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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended January 31,1997 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 0-21488
CATALYST SEMICONDUCTOR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0083129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 Borregas Avenue, Sunnyvale, California 94089
(408) 542-1000
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of January
25, 1997 was 7,947,635
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1 Financial Statements
Unaudited Condensed Consolidated Balance Sheets
at January 31, 1997 and April 30, 1996................................. Page 3
Unaudited Condensed Consolidated Statements of Operations for the
three and nine month periods ended January 31, 1997 and
December 31, 1995...................................................... Page 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the nine month periods ended January 31, 1997 and
December 31, 1995...................................................... Page 5
Notes to Unaudited Condensed Consolidated Financial Statements......... Page 6
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition ............................................... Page 7-10
PART II - OTHER INFORMATION
Item 5 Other Information ..................................................... Page 11
Item 6 Exhibits and Reports on Form 8-K ...................................... Page 11
Signatures ................................................................... Page 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 31, April 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 3,581 $ 2,966
Restricted cash ............................... 5,250 5,250
Accounts receivable, net ...................... 7,960 10,470
Inventories ................................... 14,234 16,193
Other assets .................................. 972 1,346
------------ ------------
Total current assets .................... 31,997 36,225
Property and equipment, net ...................... 4,193 3,050
------------ ------------
$ 36,190 $ 39,275
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ................................ $ 4,880 $ 130
Accounts payable .............................. 12,700 17,310
Accrued expenses .............................. 1,797 2,132
Deferred gross profit on
shipments to distributors ................... 502 1,109
Current portion of debt and
capital lease obligations ................... 468 513
------------ ------------
Total current liabilities ............... 20,347 21,194
Long-term portion of debt and
capital lease obligations ................... 742 571
------------ ------------
Total liabilities ....................... 21,089 21,765
Total stockholders' equity ....................... 15,101 17,510
------------ ------------
$ 36,190 $ 39,275
============ ============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
3
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
Jan. 31, 1997 Dec. 31, 1995 Jan. 31, 1997 Dec. 31, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues ....................... $ 10,178 $ 15,505 $ 38,088 $ 44,149
Cost of revenues ................... 8,434 10,851 29,693 30,952
---------------- ---------------- ---------------- ----------------
Gross profit ....................... 1,744 4,654 8,395 13,197
Research and development ........... 1,451 1,192 4,441 3,292
Selling, general and administrative 1,750 2,420 6,695 7,137
---------------- ---------------- ---------------- ----------------
Income (loss) from operations ...... (1,457) 1,042 (2,741) 2,768
Interest income (expense), net ..... (106) (64) (73) (227)
---------------- ---------------- ---------------- ----------------
Income (loss) before income taxes .. (1,563) 978 (2,814) 2,541
Income tax provision ............... 12 2 90 19
---------------- ---------------- ---------------- ----------------
Net income (loss) .................. $ (1,575) $ 976 $ (2,904) $ 2,522
================ ================ ================ ================
Net income (loss) per share ........ $ (0.20) $ 0.12 $ (0.37) $ 0.32
================ ================ ================ ================
Shares used in per share calculation 7,933 8,182 7,900 7,981
================ ================ ================ ================
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
4
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
Jan. 31, 1997 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ (2,904) $ 2,522
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization ..................................... 1,286 1,255
Changes in assets and liabilities:
Accounts receivable ............................................. 2,510 (2,554)
Inventories ..................................................... 1,959 (1,487)
Other assets .................................................... 374 (239)
Accounts payable ................................................ (4,610) 1,901
Accrued expenses ................................................ (335) (2,907)
Deferred gross profit on shipments to distributors .............. (607) 814
-------------- --------------
Net cash provided by (used in) operating activities ........... (2,327) (695)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments .................................. -- 909
Cash used for the acquisition of equipment ........................ (2,429) (751)
Proceeds from the disposal of equipment ........................... -- 613
-------------- --------------
Cash provided by (used in) investing activities ................. (2,429) 771
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock transactions, net .................................... 495 1,187
Net proceeds from (payment of) line of credit ..................... 4,750 (3,070)
Proceeds from issuance of long-term debt .......................... 617 --
Payment of long-term debt and capital lease obligations ........... (491) (846)
-------------- --------------
Cash provided by (used in) financing activities ................. 5,371 (2,729)
-------------- --------------
Net increase (decrease) in cash and cash equivalents ................. 615 (2,653)
Cash and cash equivalents at beginning of the period ................. 2,966 5,246
-------------- --------------
Cash and cash equivalents at end of the period ....................... $ 3,581 $ 2,593
============== ==============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
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CATALYST SEMICONDUCTOR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the unaudited condensed consolidated interim
financial statements included herein have been prepared on the same basis as the
April 30, 1996 audited consolidated financial statements and include all
adjustments, consisting of only normal recurring adjustments, necessary to
fairly state the information set forth herein. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission,
but omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended April 30, 1996. The results of operations for the nine month period
ended January 31, 1997 are not necessarily indicative of the results to be
expected for the entire year.
NOTE 2 - NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during each period presented. Dilutive common equivalent shares
consist of common stock issuable upon the exercise of stock options (using the
treasury stock method). Common Stock equivalents were excluded from the net
income (loss) per share calculations for the three and nine month periods ended
January 31, 1997 as their effect was anti-dilutive.
NOTE 3 - CERTAIN BALANCE SHEET CAPTIONS (IN THOUSANDS):
<TABLE>
<CAPTION>
Jan. 31, April 30,
1997 1996
----------- -----------
<S> <C> <C>
Inventories:
Raw materials ................................. $ 5,287 $ 8,093
Work-in-process ............................... 1,584 2,371
Finished goods ................................ 7,363 5,729
----------- -----------
$ 14,234 $ 16,193
=========== ===========
Property and equipment:
Engineering and test equipment ................ $ 9,416 $ 9,037
Computer hardware and software ................ 3,782 3,297
Furniture and office equipment ................ 1,181 612
----------- -----------
14,379 12,946
Less: accumulated depreciation
and amortization ........................... (10,186) (9,896)
----------- -----------
$ 4,193 $ 3,050
=========== ===========
</TABLE>
NOTE 4 - DEBT:
Under the terms of a bank revolving line of credit, the Company can borrow the
lesser of $12.5 million or an amount determined by a formula applied to eligible
accounts receivable. The revolving line of credit is secured by accounts
receivable and inventory and subject to compliance with loan covenants. At
January 31, 1997, the Company was not in compliance with certain of the loan
covenants. The bank has, however, waived the compliance requirements relating to
those covenants as of January 31, 1997.
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CATALYST SEMICONDUCTOR, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto included in this
report. In addition, the Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
Specifically, the Company wishes to alert readers that the factors set forth in
"Certain Factors that May Affect the Company's Future Results" as set forth
below in this Item 2, as well as other factors, in the past have affected and in
the future could affect the Company's actual results, and could cause the
Company's results for future quarters to differ materially from those expressed
in any forward looking statements made by or on behalf of the Company.
RESULTS OF OPERATIONS
In February 1996, the Company changed its fiscal year end from the Saturday
closest to March 31 to the Sunday closest to April 30. This report compares the
three and nine month periods ended January 31, 1997, to the three and nine month
periods ended December 31, 1995.
Revenues. Total revenues consist primarily of net product sales. A substantial
portion of net product sales has been made through independent distributors. The
Company generally does not recognize revenues on such sales until the
distributor resells the Company's products. Total revenues decreased by 34% to
$10.2 million for the quarter ended January 31, 1997 from $15.5 million for the
quarter ended December 31, 1995. For the nine months ended January 31, 1997,
total revenues decreased 14% to $38.1 million from $44.1 million for the nine
months ended December 31, 1995. The decreases were primarily attributable to
price erosion caused by adverse industry-wide conditions. The Company has
experienced a decrease in backlog for its products due primarily to
industry-wide capacity increases and shorter leadtimes on orders. This reduction
in backlog has limited the Company's ability to anticipate future demand. A
continuation of weak demand for the Company's products could lead to continued
poor operating results.
Gross Profit. Gross profit decreased by 63% to $1.7 million, or 17% of
revenues, for the quarter ended January 31, 1997 from $4.7 million, or 30% of
revenues, for the quarter ended December 31, 1995. For the nine months ended
January 31, 1997, gross profit decreased by 36% to $8.4 million, or 22% of
revenues, from $13.2 million, or 30% or revenues, for the nine months ended
December 31, 1995. The decreases were primarily attributable to price erosion
caused by adverse industry-wide conditions. Lower cost versions of the Company's
Flash products, produced on 0.6 micron processes, are expected to be completed
in the April 1997 quarter and reductions in product cost are expected in the
July 1997 quarter, when those products are expected to begin shipping to
customers.
Research and Development. Research and development (R&D) expenses consist
principally of salaries for engineering, technical and support personnel,
depreciation of equipment, and the cost of wafers used to evaluate new products
and new versions of current products. R&D expenses increased by 22% to $1.5
million, or 14% of revenues, for the quarter ended January 31, 1997 from $1.2
million, or 8% of revenues, for the quarter ended December 31, 1995. For the
nine months ended January 31, 1997, R&D expenses increased by 35% to $4.4
million, or 12% of revenues, from $3.3 million, or 7% of revenues, for the nine
months ended December 31, 1995. The primary reasons for the increase in absolute
dollars spent were increased personnel costs, higher material costs for wafers
being evaluated for new products and new versions of current products and higher
facility costs (related to the Company's move into a new building in August
1996.)
Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses consist principally of salaries for sales, marketing and
administrative personnel, commissions and promotional activities. SG&A expenses
decreased by 28% to $1.8 million, or 17% of revenues, for the quarter ended
January 31, 1997 from $2.4 million, or 16% of revenues, for the quarter ended
December 31, 1995. For the nine months ended January 31, 1997, SG&A expenses
decreased by 6% to $6.7 million, or 18% of revenues, from $7.1 million, or 16%
of revenues, for the nine months ended December 31, 1995. The primary reasons
for the decrease in absolute dollars spent were decreased personnel costs, due
to reductions in headcount including the Company's reduction in workforce in
November 1996 and decreased commission costs due to decreased revenue levels.
Net Interest Income (Expense.) Net interest expense increased by 66% to
$106,000 for the quarter ended January 31, 1997 from $64,000 for the quarter
ended December 31, 1995. For the nine months ended January 31, 1997, net
interest expense decreased by 68% to $73,000 from $227,000 for the nine months
ended December 31, 1995. For the three month periods, the change was primarily
attributable to increased average outstanding borrowings. For the nine month
periods, the change was primarily attributable to decreased borrowing rates on
the Company's bank line of credit and decreased
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CATALYST SEMICONDUCTOR, INC.
average outstanding borrowings.
Income Tax Provision. The income tax provision is due primarily to alternative
minimum taxes on U.S. and state taxable income and foreign income taxes.
As of April 30, 1996 the Company had available net operating loss
carryforwards of approximately $18.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, expiring from 2001 to 2008.
Availability of the net operating loss and general business credit carryforwards
may potentially be reduced in the event of substantial changes in equity
ownership.
LIQUIDITY AND CAPITAL RESOURCES
Total cash (including $5.3 million of restricted cash) increased $0.6 million
to $8.8 million as of January 31, 1997 from $8.2 million as of April 30, 1996.
The increase was primarily attributable to borrowings against the Company's bank
line of credit, offset in part by net cash used by operating activities and for
the acquisition of equipment. As of January 31, 1997, $5.3 million of the cash
was pledged as security on letters of credit required by certain of the
Company's wafer foundries. Net cash used by operating activities totaled $2.3
million for the nine months ended January 31, 1997. This net use of cash is
primarily attributable to a decrease in accounts payable and net operating
losses, offset in part by a decrease in accounts receivable and inventories.
Under the terms of a bank revolving line of credit, the Company can borrow the
lesser of $12.5 million or an amount determined by a formula applied to eligible
accounts receivable. The revolving line of credit is secured by accounts
receivable and inventory and subject to compliance with loan covenants. At
January 31, 1997, the Company was not in compliance with certain of the loan
covenants. The bank has, however, waived the compliance requirements relating to
those covenants as of January 31, 1997 and it is the Company's intent to
negotiate a new revolving line of credit.
The Company believes that current cash balances, together with cash generated
from operations and borrowings available under the Company's bank line of credit
and from equipment financing, will be sufficient to fund capital and working
capital needs through fiscal 1998. Thereafter, the Company may require
additional equity or debt financing to address its working capital needs, to
provide funding for capital expenditures or to fund increases to restricted cash
requirements. There can be no assurances, however, 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.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS
The Company desires to take advantage of certain provisions of the Private
Securities Litigation Reform Act of 1995, enacted in December 1995 (the "Reform
Act") that provides a "safe harbor" for forward-looking statements made by or on
behalf of the Company. The Company hereby cautions shareholders, prospective
investors in the Company and other readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's stock price or cause the Company's actual results for the fiscal
quarter ending April 30, 1997, for the fiscal year ending April 30, 1997, and
future fiscal quarters and years to differ materially from those expressed in
any forward-looking statements, oral or written, made by or on behalf of the
Company.
The Company's business and future operating results are subject to potential
fluctuations due to a number of factors including the following:
Fluctuations in Operating Results. Although the Company was profitable in
fiscal years 1996 and 1995, operating results benefited from high gross margins
achieved on sales of inventories of older generation Flash products, for which
the costs had previously been charged off, and the recognition of revenue
previously deferred as a result of foreign distributors who agreed to amend
their agreements with the Company. The Company will not receive any further
material benefit from sales of charged off inventory. The Company has
experienced net operating losses in each of the last two quarters primarily due
to price erosion caused by adverse industry-wide conditions and there can be no
assurances that the Company will be able to return to profitability in future
periods. The Company's operating results have historically been and will
continue to be subject to fluctuation and may be adversely affected in future
quarters due to factors such as timing and market acceptance
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CATALYST SEMICONDUCTOR, INC.
of new products introduced by the Company and its competitors, fluctuations in
customer demand for the Company's products, volatility in supply and demand
affecting market prices generally, increased expenses associated with new
product introductions or process changes, increased expenditures related to
expanding the Company's sales channels, gains or losses of significant
customers, timing of significant orders for the Company's products, fluctuations
in manufacturing yields, wafer price increases under wafer supply agreements due
to foreign currency fluctuations, changes in product mix and general economic
conditions.
Semiconductor Industry. The semiconductor industry is highly cyclical and has
been subject to significant economic down turns at various times, characterized
by diminished product demand, accelerated erosion of average selling prices and
production overcapacity. Accordingly, the Company may experience substantial
period to period fluctuations in future operating results due to general
semiconductor industry conditions, overall economic conditions or other factors.
For example, semiconductor market conditions are currently characterized by
short lead-times and therefore decreased ability to anticipate demand. If poor
general market conditions persist, the Company's operating results could
continue to be adversely affected.
Future Capital Needs. The Company has had limited cash resources in recent
periods and operating activities have consumed significant amounts of cash. The
Company believes that substantial investments in research and development and
sales and marketing expenditures are essential to revenue growth and to maintain
and enhance the Company's competitive position. There can be no assurance that
the Company will be able to generate sufficient cash from operations or other
sources to fund these investments. Moreover, there can be no assurance that such
expenditures will result in successful product introductions or increased
revenues. Although certain expenses can be managed or controlled on a short term
basis, a substantial portion of such expenses are essentially fixed on a quarter
to quarter basis. As a result, to the extent the Company suffers adverse effects
to its revenues or margins because of delays in new product introductions,
fluctuations in customer demand for the Company's products, volatility in supply
and demand affecting market prices generally or other competitive factors, the
Company may be unable to take actions in the short term to substantially reduce
expenses.
Inventory. The cyclical nature of the semiconductor industry periodically
results in shortages and over-supply of wafer fabrication capacity such as the
Company experiences from time to time. Since the Company must order products and
build inventory substantially in advance of product shipments, there is a risk
that the Company will forecast incorrectly and produce excess or insufficient
inventories of particular products because demand for the Company's products is
volatile and customers place orders with short lead times. The ability of the
Company's customers to reschedule or cancel orders without significant penalty
could adversely affect the Company's liquidity, as the Company may be unable to
adjust its purchases from its wafer suppliers to match such customer changes and
cancellations. During the quarter ended January 31, 1997, the Company reduced
its inventory by $1.8 million primarily due to reductions in wafer purchases,
however, its inventory level remains relatively high at approximately 153 days
on-hand. There can be no assurance that the Company in the future will not
produce excess quantities of any of its products. To the extent the Company
produces excess inventories of particular products, the Company's operating
results could be adversely affected, as was the case during the last half of
fiscal 1994, during which period the Company took significant charges largely to
reflect a decline in the market value of inventory.
Flash Memory Market. The market for Flash memory products has been
characterized by long production cycles, inconsistent yields, competing
technologies and intense overall competition. The Company's fiscal 1995
operating results were adversely affected by lack of market acceptance of its
Flash memory products particularly when Intel, the dominant supplier in the
Flash market, significantly increased Flash production volume in the second half
of fiscal 1994. Intel and other competitors (which include Advanced Micro
Devices, Atmel, Fujitsu, Hitachi, Micron, Mitsubishi, SGS-Thomson, Sharp, Texas
Instruments and Toshiba) are expected to further increase Flash memory
production. There can be no assurance that the Company will be able to sustain
market acceptance for its Flash memory products in the light of competition from
such major domestic and international companies. The Company anticipates
continued price and other competitive pressures, which adversely affected fiscal
1997, 1995 and 1994 operating results and could further adversely affect the
Company's future operating results. For example, prices for the Company's Flash
memory products declined approximately 20% in the quarter ended October 31,
1996.
Competition. The semiconductor industry is intensely competitive and
characterized by severe price competition, price erosion, rapid technological
change, product obsolescence and intellectual property litigation. The Company
competes with major domestic and international semiconductor companies, most of
whom have substantially greater financial, technical, marketing and distribution
resources than the Company. There can be no assurance that the Company will be
able to compete successfully in the future. In addition, the Company's success
depends on the continuing contributions of
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CATALYST SEMICONDUCTOR, INC.
its officers and other key personnel many of whom could be difficult to replace
and on its ability to attract and retain skilled employees, particularly
engineers, marketing and sales professionals, who are in great demand.
Dependence on Independent Foreign Manufacturers; Manufacturing Risks. The
Company does not manufacture the semiconductor wafers used for its products. The
Company principally utilizes facilities of OKI in Japan, and is transitioning
manufacturing of certain products to United Microelectronics Corporation (UMC)
in Taiwan, to fabricate and test the Company's wafers, and subcontractors in
South East Asia to assemble finished integrated circuits. To date, a majority of
these wafers and all of the Company's Flash wafers have been manufactured by
OKI. The manufacture of semiconductor products is highly complex and sensitive
to a wide variety of factors, and as is typical in the semiconductor industry
the Company's outside wafer foundries from time to time have experienced lower
than anticipated production yields. While the Company believes it has an
adequate wafer supply to meet its currently anticipated needs, there can be no
assurance that the Company will continue to receive sufficient quantities of
wafers at favorable prices on a timely basis, if at all, or that the Company
will be able to attain higher levels of wafer supply as demand requires.
Material disruptions in the supply of wafers as a result of manufacturing yield
or other manufacturing problems are not uncommon in the semiconductor industry.
The Company has experienced production transition delays in the past which
adversely affected operating results, particularly in fiscal year 1994. There
can be no assurance that the Company will not experience such problems in the
future. The loss of OKI as a supplier, the inability to integrate UMC as a
supplier on a timely basis, any prolonged inability to obtain adequate yields or
deliveries from OKI or other subcontractor manufacturers, or any other
circumstance that would require the Company to seek alternative sources of
supply, could delay shipments and have a material adverse effect on the
Company's business and operating results. Additionally, any prolonged inability
of the Company to obtain adequate yields from OKI or other subcontract
manufacturers, could materially increase the unit cost of the Company's products
and may have a material adverse effect on the Company's operating results.
Moreover, the inability to procure supplies and services from these foreign
subcontractor manufacturers on commercially reasonable terms as a result of
foreign currency exchange rate fluctuations may have a material adverse effect
on the Company's operating results. The Company has a wafer purchase agreement
with OKI under which the price of wafers is based upon the exchange rate between
the US dollar and Japanese Yen. As a result, exchange rate fluctuations will
cause the Company's cost per die to fluctuate in the future and gross profit
could be adversely affected. In addition, the Company's business is subject to
other risks generally associated with doing business with foreign
subcontractors.
International Operations. For the nine months ended January 31, 1997,
international sales accounted for 67% of the Company's product sales. In fiscal
1996, 1995 and 1994, international sales accounted for 60%, 61% and 53%,
respectively, of the Company's product sales. The Company expects that
international sales will continue to represent a significant portion of its
product sales in the future. The Company also expects to continue to subcontract
its manufacturing activity to foreign companies as noted above. The Company's
international operations may be adversely affected by a variety of factors
including fluctuations in exchange rates, imposition of government controls,
political and economic instability, trade restrictions, changes in regulatory
requirements, difficulties in staffing international operations and longer
payment cycles. There can be no assurance these or other factors related to
international operations will not have a material adverse affect on the
Company's business, financial condition and results of operations.
New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence, and the timely introduction of new products is a key factor in the
success of the Company's business. In particular, the Company's future success
will depend on its ability to develop and implement new design and process
technologies which enable the Company to achieve higher product densities and
thereby reduce product costs. For example, most of the Company's products are
currently designed and manufactured using a 1.0 micron CMOS EEPROM process or a
0.7 micron Flash memory process. There can be no assurance that the Company will
be able to select and develop new products and technologies and introduce them
to the market in a timely manner and with acceptable fabrication yields and
production costs. The Company currently has such major transitions in process.
These transitions are to change certain EEPROM products from 1.0 micron to 0.8
micron designs, certain Flash memory products from 0.7 micron to 0.6 micron
designs at OKI and the development of new Flash memory products on 0.5 micron
designs at UMC. Delays in developing new products or achieving volume production
of new products, or the lack of commercial acceptance of new products introduced
by the Company, could have a material adverse effect on the Company's business
and operating results.
Risk of Intellectual Property Litigation. In the semiconductor industry it is
typical for companies to receive notices from time to time that allege
infringement of patents or other intellectual property rights of others. There
can be no assurance that the Company will not receive any such notification or
that proceedings alleging infringement of intellectual property rights will not
be commenced against the Company in the future. In such event, there can be no
assurances that the Company could obtain any required licenses of third party
intellectual property rights or could obtain such licenses on
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CATALYST SEMICONDUCTOR, INC.
commercially reasonable terms. Failure to obtain such a license in any event
could require the Company to cease production of its products until the Company
develops a non-infringing design or process. Moreover, the cost of litigation of
any such claim or damages resulting therefrom could be substantial and could
materially and adversely affect the Company's business, financial condition and
results of operations.
Takeover Resistive Measures. The Company's Shareholder Rights Plan and the
ability of the Company's Board of Directors to issue "blank check" preferred
stock without further approval of the stockholders as well as the Company's
staggered terms for its Directors could have the effect of delaying or
preventing a change in control of the Company.
Volatility of Stock Price. The Company's stock price has been subject to
significant volatility. Any shortfall in revenues or earnings from levels
expected or projected by securities analysts or others in the future could have
an immediate and significant adverse effect on the trading price of the
Company's Common Stock in any given period. For example, the Company's stock
price has been trading at approximately $3 per share after its quarter ended
October 31, 1996 earnings announcement after trading at approximately $5 per
share prior to that announcement. In addition, the stock market in general has
experienced extreme price and volume fluctuations particularly affecting the
market prices for many high technology and small capitalization companies, and
these fluctuations have often been unrelated to the operating performance of the
specific companies. These broad fluctuations have adversely affected and may in
the future adversely affect the market price for the Company's Common Stock.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Daryl Stemm has been promoted to the position of Vice President of Finance &
Administration and Chief Financial Officer. Mr. Stemm has been with Catalyst
since 1989 and held the position of assistant controller, controller and
director of finance & administration. He holds a bachelor's degree in business
economics from the University of California, Santa Barbara.
Scott Parker resigned as Vice President of Marketing & Sales effective March
7, 1997 in order to pursue other interests. Mr. Parker's responsibilities in
sales and operations will be assumed by Michael Powell , the Company's Chairman,
President and Chief Executive Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
The Company filed a report on Form 8-K dated January 22, 1997, reporting the
adoption of a stockholder rights plan. Except for the foregoing, the Company
filed no reports on Form 8-K during the quarter ended January 31, 1997.
11
<PAGE> 12
CATALYST SEMICONDUCTOR, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Sunnyvale and State of
California.
Date: March 13, 1997 By: /s/ C. Michael Powell
------------------ --------------------------------------
C. Michael Powell
Chairman of the Board of
Directors, President
and Chief Executive Officer
Date: March 13, 1997 By: /s/ Daryl E. Stemm
------------------ --------------------------------------
Daryl E. Stemm
Vice President of Finance and
Administration and
Chief Financial Officer
12
<PAGE> 13
CATALYST SYSTEMS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF JANUARY 31, 1997 AND APRIL 30, 1996, STATEMENTS OF OPERATIONS AND
STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY 31,
1997 AND DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996 APR-30-1997 APR-30-1996
<PERIOD-START> NOV-01-1997 OCT-01-1995 MAY-01-1996 APR-01-1995
<PERIOD-END> JAN-31-1997 DEC-31-1995 JAN-31-1997 DEC-31-1995
<CASH> 8,831 8,831 8,216 8,216
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,110 8,110 10,570 10,570
<ALLOWANCES> (150) (150) (100) (100)
<INVENTORY> 14,234 14,234 16,193 16,193
<CURRENT-ASSETS> 31,997 31,997 36,225 36,225
<PP&E> 14,379 14,379 12,946 12,946
<DEPRECIATION> (10,186) (10,186) (9,896) (9,896)
<TOTAL-ASSETS> 38,190 38,190 39,275 39,275
<CURRENT-LIABILITIES> 20,347 20,347 21,194 21,194
<BONDS> 742 742 571 571
0 0 0 0
0 0 0 0
<COMMON> 41,756 41,756 41,263 41,263
<OTHER-SE> (26,655) (26,655) (23,753) (23,753)
<TOTAL-LIABILITY-AND-EQUITY> 36,190 36,190 39,275 39,275
<SALES> 10,178 15,505 38,088 44,149
<TOTAL-REVENUES> 10,178 15,505 38,088 44,149
<CGS> 8,434 10,851 29,693 30,952
<TOTAL-COSTS> 8,434 10,851 29,693 30,952
<OTHER-EXPENSES> 3,201 3,612 11,086 10,429
<LOSS-PROVISION> 0 0 50 0
<INTEREST-EXPENSE> 106 64 73 227
<INCOME-PRETAX> (1,563) 978 (2,814) 2,541
<INCOME-TAX> 12 2 90 19
<INCOME-CONTINUING> (1,575) 976 (2,904) 2,522
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (1,575) 976 (2,904) 2,522
<EPS-PRIMARY> (0.20) 0.12 (0.37) 0.32
<EPS-DILUTED> (0.20) 0.12 (0.37) 0.32
</TABLE>
