<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1996
OR
/ / 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 0-26820
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TERA COMPUTER COMPANY
(Exact name of registrant as specified in its charter)
------------------------------------------------------
WASHINGTON 93-0962605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2815 EASTLAKE AVENUE EAST
SEATTLE, WA 98102
(206) 325-0800
(Address of principal executive offices)
(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 and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
----- -----
As of March 31, 1996, there were 3,935,844 shares of $0.01 par value
common stock outstanding.
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TERA COMPUTER COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of December 31, 1995 3
and March 31, 1996
Statement of Operations for the Three Months 4
Ended March 31, 1995 and March 31, 1996 and
cumulative from date of inception to March 31, 1996
Statement of Cash Flows for the Three Months 5
Ended March 31, 1995 and March 31, 1996 and
cumulative from date of inception to March 31, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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TERA COMPUTER COMPANY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,284,720 $ 1,285,272
Accounts receivable 42,065 22,999
Advances to suppliers 982,972 678,957
Other assets 90,322 82,305
------------ ------------
Total current assets 5,400,079 2,069,533
PROPERTY AND EQUIPMENT, NET 1,641,351 1,516,543
LEASE DEPOSITS 227,702 210,467
------------ ------------
TOTAL $ 7,269,132 $ 3,796,543
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 686,115 $ 678,027
Accrued payroll and related expenses 1,292,626 1,461,754
Potential contract adjustments 250,000 250,000
Current portion of obligations under capital leases 529,516 623,334
------------ ------------
Total current liabilities 2,758,257 3,013,115
OBLIGATIONS UNDER CAPITAL LEASES:
less current portion 418,808 170,275
SHAREHOLDERS' EQUITY:
Common stock, par $.01 - Authorized, 25,000,000 shares; 19,059,818 19,131,812
issued and outstanding, 3,889,455 and 3,935,844 shares -- --
Accumulated deficit (14,967,751) (18,518,659)
------------ ------------
4,092,067 613,153
TOTAL $ 7,269,132 $ 3,796,543
============ ============
</TABLE>
See notes to financial statements
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TERA COMPUTER COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ (1,342,148) $ (3,166,645) $(31,296,098)
Marketing and sales (51,322) (132,874) (1,298,832)
General and administrative (149,260) (237,886) (3,993,185)
------------ ------------ ------------
(1,542,730) (3,537,405) (36,588,115)
RESEARCH FUNDING 1,054,868 10,393 18,480,002
------------ ------------ ------------
Net operating expense (487,862) (3,527,012) (18,108,113)
OTHER INCOME (EXPENSE) (20,232) (23,896) (410,546)
NET LOSS $ (508,094) $ (3,550,908) $(18,518,659)
============ ============ ============
NET LOSS PER SHARE $ (0.36) $ (0.90) $ (15.53)
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,415,650 3,925,007 1,192,376
</TABLE>
See notes to financial statements
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TERA COMPUTER COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (508,094) $ (3,550,908) $(18,518,659)
Net cash used by operating activities (400,053) (2,814,025) (15,815,343)
INVESTING ACTIVITIES:
Net cash used by investing activities (117,349) (102,702) (2,279,504)
FINANCING ACTIVITIES:
Net cash provided (used) by financing activities 600,839 (82,721) 19,380,119
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 83,437 (2,999,448) 1,285,272
CASH AND CASH EQUIVALENTS:
Beginning of period 20,784 4,284,720 0
------------ ------------ ------------
End of period $ 104,221 $ 1,285,272 $ 1,285,272
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 13,640 $ 26,077 $ 438,320
============ ============ ============
</TABLE>
See notes to financial statements
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TERA COMPUTER COMPANY
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
BASIS OF PRESENTATION
The accompanying balance sheets and related interim statements of operations and
cash flows have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included.
Interim results are not necessarily indicative of results for a full year. The
information included in this Form 10-QSB should be read in conjunction with the
Management's Discussion and Analysis and financial statements and notes thereto
included in the Tera Computer Company's financial statements for the years
ended December 31, 1994 and 1995, and the period from December 7, 1987 through
December 31, 1995, contained in the Company's Form 10-KSB filed for the fiscal
year ended December 31, 1995.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding. As outstanding stock options, warrants and other
common stock equivalent shares are antidilutive, their effect has not been
included in the calculation of net loss per share.
CHANGES IN CAPITAL STOCK
In connection with the Company's IPO of 1995, the Company's Articles of
Incorporation were amended to effect, among other things, a reverse stock split
of the Company's Common Stock and Preferred Stock issued or issuable prior to
the initial public offering of approximately one-for-3.5231. All Preferred
Stock, Common Stock and common equivalent shares and per share amounts have been
adjusted retroactively to give effect to the reverse stock split.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PLAN OF OPERATION
The Company is a development stage enterprise that has an accumulated net loss
of approximately $18.5 million as of March 31, 1996.
The Company has experienced net losses in each year of operations and expects to
incur substantial further losses while it builds its MTA system prototype and
commences production, and possibly thereafter. The Company has had no revenue or
earnings and does not expect to recognize revenue from the sale of its initial
MTA system sooner than the second half of 1996, if ever. Such revenue assumes
that the Company will be able to successfully complete the development and
delivery of its prototype and first production unit. As of March 31, 1996, the
Company did not have any orders for producing MTA systems. Until such time as
the Company has completed the prototype satisfactorily and obtained commitments
from customers for early MTA systems, it plans to increase personnel only
modestly. At March 31, 1996, the Company had 62 full-time employees.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Research and development expense for the three months ended March 31, 1996 was
$3.1 million, compared with $1.3 million for the same period in 1995. The
increase was due to an increase of non-recurring hardware engineering expense as
the Company continued fabrication of the integrated circuits required for its
prototype and costs related to pre-production activities. Costs related to the
development of the MTA accounted for more than 89% of the Company's operating
expenses with $1,457,000 million being directly related to the fabrication of
the prototype.
Marketing and sales expense for the three months ended March 31, 1996 was
$133,000, compared to $51,000 for the same period in 1995. The increase was due
to increased staff and expenditures in connection with third party applications
software development. General and administrative expense for the three months
ended March 31, 1996 was $238,000, compared with $149,000 for the same period in
1995. The increase was due largely to increased operating costs associated with
being a publicly owned company.
LIQUIDITY AND CAPITAL RESOURCES
Since its incorporation through March 31, 1996, the Company's principal sources
of liquidity have been ARPA research funding which totaled $18.5 million,
proceeds from the sale of its equity and debt securities to private investors
totaling $10.1 million, and gross proceeds from the Company's initial public
offering of $10.8 million. The
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Company has billed all $15.5 million allowed under its research contract with
ARPA for the initial system development and has just begun to bill ARPA for
research under a new research contract awarded in September 1995. Billings under
this contract are expected to be approximately $600,000 in 1996. At March 31,
1996, the Company had $1.3 million in cash. As of such date, the Company had no
bank line of credit.
Cash used for operations changed significantly from $2,814,000 for the first
three months of 1996 as compared to $400,000 for the first three months of 1995.
The difference is mostly due to the facts that in the first three months of 1995
the Company had research funding of approximately $1 million greater than in the
1996 quarter and in the 1996 quarter the Company incurred approximately $1.46
million in prototype costs it did not have in the 1995 quarter. Given the
Company's continuing requirements for cash, the Company is pursuing a private
placement of Units consisting of two shares of Series A Convertible Preferred
Stock and one warrant to purchase a share of common stock. The Preferred Stock
is convertible into common stock upon registration of the common stock and the
warrants have the same terms as the Company's existing outstanding Warrants. The
Unit price will be based upon market prices prior to the first closing. The
Company plans to raise between $2.5 million and $6 million to provide it with
working capital for the balance of the year.
During 1996, the Company's working capital needs will depend primarily upon its
level of staffing, the cost of components to be purchased to complete the
fabrication and testing of its initial MTA system prototype and startup costs
associated with early production, if any. The Company has experienced delays in
the development of particular components of the MTA system which have increased
the need for working capital and could experience significant additional delays
in the development process which could further substantially increase the
Company's need for working capital. Other than prototype costs and manufacturing
startup costs, the Company's needs for working capital for 1996 will primarily
be operating costs required to fund ongoing research, development and
engineering efforts, development of a customer service organization, and capital
expenditures for leased equipment. The Company intends to increase its sales and
marketing efforts once a prototype is completed. Additionally, the Company's
administrative functions will increase in order to support its engineering and
sales efforts.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings (Loss) Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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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.
TERA COMPUTER COMPANY
Date: May 15, 1996 By: /s/JAMES E. ROTTSOLK
--------------------
James E. Rottsolk
Chief Executive Officer
and Chief Financial Officer
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Exhibit 11.
TERA COMPUTER COMPANY
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION ON NET LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1995 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,415,650 3,925,007 1,192,376
NET LOSS $ (508,094) $ (3,550,908) $(18,518,659)
NET LOSS PER SHARE $ (0.36) $ (0.90) $ (15.53)
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF TERA COMPUTER COMPANY FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,285,272
<SECURITIES> 0
<RECEIVABLES> 22,999
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,069,533
<PP&E> 2,763,257
<DEPRECIATION> (1,246,714)
<TOTAL-ASSETS> 3,796,543
<CURRENT-LIABILITIES> 3,013,115
<BONDS> 0
0
0
<COMMON> 19,131,812
<OTHER-SE> (18,518,659)
<TOTAL-LIABILITY-AND-EQUITY> 3,796,543
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,561,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,720
<INCOME-PRETAX> (3,550,908)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,550,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,550,908)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
