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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--- ---
COMMISSION FILE NUMBER 0-17191
WEITEK CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2709963
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1060 EAST ARQUES AVENUE, SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 738-8400
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has 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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,564,110 shares of common stock at November 1, 1995
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WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
September 30, 1995
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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WEITEK CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
September 30, 1995 December 31, 1994
------------------ -----------------
ASSETS
Current assets:
Cash $ 3,915 $ 1,532
Short-term investments 4,207 7,032
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Total cash and short-term investments 8,122 8,564
Accounts receivable, net of allowances
of $675 and $756 1,289 4,143
Inventories 1,507 2,588
Prepaid expenses and other 461 412
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Total current assets 11,379 15,707
Equipment and leasehold improvements, net 1,472 1,731
Other assets 2 2
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$ 12,853 $ 17,440
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,580 $ 5,314
Accrued compensation and employee benefits 1,498 2,006
Other current liabilities 1,021 982
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Total current liabilities 6,099 8,302
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Commitments
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized, no par
value, no shares outstanding -- --
Common stock, 50,000,000 shares authorized, no par
value, 8,564,027 and 8,293,839 shares outstanding 22,921 22,335
Retained earnings (deficit) (16,167) (13,197)
-------- --------
Total shareholders' equity 6,754 9,138
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$ 12,853 $ 17,440
======== ========
See accompanying notes to consolidated condensed financial statements.
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WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, 1995 Oct. 1, 1994 Sept. 30, 1995 Oct. 1, 1994
-------------- ------------ -------------- ------------
Net revenue $ 3,300 $ 6,500 $ 14,300 $ 22,100
Cost of revenue 1,775 3,860 8,705 14,935
-------- -------- -------- --------
Gross margin 1,525 2,640 5,595 7,165
Research and development 1,750 2,304 5,741 7,279
Sales and marketing 648 1,624 2,072 5,508
General and administrative 357 457 1,077 1,553
-------- -------- -------- --------
Operating loss (1,230) (1,745) (3,295) (7,175)
Other income 100 100 325 280
-------- -------- -------- --------
Loss before income taxes (1,130) (1,645) (2,970) (6,895)
Benefit of income taxes -- -- -- --
-------- -------- -------- --------
Net loss $ (1,130) $ (1,645) $ (2,970) $ (6,895)
======== ======== ======== ========
Loss per share $ (.13) $ (.20) $ (.35) $ (.85)
======== ======== ======== ========
Weighted average common
shares and equivalents 8,546 8,207 8,423 8,130
======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
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WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
Sept. 30, 1995 Oct. 1, 1994
-------------- ------------
Cash flows from operating activities:
Net loss $(2,970) $(6,895)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 929 1,087
Changes in assets and liabilities:
Accounts receivable 2,854 2,467
Inventories 1,081 2,241
Prepaid expenses and other (49) (291)
Accounts payable (1,734) (172)
Accrued compensation and employee benefits (508) 674
Other current liabilities 39 29
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Net cash used by operating activities (358) (860)
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Cash flows from investing activities:
Equipment and leasehold improvements (670) (616)
Decrease in short-term investments 2,825 3,597
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Net cash provided by investing activities 2,155 2,981
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Cash flows from financing activities:
Issuance of capital stock 586 673
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Net cash provided by financing activities 586 673
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Net increase in cash 2,383 2,794
Cash, beginning of period 1,532 2,723
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Cash, end of period $ 3,915 $ 5,517
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See accompanying notes to consolidated condensed financial statements.
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WEITEK CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Interim Statements:
The accompanying unaudited consolidated condensed financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments necessary to fairly
present the financial information included therein. While the Company believes
that the disclosures are adequate to make the information not misleading, it is
suggested that this financial data be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1994 included in the Company's 1994 Annual Report to the Securities and
Exchange Commission on Form 10-K. Results for the interim period presented are
not necessarily indicative of results for the entire year.
Note 2 - Consolidated Condensed Balance Sheet Detail:
(In thousands)
September 30, 1995 December 31, 1994
------------------ -----------------
Inventories:
Raw materials $ 22 $ 587
Work-in-process 591 1,530
Finished goods 894 471
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$ 1,507 $ 2,588
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Equipment and leasehold improvements:
Machinery and equipment $12,628 $12,010
Furniture and fixtures 1,086 1,086
Leasehold improvements 373 373
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14,087 13,469
Less accumulated depreciation and amortization 12,615 11,738
------- -------
$ 1,472 $ 1,731
======= =======
Note 3 - Earnings (Loss) per Share:
Earnings (loss) per share are computed using the weighted average number of
common shares and, where dilutive, common share equivalents outstanding during
the period.
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WEITEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET REVENUE
Net revenue in the third quarter and first nine months of 1995 decreased 49% and
35% from the same periods in 1994. Unit sales of integrated circuits in the
third quarter and first nine months of 1995 decreased by 56% and 24% from the
same periods in 1994 due to lower shipments of user interface processors and the
SPARC POWER _P processor. Overall average selling prices decreased by 13% and
15% from the third quarter and first nine months of 1994. The decline in average
selling prices was due to the continued shift in product mix toward products
with lower average selling prices, primarily user interface products. Net
revenue for the third quarter of 1995 also included approximately $715,000
related to the Company's joint product development agreement with Samsung
Semiconductor, Ltd.
International net revenue was 53% of net revenue in the third quarter and 33% in
the first nine months of 1995 compared to 29% and 25% of net revenue in the
comparable periods of 1994. International net revenue increased due to revenue
recognized in the third quarter of 1995 under the Company's joint product
development agreement with Samsung Semiconductor, Ltd. of Korea.
Sales of the Company's products to Ryoyo, a Japanese distributor, represented
22% and 21% of net revenue in the third quarter and first nine months of 1995.
Sales to Ryoyo were 16% of net revenue in the third quarter of 1994 and 11% of
net revenue for the first nine months of 1994. Diamond Multimedia Systems
accounted for 13% and 15% of net revenue in the third quarter and first nine of
1995 compared to 10% and 23% of net revenue in the same periods in 1994. Sales
of the Company's products to Siemens represented 23% of net revenue in the first
nine months of 1995. Revenue earned under the Company's development contract
with Samsung represented 22% of net revenue in the third quarter of 1995. Sales
to Siemens and Samsung were less than 10% of net revenue for the comparable
period in 1994. No other customer represented 10% or more of the Company's
revenue during these periods.
GROSS MARGIN
The Company's gross margin was 46% and 39% in the third quarter and first nine
months of 1995 compared to 41% and 32% in the same periods in 1994. During the
second quarter of 1994, the Company recorded a $2.8 million increase in
inventory reserves as a result of a decline in demand for certain user interface
products. Gross margin in the third quarter of 1995 includes the impact of a
$500,000 one-time billing under the Company's agreement with Samsung at margins
significantly greater than the overall company average. Remaining billings under
the Samsung agreement, for the development of an advanced multimedia product,
are anticipated to carry a gross margin well below the initial payment. As a
result of this factor, as well as production start-up costs for the Company's
W464 Unified System/Display Controller, the fourth quarter gross margin
percentage is anticipated to be lower than the third quarter level.
The Company anticipates that its overall gross margin percentage will continue
to be highly dependent on product mix, as the Company's user interface products
typically carry gross margin percentages lower than the Company's SPARC POWER _P
processor and mature workstation products. Overall, as sales of user interface
products have come to represent a larger share of total revenues, gross margin
as a percentage of revenue has declined below historical levels of 45% to 50%.
The Company expects ongoing gross margins to be in the mid-30% range. In order
to prevent margins from declining below expected levels, the Company needs to
introduce cost-effective new products on a timely basis and continue to execute
on its cost reduction programs. As the Company introduces new products and
qualifies multiple sources of supply for these products, the Company increases
the risk that it could experience significant fluctuation in manufacturing
yields and hence, product cost and gross margin. While the Company's
manufacturing engineering personnel work very closely with its suppliers to
stabilize and improve manufacturing yields, the Company's gross margin could be
adversely affected if these efforts were to be unsuccessful.
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Substantially all of the semiconductor wafers used to manufacture the Company's
products are processed to its specifications by four outside suppliers. The
Company believes that its wafer requirements do not justify the high cost of
owning and operating a fabrication facility, and that these manufacturing
arrangements provide it with flexibility in choosing process technologies. The
Company's reliance on third party manufacturers involves several risks, however,
including the absence of guaranteed capacity, the possible unavailability of or
delays in obtaining access to certain process technologies, and the absence of
control over wafer delivery schedules, manufacturing yields and production
costs.
OPERATING EXPENSES
As a percentage of net revenue, operating expenses were 83% in the third quarter
and 62% in the first nine months of 1995, compared to 67% and 65% in the same
periods a year ago. In absolute dollars, total operating expenses were $2.8
million in the third quarter and $8.9 million in the first nine months of 1995
down from $4.4 million in the third quarter and $14.3 million in the first nine
months of 1994. Overall operating expenses in 1995 declined from 1994 levels due
to the effect of a restructuring of operations in the fourth quarter of 1994,
which reduced the Company's workforce by approximately 25%.
Research and development expenses as a percentage of net revenue were 53% and
40% in the third quarter and first nine months of 1995 compared to 35% and 33%
in the comparable periods a year ago. In absolute dollars, research and
development expenses for the third quarter of 1995 were $1.8 million compared to
$2.3 million in the third quarter of 1994. Expenses in the first nine months of
1995 decreased to $5.7 million from $7.3 million in the first nine months of
1994. The decrease in expenses during 1995 is primarily due to lower staffing
levels and improvements resulting from the Company's continued investment in
design automation tools. Approximately 60% of the Company's employees are
involved in research and development activities.
Sales and marketing expenses decreased as a percentage of net revenue to 20% and
14% in the third quarter and first nine months of 1995 from 25% in the
comparable periods a year ago. In absolute dollars, sales and marketing expenses
were $0.6 million in the third quarter of 1995, down from $1.6 million in the
third quarter of 1994. Expenses in the first nine months of the year decreased
from $5.5 million in 1994 to $2.1 million in 1995, primarily due to decreased
advertising expenditures and lower staffing levels.
General and administrative expenses as a percentage of net revenue were 11% and
8% in the third quarter and first nine months of 1995 compared to 7% in the same
periods in 1994. In absolute dollars, general and administrative expenses
decreased to $0.4 million and $1.1 million in the third quarter and first nine
months of 1995 from $0.5 million and $1.6 million in the comparable periods of
1994. The decline in expenses during 1995 is due primarily to lower staffing
levels.
PROVISION FOR INCOME TAXES
The Company recorded no tax benefits for the third quarter and first nine months
of 1995 and 1994. The Company has exhausted its ability to carry back losses
against prior years' income; however, the Company has the ability to carry
forward certain tax attributes to offset future regular federal and state income
taxes payable. Consequently, if the Company is profitable in future periods, the
Company's effective tax rate in such periods may be somewhat below the statutory
rate.
NET INCOME
The Company generated a net loss of $1.1 million and $3.0 million in the third
quarter and first nine months of 1995, down from a net loss of $1.6 million and
$6.9 million in the third quarter and first nine months of 1994. As a percentage
of net revenue, the net loss decreased from 31% in the first nine months of 1994
to 21% in the first nine months of 1995. $2.8 million of the loss in the first
nine months of 1994 was due to an increase in inventory reserves for user
interface products.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Company's principal source of liquidity was $8.1
million of cash and short-term investments. Of this amount, $1.7 million secures
letters of credit issued to suppliers. The Company has suffered recurring losses
from operations and has an accumulated deficit that raise doubt about its
ability to continue as a going concern. During 1994, the Company took certain
steps to reduce its overhead and other expenses, including a workforce reduction
and consolidation of facilities. The Company is currently focusing its R&D
efforts on a new family of products which was announced in the second quarter of
1995 and the first of which is expected to begin shipping in the fourth quarter
of 1995. Any delay in new product introductions or weakness in market demand
could impact the Company's ability to reduce its operating losses and cause
liquidity problems. Management has recently reached an agreement in principle to
obtain a $3.0 million bank line of credit, secured by accounts receivable.
However, there can be no assurance that the Company will actually obtain such
financing, if necessary.
During August 1990, the Company's Board of Directors approved a plan to
repurchase outstanding shares of the Company's common stock on the open market.
The Company did not repurchase any shares during the third quarter of 1995.
OUTLOOK: ISSUES AND RISKS
During the second quarter of 1995, the Company introduced its W464 and W564
Unified System/Display Controller (US/DC) products. The Company's US/DC
technology integrates PCI system logic with a high performance 64-bit graphics
accelerator, combining the display memory and main memory into a single
subsystem, which greatly reduces the system's cost. The Company currently
expects the first revenue from its W464 product in the fourth quarter of 1995.
The development effort for the W564 unified memory chipset for Pentium systems
continues, with initial silicon expected early next year. However, any delay in
the introduction of these products, weakness in market demand or an inability to
access to sufficient cost-effective wafer fabrication capacity could impact the
Company's ability to increase revenue and reduce operating losses.
In the third quarter, the Company entered into a technology exchange agreement
with Samsung Electronics Company Ltd. to co-develop a family of advanced
multimedia integrated circuits. The two companies will share marketing and sales
rights to these products. As part of the agreement, Samsung will provide wafer
capacity allocations for all jointly developed products as well as Weitek
proprietary products. The Company will have the lead role in the development of
the initial product, and Samsung will provide funding of approximately $3.0
million for this effort. $500,000 of the total funding is for the initial
product specification, while $2.5 million covers the product development effort.
The Company currently anticipates that total costs to complete the product
development milestones will be somewhat less than $2.5 million. Product
development revenue will be recognized in proportion to the costs incurred over
the development cycle which is anticipated to continue into the second quarter
of 1996.
The Company anticipates that for the fourth quarter of 1995, the gross margin
percentage will decline from the third quarter level and that the fourth quarter
operating loss will equal or exceed the third quarter loss. The extent of the
loss will depend on the level of revenue from the W464, as well as the degree to
which sales of the Company's older user interface products decline. Unless the
Company's overall revenues increase substantially from current levels, the
Company will not be profitable and will begin to experience liquidity problems
if it is unable to reduce or eliminate losses from operations. If the Company
does experience significant revenue growth, it may require additional working
capital to fund such growth. There can be no assurance that the Company will be
successful in obtaining such financing, if necessary.
The semiconductor industry continues to experience a shortage of high
performance sub-micron wafer fabrication capacity. The Company is in the process
of qualifying one or more additional sources of wafer supply for its products.
There are technical as well as financial risks involved in qualifying an
additional source of wafer supply. There can be no assurance that the Company
will be successful in its efforts to maintain or increase wafer supply in a
timely manner. The results of operations would be adversely affected if the
Company were to experience additional constraints in its supply of wafers from
its existing suppliers or if the Company were unable to obtain an adequate
supply of cost-effective wafers from new sources in a timely manner.
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The user interface market is characterized by intense competition, rapid
technological change, evolving industry standards and frequent new product
introductions, resulting in short product life cycles and continuous price
erosion. The Company's results may be adversely affected by the actions of
existing or future competitors, including the development of new technologies,
the introduction of new products and the reduction of prices by such competitors
to gain or retain market share. The Company believes that its ability to compete
successfully depends on elements both within and outside its control, including
successful and timely development of new products and technologies, external
market conditions, product performance and price, access to sufficient and
cost-effective wafer fabrication capacity (especially high-performance
sub-micron processes), alliances with major independent software vendors and
development partners, name recognition, access to advanced process technologies,
customer support and availability of compatible applications software and
software development tools. There can be no assurance that the Company will be
able to compete successfully as to these factors.
The Company's future operating results may be affected by a variety of other
factors, including fluctuations in manufacturing yields, availability of wafer
fabrication capacity, production cost increases, the timing of new product
introductions by the Company and its competitors, fluctuations in operating
expenses, the cancellation or rescheduling of orders by its customers, and by
general economic conditions, such as a prolonged recessionary period, or
fluctuations in foreign exchange rates. Accordingly, historical trends should
not be used to anticipate results or trends in future periods, and past
financial performance should not be considered as a reliable indicator of future
performance.
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WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1995
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Report on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEITEK CORPORATION
Date: November 10, 1995 /s/ Barry L. Cox
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Barry L. Cox
President and Chief Executive Officer
Date: November 10, 1995 /s/ Paul K. Kidman
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Paul K. Kidman
Director of Finance
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Exhibit Index
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Ex. 27 Financial Data Schedule
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