-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ucl62S+60ied8WuP9ZoVjnWOtgVoYIKUryEkXCmtPKnzr0aA18mynmhye3n9r3f6 BcqGRXYyLdd302+nkE9hEQ== 0000891618-98-003812.txt : 19980813 0000891618-98-003812.hdr.sgml : 19980813 ACCESSION NUMBER: 0000891618-98-003812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEEQ TECHNOLOGY INC CENTRAL INDEX KEY: 0000702756 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942711298 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11778 FILM NUMBER: 98684190 BUSINESS ADDRESS: STREET 1: 47200 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5102267400 MAIL ADDRESS: STREET 1: 47200 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 1 - -------------------------------------------------------------------------------- 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 June 30, 1998 [ ] 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: 0-11778 -------------------- SEEQ TECHNOLOGY INCORPORATED (Exact name of registrant as specified in its charter) Delaware 94-2711298 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47200 Bayside Parkway Fremont, California 94538 (510) 226-7400 (Address, including zip code, of Registrant's principal executive offices and 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 par value 30,726,879 (Class of common stock) (Shares outstanding at June 30, 1998) - -------------------------------------------------------------------------------- This report on Form 10-Q, including all exhibits, contains 14 pages. 1 2 SEEQ TECHNOLOGY INCORPORATED FORM 10-Q Table of Contents
PAGE PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements............................................................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................................ 12 Item 2. Changes in Securities........................................................................ 13 Item 3. Defaults upon Senior Securities.............................................................. 13 Item 4. Submission of Matters to a Vote of Security Holders.......................................... 13 Item 5. Other Information............................................................................ 13 Item 6. Exhibits and Reports on Form 8-K............................................................. 13
2 3 This Quarterly Report of Form 10-Q may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Legal Proceedings" and "Factors Affecting Operating Results" contained herein and under the caption "Business Risks" in the Company's fiscal 1997 annual report on Form 10-K. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEEQ TECHNOLOGY INCORPORATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three months ended Nine months ended Jun. 30, Jun. 30, Jun. 30, Jun. 30, 1998 1997 1998 1997 Revenues $ 6,171 $ 7,611 $ 21,603 $ 22,266 Cost of revenues 3,999 4,591 12,624 14,210 -------- -------- -------- -------- Gross profit 2,172 3,020 8,979 8,056 -------- -------- -------- -------- Operating expense Research and development 1,097 899 3,019 2,581 Marketing, general and administrative 1,814 1,277 4,793 3,973 -------- -------- -------- -------- Total operating expenses 2,911 2,176 7,812 6,554 -------- -------- -------- -------- Income (loss) from operations (739) 844 1,167 1,502 Interest expense (95) (96) (263) (266) Interest and other income, net 159 87 458 268 Income (loss) before income taxes (675) 835 1,362 1,504 Income tax (provision), benefit 20 (24) 36 (45) -------- -------- -------- -------- Net income (loss) $ (655) $ 811 $ 1,398 $ 1,459 ======== ======== ======== ======== Net income (loss) per share: Basic $ (0.02) $ 0.03 $ 0.05 $ 0.05 Diluted $ (0.02) $ 0.03 $ 0.04 $ 0.05 Shares used in per share calculation: Basic 30,714 30,304 30,604 30,288 Diluted 30,714 31,284 32,223 31,628 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed financial statements. 3 4 SEEQ TECHNOLOGY INCORPORATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited)
CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------- June 30, September 30, (Thousands, except share amounts) 1998 1997 - ------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 9,898 $ 6,937 Accounts receivable, less allowances 5,200 7,284 Inventories 4,694 3,176 Deferred tax asset 2,029 1,950 Other current assets 401 332 - --------------------------------------------------------------------------------------- Total current assets 22,222 19,679 - --------------------------------------------------------------------------------------- Property and equipment, net 6,806 4,384 Other assets 2,849 2,977 - --------------------------------------------------------------------------------------- $31,877 $27,040 ======================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,610 $ 1,582 Accrued salaries, wages and employee benefits 602 698 Other accrued liabilities 779 997 Deferred income on sales to distributors 224 146 Current portion of capitalized lease obligations 1,661 1,091 - --------------------------------------------------------------------------------------- Total current liabilities 5,876 4,514 - --------------------------------------------------------------------------------------- Long-term liabilities 4,921 3,308 - --------------------------------------------------------------------------------------- Total stockholders' equity 21,080 19,218 - --------------------------------------------------------------------------------------- $31,877 $27,040 =======================================================================================
See accompanying notes to condensed financial statements. 4 5 SEEQ TECHNOLOGY INCORPORATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine months ended ----------------------- Jun. 30, Jun. 30, 1998 1997 ------- ------- OPERATING ACTIVITIES: Net income $ 1,398 $ 1,459 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,402 1,324 Deferred taxes (79) -- (Gain) on equipment disposal -- (62) Changes in assets and liabilities: Accounts receivable 2,084 1,981 Inventories (1,518) 749 Prepaid expenses and other assets (211) (279) Accounts payable 1,028 (3,853) Accrued liabilities and long term obligations (361) 17 ------- ------- Net cash provided by (used for) operating activities 3,743 1,336 ------- ------- INVESTING ACTIVITIES: Capital expenditures (324) (146) Proceeds on disposal of equipment -- 96 ------- ------- Net cash provided by (used for) investing activities (324) (50) ------- ------- FINANCING ACTIVITIES: Payments of capital lease obligations (922) (742) Proceeds from issuance of stock 464 133 ------- ------- Net cash used for financing activities (458) (609) ------- ------- Net increase (decrease) in cash and cash equivalents 2,961 677 Cash and cash equivalents at beginning of period 6,937 3,974 ------- ------- Cash and cash equivalents at end of period $ 9,898 $ 4,651 ======= =======
See accompanying notes to condensed financial statements. 5 6 SEEQ TECHNOLOGY INCORPORATED NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of SEEQ Technology Incorporated ("SEEQ" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report to Stockholders for the fiscal year ended September 30, 1997. These financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the nine months ended June 30, 1998 are not necessarily indicative of the results expected for the year ending September 30, 1998. For purposes of presentation, the Company has shown its fiscal quarters as ending on December 31, March 31, June 30 and September 30; whereas, in fact, the Company operates on a 52/53-week fiscal year ending on the last Sunday in September of each year. The fiscal quarter ends are actually December 28, March 29, June 28 and September 27 for the year ending September 30, 1998, and actually December 29, March 30, June 29 and September 28 for the year ending September 30, 1997 NOTE 2. INVENTORIES Inventories were comprised of the following:
Jun. 30, Sep. 30, 1998 1997 -------- -------- (in thousands) Work in process $ 1,696 $ 437 Finished goods 2,998 2,739 -------- -------- $ 4,694 $ 3,176 ======== ========
NOTE 3. NON-RECURRING PRODUCTION TRANSFER COSTS Non-recurring costs such as tooling and engineering costs resulting from transferring production of current products to new foundries are capitalized and amortized to cost of revenues over the shorter of: the remaining life of the product, the term of the foundry agreement or two years. Non-recurring costs which are associated with the development of new products are expensed as research and development costs when incurred. During the nine month period ended June 30, 1998 the Company did not capitalize any of such costs. During the nine month period ended June 30, 1997 the Company capitalized $250,000 of non-recurring production transfer costs. Amortization of aggregate capitalized non-recurring costs for the nine month periods ended June 30, 1998 and June 30, 1997 was $270,000 and $381,000, respectively. 6 7 NOTE 4. NET INCOME (LOSS) PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") during the first quarter of fiscal 1998. This statement simplifies the standards for computing earnings per share (EPS) previously defined in Accounting Principles Board Opinion No. 15 "Earnings Per Share." All prior-period earnings per share data has been restated in accordance with SFAS 128. SFAS 128 requires presentation of both Basic EPS and Diluted EPS on the face of the income statement. Basic EPS is computed by dividing net income available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options. Following is a reconciliation of the numerators and denominators of the Basic and Diluted EPS computations for the periods presented below: (In thousands, except per share amounts)
Three Months Ended Nine Months Ended ------------------------- ------------------------ June 30, June 30, June 30, June 30, 1998 1997 1998 1997 -------- -------- -------- -------- Net income (loss) available to common stockholders (numerator) $ (655) $ 811 $ 1,398 $ 1,459 Shares calculation (denominator): Weighted average shares outstanding 30,714 30,304 30,604 30,288 Effect of dilutive securities: Options -- 980 1,619 1,340 -------- -------- -------- -------- Average shares outstanding assuming dilution 30,714 31,284 32,223 31,628 ======== ======== ======== ======== Basic earnings (loss) per share $ (0.02) $ 0.03 $ 0.05 $ 0.05 ======== ======== ======== ======== Diluted earnings (loss) per share $ (0.02) $ 0.03 $ 0.04 $ 0.05 ======== ======== ======== ========
Options to purchase 4,320,000 shares of common stock were outstanding during the three month period ended June 30, 1998, but were not included in the computations of diluted EPS as the Company was in a loss situation. Options to purchase 1,258,000 shares of common stock were outstanding during the three month period ended June 30, 1997, but were not included in the computations of diluted EPS as the option exercise price was higher than the average market price of the common shares. Options to purchase 418,000 and 974,000 shares of common stock were outstanding during the nine month periods ended June 30, 1998 and June 30, 1997 respectively but were not included in the computations of diluted EPS as the option exercise price was higher than the average market price of the common shares. 7 8 NOTE 5. RECENTLY ISSUED ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). FAS 133 establishes a new model for accounting for derivatives and hedging activities and supercedes and amends a number of existing accounting standards. SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair market value, and the corresponding derivative gains or losses be either reported in the statement of operations or as a deferred item depending on the type of hedge relationship that exists with respect to such derivative. Adopting the provisions of SFAS 133 is not expected to have a material effect on the Company's consolidated financial statements, which will be effective for the Company's fiscal 2000. NOTE 6. LITIGATION On November 28, 1995, Level One Communications Incorporated ("Level One") filed a complaint against the Company, in the United States District Court of Northern California, alleging patent infringement. In the complaint, Level One claims that the Company has used and sold products in violation of two of Level One's patents. Level One seeks immediate and permanent injunctive relief preventing the Company from making, using, or selling any devices that infringe such patents and unspecified damages. The Company intends to vigorously contest all of Level One's claims. Based on the Company's review to date, management believes that it has meritorious defenses to the claims asserted by Level One; however, there can be no assurance that the outcome of these legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. Patent litigation is often highly complex, can extend for a protracted period of time, can involve substantial cost to the Company and may divert the attention of the Company's management and technical personnel, which can substantially increase the cost of such litigation. There can be no assurance that such costs and diversion of resources will not have a material adverse effect on the Company's business, financial condition and results of operations. On January 21, 1998, the Court ruled upon certain motions filed by SEEQ. SEEQ had filed motions to declare all asserted claims of the Level One patents in the suit as invalid in view of certain prior art. As to these motions, the Court denied SEEQ's request. SEEQ also had requested leave to amend its counterclaim to add SEEQ's U.S. Patent 5,504,738. SEEQ asserts that Level One's products, including the LXT 970 product, infringe the `738 patent in the manner in which these products incorporate an auto-negotiate feature. The Court granted SEEQ's motion to amend. Currently, the Level One litigation involves two Level One patents and SEEQ's `738 patent. The Court has set a trial date for August, 1998. No other motions are currently pending. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Legal Proceedings" and "Factors Affecting Operating Results" contained herein and under the caption "Business Risks" in the Company's fiscal 1997 annual report on Form 10-K. The following discussion should be read in conjunction with the Interim Condensed Financial Statements and Notes thereto and the SEEQ Technology Incorporated fiscal 1997 annual report on Form 10-K. 8 9 RESULTS OF OPERATIONS Revenues Net revenues were $6,171,000 in the third quarter of fiscal 1998, a decrease of $1,440,000 or 19% compared to net revenues of $7,611,000 for the third quarter of fiscal 1997. Net revenues were $21,603,000 in the nine month period ended June 30, 1998 compared to $22,266,000 for the nine month period ended June 30, 1997, a decrease of $663,000 or 3%. In the third quarter of fiscal 1998, products servicing the Fast Ethernet market accounted for approximately 79% of revenues compared to 66% of revenues for the third quarter of fiscal 1997. Revenues from Fast Ethernet products were approximately 73% and 53% of total revenues for the nine month periods ended June 30, 1998 and 1997, respectively. Gross Product Margins The Company includes in cost of revenues all costs associated with subcontractor manufacturing, electrical testing, subcontractor assembly and final test of its integrated circuits and subsystems, warehousing, shipping, product returns and reserves for inventory obsolescence. Allowances for product returns are netted against revenues. Gross profit for the third quarter of fiscal 1998 was $2,172,000 or 35% of net revenues, a decrease of $848,000 from $3,020,000 or 40% of net revenues in the third quarter of fiscal 1997. The decrease in gross profit percentage was primarily due to changes in product mix, higher yield variances on certain new products and higher inventory reserves, partially offset by better factory utilization. For the nine month period ended June 30, 1998, the gross profit margin was $8,979,000 or 42% of net revenues, compared to $8,056,000 or 36% of net revenues for the comparable period of fiscal 1997. The increase in gross profit margin is primarily attributable to changes in product mix, a shift to higher margin products and lower production costs, all of which were partially offset by the under-utilization of manufacturing capacity. Gross margins in future periods will be affected primarily by revenue levels and changes in product mix, average selling prices, factory utilization, wafer yields, the introduction of new products, and changes in manufacturing costs. Research and Development Research and development expenditures increased $198,000 from $899,000, or 12% of revenues in the third quarter of fiscal 1997, to $1,097,000, or 18% of revenues in the third quarter of fiscal 1998. For the nine month periods ended June 30, 1997 and 1998, research and development expenses increased $438,000 from $2,581,000, or 12% of revenues, to $3,019,000, or 14% of revenues, respectively. These increases were primarily due to an increase in payroll, outside consulting services, and equipment depreciation, partly offset by lower tooling costs. The Company expects that the level of research and development spending will increase in absolute dollars in the next several quarters as a result of increased development efforts on new LAN products, but may vary as a percentage of net revenues. Marketing, General and Administrative Expenses Marketing, general and administrative expenses increased $537,000 from $1,277,000, or 17% of revenues in the third quarter of fiscal 1997, to $1,814,000, or 29% of revenues in the third quarter of fiscal 1998. For the nine month periods ended June 30, 1997 and 1998, marketing, general and administrative expenses increased $820,000 from $3,973,000, or 18% of revenues, to $4,793,000, or 22% or revenues, respectively. These increases are primarily attributable to higher legal costs incurred in defending a patent infringement lawsuit. Legal costs for the Company's fourth fiscal quarter are expected to be similar to, or higher than in the third quarter. The Company anticipates that the level of marketing, general and administrative expenses will vary in future periods based on expected revenue growth. Interest and other, net Interest and other income, net increased from $87,000 in the third quarter of fiscal 1997 to $159,000 in the third quarter of fiscal 1998 and increased from $268,000 for the nine months ended June 30, 1997 to $458,000 for the nine months ended June 30, 1998. The fluctuations in interest income are 9 10 directly affected by average cash balances. Interest expense decreased from $96,000 in the third fiscal quarter of 1997 to $95,000 in the third quarter of fiscal 1998. Interest expense decreased from $266,000 for the nine months ended June 30, 1997 to $263,000 for the nine months ended June 30, 1998. Income Taxes The effect of income taxes changed from a $24,000 provision in the third quarter of fiscal 1997 to a benefit of $20,000 in the third quarter of fiscal 1998. For the first nine months of fiscal 1998 the Company recognized a portion of its deferred tax asset in the amount of $79,000. This was partially offset by a provision of $43,000 for income taxes. For the first nine months of fiscal 1997 the Company recorded a provision of $45,000 for income taxes. The Company's provisions were computed by applying the estimated annual tax rate to income taxes, taking into account net operating loss carryforwards and alternative minimum taxes. 10 11 FACTORS AFFECTING OPERATING RESULTS The Company's quarterly operating results have varied significantly in the past and are likely to vary significantly in the future, depending on a number of factors, many of which are outside the control of the Company. A complete description of risk factors is contained in the Company's 1997 annual report on Form 10-K, in the section entitled "Risk Factors That May Affect Future Results." These factors include, among others, customer concentration, the timing of introduction of new products by the Company and its competitors, changes in the markets addressed by the Company's products, market acceptance of the Company's and its customers' products, the volume and timing of orders received, changes in the Company's product mix and customer base, the timing and extent of research and development expenditures, the availability and cost of semiconductor wafers from outside foundries, fluctuations in manufacturing yields, product obsolescence, price erosion, competitive factors, litigation expenses, cyclical semiconductor industry conditions and general economic conditions. The Company's net revenue and cost of revenues may vary depending upon the mix of products sold. Any unfavorable change in manufacturing yields or product mix, delays in new product introductions, under-utilization of manufacturing capacity, increased price competition or other factors could have a material adverse effect on the Company's operating results and financial condition. Historically, average selling prices in the semiconductor industry have decreased over the life of any particular product. There can be no assurance that the average selling prices of the Company's current or future products will not be subject to significant pricing pressures. In addition, the Company's business is characterized by short-term orders and shipment schedules, and customer orders typically can be cancelled or rescheduled without significant penalty to the customer. Due to the absence of significant non-cancelable backlog, the Company typically plans its production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. The Company is also limited in its ability to reduce costs quickly in response to any revenue shortfalls, which could have a material adverse effect on the Company's business, operating results and financial condition. Due to the foregoing factors, it is possible that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. The "Year 2000 issue" arises because most computer systems and programs were designed to handle only a two-digit year, not a four-digit year. When the Year 2000 begins, these computers may interpret "00" as the year 1900 and could either stop processing date-related computations or could process them incorrectly. The Company has recently updated its information systems and accordingly does not anticipate any internal Year 2000 issues from its own information systems, databases or programs. However, the Company could be adversely impacted by Year 2000 issues faced by major distributors, suppliers, customers, vendors and financial service organizations with which the Company interacts. LIQUIDITY AND CAPITAL RESOURCES The Company has satisfied its cash requirements principally through cash flow from operations, borrowings under bank lines of credit, capital lease financing and the public and private sale of securities. The Company believes that existing sources of liquidity and anticipated cash flow from operations will be adequate to satisfy its cash requirements at least through the end of fiscal 1999. However, there can be no assurance that the Company will have adequate resources to satisfy such requirements. It may become necessary for the Company to raise funds from debt and/or equity financing. There can be no assurance that such funds will be available on terms acceptable to the Company, if at all. Issuance of additional equity securities could result in dilution to stockholders. The inability to fund capital requirements would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's cash and cash equivalents balance increased from $6,937,000 as of September 30, 1997 to $9,898,000 as of June 30, 1998, primarily from cash provided by operating activities, and partially offset by capital expenditures and payments of capital lease obligations. 11 12 Operating Activities Cash flows provided by operating activities were $3,743,000 for the nine months ended June 30, 1998 compared to $1,336,000 for the nine months ended June 30, 1997. The increase is primarily attributable to the timing of inventory purchases and payments of trade accounts payable. Investing Activities Cash flows used for investing activities were $324,000 during the first nine months of fiscal 1998, compared to $50,000 for the first nine months of fiscal 1997, due primarily to an increase in capital expenditures. Financing Activities Cash flows used for financing activities were $458,000 in the nine month period ended June 30, 1998 compared to $609,000 in the nine month period ended June 30, 1997. Net proceeds from the issuance of stock pursuant to stock options and the Company's employee stock purchase plan were $464,000 for the first nine months of fiscal 1998 compared to $133,000 for the first nine months of fiscal 1997. Principal payments against capital lease obligations were $922,000 for the nine months ended June 30, 1998 compared to $742,000 for the three months ended June 30, 1997. In August 1996, the Company entered into a one-year revolving line of credit agreement with Silicon Valley Bank. This credit agreement was renewed by the Company in July 1997. Under the terms of the revolving line of credit, the Company can borrow the lesser of $7,000,000 or an amount determined by a formula applied to eligible accounts receivable, at a variable interest rate equal to the prime rate plus 0.25%. The revolving line of credit is secured by a security interest in the Company's assets, including intellectual property and expires August 17, 1998. The loan agreement requires the Company to remain profitable each fiscal quarter and to maintain certain quarterly financial ratios. The Company has received a waiver for the quarterly profitability requirement in the current quarter. The loan agreement also requires the Company to maintain a level of tangible net worth which, in effect, limits the ability of the Company to make payments of cash dividends. There were no borrowings outstanding under this revolving line of credit as of June 30, 1998. The Company is currently negotiating a renewal to the line of credit agreement. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On November 28, 1995, Level One Communications Incorporated ("Level One") filed a complaint against the Company, in the United States District Court of Northern California, alleging patent infringement. In the complaint, Level One claims that the Company has used and sold products in violation of two of Level One's patents. Level One seeks immediate and permanent injunctive relief preventing the Company from making, using, or selling any devices that infringe such patents and unspecified damages. The Company intends to vigorously contest all of Level One's claims. Based on the Company's review to date, management believes that it has meritorious defenses to the claims asserted by Level One; however, there can be no assurance that the outcome of these legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. Patent litigation is often highly complex, can extend for a protracted period of time, can involve substantial cost to the Company and may divert the attention of the Company's management and technical personnel, which can substantially increase the cost of such litigation. There can be no assurance that such costs and diversion of resources will not have a material adverse effect on the Company's business, financial condition and results of operations. On January 21, 1998, the Court ruled upon certain motions filed by the Company. The Company had filed motions to declare all asserted claims of the Level One patents in the suit as invalid in view of certain prior art. As to these motions, the Court denied the Company's request. The Company also 12 13 requested leave to amend its counterclaim to add the Company's U.S. Patent 5,504,738, asserting that Level One's products, including the LXT 970 product, infringe the `738 patent in the manner in which these products incorporate an auto-negotiate feature. The Court granted the Company's motion to amend. Currently, the Level One litigation involves two Level One patents and The Company's `738 patent. The Court has set a trial date for August, 1998. [No other motions are currently pending.] ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the period for which this report is being filed. 13 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. SEEQ TECHNOLOGY INCORPORATED (Registrant) Dated: August 11, 1998 By: /s/ Phillip J. Salsbury ---------------------------------------- Phillip J. Salsbury President and Chief Executive Officer Dated: August 11, 1998 By: /s/ Gary R. Fish ---------------------------------------- Gary R. Fish Vice President, Finance, Chief Financial Officer and Secretary 14 15 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1998 JUN-30-1998 9,898 0 5,200 0 4,694 22,222 16,148 9,342 31,877 5,876 4,921 0 0 307 20,773 31,877 21,603 21,603 12,624 12,624 0 0 263 1,362 36 1,398 0 0 0 1,398 .05 .04 FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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