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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(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, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-22302
ILLINOIS SUPERCONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3688459
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
451 KINGSTON COURT
MT. PROSPECT, ILLINOIS 60056
(847) 391-9400
(Address and telephone number of principal executive offices)
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
--- ---
On November 14, 2000, 39,950,796 shares of the registrant's Common Stock,
par value $0.001 per share, were outstanding.
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TABLE OF CONTENTS
<TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................................................... 3
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999.................................................................................... 3
Condensed Consolidated Statements of Operations (unaudited) for the three months
ended September 30, 2000 and 1999, and the nine months ended September 30, 2000
and 1999............................................................................................. 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2000 and 1999.................................................................... 5
Notes to Condensed Consolidated Financial Statements................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................... 13
Item 2. Changes in Securities and Use of Proceeds.............................................................. 15
Item 3. Defaults Upon Senior Securities........................................................................ *
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 15
Item 5. Other Information...................................................................................... *
Item 6. Exhibits and Reports on Form 8-K....................................................................... 16
</TABLE>
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* No reportable information under this item.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ILLINOIS SUPERCONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,046,326 $ 723,711
Inventories 1,833,698 1,092,713
Accounts receivable, net 8,179 175,801
Prepaid expenses and other 207,375 428,475
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Total current assets 3,095,578 2,420,700
Property and equipment:
Property and equipment 8,559,898 8,089,169
Less: accumulated depreciation (6,039,006) (5,433,808)
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Net property and equipment 2,520,892 2,655,361
Restricted certificates of deposit 263,705 291,575
Intangible assets, net 13,719,007 671,523
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Total assets $ 19,599,182 $ 6,039,159
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY):
Current liabilities:
Accounts payable $ 486,075 $ 990,913
Accrued liabilities 520,772 589,043
Current portion of Senior Convertible Notes, net of discount 4,132,747 -
Current portion of other long-term debt 9,383 9,020
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Total current liabilities 5,148,977 1,588,976
Senior Convertible Notes, net of discount 7,848,064 13,002,068
Accrued interest on Senior Convertible Notes 825,857 638,743
Other long-term debt, less current portion 1,940 10,074
Deferred occupancy costs 90,859 91,010
Stockholders' equity (net capital deficiency):
Preferred stock; 300,000 shares authorized; No shares
issued and outstanding at September 30, 2000 and December
31, 1999 - -
Common stock ($.001 par value); 250,000,000 shares
authorized; 38,862,600 and 15,753,001 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively 38,863 15,753
Additional paid-in capital 101,951,314 74,249,643
Unearned compensation (1,933,655)
Notes receivable from stockholders - (680,696)
Accumulated deficit (94,373,037) (82,876,412)
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Total stockholders' equity (net capital deficiency) 5,683,485 (9,291,712)
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Total liabilities and stockholders' equity (net capital
deficiency) $ 19,599,182 $ 6,039,159
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</TABLE>
NOTE: The condensed consolidated balance sheet as of December 31, 1999 has been
derived from the audited financial statements for that date but does not include
all of the information and accompanying notes required by generally accepted
accounting principles for complete financial statements.
See the accompanying Notes which are an integral part of the Condensed
Consolidated Financial Statements.
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ILLINOIS SUPERCONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 22,000 $ 1,126,733 $ 209,163 $ 1,955,792
Costs and expenses:
Cost of sales 486,569 2,135,816 1,465,814 4,091,392
Research and development 959,535 402,548 1,979,656 1,364,168
Selling and marketing 361,048 307,072 760,852 1,210,844
General and administrative 1,913,435 696,577 4,480,444 2,130,452
------------ ------------ ------------ ------------
Total costs and expenses 3,720,587 3,542,013 8,686,766 8,796,856
------------ ------------ ------------ ------------
Operating loss (3,698,587) (2,415,280) (8,477,603) (6,841,064)
Other income (expense):
Interest income 33,579 31,921 125,446 118,967
Non-cash interest expense on
Senior Convertible Notes (1,614,809) (247,854) (3,099,441) (601,132)
Other interest expense (1,463) (1,477) (18,606) (8,259)
Other income (expense), net (2,164) - 1,876 -
------------ ------------ ------------ ------------
(1,584,857) (217,410) (2,990,725) (490,424)
------------ ------------ ------------ ------------
Loss before extraordinary item (5,283,444) (2,632,690) (11,468,328) (7,331,488)
Extraordinary item - debt
extinguishment - - (28,297) (73,000)
------------ ------------ ------------ ------------
Net loss $ (5,283,444) $ (2,632,690) $(11,496,625) $ (7,404,488)
============ ============ ============ ============
Basic and diluted loss per share
before extraordinary item $ (0.16) $ (0.21) $ (0.37) $ (0.58)
Extraordinary item - debt
extinguishment - - - (0.01)
------------ ------------ ------------ ------------
Basic and diluted loss per share $ (0.16) $ (0.21) $ (0.37) $ (0.59)
============ ============ ============ ============
Weighted average number of common
shares outstanding 33,452,290 12,760,908 31,140,954 12,651,819
============ ============ ============ ============
</TABLE>
See the accompanying Notes which are an integral part of the Condensed
Consolidated Financial Statements.
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ILLINOIS SUPERCONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
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OPERATING ACTIVITIES:
Net loss $(11,496,625) $ (7,404,488)
Adjustments to reconcile net loss to net cash used in operating
activities:
Extraordinary item - debt extinguishment 28,297 73,000
Depreciation and amortization 899,997 738,422
Gain on sale of property and equipment - (30,662)
Write-off of capitalized patent costs 31,775 -
Non-cash interest expense on Senior Convertible Notes 3,099,441 601,132
Non-cash compensation expense 373,948 -
Changes in operating assets and liabilities (516,253) 841,576
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Net cash used in operating activities (7,579,420) (5,181,020)
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INVESTING ACTIVITIES:
Decrease in restricted certificates of deposit 27,870 -
Payment of patent costs (122,411) (53,459)
Payment of deferred acquisition costs, net of cash acquired (62,297) -
Proceeds from sale of property and equipment - 58,006
Acquisition of property and equipment (74,607) (112,566)
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Net cash used in investing activities (231,445) (108,019)
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FINANCING ACTIVITIES:
Proceeds from issuance of Senior Convertible Notes 4,000,000 3,300,000
Exercise of stock options 134,924 204
Exercise of warrants 4,006,327 -
Net (decrease) increase in other long-term debt (7,771) 7,674
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Net cash provided by financing activities 8,133,480 3,307,878
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Increase (decrease) in cash and cash equivalents 322,615 (1,981,161)
Cash and cash equivalents at beginning of period 723,711 2,152,595
------------ ------------
Cash and cash equivalents at end of period $ 1,046,326 $ 171,434
============ ============
</TABLE>
See the accompanying Notes which are an integral part of the Condensed
Consolidated Financial Statements.
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ILLINOIS SUPERCONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Illinois Superconductor Corporation and its wholly-owned subsidiary, Spectral
Solutions, Inc. (See Note 2) (collectively referred to as the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the financial
statements, including the notes thereto, included in the Illinois Superconductor
Corporation Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
NOTE 2 - ACQUISITION OF SPECTRAL SOLUTIONS, INC.
On August 8, 2000, the Company acquired all of the outstanding shares of
capital stock of Spectral Solutions, Inc. ("SSI"), in exchange for 3,440,526
shares of the Company's common stock and the assumption of certain options held
by SSI shareholders. SSI develops and manufactures cryogenic superconducting RF
front-end systems for the wireless industry. The acquisition has been accounted
for using the purchase method of accounting. Accordingly, the purchase price of
SSI has been allocated to the assets and liabilities acquired based on their
relative fair values. Goodwill is being amortized using the straight-line method
over an 8-year period. Results of operations of SSI have been included in the
condensed consolidated financial statements from the date of acquisition. The
relevant closing price of the Company's stock for this transaction was $4.0938
per share.
The purchase price was determined as follows:
Common stock issued $ 14,085,000
Acquisition costs 160,000
SSI stock options exchanged for Company options 134,000
------------
Total purchase price $ 14,379,000
============
The purchase price was allocated to the assets and liabilities acquired as
follows:
Current assets $ 1,108,000
Property and equipment 385,000
Intangible assets (incl. Goodwill) 13,285,000
Current liabilities (399,000)
------------
Total purchase price $ 14,379,000
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The following unaudited PRO FORMA results of operations are shown as if the
SSI acquisition occurred as of January 1, 1999 and gives effect to the
amortization of goodwill resulting from the acquisition:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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<S> <C> <C>
Pro forma net sales $ 231,000 $ 2,431,000
Pro forma loss before extraordinary item (14,671,000) (26,343,000)
Pro forma net loss (14,699,000) (27,089,000)
Pro forma basic and diluted loss per share before
extraordinary item $ (0.43) $ (1.62)
Pro forma basic and diluted net loss per share $ (0.43) $ (1.66)
</TABLE>
NOTE 3 - NET LOSS PER SHARE
Basic and diluted net loss per share is computed based on the weighted
average number of common shares outstanding. Common shares issuable upon the
exercise of options and warrants and conversion of the Company's Senior
Convertible Notes are not included in the per share calculations since the
effect of their inclusion would be antidilutive.
NOTE 4 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
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<S> <C> <C>
Raw materials................ $ 1,571,000 $ 736,000
Work in process.............. 65,000 -
Finished product............. 198,000 357,000
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$ 1,834,000 $ 1,093,000
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</TABLE>
NOTE 5 - SENIOR CONVERTIBLE NOTES
On May 15, 1998, March 31, 1999, November 5, 1999, and December 29, 1999,
the Company issued and sold $15,650,000 in aggregate principal amount of Senior
Convertible Notes ("the Notes") and issued detachable warrants to purchase an
aggregate of 6,260,000 shares of the Company's common stock.
On March 27, 2000, the Company issued and sold $4,000,000 in aggregate
principal amount of Senior Convertible Notes due January 2, 2001 (the "March
2000 Notes") and issued warrants (the "March 2000 Warrants") to purchase
1,600,000 shares of the Company's common stock. The March 2000 Notes bear
interest at 10% per annum, payable in kind or in cash, at the Company's option.
Holders of the March 2000 Notes may convert the principal amount, plus quarterly
accrued interest not paid in cash, if any, into shares of the Company's common
stock at a fixed conversion price of $0.25 per share. The March 2000 Warrants
have been exercised as of November 1, 2000.
Since the March 2000 Notes were issued with detachable warrants with a fair
value of $11,312,000 (calculated using the Black-Scholes Approximation Formula),
the entire $4,000,000 of proceeds received for the March 2000 Notes was
allocated to additional paid-in capital, creating a discount to the debt. This
discount is being recognized
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as a charge to interest expense using the effective interest method over the
nine month term of the March 2000 Notes.
At September 30, 2000, the amount of outstanding Senior Convertible Notes,
net of discounts and including accrued interest, recognized in the condensed
consolidated balance sheet is as follows:
Notes, due May 15, 2002 and bearing interest at 2% $ 972,000
Notes, due May 15, 2002 and bearing interest at 6% 6,876,000
Notes, due January 2, 2001 and bearing interest at 10% 3,755,000
Accrued interest 1,204,000
-------------
$ 12,807,000
=============
Payments due on the Senior Convertible Notes by maturity date, including
interest accrued through September 30, 2000, are as follows at September 30,
2000:
Notes, due January 2, 2001 $ 6,378,000
Notes, due May 15, 2002 9,183,000
-------------
$ 15,561,000
=============
Interest on the Senior Convertible Notes is payable in kind or in cash, at
the Company's option. At any time, holders of the Notes may convert the
principal amount, plus quarterly accrued interest not paid in cash (if any) into
shares of the Company's common stock at a fixed conversion price of $0.25 per
share. All of the Company's assets are pledged as security to the Notes.
Additionally, the Note purchase agreements contain several covenants which limit
the Company's ability to incur additional indebtedness and to create any further
lien, pledge, or encumbrance on any assets of the Company.
As part of its overall financing strategy, the Company expects that the
remaining Notes due January 2, 2001 will be converted into shares of common
stock during the fourth quarter of 2000.
During the nine months ended September 30, 2000, $4,120,222 in aggregate
principal amount of Senior Convertible Notes, plus accrued interest, was
converted into 11,562,457 shares of common stock. During the nine months ended
September 30, 1999, $200,000 in aggregate principal amount of Senior Convertible
Notes, plus accrued interest, was converted into 188,363 shares of common stock.
For the nine months ended September 30, 2000 and 1999, the Company
recognized extraordinary items of $28,297 and $73,000, respectively, in the
condensed statements of operations related to the Senior Convertible Notes.
The Company recognized $1,614,809 and $247,000 of non-cash interest charges
for the three months ended September 30, 2000 and 1999, respectively, and
$3,099,441 and $601,000 of non-cash interest charges for the nine months ended
September 30, 2000 and 1999. These non-cash interest charges were a result of
the amortization of discounts and deferred financing fees and the accrual of
payable interest related to the Notes.
It is not practicable to estimate the fair value of the Senior Convertible
Notes at September 30, 2000 because a quoted market price for such securities is
not available, the Company has not developed a valuation model necessary to make
such an estimate, and the cost of obtaining an independent valuation would be
prohibitive.
NOTE 6 - SETTLEMENT OF SHAREHOLDER NOTE RECEIVABLE
On February 22, 2000, the Company reached a settlement agreement with the
borrowers of $680,696 in principal amount of shareholder notes receivable. The
Company agreed to release the borrowers' obligations under the notes in return
for the borrowers' surrender of warrants to purchase 210,196 shares of common
stock of the Company held by them. As a result of this settlement, the Company
recorded a charge of $822,776 to additional
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paid-in capital in February 2000, reflecting the carrying amount of the notes
and related interest accrued, which approximates the fair value of the warrants
surrendered.
NOTE 7 - STOCK OPTIONS AND WARRANTS
On February 15, 2000, the Board of Directors of the Company granted to
certain executive level employees (i) an aggregate of 440,000 Deferred Stock
Units ("DSU's") and (ii) an aggregate of 585,000 non-qualified stock options
under the Company's 1993 Amended and Restated Stock Option Plan (the "Plan").
The DSU's represent the right to receive an equivalent number of restricted
shares of the Company's common stock. The non-qualified stock options have an
exercise price of $4.1875 per share (the closing price of the Company's common
stock on February 15, 2000). On March 24, 2000, the Board of Directors of the
Company also granted to a certain executive level employee 500,000 non-qualified
stock options under the Plan. The exercise price for these non-qualified stock
options is $6.6094 (the closing price of the Company's common stock on March 24,
2000). Both the DSU's and non-qualified stock options vest at the rate of 10%,
20%, 30% and 40% on the first, second, third and fourth anniversary,
respectively, of the date of grant. The executive level employees have the right
to elect to defer receipt of the common stock subject to the DSU's to a later
date.
The DSU's and the non-qualified stock options were granted subject to
approval by the Company's stockholders of an amendment to the Company's Charter
as well as amendment to the Company's 1993 Stock Option Plan. On July 18, 2000,
the Company's stockholders' approved the amendment to the Company's Charter and
the amendment to the Plan. Amortization of relevant non-cash compensation
expense is to occur during the vesting periods of the relative compensation
provisions. In the third quarter of 2000, the Company began to recognize
compensation expense for the DSU's over the vesting period (4 years) based on
their intrinsic value of $1,925,000, which is the number of DSU's multiplied by
the closing price of the Company's common stock on July 18, 2000, the
measurement date ($4.38 per share).
On July 17, 2000 (the measurement date) 200,000 options were granted to a
non-Company advisor in connection with the establishment of a sales office in
Japan. The options have an exercise price of $4.9375, the price of the common
stock at the measurement date. According to the Black-Scholes valuation model,
the value of each option is $4.53. The options vesting period is 25%
immediately, with the remaining options vesting pro-rata over a three year
period. $906,000 of non-cash compensation expense is to be amortized during the
life of the options, with $274,000 expensed through the third quarter of 2000.
During the nine months ended September 30, 2000, warrants for an aggregate
of 7,915,574 shares of the Company's common stock were exercised for proceeds of
$4,006,327. No warrants were exercised during the nine months ended September
30, 1999.
On July 1, 2000, the Financial Accounting Standards Board Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25, was adopted by the Company. The
Interpretation requires that stock options that have been modified to reduce the
exercise price be accounted for as variable. The Company repriced options on May
10, 1999 and in accordance with generally accepted accounting principles has
previously accounted for the repriced stock options as fixed. As a result of
adopting the Interpretation, the Company is required to apply variable
accounting to these options. If the market price of the Company's stock
increases above the July 1, 2000, level, it will recognize additional
compensation expense equal to the increase in stock price multiplied by the
number of repriced options. No additional expense will be recognized if the
stock does not exceed the July 1, 2000 value. However, the impact cannot be
determined as it is dependent on the change in the market price of the stock
from July 1, 2000 until the stock options are exercised, forfeited, or expire
unexercised. Because the stock price on September 30, 2000 was below that of
July 1, 2000, no expense has been recognized.
On July 18, 2000, the stockholders of the Company approved an increase in
the total authorized capital stock of the Company from 60,100,000 shares to
250,300,000 shares. The number of authorized shares of common stock was
increased from 60,000,000 shares to 250,000,000 shares, and the number of
authorized shares of preferred stock was increased from 100,000 shares to
300,000 shares.
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NOTE 8 - SUBSEQUENT EVENTS
On October 12, 2000, $250,000 in aggregate principal amount of senior
convertible notes, plus accrued interest, was converted into 1,048,664 shares of
common stock. On October 20, 2000, the Company sold 1,818,182 shares of common
stock to certain investors at $2.75 per share (a 10% premium to the market price
of $2.50 on that date), for gross proceeds of $5,000,000.
On November 1, 2000, the Company announced that it had entered into an
agreement to acquire Lockheed Martin Canada's Adaptive Notch Filtering ("ANF")
Business Unit. The Lockheed Martin Canada ANF unit has developed a unique
technology designed to monitor and suppress sources of narrow-band interference
that can reduce quality and capacity of CDMA-based wireless systems. The
purchase of the ANF business involves the issuance to Lockheed Martin Canada of
2.5 million shares of ISCO common stock, and is subject to certain closing
conditions. Lockheed Martin Canada will appoint one member to the ISCO Board of
Directors.
NOTE 9 - LEGAL PROCEEDINGS
See "Part II. - Other Information, Item 1. Legal Proceedings" for a
description of outstanding legal proceedings involving the Company. The Company
believes that the resolution of the matters discussed therein will not have a
material adverse effect on the financial condition, results of operations or
cash flows of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Because the Company wants to provide investors with more meaningful and
useful information, this Report contains, and incorporates by reference, certain
"forward-looking statements." Such forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and reflect the Company's current expectations regarding the future results
of operations, performance and achievements of the Company. The Company has
tried, wherever possible, to identify these forward-looking statements by using
words such as "anticipates," "believes," "estimates," "expects," "plans,"
"intends," and similar expressions. These statements reflect the Company's
current beliefs and are based on information currently available to it.
Accordingly, these statements are subject to certain risks, uncertainties and
contingencies, which could cause the Company's actual results, performance or
achievements for 2000 and beyond to differ materially from those expressed in,
or implied by, such statements. These factors include, among others and without
limitation, the following: the Company's ability to obtain additional financing
in the future; the Company's history of net losses and the lack of assurance
that the Company's earnings will be sufficient to cover fixed charges in the
future; the degree to which the Company is leveraged and the restrictions
imposed on the Company under its existing debt instruments, all of which may
adversely affect the Company's ability to finance its future operations; the
potential lack of acceptance for the Company's products; volatility of the
Company's common stock price; the timing and receipt of customer orders; the
Company's ability to attract and retain key personnel; and the effects of legal
proceedings. A more complete description of these risks, uncertainties and
assumptions is included in the Company's filings with the Securities and
Exchange Commission, including those described under the heading "Risk Factors"
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999. The Company undertakes no obligation to update or revise these
forward-looking statements to reflect events or circumstances after the date of
this Report or to reflect the occurrence of unanticipated events, new events, or
new uncertainties.
GENERAL
The following is a discussion and analysis of the historical results of
operations and financial condition of the Company and factors affecting the
Company's financial resources. This discussion should be read in conjunction
with the financial statements, including the notes thereto, set forth herein
under "Part I. - Financial Information" and "Item 1. Financial Statements" and
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999. This discussion contains forward-looking statements which involve
certain risks, uncertainties and contingencies which could cause the Company's
actual results, performance or achievements to differ materially from those
expressed, or implied, by such forward-looking statements. Such forward-looking
statements are qualified by reference to, and should be read in conjunction
with, the language set forth above.
The Company was founded in 1989 by ARCH Development Corporation, an
affiliate of the University of Chicago, to commercialize superconducting
technologies developed initially at Argonne National Laboratory. The Company
uses its patented and proprietary high temperature superconducting materials
technologies to develop and manufacture radio frequency ("RF") front-end
products, which are designed to enhance the quality, capacity, coverage, and
flexibility of cellular, personal communications services ("PCS") and other
wireless telecommunications services.
During the third quarter of 2000, the Company opened a sales office in
Japan. This event related to the continued focus of the Company on the upcoming
3G marketplace opportunities which are expected to begin in Japan in the near
future.
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RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999
The Company's net sales decreased $1,105,000, or 98.0%, to $22,000 for the
three months ended September 30, 2000 from $1,127,000 for the three months ended
September 30, 1999, as a result of lower unit volume. The Company anticipates
its unit volume to increase during the fourth quarter of 2000 when compared to
the third quarter of 2000 due to existing and/or anticipated customer orders.
Cost of sales decreased to $487,000 for the three months ended September
30, 2000 from $2,136,000 for the same period in 1999. The reduction in cost of
sales was due to the decrease in sales volume and lower provisions for obsolete
inventory, offset by the effects of low utilization levels and excess capacity.
The Company expects cost of sales to exceed net sales until it manufactures and
ships a significantly higher amount of its commercial products.
The Company's research and development expenses increased to $960,000 for
the three months ended September 30, 2000, from $403,000 for the same period in
1999, an increase of 138%. These costs were higher primarily as a result of a
collaborative research agreement, which began during the second quarter of 2000,
and higher prototype spending on the Company's All Temperature Performance
("ATP(TM)") filter product. Costs also increased as a result of the acquisition
of SSI and its related product group during August, 2000. During the remainder
of 2000, management expects research and development expenditures to continue on
a consistent level.
Selling and marketing expenses increased to $361,000 for the three months
ended September 30, 2000, from $307,000 for the same period in 1999, an increase
of 17.6%. The increase in these expenses was due to the addition of personnel
and related costs resulting from the SSI acquisition. Management expects selling
and marketing expenses to increase during the remainder of 2000 from current
levels as sales and marketing efforts are expanded.
General and administrative expenses increased to $1,913,000 for the three
months ended September 30, 2000, from $697,000 for the same period in 1999, an
increase of 175%. This increase was primarily attributable to an increase in
travel and professional costs. Non-cash compensation charges were a result of
stock compensation granted as part of the establishment of a Japanese sales
office and the amortization of both the unearned deferred stock compensation and
the Deferred Stock Units. Travel costs were higher as management pursued new
relationships with customers in Asia, and professional fees increased due to the
Company's strategic initiatives and its prolonged proxy solicitation in
connection with its annual meeting.
Non-cash interest expense increased to $1,615,000 for the three months
ended September 30, 2000 from $247,000 for the same period in 1999. The increase
in this expense is primarily a result of the issuance of an aggregate of
$6,000,000 of Senior Convertible Notes in November 1999, December 1999 and March
2000.
Nine Months Ended September 30, 2000 and 1999
The Company's net sales decreased $1,747,000, or 89.3%, to $209,000 for the
nine months ended September 30, 2000 from $1,956,000 for the nine months ended
September 30, 1999, as a result of lower unit volume. The Company anticipates
its unit volume to increase during the fourth quarter of 2000, when compared to
the third quarter of 2000, due to existing and/or anticipated customer orders.
Cost of sales decreased to $1,466,000 for the nine months ended September
30, 2000 from $4,091,000 for the same period in 1999. The reduction in cost of
sales was due to the decrease in sales volume, lower provisions for obsolete
inventory, and favorable benefits from the completion of supplier concession
plans, offset by the effects of low utilization levels and excess capacity.
The Company's research and development expenses increased to $1,980,000 for
the nine months ended September 30, 2000, from $1,364,000 for the same period in
1999, an increase of 45.1%. These costs were higher
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<PAGE> 13
as a result of a collaborative research agreement, which began during the second
quarter of 2000, and higher prototype spending on the Company's All Temperature
Performance ("ATP(TM)") filter product. Costs also increased due to the
acquisition of SSI and its related product group in August, 2000.
Selling and marketing expenses decreased to $761,000 for the nine months
ended September 30, 2000, from $1,211,000 for the same period in 1999, a
decrease of 37.2%. The decrease in these expenses was due to a temporary
reduction in personnel and travel, trade show, delivery, and advertising costs.
General and administrative expenses increased to $4,480,000 for the nine
months ended September 30, 2000, from $2,130,000 for the same period in 1999, an
increase of 110%. This increase was primarily attributable to an increase in
travel and professional costs, as well as non-cash compensation charges. Travel
costs were higher as management pursued new relationships with customers in
Europe and Asia, and professional fees increased due to the Company's strategic
initiatives and its prolonged proxy solicitation and annual meeting timetable.
Non-cash compensation charges related to the opening of a sales office in Japan
and the amortization of the Deferred Stock Units also contributed to this
increase.
Non-cash interest expense increased to $3,099,000 for the nine months ended
September 30, 2000 from $601,000 for the same period in 1999. The increase in
this expense is primarily a result of the issuance of an aggregate of $6,000,000
of Senior Convertible Notes in November 1999, December 1999 and March 2000 at
higher effective rates of interest.
For the nine months ended September 30, 2000 and 1999, the Company
recognized extraordinary items of $28,000 and $73,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's cash and cash equivalents were
$1,046,000, an increase of $323,000 from the balance at December 31, 1999 of
$724,000. This increase primarily reflects proceeds received during the nine
months ended September 30, 2000 from the new issuance of Senior Convertible
Notes and the exercise of warrants and stock options of $4,000,000 and
$4,006,000, respectively, reduced by the use of $7,579,000 of cash for
operations.
The continuing development of and expansion in sales of the Company's RF
filter product lines will require a commitment of substantial funds. The actual
amount of the Company's future funding requirements will depend on many factors,
including: the amount and timing of future revenues, the level of product
marketing and sales efforts to support the Company's commercialization plans,
the magnitude of the Company's research and product development programs, the
ability of the Company to improve product margins, the cost of additional plant
and equipment for manufacturing and the costs involved in protecting the
Company's patents or other intellectual property.
With the receipt of proceeds from the exercise of warrants and stock
options in the nine months ended September 30, 2000, and the $5,000,000 in gross
proceeds from the sale of common stock to certain investors in October, 2000,
the Company believes that it will require substantial additional funds to
finance its operations beyond the first quarter of 2001.
As part of its overall financing strategy, the Company expects that the
remaining Notes due January 2, 2001, will be converted into shares of common
stock during the fourth quarter of 2000. The Company's strategy to generate
sufficient working capital to fund its operations and cash requirements in the
future includes: increasing sales and advancing market penetration by selling
its products to original equipment manufacturers and customers both domestically
and in overseas markets; building strong and enduring relationships with
existing customers and expanding product offerings to meet varying customer
needs; and reducing product costs through redesign, economies of scale in
material purchases, the refinement of manufacturing processes, and further
reductions in overhead. The Company is actively seeking financing in order
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<PAGE> 14
to obtain working capital to continue its operations according to its current
operating plan through the first quarter of 2001 and beyond. To that end, the
Company has commenced discussions with potential financial advisors as well as
potential strategic and financial investors, with the goal to secure additional
financing by the second quarter of 2001.
The Company's Senior Convertible Notes contain restrictions limiting the
Company's ability to incur additional indebtedness or to pay dividends (other
than in shares of Common Stock) and are secured by the Company's assets. This
may adversely affect the Company's ability to raise additional equity or debt
financing. In the event that the Company fails to achieve break-even or positive
operating income during the second quarter of 2001, the Notes may become
immediately due and payable unless the holders thereof agree to modify or waive
such provision. In addition, the Company's Common Stock was de-listed from
trading on the NASDAQ National Market in June 1999 due to the Company's
continuing inability to meet the net tangible assets requirement for continued
listing. The Common Stock is now traded in the over-the-counter market and
quoted on the National Association of Securities Dealers, Inc. electronic
bulletin board. This may not provide the same liquidity for the trading of
securities as the NASDAQ National Market. The Company intends to apply for
relisting on NASDAQ when it is reasonably confident that its application would
be approved.
If the Company is unable to obtain adequate funds when needed in the
future, the Company would be required to substantially delay, scale-back or
eliminate the manufacturing, marketing or sales of one or more of its products
or research and development programs, or may be required to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, or potential products that
the Company would not otherwise relinquish. In particular, if the Company does
not secure adequate additional financing, the Company believes that it may not
be able to continue as a going concern.
The Company is currently conducting discussions with several unrelated
parties regarding potential strategic business opportunities, acquisitions or
alliances that may take a number of different forms, including contractual
licensing relationships or joint venture relationships. There can be no
assurance that the discussions will lead to any business opportunities or
alliances, or that any other transactions will be consummated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material market risk sensitive instruments.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Siegler Litigation
On June 5, 1996, Craig M. Siegler filed a complaint against the Company in
the Circuit Court of Cook County, Illinois, County Department, Chancery
Division. The complaint alleged that, in connection with the Company's private
placement of securities in November 1995, the Company breached and repudiated an
oral contract with Mr. Siegler for the issuance and sale by the Company to Mr.
Siegler of 370,370.37 shares of the Common Stock, plus warrants (immediately
exercisable at $12.96 per share) to purchase an additional 370,370.37 shares of
the Common Stock, for a total price of $4,000,000. The remedy sought by Mr.
Siegler was a sale to him of such securities on the terms of the November 1995
private placement. On August 16, 1996, the Company's motion to dismiss Mr.
Siegler's complaint was granted with leave to amend. On September 19, 1996, Mr.
Siegler's motion for reconsideration was denied.
On October 10, 1996, Mr. Siegler filed his First Amended Verified Complaint
and Jury Demand, seeking a jury trial and money damages equal to the difference
between $8,800,000 (370,370.37 shares at $10.80 per share and 370,370.37 shares
at $12.96 per share) and 740,740.74 multiplied by the highest price at which the
Common Stock traded on The Nasdaq Stock Market between November 20, 1995 and the
date of judgment. Mr. Siegler also preserved his claim for specific performance
for purposes of appeal. On November 1, 1996, the case was transferred to the
Circuit Court of Cook County, Illinois, County Department, Law Division. The
Company's Answer was filed on November 21, 1996.
The Company filed a motion for summary judgment against Mr. Siegler, which
was on hold pending the deposition of an expert retained by Mr. Siegler in the
case. The Company deposed this witness in March 2000. A hearing on the Company's
summary judgment motion was held in June 2000, and the motion was subsequently
denied. The parties are completing additional discovery ordered by the Court. No
trial date has been set.
The Company believes that the suit is without merit and intends to continue
to defend itself vigorously in this litigation. The Company is also disputing
Mr. Siegler's method of calculating damages. However, if Mr. Siegler prevails
in this litigation and is awarded damages in accordance with the formula
described above, such judgment would have a material adverse effect on the
Company's operating results and financial condition.
Lipman Litigation
In January 1998, Jerome H. Lipman, individually and on behalf of all others
similarly situated, filed a complaint against the Company and eight of its
former or current directors: Leonard A. Batterson, Michael J. Friduss, Peter S.
Fuss, Edward W. Laves, Steven L. Lazarus, Tom L. Powers, Ora E. Smith and Paul
G. Yovovich (collectively, the "Named Directors") in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. The complaint alleged
that the Named Directors breached their duties of loyalty and due care to the
putative class of stockholders by selecting financing for the Company in June
1997 which supposedly entrenched the Directors and reduced the Common Stock
price. The complaint also alleged that the Named Directors breached their duty
of disclosure by not informing the stockholders that the selected financing
would erode the Common Stock price. Mr. Lipman's complaint sought certification
of a class consisting of all owners of the Common Stock during the period from
June 6, 1997 through November 21, 1997, excluding the Named Directors and
Sheldon Drobny. The complaint also sought an unspecified amount of compensatory
and punitive damages, and attorneys' fees.
In February 1998, the Company and the Named Directors filed a motion to
dismiss Mr. Lipman's complaint, arguing in part that the plaintiff's claims were
barred by their failure to fulfill the legal prerequisites for suing the Named
Directors. In June 1998, the court granted the Company's and the Named
Directors' motion to dismiss the
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complaint. Thereafter Mr. Lipman filed an amended complaint against the Named
Directors but excluding the Company itself as a defendant. The amended complaint
alleged that the Named Directors breached their duties of loyalty and due care
to the putative class of stockholders by selecting financing for the Company in
June 1997 and thereafter drawing two tranches of the financing. The amended
complaint sought certification of a class consisting of all owners of the Common
Stock during the period from May 15, 1997 through December 31, 1997, excluding
the Named Directors. Mr. Lipman's amended complaint alleged that the stock owned
by the putative class lost $61 million due to the financing the Named Directors
selected, and sought an unspecified amount of compensatory and punitive damages.
The Named Directors filed a motion to dismiss Mr. Lipman's amended complaint
which the court granted in December 1998, finding that Mr. Lipman still had
failed to fulfill the prerequisites for maintaining a shareholder derivative
action against the Named Directors. In January 1999, Mr. Lipman and two added
former stockholders filed a second amended complaint against the Named Directors
and again including the Company itself as a defendant. The second amended
complaint alleged that the Named Directors breached their duties of loyalty and
due care to the putative class and further alleged that the purported
devaluation of the plaintiffs' stock resulting from the June 1997 financing was
an improper "assessment" on the plaintiffs' shares for which they sought an
unspecified amount of compensatory and punitive damages. The Company and the
Named Directors filed a motion to dismiss the second amended complaint which the
Court granted in April 1999, finding that (i) the plaintiffs could not assert
their stock devaluation claims, except derivatively, and (ii) the plaintiffs
still had failed to fulfill the prerequisites for maintaining a shareholder
derivative action against the Named Directors. In May 1999, the plaintiffs filed
a third amended complaint against the Company and the Named Directors. The third
amended complaint reiterated the plaintiffs' previous allegations that the Named
Directors breached their duties of loyalty, due care and candor to the putative
class, and again alleged the plaintiffs' claims of an improper "assessment." The
third amended complaint also asserted two claims of purported common law fraud
and a supposed violation of the Illinois Consumer Fraud Act based on allegations
that the Company and the Named Directors had selectively disclosed "material,
non-public confidential information" to the non-party financier in order to
obtain the financing that the Company selected in June 1997, which allegedly
reduced the Common Stock price. The plaintiffs sought an unspecified amount of
compensatory and punitive damages, and attorneys' fees. In June 1999, the
Company and the Named Directors filed a motion to dismiss the third amended
complaint, arguing in part that the plaintiffs still had failed to fulfill the
prerequisites for asserting their stock devaluation claims as a shareholder
derivative action, and that the plaintiffs' claims of selective disclosure and
fraud were barred on substantive and procedural grounds. In August 1999, the
Court granted the Company's and the Named Directors' motion, and dismissed the
suit with prejudice.
Thereafter the plaintiffs filed a motion for reconsideration of the
dismissal which the Court denied in September 1999. In October 1999, the
plaintiffs filed their notice of appeal from the dismissal orders. All briefing
on the appeal was completed in May 2000. The Illinois Appellate Court denied
plaintiffs' subsequent motion for rehearing on October 23, 2000. Plaintiffs must
file any petition for discretionary review before the Illinois Supreme Court by
November 13, 2000. The Company and the Named Directors intend to vigorously
defend against any continuation of this complaint.
16(b) Litigation
On February 26, 1999, Mark Levy, derivatively on behalf of the Company,
filed a complaint against Southbrook International Investments, Ltd.
("Southbrook"), Elliott Associates, L.P. ("Elliott"), and Westgate
International, L.P. ("Westgate"), and against the Company as a "nominal
defendant." The complaint filed in the United States District Court for the
Southern District of New York, alleges that Southbrook, Elliott and Westgate,
while having beneficial ownership of more than 10% of the Company's common
stock, violated Section 16(b) of the Securities Exchange Act of 1934 in
connection with purchases and sales of Company securities within six month
periods. The complaint seeks to recover from Southbrook, Elliott and Westgate
their respective profits (in unspecified amounts) from those transactions. No
relief is sought against the Company as a nominal defendant.
Elliott and Westgate are currently investors in the Company with
substantial rights to acquire Company common stock by conversion of notes and
exercise of warrants, and three of the current six directors of the Company were
appointed in accordance with an agreement dated November 5, 1999 by and between
Elliott, Westgate, an unaffiliated investor, and the Company. Two of such
directors, Messrs. Mark Brodsky and Samuel Perlman, are employed by a company
that provides
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management services to, and is under common control with, Elliott and Westgate.
An amended complaint dated September 2, 1999 was served on the Company. The
amended complaint raises the same claims alleged in the original complaint. As a
"nominal defendant" the Company, by agreement with the plaintiff, has not
responded to the lawsuit, but has reserved its right to move to dismiss any
amended pleading.
Defendants moved to dismiss the amended complaint in February 2000. In
response, the plaintiff cross-moved for leave to amend his complaint again. The
proposed new pleading adds Alexander Finance, LP as a defendant for the Section
16(b) claims, adds two new theories pursuant to which defendants may be found
liable under Section 16(b), and also proposes state law breach of fiduciary duty
claims against current directors Howard Hoffman, Tom L. Powers, Mark D. Brodsky,
George Calhoun and Sam Perlman and former directors Edward W. Laves, Robert D.
Mitchum and Terry S. Parker, based on the board of directors' decision to issue
convertible notes and warrants to the defendants convertible or exercisable for
shares of common stock at $0.25 per share.
Following a hearing on August 17, 2000, the court allowed plaintiff leave
to file his new amended complaint. The court also denied without prejudice
defendants' motion to dismiss the initial 16(b) complaint (as amended). However,
defendants may raise this motion again following resolution of a similar case by
the Second Circuit Court of Appeals. As of November 13, 2000, the Company's
counsel had not been served with the new amended complaint.
Laves Litigation
On July 17, 2000 Edward W. Laves filed an action(the "Complaint") in the
Law Division of the Circuit Court of Cook County , Illinois, against the Company
and three of its directors (George Calhoun, Samuel Perlman, and Mark Brodsky)
charging the Company with constructive termination under and in breach of
plaintiff's employment agreement, and with violation of the Illinois Wage
Payment and Collection Act. Plaintiff seeks damages "estimated to exceed $9.5
million." The Company filed an appearance on behalf of all Defendants on October
3, 2000. On October 6, 2000, the Company filed on Defendants' behalf a Motion to
Dismiss the Complaint. In the Motion, we argued that the claims are preempted
under ERISA and should be dismissed. Plaintiff's response brief is due November
13, 2000, and Defendants' reply brief is due December 4, 2000. There is a
clerk's status call on December 11, 2000 in order to set a date for oral
argument. The Company plans to continue to vigorously defend this action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Information concerning the Senior Convertible Notes and Warrants issued by
the Company on March 27, 2000 and not registered under the Securities Act of
1933 is incorporated herein by reference from the Company's Current Report on
Form 8-K dated and filed on March 28, 2000. The securities issued were not
registered under the Securities Act of 1933, in reliance upon the exemption in
Section 4(2) thereof for a transaction by an issuer not involving a public
offering, based upon the fact that the sale was made exclusively to financially
sophisticated institutional investors with which the Company had a pre-existing
relationship, which represented that they were acquiring the securities for
their own account for investment purposes and not for distribution.
The terms of the Company's debt, including the securities issued in March
2000, prohibit the Company from paying dividends on its Common Stock (other than
in shares of Common Stock).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Stockholders' Meeting for 2000 was originally
scheduled for May 17, 2000. As a result of the Company's agreement to acquire
SSI, and because there were not a sufficient number of stockholders
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voting on the proposals before the Meeting, the original meeting was adjourned.
Subsequently, the Board of Directors of the Company decided to reschedule the
Annual Meeting for June 30, 2000 and to re-set the record date for such Meeting
to June 6, 2000. The June 30 Meeting was also adjourned, this time until July
18, 2000.
Additional information regarding the adjournments of the Annual Meeting can
be found in the Company's Additional Definitive Proxy Materials filed June 9,
2000.
At the Company's Annual Stockholders' Meeting held July 18, 2000, the
Company's stockholders approved:
1. The election of Dr. George Calhoun and Mr. Samuel Perlman to the Company's
Board of Directors, for a term expiring at the Company's annual
stockholders' meeting in 2003, or until their successors are duly elected
and qualify;
2. An amendment to the Company's Certificate of Incorporation increasing the
authorized share capital of the Company to 250,300,000 shares, of which
250,000,000 shares are designated Common Stock and of which 300,000 shares
are designated as Preferred Stock;
3. An amendment to the Company's Amended and Restated 1993 Stock Option Plan
which, among other things, increases the maximum number of shares for which
stock options may be granted to any individual during any calendar year,
and provides for an additional 3,500,000 shares to be reserved for issuance
under the Plan;
4. The appointment of Ernst & Young LLP as the independent auditors of the
Company's financial statements for the fiscal year ending December 31,
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibits are listed in the Exhibit Index, which list is incorporated herein
by reference.
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated and filed July 7, 2000.
A Current Report on Form 8-K, dated and filed August 7, 2000.
A Current Report on Form 8-K, dated and filed August 10, 2000.
A Current Report on Form 8-K, dated and filed August 14, 2000.
A Current Report on Form 8-K, dated and filed August 23, 2000.
A Current Report on Form 8-K, dated and filed September 22, 2000.
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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.
ILLINOIS SUPERCONDUCTOR CORPORATION
Date: November 14, 2000 By: /s/ GEORGE M. CALHOUN
----------------------------------------------
George M. Calhoun
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 By: /s/ CHARLES F. WILLES
----------------------------------------------
Charles F. Willes
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
3.1 Certificate of Incorporation of the Company, as amended, incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-3/A, filed with the Securities and Exchange Commission ("SEC")
on August 13, 1998, Registration No. 333-56601 (the "August 1998
S-3").
3.2 By-Laws of the Company, incorporated by reference to Exhibit 3.2 to
Amendment No. 3 to the Company's Registration Statement on Form S-1,
filed with the SEC on October 26, 1993, Registration No. 33-67756 (the
"IPO Registration Statement").
3.3 Certificate of Amendment to Certificate of Incorporation filed July
18, 2000, increasing the authorized share capital of the Company,
incorporated by reference to the Company's registration statement on
Form S-8 filed August 7, 2000 (the "August 2000 S-8").
4.1 Specimen stock certificate representing Common Stock, incorporated by
reference to Exhibit 4.1 to the IPO Registration Statement.
4.2 Form of Series B Warrants, incorporated by reference to Exhibit 4.2 to
the IPO Registration Statement.
4.3 Form of Series C Warrants, incorporated by reference to Exhibit 4.3 to
the IPO Registration Statement.
4.4 Form of Representative Warrant, incorporated by reference to Exhibit
4.4 to the IPO Registration Statement.
4.5 Rights Agreement dated as of February 9, 1996 between the Company and
LaSalle National Trust, N.A., incorporated by reference to the Exhibit
to the Company's Registration Statement on Form 8-A, filed with the
SEC on February 12, 1996.
4.8 Warrant dated June 6, 1997 issued to Southbrook International
Investments, Ltd., incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-3, filed with the SEC on
June 23, 1997, Registration No. 333-29797 (the "June 1997 S-3").
4.14 Form of 2% Senior Convertible Note due May 15, 2002, incorporated by
reference to Exhibit 4.2 to the August 1998 S-3.
4.15 Form of Warrant dated May 15, 1998, incorporated by reference to
Exhibit 4.3 to the August 1998 S-3.
4.16 Securities Purchase Agreement dated as of May 15, 1998, by and between
the Company and Elliott Associates, L.P., Westgate International,
L.P., Alexander Finance, LP, State Farm Mutual Automobile Insurance
Company, Spring Point Partners, L.P. and Spring Point Offshore Fund,
incorporated by reference to Exhibit 4.5 to the August 1998 S-3.
4.17 Registration Rights Agreement dated as of May 15, 1998, by and between
the Company and Elliott Associates, L.P., Westgate International,
L.P., Alexander Finance, LP, State Farm Mutual Automobile Insurance
Company, Spring Point Partners, L.P. and Spring Point Offshore Fund,
incorporated by reference to Exhibit 4.6 to the August 1998 S-3.
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4.18 Form of 6% Senior Convertible Note due May 15, 2002, incorporated by
reference to Exhibit 4.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (the "1998 Form 10-K").
4.19 Form of Warrant dated March 31, 1999, incorporated by reference to
Exhibit 4.19 to the 1998 Form 10-K.
4.20 Securities Purchase Agreement dated as of March 31, 1999, by and
between the Company and Elliott Associates, L.P., Westgate
International, L.P., Alexander Finance, LP and State Farm Mutual
Automobile Insurance Company, incorporated by reference to Exhibit
4.20 to the 1998 Form 10-K.
4.21 Registration Rights Agreement dated as of March 31, 1999, by and
between the Company and Elliott Associates, L.P., Westgate
International, L.P., Alexander Finance, LP and State Farm Mutual
Automobile Insurance Company, incorporated by reference to Exhibit
4.21 to the 1998 Form 10-K.
4.22 Amendment to Securities Purchase Agreement dated as of March 31, 1999,
by and between the Company and Elliott Associates, L.P., Westgate
International, L.P., Alexander Finance, LP, State Farm Mutual
Automobile Insurance Company, Spring Point Partners, L.P. and Spring
Point Offshore Fund, incorporated by reference to Exhibit 4.22 to the
1998 Form 10-K.
4.23 Letter Agreement, dated November 5, 1999, by and among the Company and
Elliott Associates, L.P., Westgate International, L.P. and Alexander
Finance, LP (the "Investors"), incorporated by reference to Exhibit
10(a) to the Company's Form 8-K, dated November 5, 1999 and filed
November 15, 1999.
4.24 Letter Agreement re Modification of Covenants, dated November 5, 1999,
by and among the Company and the Investors, incorporated by reference
to Exhibit 10(b) to the Company's Form 8-K, dated November 5, 1999 and
filed November 15, 1999.
4.25 Security Agreement, dated November 5, 1999, by and among the Company
and the Investors, incorporated by reference to Exhibit 10(c ) to the
Company's Form 8-K, dated November 5, 1999 and filed November 15,
1999.
4.26 Letter Agreement, dated November 12, 1999 amending the Letter
Agreement identified as Exhibit 4.23, above, incorporated by reference
to Exhibit 4.26 to the Company's quarterly report on Form 10-Q filed
May 12, 2000 for the quarterly period ended March 31, 2000 (the "First
Quarter" 10-Q).
4.27 Securities Purchase Letter Agreement dated December 28, 1999, by and
among the Company and the Investors, incorporated by reference to
Exhibit 4.27 to the First Quarter 10-Q.
4.28 Securities Purchase Letter Agreement dated March 27, 2000, by and
among the Company and the Investors, incorporated by reference to
Exhibit 4.28 to the First Quarter 10-Q.
10.1 1993 Amended and Restated Stock Option Plan, as amended, incorporated
by reference to Exhibit 4.6 to the August 2000 S-8.**
10.2 Employment Agreement dated April 12, 1999 between the Company and Amr
Abdelmonem, incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-2, as amended, filed with
the SEC on July 9, 1999, Registration No. 333-77337.
10.3 Agreement and Plan of Merger, dated May 17, 2000, by and among the
Company, Spectral Solutions, Inc. ("SSI") and certain shareholders of
SSI, incorporated by reference to Annex A to the Company's definitive
Additional Proxy Materials filed June 9, 2000.
10.4 Escrow Agreement dated August 8, 2000, among the Company, Russell
Scott, III, as stockholder representative, and American National Bank
and Trust Company, as escrow agent, incorporated by
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reference to Exhibit 10.25 to the Company's registration statement on
Form S-2 filed September 7, 2000, Registration No. 333-45406 (the
"September S-2").
10.5 Employment Agreement dated August 2, 2000 between the Company and
Richard Herring, incorporated by reference to Exhibit 10.26 to the
September S-2.**
10.6 Management Services Agreement, drafted July 17, 2000, by and between
the Company and CTR Ventures, K.K. incorporated by reference to
Exhibit 10.27 to the September S-2.
27. Financial Data Schedule.*
* Filed herewith.
** Management Contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-Q.
22
