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
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For The Quarter Ended: June 30, 1997 Commission File Number 0-19672
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American Superconductor Corporation
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(Exact name of registrant as specified in its charter)
Delaware 04-2959321
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of organization or incorporation)
Two Technology Drive
Westborough, Massachusetts 01581
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(Address of principal executive offices, including zip code)
(508) 836-4200
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(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
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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 11,662,790
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Class Outstanding as of August 12, 1997
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AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
Page No.
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Part I - Financial Information
Consolidated Balance Sheets
June 30, 1997 and March 31, 1997 (unaudited) 3
Consolidated Statements of Operations
for the three months ended
June 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows
for the three months ended
June 30, 1997 and 1996 (unaudited) 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
Signatures 12
2
3
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1997 1997
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(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,790,111 $ 584,804
Accounts receivable 3,155,333 3,070,573
Notes receivable 335,247 383,607
Inventory 3,234,827 2,940,656
Prepaid expenses and other current assets 302,388 345,344
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Total current assets 11,817,906 7,324,984
Property and equipment:
Equipment 10,389,617 10,137,721
Furniture and fixtures 764,848 733,794
Leasehold improvements 1,757,536 1,732,215
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12,912,001 12,603,730
Less: accumulated depreciation (9,331,525) (8,835,754)
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Property and equipment, net 3,580,476 3,767,976
Long-term marketable securities 12,776,388 15,446,106
Other assets 5,654 42,028
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Total assets $28,180,424 $26,581,094
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June 30, March 31,
1997 1997
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(unaudited) (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable-line of credit $ -- $ 530,000
Accounts payable and accrued expenses 2,027,811 4,283,612
Deferred revenue 833,973 1,519,678
Short-term notes 315,779 673,428
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Total current liabilities 3,177,563 7,006,718
Long-term debt 3,200,538 3,073,663
Commitments -- --
Stockholders' equity:
Common stock ($.01 par); 115,753 105,051
20,000,000 shares
authorized and 11,575,266 and
10,505,118 issued and outstanding at
June 30, 1997 and March 31,
1997, respectively
Additional paid-in capital 86,413,861 76,388,679
Deferred compensation (25,480) (25,480)
Deferred contract costs (517,459) (557,265)
Unrealized gain/(loss) on investments (44,677) (143,661)
Cumulative translation adjustment (13,566) (9,892)
Accumulated deficit (64,126,109) (59,256,719)
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Total stockholders' equity 21,802,323 16,500,713
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Total liabilities and stockholders' equity $28,180,424 $26,581,094
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The accompanying notes are an integral part of the consolidated financial
statements
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4
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
1997 1996
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Revenues:
Contract revenue $ 1,103,444 $ 1,321,239
Prototypes and prototype
development contracts 2,165,281 1,353,964
Rental revenue 296,874 176,620
Other revenue 0 4,000
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Total revenues 3,565,599 2,855,823
Costs and expenses:
Costs of revenue 2,938,709 2,554,168
Research and development 1,966,554 2,445,772
Selling, general and administrative 1,507,322 1,516,399
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Total costs and expenses 6,412,585 6,516,339
Transaction fees (29,817) 0
Interest income 271,963 347,261
Interest expense (75,992) (92,315)
Other income (expense), net (32,161) (39,354)
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Net loss $(2,712,993) $(3,444,924)
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Net loss per common share $ (0.23) $ (0.33)
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Weighted average number of
common shares outstanding 11,570,723 10,493,185
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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)
Three Months Ended
June 30,
1997 1996
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Operating activities:
Net loss $(2,712,993) $(3,444,924)
Adjustments to reconcile net loss to net cash from operations
Forgiveness of notes receivable 0 106,744
Depreciation and amortization 438,566 449,529
Loss on disposal of property & equipment 24,569 0
Deferred compensation expense 0 0
Deferred contract costs-warrants 39,806 0
Changes in operating asset and liability accounts:
Accounts receivable (625,729) (822,212)
Inventory 154,435 412,266
Prepaid expenses and other current assets 37,409 (233,231)
Accounts payable and accrued expenses (3,182,661) (240,108)
Notes payable-line of credit (875,000) 0
Deferred revenue (1,327,822) (139,620)
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Total adjustments (5,316,427) (466,632)
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Net cash used by operating activities (8,029,420) (3,911,556)
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Investing activities:
Notes receivable (4,830) (8,622)
Repayment of notes receivable 53,190 0
Purchase of property and equipment, net (352,538) (513,521)
Purchase of long-term marketable securities (3,000,000) 0
Sale of long-term marketable securities 5,768,702 1,487,677
Decrease(increase) in other assets 36,374 12,562
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Net cash provided by investing activities 2,500,898 978,096
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Financing activities:
Net proceeds from issuance of stock and warrants 10,035,884 93,609
Short-term notes (357,649) (51,102)
Long-term debt 63,438 595,000
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Net cash provided by financing activities 9,741,673 637,507
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Net increase (decrease) in cash and cash equivalents 4,213,151 (2,295,953)
Cash and cash equivalents at beginning of period 584,804 4,261,051
Effect of SI's excluded results (7,844) (142,308)
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Cash and cash equivalents at end of period $ 4,790,111 $ 1,822,790
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The accompanying notes are an integral part
of the consolidated financial statements
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
American Superconductor Corporation (the "Company"), which was formed on
April 9, 1987, develops and commercializes high temperature superconducting
("HTS") wire, wire products and systems, including current leads,
multistrand conductors, electromagnetic coils, and electromagnets and
subsystems comprising electromagnetics intergrated with appropriate cooling
systems. The focus of the Company's development and commercialization
efforts is on electrical equipment for use by electric utilities and
industrial users of electrical power. In the area of power quality, the
Company is focused on power transmission cables, motors, transformers,
generators and fault current limiters. In the area of power quality, the
Company is focused on marketing and selling commercial superconducting
magnetic energy storage (SMES) devices, on development and
commercialization of new SMES products, and on development of power
electronic subsystems and engineering services for the power quality
marketplace. The Company operates in one business segment.
The Company derives a substantial portion of its revenue from research and
development contracts. A significant portion of this contract revenue
relates to a development contract with one stockholder, Pirelli Cavi
S.p.A.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles.
Certain information and footnote disclosure 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 June 30, 1997 and 1996 and the financial position at June 30,
1997.
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, 1997 which are contained in the Company's Annual
Report on Form 10-K for the year ended March 31, 1997.
On April 8, 1997 the Company completed a transaction (the "Merger") in
which the Company acquired all the outstanding stock of Superconductivity,
Inc. ("SI"). These consolidated financial statements have been prepared
following the pooling of interests method of accounting and reflect the
combined financial position, operating results and cash flows of the
Company and SI as if they had been combined for all periods presented.
Prior to the merger, SI's fiscal year-end was December 31. Effective with
the merger, SI's year-end was changed to March 31 to conform with the
Company's year-end. The March 31, 1997 Consolidated Balance Sheet combines
SI's audited balance sheet at December 31, 1996 with the Company's audited
balance sheet at March 31, 1997. As a result, SI's cash flow activity for
the three months ended March 31, 1997 and 1996 is listed as "Effect of SI's
excluded results" on the Consolidated Statement of Cash Flows to account
for the difference in the beginning cash and cash equivalents between
December 31 and March 31 of each year.
Included in "Costs of Revenue" are research and development expenses of
approximately $918,000 and $905,000 for the three months ended June 30,
1997 and 1996, respectively.
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. DEFERRED CONTRACT COSTS-WARRANTS:
In March of 1996, the Company entered into a 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 and becomes
exercisable over the next five years. 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 $40,000 for the quarter ended June 30,
1997.
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 three months ended June 30, 1997 the Company received funding of
$450,000 under a government cost-sharing agreement with the Department of
Energy. This funding was used to directly offset research and development
and selling, general and administrative expenses.
6. SUBSEQUENT EVENTS:
On July 31, 1997 the Company completed a transaction in which the Company
acquired all the outstanding stock of Applied Engineering Technologies,
Ltd. ("AET") in exchange for 68,306 shares of the Company's common stock,
valued at approximately $700,000 as of the closing of the acquisition. The
Company also assumed approximately $121,000 of AET's liabilities. AET will
operate as a division of the Company under the name AET Cryogenics. The
transaction will be accounted for under the pooling of interests method.
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AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1997
RESULTS OF OPERATIONS
American Superconductor Corporation's results for the prior-year period have
been restated to reflect the acquisition of Superconductivity, Inc. ("SI"), a
developer and manufacturer of low temperature superconductor products for the
industrial power quality market. American Superconductor Corporation ("the
Company") completed the transaction on April 8, 1997, acquiring all of the
outstanding stock of SI by means of a merger of a subsidiary of the Company into
SI, which is now being operated as a wholly-owned subsidiary of the Company. The
transaction was accounted for as a pooling of interests.
Revenues during the three months ended June 30, 1997 were $3,566,000 compared to
$2,856,000 for the same period a year earlier. Revenues in the first quarter
were positively affected by SI's shipment of its second PQ DC(TM) SMES system to
Tinker Air Force Base in Oklahoma in June, 1997.
For the three months ended June 30, 1997, the Company also recorded funding of
$450,000 under a government cost-sharing agreement with the Department of Energy
("DOE"). Funding under cost-sharing agreements for the three months ended June
30, 1996 was $71,000. 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
government cost-sharing agreements is recorded as an offset to research and
development and selling, general and administrative expenses, as required by
government contract accounting guidelines, rather than as revenues.
The Company's total operating expenses for the three months ended June 30, 1997
were $6,413,000, compared to $6,516,000 for the same period last year.
Costs of revenue increased to $2,939,000 from $2,554,000 for the same period a
year earlier. This increase primarily reflects the costs of revenue associated
with SI's shipment of the PQ DC(TM) SMES system to Tinker Air Force Base.
Research and development ("R&D") expenses declined to $1,967,000 during the
first quarter from $2,446,000 a year earlier. This decrease was primarily the
result of certain R&D expenses that were incurred in the quarter but which have
been deferred pending the finalization of two cost-reimbursement R&D contracts
with longstanding corporate partners. R&D expenses also declined as a result of
certain R&D expenditures that were offset by increased funding received under
the DOE cost-sharing agreement. The R&D amounts offset by cost-sharing funding
were $232,000 and $36,000 in the first quarter of fiscal years 1998 and 1997,
respectively. In addition, certain R&D expenditures related to externally funded
development contracts have been classified as costs of revenue
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AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1997
(rather than as R&D expenses). R&D expenditures included as costs of revenue for
the three-month period ended June 30, 1997 were $918,000 compared to $905,000
for the same period last year.
Selling, general and administrative ("SG&A") expenses for the quarter ended June
30, 1997 were $1,507,000 compared to $1,516,000 for the same period the prior
year. This slight decrease was primarily the result of certain SG&A expenditures
that were offset by increased funding received under the DOE cost-sharing
agreement. The SG&A amounts offset by cost-sharing funding were $218,000 and
$35,000 in the first quarter of fiscal years 1998 and 1997, respectively. In
addition, certain SG&A expenditures related to externally funded development
contracts have been classified as costs of revenue (rather than as SG&A
expenses). Such indirect costs included in costs of revenue during the
three-month period ended June 30, 1997 were $407,000 compared to $411,000 for
the same period last year.
Interest income was $272,000 in the quarter ended June 30, 1997 compared to
$347,000 for the same period in the previous year. 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.
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 and development activities and commercialization efforts.
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, 1997 for a discussion of certain factors that may affect the Company's
future results of operation and financial condition.
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AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash, cash equivalents and long-term
marketable securities of $17,566,000 compared to $16,031,000 at March 31, 1997.
This increase was primarily due to a $10,000,000 equity investment in the
Company on April 7, 1997 by a subsidiary of Electricite de France, partially
offset by the payment of approximately $4,400,000 related to the investment
banking and legal fees associated with the Company's April 8, 1997 acquisition
of SI and the retirement of various SI liabilities. The other principal uses of
cash during the quarter ended June 30, 1997 were the funding of the Company's
operations and the acquisition of capital equipment, primarily for research and
development and manufacturing.
The Company believes that several years of further development will be necessary
before HTS wires and related products 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
the next year, including the needs of the Company's recently-acquired
businesses (SI and AET).
To date, inflation has not had a material impact on the Company's financial
results.
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AMERICAN SUPERCONDUCTOR CORPORATION
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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Exhibit 27.1 Financial Data Schedule
The Company filed a Current Report on Form 8-K dated April 8,
1997, and an Amendment to such report was filed on June 23,
1997. Such Current Report on Form 8-K, as amended, relates to
the Company's acquisition of SI and includes the required
financial statements related to such acquisition.
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SIGNATURES
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
August 14, 1997 /s/ Roland Lefebvre
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Date Roland Lefebvre
Secretary
August 14, 1997 /s/ Thomas M. Rosa
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Date Thomas M. Rosa
Corporate Controller
(chief accounting officer)
12
5
1000
U.S. DOLLARS
3-MOS
MAR-31-1998
APR-01-1997
JUN-01-1997
1
4,790
12,776
3,155
0
3,235
11,818
12,912
9,331
28,180
3,178
3,201
0
0
116
21,687
28,180
2,165
3,566
1,799
2,938
3,474
0
76
(2,713)
0
(2,713)
0
0
0
(2,713)
(0.23)
0
