<PAGE>
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, 2000
OR
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER # 000-24547
SCIENTIFIC LEARNING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3234458
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1995 University Avenue, Suite 400
Berkeley, California 94704
(510) 665-9700
(Address of Registrants principal executive offices, including zip code, and
telephone number, including area code)
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 number of shares of the Registrant's Common Stock, $.001 par value
per share, outstanding at October 27, 2000 was 11,336,278.
<PAGE>
SCIENTIFIC LEARNING CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
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<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited):
Condensed Balance Sheets as of September 30, 2000 and December 31, 1999.................3
Condensed Statements of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999..............................................4
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999..............................................5
Notes to Condensed Financial Statements.................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk..............................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................14
Item 2. Changes in Securities and Use of Proceeds...............................................14
Item 3. Defaults Upon Senior Securities.........................................................14
Item 4. Submission of Matters to a Vote of Security Holders.....................................14
Item 5. Other Information.......................................................................14
Item 6. Exhibits and Reports on Form 8-K........................................................14
Signature...............................................................................16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCIENTIFIC LEARNING CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,733 $ 15,662
Investments in government securities 9,108 13,903
Accounts receivable, net 4,115 3,472
Prepaid expenses and other current assets 1,782 733
------------- ------------
Total current assets 18,738 33,770
Property and equipment, net 2,009 1,913
Other assets 1,887 641
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TOTAL ASSETS $ 22,634 $ 36,324
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 971 $ 802
Accrued liabilities 903 1,366
Deferred revenue 4,207 4,205
------------- ------------
Total current liabilities 6,081 6,373
Other liabilities 186 211
------------- ------------
Total liabilities 8,268 6,584
Stockholders' equity:
Common stock 64,180 62,696
Deferred compensation (142) (566)
Accumulated deficit (47,671) (32,390)
------------- ------------
Total stockholders' equity 16,367 29,740
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,634 $ 36,324
============= ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
SCIENTIFIC LEARNING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Programs and products $ 4,200 $ 3,606 $ 10,696 $ 6,355
Services 287 295 928 937
------------- ------------- ------------- -------------
Total revenues 4,487 3,901 11,624 7,292
Cost of revenues:
Programs and products 698 509 1,762 969
Services 258 428 1,002 1,006
------------- ------------- ------------- -------------
Total cost of revenues 956 937 2,764 1,975
------------- ------------- ------------- -------------
Gross profit 3,531 2,964 8,860 5,317
Operating expenses:
Sales and marketing 4,537 3,264 15,942 9,743
Research and development 1,504 1,332 4,271 2,989
General and administrative 1,898 980 4,820 2,831
------------- ------------- ------------- -------------
Total operating expenses 7,939 5,576 25,033 15,563
------------- ------------- ------------- -------------
Operating loss (4,408) (2,612) (16,173) (10,246)
Interest income, net 246 316 892 456
------------- ------------- ------------- -------------
Net loss $ (4,162) $ (2,296) $ (15,281) $ (9,790)
============= ============= ============= =============
Basic and diluted net loss per share $ (0.37) $ (0.26) $ (1.38) $ (2.02)
============= ============= ============= =============
Shares used in computing basic and diluted
net loss per share 11,293,297 8,762,145 11,084,896 4,857,189
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
SCIENTIFIC LEARNING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
2000 1999
------------ ------------
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OPERATING ACTIVITIES:
Net loss $ (15,281) $ (9,790)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 788 577
Amortization of deferred compensation 372 639
Changes in operating assets and liabilities:
Accounts receivable (643) (1,312)
Prepaid expenses and other assets (2,295) (1,871)
Accounts payable 169 (264)
Accrued liabilities (463) (79)
Deferred revenues 2 1,613
Other liabilities (25) 3
------------ ------------
Net cash used in operating activities (17,376) (10,484)
INVESTING ACTIVITIES:
Sales of government securities 4,795 --
Purchases of property and equipment, net (884) (985)
Restricted cash deposit -- 280
------------ ------------
Net cash provided by (used in) investing activities 3,911 (705)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 1,536 34,794
Proceeds from issuance of preferred stock, net -- 4,896
Borrowings under equipment financing loan 476
Repayments of borrowings under equipment financing loan -- (491)
Repayments of capital lease obligations -- (17)
Cost of initial public offering of common stock (1,043)
============ ============
Net cash provided by financing activities 1,536 38,615
------------ ------------
(Decrease) increase in cash and cash equivalents (11,929) 27,426
Cash and cash equivalents at beginning of period 15,662 6,362
------------ ------------
Cash and cash equivalents at end of period $ 3,733 $ 33,788
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Scientific Learning Corporation (the "Company") was incorporated on
November 30, 1995 in the State of California and was reincorporated on May 2,
1997 in the State of Delaware. The Company commenced operations in February
1996. The Company operates in one business segment, which is the development,
marketing and sale of proprietary training software and other education products
and services designed to increase human learning and performance. The Company's
revenues have been derived primarily from the Fast ForWord(R) family of
programs, which are designed to improve language and reading skills. The
Company's products are delivered through a variety of distribution channels,
including sales to public schools, speech and language professionals in private
practice and direct-to-consumer channels.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of September 30, 2000 and for the
three and nine months ended September 30, 2000 and 1999 is unaudited, but
includes all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of its financial
position at such date and its results of operations and cash flows for those
periods.
These condensed financial statements and accompanying notes should be
read in conjunction with the Company's audited financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
Operating results for the three and nine months ended September 30,
2000 are not necessarily indicative of results that may be expected for any
future periods.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirement of FAS No. 128, "Earnings per Share". Basic net
loss per share has been computed using the weighted-average number of shares
outstanding during the period and excludes any dilutive effects of stock
options, warrants, and convertible securities. Potentially dilutive securities
<PAGE>
have been excluded from the computation of diluted net loss per share as their
inclusion would be antidilutive.
The calculation of basic and diluted net loss per share, as well as
basic and diluted pro forma net loss per share showing the effect of the
conversion of preferred stock to common upon completion of the Company's initial
public offering in July 1999, is as follows (in thousands, except share and per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
Net loss $ (4,162) $ (2,296) $ (15,281) $ (9,790)
========== ========= ========== =========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share 11,293,297 8,762,145 11,084,896 4,857,189
========== ========= ========== =========
Basic and diluted net loss per share $ (0.37) $ (0.26) $ (1.38) $ (2.02)
========== ========= ========== =========
Pro forma:
Net loss $ (2,296) $ (9,790)
========= =========
Shares used in computing basic and diluted
net loss per share (from above) 8,762,145 4,857,189
Adjustment to reflect the effect of the
assumed conversion of preferred stock from
the date of issuance 1,194,294 3,871,405
--------- ---------
Weighted average shares used in computing pro
forma basic and diluted net loss per share 9,956,439 8,728,594
========= =========
Pro forma basic and diluted net loss per share $ (0.23) $ (1.12)
========= =========
</TABLE>
RECLASSIFICATIONS
Certain balance sheet accounts as of September 30, 1999 and operating
expenses for the three and nine months then ended have been reclassified to
conform to the presentation adopted in 2000.
2. COMPREHENSIVE LOSS
The Company has no items of other comprehensive income (loss), and
accordingly the comprehensive loss is the same as the net loss for all periods
reported.
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3. LEGAL PROCEEDINGS
A class action lawsuit was filed against the Company and certain of its
officers and directors on August 22, 2000 in U.S. District Court for the
Northern District of California, on behalf of a class of persons, including all
persons who traded in the common stock of the Company during the period May 1
through July 11, 2000. The Company is confident that the insurance will cover
any damages that may occur as a result of this lawsuit.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis contains forward-looking
statements that are subject to the safe harbor created by Section 27A of the
federal securities law. Such statements include, among others, statements
relating to trends in revenue, sales, margins and expenses, and the drivers
behind those trends; trends in market channels; the acceptance of site
licensing; and projected levels of financial resources. Numerous risks and
uncertainties could cause actual results to differ materially. These risks and
uncertainties include the factors discussed and referred to below under the
heading "Factors That May Affect Quarterly Results of Operations." All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements or to update the reasons why actual results
could differ from those projected in the forward-looking statements.
The following should be read in conjunction with the audited financial
statements and the notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in our Annual Report on
Form 10-K for the year ended December 31, 1999.
OVERVIEW
We develop, market and sell proprietary training software and other
educational products and services. Our programs, products and services are based
on research on how the brain works and are designed to increase human learning
and performance. Language and reading skills are the foundation for all
learning, and we have developed programs to help children, adolescents and
adults learn how to read or become better readers. Our language and reading
programs, Fast ForWord Language (formerly known as Fast ForWord), Fast ForWord
Language to Reading (formerly known as Step 4word) and Fast ForWord Middle &
High School (formerly known as 4wd), are intensive, computer-based training
programs that focus on improving critical language and reading skills. Fast
ForWord Language was launched in 1997, Fast ForWord Language to Reading in 1998
and Fast ForWord Middle & High School in 1999. These training programs are based
on scientific research and have been extensively field-tested. In 1999, we also
began selling Reading Edge, a language and reading assessment product, the Fast
ForWord Basics (formerly known as Away We Go!) family of software and
storybooks, and Fast ForWord Professional Training (self-paced) (formerly known
as CrossTrain) professional development software.
We also offer professional development seminars in which educators,
speech and language professionals and other professionals can learn about recent
developments in brain research and the practical application of our programs as
well as earn continuing education credit. Our products are delivered through a
variety of distribution channels, including sales to public schools, referrals
from speech and language professionals in private practice and
direct-to-consumer channels through our web sites.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, various
financial data expressed as a percentage of revenues (unless otherwise noted).
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------------- --------------------------------------
2000 1999 2000 1999
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Programs and products 93.6% 92.4% 92.0% 87.2%
Services 6.4 7.6 8.0 12.8
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Programs and products (1) 16.6 14.1 16.5 15.2
Services (2) 89.9 145.1 108.0 107.4
Total cost of revenues 21.3 24.0 23.8 27.1
Gross margin 78.7% 76.0% 76.2% 72.9%
</TABLE>
(1) Program and product costs are expressed as a percentage of program and
product revenues.
(2) Service costs are expressed as a percentage of service revenues.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1999
REVENUES. Total revenues increased by $586,000, or 15.0%, to $4.5 million
for the quarter ended September 30, 2000 and increased by $4.3 million, or
59.4%, to $11.6 million for the nine months ended September 30, 2000, compared
to the same periods in 1999. Program and product revenues increased by $594,000,
or 16.5%, to $4.2 million for the quarter ended September 30, 2000 and increased
by $4.3 million, or 68.3%, to $10.7 million for the nine months ended September
30, 2000, compared to the same periods in 1999. The company's revenue growth has
been derived from increased sales to public schools, while revenues through the
private channel declined. During the three and nine month periods ended
September 30, public school revenues increased 141% and 220%, respectively, and
represented 68% and 59% of total revenues, respectively. Site license packages
for public schools, introduced early in 2000, now constitute a majority of
public school program sales. Revenue from site licenses is recognized over the
life of the license, typically 3 to 12 months. Service revenues decreased by
$8,000, or 2.7%, to $287,000 for the quarter ended September 30, 2000 and
decreased by $9,000, or less than 1.0%, to $928,000 for the nine months ended
September 30, 2000 compared to the same periods in 1999 due to a decreased
number of professional development seminars, partially offset by revenues from
public school training seminars and conferences.
COST OF REVENUES. Total cost of revenues increased by $19,000, or 2.0%, to
$956,000 for the quarter ended September 30, 2000, and increased by $789,000, or
39.9%, to $2.8 million for the nine months ended September 30, 2000, compared to
the same periods in 1999. Cost of revenues decreased to 21.3% of revenues from
24.0% of revenues for the quarter ended September 30, 2000, and decreased to
23.8% from 27.1% for the nine months ended September 30, 2000. Cost of program
and product revenues increased to 16.6% from 14.1% for the quarter ended
September 30, 2000, due to a change in the product mix partially offset by lower
royalty rates, and increased to 16.5% from 15.2% for the nine months ended
September 30, 2000, due to product mix partially offset by lower royalty rates.
Cost of services revenues decreased to 89.9% from 145.1% for the
<PAGE>
quarter ended September 30, 2000 and increased marginally to 108.0% from 107.4%
for the nine months ended September 30, 2000, due to costs of trainings and
installations of programs in public schools.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased $1.3
million, or 39.0%, to $4.5 million for the quarter ended September 30, 2000, and
increased $6.2 million, or 63.6%, to $15.9 million for the nine months ended
September 30, 2000, compared to the same periods in 1999. This increase was
primarily attributable to increased personnel, marketing and travel costs.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $172,000, or 12.9%, to $1.5 million for the quarter ended September
30, 2000, and increased $1.3 million, or 42.9%, to $4.3 million for the nine
months ended September 30, 2000, compared to the same periods in 1999. We expect
to continue to invest in research and development in the future as we refine
current products and develop additional products based on proprietary technology
and our expertise in neuroscience and learning.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $918,000, or 93.7%, to $1.9 million for the quarter ended September
30, 2000, and increased $2 million, or 70.3%, to $4.8 million for the nine
months ended September 30, 2000, compared to the same periods in 1999. This
increase was primarily attributable to increased personnel, consulting, legal
and travel costs. During the third quarter of 2000, the company accrued for the
non-reimbursable portion of legal expenses associated with a class action
lawsuit against the company and certain of its officers and directors, and
expensed the legal and other costs for a transaction, which was not completed
earlier in the year.
PROVISION FOR INCOME TAXES. We recorded no provision for income taxes in
the three and nine months ended September 30, 2000 and September 30, 1999 as we
incurred losses during such periods.
FACTORS THAT MAY AFFECT QUARTERLY RESULTS OF OPERATIONS
Our quarterly operating results have varied significantly in the past
and are expected to fluctuate significantly in the future as a result of a
variety of factors, many of which are beyond our control. Factors that may
affect our quarterly operating results include those discussed herein within
this quarterly report on Form 10-Q, in our Annual Report on Form 10-K for the
year ended December 31, 1999, under the headings "Business - Risk Factors" and
"Management's Discussion and Analysis", and as disclosed in other documents
filed with the Securities and Exchange Commission. Significant fluctuations in
future quarterly operating results may be caused by many factors including,
among others:
- the demand for technology-based education and training programs and
products;
- the long sales cycle of our products;
- the extent of educators' reliance on standards and text scores;
- the size and timing of product orders and implementation;
<PAGE>
- our ability to continue to demonstrate the efficacy of our programs,
products and services;
- the revenue mix among our programs, products and services;
- the timely development, introduction and market acceptance of our
existing and future products, if any;
- the pricing, marketing and sales strategies of our programs, products
and services and the programs, products and services of our
competitors;
- seasonality in product purchase and usage;
- competitive conditions;
- our ability to attract and retain experienced personnel;
- the availability of government funding for purchases of our products
and the general availability of funding for public schools;
- public school calendars and budget cycles;
- our ability to protect and maintain our intellectual property rights;
- the number and timing of Fast ForWord training seminars for
educators, speech and language professionals and other professionals;
and
- general economic and market conditions.
We cannot assure you that we will be able to predict our future
revenues accurately, and we may not be able to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall of revenues in relation to our expectations could cause
significant fluctuations in quarterly operating results, which could have a
material adverse effect on our business, financial condition and results of
operations.
Demand for our programs and services is subject to various seasonal
influences which can vary depending on the distribution channel being employed.
We do not have sufficient operating experience in our various distribution
channels to predict the overall effect of various seasonal factors and their
effect on future quarterly operating results. We believe that, because of the
intensive nature of our training programs, demand for our programs from speech
and language professionals in private practice may be lower during the school
year than in the summer. We also experience seasonality in the public school
market due to public school calendars and budget cycles.
As a result of all the foregoing factors, and in light of our limited
operating history, our quarterly revenues and operating results are difficult to
forecast, and we believe that period-to-period comparisons of our operating
results will not necessarily be meaningful and should not be relied upon as an
indication of future performance. It is likely that our future quarterly
operating results from time to time will not meet the expectations of market
analysts or investors, which may have an adverse effect on the price of our
common stock.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $17.4 million for the nine months
ended September 30, 2000 compared to $10.5 million in the same period in 1999.
This increase was primarily attributable to operating losses of $15.3 million,
and increases in accounts receivable and prepaid expenses and other current
assets of $643,000 and $2.3 million, respectively, partially offset by non-cash
expenses. The increase in accounts receivable is due to high sales volumes in
September 2000. The increase in prepaid expenses and other assets is due
primarily to increased inventory and capitalization of research and development
expenditures.
Cash provided by investing activities was $3.9 million for the nine
months ended September 30, 2000 compared to $705,000 used in the same period in
1999. Cash was provided by sales of government securities of $4.8 million
partially offset by purchases of computer equipment, furniture and fixtures.
As of September 30, 2000, we had cash and short-term investments of
$12.8 million. We believe that these funds will be sufficient to finance our
presently anticipated operating losses, planned capital expenditure requirements
and internal growth.
We currently have no significant long-term obligations which extend
beyond 18 months except in connection with the lease of our current corporate
office facility which requires minimum lease payments of approximately $80,000
per month through September 2002, and a new office facility which will require
payments of approximately $160,000 per month starting in February 2001 for a
period of eight years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income we can
earn on our investment portfolio. We do not use derivative financial instruments
in our investment portfolio. We ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk and reinvestment
risk. We mitigate default risk by investing in safe and high-credit quality
securities. A hypothetical increase or decrease in market interest rates by 10%
from the market interest rates at June 30, 2000 would not cause the fair value
of our cash and cash equivalents to change by a material amount. Declines in
interest rates over time will however reduce our interest income.
We considered the provisions of Financial Reporting Release No. 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." We had no
holdings of derivative financial or commodity instruments at September 30, 2000.
Our revenue, capital expenditures and nearly all of our expenses are transacted
in U.S. dollars. We believe we have minimal exposure to financial market risks
associated with changes in foreign currency exchange rates at this time.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A class action lawsuit was filed against the Company and certain of its
officers and directors (Sheryle Bolton, William Jenkins, Frank Mattson, Michael
Merzenich and Paula Tallal) on August 22, 2000 in U.S. District Court for the
Northern District of California, on behalf of a class of persons, including all
persons who traded in the common stock of the Company during the period May 1
through July 11, 2000. The suit, STITT V. SCIENTIFIC LEARNING CORPORATION, ET
AL, Case No. C 00 3014, alleges that the defendants made false and misleading
statements and/or failed to disclose information, during the class period,
concerning the Company's projected revenues for the second quarter of 2000, in
violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
SEC Rule 10 b-5 promulgated there under. The complaint seeks damages in an
unspecified amount. The Company intends to defend the action vigorously.
ITEMS 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Our Registration Statement (SEC File No. 333-77133) for our initial
public offering became effective July 21, 1999, covering an aggregate of
2,645,000 shares of common stock, including the underwriters' over-allotment
option. Our use of proceeds from our initial public offering does not represent
a material change in the use of proceeds as described in our prospectus dated
July 21, 1999, comprising part of our Registration Statement on Form S-1, as
amended, filed with the Securities and Exchange Commission.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.3* Restated Certificate of Incorporation.
3.4* Amended and Restated Bylaws.
4.1* Reference is made to Exhibits 3.3 and 3.4.
4.2** Amended and Restated Registration Rights Agreement, dated as of
December 31, 1998.
4.3* Specimen Stock Certificate.
10.1* Form of Indemnity Agreement with each of our directors and
executive officers.
10.2*** 1999 Equity Incentive Plan, as amended.
<PAGE>
10.3* Form of Stock Option Agreement under the Incentive Plan.
10.4* Form of Stock Option Grant Notice under the Incentive Plan.
10.5* 1999 Non-Employee Directors' Stock Option Plan.
10.6* Form of Nonstatutory Stock Option Agreement under the Non-Employee
Directors' Stock Option Plan (Initial Grant).
10.7* Form of Nonstatutory Stock Option Agreement under the Non-Employee
Directors' Stock Option Plan (Annual Grant).
10.8* 1999 Employee Stock Purchase Plan.
10.9* Form of 1999 Employee Stock Purchase Plan Offering under the
Employee Stock Purchase Plan.
10.10* Consulting Agreement, dated as of September 20, 1996, with
Dr. Michael M. Merzenich, as modified on January 19, 1998.
10.11* Consulting Agreement, dated as of September 19, 1996, with
Dr. Paula A. Tallal, as modified on January 22, 1998.
10.13* Exclusive License Agreement, dated September 27, 1996, with the
Regents of the University of California.
10.14* Lease Agreement, dated as of July 31, 1997, with GBC-University
Associates, L.P.
10.15* Securities Purchase Agreement, dated September 24, 1996, with
Warburg, Pincus Ventures, L.P.
10.16*** Lease, dated as of March 20, 2000, with Rotunda Partners II.
27 Financial Data Schedule
------------------
* Incorporated by reference to the same numbered exhibit previously
filed with the Company's Registration Statement on Form S-1 (SEC
File No. 333-77133).
** Incorporated by reference to the same numbered exhibit previously
filed with the Company's Form 10-K for the year ended December 31, 1999
(SEC File No. 000-24547).
*** Incorporated by reference to the same numbered exhibit previously
filed with the Company's Form 10-Q for the quarter ended June 30, 2000
(SEC File No. 000-24547)
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during
the quarter ended September 30, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCIENTIFIC LEARNING CORPORATION
(Registrant)
-----------------------------------
JANE A. FREEMAN
Chief Financial Officer
(Authorized Officer and Principal Financial and Accounting Officer)
Dated: November 13, 2000
