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 March 31, 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 May 12, 1999
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(Common Stock, $.01 par value) 28,955,226
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SIMTEK CORPORATION
INDEX
For Quarter Ended March 31, 1999
PART 1. FINANCIAL INFORMATION
Page
----
ITEM 1
Balance Sheets as of March 31, 1999 and
December 31, 1998 3
Statements of Operations for the three months ended
March 31, 1999 and 1998 4
Statements of Cash Flows for the three months ended
March 31, 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
------
March 31, 1999 December 31, 1998
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 1,744,916 $ 2,149,820
Certificate of deposit, restricted...................................... 351,888 100,000
Accounts receivable - trade, net........................................ 905,276 744,754
Inventory, net ......................................................... 949,765 915,905
Prepaid expenses and other.............................................. 42,364 47,703
------------------------------------------
Total current assets................................................ 3,994,209 3,958,182
EQUIPMENT AND FURNITURE, net............................................... 189,567 221,119
OTHER ASSETS............................................................... 57,818 60,616
------------------------------------------
TOTAL ASSETS............................................................... $ 4,241,594 $ 4,239,917
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable........................................................ $ 286,348 $ 251,015
Accrued expenses........................................................ 219,023 232,837
Accrued wages........................................................... 221,475 222,948
Accrued vacation payable................................................ 86,495 70,743
Payable to ZMD.......................................................... 130,153 130,153
------------------------------------------
Total current liabilities........................................... 943,494 907,696
CONVERTIBLE DEBENTURES..................................................... 1,500,000 1,500,000
COMMITMENTS AND CONTINGENCIES
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
March 31, 1999 and December 31, 1998, respectively 289,552 287,452
Additional paid-in capital.............................................. 29,793,041 29,760,875
Accumulated deficit..................................................... (28,284,493) (28,216,106)
-------------------------------------------
Shareholder's equity.................................................... 1,798,100 1,832,221
-------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 4,241,594 $ 4,239,917
===========================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF OPERATIONS
For the quarters ended March 31,
--------------------------------
1999 1998
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<S> <C> <C>
NET SALES.................................................................. $ 1,368,637 $ 1,539,331
Cost of sales........................................................ 819,396 809,211
--------------------------------------
GROSS MARGIN............................................................... 549,241 730,120
OPERATING EXPENSES:
Design, research and development...................................... 312,926 299,400
Administrative........................................................ 106,348 115,162
Marketing............................................................. 187,743 192,564
--------------------------------------
Total Operating expenses.......................................... 607,017 607,126
INCOME (LOSS) FROM OPERATIONS.............................................. (57,776) 122,994
--------------------------------------
OTHER INCOME (EXPENSE):
Interest income (expense), net........................................ (10,019) 14,417
Other expense, net.................................................... (592) (2,030)
--------------------------------------
Total other income (expense)...................................... (10,611) 12,387
--------------------------------------
NET INCOME (LOSS) BEFORE TAXES............................................. (68,387) 135,381
Provision for income taxes............................................ - 10,360
--------------------------------------
NET INCOME (LOSS).......................................................... $ (68,387) $ 125,021
======================================
BASIC AND DILUTED EPS...................................................... $ 0.00 $ 0.00
======================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING.................................. 28,828,448 28,695,916
EFFECT OF DILUTIVE OPTIONS................................................. - 2,142,302
--------------------------------------
DILUTIVE SHARES OUTSTANDING................................................ 28,828,448 30,838,218
======================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ (68,687) $ 125,021
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization.............................. 33,294 34,736
Increase (decrease) in net change of reserve
accounts.............................................. (28,245) 119,622
Deferred financing fees.................................... 2,798 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (118,238) (203,089)
Inventory.............................................. (34,979) (329,888)
Prepaid expenses and other ............................ 5,339 (192,162)
Increase (decrease) in:
Accounts payable....................................... 35,333 (49,883)
Accrued expenses....................................... (12,455) 113,792
---------------------------------------
Net cash used in operating activities......................... (185,540) (381,851)
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture.............................. (1,742) (109,876)
Interest received on certificate of deposit (1,888 ) -
Increase in restricted cash...................................... (250,000) (100,000)
----------------------------------------
Net cash used in investing activities............................ (253,630) (209,876)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options........................................ 34,266 3,173
---------------------------------------
Net cash provided by financing activities 34,266 3,173
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................... (404,904) (588,554)
---------------------------------------
CASH AND CASH EQUIVALENTS, beginning of period 2,149,820 1,475,599
---------------------------------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 1,744,916 $ 887,045
=======================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
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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 was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
6
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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 $1,368,637 for the first quarter of 1999 down from the $1,539,331 recorded
for the first quarter 1998. The product sales were from the Company's 4 kilobit,
16 kilobit, 64 kilobit and 256 kilobit nvSRAM product families. The decrease was
due primarily to a decrease in sales from the Company's high end industrial and
military products and a decrease of product demand in the European market. Three
distributors of the Company's nvSRAM products account for more than 61% of the
Company's net sales for the first quarter 1999. Products sold to distributors
are re-sold to various end customers.
During the first 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. The Company also purchased wafers built on 0.8 micron
technology from Chartered to support sales of its commercial and industrial
products. Sales of devices built with both types of wafers purchased from
Chartered accounted for approximately 94% of the Company's revenue for the first
quarter 1999. The balance of the Company's revenue for the first 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 7% in gross margins in the
first quarter 1999 as compared to the first quarter 1998. This decrease in gross
margin was due primarily to a decrease in product sales from the high end
industrial and military products.
Total other operating expenses saw no material change in the first quarter
1999 as compared to the first quarter 1998. Research and Development saw an
approximate $13,000 increase which was primarily due to costs incurred for
future product development. Administration saw a decrease of approximately
$9,000 which was due to a headcount decrease. Sales and Marketing saw an
approximate decrease of $5,000. This decrease was primarily the net effect of an
increase in headcount and a decrease in advertising.
The Company recorded a net loss of $68,387 in the first quarter of 1999 as
compared to a net income of $125,021 for the first quarter of 1998. The decrease
was due to decreased product sales and gross margins.
The change in cash flows from operating activities was primarily a result
of a net loss, an increase in accounts receivable and inventory. The change in
cash flows from investing activities was used for 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 increase net product sales
by increasing the availability of existing products, by the introduction of new
products and by expanding its customer base. In the first quarter 1999, the
Company introduced its Real Time Clock technology which combines its nvSRAM's
with a miniature capacitor-powered oscillator/counter that eliminates the need
for a back-up battery when system power is lost. The Company is currently
deciding which new or derivative product it will develop next.
As of March 31, 1999, the Company's backlog of unshipped customer orders
expected to be filled within the next six months was approximately $560,000.
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.
7
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SIMTEK CORPORATION
In April 1999, the Company was audited by Defense Supply Center, Columbus
("DSCC") for the quality of its military systems. The audit team recommended
holding shipments of compliant product until a number of issues, predominantly
involving subcontracted test laboratories, were resolved. The Company and DSCC
have agreed to a schedule which will allow resumption of shipments by mid to
late May 1999. Management of the Company is confident that this schedule will be
met, with a minimal impact on sales to its military customers.
LIQUIDITY AND CAPITAL RESOURCES
In April 1999, the Company filed a Form S-3 Registration Statement to
register shares of common stock issuable upon conversion of the $1,500,000
convertible debenture financing package that was completed in June 1998 with
Renaissance Capital Group of Dallas, Texas ("Renaissance"). Under the terms of
the financing agreement, the conversion price was subject to Simtek's market
price for a period after the 1998 financial results were reported. The Form S-3
Registration Statement provides for up to 7,692,308 shares to be converted
against the debenture.
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.
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 is in the process of assessing 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 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 been in contact with its suppliers and other third parties to
determine the extent to which they may be vulnerable to "Year 2000" issues. As
this assessment progresses, matters may come to the Company's attention, which
could give rise to the need for remedial measures which have not yet been
identified. As a contingency, the Company may replace the suppliers and third
party vendors who cannot demonstrate to the Company that their products or
services will be 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 one manufacturer 100% of the wafers from
which the Company's nvSRAM's are produced. If this supplier or certain of the
Company's other suppliers used in the manufacture of their products or certain
large customers have Year 2000 issues it may have a materially adverse effect on
the Company's revenues and operations.
8
<PAGE>
SIMTEK CORPORATION
The Company believes that its 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.
9
<PAGE>
SIMTEK CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - In 1998, the Company received notification of a
claim for an unspecified amount from a foundation that owns approximately 180
patents and 70 pending applications. The foundation claimed that certain
machines and processes used in the building of the Company's semiconductor
devices infringe on the foundation's patents. In April 1999, the Company and its
counsel reached an agreement with the foundation for the Company to purchase a
nonexclusive license of the foundations patents. The Company has already
recorded the liability associated with this license and therefore believes that
there will be no future material financial impact upon the Company.
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 - None
(b) Reports on Form 8-K
Form 8-K filed February 22, 1999; press release announcing "Simtek
Announces Financial Results for 1998"
10
<PAGE>
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)
May 12, 1999 By /s/ Douglas Mitchell
-----------------------------------------
DOUGLAS MITCHELL
Chief Executive Officer, President
and Chief Financial Officer (acting)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED march 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,744,916
<SECURITIES> 351,888
<RECEIVABLES> 954,285
<ALLOWANCES> 49,009
<INVENTORY> 949,765
<CURRENT-ASSETS> 3,994,209
<PP&E> 1,913,971
<DEPRECIATION> 1,724,404
<TOTAL-ASSETS> 4,241,594
<CURRENT-LIABILITIES> 943,494
<BONDS> 0
0
0
<COMMON> 289,552
<OTHER-SE> 1,508,548
<TOTAL-LIABILITY-AND-EQUITY> 4,241,594
<SALES> 1,368,637
<TOTAL-REVENUES> 1,368,637
<CGS> 819,396
<TOTAL-COSTS> 819,396
<OTHER-EXPENSES> 312,926
<LOSS-PROVISION> 592
<INTEREST-EXPENSE> 33,288
<INCOME-PRETAX> (68,387)
<INCOME-TAX> 0
<INCOME-CONTINUING> (68,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,387)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
