-----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, TiLgpWYHxbz1INN5GIXXS+AufZI+hpglJ2DBsjje1CGW55hEivZ5O25Bq78d/7bP EoVQ+H6aM2QXlhSUCJvRdQ== 0000932980-96-000004.txt : 19961107 0000932980-96-000004.hdr.sgml : 19961107 ACCESSION NUMBER: 0000932980-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION STORAGE DEVICES INC /CA/ CENTRAL INDEX KEY: 0000932980 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770197173 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25502 FILM NUMBER: 96655062 BUSINESS ADDRESS: STREET 1: 2045 HAMILTON AVE CITY: SAN JOSE STATE: CA ZIP: 95125 BUSINESS PHONE: 4083692400 MAIL ADDRESS: STREET 1: 2045 HAMILTON AVE CITY: SAN JOSE STATE: CA ZIP: 95125 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 September 28, 1996 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. 0-25502 INFORMATION STORAGE DEVICES, INC. (Exact name of registrant as specified in its charter) California 77-0197173 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2045 Hamilton Avenue San Jose, CA 95125 (Address of principal executive offices, including zip code) (408) 369-2400 (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 . As of October 23, 1996, there were outstanding 9,549,726 shares of the Registrant's Common Stock. INFORMATION STORAGE DEVICES, INC. INDEX Part I - Financial Information Page Item 1. Financial Statements Condensed Balance Sheets at December 31, 1995 and September 28, 1996 ....................................1 Condensed Statements of Operations for the Three Months and Nine Months Ended September 30, 1995 and September 28, 1996.........................................2 Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1995 and September 28, 1996.........................................3 Notes to Condensed Financial Statements....................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............5 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K..........................10 Signatures................................................10 PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets (In thousands)
September 28, December 31, 1996 1995 ------------ ----------- Assets Current assets: Cash and cash equivalents ................. $ 16,683 $ 29,202 Short-term investments .................... 30,051 45,892 Accounts receivable, net .................. 4,336 7,554 Inventories ............................... 13,978 9,809 Other current assets ...................... 2,439 1,841 ------------ ----------- Total current assets ................. 67,487 94,298 Net property and equipment ..................... 5,768 5,244 Patents and other assets, net .................. 1,779 1,355 Long-term investments .......................... 7,384 4,533 ------------ ----------- Total assets ................................... $ 82,418 $ 105,430 ============ =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable .......................... $ 3,525 $ 9,784 Current portion of capitalized lease obligations.......................... 1,232 1,089 Accrued liabilities ....................... 2,407 2,312 Deferred revenue .......................... 1,885 1,834 ----------- ----------- Total current liabilities .......... 9,049 15,019 Long-term liabilities: Capitalized lease obligations, net of current portion .................... 2,147 2,630 Other non-current liabilities ............. 316 328 ----------- ----------- Total long-term liabilities ........ 2,463 2,958 Shareholders' equity: Common stock .............................. 77,502 86,256 Deferred compensation ..................... (362) (116) Retained earnings (deficit) ............... (6,214) 1,313 Unrealized gain on investments ............ (20) -- ----------- ----------- Total shareholders' equity ......... 70,906 87,453 ----------- ----------- Total liabilities and shareholders' equity.. $ 82,418 $ 105,430 =========== ===========
Condensed Statements of Operations (In thousands, except per share amounts)
Three months Nine months ended ended 9/30/95 9/30/95 9/28/96 9/28/96 Net revenues ....................... $ 8,153 $15,546 $31,671 $42,785 Cost of goods sold ................. 8,219 9,238 24,800 26,399 ------- ------- ------- ------- Gross margin ............. (66) 6,308 6,871 16,386 Operating expenses: Research and development....... 2,662 1,777 8,650 4,660 Selling, general and administrative ............ 2,620 2,173 7,649 6,180 ------- ------- ------- ------- Total operating expenses....... 5,282 3,950 16,299 10,840 ------- ------- ------- ------- Income (loss) from operations....... (5,348) 2,358 (9,428) 5,546 Interest and other income, net...... 566 295 1,900 818 ------- ------- ------- ------- Income (loss) before income taxes............ (4,782) 2,653 (7,528) 6,364 Provision for income taxes.......... 961 934 -- 2,232 ------- ------- ------- ------- Net income (loss) .................. $(5,743) $ 1,719 $(7,528) $ 4,132 ======= ======= ======= ======= Earnings (loss) pershare ........... $ (0.59) $ 0.19 $ (0.76) $ 0.49 ======= ======= ======= ======= Shares used in computing amounts per share................... 9,661 8,948 9,867 8,436
CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED 9/28/96 9/30/95 Cash flows from operating activities: Net income (loss) ................................. $(7,528) $ 4,132 Adjustments to reconcile net income (loss) to net cash provided by operating activities----- Depreciation and amortization.................... 1,849 1,429 Amortization of investment discount.............. 123 -- Compensation costs related to stock and stock option grants ............................. 207 33 Provision for allowance for doubtful accounts and returns ..................................... 20 210 Changes in assets and liabilities ----- Accounts receivable............................ 3,198 (3,246) Inventories ................................... (4,169) (1,300) Prepaid expenses and other assets ............. (592) (986) Accounts payable............................... (6,258) 1,616 Accrued liabilities............................ 95 724 Deferred revenue............................... 51 1,090 Deferred rent.................................. (12) 145 -------- -------- Net cash (used for) provided by operating activities.......................... (13,016) 3,847 -------- -------- Cash flows from investing activities: Purchase of property and equipment................. (1,764) (685) Change in other assets............................. (539) (61) Purchase of short-term investments................. (51,031) (37,285) Proceeds from maturities of short-term investments. 67,232 18,557 Purchase of long-term investments ................ (12,983) (2,529) Proceeds from maturities of long-term investments . 9,623 -- -------- -------- Net cash provided by (used for) investing activities ......................... 10,538 (22,003) -------- -------- Cash flows from financing activities: Proceeds from sale of common stock, net of issuance costs ............................. 506 69,526 Repurchase of common stock......................... (9,712) -- Payments on capitalized lease obligations.......... (835) (846) -------- -------- Net cash (used for) provided by financing activities.......................... (10,041) 68,680 -------- -------- Net (decrease) increase in cash and cash equivalents.. (12,519) 50,524 Cash and cash equivalents at beginning of period...... 29,202 7,605 -------- -------- Cash and cash equivalents at end of period ........... $ 16,683 $ 58,129 ======== ========
Notes to Condensed Financial Statements 1. Basis of Presentation: The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. 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. These condensed financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1995. The unaudited condensed financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. Inventories: Inventories consist of material, labor and manufacturing overhead and are stated at the lower of cost (first-in, first-out basis) or market. The components of inventory are as follows (in thousands):
September 28, 1996 December 31, 1995 Work-in-process................ $ 9,881 $5,706 Finished goods................ 4,097 4,103 ------ ------ $13,978 $9,809
3. Earnings (Loss) Per Share: Earnings (loss) per share has been computed using the weighted average number of shares of common stock, and, when dilutive, common equivalent shares from convertible preferred stock and common equivalent shares from stock options outstanding (using the treasury stock method). Pursuant to the Securities and Exchange Commissions Staff Accounting Bulletins, common and common equivalent shares issued during the twelve-month period prior to the Company's initial public offering in 1995 have been included in the 1995 calculation as if they were outstanding for all periods prior to the public offering (using the treasury stock method and the initial offering price). 4. Repurchase of Common Stock: In January 1996, the Company's Board of Directors approved a stock repurchase plan of up to one million shares of common stock. In July 1996, the Company's Board of Directors approved the repurchase of an additional one hundred thousand shares. For the nine months ended September 28, 1996, the Company repurchased 1,077,000 shares on the open market at prices ranging from $6.625 to $12.00 for a total of $9.7 million. Item 2. Management's Discussion And Analysis of Financial Condition and Results of Operations This report includes forward looking statements that involve a number of risks and uncertainties. The following includes a discussion of factors that, among other factors, could cause actual results to differ materially. For reference and discussion, see also "Other Factors That May Affect Operating Results" on page 16 of the ISD 1995 Annual Report and the factors discussed in ISD's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. Overview ISD designs, develops, and markets single-chip integrated circuit products for voice recording and playback, using its proprietary ChipCorder high-density multilevel storage technology and its mixed signal expertise. The Company directs its marketing and product development efforts toward the consumer, communications and industrial markets. The Company distributes its products through a direct sales organization and a worldwide network of sales representatives and distributors. The Company was incorporated in California in December 1987 and introduced its first product in February 1991. ISD subcontracts with independent foundries to fabricate the wafers for all of its products. This approach enables the Company to concentrate its resources on the design and test areas, where the Company believes it has the greatest competitive advantage, and eliminates the high cost of owning and operating a semiconductor wafer fabrication facility. The Company depends on these foundries to allocate to the Company a portion of their foundry capacity sufficient to meet the Company's needs, to produce products of acceptable quality and with acceptable manufacturing yields and to deliver those products to the Company on time. In order to reduce future manufacturing costs, the Company is designing smaller die sizes with smaller geometry processes to increase the number of die produced on each wafer. The Company's ability to remain competitive depends on migrating its manufacturing to smaller geometries, in particular certain of its products to the 0.8 micron geometry. A problem was encountered with such a transition in the first quarter of 1996, resulting in a write-off of in-line product and of a write-down of certain finished goods inventory, as well as a delay in the conversion. Although management believes the problems that delayed the 0.8 micron conversion have been corrected, expected cost reductions from this conversion have not yet been realized, and there can be no assurance that the Company's foundries will achieve or maintain acceptable cost reductions, manufacturing yields, and process control in the future or that sudden declines in yields will not occur. Failures to improve, or fluctuations in, manufacturing yields and process controls, particularly at times when the Company is experiencing severe pricing pressures from its customers or its competitors, would have a material adverse effect on the Company's results of operations. Results of Operations The following table sets forth, as a percentage of net revenues, each line item in the Company's statements of operations for the periods indicated.
- ------------------------------------------------------------------------------ Three Months Nine Months Ended Ended - ------------------------------------------------------------------------------ 9/28/96 9/30/95 9/28/96 9/30/95 Net revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 100.8 59.4 78.3 61.7 ----- ---- ---- ---- Gross margin (0.8) 40.6 21.7 38.3 ----- ---- ---- ---- Operating expenses: Research and development 32.6 11.4 27.3 10.9 Sales, general and administrative 32.1 14.0 24.2 14.4 14.4 ----- ---- ---- ---- Total operating expenses 64.7 25.4 51.5 25.3 ----- ---- ---- ---- Income (loss) from operations (65.5) 15.2 (29.8) 13.0 ----- ---- ---- ---- Other income (expense), net 6.9 1.9 6.0 1.9 ----- ---- ---- ---- Income (loss) before income taxes (58.6) 17.1 (23.8) 14.9 Provision for income taxes 11.8 6.0 -- 5.2 ----- ---- ---- ---- Net income (loss) (70.4%) 11.1% (23.8%) 9.7% ===== ==== ==== ==== - ------------------------------------------------------------------------------
Net Revenues During the nine months ended September 28, 1996, the Company's net revenues were principally derived from the sale of integrated circuits for voice recording and playback. Net revenues for the third quarter of 1996 were $8.2 million or 48% lower than the $15.5 million of net revenues for the third quarter of 1995. Revenues for the nine months ended September 28, 1996 were $31.7 million. This was a 26% decrease from the revenues of $42.8 million for the nine months ended September 30, 1995. The decrease in net revenues was the result of continued softness in demand for ISD's ChipCorder(R) single-chip integrated circuit products for voice recording and playback by consumer-oriented customers ($4.7 million less); anticipated price reductions as announced in the first quarter of 1996; and an unexpected push out of orders by a major communications-oriented customer which reduced the demand from the communications market (by about $2 million). During the third quarter, sales to the Company's top ten customers accounted for 84% of net revenues compared to 65% in the third quarter of 1995. During the third quarter of 1996, the top customers were Motorola at 23%, Marubun (the Company's Japanese distributor) at 22%, and Yes Entertainment at 16% compared to Marubun at 14%, Sanyo at 9% and Motorola at 9% for third quarter of 1995. The Company has continued to experience significant changes in its major customer base. The loss of, or significant reduction in purchases by, a current major customer would have a material adverse effect on the Company's financial condition and results of operations if the Company is unable to obtain orders from new or other customers to offset such losses or reductions. The consumer market for the Company's products remained soft compared to the previous year, but revenues derived from this market grew by more than 50% over the second quarter of 1996. Revenues from the communications market for the Company's products decreased by approximately 33% from the third quarter of 1995. The breakdown of net revenues by market segment for the third quarter of 1996 was 32% consumer, 61% communications, and 7% industrial. During the third quarter of 1995, the breakdown was approximately 47% consumer, 48% communications and 5% industrial. The Company's consumer customers in the current quarter continued purchasing the Company's products primarily for use in personal memo recorders, toys, cards, photo frames, books, and novelties. The Company's communications customers represented products consisting primarily of cellular phones, personal handy phones, pagers and telephone answering machines. The Company anticipates that the consumer market may continue to be soft throughout the remainder of 1996. The lack of market demand or the failure to develop new applications or the failure of existing markets to continue to be receptive to the Company's products or to offset reduced revenues from the consumer market could have a material adverse effect on the Company's business, financial condition, and results of operations. International sales for the third quarter of 1996 were 60%, compared to 70% for the third quarter of 1995. Sales to Asia were 49% in the third quarter of 1996, down from 61% in the third quarter of 1995, and sales to Europe were 11% in the third quarter of 1996, up from 9% in the third quarter of 1995. Sales to Japan accounted for 29% of total sales in the third quarter of 1996, up from 24% in the previous year. North American sales were 40% in the third quarter of 1996, up from 30% for the same period last year. The decrease in sales to Asia in 1996 is primarily a result of the softening in the consumer market, as mentioned above. Because of its reliance on export sales and its dependence on foundries outside the United States, the Company is subject to the risks of conducting business internationally, including foreign government regulation and general geopolitical risk such as political and economic instability, potential hostilities, changes in diplomatic and trade relationships, and currency fluctuation, any of which could have a material effect on the Company's financial conditions or results of operations. Gross Margin The Company's gross margin for the third quarter of 1996 was a loss of $66,000 compared to a profit of $6.3 million for the third quarter of 1995. Gross margin as a percentage of sales for the third quarter of 1996 decreased to (0.8%) from 41% for the third quarter of 1995. The reduction in gross margin is primarily the result of three factors: the net value ($1.6 million) of certain inventory items written off for excess and obsolescence; certain selling prices were reduced (as announced in the first quarter of 1996); and the lower net revenues which were experienced could not absorb the fixed manufacturing costs to the same extent as prior quarters. The Company is subject to a number of factors which may have an adverse impact on gross margin, including the availability and cost of product from the Company's suppliers, changes in the mix of products sold, and the timing of new product introductions and volume shipments. In addition, the markets for the Company's products are characterized by intense price competition. To the extent that the Company fails to facilitate its customers' opening of new markets, or losses revenues to competition, or experiences yield or other production problems or shortages in supply that increase its manufacturing costs, or fails to reduce its manufacturing costs, it would have a material adverse effect on the Company's financial condition and results of operations. Research and Development Research and development expenses were $2.7 million or 33% of net revenues in the third quarter of 1996, compared to $1.8 million or 11% of net revenues in the same period of 1995. The increase in research and development expense was primarily due to an increase in personnel for new product development and en- hancement of existing products. In addition, the Company increased its expenditures for materials, including wafers and masks, related to such development activities. There can be no assurance that new products will be successfully developed or achieve market acceptance, that yield problems will not arise in the future, or that the need to improve product yields might not recur with existing or new products or fabrication processes. Selling, General and Administrative Expenses Selling, general and administrative expenses were $2.6 million or 32% of net revenues in the third quarter of 1996, compared to $2.2 million or 14% of net revenues in the third quarter of 1995. The increase in selling expenses for the third quarter of 1996 continues to be a result of the Company's commitment to expanding its marketing efforts with participation in public relations, tradeshows, advertising, web site development, as well as the addition of more sales and marketing personnel. Selling expenses are expected to increase to the extent revenues increase as a result of additional personnel and increased commissions. The increases in general and administrative costs come from additional professional fees, including legal and accounting, strategic consulting, office rent, and insurance. Other Income, Net Net other income was $0.6 million for the third quarter of 1996 compared to net other income of approximately $0.3 million for the same period of 1995. Net other income for 1996 primarily represents interest income earned on the proceeds of the Company's initial and secondary public offerings of common stock. Provision for Income Taxes The Company reversed a $961 thousand income tax benefit recorded in prior quarters during 1996 because it is uncertain whether such benefits could be realized. Liquidity and Capital Resources The Company has a line of credit with a commercial bank under which the Company may borrow up to $9 million, based on eligible accounts receivable and $15 million based on eligible investments, with a term through June 30, 1997. At September 28, 1996, the Company's borrowing base was approximately $18.1 million; there are no borrowings outstanding under this line of credit, but it is being used to guarantee letters of credit. The line of credit does not restrict the Company from paying cash dividends on its capital stock but does require that the Company maintain a ratio of total indebtedness to tangible net worth of not more than 1 to 1 and a ratio of current assets to current liabilities of not less than 2 to 1. The Company is currently in compliance with all financial covenants in the line of credit agreement. As of September 28, 1996, the amount of unrestricted equity available for distribution as a result of these covenants was $43.4 million. The Company's operating activities used net cash of $13.0 million in the first nine months of 1996, primarily due to operating losses, an increase in inventory and a decrease in accounts payable. The Company's repurchase of common stock, discussed in Note 4 to Condensed Financial Statements, used $9.7 million of cash. Capital purchases were $1.8 million in the first nine months of 1996. The Company has an agreement with a capital equipment leasing company which provides a lease line of $2.0 million of which $1.0 million was available on September 28, 1996. At September 28, 1996, the Company had cash, cash equivalents and short-term investments of $46.7 million, long-term investments (taxable bonds with maturities greater than one year) of $7.4 million, and working capital of $58.4 million. The Company believes its existing cash, cash equivalents and short-term investments and its available line of credit and current equipment lease lines, will satisfy the Company's projected working capital and capital expenditure requirements through at least the next twelve months. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed herewith. Exhibit Number Exhibit Title 11.01 - Statement regarding computation of per share earnings. 27.01 - Financial Data Schedule 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. INFORMATION STORAGE DEVICES, INC. (Registrant) Date: October 25, 1996 Felix J. Rosengarten Vice President, Finance and Administration, Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) EX-10.01 2 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.01 INFORMATION STORAGE DEVICES, INC. Statement of Computation of Earnings Per Share (in thousands, except per share amounts)
Nine Months Ended ------------------ 9/28/96 9/30/95 -------- -------- Net income (loss) ($7,528) $4,132 ======== ======= Weighted average common stock 9,867 7,606 outstanding Common stock equivalents: Stock options -- 777 Warrants -- 53 -------- -------- Total shares used in computing net 9,867 8,436 income (loss) per share -------- -------- Net income (loss) per share ($ $ .76) .49 -------- --------
EX-27.01 3 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-1996 JUN-30-1996 SEP-28-1996 16,683 30,051 4,781 (445) 13,978 67,487 11,146 5,378 82,418 9,049 2,147 0 0 77,502 (6,596) 82,418 8,153 8,153 8,219 8,219 0 0 116 (4,782) 961 (5,743) 0 0 0 (5,743) (.59) (.59)
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