<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-11915
--------------------------------
CONDUCTUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0162388
(State of incorporation) (I.R.S. Employer
Identification No.)
969 W. MAUDE AVENUE
SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (408) 523-9950
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.0001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHT, $0.0001 PAR VALUE
--------------------------------
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 / /
Indicate by a check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of
the Registrant, as of March 29, 1999, was approximately $10,808,367 based on
the closing sale price of the Company's Common Stock, as reported by the
Nasdaq SmallCap Market on March 29, 1999. Shares of Common Stock held by each
officer, director and holder of 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes. On March 29, 1999, approximately 10,097,720
shares of the Registrant's Common Stock, $0.0001 par value, were outstanding.
The information in this paragraph assumes the conversion of 2,461,227 shares
of Series B Preferred Stock and the exercise of 492,242 warrants issued or
granted in connection with the Company's September 1998 Series B Preferred
Stock financing.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in those parts
of this Annual Report on Form 10-K as set forth below, but only to the extent
specifically stated in such parts hereof:
(1) Portions of the Registrant's Proxy Statement for the 1999 Annual
Meeting of Stockholders scheduled to be held on May 27, 1999, are
incorporated by reference into Part III.
REASON FOR THE AMENDMENT
The company has restated its 1998 financial statements to account for the
mandatory redemption features of the Series B convertible preferred stock. See
note 17 to the Consolidated Financial Statements.
================================================================================
<PAGE>
FORM 10K/A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART II................................................................................................. 1
ITEM 6. SELECTED FINANCIAL DATA................................................................... 1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................... 2
PART IV................................................................................................. 3
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K......................... 3
</TABLE>
i
<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with both the Financial Statements and accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The statement of operations data for the years ended December 31, 1996, 1997
and 1998 and the balance sheet data at December 31, 1997 and 1998 are derived
from and are qualified by reference to, the audited financial statements
included elsewhere in this prospectus. The statement of operations data for
the years ended December 31, 1994 and 1995 and the balance sheet data at
December 31, 1994, 1995 and 1996 are derived from audited financial
statements not included in this prospectus. The results of operations for the
year ended December 31, 1998 or any other period are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ----------- ----------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Contract......................................... $ 7,048 $ 8,148 $ 9,691 $ 7,266 $ 3,698
Product sales.................................... 1,588 2,434 2,852 2,188 991
------------ ----------- ----------- ------------------------
Total revenues $ 8,636 $ 10,582 $ 12,543 $ 9,454 $ 4,689
============ =========== =========== ============= ==========
Loss from operations................................ $ (4,876) $ (4,423) $ (5,109) $ (7,499) $ (7,132)
============ =========== =========== ============= ==========
Net loss attributable to common shareholders........ $ (4,544) $ (4,422) $ (5,004) $ (7,543) $ (7,829)
============ =========== =========== ============= ==========
Basic and diluted net loss per common share
attributable to common shareholders.............. $ (0.85) $ (0.80) $ (0.80) $ (1.09) $ (1.10)
============ =========== =========== ============= ==========
Shares used in per share calculations............... 5,323 5,543 6,263 6,897 7,088
============ =========== =========== ============= ==========
DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ----------- ----------- ------------ -----------
(IN THOUSANDS)
Balance Sheet Data:
Working capital................................. $ 7,076 $ 4,287 $ 9,135 $ 1,822 $ 2,656
Total assets.................................... 12,541 10,128 16,081 8,762 7,035
Long-term debt, less current portion............ 533 1,146 1,022 310 1,341
Total liabilities, redeemable equity........... 3,012 4,315 4,898 4,460 9,355
Stockholders' equity (deficit).................. 9,529 5,814 11,183 4,301 (2,320)
</TABLE>
- ---------------------------
The above "basic and diluted loss per common share" and "shares used in per
share calculations" information was computed on the basis described for net
loss per share in Note 2 of Notes to Financial Statements.
Preferred stock with mandatory redemption provisions and stockholders' equity
at December 31, 1998 have been restated as discussed in Note 17 of Notes to
Financial Statements.
1
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant and auditor's report
are included in pages 7-27:
Report of Independent Accountants
Balance Sheets--as of December 31, 1997 and 1998
Statements of Operations and Comprehensive Loss--years ended
December 31, 1996, 1997 and 1998
Statements of Stockholders' Equity--years ended December 31, 1996, 1997
and 1998
Statements of Cash Flows--years ended December 31, 1996, 1997 and 1998
Notes to Financial Statements
2
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
1. Financial Statements
Report of Independent Accountants.................................................................. 7
Balance Sheets--as of December 31, 1997 and 1998.................................................... 8
Statements of Operations and Comprehensive Loss--years ended December 31, 1996, 1997 and 1998....... 9
Statements of Stockholders' Equity and Redeemable Preferred Stock--years ended December 31, 1996,
1997 and 1998...................................................................................... 10
Statements of Cash Flows--years ended December 31, 1996, 1997 and 1998.............................. 11
Notes to Financial Statements...................................................................... 12
2. Financial Statement Schedule
Report of Independent Accountants.................................................................. S-1
Schedule II--Valuation and Qualifying Accounts...................................................... S-2
3. See Exhibits
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
<S> <C>
2.1(1) Stock Exchange Agreement dated as of May 28, 1993, between the
Company and Tristan Technologies, Inc.
3.1(2) Restated Certificate of Incorporation.
3.2(3) Restated Bylaws.
3.3(4) Certificate of Designation of Series B Preferred Stock.
4.1(5) Stockholder Rights Plan.
10.1(1) 1987 Stock Option Plan.
10.2(1) Amended 1989 Stock Option Plan.
10.3(6) 1992 Stock Option/Stock Purchase Plan.
10.4(7) 1994 Employee Stock Purchase Plan.
10.5(1) Second Amended and Restated Registration Rights Agreement dated
June 3, 1993.
10.6(4) Form of Series B Preferred Stock and Warrant Purchase Agreement,
dated September, 1998, and September 22, 1998, between the Company
and Series B Investors.
10.7(4) Form of Warrant to Purchase Common Stock between the Company and
Series B Investors.
10.8(8) Employment Agreement dated May 3, 1994 between Registrant and Mr.
Charles E. Shalvoy.
10.9(1) Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.10(1)+ Coordinated Research Program Agreement dated October 14, 1988 and
Amendment dated May 26, 1991 between the Registrant and Hewlett-
Packard Company ("H-P"), as amended by the Agreement between
Registrant and Hewlett-Packard Company dated June 2, 1993.
10.11(9) Collaboration Agreement between Registrant and CTI dated September
19, 1995.
10.12(9) High Temperature Superconductor Thin-Film Manufacturing Alliance
Agreement among Registrant, Superconductor Technologies, Inc.,
Stanford University, Georgia Research Corporation, Microelectronic
Control and Sensing Incorporated, IBIS, Focused Research and BDM
Federal dated November 17, 1995.
10.13(10)+ Superconducting Filter Technology Joint Development Agreement
dated April 25, 1996 between the Registrant and Lucent
Technologies Inc.
10.14(4) Engagement Letter between the Company and Sutro and Co. Inc.,
dated March 24, 1998.
10.15(4) Amendment to Engagement Letter between the Company and Sutro and
Co. Inc., dated September 2, 1998.
10.16(4) Engagement Letter between the Company and Davenport and Co., dated
September 2, 1998.
10.17(4) Master Lease Agreement between the Company and Leasing
Technologies International, Inc., dated June 15, 1998.
3
<PAGE>
10.18(1) Lease Agreement dated May 3, 1993 between the Registrant and
Mozart-McKee Limited Partnership for Sunnyvale facilities.
10.19(8) Lease Agreement dated December 8, 1994 between Registrant and
Mozart-McKee Limited Partnership for Sunnyvale facilities.
10.20(8) Business Loan Agreement dated August 15, 1994 between Registrant
and Silicon Valley Bank for working capital credit facility and
term loan facility.
10.21(11) Loan Modification Agreement dated June 30, 1997, between
Registration and Silicon Valley Bank modifying the Business Loan
Agreement dated August 15, 1994.
10.22(11) Loan Modification Agreement dated November 12, 1997, between
Registration and Silicon Valley Bank modifying the Business Loan
Agreement dated August 15, 1994.
10.23(11) Loan Modification Agreement dated December 23, 1997, between
Registration and Silicon Valley Bank modifying the Business Loan
Agreement dated August 15, 1994.
10.24(12) Business Loan Agreement dated March 8, 1996 between Registrant and
Silicon Valley Bank for working capital credit facility and term
loan facility.
10.25(13) Business Loan Agreement dated December 27, 1996 between Registrant
and Silicon Valley Bank for working capital credit facility and
term loan facility.
10.26(4)+ Master Loan and Security Agreement between the Company and
Transamerica Business Credit Corporation, dated June 26, 1998.
10.27(4) Stock Subscription Warrant Agreement between the Company and
Transamerica Business Credit Corporation, dated June 26, 1998.
10.28(14) Silicon Valley Bank Loan Agreement.
10.29(14) Collateral Assignment, Patent Mortgage and Security Agreement
between the Company and Silicon Valley Bank.
10.30(11)+ Asset Purchase Agreement dated July 9, 1997 between Registrant and
Bruker Instruments, Inc. for sale of assets of Registrant's NMR
Probe business.
10.31(11) Asset Purchase Agreement dated August 15, 1997 between Registrant
and Neocera, Inc. for sale of Registrant's assets related to its
temperature controller business.
10.32(11) Asset Purchase Agreement dated September 3, 1997, between
Registrant and Niki Glass Ltd. for sale of Registrant's assets
related to portions of its instruments business.
23.1 Consent of Independent Accountants
24.1* Power of Attorney
27.1 Restated Financial Data Schedule.
</TABLE>
- --------------------------
* Previously filed.
+ Confidential treatment granted or requested as to certain portions of these
exhibits.
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Number 33-64020), filed with the SEC on May 15,
1996, as amended.
(2) Incorporated herein by reference to the Company's 1993 Annual Report on
Form 10-K.
(3) Incorporated herein by reference to the Company's Report on Form 8-K,
filed with the SEC on January 22, 1998.
(4) Incorporated herein by reference to the Company's Form 10-Q, filed with
the SEC on November 16, 1998.
(5) Incorporated herein by reference to the Company's Registration
Statement on Form 8-A (Number 000-19915), filed with the SEC on January
29, 1998.
(6) Incorporated herein by reference to the Company's Registration
Statement on Form S-8 (Number 333-41099), filed with the SEC on
November 26, 1997.
(7) Incorporated herein by reference to the Company's Registration
Statement on Form S-8 (Number 033-82454), filed with the SEC on August
5, 1994.
4
<PAGE>
(8) Incorporated herein by reference to the Company's 1994 Annual Report on
Form 10-K.
(9) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Number 333-3815), filed with the
SEC on June 17, 1996.
(10) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Number 333-3815), filed with the SEC on May 15,
1996, as amended.
(11) Incorporated herein by reference to the Company's 1997 Annual Report on
Form 10-K.
(12) Incorporated herein by reference to the Company's 1995 Annual Report on
Form 10-K.
(13) Incorporated herein by reference to the Company's 1996 Annual Report on
Form 10-K.
(14) Incorporated herein by reference to the Company's Form 10-Q, filed with
the SEC on May 14, 1998
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
fiscal year covered by this Form 10-K Annual Report.
(c) Exhibits
See responses to Item 14(a)(3) above.
(d) Financial Statement Schedules
None required, except as indicated in response to Item 14(a)(2) above.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, on
March 29, 2000.
CONDUCTUS, INC.
By: /s/ RON WILDERINK
--------------------------------------
Ron Wilderink, Vice President of
Finance and Chief Financial Officer
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Conductus, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations and comprehensive loss, of stockholders' equity and redeemable
preferred stock and of cash flows, after the restatement described in Note
17, present fairly, in all material respects, the financial position of
Conductus, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Conductus'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming Conductus
will continue as a going concern. As discussed in Note 1 to the financial
statements, Conductus' liquidity has been adversely affected by continuing
losses from operations. In addition, continuation of operations is dependent
upon the availability of additional capital and Conductus' ability to
generate increased revenues and improved gross margins on sales. These issues
raise substantial doubt about Conductus' ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 17, the Company has restated its 1998 financial
statements to reclassify the presentation of preferred stock.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, CA
February 19, 1999, except as to Note 17, which is as of February 15, 2000
7
<PAGE>
CONDUCTUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 1998
------------------ ---------------------
(Restated-Note 17)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,111,560 $ 1,547,169
Restricted cash equivalent............................................ 500,000 --
Short-term investments................................................ 556,633 1,341,014
Accounts receivable (net of allowance for doubtful accounts of $248,232
and $292,635 for 1997 and 1998)..................................... 2,055,255 1,109,794
Inventories........................................................... 610,367 842,384
Prepaid expenses and other current assets............................. 139,479 145,470
------------------ ---------------------
Total current assets................................................ 5,973,294 4,985,831
Property and equipment, net........................................... 2,700,594 2,020,324
Other assets.......................................................... 87,762 28,800
================== =====================
Total assets........................................................ $ 8,761,650 $ 7,034,955
================== =====================
LIABILITIES
Current liabilities:
Current portion of long-term debt..................................... $ 1,547,507 $ 892,139
Accounts payable...................................................... 1,539,590 658,982
Other accrued liabilities............................................. 1,063,721 778,758
------------------ ---------------------
Total current liabilities........................................... 4,150,818 2,329,879
Long-term debt, net of current portion................................ 309,681 1,341,407
------------------ ---------------------
Total liabilities................................................... 4,460,499 3,671,286
------------------ ---------------------
Commitments (Note 10)
REDEEMABLE PREFERRED STOCK Preferred stock, no par value:
Authorized: 5,000,000 shares
Series B, no par value; Designated: 4,500,000; Issued and outstanding:
none in 1997, 2,461,227 in 1998 (Liquidation value: $6,762,065 at
December 31, 1998).................................................. -- 5,683,461
STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.0001 par value:
Authorized: 20,000,000 shares;
Issued: 7,013,062 and 7,144,120 in 1997 and 1998 Outstanding:
7,004,095 and 7,144,120 in 1997 and 1998............................ 702 714
Additional paid-in capital............................................... 41,070,636 42,278,423
Accumulated deficit...................................................... (36,770,187) (44,598,929)
------------------ ---------------------
Total stockholders' equity (deficit)................................ 4,301,151 (2,319,792)
================== =====================
Total liabilities, redeemable equity and stockholders' equity (deficit) $ 8,761,650 $ 7,034,955
================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CONDUCTUS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Contract................................................... $ 9,690,989 $ 7,266,157 $ 3,698,049
Product sales........................................... 2,851,682 2,187,383 990,737
---------------- ---------------- ----------------
Total revenues........................................ 12,542,671 9,453,540 4,688,786
---------------- ---------------- ----------------
Costs and expenses:
Cost of product sales................................... 1,823,622 1,845,413 2,684,994
Research and development................................ 11,773,587 10,626,133 5,621,284
Selling, general and administrative..................... 4,054,303 4,329,739 3,514,295
Write-off of property and equipment..................... -- 100,000 --
Loss on asset sale...................................... -- 51,741 --
---------------- ---------------- ----------------
Total costs and expenses.............................. 17,651,512 16,953,026 11,820,573
---------------- ---------------- ----------------
Loss from operations....................................... (5,108,841) (7,499,486) (7,131,787)
Interest income............................................ 262,965 267,492 97,149
Other income (expense)..................................... 25,042 (108,992) (36,391)
Interest expense........................................... (183,138) (202,395) (529,961)
---------------- ---------------- ----------------
Net loss................................................ (5,003,972) (7,543,381) (7,600,990)
Preferred dividend......................................... -- -- (227,752)
================ ================ ================
Net loss attributable to common shareholders............... $ (5,003,972) $ (7,543,381) $ (7,828,742)
================ ================ ================
Net loss................................................... $ (5,003,972) $ (7,543,381) $ (7,600,990)
Other comprehensive income, net of tax:
Unrealized gains (losses) on investments................ 3,182 (3,808) --
================ ================ ================
Comprehensive loss......................................... $ (5,000,790) $ (7,547,189) $ (7,600,990)
================ ================ ================
Basic and diluted net loss per share....................... $ (0.80) $ (1.09) $ (1.10)
================ ================ ================
Shares used in per share calculations...................... 6,263,446 6,896,649 7,088,339
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
CONDUCTUS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
ACCUMULATED
SERIES B ADDITIONAL OTHER
PREFERRED COMMON PAID-IN COMPREHENSIVE ACCUMULATED
STOCK STOCK CAPITAL INCOME (LOSS) DEFICIT TOTAL
------------ --------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996........... $ -- $ 570 $30,035,358 $ 626 $(24,222,834) $5,813,720
Issuance of 69,037 shares of common
stock to employees............... -- 7 110,318 -- -- 110,325
Issuance of 1,000,000 shares of
common stock through secondary
offering, net of issuance
costs................... -- 100 9,892,107 -- -- 9,892,207
Issuance of 57,848 shares of common
stock to employees under the
employee stock purchase plan..... -- 6 340,597 -- -- 340,603
Compensation associated with stock
options granted.................. -- -- 27,001 -- -- 27,001
Unrealized gain on investments, net. -- -- -- 3,182 -- 3,182
Net loss............................ -- -- -- -- (5,003,972) (5,003,972)
------------ --------- ------------ --------------- ------------- -------------
Balances, December 31, 1996......... -- 683 40,405,381 3,808 (29,226,806) 11,183,066
Issuance of 137,000 shares of common
stock to employees............... -- 14 381,592 -- -- 381,606
Issuance of 50,686 shares of common
stock to employees under the
employee stock purchase plan..... -- 5 247,662 -- -- 247,667
Compensation associated with stock
options granted.................. -- -- 36,001 -- -- 36,001
Unrealized loss on investments, net. -- -- -- (3,808) -- (3,808)
Net loss............................ -- -- -- -- (7,543,381) (7,543,381)
------------ --------- ------------ --------------- ------------- -------------
Balances, December 31, 1997......... -- 702 41,070,636 -- (36,770,187) 4,301,151
Issuance of 2,461,227 shares of
preferred stock net of $300,860
issuance costs................... 5,572,461 -- -- -- -- --
Issuance of common stock warrants... -- -- 1,040,671 -- -- 1,040,671
Issuance of 111,955 shares of common
stock to employees............... -- 10 65,798 -- -- 65,808
Issuance of 28,070 shares of common
stock to employees under the
employee stock purchase plan..... -- 2 65,659 -- -- 65,661
Compensation associated with stock
options granted.................. -- -- 35,659 -- -- 35,659
Dividend accretion on preferred stock 111,000 -- -- -- (227,752) (227,752)
Net loss............................ -- -- -- -- (7,600,990) (7,600,990)
------------ --------- ------------ --------------- ------------- -------------
Balance, December 31, 1998.......... $5,683,461 $ 714 $42,278,423 $ -- $(44,598,929) $(2,319,792)
------------ --------- ------------ --------------- ------------- -------------
------------ --------- ------------ --------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
CONDUCTUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (5,003,972) $ (7,543,381) $ (7,600,990)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 925,718 827,071 931,215
Compensation associated with stock options granted...... 27,001 36,001 35,659
Amortization of discount on long term debt.............. -- (107,913)
Provision for excess and obsolete inventories........... -- 249,845 156,908
(Gain) loss on disposal of equipment.................... (22,922) 51,741 --
Provision for allowance for doubtful accounts........... -- 273,232 53,744
(Increase) decrease in:
Accounts receivable..................................... (505,439) 1,528,099 891,717
Inventories............................................. (455,449) (269,017) (388,925)
Prepaid expenses and other current assets............... (112,152) 258,077 (5,991)
Other assets............................................ (63,580) 40,001 58,962
Increase, (decrease) in:
Accounts payable and other accrued liabilities.......... 314,024 (153,367) (1,282,323)
---------------- ---------------- ----------------
Net cash used in operating activities............... (4,896,771) (4,701,698) (7,257,937)
---------------- ---------------- ----------------
Cash flows from investing activities:
Maturities of short-term investments.................... 44,266,602 39,401,345 556,633
Purchases of short-term investments..................... (47,899,357) (33,445,385) (1,341,014)
Acquisition of property and equipment................... (1,264,478) (689,286) (250,945)
Net proceeds from sales of assets....................... 29,196 581,243 --
---------------- ---------------- ----------------
Net cash (used in) provided by investing activities. (4,868,037) 5,847,917 (1,035,326)
---------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings................................ 1,229,019 910,132 4,500,000
Net proceeds from issuance of common stock.............. 10,343,135 629,273 131,469
Net proceeds from issuance of preferred stock........... -- -- 5,572,461
Net proceeds from issuance of common stock warrants..... -- -- 772,000
Principals payments on long-term debt................... (959,765) (1,194,055) (3,747,058)
---------------- ---------------- ----------------
Net cash provided by financing activities........... 10,612,389 345,350 7,228,872
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents.... 847,581 1,491,569 (1,064,391)
Cash and cash equivalents at beginning of period........... 272,410 1,119,991 2,611,560
---------------- ---------------- ----------------
Cash and cash equivalents at end of period................. $ 1,119,991 $ 2,611,560 $ 1,547,169
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION:
Conductus was formed to develop, manufacture and market
superconductive electronic devices, circuits and systems for sensor,
communications, test and instrumentation, and digital electronics
applications. On September 30, 1997, Conductus discontinued operation of its
Instrument and Systems Division and is now focused on development,
manufacturing and marketing of electronic components and systems based on
superconductors for applications in the worldwide telecommunications market.
SUBSTANTIAL FUTURE CAPITAL NEEDS:
Conductus has received limited revenues from product sales to date
and has cash reserves of approximately $2,888,000 as of December 31, 1998.
Conductus anticipates that existing sources of liquidity and anticipated
revenue, primarily from government contracts, will satisfy projected working
capital and other cash requirements through June 1999. However, there can be
no assurance that changes in our plans or other events affecting Conductus
will not result in the expenditure of our resources before June 1999.
The development, manufacture and marketing of Conductus' products
will require a commitment of substantial additional funds. Management is
evaluating alternative methods to raise additional funds, through debt or
equity issuances, asset sales or otherwise, including possible arrangements
with collaborative partners or others that may require Conductus to
relinquish rights to certain of its technologies or potential products that
would not otherwise be relinquished. Unless management is able to raise
significant additional funds, Conductus will be required to delay, scale-back
or eliminate one or more research and development programs. Additionally,
management can give no assurance that additional financing will be available
on acceptable terms or at all. No adjustments have been included in the
financial statements to reflect this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR:
Prior to January 1998, Conductus used 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 December 31 of
each applicable period. In January 1998, it changed to a 52 week fiscal year
ending on the last day of the month.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CERTAIN RISKS AND CONCENTRATIONS:
Conductus' superconducting products are concentrated in the
electronic component industry which is highly competitive and rapidly
changing. Revenues for its products are concentrated with a relatively
limited number of customers and suppliers for certain components are
concentrated among a few providers. In addition, approximately 77%, 77% and
79% of its total revenues for each of the fiscal years 1996, 1997, and 1998
were from government-related contracts. The development of new technologies
or commercialization of superconductive products by any competitor, or the
conclusion of one or more government contracts could affect operating results
adversely.
12
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH, CASH EQUIVALENTS AND INVESTMENTS:
Conductus considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments, which consist primarily of foreign debt, and commercial paper,
are stated at fair market value. Management believes that the financial
institutions in which it maintains such deposits are financially sound and,
accordingly, minimal credit risk exists with respect to these deposits.
Additionally, cash and cash equivalents are held by two U.S. banks.
Other financial instruments, principally accounts receivable, long
term debt and other borrowings are considered to approximate fair value based
upon comparable market information available at respective balance sheet
dates.
Investments are deemed by management to be available-for-sale and
are reported at fair market value with net unrealized gains or losses
reported as a separate component of stockholders' equity. Available-for-sale
marketable securities with maturities less than one year from the balance
sheet date are classified as short-term and those with maturities greater
than one year from the balance sheet date are classified as long term.
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, deterioration and other factors in evaluating
net realizable value.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and depreciated on the
straight-line method over estimated useful lives of five years for equipment
and furniture and fixtures. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the useful life
of the assets or the related lease term. When assets are disposed of, the
cost and related accumulated depreciation are removed from the accounts and
the resulting gains and losses are included in results of operations.
Conductus periodically assesses the recoverability of assets by
determining whether the amortization of the asset balance over its remaining
life can be recovered through undiscounted future operating cash flows. The
amount of impairment, if any, is measured as the amount by which the net book
value exceeds the fair value of the asset.
REVENUE RECOGNITION:
Product revenues are generally recognized at the time of shipment.
Appropriate allowance is made for product returns and potential warranty
claims at the time of shipment.
RESEARCH AND DEVELOPMENT CONTRACTS:
Conductus has entered into contracts to perform research and
development for the U.S. government. Revenues from these contracts are
recognized utilizing the percentage-of-completion method measured by the
relationship of costs incurred to total contract costs. Cost of contract
revenues for the years ended December 31, 1996, 1997, and 1998 was
$13,178,000, $9,814,000 and $5,661,000, respectively. Costs include direct
engineering and development costs and applicable overhead.
13
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESEARCH AND DEVELOPMENT:
Internally funded research and development expenditures are charged
to operations as incurred.
INCOME TAXES:
Conductus utilizes the liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the liability method, deferred taxes are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
As permitted by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," Conductus accounts for grants of
equity instruments to employees using the intrinsic value method described in
Accounting Principles Board Opinion No. 25. All other grants are accounted
for using the fair value method described in Statement of Financial
Accounting Standards No. 123 with appropriate compensation expense
recognition in the statement of operations, where significant.
BASIC AND DILUTED LOSS PER SHARE:
In accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 128 "Earnings Per Share," a reconciliation
of the numerator and denominator of the basic and diluted net loss per share
is provided as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Numerator-basic and diluted net loss per share:
Net loss attributable to common shareholders........ $ (5,003,972) $ (7,543,381) $ (7,828,742)
Denominator-basic and diluted net loss per share:
Weighted average common shares...................... 6,263,446 6,896,649 7,088,339
Basic and diluted net loss per share................ $ (0.80) $ (1.09) $ (1.10)
</TABLE>
In the 1996, 1997, and 1998 computations, common equivalent shares
are excluded from the diluted loss per share as their effect is antidilutive.
Common equivalent shares, including common stock options, warrants and
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 antidilution were approximately 1,400,000, 1,101,000, and
4,074,000 for the years ended 1996, 1997 and 1998, respectively.
COMPREHENSIVE LOSS:
Conductus adopted Statement of Financial Accounting Standards No.
130, "Accounting for Comprehensive Income," during fiscal year ended 1998.
This statement establishes standards for reporting and display of
comprehensive income and its components (including revenues, expenses, gains
and losses) in a full set of financial statements. Conductus' unrealized
gains and losses on investments represent the only component of comprehensive
income which is excluded from net income for 1998 and prior years. Conductus'
comprehensive loss has been
14
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
presented in the financial statements. There were no tax effects allocated to
the component of other comprehensive loss as Conductus currently pays no
taxes and has not recognized any benefits.
RECLASSIFICATIONS:
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
RECENT PRONOUNCEMENTS:
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This standard
requires companies to capitalize qualifying computer software costs which are
incurred during the application development stage and amortize them over the
software's estimated useful life. Statement of Position 98-1 is effective for
fiscal years beginning after December 15, 1998.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." This standard requires companies to expense the costs
of start-up activities and organization costs as incurred. In general,
Statement of Position 98-5 is effective for fiscal years beginning after
December 15, 1998.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
new standards of accounting and reporting for derivative instruments and
hedging activities. This statement requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. Statement No. 133 will be effective for
fiscal years beginning after June 15, 1999. Conductus does not currently hold
derivative instruments or engage in hedging activities.
Conductus is currently studying the implications of these statements
and has not yet determined the impact of their adoption.
3. SUPPLEMENTAL CASH FLOW DISCLOSURE:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............................. $ 191,050 $ 173,571 $ 374,713
============= ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FUNDING ACTIVITIES:
Unrealized gain (loss) on investments, net.......................... $ 3,182 $ 3,808 $ --
============= ============ ============
OTHER NONCASH EXPENSES:
Compensation associated with stock options granted $ 27,001 $ 36,001 $ 35,639
============= ============ ============
Dividend accretion on preferred stock............................... $ -- $ -- $ 227,752
============= ============ ============
Amortization of discount on long term debt.......................... $ -- $ -- $ 107,913
============= ============ ============
Value of warrants issued in association with long term debt......... $ -- $ -- $ 268,671
============= ============ ============
</TABLE>
15
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS:
Investments, all of which are classified as available-for-sale, are
summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------------- ------------------------------
COST MARKET VALUE COST MARKET VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Debt securities:
Foreign debt.................................. $ 289,829 $ 289,829 $ 248,126 $ 248,126
Commercial paper.............................. 247,702 247,702 792,215 792,215
Other......................................... 4,587 4,587 298,468 298,468
Accrued interest.............................. 14,515 14,515 2,205 2,205
-------------- -------------- -------------- --------------
Total......................................... $ 556,633 $ 556,633 $ 1,341,014 $ 1,341,014
============== ============== ============== ==============
</TABLE>
At December 31, 1998, all scheduled maturities of investments are
within one year. Investments consisted primarily of foreign debt and
commercial paper bearing interest between 4.5% to 5.2% per annum are due to
mature between January 1999 and August 1999.
For the years ended December 31, 1996, 1997, and 1998 gross realized
gains and losses on sales of available-for-sale securities were not material.
The cost of securities sold is based on the specific identification method.
5. ACCOUNTS RECEIVABLE:
Accounts receivable, net, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1998
----------------- ----------------
<S> <C> <C>
U.S. government contract:
Unbilled
Recoverable costs and accrued profit on progress completed-- 726,342
not billed.................................................... $ 796,283 $
Unrecovered costs and estimated profits subject to future
negotiation--not billed........................................ 350,000 --
Billed............................................................ 793,382 297,525
Commercial........................................................... 363,822 378,562
Allowance for doubtful accounts...................................... (248,232) (292,635)
----------------- ----------------
$ 2,055,255 $ 1,109,794
================= ================
</TABLE>
Recoverable costs and accrued profit and unrecovered costs and
estimated profits not billed are comprised principally of amounts of revenue
recognized on contracts for which billings had not been presented to the
contract owners because the amounts were not billable at the balance sheet
date. It is anticipated such unbilled amounts receivable from the U.S.
government at December 31, 1998 will be billed over the next 120 days as
incremental increases to the contract are funded by the contract
administrator.
16
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVENTORIES:
Inventories, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1998
------------------ -------------------
<S> <C> <C>
Raw materials.............................................. $ 293,336 $ 441,130
Work in process............................................ 366,550 198,341
Finished goods............................................. 231,326 640,666
Allowance for excess and obsolete inventories.............. (280,845) (437,753)
------------------ -------------------
$ 610,367 $ 842,384
================== ===================
</TABLE>
7. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998
------------------ ------------------
<S> <C> <C>
Equipment.................................................. $ 6,859,265 $ 7,286,069
Leasehold improvements..................................... 1,590,605 1,715,096
Furniture and fixtures..................................... 424,824 431,861
Construction in process.................................... 307,386 --
------------------ ------------------
9,182,080 9,433,026
Accumulated depreciation and amortization.................. (6,481,486) (7,412,702)
----------------- ------------------
$ 2,700,594 $ 2,020,324
================== ==================
</TABLE>
8. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
Accrued consulting and professional....................... $ 138,155 $ 111,022
Accrued compensation...................................... 704,676 395,313
Preferred dividend payable................................ -- 116,752
Other accrued liabilities................................. 220,890 155,671
----------------- -----------------
$ 1,063,721 $ 778,758
================= =================
</TABLE>
17
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT AND OTHER BORROWINGS:
Our credit facilities consist of a loan from a leasing company, a
bank equipment term loan, a bank line of credit and a lease line of credit
for new equipment purchases. Obligations related to our credit facilities as
of December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
Loan payable to leasing company........................... $ -- $ 1,978,366
Bank equipment term loan payable.......................... 1,357,188 255,180
Bank line of credit....................................... 500,000 --
----------------- -----------------
Total.................................................. 1,857,188 2,233,546
Less: current portion.................................... 1,547,507 892,139
----------------- -----------------
Long term debt......................................... $ 309,681 $ 1,341,407
================= =================
</TABLE>
On April 22, 1998, Conductus entered into a $2,500,000 loan
agreement with a leasing company collateralized by substantially all of the
assets of the Company. In connection with the loan agreement, Conductus
granted warrants to purchase up to $125,000 of the Company's stock at a price
equal to the average closing bid price for the five days immediately
preceding and including April 22, 1998, $4.11. The effective interest rate,
including the impact of the warrants, is 13.98%. The warrants were valued
using the Noreen-Wolfson valuation model and have a term of five years. The
value of $101,681 assigned to the warrants is being amortized to interest
expense using the effective interest method.
The bank equipment term loan bears interest at the bank's prime rate
plus 2%, with principal and interest payments paid monthly. This term loan
matures on December 31, 1999 subject to renewal of the bank line of credit on
April 23, 1999. If the bank line of credit is not renewed, the equipment term
loan requires Conductus to collateralize the term loan with restricted cash
deposits.
On April 23, 1998, Conductus entered into a bank line of credit
agreement, which provides for borrowings of up to the lesser of $2,000,000 or
80% of eligible receivables. Borrowings under this facility bear interest at
the bank's prime rate plus 2.0% and are collateralized by accounts
receivable, equipment and other assets of Conductus. In connection with this
line of credit, Conductus granted warrants to purchase 15,000 shares, 10,000
shares and 25,000 shares of the Company's common stock to the bank on April
13, 1998, May 31, 1998 and June 30, 1998, respectively. Such grants were
based on the length of time the borrowings remained outstanding and are
exercisable at a price of $3.625 per share. The warrants were valued using
the Noreen-Wolfson valuation model and have a term of five years. The value
of $132,455 assigned to the warrants was charged to interest expense using
the effective interest method. As of December 31, 1998, there were no amounts
outstanding under this facility however, outstanding balances under the bank
equipment term loan reduce the amount available under the line of credit and,
based on 80% of eligible receivables there were no amounts available under
the line of credit at December 31, 1998. The line of credit is subject to
renewal on April 23, 1999.
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%. Conductus also
granted to the leasing company warrants to purchase up to 15,060 shares of
our 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. The warrants were valued using the Noreen-Wolfson valuation
model and have a term of five years. This line of credit prohibits Conductus
from paying cash dividends and expires on September 30, 1999.
18
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT AND OTHER BORROWINGS: (CONTINUED)
All of 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. Additionally,
the entire amounts outstanding could become due and payable immediately upon
default and those assets that are collateralized could be seized, unless the
lender waives such default. At December 31, 1998, Conductus was in compliance
with all financial covenants.
10. COMMITMENTS:
Conductus leases its administrative, sales, marketing, manufacturing,
research and development facilities under noncancelable operating leases
expiring in August 2000 and 2001. Under the terms of the leases, Conductus is
responsible for certain expenses and taxes.
Future minimum payments under these noncancelable leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 327,114
2000........................................................ 279,114
2001........................................................ 122,076
-----------------
$ 728,304
=================
</TABLE>
Rent expense was $438,531, $385,432 and $316,583 for the years ending
December 31, 1996, 1997, and 1998, respectively.
11. RESEARCH AND DEVELOPMENT ARRANGEMENTS:
Conductus is party to a number of research and development contracts,
generally short-term in nature, which are substantially all with various
agencies of the U.S. government. Credit risk related to accounts receivable
arising from such contracts is considered minimal.
The following describes some of the major programs undertaken by
Conductus:
COORDINATED RESEARCH PROGRAM:
In May 1993, Conductus and Hewlett-Packard Company modified a previous
coordinated research program agreement by entering into a new five-year
agreement. In connection with the modifying agreement, Conductus received
$1,000,000 in cash and $230,000 in equipment from Hewlett-Packard in exchange
for issuing 439,286 shares of its Series B preferred stock, which
automatically converted into 137,276 shares of common stock upon the close of
Conductus' initial public offering in August 1993.
This agreement requires Conductus and Hewlett-Packard to exchange
reviews and assessments of Conductus' technical and applications
developments, particularly with respect to their potential application to
Hewlett-Packard's products.
ADVANCED TECHNOLOGY PROGRAM:
In August 1992, Conductus, acting as administrator for and on behalf
of a joint venture formed to conduct research to develop a prototype hybrid
superconductor/semiconductor computer under the Department of Commerce
Advanced Technology Program, entered into a cost-sharing cooperative
agreement with the U.S. government. Under the terms of the five year
agreement, the U.S. government agreed to share costs of the joint venture's
research effort
19
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. RESEARCH AND DEVELOPMENT ARRANGEMENTS: (CONTINUED)
up to an aggregate of $7,450,000, including subcontractor costs. Revenue of
$1,613,000 and $714,000 was recognized under this contract for 1996 and 1997,
respectively. The contract was completed in 1997.
FOCUSED RESEARCH INITIATIVE:
In September 1995, Conductus entered into a contract with the Naval
Research Laboratory for the development of high-temperature superconductor
receiver coils for pulse magnetic resonance imaging prototype for screening
of breast cancer. Revenue of $1,473,000, $920,000 and $100,000 was recognized
under the contract for 1996, 1997, and 1998, respectively. CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS
LUCENT JOINT DEVELOPMENT AGREEMENT:
In April 1996, Conductus entered into a joint development and
licensing agreement with Lucent Technologies, Inc., to develop a
superconductive transceiver filter subsystem for the PCS market. Both
Conductus and Lucent provide technical support to the program. Each party
will retain rights to the intellectual property it develops under the
program, subject to certain nonexclusive licensing rights of the other party,
and jointly developed intellectual property will be jointly owned. Revenue of
$428,000, $1,080,000 and $152,000 was recognized under the agreement for
1996, 1997 and 1998, respectively.
DARPA CRYOPACKAGING PROGRAM:
In August 1996, Conductus entered into a contract with the Naval
Research Laboratory to solve technical problems associated with the support
and utilization of cryoelectronic components in advanced electronic systems
with particular emphasis on microwave communications. Revenue of $616,000,
$847,000 and $1,491,000 was recognized under this contract for 1996, 1997 and
1998, respectively.
MULTICHANNEL INTERCEPT SYSTEM PROJECT:
In June 1998, Conductus entered into a subcontract with Communications
Solutions, Inc., for the High Temperature Superconductor RF Multichannel
Intercept System Project. Conductus is responsible for the design and
fabrication of the filter/amplifier which will be integrated with the
receiver/controller being designed and fabricated by Communication Solutions,
Inc. The ultimate customer for the project is the U.S. government. Revenue of
$643,000 was recognized under the contract in 1998.
12. STOCKHOLDERS' EQUITY AND REDEEMABLE EQUITY:
CAPITAL STOCK:
Under the terms of Conductus' articles of incorporation, the board of
directors may determine the rights, preferences and terms of its authorized
but unissued preferred stock.
SERIES B PREFERRED STOCK:
On September 11, 1998 and September 22, 1998, Conductus 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
20
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY AND REDEEMABLE EQUITY: (CONTINUED)
not underwritten and raised net proceeds of $6,344,461. Certain affiliates of
Conductus 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, pursuant to Rule 506. The value of the warrants was
determined using the Noreen-Wolfson valuation model. The value of the
warrants is $772,000. The warrants have a term of five years and are
immediately exercisable at a price of $2.70 per share. The allocation of
proceeds between preferred stock and warrants results in a beneficial
conversion feature in the amount of $222,000. The value of the beneficial
conversion feature will be accreted as preferred dividends over six months.
DIVIDENDS. The holders of the Series B preferred stock shall be
entitled to receive cumulative dividends on each March 31, June 30, September
30, and December 31 following the date of issuance of such Series B preferred
stock at the rate of $0.162 per year. Cumulative dividends shall be paid upon
conversion of the Series B preferred stock or upon the liquidation or
dissolution of Conductus including deemed liquidations as set forth below.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution
or winding up of Conductus the holders of each share of Series B preferred
stock shall be entitled to receive prior and in preference to the holders of
the common stock, a per share amount equal to $2.70. After the payment of the
liquidation preferences to the holders of the Series B preferred stock, the
remaining assets shall be distributed ratably to the holders of the common
stock pro rata based on the number of shares of common stock held by each. A
merger, acquisition, sale of voting control or sale of substantially all of
our assets in which our stockholders do not own a majority of the outstanding
shares of the surviving corporation shall be deemed a liquidation.
CONVERSION. Holders of Series B preferred stock will have the right
beginning in March 1999 to convert their Series B preferred shares into
shares of common stock, subject to anti-dilution adjustments described more
fully below. Each share of preferred stock shall automatically be converted
into common stock, at the then applicable conversion price at the election of
holders of two-thirds of such Series B preferred stock.
ANTI-DILUTION ADJUSTMENTS. Each share of Series B preferred stock
shall initially be convertible into one share of common stock. The number of
shares of common stock into which shares of a given series of preferred stock
is convertible will be subject to adjustment in the following circumstances:
- any issuance of additional stock for consideration per share less
that the conversion price for such series of preferred stock,
- any subdivision or combination of the outstanding shares of common
stock,
- any distribution of (a) a common stock dividend, (b) other
distribution payable in common stock, or (c) a distribution
payable in our securities other than shares of common stock, or
- any adjustment of the common stock issuable upon the conversion of
the preferred stock, whether by recapitalization, reclassification
or otherwise.
VOTING. The Series B preferred stock will vote together with the
common stock and not as a separate class, except as specifically required by
law or by our certificate of incorporation. Each share of Series B preferred
stock shall have the number of votes equal to the number of shares of common
stock then issuable upon conversion of such shares of Series B preferred
stock.
PROTECTIVE PROVISIONS. The prior consent or approval of the holders of
at least two-thirds of the preferred stock, voting together as a single
class, is required for us to take specified actions affecting the rights of
such holders.
21
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY AND REDEEMABLE EQUITY: (CONTINUED)
1992 STOCK OPTION/STOCK ISSUANCE PLAN:
Under Conductus' stock option/stock issuance plan, as amended, a total
of 2,080,000 shares of common stock are authorized for issuance under the
plan as of December 31, 1998.
The plan is divided into three separate components: the discretionary
option grant program, the automatic option plan program and the stock
issuance program. Under the discretionary option grant program, eligible
individuals may be granted incentive options or nonstatutory options. The
exercise price of incentive stock options granted under the plan must be at
least equal to the fair market value of the common stock on date of grant.
The exercise price of nonstatutory options granted under the plan must be not
less than 85% of the fair market value of the common stock on date of grant.
Under the automatic option grant program, non-employee board members
automatically receive non-statutory options to purchase shares of common
stock. Each non-employee board member who first becomes a non-employee board
member at any time on or after January 23, 1995 is automatically granted at
the time of such initial election or appointment an option to purchase 15,000
shares of common stock. The options are immediately exercisable, subject to
Conductus' repurchase right which lapses with respect to twenty percent (20%)
of the optioned shares upon completion of twelve (12) months of board service
from the date of grant, and the remainder of the optioned shares in
forty-eight (48) equal monthly installments. Additionally each year the
non-employee board members receive a 3,000 share grant that vests over three
years. Under the stock issuance program eligible individuals are allowed to
purchase shares of Conductus' common stock at fair market value or for such
consideration as the compensation committee deems advisable.
Options granted under the plan may be immediately exercisable for all
the option shares, on either a vested or unvested basis, or may become
exercisable for fully vested shares in one or more installments over the
participant's period of service. Shares issued under the stock issuance
program may either be vested upon issuance or subject to a vesting schedule
tied to the participant's period of future service or to the attainment of
designated performance goals.
No option may be granted with a term exceeding ten years. However,
each such option may be subject to earlier termination within a designated
period following the optionee's cessation of service with the Company.
In 1992, Conductus issued options at below fair market value,
resulting in a compensation charge of $295,000, which is being amortized to
the statement of operations over the vesting period of the related options.
As of December 31, 1998, this entire balance had been amortized to the
Statement of Operations.
In 1998, the Company issued options at below fair market value,
resulting in a compensation charge of $20,346, which was charged to
operations in 1998.
A summary of the status of Conductus' stock option plans as of
December 31, 1996, 1997 and 1998 and changes during the periods ending on
these dates is presented below:
22
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
AVAILABLE WEIGHTED
FOR GRANT AVG.
UNDER OPTION EXERCISE
PLAN SHARES PRICE PER SHARE PRICE
-------------- -------------- ----------------------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996................. 279,038 1,022,308 $0.16 -- 7.25 $ 4.04
Additional shares authorized............. 300,000 -- -- --
Granted.................................. (528,000) 528,000 $6.50 -- 15.25 9.57
Exercised................................ -- (57,311) $0.16 -- 7.25 2.08
Canceled................................. 107,815 (107,815) $0.45 -- 11.50 6.09
-------------- -------------- ----------------------- --------------
Balance, December 31, 1996............... 158,853 1,385,182 $0.16 -- 15.25 $ 6.07
Additional shares authorized............. 200,000 -- -- --
Granted.................................. (644,000) 644,000 $3.44 -- 8.38 6.31
Exercised................................ (137,000) $0.16 -- 6.38 2.79
Canceled................................. 806,495 (806,495) $0.45 -- 15.25 7.98
-------------- -------------- ----------------------- --------------
Balance, December 31, 1997............... 521,348 1,085,687 $0.45 -- 13.00 $ 4.68
Granted.................................. (919,296) 919,296 $0.00 -- 4.25 3.26
Exercised................................ -- (111,955) $0.00 -- 0.88 0.59
Canceled................................. 887,938 (887,938) $0.88 -- 13.00 5.53
-------------- -------------- ----------------------- --------------
Balance, December 31, 1998............... 489,990 1,005,090 $0.44 -- 8.00 $ 3.55
============== ============== ======================= ==============
</TABLE>
At December 31, 1996, 1997 and 1998, vested options to purchase
477,522, 797,925 and 221,521, respectively, were unexercised and the weighted
average prices for the vested options were $3.21, $4.68 and $4.23,
respectively.
REPRICING OF STOCK OPTIONS:
On April 29, 1997, the plan administrator of the 1992 Stock
Option/Stock Issuance Plan adopted a plan for repricing of stock options
under which each employee-holder of outstanding options with an exercise
price above the closing price of Conductus' common stock on April 29, 1997,
was permitted to elect to exchange the existing options for new options,
subject to the same terms as the corresponding original stock options being
surrendered, except that the exercise price was equal to the closing price of
Conductus' common stock on April 29, 1997, and all shares were to be unvested
until April 29, 1998, after which they would be subject to the original
vesting schedule.
On April 13, 1998, the plan administrator adopted a plan for repricing
of stock options under which each employee-holder of outstanding options with
an exercise price above the closing price of Conductus' stock on April 13,
1998, was permitted to elect to exchange the existing options for new
options, subject to the same terms as the corresponding original stock
options being surrendered, except that the exercise price was equal to the
closing price of Conductus' common stock on April 13, 1998, and all shares
were to be unvested until April 13, 1999, after which they would be subject
to the original vesting schedule.
EMPLOYEE STOCK PURCHASE PLAN:
In July 1994, the Employee Stock Purchase Plan was adopted by the
board of directors. A total of 350,000 shares of common stock are authorized
for issuance under the plan as of December 31, 1998. The purpose of the plan
is to provide eligible employees of Conductus with a means of acquiring
common stock of Conductus through payroll deductions. The purchase price of
such stock under the plan cannot be less than 85% of the lower of the fair
market values on the specified purchase date and the beginning of the
offering period. During 1996, 1997 and 1998
23
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY AND REDEEMABLE EQUITY: (CONTINUED)
employees purchased 57,848, 50,686 and 28,070 shares for a total of
approximately $340,603, $247,667 and $65,661, respectively. At December 31,
1998, 111,606 shares were available for future grants under the plan.
STOCKHOLDER RIGHTS PLAN:
On January 22, 1998, the board of directors declared a dividend of one
preferred share purchase right for each outstanding share of common stock,
par value $0.0001 per share outstanding on February 16, 1998 to the
stockholders of record on that date. Each right entitles the registered
holder to purchase from Conductus one one-thousandth of a share of Series A
Junior participating preferred stock, par value $0.0001 per share, at a price
of $29.00 per one one-thousandth of a preferred share, subject to adjustment.
The description and terms of the rights are set forth in a rights agreement.
COMMON STOCK RESERVED:
At December 31, 1998, Conductus had reserved the following shares of
common stock:
<TABLE>
<S> <C>
Conversion of Series B Preferred..................................... 2,461,227
Employee Stock Purchase Plan......................................... 111,606
Warrants............................................................. 608,016
Option Plan.......................................................... 1,510,080
------------------
4,690,929
==================
</TABLE>
STOCK BASED COMPENSATION PLANS--VALUATION:
The following table summarizes information with respect to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE --------------------------------------
- ------------------- NUMBER REMAINING NUMBER
RANGE OF EXERCISE OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
PRICES 12/31/98 (YEARS) EXERCISE PRICE 12/31/98 EXERCISE PRICE
- -------------------
<S> <C> <C> <C> <C> <C>
$0.45 -- $0.88 57,374 $ 3.53 $ 0.60 57,374 $ 0.60
$1.44 -- $5.25 832,092 7.57 $ 3.35 376,841 $ 3.01
$5.38 -- $6.50 90,391 6.74 $ 6.19 90,391 $ 6.19
$6.56 -- $8.00 40,233 8.05 $ 7.05 40,233 $ 7.05
- ------------------ ------------------ -------------------------------------- ------------------ -------------------
$0.45 -- $8.00 1,020,090 7.29 $ 3.59 564,839 $ 3.56
=================== ================== ====================================== ================== ===================
</TABLE>
<PAGE>
The following information concerning Conductus' stock issuance plans
is provided in accordance with Statement of Financial Accounting Standards
No. 123. Conductus however continues to apply [APBO] 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plan.
The fair value of each option grant and purchase right has been
estimated on the date of grant using the Black-Scholes option pricing and
valuation model with the following weighted average assumptions used for
grants and purchase rights in 1996, 1997, and 1998.
<TABLE>
<CAPTION>
GROUP A GROUP B GROUP A GROUP B GROUP A GROUP B
------------- ------------ ------------ ------------ ------------ -------------
1996 1997 1998
-------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Risk-free interest rates............ 6.13% 5.50% 6.23% 5.50% 5.36% 5.17%
Expected life....................... 4.9 years 6 months 4.4 years 6 months 3.9 years 6 months
Volatility.......................... 0.76 0.76 0.83 0.83 1.05 1.05
Dividend yield...................... -- -- -- -- -- --
</TABLE>
24
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY AND REDEEMABLE EQUITY: (CONTINUED)
The weighted average expected life was calculated based on the
exercise behavior of each group. Group A represents all grants of options to
employees, officers, and directors. Group B represents the employees with
purchase rights under the Employee Stock Purchase Plan.
The weighted average fair value of those options granted in 1996,
1997, and 1998 was $6.19, $4.10, and $3.26. The weighted average fair value
of those purchase rights granted in 1996, 1997, and 1998 was $3.47,and $2.71,
and $2.34.
Had compensation cost for these plans been determined based on fair
value of the options at that grant date in 1996, 1997, and 1998 consistent
with the provisions of Statement of Financial Accounting Standards No. 123,
Conductus' net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net loss attributable to common shareholders....--As reported $ (5,004,000) $ (7,543,000) $ (7,829,000)
--Proforma... $ (6,057,000) $ (8,746,000) $ (9,067,000)
Basic and diluted net loss per share............--As reported $ (0.80) $ (1.09) $ (1.10)
--Proforma... $ (0.97) $ (1.27) $ (1.28)
</TABLE>
The above proforma effect may not be representative of the effects on
reported net income for future years as the proforma numbers presented do not
take into account the effect of equity grants made prior to 1995 or
additional future grants.
On March 8, 1996 Conductus issued warrants to acquire 15,000 shares of
common stock at a price of $11.25 per share.
13. 401(K) PROFIT SHARING PLAN:
Conductus has a 401(k) profit sharing plan which covers substantially
all employees. Under the plan, employees are permitted to contribute up to
15% of gross compensation not to exceed the annual 402(g) limitation for any
plan year. Discretionary contributions may be made by Conductus irrespective
of whether it has net profits. No contributions were made by Conductus during
the years 1994 through 1998.
14. ASSET DISPOSALS:
During the third quarter of 1997, the company disposed of the net
assets of its Systems and Instrumentation Division, and its nuclear magnetic
resonance product line. The following table summarizes the financial impact
of the transactions:
<TABLE>
<S> <C>
Proceeds form the sale of product lines and related assets........... $ 1,128,093
Net book value of assets sold:
Fixed assets..................................................... (3,306)
Inventories...................................................... (629,678)
Costs related to asset disposal...................................... (546,850)
------------------
Loss on asset sale................................................... $ (51,741)
==================
</TABLE>
25
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. INCOME TAXES:
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998
------------------ ------------------
<S> <C> <C>
Property and equipment, principally due to differences in depreciation... $ 198,000 $ 342,000
Accrued liabilities and other............................................ 248,000 441,000
Tax credit carryforwards................................................. 1,191,000 1,006,000
Capitalized research and development expense............................. 76,000 380,000
Net operating loss carryforward.......................................... 13,028,000 15,411,000
Valuation allowance...................................................... (14,741,000) (17,580,000)
------------------ ------------------
Net deferred tax asset................................................... $ -- $ --
================== ==================
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax
assets in future tax years, Conductus has placed a valuation allowance against
its otherwise recognizable net deferred tax assets.
At December 31, 1998, Conductus had approximately $42,865,000 and
$14,354,000 in net operating loss carry forwards for federal and state income
purposes, respectively. These expire in the years 1999 through 2018. The
utilization of Conductus' net operating loss carry forwards may be subject to
certain limitations upon certain changes in ownership, as defined.
16. BUSINESS SEGMENT AND MAJOR CUSTOMERS:
Conductus has adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," effective for fiscal years beginning
after December 31, 1997. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." Statement No. 131 changes current practice under Statement No. 14
by establishing a new framework on which to base segment reporting and also
requires interim reporting of segment information.
Conductus markets its products primarily to customers in the United
States and Japan in the wireless industry. Management uses one measurement of
profitability and does not disaggregate its business for internal reporting.
Commercial sales to one customer as a percentage of revenues were 12%
($1,560,000), 9% ($896,000) and 2% ($76,000), in 1996, 1997 and 1998,
respectively. Receivables from this customer totalled $183,000 at December 31,
1997. There were no outstanding receivables from this customer at December 31,
1998.
Conductus' revenues by geographic area are summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
USA........................................................ $ 10,550,000 $ 8,318,000 $ 4,485,000
Japan...................................................... 1,560,000 896,000 146,000
Rest of the world.......................................... 433,000 240,000 58,000
================ ================ ================
$ 12,543,000 $ 9,454,000 $ 4,689,000
================ ================ ================
</TABLE>
26
<PAGE>
CONDUCTUS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
17. EFFECTS OF RESTATEMENTS
As described in Note 12, 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. Under such circumstances, 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 1998 financial statements 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 December 31, 1998.
The restatement of the 1998 financial statements 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
December 31, 1998, as previously reported and as restated, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Redeemable equity - previously reported........................... $ --
Adjustment related to the presentation of the Series B
convertible preferred stock as redeemable.................... 5,683,461
-----------
As restated....................................................... $ 5,683,461
-----------
Stockholders' equity - previously reported........................ $ 3,363,669
Adjustment related to the presentation of the Series B
convertible preferred stock as redeemable.................... (5,683,461)
As restated....................................................... $(2,319,792)
-----------
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Conductus, Inc.:
Our audits of the financial statements referred to in our report dated
February 19, 1999 (except for Note 17, which is as of February 15, 2000)
appearing on page 7 also included an audit of the financial statement schedule
listed in Item 14[a]2 of this Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read on conjunction with the related financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
February 19, 1999
S-1
<PAGE>
SCHEDULE II
CONDUCTUS, INC. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COST AND OTHER BALANCE AT
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
DESCRIPTION ------------- ------------- ------------- ------------- --------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------- ------------- ---------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts.......... $ 50,000 $ -- $ -- $ -- $ 50,000
Allowance for excess and obsolete
inventory.............................. $ 81,000 $ -- $ -- $ -- $ 81,000
Year ended December 31, 1997:
Allowance for doubtful accounts.......... $ 50,000 $ 273,232 $ -- $ (75,000) $ 248,232
Allowance for excess and obsolete
inventory.............................. $ 81,000 $ 249,845 $ -- $ (50,000) $ 280,845
Year ended December 31, 1998:
Allowance for doubtful accounts.......... $ 248,232 $ 53,744 $ -- $ (9,341) $ 292,635
Allowance for excess and obsolete
inventory.............................. $ 280,845 $ 156,908 $ -- $ -- $ 437,753
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT NO DESCRIPTION
---------- -----------
2.1(1) Stock Exchange Agreement dated as of May 28, 1993, between the
Company and Tristan Technologies, Inc.
3.1(2) Restated Certificate of Incorporation.
3.2(3) Restated Bylaws.
3.3(4) Certificate of Designation of Series B Preferred Stock.
4.1(5) Stockholder Rights Plan.
10.1(1) 1987 Stock Option Plan.
10.2(1) Amended 1989 Stock Option Plan.
10.3(6) 1992 Stock Option/Stock Purchase Plan.
10.4(7) 1994 Employee Stock Purchase Plan.
10.5(1) Second Amended and Restated Registration Rights Agreement dated
June 3, 1993.
10.6(4) Form of Series B Preferred Stock and Warrant Purchase Agreement,
dated September, 1998, and September 22, 1998, between the
Company and Series B Investors.
10.7(4) Form of Warrant to Purchase Common Stock between the Company and
Series B Investors.
10.8(8) Employment Agreement dated May 3, 1994 between Registrant and
Mr. Charles E. Shalvoy.
10.9(1) Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.10(1)+ Coordinated Research Program Agreement dated October 14, 1988
and Amendment dated May 26, 1991 between the Registrant and
Hewlett-Packard Company ("H-P"), as amended by the Agreement
between Registrant and Hewlett-Packard Company dated June 2,
1993.
10.11(9) Collaboration Agreement between Registrant and CTI dated
September 19, 1995.
10.12(9) High Temperature Superconductor Thin-Film Manufacturing Alliance
Agreement among Registrant, Superconductor Technologies, Inc.,
Stanford University, Georgia Research Corporation,
Microelectronic Control and Sensing Incorporated, IBIS, Focused
Research and BDM Federal dated November 17, 1995.
10.13(10)+ Superconducting Filter Technology Joint Development Agreement
dated April 25, 1996 between the Registrant and Lucent
Technologies Inc.
10.14(4) Engagement Letter between the Company and Sutro and Co. Inc.,
dated March 24, 1998.
10.15(4) Amendment to Engagement Letter between the Company and Sutro and
Co. Inc., dated September 2, 1998.
10.16(4) Engagement Letter between the Company and Davenport and Co.,
dated September 2, 1998.
10.17(4) Master Lease Agreement between the Company and Leasing
Technologies International, Inc., dated June 15, 1998.
10.18(1) Lease Agreement dated May 3, 1993 between the Registrant and
Mozart-McKee Limited Partnership for Sunnyvale facilities.
10.19(8) Lease Agreement dated December 8, 1994 between Registrant and
Mozart-McKee Limited Partnership for Sunnyvale facilities.
10.20(8) Business Loan Agreement dated August 15, 1994 between Registrant
and Silicon Valley Bank for working capital credit facility and
term loan facility.
10.21(11) Loan Modification Agreement dated June 30, 1997, between
Registration and Silicon Valley Bank modifying the Business Loan
Agreement dated August 15, 1994.
10.22(11) Loan Modification Agreement dated November 12, 1997, between
Registration and Silicon Valley Bank modifying the Business Loan
Agreement dated August 15, 1994.
10.23(11) Loan Modification Agreement dated December 23, 1997, between
Registration and Silicon Valley Bank modifying the Business Loan
Agreement dated August 15, 1994.
10.24(12) Business Loan Agreement dated March 8, 1996 between Registrant
and Silicon Valley Bank for working capital credit facility and
term loan facility.
10.25(13) Business Loan Agreement dated December 27, 1996 between
Registrant and Silicon Valley Bank for working capital credit
facility and term loan facility.
10.26(4) Master Loan and Security Agreement between the Company and
Transamerica Business Credit Corporation, dated June 26, 1998.
10.27(4) Stock Subscription Warrant Agreement between the Company and
Transamerica Business Credit Corporation, dated June 26, 1998.
<PAGE>
10.28(14) Silicon Valley Bank Loan Agreement.
10.29(14) Collateral Assignment, Patent Mortgage and Security Agreement
between the Company and Silicon Valley Bank.
10.30(11)+ Asset Purchase Agreement dated July 9, 1997 between Registrant
and Bruker Instruments, Inc. for sale of assets of Registrant's
NMR Probe business.
10.31(11) Asset Purchase Agreement dated August 15, 1997 between
Registrant and Neocera, Inc. for sale of Registrant's assets
related to its temperature controller business.
10.32(11) Asset Purchase Agreement dated September 3, 1997, between
Registrant and Niki Glass Ltd. for sale of Registrant's assets
related to portions of its instruments business.
23.1 Consent of Independent Accountants.
24.1* Power of Attorney.
27.1 Restated Financial Data Schedule.
- ------------------
* Previously filed.
+ Confidential treatment granted or requested as to certain portions of
these exhibits.
(1) Incorporated herein by reference to the Company's Registration Statement
on Form S-1 (Number 33-64020), filed with the SEC on May 15, 1996, as
amended.
(2) Incorporated herein by reference to the Company's 1993 Annual Report on
Form 10-K.
(3) Incorporated herein by reference to the Company's Report on Form 8-K,
filed with the SEC on January 22, 1998.
(4) Incorporated herein by reference to the Company's Form 10-Q, filed with
the SEC on November 16, 1998.
(5) Incorporated herein by reference to the Company's Registration Statement
on Form 8-A (Number 000-19915), filed with the SEC on January 29, 1998.
(6) Incorporated herein by reference to the Company's Registration Statement
on Form S-8 (Number 333-41099), filed with the SEC on November 26, 1997.
(7) Incorporated herein by reference to the Company's Registration Statement
on Form S-8 (Number 033-82454), filed with the SEC on August 5, 1994.
(8) Incorporated herein by reference to the Company's 1994 Annual Report on
Form 10-K.
(9) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Number 333-3815), filed with the SEC
on June 17, 1996.
(10) Incorporated herein by reference to the Company's Registration Statement
on Form S-1 (Number 333-3815), filed with the SEC on May 15, 1996, as
amended.
(11) Incorporated herein by reference to the Company's 1997 Annual Report on
Form 10-K.
(12) Incorporated herein by reference to the Company's 1995 Annual Report on
Form 10-K.
(13) Incorporated herein by reference to the Company's 1996 Annual Report on
Form 10-K.
(14) Incorporated herein by reference to the Company's Form 10-Q, filed with
the SEC on May 14, 1998.
<PAGE>
EXHIBIT 23.1
CONDUCTUS, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of Conductus, Inc. on Form S-1 (File No. 333-70373) and on Form S-8
(File Nos. 333-41099 and 333-04672, 033-82454, 033-79946 and 033-74478) of
our reports dated February 19, 1999, except for Note 17, which is as of
February 15, 2000, on our audits of the financial statements and financial
statement schedule which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,547,169
<SECURITIES> 1,341,014
<RECEIVABLES> 1,109,794
<ALLOWANCES> 0
<INVENTORY> 842,384
<CURRENT-ASSETS> 4,985,831
<PP&E> 9,433,026
<DEPRECIATION> 7,412,702
<TOTAL-ASSETS> 7,034,955
<CURRENT-LIABILITIES> 2,329,879
<BONDS> 0
5,683,461
0
<COMMON> 714
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,034,955
<SALES> 0
<TOTAL-REVENUES> 4,688,786
<CGS> 0
<TOTAL-COSTS> 11,820,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 529,961
<INCOME-PRETAX> (7,600,990)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,600,990)
<EPS-BASIC> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
