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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 30, 1997
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 0-13244
GATEFIELD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-1404495
(State of incorporation) (I.R.S. Employer Identification No.)
47100 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 623-4400
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Each Class Outstanding at October 23, 1997
------------------- -------------------------------
Common stock, par value $0.10 per share 35,537,756
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GATEFIELD CORPORATION
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1997 and September 30, 1996 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and September 30, 1996 4
Notes to Condensed Consolidated Financial Statements,
September 30, 1997 5
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit 11. Computation of Earnings per Share 11
SIGNATURE 12
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,103 $ 1,703
Short-term investment 98 100
Account receivable, less allowance for doubtful
accounts of $612 in 1997 and $1,337 in 1996 4,774 12,088
Inventories, net 1,050 2,664
Other current assets 462 956
--------- ---------
Total assets 8,487 17,511
Property and equipment, net 2,495 5,101
Purchased technology, net - 2,776
Other assets 333 4,139
--------- ---------
Total assets $ 11,765 $ 29,527
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank financing $ 89 $ 3,203
Current portion of long-term obligations 386 1,958
Accounts payable 4,180 5,715
Accrued expenses 4,551 5,345
Deferred revenues 1,840 2,530
--------- ---------
Total current liabilities 11,046 18,751
Subordinated convertible debenture notes - 7,342
Long-term obligations 213 719
Other long-term liabilities 28 146
--------- ---------
Total liabilities 11,287 26,958
Commitments and contingencies - -
Stockholders' equity
Preferred stock
$0.10 par value; 2,000,000 shares authorized;
shares issued and outstanding: none in 1997 - -
Common stock -
$0.10 par value; 40,000,000 shares authorized;
shares issued and outstanding: 35,527,074 in
1997 and 23,226,444 in 1996 3,553 2,323
Additional paid-in capital, Preferred stock - -
Additional paid-in capital, Common stock 64,563 55,784
Accumulated translation adjustments (162) (48)
Accumulated deficit (67,476) (55,490)
--------- ---------
Total stockholders' equity 478 2,569
--------- ---------
Total liabilities and stockholders' equity $ 11,765 $ 29,527
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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GATEFIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Product $ 1,844 $ 2,294 $ 4,020 $ 11,105
Service 2,573 3,701 8,297 11,418
-------- -------- -------- --------
Total revenues 4,417 5,995 12,317 22,523
-------- -------- -------- --------
Cost of revenues
Product 2,782 3,053 6,029 5,983
Service 1,659 2,189 4,933 6,666
-------- -------- -------- --------
Total cost of revenues 4,441 5,242 10,962 12,649
-------- -------- -------- --------
Gross profit (loss) (24) 753 1,355 9,874
-------- -------- -------- --------
Operating expenses
Sales and marketing 648 3,467 6,892 10,886
Research and development 1,751 4,271 6,550 12,699
General and administrative 1,800 2,738 2,750 4,450
-------- -------- -------- --------
Total operating expenses 4,199 10,476 16,192 28,035
-------- -------- -------- --------
Operating loss (4,223) (9,723) (14,837) (18,161)
-------- -------- -------- --------
Other income (expense)
Interest expense, net (12) (1,469) (867) (2,089)
Other income, net (110) (147) 3,874 (72)
-------- -------- -------- --------
Total other income (expense) (122) (1,643) 3,007 (2,161)
-------- -------- -------- --------
Net loss $ (4,345) $(11,366) $(11,830) $(20,322)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per share $ (0.13) $ (0.56) $ (0.42) $ (1.01)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares outstanding 32,884 20,404 28,460 20,083
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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GATEFIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net loss $(11,830) $(20,322)
Reconciliation to net cash used in operating activities
Depreciation and amortization 3,435 3,223
Subordinated convertible debt interest capitalized, net 438 1,725
Sales under capital leases 1,143 (724)
Gain on sale of LightSpeed (445) -
Gain on sale of QSS (3,321) -
Loss on sale of EDA 504 -
Changes in assets and liabilities
Accounts receivable 5,373 7,409
Inventories (384) (1,599)
Other assets 1,009 (695)
Accounts payable and accrued expenses (4,744) 3,737
Deferred revenues (693) (537)
-------- --------
Net cash used in operating activities (9,515) (7,783)
-------- --------
Investing activities
Property and equipment purchases, net (1,404) (1,797)
Increase in capitalized software (150) (1,554)
Proceeds from sale of LightSpeed, net 5,000 -
Proceeds from sale of QSS, net 3,500 -
Proceeds from sale of EDA, net 4,450 -
-------- --------
Net cash provided by (used in) investing activities 11,396 (3,351)
-------- --------
Financing activities
Proceeds from issuance of convertible debenture notes 3,500 10,000
Proceeds from sales of Common Stock 170 413
Bank financing, net (3,114) 1,500
Decrease in debt obligation (2,196) (342)
-------- --------
Net cash provided by (used in) financing activities (1,640) 11,571
-------- --------
Effect of exchange rate changes on cash and cash equivalents 159 154
-------- --------
Net change in cash and cash equivalents 400 591
Cash and cash equivalents, beginning of period 1,703 3,722
-------- --------
Cash and cash equivalents, end of period $ 2,103 $ 4,313
-------- --------
-------- --------
Supplemental disclosure of cash flow information
Noncash activities
Common Stock issued in connection with the acquisition
of all the outstanding shares of Attest Software, Inc. $ - $ 2,400
Common Stock exchanges for convertible debentures $ 7,342 $ 700
Preferred Stock exchanges for convertible debentures $ 3,971 $ -
Common Stock exchanges for Preferred Stock $ 1,207 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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GATEFIELD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
contain all adjustments of a normal recurring nature that are, in the
opinion of management, necessary to present fairly the financial position
and results of operations of GateField Corporation, formerly known as Zycad
Corporation, (the Company). Interim results of operations are not
necessarily indicative of the results to be expected for the full year.
The Company's interim fiscal quarter ended on September 30, 1997 and 1996,
respectively. The condensed consolidated financial statements should be
read in conjunction with the financial statements and the notes thereto for
the year ended December 31, 1996, included in the Company's 1996 Annual
Report on Form 10-K.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Common share equivalents have not been included in the
net loss per share calculation because the effect would be anti-dilutive.
Pursuant to Accounting Principles Board Opinions No. 15, "Earnings Per
Share" (APB No. 15), dividends payable on preferred stock, whether to be
paid in cash or common stock, reduce income available to common stockholders
in the calculation of earnings per share. Accordingly, the assured
incremental yield imbedded in the conversion terms' discount from fair value
is accounted for as a dividend to the preferred stockholder. The dividend
is recognized in the earnings per share calculation on a pro rata basis over
the period beginning with the issuance of the preferred stock to the first
date that conversion can occur (see Exhibit 11).
3. INVENTORIES
Inventories consisted of:
September 30, December 31
(IN THOUSANDS) 1997 1996
----------------------------------------------------------------------------
Raw materials and work in process $ 422 $2,045
Finished goods 628 619
------ ------
$1,050 $2,664
------ ------
------ ------
4. SUBORDINATED CONVERTIBLE DEBENTURES
In May 1996, the Company sold a total of $10,000,000 of subordinated
convertible debenture notes (the Notes) to institutional investors as part
of a private placement. The Notes accrue interest at an annual rate of 6%,
beginning on the date of issue, with the principal due and payable three
years from the date of issue if and to the extent that the Notes are not
previously converted. The Notes are convertible at the option of the
noteholders (subject to the maximum share limitations set forth below) into
the Company's Common Stock at a price equal to 80% to 85% of the average
closing bid price for the Common Stock on the Nasdaq National Market for the
five trading days prior to the date of conversion. In addition, the
investors received warrants to purchase up to 59,500 additional shares of
the Company's stock at $10.00 per share, subject to certain conditions. At
September 30, 1997, there was no outstanding balance on the Notes and
approximately 10,109,000 shares of Common Stock had been converted.
In February 1997, the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% Subordinated Convertible Debentures
(the Debentures) and Common Stock Purchase Warrants. The Debentures accrue
interest at an annual rate of 6%, beginning on the date of issue, with the
principal due and payable three years from the date of issue, if and to the
extent that the Debentures are not previously converted. The Debentures are
convertible at the option of the holder into the Company's Common Stock at a
price equal to 78% to 83% of the lowest reported sales price for the Common
Stock on the Nasdaq National Market for the five trading days prior to the
date of conversion. In addition, the investors received warrants to
purchase up to 500,000 additional shares of the Company's stock at $2.25 per
share, subject to certain conditions. On May 15, 1997, the Debentures were
converted into 100,000 shares of the Company's
5
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Convertible Preferred Stock having an aggregate stated value of $3,500,000
and warrants to purchase additional Convertible Preferred Stock having an
aggregate stated value of $1,500,000. Expenses relating to the Subordinated
Convertible Debentures and the Convertible Preferred Stock are approximately
$438,000 relating to discount expense and $438,000 relating to accreted
dividends. On August 25, 1997, in a transaction valued at $1,800,000, the
Company completed the redemption of all of the outstanding shares of the
Company's Convertible Preferred Stock. There was no subordinated
convertible debt interest capitalized for the three months ended September
30, 1997 and $438,000 of subordinated convertible debt interest capitalized
for the nine months ended September 30, 1997. At September 30, 1997, 51,972
shares of Preferred Stock had been converted to approximately 4,547,000
shares of the Company's Common Stock at prices ranging from $0.367 to $0.606
per share.
5. PROFIT ON SALE OF ASSETS
DISPOSITION OF THE VERIFICATION PRODUCT FAMILY
On August 21, 1997, GateField Corporation (the Company), agreed to sell its
assets relating to its verification business, without the maintenance and
support business, to IKOS Systems, Inc. (IKOS) and Test Systems Strategies,
Inc. (TSSI), a division of Credence Systems Corporation. The Asset Purchase
Agreement, as amended, with IKOS called for IKOS to buy all of rights, title
and interest to the intangible assets of the XP and PXP hardware fault
simulation product business for $2,200,000. Under the terms of the
agreement, IKOS paid $2,000,000 upon execution of the agreement and an
additional $200,000 is due at a future date. In an Asset Purchase Agreement
valued at approximately $2,300,000, TSSI purchased substantially all of the
assets of the Attest business, GateField's software fault and test products
know as the TDX product line. Under the terms of the agreement, TSSI paid
$2,300,000 upon execution of the contract. Information contained in the
August 21, 1997 press release shown as Item 7, Exhibit 20.02 on the
Company's Form 8-K filed on September 5, 1997 further describes the sale of
the verification product family.
The details of this transaction are as follows (in thousands):
Proceeds from the sale of the verification business $ 4,450
Assets disposed of (3,571)
Liabilities incurred (1,383)
--------
Loss on sale of the verification business $ (504)
--------
--------
DISPOSITION OF THE LIGHTSPEED PRODUCT FAMILY
On April 15, 1997, GateField Corporation (the Company), agreed to sell its
technology relating to its LightSpeed product family to IKOS Systems, Inc.
(IKOS). The purchase price was $5,000,000, of which $4,500,000 has been
received as of June 30, 1997, and $500,000 is due upon completion of certain
customer transition milestones. The agreement called for IKOS to buy all of
the software and hardware simulation technology related to the LightSpeed
product, and for GateField to promote IKOS' logic verification products to
its customers. GateField retained its GateField product Line. Information
contained in the April 15, 1997 press release shown as Item 7, Exhibit 20.01
on the Company's Form 8-K filed on April 30, 1997 further describes the sale
of the LightSpeed product family.
The details of this transaction are as follows (in thousands):
Proceeds from the sale of LightSpeed $ 5,000
Assets disposed of (3,615)
Liabilities incurred (907)
--------
Gain on sale of LightSpeed $ 478
--------
--------
SALE OF QUALITY SYSTEMS SOFTWARE, INC.
In January 1996, GateField Corporation (the Company) and Quality Systems
Software, Ltd. (QSS Ltd.), a U.K. company and owner of the DOORS technology,
established a joint venture, QSS Inc., to continue the distribution
operations of the DOORS technology and other products in the North American
market. In January 1997, QSS Inc. was restructured so that QSS Ltd. became a
subsidiary of QSS Inc. The Company's ownership as a result of the QSS Inc.
restructuring became 22% or approximately 2,420,000 shares. On April 14,
1997, the Company signed an agreement to sell its ownership in QSS Inc. for
$3,500,000 cash. The agreement was approved and finalized by the QSS Board
of Directors on May 12, 1997. The Company received full payment on May 13,
1997. Net gain on the sale of QSS was $3,321,000.
6
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6. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per
Share". The Company is required to adopt SFAS No. 128 in the fourth quarter
of fiscal 1997 and will restate at that time earnings per share (EPS) data
for prior periods to conform with SFAS No. 128. Earlier application is not
permitted. SFAS No. 128 replaces current EPS reporting requirements and
requires a dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. Common share equivalents are not included in
the diluted EPS calculation where they are anti-dilutive. Earnings or net
loss per share under SFAS No. 128 would not have been significantly
different than the net loss per share currently reported for the periods.
In June 1997, the Financial Accounting Standards Board adopted Statements of
Financial Accounting Standards No. 130 (Reporting Comprehensive Income),
which requires that an enterprise report, by major components and as a
single total, the change in its net assets, during the period, from
non-owner sources; and No. 131 (Disclosures about Segments of an Enterprise
and Related Information), which establishes annual and interim reporting
standards for an enterprise's business segments and related disclosures
about its products, services, geographic areas, and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows. Both statements
are effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
7. SUBSEQUENT EVENTS
COMPANY NAME CHANGE TO GATEFIELD CORPORATION
On October 10, 1997, the Company announced a change in its name to GateField
Corporation (NASDAQ:GATE) from Zycad Corporation. The change was approved
at a special meeting of stockholders held July 10, 1997.
STRATEGIC PARTNERSHIP WITH SIEMENS AKTIENGESELLSCHAFT
In a joint press release on November 3, 1997, GateField Corporation (the
Company) (NASDAQ:GATE) and Siemens Aktiengesellschaft (Siemens Semiconductor
or Siemens) announced that they have engaged in a long-term strategic
partnership that they believe will provide revolutionary solutions to
satisfy future system level integration and programmable logic device
customer needs. In a first step, Siemens has licensed GateField's
non-volatile and reprogrammable ProASIC-TM- technology to be embedded into
their system level integration (SLI) products. Siemens agreed to pay the
Company $3,250,000 for the technology license, for 500,000 shares of
GateField common stock and for a five (5) year stock warrant to purchase up
to 9.9% of the issued and outstanding shares of common stock at an exercise
price of 80% of market price on the date of exercise with a minimum exercise
price of $1.00, subject to stockholder approval. Information contained in
the November 3, 1997 press release shown as Item 7, Exhibit 20.04 on the
Company's Form 8-K filed on November 14, 1997 further describes the terms of
the long-term strategic partnership.
STOCK PURCHASE AGREEMENT
A two-phase, private placement agreement was signed on November 10, 1997
between GateField Corporation (the Company) and Idanta Partners, Ltd.
(Idanta). Under the terms of the agreement, Idanta will purchase 1,000,000
shares of the Company's Series B Convertible Preferred Stock, par value
$0.10, for an aggregate purchase price of $4,582,500. At Idanta's
discretion, each share of Preferred Stock is convertible into 4.5825 shares
of the Company's Common Stock. In addition, Idanta is required under the
Stock Purchase Agreement to purchase 4,582,500 shares of the Company's
Common Stock for an aggregate purchase price of $4,582,500, pending
stockholder approval of management proposals at the Company's 1997 Annual
Meeting of Stockholders to be held on December 15, 1997. On November 7, 1997
the Company filed a Certificate of Correction to Certificate of Amendment to
the Company's Certificate of Incorporation with the Secretary of State for
the State of Delaware correcting the number of authorized common stock to
40,000,000 shares. In the event the stockholders do not approve the
proposals at the 1997 Annual Meeting of Stockholders, Idanta will have a
warrant to purchase 1,000,000 shares of common stock at $1.00 per share.
Information contained in the November 3, 1997 press release shown as Item 7,
Exhibit 20.05 on the Company's Form 8-K filed on November 14, 1997 further
describes the terms of this Stock Purchase Agreement.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
the Company's Form 10-K for the year ended December 31, 1996, under the
caption, "Business".
RESULTS OF OPERATIONS
REVENUES
Total revenues for the quarter ended September 30, 1997 were $4.4 million, a
decrease of $1.6 million compared to the quarter ended September 30, 1996.
Product revenues for the third quarter of 1997 were $1.8 million, a decrease
of $0.5 million compared to the third quarter of 1996, due primarily from the
sale of the verification business and resultant decreased shipments of
accelerator products. Service revenues for the third quarter of 1997 were
$2.6 million, a decrease of $1.1 million compared to the third quarter of
1996, due to reduced maintenance revenues relating to older generation
accelerator products and the sale of the verification business.
Total revenues for the nine months ended September 30, 1997 were $12.3
million, compared to $22.5 million for the nine months ended September 30,
1996, a decrease of $10.2 million. This decrease is primarily related to
decreases in product revenues. Product revenues for the nine months ended
September 30, 1997 were $4.0 million, compared to $11.1 million for the
comparable period of 1996, a decrease of $7.1 million, relating directly to
reduced shipments of the Company's accelerator product family. Service
revenues were $8.3 million for the nine months ended September 30, 1997,
compared to $11.4 million for the comparable nine months ended September 30,
1996, a decrease of $3.1 million, again attributable to reduced maintenance
revenues relating to older generation accelerator products.
GROSS PROFIT
The total gross profit was break-even for the quarter ended September 30, 1997
compared to $0.8 million for the quarter ended September 30, 1996. The loss
from product revenues at the gross profit level for the third quarter of 1997
was $0.9 million, compared to the third quarter of 1996 gross profit of $0.8
million. Gross profit from service revenues was $0.9 million for the third
quarter of 1997, compared to $1.5 million during the third quarter of 1996.
Total gross profit was $1.4 million for the nine months ended September 30,
1997, as compared to $9.9 million for the comparable period of 1996. During
the nine months of 1997, loss from product revenues at the gross profit level
was $2.0 million, compared to gross profit of $5.1 million during the first
nine months of 1996. Gross profit from service revenues was $3.4 million,
compared to $4.8 million for the first nine months of 1996. This decrease in
gross profit from product revenues for both the three months and nine months
ended September 30, 1997 as compared to 1996 was primarily due to decreased
product revenues that are necessary to support fixed overhead expenses during
the same periods.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses were $0.6 million for the quarter ended September
30, 1997, compared to $3.5 million for the quarter ended September 30, 1996.
Sales and marketing expenses were $6.9 million for the nine months ended
September 30, 1997, compared to $10.9 million for the nine months ended
September 30, 1996, a decrease of $4.0 million. The decrease in sales and
marketing expenses was due primarily to decreased spending as a result of cost-
saving measures and as well as reduced staffing levels.
RESEARCH AND DEVELOPMENT
Research and development expenses were $1.8 million for the quarter ended
September 30, 1997, compared to $4.3 million for the quarter ended September
30, 1996 and $6.6 million for the nine months ended September 30, 1997,
compared to $12.7 million for the nine months ended September 30, 1996. This
decrease in 1997 as compared to 1996 was mainly due to decreased staffing
levels in 1997 as projects and activities associated with the development and
introduction of LightSpeed were not continued into 1997. Additionally,
research and development expenses related to the development of high density
Programmable ASIC products decreased in 1997 as the product moved into the
production mode.
8
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GENERAL AND ADMINISTRATIVE
General and administrative expenses for the quarter ended September 30, 1997
were $1.8 million, compared to $2.7 million for the quarter ended September 30,
1996 and $2.8 million for the nine months ended September 30, 1997, compared to
$4.5 million for the nine months ended September 30, 1996. The decrease in
general and administrative expenses in 1997 was primarily related to decreased
staffing levels as compared to 1996.
OTHER INCOME AND EXPENSES
Interest expense was $0.0 million for the quarter ended September 30, 1997,
compared to $1.5 million for the quarter ended September 30, 1996. Interest
expense for the nine months ended September 30, 1997 was $0.9 million and
compared to $2.1 million for the nine months ended September 30, 1996. The
overall decrease in interest income in both the three month period and the nine
month period ending September 30, 1997 as compared to the comparable periods in
1996 was primarily due to a decrease of $1.6 million of interest expense
related to the Subordinated Convertible Debentures recorded in the second and
third quarter of 1996. See Note 4 of Notes to Condensed Consolidated Financial
Statements.
Other income was $0.1 million for both the three months ended September 30,
1997 and 1996, respectively, and $3.9 million and $0.0 million for the nine
months ended September 30, 1997 and 1996, respectively. This increase for both
the quarter and year ended September 30, 1997 was mainly attributable to the
proceeds on the sale of the verification product family, the LightSpeed product
family and the sale of the Company's interest in QSS. See Note 5 of Notes to
Condensed Consolidated Financial Statements.
FACTORS AFFECTING FUTURE RESULTS
The Company continues to seek improvement in operating results through
introduction of new products. However, there can be no assurance that the
Company will be successful in its efforts. In the future, the Company's
operating results may be impacted by a number of factors, including
cancellation or delays of customer orders, interruption or delays in the
supply of key components, changes in customer base or product mix, seasonal
patterns of capital spending by customers, new product announcements by the
Company or its competitors, pricing pressures and changes in general economic
conditions. Historically, a significant portion of the Company's shipments
have been made in the last month of each quarter. As a result, a shortfall
in revenue compared to expectation may not evidence itself until late in the
quarter. Additionally, the timing of expenditures for research and
development activities and sales and marketing programs, as well as the
timing of orders by major customers, may cause operating results to fluctuate
between quarters and between years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used internally generated funds, public and
private offerings of common stock, sale and leaseback arrangements and bank
financing and credit lines to finance its business. Cash used in operations
was $9.5 million for the first nine months of 1997 compared to cash used in
operations of $7.8 for the first nine months of 1996. This increase in cash
used in operations in 1997 compared to 1996 was primarily due to increased
depreciation and amortization for the write off of capitalized software,
partially offset by the net gain on sales of business units. See Note 5 of
Notes to Condensed Consolidated Financial Statements. Net cash provided by
investing activities was $11.4 million at September 30, 1997 compared to net
cash used in investing activities of $3.4 million at September 30, 1996.
This increase in net cash provided by investing activities is primarily due
to cash receipts from the sale of the LightSpeed product family and the sale
of the Company's interest in QSS. Net cash used in financing activities was
$1.6 million at September 30, 1997, compared to net cash provided by
financing activities of $11.6 million at September 30, 1996. The decrease in
net cash provided by financing activities from 1996 to 1997 was primarily due
to decreased levels of debenture offerings in 1997, as well as reduced levels
of bank debt and financing obligations in 1997.
At September 30, 1997 the Company had cash and cash equivalents of $2.1
million and a working capital deficit of $(2.6) million. The Company has a
$5.0 million revolving credit facility that bears interest at the bank's
prime rate (currently 8.5%) plus 2.25%, which expires on January 31, 1999, of
which $0.1 million was outstanding at September 30, 1997. This line of
credit carries a borrowing limit of up to 80% of the Company's eligible
accounts receivable. The Company continues to work with certain vendors to
facilitate extended trade terms, thus reducing the Company's immediate cash
requirements to meet established payments and other normal, recurring period
expenses.
The Company continues to work on attaining revenue projections through 1997
and by relying on the new credit line, together with sources of additional
liquidity such as private or public offerings, equipment lease lines and the
sale of certain company assets, which the Company expects to meet short-term
liquidity needs. Should additional funding be required, however, there can
be no assurance that such funding will be available on acceptable terms as
and when required by the Company. See Note 7 of Notes to Condensed
Consolidated Financial Statements.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3.4 Certificate of Correction to Certificate of Amendment to the
Certificate of Incorporation.
Exhibit 3.5 Certificate of Amendment of Certificate of Incorporation.
Exhibit 11 Computation of Earnings per Share
Exhibit 27.1 Article 5 of Regulation S-X, Financial Data Schedule for
GateField Corporation for the quarter ended September 30, 1997
(b) Reports on Form 8-K:
GateField Corporation's Current Report on Form 8-K filed November 14, 1997,
reporting on the Strategic Partnership with Siemens and the Stock Purchase
Agreement with Idanta Partnership, Ltd.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GATEFIELD CORPORATION
/s/ Stephen A. Flory
---------------------
Stephen A. Flory
Vice President and Chief Financial Officer
Dated: November 14, 1997
11
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
GateField Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify that:
1. On September 19, 1997, a Certificate of Amendment (the "Certificate
of Amendment") of Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware.
2. The Certificate of Amendment certified that the Board of Directors
of the Corporation proposed, and that the stockholders of the Corporation, at
a special meeting of stockholders held on July 10, 1997, adopted, an amendment
to the Certificate of Incorporation of the Corporation to amend paragraph
4(a) of Article 4 thereof to read as follows:
"The corporation is authorized to issue a total of 52,000,000 shares of
all classes of stock, of which, 50,000,000 shall be shares of Common
Stock with a part value of $0.10 per share and 2,000,000 shall be shares
of series preferred stock with a par value of $0.10 per share."
3. The Certificate of Amendment certified that such amendment to the
Certificate of Incorporation of the Corporation was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
4. The amendment to the Certificate of Incorporation of the Corporation
referred to therein was not duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware because a
majority of the outstanding stock entitled to vote thereon had not been not
voted in favor of such amendment. Therefore, the Certificate of Amendment is
an inaccurate record of the corporate action referred to therein.
5. The Certificate of Amendment was erroneously filed with the
Secretary of State of the State of Delaware. The Certificate of Amendment
shall be declared null and void.
<PAGE>
GateField Corporation has caused this Certificate of Correction of
Certificate of Amendment of Certificate of Incorporation to be signed by
Douglas E. Klint, its authorized officer, this 6th day of November, 1997.
By: /s/ Douglas E. Klint
------------------------------
Douglas E. Klint
Vice President, Secretary and
General Counsel
<PAGE>
EXHIBIT 3.5
ZYCAD CORPORATION
Certificate of Amendment
of
Certificate of Incorporation
(Pursuant to the General
Corporation Law of the State of Delaware)
Phillips W. Smith, President and Chief Executive Officer, and Douglas E.
Klint, Secretary, of Zycad Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
do hereby certify.
FIRST: That at the duly constituted special meeting of the stockholders
of said corporation held on July 10, 1997, the corporation adopted a
resolution adopting such amendment, in accord with the provisions of the
General Corporation Laws of the State of Delaware.
SECOND: That there has been duly adopted, in accordance with the
provisions of the General corporation Law of the State of Delaware, an
amendment to the Certificate of Incorporation of Zycad Corporation which
amends section 1 to read as follows:
"The name of the corporation is Gatefield Corporation."
IN WITNESS WHEREOF, said Zycad Corporation has caused this Certificate
to be signed by Phillips W. Smith, its President and Chief Executive Officer,
and attested by Douglas E. Klint, its Secretary, this 31st day of July, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------------
Phillips W. Smith
President and CEO
ATTEST
By: /s/ Douglas E. Klint
---------------------------------
Douglas E. Klint
Secretary
<PAGE>
Exhibit 11
GATEFIELD CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Loss attributable to ordinary stockholders $ (4,345) $(11,366) $(11,830) $(20,322)
Preferred Stock Dividend (see Note 4) (76) - (76) -
-------- -------- -------- --------
$ (4,421) $(11,366) $(11,906) $(20,322)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per share $ (0.13) $ (0.56) $ (0.42) $ (1.01)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding 32,884 20,404 28,460 20,083
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Note 5 of Notes to Condensed Consolidated Financial Statements.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,103
<SECURITIES> 98
<RECEIVABLES> 4,774
<ALLOWANCES> 0
<INVENTORY> 1,050
<CURRENT-ASSETS> 8,487
<PP&E> 2,945
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,765
<CURRENT-LIABILITIES> 11,046
<BONDS> 0
0
0
<COMMON> 3,553
<OTHER-SE> 64,401
<TOTAL-LIABILITY-AND-EQUITY> 11,765
<SALES> 4,020
<TOTAL-REVENUES> 12,317
<CGS> 6,029
<TOTAL-COSTS> 10,962
<OTHER-EXPENSES> 16,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 867
<INCOME-PRETAX> (11,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,830)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
