UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 1, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
SIMTEK CORPORATION
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(Exact name small business issuer as specified in its charter)
Colorado 84-1057605
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1465 Kelly Johnson Blvd. Suite 301; Colorado Springs, Colorado 80920
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(Address of principal executive offices)
(719) 531-9444
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(issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at November 1, 1999
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(Common Stock, $.01 par value) 28,955,226
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<CAPTION>
SIMTEK CORPORATION
INDEX
For Quarter Ended September 30, 1999
PART 1. FINANCIAL INFORMATION
ITEM 1 Page
----
<S> <C>
Balance Sheets as of September 30, 1999 and
December 31, 1998 3
Statements of Operations for the three months and nine
months ended September 30, 1999 and 1998 4
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 5
Notes to Financial Statements 6
ITEM 2
Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-9
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings 10
ITEM 2 Changes in Securities 10
ITEM 3 Defaults upon Senior Securities 10
ITEM 4 Matters Submitted to a Vote of Securities Holders 10
ITEM 5 Other Information 10
ITEM 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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<TABLE>
<CAPTION>
SIMTEK CORPORATION
BALANCE SHEETS
ASSETS
------ September 30, 1999 December 31, 1998
------------------ -----------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents............................................... $ 1,902,914 $ 2,149,820
Certificate of deposit
Restricted portion.................................................. 400,000 100,000
Unrestricted portion................................................ 7,868 -
Accounts receivable - trade, net........................................ 1,079,071 744,754
Inventory, net ......................................................... 816,955 915,905
Prepaid expenses and other.............................................. 38,014 47,703
----------------------------------------
Total current assets................................................ 4,244,822 3,958,182
EQUIPMENT AND FURNITURE, net............................................... 457,487 221,119
OTHER ASSETS............................................................... 52,223 60,616
----------------------------------------
TOTAL ASSETS............................................................... $ 4,754,532 $ 4,239,917
========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 579,872 $ 251,015
Capital lease obligation - current portion.............................. 51,115 -
Accrued expenses........................................................ 265,453 232,837
Accrued wages........................................................... 221,475 222,948
Accrued vacation payable................................................ 83,143 70,743
Payable to ZMD.......................................................... 130,153 130,153
----------------------------------------
Total current liabilities........................................... 1,331,211 907,696
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION........................... 203,377 -
CONVERTIBLE DEBENTURES..................................................... 1,500,000 1,500,000
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized and none issued and outstanding ......................... - -
Common stock, $.01 par value, 80,000,000 shares authorized,
28,955,226 and 28,745,226 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively........... 289,552 287,452
Additional paid-in capital.............................................. 29,793,041 29,760,875
Accumulated deficit..................................................... (28,362,649) (28,216,106)
----------------------------------------
Shareholder's equity.................................................... 1,719,944 1,832,221
----------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 4,754,532 $ 4,239,917
========================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES............................................. $ 1,633,348 $ 1,464,760 $ 4,939,654 $ 4,806,039
Cost of sales................................... 1,121,868 843,025 3,155,963 2,667,625
----------------------------------------------------------------------------
GROSS MARGIN.......................................... 511,480 621,735 1,783,691 2,138,414
OPERATING EXPENSES:
Design, research and development................. 288,820 284,871 920,550 1,000,755
Administrative................................... 86,236 104,923 296,186 329,328
Marketing........................................ 233,020 209,112 659,145 610,759
----------------------------------------------------------------------------
Total Operating Expenses..................... 608,076 598,906 1,875,881 1,940,842
INCOME (LOSS) FROM OPERATIONS......................... (96,596) 22,829 (92,190) 197,572
----------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income (expense), net................... (9,537) (10,977) (30,057) 7,791
Other income (expense), net...................... 556 9,296 (24,296) 4,454
----------------------------------------------------------------------------
Total other income (expense)................. (8,981) (1,681) (54,353) 12,245
----------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE TAXES........................ (105,577) 21,148 (146,543) 209,817
Provision for income taxes....................... - 3,765 - 14,125
----------------------------------------------------------------------------
NET INCOME (LOSS)..................................... $ (105,577) $ 17,383 $ (146,543) $ 195,692
============================================================================
BASIC AND DILUTED EPS................................ $ 0.00 $ 0.00 $ 0.00 $ .01
============================================================================
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING......................................... 28,955,226 28,721,138 28,913,431 28,721,138
EFFECT OF DILUTIVE OPTIONS........................... - 1,437,267 - 1,847,911
----------------------------------------------------------------------------
DILUTIVE SHARES OUTSTANDING.......................... 28,955,226 30,158,405 29,913,431 30,569,049
============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ (146,543) $ 195,692
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization.............................. 106,421 104,512
Increase (decrease) in net change of reserve accounts (28,980) (56,460)
Deferred financing fees.................................... 8,393 3,730
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (261,610) (265,793)
Inventory.............................................. 119,139 (405,692)
Prepaid expenses and other ............................ 9,689 (5,851)
Increase (decrease) in:
Accounts payable....................................... 327,776 (271,532)
Accrued expenses....................................... (20,372) 4,815
---------------------------------------
Net cash provided by (used in) operating activities........... 113,913 (696,579)
----------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of equipment and furniture ............................. (87,217) (144,068)
Interest received on certificate of deposit...................... (7,868) -
Increase in restricted cash...................................... (300,000) (100,000)
----------------------------------------
Net cash used in investing activities............................ (395,085) (244,068)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options........................................ 34,266 9,207
Proceeds from convertible debenture, net of deferred
financing fees................................................ - 1,421,664
---------------------------------------
Net cash provided by financing activities..................... 34,266 1,430,871
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................................... (246,906) 490,224
---------------------------------------
CASH AND CASH EQUIVALENTS, beginning of period........................ 2,149,820 1,475,599
---------------------------------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 1,902,914 $ 1,965,823
=======================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest........................................... $ 100,973 $ 42,152
=======================================
Cash paid for income taxes....................................... $ - $ 14,125
=======================================
Equipment associated with capital lease.......................... $ 255,573 $ -
=======================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements included herein are presented in accordance
with the requirements of Form 10-QSB and consequently do not include all of the
disclosures normally made in the registrant's annual Form 10-KSB filing. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in Simtek Corporation's Annual Report and Form 10-KSB
filed on March 12, 1999 for fiscal year 1998.
In the opinion of management, the unaudited financial statements
reflect all adjustments of a normal recurring nature necessary to present a fair
statement of the results of operations for the respective interim periods. The
year-end balance sheet data were derived from audited financial statements, but
do not include all disclosures required by generally accepted accounting
principles.
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SIMTEK CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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RESULTS OF OPERATIONS:
Simtek Corporation ("Simtek" or the "Company") recorded net product
sales of $1,633,348 for the third quarter of 1999 and $4,939,654 for the nine
months ended September 30, 1999 up from the $1,464,760 recorded for the third
quarter 1998 and the $4,806,039 for the nine months ended September 30, 1998.
The product sales were from the Company's 4 kilobit, 16 kilobit, 64 kilobit and
256 kilobit nvSRAM product families. The increase in net sales for the three and
nine months ended September 30, 1999 were primarily from sales of the Company's
nvSRAM products in the Far East returning to their historic levels with the
Company. Four distributors of the Company's nvSRAM products account for
approximately 62% of the Company's net sales for the third quarter 1999.
Products sold to distributors are re-sold to various end customers.
In the third quarter 1999, the Company purchased wafers built on 1.2
micron technology from Chartered Semiconductor Manufacturing Plc. of Singapore
("Chartered") to support sales of its high end 64 kilobit industrial and
military devices and 16 kilobit commercial devices. The Company also purchased
wafers built on 0.8 micron technology from Chartered. Sales of devices built
with both types of wafers purchased from Chartered accounted for approximately
97% of the Company's revenue for the third quarter 1999. The balance of the
Company's revenue for the third quarter 1999, was primarily from the sales of
commercial 64 kilobit and 256 kilobit finished units purchased from Zentrum
Mikroelektronik Dresden GmbH ("ZMD") in 1998.
The Company saw a decrease of approximately 11% and 8% in gross
margins, as a percent of sales, for the three months and nine months ended
September 30, 1999, respectively, as compared to the same periods in 1998. The
decrease in gross margin was due primarily to a decrease in average selling
prices associated with large production volume orders and a decrease in product
sales from the high end industrial and military products in the three months
ended September 30, 1999. During the third quarter, the Company expected
short-term demand for high-margin military products to be down due to cyclical
government contract requirements. The Company planned to more than compensate
for this with increased commercial shipments. Even though customer demand was
strong, the Company experienced a delay in manufacturing a significant number of
parts through its subcontractors, resulting in lower revenues than had been
forecast. Management believes these production issues have been resolved and
will allow the Company to catch up with growing customer demand in the fourth
quarter.
Total operating expenses experienced an approximate $9,000 increase
in the three months ended September 30, 1999 as compared to the three months
ended September 30, 1998. This increase was due primarily to a headcount
increase in sales and marketing. The nine months ended September 30, 1999 saw a
decrease in operating expenses of approximately $65,000 as compared to the same
period in 1998. Research and development saw the largest decrease of
approximately $80,000 This decrease was primarily due to the Company incurring
additional costs associated with the installation of its 64 kilobit and 256
kilobit products based on 0.8 micron technology into Chartered in 1998, the
Company did not have these costs in 1999. Administration showed a decrease of
approximately $33,000, which was primarily due to a decrease in headcount. Sales
and Marketing saw an increase of approximately $48,000. This increase was
primarily due to increased headcount.
The Company recorded a net loss of $105,577 and $146,543 for the
three and nine months ended September 30, 1999, respectively, as compared to a
net income of $17,383 and $195,692 for the same periods in 1998. The decrease in
net income was primarily due to decreased gross margins.
The change in cash flows from operating activities was primarily a
result of an increase in accounts receivable, a decrease in net change of
reserve accounts, a decrease in inventory and prepaid expenses and other and an
-7-
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SIMTEK CORPORATION
increase in accounts payable. The accounts receivable increase was due to an
increased level of billings at the end of the period which averages
approximately 45 days to receipt of payment. The decrease in reserve accounts
was due to a decrease in the reserve required for volume pricing to certain
customers and an increase in the warranty reserve. The warranty reserve is
calculated on a historical return of the Company's products, since the Company
began shipping large volumes of its product built on wafers purchased from
Chartered in November 1998, this reserve is at a higher percent than any of the
products the Company was shipping in the first nine months of 1998. The reserve
percentage will be evaluated after one year of shipping this product. The
decrease in inventory was due primarily to an increase in high volume production
orders that used up a substantial portion of the Company's inventory. The
decrease in prepaid expenses and other was because in the first nine months of
1998 the Company was required to prepay for any inventory purchased from ZMD
while it was in the transition of transferring production to Chartered. The
increase in accounts payable is a result of a change from the Company prepaying
for inventory in the first nine months of 1998 to currently paying its
subcontractors that build its products on 30 day terms.
The change in cash flows from investing activities was due to
purchases of equipment and furniture and an increase in restricted cash. The
purchases of equipment and furniture were related to the testing of the
Company's 64 kilobit and 256 kilobit products built on 0.8 micron technology
from wafers purchased from Chartered. The increase in restricted cash was used
as collateral for a letter of credit that one of the Company's suppliers
required the Company to obtain in the event of default on payments by the
Company. The change in cash flows from financing activities was due to the
exercise of stock options.
FUTURE RESULTS OF OPERATIONS
The Company's ability to remain profitable will depend primarily on
its ability to continue reducing manufacturing costs and increasing net product
sales by improving the availability of existing products and by the introduction
of new products. In the third quarter 1999, the Company continued to ship
production orders of all its nvSRAM product families along with shipping smaller
quantities to customers interested in designing this product into its
applications. The Company is currently deciding which new or derivative product
it will develop next.
As of September 30, 1999, the Company's backlog of unshipped customer
orders expected to be filled within the next six months was approximately
$1,200,000. Orders are cancelable prior to 30 days before the scheduled shipping
date and, therefore, should not be used as a measure of future product sales.
LIQUIDITY AND CAPITAL RESOURCES
In July 1999, the Company increased its letter-of-credit, required by
one of its suppliers in the event of default on payment, from $250,000 to
$300,000. This letter-of-credit requires the Company to maintain a $300,000
certificate of deposit as collateral.
As of September 30, 1999, the Company continues to maintain a
$100,000 certificate of deposit as collateral for its $350,000 line of credit.
ZMD continues to own approximately 30% of the Company's Common Stock
and may not exceed 30% without approval of Simtek's Board of Directors.
The Company may require additional capital to fund production and
marketing of any new products it may develop. The Company does not have any
commitments for such additional capital as of the date of this report.
-8-
<PAGE>
SIMTEK CORPORATION
YEAR 2000
The information provided below constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
The Year 2000 ("Y2K") problem arises from the use of a two-digit field
to identify years in computer programs, e.g., 85=1985, and the assumption of a
single century, the 1900s. Any program so created may read or attempt to read,
"00" as the year 1900. There are two other related issues which could also, lead
to incorrect calculations or failure, such as (i) some systems' programming
assigns special meaning to certain dates, such as 9/9/99 and (ii) the year 2000
is a leap year. Accordingly, some computer hardware and software including
programs embedded within machinery and parts will need to be modified prior to
the year 2000 in order to remain functional. To address the issue, the Company
created an internal task force to assess its state of readiness for possible
"Year 2000" issues and take the necessary actions to ensure Year 2000
compliance. The task force has and continues to evaluate internal business
systems, production equipment, software and other components which affect the
Company's products, and the Company's vulnerability to possible "Year 2000"
exposures due to suppliers' and other third parties' lack of preparedness for
the year 2000.
The Company has assessed its production equipment and its information
system and does not anticipate any material Year 2000 issues from its equipment
or its own information system, databases or programs. Certain software packages
are currently being upgraded to compliant versions. The Company has two-thirds
of its internal business systems updated to Year 2000 and has defined the
requirements and anticipates having the balance updated by November 1999. The
costs incurred to date and expected to be incurred in the future are not
material to the Company's financial condition or result of operations. In
addition, the Company has contacted all of its suppliers and distributors with a
questionnaire regarding Year 2000 compliance and as of June 1999, all of its
suppliers and distributors have responded to the best of their knowledge that
they are Year 2000 compliant. The Company cannot currently predict the potential
effect of third parties' "Year 2000" issues on its business. The Company is
currently purchasing from Chartered 100% of the wafers from which the Company's
nvSRAM's are produced along with using Amkor for assembly of its products and
Integra Technologies for the final testing of its products. Chartered, Amkor and
Integra have all confirmed that to the best of their knowledge they are Year
2000 compliant, however, the Company may take steps to build additional
inventory at the end of the year to support approximately 60 days of product
shipments in case a problem should occur with any one of these key suppliers.
The Company believes that if one of its distributors should incur a Year 2000
problem, then the Company would be able to support the end customer directly
until the problem is corrected. In the worst-case scenario, if the Company, its
manufacturers or a majority of its key customers were to experience Year 2000
bugs, the Company may incur substantial losses and may not be able to continue
operating until the problems have been rectified.
The Company believes that its internal Year 2000 compliance project
will be completed in advance of the Year 2000 date transition and will not have
a material adverse effect on the Company's financial condition or overall trends
in the results of operations. However, there can be no assurance that unexpected
delays or problems, including the failure to ensure Year 2000, compliance by
systems or products supplied to the Company by a third party, will not have an
adverse effect on the Company, its financial performance, or the competitiveness
or customer acceptance of its products.
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SIMTEK CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Matters Submitted to a Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
-------------------
Form 8-K filed on July 20, 1999; press release, "Simtek Announces
Financial Results for the Second Quarter of 1999"
Form 8-K filed on August 31, 1999 Interim Report to Shareholders
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SIMTEK CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMTEK CORPORATION
(Registrant)
November 1, 1999 By /s/ Douglas Mitchell
---------------------
DOUGLAS MITCHELL
Chief Executive Officer, President
and Chief Financial Officer (acting)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,902,914
<SECURITIES> 407,868
<RECEIVABLES> 1,130,157
<ALLOWANCES> 51,086
<INVENTORY> 816,955
<CURRENT-ASSETS> 4,244,822
<PP&E> 2,255,019
<DEPRECIATION> 1,797,532
<TOTAL-ASSETS> 4,754,532
<CURRENT-LIABILITIES> 1,331,211
<BONDS> 0
0
0
<COMMON> 289,552
<OTHER-SE> 1,430,392
<TOTAL-LIABILITY-AND-EQUITY> 4,754,532
<SALES> 4,939,654
<TOTAL-REVENUES> 4,939,654
<CGS> 3,155,963
<TOTAL-COSTS> 3,155,963
<OTHER-EXPENSES> 920,550
<LOSS-PROVISION> (24,296)
<INTEREST-EXPENSE> (101,242)
<INCOME-PRETAX> (146,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,543)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
