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 April 30, 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 95-2848099
(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 May 31, 1997 there were 11,102,786 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--April 30, 1997 and
January 31, 1997 3
Condensed Consolidated Statements of Operations--
Three months ended April 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows--Three months
ended April 30, 1997 and 1996 5
Notes to Consolidated Financial Statements--April 30, 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.)
April 30, January 31,
1997 1997
------------------------------
(Unaudited)
Assets
Current assets:
Cash and equivalents $ 1,439 $ 6,945
Short-term investments 16,698 11,801
Accounts receivable (net) 11,435 12,477
Inventories 7,907 4,880
Prepaid expenses and other 401 581
-------- --------
Total current assets $ 37,880 $ 36,684
Equipment, net 1,083 1,098
Other assets 117 133
-------- --------
Total assets $ 39,080 $ 37,915
======== ========
Liabilities and shareholders' equity
Current liabilities:
Bank line of credit $ 12,481 $ 10,831
Accounts payable 3,555 3,286
Accrued liabilities 2,001 2,101
Accrued facilities 226 302
-------- --------
Total current liabilities $ 18,263 $ 16,520
Accrued facilities - long term 308 311
Capital lease - long term 53 67
Shareholders' equity:
Common stock 54,326 54,311
Accumulated deficit (33,699) (33,114)
Deferred stock compensation (91) (100)
Shareholder note receivable (80) (80)
-------- --------
Total shareholders' equity 20,456 21,017
Total liabilities and shareholders' equity $ 39,080 $ 37,915
======== ========
See accompanying notes
3
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SIGMA DESIGNS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data.)
For the three months ended
April 30,
---------
1997 1996 (1)
---- --------
Net sales $ 8,507 $ 8,735
Costs and expenses:
Cost of sales 5,931 5,768
Sales and marketing 1,294 1,274
Research and development 1,164 1,215
General and administrative 721 627
-------- --------
Total costs and expenses 9,110 8,884
Loss from operations (603) (149)
Interest and other income 5 45
-------- --------
Net loss $ (598) $ (104)
-------- --------
Net loss per common share $ (0.05) $ (0.01)
======== ========
Shares used in computation 11,101 9,610
======== ========
(1) Results for the quarter ended April 30, 1996 were adjusted to include
Active Design's net loss for the period.
See accompanying notes.
4
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SIGMA DESIGNS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three months ended
April 30,
1997 1996
-------- --------
Cash flows from operating activities
Net loss $ (598) $ (104)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 152 141
Active Design net loss for the month
ended February 29, 1996 -- 126
Loss on disposal of assets 2 --
Changes in assets and liabilities:
Accounts receivable 1,042 (3,132)
Inventories (3,027) (1,295)
Prepaid expenses and other 155 (56)
Accounts payable 269 2,902
Accrued liabilities (188) (851)
Other -- (106)
-------- --------
Net cash used for operating activities (2,193) (2,375)
Cash flows from investing activities
Purchase of short-term investments (16,685) (13,408)
Maturity of short-term investments 11,801 10,947
Equipment additions (89) (58)
-------- --------
Net cash used for investing activities (4,973) (2,519)
Cash flows from financing activities
Common stock sold 15 445
Repayment of capital lease obligations (5) --
Borrowings under lines of credit 1,650 1,318
-------- --------
Net cash provided by financing activities 1,660 1,763
Net decrease in cash and equivalents (5,506) (3,131)
Cash and equivalents, beginning of period 6,945 4,647
-------- --------
Cash and equivalents, end of period $ 1,439 $ 1,516
======== ========
See accompanying notes
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 30, 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 April 30, 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)
April 30 January 31
1997 1997
------------- -------------
Finished goods $ 4,264 $ 1,937
Work-in-process 2,087 3,333
Raw materials 3,961 2,064
Less: reserves (2,405) (2,454)
------------- -------------
$ 7,907 $ 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 April 30, 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 in fiscal year
1997 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 $598,000 ($0.05 per share) on net sales of
$8,507,000 for the fiscal quarter ended April 30, 1997 compared to a net loss of
$104,000 ($0.01 per share) on net sales of $8,735,000 for the same quarter in
the prior year. Results for the fiscal quarter ended April 30, 1996 were
adjusted to include net losses attributable to Active Design.
The following table sets forth the Company's net sales by product group:
Three Months Ended
April 30,
1997 1996
------------- -------------
MPEG Boards $ 3,431 $ 4,783
Chipsets 3,133 3,719
Accessories & other 1,943
233
------------- -------------
$ 8,507 $ 8,735
============= =============
MPEG-based boards and chipsets represented 77% of net sales for the fiscal
quarter ended April 30, 1997 as compared with 97% for the same quarter last
year. The decrease in sales in MPEG 1-based products reflected the Company's
technology transition to focus on the next generation of MPEG 2-based product
lines. Accessories represented 23% of net sales as compared with 3% for the same
quarter last year . The increase in net sales in the accessories category
primarily came from sales of the Company's video conferencing solution for
notebook computers and DVD products. Sales to two international customers each
accounted for 16% and 26% of net sales, respectively, in the fiscal quarter
ended April 30, 1997, but no single domestic customer accounted for more than
10% of net sales in the same fiscal period. The Company's international sales
represented 66% of net sales in the quarter ended April 30, 1997 as compared
with 74% in the comparable quarter of the prior year.
The Company's gross margin as a percentage of net sales for the quarter
ended April 30, 1997 was 30% as compared with 34% for the same quarter last
year. The decrease in gross margin was primarily due to increased sales in the
accessories category which has a lower profit margin as compared with boards and
chipsets.
Sales and marketing expenses for the fiscal quarter ended April 30, 1997
remained relatively consistent with the same period last year. Research and
development expenses decreased slightly by $51,000 (4%) as compared to the
corresponding period of the prior year. General and administration expenses
increased by $94,000 (15%) as
7
<PAGE>
compared to the same corresponding period of the prior year. The increase in
general and administration costs was primarily due to increases in personnel
expenses and higher legal and technical recruiting expenses. However, the
overall operating expenses for the fiscal quarter ended April 30, 1997 decreased
by $187,000 (6%) as compared with the immediate prior fiscal quarter ended
January 31, 1997, reflecting management's focus on cost controls.
Financial Condition
The Company had cash and short-term investments of $18.1 million at April 30,
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 from
stock issuances, and bank borrowings under lines of credit. The Company
currently believes that its current cash and short-term investments reserves
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 from additional bank financing. There is 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 vary 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 and the Company's products in particular;
shifts in demand for the Company's products and/or those of the Company's
competitors; gains or losses of significant customers; reduction in average
selling prices and gross margins; inventory obsolescence; an interrupted or
inadequate supply of semiconductor chips; 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.
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 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.
8
<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 April 30, 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: June 13, 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, Acting Chief
Financial Officer and Secretary (Principal
Financial and Accounting Officer)
9
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