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, 1998 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
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
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 [ ]
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 15,314,475
- -------------------------------------- ---------------------------------
Class Outstanding as of August 14, 1998
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AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
Page No.
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Part I - Financial Information
Consolidated Balance Sheets
June 30, 1998 and March 31, 1998 3
Consolidated Statements of Operations
for the three months ended
June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the three months ended
June 30, 1998 and 1997 5
Notes to Interim Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Part II - Other Information 12
Signatures 13
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AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1998 1998
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 37,500,639 $ 1,842,142
Accounts receivable 4,688,076 2,991,635
Inventory 3,982,245 3,229,973
Prepaid expenses and other current assets 667,779 545,428
------------ ------------
Total current assets 46,838,739 8,609,178
Property and equipment:
Equipment 12,958,694 12,502,756
Furniture and fixtures 994,969 946,630
Leasehold improvements 1,982,585 1,980,090
------------ ------------
15,936,248 15,429,476
Less: accumulated depreciation (11,486,974) (11,006,576)
------------ ------------
Property and equipment, net 4,449,274 4,422,900
Long-term marketable securities 6,197,386 6,167,030
Net investment in sales-type lease 324,940 345,940
Other assets 108,787 6,167
------------ ------------
Total assets $ 57,919,126 $ 19,551,215
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,884,922 $ 3,333,462
Deferred revenue 87,645 187,285
Current portion of long-term debt -- 29,609
------------ ------------
Total current liabilities 2,972,567 3,550,356
Long-term debt (less current portion) -- 3,141,793
Commitments
Stockholders' equity:
Common stock, $.01 par value
Authorized shares-20,000,000; issued
and outstanding shares-15,314,043 and
11,756,793 at June 30, 1998 and March 31,
1998, respectively 153,140 117,568
Additional paid-in capital 133,894,823 87,961,911
Deferred contract costs - warrants (1,252,543) (1,328,446)
Unrealized gain (loss) on investments 31,848 32,706
Cumulative translation adjustment (26,714) (32,798)
Accumulated deficit (77,853,995) (73,891,875)
------------ ------------
Total stockholders' equity 54,946,559 12,859,066
------------ ------------
Total liabilities and stockholders' equity $ 57,919,126 $ 19,551,215
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
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AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
-----------------------------
1998 1997
----------- -----------
Revenues:
Contract revenue $ 2,228,386 $ 1,103,444
Product sales and prototype development
contracts 131,536 2,165,281
Rental/other revenue 22,569 296,874
----------- -----------
Total revenues 2,382,491 3,565,599
Costs and expenses:
Costs of revenue 2,700,610 2,938,709
Research and development 2,629,632 1,966,554
Selling, general and administrative 1,503,861 1,507,322
----------- -----------
Total costs and expenses 6,834,103 6,412,585
Transaction fees -- (29,817)
Interest income 496,074 271,963
Interest expense (9,827) (75,992)
Other income (expense), net 3,245 (32,161)
----------- -----------
Net loss $(3,962,120) $(2,712,993)
=========== ===========
Net loss per common share
Basic $ (0.27) $ (0.23)
=========== ===========
Diluted $ (0.27) $ (0.23)
=========== ===========
Weighted average number of common
shares outstanding
Basic 14,450,488 11,570,723
=========== ===========
Diluted 14,450,488 11,570,723
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
June 30,
-----------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(3,962,120) $(2,712,993)
Adjustments to reconcile net loss to net cash used by operations:
Depreciation and amortization 480,398 438,566
Loss (gain) on disposals of property and equipment -- 24,569
Deferred contract costs-warrant 80,455 39,806
Stock compensation expense 130,625
Changes in operating asset and liability accounts :
Accounts receivable (1,696,441) (625,729)
Inventory (752,272) 154,435
Prepaid expenses and other current assets (122,351) 37,409
Accounts payable and accrued expenses (448,540) (3,182,661)
Notes payable-line of credit -- (875,000)
Deferred revenue (99,640) (1,327,822)
----------- -----------
Total adjustments (2,427,766) (5,316,427)
Net cash used by operating activities (6,389,886) (8,029,420)
Cash flows from investing activities:
Notes receivable -- (4,830)
Repayment of notes receivable -- 53,190
Purchase of property and equipment (net) (500,688) (352,538)
Purchase of long-term marketable securities (31,214) (3,000,000)
Sale of long-term marketable securities -- 5,768,702
Net investment in sales-type lease 21,000 --
Decrease (increase) in other assets (102,620) 36,374
----------- -----------
Net cash provided (used) by investing activities (613,522) 2,500,898
Cash flows from financing activities:
Net repayments on line of credit -- (357,649)
Principal payments-note payable (3,171,402) 63,438
Net proceeds from issuance of common stock and warrants 45,833,307 10,035,884
----------- -----------
Net cash provided by financing activities 42,661,905 9,741,673
Net increase (decrease) in cash and cash equivalents 35,658,497 4,213,151
Cash and cash equivalents at beginning of period 1,842,142 584,804
Effect of SI's excluded results -- (7,844)
----------- -----------
Cash and cash equivalents at end of year $37,500,639 $ 4,790,111
=========== ===========
Supplemental schedule of cash flow information:
Cash paid for interest $ 119,789 $ 14,163
Noncash issuance of common stock $ 130,625 $ 278
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 integrated 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. For large-scale
applications, the Company's development efforts are 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 low temperature 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 development contracts with two stockholders, Pirelli Cavi E
Sistemi S.p.A. and Electricite de France.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements are unaudited, except
for those dated as of March 31, 1998, 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,
1998 and 1997 and the financial position at June 30, 1998.
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, 1998 which are contained in the Company's
Current Report on Form 10-K covering the year ended March 31, 1998.
Included in "Costs of Revenue" are research and development expenses
related to externally funded development contracts of approximately
$1,624,000 and $918,000 for the three months ended June 30, 1998 and 1997,
respectively.
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. NET LOSS PER COMMON SHARE:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" effective December 28, 1997. SFAS No. 128
requires presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures, diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS includes dilution and is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares include the effect
of the exercise of stock options. For the three months ended June 30, 1998
and 1997, common equivalent shares of 449,129 and 174,663 were not
included for the calculation of diluted EPS as they were considered
antidilutive. The Company has restated net loss per share for all periods
presented in the accompanying consolidated financial statements to reflect
net loss per share on both a basic and a diluted basis.
4. COST-SHARING AGREEMENTS:
For the three months ended June 30, 1998 and 1997, the Company received
funding of $538,000 and $450,000, respectively, 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.
5. THE OFFERING:
On April 22, 1998 the Company completed a public offering of 3,504,121
shares of its common stock and received net proceeds (before deducting
offering expenses) of $46,114,000, of which approximately $3,142,000 was
used to retire the Company's subordinated notes.
6. COMPREHENSIVE LOSS:
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" which requires that an entity
include in total comprehensive income certain amounts which were
previously recorded directly to stockholders' equity.
The Company's comprehensive loss was as follows:
Three Months Ended June 30
---------------------------
1998 1997
----------- -----------
Net Loss $(3,962,120) $(2,712,993)
Other comprehensive income 5,226 95,315
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Total comprehensive loss $(3,956,894) $(2,617,678)
=========== ===========
Other comprehensive income represents changes in foreign currency
translation and unrealized gains and losses on investments.
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The Statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any
fiscal quarter after issuance. Statement 133 cannot be applied
retroactively. Statement 133 must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that
were issued, acquired or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998).
The Company's management believes the impact of adopting Statement 133 on
the financial statements will be immaterial.
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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, 1998
RESULTS OF OPERATIONS
American Superconductor Corporation's revenues during the three months ended
June 30, 1998 were $2,382,000 compared to $3,566,000 for the same period a year
earlier. Revenues from the Company's Power Quality ("PQ") Solutions business
unit declined $2,246,000 in the quarter ended June 30, 1998 from the same period
last year, which included the shipment of a large PQ DC(TM) SMES system. There
were no SMES system shipments in the first quarter of fiscal 1999. This decrease
in product sales was partially offset by a $1,125,000 increase in contract
revenue associated mainly with the Company's joint development program with
Electricite de France ("EDF") and ABB Power Transmission and Distribution
Company ("ABB") to develop high temperature superconductor ("HTS") wire for
power transformers. Contract revenue in the first quarter just ended was also
positively affected by the continuation of work on a coated conductor research
contract with the Electric Power Research Institute ("EPRI") and by increased
work on 10 Phase II Small Business Innovation Research ("SBIR") grants.
For the three months ended June 30, 1998, the Company also recorded funding of
$538,000 under a government cost-sharing agreement with the Department of Energy
("DOE"). Funding under this cost-sharing agreement for the three months ended
June 30, 1997 was $450,000. 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 costs and expenses for the three months ended June 30, 1998
were $6,834,000, compared to $6,413,000 for the same period last year with the
decline in cost of revenue from lack of SMES product shipments offset primarily
by higher research and development expenses and unfavorable manufacturing
overhead variances resulting from excess capacity.
Adjusted research and development ("R&D") expenses, which include amounts
classified as costs of revenue and amounts offset by cost sharing funding,
increased to $4,531,000 in the first quarter from $3,117,000 a year earlier.
This increase was due to the continued scale-up of the Company's internal
research and development activities including the hiring of additional personnel
and the purchases of materials and equipment. A portion of the R&D expenditures
related to externally funded development contracts has been classified as costs
of revenue (rather than as R&D expenses). These R&D expenditures that were
included as costs of revenue during the first quarter of fiscal years 1999 and
1998 were $1,624,000 and $918,000, respectively. Additionally, R&D expenses that
were offset by cost sharing funding were $277,000 and $232,000 in the first
quarter of fiscal years 1999 and 1998, respectively. Net R&D expenses
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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, 1998
(exclusive of amounts classified as costs of revenue and amounts offset by cost
sharing funding) increased to $2,630,000 in the three months ending June 30,
1998 from $1,967,000 for the same period last year.
Selling, general and administrative ("SG&A") expenses for the quarter ended June
30, 1998 were $1,504,000 compared to $1,507,000 for the same period the prior
year. The SG&A amounts offset by cost-sharing funding were $261,000 and $218,000
in the first quarter of fiscal years 1999 and 1998, 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, 1998 were $717,000 compared to $407,000 for the same period last year.
This increase is primarily due to the increased contract revenue in the quarter
ended June 30, 1998, resulting in more SG&A expenses being classified as costs
of revenue.
Interest income was $496,000 in the quarter ended June 30, 1997 compared to
$272,000 for the same period in the previous year. This increase primarily
reflects the additional cash balances available for investment as a result of
completion by the Company of a public offering of 3,504,121 shares of common
stock on April 22, 1998. The Company received net proceeds (after the
underwriters discount but before deducting offering expenses) of $46,114,000 as
a result of this offering.
Interest expense was $10,000 in the quarter ended June 30, 1998 compared to
$76,000 for the same period in the previous year. This decrease primarily
reflects the Company's retirement of all long-term debt following the completion
of the public offering.
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, 1998 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, 1998
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash, cash equivalents and long-term
marketable securities of $43,698,000 compared to $8,009,000 at March 31, 1998.
This increase was primarily due to the public offering of 3,504,121 shares of
common stock on April 22, 1998. The Company received net proceeds (after the
underwriters discount but before deducting offering expenses) of $46,114,000 as
a result of this offering. The principal uses of cash during the quarter ended
June 30, 1998 were the funding of the Company's operations, the acquisition of
capital equipment, primarily for research and development and manufacturing, and
the retirement of long-term debt.
The Company believes that several years of further development will be necessary
before HTS wires and related products are available in significant quantities
for commercial power applications. The Company believes, based on its current
business plan, that its current cash and marketable securities should be
sufficient to fund the Company's operations for at least the next three years.
However, the Company may need additional funds sooner than anticipated if the
Company's performance deviates significantly from its current business plan or
there are significant changes in competitive or other market factors. There can
be no assurance that such funds, whether from equity or debt financing,
development contracts or other sources, will be available, or available under
terms acceptable to the Company.
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
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
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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, 1998 /s/ Gregory J. Yurek
- --------------- ---------------------------------------
Date Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
August 14, 1998 /s/ Thomas M. Rosa
- --------------- ---------------------------------------
Date Thomas M. Rosa
Chief Accounting Officer, Corporate
Controller and Assistant Secretary
13
5
1,000
U.S. DOLLARS
3-MOS
MAR-31-1999
APR-01-1998
JUN-30-1998
1
37,501
6,197
4,688
0
3,982
46,839
15,936
(11,487)
57,919
2,972
0
0
0
153
54,793
57,919
132
2,382
465
2,700
4,133
0
0
(3,962)
0
(3,962)
0
0
0
(3,962)
(0.27)
(0.27)
