As filed with the Securities and Exchange Commission on August 3, 2001
Registration 333-60492
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SIMTEK CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1057605
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4250 Buckingham Dr. #100
Colorado Springs, Colorado 80907
(719) 531-9444
(Address, including zip code, and telephone number,
including area code, of Principal Executive Offices)
----------
Douglas M. Mitchell
Chief Executive Officer, President and Chief Financial Officer (acting)
Simtek Corporation
4250 Buckingham Dr. #100
Colorado Springs, CO 80907
(719) 531-9444
(Name, address, including zip code and telephone
number, including area code, of agent for service)
Copies to:
Garth B. Jensen, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, CO 80203
(303) 861-7000
Approximate Date of Commencement of Proposed Sale to the Public: From
time to time after the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462
(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. o
If any of the securities being registered on this form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
---------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8 (a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities nor does it seek an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED AUGUST 3, 2001
PROSPECTUS
1,810,123 Shares
SIMTEK CORPORATION
Common stock
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This prospectus is being used to register 1,810,123 shares of Simtek
Corporation's common stock being offered by thirty of our shareholders.
Our common stock is traded on the OTC Bulletin Board under the symbol
"SRAM." On July 30, 2001, the closing sale price of our common stock was $0.44
per share.
---------------
See "Risk Factors" beginning on page 4 to read about factors you should consider
before buying our stock.
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this Prospectus is ________, 2001.
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TABLE OF CONTENTS
Summary........................................................................3
Risk Factors...................................................................4
Use of Proceeds...............................................................10
Capitalization................................................................10
Market for our Common Stock and Related Secondary Holder Matters..............11
Selected Financial Data.......................................................12
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................13
Business......................................................................21
Management....................................................................30
Security Ownership............................................................33
Selling Shareholders..........................................................35
Specific relationships and Related Transactions...............................37
Description of Securities.....................................................38
Plan of Distribution..........................................................38
Legal Matters.................................................................39
Experts .....................................................................39
Available Information.........................................................40
Index of Financial Statements................................................F-1
SUMMARY
This summary highlights selected information from this prospectus and
does not contain all of the information that may be important to you. Please
carefully read the entire prospectus and the documents incorporated by
reference.
Information About Us and Our Business
We develop, market and subcontract the production of nonvolatile
semiconductor memories and programmed semiconductor logic products.
Nonvolatility prevents loss of programs and data when electrical power is
removed from the semiconductor. Our memory products feature fast data access and
programming speeds. Our logic products route electronic signals to perform tasks
in electronic systems that use our products. All of our products are targeted
for use in commercial or military electronic equipment markets. These markets
are industrial control systems, office automation, medical instrumentation,
telecommunication systems, cable television, and numerous military systems,
including communications, radar, sonar and smart weapons.
Our principal executive office is located at 4250 Buckingham Dr. #100;
Colorado Springs, Colorado 80907. Our telephone number is 719-531-9444.
The Shares
We are registering 1,810,123 shares of our common stock being offered
for resale by thirty of our shareholders.
We will not receive any of the proceeds of the shares being sold by our
shareholders.
Summary Financial Information
Year Ended December 31, Three Months Ended March 31,
----------------------- ---------------------------
2000 1999 2001 2000
---- ---- ----- ----
Statement of Operations Data:
Net revenues.............................. $ 14,467,814 $ 11,168,624 $ 4,331,721 $ 3,826,027
Total expenses............................ 17,904,616 11,124,982 4,877,584 3,240,363
Operating income (loss)................... (3,436,802) 43,642 (545,863) 585,664
Income (loss) before taxes................ (3,540,342) (90,526) (514,564) 576,147
Net income (loss)......................... $ (3,540,342) $ (122,926) $ (514,564) $ 538,147
Net income (loss) per share:
Basic................................ $ (.07) $ * $ (.01) $ .01
==========================================================
Diluted.............................. $ * $ * $ (.01) $ .01
==========================================================
* Less than $.01 per share.
Year Ended Three Months Ended
December 31, 2000 March 31, 2001
----------------- --------------
Balance Sheet Data:
Cash and cash equivalents............. $ 2,853,769 $ 2,615,626
Working capital....................... 4,046,107 3,694,293
Total assets.......................... 7,287,985 8,163,635
Shareholders' equity.................. 4,924,205 4,663,433
3
RISK FACTORS
You should consider carefully the following risk factors, as well as
the other information in this prospectus before buying our shares. The
semiconductor industry is changing rapidly. Therefore, the forward-looking
statements and statements of expectations, plans and intent in this prospectus
are subject to a greater degree of risk than similar statements regarding some
other industries.
Our limited operating capital and our ability to raise additional money may harm
our ability to develop and market our products
To date, we have required significant capital for product development,
subcontracted production and marketing. We have funded this from the sale of
products, the sale of product and technology licenses and from royalties as well
as from the sale of our convertible debt and equity securities.
We believe that if we are able to increase our product sales
substantially and with continued positive gross margins, our cash requirements
for the development, subcontracted production and marketing of our existing
product families will be satisfied. We are not sure, however, whether we will be
able to achieve this increase in product sales and continue our positive gross
margins. We may need more capital in the next year and after that to develop new
products. We are not sure that we will be able to raise more capital on
reasonable terms, if at all. If we cannot, then we may not be able to develop
and market new products. The development, subcontracted production and marketing
of our existing products may also suffer.
We may experience operating losses in the next several years
We began business in 1987. Through March 31, 2001, we had accumulated
losses of approximately $33.0 million. We realized net income for the first time
for the year ended December 31, 1997 and continued to realize net income through
June 30, 2000. However, through March 31, 2001, we realized a net loss primarily
as a result of accounting charges from the purchase of incomplete research and
development in September 2000. We may continue to experience net operating
losses for the foreseeable future. Continuing net operating losses could
materially harm our results of operations and increase our need for additional
capital in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Because our common stock is listed only on the OTC electronic bulletin board it
will be more difficult to sell our common stock
Our common stock is listed on the OTC Electronic Bulletin Board under
the symbol "SRAM." Our common stock was listed on the Nasdaq Small-Cap Market
until July 18, 1995 but because we no longer met Nasdaq's listing requirements,
we transferred to the OTC Electronic Bulletin Board as mandated by Nasdaq rules.
We may not be able to meet the requirements for relisting our common stock on
Nasdaq in the near future or in the longer term.
Securities that are not listed on the Nasdaq Small-Cap Market are
subject to a Securities and Exchange Commission rule that imposes special
requirements on broker-dealers who sell those securities to persons other than
their established customers and accredited investors. The broker-dealer must
determine that the security is suitable for the purchaser and must obtain the
purchaser's written consent prior to the sale. These requirements may make it
more difficult for our security holders to sell their securities and may affect
our ability to raise more capital.
Since we depend greatly on subcontractors, their poor performance could hurt our
operations
We subcontract the silicon wafer processing, product assembly, and
product testing portions of our business to independent companies. Our operating
results depend on these subcontractors' ability to supply us with
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silicon wafers that meet our specifications and to assemble and test enough of
our products to meet our customers' needs.
Currently, we depend on Chartered Semiconductor Manufacturing Plc. of
Singapore to manufacture all of our silicon wafers for our 0.8 micron memory
products and 0.35 micron logic products, which account for collectively
approximately 78% of our total products. We depend on United Memories Corp. of
Taiwan to manufacture all of our silicon wafers for our 0.5 micron logic
products, which account for approximately 7% of our total products. These wafers
are the raw materials required to manufacture our semiconductor products.
Without these wafers, we would be unable to sell our products. If Chartered
Semiconductor Manufacturing or United Memories Corp. is unable to meet our
silicon wafer needs on time and at a price that we find acceptable, we would
have to find other wafer manufacturers. If we cannot find other suppliers,
manufacturers or assemblers on acceptable terms, we may not be profitable. In
addition, our subcontractors must be audited and recertified by us on a regular
basis for us to continue to produce military-qualified products. We cannot
assure you that we will be able to complete this recertification successfully or
in a timely manner.
We do not have a current manufacturing agreement with Chartered Semiconductor
manufacturing which may limit our ability to purchase raw materials
Our current manufacturing agreement with Chartered Semiconductor
Manufacturing has expired. Under our old agreement, we had the right to purchase
up to 600 six-inch silicon wafers per month from Chartered Semiconductor
Manufacturing's facility in Singapore. If we are unable to renew our agreement
with Chartered Semiconductor Manufacturing or the limit on wafers that we can
purchase from it is not increased, we may be limited in the number of
semiconductors that we can sell, unless we are able to acquire a sufficient
quantity from our other supplier. About 71% of our product sales for the year
ended December 31, 2000 were based on wafers purchased from Chartered
Semiconductor Manufacturing.
The uncertainty involved in manufacturing semiconductors may increase the costs
and decrease the production of our products
In order for us to be profitable, we must keep our manufacturing costs
down and secure the production of sufficient product. Semiconductor
manufacturing depends on many factors that are very complex and beyond our
control and often beyond the control of our subcontractors. These factors
include contaminates in the manufacturing environment, impurities in the raw
materials used and equipment malfunctions. Under our arrangements with our
subcontractors, they pass on to us substantially all of their costs that are
unique to the manufacture of our products. Accordingly, these factors could
increase the cost of manufacturing our products and decrease our profits. These
factors could also reduce the number of semiconductors that our subcontractors
are able to make in a production run. If our subcontractors produce fewer of our
products, our revenues may decline.
Delays in manufacturing may negatively impact revenue and net income
It takes approximately three months for us to manufacture our
semiconductors. Any delays in receiving silicon wafers from our subcontractors
will delay our ability to deliver our products to customers. This would delay
sales revenue and could cause our customers to cancel existing orders or not
place future orders. In addition, if we are not able to make all of our planned
semiconductors in a production run this could delay delivery of our products.
These delays could occur at any time and would affect our net income.
We depend on independent sales representatives and distributors to sell our
products and the termination of any of these relationships may harm our revenue
We use independent sales representatives and distributors to sell the
majority of our products. The agreements with these sales representatives and
distributors can be terminated without cause by either party with only 30 to 90
days written notice. If one or more of our sales representatives or distributors
terminates our relationship, we may not be able to find replacement sales
representatives and distributors on acceptable terms or at all. This would
affect our profitability. In addition, during 2000, approximately 47% of our
product sales were to
5
two distributors and one direct customer. We are not sure that we will be able
to maintain our relationship with these distributors.
Delays in or failure of product qualification may harm our business
Prior to selling a product, we must establish that it meets expected
performance and reliability standards. As part of this testing process, known as
product qualification, we subject representative samples of products to a
variety of tests to ensure that performance in accordance with commercial,
industrial and military specifications. If we are unable to successfully
accomplish product qualification for our future products, we will be unable to
sell these future products. Even with successful initial product qualifications,
we cannot be assured that we will be able to maintain product qualification or
achieve sufficient sales to meet our operating requirements.
Since the semiconductor industry is fast changing, our success depends on our
ability to introduce new products
The semiconductor industry is characterized by rapid changes in
technology and product obsolescence. Our success in the semiconductor industry
depends in part upon our ability to expand our existing product families and to
develop and market new products. The technology we currently use may be made
obsolete by other competing or newly developed memory technologies. The
development of new semiconductor designs and technologies typically requires
substantial costs for research and development. Even if we are able to develop
new products, the success of each new product depends on several factors
including whether we selected the proper product and our ability to introduce it
at the right time, whether the product is able to achieve acceptable production
yields and whether the market accepts the new product. We cannot guarantee you
that we will be successful in developing new products or whether any products
that we do develop will satisfy the above factors.
Our recent purchase of incomplete research and development may result
insignificant expenditures
In an effort to expand our products, we recently acquired incomplete
research and development products from WebGear, Inc. We believe that the
incomplete research and development we acquired should enable us to enter the
wireless data communication market being developed under the "Bluetooth"
trademark. "Bluetooth" is a new industry standard for wireless data
communication developed by a consortium of electronic industry partners. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations." If this technology is successful in
establishing wide spread use it may create sales opportunities for component
suppliers. We expect to spend approximately $750,000 to bring products to this
wireless market. However, we cannot assure you that we will be able, or have
sufficient operating capital, to enter this market. See "-- Our Limited
Operating Capital and Our Ability to Raise Money May Harm Our Ability to Develop
and Market Our Products."
The intense competition in the semiconductor industry may cause us to lose sales
revenue to other suppliers
There is intense competition in the semiconductor industry. We
experience competition from a number of domestic and foreign companies, most of
which have significantly greater financial, technical, manufacturing and
marketing resources than we have. Our competitors include major corporations
with worldwide silicon wafer fabrication facilities and circuit production
facilities and diverse, established product lines. We also compete with emerging
companies attempting to obtain a share of the market for our product families.
If any of our new products achieve market acceptance, other companies may sell
competitive products at prices below ours. This would have an adverse effect on
our operating results. We have sold product and technology licenses to Zentrum
Mikroelektronik Dresden. We have granted this company unlimited rights to much
of our technology through its license agreements with us. Zentrum
Mikroelektronik Dresden has entered the market and may become one of our
significant competitors.
6
Given the scarcity of trained personnel in the semiconductor industry, the loss
of key employees could materially affect our financial results
Our success depends in large part on our ability to attract and retain
qualified technical and management personnel. There are limited personnel
trained in the semiconductor industry resulting in intense competition for these
personnel. If we lose any of our key personnel, this could have a material
adverse affect on our ability to conduct our business and on our financial
results.
Our patents may not provide us effective intellectual property protection; this
could harm our business
We have been issued 25 U.S. patents relating to specific aspects of our
current products and we have four applications pending. We have also applied
outside the United States for patents on our technology. We plan to continue to
protect our intellectual property. We are not sure that any of the patents for
which we have applied will be issued or, even if they are issued, will provide
us with meaningful protection from competition. We may also not have the money
required to maintain or enforce our patent rights. Notwithstanding our patents,
other companies may obtain patents similar or relating to our patents.
We seek to protect a significant portion of our intellectual property
as trade secrets, rather than patents. Unlike patents, trade secrets must remain
confidential in order to retain protection as proprietary intellectual property.
We cannot assure you that our trade secrets will remain confidential. If we lose
trade secret protection, our business could suffer.
If our products and technology infringe on third party patents, our product
sales may suffer
We have not determined whether our products are free from infringement
of others' patents. If patent infringement claims are asserted against us and
are upheld, we will try to modify our products so they are non- infringing. If
we are unable to do so, we will have to obtain a license to sell those products
or stop selling the products for which the claims are asserted. We may not be
able to obtain the required licenses. Any successful infringement claim against
us, our failure to obtain any required license or requirement for us to stop
selling any of our products, may force us to discontinue production and shipment
of these products. This may result in reduced product sales and harm our
revenues.
We were notified of possible patent infringement by one company in
December of 1989. After reviewing the related patents we responded in the same
month with a position that our products were still under development, but that
the analysis revealed no infringement. There was no further response from this
company. In January of 1991 a second company sent us a package of nonvolatile
memory and other memory patents for review to evaluate for any possible
infringement and to seek licenses as appropriate. Our internal evaluation
determined that there were no obvious infringements requiring the pursuit of
licenses from this company. In both cases we believe that there are no
definitive claims for infringement against our products, so no further actions
have been taken, although there has not been direct recognition of this position
by the other parties. However, we cannot assure you that these companies will
not assert patent infringement claims against us in the future.
In 1998, we received notice of a claim for an unspecified amount from a
foundation that owns approximately 180 patents and 70 pending applications. The
foundation claimed that some of the machines and processes used in the building
of our semiconductor devices infringe on the foundation's patents. In April
1999, we reached an agreement with the foundation for us to purchase a
nonexclusive license of the foundation's patents, based on our product offerings
and sales forecast at that time. If our products or actual sales revenue vary
significantly from the time of the agreement, we may be subject to additional
payments.
Foreign currency exchange rate fluctuations may increase our costs, lower our
revenues and cause loss of customers to our competitors
We purchase materials, including silicon wafers, from outside the
United States. In 2000, over 57% of our sales were to customers located outside
of the United States. We operate using United States dollars as the
7
functional currency. Changes in foreign currency exchange rates can reduce our
revenues and increase our costs. For example, our subcontractors may increase
the prices they charge us, on a per purchase order basis, for silicon wafers if
the United States dollar weakens. Any large exchange rate fluctuation could
affect our ability to compete with manufacturers who operate using foreign
currencies. We do not try to reduce our exposure to these exchange rate risks by
using hedging transactions. Although we have not had any material losses due to
exchange rate fluctuations over the last three years, we cannot assure you that
we will not incur significant losses in the future.
Because we do not intend to pay dividends in the foreseeable future, your
investment return may be limited
We have never paid cash dividends on our common stock. We do not expect
to pay dividends in the foreseeable future. We intend to use any earnings to
finance growth. You should not expect to receive dividends on your shares of
common stock.
If our board of directors authorizes the issuance of preferred stock, holders of
our common stock could be diluted and harmed
Our board of directors has the authority to issue up to 2,000,000
shares of preferred stock in one or more series and to establish the preferred
stock's voting powers, preferences and other rights and qualifications without
any further vote or action by the shareholders. The issuance of preferred stock
by our board of directors could dilute and harm the rights of the holders of our
common stock. It could potentially be used to discourage attempts by others to
obtain control of us through merger, tender offer, proxy contest or otherwise by
making such attempts more difficult to achieve or more costly. Our board of
directors has no specific intention to issue shares of preferred stock, but
given our present capital requirements, it is possible that we may need to raise
capital through the sale of preferred stock in the future.
Our failure to hold annual shareholders' meetings to re-elect officers limits
our shareholders' control over management
Since 1991, we have held only three annual shareholders' meetings at
which shareholders elect directors. We have had some special shareholders
meetings at which shareholders have voted on matters other than the election of
directors. Our shareholders last elected directors on June 30, 1994. We have not
held more meetings to elect directors primarily due to the costs associated with
having the meetings. If we want to hold a meeting to elect directors, we must
print and mail to each shareholder prior to the meeting an annual report. Based
on the number of our shareholders, the printing and mailing cost would be
approximately $30,000. At this time, we are unsure of when we will hold our next
annual meeting to elect directors. The infrequent annual shareholders' meetings
limits the ability of shareholders to elect new members to the board of
directors and to change our management.
8
USE OF PROCEEDS
We will receive no proceeds from the sale of shares by our
shareholders.
CAPITALIZATION
The following table shows our capitalization at March 31, 2001.
Treasury stock, 10,000 shares $ (12,504)
Preferred stock, $1.00 par value, 2,000,000 shares authorized,
none issued and outstanding 0
Common stock, $0.01 par value, 80,000,000 shares authorized,
53,684,245 issued and outstanding 536,842
Additional paid in capital 37,503,880
Accumulated deficit as of March 31, 2001 (32,892,152)
Shareholders' equity $ 5,136,066
9
MARKET FOR OUR COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Our common stock is listed on the OTC Electronic Bulletin Board under
the symbol "SRAM". Securities not included in the Nasdaq Small-CAP Market are
covered by the Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the rule
may affect the ability of broker-dealers to sell our securities, which will have
an adverse effect on the ability of our security holders to sell their
securities and the possibility of our ability to raise additional capital.
Shown below is the closing high bid and the closing low offer as
reported by the OTC Electronic Bulletin Board on the last day of the quarter.
Common Stock
High Bid Low Bid
1998
First Quarter........................................ .4062 .3594
Second Quarter....................................... .3594 .3125
Third Quarter........................................ .2344 .2188
Fourth Quarter....................................... .1562 .1406
1999
First Quarter........................................ .1875 .1875
Second Quarter....................................... .2188 .2031
Third Quarter........................................ .1562 .1562
Fourth Quarter....................................... .2812 .2656
2000
First Quarter........................................ 2.875 2.25
Second Quarter....................................... 1.5313 1.375
Third Quarter........................................ .9688 .8438
Fourth Quarter....................................... .3594 .2969
2001
First Quarter........................................ .7344 .6562
Second Quarter....................................... .55 .49
Third Quarter (through July 30, 2001)................ .46 .44
The quotations listed above reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
As of December 31, 2000, there were 379 shareholders of record, not
including shareholders who beneficially own common stock held in nominee or
"street name."
We have not paid any dividends on our common stock since inception and
we do not intend to pay any in the foreseeable future.
10
SELECTED FINANCIAL DATA
The statements of operations for the years ended December 31, 2000 and
1999 and the balance sheet data as of December 31, 2000 have been derived from
the financial statements that have been audited by Hein + Associates, LLP,
independent auditors. The balance sheet as of March 31, 2001 and the statements
of operations for the three months ended March 31, 2001 and 2000 are unaudited.
In our opinion, these financial statements include all adjustments necessary for
the fair presentation of the financial position as of March 31, 2001 and
statements of operations for the three months ended March 31, 2001 and 2000. The
balance sheet as of March 31, 2001 and the statements of operations for the
three months ended March 31, 2001 and 2000 were prepared on a consistent basis
with our year end financial information. The balance sheet as of December 31,
2000 has been audited by Hein + Associates, LLP. This financial data should be
read in conjunction with our financial statements and the notes thereto included
elsewhere in this prospectus and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
For the Years Ended December 31, Three months Ended March 31,
-------------------------------- ----------------------------
Statement of Operations Data: 2000 1999 2001 2000
---- ---- ---- ----
Net Sales....................................... $ 14,467,814 $ 11,168,624 $ 4,331,721 $ 3,826,027
Cost of Sales................................... 8,423,529 6,172,643 3,096,555 2,128,721
--------------------------------- -----------------------------
Gross Margin.................................... 6,044,285 4,995,981 1,235,166 1,697,306
Operating Expenses:
Design, research and development........... 6,158,189 2,240,273 660,074 623,465
Administrative............................. 2,152,593 1,793,424 704,103 213,285
Marketing.................................. 1,170,305 918,642 416,852 274,892
--------------------------------- -----------------------------
Total Operating Expenses............... 9,481,087 4,952,339 1,781,029 1,111,642
Other income (expense), net..................... 91,122 (81,654) 31,299 (9,517)
Equity in losses of QDA and write off of related
advances..................................... (194,662) (52,514) - -
---------------------------------- ------------------------------
Net income (loss) before taxes.................. (3,540,342) (90,526) $ (514,564) $ 576,147
Provision for income taxes................. - 32,400 - 38,000
--------------------------------- -----------------------------
Net income (loss)............................... $ (3,540,342) $ (122,926) $ (514,564) $ 538,147
================================== =============================
Net income (loss) per common share:
Diluted.................................... $ (.07) $ * $ (.01) $ (.01)
Basic...................................... $ * $ * $ (.01) $ (.01)
Weighted average common shares outstanding:
Basic..................................... 48,337,167 38,345,697 53,651,952 41,472,635
=====================================================================
Diluted................................... 48,337,167 38,345,697 53,651,912 44,848,779
=====================================================================
* Less than $.01 per share.
Year Ended Three Months Ended
December 31, 2000 March 31, 2001
----------------- --------------
Balance Sheet Data:
Working capital............................................. $ 4,046,107 $ 3,694,293
Total assets................................................ 7,287,985 8,163,635
Shareholders' equity........................................ $ 4,924,205 4,663,433
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview of Acquisitions and Other Transactions
During 2000 and the first quarter of 2001, we made several acquisitions
of high technology companies, some of which we have accounted for as a pooling
of interests.
On May 9, 2000, we acquired Integrated Logic Systems, Inc. We issued
3,000,000 shares of our common stock in exchange for all outstanding shares of
all classes of Integrated Logic Systems stock. Integrated Logic Systems designs
and sells programmed semiconductor logic products. We purchased approximately
$30,000 of product from Integrated Logic Systems in the year preceding the
acquisition. The acquisition was accounted for as a pooling of interest, and the
results of Integrated Logic Systems have been consolidated with our results, as
if we have been merged throughout the periods presented.
On June 16, 2000, we acquired 1,875,000 shares of the common stock of
WebGear in return for 1,250,000 shares of our common stock. On September 29,
2000, we purchased incomplete research and development, patents and trademarks
from WebGear and entered into an agreement to purchase at preferential rates new
products developed from the patents and related technology. This agreement
provided for WebGear to pay us approximately $600,000 over a 12-month period.
The original contract price for the incomplete research and development totaled
1,875,000 shares of WebGear stock plus 3,400,000 shares of our common stock of
which 500,000 were held in escrow based on WebGear fulfilling all obligations
under the contract. In December 2000, WebGear defaulted on its payment
obligations under the preferential rate purchase agreement, thus forcing them to
relinquish the 500,000 escrow shares of our common stock which reduced the
shares issued to 2,900,000 of our common stock.
On July 31, 2000, we acquired Macrotech Semiconductor. We issued
1,250,000 shares of our common stock in exchange for all outstanding shares of
all classes of Macrotech Semiconductor stock. Macrotech Semiconductor designs
and sells programmed semiconductor logic products, which are an extension of the
programmed semiconductor logic products that Integrated Logic Systems
manufactures. The acquisition was accounted for as a pooling of interest, and
the results of Macrotech Semiconductor have been consolidated with ours, as if
we have been merged throughout the periods presented.
On September 14, 2000, we entered into a one-year contract with two
investment bankers, E.B.M. Associates, Inc. and World Trade Partners. Each
company has received 500,000 shares of our common stock. Both companies will
assist us in broadening our financial market presence and establishing new
relationships within the industry, investment community and financial media, by
arranging meetings for our management with industry analysts, presenting company
profiles to analysts and brokerage firms, mailings and personal communication
with investors. E.B.M. Associates supports these activities primarily in retail
investment markets, while World Trade Partners supports these activities
primarily in institutional markets. E.B.M. Associates and World Trade Partners
cooperate to coordinate their activities. On September 14, 2000, the closing
share price for our common stock was $ 1.0312 per share and accordingly
$1,031,000 has been assigned to prepaid investor relations. The cost associated
with this transaction is being amortized over the life of the contract.
Approximately $301,000 was expensed in 2000. The balance will be expensed over
the term of the contract, ending in the third quarter of 2001.
On September 29, 2000, we purchased incomplete research and
development, patents and trademarks from WebGear. The incomplete research and
development consists of hardware and software developed for wireless data
communications, that needs to be modified for use with the Bluetooth technology
standard. See "Risk Factors-Our Recent Purchase of Incomplete Research and
Development May Result in Significant Expenditures." We originally issued
3,400,000 shares of our common stock which was amended in December 2000 to
2,900,000. We also returned to WebGear the 1,875,000 shares of WebGear common
stock that we acquired from WebGear on June 16, 2000. On September 29, 2000, the
closing price of our common stock was $0.8438 per share. We have valued the
purchased patents and trademarks at $125,000, which was capitalized and recorded
as intangible assets. We have valued the incomplete research and development
acquired from WebGear at $3,962,646, which was expensed immediately.
12
On December 6, 2000, we signed a letter of intent to acquire Q-DOT
Group, Inc. The merger was completed on March 14, 2001. We acquired Q-DOT Group
in exchange for approximately 5,171,731 shares of our common stock, valued at
$4,000,000 based on a twenty day average share closing price of approximately
$0.77. One of the Q-DOT Group subsidiaries, specializes in advanced technology
research and development for data acquisition, signal processing, imaging and
data communications. Q-DOT Group's projects have been supported by
"conventional" government and commercial contracts in addition to government
contacts sponsored by the Small Business Innovation Research program.
Independent government agencies, such as the Department of the Army, Department
of the Navy and Department of the Air Force may award contracts directly, or
"conventionally," or may award contracts through the Small Business Innovation
Research program. The Small Business Innovation Research program is a Department
of Defense program that funds early-stage research projects at small technology
companies. We operate our Q-DOT Group's government contract research and
development operations as a wholly owned subsidiary of us. The acquisition was
accounted for as a pooling of interest, and the results of Q-DOT Group are
consolidated with ours in our financials as if we have been merged throughout
the periods.
Results of Operations
General. We have designed and developed nonvolatile semiconductor
products since we commenced business operations in May 1987. We have
concentrated on the design and development of our nonvolatile semiconductor
memory product families and technologies, marketing, distribution channels, and
sources of supply, including production at subcontractors. With the acquisition
of Integrated Logic Systems and Macrotech Semiconductor, we have added the
capability to design, develop and produce gate array integrated circuits, or our
logic products.
Our business was founded on a specialized technology that supported
development of nonvolatile semiconductor memories. We developed our current
memory products out of this technology. This single product family does not
allow growth into a broad range of applications. Therefore, in an effort to
expand our products, we acquired from WebGear incomplete research and
development of technology that we intend to apply within the emerging Bluetooth
market segment. "Bluetooth" is an industry standard, short range wireless
communications technology designed to allow a variety of electronic devices,
such as wireless telephones, Personal Digital Assistants, notebook computers,
desktop computers, peripheral input-output devices, television set-top boxes and
Internet appliances to exchange data without the use of physical cabling. See
"Risk Factors-Our Recent Purchase of Incomplete Research and Development May
Result in Significant Expenditures."
We anticipate that our acquisition of Q-DOT Group will enable us to
enter the high speed data communications market, addressing both wired and
wireless applications, based on advanced "Silicon Germanium" process technology.
Silicon Germanium is rapidly becoming the technology of choice for many analog,
mixed signal and high speed digital circuits.
In September 1991, we began the sale of our commercially qualified 64
kilobit nonvolatile semiconductor memory products based on a 1.2 micron process
technology. The 1 micron process technology is manufactured with spacing between
design elements of approximately one millionth of one meter. Generally speaking,
the smaller the spacing between design elements, the less expensive the
production cost of our memory products. Accordingly, we generally try to design
lower micron technology. Kilobits are a measure of the amount of data that can
be stored. More kilobits imply more storage.
After initial qualification of our first product in 1991, we began
expanding the 64 kilobit nonvolatile semiconductor memory product family. By the
end of 1993, we had qualified the complete product family for commercial,
industrial and military markets and had commenced sales of these products. When
we say we "qualify" a product, we mean that our internal quality organization
confirms the product's performance to the product's data sheet and accepted
industry standards. Commercial products operate from 0 degrees to 70 degrees
Centigrade, industrial products from -40 degrees to 85 degrees Centigrade and
military products from -55 degrees to 125 degrees Centigrade. Specific customers
require different temperatures for their applications. During 1995, we developed
our 64 kilobit nonvolatile semiconductor memory products based on a 0.8 micron
process technology. Qualification of this product occurred in 1996. In late 1996
and into 1997, we, along with assistance from Zentrum
13
Mikroelektronik Dresden, completed the design, installation and qualification of
our 256 kilobit nonvolatile semiconductor memory product based on 0.8 micron
process technology into Zentrum Mikroelektronik Dresden's silicon wafer
fabrication facility. In 1997, we installed the 256 kilobit nonvolatile
semiconductor memory product built on 0.8 micron process technology in Chartered
Semiconductor Manufacturing's silicon wafer fabrication facility. Qualification
of this product for use in the commercial and industrial market occurred in 1997
and qualification for use in the military market occurred in the second quarter
of 1998. In the fourth quarter 1997, we qualified the 64 kilobit nonvolatile
semiconductor memory product built on 0.8 micron process technology for sale in
the commercial and industrial market. Our programmed semiconductor logic
products are supported with silicon wafers, built on 0.5 micron process
technology, purchased from United Memories and silicon wafers purchased from
Chartered Semiconductor Manufacturing built on a 0.35 micron process technology.
Products manufactured with smaller spacing generally support lower product costs
by reducing the amount of raw material required for the product. Sales of
products built on wafers purchased from Chartered Semiconductor Manufacturing
and United Memories accounted for all of our semiconductor product sales revenue
for 2000.
Three Months March 31, 2001 and 2000. During the first quarter of 2001,
we purchased our silicon wafers from Chartered Semiconductor Manufacturing to
support the sales of our nonvolatile semiconductor memory products. Sales of our
programmed semiconductor logic products were supported by silicon wafers
purchased from United Memories.
We had net sales of $4,331,721 for the first quarter of 2001 up from
the $3,826,027 recorded for the first quarter 2000. The products sales from our
4 kilobit, 16 kilobit, 64 kilobit and 256 kilobit nonvolatile semiconductor
memory products were $3,975,104 for the first quarter of 2001 and $2,902,305 for
the first quarter of 2000. The increase in sales was due primarily to an
increase in large customers placing production orders of our products worldwide.
Sales of our high end industrial and military products decreased in the three
months ended March 31, 2001 as compared to the three months ended March 31,
2000. This decrease was due to a continued decrease in defense contracts. Two
distributors of our nonvolatile semiconductor memory products account for
approximately 44% of our net product sales for the first quarter 2001. Products
sold to distributors are re-sold to various end customers. The revenue generated
from research and development contracts acquired in the Q-DOT Group merger was
$356,617 for the first quarter of 2001 down from the $923,632 recorded for the
first quarter of 2000. This decrease was primarily due to reduced billing rates
against government contracts due to employee attrition.
Our gross margin percentage decreased from 44% for the first quarter of
2000 to a gross margin percentage of 29% for the first quarter of 2001. This
decrease was due primarily to an increase in the cost of the silicon wafers
required to produce our products. In March 2001, we were able to negotiate
better pricing from this supplier, our assembly and test manufacturers and we
reduced some of our internal costs. We believe that these cost reduction
measures should have an impact on the gross margins beginning in the third
quarter of 2001.
Total operating expenses saw an increase of approximately $670,000 in
the three months ended March 31, 2001 as compared to the three months ended
March 31, 2000. Administration saw the largest increase of approximately
$491,000. Of the approximate $491,000 increase, approximately $258,000 was
related to the amortization of the shares of stock issued in September 2000, to
two investment bank firms in return for services to us. Approximately $172,000,
$16,000 and $25,000 were related in increases in legal fees, audit costs and
labor related to the merger with Q-DOT Group, respectively. The remaining
$20,000 was related to an increase in payroll costs. Marketing saw the next
largest increase of approximately $142,000, primarily due to approximately
$86,000 paid in sales commission to independent sales representatives as a
direct result of our increased revenue. The balance of approximately $56,000 was
related to the increase in payroll and benefits costs, due to the addition on a
new employee. Research and development saw an approximate increase of $37,000
which was related to increased payroll and benefit costs, due to the addition of
a new employee.
We recorded a net loss of $514,564 in the first quarter of 2001 as
compared to a net income of $538,147 for the first quarter of 2000. This
decrease was due primarily to the decrease in gross margins and the increase in
administration costs.
14
Review of 2000 Operations. Total sales for 2000 were $14,467,814.
$12,150,750 was directly related to the sale of our semiconductor memories and
$2,317,064 was related to revenue generated from our research and development
contracts. Our product sales could have been greater if not for a shortage in
the second half of 2000 of the wafers required to produce our nonvolatile
semiconductor memory products. During 2000, total market demand exceeded
Chartered Semiconductor Manufacturing's ability to supply silicon wafers to many
of its customers. This condition persisted through 2000 limiting our raw
materials supplies, but has improved in 2001 as total market demand has
decreased. We believe that the lack of a long term contract with Chartered
Semiconductor Manufacturing may have impacted our ability to receive silicon
wafers because a long term contract could have obligated Chartered Semiconductor
Manufacturing to provide us with silicon wafers. We did see an increase in
volume production orders in 2000, which caused an increase in unit shipments and
a slightly overall lower average selling price as compared to 1999. Sales of our
4 kilobit and 16 kilobit products decreased in 2000 by approximately 9% over
1999. This decrease was due to customers using higher density parts in their
applications. Sales, based on dollar revenues, of our 64 kilobit and 256 kilobit
commercial products saw an increase in 2000 by approximately 63% and 145%,
respectively. These increases were due to larger production volume orders, or
orders of high volume manufacturing of systems, targeted at competitive growth
markets being placed in 2000 as compared to 1999. Sales of our 64 kilobit
high-end industrial and military market saw a slight increase of 3% in 2000,
while our 256 kilobit high-end industrial and military market saw a decrease in
2000 of approximately 65% as compared to 1999. This decrease was due to a
decrease in defense contracts in 2000 resulting from federal policies which
reduced production of defense systems using our products. We believe that future
defense spending will increase to historic levels as a result of policy changes
within the new administration, but it remains unclear when this will occur.
Sales of our logic products saw an increase of approximately 79% in 2000 as
compared to 1999. This increase was due primarily to increased product demand
generated by our increased sales activities. The revenue generated from research
and development contracts acquired in the Q-DOT Group merger decreased
approximately 35%. This decrease was primarily due to reduced billing rates
against government contracts which was a direct result of employee attrition.
With the return of production volume orders being placed for our
nonvolatile semiconductor commercial memory products and an increase in
competition, we saw a decrease in our overall average selling prices as compared
to 1999. These orders reflect high volume manufacturing of systems targeted at
competitive growth markets. However, with this decrease, we saw an increase in
unit shipments for 2000 as compared to 1999 of approximately 6%, 56%, 178% and
76% for our 16 kilobit, 64 kilobit, 256 kilobit, and logic commercial products,
respectively. Our 256 kilobit high-end industrial and military products saw a
decrease of approximately 55% in unit shipments.
Due to the decrease in high-end industrial and military sales, we had
an approximate 3% decrease in our gross margins for 2000 as compared to 1999.
Years Ended December 31, 2000 and 1999. Our net sales for 2000 totaled
$14,467,814 compared to $11,168,624 in 1999. $12,150,750 was directly related to
the sale of our semiconductor memories and $2,317,064 was related to revenue
generated from our research and development contracts. The increase in net
product sales for the year ended December 31, 2000 was due primarily to
increased volume production orders in the Far East and North America. During
2000, sales of our 64 kilobit and 256 kilobit nonvolatile semiconductor memory
military products accounted for approximately 12% of our sales, while 64 kilobit
and 256 kilobit commercial and industrial nonvolatile semiconductor memory
products accounted for approximately 34% and 25% of sales in 2000 and 1999,
respectively. Sales of our programmed semiconductor logic products account for
approximately 9% of our sales. Revenue from research and development contracts
accounted for approximately 15% of our sales. Sales of our 4 kilobit and 16
kilobit nonvolatile semiconductor memory products accounted for the balance of
the sales in 2000. Two distributors and one direct customer of our nonvolatile
semiconductor memory products accounted for approximately 42% of our net product
sales for the year ended December 31, 2000. Products sold to distributors are
resold to a larger number of system manufacturers.
The increase in net loss in 2000 is primarily the result of expensing
approximately $3,963,000 of purchased incomplete research and development from
WebGear. We realized a positive gross margin of $6,044,285 in 2000 compared to
$4,995,981 in 1999 for percentages of 42% and 45%, respectively.
15
Operating expenses were approximately $4,500,000 more for the year
ended December 31, 2000 than for the year ended December 31, 1999. The largest
part of this increase, was related to research and development which had an
approximate $3,900,000 increase. Of the approximate $3,900,000 increase,
approximately $3,963,000 was due to the issuance of stock to WebGear for the
purchase of their Bluetooth technology, an approximate $100,000 decrease in
indirect costs related to our research and development contracts which was
related to a decrease headcount, an approximate $100,000 increase in headcount
additions, an approximate $18,000 increase in depreciation and an approximate
decrease of $55,000, $14,000 and $12,000 related to product development, legal
fees and repairs and maintenance, respectively. The increase in headcount was
due to the addition of engineers required to develop the programmed
semiconductor logic products, the decrease in product development was due to a
reduction in development costs assigned to processing silicon wafers for
development of a higher density version of our nonvolatile semiconductor memory
products. The next largest increase of approximately $360,000 was in general and
administration. Of the approximate $360,000 increase, approximately $301,000 was
related to the amortization of the issuance of 1,000,000 shares of stock to two
investment banker firms in September 2000 for services performed by us.
Approximately $157,000 was related to increased legal and approximately $80,000
was related to audit fees incurred with the acquisitions of Integrated Logic
Systems, Macrotech Semiconductor and Q-DOT Group, and the purchase of Bluetooth
technology from WebGear. The remaining decrease of $178,000 was the net effect
of a $300,000 decrease in payroll and benefits costs related to the
administration of our government contracts and increase in payroll and benefits
costs resulting from the addition of one employee, pay rate raises and bonuses
for the administration of our semiconductor products. The decrease in payroll
and benefits for our government contract business was due to the reduction in
the amount of administrative employees. Sales and marketing saw an approximate
$250,000 increase, primarily due to approximately $186,000 paid in sales
commission to our independent sales representatives as a direct result of our
increased revenue and an approximately $64,000 increase due to the addition of
one employee.
Other expense for the year ended December 31, 2000 decreased by
approximately $30,000 as compared to December 31, 1999. This decrease was
primarily due to an approximate $142,000 increase in funding to QD Acoustics,
LLC which is offset with an approximate $95,000 decrease in interest expense and
an approximate increase of $69,000 in interest income.
We had a net loss of $3,540,342 for the year ended December 31, 2000
compared to a net loss of $122,926 for the year ended December 31, 1999.
Future Results of Operations
Our ability to maintain profitability will depend primarily on our
ability to continue reducing our manufacturing costs and increasing net product
sales by improving the availability of existing products, by the introduction of
new products and by expanding our customer base.
As of March 31, 2001, we had a backlog of unshipped customer orders of
approximately $6,439,000 expected to be filled by September 30, 2001. 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.
We believe that our earnings will increase in 2001 due to increased
shipment volumes of our semiconductor products which we believe will result in
lower costs based on volume purchasing of raw materials and subcontract
services. We believe our shipment volumes will increase due to the growth in
demand for our products that we have noticed over the last 18 months. During the
first quarter of 2001, we had approximately 48% more revenue measured in dollars
than in the previous quarter. During the second quarter of 2001, such growth in
demand has decreased somewhat. We cannot assure you that the growth in demand,
or demand for our products will not decline in the future. See "Risk
Factors-Since the semiconductor industry is fast changing, our success depends
on our ability to introduce new products." Our increased shipping volumes have
led to reduced product costs. We have received reduced pricing from our
packaging supplier that went into affect in the second quarter of 2001, and our
silicon wafer subcontractor reduced prices that went into affect with June 2001
deliveries. We have also implemented test time reduction programs that started
in May 2001 which will reduce test costs. We believe
16
that the combination of these factors should result in improved earnings,
provided that our customers' end markets remain robust.
In 2000 and the first quarter of 2001, we purchased all of our silicon
wafers for our nonvolatile semiconductor memory products from a single supplier,
Chartered Semiconductor Manufacturing. Approximately 89% of our sales for 2000
and 93% of sales for the first quarter of 2001 were from finished units produced
from these silicon wafers. We had an agreement with Chartered Semiconductor
Manufacturing to provide wafers through September 1998. Although Chartered
Semiconductor Manufacturing continues to provide us wafers under the terms
defined in this contract we do not have a current agreement signed. We are,
however, negotiating with Chartered Semiconductor Manufacturing to renew the
contract. In 2000, we purchased all of our silicon wafers built on a 0.5 micron
process technology and our silicon wafers built on a 0.35 micron process
technology for our programmed semiconductor logic products from United Memories
and Chartered Semiconductor Manufacturing, respectively. Approximately 9% of our
sales for 2000 were from finished units produced from these wafers. Currently,
we do not have a current agreement signed for either of these companies to
furnish us wafers, however, we have seen no disruption in their supply to us.
Any disruptions in our relationship with Chartered Semiconductor Manufacturing
could have an adverse impact on our operating results.
Zentrum Mikroelektronik Dresden, through their license agreement with
us, has the worldwide right to sell nonvolatile semiconductor memory products
developed jointly by us and Zentrum Mikroelektronik Dresden. As it has recently
established volume production, Zentrum Mikroelektronik Dresden has begun selling
such nonvolatile semiconductor memory products. In the past year, we did not see
increased competition with Zentrum Mikroelektronik Dresden as compared to the
previous year. However, due to Zentrum Mikroelektronik Dresden creating a second
source for nonvolatile semiconductor memory products, we believe that its
presence may have a positive impact because many large manufacturers require two
sources from which to purchase product. We will not be receiving any further
license payments from our contract with Zentrum Mikroelektronik Dresden.
We intend to continue designing, developing and subcontracting the
production of our memory products. We also propose to continue to sell to
existing and new customers through our normal sales and marketing efforts. We
also intend to extend our logic product offerings. We will also begin
development of high performance data communications products based on Silicon
Germanium process expertise gained through our acquisition of Q-DOT Group. We
believe that the additional logic and data communication products offered
through these acquisitions will allow us to expand our product offering into new
applications and additional customers. We anticipate that this will reduce our
dependence on any single product line and provide additional potential sources
of revenue.
Liquidity and Capital Resources
From inception through December 31, 2000, we have received
approximately $32,100,000 of gross proceeds from the sale of convertible debt
and equity securities. From inception through December 31, 2000, we generated
approximately $10,085,000 of gross revenue from the sale of product and
technology licenses, approximately $45,215,000 from net product sales and
approximately $600,000 in royalty income.
Under the Cooperation Agreement entered into with Zentrum
Mikroelektronik Dresden in September 1995, Zentrum Mikroelektronik Dresden had
the right to convert all financing into shares of our common stock at a price of
$0.175 per share for all monies paid in 1995 and at the average share price of
the quarter the monies were paid for all monies paid in 1996. In 1996, we
received $378,551 under this agreement of which $248,398 was converted into
1,353,374 shares of our common stock at a price of $.1548 and 165,000 shares of
our common stock at a price of $.2358. Zentrum Mikroelektronik Dresden converted
the remaining $130,153 into 551,964 shares of our common stock. During 2000,
Zentrum Mikroelektronik Dresden began selling their shares of our common stock.
In 1998, we closed a $1,500,000 financing transaction with Renaissance
Capital. This offering involved convertible debentures with a seven year term
bearing interest at 9 percent per annum. In the first quarter of 2000,
Renaissance converted all $1,500,000 of the debentures into an aggregate of
7,692,308 shares of our common stock. At the time of the conversion of the
debentures, we were able to cease making interest payments and the underlying
note was paid in full.
17
During 2000 and the first quarter of 2001, we acquired three companies
in exchange for a total of approximately 9,420,000 shares of our common stock.
Each of these acquisitions were handled as a pooling of interest and therefore
the financial activities were integrated retroactively through 1999. We were not
required to pay any cash as part of the purchase price in these transactions.
During 2000, we issued a total of 3,900,000 shares of our common stock
to three separate companies. We issued 2,900,000 in exchange for incomplete
research and development that we acquired from WebGear and 500,000 shares of our
common stock to each of two separate investment banker firms, World Trade
Partners and E.B.M. Associates, for their services.
For the three months ended March 31, 2001, the cash flows from
operating activities were $62,704, which is primarily due to a net loss of
$514,563, which is offset by depreciation and amortization of $111,272, a
decrease of prepaid expenses and other of $305,608, and a decrease in accrued
expenses of $86,970. Increases in accounts receivable, inventory and accounts
payable of $380,109, $750,648 and $1,356,691, respectively were related to
increased product demand. The cash flows from investing activities of $188,769
were primarily due to the purchases of equipment and furniture related to the
testing of our 64 kilobit and 256 kilobit nonvolatile semiconductor memory
products built on 0.8 micron process technology and the purchase of computer and
software required for research and development. The cash flows from financing
activities of $112,078 were due primarily to the payments on a line of credit,
notes payable, the buyback of Simtek common stock and cash required to fund a
subsidiary of Q-DOT Group.
For the three months ended March 31, 2000, cash flow provided by
operating activities was $131,403, which was primarily due to a net income of
$538,147, depreciation and amortization of $111,646, an increase in reserves of
$68,951, accounts receivable of $374,074, inventory of $106,515, prepaid
expenses and other of $87,265, accounts payable of $56,028, customer deposits of
$41,750 and a decrease in accrued expenses of $76,426. Cash flows from investing
activities were primarily a result of the purchases of test fixtures and printed
circuit boards used to electrically exercise our nonvolatile semiconductor
memory products and a reduction in a certificate of deposit. Cash flows from
financing activities were primarily due to payments on a line of credit of
$222,769 and the exercise of stock options by our employees.
For the year ended December 31, 2000, cash flow provided by operations
was $962,821, which is primarily due to a net loss of $3,540,342, which is
offset by the WebGear asset purchase of $3,962,645, depreciation and
amortization of $430,962, stock issuance for services of $22,932, a change in
reserve accounts of $196,407, an increase of accounts receivable of $152,364, an
increase of inventory of $85,270, a decrease in prepaid and other of $174,311
and a decrease in accounts payable of $39,689, an increase in accrued expenses
of $44,371 and a decrease in customer deposits of $53,010. The increase in
depreciation was due primarily to the addition of computers and software
required to develop our programmed semiconductor logic products and the addition
of equipment required to test our products nonvolatile semiconductor memory
products. $300,767 of the stock issuance for services was related to the
amortization of the stock issued to E.B.M. Associates and World Trade Partners,
the balance was related to the issuance of stock for services performed by our
board of directors. The change in reserve accounts, accounts receivable, and
inventory was due to increased product sales. The increase in prepaid and other
was due primarily by our requirement to prepay for our silicon wafer deliveries
if we are above our credit limit. The decrease in customer deposits was
primarily due to customers prepaid orders at the end of 1999 and the product did
not ship to them until 2000.
The use of cash flows in investing activities was due to purchases of
equipment related to the purchase of test fixtures and printed circuit boards
used to electrically exercise our nonvolatile semiconductor memory products
manufactured at Chartered Semiconductor Manufacturing and the purchase of
computers and software required for development of our programmed semiconductor
logic products.
The cash flows provided by financing were primarily the result of the
exercise of stock options of $297,068, borrowings from a line of credit and the
issuance of a note of $908,231 which was offset by the payments on the line of
credit of $1,133,000 and a notes payable of $136,135.
18
For the year ended December 31, 1999, cash flow provided by operations
was $354,236, which was primarily due to depreciation and amortization of
$391,718, a change in reserve accounts of $90,936, an increase of accounts
receivable of $174,426, and an increase in accounts payable of $342,754, a
decrease in accrued expenses of $179,291 and an increase in customer deposits of
$51,850. The increase in accounts receivable was due to a large revenue month in
December 1999, from which the cash was not received until the first quarter of
2000. The increase in accounts payable was due primarily to an increase in
product demand which requires us to maintain a larger wafer and work-in-progress
inventory, which is payable to our subcontractors on 30 day terms and to the
purchase of software that is being paid for on a five year capital lease.
The use of cash flows in investing activities for the year ended
December 31, 1999, was due to purchases of equipment related to the testing of
our nonvolatile semiconductor memory products and manufacturing and test
equipment for our programmed semiconductor logic products and from the purchase
of a restricted certificate of deposit. Of the $317,625 of equipment purchased,
$179,310 related primarily of test fixtures and printed circuit boards used to
electrically exercise our products manufactured at Chartered Semiconductor
Manufacturing and wafer processing hardware used to support manufacturing of our
programmed semiconductor logic products at United Memories. The balance of
$138,315 was related to computers and software purchased for use with our
research and development contracts. A $300,000 certificate of deposit was
established as collateral for a $300,000 letter of credit that is required by
one of our suppliers in the event that we default on payments.
The cash flows provided by financing activities were primarily the
result of proceeds from notes payable and capital contributions. We are not
aware of any material commitments for capital expenditures, or any known trends,
events, uncertainties that have had or expected to have a material impact on our
sales, revenues or income, other than what we discussed above. We are also not
aware of any seasonal aspects that had a material effect on our financial
condition or results of operations.
Short-term liquidity.
Our cash balance at March 31, 2001 was $2,615,626.
Our future liquidity will depend on our revenue growth and our ability
to sell our products at positive gross margins and control of our operating
expenses. Over the coming year, we expect to spend approximately $10,000,000 for
operating expenses. We expect to meet these capital needs from sales revenues
and, to the extent we do not have sufficient revenues, from our existing cash
reserves.
Long-term liquidity.
We will continue to evaluate our long term liquidity. We currently do
not have any material plan of financing for the medium or long term or out of
the ordinary demands of our cash. We expect to continue to meet our capital
needs from sales revenues.
Accounting Statements
On June 30, 2001, the FASB approved the issuance of 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. Goodwill and intangible assets acquired in a
19
transaction completed after June 30, 2001 but before SFAS No. 142 is initially
applied will be accounted for in accordance with SFAS No. 142. Therefore
amortization of goodwill acquired prior to July 1, 2001 will cease when the
company elects to adopt SFAS No. 142.
In 1998, Statement of Financial Accounting Standards 133, Accounting
for Derivative Instruments and Hedging Activities was issued. Statement 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments as fair value. This statement is effective for the Company's
financial statements for the year ended December 31, 2001 and the adoption of
this standard is not expected to have a material effect on the Company's
financial statements.
Inflation
The impact of inflation on our business has not been material.
20
BUSINESS
General
We provide integrated circuits to the electronics market for use in a
variety of systems, such as computers, copiers, factory controllers, electric
meters and military systems. We design, market and sell our products, but we
subcontract the majority of our manufacturing requirements. We have designed and
developed nonvolatile semiconductor products since we began business operations
in May 1987. We have concentrated on the design and development of the 4, 16, 64
and 256 kilobit nonvolatile semiconductor memory product families and
technologies, distribution channels, and sources of supply, including production
at subcontractors. Kilobits are a measure of the amount of data that can be
stored, more kilobits imply more storage. With our acquisitions of Integrated
Logic Systems and Macrotech Semiconductor, we have added the capability to
design, develop and produce programmed semiconductor logic products.
In September 2000, we purchased incomplete research and development,
patents and trademarks from WebGear. Simtek has established a core business
within the nonvolatile memory application segment, and is now expanding into
other technology areas including logic and data communication markets. These
additional product families are intended to allow more rapid total revenue
growth and to reduce the risk inherent in our historic dependence on one product
family.
As of March 31, 2001, our backlog for released purchase orders was
approximately $6,439,000, all of which we expect to ship by September 30, 2001.
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.
We are in production of our first four families of memory products, 256
kilobit, 64 kilobit, 16 kilobit and 4 kilobit nonvolatile semiconductor
memories. Our 256 kilobit nonvolatile semiconductor memory product was qualified
by our internal quality organization to the product's data sheet and in
accordance with accepted industry standard practices in 1997 for sales into
commercial and industrial markets and in 1998 for shipment into the military
market. Our 64 kilobit nonvolatile semiconductor memories meet or exceed the
requirements for sales into commercial, industrial and military markets. Our 16
kilobit and 4 kilobit nonvolatile semiconductor memories have been qualified for
sales into commercial and industrial markets. Our nonvolatile semiconductor
memories are physically smaller and require less maintenance than Static Random
Access Memory devices that achieve nonvolatility through the use of internal
batteries and are more convenient to use than Static Random Access Memory
devices that achieve nonvolatility by being combined with additional chips.
Our programmed semiconductor logic products are used to replace
programmable logic devices when a customer has completed his system design and
requires cost-reduced integrated circuits for volume manufacturing. Each
programmed semiconductor logic product is configured using the individual
customer's design files and is built to his specific requirements.
We reduce capital requirements by subcontracting all phases of the
manufacturing process. Chartered Semiconductor Manufacturing began providing
silicon wafers for our nonvolatile semiconductor memory products in September
1993 and continues to provide wafers based on our product technology. United
Memories and Chartered Semiconductor Manufacturing provide silicon wafers for
our programmed semiconductor logic products based on 0.5 micron and 0.35 micron
product technology, respectively. Amkor Technology and Amkor Test Services
provide assembly and final test services, respectively, for our nonvolatile
semiconductor memory products built from the wafers purchased from Chartered
Semiconductor Manufacturing. Advanced Semiconductor Engineering and IPAC provide
assembly services for our programmed semiconductor logic products. Testing of
our programmed semiconductor logic products is done either internally or by
Multitech Design and Test.
During 2000, all of the wafers used to produce our nonvolatile
semiconductor memories were purchased from Chartered Semiconductor
Manufacturing. Sales of these products accounted for approximately 75% of our
revenue for 2000. Wafers were purchased from both Chartered Semiconductor
Manufacturing and United
21
Memories in 2000 to support our programmed semiconductor logic products. Sales
of these products accounted for approximately 9% of our revenue for 2000. The
remaining 16% of our revenue was from research and development contracts.
We currently have three sales and marketing offices, located in
Colorado Springs, Colorado, Bristol, England and Atlanta, Georgia. We have
engaged 17 independent representative organizations with 40 sales offices and 31
distributor organizations with 105 sales offices. These organizations have
multiple sales offices and sales personnel covering specific territories.
Through these organizations and their sales offices we are capable of serving a
worldwide market.
In the last 12 months, we have made three acquisitions and issued stock
instead of paying cash to three companies for the purchase of goods and
services.
Memory Industry and Product Background
The semiconductor memory market is large and highly differentiated.
This market covers a wide range of product densities, speeds, features and
prices. The ideal memory would have:
o high bit density per chip to minimize the number of chips required in a
system;
o fast data read and write speeds to allow a system's microprocessor to
access data without having to wait;
o the ability to read and modify data an unlimited number of times;
o the ability to retain its data indefinitely when power is
interrupted (i.e. nonvolatility);
o availability in a variety of package types for modern assembly
techniques; and
o the ability to be tested completely by the manufacturer to ensure the
highest quality and reliability.
Although customers would like to have memory components with all of these
attributes it currently is not technically feasible. Therefore, the memory
market is segmented with different products combining different mixes of these
attributes.
Semiconductor memories can be divided into two main categories,
volatile and nonvolatile. Volatile memories generally offer high densities and
fast data access and programming speeds, but lose data when electrical power is
interrupted. Nonvolatile memories retain data in the absence of electrical
power, but typically have been subject to speed and testing limitations they
also wear out if they are modified too many times. There are a number of common
volatile and nonvolatile product types, as set forth below. The list of products
under "Combinations" is limited to single packages and does not include
combinations of the listed memories in separate packages, such as Static Random
Access Memories in combination with Electrically Erasable Programmable Read Only
Memories and Erasable Programmable Read Only Memories.
22
Volatile Nonvolatile Combinations
-------- ----------- ------------
Static Random Access Memories Electrically Erasable Programmable Nonvolatile Static Random Access
Read Only Memory Memory
Dynamic Random Access Memory Flash Memory Nonvolatile Random Access
Memory
Erasable Programmable Read Only Static Random Access Memory
Memory plus lithium battery
Programmable Read Only Memory
Read Only Memory
Volatile Memories. Rewritable semiconductor memories store varying
amounts of electronic charge within individual memory cells to perform the
memory function. In a Dynamic Random Access Memory the charge must be
electrically refreshed many times per second or data are lost even when power is
continuously applied. In a Static Random Access Memory the charge need not be
refreshed, but data can be retained only if power is not interrupted.
Nonvolatile Memories. A Read Only Memory is programmed, or written,
once in the later stages of the manufacturing process and cannot be reprogrammed
by the user. Programmable Read Only Memory can be programmed once by the user,
while Erasable Programmable Read Only Memory may be reprogrammed by the user a
limited number of times if the Erasable Programmable Read Only Memory is removed
from the circuit board in the equipment. Both Flash memory and Electrically
Erasable Programmable Read Only Memory may be reprogrammed electrically by the
user without removing the memory from the equipment. However, the reprogramming
time on both Electrically Erasable Programmable Read Only Memory and Flash
memory is excessively long compared to the read time such that in most systems
the microprocessor must stop for a relatively long time to rewrite the memory.
Combinations. Many customers use a combination of volatile and
nonvolatile memory functions to achieve the desired performance for their
electronic systems. By using Static Random Access Memories in combination with
Erasable Programmable Read Only Memory and Electrically Erasable Programmable
Read Only Memory chips, customers can achieve nonvolatility in their systems and
still retain the high data read and write speeds associated with Static Random
Access Memory. This approach, however, is not desirable in many applications
because of the size and cost disadvantages associated with using two or more
chips to provide a single memory function. Also, it may take up to several
seconds to transfer the data from the Static Random Access Memory to the
Electrically Erasable Programmable Read Only Memory; an excessive time at power
loss. As a result, attempts have been made to combine nonvolatile and volatile
memory features in a single package or silicon chip. One approach combines an
Static Random Access Memory with lithium batteries in a single package.
Nonvolatile Random Access Memories combine volatile and nonvolatile
memory cells on a single chip and do not require a battery. We believe our
nonvolatile semiconductor memory represents a significant advance over existing
products that combine volatility and nonvolatility on a single silicon chip. We
combine an Static Random Access Memory cell with an Electrically Erasable
Programmable Read Only Memory cell to create a small nonvolatile semiconductor
memory cell. Our unique and patented memory cell design enables the nonvolatile
semiconductor memory to be produced at densities higher than existing
Nonvolatile Random Access Memories and at a lower cost per bit. In addition to
high density and nonvolatility, the nonvolatile semiconductor memory has fast
data access and program speeds and the Static Random Access Memory portion of
the memory can be modified an unlimited number of times without wearing out.
23
Memory Technology
We use an advanced implementation of
silicon-nitride-oxide-semiconductor technology. Silicon-nitride-
oxide-semiconductor technology stores electrical charge within an insulator,
silicon nitride, and uses a thin tunnel oxide layer to separate the silicon
nitride layer from the underlying silicon substrate. Silicon-nitride-oxide-
semiconductor technology prevents tunnel oxide rupture in the memory cell from
causing an immediate loss of data. Oxide rupture has been a major cause of
failures in Flash and Electrically Erasable Programmable Read Only Memories
using floating gate technology, where charge is stored on a polysilicon
conductor surrounded by insulators. To protect against these failures, many
floating gate Electrically Erasable Programmable Read Only Memories have
required error correction circuitry and redundant memory cells. This increases
product cost by requiring more silicon area. Error correction and redundancy are
not required for our products to protect against tunnel oxide rupture. In
addition, our product designs incorporate a special test feature which can
predict data retention time for every individual memory cell based on measuring
the rate of charge loss out of the silicon nitride.
The Silicon-nitride-oxide-semiconductor technology coupled with our
nonvolatile semiconductor memory cell allows high performance nonvolatile Static
Random Access Memory to be manufactured using complementary metal oxide
semiconductor technology. The Silicon-nitride-oxide-semiconductor technology
that we use has proven to be highly reliable, as demonstrated by our product
qualification results to date.
Our Memory Products
Nonvolatile Static Random Access Memories. Our 256 kilobit, 64 kilobit,
16 kilobit and 4 kilobit nonvolatile semiconductor memory product families
consist of nonvolatile memories that combine fast Static Random Access Memory
and nonvolatile Electrically Erasable Programmable Read Only Memory
characteristics within each memory cell on a single chip of silicon. The Static
Random Access Memory portion of the nonvolatile semiconductor memories is
operated in the same manner as most existing Static Random Access Memory
products. The Static Random Access Memory can be written to and read from an
unlimited number of times. The Electrically Erasable Programmable Read Only
Memory can be programmed, depending upon device type, by user control or
automatically by transferring the Static Random Access Memory contents into the
Electrically Erasable Programmable Read Only Memory. The Electrically Erasable
Programmable Read Only Memory data can be transferred back into the Static
Random Access Memory by user control or the data can be transferred
automatically.
Our nonvolatile semiconductor memories have fast data access speeds of
20, 25, 35 and 45 nanoseconds. These data access speeds correspond to those of
fast Static Random Access Memory and meet the requirements of much of the fast
Static Random Access Memory market. The high speed characteristics of our
nonvolatile semiconductor memories allow them to be used in applications with
various high performance microprocessors and digital signal processors such as
those manufactured by Intel Corp., Texas Instruments and Motorola. Our
nonvolatile semiconductor memories can be used to replace Static Random Access
Memories with lithium batteries and multiple chip solutions such as Static
Random Access Memory plus Electrically Erasable Programmable Read Only Memory or
Flash Memory.
The various combinations of density and speed allow our nonvolatile
semiconductor memory products to meet the design and performance requirements of
many different types of systems.
We finalized commercial and industrial qualification of two versions of
our initial 64 kilobit nonvolatile semiconductor memory product offering in
September 1991 and April 1992, respectively. We completed military qualification
of our initial nonvolatile semiconductor memories in May 1992. We began sales
into the commercial market of our initial 16 kilobit nonvolatile semiconductor
memory product family in 1992. The nonvolatile semiconductor memory product
family also includes the 4 kilobit version. We completed the development and
product qualification of the 64 kilobit AutoStoreTM nonvolatile semiconductor
memory in 1993. The AutoStoreTM version automatically detects power loss and
transfers the data from the Static Random Access Memory cells into the
Electrically Erasable Programmable Read Only Memory cells. This device does not
require instructions or intervention from the system microprocessor to notify it
of the power loss. Commercial and industrial qualification
24
of our 256 kilobit nonvolatile semiconductor memory occurred in 1997 and
military qualification of our 256 kilobit nonvolatile semiconductor memory was
completed in the second quarter of 1998.
Programmable Logic Device Industry
The electronics industry uses logic integrated circuits to route
electrical signals to perform tasks unique to that system. These unique
operations differentiate one system capability from another. Field Programmable
Gate Arrays and Complex Programmable Logic Devices have become popular for this
purpose, and are supplied by a number of major suppliers, such as Xilinx and
Altera. These products provide high performance, flexible solutions, but the
technology required to allow these products to be programmable is expensive when
compared to non- programmable, fixed function, application specific products.
Programmed Semiconductor Technology
We subcontract the production of our semiconductor logic products to
various fabrication facilities. We provide the fabrication facilities with the
design of our programmed semiconductor logic products and these facilities
install our designs on the chips through standard wafer processing. We currently
contract with United Memories for 0.5 micron technology and with Chartered for
0.35 micron technology, in each case through purchase orders on a case-by-case
basis. We plan to migrate the technology to a 0.25 micron process as the market
develops. Lower micron processes allow us to provide our customers with the same
functionality in our products but at a lower cost.
Our Programmed Semiconductor Logic Products
Programmed semiconductor logic products are built to order based on
customer designs that are electronically transferred to our design workstations.
Our engineers then verify the design and implement it in the appropriate
technology to provide the most cost effective solution available for the
customer.
Our customers often ask that we provide them with programmed
semiconductor logic products at a lower price than their existing logic products
without sacrificing the products' functionality. Our software conversion tools
translate our clients' design files of their logic products generally allowing
us to provide our clients with a logic product that has the same functionality
but at a lower cost than their existing logic products. We have also developed a
testability feature that allows us to test our programmed semiconductor logic
products without dedicating a portion of the chip area to such testing.
Product Warranties
We presently provide a one-year limited warranty on our products.
Research and Development
Our research and development activities are centered around developing
new products and reducing the cost of our nonvolatile semiconductor memory
products as well as the development and design of customer specific programmed
semiconductor logic products. We have reduced our production costs by
introducing our 0.8 micron process technology. This technology reduced the size
of the 64 kilobit nonvolatile semiconductor memory chip and enabled us to
develop a cost effective 256 kilobit nonvolatile semiconductor memory. We are
continuing our efforts to improve yield on the 0.8 micron technology. In order
to further reduce costs, since late 1997 we have used outside experts for
testing of our products. We have a test floor used for evaluation of our
technologies, product designs and product quality. The test floor is also used
for production testing of silicon wafers.
In an effort to expand our products, we acquired, from WebGear,
incomplete research and development of technology that we intend to apply within
the emerging Bluetooth market segment. "Bluetooth" is an industry standard,
short range wireless communications technology designed to allow a variety of
electronic devices, such as wireless telephone, Personal Digital Assistants,
notebook computers, desktop computers, peripheral input-output
25
devices, television set-top boxes and Internet appliances to exchange data
without the use of physical cabling. We plan to spend approximately $750,000
over the next year in order to develop and manufacture integrated circuits using
the technology in Bluetooth applications.
We anticipate that our acquisition of Q-DOT Group will enable us to
enter the high speed data communications market, addressing both wired and
wireless applications, based on advanced Silicon Germanium process technology.
Silicon Germanium is rapidly becoming the technology of choice for many analog,
mixed signal and high speed digital circuits. We plan to spend approximately
$350,000 over the next year in order to develop and manufacture integrated
circuits using the Silicon Germanium process technology.
Our research and development expenditures for the years ended December
31, 2000 and 1999 were $6,158,189 and $2,240,273, respectively. Of the
$6,158,189 expenditure incurred in 2000, $3,962,646 was related to the
incomplete research and development we purchased from WebGear with stock. We
intend to continue expenditures on research and development; however, the
percentage of research and development expenditures is expected to decrease
relative to expenditures relating to the commercial production of our existing
products.
Manufacturing and Quality Control
Our manufacturing strategy is to use subcontractors whose production
capabilities meet the requirements of our product designs and technologies.
In 1992, we entered into a manufacturing agreement with Chartered
Semiconductor Manufacturing to provide us with silicon wafers for our products.
Under the manufacturing agreement with this subcontractor, it has installed a
manufacturing process for versions of our current and future memory products.
Finished wafer procurement reverted to Chartered Semiconductor
Manufacturing during 1998 as we ceased purchasing finished units from Zentrum
Mikroelektronik Dresden. We used United Memories for wafer procurement of our
0.5 micron Programmed semiconductor logic products and Chartered Semiconductor
Manufacturing for wafer procurement of our 0.35 micron Programmed semiconductor
logic products. During 2000, all of our product revenue was based on wafers
purchased from Chartered Semiconductor Manufacturing and United Memories.
Device packaging of our nonvolatile semiconductor memory products
continued at the Amkor facilities in the Philippines and South Korea. Final test
for our nonvolatile semiconductor memory products was established successfully
at Integra Technologies, now Amkor Test Services, in Wichita, Kansas. Device
packaging of our programmed semiconductor logic products continued at Advanced
Semiconductor Eng., Inc. in Taiwan. Final test of our programmed semiconductor
logic products was completed in our Colorado Springs facility and at Multitech
Design and Test in San Jose, California.
Our subcontractors provide quality control for the manufacture of our
products. We maintain our own quality assurance personnel and testing capability
to assist the subcontractors with their quality programs and to perform periodic
audits of the subcontractors' facilities and finished products to ensure product
integrity.
Our quality and reliability programs were audited by several commercial
and military customers during 2000 as part of routine supplier certification
procedures. All such audits were completed satisfactorily.
Markets
Our memory products are targeted at fast nonvolatile Static Random
Access Memory markets, Static Random Access Memory plus Electrically Erasable
Programmable Read Only Memory markets and other nonvolatile memory products
broadly used in commercial, industrial and military electronic systems.
Our programmed semiconductor logic products are built to customer
requirements in many application areas. Therefore, we believe that our products
will address very broad markets including these applications:
26
Airborne and Space Computers * Lighting *
Automotive Control & Monitoring Medical Instruments *
Portable Telephone Modems Control Systems *
Portable Computers Currency Changers
Postal Meters Data Monitoring Equipment *
Printers * Disk Drives *
Process Control Equipment * Facsimile Machines *
Radar and Sonar Systems * Gaming *
Telecommunications Systems * GPS Navigational Systems
Terminals * Guidance and Targeting Systems *
Test Equipment * High Performance Workstations
Utility Meters * Laser Printers *
Vending Machines Mainframe Computers
Weapon Control Systems * CD Writers
Security Systems * Copiers *
Broadcast Equipment * Cable TV Set Top Converter Boxes *
Studio Recording Equipment *
The applications marked with an asterisk currently use our products. The other
applications use similar products, but may use our products in newer designs.
We are increasing marketing and sales emphasis on office automation products
such as copiers and mass storage systems as well as beginning new sales efforts
in data communication applications.
Sales and Distribution
Our strategy is to generate sales through the use of independent sales
representative agencies and distributors. We believe this strategy provides the
fastest and most cost effective way to assemble a large and professional sales
force.
We currently have three sales and marketing offices, located in Colorado
Springs, Colorado, Bristol, England and Atlanta, Georgia. We have engaged 17
independent representative organizations with 40 sales offices and 31
distributor organizations with 105 sales offices. Both organizations have
multiple sales offices and sales personnel covering specific territories.
Through these organizations and their sales offices we are capable of serving a
worldwide market.
Independent sales representatives typically sell a limited number of
noncompeting products to semiconductor users in particular geographic assigned
territories. Distributors inventory and sell products from a larger number of
product lines to a broader customer base. These sales channels are
complementary, as representatives and distributors often work together to
consummate a sale, with the representative receiving a commission from us and
the distributor earning a markup on the sale of the products. We supply sales
materials to the sales representatives and distributors.
For our marketing activities, we evaluate external marketing surveys and
forecasts and perform internal studies based, in part, on inputs from our
independent sales representative agencies. We prepare brochures, data sheets and
application notes on our products.
Customers and Backlog
We have shipped qualified nonvolatile semiconductor memory products to
customers directly and through distributors since the September 1991 commercial
product qualification; the majority of our customers are Fortune 500 companies.
Approximately 40% of our net product sales during 2000 were to customers in the
Pacific Rim and approximately 17% were to customers in Europe. The remaining
product sales were to customers in North America.
27
As of March 31, 2001, we had a backlog of unshipped customer orders of
approximately $6,439,000, which is expected to be filled by September 30, 2001.
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.
During 2000, we continued to receive initial and scheduled production
orders on our 64 kilobit and 256 kilobit nonvolatile semiconductor memory
product. We believe that we will continue to receive volume production orders on
these products.
Licenses
Zentrum Mikroelektronik Dresden. In June of 1994, we signed a joint
development agreement with Zentrum Mikroelektronik Dresden to install the 1.2
micron products for manufacture at Zentrum Mikroelektronik Dresden and to
jointly develop the 0.8 micron technology at Chartered Semiconductor
Manufacturing. The agreement was modified in August of 1994 by a Letter of
Intent between us to bypass the installation of our nonvolatile semiconductor
memory products based on a 1.2 micron process technology at Zentrum
Mikroelektronik Dresden and instead modify the 0.8 micron technology to run in
the Zentrum Mikroelektronik Dresden factory. Zentrum Mikroelektronik Dresden has
paid us all the monetary requirements under this agreement including any
royalties we may receive from sales of these jointly developed products.
Future License Sales. We intend to sell product and technology licenses on
a selective basis. We will continue to seek licensing partners who can
contribute to the development of the nonvolatile semiconductor memory market and
provide a meaningful level of revenue to us while not posing an undue threat in
the marketplace.
Competition
Our products compete on the basis of several factors, including data access
and programming speeds, density, data retention, reliability, testability, space
savings, manufacturability, ease of use and price.
Products that compete with our family of nonvolatile semiconductor memories
fall into three categories. The first category of products that compete with our
nonvolatile semiconductor memories are volatile and nonvolatile chips used in
combination, such as fast Static Random Access Memories used with Erasable
Programmable Read Only Memories, Electrically Erasable Programmable Read Only
Memories, or Flash memory. We believe that we have advantages over these
applications because the nonvolatile semiconductor memory allows data to be
stored in milliseconds as compared to seconds for chips used in pairs. Our
single chip solution provides a space savings and easier manufacturing. Our
single chip solution generally provides increased reliability versus multiple
chips. We believe it will be able to compete with many solutions requiring
density up to 256 kilobits; however, in those instances where the density
requirement is beyond 256 kilobits the nonvolatile semiconductor memory does not
compete. New systems designs tend to use larger memory densities greater than
256 kilobits, reducing the market available to us. We estimate that less than
10% of the market uses 256 kilobit or smaller memories. Competitors in the
multiple chip category include Cypress Semiconductor Corp., Integrated
Technology, Inc., Toshiba, Fujitsu, Advanced Micro Devices, Inc., Atmel and
National Semiconductor Corp. We currently hold less than 1% market share this
market category.
The second category of products that compete with our nonvolatile
semiconductor memories are products that combine Static Random Access Memories
with lithium batteries in specially adapted packages. These products generally
are slower in access speeds than our nonvolatile semiconductor memories due in
part to limitations caused by life of the lithium battery when coupled with a
faster Static Random Access Memory. Our nonvolatile semiconductor memories are
offered in standard, smaller, less expensive packages, and do not have the
limitation on lifetime imposed on the Static Random Access Memory/battery
solutions by the lithium battery. Our nonvolatile semiconductor memories can
also be used for wave soldered automatic insertion circuit board assembly since
they do not have the temperature limitations of lithium batteries. However,
lithium battery-backed Static Random Access Memory products are available in
densities of 1 megabit and greater per package. Companies currently supplying
28
products with lithium batteries include Dallas Semiconductor Corp., ST
Microelectronics and Texas Instruments. We currently hold approximately 10% of
this market category.
The third category consists of Nonvolatile random access memories that
combine Static Random Access Memory cells and Electrically Erasable Programmable
Read Only Memory memory cells on a monolithic chip of silicon. Our current
product offerings are of higher density, faster access times and we believe can
be manufactured at lower costs per bit than Nonvolatile random access memories.
We believe that traditional manufactures of Nonvolatile random access memories
have discontinued manufacturing their products.
Zentrum Mikroelektronik Dresden, through their license agreement with us,
has the worldwide right to sell under the Zentrum Mikroelektronik Dresden label
nonvolatile semiconductor memories developed jointly by Zentrum Mikroelektronik
Dresden and us. With volume production established at Zentrum Mikroelektronik
Dresden, Zentrum Mikroelektronik Dresden is selling such nonvolatile
semiconductor memories. This has had a positive impact for us by creating a
second source, which is required by many larger companies, for our nonvolatile
semiconductor memory products. However, in 2000, we were required to reduce
prices to specific markets due to the increased competition from Zentrum
Mikroelektronik Dresden. We believe that the competition from Zentrum
Mikroelektronik Dresden has increased the number of companies using nonvolatile
semiconductor memories, but may have put downward pressure on average selling
prices.
We are aware of other semiconductor technologies for nonvolatile memory
products. These technologies include ferroelectric memory and thin film magnetic
memory. Each of these requires a newly developed process technology which has
processing risk, but may deliver performance characteristics superior to our
technology if perfected. Each of these processes integrates materials into the
silicon processing steps which are not commonly used for semiconductor memory
products today. If successful, these products could perform the same functions
in a system that our products currently perform, but may be manufactured in
higher density or lower cost products. Ramtron, Raytheon, Symetrix, and others
are developing ferroelectric products. Honeywell, Inc. is developing magnetic
film products.
Programmed semiconductor logic-type solutions are supported by
semiconductor companies such as AMI Semiconductor, NEC and Temic. These
competitors provide a wide variety of solutions using semiconductor processes
ranging from 0.8 micron process technology to 0.25 micron process technology.
The business of converting customers' programmable logic products to
non-programmable logic products is highly dependent on the customers' designs
and system performance requirements. Each competitor's process technology and
software tools will affect its ability to support any particular requirement.
Patents and Intellectual Property
We undertake to protect our product designs and technologies under the
relevant intellectual property laws as well as by utilizing internal disclosure
safeguards. Under our licensing programs, we exercise control over the use of
our protected intellectual property and have not permitted our licensees to
sublicense our nonvolatile semiconductor memory products or technology.
It is common in the semiconductor industry for companies to obtain
copyright, trademark, trade secret and patent protection of their intellectual
property. We believe that patents are significant in our industry, and we are
seeking to build a patent portfolio. We expect to enter into patent license and
cross-license agreements with other companies. We have been issued twenty five
patents in the United States on our nonvolatile semiconductor memory cell and
other circuit designs. These patents relate to circuit implementations used to
design our nonvolatile memory products. The use of these patents allows us to
design circuits with lower power consumption and faster store timing than would
be possible otherwise giving us a competitive advantage over other technologies.
These patents have terms that expire through 2008 to 2013. We have also taken
steps to obtain European patents in the large European countries, including
Germany, France, the United Kingdom and Sweden on the nonvolatile memory patents
that would have potential value in international markets. We have four
applications that have been allowed and intend to prepare patent applications on
additional circuit designs we have developed. However, as with many
29
companies in the semiconductor industry, it may become necessary or desirable in
the future for us to obtain licenses from others relating to our products.
Many of our product designs are not protected by patents. We do not have
patents on our logic product technology but rather protect such logic product
technology as trade secrets. Our logic products accounted for approximately 9%
of our sales for the year ended December 31, 2000. We also protect aspects of
our technology that relate to our semiconductor memory products as trade
secrets. There are disadvantages to protecting intellectual property as trade
secrets rather than patents. See "Our Patents May Not Provide Us Effective
Intellectual Property Protection; This Could Harm Our Business."
We have received federal registration of the term "Novcel" a term we use to
describe our technology. We have not sought federal registration of any other
trademarks, including "Simtek" and "QuantumTrapTM" or our logo.
Employees
As of the date of this prospectus, we had 45 full-time employees.
Facilities
We lease approximately 12,000 square feet of space in Colorado Springs,
Colorado. This space includes a product engineering test floor of approximately
2,350 square feet. The lease expires on December 31, 2001. During 2000, we
signed a lease for a new location in Colorado Springs, Colorado for
approximately 16,000 square feet of space that includes a product engineering
test floor of approximately 3,000 square feet. The new lease agreement requires
the new landlord to begin paying all costs related to the old location at the
time we take occupancy at the new location. In March 2001, we moved into the new
facility, located at 4250 Buckingham Drive #100, Colorado Springs, CO 80907.
Legal Proceedings
There were no legal proceedings against us as of the date of this
prospectus.
Matters Submitted to a Vote of Security Holders
On November 16, 2000, we had a special meeting of shareholders to ratify
the selection of Hein + Associates as our independent auditors for the year
ending December 31, 2000. The proposal was passed with the voting of 32,532,148
For, 97,355 Against, and 138,458 Abstained.
30
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers are as follows:
Name Age Position
Douglas M. Mitchell........... 51 Director, Chief Executive Officer and
President
Chief Financial Officer (acting)
Klaus C. Wiemer............... 63 Director
Robert H. Keeley.............. 59 Director
John Heightley ............ 64 Director
Douglas M. Mitchell, served as our Chief Operating Officer from July 1,
1997 until January 1, 1998 at which time he became Chief Executive Officer,
President and a director. Mr. Mitchell has over 20 years of experience in the
semiconductor and electronics systems industry holding various marketing and
sales management positions. Prior to joining us, he was President and Chief
Executive Officer of a wireless communications company, Momentum Microsystems.
Prior to this Mr. Mitchell was Vice President of Marketing with SGS- Thomson
Microelectronics, responsible for marketing and applications engineering of
Digital Signal Processing, transputer, microcontroller and graphics products in
North America. SGS-Thomson had acquired Inmos Corporation where Mr. Mitchell had
been Manager, US Marketing and Sales. Mr. Mitchell has held management positions
at Texas Instruments and Motorola and has been responsible for various product
definition and product development. Mr. Mitchell holds a Bachelors degree in
electrical engineering from the University of Texas and a Masters of Business
Administration degree from National University.
Klaus C. Wiemer, has served as a director since May 1993. He also
serves on the boards of Neomagic Corp (NMGC) of Santa Clara, CA and InterFET
Corp of Garland, TX. From July 1993 to May 1994, Dr. Wiemer served as President
and Chief Executive Officer of our company. Since May 1994, Dr. Wiemer has been
an independent consultant. From April 1991 to April 1993, Dr. Wiemer was
President and Chief Executive Officer of Chartered Semiconductor Manufacturing ,
and from July 1987 to March 1991, Dr. Wiemer was President and Chief Operating
Officer of Taiwan Semiconductor Manufacturing Company. Prior to 1987, Dr. Wiemer
was a consultant for the Thomas Group specializing in the area of integrated
circuit manufacturing and previously worked for fifteen years with Texas
Instruments. Dr. Wiemer holds a Bachelors degree in physics from Texas Western
College, a Masters degree in physics from the University of Texas and a Ph.D. in
physics from Virginia Polytechnic Institute.
Robert H. Keeley, has served as a director since May 1993. He is
currently the El Pomar Professor of Business Finance at the University of
Colorado at Colorado Springs. From 1986 until he joined the faculty at the
University of Colorado at Colorado Springs in 1992, Dr. Keeley was a professor
in the Department of Industrial Engineering and Engineering Management at
Stanford University. Prior to joining Stanford, he was a general partner of Hill
and Carmen (formerly Hill, Keeley and Kirby), a venture capital firm. Dr. Keeley
holds a Bachelors degree in electrical engineering from Stanford University, an
M.B.A. from Harvard University and a Ph.D. in business administration from
Stanford University. Dr. Keeley is also a director of Analytical Surveys, Inc.
and a number of private companies.
John Heightley, was appointed as a director in September 1998. Mr.
Heightley is currently executive vice president and chief technology officer for
United Memories of Colorado Springs. From 1990 to 1996, Mr. Heightley was
president and chief executive officer of Adaptive Solutions, Inc. In 1986 and
1987, he held the position of president and chief executive officer of Gigabit
Logic, Inc.; in 1987 he was appointed chairman of Gigabit along with his
responsibilities as president and chief executive officer. Mr. Heightley held
these positions until 1990. Prior to Gigabit, Mr. Heightley served as president
and chief executive officer of Ramtron Corporation
31
from 1985 to 1986 and from 1978 to 1985 he served as a member of the board of
directors, president, chief operating officer and vice president of memory
products for Inmos International, plc. Mr. Heightley was granted a B.S. degree
in Engineering Science from Penn State University and earned a M.S. degree in
Electrical Engineering from M.I.T.
Mr. Harold Blomquist resigned as a member of our board of directors on
June 28, 2001. We will fill the vacancy on our board in accordance with our
bylaws.
Subject to the requirement that the board of directors be classified if
it consists of six or more persons, directors serve until the next annual
meeting or until their successors are elected and have qualified. Officers serve
at the discretion of the board of directors. Vacancies on the board of directors
are filled by the existing directors.
In 1994 we entered into a Product License Development and Support
Agreement, with Zentrum Mikroelektronik Dresden. This agreement, modified later
in 1994 and again in 1995, provides Zentrum Mikroelektronik Dresden the right to
appoint two members to our board of directors, which members must be acceptable
to, and approved by, our board of directors. Although this agreement and its
modificiations do not have a set termination date, Zentrum Mikroelektronik
Dresden's two nominees to our board of directors resigned in April 1998 and
Zentrum Mikroelektronik Dresden has not attempted to nominate anyone to our
board since then. Zentrum Mikroelektronik Dresden currently holds a competitive
position to us in the marketplace. Furthermore, Zentrum Mikroelektronik
Dresden's right to appoint two members to our board of directors was subject to
Zentrum Mikroelektronik Dresden's compliance with the terms of the Product
License Development and Support Agreement and its amendments. We cannot assure
you that Zentrum Mikroelektronik Dresden will not claim that it has the right to
appoint two members to our board of directors in the future, again acceptable to
and approved by our board of directors, or that Zentrum Mikroelektronik Dresden
will not succeed in securing such appointment. See "Business -- Licenses,
Zentrum Mikroelektronik Dresden."
Special Provisions in Articles of Incorporation
Our articles of incorporation contain a provision limiting the
liability of directors to the fullest extent permitted under the Colorado
Business Corporation Act. The Colorado Business Corporation Act allows a
corporation to limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breaches of fiduciary duty as a
director except:
o breaches of the director's duty of loyalty to the corporation or to its
shareholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
o other acts specified in the Colorado Business Corporation Act, such as
acts involving voting for or assenting to a distribution made in
violation of the Colorado Business Corporation Act or our articles of
incorporation;
o transactions from which the director derived an improper personal
benefit.
The provisions of the Act will not impair our ability to seek
injunctive relief for breaches of fiduciary duty. Such relief, however, may not
always be available as a practical matter.
Our articles of incorporation also contain a provision that requires us
to indemnify, to the fullest extent permitted under the Act, directors and
officers against all costs and expenses reasonably incurred in connection with
the defense of any claim, action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, in which such person may be involved by
virtue of being or having been a director, officer or employee.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of Simtek pursuant to the foregoing provisions, or otherwise,
32
Simtek has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
Executive Compensation
The following table sets forth information for each of our last three
fiscal years with respect to the annual and long-term compensation of the only
individual acting as the Chief Executive Officer during the fiscal year ended
December 31, 2000. No other executive officers as of December 31, 2000 had
combined annual salary and bonus for the fiscal year ended December 31, 1998
that exceeded $100,000.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
--------------------------------------------------------------------------
Name Other Restricted
and Annual Stock LTIP All Other
Principal Compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($)
--------- -----------------------------------------------------------------------------
Douglas M. Mitchell(1) 2000 $150,000 $62,500 -- -- 40,000 -- --
Chief Executive Officer 1999 $120,000 -- -- -- 30,000 -- --
and President 1998 $120,000 -- -- -- 250,000 -- --
(1) Mr. Mitchell became our Chief Executive Officer and President on January 1,
1998.
Option Grant Table
The following table sets forth information with respect to options
granted by us during the fiscal year ended December 31, 2000 to the individual
named in the summary compensation table above.
Shares Potential
subject to Market Realizable Value
Options/SAR's Price at Assumed
Shares Granted to Exercise per Annual Rate of
subject to Employees Price Share on Stock Price
Options/SAR's in Fiscal Per Date of Expiration Appreciation for
Name Granted % of Total Share Grant Date Option Term
---------------------- ---------------- --------------------------- --------------------------------------------------
5% 10%
-----------------------
Douglas M. Mitchell 40,000(1) 4.1% $0.25 $0.25 1/14/2007 $4,071 $9,487
(1) 40,000 options were granted to Mr. Mitchell in his capacity as Chief
Executive Officer and President, these options vest at 1/36th per month
over 3 years.
33
Year-End Option Table
The following table sets forth as of December 31, 2000 the number of
shares subject to unexercised options held by the individual named in the
summary compensation table above. 550,000 options had an exercise price greater
than the last sale price of our common stock underlying the options as reported
by the OTC Electronic Bulletin Board on the last trading day of the fiscal year
ended December 31, 2000.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Value of Unexercised
Number of Unexercised in-the-money
Options/SARs at Fiscal Options/SARs
Year-End at Fiscal Year-End
Shares Value
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) ($) (#) (#) ($) ($)
---------------------------------------- -------------------------------------------- ---------------- -----------------
Douglas M. Mitchell 100,000 $198,952 541,389 78,611 $10,111 $14,389
Employment Agreements
Mr. Mitchell is employed as President and Chief Executive Officer
pursuant to an employment agreement with us. Under the terms of the employment
agreement, Mr. Mitchell receives and annual salary of $150,000 and such
additional benefits that are generally provided other employees. Mr. Mitchell's
employment agreement expires June 1, 2001 but is automatically renewed for
successive one-year terms unless we or Mr. Mitchell elects not to renew. If we
terminate the employment of Mr. Mitchell without cause, Mr. Mitchell is entitled
to continuation of his base salary and benefits, mitigated by income Mr.
Mitchell may earn, for the remainder of the term of the agreement. Mr. Mitchell
is subject to a noncompetition covenant for a period of one year from the date
of termination.
Confidentiality and Nondisclosure Agreements
We generally require our employees to execute confidentiality and
nondisclosure agreements upon the commencement of employment with us. The
agreements generally provide that all inventions or discoveries by the employee
related to our business and all confidential information developed or made known
to the employee during the term of employment shall be the exclusive property of
us and shall not be disclosed to third parties without the prior approval of us.
Directors' Compensation
Each director who is not also an employee receives $1,000 for each
meeting of the Board, attended in person, and $500 for each meeting of a
committee of the Board. Directors are also reimbursed for their reasonable
out-of-pocket expenses incurred in connection with their duties to us. During
the fiscal year ended December 31, 2000, 15,000 stock options were granted, at
the market price on date of grant, each to Dr. Klaus Wiemer , Dr. Robert Keeley,
Mr. Harold Blomquist and Mr. John Heightley.
SECURITY OWNERSHIP
The first table below sets forth information regarding ownership of our
common stock as of June 21, 2001, by each person who is known by us to
beneficially own more than five percent of our common stock, by each director,
by each executive officer named in the summary compensation table and by all
directors and executive officers as a group. Shares issuable within sixty days
upon the exercise of options are deemed outstanding for the purpose of computing
the percentage ownership of persons beneficially owning such options or holding
such notes
34
but are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. To the best of our knowledge, the persons listed
below have sole voting and investment power with respect to the shares indicated
as owned by them subject to community property laws where applicable and the
information contained in the notes to the table.
Number of Percentage
Name and Address of Beneficial Owner Shares Owned of Class
------------------------------------ ------------ ---------
Hugh Norman Chapman 3,061,111(1) 5.70%
4785 Rustler Ct.
Colorado Springs, CO 80918
Douglas M. Mitchell 618,553(2) 1.14%
205 Ridge Dr.
Woodland Park, CO 80863
Klaus C. Wiemer 120,000(3) *
5705 Archer Court
Dallas, TX 75252
Robert H. Keeley 95,000(4) *
12630 Milan Road
Colorado Springs, CO 80908
John D. Heightley 55,000(5) *
1275 Log Hollow Point
Colorado Springs, CO 80906
All officers and directors as a group 918,553(6) 1.63%
(5 persons)
* Less than one percent.
(1) Represents 3,000,000 shares of our common stock that Mr. Chapman received
upon our acquiring Integrated Logic Systems and represents 61,111 shares
issuable upon exercise of options.
(2) Represents 574,167 shares issuable upon exercise of options and 44,386
shares acquired from the Q-DOT Group acquisition.
(3) Represents 120,000 shares issuable upon exercise of options.
(4) Includes 95,000 shares issuable upon exercise of options.
(5) Represents 55,000 shares issuable upon exercise of options.
(6) Includes 874,167 shares issuable upon exercise of stock options.
35
SELLING SHAREHOLDERS
The following table sets forth information about our selling shareholders.
Number of Percentage
Number of Shares of Class
Name and Address of Selling Shareholders Shares Beneficially Number of Following Following
Owned Before Shares the the
Offering Offered Offering Offering
Mr. William B. Bliss 1,136,581 397,804 738,777 2.12%
2985 Broadmoor Valley Road
Colorado Springs, CO 80906
Mr. Thomas K. Bohley 17,663 6,183 11,480 *
P. O. Box 7345
Colorado Springs, CO 80933-7345
Mr. Bruce B. Brundage 53,871 18,855 35,016 *
7837 S. Perry Park Rd.
Larkspur, CO 80118
Ms. Mary F. Crockett 1,767 619 1,148 *
1402 Lorraine Street
Colorado Springs, CO 80906-2146
Mr. Russell Farmer 51,451 18,008 33,443 *
15098 Zuni Street
Broomfield, CO 80020
Mr. Morgan L. Fitch, Jr. (1) 583,746 204,312 379,434 1.09%
4640 Clausen
Western Springs, IL 60558
Mr. Steven R. Freeman 12,364 4,328 8,036 *
2241 S. Huran Pkwy., #4
Ann Arbor, MI 48104
Mr. David A Gradl 226,663 79,333 147,330 *
1308 Pickwick Court
Naperville, IL 60563
Mr. Michael E. Harrell 1,767 619 1,148 *
2263 Havenridge Dr.
Colorado Springs, CO 80920
Mr. Donald L. Herman, Jr. 33,771 11,820 21,951 *
435 Maverick Way
Monument, CO 80132
Dr. Robert J. Kansy 33,771 11,820 21,951 *
5509 Harbor Town Dr.
Dallas, TX 75287
36
Mr. James H. Lauffenberger 17,663 6,183 11,480 *
6427 Rifle Circle
Colorado Springs, CO 80919
Ms. Barbara S. Linnenbrink 489,287 171,251 318,036 *
475 Silver Saddle
Monument, CO 80132
Mr. Thomas E. Linnenbrink 894,128 312,945 581,183 1.67%
5985 Nora Point, #202
Colorado Springs, CO 80919
Mr. Douglas M. Mitchell 618,553(2) 15,536 603,017(2) 1.14%
205 Ridge Rd.
Woodland Park, CO 80863
Mr. Marc A. Morin 1,961 687 1,274 *
161 W. Ridge Dr.
Woodland Park, CO 80863
Dr. Margaret S. Mortz 35,325 12,364 22,961 *
3420 S. Ridgeview Drive
Spokane, WA 99206-9556
Mr. James J. Myrick 408,057 142,820 265,237 *
748 Greenwood Ave.
Glencoe, IL 60022
Mr. Timothy G. O'Shaughnessy 884 310 574 *
12415 Latigo Blvd.
Elbert, CO 80106
Dr. David E. Reed 17,663 6,183 11,480 *
9747 W. 99th Place
Westminister, CO 80021
Mr. J. Ray Rice 2,208 773 1,435 *
7555 Wildridge Rd.
Colorado Springs, CO 80908
Dr. Peter C. T. Roberts 17,663 6,183 11,480 *
639 N. Sunway Drive
Gilbert, AZ 85233
Mr. William J. Schneweis 884 310 574 *
22 Pinon Lake Dr.
Divide, CO 80814
Mr. Brian L. Sperry 33,789 11,827 21,962 *
2877 Loma Place
Boulder, CO 80301
Mr. Alan Steiner 53,871 18,855 35,016 *
19410 Glen Cannon Way
Monument, CO 80132
37
Alan B. and Barbara W. Steiner Trust 52,988 18,546 34,442 *
19410 Glen Cannon Way
Monument, CO 80132
(Alan B. Steiner, trustee)
Patlaw Trust 910,466 318,664 591,802 1.69%
c/o Jerry Prokaski, Bob Fox, Ken Samples
120 S. LaSalle Street, Suite 1600
Chicago, IL 60603
(Robert J. Fox, trustee)
Dr. Mark V. Wadsworth 17,663 6,183 11,480 *
520 Manzanita Ave.
Sierra Madre, CA 91024
Ms. Diane R. Williams 17,663 6,183 11,480 *
3740 Saints Ct.
Colorado Springs, CO 80904
Mr. Ronald J. Wood 1,767 619 1,148 *
11420 Salem Ct.
Peyton, CO 80831
* Less than 1 percent
(1) Represents shares held by Morgan L. Fitch Revocable Trust, 4640 Clausen
Ave., Western Springs, IL 60558 (Morgan L. Fitch, trustee).
(2) Includes 574,167 shares issuable upon exercise of options.
The selling security holders received as part of our merger with Q-DOT
Group the shares of Simtek common stock that we are registering. Under the
merger agreement, Q-DOT Group merged with and into us and Q-DOT Group, Inc., by
virtue of the merger, became a wholly owned subsidiary of us. Although duly
notified of their appraisal rights, no Q-DOT Group stockholders exercised
appraisal rights. Q-DOT Group's 30 stockholders received, on a pro rata basis, a
total of 5,171,131 shares of our common stock. The transaction was valued at $4
million. The transaction closed on March 14, 2001, on which date we had received
all consideration for our common stock. The transaction was a private placement
exempt from registration pursuant to Rule 506 of Regulation D promulgated by the
SEC. There were fewer than 35 purchasers of our securities, of whom 12 were
accredited investors. We provided each purchaser with the information required
under Regulation D. We reasonably believed that each purchaser, either alone or
with a purchaser representative, was capable of evaluating the risks and merits
of investing in Simtek stock. To the best of our knowledge, no general
solicitation or advertising occurred. Following the merger, we filed a Form D
with the SEC as required by Regulation D.
Mr. Douglas Mitchell, our Chief Executive Officer, President, Chief
Financial Officer (acting), and one of our directors, served as a director and
stockholder of Q-DOT Group immediately prior to the merger. Mr. Mitchell owned
44,386 shares of our common stock (excluding stock options) on the date of this
prospectus and, following the offering and sale of 15,536 shares, he will own
28,850 shares, or less than 1% of our common stock.
SPECIFIC RELATIONSHIPS AND RELATED TRANSACTIONS
Our president and director, Douglas Mitchell was also a director of
Q-DOT Group prior to our acquisition of Q-DOT Group. Mr. Mitchell disclosed all
material facts as to his conflict of interest in the acquisition. The board of
directors determined that the acquisition was fair to us and in our best
interest. Mr. Mitchell abstained from the vote of the Q-DOT Group and Simtek
board of directors decision to approve the acquisition. At the time of
acquisition, Mr. Mitchell owned approximately 1% of the Q-DOT Group shares and
he received 44,386 shares of
38
our common stock in connection with our acquisition of Q-DOT Group, pro rata
with the terms that all of the other Q-DOT Group shareholders'.
On May 9, 2000, we entered into a stock exchange agreement with Mr. Hugh N.
Chapman pursuant to which we acquired Integrated Logic Systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview of Acquisitions and Other Transactions." At the time of
the acquisition, Mr. Chapman was not a holder of 5% of our stock. As a result
of the acquisition, however, Mr. Chapman became a holder of 5% of our
outstanding stock and as of June 21, 2001 holds approximately 5.71% of our
stock. Incident to the acquisition, we entered into an "at will" employment
agreement with Mr. Chapman, terminable by either party at any time with or
without cause. The employment agreement provides for an annual salary of
$70,000, Simtek's standard benefits and options to purchase up to 200,000 shares
of Simtek stock. As of the date of this prospectus, only 81,111 options have
vested.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 80,000,000 shares of common stock, par value
$0.01 per share. Each share of common stock entitles the holder thereof to one
vote on all matters submitted to a vote of the shareholders. Holders of common
stock do not have preemptive rights or rights to convert their common stock into
other securities. Holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding up,
holders of the common stock have the right to a ratable portion of the assets
remaining after payment of liabilities.
Preferred Stock
Our Articles of Incorporation authorize 2,000,000 shares of $1.00 par value
preferred stock. The board of directors has the authority to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series and the designation
of such series, without further vote or action by the shareholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the shareholders and may
adversely affect the voting power and other rights of the holders of common
stock, including the loss of voting control to others. As of the date of this
prospectus, there are not shares of preferred stock outstanding.
PLAN OF DISTRIBUTION
These shares are being offered hereby for sale by twenty nine of our
shareholders who received these shares in a unregistered transaction. These
shares will be offered by the selling shareholders from time to time (i) on the
over-the-counter market, where the common stock is traded, or elsewhere, at
fixed prices which may be changed, at market prices prevailing at the time of
offer and sale, at prices related to such prevailing market prices or at
negotiated prices and (ii) in negotiated transactions, through the writing of
options on the shares, or a combination of such methods of sale. The selling
shareholders may effect such transactions by offering and selling the shares
directly or to or through securities broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling shareholders and/or the purchasers of the shares for whom such
broker-dealers may act as agent or to whom the selling shareholders may sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customer commissions).
The selling shareholders and any broker-dealers who are in connection with
the sale of the shares hereunder may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and profit on any resale of the shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
39
We have advised the selling shareholders that they and any securities
broker-dealers or others who may be deemed to be statutory underwriters will be
subject to the prospectus deliver requirements under the Securities Act. We have
also advised the selling shareholders that in the event of a "distribution" of
shares, any "affiliated purchasers," and any broker-dealer or other person who
participates in such distribution may be subject to Regulation M under the
Exchange Act until his or its participation in that distribution is completed. A
"distribution" is defined in Rule 101 of Regulation M as an offering of
securities "that is distinguished from ordinary trading transactions by the
magnitude of the offering and the presence of special selling efforts and
selling methods." Regulation M makes it unlawful for any person who is
participating in a distribution to bid for or purchase stock of the same class
as is the subject of the distribution.
LEGAL MATTERS
The validity of the shares offered hereby will be passed by Holme Roberts &
Owen LLP, Denver, Colorado.
EXPERTS
The financial statements of Simtek Corporation as of December 31, 2000 and
for the years ended December 31, 2000 and December 31, 1999 included within this
Prospectus have been so included in reliance on the report of Hein + Associates,
LLP, independent auditors, given on the authority of said firm as experts in
auditing and accounting.
40
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, we file
reports, proxy statements and other information with the Securities and Exchange
Commission. You may inspect our reports, proxy statements and other information
without charge at the public reference facilities of the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, NY 10048. You may also obtain
copies there at the prescribed rates. You may obtain information on the
operation of the Commission's public reference facilities by calling the
Commission in the United States at 1-800-SEC-0330. The Commission also maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
We have filed with the Commission, a registration statement on Form
SB-2 under the Securities Act of 1933, as amended (the"Securities Act"), with
respect to the common stock we are offering (the "registration statement"). This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information about
us and the common stock offered, you should refer to the registration statement,
including the exhibits and schedules thereto, which may be inspected at, and
copies thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission at the addresses set forth above.
#103129 v2
41
SIMTEK CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report.........................................................................................F-2
Consolidated Balance Sheet - December 31, 2000.......................................................................F-3
Consolidated Statements of Operations - For the Years Ended December 31, 2000 and 1999...............................F-4
Consolidated Statements of Changes in Shareholders' Equity - For the Years Ended December
31, 2000 and 1999...........................................................................................F-5
Consolidated Statements of Cash Flows - For the Years Ended December 31, 2000 and 1999...............................F-6
Notes to Consolidated Financial Statements - For the Years Ended December 31, 2000 and 1999.....................F-8-F-23
Consolidated Balance Sheet (unaudited) March 31, 2000...............................................................F-24
Consolidated Statement of Operations (unaudited) - For the three months ended March 31, 2001 and 2000...............F-25
Consolidated Statement of Cash Flows (unaudited) - For the three months ended March 31, 2001 and 2000...............F-26
Notes to Consolidated Financial Statements - For the three months ended March 31, 2001 and 2000.....................F-27
F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Simtek Corporation
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheet of Simtek
Corporation and subsidiary as of December 31, 2000 and the related statements of
operations, changes in shareholders' equity and cash flows for each of the years
in the two-year period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Simtek Corporation
as of December 31, 2000, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 2000, in
conformity with general accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 5, 2001, except for restatements as a result of the pooling of
interests of Q-DOT, Inc. as described in Note 2, for which the date is March 13,
2001
F-2
SIMTEK CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 2,853,769
Certificate of deposit, restricted 300,000
Accounts receivable - trade, net of allowance for doubtful accounts and return
allowances of $177,098 1,775,864
Inventory 1,130,629
Prepaid expe and other 175,955
------------
Total current assets 6,236,217
EQUIPMENT AND FURNITURE, net 888,296
OTHER ASSETS 163,472
------------
TOTAL ASSETS $ 7,287,985
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,085,370
Accrued expenses 532,964
Accrued wages 302,097
Accrued vacation payable 103,476
Line of credit 84,050
Current portion of notes payable 34,809
Obligation under capital leases 47,344
------------
Total current liabilities 2,190,110
NOTES PAYABLE 20,000
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION 153,670
------------
Total liabilities
2,363,780
COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 2,000,000 shares authorized, none issued -
Prepaid investor relations (730,433)
Common stock, $.01 par value; 80,000,000 shares authorized,
53,634,245 shares issued and outstanding 536,342
Additional paid-in capital 37,497,590
Accumulated deficit (32,379,294)
Total shareholders' equity 4,924,205
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,287,985
============
See accompanying notes to these consolidated financial statements.
F-3
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
2000 1999
---------------- ------------------
NET SALES $14,467,814 $11,168,624
Cost of sales 8,423,529 6,172,643
----------- -----------
GROSS MARGIN
6,044,285 4,995,981
OPERATING EXPENSES:
Research and development costs 6,158,189 2,240,273
Sales and marketing 1,170,305 918,642
General and administrative 2,152,593 1,793,424
----------- -----------
Total operating expenses 9,481,087 4,952,339
----------- -----------
INCOME (LOSS) FROM OPERATIONS (3,436,802) 43,642
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 165,736 96,942
Interest expense (77,234) (172,424)
Equity in losses of QDA and write off of related advances (194,662) (52,514)
Other income (expense) 2,620 (6,172)
----------- -----------
Total other income (expense) (103,540) (134,168)
----------- -----------
NET LOSS BEFORE PROVISION FOR INCOME TAXES $(3,540,342) $ (90,526)
----------- ------------
Provision for income taxes - 32,400
----------- ------------
NET LOSS $(3,540,342) $ (122,926)
============ ===============
NET LOSS PER COMMON SHARE:
Basic and diluted EPS $ (.07) $ *
============= ==============
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Basic and diluted EPS 48,337,167 38,345,697
============= ==============
----------------------
*Less than $.01 per share.
See accompanying notes to these consolidated financial statements.
F-4
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
ADDITIONAL
COMMON STOCK PAID-IN
----------------------------------
---------------- ---------------
SHARES AMOUNT CAPITAL
---------------- --------------- ------------------------
---------------- --------------- ------------------------
BALANCES, January 1, 1999 38,166,957 $ 381,669 $30,349,288
Contributions - - 202,752
Exercise of stock options 210,000 2,100 32,166
Sale of common stock - - 23,145
Stock issued for directors fees - - 14,499
Net loss - - -
---------- ---------- ----------
BALANCES, December 31, 1999 38,376,957 383,769 30,621,850
---------- ---------- ----------
Exercise of stock options 1,863,016 18,630 278,437
Webgear purchase 4,150,000 41,500 4,046,146
Conversion of debt 8,244,272 82,443 1,488,959
Stock issuance for services 1,000,000 10,000 1,021,200
Contributions - - 16,103
Sale of common stock - - 1,963
Stock issued for directors fees - - 6,734
Stock issued for compensation - - 16,198
Adjustment for net income during the three month
period ended March 31, 2000 (Note 2) - - -
Net loss - - -
---------- ---------- ---------- -
BALANCES, December 31, 2000 53,634,245 $ 536,342 $37,497,590
========= ========= ===========
PREPAID TOTAL
INVESTOR ACCUMULATED SHAREHOLDERS'
RELATIONS DEFICIT EQUITY
------------------ ------------------ ----------------
------------------ ------------------ ----------------
BALANCES, January 1, 1999 $ - $(28,579,097) $2,151,860
Contributions - - 202,752
Exercise of stock options - - 34,266
Sale of common stock - - 23,145
Stock issued for directors fees - - 14,499
Net loss - - (122,926) (122,926
---------- ----------- ---------
BALANCES, December 31, 1999 - (28,702,023) 2,303,596
---------- ----------- ---------
Exercise of stock options - - 297,067
Webgear purchase - - 4,087,646
Conversion of debt - - 1,571,402
Stock issuance for services (730,433) - 300,767
Contributions - - 16,103
Sale of common stock - - 1,963
Stock issued for directors fees - - 6,734
Stock issued for compensation - - 16,198
Adjustment for net income during the three month
period ended March 31, 2000 (Note 2) - (136,929) (136,929
Net loss (730,433) (3,540,342) (3,540,342
--------- ----------- ----------
BALANCES, December 31, 2000 $(730,433) $32,379,294) $4,924,205
========= =========== ==========
F-5
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(cont.)
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
---------------- -----------------
2000 1999
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,540,342) $(122,926)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 430,962 391,718
Stock issuance for services 22,932 14,499
Webgear purchase of incomplete research and development 3,962,645 -
Contributed service - 70,000
Unrealized gain of securities - 6,930
Net change in allowance accounts 196,407 (90,936)
Deferred financing fees 1,865 11,191
Deferred income taxes - 29,800
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (152,364) (174,429)
Inventory (85,270) (48,930)
Investments - 13,146
Prepaid expenses and other 174,311 38,860
Increase (Decrease) in:
Accounts payable (39,689) 342,754
Accrued expenses 44,371 (179,291)
Customer deposits (53,010) 51,850
------------ ---------
Net cash provided by operating activities 962,818 354,236
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/Sales of equipment and furniture, net (381,165) (317,625)
Decrease (increase) in certificate of deposit, restricted 100,000 (300,000)
Advances to equity investment 14,606 (3,425)
------------ ---------
Net cash used in investing activities (266,559) (621,050)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (40,644) (13,914)
Borrowings from line-of-credit and the issuance of a note 908,231 1,715,769
Payments on lines of credit (1,133,000) (1,698,538)
Payments on notes payable (136,135) (124,610)
Exercise of stock options 297,067 34,266
Sale of common stock 1,963 23,145
Contributions 16,103 132,752
------------ ---------
Net cash provided by (used in) financing activities (86,415) 68,870
------------ ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 609,844 (197,944)
CASH AND CASH EQUIVALENTS, beginning of year 2,243,925 2,385,602
------------ ---------
CASH AND CASH EQUIVALENTS, end of year $ 2,853,769 $ 2,187,658
============ ===========
See accompanying notes to these consolidated financial statements.
F-6
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(cont.)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 77,435 $ 172,424
============ ===========
Cash paid (refund of) for income taxes $ 14,200 $ (8,480)
============ ===========
NONCASH INVESTING AND FINANCING TRANSACTIONS:
Conversion of debenture into shares of common stock, net of deferred $ $ -
============ ===========
Financing costs related to debenture 1,441,249 $ -
============ ===========
Conversion of payable to ZMD into shares of common stock $ 130,153 $ -
============ ===========
Purchase of equipment through payables and capital leases $ - $ 255,573
============ ===========
Issuance of stock for prepaid services $ 730,434 $ -
============ ===========
Issuance of stock for patents and trademarks $ 118,750 $ -
============ ===========
See accompanying notes to these consolidated financial statements.
F-7
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------
Nature of Business Operations - Simtek Corporation (the "Company") designs,
develops, markets and subcontracts the production of high performance
nonvolatile semiconductor memories and programmed semiconductor logic products.
The Company's operations have concentrated on the design and development of the
256 kilobit, 64 kilobit, and 16 kilobit nonvolatile semiconductor memory product
families and associated products and technologies as well as the development of
sources of supply and distribution channels. The Company also provides
electronics engineering research and development contracts.
Pooling of Interests - On March 13, 2001, Simtek acquired 100% of the common
stock of Q-DOT Group ("Q-DOT"). Q- DOT specializes in advanced technology,
research, and development for data acquisition, signal processing, imaging and
data communications. Shareholders of Q-DOT exchanged their shares in Q-DOT for
shares in Simtek in a business combination that has been accounted for as a
pooling of interests. The consolidated financial statements and the accompanying
notes reflect Simtek's financial position and the results of operations as if
Q-DOT was a wholly-owned subsidiary of Simtek since inception. Prior to the
acquisition, Q-DOT had a fiscal year end of March 31. The adjustment for the
change in the year-end is reflected in the current period statement of
stockholders' equity (see Note 2).
Consolidation Policy - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary Q-DOT. The
Company holds 1% interest in QD Acoustics, LLC (QDA) but has effective
control over it due to an operating agreement which gives the Company control of
all operational decisions. In addition, all losses of QDA are allocated to the
company and net profits are allocated first to the Company to the extent of any
previous allocations of losses. Any additional profits of QDA are allocated
prorata based on percentage of ownership. The other major shareholders of QDA
are minor shareholders of the Company. QDA is accounted for by the equity method
of accounting.
Revenue Recognition Semiconductor Products - Product sales revenue is recognized
when a valid purchase order has been received and the products are shipped to
customers, including distributors. Customers receive a one-year product warranty
and sales to distributors are subject to a limited product exchange program and
product pricing protection in the event of changes in the Company's product
price. The Company provides a reserve for possible product returns, price
changes and warranty costs at the time the sale is recognized.
Revenue Recognition Government Contracts - Revenues from cost-plus-fee contracts
are recognized on the basis of costs incurred during the period plus the fee
earned. Revenues from fixed-price contracts are recognized on the
percentage-of-completion method. The percentage-of-completion is measured by the
total costs incurred to date to estimated total costs for each contract. This
method is used because management considers costs incurred to be the best
available measure of progress on these contacts. Because of inherent
uncertainties in estimating costs, it is reasonably possible that the estimates
used will change within the near term.
F-8
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contract Revenues and Related Costs - Substantially all of Q-DOT revenues result
from contract services performed for the various agencies of United States
Government (the "Government") under a variety of contracts and subcontracts,
some of which provide for reimbursement of costs-plus-fees, and others which are
fixed-price. The majority of the contracts are for services performed in
Colorado. For some services rendered on Government contracts which the time
between providing the services and the final cash realization from the sale of
such services may extend two or more years.
Costs on contracts with the government (including allocable indirect costs) are
subject to audit and adjustment by negotiations between the Company and
Government representatives. Costs submitted for reimbursement are subject to
Government audits for compliance with government costs accounting standards,
federal acquisitions regulations and other contract terms. Negotiations for all
of the years through March 31, 1997 have been completed without any material
adjustments. Management does not believe the results of the March 31, 1998,
March 31, 1999, March 31, 2000 and December 31, 2000 Government audits and
subsequent negotiations will have a material effect on the accompanying
financial statements.
Direct costs of contracts include all direct labor, supplies, and
equipment costs. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Changes in job performance, job conditions, and estimated profitability
and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are
determined.
At the time a loss on a contract becomes known, the entire amount of the
estimated loss on both short and long-term contracts is accrued.
Cash and Cash Equivalents - The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. As of
December 31, 2000, substantially all of the Company's cash and cash equivalents
were held by a single bank, of which approximately $2,894,630 was in excess of
Federally insured amounts.
Inventory - The Company records inventory using the lower of cost (first-in,
first-out) or market. Inventory at December 31, 2000 includes:
Raw materials $ 177,947
Work in process 872,948
Finished goods 176,398
---------------
1,227,293
Less reserves (96,664)
----------------
$ 1,130,629
Depreciation - Equipment and furniture are recorded at cost. Depreciation is
provided over the assets' estimated useful lives of three to seven years using
the straight-line and accelerated methods. The cost and accumulated depreciation
of furniture and equipment sold or otherwise disposed of are removed from the
F-9
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounts and the resulting gain or loss is included in operations. Maintenance
and repairs are charged to operations as incurred and betterments are
capitalized.
Research and Development Costs - Research and development costs are charged to
operations in the period incurred.
Advertising - The Company incurs advertising expense in connection with the
marketing of its product. Advertising costs are expensed as advertising takes
place. Advertising expense was $87,672 and $94,936 in 2000 and 1999,
respectively.
Loss Per Share - The loss per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. SFAS No. 128 replaced the presentation of primary and fully
diluted earnings (loss) per share (EPS) with a presentation of basic EPS and
diluted EPS. Basic EPS is calculated by dividing the income or loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. As the Company incurred losses in 1999 and 2000, all common
stock equivalents would be considered anti-dilutive. For purposes of calculating
diluted EPS, 2,817,722 and 1,337,750 options for 2000 and 1999, respectively,
were excluded from diluted EPS as they had an anti- dilutive effect. The
convertible debentures also had an anti-dilutive effect on 1999 and were,
therefore, excluded from the computation of diluted EPS.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates. The Company's financial statements are based upon a number of
estimates, including the allowance for doubtful accounts, technological
obsolescence of inventories, the estimated useful lives selected for property
and equipment, sales returns, warranty reserve, percentage of completion on
projects in process at year-end, and the valuation allowance on the deferred tax
assets. Due to the uncertainties inherent in the estimation process, it is at
least reasonably possible that the estimates for these items could be further
revised in the near term and such revisions could be material.
Financial Instruments - The estimated fair values for financial instruments are
determined at discrete points in time based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision.
The carrying amounts of the accounts receivable, accounts payable and accrued
liabilities approximate fair value because of the short-term maturities of these
instruments. The fair value of notes payable approximates their carrying value
as generally their interest rates reflect the Company's current effective annual
borrowing rate.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to significant considerations of credit risk consist primarily of
accounts receivable. The Company has no significant off- balance sheet
concentrations of credit risk. Accounts receivable are typically unsecured and
are derived from transactions with and from customers located in the United
States.
F-10
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of assets or other assets may be impaired, an evaluation
of recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required.
Stock-Based Compensation - As permitted under the SFAS No. 123, Accounting for
Stock-Based Compensation, the Company accounts for its stock-based compensation
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees. As such, compensation expense
is recorded on the date of grant if the current market price of the underlying
stock exceeds the exercise price. Certain pro forma net income and EPS
disclosures for employee stock option grants are also included in the notes to
the financial statements as if the fair value method as defined in SFAS No. 123
had been applied. Transactions in equity instruments with non-employees for
goods or services are accounted for by the fair value method. In fiscal 2000,
the Company adopted the Financial Accounting Standards Board Interpretation No.
44 which requires that outside directors be considered employees for purposes of
stock option accounting, if the Company is accounting for its employee stock-
based compensation in accordance with APB 25. It also affects modifications to
fixed stock options or awards that effects the life, exercise price, or the
number of shares to be issued. The adoption of this interpretation did not have
a material effect on the Company's consolidated financial statements.
Income Taxes - The Company accounts for income taxes under the liability method
of SFAS No. 109, whereby current and deferred tax assets and liabilities are
determined based on tax rates and laws enacted as of the balance sheet date.
Deferred tax expense represents the change in the deferred tax asset/liability
balance. Valuation allowances are recorded for deferred tax assets that are not
expected to be realized.
Business Segments - The Company has adopted Statement of Accounting Standards
No. 131, Disclosures About Segments of an Enterprise and Related Information
("SFAS 131"), which established standards for the way companies report
information about their operating segments. Prior period amounts have been
restated to conform to the requirements of this new statement.
Reclassifications - Certain reclassifications have been made to conform the
December 31, 2000 financial statements to subsequent 2001 interim financial
reporting. Such reclassifications had no effect on net loss for fiscal 2000.
F-11
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting Pronouncements - SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company's financial statements for the year ended December 31,
2001 and the adoption of this standard is not expected to have a material effect
on the Company's financial statements.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. SAB 101 establishes guidelines in applying generally accepted
accounting principles to the recognition of revenue in financial statements
based on the following four criteria; persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the seller's price
to the buyer is fixed or determinable, and collectibility is reasonably assured.
SAB 101, as amended , was effective no later than the fourth fiscal quarter of
the Company's fiscal year ending year 2000. The adoption of SAB 101 did not have
a material effect on its financial position or result of operations.
2. ACQUISITIONS:
------------
On May 9, 2000, Simtek Corporation acquired 100% of the outstanding stock of
Integrated Logic Systems Incorporated (Integrated Logic) which designs and sells
metal gate array integrated circuits in Colorado Springs, Colorado for common
stock (3,000,000 shares) with a market value at the date of issuance of $3.75
million. The acquisition was accounted for as a pooling of interests, and the
results of the Integrated Logic business have been combined with those of Simtek
Corporation, as if the two businesses had been merged throughout the periods
presented.
The following is Integrated Logic's operating results for the period from
January 1, 2000 to May 9, 2000 which has been included in the Company's results
of operations for the year ending December 31, 2000:
Revenue $ 279,585
Expenses (233,763)
------------------
Net $ 45,822
=================
On July 31, 2000, Simtek Corporation acquired 100% of the outstanding stock of
Macrotech Semiconductor, Inc. (Macrotech) which is involved in the design,
development and production of gate array integrated circuits and related
services in San Jose, California for common stock (1,250,000 shares) with a
market value at the date of issuance of $1.76 million. The acquisition was
accounted for as a pooling of interests, and the results of the Macrotech
business have been combined with those of Simtek Corporation, as if the two
businesses had been merged throughout the periods presented.
F-12
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is Macrotech's operating results for the period from January 1,
2000 to July 31, 2000 which has been included in the Company's results of
operations for the year ending December 31, 2000:
Revenue $ 291,835
Expenses (248,508)
-------------
Net $ 43,327
=============
On March 13, 2001, the Company acquired Q-DOT in exchange for approximately
5,172,000 shares of our Common Stock. Q-DOT specializes in advanced technology
research and development for data acquisition, signal processing, imaging and
data communications. Q-DOT will be operated as a wholly owned subsidiary of
Simtek for its government contract research and development operations. The
acquisition has been accounted for as a pooling of interest, and the results of
Q-DOT have been consolidated with those of Simtek as if the two businesses had
been merged throughout the periods presented.
Q-DOT had a March 31, fiscal year-end and, accordingly, the Q-DOT statements of
operations for the year ended March 31, 2000 have been combined with the
Company's statements of operations for the fiscal year ended December 31, 1999.
In order to conform Q-DOT's March 31 year-end to the Company's December 31,
year-end, the consolidated statement of stockholders' equity was adjusted for
the $136,929 for the operations from January 1, 2000 to March 31, 2000, which
are included in the consolidated statements of operations in both the years
ended December 31, 1999 and 2000. The following is a summary of operating
results for that period:
Revenue $ 923,632
Expenses 786,703
-------------
Net income $ 136,929
=============
Separate revenues and net income of the Company, Integrated Logic Systems,
Macrotech Semiconductors, Inc. and Q-DOT Group, Inc. are presented in the
following table:
2000 1999
---- ----
Revenue:
Sim$ek Corporation $11,579,330 $ 6,992,388
ILSI 279,585 703,588
Macrotech 291,835 58,976
Q-DOT 2,317,064 3,413,672
----------- -----------
Revenue, as reported $14,467,814 $11,168,624
=========== ===========
Net Income (Loss):
Sim$ek Corporation (3,467,975) $ 132,255
ILSI 45,821 (68,224)
Macrotech 43,327 (213,501)
Q-DOT (161,515) 26,544
----------- -----------
Net (loss) as reported $(3,540,342) $ (122,926)
=========== ===========
F-13
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The pooling of ILSI and Macrotech during the year ended December 31, 2000 and
the subsequent pooling of Q-DOT on March 13, 2001(Unaudited) decreased the loss
per share by $.02 for the year ending December 31, 2000 and had no effect on
1999 earnings per share.
3. EQUIPMENT AND FURNITURE:
-----------------------
Equipment and furniture at December 31, 2000 consists of the following:
Leased software under capital leases $ 255,573
Research and development equipment 1,622,860
Computer equipment and software 1,808,613
Office furniture 248,709
Other equipment 135,644
--------------
4,071,399
Less accumulated depreciation and amortization (3,183,103)
--------------
$ 888,296
The cost of equipment and furniture acquired for research and development
activities that has alternative future use is capitalized and depreciated over
its estimated useful life.
Depreciation and amortization expense of $430,962 and $391,718 was charged to
operations for the years ended December 31, 2000 and 1999, respectively.
Included in the amortization expense for 2000 and 1999 was $51,120 and $17,040,
respectively, of amortization of software under capital leases. At December 31,
2000, accumulated amortization for software under capital leases was $68,160.
4. REVOLVING LINE-OF-CREDIT AND LETTER-OF-CREDIT:
---------------------------------------------
As of December 31, 2000, the Company had a $250,000 revolving line-of-credit
(LOC), a reduction of $100,000 since December 31, 1999. The LOC bears interest
at prime plus .75% (9.5% at December 31, 2000) and matures in March 2001. At
December 31, 2000, the Company had no balance outstanding. As of December 31,
2000, the Company had a second revolving bank line of credit that expires
February 1, 2001. At December 31, 2000, the Company had $84,050 outstanding
against this line of credit. Interest is payable monthly and accrues at 10.25%
annually.
The Company also has a note payable of $34,809 with the bank that bears interest
at prime plus 1%. The note is payable in monthly installments of $2,083, plus
interest, through June 30, 2002. Future payments on this note payable are as
follows: 2001 - $24,996; 2002 - $9,813.
F-14
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowings outstanding under these loan agreements are collateralized by all of
the Company's assets. The Company has certain covenants in connection with these
loans. The Company was not in compliance at December 31, 2000 and 1999 with
certain covenants. Therefore, all bank borrowings are classified as current, as
the bank could demand repayment if the non compliance is not cured. Subsequent
to year end these notes were paid off.
Interest Expense for fiscal 2000 and 1999 was $77,234 and $172,424,
respectively.
The Company has a letter of credit arrangement with one of the Company's
suppliers which requires the Company to maintain a $300,000 certificate of
deposit as collateral, which is reflected as restricted cash.
5. CONVERTIBLE DEBENTURES:
----------------------
During June 1998, the Company received proceeds of $1,500,000 from the issuance
of convertible debentures (the "Debentures"). The Debentures were convertible
into shares of common stock of the Company. After a one-time conversion price
adjustment calculated pursuant to the original agreement, the debentures
conversion price changed from $.35 per share to $.195 per share in May 1999. In
February 2000, the entire $1,500,000 of convertible debt was converted into
7,692,308 shares of common stock of the Company at the conversion rate of $.195
per share.
6. COMMITMENTS :
------------
Offices Leases - The Company leases office space under a lease, which expires on
December 31, 2001. Monthly lease payments are approximately $12,000 (not
including CAM charges). The Company has moved where monthly lease payments will
be approximately $14,000. The new lease agreement effective March 1, 2001 to
February 28, 2008 requires the new landlord to begin paying all costs related to
the old location starting on March 1, 2001.
Through the acquisition of Q-DOT, the Company has non-cancelable long-term lease
agreements for office space, office furnishings and equipment that expire at
various dates through April 2005. A facility lease and the equipment leases
contain an option to extend the leases for an additional one-year period.
The Company leases furniture, equipment, and its office under operating leases,
which expire over the next seven years.
Future minimum lease payments under the equipment, furniture and office leases
described above are approximately as follows:
Year
-----------------
2001 $ 384,262
2002 328,368
2003 342,701
2004 354,125
2005 & After 715,719
=============
$ 2,125,175
F-15
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Office rent and equipment lease expense totaled $733,645 and $641,693 for the
years ended December 31, 2000 and 1999, respectively.
In addition, the Company leases research and development software under a
capital lease, which will expire over the next five years. At December 31, 2000,
future minimum lease payments under the lease described above is approximately
as follows:
Year
------------
2001 $ 63,888
2002 63,888
2003 63,888
2004 47,916
-----------
Total net minimum lease payments 239,580
Less amount representing interest (38,566)
-----------
Present value of net minimum lease payments $ 201,014
===========
Accrued Salary - Due to limited working capital of the Company, the Company's
former CFO agreed with the Company's Board of Directors to defer his salary from
April 1, 1994 through December 31, 1996. As of December 31, 2000, a total of
$210,000 was accrued and unpaid.
7. SHAREHOLDERS' EQUITY:
--------------------
In 1999, the shareholders' of Macrotech, which was acquired by Simtek in 2000
and accounted for as a pooling of interest, contributed $70,000 in services and
paid for $132,000 of Marcotech's expenses. In 2000, shareholders' of Macrotech
contributed $16,103 in services prior to the acquistion.
In February and March 2000, Renaissance Capital Group of Dallas, Texas
("Renaissance") converted the $1,500,000 debenture established in June 1998 into
7,692,308 shares of the Simtek Common Stock.
During April, 2000, as significant shareholder of the Company (ZMD) converted
$130,153 liability into 551,964 shares of common stock of the Company.
On May 9, 2000, the Company acquired Integrated Logic. The Company issued
3,000,000 shares of its common stock in exchange for all outstanding shares of
all classes of Integrated Logic stock. Integrated Logic designs and sells
programmed semiconductor logic products. The Company purchased approximately
$30,000 of product from Integrated Logic in the year preceding the acquisition.
The acquisition was accounted for as a pooling of interest, and the results of
Integrated Logic have been consolidated with the Company's, as if the two had
been merged throughout the periods presented.
F-16
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 16, 2000, the Company acquired 1,875,000 shares of the common stock of
WebGear, Inc., in return for 1,250,000 shares of Simtek's common stock. On
September 29, 2000, the Company purchased incomplete research and development,
patents and certain trademarks from WebGear, Inc. The original contract price
for the incomplete research and development totaled the 1,875,000 shares of
WebGear, Inc. stock plus 3,400,000 shares of our common stock of which 500,000
were held in escrow based on WebGear, Inc. fulfilling all obligations under the
contract. In December 2000, WebGear, Inc. defaulted on one condition of the
contract, thus forcing them to relinquish the 500,000 escrow shares of Simtek's
common stock which reduced the shares issued to 2,900,000 of our common stock.
On July 31, 2000, the Company acquired Macrotech. The Company issued 1,250,000
shares of our common stock in exchange for all outstanding shares of all classes
of Macrotech stock. Macrotech designs and sells programmed semiconductor logic
products, which are an extension of the programmed semiconductor logic products
that Integrated Logic manufactures. The acquisition was accounted for as a
pooling of interest, and the results of Macrotech have been consolidated with
Simtek's, as if the two had been merged throughout the periods presented.
On September 14, 2000, the Company entered into a one-year contract with two
investment bankers, E.B.M. Associates, Inc. and World Trade Partners. Each
company has received 500,000 shares of common stock, which were nonforfeitable
and fully vested upon issuance on September 14, 2000, the grant date. Both
companies will assist the Company in broadening our financial market presence
and establishing new relationships within the industry, investment community and
financial media, by arranging meetings for our management with industry
analysts, presenting company profiles to analysts and brokerage firms, mailings
and constant personal communication with investors. E.B.M. Associates Inc.
supports these activities primarily in retail investment markets, while World
Trade Partners supports these activities primarily in institutional markets.
E.B.M. Associates and World Trade Partners cooperate to coordinate their
activities. On September 14, 2000, the closing share price for the Company's
common stock was $ 1.0312 per share and accordingly $1,031,000 was assigned to
prepaid investor relations. The cost associated with this transaction is being
amortized over the life of the contract, of which approximately $301,000 was
expensed in 2000. The balance will be expensed over the term of the contract,
ending in the third quarter of 2001.
On September 29, 2000, the Company purchased incomplete research and
development, patents and certain trademarks from WebGear, Inc. The incomplete
research and development consists of hardware and software developed for
wireless data communications that needs to be modified for use with the
Bluetooth technology standard. The Company originally issued 3,400,000 shares of
our common stock which was amended in December 2000 to 2,900,000 by the return
of 500,000 shares of common stock which were previously held in escrow. The
Company also returned to WebGear, Inc. the 1,875,000 shares of WebGear, Inc.
common stock that Simtek acquired from WebGear, Inc. on June 16, 2000. On
September 29, 2000, the closing price of Simtek's common stock was $0.8438 per
share. The Company has valued the purchased patents and trademarks at $125,000,
which was capitalized and recorded as intangible assets. The Company has valued
the incomplete research and development acquired from WebGear, Inc. at
$3,962,646, which was expensed immediately.
The discounted cash flow method was used to value the in-process technology
acquired. A ten year life and a 27.5% discount rate were used for valuation.
Calculations assumed revenues from products
F-17
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
developed from the incomplete research and development would commence in late
2001 and that gross margins could be sustained at an average 50% over the
projected product lives. The Company has assumed that operating costs would
follow the normal percentage of revenue rates that the Company has established
over the past five years.
WebGear developed a wireless networking product that operates with a 900 MHz
narrow-band radio and uses protocol conversion techniques, firmware and software
which are similar to the requirements to implement Bluetooth bridging
technology. These will be used as base-line technologies to implement our
integrated circuits, along with system architecture definitions developed by
WebGear that include hardware descriptions and software protocol stacks. The
Company estimates that we will invest approximately $750,000 in further
development costs to bring the first product to market. Samples are scheduled
for the second half of 2001 with production within 3 months of sampling.
The Company estimates that the use of the purchased incomplete research and
development accomplishes two-thirds of the product development required for
sampling and management of the Company believes they have an 80% probability of
technical success. There is technical risk as the Bluetooth industry standards
organization is modifying and upgrading the specification and potential market
delays as major Bluetooth product suppliers implement the standard in consumer
products.
On March 13, 2001, the Company acquired Q-DOT in exchange for approximately
5,172,000 shares of Simtek's common stock. Q-DOT specializes in advanced
technology research and development for data acquisition, signal processing,
imaging and data communications. Q-DOT's projects have been supported by
conventional government and commercial contracts in addition to government
contacts sponsored by the Small Business Innovation Research (SBIR) contracts.
Q-DOT will be operated as a wholly owned subsidiary of Simtek for its government
contract research and development operations. The acquisition will be accounted
for as a pooling of interest, and the results of Q-DOT will be consolidated with
Simtek's as if they had been merged throughout the periods.
Stock Option Plans - The Company has approved two stock option plans that
authorize an aggregate of 7,000,000 shares for stock options that may be granted
to directors, employees, and consultants. Subsequently, on January 2, 2001, the
Company authorized an additional 2,000,000 shares that can be issued under the
stock option plans. The plans permit the issuance of incentive and non-statutory
options and provide for a minimum exercise price equal to 100% of the fair
market value of the Company's common stock on the date of grant. The maximum
term of options granted under the plans is 10 years and options granted to
employees expire three months after the termination of employment. None of the
options may be exercised during the first six months of the option term. No
options may be granted after 10 years from the adoption date of each plan. The
Incentive Stock Option Plan was adopted in 1991, and the Non-Qualified Stock
Option Plan was adopted in 1994.
Following is a summary of activity under these stock option plans for the years
ended December 31, 2000 and 1999:
F-18
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000 1999
----------------------------- ---------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
------------ --------- --------- ---------
Outstanding, beginning of year 4,182,486 $ .20 4,137,736 $ .19
Granted 1,036,750 .97 296,750 .17
Expired (81,000) (.17) (42,000) .15
Exercised (1,863,016) (.16) (210,000) (.16)
Canceled (137,498) (.37) - -
------------- ------------
Outstanding, end of year 3,137,722 $ .47 4,182,486 $ .20
============ ============
All options granted during 2000 and 1999, were at the current market price and
the weighted average fair value was $.77 and .14, respectively. At December 31,
2000, options for 2,226,979 shares were exercisable and of the remaining options
of 456,583, 327,250, and 126,910 shares will become exercisable in 2001, 2002,
and 2003, respectively.
If not previously exercised or forfeited, options outstanding at December 31,
2000, will expire as follows:
Weighted
Average
Number Exercise
Year Ending December 31, of Shares Price
-------------------------------------- --------- ------------
2001 387,100 $ .14
2002 498,986 .14
2003 190,000 .17
2004 459,608 .33
2005 398,085 .37
2006 225,471 .17
2007 978,472 1.01
-------------
3,137,772 $ .47
=============
Incentive Stock Option Plan - At the time of the acquisition of Q-DOT, Q-DOT had
an Incentive Stock Option Plan for the benefit of its employees. At December 31,
2000, Q-DOT had granted options to purchase 7,380 shares of its stock. At the
time of closing, these options converted into 130,350 options to purchase Simtek
Common Stock. These options have not been included in the above tables.
F-19
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB Opinion
25 and relatedinterpretations in accounting for its stock options and warrants
which are granted to employees. Accordingly, no compensation cost has been
recognized for grants of options and warrants to employees since the exercise
prices were not less than the market value of the Company's common stock on the
grant dates. Had compensation cost been determined based on the fair value at
the grant dates for awards under those plans consistent with the method of SFAS
No. 123, the Company's net income and EPS would have been reduced to the pro
forma amounts indicated below.
Year Ended December 31,
-----------------------------
2000 1999
--------- -------
Net loss applicable to common
shareholders:
As reported $ (3,540,342) $ (149,470)
Pro forma (3,765,937) (272,062)
Net loss per common shareholders:
As reported - basic and diluted $ (.07) $ -
Pro forma - basic and diluted (.07) -
The fair value of each option granted in 2000 and 1999 was estimated on the date
of grant, using the Black-Scholes option-pricing model with the following:
Options Granted During
-------------------------------
2000 1999
-------------------------------
Expected volatility 127.0% 119.7%
Risk-free interest rate 5.5% 5.5%
Expected dividends - -
Expected terms (in years) 4.0 4.0
Other - Preferred Stock may be issued in such series and preferences as
determined by the Board of Directors.
8. SIGNIFICANT CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS, AND OTHER
RISKS AND UNCERTAINTIES:
Sales by location for the ended December 31, 2000 and 1999 were as follows (as a
percentage of sales):
2000 1999
United States 46% 63%
Europe 14% 11%
Far East 34% 25%
All Others 6% 1%
--- ---
100% 100%
F-20
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales from government contracts accounted for approximately 15% and 33% of total
sales for the years ended December 31, 2000 and 1999, respectively. Sales from
our military products accounted for approximately 12% and 18% of total sales for
the years ended December 31, 2000 and 1999, respectively.
Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the years ended December 31, 2000 and 1999 were as
follows (as a percentage of sales):
Customer 2000 1999
----------- ----------- -----------
A 18% 31%
B - 13%
C 14% -
D 10% -
E - 12%
At December 31, 2000, the Company had gross trade receivables totaling $898,020
due from the above three customers.
In 2000 and 1999, the Company purchased all of its memory wafers, based on 0.8
micron technology from a single supplier located in Singapore. Approximately 89%
and 96% of the Company's memory sales for 2000 and 1999, respectively, were from
finished units produced from these wafers. The Company had an agreement with
this supplier to provide wafers, which expired in September 1998. This agreement
has not been extended or terminated, however, this supplier still provides
wafers to the Company. In addition, the Company purchased all of its logic
wafers from two suppliers located in Singapore and Taiwan. Approximately 11% and
9% of its logic sales in 2000 and 1999, respectively, were from finished units
produced from these wafers. The Company does not have an agreement with either
supplier, however, the Company has not seen any disruption in wafer deliveries.
In 1999, the Company also purchased finished units from ZMD for $22,480, and
sales from these products accounted for approximately 4% of the Company's sales
in 1999. Any disruptions in the Company's relationships with these suppliers
could have an adverse impact on the Company's operating results. Assuming an
alternate manufacturer of the Company's products could be procured, management
believes there could be significant delays in manufacturing while the
manufacturer incorporates the Company's products and processes.
9. TAXES:
-----
Under SFAS No. 109, deferred taxes result from temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. The components of deferred taxes are as follows:
F-21
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Tax
Assets (Liability)
--------------------------
Current:
Allowance for doubtful accounts $ 3,000
Inventory reserve 36,000
Accrued expenses 276,000
-----------------
Net current deferred tax before valuation
allowance 315,000
Valuation allowance (315,000)
-----------------
Total current deferred tax $ -
=================
Non-Current:
Property and equipment $ 205,000
Incomplete research and development 1,431,000
Net operating losses 10,126,000
R&D credit carryforward 1,200,000
AMT credit 8,000
-----------------
Net non-current deferred tax asset before
valuation allowance 12,970,000
Valuation allowance (12,970,000)
-----------------
Total non-current deferred tax asset $ -
=================
The net current and non-current deferred tax assets have a 100% valuation
allowance resulting from the inability to predict sufficient future taxable
income to utilize the assets. The valuation allowance for 2000 increased $91,000
and decreased $219,000 in 1999.
At December 31, 2000, the Company has approximately $27,000,000 available in net
operating loss carryforwards which begin to expire from 2004 to 2015. As a
result of certain non-qualified stock options which have been exercised,
approximately $3,200,000 of the net operating loss carryforward will be charged
to "paid in capital," when, and if, the losses are utilized. Also, a substantial
portion of the net operating loss may be subject to Internal Revenue Code
Section 382 limitations.
Total income tax expense for 2000 and 1999 differed from the amounts
computed by applying the U.S. Federal statutory tax rates to pre-tax income as
follows:
2000 1999
---------------- ---------------
---------------- ---------------
Statutory rate (34.0)% (34.0)%
State income taxes, net of Federal
income tax benefit (3.3)% (3.3)%
Increase (reduction) in valuation
allowance related to of net operating 37.3% 37.3%
----------- -----------
loss carryforwards and change in temporary
differences $ - $ -
========== ==========
10.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.
F-22
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Year Semiconductor Government Total
Devices Contracts
Net sales 2000 $12,150,750 $2,317,064 $14,467,814
1999 7,754,952 3,413,672 11,168,624
Income (loss) from
operations 2000 $(3,515,122) $78,320 $(3,436,802)
1999 (100,685) 144,327 43,642
Interest income 2000 $165,736 - $165,736
1999 96,942 - 96,942
Interest expense 2000 $(52,790) $(24,444) $(77,234)
1999 (151,402) (21,022) (172,424)
Depreciation and
amortization 2000 $307,837 $123,125 $430,962
expense
1999 247,502 144,216 391,718
Noncash items:
Purchase of
incomplete research 2000 $3,962,645 - $3,962,645
and development
1999 - - -
Stock issued for services 2000 $1,031,200 $22,932 $1,054,132
1999 - 14,499 14,499
Assets 2000 $6,786,593 $501,392 $7,287,985
1999 5,508,380 955,128 6,463 508
F-23
SIMTEK CORPORATION
BALANCE SHEET
(unaudited)
ASSETS
March 31, 2001
--------------
CURRENT ASSETS:
Cash and cash equivalents ..................................................$ 2,615,626
Certificate of deposit, restricted ......................................... 300,000
Accounts receivable - trade, net ........................................... 2,100,007
Inventory, net ............................................................ 1,869,577
Prepaid expenses and other ................................................. 144,577
------------
Total current assets.................................................... 7,029,787
EQUIPMENT AND FURNITURE, net ................................................. 998,786
DUE FROM RELATED PARTY ....................................................... 22,562
OTHER ASSETS ................................................................. 112,500
-------------
TOTAL ASSETS $................................................................$ 8,163,635
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...........................................................$ 2,456,738
Accrued expenses ........................................................... 353,513
Notes Payable .............................................................. 24,996
Accrued wages .............................................................. 295,049
Accrued vacation payable ................................................... 156,762
Obligations under capital lease ............................................ 48,436
-------------
Total current liabilities............................................... 3,335,494
NOTES PAYABLE ................................................................ 23,564
OBLIGATIONS UNDER CAPITAL LEASES ............................................. 141,144
-------------
Total liabilities....................................................... 3,500,202
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized and none issued and outstanding ............................. -
Prepaid investor relations ................................................. (472,633)
Treasury stock ............................................................. (12,504)
Common stock, $.01 par value, 80,000,000 shares authorized,
53,684,245 and 48,462,514 shares issued and outstanding at
March 31, 2001 and December 31, 2000, respectively...................... 536,842
Additional paid-in capital ................................................. 37,503,880
Accumulated deficit ........................................................ (32,892,152)
--------------
Shareholder's equity ....................................................... 4,663,433
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $..................................$ 8,163,635
=============
F-24
SIMTEK CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
For the quarters ended March 31,
2001 2000
---- ----
NET SALES........................................................$ 4,331,721 $ 3,826,027
Cost of sales............................................... 3,096,555 2,128,721
-------------------------------
GROSS MARGIN...................................................... 1,235,166 1,697,306
OPERATING EXPENSES:
Design, research and development............................. 660,074 623,465
Administrative............................................... 704,103 213,285
Marketing.................................................... 416,852 274,892
-------------------------------
Total Operating expenses................................. 1,781,029 1,111,642
INCOME (LOSS) FROM OPERATIONS..................................... (545,863) 585,664
-------------------------------
OTHER INCOME (EXPENSE):
Interest income (expense), net............................... 30,360 (7,589)
Other expense, net........................................... 939 (1,928)
-------------------------------
Total other income (expense)............................. 31,299 (9,517)
-------------------------------
NET INCOME (LOSS) BEFORE TAXES.................................... (514,564) 576,147
Provision for income taxes................................... - 38,000
-------------------------------
NET INCOME (LOSS)................................................. $ (514,564) $ 538,147
===============================
NET INCOME PER COMMON SHARE:
Basic...................................................... $ (.01) $ .01
===============================
Diluted.................................................... $ (.01) $ .01
===============================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic....................................................... 53,651,912 41,472,635
================================
Diluted..................................................... 53,651,912 44,848,779
================================
F-25
SIMTEK CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
2001 2000
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (514,563) 538,147
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization ............................. 111,272 111,646
Increase (decrease) in net change of reserve
accounts.............................................. 21,423 68,951
Deferred financing fees ................................... - 1,865
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (380,109) (374,074)
Inventory.............................................. (750,648) (106,515)
Prepaid expenses and other ............................ 305,608 (87,265)
Increase (decrease) in:
Accounts payable....................................... 1,356,691 (56,028)
Accrued expenses....................................... (86,970) 76,426
Customer Deposits...................................... - (41,750)
---------------------------------
Net cash provided by operating activities .................. 62,704 131,403
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture............................. (177,334) (62,193)
Payments on capital lease obligation 11,435) (7,863)
Reduction of certificate of deposit - 100,000
---------------------------------
Net cash provided by (used in) investing activities.......... (188,769) 29,944
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Notes Payable....................................... (6,249) (8,190)
Purchase of Simtek Common Stock................................. (12,504) -
Cash to QDA..................................................... (16,065) (57,191)
Cash to Q-DOT Group - (272)
Payments of line of credit...................................... (84,050) (222,769)
Capital Contribution - 20,170
Exercise of stock options....................................... 6,790 201,994
--------------------------------
Net cash used in financing activities ...................... (112,078) (66,258)
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ (238,143) 95,089
--------------------------------
CASH AND CASH EQUIVALENTS, beginning of period....................... 2,853,769 2,243,925
---------------------------------
CASH AND CASH EQUIVALENTS, end of period............................. $2,615,626 $ 2,339,014
=================================
SUPPLEMENTAL NON-CASH INFORMATION:
Conversion of debenture into shares of common stock, net of deferred
financing costs related to the debenture....................... $ - $ 1,441,249
F-26
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 on page F-3 To F-23.
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.
Recently Issued Accounting Pronouncements - On June 30, 2001, the
FASB approved the issuance of 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. Therefore
amortization of goodwill acquired prior to July 1, 2001 will cease when the
company elects to adopt SFAS No. 142.
2. Line of Credit:
In April 2001, Simtek Corporation ("Simtek" or the "Company") renewed
its revolving line of credit for another year in the amount of $250,000.
3. Geographic Concentration:
Sales by location for the three months ended March 31, 2001 and 2000
were as follows (as a percentage of sales):
2001 2000
---- ----
United States 44% 56%
Europe 18% 12%
Far East 37% 24%
All Others 1% 8%
--- ---
100% 100%
-----------------------
4. Pooling of Interest:
On March 13, 2001, Simtek acquired 100% of the common stock of Q-DOT
Group ("Q-DOT'). Q-DOT specializes in advanced technology, research, and
development for data acquisition, signal processing, imaging and data
communications. Shareholders of Q-DOT exchanged their shares in Q-DOT for shares
in Simtek in a business combination that has been accounted for as a pooling of
interests. The consolidated financial statements and the accompanying notes
reflect Simtek's financial position and the results of operations as if Q-DOT
was a wholly-owned subsidiary of Simtek since inception.
For the three months ended March 31, 2001 and 2000 Q-DOT had revenue of
$356,617 and $923,632, respectively and net loss of $193,765 and a net income of
$136,931, respectively. The acquisition did not have an impact on earnings
(loss) per share for either of the interim periods.
5. Accounting for Q-DOT Acquisition:
Prior to March 13, 2001, Q-DOT Group had effective control over QDA
due to an operating agreement and Q-DOT funded QDA. On March 13, 2001, the
Company acquired Q-DOT, and ceased funding QDA since their was no further
obligation to do so. The Company does not intend to fund QDA in the future and
as such the investment in QDA will be accounted for under the cost
method of accounting.
F-27
SIMTEK CORPORATION
F-28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not otherwise defined in Part II are used as defined
in the prospectus contained in this registration statement.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee are estimated:
Securities and Exchange Commission registration fee...... $ 268
Legal fees and expenses .............................. 25,000
Accounting fees.......................................... 20,000
Miscellaneous............................................ 2,500
---------------
Total.................................................... $ 47,768
===============
The above expenses will be borne by us.
Item 26. Recent Sales of Unregistered Securities
On June 12, 1998, we sold $1.5 million of convertible debentures each
with a 7-year term and accruing interest at 9% per annum. The debentures were
convertible at the option of the holder into shares of our common stock. On
February 22, 2000, each of Rennaissance Capital Growth & Income Fund III, Inc.
("Fund III")and Rennaissance US Growth & Income Trust Plc ("Growth & Income
Trust") converted $195,000 of a $750,000 convertible debenture into 1,000,000
shares of our common stock. On March 2 and 6, 2000, each of Fund III, Inc. and
Growth & Income Trust converted $195,000 of a $750,000 convertible debenture
into 1,000,000 shares of our common stock. On March 6, 2000, Fund III and Growth
and Income Trust converted the balance of the debentures into a total of
3,692,308 shares of our common stock. These holders were financially
sophisticated and had access to the same type of information about us as a
registration statement would disclose. No general solicitation occurred for
either the original issuance of the convertible debentures and the issuance of
common stock upon their conversion.
During April 2000, Zentrum Mikroelektronik Dresden converted a $130,153
liability into 551,964 shares of our common stock. The conversion price was at
$0.2358 per share. The price was based upon the Cooperation Agreement entered
into with Zentrum Mikroelektronik Dresden in September 1995. Zentrum
Mikroelektronik Dresden was financially sophisticated and had access to the same
type of information about us as a registration statement would disclose. No
general solicitation occurred.
In May 2000, we issued 3,000,000 shares of our common stock to Hugh
Norman Chapman as consideration for our acquisition of 100% of the issued and
outstanding stock of Integrated Logic Systems, one of the companies that house
our semiconductor logic business. No advertising or general solicitation
occurred. We only offered to issue, and did issue, stock to one person--Mr.
Chapman. Mr. Chapman had substantial business dealings with us prior to this
transaction. Mr. Chapman received or had access to the same type of information
about us as a registration statement would disclose. We reasonably believed that
Mr. Chapman was financially sophisticated.
In June 2000, we issued 1,250,000 shares of our common stock to
WebGear, as consideration for our acquisition of 1,875,000 shares of WebGear
common stock. In September, we issued 2,900,000 shares of our common stock to
WebGear as consideration, together with 1,250,000 shares of WebGear common
stock, for our acquisition of intellectual property assets of WebGear. These
assets primarily relate to the wireless data
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communications industry. No advertising or general solicitation occurred with
respect to these transactions involving WebGear. WebGear received or had access
to the same type of information about us as a registration statement would
disclose. WebGear was financially sophisticated and an "accredited investor."
In July 2000, we issued 625,000 shares of our common stock to each of
Jaskarn Johal and Kashmira S. Johal as consideration for our acquisition of 100%
of the stock of Macrotech Semiconductor, one of the companies that house our
semiconductor logic business. No advertising or general solicitation occurred
with respect to the Macrotech Semiconductor transaction. We only offered to
issue, and did issue, stock to Messrs. J. Johal and K. Johal. Messrs. J. Johal
and K. Johal had substantial business dealings with us prior to this
transaction. Messrs. J. Johal and K. Johal received or had access to the same
type of information about us as a registration statement would disclose. We
reasonably believed that Messrs. J. Johal and K. Johal were financially
sophisticated.
In September 2000, we issued 500,000 shares of our common stock each to
both E.B.M. Associates and World Trade Partners in consideration for their
agreement to provide financial advisory services. No advertising or general
solicitation occurred with respect to our issuance of stock to E.B.M. Associates
or World Trade Partners. We only offered to issue, and did issue, stock to
E.B.M. Associates and World Trade Partners. E.B.M. Associates and World Trade
Partners received or had access to the same type of information about us as a
registration statement would disclose. We reasonably believed that E.B.M.
Associates and World Trade Partners were financially sophisticated.
On March 14, 2001, we completed the merger of Q-DOT Group, Inc. with
and into us in exchange for approximately 5,171,731 shares of our common stock,
valued at $4,000,000. Although duly notified of their appraisal rights, no Q-DOT
Group stockholder exercised appraisal rights. Q-DOT Group's 30 stockholders
received, on a pro rata basis, a total of approximately 5,171,731 shares of our
common stock. The transaction was a private placement exempt from registration
pursuant to Rule 506 of Regulation D promulgated by the SEC. There were fewer
than 35 purchasers of our securities accredited investors. We provided each
purchaser with the information required under Regulation D. We reasonably
believed that each purchaser who was not an accredited investor, either alone or
with such person's purchaser representative, was capable of evaluating the risks
and merits of investing in our stock. No general solicitation or advertising
occurred. Following the merger, we filed a Form D with the SEC as required by
Regulation D.
With respect to our acquisition of Q-DOT Group, we issued stock in
reliance upon Rule 506 of Regulation D. The other issuances described above were
deemed to be exempt from registration under the Act, in reliance on Section 4(2)
of the Act as transactions by an issuer not involving a public offering.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-2
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
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Exhibits
3.1 Amended and Restated Articles of Incorporation.(2)
3.2 Amended and Restated Articles of Incorporation November
1997.(7)
3.3 Bylaws.(2)
4.1 1987-I Employee Restricted Stock Plan.(1)
4.2 Form of Restricted Stock Agreement between the Company and
Participating Employees.(1)
4.3 Form of Common Stock Certificate.(3)
4.4 Simtek Corporation 1991 Stock Option Plan.(4)
4.5 Form of Incentive Stock Option Agreement between the Company
and Eligible Employees.(4)
4.6 1994 Non-Qualified Stock Option Plan.(5 )
4.7 Amendment to the 1994 Non-Qualified Stock Option Plan.(6)
5.1 Opinion of Holme, Roberts & Owen, LLP
10.1 Form of Non-Competition and Non-Solicitation Agreement between
the Company and certain of
its employees.(1)
10.2 Form of Employee Invention and Patent Agreement between the
Company and certain of its employees.(1)
10.3 Product License Development and Support Agreement between
Simtek Corporation and Zentrum Mikroelektronik Dresden dated
June 1, 1994(5)
10.4 Cooperation Agreement between Simtek Corporation and Zentrum
Mikroelektronik Dresden dated September 14, 1995(6)
10.5 Manufacturing Agreement between Chartered Semiconductor
Manufacturing and Simtek Corporation dated September 16,
1992(6)
10.6 Employment agreement between the Simtek Corporation and
Douglas M. Mitchell(8)
10.7 Share Exchange Agreement dated May 9, 2000 between Simtek
Corporation and Hugh N. Chapman (9)
10.8 Share Exchange Agreement dated June 16, 2000 between Simtek
Corporation and WebGear (9)
10.9 Share Exchange Agreement dated July 31, 2000 between Simtek
Corporation and Jaskarn Johal and Kashmira S. Johal (10)
10.10 Asset Purchase Agreement between Simtek Corporation and
WebGear (11)
10.11 Amendment to Asset Purchase Agreement between Simtek
Corporation and WebGear (12)
10.12 Agreement and Plan of Merger among Simtek Corporation, Q-DOT
Group, Inc. and Q-DOT, Inc. (13)
23.1 Consent of Hein + Associates, LLP
23.2 The consent of Holme Roberts & Owen LLP is included in
Exhibit 5.1
(1) Incorporated by reference to the Company's Form S-1
Registration Statement (Reg. No. 33-37874) filed with the
Commission on November 19, 1990.
(2) Incorporated by reference to the Company's Amendment No.1 to
Form S-1 Registration Statement (Reg. No. 33-37874) filed with
the Commission on February 4, 1991.
(3) Incorporated by reference to the Company's Amendment No.2 to
Form S-1 Registration Statement (Reg. No. 33-37874) filed with
the Commission on March 4, 1991.
(4) Incorporated by reference to the Company's Form S-1
Registration Statement (Reg. No. 33- 46225) filed with the
Commission on March 6, 1992.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K filed with the Commission on March 25, 1995
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K filed with the Commission on March 27, 1996
(7) Incorporated by reference to the Company's Annual Report on
Form 10-K filed with the Commission on March 24, 1998
(8) Incorporated by reference to the Company's Annual Report on
Form 10-KSB filed with the Commission on March 12, 1999
(9) Incorporated by reference to the Form SB-2 Registration
Statement (Reg. No. 333-40988( filed with the Commission on
July 7, 2000
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(10) Incorporated by reference to the Form 8-K filed with the
Commission on August 14, 2000
(11) Incorporated by reference to the Form 8-K filed with the
Commission on October 13, 2000
(12) Incorporated by reference to the Company's Amendment No. 2 to
From SB-2 Registration Statement (Reg. No. 333-40988)
(13) Incorporated by reference to the Company's Form 8-K filed with
the March 23, 2001
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Colorado Springs, State of Colorado on August 3,
2001.
Simtek Corporation,
a Colorado corporation
By:
------------------------------------------
Douglas M. Mitchell
Chief Executive Officer and
President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE
------------------------------------------------
Douglas M. Mitchell
Director, Chief Executive Officer, President and
Chief Financial Officer (acting)
August 3, 2001
------------------------------------------------
Robert H. Keeley
Director
August 3, 2001
------------------------------------------------
John Heightley
Director
August 3, 2001
------------------------------------------------
Klaus Wiemer
Director
August 3, 2001
------------------------------------------------
Kimberley Carothers
Controller (Principal Accounting Officer)
August 3, 2001