<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A/2
(Mark One)
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1998
OR
[ X ] 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 AVE.
SUNNYVALE, CA 94086
(Address of principal executive offices)
(Zip Code)
(408) 523-9950
(Registrant's 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
--- ---
As of November 10, 1998 there were 7,126,349 shares of the Registrants
Common stock outstanding.
REASON FOR AMENDMENT
The Company has restated its financial statements as of and for the
quarterly period ended September 30, 1998 to account for the mandatory
redemption features of the Series B convertible preferred stock. See Note 6
to the Financial Statements.
<PAGE>
CONDUCTUS, INC.
Form 10-Q/A/2
September 30, 1998
Index
<TABLE>
<S> <C> <C>
PART I : FINANCIAL INFORMATION................................................................................3
Item 1 : FINANCIAL STATEMENTS........................................................................3
Condensed Balance Sheets at September 30, 1998 and December 31, 1997.................................3
Condensed Statements of Operations for the Three and Nine Months Ended September 30, 1998 and 1997...4
Condensed statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997.............5
Notes to Condensed Financial Statements..............................................................6
.................................................................................................
PART II : OTHER INFORMATION......................................................................................11
Item 6 : EXHIBITS AND REPORTS ON FORM 8-K..............................................................11
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONDUCTUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------- -----------
(Restated-Note 6)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,506,566 $2,111,560
Restricted cash - 500,000
Short-term investments - 556,633
Accounts receivable, net 1,315,444 2,055,255
Inventories, net 872,619 610,367
Prepaid and other assets 108,270 139,479
----------- -----------
Total current assets 6,802,899 5,973,294
----------- -----------
Property, plant and equipment, net 2,221,859 2,700,594
Other assets 82,266 87,762
----------- -----------
Total assets $9,107,024 $8,761,650
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $822,178 $1,539,590
Other accrued liabilities 865,194 1,063,721
Current portion of long-term debt 978,625 1,547,507
----------- -----------
Total current liabilities 2,665,997 4,150,818
Long-term debt, net of current portion 1,559,626 309,681
----------- -----------
Total liabilities 4,225,623 4,460,499
----------- -----------
Redeemable Preferred Stock:
Preferred Stock (Restated-Note 6) 6,374,511 0
Stockholders' equity:
Common stock 728 702
Additional paid-in capital 41,476,772 41,070,636
Accumulated deficit (42,970,610) (36,770,187)
----------- -----------
Total stockholders' equity (1,493,110) 4,301,151
----------- -----------
Total liabilities and stockholders' equity $9,107,024 $8,761,650
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
CONDUCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ----------------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Contract $ 1,078,270 $ 1,723,182 $ 2,808,395 $ 5,834,080
Product 186,312 148,560 623,675 1,662,605
----------- ------------ ------------ ------------
Total revenues 1,264,582 1,871,742 3,432,070 7,496,685
OPERATING EXPENSES:
Cost of product 528,562 400,386 1,994,417 1,899,203
Research and development 1,266,399 2,021,099 4,468,949 7,679,545
Selling, general & administrative 812,565 1,026,167 2,777,036 3,172,178
Gain on product line disposals - (93,135) - (93,135)
Writedown of property, plant, & equipment - - - 100,000
------------
Total operating expenses 2,607,526 3,354,517 9,240,402 12,757,791
----------- ------------ ------------ ------------
Loss from operations (1,342,944) (1,482,775) (5,808,332) (5,261,106)
Interest income 13,671 50,828 56,445 226,981
Other income (expense) - (37,835) - (63,228)
Interest expense (304,035) (20,728) (448,535) (145,787)
----------- ------------ ------------ ------------
Net loss $(1,633,308) $ (1,490,510) $ (6,200,423) $ (5,243,140)
=========== ============ ============ ============
Net loss per basic and diluted common share $ (0.23) $ (0.22) $ (0.88) $ (0.77)
=========== ============ ============ ============
Shares used in computing per share amounts 7,117,000 6,901,000 7,077,000 6,853,000
=========== ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
CONDUCTUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,200,423) $ (5,243,140)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 684,570 601,298
Provision for excess and obsolete inventory 96,176 -
Compensation associated with warrant grants 146,575 -
Changes in:
Accounts receivable 739,811 1,713,686
Inventories (358,428) 679,594
Prepaid and other assets 36,705 123,729
Accounts payable and other accrued liabilities (915,939) (424,386)
------------ ------------
Net cash used in operating activities (5,770,953) (2,549,219)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments 556,633 20,625,154
Purchases of short-term investments - (17,455,532)
Acquisition of property and equipment (205,835) (652,910)
Net book value of assets sold - 168,734
------------ ------------
Net cash provided by investing activities 350,798 2,685,446
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from borrowings 4,450,000 410,133
Net proceeds from issuance of preferred stock 6,374,511 -
Net proceeds from issuance of common stock 225,052 290,521
Principal payments on long-term debt (3,734,402) (879,895)
------------ ------------
Net cash provided by (used in) financing activities 7,315,161 (179,241)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,895,006 (43,014)
Cash and cash equivalents at beginning of period 2,611,560 1,119,991
------------ ------------
Cash and cash equivalents at end of period $4,506,566 $1,076,977
============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
CONDUCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 disclosures
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. The unaudited financial
statements as of September 30, 1998 and for the three and nine months
ended September 30, 1998 and 1997 include, in the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial information set forth 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, 1997 balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
CASH, CASH EQUIVALENTS, AND INVESTMENTS:
At September 30, 1998, all of Conductus, Inc.'s (the
"Company" or "Conductus") highly liquid investments had original
maturities of less than ninety days, and accordingly are considered cash
equivalents.
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.
BASIC AND DILUTED LOSS PER SHARE:
In accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share",
a reconciliation of the numerator and denominator of the basic and
diluted EPS is provided as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------- ---------------- ---------------- --------------- ------------------
1998 1997 1998 1997
-------------------------------------------- ---------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Numerator -- basic and diluted EPS:
-------------------------------------------- ---------------- ---------------- --------------- ------------------
Net loss $ (1,633,308) $ (1,490,510) $ (6,200,423) $ (5,243,140)
-------------------------------------------- ---------------- ---------------- --------------- ------------------
Denominator -- basic and diluted EPS:
-------------------------------------------- ---------------- ---------------- --------------- ------------------
Common Stock outstanding 7,117,000 6,901,000 7,077,000 6,853,000
-------------------------------------------- ---------------- ---------------- --------------- ------------------
Basic loss per share $(0.23) $(0.22) $(0.88) $(0.77)
======= ======= ======= =======
-------------------------------------------- ---------------- ---------------- --------------- ------------------
Diluted loss per share $(0.23) $(0.22) $(0.88) $(0.77)
======= ======= ======= =======
-------------------------------------------- ---------------- ---------------- --------------- ------------------
</TABLE>
6
<PAGE>
In the above computations, common equivalent shares are excluded from
the basic and diluted loss per share as their effect is anti-dilutive.
Common equivalent shares including options, warrants and convertible
preferred stock that could potentially dilute basic earnings per share
in the future and that were not included in the computations of diluted
loss per share because of anti-dilution were approximately 552,725 and
225,852 for the three months ended September 30, 1998 and 1997
respectively, and approximately 344,670 and 330,029 for the nine months
ended September 30, 1998 and 1997 respectively.
RECLASSIFICATIONS:
Certain amounts in the prior periods statements of
operations have been reclassified to conform to the September 30, 1998
presentation. These reclassifications had no effect on previously
reported results of operations.
RECENT PRONOUNCEMENTS:
COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. This statement requires the disclosure of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as net income plus
revenues, expenses, gains and losses that, under generally accepted
accounting principles, are excluded from net loss. The component of
comprehensive loss, which is excluded from net loss, is not significant
and therefore, no separate statement of comprehensive income has been
presented.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131"), which
supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise" ("SFAS 14").
SFAS 131 changes current practice under SFAS 14 by establishing a new
framework on which to base segment reporting and also requires interim
reporting of segment information. This statement is effective for fiscal
years beginning after December 15, 1997. The statement's interim
reporting disclosures are not required until the first quarter
immediately subsequent to the fiscal year in which SFAS 131 is effective.
7
<PAGE>
2. ACCOUNTS RECEIVABLE :
Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
U. S. government contracts:
Unbilled $ 358,925 $1,146,283
Billed 991,565 793,382
Commercial 257,589 363,822
Reserves (292,635) (248,232)
---------- ----------
$1,315,444 $2,055,255
========== ==========
</TABLE>
3. INVENTORIES:
Inventories, net, consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials and purchased parts $ 441,459 $ 293,336
Work in process 315,940 366,550
Finished goods 526,741 231,326
Reserves (411,521) (280,845)
--------- ---------
$ 872,619 $ 610,367
========= =========
</TABLE>
4. LONG TERM DEBT:
At September 30, 1998, the Company's credit facilities
consisted of a note payable from a leasing company, two bank equipment
term loans, a bank line of credit, and a lease line of credit for new
equipment purchases.
On April 23, 1998, the Company entered into a bridge loan
credit facility agreement with its bank. The facility provided for
borrowings of up to $2,000,000, with interest at the bank's prime rate
plus 2%. The amounts owed were paid in full on September 15, 1998, and
this facility is no longer available.
The note payable from a leasing company is collateralized by
the Company's property, plant and equipment. The effective interest rate
is 13.98% and there are certain reporting and financial covenants which
the Company is required to satisfy. At September 30, 1998 the Company
was in compliance with these covenants, the balance outstanding was
$2,241,624, and there were no further amounts available on this facility.
The two equipment term loans bear interest at the bank's prime
rate plus 2%, with principal and interest payments paid monthly. These
term loans mature on the later of maturity dates set forth in each of
the original term loan agreements or the date of completion of an equity
financing transaction; provided, however, that if the Company chooses to
collateralize the term loans with restricted cash deposits, then the
maturity dates for the term loans shall remain as December 31, 1998 and
December 31, 1999. At September 30, 1998, there was approximately
$418,723 outstanding under these loans, and no further amounts were
available.
8
<PAGE>
$2,000,000 or 80% of eligible receivables. Borrowings under
this facility bear interest at the bank's prime rate plus 2.0% and will
be collateralized by accounts receivable, equipment and other assets of
the Company. At September 30, 1998, there were no amounts outstanding
under this facility.
The lease line of credit for new equipment purchases provides
for borrowings of up to $1,000,000, is collateralized by equipment
purchases under the line, and has an effective interest rate of 14.04%.
The Company also granted to the leasing company warrants to purchase up
to 15,060 shares of the Company's stock at a price equal to $3.32. The
fair value of such warrants is approximately $35,000 and will be
amortized over the three year term of the lease payments. This line of
credit expires on September 30, 1999.
All the credit facilities contain reporting and financial
covenants. In the event of default on any of these covenants, no further
amounts would be advanced to the Company under any facility, the entire
amounts outstanding could become due and payable immediately upon
default, and those assets that are collateral could be seized, unless
such default is waived by the lender.
5. SERIES B PREFERRED STOCK:
On September 11, 1998, and September 22, 1998, the Company sold and
issued an aggregate of 2,461,227 shares of its Series B Preferred Stock
at a price per share of $2.70 and issued warrants to purchase 492,242
shares of Common Stock at an exercise price of $2.70 per share in a
private placement of its equity securities. The offering was not
underwritten and raised net proceeds of $6,375,000. Certain affiliates
of the Company and other institutional and accredited individual
investors purchased shares of Series B Preferred Stock and warrants in
such offering, which sales were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Rule 506 of Regulation D under the Act.
The shares of Series B Preferred Stock are convertible on a 1-to-1
basis into Common Stock subject to anti-dilution protections. In
addition, the shares of Series B Preferred Stock have a cumulative stock
dividend of 6% and certain liquidation preferences over the shares of
Common Stock as set forth in the Certificate of Designation of Series B
Preferred Stock.
9
<PAGE>
6. EFFECTS OF RESTATEMENTS:
As described in Note 5, the Company issued 2,461,227 shares of Series B
convertible preferred stock on September 11, 1998 and September 22, 1998.
The Series B convertible preferred stock is subject to redemption
requirements that are outside of the control of the Company under certain
limited circumstances as defined in the Series B certificate of designation.
Those circumstances include a change in control of the Company in which 50%
or more of the voting power of the Company is disposed of or a sale of all or
substantially all of the assets of the Company. The holders of Series B
convertible preferred stock are entitled to receive, prior to and in
preference to any distribution of any of the assets of the Company to the
holders of common stock, an amount per share equal to $2.70 plus any unpaid
dividends for each share of Series B convertible preferred stock.
Although the Company believes that the likelihood of redemption
occurring is remote, it has restated its financial statements at and for the
three-month period ended September 30, 1998 to account for the redemption
features of the Series B convertible preferred stock. The carrying value of
the Series B convertible preferred stock, which was previously presented as a
component of stockholders' equity, has been reclassified outside of
stockholders' equity at September 30, 1998.
The restatement of the financial statements at September 30, 1998 and
for the three-month period then ended, for the matter described above had no
effect on the Company's net loss, total assets or total liabilities. The
Company's redeemable equity, total stockholders' equity at September 30,
1998, as previously reported and as restated, are as follows:
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Redeemable equity - previously reported $ --
Adjustment related to the presentation of the Series B
convertible preferred stock as redeemable 6,374,511
-----------
As restated $6,374,511
-----------
Stockholders' equity - previously reported $4,881,401
Adjustment related to the presentation of the Series B
convertible preferred stock as redeemable (6,374,511)
-----------
As restated ($1,493,110)
-----------
</TABLE>
10
<PAGE>
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------
(A) EXHIBITS - SEE BELOW.
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on September 29, 1998 describing the
sale by the Company of shares of its Series B Preferred Stock to certain
investors of the Company.
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.
Dated: March 29, 2000 /S/ Ron Wilderink
-----------------
Ron Wilderink, Vice President of
Finance and Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
3.01* Certificate of Designation of Series B Preferred Stock.
10.01* Master Loan and Security Agreement between the Company and
Transamerica Business Credit Corporation dated June 26, 1998.
10.02* Stock Subscription Warrant Agreement between the Company and
Transamerica Business Credit Corporation dated June 26, 1998.
10.03* Master Lease Agreement between the Company and Leasing
Technologies International, Inc. dated June 15, 1998.
10.04* Engagement Letter between the Company and Sutro and Co. Inc. dated
March 24, 1998.
10.05* Amendment to Engagement Letter between the Company and Sutro and
Co. Inc. dated September 02, 1998.
10.06* Engagement Letter between the Company and Davenport and Co. dated
September 02, 1998.
10.07* Form of Series B Preferred Stock and Warrant Purchase Agreement
dated September 11, 1998 and September 22, 1998, between the
Company and Series B Investors.
10.08* Form of Warrant to Purchase Common Stock between the Company and
Series B Investors.
27.01 Restated Financial Data Schedule.
99.01* Text of Press Release dated November 10, 1998.
</TABLE>
- ------------------------------
* Previously filed.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,506,566
<SECURITIES> 0
<RECEIVABLES> 1,315,444
<ALLOWANCES> 0
<INVENTORY> 872,619
<CURRENT-ASSETS> 6,802,899
<PP&E> 9,387,914
<DEPRECIATION> (7,166,055)
<TOTAL-ASSETS> 9,107,024
<CURRENT-LIABILITIES> 2,665,997
<BONDS> 0
6,374,511
0
<COMMON> 728
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,107,024
<SALES> 0
<TOTAL-REVENUES> 3,432,070
<CGS> 0
<TOTAL-COSTS> 9,240,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 448,535
<INCOME-PRETAX> (6,200,423)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,200,423)
<EPS-BASIC> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
