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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL ENDED JANUARY 31, 1998,
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-20031
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NEOMAGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0344424
State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization
3260 JAY STREET
SANTA CLARA, CALIFORNIA 95054
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (408) 988-7020
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
PAR VALUE
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10K. / /
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $344,020,758 as of March 22, 1998, based upon the
closing price on the Nasdaq National Market reported for such date. This
calculation does not reflect a determination that certain persons are affiliates
of the Registrant for any other purposes.
The number of shares of the Registrant's Common Stock, $.001 par value,
outstanding at March 22, 1998 was 24,371,931.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Stockholders for fiscal year ended January 31,
1998--Part II and Part IV.
(2) Portions of the Registrant's Proxy Statement related to the 1998 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange
Commission subsequent to the date hereof--Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
NeoMagic Corporation (the "Company") was incorporated as a California
corporation in May 1993. The Company was subsequently reincorporated as a
Delaware corporation in February 1997. The Company's initial public offering
occurred in March 1997. The Company operates in one industry segment. NeoMagic
designs, develops and markets multimedia accelerators for sale to notebook PC
manufactures.
Multimedia applications require the storage, processing and display of
enormous streams of data. As a result, multimedia PCs have evolved to
incorporate higher capacity storage and system memory, faster microprocessors,
improved specialized multimedia accelerators and higher quality displays.
However, due to the constraints imposed by the mobile form factor--the need for
low power consumption, small size, low weight, favorable thermal characteristics
and low cost, among others--the multimedia capabilities of notebook PCs have
historically lagged those of desktop computers. Until 1997, this limited the
effectiveness of multimedia applications in notebook PCs.
To fully mobilize multimedia, the Company believed notebook PC manufacturers
required a new approach for developing multimedia accelerators which deliver
higher performance while minimizing power consumption, system size, weight,
complexity and cost.
The Company, based on its knowledge of and experience in the industry,
believes it has developed the first commercially available high performance
silicon technology that integrates large DRAM memory with analog and logic
circuitry to provide multimedia solutions on a single chip. NeoMagic has
pioneered a new technology to provide multimedia semiconductor solutions for
notebook PCs which overcomes the limitations of traditional architectures. Using
this technology, the Company has developed its first product line: the
MagicGraph128 family of pin-compatible, multimedia (graphics, text and video)
accelerator products incorporating a 128-bit memory bus. These products provide
state-of-the art multimedia capability while decreasing power consumption, size,
weight, system design complexity and cost. The Company introduced its first
MagicGraph128 product in March 1995, and is currently in production with the
fourth generation of its MagicGraph128 product family.
NeoMagic has established strategic relationships with Mitsubishi Electric
Corporation ("Mitsubishi Electric") and Toshiba Corporation ("Toshiba") to
produce semiconductor wafers for the Company's products. Pursuant to these
strategic relationships, NeoMagic designs the overall product, including the
logic and analog circuitry, and the manufacturing partners designs the DRAM
modules, manufactures the wafers and performs memory testing and repair.
NeoMagic is focused on leveraging its core competencies in logic, analog and
memory integration, graphics/video and other multimedia technologies, driver and
BIOS software, and power management in its continued development of solutions
that facilitate the mobilization of multimedia applications.
PRODUCTS
The Company sells its products to notebook PC original equipment
manufacturers (OEMs) as well as to third-party subsystem manufacturers who
design and manufacture notebook PCs on behalf of the brand name OEMs. Sixteen of
the world's largest notebook PC manufacturers have designed or are designing
notebook PCs to include NeoMagic products. NeoMagic products are currently used
in notebook PCs sold by Acer, Compaq, Dell, Fujitsu, Gateway 2000,
Hewlett-Packard, Hitachi, IBM, Micron, Mitsubishi, NEC, Panasonic, Sharp,
Siemens, Sony, and Toshiba. NeoMagic sells its products either directly to these
companies or to subcontractors of such companies.
Each product in the MagicGraph128 line of pin-compatible 128-bit multimedia
accelerators integrates large DRAM with analog and logic circuitry on a single
176-pin chip. NeoMagic's family of products range
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from accelerators designed for notebook PCs that target cost-conscious consumers
to fully-featured multimedia systems designed for high-end notebook PCs. The
following table sets forth information with respect to each of the Company's
first five products:
MEMORY KEY FEATURES
PRODUCT PRODUCT STATUS SIZE ADDED WITH NEW GENERATION
- -------------------- ------------------ ---------- -----------------------------------------------------------
MagicGraph128 Volume production 7Mbits 128-bit multimedia accelerator
Feb 1996 Active and passive LCD panel interface
18 bit RAMDAC
Less than 500mW power dissipation
800x600 resolution with 256 colors
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MagicGraph128V Volume production 9Mbits Video acceleration for MPEG playback
June 1996 24-bit RAMDAC
800x600 resolution with greater than 65,000 colors
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MagicGraph128ZV Volume production 9Mbits Zoom Video port for live video capture
September 1996 TV output support
MagicGraph128ZV+ Volume production 9Mbits Low cost solution for Entry level
January 1998 and ultra-portable applications
- -----------------------------------------------------------------------------------------------------------------
MagicGraph128XD Volume production 16Mbits Bus master for 3D/video acceleration
June 1997 Spread spectrum EMI* suppression
1024x768 resolution with greater then 65,000 colors
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* Electro-Magnetic Interference
MAGICGRAPH128. The Company believes that the MagicGraph128, its first
product, is the industry's first 128-bit, single-chip graphics accelerator for
notebook computers. The MagicGraph128 provides high performance graphics for
mainstream business and consumer notebooks while decreasing power consumption,
size, system design complexity and cost.
MAGICGRAPH128V. The MagicGraph128V builds on the capabilities of the
MagicGraph128 by adding support for more colors and full-motion video. Optimized
for mobile business professionals who perform multimedia presentations with
sound and motion, the MagicGraph128V provides MPEG playback with full screen and
full motion video at 30 frames per second with true color.
MAGICGRAPH128ZV. The MagicGraph128ZV adds zoom video capability (for
capturing and displaying TV or video images) and television output capability to
the MagicGraph128V. The MagicGraph128ZV provides a fully-featured multimedia
solution for mid-range and high-end notebook PCs with 800x600 LCD displays.
MAGICGRAPH128ZV+. The MagicGraph128ZV+ provides a value-oriented multimedia
solution for entry level and ultra portable notebook computers. The
MagicGraph128ZV+ provides a Microsoft PC97 compliant feature set with 128bit
performance to the most cost conscious notebook computers.
MAGICGRAPH128XD. By offering higher display resolutions, a larger number of
displayable colors, and higher performance, the MagicGraph128XD is designed to
provide desktop-replacement capabilities to high-end notebooks. The
MagicGraph128XD is designed to deliver performance enhancements for Microsoft
Direct3D. These enhancements accelerate animation, games and business
applications utilizing 3D in a Windows environment.
RESEARCH AND DEVELOPMENT
The Company considers the timely development and introduction of new
products to be essential to maintaining its competitive position and
capitalizing on market opportunities. Research and development efforts focus on
the design of new products and enhancements of existing ones that will help to
maintain or increase the Company's participation in various product areas. At
January 31, 1998, the Company had
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approximately 91 employees engaged in research and development. Research and
development expenses in fiscal 1998, 1997 and 1996 were $16.1 million, $8.6
million and $4.9 million, respectively. The Company has made and intends to
continue to make significant investments in research and development to remain
competitive by developing new and enhanced products to serve its identified
markets. Research and development expenses are expected to increase in absolute
dollars in fiscal 1999. The development and successful introduction of new
products presents a variety of risks and there can be no assurance that these or
other product development efforts will be completed at the time the Company
expects, or that new products will be accepted in the marketplace.
SALES AND MARKETING
NeoMagic's sales and marketing strategy is an integral part of the Company's
effort to become the leading supplier of multimedia accelerators to the leading
manufacturers of notebook PCs. To meet customer requirements and achieve design
wins, the Company's sales and marketing personnel work closely with its
customers, business partners and key industry trend setters to define product
features, performance, price, and market timing of new products. The Company
employs a sales force with a high level of technical expertise and product and
industry knowledge to support a lengthy and complex design win process.
Additionally, the Company employs a highly trained team of application engineers
to assist customers in designing, testing and qualifying system designs that
incorporate NeoMagic products. The Company believes that the depth and quality
of this design support are key to improving customers' time-to-market deliveries
and, maintaining a high level of customer satisfaction which encourages
customers to utilize subsequent generations of NeoMagic's products.
In the United States, the Company sells its products to key customers
primarily through direct sales. In Japan, DIA Semicon acts as the Company's
sales representative. In Taiwan, Regulus acts as the Company's sales
representative, with support from the Company's Taiwan country manager. As of
January 31, 1998, NeoMagic employed 25 individuals in its sales, marketing and
support organization and maintained regional sales offices in Santa Clara,
California, Austin, Texas, Japan and Taiwan.
In many cases, notebook PCs are designed and manufactured by third party
system manufacturers on behalf of the final brand name OEM. NeoMagic focuses on
developing long-term customer relationships with both the system manufacturer
and the brand name OEMs. The Company believes that this approach increases the
likelihood of design wins, improves the overall quality of support and enables
the timely release of customer products to market.
MANUFACTURING
The Company's products require semiconductor wafers manufactured with
state-of-the-art fabrication equipment and technology. The Company's products
are designed to be manufactured in accordance with the DRAM partners' design
rules and manufacturing processes. Each DRAM partner has a design team dedicated
to NeoMagic product development. The DRAM partners designs the DRAM product
modules, and NeoMagic designs the overall product, including the analog and
logic circuitry. The DRAM partners then aids the Company in design verification
prior to production. The DRAM partners manufacture the wafers, perform memory
testing and repair, and sell the Company finished wafers, with pricing
determined on a quarterly basis. The Company uses subcontractors to perform
assembly, packaging and final test. The Company develops its own software and
hardware for product testing.
NeoMagic has established strategic relationships with Mitsubishi Electric
and Toshiba to produce its semiconductor wafers and uses other independent
contractors to perform assembly, packaging and testing. The Company's
relationships with Mitsubishi Electric and Toshiba are formalized in separate
five year wafer supply agreements. These relationships enable the Company to
concentrate its resources on product design and development, where NeoMagic
believes it has greater competitive advantages, and to eliminate the high cost
of owning and operating a semiconductor wafer fabrication facility. The Company
depends
4
on these suppliers to allocate to the Company a portion of their manufacturing
capacity sufficient to meet the Company's needs, to produce products of
acceptable quality and at acceptable manufacturing yields and to deliver those
products to the Company on a timely basis. A manufacturing disruption
experienced by either of the Company's manufacturing partners would impact the
production of the Company's business, financial condition and results of
operations. Furthermore, in the event that the transition to the next generation
of manufacturing technologies at Mitsubishi Electric or Toshiba is unsuccessful
the Company's business, financial condition and results of operations would be
materially and adversely affected. Additionally, there can be no assurance that
either Mitsubishi Electric or Toshiba will continue to devote resources to the
production of the Company's products or continue to advance the process design
technologies on which the manufacturing of the Company's products are based. Any
such difficulties would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's products are assembled and tested by third party
subcontractors. The Company does not have long-term agreements with any of these
subcontractors. As a result of this reliance on third party subcontractors to
assemble and test its products, the Company cannot directly control product
delivery schedules, which could lead to product shortages or quality assurance
problems that could increase the costs of manufacturing or assembly of the
Company's products. Due to the amount of time normally required to qualify
assembly and test subcontractors, if the Company is required to find alternative
subcontractors, shipments could be delayed significantly. Any problems
associated with the delivery, quality or cost of the assembly and test of the
Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The market for multimedia accelerators for notebook PCs in which the Company
operates is intensely competitive and is characterized by rapid technological
change, evolving industry standards and declining average selling prices.
NeoMagic believes that the principal factors of competition in this market are
performance, price, features, power consumption, size and software support. The
ability of the Company to compete successfully in the rapidly evolving notebook
PC market depends on a number of factors, including success in designing and
subcontracting the manufacture of new products that implement new technologies,
product quality, reliability, price, the efficiency of production, design wins
for NeoMagic's integrated circuits, ramp up of production of the Company's
products for particular system manufacturers, end-user acceptance of the system
manufacturers' products, market acceptance of competitors' products and general
economic conditions. There can be no assurance that the Company will be able to
compete successfully in the future.
NeoMagic competes with major domestic and international companies, some of
which have substantially greater financial and other resources than the Company
with which to pursue engineering, manufacturing, marketing and distribution of
their products. The Company's principal competitors include ATI ("ATI"), Chips &
Technologies, Inc. ("Chips & Technologies"-in January 1998, Intel Corporation
acquired Chips and Technologies.), S3 Incorporated ("S3") and Trident
Microsystems, Inc. ("Trident"). NeoMagic may also face increased competition
from new entrants into the notebook PC multimedia accelerator market including
companies currently selling products designed for desktop PCs. Furthermore, the
Company expects that many of its competitors will seek to develop and introduce
products that integrate large DRAM with analog and logic circuitry on a single
chip. For example, Chips & Technologies, Trident and S3 have announced that they
have or will begin sampling an integrated multimedia accelerator solution for
the notebook PC market that would directly compete with the Company's products.
Competition also exists from manufacturers that integrate a microprocessor with
a multimedia controller. Cyrix ("Cyrix" acquired by National Semiconductor in
July 1998) is in production with such a product. The successful commercial
introduction of a product by competitors that integrates large DRAM with analog
and logic circuitry on a single chip or a product that eliminates the need for a
separate multimedia
5
accelerator in notebook PCs could have a material adverse effect on the
Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company relies in part on patents to protect its intellectual property.
In the United States, the Company has been issued five patents, each covering
certain aspects of the design and architecture of the Company's multimedia
accelerators. In addition, the Company has patent applications pending in the
United States Patent and Trademark Office (the "PTO"). There can be no assurance
that the Company's pending patent applications or any future applications will
be approved, or that any issued patents will provide the Company with
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to do
business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or
design around any patents that may be issued to the Company.
The Company also relies on a combination of mask work protection,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its intellectual
property. Despite these efforts, there can be no assurance that others will not
independently develop substantially equivalent intellectual property or
otherwise gain access to the Company's trade secrets or intellectual property or
disclose such intellectual property or trade secrets or that the Company can
meaningfully protect its intellectual property. A failure by the Company to
meaningfully protect its intellectual property could have a material adverse
effect on the Company's business, financial condition and results of operations.
As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property rights.
The Company in the past has been, and in the future may be, notified that it may
be infringing the intellectual property rights of third parties. In November
1994, Cirrus Logic filed suit against the Company and certain of its employees
claiming, among other things, breach of fiduciary duty, breach of and
interference with contract and misappropriation of trade secrets. The Company
and Cirrus Logic settled the lawsuit in June 1996, but the Company incurred an
aggregate of $703,000 in expenses in connection with such litigation during
fiscal 1995 and fiscal 1996. This settlement did not involve cash payments, but
did include a non-solicitation provision and certain contingent cross-licensing
provisions. In February 1997, the Company received a written notice from Cirrus
Logic asserting that the Company's MagicGraph128, MagicGraph128V and
MagicGraph128ZV products infringe three United States patents held by Cirrus
Logic. The Company believes that the Company's MagicGraph128, MagicGraph128V and
MagicGraph 128ZV products do not infringe any of the claims of these patents.
The Company's belief is based upon a legal opinion from its patent counsel,
Townsend and Townsend and Crew LLP ("Townsend"). However, there can be no
assurance that Cirrus Logic will not file a lawsuit against the Company or that
the Company would prevail in any such litigation.
Further, the Company was notified by certain of its customers that a law
suit had been filed and served by a holder of a United States patent asserting
that the video/graphics subsystem in such customers' notebook PCs, which use the
Company's MagicGraph128 and MagicGraph128V products, infringe certain claims of
the patent. The Company may have certain indemnification obligations to
customers with respect to the infringement of third-party intellectual property
rights by its products. There can be no assurance that the Company's potential
obligations to indemnify such customers will not have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company believes that the Company's MagicGraph128 and MagicGraph128V products do
not infringe any of the claims of such patent. The Company's belief is based
upon a legal opinion from its patent counsel, Townsend and Townsend and Crew
LLP. There can be no assurances that the holder of such patent will not file a
lawsuit against the Company or its customers, that the Company or such customers
would prevail in any patent litigation, or that such customers will continue to
purchase the Company's products under the threat of litigation.
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Any patent litigation, whether or not determined in the Company's favor or
settled by the Company, would at a minimum be costly and could divert the
efforts and attention of the Company's management and technical personnel from
productive tasks, which could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that current or future infringement claims by third parties or claims
for indemnification by other customers or end users of the Company's products
resulting from infringement claims will not be asserted in the future or that
such assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition and results of operations. In the event
of any adverse ruling in any such matter, the Company could be required to pay
substantial damages, which could include treble damages, cease the
manufacturing, use and sale of infringing products, discontinue the use of
certain processes or to obtain a license under the intellectual property rights
of the third party claiming infringement. There can be no assurance, however,
that a license would be available on reasonable terms or at all. Any limitations
on the Company's ability to market its products, or delays and costs associated
with redesigning its products or payments of license fees to third parties, or
any failure by the Company to develop or license a substitute technology on
commercially reasonable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
BACKLOG
Sales of the Company's products are primarily made pursuant to standard
purchase orders that are cancelable without significant penalties. In addition,
purchase orders are subject to price renegotiations and to changes in quantities
of products and delivery schedules in order to reflect changes in customers'
requirements and manufacturing availability. A large portion of the Company's
sales are made pursuant to short lead time orders. In addition, the Company's
actual shipments depend on the manufacturing capacity of the Company's suppliers
and the availability of products from such suppliers. As a result of the
foregoing factors, the Company does not believe that backlog is a meaningful
indicator of future sales.
EMPLOYEES
As of January 31, 1998, the Company employed a total of 162 full-time
employees, including 91 in research and development, 10 in customer service and
applications engineering, 15 in sales and marketing, 19 in manufacturing and 27
in finance and administration. The Company also employs, from time to time, a
number of temporary and part-time employees as well as consultants on a contract
basis. The Company's employees are not represented by a collective bargaining
organization, and the Company believes that its relations with its employees are
good.
7
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company as of January 31, 1998 are as follows:
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
Prakash C. Agarwal.............................. 44 President, Chief Executive Officer and Director
Kamran Elahian.................................. 43 Chairman of the Board
Niall Bartlett.................................. 37 Vice President, Marketing
Ron Jankov...................................... 39 Vice President, Sales
Ibrahim Korgav.................................. 49 Vice President, Manufacturing Operations
Dr. Clement Leung............................... 48 Vice President, Engineering
Merle McClendon................................. 42 Vice President, Finance and Chief Financial
Officer
Kenneth Murray.................................. 47 Vice President, Human Resources
Deepraj Puar.................................... 52 Vice President, Technology
Prakash C. Agarwal, a co-founder of the Company, has been President, Chief
Executive Officer, and a Director of the Company since its inception in 1993.
Mr. Agarwal has over 20 years of engineering, marketing, and general management
experience in the semiconductor industry. Prior to joining the Company, he was
employed as Vice President and General Manager of Cirrus Logic's ("Cirrus
Logic") Portable Product Division, a semiconductor manufacturer. Mr. Agarwal
holds a BS and a MS degree in Electrical Engineering from the University of
Illinois.
Kamran Elahian, a co-founder of the Company, has been Chairman of the Board
since the Company's inception in 1993. Mr. Elahian has co-founded several
Silicon Valley companies since 1981, including CAE Systems, Inc., a
computer-aided engineering software company, Cirrus Logic and Momenta
Corporation, a pen-based computer company. In addition to his duties as Chairman
of the Company, Mr. Elahian is the Chairman and Chief Executive Officer of
PlanetWeb, Inc., an Internet software company, Chairman and Chief Executive
Officer of Centillium, a telecommunications semiconductor company and the
Chairman of Project Neat, Inc., a not for profit company. Mr. Elahian holds a BS
in Computer Science, a BS in Mathematics and a Masters of Engineering from the
University of Utah.
Niall Bartlett joined the Company in November 1995 as Vice President,
Marketing. Mr. Bartlett has 13 years of marketing and engineering experience in
display and multimedia systems. From 1994 to 1995, he was employed as Multimedia
Business Unit Director at Integrated Circuit Systems, Inc., a semiconductor
manufacturer. From 1991 to 1994, Mr. Bartlett was Director of Marketing and
Development of the semiconductor division of Media Vision, Inc., a multimedia
company. Mr. Bartlett holds a BS degree in Electronic Engineering from the
University of Southampton (England).
Ron Jankov joined the Company in October 1995 as Vice President, Sales. Mr.
Jankov has 16 years of engineering, operations and sale management experience in
the semiconductor industry. From 1994 to 1995 he was employed by Cyrix
Corporation, a microprocessor manufacturer, as its Vice President of Asia
Operations. From 1990 to 1994, he served as General Manager of Accell, a Taiwan-
based semiconductor engineering and sales company. Mr. Jankov holds a BS degree
in Physics from Arizona State University.
Ibrahim Korgav joined the Company in 1994 as Vice President, Manufacturing
Operations. Mr. Korgav has 21 years of experience in manufacturing management in
the semiconductor industry. Prior to joining the Company, Mr. Korgav was the
Vice President of Quality/Operations and a co-founder of Micro Linear
Corporation, a semiconductor manufacturer. Mr. Korgav holds a BS degree in
Engineering
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from Middle East Technical University (Ankara, Turkey) and a MS degree in
Mechanical Engineering from the University of Tulsa.
Dr. Clement Leung, a co-founder of the Company, has served as Vice
President, Engineering since the Company's inception in 1993. Dr. Leung has 13
years of engineering and management experience in the semiconductor industry,
primarily in the areas of integrated circuit design and computer-aided design
systems. Prior to joining the Company, he was employed as Director of
Engineering of Cirrus Logic's Portable Product Division. Dr. Leung holds an SB,
an SM and a Ph.D. degree from the Massachusetts Institute of Technology.
Merle McClendon joined the Company in January 1997 as its Vice President,
Finance and Chief Financial Officer. Ms. McClendon has 19 years of finance
experience. From 1993 through 1996, Ms. McClendon was Vice President and
Corporate Controller at S3 Inc., a semiconductor company. From 1980 to 1993, Ms.
McClendon was employed by Deloitte and Touche, most recently as a Senior
Manager. Ms. McClendon is a Certified Public Accountant and holds a BS degree in
Business Administration from San Jose State University.
Kenneth Murray joined the Company in October 1997 as Vice President, Human
Resources. Mr. Murray has 25 years of human resource experience. Prior to
joining the Company, Mr. Murray was Vice President, Human Resources at Akashic
Memories Corporation, a magnetic media company. Mr. Murray holds a BS degree in
Business Administration from San Jose State University.
Deepraj Puar, a co-founder of the Company, has been Vice President,
Technology since the Company's inception in 1993. Mr. Puar has 27 years of
engineering and management experience in the semiconductor industry, primarily
in the area of memory design and development. Prior to joining the Company, Mr.
Puar was employed by Cirrus Logic as its Director of Memory and Circuits
Engineering. Mr. Puar holds a B.TECH degree from the Indian Institute of
Technology (India) and a MSEE degree from Michigan State University.
ITEM 2. PROPERTIES
The Company's corporate headquarters, which is also its principal
administrative, selling and marketing, customer service, applications
engineering and product development facility, is located in Santa Clara,
California and consists of approximately 45,000 square feet under a lease which
expires on April 30, 2003. Effective January, 1998 the Company entered into a
second noncancellable operating lease for a second 45,000 square foot building
adjacent to its principal headquarters. This lease has a coterminous provision
with the original lease expiring on April, 2003. The Company also leases sales
offices in Austin, Texas and Taiwan under operating leases that expire in
February, 1999 and April, 1999, respectively. The Company believes its existing
facilities are adequate for its current needs and that additional space for
growth will be met as the expiration of the current sublease arrangements occur.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Reference is made to the information regarding market, market price range
and dividend information appearing under "Quarterly Data (Unaudited)" on
page 7 of the Registrant's Fiscal 1998 Annual Report which information is
hereby incorporated by reference.
(b) As of March 22, 1998, there were approximately 228 registered holders of
record of the Registrant's Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Reference is made to the information regarding selected financial data for
the period from May 26, 1993 (inception) through January 31, 1994 and fiscal
years 1995 through 1998, under the heading "Financial Summary" on page 6 of the
Registrant's Fiscal 1998 Annual Report, which information is hereby incorporated
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Reference is made to the information appearing under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 8 through 20 of the Registrant's Fiscal 1998 Annual Report,
which information is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of NeoMagic Corporation at January 31,
1998 and January 31, 1997 and for each of the three years in the period ended
January 31, 1998 and notes thereto, and the Report of Independent Auditors
thereon and NeoMagic Corporation's unaudited quarterly financial data for the
two-year period ended January 31, 1998 are incorporated by reference from the
Registrant's Fiscal 1998 Annual Report, on pages 21 to 36 and page 7.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
10
PART III
Certain information required by Part III is incorporated by reference from
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Company's 1998 Annual Meeting of Stockholders (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this section is incorporated by reference from
the information in the section entitled "Election of Directors" in the Proxy
Statement. The required information concerning executive officers of the Company
is contained in the section entitled "Management" in Part I of this Form 10-K.
Item 405 of Regulation S-K calls for disclosure of any known late filing of
failure by an insider to file a report required by Section 16 of the Exchange
Act. This disclosure is contained in the section entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this section is incorporated by reference from
the information in the sections entitled "Election of Directors," "Director
Compensation" and "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this section is incorporated by reference from
the information in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The financial statements listed in the accompanying index to financial
statements and financial statement schedules are filed or incorporated
by reference as a part of this report.
2. Financial Statement Schedule.
The financial statement schedule listed in the accompanying index to
financial statements and financial statement schedules is filed as a
part of this report and should be read in conjunction with the
Consolidated Financial Statements of NeoMagic Corporation.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as a part of this report.
(b) Reports on Form 8-K
None.
12
INDEX TO FINANCIAL STATMENTS AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14 (A))
REFERENCE PAGE
--------------------------
1998 ANNUAL
FORM REPORT TO
10K STOCKHOLDERS
----- -------------
Consolidated Statements of Operations for the three fiscal years ended
January 31, 1998.................................................................... 21
Consolidated Balance Sheets
January 31, 1998 and January 31, 1997............................................... 22
Consolidated Statements of Cash Flows for the three fiscal years ended
January 31, 1998.................................................................... 23
Consolidated Statements of Stockholders' Equity for the three fiscal years
ended January 31, 1998.............................................................. 24
Notes to Consolidated Financial Statements............................................ 25-35
Report of Ernst & Young LLP Independent Auditors...................................... 36
Supplementary Information (Unaudited)
Selected Quarterly Consolidated Financial Data...................................... 7
Valuation and Qualifying Accounts for the three fiscal years ended
January 31, 1998.................................................................... 14
Schedules other that the one listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
The consolidated financial statements listed in the above index, which are
included in the Company's Fiscal 1998 Annual Report, are hereby incorporated by
reference. With the exception of the pages listed in the above index and the
portions of such report referred to in Items 5, 6, 7 and 8 of this Form 10-K,
the Fiscal 1998 Annual Report is not to be deemed filed as a part of this
report.
13
NEOMAGIC CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSE DEDUCTIONS END OF YEAR
------------- ------------- --------------- -----------
Allowance for doubtful accounts:
Year ended January 31, 1996...................................... -- -- -- --
Year ended January 31, 1997...................................... -- $ 25 -- $ 25
Year ended January 31, 1998...................................... $ 25 $ 107 -- $ 132
14
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, on April 22, 1998.
NEOMAGIC CORPORATION
By: /s/ MERLE MCCLENDON
-----------------------------------
Merle McClendon
VICE PRESIDENT, FINANCE AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL
OFFICER)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the date indicated:
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
/s/ KAMRAN ELAHIAN April 22, 1998
------------------------------------------- Chairman of the Board
Kamran Elahian
/s/ PRAKASH AGARWAL President, Chief Executive Officer and April 22, 1998
------------------------------------------- Director (Principal Executive Officer)
Prakash Agarwal
/s/ MERLE MCCLENDON Vice President Finance, Chief Financial April 22, 1998
------------------------------------------- Officer (Principal Financial Officer)
Merle McClendon
/s/ BRIAN P. DOUGHERTY April 22, 1998
------------------------------------------- Director
Brian P. Dougherty
/s/ IRWIN FEDERMAN April 22, 1998
------------------------------------------- Director
Irwin Federman
/s/ JIM LALLY April 22, 1998
------------------------------------------- Director
Jim Lally
/s/ MICHAEL MORITZ April 22, 1998
------------------------------------------- Director
Michael Moritz
/s/ KLAUS WIEMER April 22, 1998
------------------------------------------- Director
Klaus Wiemer
15
INDEX TO EXHIBITS
The following Exhibits are filed as part of, or incorporated by reference into,
this Report:
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
1.1(1) Form of Underwriting Agreement.
3.1(1) Certificate of Incorporation of Registrant.
3.2(1) Form of Amended and Restated Certificate of Incorporation of Registrant to be filed upon the closing
of the Offering made under the Registration Statement.
3.3(1) Bylaws of Registrant.
4.1(1) Form of Registrant's Common Stock Certificate.
4.2(1) Second Amended Rights Agreement, dated as of June 30,1995, between Registrant and the parties
indicated therein.
10.1(1) Form of Indemnification Agreement entered into by Registrant with each of its directors and
executive officers.
10.1(2) Lease Agreement, dated as of October 9,1997, between Registrant and A&P Family Investments, as
landlord for the leased premises located at 3250 Jay Street.
10.2(1) Amended and Restated 1993 Stock Plan and related agreements.
10.2(2) Amendment 1, dated as of October 15, 1997, between Registrant and A&P Family Investments, as
landlord for the leased premises located at 3260 Jay Street.
10.3(1) Second Amended and Restated Rights Agreement, dated as of June 30, 1995, between Registrant and the
parties indicated therein (included in Exhibit 4.2).
10.3(2) Amendment to Agreement dated as of November 20, 1995, between Registrant and Mitsubishi
International Corporation, as amended.
10.4(1) Wafer Supply Agreement, dated as of January 21, 1997, between NeoMagic International Corporation,
actually-owned subsidiary of Registrant, and Mitsubishi Electric Corporation.
10.5(1) Form of promissory note.
10.6(1) Lease Agreement, dated as of February 5, 1996, between Registrant and A&P Family Investments, as
landlord.
10.8(1) Master Lease Agreement, as amended, dated as of November 24, 1993, between Registrant and Comdisco,
Inc., and certain exhibits thereto.
10.9(1) Master Lease Agreement, dated as of July 19, 1995, between Registrant and Venture Lending & Leasing,
Inc., and certain exhibits thereto.
10.10(1) Agreement, dated as of November 20, 1995, between Registrant and Mitsubishi International
Corporation as amended.
10.11(1) General Security Agreement, dated November 15, 1995, between Registrant and Mitsubishi International
Corporation.
10.13(1) 1997 Employee Stock Purchase Plan, with exhibit
10.14 Amendment to Agreement dated as of November 20, 1995, between Registrant and Mitsubishi
International Corporation, as amended.
13.1 Excerpts from Annual Report for the year ended January 31, 1998.
21.0 NeoMagic Subsidiaries.
23.0 Consent of Ernst & Young, LLP, Independent Auditors.
27.0 Financial Data Schedule.
- ------------------------
(1) Incorporated by reference to the Company's S-1 for the year ended January
31, 1997
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended October 31, 1997.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the fiscal year
ended January 31, 1998.