UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
__________________________________
(Mark One)
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x
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Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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For the Quarterly Period Ended
March 31, 2008
or
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o
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
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For the Transition Period from
to
Commission file number 0-19027
SIMTEK CORPORATION
(Exact name of registrant as specified in its charter)
_________________________________________________
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Delaware
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84-1057605
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(State or other jurisdiction of
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(I.R.S. Employer Identification
No.)
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incorporation or organization)
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4250 Buckingham Drive, Suite 100
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Colorado Springs, Colorado 80907
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(Address of principal executive
offices) (Zip Code)
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(719)
531-9444
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
X
No ____
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated
filer
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Accelerated filer
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Non-accelerated filer
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(Do not check
if smaller reporting company)
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Smaller reporting
company
x
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Indicated by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes ____
No
X
The total number of shares of Common Stock issued and
outstanding as of May 14, 2008, was 16,550,277.
______________________________________________________________________________________
SIMTEK CORPORATION
INDEX
PART I.
FINANCIAL INFORMATION
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Page
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ITEM 1
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Condensed
Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December
31, 2007
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3
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Condensed
Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 2008 and 2007
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4
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Condensed
Consolidated Statements of Cash Flows for the three months ended March 31,
2008 and 2007
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5
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Notes to
Condensed Consolidated Financial Statements
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6-15
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ITEM 2
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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ITEM 3
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Quantitative
and Qualitative Disclosures about Market Risk
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22
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ITEM 4
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Controls and
Procedures
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22
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ITEM 4T
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Controls and
Procedures
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22
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PART II.
OTHER INFORMATION
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ITEM 1
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Legal
Proceedings
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23
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ITEM 1A
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Risk
Factors
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23
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ITEM 2
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Unregistered
Sales of Equity Securities and Use of Proceeds
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23
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ITEM 3
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Defaults Upon
Senior Securities
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23
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ITEM 4
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Submission of
Matters to a Vote of Security Holders
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23
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ITEM 5
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Other
Information
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23
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ITEM 6
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Exhibits
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23
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SIGNATURES
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24
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2
_________________________________________________________________________________________________
SIMTEK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value and share amounts)
ASSETS
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March 31,
2008
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December 31, 2007
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CURRENT
ASSETS:
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(Unaudited)
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Cash
and cash equivalents
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$
3,737
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$ 4,387
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Restricted
investments
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938
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991
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Accounts
receivable - trade, net
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4,289
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5,222
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Inventory,
net
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5,542
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5,698
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Prepaid
expenses and other current assets
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905
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910
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Total
current assets
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15,411
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17,208
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EQUIPMENT
AND FURNITURE
, net
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2,266
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1,987
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DEFERRED
FINANCING COSTS AND DEBT
ISSUANCE COSTS
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7
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15
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GOODWILL
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992
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992
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NON-COMPETITION
AGREEMENT,
net
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4,899
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5,344
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OTHER
ASSETS
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202
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240
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TOTAL
ASSETS
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$
23,777
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$
25,786
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT
LIABILITIES:
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Accounts
payable
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$
2,514
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$
2,827
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Accrued
expenses
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1,315
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943
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Accrued
vacation payable
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392
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357
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Accrued
wages
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101
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179
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Line
of credit
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413
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543
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Obligation
under capital leases
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12
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21
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Debentures,
current
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480
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480
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Total
current liabilities
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5,227
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5,350
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DEBENTURES,
NET OF CURRENT
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1,620
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1,620
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Total
liabilities
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6,847
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6,970
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COMMITMENTS
AND CONTINGENCIES
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SHAREHOLDERS'
EQUITY
:
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Preferred
stock, $0.0001 par value; 200,000 shares
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authorized,
none issued
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-
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-
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Common
stock, $.0001 par value; 30,000,000 shares
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authorized,
16,533,719 and 16,532,719 shares
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issued
and outstanding at March 31, 2008 and
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16,516,419
and 16,515,419 shares issued
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and
outstanding at December 31, 2007
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2
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2
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Additional
paid-in capital
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69,880
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69,453
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Treasury
stock, at cost; 1,000 shares
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(1)
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(1)
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Accumulated
deficit
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(53,421)
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(50,966)
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Accumulated
other comprehensive income:
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Cumulative
translation adjustment
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470
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328
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Total
shareholders' equity
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16,930
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18,816
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TOTAL
LIABILITIES AND SHAREHOLDERS
'
EQUITY
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$
23,777
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$ 25,786
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See
accompanying notes to these consolidated financial statements.
3
_________________________________________________________________________________________________
SIMTEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts
in thousands, except share and per share amounts)
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For
the three months
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ended
March
31,
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2008
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2007
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REVENUE
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Product
sales, net
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$
7,315
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$
7,867
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Total
Revenue
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7,315
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7,867
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Cost
of sales
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4,165
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4,435
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GROSS
PROFIT
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3,150
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3,432
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OPERATING
EXPENSES:
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Research
and development costs
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2,649
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1,613
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Sales
and marketing
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1,531
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1,152
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General
and administrative
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1,375
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1,109
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Total
operating expenses
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5,555
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3,874
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LOSS FROM
OPERATIONS
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(2,405)
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(442)
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OTHER INCOME
(EXPENSE):
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Interest
income
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24
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49
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Interest
expense
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(91)
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(98)
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Exchange
rate variance
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(54)
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12
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Other
expense
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89
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-
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Total
other expense
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(32)
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(37)
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LOSS BEFORE
PROVISION FOR INCOME TAXES
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(2,437)
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(479)
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Provision
for income taxes
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(18)
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(11)
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NET
LOSS
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$
(2,455)
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$
(490)
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NET LOSS PER
COMMON SHARE:
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Basic
and diluted
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$
(.15)
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$
(.03)
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WEIGHTED
AVERAGE COMMON SHARES
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OUTSTANDING:
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Basic
and diluted
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16,533,529
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16,211,671
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See
accompanying notes to these consolidated financial statements.
4
_________________________________________________________________________________________________
SIMTEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Amounts
in thousands)
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Three Months Ended March 31,
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2008
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2007
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CASH FLOWS
FROM OPERATING ACTIVITIES:
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Net
loss
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$
(2,455)
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$
(490)
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Adjustments
to reconcile net loss to net cash
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used
in operating activities
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Depreciation
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200
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159
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Amortization
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16
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17
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Loss
on disposal of assets
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3
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-
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Stock
based compensation expense
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392
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279
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Amortization
of non-competition agreement
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445
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446
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Net
allowance accounts
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(446)
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392
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Changes
in assets and liabilities:
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(Increase)
decrease in:
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Accounts
receivable
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1,054
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322
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Inventory
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568
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(1,635)
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Prepaid
expenses and other
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56
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(155)
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Increase
(decrease) in:
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Accounts
payable
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(317)
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170
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Accrued
expenses
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163
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(1,079)
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Net
cash used in operating activities
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(321)
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(1,574)
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CASH FLOWS
FROM INVESTING ACTIVITIES:
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Purchase
of equipment and furniture, net
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(449)
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(311)
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Patents
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(6)
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(14)
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Transfers
from restricted cash
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54
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-
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Net
cash used in investing activities
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(401)
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(325)
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CASH FLOWS
FROM FINANCING ACTIVITIES:
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Payments
on capital lease obligation
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(9)
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-
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Proceeds
from employee stock purchase plan
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35
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-
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Proceeds
from warrant exercises
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-
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222
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Exercise
of stock options
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-
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3
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Net
cash provided by financing activities
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26
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225
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Effect of
exchange rate changes on cash
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46
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28
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NET CHANGE
IN CASH AND CASH EQUIVALENTS
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(650)
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(1,646)
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CASH AND
CASH EQUIVALENTS,
beginning of
period
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4,387
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4,522
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CASH AND
CASH EQUIVALENTS,
end of
period
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$
3,737
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$
2,876
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Cash paid for
interest
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$
82
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$
86
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See
accompanying notes to these consolidated financial statements.
5
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis
of Presentation
The
consolidated financial statements include the accounts of Simtek Corporation
(Simtek or the Company) and its wholly-owned and majority-owned
subsidiaries. Intercompany accounts and transactions have been eliminated.
The financial statements included herein are presented in accordance with
the requirements of Form 10-Q and consequently do not include all of the
disclosures normally made in the registrant's annual Form 10-K filing. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report and Form
10-K for Simtek filed on March 26, 2008 for fiscal year 2007.
On
February 19, 2008, the Company announced the formation of its majority owned
subsidiary, AgigA Tech, Inc., a Delaware corporation (AgigA). AgigA
plans to focus on the development and commercialization of low-cost, ultra-high
density, nonvolatile random access memory (NVRAM) solutions.
Simtek
owns all of the convertible preferred stock of AgigA, which gives it voting
control of AgigA and substantially all of the economic interests in AgigA until
the occurrence of certain liquidity events. The minority stockholders are
certain employees of AgigA. In addition, as is customary for emerging
growth companies, a total of 25% of the equity has been set aside for issuance
to employees and others in connection with services to be rendered.
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 accounting principles generally accepted in
the United States of America. Results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
fiscal year.
Stock-Based
Compensation
Equity
Incentive Plan.
At
the annual meeting on June 14, 2007, the Companys shareholders approved a new
Equity Incentive Plan (the 2007 EIP) that authorizes 2,800,000 shares that may
be granted under either incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986 (the Code), nonqualified stock
options, restricted stock awards or other stock grants. The 2007 EIP
became effective on June 15, 2007. With the approval of the 2007 EIP, the
Company does not intend to grant further options under the Non-Qualified Stock
Option Plan described below; however, options outstanding under that plan remain
outstanding until they are exercised or expire by their terms. The 2007
EIP provides that the maximum number of shares with respect to which an
individual can receive a grant of options in a calendar year is 500,000 shares.
Options may be granted to key employees, consultants, and non-employee
directors. The 2007 EIP provides that an individual can receive grants of
both incentive options and nonqualified options. However, only employees
may be granted incentive options. The minimum exercise price for options
is 100% of the fair market value of the Companys stock on the date of grant and
a maximum term of 10 years. Generally, upon termination of employment or
service, options expire three months after termination. Incentive options
granted to an employee who holds more than 10% of the Companys stock must have
an exercise price of at least 110% of the fair market value of the Companys
stock on the date of grant and a maximum term of no more than 5 years.
6
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SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Compensation Committee (the Committee) of the Board of Directors administers
the 2007 EIP with respect to grants to employees, consultants and non-employee
directors. With respect to grants to officers and directors, the Committee
is constituted in a manner that satisfies applicable laws and regulations,
including Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended, and Code section 162(m). The 2007 EIP also provides that the full
board of directors can perform any function of the Committee, subject to the
requirements of the NASDAQ rules and Code section 162(m). The Committee
has the authority to delegate to specified officers of the Company the grants of
stock options and other awards to specified employees of the Company, and the
Committee has delegated such grant-making authority.
Each
option granted under the 2007 EIP is evidenced by a written stock option
agreement. Each option holder shall become vested in the shares underlying
the option in such installments and over such period or periods of time, if any,
or upon such events, as are determined by the Committee in its discretion and
set forth in the option agreement.
As of March 31, 2008, 1,149,825 non-qualified stock options
had been granted under the 2007 EIP. All options granted under the 2007
EIP during the first quarter of 2008 will expire seven years from the grant
date. Vesting of the options is as follows:
·
If
an officer or employee has been employed for 12 months or more, stock options
will vest over 48 months at 1/48th per month, and vesting will begin immediately
at 1/48th per month for the four year period.
·
If
an officer or employee has been employed for less than 12 months, no vesting
will occur until the officer or employee has been employed for 12 months at
which time the officer or employee will be caught up at 1/48th per month for
each month since the option grant and then the options will continue to vest at
1/48th per month for the remaining portion of the four year period.
·
If
an officer or employee is a new hire, no vesting will occur until the officer or
employee has been employed for 12 months at which time the officer or employee
will receive 12/48th of the vesting and then the options will continue to vest
at 1/48th per month for the remaining portion of the four year period.
·
All
options granted to outside directors of the Company will be 100% vested after
six months from the grant date.
The
Committee may grant a participant a number of shares of restricted stock as
determined by the Committee in its sole discretion. Grants of restricted
stock may be subject to such restrictions, including for example, continuous
employment with the Company for a stated period of time or the attainment of
performance goals and objectives, as determined by the Committee in its sole
discretion. The restrictions may vary among awards and participants.
As of March 31, 2008, no grants of restricted stock awards had occurred
under the 2007 EIP.
From
time to time, in its sole discretion, the Committee may grant awards under the
2007 EIP in connection with one or more incentive compensation arrangements
under which participants may acquire shares of common stock by purchase, grant,
or otherwise. All such awards are subject to the terms of the
2007 EIP. As of March 31, 2008, no such stock awards had occurred
under the 2007 EIP.
7
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Employee
Stock Purchase Plan.
On
July 1, 2007, the Simtek Corporation Employee Stock Purchase Plan (ESPP),
which was approved by the shareholders at the annual meeting on June 14, 2007,
became effective. Under the ESPP, a broad-based group of employees can
have payroll deductions of up to 10% of their pay used to purchase shares of the
Companys stock on a quarterly basis. However, employees whose customary
employment is for less than 20 hours per week or for less than 5 months per
calendar year and employees who own more than 5% of the Companys stock are not
eligible to participate. There are 500,000 shares authorized for issuance
under the ESPP. The purchase price for the stock is the lesser of (1) 85%
of the fair market value of the Companys stock on the first day of the calendar
quarter or (2) 85% of the fair market value of the Companys stock on the last
day of the calendar quarter. Employees can enroll in the ESPP as of the
first day of a calendar quarter. On the first trading day after the end of
the calendar quarter, shares are purchased with the payroll deductions
accumulated during the calendar quarter. Upon termination of employment,
the employees participation in the ESPP will cease and amounts accumulated
since the beginning of the calendar quarter and not used to purchase common
stock will be refunded to the employee without interest. As of January 1,
2008, 16 employees had enrolled in the ESPP. For the quarter ended March
31, 2008, 17,300 shares of common stock were issued pursuant to the ESPP.
Non-Qualified
Stock Option Plan.
Through
June 13, 2007, the Company granted options under the 1994 Non-Qualified Stock
Option Plan (the 1994 Plan). The 1994 Plan authorizes 2,060,000
non-qualified stock options that may be granted to directors, employees, and
consultants. The 1994 Plan permits the issuance of 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 1994 Plan is 10 years and options granted to employees
expire 90 days after the termination of employment. In 2004, the 1994 Plan
was extended for 10 more years. No further options have been granted under
the 1994 Plan since the 2007 EIP became effective, and the Company does not
intend to issue any more options under the 1994 Plan in the future. All
terms and conditions of the options granted under the 1994 Plan will remain the
same. All options granted prior to March 24, 2006, began vesting after six
months after the date of grant, and would become fully vested after three years
and expire seven years from date of grant. On March 24, 2006, the Board of
Directors changed the vesting schedule of stock options granted after March 24,
2006 to be as follows:
·
If
an officer or employee has been employed for 12 months or more, stock options
will vest over 48 months at 1/48th per month, and vesting will begin immediately
at 1/48th per month for the four year period.
·
If
an officer or employee has been employed for less than 12 months, no vesting
will occur until the officer or employee has been employed for 12 months at
which time the officer or employee will be caught up at 1/48th per month for
each month since the option grant and then the options will continue to vest at
1/48th per month for the remaining portion of the four year period.
·
If
an officer or employee is a new hire, no vesting will occur until the officer or
employee has been employed for 12 months at which time the officer or employee
will receive 12/48th of the vesting and then the options will continue to vest
at 1/48th per month for the remaining portion of the four year period.
·
All
options granted to outside directors of the Company will be 100% vested after
six months from the grant date.
·
All
options will expire seven years from date of grant.
8
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
table below reflects options granted and outstanding under the 1994 Plan and the
2007 EIP. Total share-based compensation recognized in the Companys
consolidated statements of operations for the three months ended March 31, 2008
and 2007 are as follows:
Income Statement
Classifications
|
|
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|
2008
|
2007
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|
(in
thousands)
|
|
|
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|
Research and
development
|
$
134
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$
66
|
Sales and
marketing
|
50
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26
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General and
administrative
|
208
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|
187
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|
|
|
|
Total
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$
392
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|
$
279
|
As
of March 31, 2008, there was approximately $3.3 million of unrecognized
compensation costs, adjusted for estimated forfeitures, related to non-vested
options granted to the Companys employees and directors, which will be
recognized through March 31, 2012. Total unrecognized compensation will be
adjusted for future changes in estimated forfeitures.
The
fair value for stock options was estimated at the date of grant using the
Black-Scholes option pricing model, which requires management to make certain
assumptions. Expected volatility was based on the historical volatility of
the Companys stock over the past 5 years. The Company based the risk-free
interest rate that was used in the option valuation mode on U.S. Treasury notes.
The Company does not anticipate paying cash dividends in the foreseeable
future and therefore uses an expected dividend yield of 0%.
The
fair value of each option granted in quarterly periods ending March 31, 2008 and
2007 was estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
|
|
|
|
2008
|
2007
|
|
|
|
Expected
volatility
|
81.37%
|
79.15%
|
Risk-free
interest rate
|
2.72%
|
4.79%
|
Expected
dividends
|
-
|
-
|
Expected terms
(in years)
|
5.0
|
5.0
|
The weighted average fair value per share of options granted
during the three months ended March 31, 2008 and 2007 was $1.71 and $3.90,
respectively.
9
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes stock options outstanding and changes during the
quarterly period ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
Number of
|
|
Exercise
|
|
Term
|
|
Intrinsic
|
|
Shares
|
|
Price
|
|
(in years)
|
|
Value
|
Options
outstanding at January 1, 2008
|
1,908,233
|
|
$4.90
|
|
|
|
|
Granted
|
532,775
|
|
2.60
|
|
|
|
$ -
|
Exercised
|
-
|
|
-
|
|
|
|
|
Cancelled
or forfeited
|
(50,169)
|
|
(5.07)
|
|
|
|
|
Options
outstanding at March 31, 2008
|
2,390,839
|
|
$4.39
|
|
4.10
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at March 31, 2008
|
996,683
|
|
$5.31
|
|
4.10
|
|
$ 37,000
(1)
|
|
|
|
|
|
|
|
|
1)
|
Represents the
difference between the market value as of March 31, 2008 and the exercise
price of the shares. The market value as of March 31, 2008 was $2.70
as reported by The NASDAQ Capital Market.
|
Stock options
outstanding and currently exercisable at March 31, 2008 are as follows:
|
|
|
|
Outstanding
|
|
Exercisable
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
Number
Outstanding
|
|
Remaining
Contractual
Life in
Months
|
Weighted
Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
$1.60-$2.75
|
|
640,119
|
|
57
|
$
2.55
|
|
87,275
|
|
$
2.27
|
|
|
|
|
|
|
|
|
|
|
$3.00-$3.70
|
|
455,985
|
|
57
|
$
3.44
|
|
203,647
|
|
$
3.40
|
|
|
|
|
|
|
|
|
|
|
$4.10-$4.85
|
|
674,819
|
|
69
|
$
4.63
|
|
194,012
|
|
$
4.57
|
|
|
|
|
|
|
|
|
|
|
$5.00-$8.30
|
|
543,307
|
|
54
|
$
5.93
|
|
435,140
|
|
$
5.93
|
|
|
|
|
|
|
|
|
|
|
$9.00-$15.30
|
|
76,609
|
|
36
|
$
12.20
|
|
76,609
|
|
$
12.20
|
|
|
|
|
|
|
|
|
|
|
|
|
2,390,839
|
|
|
|
|
996,683
|
|
|
10
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Non-competition
Agreement
In
December 2005, the Company entered into a non-competition agreement with Zentrum
Mikroelektronik Dresden AG (ZMD) as part of the acquisition of ZMDs nvSRAM
product line. The Company assigned a value of $8,910,000 to the
non-competition agreement in December 2005. The value assigned to the
non-competition agreement is being amortized on a straight-line basis over its
five-year life. The Company recorded an expense, for the amortization, of
approximately $445,000 to sales and marketing for the three months ended March
31, 2008.
Goodwill
Goodwill
represents the excess of the total amount paid to ZMD for the nvSRAM assets
acquired on December 30, 2005 and the fair value assigned to specific assets.
This amount will not be amortized, but will be reviewed for impairment on
a periodic basis. As of March 31, 2008 no impairment of value has been
recorded.
Accumulated
other comprehensive income (loss)
The
functional currency for Simtek GmbH is the local currency, the Euro.
Assets and liabilities for this foreign operation are translated at the
exchange rate in effect at the balance sheet date, and income and expenses are
translated at average exchange rates prevailing during the period.
Translation gains or losses are included within shareholders equity as
part of accumulated other comprehensive income (loss). As of March 31,
2008, the Company recorded approximately $470,000 in comprehensive income.
Income
Taxes
The
Financial Accounting Standards Board issued Interpretation No. 48 Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 ("FIN
48") which requires reporting of taxes based on tax positions which meet a more
likely than not standard and which are measured at the amount that is more
likely than not to be realized. Differences between financial and tax reporting
which do not meet this threshold are required to be recorded as unrecognized tax
benefits. FIN 48 also provides guidance on the presentation of tax matters and
the recognition of potential IRS interest and penalties. The provisions of FIN
48 were adopted by the Company on January 1, 2007, and had no effect on the
Company's financial position, cash flows or results of operations upon adoption
as the Company does not have any unrecognized tax benefits. The Company also
evaluated its tax positions as of March 31, 2008 and reached the same
conclusion.
The
Company classifies penalty and interest expense related to income tax
liabilities as an income tax expense. There are no interest and penalties
recognized in the statement of operations or accrued on the balance sheet.
The
Company files tax returns in the US, in the states of California, Colorado,
Georgia and Maine and Germany. The tax years 2004 through 2007 remain open
to examination by the major taxing jurisdictions to which the Company is
subject.
Recently
Issued Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141 (Revised 2007), "Business Combinations" ("SFAS No. 141(R)").
SFAS No. 141(R) significantly changes the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, acquired contingencies, transaction costs, in-process research
and development and restructuring costs. In addition, under SFAS
No. 141(R), changes in an acquired entity's deferred tax assets and
uncertain tax positions after the measurement period will impact income tax
expense. SFAS No. 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning after December 15, 2008. Earlier adoption is
prohibited. The Company will adopt this pronouncement in the first quarter of
fiscal 2009 and is currently evaluating the potential impact of this
pronouncement on its consolidated financial statements.
11
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial StatementsAn Amendment of ARB No. 51" ("SFAS
No. 160"), which establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary, changes in a parent's ownership
interest in a subsidiary and the deconsolidation of a subsidiary. SFAS
No. 160 is effective for fiscal years beginning after December 15,
2008. Earlier adoption is prohibited. The Company will adopt this pronouncement
in the first quarter of fiscal 2009 and is currently evaluating the potential
impact of this pronouncement on its consolidated results of operations and
financial condition.
On
March 19, 2008, The Financial Accounting Standards Board issued FASB
Statement No. 161,
Disclosures about Derivative Instruments and Hedging
Activities.
The new standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entitys financial position, financial performance, and cash flows. It
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
We are reviewing the applicability of this Statement and will adopt this
pronouncement in the first quarter of fiscal 2009 if it is applicable.
In
November 2007, the EITF issued Issue No. 07-1 Accounting for Collaboration
Arrangements Related to the Development and Commercialization of Intellectual
Property (EITF 07-1). EITF 07-1 is focused on how the parties to a
collaborative agreement should account for costs incurred and revenue generated
on sales to third parties, how sharing payments pursuant to a collaboration
agreement should be presented in the income statement and certain related
disclosure questions. EITF 07-1 is effective for fiscal years beginning
after December 15, 2008. The Company will adopt this pronouncement in the
first quarter of fiscal 2009 and is currently evaluating the potential impact of
this Issue on its consolidated results of operations and financial
condition.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB
Statement No. 115 (
SFAS
159). SFAS 159 expands the use of fair value accounting but
does not affect existing standards, which require assets or liabilities to be
carried at fair value. Under
SFAS
159, a company may elect to use a fair value to measure
accounts and loans receivable, available-for-sale and held-to-maturity
securities, equity method investments, accounts payable, guarantees and issued
debt. We adopted
SFAS
159
effective January 1, 2008, and elected not to measure any of its currently
eligible financial assets and liabilities at fair value.
Effective
January 1, 2008, the beginning of the Company's 2008 fiscal year, we adopted
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS No. 157"), which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosure about fair value measurements. SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority ("Level 1")
to unadjusted quoted prices in active markets for identical assets and
liabilities, and gives the lowest priority ("Level 3") to unobservable inputs.
The adoption of SFAS No. 157 did not have a significant effect on the
Company's consolidated financial statements.
2.
Liquidity
During
the three months ended March 31, 2008 and the twelve months ended December 31,
2007, the Company incurred a net loss of approximately $2,455,000 and
$2,768,000, respectively and has an accumulated deficit of $53,421,000 as of
March 31, 2008.
12
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company operates in a volatile industry, whereby its average selling prices and
product costs are influenced by competitive factors. Furthermore, the
Company continues to incur significant research and development costs for
product development. These factors create pressures on sales, costs,
earnings and cash flows, which will impact liquidity.
If
the Company is unable to achieve sufficient cash flow in 2008 it may result in
increased liquidity pressure on the Company, whereby it might be required to
enter into debt or equity arrangements that may not be as otherwise favorable to
the Company.
3.
Revenue
Recognition
Revenue
Recognition
- Product sales revenue is recognized when a valid purchase
order has been received with a fixed price and the products are shipped to
customers FOB origin (Colorado Springs, Colorado, Manilla, Philipines or
Dresden, Germany), including distributors. Based on historic business with
the majority of the Company's customers and, in the case of new customers, based
on credit checks, the Company is reasonably assured that collectability on our
shipments will occur. Customers receive a one-year product warranty and sales to
distributors are subject to a limited product exchange program and price
protection in the event of changes in the Company's product prices. The
Company provides a reserve for possible product returns, product price
protection and warranty costs at the time the sale is recognized. The
Company has a detailed procedure to ensure that its estimates for reserves are
reasonable and reliable. The reserve for product returns is based upon
historical credits issued for actual stock rotation returns from the Companys
distributors. The Company's distributors are permitted to rotate up to 5% of
their stock every six months with the stipulation that they must submit a
replacement order of equal dollar value to the stock that they are returning.
The reserve for price protection is used when the Company authorizes
special pricing to one of its distributors for a specific customer. To
date, the estimates have not been materially different from the credits the
Company has issued under these reserves.
4.
Inventories
The
Company records inventory using the lower of cost (first-in, first-out) or
market. Inventory at March 31, 2008 and December 31, 2007 included:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
2008
|
|
2007
|
(In
thousands)
|
|
|
|
|
Raw
Materials
|
|
$
16
|
|
$
39
|
Work in
progress
|
|
4,058
|
|
4,447
|
Finished
Goods
|
|
1,655
|
|
1,535
|
|
|
5,729
|
|
6,021
|
Less reserves
for excess inventory
|
|
(187)
|
|
(323)
|
|
|
$
5,542
|
|
$
5,698
|
5.
Line
of Credit
On
June 2, 2006, the Company secured a $3.6 million revolving line of credit by
entering into an Account Purchase Agreement (the Agreement) with Wells Fargo
Bank, National Association (Wells Fargo). Pursuant to the Agreement, the
Company may sell, subject to recourse in the event of nonpayment, up to $3.6
million of eligible accounts receivable to Wells Fargo. Advances of the
purchase price for the eligible receivables will be at an agreed upon discount
to the face value of the eligible receivable. The amount actually
collected on any receivable by Wells Fargo that is beyond the advance will be
forwarded to the Company, less certain discounts and fees retained by Wells
Fargo (including a minimum fee of $7,500 per month for the term of the
Agreement). To secure the Companys obligations under the Agreement, the
Company granted Wells Fargo a security interest in certain of the Companys
property. The Agreement has a term of two years, but may be terminated at
any time by the Company upon 60 days written notice. As of March 31,
2008, the Company had financed receivables with Wells Fargo for approximately
$413,000. The Company is in the process of renewing the credit line.
13
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6.
Convertible
Debentures
On
July 1, 2002, the Company received funding of $3,000,000 in a financing
transaction with Renaissance Capital Growth and Income Fund III, Inc.,
Renaissance US Growth Investment Trust PLC and US Special Opportunities Trust
PLC. RENN Capital Group, Inc. is the agent for the RENN investment funds.
One of the Companys directors holds the position of Senior Vice President of
RENN Capital Group. The $3,000,000 funding consists of convertible debentures
with a 7-year term at a 7.5% per annum interest rate. Each fund equally
invested $1,000,000. The holder of the debenture shall have the right, at
any time, to convert all, or in multiples of $100,000, any part of the Debenture
into fully paid and nonassessable shares of Simtek Corporation common stock.
The debentures were originally convertible into Simtek common stock at
$3.12 per share, which was in excess of the market price per share on July 1,
2002. At March 31, 2008, the Company was not in compliance with one of the
covenants set forth in the loan agreement. This covenant relates to the
interest coverage ratio. On April 16, 2008, the Company received a waiver
for the covenant through April 1, 2009. However, significant variances in
future actual operations from the Companys current estimates could result in
the reclassification of this note to current liabilities. The Convertible
Debentures allow for an adjustment in the conversion price, if the Company
issues Common Stock in connection with an equity financing, where the sale price
is less than the conversion price of $3.12. This occurred in December 2005
in connection with the common stock sale of $11,000,000 at a price of $1.60 per
share. Pursuant to the terms of the 2002 convertible debentures, the
Company agreed with the RENN Capital Group that the conversion price would be
reduced to $2.20 per share. At March 31, 2008, based on the
conversion rate of $2.20 per share, each RENN investment fund is entitled to
318,182 shares upon conversion (assuming conversion of $700,000).
On
June 28, 2005, the Company received a waiver from the debenture holders
extending until July 1, 2006 the commencement date for principal payments of the
$3 million aggregate principal amount. On May 9, 2007 and July 24,
2006, each of the debenture holders converted $200,000 and $100,000,
respectively, of the principal amount into 90,910 and 45,455, respectively,
shares of the Companys common stock in lieu of the Company making the principal
payments it was required to make commencing on July 1, 2006.
7.
Non-Refundable
Prepaid Royalties
On
March 24, 2006, the Company entered into a License and Development Agreement
with Cypress Semiconductor Corporation (Cypress) pursuant to which, among
other things, Cypress agreed to license certain intellectual property from the
Company to develop and manufacture standard, custom and embedded nvSRAM products
and Cypress agreed to pay to the Company $4,000,000 in non-refundable pre-paid
royalties of which $2 million was paid upon signing of the agreement, $1 million
was paid on June 30, 2006 and $1 million was paid on December 18, 2006. In
addition, the Company licensed rights to use certain intellectual property from
Cypress for use in its products. As part of the License and Development
Agreement, the Company agreed to issue Cypress warrants to purchase 2 million
shares of the Companys common stock for $7.50 per share. The warrants
have a ten year life. The warrants were issued upon receipt of each of the
prepaid royalty amounts. The value of the warrants issued of $1,930,000
was determined using the Black Scholes option-pricing model and has been
recorded as an increase in additional paid in capital. The net
balance of the non-refundable prepaid royalties of $2,070,000 were recognized as
revenue at the time the payments were received.
14
_________________________________________________________________________________________________
SIMTEK CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
Geographic Concentration
Sales
by geographic area, based on customer receiving locations
for the three months ended March 31, 2008 and 2007 were
as follows:
|
|
|
|
|
Three Months Ended
March 31,
|
|
2008
|
|
2007
|
|
|
|
|
United
States
|
5%
|
|
18%
|
Europe
|
13%
|
|
36%
|
Far East
|
64%
|
|
35%
|
All
Others
|
18%
|
|
11%
|
|
100%
|
|
100%
|
9.
Accumulated
Other Comprehensive Income (Loss)
Accumulated
other comprehensive income (loss) net of tax is as follows:
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
(In
thousands)
|
|
|
Balance at
January 1, 2008
|
$
328
|
|
Current period
change
|
142
|
|
Balance March
31, 2008
|
$
470
|
|
15
_________________________________________________________________________________________________
SIMTEK CORPORATION
|
|
ITEM
2
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion and analysis in this quarterly report on Form 10-Q is
intended to provide greater details of the results of operations and financial
condition of our Company. The following discussion should be read in
conjunction with our condensed consolidated financial statements and notes
thereto and other financial data included elsewhere herein. Certain
statements under this caption constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). The reader should not place undue reliance on these
forward looking statements for many reasons including those risks discussed in
this document. In addition, when used in this quarterly report, the words
believes, anticipates, expects, plans, intends and similar expressions
are intended to identify forward-looking statements. Forward-looking
statements and statements of expectations, plans and intent are subject to a
number of risks and uncertainties. Actual results in the future could
differ materially from those described in the forward-looking statements, as a
result, among other things, of changes in technology, customer requirements and
needs. We undertake no obligation to release publicly the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, which
require us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses and the related disclosures. Our
accounting policies are discussed in Note 1 of the Notes to Consolidated
Financial Statements included in our 2007 Form 10-K filed with the Securities
and Exchange Commission on March 26, 2008. The estimates used by us are
based upon our historical experiences combined with our understanding of current
facts and circumstances. Certain of our accounting polices are considered
critical as they are both important to the portrayal of our financial condition
and the results of our operations and require significant or complex judgments
on our part. We believe that the following represent the critical
accounting policies of Simtek as described in Financial Reporting Release No.
60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies,
which was issued by the Securities and Exchange Commission: inventories;
deferred income taxes; allowance for doubtful accounts; stock based
compensation; and allowance for sales returns.
The
valuation of inventories involves complex judgments on our part. Excess
finished goods inventories are a natural component of market demand for
semiconductor devices. We continually evaluate and balance the levels of
inventories based on sales projections, current orders scheduled for future
delivery and historical product demand. While certain finished goods items
will sell out, quantities of other finished goods items will remain. These
finished goods are reserved as excess inventory. We believe we have
adequate controls with respect to the amount of finished goods inventories that
are anticipated to become excess. While we believe this process produces a
fair valuation of inventories, changes in general economic conditions of the
semiconductor industry could materially affect valuation of our inventories.
The
allowance for doubtful accounts reflects a reserve that reduces customer
accounts receivable to the net amount estimated to be collectible.
Estimating the credit worthiness of customers and the recoverability of
customer accounts requires management to exercise considerable judgment.
In estimating uncollectible amounts, we consider factors such as industry
specific economic conditions, historical customer performance and anticipated
customer performance. While we believe our processes to be adequate to
effectively quantify our exposure to doubtful accounts, changes in industry or
specific customer conditions may require us to adjust our allowance for doubtful
accounts.
16
_________________________________________________________________________________________________
SIMTEK CORPORATION
We
record an allowance for sales returns as a net adjustment to revenue and
customer accounts receivable. The allowance for sales returns consists of
two separate segments, distributor stock rotation and distributor price
reductions. When we record the allowance, the net method reduces customer
accounts receivables and gross sales. Generally, we calculate the stock
rotation portion of the allowance based upon historical credits issued for
actual stock rotation returns from our distributors. The agreements we
have with certain of our distributors generally allow them to return to us up to
5% percent of their inventory every 6 months, in exchange for inventory that
better meets their demands. At times, with our approval, our distributors
reduce the selling price of a specific device in order to meet competition
related to a specific end customer program, which we support through a credit
back to the distributor for that specific program. The actual amount of
the credit issued is based on historical credits issued to distributors.
This allowance is based on approved pricing changes, inventory affected
and historical data. We believe that our processes are adequate to
reasonably predict and estimate the allowance for sales returns.
We
record an allowance that directly relates to the warranty of our products for
one year. The allowance for warranty return reduces our gross sales. This
allowance is calculated by looking at annual revenue and historical rates of our
products returned due to warranty issues. While we believe this process
adequately predicts our allowance for warranty returns, changes in the
manufacturing or design of our product could materially affect valuation of our
warranty reserve.
We
assess the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable. Factors that we consider in deciding when to perform an
impairment review include significant under-performance of the business in
relation to expectations, significant negative industry or economic trends, and
significant changes or planned changes in our use of the assets.
Recoverability of assets that will continue to be used in our operations
is measured by comparing the carrying amount of the assets to our estimate of
the related future net cash flows. If the assets carrying amount is not
recoverable through the related future cash flows, the asset is considered to be
impaired. The impairment is measured by the difference between the assets
carrying amount and its fair value, based on the best information available,
including market prices or discounted cash flows.
Goodwill
represents the excess of the purchase price over the fair value of identifiable
net tangible and intangible assets acquired in the acquisition of the nvSRAM
assets from ZMD. Goodwill is required to be tested for impairment annually. We
performed goodwill impairment testing as of December 31, 2007 and as of March
31, 2008 we determined that no impairment existed at that date. This assessment
requires estimates of future revenue, operating results and cash flows, as well
as estimates of critical valuation inputs such as discount rates, terminal
values and similar data. We will continue to perform annual impairment analyses
of goodwill. As a result of such impairment analyses, impairment charges may be
recorded and may have a material adverse impact on our financial position and
operating results. Additionally, we may make strategic business decisions in
future periods which impact the fair value of goodwill, which could result in
significant impairment charges. There can be no assurance that future goodwill
impairments will not occur.
Effective
January 2, 2006, we adopted the fair value recognition provisions of SFAS
No. 123(R), "Share-Based Payments." Under the fair value recognition
provisions of SFAS No. 123(R), we recognize stock-based compensation net of
an estimated forfeiture rate and only recognize compensation cost for those
shares expected to vest over the requisite service period of the awards.
Determining the appropriate fair value model and calculating the fair value of
share-based payment awards require the input of highly subjective assumptions,
including the expected life of the share-based payment awards and stock price
volatility. The assumptions used in calculating the fair value of share-based
payment awards represent management's best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a
result, if factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future. In addition,
we are required to estimate the expected forfeiture rate and only recognize
expense for those shares expected to vest. If our actual forfeiture rate is
materially different from our estimate, our future stock-based compensation
expense could be significantly different from what we have recorded.
17
_________________________________________________________________________________________________
SIMTEK CORPORATION
We
have recorded a valuation allowance for the full amount $9,227,000 for deferred
tax assets, which principally relate to future utilization of net operating
losses. Future operations may change our estimate in connection with
potential utilization of these assets.
Results of
Operations:
Revenues
Total
revenue for the three months ended March 31, 2008 was $7,315,000 compared to
$7,867,000 for the same period in 2007.
The
following table sets forth our net product revenues for semiconductor devices by
product markets for the three months ended March 31, 2008 and 2007 (in
thousands):
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2008
|
|
2007
|
|
Variance
|
|
|
|
|
|
|
Commercial
|
$
6,766
|
|
$
7,464
|
|
$
(698)
|
High-end
industrial and military
|
549
|
|
403
|
|
$
146
|
|
|
|
|
|
|
Total
Semiconductor Revenue
|
$
7,315
|
|
$
7,867
|
|
$
(552)
|
Commercial
revenues include revenue generated from our 0.8-micron products built from
silicon wafers received from Chartered Semiconductor or purchased as finished
units from ZMD, and from our 0.25-micron products built from silicon wafers
received from Dongbu HiTek (DBH). Commercial revenues decreased by
$698,000 for the three months ended March 31, 2008 as compared to the three
months ended March 31, 2007. The decrease in the 2008 period primarily
reflects the impact of final shipments in 2007 of parts formerly purchased from
ZMD that are no longer supported by Simtek. These parts were manufactured
to automotive industry certifications that Simtek does not have and therefore
Simtek could not service that customer demand. It is expected that revenue
comparisons for the quarter ending June 30, 2008 will be similarly affected.
High-end
industrial and military product revenues accounted for an increase of $146,000
for the three months ended March 31, 2008 as compared to the same period in
2007. The increase reflects a larger demand for these products.
Customer demand for these devices is generally not predictable and tends
to be volatile from period to period.
Three
direct customers together accounted for approximately 47% of our revenue for the
year quarter March 31, 2008. Our customers often include Contract
Manufacturers (CMs), principally located in Asia, who contract with
Original Equipment Manufacturers (OEMs) to implement our products into systems
designed by the OEMs. In many cases, we negotiate prices directly with the
OEMs, but actually receive orders from, and ship parts to, the CMs.
Generally, the CMs contract with multiple OEMs. Thus, sales to any
one CM may represent eventual implementation of our products with multiple OEMs.
Products sold to distributors are sold without material recourse.
Distributors sell our products to various end customers. If our
leading distributor were to terminate its relationship with us, we believe that
there would not be a material impact on our product sales, as we believe that we
would be able to service the various end customers through other
distributors
18
_________________________________________________________________________________________________
SIMTEK CORPORATION
Cost of Sales and
Gross Profit
We
recorded cost of sales of $4,165,000 and $4,435,000 for the three months ended
March 31, 2008 and 2007, respectively. Actual product gross margin
percentages for the three months ended March 31, 2008 and 2007 were 43% and 44%,
respectively. This decrease reflects higher costs related to lower
yields on certain silicon wafers used to produce our 1 megabit products.
It is expected that this lower yield will continue to adversely impact
gross margins in the quarter ending June 30, 2008.
Research and
Development
Continued
investments in new product development are required for us to remain competitive
in the markets we serve and to grow our revenue. In the first quarter of
2008, our research and development department continued its efforts on the final
development of our new nvSRAM product family in conjunction with Cypress.
This new product family is based on Cypress 0.13-micron S8 process and
includes memory densities up to and beyond 4-megabits. In addition, in
2007, we began initial development of a new product initiative to develop very
high density nvRAM devices. As part of this new initiative, we opened a
design center in Poway, California. Expenses incurred for the high density
nvRAM initiave were $611,000 for the quarter ended March 31, 2008 as compared
with $86,000 for the quarter ended March 31, 2007.
Total
research and development expenses were $2,649,000 for the quarter ended March
31, 2008 as compared to $1,613,000 for the quarter ended March 31, 2007.
The increase of $1,036,000 for the quarter ended March 31, 2008 compared
to 2007 was due to several items, including (i) an increase of expenses of
$611,000 related to the high density nvRAM development initiative (ii) increases
in equipment related costs of $36,000, (iii) increases in travel and quality
assurance expenses of $45,000, (iv) increases in product development costs of
$234,000 principally for silicon wafers used for initial testing of our new 4
megabit product and (v) increases in payroll and related expenses of $110,000.
The increase in payroll related costs was due primarily to headcount
additions in our Dresden, Germany and Colorado Springs, Colorado offices,
professional and consulting fees and an increase of stock compensation expense
of $59,000.
Administration
Total
administration expenses were $1,375,000 for the three months ended March 31,
2008 as compared to $1,109,000 for the same period in 2007. The $266,000
increase was due primarily to (i) an increase of legal and investment banking
fees of approximately $100,000 (ii) an increase of legal fees of $50,000
associated with the establishment of our majority owned subsidiary AgigA and
(iii) increases in payroll and payroll related costs of $69,000. The
increase in payroll and payroll overhead costs were due to additional headcount.
Sales and
Marketing
Total
sales and marketing expenses were $1,531,000 for the three months ended March
31, 2008 as compared to $1,152,000 for the same period in 2007. The
$379,000 increase was due primarily to an increase in payroll and payroll
overhead costs of $134,000, increased expense related to employee stock
compensation of $21,000, increased contract services of $107,000, increased
advertising costs of $50,000 and other miscellaneous expenses of $67,000.
The increase in payroll and payroll overhead costs were due to changes in
sales and marketing personnel as well as higher sales incentives.
19
_________________________________________________________________________________________________
SIMTEK CORPORATION
Net Loss
We
recorded a net loss of $2,455,000 and $490,000 for the three months ended March
31, 2008 and 2007, respectively. The increase of $1,965,000 for the
three-month period reflects a decrease in revenue and expense items discussed
above.
Liquidity and
Capital Resources
As
of March 31, 2008, we had net working capital of $10,184,000 as compared to net
working capital of $11,858,000 as of December 31, 2007.
Cash
flows used in operating activities for the three months ended March 31, 2008
were $321,000 compared to $1,574,000 in the same period in 2007. The
following table shows the components of each item in operating activities
(amounts in thousands):
|
|
|
|
|
|
|
2008
|
|
2007
|
Net loss
|
|
$
(2,455)
|
|
$
(490)
|
Depreciation
and amortization
|
|
216
|
|
176
|
Loss on
disposal of assets
|
|
3
|
|
-
|
Expense related
to stock compensation
|
|
392
|
|
279
|
Amortization of
non-competition agreement
|
|
445
|
|
446
|
Net allowance
accounts
|
|
(446)
|
|
392
|
Changes in
assets and liabilities:
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
Accounts
receivable
|
|
1,054
|
|
322
|
Inventory
|
|
568
|
|
(1,635)
|
Prepaid
expenses and other
|
|
56
|
|
(155)
|
Increase
(decrease) in:
|
|
|
|
|
Accounts
payable
|
|
(317)
|
|
170
|
Accrued
expenses
|
|
163
|
|
(1,079)
|
Net cash used
in operating activities
|
|
$
(321)
|
|
$
(1,574)
|
Excluding
the effect of changes in assets and liabilities, cash used in operating
activities was $1,845,000 in the period ended March 31, 2008 compared to cash
generated by operating activities of $803,000 in the same period in 2007.
This increase was primarily due to a net loss in the period ending March
31, 2008. The decrease in accounts receivable for the quarter
ending March 31, 2008 and 2007 is due to lower seasonal revenue in the first
quarter of each fiscal year compared to the fourth quarter of each previous
year.
Cash
flows used in investing activities increased for the three months ended March
31, 2008 by approximately $76,000 as compared to the same period in 2007. The
increase was primarily due to the purchase of test equipment.
The
decrease of $199,000 in cash flows provided by financing activities for the
three months ended March 31, 2008 as compared to the same period in 2007 was
primarily due to the receipt of funds related to the exercise of warrants that
occurred in the quarter ending March 31, 2007, for which there were no
comparable items in the same period in 2008.
20
_________________________________________________________________________________________________
SIMTEK CORPORATION
Short-term
liquidity
.
Our
unrestricted cash balance at March 31, 2008 was $3,737,000.
Our future liquidity will depend on continued revenue growth, continued
improvement in gross margins and control of operating expenses. Gross
margins are expected to remain steady in 2008 compared to 2007, but may
fluctuate depending on the product mix. Investment in research and
development is also expected to increase in 2008 as we complete the final design
and qualification of the new 4 megabit and other derivative products developed
in connection with Cypress. In addition, we expect to invest approximately
$3 million in our high density nvRAM initiative at AgigA. We believe that
our cash balance plus the available credit under current credit facilities will
be sufficient to fund our operations for the foreseeable future. However,
if we fail to meet our revenue targets, it may be necessary for us to raise
additional capital or incur additional debt.
Long-term
liquidity
.
We
continue to evaluate our long-term liquidity. Our growth plans may require
additional funding from outside sources. While we have no firm plans, we are in
ongoing discussions with investment banking organizations and potential
investors and lenders to ensure access to funds as required.
21
_________________________________________________________________________________________________
SIMTEK CORPORATION
|
|
ITEM
3
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable.
|
|
ITEM
4
|
CONTROLS AND
PROCEDURES
|
Not applicable.
|
|
ITEM
4T
|
CONTROLS AND
PROCEDURES
|
(a) Evaluation of
Disclosure Controls and Procedures.
The
Company maintains disclosure controls and procedures, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in Securities and Exchange Commission
rules and forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures,
management recognized that disclosure controls and procedures, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met.
Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures. The design of any
disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
Based
on their evaluation as of the end of the period covered by this Quarterly Report
on Form 10-Q and subject to the foregoing, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
were effective.
(b) Changes in
Internal Control over Financial Reporting.
There
were no material changes in our internal control over financial reporting that
occurred during the first quarter of fiscal 2008 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
22
_________________________________________________________________________________________________
SIMTEK CORPORATION
PART
II. OTHER INFORMATION
Item
1.
Legal
Proceedings None
Item 1A. Risk Factors
None
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds None
Item
3.
Defaults
upon Senior Securities - None
Item
4.
Submission
of Matters to a Vote of Security Holders - None
Item
5.
Other
Information - None
Item
6.
Exhibits
|
|
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Principal
Executive Officer
|
|
|
31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Principal
Financial Officer
|
|
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal
Executive Officer
|
|
|
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal
Financial Officer
|
23
_________________________________________________________________________________________________
SIMTEK CORPORATION
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
|
|
SIMTEK
CORPORATION
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
May 15, 2008
|
|
By:
|
/s/ Harold
Blomquist
|
|
|
|
|
|
|
|
|
|
HAROLD
BLOMQUIST
|
|
|
|
|
Chief Executive
Officer and President
|
|
|
|
|
|
|
|
|
|
|
Date:
|
May 15, 2008
|
|
By:
|
/s/ Brian
Alleman
|
|
|
|
|
|
|
|
|
|
BRIAN
ALLEMAN
|
|
|
|
|
Chief Financial
Officer
|
24