<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 1, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
COMMISSION FILE NUMBER 0-17191
WEITEK CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2709963
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1060 EAST ARQUES AVENUE, SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 738-8400
(Former name, former address and former fiscal year,
if changed since last report)
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
8,531,866 shares of common stock at August 1, 1995
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<PAGE> 2
WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
JULY 1, 1995
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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<PAGE> 3
WEITEK CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1995 December 31, 1994
------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,425 $ 1,532
Short-term investments 4,699 7,032
-------- --------
Total cash and short-term investments 8,124 8,564
Accounts receivable, net of allowances
of $764 and $756 2,391 4,143
Inventories 1,035 2,588
Prepaid expenses and other 492 412
-------- --------
Total current assets 12,042 15,707
Equipment and leasehold improvements, net 1,495 1,731
Other assets 2 2
-------- --------
$ 13,539 $ 17,440
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,527 $ 5,314
Accrued compensation and employee benefits 1,373 2,006
Other current liabilities 862 982
-------- --------
Total current liabilities 5,762 8,302
-------- --------
Commitments
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized, no par
value, no shares outstanding -- --
Common stock, 50,000,000 shares authorized, no par
value, 8,530,640 and 8,293,839 shares outstanding 22,814 22,335
Retained earnings (deficit) (15,037) (13,197)
-------- --------
Total shareholders' equity 7,777 9,138
-------- --------
$ 13,539 $ 17,440
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 1, 1995 July 2, 1994 July 1, 1995 July 2, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue $ 5,100 $ 5,300 $11,000 $15,600
Cost of revenue 3,095 5,995 6,930 11,075
------- ------- ------- -------
Gross margin 2,005 (695) 4,070 4,525
Research and development 1,988 2,496 3,991 4,975
Sales and marketing 701 1,893 1,424 3,884
General and administrative 356 551 720 1,096
------- ------- ------- -------
Operating loss (1,040) (5,635) (2,065) (5,430)
Other income 125 85 225 180
------- ------- ------- -------
Loss before income taxes (915) (5,550) (1,840) (5,250)
Benefit of income taxes ---- (75) ---- ----
------- ------- ------- -------
Net loss $ (915) $(5,475) $(1,840) $(5,250)
======= ======= ======= =======
Loss per share $ (.11) $ (.67) $ (.22) $ (.65)
======= ======= ======= =======
Weighted average common
shares and equivalents 8,403 8,115 8,362 8,092
====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
July 1, 1995 July 2, 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,840) $(5,250)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 659 743
Changes in assets and liabilities:
Accounts receivable 1,752 3,200
Inventories 1,553 1,273
Prepaid expenses and other (80) (162)
Accounts payable (1,787) (636)
Accrued compensation and employee benefits (633) 389
Other current liabilities (120) 210
------- -------
Net cash used by operating activities (496) (233)
------- -------
Cash flows from investing activities:
Equipment and leasehold improvements (424) (405)
(Increase) decrease in short-term investments 2,334 (125)
------- -------
Net cash provided (used) by investing activities 1,910 (530)
------- -------
Cash flows from financing activities:
Issuance of capital stock 479 620
------- -------
Net cash provided by financing activities 479 620
------- -------
Net increase (decrease) in cash 1,893 (143)
Cash, beginning of period 1,532 2,723
------- -------
Cash, end of period $ 3,425 $ 2,580
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
WEITEK CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Interim Statements:
The accompanying unaudited consolidated condensed financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments necessary to fairly
present the financial information included therein. While the Company believes
that the disclosures are adequate to make the information not misleading, it is
suggested that this financial data be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1994 included in the Company's 1994 Annual Report to the Securities and
Exchange Commission on Form 10-K. Results for the interim period presented are
not necessarily indicative of results for the entire year.
Note 2 - Consolidated Condensed Balance Sheet Detail:
<TABLE>
<CAPTION>
(In thousands)
July 1, 1995 December 31, 1994
------------ -----------------
<S> <C> <C>
Inventories:
Raw materials $ 51 $ 587
Work-in-process 501 1,530
Finished goods 483 471
------- -------
$ 1,035 $ 2,588
======= =======
Equipment and leasehold improvements:
Machinery and equipment $12,388 $12,010
Furniture and fixtures 1,086 1,086
Leasehold improvements 372 373
------- -------
13,846 13,469
Less accumulated depreciation and amortization 12,351 11,738
------- -------
$ 1,495 $ 1,731
======= =======
</TABLE>
Note 3 - Earnings (Loss) per Share:
Earnings (loss) per share are computed using the weighted average number of
common shares and, where dilutive, common share equivalents outstanding during
the period.
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<PAGE> 7
WEITEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUE
Net revenue in the second quarter and first six months of 1995 decreased 4% and
30% from the same periods in 1994. Unit sales of integrated circuits in the
second quarter of 1995 increased by 43% from the second quarter of 1994, due to
increased shipments of user interface products. Unit sales in the first half of
1995 decreased by 9% from the comparable period a year ago, due to decreased
shipments of SPARC POWER uP and other processors. Overall average selling prices
decreased by 33% and 22% from the second quarter and first six months of 1994.
The decline in average selling prices was due to the continued shift in product
mix toward products with lower average selling prices, primarily user interface
products. The Company does anticipate that sales of existing user interface
products will decline substantially in the second half of 1995 compared to
second quarter levels.
International net revenue was 27% of net revenue in the second quarter and first
six months of 1995 compared to 29% and 23% of net revenue in the comparable
periods of 1994. The increase in international net revenue in the first half of
1995 was due to increased shipments to Europe and Japan.
Sales of the Company's products to Siemens represented 33% and 30% of net
revenue in the second quarter and first half of 1995. Sales to Siemens were less
than 10% of net revenue for the comparable periods in 1994. Sales of the
Company's products to Ryoyo, a Japanese distributor, represented 17% and 21% of
net revenue in the second quarter and first six months of 1995. Sales to Ryoyo
were 13% of revenue in the second quarter of 1994 and less than 10% of net
revenue for the first six months of 1994. Diamond Multimedia Systems accounted
for 14% and 15% of net revenue in the second quarter and first half of 1995
compared to 5% and 28% of net revenue in the same periods in 1994. No other
customer represented 10% or more of the Company's revenue during these periods.
GROSS MARGIN
The Company's gross margin was 39% and 37% in the second quarter and first six
months of 1995 compared to a negative 13% and a positive 29% in the same periods
in 1994. During the second quarter of 1994, the Company recorded a $2.8 million
increase in inventory reserves as a result of a decline in demand for certain
user interface products. Gross margin in the second quarter of 1995 included an
end-of-life sale of mature, higher margin workstation products as well as
improved manufacturing yields.
The Company anticipates that its overall gross margin percentage will continue
to be highly dependent on product mix, as the Company's user interface products
typically carry gross margin percentages lower than the Company's SPARC POWER uP
processor and mature workstation products. Overall, as sales of user interface
products have come to represent a larger share of total revenues, gross margin
as a percentage of revenue has declined below historical levels of 45% to 50%.
The Company expects ongoing gross margins to be in the mid-30% range. In order
to prevent margins from declining below expected levels, the Company needs to
introduce cost-effective new products on a timely basis and continue to execute
on its cost reduction programs. As the Company introduces new products and
qualifies multiple sources of supply for these products, the Company increases
the risk that it could experience significant fluctuation in manufacturing
yields and hence, product cost and gross margin. While the Company's
manufacturing engineering personnel work very closely with its suppliers to
stabilize and improve manufacturing yields, the Company's gross margin could be
adversely affected if these efforts were to be unsuccessful.
Substantially all of the semiconductor wafers used to manufacture the Company's
products are processed to its specifications by four outside suppliers. The
Company believes that its wafer requirements do not justify the high cost of
owning and operating a fabrication facility, and that these manufacturing
arrangements provide it with flexibility in choosing process technologies. The
Company's reliance on third party manufacturers involves several risks, however,
including the absence of guaranteed capacity, the possible unavailability of or
delays in obtaining access to certain process technologies, and the absence of
control over wafer delivery schedules, manufacturing yields and production
costs.
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<PAGE> 8
OPERATING EXPENSES
As a percentage of net revenue, operating expenses were 60% in the second
quarter and 56% in the first six months of 1995, compared to 93% and 64% in the
same periods a year ago. In absolute dollars, total operating expenses were $3.0
million in the second quarter and $6.1 million in the first six months of 1995
down from $4.9 million in the second quarter and $10.0 million in the first half
of 1994. Overall operating expenses in the first half of 1995 declined from 1994
levels due to the effect of a restructuring of operations in the fourth quarter
of 1994, which reduced the Company's workforce by approximately 25%.
Research and development expenses as a percentage of net revenue were 39% and
36% in the second quarter and first six months of 1995 compared to 47% and 32%
in the comparable periods a year ago. In absolute dollars, research and
development expenses for the second quarter of 1995 were $2.0 million compared
to $2.5 million in the second quarter of 1994. Expenses in the first six months
of 1995 decreased to $4.0 million from $5.0 million in the first half of 1994.
The decrease in expenses during 1995 is primarily due to lower staffing levels
and improvements resulting from the Company's continued investment in design
automation tools. Approximately 60% of the Company's employees are involved in
research and development activities.
Sales and marketing expenses decreased as a percentage of net revenue to 14% and
13% in the second quarter and first six months of 1995 from 36% and 25% in the
comparable periods a year ago. In absolute dollars, sales and marketing expenses
were $0.7 million in the second quarter of 1995, down from $1.9 million in the
second quarter of 1994. Expenses in the first half of the year decreased from
$3.9 million in 1994 to $1.4 million in 1995, primarily due to decreased
advertising expenditures and lower staffing levels.
General and administrative expenses as a percentage of net revenue were 7% in
the second quarter and first six months of 1995 compared to 10% and 7% in the
same periods in 1994. In absolute dollars, general and administrative expenses
decreased to $0.4 million and $0.7 million in the second quarter and first half
of 1995 from $0.6 million and $1.1 million in the comparable periods of 1994.
The decline in expenses during 1995 is due primarily to lower staffing levels.
PROVISION FOR INCOME TAXES
The Company recorded no tax benefit in the second quarter of 1995 compared to a
$75,000 tax benefit in the second quarter of 1994. The Company has exhausted its
ability to carry back losses against prior years' income; however, the Company
has the ability to carry forward certain tax attributes to offset future regular
federal and state income taxes payable. Consequently, if the Company is
profitable in future periods, the Company's effective tax rate in such periods
may be somewhat below the statutory rate.
NET INCOME
The Company generated a net loss of $0.9 million and $1.8 million in the second
quarter and first six months of 1995, down from a net loss of $5.5 million and
$5.3 million in the second quarter and first half of 1994. As a percentage of
net revenue, the net loss decreased from 34% in the first six months of 1994 to
17% in the first half of 1995. $2.8 million of the loss in the second quarter
and first half of 1994 was due to an increase in inventory reserves.
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<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
As of July 1, 1995, the Company's principal source of liquidity was $8.1 million
of cash and short-term investments. The Company has suffered recurring losses
from operations and has an accumulated deficit that raise doubt about its
ability to continue as a going concern. During 1994, the Company took certain
steps to reduce its overhead and other expenses, including a workforce reduction
and consolidation of facilities. The Company is currently focusing its R&D
efforts on a new product which was announced in the second quarter of 1995 and
is expected to begin shipping in production volumes in the latter part of the
year. Any delay in the new product introduction or weakness in market demand
could impact the Company's ability to reduce its operating losses and cause
liquidity problems. Management is actively engaged in discussions with several
financial institutions and believes that a financing agreement can be negotiated
during the second half of 1995. However, there can be no assurance that the
Company will be successful in obtaining such financing, if necessary.
During August 1990, the Company's Board of Directors approved a plan to
repurchase outstanding shares of the Company's common stock on the open market.
The Company did not repurchase any shares during the second quarter of 1995.
OUTLOOK: ISSUES AND RISKS
During the second quarter of 1995, the Company introduced its W464 and W564
Unified System/Display Controller (US/DC) products. The Company's US/DC
technology integrates PCI system logic with a high performance 64-bit graphics
accelerator, combining the display memory and main memory into a single
subsystem, which greatly reduces the system's cost. The Company currently
expects the first significant revenue from its W464 product in the fourth
quarter of 1995. However, any delay in the introduction of this product,
weakness in market demand or an inability to access to sufficient cost-effective
wafer fabrication capacity could impact the Company's ability to increase
revenue and reduce operating losses.
Subsequent to the end of the second quarter, the Company entered into a
technology exchange agreement with Samsung Electronics Company Ltd. to
co-develop a family of advanced multimedia integrated circuits. The two
companies will share marketing and sales rights to these products. As part of
the agreement, Samsung will provide wafer capacity allocations for all jointly
developed products as well as Weitek proprietary products. The Company will have
the lead role in the development of the initial product, and Samsung will
provide funding of approximately $3.0 million for this effort. The Company
currently anticipates that incremental costs to complete the contract milestones
will be somewhat less than $3.0 million, and that development contract revenue
will generally be recognized in proportion to the costs incurred over the one
year development cycle, beginning in the third quarter.
The Company anticipates that for the third quarter of 1995, revenue from
existing user interface products will decline significantly from second quarter
levels. Several user interface customers had previously informed the Company
that they intended to slow or discontinue purchases of the Company's current
high-end user interface products as they begin to employ alternative solutions.
Based on new customer input, it is possible that revenue from these products
will fall even faster than previously anticipated. As a result, overall revenue
for the third quarter may fall substantially below the second quarter level.
Fourth quarter of 1995 revenue will depend on the Company's success in producing
and marketing its recently announced W464 product. Unless the Company's overall
revenues increase substantially from current levels, the Company will not be
profitable and will begin to experience liquidity problems if it is unable to
reduce or eliminate losses from operations. If the Company does experience
significant revenue growth, it may require additional working capital to fund
such growth. There can be no assurance that the Company will be successful in
obtaining such financing, if necessary.
The semiconductor industry continues to experience a shortage of high
performance sub-micron wafer fabrication capacity. The Company is in the process
of qualifying one or more additional sources of wafer supply for its products.
There are technical as well as financial risks involved in qualifying an
additional source of wafer supply. There can be no assurance that the Company
will be successful in its efforts to maintain or increase wafer supply in a
timely manner. The results of operations would be adversely affected if the
Company were to experience additional constraints in its supply of wafers from
its existing suppliers or if the Company were unable to obtain an adequate
supply of cost-effective wafers from new sources in a timely manner.
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<PAGE> 10
The user interface market is characterized by intense competition, rapid
technological change, evolving industry standards and frequent new product
introductions, resulting in short product life cycles and continuous price
erosion. The Company's results may be adversely affected by the actions of
existing or future competitors, including the development of new technologies,
the introduction of new products and the reduction of prices by such competitors
to gain or retain market share. The Company believes that its ability to compete
successfully depends on elements both within and outside its control, including
successful and timely development of new products and technologies, external
market conditions, product performance and price, access to sufficient and
cost-effective wafer fabrication capacity (especially high-performance
sub-micron processes), alliances with major independent software vendors and
development partners, name recognition, access to advanced process technologies,
customer support and availability of compatible applications software and
software development tools. There can be no assurance that the Company will be
able to compete successfully as to these factors.
The Company's future operating results may be affected by a variety of other
factors, including fluctuations in manufacturing yields, availability of wafer
fabrication capacity, production cost increases, the timing of new product
introductions by the Company and its competitors, fluctuations in operating
expenses, the cancellation or rescheduling of orders by its customers, and by
general economic conditions, such as a prolonged recessionary period, or
fluctuations in foreign exchange rates. Accordingly, historical trends should
not be used to anticipate results or trends in future periods, and past
financial performance should not be considered as a reliable indicator of future
performance.
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<PAGE> 11
WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
JULY 1, 1995
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Report on Form 8-K
None
-11-
<PAGE> 12
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.
WEITEK CORPORATION
Date: August 15, 1995 /s/ Barry L. Cox
--------------- ------------------------------
Barry L. Cox
President and Chief Executive Officer
Date: August 15, 1995 /s/ Paul K. Kidman
--------------- ------------------------------
Paul K. Kidman
Director of Finance
-12-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-02-1995
<PERIOD-END> JUL-01-1995
<CASH> 3,425
<SECURITIES> 4,699
<RECEIVABLES> 3,155
<ALLOWANCES> 764
<INVENTORY> 1,035
<CURRENT-ASSETS> 12,042
<PP&E> 13,846
<DEPRECIATION> 12,351
<TOTAL-ASSETS> 13,539
<CURRENT-LIABILITIES> 5,762
<BONDS> 0
<COMMON> 22,814
0
0
<OTHER-SE> (15,037)
<TOTAL-LIABILITY-AND-EQUITY> 13,539
<SALES> 5,100
<TOTAL-REVENUES> 5,100
<CGS> 3,095
<TOTAL-COSTS> 3,045
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (915)
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