<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 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 #0-11915
CONDUCTUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0162388
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
969 W. Maude Avenue, Sunnyvale California 94086
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 523-9950
- --------------------------------------------------------------------------------
(Registrants Telephone Number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(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 Sections 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.
Common shares outstanding at March 31, 1996: 5,733,255
Total pages: 14
Index to Exhibits to be found on page 13
- 1 -
<PAGE>
CONDUCTUS, INC.
Index
PART I: FINANCIAL INFORMATION PAGE
--------------------- ----
ITEM 1 FINANCIAL STATEMENTS
Balance Sheets at March 31, 1996
and December 31, 1995 3
Statements of Operations
for the Three Months Ended
March 31, 1996 and 1995 4
Statements of Cash Flows
for the Three Months Ended
March 31, 1996 and 1995 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. 8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 11
ITEM 2: CHANGES IN SECURITIES 11
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
ITEM 5: OTHER INFORMATION 11
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 11
Signatures 12
Exhibit Index 13
Exhibits......
Statements of Computation of Loss
Per Share 14
- 2 -
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDUCTUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ---------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 582,303 $ 272,410
Short-term investments 1,528,028 2,880,464
Accounts receivable, net 2,967,562 3,251,147
Inventories, net 1,055,434 765,424
Prepaid expenses and other assets 151,155 285,404
--------------- ---------------
Total current assets 6,284,482 7,454,849
Property and equipment, net 2,555,893 2,550,042
Other assets 96,912 123,340
--------------- ---------------
Total assets $ 8,937,287 $ 10,128,231
--------------- ---------------
--------------- ---------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,603,555 $ 1,621,424
Other accrued liabilities 786,104 821,230
Current portion of long-term debt 809,421 687,736
Obligations under capital leases, current portion 11,249 37,894
--------------- ---------------
Total current liabilities 3,210,329 3,168,284
Long-term debt, net of current portion 1,258,228 1,146,227
--------------- ---------------
Total liabilities 4,468,557 4,314,511
--------------- ---------------
Stockholders' equity:
Common stock 574 570
Additional paid-in capital 30,069,797 30,035,358
Unrealized gain on short-term investments, net" 319 626
Accumulated deficit (25,601,960) (24,222,834)
--------------- ---------------
Total stockholders' equity 4,468,730 5,813,720
--------------- ---------------
Total liabilities and stockholders' equity $ 8,937,287 $ 10,128,231
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
3
<PAGE>
CONDUCTUS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, March 31,
1996 1995
------------------ ---------------
<S> <C> <C>
Revenues:
Contract $ 2,213,762 $ 1,643,486
Product sales 397,497 369,456
------------------ ---------------
Total revenue 2,611,259 2,012,942
Costs and expenses:
Cost of product sales 256,300 166,002
Research and development 2,743,131 2,577,387
Selling, general and administrative 1,006,518 827,281
------------------ ---------------
Total costs and expenses 4,005,949 3,570,670
------------------ ---------------
Loss from operations (1,394,690) (1,557,728)
Interest income 27,329 80,101
Other income (expense) 24,521 (68,799)
Interest expense (36,286) (24,032)
----------------- ---------------
Net loss $ (1,379,126) $ (1,570,458)
------------------ ---------------
------------------ ---------------
Net loss per common share $ 0.24 $ 0.29
------------------ ---------------
------------------ ---------------
Shares used in computing per share amounts 5,706,000 5,397,000
------------------ ---------------
------------------ ---------------
</TABLE>
See accompanying notes.
4
<PAGE>
CONDUCTUS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, March 31,
1996 1995
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,379,126) $ (1,570,458)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 245,592 271,816
(Increase) decrease in:
Accounts receivable 283,585 290,321
Inventory (290,010) (174,030)
Prepaid expenses and other current assets 134,249 52,561
Other assets (2,260) (1,499)
Increase (decrease) in:
Accounts payable and other accrued liabilities (52,995) 313,306
------------------ ----------------
Net cash used in operating activities (1,060,965) (817,983)
------------------ ----------------
Cash flows from investing activities:
Proceeds from sales of short-term investments 4,132,703 17,626,192
Purchases of short-term investments (2,780,267) (16,851,948)
Acquisition of property and equipment (252,258) (386,870)
Proceeds from sales of assets 29,196
------------------ ----------------
Net cash provided by investing
activities 1,129,374 387,374
------------------ ----------------
Cash flows from financing activities:
Proceeds from borrowings 405,620 322,247
Net proceeds from issuance of common stock 34,443 32,066
Principal payments on long-term debt (171,934)
Principal payments under capital lease obligations (26,645) (39,507)
Net cash provided by financing ----------------- ----------------
activities 241,484 314,806
------------------ ----------------
Net increase (decrease) in cash and cash
equivalents 309,893 (115,803)
Cash and cash equivalents at beginning of period 272,410 504,763
------------------ ----------------
Cash and cash equivalents at end of period $ 582,303 $ 388,960
------------------ ----------------
</TABLE>
See accompanying notes.
5
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR:
The Company uses a 52-53 week fiscal year ending on the last Friday of
the month. For convenience of presentation, the accompanying financial
statements have been shown as ending on the last day of the calendar month
of each applicable period.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
The unaudited financial statements as of March 31, 1996 and for the three
months ended March 31, 1996 and 1995 include, in the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary to
present fairly the financial information set herein. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for an entire year.
The December 31, 1995 balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
INVENTORIES:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Appropriate consideration is given to
obsolescence, excessive levels and other factors in evaluating net
realizable value.
COMPUTATION OF NET LOSS PER COMMON SHARE:
Net loss per common share is based upon the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares
are included in the per share calculations where the effect of their
inclusion would be dilutive.
- 6 -
<PAGE>
2. INVESTMENTS
Investments are summarized below:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
---------------------- ------------------------
Cost Market Cost Market
Basis Basis Basis Value
---------------------- ------------------------
<S> <C> <C> <C> <C>
Debt securities:
Preferred bonds $500,000 $500,000 $500,000 $500,000
U.S. government & related agency securities 499,125 499,112 795,897 796,902
Commercial paper 494,321 494,653 1,499,909 1,499,530
Accrued interest 5,146 5,146 43,128 43,128
Other 29,117 29,117 40,904 40,904
--------- ---------- ----------- -----------
Total 1,527,709 1,528,028 2,879,838 2,880,464
Allowance for unrealized gain 319 - 626 -
--------- ----------- ----------- -----------
Total $1,528,028 $1,528,028 $2,880,464 $2,880,464
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
3. INVENTORIES:
Inventories net of reserves at March 31, 1996 and December 31, 1995
of $81,000 comprise:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw materials $370,513 $299,619
Work in process 634,466 431,882
Finished goods 50,455 33,923
---------- --------
$1,055,434 $765,424
---------- --------
---------- --------
</TABLE>
4. LONG TERM DEBT:
In March 1996, the Company obtained a $1,000,000 credit facility with
a financial institution primarily to finance costs associated with the
acquisition of equipment. Borrowings are at the bank's prime rate plus
1.0% (9.5% at March 31, 1996) with interest paid monthly, and are
collateralized by the related equipment. Principal installments commence
July 1996 for a thirty month period. At March 31, 1996, approximately
$594,000 was available under the credit facility.
- 7 -
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Conductus was formed in 1987 to develop, manufacture, and market electronic
components and systems based on superconductors for applications in magnetic
sensing, magnetic resonance instrumentation, wireless communications and digital
electronics. Through December 31, 1992, the Company was in the development
stage primarily involved in developing its product technology, recruiting
personnel and raising capital.
As of March 31, 1996, Conductus had accumulated losses of approximately
$25,602,000 and such accumulated losses are expected to increase due to the
Company's planned expansion of its operations.
All dollar amounts in this section have been rounded to thousands.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
The Company's total revenues increased to $2,611,000 for the first quarter of
1996, an 30% increase over the $2,013,000 for the same period in 1995. Total
revenue consists primarily of contract revenue and, to a lesser extent, product
sales. Revenues under U.S. government research and development contracts
increased to $2,214,000 in the period from $1,643,000 in the same period in the
prior year and represented 85% and 82% of total revenue for the periods,
respectively. At March 31, 1996, Conductus had a backlog of $5,577,000 under
existing U.S. government contracts, most of which is to be performed in the next
12 months, and $7,760,000 in awards from U.S. government agencies for which such
agencies had not yet entered into research contracts with the Company. The
recognition of revenue and receipt of payment pursuant to these contracts and
awards are subject to numerous risks.
Revenues from sales of large-scale superconducting magnetic systems, SQUIDs, HTS
thin films and other products increased to $397,000 in the first quarter of
1996, an 8% increase over the $369,000 of product sales in same period in the
prior year. The increase is in the first quarter of 1996 is primarily related
to magnetic sensing systems and instruments. The large scale magnetic sensing
systems have large unit prices and are sold in low volumes, and thus significant
fluctuations in sales of these systems may occur between quarters. Conductus
does not expect to recognize significant product sales until it successfully
develops and commercializes superconductive components and systems addressing
significant markets.
- 8 -
<PAGE>
Cost of product sales increased to $256,000 for the first quarter of 1996, a 54%
increase over the $166,000 for the same period in 1995. The increase in cost of
product sales was directly related to increased product sales. Gross margins
decreased to 36% in the first quarter of 1996 from 55% in the prior year. The
reduction reflects changes in commercial product mix for both quarters. Large
systems margins may vary based on options included and may have downward impacts
on margins Costs of contract revenues are included in research and development
expenses.
Research and development expenses increased to $2,743,000 in the first quarter
of 1996, a 6% increase over the $2,577,000 for the same period in 1995. The
increase is partly attributable to increased expenditures for the development of
commercial products, particularly addressing the communications markets,
cellular and PCS. The contract cost portion increased ratably from period to
period as a result of increased contract revenues in the first quarter of 1996
compared to the first quarter of 1995. The Company expects to continue to
incur significant research and development expenses as it seeks to market
additional products.
Selling, general and administrative expenses increased to $1,007,000 for the
first quarter period of 1996 a 22% increase over the $827,000 for the same
period in 1995. These costs increased in 1996 compared to the prior year due to
increased sales costs associated with the representative network for magnetic
sensing and instrument products and the increasing size of the Company.
Headcount increased to 106 at March 31, 1996 from 101 at March 31, 1995.
Additionally, as the Company begins to market commercial products, there will be
additional sales and marketing costs over those incurred in the first quarter of
1996.
The Company's total operating expenses increased to $4,006,000 for the first
quarter period in 1996, a 12% increase over the $3,571,000 for the same period
in 1995 for the reasons described above.
Interest income was $27,000 in the first quarter period of 1996 compared to
$80,000 during the same period in 1995. The primary reason for the decrease is
due to decreasing cash and investments which is partly offset by higher interest
rates. Interest charges increased on the Company's debt financing to
approximately $36,000 in the first quarter period of 1996 compared to $24,000
for the same period in 1995, due to purchases of capital equipment.
The Company has not paid income taxes since inception due to its cumulative
operating losses.
- 9 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's aggregate cash, cash equivalents and short-
term investments totaled $2,110,000. The Company had financed its operations
since inception primarily through $13,251,000 in net proceeds from its initial
public offering of Common Stock in August 1993, $14,645,000 raised in private
placement financings, $25,529,000 from U.S. government contracts, $4,823,000 in
aggregate borrowings under three equipment lease lines of credit and equipment
term loan and $3,183,000 in interest income.
Net cash used in operations was $1,073,000 for the first quarter period of 1996
as compared to $818,000 for the same period in 1995. The increase in net cash
used in operating activities in the first quarter of 1996 over the same quarter
of the prior year was primarily due to continued operating losses, increases in
inventory for products, and decreases in current liabilities, offset to some
extent by reductions in accounts receivables. The Company anticipates that its
accounts receivable from revenues under U.S. government contracts and product
sales, as well as inventories, may increase during 1996. Such increases will
result in the use of additional cash in operating activities.
Net cash from investing activities was $1,141,000 for the first quarter of 1996
compared to $387,000 for the first quarter of 1995. During both quarters, net
cash was provided by net reductions in short-term investments, offset to some
extent by purchases of property and equipment.
Net cash from financing activities was $241,000 for the first quarter of 1996
compared to net cash used in financing activities of $315,000 in the first
quarter of prior year. Net cash provided by financing activities in the first
quarter of 1996 were primarily due to borrowings under the Company's equipment
term loan offset by principal payments under capital lease obligations.
The Company to date has received limited revenues from product sales. The
development of the Company's potential products will require a commitment of
substantial funds to conduct further research and development and testing of
its potential products, to establish commercial-scale manufacturing and to
market any resulting products. The Company expects to use approximately $1.2M
of cash to support its current facilities and equipment requirements in 1996.
The actual amount of the Company's future capital requirements exclusive of
facilities will depend on many factors that affects its business. Conductus
anticipates that its existing available cash should be adequate to fund the
Company's operations for at least 1996. There can be no assurance that
additional funding will be available on acceptable terms or at all, if required.
- 10 -
<PAGE>
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS - NOT APPLICABLE.
ITEM 2: CHANGES IN SECURITIES - NOT APPLICABLE.
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 - SEE BELOW
(B) REPORTS ON FORM 8-K - NOT APPLICABLE.
- 11 -
<PAGE>
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.
CONDUCTUS, INC.
Registrant
Dated May 10, 1996 /s/ William J. Tamblyn
--------------------------------------
William J. Tamblyn
Chief Financial Officer and
Duly Authorized Officer
/s/ Charles E. Shalvoy
--------------------------------------
Charles E. Shalvoy
President and Chief Executive Officer
and Duly Authorized Officer
- 12 -
<PAGE>
EXHIBIT INDEX
Sequential
Exhibits Page Number
- -------- -----------
11.01 Statements of Computation of 14
Loss Per Share
- 13 -
<PAGE>
EXHIBIT 11.01
CONDUCTUS, INC.
STATEMENTS OF COMPUTATION OF LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
March 31, March 31,
1996 1995
------------ ---------
<S> <C> <C>
Net loss $(1,379) $ (1,570)
------- --------
Weighted average number of
shares outstanding 5,706 5,397
----- -----
Common and common
equivalent shares used
in computing per share
amounts 5,706 5,397
------- --------
------- --------
Net loss per share $ (0.24) $ (0.29)
-------- ---------
-------- ---------
</TABLE>
-14 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 582,303
<SECURITIES> 1,528,028
<RECEIVABLES> 2,967,562
<ALLOWANCES> 0
<INVENTORY> 1,055,434
<CURRENT-ASSETS> 6,284,482
<PP&E> 2,555,893
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,937,287
<CURRENT-LIABILITIES> 3,210,329
<BONDS> 1,258,228
0
0
<COMMON> 574
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,937,287
<SALES> 397,497
<TOTAL-REVENUES> 2,611,259
<CGS> 256,300
<TOTAL-COSTS> 4,005,749
<OTHER-EXPENSES> 24,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (36,286)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,379,126)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> 0
</TABLE>
