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 September 30, 2002
[ ] 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 November 8, 2002
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(Common Stock, $.01 par value) 54,382,273
SIMTEK CORPORATION
INDEX
For Quarter Ended September 30, 2002
PART 1. FINANCIAL INFORMATION
ITEM 1 Page
------ ----
Balance Sheets as of September 30, 2002 and
December 31, 2001 3
Statements of Operations for the three months and nine
months ended September 30, 2002 and 2001 4
Statements of Cash Flows for the nine months ended
September 30, 2002 and 2001 5
Notes to Financial Statements 6-7
ITEM 2
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-14
ITEM 3
Controls and Procedures 15
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings 16
ITEM 2 Changes in Securities 16
ITEM 3 Defaults upon Senior Securities 16
ITEM 4 Matters Submitted to a Vote of Securities Holders 16
ITEM 5 Other Information 16
ITEM 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
CERTIFICATIONS 18
2
SIMTEK CORPORATION
BALANCE SHEETS
ASSETS
------ September 30, 2002 December 31, 2001
------------------- ------------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 3,071,364 $ 2,075,704
Certificate of deposit, restricted...................................... 300,000 300,000
Accounts receivable - trade, net........................................ 1,852,585 1,687,329
Inventory, net ......................................................... 2,176,226 1,827,082
Prepaid expenses and other.............................................. 119,566 104,071
----------------------------------------
Total current assets................................................ 7,519,741 5,994,186
EQUIPMENT AND FURNITURE, net............................................... 818,141 902,213
DEFERRED FINANCING COSTS................................................... 112,026 -
OTHER ASSETS............................................................... 90,003 119,714
----------------------------------------
TOTAL ASSETS............................................................... $ 8,539,911 $ 7,016,113
========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 835,767 $ 1,416,794
Accrued expenses........................................................ 308,299 344,817
Accrued wages........................................................... 36,879 155,243
Accrued vacation payable................................................ 174,013 138,022
Line of credit payable.................................................. - 100,163
Deferred Revenue........................................................ 17,500 15,000
Obligation under capital leases......................................... 130,013 78,805
----------------------------------------
Total current liabilities........................................... 1,502,471 2,248,844
NOTES PAYABLE.............................................................. 10,000 24,813
OBLIGATION UNDER CAPITAL LEASES............................................ 111,104 166,752
CONVERTIBLE DEBENTURES..................................................... 3,000,000 -
----------------------------------------
Total liabilities................................................... 4,623,575 2,440,409
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,
54,382,273 and 54,026,273 shares issued and outstanding.............
at September 30, 2002 and December 31, 2001, respectively........... 543,823 540,262
Additional paid-in capital.............................................. 37,594,875 37,547,590
Treasury Stock...................................................... (12,504) (12,504)
Accumulated deficit..................................................... (34,209,858) (33,499,644)
----------------------------------------
Shareholder's equity.................................................... 3,916,336 4,575,704
----------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 8,539,911 $ 7,016,113
========================================
The accompanying notes are an integral part of these financial statements.
3
SIMTEK CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
NET SALES................................................. $ 3,146,887 $ 4,105,613 $ 10,670,620 $ 13,170,094
Cost of sales....................................... 1,620,408 2,931,461 6,237,559 9,085,025
----------------------------------------------------------------------
GROSS MARGIN.............................................. 1,526,479 1,174,152 4,433,061 4,085,069
OPERATING EXPENSES:
Design, research and development..................... 980,108 644,224 3,250,226 2,050,366
Administrative....................................... 188,304 290,195 581,700 1,064,552
Marketing............................................ 353,000 450,292 1,258,517 1,270,833
Investor relations................................... - 214,833 - 730,433
----------------------------------------------------------------------
Total Operating Expenses......................... 1,521,412 1,599,544 5,090,443 5,116,184
NET INCOME (LOSS) FROM OPERATIONS......................... 5,067 (425,392) (657,382) (1,031,115)
----------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income...................................... 16,443 11,531 31,051 70,193
Interest expense..................................... (64,332) (4,387) (83,317) (16,952)
Other income (expense), net.......................... (24) (882) (566) 1,686
----------------------------------------------------------------------
Total other income (expense)..................... (47,913) 6,262 (52,832) 54,927
----------------------------------------------------------------------
EQUITY IN LOSSES OF QDA AND WRITE-OFF
OF RELATED ADVANCE .................................. - - - (4,631)
----------------------------------------------------------------------
LOSS BEFORE TAXES......................................... (42,846) (419,130) (710,214) (980,819)
Provision for income taxes........................... - - - -
----------------------------------------------------------------------
NET LOSS.................................................. $ (42,846) $ (419,130) $ (710,214) $ (980,819)
======================================================================
NET LOSS PER COMMON SHARE:
Basic and diluted EPS................................. $ * $ (.01) $ (.01) $ (.02)
======================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted..................................... 54,203,686 53,701,538 54,144,625 53,679,465
* Less Than $.01 per share
The accompanying notes are an integral part of thesefinancial statements.
4
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (710,214) $ (980,819)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................. 314,347 340,854
Amortization of deferred financing costs...................... 4,149 -
Common stock issued for investor relations expense............ - 730,433
Net change in allowance accounts.............................. (40,087) (120,334)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable....................................... (139,244) (509,130)
Inventory................................................. (357,698) (444,939)
Prepaid expenses and other ............................... (4,469) 62,944
Increase (decrease) in:
Accounts payable.......................................... (581,027) (138,727)
Accrued expenses.......................................... (101,263) (14,244)
Deferred revenue.......................................... 2,500 15,000
Customer deposits......................................... - 2,000
-----------------------------------
Net cash used in operating activities............................ (1,613,006) (1,056,962)
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture ................................ (211,589) (325,863)
Decrease to investment from related party........................... - 5,730
----------------------------------
Net cash used in investing activities............................... (211,589) (320,133)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and lines of credit..................... - -
Payments on notes payable and lines of credit....................... (109,976) (102,797)
Payments on capital lease obligation................................ (92,897) (35,100)
Borrowings on capital lease obligation.............................. 88,457 -
Convertible debentures net of deferred financing fees............... 2,883,825 -
Cash to QD Acoustics................................................ - (2,498)
Exercise of stock options........................................... 50,846 13,076
Purchase of Simtek Common Stock..................................... - (12,504)
-----------------------------------
Net cash provided by (used in) by financing activities.............. 2,820,255 (139,823)
-----------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................................ 995,660 (1,516,918)
-----------------------------------
CASH AND CASH EQUIVALENTS, beginning of period........................... 2,075,704 2,853,769
-----------------------------------
CASH AND CASH EQUIVALENTS, end of period................................. $ 3,071,364 $ 1,336,851
===================================
The accompanying notes are an integral part of thesefinancial 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 financial statements
and notes thereto included in Simtek Corporation's Annual Report and Form 10-KSB
filed on March 22, 2002 for fiscal year 2001. The balance sheet as of December
31, 2001 was derived from the audited year end balance sheet.
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 were 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.
2. LINE OF CREDIT:
In April 2002, Simtek Corporation ("Simtek" or the "Company") renewed its
revolving line of credit in the amount of $250,000.
3. CONVERTIBLE DEBENTURES:
On July 1, 2002, the Company received funding of $3,000,000 in a financing
transaction with Renaissance Capital of Dallas, Texas ("Renaissance"). The
$3,000,000 funding consists of convertible debentures with a 7-year term at a
7.5% per annum interest rate. The debentures are convertible at the option of
the holder into Simtek common stock at $0.312 per share, which was in excess of
the market price per share on July 1, 2002. Renaissance has exercised its right
to appoint one member to the Simtek Board of Directors. Mr. Robert Pearson was
appointed to Simtek's board of directors on July 25, 2002.
4. GEOGRAPHIC CONCENTRATION:
Sales of our semiconductor products by location for the three months and
nine months ended September 30, 2002 and 2001 were as follows (as a percentage
of semiconductor product sales only):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
United States 68% 59% 55% 44%
Europe 11% 8% 11% 15%
Far East 16% 19% 25% 32%
All others 5% 14% 9% 9%
---- ---- ---- ----
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
6
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Description Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net Sales:
Semiconductor Devices $ 2,672,724 $ 3,782,703 $ 9,277,628 $ 12,053,711
Government Contracts 474,163 322,910 1,392,992 1,116,383
------------ ------------- ------------ ------------
Total $ 3,146,887 $ 4,105,613 $ 10,670,620 $ 13,170,094
Net Income (Loss):
Semiconductor Devices $ (103,974) $ (366,471) $ (800,590) $ (737,204)
Government Contracts 61,128 (52,659) 90,376 (243,615)
------------ ------------ ------------ -------------
Total $ (42,846) $ (419,130) $ (710,214) $ (980,819)
September 30, 2002 December 31, 2001
------------------ -----------------
Total Assets:
Semiconductor Devices $ 8,053,539 $ 6,579,383
Government Contracts 486,372 436,729
------------ -----------
Total $ 8,539,911 $ 7,016,113
7
SIMTEK CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
Beginning in the fourth quarter 2001, the Company began to experience the
downturn that has been occurring in the global semiconductor industry since late
fourth quarter 2000. This downturn has continued through the first nine months
of 2002. The Company's net revenue was $10,671,000 for the first nine months of
2002 down from $13,170,000 for the comparable period of 2001. The Company's net
revenue was $3,147,000 for the third quarter 2002 down from $4,106,000 for the
comparable period of 2001. These decreases in revenues were primarily due to
declines in production demand for semiconductor products and reductions in
average selling prices.
The decline in revenue for the three and nine months ended September 30,
2002 had an adverse impact on our profitability. This decline along with
increased research and development costs related to our 1 megabit product
development accounted for losses in the three and nine month periods ending
September 30, 2002.
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 and nine months ended September 30,
2002 and 2001 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 Variance 2002 2001 Variance
---- ---- -------- ---- ---- --------
Commercial $ 1,359 $ 3,223 $ (1,864) $ 6,557 $ 10,533 $ (3,976)
High-end industrial and
military $ 1,052 $ 392 $ 660 $ 1,862 $ 852 $ 1,010
Logic products $ 262 $ 168 $ 94 $ 859 $ 669 $ 190
-------- --------- --------- -------- -------- ---------
Total Semiconductor
Revenue $ 2,673 $ 3,783 $ (1,110) $ 9,278 $ 12,054 $ (2,776)
Commercial revenues decreased by $1,864,000 and $3,976,000 for the three
and nine month periods, respectively, when compared to the comparable periods in
2001. The decreases were primarily due to a depressed semiconductor market which
resulted in lower product demand and lower average selling prices.
High-end industrial and military product revenues accounted for increases
of $660,000 and $1,010,000 for the three and nine month periods in 2002 as
compared to the previous periods in 2001, respectively. The increases were due
to an increase in defense contracts.
Revenues from our logic products increased by $94,000 and $190,000 for the
three and nine months ended 2002 as compared to 2001, respectively. The
increases for the three and nine month periods were due primarily to
non-recurring engineering charges received from new customers and the shipment
of production orders to a new customer and pre-existing customers.
8
SIMTEK CORPORATION
Three distributors accounted for approximately 50% of the Company's
semiconductor devices product sales for the quarter ended September 30, 2002.
Products sold to distributors are sold without significant recourse.
Distributors sell our products to various end customers. If one of these
distributors was to terminate its relationship with the Company, we believe 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 $1,391,000
and $5,608,000 for the three and nine months ended September 30, 2002,
respectively, as compared with the $2,677,000 and $8,427,000 for the three and
nine months ended September 30, 2001, respectively. These costs reflect an
approximate 19% improvement in gross margin percentages for the third quarter
and an approximate 9% improvement in gross margin percentages for the nine
months ended September 30, 2002 as compared to the third quarter and nine months
ended September 30, 2001, respectively. Actual gross margin percentages for the
third quarter and nine month periods ending September 30, 2002 were 48% and 40%,
respectively. These increases were due primarily to increased sales of logic
products and high-end industrial and military products. The increases in gross
margin percentages were partially due to lower material and test costs of our
commercial product.
During the first nine months of 2002, the Company purchased wafers built on
0.8 micron technology from Chartered Semiconductor Manufacturing Plc.
("Chartered") of Singapore to support sales of its nonvolatile semiconductor
memory products. Sales of the Company's logic products were supported with 0.5
micron wafers purchased from United Microelectronics Corp. ("UMC") of Taiwan and
0.35 micron wafers purchased from Chartered. If we are unable to purchase wafers
from Chartered, it would have a material impact on our revenues.
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 our process at Amkor
Technology for the development of a 1 megabit 3 volt nonvolatile semiconductor
memory. During the third quarter 2002, the Company continued shipping 3 volt 256
kilobit nonvolatile semiconductor memories in larger volumes to its customers.
Development of the 1 megabit 3 volt nonvolatile semiconductor memory is
continuing and the Company is still anticipating samples by late first quarter
2003.
Total research and development expenses related to the semiconductor
portion of the Company's business were $890,000 and $2,855,000 for the three and
nine months ended September 30, 2002 compared to $641,000 and $1,734,000 for the
three and nine months ended September 30, 2001.
The $249,000 increase for the three month period was related to increases
in payroll and payroll overhead costs of $101,000, contract engineering services
of $78,000, new product development costs of $27,000, equipment leases,
maintenance agreements for software and depreciation of $104,000 and a reduction
in miscellaneous other expenses of $61,000 which were related primarily to
reduced cost of our logic development. The increase of $1,121,000 for the nine
month period was related to increases in payroll and payroll costs of $410,000,
contract engineering services of $295,000, new product development costs of
$280,000, equipment leases, maintenance agreements for software and depreciation
of $236,000 and a reduction in miscellaneous other expenses of $100,000 which
9
SIMTEK CORPORATION
was related to a reduction in our logic development costs. The primary increase
in payroll costs is related to an increase in employee headcount. Increased
headcount and contract engineering services are required in order to meet
production schedules of our new products. New product development costs are
primarily due to the purchases of silicon wafers and reticles required to
develop new products. Equipment leases, maintenance agreements for software and
depreciation are related primarily to software licenses and hardware required to
design our new products.
ADMINISTRATION AND INVESTOR RELATIONS - SEMICONDUCTOR DEVICES
Total administration expenses related to the semiconductor portion of the
Company's business were $162,000 and $501,000 for the three and nine months
ended September 30, 2002 as compared to the $240,000 and $821,000 for the three
and nine months ended September 30, 2001.
The $78,000 and $320,000 decreases for the three and nine months ended
September 30, 2002 compared to September 30, 2001, respectively, were primarily
due to decreased legal, audit fees and payroll costs. The decrease occurred
primarily due to increased legal, audit fees and payroll costs which were
related directly to the acquisition of Q-DOT and the filing of a registration
statement during the three and nine month periods ending September 30, 2001.
The decrease of $215,000 and $730,000, in investor relations expense, for
the three and nine months ended September 30, 2002 as compared to the three and
nine months ended September 30, 2001 was related to the completion of the
amortization of the issuance of stock to two investment banking firms in
September 2000 for services they performed.
MARKETING - SEMICONDUCTOR DEVICES
Total marketing expenses related to the semiconductor portion of the
Company's business were $286,000 and $1,063,000 for the three and nine months
ended September 30, 2002 as compared to the $384,000 and $1,137,000 for the
three and nine months ended September 30, 2001.
The $98,000 decrease for the three month period ended September 30, 2002 as
compared to September 30, 2001 was the net effect of increased payroll and
payroll overhead costs, decreased advertising costs and decreased sales
commissions which are a direct result of revenue. The decrease of $74,000 for
the nine month period ended September 30, 2002 as compared to September 30, 2001
was the net effect of a $53,000 increase in payroll expenses and a $34,000
increase in travel expenses which was offset by decreases in contract services
of $56,000, sales commissions of $57,000 and advertising of $48,000.
TOTAL OTHER INCOME (EXPENSES) - SEMICONDUCTOR DEVICES
The increase in total other income (expense) for the three and nine month
period ended September 30, 2002 as compared to September 30, 2001 was primarily
related to an increase of interest expense and an increase in interest income
which was a direct result of $3,000,000 funding the Company received on July 1,
2002.
NET LOSS - SEMICONDUCTOR DEVICES
The Company recorded a net loss of $104,000 and $801,000 for the three and
nine months ended September 30, 2002 as compared to a net loss of $366,000 and
$737,000 for the three and nine months ended September 30, 2001. The decrease of
$262,000 in net loss for the three month period was due primarily to the 19%
increase in gross margin percentages which was offset by an increase in
operating expenses and decreased sales. The increase of $64,000 in net loss for
the nine month period was due primarily to increased research and development
costs and decreased sales.
10
SIMTEK CORPORATION
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 nine months ended
September 30, 2002 and 2001 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 Variance 2002 2001 Variance
---- ---- -------- ---- ---- --------
Government Contracts $ 474 $ 323 $ 151 $ 1,393 $ 1,116 $ 277
The increase of revenue for the three and nine month periods were the
result of increased direct labor costs and increased materials and services that
were invoiced against development contracts. Direct labor increased due to the
addition of employees.
COST OF SALES AND GROSS MARGIN - GOVERNMENT CONTRACTS
The Company saw a 30% improvement in its gross margin percentages for the
third quarter 2002 as compared to the third quarter 2001 and a 14% improvement
for the nine months ended September 30, 2002 as compared to the nine months
ended September 30, 2001. The improvement in gross margin percentages for the
three month period were primarily due to a one time adjustment of costs from
research and development to costs of sales that occurred in the three month
period ending September 30, 2001. The adjustment was offset by increased direct
labor and increased materials and services for the three month period ending
September 30, 2002. The improvement in gross margin percentages for the nine
months ended September 30, 2002 as compared to September 30, 2001 was due to
decreased materials and services which were offset by increased direct labor.
Actual gross margin percentages for the third quarter and nine month period
ending September 30, 2002 were 52% and 55%, respectively.
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 $395,000 for the three and
nine months ended September 30, 2002 compared to $3,000 and $316,000 for the
three and nine months ended September 30, 2001.
The $87,000 increase for the three month period was related to increases in
payroll and payroll overhead costs of $14,000 and the one time adjustment that
occurred in September 2001 that moved $73,000 from research and development to
cost of sales. The $79,000 increase for the nine month period was related
primarily to an increase in payroll and payroll overhead costs.
ADMINISTRATION - GOVERNMENT CONTRACTS
Total administration expenses related to the government contracts portion
of the Company's business were $26,000 and $81,000 for the three and nine months
ended September 30, 2002 as compared to the $50,000 and $244,000 for the three
and nine months ended September 30, 2001.
The $24,000 decrease for the three months ended September 30, 2002 compared
to September 30, 2001 was primarily due to a decrease in labor transfer costs
from Q-DOT to Simtek. The $163,000 decrease for the nine months ended September
30, 2002 compared to September 30, 2001 was due to decreased legal, audit fees
and payroll costs that were directly related to Simteks' acquisition of Q-DOT.
11
SIMTEK CORPORATION
MARKETING - GOVERNMENT CONTRACTS
Total marketing expenses related to the government contracts portion of the
Company's business were $67,000 and $196,000 for the three and nine months ended
September 30, 2002 as compared to the $67,000 and $134,000 for the three and
nine months ended September 30, 2001.
The increase of $62,000 for the nine month period ending September 30, 2002
as compared to September 30, 2001 were primarily due to an increase in bid and
proposal activities.
NET INCOME (LOSS) - GOVERNMENT CONTRACTS
The Company recorded a net income of $61,000 and $90,000 for the three and
nine months ended September 30, 2002 as compared to a net loss of $53,000 and
$244,000 for the three and nine months ended September 30, 2001. The increase in
net income from a net loss for the nine month period was due primarily to the
elimination of costs related to the Company's acquisition of Q-DOT and increased
revenue.
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
the overall state of semiconductor industry and the demand for semiconductor
products by equipment manufacturers.
The Company is continuing its co-development program with Amkor to develop
a semiconductor process module that combines the Company's nonvolatile
technology with Amkor'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 RAM memories, for stand alone and embedded products. The
Company's current schedule is to have samples of a 1 megabit 3.0 volt
nonvolatile semiconductor memory available late in the first quarter of 2003.
As of September 30, 2002, the Company had a backlog of unshipped customer
orders of approximately $2,073,000 expected to be filled by March 31, 2003.
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.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, the Company had net working capital of $6,017,270
as compared to a net working capital of $3,767,923 as of September 30, 2001.
On July 1, 2002, the Company received funding of $3,000,000 in a financing
transaction with Renaissance. The $3,000,000 funding consists of convertible
debentures with a 7-year term at a 7.5% per annum interest rate. The debentures
are convertible at the option of the holder into Simtek common stock at $0.312
per share, which was in excess of the market price per share on July 1, 2002.
The change in cash flows for the nine months ended September 30, 2002 used
in operating activities was primarily a result of a net loss of $710,214, which
is offset by $318,496 in depreciation and amortization, a decrease in accrued
expenses of $101,263, increases in accounts receivable, allowance accounts,
prepaid expenses and other and deferred revenue of $139,244, $40,087, $4,469,
and $2,500, respectively. The $357,698 increase in inventory and the $581,027
12
SIMTEK CORPORATION
decrease of accounts payable are primarily due to the timing of raw materials
received within the period. Materials were received and paid for early in the
period, but due to soft market demand, have not been fully consumed, resulting
in larger inventory levels. The change in cash flows used in investing
activities of $211,589 was primarily due to the purchase of equipment required
to manufacture our semiconductor devices at Chartered and UMC and hardware and
software required for research and development activities. The cash flows
provided by financing activities were due primarily to the $3,000,000, net of
$116,175 in financing fees, received from Renaissance, borrowings and payments
on notes payable and a capital lease obligation and the exercise of stock
options by employees of the Company.
The change in cash flows for the nine months ended September 30, 2001 used
in operating activities was primarily a result of a net loss of $980,819 which
is offset by $340,854 in depreciation and amortization, $730,433 in prepaid
investor relations, decreases in prepaid expenses and other, and increases in
customer deposits and receipts from deferred revenue of $62,944, $2,000 and
$15,000, respectively. These decreases were offset by an increase in accounts
receivable, inventory, and a decrease in accounts payable and accrued expenses
of $627,214, $444,939, $138,727, and $14,244, respectively. The increases in
accounts receivable and inventory were related to increased product availability
and demand. The change in cash flows used in investing activities was primarily
due to the purchase of $325,863 of equipment required to test our products and
payments on a capital lease obligation of $35,100. The change in cash flows used
in financing activities of $139,823 was due primarily to payments on a line of
credit and notes payable and the buyback of Simtek common stock and receipts
from deferred revenue.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and other
Intangible Assets. SFAS 141 states that all business combinations should be
accounted for using the purchase method of accounting; use of
pooling-of-interest method is prohibited. Accounting for the excess of the fair
value of net assets of cost (negative goodwill), will be allocated to certain
assets first with any remaining excess recognized as an extraordinary gain. SFAS
No. 141 is effective for business combination completed afer June 30, 2001.
Adoption of SFAS No. 141 is not expected to have a material impact on the
accounting for business acquisitions prior to July 1, 2001. SFAS No. 142
addresses the accounting for all purchased intangible assets but not the
accounting for internally developed intangible assets. Goodwill will no longer
be amortized and will be reviewed for impairment in accordance with SFAS No.
142. Goodwill will be tested annually and on an interim basis if an event or
circumstance occurs between the annual tests that might reduce the fair value of
the reporting unit below its carrying value. SFAS No. 142 is effective for
fiscal years beginning after December 31, 2001, with early adoption permitted
under certain circumstances. Goodwill and intangible assets acquired in a
transaction completed after June 30, 2001 but before SFAS No. 142 is initially
applied will be accounted for in accordance with SFAS No. 142. The adoption of
these standards is expected to have little effect on the Company's historical
financial statements as the Company does not have any goodwill. These standards
will be applied to all future acquisitions.
In June 2001, the FASB also approved for issuance SFAS 143 "Asset
Retirement Obligations." SFAS 143 establishes accounting requirements for
retirement obligations associated with tangible long-lived assets, including (1)
the timing of the liability recognition, (2) initial measurement of the
liability, (3) allocation of asset retirement cost to expense, (4) subsequent
measurement of the liability and (5) financial statement disclosures. SFAS 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. We will adopt the statement effective no later
than January 1, 2003, as required. The transition adjustment resulting from the
adoption of SFAS 143 will be reported as a cumulative effect of a change in
accounting principle. We do not believe the adoption of this standard will have
a material effect on our financial statements.
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SIMTEK CORPORATION
In October 2001, the FASB also approved SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. The new accounting model for long-lived assets to be disposed of
by sale applies to all long-lived assets, including discontinued operations, and
replaces the provisions of APB Opinion No. 30, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, for the
disposal of segments of a business. Statement 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred.
Statement 144 also broadens the reporting of discontinued operations to include
all components of an entity with operations that can be distinguished from the
rest of the entity and that will be eliminated from the ongoing operations of
the entity in a disposal transaction. The provisions of Statement 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and, generally, are to be applied prospectively. At this time,
we do not believe adoption of this standard will have a material effect on our
financial statements.
In April 2002, the FASB approved for issuance Statements of Financial
Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
previous accounting guidance, which required all gains and losses from
extinguishment of debt be classified as an extraordinary item. Under SFAS 145
classification of debt extinguishment depends on the facts and circumstances of
the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002 and adoption is not expected to have a material effect on the Company's
financial position or results of its operations.
In July 2002, the FASB issued Statements of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.
14
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 a date within 90 days of the filing date of the 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 material information relating to the Company and its consolidated
subsidiaries would be made known to them by individuals within those entities,
particularly during the period in which this quarterly report was being
prepared.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
15
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) Exhibits
10.22 Technology Development, License and Product Agreement
between Amkor Technology and Simtek - Amended September
2002
99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
Form 8-K filed July 8, 2002 - Press Release "Simtek Closes $3
Million Financing Transaction with Renaissance Capital of Dallas"
Form 8-K filed July 31, 2002 - Press Release "Simtek Appoints
Robert Pearson to Board of Directors"
Form 8-K filed August 20, 2002 - Press Release "Simtek Announces
Second Quarter 2002 Financial Results"
16
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)
November 8, 2002 By /s/Douglas Mitchell
-----------------------------------------
DOUGLAS MITCHELL
Chief Executive Officer, President
and Chief Financial Officer (Acting)
17
SIMTEK CORPORATION
CERTIFICATIONS
I, Douglas Mitchell, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Simtek Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly date (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 8, 2002
/s/ Douglas Mitchell
--------------------------------------
Douglas Mitchell
Chief Executive Officer, President and
Chief Financial Officer (acting)
18