-----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, Wn2JSJjxdBCnqI1bSVcyslyxxwfq4uKaVtw81L4CaZ80KqdYTJUqT/lDmCkOk045 Wu45o6oRv6fK5a97pHkQbQ== 0000932980-98-000006.txt : 19980520 0000932980-98-000006.hdr.sgml : 19980520 ACCESSION NUMBER: 0000932980-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980519 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: SEC FILE NUMBER: 000-25502 FILM NUMBER: 98627576 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 April 4, 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. 0-25502 INFORMATION STORAGE DEVICES, INC. (Exact name of registrant as specified in its charter) California 77-0197173 (State or other jurisdiction of (I.R.S. 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 May 2, 1998, there were outstanding 9,853,216 shares of the Registrant's Common Stock. INDEX Part I - Financial Information Page - ------------------------------- ---- Item 1. Financial Statements Condensed Balance Sheets at December 31, 1997 and April 4, 1998............................................3 Condensed Statements of Operations for the Three Months Ended March 29, 1997 and April 4, 1998..........4 Condensed Statements of Cash Flows for the Three Months Ended March 29, 1998 and April 4, 1998..........5 Notes to Condensed Financial Statements.............................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................7 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........10 Part II - Other Information - --------------------------- Item 1. Legal Proceedings....................................................11 Item 6. Exhibits and Reports on Form 8-K.....................................11 Signatures...........................................................12 PART I FINANCIAL INFORMATION Item 1. Financial Statements CONDENSED BALANCE SHEETS ------------------------ (In thousands)
April 4, 1998 December 31, 1997 ------------- ----------------- Assets Current assets: Cash and cash equivalents $ 8,453 $ 10,102 Short-term investments 26,090 29,706 Accounts receivable, net 7,247 6,577 Inventories 12,710 7,742 Other current assets 2,550 2,265 ------------ ------------ Total current assets 57,050 56,392 Property and equipment, net 6,834 6,317 Other assets 3,299 2,146 Long-term investments 5,415 6,182 ------------ ------------ Total Assets $ 72,598 $ 71,037 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 1,471 $ 1,591 Accounts payable and accrued liabilities 11,403 9,231 Deferred revenue 1,828 1,216 ------------ ------------ Total current liabilities 14,702 12,038 Long-term liabilities 778 994 ------------ ------------ Shareholders' equity 57,118 58,005 ------------ ------------ Total Liabilities and Shareholders' Equity $ 72,598 $ 71,037 ============ ============
The accompanying notes are an integral part of these balance sheets. CONDENSED STATEMENTS OF OPERATIONS ---------------------------------- (In thousands, except per share amounts)
Three Months Ended ------------------ April 4, 1998 March 29, 1998 ------------- -------------- Net revenues $ 12,154 $ 8,342 Cost of goods sold 7,542 5,653 --------- --------- Gross margin 4,612 2,689 Operating expenses: Research and development 3,161 2,300 In-process research and development (1) -- 4,000 Selling, general and administrative 3,259 2,422 --------- --------- Total operating expenses 6,420 8,722 --------- --------- Income (loss) from operations (1,808) (6,033) Interest and other income, net 594 636 --------- --------- Income (loss) before income taxes (1,214) (5,397) Provision for income taxes -- -- --------- --------- Net loss $ (1,214) $ (5,397) ========= ========= Basic net loss per share $ (0.12) $ (0.56) ========= ========= Shares used in computing net loss per share 9,825 9,589 ========= =========
(1) In-process research and development as a result of the CompactSPEECH(TM) acquisition. The accompanying notes are an integral part of these balance sheets. CONDENSED STATEMENTS OF CASH FLOWS ---------------------------------- (In thousands)
Three Months Ended ------------------ April 4, 1998 March 29, 1997 ------------- -------------- Cash flows from operating activities: Net income (loss) $ (1,214) $ (5,397) Adjustments to reconcile net income (loss) to net cash used in operating activities----- Depreciation and amortization 1,033 651 Compensation costs related to stock and stock option grant 22 17 In-process research and development -- 4,000 Changes in assets and liabilities ----- Accounts receivable (670) (509) Inventories (4,968) (575) Prepaid expenses and other assets (285) (1,343) Accounts payable 1,695 1,513 Accrued liabilities and bonuses 477 78 Deferred revenue 612 294 Other liabilities -- 2,889 ---------- --------- Net cash used in operating activities (3,297) 1,618 Cash flows from investing activities: Purchase of property and equipment (1,491) (719) Change in other assets (1,212) 1,075 Purchase of CompactSPEECH -- (5,100) Purchase of short-term investments (5,391) (13,852) Proceeds from maturities and sale of short-term investments 9,020 18,311 Purchase of long-term investments 767 (100) ---------- --------- Net cash provided by investing activities 1,693 (385) Cash flows from financing activities: Proceeds from sale of common stock, net of issuance costs 291 222 Payments on capitalized lease obligations (336) (342) ---------- --------- Net cash used in financing activities (45) (120) Net increase (decrease) in cash and cash equivalents (1,650) 1,113 Cash and cash equivalents at beginning of period 10,102 21,927 ---------- --------- ========== ========= Cash and cash equivalents at end of period $ 8,453 $ 23,040 ========== =========
The accompanying notes are an integral part of these balance sheets. 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, 1997. 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 financial 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): April 4, 1998 December 31, 1997 ------------- ----------------- Work-in-process............................... $ 6,629 $ 4,280 Finished goods................................ 6,081 3,462 ----------- ----------- $ 12,710 $ 7,742 =========== =========== 3. Basic Net Loss Per Share: Basic net loss per share is computed using the weighted average number of shares of common stock outstanding. No diluted loss per share information has been presented in the accompanying statements of operations since potential common shares from conversion of stock options and warrants is anti-dilutive. 4. Comprehensive Income: The Company adopted Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130") as of January 1, 1998 and has restated information for all prior periods reported below to conform to this standard. Three Months Ended ------------------ April 4, 1998 March 29, 1997 ------------- -------------- Net loss...................................... $ (1,214) $ (5,397) Other Comprehensive Income: Unrealized holding gains (losses) on available for sale securities............. 30 3 ------------- ------------- Comprehensive income.......................... $ (1,184) $ (5,394) ============= ============= 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. Actual results may differ materially because of a number of factors, including those set forth under "Other Factors That May Affect Future Operating Results" on page 16 of the ISD 1997 Form 10-K filed with the Securities and Exchange Commission. Overview Information Storage Devices, Inc. ("ISD" or "The Company") designs, develops, and markets semiconductor voice solutions based on analog and digital technologies and mixed signal expertise. ISD's patented ChipCorder(R) and CompactSPEECH(R) technologies enable solid state voice recording and playback applications in the communications, consumer, and industrial markets. ChipCorder products deliver single chip solutions, simple integration, exceptional sound quality, low power consumption, battery-less voice storage, and low cost. CompactSPEECH products deliver powerful digital speech processing, advanced telecommunication capabilities, long recording times, cost effective high voice quality, multi-language speech synthesis, and battery-less voice storage. The Company distributes its products through a direct sales organization and a worldwide network of over 50 sales representatives and distributors. The Company was incorporated in California in December 1987 and commenced production shipments in 1992. ISD is an ISO 9001 certified Company. 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, development, and marketing 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 is dependent 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 products to the Company on time. Historically, the Company has experienced difficulties in each of these areas, and the Company expects that it could experience such difficulties in the future. Although the Company believes that current foundry capacity is adequate to meet the Company's anticipated needs, there can be no assurance that the Company will be able to qualify additional foundry capacity or otherwise obtain needed quantities of wafers within expected time frames or at all. Moreover, 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. Despite these trends in the Company's design of its integrated circuits, 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. In January 1998, the Company announced the completion of the ISD1500 family of products which consist of single chip, single-message voice record and playback devices that offer easy integration and added functions such as sound warping and enable customers to design innovative products. The ISD 1500 family features and enhanced proprietary multilevel, mixed-signal technology which is intended to provide improved sound quality and low system cost. The ISD1500 family includes six, ten and 20 second voice record and playback devices that do not require battery power to retain recorded messages, a feature common to all ISD devices. In March 1998, the Company introduced the ISD-T267 CompactSPEECH series of digital voice processors with advanced digital telephone answering device (DTAD) functionality and interface support for flash memories from multiple suppliers. With the parallel operation of on-chip RISC and speech processing engines, these devices offer high quality speech processing and a number of telephone features, a versatile memory interface that includes parallel and serial flash device support, and telephone memory functions that handle the storing of speed dial numbers and LCR (lowest cost routing). 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 Ended - --------------------------------------------------------- 4-4-98 3-29-97 ------ ------- Net revenues 100.0% 100.0% Cost of goods sold 62.1 67.8 ---- ---- Gross margin 37.9 32.2 ---- ---- Operating expenses: Research and development 26.0 27.6 In-process research and development (1) -- 48.0 Selling, general and administrative 26.8 29.0 Total operating expenses 52.8 104.6 ---- ----- Income (loss) from operations (14.9) (72.4) Interest and other income, net 4.9 7.6 ---- ---- Income (loss) before income taxes (10.0) (64.8) Provision for income taxes -- -- ------ ------ Net income (loss) (10.0%) (64.8%) (1) - In-process research and development as a result of the CompactSPEECH(TM) acquisition. Net Revenues During the three months ended April 4, 1998, the Company's net revenues were principally derived from the sale of integrated circuits for voice recording and playback. Net revenues for the first quarter of 1998 were $12.2 million compared to $8.3 million for the first quarter of 1997. ChipCorder products accounted for 78% of the first quarter net revenues, while CompactSPEECH products comprised the rest. Net revenues for the first quarter of 1998 represented a 47% increase over net revenues for the first quarter of 1997. This increase was caused by the greater acceptance of the ISD33000 family of ChipCorder products and the addition of the CompactSPEECH products. The failure of new or broader applications or markets to develop, or the failure of the existing market to continue to be receptive to these products, could have a material effect on net revenues and the Company's results of operations. During the first quarter of 1998, sales to the Company's top ten customers accounted for 80% of net revenues compared to 82% in the first quarter of 1997. In the first quarter of 1998, the Company's top five customers were Motorola, Marubun, Siemens, Matshusita, and V-tech. These customers accounted for 26%, 15%, 8%, 7% and 5% of first quarter net revenues, respectively. 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 were unable to obtain the orders from new or existing customers to offset such losses or reductions. The communications market in the first quarter of 1998 accounted for 77% of net revenues compared to 72% for the first quarter of 1997. The consumer and industrial markets were 14% and 9%, respectively, of net revenues for the first quarter of 1998 compared to 15% and 13%, respectively, of net revenues for the first quarter of 1997. These results reflect ISD's focus on voice solutions for the communications market. The Company's communications customers represent products which include telephone answering machines, cellular phones, cordless phones, personal handy phones and pagers. The failure of new applications or markets to develop, or the failure of existing markets, particularly the communications market, 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 first quarter of 1998 were 86% of total sales, compared to 71% for the first quarter of 1997. Sales to Europe accounted for 43% of total sales in the first quarter of 1998, up from 32% in the same period last year. Sales to Japan were 14% of total sales in the first quarter of 1998, down from 15% in the first quarter of 1997, and sales to Asia were 29% in the first quarter of 1998, down from 38% in the first quarter of 1997. North American sales were 14% in the first quarter of 1998, down from 29% for the same period last year. The Company is subject to the risk of conducting business internationally, including foreign government regulation and general geopolitical risks, such as political and economic instability, potential hostilities, changes in diplomatic and trade relationships, unexpected changes in, or imposition of, U.S. or foreign regulatory requirements, tariffs, import and export restrictions and other barriers and restrictions, potentially adverse tax consequences, the burdens of complying with a variety of foreign laws and other factors beyond the Company's control. As is common in the semiconductor industry, certain of the Company's sales are made to distributors under agreements allowing certain rights of return and price protection on unsold products. Accordingly, the Company defers recognition of such sales until the distributor sells the product. Gross Margin The Company's gross margin for the first quarter of 1998 was $4.6 million, or 38% compared to a 32% gross margin for the first quarter of 1997. This improvement in margin reflects the continued effort in manufacturing cost reduction as well as improved yields compared to the first quarter of 1997. The Company could continue to experience fluctuations in manufacturing yields, which could adversely affect gross margins, particularly if higher yields and reduced costs are not achieved. Additionally, the Company could experience variations in gross margins as a result of declines in its average selling prices or shifts in product and customer mix. Research and Development Research and development expenses were $3.2 million, or 26% of net revenues in the first quarter of 1998, compared to $6.3 million, or 76% of net revenues in the same period of 1997. The first quarter of 1997 includes the $4 million write-off for the in-process R&D associated with the acquisition of the CompactSPEECH product line. Research and development expenses could increase as a result of the Company's technology and new product activity associated with the technology announcements disclosed in the "Overview" section. However, there can be no assurance that new products will be successfully developed or achieve market acceptance, that yield problems on new or existing products utilizing new foundry processes will not arise in the future, or that product yields can be improved with respect to new or existing products. Selling, General and Administrative Expenses Selling, general and administrative expenses were $3.3 million, or 27% of net revenues in the first quarter of 1998, compared to $2.4 million, or 29% of net revenues in the first quarter of 1997. Selling, general and administrative expenses were higher than last year's equivalent quarter because of commissions associated with increased revenues and legal costs incurred related to the Atmel claim. Selling, general and administrative expenses could increase as a result of sales and marketing activities, or legal expenses incurred in connection with the Atmel litigation matter. (See Part II, Item 1.) Interest and Other Income, Net Interest and other income was $0.6 million for the first quarters of 1998 and 1997. Interest income relates to investment earnings from the proceeds of the Company's public offerings of common stock. Provision for Income Taxes Because of the loss incurred in the first quarter of 1998, the Company has made no provisions for income taxes. Provision for income tax was handled in the same manner for the first quarter on 1997. Liquidity and Capital Resources The Company has a line of credit with a commercial bank under which the Company may borrow up to $15 million based on eligible assets; the term of the credit line runs through June 30, 1998. As of April 4, 1998, the Company had no borrowings outstanding under this line of credit, but the credit line is being used to guarantee certain letters of credit generated by the Company. The line of credit does not restrict the Company from paying cash dividends on its capital stock and the only financial covenant is to maintain a minimum of pledged investments of $17.7 million in the Company's Liquidity Management account with the bank. The Company is currently in compliance with this financial covenant under the line of credit agreement. The Company's operating activities used net cash of $3.3 million in the first three months of 1998, due to the Company's net loss and to an increase in inventory of $5.0 million compared to the end of the previous quarter. Capital purchases were $1.5 million for the first three months of 1998. The Company has entered into a new operating lease agreement of $1.2 million of which $0.7 million is available over the three quarters, beginning April 5, 1998. At April 4, 1998, the Company had cash, cash equivalents, short-term and long term investments of $40 million, and working capital of $42 million. The Company believes its existing cash, cash equivalents and investments, together with its available line of credit and current equipment lease lines, will be sufficient to satisfy the Company's projected working capital and capital expenditure requirements through at least the next twelve months. Item 3. Quantitative and Qualitative Disclosures About Market Risks The Company is in the process of planning, identifying, and eliminating any problems and uncertainties associated with making the Company's software and hardware applications compliant with the Year 2000. Although management does not expect Year 2000 issues to have any material impact on its business or future results of operations, there can be no assurance that there will not be interruptions of operations or other limitations of system functionality or that the Company will not incur significant costs to avoid such interruptions or limitations. PART II OTHER INFORMATION Item 1. Legal Proceedings In January 1995, Atmel notified the Company and Samsung of certain claims and demanded that the Company and Samsung either negotiate licenses with Atmel or cease manufacturing the Company's products at Samsung. The Company received an opinion from its patent counsel, Blakely, Sokoloff, Taylor & Zafman, that the Company does not violate any of the patents identified in Atmel's notice to the Company, and the Company believes the patent claims are without merit. The Company also believes that the other claims in the notice from Atmel were without merit, and its general counsel, on January 14, 1995, after reviewing with appropriate senior and knowledgeable personnel at the Company the factual information surrounding the other claims, provided a written response to Atmel that these claims were without merit. Atmel filed a complaint on June 15, 1995 in the United States District Court for the Northern District of California which alleges causes of action against the Company for patent infringement, trade secret misappropriation, breach of written contract, breach of contract implied-in-fact, unjust enrichment and declaratory relief. Atmel, in addition to damages and injunctive relief, is seeking a declaration from the Court that Atmel is a co-owner of the Company's ChipCorder products. All the causes of action alleged in the complaint appear to be based on the same circumstances alleged in the January 1995 Atmel notice. The Company believes the causes of action in the complaint to be without merit and has had its general counsel file an answer denying any wrongful conduct and asserting counterclaims for damage caused the Company by Atmel's termination of the fabrication arrangement between the parties. The Court has bifurcated the issues related to liability and damages, and the parties are in the process of conducting discovery relating to the liability issues. On February 27, 1998, the Court issued a decision regarding the construction of the patent claims. The Company believes that this decision is at least in part favorable to the Company. On April 14, 1998, the Court issued a decision holding one of three patents invalid. While the Company does not believe the ultimate resolution of this matter will have a material impact on its business or financial position, it may have a material adverse impact on the results of operations in the period in which it is resolved. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed herewith. Exhibit Number Exhibit Title 27.01 - Financial Data Schedule (b) The Company did not file a report on Form 8-K during the period ended April 4, 1998. Signatures In accordance with 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: May 18, 1998 /S/ Felix J. Rosengarten Felix J. Rosengarten Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) EX-27 2 FDS --
5 1000 3-MOS DEC-31-1998 JAN-01-1998 APR-04-1998 8,453 26,090 7,247 0 12,710 57,050 16,884 10,050 72,598 14,702 0 0 0 79,720 (233) 72,598 12,154 12,154 7,542 7,542 0 0 (70) (1,214) 0 (1,214) 0 0 0 (1,214) (0.12) (0.12)
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