Form 424B1 for SUPERCONDUCTOR TECHNOLOGIES INC filed on Feb 11 2000
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Filed pursuant to Rule 424(b)(1)
Registration No. 333-94053
PROSPECTUS
2,473,701 SHARES
LOGO
COMMON STOCK
This prospectus relates to 2,473,701 shares of Superconductor Technologies
Inc. common stock that we are offering to The State of Wisconsin Investment
Board and a limited number of other purchasers. The offering price will be $3.25
per share. Superconductor will receive all of the proceeds from this offering.
Our common stock is traded in the Nasdaq Stock Market National Market
System under the symbol "SCON." On February 8, 2000, the last reported sales
price of our common stock on Nasdaq was $12.00 per share.
Investing in our common stock involves risk. See "Risk Factors" beginning
on page 7.
Proceeds to
Price to Purchasers Superconductor
-------------------- -------------------
Per share.......... $ 3.25 $ 3.25
Total.............. $ 8,039,529 $ 8,039,529
Neither the Securities and Exchange Commission nor any state securities
commission has approved of or disapproved these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect to deliver the shares of common stock to the purchasers on or
about February 9, 2000.
The date of this prospectus is February 9, 2000
The SuperFilter(R) System
[GRAPHIC SHOWING PRINCIPAL FEATURES OF SUPERFILER (R) SYSTEM OMITTED]
PROSPECTUS SUMMARY
The following is only a summary. You should refer to the detailed
information and financial statements and accompanying notes contained elsewhere
in this prospectus and in the documents delivered with this prospectus and
referenced under the heading "Information Incorporated by Reference."
SUPERCONDUCTOR TECHNOLOGIES, INC.
Superconductor Technologies Inc. manufactures and markets high performance
subsystems that incorporate high-temperature superconducting, or HTS, materials
and cryogenic technologies. Our principal product line, the SuperFilter(R)
system, is a front-end filter and amplifier system designed to dramatically
improve the performance of wireless telecommunications base stations.
Superconductivity is a physics phenomenon resulting in a lack of electrical
resistance in certain materials when cooled to low temperatures. Zero electrical
resistance can provide fundamental performance improvements for many electrical
and electronic components. Superconductors have the potential for widespread use
in many different applications, ranging from microelectronics, such as radio
frequency circuits, to levitating trains and ultra-efficient power lines.
Several years ago, we identified the wireless telecommunications market as
the most viable path to commercialization of HTS because of the current and
expected rapid growth of the market and our ability to address critical needs of
the market with HTS. Wireless communications markets are growing rapidly on a
global scale with many developing countries deploying wireless technology as an
alternative to wireline networks. In many U.S. and European metropolitan and
rural areas, the growth of traditional cellular and newer digital networks is
leading to coverage, call quality, and capacity problems.
The Cellular Telecommunications Industry Association, or CTIA, reported
approximately 69.2 million wireless phone subscribers in the U.S. as of December
31, 1998. The year-end 1998 number represents a 25.1% annual increase over the
1997 subscribers at year-end and a 34% annual increase over the past five years.
It is anticipated that this growth trend will continue for the next two to three
years, and slightly taper thereafter. The CTIA estimates that there will be
roughly 128 million wireless voice subscribers in the U.S. by year-end 2004,
representing penetration of approximately 45%. Analysts estimate that the
worldwide number of wireless subscribers will increase nearly five-fold over the
next four years - to 975 million in 2003. To provide services to these
customers, it is estimated that the number of installed base stations will
increase from 200,000 in 1998 to 1.1 million in 2003. We believe that this rapid
growth represents a significant market opportunity, as each newly deployed base
station must incorporate a front-end filter and amplifier system, with call
quality issues arguing for an HTS solution in many instances.
In order to penetrate the wireless telecommunications market, we are
marketing our SuperFilter(R) systems to wireless service providers and to large
systems manufacturers, or OEMs, for inclusion in base stations, which are the
basic building blocks of wireless networks. In 1998, our management
significantly expanded our sales and marketing efforts. Field trials of
SuperFilter(R) systems have been conducted with more than 30 cellular service
providers, including all of the top 10 carriers in the U.S. In 1998, these
efforts resulted in orders for more than 100 SuperFilter(R) systems, and in 1999
to December 1, we have received additional orders for more than 110 systems. We
shipped 83 SuperFilter(R) systems in 1998, and 70 systems in the first three
quarters of 1999. In August 1999, we entered into a long-term sales agreement
with United States Cellular Corporation, for a minimum purchase of 100
SuperFilter(R) systems by December 31, 2000 and anticipate U.S. Cellular
purchasing a minimum of an additional 400 SuperFilter(R) systems by August 27,
2004. To prove the economic benefits of the product, we continue to actively
conduct numerous demonstrations and field trials in the U.S.and in Latin
America.
Wireless base station performance is limited by the need for tradeoffs
between interference rejection, or selectivity, and receiver sensitivity. The
SuperFilter(R) system eliminates the need to tradeoff one capability for the
other. Its high selectivity and ultra-low noise figure provide a number of
important benefits for cellular service providers. These include:
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o Increasing uplink coverage by 50% to 100%;
o Reducing dropped calls by up to 50%;
o Reducing interference (improving call quality);
o Increasing handset battery life by up to 100%; and
o Increasing call minutes by up to 100%.
The markets for our products are intensely competitive. Our current and
potential competitors include conventional RF filter manufacturers and both
established and newly emerging companies developing similar or competing
superconducting technologies. We compete primarily with Conductus, Inc. and
Illinois Superconductor Corporation with respect to our superconducting filter
systems.
Due to the proprietary and technological nature of our products and in
order to produce high-quality products, management decided to directly
manufacture the key components of the product line. These key components include
superconducting filters, cryogenic coolers, cryogenic packaging and final
enclosures, as well as system assembly and test, quality and material control
functions. Management believes that this will enable us to better control
manufacturing processes, achieve required cost reductions and produce highly
reliable and quality products.
For more than ten years, we have had a successful government contract
research and development programs business. We are the clear leader in high
performance HTS development for these programs. This technology foundation
places us in a unique position of long-term technical strength. We believe the
government programs business will continue to ensure overall technical
leadership and will enable technology advances. These technological enhancements
will be available to both the government programs and the commercial businesses
- thus enabling us to exploit the significant market opportunity. Since our
formation in 1987 and through the third quarter of 1999, we have received over
$54.8 million dollars in revenue from government research and development
contracts.
We are a world leader in HTS thin film materials and products technology.
We hold exclusive worldwide rights to the thallium-based high-temperature
superconductors for all applications. These have the highest operating critical
temperature of all manufacturable HTS compounds, up to 127(Degree)K. We have led
the development of processes for the high-yield manufacture of these materials
and hold several broad patents on these materials. We also have led the
development of HTS RF and microwave filters and cryogenic low noise amplifiers,
using proprietary design tools and processes, achieving the high-yield
manufacture of the most selective and lowest noise devices available today. We
have also pioneered the development of efficient, low-cost cryogenic packaging
for RF and microwave circuitry. Cryogenic coolers are a key technology and
manufacturing expertise at Superconductor. We have pioneered the volume
manufacture of long-life Stirling cryocoolers for use in our HTS systems.
As of December 8, 1999, we hold 19 U.S. patents. Nine of our patents are
for technologies directed toward producing thin-film materials, including our
proprietary thin-film process for thallium barium calcium cooper oxide, or
TBCCO, production. In addition, we currently hold six patents for circuit
designs and two patents covering cryogenics and packaging. We have 21 patents
pending, including five related to materials, four covering design and six
related to cryogenics and packaging. As we have developed prototype products, we
have increased the number of design patents applied for in an effort to protect
all phases of product development.
We were incorporated in Delaware in May 1987. Our facilities and executive
offices are located at 460 Ward Drive, Santa Barbara, California 93111-2310, and
our telephone number is (805) 683-7646.
4
THE OFFERING
Total common stock offered........................... 2,473,701 shares
Offering price....................................... $3.25 per share
Outstanding common stock
Before offering................................ 7,739,218 shares, exclusive of options and
warrants and before conversion of preferred stock
After offering................................. 10,212,919 shares, exclusive of options and
warrants and before conversion of preferred stock
Preferred stock conversion..................... The holder of series A-2, A-3, and C preferred stock,
representing 118,751 shares of outstanding
preferred stock, is converting those shares into
an aggregate of 2,458,491 shares of common stock,
and effective concurrently with the consummation
of the offering. We have agreed to issue to that
holder warrants to purchase up to an aggregate
of 250,000 shares of common stock in connection with
that conversion. The exercise price of the warrants will be
$3.58 per share, based on 110% of the offering price of $3.25
per share, and the warrants will be exercisable
for five years.
Use of proceeds...................................... To fund the purchase of capital equipment and
the further development of commercial products,
and for working capital and other general
corporate purposes
Nasdaq National Market symbol........................ SCON
5
SUMMARY FINANCIAL DATA
(Dollars thousands, except per share amounts)
Nine Months Ended
---------------------------
Years Ended December 31, September 26, October 2,
-----------------------------------
1996 1997 1998 1998 1999
------- ------ ------ ---------- -----------
(unaudited) (unaudited)
Statement of Operations Data:
Net Revenues:
Government contract revenues................ $7,104 $8,104 $6,029 $5,178 $3,674
Commercial product revenues................. 250 175 1,954 1,031 1,265
Sub license royalties....................... 38 38 0 0 0
----- ----- ----- ----- -----
Total net revenues....................... 7,392 8,317 7,983 6,209 4,939
Costs and expenses:
Cost of commercial product revenues......... 0 0 5,873 4,266 4,512
Contract research and development........... 5,721 6,218 4,693 3,575 2,424
Other research and development.............. 2,260 1,809 1,161 892 1,323
Selling, general and administrative......... 2,967 4,076 5,435 4,035 4,404
------ ------ ------ ------ ------
Total operating expenses................ 10,948 12,103 17,162 12,768 12,663
====== ====== ====== ====== ======
Loss from operations........................... (3,556) (3,786) (9,179) (6,559) (7,724)
Other income (expense), net.................... 85 245 17 39 (164)
------ ------- ------ ------- -------
Net loss....................................... ($3,471) ($3,541) ($9,162) ($6,520) ($7,888)
Redeemable preferred stock dividends........... 0 0 (273) 0 0
Deemed distribution for accounting purposes 0 0 0 0 (456)
------- ------- ------- ------- -------
Net loss available for common stockholders.... ($3.471) ($3.541) ($9,335) ($6,520) ($8,344)
======= ======= ======= ======= =======
Basic and diluted loss per share:
Net loss................................... ($0.57) ($0.40) ($1.19) ($.87) ($1.02)
Preferred stock dividends.................. (0.03)
Deemed distribution........................ 0 0 0 0 (0.06)
-------- -------- ------- ------- --------
Net loss available to common stockholders.. ($0.57) ($0.40) ($1.22) ($0.87) ($1.08)
========= ========= ========= ========= =========
Weighted average of number of shares outstanding 6,117,126 7,701,405 7,724,829 7,723,340 7,741,425
========= ========= ========= ========= =========
October 2, 1999
-----------------------------
Actual As Adjusted(1)
------------ ------------
(unaudited)
------------------------------
Balance Sheet Data:
Cash and cash equivalents........................................................... $ 1,064 $ 8,946
Working capital .................................................................... 2,536 10,418
Total assets........................................................................ 12,808 20,690
Notes payable, long-term debt....................................................... 809 809
Total stockholders' equity.......................................................... 8,302 16,184
__________
(1) To reflect net proceeds of $7,890,000, after deducting estimated offering
expenses, on sale of 2,319,855 shares of common stock to the State of
Wisconsin Investment Board and an exchange of 153,846 shares of common
stock for short term indebtedness of $500,000 incurred December 1, 1999 to
Wilmington Securities.
6
RISK FACTORS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Superconductor's actual results could differ materially from
those anticipated in these forward-looking statements as a result of numerous
factors, including those set forth in the following risk factors and elsewhere
in this prospectus and the documents incorporated in this prospectus. In
evaluating our business, you should consider carefully the following factors in
addition to the other information set forth or incorporated in this prospectus.
We need to raise money in order to continue operating.
We increased our sales and marketing departments and developed
manufacturing operations to support anticipated increased sales of our
SuperFilter(R) products. We need additional debt or equity financing to fully
implement our business plan. Raising additional money is not guaranteed, and if
we fail to do so we will have insufficient cash to fund operations. Our
independent accountants have indicated in their report accompanying our 1998
year-end financial statements that, based on generally accepted auditing
standards, there is substantial doubt about our ability to continue as a going
concern. If we are successful in obtaining additional equity financing, future
dilution to existing or future stockholders is likely to result.
We are in the early stages of commercializing our products, and if we do not
successfully manufacture and market our products or if our products do not
receive market acceptance, our business will be seriously affected.
The commercial superconductor product market is limited. Moreover, in the
past we have principally engaged in research and development activities and our
commercial experience is limited. Our ability to grow depends on a successful
transition of our expertise in superconducting filter and cryogenics
technologies and applications to commercial markets, including the wireless
communications market. We may not be able to produce enough products to meet
market demand or our products may not achieve market acceptance. If we fail to
manufacture and market our products successfully, we will be adversely affected.
We are dependent for our revenues on successfully selling our products to
wireless communication providers and original equipment manufactures of
wireless based station manufacturers.
Most of our products, including those developed for wireless communications
base stations and government applications, are intended for use as components in
base station systems or other complex systems. Therefore, we must demonstrate
that our products provide advantages to the service providers who utilize base
station systems and the original equipment manufacturers, or OEMs, of base
station systems. These benefits include a decrease in system size, an increase
in base station range and a reduction in interference. We may not be able to
achieve any of these advantages. Moreover, even if we demonstrate these
advantages, the service providers and OEMs may not choose to incorporate our
products into their systems or, if they do, related system and manufacturing
requirements may not be met.
Our manufacturing experience is limited.
We have sold products only in limited quantities, and primarily for limited
deployment. During 1998, we significantly increased our manufacturing capacity
in order to meet the increased demand for our products as well as expected
future requirements. While we have increased our manufacturing capacity, we may
not be successful in overcoming the technological, engineering and management
challenges associated with producing commercial quantities of superconducting or
cryogenic products for large-scale deployment at acceptable costs and on a
timely basis. As a result, we may not be able to reduce our manufacturing costs
sufficiently below our selling price or to generate a positive gross profit.
We are dependent for our revenue on government contracts.
91% of our past net revenues have been from research and development
contract sales directly to the government or to resellers to the government.
While we have recently devoted substantial resources to developing commercial
markets for our products, we are, and expect to continue to be in the near term,
dependent on government funding for our research and development projects.
Government contracts may be reduced or eliminated at any time, and receipt of
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all or any part of the funds under any of our existing government contracts not
yet performed is not guaranteed. If we fail to increase revenues from commercial
sales, a significant loss of government funding would severally harm us.
Government contracts may be terminated or suspended for noncompliance or other
events beyond our control.
The government may cancel virtually all of our government contracts and are
terminable at the option of the government. While we have complied with
applicable government rules and regulations and contract provisions in the past,
we could fail to comply in the future. Noncompliance with government procurement
regulations or contract provisions could result in termination of government
contracts, substantial monetary fines or damages, suspension or debarment from
doing business with the government and possible civil or criminal liability.
During the term of any suspension or debarment by a government agency, we could
be prohibited from competing for or being awarded any contract by any government
agency. The termination of our significant government contracts, the imposition
of fines, damages, suspension or debarment, or the adoption of new or modified
procurement regulations or practices could adversely affect us.
Inventions conceived or actually reduced to practice under a government
contract generally result in the government obtaining a royalty-free, paid-up,
non-exclusive license to practice the invention. Similarly, technologies
developed in whole or in part at government expense generally result in the
government obtaining unlimited rights to use, duplicate or disclose technical
data produced under the contract. These licenses and rights may result in a loss
of potential revenues or the disclosure of our proprietary information, either
of which could adversely affect us.
We have incurred significant losses and expect to continue experiencing losses
due to significant marketing, manufacturing and research and development
costs.
We have incurred net losses every year and, as of December 31, 1998, had an
accumulated deficit of $36,215,000. We expect to continue to incur significant
operating losses over the next several quarters as we continue to devote
significant financial resources to commercializing our products, expanding our
operations and product development activities. Our success depends on
successfully commercializing our high temperature superconductor filter systems
for the worldwide wireless communications market, which is not guaranteed.
We are highly dependent on our technical work force and senior management.
Due to the specialized technical nature of our business, we are highly
dependent upon our attracting and retaining qualified technical personnel and
senior management, primarily in the areas of wireless communications and
cryogenics. The loss of the services of one or more members of the senior
management or technical teams could damage our ability to achieve our product
development and commercialization objectives. There is also intense competition
for qualified personnel in the areas of our activities and our ability to
attract and retain qualified personnel necessary for the development of its
business is uncertain.
We have limited marketing and sales capabilities.
To successfully market our products, we must continue to develop
appropriate marketing, sales, technical, customer service and distribution
capabilities, or enter into agreements with third parties to provide these
services. Our failure to develop these capabilities or obtain third-party
agreements could adversely affect us.
Our revenues are dependent upon patents and proprietary rights which may not be
enforceable.
We rely on a combination of patent, trademark, trade secret and copyright
law and internal procedures and nondisclosure agreements to protect our
intellectual property. These may be invalidated, circumvented or challenged. In
addition, the laws of some foreign countries in which our products may be
produced or sold do not protect our intellectual property rights to the same
extent as the laws of the United States. Our failure to protect our proprietary
information could adversely affect us.
We are dependent on specific patents and licenses to technologies and we will
need additional technologies that we may not be able to access.
We have an exclusive, worldwide license, in all fields of use, to
formulations covered by patents held by the University of Arkansas covering
thallium barium calcium cooper oxide, or TBCCO, the material upon which we
8
primarily rely for our high-temperature superconductor products and product
development. These patents may be subject to challenge. In addition, other
parties may have developed similar materials utilizing TBCCO formulations and
may design around the patented aspects of this material. Under the terms of our
exclusive license, we agreed to assume litigation expenses for infringement
actions, subject to a right of setoff against future royalty obligations. If we
are required to incur significant expenses under this agreement, we may be
adversely affected. In addition, we granted each of DuPont and Superconducting
Core Technologies, Inc. and its affiliates a non-exclusive worldwide sublicense
under our license with the University of Arkansas to develop and market TBCCO
materials and superconducting technologies. There can be no assurance that these
sublicenses will not adversely affect us.
We believe that a number of patent applications are pending that cover the
composition yttrium barium cooper oxide, or YBCO, including applications filed
by IBM, AT&T and other large potential competitors of ours. YBCO is a high-
temperature superconductor material which we rely upon, although to a lesser
extent than TBCCO. We understand that these applications are the subject of
interference proceedings currently pending in the U.S. Patent and Trademark
Office. We are not involved in these proceedings. In addition, we have been
issued patents for specific compounds that we use. We believe that a number of
international patents may be pending regarding other specific YBCO compounds.
There is a substantial risk that one or more third parties will be granted
patents covering YBCO and that our use of these materials may require a license.
As with other patents, we may not be able to obtain licenses to any patents for
YBCO or other materials or these licenses may not be available on commercially
reasonable terms. Our efforts to develop products based on YBCO would be
impai |
