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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999,
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
of incorporation or organization No.]
3260 JAY STREET 95054
SANTA CLARA, CALIFORNIA Zip Code
Address of principal executive
offices
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 $215,067,589 as of March 28, 1999, 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 28,1999 was 24,976,739.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrants 1999 Annual Report to Stockholders--Part II and
Part IV.
(2) Portions of the Registrant's Proxy Statement related to the 1999 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 high-performance semiconductor solutions for sale
to original equipment manufacturers ("OEMs") of mobile computing products. To
date, all the Company's net sales have been derived from the sale of multimedia
accelerators to the notebook PC market.
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 two product lines:
the MagicGraph128 and the MagicMedia256 families of pin-compatible, multimedia
(graphics, text and video) accelerator products incorporating a 128-bit and a
256-bit memory bus, respectively. 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 this product family. In June 1998, the Company announced the industry's first
256-bit multimedia accelerator, the MagicMedia256AV. This chip integrates audio
and DVD video playback acceleration with high-performance PC graphics, into a
single twenty-one million transistor chip, with a peak internal bandwidth of 3.2
gigabytes per second. Through January 1999, the Company shipped over one million
units of the MagicMedia256AV.
The Company believes that the dramatic growth of the Internet has expanded
its market opportunities, by bringing rich multimedia content to end-users at
their offices and in their homes. It is NeoMagic's strategy to participate in
multiple market opportunities driven by these trends towards multimedia,
mobility, and the Internet. To extend beyond the notebook arena, the Company
formed the Consumer Products Division and announced plans to enter into two new
market areas: digital cameras and Digital Versatile Disk (DVD) drive solutions.
The Company recently completed two acquisitions to bolster and accelerate its
new market activities. In February 1999, the Company announced the acquisition
of the Optical Drive Storage Group, located in Manchester, England, from Mitel
Semiconductor, and the acquisition of Associative Computers, Ltd., (ACL) located
in Raanana, Israel, from Robomatix. The Company's plan includes leveraging its
MagicWare embedded DRAM technology with the intellectual properties from these
recent acquisitions to deliver innovative solutions for the capture, storage,
and playback of multimedia content for a rich internet experience on mobile
platforms.
NeoMagic has established strategic relationships with third-party
manufacturing partners 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,
DVD, 3D 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
All of the Company's net sales in fiscal 1999 were from the sale of
multimedia accelerators to notebook PC OEMs, or to third-party subsystem
manufacturers who design and manufacture notebooks on behalf of the OEMs.
Virtually all 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 notebooks sold by Acer, Compaq, Dell, Fujitsu, Gateway,
Hewlett-Packard, Hitachi, IBM, Micron, Mitsubishi, NEC, Panasonic, Sharp,
Siemens, Sony, and Toshiba.
The products in the MagicGraph128 and MagicMedia256 product families
integrate large DRAM with analog and logic circuitry on a single chip.
NeoMagic's products range from accelerators designed for notebook PCs that span
across all notebook categories including desktop replacement, mainstream, value-
oriented, ultra-portable, and entry level systems. The following table sets
forth information with respect to the Company's main products:
MEMORY
PRODUCT PROJECT STATUS SIZE KEY FEATURES
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MagicGraph128ZV+ Volume production 9Mbits Zoom Video port for live video capture, TV output
January 1998 support, ultra-portable applications
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MagicGraph128XD Volume production 16Mbits Bus master for 3D/video acceleration, Spread
June 1997 spectrum EMI* suppression, 1024x768 resolution with
greater than 65,000 colors
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MagicMedia256AV Volume production 20Mbits 256-bit integrated graphics/DVD integrated audio,
August 1998 multiple display/dual head, XGA/SXGA support, and
MagicPass-TM- EMI reduction
- -----------------------------------------------------------------------------------------------------------------
MagicWave3DX Volume production N/A Companion chip to MagicMedia256AV providing AC97
August 1998 Audio Codec function and backward compatibility to
legacy audio standards.
- ------------------------
* Electro-Magnetic Interference
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 128-bit
performance to the most cost conscious notebook computers.
MAGICGRAPH128XD. A pin-compatible alternative to the MagicGraph128ZV+, the
MagicGraph128XD offers higher display resolutions, a larger number of
displayable colors, and higher performance, providing value oriented notebooks
with flexibility in display features and price/performance levels.
MAGICMEDIA256AV. The MagicMedia256AV is the first 256-bit multimedia
accelerator, providing high-end 2D graphics performance, integrated PCI audio
controller functions, and DVD video playback acceleration in a single-chip
multimedia solution for feature-rich notebook computers. To complete the PCI
audio solution of a PC, MagicMedia256AV customers would add an AC97 audio codec
as a companion chip. As an industry-standard component, the AC97 compliant codec
can be acquired from third-party sources or from NeoMagic.
MAGICWAVE3DX. The MagicWave3DX is a companion chip to the MagicMedia256AV,
which provides AC97 compatible audio codec functions, translating the digital
audio data of the MagicMedia256AV's
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integrated audio controller into analog signals provided by the microphone or
needed by the speakers. When used together, the NeoMagic solution provides 3D
audio positioning enhancements and soft Wavetable synthesis. The MagicWave3DX
also provides additional features through its hardware compatibility with legacy
audio standards.
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 the enhancement or redesign for cost reduction
purposes of existing products that will help to maintain or increase the
Company's participation in various product areas. At January 31, 1999, the
Company had approximately 139 employees engaged in research and development.
Research and development expenses in fiscal 1999, 1998 and 1997 were $31.8
million, $16.1 million and $8.6 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 2000. 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 semiconductor solutions to the leading
manufacturers of mobile products. 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, 1999, NeoMagic employed 41 individuals in its sales, marketing and
support organizations, and maintained regional sales offices in California,
Texas, Hong Kong 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 OEM. The Company believes that this approach increases the
likelihood for 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 design the DRAM product
modules
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and NeoMagic designs the overall product, including the analog and logic
circuitry. The DRAM partners then aid 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.
NeoMagic has strategic relationships with Mitsubishi Electric Corporation
("Mitsubishi Electric"), Toshiba Corporation ("Toshiba") and Infineon
Technologies ("Infineon"), formerly Siemens Aktiengesellschaft Semiconductor
Group ("Siemens"), to produce its semiconductor wafers. 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 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 cost and quality and at
acceptable manufacturing yields, and to deliver those products to the Company on
a timely basis. A manufacturing disruption experienced by any of the Company's
manufacturing partners would have an adverse effect on 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 one of
the Company's suppliers is unsuccessful, the Company's business, financial
condition and results of operations would be materially and adversely affected.
Additionally, there can be no assurances that any of the Company's manufacturing
partners 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. The Company in the past has
experienced difficulties in some of these areas, and there can be no assurance
that in the future the Company will not experience supply-related difficulties,
which could have a material effect on the Company's business, financial
condition and results of operations.
The Company uses other third-party subcontractors to perform assembly and
testing of the Company's products. The Company develops its own software and
hardware for product testing. 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
participates 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 and reliability, price, the efficiency of
production, 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. The
Company's ability to compete in the future will also depend on its ability to
identify and ensure compliance with evolving industry standards. Unanticipated
changes in industry standards could render the Company's products incompatible
with products developed by major hardware manufacturers and software developers,
including Intel Corporation and Microsoft Corporation. The Company could be
required, as a result, to invest significant time and resources to redesign its
products or obtain license rights
Page 4
to technologies owned by third parties in order to ensure compliance with
relevant industry standards. There can be no assurance that the Company could
redesign its products or obtain the necessary third-party licenses within the
appropriate window of market demand. If the Company's products are not in
compliance with prevailing industry standards for a significant period of time,
the Company could miss crucial OEM design cycles, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company's products are designed to
afford the notebook PC manufacturer significant advantages with respect to
product performance, power consumption and size. To the extent that other future
developments in notebook PC components or subassemblies incorporate one or more
of the advantages offered by the Company's products, the market demand for the
Company's products may be negatively impacted.
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 Technologies
(ATI), Chips & Technologies, Inc. ("Chips & Technologies"- in January 1998,
Intel Corporation acquired Chips and Technologies) 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. Some of the Company's competitors,
including Chips & Technologies and Trident, have announced or introduced
multimedia accelerator products that integrate large DRAM with analog and logic
circuitry on a single chip. Certain of the Company's competitors may offer
products with more functionality and / or higher processor speeds at the expense
of battery life and power consumption than the Company's product offerings.
These feature sets may be more competitive for certain applications than the
Company's products. Potential competition also could come from manufacturers
that integrate the multimedia accelerator with other systems components. For
example, Cyrix (acquired by National Semiconductor in July 1997) is in
production of an integrated microprocessor and graphics accelerator. Further,
several of the Company's competitors have announced plans to develop products
that integrate the multimedia accelerator with the core logic chip set. The
successful commercial introduction by competitors of products that integrate
large DRAM with analog and logic circuitry on a single chip, or that eliminate
the need for a separate multimedia accelerator in notebook PCs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Some of the Company's current and potential competitors operate their own
manufacturing facilities. Since the Company does not operate its own
manufacturing facility and must make binding commitments to purchase products,
it may not be able to reduce its costs and cycle time or adjust its production
to meet changing demand as rapidly as companies that operate their own
facilities, which could have a material adverse effect on the Company's 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 ten patents, each covering
certain aspects of the design and architecture of the Company's multimedia
accelerators. The Company also acquired and/or licensed intellectual properties
in the areas of mixed signal analog design and array-based processing as part of
the February 1999 acquisitions of the Optical Drive Development Group and ACL.
Additionally, the Company and its newly acquired businesses have patent
applications pending. There can be no assurance that the Company's pending
patent applications, or any future applications will be approved. Further, there
can be no assurance that any issued patents will provide the Company with
significant intellectual property protection, 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. In addition, 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.
Page 5
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.
In December 1998, the Company filed a lawsuit in the United States District
Court for the District of Delaware against Trident Microsystems, Inc. The suit
alleges that Trident's embedded DRAM graphics accelerators infringe certain
patents held by the Company. In January 1999, Trident filed a counter claim
against the Company alleging an attempted monopolization in violation of
antitrust laws, arising from NeoMagic's filing of the patent infringement action
against Trident in December. The Company has filed for a summary motion to
dismiss the antitrust claim. There can be no assurance as to the results of the
request for summary motion, the patent infringement suit and the counter-suit
for antitrust filed by Trident.
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. For
example, in February 1997, Cirrus Logic Inc. ("Cirrus Logic") sent the Company
written notice asserting that the Company's MagicGraph128, MagicGraph128V and
MagicGraph128ZV products infringe six United States patents held by Cirrus
Logic. Since receiving the notice of alleged infringement, the Company has
advised Cirrus Logic that the Company does not believe that any of its products
infringe any claims of the patents. The Company also has undergone a
confidential external infringement review and has conducted its own internal
infringement review, and the Company continues to believe that the Cirrus Logic
infringement allegations are unfounded. However, there can be no assurances that
Cirrus Logic will not file a lawsuit against the Company or that the Company
would prevail in any such litigation. Any protracted litigation by Cirrus Logic
or the success of Cirrus Logic in any such litigation could have a material and
adverse effect on the Company's financial position or results of operations.
Further, in February 1999, the Company was contacted by two of its customers
that they have been notified of potential infringement by a holder of three
United States patents and are requesting indemnification from NeoMagic. At this
time, the Company's counsel is in the preliminary stage of analyzing these
patents but has not reached a conclusion. 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. Further, there can be no assurances that
the Company or such customers would prevail in any patent litigation, or that
such customers will continue to purchase the Company's products while the
Company is under the threat of litigation.
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
Page 6
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. These
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. Also, many of the Company's
customers are moving to "just in time" relationships with their vendors, whereby
orders for product deliveries are not provided to the supplier until just prior
to the requested delivery. 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, 1999, the Company employed a total of 234 full-time
employees, including 139 in research and development, 16 in customer service and
applications engineering, 25 in sales and marketing, 21 in manufacturing and 33
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.
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MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company as of January 31, 1999 are as follows:
NAME AGE POSITION
- ------------------------------------------ ----- --------------------------------------------------------------
Prakash C. Agarwal........................ 45 President, Chief Executive Officer and Director
Kamran Elahian............................ 44 Chairman of the Board
Niall Bartlett............................ 38 Vice President, Lab Director, NeoMagic Technology Labs
Amnon Fisher.............................. 51 Vice President, General Manager--Consumer Products
Ron Jankov................................ 40 Vice President, General Manager--Multimedia Products
Ibrahim Korgav............................ 50 Vice President, Manufacturing Operations
Dr. Clement Leung......................... 49 Vice President, R&D NeoMagic Technology Labs
Merle McClendon........................... 43 Vice President, Finance and Chief Financial Officer
Kenneth Murray............................ 48 Vice President, Human Resources
Deepraj Puar.............................. 53 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 Portable
Product Division. 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, a semiconductor
manufacturer and Momenta Corporation, a pen-based computer company. In addition
to his duties as Chairman of the Company, Mr. Elahian is the Chairman and
co-founder of PlanetWeb, Inc., an Internet software company, Chairman and
co-founder of Centillium Technology Corporation, a telecommunications
semiconductor company and Co-Chairman and founder of Schools Online, a not for
profit company. Mr. Elahian holds a BS degree in Computer Science and
Mathematics and a Masters of Engineering from the University of Utah.
Niall Bartlett joined the Company in November 1995 as Vice President,
Marketing. In February 1999, Mr. Bartlett became Vice President, Lab Director,
NeoMagic Technology Labs. Mr. Bartlett has 14 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. From 1985 to 1991, Mr. Bartlett held a number of graphics
and multimedia engineering positions while working for IBM United Kingdom
Laboratories. Mr. Bartlett holds a BS degree in Electronic Engineering from the
University of Southampton (England).
Amnon Fisher joined the Company in June 1998 as Senior Vice President and
General Manager of the Consumer Products division. Mr. Fisher has over 20 years
experience in product development, marketing, and general management in the
semiconductor industry. Prior to joining NeoMagic, Mr. Fisher served as vice
president and general manager of LSI Logic Corporation, Consumer Products
Division.
Page 8
Prior to that, Mr. Fisher held management positions at Fujitsu Microelectronics,
Digital Equipment Corporation, and National Semiconductor Corporation. Mr.
Fisher holds a Bachelor of Science in Electrical Engineering from the Israel
Institute of Technology and a Masters of Science in Electrical Engineering from
the City College of New York.
Daniel Hauck joined the Company in March 1998 as Vice President, Worldwide
Sales. Mr. Hauck has over 18 years of sales experience. Mr. Hauck joined
NeoMagic from Cirrus Logic where he spent 12 years in a variety of senior sales
management positions, most recently as Vice President, Business Development &
Asia Pacific Sales. Prior to Cirrus Logic, Mr. Hauck was employed by Technology
Marketing, Inc. and Rockwell International. Mr. Hauck is a graduate of The Ohio
Institute of Technology where he received his Bachelors in Electrical
Engineering Technology.
Ron Jankov joined the Company in October 1995 as Vice President, Worldwide
Sales. In March 1998, Mr. Jankov was promoted to Senior Vice President and
General Manager of the Multimedia Products division. Mr. Jankov has 17 years of
engineering, operations and sales 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, 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 over 20 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 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, served as Vice President,
Engineering from the Company's inception in 1993 until March 1998, when he
became Vice President, R&D, NeoMagic Technology Labs. Dr. Leung has 14 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 a SB, a SM and a Ph.D.
degree from the Massachusetts Institute of Technology.
Merle McClendon joined the Company in January 1997 as Vice President,
Finance and Chief Financial Officer. Ms. McClendon has 20 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 over 20 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 over 30 years of
engineering and management experience in the semiconductor industry, primarily
in the area of Memory and ASIC chip development. Prior to joining the Company,
Mr. Puar worked at Cirrus Logic, Signetics and Texas Instruments. Mr. Puar holds
a B.TECH degree from the Indian Institute of Technology, Kanpur (India) and a
MSEE degree from Michigan State University.
Page 9
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 90,000 square feet under leases which
expire on April 30, 2003. The Company leases offices in India, Hong Kong, Taiwan
and Texas under operating leases that expire at various times through September
2000. The Company believes its existing facilities are adequate for its current
needs, but that additional space for growth will be required in the future.
ITEM 3. LEGAL PROCEEDINGS
In December 1998, the Company filed a lawsuit in the United States District
Court for the District of Delaware against Trident Microsystems, Inc.
("Trident"). The suit alleges that Trident's embedded DRAM graphics accelerators
infringe certain patents held by NeoMagic Corporation. In January 1999, Trident
filed a counter claim against the Company alleging an attempted monopolization
in violation of antitrust laws, arising from NeoMagic's filing of the patent
infringement action against Trident in December. The Company has filed for a
summary motion to dismiss the antitrust claim. There can be no assurance as to
the results of the request for summary motion, the patent infringement suit and
the counter-suit for antitrust filed by Trident.
In February 1999, the Company was informed by two of its customers that they
have been notified of potential patent infringement by a holder of three United
States patents and are requesting indemnification from NeoMagic. At this time,
the Company's counsel is in the preliminary stage of analyzing these patents but
has not reached a conclusion. 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
NeoMagic's potential obligation to indemnify such customers will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, there can be no assurances that the Company or
such customers would prevail in any patent litigation, or that such customers
will continue to purchase products from the Company while under threat of
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Information regarding market, market price range and dividend
information appearing under the caption "Quarterly Data" on page 7 of the
Registrant's 1999 Annual Report to Stockholders is incorporated herein by
reference.
(b) As of March 28, 1999, there were approximately 214 registered holders of
record of the Registrant's Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information regarding selected financial data for fiscal years 1995 through
1999, appearing under the heading "Selected Consolidated Financial Data" on page
6 of the Registrant's 1999 Annual Report to Stockholders is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
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 1999 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY FLUCTUATIONS
The Company currently purchases all its wafers in Japanese yen, and utilizes
foreign currency forward contracts and options to minimize short-term foreign
currency fluctuation exposures related to these purchases. The Company does not
use derivative financial instruments for speculative or trading purposes. The
Company's accounting policy for these instruments is based on the Company's
designation of such instruments as hedge transactions. As of January 31, 1999,
the Company had no option contracts outstanding and its foreign currency forward
contracts were as follows:
NOTIONAL FAIR VALUE
----------- -----------
(IN MILLIONS)
Foreign Currency Forward Contracts...................................... $ 36.7 ($ 0.6)
INVESTMENT PORTFOLIO
The primary objective of the Company's investment activities is to preserve
principal and liquidity while at the same time maximizing yields, without
significantly increasing risk. To achieve this objective, the Company places its
investments in instruments that meet high credit rating standards as specified
in the Company's investment policy. The Company's investment policy also
specifies limits on the type, concentration and maturity period of the Company's
investments. The Company does not use derivative financial instruments in its
investment portfolio.
Page 11
The table below summarizes the Company's investment portfolio. The table
represents principal cash flows and related average fixed interest rates.
Principal (Notional) amounts as of January 31,1999 maturing in fiscal 2000:
FAIR VALUE
----------------------
TAXABLE NON-TAXABLE
--------- -----------
(IN THOUSANDS,
EXCEPT PERCENTAGES)
Cash and cash equivalents............................................ $ 34,616 $ 2,015
Weighted average interest rate..................................... 4.2% 3.4%
Short-term investments............................................... 32,274 23,823
Weighted average interest rate..................................... 5.3% 3.9%
--------- -----------
Total cash, cash equivalents and short-term investments.............. $ 66,890 $ 25,838
--------- -----------
--------- -----------
Interest earned on non-taxable investments receives preferential tax treatment
under the Internal Revenue Code.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements, notes thereto and the report of
independent auditors on pages 21 through 36 of the Registrant's Fiscal 1999
Annual Report to Stockholders is incorporated herein by reference. Unaudited
quarterly financial data for the two-year period ended January 31, 1999 on page
7 of the Registrant's 1999 Annual Report to Stockholders is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
Page 12
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 1999 Annual Meeting of Stockholders (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to directors is contained
in the section entitled "Election of Directors" in the 1999 Proxy Statement and
is incorporated herein by reference. 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 relating to executive compensation
and transactions is contained in the sections entitled "Election of Directors",
"Director Compensation" and "Executive Compensation" in the 1999 Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this section is contained in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
1999 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this section is contained in the section
entitled "Certain Relationships and Related Transactions" in the 1999 Proxy
Statement and is incorporated herein by reference.
Page 13
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.
Page 14
INDEX TO FINANCIAL STATMENTS AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14 (a))
REFERENCE PAGE
--------------------------
1999 ANNUAL
FORM REPORT TO
10K STOCKHOLDERS
----- -------------
Consolidated Statements of Operations for the three fiscal years ended January 31, 1999...... 21
Consolidated Balance Sheets January 31, 1999 and January 31, 1998............................ 22
Consolidated Statements of Cash Flows for the three fiscal years ended January 31, 1999...... 23
Consolidated Statements of Stockholders' Equity for the three fiscal years ended January 31,
1999....................................................................................... 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, 1999.......... 16
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 1999 Annual Report to Stockholders, 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 1999 Annual Report to Stockholders is not to be deemed filed as a
part of this report.
Page 15
NEOMAGIC CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF YEAR EXPENSE DEDUCTIONS OF YEAR
------------- ------------- ------------- -----------
Allowance for doubtful accounts:
Year ended January 31, 1997...................................... -- $ 25 -- $ 25
Year ended January 31, 1998...................................... $ 25 $ 107 -- $ 132
Year ended January 31, 1999...................................... $ 132 $ 93 -- $ 225
Page 16
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 29, 1999.
NEOMAGIC CORPORATION
By: /s/ MERLE MC CLENDON
-----------------------------------------
Merle Mc Clendon
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
- ------------------------------ Chairman of the Board April 29, 1998
Kamran Elahian
President, Chief Executive
/s/ PRAKASH AGARWAL Officer and Director
- ------------------------------ (Principal Executive April 29, 1998
Prakash Agarwal Officer)
Vice President Finance,
/s/ MERLE MCCLENDON Chief Financial Officer
- ------------------------------ (Principal Financial April 29, 1998
Merle McClendon Officer)
/s/ BRIAN P. DOUGHERTY
- ------------------------------ Director April 29, 1998
Brian P. Dougherty
/s/ IRWIN FEDERMAN
- ------------------------------ Director April 29, 1998
Irwin Federman
/s/ JIM LALLY
- ------------------------------ Director April 29, 1998
Jim Lally
/s/ KLAUS WIEMER
- ------------------------------ Director April 29, 1998
Klaus Wiemer
Page 17
INDEX TO EXHIBITS
The following Exhibits are filed as part of, or incorporated by reference
into, this Report:
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
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.
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(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(3) Amendment to Agreement dated as of November 20, 1995, between Registrant and Mitsubishi International
Corporation, as amended.
10.15 1998 Nonstatutory Stock Option Plan
10.16 Wafer Supply Agreement, dated as of March 15, 1999, between NeoMagic International Corporation,
actually-owned subsidiary of Registrant, and Siemens Aktiengesellschaft Semiconductor Group, now
operating as Infineon Technologies.
13.1 Excerpts from Annual Report for the year ended January 31, 1999.
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 Form 10-Q for the period ended
October 31, 1997.
(3) Incorporated by reference to the Company's Form 10-K for the year ended
January 31, 1998
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the fiscal year
ended January 31, 1999.
Page 18