<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from to
Commission file number 0-21074
SUPERCONDUCTOR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0158076
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
460 WARD DRIVE, SUITE F
SANTA BARBARA, CALIFORNIA 93111-2310
(Address of principal executive offices & zip code)
(805) 683-7646
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
--- ---
As of June 30, 1996 there were 6,060,348 shares of the Registrant's Common Stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERCONDUCTOR TECHNOLOGIES INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JULY 1, 1995 JUNE 30, 1996 JULY 1, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenues:
Government contract revenues $ 1,594,000 $ 1,743,000 $ 2,894,000 $ 3,160,000
Commercial product revenues 30,000 39,000 87,000 144,000
----------- ----------- ----------- -----------
Total net revenues 1,624,000 1,782,000 2,981,000 3,304,000
----------- ----------- ----------- -----------
Costs and expenses:
Contract research and development 1,092,000 1,347,000 2,289,000 2,366,000
Other research and development 975,000 664,000 1,748,000 1,298,000
Selling, general and administrative 686,000 770,000 1,376,000 1,529,000
----------- ----------- ----------- -----------
Total costs and expenses 2,753,000 2,781,000 5,413,000 5,193,000
----------- ----------- ----------- -----------
Loss from operations (1,129,000) (999,000) (2,432,000) (1,889,000)
Interest income/(expense),net 26,000 3,000 57,000 50,000
----------- ----------- ----------- -----------
Net loss $(1,103,000) $ (996,000) $(2,375,000) $(1,839,000)
=========== =========== =========== ===========
Net loss per share $ (0.18) $ (0.17) $ (0.39) $ (0.31)
Weighted number of shares
outstanding 6,082,871 6,019,349 6,072,279 6,007,507
</TABLE>
(see accompanying notes)
<PAGE> 3
SUPERCONDUCTOR TECHNOLOGIES INC.
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
ASSETS JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,396,000 $ 2,430,000
Short-term investments 1,433,000 2,814,000
Accounts receivable 1,184,000 1,113,000
Inventory 422,000 228,000
Prepaid expenses and other current assets 225,000 248,000
------------ ------------
Total current assets 4,660,000 6,833,000
Note receivable from related party 150,000 150,000
Property and equipment, net 2,004,000 2,369,000
Patents and licenses, net of accumulated amortization
of $726,000 and $603,000 2,237,000 2,280,000
Security deposits and Other assets, net of accumulated
amortization of $83,000 and $77,000 39,000 46,000
------------ ------------
Total assets $ 9,090,000 $ 11,678,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 656,000 $ 733,000
Note payable to bank and capitalized lease obligations-current 427,000 405,000
------------ ------------
Total current liabilities 1,083,000 1,138,000
Long-term portion of note payable and capital lease obligations 265,000 453,000
------------ ------------
Total liabilities 1,348,000 1,591,000
------------ ------------
Shareholders' equity:
Common Stock, $.001 par value, 15,000,000 shares authorized,
6,060,348 and 6,026,065 shares issued and outstanding 6,000 6,000
Capital in excess of par value 30,152,000 30,122,000
Deficit accumulated during development stage (22,416,000) (20,041,000)
------------ ------------
Total shareholders' equity 7,742,000 10,087,000
------------ ------------
Total liabilities and shareholders' equity $ 9,090,000 $ 11,678,000
============ ============
</TABLE>
(see accompanying notes)
<PAGE> 4
SUPERCONDUCTOR TECHNOLOGIES INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JULY 1,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,375,000) $(1,839,000)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation, and patent/license amortization 579,000 572,000
Compensation expense associated with stock options granted 8,000 35,000
Changes in assets and liabilities:
Accounts receivable (72,000) 327,000
Inventory (194,000) 45,000
Prepaid expenses and other current assets 23,000 (81,000)
Patents and licenses (80,000) (384,000)
Other assets 0 0
Security deposits 0 0
Accounts payable and accrued expenses (77,000) (176,000)
----------- -----------
Net cash used for operating activities (2,188,000) (1,501,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments 1,381,000 4,571,000
Purchases of property and equipment (85,000) (280,000)
----------- -----------
Net cash provided by (used for) investing activities 1,296,000 4,291,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to bank 39,000 0
Principal payments under capital lease/bank loan obligations (205,000) (151,000)
Proceeds from sale of common stock 24,000 108,000
----------- -----------
Net cash provided by (used for) financing activities (142,000) (43,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,034,000) 2,747,000
Cash and cash equivalents at beginning of period 2,430,000 2,452,000
----------- -----------
Cash and cash equivalents at end of period $ 1,396,000 $ 5,199,000
=========== ===========
</TABLE>
(see accompanying notes)
<PAGE> 5
SUPERCONDUCTOR TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
The unaudited financial information furnished herein reflects all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management, are necessary to fairly state the Company's financial position, the
results of its operations and its cash flows for the period presented. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates and such differences may
be material to the financial statements. This quarterly report on Form 10-Q
should be read in conjunction with the Company's Form 10-K for the year ended
December 31, 1995. The results of operations for the three months and six months
ended June 30, 1996 are not necessarily indicative of results for the entire
fiscal year ending December 31, 1996.
In fiscal year 1993, the Company adopted a 13-week quarter reporting period
ending on the Saturday nearest the calendar quarter end. The company's fiscal
year-end is December 31.
B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first out) or market and
consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
<S> <C> <C>
Raw Materials $159,000 $134,000
Work-in-Progress 240,000 84,000
Finished Goods 23,000 10,000
-------- --------
Total Inventory $422,000 $228,000
======== ========
</TABLE>
C. PER SHARE INFORMATION
Net loss per common share has been computed using the weighted average number of
common and common equivalent shares (when dilutive) outstanding during each
period. The difference between primary and fully diluted net loss per common
share is not significant.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are in paragraphs two and five
under "Results of Operations for the periods ended June 30, 1996 and July 1,
1995." Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth herein.
RESULTS OF OPERATIONS FOR THE THREE-MONTHS AND SIX-MONTHS PERIODS ENDED JUNE 30,
1996 AND JULY 1, 1995
Total net revenues decreased by $158,000, or 9%, from $1,782,000 in the second
quarter of 1995 to $1,624,000 in the second quarter of 1996. This change is
mainly due to the decrease in government contract revenues. Government contract
revenues decreased by $149,000, or 9%, from $1,743,000 in the second quarter of
1995 to $1,594,000 in the second quarter of 1996. Net revenues decreased by
$323,000, or 10%, from $3,304,000 in the first six months of 1995 to $2,981,000
in the first six months of 1996. The revenue change is due to decreases in both
government contract and commercial product revenues. The decrease in government
contract revenues is the result of government shutdowns and budgetary impasses
which have delayed some contract funding.
A significant portion of the Company's revenues have historically consisted of
government research and development contract revenues. The Company expects that
government revenue will continue to account for a substantial portion of total
net revenues over the next several quarters. Government contract revenues have
historically fluctuated from period to period. This variability is attributable
to government contract budgeting and funding patterns, as the government
procurement process is lengthy and may involve competing budget considerations,
making the timing of the Company's revenues difficult to predict. Funds
authorized by the government under any development contract may be reduced or
eliminated at any time, and there can be no assurance that the Company will
receive all or any part of the funds under any of the Company's existing
government contracts not yet performed.
As the Company continues to focus on its commercial products, commercial
revenues are expected to increase as a percentage of revenues over the next
several quarters; however, there can be no assurance that such commercial
revenue will increase. Furthermore, as the Company attempts to achieve
commercialization of products, it could encounter seasonality or other currently
unforeseen factors causing additional variability in its results.
In the second quarter of 1996 and for the six months ended June 30, 1996, three
major contracts accounted for half of the government contract revenues. Each of
the contracts were funded by DARPA.
Commercial product revenues decreased by $9,000, or 23%, from $39,000 in the
second quarter of 1995 to $30,000 in the second quarter of 1996. Commercial
product revenues decreased by $57,000, or 40%, from $144,000 in the first six
months of 1995 to $87,000 in the first six months of 1996. These decreases are
due primarily to the Company's decision to focus on the internal use of thin
films versus servicing external commercial customer needs.
Contract research and development expenses decreased by $255,000 or 19%, from
$1,347,000 in the second quarter of 1995 to $1,092,000 in the second quarter of
1996. Contract research and development expenses decreased by $77,000 or 3%,
from $2,366,000 in the first six months of 1995 to $2,289,000 in the first six
months of 1996. These decreases are due to lower contract revenues which are
directly related to contract expenses.
<PAGE> 7
Other research and development expenses increased by $311,000 or 47%, from
$664,000 in the second quarter of 1995 to $975,000 in the second quarter of
1996. Other research and development expenses increased by $450,000 or 35%, from
$1,298,000 in the first six months of 1995 to $1,748,000 in the first six months
of 1996. These increases were due to research and development expenses incurred
under contracts which had delayed signings. These expenses are normally
classified as contract research and development expenses covered by government
contracts. In the second quarter the reclassification of these expenses amounted
to $328,000. In addition, a portion of the increases can be attributed to the
expanded efforts toward commercialization in the areas of wireless
communications, cryocooling and high-speed computing.
Selling, general and administrative expenses decreased by $84,000 or 11%, from
$770,000 in the second quarter of 1995 to $686,000 in the second quarter of
1996. Selling, general and administrative expenses decreased by $153,000 or 10%,
from $1,529,000 in the first six months of 1995 to $1,376,000 in the first six
months of 1996. These decreases are primarily attributable to lower expenses
related to travel, recruiting, public relations and general services and
supplies.
Interest income decreased by $35,000 or 44%, from $80,000 in the second quarter
of 1995 to $45,000 in the second quarter of 1996. Interest income decreased by
$58,000 or 37%, from $155,000 in the first six months of 1995 to $97,000 in the
first six months of 1996. The reduction in interest income is primarily due to a
decline in the interest-earning investment balances during these periods as
these funds have been utilized to fund operations.
Interest expense decreased by $58,000 or 75%, from $77,000 in the second quarter
of 1995 to $19,000 in the second quarter of 1996. Interest expense decreased by
$65,000 or 62%, from $105,000 in the first six months of 1995 to $40,000 in the
first six months of 1996. These decreases over both periods are due to the
reduction in the Company's long-term portion of note payable and capitalized
lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments declined by $2,415,000 or 46%,
from $5,244,000 on December 31, 1995 to $2,829,000 on June 30, 1996. The
decrease is primarily attributable to funding operating losses of $2.4 million
and an increase in inventory of $194,000.
The Company's principal resource commitments at June 30, 1996 consist of
accounts payable and accrued employee compensation of $366,000 and $290,000,
respectively, and approximately $692,000 of equipment financing commitments.
The Company believes that its existing cash, cash equivalents and short-term
investments, together with revenue from operations, should provide sufficient
resources to meet its current anticipated liquidity and capital expenditure
requirements for at least the next 12 months.
To date, the Company has been principally involved in research and development
activities, and has recently shifted its focus to commercialization of its HTS
and cold computing products. The Company anticipates that in the next several
quarters it will require significant capital to develop an infrastructure for
the manufacturing of its commercial products. The Company will need to access
either the public or private equity or debt markets or enter into strategic
alliances with its customers to obtain the required capital. There can be no
assurance that capital will be available, if and when required, on acceptable
terms or at all. Any delays in obtaining such capital would have a material
adverse effect on the Company's business, results of operations and financial
condition.
<PAGE> 8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In addition to the election of the directors, the following matters were
submitted to the shareholders at the Company's Annual Meeting of Shareholders
held May 16, 1996:
1) The Company's 1992 Director Option Plan was amended to i) increase the number
of shares reserved for issuance by 84,000; ii) increase the number of option
shares provided to outside directors on the date first elected to the Board from
5,000 to 15,000; iii) provide for automatic grant of a 15,000 share option to
each outside director who was originally appointed to the Board as a stockholder
representative (a "Representative Stockholder") at such time as such outside
director ceases to serve in a representative capacity on behalf of the
Representative Stockholder and the Board and such outside director determine
that such outside director shall continue to serve on the Board; and iv)
increase the rate at which Subsequent Options vest on each anniversary of the
grant date from twenty-five percent to fifty percent.
<TABLE>
<S> <C>
Votes For: 4,161,942
Votes Against: 397,985
Votes Abstaining: 38,575
NonVotes: 152,532
</TABLE>
2) The appointment of Price Waterhouse LLP as independent auditors of the
Company was ratified for the year ending December 31, 1996.
<TABLE>
<S> <C>
Votes For: 4,723,434
Votes Against: 11,050
Votes Abstaining: 16,550
</TABLE>
ITEM 5. OTHER INFORMATION
JOINT VENTURE
In May 1996, the Company signed a joint-venture agreement with Alantac, a
precision machining house located in Singapore, to establish Cryo-Asia.
Cryo-Asia was established to develop volume manufacturing of STI's proprietary
cooler. The joint venture is sixty percent owned by STI and forty percent owned
by Alantac.
REPRICING
In November 1995, the Board of Directors approved a Stock Option Repricing
Program for all employees. The Repricing Program had been offered on an optional
basis to reprice the outstanding options held by the employees to $4.875, the
closing price of the Company's Common Stock as quoted on the Nasdaq National
Market on November 9, 1995. Fifty-one employees with a total of 135 grants equal
to 797,055 shares were eligible for repricing. No options were repriced as of
December 31, 1995. The employees had until January 15, 1996 to exercise the
repricing option. Forty-two employees chose to reprice 102 of these grants with
a total of 633,268 shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERCONDUCTOR TECHNOLOGIES INC.
(Registrant)
Dated: August 12, 1996 /s/ James G. Evans, Jr.
----------------------------
James G. Evans, Jr.
Vice President, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 225,000
<SECURITIES> 2,603,000
<RECEIVABLES> 1,184,000
<ALLOWANCES> 0
<INVENTORY> 422,000
<CURRENT-ASSETS> 4,660,000
<PP&E> 7,379,000
<DEPRECIATION> 5,376,000
<TOTAL-ASSETS> 9,090,000
<CURRENT-LIABILITIES> 1,083,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 30,152,000
<TOTAL-LIABILITY-AND-EQUITY> 9,090,000
<SALES> 0
<TOTAL-REVENUES> 2,981,000
<CGS> 0
<TOTAL-COSTS> 3,665,000
<OTHER-EXPENSES> 1,748,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,000
<INCOME-PRETAX> (2,375,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,416,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,375,000)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
