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, 1998 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 November 30, 1998 there were 14,499,308 shares of the Registrant's
Common Stock issued and outstanding.
<PAGE>
TABLE OF CONTENTS
SIGMA DESIGNS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets--October 31, 1998 and January 31, 1998
Condensed Consolidated Statements of Operations--Three months and nine
months ended October 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows--Nine months ended
October 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIGMA DESIGNS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands.)
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998*
------------ ------------
<S> <C> <C>
(Unaudited)
Assets
Current assets:
Cash and equivalents.............................. $2,141 $697
Short-term investments............................ 16,599 15,951
Accounts receivable - net......................... 13,461 12,395
Inventories....................................... 9,877 7,314
Prepaid expenses & other.......................... 357 592
------------ ------------
Total current assets.................. 42,435 36,949
Property and equipment, net......................... 1,458 1,241
Other assets........................................ 171 139
------------ ------------
Total assets........................................ $44,064 $38,329
============ ============
Liabilities and shareholders' equity
Current liabilities:
Bank line of credit............................... $13,916 $13,316
Accounts payable.................................. 3,661 3,014
Accrued liabilities and other..................... 1,700 1,324
Accrued facilities................................ -- 336
------------ ------------
Total current liabilities............. 19,277 17,990
Capital lease-long term............................. 280 27
Shareholders' equity:
Preferred stock................................... 4,657 2,715
Common stock...................................... 59,871 56,419
Accumulated deficit............................... (39,958) (38,759)
Shareholder note receivable....................... (63) (63)
------------ ------------
Total shareholders' equity............ 24,507 20,312
------------ ------------
Total liabilities and shareholders' equity.......... $44,064 $38,329
============ ============
<FN>
See notes to unaudited condensed consolidated financial statements.
* Derived from audited balance sheet included in the Company's annual report
on Form 10-K for the year ended January 31, 1998
</FN>
</TABLE>
<PAGE>
SIGMA DESIGNS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales......................... $11,012 $10,022 $30,462 $27,122
Costs and expenses:
Cost of sales................. 7,830 6,711 21,510 21,240
Sales and marketing............ 903 973 3,003 3,414
Research and development....... 1,534 1,305 4,312 3,700
General and administrative..... 654 797 2,289 4,261
---------- ---------- ---------- ----------
Total costs and expenses.... 10,921 9,786 31,114 32,615
---------- ---------- ---------- ----------
Operating income (loss)........... 91 236 (652) (5,493)
Interest and other income, net.... (45) 57 (10) 38
Income tax credit................. 3 -- 321 824
---------- ---------- ---------- ----------
Income (loss) before dividend
on preferred stock............. 49 293 (341) (4,631)
Dividend on preferred stock....... (804) (357) (858) (437)
---------- ---------- ---------- ----------
Net loss available to
common shareholders............ ($755) ($64) ($1,199) ($5,068)
========== ========== ========== ==========
Net loss per common share--basic
and diluted.................... ($0.06) ($0.01) ($0.10) ($0.46)
========== ========== ========== ==========
Shares used in computation--basic
and diluted.................... 12,446 10,970 12,059 10,913
========== ========== ========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
SIGMA DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... ($341) ($4,631)
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Depreciation and amortization................. 391 419
Loss on disposal of assets.................... 11 28
Changes in assets and liabilities:
Accounts receivable....................... (1,066) 1,094
Inventories............................... (2,563) (1,464)
Prepaid expenses and other................ 235 197
Accounts payable.......................... 946 (1,660)
Accrued liabilities....................... (181) (1,040)
Other........................................... -- 201
---------- ----------
Net cash used for operating activities............ (2,568) (6,856)
---------- ----------
Cash flows from investing activities:
Purchase of short-term investments.............. (17,575) (16,977)
Maturity of short-term investments.............. 16,927 11,801
Other assets.................................... (32) 16
Purchase of fixed assets........................ (250) (175)
---------- ----------
Net cash used for investing activities............ (930) (5,335)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock.............. 165 165
Proceeds from sale of preferred stock, net...... 4,647 4,190
Repurchase of Series A stock.................... (215) --
Payment of dividends............................ (87) --
Repayment of capital lease obligations.......... (168) (26)
Bank borrowings, net............................ 600 2,335
---------- ----------
Net cash provided by financing activities......... 4,942 6,664
---------- ----------
Net increase (decrease) in cash and equivalents... 1,444 (5,527)
Cash and equivalents, beginning of period......... 697 6,945
---------- ----------
Cash and equivalents, end of period............... $2,141 $1,418
========== ==========
Noncash financing activities:
Property acquired under capital lease......... $668 $ --
Series A preferred dividends.................. $61 $93
Conversion of Series A preferred stock
into common stock........................... $1,776 $ --
Issuance costs for preferred stock paid
for in common stock......................... $18 $355
Conversion of Series B preferred stock
into common stock........................... $696 $ --
Series B preferred dividends.................. $797 $ --
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Balance sheet information as of January 31, 1998 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 October 31,
1998 are not necessarily indicative of results to be expected for the
entire year. 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, 1998 and notes thereto included in the Form 10-K
Annual Report previously filed with the Commission.
2. Inventories consist of the following:
(In thousands)
October 31, January 31,
1998 1998
----------- -----------
Finished goods..................... $4,017 $3,366
Work-in process.................... 5,377 3,497
Raw materials...................... 4,526 4,291
Less: reserves..................... (4,043) (3,840)
----------- -----------
$9,877 $7,314
=========== ===========
3. The Company had $12,000,000 outstanding as of October 31, 1998 under
a $12,000,000 bank line of credit that expires in October 1999, bears
interest at the bank's index rate (4.65% at October 31, 1998) plus 1%,
and is secured by funds on deposit in accounts that have been assigned
to the lender. The Company also had $1,196,000 outstanding at October
31, 1998 under a $6,000,000 bank line of credit that expires in October
1999, bears interest at the bank's prime rate (8% at October 31, 1998)
plus 1.25%, is secured by the Company's accounts receivable,
inventories, equipment and intangibles, and restricts the Company's
ability to declare or pay dividends.
The lines of credit certain covenants that, among other things, require
the Company to maintain tangible net worth plus subordinated debt of
$15,000,000, quarterly net income, and certain financial ratios. At
October 31, 1998, the Company was not in compliance with the quarterly
net income covenant and subsequently received a waiver for the covenant.
4. During the fourth quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per
share" and, retroactively, restated prior period earnings per share
(EPS) for the change. SFAS 128 requires a dual presentation of basic
and diluted EPS. Basic EPS for the periods presented is computed by
dividing net loss available to common shareholders by the weighted
average of common shares outstanding (excluding shares subject to
repurchase). Diluted EPS for the periods presented is the same as basic
EPS since all other potential dilutive securities are excluded as they
are antidilutive.
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator (for basic and diluted
net loss per common share):
Net loss available to
common shareholders............ ($755) ($64) ($1,199) ($5,068)
========== ========== ========== ==========
Denominator:
Weighted average shares
outsatnding.................... 12,481 11,159 12,124 11,111
Less: Shares subject to
repurchase..................... (35) (189) (65) (198)
---------- ---------- ---------- ----------
Denominator for basic and diluted
net loss per common share...... 12,446 10,970 12,059 10,913
========== ========== ========== ==========
Net loss per common share--basic
and diluted.................... ($0.06) ($0.01) ($0.10) ($0.46)
========== ========== ========== ==========
</TABLE>
5. In the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which requires that an enterprise report, by major components and as
a single total, the change in net assets during the period from nonowner
sources. Adoption of SFAS No. 130 did not impact the Company's consolidated
financial position, results of operations, or cash flows. The reconciliation
of net loss to comprehensive net loss is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss available to
common shareholders............ ($755) ($64) ($1,199) ($5,068)
Other comprehensive loss--net
unrealized gain (loss) on
short-term investments......... 3 (3) -- 41
---------- ---------- ---------- ----------
Total comprehensive loss....... ($752) ($67) ($1,199) ($5,027)
========== ========== ========== ==========
</TABLE>
6. In June 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of this statement will
not impact the Company's consolidated financial position, results of
operations, or cash flows. The Company will adopt this statement in its
financial statements for the year ending January 31, 1999.
In June 1998, the Financial Accounting Standards Board issues Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires
that all derivatives be carried at fir value, and provides for hedging
accounting when certain conditions are met. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
On a forward-looking basis, although the Company has not fully assessed
the implications of this new statement, the Company does not believe
adoption of this statement will have a material impact on the Company's
financial position or results of operations.
7. During the second quarter of fiscal 1999, the Company received a
settlement of $317,568 from the California Franchise Tax Board on a
claim previously filed by the Company.
8. In February 1998, two class action complaints were filed against the
Company in the United States District Court, Northern District of
California. The actions were filed on behalf of putative classes of
purchasers of the Company's common stock during the period October 24,
1995 through February 13, 1997. The complaints allege that Sigma
Designs, Inc. and certain of its officers and/or directors violated
federal securities laws in connection with various public statements
made during the putative class period. The complaints do not specify
the amount of damages sought by the plaintiffs. The plaintiffs have
filed a motion to consolidate the complaints. The Company believes that
it has meritorious defenses to the allegations made in the complaints
and intends to conduct a vigorous defense.
The Company is also party to another claim against it. Although the ultimate
outcome of this matter is not presently determinable, management believes that
the resolution of all such pending matters will not have a material adverse
effect on the Company's financial position or results of operations.
9. In August 1998, the Company redeemed 2,000 shares of Series A Preferred
Stock from one preferred stock shareholder. The total redemption cost and
accrued dividends were $222,247.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The Company reported net income of $49,000 before deemed dividends on
preferred stock on net sales of $11,012,000 for the fiscal quarter ended
October 31, 1998 compared to net income of $293,000 (before deemed
dividends on preferred stock) on net sales of $10,022,000 for the same
quarter in the prior year. Including the effect of deemed dividends on
preferred stock, the Company reported a net loss attributable to common
shareholders of $755,000 ($0.06 per share) for the third quarter of
fiscal 1999, compared to a net loss of $64,000 ($0.01 per share) for the
same period in fiscal 1998. The deemed dividends on preferred stock
result from the conversion feature of the preferred stock, which
provides for a conversion price that may be a discount to the common
stock market value on the date of conversion. The deemed dividends had
no effect on the Company's cash flow and total shareholders' equity.
Revenues for the third quarter of fiscal 1999 and for the nine months
ended October 31, 1998 increased 10% and 12%, respectively, as compared
to the same periods in the prior year. The increase was primarily
attributable to the introduction of the Company's proprietary MPEG
decoding chipsets in the second quarter of fiscal 1999, which resulted
in increased sales to computer board manufacturers in the second and
third quarters of 1999. OEM chipset sales for the third quarter of
fiscal 1999 and for the nine months ended October 31, 1998 increased 28%
and 48%, respectively, as compared with the corresponding periods in the
prior year.
The following table sets forth the Company's net sales by product and
market segments:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
By Product Group:
MPEG Boards........................ $4,737 $5,290 $13,862 $13,982
MPEG & Graphic Chipsets............ 5,713 4,474 15,599 10,548
Accessories & other................ 562 258 1,001 2,592
--------- --------- --------- ---------
$11,012 $10,022 $30,462 $27,122
========= ========= ========= =========
By Market Segment:
Internet/Intranet Video Networking. $1,139 $3,284 $6,460 $8,911
PC-DVD Upgrade kit................. 3,598 2,006 7,377 5,411
OEM Chipsets....................... 5,713 4,474 15,572 9,247
Videoconferencing.................. -- -- 132 2,450
Other.............................. 562 258 921 1,103
--------- --------- --------- ---------
$11,012 $10,022 $30,462 $27,122
========= ========= ========= =========
</TABLE>
MPEG-based boards and chipsets represented 95% of net sales for the
quarter ended October 31, 1998 as compared with 97% for the same quarter
last year. For the nine months ended October 31, 1998, MPEG-based
boards and chipsets represented 97% of net sales as compared with 90%
for the same period last year. By market group, OEM chipsets, PC-DVD
upgrade kits, and video networking products accounted for 52%, 33%, and
10% of total net sales, respectively, in the third quarter of fiscal
1999 as compared with 45%, 20%, and 33% of total net sales,
respectively, in the same quarter last year. For the nine months ended
October 31, 1998, OEM chipsets, PC-DVD upgrade kits, and video
networking products accounted for 51%, 24%, and 21% of total net sales,
respectively, as compared with 34%, 20%, and 33% of total net sales,
respectively, in the
same period last year. The board level product line is targeted at OEM
customers and system integrators to address the internet/intranet video
networking market for corporate and home consumer applications. The
chipsets are targeted at add-in card manufacturers and large-volume OEMs
building interactive multimedia products for business and consumer
markets.
The Company's international sales represented 63% of net sales in the
quarter ended October 31, 1998 as compared with 66% in the comparable
quarter of the prior year. Revenues generated from Taiwan accounted for
50% of net sales for the quarter ended October 31, 1998 as compared with
46% in the same quarter last year. For the nine months ended October
31, 1998, international sales accounted for 69% of net sales as compared
with 60% in the comparable period of the prior year. Sales to one
international customer accounted for 34% and 30% of net sales,
respectively, in the third quarter and nine months ended October 31,
1998. The Company's customers in Taiwan are primarily computer board
manufacturers that sell their products in worldwide, global markets.
The Company's gross margin as a percentage of net sales for the quarter
decreased to 29% during the third quarter of fiscal 1999 from 33% in the
same period in fiscal 1998. The decrease was primarily attributable to
lower average selling prices for the Company's DVD decoder card as the
Company made initial shipments to several large OEM customers during the
third quarter of fiscal 1999. For the nine months ended October 31,
1998, the Company's gross margin as a percentage of net sales increased
to 29% from 22% in the same period last year. The significant increase
was largely due to the Company's decision to write down excess
inventories and related receivables in the second quarter of fiscal
1998.
Sales and marketing expenses decreased by $70,000 (7%) and $411,000
(12%), respectively, to $903,000 and $3,003,000 during the third quarter
and first nine months of fiscal 1999 as compared to the same periods in
fiscal 1998. The decrease was primarily due to a reduction in trade
show and sales support related expenses as the Company continued to
focus more on OEM and corporate markets instead of retail channels.
Research and development expenses increased $229,000 (18%) and $612,000
(17%), respectively, to $1,534,000 and $4,312,000 during the third
quarter and first nine months of fiscal 1999 as compared to the same
periods in fiscal 1998. The increase was primarily attributable to the
Company's continued development of its proprietary single-chip
REALmagic DVD/MPEG-2 decoder and increased non- recurring engineering
expenses associated with the Company's board product designs based on
its proprietary chipsets. General and administration expenses
decreased $143,000 (18%) and $1,972,000 (46%), respectively, to
$654,000 and $2,289,000 during the third quarter and first nine months
of fiscal 1999 as compared to the same periods in fiscal 1998. The
decrease in general and administration expenses in the third quarter as
compared to the corresponding quarter in fiscal 1998 was largely due to
a non-recurring charge of unamortized merger expense associated with
the discontinuation of the graphics product line during the third
quarter of fiscal 1998, and a reduction in personnel expense during the
third quarter of fiscal 1999. The significant decrease in general and
administration expenses for the first nine months of fiscal 1999 as
compared to the same period last year was primarily due to a charge of
$1,937,000 for accounts receivable reserves in connection with sales of
graphics products in the second quarter of fiscal 1998. Excluding this
charge, general and administration expenses would have decreased
$35,000 during the first nine months of fiscal 1999 as compared to the
same period in fiscal 1998.
Liquidity and Capital Resources
The Company had cash and short-term investments of $18.7 million at October
31, 1998, as compared with $16.6 million at January 31, 1998. The increase in
cash and short-term investments during the first nine months of fiscal 1999
was primarily the result of the Company's sale of preferred stock. In
February 1998, the Company raised an additional $5 million in equity capital
through the sale of convertible preferred stock (Series B) in a private
placement. At October 31, 1998, $750,000 of Series B preferred stock had been
converted to common shares. Given current market conditions, the Series B
preferred stock, upon conversion, could have a significant dilutive effect.
Current accounting standards require the Company to report deemed dividends as
a reduction in earnings applicable to common shareholders if the conversion
feature of the preferred stock results in a conversion price lower than the
common stock's market value on the date of conversion. This deemed dividend
amount could be significant in future accounting periods due to the volatility
of the Company's common stock. The Company's management is currently
evaluating several alternatives to minimize the dilutive impact of Series B
preferred stock.
Cash used for operating activities for the nine months ended October 31, 1998
of $2.6 million was primarily the result of an increase in inventories from
January 31, 1998. Investing activities used cash of $0.9 million and $5.3
million primarily for the purchase of short-term investments for the nine
months ended October 31, 1998 and 1997, respectively. Financing activities
provided cash of $4.9 million and $6.7 million for the nine months ended
October 31, 1998 and 1997, respectively. Sales of Series B preferred stock
was the principal financing activity that provided cash for the nine months
ended October 31, 1998. Sale of Series A preferred stock and bank borrowings
were the principal financing activities that provided cash for the nine months
ended October 31, 1997.
The primary sources of funds to date have been cash generated from
operations, proceeds from preferred and common stock issuances, 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 asset-based banking
arrangements will be sufficient to meet anticipated operating and
capital requirements for the next twelve months. However, the Company
may have to raise additional capital through either public or private
offerings of its common stock or preferred stock or from additional bank
financing prior to that time. There is no assurance that such capital
or bank financing will be available to the Company when needed. The
Company's bank loans are subject to certain covenants relating to
profitability and financial ratios. The Company did not meet the
profitability covenant; however, the Company has obtained a waiver from
the bank for the fiscal quarter ended October 31, 1998 releasing the
Company from meeting the profitability covenant. There is no assurance
that such waiver will be granted for future fiscal quarters in the event
that the Company reports net losses. The estimate of time the Company's
cash and other resources will last is a forward-looking statement that
is subject to the risks and uncertainties set forth below, as well as
other factors, and the actual results may differ as a result of such
factors.
Factors Affecting Future Operating Results
The Company's quarterly results have in the past and may in the future
vary significantly 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 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; reduction
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; loss of key personnel; technical problems in the development,
rampup, and manufacture of products causing shipping delays; future dilution
due to conversion of preferred stock or reductions in the Company's stock
price due to unauthorized shortselling by preferred stockholders; and
availability of third-party manufacturing capacity for production of certain
of the Company's products. The Company derives a substantial portion of
its revenues from sales to the Asia Pacific region, a region of the world
that is subject to increased economic instability. There can be no
assurance that such instability will not have a material adverse effect on
the Company's future international sales. 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. 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.
Furthermore, the Company operates in a highly dynamic industry, which
often results in volatility of the Company's common stock price.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has tested its products, and management believes that the
Company's products are not date-sensitive and, therefore, are Year 2000 ready.
The Company has also conducted a review of its exposure to the Year 2000
problem, including working with computer systems and software vendors.
Although the full impact of the Year 2000 problem is unknown at this time,
management believes that the Company's internal information systems are Year
2000 compliant and does not expect to further incur any significant operating
expenses or invest in additional computer systems to resolve issues relating
to the Year 2000 problem, with respect to both our information technology as
well as product and service functions.
The Company has also been in contact with its significant suppliers and
vendors to determine whether the products or services supplied by them are
Year 2000 compliant, and there were no negative responses. However,
significant uncertainty remains concerning the effects of the Year 2000
problem, including uncertainty regarding assurances made by vendors. In
addition, the Company has not investigated Year 2000 compliance of other
entities who are not major vendors of the Company or who are vendors or
purchasers of our product. The Company cannot assume that third parties will
be Year 2000 compliant, and if they are not, we cannot assume that we will not
be subject to actions, liabilities, or damages associated with these failures.
The Company will develop appropriate contingency plans in the event that a
significant exposure arises relative to any such third parties. The Company's
estimate of costs related to Year 2000 compliance is a forward-looking
statement that is subject to risks and uncertainties, including whether
management's assumptions of future events prove to be correct, that could
cause actual costs to be higher.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended October 31, 1998.
<PAGE>
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: Decemmber 14, 1998 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRAC
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
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