UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-17739
RAMTRON INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0962308
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1850 Ramtron Drive, Colorado Springs, CO 80921
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (719) 481-7000
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value - 37,953,772 shares as of August 10, 1998
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value amounts)
June 30, Dec. 31,
1998 1997
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $19,369 $ 6,193
Accounts receivable, less allowances
of $131 and $167, respectively 1,784 4,762
Inventories 6,345 7,147
Deposits -- 20
Prepaid expenses and other 200 215
--------- ---------
Total current assets 27,698 18,337
Property, plant and equipment, net 7,860 8,024
Intangible assets, net 4,499 4,693
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$40,057 $31,054
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 2,089 $ 3,017
Accrued liabilities 1,162 1,535
Accrued royalties 524 414
License rights 550 1,100
Deferred revenue 606 995
Promissory note and accrued interest, related party 6,789 6,457
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Total liabilities 11,720 13,518
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Stockholders' Equity:
Preferred stock, $0.01 par value,
10,000 shares authorized:
Series A - 29 designated, 17 and no shares
issued and outstanding, respectively -- --
Common stock, $0.01 par value, 75,000 shares
authorized 37,954 and 37,923 shares issued
and outstanding, respectively 380 379
Additional paid-in capital 173,161 155,957
Accumulated deficit (145,204) (138,800)
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Total stockholders' equity 28,337 17,536
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$40,057 $31,054
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Revenue:
Product sales $ 5,727 $ 4,423 $10,000 $ 7,574
License fees -- 2,000 -- 2,000
Customer-sponsored research
and development 16 2 605 36
-------- -------- -------- --------
5,743 6,425 10,605 9,610
-------- -------- -------- --------
Costs and expenses:
Cost of product sales 3,545 3,289 6,171 5,782
Research and development 2,528 2,446 5,199 5,379
Customer-sponsored research
and development 14 2 515 32
Sales, general and administrative 2,021 2,297 3,928 4,234
-------- -------- -------- --------
8,108 8,034 15,813 15,427
-------- -------- -------- --------
Operating loss (2,365) (1,609) (5,208) (5,817)
Interest expense, related party (167) (79) (332) (157)
Other income, net 250 51 376 593
-------- -------- -------- --------
Net loss $(2,282) $(1,637) $(5,164) $(5,381)
======== ======== ======== ========
Loss per common share:
Net loss $(2,282) $(1,637) $(5,164) $(5,381)
Imputed dividends on convertible
preferred stock (261) -- (361) --
Accretion of discount on
convertible preferred stock (659) -- (879) --
-------- -------- -------- --------
Net loss applicable to common shares $(3,202) $(1,637) $(6,404) $(5,381)
======== ======== ======== ========
Net loss per share $(0.08) $(0.04) $(0.17) $(0.15)
======== ======== ======== ========
Weighted average shares 37,954 37,000 37,950 36,998
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands)
1998 1997
-------- --------
Cash flows from operating activities:
Net loss $(5,164) $(5,381)
Adjustments used to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,263 1,302
Other 1 (485)
Changes in assets and liabilities:
Accounts receivable 2,978 2,832
Inventories 801 1,245
Prepaid expenses 4 430
Accounts payable and accrued liabilities (1,191) (256)
License rights (550) (550)
Accrued interest, related party 332 157
Deferred revenue (389) 253
Other (175) 459
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Net cash provided by (used in) operating activities (2,090) 6
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (706) (417)
--------- ---------
Net cash used in investing activities (706) (417)
--------- ---------
Cash flows from financing activities:
Issuance of capital stock, net of expenses 15,972 6
--------- ---------
Net cash provided by financing activities 15,972 6
--------- ---------
Net increase (decrease) in cash and cash equivalents 13,176 (405)
Cash and cash equivalents, beginning of period 6,193 3,182
--------- ---------
Cash and cash equivalents, end of period $19,369 $ 2,777
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
- -----------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION AND MANAGEMENT OPINION
The accompanying consolidated financial statements at June 30, 1998 and 1997
and for the periods then ended have been prepared from the books and records
of the Company without audit. The statements reflect all normal recurring
adjustments which, in the opinion of management, are necessary for the fair
presentation of financial position, results of operations and cash flows for
the periods presented.
Certain information and disclosures normally included in financial statements
have been omitted under Securities and Exchange Commission regulations. It is
suggested that the accompanying financial statements be read in conjunction
with the annual report on Form 10-K for the year ended December 31, 1997. The
results of operations for the period ended June 30, 1998 are not necessarily
indicative of the operating results for the full year.
NOTE 2. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). The purpose of SFAS No. 130 is to establish standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains, and losses) in a full set of general-purpose financial
statements. Comprehensive income is the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The Company adopted SFAS No. 130 during the first
quarter of 1998. For the periods ended June 30, 1998 and 1997, comprehensive
income is the same as net income.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). This statement is effective for financial statements for
fiscal years beginning after December 15, 1998. In general, SOP 98-5 requires
costs of start-up activities and organization costs to be expensed as
incurred. Initial application of SOP 98-5 should be reported as the
cumulative effect of a change in accounting principle. Management believes
that SOP 98-5 will not have a material impact on the Company's financial
statements.
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 may
not be applied retroactively, and must be applied to (i) derivative
instruments and (ii) certain derivative instruments embedded in hybrid
contracts that were issued, acquired or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).
Management believes that SOP 98-5 will not have a material impact on the
Company's financial statements.
NOTE 3. INVENTORIES
Inventories consist of:
June 30, Dec. 31,
1998 1997
-------- --------
(in thousands)
(Unaudited)
Finished goods $3,336 $4,108
Work in process 2,836 2,932
Raw material 173 107
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Total $6,345 $7,147
====== ======
NOTE 4. PROMISSORY NOTE, RELATED PARTY
In September 1995, the Company and the National Electrical Benefit Fund (the
"Fund") entered into a Loan Agreement (the "Fund Credit Facility") pursuant
to which the Fund agreed to lend to the Company up to $12,000,000 bearing
interest at 12% and maturing in June 1998. The outstanding principal balance
and accrued interest as of June 30, 1998 under the Fund Credit Facility
were $5,500,000 and $1,289,000, respectively. The Fund Credit Facility is
secured by a first priority security lien on the Company's assets. The Fund
has the right to convert all or any portion of the amounts outstanding under
the Fund Credit Facility into common stock at any time or times before the
maturity date of the loan at a conversion price equal to $10.5125 for each
share of common stock. In June 1998, the Fund extended the maturity date of
the Fund Credit Facility from June 30, 1998 to September 30, 1998 while it
investigates the advisability of a long-term extension to such loan agreement.
All other terms and provisions pursuant to the Fund Credit Facility remain
unmodified and in full force and effect.
<PAGE>
NOTE 5. INCOME TAXES
The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences of temporary differences between the
financial reporting and tax basis of assets, liabilities and carryovers. The
Company also recognizes deferred tax assets for the expected future effects of
all deductible temporary differences, loss carryovers and tax credit
carryovers. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not, based on current circumstances, are not expected to be realized.
NOTE 6. EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 simplifies the computation of earnings per share by
replacing the presentation of primary earnings per share with a presentation
of basic earnings per share. SFAS No. 128 requires dual presentation of basic
and diluted earnings per share by entities with complex capital structures.
Basic earnings per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution assuming the issuance of common shares for all dilutive
potential common shares outstanding during the period. As a result of the
Company's net losses, all potentially dilutive securities would be anti-
dilutive and thus, are excluded from diluted earnings per share for the three
and six month periods ended June 30, 1998 and 1997.
NOTE 7. PRIVATE PLACEMENT
In February 1998, the Company issued and sold in a private placement 17,425
shares of Series A Convertible Preferred Stock ("Preferred Stock"),
resulting in gross proceeds of approximately $17.4 million. Each share of
Preferred Stock is entitled to receive cumulative dividends at the rate of 6%
per annum, payable in shares of Preferred Stock. Except for certain
exceptions, the holders of the Preferred Stock have no voting rights. The
shares of Preferred Stock, including any accrued dividends thereon, will
automatically convert into common stock on the fifth anniversary of the date
of the original issuance to the extent any shares of Preferred Stock remain
outstanding at that time. Until September 1, 1998, the Conversion Price shall
be $10.00. Thereafter, subject to a maximum conversion price, the Conversion
Price will be equal to the lowest trading price of the common stock for the
22 trading days immediately preceding the conversion date, less a discount
ranging from 7% (beginning September 1, 1998) and increasing by 1% per month
to 15% (on or after May 1, 1999). The terms of the Preferred Stock include a
cash redemption feature which allows the Company, at its option, in lieu of
the issuance of common stock, to honor such conversions through a cash
payment.
<PAGE>
Each purchaser of the Series A Preferred Stock has agreed to trading
limitations for the offer or sell of common stock resulting from the
conversion of the Preferred Stock. In addition, the purchasers of the
Preferred Stock and their affiliates have agreed not to engage in any short
sales, swaps, purchasing of puts, or other hedging activities that involve the
direct or indirect use of the common stock to hedge their investment in the
Preferred Stock; however, the investor may write call options if the call
exercise price is greater than the effective Conversion Price on the day that
the call is written. These hedging restrictions do not apply to certain short
sales within three days of conversion in amounts not greater than the number
of shares issuable upon conversion.
The conversion discount of the Preferred Stock is considered to be an
additional preferred stock dividend. The conversion discount and dividends
pursuant to the terms of the Preferred Stock are recorded as a reduction of
income available to common stockholders.
NOTE 8. CONTINGENCIES
A patent interference proceeding, which was declared in 1991 in the United
States Patent and Trademark Office (the "Patent Office") between the Company,
National Semiconductor Corporation ("National") and the Department of the Navy
in regard to one of the Company's issued United States patents, is continuing.
The Patent involved covers a basic ferroelectric memory cell design invention
the Company believes is of fundamental importance to its FRAM business in the
United States. An interference is declared in the Patent Office when two or
more parties each claim to have made the same invention. The interference
proceeding is, therefore, conducted to determine which party is entitled to
the patent rights covering the invention. In the present interference
contest, the Company is the "senior" party, which means that it is in
possession of the issued United States Patent and retains all rights
associated with such patent. The other two parties involved in the
interference are the "junior" parties, and each has the burden of proof of
convincing the Patent Office by a preponderance of the evidence that it was
the first to invent the subject matter of the invention and thus is entitled
to the corresponding patent rights. Only the Company and National filed
briefs in this matter. Oral arguments were presented before the Patent Office
on March 1, 1996.
<PAGE>
The Patent Office decided the interference on May 6, 1997, holding that all of
the claims were patentable to National, one of the "junior" parties. The
other "junior" party, the Department of the Navy, was not granted any patent
claims pursuant to the interference proceedings. On June 20, 1997, the
Company filed a Request for Reconsideration with the Patent Office concerning
the interference decision. Pursuant to the Request for Reconsideration, the
Company requested that four separate issues be reconsidered because, from the
Company's perspective, they were either ignored or misconstrued in the
original decision. A decision on the Request for Reconsideration is expected
in the near future. The Company has the right to appeal, and plans to appeal,
any adverse decision of the Patent Office to the Federal District Court and
then, if necessary, to the Court of Appeals for the Federal Circuit. The
Company remains in possession of the issued United States Patent and retains
all rights associated with such patent while it pursues its appeal options.
The "junior" party has received no rights associated with this patent
decision and will not receive any such rights as long as the appeal process
continues. The Company is uncertain as to the ultimate outcome of the
interference proceeding, as well as to the resulting effects upon the
Company's financial position or results of operations.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FACTORS AFFECTING FUTURE RESULTS
This quarterly report contains forward-looking statements. Except for
historical information, the matters discussed in this report are forward-
looking statements that are subject to certain risks and uncertainties that
could cause the actual results to differ materially from those projected.
Words such as "expects," "plans," "anticipates," "believes,"
"estimates" and variations of such words are intended to represent forward
looking statements. The Company undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements, which may be
made to reflect events or circumstances after the date hereof. Factors that
could cause actual results to differ materially include, but are not limited
to the following: (i) the timely completion of the development and
qualification for manufacturing of the Company's new enhanced dynamic random
access memory ("EDRAM" (registered trademark)) and ferroelectric random
access memory ("FRAM" (registered trademark)) products; (ii) broader
customer acceptance of its EDRAM products and low-density FRAM products;
(iii) acceptance of new high-density FRAM products, which may be developed;
(iv) the Company's and its alliance partners' ability to manufacture its
products on a cost-effective and timely basis in the Company's own facility
and through its alliance foundry operations; (v) the Company's ability to
perform under existing alliance agreements and to develop new alliance and
foundry relationships; (vi) the availability and related cost of future
financing; (vii) the retention of key personnel; (viii) the outcome of the
Company's patent interference and litigation proceedings; (ix) changing
economic conditions; (x) continued financial uncertainties in the Asian
markets; and (xi) factors not directly related to the Company, such as
competitive pressures on pricing, marketing conditions in general,
competition, technological progression, product obsolescence and the changing
needs of potential customers and the semiconductor industry in general.
<PAGE>
RESULTS OF OPERATIONS
Revenue for the second quarter of 1998 decreased by 11% to $5.7 million from
$6.4 million in the respective period in 1997. For the six months ended
June 30, 1998, revenue increased by 10% to $10.6 million from $9.6 million in
the respective period in 1997. Revenues for the quarter and six month periods
ended June 30, 1998 were comprised primarily from product sales. No license
and development fee revenues were recorded during the quarter or six month
period from new license agreements or from the achievement of milestones
pursuant to existing license agreements. For the same periods in 1997, $2.0
million of such license and development fee revenues were recorded as a result
of a milestone achievement from an existing FRAM licensee. Customer-sponsored
research and development revenues were minimal during the quarter, but totaled
$605,000 for the six month period and resulted primarily from FRAM specialty
design services and FRAM foundry services.
Product sales revenues for the second quarter and six months ended June 30,
1998 were $5.7 million and $10.0 million, respectively, representing an
increase of 29% for the quarter and an increase of 32% for the six month
period over the respective periods in 1997. Product revenues for the second
quarter and six month periods from a year ago totaled $4.4 million and $7.6
million, respectively. Product sales revenue for the current year consists
primarily of EDRAM product sales with such products accounting for 85% of
total product sales in the quarter and six month periods and FRAM product
sales accounting for the remaining 15%. For the same periods in 1997, EDRAM
products accounted for 90% of total product sales for the quarter and six
month period with FRAM product sales accounting for the remaining 10%.
EDRAM unit shipments increased by approximately 26% during the quarter and the
six month period and average selling prices decreased by approximately 4% and
2%, respectively, from the same periods in 1997. The increase in product
revenues for the quarter and six month period resulted primarily from an
increase in the volume of 4-megabit EDRAM products sold to customers for use
in communications equipment and RAID disc controllers. A decreasing demand
for the Company's 4-megabit EDRAM products is expected to occur in future
periods as the Company's 16-megabit EDRAM products become available. The
availability of such products is expected to begin during the fourth quarter
of 1998. The Company anticipates that average selling prices of its 4-megabit
EDRAM products will continue to decline in future periods. The Company's
EDRAM prices are subject to industry demand for such products and the prices
of competing specialty memories. The Company has historically experienced a
decline in EDRAM revenues during the third quarter of the year. The Company
does not currently have sufficient information to predict whether this same
decline in EDRAM revenues will occur during the third quarter of 1998.
FRAM product revenues for the second quarter and the six months ended June 30,
1998 increased to $859,000 and $1,545,000, respectively, representing
increases of 108% and 113%, respectively, over the same periods in 1997. Such
increases resulted from the increased availability of FRAM products from one
of the Company's foundry sources and from the beginning of renewed sales and
marketing activities in response to increased FRAM product availability. As a
result of the FRAM foundry manufacturing capacity now available from one of
the Company's FRAM licensing partners, and the expected future foundry
capacity from the Company's other FRAM alliance partners, the Company began to
limit FRAM production from its Colorado Springs fabrication facility during
the quarter due to the facility's corresponding high cost of production and
low volume capabilities. The Company anticipates that commercial FRAM
production from its Colorado Springs facility will cease prior to the end of
the first quarter of 1999.
<PAGE>
Cost of product sales as a percentage of product revenues during the quarter
and for the six months ended June 30, 1998 were 62% and 62%, respectively,
compared with 74% and 76%, respectively, for the same periods in 1997. The
decrease in cost of product sales as a percentage of product revenues in the
second quarter and the six months ended June 30, 1998 compared with the
respective periods in 1997 resulted primarily from lower costs of
manufacturing for the Company's EDRAM products and relatively stable average
selling prices of those products. Cost of product sales associated with the
Company's FRAM products remained high during the quarter resulting primarily
from the majority of FRAM products sold having been manufactured at the
Company's Colorado Springs fabrication facility. Cost of product sales as a
percentage of product revenues for FRAM products is expected to decrease in
future quarters as a larger mix of FRAM products sold will be manufactured at
the Company's lower cost alliance foundry manufacturing facilities.
Research and development expenses increased by $82,000 or 3% to $2.5 million
in the second quarter of 1998 when compared with the respective period in
1997, and for the six month period ended June 30, 1998, research and
development expenses decreased by $180,000 or 3% when compared with the
respective period in 1997. The Company has incurred increases in research
and development expenses during 1998 resulting from increased costs
associated with the design and development of the Company's 16-megabit
Enhanced Synchronous DRAM ("ESDRAM") product and from costs incurred to
support customer-sponsored research and development design and foundry
activities. These increases in research and development expenses during the
six month period were partially offset by decreases in expenses resulting from
the reduction in materials and process development activities associated with
the operation of the Company's Colorado Springs FRAM fabrication facility.
Sales, general and administrative ("SG&A") expenses for the second quarter
and the six month period ended June 30, 1998 decreased by $276,000 (12%) and
$306,000 (7%), respectively, as compared with the same periods in 1997. The
decreases in SG&A expenses for the quarter and six month periods resulted
primarily from a decrease in withholding taxes on license and development fee
revenue. Withholding taxes totaling $200,000 were recorded in the second
quarter of 1997 corresponding to the recording of $2.0 million in license and
development fee revenue. During 1998, there has been no license and
development fee revenue recorded and, therefore, no withholding tax expense
recorded. Marketing cost reductions associated with the Company's EDRAM
products were also realized during the second quarter and for the six month
period ended June 30, 1998. Such decreases were partially offset by increased
commission costs on increased product sales during the quarter and the six
month period ended June 30, 1998.
Interest expense, related party during the second quarter and for the six
months ended June 30, 1998 increased by $88,000 and $175,000, respectively,
when compared to the same periods in 1997 resulting from the expensing of
interest on $2.9 million of additional borrowings which occurred during the
last four months of 1997 under the Company's credit facility with the Fund.
There were no additional borrowings under such credit facility with the Fund
during the first six months of 1998.
<PAGE>
Other income during the second quarter and for the six months ended June 30,
1998 increased by $199,000 for the quarter and decreased by $217,000 for the
six month period over the respective periods in 1997. Increases in other
income during the quarter resulted from increases in interest earned on
increased cash balances, which resulted from the February 1998 private
placement of equity. Decreases recorded in the six month period ended
June 30, 1998, resulted primarily from the collection during the first quarter
of 1997 of a receivable written off in a previous period with no similar
collection taking place during 1998.
During the quarter and the six month period ended June 30, 1998, the Company
recorded preferred stock non-cash imputed dividends and accretion of discount
totaling $920,000 and $1,240,000, respectively, or ($.02) and ($.03) per
share, respectively, on a basic and diluted basis. The imputed dividend and
accretion of discount results from certain provisions of the Series A
Convertible Preferred Stock ("Preferred Stock") whereby a dividend is to be
paid to the holders of the Preferred Stock in additional shares of Preferred
Stock, and the conversion price of the Preferred Stock is determined by
applying a discount which increases over a fourteen month period from 7% to a
maximum of 15% by May 1999. The dividend is being recognized ratably pursuant
to all outstanding Preferred Stock. The discount is being recognized ratably
as non-cash deemed dividend over the applicable fourteen month period (see
"Note 7").
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance as of June 30, 1998 was approximately $19.4
million, representing a $13.2 million increase from December 31, 1997. The
Company used approximately $2.1 million in operations during the first six
months of 1998 compared with generating $6,000 from operations for the
respective period in 1997. The use of $2.1 million in operations during the
quarter resulted primarily from the funding of losses of $5.2 million and the
pay down of accounts payable, accrued liabilities and license rights totaling
approximately $1.7 million. These uses of cash during the six month period
were partially offset by a $3.0 million decrease in accounts receivable. Such
decrease in accounts receivable resulted primarily from the receipt of
approximately $2.0 million during January 1998 from a December 1996 FRAM
license agreement. Approximately $.7 million was used in investing activities
during the first quarter of 1998 compared with $.4 million in the respective
quarter in 1997. Such increases resulted primarily from the purchase of test
and handling equipment associated with increased FRAM foundry production. The
Company generated approximately $16 million, net of expenses, from financing
activities during the six month period due primarily to the issuance of the
Company's preferred stock in a private placement transaction during February
1998. As of June 30, 1998, the Company had working capital of approximately
$16.0 million and total stockholders' equity of $28.3 million.
<PAGE>
The Company intends to finance its operations and working capital requirements
during the remainder of 1998 by relying on its existing cash resources as of
June 30, 1998 of $19.4 million, payments from existing and future license and
development agreements and from the sale of the Company's FRAM and EDRAM
products.
All amounts outstanding under the Fund's credit facility, repayment of which
is secured by liens on the Company's facility and certain other of its assets,
are due and payable on September 30, 1998. The Company has requested a
permanent extension of the payment date or conversion into equity of amounts
outstanding under the credit facility. If such extension is not granted and
the conversion into equity is not made by the Fund, the Company will have to
repay all principal and accrued interest under the credit facility, which will
use a substantial portion of the Company's capital resources, however, the
assets pledged as collateral under the Fund credit facility would be released
and available as security to new lenders. There is no assurance, however,
that the Fund will agree to an extension of the payment date, or conversion
into equity of amounts owed under the Fund's credit facility.
The Company's future capital requirements include financing the growth of
working capital items such as accounts receivable and inventory, and the
funding of continued research and development efforts. The Company is
continuing to pursue additional license and development arrangements with
third parties as a source of such capital. The Company will also continue to
seek reasonable sources of financing to satisfy its future operating and
working capital requirements, but has not yet identified any specific new
sources of such financing. There can be no assurance, however, that such
financing, if required, will be available or, if available, will be on
satisfactory terms to the Company.
The Company has available a "green floor" provision in the terms of its
Series A Convertible Preferred Stock that allows the Company, at its option,
in lieu of the issuance of common stock, to honor such conversions through a
cash payment. Such cash payment would be equal in amount to the proceeds that
would otherwise have been received by the investor via conversion to common
stock and subsequent sale at the high trade price on the date of conversion
(see "Note 7"). The Company is currently investigating the effects of
exercising this provision, but has not yet made a decision concerning the use
of such a provision.
OUTLOOK
The Company expects revenues will continue to be sporadic in the foreseeable
future until the Company's products gain wider market acceptance and can be
manufactured in increased volumes and in a more cost-effective manner. The
Company has historically depended and continues to depend on revenues from new
license arrangements and upon the achievement of milestones under the
Company's existing and new license agreements as the major contributor of
positive quarterly operating results. Such license revenue does not typically
occur on a consistent basis and is, therefore, expected to create substantial
fluctuations in the Company's future quarterly revenues and results of
operations. The Company is continuing its efforts to improve and increase
commercial production and sales of its EDRAM products and low-density FRAM
products, decrease the cost of producing such products and develop and
commercialize new high and low-density FRAM products and enhancements to its
existing FRAM and EDRAM products.
<PAGE>
There can be no assurance that all of the Company's foundry and alliance
partners will be able to achieve commercial production of the products
currently in development or in the periods presented in the Company's annual
report on Form 10-K for the year ended December 31, 1997. If such commercial
production is not achieved or is not achieved in a timely manner, the
Company's results of operations could be materially adversely affected.
YEAR 2000
The Company's Year 2000 project is being managed by a team of internal staff.
The Company will also be contracting with one or more outside consultants
specializing in Year 2000 issues to assist the Year 2000 team. The team's
activities are designed to ensure that there are no adverse effects on the
Company's operations and that transactions with customers, vendors and
financial institutions are fully supported. The Company is currently in the
phase of assessing the magnitude of the Year 2000 exposure as it effects the
Company and performing testing on internal systems. The Company has also
initiated formal communications with vendors, customers and financial
institutions to ensure that those parties have appropriate plans to remediate
Year 2000 issues as such issues interface with the Company's systems or
otherwise effect the Company. The Company believes that the assessment,
testing and beginning remediation phases of its Year 2000 project will be
completed by December 31, 1998. Any remaining remediation that is required
after the assessment and testing phase is completed will commence immediately
thereafter. The Company anticipates that its remediation activities together
with a contingency plan will be completed prior to mid-year 1999. The Company
believes, based on progress to date, that the costs of complying with the Year
2000 issues will not have a material effect on the Company's financial
position. Once a full assessment of the Year 2000 issue is completed, the
Company should be able to estimate the total cost of compliance.
The Company has determined that certain of its software and hardware will have
to be replaced or updated so that its systems will operate properly with
respect to dates in the periods prior to the year 2000 and beyond. The
Company does not currently use any third-party custom written software in its
operations and, therefore, does not believe that a significant exposure exists
in becoming Year 2000 compliant as the majority of its software is issued with
frequent updates which have or are expected to address the Year 2000
compliance issue. The Company believes that with updates to new software or
replacement or modification to certain non-compliant hardware, the Year 2000
issue will not pose a significant operational problem for the Company's
systems. However, if such updates, replacements or modifications are
not made in a timely manner, the Year 2000 issue could have a material impact
on the operations of the Company. The Company believes that its primary
exposure from the Year 2000 issue lies in its product test equipment. Failure
to properly address the internally generated software programs and test
hardware platforms associated with this test equipment for Year 2000
compliance could result in delays in testing of products during the period
immediately following December 31, 1999.
<PAGE>
The Company is currently assessing the extent to which its operations are
vulnerable from interactions with its vendors, customers and financial
institutions should those organizations fail to properly remediate their
systems. While the Company believes its planning efforts are adequate to
address its Year 2000 concerns, there can be no guarantee that the systems of
other companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material adverse effect on the
Company business, results of operations and financial condition. The Company
believes that it has no exposure to contingencies related to the Year 2000
issue for the products it manufactures and sells.
PART II - OTHER INFORMATION
ITEMS 1 - 3 None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1998, the Company held its 1998 Annual Meeting of Stockholders (the
"Annual Meeting") in Colorado Springs, Colorado. Proxies for the meeting
were solicited by the Board of Directors of the Company pursuant to Regulation
14A under the Securities and Exchange Act of 1934. There was no solicitation
in opposition to the management's nominees as listed in the proxy statement,
and all such nominees were elected.
At the Annual Meeting, the Company's stockholders elected the following
persons as directors of the Company. The number of votes cast for each
director, as well as the number of votes withheld, are listed opposite each
director's name:
Name of Director Votes Cast for Director Votes Withheld
---------------- ----------------------- --------------
L. David Sikes 29,104,501 626,540
Greg B. Jones 29,104,426 626,615
William G. Howard 29,104,467 626,574
George J. Stathakis 29,021,704 709,337
William G. Tull 29,099,627 631,414
L.T. Womack 22,445,518 7,285,523
Michael L. Rothschild 29,103,573 627,468
At the Annual Meeting, the stockholders approved, with 19,031,993 votes cast
in favor, 738,396 votes cast against and 161,372 abstentions, the reservation
for issuance of the shares of Common Stock issuable (i) upon the conversion of
shares of the Company's Series A Convertible Preferred Stock ("Series A
Preferred Stock") issued in a February 1998 private placement, (ii) upon
conversion of the Series A Preferred Stock to be issued as dividends on the
outstanding Series A Preferred Stock and (iii) in respect of the related
placement agents' warrants to purchase shares of Series A Preferred Stock.
<PAGE>
ITEM 5 - None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 First Amendment to Loan Agreement and Other
Loan Documents between the National Electrical
Benefit Fund and the Registrant dated June 1,
1998.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAMTRON INTERNATIONAL CORPORATION
(Registrant)
August 12, 1998 /S/ Richard L. Mohr
Richard L. Mohr
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
FIRST AMENDMENT TO LOAN AGREEMENT AND OTHER LOAN DOCUMENTS
FIRST AMENDMENT TO LOAN AGREEMENT AND OTHER LOAN DOCUMENTS dated as of June 1,
1998 by and between RAMTRON INTERNATIONAL CORPORATION, a Delaware corporation
("Borrower") and the NATIONAL ELECTRICAL BENEFIT FUND ("Lender").
WITNESSETH:
WHEREAS, the Borrower and Lender are parties to that certain Loan Agreement
dated as of August 31, 1995 (the "Original Loan Agreement");
WHEREAS, as of May 31, 1998 and pursuant to the Original Loan Agreement,
Lender has an outstanding loan to Borrower in the principal amount of Five
Million Five Hundred Thousand Dollars ($5,500,000) (the "Loan");
WHEREAS, the Loan is evidenced by that certain Promissory Note of the Borrower
dated August 31, 1995 made payable to the order of Lender (the "Note"), and
secured by (i) that certain Deed to Trust dated as of August 31, 1995 made by
Borrower to the Public Trustee in favor of Lender and recorded September 26,
1995 in Book 6731 at Page 703 of the El Paso County Land Records; (ii) that
certain Security Agreement dated as of August 31, 1995 made by Borrower in
favor of Lender; (iii) that certain Patent Security Agreement dated as of
August 31, 1995 made by Borrower in favor of Lender and recorded with the
Assignment Branch of the United States Patent and Trademark Office as of
September 29, 1995 at Reel 7662 and Frame 0353; (iv) that certain EMS Stock
Pledge Agreement dated as of August 31, 1995 made by Borrower in favor of
Lender; and (v) that certain Racom Stock Pledge Agreement dated as of
August 31, 1995 made by Borrower in favor of Lender (collectively, all of the
foregoing documents including the Note and the documents enumerated in
(i) through (iv) and all other documents evidencing and securing all or a
portion of the Loan being referred to as the "Loan Documents");
WHEREAS, presently the Scheduled Maturity Date of the Loan under the Original
Loan Agreement and the Loan Documents is June 30, 1998;
WHEREAS, Borrower has requested that Lender extend the Scheduled Maturity Date
of the Loan;
WHEREAS, the Lender is now investigating the advisability of such an extension
and the terms and conditions upon which it might be granted;
WHEREAS, in order to allow more time for such investigation, the Lender has
decided to extend the Scheduled Maturity Date of the Loan to September 30,
1998.
<PAGE>
NOW, THEREFORE, in consideration of the premises hereof and for other
consideration the receipt and sufficiency of which is hereby established, the
Borrower and the Lender hereby agree as follows:
1. Amendments to the Original Loan Agreement.
a. Section 1.58 defining "Scheduled Maturity Date" of the Original
Loan Agreement is hereby amended to delete the date "June 30, 1998"
and insert the date "September 30, 1998" in lieu thereof.
b. Section 8.8 is hereby amended to delete the Notice address for
Lender and insert the following in lieu thereof:
To the Lender:
NEBF Investments
1125 15th Street, N.W.
Suite 401
Washington, D.C. 20005
Attention: Terence S. Moloznik
Executive Director of Investments
Facsimile No. (202) 496-1561
With a mandatory copy to:
Counts & Kanne, Chartered
1125 15th Street, N.W.
Suite 444
Washington, D.C. 20005
Attention: Jeffrey J. Kanne, Esq.
Facsimile No. (202) 223-3868
2. No Other Amendment. Other than as expressly modified hereby, all of the
provisions of the Original Loan Agreement and each of the other Loan Documents
shall remain unmodified and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this First Amendment to
the Loan Agreement and Other Loan Documents as of the day and year first above
written.
RAMTRON INTERNATIONAL CORPORATION, a
Delaware corporation
By: /S/ L. David Sikes
- ----------------------
L. David Sikes
Chairman of the Board of Directors
and Chief Executive Officer
Attest:
/S/ Richard L. Mohr
- ----------------------
By: Richard L. Mohr
Secretary
NATIONAL ELECTRICAL BENEFIT FUND
By: /S/ Edwin D. Hill
- ----------------------
Edwin D. Hill
Trustee
WITNESS:
/S/ Nancy L. Cleary
/S/ Janice K. Boylan
<PAGE>
)
DISTRICT OF COLUMBIA) ss.:
)
On this 1st day of June, 1998, before me personally came Edwin D. Hill, to me
known or satisfactorily proven, who, being by me duly sworn, did depose and
say that he is the Trustee of the NATIONAL ELECTRICAL BENEFIT FUND, and that
in such capacity he executed the within instrument on behalf of the trust for
the purposes therein set forth.
/S/ Crystal L. Davis
- ----------------------
Notary Public
My Commission Expires:
Crystal L. Davis
Notary Public District of Columbia
My commission expires July 14, 2002
<PAGE>
STATE OF COLORADO)
) ss.:
COUNTY OF EL PASO)
On this 12th day of June, 1998, before me personally came L. David Sikes, to
me known or satisfactorily proven, who, being by me duly sworn, did depose and
say the he resides at 1850 Ramtron Drive; that he is the Chairman of the Board
of Directors and Chief Executive Officer of RAMTRON INTERNATIONAL CORPORATION,
a Delaware corporation, and that in such capacity he executed the within
instrument on behalf of the company for the purposes therein set forth.
/S/ Deborah E. Doyle
- ----------------------
Notary Public
My Commission Expires:
10-30-99
- ----------------------
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