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 quarter ended April 30, 2005
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 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 April 30, 2005 was 33,244,002
NEOMAGIC CORPORATION
FORM 10-Q
Page 2 of 31
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended |
||||||||
| (In thousands, except per share data)
|
April 30, 2005 |
April 30, 2004 |
||||||
| Net sales |
$ | 299 | $ | 651 | ||||
| Cost of sales (1) |
332 | 715 | ||||||
| Gross loss |
(33 | ) | (64 | ) | ||||
| Operating expenses: |
||||||||
| Research and development (2) |
3,083 | 4,868 | ||||||
| Sales, general and administrative (3) |
1,790 | 2,140 | ||||||
| Gain on sale of patents |
(3,481 | ) | — | |||||
| Total operating expenses |
1,392 | 7,008 | ||||||
| Loss from operations |
(1,425 | ) | (7,072 | ) | ||||
| Other income (expense), net: |
||||||||
| Interest income and other |
117 | 103 | ||||||
| Interest expense |
(288 | ) | (24 | ) | ||||
| Loss before income taxes |
(1,596 | ) | (6,993 | ) | ||||
| Income tax provision |
49 | 7 | ||||||
| Net loss |
$ | (1,645 | ) | $ | (7,000 | ) | ||
| Basic and diluted net loss per share |
$ | (.05 | ) | $ | (.22 | ) | ||
| Weighted average common shares outstanding for basic and diluted net loss per share |
33,235 | 32,077 | ||||||
| (1) | Includes $(3) and $4 in amortization ( recovery ) of deferred stock compensation for the three months ended April 30, 2005 and 2004, respectively. |
| (2) | Includes $71 and $65 in amortization of deferred stock compensation for the three months ended April 30, 2005 and 2004, respectively. |
| (3) | Includes $29 and $49 in amortization of deferred stock compensation for the three months ended April 30, 2005 and 2004, respectively. |
See accompanying notes to condensed consolidated financial statements.
Page 3 of 31
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (In thousands)
|
April 30, 2005 |
January 31, 2005(1) |
||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 15,677 | $ | 8,944 | ||||
| Short-term investments |
8,381 | 16,082 | ||||||
| Accounts receivable, net |
55 | 12 | ||||||
| Inventory |
228 | 376 | ||||||
| Prepaid and other current assets |
874 | 792 | ||||||
| Total current assets |
25,215 | 26,206 | ||||||
| Property, plant and equipment, net |
3,425 | 3,835 | ||||||
| Long term prepaid assets |
372 | 458 | ||||||
| Other assets |
215 | 215 | ||||||
| Total assets |
$ | 29,227 | $ | 30,714 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,004 | $ | 1,084 | ||||
| Compensation and related benefits |
1,299 | 1,017 | ||||||
| Income taxes payable |
3,895 | 3,851 | ||||||
| Current portion of capital lease obligations |
1,167 | 1,602 | ||||||
| Other accruals |
212 | 225 | ||||||
| Total current liabilities |
7,577 | 7,779 | ||||||
| Capital lease obligations |
2,044 | 2,004 | ||||||
| Mandatorily redeemable Series B convertible preferred stock Authorized and issued shares – 5,000 |
3,168 | 2,971 | ||||||
| Other long-term liabilities |
12 | — | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock |
33 | 33 | ||||||
| Additional paid-in-capital |
95,386 | 95,606 | ||||||
| Deferred compensation |
(959 | ) | (1,280 | ) | ||||
| Accumulated other comprehensive loss |
(4 | ) | (14 | ) | ||||
| Accumulated deficit |
(78,030 | ) | (76,385 | ) | ||||
| Total stockholders’ equity |
16,426 | 17,960 | ||||||
| Total liabilities and stockholders’ equity |
$ | 29,227 | $ | 30,714 | ||||
| (1) | Derived from the January 31, 2005 audited consolidated financial statements included in the Annual Report on Form 10-K of NeoMagic Corporation for fiscal year 2005. |
See accompanying notes to condensed consolidated financial statements.
Page 4 of 31
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended April 30, |
||||||||
| (In thousands)
|
2005 |
2004 |
||||||
| Operating activities: |
||||||||
| Net loss |
$ | (1,645 | ) | $ | (7,000 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Depreciation |
434 | 576 | ||||||
| Amortization and accretion |
197 | 423 | ||||||
| Amortization of deferred compensation |
97 | 118 | ||||||
| Gain on sale of patents |
(3,481 | ) | — | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(43 | ) | 239 | |||||
| Inventory |
148 | (564 | ) | |||||
| Other current assets |
(82 | ) | (198 | ) | ||||
| Long term prepaid and other assets |
86 | (34 | ) | |||||
| Accounts payable |
(80 | ) | (166 | ) | ||||
| Compensation and related benefits |
282 | 249 | ||||||
| Income taxes payable |
44 | — | ||||||
| Other accruals |
(1 | ) | 62 | |||||
| Net cash used in operating activities |
(4,044 | ) | (6,295 | ) | ||||
| Investing activities: |
||||||||
| Purchases of property, plant, equipment and intangibles |
(24 | ) | (32 | ) | ||||
| Proceeds from sale of patents |
3,481 | — | ||||||
| Purchases of short-term investments |
(10,097 | ) | (7,695 | ) | ||||
| Maturities of short-term investments |
17,808 | 8,532 | ||||||
| Net cash provided by investing activities |
11,168 | 805 | ||||||
| Financing activities: |
||||||||
| Payments on capital lease obligations |
(395 | ) | (217 | ) | ||||
| Net proceeds from issuance of common stock |
4 | 675 | ||||||
| Net cash provided by (used in) financing activities |
(391 | ) | 458 | |||||
| Net increase (decrease) in cash and cash equivalents |
6,733 | (5,032 | ) | |||||
| Cash and cash equivalents at beginning of period |
8,944 | 12,342 | ||||||
| Cash and cash equivalents at end of period |
$ | 15,677 | $ | 7,310 | ||||
| Supplemental schedules of cash flow information: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 71 | $ | 35 | ||||
| Taxes |
$ | 5 | $ | 6 | ||||
See accompanying notes to condensed consolidated financial statements.
Page 5 of 31
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 footnote 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 April 30, 2005, and the operating results and cash flows for the three months ended April 30, 2005 and 2004. 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, 2005, included in the Company’s Form 10-K filed with the Securities and Exchange Commission.
The results of operations for the three months ended April 30, 2005 are not necessarily indicative of the results that may be expected for the year ending January 31, 2006.
The first fiscal quarters of 2006 and 2005 ended on May 1, 2005 and May 2, 2004, respectively. The Company’s quarters generally have 13 weeks. The first quarter of fiscal 2005 had 14 weeks. The Company’s fiscal years generally have 52 weeks. Fiscal 2005 had 53 weeks. For ease of presentation, the accompanying financial statements have been shown as ending on the last day of the calendar month of April.
2. Stock Compensation
At April 30, 2005, 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 as if the Company had applied the fair value recognition method:
| Three months ended April 30, (in thousands, except per share amounts) |
2005 |
2004 |
||||||
| Net loss, as reported |
$ | (1,645 | ) | $ | (7,000 | ) | ||
| Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects |
97 | 118 | ||||||
| Less: Total stock-based compensation expense determined under the fair value method for all awards, net of related tax effects |
(857 | ) | (1,262 | ) | ||||
| Pro forma net loss |
(2,405 | ) | (8,144 | ) | ||||
| Reported basic and diluted loss per share |
$ | (0.05 | ) | $ | (0.22 | ) | ||
| Pro forma basic and diluted loss per share |
$ | (0.07 | ) | $ | (0.25 | ) | ||
In the three months ended April 30, 2005 and 2004, respectively, the fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model using a dividend yield of 0% and the following additional weighted-average assumptions:
| Option Plans |
Stock Purchase Plan |
|||||||||||
| Three months ended April 30, |
2005 |
2004 |
2005 |
2004 |
||||||||
| Risk-free interest rates |
4.0 | % | 3.57 | % | 3.32 | % | 1.31 | % | ||||
| Volatility |
.77 | .71 | .85 | .77 | ||||||||
| Expected life of option in years |
5.0 | 4.93 | .50 | 1.43 | ||||||||
Page 6 of 31
3. Loss Per Share
The following data shows the amounts used in computing loss per share and the effect on the weighted-average number of shares of diluted potential common stock.
Per share information is as follows:
| Three months ended April 30, (in thousands except per share data) |
2005 |
2004 |
||||||
| Numerator: |
||||||||
| Net loss |
$ | (1,645 | ) | $ | (7,000 | ) | ||