<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 SEPTEMBER 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________
COMMISSION FILE 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)
2801 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA, 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 526-0300
(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.
8,654,156 shares of common stock at November 1, 1996
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WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
September 28, 1996
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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WEITEK CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 28, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,463 $ 6,028
Accounts receivable, net of allowances
of $682 and $716 408 1,606
Inventories -- 1,730
Prepaid expenses and other 179 272
-------- --------
Total current assets 4,050 9,636
Equipment and leasehold improvements, net 1,099 1,598
Other assets 34 34
-------- --------
$ 5,183 $ 11,268
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,649 $ 3,637
Accrued compensation and employee benefits 1,211 1,481
Other current liabilities 1,744 557
-------- --------
Total current liabilities 5,604 5,675
-------- --------
Shareholders' equity (deficit):
Preferred stock, 1,000,000 shares authorized, no par
value, no shares outstanding -- --
Common stock, 50,000,000 shares authorized, no par
value, 8,654,156 and 8,632,156 shares outstanding 23,141 23,095
Retained earnings (deficit) (23,562) (17,502)
-------- --------
Total shareholders' equity (deficit) (421) 5,593
-------- --------
$ 5,183 $ 11,268
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 28, 1996 Sept 30, 1995 Sept 28, 1996 Sept 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenue $1,900 $ 3,300 $ 6,100 $ 14,300
Cost of revenue 1,307 1,775 7,437 8,705
------ ------- ------- --------
Gross margin 593 1,525 (1,337) 5,595
Research and development 153 1,750 2,470 5,741
Sales and marketing 96 648 880 2,072
General and administrative 289 357 1,543 1,077
------ ------- ------- --------
Operating income (loss) 55 (1,230) (6,230) (3,295)
Other income 45 100 170 325
------ ------- ------- --------
Income (loss) before income taxes 100 (1,130) (6,060) (2,970)
Provision for income taxes -- -- -- --
------ ------- ------- --------
Net income (loss) $ 100 $(1,130) $(6,060) $ (2,970)
====== ======= ======= ========
Income (loss) per share $ .01 $ (.13) $ (.70) $ (.35)
====== ======= ======= ========
Weighted average common
shares and equivalents 8,670 8,546 8,650 8,423
====== ======= ======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Sept 28, 1996 Sept 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,060) $(2,970)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 884 929
Changes in assets and liabilities:
Accounts receivable 1,198 2,854
Inventories 1,730 1,081
Prepaid expenses and other 93 (49)
Accounts payable (988) (1,734)
Accrued compensation and employee benefits (270) (508)
Other liabilities 1,187 39
------- -------
Net cash used by operating activities (2,226) (358)
------- -------
Cash flows from investing activities:
Equipment and leasehold improvements (385) (670)
Decrease in short-term investments -- 2,825
------- -------
Net cash provided (used) by investing activities (385) 2,155
------- -------
Cash flows from financing activities:
Issuance of capital stock 46 586
------- -------
Net cash provided by financing activities 46 586
------- -------
Net increase (decrease) in cash (2,565) 2,383
Cash, beginning of period 6,028 1,532
------- -------
Cash, end of period $ 3,463 $ 3,915
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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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, 1995 included in the Company's 1995 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)
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Inventories:
Raw materials $ -- $ --
Work-in-process -- 630
Finished goods -- 1,100
-------- --------
$ -- $ 1,730
======== ========
Equipment and leasehold improvements:
Machinery and equipment $ 7,541 $ 13,043
Furniture and fixtures 795 1,086
Leasehold improvements 384 373
-------- --------
8,720 14,502
Less accumulated depreciation and amortization (7,621) (12,904)
-------- --------
$ 1,099 $ 1,598
======== ========
Other accrued liabilities:
Accrued purchase commitments $ 876 $ --
Other 868 557
-------- --------
$ 1,744 $ 557
======== ========
</TABLE>
Note 3 -- Earnings (Loss) per Share:
Earnings (loss) per share is 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
When used in the following report, the words "projects", "expects" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Form 10-Q. A number of factors may
impact the outcome of actual results, but in particular, whether the Company is
successful in licensing its technology and identifying a strategic partner to
help bring its technology to the market.
OVERVIEW
During 1995, the Company focused its R&D efforts on the development of a new
product line of unified memory architecture (UMA) chip sets targeted at the
mid-range segment of the user interface market. The Company's UMA technology
combines the features of an accelerated graphics controller with those of
motherboard system logic, integrating most of the circuitry for a personal
computer (except the processor and memory) into a single product.
On March 1, 1996, the Company announced that its revenues had continued to
decline significantly due to recent changes in the personal computer marketplace
which have caused customers to delay purchases of its initial UMA product, the
W464. As a result, the Company recorded reserves to reflect a revaluation of
W464 chip set inventory and a company-wide cost reduction program. In addition,
the recent decline in memory prices and increased competition for chip sets made
it unlikely that the Company could successfully commercialize its next
generation W564 UMA chip set. As a result of these factors, the Company
announced that it no longer has sufficient resources to independently pursue a
business strategy of manufacturing UMA chip sets and would instead focus on
licensing its technology. The Company is also pursuing alternatives ranging from
selling the Company, to strategic relationships with companies that can
successfully develop products based on its UMA technology, to winding up the
affairs of the Company.
NET REVENUE
Net revenue in the third quarter was $1.9 million compared to $3.3 million for
the third quarter in 1995. Net revenue in the third quarter and first nine
months of 1996 decreased 42% and 57% from the same periods in 1995.
Substantially all of the revenue in the third quarter resulted from a previously
announced technology license and joint development agreement with a large
semiconductor manufacturer.
A major customer accounted for 96% and 64% of net revenue in the third quarter
and first nine months of 1996. Sales of the Company's products to a Japanese
distributor, represented 4% and 12% of net revenue for the third quarter and the
first nine months of 1996. Sales to this distributor were 22% of net revenue in
the third quarter of 1995 and 21% of net revenue for the first nine months of
1995. Returns of the Company's products by another customer reduced sales by 8%
in the first nine months of 1996. Another customer accounted for 13% and 15% of
net revenue in the third quarter and first nine months of 1995. Another customer
represented 23% of net revenue in the first nine months of 1995. No other
customer represented 10% or more of the Company's revenue during these periods.
GROSS MARGIN
The Company's gross margin was 31% and negative 22% in the third quarter and
first nine months of 1996 compared to 46% and 39% in the same periods in 1995.
Gross margin in the first nine months of 1995 included an end-of-life sale of
mature, higher margin workstation products as well as improved manufacturing
yields.
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<PAGE> 8
OPERATING EXPENSES
As a percentage of net revenue, operating expenses were 28% in the third quarter
and 80% in the first nine months of 1996, compared to 83% and 62% in the same
periods a year ago. In absolute dollars, total operating expenses were $538,000
in the third quarter and $4.9 million in the first nine months of 1996 down from
$2.8 million in the third quarter and $8.9 million in the first nine months of
1995. Overall operating expenses in the first nine months of 1996 declined from
1995 levels due to the effect of a restructuring of operations in the first
quarter of 1996, which reduced the Company's workforce by approximately 30%.
Research and development expenses as a percentage of net revenue were 8% and 40%
in the third quarter and first nine months of 1996 compared to 53% and 40% in
the comparable periods a year ago. In absolute dollars, research and development
expenses for the third quarter of 1996 were $153,000 compared to $1.8 million in
the third quarter of 1995. Research and development expenses in the first nine
months of 1996 decreased to $2.5 million from $5.7 million in the first nine
months of 1995. The decrease in research and development expenses during 1996 is
primarily due to the transfer of $2.2 million of engineering costs to cost of
sales under the Company's joint development agreement as well as lower staffing
levels. Approximately 80% of the Company's employees are involved in research
and development activities.
Sales and marketing expenses decreased as a percentage of net revenue to 5% in
the third quarter of 1996 from 20% in the third quarter of 1995 and remained
constant at 14% in the first nine months of 1996 and the comparable period from
a year ago. In absolute dollars, sales and marketing expenses were $96,000 in
the third quarter of 1996, down from $648,000 in the third quarter of 1995.
Expenses in the first nine months of the year decreased from $2.1 million in
1995 to $880,000 in 1996, primarily due to lower staffing levels.
General and administrative expenses as a percentage of net revenue were 15% and
19% in the third quarter and first nine months of 1996 compared to 11% and 8% in
the same periods in 1995. In absolute dollars, general and administrative
expenses decreased to $289,000 in the third quarter of 1996 from $357,000 in the
third quarter of 1995. General and administrative expenses increased to $1.5
million for the first nine months of 1996 from $1.1 million for the same period
in 1995. The increase was attributable to severence costs incurred during the
the first nine months of 1996.
PROVISION FOR INCOME TAXES
The Company recorded no tax provision in the third quarter of 1996. 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.
NET INCOME
The Company generated net income of $100,000 and a net loss of $6.1 million in
the third quarter and first nine months of 1996, compared to net losses of $1.1
million and $3.0 million in the third quarter and first nine months of 1995. As
a percentage of net revenue, the net loss increased from 21% in the first nine
months of 1995 to 99% in the first nine months of 1996. Approximately $4.2
million of the loss in the first nine months of 1996 was due to additional
inventory reserves and costs associated with the Company's reduction in
workforce.
LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 1996 the Company's principal source of liquidity was $3.5
million of cash and cash equivalents.
The Company has suffered recurring losses from operations and has an accumulated
deficit which raise substantial doubt about its ability to continue as a going
concern. The Company has been unsuccessful in selling its inventory of W464 chip
sets and the Company has no new products currently in development. The Company
does not believe that its cash resources are adequate to fund its operations for
the next twelve months. The Company has announced that its business strategy is
to focus on licensing its technology and has taken steps to reduce costs and
preserve liquidity. The Company is actively seeking partners to help bring its
technology to market, but there can be no assurance that the Company will be
successful in these efforts. If these efforts are unsuccessful, serious
liquidity problems could result and the company may consider other options
ranging from selling the Company, to strategic relationships with companies that
can successfully develop products based on its UMA technology, to winding up the
affairs of the Company.
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<PAGE> 9
OUTLOOK: ISSUES AND RISKS
On October 28, 1996, Mr. Paul Kidman resigned as Director of Finance.
The Company currently anticipates that fourth quarter revenue will be
significantly below the third quarter level due to uncertainty about the
Company's ability to achieve future milestones under the previously noted
technology licensing agreement. In addition, the Company anticipates that fourth
quarter cost of revenue and operating expenses will be significantly below the
third quarter level mainly due to negotiated reductions in existing liabilities
with vendors. Future revenue levels depend upon the Company's ability to license
technology and find a strategic partner to help commercialize the Company's
technology. There can be no assurance that the Company will be successful in
these efforts.
The Company is actively searching for a strategic partner or an acquirer to
purchase the Company. If unsuccessful in this effort, the Company expects to
proceed to wind up its affairs in the near future.
The Company's expectations regarding business opportunities are forward-looking
statements, and actual results could vary. The Company has very limited
experience with the licensing and strategic partnering strategy being pursued by
the Company. There can be no assurance that the Company can successfully
transition its business model, or that even if the transition is successful that
the Company will be able to consistently generate profits in the new model.
Other risk factors include the Company's ability to retain its engineering team,
and schedule and technical risks that are typical of complex engineering
programs. Although the Company has taken actions to reduce its expense levels,
the Company may continue to experience losses from operations that raise
substantial doubt about the Company's ability to continue as a going concern.
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<PAGE> 10
WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 28, 1996
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Report on Form 8-K
None
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<PAGE> 11
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: November 8, 1996 /s/ Richard H. Bohnet
------------------- ---------------------
Richard H. Bohnet
President and Chief Executive Officer
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<PAGE> 12
EXHIBIT INDEX
Exhibit Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000719322
<NAME> WEITEK CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<CASH> 3,463
<SECURITIES> 0
<RECEIVABLES> 1,090
<ALLOWANCES> 682
<INVENTORY> 0
<CURRENT-ASSETS> 4,050
<PP&E> 8,720
<DEPRECIATION> 7,621
<TOTAL-ASSETS> 5,183
<CURRENT-LIABILITIES> 5,604
<BONDS> 0
0
0
<COMMON> 23,141
<OTHER-SE> (23,562)
<TOTAL-LIABILITY-AND-EQUITY> 5,183
<SALES> 75
<TOTAL-REVENUES> 1,900
<CGS> 0
<TOTAL-COSTS> 1,307
<OTHER-EXPENSES> 538
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 100
<INCOME-TAX> 0
<INCOME-CONTINUING> 100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
