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 June 30, 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 August 3, 2004
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(Common Stock, $.01 par value) 57,703,387
SIMTEK CORPORATION
INDEX
For Quarter Ended June 30, 2004
PART 1. FINANCIAL INFORMATION
Page
----
ITEM 1
Consolidated Balance Sheets as of June 30, 2004 and
December 31, 2003 3
Consolidated Statements of Operations for the three
months and six months ended June 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 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 9-16
ITEM 3
Controls and Procedures 17
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings 18
ITEM 2 Changes in Securities 18
ITEM 3 Defaults upon Senior Securities 18
ITEM 4 Matters Submitted to a Vote of Securities Holders 18
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 18-19
SIGNATURES 20
2
SIMTEK CORPORATION
BALANCE SHEETS
ASSETS
------
June 30, 2004 December 31, 2003
------------- -----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 2,281,642 $ 3,431,679
Certificate of deposit, restricted .............................................. 300,000 300,000
Accounts receivable - trade, net ................................................ 2,156,010 1,923,542
Inventory, net .................................................................. 1,082,040 1,201,432
Prepaid expenses and other ...................................................... 60,882 129,554
------------ ------------
Total current assets ........................................................ 5,880,574 6,986,207
EQUIPMENT AND FURNITURE, net ....................................................... 962,276 862,009
DEFERRED FINANCING COSTS ........................................................... 82,982 91,280
OTHER ASSETS ....................................................................... 45,781 58,291
------------ ------------
TOTAL ASSETS ....................................................................... $ 6,971,613 $ 7,997,787
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................................................ $ 1,865,692 $ 1,038,634
Accrued expenses ................................................................ 267,832 390,079
Accrued wages ................................................................... 50,359 --
Line of credit .................................................................. -- 150,000
Accrued vacation payable ........................................................ 232,196 179,580
Obligation under capital leases ................................................. 73,775 123,585
------------ ------------
Total current liabilities ................................................... 2,489,854 1,881,878
NOTES PAYABLE ...................................................................... 5,000 5,000
DEBENTURES ......................................................................... 3,000,000 3,000,000
OBLIGATION UNDER CAPITAL LEASES .................................................... 38,497 61,221
------------ ------------
Total liabilities ........................................................... 5,533,351 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, 300,000,000 shares authorized,
57,703,387 and 56,713,352 shares issued and outstanding
at June 30, 2004 and December 31, 2003, respectively ........................ 577,034 567,134
Additional paid-in capital ...................................................... 39,576,270 39,230,210
Treasury Stock .................................................................. (12,504) (12,504)
Accumulated deficit ............................................................. (38,702,538) (36,735,152)
------------ ------------
Shareholders' equity ............................................................ 1,438,262 3,049,688
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................................... $ 6,971,613 $ 7,997,787
============ ============
The accompanying notes are an integral part of these financial statements.
3
SIMTEK CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -----------------------------
2004 2003 2004 2003
---- ---- ---- ----
NET SALES.................................................. $ 4,004,801 $ 3,419,971 $ 7,503,636 $ 7,355,100
Cost of sales........................................ 2,547,652 2,433,655 4,977,570 4,920,526
----------- ----------- ----------- -----------
GROSS MARGIN............................................... 1,457,149 986,316 2,526,066 2,434,574
OPERATING EXPENSES:
Design, research and development...................... 1,487,002 1,225,502 2,800,261 2,483,142
Administrative........................................ 328,706 204,022 606,660 475,899
Marketing............................................. 517,827 395,444 974,521 820,327
----------- ---------- ----------- -----------
Total Operating Expenses.......................... 2,333,535 1,824,968 4,381,442 3,779,368
NET LOSS FROM OPERATIONS................................... (876,386) (838,652) (1,855,376) (1,344,794)
------------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income....................................... 5,719 7,809 13,523 17,435
Interest expense...................................... (59,344) (63,591) (120,468) (124,637)
Other income (expense), net........................... (255) (943) (5,065) (1,393)
----------- ----------- ----------- -----------
Total other income (expense)...................... (53,880) (56,725) (112,010) (108,595)
----------- ---------- ----------- -----------
LOSS BEFORE TAXES.......................................... (930,266) (895,377) (1,967,386) (1,453,389)
Provision for income taxes............................ -- -- -- --
----------- ---------- ----------- -----------
NET LOSS................................................... $ (930,266) $ (895,377) $(1,967,386) $(1,453,389)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE:
Basic and diluted EPS................................. $ (.02) $ (.02) $ (.03) $ (.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted..................................... 57,395,172 54,446,394 57,209,142 54,440,139
The accompanying notes are an integral part of these financial statements.
4
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
----------------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $(1,967,386) $(1,453,389)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................. 237,511 245,575
Net change in allowance and reserve accounts.................. 81,218 1,805
Deferred financing fees....................................... 8,298 8,298
Loss on disposal of assets.................................... 13,165 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable....................................... (310,350) 313,731
Inventory................................................. 115,502 2,451
Prepaid expenses and other ............................... 68,672 103,737
Increase (decrease) in:
Accounts payable.......................................... 827,058 152,530
Accrued expenses.......................................... (18,718) 188,765
Deferred revenue.......................................... -- (40,500)
Customer deposits......................................... -- 33,075
---------- -----------
Net cash used in operating activities............................... (945,030) (443,922)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture ................................ (338,433) (292,527)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and lines of credit....................... (150,000) --
Payments on capital lease obligation................................ (72,534) (77,081)
Exercise of stock options........................................... 355,960 11 470
---------- -----------
Net cash provided by (used in) by financing activities.............. 133,426 (65,611)
---------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................................................ (1,150,037) (802,060)
---------- -----------
CASH AND CASH EQUIVALENTS, beginning of period........................... 3,431,679 3,127,732
---------- -----------
CASH AND CASH EQUIVALENTS, end of period................................. $ 2,281,642 $ 2,325,672
=========== ===========
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 the fair value approach, the Company's net loss
and Earnings Per Share ("EPS") would have been adjusted to the pro forma amounts
indicated below.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Net loss as reported $ (930,266) $ (895,377) $(1,967,386) $(1,453,389)
Add: stock based compensation
included in reported net loss - - - -
Deduct: Stock-based compensation
cost under the fair value approach (362,114) (130,018) (724,227) (260,037)
----------- ----------- ----------- -----------
Pro Forma net loss $(1,292,380) $(1,025,395) $(2,691,613) $(1,713,426)
=========== =========== ---------- -----------
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 57,395,172 54,446,394 57,209,142 54,440,139
Reported net loss per common
share basic and diluted $ (.02) $ (.02) $ (.03) $ (.03)
Pro forma net loss per common
share basic and diluted $ (.02) $ (.02) $ (.05) $ (.03)
2. LINE OF CREDIT:
In April 2004, Simtek renewed its revolving line of credit in the amount of
$250,000 on the existing terms of such line of credit.
6
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (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 June 30, 2004, the
Company was not in compliance with two of the covenants set forth in the loan
agreement which covenants relate to the interest coverage ratio and debt to
equity ratio. On July 30, 2004, the Company received a waiver for the two
covenants through July 1, 2005. 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 our semiconductor products by location for the three months and
six months ended June 30, 2004 and 2003 were as follows (as a percentage of
semiconductor product sales only):
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
United States 26% 29% 32% 39%
Europe 10% 14% 10% 12%
Far East 45% 52% 44% 43%
All others 19% 5% 14% 6%
---- ---- ---- ----
100% 100% 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
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 per each segment.
Substantially all of the Company's assets are located in the United States of
America.
7
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Description
Net Sales:
Semiconductor Devices $3,685,613 $2,907,713 $ 6,621,282 $ 6,332,296
Government Contracts 319,188 512,258 882,354 1,022,804
---------- ---------- ----------- -----------
Total $4,004,801 $3,419,971 $ 7,503,636 $ 7,355,100
Net Loss:
Semiconductor Devices $ (844,506) $(862,544) $(1,911,489) $(1,382,230)
Government Contracts (85,760) (32,833) (55,897) (71,159)
---------- --------- ----------- -----------
Total $ (930,266) $(895,377) $(1,967,386) $(1,453,389)
June 30, 2004 December 31, 2003
------------- -----------------
Total Assets:
Semiconductor Devices $6,433,329 $7,302,828
Government Contracts 538,284 694,959
---------- ----------
Total $6,971,613 $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 an increase in unit shipments for the three and six
months ended June 30, 2004 as compared to the three and six months ended June
30, 2003. The majority of the increase was for large production orders, with
competitive bidding, which resulted in a decrease of average selling prices. The
Company's net revenue was $7,504,000 for the first six months of 2004 up from
$7,355,000 for the comparable period of 2003. The Company's net revenue was
$4,005,000 for the second quarter 2004 up from $3,420,000 for the comparable
period of 2003. The increases in revenues for the three month and six month
periods ending June 30, 2004 as compared to the same periods ended June 30, 2003
were primarily due to increases in demand of the Company's nonvolatile
semiconductor memory products. These increases were offset by decreases in the
Company's logic product revenue and government research and development revenue.
The increase of revenues from the Company's high end industrial and military
products was primarily due to completing shipments of the Company's nonvolatile
semiconductor memory products against ongoing military contracts. The increase
in revenues of the Company's commercial products was due to production increases
by the Company's key system manufacturers. The decrease in revenue from the
Company's logic products was a result of the Company's decision to discontinue
this product line at the end of 2003. The decrease of revenue from the Company's
research and development contracts was due to an increase in bid and proposal
activities resulting in fewer billable man-hours, along with increased internal
research and development expenditures.
Increased operating expenses had an impact on the Company's profitability
for the three and six months ended June 30, 2004 compared to the three and six
months ended June 30, 2003.
RESULTS OF OPERATIONS:
REVENUES - SEMICONDUCTOR DEVICES.
The following table sets forth the Company's net revenues by product
markets for the three and six months ended June 30, 2004 and 2003 (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 Variance 2004 2003 Variance
---- ---- -------- ---- ---- --------
Commercial $2,908 $2,509 $ 399 $5,408 $5,101 $ 307
High-end industrial and
military $ 778 $ 203 $ 575 $1,213 $ 816 $ 397
Logic products $ - $ 196 $ (196) $ - $ 415 $(415)
------ ------ ------ ------ ------ -----
Total Semiconductor
Revenue $3,686 $2,908 $ 778 $6,621 $6,332 $ 289
Commercial revenues increased by $399,000 and $307,000 for the three and
six months ended June 30, 2004, respectively, when compared to the comparable
periods in 2003. The increases for the three and six month periods were due to
an increase in unit demand of our commercial nonvolatile semiconductor memory
products.
9
SIMTEK CORPORATION
High-end industrial and military product revenues increased by $575,000 and
$397,000 for the three and six months ended June 30, 2004, respectively, when
compared to the comparable periods in 2003. The increase was primarily due to
completing shipments of the Company's nonvolatile semiconductor memory products
against on- going military contracts.
Revenues from our logic products decreased by $196,000 and $415,000 for the
three and six months ended June 30, 2004 as compared to 2003, respectively. The
decreases were due to a reduction in demand for this product and the Company's
decision to eliminate this product line effective December 31, 2003.
Three distributors accounted for approximately 44% of the Company's
semiconductor device product sales for the quarter ended June 30, 2004. Products
sold to distributors are re-sold to various end customers.
COST OF SALES AND GROSS MARGIN - SEMICONDUCTOR DEVICES
The Company recorded cost of sales for semiconductor devices of $2,378,000
and $4,491,000 for the three and six months ended June 30, 2004 as compared with
the $2,163,000 and $4,407,000 for the three and six months ended June 30, 2003.
These costs reflect an approximate 9% and 2% increase in gross profit margin
percentages for the second quarter and six months ended June 30, 2004 as
compared to the second quarter and six months ended June 30, 2003. Actual gross
profit margin percentages for the second quarter and six month periods ending
June 30, 2004 were 35% and 32%, respectively. The increases in gross margin
percentages for the three and six month periods were due to an increase in
revenue of the Company's high-end industrial and military products, which more
than offset increased costs experienced for commercial products.
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 for each of the three and six month period ended June 30, 2004.
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 for each of the three and six month period ended June 30, 2004.
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 with Chartered. In March 2004, Chartered closed its wafer fabrication
facility #1 where the Company's memory wafers were manufactured. 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 this will have a
material negative impact on the Company's future revenues and earnings.
The Company also engaged X-FAB Texas, Inc., of Texas ("X-FAB") to install
the Company's nonvolatile semiconductor memory process and currently anticipates
receiving material from X-FAB for production shipments during third quarter of
2004. If this activity does not meet production requirements, a negative impact
on the Company's future revenues and earnings will result.
10
SIMTEK CORPORATION
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 Dongbu Anam Semiconductor for the development of a 1 megabit 3 volt
nonvolatile semiconductor memory. During the first six months of 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 July 15, 2004, the Company shipped samples to approximately 201 different
customers. During the three and six months ended June 30, 2004, sales of the
Company's 1 megabit 3 volt products accounted for approximately 2% of the
Company's revenue.
Research and development expenses for the three and six month periods
ending June 30, 2004 have been directly related to the development and
qualification of the Company's family of 0.25 micron nonvolatile semiconductor
memory products at Dongbu Anam Semiconductor, the transfer of the Company's 3
volt 256 kilobit nonvolatile semiconductor memory into Chartered's Facility #2,
and the transfer of the Company's 5 volt 64 kilobit and 256 kilobit nonvolatile
semiconductor memory products into Chartered's Facility #2 and into X- FAB. The
Company anticipates that qualification of these products will occur by the end
of the third quarter of 2004. Once the qualification is complete, the Company
anticipates that its research and development activities will focus on yield
improvements of its nonvolatile semiconductor memory products, enhancements to
the 1 megabit 3 volt product family, and development of its next-generation 0.18
micron nonvolatile memory process.
Total research and development expenses related to the semiconductor
portion of the Company's business were $1,397,000 and $2,601,000 for the three
and six months ended June 30, 2004 compared to $1,050,000 and $2,120,000 for the
three and six months ended June 30, 2003.
The $347,000 increase for the three month period was related to the net
between increases in payroll and payroll overhead costs of $72,000, product
development costs of $382,000 and qualification costs of $3,000 and reductions
in contract engineering services of $64,000, equipment leases, maintenance
agreements for software and depreciation of $32,000, and miscellaneous other
expenses of $14,000. The increase of $481,000 for the six month period was
related to the net between increases in payroll and payroll costs of $109,000,
product development costs of $574,000 and qualification costs of $11,000 and
reductions in contract engineering services of $152,000, equipment leases,
maintenance agreements for software and depreciation of $54,000 and
miscellaneous other expenses of $7,000. The primary increase in payroll costs is
related to an increase in employee headcount which is required to meet
production schedules of our new products. The primary increase in product
development costs was due to an increase in silicon wafer purchases and reticles
for the Company's 1 megabit products from Dongbu Anam Semiconductor, 64 kilobit
and 256 kilobit products from X-FAB and 256 kilobit products from Chartered's
wafer fabrication facility #2 and an increase in costs related to the commercial
development of datacomm products performed by the Company's Q-DOT subsidiary.
ADMINISTRATION - SEMICONDUCTOR DEVICES
Total administration expenses related to the semiconductor portion of the
Company's business were $284,000 and $531,000 for the three and six months ended
June 30, 2004 as compared to the $184,000 and $409,000 for the three and six
months ended June 30, 2003.
The $100,000 increase for the three month period was due to increases in
accounting and legal fees of $18,000, professional services of $32,000, costs
associated with the Company's annual meeting of shareholders of $47,000 and
travel and other miscellaneous expenses of $16,000 and a decrease in payroll and
payroll overhead costs of $13,000 The $122,000 increase for the six month period
11
SIMTEK CORPORATION
was due to increase in accounting and legal fees of $37,000, professional fees
of $45,000, costs associated with the Company's annual meeting of shareholder's
of $47,000 and other miscellaneous expenses including travel of $20,000 and a
decrease in payroll and payroll overhead costs of $27,000. The increases in
legal fees were primarily related to costs incurred in relation to the Company's
annual meeting of shareholders. The increase in professional services was
primarily due to an increase in fees paid to the Company's Board of Directors
and fees paid for financial consulting. The increases in accounting fees were
due to increased audit fees related to the Company's registration statements on
Form SB-2 that the Company is contractually obligated to file with the
Securities and Exchange Commission.
MARKETING - SEMICONDUCTOR DEVICES
Total marketing expenses related to the semiconductor portion of the
Company's business were $418,000 and $802,000 for the three and six months ended
June 30, 2004 as compared to the $317,000 and $671,000 for the three and six
months ended June 30, 2003.
The $101,000 increase for the three month period ended June 30, 2004 as
compared to June 30, 2003 was due primarily to increases in payroll and payroll
related costs of $58,000, travel and other miscellaneous expenses of $16,000,
sales commissions of $13,000 and advertising expenses of $14,000. The increase
of $131,000 for the six month period ended June 30, 2004 as compared to June 30,
2003 was due to increases in payroll and payroll related costs of $73,000,
advertising expenses of $31,000, travel and other miscellaneous expenses of
$24,000 and sales commissions of $3,000. The increase in payroll and payroll
overhead costs was a result of increased headcount and the increase in sales
commissions was a direct result of increased revenue.
NET LOSS - SEMICONDUCTOR DEVICES
The Company recorded a net loss of $845,000 and $1,911,000 for the three
and six months ended June 30, 2004 as compared to a net loss of $863,000 and
$1,382,000 for the three and six months ended June 30, 2003. The decrease in net
loss for the three month period was due primarily to increased sales and
increased gross margin percentages; these increases were offset by increases in
operating expenses. The increase in net loss for the six month period was due
primarily to increased operating expenses which was offset by increased sales.
REVENUES - GOVERNMENT CONTRACTS
The following table sets forth the Company's net revenues from its
government contracts portion of its business for the three and six months ended
June 30, 2004 and 2003 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 Variance 2004 2003 Variance
---- ---- -------- ---- ---- --------
Government Contracts $319 $512 $(193) $882 $1,023 $(141)
The decrease of revenue for the three and six month periods ending June 30,
2004 as compared to the same periods in 2003 was the result of an increase in
employee hours dedicated to bid and proposals resulting in reduced direct labor
charges against government contracts, along with increased research and
development expenditures committed to internal product developments.
COST OF SALES AND GROSS MARGIN - GOVERNMENT CONTRACTS
The cost of sales for the government contracts portion of the Company's
business was $170,000 and $486,000 for the three and six months ended June 30,
2004 as compared to the $271,000 and $513,000 for the same periods in 2003. This
was equivalent to gross margin percentages of 47% and 45% for the three and six
months ended June 30, 2004 as compared to gross margin percentages of 47% and
12
SIMTEK CORPORATION
50% for the same periods in 2003. The decreases in gross margin percentages for
the six month period was primarily due to an increase in non-direct labor which
could not be billed as revenue.
RESEARCH AND DEVELOPMENT - GOVERNMENT CONTRACTS
Total research and development expenses related to the government contracts
portion of the Company's business were $90,000 and $199,000 for the three and
six months ended June 30, 2004 compared to $175,000 and $363,000 for the three
and six months ended June 30, 2003.
The $85,000 decrease for the three months ended June 30, 2004 as compared
to the same period in 2003 was related to a $50,000 decrease in employment
related expenses, a decrease of $31,000 in software maintenance contracts and a
$4,000 decrease in miscellaneous expenses. The $164,000 decrease for the six
month period ending June 30, 2004 as compared to the same period in 2003 was
related to decreases of $96,000 in employment related expenses, $51,000 in
software maintenance contracts and equipment leases and $17,000 in miscellaneous
expenses. The decreases in employment related expenses apportioned to government
contracts, for the three and six month period were primarily due to labor that
was performed toward commercial product development for the semiconductor
portion of the business. These expenses were transferred to the semiconductor
portion of the business.
ADMINISTRATION - GOVERNMENT CONTRACTS
Total administration expenses related to the government contracts portion
of the Company's business were $45,000 and $76,000 for the three and six months
ended June 30, 2004 as compared to the $20,000 and $67,000 for the three and six
months ended June 30, 2003.
The $25,000 increase for the three months ended June 30, 2004 compared to
the same period in 2003 was primarily due to an increase in employment related
expenses. The increase of $9,000 for the six months ended June 30, 2004 as
compared to the same period in 2003 was primarily due to a $9,000 increase in
employment related expenses. The increase in employment related expenses was due
primarily to a decrease in labor transferred 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 $100,000 and $172,000 for the three and six months ended
June 30, 2004 as compared to the $78,000 and $149,000 for the three and six
months ended June 30, 2003.
The increases of $22,000 and $23,000 for the three and six month periods
ended June 30, 2004 as compared to June 30, 2003 were primarily due to increased
bid and proposal activities.
NET INCOME (LOSS) - GOVERNMENT CONTRACTS
The Company recorded a net loss of $86,000 and $56,000 for the three and
six months ended June 30, 2004 as compared to a net loss of $33,000 and $71,000
for the three and six months ended June 30, 2003. The decreases in net income
were primarily due to indirect overhead costs, such as bid and proposal
activities and increased research and development expenses committed to internal
product development, that could not be billed to specific government contracts.
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
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SIMTEK CORPORATION
products and by expanding its customer base. The Company is also dependent on
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
July 15, 2004, the Company had shipped samples to 201 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 third 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 June 30, 2004, the Company had a backlog of unshipped customer orders
of approximately $2,398,000 expected to be filled by December 31, 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 its 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. As of June 30, 2004, the
Company had received production wafers from Chartered's facility #2 suitable for
customer shipments. This should provide uninterrupted supply of its current 256
kilobit 3 volt 0.8 micron family of nonvolatile Static Random Access memory
products, and should have no material impact on the Company's ability to support
its customers. If production yields or wafer availability from Chartered's
facility #2 do not meet the Company's production requirements, this may have a
material negative impact on the Company's future revenues and earnings.
The Company has also engaged X-FAB to install the Company's nonvolatile
semiconductor memory process and currently anticipates receiving material from
X-FAB for production shipments during third quarter of 2004. If this activity
does not meet production requirements, a negative impact on the Company's future
revenues and earnings will result.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, the Company had net working capital of $3,390,720 as
compared to a net working capital of $1,241,933 as of June 30, 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.
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SIMTEK CORPORATION
On July 1, 2002, the Company received $3,000,000 in a financing transaction
with 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 June 30, 2004, the Company was not in compliance with two of the
covenants set forth in the loan agreement which covenants relate to the interest
coverage ratio and debt to equity ratio. On July 30, 2004, the Company received
a waiver for the two covenants through July 1, 2005. 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 change in cash flows for the six months ended June 30, 2004 provided by
operating activities was primarily a result of a net loss of $1,967,386, which
is offset by $237,511 in depreciation and amortization, decreases in inventory,
prepaid expenses and accrued expenses of $115,502, $68,672, and $18,718,
respectively and increases in allowance accounts, accounts receivable and
accounts payable of $81,218, $310,350 and $827,058, respectively. The increase
of $310,350 in accounts receivable was directly related to increased revenue in
June 2004. The $827,058 increase in accounts payable was due to extended payment
terms received from one of our suppliers; the extended payment terms end in July
2004. The decrease in inventory of $115,502 was primarily due to the timing of
depleting the products produced from raw materials received from Chartered's
wafer fabrication facility #1 and the replenishing of these products with raw
materials received from either Chartered's wafer fabrication facility #2 or
X-FAB. The change in cash flows used in investing activities of $338,433 was
primarily due to the purchase of equipment required to test our nonvolatile
semiconductor memory products and reticles required to produce our wafers. The
change in cash flows provided by financing activities of $133,426 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 six months ended June 30, 2003 provided by
operating activities was primarily a result of a net loss of $1,453,389, which
is offset by $245,575 in depreciation and amortization, decreases in accounts
receivable, inventory, prepaid expenses and deferred revenue of $313,731,
$2,451, $103,737 and $40,500, respectively and increases in accounts payable,
accrued expenses and customer deposits of $152,530, $188,765 and $33,075,
respectively. The decrease of $313,731 in accounts receivable was directly
related to certain customers paying invoices within the Company's terms at the
end of second quarter 2003. The increases in accounts payable of $152,530 was
primarily due to 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 $292,527 was primarily due to the purchase of equipment
required to test our nonvolatile semiconductor memory products and software
acquired for research and development activities. The cash flows used in
financing activities of $65,611 were due primarily to payments on a capital
lease obligation.
Short-term liquidity.
The Company's cash balance at June 30, 2004 was $2,281,642.
The Company's future liquidity will depend on its revenue growth and its
ability to sell its products at positive gross margins and control of its
operating expenses. Over the coming six months, the Company expects to spend
approximately $4,100,000 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 and potential
lenders 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, president
and chief financial officer (acting), after evaluating the effectiveness of the
Company's disclosure controls and procedures 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 and six months ended June 30, 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
On May 24, 2004, we held an annual meeting of our shareholders to vote on the
following proposals:
a. Amendment to our Articles of Incorporation to increase the number
of authorized shares of common stock: The proposal was approved
by the vote of our shareholders with holders representing
44,893,157 shares voting for the proposal, holders representing
1,691,723 shares voting against the proposal and holders
representing 82,790 shares abstaining.
b. Election of Directors: Mr. Douglas Mitchell was re-elected by the
vote of our shareholders with holders representing 46,466,729
shares voting for Mr. Mitchell and holders representing 200,941
shares withheld from voting. Dr. Robert Keeley was re-elected by
the vote of our shareholders with holders representing 46,444,194
shares voting for Dr. Keeley and holders representing 223,476
shares withheld from voting.
c. Ratification of selection of Hein & Associates, LLP as our
auditors for 2004: The proposal was approved by the vote of our
shareholders with holders representing 45,807,138 shares voting
for the proposal, holders representing 118,852 shares voting
against the proposal and holders representing 741,680 shares
abstaining.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
Form 8-K filed April 8, 2004 - Item 5: Other information: Press
Release of Simtek Corporation, dated April 7, 2004, announcing its
outlook for 2004 and the status of a new product rollout.
Form 8-K filed April 27, 2004 - Item 5: Other information: Press
Release, dated April 23, 2004, with respect to Shareholder Meeting.
Form 8-K filed May 11, 2004 - Item 5: Other information: Press
Release, dated May 10, 2004, Simtek Reports First Quarter 2004
Financial Results.
Form 8-K filed June 2, 2004 - Item 5: Other information: On May 27,
2004, Simtek Corporation amended its Amended and Restated Articles of
Incorporation to increase the number of authorized shares. Item 7:
Financial Statements and Exhibits: Exhibit number 3.1 "Articles of
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SIMTEK CORPORATION
Amendment to the Amended and Restated Articles of Incorporation of
Simtek Corporation.
Form 8-K filed June 16, 2004 - Item 5: Other information: Press
Release, dated June 15, 2004, Simtek Updates Investors for 2004
Revenue and New Product Developments.
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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)
August 5, 2004 By /s/Douglas Mitchell
----------------------------------------
DOUGLAS MITCHELL
Chief Executive Officer, President
and Chief Financial Officer (Acting)
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