and Active Design's results of operations for the period from
May 17, 1995 (inception) to February 29, 1996. The consolidated balance sheet as
of January 31, 1996 includes the financial position of the Company at
January 31, 1996 and the financial position of Active Design at February 29,
1996.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Certain Factors Affecting Business,
Operating Results and Financial Condition" and elsewhere in the Company's Annual
Report on Form 10-K, and elsewhere in this Form 10-K/A.
RESULTS OF OPERATIONS
During the year ended January 31, 1996, the Company completed its plan to focus
exclusively on multimedia products, primarily its MPEG based REALmagic product
line. During fiscal 1996, the Company also announced plans to focus on chipsets
and place more emphasis on OEM sales for the next generation of REALmagic
products. Net sales decreased in fiscal 1996 to $26,374,000 from $43,700,000 in
the prior year, largely as a result of eliminating non-multimedia product lines
and also in connection with the Company's transition to its next generation of
MPEG products. The net loss for the year ended January 31, 1996 increased
<PAGE>
to $14,708,000 from $8,773,000 in the prior year. The current year loss includes
$4.5 million that was accrued in the second quarter for obsolete inventories and
other related costs in connection with the Company's plan to focus on chipsets
and OEM sales, a $3.9 million write-down of certain assets of Sigma Designs
Imaging Systems, Inc., its display system subsidiary, to net realizable value in
the first quarter in connection with the sales of SDIS's assets and liabilities.
Consistent with the results of the progress of these strategic efforts,
including an overall reduction in the cost structure, excluding the losses
related to Active Design's product development efforts, the Company had break
even results in the fourth quarter of fiscal 1996, with net income of $23,000
compared to a net loss of $5,137,000 in the same quarter in the prior year.
SALES
The following table set forth the Company's net sales of each of its product
groups for the last three years.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Multimedia products:
Decoding $21,518 $30,345 $ 8,022
Encoding 3,146 - -
Display systems 1,554 7,887 17,825
CPU boards 52 2,050 4,353
Graphics controller boards - - 494
Other 104 3,418 4,295
------- ------- -------
Net sales $26,374 $43,700 $34,989
======= ======= =======
</TABLE>
The multimedia decoding group includes a variety of REALmagic playback
controller cards and chipsets, REALmagic upgrade kits which consist of a
REALmagic card, a double-speed CD-ROM drive, a pair of speakers, and an array of
popular MPEG software titles; and MPEG software titles. The multimedia encoding
product group primarily consists of the REALmagic Producer. The display systems
group includes a variety of color and monochrome high-resolution monitors
designed to be used with special applications such as document imaging or
computer-aided designs. Other sales category consists primarily of sales of
surplus and obsolete inventories, sales of components to service centers and
contract revenue.
The Company's net sales decreased 40% in fiscal 1996 and increased 25% in fiscal
1995. The reduction in sales in fiscal 1996 was primarily attributable to the
elimination of non-multimedia product lines and also related to the Company's
transition to its next generation of MPEG products. The increase in sales in
fiscal 1995 was attributable to the significant increase in sales of REALmagic
MPEG products.
<PAGE>
The following table sets forth the Company's net sales by domestic distribution
channels and export sales for each of the last three fiscal years:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Domestic sales:
Retail sales $ 7,736 $17,722 $17,234
OEMs and VARs 1,906 10,070 6,349
------- ------- -------
Total domestic sales 9,642 27,792 23,583
Export sales:
Asia Pacific 13,274 10,222 1,883
Europe 3,243 5,415 9,163
Canada 215 271 360
------- ------- -------
Total export sales 16,732 15,908 11,406
------- ------- -------
Net sales $26,374 $43,700 $34,989
======= ======= =======
</TABLE>
The percentages of the Company's net sales attributable to domestic retail sales
were 29% in fiscal 1996, 41% in fiscal 1995, and 49% in fiscal 1994. The
percentages of the Company's net sales attributable to domestic OEM and VAR
sales were 7% in fiscal 1996, 23% in fiscal 1995, and 18% in fiscal 1994. The
percentages of the Company's net sales attributable to export sales were 63% in
fiscal 1996, 36% in fiscal 1995, and 33% in fiscal 1994.
In fiscal 1996, domestic sales decreased 65% over fiscal 1995 while export sales
increased 5%. The reduction in domestic sales in fiscal 1996 was primarily
attributable to the move away from non-multimedia products, which had
proportionately greater impact on domestic sales, as well as due to the impact
of the transition to the next generation of MPEG products.
GROSS MARGIN
The Company's gross margin as a percentage of net sales was approximately 3%,
15%, and 21% in fiscal 1996, 1995 and 1994, respectively. The decrease in both
fiscal 1996 and 1995 were primarily the result of inventory reserves and write-
offs in connection with the move away from non-multimedia products and the
transition to new generations of MPEG-based products. Excluding the impact of
such reserves and write-offs, the Company's annual gross margin was 25% and 23%
in fiscal 1996 and fiscal 1995, respectively. Although the Company attempts to
minimize the impact of such product transitions, the market for the Company's
product is volatile and subject to the impact of changes in technology and other
competitive factors (see "Factors Affecting Future Operating Results") and, as a
result, there is no assurance that the Company will not have similar reserves
and write-offs in the future.
OPERATING EXPENSES
Sales and marketing expenses decreased $1,070,000 (12%) in fiscal 1996 over
fiscal 1995. The reduction was due to the change in corporate direction, less
in retail distribution and more toward chipset and OEM sales. The same expenses
decreased $426,000 (5%) in fiscal 1995 over fiscal 1994. The small reduction
reflects a more focused approach to marketing which concentrated on the
REALmagic product line.
<PAGE>
Research and development expenses in fiscal 1996 increased $150,000 (3%) over
fiscal 1995. The increase was primarily related to Active Design's $700,000 of
research and development expenditures, partially offset by reductions
attributable to the elimination of display system research and development
efforts. The same expenses increased $498,000 (13%) in fiscal 1995 over fiscal
1994, excluding $8,137,000 of in-process research and development expenses in
fiscal 1994 related to the acquisition of E-Motions, Inc. This increase
reflected the necessary expenses needed to continue developing the REALmagic
products and the added costs needed to support third-party software title
developers in the development of REALmagic compatible titles.
The Company's general and administrative expenses in fiscal 1996 increased
$687,000 (20%) in fiscal 1996 over fiscal 1995. The increase was primarily
attributable to the $1,500,000 of accounts receivable reserves in connection
with the writedown of certain assets of SDIS to net realizable value; without
these reserves, the expenses actually decreased by $813,000 (23%). The
reduction was attributable to the general cost reduction efforts by the Company.
The same expenses increased $803,000 (30%) in fiscal 1995 over fiscal 1994.
This increase reflected added costs, primarily related to increased headcount,
necessitated by the Company's decision to combine its remaining display systems
business with the imaging products offered by its Docupoint subsidiary, into a
separate entity, SDIS, in the first quarter of fiscal 1995, and to support the
higher level of sales.
In the second quarter of fiscal 1994, the Company recorded a $13.7 million
restructuring charge in connection with the Company's decision to focus
attention on its new multimedia products. This charge included $4.1 million in
accruals of lease commitments for excess facilities. In the fourth quarter of
fiscal 1996, the Company recorded a $350,000 recovery resulting from the more
favorable terms under a new sublease agreement related to this facility. The
remaining facilities' accrual of approximately $935,000 relates to the excess of
the Company's lease commitment over expected sublease income for the term of the
lease.
LOSS PER SHARE
The Company's $1.85 loss per share in fiscal 1996 was primarily attributable to
a low level of sales which was inadequate to cover operating expenses and
reserves recorded by SDIS and Sigma in connection with the sale of SDIS and the
new direction of Sigma to focus on chipset and OEM sales. The $1.20 loss per
share in fiscal 1995 was due primarily to lower than expected sales, reserves
recorded by its subsidiary, SDIS, and Sigma's increased marketing expenses to
promote and market REALmagic products worldwide and significant research and
development expenses related to the cost of supporting third-party software
title developers in the development of REALmagic compatible titles. The
Company's $5.15 loss per share in fiscal 1994 was due primarily to sales levels
which were not high enough to generate sufficient gross profits to offset
operating expenses and the negative impact on margin from competitive pricing
pressures. The $5.15 loss per share in fiscal 1994 also included $3.80 for
restructuring and in-process development expenses.
FINANCIAL CONDITION
The Company had cash and equivalents and short-term investments of $15.6 million
at January 31, 1996, compared with $8.2 million at January 31, 1995. The
increase in cash and equivalents and short-term investments was due primarily to
$6.3 million (net of expenses) raised in the fourth quarter of fiscal 1996
through a private placement of convertible debt and $4.7 million of cash
borrowed under bank lines of credit offset by net cash used for operations of
$6.3 million. The Company also experienced material reductions in its accounts
receivable and inventory balances during fiscal 1996, largely in connection with
its sales of SDIS's assets and liabilities and its decision to focus on chipsets
and OEM sales.
<PAGE>
The Company's primary sources of funds to date have been cash generated from
operations prior to 1993, proceeds from public and private offerings of its
common stock and bank borrowings under lines of credit. The Company believes
that its current reserve of cash and equivalents and short-term investments and
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.
At January 31, 1996, the Company has $5,596,000 outstanding under a $10,000,000
bank line of credit that expires in June 1996 and is secured by funds on deposit
in accounts which have been assigned to the lender. The Company also has
$796,000 outstanding at January 31, 1996 under a $6,000,000 bank line of credit
that expires in May 1996 and is secured by the Company's accounts receivable,
inventories, equipment and intangibles. Beyond the next twelve-month period the
Company believes that to the extent it does not generate cash 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 annual and quarterly results have in the past and may 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; 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
inability to protect its intellectual property or a loss of key personnel. Any
unfavorable change in the foregoing or other factors should have a material
adverse effect on the Company's business, financial results 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 shortfall
until late in the 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Sigma's financial statements, the notes thereto, and the independent
auditor's report appear on pages F-1 through F-17 of this Annual Report on Form
10-K/A.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
Paragraph (a) of Item 14 has been amended so that it reads in its
entirety as follows. The remaining portion of this Item has not been changed.
(a) The following documents are filed as part of this Annual Report on
Form 10-K/A:
1. Financial Statements.
--------------------
The following financial statements of the Company
are filed as part of this Annual Report on Form 10-K/A:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report....................................... F-2
Consolidated Balance Sheets as of January 31, 1996 and 1995........ F-3
Consolidated Statements of Operations for the years ended
January 31, 1996, 1995 and 1994.................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
January 31, 1996, 1995 and 1994.................................... F-5
Consolidated Statements of Cash Flow for the years ended
January 31, 1996, 1995 and 1994.................................... F-6
Notes to Consolidated Financial Statements......................... F-8
2. Financial Statement Schedules. The following financial statement
-----------------------------
schedule of the Company for the fiscal years ended January 31,
1996, 1995, and 1994 filed as part of this Annual Report on Form
10-K should be read in conjunction with the Financial Statements
and related notes thereto, of the Company.
Page
----
<S> <C>
Schedule II Valuation and Qualifying Amounts and Reserves......... S-1
</TABLE>
Schedules not listed above have been omitted since they are
either not required, not applicable, or the information is
otherwise included.
3. Exhibits
--------
23.1 Independent Auditors' Consent
<PAGE>
SIGMA DESIGNS, INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
AND INDEPENDENT AUDITORS' REPORT
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sigma Designs, Inc.:
We have audited the accompanying consolidated balance sheets of Sigma Designs,
Inc. and subsidiaries as of January 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended January 31, 1996. Our audits also
included the financial statement schedule listed in Item 14.(a)2. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sigma Designs, Inc. and
subsidiaries at January 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended January 31,
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 14 to the consolidated financial statements, the
accompanying 1996 consolidated financial statements have been restated to give
retroactive effect to a merger accounted for as a pooling of interests.
DELOITTE & TOUCHE LLP
San Jose, California
April 22, 1996
(May 2, 1996 as to Note 14)
F-2
<PAGE>
SIGMA DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 4,647 $ 881
Short-term investments (including $6,094 in 1996, restricted by
borrowing agreement) 10,966 7,349
Accounts receivable (net of allowances: $892 and $1,101, respectively) 4,789 11,958
Inventories - net 2,044 9,736
Prepaid expenses and other assets 760 1,086
-------- --------
Total current assets 23,206 31,010
EQUIPMENT - Net 1,497 1,343
OTHER ASSETS 140 1,034
-------- --------
TOTAL $ 24,843 $ 33,387
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit $ 6,392 $ 1,710
Accounts payable 2,869 9,333
Accrued liabilities 2,066 1,748
Accrued facilities 418 773
-------- --------
Total current liabilities 11,745 13,564
-------- --------
ACCRUED FACILITIES -long term 517 1,102
COMMITMENTS (Notes 9 and 10)
SHAREHOLDERS' EQUITY:
Preferred stock - no par value: 2,000,000
shares authorized; no shares outstanding - -
Common stock - no par value: 20,000,000
shares authorized; shares outstanding:
1996, 9,761,921; 1995, 7,479,943 47,575 38,820
Deferred stock compensation (164) -
Shareholder note receivable (80) -
Unrealized gain (loss) on securities available for sale 19 (63)
Accumulated deficit (34,769) (20,036)
-------- --------
Shareholders' equity 12,581 18,721
-------- --------
TOTAL $ 24,843 $ 33,387
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 26,374 $ 43,700 $ 34,989
COSTS AND EXPENSES:
Cost of sales 25,492 36,980 27,538
Research and development 4,499 4,349 11,988
Sales and marketing 7,952 9,022 9,448
General and administrative 4,208 3,521 2,718
Restructuring charges (credit) (350) (517) 13,654
-------- -------- --------
Total costs and expenses 41,801 53,355 65,346
-------- -------- --------
LOSS FROM OPERATIONS (15,427) (9,655) (30,357)
Interest income 449 474 660
Interest expense (396) (138) -
Gain from sale of investments 666 546 -
-------- -------- --------
LOSS BEFORE INCOME TAXES (14,708) (8,773) (29,697)
CREDIT FOR INCOME TAXES - - 151
-------- -------- --------
NET LOSS $(14,708) $ (8,773) $(29,546)
======== ======== ========
NET LOSS PER COMMON SHARE $ (1.85) $ (1.20) $ (5.15)
======== ======== ========
SHARES USED IN COMPUTATION 7,938 7,307 5,733
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
GAIN (LOSS)
COMMON STOCK DEFERRED SHAREHOLDER ON SECURITIES RETAINED
-------------------- STOCK NOTE AVAILABLE EARNINGS
SHARES AMOUNT COMPENSATION RECEIVABLE FOR SALE (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, February 1, 1993 5,266,069 $19,287 $ - $ - $ - $ 18,501 $ 37,788
Common stock issued under stock plans 101,991 493 - - - 493
Common stock issued and options
assumed in acquisition of
E-Motions, Inc. 860,000 7,764 - - - - 7,764
Net loss - - - - - (29,546) (29,546)
--------- ------- ----- ---- ---- -------- --------
Balances, January 31, 1994 6,228,060 27,544 - - - (11,045) 16,499
Sale of common stock 1,130,000 12,959 - - - - 12,959
Common stock issued under stock plan 121,883 242 - - 242
Payment to E-Motions, Inc.,
shareholders - (1,925) - - - - (1,925)
Buy-back of Docupoint minority
interest (218) (218)
Unrealized loss on securities
available for sale - - - - (63) - (63)
Net loss - - - - - (8,773) (8,773)
--------- ------- ----- ---- ---- -------- --------
Balances, January 31, 1995 7,479,943 38,820 - - (63) (20,036) 18,721
Common stock issued under stock plans 463,655 411 - (80) - - 331
Conversion of subordinated notes and
issuance of warrants 1,134,323 6,276 - - - - 6,276
Adjustment of E-Motions, Inc.
purchase price - 74 - - - - 74
Deferred stock compensation - 164 (164) - - - -
Issuance of stock 684,000 1,830 - - - (25) 1,805
Unrealized gain on securities
available for sale - - - - 82 - 82
Net loss - - - - - (14,708) (14,708)
--------- ------- ----- ---- ---- -------- --------
Balances, January 31, 1996 9,761,921 $47,575 $(164) $(80) $ 19 $(34,769) $ 12,581
========= ======= ===== ==== ==== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,708) $ (8,773) $(29,546)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,346 774 1,169
Loss (gain) from investment (666) (205) 39
Loss on disposal of assets 22 - -
Provision (credit) for restructuring costs (350) (517) 13,654
Write-off of research and development in progress acquired
in connection with the purchase of E-Motions, Inc. - - 8,137
Changes in assets and liabilities:
Accounts receivable 7,169 (4,712) (775)
Inventories 7,692 866 (6,512)
Prepaid epenses and other (76) 351 (340)
Income taxes receivable and payable - - 2,201
Accounts payable (6,464) 5,126 (758)
Accrued liabilities (235) (1,793) (930)
-------- -------- --------
Net cash used for operating activities (6,270) (8,883) (13,661)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (10,947) (10,472) (14,535)
Maturity of short-term investments 7,412 6,574 25,348
Sales of long-term investments 1,560 844 -
Equipment additions (786) (721) (612)
Software development costs capitalized - - (233)
Title development costs capitalized (296) (950) -
Other assets (1) (305) (261)
Cash from purchase of E-Motions, Inc. - - 183
-------- -------- --------
Net cash provided by (used for) investing activities (3,058) (5,030) 9,890
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit 4,682 1,710 -
Sale of stock 2,136 13,201 493
Payment to E-Motions shareholders - (1,925) -
Proceeds from issuance of convertible debt and
warrants - net 6,276 - -
-------- -------- --------
Net cash provided by financing activities 13,094 12,986 493
-------- -------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 3,766 (927) (3,278)
CASH AND EQUIVALENTS:
Beginning of period 881 1,808 5,086
-------- -------- --------
End of period $ 4,647 $ 881 $ 1,808
======== ======== ========
</TABLE>
(Continued)
F-6
<PAGE>
SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH PAID FOR INTEREST $ 388 $136 $ -
====== ==== =======
CASH PAID (RECEIVED) FOR INCOME TAXES $ 3 $ - $(2,201)
====== ==== =======
NONCASH INVESTING ACTIVITIES:
Purchase of E-Motions, Inc.:
Common stock issued and options assumed $ - $ - $ 7,764
Net investment in E-Motions, Inc. prior to purchase - - 636
Fair value of assets acquired - - (295)
Liabilities assumed - - 32
------ ---- -------
Acquired research and development in progress $ - $ - $ 8,137
====== ==== =======
NONCASH FINANCING ACTIVITIES:
Conversion of subordinated debt to common stock
and issuance of warrants $6,276 $ - $ -
====== ==== =======
Issuance of common stock for notes receivable $ 80 $ - $ -
====== ==== =======
Deferred stock compensation $ 164 $ - $ -
====== ==== =======
Adjustment of E-Motions, Inc. purchase price $ 74 $ - $ -
====== ==== =======
</TABLE>
See notes to consolidated financial statements.
(Concluded)
F-7
<PAGE>
SIGMA DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Sigma Designs, Inc. (the Company) develops, manufactures and markets
multimedia computer devices and products. The Company has also been in the
business of developing, manufacturing and marketing graphics boards,
display products and other board-level products for use with IBM, IBM-
compatible and Apple Macintosh personal computers; however, at January 31,
1996, substantially all business activity related to the development and
marketing of MPEG multimedia products and the development of graphics user
interface semiconductor devices. The Company sells its products to computer
manufacturers and to retail chains, distributors and value-added resellers.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
Sigma Designs, Inc. and subsidiaries (see Note 14). Intercompany balances
and transactions are eliminated.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Such
estimates include accruals, reserves and the valuation allowance on
deferred tax assets. Actual results could differ from those estimates.
SHORT-TERM INVESTMENTS represent government and corporate obligations with
maturities at the date of acquisition of more than three months. Effective
February 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt
and Equity Securities." Adoption of SFAS 115 had no material impact on the
Company's consolidated financial position or results of operations. Short-
term investments are carried as available for sale securities, are reported
at fair market value and are classified as current assets as all maturities
are within one year as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1996
------------------------------
GROSS
MARKET UNREALIZED
COST VALUE GAIN (LOSS)
<S> <C> <C> <C>
Certificates of deposit $ 7,030 $ 7,030 $ -
Corporate obligations 1,965 1,979 14
U.S. government obligations 1,952 1,957 5
------- ------- ---
$10,947 $10,966 $19
======= ======= ===
</TABLE>
F-8
<PAGE>
Certificates of deposit at January 31, 1996 includes $6,094,000 which is
restricted as to use because it is security for a bank line of credit (Note
8).
<TABLE>
<CAPTION>
JANUARY 31, 1995
-------------------------------
GROSS
MARKET UNREALIZED
COST VALUE GAIN (LOSS)
<S> <C> <C> <C>
Corporate obligations $4,461 $4,440 $(21)
U.S. government obligations
(primarily U.S. Treasury notes) 2,951 2,909 (42)
------ ------ ----
$7,412 $7,349 $(63)
====== ====== ====
</TABLE>
INVENTORIES are stated at the lower of cost (first-in, first-out) or
market.
TITLE DEVELOPMENT COSTS represent payments made to support the external
development of interactive MPEG compatible software titles, net of
accumulated amortization and write downs to net realizable value. Costs are
capitalized after technological feasibility is achieved. The Company
amortizes these costs over the shorter of 12 months from the introduction
of the title or pro rata over the estimated unit sales of the title. The
Company evaluates the recoverability of these costs based on the on-going
viability of specific titles and the anticipated net realizable value from
related product sales. Amounts determined not to be realizable are expensed
in the period of determination. Title development costs of $481,000 and
$883,000, net of accumulated amortization of $91,000 (none in 1996) were
included in prepaids and other assets as of January 31, 1996 and 1995,
respectively.
INVESTMENTS in 20% to 50% owned companies are accounted for using the
equity method. Investments in less than 20% owned companies are accounted
for using the cost method unless the Company can exercise significant
influence or the investee is economically dependent upon the Company, in
which case the equity method is used.
EQUIPMENT is stated at cost. Depreciation and amortization are computed
using the straight-line method based on the useful lives of the assets
(three to five years) or the lease term if shorter.
REVENUE RECOGNITION - Sales are recognized upon shipment. Allowances for
sales returns, price protection and warranty costs are recorded at the time
that sales are recognized.
RESEARCH AND DEVELOPMENT expenses include costs and expenses associated
with the design and development of new products. To the extent that such
costs include the development of computer software, they are generally
incurred prior to the establishment of the technological feasibility of the
related product that is under development. Accordingly, software costs
incurred after the establishment of technological feasibility have not been
material and therefore have been expensed. All other research and
development is expensed as incurred.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 which uses an asset and liability
approach. Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting.
F-9
<PAGE>
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
cash and cash equivalents, short-term investments and accounts receivable.
The majority of the Company's cash and cash equivalents are on deposit with
one financial institution. The Company's short-term investments are managed
by a major domestic financial institution, in a portfolio with defined
investment objectives of competitive money market returns, high liquidity
and safety of capital. Its portfolio of short-term investments typically
include United States government obligations and corporate obligations.
From time to time, the Company also makes investments in certificates of
deposit with financial institutions, outside of its third-party managed
portfolio. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral for sales on credit. The majority
of accounts receivable are derived from sales to retail chain distributors
and manufacturers of personal computers. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
STOCK COMPENSATION - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," establishes accounting and
disclosure requirements using a fair value method of accounting for stock-
based employee compensation plans and is effective for fiscal years
beginning after December 15, 1995. The Company will adopt this statement on
February 1, 1996 and will elect to continue applying APB Opinion No. 25 to
account for its stock-based employee compensation arrangements. Based on
the Company's current use of equity instruments, adoption of the new
standard will not affect reported earnings, financial position or cash
flows.
ACCOUNTING PERIOD - For convenience, the financial statements are shown as
ending January 31, although the fiscal years ended on January 27, 1996,
January 28, 1995 and January 29, 1994, respectively. Fiscal 1996, 1995 and
1994 each included 52 weeks.
NET LOSS PER COMMON AND EQUIVALENT SHARE is computed using the weighted
average number of common shares outstanding. Because there was a net loss
in each year presented, common stock equivalents were not included in the
calculation as their impact would be anti-dilutive.
3. PURCHASE OF E-MOTIONS, INC.
On July 29, 1993, the Company acquired all remaining outstanding shares of
E-Motions, Inc. (E-Motions). This acquisition was accounted for using the
purchase method of accounting. E-Motions was a development stage company in
the business of developing products for the multimedia market, and its
technology consisted primarily of in-process development of integrated
circuit designs and related software technology. Prior to this transaction,
the Company owned slightly less than 50% of the outstanding shares of E-
Motions on a fully diluted basis.
As part of this transaction, the Company issued 860,000 shares of common
stock and assumed options to acquire 217,529 shares of its common stock. In
addition, the Company was required to make a cash payment of $1.9 million
based on the average trading price of its common stock in July 1994. The
maximum amount of this contingent payment (approximately $4 million) was
included in the cost of the acquired company and in shareholders' equity.
Shareholders' equity was reduced by $1.9 million at the time of the actual
payment.
F-10
<PAGE>
The cost of the acquired company, which includes the consideration related
to this transaction and the Company's previous investment in E-Motions, is
as follows (in thousands):
<TABLE>
<S> <C>
Cost $8,400
Assets acquired (295)
Liabilities assumed 32
------
Excess of cost over net assets acquired $8,137
======
</TABLE>
Based on the stage of E-Motion's development, the nature of its business
and the absence of other identifiable intangible assets, the cost in excess
of net assets acquired is acquired research and development in process and,
accordingly, was charged to research and development expense in the period
acquired.
The following information for fiscal 1994 is presented on a pro forma
basis, as if the transaction had taken place on February 1, 1993:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
---------------
1994
<S> <C>
Pro forma revenue $ 34,989
Pro forma net loss $(21,772)
Pro forma net loss share $ (3.30)
Shares used in computation 6,593
</TABLE>
For purposes of this pro forma information, the $8.1 million of acquired
research and development was excluded from the results of operations.
4. RESTRUCTURING
In July 1994, the Company made a decision to discontinue certain
manufacturing operations and product lines and to focus attention on its
new multimedia products. As a result of this decision, the Company recorded
restructuring charges of $13,654,000. As a result of the finalization of
the terms and circumstances related to the subleasing of the Company's
excess facilities, the Company recorded a credit of $517,000 in fiscal
1995. During fiscal 1996, the Company recorded a credit of $350,000 as a
result of signing a new sublease agreement with more favorable terms. The
remaining accrual from this restructuring is a facilities accrual of
approximately $935,000 related to the excess of the Company's lease
commitment over the expected sublease income for the term of the lease.
F-11
<PAGE>
Restructuring charges (credit) for the years ended January 31, 1996, 1995
and 1994 consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Excess and obsolete inventories $ - $ - $ 8,222
Excess facilities (reduction of previously accrued amount) (350) (517) 4,100
Excess property and leasehold improvements - - 465
Severance accruals - - 300
Capitalized software and other assets - - 270
Other costs - - 297
----- ----- -------
Total $(350) $(517) $13,654
===== ===== =======
</TABLE>
5. INVENTORIES
Inventories at January 31 consist of:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Finished goods $ 1,497 $ 3,787
Work in process 1,524 4,590
Raw materials 2,477 6,979
Less reserves (3,454) (5,620)
------- -------
Inventory - net $ 2,044 $ 9,736
======= =======
</TABLE>
6. EQUIPMENT
Equipment at January 31 consists of:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Computers and equipment $ 2,693 $ 3,767
Furniture and fixtures 1,306 1,607
Other 402 344
------- -------
Total 4,401 5,718
Accumulated depreciation and amortization (2,904) (4,375)
------- -------
Equipment - net $ 1,497 $ 1,343
======= =======
</TABLE>
F-12
<PAGE>
7. ACCRUED LIABILITIES
Accrued liabilities at January 31 consist of:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Other accrued liabilities $1,457 $1,036
Accrued salary and benefits 609 712
------ ------
Total $2,066 $1,748
====== ======
</TABLE>
8. BANK LINES OF CREDIT
The Company has $5,596,000 outstanding at January 31, 1996 under a
$10,000,000 bank line of credit that expires in June 1996, bears interest
at the bank's index rate (3.250% at January 31, 1996) plus 2.5% and is
secured by funds on deposit in accounts which have been assigned to the
lender. The Company also has $796,000 outstanding at January 31, 1996 under
a $6,000,000 bank line of credit that expires in May 1996, bears interest
at the bank's prime (8.5% at January 31, 1996) plus 2%, is secured by the
Company's accounts receivable, inventories, equipment and intangibles, and
restricts the Company's ability to declare or pay dividends.
9. LEASES
The Company leases its primary facility under a noncancelable lease which
expires in August 1998. Total future minimum lease payments under the
Company's operating leases are $4,900,000 at January 31, 1996, $1,796,000
for fiscal 1997, $1,745,000 for fiscal 1998, $1,325,000 for fiscal 1999 and
$82,000 for fiscal 2000. Approximately $935,000 of this commitment is
included in accrued facilities as of January 31, 1996.
Rent expense was $316,000, $344,000 and $962,000 for fiscal 1996, 1995 and
1994, respectively.
10. COMMITMENTS
The Company pays royalties for the right to sell certain products under
various license agreements. During the years ended January 31, 1996, 1995
and 1994, the Company recorded royalty expense of $643,000, $508,000 and
$181,000, respectively.
The Company sponsors a 401(k) savings plan in which most employees are
eligible to participate. The Plan commenced in fiscal 1994. The Company is
not obligated to make contributions to the plan and no contributions have
been made by the Company.
F-13
<PAGE>
11. SHAREHOLDERS' EQUITY
Each share of common stock incorporates a purchase right which entitles the
shareholder to buy, under certain circumstances, one newly issued share of
the Company's common stock at an exercise price per share of $75. The
rights become exercisable if a person or group acquires 20% or more of the
Company's common stock or announces a tender or exchange offer for 30% or
more of the Company's common stock under certain circumstances. In the
event of certain merger or sale transactions, each Right will then entitle
the holder to acquire shares having a value of twice the Right's exercise
price. The Company may redeem the Rights at $.01 per Right prior to the
earlier of the expiration of the Rights on November 27, 1999 or at the time
that 20% or more of the Company's common stock has been acquired by a
person or group. Until the Rights become exercisable, they have no dilutive
effect on the earnings of the Company.
During fiscal 1991, the Board of Directors of the Company approved a
program to repurchase up to 1,000,000 shares of the Company's common stock
in the open market. No shares were repurchased in fiscal 1994, fiscal 1995
or fiscal 1996.
Common stock includes 353,760 restricted shares which were issued to
founders, officers and employees of Active Design in connection with the
merger (see Note 14) in exchange for 1,608,000 shares of common stock of
Active Design with similar restrictions. Unvested shares of this common
stock are subject to a right of repurchase by the Company upon termination
of employment at the original purchase amount. Such repurchase right
expires ratably over a four year period from the date of issuance.
Shareholder's notes receivable represent amounts due from these employees
and officers for the issuance of these shares of restricted stock. Such
notes are full recourse, bear interest at 12% and are due five years from
the date of issuance (2000 to 2001).
STOCK OPTION PLAN
The Company's Stock Option Plan provides for the granting of options to
purchase up to 3,400,000 shares of common stock at the fair market value on
the date of grant. Generally options granted under the plan become
exercisable over a five year period and expire not more than ten years from
the date of grant (all options outstanding at January 31, 1996 expire ten
years from date of grant).
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------
NUMBER
OF SHARES PRICE PER SHARE
<S> <C> <C>
Balances, January 31, 1993 706,700 $4.2500 - $ 8.50
Granted 604,500 3.5000 - 13.75
Exercised (92,938) 0.0900 - 8.50
Cancelled (391,060) 3.5000 - 8.50
Assumed in acquisition of E-Motions (Notes 3) 217,529 0.0875 - 1.75
---------
Balances, January 31, 1994 1,044,731 0.0875 - 13.75
Granted 910,000 4.8800 - 8.00
Exercised (110,451) 0.0500 - 6.50
Cancelled (200,939) 0.8750 - 13.75
---------
Balances, January 31, 1995 1,643,341 0.8750 - 13.75
Granted 1,057,295 0.2300 - 5.63
Exercised (366,222) 0.0875 - 13.50
Cancelled (98,990) 0.0875 - 5.75
---------
Balances, January 31, 1996 2,235,424 $0.0875 - $13.50
=========
</TABLE>
F-14
<PAGE>
At January 31, 1996 options to purchase 701,938 shares of common stock were
exercisable and 135,748 shares were available for future grants under the
Plan. The balance outstanding at January 31, 1996 includes 240,240 options
at an exercise price of $0.23 per share which were assumed in the merger
with Active Design. Deferred stock compensation of $164,000 was recorded in
connection with the grant of these options.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1986 Employee Stock Purchase Plan provides for the sale of up
to 100,000 shares of common stock. Eligible employees may authorize payroll
deductions of up to 10% of their regular base salaries to purchase common
stock at 85% of the fair market value at the beginning or end of each six-
month offering period. During fiscal 1996, 1995 and 1994, 10,905, 11,432
and 9,053 shares were purchased at an average price of $5.15, $5.35 and
$2.98 per share, respectively.
ISSUANCE OF COMMON STOCK AND WARRANTS
On December 15, 1995, the Company issued convertible debt and warrants to
purchase 415,920 shares of common stock at an exercise price of $7.62 per
share for proceeds of $6,276,000 (net of issuance costs of $374,000). All
such debt was converted to 1,134,323 shares of common stock on the same
day. The warrants are exercisable at any time and expire on December 15,
1997. The total net proceeds are reflected as an addition to common stock
in the statement of shareholders' equity for the year ended January 31,
1996.
12. INCOME TAXES
As a result of its net losses in fiscal 1996 and 1995, the Company recorded
no income tax provision in those years. The credit for income taxes of
$151,000 in fiscal 1994 resulted from the carryback of its 1994 losses to
prior years for federal tax purposes.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), effective at the beginning of
fiscal 1995. SFAS 109 uses an asset and liability approach to comprehensive
interperiod tax accounting. The impact of implementation of SFAS 109 was
not significant.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating losses and tax credit carryforwards.
F-15
<PAGE>
The tax effects of significant items comprising the Company's deferred
taxes are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating losses and tax credit carryforwards $ 16,859 $ 9,967
Reserves not currently deductible 2,410 4,022
Capitalized R&D expenditures 682 638
Other 184 175
-------- --------
20,135 14,802
Deferred tax liabilities:
Capitalized software and title development (209) (228)
-------- --------
19,926 14,574
Valuation allowance (19,926) (14,574)
-------- --------
Net deferred taxes $ - $ -
======== ========
</TABLE>
SFAS 109 requires that the tax benefit of net operating losses, temporary
differences and credit carryforwards be recorded as an asset to the extent
that management assesses that realization is "more likely than not."
Realization of the future tax benefits is dependent on the Company's
ability to generate sufficient taxable income within the carryforward
period. Because of the Company's recent history of operating losses, risks
associated with its new product introduction including the dependence on
rapid acceptance of new technology, the dependence on development of
complimentary software by third parties and other risks, such as
technological change in the industry, short product life cycles and
reliance on a limited number of suppliers and manufacturing contractors,
management believes that recognition of the deferred tax assets arising
from the above-mentioned future tax benefits is currently not appropriate
and, accordingly, has provided a valuation allowance. The valuation
allowance increased by approximately $5 million in fiscal 1996 primarily as
a result of an increase in net operating losses available to the Company.
Net operating losses and tax credit carryforwards as of January 31, 1996
are as follows:
<TABLE>
<CAPTION>
EXPIRATION
(IN THOUSANDS) YEARS
<S> <C> <C>
Net operating losses, federal $43,200 2006-2011
Net operating losses, state 20,400 1998-2000
Tax credits, federal 600 2006-2011
Tax credits, state 500 2006-2011
</TABLE>
F-16
<PAGE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Computed at 35% $(5,147) $(3,070) $(10,047)
Valuation allowance 5,301 3,166 6,952
Acquired research and development - - 2,856
Other (154) (96) 88
------- ------- --------
Total $ - $ - $ (151)
======= ======= ========
</TABLE>
13. CUSTOMER AND GEOGRAPHIC INFORMATION
One domestic customer accounted for 11%, 18% and 16% of net sales in fiscal
1996, 1995 and 1994, respectively. The Company markets its products
internationally through foreign distributors and OEMs. The following table
represents a summary of domestic and export sales by geographic region.
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Domestic $ 9,642 $27,792 $23,583
Export sales:
Asia Pacific 13,274 10,222 1,883
Europe 3,243 5,415 9,163
Canada 215 271 360
------- ------- -------
Total $26,374 $43,700 $34,989
======= ======= =======
</TABLE>
14. SUBSEQUENT EVENT - BUSINESS COMBINATION
On May 2, 1996, the Company merged with Active Design Corporation (Active
Design) in a transaction that has been accounted for as a pooling of
interests with the Company as the surviving entity. Accordingly, the
consolidated financial statements for all periods presented have been
restated to reflect the combined operations and financial position of the
two companies. Under the agreement, Active Design exchanged all of its
outstanding common stock and preferred stock into approximately 1,124,000
shares of the Company's common stock based on an exchange ratio of one
share of Active Design into .22 share of the Company. The Company also
assumed all 1,092,000 outstanding options to acquire shares of common stock
of Active Design at the .22 exchange ratio, resulting in options to acquire
240,240 shares of the Company's common stock. Active Design was
incorporated on May 17, 1995 and is a development stage company in the
business of developing products for the multimedia market and accordingly,
has not recorded revenues to date. Active Design's cumulative loss from
operations for the period from May 17, 1995 (inception) to February 29,
1996 was $846,000. The consolidated statement of operations for the year
ended January 31, 1996 includes the Company's results of operations for the
year ended January 31, 1996 and Active Design's results of operations for
the period from May 17, 1995 (inception) to February 29, 1996. The
consolidated balance sheet as of January 31, 1996 includes the financial
position of the Company at January 31, 1996 and the financial position of
Active Design at February 29, 1996.
* * * * *
F-17
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS:
BEGINNING OF WRITE OFFS OF BALANCE AT
CLASSIFICATION YEAR ADDITIONS ACCOUNTS END OF YEAR
- ---------------------------------------------- -------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
Allowance for returns and doubtful accounts,
price protection and sales returns:
Year ended January 31,
1996 $1,101,000 $ 134,000 $ 343,000 $ 892,000
1995 885,000 351,000 135,000 1,101,000
1994 579,000 389,000 83,000 885,000
Inventory reserves
Year Ended January 31,
1996 $5,620,000 $5,789,000 $7,955,000 $3,454,000
1995 4,470,000 4,425,000 3,275,000 5,620,000
1994 1,455,000 8,022,000 5,007,000 4,470,000
</TABLE>
- ------------
(1) Amount written off, net of recoveries.
S-1
<PAGE>
Exhibit Index
Exhibit Number
- --------------
23.1 Independent Auditors' Consent
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-8316 on Forms S-8 and S-3, Registration Statement No. 333-813 on
Form S-3, and in Registration Statements Nos. 33-20226, 33-23699, 33-33571,
33-41330, 33-81914 and 333-04041 on Forms S-8 of our report dated April 22, 1996
(May 2, 1996 as to Note 14) on the consolidated financial statements and related
financial statement schedule of Sigma Designs, Inc. appearing in this amendment
on Form 10-K/A No. 1 of the Annual Report on Form 10-K of Sigma Deigns, Inc. for
the year ended January 31, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
Sepetember 6, 1996
