SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 31, 1997 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 No. 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 organization) Identification Number)
46501 Landing Parkway, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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
requirement for the past 90 days.
Yes____X____ No________
As of August 31, 1997 there were 11,153,905 shares of the Registrant's Common
Stock issued and outstanding.
<PAGE>
TABLE OF CONTENTS
SIGMA DESIGNS, INC.
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets--July 31, 1997 and
January 31, 1997 3
Condensed Consolidated Statements of Operations--Three
months and six months ended July 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows--Six months
ended July 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements--July
31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGMA DESIGNS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands.)
July 31, January 31,
1997 1997
-------------------------
(Unaudited)
Assets
Current assets:
Cash and equivalents $ 3,331 $ 6,945
Short-term investments 16,956 11,801
Accounts receivable (net) 10,040 12,477
Inventories 6,295 4,880
Prepaid expenses and other 585 581
-------- --------
Total current assets $ 37,207 $ 36,684
Equipment, net 993 1,098
Other assets 117 133
-------- --------
Total assets $ 38,317 $ 37,915
======== ========
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit $ 13,466 $ 10,831
Accounts payable 2,497 3,286
Accrued liabilities 1,460 2,101
Accrued facilities 314 302
-------- --------
Total current liabilities $ 17,737 $ 16,520
Accrued facilities - long term 84 311
Capital lease - long term 45 67
Stockholders' equity:
Preferred stock 4,270 --
Common stock 54,430 54,311
Accumulated deficit (38,086) (33,114)
Deferred stock compensation (83) (100)
Shareholder note receivable (80) (80)
-------- --------
Total stockholders' equity 20,451 21,017
-------- --------
Total liabilities and stockholders' equity $ 38,317 $ 37,915
======== ========
See accompanying notes.
<PAGE>
SIGMA DESIGNS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data.)
Three months ended Six months ended
July 31, July 31,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $ 8,593 $ 10,078 $ 17,100 $ 18,814
Cost and expenses:
Cost of sales 8,598 6,484 14,529 12,253
Sales and marketing 1,147 1,442 2,441 2,716
Research and development 1,231 1,055 2,395 2,270
General and administrative 2,743 789 3,464 1,415
-------- -------- -------- --------
Total costs 13,719 9,770 22,829 18,654
Income (loss) from operations (5,126) 308 (5,729) 160
Interest and other income (expense) (24) 41 (19) 85
Income tax credits 824 -- 824 --
-------- -------- -------- --------
Net income (loss) $ (4,326) $ 349 $ (4,924) $ 245
-------- -------- -------- --------
Dividend on preferred stock $ (80) -- $ (80) --
Net income (loss) available to
common stockholders $ (4,406) $ 349 $ (5,004) $ 245
Net income (loss) per share $ ( 0.40) $ 0.03 $ (0.45) $ 0.02
======== ======== ======== ========
Shares used in computation 11,135 11,377 11,118 11,059
======== ======== ======== ========
See accompanying notes.
4
<PAGE>
SIGMA DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
July 31,
1997 1996
-------- --------
Cash flows from operating activities
Net income (loss) $ (4,924) $ 245
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 227 259
Active Design net loss for the month
ended February 29, 1996 -- 126
Loss on disposal of assets 28 --
Changes in assets and liabilities:
Accounts receivable 2,437 (5,328)
Inventories (1,415) (1,218)
Prepaid expenses and other (4) 234
Accounts payable (789) 1,022
Accrued liabilities (1,079) (634)
Other 201 --
-------- --------
Net cash used for operating activities (5,318) (5,294)
Cash flows from investing activities
Purchase of short-term investments (10,409) (12,103)
Maturity of short-term investments 5,299 10,947
Equipment additions (133) (218)
Other 16 7
-------- --------
Net cash used for investing activities (5,227) (1,367)
Cash flows from financing activities
Preferred stock sold 4,190 --
Common stock sold 119 1,843
Repayment of capital lease obligations (13) --
Borrowings under lines of credit 2,635 254
-------- --------
Net cash provided by financing activities 6,931 2,097
Net decrease in cash and equivalents (3,614) (4,564)
Cash and equivalents, beginning of period 6,945 4,647
-------- --------
Cash and equivalents, end of period $ 3,331 $ 83
======== ========
See accompanying notes
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 31, 1997
1. Balance sheet information as of January 31, 1997 was derived from the
Company's audited consolidated financial statements. All other information is
unaudited, but in the opinion of management includes all adjustments necessary
to present fairly the results of the interim period. The results of operations
for the quarter ended July 31, 1997 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, 1997
and notes thereto included in the Form 10-K Annual Report previously filed with
the Commission.
2. Inventories consist of the following:
(In thousands)
July 31 January 31
1997 1997
------------- -------------
Finished goods $ 3,715 $ 1,937
Work-in-process 2,426 3,333
Raw materials 4,245 2,064
Less: reserves (4,091) (2,454)
------------- -------------
$ 6,295 $ 4,880
============= =============
3. Net loss per share is based on the weighted average number of common shares
outstanding during the period. Common equivalent shares were not considered in
the computation since their inclusion would be antidilutive. The increase in the
number of shares for the period ended July 31, 1997 was due to the exercise of
warrants and options.
4. On May 3, 1996, the Company completed its merger with Active Design in a
transaction accounted for as a pooling of interests. 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 presented
reflects the combined financial position and results of operations of both
companies.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
The Company had a net loss of $4,406,000 ($0.40 per share) on net sales of
$8,593,000 for the fiscal quarter ended July 31, 1997 compared to net income of
$349,000 ($0.03 per share) on net sales of $10,078,000 for the same quarter in
the prior year. The loss for the second quarter was primarily due to a charge of
$3,640,000 to write down excess inventories, including older MPEG and graphics
products and associated receivables, as a result of the Company's decision to
focus on the DVD market.
The following table sets forth the Company's net sales by product group:
Three Months Ended
July 31,
1997 1996
------- -------
MPEG Boards $ 5,262 $ 3,947
Chipsets 2,941 5,685
Accessories & other 390 446
------- -------
$ 8,593 $10,078
======= =======
MPEG-based boards and chipsets represented 96% of net sales for the fiscal
quarter ended July 31, 1997, unchanged from 96% for the same quarter last year.
The 48% decrease in the Company's sales of chipsets reflected the Company's
technology transition to focus on the next generation of MPEG 2-based product
lines. The Company introduced its first DVD/MPEG-2 product during the first
quarter of the fiscal year ending January 31, 1998. MPEG1- and MPEG2-based
products accounted for 41% and 52% of net sales, respectively, in the second
quarter ended July 31, 1997 as compared to 40% and 27%, respectively, in the
first quarter ended April 30, 1997. Sales to one international customer and one
domestic customer accounted for 36% and 13% of net sales, respectively, in the
fiscal quarter ended July 31, 1997. The Company's international sales
represented 48% of net sales in the quarter ended July 31, 1997 as compared with
63% in the comparable quarter of the prior year.
The Company's gross margin as a percentage of net sales for the quarter
ended July 31, 1997 was (0.06%) as compared with 36% for the same quarter last
year. The significant decrease in gross margin was primarily due to the
Company's decision to write down excessive inventories, which included older
MPEG and graphics products and associated receivables.
Sales and marketing expenses for the fiscal quarter ended July 31, 1997
decreased by $295,000 (20%) as compared to the same period last year. The
decrease was largely due to a reduction in advertising-related expenses as the
Company migrated its concentration from retail
<PAGE>
channels to OEM and corporate markets. Research and development expenses
increased by $176,000 (17%) as compared to the corresponding period of the prior
year. This increase reflected the Company's strategy of focusing on development
efforts for its new generation of DVD/MPEG2-based products. General and
administration expenses increased by $1,954,000 (248%) as compared to the same
corresponding period of the prior year. The increase in general and
administration costs was due to a charge of $1,937,000 for accounts receivable
reserves in connection with sales of graphics products. Excluding this charge,
general and administration expenses would have remained at approximately the
same level as compared to the same corresponding period of the prior year.
Liquidity and Capital Resources
The Company had cash and short-term investments of $20.3 million at July 31,
1997, as compared with $18.8 million at January 31, 1997. The Company's primary
sources of funds to date have been cash generated from operations, proceeds
generated from the issuance of stock, 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 cash needs for the next
twelve months. Beyond the next twelve-month period, the Company believes that to
the extent it does not generate positive cash flow from operations, it may have
to raise additional capital through either public or private offerings of its
common or preferred stock or other securities or from additional bank financing.
There can be no assurance that such capital will be available to the Company.
Factors Affecting Future Operating Results
The Company's quarterly results have in the past and may in the future fluctuate
due to a number of factors, including but not limited to new product
introductions by the Company and its competitors; market acceptance of the
technology embodied in the Company's products generally the Company's products
in particular; shifts in demand for the technology embodied in the Company's
products generally and the Company's products in particular and/or those of the
Company's competitors; gains or losses of significant customers; reductions in
average selling prices and gross margins, which may occur either gradually or
precipitously; inventory obsolescence; write-downs of accounts receivable; an
interrupted or inadequate supply of semiconductor chips or other materials, the
Company's inability to protect its intellectual property; or loss of key sales,
marketing, or research and development personnel. Any adverse change in the
foregoing or other factors could have a material adverse effect on the Company's
business, financial condition, and results of operations.
In addition to other areas of this Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Liquidity and Capital
Resources Section contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
Due to the factors noted above, the Company's future earnings and stock prices
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 could
have an immediate and significant 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>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended July 31 1997.
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: September 12, 1997 SIGMA DESIGNS, INC.
/s/ Thinh Q. Tran
-----------------------------------------
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kit Tsui
-----------------------------------------
Director of Finance, Chief
Financial Officer and Secretary (Principal
Financial and Accounting Officer)
Article 5: Financial Data Schedule
9
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4,270
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