<PAGE> 1
To be filed on August 14,1996.
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
June 30, 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
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 June 30, 1996, there were 3,936,843 shares of $0.01 par value
common stock outstanding and 2,255,590 shares of $0.01 par value preferred stock
outstanding.
Page 1
<PAGE> 2
TERA COMPUTER COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of December 31, 1995 3
and June 30, 1996
Statement of Operations for the Three Months and 4
Six Months Ended June 30, 1995 and June 30, 1996
and cumulative from date of inception to June 30, 1996
Condensed Statement of Cash Flows for the Three Months 5
and Six Months Ended June 30, 1995 and June 30, 1996
and cumulative from date of inception to June 30, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
Page 2
<PAGE> 3
TERA COMPUTER COMPANY
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,284,720 $ 4,730,058
Accounts receivable 42,065 32,246
Advances to suppliers 982,972 376,511
Other assets 90,322 52,924
------------ ------------
Total current assets 5,400,079 5,191,739
Property and equipment, net 1,641,351 1,416,402
Lease deposits 227,702 207,126
------------ ------------
TOTAL $ 7,269,132 $ 6,815,267
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 686,115 $ 793,305
Accrued payroll and related expenses 1,292,626 1,593,290
Potential contract adjustments 250,000 250,000
Current portion of obligations under capital leases 529,516 336,469
------------ ------------
Total current liabilities 2,758,257 2,973,064
Obligations under capital leases
less current portion 418,808 370,776
Shareholders' equity:
Convertible preferred stock, par $.01 - Authorized 5,000,000
shares; issued and outstanding, 2,255,590 shares 6,621,918
Common stock, par $.01 - Authorized, 25,000,000 shares;
issued and outstanding, 3,889,455 and 3,936,843 shares 19,059,818 19,105,398
Accumulated deficit (14,967,751) (22,255,889)
------------ ------------
4,092,067 3,471,427
TOTAL $ 7,269,132 $ 6,815,267
============ ============
</TABLE>
See notes to financial statements
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<PAGE> 4
TERA COMPUTER COMPANY
(a development stage company)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ (378,256) $ (3,342,478) $ (1,720,404) $ (6,509,123) $(34,638,576)
Marketing and sales (38,634) (145,350) (89,956) (278,224) (1,444,182)
General and administrative (79,627) (252,566) (228,887) (490,452) (4,245,751)
------------ ------------ ------------ ------------ ------------
(496,517) (3,740,394) (2,039,247) (7,277,799) (40,328,509)
RESEARCH FUNDING 767,163 19,083 1,822,031 29,476 18,499,085
------------ ------------ ------------ ------------ ------------
Net operating expense 270,646 (3,721,311) (217,216) (7,248,323) (21,829,424)
OTHER INCOME (EXPENSE) (24,069) (15,919) (44,301) (39,815) (426,465)
NET INCOME (LOSS) $ 246,577 $ (3,737,230) $ (261,517) $ (7,288,138) $(22,255,889)
============ ============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ 0.17 $ (0.79) $ (0.18) $ (1.69) $ (16.82)
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,445,775 4,718,657 1,431,183 4,315,780 1,323,320
</TABLE>
See notes to financial statements
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<PAGE> 5
TERA COMPUTER COMPANY
(a development stage company)
CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996 1996
------------ ------------ ------------ ------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 246,577 $ (3,737,230) $ (261,517) $ (7,288,138) $(22,255,889)
Net cash used by operating activities (284,749) (2,955,730) (684,802) (5,799,277) (18,785,676)
INVESTING ACTIVITIES:
Net cash used by investing activities (153,381) (108,624) (270,730) (181,804) (2,388,128)
FINANCING ACTIVITIES:
Net cash provided (used) by financing activities 521,104 6,509,140 1,121,943 6,426,419 25,903,862
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 82,974 3,444,786 166,411 445,338 4,730,058
CASH AND CASH EQUIVALENTS:
Beginning of period 104,221 1,285,272 20,784 4,284,720 0
------------ ------------ ------------ ------------ ------------
End of period $ 187,195 $ 4,730,058 $ 187,195 $ 4,730,058 $ 4,730,058
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 32,864 $ 31,015 $ 46,504 $ 57,092 $ 469,335
============ ============ ============ ============ ============
</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
Management's Discussion and Analysis and the financial statements and notes
thereto included in the 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 PROFIT (LOSS) PER SHARE
Net profit (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 profit (loss) per share.
SUBSEQUENT EVENT
In July 1996, the Company completed an $8,024,000 private placement of Units,
each Unit consisting of two shares of preferred stock and a warrant,
representing 2,360,000 shares of preferred stock and 1,180,000 warrants. As of
July 1996, the Company received, after selling commissions and offering
expenses, approximately $6,988,000. The preferred stock is convertible into
common stock upon registration of the underlying common stock with the
Securities and Exchange Commission and the warrants have the same terms as the
Company's existing outstanding warrants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a development stage enterprise that has an accumulated net loss
of approximately $22.3 million as of June 30, 1996. Approximately 42% of the
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Company's funding to date has been from Advanced Research Projects Agency
(ARPA) research funding, with the remainder provided through the sale of equity.
The Company has experienced net losses in each year of operations and expects to
incur substantial further losses while it builds its Multithreaded Architecture
(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 fourth quarter of 1996,
if ever. Such revenue assumes that the Company will be able to successfully
complete the development of its prototype and delivery of the first production
unit. As of June 30, 1996, the Company did not have any orders for the
production of 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.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
In the three months ended June 30, 1995, the Company reduced its accrual for
bonuses by $420,000 and potential contract adjustments by $545,000. These
reductions affected all categories of the Company's expenses in the 1995 three
month and six month periods as compared to the 1996 interim periods. Research
and development expense for six months ended June 30, 1996 was $6.5 million,
compared with $1.7 million for the same period in 1995. In addition to the
reductions described above, the increase was due to an increase of non-recurring
hardware engineering expense and prototype parts cost as the Company commenced
fabrication of the integrated circuits required for its prototype and costs
related to preproduction activities in the 1996 period. Costs related to the
development of the MTA system accounted for approximately 90% of the Company's
operating expenses in the first six months of 1996, an increase from 76% in the
1995 period. During the first six months of 1996, $3.2 million was directly
related to the fabrication of the prototype.
Marketing and sales expense for the six months ended June 30, 1996 was $278,000,
compared to $90,000 for the same period in 1995. General and administrative
expense for the six months ended June 30, 1996 was $490,000, compared with
$229,000 for the same period in 1995. In addition to the reductions described
above, the increase in marketing and sales expense was due to increased staff
and expenditures in connection with third party applications software
development, and the increase in general and administrative expense was due
largely to increased operating costs associated with being a publicly owned
company.
LIQUIDITY AND CAPITAL RESOURCES
Since its incorporation through June 30, 1996, the Company's principal sources
of liquidity have been ARPA research funding, which totalled $18.5 million,
proceeds from the sale of its equity and debt securities to private investors
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<PAGE> 8
totaling $17.0 million, and gross proceeds from the Company's initial
public offering of $10.8 million. The 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 $500,000 in 1996. At June 30, 1996, the Company had $4.7
million in cash. As of such date, the Company had no bank line of credit.
The Company used cash for operations of $5,800,000 in the first half of 1996 as
compared to only $685,000 in the first half of 1995. The increased use of cash
in the first half of 1996 is primarily due to the additional $1.8 million in
research funding available to the Company in the first six months of 1995 as
compared to the first half of 1996 and to the approximately $3.2 million in
direct prototype costs incurred by the Company in the first six months of 1996
compared to only $300,000 in the first six months of 1995.
The Company's investing activities have consisted primarily of expenditures for
fixed assets, which have totaled $2,388,000 from the date of incorporation
through June 30, 1996, net of proceeds on disposal of assets. Expenditures were
$270,000 and $182,000 for the first half of 1995 and 1996, respectively.
In early July 1996, the Company completed an $8,024,000 private placement of
Units, each Unit consisting of two shares of preferred stock and a warrant, from
which the Company received, after selling commissions and offering expenses,
approximately $6,915,000. Of this sum, $6,622,000 was received by June 30, 1996.
The preferred stock is convertible into common stock upon registration of the
underlying common stock with the Securities and Exchange Commission and the
warrants have the same terms as the Company's existing outstanding warrants. The
Company believes that this funding, together with its current cash funds and
revenues it anticipates receiving from ARPA, should be sufficient to meet the
Company's working capital requirements for ongoing operations through 1996. If
the Company obtains an order for the sale of an MTA system, however, the Company
anticipates that it may be required to raise additional capital in order to
finance inventory and accounts receivable.
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,
inventory and receivable financing 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, inventory and receivable
financing costs, the Company's needs for working capital for the second half of
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.
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<PAGE> 9
Additionally, the Company's administrative functions will increase in order to
support its engineering and sales efforts.
The Company may require further additional working capital if the development of
the MTA system is substantially delayed, to finance the manufacture of MTA
systems for customers or accounts receivable from customers, or for other
purposes. There can be no assurance that any additional financing will be
available when needed or, if available, will be on satisfactory terms.
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<PAGE> 10
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Board of Directors has authorized the issuance of up to 2,360,000 shares of
Series A Convertible Preferred Stock (the "Series A Stock"), all of which have
been issued and are outstanding. The Series A Stock has certain rights,
privileges and preferences that limit and qualify the rights of the Common
Stock of the Company. The Statement of Rights and Preferences of the Series A
Stock provides that no dividends may be declared or paid on any shares of
Common Stock unless an equal or greater dividend is paid on the Series A Stock
in the same year. Further, holders of the Series A Stock have certain
preferential distribution rights in the event of any liquidation, dissolution
or winding-up of the Company. Although holders of the Series A Stock have no
voting rights, the Company must obtain the consent of the holders of record of
a majority of the outstanding shares of Series A Stock in order to authorize or
issue any shares of any new class of stock having preferences greater than the
Series A Stock as to dividends or assets, to change the designation of the
rights, preferences or privileges of the Series A Stock so as to materially
adversely affect the Series A Stock, to increase the number of Series A Stock,
and to reissue any shares that are acquired by the Company.
Each share of the Series A Stock will be converted automatically into shares of
Common Stock when a registration statement covering the resale of the shares of
Common Stock reserved for issuance upon conversion of the Series A Stock is
declared effective by the Securities and Exchange Commission, or on December
31, 1999, whichever is earlier.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Statement of Rights and Preferences of the Series A Convertible
Preferred Stock of the Registrant, as filed with the Secretary of State
of the State of Washington on May 14, 1996*
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 June 30, 1996.
- - -------------
* Incorporated by reference to the Post-Effective Amendment No. 2 to Form SB-2
Registration Statement (No. 33-95460-LA), filed on August 14, 1996
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<PAGE> 11
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: August 14, 1996 By. JAMES E. ROTTSOLK
------------------------------
James E. Rottsolk
Chief Executive Officer
and Chief Financial Officer
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<PAGE> 12
Exhibit 11.
TERA COMPUTER COMPANY
(a development stage company)
COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996 1996
--------- --------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,445,775 4,718,657 1,431,183 4,315,780 1,323,320
NET INCOME (LOSS) $ 246,577 $ (3,737,230) $ (261,517) $ (7,288,138) $(22,255,889)
NET INCOME (LOSS) PER SHARE $ 0.17 $ (0.79) $ (0.18) $ (1.69) $ (16.82)
</TABLE>
Page 12
<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 JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,730,058
<SECURITIES> 0
<RECEIVABLES> 32,246
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,191,739
<PP&E> 2,871,880
<DEPRECIATION> 1,455,478
<TOTAL-ASSETS> 6,815,267
<CURRENT-LIABILITIES> 2,973,064
<BONDS> 0
0
6,621,918
<COMMON> 19,105,398
<OTHER-SE> (22,255,889)
<TOTAL-LIABILITY-AND-EQUITY> 6,815,267
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (3,756,313)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,015
<INCOME-PRETAX> (3,737,230)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,737,230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,737,230)
<EPS-PRIMARY> (0.79)
<EPS-DILUTED> (0.79)
</TABLE>
