-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UT+4suiKtPp5ZZv044HFqnbN+dkoPhQD9VEVtCowjorAFvuFwpdQ3iAXDjqZOLMx 0nQ8ErFbBFjhApEvxXZIBA== 0000950124-98-004120.txt : 19980804 0000950124-98-004120.hdr.sgml : 19980804 ACCESSION NUMBER: 0000950124-98-004120 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980803 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS SUPERCONDUCTOR CORPORATION CENTRAL INDEX KEY: 0000888693 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 363688459 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-22302 FILM NUMBER: 98675848 BUSINESS ADDRESS: STREET 1: 451 KINGSTON CT CITY: MOUNT PROSPECT STATE: IL ZIP: 60056 BUSINESS PHONE: 8473919400 MAIL ADDRESS: STREET 1: 451 KINGSTON COURT CITY: MT PROSPECT STATE: IL ZIP: 60056 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Amendment No. 1 to Form 10-Q) [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 Commission File Number: 0-22303 ILLINOIS SUPERCONDUCTOR CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 36-3688459 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 451 KINGSTON COURT, MOUNT PROSPECT, IL 60056 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (847) 391-9400 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 13, 1998 there were outstanding 12,556,773 shares of common stock, par value $.001, of the registrant. This Amendment to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 is being provided to amend and restate Items 1 and 2. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ILLINOIS SUPERCONDUCTOR CORPORATION CONDENSED BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997
MARCH 31, DECEMBER 31, 1998 1997 ------------- ------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 338,778 $ 2,766,886 Investments 500,313 500,313 Inventories 1,555,127 1,726,141 Accounts receivable, net 953,947 586,501 Prepaid expenses and other 290,828 471,928 ------------- ------------- Total current assets 3,638,993 6,051,769 Property and equipment, net 4,306,126 4,523,054 Other assets: Restricted certificates of deposit 380,000 380,000 Patents and trademarks, net 594,413 579,486 ------------- ------------- 974,413 959,486 ------------- ------------- Total assets $ 8,919,532 $ 11,534,309 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 574,884 $ 717,425 Accrued liabilities 313,526 587,285 Current portion of long-term debt 65,389 78,077 ------------- ------------- Total current liabilities 953,799 1,382,787 Long term debt, less current portion 5,028 13,541 Deferred occupancy costs 91,362 91,412 Stockholders' equity: Series B Convertible Preferred Stock at liquidation value; 0 and 95 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively --- 488,534 Series C Convertible Preferred Stock at liquidation value; 105 and 600 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 536,916 3,038,424 Series G Convertible Preferred Stock at liquidation value; 52 and 700 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 265,490 3,530,206 Common stock ($.001 par value); 15,000,000 shares authorized and 11,801,774 and 6,001,925 issued and outstanding at March 31, 1998 and December 31, 1997, respectively 11,802 6,002 Additional paid-in capital 48,208,361 41,991,941 Notes receivable from stockholders (698,508) (698,508) Accumulated deficit (40,454,718) (38,310,030) ------------- ------------- Total stockholders' equity 7,869,343 10,046,569 ------------- ------------- Total liabilities and stockholders' equity $ 8,919,532 $ 11,534,309 ============= =============
NOTE: The condensed balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Condensed Financial Statements 3 3 ILLINOIS SUPERCONDUCTOR CORPORATION CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------------------- 1998 1997 ------------ ------------ Net Revenues $ 697,169 $ 450,000 Costs and expenses: Cost of revenues 1,045,197 1,175,757 Research and development 751,040 1,264,534 Selling and marketing 367,754 566,502 General and administrative 681,217 658,559 ------------ ------------ Total costs and expenses 2,845,208 3,665,352 ------------ ------------ Operating income (loss) (2,148,039) (3,215,352) Other income (expense): Investment income 7,382 83,014 Interest expense (4,033) (6,428) ------------ ------------ 3,349 76,586 ------------ ------------ Net loss $(2,144,690) $(3,138,766) ============ ============ Preferred Stock dividends (61,740) - ------------ ------------ Net loss plus Preferred Stock dividends $(2,206,430) $(3,138,766) ============ ============ Basic and diluted loss per common share $(0.29) $(0.62) ============ ============ Weighted average number of common shares outstanding 7,714,379 5,023,510 ============ ============
See Accompanying Notes to Condensed Financial Statements 4 4 ILLINOIS SUPERCONDUCTOR CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ----------- ----------- OPERATING ACTIVITIES: Net loss $(2,144,690) $(3,138,766) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 233,831 357,245 Changes in operating assets and liabilities (431,681) 90,884 ----------- ----------- Net cash used in operating activities (2,342,540) (2,690,637) INVESTING ACTIVITIES: Payment of patent costs (17,387) (14,101) Acquisitions of property and equipment (14,443) (28,372) ----------- ----------- Net cash used in investing activities (31,830) (42,473) FINANCING ACTIVITIES: Net proceeds from issuance of preferred stock (39,896) - Net proceeds from issuance of common stock - (8,537) Exercise of stock options 7,359 14,941 Collection of notes receivable from stockholders - 426,433 Payments on long-term debt (21,201) (19,497) ----------- ----------- Net cash provided by (used in) financing activities (53,738) 413,340 ----------- ----------- Decrease in cash and cash equivalents (2,428,108) (2,319,770) Cash and cash equivalents at beginning of period 2,766,886 5,188,047 ----------- ----------- Cash and cash equivalents at end of period $ 338,778 $ 2,868,277 =========== ===========
See Accompanying Notes to Condensed Financial Statements 5 5 ILLINOIS SUPERCONDUCTOR CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the financial statements and footnotes thereto included in Illinois Superconductor Corporation's annual report on Form 10-K for the year ended December 31, 1997. NOTE 2 - NET LOSS PER COMMON SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which replaced the calculation for primary and fully diluted earnings per share with basic and diluted earnings per share. Basic and diluted net loss per common share is computed based on the weighted average number of common shares outstanding. Common shares issuable upon the exercise of options and warrants are not included in the per share calculations since the effect of their inclusion would be antidilutive. All the earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to the Statement 128 requirements. NOTE 3 - COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Financial Accounting Standards Board's Statement No. 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or stockholders' equity. During the first quarter of 1998 and 1997, total comprehensive income (loss) amounted to $(2,144,690) and $(3,138,766), respectively. 6 6 NOTE 4 - CAPITAL STOCK Through March 31, 1998, $3,000,000 (600 shares) of Series B Convertible Preferred Stock were converted into 1,072,663 shares of Common Stock. Accrued dividends of $74,932 were also converted into 27,800 shares of Common Stock. Through March 31, 1998, $2,475,000 (495 shares) of Series C Convertible Preferred Stock were converted into 2,133,331 shares of Common Stock. Accrued dividends of $50,885 were also converted into 43,797 shares of Common Stock. Through March 31, 1998, $3,240,000 (648 shares) of Series G Convertible Preferred Stock were converted into 3,248,447 shares of Common Stock. Accrued dividends of $61,913 were also converted into 62,075 shares of Common Stock. Subsequent to March 31, 1998, $525,000 (105 shares) of Series C Convertible Preferred Stock have been converted into 477,968 shares of Common Stock. Accrued dividends of $11,916 have also been converted into 10,849 shares of Common Stock. Also subsequent to March 31, 1998, $260,000 (52 shares) of Series G Convertible Preferred Stock have been converted into 260,678 shares of Common Stock. Accrued dividends of $5,490 have also been converted into 5,504 shares of Common Stock. Currently, no shares of Series B, Series C or Series G Convertible Preferred Stock remain outstanding. NOTE 5 - INVENTORIES Inventories at March 31, 1998 consisted of the following: Raw materials.......................... $ 893,612 Work in process........................ 311,681 Finished product....................... 349,834 ---------- Total Inventory........................ $1,555,127 ==========
NOTE 6 - LEGAL PROCEEDINGS See a complete description of the Company's legal proceedings in "Part II - - Other Information, Item 1. Legal Proceedings." The Company believes that the resolution of the matters described therein will not have a material adverse effect on the financial condition or results of operations of the Company. 7 7 Because ILLINOIS SUPERCONDUCTOR ("the Company") wants to provide investors with more meaningful and useful information, this Quarterly Report on Form 10-Q contains certain "forward-looking statements"(as such term is defined in Section 21E of the Securities and Exchange Act of 1934, as amended) that reflect the Company's current expectations regarding the future results of operations, performance and achievements of the Company. Such forward- looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company has tried, wherever possible, to identify these forward-looking statements by using words such as "anticipates", "believes", "estimates", "expects", "plans", "intends" and similar expressions. These statements reflect the Company's current beliefs and are based on information currently available to it Accordingly, these statements are subject to certain risks, uncertainties and contingencies, which could cause the Company's actual results, performance or achievements for 1998 and beyond to differ materially from those expressed in, or implied by, such statements. These important factors include, without limitation, demand for, and acceptance of, the Company's products; the Company's ability to manufacture commercial quantities of the Company's products on an efficient and cost-effective basis; competition by rival manufacturers of filters for the wireless telecommunications market; the Company's ability to obtain additional financing; changes in technology; the Company's ability to attract and retain, key personnel; costs and other effects of legal proceedings and claims; general business conditions of, and growth in, the wireless telephony industry; and general economic conditions. A more complete description of these risks, uncertainties and assumptions, are included in the Company's filings with the Securities and Exchange Commission, including those described under the heading "Risk Factors" in the Company's Registration Statement on Form S-3, as amended, initially filed in June 1998. The Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company was founded in 1989 by ARCH Development Corporation, an affiliate of the University of Chicago, to commercialize superconducting technologies primarily for the wireless telecommunications industry. The Company uses its patented and proprietary high temperature superconducting ("HTS") materials technologies to develop and manufacture radio frequency ("RF") front-end products which are designed to enhance the quality, capacity, coverage, and flexibility of cellular, personal communications services ("PCS"), and other wireless telephony services. The Company began commercial sales of its RF filter products in 1996. All product revenues during the first quarters of 1998 and 1997 were from commercial sales of the Company's RF front-end products. The Company expects sales of its RF front-end products to continue to increase during 1998 from 1997 levels. RESULTS OF OPERATIONS The Company's net revenues increased $247,169, or 54.9%, from $450,000 for the three months ended March 31, 1997, to $697,169 for the three months ended March 31, 1998, as a result of increased sales of the Company's RF front-end products. Net revenues from product sales during the 1998 period represented gross product shipments less a reserve for potential returns. Such reserves are based on the Company's historical product return rates. Cost of revenues decreased to $1,045,197 for the three months ended March 31, 1998, from $1,175,757 for the same period in 1997. Cost of revenues for the three months ended March 31, 1998 consisted of direct materials, labor, and overhead costs associated with the products shipped during the period, plus approximately $200,000 of costs, consisting primarily of manufacturing overhead costs which were incurred to produce units in ending finished goods inventory in excess of net realizable value. The reduction in cost of revenues was due to improvements in direct materials costs per unit, greater labor efficiencies, and reduced manufacturing overhead costs. The Company expects those improvements to continue during 1998. The Company, however, expects the cost of revenues to exceed the revenues realized until it manufactures and ships a more significant amount of its commercial products. 8 8 The Company's net research and development expenses decreased 40.6% from $1,264,534 for the period ended March 31, 1997, to $751,040 for the same period in 1998. Research and development costs were reduced in the 1998 period due to a reduction in personnel, engineering material, and other operating costs. The Company expects that its research and development expenses during 1998 will continue to be reduced from 1997 levels. Selling and marketing expenses decreased 35.1% from $566,502 for the three months ended March 31, 1997, to $367,754 for the same period in 1998. The decrease in expenses was due to reduced marketing personnel costs and related expenses, reductions in field trial consulting services, and lower advertising costs. General and administrative expenses increased 3.4% from $658,559 for the three months ended March 31,1997, to $681,217 for the same period in 1998. The increase was primarily attributable to increased legal expenses, and was partially offset by reduced financial services expense and personnel costs. Investment income, net of interest expense, decreased to $3,349 for the three months ended March 31, 1998 from $76,586 for the same period in 1997. The decrease was primarily due to a reduced average investment portfolio during the three months ended March 31, 1998 as compared to the same period in 1997. IMPACT OF YEAR 2000 Based on a recent assessment, the Company has determined that it will require very little modification to its software to comply with Year 2000 transition requirements. Most of the software used by the Company in operational applications has been acquired within the past 18 months and such software already addresses Year 2000 issues. The Company expects to complete any other modifications that may be necessary by December 31, 1998, which is prior to any anticipated impact to the Company's operating systems. The Company realizes, however, that the failure by it or those with which it transacts business to address the Year 2000 issue could adversely affect the Company. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company's cash, cash equivalents and investments, including certain restricted investments, were $1,219,000, reflecting a decrease of $2,428,000 from $3,647,000 at December 31, 1997. During 1995 and 1996, the Company financed a portion of its leasehold improvements and capital equipment additions through various borrowings approximating $743,000, of which $70,000 was outstanding at March 31, 1998. This remaining balance is due in monthly installments through May 1999 and bears interest at 8.5% per annum. Approximately $699,000 in principal amount of promissory notes, plus approximately $106,000 of accrued interest thereon, from certain stockholders was outstanding as of June 30, 1998. This receivable was due on April 30, 1997. The Company has filed a lawsuit to collect on the outstanding balance, but there can be no assurance when and if such promissory notes will be repaid. (See "Part II - Item 1. Legal Proceedings"). 9 9 The Company to date has generated limited revenues from product sales. The continuing development of and expansion in sales of the Company's RF filter product lines will require continued commitment of substantial funds to undertake continued product development and manufacturing activities and to market and sell its RF front-end products. The actual amount of the Company's future funding requirements will depend on many factors, including: the amount and timing of future revenues, the level of product marketing and sales efforts to support the Company's commercialization plans, the magnitude of its research and product development programs, the cost of additional plant and equipment for manufacturing and the costs involved in protecting the Company's patents or other intellectual property. As a result of these factors and the Company's recent funding requirements, on May 15, 1998, the Company entered into a Securities Purchase Agreement with a group of investors whereby the Company issued $10.35 million principal amount of Senior Convertible Notes which accrue interest, payable in cash or Common Stock, at 2% per annum. In connection with the Securities Purchase Agreement, the Company also issued warrants to purchase 4,140,000 shares of the Company's Common Stock at an exercise price of $3.75 per share. Without consideration of proceeds from additional financings, the Company believes that its available cash, cash equivalents and investments is sufficient to finance the Company's current operating plans through at least December 31, 1998. The Company's strategy to generate sufficient working capital to fund its operations and cash requirements in the future includes advancing market penetration with OEMs and customers in overseas markets, building strong and enduring relationships with existing customers, expanding product offerings to meet varying customer needs, and reducing product costs through economies of scale in material purchases, refinement of the manufacturing processes, and the implementation of an overhead reduction program. In addition, the Company has strengthened its Board of Directors and management team by adding several industry veterans and experienced businessmen to assist in implementing the Company's plans. While continuously evaluating its needs for capital, the Company may in the future pursue additional sources of capital it considers appropriate based upon Company requirements and market conditions. If the Company is unable to successfully implement its business plan on a timely basis or cannot obtain adequate funds when needed in the future, the Company may be required to delay, scale-back or eliminate the manufacturing, marketing or sales of one or more of its products or some or all of its research and development programs. This could substantially impair the Company's ability to compete in the marketplace. 10 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to be signed on its behalf by the undersigned thereunto duly authorized. ILLINOIS SUPERCONDUCTOR CORPORATION Date: July 31, 1998 By: /s/ Edward W. Laves ------------------------------------- Edward W. Laves President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----