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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1997.
OR
[ ] 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 0-26944
SILICON STORAGE TECHNOLOGY, INC.
(Exact name of Company as specified in its charter)
California 77-0225590
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1171 Sonora Court, Sunnyvale, CA 94086
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code: (408) 735-9110
__________
Indicate by check mark whether the Company (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 the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
- -
Number of shares outstanding of the Company's Common Stock, no par value, as
of the latest practicable date, August 8, 1997: 22,789,130. Total number of
pages in document: 14. Index to Exhibits is on page 12.
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1
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SILICON STORAGE TECHNOLOGY, INC.
FORM 10-Q: QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations . . . . . . 3
Condensed Consolidated Balance Sheets . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 8
Part II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters for Vote of Security Holders. . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 12
2
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PART I
Item 1. Condensed Consolidated Financial Statements
SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------- ---------------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product $23,021 $17,727 $44,520 $34,581
License 350 329 1,874 567
------- ------- ------- -------
Net revenues 23,371 18,056 46,394 35,148
------- ------- ------- -------
Costs and expenses:
Cost of revenues 14,041 14,874 27,193 31,407
Research and development 1,622 2,228 3,273 4,206
Sales and marketing 1,269 1,589 2,455 2,854
General and administrative 875 1,199 1,634 2,443
------- ------- ------- -------
17,807 19,890 34,555 40,910
------- ------- ------- -------
Income (loss) from operations 5,564 (1,834) 11,839 (5,762)
Interest and other income, net 603 476 1,101 841
------- ------- ------- -------
Income (loss) before provision for
(benefit from) income taxes 6,167 (1,358) 12,940 (4,921)
Provision for (benefit from) income taxes 2,445 (339) 5,019 (1,383)
------- ------- ------- -------
Net income (loss) $ 3,722 ($1,019) $ 7,921 ($3,538)
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per share $ 0.15 ($0.04) $0.31 ($0.15)
------- ------- ------- -------
------- ------- ------- -------
Shares used in per share calculation 25,245 23,112 25,213 23,191
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS December 31, June 30,
1996 1997
------------ --------
(unaudited)
Current assets:
Cash and cash equivalents $24,755 $33,440
Short-term investments 11,485 5,690
Accounts receivable, net 9,802 12,104
Accounts receivable from related parties 3,124 0
Inventories 14,495 3,497
Current deferred tax asset 3,589 3,589
Other current assets 1,394 700
------- -------
Total current assets 68,644 59,020
Furniture, fixtures, and equipment, net 11,274 8,077
Other assets 996 1,015
------- -------
Total assets $80,914 $68,112
------- -------
------- -------
LIABILITIES
Current liabilities:
Trade accounts payable 4,075 4,585
Account payable to related party 6,412 0
Accrued expenses and other liabilities 4,235 2,770
Deferred revenue 1,404 1,120
------- -------
Total current liabilities 16,126 8,475
------- -------
SHAREHOLDERS' EQUITY
Common stock and deferred stock compensation 54,212 53,318
Retained earnings 10,576 6,319
------- -------
Total shareholders' equity 64,788 59,637
------- -------
Total liabilities and shareholders' equity $80,914 $68,112
------- -------
------- -------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SILICON STORAGE TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------------
1996 1997
-------------- --------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,921 ($3,538)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,387 2,267
Provision for doubtful accounts receivable 142 174
Provision for excess and obsolete inventories 2,517 3,038
Deferred income taxes (1,070) -
Loss on disposal of fixed assets - 7
Changes in operating assets and liabilities:
Accounts receivable (5,206) 648
Inventories (14,825) 7,960
Other current and noncurrent assets 14 675
Trade accounts payable 11,193 (5,902)
Accrued expenses and other liabilities 359 (1,465)
Deferred revenue (54) (284)
-------- -------
Net cash provided by (used in) operating activities 2,378 3,580
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture, fixtures and equipment (4,661) (659)
Proceeds from sale of equipment - 1,600
Purchases of short-term investments (48,561) 21,176
Sales and maturities of short-term investments 34,349 (15,381)
Other (943) -
-------- -------
Net cash provided by (used in) investing activities (19,816) 6,736
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares of common stock 46 235
Repurchase of shares of common stock - (1,866)
-------- -------
Net cash provided by (used in) financing activities 46 (1,631)
-------- -------
Net increase (decrease) in cash and cash equivalents (17,392) 8,685
Cash and cash equivalents at beginning of period 48,405 24,755
-------- -------
Cash and cash equivalents at end of period $ 31,013 $33,440
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SILICON STORAGE TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed interim consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments and accruals, that in the opinion of the management of Silicon
Storage Technology, Inc. (the "Company" or "SST") are necessary for a fair
presentation of the Company's financial position as of June 30, 1997 and the
results of operations and cash flows for the six months ended June 30, 1996
and 1997. The unaudited condensed interim consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements of the Company and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, filed with
the Securities and Exchange Commission.
The year-end balance sheet at December 31, 1996 was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. Computation of Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares are excluded from the computation when their effect is
antidilutive.
3. Inventories, net (IN THOUSANDS):
DECEMBER 31, JUNE 30,
-----------------------------
1996 1997
---------- --------
Raw materials $ 3 $ 2
Work in process 9,555 1,882
Finished goods 4,937 1,613
------- ------
$14,495 $3,497
------- ------
Inventories are stated at the lower of cost or market value. During the
quarter ended March 31, 1997, the Company recorded a charge of approximately
$3.2 million to reduce the carrying value of inventories to replacement cost.
6
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4. Contingencies
On January 3, 1996, Atmel Corporation ("Atmel") sued the Company in the U.S.
District Court for the Northern District of California. Atmel's complaint
alleges that the Company, by making, using and selling devices, is willfully
infringing five U.S. patents owned by, or exclusively licensed to, Atmel.
Regarding each of these five patents, Atmel seeks a judgment that the Company
has infringed the patent, an injunction prohibiting further infringement,
treble the amount of damages caused by the alleged infringement and
attorney's fees, costs and expenses. On February 13, 1996 the Company filed
an answer denying Atmel's allegations and asserting affirmative defenses and
counterclaims. On March 18, 1997 the International Trade Commission
instituted an investigation against two suppliers of the Company's parts
based upon a complaint filed by Atmel. This action involves certain of the
patents that Atmel has alleged the Company infringes. The Company has
intervened as a party to that investigation. Pursuant to indemnification
agreements with these suppliers, the Company has agreed to indemnify both to
the extent that it is required to do so under the agreements. On June 25,
1997, a U.S. District Court Judge denied Atmel's motion for summary judgment
for certain patents mentioned in the above lawsuit. The basis for the denial
was that not all elements of the claims of the patents were infringed as
required for a favorable ruling. The case is scheduled for trial on November
24, 1997. Two other corporations have sent letters charging certain of their
patents as being infringed by the Company's products. No provision for any
liability that may result upon the resolution of these matters has been made
in the accompanying financial statements nor is the amount or range of
possible loss, if any, reasonably estimable. While the Company has accrued
certain amounts for the estimated costs associated with defending these
matters, there can be no assurance that the Atmel complaint will be resolved
without costly litigation or in a manner that is not adverse to the Company's
financial position or results of operations, or without requiring royalty
payments in the future which may adversely impact gross margins.
5. Stock Repurchase Program
In February, 1997 the Board of Directors approved a stock repurchase program
whereby up to an aggregate of 1,000,000 shares of the Company's common stock
may be repurchased on the open market at prevailing market prices. The
repurchase program ended June, 1997. Approximately 352,000 shares were
repurchased under this authorization during the quarter ended June 30, 1997
for an aggregate purchase price of $1.4 million. Purchase prices ranged from
$3.688 to $3.875 per share.
In July, 1997 the Board of Directors authorized a repurchase program whereby
1,000,000 shares of the Company's common stock may be repurchased on the open
market at prevailing market prices. The repurchase program is expected to
continue until December 15, 1997, unless extended or shortened by the Board
of Directors.
6. Revaluation of Stock Options
On April 23, 1997 the Board of Directors approved an offer to employees of
the Company to reprice outstanding options granted between August 1, 1996 and
March 3, 1997 (the "Repricing Program"). Under the Repricing Program, as of
April 28, 1997, 844,750 option grants with exercise prices ranging from $4.00
to $9.50 were amended into repriced option grants with an exercise price of
$3.125 (based on the closing price as reported on the Nasdaq National Market
on such date). As consideration for the amended grants, optionees are
prohibited from exercising the repriced options for a period of three months
after the initial vest date of such repriced options. The Repricing Program
terminated on April 28, 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion may be understood more fully by reference to the
condensed consolidated financial statements, notes to the condensed
consolidated financial statements, and management's discussion and analysis
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as filed with the Securities and Exchange Commission.
Except for the historical information contained herein, the following
discussion may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to the Company's
actual results to differ materially from expected results include: the
availability, deliverability and cost of raw materials, such as wafers or
die, from the Company's suppliers, competitive pricing pressures,
fluctuations in manufacturing yields, new product announcements and
introductions by the Company or its competitors, changes in demand for, or in
the mix of, the Company's products, changes in average selling prices, the
gain or loss of significant customers, market acceptance of products
utilizing the Company's SuperFlash technology, changes in the channels
through which the Company's products are distributed, foreign currency
fluctuations, unanticipated research and development expenses associated with
new product introductions and the timing of significant orders. Operating
results could also be adversely affected by general economic conditions and a
downturn in the market for consumer products which incorporate the Company's
products, such as personal computers and cellular telephones. All of these
factors, and other factors, are difficult to forecast and can materially
affect the Company's quarterly or annual operating results. Fluctuations in
revenues and operating results may cause volatility in the Company's stock
price. Please also refer to the Company's Form 10-K for the year ended
December 31, 1996 in the Risk Factors section for a discussion of such risk
factors.
GENERAL
Silicon Storage Technology, Inc. ("SST" or the "Company") is a supplier of
flash memory devices, addressing the requirements of high volume
applications. Currently, the Company offers medium density flash memory
devices ranging from 512Kbit to 4Mbit that target a broad range of existing
and emerging applications in the personal computer ("PC"), PC peripheral,
communications, multimedia, and video game markets. Consumer products
currently sold with the Company's products include, but are not necessarily
limited to, personal computers, CD-ROMs and hard disk drives, electronic
organizers/personal digital assistants, portable telephones, modems, set-top
boxes and pagers. During the six month period ended June 30, 1997, 39% and
45% of the Company's product revenues have been derived from the sale of
1Mbit and 512Kbit flash memory devices, respectively, while the balance of
the Company's product revenues have been derived from the sales of 2Mbit and
4Mbit flash memory devices. The Company is developing higher density flash
memory products to address emerging markets such as digital cameras, voice
recorders, video telephones, memory cards, network adapter cards, digital
cellular phones and printer font storage.
During the second quarter of 1997, the Company derived approximately 27% and
29% of its product revenues from sales to Taiwan and Japan, respectively.
The Company intends to diversify its customer base by increasing sales in
other geographic areas and to continue targeting additional high volume
applications such as the cellular telephone, CD-ROM drive, hard disk drive,
pager, video game, electronic organizer and set-top box markets.
International product revenues accounted for 77% of total product revenues
during the six month period ended June 30, 1997. The Company expects that
international sales will continue to account for a significant portion of its
product revenues although the percentage may fluctuate from period to period.
Although the Company's international sales are primarily denominated in U.S.
dollars, these sales are subject to a number of risks associated generally
with international sales, including the effect of geo-political
uncertainties, currency fluctuations, state-imposed restrictions on the
repatriation of funds, import and export duties and restrictions.
RESULTS OF OPERATIONS: QUARTER AND SIX MONTHS ENDED JUNE 30, 1997
The following discussion relates to the financial statements of the Company
for the three months ended June 30, 1997 (current quarter) of the fiscal year
ending December 31, 1997, in comparison to the three months ended June 30,
1996 (comparable quarter of the prior year). In addition, certain comparisons
with the three months ended March 31, 1997 (previous quarter) are provided
where management believes it is useful to the understanding of continuing
trends. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results to be achieved for the full fiscal year
ending December 31, 1997.
8
<PAGE>
NET REVENUES. Net revenues were $35.1 million for the six months ended June
30, 1997 as compared to $46.4 million for the six months ended June 30, 1996.
The decrease in net revenue is due to declining average selling prices and
lower license fee income received. Net revenues decreased to $18.1 million
in the current quarter from $23.4 million for the comparable quarter of the
prior year.
Product revenues decreased to $17.7 million in the current quarter from $23.0
million for the comparable quarter of the prior year due to declining average
selling prices. Although units shipped increased by 38% between these two
periods, average selling prices declined approximately 50% on a weighted
average basis across 512 Kbit, 1 Mbit and 4 Mbit product lines. License,
royalty and development revenues were $0.3 million for the current quarter as
compared to $0.4 million in the comparable quarter for the prior year.
Current quarter non-product revenues consisted primarily of royalty payments.
During the second quarter of 1997, the Company derived approximately 27% of
product revenues from sales to Taiwan as compared to 42% for the comparable
quarter of the prior year. While the Company intends to diversify both the
market application of its products and its customer base, there can be no
assurance that such diversification will occur. International sales
accounted for approximately 76% of product revenues during the current
quarter, as compared to 82% for the comparable quarter of the prior year.
For the six months ended June 30, 1997, 33% of shipment dollars where from
Taiwan and, over the same period, 77% of shipment dollars were from
international sales. International sales are anticipated to account for a
substantial majority of all product revenues for the foreseeable future.
COST OF REVENUES. Gross margin was $3.7 million for the six months ended June
30, 1997 as compared to $19.2 million for the six months ended June 30, 1996.
The decrease in gross margin for the first six months of 1997 is due to a
combination of declining average selling prices and a charge to reduce the
carrying value of inventory to its approximate replacement cost. Gross
margin was $3.2 million or 18% of net revenues in the second quarter of 1997
as compared to $9.3 million or 40% of net revenues for the comparable quarter
in 1996. Future fluctuations in gross margins may occur as a result of
declining average selling prices which could lead to additional charges to
cost of revenues to reduce inventories to replacement costs; cost reduction
efforts that do not reduce costs faster than average selling price declines;
price changes in the costs of raw materials; changes in the mix between
license revenues and product revenues or the impact of changes in the product
mix.
The Company's agreement with Sanyo Electric Co. Ltd. ("Sanyo") provides for
wafer price adjustments based on dollar/yen exchange rate fluctuations. As a
result, a strengthening yen could result in higher cost of revenues. Gross
margins may also be affected by cost reductions, yield fluctuations, wafer
costs, changes in the mix of sales through distribution channels and
competitive pricing pressures.
Average selling prices of flash memory product are subject to significant
fluctuation due to periodic changes in supply and demand. Declining average
selling prices will adversely affect gross margins unless the Company is able
to offset such declines with reductions in per unit costs or changes in
product mix.
RESEARCH AND DEVELOPMENT. Research and development expenses were $4.2 million
for the six months ended June 30, 1997 as compared to $3.3 million for the
six months ended June 30, 1996. Research and development expenses were $2.2
million or 12% of net revenues during the second quarter of 1997 as compared
to $1.6 million or 7% of net revenues during the comparable quarter of 1996.
The increase in research and development expenses since last year is
primarily a result of hiring additional engineering personnel, depreciation
related to purchases of additional engineering test equipment, and increased
prototyping and product qualification costs associated with the Company's
process and product development efforts.
SALES AND MARKETING. Sales and marketing expenses were $2.9 million for the
six months ended June 30, 1997 as compared to $2.5 million for the six months
ended June 30, 1996. Sales and marketing expenses were $1.6 million or 9% of
net revenues during the first quarter of 1997, as compared to $1.3 million or
5% of net revenues for the comparable quarter in 1996. Sales and marketing
expenses consist primarily of sales commissions to manufacturer's
representatives, salaries of the Company's sales and marketing personnel and
product literature expenses. The increase in expense from the prior year
corresponds primarily to additional sales and marketing headcount, increased
advertising and promotional costs, and related collateral materials. The
increase due to higher personnel costs was somewhat offset by lower
commissions expense related to lower product revenues for the second quarter
of 1997.
9
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GENERAL AND ADMINISTRATIVE. General and administrative expenses were $2.4
million for the six months ended June 30, 1997 as compared to $1.6 million
for the six months ended June 30, 1996. General and administrative expenses
were $1.2 million or 6% of net revenues during the second quarter of 1997, as
compared to $0.9 million or 4% of net revenues during the comparable quarter
ended June 30, 1996. The increase is primarily due to the increase in
headcount, facilities-related expenses and outside service expenses.
INTEREST AND OTHER INCOME, NET. Interest income was $0.8 million for the six
months ended June 30, 1997 as compared to $1.1 million for the six months
ended June 30, 1996. Interest income was $0.5 million or 3% of net revenues
during the second quarter of 1997 compared to $0.6 million during the
comparable quarter of 1996. Interest income increased from the comparable
quarter of the prior year due to higher yields on investments in the current
quarter.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. The benefit from income taxes was
$1.4 million for the six months ended June 30, 1997 as compared to a
provision of $5.0 million for the six months ended June 30, 1996. The
benefit from income taxes was $0.3 million during the second quarter of 1997
as compared to a provision for income taxes of $2.4 million for the
comparable quarter of 1996. The benefit in the current year relates to the
Company's loss position for the six month period. The Company's effective
income tax rate was 38% for the prior year.
NET INCOME (LOSS) PER SHARE. The Company's net income (loss) per share for
the current quarter was ($0.04), compared to a net income per share of $0.15
in the comparable quarter of the prior year. The net loss per share is a
result of lower net revenues due to declining average selling prices, lower
gross margins due to average selling price declines, inventory adjustments
due to lower die prices and higher operating expenses than experienced in the
prior year. The Company's net loss per share for the six months ended June
30, 1997 was $0.15 as compared to a net income per share of $0.31 for the six
months ended June 30, 1996. The Company's change from a net income position
in the prior year to a net loss position in the current year is due primarily
to declining average selling prices despite an increase in shipment volume.
LIQUIDITY AND CAPITAL RESOURCES
Principal sources of liquidity at June 30, 1997 consisted of $39.1 million of
cash, cash equivalents, and short-term investments. As of June 30, 1997, the
Company had no open lines of credit or non-trade debt. However, the Company
may endeavor to open a line of credit in the future to secure additional
working capital to finance operational growth. The Company believes that the
cash balances, together with funds expected to be generated from operations
will be sufficient to meet its projected working capital and other cash
requirements through at least the next twelve months. However, there can be
no assurance that events in the future will not require the Company to seek
additional capital sooner or, if so required, that it will be available on
terms acceptable to the Company.
Year-to-date, the Company's operating activities provided cash of $3.6
million, which consisted primarily of decreases in inventories of $8.0
million and a decrease in accounts receivables of $0.7 million, offset by a
decrease in accounts payable of $5.9 million and a net loss of $3.5 million.
The decrease in inventory is due to the large number of units shipped at the
end of the current six month period and writedown of $3.2 million in the
first quarter of 1997 for declining average selling prices.
The Company made capital expenditures of approximately $0.7 million during
the current six months as compared to $4.7 million during the comparable six
months of the prior year. These expenditures were primarily for the purchase
of manufacturing test equipment, design and engineering tools, and computer
equipment. Similar levels of capital spending are expected to continue, and
may even increase, during the rest of 1997. In addition, the Company may use
its working capital to secure additional foundry capacity. These expenditures
may be in the form of deposits, equipment purchases, loans or equity
investments or joint ventures in or with wafer fabrication or other
companies. The purchases and subsequent resale of equipment to one of the
Company's subcontracted facilities resulted in cash inflows and outflows of
$1.6 million for the six months ended June 30, 1997. The Company incurred no
gain or loss on these transactions.
10
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The Company's financing activities used cash of approximately $1.6 million
during the six months ended June 30, 1997, primarily for the repurchase of
stock on the open market. In comparison, financing activities during the
same period of the prior year provided $46 thousand and consisted primarily
of proceeds from stock option exercises during the six month period.
In July, 1997 the Board of Directors authorized a stock repurchase program
whereby 1,000,000 shares of the Company's common stock may be repurchased on
the open market at prevailing market prices. The repurchase plan is expected
to continue until December 15, 1997, unless extended or shortened by the
Board of Directors.
PART II
ITEM 1. LEGAL PROCEEDINGS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section.
On January 3, 1996, Atmel sued the Company in the U.S. District Court for the
Northern District of California. Atmel's complaint alleges that the Company,
by making, using and selling devices, is willfully infringing five U.S.
patents owned by or exclusively licensed to Atmel. Regarding each of these
five patents, Atmel seeks a judgment that the Company has infringed the
patent, an injunction prohibiting further infringement, treble the amount of
damages caused by the alleged infringement and attorney's fees, costs and
expenses. On February 13, 1996 the Company filed an answer denying Atmel's
allegations and asserting affirmative defenses and counterclaims. On March
18, 1997, the International Trade Commission instituted an investigation
against two suppliers of the Company's parts based upon a complaint filed by
Atmel. This action involves certain of the patents that Atmel has alleged
the Company infringes. The Company has intervened as a party to that
investigation. Pursuant to indemnification agreements with these suppliers,
the Company has agreed to indemnify both to the extent that it is required to
do so under the agreements. There can be no assurance that the Atmel
complaint or other third party assertions will be resolved without costly
litigation.
On June 25, 1997, a U.S. District Court Judge denied Atmel's motions for
summary judgment for certain patents mentioned in the above lawsuit. The
basis for the denial was that not all elements of the claims of the patents
were infringed as required for a favorable ruling. The case is scheduled for
trial on November 24, 1997.
At the present time, there is no other material pending litigation or
proceeding involving a director, officer, employee or other agent of the
Company in which indemnification would be required or permitted. The Company
is not aware of any threatened litigation or proceeding which may result in a
claim for such indemnification.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant's Annual Meeting of Shareholders (the "Annual Meeting") was
held on July 23, 1997. At the Annual Meeting, the shareholders of the
Registrant (i) elected each of the persons listed below to serve as a
director of the Registrant for the ensuing year and until his successor is
elected; and (ii) ratified the selection of Coopers & Lybrand L.L.P. as the
Registrant's Independent Accountants for the fiscal year ending December 31,
1997.
The Registrant had 23,023,650 shares outstanding as of May 27, 1997, the
record date of the Annual Meeting. At the Annual Meeting, holders of
17,778,939 shares of Common Stock were present in person or represented by
proxy. The following sets forth information regarding the results of the
voting at the Annual Meeting.
11
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTOR VOTES IN FAVOR VOTES AGAINST ABSTENTIONS
- -------- -------------- ------------- -----------
Bing Yeh 17,511,006 0 267,933
Yaw Wen Hu 17,531,106 0 247,833
Tsuyoshi Taira 17,679,706 0 99,233
Yasushi Chikagami 17,679,706 0 99,233
Ronald Chwang 17,647,394 0 131,545
PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Votes in Favor 17,684,722
Votes Against 77,923
Abstentions 16,294
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The Company hereby incorporates by reference all exhibits filed
in connection with Form 10-K for the year ended December 31, 1996.
EXHIBIT
NUMBER DESCRIPTION
11.1 Statement Regarding Computation of Net Income (Loss) Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June 30, 1997: None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sunnyvale, County of Santa Clara,
State of California, on the 12th day of August, 1997.
SILICON STORAGE TECHNOLOGY, INC.
By:
/s/ BING YEH
---------------------------------------
Bing Yeh
President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ MICHAEL J. PRAISNER
---------------------------------------
Michael J. Praisner
Vice President Finance & Administration,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
13
<PAGE>
Exhibit 11.1
SILICON STORAGE TECHNOLOGY, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRIMARY BASIS:
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1997
---- ----
<S> <C> <C>
Weighted average shares of common stock 22,791 23,112
Weighted average shares of common stock obtainable on exercise of
options and warrants and upon conversion of convertible
preferred stock 2,454 -
------ -------
Shares used in per share calculations 25,245 23,112
------ -------
Net income (loss) $3,722 ($1,109)
------ -------
Net income (loss) per share $ 0.15 ($0.04)
------ -------
------ -------
PRIMARY BASIS:
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1997
---- ----
Weighted average shares of common stock 22,791 23,191
Weighted average shares of common stock obtainable on exercise of
options and warrants and upon conversion of convertible
preferred stock 2,422 -
------ -------
Shares used in per share calculations 25,213 23,191
------ -------
Net income (loss) $7,921 ($3,538)
------ -------
Net income (loss) per share $ 0.31 ($0.15)
------ -------
------ -------
</TABLE>
Net income (loss) per share is presented in the Company's financial
statements under the primary basis as the effect of dilution under the fully
diluted basis is not material.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS FOUND IN THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 33,440
<SECURITIES> 5,690
<RECEIVABLES> 12,683
<ALLOWANCES> 579
<INVENTORY> 3,497
<CURRENT-ASSETS> 59,020
<PP&E> 16,758
<DEPRECIATION> 8,681
<TOTAL-ASSETS> 68,112
<CURRENT-LIABILITIES> 8,475
<BONDS> 0
0
0
<COMMON> 53,318
<OTHER-SE> 6,319
<TOTAL-LIABILITY-AND-EQUITY> 68,112
<SALES> 34,581
<TOTAL-REVENUES> 35,148
<CGS> 31,407
<TOTAL-COSTS> 40,910
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,921)
<INCOME-TAX> (1,383)
<INCOME-CONTINUING> (3,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,538)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
