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 September 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 - 60,427,612 shares as of November 10, 1998.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value amounts)
Sep. 30, Dec. 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,658 $ 6,193
Accounts receivable, less allowances
of $190 and $167, respectively 2,897 4,762
Inventories 5,271 7,147
Deposits -- 20
Prepaid expenses and other 200 215
--------- ---------
Total current assets 26,026 18,337
Property, plant and equipment, net 7,470 8,024
Intangible assets, net 4,397 4,693
--------- ---------
$37,893 $31,054
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 2,172 $ 3,017
Accrued liabilities 1,216 1,535
Accrued royalties 536 414
License rights 550 1,100
Deferred revenue 871 995
Common stock price adjustment 2,649 --
Promissory note and accrued interest, related party 6,958 6,457
--------- ---------
Total liabilities 14,952 13,518
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Stockholders' equity:
Preferred stock, $0.01 par value,
10,000 shares authorized:
Series A - 29 designated, 15 and no shares
issued and outstanding, respectively -- --
Common stock, $0.01 par value, 75,000 shares
authorized 41,192 and 37,923 shares issued
and outstanding, respectively 412 379
Additional paid-in capital 174,002 155,957
Accumulated deficit (151,473) (138,800)
--------- ---------
Total stockholders' equity 22,941 17,536
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$37,893 $31,054
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- --------- --------
Revenue:
Product sales $ 5,142 $ 3,584 $15,142 $11,158
License fees -- 1,750 -- 3,750
Customer-sponsored research
and development 266 80 871 116
-------- -------- --------- --------
5,408 5,414 16,013 15,024
-------- -------- --------- --------
Costs and expenses:
Cost of product sales 2,729 2,659 8,900 8,441
Research and development 3,187 2,279 8,386 7,658
Customer-sponsored research
and development 242 72 757 104
Sales, general and administrative 1,992 2,000 5,920 6,234
-------- -------- --------- --------
8,150 7,010 23,963 22,437
-------- -------- --------- --------
Operating loss (2,742) (1,596) (7,950) (7,413)
Interest expense, related party (169) (82) (501) (239)
Other income, net 185 33 561 626
Common stock price adjustment (2,649) -- (2,649) --
-------- -------- --------- --------
Net loss $(5,375) $(1,645) $(10,539) $(7,026)
======== ======== ========= ========
Loss per common share:
Net loss $(5,375) $(1,645) $(10,539) $(7,026)
Imputed dividends on convertible
preferred stock (256) -- (617) --
Accretion of discount on
convertible preferred stock (638) -- (1,517) --
-------- -------- -------- --------
Net loss applicable to common shares $(6,269) $(1,645) $(12,673) $(7,026)
======== ======== ========= ========
Net loss per share - basic and diluted $(0.16) $(0.04) $(0.33) $(0.19)
======== ======== ========= ========
Weighted average shares outstanding 38,165 37,018 38,162 37,014
======== ======== ========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands)
1998 1997
-------- --------
Cash flows from operating activities:
Net loss $(10,539) $(7,026)
Adjustments used to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,884 1,898
Common stock price adjustment 2,649 --
Other 5 (485)
Changes in assets and liabilities:
Accounts receivable 1,865 3,949
Inventories 1,875 (88)
Prepaid expenses 8 453
Accounts payable and accrued liabilities (1,041) 1,153
Accrued interest, related party 501 239
Deferred revenue (125) 136
Other (276) (278)
--------- ---------
Net cash used in operating activities (3,194) (49)
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (747) (1,035)
--------- ---------
Net cash used in investing activities (747) (1,035)
--------- ---------
Cash flows from financing activities:
Proceeds from promissory note, related party -- 1,400
Issuance of capital stock, net of expenses 15,956 527
Payments on license rights payable (550) (550)
--------- ---------
Net cash provided by financing activities 15,406 1,377
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Net increase in cash and cash equivalents 11,465 293
Cash and cash equivalents, beginning of period 6,193 3,182
--------- ---------
Cash and cash equivalents, end of period $17,658 $ 3,475
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
RAMTRON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
- -----------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION AND MANAGEMENT OPINION
The accompanying consolidated financial statements at September 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 September 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 September 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 is currently evaluating the effect SFAS No. 133 will have on the
Company's financial statements.
NOTE 3. INVENTORIES
Inventories consist of:
Sep. 30, Dec. 31,
1998 1997
-------- --------
(in thousands)
(Unaudited)
Finished goods $2,954 $4,108
Work in process 2,181 2,932
Raw material 136 107
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Total $5,271 $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. In June 1998, the Fund extended
the maturity date of the Fund Credit Facility from June 30, 1998 to
September 30, 1998. In September 1998, the Fund extended the maturity date
once again from September 30, 1998 to December 15, 1998. The extensions were
initiated by the Fund in order to provide the Fund with the necessary time to
investigate 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 during the extension period. 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. The outstanding principal balance
and accrued interest as of September 30, 1998 under the Fund Credit Facility
were $5,500,000 and $1,458,000, respectively.
<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 nine month periods ended September 30, 1998 and 1997.
NOTE 7. COMMON STOCK PRICE ADJUSTMENT
In December 1997, the Company issued and sold in a private placement to
certain investment funds ("Holders") 800,000 shares of Common Stock at an
issue price of $4.93 per share resulting in aggregate gross proceeds to the
Company of $3,944,000.
Subject to certain exceptions, if during the twelve-month period following the
closing of the transaction, the Company sells any shares of Common Stock for
an issue price lower than the purchase price, the purchase price per share of
such Common Stock shall be adjusted downward to equal such lower issue price.
Any such adjustment would be effected by issuing additional shares of Common
Stock to the Holders who purchased shares in the private placement. A sale of
shares pursuant to the terms of the agreement includes the sale or issuance of
rights, options, warrants or convertible securities under which the Company is
or may become obligated to issue shares of Common Stock, and the selling price
of the Common Stock converted thereby shall be the exercise or conversion
price thereof plus the consideration (if any) received by the Company upon
such sale or issuance.
<PAGE>
The Holders are not required to accept, by way of any such adjustment, a
number of common shares such that the total number of common shares held by
the Holders, which were held by them on the date of the agreement, or acquired
by them pursuant to the agreement, would exceed 4.99% of the total outstanding
Common Stock of the Company. The Company would be required to effect the
4.99% adjustment by cash refund to the extent necessary to avoid the 4.99%
limitation to be exceeded. As of September 30, 1998, the additional shares
and cash refund to effect the limitation adjustment is 1,321,412 shares and
$2.6 million, respectively. The Company's obligations to deliver cash to the
Holders, if so elected by the holders, is recorded as a current liability with
a corresponding charge to earnings.
NOTE 8. STOCKHOLDERS' EQUITY
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 was
$10.00. Thereafter, subject to a maximum conversion price, the Conversion
Price is equal to the lowest trading price of the Common Stock for the 22
trading days immediately preceding the conversion date, less a discount
of 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.
Each purchaser of the Preferred Stock has agreed to trading limitations for
the offer or sale 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.
<PAGE>
On October 21, 1998, the Company suspended conversions of the Preferred Stock
because the Company had issued, from its authorized shares, the maximum number
of common shares available for such conversions (22,473,840 shares). No
further conversions of the Preferred Stock will be effected until and unless
the Company's shareholders approve an authorization of additional common
stock. At the time of suspension of the Preferred Stock conversions,
approximately $9.9 million of Preferred Stock, plus accrued dividends,
remained outstanding.
NOTE 9. 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.
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.
<PAGE>
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 alliance partners' willingness to continue
development activities as they relate to their license agreements with the
Company; (vii) the availability and related cost of future financing;
(viii) the effects on the Company from the Common Stock price adjustment with
respect to the holders of Common Stock issued in the December 1997 private
placement; (ix)the effect on the Company from its obligation to convert
Preferred Stock; (x) the retention of key personnel; (xi) the outcome of the
Company's patent interference proceedings; (xii) changing economic conditions;
(xiii) continued financial uncertainties in the Asian markets; and
(xiv) 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.
RESULTS OF OPERATIONS
Revenue for the quarter at $5.4 million was unchanged from the respective
period in 1997. For the nine months ended September 30, 1998, revenue
increased by 7% to $16.0 million from $15.0 million in the respective
period in 1997. Revenues for the quarter and nine month periods ended
September 30, 1998 were comprised primarily from product sales. No license
and development fee revenues were recorded during the quarter or nine month
period from new license agreements or from the achievement of milestones
pursuant to existing license agreements. For the same periods in 1997,
license and development fee revenues of $1.8 million and $3.8 million,
respectively, were recorded as a result of milestone achievements from an
existing FRAM licensee. Customer-sponsored research and development revenues
for the quarter and nine month period totaled $0.3 million and $0.9 million,
respectively, and resulted primarily from FRAM specialty design services and
FRAM foundry services.
<PAGE>
Product sales revenues for the quarter and nine months ended September 30,
1998 were $5.1 million and $15.1 million, respectively, representing an
increase of 43% for the quarter and an increase of 36% for the nine month
period over the respective periods in 1997. Product revenues for
the quarter and nine month periods from a year ago totaled $3.6 million
and $11.2 million, respectively. Product sales revenue for the current year
consists primarily of EDRAM product sales with such products accounting for
90% and 86% of total product sales in the quarter and nine month periods,
respectively, and FRAM product sales accounting for the remaining 10% and 14%,
respectively. For the same periods in 1997, EDRAM products accounted for 90%
of total product sales for the quarter and nine month period with FRAM product
sales accounting for the remaining 10%.
EDRAM unit shipments increased by approximately 40% and 30% during the quarter
and the nine month period, respectively. Average selling prices increased for
the quarter by approximately 3% and decreased by less than 1% for the nine
month period from the respective periods in 1997. The increase in product
revenues for the quarter and nine month period resulted primarily from an
increase in the volume of 4-megabit EDRAM products sold to customers for use
in communications equipment, voice messaging systems 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 ESDRAM
products become available and as customers seek higher density memories. The
availability of such 16-megabit 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 and fourth quarters
of the year. The Company does not currently have sufficient information to
predict whether this same decline in EDRAM revenues will occur during the
fourth quarter of 1998.
FRAM product revenues for the quarter and the nine months ended September 30,
1998 increased to $0.5 million and $2.0 million, respectively, representing
increases of 41% and 90%, 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 second 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 nine months ended September 30, 1998 were 53% and 59%,
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 quarter and the nine months ended September 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 absorption of manufacturing overhead into the limited
quantity of FRAM products manufactured and sold. Cost of product sales as a
percentage of product revenues for FRAM products is expected to decrease in
future quarters as a greater quantity and mix of FRAM products sold will be
manufactured at the Company's lower cost alliance foundry manufacturing
facilities.
Combined research and development expenses increased by $1.1 million or 46% to
$3.4 million in the quarter when compared with the respective period in 1997,
and for the nine month period ended September 30, 1998, combined research and
development expenses increased by $1.4 or 18% 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") products and from costs incurred to support
customer-sponsored research and development design and foundry activities.
Increased expenses associated with the Company's 16-megabit ESDRAM development
include additional design resources, mask production, prototype wafer
production and test program development. Such increases in research and
development expenses during the nine 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 quarter and the
nine month period ended September 30, 1998 decreased by $8,000 and
$314,000 (5%), respectively, as compared with the same periods in 1997. The
decreases in SG&A expenses for the quarter and nine month periods resulted
primarily from decreases in foreign withholding taxes on license and
development fee revenue. Foreign withholding taxes totaling $175,000 and
$375,000 were recorded in the quarter and nine months ended September 30,
1997, respectively, corresponding to the recording of $1.75 million and $3.75
million in license and development fee revenue for these periods. During
1998, there has been no license and development fee revenue recorded and,
therefore, no foreign withholding tax expense recorded. Such decreases in
SG&A expenses were partially offset by commission expenses on increased
product sales during the quarter and the nine month period ended September 30,
1998 and from increased advertising costs for the same periods associated with
the Company's 16-megabit ESDRAM products.
<PAGE>
Interest expense, related party during the quarter and for the nine months
ended September 30, 1998 increased by $87,000 and $262,000, 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 the credit facility with the Fund during the
first nine months of 1998.
Other income during the quarter and for the nine months ended September 30,
1998 increased by $152,000 for the quarter and decreased by $65,000 for the
nine 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 nine month period ended
September 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.
A Common Stock price adjustment of $2.6 million was recorded during the
quarter and reflects a non-cash adjustment associated with a Common Stock
private placement transaction, which occurred in December 1997. The terms of
the agreement include, with certain limitations, a price-reset feature that
allows the investor to receive cash and/or Common Stock to effect the price-
reset. The Company's obligations to deliver cash to the Holders, if so elected
by the holders, is recorded as a current liability with a corresponding charge
to earnings (see "Note 7").
During the quarter and the nine month period ended September 30, 1998, the
Company recorded preferred stock non-cash imputed dividends and accretion of
discount totaling $894,000 and $2,134,000, respectively, or ($.02) and ($.06)
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 the outstanding Preferred Stock. The discount is being recognized ratably
as a non-cash deemed dividend over the applicable fourteen month period (see
"Note 8").
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance as of September 30, 1998 was
approximately $17.7 million, representing an $11.5 million increase from
December 31, 1997. The Company used approximately $3.2 million in operations
during the first nine months of 1998 compared with a use of $49,000 in
operations for the respective period in 1997. The use of $3.2 million in
operations during the nine month period resulted primarily from the funding of
losses of $10.5 million, less $4.5 million in non-cash adjustments and the pay
down of accounts payable and accrued liabilities totaling approximately $1.0
million. Such uses of cash during the nine month period were partially offset
by a $1.9 million decrease in accounts receivable and a $1.9 million decrease
in inventories. The decrease in accounts receivable resulted primarily from
the receipt of approximately $2.0 million during January 1998 from a December
1996 FRAM license agreement. The decrease in inventories of $1.9 million
resulted from greater than expected sales of the Company's EDRAM products
during the third quarter of 1998. Approximately $.7 million was used in
investing activities during the first nine months of 1998 compared with $1.0
million in the respective period in 1997. Such use of cash in 1998 resulted
primarily from the purchase of test and handling equipment associated with
increased FRAM foundry production and from the purchase of computer related
equipment and software associated with expanding the Company's EDRAM design
capabilities. The Company generated approximately $16 million, net of
expenses, from financing activities during the nine month period due primarily
to the issuance of the Company's preferred stock in a private placement
transaction during February 1998. As of September 30, 1998, the Company had
working capital of approximately $11.1 million and total stockholders' equity
of $22.9 million.
The Company intends to finance its operations and working capital requirements
during the remainder of 1998 and into 1999 by relying on its existing cash and
cash equivalent resources as of September 30, 1998 of $17.7 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 December 15, 1998. The Company has requested a
long-term 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 a long-term extension of the payment date, or
conversion into equity of amounts owed under the Fund's credit facility.
<PAGE>
The Company's future capital requirements include financing the growth of
working capital items such as accounts receivable and inventory, the
funding of continued research and development efforts, the costs associated
with currently existing and any future patent infringement and interference
proceedings, and the costs associated with restructuring of the Company's
capital base. 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.
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.
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
<PAGE>
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.
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's 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
The Company was listed as a defendant in a lawsuit filed in October 1997, by
the Trustee of the NTC liquidating Trust against Brown Brothers Harriman,
Citibank N.A. (the Company's stock transfer agent) and the Company. The NTC
Liquidating Trust was created under Colorado law, in connection with
implementation of Chapter 11 plans of liquidation for Oren Benton, a former
principal shareholder of the Company. The Trustee's claim is based on
allegations that Benton and affiliated persons caused shares of Common Stock
of the Company to be converted, concealed, or wrongly transferred in violation
of the automatic stay in effect as a result of the Benton bankruptcy filing.
On October 20, 1998, the United States Bankruptcy Court for the District of
Colorado determined that the Trustee had not pled facts sufficient to
establish Benton's interest in the shares of Common Stock of Ramtron on the
date of his bankruptcy filing under non-bankruptcy law. As a consequence, the
court determined that the complaint was not sufficient to support a claim that
the Ramtron stock was property of the estate subject to an automatic stay.
The court ordered that all claims in the case be dismissed.
On October 29, 1998, the Trustee filed an appeal to this decision with the
United States Bankruptcy Court in the District of Colorado.
On November 6, 1998, the Trustee filed a motion to dismiss the Company and
Citibank N.A. from the appeal.
On November 9, 1998, the court ordered that the Company and Citibank N.A. were
dismissed without prejudice from the appeal.
ITEMS 2 - 4 None
ITEM 5 - Other Information
On July 22, 1998, Dr. Michael L. Rothschild resigned his position as Director
of the Company. Dr. Rothschild had been a director of the Company since
October 1996 when BEA Associates elected him as its designee on the Company's
Board of Directors. There were no disagreements between the Company and
Dr. Rothschild regarding the Company's operations, policies or practices.
On August 26, 1998, Mr. Eric A. Balzer was appointed as a Director of the
Company. Mr. Balzer currently serves as Vice President of Operations
for Advanced Energy Industries, a company that develops and manufactures
specialized power conversion devices that are used in the manufacture of
semiconductor devices.
On September 18, 1998, Mr. L. T. Womack's position as Director of the Company
ended as a result of his death. Mr. Womack had been a Director of the Company
since July 1994. The vacancy left on the Company's Board of Directors as a
result of Mr. Womack's death has not yet been filled.
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Second Amendment to Loan Agreement and Other
Loan Documents between the National Electrical
Benefit Fund and the Registrant dated September 30,
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)
November 13, 1998 /S/ Richard L. Mohr
Richard L. Mohr
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
SECOND AMENDMENT TO LOAN AGREEMENT AND OTHER LOAN DOCUMENTS
SECOND AMENDMENT TO LOAN AGREEMENT AND OTHER LOAN DOCUMENTS dated as of
September 29, 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 the date hereof 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 of 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, the Scheduled Maturity Date of the Loan under the Original Loan
Agreement and the Loan Documents was June 30, 1998;
WHEREAS, the Scheduled Maturity Date was extended to September 30, 1998
pursuant to that First Amendment to the Loan Agreement (the "First
Amendment") dated as of June 1, 1998 in order to allow the Lender to
investigate the advisability and possible terms of extending the loan for a
longer period;
WHEREAS, the Lender has reached tentative terms under which it proposes to
extend the Loan for a three (3) year period but the Borrower has recently
proposed additional funding from the Lender which may take the form of an
increase in the amount of the loan; and
<PAGE>
WHEREAS, in order to allow more time for the Lender to evaluate the Borrower's
latest proposal, the Lender has decided to extend the Scheduled Maturity Date
of the Loan to December 15, 1998.
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. 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 "December 15, 1998"
in lieu thereof.
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.
IN WITNESS WHEREOF, Borrower and Lender have executed this Second 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/ Peggy Cleveland
<PAGE>
STATE OF COLORADO)
) ss.:
COUNTY OF EL PASO)
On this 1st day of October, 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
- ----------------------
<PAGE>
)
DISTRICT OF COLUMBIA) ss.:
)
On this 29th day of September, 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
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