<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1998
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 (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 May 14, 1998, 11,629,278 shares of the Company's Common Stock, par
value $0.01 per share, were outstanding.
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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, 1997 3
and March 31, 1998 (As restated, see notes to financial
statements)
Statement of Operations for the Three Months 4
Ended March 31, 1997 and March 31, 1998, and
cumulative from date of inception to March 31, 1998
(As restated, see notes to financial statements)
Condensed Statement of Cash Flows for the Three 5
Months Ended March 31, 1997 and March 31, 1998
and cumulative from date of inception to March 31, 1998
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 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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TERA COMPUTER COMPANY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
(As restated,
see notes to
financial
statements)
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,329,115 $ 6,909,798
Accounts receivable 99,696 154,684
Related party receivable 368,008 264,882
Inventory 4,290,873 5,691,251
Advances to suppliers 325,385 297,567
Other assets 410,754 434,974
------------ ------------
Total current assets 18,823,831 13,753,156
PROPERTY AND EQUIPMENT, NET 1,914,925 1,917,784
LEASE DEPOSITS 120,629 131,368
------------ ------------
TOTAL $ 20,859,385 $ 15,802,308
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 2,138,343 $ 2,028,156
Accrued payroll and related expenses 1,713,553 1,321,167
Potential contract adjustments 250,000 250,000
Current portion of obligations under capital leases 379,597 345,858
------------ ------------
Total current liabilities 4,481,493 3,945,181
OBLIGATIONS UNDER CAPITAL LEASES
less current portion 532,321 540,857
REDEEMABLE SECURITIES: (SEE NOTES)
Issued and outstanding 10,000 and 8,427 shares of Series A Convertible
Preferred Stock, $.01 par value 9,477,709 7,986,866
SHAREHOLDERS' EQUITY: (SEE NOTES)
Common Stock, par $.01 - Authorized, 25,000,000 shares;
issued and outstanding, 11,248,096 and 11,535,832 shares 49,168,180 51,076,478
Preferred stock dividend distributable 114,701
Accumulated deficit (42,800,318) (47,861,775)
------------ ------------
Total shareholders' equity 6,367,862 3,329,404
------------ ------------
TOTAL $ 20,859,385 $ 15,802,308
============ ============
</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,
1997 1998 1998
------------ ------------ ------------
(As restated,
see notes to
financial
statements)
<S> <C> <C> <C>
REVENUE
Service revenue $ $ 20,952 $ 94,483
OPERATING EXPENSES:
Cost of sales $ $ (15,873) $ (67,764)
Research and development (2,044,424) (4,313,301) (56,493,286)
Marketing and sales (164,683) (410,050) (3,360,350)
General and administrative (306,476) (475,405) (6,849,017)
------------ ------------ ------------
$ (2,515,583) $ (5,193,677) $(66,675,934)
RESEARCH FUNDING 114,794 27,521 19,031,773
------------ ------------ ------------
Net operating expenses $ (2,400,789) $ (5,166,156) $(47,644,161)
OTHER INCOME (EXPENSE) (14,675) 104,699 (217,614)
------------ ------------ ------------
NET LOSS $ (2,415,464) $ (5,061,457) $(47,861,775)
PREFERRED STOCK DIVIDEND (130,024) (219,988)
AMORTIZATION OF PREFERRED
STOCK DISCOUNT (25,926) (9,555,845)
------------ ------------ ------------
NET LOSS FOR COMMON STOCK $ (2,441,390) $ (5,191,481) $(57,637,608)
============ ============ ============
NET LOSS PER COMMON SHARE; $ (0.37) $ (0.46) $ (24.07)
BASIC AND DILUTED
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,663,235 11,333,104 2,394,140
</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,
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,415,464) $ (5,061,457) $(47,861,774)
Net cash used by operating activities (2,701,577) (6,751,267) (47,963,455)
INVESTING ACTIVITIES:
Net cash used by investing activities (156,590) (278,129) (4,395,926)
FINANCING ACTIVITIES:
Net cash provided by financing activities 5,013,003 610,079 59,269,179
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,154,836 (6,419,317) 6,909,798
CASH AND CASH EQUIVALENTS:
Beginning of period 928,760 13,329,115
------------ ------------ ------------
End of period $ 3,083,596 $ 6,909,798 $ 6,909,798
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 14,152 $ 33,349 $ 629,630
============ ============ ============
</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-Q and Rule 10-01 of Regulation S-X. 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-Q should be read in conjunction
with Management's Discussion and Analysis and the financial statements and notes
thereto included in the Company's Restated financial statements for the years
ended December 31, 1996 and 1997, and the period from December 7, 1987 through
December 31, 1997, contained in the Company's Annual Report on Form 10-K/A filed
for the fiscal year ended December 31, 1997.
NET LOSS PER COMMON SHARE
Net loss per common share is computed on the basis of the weighted
average number of shares of Common Stock outstanding. As outstanding stock
options, warrants and preferred stock are antidilutive, their effect has not
been included in the calculation of net loss per common share.
INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
As of As of
December 31, 1997 March 31, 1998
------------------ --------------
<S> <C> <C>
Components and
subsystems $3,405,120 $4,799,683
Work in Process 885,753 891,568
---------- ----------
$4,290,873 $5,691,251
========== ==========
</TABLE>
RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's March 31, 1998 financial statements,
management determined that the Company's Series A convertible preferred stock,
issued during the second and third quarters of 1996, should have been accounted
for in accordance with the guidance in Emerging Issues Task Force ("EITF") D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature." EITF D-60 requires that a portion of
the proceeds from the issuance of convertible preferred stock with a beneficial
conversion feature equal to the intrinsic value of the beneficial conversion
feature be allocated to paid-in capital. The resulting preferred stock discount
is amortized as a return on the preferred stock and reduces income attributable
to common stock, during the period from the date of issuance to the date the
security is first convertible. Management also determined that the amortization
of preferred stock discount previously recorded as a charge to accumulated
deficit should have been charged to common stock because the Company does not
have retained earnings. Additionally, management determined that the provisions
of the Company's Series A convertible preferred stock, issued in December 1997,
contain redemption features which result in the requirement to present such
preferred stock as Redeemable Securities outside of Shareholders' Equity on the
Balance Sheet.
The accompanying financial statements as of March 31, 1998 and for the period
from December 7, 1987 (inception) to March 31, 1998, have been restated to
account for the Series A convertible preferred stock issued in 1996, which
included beneficial conversion features, in accordance with EITF D-60, to
reclassify as a charge to common stock the amortization of preferred stock
discount previously charged to accumulated deficit, and to present the Series A
convertible preferred stock issued in December 1997 as Redeemable Securities.
The following presents the effects of the restatement on the accompanying
financial statements:
<TABLE>
<CAPTION>
BALANCE SHEET: As of
March 31, 1998
-----------------------------------
As previously As restated
reported
------------ ------------
<S> <C> <C>
Redeemable Securities $ 0 $ 7,986,866
------------ ------------
Shareholders' Equity:
Preferred Stock $ 6,964,462 $ 0
Common Stock $ 54,337,664 $ 51,076,478
Preferred Stock Dividend
Distributable $ 114,701 $ 114,701
Accumulated Deficit $(50,100,557) $(47,861,775
------------ ------------
Total Shareholders' Equity $ 11,316,270 $ 3,329,404
------------ ------------
Total Liabilities and Shareholders'
Equity $ 15,802,308 $ 15,802,308
============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS:
Period from December 7, 1987
(inception)
through March 31, 1998
------------------------------
As previously As restated
reported
------------ ------------
<S> <C> <C>
Net Loss $(47,861,775) $(47,861,775)
Preferred Stock Dividend $ (219,988) $ (219,988)
Amortization of Preferred Stock
Discount $ (2,018,794) $ (9,555,845)
------------ ------------
Loss For Common Stock $(50,100,557) $(57,637,608)
------------ ------------
Loss Per Common Share $ (20.93) $ (24.07)
------------ ------------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As discussed in the notes to financial statements, subsequent to the
issuance of the Company's March 31, 1998 financial statements, management
determined that the Company's Series A convertible preferred stock, issued
during the second and third quarters of 1996, should have been accounted for in
accordance with the guidance in Emerging Issues Task Force ("EITF") D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature." EITF D-60 requires that a portion of
the proceeds from the issuance of convertible preferred stock with a beneficial
conversion feature equal to the intrinsic value of the beneficial conversion
feature be allocated to paid-in capital. The resulting preferred stock discount
is amortized as a return on the preferred stock and reduces income attributable
to common stock, during the period from the date of issuance to the date the
security is first convertible. Management also determined that the amortization
of preferred stock discount previously recorded as a charge to accumulated
deficit should have been charged to common stock because the Company does not
have retained earnings. Additionally, management determined that the provisions
of the Company's Series A convertible preferred stock, issued in December 1997,
contain redemption features which result in the requirement to present such
preferred stock as Redeemable Securities outside of Shareholders' Equity on the
Balance Sheet.
The Company's financial statements as of March 31, 1998 and for the
period from December 7, 1987 (inception) to March 31, 1998 have been restated to
account for the Series A convertible preferred stock issued in 1996, which
included beneficial conversion features, in accordance with EITF D-60, to
reclassify as a charge to common stock the amortization of preferred stock
discount previously charged to accumulated deficit, and to present the Series A
convertible preferred stock issued in December 1997 as Redeemable Securities.
The adjustments have no effect on the Net Loss of the Company or on its cash
flows. The Financial statements and related disclosures contained in this
amended filing reflect, where appropriate, changes to conform to the
restatement.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in this Item 2 includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act, as amended, and is
subject to the safe harbor created by those sections. For a discussion of Risk
Factors that could affect the Company's future performance, please see "Risk
Factors" contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
OVERVIEW
The Company is a development stage enterprise that has an accumulated
net operating loss of approximately $47.9 million as of March 31, 1998.
Approximately 24% of the
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Company's funding to date has been from Defense Advanced Research Projects
Agency ("DARPA") research funding, with the remainder provided primarily through
the sale of securities.
The Company has experienced net losses in each year of operations and
expects to incur further substantial losses as it commences production, and
possibly thereafter. Through March 31, 1998, the Company has had no revenue from
system sales, nor earnings. In November 1996, the Company announced that the
University of California at San Diego had ordered the first MTA system
production model for installation and evaluation at the San Diego Supercomputer
Center ("SDSC"), utilizing a grant from the National Science Foundation. The
agreement calls for the phased-in delivery of an MTA system of up to eight
resource modules for a total consideration to the Company of approximately $4
million. Initial delivery and acceptance of a two processor MTA system under
this agreement occurred in April, 1998. The Company plans to upgrade this system
in stages to larger configurations as it receives production printed circuit
boards and other components which are integrated into a commercially acceptable
system. See "Business - Risk Factors - Development Status of the MTA System" and
" - Manufacturing Risks; Reliance On And Capacity Of Third-Party Sole Source
Suppliers" and "Business - Strategy" in the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Revenue. The Company recorded revenue in the first quarter of 1998 of
approximately $21,000 pursuant to a subcontract with SDSC to evaluate
multithreaded architecture for certain defense applications. The Company expects
to complete its portion of this subcontract in 1998 for an additional $470,000.
The Company will recognize revenue in the second quarter from the initial
delivery of the MTA system to SDSC and anticipates receiving additional revenue
in 1998 from the sale of larger configurations to SDSC and from other sales to
potential customers, although it currently has no contracts or purchase orders
for such other sales.
Operating Expenses. Research and development expenses include costs
associated with the development of the MTA system, including allocated personnel
expense, depreciation and lease expense on facilities and equipment,
nonrecurring engineering, software and hardware costs and preproduction
expenses. Research and development expenses for the three months ended March 31,
1998 were $4.3 million, representing approximately 83% of net operating
expenses, compared to $2.0 million for the same period in 1997, representing
approximately 85% of such period's net operating expenses. During the first
quarter of 1998, approximately $1.8 million were related to the completion and
testing of the initial MTA system, pre-production costs and expense related to
inventory obsolescence and revaluation, compared to $440,000 for such items in
the first quarter of 1997. Although non-recurring hardware engineering expenses
for the current MTA implementation should continue to decrease, research and
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development expenses will continue to be a major expense as the Company devotes
greater effort to future system development.
Marketing and sales expenses for the three months ended March 31, 1998
were $410,000 compared to $165,000 for the same period in 1997, an increase of
148%. General and administrative expenses for the first quarter of 1998 were
$475,000 compared to $306,000 for the same period in 1997, an increase of 55%.
The increase in marketing and sales expenses was due to additional sales,
applications and customer support staff, increased marketing efforts and higher
wages, while the increase in general and administrative expenses was due largely
to additional staff, operating costs associated with being a publicly owned
company and higher wages. These expenses are expected to increase commensurate
with any growth in the Company's operations.
Research Funding. The Company currently is billing DARPA under a
research contract awarded in September 1995. Billings under this contract were
approximately $28,000 in the first quarter of 1998, and are expected to be
approximately $370,000 in the remainder of 1998.
Other Income (Expense). Other income increased to $105,000 in the first
three months of 1998, largely due to interest received on the Company's
increased cash balances.
Taxes. There was no provision for federal income taxes in either quarter
as the Company has continued to incur net operating expenses.
Preferred Stock. The Company recorded a $130,000 charge for dividends on
the Company's Series A Preferred Stock, all of which has been paid by the
issuance of 10,747 shares of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception through March 31, 1998, the Company's principal
sources of liquidity have been net proceeds from the sale of securities totaling
$59.3 million and DARPA research funding of approximately $19 million. Billings
under the current contracts and subcontracts with DARPA are expected to
approximate $840,000 in the last three quarters of 1998. At March 31, 1998, the
Company had $6.9 million in cash, $155,000 in receivables and no bank line of
credit.
During 1998, the Company's working capital needs will depend primarily
upon its personnel costs and the cost of inventory, as well as manufacturing
startup costs and research and development expenses related to future
implementations of the MTA system. In the first quarter of 1998, overall wages
and benefits increased by about 57% over the first quarter of 1997 to
approximately $2.1 million, reflecting both additional personnel (which
increased from 65 to 91 from the end of March 1997 to the end of March 1998) and
higher wages, while total expenditures related to inventory increased to
approximately $2.8 million in the first quarter of 1998, a $1.9 million increase
over the
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first quarter of 1997. Personnel costs are expected to increase further as
additional employees are added; the level of inventory expenditures will depend
upon further purchase orders. The Company has experienced delays in the
development of particular components of the MTA system that have increased the
need for working capital, and the Company could experience significant
additional delays in the manufacturing process that could further substantially
increase the Company's need for working capital.
Although the Company believes its current cash resources, together with
funds anticipated from sales of MTA systems, to be sufficient to continue
anticipated levels of business operations through 1998, the Company may require
further additional working capital if sales of the MTA system, including
additional deliveries to SDSC, are substantially delayed. The Company may raise
additional capital in 1998, through equity or debt financing transactions, even
if revenues are received from the sale of MTA systems when anticipated, in order
to enhance its financial position for future operations. There can be no
assurance that any additional financing will be available on acceptable terms
when needed or that such financings will not be dilutive to the Company's
shareholders.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 27, 1998, the Company announced that the San Diego
Supercomputer Center had accepted delivery of a two-processor MTA system,
resulting in the Company's recognition of its first revenue from system sales in
the second quarter of 1998.
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 December 23, 1997*
11. Computation of Earnings (Loss) Per Share
27. Financial Data Schedule
- - ------------
* Incorporated by reference to the Company's Form S-3 Registration
Statement, Registration No. 333-44137 as filed with the Commission on
January 12, 1998.
(b) Reports on Form 8-K
A report on Form 8-K was filed on January 7, 1998, reporting the
Company's Series A Convertible Preferred Stock financing and the
Company's installation of a single processor MTA system at SDSC under
"Other Events."
A report on Form 8-K was filed on January 22, 1998, reporting the
Company's listing of its Common Stock on the Nasdaq National Market
System under "Other Events."
ITEMS 1, 2, 3 AND 4 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERA COMPUTER COMPANY
November 16, 1998 By: /s/ JAMES E. ROTTSOLK
James E. Rottsolk
Chief Executive Officer
/s/ KENNETH W. JOHNSON
Kenneth W. Johnson
Chief Financial Officer
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TERA COMPUTER COMPANY
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1987 (INCEPTION)
THREE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1997 1998 1998
------------- ----------- ----------------
(As restated,
see notes to
financial
statements)
<S> <C> <C> <C>
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,663,235 11,333,104 2,394,140
NET LOSS FOR
COMMON STOCK ($2,441,390) ($5,191,481) ($57,637,608)
=========== =========== ============
NET LOSS PER COMMON SHARE; ($0.37) ($0.46) ($24.07)
BASIC AND DILUTED
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Restated unaudited financial statements of Tera Computer Company for the three-
month period ended March 31, 1998 and is qualified in its entirety by reference
to such Restated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,909,798
<SECURITIES> 0
<RECEIVABLES> 154,684
<ALLOWANCES> 0
<INVENTORY> 5,691,251
<CURRENT-ASSETS> 13,753,156
<PP&E> 4,849,104
<DEPRECIATION> (2,931,320)
<TOTAL-ASSETS> 15,802,308
<CURRENT-LIABILITIES> 3,945,181
<BONDS> 0
7,986,866
0
<COMMON> 51,076,478
<OTHER-SE> (47,861,775)
<TOTAL-LIABILITY-AND-EQUITY> 15,802,308
<SALES> 20,952
<TOTAL-REVENUES> 20,952
<CGS> (15,873)
<TOTAL-COSTS> (15,873)
<OTHER-EXPENSES> (5,094,057)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,794
<INCOME-PRETAX> (5,061,457)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,061,457)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,191,481)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
