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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1995
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to
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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
incorporation or organization) Identification No.)
2801 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA, 95134
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 526-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
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
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 1,
1996 as reported on the NASDAQ National Market System, was approximately
$19,148,946. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 1, 1996, registrant had outstanding 8,654,156 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Shareholders of the Company
to be held June 6, 1996.
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PART I
When used in the following report, the words "projects", "expects" and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Form 10-K. A number of factors may
impact the outcome of actual results, but in particular, whether the Company is
successful in licensing its technology and identifying a strategic partner to
help bring its technology to the market.
ITEM 1. BUSINESS.
General
Weitek Corporation (the Company) specializes in semiconductor technology to
enhance the performance and value of industry-standard computers and software.
Weitek was founded in 1981, and has its headquarters in San Jose, California.
The Company has historically relied upon its floating-point technology,
graphics expertise and systems design expertise to develop standard numeric
processing architectures providing cost-effective performance in the form of
coprocessors, RISC (Reduced Instruction Set Computing) processors and graphics
processors for supercomputer and workstation manufacturers. In recent years, the
Company has used its graphics technology to develop user interface processors to
accelerate the performance of personal computers.
During 1995, the Company focused its R&D efforts on the development of a
new product line of unified memory architecture (UMA) chip sets targeted at the
mid-range segment of the user interface market. The Company's UMA technology
combines the features of an accelerated graphics controller with those of
motherboard system logic, integrating most of the circuitry for a personal
computer (except the processor and memory) into a single product.
While the Company believes that its UMA technology is competitive, it has
determined that it no longer has sufficient resources to pursue a strategy of
independently manufacturing and marketing chip sets. The Company has recently
announced that it will focus on licensing its technology and will actively seek
partners to help commercialize its UMA technology. Hambrecht & Quist, an
international investment banking firm, has been retained to assist the Company
in developing strategic relationships. The Company has not had an opportunity to
fully evaluate the impact of this change in business strategy and certain
negative consequences may not be fully understood. See Note 10 of Notes to
Consolidated Financial Statements regarding events subsequent to year end.
Given the recent change in the Company's business strategy outlined above,
the following description of the Company's historical business operations is not
indicative of what its future operations will be. Moreover, the Company has very
limited experience with the licensing and strategic partnering strategy being
pursued by the Company. There can be no assurance that the Company can
successfully transition its business model, or that even if the transition is
successful that the Company will be able to operate profitably in the new model.
Although the Company has recently taken actions to reduce its expense levels,
the Company may continue to experience losses from operations that raise
substantial doubt about the Company's ability to continue as a going concern.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1, 8 and 10 of Notes to Consolidated Financial Statements.
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Sales and Technical Support
The Company has sold its products and provided technical support to leading
domestic manufacturers through its direct sales force headquartered in the
Company's principal offices in San Jose, California. The Company has utilized a
national distributor, Bell Microproducts, to supplement its direct sales force
in the United States and has also used a number of sales representatives to
augment its distributor and direct sales efforts. Distributors have been granted
limited product return rights which were typical in the industry.
International sales have been managed by the Company's sales
representatives and conducted through distributors located primarily in Europe,
Japan and Taiwan. International sales represented 39% of net revenue in 1995,
25% of net revenue in 1994 and 19% of net revenue in 1993 (see Note 1 of Notes
to Consolidated Financial Statements). International sales are generally
denominated in U.S. dollars and are subject to risks common to export
activities, including governmental regulation and trade barriers. Substantially
all of the Company's international sales must be licensed by the Office of
Export Administration of the U.S. Department of Commerce. The Company has not
experienced any material difficulties to date in obtaining export licenses.
Sales of the Company's products to Ryoyo, a Japanese distributor, accounted
for 24% and 11% of net revenue in 1995 and 1994, respectively. Siemens
represented 19% of the Company's net revenue in 1995. Sales to Diamond
Multimedia Systems represented 12%, 22% and 28% of net revenue in 1995, 1994 and
1993, respectively. Sun Microsystems accounted for 10% of the Company's sales in
1993. No other customer represented 10% or more of the Company's net revenue
during these periods.
Backlog
Due to industry practice with respect to customer changes in delivery
schedules or cancellation of orders, the Company believes that backlog as of any
particular date may not be indicative of actual net revenues for any succeeding
period.
Manufacturing Strategy
The Company's manufacturing strategy has been to develop mutually
beneficial relationships with qualified manufacturers who offer the leading-edge
of mainstream process technologies. This strategy permitted the Company to focus
its resources on product development and customer support rather than on the
development of process technologies and also gave the Company the flexibility to
take advantage of new process technologies as they became mainstream.
The Company has recently announced that it no longer has sufficient
resources to independently pursue a strategy of manufacturing chip sets. The
Company has changed its business strategy to focus on technology licensing and
is actively seeking a strategic partner that can successfully develop products
based on its unified memory architecture technology.
Research and Development
Research and development expenditures were 42% of net revenue in 1995, 34%
of net revenue in 1994 and 28% of net revenue in 1993. Expenditures for research
and development in 1995, 1994 and 1993 were approximately $7.3 million, $9.6
million and $10.3 million, respectively. As of March 1, 1996, the Company had 46
full-time employees engaged in research and development activities.
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Competition
The markets for which the Company develops its technology are characterized
by intense competition, rapid product evolution, and evolving industry
standards. Many of the Company's current and prospective competitors have
significantly greater financial, technical, and marketing resources than the
Company. The Company is in the process of licensing its technology for its
unified memory architecture (UMA) as well as its 2D, VGA and graphics
technologies. The competition for the Company's UMA technology, which
incorporates both core logic and advanced graphics technology, includes both
traditional chip set architectures as well as alternative integrated solutions.
The competition for the Company's VGA technology includes several companies
which sell VGA core "net lists."
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 technologies, external market conditions, alliances with
development partners, name recognition, 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.
Patents and Licenses
The Company has been issued nine patents in the United States and one in
Japan and has two patent applications pending in the United States. In addition,
the Company has registered 38 maskworks with the United States Copyright office
and 26 maskworks with the Industrial Property Rights Cooperation Center in
Japan. Although the Company believes that these patents and maskwork
registrations may have value, the Company's future success will depend primarily
upon the technical competence and creative skills of its personnel.
The Company attempts to protect its trade secrets and other proprietary
information through agreements with customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures.
Employees
As of March 1 1996, the Company had 73 full-time equivalent employees, of
whom 46 were engaged in research and development, 12 in sales and marketing, 10
in general and administration and 5 in production. On March 21, 1996, the
Company announced that it would reduce its work force by approximately 30%,
primarily in the sales and marketing, general and administration and production
groups. The Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage.
ITEM 2. PROPERTIES.
The Company's executive offices and its principal marketing, sales and
product development operations occupy 40,000 square feet of a leased facility in
San Jose, California under a lease which expires in 2001. The Company believes
that its leased facility is adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, and their ages as of March 1, 1996, are as
follows:
Officer
Name Age Position Since
- ----------------- --- --------------------------------- -------
David L. Gellatly 52 Director, Chief Executive Officer 1996
Howard J. Gopen 51 Vice President, Operations 1990
Michael D. Hollabaugh 46 Vice President, Sales 1995
Allen R. Samuels 39 Vice President, Business Development 1994
Benjamin M. Warren 53 Vice President, Engineering 1994
David L. Gellatly, Director, is currently serving as the Company's interim
Chief Executive Officer. Mr. Gellatly has over 20 years of marketing experience
in the semiconductor business including various positions with Intel's
microprocessor group from 1976 to 1981. Since 1982, with the exception of a
brief period from 1991 to 1992 when he served as President and Chief Executive
Officer of Austek Microsystems, he has been an independent marketing consultant
providing services to many leading companies in semiconductor and other high
technology businesses. His clients have included IBM, Apple, Intel, Cyrix,
National Semiconductor, Siemens and others. Mr. Gellatly holds a B.S. degree and
an M.S. in electrical engineering, both from the University of Minnesota.
Howard J. Gopen, Vice President of Operations, joined the Company in July
1990. From April 1987 to July 1990, he was vice president and general manager of
operations at Inova Corporation. Prior to 1987, he was with Intel where he held
a variety of operations management positions, most recently as quality and
reliability manager. Mr. Gopen holds a B.S. in Electrical Engineering from City
College of New York. Subsequent to March 1, 1996, Mr. Gopen resigned from the
Company.
Michael D. Hollabaugh, Vice President of Sales, joined the Company in
October 1995. From 1994 to 1995, he served as Vice President of Sales and
Marketing at Trident Microsystems, a graphics and multimedia company. From 1986
to 1994, he was with Applied Micro Circuits, a semiconductor company, with his
most recent position as Vice President of Business and Product Development.
Prior to 1986, Mr. Hollabaugh held various marketing positions at International
Microelectronics Products and Fairchild Semiconductor. Mr. Hollabaugh holds a
B.S. in Electrical Engineering and a B.S. in Technical Marketing from California
State Polytechnic University.
Allen R. Samuels joined the Company in April 1985 as a Design Consultant.
Mr. Samuels was promoted to R&D Product Manager in June 1987, Director of IC
Engineering in February 1992 and to his present position as Vice President of
Business Development in March 1994. Prior to 1985, he held various positions at
Harris Corporation and Burroughs Corporation. Mr. Samuels holds a B.S. in
Electrical Engineering from Rice University.
Benjamin M. Warren joined the Company in April 1993 as Director of
Manufacturing Engineering. In January 1994 he became Director of Technology and
in March 1994 he was promoted to Vice President of Engineering. From April 1989
to March 1993, Mr. Warren was with Chips & Technologies, a semiconductor
company, with his most recent position as General Manager. Prior to 1989, he
served as Vice President of Engineering at Inova Microelectronics. Mr. Warren
holds a B.S. in Electrical Engineering from California State University at Long
Beach and a M.S. in Electrical Engineering from California State University at
San Diego.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The NASDAQ Stock Market under the
symbol WWTK. The following table indicates the range of the high and low closing
prices, as reported by NASDAQ during the two most recent fiscal years.
1995 1994
---- ----
High Low High Low
----- ----- ------ -----
First Quarter $4.00 $1.91 $10.00 $6.50
Second Quarter 5.25 3.25 7.13 3.38
Third Quarter 6.88 3.88 4.38 2.94
Fourth Quarter 6.00 2.88 5.13 1.78
As of March 1, 1996, there were approximately 3,065 shareholders. The
Company has not paid cash dividends on its common stock and has no present plans
to do so.
ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31,
---------------------------------------------
(In thousands, except per share data) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net revenue $17,600 $28,450 $36,250 $26,460 $39,100
Net loss (4,305) (10,570) (1,435) (10,880) (4,810)
Loss per share (.51) (1.30) (.18) (1.42) (.61)
BALANCE SHEET DATA:
Cash and short-term investments $6,028 $8,564 $11,490 $15,743 $21,885
Total assets 11,268 17,440 25,266 25,839 37,551
Lease obligations, long-term - - - - 20
Shareholders' equity 5,593 9,138 18,906 19,232 29,410
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Subsequent to the end of its 1995 fiscal year, the Company substantially changed
its business strategy. The following discussion should be read in conjunction
with the "OUTLOOK: ISSUES AND RISKS" section at the end of this discussion and
with Notes 1, 8 and 10 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Net Revenue. Net revenue decreased by 38% to $17.6 million in 1995 compared to
$28.5 million in 1994, which represented a 22% decrease from 1993 net revenue of
$36.3 million. The decrease in net revenue in 1995 was due to a 30% decrease in
unit shipments combined with an 11% decrease in average selling prices. The
decrease in unit shipments was primarily due to decreased shipments of the
Company's user interface products and the SPARC POWER uP processor. The decrease
in average selling prices was primarily related to the decrease in shipments of
the SPARC POWER uP processor, which carries a higher average selling price. The
decrease in net revenue in 1994 resulted from a 26% decrease in unit shipments
partially offset by a 6% increase in average selling prices. The decrease in
unit shipments was primarily due to decreased shipments of user interface
processors and decreased demand for the Company's mature products. Unit
shipments of the SPARC POWER uP processor increased in 1994, although shipments
fell sharply in the fourth quarter.
International net revenue was 39% of total net revenue in 1995 compared to
25% in 1994. The increase in 1995 was due to revenue recognized under the
Company's joint product development agreement with Samsung Semiconductor, Ltd.
of Korea, as well as increased shipments of user interface processors and mature
workstation products to Japan. Domestic net revenue decreased by 50% during
1995, compared to a decrease of 27% during 1994. The decrease in 1995 was due to
a decrease in domestic shipments of both user interface products and the SPARC
POWER uP processor.
Sales of the Company's products to Ryoyo, a Japanese distributor, accounted
for 24% and 11% of net revenue in 1995 and 1994, respectively. Siemens
represented 19% of the Company's net revenue in 1995. Sales to Diamond
Multimedia Systems represented 12%, 22% and 28% of net revenue in 1995, 1994 and
1993, respectively. Sun Microsystems accounted for 10% of the Company's sales in
1993. No other customer represented 10% or more of the Company's net revenue
during these periods.
Gross Margin. Gross margin was 39% of net revenue in 1995, compared to 28% in
1994 and 50% in 1993. 1994 margins include additional inventory reserves of $2.8
million recorded in the second quarter and restructuring charges of $0.2 million
recorded in the fourth quarter. The fourth quarter of 1994 was also impacted by
a manufacturing yield problem which reduced margins by approximately $1.1
million. The Company's gross margin percentage has been highly dependent on
product mix, as the Company's user interface products typically carried gross
margin percentages lower than the Company's mature workstation products.
Operating Expenses. Operating expenses were 66% of net revenue in 1995, a
decrease from 67% in 1994 and an increase from 56% in 1993. In absolute dollar
amounts, operating expenses decreased to $11.6 million in 1995 from $19.1
million in 1994 and $20.2 million in 1993, reflecting lower staffing levels and
tighter spending controls. 1994 operating expenses included approximately $0.6
million of restructuring charges for a corporate downsizing, impacting primarily
sales and marketing and general and administrative expenses.
Research and development expenses as a percentage of net revenue were 42%
in 1995, an increase from 34% in 1994 and 28% in 1993. Expenditures in absolute
dollars decreased to $7.3 million in 1995 from $9.6 million in 1994 and $10.3
million in 1993, reflecting cost savings from a consolidation of development
activities, and efficiencies from a continued investment in design automation
tools. As of March 1, 1996, approximately 46 employees were involved in research
and development activities.
Sales and marketing expenses as a percentage of net revenue were 16% in
1995 down from 26% in 1994 and 21% in 1993. Expenditures in absolute dollars
declined to $2.8 million from $7.3 million in 1994 and $7.7 million in 1993. The
decline in sales and marketing expenses was primarily due to lower staffing
levels and a decrease in advertising and promotional expenditures.
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General and administrative expenses as a percentage of net revenue were 8%
in 1995, compared to 7% in 1994 and 6% in 1993. Expenditures in absolute dollars
decreased to $1.4 million from $2.1 million in 1994 and $2.2 million in 1993.
The decrease in general and administrative expenses was primarily due to lower
average staffing levels.
Restructuring of Operations. In the fourth quarter of 1994, the Company recorded
restructuring charges of $0.8 million for a corporate downsizing and cost
reduction program which was implemented to preserve the Company's financial
strength and enable it to focus on a strategically important R&D program. The
restructuring charges consisted primarily of severance benefits for terminated
employees. The Company reduced its work force by 25% affecting all areas of the
organization, but primarily involving the sales and marketing and general and
administrative groups. The Company also consolidated its facilities which are
occupied under a lease expiring in February 1996. Included in the restructuring
accrual was a charge of $0.2 million for idle facilities relating to the lease.
During 1995, the Company used substantially all of its restructuring accrual to
cover related restructuring liabilities.
Interest and Other Income. Interest and other income as a percentage of net
revenue was 2% in 1995, compared to 2% in 1994 and 1% in 1993. In absolute
dollars, interest and other income remained relatively flat at $0.4 million in
1995, compared to $0.4 million in 1994 and $0.5 million in 1993.
Income Taxes. The Company recorded no tax benefit for 1995, 1994 and 1993. 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, the Company's effective tax rate may
be somewhat below the statutory rate in future periods. In the event of a change
in control as defined by the Internal Revenue Code, the Company's utilization of
its net operating loss carryforwards and tax credits is subject to substantial
annual limitations.
Net Loss. The Company generated a net loss of $4.3 million in 1995 compared to a
net loss of $10.6 million in 1994 and $1.4 million in 1993. As a percentage of
net revenue, the 1995 net loss was 25%, compared to 37% in 1994 and 4% in 1993.
In 1994, approximately $3.6 million of additional inventory reserves and
restructuring charges were included in the net loss.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company's cash balance was $6.0 million and
working capital was $4.0 million. In 1995, cash and short-term investments
declined by $2.6 million and working capital decreased by $3.4 million,
primarily due to the net loss. Capital expenditures were $1.1 million in 1995
and were mainly for design automation tools and engineering workstations.
At December 31, 1995, the Company had $1.6 million remaining available
under a revolving line of credit after allocation of $1.4 million of the
facility to letters of credit. The revolving line of credit is secured by the
Company's accounts receivable and a certificate of deposit. The Company is
currently in violation of its loan covenants and has no ability to utilize this
line of credit.
The Company has suffered recurring losses from operations and has an
accumulated deficit that raise substantial doubt about its ability to continue
as a going concern. The Company has experienced significant delays in shipments
of its recently introduced W464 chip set which have impacted the Company's
financial position and liquidity. In addition, a number of events have occurred
in the first quarter of 1996 that have had a material adverse effect on the
Company's financial condition. See Note 10 of Notes to Consolidated Financial
Statements. The Company does not believe that its cash resources are adequate to
fund its operations for the next twelve months. As a result, the Company has
announced that it will change its business strategy to focus on licensing its
technology and is taking immediate steps to reduce costs and preserve liquidity.
The Company is actively seeking partners to help bring its technology to market.
Hambrecht & Quist, an international investment banking firm, has been retained
to assist the Company in locating a strategic partner. There can be no assurance
that the Company will be successful in these efforts and serious liquidity
problems could result if it is unsuccessful.
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OUTLOOK: ISSUES AND RISKS
On March 1 1996, the Company announced that its revenues had continued to
decline significantly due to recent changes in the personal computer marketplace
which have caused customers to delay purchases of the W464 UMA chip set. As a
result, the Company will record reserves to reflect a revaluation of W464 chip
set inventory and a company-wide cost reduction program. Accordingly, the
Company will report a significant net loss in the first quarter of 1996. In
addition, the recent decline in memory prices and increased competition for chip
sets have made it unlikely that the Company can bring its W564 UMA chip set, now
in development, to the market successfully. As a result of these factors, the
Company has announced that it no longer has sufficient resources to pursue a
business strategy of independently manufacturing and marketing UMA chip sets and
will instead focus on licensing its technology. The Company has retained the
services of Hambrecht & Quist to assist in developing strategic relationships
with companies that can successfully develop products based on its UMA
technology. There can be no assurance that the Company will be successful in
these efforts.
On March 21, 1996, the Company announced that it would reduce its work
force by approximately 30%, primarily in the sales and marketing, general and
administration and production groups, as the initial phase of its cost reduction
program. The Company incurred termination expenses of approximately $220,000
related to this work force reduction which will be reflected in the results for
the first quarter of 1996.
Due to the Company's announcement that it will no longer be manufacturing
products, potential customers for its UMA chip set have indicated concern over
the expected limitation of supply. Management believes that in order to achieve
future sales of the W464, prices will need to be reduced below current cost.
Accordingly, the Company will record substantial reserves in the first quarter
of 1996 related to its W464 inventory which is currently valued at $3,958,000
(including product not in inventory but for which non-cancelable orders were
previously placed).
Given the change in its strategic direction, the Company has requested a
review of its joint development agreement with Samsung Electronics Company, Ltd.
The Company believes that it will likely not reflect any revenue associated with
this agreement in the first quarter. It is not practical at this time to assess
whether the parties will continue the development activities.
The Company's expectations regarding business opportunities and future cost
reduction measures are forward-looking statements, and actual results could
vary. The Company has not had an opportunity to fully evaluate the impact of the
actions outlined above, and certain negative consequences may not be fully
understood.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The index to the consolidated financial statements and the financial
statement schedules are listed in Item 14 on page 11.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this Item is
incorporated by reference to the Proxy Statement under the heading "Election of
Directors."
The information concerning compliance with Section 16(a) of the Securities
Exchange Act is incorporated by reference to the Proxy Statement under the
heading "Compliance with Section 16(a) of the Exchange Act."
The information concerning executive officers required by this Item is
included in the section in Part I hereof entitled "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the Proxy
Statement under the headings "Election of Directors - Board
Compensation-Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required by this Item is incorporated by reference to the Proxy
Statement under the headings "Information Concerning Solicitation and Voting
Record Date; Outstanding Shares" and "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Consolidated Financial Statements. Page
---------------------------------- ----
Report of Independent Accountants 13
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 14
Consolidated Balance Sheets as of December 31, 1995 and 1994 15
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 16
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 17
Notes to Consolidated Financial Statements 18
Supplementary Financial Information 25
2. Financial Statement Schedules
The Financial Statement Schedules have been omitted because the amounts
are immaterial or they are not applicable or are not required or the
information required to be set forth therein is included in the
consolidated financial statements or notes thereto.
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3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this report:
3.1* Restated Articles of Incorporation.
3.2** By-Laws.
10.1** Form of Indemnification Agreement entered into between
the Company and its officers and directors.
10.2** Registrant's 1988 Employee Stock Purchase Plan and Form
of Subscription Agreement.
10.3 S Registrant's 1991 Stock Option Plan.
10.4** Lease between the Registrant and O'Donnell, Brigham and
Partners/ Northern Developments concerning real property
located at 1060 E. Arques Avenue, Sunnyvale, California,
dated November 16, 1984.
10.5$ Fifth amendment to the Lease between Registrant and
O'Donnell, Brigham & Partners/Northern Developments dated
August 24, 1993.
10.6 Lease between the Registrant and Renco Associates
concerning real property located at 2801 Orchard Parkway,
San Jose, California, dated November 9, 1995.
10.7 Loan agreement between the Registrant and Silicon Valley
Bank of California dated December 6, 1995.
23 Consent of Price Waterhouse, Independent Accountants.
24 Powers of Attorney (included on the executed signature
pages hereof).
* Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1988.
** Incorporated by reference from the Company's Registration on Form S-1
declared effective on September 19, 1988.
S Incorporated by reference from the Company's Registration Statement on
Form S-8 declared effective on June 18, 1991.
$ Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1993.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended December 31, 1995.
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WEITEK CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Weitek
Corporation and its subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
San Jose, California
January 19, 1996, except Note 10,
which is as of March 21, 1996
13
14
WEITEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
(In thousands, except per share amounts) 1995 1994 1993
- ---------------------------------------- -------- --------- --------
Net Revenue $17,600 $28,450 $36,250
Cost of revenue 10,726 20,370 18,006
-------- --------- --------
Gross margin 6,874 8,080 18,244
Research and development 7,345 9,569 10,246
Sales and marketing 2,832 7,348 7,728
General and administrative 1,407 2,133 2,195
-------- --------- --------
Operating loss (4,710) (10,970) (1,925)
Interest and other income (net) 405 400 490
-------- --------- --------
Loss before income taxes (4,305) (10,570) (1,435)
Benefit of income taxes - - -
-------- --------- --------
Net loss $ (4,305) $ (10,570) $ (1,435)
======== ========= ========
Loss per share $(.51) $(1.30) $(.18)
======== ========= ========
Weighted average common shares 8,459 8,152 7,884
======== ========= ========
See accompanying notes to consolidated financial statements.
14
15
WEITEK CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
------------------
(In thousands, except share amounts) 1995 1994
- ---------------------------------------------------------------- -------- --------
ASSETS
Current assets:
Cash $ 6,028 $ 1,532
Short-term investments - 7,032
-------- --------
Total cash and short-term investments 6,028 8,564
Accounts receivable, net of allowances of $716 ($756 in 1994) 1,606 4,143
Inventories 1,730 2,588
Prepaid expenses and other 272 412
-------- --------
Total current assets 9,636 15,707
Equipment and leasehold improvements, net 1,598 1,731
Other assets 34 2
-------- --------
$ 11,268 $ 17,440
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,637 $ 5,314
Accrued compensation and employee benefits 1,481 2,006
Other current liabilities 557 982
-------- --------
Total current liabilities 5,675 8,302
Commitments
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized, no par value;
no shares outstanding (none in 1994) - -
Common stock, 50,000,000 shares authorized, no par value;
8,632,156 shares outstanding (8,293,839 in 1994) 23,095 22,335
Retained earnings (deficit) (17,502) (13,197)
-------- --------
Total shareholders' equity 5,593 9,138
-------- --------
$ 11,268 $ 17,440
======== ========
See accompanying notes to consolidated financial statements.
15
16
WEITEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------------ --------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,305) $(10,570) $ (1,435)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 1,218 1,428 1,889
(Increase) decrease in assets:
Accounts receivable 2,537 2,575 (4,156)
Inventories 858 1,642 (2,736)
Income taxes receivable - - 2,337
Prepaid expenses and other assets 108 131 63
Increase (decrease) in liabilities:
Accounts payable (1,677) 713 1
Accrued compensation and employee benefits (525) 966 (47)
Other liabilities (417) 283 (167)
-------- -------- --------
Net cash used by operating activities (2,203) (2,832) (4,251)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment and leasehold improvements (1,093) (895) (1,093)
Decrease in short-term investments, net 7,032 1,734 5,219
-------- -------- --------
Net cash provided by investing activities 5,939 839 4,126
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 760 802 1,109
Principal payments under loans and capitalized leases - - (18)
-------- --------- --------
Net cash provided by financing activities 760 802 1,091
-------- --------- --------
Net increase (decrease) in cash 4,496 (1,191) 966
Cash, beginning of year 1,532 2,723 1,757
-------- --------- --------
Cash, end of year $ 6,028 $ 1,532 $ 2,723
======== ========= ========
See accompanying notes to consolidated financial statements.
16
17
WEITEK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Common Stock Earnings
------------------
(In thousands, except share amounts) Shares Amount (Deficit) Total
- -------------------------------------------- ---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1992 7,808,340 $20,424 $ (1,192) $19,232
Employee Stock Purchase Plan 102,823 622 - 622
Issuance of common stock upon exercise of
stock options 126,770 487 - 487
Net loss - - (1,435) (1,435)
---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1993 8,037,933 21,533 (2,627) 18,906
Employee Stock Purchase Plan 150,698 380 - 380
Issuance of common stock upon exercise of
stock options 105,208 422 - 422
Net loss - - (10,570) (10,570)
---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1994 8,293,839 22,335 (13,197) 9,138
Employee Stock Purchase Plan 157,991 319 - 319
Issuance of common stock upon exercise of
stock options 180,326 441 - 441
Net loss - - (4,305) (4,305)
---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1995 8,632,156 $23,095 $(17,502) $ 5,593
========== ======= ========= ========
See accompanying notes to consolidated financial statements.
17
18
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: Weitek Corporation
(the Company) specializes in semiconductor technology to enhance the performance
and value of industry standard computers and software. Weitek was founded in
1981, and has its headquarters in San Jose, California.
The Company operates in one industry. It does not have significant
foreign operations. Export sales represented 39% of net revenue in 1995 (34% to
Asia and 5% to Europe). Export sales represented 25% and 19% of net revenue in
1994 and 1993, respectively. Sales to one customer represented 24% and 11% of
net revenue in 1995 and 1994, respectively. Sales to another customer
represented 19% of net revenue in 1995. Sales to a third customer represented
12%, 22% and 28% of net revenue in 1995, 1994 and 1993, respectively. Sales to
one additional customer represented 10% of net revenue in 1993. No other
customer accounted for more than 10% of revenue in 1995, 1994, or 1993.
Following are the Company's more significant accounting policies:
Fiscal Year. The Company operates on a calendar year; however, the first
three fiscal quarters end on the Saturday closest to the calendar quarter end.
For ease of presentation, interim periods are identified as ending on a calendar
quarter end.
Principles of Consolidation. The consolidated financial statements of
the Company include the accounts of the Company and its wholly-owned subsidiary,
after elimination of all significant intercompany accounts and transactions. The
preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from those
estimates.
Revenue Recognition.
Product Sales. Revenue from product sales is recognized upon shipment
to the final customer, except in the case of foreign distributors. The Company
grants foreign distributors limited rights to return products and records
reserves to cover this right of return at the time of sale.
Development contracts. The Company generally uses the
percentage-of-completion method to account for development contracts. Under the
percentage-of-completion method, contract revenues are recognized based on the
estimated percentage of contract performance completed. Anticipated losses on
contracts, if any, are charged to operations when identified.
Licenses. Revenue resulting from the licensing of the Company's
products and designs is recognized when the related contractual obligations
have been fulfilled and fees are billable.
Provision for Warranties. A provision is made for the cost of complying
with the Company's product warranties at the time it becomes apparent that the
estimate of such costs is significant.
Cash, Cash Equivalents and Marketable Securities. The Company's
short-term investments consist primarily of high quality, highly liquid
corporate debt instruments, all maturing within one year.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities," which requires investment securities to be
classified as either held to maturity, trading or available for sale. All of the
Company's marketable securities are considered available for sale. Under SFAS
115, for those investments classified as available for sale, any difference
between an investment's cost and its fair value should be recorded as a separate
component of shareholders' equity. At December 31, 1994, the fair value of the
Company's marketable securities approximated cost. At December 31, 1995, the
Company held no investment securities.
18
19
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
investments and trade receivables. The Company places its investments with
high-credit-quality institutions and, by policy, limits the amount of credit
exposure to any one institution. A majority of the Company's trade receivables
are derived from sales to manufacturers and distributors in the computer
industry. The Company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary but generally requires no collateral. Amounts receivable from the
Company's largest customer represented 34% of total accounts receivable at the
end of 1995. The Company maintains reserves for potential credit losses, and all
such losses to date have been within management's expectations.
Inventories. Inventories are stated at the lower of standard cost (which
approximates actual cost determined by the first-in, first-out method) or
market.
Equipment and Leasehold Improvements. Equipment and leasehold
improvements are stated at cost. Depreciation and amortization are computed
using the straight-line method based on useful lives of three to five years.
Amortization of leasehold improvements is based on the shorter of the useful
life or the lease term.
Income Taxes. During 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires the use of an asset and liability approach for financial accounting and
reporting for income taxes (see Note 9).
Stock Options. In October 1995, the Financial Accounting Standards Board
issued SFAS 123, "Accounting for Stock-Based Compensation." The Company will
adopt the disclosure method of reporting beginning in 1996.
Earnings (Loss) Per Share. Earnings (loss) per share is computed using
the weighted average number of common shares and, where dilutive, common share
equivalents outstanding during the period.
Reclassifications. Certain minor amounts in the consolidated financial
statements for prior years have been reclassified to conform to the current
year's presentation.
Going Concern. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and has an accumulated deficit that
raise substantial doubt about its ability to continue as a going concern. As a
result of continued change in the personal computer marketplace during the first
quarter of 1996, prices for memory devices continued to decline and demand for
components decreased. These factors caused the Company's revenues to decline and
customers to delay purchases of the Company's W464 UMA chip set. In addition, a
number of events have occurred in the first quarter of 1996 that have had a
material adverse effect on the Company's financial statements. See Note 10 of
Notes to Consolidated Financial Statements. The Company does not believe that
its cash resources are adequate to fund its operations for the next twelve
months. As a result, the Company has announced that it will change its business
strategy to focus on licensing its technology and is taking immediate steps to
reduce costs and preserve liquidity. The Company is actively seeking partners to
help bring its technology to market. Hambrecht & Quist, an international
investment banking firm, has been retained to assist the Company in locating a
strategic partner. There can be no assurance that the Company will be successful
in these efforts and serious liquidity problems could result if it is
unsuccessful. The Company's financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
19
20
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2. DETAIL OF CONSOLIDATED BALANCE SHEET:
December 31,
(In thousands) 1995 1994
- ---------------------------------------------- -------- --------
Inventories:
Raw Materials $ - $ 587
Work-in-process 630 1,530
Finished Goods 1,100 471
-------- --------
$ 1,730 $ 2,588
======== ========
Equipment and leasehold improvements, at cost:
Machinery and equipment $ 13,043 $ 12,010
Furniture and fixtures 1,086 1,086
Leasehold improvements 373 373
-------- --------
14,502 13,469
Accumulated depreciation and amortization (12,904) (11,738)
-------- --------
$ 1,598 $ 1,731
======== ========
Other accrued liabilities:
Deferred income and deposits $ - $ 18
Restructuring Charges - 207
Other 557 757
-------- --------
$ 557 $ 982
======== ========
NOTE 3. LEASING ARRANGEMENTS:
The Company occupies its present principal facilities under a non-cancelable
operating lease expiring in 2001. Future minimum lease payments under the
facility lease are as follows:
1996 $ 373,000
1997 395,000
1998 398,000
1999 429,000
2000 429,000
and thereafter 215,000
----------
$2,239,000
==========
Rent expense under all operating leases was approximately $507,000, $819,000 and
$645,000 in 1995, 1994 and 1993, respectively.
NOTE 4. BORROWING ARRANGEMENTS:
The Company has a $3,000,000 revolving bank line of credit which expires on
December 6, 1996. Borrowings bear interest at the bank's prime rate plus 1.5%
and are secured by the Company's accounts receivable and a certificate of
deposit for $250,000. Restrictive covenants, conditions and default provisions
are present in the agreement. While there were no borrowings outstanding under
the agreement as of December 31, 1995, a portion of the line of credit facility
has been utilized to cover outstanding letters of credit. As of December 31,
1995, the Company had available to it unused borrowing capacity of approximately
$1,550,000 under its line of credit facility. The Company is currently in
violation of its loan covenants and has no ability to utilize this line of
credit.
20
21
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5. SHAREHOLDERS' EQUITY:
Preferred Stock. Shareholders have approved a class of preferred stock
consisting of 1,000,000 shares issuable in series and having such rights,
preferences, privileges and restrictions as may be determined by the Board of
Directors. As of December 31, 1995, no shares of preferred stock had been
issued.
Common Stock. In August 1990, the Company began a stock repurchase
program whereby up to 1,000,000 shares of common stock may be purchased on the
open market. The Company may use the shares in connection with employee
incentive stock plans. As of December 31, 1995, 808,000 shares in the aggregate
amount of $5,948,000 had been repurchased and retired. There were no share
repurchases in 1995.
Common Stock Option Plans. Under the 1991 Incentive Stock Option Plan
(the "Plan"), incentive stock options to purchase common stock have been granted
to eligible employees at prices that are not less than the fair value of the
related shares on the date of grant, as determined by the Board of Directors or
its committee. Options are immediately exercisable and shares issued upon
exercise generally vest ratably each month over periods of one to five years
from the date of grant. The following summarizes activity under the Plan:
Options Outstanding
Options -----------------------
(In thousands, Available Number of Price per
except for per share data) for Grant Shares Share
- ---------------------------- --------- ---------- -----------
Balance at December 31, 1992 253 1,626 $1.50-15.00
Shares reserved 584 - -
Options granted (276) 276 5.80-13.15
Options canceled 111 (111) 3.06-11.89
Options exercised - (127) 1.50- 8.14
--------- ---------- -----------
Balance at December 31, 1993 672 1,664 1.50-15.00
Shares expired (30) - -
Options granted (444) 444 3.06- 8.79
Options canceled 385 (385) 2.50-15.00
Options exercised - (105) 1.50- 8.14
--------- ---------- -----------
Balance at December 31, 1994 583 1,618 2.25-15.00
Shares expired (52) - -
Options granted (926) 926 2.06- 4.71
Options canceled 585 (585) 2.06-15.00
Options exercised - (218) 2.25- 3.64
--------- ---------- -----------
Balance at December 31, 1995 190 1,741 $2.06-15.00
========= ========== ===========
There were approximately 806,000 shares subject to unexercised vested
options at December 31, 1995.
Employee Stock Purchase Plan. Shareholders have approved an Employee
Stock Purchase Plan (the "Purchase Plan") and reserved 1,000,000 shares of
common stock for issuance pursuant thereto. The Purchase Plan permits eligible
employees to purchase shares at a price equal to 85% of the lower of the fair
market value at the beginning or end of each six-month offering period. As of
December 31, 1995, 799,651 shares had been issued under the Purchase Plan.
21
22
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6. EMPLOYEE BENEFIT PLANS:
Prior to 1995, the Company had a plan available to certain employees under which
bonuses would be paid if certain profitability and performance objectives were
achieved. Under this plan, the Company made no provision in 1994 or 1993.
The Company adopted a 401(k) Plan, effective January 1, 1989 that
allows participating employees to contribute up to 15% of their eligible
earnings. The Company has made no contributions to the 401(k) Plan.
NOTE 7. DEVELOPMENT CONTRACTS AND LICENSING INCOME:
Development Contracts. The Company has entered into certain development
contracts primarily to provide customers with rights to desired technology. All
expenses incurred in connection with such contracts are included in cost of
revenue. Other contracts are intended to provide only partial reimbursement for
the Company's own development efforts. For these contracts, customer
reimbursements are included in net revenue and expenses are classified as cost
of revenue to the extent of such revenue, with any additional amount of expenses
classified as research and development.
Net revenue and cost of revenue related to development contracts are as
follows:
Year Ended December 31,
----------------------------
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
Net revenue $1,385 $138 $623
Cost of revenue 553 138 517
-------- -------- --------
$832 $0 $106
======== ======== ========
During 1995, the Company entered into a technology exchange and joint
development agreement with Samsung Electronics Company, Ltd. to co-develop a
family of advanced multimedia integrated circuits. The agreement stated that the
two companies would share marketing and sales rights to these products and
Samsung would provide wafer capacity allocations for all jointly developed
products as well as Weitek proprietary products. The Company would have the lead
role in the development of the initial product, and Samsung would provide
funding of approximately $3,000,000 for the effort. Of this amount, $500,000 is
for the initial product specification and $2,500,000 covers the product
development effort. Given the Company's recent change in business strategy, the
Company has requested a review of its agreement with Samsung. See Note 10
regarding events subsequent to year end.
Development costs in excess of net revenue that were charged directly
to research and development expense totaled $0, $0 and $44,000 in 1995, 1994 and
1993, respectively.
NOTE 8. RESTRUCTURING OF OPERATIONS
In December 1994, the Company initiated a downsizing and cost reduction program
in order to preserve the Company's financial strength while focusing on a
strategically important R&D program. Restructuring charges of $778,000 were
recorded in connection with this cost reduction program, which consisted
primarily of severance benefits for terminated employees. The Company's
downsizing of operations reduced its work force by approximately 25%. The
Company's reduction in force affected all levels of the organization, but
primarily involved the sales and marketing and general and administrative
groups. The Company also consolidated its facilities which are occupied under a
lease expiring in February 1996. Included in the restructuring accrual was a
charge of $186,000 for idle facilities relating to the lease. During 1995, the
Company used substantially all of its restructuring accrual to cover related
restructuring liabilities.
22
23
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9. INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of
SFAS 109 had no net effect on the Company's financial statements. SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company used the SFAS 96 asset and liability approach that gave
no recognition to future events other than the recovery of assets and settlement
of liabilities at their carrying amounts.
The Company's deferred tax asset is comprised of the following:
Dec. 31 Dec. 31
(In thousands) 1995 1994
- --------------------------------------------------------------------------------
Federal tax attribute carryforwards $ 7,608 $ 5,494
State tax attribute carryforwards 1,062 897
Reserves not currently deductible 1,605 2,037
Depreciation 267 224
Other 344 408
-------- --------
10,886 9,060
Valuation allowance (10,886) (9,060)
-------- --------
Net deferred tax asset $ - $ -
======== ========
As of December 31, 1995, the Company has net operating loss
carryforwards of approximately 14,634,000 and 16,723,000 for federal and state
tax reporting purposes, respectively. The Company's tax attribute carryforwards
expire in 1997 to 2009. Management has recorded a full valuation allowance
against deferred tax assets on the basis that significant uncertainty exists
regarding the realizability of the assets. In the event of a change in control
as defined by the Internal Revenue Code, the Company's utilization of its net
operating loss carryforwards and tax credits is subject to substantial annual
limitations.
The provision for (benefit of) income taxes reconciles to the amount
computed by applying the federal statutory rate to income (loss) before income
taxes as follows:
Year Ended December 31,
----------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------ -------- -------- --------
Tax provision (benefit) computed at the statutory rate $ (1,507) $ (3,700) $ (502)
Valuation allowance 1,826 3,713 (189)
Other, net (319) (13) 691
-------- -------- --------
Provision for (benefit of) income taxes $ - $ - $ -
======== ======== ========
23
24
NOTE 10. SUBSEQUENT EVENTS:
As a result of continued change in the personal computer marketplace during the
first quarter of 1996, prices for memory devices continued to decline and demand
for components decreased. These factors caused the Company's revenues to decline
and customers to delay purchases of the Company's W464 UMA chip set.
On March 1 1996, the Company announced that it will change its business
strategy to focus on technology licensing and is seeking a strategic partner to
help commercialize its unified memory architecture (UMA) technology. The Company
also indicated that it will record reserves to reflect a revaluation of W464
chip set inventory and a company-wide cost reduction program. Accordingly, the
Company will report a significant net loss in the first quarter of 1996. In
addition, the recent decline in memory prices and increased competition for chip
sets have made it unlikely that the Company can successfully commercialize its
W564 UMA chip set, now in development. As a result, the Company no longer
believes it has sufficient resources to independently pursue a business strategy
of manufacturing UMA chip sets and it is taking immediate steps to reduce costs
and preserve liquidity. The Company has retained the services of Hambrecht &
Quist, an international banking firm, to assist in developing strategic
relationships with companies that can successfully develop products based on its
UMA technology.
On March 21, 1996, the Company announced that it would reduce its work
force by approximately 30%, primarily in the sales and marketing, general and
administration and production groups, as the initial phase of its cost reduction
program. The Company incurred termination expenses of approximately $220,000
related to this work force reduction which will be reflected in the results for
the first quarter of 1996.
Due to the Company's announcement that it will no longer be
manufacturing products, potential customers for its UMA chip set have indicated
concern over the expected limitation of supply. Management believes that in
order to achieve future sales of the W464, prices will need to be reduced below
current cost. Accordingly, the Company will record substantial reserves in the
first quarter of 1996 related to its W464 inventory which is currently valued at
$3,958,000 (including product not in inventory but for which non-cancelable
orders were previously placed).
Given the change in its strategic direction, the Company has requested
a review of its joint development agreement with Samsung Electronics Company,
Ltd. The Company believes that it will likely not reflect any revenue associated
with this agreement in the first quarter. It is not practical at this time to
assess whether the parties will continue the development activities.
24
25
WEITEK CORPORATION
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Year Ended December 31, 1995
-------------------------------------
Fourth Third Second First
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
Net revenue $ 3,300 $ 3,300 $ 5,100 $ 5,900
Cost of revenue 2,021 1,775 3,095 3,835
-------- --------- ------- -------
Gross margin 1,279 1,525 2,005 2,065
Research and development 1,604 1,750 1,988 2,003
Sales and marketing 760 648 701 723
General and administrative 330 357 356 364
-------- --------- ------- -------
Operating loss (1,415) (1,230) (1,040) (1,025)
Interest and other income (net) 80 100 125 100
-------- --------- ------- -------
Loss before income taxes (1,335) (1,130) (915) (925)
Benefit of income taxes - - - -
-------- --------- ------- -------
Net loss $ (1,335) $ (1,130) $ (915) $ (925)
======== ========= ======= =======
Loss per share $ (.16) $ (.13) $ (.11) $ (.11)
======== ========= ======= =======
Weighted average common
shares and equivalents 8,565 8,546 8,403 8,321
======== ========= ======= =======
Year Ended December 31, 1994
-------------------------------------
Fourth Third Second First
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------
Net revenue $ 6,350 $ 6,500 $ 5,300 $10,300
Cost of revenue 5,435 3,860 5,995 5,080
-------- --------- ------- -------
Gross margin 915 2,640 (695) 5,220
Research and development 2,290 2,304 2,496 2,479
Sales and marketing 1,840 1,624 1,893 1,991
General and administrative 580 457 551 545
-------- --------- ------- -------
Operating income (loss) (3,795) (1,745) (5,635) 205
Interest and other income (net) 120 100 85 95
-------- --------- ------- -------
Income (loss) before income taxes (3,675) (1,645) (5,550) 300
Provision for (benefit of) income taxes - - (75) 75
-------- --------- ------- -------
Net income (loss) $ (3,675) $ (1,645) $(5,475) $ 225
======== ========= ======= =======
Earnings (loss) per share $ (.45) $ (.20) $ (.67) $ .03
======== ========= ======= =======
Weighted average common
shares and equivalents 8,218 8,207 8,115 8,754
======== ========= ======= =======
25
26
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.
WEITEK CORPORATION
/s/ David L. Gellatly
---------------------------------
David L. Gellatly
Director, Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
/s/ Paul K. Kidman
---------------------------------
Paul K. Kidman
Director of Finance
(Principal Accounting Officer)
Dated: April 1, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David L. Gellatly, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------- ------------------------------------------ -------------
/s/ David L. Gellatly Director, Chief Executive Officer April 1, 1996
- -----------------------
(David L. Gellatly) (Principal Executive Officer and Principal
Financial Officer)
/s/ Arthur J. Collmeyer Chairman of the Board April 1, 1996
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(Arthur J. Collmeyer)
/s/ W. Frank King III Director April 1, 1996
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(W. Frank King III)
26