<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000
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,
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 April 25, 2000 there were 17,448,887 shares of the Registrant's Common
Stock outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERCONDUCTOR TECHNOLOGIES INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 3, 1999 APRIL 1, 2000
--------------------------- ----------------------
<S> <C> <C>
Net revenues:
Commercial product revenues $ 427,000 $ 1,020,000
Government contract revenues 1,054,000 1,251,000
Less non-cash charge for warrants vesting
upon commercial product sales and
other discounts - (612,000)
Sub license royalties 10,000 10,000
--------------------------- ----------------------
Total net revenues 1,491,000 1,669,000
--------------------------- ----------------------
Costs and expenses:
Cost of commercial product revenues 1,506,000 1,792,000
Contract research and development 755,000 907,000
Other research and development 438,000 520,000
Selling, general and administrative 1,357,000 1,753,000
Other non-cash warrant charges - 313,000
--------------------------- ----------------------
Total costs and expenses 4,056,000 5,285,000
--------------------------- ----------------------
Loss from operations (2,565,000) (3,616,000)
Interest income 1,000 72,000
Interest expense (52,000) (216,000)
--------------------------- ----------------------
Net loss (2,616,000) (3,760,000)
Less:
Redeemable preferred stock dividends (169,000) -
Deemed distribution attributable to the
inducement to convert preferred stock - (1,548,000)
--------------------------- ----------------------
Net loss available to common stockholders ($2,785,000) ($5,308,000)
=========================== ======================
Basic and diluted loss per common share ($0.36) ($0.47)
=========================== ======================
Weighted average number of common
shares outstanding 7,738,397 11,348,639
=========================== ======================
</TABLE>
See accompanying notes to the financial statements
2
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SUPERCONDUCTOR TECHNOLOGIES INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 1,
1999 2000
---------------- ----------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66,000 $ 8,929,000
Accounts receivable 1,590,000 2,171,000
Inventory 2,745,000 3,108,000
Prepaid expenses and other current assets 452,000 422,000
---------------- ----------------
Total current assets 4,853,000 14,630,000
Property and equipment, net of accumulated depreciation
of $8,054,000 and $8,373,000, respectively 4,097,000 3,856,000
Patents and licenses, net of accumulated amortization
of $1,521,000 and $1,580,000, respectively 1,927,000 1,922,000
Other assets 208,000 232,000
---------------- ----------------
Total assets $11,085,000 $20,640,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings $1,953,000 $ -
Accounts payable 1,796,000 1,183,000
Accrued expenses 906,000 1,887,000
Current portion of long-term debt and capitalized lease obligations 211,000 210,000
---------------- ----------------
Total current liabilities 4,866,000 3,280,000
Long-term debt and capitalized lease obligations 750,000 701,000
---------------- ----------------
Total liabilities 5,616,000 3,981,000
---------------- ----------------
Redeemable convertible preferred stock, $.001 par value, 2,000,000 shares
authorized:
Series A-2 shares, 64,584 and none, issued and outstanding
Series A-3 shares, 12,500 and none, issued and outstanding
Series B-1 shares, 50,000 and none, issued and outstanding
Series C shares, 41,667 and none, issued and outstanding
Series D shares, 106,000 and none, issued and outstanding 17,125,000 -
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares authorized,
7,739,218 and 17,309,629 shares issued and outstanding 8,000 17,000
Capital in excess of par value 35,426,000 67,492,000
Accumulated deficit (47,090,000) (50,850,000)
---------------- ----------------
Total stockholders' equity (deficit) (11,656,000) 16,659,000
---------------- ----------------
Total liabilities and stockholders' equity (deficit) $11,085,000 $20,640,000
================ ================
</TABLE>
See accompanying notes to the financial statements
3
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SUPERCONDUCTOR TECHNOLOGIES INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 3, APRIL 1,
1999 2000
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,616,000) ($3,760,000)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 315,000 378,000
Warrant charges - 991,000
Changes in assets and liabilities:
Accounts receivable 565,000 (581,000)
Inventory (864,000) (363,000)
Prepaid expenses and other current assets (19,000) 40,000
Patents and licenses (12,000) (53,000)
Other assets (14,000) (29,000)
Accounts payable and accrued expenses 489,000 (198,000)
--------------------- --------------------
Net cash used in operating activities (2,156,000) (3,575,000)
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (464,000) (78,000)
Proceeds from sale/leaseback of property and equipment 900,000 -
--------------------- --------------------
Net cash (used in) provided by investing activities 436,000 (78,000)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) borrowings 36,000 (1,489,000)
Payments on long-term obligations (256,000) (50,000)
Proceeds from sale of preferred and common stock 2,906,000 13,380,000
Other - 675,000
--------------------- --------------------
Net cash provided by financing activities 2,686,000 12,516,000
--------------------- --------------------
Net increase in cash and cash equivalents 966,000 8,863,000
Cash and cash equivalents at beginning of period 310,000 66,000
--------------------- --------------------
Cash and cash equivalents at end of period $1,276,000 $8,929,000
===================== ====================
Supplemental schedule of non-cash financing activities:
Common stock options issued for services in lieu of accounts payable - $ 72,390
Issuance of warrants in connection with bank line of credit - 130,623
Conversion of note payable for common stock - 500,000
</TABLE>
See accompanying notes to the financial statements
4
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SUPERCONDUCTOR TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
The unaudited financial information furnished herein has been prepared in
accordance with generally accepted accounting principles and 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 periods
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, 1999, including but not limited to Exhibit 99 entitled
"Disclosure Regarding Forward-Looking Statements." The results of operations for
the quarter ended April 1, 2000 are not necessarily indicative of results for
the entire fiscal year ending December 31, 2000.
The Company reports on a 13-week quarter period ending on the Saturday
nearest the calendar quarter end. The Company's fiscal year-end is December 31.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first out) or market
and consist of the following:
DECEMBER 31, 1999 APRIL 1, 2000
----------------- -------------
Raw Materials $ 428,000 $ 741,000
Work-in-Progress 1,688,000 1,671,000
Finished Goods 629,000 696,000
------------ -------------
Total Inventory $ 2,745,000 $ 3,108,000
============ =============
3. SHORT TERM BORROWINGS AND NOTES PAYABLE
The Company has a revolving line of credit that matures on June 17, 2000.
It is renewable annually and bears interest at the prime rate (9.0% at April 1,
2000) plus 1%. The revolving line of credit is not to exceed the lesser of (i)
$2.5 million or (ii) 80% of eligible accounts receivable. The Company is
required to maintain certain minimum tangible net worth, debt and other
financial and business covenants. Borrowings under the revolving line of credit
are collateralized by substantially all of the Company's assets. At April 1,
2000, no amounts were outstanding under this line of credit and $1,019,000 was
available for borrowing. On January 12, 2000, the credit facility was amended to
include a $1.5 million term note. The term note bore interest at the prime rate
(8.5% at January 12, 2000) plus 4%. Five year warrants to purchase 27,692 shares
of common stock at $3.25 per share were issued in connection with this
amendment. This term loan was paid in full on February 11, 2000.
In March 2000, the Company secured a one-year loan commitment from a large
stockholder for an additional $5.0 million of working capital. At its option,
the stockholder will lend the funds directly to the Company or unconditionally
guarantee a loan from a commercial bank or other institutional lender. The loan
commitment expires in March 2001 or earlier than one year upon the Company's
receipt of $10,000,000 or more of equity financing. If the Company requests that
the loan be funded and the stockholder elects to make the loan directly, the
loan would be unsecured and bear interest at four percent over the prime rate of
PNC Bank (the Company's primary lender). The Company paid a $12,500 fee for the
loan commitment.
4. STOCKHOLDERS' EQUITY
On February 11, 2000, the Company completed the registration and sale of
2,473,701 shares of common stock, priced at $3.25 per share, of which 2,319,855
shares of common stock were sold for a cash payment totaling $7,540,000 and
153,846 shares of common stock were exchanged for short-term indebtedness of
$500,000. Net proceeds to the Company totaled $7.4 million. Concurrent with the
offering, the holders of the Series A-2, A-3 and C Redeemable Convertible
Preferred Stock converted their holdings into 2,458,491 shares of common stock.
As inducement to convert the preferred shares, the Company issued the preferred
stockholders warrants to purchase 250,000 shares of common stock at $3.58. The
fair value of the warrant was estimated using the Black-Scholes option-pricing
5
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model and was accounted for as a deemed distribution of $1,548,000 to the
preferred stockholders for determining the loss per common share in the first
quarter and full year of 2000. Also during the quarter ended April 1, 2000, the
holders of the outstanding Series B-1 and D preferred shares elected to convert
their holdings into 3,175,410 shares of common stock.
During the quarter ended April 1, 2000, the Company (i) issued options to
purchase 202,675 shares of common stock under the Company's stock option plans
and (ii) cancelled options to purchase 61,952 shares of common stock. Options
for 449,957 shares of common stock were exercised for $2,027,000 during the
period. At April 1, 2000, options to purchase 1,573,318 shares of common stock
were issued and outstanding under the Company's stock options plans. The
outstanding options expire by the end of January 2010. The exercise prices for
these options range from $2.313 to $49.375 per share, for an aggregate exercise
price of approximately $7.0 million. At April 1, 2000, there were 770,035 shares
of common stock available for the granting of future options.
Including the warrants issued in connection with the conversion of the
preferred stock described above, warrants to purchase 1,012,852 shares of common
stock were exercised resulting in net proceeds to the Company of $3,969,000.
At April 1, 2000, the following warrants to purchase shares of common stock
were outstanding:
Number of Price Per Expiration
Common Shares Share Date
-------------------- ------------- --------------------
150,000 4.50 November 22, 2001
71,120 4.00 August 27, 2004
62,500 3.00 June 18, 2004
33,333 3.00 December 1, 2004
27,692 3.25 January 12, 2005
3,750 4.50 March 4, 2004
5. LONG-TERM SALES AGREEMENT
In August 1999, the Company signed a five-year sales agreement with United
States Cellular Corporation ("U.S. Cellular"), one of the nation's ten largest
cellular service providers. As part of the agreement, the Company issued
warrants to U.S. Cellular to purchase of up to one million shares of common
stock at a price of $4.00 per share. These warrants expire August 27, 2004. The
warrants have a vesting schedule tied to product purchases and vest at the rate
of one share of common stock for every $25 of SuperFilter(R) system purchases
made by U.S. Cellular. As of April 1, 2000, U.S. Cellular had a total of 71,120
vested warrants and 928,880 unvested warrants.
The Company records a non-cash charge each quarter for the fair value of
the warrants vesting during that quarter. The charge is first allocated to
commercial sales discounts up to a maximum amount equal to the sales to U.S.
Cellular during that quarter, and any excess is then allocated to "Other
Non-Cash Warrant Charges." Fair value is determined using the Black-Scholes
option pricing model. The value of the warrants, and the corresponding charge,
increases as the Company's stock price increases. Conversely, the value of the
warrants, and the corresponding charge, decreases as the Company's stock price
decreases. The Company recorded a non-cash charge of $867,000 for warrants
vesting in the quarter ended April 1, 2000 based on the Black-Scholes
option-pricing model and the closing market price of $41.94 per common share on
the last trading day of the quarter.
6. EARNINGS PER SHARE
The computation of per share amounts for the quarter ended April 1, 2000
and April 3, 1999 is based on the average number of common shares outstanding
for the period. Options and warrants to purchase 1,921,713 and 2,509,887 shares
of common stock during the quarter ended April 1, 2000 and April 3, 1999,
respectively, were not considered in the computation of diluted earnings per
share because their inclusion would be antidilutive. Preferred stock convertible
into 3,375,020 common shares was also not considered in the computation of
diluted earnings per share for the quarter ended April 3, 1999 because their
inclusion would also be antidilutive.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report contains various forward-looking statements made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements include, but are not limited to,
the Company's views with respect to future commercial revenues, capital
requirements, market growth, and new product introductions, and are generally
identified by phrases such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and words of similar import. The Company reminds stockholders
that forward-looking statements are merely predictions and therefore inherently
subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statement. The Company refers
interested persons to Exhibit 99 to its 1999 Annual Report on Form 10-K entitled
"Disclosure Regarding Forward-Looking Statements" and its other SEC filings for
a description of some of the uncertainties and factors that may affect
forward-looking statements. The Company assumes no obligation to update any
forward-looking statements.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED APRIL 1, 2000
AND APRIL 3, 1999
Total net revenues increased by $178,000 or 12%, from $1,491,000 in the
first quarter of 1999 to $1,669,000 in the first quarter of 2000. This increase
is due to higher commercial product and government contract revenues. The
increase was offset in part by non-cash warrant charges relating to a long-term
sales agreement with U.S. Cellular.
Commercial product revenue increased by $593,000 or 139%, from $427,000 in
the first quarter of 1999 to $1,020,000 in the first quarter of 2000. This
increase is the result of the Company's increased sales of the SuperFilter(R)
product. SuperFilter(R) product shipments increased to 58 units in the first
quarter of 2000 from 22 units in the same period last year. However, the average
sales price of our SuperFilter(R) systems have decreased due to competitive
pricing pressures, partially offset by a shift in mix to higher priced units.
Government contract revenues increased by $197,000, or 19%, from $1,054,000 in
the first quarter of 1999 to $1,251,000 in the first quarter of 2000 due to an
increase in the number of contracts in process. At April 1, 2000 the Company's
backlog for commercial products totaled $716,000 as compared to none at December
31,1999 and $303,000 at April 3, 1999.
Net revenues for the quarter ended April 1, 2000 were also affected by
sales discounts on commercial product sales totaling $612,000. The majority of
this discount represents the value of warrants vesting in the current period
previously granted to a customer with a long-term sales contract. For further
discussion of this contract please see the subsection below entitled "Non-Cash
Charges for Warrants Issued Under Long-Term Sales Agreement".
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
revenues 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.
Cost of commercial product revenues includes all direct costs,
manufacturing overhead and related start up costs. The cost of commercial
product revenues increased by $286,000 or 19%, from $1,506,000 for the first
quarter of 1999 to $1,792,000 in the first quarter of 2000, and results from the
larger number of commercial product shipments, partially offset by lower
manufacturing expenses.
Contract research and development expenses increased by $152,000 or 20%,
from $755,000 in the first quarter of 1999 to $907,000 in the first quarter of
2000. This increase is attributable to the increase in government contract
activity.
Other research and development expenses increased by $82,000 or 19%, from
$438,000 in the first quarter of 1999 to $520,000 in the first quarter of 2000.
This increase is due to the Company's efforts in expanding market opportunities
through product line enhancement and development of the SuperFilter(R) product
line.
Selling, general and administrative expenses increased by $396,000 or 29%,
from $1,357,000 in the first quarter of 1999 to $1,753,000 in the first quarter
of 2000. This increase results primarily from increased corporate development,
marketing and sales and management recruitment activities, occupancy expenses
and the implementation of a management incentive program.
Other non-cash warrant charges totaled $313,000 in the current quarter.
This charge relates to a sales agreement and is the excess of the charge over
the related sales. No similar agreements existed in the prior year's period.
7
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Interest income increased by $71,000 from $1,000 in the first quarter of
1999 to $72,000 in the first quarter of 2000. The increase is primarily due to
higher levels of cash available for investment purposes.
Interest expense increased by $164,000 from $52,000 in the first quarter of
1999 to $216,000 in the first quarter of 2000 as the Company entered into new
financing agreements in 1999 and 2000.
The Company had a net loss of $3.8 million in the current quarter as
compared to $2.6 million in the same period last year. However, due to the $1.5
million deemed distribution to the preferred stockholders related to the
conversion of the preferred shares in the current period discussed above and
cumulative preferred stock dividends, the loss per common share based upon the
net loss attributable to common stockholders of $5.3 million amounted to $0.47
per share for the current quarter, as compared to a net loss attributable to
common stockholders of $2.8 million, or $0.36 per share for the prior years'
quarter. Excluding the effect of the non-cash warrant charges relating to the
long-term sales contract and the preferred stock dividends and deemed
distribution, the Company would have had a net loss available to common
stockholders of $2.9 million, or $0.25 per share in the current period, as
compared to $2.6 million, or $0.34 per share in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by approximately $8.9 million from
$66,000 on December 31, 1999 to $8.9 million on April 1, 2000. The increase
results from the cash received from the sale of common stock and exercise of
warrants and stock options, partially offset by cash used in operations and
investing activities and the pay down of the line of credit.
For the quarter ended April 1, 2000, net cash used in operations totaled
$3.6 million. The significant portion of the operating use of cash related to
funding net losses of $3.8 million, or $2.4 million net of non-cash adjustments.
Other operating uses of cash primarily related to increases in accounts
receivables and inventories and pay down of liabilities. In the same period in
1999, cash used in operations totaled $2.2 million. This use of cash primarily
related to funding operating losses totaling $2.3 million net of non-cash
adjustments and inventory increases totaling $864,000, partially offset by
decreases in accounts receivables totaling $565,000 and increased liabilities of
$489,000.
Net cash used in investing activities totaled $78,000 in quarter ended
April 1, 2000 and primarily related to the purchase of manufacturing equipment.
In the same period in 1999, cash provided by investing activities totaled
$436,000. Acquisitions of equipment totaled $464,000, which was offset by the
proceeds from the sale and leaseback of certain production equipment with a net
book value of $944,000 for cash proceeds of $900,000.
In the quarter ended April 1, 2000, net cash provided by financing
activities totaled $12.5 million. Cash received from the sale of common stock
and upon the exercise of warrants and stock options totaled $13.4 million, and
was partially offset by the pay down of $1.5 million due on the line of credit
and principal payments totaling $50,000 on other debt obligations. Cash received
from other financing activities totaled $675,000 and related to a deposit
received for the exercise of a warrant. In the same period in 1999, cash
provided by financing operations totaled $2.7 million and resulted from the
issuance of preferred stock, partially offset by payment due on long-term
obligations.
In the first quarter ended April 1, 2000, the holders of the Series A-2,
A-3, B-1, C and D Redeemable Convertible Preferred Stock converted their
holdings into 5,633,901 shares of common stock. As an inducement to convert
their preferred shares into common stock, the Company issued the Series A-2, A-3
and C preferred stockholders warrants to purchase 250,000 shares of common
stock. The issuance of this warrant is considered a deemed distribution to the
preferred stockholders and, therefore, the fair market value of the warrant of
$1.5 million is considered in the computation of the loss per share for the
current quarter.
The Company has a revolving line of credit that matures on June 17, 2000.
It is renewable annually and bears interest at the prime rate (9% at April 1,
2000) plus 1%. The line is not to exceed the lesser of (i) $2.5 million or (ii)
80% of eligible accounts receivable. At April 1, 2000 no amounts were
outstanding on the line and $1.0 million was available for borrowing. The
Company plans to renew this line of credit and believes that the lender will do
so on reasonable terms.
In March 2000, the Company secured a one-year loan commitment from a large
stockholder for an additional $5.0 million. At its option, the stockholder will
lend the funds directly to the Company or unconditionally guarantee a loan from
a commercial bank or institutional lender. The loan commitment expires in March
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2001 or earlier upon the Company's receipt of $10 million or more of equity
financing. If the Company requests that the loan be funded and the stockholder
elects to make the loan directly, the loan would be unsecured and bear interest
at four percent over the prime rate of the Company's prime lender. The Company
paid a $12,500 commitment fee.
At April 1, 2000 the Company had cash commitments for the purchase of fixed
assets totaling $180,000. To meet the anticipated continued increase in demand
for its products, the Company anticipates that it will spend an additional $1.3
million to $3.3 million for manufacturing equipment in 2000. In addition,
increased sales will require that higher inventory and accounts receivable
balances be maintained. Although revenues are expected to continue to increase
in the remainder of 2000, the Company expects to incur losses during that
period. The Company believes that its current cash resources and lines of credit
are adequate to fund its operations for the next twelve months. However, the
Company may pursue additional financing, debt or equity, before year end with a
view toward funding and possibly accelerating long-term growth plans.
NON-CASH CHARGES FOR WARRANTS ISSUED UNDER LONG-TERM SALES AGREEMENT
In August 1999, the Company signed a five-year sales agreement with United
States Cellular Corporation ("U.S. Cellular"), one of the nation's ten largest
cellular service providers. As part of the agreement, the Company issued
warrants to U.S. Cellular to purchase of up to one million shares of common
stock at a price of $4.00 per share. These warrants expire August 27, 2004. The
warrants have a vesting schedule tied to product purchases and vest at the rate
of one share of common stock for every $25 of SuperFilter(R) system purchases
made by U.S. Cellular. As of April 1, 2000, U.S. Cellular had a total of 71,120
vested warrants and 928,880 unvested warrants. The Company believes that all the
systems ordered have been deployed U.S. Cellular, and U.S. Cellular has not
exercised any of the vested warrants.
The Company records a non-cash charge each quarter for the fair value of
the warrants vesting during that quarter. The charge is first allocated to
commercial sales discounts up to a maximum amount equal to the sales to U.S.
Cellular during that quarter, and any excess is then allocated to "Other
Non-Cash Warrant Charges." Fair value is determined using the Black-Scholes
option pricing model. The value of the warrants, and the corresponding charge,
increases as the Company's stock price increases. Conversely, the value of the
warrants, and the corresponding charge, decreases as the Company's stock price
decreases. The Company cannot reasonably predict the amount or timing of future
charges relating to the warrant. The Company recorded a non-cash charge of
$867,000 for warrants vesting in the quarter ended April 1, 2000 based on the
Black-Scholes option-pricing model and the closing market price of $41.94 per
common share on the last trading day of the quarter.
NET OPERATING LOSS CARRYFORWARD
At March 31, 2000 , the Company had a federal net operating loss
carryforward of approximately $44.3 million. Section 382 of the Internal Revenue
Code imposes an annual limitation on the utilization of net operating loss
carryforward following a "change of ownership." The amount of the limitation is
based on a statutory rate of return (usually the applicable federal rate) and
the value of the corporation at the time of the change of ownership. Private
placements and other sales of equity securities by us can cause a change of
ownership either individually or in the aggregate. If a change of ownership
occurs and an annual limitation is imposed, a portion of these carryforwards may
expire before we are able to utilize them.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There was no material change in the Company's exposure to market risk at
April 1, 2000 as compared to it's market risk exposure on December 31, 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk" in the Company's 1999 Annual Report on Form 10K.
PART II. OTHER INFORMATION
ITEM 2. SALE OF UNREGISTERED SECURITIES
In August 1999, the Company issued warrants to U.S. Cellular to purchase of
up to one million shares of common stock at a price of $4.00 per share in
connection with a long-term sales agreement. These warrants expire August 27,
2004. The warrants have a vesting schedule tied to product purchases and vest at
the rate of one share of common stock for every $25 of SuperFilter(R) system
purchases made by U.S. Cellular. These warrants were issued in a private
placement exempt from registration under Section 4(2) of the Securities Act. The
warrant holder is a sophisticated investor and obtained the warrants for
investment purposes.
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During the first quarter of 2000, the Company issued equity securities in
two financing related transactions that were not registered under the Securities
Act of 1933. The Company issued warrants to PNC Bank for the purchase of 27,692
shares of common stock at $3.25 and warrants to purchase 250,000 shares of
common stock at $3.58 per share to Wilmington Securities, Inc., an affiliate of
The Hillman Company. These securities were issued in private placements exempt
from registration under Section 4(2) of the Securities Act. The warrant holders
are sophisticated institutional investors and obtained the warrants for
investment purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
10.1 Financing Commitment from Wilmington Securities, Inc.
dated March 29, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
10
<PAGE> 11
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: April 28, 2000 /s/ Martin S. McDermut
--------------------------------
Martin S. McDermut.
Vice President, Finance and
Administration,
Chief Financial Officer
11
<PAGE> 12
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits to Form 10-Q
For Fiscal Quarter Ended April 1, 2000
Commission File No. 0-21074
<PAGE> 13
EXHIBIT INDEX
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
10.1 Financing Commitment from Wilmington Securities, Inc.
dated March 29, 2000
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
WILMINGTON SECURITIES, INC.
824 MARKET STREET, SUITE 900
WILMINGTON, DELAWARE 19801
(302) 655-4294
March 29, 2000
Superconductor Technologies, Inc.
460 Ward Drive, Suite F
Santa Barbara, California 93111
Attention: M. Peter Thomas, President and CEO
Re: Financing Commitment
--------------------
Gentlemen:
Wilmington Securities, Inc. ("WSI") hereby commits to make available to
Superconductor Technologies, Inc. ("STI") up to an additional $5,000,000 of
working capital financing beyond that already available to STI under its
existing credit facilities with PNC Bank, NA ("PNC"), on the terms set forth
below.
1. Committed Amount. Five million dollars ($5,000,000).
2. Financing Structure. WSI will make the Committed Amount available to
STI through one of the following methods: (a) making working capital
loans to STI or (b) providing an unconditional guaranty of working
capital loans made to STI by a commercial bank or other institutional
lender reasonably acceptable to WSI. WSI has the option to choose the
method.
3. Commitment Period. The commitment set forth in this letter shall
expire and be of no further force or effect on the earlier of (a)
April 1, 2001 or (b) the date on which STI receives equity financing
in a cumulative amount, from the date of this letter to the date in
question, equal to at least Ten million dollars ($10,000,000) from any
source or sources, including without limitation venture capital
rounds, strategic or corporate investors, warrant exercises, private
placements or public offerings.
4. Commitment Fee. $12,500 payable immediately upon acceptance of this
letter by STI.
5. Use of Proceeds. General corporate and working capital purposes.
6. Security. None.
7. Maturity Date of Loans. The last day of the Commitment Period as set
forth in paragraph 3 above.
8. Interest Rate. PNC Bank prime plus four percent (4%), payable at
maturity.
9. Documentation. Promissory note of STI reflecting the terms set forth
herein; standard opinion from STI's counsel regarding due
authorization and enforceability.
10. Subordination. WSI will execute and deliver to PNC a subordination
agreement in form substantially similar to that executed and delivered
by WSI in 1999 with respect to any loans made by WSI hereunder, in
consideration of PNC's consent set forth below.
11. Availability. Until the maturity date, STI may borrow under this
facility subject to no conditions other that those set forth in
paragraph 9 .
<PAGE> 2
Please indicate your acceptance of the foregoing terms and provisions by
signing one copy of this letter and returning it to the undersigned no later
than March 31, 2000.
Very truly yours,
WILMINGTON SECURITIES, INC.
By: /s/ Andrew H. McQuarrie
--------------------------
Vice President
Agreed to and accepted
this 29th day of March, 2000
SUPERCONDUCTOR TECHNOLOGIES, INC.
By: /s/ M. Peter Thomas
--------------------------------
Chief Executive Officer
PNC Bank, NA hereby consents to the
advancement of loans by WSI to STI
consistent with the terms of this letter.
PNC Bank, NA
By /s/ Jeffrey D. Sletten
---------------------------------
Date: 3/28/00
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT APRIL 1, 2000 AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 8,929,000
<SECURITIES> 0
<RECEIVABLES> 2,171,000
<ALLOWANCES> 0
<INVENTORY> 3,108,000
<CURRENT-ASSETS> 14,630,000
<PP&E> 12,229,000
<DEPRECIATION> 8,373,000
<TOTAL-ASSETS> 20,640,000
<CURRENT-LIABILITIES> 3,280,000
<BONDS> 0
0
0
<COMMON> 17,000
<OTHER-SE> 16,642,000
<TOTAL-LIABILITY-AND-EQUITY> 20,640,000
<SALES> 2,271,000
<TOTAL-REVENUES> 1,669,000
<CGS> 1,792,000
<TOTAL-COSTS> 5,285,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,000
<INCOME-PRETAX> (3,760,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,760,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,760,000)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
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