1
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 MARCH 30, 1996
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)
2801 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA, 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 526-0300
(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.
8,654,156 shares of common stock at May 1, 1996
-1-
2
WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 30, 1996
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-2-
3
WEITEK CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 30, 1996 DECEMBER 31, 1995
-------------- -----------------
ASSETS
Current assets:
Cash $ 2,277 $ 6,028
Short-term investments -- --
-------- --------
Total cash and short-term investments 2,277 6,028
Accounts receivable, net of allowances
of $829 and $716 370 1,606
Inventories 915 1,730
Prepaid expenses and other 204 272
-------- --------
Total current assets 3,766 9,636
Equipment and leasehold improvements, net 1,501 1,598
Other assets 34 34
-------- --------
$ 5,301 $ 11,268
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,868 $ 3,637
Accrued compensation and employee benefits 1,787 1,481
Other current liabilities 1,372 557
-------- --------
Total current liabilities 6,027 5,675
-------- --------
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, 8,654,156 and 8,632,156 shares outstanding 23,141 23,095
Retained earnings (deficit) (23,867) (17,502)
-------- --------
Total shareholders' equity (726) 5,593
-------- --------
$ 5,301 $ 11,268
======== ========
See accompanying notes to consolidated condensed financial statements.
-3-
4
WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 30, 1996 APRIL 1, 1995
-------------- -------------
Net revenue $ 960 $ 5,900
Cost of revenue 4,035 3,835
------- -------
Gross margin (3,075) 2,065
Research and development 1,880 2,003
Sales and marketing 560 723
General and administrative 500 364
Severance costs 410 --
------- -------
Operating income (loss) (6,425) (1,025)
Other income 60 100
------- -------
Income (loss) before income taxes (6,365) (925)
Provision for income taxes -- --
------- -------
Net income (loss) $(6,365) $ (925)
======= =======
Earnings (loss) per share $ (.74) $ (.11)
======= =======
Weighted average common
shares and equivalents 8,642 8,321
======= =======
See accompanying notes to consolidated condensed financial statements.
-4-
5
WEITEK CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 30, 1996 APRIL 1, 1995
-------------- -------------
Cash flows from operating activities:
Net income (loss) $(6,365) $ (925)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 433 327
Changes in assets and liabilities:
Accounts receivable 1,236 65
Inventories 815 761
Prepaid expenses and other 68 (48)
Accounts payable (769) (1,212)
Accrued compensation and employee benefits 306 (310)
Other liabilities 815 48
------- -------
Net cash used by operating activities (3,461) (1,294)
------- -------
Cash flows from investing activities:
Equipment and leasehold improvements (336) (372)
Decrease in short-term investments -- 2,324
------- -------
Net cash provided (used) by investing activities (336) 1,952
------- -------
Cash flows from financing activities:
Issuance of capital stock 46 159
------- -------
Net cash provided by financing activities 46 159
------- -------
Net increase (decrease) in cash (3,751) 817
Cash, beginning of period 6,028 1,532
------- -------
Cash, end of period $ 2,277 $ 2,349
======= =======
See accompanying notes to consolidated condensed financial statements.
-5-
6
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, 1995 included in the Company's 1995 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)
MARCH 30, 1996 DECEMBER 31, 1995
-------------- -----------------
Inventories:
Raw materials $ -- $ --
Work-in-process -- 630
Finished goods 915 1,100
-------- --------
$ 915 $ 1,730
======== ========
Equipment and leasehold improvements:
Machinery and equipment $ 8,356 $ 13,043
Furniture and fixtures 795 1,086
Leasehold improvements 379 373
-------- --------
9,530 14,502
Less accumulated depreciation and amortization (8,029) (12,904)
-------- --------
$ 1,501 $ 1,598
======== ========
Other accrued liabilities:
Accrued purchase commitments $ 876 $ --
Other 496 557
-------- --------
$ 1,372 $ 557
======== ========
Note 3 - 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.
-6-
7
WEITEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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-Q. 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.
OVERVIEW
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.
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 its initial UMA product, the
W464. As a result, the Company has recorded reserves to reflect a revaluation of
W464 chip set inventory and a company-wide cost reduction program. In addition,
the recent decline in memory prices and increased competition for chip sets made
it unlikely that the Company could successfully commercialize its next
generation W564 UMA chip set. As a result of these factors, the Company
announced that it no longer has sufficient resources to independently pursue a
business strategy of manufacturing UMA chip sets and would 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 a reduction in work force of
approximately 20 employees, representing 30% of total employment. This reduction
was part of the Company's previously announced cost reduction program due to the
change in the Company's strategic direction and the elimination of manufacturing
operations.
NET REVENUE
Net revenue in the first quarter of 1996 was $1.0 million compared to net
revenue of $5.9 million in the first quarter of 1995. Unit sales of integrated
circuits dropped sharply due to a continuing in decline of shipments of mature
products, particularly user interface products, while revenue from the Company's
new W464 UMA chip set was not significant. During the first quarter of 1996,
approximately 31% of total revenue was derived from a fully paid, non-exclusive
technology license agreement. License revenue was not material in the first
quarter of 1995.
International net revenue was not significant in the first quarter of 1996
compared to 28% of net revenue in the first quarter of 1995. The decrease in
international net revenue was due primarily to decreased shipments of user
interface products to Japan.
One customer represented approximately 31% of revenue for the first quarter of
1996. Two additional customers represented 23% and 19% of revenue respectively.
In the first quarter of 1995, sales to one customer represented 27% of net
revenue and sales to two additional customers represented 24% and 16% of net
revenue respectively. No other customer represented 10% or more of the Company's
net revenue during these periods.
-7-
8
GROSS MARGIN
The Company's gross margin was negative $3.1 million in the first quarter of
1996, down from a positive $2.1 million or 35% of revenue in the first quarter
of 1995. The Company recorded reserves of $3.3 million in the first quarter of
1996 related to its W464 inventory and committed purchases. Due to the Company's
March 1, 1996 announcement that it will no longer be manufacturing products,
potential customers for its UMA chip set indicated concern over the expected
limitation of supply. To preserve the possibility of selling its W464 inventory,
the Company believes that pricing for this product must be well below the
current manufacturing cost.
OPERATING EXPENSES
As a percentage of net revenue, operating expenses were 349% in the first
quarter of 1996, compared to 52% in the first quarter of 1995. The percentage
increase is primarily due to the sharp decline in net revenue. In absolute
dollars, total operating expenses increased to $3.3 million from $3.1 million in
the first quarter of 1995. Operating expenses for the first quarter of 1996
included severance costs of approximately $0.4 million and costs related to the
relocation of the Company's headquarters of approximately $0.2 million.
Research and development expenses increased as a percentage of net revenue to
196% in the first quarter of 1996 from 34% in the first quarter of 1995. In
absolute dollars, research and development expenses were $1.9 million in the
first quarter of 1996, roughly equivalent to the $2.0 million in the prior year
period. Over 60% of the Company's employees are involved in research and
development activities.
Sales and marketing expenses increased as a percentage of net revenue to 58% in
the first quarter of 1996 from 12% in the first quarter of 1995. In absolute
dollars, sales and marketing expenses decreased from $0.7 million in the first
quarter of 1995 to $0.6 million in the first quarter of 1996, due primarily to
lower staffing levels.
General and administrative expenses increased as a percentage of net revenue to
52% in the first quarter of 1996 from 6% in the first quarter of 1995, primarily
due to the decline in net revenue. In absolute dollars, general and
administrative expenses increased from $0.4 million in the first quarter of 1995
to $0.5 million in the first quarter of 1996, due primarily to costs associated
with the relocation of the Company's headquarters incurred in the first quarter
of 1996.
PROVISION FOR INCOME TAXES
The Company recorded no tax benefit in the first quarter of 1996 or in the first
quarter of 1995. 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. In the event of a change in control as defined by the Internal Revenue
Code, the Company's utilization of its net operating loss carry forwards and tax
credits is subject to substantial annual limitations.
NET INCOME
The Company generated a net loss of $6.4 million in the first quarter of 1996
compared to a net loss of $0.9 million in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30,1996 the Company's principal source of liquidity was $2.3 million
of cash and short-term investments. The Company also has a line of credit,
secured by 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 which 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 has impacted the Company's financial
position and liquidity. The Company does not
-8-
9
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.
OUTLOOK: ISSUES AND RISKS
In July of 1995, the Company announced that it had entered into a technology
exchange agreement with Samsung Electronics Company, Ltd. to co-develop a family
of advanced multimedia integrated circuits. As part of the agreement, Samsung
was to provide the Company with wafer capacity allocations as well as funding
based on the achievement of certain engineering milestones. Given the change in
its strategic direction, the Company has requested a review of this agreement
with Samsung. The Company has not recorded any revenue associated with the
agreement in the first quarter of 1996, and it is not practical at this time to
assess whether the parties will continue the development activities.
On April 25, 1996, the Company announced the appointment of Richard H. Bohnet to
the position of President and CEO. Mr. Bohnet replaces interim CEO David L.
Gellatly, who is resuming his role as an independent member of the board of
directors. Mr. Bohnet has extensive high technology management experience, and
his background includes twenty years of experience in the semiconductor
industry. At the same time, the Company announced it had entered into a
non-exclusive technology licensing agreement for its UMA chip set technology and
current UMA products with a large semiconductor manufacturer. Payments under
this $4.8 million agreement are scheduled over the next two to three quarters
depending on the achievement of certain support and development milestones.
There can be no assurance that the Company will be able to achieve all such
milestones.
As a result of the change in strategy, in recent weeks, Howard Gopen, Vice
President of Operations, Allen Samuels, Vice President of Business Development,
and Michael Hollabaugh, Vice President of Sales, have left the company. In the
near term, the Company has no plans to replace these individuals. In addition,
on May 10, 1996, the Company announced that Benjamin M. Warren, Vice President
of Engineering, had resigned to pursue another opportunity. Mr. Warren has
agreed to remain available on a limited basis to assist the Company with regard
to certain projects. The Company is currently searching for a replacement.
As a result of the technology licensing agreement signed early in the second
quarter, the Company currently anticipates that second quarter revenue will
exceed the first quarter level. In addition, due to the cost reduction measures
taken in the first quarter, the Company anticipates that second quarter
operating expenses will be below the first quarter level. Revenue levels beyond
the second quarter will depend on the Company's ability to license technology,
sell existing inventory, and find a strategic partner to help commercialize the
Company's technology and products.
The Company's expectations regarding business opportunities and future cost
reduction measures are forward-looking statements, and actual results could
vary. 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 consistently generate
profits in the new model. Other risk factors include the Company's ability to
retain its engineering team, and schedule and technical risks that are typical
of complex engineering programs. 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.
-9-
10
WEITEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 30, 1996
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Report on Form 8-K
None
-10-
11
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: May 13, 1996 /s/ Richard H. Bohnet
--------------------------------------
Richard H. Bohnet
President and Chief Executive Officer
/s/ Paul K. Kidman
--------------------------------------
Paul K. Kidman
Director of Finance
-11-
12
Exhibit Index Page Number
------------- -----------
NONE
-12-