1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------
For The Quarter Ended: December 31, 1996 Commission File Number 0-19672
-----------------
American Superconductor Corporation
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2959321
- -------------------------------------------- --------------------------------------
(State or other jurisdiction of organization (I.R.S. Employer Identification Number)
or incorporation)
Two Technology Drive
Westborough, Massachusetts 01581
--------------------------------
(Address of principal executive offices, including zip code)
(508) 836-4200
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 9,562,157
- -------------------------------------- ----------------------------------
Class Outstanding as of February 9, 1997
2
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
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Page No.
Part I - Financial Information
Consolidated Balance Sheets
December 31, 1996 and March 31, 1996 3
Consolidated Statements of Operations
for the three months ended
December 31, 1996 and 1995 and the 4
nine months ended December 31, 1996
and 1995
Consolidated Statements of Cash Flows
for the nine months ended
December 31, 1996 and 1995 5
Notes to Interim Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II - Other Information 11
Signature 12
2
3
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
------------
December 31, March 31,
1996 1996
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 754,919 $ 4,104,703
Accounts receivable 3,729,344 1,485,628
Notes receivable 476,804 607,536
Inventory 780,694 779,428
Prepaid expenses and other current assets 288,186 226,179
----------- -----------
Total current assets 6,029,947 7,203,474
Property and equipment:
Equipment 7,695,848 6,779,649
Furniture and fixtures 730,894 710,473
Leasehold improvements 1,717,041 1,663,806
----------- -----------
10,143,783 9,153,928
Less: accumulated depreciation (6,806,673) (5,606,374)
----------- -----------
Property and equipment, net 3,337,110 3,547,554
Long-term marketable securities 16,373,775 22,257,898
Licenses, net of amortization -- 14,574
Other assets 4,246 4,898
----------- -----------
Total assets $25,745,078 $33,028,398
=========== ===========
December 31, March 31,
1996 1996
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(unaudited)
LIABILITIES AND STOCKHOLDERS - EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,134,634 $ 1,283,558
Advance payments-related parties 48,445 --
Obligation under capital lease, current portion -- 4,478
------------ ------------
Total current liabilities 1,183,079 1,288,036
Obligation under capital lease, long term portion -- 8,995
Commitments -- --
Stockholders - equity:
Common stock ($.01 par); 95,622 94,873
20,000,000 shares
authorized and 9,562,157 and
9,487,277 issued and outstanding at
December 31, 1996 and March 31,
1996, respectively
Additional paid-in capital 64,182,878 63,460,452
Deferred compensation (25,480) (50,960)
Deferred Contract Costs - Warrants (577,169) --
Unrealized gain (loss) on investments (40,008) (61,970)
Cumulative translation adjustment (1,304) 4,602
Accumulated Deficit (39,072,540) (31,715,630)
------------ ------------
Total stockholders' equity 24,561,999 31,731,367
------------ ------------
Total liabilities and stockholders' equity $ 25,745,078 $ 33,028,398
============ ============
The accompanying notes are an integral part of the consolidated
financial statements
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AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues:
Contract revenue $ 1,946,572 $ 827,100 $ 4,029,449 $ 2,285,183
Prototypes and prototype
development contracts 415,459 447,986 1,270,582 1,593,241
----------- ----------- ----------- -----------
Total revenues 2,362,031 1,275,086 5,300,031 3,878,424
Costs and expenses:
Costs of revenue 2,536,831 1,215,721 5,537,265 3,735,081
Research and development 1,549,887 1,921,997 6,061,260 4,853,286
Selling, general and
administrative 251,004 956,714 1,966,921 2,837,195
----------- ----------- ----------- -----------
Total costs and expenses 4,337,722 4,094,432 13,565,446 11,425,562
Interest income 276,648 397,500 932,892 1,227,994
Other income (expense), net 12,974 (30,778) (24,387) (47,818)
----------- ----------- ----------- -----------
Net loss $(1,686,069) $(2,452,624) $(7,356,910) $(6,366,962)
=========== =========== =========== ===========
Net loss per common share ($0.18) ($0.26) ($0.77) ($0.67)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 9,562,090 9,469,952 9,560,380 9,469,275
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
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5
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months Ended
December 31,
1996 1995
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Operating activities:
Net loss $(7,356,910) $(6,366,962)
Adjustments to reconcile net loss to net cash from operations:
Depreciation and amortization 1,222,475 1,183,602
Stock compensation expense 25,480 29,664
Gain on disposal (9,697) --
Changes in operating asset and liability accounts:
Accounts receivable (2,243,716) (510,202)
Notes receivable 130,732 74,081
Inventory (1,266) (109,879)
Prepaid expenses and other current assets (62,007) (83,506)
Accounts payable and accrued expenses (148,924) (51,132)
Advance payments - related parties 48,445 (605,851)
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Total adjustments (1,038,478) (73,223)
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Net cash used by operating activities (8,395,388) (6,440,185)
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Investing activities:
Purchase of property and equipment, net (1,004,627) (945,260)
(Purchase) sale of long-term marketable securities, net 5,906,085 6,594,947
Increase in license fees and other assets 652 30,177
Payments under capital lease (2,512) (3,002)
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Net cash provided by investing activities 4,899,598 5,676,862
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Financing activities:
Net proceeds from issuance of stock and warrants 146,006 18,378
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Net cash provided by financing activities 146,006 18,378
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Net (decrease) in cash and cash equivalents (3,349,784) (744,945)
Cash and cash equivalents at beginning of period 4,104,703 1,467,284
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Cash and cash equivalents at end of period $ 754,919 $ 722,339
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
5
6
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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1. NATURE OF BUSINESS:
-------------------
American Superconductor Corporation (the "Company") was formed on April 9,
1987 to develop and commercialize high temperature superconductor ("HTS")
wire, wire products and systems, which include multistrand conductors,
electromagnetic coils, cryogenic integrated systems and power
semiconductors. The Company operates in one business segment.
The Company is engaged in conducting research, developing prototypes for
commercial applications and conducting sales and marketing activities. The
Company derives a substantial portion of its revenue from research and
development contracts. A significant portion of this contract revenue has
related to development contracts with two stockholders, Inco Alloys
International, Inc. ("Inco") and Pirelli Cavi S.p.A. The Company has made
significant progress in developing prototypes. As the Company is moving
towards commercialization of the technology, the Company has elected not to
report its financial statements as a development stage enterprise.
2. BASIS OF PRESENTATION:
----------------------
The accompanying consolidated financial statements are unaudited, except
for those dated as of March 31, 1996, and have been prepared in accordance
with generally accepted accounting principles. Certain information and
footnote disclosures normally included in the Company's annual consolidated
financial statements have been condensed or omitted. The interim
consolidated financial statements, in the opinion of management, reflect
all adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the results for the interim periods ended December 31,
1996 and 1995 and the financial position at December 31, 1996.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
It is suggested that these interim consolidated financial statements be
read in conjunction with the audited consolidated financial statements for
the year ended March 31, 1996 which are contained in the Company's Annual
Report on Form 10-K for the year ended March 31, 1996.
6
7
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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Included in "Costs of Revenue" are research and development expenses of
approximately $1,756,000 and $825,000 for the three months ended December
31, 1996 and 1995, respectively, and $3,931,000 and $2,709,000 for the nine
months ended December 31, 1996 and 1995, respectively.
3. DEFERRED CONTRACT COSTS-WARRANTS:
---------------------------------
In March of 1996, the Company entered into a new strategic alliance with
the Electric Power Research Institute (EPRI). Under this agreement a
warrant for 100,000 shares of common stock of the Company was granted to
EPRI, which will become exercisable over the five year period through March
2001. In connection with the issuance of this warrant, the Company recorded
an increase to additional paid-in capital and a corresponding charge to
Deferred Contract Costs of approximately $637,000 in the first quarter
ended June 30, 1996. This amount will be expensed over five years. Warrant
expense related to this transaction was approximately $20,000 for the three
months ended December 31, 1996 and $ 60,000 for the nine months ended
December 31, 1996.
4. NET LOSS PER COMMON SHARE:
--------------------------
Net loss per common share is computed based upon the weighted average
number of common shares outstanding.
5. COST-SHARING AGREEMENTS:
------------------------
For the nine months ended December 31, 1996 the Company received funding of
$1,346,000 under Government cost-sharing agreements with Oak Ridge National
Laboratory and the U.S. Department of Energy. This funding was used to
directly offset research and development and selling, general and
administrative expenses and to purchase capital equipment.
7
8
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION FOR THE
THREE AND NINE MONTHS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
Results of Operations
- ---------------------
Revenues during the three months ended December 31, 1996 were $2,362,000
compared to $1,275,000 for the same period in 1995. For the nine months ended
December 31, 1996, revenues were $5,300,000 as compared to $3,878,000 for the
comparable period in 1995. Revenues for the three and nine month periods ended
December 31, 1996 were favorably affected by an increase in work performed under
the Company's collaborative research agreement with Pirelli Cavi S.p.A. This
increase was partially offset by a decrease in revenues from prototype sales.
For the nine months ended December 31, 1995, prototype sales included revenues
from a cable wire prototype which was completed during the fiscal year ended
March 31, 1996. The Company expects that the prototype revenues in future
quarters will fluctuate on a quarter to quarter basis.
Inco Alloys International, Inc., one of American Superconductor's materials
development partners, has decided to discontinue its participation in a joint
research and development program focused on metallic precursor wire technology.
Effective December 31, 1996 Inco Alloys discontinued its $1,100,000 annual
funding of this program. The Company may continue to develop the metallic
precursor technology which the joint program focused on.
For the third quarter and nine months ended December 31, 1996, the Company also
recorded funding of $469,000 and $1,346,000, respectively, under several
government cost-sharing agreements. Year to date funding includes $146,000
related to work performed last fiscal year under the U.S. Department of Energy's
Superconductivity Partnership Initiative contract with Reliance Electric, a
Rockwell Automation business. Funding under cost-sharing agreements for the
third quarter and nine months ended December 31, 1995 was $128,000 and $938,000,
respectively. The Company anticipates that a portion of its funding in the
future will continue to come from cost-sharing agreements as the Company
continues to develop joint programs with government agencies. Funding from
cost-sharing agreements was used to offset research and development and selling,
general and administrative expenses and to purchase capital equipment. In
accordance with government contract accounting guidelines, funding received
under cost-sharing agreements is not included in the Company's reported
revenues.
For the third quarter ended December 31, 1996 costs of revenue increased to
$2,537,000 from $1,216,000 for the same period a year earlier. Year-to-date
costs of revenue were $5,537,000 compared to $3,735,000 for the same period last
year. These increases primarily reflect an increase in costs associated with the
increase in corporate research and development contract revenues, partially
offset by a decrease in costs associated with prototype revenues. Costs of
revenue exceeded total revenues for the three and nine months ended December 31,
1996 due to certain prototype costs exceeding their associated revenue.
8
9
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION FOR THE
THREE AND NINE MONTHS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
Research and development expenses decreased to $1,550,000 during the third
quarter from $1,922,000 in the third quarter of the prior year. The Company
continued to scale up its internal research and development activities. However
this increase was more than offset by certain research and development expenses
related to externally funded development contracts which have been classified as
costs of revenue (rather than as research and development expenses). For the
first nine months of fiscal year 1997, research and development expenses were
$6,061,000 compared to $4,853,000 for the same period last year. This increase
was primarily due to the continued scale-up of the Company's internal research
and development activities including the hiring of additional personnel, the
purchase of materials and equipment and increases in patent processing and
licensing costs. This increase was partially offset by a portion of research and
development expenditures related to externally funded development contracts
which has been classified as costs of revenue (rather than as research and
development expenses). Research and development expenditures included as costs
of revenue for the three and nine months periods ended December 31, 1996 were
$1,756,000 and $3,931,000, respectively. For the three and nine month periods
ended December 31, 1995, these costs were $825,000 and $2,709,000, respectively.
Selling, general and administrative expenses for the quarter ended December 31,
1996 were $251,000 compared to $957,000 for the same period the prior year. On a
year-to-date basis, selling, general and administrative expenses were $1,967,000
compared to $2,837,000 for the same period a year earlier. These decreases were
primarily a result of certain selling, general and administrative expenditures
related to an increased level of externally funded development contracts which
have been classified as costs of revenue (rather than as selling, general and
administrative expenses) and certain selling, general and administrative
expenses that were offset by funding received under cost-sharing agreements.
Such indirect costs included in costs of revenue during the three and nine month
periods ended December 31, 1996, were $781,000 and $1,606,000, respectively. For
the three and nine month periods ended December 31, 1995, these costs were
$391,000 and $1,026,000, respectively.
The Company's total operating expenses for the three months ended December 31,
1996 were $4,338,000 compared to $4,094,000 for the same period last year.
Operating expenses for the first nine months of the current fiscal year were
$13,565,000 compared to $11,426,000 for the comparable period last year.
Interest income was $277,000 in the third quarter compared to $398,000 for the
same period in the previous year. For the nine month periods ended December 31,
1996 and December 31, 1995, interest income was $933,000 and $1,228,000,
respectively. This decrease primarily reflects lower cash balances available
for investment as a result of cash being used to fund the Company's operations
and to purchase property and equipment.
9
10
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION FOR THE
THREE AND NINE MONTHS ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
The Company expects to continue to incur operating losses for at least the next
few years, as it continues to devote significant financial resources to its
research, development and scale-up activities.
The Company expects to be party to agreements which, from time to time, may
result in costs incurred exceeding expected revenues under such contracts. The
Company may enter into such agreements for a variety of reasons including, but
not limited to, entering new product application areas, furthering the
development of key technologies, and advancing the demonstration of commercial
prototypes in critical market applications.
Please refer to the "Future Operating Results" section of the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 for a discussion of certain factors that may affect the Company's
future results of operation and financial condition.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996 the Company had cash, cash equivalents and long-term
marketable securities of $17,129,000 compared to $26,363,000 at March 31, 1996.
This decrease was primarily due to the use of $8,395,000 to fund the Company's
operations during this period. An additional $1,005,000 was used to acquire
capital equipment, primarily for research and development and manufacturing.
The Company believes that several years of further development will be necessary
before HTS wires are available for any significant commercial applications.
Management believes that revenues from funded development contracts and the sale
of prototypes and its cash, cash equivalents and long-term marketable securities
and interest thereon should provide adequate funding to meet the Company's cash
requirements for its planned operations for approximately two years.
To date, inflation has not had a material impact on the Company's financial
results.
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11
AMERICAN SUPERCONDUCTOR CORPORATION
PART II
OTHER INFORMATION
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Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27.1 Financial Data Schedule
11
12
SIGNATURE
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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.
AMERICAN SUPERCONDUCTOR CORPORATION
February 13, 1997 /s/ Ramesh L. Ratan
- ------------------------ --------------------------------------------
Date Ramesh L. Ratan
Executive Vice President of
Corporate Development and
Chief Financial Officer
(Principal Financial and Accounting Officer)
12
5
1,000
U.S. DOLLARS
3-MOS 9-MOS
MAR-31-1997 MAR-31-1997
OCT-01-1996 APR-01-1996
DEC-31-1996 DEC-31-1996
1 1
755 755
16,374 16,374
3,729 3,729
0 0
781 781
6,030 6,030
10,144 10,144
6,807 6,807
25,745 25,745
1,183 1,183
0 0
0 0
0 0
96 96
24,466 24,466
25,745 25,745
415 1,271
2,362 5,300
590 1,558
2,537 5,537
1,801 8,028
0 0
0 0
(1,686) (7,357)
0 0
(1,686) (7,357)
0 0
0 0
0 0
(1,686) (7,357)
(.18) (.77)
(.18) (.77)
Securities - Long Term Marketable Securities
