UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
SIMTEK CORPORATION
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(Exact name small business issuer as specified in its charter)
Colorado 84-1057605
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4250 Buckingham Dr. #100; Colorado Springs, CO 80907
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(Address of principal executive offices)
(719) 531-9444
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(issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 30, 2004
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(Common Stock, $.01 par value) 57,284,220
SIMTEK CORPORATION
INDEX
For Quarter Ended March 31, 2004
PART 1. FINANCIAL INFORMATION
ITEM 1 Page
------ ----
Consolidated Balance Sheets as of March 31, 2004
and December 31, 2003 3
Consolidated Statements of Operations for the
three months ended March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6-8
ITEM 2
Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-15
ITEM 3
Controls and Procedures 16
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings 17
ITEM 2 Changes in Securities 17
ITEM 3 Defaults upon Senior Securities 17
ITEM 4 Matters Submitted to a Vote of Securities Holders 17
ITEM 5 Other Information 17
ITEM 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
SIMTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
------
March 31, 2004 December 31, 2003
-------------- -----------------
(Uaudited)
CURRENT ASSETS:
Cash and cash equivalents ......................................................... $ 2,368,261 $ 3,431,679
Certificate of deposit, restricted ................................................ 300,000 300,000
Accounts receivable - trade, net .................................................. 1,967,896 1,923,542
Inventory, net .................................................................... 2,165,283 1,201,432
Prepaid expenses and other ........................................................ 128,421 129,554
------------ ------------
Total current assets .......................................................... 6,929,861 6,986,207
EQUIPMENT AND FURNITURE, net ......................................................... 797,522 862,009
DEFERRED FINANCING COSTS ............................................................. 87,131 91,280
OTHER ASSETS ......................................................................... 52,035 58,291
------------ ------------
TOTAL ASSETS ......................................................................... $ 7,866,549 $ 7,997,787
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable .................................................................. $ 2,021,113 $ 1,038,634
Accrued expenses .................................................................. 231,585 390,079
Accrued wages ..................................................................... 42,962 --
Line of credit .................................................................... -- 150,000
Accrued vacation payable .......................................................... 216,658 179,580
Obligations under capital lease ................................................... 97,999 123,585
------------ ------------
Total current liabilities ..................................................... 2,610,317 1,881,878
NOTES PAYABLE ........................................................................ 5,000 5,000
DEBENTURES ........................................................................... 3,000,000 3,000,000
OBLIGATIONS UNDER CAPITAL LEASES ..................................................... 50,951 61,221
------------ ------------
Total liabilities ............................................................. 5,666,268 4,948,099
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized and none issued and outstanding .................................... -- --
Common stock, $.01 par value, 80,000,000 shares authorized,
57,243,595 and 56,713,352 shares issued and outstanding at
March 31, 2004 and December 31, 2003, respectively ............................ 572,436 567,134
Additional paid-in capital ........................................................ 39,412,621 39,230,210
Treasury stock .................................................................... (12,504) (12,504)
Accumulated deficit ............................................................... (37,772,272) (36,735,152)
------------ ------------
Shareholders'equity ............................................................... 2,200,281 3,049,688
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................... $ 7,866,549 $ 7,997,787
============ ============
The accompanying notes are an integral part of these financial statements.
3
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the quarters ended March 31,
-----------------------------------------
2004 2003
------------ -------------
NET SALES .................................................................. $ 3,498,835 $ 3,935,129
Cost of sales ........................................................ 2,429,917 2,486,870
------------ ------------
GROSS MARGIN ............................................................... 1,068,918 1,448,259
OPERATING EXPENSES:
Design, research and development ...................................... 1,313,260 1,257,641
Administrative ........................................................ 277,954 271,877
Marketing ............................................................. 456,694 424,884
------------ ------------
Total Operating expenses .......................................... 2,047,908 1,954,402
------------ ------------
LOSS FROM OPERATIONS ....................................................... (978,990) (506,143)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income ....................................................... 7,804 9,626
Interest expense ...................................................... (61,125) (61,047)
Other expense, net .................................................... (4,810) (450)
------------ ------------
Total other income (expense) ...................................... (58,131) (51,871)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES ..................................... (1,037,121) (558,014)
Provision for income taxes ............................................ -- --
------------ ------------
NET LOSS ................................................................... $ (1,037,121) $ (558,014)
============ ============
NET LOSS PER COMMON SHARE:
Basic and diluted EPS ................................................. $ (.02) $ (.01)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted ..................................................... 57,023,653 54,489,217
============ ============
The accompanying notes are an integral part of these financial statements.
4
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
-----------------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................ $(1,037,121) $ (558,014)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................................. 116,936 112,117
Loss on disposal of assets ................................................ 13,165 --
Amortization of deferred financing costs .................................. 4,149 4,149
Net change in allowance accounts .......................................... 2,084 15,849
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ................................................... (55,625) 214,921
Inventory ............................................................. (963,716) (173,673)
Prepaid expenses and other ............................................ 1,133 40,226
Increase (decrease) in:
Accounts payable ...................................................... 982,479 710,984
Accrued expenses ...................................................... (69,400) 127,829
Deferred Revenue ...................................................... -- (500)
----------- -----------
Net cash provided by (used in) operating activities .......................... (1,005,916) 493,888
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture ............................................. (59,359) (153,112)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and lines of credit ................................... (150,000) --
Payments on capital lease obligation ............................................ (35,856) (32,711)
Exercise of stock options ....................................................... 187,713 7,980
----------- -----------
Net cash provided by (used in) financing activities .......................... 1,857 (24,731)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................................. (1,063,418) 316,045
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period ....................................... 3,431,679 3,127,732
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ............................................. $ 2,368,261 $ 3,443,777
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Purchase of equipment through payables and capital leases ....................... $ -- $ 144,160
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements included herein are presented in accordance with
the requirements of Form 10-QSB and consequently do not include all of the
disclosures normally made in the registrant's annual Form 10-KSB filing. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included the Annual Report and Form
10-KSB for Simtek Corporation ("Simtek" or the "Company") filed on March 4, 2004
for fiscal year 2003.
In the opinion of management, the unaudited financial statements reflect
all adjustments of a normal recurring nature necessary to present a fair
statement of the results of operations for the respective interim periods. The
year-end balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. Results of operations for the interim periods are not necessarily
indicative of the results of operations for the full fiscal year.
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options which are granted to its employees.
Accordingly, no compensation cost has been recognized for grants of options to
employees since the exercise prices were not less than the market value of the
Company's common stock on the grant dates. Had compensation cost been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net loss and EPS would
have been adjusted to the pro forma amounts indicated below.
Three Months Ended March 31,
------------------------------
2004 2003
----------- ------------
Net loss as reported $(1,037,121) $ (558,014)
Add: stock based compensation included in reported
net loss - -
Deduct: Stock-based compensation cost under SFAS 123 (177,186) (132,092)
----------- ------------
Pro forma net loss $(1,214,307) $ (690,106)
=========== ============
Pro forma basic and diluted net loss per share:
Pro forma shares used in the calculation of pro forma
net loss per common share basic and diluted 57,023,653 54,489,217
Reported net loss per common share basic and diluted $ (.02) $ (.01)
Pro forma net loss per common share basic and diluted $ (.02) $ (.01)
2. LINE OF CREDIT:
In April 2003, Simtek's line of credit automatically renewed in the amount
of $250,000.
3. CONVERTIBLE DEBENTURES:
On July 1, 2002, the Company received $3,000,000 in a financing
transaction with BFSUS Special Opportunities Trust Plc, Renaissance US Growth &
Investment Trust Plc and Renaissance Capital Growth & Income Fund III, Inc.
6
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(collectively, "RENN Capital") pursuant to a Convertible Loan Agreement. RENN
Capital is the agent for the three investment funds. One of the Company's
directors, Mr. Robert Pearson, holds the position of Senior Vice President of
RENN Capital. The $3,000,000 funding consists of convertible debentures with a
7-year term at a 7.5% per annum interest rate; each of the three investment
funds invested $1,000,000. The holder of the debentures has the right, at any
time, to convert all, or in multiples of $100,000, any part of the debenture
into fully paid and nonassessable shares of the Company's common stock. The
debentures are convertible into the Company's common stock at $0.312 per share,
which was in excess of the market price per share on July 1, 2002. Based on the
conversion rate of $0.312 per share, it would entitle each investment fund to
3,205,128 shares of the Company's outstanding common stock. Through December 31,
2003, the Company was not in compliance with two of the covenants set forth in
the loan agreement. On February 27, 2004, the Company received a waiver for one
of the covenants and a modification and a waiver to the loan agreement with
respect to the other. The waiver and modification are effective through April 1,
2005. The Company is currently in compliance with the modified covenant and
estimates that it will remain in compliance in the forthcoming year. However,
significant variances in future actual operations from the Company's current
estimates could result in the reclassification of this note to current
liabilities.
4. GEOGRAPHIC CONCENTRATION:
Sales of the Company's semiconductor products by location for the three
months ended March 31, 2004 and 2003 were as follows (as a percentage of
semiconductor product sales only):
Three months ended March 31,
----------------------------
2004 2003
---- ----
United States 41% 54%
Europe 10% 10%
Far East 43% 29%
All others 6% 7%
---- ----
100% 100%
==== ====
5. BUSINESS SEGMENTS:
The Company has two reportable segments. One segment designs and produces
semiconductor devices for sale into the semiconductor market. The second
segment, Q-DOT Group, Inc., which is operated as a wholly-owned subsidiary,
specializes in advanced technology research and development for data
acquisition, signal processing, imaging and data communications that is
supported by government and commercial contracts. Although both segments are
managed as part of an integrated enterprise, they are reported herein in a
manner consistent with the internal reports prepared for management.
Transactions between reportable segments are recorded at cost.
Substantially all operating expenses are identified by segment. Substantially
all of the Company's assets are located in the United States of America.
Description Three Months Ended
------------------
March 31,
--------
2004 2003
---- ----
Net Sales:
Semiconductor Devices $2,935,669 $3,424,583
Government Contracts 563,166 510,546
---------- ----------
Total $3,498,835 $3,935,129
========== ==========
7
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Profit (Loss):
Semiconductor Devices $(1,066,984) $ (519,689)
Government Contracts 29,863 (38,325)
----------- ----------
Total $(1,037,121) $ (558,014)
=========== ==========
March 31, 2004 December 31, 2003
-------------- -----------------
Total Assets:
Semiconductor Devices $7,210,887 $7,302,828
Government Contracts 655,662 694,959
---------- ----------
Total $7,866,549 $7,997,787
========== ==========
8
SIMTEK CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
The Company has seen a decrease in average selling prices, while unit
shipments for its nonvolatile semiconductor memory products have remained
essentially flat for the first three months of 2004 as compared to the first
three months of 2003. The Company's net revenue was $3,499,000 for the three
months ended March 31, 2004 down from the $3,935,000 recorded for the three
months ended March 31, 2003. This decrease in revenue was primarily due to a
reduction in revenue from the Company's high end industrial and military
products and the elimination of revenue generated from the Company's logic
products, as a result of the Company's decision to discontinue this product line
by the end of 2003.
The decline in revenue for the three months ended March 31, 2004, along
with a decline in gross profit margin and an increase in operating expenses all
contributed to an increase in the Company's net loss as compared to the net loss
for the three months ended March 31, 2003.
RESULTS OF OPERATIONS:
REVENUES - SEMICONDUCTOR DEVICES.
The following table sets forth the Company's net revenues for semiconductor
devices by product markets for the three months ended March 31, 2004 and 2003
(in thousands):
Three Months Ended
------------------
March 31,
---------
2004 2003 Variance
---- ---- --------
Commercial $2,500 $2,595 $ (95)
High-end industrial and
military 436 614 (178)
Logic products - 216 (216)
------ ------ -------
Total Semiconductor
Revenue $2,936 $3,425 $ (489)
====== ====== =======
Commercial revenues decreased by $95,000 for the three months ended March
31, 2004 as compared to the three months ended March 31, 2003. The decrease was
primarily due to a decrease in product availability resulting from shifting
production to a new wafer fabrication facility.
High-end industrial and military product revenues accounted for a decrease
of $178,000 for the three months ended March 31, 2004 as compared to the same
period in 2003. The decrease was due primarily to a slow-down of production
related to military contracts.
Revenues from the Company's logic products decreased by $216,000 for the
three months ended March 31, 2004 as compared to the same period in 2003. The
decrease was due to the Company's decision to cease sales of logic products
effective December 31, 2003.
9
SIMTEK CORPORATION
Two distributors and one direct customer accounted for approximately 35% of
the Company's semiconductor devices product sales for the quarter ended March
31, 2004. Products sold to distributors are sold without significant recourse.
Distributors sell the Company's products to various end customers. If one of
these distributors was to terminate its relationship with the Company, the
Company believes that there would not be a material impact on the Company's
product sales.
COST OF SALES AND GROSS MARGIN - SEMICONDUCTOR DEVICES
The Company recorded cost of sales for semiconductor devices of $2,113,000
and $2,245,000 for the three months ended March 31, 2004 and 2003, respectively.
These costs reflect an approximate 6% decrease in gross margin percentages for
the three months ended March 31, 2004 as compared to the same period in 2003.
Actual gross margin percentages for the three months ended March 31, 2004 and
March 31, 2003 were 28% and 34% respectively. This decrease was due primarily to
a decreased sales of high-end industrial and military products and increased
production costs of the Company's 5 volt commercial products.
During the first three months of 2004, the Company purchased all of its
silicon wafers to produce its 0.8 micron nonvolatile static random access memory
products from a single supplier, Chartered Semiconductor Manufacturing Plc.
("Chartered") of Singapore to support sales of its nonvolatile semiconductor
memory products. Sales of products built on these wafers accounted for
approximately 98% of the Company's semiconductor product revenue. The Company
purchased its silicon wafers to produce its 1 megabit nonvolatile static random
access memory products built on 0.25 micron technology from Dongbu Anam
Semiconductor. Sales of the 1 megabit semiconductor products built on these
wafers accounted for approximately 2% of the Company's semiconductor product
revenue.
The Company had an agreement with Chartered to provide wafers through
September 1998. Although Chartered continues to provide the Company wafers under
the terms defined in this contract the Company does not have a current signed
agreement. Chartered closed its wafer fabrication facility #1 where the
Company's memory wafers are manufactured, in March 2004. The Company received
its final shipments from Chartered's facility #1 at the end of March 2004. The
Company is working with Chartered to transfer the process of manufacturing its
memory wafers to Chartered's facility #2. However, with this process being
transferred to an alternative manufacturing facility, the Company has seen lower
than average production yields, which in turn has lowered its gross margins. The
Company anticipates receiving qualified silicon wafers from Chartered's facility
#2 in time to support product shipments of its nonvolatile semiconductor memory
products in the third quarter of 2004. If the Company cannot complete the
transfer of manufacturing into facility #2 or if the Company cannot contract
with another supplier, this will have a material negative impact on the
Company's future revenues and earnings.
RESEARCH AND DEVELOPMENT - SEMICONDUCTOR DEVICES
The Company believes that continued investments into new product
development are required for us to remain competitive in the markets we serve.
Beginning in the fourth quarter 2001, the Company's research and development
department has been focusing its efforts on developing a 3 volt 256 kilobit
nonvolatile semiconductor memory and the installation of the Company's process
at Amkor Technology for the development of a 1 megabit 3 volt nonvolatile
semiconductor memory. During the first quarter 2004, the Company continued to
see increased demand for its 3 volt 256 kilobit nonvolatile semiconductor
memories. Development of the 1 megabit 3 volt nonvolatile semiconductor memory
is continuing and the Company began shipping samples of its 1 megabit 3 volt
nonvolatile semiconductor during the third quarter of 2003. As of April 7, 2004,
the Company shipped samples to approximately 120 different customers. During the
first quarter of 2004, sales of the Company's 1 megabit 3 volt products
accounted for approximately 2% of the Company's revenue.
10
SIMTEK CORPORATION
Total research and development expenses related to the semiconductor
portion of the Company's business were $1,204,000 for the three months ended
March 31, 2004 as compared to $1,070,000 for the same period in 2003.
The $134,000 increase for the three month period was related to increases
in payroll and payroll overhead costs of $38,000, product development costs of
$200,000 and miscellaneous other expenses of $9,000. These increases were offset
by decreases of $90,000 in contract services and a $23,000 decrease in equipment
leases, maintenance agreements for software and depreciation. The primary
increase in product development costs was due to increase in silicon wafer
purchases and reticles for the Company's 1 megabit product and an increase in
costs related to the development of datacomm products.
ADMINISTRATION - SEMICONDUCTOR DEVICES
Total administration expenses related to the semiconductor portion of the
Company's business were $247,000 for the three months ended March 31, 2004 as
compared to $225,000 for the same period in 2003.
The $22,000 increase was due primarily to an increase in professional
services, director's compensation, and an increase in payroll costs. Many of
these additions were implemented to ensure ongoing compliance with newly enacted
regulations resulting from the Sarbanes-Oxley Act.
MARKETING - SEMICONDUCTOR DEVICES
Total marketing expenses related to the semiconductor portion of the
Company's business were $385,000 for the three months ended March 31, 2004 as
compared to $354,000 for the same period in 2003.
The $31,000 increase was due primarily to an increase in payroll and
payroll overhead costs of $40,000, advertising of $16,000 and miscellaneous
other expenses of $10,000. These increases were offset by a decrease in sales
commissions of approximately $37,000. The increase in payroll and payroll
overhead costs was a result of increased headcount and the decrease in sales
commissions was a direct result of reduced revenue.
NET LOSS - SEMICONDUCTOR DEVICES
The Company recorded a net loss of approximately $1,067,000 and $520,000
for the three months ended March 31, 2004 and 2003, respectively, for
semiconductor devices. The increase of $547,000 was due primarily to decreased
revenue, decreased gross margins and an increase in operating expenses.
REVENUES - GOVERNMENT CONTRACTS
The following table sets forth the Company's net revenues from its
government contracts portion of its business for the three months ended March
31, 2004 and 2003 (in thousands):
11
SIMTEK CORPORATION
Three Months Ended
------------------
March 31,
---------
2004 2003 Variance
---- ---- --------
Government Contracts $563 $ 510 $ 53
The increase of revenue for the three month period was the result of
increased materials and services that were invoiced against development
contracts.
COSTS OF SALES AND GROSS MARGIN - GOVERNMENT CONTRACTS
The costs of sales for the government contracts portion of the Company's
business were $317,000 and $242,000 for the three months ended March 31, 2004
and March 31, 2003. These were equivalent to gross margin percentages of
approximately 44 % and 53%, respectively. The decrease in gross margin
percentage was primarily due to an increase in materials and services related to
certain contracts which have a minimal profit margin.
RESEARCH AND DEVELOPMENT - GOVERNMENT CONTRACTS
Total research and development expenses related to the government contracts
portion of the Company's business were $109,000 and $188,000 for the three
months ended March 31, 2004 and 2003, respectively.
The $79,000 decrease for the three month period was related to decreases in
contract services and payroll and payroll related costs of $70,000 and
maintenance agreements for software of $28,000. The decreases were offset by an
increase in equipment leases of $19,000.
ADMINISTRATION - GOVERNMENT CONTRACTS
Total administration expenses related to the government contracts portion
of the Company's business were $31,000 and $47,000 for the three months ended
March 31, 2004 and 2003, respectively.
The $16,000 decrease was due to the personnel from the Company's government
contract subsidiary not providing as many hours of service to the semiconductor
portion of the business.
MARKETING - GOVERNMENT CONTRACTS
Total marketing expenses related to the government contracts portion of the
Company's business were $72,000 and $71,000 for the three months ended March 31,
2004 and 2003, respectively.
NET INCOME (LOSS) - GOVERNMENT CONTRACTS
The Company recorded a net income of $30,000 for the three months ended
March 31, 2004 as compared to a net loss of $38,000 for the three months ended
March 31, 2003 for the government contracts segment. The increase in net income
was due primarily to an increased revenue and a decrease research and
development costs.
FUTURE RESULTS OF OPERATIONS
The Company's ability to be profitable will depend primarily on its ability
to continue reducing manufacturing costs and increasing net product sales by
increasing the availability of existing products, by the introduction of new
products and by expanding its customer base. The Company is also dependent on
12
SIMTEK CORPORATION
the overall state of semiconductor industry and the demand for semiconductor
products by equipment manufacturers.
The Company is continuing its co-development program with Dongbu Anam
Semiconductor to develop a semiconductor process module that combines the
Company's nonvolatile technology with Anam's advanced 0.25 micron digital CMOS
fabrication line. The module will incorporate silicon oxide nitride oxide
silicon ("SONOS") technology, which will be used to manufacture both high
density SONOS flash and nonvolatile static random access memories, for stand
alone and embedded products. The Company began shipping samples of its new 1
megabit 3 volt nonvolatile semiconductor memory product in September 2003. As of
April 7, 2004, the Company had shipped samples to 120 different customers. The
Company is currently shipping 1 megabit products tested to production
requirements on a provisional qualification and plan to have qualification
complete in the second quarter of 2004. The Company cannot assure you that the
Company will not discover technical problems or manufacturing concerns with this
new product, that demand will develop for the new product or that we will be
able to sell this new product at a profit.
As of March 31, 2004, the Company had a backlog of unshipped customer
orders of approximately $2,631,000 expected to be filled by September 30, 2004.
Orders are cancelable without penalty at the option of the purchaser prior to 30
days before scheduled shipment and therefore are not necessarily a measure of
future product revenue.
Chartered closed their wafer fabrication facility #1 in March 2004. The
Company has purchased silicon wafers, the raw materials used to produce its
nonvolatile semiconductor memory products, from fabrication facility #1. The
Company is working with Chartered to transfer the manufacturing process of its
memory wafers to Chartered's facility #2. Chartered's facility #2 is newer and
more modern than its facility #1, processing 8 inch wafers rather than the older
6 inch wafers that were processed in facility #1. Assuming the transfer can
produce memory wafers that meet the Company's specifications, the Company
anticipates the transfer to be completed by mid 2004. This would provide
uninterrupted supply of its current 0.8 micron family of nonvolatile Static
Random Access memory products, and would have no material impact on the
Company's ability to support its customers. If the transfer of manufacturing
into Chartered's facility #2 is unsuccessful or if the Company cannot contract
with another supplier, this will have a material negative impact on the
Company's future revenues and earnings.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004, the Company had net working capital of $4,319,544 as
compared to a net working capital of $5,172,301 as of March 31, 2003.
On November 7, 2003, the Company closed a $1,500,000 equity financing with
RENN Capital. In exchange for the $1,500,000, the Company issued 550,661 shares
of its common stock to each of the three investment funds for a total of
1,651,982 shares of the Company's common stock. The purchase price was based on
the average closing price of the Company's common stock as reported on the
Over-the-Counter Bulletin Board over the five trading days before closing, which
average closing price was $0.908 per share. In addition to the shares of common
stock, each fund received warrants to acquire 250,000 shares of the Company's
common stock. The warrants have a 5-year term with 125,000 shares being
exercisable at $1.25 per share and 125,000 shares being exercisable at $1.50 per
share.
On July 1, 2002, the Company received $3,000,000 in a financing transaction
RENN Capital pursuant to a Convertible Loan Agreement. One of the Company's
directors holds the position of Senior Vice President of RENN Capital Group.
Through December 31, 20033, the Company was not in compliance with two of the
covenants set forth in the loan agreement. On February 27, 2004, the Company
received a waiver for one of the covenants and a modification and a waiver to
the loan agreement with respect to the other. The waiver and modification are
13
SIMTEK CORPORATION
effective through April 1, 2005. The Company is currently in compliance with the
modified covenant and estimates that it will remain in compliance in the
forthcoming year. However, significant variances in future actual operations
from the Company's current estimates could result in the reclassification of
this note to current liabilities.
The changes in cash flows for the three months ended March 31, 2004 used in
operating activities was primarily the result of a net loss of $1,037,121, which
is offset by $116,936 in depreciation and amortization, decreases in prepaid
expenses and other and accrued expenses of $1,133 and $69,400, respectively and
increases in accounts receivable, inventory and accounts payable of $55,625,
$963,716 and $982,479, respectively. The increases in inventory and accounts
payable are due to the Company being required to purchase a last time buy of
silicon wafers from Chartered's facility #1. The Company received these wafers
in March 2004. Management of the Company believes that these silicon wafers will
support product sales through the second quarter 2004, at which time management
believes it will have an alternate source of supply. The change in cash flows
used in investing activities of $59,359 was primarily due to the purchase of
equipment required to test the Company's semiconductor products. The change in
cash flows provided by financing activities was primarily due to the net effect
of payments on a line of credit and capital leases offset by funds received from
the exercise of stock options by employees of the Company.
The change in cash flows for the three months ended March 31, 2003 provided
by operating activities was primarily a result of a net loss of $558,014, which
is offset by $112,117 in depreciation and amortization, decreases in accounts
receivable and prepaid expenses of $214,921 and $40,226, respectively and
increases in inventory, accounts payable and accrued expenses of $173,673,
$710,984 and $127,829, respectively. The decrease of $214,921 in accounts
receivable was directly related to certain customers paying invoices within the
Company's terms at the end of first quarter 2003. The increases in inventory of
$173,673 and accounts payable of $710,984 were primarily due to the timing of
raw materials received within the period and the timing of payments for standard
operating expenses. The increase in accrued expenses was due primarily to
increased vacation payable and accrued wages. These increases have occurred due
to certain employees foregoing their vacation time until later in 2003. The
change in cash flows used in investing activities of $153,112 was primarily due
to the purchase of equipment required to test the Company's memory wafers
received from Anam Semiconductor and software acquired for research and
development activities. The cash flows used in financing activities of $24,731
were due primarily to payments on a capital lease obligation.
Short-term liquidity.
The Company's cash balance at March 31, 2004 was $2,368,261.
The Company's future liquidity will depend on its revenue growth and its
ability to sell their products at positive gross margins and control of its
operating expenses. Over the coming nine months, the Company expects to spend
approximately $9,000,000 for operating expenses assuming revenue growth. The
Company expects to meet these capital needs from sales revenues and, to the
extent it does not have sufficient revenues, from its existing cash reserves.
Long-term liquidity.
The Company continues to evaluate its long term liquidity. The Company's
growth plans may require additional funding from outside sources. The Company is
in ongoing discussions with investment banking organizations to ensure access to
funds as required.
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SIMTEK CORPORATION
The Company is a party to a lease agreement with Baja Properties, LLC as
landlord pursuant to which the Company leases approximately 16,000 square feet
of space in Colorado Springs, Colorado. The lease is scheduled to expire on
February 28, 2013. The Company's monthly rental payment obligation is
approximately $16,000.
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SIMTEK CORPORATION
ITEM 3: CONTROLS AND PROCEDURES
-------------------------------
a) Evaluation of disclosure controls and procedures.
Douglas Mitchell, who serves as the Company's chief executive officer and chief
financial officer (acting), after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c)) as of the filing date of this quarterly report (the "Evaluation
Date") concluded that as of the Evaluation Date, the Company's disclosure
controls and procedures were adequate and effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported as
specified in the SEC's rules and forms.
(b) Changes in internal control over financial reporting.
There were no changes in the Company's internal control over financial reporting
during the three months ended March 31, 2004, that have materially affected, or
are reasonably likely to materially affect, internal control over financial
reporting.
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SIMTEK CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Matters Submitted to a Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
During the three months ended March 31, 2004, the Company filed the
following reports on Form 8-K:
Form 8-K filed March 5, 2004 - Item 5: Other information:
"Press Release dated March 4, 2004, of the Company with respect to the
2003 fourth quarter and year end financial results.
Form 8-K filed March 24, 2004 - Item 5: Other information: "On March
24, 2004, Simtek Corporation ("Simtek") announced that Dr. Klaus
Wiemer and Mr. John Heightley have retired from Simtek's Board of
Directors, and that Messrs. Al Stein and Ron Sartore have replaced
them. Item 7: Exhibit 99.1, Press release dated March 24, 2004.
17
SIMTEK CORPORATION
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.
SIMTEK CORPORATION
(Registrant)
May 10, 2004 By /s/Douglas Mitchell
----------------------------------------
DOUGLAS MITCHELL
Chief Executive Officer, President
And Chief Financial Officer (acting)
18