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: September 30, 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 9,562,057
- -------------------------------------- -------------------------------
Class Outstanding as November 8, 1996
2
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
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Page No.
--------
Part I - Financial Information
Consolidated Balance Sheets
September 30, 1996 and March 31, 1996 3
Consolidated Statements of Operations
for the three months ended
September 30, 1996 and 1995 and the 4
six months ended September 30, 1996
and 1995
Consolidated Statements of Cash Flows
for the six months ended
September 30, 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
-------
September 30, March 31,
1996 1996
------------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,428,810 $ 4,104,703
Accounts receivable 2,441,016 1,485,628
Notes receivable 568,639 607,536
Inventory 531,851 779,428
Prepaid expenses and other current assets 115,860 226,179
----------- -----------
Total current assets 6,086,176 7,203,474
Property and equipment:
Equipment 7,421,485 6,779,649
Furniture and fixtures 744,726 710,473
Leasehold improvements 1,715,144 1,663,806
----------- -----------
9,881,355 9,153,928
Less: accumulated depreciation (6,380,840) (5,606,374)
----------- -----------
Property and equipment, net 3,500,515 3,547,554
Long-term marketable securities 17,918,401 22,257,898
Licenses, net of amortization -- 14,574
Other assets 8,216 4,898
----------- -----------
Total assets $27,513,308 $33,028,398
=========== ===========
September 30, March 31,
1996 1996
------------- ---------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,330,624 $ 1,283,558
Obligation under capital lease, current portion 4,707 4,478
----------- ------------
Total current liabilities 1,335,331 1,288,036
Obligation under capital lease, long term portion 6,583 8,995
Commitments -- --
Stockholders' equity:
Common stock ($.01 par); 95,621 94,873
20,000,000 shares
authorized and 9,562,057 and
9,487,277 issued and outstanding at
September 30, 1996 and March 31,
1996, respectively
Additional paid-in capital 64,181,787 63,460,452
Deferred compensation (50,960) (50,960)
Deferred Contract Costs - Warrants (597,072) --
Unrealized gain (loss) on investments (71,768) (61,970)
Cumulative translation adjustment 257 4,602
Accumulated Deficit (37,386,471) (31,715,630)
----------- ------------
Total stockholders' equity 26,171,394 31,731,367
----------- ------------
Total liabilities and stockholders' equity $27,513,308 $ 33,028,398
=========== ============
4
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
----------
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Contract revenue $ 1,104,483 $ 849,016 $ 2,082,877 $ 1,458,083
Prototypes and prototype
development contracts 560,209 749,614 855,123 1,145,255
----------- ----------- ----------- -----------
Total revenues 1,664,692 1,598,630 2,938,000 2,603,338
Costs and expenses:
Costs of revenue 1,684,755 1,520,822 3,000,434 2,519,360
Research and development 2,067,551 1,405,009 4,511,373 2,931,289
Selling, general and
administrative 620,150 924,672 1,715,917 1,880,481
----------- ----------- ----------- -----------
Total costs and expenses 4,372,456 3,850,503 9,227,724 7,331,130
Interest income 308,983 407,572 656,244 830,494
Other income (expense), net 1,993 (14,400) (37,361) (17,040)
----------- ----------- ----------- -----------
Net loss $(2,396,788) $(1,858,701) $(5,670,841) $(3,914,338)
=========== =========== =========== ===========
Net loss per common share $ (0.25) $ (0.20) $ (0.59) $ (0.41)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 9,561,551 9,469,244 9,559,520 9,468,940
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
4
5
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
September 30,
1996 1995
---- ----
Operating activities:
Net loss $(5,670,841) $(3,914,338)
Adjustments to reconcile net loss to net cash from operations:
Depreciation and amortization 789,040 731,304
Stock compensation expense -- 2,240
Changes in operating asset and liability accounts:
Accounts receivable (955,388) (1,022,565)
Notes receivable 38,897 84,470
Inventory 247,577 (113,481)
Prepaid expenses and other current assets 110,319 61,395
Accounts payable and accrued expenses 47,066 (100,821)
Advance payments - related parties -- (330,988)
----------- -----------
Total adjustments 277,511 (688,446)
----------- -----------
Net cash used by operating activities (5,393,330) (4,602,784)
----------- -----------
Investing activities:
Purchase of property and equipment, net (731,772) (498,463)
(Purchase) sale of long-term marketable securities, net 4,329,699 5,604,874
Increase in license fees and other assets (3,318) --
Payments under capital lease (2,183) (1,976)
----------- -----------
Net cash provided by investing activities 3,592,426 5,104,435
----------- -----------
Financing activities:
Net proceeds from issuance of stock and warrants 125,011 15,572
----------- -----------
Net cash provided by financing activities 125,011 15,572
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,675,893) 517,223
Cash and cash equivalents at beginning of period 4,104,703 1,467,284
----------- -----------
Cash and cash equivalents at end of period $ 2,428,810 $ 1,984,507
=========== ===========
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") 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 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 September
30, 1996 and 1995 and the financial position at September 30, 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.
Included in "Costs of Revenue" are research and development expenses of
approximately $1,271,000 and $1,168,000 for the three months ended
September 30, 1996 and 1995, respectively, and $2,176,000 and $1,884,000
for the six months ended September 30, 1996 and 1995, respectively.
6
7
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------
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 September 30, 1996 and $40,000 for the six months ended
September 30, 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 six months ended September 30, 1996 the Company received funding of
$876,794 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 SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Results of Operations
- ---------------------
Revenues during the three months ended September 30, 1996 were $1,665,000
compared to $1,599,000 for the same period in 1995. For the six months ended
September 30, 1996, revenues were $2,938,000 as compared to $2,603,000 for the
comparable period in 1995. Revenues for the three and six month periods ended
September 30, 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 offset by a decrease in revenues from prototype sales. For the
six months ended September 30, 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 will discontinue its $1,100,000 annual
funding of this program. The Company will continue to develop the metallic
precursor technology which the joint program focused on, and anticipates
covering most of the related expenses under government contracts.
For the three months ended September 30, 1996, the Company also recorded funding
of $806,000 under several government cost-sharing agreements. This funding
included $146,000 related to worked 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 three months ended September 30, 1995 was $260,000. Funding
under cost-sharing agreements for the six months ended September 30, 1996 and
September 30, 1995, was $877,000 and $809,000, 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.
8
9
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION FOR THE
THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
For the second quarter ended September 30, 1996, costs of revenue increased to
$1,685,000 from $1,521,000 for the same period a year earlier. Year-to-date
costs of revenue were $3,000,000 compared to $2,519,000 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, offset by a
decrease in costs associated with prototype revenues. Costs of revenue exceeded
total revenues for the three and six months ended September 30, 1996 due to
certain prototype costs exceeding their associated revenue.
Research and development expenses increased to $2,068,000 during the second
quarter from $1,405,000 a year earlier. For the first six months of fiscal year
1997, research and development expenses were $4,511,000 compared to $2,931,000
for the same period last year. These increases were primarily due to the
continued scale-up of the Company's internal research and development activities
including the hiring of additional personnel, purchase of materials and
equipment and increases in patent processing and licensing costs. In addition to
these expenses, a portion of research and development expenditures related to
externally funded development contracts 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 six months periods
ended September 30, 1996 were $1,271,000 and $2,176,000, respectively. For the
three and six month periods ended September 30, 1995, these costs were
$1,168,000 and $1,884,000, respectively.
Selling, general and administrative expenses for the quarter ended September 30,
1996 were $620,000 compared to $925,000 for the same period the prior year. On a
year-to-date basis, selling, general and administrative expenses were $1,716,000
compared to $1,880,000 for the same period a year earlier. This change reflects
an increase in expenses necessary to support the overall increase in the
Company's development contracts and internal research and development
activities. This increase was more than offset by certain selling, general and
administrative expenditures related to 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.
Indirect costs included in costs of revenue during the three and six month
periods ended September 30, 1996, were $414,000 and $825,000, respectively. For
the three and six month periods ended September 30, 1995, these costs were
$353,000 and $635,000, respectively.
The Company's total operating expenses for the three months ended September 30,
1996 were $4,372,000 compared to $3,851,000 for the same period last year.
Operating expenses for the first six months of the current fiscal year were
$9,228,000 compared to $7,331,000 for the comparable period last year. The
Company expects operating expenses in the last six months of fiscal 1997 to
increase only slightly as compared to the first six months of fiscal 1997.
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10
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION FOR THE
THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Interest income was $309,000 in the second quarter compared to $408,000 for the
same period in the previous year. For the six month periods ended September 30,
1996 and September 30, 1995, interest income was $656,000 and $830,000,
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.
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 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 September 30, 1996 the Company had cash, cash equivalents and long-term
marketable securities of $20,347,000 compared to $26,363,000 at March 31, 1996.
This decrease was primarily due to the use of $5,393,000 to fund the Company's
operations during this period. An additional $732,000 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 the next two to three years.
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
---------------------------------------------------
At the Company's Annual Meeting of Stockholders held on
September 6, 1996, the following proposals were adopted
by the vote specified below:
Proposal For Withheld Authority to Vote for
-------- --- All Nominees
------------
1. Election of Directors
Gregory J. Yurek 8,542,188 149,006
Frank Borman 8,542,538 148,656
Peter O. Crisp 8,542,688 148,506
Richard Drouin 8,542,023 149,171
George W. McKinney, III 8,542,688 148,506
John B. Vander Sande 8,542,188 149,006
For Against Abstain
--- ------- -------
2. Approval of the 1996
Stock Incentive Plan 4,319,851 1,549,472 18,721
3. Ratification of
independent auditors 8,599,238 75,550 16,406
Please see the Company's Proxy Statement filed with the Commission in
connection with this Annual Meeting for a description of the matters voted upon.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27.1 Financial Data Schedule
11
12
SIGNATURE
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
November 13, 1996 /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 6-MOS
MAR-31-1997 MAR-31-1997
JUL-01-1996 APR-01-1996
SEP-30-1996 SEP-30-1996
1 1
2,429 2,429
17,918 17,918
3,010 3,010
0 0
532 532
6,086 6,086
9,881 9,881
6,381 6,381
27,513 27,513
1,335 1,335
0 0
96 96
0 0
0 0
26,076 26,076
27,513 27,513
560 855
1,665 2,938
613 967
1,685 3,000
2,688 6,227
0 0
0 0
(2,397) (5,671)
0 0
(2,397) (5,671)
0 0
0 0
0 0
(2,397) (5,671)
(.25) (.59)
(.25) (.59)
Long-term marketable securities
