UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ------------------------------------------------------------
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________ to_____________
Commission file number: 0 - 15116
SIGMA DESIGNS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2848099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organozation) Identification No.)
46501 Landing Parkway
Fremont, California 94538
(Address of principal executive offices)
Telephone No. (510) 770 - 0100
-----------------------------------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes_______X______ No _______________
As of October 31, 1996 there were 10,318,481 shares of the
registrant's common stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Items 2. Management's Discussion and
Provide the information required Analysis of Financial Condition and
by Rule 10-01 of Regulation S-X Results of Operations.
(17CFR Part 210) Furnish the information required
by Item 303 of Regulation S-K
(#229.303 of this Chapter).
SIGMA DESIGNS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheets
October 31, 1996 and January 31, 1996 ----------- 3
Condensed Consolidated Statements of
Operations Three Months and Nine Months
Ended October 31, 1996 and 1995 ------------ 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended October 31, 1996 and 1995 ------- 5
Notes to Condensed Consolidated Financial
Statements ---------------------------- 6
Item 2 : Management's Discussion and Analysis of Financial
Condition and Results of Operations ------------- 7-8
PART II. OTHER INFORMATION
Item 6 : Exhibits and Reports on Form 8-K -------------- 9
Signatures ---------------------------------- 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SIGMA DESIGNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
October 31, 1996 January 31, 1996
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 661 $ 4,647
Short term investments 12,214 10,966
Accounts receivable (net) 15,049 4,789
Inventories 4,003 2,044
Prepaid expenses and other 383 760
-------- --------
TOTAL CURRENT ASSETS 32,310 23,206
EQUIPMENT - Net 1,233 1,497
OTHER ASSETS 133 140
-------- --------
TOTAL $33,676 $24,843
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 8,981 $ 6,392
Accounts payable 5,778 2,869
Accrued liabilities 1,542 2,066
Accrued facilities 302 418
--------- --------
TOTAL CURRENT LIABILITIES 16,603 11,745
ACCRUED FACILITIES - long term 411 517
LONG-TERM DEBT 69
SHAREHOLDERS' EQUITY:
Common stock 50,155 47,575
Deferred stock compensation (164) (164)
Shareholder note receivable (80) (80)
Unrealized gain on securities
available for sale 17 19
Accumulated deficit (33,335) (34,769)
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 16,593 12,581
---------- ---------
TOTAL $33,676 $24,843
========== =========
See accompanying notes
SIGMA DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended Nine Months Ended
October 31 October 31
1996 1995 1996 1995
------------------ ----------------
(1) (1) (1),(2)
NET SALES $12,727 $ 6,210 $31,541 $19,113
COST AND EXPENSES:
Cost of sales 8,219 4,230 20,472 20,547
Sales and marketing 1,534 1,662 4,250 6,807
Research and development 1,183 1,264 3,452 3,313
General & administrative 731 555 2,147 3,380
------- ------- ------ ------
TOTAL COST AND EXPENSES 11,667 7,711 30,321 34,047
------- ------- ------ ------
INCOME (LOSS) FROM OPERATIONS 1,060 (1,501) 1,220 (14,934)
INTEREST AND OTHER
INCOME (EXPENSE) 2 (21) 87 680
------- ------- ------ ------
NET INCOME (LOSS) $ 1,062 $(1,522) 1,307 (14,254)
======= ======= ====== ======
NET INCOME (LOSS) PER COMMON
AND EQUIVALENT SHARE $ 0.09 $ (0.20) $ 0.12 $ (1.89)
======= ======= ====== ======
Shares used in computation 11,441 7,643 11,075 7,556
======= ======= ====== ======
(1) Adjusted to include Active Design's net loss for the period.
(2) Includes $8.3 million related to the write down of SDIS assets
and inventory and other reserves.
See accompanying notes
SIGMA DESIGNS, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
October 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,307 $ (14,254)
Active Design net loss for one month
ended February 29, 1996 126 -
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 383 510
Gain on sales of long term investment - (666)
Changes in assets and liabilities:
Accounts receivable (10,260) 7,600
Inventories (1,959) 7,588
Prepaid expenses and other 378 237
Accounts payable 2,909 (7,009)
Accrued liabilities (491) (707)
Others 8 (29)
--------- ---------
Net cash used for operating activities (7,599) (6,730)
--------- ---------
INVESTING ACTIVITIES:
Purchase of short-term investments (12,197) (7,562)
Maturity of short-term investments 10,947 7,412
Equipment additions (307) (371)
Title development costs - 498
Sales of long term investment - 1,560
Other - (115)
--------- --------
Net cash provided by(used for)investing
activities (1,557) 1,422
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold 2,581 1,192
Borrowings under lines of credit 2,589 4,266
--------- --------
Net cash provided by financing activities 5,170 5,458
--------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (3,986) 150
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 4,647 881
--------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 661 $ 1,031
=====================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Property under capital lease acquisition 113 -
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 374 $ 335
See accompanying notes
SIGMA DESIGNS,INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Balance sheet information as of January 31, 1996 was
derived from the Company's audited consolidated financial
statements. All other information is unaudited, but in the
opinion of management, includes all adjustments (consisting
only of normal recurring adjustments) necessary to present
fairly the results of the interim period. The results of
operations for the quarter ended October 31, 1996 are not
necessarily indicative of results to be expected for the
entire year. All financial information included herein has been
restated to reflect the combined operating results and financial
position of both Sigma Designs and Active Design Corporation
(Active Design) in connection with the merger transaction described
in Note 4, below.
This report on form 10-Q should be read in conjunction
with the Company's audited consolidated financial statements
for the year ended January 31, 1996 and notes thereto
included in the Form 10-K Annual Report previously filed
with the Commission.
2. Inventories consisted of the following:
October 31, 1996 January 31, 1996
(In thousands)
Finished goods $1,384 $1,497
Work-in process 2,050 1,524
Raw materials 3,023 2,477
Less reserves (2,454) (3,454)
---------- ----------
Total inventories $ 4,003 $2,044
=========== ==========
3. Net income (loss) per share was based on the weighted
average common shares and dilutive common share equivalents.
Common equivalent shares were excluded in periods with
losses as they were anti-dilutive. The increase in the number of
shares for the periods ended October 31, 1996 was due to the common
share equivalents of outstanding options, the shares issued in a private
placement completed in the fourth quarter of fiscal 1996 and the shares
issued in the acquisition of Active Design completed in the second
quarter of fiscal 1997.
4. On May 3, 1996, the Company completed its merger with Active
Design in a transaction accounted for as a pooling of interests.
Active Design's primary activity since inception on May 17, 1995
has been the development of semiconductor chips for use in PC
graphics applications and the establishment of relationships with
potential OEM customers. The pooling-of-interests method of accounting
requires the Company to report financial results as though the
transaction had occurred at the beginning of all periods presented.
Accordingly, the Company's financial information for all periods
reflects the combined financial position and results of operations
of both companies.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had net income of $1,062,000 ($0.09 per share) on net
sales of $12,727,000 for the fiscal quarter ended October 31, 1996
compared to a net loss of $1,522,000 ($0.20 per share) on net
sales of $6,210,000 for the same quarter in the prior year. The financial
results of the fiscal quarter ended October 31, 1996 were also a
significant improvement over the immediate prior fiscal quarter ended
July 31, 1996 in which the Company reported net income of $349,000
($0.03 per share) on net sales of $10,078,000 million.
Sales of multimedia chipsets represented 58% of net sales as compared
with 21% for the same quarter last year which is consistent with
the Company's plans to focus on chipset and OEM sales. Sales to one
domestic customer accounted for 11% of net sales while sales to two
international customers accounted for 23% each of net sales respectively
in the quarter ended October 31, 1996. The Company's international sales
represented 64% of net sales in the quarter ended October 31, 1996 as
compared with 75% in the comparable quarter of the prior year. Sales for
the quarter ended October 31, 1996 also included some sales of graphics
chips that were developed by Active Design.
The Company's gross margin as a percentage of net sales for the quarter
ended October 31, 1996 increased to 35.4% from 31.9% reported in the
same period of the prior year. The increase was primarily due to a
change in product mix, particularly, to chipset sales which have higher
profit margins.
Sales and marketing expenses decreased by $128,000 (7.7%) as compared
to the corresponding period of the prior year. The decrease was due to
the Company's continued emphasis on chipset and OEM sales and less focus
on retail channels which require more advertising, promotion and trade
show expenses. Research and development expenses, remained relatively
consistent with the prior year, decreased by $81,000 (6.4%) as compared
to the same period of last year. General and administrative expenses
increased by $176,000 (31.7%) as compared to the same corresponding period
of the prior year. The increase in general and administrative costs
included the expenses related to the SEC stock registration for Active
Design's shareholders and also reflected higher technical recruiting
expenses.
FINANCIAL CONDITION
The Company had cash and short term investments of $12.9 million
at October 31, 1996, as compared with $ 15.6 million at January 31,
1996. The Company's primary sources of funds to date have been
cash generated from operations, proceeds from previous stock
offerings and bank borrowings under lines of credit. The Company
believes that its current cash and short term investments reserve
combined with the availability of funds under its existing cash
and asset-based banking arrangements will be sufficient to satisfy
its needs for the next twelve months. Beyond the next twelve months,
the Company believes that to the extent it does not generate
positive cash flow from operations that it may have to raise
additional capital through either public or private offerings of
its common stock or from additional bank financing.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's quarterly results have been in the past and may be in
the future vary due to a number of factors, including but not limited
to new product introduction by the Company and its competitors;
market acceptance of the Company's products such as the Explorer chipset
for used with notebook computers, the REALmagic 2D/3D graphic chips;
shift in demand for the Company's products; gains or losses of significant
customers; reduction in selling prices; inventories obsolescence; an
interrupted or inadequate supply of semiconductor chips; the Company's
inability to protect its intellectual properties or a loss of key personnel.
Any unfavorable change in the foregoing or other factors could have
a material effect on the Company's business, financial and results
of operations.
Due to the factors noted above, the Company's future earnings and
stock price may be subject to significant volatility, particularly
on a quarterly basis. Past financial performance should not be
considered a reliable indicator of future performance and investors
should not use historical trends to anticipate results or trends of
future periods. Any shortfall in revenue or earnings from the level
anticipated by security analysts could have an immediate and
significant adverse effect on the trading price of the Company's
common stock in any given period. Additionally, the Company may
not learn of such shortfall until late in a fiscal quarter, which
could result in even more immediate and adverse effect on the trading
price of the Company's common stock. Further, the Company operates
in a highly dynamic industry which often results in volatility of
the Company's common stock price.
PART II. OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
No report on Form 8-K was filed with the Securities and Exchange Commission
during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Date: December 6, 1996 SIGMA DESIGNS,INC.
/S/ Thinh Q. Tran
-----------------------
Thinh Q. Tran
President and Chief
Executive Officer
/S/ Q. Binh Trinh
-----------------------
Q. Binh Trinh
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 12,875
<SECURITIES> 0
<RECEIVABLES> 15,964
<ALLOWANCES> 915
<INVENTORY> 4,003
<CURRENT-ASSETS> 32,310
<PP&E> 4,484
<DEPRECIATION> 3,251
<TOTAL-ASSETS> 33,676
<CURRENT-LIABILITIES> 16,603
<BONDS> 0
<COMMON> 50,155
0
0
<OTHER-SE> (33,562)
<TOTAL-LIABILITY-AND-EQUITY> 33,676
<SALES> 31,541
<TOTAL-REVENUES> 31,541
<CGS> 20,472
<TOTAL-COSTS> 20,472
<OTHER-EXPENSES> 9,849
<LOSS-PROVISION> 163
<INTEREST-EXPENSE> 374
<INCOME-PRETAX> 1,307
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,307
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
