Filed Pursuant to Rule 424(b)(3)
Registration No. 333-132180
Prospectus Supplement No. 3 dated April 3, 2007
(to Prospectus dated October 5, 2006)
This Prospectus Supplement No. 3 supplements and amends the Prospectus
dated October 5, 2006, as supplemented and amended by Prospectus Supplement No.
1 dated November 20, 2006 and Prospectus Supplement No. 2 dated December 11,
2006 (the "Prospectus"), relating to the resale of 12,106,586 shares of common
stock, par value $0.0001 per share, of Simtek Corporation ("Simtek"). You should
read this Prospectus Supplement No. 3 in conjunction with the Prospectus.
Prospectus Supplement No. 3 is not complete without, and may not be delivered or
utilized except in connection with, the Prospectus, including any amendments or
supplements thereto.
Attached hereto and incorporated by reference herein is Simtek's: (a)
Amendment No. 1 to Current Report on Form 8-K/A filed with the Securities and
Exchange Commission ("SEC") on December 29, 2006; (b) Amendment No. 1 to Current
Report on Form 8-K/A filed with the SEC on December 29, 2006; (c) Current Report
on Form 8-K filed with the SEC on January 9, 2007; (d) Current Report on Form
8-K filed with the SEC on January 12, 2007; (e) Current Report on Form 8-K filed
with the SEC on January 24, 2007; (f) Current Report on Form 8-K filed with the
SEC on February 13, 2007; (g) Current Report on Form 8-K filed with the SEC on
February 23, 2007; and (h) Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the SEC on April 2, 2007. This Prospectus
Supplement No. 3 should be read in conjunction with, and delivered with, the
Prospectus and is qualified by reference to the Prospectus except to the extent
that the information in this Prospectus Supplement No. 3 supersedes the
information contained in the Prospectus.
The Prospectus, together with this Prospectus Supplement No. 3, constitutes
the prospectus required to be delivered by Section 5(b) of the Securities Act of
1933, as amended, with respect to the offers and sales of the Simtek common
stock offered hereby.
See the section of the Prospectus titled "Risk Factors", beginning on page
4 thereof, for certain factors relating to an investment in the shares of Simtek
common stock offered hereby.
Neither the SEC nor any other state securities commission has approved or
disapproved of the Simtek common stock offered hereby or passed upon the
adequacy or accuracy of the Prospectus or this Prospectus Supplement No. 3. Any
representation to the contrary is a criminal offense.
The date of this Prospectus Supplement No. 3 is April 3, 2007.
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 25, 2006
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification #)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Office)
(719) 531-9444
(Registrant's telephone number, including area code)
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
EXPLANATORY NOTE
On July 26, 2006, Simtek Corporation (the "Company") filed a Form 8-K
reporting a planned restatement of certain of its financial statements. The Form
8-K reported that information under "Item 8.01 - Other Events." This amendment
is being filed to report the previously disclosed information under "Item 4.02 -
Non-Reliance on Previously Issued Financial Statements."
Item 4.02 Non-Reliance on Previously Issued Financial Statements
On March 24, 2006, the Company entered into a License and Development Agreement
with Cypress Semiconductor Corporation ("Cypress") as more fully described on
the Form 8-K filed by the Company with the Securities and Exchange Commission on
March 30, 2006. Under the terms of the License and Development Agreement,
Cypress is required to make certain non-refundable advance royalty payments to .
In its financial statements filed on Form 10-Q for the three months ended March
31, 2006, the Company recorded the $2,000,000 advance royalty payment received
from Cypress on March 24, 2006 as $965,000 for the value of the warrant issued
to Cypress to purchase 10 million shares of common stock of the Company and the
remaining $1,035,000 as unearned revenue on its consolidated balance sheet. The
Form 8-K filed by the Company on March 30, 2006 and the Company's Form 10-Q
filed on May 15, 2006 set forth more details regarding the transaction with
Cypress.
The Company has subsequently determined that it is appropriate to recognize the
non-refundable advance royalty payments under the License and Development
Agreement as royalty revenue upon receipt from Cypress. The Company will
therefore restate its consolidated financial statements as of and for the three
months ended March 31, 2006. As a result, total revenue for the three months
ended March 31, 2006 will be reported as $5,778,000 ($1,035,000 more than the
$4,743,000 previously reported) and net loss for such three months period will
be reported as $901,000 (rather than the $1,936,000 as previously reported). In
addition, total liabilities are reduced from $8,430,000 (as reported) to
$7,395,000; accumulated deficit is reduced from $48,127,000 (as reported) to
$47,092,000; and, total shareholders' equity is increased from $2,008,000 (as
reported) to $3,043,000.
On August 4, 2006, the Company filed an amendment to its Forms 10-Q for the
three months ended March 31, 2006, (the "Amendment"). The financial statements
for that three month period was restated in the Amendment. As a result of this
restatements, management has determined, as of August 4, 2006, the date the
Amendment was filed, that the financial statements contained in its
initially-filed Form 10-Q for this periods may no longer be relied upon.
Management has discussed with the Company's independent accountant the matters
leading to these restatements.
On December 11, 2006, the Company filed a Form 10-Q/A for the three months ended
March 31, 2006, further restating the financial statements for that period as
described in such Form 10-Q/A filed on December 11, 2006 and the Company's Form
8-K filed on December 7, 2006 (as amended by the Form 8-K/A filed on
December 29, 2006).
2
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /s/Brian Alleman
--------------------------------------
Brian Alleman, Chief Financial Officer
December 29, 2006
3
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 4, 2006
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification #)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Office)
(719) 531-9444
(Registrant's telephone number, including area code)
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
EXPLANATORY NOTE
On December 7, 2006, Simtek Corporation (the "Company") filed a Form 8-K
reporting a planned restatement of certain of its financial statements. The Form
8-K reported that information under "Item 8.01 - Other Events." This amendment
is being filed to report the previously disclosed information under "Item 4.02 -
Non-Reliance on Previously Issued Financial Statements."
Item 4.02 Non-Reliance on Previously Issued Financial Statements
As more fully described in Note 5 to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K filed on April 7, 2006 and
Note 6 to the Consolidated Financial Statements included in the Company's Form
10-K/A (Amendment No. 2) filed on December 11, 2006, both for the fiscal year
ended December 31, 2005, the Company sold 68,750,000 shares, pre-reverse split
(6,875,000 post-reverse split) of its common stock, subject to certain
registration rights set forth in the registration rights agreement dated
December 30, 2005. Management initially concluded that the net proceeds of
$10,332,000 ($8,459,000 received on December 30, 2005 and $1,873,000 received on
January 3, 2006) should be recorded as Temporary Equity due to the potential
penalties associated with the registration rights agreement and the application
of certain accounting rules in light of such penalties. In addition, on
September 21, 2006 the Company sold an additional 11,531,711 shares of common
stock, pre-reverse split (1,153,171 post-reverse split), subject to certain
registration rights set forth in the registration rights agreement dated
September 21, 2006, for net proceeds of $4,515,000. Management initially
concluded that the net proceeds of $4,515,000 should also be recorded as
Temporary Equity due to the potential penalties associated with the registration
rights agreement and the application of certain accounting rules in light of
such penalties. Management has subsequently determined that both of the
transactions should have been recorded in Shareholders' Equity.
The following tables reflect the amounts as previously reported and as restated
for each respective balance sheet date:
December 31, 2005
-----------------
As Reported As Restated
----------- -----------
(Amounts in Thousands)
Consolidated Balance Sheet:
Temporary Equity $ 8,459 $ -
Common Stock $ 782 $ 1,470
Additional paid-in capital $ 48,282 $ 56,053
Total shareholders' equity $ 2,860 $ 11,319
March 31, 2006
--------------
As Reported As Restated
----------- -----------
(Amounts in Thousands)
Consolidated Balance Sheet:
Temporary Equity $ 10,332 $ -
Common Stock $ 782 $ 1,470
Additional paid-in capital $ 49,366 $ 59,010
Total shareholders' equity $ 3,043 $ 13,375
2
June 30, 2006
-------------
As Reported As Restated
----------- -----------
(Amounts in Thousands)
Consolidated Balance Sheet:
Temporary Equity $ 10,332 $ -
Common Stock $ 786 $ 1,474
Additional paid-in capital $ 50,187 $ 59,831
Total shareholders' equity $ 2,490 $ 12,822
September 30, 2006
------------------
As Reported As Restated
----------- -----------
(Amounts in Thousands)
Consolidated Balance Sheet:
Temporary Equity $ 14,847 $ -
Common Stock $ 1 $ 2
Additional paid-in capital $ 51,430 $ 66,276
Total shareholders' equity $ 2,715 $ 17,562
On December 11, 2006, Simtek filed amendments to its Form 10-K for the year
ended December 31, 2005 and its Forms 10-Q for each of the three months ended
March 31, 2006, June 30, 2006 and September 30, 2006 (the "Amendments"). The
financial statements for each of the respective periods was restated in the
Amendments. As a result of these restatements, management has determined, as of
December 11, 2006, the date the Amended forms were filed, that the financial
statements contained in its initially-filed Form 10-K and Forms 10-Q for these
periods may no longer be relied upon. Management has discussed with the
Company's independent accountant the matters leading to these restatements.
3
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /s/Brian Alleman
--------------------------------------
Brian Alleman, Chief Financial Officer
December 29, 2006
4
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 8, 2007
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Offices)
(719) 531-9444
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
Item 8.01 Other Events.
On January 5, 2007, Simtek Corporation (the "Company") received notice that
the NASDAQ Stock Market LLC had approved the Company's application for listing
of its common stock on The NASDAQ Capital Market. The Company's common stock is
scheduled to begin trading on The NASDAQ Capital Market at the opening of the
market on January 10, 2007, under the trading symbol "SMTK." Until that time,
the Company's common stock will continue to be traded on the over-the-counter
bulletin board. A copy of the Company's press release concerning the foregoing,
dated January 8, 2007, is included herewith as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number Description
-------------- -----------
99.1 Press release of the Company, dated January 8, 2007,
titled "Simtek Corporation Approved for NASDAQ
Capital Market Listing."
1
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /S/ BRIAN ALLEMAN
--------------------------------------
Brian Alleman, Chief Financial Officer
January 9, 2007
2
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
99.1 Press release of the Company, dated January 8, 2007, titled
"Simtek Corporation Approved for NASDAQ Capital Market
Listing."
3
Exhibit 99.1
SIMTEK CORPORATION APPROVED FOR NASDAQ
CAPITAL MARKET LISTING
Company Expects to Begin Trading on NASDAQ
January 10, 2007 Under Symbol SMTK
COLORADO SPRINGS, CO., January 08, 2007, - Simtek Corporation (OTC Bulletin
Board: SMTE), the inventor, pioneer, and world's leading supplier of nonvolatile
static random access memory (nvSRAM) integrated circuits, today announced that
the NASDAQ Stock Market has approved its application for listing of the
Company's common stock on the NASDAQ Capital Market under the symbol "SMTK."
Simtek expects to begin trading on the NASDAQ Capital Market on Wednesday,
January 10, 2007 until which time the company's shares will continue to trade
under the symbol SMTE.ob on the Over the Counter Bulletin Board.
Harold Blomquist, Simtek President and CEO, commented, "Achieving a NASDAQ
listing was a key goal for Simtek and we are pleased to announce that our stock
will begin trading alongside many of our peers on the Nasdaq Capital Market. As
we continue to successfully execute our business plan, we believe this listing
enhances value for our shareholders as it will provide enhanced visibility for
our stock and overall improved liquidity."
About Simtek Corporation
Simtek Corporation designs and markets high-speed, re-programmable, nonvolatile
semiconductor memory products, for use in a variety of systems including RAID
servers, storage arrays, GPS navigational systems, industrial controllers,
robotics, copiers, avionics, metering, consumer, UPS, and networking and
broadcast equipment. Information on Simtek products can be obtained from its web
site: www.simtek.com; email: information@simtek.com. The company is
headquartered in Colorado Springs, Colorado.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements predicting
Simtek's future growth. These forward-looking statements are inherently
difficult to predict and involve risks and uncertainties that could cause actual
results to differ materially, including, but not limited to, projections of
future performance including predictions of future profitability and
expectations of the business environment in which Simtek operates. For a
detailed discussion of these and other risk factors, please refer to Simtek's
filings with the Securities and Exchange Commission (SEC), including its Annual
Report on Form 10-K and subsequent Form 10-Q and Form 8-K filings.
For further information, please contact:
Simtek Corp. MKR Group, Inc.
Brian Alleman, CFO Todd Kehrli or Marie Dagresto
investorrelations@simtek.com 323-468-2300
smte@mkr-group.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 11, 2007
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Offices)
(719) 531-9444
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
Item 8.01: Other Events
On January 11, 2007 Simtek Corporation (the "Company") issued a press
release announcing to investors that it filed ten new patent applications with
the United States Patent and Trademark Office. A copy of the press release is
included herewith as Exhibit 99.1
Item 9.01: Financial Statements and Exhibits
(d) Exhibits
Exhibit Number Description
-------------- -----------
99.1 Press release of the Company dated January 11, 2007,
titled "Simtek Corporation Files 10 New Patents"
2
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /s/Brian Alleman
--------------------------------------
Brian Alleman, Chief Financial Officer
January 12, 2007
3
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
99.1 Press release of the Company dated January 11, 2007, titled
"Simtek Corporation Files 10 New Patents".
4
Exhibit 99.1
SIMTEK CORPORATION FILES 10 NEW PATENTS
COLORADO SPRINGS, Colorado January 11, 2007 - Simtek Corporation (NASDAQ: SMTK),
the world's leading supplier of integrated nonvolatile random access memory
chips, today announced that it has recently filed 10 new patent applications
relating to its nvSRAM design, technology, and intellectual property. These
filings represent the first patent applications to be submitted by the Company
in nearly five years.
David Still, Simtek Vice President of Engineering, commented, "We are excited to
have initiated this significant expansion to our intellectual property platform,
the result of a focused effort by the entire global Simtek engineering team.
Protecting and increasing our proprietary technologies are important objectives
for us as we expand into new markets and advance our product portfolio. We
expect to continue to aggressively develop and protect our intellectual property
foundation throughout 2007."
About Simtek Corporation
Simtek Corporation designs and markets high-speed, re-programmable, nonvolatile
semiconductor memory products, for use in a variety of systems including RAID
servers, storage arrays, GPS navigational systems, industrial controllers,
robotics, copiers, avionics, metering, consumer, UPS, and networking and
broadcast equipment. Information on Simtek products can be obtained from its web
site: www.simtek.com; email: information@simtek.com. The company is
headquartered in Colorado Springs, Colorado.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements predicting
Simtek's future growth. These forward-looking statements are inherently
difficult to predict and involve risks and uncertainties that could cause actual
results to differ materially, including, but not limited to, projections of
future performance including predictions of future profitability and
expectations of the business environment in which Simtek operates. For a
detailed discussion of these and other risk factors, please refer to Simtek's
filings with the Securities and Exchange Commission (SEC), including its Annual
Report on Form 10-K and subsequent Form 10-Q and Form 8-K filings.
For further information, please contact:
Simtek Corp. MKR Group, Inc.
Brian Alleman, CFO Todd Kehrli or Marie Dagresto
investorrelations@simtek.com 323-468-2300
smte@mkr-group.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 22, 2007
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Offices)
(719) 531-9444
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
Item 2.02: Results of Operations and Financial Condition
On January 22, 2007, Simtek Corporation (the "Company") issued a press
release announcing to investors that, among other things, it expects 2006 annual
revenue to be approximately $30.6 million, that GAAP profit is expected for the
fourth quarter of 2006, that it has a backlog for the first quarter of 2007 of
approximately $7.1 million (measured as of December 31, 2006) and that the
fourth quarter and year-end 2006 investor earnings call will be held on February
22, 2007. A copy of the press release is included herewith as Exhibit 99.1
Item 9.01: Financial Statements and Exhibits
(d) Exhibits
Exhibit Number Description
-------------- -----------
99.1 Press release of the Company dated January 22, 2007,
titled "Simtek Expects 2006 Annual Revenue of $30.6
Million"
2
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /s/Brian Alleman
--------------------------------------
Brian Alleman, Chief Financial Officer
January 23, 2007
3
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
99.1 Press release of the Company dated January 22, 2007,
titled "Simtek Expects 2006 Annual Revenue of $30.6 Million".
4
Exhibit 99.1
SIMTEK EXPECTS 2006 ANNUAL REVENUE OF $30.6 MILLION
o Fourth Quarter Total Revenue Expected to be $9.7 Million
o Fourth Quarter Product Revenue Expected to be $9.1 Million
o Fourth Quarter GAAP Profit Expected
o Backlog for Q107, a Quarterly Record, in Excess of $7.1 Million
o Investor Earnings Conference Call to be Held February 22nd
COLORADO SPRINGS, CO., January 22, 2007, - Simtek Corporation (NASDAQ: SMTK),
the inventor, pioneer, and world's leading supplier of nonvolatile static random
access memory (nvSRAM) integrated circuits, today announced that total revenue
for the year ended December 31, 2006, is expected to be approximately $30.6
million, up 194%, compared to revenues of $10.4 million in 2005.
Total revenue for the fourth quarter ended December 31, 2006 is expected to be
approximately $9.7 million. Total revenue includes product revenue of
approximately $9.1 million, which represents 10% growth over the prior quarter.
Total revenue for the quarter also includes royalty revenue of approximately
$550,000 for the final royalty pre-payment from Cypress Semiconductor. The
Company expects to report positive net income on a GAAP basis for the fourth
quarter of 2006, and on an ex-item basis for the full year 2006. Ex-item
earnings exclude non-cash charges related to amortization of the ZMD acquisition
and expensing of stock options.
The Company's order backlog scheduled for delivery in the first quarter of 2007,
as of December 31, 2006, was $7.1 million, a new quarter-ending record for
backlog of orders.
Brian Alleman, Simtek's CFO, stated, "Simtek made significant progress in the
fourth quarter in our return to profitability. Revenue increased nicely from Q3.
The overall product mix was favorable and gross margins continue to improve.
Simtek expects to report GAAP net income for the fourth quarter for the first
time in more than five years, and expects to achieve positive ex-item earnings
for the full year."
The Company will host an earnings conference call for the fourth quarter and
year-end 2006 on Thursday, February 22, 2007, at 2:00 pm PDT (5:00 pm EDT).
Further details will be provided at a later date.
About Simtek Corporation
Simtek Corporation designs and markets high-speed, re-programmable, nonvolatile
semiconductor memory products, for use in a variety of systems including RAID
servers, high performance workstations, GPS navigational systems, robotics,
copiers and printers, and networking and broadcast equipment. Information on
Simtek products can be obtained from its web site: www.simtek.com; email:
information@simtek.com. The company is headquartered in Colorado Springs,
Colorado.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements predicting
Simtek's future growth. These forward-looking statements are inherently
difficult to predict and involve risks and uncertainties that could cause actual
results to differ materially, including, but not limited to, projections of
future performance including predictions of future profitability and
expectations of the business environment in which Simtek operates. For a
detailed discussion of these and other risk factors, please refer to Simtek's
filings with the Securities and Exchange Commission (SEC), including its Annual
Report on Form 10-K and subsequent Form 10-Q and Form 8-K filings.
For further information, please contact:
Simtek Corp. MKR Group, Inc.
Brian Alleman, CFO Todd Kehrli or Marie Dagresto
information@simtek.com 323-468-2300
smtk@mkr-group.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 12, 2007
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification #)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Office)
(719) 531-9444
(Registrant's telephone number, including area code)
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
Item 5.02: Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers.
Executive Bonuses
On February 12, 2007, in accordance with the 2006 Executive Incentive
Compensation Plan previously approved by the Board of Directors, Simtek
Corporation (the "Company") issued cash performance bonuses for the calendar
year ending December 31, 2006 to the executive officers of the Company. The
Compensation Committee of the Board of Directors approved these bonuses. The
Company's Executive Incentive Compensation Plan contemplates performance of the
officers and the Company relating to the Company's financial and operating
results, cash balances, progress on key engineering metrics, and other strategic
matters. The 2006 cash performance bonuses for the Company's executive officers
were as follows: (a) Harold Blomquist, Chairman, Chief Executive Officer and
President: $261,383; and (b) Brian Alleman, Vice President and Chief Financial
Officer, Corporate Secretary: $135,449.
2
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /s/Brian Alleman
--------------------------------------
Brian Alleman, Chief Financial Officer
February 13, 2007
3
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 22, 2007
Simtek Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19027 84-1057605
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4250 Buckingham Dr. #100, Colorado Springs, CO 80907
(Address of Principal Executive Offices)
(719) 531-9444
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
Item 2.02 Results of Operations and Financial Condition.
On February 22, 2007, Simtek Corporation (the "Company") issued a press
release titled, "Simtek Reports Positive Net Income for Fourth Quarter and
Ex-Item Profit for Fiscal Year 2006".
Following is a summary of the financial results:
Total revenue for the fourth quarter was $9.7 million and for the full year
was $30.6 million. The quarter and year to date figures include $552 thousand
and $2 million of royalty revenue. Product sales, representing semiconductor
devices shipped to customers, for the fourth quarter of $9.1 million compare to
$2.8 million for the 4th quarter of 2005, an increase of 227%. Unit selling
prices for our highest volume products increased slightly during the 4th quarter
from the 3rd quarter. For the year ended December 31, 2006, product sales were
$28.6 million compared to $10.4 million in the 2005, an increase of 175%. For
2005, the pro-forma combined revenue for Simtek and the former ZMD business was
$18.1 million, so compared to the pro-forma combined numbers, product sales
increased 58% in 2006.
New orders booked in 2006 were $35.2 million, resulting in a book to bill
ratio of 1.23 for the year.
Cost of sales for the 4th quarter was $5 million resulting in a product
gross margin of 45% compared to 40% in the 3rd quarter, 29% in the 2nd quarter
and 27% in the first quarter of 2006. For the year, cost of sales was $18
million and the product gross margin was 37%. Gross margin for 2005 stood at
27%. Margins for the period were helped by price increases on our high volume
256K products; reduced costs on the 1 megabit device; and the benefit of moving
final testing of our highest volume 256K devices to Asia. The cost of the 1
megabit commercial product has been reduced nearly 30% since December 2005. We
expect to see additional margin improvements in 2006 as we continue to transfer
probe and final testing offshore and unit volume of 1 megabit continue to
increase.
Research and development expenses, which are the key to our future growth,
for the 4th quarter were $1.3 million compared to $1.7 million in the 4th
quarter 2005. For the year, research and development expenses were $5.9 million
compared to $6.4 million for 2005. The 2006 amount reflects continued
development of the 4 megabit and 130 nanometer process with Cypress and the
addition of our engineering team in Dresden. The 2005 R&D expenses included
approximately $1.2 million related to final development and fixing of the
quarter micron products.
Selling, General and Administrative expenses were $2.7 million for the 4th
quarter 2006 compared to $800 thousand in the 2005 quarter. For the year,
selling, general and administrative expenses are $8.5 million compared to $3.8
million in 2005. The expenses in the 2006 periods include considerably higher
commissions to the sales team based on nearly triple the revenue. They also
include the amortization of the non-compete agreement with ZMD of $445 thousand
for the quarter and $1.8 million for the year. The expenses in the 2006 periods
also include non-cash expense related to employee stock options of $94,000 and
$382,000 for the quarter and year to date periods. Both the fourth quarter and
full year amounts include approximately $535 thousand for executive incentive
compensation. In addition, we incurred approximately $659,000 and $1.4 million
in the respective 2006 periods for SG&A expenses in the new Simtek GMBH
subsidiary, as we continue to build our European business.
2
Net Income from Continuing Operations, on a GAAP basis, was $598 thousand
or $0.04 cents per share for the fourth quarter 2006 compared to a loss of $1.8
million or ($0.25) cents per share last year. On a GAAP basis, the year to date
net loss from continuing operations is $2.0 million or ($0.13) cents per share
compared to $7.5 million or ($1.09) per share in 2005. Excluding the effect of
the amortization of the non-compete agreement with ZMD and the expenses
associated with employee stock options, the ex-item or non-GAAP net income for
the 4th quarter was $1.2 million or $0.07 cents per share and the year to date
ex-item profit was $319 thousand or $0.02 cents per share. The ex-item results
represent an improvement from the losses reported in the 2005 periods of $3.0
million and $7.8 million, respectively.
The full text of the press release is attached as Exhibit 99.1 to this Form
8-K Current Report.
Item 9.01: Financial Statements and Exhibits
(d) Exhibits
Exhibit Number Description
-------------- -----------
99.1 Press Release, dated February 22, 2007, titled "Simtek
Reports Positive Net Income for Fourth Quarter and
Ex-Item Profit for Fiscal Year 2006".
3
SIGNATURE
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 hereunto duly authorized.
SIMTEK CORPORATION
By: /s/Brian Alleman
--------------------------------------
Brian Alleman, Chief Financial Officer
February 22, 2007
4
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
99.1 Press Release, dated February 22, 2007, titled "Simtek
Reports Positive Net Income for Fourth Quarter and Ex-Item
Profit for Fiscal Year 2006".
5
EXHIBIT 99.1
------------
SIMTEK REPORTS POSITIVE NET INCOME FOR FOURTH QUARTER
AND EX-ITEM PROFIT FOR FISCAL YEAR 2006
o GAAP Net Income - $598 thousand for Q4 2006
o Ex-item Net Income - $319 thousand for FY 2006
o Record Revenue for Fourth Quarter and FY 2006
o Gross Margins Improve 500 Basis Points from Q3 2006
COLORADO SPRINGS, Colorado - February 22, 2007 - Simtek Corporation (NASDAQ:
SMTK), the inventor, pioneer, and world's premier supplier of nonvolatile static
random access memory (nvSRAM) integrated circuits, today announced its financial
results for the fourth quarter and year ended December 31, 2006.
Key Highlights
o Product revenue of $9.1 million for Q4 2006, a 227% increase over Q4
2005
o Product revenue of $28.6 million for the full year 2006, a 175%
increase over 2005
o Total revenue of $30.6 million for 2006, a 195% increase over 2005
o Booking of new orders in 2006 were a record $35.2 million, with a
book-to-bill ratio of 1.23
o Gross product margin increased to 45% for Q4 2006 from 25% a year ago
and 40% in Q3 2006
o Net income of $598 thousand, or $0.04 per share for Q4 2006 versus a
loss from continuing operations of $1.8 million or $(0.25) per share
for Q4 2005. First time in 23 quarters the Company has reported
positive net income.
o Ex-item profit for the year of $319 thousand compared to a $7.5
million loss from continuing operations in 2005
o Over 100 new design wins
o Company applied for NASDAQ listing (subsequently approved in 2007)
o Hired Ron Sartore as Executive Vice President to spearhead new product
development
Financial Results
Total revenue for the fourth quarter of 2006 was $9.7 million, consisting of
$9.1 million of product revenue and $552 thousand of royalty revenue. Product
revenue represents a 227% increase over $2.8 million in Q4 2005. The Company
reported net income for Q4 2006 of $598 thousand, or $0.04 per share, compared
to a net loss from continuing operations of $1.8 million, or ($0.25) per share
for Q4 2005. Excluding the effects of stock options and amortization of
acquisition related costs, the Company generated ex-item (non-GAAP) net profit
of $1.2 million, or $0.07 per share, for Q4 2006. There were no such charges in
the 2005 period.
Total revenue for 2006 was a record $30.6 million, consisting of $28.6 million
of product revenue and $2.0 million of royalty revenue. Product revenue
represents a 175% increase over $10.4 million, and inclusive of royalty revenue,
total revenue represents a 195% increase over $10.4 million reported in 2005.
The Company reported a GAAP net loss for the year ended December 31, 2006 of
$2.0 million, or a ($0.13) per share, compared to a net loss from continuing
operations of $7.5 million, or ($1.09) per share in 2005. Ex-item net profit was
$319 thousand or $0.02 per share for 2006. All per share amounts reflect the
effect of the 1 for 10 reverse stock split that was completed on October 5,
2006.
"Team Simtek did a phenomenal job in creating and supporting growth and
operational improvements during 2006," stated Harold Blomquist, Simtek President
and CEO. "We are proud of the significant strides we have made as a company, and
look forward to continuing to progress and grow in 2007. Looking ahead we
anticipate continued strong top-line growth in 2007, as well as continued
improvement in gross margins and positive net income for 2007 as a whole. We
look forward to delivering on these goals in the upcoming quarters."
Outlook for 2007
For 2007, Simtek expects product revenue growth in the range of 60% to 75% year
over year, and anticipates that Q1 2007 as compared to Q1 2006 will be in this
range. The Company does not expect any royalty revenue in 2007. Gross margins
are projected to increase to approximately 50% by the end of 2007. Investment in
engineering and product development is expected to increase nearly 100% from
2006 levels. Ex-item profit for 2007 is expected to be in the range of
$0.18-$0.21 per share.
"Simtek has under-invested in engineering, research and development for several
years and in 2006 began a somewhat more aggressive investment plan to fuel a
stronger platform of intellectual property and products. In 2007 we plan to
increase investment in baseline product development by as much as $3 million
over 2006 focusing on the launch of the 4 megabit family of products. We also
anticipate investing in engineering R&D to go beyond baseline products. To that
end we are tremendously excited to have set up a business development and design
center in San Diego, California under the leadership of Ron Sartore. We
anticipate investing up to an additional $3 million in products and technologies
that we believe can place the company on track to serve far larger markets than
ever before," concluded Blomquist.
Conference Call
Simtek management will host a conference call at 5:00 p.m. ET (2:00 p.m. PT)
today to discuss these results. The call can be accessed by dialing 800-257-3401
and giving the company name, "Simtek." Participants are asked to call the
assigned number approximately 10 minutes before the conference call begins. A
replay of the conference call will be available two hours after the call for the
following five business days by dialing 800-405-2236 and entering the following
pass code: 11084026#. Also, the conference call together with supplemental
financial information will be available over the Internet at
http://www.simtek.com in the Investor Info area of the site or by going to
http://www.mkr-group.com.
About Simtek Corporation
Simtek Corporation designs and markets high-speed, re-programmable, nonvolatile
semiconductor memory products, for use in a variety of systems including RAID
servers, industrial automation, GPS navigational systems, robotics, medical
instrumentation, and networking and telecommunications equipment. Information on
Simtek products can be obtained from its web site: www.simtek.com; email:
information@simtek.com. The Company is headquartered in Colorado Springs,
Colorado.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements predicting
Simtek's future growth. These forward-looking statements are inherently
difficult to predict and involve risks and uncertainties that could cause actual
results to differ materially, including, but not limited to, projections of
future performance including predictions of future profitability and
expectations of the business environment in which Simtek operates. For a
detailed discussion of these and other risk factors, please refer to Simtek's
filings with the Securities and Exchange Commission (SEC), including its Annual
Report on Form 10-K and subsequent Form 10-Q and Form 8-K filings.
IR Contact for Simtek Company Contact for Simtek:
MKR Group, Inc. Brian Alleman, CFO
Todd Kehrli or Marie Dagresto investorrealtions@simtek.com
323-468-2300
smtk@mkr-group.com
Ex-item Information
Simtek reports net income or loss in accordance with GAAP and additionally uses
ex-item (non-GAAP) financial measures which are adjusted from the most directly
comparable GAAP financial measures to exclude charges related to new,
non-operating, unusual or non-recurring expenses the Company may incur from time
to time, in order to provide additional comparative information between periods.
Management believes that these ex-item measures are important to investor
understanding of the Company's disclosures regarding past, current and future
operating results.
Following is reconciliation* of the Ex-item (non-GAAP) financial measures to the
most comparable GAAP financial measures:
Unaudited Three Months Ended Year Ended
(Amounts in thousands, except per share amounts) December 31, 2006 December 31, 2006
Income (Loss) from Continuing Operations as reported $ 598 $ (2,007)
Adjusted-GAAP items:
Amortization of Non-compete Agreement 445 1,784
Costs associated with employee stock options 125 542
---------------------------------------
Ex-item Income from Continuing Operations $ 1,168 $ 319
=======================================
Per Share Data:
Income (Loss) from Continuing Operations as reported $ 0.04 $ (0.13)
Amortization of Non-compete Agreement $ 0.02 $ 0.12
Costs associated with employee stock options $ 0.01 $ 0.03
---------------------------------------
Ex-item Income Per Share from Continuing Operations $ 0.07 $ 0.02
=======================================
* Pursuant to the requirements of Regulation G.
Simtek reports net income or loss in accordance with GAAP and additionally uses
ex-item (non-GAAP) financial measures which are adjusted from the most directly
comparable GAAP financial measures to exclude charges related to non-operating,
unusual or non-recurring expenses the Company may incur from time to time, in
order to provide additional comparative information between periods. Management
believes that these ex-item measures are important to investor understanding of
the Company's disclosures regarding past, current and future operating results.
As of December 31, 2006 there were 16,145,679 shares outstanding.
SIMTEK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value and share amounts)
ASSETS
------
December 31, December 31,
CURRENT ASSETS: 2006 2005
---- ----
Cash and cash equivalents $ 4,522 $ 1,766
Restricted investments 1,775 2,281
Accounts receivable - trade, net 5,537 1,456
Inventory, net 6,596 2,068
Prepaid expenses and other current assets 312 99
Deposits - 600
------------- -------------
Total current assets 18,742 8,270
EQUIPMENT AND FURNITURE, net 1,239 571
DEFERRED FINANCING COSTS 54 111
GOODWILL 992 876
NON-COMPETITION AGREEMENT 7,126 8,910
OTHER ASSETS 89 20
------------- -------------
TOTAL ASSETS $ 28,242 $ 18,758
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,771 $ 2,822
Accrued expenses 939 1,419
Accrued vacation payable 229 145
Accrued wages 814 40
Obligation under capital leases - 13
Line of credit 681 -
Debentures, current 480 240
------------- -------------
Total current liabilities 6,914 4,679
DEBENTURES, NET OF CURRENT 2,220 2,760
------------- -------------
Total liabilities 9,134 7,439
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 200,000 shares authorized,
none issued - -
Common stock, $.0001 par value; 30,000,000 shares authorized,
16,146,679 and 16,145,679 shares issued and outstanding
at December 31, 2006 and 14,692,082 and 14,691,082 shares
issued and outstanding at December 31, 2005 2 2
Additional paid-in capital 67,173 57,509
Treasury stock, at cost; 1,000 shares (1) (1)
Accumulated deficit (48,198) (46,191)
Accumulated other comprehensive income:
Cumulative translation adjustment 132 -
------------- -------------
Total shareholders' equity 19,108 11,319
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,242 $ 18,758
============= =============
SIMTEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
---- ---- ---- ----
REVENUE:
Product sales, net $ 9,124 $ 2,794 $ 28,560 $ 10,385
Royalty revenue 552 - 2,070 -
----------- ----------- ----------- ----------
Total revenue 9,676 2,794 30,630 10,385
Cost of sales 5,008 2,101 18,024 7,591
----------- ----------- ----------- ----------
GROSS MARGIN 4,668 693 12,606 2,794
OPERATING EXPENSES:
Research and development costs 1,277 1,672 5,855 6,369
Sales and marketing 1,446 329 4,679 1,493
General and administrative 1,266 516 3,861 2,275
----------- ----------- ----------- ----------
Total operating expenses 3,989 2,517 14,395 10,137
----------- ----------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 679 (1,824) (1,789) (7,343)
OTHER INCOME (EXPENSE):
Interest income 50 36 162 92
Interest expense (123) (61) (370) (238)
Exchange rate variance 1 - (3) -
Other expense 24 - 26 (1)
----------- ----------- ----------- ----------
Total other income (expense) (48) (25) (185) (147)
----------- ----------- ----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 631 (1,849) (1,974) (7,490)
Provision for income taxes (33) - (33) -
----------- ----------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 598 (1,849) (2,007) (7,490)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
(including gain on disposal of $1,689) - (2) - 1,704
----------- ----------- ----------- ----------
NET INCOME (LOSS) $ 598 $ (1,851) $ (2,007) $ (5,786)
=========== =========== =========== ==========
NET INCOME (LOSS) PER COMMON SHARE:
Basic and diluted
Income (loss) from continuing operations $ .04 $ (.25) $ (0.13) $ (1.09)
Income from discontinued operations .00 .00 .00 .25
----------- ----------- ----------- ----------
Total $ .04 $ (.25) $ (.13) $ (.84)
=========== =========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted 16,123,904 7,301,065 15,125,847 6,861,309
=========== =========== =========== ==========
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------------------------------
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2006
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number 0-19027
SIMTEK CORPORATION
(Exact name of registrant as specified in its charter)
-------------------------------------------------
Delaware 84-1057605
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4250 Buckingham Drive, Suite 100,
Colorado Springs, Colorado 80907
(Address of principal executive offices) (Zip Code)
(719)531-9444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock $.0001 Par Value The NASDAQ Stock Market LLC
---------------------------------------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Same
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in rule 405 of Securities Act. Yes No X
---- ----
ndicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
---- ----
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer Accelerated Filer Non-accelerated Filer X
---- ---- ----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes No X
---- ----
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2006, based upon the closing
price of the common stock as reported by the OTC Electronic Bulletin Board on
such date was approximately $34,403,258. The total number of shares of Common
Stock issued and outstanding as of March 31, 2007 was 16,227,996 and 16,226,996,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of this report (Items 10, 11, 12,
13 and 14) is incorporated by reference from the registrant's proxy statement to
be filed pursuant to Regulation 14A with respect to the registrant's 2007 annual
meeting of stockholders.
2
TABLE OF CONTENTS
PART I
Item 1: Business....................................................... 4
Item 1A: Risk Factors................................................... 17
Item 1B: Unresolved Staff Comments...................................... 23
Item 2: Properties..................................................... 23
Item 3: Legal Proceedings.............................................. 23
Item 4: Submission of Matters to a Vote of Security Holders............ 23
PART II
Item 5: Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities............ 24
Item 6: Selected Financial Data........................................ 26
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operation........................... 27
Item 7A: Quantitative and Qualitative Disclosures About Market Risk..... 41
Item 8: Financial Statements and Supplementary Data.................... 43
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 72
Item 9A: Controls and Procedures........................................ 72
Item 9A(T): Controls and Procedures........................................ 72
Item 9B: Other Information.............................................. 72
PART III
Item 10: Directors,Executive Officers and Corporate Governance.......... 73
Item 11: Executive Compensation......................................... 73
Item 12: Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters............... 73
Item 13: Certain Relationships and Related Transactions,
and Director Independence.................................... 73
Item 14: Principal Accounting Fees and Services......................... 73
PART IV
Item 15: Exhibits, Financial Statement Schedules........................ 74
Signatures..................................................... 78
3
This annual report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Discussion containing
such forward-looking statements may be found in the material set forth below and
under "Business," as well as within the annual report generally. In addition,
when used in this annual 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, including, but not limited to, those factors discussed under
"Risk Factors" under Item 1A below. 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,
our ability to access capital markets, wafer supplies and pricing, among other
factors. 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.
PART I
Item 1: Business
----------------
General
Simtek Corporation ("Simtek" or the "Company") designs and markets
high-speed, re-programmable, nonvolatile semiconductor memory products, for use
in a variety of systems including RAID servers, industrial automation, GPS
navigational systems, robotics, medical instrumentation, and networking and
telecommunications equipment. We are a "fabless" semiconductor company, and thus
we subcontract the majority of our manufacturing requirements. We minimize our
capital requirements by subcontracting the majority of the manufacturing process
to third parties. We have designed and developed nonvolatile static random
access memory or "nvSRAM" products since we began business operations in May
1987. Our product families include 16, 64, 256-kilobit and 1-megabit nvSRAM
products. Kilobits are a measure of the amount of data that can be stored; more
kilobits imply more storage. One kilobit is generally interpreted to mean 1,000
bits. Megabits are also a measure of the amount of data that can be stored;
there are 1,000 kilobits in one megabit.
On December 30, 2005, we acquired from Zentrum Mikroelektronik Dresden AG
("ZMD") certain assets related to ZMD's nvSRAM product line (the "ZMD Asset
Acquisition"). On that same date and in connection with the ZMD Asset
Acquisition, which is described in more detail below, we entered into a number
of agreements including a License Agreement (the "New License Agreement") with
ZMD. Pursuant to the New License Agreement, ZMD assigned its rights in certain
patents devoted to nvSRAM to us and we licensed to ZMD the right to use our
silicon-oxide-nitride-oxide-silicon (SONOS)-based nvSRAM technology for embedded
functions in ZMD's non-competing mixed signal and analog Application Specific
Integrated Circuit (ASIC), System on Chip (SoC) and Application Specific
Standard Product (ASSP) devices. The licenses granted pursuant to the New
License Agreement are perpetual, non-exclusive, royalty-free and unlimited. No
fees or payments are due to either party under the New License Agreement. The
New License Agreement shall remain in effect on a country-by-country basis until
4
all patents, trade secrets, and any other proprietary and legal rights subject
thereto have expired or ended, unless terminated earlier by either party
following a breach by the other party that remains uncured after 30 days'
written notice.
On the same date, we executed a Non-Competition and Non-Solicitation
Agreement with ZMD whereby, for a period of five years from the closing, ZMD is
prohibited from competing with certain of our products and from hiring our
employees in certain situations. The parties also executed a Registration Rights
Agreement whereby we agreed to register under the Securities Act of 1933, as
amended (the "Securities Act"), for resale, subject to certain limitations, the
shares issued to ZMD pursuant to the ZMD Asset Acquisition. For over ten years
prior to this transaction, we were party to various product license arrangements
and cooperation agreements with ZMD. The December 30, 2005 agreements replaced
all of those previous agreements.
In January 2006, we formed Simtek GMBH in Dresden, Germany, as a
wholly-owned subsidiary. As of December 31, 2006, Simtek GMBH had 12 employees,
including 6 engineers, a sales manager, 2 customer service employees, and 3
administrative employees. This subsidiary serves as our sales, marketing, and
technical support center for European customers. The engineers in Dresden work
as an integral part of our company-wide design engineering team.
In January 2006, we began purchasing finished nvSRAM products from ZMD, to
service former ZMD customers until such time that those customers are able to
qualify Simtek parts. We are in the final phase of converting these customers
who previously used ZMD parts exclusively to our legacy nvSRAM products we
produce on silicon received from Chartered. We anticipate this conversion to be
complete in the first half of 2007.
In May of 2005, we entered into a Production and Development Agreement with
Cypress to cooperate in developing a semiconductor process module that combines
our nonvolatile technology with Cypress' advanced 0.13-micron complementary
metal-oxide semiconductor, or CMOS, fabrication line. The module incorporates
SONOS technology, which is used to manufacture both high-density SONOS flash and
SONOS nvSRAM products, for stand alone and embedded products. During 2005 and
2006, our research and development team along with Cypress' research and
development team worked aggressively on the co-development program.
On March 24, 2006, we entered into a License and Development Agreement with
Cypress pursuant to which, among other things, Cypress agreed to license certain
intellectual property from us to develop and manufacture standard, custom and
embedded nvSRAM products in exchange for paying us $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, we licensed rights to use certain intellectual property from
Cypress for use in our products. As part of the License and Development
Agreement, we agreed to issue Cypress warrants to purchase 2 million shares of
our 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 has been recorded as an increase in
additional paid in capital. The net balance of the non-refundable prepaid
royalties of $2,070,000 was recognized as royalty revenue at the time the
payments were received.
5
On October 5, 2006, Simtek completed a 1 for 10 reverse stock split of all
of its common shares. All share and per share amounts throughout this annual
report have been restated to reflect the effect of the reverse stock split as if
it had occurred as of the balance sheet date or as of the beginning of each
fiscal period presented. In addition, on October 5, 2006, Simtek converted from
a Colorado corporation to a Delaware corporation. This reincorporation had no
effect on the consolidated financial statements.
As of December 31, 2006, our backlog for released purchase orders was
approximately $8,100,000, all of which is expected to ship by June 30, 2007.
Comparatively, our backlog for released purchase orders was approximately
$2,559,000 as of December 31, 2005. Orders are generally 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.
Amkor Technology ("Amkor"), located in the Philippines, provides assembly
services and final test services for our highest volume products. Advanced
Semiconductor Engineering Inc., located in Taiwan, provides assembly services
for specific legacy products. Amkor also provides final test services for our
highest volume products. Integra Technologies, located in Kansas, provides wafer
testing and final test services for our remaining nvSRAM products.
In 2005 we determined that Q-DOT, our wholly owned subsidiary that
specialized in advanced technology research and development for data
acquisition, signal processing, imaging and data communications, no longer fit
with our core non-volatile memory business. We had acquired Q-DOT in March 2001
in an effort to enter the high speed data communications market, addressing both
wired and wireless applications, based on advanced "silicon germanium" process
technology. On August 30, 2005, we, along with Q-DOT, entered into an Asset
Purchase Agreement with Hittite Microwave Corporation ("Hittite") and a
wholly-owned subsidiary of Hittite, HMC Acquisition Corporation ("HMC
Acquisition"), whereby substantially all of the assets of Q-DOT were sold to HMC
Acquisition in exchange for a cash payment of approximately $2.2 million. The
Company realized a net gain of approximately $1,687,000. In addition, Hittite
assumed certain future obligations of Q-DOT, including obligations related to
Q-DOT's real estate lease and certain software license agreements. Incident to
the Asset Purchase Agreement, the parties also entered an Escrow Agreement,
whereby $200,000 of the purchase price was placed in escrow for one year to
secure certain indemnification obligations of Simtek and Q-DOT. In addition, the
parties entered into a Confidentiality, Non-Disclosure and Restrictive Covenant
Agreement, whereby, among other things, Simtek agreed not to compete against
Hittite and HMC Acquisition for a period of four years with respect to certain
businesses relating to Q-DOT's operations. On September 1, 2006, we received the
$200,000 that was placed in the escrow account.
During 2004, we transferred the production of our 0.8-micron family of
nvSRAM products from Chartered Semiconductor Manufacturing Plc. of Singapore, or
("Chartered"), facility #1 to Chartered's facility #2. We qualified our
0.8-micron family of nvSRAM products built from wafers received from Chartered's
facility #2 for sales into commercial, industrial and military markets during
late 2004 and early 2005. We refer to these products as our legacy products. In
September 2005, we qualified our 1-megabit nvSRAM products built on 0.25-micron
silicon wafers we receive from Dongbu Electronics USA Inc., formerly DongbuAnam
6
Semiconductor Inc., or ("Dongbu"). We have expanded our product family of nvSRAM
products built on silicon wafers received from Dongbu to include a 1-megabit
nvSRAM with real time clock, a 256-kilobit nvSRAM and a 256-kilobit nvSRAM with
real time clock. These devices with real time clock were given full production
qualification status in late 2006. We refer to the product family built on
silicon wafers we receive from Dongbu as 0.25-micron products. Our nvSRAM
products 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.
During 2006, all of the wafers used to produce our 0.8-micron nvSRAM's were
purchased from Chartered. Sales of these products accounted for approximately
66% of our product revenue for 2006. Wafers were purchased from Dongbu in 2006
to support our 0.25-micron products. Sales of these products accounted for
approximately 13% of our product revenue for 2006. Finished units were purchased
from ZMD in 2006 to support our customers using products previously purchased
from ZMD; sales of these products accounted for approximately 20% of our product
revenue in 2006. The remaining product revenue for 2006 came from miscellaneous
products.
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. We
believe that the ideal integrated memory product 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 low power consumption;
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.
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
7
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.
Volatile Nonvolatile Combinations
-------- ----------- ------------
Static Random Access Memories (SRAM) Electrically Erasable Programmable Nonvolatile Static Random Access
Read Only Memory (EEPROM) Memory (nvSRAM)
Dynamic Random Access Memory Flash Memory (FLASH) Nonvolatile Random Access Memory
(DRAM) (nvRAM)
Erasable Programmable Read Only Static Random Access Memory plus
Memory (EPROM) lithium battery (BatRAM)
Programmable Read Only Memory (PROM)
Read Only Memory (ROM)
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, Electrically Erasable Programmable Read Only
Memory, or Flash 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 or Flash Memory; an
excessive time under power loss conditions. As a result, attempts have been made
to combine nonvolatile and volatile memory features in a single package or
silicon chip. One approach combines a static random access memory with lithium
batteries in a single package, which is called battery-backed SRAM, or BatRAM.
8
Our Memory Technologies
Nonvolatile random access memories combine volatile and nonvolatile memory
cells on a single chip and do not require a battery. We believe our nvSRAM
products represent a significant advance over existing products that combine
volatility and nonvolatility on a single silicon chip. We combine a static
random access memory cell with an Electrically Erasable Programmable Read Only
Memory cell to create a small nvSRAM cell. Our unique and patented memory cell
design enables the nvSRAM product to be produced at high densities and a low
cost per bit. In addition to high density and nonvolatility, the nvSRAM product
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.
We use an advanced implementation of SONOS technology. SONOS 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 that can predict data retention time for every individual memory
cell based on measuring the rate of charge loss out of the silicon nitride. Our
latest 0.25-micron technology adds an additional oxide layer, forming a
silicon-oxide-nitride-oxide-semiconductor stack, to support finer geometry
electrical performance.
The silicon-oxide-nitride-oxide-semiconductor technology coupled with our
patented nvSRAM cell allows high performance nvSRAM's to be manufactured using
complementary metal oxide semiconductor technology. The
Silicon-oxide-nitride-oxide-semiconductor technology that we use has proven to
be highly reliable, as demonstrated by our product qualification results to
date.
Nonvolatile Static Random Access Memories. Our nvSRAM product family
consists of nonvolatile memories that combine fast static random access memory
and nonvolatile elements within each memory cell on a single chip of silicon.
The static random access memory portion of the nvSRAM product is operated in the
same manner as most standard static random access memory products. The static
random access memory can be written to and read from an unlimited number of
times. The nonvolatile elements can be programmed, depending upon device type,
by user control or automatically by transferring the static random access memory
contents into the nonvolatile memory. The data stored in the nonvolatile memory
can be transferred back into the static random access memory by user control or
the data can be transferred automatically.
Our current nvSRAM products have fast data access speeds of 25, 35 and 45
nanoseconds. These data access speeds correspond to those of fast static random
9
access memory and, we believe, meet the requirements of much of the fast static
random access memory market. The high-speed characteristics of our nvSRAM
products 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 Freescale. Our nvSRAM products 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 nvSRAM products to
meet the design and performance requirements of many different types of systems.
Our newer nvSRAM products, currently implemented in our 0.25-micron product
family, includes versions that contain a Real Time Clock (RTC) function. The RTC
function (with Watchdog timer) is a commonly needed function in many embedded
systems that need nvSRAM.
We finalized commercial and industrial qualification of two versions of our
initial 64-kilobit nvSRAM product offering in September 1991 and April 1992,
respectively. We completed military qualification of our initial nvSRAM's in May
1992. We began sales into the commercial market of our initial 16-kilobit nvSRAM
product family in 1992. We completed the development and product qualification
of the 64-kilobit AutoStoreTM nvSRAM 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 of our 256-kilobit nvSRAM occurred in 1997 and military
qualification of our 256-kilobit nvSRAM was completed in the second quarter of
1998. In 2002, we qualified our 3-volt 256-kilobit nvSRAM for use in commercial
and industrial applications. During 2003, we designed and began sampling our
1-megabit nvSRAM product for sale into commercial and industrial markets.
Qualification of our 1-megabit nvSRAM product occurred in September 2005. We
qualified our 0.8-micron family of nvSRAM products built from wafers received
from Chartered's facility #2 for sales into commercial, industrial and military
markets during late 2004 and early 2005. Our 256-kilobit nvSRAM with RTC
function and 1-megabit nvSRAM with RTC function were moved into limited
production in early 2006, and reached full production qualification in late
2006.
Product Warranties
We presently provide a one-year limited warranty on our products.
Research and Development
Our research and development activities are centered on developing new
nvSRAM-based products. We also continually work to improve yields and reduce
costs on all of our qualified products. In order to reduce costs, since late
1997 we have used outside experts for testing our products. In addition, we have
a test floor which is used for evaluation of our technologies, product design
and product quality.
10
In October 2001, we entered into an agreement with Dongbu to develop a
semiconductor process module that combines our nonvolatile technology with
Dongbu's advanced 0.25-micron complementary metal-oxide semiconductor, or CMOS,
fabrication line. The module incorporates SONOS technology, which is used to
manufacture both high-density SONOS flash and SONOS nvSRAM's, for stand alone
and embedded products. During 2002 and 2003, our research and development team
along with Dongbu's research and development team worked on the co-development
program. Our 1-megabit 3-volt nvSRAM was the primary development vehicle. In
August 2003, we received the first complete processed silicon from this
development, which yielded working samples of our new 1-megabit 3-volt
nonvolatile semiconductor memory product. We began shipping samples of our new
1-megabit 3-volt nonvolatile semiconductor memory product in September 2003. In
September 2005, we completed the full qualification of our 1-megabit 3-volt
nonvolatile semiconductor memory product for use in the commercial and
industrial market.
As described earlier, in May 2005 and March 2006 we entered into two
strategic agreements with Cypress. Our flagship 4-megabit 3-volt nvSRAM is the
primary development vehicle with engineering teams from both our Company and
Cypress sharing the design, development, debug, and other R&D related
activities. This device is planned to be available for customer sampling in
2007.
In May of 2006, we began an effort to identify potentially large markets
currently unserved by our nonvolatile memory technology. This effort identified
that the emerging Solid State Drive (SSD) application when implemented with
Multi Level Cell (MLC) Nand Flash Devices would benefit from the use of our
technology. In 2007, we expect to begin planning to develop products that may
serve the SSD application. This effort will lead to research and development
expenditures that are in addition to our traditional expenditures.
Our research and development expenditures for the years ended December 31,
2006, 2005 and 2004 were $5,855,000, $6,369,000 and $4,942,000, respectively. We
expect expenditures for research and development to increase over the next few
years, as we expand our products to include 4 megabit and greater memory
densities as well as new applications for our non-volatile memory technology.
11
Manufacturing and Quality Control
Our manufacturing strategy is to use subcontractors whose production
capabilities meet the requirements of our product designs and technologies.
Since 1993, Chartered has provided us with silicon wafers for our legacy
products. Dongbu provides silicon wafers for our 0.25-micron process to support
our 1-megabit and RTC product families. Beginning in 2007 Cypress will produce
wafers on their 0.13-micron process for our 4-megabit family of products. They
will manufacture in their plant in Minnesota and may, as need arises, use other
Asian fabs to which they have subcontracted the know-how to produce wafers
employing the same process.
Device packaging of our nvSRAM products continues at Amkor in the
Philippines, and Advanced Semiconductor Engineering Inc. in Taiwan. Final test
for our nvSRAM products continues with Integra Technologies, formerly Amkor Test
Services, in Wichita, Kansas. In 2006, we began wafer testing at Integra
Technologies and final testing of our high volume legacy products at Amkor in
the Philippines.
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.
We renewed our certification to the ISO9001:2000 Quality Management System
for our internal operations in Colorado Springs, and successfully completed
certification of our operations in Dresden. Our major subcontractors also
support ISO9000-2000 and ISO-14001 Environmental Control certifications. We
continue to support our Mil-Prf-38535 Appendix A quality system in support of
our Standard Microcircuit Drawing (SMD) and military grade products.
Our quality and reliability programs were audited by several major
commercial customers as part of routine supplier certification procedures. All
such audits were completed satisfactorily. We have established Restriction of
Hazardous Substances (RoHS) compliance for our entire product line.
Markets and Marketing
Our memory products are targeted at fast nvRAM 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 products are typically used to store critical data when power is
removed from the system. Often this data must be captured very quickly and we
believe that the fast write time of our nvSRAM products is a significant benefit
over other nonvolatile memory alternatives. Our products are used in systems
that are "write intensive" such as data collection, event recording and others
where we believe that the unlimited write endurance of our nvSRAM is superior to
alternative nonvolatile memory solutions.
12
We anticipate increasing revenue due to three major factors. First, the
revenue contribution of 1-megabit nvSRAM products is increasing as Simtek enters
2007. Second, our overall corporate average selling prices are expected to
increase, as customers migrate from lower density products to higher priced,
higher density 1-megabit nvSRAMs and nvSRAMs that include RTC functions. Third,
we are seeing increased volume of our legacy products, as targeted end
applications continue to experience additional nvSRAM product adoption and end
market growth.
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. Marketing decisions are also based on
forecasts and inputs from our current and prospective customers. We prepare
brochures, data sheets, application notes, product collateral and product
advertising with our internal marketing resources and contracted outside
services. Much of this information can be found on the Simtek website at
www.simtek.com.
Some Application Areas for Simtek Products
Airborne Computers Mass Storage Systems
Automated Parking Systems Medical Instruments
Automated Test Equipment Motor Controllers
Automated Teller Machines Multi- Function Printers
Automotive Control & Monitoring Systems POS Terminals
Broadcast Equipment Postal Systems
Cable TV and Satellite Set Top Converter Boxes Power Grid Management Systems
Copiers Printers
Currency Changers Process Control Equipment
Data Monitoring and Recording Equipment Radar and Sonar Systems
Down Hole Drilling Systems RAID Controllers
Facsimile Machines Robotics
Factory Automation Systems Routers
Fluid Flow Meters Security Systems
Gaming Machines Servers
GPS Navigational Systems Studio Recording Equipment
Guidance and Targeting Systems Telecommunications Systems
High Performance Workstations Train Control Systems
Irrigation Systems Controllers Utility Meters
Laser Printers Weapon Control Systems
LCD Projectors
Lighting Control Systems
Our 1-megabit nvSRAM is opening new applications into which our products
are being designed. These include designs into an entirely new generation of
integrated Redundant Array of Independent Disks or "RAID" controllers, other
large storage systems, power metering, tele-communications, and
data-communications. For 2007 our marketing focus will be to better understand
and penetrate current markets for Simtek including direct-attached-storage RAID
systems and certain industrial application areas; to expand our presence into
13
markets that are relatively new to Simtek such as external RAID arrays and mass
storage subsystems; and further penetrating emerging communications, automotive,
and other industrial applications.
Sales and Distribution
Our strategy is to generate sales through the use of independent
manufacturer's sales representative companies and distributors supported by
Simtek sales and technical personnel. We believe this strategy provides the
fastest and most cost effective way to assemble a large and professional sales
force.
We currently have five sales offices outside of Company headquarters. They
are located in California, Georgia, and Maine to serve the North American
markets; Germany to serve European markets; Japan to serve the Asian and Pacific
Rim markets. We have engaged approximately 18 sales independent representative
organizations and approximately 13 distributor organizations with sales offices
worldwide. These organizations have multiple sales offices and technical sales
personnel covering specific geographic territories. Through these organizations
and their sales offices we believe that we are capable of serving a significant
portion of the worldwide market for our products with our full line of products.
Independent sales representatives typically sell a limited number of
non-competing products to semiconductor users in particular assigned geographic
territories. Distributors maintain inventory and sell products from a larger
number of product lines to a broader customer base. These sales channels are
generally 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 products. We supply sales
support and materials to the sales representatives and distributors.
Customers and Backlog
We have shipped qualified nvSRAM products to customers directly and through
distributors since our initial commercial product qualification in September
1991. The majority of our sales are to Fortune 500 companies. Sales by
geographic area, based on customer receiving locations, for the years ended
December 31, 2006, 2005, and 2004 were as follows (as a percentage of sales):
2006 2005 2004
---- ---- ----
United States 27% 26% 29%
Europe 25% 18% 11%
Far East:
China 15% 5% 0%
Japan 5% 11% 12%
Singapore 9% 15% 11%
Taiwan 3% 11% 17%
Thailand 5% 2% 6%
Far East Other 2% 2% 2%
Other 9% 10% 12%
---- ---- ----
Total 100% 100% 100%
14
Competition
Our products compete on the basis of several factors, including data access
speeds, programming speeds, density, data retention, reliability, programming
endurance, space savings, manufacturability, ease of use and price.
Simtek's products fall into a memory category commonly referred to as nvRAM
(nonvolatile Random Access Memory). nvRAM products that compete with our family
of nvSRAM products fall into two categories.
The first category of products that compete with our nvSRAM products is
products that combine static random access memories, power management devices
with lithium batteries in specially adapted packages. These products generally
are slower in access speeds than our nvSRAM products due in part to limitations
caused by the life of the lithium battery when coupled with a faster static
random access memory. Our nvSRAM products 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 nvSRAM
products eliminate common problems associated with batteries such as corrosion,
premature wear-out, shelf-life maintenance, inventory management and leaded
content. Our nvSRAM's 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 16-megabit and greater per package.
Companies currently supplying products with lithium batteries include Maxim, ST
Microelectronics and Texas Instruments.
The second category consists of ferroelectric random access memory or
commonly referred to as FRAM. FRAM memories use a capacitor with a ferroelectric
dielectric as a storage element and a specialized transistor as a selection
element. The use of ferroelectric materials for nvRAM has been researched for
more than three decades but only few companies have been able to commercialize
the technology. The major reason appears to be the very challenging
manufacturing process. Typically capacities of FRAM are small. FRAM is
considered a solution in applications that require low densities and low power
where it has a competitive advantage over our nvSRAMs. FRAM's major disadvantage
is limited memory endurance due to the destructive nature of the read out cycle.
The major sources for FRAM stand alone memory components are Ramtron, OKI and
Fujitsu. While other companies such as Texas Instruments have licensed the FRAM
technology from Ramtron, it is expected that Texas Instruments will embed the
FRAM memory into a more complex ASSP.
15
Based on market research data from Web Feet Research, we estimate the
Simtek nvSRAM market share to be approximately 7% of the total nvRAM market.
However, with increasing revenues, this market share is expected to increase in
2007.
We are aware of other semiconductor technologies for nonvolatile memory
products. 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 that 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. Freescale is believed to be developing
such magnetic film products.
Patents and Intellectual Property
We undertake to protect our products and technologies under the applicable
intellectual property laws as well as by utilizing internal safeguards.
We believe that patents are significant in our industry, and we are seeking
to build a patent portfolio. We expect that we may enter into patent license and
cross-license agreements with other companies. We own 15 patents in the United
States, some of which are directed toward our nvSRAM cell. These patents have
terms that expire from 2006 to 2018. We also own 12 patent applications that
have been filed and are pending in the United States Patent and Trademark
Office. These patent applications are directed mainly toward our nvSRAM
products. We are looking to confirm an exclusive position for nvSRAM circuits
that have lower power consumption and that store data faster than competitive
products, which management believes will give us a competitive advantage.
We also own one German Patent and applications for patents in Germany and
in the European Patent office. In addition, we own an application for patent
under the Patent Cooperation Treaty seeking protection in key industrialized
countries. Our management has announced an intention to cause additional patent
applications to be filed to expand our patent portfolio. However, as with many
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.
We also protect aspects of our technology that relate to our semiconductor
memory products as trade secrets. 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.
Employees
As of the date of the Form 10-K filed on April 2, 2007, we had 57 full-time
employees, worldwide..
16
Item 1A. Risk Factors
---------------------
OUR LIMITED OPERATING CAPITAL AND OUR ABILITY TO RAISE ADDITIONAL MONEY MAY HARM
OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS AS WELL AS SUPPORT FUTURE REVENUE
GROWTH
To date, we have required significant capital for product development,
subcontracted production and marketing. We have funded these 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.
In recent months, we have experienced significant revenue growth. In order
to support that growth, we must order more silicon wafers than we have
historically. The cash required for inventory purchases, including silicon
wafers, has been greater than the cash generated from sales. Therefore, our cash
requirements have been difficult to maintain. We may need more capital in the
future to develop new products and support higher revenue. We cannot guarantee
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 purchase adequate amounts of inventory to
support revenue growth or to develop and market new products, causing our
financial position and stock price to deteriorate.
WE HAVE A HISTORY OF OPERATING LOSSES
We began business in 1987. Through December 31, 2006, we had accumulated
losses of approximately $48.2 million. Since July 1, 2000 and through September
30, 2006, we realized net losses. While we posted a net profit for the fourth
quarter of 2006, we may experience net operating losses in the future, which
could increase our need for additional capital in the future, and hurt our stock
price.
WE MIGHT NOT BE ABLE TO RE-GAIN COMPLIANCE WITH CERTAIN COVENANTS SET FORTH IN
OUR LOAN AGREEMENT WITH THE RENN CAPITAL GROUP; IF WE ARE UNABLE TO DO SO, THE
RENN CAPITAL GROUP COULD ACCELERATE THE $2.7 MILLION DEBENTURES AND FORECLOSE ON
THE COLLATERAL THAT WE GRANTED TO IT
Our loan agreement with Renaissance Capital Growth and Income Fund III,
Inc., Renaissance US Growth Investment Trust PLC and US Special Opportunities
Trust PLC, or the RENN Capital Group, formerly Renaissance Capital Group, Inc.,
contains various financial covenants. As of December 31, 2006, we were not in
compliance with one of the covenants set forth in the loan agreement, which
relates to the interest coverage ratio. On February 20, 2007, we received a
waiver for the covenant through January 1, 2008. However, significant variances
in future actual operations from our current estimates could result in the
reclassification of this note to a current liability. If the note becomes due
and we cannot pay it, RENN Capital Group may foreclose on the assets that we
pledged as security for the note. This would significantly harm our business.
17
IF WE CANNOT RECEIVE SILICON WAFERS WE REQUIRE TO MANUFACTURE OUR PRODUCTS FROM
OUR VENDORS AT THE VOLUMES OR THE PRICES WE REQUIRE, OUR REVENUES, EARNINGS AND
STOCK PRICE COULD SUFFER
We currently purchase the silicon wafers we require to build our
non-volatile memory products from two vendors, Chartered Semiconductor
Manufacturing Plc. of Singapore, and Dongbu in Korea. Due to the volatility of
the semiconductor market, we have limited control over the pricing and
availability of the wafers we require in order to build our products. The risk
of not receiving the products and pricing we need to achieve our revenue
objectives has escalated. If we are unable to obtain the products and pricing we
need from these vendors, our business could suffer.
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 drive our manufacturing costs
down and secure the production of sufficient product. Semiconductor
manufacturing depends on many factors that are complex and beyond our control
and often beyond the control of our subcontractors. These factors include
contaminants in the manufacturing environment, impurities in the raw materials
used and equipment malfunctions. Under our arrangements with our subcontractors,
our subcontractors 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 semiconductor memories 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 OUR REVENUE AND NET INCOME
It takes approximately four months for our subcontractors to manufacture
our semiconductor products. Any delays in receiving silicon wafers or completed
products 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. These delays could occur at
any time and would adversely affect our net income.
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 is in accordance with commercial,
industrial and military specifications, as applicable. If we are unable to
successfully accomplish product qualification for our future products, we will
be unable to sell these future products.
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
18
market new products. The technology we currently use may be made obsolete by
other competing or newly developed memory or other 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 that we will be
successful in developing new products or whether any products that we do develop
will satisfy the above factors.
THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY MAY PREVENT US FROM MAINTAINING A
CONSISTENT REVENUE STREAM AND MAY HARM OUR STOCK PRICE
The semiconductor industry has historically experienced significant peaks
and valleys in sales volumes resulting in large variations of revenues and
resulting profits or losses. We do not have direct influence on the nature of
the broad semiconductor market. Variations in the revenues and profits within
the semiconductor industry may cause us to incur significant losses in the
future. If the stock prices of many semiconductor companies decrease, our stock
price may also suffer.
IF WE FAIL TO COMPLETE OUR AGREEMENT OR IF WE FAIL TO SUCCESSFULLY IMPLEMENT
PRODUCTS WITH CYPRESS SEMICONDUCTOR, OUR LIQUIDITY AND REVENUES MAY SUFFER
On May 5, 2005, we closed a production and development agreement with
Cypress Semiconductor Corporation to jointly develop an "S8" 0.13-micron
silicon-oxide-nitride-oxide-silicon (SONOS) nonvolatile memory production
process. The production and development agreement also calls for Cypress to
produce one or more Simtek products, as designated by Simtek, using the S8
process. We cannot assure you that we will be able to successfully develop and
bring to qualified volume production products based on the S8 process or that
Cypress will be able to develop embedded products contemplated to be developed
using Simtek's intellectual property. If the development of the S8 process is
delayed or fails, or if Cypress is unable to meet our production requirements,
we might not be able to meet potential future orders planned to be received from
our customers. This could significantly harm our revenue and future growth
potential. We also entered into an escrow agreement pursuant to which we
deposited $3 million into an escrow account in order to support and make certain
payments for the S8 process and product developments. If we fail to complete the
development and production agreement, we might forfeit our rights to the escrow
amount.
CERTAIN OF OUR REGISTRATION RIGHTS AGREEMENTS PROVIDE FOR PENALTIES IF WE FAIL
TO FOLLOW CERTAIN PROCEDURES OR MAINTAIN AN EFFECTIVE REGISTRATION RELATED TO
THE SHARES PURCHASED BY SUCH INVESTORS
The Registration Rights Agreement entered into as part of the December 30,
2005 Securities Purchase Agreement amounting to $11,000,000 contained a cash
penalty provision if certain procedures are not followed or an effective
Registration Statement is not maintained for the shares purchased by investors
in such transaction. The cash penalties are 2% of the proceeds for each month
that a breach occurs. We cannot assure you that we will be able to maintain such
effective Registration Statement.
19
The Registration Rights Agreement entered into as part of the September 21,
2006 Securities Purchase Agreement amounting to $4,555,000 contained a provision
whereby the investors therein would receive certain amounts of penalty shares if
certain procedures are not followed or an effective Registration Statement is
not maintained for the shares purchased by the investors. The penalties are 2%
of the shares purchased for each month that a breach occurs. We cannot assure
you that we will be able to maintain such effective Registration Statement.
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. 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 revenue and operating results.
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 own 15 U.S. patents and one German patent. We have also applied inside
and outside the United States for patents on our technology. We are not sure
that any of the patents for which we have applied will be issued or, even if
they are issued, that they will provide us with desired 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
directed to alternate or comparable technologies.
Portions of our intellectual property are retained as trade secrets. 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 OR GROSS MARGINS 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 would try to modify our products so that they are non-infringing. If
we are unable to do so, we could 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
20
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 could result in reduced product sales and harm our
revenues.
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.
In late 2002, we received notice of possible patent infringement from a
corporation that has acquired a portfolio of patents. We have reviewed the claim
and believe there are no potential infringements. We have received no further
notification from this corporation. While there can be no assurances, if there
are any infringements, we believe we would be able to enter into a licensing
agreement with such company without any material impact on us.
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. Sales to customers located outside of the United States for the years
ended December 31, 2006, 2005 and 2004 were 73%, 74% and 71%, respectively. We
operate using United States dollars as the 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.
IF WE ISSUE SECURITIES AT LOW PRICES IN THE FUTURE, SOME OF OUR SECURITY HOLDERS
MAY BE ENTITLED TO ACQUIRE MORE OF OUR SECURITIES, WHICH MAY DILUTE AND HARM THE
HOLDERS OF OUR COMMON STOCK
We may be obligated under agreements with certain of our security holders
to issue to them additional securities in exchange for little or no
consideration if we sell our securities in the future at or below certain
prices. The issuance of such securities could dilute and harm the holders of our
common stock.
21
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 200,000 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. Given our present
capital requirements, it is possible that we could raise capital through the
sale of preferred stock in the future.
OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW MAY OPERATE AS ANTI-TAKEOVER
PROTECTIONS AND THUS MAY DISCOURAGE TAKEOVER ATTEMPTS AND/OR DEPRESS THE MARKET
PRICE OF OUR COMMON STOCK
We have opted to be governed, in our Delaware certificate of incorporation,
by Section 203 of the Delaware General Corporation Law, which provides for a
three-year moratorium on certain business combination transactions with
"interested stockholders" (generally, persons who beneficially own 15% or more
of the corporation's outstanding voting stock). Although we believe that Section
203 will encourage any potential acquirer to negotiate with our board of
directors, Section 203 also might have the effect of limiting the ability of a
potential acquirer to make a two-tiered bid for the company in which all
stockholders would not be treated equally. In addition, Section 203 gives the
board the power to reject a proposed business combination in certain
circumstances, even though a potential acquirer may be offering a substantial
premium for our common stock over the then-current market price. Section 203
would also discourage certain potential acquirers who are unwilling to comply
with its provisions.
Because a proposed amendment to our certificate of incorporation may not be
submitted to a vote of shareholders without the approval of the board of
directors, amending or removing any provisions in our certificate of
incorporation that have anti-takeover effects requires the consent of the board
of directors, which in turn may have anti-takeover effects.
STANDARDS FOR COMPLIANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 ARE
UNCERTAIN, AND IF WE FAIL TO COMPLY IN A TIMELY MANNER, OUR BUSINESS COULD BE
HARMED AND OUR STOCK PRICE WOULD DECLINE.
Rules adopted by the Securities and Exchange Commission pursuant to Section
404 of the Sarbanes-Oxley Act require annual assessment of our internal control
over financial reporting, and attestation of our assessment by our independent
22
auditors. This requirement may apply to our Annual Report on Form 10-K for the
fiscal year ending December 31, 2007. The standards that must be met for
management to assess the internal control over financial reporting as effective
are new and complex, and require significant documentation, testing and possible
remediation to meet the detailed standards. We may encounter problems or delays
in completing activities necessary to make an assessment of our internal control
over financial reporting. In addition, the attestation process by our
independent auditors is new and we may encounter problems or delays in
completing the implementation of any requested improvements or remediation and
receiving an attestation of our assessment by our independent auditors. We can
provide no assurance as to our, or our independent auditors', conclusions at
December 31, 2007, with respect to the effectiveness of our internal control
over financial reporting. The above factors creates a risk that we, or our
independent auditors, will not be able to conclude at December 31, 2007 that our
internal controls over financial reporting are effective as required by the
Sarbanes-Oxley Act. If we cannot assess our internal control over financial
reporting as effective, or if our independent auditors are unable to provide an
unqualified attestation report on such assessment, investors could lose
confidence in our reported financial information and the trading price of our
stock could drop.
Item 1B: Unresolved Staff Comments
----------------------------------
None.
Item 2. Properties
------------------
We lease approximately 16,000 square feet of space in Colorado Springs,
Colorado. This space includes a product engineering test floor of approximately
3,000 square feet. The lease is scheduled to expire on February 28, 2013. In
February 2006, we entered into a lease agreement for our facility in Dresden,
Germany, we lease approximately 2,800 square feet. The lease is schedule to
expire on December 31, 2008. In March 2007, we entered into a lease agreement
for office space in Poway, California for use as an engineering design center.
That lease expires in March 2011.
We do not own any real property.
Item 3. Legal Proceedings
-------------------------
We are not a party to any legal proceeding (including where our property is
the subject of the proceeding), and we are not aware of any proceeding that a
government authority is contemplating as of the date of this report.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
None.
23
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
------------------------------------------------------------------
and Issuer Purchases of Equity Securities
-----------------------------------------
On January 10, 2007, our Common Stock began trading on the NASDAQ Capital
Market under the symbol "SMTK." Prior to January 10, 2007, our common stock was
traded on the OTC Electronic Bulletin Board under the symbol "SMTE."
On October 5, 2006, Simtek completed a 1 for 10 reverse stock split of all
of its outstanding common shares. All share and per share amounts have been
restated to reflect the effect of the reverse stock split as if it had occurred
as of the balance sheet date or as of the beginning of each fiscal period
presented.
Shown below are the high and low bid information for our common stock as
reported by the OTC Electronic Bulletin Board.
Common Stock
------------
High Bid Low Bid
-------- -------
2005
First Quarter..................................... 9.00 5.10
Second Quarter.................................... 7.50 3.40
Third Quarter..................................... 4.40 2.80
Fourth Quarter.................................... 4.50 2.30
2006
First Quarter..................................... 4.00 2.30
Second Quarter.................................... 3.90 2.60
Third Quarter..................................... 6.10 2.60
Fourth Quarter.................................... 6.50 5.40
The quotations listed above reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
As of March 29, 2007, we had 448 shareholders of record. This number
does not reflect 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 dividends on our common stock in the foreseeable
future.
The following table sets forth information with respect to our equity
compensation plans as of December 31, 2006.
Equity Compensation Plan Information
------------------------------------
Number of securities
remaining available for
Number of securities to be future issuance under
issued upon exercise of Weighted-average exercise equity compensation plans
outstanding options price of outstanding (excluding securities
Plan Category warrants and rights options warrants and rights reflected in column (a))
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders
1,302,593 $5.24 143,540
--------- ----- -------
Total 1,302,593 $5.24 143,540
24
PERFORMANCE GRAPH:
------------------
The graph below compares the percentage change in the cumulative total
return to our shareholders during the period from December 31, 2001 to December
31, 2006 with the percentage change in the cumulative total return for the S&P
SmallCap 600 index and the PHLX Semiconductor Sector Index, or SOXX. The graph
assumes the investment on December 31, 2001 of $100 in Simtek's common stock and
each of the foregoing indices, and that dividends, if any, were reinvested in
all cases, except for SOXX. The stock price performance shown on the graphs is
not necessarily indicative of future price performance.
Cumulative Total Return Based upon Initial Investment of
$100 on December 31, 2001 with dividends reinvested
[GRAPHIC OMITTED - SEE SUMMARY BELOW]
Total Return Analysis
12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
Simtek Corporation $100 $38 $286 $143 $ 69 $110
SOXX $100 $55 $ 97 $ 83 $ 92 $ 89
S&P SmallCap 600 $100 $85 $116 $142 $151 $172
25
Item 6: Selected Financial Data
-------------------------------
The following selected financial data should be read in conjunction with,
and are qualified in their entirety by, the consolidated financial statements
and related notes thereto contained in "Item 8. Financial Statements and
Supplementary Data" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein.
Years Ended December 31,
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
(in thousands, except per share data)
Revenue $ 30,630 $ 10,385 $ 13,092 $ 12,263 $ 12,422
Gross margin 12,606 2,794 3,952 3,735 4,844
Loss from continuing
Operations (2,007) (7,490) (3,731) (2,389) (1,028)
Income (loss) from
Discontinued operation - 1,704 60 116 65
Net loss $ (2,007) $ (5,786) $ (3,671) $ (2,273) (963)
Loss per share from
Continuing operations:
Basic and diluted $ (.13) $ (1.09) $ (.64) $ (.41) $ (.18)
Income per share from
Discontinued operations:
Basic and diluted $ .00 $ .25 $ .01 $ .00 $ .00
Total loss per share
Basic and diluted $ (.13) $ (.84) $ (.63) $ (.41) $ (.18)
Working capital 11,828 3,591 4,122 1,610 5,473
Total assets 28,242 18,758 7,976 7,303 7,932
Total long term debt 2,220 2,760 3,000 3,000 3,000
Shareholders' equity 19,108 11,319 1,989 2,523 3,253
Cash dividends per common
Share (1) - - - - -
(1) We have not declared any cash dividends on our common stock and do not
expect to pay such dividends in the foreseeable future.
26
Item 7: Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------
Overview of Recent Debt and Equity Transactions
On March 24, 2006, we entered into a License and Development Agreement with
Cypress, whereby, among other things, we received $4,000,000 in non-refundable
prepaid royalties and we issued to Cypress 2,000,000 warrants. The warrants have
a per share exercise price of $7.50 and have a 10 year term. Please read Note 11
to the Consolidated Financial Statements for a discussion of the accounting
treatment for the transactions related to this agreement.
On May 26, 2006, we issued a total of 25,000 warrants to the RENN Capital
Group funds. 20,000 of the warrants were issued in consideration for the RENN
Capital Group funds entering into a subordination agreement with Wells Fargo
which was required for us to enter into a $3,600,000 revolving credit agreement
with Wells Fargo Business Credit. The remaining 5,000 warrants were issued in
consideration for the waiver letter we received from the RENN Capital Group
funds for us being out of compliance with the covenants in the loan agreement at
March 31, 2006.
On July 24, 2006, each of the Renaissance Capital Growth & Income Fund III,
Inc., Renaissance Growth Investment Trust PLC and US Special Opportunities
Trust, PLC converted $100,000 of the principal amount of the 2002 7.5%
convertible debentures into 45,455 shares of our common stock in lieu of us
making the principal payment we were required to make beginning on July 1, 2006.
On September 21, 2006, we completed a private placement in the amount of
$4,555,000, whereby, among other things, we issued 1,153,171 shares of our
common stock and 172,981 warrants to purchase common stock. The warrants have a
per share exercise price of $5.40 and a five-year term.
On October 11, 2006 and October 20, 2006, Bluegrass Growth Fund Ltd. and
Bluegrass Growth Fund LP each exercised 25,800 warrants to purchase shares of
our common stock. On October 20, 2006, C. E. Unterberg Towbin exercised 27,000
warrants to purchase shares of our common stock. We received a total of $212,000
from these warrant exercises.
Results of Operations
General. Simtek designs and markets high-speed, re-programmable,
nonvolatile semiconductor memory products for use in a variety of systems
including RAID servers, industrial automation, GPS navigational systems,
robotics, medical instrumentation, and networking and telecommunications
equipment. We are a fables semiconductor company, which means we outsource
substantially all manufacturing processes. We concentrate on the design and
development of our nvSRAM product families and technologies, marketing,
distribution channels, and sources of supply.
27
In 2003, we received notification from Chartered that they would be closing
their silicon wafer fabrication facility #1 in March 2004 and that they would
transfer our 0.8-micron process technology to their silicon wafer fabrication
facility #2. Through late 2003 and into 2004, we worked with Chartered to
transfer the production of our 16-kilobit, 64-kilobit, 5 volt 256-kilobit and 3
volt 256-kilobit product from their facility #1 to their facility #2. During the
third and fourth quarters of 2004 and first quarter of 2005, we completed the
transfer and qualification of these products. The transfer from Chartered's
facility #1 to Chartered's facility #2 accounted for lower production yields in
2004 as compared to the production yields we achieved in 2003. During the fourth
quarter 2004, we began seeing production yields return to historic levels. Sales
of our products manufactured from the silicon wafers we received from both of
Chartered's facilities accounted for approximately 66%, 86% and 97% of our total
revenue for the years ended December 31, 2006, December 31, 2005 and for
December 31, 2004, respectively.
In addition to Chartered, we purchase silicon wafers from Dongbu that are
used to manufacture our 0.25 micron products including the 1 megabit and 256
kilobit devices with and without real time clock. In September 2005, we
qualified our 1-megabit products for use in the commercial and industrial
markets. Sales of our 0.25 micron products accounted for approximately 13%, 13%
and 3% of our total revenue for the years ended December 31, 2006, December 31,
2005 and December 31, 2004, respectively.
As discussed previously, on December 30, 2005, we closed on the acquisition
of certain assets related to ZMD's nvSRAM product line. This acquisition had no
effect on the operating results for fiscal year 2005, as there were no operating
activities related to those assets until January 2006. During 2006,
approximately 20% of our net revenue was from inventory purchased from ZMD. We
are near the finalization of converting the last of our customers from the
products produced from ZMD to Simtek products produced on silicon received from
Chartered or Dongbu.
Review of 2006 Operations
Total revenue for 2006 was approximately $30,600,000, consisting of
$28,560,000 of product revenue and $2,070,000 of royalty revenue. We saw a
significant increase in unit shipments and average selling prices of our
commercial and industrial products. In 2006, management focused on integrating
the nvSRAM business acquired from ZMD, setting up Simtek GmbH, our wholly-owned
subsidiary in Dresden, Germany, and increasing gross margins. Margins were
improved as a result of increased selling prices, reduced costs of our 0.25
micron products, transfer of test operations to Asia, and streamlining our
product offering.
Review of 2005 Operations
Total revenue for 2005 was approximately $10,385,000. We saw a decrease in
unit shipments and average selling prices of our commercial and industrial
products. In 2005, management focused on realigning customer inventory and
ordering patterns to more closely follow end user consumption patterns. This
resulted in decreased revenue in 2005. Management believes that aligning
customer unit consumption and ordering trends will ultimately allow both Simtek
28
and its customers to better forecast production and inventory requirements.
Revenue and unit volumes were lowest in the second quarter 2005 and showed
steady improvement in the third and fourth quarters of 2005.
Results of Operations
Revenues
In 2006, total revenue was $30,630,000 which included net royalties in the
amount of $2,070,000 from Cypress. There were no royalties received in 2005 or
2004. The following table sets forth our net product revenues for semiconductor
devices by product markets for the years ended December 31, 2006, 2005 and 2004
(in thousands):
2006 2005 2004
---- ---- ----
Commercial $ 26,145 $ 8,669 $ 10,314
High-end industrial and
Military $ 2,415 $ 1,617 $ 2,778
Logic products $ - $ 99 $ -
-------- -------- --------
Total Revenue $ 28,560 $ 10,385 $ 13,092
Revenues for the year ended December 31, 2006 as compared to 2005
Commercial revenues include revenue generated from our legacy products and
from our 0.25 micron products. Commercial revenues increased by $17,476,000 for
the year ending December 31, 2006 as compared to the same period in 2005. The
increase was due to: (i) revenue associated with former ZMD customers; (ii)
increased unit volume with our key RAID customers (iii) increased shipments for
our .25 micron 1 megabit products; and (iv) higher average selling prices of our
high volume legacy products.
High-end industrial and military product revenue had an increase of
$798,000 for the year ending December 31, 2006 as compared to the same period in
2005. We saw an approximate 29% increase in unit shipments and an approximate
16% increase in average selling prices in this product market. The increases in
unit volume reflect our efforts to align customer inventory levels to their
actual consumption of the products.
Four distributors and one direct customer account for approximately 49%
of our revenue for the year ended December 31, 2006 as compared to 57% for the
same period in 2005. Products sold to distributors are sold without material
recourse. Distributor contracts typically allow distributors to return up to 5%
in value of product inventory in each six month period in exchange for a
replacement order of equal value. This allows them to keep inventory current to
market demand. Distributors sell our products to various end customers. If one
of these distributors were to terminate its relationship with us, we believe
that there would not be a material impact on our product sales, as other
distributors would likely take their place.
29
During 2006, we saw an approximate 300% increase in unit shipments of our
0.25 micron product. We expect to see a continued increase in the revenue
received from our 0.25 micron product family.
Revenues for the year ended December 31, 2005 as compared to 2004
Commercial revenues include revenue generated from our legacy products and
from our 0.25 micron products. Commercial revenues decreased by $1,645,000 for
the year ending December 31, 2005 as compared to the same period in 2004. The
decrease was due to: (i) lower average selling prices of our high volume legacy
products due to competitive pricing; (ii) reduced unit volume with our key RAID
customers due to competition; and, (iii) reduced unit volume due to a concerted
effort to realign customer inventory and ordering patterns to more closely match
actual consumption. The decrease in legacy unit shipments was partially offset
by an increase in unit shipments of our 0.25 micron product family.
High-end industrial and military product revenues had a decrease of
$1,161,000 for the year ending December 31, 2005 as compared to the same period
in 2004. We saw an approximate 47% decrease in unit shipments and an approximate
42% decrease in average selling prices. The decreases in unit volume reflect our
efforts to align customer inventory levels to their actual consumption of the
products.
The $99,000 increase in logic revenues was due to a last time buy of one
our discontinued logic products, which were discontinued in 2003.
Four distributors account for approximately 51% of our revenue for the year
ended December 31, 2005 as compared to 49% for the same period in 2004. Products
sold to distributors are sold without material recourse. Distributor contracts
typically allow distributors to return up to 5% in value of product inventory in
each six month period in exchange for a replacement order of equal value. This
allows them to keep inventory current to market demand. Distributors sell our
products to various end customers. If one of these distributors were to
terminate its relationship with us, we believe that there would not be a
material impact on our product sales, as other distributors would likely take
their place.
Cost of Sales and Gross Margins for the year ended December 31, 2006 as
compared to 2005
We recorded cost of sales of $18,024,000 and $7,591,000 for the years ended
December 31, 2006 and December 31, 2005, respectively. Gross margin for 2006 was
37% compared to 27% in 2005. The approximate 10 percentage point increase in
gross margin reflects higher average selling prices for our 3 volt 256 kilobit
devices, increased unit shipments of 1 megabit devices, lower unit costs and
higher overall sales volume.
We expect gross margins on both our legacy and 0.25 micron products to
improve during 2007. In 2006, we moved the final testing of our higher volume
products to Amkor in the Philippines, which resulted in lower costs. In 2007 we
expect to continue to transfer test operations, including wafer probe, to lower
cost facilities in Asia. In addition, we expect shipments of our 1 megabit
devices to continue to increase. These actions are expected to result in higher
gross margins for 2007.
30
Cost of Sales and Gross Margins for the year ended December 31, 2005 as
compared to 2004
We recorded cost of sales of $7,591,000 and $9,140,000 for the years ended
December 31, 2005 and December 31, 2004, respectively. These costs reflect an
approximate 3% decrease in gross margin percentage points for the year ended
December 31, 2005 as compared to the same period in 2004. Actual gross margin
percentages were 27% and 30% for the years ended December 31, 2005 and 2004,
respectively. The decreases in gross margin percentages for the year ended
December 31, 2005 were due primarily to decreased average selling prices and
lower unit volume shipments of our high-end industrial and military products,
which typically carry high gross margins.
Research and Development for the year ended December 31, 2006 as compared
to 2005
We believe that continued investments in new product development are
required for us to grow and remain competitive in the markets we serve. In 2006,
our research and development department continued development of the 4 megabit
product based on the 0.13 micron process with Cypress and added an engineering
team in our Dresden office. In November 2006, we qualified our 256-kilobit and
256-kilobit with real time clock built on the 0.25 micron base. In addition, we
worked to increase the yields and reduce the amount of back-end testing on our
0.25 micron 1 megabit products. We anticipate providing customers with initial
product samples of our 4 megabit product in the fourth quarter of 2007.
Total research and development expenses were $5,855,000 for the year ended
December 31, 2006 as compared to $6,369,000 for the year ended December 31,
2005.
The $514,000 decrease for the year was due to several items, including: (i)
charges in 2005 of $1,222,000 related to final development of our 0.25 micron
product due to abnormally low yields and high scrap due to design and process
issues with the silicon wafers; and (ii) a reduction of $598,000 in expenses
related to the 4 megabit development with Cypress due to the timing of
compensable milestones as defined in the 2005 agreement with Cypress. These
decreases were partially offset by increases in payroll and payroll overhead
costs of $776,000, product development costs of $165,000, stock compensation
expense of $160,000, equipment related costs of $128,000 and travel of $100,000.
The increase in payroll and payroll overhead costs was primarily due to the
addition of the Dresden office. The increase in equipment related costs was
primarily related to software licenses required for our Dresden office. The
increase in product development costs were primarily related to the cost
reductions made in our 0.25 micron 1 megabit product.
We expect that investment in Research and Development will continue to increase
as we complete the development of the 4 megabit product and derivative products
based on that initial design. In addition, in November 2006, we hired Mr. Ronald
31
Sartore, one of our directors, as Executive Vice President of Technology. Mr.
Sartore will be responsible for identifying new and innovative uses for our
patented non-volatile memory technology. The first application he has identified
is to use our technology to enable high density FLASH in such applications as
solid state drives. This will require significant engineering effort and is
expected to take at least two years to develop. We expect the development work
will be done in our new design office in San Diego, California and in our
Dresden, Germany design center.
Research and Development for the year ended December 31, 2005 as compared
to 2004
In 2005, our research and development department continued to work on the
final development, testing and qualification of our 1-megabit 3-volt nvSRAM with
Dongbu. In September 2005, we qualified our 1-megabit products for use in the
commercial and industrial markets. Development of the smaller 256-kilobit and
256-kilobit with real time clock built on the 0.25-micron base continued in
2005.
In addition, during the second half of 2005 we began development of our
next generation nvSRAM product, in conjunction with Cypress, pursuant to the
terms of the May 5, 2005 development agreement. This new product, based on
Cypress' .13-micron process will include memory density of 4-megabits.
Total research and development expenses were $6,369,000 for the year ended
December 31, 2005 as compared to $4,942,000 for the year ended December 31,
2004.
The $1,427,000 increase for the year was primarily due to a one-time charge
of $1,222,000 related to the final development of our 0.25-micron product. The
one-time charge related to our 0.25 micron product was due to abnormally low
yields and high scrap due to design and process issues with the silicon wafers.
We have implemented a significant new revision for the silicon wafers being
produced at Dongbu and preliminary testing shows a significant improvement in
both the initial silicon wafer probe yield as well as the final assembly and
test yield. The improved yields resulted in a more cost effective product. This
charge was partially offset by decreases in payroll and payroll overhead costs
of $159,000, consulting services of $312,000, product development costs of
$293,000 and equipment related costs of $13,000 which were in turn partially
offset by increases in qualification costs of $60,000, and costs related to the
joint development with Cypress of $919,000. The $159,000 decrease in payroll and
payroll overhead costs was a direct result of reduced headcount. The $312,000
decrease in consulting services was due to a decrease in engineering work
performed by our wholly-owned subsidiary, Q-DOT, for the development of our
data-communication products. As reported elsewhere in this Form 10-K, we sold
substantially all the assets of Q-DOT in August 2005. The $293,000 decrease in
product development costs was related to wind down of development activities
related to the 0.25 micron product. As discussed above, the one-time charge
related to our 0.25 micron product was due to abnormally low yields and high
scrap due to design and process issues with the silicon wafers. The issues were
resolved and yields from the revised silicon wafers are significantly better and
result in a cost effective product. In September 2005, we achieved full
production qualification of the 1-megabit product family.
32
Sales and Marketing for the year ended December 31, 2006 as compared to
2005
Total sales and marketing expenses were $4,679,000 for the year ended
December 31, 2006 as compared to $1,493,000 for the year ended December 31,
2005.
The $3,186,000 increase was primarily due to $1,784,000 of amortization
expense related to the non-competition agreement entered into with ZMD (see Note
10 of these Notes to Consolidated Financial Statements below). The balance of
the increase was related to increases in payroll and payroll overhead costs of
$844,000, sales commissions of $410,000, stock compensation expense of $78,000
and travel expenses of $93,000. The increases in payroll and payroll overhead
costs and travel was primarily due to increased headcount and sales activity,
worldwide. The increase in sales commissions is directly related to the
increased sales.
Sales and Marketing for the year ended December 31, 2005 as compared to
2004
Total sales and marketing expenses were $1,493,000 for the year ended
December 31, 2005 as compared to $1,608,000 for the year ended December 31,
2004.
The $115,000 decrease was primarily due to decreases in advertising of
$15,000, sales commissions of $285,000 and other miscellaneous expenses of
$11,000; these decreases were partially offset by an increase in payroll and
overhead costs of $196,000. The $285,000 decrease in sales commission is a
direct result of reduced revenue. The $196,000 increase in payroll and overhead
costs was the result of personnel changes.
Administration for the year ended December 31, 2006 as compared to 2005
Total administration expenses were $3,861,000 for the year ended December
31, 2006 as compared to $2,275,000 for the year ended December 31, 2005.
33
The $1,586,000 increase for the year was due to increases in accounting
fees of $118,000, legal expenses of $340,000, $1,058,000 in payroll and payroll
overhead costs, professional and consulting services of $258,000, stock
compensation expenses of $304,000, software license of $88,000 and travel
expenses of $141,000. The increases were partially offset by $730,000 in
management reorganization costs that occurred in 2005 and not in 2006. The
increase in payroll and payroll overhead costs were related to additional
headcount and executive incentive compensation. The increase in professional and
consulting expenses is related to work done to evaluate new strategic and
alternative markets for Simtek's intellectual property and matters relating to
corporate governance. The increase in legal fees was related to increased legal
work required for the shareholders meeting, reverse split, reincorporation into
Delaware and various Securities and Exchange Commission filings.
Administration for the year ended December 31, 2005 as compared to 2004
Total administration expenses were $2,275,000 for the year ended December
31, 2005 as compared to $917,000 for the year ended December 31, 2004.
The $1,358,000 increase for the year was due to increases in accounting and
legal expenses of $123,000, $343,000 increase in payroll and payroll overhead
costs, $713,000 in expenses related to separation and employment agreements and
a $179,000 increase in board of director costs and contract services. The
increases in payroll and payroll related costs and contract services were
related to increases in headcount and increases in administrative services
provided by our subsidiary Q-DOT. The increases in accounting and legal expenses
were related to increased activity related to agreements with personnel and
increased securities work. The $713,000 in expenses was related to costs
associated with the terms of the employment agreement for our current Chief
Executive Officer and the costs associated with the separation agreement entered
into with our previous Chief Executive Officer.
Total Other Income (Expense) for the year ended December 31, 2006 as
compared to 2005
Total other expense (net) increased $38,000 for the year ended December 31,
2006 as compared to the year ended December 31, 2005 primarily due to an
increase in interest expense primarily related to our revolving credit line with
Wells Fargo, which was partially offset by an increase in interest income
received from our restricted investments.
Total Other Income (Expense) for the year ended December 31, 2005 as
compared to 2004
Total other expense (net) decreased $69,000 for the year ended December 31,
2005 as compared to the year ended December 31, 2004 primarily due to an
increase in interest income received from our restricted investments.
Loss from Continuing Operations for the year ended December 31, 2006 as
compared to 2005
We recorded a loss from continuing operations of $2,007,000 for the year
ended December 31, 2005 as compared to a loss from continuing operations of
$7,490,000 for the year ended December 31, 2005. The decrease of $5,483,000 in
net loss for the year was due primarily to an the increased revenue and changes
in expenses discussed above.
Loss from Continuing Operations for the year ended December 31, 2005 as
compared to 2004
We recorded a loss from continuing operations of $7,490,000 for the year
ended December 31, 2005 as compared to a loss from continuing operations of
$3,731,000 for the year ended December 31, 2004. The increase of $3,759,000 in
net loss for the year was due primarily to an increase in operating expenses and
decreased revenue discussed above.
Future Results of Operations
Our ability to be profitable will depend primarily on our ability to
continue to increase revenue, reduce product costs, introduce new products and
34
expand our customer base. We are also dependent on the overall state of the
semiconductor industry and the demand for semiconductor products by equipment
manufacturers.
In January 2006, we established Simtek GmbH to operate our new European
design, customer service and support center in Dresden, Germany. Simtek GmbH
will service all of our European customers and supplement our engineering
capabilities.
As of December 31, 2006, we had a backlog of unshipped customer orders of
approximately $8,100,000, all of which we expect to ship by June 30, 2007.
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 cannot assure you that the growth in demand, or demand for our products,
will increase in the future. Through 2006, we were principally dependent on our
legacy products for revenue. However, we expect to see a significant increase in
customer orders for our 0.25 micron 1 megabit products in 2007. We continue to
explore alternatives to further reduce the cost to manufacture our existing
products built on 0.8-micron and 0.25 micron technologies. We are currently
reviewing additional cost reduction measures that are expected to improve our
gross margins.
During the years ended December 31, 2006, 2005 and 2004, we purchased all
of our silicon wafers to produce our legacy nvSRAM products from a single
supplier, Chartered. Approximately 66%, 86% and 97% of our semiconductor device
sales for 2006, 2005 and 2004, respectively, were from finished units produced
from these silicon wafers. We believe that we maintain a very good relationship
and that Chartered will continue to supply our wafer requirements for our legacy
products. In addition, we purchased finished units from ZMD principally for sale
to former ZMD customers; approximately 20% of our product revenue was from these
units. In 2007, we expect to discontinue purchasing product from ZMD and to
substitute that product with Simtek product. Dongbu provides silicon wafers for
our 0.25-micron products. Approximately 13%, 13% and 3% of our semiconductor
product sales for the years ended December 31, 2006, 2005 and 2004,
respectively, were from finished units produced from these silicon wafers.
We intend to continue designing, developing and subcontracting the
production of our memory products. We also expect to continue to sell to
existing and new customers through our normal sales and marketing channels.
Liquidity and Capital Resources
Cash flows used in operating activities from continuing operations for the
year ended December 31, 2006 were $3,200,000 compared to $3,902,000 in the same
period in 2005, a decrease of $702,000. The primary improvements include: (i)
the reduction in the net loss from continuing operations of $5,453,000
($2,007,000 in 2006 versus $7,490,000 in 2005); (ii) amortization of the ZMD
non-compete agreement of $1,785,000; (iii) non-cash stock compensation of
$542,000; (v) the amount allocated to the issuance of warrants to Cypress of
$1,927,000; and, (vi) net change in allowance accounts of $746,000. These
35
improvements were partially offset by investment in working capital to support
revenue growth. The key components of the changes in working capital items are
as follows, in thousands of dollars:
2006 2005 Change
---- ---- ------
Accounts receivable $ (4,113) $ 1,011 $ (5,124)
Inventory $ (5,128) $ 492 $ (5,620)
Prepaid expenses $ 491 $ (622) $ 1,113
Cash flows used in investing activities decreased for the year ended
December 31, 2006 by approximately $5,880,000 as compared to the same period in
2005. The decrease was primarily the result of the cash used in 2005 for the
purchase of certain assets from ZMD. This decrease was partially offset by an
increase in the purchase of equipment and furniture for our facility in Germany
and test equipment for our research and development activities.
The decrease of $3,491,000 in cash flows provided by financing activities
was primarily due to a reduction in the amount raised from equity financing
transactions in 2006.
The change in cash flows for the year ended December 31, 2005 used in
operating activities by continuing operations was primarily a result of a net
loss of $5,785,315, which was partially offset by $433,181 in depreciation and
amortization and a gain from discontinued operations of $1,687,403. The changes
in cash flow used in operating activities also reflected increases in allowance
accounts, loss on disposal of assets, prepaid expenses and other, accounts
payable and accrued expenses of $22,650, $129,307, $622,004, $767,512, and
$1,005,426 respectively. The increases were offset by decreases in accounts
receivable of $1,011,028, inventory of $491,611 and customer deposits of
$47,464. The increase of $622,004 in prepaid expenses and other was primarily
due to a deposit put in place with a supplier. The $129,307 loss on disposal of
assets, was primarily related to the write off of test development software. The
increase of $1,005,426 in accrued expenses was primarily related to costs
incurred with the December 30, 2005 stock transaction and expenses related to
certain employment and separation agreements that had not been paid as of
December 31, 2005. The $491,611 decrease in inventory was primarily due to
timing of inventory purchases. The change in cash flows provided by investing
activities by continuing operations of $1,526,233 was primarily due to the
purchases of equipment required to test our nonvolatile semiconductor memory
products and reticles required to produce our wafers, offset by the net proceeds
of $1,868,593 received from the sale of the assets of Q-DOT. The change in cash
flows provided by financing activities by continuing operations of $2,887,168
was primarily due to the equity financings, net of transaction related costs of
$3,944,403 and $8,458,926 which we completed in May and December 2005,
respectively. The proceeds of the equity financings were offset by the transfer
of $3,200,000 to escrow accounts for the Cypress and Q-DOT transactions and the
cash portion of the purchase of certain assets from ZMD of $7,685,416.
Additional proceeds provided by financing activities included $190,350 received
from the sale of our common stock per employment agreements and $310,501
received from the exercise of stock options by certain employees.
The change in cash flows for the year ended December 31, 2004 used in
operating activities by continuing operations was primarily a result of a net
36
loss of $3,670,354, which was partially offset by $442,245 in depreciation and
amortization. The changes in cash flow used in operating activities also
reflected increases in allowance accounts, loss on disposal of assets, accounts
receivable, inventory, accounts payable, and accrued expenses of $122,691,
$75,110, $1,060,206, $684,955, $1,053,165, and $81,972, respectively. The
increase of $1,060,206 in accounts receivable was directly related to the
increase in revenue for the fourth quarter of 2004. The $684,955 increase in
inventory and $1,053,165 increase in accounts payable was due to the receipt of
raw materials at the end of December 2004 required to support first quarter 2005
shipments. The $75,110 loss on disposal of assets, was primarily related to
writing off the capital expenditures purchased for the installation of our
process at X-FAB, terminated in August 2004. The change in cash flows used in
investing activities by continuing operations of $134,886 was primarily due to
the purchase of equipment required to test our nonvolatile semiconductor memory
products and reticles required to produce our wafers, offset by a $300,000
release of restricted cash. The change in cash flows provided by financing
activities by continuing operations of $2,335,121 was primarily due to the
equity financing of $2,248,851 (net of transaction related costs) received in
October 2004, payments on a line of credit of $150,000, payments on capital
leases of $124,472 and $360,742 received from the exercise of stock options by
certain employees.
Short-term liquidity.
Our unrestricted cash balance at December 31, 2006 was $4,522,000.
Our future liquidity will depend on continued revenue growth, continued
improvement in gross margins and control of operating expenses. We expect
revenues to continue to increase in 2007. In addition, gross margins are
expected to improve and we expect to be profitable for 2007. Investment in
research and development is also expected to increase in 2007. We believe that
the cash generated by operations plus the available credit under its 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.
Critical Accounting Polices and Estimates
Simtek's 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, revenues and expenses and the related
disclosures. A summary of these significant accounting policies can be found in
Simtek's Notes to Consolidated Financial Statements included in this Form 10-K.
37
The estimates used by management are based upon Simtek's historical experiences
combined with managements 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; 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 of
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.
We record an allowance for sales returns as a net adjustment to 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 actual reported distributor inventory levels. The contracts we have
with our distributors generally allow them to return to us a 5% percent of their
inventory every 6 months, in exchange for inventory that better meets their
demands. At times, 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. When this occurs, we record an allowance for potential credit that our
distributors will be requesting. This allowance is based on approved pricing
changes, inventory affected and historical data. We believe that our processes
to adequately predict our allowance for sales returns are effective in
quantifying our exposures due to industry or specific customer conditions.
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 revenues and historical
38
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
warranties.
We assess the impairment of long-lived assets, including the ZMD
non-compete agreement, 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. As of December 31, 2006 we
determined that no impairment existed as of that date. If the asset's carrying
amount is not recoverable through the related cash flows, the asset is
considered to be impaired. The impairment is measured by the difference between
the asset's 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. We
performed goodwill impairment testing as of December 31, 2006, and 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 periodic and 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.
We have recorded a valuation allowance on deferred tax assets. Future
operations may change our estimate in connection with potential utilization of
these assets.
Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes ("FIN 48"). The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's financial
statements in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. Specifically, the pronouncement prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The interpretation also provides guidance on the related
derecognition, classification, interest and penalties, accounting for interim
periods, disclosure and transition of uncertain tax positions. The
interpretation is effective for fiscal years beginning after December 15, 2006.
The Company is currently evaluating the requirements of FIN 48 and the potential
impact on the Company's financial statements.
39
In February 2007, the FASB issued FAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities ("FAS 159"). FAS 159 allows the
Company to choose to measure many financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings. FAS 159 is effective for fiscal years
beginning after November 15, 2007. Therefore, we are required to adopt FAS 159
by the first quarter of 2008. We are currently evaluating the requirements of
FAS 159 and the potential impact on our financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements. FAS 157 is to be effective for our financial statements issued in
2008; however, earlier application is encouraged by the FASB. We are currently
evaluating the timing of adoption and the impact that adoption might have on our
financial position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 108 ("SAB 108"). Due to diversity in practice
among registrants, SAB 108 expresses SEC staff views regarding the process by
which misstatements in financial statements are evaluated for purposes of
determining whether financial statement restatement is necessary. SAB 108 is
effective for fiscal years ending after November 15, 2006, and early application
is encouraged by the FASB. We do not believe SAB 108 will have a material impact
on our financial position or results of operations.
Inflation
The impact of inflation on our business has not been material.
Off Balance-Sheet Arrangements
We are party to a lease agreement with Baja Properties, LLC as landlord
pursuant to which we lease approximately 16,000 square feet of space in Colorado
Springs, Colorado. The lease is scheduled to expire on February 28, 2013. Our
monthly rental payment obligation is approximately $17,000. We are party to a
lease agreement with Buerohaus Elg-Florenz GmbH & Co. as landlord pursuant to
which we lease approximately 1,394 square feet of space in Dresden, Germany. The
lease is schedule to expire December 31, 2008. Our monthly rental payment
obligation is approximately $5,200.
Description of Property
We do not own any property.
40
Contractual Obligations
The following table summarizes our significant contractual obligations at
December 31, 2006, which are expected to have an effect on our liquidity and
cash flows in future periods:
Payments Due by Period
------------------------------------------------------------------
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
----- --------- --------- --------- -------
(in thousands)
--------------
Operating lease obligations $ 1,479 $ 296 $ 725 $ 458 $ -
Other purchase obligations and
Commitments 1,481 877 604 - -
Long-term debt obligations 2,700 480 2,220 - -
----------- -------- ----------- --------- ---------
Total $ 5,660 $ 1,653 $ 3,549 $ 458 $ -
=========== ======== =========== ========= =========
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
Market risk represents the risk of loss that may impact our financial
position, results of operations or cash flows due to adverse changes in
financial and commodity market prices and rates. We are exposed to market risk
in the areas of changes in United States interest rates and changes in foreign
currency exchange rates as measured against the United States dollar. These
exposures are directly related to our normal operating activities. We currently
have no derivative financial instruments.
Interest payable on our convertible debentures is fixed at 7.5% over the
term of the debentures. As such, changes in interest rates will not affect
future expenses or cash flows.
Interest payable on our revolving line of credit entered into with Wells
Fargo is a fixed amount of the face value of eligible receivables they purchase
from us. As such, changes in interest rates will not affect future expenses or
cash flows.
We manage interest income by investing our excess cash in cash equivalents
bearing variable interest rates, which are tied to various market indices. We do
not believe that near-term changes in interest rates will result in a material
effect on future earnings, fair values or cash flows.
We do not speculate in the foreign exchange market and do not manage
exposures that arise in the normal course of business related to fluctuations in
foreign currency exchange rates by entering into offsetting positions through
the use of foreign exchange forward contracts.
Average selling prices of our products have not increased significantly as
a result of inflation during the past several years, primarily due to intense
competition within the semiconductor industry. The effect of inflation on our
costs of production has been minimized through improvements in production
efficiencies. We anticipate that these factors will continue to minimize the
effects of any foreseeable inflation and other price pressures within the
industry and markets in which we participate.
41
Interest payable on our revolving line of credit entered into with Wells
Fargo Bank, National Association ("Wells Fargo") is a fixed amount of the face
value of eligible receivables they purchase from us. As such, changes in
interest rates will not affect future expenses or cash flows.
On October 11, 2006 and October 20, 2006, the Bluegrass Growth Fund Ltd.
and the Bluegrass Growth Fund Lp. each exercised 25,800 warrants into shares of
our common stock. On October 20, 2006, C. E. Unterberg Towbin exercised 27,000
warrants into shares of our common stock. We received a total of $212,000 from
these warrant exercises.
42
Item 8. Financial Statements and Supplementary Data
---------------------------------------------------
SIMTEK CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Registered Public Accounting Firm.................... 44
Consolidated Balance Sheets - December 31, 2006 and 2005................... 45
Consolidated Statements of Operations - For the Years Ended
December 31, 2006, 2005 and 2004...................................... 46
Consolidated Statements of Changes in Shareholders' Equity -
For the Years Ended December 31, 2006, 2005 and 2004.................. 47
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 2006, 2005 and 2004...................................... 49
Notes to Consolidated Financial Statements - For the Years
Ended December 31, 2006, 2005 and 2004................................ 51
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Simtek Corporation
Colorado Springs, Colorado
We have audited the consolidated balance sheets of Simtek Corporation and
subsidiaries as of December 31, 2006 and 2005, and the related consolidated
statements of operations, statements of changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 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
and subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the accompanying consolidated financial statements,
effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment.
HEIN & ASSOCIATES LLP
Denver, Colorado
March 27, 2007
44
SIMTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value and share amounts)
ASSETS
------
December 31, 2006 December 31, 2005
----------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,522 $ 1,766
Restricted investments 1,775 2,281
Accounts receivable - trade, net of allowance for doubtful
accounts and return allowances of approximately $372
and $282 5,537 1,456
Inventory, net 6,596 2,068
Prepaid expenses and other current assets 312 99
Deposits - 600
-------- --------
Total current assets 18,742 8,270
EQUIPMENT AND FURNITURE, net 1,239 571
DEFERRED FINANCING COSTS AND DEBT ISSUANCE COSTS 54 111
GOODWILL 992 876
NON-COMPETITION AGREEMENT,NET 7,126 8,910
OTHER ASSETS 89 20
-------- --------
TOTAL ASSETS $ 28,242 $ 18,758
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,771 $ 2,822
Accrued expenses 939 1,419
Accrued vacation payable 229 145
Accrued wages 814 40
Obligation under capital leases - 13
Line of credit 681 -
Debentures, current 480 240
-------- --------
Total current liabilities 6,914 4,679
DEBENTURES, NET OF CURRENT 2,220 2,760
-------- --------
Total liabilities 9,134 7,439
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.0001 par value; 200,000 shares authorized,
none issued - -
Common stock, $.0001 par value; 30,000,000 shares authorized,
16,146,679 and 16,145,679 shares issued and outstanding
at December 31, 2006 and 14,692,082 and 14,691,082 shares
issued and outstanding at December 31, 2005 2 2
Additional paid-in capital 67,173 57,509
Treasury stock, at cost; 10,000 shares (1) (1)
Accumulated deficit (48,198) (46,191)
Accumulated other comprehensive income 132 -
-------- --------
Total shareholders' equity 19,108 11,319
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,242 $ 18,758
======== ========
See accompanying notes to these consolidated financial statements.
45
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except par value and share amounts)
FOR THE YEARS ENDED
DECEMBER 31,
------------
2006 2005 2004
---- ---- ----
REVENUE:
Product sales, net $ 28,560 $ 10,385 $ 13,092
Royalty revenue 2,070 - --
------------ ------------ ------------
Total revenue 30,630 10,385 13,092
Cost of sales 18,024 7,591 9,140
------------ ------------ ------------
GROSS MARGIN 12,606 2,794 3,952
OPERATING EXPENSES:
Research and development costs 5,855 6,369 4,942
Sales and marketing 4,679 1,493 1,608
General and administrative 3,861 2,275 917
------------ ------------ ------------
Total operating expenses 14,395 10,137 7,467
------------ ------------ ------------
LOSS FROM OPERATIONS (1,789) (7,343) (3,515)
OTHER INCOME (EXPENSE):
Interest income 162 92 26
Interest expense (370) (238) (241)
Exchange rate variance (3) - --
Other expense 26 (1) (1)
------------ ------------ ------------
Total other expense (185) (147) (216)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES (1,974) (7,490) (3,731)
Provision for income taxes (33) - --
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (2,007) (7,490) (3,731)
INCOME FROM DISCONTINUED OPERATIONS
(including gain on disposal of $1,687
in 2005) - 1,704 60
------------ ------------ ------------
NET LOSS $ (2,007) $ (5,786) $ (3,671)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic and diluted
Loss from continuing operations $ (.13) $ (1.09) $ (.64)
Income from discontinued operations $ .00 $ .25 $ .01
------------ ------------ ------------
Total $ (.13) $ (.84) $ (.63)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted 15,125,847 6,861,309 5,858,641
============ ============ ============
See accompanying notes to these consolidated financial statements.
46
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Amounts in thousands, except par value amounts)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------- PAID-IN TREASURY ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL STOCK DEFICIT INCOME EQUITY
------ ------ ---------- -------- ----------- -------------- -------------
BALANCES, December 1, 2004 5,671 $ 1 $ 39,784 $ (1) $ (36,734) $ - $ 3,050
Exercise of stock options 101 - 361 - - - 361
Equity financing October 12,
2004, net of $251 in costs 516 - 2,249 - - - 2,249
Net loss - - - - (3,671) - (3,671)
------- ------ -------- -------- --------- --------- ---------
BALANCES, December 31, 2004 6,288 1 42,394 (1) (40,405) - 1,989
Exercise of stock options 114 - 311 - - - 311
Equity financing May 5, 2005,
net of $55 in costs 674 - 3,944 - - - 3,944
Issuance of stock related
to Employment/separation
agreements 115 - 457 - - - 457
Issuance of stock related
to December 30, 2005
equity financing, net
of $641 in costs 6,875 1 8,458 - - - 8,459
Asset purchase,
December 30, 2005 626 - 1,882 - - - 1,882
Interest expense related
to issuance of warrants - - 63 - - - 63
Net loss - - - - (5,786) - (5,786)
-------- ------ ------- -------- --------- --------- ---------
BALANCES, December 31, 2005 14,692 2 57,509 (1) (46,191) - 11,319
Funds in transit at
December 31, 2005
related to the
December 30, 2005
equity financing - - 1,874 - - - 1,874
Stock-based compensation
expense - - 542 - - - 542
Exercise of stock options 73 - 206 - - - 206
Exercise of warrants 79 - 212 - - - 212
Expense related to
issuance of warrants - - 1,981 - - - 1,981
See accompanying notes to these consolidated financial statements.
47
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Amounts in thousands, except par value amounts)
(continued)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------- PAID-IN TREASURY ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL STOCK DEFICIT INCOME EQUITY
------ ------ ---------- -------- ----------- -------------- -------------
Issuance of stock for
services provided 14 - 52 - - - 52
Shares of common stock
purchased from dissenters - - (6) - - (6)
Conversion of debentures 136 - 300 - - - 300
Equity financing, September 21,
2006 net of $52 in costs 1,153 - 4,503 - - - 4,503
Cumulative foreign currency
translation adjustments - - - - - 132 132
Net loss - - - - (2,007) - (2,007)
-------- ------ ------- -------- --------- --------- ---------
BALANCES, December 31, 2006 16,147 $ 2 $67,173 $ (1) $ (48,198) $ 132 $ 19,108
======== ====== ======= ======== ========= ========= =========
See accompanying notes to these consolidated financial statements.
48
SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except par value and share amounts)
FOR THE YEARS ENDED
DECEMBER 31,
2006 2005 2004
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,007) $ (5,786) $ (3,671)
Income from discontinued operations - (17) (60)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 494 433 442
Loss on disposal of assets - 129 75
Stock-based compensation expense 542 - -
Issuance of common stock per separation and employment
agreements and other compensation agreements 52 267 -
Expense related to issuance of warrants 1,927 9 -
Amortization of non-compete agreement 1,784 - -
Gain from discontinued operations - (1,687) -
Net change in allowance accounts 769 23 123
Deferred financing fees 53 16 16
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (4,113) 1,011 (1,060)
Inventory (5,128) 492 (684)
Prepaid expenses and other 491 (622) 21
Increase (decrease) in:
Accounts payable 921 768 1,053
Accrued expenses 1,015 1005 82
Customer deposits - (47) -
-------- -------- --------
Net cash used in operating activities of continuing operations (3,200) (4,006) (3,663)
Net cash provided by operating activities of discontinued
operations - 104 353
-------- -------- --------
Net cash used in operating activities (3,200) (3,902) (3,310)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture, net (1,153) (342) (435)
Transfers from restricted cash 506 919 300
Patents (66) - -
Proceeds from discontinued operations, net - 1,868
Purchase of certain assets from ZMD (116) (8,542) -
-------- -------- --------
Net cash used in investing activities of
continuing operations (829) (6,097) (135)
Net cash used in investing activities of discontinued operations - (36) (176)
-------- -------- --------
Net cash used in investing activities (829) (6,133) (311)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and line of credit - - (150)
Payments on capital lease obligation (13) (50) (124)
Equity financing, net 6,377 12,403 2,249
See accompanying notes to these consolidated financial statements.
49
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED
DECEMBER 31,
2006 2005 2004
---- ---- ----
Transfers to restricted investment - (3,200) -
Sale of common stock related to employment agreements - 190 -
Proceeds from exercise of warrants 212 - -
Shares purchased from dissenting shareholders (6) - -
Exercise of stock options 206 311 361
------- ------- -------
Net cash provided by financing activities 6,776 9,654 2,336
------- ------- -------
Effect of exchange rate changes on cash 9 - -
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,756 (381) (1,285)
CASH AND CASH EQUIVALENTS, beginning of period 1,766 2,147 3,432
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 4,522 $ 1,766 $ 2,147
======= ======= =======
Cash paid for interest $ 331 $ 242 $ 229
======= ======= =======
Stock issued for purchase of certain assets from ZMD $ - $ 1,882 $ -
======= ======= =======
Warrants issued for debt issuance cost $ 54 $ 63 $ -
======= ======= =======
Conversion of debentures $ 300 $ - $ -
======= ======= =======
See accompanying notes to these consolidated financial statements.
50
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 1-megabit, 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.
Reverse Stock Split and Reincorporation - On October 5, 2006, the Company
completed a 1 for 10 reverse stock split. All share and per share amounts
have been restated to reflect the effect of the reverse stock split as if
it had occurred as of the balance sheet date or as of the beginning of each
fiscal period presented. In addition, On October 5, 2006, the Company
converted from a Colorado corporation to a Delaware corporation. This
reincorporation had no effect on the consolidated financial statements.
Liquidity - During 2006 the Company incurred a net loss of $2,007,000 and
has accumulated deficits of $48,198,000 as of December 31, 2006. The
Company was also not in compliance with its debentures throughout 2006, but
was successful in obtaining waivers from the debenture holders.
During the third quarter of 2006, the Company raised gross proceeds of
$4,555,000 in a private placement. The Company issued 1,153,171 shares
(post-split) of its common stock at a per share price of $3.95 and 172,981
warrants to purchase common stock. The warrants have a per share exercise
price of $5.40 and a five-year term. The Company anticipates using the
proceeds for general working capital and to produce silicon wafers to
support revenue growth.
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 profitable operations in 2007 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.
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 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
collectibility 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 a price protection in the event of changes in the
Company's product price. 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 on the actual inventory value of the Company's
semiconductor products held by its 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
51
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Revenue from royalties related to non-refundable prepaid royalty payments
is recognized upon receipt. Revenue from royalties related to sales of
products by license partners is recognized upon the notification to us of
shipment of product from the Company's technology license partners to
direct customers.
Fair Value of Financial instruments - The Company's short-term financial
instruments consist of cash, accounts receivable, and accounts payable and
accrued expenses. The carrying amounts of these financial instruments
approximate fair value because of their short-term maturities. Financial
instruments that potentially subject the Company to a concentration of
credit risk consist principally of cash and accounts receivable.
The Company does not hold or issue financial instruments for trading
purposes nor does it hold or issue interest rate or leveraged derivate
financial instruments.
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, 2006, substantially all of the Company's
cash and cash equivalents were held by three banks, of which approximately
$4,002,000 was in excess of Federally insured amounts.
Receivables and Credit Policies - Trade receivables consist of
uncollateralized customer obligations due under normal trade terms,
typically requiring payment within 30 days of the invoice date. Management
reviews trade receivables periodically and reduces the carrying amount by a
valuation allowance that reflects management's best estimate of the amount
that may not be collectible.
Inventory - The Company records inventory using the lower of cost
(first-in, first-out) or market. Inventories consist of (in thousands of
dollars):
December 31,
------------
2006 2005
---- ----
Raw materials $ 21 $ 33
Work in progress 4,603 1,096
Finished goods 2,737 1,055
----------- -----------
7,361 2,184
Less reserves for excess inventory (765) (116)
------------ ------------
$ 6,596 $ 2,068
=========== ===========
Non-competition Agreement - On December 30, 2005, the Company entered into
a non-competition agreement with ZMD as part of the acquisition of ZMD's
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. During 2006, the Company expensed approximately
$1,784,000 to sales and marketing for amortization of the non-competition
agreement and will expense this same amount for each of the next four
years.
52
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2006, no
impairment of value has been recorded.
Depreciation & Amortization - 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 accounts and the resulting gain or loss is
included in operations. Maintenance and repairs are charged to operations
as incurred and betterments are capitalized. In December 2006, the Company
incurred expenses of approximately $70,000 related to the filing of 10 new
patents with the United States Patent and Trademark Office in January 2007.
The Company will amortize the expense related to these patents over the
life of the patent.
Research and Development Costs - Research and development costs are charged
to operations in the period incurred. Total research and development costs
for the years ending December 31, 2006, December 31, 2005 and December 31,
2004 were $5,855,000, $6,369,000 and $4,942,000, respectively.
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 $47,000, $66,000 and $83,000 in 2006,
2005 and 2004, respectively.
Loss Per Share - Basic Earnings Per Share ("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 2006, 2005 and 2004, all common stock
equivalents would be considered anti-dilutive. For purposes of calculating
diluted EPS, 4,425,489, 1,800,446 and 970,707 options and warrants for
2006, 2005 and 2004, respectively, were excluded from diluted EPS as they
had an anti-dilutive effect.
Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 significant
estimates, including the allowance for doubtful accounts, technological
obsolescence of inventories, the estimated useful lives selected for
property and equipment, sales returns, warranty reserve, the valuation
allowance on the deferred tax assets and possible impairment of goodwill.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to significant concentration 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 worldwide.
Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
53
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. As of December 31,
2006, the Company has incurred no such losses.
Accumulated other comprehensive income (loss) - The functional currency for
Simtek GmbH is the local currency, the Euro. Assets and liabilities for
this foreign subsidiary 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 December 31, 2006, the Company recorded
approximately $132,000 in comprehensive income.
Principles of Consolidation - The accompanying financial statements include
the consolidation of accounts for the Company's wholly owned subsidiary,
Simtek GmbH. All significant inter-company accounts and transactions have
been eliminated in consolidation.
Stock-Based Compensation - At December 31, 2006, the Company had one
stock-based compensation plan, which are more fully described in Note 6 of
these Notes to Consolidated Financial Statements below.
Prior to January 1, 2006, the Company accounted for awards granted under
this plan using the intrinsic method of expense recognition, which follows
the recognition and measurement principles 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. Under the
provisions of APB 25, there was no compensation expense resulting from the
issuance of stock options by the Company as the exercise price was
equivalent to the fair market value at the date of grant.
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standard 123(R)
"Share-Based Payment" ("SFAS 123(R)") using the modified prospective
transition method. In addition, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 107 "Share-Based Payment" ("SAB 107")
in March, 2005, which provides supplemental SFAS 123(R) application
guidance based on the views of the SEC. Under the modified prospective
transition method, compensation cost recognized in the twelve month period
ending December 31, 2006 includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS No. 123, and (b) compensation cost for all
share-based payments granted beginning January 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of SFAS 123(R).
In accordance with the modified prospective transition method, results for
prior periods have not been restated.
The adoption of SFAS 123(R) resulted in stock compensation expense for the
twelve months ended December 31, 2006 of $542,000 to loss from continuing
operations and loss before income taxes. The Company did not recognize a
tax benefit from the stock compensation expense because the Company
considers it is more likely than not that the related deferred tax assets,
which have been reduced by a full valuation allowance, will not be
realized.
The Company granted nonqualified stock options at an exercise price equal
to the fair market value of the Company's common stock on the grant date.
The Company applies the Black-Scholes valuation method to compute the
54
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
estimated fair value of the stock options and recognizes compensation
expense, net of estimated forfeitures on a straight-line basis so that the
award is fully expensed at the vesting date.
Income Taxes - The Company recognizes deferred income tax assets and
liabilities for the expected future income tax consequences, based on
enacted tax laws, of temporary differences between the financial reporting
and tax bases of assets, liabilities and carryovers. Deferred tax expense
represents the change in the deferred tax asset/liability balance.
Valuation allowances are recorded for deferred tax assets which, more
likely than not, are not expected to be realized.
Recently Issued Accounting Pronouncements -
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes ("FIN 48"). The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's
financial statements in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Specifically, the
pronouncement prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The interpretation
also provides guidance on the related derecognition, classification,
interest and penalties, accounting for interim periods, disclosure and
transition of uncertain tax positions. The interpretation is effective for
fiscal years beginning after December 15, 2006. The Company is currently
evaluating the requirements of FIN 48 and the potential impact on the
Company's financial statements.
In February 2007, the FASB issued FAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities ("FAS 159"). FAS 159 allows
companies to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. FAS 159 is
effective for fiscal years beginning after November 15, 2007. Therefore,
the Company is required to adopt FAS 159 by the first quarter of 2008. The
Company is currently evaluating the requirements of FAS 159 and the
potential impact on the Company's financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement
defines fair value as used in numerous accounting pronouncements,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosure related to the use of fair
value measures in financial statements. FAS 157 is to be effective for the
Company's financial statements issued in 2008; however, earlier application
is encouraged by the FASB. The Company is currently evaluating the timing
of adoption and the impact that adoption might have on its financial
position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 108 ("SAB 108"). Due to diversity in practice
among registrants, SAB 108 expresses SEC staff views regarding the process
by which misstatements in financial statements are evaluated for purposes
of determining whether financial statement restatement is necessary. SAB
108 is effective for fiscal years ending after November 15, 2006. The
Company does not believe SAB 108 will have a material impact on its
financial position or results of operations.
2. EQUIPMENT AND FURNITURE:
-----------------------
Equipment and furniture at December 31, 2006 and 2005 consisted of the
following:
55
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
------------
2006 2005
---- ----
(in thousands of dollars)
Leased equipment under capital leases $ - $ 148
Research and development equipment 2,399 1,937
Computer equipment and software 2,452 1,672
Office furniture 69 33
Other equipment 232 205
---------- ----------
5,152 3,995
Less accumulated depreciation and amortization (3,913) (3,425)
---------- ----------
$ 1,239 $ 571
========== ==========
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 $494,000, $433,000 and $442,000
was charged to operations for the years ended December 31, 2006, 2005 and
2004, respectively. Included in the amortization expense for 2005 and 2004
was $91,000 and $142,000, respectively, of amortization of software and
research and development equipment under capital leases. During 2006, there
was no amortization expense related to software and research and
development equipment under capital leases, as those leases terminated in
2005.
3. 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 Company's 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 December 31, 2006,
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 February 20, 2007, the Company received a waiver for the covenant
through January 1, 2008. However, significant variances in future actual
operations from the Company's current estimates could result in the
reclassification of this note to current liabilities. The Convertible
Debentures allows 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. Based on the conversion rate of $2.20
per share, each RENN investment fund is entitled to 409,091 shares upon
conversion (assuming conversion of $900,000).
On June 28, 2005, the Company received a waiver from the debenture holders
extending until July 1, 2006 the commencement date for principal payments
56
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the $3 million aggregate principal amount, see Note 6 Shareholders'
Equity for additional information. On July 24, 2006, each of the debenture
holders converted $100,000 of the principal amount into 45,455 shares of
the Company's common stock in lieu of the Company making the principal
payments it was required to make commencing on July 1, 2006.
4. Notes Payable
-------------
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 Company's obligations
under the Agreement, the Company granted Wells Fargo a security interest in
certain of the Company's 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 June 30, 2006, the Company had financed receivables with
Wells Fargo for approximately $558,000.
5. COMMITMENTS:
-----------
Offices Leases - The Company leases office space in Colorado Springs,
Colorado and Simtek GMBH leases office space in Dresden, Germany under
leases which expire on February 28, 2013 and December 31, 2008,
respectively. Combined monthly lease payments are approximately $22,000.
The Company also has various fixed term license agreements for computer
software design tools.
Future lease payments under the noncancellable equipment, software design
tool license agreements and office leases described above are as follows:
Years Ending
December 31, (in thousands)
------------
2007 $ 1,173
2008 740
2009 378
2010 211
2011 & After 458
---------
$ 2,960
Total expenses for office rent, equipment lease and software design tool
license agreements totaled $884,000, $732,000 and $625,000 for the years
ended December 31, 2006, 2005 and 2004, respectively.
Employment Agreements - Mr. Blomquist is employed as President and Chief
Executive Officer pursuant to an employment agreement with the Company.
Under the terms of the employment agreement, Mr. Blomquist receives an
annual salary of $325,000 and such additional benefits that are generally
57
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
provided other employees. Mr. Blomquist will be eligible to receive a
yearly cash bonus, based on performance, of up to 100% of his salary. In
addition, Mr. Blomquist will receive a yearly bonus of options to purchase
between 10,000 and 40,000 shares of the Company's common stock; the exact
amount will be based on performance. Upon beginning employment, Mr.
Blomquist received options to purchase 250,000 shares of the Company's
common stock and a $50,000 bonus. Within four months of beginning
employment, Mr. Blomquist was required to purchase 20,000 shares of common
stock from the Company. For each share of common stock Mr. Blomquist
purchased from the Company within six months of beginning employment,
including the 20,000 shares he was required to purchase, the Company
granted him an additional share. Mr. Blomquist purchased a total of 47,500
shares and the Company granted him 47,500 matching shares. The Company
recorded a total expense of $190,350 for the matching shares, the expense
has been included in general and administrative expenses during the year
ended December 31, 2005. Upon termination, Mr. Blomquist will be restricted
from competing against the Company for a period of 18 months. If Mr.
Blomquist is terminated by the Company without cause, all of Mr.
Blomquist's unvested stock options will immediately vest and he will
continue to receive his base salary, benefits, and cash and stock bonuses
for 18 months. If Mr. Blomquist terminates employment due to good cause or
as a result of constructive termination relating to a change of control of
the Company, all of Mr. Blomquist's unvested stock options will immediately
vest and he will continue to receive his base salary, benefits and cash and
stock bonuses for 18 months. Mr. Blomquist's employment agreement expires
May 9, 2006 but is, automatically renewed for successive one-year terms
unless the Company or Mr. Blomquist elects not to renew.
6. SHAREHOLDERS' EQUITY:
--------------------
On October 5, 2006, Simtek completed a 1 for 10 reverse stock split of all
of its outstanding common shares. All share and per share amounts have been
restated to reflect the effect of the reverse stock split as if it had
occurred as of the balance sheet date or as of the beginning of each fiscal
period presented.
On September 21, 2006, the Company raised gross proceeds of $4,555,000 in a
private placement. The Company issued 1,153,171 shares of its common stock
at a per share price of $3.95 and 172,981 warrants to purchase common
stock. The warrants have a per share exercise price of $5.40 and a
five-year term. The Company anticipates using the proceeds for general
working capital to support revenue growth.
On March 24, 2006, the Company entered into a License and Development
Agreement with Cypress pursuant to which, among other things, Cypress has
agreed to license certain intellectual property from the Company to develop
and manufacture standard, custom, and embedded nvSRAM products. Cypress
agreed to pay to Simtek royalties across all products they develop and sell
which include intellectual property licensed from Simtek. The Company
agreed to license from Cypress certain of their intellectual property for
use in the Company's design efforts. The Company agreed with Cypress to
co-develop certain nvSRAM products and Cypress agreed to pay the Company $4
million in nonrefundable prepaid royalties, $2 million of which was
received at the time the contract was executed. On June 30, 2006, the
Company received the second installment of $1 million in prepaid royalties
and the remaining $1 million was paid on December 18, 2006. In addition,
the Company agreed with Cypress to work together to develop new products
and processes. As part of the agreement, the Company issued to Cypress,
warrants to acquire 2 million shares of the Company's common stock for
$7.50 per share. The warrants have a ten year life. The company allocated
$1,930,000 of the $4 million prepayment to the value of the warrants
issued. The value was determined using the Black Scholes option-pricing
model.
58
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 30, 2005, the Company closed the sale of 6,875,000 shares of
its common stock for an aggregate purchase price of $11,000,000, pursuant
to the terms of the Securities Purchase Agreement dated as of December 30,
2005, among Simtek and Crestview Capital Master LLC, as lead investor,
Renaissance Capital Growth & Income Fund III, Inc., Renaissance US Growth
Investment Trust PLC, US Special Opportunities Trust PLC, SF Capital
Partners Ltd., Straus Partners, LP, Straus GEPT Partners, LP and various
other individual and institutional investors. The Company used the majority
of the proceeds of this offering to fund the ZMD Asset Acquisition. The
Company also executed a registration rights agreement with the purchasers,
pursuant to which the Company has agreed to register under the Securities
Act the resale by the purchasers of the shares issued to them. The
registration rights agreements contain cash penalties equal to 2% per month
beginning in May 2006 in the event the Company fails to maintain an
effective registration statement with the Securities and Exchange
Commission. At December 31, 2005 there was an outstanding subscription in
the amount of $1,900,000 related to the transaction. This amount plus
$641,000 of transaction related costs have been deducted from the total
amount of the transaction. The $1,900,000 was received by the Company on
January 3, 2006.
On December 30, 2005, the Company issued 626,072 shares of its common stock
to ZMD, at a stated value of $2 million, based on the volume weighted
average price of the common stock for the 60 trading days prior to the
execution date of the Asset Purchase Agreement on December 7, 2005. For
accounting and financial reporting purposes, the shares issued to ZMD have
been valued at $3.00 per share, pursuant to Emerging Issues Task Force
99-12 "Determination of the Measurement Date for the Market Price of
Acquirer Securities Issued in a Purchase Business Combination", resulting
in an accounting value of $1,882,000. The Company also executed a
registration rights agreement with ZMD, pursuant to which it has agreed to
register under the Securities Act the resale by ZMD of the shares issued to
them.
On May 5, 2005, the Company closed a Share Purchase Agreement for a $4
million private placement of 674,082 shares of its common stock with
Cypress and a Development and Production Agreement with Cypress to jointly
develop a 0.13-micron Silicon-Oxide-Nitride-Oxide-Silicon (SONOS)
nonvolatile memory process. The Company and Cypress entered into an Escrow
Agreement with Cypress pursuant to which the Company deposited $3 million
into an escrow account in order to support and make certain payments for
the 0.13-micron process and product developments. As of December 31, 2006,
$1,775,000 remaining in the escrow account. Cypress also received a warrant
to purchase 505,562 shares of our common stock at $7.772 per share with a
term of 10 years. We have granted to Cypress certain registration rights
with respect to the shares issued under the Share Purchase Agreement and
the shares issuable upon exercise of the warrant.
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 7.5% convertible debentures
issued by the Company in 2002. The original terms of the debentures
required the Company to make monthly principal payments of $10 per $1,000
of the then remaining principal amount, beginning on June 28, 2005. The
Company will still be required to make interest payments. Under the terms
of the waiver, monthly principal payments of $13.33 per $1,000 of the then
remaining outstanding principal amount commenced on July 1, 2006. The final
maturity date remains as June 28, 2009. As consideration for the extension,
the Company has issued to the debenture holders warrants to purchase 20,000
shares of Simtek common stock at $5.00 per share, a premium to the market
price on the date of the waiver. The Company estimated the value of the
warrants at the time of grant, using the Black Scholes option-pricing
59
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
model, to be approximately $62,000. The Company recognized $16,000 as
additional interest expense for the period ending December 31, 2006.
On May 10, 2006, the Company received a waiver letter from the debenture
holders, which was issued to the Company due to the Company not being in
compliance with two of the covenants defined in the loan agreement. As
consideration for the waiver letter, the Company has issued to the
debenture holders warrants to purchase 5,000 shares of Simtek common stock
at $3.30 per share. The Company estimated the value of the warrants at the
time of grant, using the Black-Scholes option-pricing model, to be
approximately $11,000. The Company recognized $8,000 as additional interest
expense for the period ending December 31, 2006.
In May 2006, the Company entered into a $3,600,000 revolving credit
agreement with Wells Fargo Business Credit. As part of this credit
agreement the debenture holders were required to enter into a subordination
agreement with Wells Fargo. As consideration for the subordination
agreement, the Company has issued to the debenture holders warrants to
purchase 20,000 shares of Simtek common stock at $3.30 per share. The
Company estimated the value of the warrants at the time of grant, using the
Black-Scholes option-pricing model, to be approximately $43,000. The
Company recognized $16,000 as additional interest expense for the period
ending December 31, 2006.
On May 26, 2006, the Company issued to the following individuals, who are
directors of Simtek, as compensation for serving as directors of Simtek
under Simtek's standard compensation arrangement for directors, the
following amounts of shares of Simtek common stock: Robert Keeley (3,376);
Alfred Stein (3,376); Ronald Sartore (3,376); Robert Pearson (3,376); and
Harold Blomquist (371). The expense for these shares was recorded at the
time the compensation was earned by the directors.
On October 12, 2004, the Company closed a $2,500,000 equity financing with
three separate investment funds, SF Capital Partners, Ltd., Bluegrass
Growth Fund LP and Bluegrass Growth Fund LTD. In exchange for the
$2,500,000, the Company issued 412,797 shares of its common stock to SF
Capital Partners, Ltd, 51,600 shares of its common stock to Bluegrass
Growth Fund LP and 51,600 shares of its common stock to Bluegrass Growth
Fund LTD. The purchase price was based on a 15% discount to the closing
price of the Company's common stock as reported on the Over-the-Counter
Bulletin Board on October 11, 2004, resulting in a price of $4.85 per
share. In addition to the shares of common stock, SF Capital Partners Ltd.,
Bluegrass Growth Fund LP, and Bluegrass Growth Fund LTD received warrants
to acquire 206,399, 25,800 and 25,800 shares of the Company's common stock,
respectively. The warrants have a 5-year term with an exercise price of
$6.27 per share. Merriman Curhan Ford & Co., the placement agent for the
$2,500,000 equity financing received a cash payment of $187,500 and
warrants to acquire 38,700 shares of the Company's common stock. The terms
of the $2,500,000 equity financing allowed for participation rights in
certain of our future equity financings. In conjunction with the December
2005 $11,000,000 PIPE transaction, Bluegrass Growth Fund LP, Bluegrass
Growth Fund LTD and SF Capital Partners Ltd., agreed to waive certain
participation rights held by them in connection with the $11,000,000 common
stock transaction in exchange for the Company agreeing to reprice the
257,999 warrants that they received in October 2004 from an exercise price
of $6.27 to an exercise price of $2.65 per share.
Warrants - A summary of the warrants outstanding as of December 31, 2006,
is as follows:
60
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Per
# of Warrant Extended
Warrants Expiration Exercise Value of
Warrant Holder Description Issue Date Outstanding Date Price Warrants
----------------------------------- ------------ ------------ ------------ ------------- ------------ -----------
US Special Opportunities
Trust Plc. Warrants 11/7/2003 12,500 11/7/2008 $ 12.50 $ 156,250
US Special Opportunities
Trust Plc. Warrants 11/7/2003 12,500 11/7/2008 $ 15.00 $ 187,500
Renaissance US Growth Investment
Trust Plc. Warrants 11/7/2003 12,500 11/7/2008 $ 12.50 $ 156,250
Renaissance US Growth Investment
Trust Plc. Warrants 11/7/2003 12,500 11/7/2008 $ 15.00 $ 187,500
Renaissance Capital Growth & Income
Fund III Warrants 11/7/2003 12,500 11/7/2008 $ 12.50 $ 156,250
Renaissance Capital Growth & Income
Fund III Warrants 11/7/2003 12,500 11/7/2008 $ 15.00 $ 187,500
SF Capital Partners Ltd. Warrants 10/12/2004 206,399 10/12/2009 $ 2.65 $ 546,957
Merriman Curhan Ford & Co. Warrants 10/12/2004 38,700 10/12/2009 $ 6.27 $ 242,649
Cypress Semiconductor Warrants 5/5/2005 505,562 5/5/2015 $ 7.772 $ 3,929,228
US Special Opportunities
Trust Plc. Warrants 6/28/2005 6,667 6/28/2010 $ 5.00 $ 33,335
Renaissance US Growth Investment
Trust Plc. Warrants 6/28/2005 6,667 6/28/2010 $ 5.00 $ 33,335
Renaissance Capital Growth &
Income Fund III Warrants 6/28/2005 6,667 6/28/2010 $ 5.00 $ 33,335
C. E. Unterberg Towbin Warrants 12/30/05 79,250 12/30/2010 $ 2.80 $ 221,900
Cypress Semiconductor Warrants 3/24/2006 1,000,000 3/24/2016 $ 7.50 $ 7,500,000
Renaissance Capital Growth &
Income Fund III Warrants 5/26/2006 6,871 5/26/2011 $ 3.30 $ 22,674
Renaissance US Growth Investment
Trust Plc. Warrants 5/26/2006 6,871 5/26/2011 $ 3.30 $ 22,674
US Special Opportunities
Trust Plc. Warrants 5/26/2006 6,260 5/26/2011 $ 3.30 $ 20,658
Renaissance Capital Growth &
Income Fund III Warrants 5/26/2006 1,718 5/26/2011 $ 3.30 $ 5,669
Renaissance US Growth Investment
Trust Plc. Warrants 5/26/2006 1,718 5/26/2011 $ 3.30 $ 5,669
US Special Opportunities
Trust Plc. Warrants 5/26/2006 1,565 5/26/2011 $ 3.30 $ 5,165
Cypress Semiconductor Warrants 6/30/2006 500,000 6/30/2016 $ 7.50 $ 3,750,000
Premier RENN US Emerging Growth
Fund Ltd. Warrants 9/21/2006 18,988 9/20/2011 $ 5.40 $ 102,535
US Special Opportunities
Trust Plc. Warrants 9/21/2006 18,988 9/20/2011 $ 5.40 $ 102,535
Renaissance US Growth Investment
Trust Plc. Warrants 9/21/2006 18,988 9/20/2011 $ 5.40 $ 102,535
61
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Renaissance Capital Growth &
Income Fund III Warrants 9/21/2006 18,988 9/20/2011 $ 5.40 $ 102,535
Crestview Capital Master LLC Warrants 9/21/2006 32,279 9/20/2011 $ 5.40 $ 174,307
Big Bend XXVII Investments, L.P. Warrants 9/21/2006 15,190 9/20/2011 $ 5.40 $ 82,026
SF Capital Partners Ltd. Warrants 9/21/2006 7,595 9/20/2011 $ 5.40 $ 41,013
Straus GEPT Partners, LP Warrants 9/21/2006 7,595 9/20/2011 $ 5.40 $ 41,013
Straus Partners, LP Warrants 9/21/2006 7,595 9/20/2011 $ 5.40 $ 41,013
A. J. Stein Family Trust Warrants 9/21/2006 3,798 9/20/2011 $ 5.40 $ 20,509
A. J. Stein Family Partnership Warrants 9/21/2006 3,798 9/20/2011 $ 5.40 $ 20,509
Brian Stein Warrants 9/21/2006 3,798 9/20/2011 $ 5.40 $ 20,509
Toni Stein Warrants 9/21/2006 1,899 9/20/2011 $ 5.40 $ 10,255
Steven Hayes Warrants 9/21/2006 7,595 9/20/2011 $ 5.40 $ 41,013
Brian Alleman Warrants 9/21/2006 4,747 9/20/2011 $ 5.40 $ 25,634
John Christopher McComb Warrants 9/21/2006 1,140 9/20/2011 $ 5.40 $ 6,156
Cypress Semiconductor Warrants 12/18/2006 500,000 12/18/2016 $ 7.50 $ 3,750,000
--------- -----------
Total Warrants 3,122,896 $22,088,595
========= ===========
Stock Option Plans - The Company has approved a Non-Qualified Stock Option
Plan that authorizes 2,060,000 non-qualified stock options that may be
granted to directors, employees, and consultants. The 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 plan is 10
years and options granted to employees expire 90 days after the termination
of employment. In 2004, the Non-Qualified Stock Option Plan was extended
for 10 more years. 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:
o 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.
o 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.
o 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
62
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
o All options granted to outside directors of the Company will be 100%
vested after six months from the grant date.
o All options will expire seven years from date of grant.
The following table summarizes the effects of the share-based compensation
resulting from the application of SFAS No. 123(R) to options granted under
the Company's stock option plan.
Income Statement Classifications
December 31, 2006
-----------------
(in thousands)
Research and development $ 160
Sales and marketing 78
General and administration 304
-------------
Total $ 542
=============
As of December 31, 2006, there was approximately $2.0 million of
unrecognized compensation costs, adjusted for estimated forfeitures,
related to non-vested options granted to the Company's employees and
directors, which will be recognized through December 31, 2010. Total
unrecognized compensation will be adjusted for future changes in estimated
forfeitures.
63
The following table sets forth the pro forma amounts of net loss and net
loss per share for the years ended December 31, 2005 and 2004 that would
have resulted if we had accounted for the stock option plans under the fair
value recognition provisions of SFAS 123R.
December 31,
------------
2005 2004
---- ----
(in thousands, except per share amounts)
Net loss as reported $ (5,786) $ (3,671)
Add: Stock based compensation
included in reported
Net loss - -
Deduct: Fair value of stock based
compensation (1,294) (831)
----------- -----------
Pro forma net loss $ (7,080) $ (4,502)
=========== ===========
Net loss as reported - basic and
diluted $ (.84) $ (.63)
Pro forma net loss - basic and
diluted $ (1.03) $ (.77)
The following table summarizes stock options outstanding and changes during
the twelve months ended December 31, 2006:
Outstanding Options
--------------------------------------------------------------
Weighted
Average Aggregate
Remaining Intrinsic
Weighted Contractual Value
Average Term (in
Number of Shares Exercise Price (in years) thousands)
---------------- --------------- ------------ ----------
Options outstanding at January 1, 2006.................. 796,936 $ 6.20
Granted............................................... 619,085 4.00
Exercised............................................. (73,619) (2.80) $ 115 (1)
Cancelled or forfeited................................ (39,809) (8.79)
--------- ------
Options outstanding at December 31, 2006................ 1,302,593 $ 5.24 4.383
========= ====== =====
Options exercisable at December 31, 2006................ 576,420 $ 6.33 4.383 $ 336 (2)
========= ====== ===== ========
(1) Represents the difference between the exercise price and the value of
Simtek stock at the time of exercise.
(2) Represents the difference between the market value as of December 31, 2006
and the exercise price of the shares. The market value as of December 31,
2006 was $4.65 as reported by the NASDAQ Stock Market
64
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock options outstanding and currently exercisable at December 31, 2006
are as follows:
Outstanding Exercisable
---------------------------------------------------------------------- ---------------------------------
Weighted Average
------------------------------------------------
Remaining
Contractual Weighted
Number Life Average Number Weighted Average
Exercise Price Outstanding in Months Exercise Price Exercisable Exercise Price
-------------- ----------- ------------ -------------- ----------- ----------------
$1.60-$3.00 149,342 45 $ 2.44 100,731 $ 2.33
$3.10-$5.40 750,108 67 $ 4.18 197,357 $ 4.41
$6.00-$9.00 300,413 52 $ 6.42 175,598 $ 6.55
$11.25-$13.40 75,230 28 $ 12.21 75,234 $ 12.21
$15.00-$19.00 27,500 34 $ 17.26 27,500 $ 17.26
--------- -------
1,302,593 576,398
========= =======
For grants issued during 2006, 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 Company's 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 use an expected dividend yield of 0%.
The fair value of each option granted in 2006, 2005 and 2004 was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following:
December 31,
------------
2006 2005 2004
---- ---- ----
Expected volatility 79.81% 84.30% 108.26%
Risk-free interest rate 5.11% 3.80% 2.40%
Expected dividends - - -
Expected terms (in years) 4.87 4.0 4.0
Cash received from option exercises for the year ended December 31, 2006
was $206,000. The option exercises provide a tax deduction of approximately
$112,000. This tax benefit will be charge to "paid-in capital" when, and
if, the tax deduction is utilized prior to expiration.
Modifications of Stock Options Granted
In May 2005, the Company accelerated vesting of certain unvested and
out-of-the-money stock options previously awarded to employees and
officers. Because the price of the Company's common stock was $5.70 on the
65
day of acceleration, the options, which are exercisable at $6.20 and above,
had no economic value on the date of acceleration. As a result of the
acceleration, options to purchase approximately 170,000 shares of Simtek
common stock are now exercisable. Options held by non-employee directors
were excluded from the vesting acceleration.
Other - Preferred Stock may be issued in such series and preferences as
determined by the Board of Directors.
7. SIGNIFICANT CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS, AND OTHER RISKS
--------------------------------------------------------------------------
AND UNCERTAINTIES:
-----------------
Sales by location for the years ended December 31, 2006, 2005 and 2004 were
as follows (as a percentage of sales):
2006 2005 2004
---- ---- ----
United States 27% 26% 29%
Europe 25% 18% 11%
Far East 39% 46% 48%
Other 9% 10% 12%
---- ---- ----
Total 100% 100% 100%
Sales from the Company's military products accounted for approximately 8%,
15% and 21% of total sales for the years ended December 31, 2006, 2005 and
2004, respectively.
Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the years ended December 31, 2006, 2005 and 2004 were
as follows (as a percentage of sales) :
Customer 2006 2005 2004
-------- ---- ---- ----
A 5% 11% 12%
B 8% 11% 10%
C 10% 12% 12%
D 14% 17% 15%
E 12% 6% 8%
At December 31, 2006, the Company had gross accounts receivable totaling
$3,004,000 due from the above five customers.
In 2006, 2005 and 2004, the Company purchased all of its silicon wafers,
based on 0.8 micron technology from a single supplier, Chartered.
Approximately 66%, 86% and 97% of the Company's net revenue for 2006, 2005
and 2004, respectively, were from finished units produced from these
wafers.
In 2006, 2005 and 2004, the Company purchased all of its silicon wafers,
based on 0.25 micron technology from a single supplier, Dongbu.
Approximately 13%, 13% and 3% of the Company's net revenue for 2006, 2005
and 2004, respectively, were from finished units produced from these
wafers.
In addition, approximately 20% of the Company's net revenue was from
finished units purchased from ZMD.
66
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. TAXES:
-----
Deferred taxes result from temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. The
components of deferred taxes are as follows:
Deferred Tax
Assets (Liability)
------------------
(in thousands)
2006 2005
---- ----
Current:
Allowance for doubtful accounts $ 9 $ 3
Reserves 381 231
Accrued expenses 288 104
--------- ----------
Net current deferred tax before valuation
allowance 678 338
Valuation allowance (678) (338)
--------- -----------
Total current deferred tax $ - $ -
========= ==========
Non-Current:
Net operating losses $ 6,456 $ 15,369
Property and equipment 54 41
Tax credit 11 11
Intangibles 1,418 956
FAS 123R Accrual - Nonqualified Stock
Options 201 -
--------- ----------
Net non-current deferred tax asset before
valuation allowance 8,140 16,377
Valuation allowance (8,140) (16,377)
--------- -----------
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 2006 decreased by
$7,897,000 and increased by $2,043,000 in 2005. The primary reason for the
decrease in 2006 relates to the expiration of net operating losses and the
Company's assessment regarding the effects of section 382 discussed below.
At the end of 2005, the Company underwent a change of ownership, as defined
by the Internal Revenue Code, which has the effect of limiting the
Company's ability to utilize its net operating losses in the future. As a
result, approximately $15.8 million of net operating losses will expire and
not be utilized. For purposes of reporting the Company's deferred tax asset
related to net operating losses, the Company has not included the $15.8
million in the calculation of its deferred tax asset. Excluding the $15.8
million that will expire, the Company has approximately $17.4 million of
available net operating loss carryforwards that may be utilized in the
future and which begin to expire from 2007 to 2025.
As a result of certain non-qualified stock options which have been
exercised, approximately $4,544,000 of the net operating loss carryforwards
will be charged to "paid-in-capital" when, and if, the losses are utilized.
67
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total income tax expense for 2006, 2005 and 2004 differed from the amounts
computed by applying the U. S. Federal statutory tax rates to the pre-tax
loss as follows:
2006 2005 2004
---- ---- ----
Statutory rate (34.0)% (34.0)% (34.0)%
State income taxes, net of Federal income
tax benefit (3.1)% (3.3)% (3.3)%
Increase (reduction) in valuation allowance
related to net operating loss carryforwards
and change in temporary differences 37.1% 37.3% 37.3%
----- ----- -----
Income tax expense (benefit) - - -
===== ===== ====
9. DISCONTINUED OPERATION:
----------------------
On August 30, 2005, the Company, along with the Company's wholly-owned
subsidiary, Q-DOT, Inc. ("Q-DOT"), entered into an Asset Purchase Agreement
with Hittite Microwave Corporation ("Hittite") and a wholly-owned
subsidiary of Hittite, HMC Acquisition Corporation ("HMC Acquisition"),
whereby substantially all of the assets of Q-DOT were sold to HMC
Acquisition in exchange for a cash payment of approximately $2.2 million.
The Company realized a net gain of approximately $1,687,000. In addition,
Hittite assumed certain future obligations of Q-DOT, including obligations
related to Q-DOT's real estate lease and certain software license
agreements. Incident to the Asset Purchase Agreement, the parties also
entered an Escrow Agreement, whereby $200,000 of the purchase price was
placed in escrow for one year to secure certain indemnification obligations
of Simtek and Q-DOT. In addition, the parties entered into a
Confidentiality, Non-Disclosure and Restrictive Covenant Agreement,
whereby, among other things, Simtek and Q-DOT agreed not to compete against
Hittite and HMC Acquisition for a period of four years with respect to
certain businesses relating to Q-DOT's operations. On September 1, 2006,
the Company received the $200,000 that was placed in the escrow account.
In accordance with SFAS No. 144, the consolidated financial statements of
the Company have been recast to present this business as a discontinued
operation. Accordingly, the revenues, the costs and expenses of the
discontinued operation have been excluded from the respective captions in
the accompanying Consolidated Statements of Operations and have been
reported under the caption "Income from discontinued operations" for all
periods presented. In addition, certain of the Notes to the Consolidated
Financial Statements have been recast for all periods to reflect the
discontinuance of this operation.
Summary results for the discontinued operation are as follows (in
thousands):
Description Years Ended December 31,
------------------------
2005 2004
---- ----
Operating Results:
Revenue $ 1,398 $ 1,810
Costs and expenses 1,381 1,750
-------- --------
Income from discontinued
Operation $ 17 $ 60
========= =========
68
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There are no amounts included in the December 31, 2005 Consolidated Balance
Sheet related to the discontinued operations.
10. ACQUISITION OF CERTAIN ASSETS FROM ZMD:
--------------------------------------
On December 30, 2005, the Company purchased from Zentrum Mikroelektronik
Dresden AG ("ZMD") certain assets related to ZMD's nvSRAM product line (the
"ZMD Asset Acquisition"). Under the terms of various agreements between
Simtek and ZMD beginning in 1994, ZMD used Simtek's proprietary technology
to manufacture and sell products that directly competed with Simtek's
products. Management believes that the ZMD Asset Acquisition provided
several benefits, including consolidation of nvSRAM products in the
marketplace, increased sales volume, and control of its proprietary
technology. On that same date and in connection with the ZMD Asset
Acquisition, which is described in more detail below, Simtek and ZMD
entered into a number of agreements including a License Agreement (the "New
License Agreement"). Pursuant to the New License Agreement, ZMD assigned
its rights in certain patents devoted to nvSRAM to Simtek and Simtek
licensed to ZMD the right to use Simtek's silicon-oxide-nitride-oxide-
silicon (SONOS)-based nvSRAM technology for embedded functions in ZMD's
non-competing products. The licenses granted pursuant to the New License
Agreement are perpetual, non-exclusive, royalty-free and unlimited. No fees
or payments are due to either party under the New License Agreement. The
New License Agreement shall remain in effect on a country-by-country basis
until all patents, trade secrets, and any other proprietary and legal
rights subject thereto have expired or ended, unless terminated earlier by
either party following a breach by the other party that remains uncured
after 30 days' written notice. In addition, Simtek and ZMD executed a
Non-Competition and Non-Solicitation Agreement (the "NC Agreement")
whereby, for a period of five years from the closing, ZMD is prohibited
from competing with certain of Simtek's products and from hiring employees
of Simtek in certain situations.
In 1994, the Company licensed certain intellectual property to ZMD, which
permitted ZMD to produce nvSRAM products that directly competed with the
products sold by the Company. During the past several years, the two
companies have competed for market share with key customers, resulting in
significant reductions in average unit selling prices. The Company believed
that acquiring the assets from ZMD would result in more price stability in
the marketplace and provide additional revenue to Simtek.
The transaction with ZMD was completed on December 30, 2005. As such, the
assets acquired are included in the accompanying Consolidated Balance Sheet
as of December 31, 2005. However, there are no results of operations
related to the assets acquired included in the Consolidated Statement of
Operations for the Year Ended December 31, 2005 as there were no operating
activities until January 2006.
69
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The purchase price consisted of $8 million of cash paid to ZMD, and 626,072
shares of Simtek common stock issued to ZMD, valued at $2 million, per the
terms of the agreement based on the volume weighted average price of the
common stock for the 60 trading days prior to the execution date of the
Asset Purchase Agreement on December 7, 2005. For accounting and financial
reporting purposes, the shares issued to ZMD have been valued at $3.00 per
share, pursuant to Emerging Issues Task Force 99-12 "Determination of the
Measurement Date for the Market Price of Acquirer Securities Issued in a
Purchase Business Combination", resulting in an accounting value of
$1,882,000. The total purchase price including transaction related costs,
amounted to $10,425,000. The transaction related costs include $272,000
investment banking costs, $240,000 legal fees, and $31,000 other.
(in thousands of dollars)
Finished goods inventory $ 639
Non-competition agreement 8,910
Goodwill 876
-----------
Total $ 10,425
-----------
Management determined the value assigned to each of the assets identified
above based on several factors, including among other things, unit cost of
products to be purchased from ZMD in the future, Simtek's relationship with
former ZMD customers, Simtek's knowledge of the design and technology of
ZMD's products, and an independent valuation of the non-competition
agreement (which will be amortized over the five year term of the
agreement). No value was assigned to the New License Agreement, because in
management's opinion, the intellectual property subject to that license is
derived from the Company's base technology and does not significantly
enhance or change such technology.
The following table sets forth certain information related to unaudited pro
forma results of operations, as if the transaction were completed at the
beginning of each period presented (in thousands of dollars, except per
share amounts):
2005 2004
---- ----
Revenue $ 18,136 $ 20,338
Loss from continuing operations (9,664) (5,627)
Earnings per share $ (0.07) $ (.04)
11. Non-Refundable Prepaid Royalties
On March 24, 2006, the Company entered into a License and Development
Agreement with 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 Company's 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
70
SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Supplementary Financial Data (UNAUDITED)
Following is unaudited quarterly selected financial data for the past eight
quarters (in thousands of dollars, except per share amounts):
Quarters Ended
--------------------------------------------------------------
3/31/06 6/30/06 9/30/06 12/31/06
------- ------- ------- --------
Revenue $ 5,778 $ 6,926 $ 8,251 $ 9,675
Gross margin 2,308 2,359 3,272 4,667
Loss from continuing
Operations (901) (1,453) (249) 596
Income (loss) from
discontinued operations - - - -
Net Loss (901) (1,453) (249) 596
Net Loss per Common Share:
Basic and diluted:
Loss from continuing
Operations $ (.13) $ (.10) $ (.02) $ .04
Income (loss) from
Discontinued operations $ .00 $ .00 $ .00 $ .00
Total $ (.13) $ (.10) $ (.02) $ .04
Quarters Ended
--------------------------------------------------------------
3/31/05 6/30/05 9/30/05 12/31/05
------- ------- ------- --------
Revenue $ 2,976 $ 2,204 $ 2,412 $ 2,793
Gross margin 968 529 605 692
Loss from continuing
Operations (986) (2,936) (1,718) (1,850)
Income (loss) from
discontinued operations (26) (36) 1,768 (2)
Net Loss (1,012) (2,972) 50 (1,852)
Net Loss per Common Share:
Basic and diluted:
Loss from continuing
Operations $ (.16) $ (.45) $ (.24) $ (.25)
Income (loss) from
Discontinued operations $ .00 $ .01 $ .24 $ .00
Total $ (.16) $ (.46) $ (.00) $ (.25)
71
Item 9: Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------
None in 2006.
Item 9A: Controls and Procedures
--------------------------------
(a) Evaluation of disclosure controls and procedures.
Harold Blomquist and Brian Alleman, who serve as the Company's chief executive
officer and chief financial officer, respectively, after evaluating the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this annual report (the "Evaluation Date"), concluded
that as of the Evaluation Date, the Company's disclosure controls and procedures
were effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported as specified in the SEC's rules and forms and
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is accumulated and communicated
to our management to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting.
There were no changes in the Company's internal control over financial reporting
during the three months ended December 31, 2006, that have materially affected,
or are reasonably likely to materially affect, internal control over financial
reporting.
Item 9A(T): Controls and Procedures
-----------------------------------
Not applicable.
Item 9B: Other Information
--------------------------
None in 2006.
72
PART III
Item 10: Directors, Executive Officers and Corporate Governance
---------------------------------------------------------------
Portions of our proxy statement to be filed pursuant to Regulation 14A with
respect to our 2007 annual meeting of stockholders are incorporated by reference
in this section.
Item 11: Executive Compensation
-------------------------------
Portions of our proxy statement to be filed pursuant to Regulation 14A with
respect to our 2007 annual meeting of stockholders are incorporated by reference
in this section.
Item 12: Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
and Related Stockholder Matters
-------------------------------
Portions of our proxy statement to be filed pursuant to Regulation 14A with
respect to our 2007 annual meeting of stockholders are incorporated by reference
in this section.
Item 13: Certain Relationships and Related Transactions, and Director
---------------------------------------------------------------------
Independence
------------
Portions of our proxy statement to be filed pursuant to Regulation 14A with
respect to our 2007 annual meeting of stockholders are incorporated by reference
in this section.
Item 14. Principal Accounting Fees and Services
-----------------------------------------------
Portions of our proxy statement to be filed pursuant to Regulation 14A with
respect to our 2007 annual meeting of stockholders are incorporated by reference
in this section.
73
PART IV
Item 15: Exhibits, Financial Statement Schedules
2.1 Plan of Conversion of Simtek Corporation, a Colorado corporation, into
Simtek Corporation, a Delaware corporation, dated October 4, 2006.(1)
3.1 Certificate of Incorporation for Simtek Corporation, a Delaware
corporation.(1)
3.2 Bylaws of Simtek Corporation, a Delaware corporation.(1)
4.1 1987-I Employee Restricted Stock Plan.(2)
4.2 Form of Restricted Stock Agreement between the Company and
Participating Employees.(2)
4.3 Form of Common Stock Certificate of Simtek Corporation, a Delaware
corporation.(1)
4.4 Simtek Corporation 1991 Stock Option Plan.(3)
4.5 Form of Incentive Stock Option Agreement between the Company and
Eligible Employees.(3)
4.6 1994 Non-Qualified Stock Option Plan.(4)
4.7 Amendment to the 1994 Non-Qualified Stock Option Plan.(5)
4.8 Q-DOT Group, Inc. Incentive Stock Option Plan of March 1994 adopted by
Simtek.(7)
4.9 Form of Q-DOT Group, Inc. Incentive Stock Option Agreement between the
Company and Eligible Employees.(7)
4.10 Amendment to the 1994 Non-Qualified Stock Option Plan.(7)
4.11 Amendment to the 1994 Non-Qualified Stock Option Plan.(15)
10.1 Form of Non-Competition and Non-Solicitation Agreement between the
Company and certain of its employees.(2)
10.2 Form of Employee Invention and Patent Agreement between the Company and
certain of its employees.(2)
10.3 Manufacturing Agreement between Chartered Semiconductor Manufacturing,
PTE, LTD. and Simtek Corporation dated September 16, 1992.(5)
10.4 Separation Agreement, dated May 9, 2005, between Simtek Corporation and
Douglas M. Mitchell.(6)
10.5 Technology Development, License and Product Agreement between Amkor
Technology and Simtek.(8)
10.6 Manufacturing Services Agreement between Amkor Technology, Inc. and
Simtek Corp.(8)
10.7 Convertible Loan Agreement between Simtek Corporation as borrower and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth and Income Trust, PLC and BFSUS Special Opportunities Trust, PLC
as lenders.(9)
10.8 7.5% $1,000,000 Convertible Debenture between Simtek Corporation and
BSFSUS Special Opportunities Trust, PLC.(9)
10.9 7.5% $1,000,000 Convertible Debenture between Simtek Corporation and
Renaissance Capital Growth & Income Fund III, Inc.(9)
10.10 7.5% $1,000,000 Convertible Debenture between Simtek Corporation and
Renaissance Capital US Growth & Income Trust, PLC.(9)
74
10.11 Borrowers Security Agreement between Simtek Corporation as borrower and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth and Income Trust, PLC and BFSUS Special Opportunities Trust, PLC
as lenders.(9)
10.12 Pledge Agreement between Simtek Corporation as borrower and Renaissance
Capital Growth & Income Fund III, Inc. and Renaissance US Growth and
Income Trust, PLC and BFSUS Special Opportunities Trust, PLC as
lenders.(9)
10.13 Technology Development, License and Product Agreement between Amkor
Technology and Simtek - Amended September 2002.(10)
10.14 Assignment, dated February 21, 2003, of the Agreement(s) between Simtek
Corporation and Amkor Technology, Inc.(11)
10.15 Securities Purchase Agreement between Simtek Corporation and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth Investment Trust, PLC and BFSUS Special Opportunities Trust,
PLC.(12)
10.16 Form of $12.50 Stock Purchase Warrant.(12)
10.17 Form of $15.00 Stock Purchase Warrant.(12)
10.18 Amendment dated January 27, 2004 between Simtek Corporation and Baja
Properties, LLC (Landlord) (together with amendment dated June 7, 2000
and underlying lease dated July 26, 2000).(13)
10.19 Securities Purchase Agreement, dated October 12, 2004, by and among the
Company, SF Capital Partners Ltd., Bluegrass Growth Fund LP and
Bluegrass Growth Fund LTD.(14)
10.20 Form of Warrant (attached as Exhibit A to Securities Purchase
Agreement, dated October 12, 2004, by and among the Company, SF Capital
Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund
LTD).(14)
10.21 Form of Registration Rights Agreement (attached as Exhibit B to
Securities Purchase Agreement, dated October 12, 2004, by and among the
Company, SF Capital Partners Ltd., Bluegrass Growth Fund LP and
Bluegrass Growth Fund LTD).(14)
10.22 Share Purchase Agreement, dated May 4, 2005, by and between the Company
and Cypress Semiconductor Corporation.(16)
10.23 Development and Production Agreement, dated May 4, 2005, by and between
the Company and Cypress Semiconductor Corporation.(16)
10.24 Escrow Agreement, dated May 4, 2005, by and among the Company, Cypress
Semiconductor Corporation and U.S. Bank, National Association.(16)
10.25 Stock Purchase Warrant, dated May 4, 2005, from the Company to Cypress
Semiconductor Corporation.(16)
10.26 Employment agreement by and between the Company and Harold
Blomquist.(6)
10.27 Waiver letter agreement, dated June 28, 2005, by and between the
Company, Q-DOT, Inc., Renaissance Capital Growth & Income Fund III,
Inc., Renaissance US Growth Investment Trust PLC and BFS US Special
Opportunities Trust PLC.(17)
10.28 Asset Purchase Agreement, dated August 30, 2005, by and among Hittite
Microwave Corporation, HMC Acquisition Corporation, the Company and
Q-DOT, Inc.(18)
10.29 Escrow Agreement, dated August 30, 2005, by and among the Company,
Q-DOT, Inc., Hittite Microwave Corporation, HMC Acquisition
Corporation, and U.S. Bank, National Association.(18)
10.30 Confidentiality, Non-Disclosure and Restrictive Covenant Agreement,
dated August 30, 2005, by and among Hittite Microwave Corporation, HMC
Acquisition Corporation, the Company and Q-DOT, Inc.(18)
10.31 Asset Purchase Agreement, dated December 7, 2005, by and between the
Company and Zentrum Mikroelektronik Dresden AG.(19)
75
10.32 Form of License Agreement, dated December 30, 2005, by and between the
Company and Zentrum Mikroelektronik Dresden AG.(19)
10.33 Form of Non-Competition and Non-Solicitation Agreement, dated December
30, 2005, by and between the Company and Zentrum Mikroelektronik
Dresden AG.(19)
10.34 Form of Registration Rights Agreement, dated December 30, 2005, by and
between the Company and Zentrum Mikroelektronik Dresden AG.(19)
10.35 Form of Securities Purchase Agreement, dated December 30, 2005, by and
among the Company various purchasers.(20)
10.36 Form of Registration Rights Agreement, dated December 30, 2005, by and
among the Company and various purchasers.(20)
10.37 License and Development Agreement, dated March 24, 2006, by and between
the Company and Cypress Semiconductor Corporation.(21)
10.38 Amended and Restated Registration Rights Agreement, dated March 24,
2006, by and between the Company and Cypress Semiconductor
Corporation.(21)
10.39 Employment Agreement, dated April 25, 2006, by and between the Company
and Brian P. Alleman.(22)
10.40 Preliminary agreement between the Company and Ronald Sartore.(23)
10.41 Account Purchase Agreement, effective June 2, 2006, by and between the
Company and Wells Fargo Bank, National Association, acting through its
Wells Fargo Business Credit operating division.(24)
10.42 Form of Securities Purchase Agreement, dated September 21, 2006, by and
among the Company and various purchasers.(25)
10.43 Form of Registration Rights Agreement, dated September 21, 2006, by and
among the Company and various purchasers.(25)
10.44 Form of Stock Purchase Warrant, dated September 21, 2006, by and among
the Company and various purchasers.(25)
10.45 Offer letter from the Company to Ronald Sartore, dated November 3,
2006.(26)
14.1 Code of Business Conduct and Ethics
21.1 Subsidiaries of the registrant
23.1 Consent of Hein & Associates LLP, Independent Registered Public
Accounting Firm
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
(1) Incorporated by reference to the Company's Current Report on Form 8-K12G3
filed by the Company with the SEC on October 10, 2006
(2) Incorporated by reference to the Company's Form S-1 Registration Statement
(Reg. No. 33-37874) filed with the Commission on November 19, 1990.
76
(3) Incorporated by reference to the Company's Form S-1 Registration Statement
(Reg. No. 33-46225) filed with the Commission on March 6, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 25, 1995
(5) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 27, 1996
(6) Incorporated by reference to the Form 8-K filed with the Commission on May
12, 2005
(7) Incorporated by reference to the Company's Form S-8 Registration Statement
(Reg. No. 333-73794) filed with the Commission on November 20, 2001
(8) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 27, 2002
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed with the Commission on August 13, 2002
(10) Incorporated be reference to the Company's Quarterly Report on Form 10-QSB
filed with the Commission on November 8, 2002
(11) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 27, 2003
(12) Incorporated by reference from the Current Report on Form 8-K filed by the
Company with the SEC on November 12, 2003
(13) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 4, 2004
(14) Incorporated by reference from the Current Report on Form 8-K filed by the
Company with the Commission on October 12, 2004
(15) Incorporated by reference to the Company's Form S-8 Registration Statement
(Reg. No. 333-1210005) filed with the Commission on December 7, 2004
(16) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on May 10, 2005
(17) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on July 5, 2005
(18) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on September 6, 2005
(19) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on December 13, 2005
(20) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on January 3, 2006
(21) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on March 30, 2006
(22) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on May 1, 2006.
(23) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on May 30, 2006.
(24) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on June 8, 2006.
(25) Incorporated by reference to the Company's Current Report on Form 8-K filed
by the Company with the SEC on September 25, 2006
(26) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed by the Company with the SEC on November 9, 2006
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Colorado
Springs, State of Colorado, United States of America, on April 2, 2007.
SIMTEK CORPORATION
/s/Harold Blomquist
--------------------------------------
By: Harold Blomquist
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on April 2, 2007 by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE
/s/Harold Blomquist
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Harold Blomquist Chief Executive Officer and President
/s/Brian Alleman
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Brian Alleman Chief Financial Officer
/s/Harold Blomquist
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Harold Blomquist Chairman of the Board
/s/Robert Keeley
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Robert H. Keeley Director
/s/Alfred Stein
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Alfred Stein Director
/s/Robert Pearson
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Robert Pearson Director
/s/Ronald Sartore
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Ronald Sartore Director
/s/John Hillyard
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John Hillyard Director
78
Exhibit 14.1
SIMTEK CORPORATION
CODE OF BUSINESS CONDUCT AND ETHICS
(Adopted November 6, 2006)
PREAMBLE: Nothing in this Code of Business Conduct and Ethics, in any company
policies and procedures, or in other related communications (verbal or written)
creates or implies an employment contract or term of employment.
I. INTRODUCTION
This Code of Business Conduct and Ethics is intended to help ensure
compliance with legal requirements and our standards of business conduct. All
Company officers and employees are expected to read and understand this Code of
Business Conduct and Ethics, uphold these standards in day-to-day activities,
comply with all applicable policies and procedures, and ensure that all agents
and contractors are aware of, understand, and adhere to these standards.
Directors are held to the same standards of conduct except where this document
restricts outside activities, so long as the director's activities are legal and
not in conflict with Simtek's best interests.
All officers, exempt employees and directors of the Company must sign the
acknowledgment form at the end of this Code of Business Conduct and Ethics and
return the form to the Human Resources Department indicating that you have
received, read, understand, and agree to comply with the Code of Business
Conduct and Ethics. The signed acknowledgment form will be held by Simtek's
human resources department.
II. YOUR RESPONSIBILITIES TO THE COMPANY AND ITS STOCKHOLDERS
A. General Standards of Conduct
The Company expects all employees, agents, directors, and contractors to
engage in honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional relationship
and exercise good judgment to ensure the safety and welfare of employees, agents
and contractors and to maintain a cooperative, efficient, positive, harmonious,
and productive work environment and business organization. These standards apply
while working on our premises, at off-site locations where our business is being
conducted, at Company-sponsored business and social events, or at any other
place where you are a representative of the Company. Employees, agents,
directors or contractors who engage in misconduct or whose performance is
unsatisfactory may be subject to corrective action, up to and including
termination.
B. Applicable Laws
All Company employees, agents, directors and contractors must comply with all
applicable laws, regulations, rules and regulatory orders. Company employees
located outside of the United States must comply with laws, regulations, rules
and regulatory orders of the United States, including the Foreign Corrupt
Practices Act and the U.S. Export Control Act, in addition to applicable local
laws. Each employee, agent and contractor must acquire appropriate knowledge of
the requirements relating to his or her duties sufficient to enable him or her
to recognize potential dangers and to know when to seek advice from the Human
Resources Department on specific Company policies and procedures. Violations of
laws, regulations, rules and orders may subject the employee, agent or
contractor to individual criminal or civil liability, as well as to discipline
by the Company. Such individual violations may also subject the Company to civil
or criminal liability or the loss of business.
C. Conflicts of Interest
Each of us has a responsibility to the Company, our stockholders and each other.
Although this duty does not prevent us from engaging in personal transactions
and investments, it does demand that we avoid situations where a conflict of
interest might occur or appear to occur. The Company is subject to scrutiny from
many different individuals and organizations. We should always strive to avoid
even the appearance of impropriety.
What constitutes conflict of interest? A conflict of interest exists where the
interests or benefits of one person or entity may, or may appear to, conflict
with the interests or benefits of the Company. Examples include:
(i) Employment/Outside Employment. In consideration of your employment
with the Company, you are expected to devote your full attention to the business
interests of the Company. You are prohibited from engaging in any activity that
interferes with your performance or responsibilities to the Company or is
otherwise in conflict with or prejudicial to the Company. Our policies prohibit
any employee from accepting simultaneous employment with a Company supplier,
customer, developer or competitor, or from taking part in any activity that
enhances or supports a competitor's position. Additionally, you must disclose to
the Company any interest that you have that may conflict with the business of
the Company. Exceptions to this policy will be considered for part time
employment or other activities that do not conflict with the basic principals
protecting the Company's interests. To apply for written exceptions or if you
have any questions on this requirement, you should contact your supervisor or
the Human Resources Department.
(ii) Outside Directorships. It is a conflict of interest to serve as a
director of any company that competes with the Company. Although you may serve
as a director of a Company supplier, customer, developer or other business
partner, our policy requires that you first obtain approval from the Chief
Executive Officer before accepting a directorship for any company. Any
compensation you receive should be commensurate to your responsibilities. Such
approval may be conditioned upon the completion of specified actions. Serving as
a director of a non-profit organization, charity or similar entity does not
violate this policy and does not require approval.
(iii) Business Interests. If you are considering investing in a Company
customer, supplier, developer or competitor, and you are in a position to
influence a decision relating to the Company customer, supplier, developer or
competitor, you must first take great care to ensure that these investments do
not compromise your responsibilities to the Company. Any exceptions to this
policy require a written waiver from the Company's Chief Financial Officer. As a
guideline, an investment in any one company should be no greater than 15% of
your annual base compensation measured at the lower of your cost or market.
Investments in funds are excluded. Investments in stocks of companies that
merged into Simtek Corp that you held as a former employee of that company are
excluded. Many factors should be considered in determining whether a conflict
exists, including the size and nature of the investment; your ability to
influence the Company's decisions; your access to confidential information of
the Company or of the other company; and the nature of the relationship between
the Company and the other company.
(iv) Related Parties. As a general rule, you should avoid conducting
Company business with a relative or significant other, or with a business in
which a relative or significant other is associated in any significant role.
Relatives include spouse, sister, brother, daughter, son, mother, father,
grandparents, aunts, uncles, nieces, nephews, cousins, step relationships and
in-laws. Significant others include persons living in a spousal or familial
fashion with an employee.
If such a related party transaction is unavoidable, you must fully disclose the
nature of the related party transaction to the Company's Chief Financial
Officer. If determined to be material to the Company by the Chief Financial
Officer, the Company's Audit Committee must review and approve in writing in
advance such related party transactions. The most significant related party
transactions, particularly those involving the executive officers must be
reviewed and approved in writing in advance by the Company's Board of Directors.
The Company must report all such material related party transactions under
applicable accounting rules, federal securities laws, Securities and Exchange
Commission rules and regulations, and securities market rules. Any dealings with
a related party must be conducted in such a way that no preferential treatment
is given to this business. You are expected to use your best efforts to make
full, fair, accurate, timely, and understandable disclosure to the Company so
that it can make the required disclosure in the reports and documents that it
files with or submits to the Securities and Exchange Commission or in other
public communications made by the Corporation.
The Company prohibits the employment of relatives and significant others in
positions or assignments that have a financial dependence or influence (e.g., an
auditing or control relationship, or a supervisor/subordinate relationship). The
purpose of this policy is to prevent the organizational impairment and conflicts
that are a likely outcome of the employment of relatives or significant others,
especially in a supervisor/subordinate relationship. If a question arises about
whether a relationship is covered by this policy, the Human Resources Department
is responsible for determining whether an applicant's or transferee's
acknowledged relationship is covered by this policy. The Human Resources
Department shall advise all affected applicants and transferees of this policy.
Willful withholding of information regarding a prohibited relationship/reporting
arrangement may be subject to corrective action, up to and including
termination. If a prohibited relationship exists or develops between two
employees, the employee in the senior position must bring this to the attention
of his/her supervisor. The Company retains the prerogative to separate the
individuals at the earliest possible time, either by reassignment or by
termination, if necessary.
(v) Other Situations. Because other conflicts of interest may arise, it
would be impractical to attempt to list all possible situations. If a proposed
transaction or situation raises any questions or doubts in your mind you should
consult the Human Resources Department.
D. Corporate Opportunities
Employees and officers may not exploit for their own personal gain opportunities
that are discovered through the use of corporate property, information or
position unless the opportunity is disclosed fully in writing to the Company's
Board of Directors and the Board of Directors declines to pursue such
opportunity.
E. Protecting the Company's Confidential Information
The Company's confidential information is a valuable asset. The Company's
confidential information includes product architectures, source codes, product
plans and road maps, names and lists of customers, dealers and employees, and
financial information. This information is the property of the Company and may
be protected by patent, trademark, copyright and trade secret laws. All
confidential information must be used for Company business purposes only. Every
employee, agent and contractor must safeguard it. This responsibility also
includes the safeguarding, securing and proper disposal of confidential
information in accordance with the Company's policy on Maintaining and Managing
Records set forth in Section II.I of this Code of Business Conduct and Ethics.
This obligation extends to confidential information of third parties, which the
Company has rightfully received under Non-Disclosure Agreements. See the
Company's policy dealing with Handling Confidential Information of Others set
forth in Section III.B of this Code of Business Conduct and Ethics.
(i) Proprietary Information and Invention Agreement. When you joined
the Company as an employee or director, you signed an agreement to protect and
hold confidential the Company's proprietary information. This agreement remains
in effect for as long as your relationship with the Company continues, and after
you leave the Company. Under this agreement, you may not disclose the Company's
confidential information to anyone or use it to benefit anyone other than the
Company without the prior written consent of an authorized Company officer.
(ii) Disclosure of Company Confidential Information. To further the
Company's business, from time to time our confidential information may be
disclosed to potential business partners. However, such disclosure should never
be done without carefully considering its potential benefits and risks. If you
determine in consultation with your manager and other appropriate Company
management that disclosure of confidential information is necessary, you must
then contact the appropriate corporate officer to ensure that an appropriate
written nondisclosure agreement is signed prior to the disclosure. The Company
has standard nondisclosure agreements suitable for most disclosures.
(iii) Requests by Regulatory Authorities. The Company and its officers,
employees, agents, directors and contractors must cooperate with appropriate
government inquiries and investigations. In this context, however, it is
important to protect the legal rights of the Company with respect to its
confidential information. All government requests for information, documents or
investigative interviews must be referred to the Company's Chief Financial
Officer. No financial information may be disclosed without the prior approval of
the Chief Financial Officer.
(iv) Company Spokespeople. All inquiries or calls from the press and
financial analysts should be referred to the Chief Financial Officer. The
Company has designated its Chairman, Chief Executive Officer and Chief Financial
Officer as Company Spokespeople. These designees and other individuals
designated by them from time to time are the only people who may communicate
with the press on behalf of the Company.
F. Obligations Under Securities Laws - "Insider" Trading
Obligations under the U.S. securities laws apply to everyone. In the normal
course of business, officers, employees, agents, directors, contractors and
consultants of the Company may come into possession of significant, sensitive
information. This information is the property of the Company -- you have been
entrusted with it. You may not profit from it by buying or selling securities
yourself, or passing on the information to others to enable them to profit or
for them to profit on your behalf. The purpose of this policy is both to inform
you of your legal responsibilities and to make clear to you that the misuse of
sensitive information is contrary to Company policy and U.S. securities laws.
Insider trading is a crime, penalized by fines of up to $5,000,000 and 20 years
in jail for individuals. In addition, the Securities and Exchange Commission may
seek the imposition of a civil penalty of up to three times the profits made or
losses avoided from the trading. Insider traders must also disgorge any profits
made, and are often subjected to an injunction against future violations.
Finally, insider traders may be subjected to civil liability in private
lawsuits.
Employers and other controlling persons (including supervisory personnel) are
also at risk under U.S. securities laws. Controlling persons may, among other
things, face penalties of the greater of $5,000,000 or three times the profits
made or losses avoided by the trader if they recklessly fail to take preventive
steps to control insider trading.
Thus, it is important both to you and the Company that insider-trading
violations not occur. You should be aware that stock market surveillance
techniques are becoming increasingly sophisticated, and the chance that U.S.
federal or other regulatory authorities will detect and prosecute even
small-level trading is significant. Insider trading rules are strictly enforced,
even in instances when the financial transactions seem small. You should contact
the Company's Chief Financial Officer if you are unsure as to whether or not you
are free to trade.
The Company has imposed a trading blackout period on all officers and employees
and certain designated consultants and contractors who, as a consequence of
their position with the Company, are more likely to be exposed to material
nonpublic information about the Company. These officers and employees and
designated consultants and contractors may not trade in Company securities
during the blackout period.
For more details, you should review the Company's Procedures and Guidelines
Governing Insider Trading. You can request a copy of this policy from the Human
Resources Department. You should take a few minutes to read the Company's
Procedures and Guidelines Governing Insider Trading carefully, paying particular
attention to the specific policies and the potential criminal and civil
liability and/or disciplinary action for insider trading violations. Employees,
agents, directors and contractors of the Company who violate this Policy are
also subject to disciplinary action by the Company, which may include
termination of employment or of business relationship.
G. Prohibition Against Short Selling of Company Stock
No Company officer or other employee, agent or contractor may, directly or
indirectly, sell any equity security, including derivatives, of the Company if
he or she (1) does not own the security sold, or (2) if he or she owns the
security, does not deliver it against such sale (a "short sale against the box")
within twenty days thereafter, or does not within five days after such sale
deposit it in the mails or other usual channels of transportation. No Company
officer or other employee, agent or contractor may engage in short sales or any
transaction involving a collar. A short sale, as defined in this policy, means
any transaction whereby one may benefit from a decline in the Company's stock
price. Transactions in put and call options for the Company's securities
constitute a short sale for the purposes of this policy and are therefore
prohibited. While employees who are not executive officers are not prohibited by
law from engaging in short sales of Company's securities, the Company has
adopted as policy that employees may not do so.
H. Use of Company's Assets
(i) General. Protecting the Company's assets is a key fiduciary
responsibility of every employee, agent, consultant and contractor. Care should
be taken to ensure that assets are not misappropriated, loaned to others, sold
or donated, without appropriate authorization. All Company employees, agents,
directors, consultants and contractors are responsible for the proper use of
Company assets, and must safeguard such assets against loss, damage, misuse or
theft. Employees, agents, directors, consultants or contractors who violate any
aspect of this policy, are subject to disciplinary action including immediate
termination of employment or the business relationship. Those employees who
demonstrate poor judgment in the manner in which they use any Company asset may
be subject to disciplinary action, up to and including termination of employment
or business relationship at the Company's sole discretion. Company equipment and
assets are to be used for Company business purposes only. Employees, agents,
directors, consultants and contractors may not use Company assets for personal
use, nor may they allow any other person to use Company assets. Employees who
have any questions regarding this policy should bring them to the attention of
the Company's Human Resources Department.
(ii) Physical Access Control. The Company has and will continue to develop
procedures covering physical access control to ensure privacy of communications,
maintenance of the security of the Company communication equipment and safeguard
Company assets from theft, misuse and destruction. You are personally
responsible for complying with the level of access control that has been
implemented in the facility where you work on a permanent or temporary basis.
You must not defeat or cause to be defeated the purpose for which the access
control was implemented.
(iii) Company Funds. Every Company employee is personally responsible for
all Company funds over which he or she exercises control. Company agents and
contractors should not be allowed to exercise control over Company funds.
Company funds must be used only for Company business purposes. Every Company
employee, agent, consultant and contractor must take reasonable steps to ensure
that the Company receives good value for Company funds spent, and must maintain
accurate and timely records of each and every expenditure. Expense reports must
be accurate and submitted in a timely manner. Company employees, agents,
directors, consultants and contractors must not use Company funds or Company
guaranteed credit cards for any personal purpose.
(iv) Computers and Other Equipment. The Company strives to furnish
employees with the equipment necessary to efficiently and effectively perform
their jobs. Employees must care for that equipment and to use it responsibly
primarily for Company business purposes. If Company equipment is used at your
home or off site, take precautions to protect it from theft or damage, just as
if it were your own. If the Company no longer employs you, you must immediately
return all Company equipment. While computers and other electronic devices are
made accessible to employees to assist them to perform their jobs and to promote
Company's interests, all such computers and electronic devices, whether used
entirely or partially on the Company's premises or with the aid of the Company's
equipment or resources, must remain fully accessible to the Company and, to the
maximum extent permitted by law, will remain the sole and exclusive property of
the Company.
Employees, agents, directors, and contractors should not maintain any
expectation of privacy with respect to information transmitted over, received by
or stored in any electronic communications device owned, leased or operated in
whole or in part by or on behalf of the Company. To the extent permitted by
applicable law, the Company retains the right to gain access to any information
received by, transmitted by or stored in any such electronic communications
device, by and through its employees, agents, directors, contractors or
representatives, at any time, either with or without an employee's or third
party's knowledge, consent or approval.
(v) Electronic Media Usage. The purpose of this policy is to make certain
that employees utilize electronic communication devices in a legal, ethical and
appropriate manner. This policy addresses the Company's responsibilities and
concerns regarding the fair and proper use of all electronic communications
devices within the organization, including computers, e-mail, connections to the
Internet, intranet and extranet and any other public or private networks, voice
mail, video conferencing, facsimiles and telephones. Posting or discussing
information concerning the Company's products or business on the Internet
without the prior written consent of the Company's Chief Financial Officer is
prohibited. Any other form of electronic communication used by employees
currently or in the future is also intended to be encompassed under this policy.
It is not possible to identify every standard and rule applicable to the use of
electronic communications devices. Employees are therefore encouraged to use
sound judgment whenever using any feature of our communications systems.
I. Maintaining and Managing Records
The purpose of this policy is to set forth and convey the Company's business and
legal requirements in managing records, including all recorded information
regardless of medium or characteristics. Records include paper documents, CDs,
computer hard disks, email, floppy disks, microfiche, microfilm or all other
media. The Company is required by local, state, federal, foreign and other
applicable laws, rules and regulations to retain certain records and to follow
specific guidelines in managing its records. Civil and criminal penalties for
failure to comply with such guidelines can be severe for employees, agents,
directors, contractors and the Company, and failure to comply with such
guidelines may subject the employee, agent or contractor to disciplinary action
up to and including termination of employment or business relationship at the
Company's sole discretion and/or applicable civil or criminal claims under law.
J. Records on Legal Hold
A legal hold suspends all document destruction procedures in order to preserve
appropriate records under special circumstances, such as litigation or
government investigations. The Company's outside counsel determines and
identifies what types of Company records or documents are required to be placed
under a legal hold. Every Company employee, agent and contractor must comply
with this policy. Failure to comply with this policy may subject the employee,
agent or contractor to disciplinary action, up to and including termination of
employment or business relationship at the Company's sole discretion, and
potentially to criminal prosecution.
The Company's Chief Financial Officer will notify you if a legal hold is placed
on records for which you are responsible. You then must preserve and protect the
necessary records in accordance with instructions from the Company's outside
counsel. RECORDS OR SUPPORTING DOCUMENTS THAT HAVE BEEN PLACED UNDER A LEGAL
HOLD MUST NOT BE DESTROYED, ALTERED OR MODIFIED UNDER ANY CIRCUMSTANCES. A legal
hold remains effective until it is officially released in writing by the
Company's outside counsel. If you are unsure whether a document has been placed
under a legal hold, you should preserve and protect that document while you
check with the Company's Chief Financial Officer.
If you have any questions about this policy you should contact the Company's
Chief Financial Officer.
K. Payment Practices
(i) Accounting Practices. The Company's responsibilities to its
stockholders and the investing public require that all transactions be fully and
accurately recorded in the Company's books and records in compliance with all
applicable laws. False or misleading entries, unrecorded funds or assets, or
payments without appropriate supporting documentation and approval are strictly
prohibited and violate Company policy and the law. Additionally, all
documentation supporting a transaction should fully and accurately describe the
nature of the transaction and be processed in a timely fashion.
(ii) Political Contributions. The Company reserves the right to communicate
its position on important issues to elected representatives and other government
officials. It is the Company's policy to comply fully with all local, state,
federal, foreign and other applicable laws, rules and regulations regarding
political contributions. The Company's funds or assets must not be used for, or
be contributed to, political campaigns or political practices under any
circumstances without the prior written approval of the Company's Chief
Financial Officer and, if required, the Board of Directors.
(iii) Prohibition of Inducements and Payments or Gifts from Others. Under
no circumstances may employees, agents, directors, or contractors accept any
offer, payment, promise to pay, or authorization to pay any money, gift, or
anything of value to or from customers, vendors, consultants, etc. that is
perceived as intended, directly or indirectly, to improperly influence any
business decision, any act or failure to act, any commitment of fraud or
opportunity for the commission of any fraud. Gifts with a value of less than
$100, infrequent business meals, celebratory events and entertainment (such as
tickets to sporting events), provided that they are not excessive or create an
appearance of impropriety, or are accepted on behalf of the Company, do not
violate this policy. Questions regarding whether a particular payment or gift
violates this policy should be directed to the Human Resources Department. Gifts
given by the Company to suppliers or customers or received from suppliers should
always be appropriate to the circumstances and should never be of a kind that
could create an appearance of impropriety. The nature and cost must always be
accurately recorded in the Company's books and records.
L. Foreign Corrupt Practices Act
The Company requires full compliance with the Foreign Corrupt Practices Act of
1977 (FCPA) by all of its employees, agents, directors, and contractors. The
FCPA was enacted to deter illegal corporate payments by prohibiting certain
payments or promises to foreign officials (anti-bribery provisions), requiring
corporations to keep adequate records of the disposition of their assets, and
making corporations responsible for internal monitoring of their accounting
practices.
The use of Company funds or assets for any unlawful or improper purpose is
strictly prohibited. No payment shall be made to, or for the benefit of,
government employees for the purpose of, or otherwise in connection with, the
securing of sales to or obtaining favorable action by a government agency. Gifts
of substantial value or lavish entertainment of government employees are
prohibited since they can be construed as attempts to influence government
decisions in matters affecting the Company's operation. Any entertaining of
public officials, or the furnishing of assistance in the form of transportation
or other services should be of such nature that the official's integrity or
reputation will not be compromised.
The offer, payment or promise to transfer in the future company funds or assets
or the delivery of gifts or anything else of value to foreign officials, foreign
political parties or officials or candidates of foreign political parties is
strictly prohibited for the purpose of influencing any act or decision of any
such person in his or her official capacity, including the decision to fail to
perform his or her official functions or to use such persons or party's
influence with a foreign government or instrumentality in order to affect or to
influence any act or decision of such government or instrumentality in order to
assist the Company in obtaining or retaining business for or with, or directing
business to any person or entity.
All records must truly reflect the transactions they record. All assets and
liabilities shall be recorded in the regular books of account. No undisclosed or
unrecorded fund or asset shall be established for any purpose. No false or
artificial entries shall be made in the books and records for any reason. No
payment shall be approved or made with the intention or understanding that any
part of such payment is to be used for any purpose other than that any part of
such payment is to be used for any purpose other than that described by the
document supporting the payment.
No political contribution shall be made, directly or indirectly, with corporate
funds or assets regardless of whether the contributions are legal under the laws
of the county in which they are made. Laws in most countries outside of the
United States also prohibit or restrict government officials or employees of
government agencies from receiving payments, entertainment or gifts for the
purpose of winning or keeping business. No contract or agreement may be made
with any business in which a government official or employee holds a significant
interest, without the prior approval of the Company's Chief Financial Officer.
All Company employees, directors, agents and contractors whether located in the
United States or abroad, are responsible for FCPA compliance and the procedures
to ensure FCPA compliance. All managers and supervisory personnel are expected
to monitor continued compliance with the FCPA to ensure compliance with the
highest moral, ethical and professional standards of the Company. FCPA
compliance includes the Company's policy on Maintaining and Managing Records in
Section II.I of this Code of Business Conduct and Ethics.
Any employee or director who learns of or suspects a violation of this policy
should promptly report the matter to the Chief Executive Officer, the Chief
Financial Officer or the human resources manager. All managers shall be
responsible for the enforcement of and compliance with this policy, including
the necessary distribution to insure employee knowledge and compliance.
M. Export Controls
A number of countries maintain controls on the destinations to which products or
software may be exported. Some of the strictest export controls are maintained
by the United States against countries that the U.S. government considers
unfriendly or as supporting international terrorism. The U.S. regulations are
complex and apply both to exports from the United States and to exports of
products from other countries, when those products contain U.S.-origin
components or technology. Software created in the United States is subject to
these regulations even if duplicated and packaged abroad. In some circumstances,
an oral presentation containing technical data made to foreign nationals in the
United States may constitute a controlled export. The Company's outside counsel
can provide guidance on which countries are prohibited destinations for Company
products or whether a proposed technical presentation to foreign nationals may
require a U.S. government license.
III. RESPONSIBILITIES TO OUR CUSTOMERS AND OUR SUPPLIERS
A. Customer Relationships
If your job puts you in contact with any Company customers or potential
customers, it is critical for you to remember that you represent the Company to
the people with whom you are dealing. Act in a manner that creates value for our
customers and helps to build a relationship based upon trust. The Company and
its employees have provided products and services for many years and have built
up significant goodwill over that time. This goodwill is one of our most
important assets, and the Company employees, agents, directors and contractors
must act to preserve and enhance our reputation.
B. Handling the Confidential Information of Others
The Company has many kinds of business relationships with many companies
and individuals. Sometimes, they will volunteer confidential information about
their products or business plans to induce the Company to enter into a business
relationship. At other times, we may request that a third party provide
confidential information to permit the Company to evaluate a potential business
relationship with that party. Whatever the situation, we must take special care
to handle the confidential information of others responsibly. We handle such
confidential information in accordance with our agreements with such third
parties.
C. Selecting Suppliers
The Company's suppliers make significant contributions to our success. To create
an environment where our suppliers have an incentive to work with the Company,
they must be confident that they will be treated lawfully and in an ethical
manner. The Company's policy is to purchase supplies based on need, quality,
service, price and terms and conditions. The Company's policy is to select
significant suppliers or enter into significant supplier agreements though a
competitive bid process where possible. Under no circumstances should any
Company employee, agent or contractor attempt to coerce suppliers in any way.
The confidential information of a supplier is entitled to the same protection as
that of any other third party and must not be received before an appropriate
nondisclosure agreement has been signed. A supplier to the Company is generally
free to sell its products or services to any other party, including competitors
of the Company. In some cases where the products or services have been designed,
fabricated or developed to our specifications, the agreement between the parties
may contain restrictions on sales.
D. Government Relations
It is the Company's policy to comply fully with all applicable laws and
regulations governing contact and dealings with government employees and public
officials, and to adhere to high ethical, moral and legal standards of business
conduct. This policy includes strict compliance with all local, state, federal,
foreign and other applicable laws, rules and regulations.
E. Government Contracts
It is the Company's policy to comply fully with all applicable laws and
regulations that apply to government contracting. It is also necessary to
strictly adhere to all terms and conditions of any contract with local, state,
federal, foreign or other applicable governments.
F. Free and Fair Competition
Most countries have well-developed bodies of law designed to encourage and
protect free and fair competition. The Company is committed to obeying both the
letter and spirit of these laws. The consequences of not doing so can be severe
for all of us. These laws often regulate the Company's relationships with its
distributors, resellers, dealers and customers. Competition laws generally
address the following areas: pricing practices (including price discrimination),
discounting, terms of sale, credit terms, promotional allowances, secret
rebates, exclusive dealerships or distributorships, product bundling,
restrictions on carrying competing products, termination and many other
practices.
Competition laws also govern, usually quite strictly, relationships between the
Company and its competitors. As a general rule, contacts with competitors should
be limited and should always avoid subjects such as prices or other terms and
conditions of sale, customers and suppliers. Employees, agents, directors, or
contractors of the Company may not knowingly make false or misleading statements
regarding its competitors or the products of its competitors, customers or
suppliers. Participating with competitors in a trade association or in a
standards creation body is acceptable when the association has been properly
established, has a legitimate purpose and has limited its activities to that
purpose.
No employee, director, agent or contractor shall at any time or under any
circumstances enter into an agreement or understanding, written or oral, express
or implied, with any competitor concerning prices, discounts, other terms or
conditions of sale, profits or profit margins, costs, allocation of product or
geographic markets, allocation of customers, limitations on production, boycotts
of customers or suppliers, bids or the intent to bid or even discuss or exchange
information on these subjects. In some cases, legitimate joint ventures with
competitors may permit exceptions to these rules as may bona fide purchases from
or sales to competitors on non-competitive products, but the Company's Chief
Executive Officer must review all such proposed ventures in advance. These
prohibitions are absolute and strict observance is required. Collusion among
competitors is illegal, and the consequences of a violation are severe and
include disciplinary action up to termination and possible criminal prosecution.
Although the spirit of these laws, known as "antitrust," "competition," or
"consumer protection" or unfair competition laws, is straightforward, their
application to particular situations can be quite complex. To ensure that the
Company complies fully with these laws, each of us should have a basic knowledge
of them and should involve our outside counsel early on when questionable
situations arise.
G. Industrial Espionage
It is the Company's policy to lawfully compete in the marketplace. This
commitment to fairness includes respecting the rights of our competitors and
abiding by all applicable laws in the course of competing. The purpose of this
policy is to maintain the Company's reputation as a lawful competitor and to
help ensure the integrity of the competitive marketplace. The Company expects
its competitors to respect our rights to compete lawfully in the marketplace,
and we must respect their rights equally. Company employees, agents, directors
and contractors may not steal or unlawfully use the information, material,
products, intellectual property or proprietary or confidential information of
anyone including suppliers, customers, business partners or competitors.
IV. WAIVERS
Any waiver of any provision of this Code of Business Conduct and Ethics for a
member of the Company's Board of Directors or an executive officer must be
approved in writing by the Chairman of the Company's Board of Directors and
promptly disclosed. Any waiver of any provision of this Code of Business Conduct
and Ethics with respect any other employee, agent or contractor must be approved
in writing by the Company's Chief Financial Officer or Chief Executive Officer.
V. DISCIPLINARY ACTIONS
The matters covered in this Code of Business Conduct and Ethics are of the
utmost importance to the Company, its stockholders and its business partners,
and are essential to the Company's ability to conduct its business in accordance
with its stated values. We expect all of our officers, employees, directors,
agents, directors contractors and consultants to adhere to these rules in
carrying out their duties for the Company.
The Company will take appropriate action against any officer, employee,
director, agent, contractor or consultant whose actions are found to violate
these policies or any other policies of the Company. Disciplinary actions may
include immediate termination of employment or business relationship at the
Company's sole discretion. Where the Company has suffered a loss, it may pursue
its remedies against the individuals or entities responsible. Where laws have
been violated, the Company will cooperate fully with the appropriate
authorities.
VI. ACKNOWLEDGMENT OF RECEIPT OF CODE OF BUSINESS CONDUCT AND ETHICS
I have received and read the Company's Code of Business Conduct and Ethics. I
understand the standards and policies contained in the Company Code of Business
Conduct and Ethics and understand that there may be additional policies or laws
specific to my job. I further agree to comply with the Company Code of Business
Conduct and Ethics.
If I have questions concerning the meaning or application of the Company Code of
Business Conduct and Ethics, any Company policies, or the legal and regulatory
requirements applicable to my job, I know I can consult my manager or the Human
Resources Department, knowing that my questions or reports to these sources will
be maintained in confidence.
--------------------------------------------------------------------------------
-------------------------------------
Employee Name
-------------------------------------
Signature
--------------------------------------
Date
All officers, directors and exempt employees must sign and return this form to
the Human Resources Department.
Exhibit 21.1
Subsidiary of the Registrant
Simtek GmbH, a company organized under the laws of Germany and a wholly-owned
subsidiary of the registrant.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement (No.
333-121005) on Form S-8 of Simtek Corporation of our report dated March 27, 2007
relating to our audit of the consolidated financial statements, which appear in
this Annual Report on Form 10-K of Simtek Corporation for the year ended
December 31, 2006.
HEIN & ASSOCIATES LLP
Denver, Colorado
March 27, 2007
Exhibit 31.1
CERTIFICATIONS
I, Harold Blomquist, certify that:
1. I have reviewed this Annual Report on Form 10-K of Simtek Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrants' board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: April 2, 2007 /s/Harold Blomquist
-------------------------------------
Harold Blomquist
Chief Executive Officer and President
Exhibit 31.2
CERTIFICATIONS
I, Brian Alleman, certify that:
1. I have reviewed this Annual Report on Form 10-K of Simtek Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrants' board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: April 2, 2007
/s/Brian Alleman
------------------------------------------------
Brian Alleman
Chief Financial Officer
(Principal Accounting Officer and Duly Authorized
Officer of the Registrant)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
PRESIDENT PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Harold Blomquist, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Simtek Corporation on Form 10-K for the annual period ended
December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and that information contained in such
Form 10-K fairly presents in all material respects the financial condition and
results of operations of Simtek Corporation.
/s/Harold Blomquist
-------------------------------------
Harold Blomquist
Chief Executive Officer and President
April 2, 2007
Exhibit 32.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
PRESIDENT PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Alleman, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Simtek Corporation on Form 10-K for the annual period ended December
31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Form 10-K
fairly presents in all material respects the financial condition and results of
operations of Simtek Corporation.
/s/Brian Alleman
------------------------------------------
Brian Alleman
Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer of the Registrant)
April 2, 2007