SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
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[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number 0-19027
SIMTEK CORPORATION
(Exact name of registrant as specified in its charter)
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Colorado 84-1057605
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1465 Kelly Johnson Boulevard, Suite 301, Colorado Springs, Colorado 80920
(Address of principal executive offices) (Zip Code)
(719) 531-9444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value OTC Bulletin Board
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(Title of Class)
Class B Redeemable Warrants Not Listed
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this form 10-KSB. [ X ]
The registrant's revenues for its most recent fiscal year were $6,632,186.
The aggregate market value of the 18,854,155 shares of voting stock held by
non-affiliates of the registrant was approximately $8,673,000, based upon the
closing sale price of the Common Stock on March 13, 1998 of $ 0.46 per share as
reported by the OTC Electronic Bulletin Board. The calculation of such market
value should not be construed as an admission or conclusion by the registrant
that any person is in fact an affiliate of the registrant.
The total number of shares of Common Stock issued and outstanding as of March
24, 1998 was 28,691,699.
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
PART I
<S> <C> <C>
Item 1: Business......................................................................................... 3
Item 2: Properties....................................................................................... 15
Item 3: Legal Proceedings................................................................................ 15
Item 4: Matters Submitted to a Vote of Security Holders.................................................. 15
PART II
Item 5: Market for Registrant's Common Stock and Related Security Holder Matters......................... 16
Item 6: Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................. 17
Item 7: Financial Statements and Supplementary Data...................................................... 22
Item 8: Changes in and Disagreements with Accountants on Accounting Financial
Disclosure.................................................................................... 39
PART III
Item 9: Directors and Executive Officers of the Registrant............................................... 40
Item 10: Executive Compensation........................................................................... 43
Item 11: Security Ownership of Certain Beneficial Owners and Management................................... 45
Item 12: Certain Relationships and Related Transactions................................................... 47
Item 13: Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. 48
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PART I
ITEM 1: BUSINESS
GENERAL
Simtek Corporation ("Simtek" or the "Company") designs, develops, produces
and markets high performance nonvolatile semiconductor memories. Nonvolatility
prevents loss of programs and data when electrical power is removed. The
Company's nonvolatile memory products feature fast data access and programming
speeds and electrical reprogramming capabilities. Simtek's products are targeted
for use in commercial electronic equipment markets such as industrial control
systems, office automation, medical instrumentation, telecommunication systems,
cable television, and numerous military systems, including communications,
radar, sonar and smart weapons.
Since establishing in September 1991 that the Company's products meet or
exceed certain quality and reliability standards, the Company has received and
filled more than 3,100 customer evaluation requests for its products. The
Company has accepted purchase orders from many Fortune 500 companies. As of
December 31, 1997, the Company's backlog for released purchase orders was
approximately $770,000, all of which is expected to be shipped by June 30, 1998.
Orders are cancelable without penalty at the option of the purchaser prior to 30
days before scheduled shipment and therefore are not necessarily a measure of
future product revenue. Since inception, in 1987 through December 31, 1997, the
Company has generated net revenue of approximately $19,129,000 from the sale of
products. Of this amount, approximately $6,632,000 was generated during the year
ended December 31, 1997.
The Company has completed the development and is in production of its first
four families of products, 256 kilobit, 64 kilobit, 16 kilobit and 4 kilobit
nonvolatile static random access memories ("nvSRAMs"). The Company's 256 kilobit
nvSRAM was qualified in 1997 for sales into the commercial and industrial
markets. The Company anticipates having the 256 kilobit qualified for shipment
into the military market during the first half of 1998. The Company's 64 kilobit
nvSRAMs meet or exceed the requirements for sales into commercial, industrial
and military markets. The Company's 16 kilobit and 4 kilobit nvSRAMs have been
qualified for sales into commercial and industrial markets. Simtek believes its
256 kilobit nvSRAMs offer lower cost per bit, greater memory capacity and faster
data access speeds than other existing single-chip nonvolatile SRAMs. Simtek's
64 kilobit, 16 kilobit and 4 kilobit nvSRAMs provide even lower cost solutions
for customers who do not require 256 kilobits of memory. The Company's nvSRAMs
are physically smaller and require less maintenance than SRAM devices that
achieve nonvolatility through the use of internal batteries and are more
convenient to use than SRAM devices that achieve nonvolatility by being combined
with additional chips.
The Company reduces capital requirements by subcontracting all phases of
the manufacturing process. Chartered Semiconductor Manufacturing Plc. of
Singapore ("Chartered") began providing silicon wafers for the Company's nvSRAM
products in September 1993 and continues to provide wafers based on the
Company's 0.8 and 1.2 micron product technology. Zentrum Mikroelektronik Dresden
GmbH ("ZMD") of Dresden, Germany is supplying the Company with 256 kilobit, 64
kilobit and 16 kilobit finished units based on the Company's 0.8 micron product
technology. In the fourth quarter of 1997, the Company engaged Lucent
Technologies to provide a final test capability for products sourced from
Chartered.
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During 1997, Company purchases from Chartered were for wafers primarily
based on 1.2 micron wafer technology. Sales of nvSRAMs generated from these
wafers accounted for approximately 43% of the Company's revenue for 1997. In the
fourth quarter of 1997, the Company qualified the 0.8 micron technology from
Chartered for use in the Company's commercial product. The Company is in the
process of completing the qualification of this technology for use in its
military products. The Company anticipates the qualification to be complete in
the second quarter of 1998.
The Company along with ZMD completed development and product qualification
of the Company's 256 kilobit product based on 0.8 micron product technology in
the second quarter of 1997. Sales of the 256 kilobit and 64 kilobit product
based on 0.8 micron product technology accounted for approximately 57% of the
Company's sales for 1997.
For sales and marketing of its products, the Company utilizes three sales
offices, one in Colorado Springs, Colorado, one in Bristol, England and one in
Atlanta, Georgia. The Company has engaged 18 independent representative
organizations with 44 sales offices and 28 distributor organizations with 60
sales offices. Both organizations have multiple sales offices and sales people
covering specific territories. Simtek has access to a worldwide market through
these organizations and their sales offices.
INDUSTRY AND PRODUCT BACKGROUND
The semiconductor memory market is very large and highly differentiated.
The market covers a wide range of product densities, speeds, features and
prices. The ideal memory would have (1) high bit density per chip to minimize
the number of chips required in a system; (2) fast data read and write speeds to
allow a system's microprocessor to access data without having to wait; (3) the
ability to read and modify data an unlimited number of times; (4) the ability to
retain its data indefinitely when power is interrupted (i.e. nonvolatility); (5)
availability in a variety of package types for modern assembly techniques; and
(6) the ability to be tested completely by the manufacturer to ensure the
highest quality and reliability. Although customers would like to have memory
components with all of these attributes it currently is not technically
feasible. Therefore, the memory market is segmented with different products
combining different mixes of these attributes.
Semiconductor memories can be divided into two main categories, volatile
and nonvolatile. Volatile memories generally offer high densities and fast data
access and programming speeds, but lose data when electrical power is
interrupted. Nonvolatile memories retain data in the absence of electrical
power, but typically have been subject to speed and testing limitations and wear
out if they are modified too many times. There are a number of common volatile
and nonvolatile product types, as set forth below. The list of products under
"Combinations" is limited to single packages and does not include combinations
of the listed memories in separate packages, such as SRAMs in combination with
EPROMs and EEPROMs.
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VOLATILE NONVOLATILE COMBINATIONS
-------- ----------- ------------
SRAM EEPROM nvSRAM
DRAM Flash Memory NVRAM
EPROM SRAM plus lithium battery ("Batram")
PROM
ROM
VOLATILE MEMORIES. Rewritable semiconductor memories store varying amounts
of electronic charge within individual memory cells to perform the memory
function. In a Dynamic Random Access Memory (DRAM), the charge must be
electrically refreshed many times per second or data are lost even when power is
continuously applied. In a Static Random Access Memory (SRAM), the charge need
not be refreshed, but data can be retained only if power is not interrupted.
NONVOLATILE MEMORIES. A Read Only Memory (ROM) is programmed (written) once
in the later stages of the manufacturing process and cannot be reprogrammed by
the user. Programmable Read Only Memory (PROM) can be programmed once by the
user, while Erasable PROM (EPROM) may be reprogrammed by the user a limited
number of times if the EPROM is removed from the circuit board in the equipment.
Both Flash memory and Electrically Erasable PROM (EEPROM) may be reprogrammed
electrically by the user without removing the memory from the equipment.
However, the reprogramming time on both EEPROM and Flash memory is excessively
long compared to the read time such that in most systems the microprocessor must
stop for a relatively long time to rewrite the memory.
COMBINATIONS. Many customers use a combination of volatile and nonvolatile
memory functions to achieve the desired performance for their electronic
systems. By using SRAMs in combination with EPROM and EEPROM chips, customers
can achieve nonvolatility in their systems and still retain the high data read
and write speeds associated with SRAM memories. This approach, however, is not
desirable in many applications because of the size and cost disadvantages
associated with using two or more chips to provide a single memory function.
Also, it may take up to several seconds to transfer the data from the SRAM to
the EEPROM, an excessive time at power loss. As a result, attempts have been
made to combine nonvolatile and volatile memory features in a single package or
silicon chip. One approach combines an SRAM with lithium batteries in a single
package.
Nonvolatile random access memories (NVRAMs) combine volatile and
nonvolatile memory cells on a single chip and do not require a battery. The
Company believes its nvSRAM represents a significant advance over existing
products that combine volatility and nonvolatility on a single silicon chip.
Simtek combines an SRAM memory cell with an EEPROM memory cell to create a small
nvSRAM memory cell. The Company's unique and patented memory cell design enables
the nvSRAM to be produced at densities higher than existing NVRAMs and at a
lower cost per bit. In addition to high density and nonvolatility, the nvSRAM
has fast data access and program speeds and the SRAM portion of the memory can
be modified an unlimited number of times without wearing out.
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TECHNOLOGY
The Company uses an advanced implementation of
silicon-nitride-oxide-semiconductor (SNOS) technology. SNOS technology stores
electrical charge within an insulator, silicon nitride, and uses a thin tunnel
oxide layer to separate the silicon nitride layer from the underlying silicon
substrate. SNOS technology prevents tunnel oxide rupture in the memory cell from
causing an immediate loss of data. Oxide rupture has been a major cause of
failures in EEPROMs using floating gate technology, where charge is stored on a
polysilicon conductor surrounded by insulators. To protect against these
failures, many floating gate EEPROMs have required error correction circuitry
and redundant memory cells. This increases product cost by requiring more
silicon area. Error correction and redundancy are not required for the Company's
products to protect against tunnel oxide rupture. In addition, the Company's
product designs incorporate a special test feature which can predict data
retention time for every individual memory cell based on measuring the rate of
charge loss out of the silicon nitride.
The SNOS technology coupled with the Company's nvSRAM memory cell allows
high performance nonvolatile SRAMs to be manufactured using complementary metal
oxide semiconductor (CMOS) technology. The SNOS technology used by the Company
has proven to be highly reliable, as demonstrated by the Company's product
qualification results to date.
PRODUCTS
nvSRAMS (NONVOLATILE STATIC RANDOM ACCESS MEMORIES). The Company's 256
kilobit, 64 kilobit, 16 kilobit and 4 kilobit nvSRAM product families consist of
nonvolatile memories that combine fast SRAM and nonvolatile EEPROM
characteristics within each memory cell on a single chip of silicon. The SRAM
portion of the nvSRAM is operated in the same manner as most existing SRAM
products. The SRAM can be written to and read from an unlimited number of times.
The EEPROM can be programmed, depending upon device type, by user control or
automatically by transferring the SRAM contents into the EEPROM. The EEPROM data
can be transferred back into the SRAM by user control or automatically.
Simtek's nvSRAMs have fast data access speeds of 25, 30, 35 and 45
nanoseconds. These data access speeds correspond to those of fast SRAMs and meet
the requirements of much of the fast SRAM market. The high speed characteristics
of Simtek's nvSRAMs allow them to be used in applications with various high
performance microprocessors and digital signal processors such as those
manufactured by Intel Corp., Texas Instruments and Motorola. The Simtek nvSRAM
can be used to replace SRAMs with lithium batteries and multiple chip solutions
such as SRAM plus EEPROM or Flash Memory.
The Company finalized commercial and industrial qualification of two
versions of its initial 64 kilobit nvSRAM product offering in September 1991 and
April 1992, respectively. The Company completed military qualification of its
initial nvSRAM in May 1992. The Company began sales into the commercial market
of its initial 16 kilobit nvSRAM product family in 1992. The nvSRAM product
family also includes the 4 kilobit version. The Company completed the
development and product qualification of the 64 kilobit AutoStoreTM nvSRAM in
1993. The AutoStoreTM version automatically detects power loss and transfers the
data from the SRAM cells into the EEPROM cells. This device does
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not require instructions or intervention from the system microprocessor to
notify it of the power loss. Production of the Company's 256 kilobit began in
May 1997.
In addition to its qualified product sales, the Company has shipped nvSRAM
samples to more than 3,100 prospective customers for evaluation and currently
has a worldwide customer base of over 300 companies in products ranging from
utility meters to military aircraft.
NEW INTRODUCTIONS: The Company began shipping production qualified 256
kilobit nvSRAM products in mid-1997. These products are 16 times denser than the
nearest competitor with a monolithic solution. The Company believes its 256
kilobit products will expand the market for Simtek products.
PACKAGE TYPES: The Company currently supplies its nvSRAMs in plastic and
ceramic dual-in-line packages, ceramic leadless chip carriers and plastic small
outline integrated circuit surface mount packages. Supplying the products in a
number of different package types increases the available market for Simtek
products at a relatively low development cost.
PRODUCT WARRANTIES. Simtek presently provides a one-year limited warranty
on its products.
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Simtek currently offers the high performance nvSRAMs listed below:
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nvSRAMS SUPPLIED
Product Description Speed Package Flow
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STK20C04 4K (512x8) HW Store 30,35,45 ns 600-P Comm./Ind.
STK22C48 16K (2Kx8) AutoStoreTM 30,35,45 ns 600-P Comm./Ind.
STK25C48 16K (2Kx8) AutoStoreTM 30,35,45 ns 600-P Comm./Ind.
STK10C48 16K (2Kx8) HW Store 30,35,45ns PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK11C48 16K (2Kx8) SW Store 30,35,45ns PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK10C68 64K (8Kx8) HW Store 25,30,35,45 ns CDIP Comm./Ind./Mil.
PDIP Comm./Ind.
SOIC Comm./Ind.
LCC Comm./Ind./Mil.
STK11C68 64K (8Kx8) SW Store 25,30,35,45 ns CDIP Comm./Ind./Mil.
PDIP Comm./Ind.
SOIC Comm./Ind.
LCC Comm./Ind./Mil.
STK12C68 64K (8Kx8) AutoStoreTM 25,30,35,45 ns CDIP Comm./Ind./Mil.
PDIP Comm./Ind.
SOIC Comm./Ind.
LCC Comm./Ind./Mil.
STK15C68 64K (8Kx8) AutoStoreTM 25,35,45 ns 600-P Comm./Ind.
PDIP Comm./Ind.
SOIC Comm./Ind.
STK11C88 256K (32Kx8) SW Store 25,35,45 PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK14C88 256K (32Kx8) AutoStoreTM 25,35,45 PDIP Comm./Ind.
SOIC Comm./Ind.
CDIP Comm./Ind./Mil**
LCC Comm./Ind./Mil**
STK15C88 256K (32Kx8) AutoStoreTM 25,35,45 PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
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** Qualification scheduled to be complete second quarter 1998.
RESEARCH AND DEVELOPMENT
Much of the Company's research and development activities are centered
around developing new products and reducing the cost of its nvSRAM products.
Cost reduction is being done principally by introducing its 0.8 micron
technology. This technology shrinks the size of the 64 kilobit nvSRAM chip and
has enabled the Company to develop a cost effective 256 kilobit nvSRAM. The
Company is continuing its efforts to improve yield on the 0.8 micron technology
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along with maintaining the existing yield on the Company's 1.2 micron
technology. In order to further reduce costs, the Company engaged Lucent
Technologies in the fourth quarter 1997 for testing of its 0.8 micron products.
The Company has a test floor used for evaluation of its technologies, product
designs and product quality. The test floor is also used for production testing
of incoming wafers.
The Company's research and development expenditures for the years ended
December 31, 1997 and 1996 were $1,180,100 and $994,444, respectively. The
Company intends to continue expenditures on research and development; however,
the percentage of research and development expenditures is expected to decrease
relative to expenditures relating to the commercial production of its existing
products.
MANUFACTURING AND QUALITY CONTROL
The Company's manufacturing strategy is to use subcontractors whose
production capabilities meet the requirements of the Company's product designs
and technologies.
In 1992, the Company and Chartered entered into a manufacturing agreement
(the "Chartered Manufacturing Agreement") to provide the Company with silicon
wafers for the Company's products through at least September 29, 1997; in
September 1997, this agreement was extended to September 8, 1998. Under the
Chartered Manufacturing Agreement, Chartered has installed a manufacturing
process for versions of the Company's current and future products. The Chartered
Manufacturing Agreement also provides for Chartered to manufacture wafers for
the Company's licensees of its technology.
According to the extended Chartered Manufacturing Agreement, the Company
has the right to purchase up to 600 six-inch silicon wafers per month from
Chartered's facility in Singapore. During 1997, approximately 43% of the
Company's product sales were based on wafers purchased from Chartered.
The Cooperation Agreement entered into with ZMD in September 1995, provided
for Simtek to purchase finished 0.8 micron units from their foundry. In 1997,
the Company continued purchasing qualified production quantities of the 64
kilobit units and in the third quarter 1997 began purchasing qualified
production quantities of the 256 kilobit units from ZMD. Sales of the 256
kilobit and 64 kilobit product based on 0.8 micron product technology accounted
for approximately 57% of the Company's sales in 1997.
The Company's subcontractors provide quality control for the manufacture of
the Company's products. The Company maintains its own quality assurance
personnel and testing capability to assist the subcontractors with their quality
programs and to perform periodic audits of the subcontractors' facilities and
finished products to ensure product integrity.
The Company's quality and reliability programs were audited by several
commercial and military customers during 1997 as part of routine supplier
certification procedures. All such audits were completed satisfactorily.
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The Company believes the gross margins on military sales of its products
meet or exceed average gross margins on military sales for the semiconductor
industry. At the present time, the Company believes the gross margins on
commercial sales of its products meet industry standards.
MARKETS
Simtek products are targeted at fast nonvolatile SRAM markets, SRAM plus
EEPROM markets and other nonvolatile memory products broadly used in commercial,
industrial and military electronic systems.
The Company's product families are standard products designed for many
applications in contrast to products designed for specific application
("ASIC's", or Application Specific Integrated Circuits). Therefore, management
believes that its products will address very broad markets. The Company has
received orders and inquiries regarding its nvSRAMs from over 10,000 potential
customers as a result of exposure of the Company's products at trade shows,
articles appearing in industry trade journals, direct advertising and the
Company's sales network. The Company has sold product, received requests and
sent samples of its nvSRAM products to approximately 3,100 potential customers
for applications such as:
Airborne and Space Computers Lighting
Automotive Control & Monitoring Medical Instruments
Portable Telephone Modems Control Systems
Portable Computers Currency Changers
Postal Meters Data Monitoring Equipment
Printers Disk Drives
Process Control Equipment Facsimile Machines
Radar and Sonar Systems Gaming
Telecommunications Systems GPS Navigational Systems
Terminals Guidance and Targeting Systems
Test Equipment High Performance Workstations
Utility Meters Laser Printers
Vending Machines Mainframe Computers
Weapon Control Systems CD Writers
Security Systems Copiers
Broadcast Equipment Cable TV Set Top Converter Boxes
Studio Recording Equipment
SALES AND DISTRIBUTION
The Company's strategy is to generate sales through the use of independent
sales representative agencies and distributors. Management believes this
strategy provides the fastest and most cost effective way to assemble a large
and professional sales force.
Simtek currently has three sales and marketing offices, one in Colorado
Springs, Colorado, one in Bristol, England and one in Atlanta, Georgia. The
Company has engaged 18 independent representative organizations with 44 sales
offices and 28 distributor organizations with 60 sales offices. Both
organizations have multiple sales offices and sales people covering a specific
territory. Through these organizations and their sales offices Simtek is capable
of serving a worldwide market.
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Independent sales representatives typically sell a limited number of
noncompeting products to semiconductor users in particular geographic assigned
territories. Distributors inventory and sell products from a larger number of
product lines to a broader customer base. These sales channels are
complementary, as representatives and distributors often work together to
consummate a sale, with the representative receiving a commission from the
Company and the distributor earning a markup on the sale of the products. The
Company supplies sales materials to the sales representatives and distributors.
For its marketing activities, the Company evaluates external marketing
surveys and forecasts and performs internal studies based, in part, on inputs
from its independent sales representative agencies. The Company prepares
brochures, data sheets and application notes on its products.
CUSTOMER AND BACKLOG
The Company has shipped qualified nvSRAM products to customers directly and
through distributors since the September 1991 commercial product qualification;
the majority of its customers are Fortune 500 companies. Approximately 31% of
the Company's net product sales during 1997 were to customers in the Pacific Rim
and approximately 16% were to customers in Europe. The remaining product sales
were to customers in North America.
As of December 31, 1997 the Company had a backlog of unshipped customer
orders of approximately $770,000, which is expected to be filled by June 30,
1998. Orders are cancelable without penalty at the option of the purchaser prior
to 30 days before scheduled shipment and therefore are not necessarily a measure
of future product revenue.
During 1997, the Company continued to receive initial and scheduled
production orders on its 64 kilobit product. Management believes the Company
will continue to receive volume production orders on its 64 kilobit product and
will begin receiving production orders on its 256 kilobit product.
LICENSES
PRODUCT AND TECHNOLOGY LICENSE SALES. The Company has sold product and
technology licenses to Nippon Steel, Plessey and ZMD. Based on prior actions by
Nippon Steel and Plessey, the Company doesn't anticipate any future activity on
the licenses with Nippon Steel and Plessey.
ZMD. In June of 1994, the Company signed a joint development agreement with
ZMD to install the 1.2 micron products for manufacture at ZMD and to jointly
develop the 0.8 micron technology at Chartered. The Agreement was modified in
August of 1994 by a Letter of Intent between the two Companies to bypass the
installation of 1.2 micron technology at ZMD and instead modify the 0.8 micron
technology to run in the ZMD factory. For this cooperative development, ZMD has
paid Simtek $750,000 for Simtek's development expenses. ZMD received a license
to manufacture and sell the 64 kilobit and 256 kilobit nvSRAM products built in
the sub-micron technology. ZMD fulfilled their obligation, under the Letter of
Intent, to pay the Company $600,000 in prepaid royalties on their future product
sales. These payments were intended to allow Simtek to continue development of
the market for nvSRAM products. As of December 31, 1995, ZMD paid $750,000 for
technology development which converted to equity on February 28, 1995 and
$600,000 in prepaid royalties which converted to royalty income during 1995.
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In September 1995, the Company entered into a one-year Cooperation
Agreement with ZMD. One of the items in the agreement was that the two companies
would jointly develop and install the 64 kilobit and 256 kilobit nvSRAM based on
0.8 micron technologies into ZMD's wafer fabrication facility. It was also
understood that the two companies would cooperate in the development of
additional derivative nvSRAM products based upon the same technology. ZMD and
Simtek will have joint ownership of all products and processes jointly developed
by the companies using the 0.8 micron process flow.
CHARTERED. In September of 1992, the Company entered into a manufacturing
agreement with Chartered. This agreement grants Chartered the right to
manufacture silicon wafers containing the Simtek products solely for sale to the
Company. Chartered also has the right to manufacture silicon wafers in
connection with future technology licenses that the Company may enter into with
third parties.
FUTURE LICENSE SALES. The Company intends to sell product and technology
licenses on a selective basis. Management will continue to seek licensing
partners who can contribute to the development of the nvSRAM market and provide
a meaningful level of revenue to Simtek while not posing an undue threat in the
marketplace.
COMPETITION
The Company's products compete on the basis of several factors, including
data access and programming speeds, density, data retention, reliability,
testability, space savings, manufacturability, ease of use and price.
Products that compete with the Company's family of nvSRAMs fall into three
categories. The first category of products that compete with Simtek's nvSRAMs
are volatile and nonvolatile chips used in combination, such as fast SRAMs used
with EPROMs, EEPROMs, or Flash memory. Management believes that Simtek has
advantages in these applications because the nvSRAM allows data to be stored in
milliseconds as compared to seconds for chips used in pairs. The Company's
single chip solution provides a space savings and easier manufacturing. The
Company's single chip solution generally provides increased reliability versus
multiple chips. Simtek believes it will be able to compete with many solutions
requiring density up to 256 kilobit; however, in those instances where the
density requirement is beyond 256 kilobits the nvSRAM does not compete.
Competitors in the multiple chip category include Cypress Semiconductor Corp.,
Integrated Technology, Inc., Toshiba, Fujitsu, Advanced Micro Devices, Inc.,
Atmel and National Semiconductor Corp.
The second category of products that compete with the Company's nvSRAMs are
products that combine SRAMs with lithium batteries in specially adapted
packages. These products generally are slower in access speeds than the
Company's nvSRAMs due in part to limitations caused by life of the lithium
battery when coupled with a faster SRAM. The Company's nvSRAMs are offered in
standard, smaller, less expensive packages, and do not have the limitation on
lifetime imposed on the SRAM/battery solutions by the lithium battery. The
Company's nvSRAMs can also be used for wave soldered automatic insertion circuit
board assembly since they do not have the temperature limitations of lithium
batteries. Again, the Simtek product line up to 256 kilobit nvSRAMs will allow
for competing in many applications. However, lithium battery-backed SRAM
products are available in densities of 1 megabit and greater per package.
Companies currently supplying products with lithium batteries include Dallas
Semiconductor Corp., SGS-Thomson, Inc and Benchmarq Microelectronics, Inc.
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The third category consists of NVRAMs that combine SRAM memory cells and
EEPROM memory cells on a monolithic chip of silicon. The Company's current
product offerings are of higher density, faster access times and the Company
believes can be manufactured at lower costs per bit than NVRAMS. Another company
that is currently supplying NVRAMs is Xicor, Inc. The Company believes that
Xicor's highest density single chip part is 16 kilobit.
ZMD, through their license agreement with Simtek, has the worldwide right
to sell under the ZMD label nvSRAMs developed jointly by Simtek and ZMD. With
volume production being established at ZMD using the 0.8 micron product, ZMD may
begin selling such nvSRAMs. This may have a positive impact for Simtek by
creating a second source for Simtek's nvSRAM products. However, a potentially
negative impact to Simtek may be the presence of ZMD as a competitor to Simtek.
The Company's management is aware of other semiconductor technologies for
nonvolatile memory products. These technologies include ferroelectric memory and
thin film magnetic memory. Ramtron, Raytheon, Symetrix, National Semiconductor
and others are developing ferroelectric products.
Honeywell, Inc. is developing magnetic film products.
PATENTS AND INTELLECTUAL PROPERTY
The Company undertakes to protect its product designs and technologies
under the relevant intellectual property laws as well as by utilizing internal
disclosure safeguards. Under the Company's licensing programs, the Company
exercises control over the use of its protected intellectual property and has
not permitted its licensees to sublicense the Company's nvSRAM products or
technology.
It is common in the semiconductor industry for companies to obtain
copyright, trademark and patent protection of their intellectual property.
Management believes that patents are significant in its industry, and the
Company is seeking to build a patent portfolio. The Company expects to enter
into patent license and cross-license agreements with other companies. The
Company has been issued six patents in the United States on its nvSRAM memory
cell and other circuit designs. These patents have terms that expire through
2008 to 2013. The Company has also taken steps to obtain international patents
on certain of its products. The Company has two applications pending and intends
to prepare patent applications on additional circuit designs it has developed.
As with many companies in the semiconductor industry, it may become
necessary or desirable in the future for the Company to obtain licenses from
others relating to its products. The Company has, in the past, received
notification of possible infringement of patents from three other semiconductor
manufacturers and these matters are under consideration by management and
Company counsel. Although patent holders in the industry typically offer
licenses for their patents and these have been offered to Simtek, there can be
no assurance that licenses can be obtained on acceptable terms. Management
believes that these potential claims will not have an adverse effect on the
results of operations or the financial position of the Company.
The Company has received federal registration of the term "Novcel" it uses
to describe its technology. The Company has not sought federal registration of
any other trademarks, including "Simtek" or its logo.
13
<PAGE>
EMPLOYEES
As of the date of this Form 10-KSB, the Company has 21 full-time employees
and two temporary employees. Of these employees eight are engaged in design and
engineering activities, four in sales and marketing, seven in product operations
and quality assurance, and four in management and administration. The Company
also uses the resources of selected consultants from time to time. The Company
considers that its relations with its employees are generally satisfactory.
14
<PAGE>
ITEM 2. PROPERTIES
- -------------------
Simtek leases approximately 9,170 square feet of space in Colorado Springs,
Colorado. This space includes a product engineering test floor of approximately
2,350 square feet. The lease covering the Company's facilities expires on
October 31, 1998. Management believes that its existing facilities will be
adequate to meet its reasonably foreseeable needs or that, upon expiration of
the current lease, alternative facilities will be available to it on acceptable
terms to meet its requirements.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
There are no legal proceedings pending against the Company.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------
On November 6, 1997, the Company held a special meeting of shareholders to
vote on an increase to the number of authorized shares by 40,000,000 shares to a
total of 80,000,000 shares by amending the Company's articles of incorporation
and to ratify the selection of Hein + Associates LLP, as the Company's
independent auditors for the year ending December 31, 1997. Both proposals were
passed, with the voting as set forth below:
For Against Abstain
--- ------- -------
Increase of Authorized Shares 25,544,461 570,930 57,700
Approval of Accountants 26,042,391 80,700 50,000
15
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
- -------------------------------------------------------------------------
The Common Stock is listed on the OTC Electronic Bulletin Board under the
symbol SRAM. The Common Stock was listed on the NASDAQ Small-Cap Market until
July 18, 1995 and then transferred to the OTC Electronic Bulletin Board because
the Company no longer met the requirements for inclusion on the NASDAQ Small-Cap
Market. In order for the Company to have its Common Stock relisted on the
National Market System, the Company must meet all the requirements for an
initial listing. The Class A and Class B Redeemable Warrants were included on
the NASDAQ Small-Cap Market until March 15, 1995 at which time they were
delisted because the Company no longer met the requirement of maintaining two
active market makers. On March 6, 1996 the Class A Redeemable Warrants expired.
Securities not included in the NASDAQ Small-CAP Market are covered by the
Securities and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell the Company's securities, which
will have an adverse effect on the ability of the Company's security holders to
sell their securities and the possibility of the Company's ability to raise
additional capital.
Shown below is the closing high bid and the closing low offer as reported
by the OTC Electronic Bulletin Board on the last day of the quarter.
Common Stock
------------
High Bid Low Offer
-------- ---------
1996
First Quarter....................................... .18 .23
Second Quarter...................................... .15 .20
Third Quarter....................................... .20 .24
Fourth Quarter...................................... .16 .19
1997
First Quarter....................................... .21 .23
Second Quarter...................................... .51 .53
Third Quarter....................................... .41 .46
Fourth Quarter...................................... .35 .39
As of December 31, 1997, there were 298 shareholders of record, not
including shareholders who beneficially own Common Stock held in nominee or
"street name."
The Company has not paid any dividends on its Common Stock since inception
and does not intend to pay any in the foreseeable future.
16
<PAGE>
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS STATEMENTS WHICH CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. DISCUSSION CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH BELOW AND UNDER "BUSINESS," AS
WELL AS WITHIN THE ANNUAL REPORT GENERALLY. IN ADDITION, WHEN USED IN THIS
ANNUAL REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," "PLANS,"
"INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS AND STATEMENTS OF EXPECTATIONS, PLANS AND
INTENT ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE
FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING
STATEMENTS, AS A RESULT, AMONG OTHER THINGS, OF CHANGES IN TECHNOLOGY, CUSTOMER
REQUIREMENTS AND NEEDS, AMONG OTHER FACTORS. THE COMPANY UNDERTAKES NO
OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THESE FORWARD-
LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
RESULTS OF OPERATIONS
GENERAL. Simtek has designed and developed nonvolatile semiconductor
products since it commenced business operations in May 1987. The Company has
concentrated on the design and development of the 4, 16, 64 and 256 kilobit
nvSRAM product families and technologies, the design of a 256 kilobit EEPROM,
marketing, distribution channels, and sources of supply, including production at
subcontractors.
In September 1991, the Company began the sale of certain commercially
qualified 64 kilobit nvSRAM products. After initial qualification of its first
product in 1991, the Company began expanding the 64 kilobit nvSRAM product
family. By the end of 1993, the Company had qualified the complete product
family for commercial, industrial and military markets and had commenced sales
of these products. In 1995, the Company entered into an agreement with ZMD to
expedite the development of 0.8 micron technology products for manufacture in
ZMD's wafer fab. In 1996, the qualification of the 64 kilobit product based on
0.8 micron technology was complete and the Company began purchasing this product
as finished units from ZMD. In the second quarter 1997, the qualification of the
256 kilobit product based on 0.8 micron technology was completed and the Company
began purchasing this product as finished units from ZMD. Sales from these two
products accounted for approximately 57% of the Company's revenue for 1997.
In the fourth quarter 1997, the Company qualified its 256 kilobit product
based on 0.8 micron technology from wafers built by Chartered.
The Company's customer base continued to expand from the end of 1996 to
December 31, 1997 along with the existing customers continuing to place volume
production orders. The increase in the customer base led to an increase in net
product sales. Simtek recorded net product sales of $6,632,186 for the year
ended December 31,1997, an increase from the $5,196,653 recorded for the year
ended December 31, 1996.
REVIEW OF 1997 OPERATIONS. During 1997, the Company focused on the
objectives of the 1997 business plan which were aimed at making Simtek's
operation more efficient. Highlights of the plan include: 1) sales revenue of
$8,000,000; 2) maintain positive gross margins; 3) assist ZMD with the
17
<PAGE>
qualification of the 256 kilobit and 16 kilobit nvSRAM products based on 0.8
micron technology produced from their fab; 4) install and qualify the 256
kilobit nvSRAM based on 0.8 micron technology in Chartered's wafer fab; 5)
extend the agreement with Chartered that was scheduled to expire in September
1997; 6) monitor selling, general and administrative expenses in order to
maintain profitability; 7) find a source of additional funding to support the
production and marketing of the 256 kilobit nvSRAM product. Described below is
how the Company performed against its goals:
Total product sales for 1997 were $6,632,186 which was less than the
Company anticipated. The shortage was primarily due to the qualification of the
256 kilobit product being delayed from 1996. This delay prevented the Company
from sampling the product early in 1997 which would have enabled the Company to
start filling volume production orders in late 1997. However, the Company
believes that it will begin seeing volume production orders of the 256 kilobit
product in 1998. Sales of the Company's 16 kilobit product in 1997 remained at
approximately the same level as 1996. Sales of the Company's 64 kilobit product
in 1997 increased over 1996; this increase was due to volume production orders
being placed by customers. The increase in volume production orders allowed the
Company to see an increase of approximately 50% in units purchased during 1997
as compared to 1996, however, the increase caused a slight decrease in average
selling prices over the previous year. The Company realized an increase of
approximately 8% in its 64 kilobit military product based on 1.2 micron product
technology as compared to 1996.
The Company was able to improve its gross margins through 1997 because of
maintaining the yields on the 1.2 micron product technology that is used to
support high margin industrial and military products and with the continued use
of the 64 kilobit product based on 0.8 micron technology for its commercial
sales. The Company had gross margins of $2,955,754 during 1997.
The Company, along with ZMD achieved the qualification of the 256 kilobit
product for commercial and industrial use in the second quarter 1997. The
qualification of the 16 kilobit product for commercial and industrial use was
completed in the fourth quarter 1997.
In the first quarter 1997, the Company began the installation of the 256
kilobit product based on 0.8 micron technology into Chartered's wafer fab.
Qualification of the 256 kilobit product based on 0.8 micron technology received
from Chartered for use in commercial and industrial applications was completed
in the fourth quarter of 1997. The Company is currently in the process of
qualifying this product for military use. It is anticipated that this
qualification will be complete in the second quarter of 1998. In September 1997,
Chartered extended the agreement with Simtek until September 1998.
In the fourth quarter of 1997, the Company engaged Lucent Technologies to
perform final test of its 256 kilobit product received from Chartered. The
installation of the test programs and the purchase of the capital equipment has
been completed and the Company is in the final test correlation process with
Lucent.
Selling, general and administrative expenses for the year ended December
31, 1997 increased by approximately $225,000 from the year ended December 31,
1996; however, as a percentage of net sales these expenses were 34% in 1997 and
39% in 1996.
The increase in net sales and gross margins, along with controlled spending
in other areas resulted in the Company realizing a net income of $788,618.
18
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996. Simtek's net product sales for 1997
totaled $6,632,186 compared to $5,196,653 for 1996. The increase in net product
sales for the year ended December 31, 1997 was due to increased volume
production orders and customer acceptance of nvSRAM products and better product
availability for all of 1997. During 1997, sales of the Company's 64 kilobit
nvSRAM military products accounted for approximately 33% of the Company's sales,
while sales of the 256 kilobit and 64 kilobit nvSRAM product based on 0.8 micron
technology accounted for approximately 57%. Sales of the Company's 16 kilobit
and 64 kilobit nvSRAM product based on 1.2 micron technology accounted for the
balance of the increase in sales as compared to 1996. Two distributors of the
Company's nvSRAM products and one direct customer accounted for approximately
41% and 22%, respectively, of the Company's net product sales for the year ended
December 31, 1997.
The Company had a net income of $788,618 for the year ended December 31,
1997 compared to $144,516 for the year ended December 31, 1996. The Company
realized a positive gross margin of $2,955,754 in 1997 compared to $2,123,042 in
1996.
Selling, general and administrative expenses were approximately $225,000
greater for the year ended December 31, 1997 than for the year ended December
31, 1996. Of this increase, approximately $186,000 related to research and
development, which was due to the installation of the 0.8 micron 256 kilobit
nvSRAM into Chartered's wafer fab. The next largest increase of approximately
$108,000 was for sales and marketing which was attributed to an increase in
advertising expense and an increase in sales commission. Administration saw a
decrease of approximately $70,000 which was the result of a one time expense
adjustment that occurred in 1996.
FUTURE RESULTS OF OPERATIONS
The Company's ability to maintain profitability will depend primarily on
its ability to continue reducing its manufacturing costs and increase net
product sales by increasing the availability of existing products, by the
introduction of new products and by expanding its customer base.
As of December 31, 1997, the Company had a backlog of unshipped customer
orders of $770,000 expected to be filled by June 30, 1998. Orders are cancelable
without penalty at the option of the purchaser prior to 30 days before scheduled
shipment and therefore are not necessarily a measure of future product revenue.
In 1997, the Company purchased all of its 1.2 micron technology wafers from
a single supplier, Chartered. Approximately 43% of the Company's sales for 1997
were from finished units produced from these wafers. The Company has an
agreement with Chartered to provide wafers through September 1998. In 1997, the
Company also purchased finished units from ZMD based on 0.8 micron technology;
sales from these products accounted for approximately 57% of the Company's sales
for 1997. Any disruptions in the Company's relationships with these suppliers
could have an adverse impact on the Company's operating results.
ZMD, through their license agreement with Simtek, has the worldwide right
to sell nvSRAM's developed jointly by Simtek and ZMD. With volume production
being established at ZMD using the 0.8 micron product, ZMD may begin selling
such nvSRAMs. This may have a positive impact for Simtek by creating a second
source for Simtek's nvSRAM products. However, a potentially negative impact to
Simtek may be the presence of ZMD as a competitor to Simtek.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1997, the Company raised approximately
$32,100,000 of gross proceeds from the sale of convertible debt and equity
securities. From inception through December 31, 1997, the Company generated
$10,085,000 of gross revenue from the sale of product and technology licenses,
approximately $19,129,000 from net product sales and $600,000 in royalty income.
Under the Cooperation Agreement entered into with ZMD in September 1995,
ZMD had the right to convert all financing into shares of Common Stock at a
price of $0.175 per share for all monies paid in 1995 and at the average share
price of the quarter the monies were paid for all monies paid in 1996. In 1996,
the Company received $378,551 under this agreement of which $248,398 was
converted into 1,353,374 shares of Common Stock at a price of $.1548 and 165,000
shares of Common Stock at a price of $.2358. The balance of $130,153 remains as
a payable to ZMD on the balance sheet as of December 31, 1997. ZMD currently
owns approximately 30% of the Company's Common Stock and may not exceed 30%
without the approval of Simtek's Board of Directors.
The Company had accounts payable, accrued expenses and other payables to
related parties of $1,574,209 at December 31, 1997.
The Company's cash balance at December 31, 1997 was $1,475,599.
The Company's liquidity will depend on its revenue growth and its ability
to sell its products at positive gross margins and control its operating
expenses.
The Company may require additional capital to fund production and marketing
of its 0.8 micron 256 kilobit nvSRAM and the development of other new products.
The Company does not have any commitments for such additional capital as of the
date of this report. However, the Company filed an S-3 Registration Statement,
that became effective on October 14, 1997, to register the shares underlying the
warrants that are shown as outstanding in the notes to the financial statements
in this Form-10KSB. The Company will receive approximately $6,200,000 if all
such outstanding warrants are exercised. There can be no assurance, however,
that all or any portion of those outstanding warrants will be exercised. The
warrants have exercise prices ranging from $.50 to $ 2.97 per share. Simtek's
Board of Directors passed a resolution on October 24, 1997 and February 3, 1998
extending the exercise date of the warrants that were to expire on October 26,
1997 and February 12, 1998 to May 31, 1998, respectively. The terms and
conditions of all the other warrants remain the same.
For the year ended December 31, 1997, cash flow from operations was
$564,075, which is primarily attributable to a net income of $788,618, plus
depreciation and amortization of $127,444. The increase in accounts receivable
of $383,263 was primarily offset by an increase in accounts payable and accrued
expenses totaling $300,202. Inventory increased by $362,960 to accommodate
anticipated increases in sales in 1998. Net cash used in investing activities of
$76,257 was the result of purchases of equipment and furniture. Net cash flow
from financing activities of $23,325 was primarily the result of proceeds from
the exercise of stock options.
For the year ended December 31, 1996, cash flow from operations was
$291,287, which was primarily attributable to a net income of $144,516, plus
depreciation and amortization of $134,393. The increase in accounts receivable
of $400,709 was offset by the increase in accounts payable and accrued expenses
20
<PAGE>
totaling $409,631. Net cash used in investing activities of $18,724 was the
result of purchases of equipment and furniture. Net cash flow from financing
activities of $380,021 was the result of proceeds from ZMD under the Cooperation
Agreement.
In addition, as is further described in Note 4, in the financial statements
included herein, the Company has been notified by three companies that certain
of the Company's products may relate to patents owned by them and could result
in the Company having to license the patents.
In 1997, Statement of Financial Accounting Standards 130 REPORTING
COMPREHENSIVE INCOME and Statement of Financial Accounting Standards 131
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION were issued.
Statement 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, Statement 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other financial
statements. Statement 131 supersedes Statement of Financial Accounting Standards
14 FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. Statement 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decisionmaker in deciding how to allocate resources and in assessing
performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on the future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of
standards.
Management has initiated an enterprise-wide program to prepare the
Company's computer and manufacturing systems and applications for the year 2000.
The Company expects to incur internal staff costs as well as consulting and
other expenses related to the year 2000 project. At this point, the Company is
not able to determine the estimated cost for its year 2000 project and, if
unresolved, whether the year 2000 issue will have a material impact on the
operations of the Company.
INFLATION
The impact of inflation on the Company's business has not been material.
21
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Independent Auditor's Report........................................................................................ 23
Balance Sheet - December 31, 1997................................................................................... 24
Statements of Income - For the Years Ended December 31, 1997 and 1996............................................... 25
Statement of Changes in Shareholders' Equity - For the Years Ended December 31, 1997 and 1996....................... 26
Statements of Cash Flows - For the Years Ended December 31, 1997 and 1996........................................... 27
Notes to Financial Statements....................................................................................... 28
</TABLE>
22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Simtek Corporation
Colorado Springs, Colorado
We have audited the accompanying balance sheet of Simtek Corporation as of
December 31, 1997 and the related statements of income, changes in shareholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Simtek Corporation as of
December 31, 1997, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1997, in conformity with
general accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 6, 1998
23
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $1,475,599
Accounts receivable - trade, net of allowance for doubtful accounts and
return allowances of $64,378 921,798
Inventory 641,264
Prepaid expenses and other 17,960
----------
Total current assets 3,056,621
EQUIPMENT AND FURNITURE, net 177,821
----------
TOTAL ASSETS $3,234,442
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable:
ZMD $ 716,716
Other 173,325
Accrued expenses 269,592
Accrued wages 222,022
Accrued vacation payable 62,401
Payable to ZMD 130,153
----------
Total current liabilities 1,574,209
----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 2,000,000 shares authorized,
none issued and outstanding -
Common stock, $.01 par value; 80,000,000 shares authorized,
28,679,185 shares issued and outstanding 286,792
Additional paid-in capital 29,752,328
Accumulated deficit (28,378,887)
-----------
Total shareholders' equity 1,660,233
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,234,442
===========
See accompanying notes to these financial statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
NET SALES $6,632,186 $5,196,653
Cost of sales 3,676,432 3,073,611
---------- ----------
GROSS MARGIN 2,955,754 2,123,042
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
Research and development costs 1,180,100 994,444
Sales and marketing 675,361 567,049
Administrative 369,718 439,429
---------- ----------
Total selling, general and administrative expense 2,225,179 2,000,922
---------- ----------
INCOME FROM OPERATIONS 730,575 122,120
---------- ----------
OTHER INCOME:
Interest income, net 52,375 16,745
Other income 5,668 5,651
---------- ----------
Total other income 58,043 22,396
---------- ----------
NET INCOME $ 788,618 $ 144,516
========== ==========
BASIC AND DILUTED EPS $ .03 $ .01
========== ==========
See accompanying notes to these financial statements.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Stock Additional Total
------------------------- Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1996 26,978,311 $269,783 $29,496,144 $(29,312,021) $ 453,906
Exercise of stock options 10,000 100 1,370 - 1,470
Shares converted from ZMD research
and development arrangement 1,518,374 15,184 233,214 - 248,398
Net income - - - 144,516 144,516
---------- -------- ----------- ------------ ----------
BALANCES, December 31, 1996 28,506,685 285,067 29,730,728 (29,167,505) 848,290
Exercise of stock options 172,500 1,725 21,600 - 23,325
Net income - - - 788,618 788,618
---------- -------- ----------- ------------ ----------
BALANCES, December 31, 1997 28,679,185 $286,792 $29,752,328 $(28,378,887) $1,660,233
========== ======== =========== ============ ==========
See accompanying notes to these financial statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 788,618 $ 144,516
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 127,444 134,393
Net change in reserve accounts 86,144 87,885
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (383,263) (400,709)
Inventory (362,960) (77,868)
Prepaid expenses and other 7,890 (6,561)
Increase (Decrease) in:
Accounts payable 386,805 225,958
Accrued expenses (86,603) 183,673
----------- -----------
Net cash provided by operating activities 564,075 291,287
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Purchase of equipment and furniture (76,257) (18,724)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from research and development arrangement -- 378,551
Exercise of stock options 23,325 1,470
----------- -----------
Net cash provided by financing activities 23,325 380,021
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 511,143 652,584
CASH AND CASH EQUIVALENTS, beginning of year 964,456 311,872
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,475,599 $ 964,456
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,235 $ 3,769
=========== ===========
Conversion of ZMD liability to common stock $ -- $ 248,398
=========== ===========
See accompanying notes to these financial statements.
</TABLE>
27
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------
NATURE OF BUSINESS OPERATIONS - Simtek Corporation (the "Company") has been
involved in the design and development of nonvolatile semiconductor
products since it commenced business operations in 1987. The Company's
operations have concentrated on the design and development of the 256
kilobit, 64 kilobit, and 16 kilobit nvSRAM product families and associated
products and technologies as well as the development of sources of supply
and distribution channels. As discussed throughout the notes to the
financial statements, the Company has entered into several significant
transactions with Zentrum Mikroelektronik Dresden GmbH (ZMD), a
manufacturer of silicon wafers.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. As of December 31, 1997, all of the Company's cash and cash
equivalents were held by a single bank, of which approximately $1,498,000
was in excess of federally insured amounts.
REVENUE RECOGNITION - Licensing agreement revenues are recognized when the
license is executed, any agreement performance milestones have been
achieved and accepted, and the agreement contingencies are satisfied.
Research and development costs associated with license revenues are
expensed as incurred.
Product sales revenue is recognized when the products are shipped to
customers, including distributors. Customers receive a one year product
warranty and sales to distributors are subject to a product right of return
and product pricing protection in the event of changes in the Company's
product price. The Company provides a reserve for possible product returns,
price changes and warranty costs at the time the sale is recognized.
INVENTORY - The Company records inventory using the lower of cost
(first-in, first-out) or market. Inventory at December 31, 1997 includes:
Raw materials $ 24,501
Work in process 180,837
Finished goods 562,009
--------
767,347
Less reserves (126,083)
--------
$641,264
========
DEPRECIATION - Equipment and furniture are recorded at cost. Depreciation
is provided over the assets' estimated useful lives of three to seven years
using the straight-line and accelerated methods. The cost and accumulated
depreciation of furniture and equipment sold or otherwise disposed of are
removed from the accounts and the resulting gain or loss is included in
operations. Maintenance and repairs are charged to operations as incurred
and betterments are capitalized.
28
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are charged
to operations in the period incurred.
INCOME PER SHARE - The income per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings
Per Share (FAS 128). FAS 128 replaced the presentation of primary and fully
diluted earnings (loss) per share (EPS) with a presentation of basic EPS
and diluted EPS. Basic EPS is calculated by dividing the income or loss
available to common shareholders by the weighted average number 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.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and the accompanying notes. The actual results could
differ from those estimates. The Company's financial statements are based
upon a number of estimates, including the allowance for doubtful accounts,
technological obsolescence of inventories, the estimated useful lives
selected for property and equipment, sales returns, warranty reserve, and
the valuation allowance on the deferred tax assets. Due to the
uncertainties inherent in the estimation process, it is at least reasonably
possible that the estimates for these items could be further revised in the
near term and such revisions could be material.
IMPAIRMENT OF LONG-LIVED ASSETS - In fiscal 1996, the Company adopted
Financial Accounting Standards Board Statement 121 "Impairment of
Long-Lived Assets" (FAS 121). In the event that facts and circumstances
indicate that the cost of assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required. FAS
121 had no effect on the December 31, 1997 or 1996 financial statements.
STOCK-BASED COMPENSATION - In fiscal 1996, the Company adopted Financial
Accounting Standards Board Statement 123 "Accounting for Stock-Based
Compensation" (FAS 123). FAS 123 encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock
options, and other equity instruments to employees based on fair value.
Companies that do not adopt the fair value accounting rules must disclose
the impact of adopting the new method in the notes to the financial
statements. Transactions in equity instruments with non-employees for goods
or services must be accounted for on the fair value method. The Company has
elected not to adopt the fair value accounting prescribed by FAS 123 for
employees, and is subject only to the disclosure requirements prescribed by
FAS 123.
INCOME TAXES - The Company accounts for income taxes under the liability
method of FAS No. 109, whereby current and deferred tax assets and
liabilities are determined based on tax rates and laws enacted as of the
balance sheet date. Deferred tax expense represents the change in the
deferred tax asset/liability balance. Valuation allowances are recorded for
deferred tax assets that are not expected to be realized.
NEW PRONOUNCEMENTS - Statement of Financial Accounting Standards 130
Reporting Comprehensive Income and Statement of Financial Accounting
29
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Standards 131 Disclosures About Segments of an Enterprise and Related
Information were recently issued. Statement 130 establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, Statement 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that displays with the same prominence as other financial
statements. Statement 131 supersedes Statement of Financial Accounting
Standards 14 Financial Reporting for Segments of a Business Enterprise.
Statement 131 establishes standards on the way that public companies report
financial information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas, and major customers. Statement 131 defines operating
segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decisionmaker in deciding how to allocate resources and in assessing
performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures.
Results of operations and financial position, however, will be unaffected
by implementation of these standards.
2. EQUIPMENT AND FURNITURE:
-----------------------
Equipment and furniture at December 31, 1997 consists of the following:
Research and development equipment and software $ 704,082
Computer equipment and software 98,340
Office furniture 23,982
Other equipment 905,420
----------
1,731,824
Less accumulated depreciation and amortization (1,554,003)
----------
$ 177,821
==========
The cost of equipment and furniture acquired for research and development
activities that has alternative future use is capitalized and depreciated
over its estimated useful life.
Depreciation and amortization expense of $127,444 and $134,393 was charged
to operations for the years ended December 31, 1997 and 1996, respectively.
30
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
3. PAYABLE TO ZMD:
--------------
Under the terms of a cooperation agreement with ZMD, the Company received
$378,551 during 1996 from ZMD. Of the $378,551 received during 1996,
$248,398 was converted into 1,518,374 shares of common stock. Because the
cooperation agreement specifies that ZMD's ownership of the Company may not
exceed 30% without the approval of the Company's Board of Directors, the
additional $130,153 that was received from ZMD in 1996 was not converted
into common stock and is recorded as a liability at December 31, 1997.
Pursuant to the terms of the cooperation agreement, ZMD is allowed to have
two members on the Company's Board of Directors.
In addition, at December 31, 1997, the Company also owed ZMD $716,716,
primarily for purchases of inventory.
4. COMMITMENTS AND CONTINGENCIES:
-----------------------------
OFFICES LEASES - The Company leases office space under a lease which
expires on October 31, 1998. Monthly lease payments are approximately
$7,300.
The Company leases furniture and equipment under operating leases which
expire over the next three years. Monthly lease payments, including sales
tax, are approximately $12,800. At December 31, 1997, future minimum lease
payments under the equipment, furniture and office leases described above
are approximately as follows:
Year
----
1998 $226,000
1999 79,000
2000 800
--------
$305,800
========
Office rent and equipment lease expense totaled $274,241 and $242,591 for
the years ended December 31, 1997 and 1996, respectively.
PATENT CONTINGENCIES - The Company has, in the past, received notification
of possible infringement of patents from three other semiconductor
manufactures and these matters are under consideration by management and
company counsel. Although patent holders in the industry typically offer
licenses for their patents and these have been offered to Simtek, there can
be no assurance that licenses can be obtained on acceptable terms.
Management believes that these potential claims will not have an adverse
effect on the results of operations or the financial position of the
Company.
ACCRUED SALARY - Due to limited working capital of the Company, the
Company's president agreed with the Company's Board of Directors to defer
31
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
his salary from April 1, 1994 through December 31, 1996. As of December 31,
1997, the president had an accrued salary of $210,000. Effective January
1998, the person resigned as president and CEO, and became the CFO.
5. SHAREHOLDERS' EQUITY:
COMMON STOCK - During 1997, the shareholders approved an increase in the
number of authorized common shares from 40,000,000 to 80,000,000.
EARNINGS PER SHARE - The following is a reconciliation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS -
Income available to common stockholders $788,618 28,598,514 $.03
====
Effect of dilutive options - 2,256,383
-------- ----------
Diluted EPS -
Income available to common stockholders
plus assumed conversions $788,618 30,854,897 $.03
======== ========== ====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS -
Income available to common stockholders $144,516 27,103,059 $.01
====
Effect of dilutive options - 810,188
-------- ----------
Diluted EPS -
Income available to common stockholders
plus assumed conversions $144,516 27,913,247 $.01
======== ========== ====
</TABLE>
Options to purchase 3,844,150 shares of common stock were outstanding at
December 31, 1997. Of that total, 3,649,150 had a dilutive effect on the
1997 earnings per share. For purposes of calculating diluted EPS, those
options resulted in 2,256,383 incremental shares determined using the
treasury stock method. The remaining 195,000 options had an anti-dilutive
effect and were therefore excluded from the computation of diluted EPS.
These options had exercise prices ranging from $.050 to $.65 per share.
The Company also had warrants outstanding at December 31, 1997 to purchase
approximately 5,300,000 shares of common stock. All of these warrants had
32
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
an anti-dilutive effect on the diluted EPS for 1997, and were therefore
excluded from the calculation. See the warrant table below for a summary of
warrants outstanding at December 31, 1997.
WARRANTS - The Company issued Class B warrants, redeemable at the Company's
option, in connection with its February, 1993, public offering. The Company
has also issued Representative warrants to the underwriters of its public
offerings. In 1989 and 1990, the Company issued warrants to acquire Common
Stock to certain of its shareholders. The Company's warrants contain
certain anti-dilutive provisions which will result in adjustment to the
warrant terms upon certain events occurring. During 1997 and February 1998,
the Company extended the expiration date for 1,038,150 and 2,496,333
warrants, respectively, to May 31, 1998. All other terms of the warrants
were unchanged. During 1996, warrants for the purchase of 8,946,650 shares
of common stock expired.
A summary of the warrants outstanding as of December 31, 1997, is as
follows:
<TABLE>
<CAPTION>
Number of
Shares Dollars
Per Issuable Upon
Number Expira- Warrant Number Per Share Upon Exercise Exercise
Issue of Warrants tion Exercise of Shares Purchase of all of All
Description Date Outstanding Date(1) Price per Warrant price Warrants(2) Warrants
- ----------- ---- ----------- ------- -------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B Warrant 2/17/93 1,725,000 5/31/98 $1.80 1.51 $1.19 2,604,750 $3,105,000
Class B Warrant 2/25/93 81,333 5/31/98 1.80 1.51 1.19 122,813 146,147
--------- ---- --------- ----------
TOTAL CLASS B 1,806,333 2,727,563 $3,245,800
========= ========= ==========
Other Warrants:
Petritz 9/29/89 63,300 5/31/98 $ .50 1.00 $ .50 63,300 $ 31,650
Petritz 9/27/90 52,751 5/31/98 $ .50 1.00 $ .50 52,751 26,376
TTLP 9/29/89 126,600 5/31/98 $ .50 1.00 $ .50 126,600 63,300
TTLP 9/27/90 105,499 5/31/98 $ .50 1.00 $ .50 105,499 52,750
--------- --------- ----------
TOTAL OTHER 348,150 348,150 $ 174,076
========= ========= ==========
Representative Warrant 3/6/91 195,000 5/31/98 $ .50 1.00 $ .50 195,000 $ 97,500
Representative Warrant 3/6/91 195,000 5/31/98 $ .50 1.00 $ .50 195,000 97,500
Representative Warrant 10/30/92 300,000 5/31/98 $ .50 1.00 $ .50 300,000 150,000
Representative Warrant(3) 2/25/93 517,500 5/31/98 $2.48 1.59 $1.56 822,825 1,283,607
Representative Warrant(4) 2/25/93 172,500 5/31/98 $2.97 1.63 $1.82 281,175 511,739
Representative Warrant 1/31/94 400,000 1/30/99 $1.60 1.00 $1.60 400,000 640,000
--------- --------- ----------
TOTAL REPRESENTATIVE
WARRANTS 1,780,000 2,194,000 $2,780,346
========= ========= ==========
TOTAL WARRANTS 3,934,483 5,269,713 $6,205,821
========= ========= ==========
</TABLE>
- --------------------
(1) During 1997, the expiration date of all warrants issued through 1993 was
extended to May 31, 1998. All other terms and conditions of the warrants
remained the same. During January 1998, the expiration date of the warrants
due to expire on February 12, 1998, were extended to May 31, 1998.
(2) All shares underlying the warrants were registered under an S-3
registration statement that was filed with the Securities and Exchange
Commission on October 14, 1997.
(3) The original 172,500 Representative Warrants granted on February 25, 1993
were actually units consisting of three shares of common stock and a Class
B Warrant for a price of $7.425 per unit. The units will eventually split
up thus creating 517,500 shares of common stock at an exercise price of
$2.475. These shares contain anti-dilution provisions detailed in the
Representative Warrant Agreement.
(4) The Warrant within the Representative Warrants granted on February 25, 1993
was for an exercise price of $2.97 with anti-dilution provisions.
33
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
STOCK OPTION PLANS - The Company has approved two stock option plans that
authorize an aggregate of 4,500,000 shares for stock options that may be
granted to directors, employees, and consultants. The plans permit the
issuance of incentive and non-statutory options and provide for a minimum
exercise price equal to 100% of the fair market value of the Company's
common stock on the date of grant. The maximum term of options granted
under the plans is 10 years and options granted to employees expire three
months after the termination of employment. None of the options may be
exercised during the first six months of the option term. No options may be
granted after 10 years from the adoption date of each plan. The Incentive
Stock Option Plan was adopted in 1991, and the Non-Qualified Stock Option
Plan was adopted in 1994. Following is a summary of activity under these
stock option plans for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 3,147,500 $.14 3,620,000 $.17
Granted, including
exchanges 904,650 .33 2,882,500 .14
Exchanged* - (2,470,000) .17
Exercised (172,500) .14 (10,000) .15
Canceled (35,500) .27 (875,000) .17
--------- ----------
Outstanding, end of year 3,844,150 $.16 3,147,500 $.14
========= =========
</TABLE>
------------------------
* All options outstanding at January 19, 1996 were reissued with an
exercise price of $.147 for the Incentive Stock Options, and $.133 for the
Non-Qualified Stock options. The original vesting requirements and
expiration dates were not changed.
For all options granted during 1997 and 1996, and all options repriced
during 1996, the weighted average market price of the Company's common
34
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
stock on the grant date and repricing date was approximately equal to the
weighted average exercise price. At December 31, 1997, options for
2,683,449 shares were exercisable and options for the remaining 724,994,
325,925, and 109,782 shares will become exercisable in 1998, 1999, and
2000, respectively. If not previously exercised or forfeited, options
outstanding at December 31, 1997, will expire as follows:
Weighted
Average
Number Exercise
Year Ending December 31, of Shares Price
------------------------ --------- -----
1998 13,300 $.15
1999 54,500 .15
2000 220,000 .14
2001 925,265 .14
2002 1,346,935 .14
2003 384,500 .15
2004 899,650 .24
---------
3,844,150
=========
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES - The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options
and warrants which are granted to employees. Accordingly, no compensation
cost has been recognized for grants of options and warrants to employees
since the exercise prices were not less than the market value of the
Company's common stock on the grant dates. Had compensation cost been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of FAS 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below.
Year Ended December 31,
----------------------------
1997 1996
-------- ---------
Net income (loss) applicable to
common shareholders:
As reported $788,618 $144,516
Pro forma 676,314 (40,132)
Net income (loss) per common shareholders:
As reported - basic and diluted $.03 $.01
Pro forma - basic and diluted .02 -
35
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
The fair value of each option granted in 1997 and 1996, and the fair value
of each option repriced in 1996, was estimated on the date of grant, (or
repricing) using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Options
Options Granted During Repriced
---------------------- During
1997 1996 1996
------- ------ --------
Expected volatility 128.2% 122.0% 131.0%
Risk-free interest rate 5.5% 6.0% 6.0%
Expected dividends - - -
Expected terms (in years) 4.0 4.0 4.0
OTHER - Preferred Stock may be issued in such series and
preferences as determined by the Board of Directors.
6. SIGNIFICANT CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS, AND OTHER RISKS
---------------------------------------------------------------------------
AND UNCERTAINTIES:
-----------------
Sales to foreign customers and sales of military products for the years
ended December 31, 1997 and 1996 were as follows (as a percentage of
sales):
1997 1996
---- ----
Foreign customers 47% 53%
Military products sales 33% 36%
Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the years ended December 31, 1997 and 1996 were as
follows (as a percentage of sales):
Customer 1997 1996
-------- ------ ------
A 30% 24%
B 11% 10%
C -% 10%
D 22% 17%
The Company frequently sells large quantities of inventory to its
customers. At December 31, 1997, the Company had gross trade receivables
totaling approximately $811,295 due from three customers.
36
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
In 1997, the Company purchased all of its wafers, based on 1.2 micron
technology from a single supplier located in Singapore. Approximately 43%
and 68% of the Company's sales for 1997 and 1996, respectively, were from
finished units produced from these wafers. The Company has an agreement
with this supplier to provide wafers through September 1998. In 1997 and
1996, the Company also purchased finished units from ZMD for $2,304,859 and
$1,119,131, respectively, and sales from these products accounted for
approximately 57% and 32%of the Company's sales for 1997 and 1996,
respectively. At December 31, 1997, ZMD owned approximately 30% of the
Company. Any disruptions in the Company's relationships with these
suppliers could have an adverse impact on the Company's operating results.
Assuming an alternate manufacturer of the Company's products could be
procured, management believes there could be significant delays in
manufacturing while the manufacturer incorporates the Company's products
and processes.
7. INCOME TAXES:
------------
Under SFAS 109, deferred taxes result from temporary differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities. The components of deferred taxes are as follows:
Deferred Tax
Assets
------------
Current:
Accounts receivable $ 120,000
Inventories 51,000
Accrued expenses 141,000
-----------
Total 312,000
Valuation allowance (312,000)
-----------
Total current deferred tax $ -
===========
Non-current:
Property and equipment $ 1,000
Net operating losses 9,138,000
R&D credit carryforward 1,312,000
AMT credit 60,000
-----------
Net deferred tax asset before valuation 10,511,000
Valuation allowance (10,511,000)
-----------
Total non-current deferred tax asset $ -
===========
The net current and non-current deferred tax assets have a 100% valuation
allowance resulting from the inability to predict sufficient future taxable
income to utilize the assets.
At December 31, 1997, the Company has approximately $24,500,000 available
in net operating loss carryforwards which begin to expire from 2004 to
2010.
37
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Total income tax expense for 1997 and 1996 differed from the amounts
computed by applying the U.S. Federal statutory tax rates to pre-tax income
as follows:
1997 1996
--------- --------
Total expense computed by applying the U.S.
statutory rate (34%) $ 194,000 $ 49,000
Effect of changes in reserve accounts 33,000 44,000
Tax compensation on options exercised (23,000) -
Effect of net operating loss carryforward (206,000) (92,000)
Other 2,000 (1,000)
--------- --------
Provision for income taxes $ - $ -
========= ========
8. SUBSEQUENT EVENTS AND FOURTH QUARTER ADJUSTMENT:
-----------------------------------------------
In March 1998, the Company reached an agreement with ZMD to settle a
dispute the two parties had regarding the cost of inventory sold to the
Company. ZMD agreed to reduce the cost of inventory sold to the Company
during 1997 by a total of approximately $386,000. As a result of this price
reduction, the Company reduced cost of sales by approximately $217,000
during the fourth quarter of 1997. Inventory was reduced by the remaining
$169,000. As part of this agreement, the Company agreed to purchase a
minimum of $548,000 of 256K units in 1998 at a reduced price.
In January 1998, the Company obtained a $250,000 revolving line-of-credit
(LOC). The LOC bears interest at prime plus .75% and expires in January
1999. The LOC requires the Company to maintain a $100,000 certificate of
deposit as collateral. The LOC is also collateralized by substantially all
assets of the Company.
38
<PAGE>
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
None in 1997.
39
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The directors and executive officers of the Company as of March 15, 1998
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard L. Petritz............................... 75 Chairman of the Board of Directors, Chief
Financial Officer
Douglas M. Mitchell.............................. 48 Director, Chief Executive Officer and President
Klaus C. Wiemer.................................. 60 Director
Robert H. Keeley................................. 56 Director
Kurt Garbrecht................................... 65 Director
</TABLE>
RICHARD L. PETRITZ, a founder of Simtek, has served as Chairman of the
Board of Directors of the Company since its inception and served as President of
the Company from inception until July 1993. On January 1, 1996 he again became
Chief Executive Officer and President of the Company. On January 1, 1998, Dr.
Petritz became Chief Financial Officer. Dr. Petritz was a founder of Inmos
International, plc, a semiconductor memory and microcomputer manufacturer. Dr.
Petritz was the Chief Executive Officer of Inmos from 1978 through June 1983 and
Chairman of Inmos from 1980 through 1982. Dr. Petritz was also a founder and the
first President of Mostek Corporation, a semiconductor memory manufacturer that
was acquired by a wholly owned subsidiary of United Technologies Corporation in
October 1979. Prior to that time, he was the director of Texas Instruments'
semiconductor research and development laboratories. Dr. Petritz holds a
Bachelors degree in electrical engineering, a Masters degree in electrical
engineering and a Ph.D. in physics, all from Northwestern University. He is a
fellow of both the American Physical Society and the Institute of Electrical and
Electronics Engineers.
DOUGLAS M. MITCHELL, served as the Company's Chief Operating Officer from
July 1, 1997 until January 1, 1998 at which time he became Chief Executive
Officer, President and a director of the Company. Mr. Mitchell has over 18 years
of experience in the semiconductor and electronics systems industry holding
various marketing and sales management positions. Prior to joining Simtek, he
was President and Chief Executive Officer of a wireless communications company,
Momentum Microsystems. Prior to this Mr. Mitchell was Vice President of
Marketing with SGS-Thomson Microelectronics, responsible for marketing and
applications engineering of Digital Signal Processing, transputer,
microcontroller and graphics products in North America. SGS-Thomson had acquired
Inmos Corporation where Mr. Mitchell had been Manager, US Marketing and Sales.
Mr. Mitchell has held management positions at Texas Instruments and Motorola and
has been responsible for various product definition and product development. Mr.
Mitchell holds a Bachelors degree in electrical engineering from the University
of Texas and a Masters of Business Administration degree from National
University.
40
<PAGE>
KLAUS C. WIEMER, has served as a director of the Company since May 1993.
From July 1993 to May 1994, Dr. Wiemer served as President and Chief Executive
Officer of the Company. From May 1994, Dr. Wiemer has been an independent
consultant for the Company. From April 1991 to April 1993, Dr. Wiemer was
President and Chief Executive Officer of Chartered Semiconductor Manufacturing
Pte., Ltd. in Singapore, and from July 1987 to March 1991, Dr. Wiemer was
President and Chief Operating Officer of Taiwan Semiconductor Manufacturing
Company. Prior to 1987, Dr. Wiemer was a consultant for the Thomas Group
specializing in the area of integrated circuit manufacturing and previously
worked for fifteen years with Texas Instruments. Dr. Wiemer holds a Bachelors
degree in physics from Texas Western College, a Masters degree in physics from
the University of Texas and a Ph.D. in physics from Virginia Polytechnic
Institute.
ROBERT H. KEELEY, has served as a director of the Company since May 1993.
He is currently the El Pomar Professor of Finance at the University of Colorado
at Colorado Springs. From 1986 until he joined the faculty at the University of
Colorado at Colorado Springs in 1992, Dr. Keeley was a professor in the
Department of Industrial Engineering and Engineering Management at Stanford
University. Prior to joining Stanford, he was a professor at the Wharton School
of Business at the University of Pennsylvania and a general partner of Hill,
Carmen and Washing (formerly Hill, Keeley and Kirby), a venture capital firm.
Dr. Keeley holds a Bachelors degree in electrical engineering from Stanford
University, an M.B.A. from Harvard University and a Ph.D. in business
administration from Stanford University. Dr. Keeley is also a director of
Analytical Surveys, Inc. and Divide Drives, Inc.
KURT GARBRECHT, has served as a director of the Company since September
1994. He was the Chief Executive Officer of Zentrum Mikroelektronic Dresden GmbH
("ZMD") until December 1997. Dr. Garbrecht has had a distinguished career in the
semiconductor business, having been a senior manager of the Siemens Company
semiconductor operation for more than 10 years.
Subject to the requirement that the Board of Directors be classified if it
consists of six or more persons, directors serve until the next annual meeting
or until their successors are elected and have qualified. Officers serve at the
discretion of the Board of Directors. Vacancies on the Board of Directors are
filled by the existing directors. Thomas James Associates, Inc. ("Thomas
James"), the underwriter for the Company's third public offering, has the right
to designate for election one member of the Board until January 28, 1999. Thomas
James has not designated any person for election to the Board. Under the
agreement entered into with ZMD, ZMD has the right to appoint two members to the
Board of Directors, at this time ZMD has only appointed one member, Kurt
Garbrecht.
SPECIAL PROVISIONS IN ARTICLES OF INCORPORATION
The Company's articles of incorporation contain a provision limiting the
liability of directors of the Company to the fullest extent permitted under the
Colorado Corporation Code (the "Code"). The Code allows a corporation to limit
the personal liability of a director to the corporation or its shareholders for
monetary damages for breaches of fiduciary duty as a director except for (a)
breaches of the director's duty of loyalty, (b) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(c) certain other acts specified in the Code, and (d) transactions from which
the director derived an improper benefit. The provisions of the Code will not
impair the Company's ability to seek injunctive relief for breaches of fiduciary
duty. Such relief, however, may not always be available as a practical matter.
The Company's articles of incorporation also contain a provision that
requires the Company to indemnify, to the fullest extent permitted under the
41
<PAGE>
Code, directors and officers of the Company against all costs and expenses
reasonably incurred in connection with the defense of any claim, action, suit or
proceeding, whether civil, criminal, administrative, investigative or other, in
which such person may be involved by virtue of being or having been a director,
officer or employee.
42
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth certain information for each of the
Company's last three fiscal years with respect to the annual and long-term
compensation of each individual acting as the Company's Chief Executive Officer
during the fiscal year ended December 31, 1997. No executive officer of the
Company as of December 31, 1997 had combined annual salary and bonus for the
fiscal year ended December 31, 1997 that exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------
Name Other Restricted
and Annual Stock LTIP All Other
Principal Compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($)
- --------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard L. Petritz(1) 1997 $60,000 -- -- -- -- -- --
Chairman and 1996 $60,000(2) -- -- -- -- -- --
President 1995 $60,000(2) -- -- -- -- -- --
</TABLE>
(1) Dr. Petritz also served as the Company's Chief Executive Officer from May
1987 until July 1, 1993. He resumed these duties as of January 1, 1996
and served as such until January 1, 1998.
(2) Due to the cash position of the Company, Dr. Petritz agreed with the
Company's Board of Directors to defer his salary effective April 1, 1994
through December 31, 1996. This amount is included in the $222,022 of
accrued wages on the Company's balance sheet as of December 31, 1997.
OPTION GRANT TABLE
There were no options granted during the fiscal year ended December 31,
1997 to the individual named in the summary compensation table above.
YEAR-END OPTION TABLE
There were no options held by the individual named in the summary
compensation table above.
EMPLOYMENT AGREEMENTS
Dr. Petritz was employed by the Company as Chairman and senior adviser to
the Company's Chief Executive Officer during 1995. Under the terms of his
employment, Dr. Petritz is obligated to work 30 hours per week, for which Dr.
Petritz receives an annual salary of $60,000, payable monthly. Dr. Petritz
receives additional benefits that are generally provided other employees. Dr.
Petritz's employment term expired December 31, 1995 but is automatically renewed
for successive one-year terms unless the Company or Dr. Petritz elects not to
43
<PAGE>
continue with the employment arrangement. On January 1, 1996, Dr. Petritz became
Chief Executive Officer and President. The terms of his compensation remain the
same as in 1995.
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS
The Company generally requires its employees to execute confidentiality and
nondisclosure agreements upon the commencement of employment with the Company.
The agreements generally provide that all inventions or discoveries by the
employee related to the Company's business and all confidential information
developed or made known to the employee during the term of employment shall be
the exclusive property of the Company and shall not be disclosed to third
parties without the prior approval of the Company.
DIRECTORS' COMPENSATION
Each director of the Company who is not also an employee of the Company
receives $1,000 for each meeting of the Board, attended in person, and $500 for
each meeting of a committee of the Board. Directors are also reimbursed for
their reasonable out-of-pocket expenses incurred in connection with their duties
to the Company. During the fiscal year ended December 31, 1997, a total of
30,000 stock options were granted to Dr. Klaus Wiemer, Dr. Robert Keeley and Mr.
Sheldon Taylor.
44
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding ownership of the
Company's Common Stock as of February 28, 1998 by each person who is known by
the Company to beneficially own more than five percent of the Common Stock, by
each director of the Company, by each executive officer named in the summary
compensation table and by all directors and executive officers of the Company as
a group. Shares issuable within sixty days after February 28, 1998 upon the
exercise of warrants or options are deemed outstanding for the purpose of
computing the percentage ownership of persons beneficially owning such warrants
or options or holding such notes but are not deemed outstanding for the purpose
of computing the percentage ownership of any other person. The number of shares
issuable upon exercise of outstanding Class B Redeemable Warrants gives effect
to anti-dilution provisions triggered by issuances of the Company's securities
through December 31, 1997. After giving effect to these anti-dilution
provisions, each Class B Redeemable Warrant entitles the holder thereof to
purchase 1.51 shares of Common Stock at an effective purchase price of $1.19 per
share. To the knowledge of the Company, the persons listed below have sole
voting and investment power with respect to the shares indicated as owned by
them subject to community property laws where applicable and the information
contained in the notes to the table.
Name and Amount and Nature
Address of of Beneficial Percent of
Beneficial Owner Ownership Class
- --------------------------------------------------------------------------------
Zentrum Mikroelektronik Dresden GmbH 8,547,385 29.79%
Grenzstra e 28
01109 Dresden, Germany
Richard L. Petritz 1,376,210 (1) 4.78%
3109-D Broadmoor Valley Rd.
Colorado Springs, CO 80906
Klaus C. Wiemer 110,000 (2) *
5705 Archer Court
Dallas, TX 75252
Robert H. Keeley 95,000 (3) *
12630 Milan Road
Colorado Springs, CO 80908
Sheldon A. Taylor 160,000 (4) *
1384 Cuernavaca Circulo
Mountain View, CA 94040
Douglas M. Mitchell 118,056 (5) *
205 Ridge Dr.
Woodland Park, CO 80863
45
<PAGE>
All officers and directors as a group
(5 persons) 1,859,266 (6) 6.41%
- -------------------
* Less than one percent.
(1) Includes 116,051 shares issuable upon exercise of other warrants. Does not
include 289,900 shares owned by irrevocable trusts created for the benefit
of Dr. Petritz's lineal descendants. Dr. Petritz has no voting or
investment power with respect to such shares and disclaims beneficial
ownership thereof.
(2) Represents 110,000 shares issuable upon exercise of options.
(3) Includes 85,000 shares issuable upon exercise of options.
(4) Represents 160,000 shares issuable upon exercise of options.
(5) Represents 118,056 shares issuable upon exercise of options.
(6) Includes 116,051 shares issuable upon exercise of other warrants and
473,056 shares issuable upon exercise of stock options.
46
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ZMD currently owns approximately 30% of the Company, purchases of product from
ZMD in 1997 and 1996 were $2,304,859 and $1,119,131, respectively, and sales
from these products accounted for approximately 57% and 32% of the Company's
sales for 1997 and 1996, respectively.
47
<PAGE>
PART IV
ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
Documents filed as part of this report:
A: (1) Financial Statements
Reference is made to the listing on page 21 for an index of all
financial statements filed as part of this report.
(2) All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the
financial statements or the notes thereto.
B. Reports on Form 8-K:
The following table lists all reports filed on Form 8-K for the fourth
quarter of 1997.
Date Item
---- ----
October 6, 1997 Other information - Press Release -
"Simtek Announces Special Shareholders
Meeting"
October 23, 1997 Other information - Press Release -
"Simtek Announces Financial Results for
the Third Quarter of 1997"
December 23, 1997 Other information - Third Quarter 1997
Interim Report
C. Exhibits:
Exhibit Index regarding exhibits filed in accordance with Item 601, at page
50 hereof.
D. Other Financial Statements:
All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the financial
statements or the notes thereto.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Colorado
Springs, State of Colorado, United States of America, on March 24, 1998.
SIMTEK CORPORATION
By: /S/DOUGLAS M. MITCHELL
---------------------------
Douglas M. Mitchell
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 24, 1998 by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/RICHARD L. PETRITZ Chairman of the Board
- -----------------------------
Richard L. Petritz
/S/DOUGLAS M. MITCHELL Chief Executive Officer and
- -----------------------------
Douglas M. Mitchell President
/s/RICHARD L. PETRITZ Chief Financial Officer
- -----------------------------
Richard L. Petritz
/S/DOUGLAS M. MITCHELL Director
- -----------------------------
Douglas M. Mitchell
/s/ROBERT H. KEELEY Director
- -----------------------------
Robert H. Keeley
/s/KLAUS WIEMER Director
- -----------------------------
Klaus Wiemer
49
<PAGE>
EXHIBIT INDEX TO FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
Exhibits:
- ---------
All exhibits listed below incorporated herein by reference.
-----------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation.(2)
3.2 Amended and Restated Articles of Incorporation November 1997.
3.3 Bylaws.(2)
4.1 1987-I Employee Restricted Stock Plan.(1)
4.2 Form of Restricted Stock Agreement between the Company and
Participating Employees.(1)
4.3 Warrant Agreement between the Company and Josephthal Lyon & Ross
Incorporated.(3)
4.4 Stock Purchase Warrant issued by the Company to Transitions Three
Limited Partnership.(1)
4.5 Stock Purchase Warrant issued by the Company to Richard L. Petritz.(1
4.6 Stock Purchase Warrant issued by the Company to Transitions Three
Limited Partnership.(1)
4.7 Stock Purchase Warrant issued by the Company to Richard L. Petritz.(1)
4.8 Stock Purchase Warrant issued by the Company to Transitions Three
Limited Partnership.(1)
4.9 Stock Purchase Warrant issued by the Company to Richard L. Petritz.(1)
4.10 Stock Purchase Warrant issued by the Company to Transitions Three
Limited Partnership.(2)
4.11 Stock Purchase Warrant issued by the Company to Richard L. Petritz.(2)
4.12 Stock Purchase Warrant issued by the Company to Transitions Three
Limited Partnership.(2)
4.13 Stock Purchase Warrant issued by the Company to Richard L. Petritz.(2)
4.14 Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company.(3)
4.15 Form of Common Stock Certificate.(3)
4.16 Form of Warrant Certificate.(3)
4.17 Simtek Corporation 1991 Stock Option Plan.(5)
4.18 Form of Incentive Stock Option Agreement between the Company and
Eligible Employees.(5)
4.19 Form of Promissory Note issued by the Company in the October 1992
private placement.
4.20 Form of Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company.(7)
4.21 Form of Representative's Warrant Agreement between the Company and
Berkeley Securities Corporation.(7)
4.22 Form of Unit Certificate.(8)
4.23 Form of Representative's Warrant Agreement (with form of warrant
attached).(8)
4.24 1994 Non-Qualified Stock Option Plan.(9 )
4.25 Amendment to the 1994 Non-Qualified Stock Option Plan.(10)
10.1 Amended General Licensing Agreement effective March 24, 1988 between
the Company and Nippon Steel Corporation.(1)
10.2 Amended Basic CMOS Technology Specific Licensing Agreement effective
March 24, 1988 between the Company and Nippon Steel Corporation.(1)
10.3 Amended Nitride Process Technology Specific Licensing Agreement
effective March 24, 1988 between the Company and Nippon Steel
Corporation.(1)
10.4 256K EEPROM Amended Product Specific Licensing Agreement effective
March 24, 1988 between the Company and Nippon Steel Corporation.(1)
10.5 256K SRAM and 64K nvSRAM Agreement effective October 12, 1989 between
the Company and Nippon Steel Corporation.(2)
10.6 CAD Software License Agreement effective January 25, 1990 between the
Company and Nippon Steel Corporation.(1)
10.7 Supplemental Agreement effective March 26, 1990 between the Company
and Nippon Steel Corporation amending the 256K EEPROM Amended Product
Specific Licensing Agreement effective March 24, 1988 between the
Company and Nippon Steel Corporation and the 256K SRAM and 64K nvSRAM
Agreement effective October 12, 1989 between the Company and Nippon
Steel Corporation.(1)
10.8 Supplemental Agreement effective March 26, 1990 between the Company
and Nippon Steel Corporation amending the Amended Nitride Process
Technology Specific Licensing Agreement effective March 24, 1988
between the Company and Nippon Steel Corporation and the 256K SRAM and
64K nvSRAM Agreement effective October 12, 1989 between the Company
and Nippon Steel Corporation.(1)
50
<PAGE>
10.9 Supplemental Agreement effective March 26, 1990 between the Company
and Nippon Steel Corporation amending the Amended Basic CMOS
Technology Specific Licensing Agreement effective March 24, 1988
between the Company and Nippon Steel Corporation and the 256K SRAM and
64K nvSRAM Agreement effective October 12, 1989 between the Company
and Nippon Steel Corporation.(1)
10.10 Supplemental Agreement II effective June 19, 1990 between the Company
and Nippon Steel Corporation.(1)
10.11 Supplemental Agreement II effective September 28, 1990 between the
Company and Nippon Steel Corporation amending the Amended Basic CMOS
Technology Specific Licensing Agreement effective March 24, 1988, the
Amended Nitride Process Technology Specific Licensing Agreement
effective March 24, 1988, and the 256K EEPROM Amended Product Specific
Licensing Agreement effective March 24, 1988.(1)
10.12 Evaluation, Development and License Agreement effective July 24, 1989
between the Company and GEC Plessey Semiconductors Limited, as
successor in interest to The Plessey Company plc.(2)
10.13 Product License Agreement effective January 19, 1990 between the
Company and GEC Plessey Semiconductors Limited, as successor in
interest to The Plessey Company plc.(1)
10.14 First Amendment to Evaluation, Development and License Agreement
effective September 30, 1990 between the Company and GEC Plessey
Semiconductors Limited amending the Evaluation, Development and
License Agreement effective July 24, 1989 between the Company and GEC
Plessey Semiconductors Limited, as successor in interest to The
Plessey Company plc.(2)
10.15 First Amendment to Product License Agreement effective September 30,
1990 between the Company and GEC Plessey Semiconductors Limited
amending the Product License Agreement effective January 19, 1990
between the Company and GEC Plessey Semiconductors Limited, as
successor in interest to The Plessey Company plc.(1)
10.16 Employment Agreement dated effective January 1, 1991 between the
Company and Richard L. Petritz.(2)
10.17 Form of Non-Competition and Non-Solicitation Agreement between the
Company and certain of its employees.(1)
10.18 Form of Employee Invention and Patent Agreement between the Company
and certain of its employees.(1)
10.19 Letter Agreement effective December 18, 1987 between the Company and
Ford Colorado Properties, Incorporated.(1)
10.20 License Agreement effective November 9, 1990 between the Company and
Nippon Steel Corporation.(1)
10.21 Form of Sales Representative Agreement between the Company and its
sales representatives.(2)
10.22 Investors Registration Rights Agreement dated January 31, 1991 among
the Company, TTLP, Dr. Richard L. Petritz and NS America, Inc.(2)
10.23 Founders Registration Rights Agreement dated January 31, 1991 among
the Company, Dr. Richard L. Petritz, Dr. Gary F. Derbenwick, Elaine H.
Derbenwick, the Pamela J. Petritz Cooper Irrevocable Family Trust and
the Jeffrey Marc Cooper Irrevocable Family Trust.(2)
10.24 License Agreement dated January 14, 1991 between the Company and
Nippon Steel Corporation.(2)
10.25 Second Amendment to Product License Agreement dated January 31, 1991
between the Company and GEC Plessey Semiconductors Limited.(2)
10.26 Second Amendment to Evaluation, Development and License Agreement
dated January 31, 1991 between the Company and GEC Plessey
Semiconductors Limited.(2)
10.27 Letter Agreement dated as of March 4, 1991 between the Company and
Sym-Tek Systems, Inc.(4)
10.28 Settlement Agreement dated effective March 4, 1991 between the Company
and Sym-Tek Systems, Inc.(4)
10.29 Letter Agreement dated January 20, 1992 between the Company and
Sym-Tek Systems, Inc.(5)
10.30 Development, License and Product Agreement dated effective April 19,
1991 between the Company and Electronics System Group of TRW
Incorporated.(5)
10.31 Notice of Termination of Development, License and Product Agreement
between the Company and Electronics System Group of TRW
Incorporated.(5)
10.32 Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company.(6)
10.33 Form of Warrant issued by the Company in the October 1992 and January
1993 private placements.(8)
10.34 Convertible Secured Note Purchase Agreement between the Company and
Continental Stock Transfer & Trust Company.(8)
10.35 Product License Development and Support Agrreement between Simtek
Corporation and Zentrum Mikroelektronik Dresden GmbH dated June 1,
1994(9)
51
<PAGE>
10.36 Letter of Intent Corporation Agreement between Simtek Corporation and
Zentrum Mikroelektronik Dresden GmbH dated August 26, 1994(9)
10.37 Letter Intent between Simtek Corporation and Zentrum Mikroelektronik
Dresden GmbH dated July 21, 1995(10)
10.38 Cooperation Agreement between Simtek Corporation and Zentrum
Mikroelektronik Dresden GmbH dated September 14, 1995(10)
10.39 Subscription Agreement between Simtek Corporation and Zentrum
Mikroelektronik Dresden GmbH dated February 28, 1995(10)
10.40 Subscription Agreement between Simtek Corporation and Zentrum
Mikroelektronik Dresden GmbH dated December 31, 1995(10)
10.41 Manufacturing Agreement between Chartered Semiconductor Manufacturing,
PTE, LTD. and Simtek Corporation dated September 16, 1992(10)
27.1 Financial Data Schedule
- ----------------------
(1) Incorporated by reference to the Company's Form S-1 Registration
Statement (Reg. No. 33-37874) filed with the Commission on November
19, 1990.
(2) Incorporated by reference to the Company's Amendment No.1 to Form S-1
Registration Statement (Reg. No. 33-37874) filed with the Commission
on February 4, 1991.
(3) Incorporated by reference to the Company's Amendment No.2 to Form S-1
Registration Statement (Reg. No. 33-37874) filed with the Commission
on March 4, 1991.
(4) Incorporated by reference to the Company's Post-Effective Amendment
No.1 to Form S-1 Registration Statement (Reg. No. 33-37874) filed with
the Commission on March 14, 1991.
(5) Incorporated by reference to the Company's Form S-1 Registration
Statement (Reg. No. 33-46225) filed with the Commission on March 6,
1992.
(6) Incorporated by reference to the Company's Form S-1 Registration
Statement (Reg. No. 33-55516) filed with the Commission on December
10, 1992.
(7) Incorporated by reference to the Company's Amendment No.1 to Form S-1
Registration Statement (Reg. No. 33-55516) filed with the Commission
on January 29, 1993.
(8) Incorporated by reference to the Company's Amendment No.2 to Form S-1
Registration Statement (Reg. No. 33-55516) filed with the Commission
on February 10, 1993.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K
filed with the Commission on March 25, 1995
(10) Incorporated by reference to the Company's Annual Report on Form 10-K
filed with the Commission on March 27, 1996
52
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
Richard L. Petritz, Chairman1,2
Simtek Corporation
Klaus C. Wiemer3
Douglas M. Mitchell1
Robert Keeley1,2,3
Dr. Kurt Garbrecht
Director
Zentrum Mikroelektronik Dresden GmbH
Board of Directors Committees
1Compensation Committee
2Stock Committee
3Audit Committee
CORPORATE OFFICERS
Douglas M. Mitchell
Chief Executive Officer and
President
Richard L. Petritz
Chief Financial Officer
CORPORATE COUNSEL
Holme Roberts & Owen LLP
90 South Cascade, Suite 1300
Colorado Springs, Colorado 80903
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Hein + Associates LLP
717 Seventeenth Street, Suite 1600
Denver, Colorado 80202-3338
REGISTRAR AND TRANSFER AGENT
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
OTC ELECTRONIC BULLETIN BOARD
SYMBOL
Common Stock: SRAM
CORPORATE OFFICES
1465 Kelly Johnson Boulevard
Colorado Springs, Colorado 80920
Tel: (719) 531-9444
Fax: (719) 531-9481
53
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SIMTEK CORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Simtek Corporation.
SECOND: The following amendment to the Articles of Incorporation was
adopted on November 6, 1997 as prescribed by the Colorado Corporation Code, in
the manner marked with an X below:
---- Such amendment was adopted by the board of directors where no shares
have been issued.
---- Such amendment was adopted by a vote of the shareholders. The number
of shares voted for the amendment was sufficient for approval.
THIRD: The Articles of Incorporation are hereby amended by striking out the
whole Section 2.1 and inserting in lieu thereof a new Section 2.1 reading in its
entirety as follows:
"2.1 Authorized Capital. The aggregate number of shares that the
corporation shall have authority to issue is 80,000,000 shares of common
stock with a par value of $.01 per share ("Common Stock"), and 2,000,000
shares of preferred stock with a par value of $1.00 per share ("Preferred
Stock")."
FOURTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: None.
FIFTH: The manner in which such amendment effects a change in the amount of
stated capital, and the amount of stated capital as changed by such amendment
are as follows: No Change.
SIXTH: Except as amended hereby, the provisions of the Articles of
Incorporation shall remain in full force and effect.
DATED: November 6, 1997
SIMTEK CORPORATION:
BY: /s/Richard L. Petritz AND: /s/Douglas Mitchell
-------------------------------------- --------------------------------
Name: Richard L. Petritz Name: Douglas Mitchell
Title: Chief Executive Officer Title: Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,475,599
<SECURITIES> 0
<RECEIVABLES> 921,798
<ALLOWANCES> 64,378
<INVENTORY> 641,264
<CURRENT-ASSETS> 3,056,621
<PP&E> 1,731,825
<DEPRECIATION> 1,554,004
<TOTAL-ASSETS> 3,234,442
<CURRENT-LIABILITIES> 1,574,209
<BONDS> 0
0
0
<COMMON> 286,792
<OTHER-SE> 29,752,328
<TOTAL-LIABILITY-AND-EQUITY> 1,660,233
<SALES> 6,632,186
<TOTAL-REVENUES> 6,632,186
<CGS> 3,676,432
<TOTAL-COSTS> 5,901,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,747
<INTEREST-EXPENSE> 3,235
<INCOME-PRETAX> 788,618
<INCOME-TAX> 0
<INCOME-CONTINUING> 788,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788,618
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
