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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
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 - 17,093,265 as of July 31, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and per share amounts)
June 30, Dec. 31,
2000 1999
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,796 $ 10,601
Accounts receivable, less allowances
of $380 and $347, respectively 4,448 1,703
Inventories 5,074 4,174
Other current assets 248 184
--------- ---------
Total current assets 17,566 16,662
Property, plant and equipment, net 5,716 6,064
Intangible assets, net 17,615 6,654
--------- ---------
$ 40,897 $ 29,380
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,714 $ 3,066
Accrued liabilities 917 985
Deferred revenue 1,199 1,761
Promissory note and accrued interest, DFA -- 3,335
Accrued interest, the Fund -- 230
--------- ---------
Total current liabilities 4,830 9,377
Long-term promissory note, the Fund, net of unamortized
discount of $960 and $1,234, respectively 6,040 5,766
--------- ---------
Total liabilities 10,870 15,143
Minority interest in subsidiary 670 --
Redeemable preferred stock, $.01 par value,
10,000 shares authorized: 1 and 1 share issued
and outstanding, respectively, entitled to
$1,000 per share plus accrued and unpaid
dividends in liquidation 859 914
--------- ---------
Stockholders' Equity:
Common stock, $.01 par value, 50,000 and 75,000
shares authorized, respectively: 17,084 and 14,609
shares issued and outstanding, respectively 171 146
Deferred compensation (614) (2,423)
Additional paid-in capital 199,184 180,613
Accumulated deficit (170,243) (165,013)
--------- ---------
Total stockholders' equity 28,498 13,323
--------- ---------
$ 40,897 $ 29,380
========= =========
See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Revenue:
Product sales $4,446 $ 3,811 $ 6,716 $ 8,044
License and development fees -- -- 2,000 500
Royalties 13 -- 13 --
Customer-sponsored research
and development 1,750 1,516 3,051 2,322
-------- -------- -------- --------
6,209 5,327 11,780 10,866
-------- -------- -------- --------
Costs and expenses:
Cost of product sales 2,677 2,112 3,943 4,529
Research and development 1,351 1,458 3,491 3,255
Customer-sponsored research
and development 1,690 1,490 2,868 2,296
Sales, general and administrative
(exclusive of non-cash
compensation expense shown below) 2,404 2,467 4,843 4,909
Stock-based compensation 204 -- 1,770 --
-------- -------- -------- --------
8,326 7,527 16,915 14,989
-------- -------- -------- --------
Operating loss (2,117) (2,200) (5,135) (4,123)
Interest expense, related party (278) (167) (600) (332)
Other income, net 155 20 263 148
Minority interest in net loss
of subsidiary 80 -- 303 --
-------- -------- -------- --------
Net loss $(2,160) $(2,347) $(5,169) $(4,307)
======== ======== ======== ========
Loss per common share:
Net loss $(2,160) $(2,347) $(5,169) $(4,307)
Dividends on redeemable
preferred stock (24) (134) (49) (280)
Accretion of redeemable
preferred stock (6) (114) (12) (488)
Gain on preferred stock settlement -- 579 -- 579
-------- -------- -------- --------
Net loss applicable to common shares $(2,190) $(2,016) $(5,230) $(4,496)
======== ======== ======== ========
Net loss per common share - basic and
diluted $(0.13) $(0.17) $(0.33) $(0.37)
======== ======== ======== ========
Weighted average shares outstanding -
basic and diluted 16,301 12,193 15,683 12,140
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
(Amounts in thousands)
2000 1999
-------- --------
Cash flows from operating activities:
Net loss $(5,169) $(4,307)
Adjustments used to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,367 1,122
Amortization of debt discount, related party 274 --
Stock-based compensation 1,770 --
Minority interest in subsidiary (303) --
Changes in assets and liabilities:
Accounts receivable (2,273) (3,317)
Inventories (525) 456
Accounts payable and accrued liabilities (842) (1,005)
Accrued interest, related party (230) 332
Deferred revenue (967) 870
Other (19) (14)
--------- ---------
Net cash used in operating activities (6,917) (5,863)
--------- ---------
Cash flows from investing activities:
Cash obtained in acquisition 665 --
Purchase of property, plant and equipment (212) (136)
Intellectual property (289) (866)
--------- ---------
Net cash used in investing activities 164 (1,002)
--------- ---------
Cash flows from financing activities:
Payments on license rights payable -- (550)
Issuance of capital stock, net of expenses 3,948 --
Preferred stock settlement -- (475)
--------- ---------
Net cash provided by (used in) financing activities 3,948 (1,025)
--------- ---------
Net decrease in cash and cash equivalents (2,805) (7,890)
Cash and cash equivalents, beginning of period 10,601 15,237
--------- ---------
Cash and cash equivalents, end of period $ 7,796 $ 7,347
========= =========
See accompanying notes to consolidated financial statements.
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RAMTRON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
-----------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION AND MANAGEMENT OPINION
The accompanying consolidated financial statements at June 30, 2000 and 1999
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, 1999. The
results of operations for the period ended June 30, 2000 are not necessarily
indicative of the operating results for the full year.
NOTE 2. NEW ACCOUNTING STANDARDS
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"). SFAS No. 133, as amended, is
effective for fiscal years beginning after June 15, 2000. 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. With respect to hybrid instruments, a company may elect
to apply SFAS No. 133, as amended, to (i) all hybrid contracts, (ii) only those
hybrid instruments that were issued, acquired, or substantively modified after
December 31, 1997, or (iii) only those hybrid instruments that were issued,
acquired or substantively modified after December 31, 1998. Management is
currently evaluating the effect SFAS No. 133 will have on the Company's
financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB No. 101, as amended, is effective for the fourth
quarter of 2000. The Company is evaluating the impact SAB No. 101 will have on
the Company's financial position and results of operations.
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NOTE 3. INVENTORIES
Inventories consist of:
June 30, Dec. 31,
2000 1999
-------- --------
(in thousands)
(Unaudited)
Finished goods $3,540 $2,544
Work in process 1,534 1,630
------ ------
Total $5,074 $4,174
====== ======
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"). On
August 6, 1999, the Company and the Fund amended the terms of the Fund Credit
Facility reclassifying $1.5 million of accrued interest to principal, leaving
an outstanding principal balance under the loan as of August 6, 1999 of
$7 million. The Amended Credit Facility bears interest at 8% per annum,
payable quarterly. The maturity date of the Amended Credit Facility is
March 15, 2002. No additional borrowings are available to the Company under
the Amended Credit Facility and the loan is secured by a first priority lien on
substantially all of the Company's assets. The Fund has the right to convert
all or any portion of the amounts outstanding under the Amended Credit Facility
into common stock at any time or times before maturity of the loan at a
conversion price equal to $5.00 for each share of common stock. The agreement
requires the Company to maintain a minimum level of net worth of $7 million,
current assets to current liabilities ratio of not less than 1.5, as defined,
and long-term debt to net worth ratio not to exceed 1.0, as defined. The
Company was in compliance with these covenants at June 30, 2000. The
outstanding face amount due under the Amended Credit Facility was $7.0 million
as of June 30, 2000.
NOTE 5. PROMISSORY NOTE, DIMENSIONAL FUND ADVISORS ("DFA")
In connection with the restructuring of the Company's Series A Preferred Stock
in August 1999, the Company entered into agreements with certain affiliates of
Dimensional Fund Advisors, Inc. (the "DFA Affiliates") to issue to each DFA
Affiliate an unsecured convertible promissory note (together, the "DFA
Promissory Notes") in consideration of the termination of certain Common Stock
purchase rights of the DFA Affiliates. The DFA Promissory Notes bore interest
at 8% per annum and were scheduled to mature on July 30, 2000. All or part of
the principal and accrued and unpaid interest of the DFA Promissory Notes were
convertible into common stock at the option of the holder of the note at a
conversion ratio of one share of common stock for each $5.00 of principal and
accrued interest converted. On February 29, 2000 the DFA Affiliates elected to
convert outstanding principal and accrued interest totaling approximately
$3,378,000 into 675,547 shares of the Company's common stock.
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NOTE 6. EARNINGS PER SHARE
The Company calculates its loss per share pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). Under
SFAS No. 128, basic earnings per share is computed by dividing reported
earnings available to common stockholders by weighted average shares
outstanding. 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 including warrants and stock options, would be
anti-dilutive and thus, excluded from diluted earnings per share.
As of June 30, 2000, the Company had several financial instruments or
obligations that could create future dilution to the Company's common
shareholders and are not currently classified as outstanding common shares of
the Company. The following table details such instruments and obligations and
the common stock comparative for each. The common stock number is based on
specific conversion or issuance assumptions pursuant to the corresponding terms
of each individual instrument or obligation.
Instrument or Obligation Common Stock
---------------------------------------------------- ------------
(in thousands)
Warrants, 25,000 exercisable at $17.00 per share,
868,810 exercisable at $16.22 per share, 814,212
exercisable at $10.81 per share, 667,000 exercisable
at $6.88 per share, 622,061 exercisable at $5.00 per
share and 905,697 exercisable at $2.25 per share. 3,903
Stock options outstanding as of June 30, 2000
with a weighted average exercise price per
share of $12.05 2,474
Series A Convertible Preferred Stock, 907 shares
outstanding and accrued dividends as of
June 30, 2000 with a conversion price of $5.00
per share. 181
Promissory note, related party, principal and
accrued interest as of June 30, 2000 totaling
$7,000,000 with a conversion price of $5.00 per
share. 1,400
------
Total 7,958
======
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NOTE 7. DEFERRED COMPENSATION
In December 1999, the Company's shareholders approved an amendment to the
Company's 1995 Stock Option Plan. Under the amended stock option plan certain
officers of the Company were granted common stock options totaling 500,000
shares with an exercise price of $2.25 per share. The intrinsic value of stock
based compensation related to the options was approximately $2,539,000. This
amount is recorded as deferred compensation and is being amortized over the
vesting period of the options as a charge to compensation expense.
Amortization for the three and six month periods ended June 30, 2000 was
$204,000 and $1,770,000, respectively. Unamortized compensation expense as of
June 30, 2000 is approximately $614,000.
NOTE 8. ACQUISITION OF LICENSE
On January 26, 2000, the Company's then wholly owned subsidiary, Enhanced
Memory Systems ("EMS"), Inc., entered into a non-exclusive, worldwide
technology licensing agreement with Infineon Technologies AG ("Infineon"). In
consideration for the grant of the license, Infineon received 20% of the
outstanding common stock of EMS. Additionally, the agreement calls for
Infineon to provide EMS with up to $200 million per year of committed wafer
manufacturing capacity using Infineon's advanced DRAM and embedded DRAM process
capabilities and access to Infineon's design technology. The agreement has a
term of six years with optional two-year renewal periods thereafter. The
technology license was valued at approximately $1,983,000, and is recorded as
an intangible asset and is being amortized over the life of the agreement.
NOTE 9. ACQUISITION OF MUSHKIN INC.
On June 14, 2000, the Company entered into a merger transaction among the
Company, a wholly owned subsidiary of Ramtron International Corporation,
Mushkin Inc. ("Mushkin"), and the Mushkin shareholders. In this transaction
Ramtron acquired all of the issued and outstanding shares of Mushkin for
952,380 shares of Ramtron common stock valued at $10,000,000. The acquisition
was accounted for as a purchase. Accordingly, the preliminary estimate of the
fair value of assets acquired and liabilities assumed are included in Ramtron's
consolidated balance sheet as of June 30, 2000. Final fair market values will
be assigned after completion of a more extensive review of the relevant assets,
liabilities and issues identified as of the acquisition date, and may differ
from the preliminary values. Mushkin's results of operations subsequent to
June 14, 2000 are included in Ramtron's consolidated statements of operations
for the three and six-month periods ended June 30, 2000. The total purchase
price was allocated to the estimated fair value of assets acquired and
liabilities assumed as follows:
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(In thousands)
Fair value of tangible net assets $ 728
Goodwill 9,272
------
$10,000
======
The amount allocated to goodwill is being amortized over an estimated useful
life of 7 years using the straight-line method.
Summarized below are the unaudited pro forma results of operations of the
Company as if Mushkin had been acquired at the beginning of the fiscal periods
presented.
Pro Forma Six Months
Ended June 30, 2000
(In thousands, except
per share data)
----------------------
2000 1999
-------- --------
Revenue $17,886 $14,130
Net loss (5,217) (5,749)
Net loss applicable to common shares (5,278) (4,651)
Net loss per share- basic and diluted $ (0.32) $ (0.36)
NOTE 10. CONTINGENCIES
PATENT INTERFERENCE PROCEEDING. 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.
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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 five 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 was issued on
November 19, 1998, again holding that all of the claims were patentable to
National. On January 9, 1999, the Company appealed the decision of the Patent
Office on one of the interference counts directly to the Court of Appeals for
the Federal Circuit. On February 2, 2000 the Court of Appeals vacated and
remanded the decision of the Patent Office for further proceedings. The
Company also filed complaints in Federal District Court in the District of
Columbia seeking a review of the decision of the Patent Office on the remaining
interference counts, which are still pending. 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.
If the Company's patent rights that are the subject of the interference
proceeding are ultimately lost or significantly compromised, the Company would
be precluded from producing FRAM products in the United States using the
Company's existing design architecture, absent being able to obtain a suitable
license to exploit such rights. If such patent rights are ultimately awarded
to National, and if a license to such rights is not subsequently entered into
by the Company with National, National could use the patent to prevent the
manufacture, use or sale by the Company, and/or its licensees, within the
United States of any products that come within the scope of such patent rights,
which would include all FRAM products as currently designed, and which would
materially adversely affect the Company. The Company has vigorously defended
its patent rights in this interference contest and will continue such efforts.
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.
NOTE 11. SEGMENT INFORMATION
Ramtron is engaged primarily in the design, development, manufacture and sale
of specialty high-performance semiconductor memory devices. Ramtron has two
principal businesses, ferroelectric nonvolatile random access memory ("FRAM")
technology and products, and high-speed DRAM products called Enhanced-DRAM
("EDRAM") products.
The accounting policies for determining segment net profit (loss) are the same
used in the consolidated financial statements. There are no internal sales
between segments.
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The following table represents segment information for the three months ended
June 30, 2000 and 1999.
2000 1999
------------------ ------------------
FRAM EDRAM FRAM EDRAM
-------- -------- -------- --------
(in thousands)
Product revenue $ 961 $ 3,485 $ 870 $ 2,941
Technology license and
development revenue -- -- -- --
Royalties 13 -- -- --
Customer-sponsored research
and development revenue 1,600 150 1,516 --
-------- -------- -------- --------
2,574 3,635 2,386 2,941
-------- -------- -------- --------
Operating costs 4,408 3,918 4,730 2,797
-------- -------- -------- --------
Operating profit (loss) (1,834) ( 283) (2,344) 144
Other -- 80 (71) --
-------- -------- -------- --------
Net profit (loss) $(1,834) $ (203) $(2,415) $ 144
======== ======== ======== ========
Net profit (loss) excludes interest income, interest expense and special
charges of ($123,000) and ($76,000) in 2000 and 1999, respectively, not
allocated to business segments.
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The following table represents segment information for the six months ended
June 30, 2000 and 1999.
2000 1999
------------------ ------------------
FRAM EDRAM FRAM EDRAM
-------- -------- -------- --------
(in thousands)
Product revenue $ 1,657 $ 5,059 $ 1,920 $ 6,124
Technology license and
development revenue 2,000 -- 500 --
Royalties 13 -- -- --
Customer-sponsored research
and development revenue 2,751 300 2,322 --
-------- -------- -------- --------
6,421 5,359 4,742 6,124
-------- -------- -------- --------
Operating costs 10,162 6,753 8,641 6,348
-------- -------- -------- --------
Operating loss (3,741) (1,394) (3,899) (224)
Other -- 303 (71) 16
-------- -------- -------- --------
Net loss $(3,741) $(1,091) $(3,970) $ (208)
======== ======== ======== ========
Total assets $19,629 $21,268 $20,032 $ 8,182
Net loss excludes interest income, interest expense and special charges of
($337,000) and ($129,000) in 2000 and 1999, respectively, not allocated to
business segments.
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 might cause such a
difference include but are not limited to: (i) the timely completion of the
development and qualification for manufacturing of the Company's new EDRAM and
FRAM products; (ii) broader customer acceptance of its EDRAM, ESDRAM and HSDRAM
products and low-density FRAM products; (iii) acceptance of new high-density
FRAM products, which may be developed; (iv) the Company's ability to
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<PAGE>
manufacture its products on a cost-effective and timely basis at 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) future
potential changes in the Company's capital structure; (viii) the availability
and related cost of future financing; (ix) the retention of key personnel;
(x) the outcome of the Company's patent interference litigation proceedings,
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.
RESULTS OF OPERATIONS
Revenues for the three and six month periods ended June 30, 2000 increased 17%
and 8%, respectively, as compared to the same periods in 1999
Technology license and development revenues increased $1.5 million for the six
months ended June 30, 2000. The increase in license and development fees is
attributable to achievement of a FRAM license milestone in the first quarter
associated with an existing license agreement. No further milestones were
achieved or new license agreements consummated in the quarter ended June 30,
2000.
Customer-sponsored research and development revenue for the three and six month
periods ended June 30, 1999 and 2000 resulted primarily from process
development activities with one of the Company's existing FRAM licensees.
Revenue from product sales for the three months ending June 30, 2000, increased
$.6 million, approximately 17%, to $4.4 million and decreased $1.3 million,
approximately 16%, to $6.7 million for the six month period ended June 30,
2000, as compared to the same periods in 1999. Product sales for the current
quarter consisted of $3.5 million from the Company's EDRAM business and $1.0
million from the Company's FRAM business. For the respective period in 1999,
EDRAM product sales totaled $2.9 million and FRAM product sales totaled $.9
million.
EDRAM product sales decreased approximately $1.1 million or 17% for the six
months ended June 30, 2000, and increased $.5 million or 19% for the three
months ended June 30, 2000, when compared to the same periods in 1999. A
decrease in EDRAM unit shipments for the first six months of 2000 is the
primary reason for decreased product revenues over the same period in 1999.
Volume decreases are attributable to fewer 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 continue to occur in future periods as the Company
continues to focus its sales and development efforts on higher density
16-megabit and 64-megabit memory products. Average sales prices for EDRAM
products remained constant between fiscal 2000 and fiscal 1999.
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<PAGE>
FRAM product revenues for the quarter ended June 30, 2000, increased $.1
million to $1.0 million, an increase of 11% as compared to the same period in
1999. For the six month period ended June 30, 2000, FRAM product sales
decreased $.2 million to $1.7 million as compared to the same period in 1999.
Excluding unit shipments for certain non-recurring manufacturing contracts to
deliver RFID products during the first half of 1999, FRAM unit shipments for
the six months ended June 30, 2000, increased 34%. This increase is
attributable in part to increased availability of FRAM products from the
Company's foundry partners, a wider product portfolio due to bringing new
products to market and the selective reduction of average selling prices for
high volume EEPROM replacement programs to take advantage of shortages in the
EEPROM market.
Overall cost of product sales as a percentage of product revenues during the
second quarter increased from 55% to approximately 60% as compared with the
same period in 1999. EDRAM cost of product sales for the three months ended
June 30, 2000 increased to 57% from 48% compared to the same period in 1999.
This increase results primarily from the sale of 64-megabit HSDRAM products at
lower margins as compared to the Company's higher performance, higher margin,
EDRAM products. Cost of sales associated with the Company's FRAM products
improved during the quarter to 71% compared to 79% for the same period in 1999.
Cost of sales improvements associated with manufacturing substantially all FRAM
products at alliance foundry manufacturing facilities were partially offset by
the reduction of average unit selling prices during the quarter for selected
high volume EEPROM replacement opportunities to take advantage of shortages in
the EEPROM market. Overall cost of product sales for the six months ended
June 30, 2000 remained relatively flat at 59% as compared to 56% for the
six-month period ended June 30, 1999. Consistent with the quarter-to-quarter
changes, EDRAM cost of product sales increased from 48% to 56% and FRAM cost of
product sales improved from 79% to 66% during the six-month period ended
June 30, 2000 as compared to the same period in 1999.
Combined research and development expenses remained relatively consistent at
$3.0 million in the second quarter when compared with the same period in 1999.
For the six-month period ended June 30, 2000 combined research and development
expenses increased $.8 million over the same period in 1999 due to increased
activity in the FRAM joint development program with Fujitsu. During the three
months ended March 31, 1999, the Company allocated the majority of its
fabrication facility resources to the production of RFID products, temporarily
reducing research and development activities in 1999 when compared to fiscal
2000.
Sales, general and administrative ("SG&A") expenses remained consistent at
approximately $2.4 million and $4.9 million for each of the three and six-month
periods ended June 30, 2000 and 1999, respectively. As compared to the second
quarter of 1999, the Company increased selling and marketing expense
approximately $200,000 and amortization expense for patents, goodwill and
technology assets approximately $170,000, offset by reductions in financial
advisory and legal expenses. For the six month period ended June 30, 2000, the
Company recorded increased foreign withholding tax expenses from the
recognition of $2.0 million of license and development fee revenues and
increases in amortization expense for patents, goodwill and technology assets
of $331,000 offset by reduced financial advisory and legal expenses.
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During the three and six month periods ended June 30, 2000, the Company
recognized $.2 million and $1.8 million of non-cash expenses for stock based
compensation. In September 1999, certain officers of the Company were granted
options to purchase common stock of the Company at $2.25 per share (the closing
price on the date of grant), subject to shareholder approval to amend the
Company's 1995 Stock Option Plan (the "95 Plan"). These options vest 50% on
March 31, 2000 and 50% on March 31, 2001. The Company's shareholders approved
the amendment to the 95 Plan on December 22, 1999. On that date, the closing
price of the Company's common stock was $7.41 per share. The intrinsic value
of stock based compensation related to the stock options is $2,539,000 and is
recognized as non-cash compensation expense over the vesting period of the
options. Accordingly, the Company recorded $1,770,000 of non-cash compensation
expense during the six month period ended June 30, 2000. The Company will
recognize the remaining compensation expense of $614,000 ratably over the next
three quarters.
Related party interest expense increased $111,000 and $268,000 for the three
and six month periods ended June 30, 2000, as compared to the same periods in
1999, due to amortization of debt discounts related to the Fund's long-term
promissory note and interest expense on the Company's promissory note to DFA.
During the three and six month periods ending June 30, 2000, combined preferred
stock dividends, accretion of discount and gains on preferred stock settlements
decreased by approximately $361,000 and $128,000, respectively as a result of
restructuring the terms of the Company's Preferred Stock on August 6, 1999.
Effective as of August 16, 1999, 8,006 shares of Preferred Stock plus accrued
dividends were retired and canceled for certain cash payments, or exchanged for
shares of common stock at the option of the holder. At June 30, 2000, 907
shares of Preferred Stock were outstanding. Such shares are convertible
into the Company's common stock at a fixed conversion price of $5.00 per common
share. At June 30, 2000, the outstanding Preferred Stock represents
approximately 181,400 equivalent shares of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, because revenues generated from operations and licensing
have been insufficient to fund operations, the Company has depended for funding
principally on its stockholders, and in particular from 1989 until February
1995 on Oren L. Benton ("Benton"), a former principal stockholder and director
and the former Chief Executive Officer of the Company, and from 1989 through
1997 on the National Electrical Benefit Fund (the "Fund"), a principal
stockholder of the Company. Benton and the Fund financed the Company's cash
flow requirements through equity investments and loans, most of which were
subsequently converted into equity. The Company does not expect to be able to
meet its future liquidity needs from either Benton or the Fund.
Cash flow used for operations increased from $5.9 million for the six months
ended June 30, 1999, to $6.9 million in fiscal 2000. Cash used for operations,
after non-cash charges, decreased from $3.1 million in 1999 to $2.1 million in
fiscal 2000. This was more than offset by a $2.2 million increase in working
capital requirements in fiscal 2000 versus the first six months of fiscal 1999.
The increase in working capital requirements is explained below.
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Receivables increased to $4.4 million from $1.7 million at the end of 1999.
The increase in the receivables balance is primarily attributable to
outstanding trade receivables and customer-sponsored research and development
fees due to the Company.
Inventories increased to $5.1 million during the six-month period ended
June 30, 2000, from $4.2 million at the end of 1999. Inventory levels
increased primarily due to increased FRAM wafer and finished product shipments
from the Company's manufacturing alliance partners during the period.
Accounts payable and accrued liabilities decreased approximately $.5 million
during the six months ended June 30, 2000 from $4.1 million at the end of 1999
to $3.6 million at June 30, 2000. This decrease resulted primarily from payment
of the remaining accrued legal fees associated with the defense of the
Company's proprietary EDRAM patent position partially offset by increases in
amounts due to manufacturing alliance partners for product shipments.
Deferred revenue decreases of $.6 million are primarily attributable to
recognition of customer-sponsored research and development revenue, which was
earned in the six month period ended June 30, 2000.
Cash provided by investing activities was $164,000 for the six months ended
June 30, 2000, compared to a use of $1.0 million in fiscal 1999. $665,000 was
acquired in connection with the Mushkin acquisition transaction. The Company
issued $10 million in common stock to acquire Mushkin.
Capital expenditures were $200,000 in fiscal 2000 compared to $100,000 in
fiscal 1999. Equipment and plant expenditures are expected to be minimal
during the remainder of fiscal 2000.
The Company is currently involved in a patent interference proceeding (see
Note 10 - "Contingencies - Patent Interference Proceeding.") If the Company is
ultimately unsuccessful in these proceedings, there would be no retroactive
cash payment requirements from the Company to the junior party as a result of
such an adverse decision. While the Company cannot accurately estimate the
financial effects of such a result, the Company believes that it could,
depending on when a final non-appealable judgment is ultimately rendered,
materially adversely affect the Company's FRAM product business and operating
results and, thus, have a materially adverse effect on the Company's financial
condition as a whole.
$3.9 million was raised from the issuance of common stock in the first six
months of fiscal 2000, primarily from the exercise of common stock warrants.
$1.0 million was used for financing activities in the first six months of 1999
for the final payment of a licensing obligation and to settle certain preferred
stock obligations.
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During 2000, the Company will continue to receive cash relating to FRAM and
EDRAM licensing agreements for milestone achievements on such agreements.
Payments pursuant to potential new licensing agreements may create additional
cash flows during 2000 and 2001. An increase in product sales activity and
customer-sponsored research and development revenues is anticipated in 2000.
Additionally, the Company expects to continue to receive cash inflows for
research and development support provided by Fujitsu throughout 2000.
The Company had $7.8 million in cash and cash equivalents at June 30, 2000. In
view of the Company's expected future working capital requirements in
connection with the design, manufacturing and sale of its FRAM and EDRAM
products, the Company's projected continuing research and development
expenditures, other operating expenditures and the results of pending patent
litigation, the Company may be required to seek additional equity or debt
financing before or soon after year-end 2000. There is no assurance, however,
that the Company will be able to obtain such financing on terms acceptable to
the Company, or at all. Any issuance of common or preferred stock to obtain
additional funding would result in further dilution of existing stockholders'
interests in Ramtron. The inability to obtain additional financing when needed
would have a material adverse effect on the business, financial condition and
operating results and could adversely affect the Company's ability to continue
our business operations.
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. Further, the adoption of SAB 101 (See Note 2 - New Accounting
Standards) may have the effect of delaying revenue recognition on new license
arrangements.
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. 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.
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MARKET RISK
There have been no material changes in market risk related to the Company's
financial instruments since December 31, 1999.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
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 five 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 was issued on
November 19, 1998, again holding that all of the claims were patentable to
National. On January 9, 1999, the Company appealed the decision of the Patent
Office on one of the interference counts directly to the Court of Appeals for
the Federal Circuit. On February 2, 2000 the Court of Appeals vacated and
remanded the decision of the Patent Office for further proceedings. The
Company also filed complaints in Federal District Court in the District of
Columbia seeking a review of the decision of the Patent Office on the remaining
interference counts, which are still pending. 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.
ITEMS 2 - 5 NONE
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1* Manufacturing Agreement between the Registrant and
Hewlett-Packard dated May 26, 2000.
Exhibit 27 Financial Data Schedule
* Confidential treatment has been granted or requested with respect to
portions of this exhibit, and such confidential portions have been deleted and
separately filed with the Securities and Exchange Commission pursuant to Rule
24b-2 or Rule 406.
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(b) Reports on Form 8-K
On March 17, 2000, the Registrant filed a report on Form 8-K. The item
reported were Item 5 - "Other Events" and Item 7 - "Financial Statements
and Exhibits."
On May 16, 2000, the Registrant filed a report on Form 8-K. The item
reported were Item 5 - "Other Events" and Item 7 - "Financial Statements
and Exhibits."
On June 15, 2000, the Registrant filed a report on Form 8-K. The item
reported were Item 5 - "Other Events" and Item 7 - "Financial Statements
and Exhibits."
On June 20, 2000, the Registrant filed a report on Form 8-K. The item
reported were Item 5 - "Other Events" and Item 7 - "Financial Statements
and Exhibits."
On June 28, 2000, the Registrant filed an Amendment No. 1 to a report on
Form 8-K filed on June 15, 2000. The item reported were Item 5 - "Other
Events" and Item 7 - "Financial Statements and Exhibits."
On July 24, 2000, the Registrant filed an Amendment No. 2 to a report on
Form 8-K filed on June 15, 2000. The item reported were Item 5 - "Other
Events" and Item 7 - "Financial Statements and Exhibits."
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 14, 2000 /S/ LuAnn D. Hanson
-------------------------
LuAnn D. Hanson
Acting Chief Financial Officer
(Principal Accounting Officer)
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