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, 1999
[ ] 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
--------------------------------------
(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
--- ---
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 $6,992,388.
The aggregate market value of the 22,939,251 shares of voting stock held by
non-affiliates of the registrant was approximately $37,390,979, based upon the
closing sale price of the Common Stock on February 24, 2000 of $1.63 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 February
24, 2000 was 31,516,636.
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...................................................................................... 13
Item 3: Legal Proceedings............................................................................... 13
Item 4: Matters Submitted to a Vote of Security Holders................................................. 13
PART II
Item 5: Market for Registrant's Common Stock and Related Security Holder Matters........................ 14
Item 6: Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................ 15
Item 7: Financial Statements and Supplementary Data..................................................... 21
Item 8: Changes in and Disagreements with Accountants on Accounting Financial
Disclosure................................................................................... 38
PART III
Item 9: Directors and Executive Officers of the Registrant.............................................. 39
Item 10: Executive Compensation.......................................................................... 42
Item 11: Security Ownership of Certain Beneficial Owners and Management.................................. 45
Item 12: Certain Relationships and Related Transactions.................................................. 47
PART IV
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 designs, develops, produces and markets high performance
nonvolatile semiconductor memories. Nonvolatility prevents loss of programs and
data when electrical power is removed. Our nonvolatile memory products feature
fast data access and programming speeds and electrical reprogramming
capabilities. Our 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.
As of December 31, 1999, our backlog for released purchase orders was
approximately $1,440,000, all of which is expected to ship by June 30, 2000.
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 the year ended December 31, 1999, we generated
net revenue of approximately $7,000,000 from the sale of products.
We are in production of our first four families of products, 256 kilobit,
64 kilobit, 16 kilobit and 4 kilobit nonvolatile static random access memories
("nvSRAMs"). Our 256 kilobit nvSRAM was qualified in 1997 for sales into the
commercial and industrial markets and in 1998 for shipment into the military
market. Our 64 kilobit nvSRAMs meet or exceed the requirements for sales into
commercial, industrial and military markets. Our 16 kilobit and 4 kilobit
nvSRAMs have been qualified for sales into commercial and industrial markets.
Our 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.
We reduce capital requirements by subcontracting all phases of the
manufacturing process. Chartered Semiconductor Manufacturing Plc. of Singapore
("Chartered") began providing silicon wafers for the our nvSRAM products in
September 1993 and continues to provide wafers based on our 0.8 and 1.2 micron
product technology. Integra Technologies provides final test services for the
products built from the wafers purchased from Chartered. During 1999, we
purchased all of our wafers from Chartered in order to produce our nvSRAMs.
During 1999, we purchased wafers from Chartered based on 0.8 micron wafer
technology and we also purchased wafers from Chartered based on our 1.2 micron
wafer technology prior to Chartered discontinuing this product. Sales of nvSRAMs
generated from these wafers accounted for approximately 96% of our revenue for
1999. The balance of our revenue was generated from nvSRAM's purchased from ZMD
in 1998.
We currently have three sales and marketing offices, located in Colorado
Springs, Colorado, Bristol, England and Atlanta, Georgia. We have engaged 15
independent representative organizations with 36 sales offices and 30
distributor organizations with 81 sales offices. These organizations have
multiple sales offices and sales personnel covering specific territories.
Through these organizations and their sales offices we are capable of serving a
worldwide market.
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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.
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
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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. We
believe our nvSRAM represents a significant advance over existing products that
combine volatility and nonvolatility on a single silicon chip. We combine an
SRAM memory cell with an EEPROM memory cell to create a small nvSRAM memory
cell. Our 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.
TECHNOLOGY
We use 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 Flash and 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 our products to protect against tunnel oxide
rupture. In addition, our 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 our nvSRAM memory cell allows high
performance nonvolatile SRAMs to be manufactured using complementary metal oxide
semiconductor (CMOS) technology. The SNOS technology that we use has proven to
be highly reliable, as demonstrated by our product qualification results to
date.
PRODUCTS
nvSRAMs (Nonvolatile Static Random Access Memories). Our 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 the data can be transferred
automatically.
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Our nvSRAMs have fast data access speeds of 20, 25, 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
our 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. Our nvSRAM can be used to replace
SRAMs with lithium batteries and multiple chip solutions such as SRAM plus
EEPROM or Flash Memory.
We finalized commercial and industrial qualification of two versions of our
initial 64 kilobit nvSRAM product offering in September 1991 and April 1992,
respectively. We completed military qualification of our initial nvSRAM in May
1992. We began sales into the commercial market of our initial 16 kilobit nvSRAM
product family in 1992. The nvSRAM product family also includes the 4 kilobit
version. We 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 not require instructions or intervention from the system
microprocessor to notify it of the power loss. Commercial and industrial
qualification of our 256 kilobit nvSRAM occurred in 1997 and military
qualification of our 256 kilobit nvSRAM was completed in the second quarter of
1998.
NEW INTRODUCTIONS: We began shipping production qualified 256 kilobit
nvSRAM products in mid-1997. These products are the highest density monolithic
solution on the market. We believe our 256 kilobit products will expand the
market for our products.
In October 1998, we introduced a 1 megabit module using 4 of the 256
kilobit products on a single substrate. This device is intended for use by
customers requiring additional density prior to availability of the monolithic
(single-chip) version.
In July 1999, we qualified and began shipping small volumes of our 64
kilobit and 256 kilobit AutoStorePlusTM Products, these parts are intended to be
a direct replacement for encapsulated battery- back RAM's.
In the third quarter of 1999, we began sampling our Real Time Clock ("RTC")
technology which combines our nvSRAMs with a miniature capacitor-powered
oscillator/counter that eliminates the need for a back-up battery when system
power is lost.
PACKAGE TYPES: We currently supply our 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 our products at a
relatively low development cost.
PRODUCT WARRANTIES. We presently provide a one-year limited warranty on our
products.
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We currently offer the high performance nvSRAMs listed below:
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nvSRAMs Supplied
Product Description Speed Package Flow
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<S> <C> <C> <C> <C>
STK20C04 4K (512x8) HW Store 20,25,35,45 ns 600-P Comm./Ind.
STK22C48 16K (2Kx8) AutoStoreTM 20,25,35,45 ns 600-P Comm./Ind.
STK25C48 16K (2Kx8) AutoStoreTM 20,25,35,45 ns 600-P Comm./Ind.
STK10C48 16K (2Kx8) HW Store 20,25,35,45ns PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK11C48 16K (2Kx8) SW Store 20,25,35,45ns PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK10C68 64K (8Kx8) HW Store 20,25,35,45 ns CDIP Comm./Ind./Mil.
PDIP Comm./Ind.
SOIC Comm./Ind.
LCC Comm./Ind./Mil.
STK11C68 64K (8Kx8) SW Store 20,25,35,45 ns CDIP Comm./Ind./Mil.
PDIP Comm./Ind.
SOIC Comm./Ind.
LCC Comm./Ind./Mil.
STK12C68 64K (8Kx8) AutoStoreTM 20,25,35,45 ns CDIP Comm./Ind./Mil.
PDIP Comm./Ind.
SOIC Comm./Ind.
LCC Comm./Ind./Mil.
STK15C68 64K (8Kx8) AutoStoreTM 20,25,35,45 ns 600-P Comm./Ind.
PDIP Comm./Ind.
SOIC Comm./Ind.
STK16C68 64K (8Kx8) AutoStorePlusTM 20,25,35,45 ns PDIP Comm./Ind.
STK11C88 256K (32Kx8) SW Store 20,25,35,45 ns PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK14C88 256K (32Kx8) AutoStoreTM 20,25,35,45 ns PDIP Comm./Ind.
SOIC Comm./Ind.
CDIP Comm./Ind./Mil
LCC Comm./Ind./Mil
STK15C88 256K (32Kx8) AutoStoreTM 20,25,35,45 ns PDIP Comm./Ind.
SOIC Comm./Ind.
600-P Comm./Ind.
STK16C88 256K (32Kx8) AutoStorePlus TM 20,25,35,45 ns PDIP Comm./Ind
STK25CA8 1Mbit (128Kx8) AutoStoreTM 45,55 ns Module Comm./Ind.
STK1700 Real Time Clock Chipset N/A SMT Comm./Ind.
STK1743 Real Time Clock + 64K nvSRAM 25,35,45 ns Module Comm./Ind.
STK1744 Real Time Clock + 256K nvSRAM 25,35,45 ns Module Comm./Ind.
</TABLE>
RESEARCH AND DEVELOPMENT
Many of our research and development activities are centered around
developing new products and reducing the cost of our nvSRAM products. We have
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reduced our costs by introducing our 0.8 micron technology. This technology
reduced the size of the 64 kilobit nvSRAM chip and enabled us to develop a cost
effective 256 kilobit nvSRAM. We are continuing our efforts to improve yield on
the 0.8 micron technology. In order to further reduce costs, we engaged Integra
Technologies in the fourth quarter 1997 for testing of our 0.8 micron products.
We have a test floor used for evaluation of our technologies, product designs
and product quality. The test floor is also used for production testing of
silicon wafers.
Our research and development expenditures for the years ended December 31,
1999 and 1998 were approximately $1,273,000 and $1,381,000, respectively. We
intend 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 our existing
products.
MANUFACTURING AND QUALITY CONTROL
Our manufacturing strategy is to use subcontractors whose production
capabilities meet the requirements of our product designs and technologies.
In 1992, we entered into a manufacturing agreement with Chartered (the
"Chartered Manufacturing Agreement") to provide us with silicon wafers for our
products. Under the Chartered Manufacturing Agreement, Chartered has installed a
manufacturing process for versions of our current and future products.
Finished wafer procurement reverted to Chartered during 1998 as we ceased
purchasing finished 0.8 micron units from ZMD. During 1999, approximately 96% of
our product sales were based on wafers purchased from Chartered. All 0.8 micron
products have been successfully qualified at Chartered.
Device packaging continued at the Amkor facilities in the Philippines and
South Korea. Final test for 0.8 micron products was established successfully at
Integra Technologies in Wichita, Kansas.
Our subcontractors provide quality control for the manufacture of our
products. We maintain our 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.
Our quality and reliability programs were audited by several commercial and
military customers during 1999 as part of routine supplier certification
procedures. All such audits were completed satisfactorily. In April 1999, we
were audited by Defense Supply Center, Columbus ("DSCC") for the quality of our
military systems. The audit team recommended holding shipments of compliant
product until a number of issues, predominately involving subcontracted test
laboratories, were resolved. The issues were resolved by us and approved by DSCC
and shipments of compliant military product resumed in late May 1999.
MARKETS
Our 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.
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Our product families are standard products designed for many applications,
in contrast to products designed for specific applications ("ASIC's", or
Application Specific Integrated Circuits). Therefore, we believe that our
products will address very broad markets including these applications:
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
We are increasing marketing and sales emphasis on office automation products
such as copiers and mass storage systems as well as beginning new sales efforts
in data communication applications.
SALES AND DISTRIBUTION
Our strategy is to generate sales through the use of independent sales
representative agencies and distributors. We believe this strategy provides the
fastest and most cost effective way to assemble a large and professional sales
force.
We currently have three sales and marketing offices, located in Colorado
Springs, Colorado, Bristol, England and Atlanta, Georgia. We have engaged 15
independent representative organizations with 36 sales offices and 30
distributor organizations with 81 sales offices. Both organizations have
multiple sales offices and sales personnel covering specific territories.
Through these organizations and their sales offices we are capable of serving a
worldwide market.
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 us and
the distributor earning a markup on the sale of the products. We supply sales
materials to the sales representatives and distributors.
For our marketing activities, we evaluate external marketing surveys and
forecasts and perform internal studies based, in part, on inputs from our
independent sales representative agencies. We prepare brochures, data sheets and
application notes on our products.
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CUSTOMERS AND BACKLOG
We have shipped qualified nvSRAM products to customers directly and through
distributors since the September 1991 commercial product qualification; the
majority of our customers are Fortune 500 companies. Approximately 36% of our
net product sales during 1999 were to customers in the Pacific Rim and
approximately 17% were to customers in Europe. The remaining product sales were
to customers in North America.
As of December 31, 1999, we had a backlog of unshipped customer orders of
approximately $1,440,000, which is expected to be filled by June 30, 2000.
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 1999, we continued to receive initial and scheduled production
orders on our 64 kilobit product. We believe that we will continue to receive
volume production orders on our 64 kilobit product and that production orders on
our 256 kilobit product will continue to grow.
LICENSES
PRODUCT AND TECHNOLOGY LICENSE SALES. We have sold product and technology
licenses to Nippon Steel, Plessey and ZMD. Based on prior actions by Nippon
Steel and Plessey, we don't anticipate any future activity on the licenses with
Nippon Steel and Plessey.
ZMD. In June of 1994, we 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 us 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. ZMD has paid us all the monetary requirements under this agreement
including any royalties we may receive from sales of these jointly developed
products.
CHARTERED. In September of 1992, we entered into a manufacturing agreement
with Chartered. This agreement grants Chartered the right to manufacture silicon
wafers containing our products solely for sale to us. Chartered also has the
right to manufacture silicon wafers in connection with future technology
licenses we may enter into with third parties.
FUTURE LICENSE SALES. We intend to sell product and technology licenses on
a selective basis. We will continue to seek licensing partners who can
contribute to the development of the nvSRAM market and provide a meaningful
level of revenue to us while not posing an undue threat in the marketplace.
COMPETITION
Our 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 our family of nvSRAMs fall into three
categories. The first category of products that compete with our nvSRAMs are
volatile and nonvolatile chips used in combination, such as fast SRAMs used with
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EPROMs, EEPROMs, or Flash memory. We believe that we have advantages over these
applications because the nvSRAM allows data to be stored in milliseconds as
compared to seconds for chips used in pairs. Our single chip solution provides a
space savings and easier manufacturing. Our single chip solution generally
provides increased reliability versus multiple chips. We believe it will be able
to compete with many solutions requiring density up to 256 kilobits; 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 our nvSRAMs are products
that combine SRAMs with lithium batteries in specially adapted packages. These
products generally are slower in access speeds than our nvSRAMs due in part to
limitations caused by life of the lithium battery when coupled with a faster
SRAM. Our 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. Our nvSRAMs can also be used for wave soldered automatic
insertion circuit board assembly since they do not have the temperature
limitations of lithium batteries. 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., ST Microelectronics and Benchmarq Microelectronics, Inc.
The third category consists of NVRAMs that combine SRAM memory cells and
EEPROM memory cells on a monolithic chip of silicon. Our current product
offerings are of higher density, faster access times and we believe can be
manufactured at lower costs per bit than NVRAMS. Another company that is
currently supplying NVRAMs is Xicor, Inc. We believe that Xicor's highest
density single chip part is 16 kilobit.
ZMD, through their license agreement with us, has the worldwide right to
sell under the ZMD label nvSRAMs developed jointly by ZMD and us. With volume
production established at ZMD using the 0.8 micron product, ZMD has begun
selling such nvSRAMs. This has had a positive impact for us by creating a second
source, which is required by many larger companies, for our nvSRAM products.
However, in 1999, we were required to reduce prices to certain markets due to
the increased competition from ZMD. We believe that the competition from ZMD has
not had a major impact on our revenues.
We are 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
We undertake to protect our product designs and technologies under the
relevant intellectual property laws as well as by utilizing internal disclosure
safeguards. Under our licensing programs, we exercise control over the use of
our protected intellectual property and have not permitted our licensees to
sublicense our nvSRAM products or technology.
It is common in the semiconductor industry for companies to obtain
copyright, trademark and patent protection of their intellectual property. We
believe that patents are significant in our industry, and we are seeking to
build a patent portfolio. We expect to enter into patent license and
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cross-license agreements with other companies. We have been issued seven patents
in the United States on our nvSRAM memory cell and other circuit designs. These
patents have terms that expire through 2008 to 2013. We have also taken steps to
obtain international patents on certain of our products. We have two
applications that have been allowed and intend to prepare patent applications on
additional circuit designs we have developed. However, as with many companies in
the semiconductor industry, it may become necessary or desirable in the future
for us to obtain licenses from others relating to our products.
We have received federal registration of the term "Novcel" a term we use to
describe our technology. We have not sought federal registration of any other
trademarks, including "Simtek" and "QuantumTrapTM" or our logo.
EMPLOYEES
As of the date of this Form 10-KSB, we had 22 full-time employees and three
temporary employees.
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ITEM 2. PROPERTIES
- -------------------
We lease 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. Subsequent to December 31, 1999, we signed an addendum to our
lease agreement that allows us to occupy approximately 1,700 additional square
feet on June 1, 2000. The original lease along with its addendum expires on
December 31, 2001. With this addition, we believe that our existing facilities
will be adequate to meet our reasonably foreseeable needs or that, upon
expiration of the current lease, alternative facilities will be available to us
on acceptable terms to meet our requirements.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
There were no legal proceedings against us as of the date of this report.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------
There were no matters submitted to a vote in 1999.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
- --------------------------------------------------------------------------------
Our Common Stock is listed on the OTC Electronic Bulletin Board under the
symbol SRAM. 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 our
securities, which will have an adverse effect on the ability of our security
holders to sell their securities and the possibility of our 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
-------- ---------
1998
First Quarter.................................... .39 .41
Second Quarter................................... .32 .36
Third Quarter.................................... .22 .23
Fourth Quarter................................... .15 .16
1999
First Quarter.................................... .19 .18
Second Quarter................................... .22 .21
Third Quarter.................................... .15 .135
Fourth Quarter................................... .275 .261
As of December 31, 1999, there were 358 shareholders of record, not
including shareholders who beneficially own Common Stock held in nominee or
"street name."
We have not paid any dividends on our Common Stock since inception and we
do not intend to pay any in the foreseeable future.
14
<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. WE UNDERTAKE 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. We have designed and developed nonvolatile semiconductor products
since we commenced business operations in May 1987. We have 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, we began the sale of certain commercially qualified 64
kilobit nvSRAM products based on a 1.2 micron technology. After initial
qualification of our first product in 1991, we began expanding the 64 kilobit
nvSRAM product family. By the end of 1993, we had qualified the complete product
family for commercial, industrial and military markets and had commenced sales
of these products. During 1995, we developed our 64 kilobit nvSRAM product on a
0.8 micron technology, qualification of this product occurred in 1996. In late
1996 and into 1997, we, along with assistance from ZMD, completed the design,
installation and qualification of our 256 kilobit product based on 0.8 micron
technology into ZMD's wafer fab. In 1997, we installed the 256 kilobit nvSRAM
product based on 0.8 micron technology in Chartered's wafer fab. Qualification
of this product for use in the commercial and industrial market occurred in 1997
and qualification for use in the military market occurred in the second quarter
of 1998. In the fourth quarter 1997, we qualified the 64 kilobit nvSRAM product
built on 0.8 micron technology for sale in the commercial and industrial market.
Sales from product built on wafers purchased from Chartered and finished units
purchased from ZMD each accounted for approximately 96% and 4%, respectively, of
our revenue for 1999.
In 1999, we recorded net product sales of $6,992,388 for the year ended
December 31, 1999 up from $6,180,550 recorded for the year ended December
31,1998. The increase in product sales was primarily due to demand for
semiconductor memories returning to historic levels in Japan and other areas of
the Far East. We did see a decrease in selling prices and an increase in unit
shipments due to many customers ordering production volumes of our nvSRAM
products.
REVIEW OF 1999 OPERATIONS. Total product sales for 1999 were $6,992,338
which was less than we anticipated based on our customer forecasts. The shortage
was primarily due to a delay in large volume production orders being placed
early in the year as we had expected. Also, we did not see product demand return
to normal levels in Japan and other areas of the Far East until the second
15
<PAGE>
quarter of 1999 and the level of sales to our high-end industrial and military
markets did not remain consistent with 1998. Sales of our 4 kilobit and 16
kilobit products increased in 1999 by approximately 25% over 1998. This increase
was due to a large existing customer ordering production volumes and a
competitor of ours ceasing the manufacturing of certain products leading their
customers to begin purchasing from us. Sales of our 64 kilobit commercial
products increased in 1999 by approximately 37%. This increase was due to new
customers placing production volume orders and the return of volume business in
Japan and the Far East. Sales of our 256 kilobit commercial products saw a 2%
increase in 1999 as compared to 1998. Sales of our 64 kilobit and 256 kilobit
high-end industrial and military market saw a decrease in 1999 of approximately
49% as compared to 1998. This decrease was due to a reduction of our average
selling price of the 64 kilobit product and due to delays in certain government
production contracts. We believe that the contracts will return to historical
levels in 2000.
With the return of production volume orders being placed for our 16
kilobit, 64 kilobit and 256 kilobit commercial products and an increase in
competition, we did see a decrease in our average selling prices as compared to
1998. However, with this decrease, we saw an increase in unit shipments for 1999
as compared to 1998 of approximately 31%, 80% and 33% for our 16 kilobit, 64
kilobit, and 256 kilobit commercial products, respectively.
Due to the decrease in high-end industrial and military sales, we had an
approximate 6% decrease in our gross margins for 1999 as compared to 1998.
In July 1999, we qualified and began shipping small volumes of our 64
kilobit and 256 kilobit AutoStorePlus ProductsTM, these parts are intended to be
a direct replacement for encapsulated battery- back RAM's.
In the third quarter of 1999, we began sampling our RTC technology which
combines our nvSRAM's with a miniature capacitor-powered oscillator/counter that
eliminates the need for a back-up battery when system power is lost.
YEARS ENDED DECEMBER 31, 1999 AND 1998. Our net product sales for 1999
totaled $ 6,992,388 compared to $6,180,550 in 1998. The increase in net product
sales for the year ended December 31, 1999 was due primarily to the recovery of
the Far East economy, where sales of our nvSRAMs returned to their historic
level as a percent of total sales. During 1999, sales of our 1.2 micron 64
kilobit and 0.8 micron 256 kilobit nvSRAM military products accounted for
approximately 29% of our sales, while the 256 kilobit and 64 kilobit nvSRAM
product based on 0.8 micron technology accounted for approximately 65% of sales.
Sales of our 4 kilobit and 16 kilobit nvSRAM products accounted for the balance
of the sales in 1999. Three distributors of our nvSRAM products accounted for
approximately 56% of our net product sales for the year ended December 31, 1999.
We had a net income of $132,256 for the year ended December 31, 1999
compared to $162,781 for the year ended December 31, 1998. We realized a
positive gross margin of $2,663,644 in 1999 compared to $2,702,689 in 1998 for
percentages of 38% and 44%, respectively.
Operating expenses were approximately $180,000 less for the year ended
December 31, 1999 than for the year ended December 31, 1998. Of this decrease,
approximately $108,000 related to research and development, where in 1999, there
was a decrease in the costs associated with yield improvement on our 64 kilobit
and 256 kilobit 0.8 micron technology built at Chartered's wafer fab. There was
a decrease of approximately $80,000 in administration due primarily to decreased
16
<PAGE>
payroll and benefit costs and a decrease in legal expenses. These decreases were
partially offset by an approximate $8,000 increase in sales and marketing which
was attributed to an increase in sales commissions.
Other income for the year ended December 31, 1999 decreased from $131,327
at December 31, 1998 to an expense of $39,857. This decrease of $171,184 in
other income was due primarily to a one-time reversal of an accrued expense that
occurred in 1998 and an increase in interest expense for the year ended 1999.
This interest increase resulted from a full year's payments on the $1,500,000
debenture sold to affiliates of Renaissance Capital Group of Dallas, Texas
("Renaissance") in June 1998.
FUTURE RESULTS OF OPERATIONS
Our ability to maintain profitability will depend primarily on our ability
to continue reducing our manufacturing costs and increase net product sales by
increasing the availability of existing products, by the introduction of new
products and by expanding our customer base.
As of December 31, 1999, we had a backlog of unshipped customer orders of
$1,440,000 expected to be filled by June 30, 2000. 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 1999, we purchased all of our 0.8 micron and 1.2 micron technology
wafers from a single supplier, Chartered. In 1999, Chartered notified us of
their intent to discontinue production of our 1.2 micron technology. We
completed a last time buy, purchasing enough wafers to support production until
our 0.8 micron product technology could be qualified for military use.
Approximately 96% of our sales for 1999 were from finished units produced from
the 0.8 micron and 1.2 micron technology wafers. We had an agreement with
Chartered to provide wafers through September 1998. Although Chartered continues
to provide us wafers under this contract we do not have a current agreement
signed, however, we are negotiating with Chartered to renew the contract. The
remaining 4% of our sales for 1999 were from finished units purchased from ZMD
in 1998. Any disruptions in our relationship with Chartered could have an
adverse impact on our operating results.
ZMD, through their license agreement with us, has the worldwide right to
sell nvSRAM's developed jointly by us and ZMD. With volume production being
established at ZMD using the 0.8 micron product, ZMD has begun selling such
nvSRAMs. In the past year, we have seen a slight erosion of sales and selling
prices due to ZMD. However, due to ZMD creating a second source for nvSRAM
products, we believe that their presence may have a positive impact because many
large manufacturers require two sources to purchase product from.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1999, we have approximately $32,100,000
of gross proceeds from the sale of convertible debt and equity securities. From
inception through December 31, 1999, we generated $10,085,000 of gross revenue
from the sale of product and technology licenses, approximately $32,300,000 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 our Common Stock at a
price of $0.175 per share for all monies paid in 1995 and at the average share
17
<PAGE>
price of the quarter the monies were paid for all monies paid in 1996. In 1996,
we received $378,551 under this agreement of which $248,398 was converted into
1,353,374 shares of our Common Stock at a price of $.1548 and 165,000 shares of
our 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, 1999. ZMD currently owns
approximately 30% of our Common Stock and may not exceed 30% without the
approval of our Board of Directors.
On June 12, 1998, we closed a $1,500,000 financing transaction with two
funds advised by Renaissance. The funding from Renaissance consists of
$1,500,000 of convertible debentures with a seven year term at a 9 percent per
annum interest rate (the "Debentures"). If the Debentures are not redeemed or
converted prior to June 12, 2001, monthly installment payments of $10 per $1,000
owing will begin. Under certain conditions, Renaissance may require us redeem
the debenture. We also have the right under certain conditions to redeem or
require conversion of the Debentures.
The Debentures are convertible into our common stock at an original price
of $0.35 per share, however, the agreement allowed for a one-time adjustment of
the $0.35 conversion price if we did not achieve a pre-tax income of $700,000,
excluding extraordinary gains and interest related to the Debentures, for the
fiscal year ended December 31, 1998. Since we did not achieve the pre-tax income
of $700,000 for fiscal year ended December 31, 1998, the new conversion price
was set to $0.195. The conversion price may also be converted for certain
dilutive events. Subsequent to December 31, 1999, Renaissance converted
$1,500,000 of the Debentures into 7,692,308 shares of our Common Stock.
The terms of the Debentures require us to file a "shelf" registration
statement covering all of the common stock issuable upon conversion of the
Debentures. We were given an extension for the filing of this registration
statement until first quarter 2000 and we anticipate filing this registration
statement in April 2000. The terms of the Debentures allow for piggy-back
registration rights if we propose to register any of our common stock under the
1933 Act in connection with the public offering of such securities for its own
account or for the account of its security holders.
The Debenture agreement also allows for Renaissance to designate a nominee
to serve as a member of our Board of Directors. In the event of a monetary
default under the Debenture agreement, Renaissance may appoint an additional
nominee to serve as a member of our Board of Directors. As of the date of this
filing, Renaissance has not designated a nominee to serve as a member of our
Board of Directors. The Debentures also require us to pay Renaissance a
monitoring fee of $1,000 per month for consulting and monitoring services.
Our cash balance at December 31, 1999 was $2,173,592.
Our liquidity will depend on our revenue growth and our ability to sell our
products at positive gross margins and control of our operating expenses.
For the year ended December 31, 1999, cash flow provided by operations was
$420,232, which is primarily due to a net income of $132,255, depreciation of
$152,850, a change in reserve accounts of $90,936, an increase of accounts
receivable of $230,696, and an increase in accounts payable and accrued expenses
of $438,795. The increase in accounts receivable was due to a large revenue
month in December 1999, from which the cash will not be received until the first
quarter of 2000. The increase in accounts payable was due primarily to an
increase in product demand which requires us to maintain a larger wafer and
work-in-progress inventory, which is payable to our subcontractors on 30 day
terms and to the purchase of software that is being paid for on a five year
capital lease.
18
<PAGE>
The use of cash flows in investing activities was due to purchases of
equipment related to the testing of our 64 kilobit and 256 kilobit products
built on 0.8 micron technology from wafers purchased from Chartered and from the
purchase of a restricted certificate of deposit. The $116,812 of equipment
purchased consisted primarily of test fixtures and burn-in boards to support
products manufactured at Chartered. A $300,000 certificate of deposit was
established as collateral for a $300,000 letter of credit that is required by
one of our suppliers in the event that we default on payments.
For the year ended December 31, 1998, cash flow used in operations was
$476,250, which is primarily attributable to a decrease in accounts payable,
accrued expenses and a reversal of accrued expenses totaling $666,518, an
increase in inventory of $268,590 which was offset with a net income of
$162,781, depreciation and amortization of $137,107 and an increase in accounts
receivable of $181,387. The large decrease in accounts payable and accrued
expenses was due to us paying ZMD for past due invoices after a price dispute
was settled between us and ZMD in the first quarter of 1998. The increase in
inventory is due to us switching from purchasing finished units from ZMD to
producing finished units from wafers purchased from Chartered. This change in
procurement requires us to maintain a larger wafer and work-in-progress
inventory along with a finished goods inventory. The use of cash flows in
investing activities was due to purchases of equipment related to the testing of
our 64 kilobit and 256 kilobit products built on 0.8 micron technology from
wafers purchased from Chartered and from the purchase of a restricted
certificate of deposit. The $180,400 of equipment purchased consisted primarily
of test fixtures and burn-in boards to support products manufactured at
Chartered. A $100,000 certificate of deposit was established to secure a
$250,000 line of credit. Cash flow from financing activities is primarily due to
the $1,500,000 financing transaction that we closed in June 1998.
ACCOUNTING STATEMENTS
In 1998, Statement of Financial Accounting Standards 133, Accounting for
Derivative Instruments and Hedging Activities was issued. Statement 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments as fair value. This statement is effective for the Company's
financial statements for the year ended December 31, 2001 and the adoption of
this standard is not expected to have a material effect on the Company's
financial statements.
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 needed to be modified prior to the
year 2000 in order to remain functional. To address the issue, we created an
internal task force to assess our state of readiness for possible "Year 2000"
issues and take the necessary actions to ensure Year 2000 compliance. The task
19
<PAGE>
force evaluated our internal business systems, production equipment, software
and other components which affect our products, and our vulnerability to
possible "Year 2000" exposures due to suppliers' and other third parties' lack
of preparedness for the year 2000.
We have experienced no major difficulties to date, however, we may not know
if there are other problems for several months into the year 2000.
Inflation
The impact of inflation on our business has not been material.
20
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Independent Auditor's Report........................................................................................ 22
Balance Sheet - December 31, 1999................................................................................... 23
Statements of Operations - For the Years Ended December 31, 1999 and 1998........................................... 24
Statements of Changes in Shareholders' Equity - For the Years Ended December 31, 1999
and 1998................................................................................................... 25
Statements of Cash Flows - For the Years Ended December 31, 1999 and 1998........................................... 26
Notes to Financial Statements....................................................................................... 27
</TABLE>
21
<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, 1999 and the related statements of operations, changes in
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1999. 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, 1999, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1999, in conformity with
general accepted accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
February 2, 2000
22
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 2,173,592
Restricted certificate of deposits 400,000
Accounts receivable - trade, net of allowance for doubtful accounts and
return allowances of $45,271 1,050,219
Inventory 916,692
Prepaid expenses and other 33,802
-----------
Total current assets 4,574,305
EQUIPMENT AND FURNITURE, net 440,654
OTHER ASSETS 49,425
-----------
TOTAL ASSETS $ 5,064,384
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 731,651
Accrued expenses 155,479
Accrued wages 223,012
Accrued vacation payable 83,688
Obligation under capital leases 51,115
Payable to ZMD 130,153
-----------
Total current liabilities 1,375,098
-----------
CONVERTIBLE DEBENTURES 1,500,000
OBLIGATIONS UNDER CAPITAL LEASES 190,544
-----------
Total liabilities 3,065,642
COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 2,000,000 shares authorized, none issued -
Common stock, $.01 par value; 80,000,000 shares authorized,
28,955,226 shares issued and outstanding 289,552
Additional paid-in capital 29,793,041
Accumulated deficit (28,083,851)
-----------
Total shareholders' equity 1,998,742
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,064,384
===========
See accompanying notes to these financial statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $6,992,388 $6,180,550
Cost of sales 4,328,744 3,477,861
---------- ----------
GROSS MARGIN 2,663,644 2,702,689
OPERATING EXPENSES:
Research and development costs 1,272,836 1,380,649
Sales and marketing 812,065 803,868
General and administrative 406,631 486,718
---------- ----------
Total operating expenses 2,491,532 2,671,235
---------- ----------
INCOME FROM OPERATIONS 172,112 31,454
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 96,942 78,587
Other income 1,678 128,906
Interest expense (138,477) (76,166)
---------- ----------
Total other income (expense) (39,857) 131,327
---------- ----------
NET INCOME $ 132,255 $ 162,781
========== ==========
NET INCOME PER COMMON SHARE:
Basic $ * $ .01
========== ==========
Diluted $ * $ .01
========== ==========
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Basic 28,923,966 28,727,276
========== ==========
Diluted 29,852,960 30,250,334
========== ==========
- ----------------------
*Less than $.01 per share.
See accompanying notes to these financial statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Additional Total
------------------------- Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1998 28,679,185 $286,792 $29,752,328 $(28,378,887) $1,660,233
Exercise of stock options 66,041 660 8,547 - 9,207
Net income - - - 162,781 162,781
---------- -------- ----------- ------------ ----------
BALANCES, December 31, 1998 28,745,226 287,452 29,760,875 (28,216,106) 1,832,221
Exercise of stock options 210,000 2,100 32,166 - 34,266
Net income - - - 132,255 132,255
---------- -------- ----------- ------------ ----------
BALANCES, December 31, 1999 28,955,226 $289,552 $29,793,041 $(28,083,851) $1,998,742
========== ======== =========== ============ ==========
See accompanying notes to these financial statements.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 132,255 $ 162,781
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 152,850 137,107
Reversal of accrued liability - (110,000)
Net change in reserve accounts (90,936) (10,394)
Deferred financing fees 11,191 6,528
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (230,696) 181,387
Inventory (7,128) (268,590)
Prepaid expenses and other 13,901 (18,551)
Increase (Decrease) in:
Accounts payable 480,636 (657,208)
Accrued expenses (41,841) 100,690
---------- ----------
Net cash (used in) provided by operating activities 420,232 (476,250)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture (116,812) (180,400)
Increase in restricted cash (300,000) (100,000)
Payments on capital lease obligation (13,914) -
----------- ----------
Net cash used in investing activities (430,726) (280,400)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debenture, net of deferred financing fees - 1,421,664
Exercise of stock options 34,266 9,207
----------- ----------
Net cash provided by financing activities 34,266 1,430,871
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 23,772 674,221
CASH AND CASH EQUIVALENTS, beginning of year 2,149,820 1,475,599
----------- ----------
CASH AND CASH EQUIVALENTS, end of year $2,173,592 $2,149,820
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 138,477 $ 76,187
========== ==========
Cash paid/refund for/of income taxes $ (8,480) $ 16,245
========= ==========
NONCASH INVESTING AND FINANCING TRANSACTIONS:
Purchase of equipment through payables and capital leases $ 255,573 $ -
========== ==========
See accompanying notes to these financial statements.
</TABLE>
26
<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, 1999, all of the Company's cash and cash
equivalents were held by a single bank, of which approximately $2,168,194
was in excess of Federally insured amounts.
REVENUE RECOGNITION - Product sales revenue is recognized when a valid
purchase order has been received and the products are shipped to customers,
including distributors. Customers receive a one year product warranty and
sales to distributors are subject to a limited product exchange program 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, 1999 includes:
Raw materials $ 49,769
Work in process 748,435
Finished goods 244,891
----------
1,043,095
Less reserves (126,403)
----------
$ 916,692
==========
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.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are charged
to operations in the period incurred.
27
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
ADVERTISING - The Company incurs advertising expense in connection with the
marketing of its product. Advertising costs are expensed the first time the
advertising takes place. Advertising expense was $94,936 and $127,524 in
1999 and 1998, respectively.
INCOME PER SHARE - The income per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. SFAS No. 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 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.
STOCK-BASED COMPENSATION - As permitted under the SFAS No. 123, Accounting
for Stock-Based Compensation, the Company accounts for its stock-based
compensation in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As
such, compensation expense is recorded on the date of grant if the current
market price of the underlying stock exceeds the exercise price. Certain
pro forma net income and EPS disclosures for employee stock option grants
are also included in the notes to the financial statements as if the fair
value method as defined in SFAS No. 123 had been applied. Transactions in
equity instruments with non-employees for goods or services are accounted
for by the fair value method.
INCOME TAXES - The Company accounts for income taxes under the liability
method of SFAS 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.
28
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998.
This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. This statement is effective for the Company's financial statements
for the year ended December 31, 2001 and the adoption of this standard is
not expected to have a material effect on the Company's financial
statements.
2. EQUIPMENT AND FURNITURE:
-----------------------
Equipment and furniture at December 31, 1999 consists of the following:
Leased software under capital leases $ 255,573
Research and development equipment 1,109,417
Computer equipment and software 820,498
Office furniture 23,982
Other equipment 75,144
-----------
2,284,614
Less accumulated depreciation and amortization (1,843,960)
-----------
$ 440,654
===========
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 $152,850 and $137,107 was charged
to operations for the years ended December 31, 1999 and 1998, respectively.
Included in the amortization expense for 1999 and 1998 was $17,040 and
$-0-, respectively, of amortization of capital leases. At December 31,
1999, accumulated amortization for software under capital leases was
$17,040.
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, 1999.
Pursuant to the terms of the cooperation agreement, ZMD is allowed to have
two members on the Company's Board of Directors.
29
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. REVOLVING LINE-OF-CREDIT AND LETTER-OF-CREDIT:
---------------------------------------------
As of December 31, 1999, the Company had a $350,000 revolving
line-of-credit (LOC). The LOC bears interest at prime plus .75% (8.58% at
December 31, 1999) and matures in March 2000. 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. At December
31, 1999, the Company had no balance outstanding.
One of the Company's suppliers revised their credit terms whereby the
Company is now required to have a $300,000 letter-of-credit in the event of
default on payments by the Company. This letter-of-credit requires the
Company to maintain a $300,000 certificate of deposit as collateral.
5. CONVERTIBLE DEBENTURES:
----------------------
During June 1998, the Company received proceeds of $1,500,000 from the
issuance of convertible debentures (the "Debentures"). The Debentures are
convertible into shares of common stock of the Company. After a one-time
conversion price adjustment in May 1999, the debentures conversion price
changed from $.35 per share to $.195 per share.
Certain other events may trigger a downward adjustment of the Debenture
conversion price, including common stock offerings whereby the common stock
is sold for less than the conversion price. The Debentures mature in June
2005, however, may be redeemed earlier by the holder under certain limiting
circumstances. Interest at 9% is paid monthly, with monthly principal
payments of $15,000 beginning in June 2001. All outstanding principal and
interest is due in June 2005. The Debentures are collateralized by
substantially all the assets of the Company.
6. COMMITMENTS AND CONTINGENCIES:
-----------------------------
OFFICES LEASES - The Company leases office space under a lease which
expires on December 31, 2001. Monthly lease payments are approximately
$9,000. Subsequent to year-end, the Company signed an addendum to their
office lease which will provide additional office space from June 1, 2000
through December 31, 2001. Monthly lease payments will increase to
approximately $11,000 starting June 1, 2000.
30
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
The Company leases furniture and equipment under operating leases which
expire over the next two years. Monthly lease payments, including sales
tax, are approximately $18,000. Future minimum lease payments under the
equipment, furniture and office leases described above, including the lease
addendum signed subsequent to December 31, 1999, are approximately as
follows:
Year
----
2000 $185,383
2001 164,528
--------
$349,911
========
Office rent and equipment lease expense totaled $251,151 and $273,905 for
the years ended December 31, 1999 and 1998, respectively.
In addition, the Company leases research and development software under a
capital lease which will expire over the next five years. At December 31,
1999, future minimum lease payments under the lease described above is
approximately as follows:
Year
----
2000 $ 63,888
2001 63,888
2002 63,888
2003 63,888
2004 47,916
---------
Total net minimum lease payments 303,468
Less amount representing interest (61,809)
--------
Present value of net minimum lease payments $241,659
========
ACCRUED SALARY - Due to limited working capital of the Company, the
Company's former CFO agreed with the Company's Board of Directors to defer
his salary from April 1, 1994 through December 31, 1996. As of December 31,
1999, a total of $210,000 was accrued and unpaid.
31
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
EMPLOYMENT AGREEMENTS - During the year ended December 31, 1998, the
Company entered into an employment agreement with the Company's President
and Chief Executive Officer. As of December 31, 1999, the base salary under
this agreement is $120,000 per year, and expires June 1, 2001. The Company
may terminate the agreement for good cause. If terminated for any other
reason, the Company will pay the continuation of the base salary and
benefits, mitigated by income earned by the employee, for the remainder of
the term of the agreement.
REVERSAL OF ACCRUED LIABILITY - In 1994 and 1995, the Company accrued a
$110,000 liability for services, the value of which were disputed by the
Company. During 1998, the Company reevaluated this liability and determined
it was highly unlikely it would ever be paid and, therefore, recognized
$110,000 of other income for the reversal of the claim.
7. SHAREHOLDERS' EQUITY:
--------------------
Earnings Per Share - The following is a reconciliation of basic and diluted
EPS:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS -
Income available to common shareholders $132,255 28,923,966 $ *
Effect of dilutive options - 928,994 ===
-------- ----------
Diluted EPS -
Income available to common shareholders=
plus assumed conversions $132,255 29,852,960 $ *
======== ========== ===
--------------------
* Less than $.01 per share
For the Year Ended December 31, 1998
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS -
Income available to common shareholders $162,781 28,727,276 $.01
Effect of dilutive options - 1,523,058 ====
-------- ----------
Diluted EPS -
Income available to common shareholders
plus assumed conversions $162,781 30,250,334 $.01
======== ========== ====
</TABLE>
32
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Options to purchase 4,182,486 and 4,137,736 shares of common stock were
outstanding at December 31, 1999 and 1998, respectively. Of that total,
2,844,736 and 2,559,986 had a dilutive effect on the 1999 and 1998,
respectively, EPS. For purposes of calculating diluted EPS, those options
resulted in 928,994 and 1,523,058 incremental shares for 1999 and 1998,
respectively, determined using the treasury stock method. The remaining
1,337,750 and 1,577,750 options had an anti-dilutive effect on 1999 and
1998, respectively, and were, therefore, excluded from the computation of
diluted EPS. These options had exercise prices ranging from $.22 to $.56
per share for 1999 and $.19 to $.56 per share for 1998. The convertible
debentures also had an anti-dilutive effect on 1999 and 1998 and were,
therefore, excluded from the computation of diluted EPS.
WARRANTS - All warrants outstanding at December 31, 1998 expired
unexercised during 1999. These warrants had an anti-dilutive effect on
diluted EPS during 1998.
STOCK OPTION PLANS - The Company has approved two stock option plans that
authorize an aggregate of 5,500,000 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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------------- --------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 4,137,736 $ .19 3,844,150 $.16
Granted, including exchanges 296,750 .17 504,100 .37
Expired (42,000) .15 (7,000) .18
Exercised (210,000) (.16) (66,041) (.14)
Canceled - - (137,473) (.47)
--------- ---------
Outstanding, end of year 4,182,486 $ .20 4,137,736 $.19
========= =========
</TABLE>
For all options granted during 1999 and 1998, the weighted average fair
value was $.17 and $.30, respectively. At December 31, 1999, options for
3,625,237 shares were exercisable and options of the remaining options,
342,843, 181,434, and 32,972 shares will become exercisable in 2000, 2001,
and 2002, respectively. If not previously exercised or forfeited, options
outstanding at December 31, 1999, will expire as follows:
33
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Weighted
Average
Number Exercise
Year Ending December 31, of Shares Price
------------------------ --------- --------
2000 134,800 $.15
2001 865,765 .14
2002 1,245,921 .14
2003 381,500 .15
2004 755,150 .30
2005 502,600 .37
2006 296,750 .17
---------
4,182,486 $.20
=========
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 SFAS No. 123, the Company's net
income and EPS would have been reduced to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Net income (loss) applicable to common shareholders:
As reported $132,255 $162,781
Pro forma 9,664 32,981
Net income (loss) per common shareholders:
As reported - basic $ - $ .01
As reported - diluted - .01
Pro forma - basic and diluted - -
</TABLE>
34
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
The fair value of each option granted in 1999 and 1998 was estimated on the
date of grant, using the Black-Scholes option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
Options Granted During
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Expected volatility 119.7% 125.4%
Risk-free interest rate 5.5% 5.5%
Expected dividends - -
Expected terms (in years) 4.0 4.0
</TABLE>
OTHER - Preferred Stock may be issued in such series and preferences as
determined by the Board of Directors.
8. 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, 1999 and 1998 were as follows (as a percentage of
sales):
1999 1998
---- ----
Foreign customers 53% 33%
Military products sales 29% 39%
Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the years ended December 31, 1999 and 1998 were as
follows (as a percentage of sales):
Customer 1999 1998
----------- ---- ----
A 31% 15%
B 13% 14%
C - 15%
D - 20%
E 12% -
The Company frequently sells large quantities of inventory to its
customers. At December 31, 1999, the Company had gross trade receivables
totaling $605,669 due from three customers.
35
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
In 1999 and 1998, the Company purchased all of its wafers, based on 1.2
micron technology from a single supplier located in Singapore.
Approximately 96% and 50% of the Company's sales for 1999 and 1998,
respectively, were from finished units produced from these wafers. The
Company had an agreement with this supplier to provide wafers through
September 1998. This agreement has not been extended or terminated,
however, this supplier still provides wafers to the Company. In 1999 and
1998, the Company also purchased finished units from ZMD for $22,480 and
$1,715,867, respectively, and sales from these products accounted for
approximately 4% and 50% of the Company's sales for 1999 and 1998,
respectively. At December 31, 1999 and 1998, 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.
9. INCOME TAXES:
-------------
Under SFAS No. 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 (Liability)
------------------
Current:
Allowance for doubtful accounts $ 2,000
Inventory reserve 106,000
Accrued expenses 128,000
------------
Total 236,000
Valuation allowance (236,000)
------------
Total current deferred tax $ -
============
Non-current:
Property and equipment $ 21,000
Net operating losses 9,195,000
R&D credit carryforward 1,312,000
AMT credit 70,000
------------
Net deferred tax asset before
valuation allowance 10,598,000
Valuation allowance (10,598,000)
------------
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. The valuation allowance for 1999 decreased
$219,000 and increased $253,000 in 1998.
36
<PAGE>
SIMTEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
At December 31, 1999, the Company has approximately $25,000,000 available
in net operating loss carryforwards which begin to expire from 2004 to
2010. A substantial portion of the net operating loss may be subject to 382
limitations.
Total income tax expense for 1999 and 1998 differed from the amounts
computed by applying the U.S. Federal statutory tax rates to pre-tax income
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Statutory rate (34.0)% (34.0)%
State income taxes, net of Federal income tax benefit (3.3)% (3.3)%
Increase (reduction) in valuation allowance related to of net
operating loss carryforwards and change in temporary
differences 37.3% 37.3%
------- ------
$ - $ -
======= ======
</TABLE>
10. SUBSEQUENT EVENTS (UNAUDITED):
-----------------------------
Subsequent to December 31, 1999, $1,500,000 of the convertible debt was
converted into 7,692,308 shares of common stock of the Company at a
conversion price of $.195 per share.
37
<PAGE>
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None in 1999.
38
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Douglas M. Mitchell.............................. 50 Director, Chief Executive Officer and President,
Chief Financial Officer (acting)
Klaus C. Wiemer.................................. 62 Director
Robert H. Keeley................................. 58 Director
Harold Blomquist................................. 48 Director
John Heightley................................... 63 Director
</TABLE>
DOUGLAS M. MITCHELL, served as our Chief Operating Officer from July 1,
1997 until January 1, 1998 at which time he became Chief Executive Officer,
President and a director. Mr. Mitchell has over 20 years of experience in the
semiconductor and electronics systems industry holding various marketing and
sales management positions. Prior to joining us, 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.
KLAUS C. WIEMER, has served as a director since May 1993. He also serves on
the boards of Neomagic Corp (NMGC) of Santa Clara, CA and InterFET Corp of
Garland, TX. From July 1993 to May 1994, Dr. Wiemer served as President and
Chief Executive Officer of our company. Since May 1994, Dr. Wiemer has been an
independent consultant. 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 since May 1993. He is currently
the El Pomar Professor of Business 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
39
<PAGE>
University. Prior to joining Stanford, he was a general partner of Hill and
Carmen (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 a number of private companies.
HAROLD A. BLOMQUIST, was appointed as a director in May 1998. Mr. Blomquist
is currently president of American Microsystems ("AMI") Japan, Ltd. in Toyko;
senior managing director and board chairman of AMI GmbH in Dresden, Germany;
senior vice president of AMI's worldwide sales and strategic marketing; and a
member of the board of directors for both AMI and AMI's holding company, GA
Tech, Inc. Before joining AMI in April 1990, Mr. Blomquist held a series of
increasingly responsible positions in engineering, sales, and marketing for
several semiconductor firms, including Texas Instruments, Inmos and General
Semiconductor. Mr. Blomquist was granted a BSEE degree from the University of
Utah and also attended the University of Houston, where he pursued a joint Juris
Doctor/MBA course of study.
JOHN HEIGHTLEY, was appointed as a director in September 1998. Mr.
Heightley is currently executive vice president and chief technology officer for
United Memories of Colorado Springs. From 1990 to 1996, Mr. Heightley was
president and chief executive officer of Adaptive Solutions, Inc. In 1986 and
1987, he held the position of president and chief executive officer of Gigabit
Logic, Inc.; in 1987 he was appointed chairman of Gigabit along with his
responsibilities as president and chief executive officer. Mr. Heightley held
these positions until 1990. Prior to Gigabit, Mr. Heightley served as president
and chief executive officer of Ramtron Corporation from 1985 to 1986 and from
1978 to 1985 he served as a member of the board of directors, president, chief
operating officer and vice president of memory products for Inmos International,
plc. Mr. Heightley was granted a B.S. degree in Engineering Science from Penn
State University and earned a M.S. degree in Electrical Engineering from M.I.T.
Richard L. Petritz, founder and Chairman of the Board retired in August
1998. Dr. Petritz had a long and distinguished semiconductor career that began
in 1958 at Texas Instruments before he went on to found such other semiconductor
companies as Mostek and Inmos International, plc. As of the date of this filing,
a replacement as Chairman of the Board has not been named.
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. Under the agreement entered into with ZMD in
1994, ZMD has the right to appoint two members to the Board of Directors. At
this time ZMD has no representation on our Board of Directors. The Debenture
agreement entered into with Renaissance also allows for Renaissance to designate
a nominee to serve as a member of our Board of Directors. In the event of a
monetary default under the Debenture agreement, Renaissance may appoint an
additional nominee to serve as a member of our Board of Directors. As of the
date of this filing, Renaissance has not designated a nominee to serve as a
member of our Board of Directors.
40
<PAGE>
SPECIAL PROVISIONS IN ARTICLES OF INCORPORATION
Our articles of incorporation contain a provision limiting the liability of
directors 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 our
ability to seek injunctive relief for breaches of fiduciary duty. Such relief,
however, may not always be available as a practical matter.
Our articles of incorporation also contain a provision that requires us to
indemnify, to the fullest extent permitted under the Code, directors and
officers 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.
41
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for each of our last
three fiscal years with respect to the annual and long-term compensation of the
only individual acting as the Chief Executive Officer during the fiscal year
ended December 31, 1999. No other executive officers as of December 31, 1999 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>
Douglas M. Mitchell(1) 1999 $120,000 -- -- -- 30,000 -- --
Chief Executive 1998 $120,000 -- -- -- 250,000 -- --
Officer and President 1997 $60,716(2) -- -- -- 400,000 -- --
</TABLE>
(1) Mr. Mitchell became our Chief Executive Officer and President on January 1,
1998.
(2) Mr. Mitchell was hired in May 1997, the salary reflected was paid in his
capacity as Chief Operating Officer and Executive Vice President.
OPTION GRANT TABLE
The following table sets forth certain information with respect to options
granted by us during the fiscal year ended December 31, 1999 to the individual
named in the summary compensation table above.
<TABLE>
<CAPTION>
Shares Potential
subject to Market Realizable Value
Options/SAR's Price at Assumed
Shares Granted to Exercise per Annual Rate of
subject to Employees Price Share on Stock Price
Options/SAR's in Fiscal Per Date of Expiration Appreciation for
Name Granted % of Total Share Grant Date Option Term
- ---------------------- ---------------- --------------------------- --------------------------------------------------
5% 10%
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas M. Mitchell 30,000(1) 17% $0.17 $0.17 4/27/2006 2,076 4,838
</TABLE>
(1) 30,000 options were granted to Mr. Mitchell in his capacity as Chief
Executive Officer and President, these options vest at 1/36th per month
over 3 years.
42
<PAGE>
YEAR-END OPTION TABLE
The following table sets forth as of December 31, 1999 the number of shares
subject to unexercised options held by the individual named in the summary
compensation table above. 6,667 options had an exercise price greater than the
last sale price of our Common Stock underlying the options as reported by the
OTC Electronic Bulletin Board on the last trading day of the fiscal year ended
December 31, 1999. No options were exercised by the individual during the fiscal
year ended December 31, 1999.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Value of Unexercised
Number of Unexercised in-the-money
Options/SARs at Fiscal Options/SARs
Shares Value Year-End at Fiscal Year-End
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) ($) (#) (#) ($) ($)
- ---------------------------------------- -------------------------------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas M. Mitchell - - 484,444 195,556 $1,740 $6,090
</TABLE>
EMPLOYMENT AGREEMENTS
DOUGLAS M. MITCHELL. MR. MITCHELL IS EMPLOYED AS PRESIDENT AND CHIEF
Executive Officer pursuant to an employment agreement with us. Under the terms
of the employment agreement, Mr. Mitchell receives and annual salary of $120,000
and such additional benefits that are generally provided other employees. Mr.
Mitchell's employment agreement expires June 1, 2001 but is automatically
renewed for successive one-year terms unless we or Mr. Mitchell elects not to
renew. If we terminate the employment of Mr. Mitchell without cause, Mr.
Mitchell is entitled to continuation of his base salary and benefits, mitigated
by income Mr. Mitchell may earn, for the remainder of the term of the agreement.
Mr. Mitchell is subject to a noncompetition covenant for a period of one year
from the date of termination.
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS
We generally require our employees to execute confidentiality and
nondisclosure agreements upon the commencement of employment with us. The
agreements generally provide that all inventions or discoveries by the employee
related to our business and all confidential information developed or made known
to the employee during the term of employment shall be the exclusive property of
us and shall not be disclosed to third parties without the prior approval of us.
DIRECTORS' COMPENSATION
Each director who is not also an employee 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 us. During the fiscal year
ended December 31, 1999, 15,000 stock options were granted, at the market price
on date of grant, each to Dr. Klaus Wiemer , Dr. Robert Keeley, Mr. Harold
Blomquist and 40,000 stock options were granted to Mr. John Heightley.
43
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
our directors and certain of our officers, and persons holding more than ten
percent of our Common Stock are required to file forms reporting their
beneficial ownership of our Common Stock and subsequent changes in that
ownership with the Securities and Exchange Commission. Such persons are also
required to furnish us with copies of all forms so filed.
Based solely upon a review of copies of such forms filed on Forms 3, 4,
and 5, and amendments thereto furnished to us, we believe that during the year
ended December 31, 1999, our executive officers, directors and greater than ten
percent beneficial owners complied on a timely basis with all Section 16(a)
filing requirements.
44
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The table below sets forth certain information regarding ownership of our
Common Stock as of February 24, 2000, by each person who is known by us to
beneficially own more than five percent of our Common Stock, by each director,
by each executive officer named in the summary compensation table and by all
directors and executive officers as a group. Shares issuable within sixty days
after December 31, 1999 upon the exercise of options are deemed outstanding for
the purpose of computing the percentage ownership of persons beneficially owning
such options or holding such notes but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. To the best
of our knowledge, 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.
<TABLE>
<CAPTION>
Name and Amount and Nature
Address of of Beneficial Percent of
Beneficial Owner Ownership Class
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Zentrum Mikroelektronik Dresden GmbH 8,547,385 27.12%
Grenzstra e 28
01109 Dresden, Germany
Renaissance Capital Group, Inc. 2,000,000 (1) 6.35%
8080 N. Central Expressway, Suite 210-LB 59
Dallas, TX 75206-1857
Douglas M. Mitchell 484,444 (2) 1.51%
205 Ridge Dr.
Woodland Park, CO 80863
Klaus C. Wiemer 130,000 (3) *
5705 Archer Court
Dallas, TX 75252
Robert H. Keeley 115,000 (4) *
12630 Milan Road
Colorado Springs, CO 80908
Harold Blomquist 40,000 (5) *
1630 Huntington Dr.
Pocatello, ID 83204
John D. Heightley 40,000 (6) *
1275 Log Hollow Point
Colorado Springs, CO 80906
All officers and directors as a group
(5 persons) 809,444 (7) 2.50%
</TABLE>
- -----------------
45
<PAGE>
* Less than one percent.
(1) Renaissance Capital Group, Inc. advises two funds, Renaissance Capital
Growth & Income Fund III and Renaissance US Growth and Income Trust PLC.
These 2,000,000 shares will be divided evenly between these two funds.
These two funds also hold the Debentures, which may be converted into
5,692,308 additional shares at the election of the holder.
(2) Represents 484,444 shares issuable upon exercise of options.
(3) Represents 130,000 shares issuable upon exercise of options.
(4) Includes 105,000 shares issuable upon exercise of options.
(5) Represents 40,000 shares issuable upon exercise of options.
(6) Represents 40,000 shares issuable upon exercise of options.
(7) Includes 799,444 shares issuable upon exercise of stock options.
46
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
ZMD currently owns approximately 30% of our common stock. In 1998, we
purchased $1.715,867 of product from ZMD.
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 1999.
Date Item
---- ----
November 1, 1999 Other information - Press Release -
"Simtek Announces Financial Results for
the Third Quarter of 1999"
December 15, 1999 Other information - Third Quarter 1999
Interim Report to Shareholders
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 February 29, 2000
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 February 29, 2000 by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE
/S/DOUGLAS M. MITCHELL
- --------------------------- Chief Executive Officer and
Douglas M. Mitchell President
/S/DOUGLAS M. MITCHELL
- --------------------------- Chief Financial Officer
Douglas M. Mitchell (acting)
/S/DOUGLAS M. MITCHELL
- --------------------------- Director
Douglas M. Mitchell
/S/ROBERT H. KEELEY
- --------------------------- Director
Robert H. Keeley
/S/JOHN HEIGHTLEY
- ---------------------------- Director
John Heightley
49
<PAGE>
EXHIBIT INDEX TO FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
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.(7)
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 Form of Common Stock Certificate.(3)
4.4 Simtek Corporation 1991 Stock Option Plan.(4)
4.5 Form of Incentive Stock Option Agreement between the Company and
Eligible Employees.(4)
4.6 1994 Non-Qualified Stock Option Plan.(5)
4.7 Amendment to the 1994 Non-Qualified Stock Option Plan.(6)
10.1 Form of Non-Competition and Non-Solicitation Agreement between the
Company and certain of its employees.(1)
10.2 Form of Employee Invention and Patent Agreement between the Company
and certain of its employees.(1)
10.3 Product License Development and Support Agreement between Simtek
Corporation and Zentrum Mikroelektronik Dresden GmbH dated June 1,
1994(5)
10.4 Cooperation Agreement between Simtek Corporation and Zentrum
Mikroelektronik Dresden GmbH dated September 14, 1995(6)
10.5 Manufacturing Agreement between Chartered Semiconductor Manufacturing,
PTE, LTD. and Simtek Corporation dated September 16, 1992(6)
10.6 Employment agreement between the Simtek Corporation and Douglas M.
Mitchell(8)
10.7 Convertible Loan Agreement between Simtek Corporation and Renaissance
Capital Growth & Income Fund III, Inc. and Renaissance US Growth &
Income Trust, PLC as lenders and Renaissance Capital Group, Inc. as
agent for the lenders dated June 12, 1998(8)
10.8 Convertible Debenture Agreement between Simtek Corporation and
Renaissance Capital Growth & Income Fund III, Inc. dated 12, 1998(8)
10.9 Convertible Debenture Agreement between Simtek Corporation and
Renaissance US Growth & Income Trust, PLC dated June 12, 1998(8)
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 Form S-1 Registration
Statement (Reg. No. 33-46225) filed with the Commission on March 6,
1992.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
filed with the Commission on March 25, 1995
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
filed with the Commission on March 27, 1996
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
filed with the Commission on March 24, 1998
(8) Incorporated by reference to the Company's Annual Report on Form
10-KSB filed with the Commission on March 12, 1999
50
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
Klaus C. Wiemer 1,2,3
Douglas M. Mitchell
Robert Keeley 1,2,3
Harold Blomquist 1,2,3
John Heightley
Board of Directors Committees
1 Compensation Committee
2 Stock Committee
3 Audit Committee
CORPORATE OFFICERS
Douglas M. Mitchell
Chief Executive Officer, President
and Acting Chief Financial Officer
CORPORATE COUNSEL
Holme Roberts & Owen LLP
1700 Lincoln St. Suite 4100
Denver, CO 80203
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
51
<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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,173,592
<SECURITIES> 400,000
<RECEIVABLES> 1,095,490
<ALLOWANCES> 45,271
<INVENTORY> 916,692
<CURRENT-ASSETS> 4,574,305
<PP&E> 2,284,614
<DEPRECIATION> 1,843,960
<TOTAL-ASSETS> 5,064,384
<CURRENT-LIABILITIES> 1,375,098
<BONDS> 0
0
0
<COMMON> 289,552
<OTHER-SE> 1,709,190
<TOTAL-LIABILITY-AND-EQUITY> 5,064,384
<SALES> 6,992,388
<TOTAL-REVENUES> 6,992,388
<CGS> 4,328,744
<TOTAL-COSTS> 4,328,744
<OTHER-EXPENSES> 1,272,836
<LOSS-PROVISION> (21,679)
<INTEREST-EXPENSE> (138,477)
<INCOME-PRETAX> 132,255
<INCOME-TAX> 0
<INCOME-CONTINUING> 132,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,255
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
