<PAGE> 1
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 August 1, 1999 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)
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<S> <C>
Delaware 77-0083129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1250 Borregas Avenue,
Sunnyvale, California 94089
(Address, including zip code, of
Registrant's principal executive offices)
(408) 542-1000
(Registrant's telephone number,
including area code)
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
September 10, 1999 was 14,049,300
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
at July 31, 1999 and April 30, 1999............................... Page 3
Unaudited Condensed Consolidated Statements of Operations
for the three month periods ended July 31, 1999 and 1998.......... Page 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the three month periods ended July 31, 1999 and 1998.......... Page 5
Notes to Unaudited Condensed Consolidated Financial Statements.... Pages 6-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................................ Pages 9-17
PART II - OTHER INFORMATION
Item 5. Other Information................................................. Page 18
Item 6. Exhibits and Reports on Form 8-K.................................. Page 18
Signatures................................................................ Page 19
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31, April 30,
1999 1999
-------- --------
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ASSETS
Current assets:
Cash ............................................................ $ 1,408 $ 1,852
Accounts receivable, net ........................................ 5,616 5,119
Inventories ..................................................... 1,959 1,914
Other assets .................................................... 670 742
-------- --------
Total current assets ........................................ 9,653 9,627
Property and equipment, net ..................................... 1,940 1,939
-------- --------
$ 11,593 $ 11,566
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit .................................................. $ 2,788 $ 2,942
Accounts payable ................................................ 4,768 5,770
Accounts payable - related party ................................ 240 275
Accrued expenses ................................................ 1,960 1,508
Deferred gross profit on shipments to distributors .............. 1,311 1,061
Current portion of long-term debt and capital lease obligations.. 662 1,141
-------- --------
Total current liabilities ................................... 11,729 12,697
Long-term debt and capital lease obligations ......................... 219 81
-------- --------
Total liabilities ........................................... 11,948 12,778
Total stockholders' equity (deficit) ................................. (355) (1,212)
-------- --------
$ 11,593 $ 11,566
======== ========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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<CAPTION>
Three Months Ended
------------------------------
July 31, 1999 July 31, 1998
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Net revenues ......................... $ 9,196 $ 7,305
Cost of revenues ..................... 5,376 5,065
-------- --------
Gross profit ......................... 3,820 2,240
Research and development ............. 607 567
Selling, general and administrative... 2,212 2,096
-------- --------
Income (loss) from operations ........ 1,001 (423)
Interest income (expense), net ....... (148) (222)
-------- --------
Net income (loss) .................... $ 853 $ (645)
======== ========
Net income (loss) per share:
Basic ........................... $ 0.06 $ (0.06)
======== ========
Diluted ......................... $ 0.05 $ (0.06)
======== ========
Weighted average common shares:
Basic ........................... 13,969 9,942
======== ========
Diluted ......................... 17,859 9,942
======== ========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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<CAPTION>
Three Months Ended
------------------------------
July 31, 1999 July 31, 1998
------------- -------------
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Cash flows from operating activities:
Net income (loss) .................................. $ 853 $ (645)
Adjustments to reconcile net income (loss) to net
Cash provided by operating activities:
Depreciation and amortization .................. 265 348
Changes in working capital:
Accounts receivable ....................... (497) 796
Inventories ............................... (45) 478
Other assets .............................. 72 (220)
Accounts payable .......................... (1,037) 611
Accrued expenses .......................... 452 (467)
Deferred gross profit on shipments to
distributors ........................... 250 172
------- -------
Net cash provided by operating activities ............... 313 1,073
------- -------
Cash flows from investing activities:
Cash used for the acquisition of equipment ......... (266) (15)
------- -------
Cash used in investing activities ........... (266) (15)
------- -------
Cash flows from financing activities:
Sale of common stock ............................... 4 1,499
Net payments on line of credit ..................... (154) (1,033)
Payment of long-term debt and capital
lease obligations ................................ (341) (61)
------- -------
Cash provided by (used in) financing
activities ................................. (491) 405
------- -------
Net increase (decrease) in cash and cash equivalents .... (444) 1,463
Cash at beginning of the period ......................... 1,852 534
------- -------
Cash at end of the period ............................... $ 1,408 $ 1,997
======= =======
Supplemental cash flow disclosures:
Interest paid (net) ......................... $ 148 $ 222
======= =======
</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, 1999 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, 1999. The results of operations for the three month period
ended July 31, 1999 are not necessarily indicative of the results to be expected
for the entire year.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998 and much of fiscal 1999, the market for
certain FLASH and EEPROM devices, which comprise the majority of Catalyst's
business, experienced an excess market supply relative to demand which resulted
in a significant downward trend in prices. The Company could continue to
experience a downward trend in product pricing which could further adversely
affect the Company's operating results.
The Company's operating results in past years have consumed substantial
amounts of cash. The reduction in cash has also placed restrictions on wafer
purchases which, during the fourth quarter of 1998, resulted in the cancellation
of some customer sales orders. In fiscal 1999, the Company received gross
proceeds of $2.5 million from the sale of 5,500,000 shares of its Common Stock
in two private placements to the same investor, Elex, NV. Management believes,
however, that it may require additional cash from similar or related private
placements or other sources of liquidity to meet the Company's projected working
capital and other cash requirements for fiscal 2000, and is currently
considering other sources of liquidity.
As a result of these circumstances, the Company's independent accountants'
opinion on the Company's April 30, 1999 consolidated financial statements
includes an explanatory paragraph indicating that these matters raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's fiscal year and its first, second and third fiscal quarters
end the Sunday closest to April 30, July 31, October 31 and January 31,
respectively. For purposes of financial statement presentation, the year end
date is expressed as April 30 and the quarter end dates are expressed as July
31, October 31 or January 31.
NOTE 2 - INCOME (LOSS) PER SHARE
Basic net income per share is computed by dividing net income available to
common shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period and excludes the dilutive effect of
stock options. Diluted net income per share gives effect to all dilutive
potential common shares outstanding during a period. In computing diluted net
income per share, the average stock price for the period is used in determining
the number of shares assumed to be purchased from exercise of stock options.
A reconciliation of the numerators and denominators of the basic diluted
income per share is presented below:
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Three Months Ended
------------------------------
July 31, 1999 July 31, 1998
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Net income (loss) ............................ $ 853 $ (645)
======= =======
Shares calculation:
Weighted avg shares outstanding-basic .. 13,969 9,942
Effect of dilutive securities:
Stock options ........................... 3,890 --
------- -------
Weighted average shares outstanding-diluted .. 17,859 9,942
======= =======
Net income (loss) per share:
Basic ................................... $ 0.06 $ (0.06)
======= =======
Diluted ................................. $ 0.05 $ (0.06)
======= =======
</TABLE>
Options to purchase 981,000 shares of common stock at prices ranging from
$0.91 to $6.30 per share outstanding during the quarter ended July 31, 1999 and
options to purchase 2,466,000 shares of common stock at prices from $0.63 to
$6.30 per share outstanding during the quarter ended July 31, 1998 were not
included in the computation of diluted EPS because the inclusion of such options
would have been antidilutive.
NOTE 3 - BALANCE SHEET COMPONENTS (IN THOUSANDS):
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<CAPTION>
July 31, April 30,
1999 1999
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Accounts receivable:
Accounts receivable ........................... $ 5,902 $ 5,405
Less: Allowance for doubtful accounts ........ (286) (286)
-------- --------
$ 5,616 $ 5,119
======== ========
Inventories:
Work-in-process ............................... $ 831 $ 1,507
Finished goods ................................ 1,128 407
-------- --------
$ 1,959 $ 1,914
======== ========
Property and equipment:
Engineering and test equipment ................ $ 7,457 $ 7,193
Computer hardware and software ................ 3,487 3,485
Furniture and office equipment ................ 1,281 1,281
-------- --------
12,225 11,959
Less: accumulated depreciation and amortization (10,285) (10,020)
-------- --------
$ 1,940 $ 1,939
======== ========
</TABLE>
NOTE 4 - DEBT:
Under the terms of a bank revolving line of credit, the Company can borrow
the lesser of $5.0 million or an amount determined by a formula applied to
eligible accounts receivable at a variable interest rate of prime plus 4.5%
(12.5% at July 31, 1999).
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same amount.
The loan bore interest at 18% and was originally due and payable on May 15,
1998. During fiscal 1999, the interest payments were kept current and the
principal was reduced by $0.4 million. The loan was classified under the current
portion of long-term debt at April 30, 1999. In May 1999, the note was paid in
full and a new note for $0.7 million was issued bearing interest at 12.25%
interest and requiring monthly payments of $75,000. As of July 31, 1999, the
balance remaining under the loan was $0.5 million.
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NOTE 5 - SALE OF COMMON STOCK:
In May and September 1998, a private investor purchased 1,500,000 and
4,000,000 shares of the Company's common stock in private placements for $1.00
and $0.25 per share, respectively. Both offers and sales of the securities were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) of such Act. In connection with such issuance, the investor
agreed to various standstill and voting provisions including not acquiring
additional shares of Company Stock or taking actions to control the Company. The
Company also has repurchase rights with respect to the shares sold over the
twelve months from the date of issuance. In addition, until September 13, 1999,
the Company has the right to require the shareholder to purchase up to 4,000,000
additional shares of common stock at a purchase price of $0.25 per share.
NOTE 6 - 1998 SPECIAL EQUITY INCENTIVE PLAN
In December 1998, the Company adopted an additional stock option plan
entitled the Special Equity Incentive Plan ("Special Option Plan") for incentive
stock options and non-statutory stock options for certain directors, officers
and consultants of the Company. A total of 3.5 million shares of Common Stock
have been reserved for issuance under the Special Option Plan. Options granted
under the Special Option Plan are for periods not to exceed ten years. Options
generally vest over four year periods. During 1999, options totaling 3.3 million
shares were granted under the plan at a price of $0.125 per share when the
market was at $0.26 per share. As a result, an aggregate of $609,000 of
compensation expense will be recognized over the four year vesting period of the
options, $90,000 of which was recognized during the three-month period ended
July 31, 1999.
NOTE 8 - RELATED PARTY TRANSACTIONS
During the three month period ended July 31, 1999, the Company recorded
$98,000 of engineering expenses that were from a related party. As of July 31,
1999, the Company owes this related party $240,000.
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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.
OVERVIEW
Catalyst Semiconductor, Inc., incorporated October 8, 1985, designs,
develops and markets nonvolatile memory semiconductor products including Serial
and Parallel EEPROMs and Flash memory. Revenues are derived from sales of
semiconductor products designed by the Company and manufactured by other
companies.
The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998 and fiscal 1999, the market for certain
FLASH and EEPROM devices, which comprise the majority of Catalyst's business,
experienced an excess market supply relative to demand which resulted in a
significant downward trend in prices. The Company could continue to experience a
downward trend in product pricing which could adversely affect the Company's
operating results.
The Company's recent operating results have consumed substantial amounts of
cash. The reduction in cash has also placed restrictions on wafer purchases
which, during the fourth quarter of fiscal 1998 and the first quarter of fiscal
1999, resulted in the cancellation of some customer sales orders. In May 1998,
the Company received gross proceeds of $1.5 million from the sale of 1,500,000
shares of its Common Stock in a private placement and in September 1998,
received gross proceeds of $1.0 million from the sale of 4,000,000 additional
shares of its Common Stock to the same investor in a private placement.
Management believes, however, that it may require additional cash from similar
or related private placements or other sources of liquidity to meet the
Company's projected working capital and other cash requirements for fiscal 2000,
and is currently pursuing these sources of liquidity.
As a result of these circumstances, the Company's independent accountants'
opinion on the Company's April 30, 1999 consolidated financial statements
includes an explanatory paragraph indicating that these matters raise
substantial doubt about the Company's ability to continue as a going concern.
RESULTS OF OPERATIONS
Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales has been made through independent
distributors. Revenue from product sales to original equipment manufacturers and
from sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the distributor
sells the product to the end customer. Total revenues increased 26% to $9.2
million for the quarter ended July 31, 1999 from $7.3 million for the quarter
ended July 31, 1998. The increase was primarily attributable to an increase in
sales of the Company's EEPROM products. Total revenues of $9.2 million for the
quarter ended July 31, 1999 increased by 14% from $8.1 million for the quarter
ended April 30, 1999. The increase is primarily attributable to an increase in
units shipped that exceeded the effects of average sales price erosion
experienced during the quarter. The Company is reliant upon receiving and
fulfilling a significant quantity of orders within the same quarter to meet or
exceed its current revenue levels. A continuation of weak demand, capital
deficiencies and price erosion for the Company's products could lead to
continued poor operating results. For the three months ended July 31, 1999,
approximately 56% of the Company's revenues were derived from shipments to
international customers compared with 41% of net product sales in fiscal 1999.
The increase in international revenues is attributable to an improvement in the
Company's ability to compete effectively at the low prices prevalent in certain
markets in the Far East and increased shipments
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to the Company's distributors in Japan. All sales of the Company's products are
in US dollars, minimizing the effects of currency fluctuations.
Gross Profit. Gross profit for the quarter ended July 31, 1999 was $3.8
million, or 41% of revenues, compared to a gross profit of $2.2 million, or 30%
of revenues, for the quarter ended July 31, 1998. The increase in gross profit
percentage is primarily due to decreased per unit wafer, assembly and testing
costs and the Company reducing the level of sales of products with lower gross
margins. In the quarter ended July 31, 1999, the Company received the benefit of
approximately $0.5 million credit from the sale of inventory which was
previously reserved. In the first quarter of fiscal 1999, renegotiation of
amounts due under a licensing agreement resulted in a $0.5 million reduction in
cost of sales. It is the policy of the Company to fully reserve all inventory
that is not expected to be sold within a reasonable period of time following the
balance sheet date, generally within the ensuing six months. The Company pays
certain foreign manufacturing expenses in local currency, primarily Baht in
Thailand and Yen in Japan. Such expenses are not material to the Company and the
majority are paid within 45 days, minimizing the effects of currency
fluctuations.
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 remained at $0.6 million,
which represented 7% of revenues for the quarter ended July 31, 1999 in
comparison to 8% of revenues for the quarter ended July 31, 1998.
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
increased by 5% to $2.2 million, or 24% of revenues, for the quarter ended July
31, 1999, from $2.1 million, or 29% of revenues, for the quarter ended July 31,
1998. The increase is primarily attributable to increased expenses for sales and
administrative personnel.
Net Interest Income/expense. Net interest expense decreased by 33% to
$148,000 for the quarter ended July 31, 1999 from $222,000 for the quarter ended
July 31, 1998. The decrease is primarily related to the decreased average
outstanding borrowings.
Income Tax Provision. As a result of the Company's losses in previous
fiscal years, the provision for income taxes remained at zero for the quarter
ended July 31, 1999.
As of April 30, 1999 the Company had available net operating loss
carryforwards of approximately $37.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, which begin to expire in
fiscal 2001. 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
Cash decreased $0.4 million to $1.4 million as of July 31, 1999 from $1.9
million as of April 30, 1999. The decrease was primarily attributable to
reductions in the Company's vendor obligations.
Under the terms of a bank revolving line of credit, the Company can borrow
the lesser of $5.0 million or an amount determined by a formula applied to
eligible accounts receivable at a variable interest rate of prime plus 4.5%
(12.5% at July 31, 1999). As of July 31, 1999, the Company had approximately
$2.8 million of secured loans owed to its bank. As of July 31, 1999, under the
terms of its borrowing agreement, the Company was eligible to borrow
approximately $1.7 million additional cash and had cash on hand of $1.4 million.
The Company is also indebted to other creditors in the amount of approximately
$5.0 million. This amount is comprised of approximately $4.5 million for wafers
and inventory processing and approximately $0.5 million for other goods and
services. Additionally, although the Company is current on its lease payments
under the lease of its headquarters facility, as a result of its financial
condition, the Company is in violation of certain terms of its lease. Similar
violations have resulted under certain equipment lease agreements and the
Company has obtained a letter of forbearance from the principal equipment lessor
agreeing to not take any action on the existing condition of default through
April 2000.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same amount.
The loan bore interest at 18% and was originally due and payable on
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May 15, 1998. During fiscal 1999, the interest payments were kept current and
the principal was reduced by $0.4 million. In May 1999, the note was paid in
full and a new note for $0.7 million was issued bearing interest at a rate of
12.25% and requiring monthly payments of $75,000.
Although management believes the Company may have sufficient working
capital resources to continue its operations, the Company is seeking additional
equity or debt financing to address its working capital needs and to provide
funding for capital expenditures. There can be no assurances, however, that
financing will be available on terms acceptable to the Company, if at all. If
the Company is not successful in raising additional capital the Company can not
reasonably assess how long its current cash balances, cash generated from
operations and borrowings available under any remaining loans or lines of credit
and from equipment financing, even with reductions in operating expenses and
limited capital expenditures, will permit the Company to continue operations.
YEAR 2000 COMPLIANCE
The Company uses a number of computer software programs and operating
systems and intelligent hardware devices in its internal operations, including
information technology ("IT") and non-IT systems used in the design, manufacture
and marketing of Company products. These items are considered to be year 2000
"objects" and to the extent that these objects are unable to correctly recognize
and process date dependent information beyond the year 1999, some level of
modification or replacement is necessary. Most computer programs were designed
to perform data computations on the last two digits of the numerical value of a
year. When a computation referencing the year 2000 is performed, these systems
may interpret "00" as the year 1900 and could either stop processing
date-related computations or could process them incorrectly. Computations
referencing the year 2000 might be invoked at any time, but are likely to begin
occurring in the year 1999.
The Company is currently conducting a company-wide year 2000 readiness
assessment and is undertaking changes to computer programs which the Company
believes will not be year 2000 compliant. During fiscal years 1998, 1999 and
during the first quarter of fiscal 2000, the Company spent approximately $5,000
in connection with its year 2000 activities, and expects future costs during the
balance of fiscal 2000 to be less than $20,000.
The Company could possibly be materially adversely impacted by the year
2000 issues faced by major distributors, suppliers, subcontractors, customers,
vendors, and financial service organizations with which the Company interacts.
The Company is in the process of determining the impact of the Company's
operations as a result of the year 2000 readiness of these third parties. In the
event year 2000 issues relating to key customers and suppliers are not
successfully resolved, based on information available to us at present, the
Company believes that the most reasonably likely worse case scenario is a
temporary disruption in infrastructure service, which could adversely impact
supplier deliveries or customer shipments. If severe disruptions occur in these
areas and are not corrected in a timely manner, a revenue or profit shortfall
may result in fiscal year 2000. The Company is in the process of assessing year
2000 readiness of its major suppliers and vendors and is in the process of
developing a contingency plan, which it expects to complete in September 1999,
at which time the Company will be able to evaluate its most reasonable likely
worst case year 2000 scenarios.
Year 2000 compliance issues could have a significant impact on the
Company's operations and its financial results if the new information systems
are not completely implemented in a timely manner; unforeseen needs or problems
arise; or, if the systems operated by the Company's customers, vendors or
subcontractors are not year 2000 compliant. The dates on which the Company
believes its year 2000 readiness will be completed are based on the Company's
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will not be a
delay in, or increased costs associated with, the implementation of year 2000
compliant solutions. Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-parties and the interconnection
of global businesses, the Company cannot ensure its ability to timely and
cost-effectively resolve problems associated with the year 2000 issue that may
affect its operations and business, or expose it to third-party liability.
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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 stockholders, 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 year
ending April 30, 2000, for the fiscal quarter ending October 31, 1999, and
future fiscal years and quarters 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:
Defaults under Outstanding Loans; Risk of Bankruptcy. The Company had
approximately $2.8 million of secured loans owing to its bank at July 31, 1999.
As a result of the Company's financial condition and results of operations in
1998, the bank had determined that the Company was in default under various
provisions of the loan agreement that would entitle the bank to terminate the
loan agreement and declare the loans immediately due and payable. The Company
was able to obtain letters of forbearance from the bank taking any action with
respect to the existing defaults until March 1999. In that regard, the Company
received $2.5 million in equity financing during fiscal 1999 and a twelve month
right to obtain up to an additional $1.0 million of equity financing at a price
of $0.25 per share. In March 1999, the bank credit line automatically renewed
and in April 1999, various terms and conditions of the agreement were
renegotiated, reducing the borrowing limit from $13.5 million to $5.0 million,
reducing the interest rate and changing the covenant requiring a minimum net
worth, to allow the Company to be in compliance at April 30, 1999. As a result
of the Company's limited cash resources, the Company may seek to obtain
additional equity or other funding to increase the cash available for operations
and other purposes. There can be no assurance that efforts to obtain additional
funding will be successful or, if successful, on terms acceptable to the
Company. The Company is also indebted to other creditors in the amount of
approximately $5.0 million. Continued operation of the Company would also
require lenders to forbear taking action or waiving defaults under such other
debt. In addition, although the Company is current on its lease payments under
the lease of its headquarters facility, as a result of its financial condition,
the Company is in violation of certain terms of its lease. Similar violations
have resulted under certain equipment lease agreements and the Company has
obtained a letter of forbearance from the principal equipment lessor agreeing to
not take any action on the existing condition of default through April 2000.
Expected Need for Additional Capital. The Company has incurred significant
losses or experienced significant negative cash flow from operations for more
than three years. Such negative cash flow has significantly reduced the
Company's available capital. During fiscal 1999, the Company was successful in
having its lenders agree to waive or forbear actions on defaults under existing
loans or to renegotiate the terms of such loans to enable the Company to be in
conformance with the terms and conditions negotiated. If the Company is not
successful in raising additional capital, in view of the uncertainties relating
to arrangements with its bank and other lenders the Company cannot reasonably
assess how long its current cash balances, cash generated from operations and
borrowings available under any remaining loans or lines of credit and from
equipment financing, even with substantial reductions in operating expenses and
capital expenditures, will permit the Company to continue operations. There can
be no assurance that the Company will continue to generate sufficient revenue to
fund its operations in the absence of additional funding sources. The Company
has pursued and continues to pursue measures designed to reduce expenses and
conserve cash such as deferring payments to vendors and other suppliers,
headcount reductions, deferrals of planned expenditures, other expense
reductions and other measures. Although such activities help preserve cash and
enable the Company to continue operations, the lack of available capital hinders
the Company's ability to continue manufacturing, sales, product development and
other ongoing operational activities necessary to generating revenues. Such
activities can have a material, adverse affect on the Company's business,
financial condition and operating results. Furthermore, to the extent the
Company suffers further adverse effects to its revenues or margins because of
delays in new product introductions, price competition or other competitive
factors, the Company's cash position and its business, operating results and
financial condition will be further adversely affected.
The Company obtained additional capital of $1.5 million in the quarter
ended July 31, 1998 and $1.0 million equity financing in the quarter ended
October 31, 1998 and a twelve month right to obtain up to an additional $1.0
million of equity financing. The Company may seek additional equity or debt
financing to address
-12-
<PAGE> 13
its working capital needs and to provide funding for capital expenditures. There
can be no assurance that additional funding will continue to be available at
acceptable terms, if at all. If the Company is successful in raising additional
funds through the issuance of equity securities, existing stockholders of the
Company would likely experience substantial dilution, or the securities may have
rights, preferences or privileges senior to those of the Company's Common Stock.
If adequate funds are not available or are not available on acceptable terms,
further reductions in its operating expenses and capital expenditures would be
required to continue operations either of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Recent Operating Results; Possibility of Future Losses. The Company's
operating results for fiscal 1999 would have resulted in a loss of $1.5 million
instead of a profit of $0.2 million if they had not included $1.7 million of
credits received from vendors as a result of various negotiations. Additionally,
the Company's operating results in fiscal 1998 and 1997 resulted in losses of
$18.9 million and $4.0 million respectively. The Company's last previous
profitable year was the fiscal year ended April 30, 1996. During the fiscal
years 1997 through 1999 and before, the Company experienced significant negative
cash flow from operations. The Company has taken many steps to reduce its
operating expenses including reducing its headcount from 71 in December 1996 to
43 in April 1999. Although reductions in headcount could help the Company meet
its operating expense objectives, such reductions could adversely impact the
Company's sales, marketing and product development efforts. The Company
anticipates that negative cash flow from operations could continue for the
foreseeable future. There can be no assurance that the Company can generate
revenue growth, or that any revenue growth that is achieved can be sustained. To
the extent that increases in such operating expenses precede and are not
subsequently followed by increased revenues, the Company's business, results of
operations and financial condition would be materially adversely affected. There
can be no assurance that the Company will ever sustain profitability.
Dependence on a Sole Source Manufacturer. The Company does not manufacture
the semiconductor wafers used for its products. Oki has supplied wafers to the
Company since 1987 and is the Company's sole foundry source. The Company does
not have a wafer supply agreement with Oki at this time and instead purchases
wafers on a purchase order and acceptance basis. The Company's exclusive
reliance on this independent foundry involves a number of risks including the
risk of inadequate wafer supplies to meet the Company's production needs, the
unavailability of or interruption in access to required or more cost effective
process technologies, reduced control over delivery schedules, manufacturing
yields and costs, and the risks associated with international operations more
fully described below. In view of the recent increase in demand for
semiconductor products, the Company has not been able to obtain sufficient
quantities of wafers from Oki to fulfill some of the recent increased customer
demand, a circumstance that is expected to continue in at least the near future.
Although the Company has a wafer purchase agreement with UMC for certain Flash
products which runs through February 2006, due to declining Flash bookings and
other circumstances, the Company has not ordered any wafers from UMC since
December 1997. To address the Company's wafer supply concerns, the Company is
working on developing a secondary foundry capability with X-Fab at that
foundry's facility in Lubbock, Texas. X-Fab is owned by Elex NV which is a 40%
shareholder of the Company. The addition of X-Fab as a second foundry source
could enable the Company to reduce the risks associated with the sourcing and
quantity of its wafer supply and thereby improve control over an important
component of its business; however, there can be no assurance that sufficient
capacity will be available from X-Fab or another manufacturer. Even if such
capacity is available, the qualification process and time required to make the
foundry fully operational for the Company could take many months, or longer, and
be subject to the other factors described under "Semiconductor Manufacturing
Risks" below. The loss of Oki as a supplier, the inability of the Company to
obtain additional capacity at Oki or to qualify X-Fab or other wafer
manufacturers for desired foundry capacity, or any other circumstances causing a
significant interruption in the supply of semiconductor wafers to the Company
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Semiconductor Manufacturing Risks. The manufacture of semiconductor wafers
is highly complex and sensitive to a wide variety of factors and, as is typical
in the semiconductor industry, the Company's outside wafer foundry from time to
time has experienced lower than anticipated production yields. The amount of
time to develop an alternative foundry source can be lengthy and the expense
considerable. Furthermore, the yield of satisfactory product is often
substandard during the initial developmental stages when the process is being
initiated. 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 may also be subject to production transition
delays. There can be no assurance that the Company will not experience such
problems in the future. Moreover, delays in the Company's payments to wafer
suppliers resulting from the Company's cash constraints could result in delays
or
-13-
<PAGE> 14
reductions in wafer deliveries from the Company's supplier. Such delays and
reductions can result in cancellations of customer orders thereby adversely
affecting the Company's ability to generate future revenues. The loss of Oki as
a supplier, the failure to develop X-Fab as a reliable foundry in an expeditious
and cost-effective manner, any prolonged inability to obtain adequate yields or
deliveries from Oki or X-Fab, or any other circumstance that would require the
Company to seek and qualify alternative sources of supply of such products,
could delay shipments, result in the loss of customers and have a material
adverse effect on the Company's business and operating results. Moreover, the
inability to procure wafer supplies from Oki 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. Although the Company is
exploring and seeking to develop alternative wafer supply sources such as X-Fab,
there can be no assurance that it will be able to obtain such alternative
sources or that the Company will have adequate facilities available. Failure to
have such supplies available would have a material adverse effect on the
Company's business, financial condition and results of operations.
Fluctuations in Operating Results. The Company's operating results have
historically been and in future quarters may be adversely affected or otherwise
fluctuate due to factors such as timing of new product introductions and
announcements by the Company and its competitors, fluctuations in customer
demand for the Company's products, volatility in supply and demand affecting
market prices generally (such as the increases in supply of competitive products
and significant declines in average selling prices experienced by the Company in
the fiscal years ended April 30, 1999, 1998 and 1997), 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 of the Company's
products, fluctuations in manufacturing yields, changes in product mix, wafer
price increases due to foreign currency fluctuations and general economic
conditions. The Company anticipates that a significant portion of its revenue
will be derived from a limited number of large orders, and the timing of receipt
and fulfillment of any such orders is expected to cause material fluctuations in
the Company's operating results, particularly on a quarterly basis.
Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. The Company's expense levels are based, in significant
part, on the Company's expectations as to future revenue and are therefore
relatively fixed in the short term. If revenue levels fall below expectations,
as has occurred during the years ended April 30, 1999, 1998 and 1997, net income
is likely to be disproportionately adversely affected because a proportionately
smaller amount of the Company's expenses varies with its revenue. There can be
no assurance that the Company will be able to achieve or maintain profitability
on a quarterly or annual basis in the future. Due to the foregoing factors, the
Company's operating results may fall below the expectations of investors, which
could have a material adverse effect on the market price of the Company's Common
Stock. Reductions in revenue expectations can also require the Company to take
additional reserves against inventory valuations based upon the reduced
likelihood that the Company will be able to liquidate its inventories at
profitable prices.
Inventory. The cyclical nature of the semiconductor industry periodically
results in oversupply or shortages of wafer fabrication capacity such as the
Company has experienced 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. There can be no assurance that the
Company's inventory will be reduced by the fulfillment of customer orders or
that in the future the Company will not produce excess quantities of its
products. To the extent the Company produces excess inventories of particular
products, the Company's operating results could be adversely affected by charges
that the Company could recognize due to significant reductions in demand for its
products, rapid declines in the market value of inventory resulting in inventory
writedowns or other related factors. For example, during the last half of fiscal
1998, the Company recorded charges of approximately $7.5 million due to the
rapid decrease in demand for and the selling prices for the Company's products.
Such adjustments have amounted to less than $0.5 million in fiscal 1999. In
addition, in fiscal 1998, the Company's ability to forecast future demand and
selling prices diminished. It is the policy of the Company to fully reserve all
inventory that is not expected to be sold in a reasonable period of time from
the balance sheet date, generally within the ensuing six months. As a result of
a reduction in estimated demand for the Company's products, the Company provided
additional reserves for excess quantities and obsolescence for certain products,
primarily the Company's Flash and EEPROM products. The rapid erosion of selling
prices also left the Company with significant amounts of inventory with a
carrying value that exceeded its current selling price resulting in adjustments
to the carrying value of the inventory to the lower of cost or market value.
There can be no assurance that the Company will not suffer
-14-
<PAGE> 15
similar reductions in values of its inventories in the future or that the
Company will be able to liquidate its inventory at acceptable prices.
Competition. The semiconductor industry is intensely competitive and has
been characterized by rapid price erosion, declining gross margins, rapid
technological change, product obsolescence and heightened international
competition in many markets. Average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have decreased
significantly and rapidly over the life of each product. The Company expects
that average selling prices for its existing products will continue to decline
rapidly for the foreseeable future and that average selling prices for each new
product will decline significantly over the life of the product. Declines in
average selling prices for the Company's products, if not offset by reductions
in the cost of producing those products or by sales of new products with higher
gross margins, would decrease the Company's overall gross margins, could cause a
negative adjustment to the valuation of the Company's inventories and could
materially and adversely affect the Company's operating results.
The Company competes with major domestic and international semiconductor
companies, many of which have substantially greater financial, technical, sales,
marketing, production, distribution and other resources than the Company. The
can be no assurance that the Company will be able to compete successfully in the
future. The Company's more mature products, such as Serial and Parallel EEPROM
devices, compete on the basis of product performance, price and customer
service. The Company believes it competes successfully with respect to each of
these competitive attributes; however price competition is significant and
expected to continue. Principal competitors with respect to the Company's EEPROM
products currently include SGS-Thomson, National Semiconductor, Atmel and Xicor,
all of which have substantially greater resources than the Company.
The market for Flash memory products has been characterized by long
production cycles, irregular yields, competing technologies and, particularly
since the first quarter of fiscal 1997, intense price competition resulting in
major reductions in average selling prices and corresponding reductions in
margins. The Company's Flash memory products compete on the basis of product
performance, price and customer service. However, given the development of
higher density/lower cost products and the intense price competition prevalent
for these products, there can be no assurance that the Company will be able to
compete successfully in the future against its competitors on the bases of these
or other competitive factors.
International Operations. For fiscal 1999 and 1998 international sales
accounted for approximately 41% and 64%, respectively, of the Company's product
sales. The decrease in international sales is attributable to the transition in
Japan from Marubun who resigned in fiscal 1998 to various smaller alternative
distributors that serve similar markets and the inability of the Company to
compete with the low selling prices in certain Far East markets. The Company
expects that international sales will continue to represent a significant
portion of its product sales in the future. The Company's international
operations may be adversely affected by fluctuations in exchange rates,
imposition of government controls, political and financial instability, trade
restrictions, changes in regulatory requirements, difficulties in staffing
international operations and longer payment cycles. Except for a few sales
through the Company's subsidiary in Japan, Nippon Catalyst KK, all sales are
invoiced and paid in dollars, reducing the Company's direct exposure to currency
fluctuations. Except for Yoshikawa Semiconductor in Japan, and some payroll and
incidental manufacturing supply purchases in Thailand, over 95% of the Company's
purchases are in US dollars, minimizing any direct currency fluctuation risk.
However, recent adverse developments in the economic environment in the Far East
may have a material adverse effect on the Company's subcontractors. In addition,
the Company's business is subject to other risks generally associated with doing
business with foreign subcontractors including, but not limited to, foreign
government regulations, political and financial unrest which may cause
disruptions or delays in shipments to the Company's customers or access to the
Company's inventories. 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. The timely introduction of new products at competitive
price/performance levels is a key factor to 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 0.8 micron CMOS EEPROM process or a 0.5 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.
Furthermore, there can be no assurance that the Company's
-15-
<PAGE> 16
products will achieve market acceptance. The failure of the Company to complete
and introduce new products at competitive price/performance levels could
materially and adversely affect the Company's business, financial condition and
operating results. Delays in developing new products, achieving volume
production of new products, successfully completing technology transitions with
acceptable yields and reliability or the lack of commercial acceptance of new
products introduced by the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Flash Memory Market. A significant amount of the Company's net revenues
during 1998 and 1999 were derived from sales of Flash memory products. The
market for Flash memory products has been characterized by intense price
competition, long production cycles, inconsistent yields, competing
technologies, rapidly declining average selling prices, declines in gross
margins and intense overall competition. The Company's fiscal 1997, 1998 and
1999 operating results were adversely affected by intense price competition
caused by increased supplies of products and other adverse industry-wide
conditions. 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
the market acceptance for its Flash memory products. The Company anticipates
continued price and other competitive pressures, which adversely affected fiscal
1997, 1998 and 1999 operating results to continue to adversely affect the
Company's future operating results.
Semiconductor Industry. The semiconductor industry is highly cyclical and
has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and gross margins, 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, the Company experienced and
continues to experience accelerated erosion of average selling prices caused by
adverse industry-wide conditions in fiscal years 1997, 1998 and 1999.
Dependence on Proprietary Technology; Risk of Intellectual Property
Litigation. In the semiconductor industry companies place extensive reliance
upon their intellectual property and proprietary technology and 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 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 therefore could be substantial and could materially
and adversely affect the Company's business, financial condition and results of
operations.
Dependence upon Key Personnel. The Company's ability to operate
successfully will depend, to a large extent, upon the continued service of
certain key employees, and the continued ability to attract and retain
additional highly qualified personnel. Competition for such personnel,
particularly for highly skilled design, process and test engineers, is intense
and there can be no assurance that the Company can retain such personnel or that
it can attract other highly qualified personnel. The loss of or failure to
attract and retain any such highly qualified personnel could have a material
adverse affect on the Company's business, financial condition and results of
operations.
Customer Concentration. A relatively small number of customers have
accounted for a significant portion of the Company's net revenue in the past.
During fiscal years 1999 and 1998, the only customer which represented more than
ten percent of Catalyst's product revenue was Marubun Corporation, a Japanese
distributor (0% and 21%, respectively). In December 1997, Marubun resigned as a
distributor effective in or about March 1998. The Company is working to develop
alternative distributors in Japan to replace Marubun. Such efforts take
substantial time and may not completely replace the sales volumes achieved
through Marubun. Loss of one or more of the Company's current customers could
materially and adversely affect the Company's business, operating results and
financial condition. In addition, the Company has experienced and may continue
to experience lower margins on sales to significant customers as a result of
volume pricing arrangements.
Dependence on Manufacturer Representatives and Distributors. The Company
markets and distributes its products primarily through manufacturers'
representatives and independent distributors. The Company's distributors
typically offer competing products. The distribution channels have been
characterized by rapid change,
-16-
<PAGE> 17
including consolidations and financial difficulties. The loss of one or more
manufacturers' representatives or distributors, or the decision by one or more
distributors to reduce the number of the Company's products offered by such
distributors or to carry the product lines of the Company's competitors, could
have a material, adverse effect on the Company's operating results.
New Accounting pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,"Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair value, cash flow
and foreign currency hedges, and establishes respective accounting standards for
reporting changes in the fair value of the instruments. The statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Upon adoption of SFAS No. 133, we will be required to adjust hedging instruments
to fair value in the balance sheet, and recognize the offsetting gain or loss as
transition adjustments to be reported in net income or other comprehensive
income, as appropriate, and presented in a manner similar to the cumulative
effect of a change in accounting principle. We believe the adoption of this
statement will not have a significant effect on our results of operations.
Takeover Resistive Measures. The Company's Stockholder Rights Plan, which
provides stockholders with certain rights to acquire shares of Common Stock in
the event a third party acquires more than 15% of the Company's stock, the
Board's ability to issue "blank check" Preferred Stock without stockholder
approval and 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 and may
continue to be subject to significant volatility. Any shortfall in revenues or
earnings from levels expected or projected by investors or others could have an
immediate and significant adverse effect on the trading price of the Company's
Common Stock in any given period. In addition, the stock market in general has
experienced extreme price and volume fluctuations particularly affecting the
market prices for many high technology companies and small capitalization
companies, and these fluctuations have often been unrelated to the operating
performance of the specific companies. These broad fluctuations may adversely
affect the market price for the Company's Common Stock.
-17-
<PAGE> 18
CATALYST SEMICONDUCTOR, INC.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On September 8, 1999, the Company's Board of Directors increased the number
of authorized directors from four to five, comprised of two Class I Directors,
one Class II Director and two Class III Directors. Mr. Roland Duchatelet,
Chairman of Elex NV, was appointed as a Class III Director. Mr. Duchatelet's
term will expire, along with that of the other Class III Director, on April 30,
2001, or at such time as his successor has been duly elected and qualified.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended July
31, 1999.
-18-
<PAGE> 19
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: September 15, 1999 By: /s/ Radu M. Vanco
------------------ --------------------------------------------
Radu M. Vanco
President and Chief Executive Officer
Date: September 15, 1999 By: /s/ Thomas E. Gay III
------------------ --------------------------------------------
Thomas E. Gay III
Vice President of Finance and Administration
and Chief Financial Officer
-19-
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial results for the first fiscal quarter ended August 1, 1999
and is qualified in its entirety by reference to such 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-03-1999
<PERIOD-END> AUG-01-1999
<CASH> 1,408
<SECURITIES> 0
<RECEIVABLES> 5,902
<ALLOWANCES> (286)
<INVENTORY> 1,959
<CURRENT-ASSETS> 9,653
<PP&E> 12,225
<DEPRECIATION> (10,285)
<TOTAL-ASSETS> 11,593
<CURRENT-LIABILITIES> 11,729
<BONDS> 0
0
0
<COMMON> 45,227
<OTHER-SE> (45,353)
<TOTAL-LIABILITY-AND-EQUITY> 11,593
<SALES> 9,196
<TOTAL-REVENUES> 9,196
<CGS> 5,376
<TOTAL-COSTS> 5,376
<OTHER-EXPENSES> 2,819
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 853
<INCOME-TAX> 0
<INCOME-CONTINUING> 853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 853
<EPS-BASIC> .06
<EPS-DILUTED> .05
</TABLE>
