NEOMAGIC CORP - 10-Q Quarterly Report

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, 2004

¨	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 000-22009

NEOMAGIC CORPORATION

(Exact name of Registrant as specified in its charter)


DELAWARE		77-0344424
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3250 Jay Street Santa Clara, California		95054
(Address of principal executive offices)		(Zip Code)

(408) 988-7020

Registrant’s telephone number, including area code

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No ¨

The number of shares of the Registrant’s Common Stock, $.001 par value, outstanding at October 31, 2004 was 32,842,385

NEOMAGIC CORPORATION

FORM 10-Q

INDEX


		PAGE
PART I.	CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements:

	Condensed Consolidated Statements of Operations Three and Nine months ended October 31, 2004 and 2003	3

	Condensed Consolidated Balance Sheets October 31, 2004 and January 31, 2004	4

	Condensed Consolidated Statements of Cash Flows Nine months ended October 31, 2004 and 2003	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6-11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4.	Controls and Procedures	25-26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 5.	Other Information	27

Item 6.	Exhibits	27

Signatures		28

Exhibit Index		29-30

Certifications		31-34

2 of 34

Part I. Financial Information

Item 1. Financial Statements

NEOMAGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended
	October 31, 2004			October 31, 2003			October 31, 2004			October 31, 2003
Net sales	$	552		$	486		$	2,244		$	1,332

Cost of Sales (1)		663			623			2,422			1,630

Gross loss		(111	)		(137	)		(178	)		(298	)

Operating expenses:
Research and development (2)		4,189			5,340			13,876			14,849
Sales, general and administrative (3)		1,643			1,835			5,663			5,379

Total operating expenses		5,832			7,175			19,539			20,228

Loss from operations		(5,943	)		(7,312	)		(19,717	)		(20,526	)

Other income (expense), net:
Interest income and other income		123			363			318			742
Interest expense		(173	)		(66	)		(250	)		(226	)

Loss before income taxes		(5,993	)		(7,015	)		(19,649	)		(20,010	)
Income tax expense		5			33			19			39

Net loss	$	(5,998	)	$	(7,048	)	$	(19,668	)	$	(20,049	)

Basic and diluted net loss per share	$	(0.18	)	$	(0.23	)	$	(0.61	)	$	(0.66	)

Weighted average common shares outstanding for basic and diluted		32,829			30,759			32,475			30,498

(1)	Includes $4 and $11 in amortization of deferred stock compensation for the three months ended October 31, 2004 and 2003, respectively, and $8 and $26 for the nine months ended October 31, 2004 and 2003, respectively

(2)	Includes $55 and $128 in amortization of deferred stock compensation for the three months ended October 31, 2004 and 2003, respectively, and $145 and $285 for the nine months ended October 31, 2004 and 2003, respectively.

(3)	Includes $17 and $104 in amortization of deferred stock compensation for the three months ended October 31, 2004 and 2003, respectively, and $107 and $191 for the nine months ended October 31, 2004 and 2003, respectively.

See accompanying notes to condensed consolidated financial statements.

3 of 34

NEOMAGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	October 31, 2004			January 31, 2004 (1)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,547		$	12,342
Short-term investments		17,213			30,240
Accounts receivable, net		302			384
Inventory		785			102
Other current assets		1,064			974

Total current assets		32,911			44,042

Property, plant and equipment, net		4,265			3,302
Intangibles, net		1,899			3,168
Other assets		757			349

Total assets	$	39,832		$	50,861

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,483		$	1,344
Compensation and related benefits		1,600			1,257
Income taxes payable		3,672			3,675
Other accruals		258			203
Current portion of capital lease obligations		1,445			1,756

Total current liabilities		8,458			8,235

Capital lease obligations		2,555			799

Mandatorily redeemable Series B convertible preferred stock		2,775			—

Stockholders’ equity:
Common stock		33			32
Additional paid-in-capital		95,506			90,496
Deferred compensation		(1,648	)		(535	)
Accumulated other comprehensive loss		(19	)		(6	)
Accumulated deficit		(67,828	)		(48,160	)

Total stockholders’ equity		26,044			41,827

Total liabilities and stockholders’ equity	$	39,832		$	50,861

(1)	Derived from the January 31, 2004 audited consolidated financial statements included in the Annual Report on Form 10-K of NeoMagic Corporation for fiscal year 2004.

See accompanying notes to condensed consolidated financial statements.

4 of 34

NEOMAGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	October 31, 2004			October 31, 2003
Operating activities:
Net loss	$	(19,668	)	$	(20,049	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		3,027			2,850
(Gain) Loss on disposal of property, plant and equipment		(1	)		3
Amortization of deferred compensation		260			502
Changes in operating assets and liabilities:
Accounts receivable		82			35
Inventory		(683	)		251
Other current assets		99			406
Other assets		(220	)		69
Accounts payable		139			(956	)
Compensation and related benefits		343			40
Income taxes payable		(3	)		42
Tax benefit from employee stock options		—			355
Other accruals		55			(1,082	)

Net cash used in operating activities		(16,570	)		(17,534	)

Investing activities:
Proceeds from the sale of property, plant, and equipment		6			—
Purchases of property, plant, equipment and intangibles		(114	)		(425	)
Purchases of short-term investments		(17,790	)		(52,357	)
Maturities of short-term investments		30,804			43,071

Net cash provided by (used in) investing activities		12,906			(9,711	)

Financing activities:
Payments on capital lease obligations		(1,413	)		(806	)
Net proceeds from issuance of common stock		1,347			264
Net proceeds from issuance of mandatorily redeemable Series B convertible preferred stock and Series A and B warrants to purchase common stock		4,935			—

Net cash provided by (used in) financing activities		4,869			(542	)

Net increase (decrease) in cash and cash equivalents		1,205			(27,787	)
Cash and cash equivalents at beginning of period		12,342			37,428

Cash and cash equivalents at end of period	$	13,547		$	9,641

Supplemental schedules of cash flow information:
Cash paid during the period for:
Interest	$	116		$	152
Taxes	$	21		$	55

See accompanying notes to condensed consolidated financial statements.

5 of 34

NEOMAGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include the accounts of NeoMagic Corporation and its wholly owned subsidiaries (collectively, “NeoMagic” or the “Company”). Certain information and Note disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position at October 31, 2004, the operating results for the three and nine months ended October 31, 2004 and 2003, and the cash flows for the nine months ended October 31, 2004 and 2003. These financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended January 31, 2004, included in the Company’s most recent Form 10-K filed with the Securities and Exchange Commission.

The results of operations for the three and nine months ended October 31, 2004 are not necessarily indicative of the results that may be expected for the year ending January 31, 2005.

The third fiscal quarters of 2004 and 2003 ended on October 31, 2004 and October 26, 2003, respectively. The Company’s quarters generally have 13 weeks. The first quarter of fiscal 2005 had 14 weeks, the second quarter of fiscal 2005 had 13 weeks, and the third quarter of fiscal 2005 had 13 weeks. The first, second, and third quarters of fiscal 2004 each had 13 weeks. The Company’s fiscal years generally have 52 weeks. Fiscal 2005 will have 53 weeks. For ease of presentation, the accompanying financial statements have been shown as ending on the last day of the calendar month of October.

2. Stock Compensation

At October 31, 2004, the Company had several stock-based employee compensation plans, including stock option plans and an employee stock purchase plan. The Company accounts for these plans under the intrinsic value method. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition method:


	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands, except per share amounts)	2004			2003			2004			2003
Net loss, as reported	$	(5,998	)	$	(7,048	)	$	(19,668	)	$	(20,049	)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects		76

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents