UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One) | ||
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ý |
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2005.
OR
o |
| 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 000-51560
MathStar, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 41-1881957 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
5900 Green Oak Drive, Minnetonka, Minnesota |
| 55343 |
(Address of principal executive offices) |
| (Zip Code) |
(952) 746-2200
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
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. o Yes ý No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
Shares outstanding of the Registrant’s common stock:
Class |
| Outstanding at November 16, 2005 |
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Common stock, $0.01 par value |
| 15,745,535 |
Explanatory Note
This Amendment No. 1 on Form 10-Q/A (the “Amendment”) to the Quarterly Report on Form 10-Q for the period ended September 30, 2005, which was originally filed with the Securities and Exchange Commission on November 22, 2005 (the “Original Filing”), is being filed to amend the Original Filing to correct the following amounts in our Condensed Statements of Operations: gross margin for the three months ended September 30, 2005, the nine months ended September 30, 2004 and 2005, and cumulative for the period from inception (April 14, 1997) through September 30, 2005; operating loss for the three months ended September 30, 2005; and interest expense for the cumulative period from inception (April 14, 1997) through September 30, 2005.
Except for the amendments described above, this Amendment does not modify or update other disclosures in, or exhibits to, the Original Filing.
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PART I FINANCIAL INFORMATION |
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| Item 1. | Financial Statements (Unaudited) |
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| Condensed Balance Sheets as of December 31, 2004 and September 30, 2005 | 1 |
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MathStar, Inc.
(A development stage company)
(Unaudited)
|
| December 31, |
| September 30, |
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| 2004 |
| 2005 |
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| (in thousands, |
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| except per share |
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| amounts) |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 4,132 |
| $ | 298 |
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Accounts receivable |
| 29 |
| 88 |
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Prepaid expenses and other current assets |
| 230 |
| 1,022 |
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Total current assets |
| 4,391 |
| 1,408 |
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Property and equipment, net |
| 109 |
| 60 |
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Other assets |
| 4 |
| 15 |
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Total assets |
| $ | 4,504 |
| $ | 1,483 |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Accounts payable |
| $ | 251 |
| $ | 1,079 |
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Accrued expenses |
| 236 |
| 552 |
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Convertible notes payable |
| — |
| 3,120 |
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Total liabilities |
| 487 |
| 4,751 |
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Commitments and contingencies |
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Stockholders’ equity |
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Preferred stock, $0.01 par value; 10,000 shares authorized; no shares issued and outstanding |
| — |
| — |
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Common stock, $0.01 par value; 90,000 shares authorized; 11,140 and 11,236 shares issued and outstanding at December 31, 2004 and September 30, 2005, respectively |
| 111 |
| 113 |
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Additional paid-in capital |
| 68,465 |
| 72,861 |
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Deficit accumulated during the development stage |
| (64,559 | ) | (76,242 | ) | ||
Total stockholders’ equity (deficit) |
| 4,017 |
| (3,268 | ) | ||
Total liabilities and stockholders’ equity |
| $ | 4,504 |
| $ | 1,483 |
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The accompanying notes are an integral part of these financial statements.
1
MathStar, Inc.
(A development stage company)
Condensed Statements of Operations
(Unaudited)
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| Cumulative |
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| for the Period |
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| from Inception |
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| (April 14, 1997) |
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| Three Months Ended |
| Nine Months Ended |
| Through |
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| 2004 |
| 2005 |
| 2004 |
| 2005 |
| 2005 |
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| (in thousands, except per share amounts) |
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Revenue |
| $ | 100 |
| $ | 15 |
| $ | 100 |
| $ | 55 |
| $ | 801 |
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Cost of goods sold |
| 45 |
| — |
| 45 |
| 15 |
| 68 |
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Gross margin |
| 55 |
| 15 |
| 55 |
| 40 |
| 733 |
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Operating expenses: |
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Research and development |
| 1,342 |
| 1,806 |
| 3,502 |
| 6,384 |
| 27,617 |
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Selling, general and administrative |
| 973 |
| 1,519 |
| 2,796 |
| 3,977 |
| 17,193 |
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| 2,315 |
| 3,325 |
| 6,298 |
| 10,361 |
| 44,810 |
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Operating loss |
| (2,260 | ) | (3,310 | ) | (6,243 | ) | (10,321 | ) | (44,077 | ) | |||||
Interest income |
| 14 |
| 7 |
| 47 |
| 7 |
| 1,087 |
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Interest expense |
| — |
| (900 | ) | — |
| (1,369 | ) | (1,395 | ) | |||||
Other income, net |
| — |
| — |
| — |
| — |
| 17 |
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Net loss from continuing operations |
| (2,246 | ) | (4,203 | ) | (6,196 | ) | (11,683 | ) | (44,368 | ) | |||||
Loss from discontinued operations |
| — |
| — |
| — |
| — |
| (31,874 | ) | |||||
Net loss |
| $ | (2,246 | ) | $ | (4,203 | ) | $ | (6,196 | ) | $ | (11,683 | ) | $ | (76,242 | ) |
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Basic and diluted net loss per share |
| $ | (0.24 | ) | $ | (0.37 | ) | $ | (0.69 | ) | $ | (1.04 | ) | — |
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Weighted average basic and diluted shares outstanding |
| 9,469 |
| 11,233 |
| 8,968 |
| 11,195 |
| — |
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The accompanying notes are an integral part of these financial statements.
2
MathStar, Inc.
(A development stage company)
Condensed Statements of Cash Flows
(Unaudited)
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| Cumulative |
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| for the Period |
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| from Inception |
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| (April 14, 1997) |
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| Nine Months Ended |
| Through |
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| September 30, |
| September 30, |
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| 2004 |
| 2005 |
| 2005 |
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| (in thousands) |
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Cash flows from operating activities |
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Net loss |
| $ | (6,196 | ) | $ | (11,683 | ) | $ | (76,242 | ) |
Adjustments to reconcile net loss to net cash used in operating activities Depreciation |
| 137 |
| 49 |
| 1,509 |
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Amortization of convertible notes discount - beneficial conversion feature and value of warrants issued with notes |
| — |
| 1,061 |
| 1,061 |
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Amortization of discount on held-to-maturity securities |
| — |
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| (233 | ) | |||
Acquired in-process research and development |
| — |
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| 4,300 |
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Stock-based compensation |
| — |
| 546 |
| 1,610 |
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Goodwill impairment |
| — |
| — |
| 13,306 |
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Change in operating assets and liabilities, net of effects of acquisition |
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Accounts receivable |
| (13 | ) | (60 | ) | 56 |
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Prepaid expenses and other assets |
| 144 |
| (803 | ) | (898 | ) | |||
Accounts payable |
| 19 |
| 828 |
| 931 |
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Accrued expenses |
| (576 | ) | 505 |
| 719 |
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Net cash used in operating activities |
| (6,485 | ) | (9,557 | ) | (53,882 | ) | |||
Cash flows from investing activities |
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Cash used in acquisition, net of cash acquired |
| — |
| — |
| (791 | ) | |||
Purchase of property and equipment |
| — |
| — |
| (1,408 | ) | |||
Proceeds from sale of discontinued operations |
| — |
| — |
| 1,752 |
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Purchases of held-to-maturity securities |
| — |
| — |
| (10,000 | ) | |||
Sales of held-to-maturity securities |
| — |
| — |
| 10,233 |
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Net cash used in investing activities |
| — |
| — |
| (214 | ) | |||
Cash flows from financing activities |
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Proceeds from issuance of common stock, net of offering costs |
| 7,533 |
| — |
| 41,414 |
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Proceeds from issuance of convertible notes |
| — |
| 5,500 |
| 5,500 |
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Proceeds from issuance of warrants to purchase common stock, net of offering costs |
| 536 |
| — |
| 5,304 |
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Proceeds from exercise of warrants |
| — |
| 223 |
| 2,896 |
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Collection of subscription receivable |
| — |
| — |
| 27 |
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Proceeds from exercise of stock options |
| — |
| — |
| 1 |
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Principal payments on notes receivable from stockholders |
| — |
| — |
| 245 |
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Principal payments on notes payable to stockholders |
| — |
| — |
| (250 | ) | |||
Repurchase of common stock |
| — |
| — |
| (257 | ) | |||
Payments on capital lease obligations |
| — |
| — |
| (486 | ) | |||
Net cash provided by financing activities |
| 8,069 |
| 5,723 |
| 54,394 |
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Net (decrease) increase in cash and cash equivalents |
| 1,584 |
| (3,834 | ) | 298 |
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Cash and cash equivalents |
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Beginning of period |
| 2,805 |
| 4,132 |
| -0- |
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End of period |
| $ | 4,389 |
| $ | 298 |
| — |
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The accompanying notes are an integral part of these financial statements.
3
MathStar, Inc.
(A development stage company)
(in thousands, except share and per share amounts)
1. Basis of Presentation and Going Concern
The accompanying interim condensed financial statements of MathStar, Inc. (“MathStar” or the “Company”) have been prepared in conformity with United States (U.S.) generally accepted accounting principles, consistent in all material respects with those applied in the Company’s Registration Statement on Form S-1, as amended, which was declared effective on October 26, 2005. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The interim financial information is unaudited, but it reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The interim financial results are not necessarily indicative of results to be expected in future interim or annual periods. The interim financial statements should be read in conjunction with the financial statements in the Company’s Registration Statement on Form S-1, as amended, which was declared effective on October 26, 2005.
The Company was incorporated as a Minnesota corporation in April 1997 and reincorporated under Delaware law in June 2005. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruitment of management and technical staff, acquiring operating assets and raising capital. The Company has generated only nominal revenues from the sale of development kits that support customer development of applications for one of the Company’s products, the sale of product prototypes and contractual research and development services. Accordingly, the Company is considered to be in the development stage as defined by Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises.
The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has a limited operating history and has incurred losses and negative cash flows from operations since inception. The Company expects to incur additional losses at least through 2005.
On November 1, 2005, the Company closed on its initial public offering of 4,000,000 shares of its common stock at $6.00 per share, resulting in net proceeds to the Company of approximately $22,100.
4
2. New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 151, Inventory Cost. SFAS No. 151 amends the guidance in Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material or spoilage. Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges.” SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 will be effective for the Company in the first quarter of 2006, which begins January 1, 2006. The Company does not expect adoption of SFAS No. 151 to have a material effect on its consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R revised SFAS No. 123 and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB Opinion No. 25”). The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payments using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the statement of operations based upon the grant-date fair value of those instruments. The revised statement is effective for the Company in the first quarter of 2006 which begins on January 1, 2006. The Company expects that adoption of SFAS No. 123R will result in additional charges to operations beginning in 2006. However, the Company has not yet determined the amount of such charges.
Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation costs and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption alternatives. The Company expects to apply the prospective adoption method. Because the Company has historically followed the “minimum value” method permitted by SFAS No. 123, the prospective method will require the Company to record compensation expense only for options issued after adoption of SFAS No. 123R.
3. Stock-Based Compensation
In accordance with SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to account for stock-based compensation to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, (“APB 25”), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options granted to employees is measured as the excess, if any, of the fair value of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company accounts for stock-based compensation to nonemployees using the fair value method prescribed by SFAS No. 123. Compensation cost for stock options granted to nonemployees is measured based on the fair value of the option at the date of grant, with the unvested portion revalued at each balance sheet date. Compensation costs, if any, are amortized over the underlying option vesting terms.
In 2004, the Company issued 83,570 shares of restricted stock to certain employees of the Company. During the nine months ended September 30, 2005, the Company issued 408,335 shares of restricted stock to certain employees. The restricted stock terms provided for vesting upon either a change of control (as defined by the restricted stock agreement) of the Company or an initial public offering of the Company’s common stock. Notwithstanding the foregoing, the Company had the power to delay the vesting of the restricted stock up to one year after a change in control or an initial public offering of the Company’s common stock. During the quarter ended September 30, 2005, the Company’s Board of Directors elected to delay vesting of all shares of restricted stock until one year after the effectiveness of the Company’s registration statement (which occurred on October 26, 2005). In accordance with APB 25, the Company will record compensation expense of up to $2,740 related to these restricted shares over a one-year vesting period of these shares, beginning on the November 1, 2005 closing date of the Company’s initial public offering.
5
The following table presents the pro forma effect on net loss if the Company had applied the fair value recognition provisions for SFAS No. 123 (minimum value method) to stock-based employee compensation:
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| Cumulative |
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| for the Period |
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| from Inception |
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| (April 14, 1997) |
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| Three Months Ended |
| Nine Months Ended |
| Through |
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| September 30, |
| September 30, |
| September 30, |
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| 2004 |
| 2005 |
| 2004 |
| 2005 |
| 2005 |
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Net loss as reported |
| $ | (2,246 | ) | $ | (4,203 | ) | $ | (6,196 | ) | $ | (11,683 | ) | $ | (76,242 | ) |
Add: Total stock-based employee compensation expense included in net loss, as reported |
| — |
| (39 | ) | — |
| 138 |
| 1,009 |
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Deduct: Total stock-based employee compensation expense determined under fair value based method for all employee awards |
| (43 | ) | (212 | ) | (131 | ) | (569 | ) | (2,354 | ) | |||||
Pro forma net loss |
| $ | (2,289 | ) | $ | (4,454 | ) | $ | (6,327 | ) | $ | (12,114 | ) | $ | (77,587 | ) |
Basic and diluted loss per share: |
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As reported |
| $ | (0.24 | ) | $ | (0.37 | ) | $ | (0.69 | ) | $ | (1.04 | ) |
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Pro forma |
| $ | (0.24 | ) | $ | (0.40 | ) | $ | (0.71 | ) | $ | (1.08 | ) |
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For the purpose of determining fair values using the minimum value method for employee grants as prescribed by SFAS No. 123, the Company used the Black-Scholes option pricing model with the following weighted average assumptions:
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 30, |
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| 2004 |
| 2005 |
| 2004 |
| 2005 |
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Expected option term |
| 5 Years |
| 5 Years |
| 5 Years |
| 5 Years |
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Expected volatility factor |
| 0 | % | 0 | % | 0 | % | 0 | % |
Expected dividend yield |
| 0 | % | 0 | % | 0 | % | 0 | % |
Risk free interest rate |
| 3.61 | % | 4.04 | % | 3.52 | % | 3.93 | % |
The Company used the Black-Scholes option pricing model with the minimum value method for measuring the fair value of options prior to completion of its initial public offering. The minimum value method assumes no volatility in the application of the Black-Scholes model. The Company will be required to include a volatility factor in determining the fair value of options granted after completion of its initial public offering.
4. Selected Balance Sheet Information
The following presents prepaid expenses and other current assets:
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| December 31, |
| September 30, |
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| 2004 |
| 2005 |
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Prepaid license fees |
| $ | 205 |
| $ | 102 |
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Prepaid insurance |
| 25 |
| 16 |
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Deferred convertible note fees and public offering costs |
| — |
| 790 |
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Prepaid rent |
| — |
| 114 |
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| $ | 230 |
| $ | 1,022 |
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6
The following presents property and equipment, net:
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| December 31, |
| September 30, |
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| 2004 |
| 2005 |
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Computer equipment |
| $ | 896 |
| $ | 896 |
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Purchased software |
| 425 |
| 425 |
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Furniture and fixtures |
| 165 |
| 165 |
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| $ | 1,486 |
| $ | 1,486 |
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Less: Accumulated depreciation |
| (1,377 | ) | (1,426 | ) | ||
Total property and equipment, net |
| $ | 109 |
| $ | 60 |
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Depreciation expense was $33 and $14 for the three months ended September 30, 2004 and 2005, respectively, $137 and $49 for the nine months ended September 30, 2004 and 2005, respectively and $1,509 cumulative for the period from inception (April 14, 1997) to September 30, 2005.
The following presents accrued expenses:
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| December 31, |
| September 30, |
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| 2004 |
| 2005 |
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Accrued rent |
| $ | 146 |
| $ | 158 |
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Accrued interest |
| — |
| — |
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Accrued compensation |
| 90 |
| 243 |
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Other |
| — |
| 151 |
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Total accrued expenses |
| $ | 236 |
| $ | 552 |
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5. Stockholders’ Equity
On November 1, 2005, the Company closed on its initial public offering of 4,000,000 shares of its common stock at $6.00 per share, resulting in net proceeds to the Company of approximately $22,100. For the three and nine months ended September 30, 2005, the Company granted options totaling 291,167 shares and 1,049,501 shares, respectively. Additionally, for the three and nine months ended September 30, 2005, the Company granted restricted stock awards for 10,000 and 408,335 shares, respectively.
7
6. Subsequent Events
In April 2005, the Company issued convertible notes totaling $5,500. The notes, which are due in November 2006, bear interest at 8% per year but are convertible into shares of the Company’s common stock at a price per share of $4.80 (equal to 80% of the issuance price of the Company’s stock in its initial public offering). Following completion of the Company’s initial public offering, the note holders elected to convert $5,416 of the notes and accrued interest into 1,128,401 shares of common stock, and the remaining $331 of notes and accrued interest will be repaid in accordance with the terms of the notes. The remaining unamortized discount on these notes of $2,566 at September 30, 2005 will be charged to interest expense during the quarter ending December 31, 2005.
During October 2005, the Company borrowed $340 from a bank. These borrowings, which bear interest at 4.8%, were collateralized by a certificate of deposit supplied by the Company’s President and Chief Executive Officer, who is also a shareholder. These borrowings were repaid in November 2005 following the closing of the Company’s initial public offering.
8
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.
| Mathstar, Inc. | ||
| (Registrant) | ||
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Date: November 22, 2005 | By: | /s/ James W. Cruckshank |
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| James W. Cruckshank | |
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| Vice President of Administration and | |
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| Chief Financial Officer | |
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| (Principal Financial Officer and Principal | |
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| Accounting Officer) | |
9
| Description of Exhibit |
| Page | |
31.1 |
| Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 (filed herewith electronically). |
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31.2 |
| Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 (filed herewith electronically). |
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10
