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: September 30, 1997 Commission File Number 0-19672
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American Superconductor Corporation
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2959321
- ----------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
organization or incorporation) Number)
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 11,695,839
- -------------------------------------- ----------------------------------
Class Outstanding as of November 12, 1997
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AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
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Page No.
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Part I - Financial Information
Consolidated Balance Sheets
September 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations
for the three months ended
September 30, 1997 and 1996 and the
six months ended September 30, 1997
and 1996 4
Consolidated Statements of Cash Flows
for the six months ended
September 30, 1997 and 1996 5
Notes to Interim Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II - Other Information 12-13
Signatures 14
2
3
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
-----
September 30, March 31,
1997 1997
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,649,189 $ 584,804
Accounts receivable 3,035,441 3,070,573
Notes receivable 421,124 383,607
Inventory 4,316,852 2,940,656
Prepaid expenses and other current assets 331,381 345,344
------------ ------------
Total current assets 11,753,987 7,324,984
Property and equipment:
Equipment 10,881,555 10,137,721
Furniture and fixtures 806,303 733,794
Leasehold improvements 1,800,529 1,732,215
13,488,387 12,603,730
Less: accumulated depreciation (9,865,780) (8,835,754)
------------ ------------
Property and equipment, net 3,622,607 3,767,976
Long-term marketable securities 10,404,552 15,446,106
Other assets 7,859 42,028
------------ ------------
Total assets $ 25,789,005 $ 26,581,094
============ ============
September 30, March 31,
1997 1997
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable-line of credit $ -- $ 530,000
Accounts payable and accrued expenses 2,684,212 4,283,612
Deferred revenue 551,547 1,519,678
Short-term notes 203,446 673,428
------------ ------------
Total current liabilities 3,439,205 7,006,718
Long-term debt 3,141,792 3,073,663
Commitments -- --
Stockholders' equity:
Common stock ($.01 par); 116,877 105,051
20,000,000 shares authorized and 11,687,715
and 10,505,118 issued and outstanding at
September 30, 1997 and March 31, 1997,
respectively
Additional paid-in capital 86,532,364 76,388,679
Deferred compensation (25,480) (25,480)
Deferred contract costs (477,653) (557,265)
Unrealized gain/(loss) on investments 8,564 (143,661)
Cumulative translation adjustment (17,052) (9,892)
Accumulated deficit (66,929,612) (59,256,719)
------------ ------------
Total stockholders' equity 19,208,008 16,500,713
------------ ------------
Total liabilities and stockholders' equity $ 25,789,005 $ 26,581,094
============ ============
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 Six Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues:
Contract revenue $ 1,685,795 $ 1,591,623 $ 2,789,239 $ 2,912,862
Product sales and prototype
development contracts 1,190,431 560,209 3,355,712 1,914,173
Rental/other revenue 48,773 280,620 345,647 461,240
------------ ------------ ------------ ------------
Total revenues 2,924,999 2,432,452 6,490,598 5,288,275
Costs and expenses:
Costs of revenue 2,866,830 2,153,542 5,805,539 4,707,710
Research and development 1,486,278 2,170,547 3,452,832 4,616,319
Selling, general and
administrative 1,474,712 1,007,267 2,982,035 2,523,666
------------ ------------ ------------ ------------
Total costs and expenses 5,827,820 5,331,356 12,240,406 11,847,695
Transaction fees (80,481) 0 (110,298) 0
Interest income 222,614 308,983 494,577 656,244
Interest expense (60,544) (86,000) (136,536) (178,315)
Other income (expense), net 17,729 1,993 (14,432) (37,361)
------------ ------------ ------------ ------------
Net loss $ (2,803,503) $ (2,673,928) $ (5,516,497) $ (6,118,852)
============ ============ ============ ============
Net loss per common share $ (0.24) $ (0.25) $ (0.48) $ (0.58)
============ ============ ============ ============
Weighted average number of
common shares outstanding 11,647,901 10,497,269 11,609,523 10,495,238
============ ============ ============ ============
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)
Six Months Ended
September 30,
1997 1996
------------- ------------
Operating activities:
Net loss $ (5,516,497) $ (6,118,852)
Adjustments to reconcile net loss to net cash
from operations:
Forgiveness of notes receivable 0 106,744
Depreciation and amortization 972,821 938,612
Loss on disposal of property and equipment 24,569 41,441
Deferred contract costs-warrants 79,612 39,806
Changes in operating asset and liability accounts:
Accounts receivable (505,837) (882,224)
Inventory (927,590) 462,832
Prepaid expenses and other current assets 8,416 104,419
Accounts payable and accrued expenses (2,526,260) (28,645)
Notes payable-line of credit (875,000) 0
Deferred revenue (1,610,248) (491,830)
------------ ------------
Total adjustments (5,359,517) 291,155
------------ ------------
Net cash used by operating activities (10,876,014) (5,827,697)
------------ ------------
Investing activities:
Notes receivable (90,707) (67,847)
Repayment of notes receivable 53,190 0
Purchase of property and equipment, net (932,409) (738,823)
Purchase of long-term marketable securities (3,000,000) 0
Sale of long-term marketable securities 8,193,779 4,329,699
Decrease (increase) in other assets 34,169 (3,318)
------------ ------------
Net cash provided by investing activities 4,258,022 3,519,711
------------ ------------
Financing activities:
Net proceeds from issuance of stock and warrants 10,155,511 85,205
Short-term notes (469,982) (51,102)
Long-term debt 4,692 595,000
------------ ------------
Net cash provided by financing activities 9,690,221 629,103
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,072,229 (1,678,883)
Cash and cash equivalents at beginning of period 584,804 4,261,051
Effect of SI's excluded results (7,844) (142,308)
------------ ------------
Cash and cash equivalents at end of period $ 3,649,189 $ 2,439,860
============ ============
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
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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 a development contract with one stockholder, Pirelli Cavi E Sistemi S.p.A.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements are unaudited, except for
those dated as of March 31, 1997, 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, 1997 and 1996 and the
financial position at September 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 Current Report
on Form 8-K dated September 5, 1997 covering the year ended March 31, 1997.
On April 8, 1997 the Company completed a transaction (the "Merger") in which
a subsidiary of 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 fiscal year-end was changed to March 31 to
conform with the Company's fiscal year-end. The March 31, 1997
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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2. BASIS OF PRESENTATION - CONTINUED:
Consolidated Balance Sheet combines SI's audited balance sheet at December
31, 1996 with the Company's pre-merger 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 presented.
On July 31, 1997, the Company completed a transaction in which the Company
acquired all the outstanding stock of Applied Engineering Technologies, Ltd.
("AET"). The transaction has been accounted for under the pooling of
interests method of accounting. Due to the immaterial effect on the
accompanying consolidated financial statements, the prior periods have not
been adjusted to reflect the effect on the combined financial position,
operating results and cash flows of the Company.
Included in "Costs of Revenue" are research and development expenses of
approximately $1,478,000 and $1,271,000 for the three months ended September
30, 1997 and 1996, respectively, and $2,396,000 and $2,176,000 for the six
months ended September 30, 1997 and 1996, respectively.
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 a five-year period following the date of grant. 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 is being expensed over five years. Warrant expense related
to this transaction was approximately $40,000 for the three months ended
September 30, 1997 and $80,000 for the six months ended September 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 six months ended September 30, 1997, the Company received funding of
$803,000 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.
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AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
The Company's results for the prior-year period have been restated to reflect
the acquisition of Superconductivity, Inc. ("SI") on April 8, 1997. The
Company's prior year results have not been adjusted to reflect the July 31,
1997 acquisition of Applied Engineering Technologies Ltd. ("AET"), as the
effect of this transaction is not material to the consolidated financial
statements.
Revenues during the three months ended September 30, 1997 were $2,925,000
compared to $2,432,000 for the same period in 1996. For the six months ended
September 30, 1997, revenues were $6,491,000 as compared to $5,288,000 for the
comparable period in 1996. Second quarter revenues were positively affected by
the recognition of revenue on two new contracts with the Department of the Navy
and the Electric Power Research Institute ("EPRI"). Revenues for the first half
of the year were also positively affected by SI's sale of a PQ DC(TM) SMES
system to Tinker Air Force Base in Oklahoma in the first quarter and SI's
sale of a PQ VR(TM) SMES system to Eskom in South Africa in the second
quarter.
For the three months ended September 30, 1997, the Company also recorded funding
of $354,000 under government cost-sharing agreements. Funding under cost-sharing
agreements for the three months ended September 30, 1996 was $806,000. For the
six months ended September 30, 1997, funding under government cost-sharing
agreements was $803,000 as compared to $877,000 for the comparable period in
1996. 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 September 30,
1997 were $5,828,000, compared to $5,331,000 for the same period last year.
Operating expenses for the first six months of the current fiscal year were
$12,240,000, compared to $11,848,000 for the same period last year.
For the second quarter ended September 30, 1997, costs of revenue increased to
$2,867,000 from $2,154,000 for the same period a year earlier, reflecting the
costs associated with the revenue under the U. S. Navy and EPRI contracts.
Year-to-date costs of revenue were $5,806,000 compared to $4,708,000 for the
same period last year. This increase primarily reflects the higher costs of
revenue associated with SI's sale of the PQ DC(TM) SMES system to Tinker Air
Force Base and the costs of revenue associated with the Navy and EPRI contracts.
8
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AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1997
Research and development ("R&D") expenses declined to $1,486,000 during the
second quarter from $2,171,000 a year earlier. For the first six months of
fiscal year 1998, R&D expenses were $3,453,000 compared to $4,616,000 for the
same period last year. These decreases were primarily the result of certain R&D
expenses that were incurred in the first six months of the current fiscal year
but which have been deferred pending the receipt of a cost-reimbursement R&D
contract, which is expected to be retroactive to April 1, 1997. The Company
anticipates finalizing this contract and recognizing the attendant revenues and
expenses within the current fiscal year. The R&D amounts offset by cost-sharing
funding were $182,000 and $415,000 for the second quarter of fiscal years 1998
and 1997, respectively. For the six months ended September 30, 1997, this
amount was $414,000 as compared to $451,000 for the comparable period in 1996.
In addition, certain R&D expenditures related to externally funded development
contracts have been classified as costs of revenue (rather than as R&D
expenses). R&D expenditures included as costs of revenue for the three and
six-month periods ended September 30, 1997 were $1,478,000 and $2,396,000
respectively, compared to $1,271,000 and $2,176,000 for the same periods last
year.
Selling, general and administrative ("SG&A") expenses for the quarter ended
September 30, 1997 were $1,475,000 compared to $1,007,000 for the same period
the prior year. On a year-to-date basis, selling, general and administrative
expenses were $2,982,000 compared to $2,524,000 for the same period a year
earlier. These increases were primarily due to additional recruiting, legal,
consulting, and marketing expenses incurred to support the overall increase in
the Company's revenues and internal research and development activities. The
SG&A amounts offset by cost-sharing funding were $171,000 and $391,000 in the
second quarter of fiscal years 1998 and 1997, respectively. For the six months
ended September 30, 1997, this amount was $389,000 as compared to $426,000
for the comparable period in 1996. 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 and six month periods ended September 30, 1997 were
$680,000 and $1,087,000, respectively. For the three and six month periods ended
September 30, 1996, these costs were $414,000 and $825,000, respectively.
Transaction fees of $110,000 through September 30, 1997 reflect certain legal
and accounting fees incurred this fiscal year associated with the acquisitions
of SI on April 8, 1997 ($66,000) and AET on July 31, 1997 ($44,000).
Interest income was $223,000 in the quarter ended September 30, 1997 compared to
$309,000 for the same period in the previous year. For the six month periods
ended September 30, 1997 and 1996, interest income was $495,000 and $656,000
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.
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AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1997
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 current report on Form 8-K dated September 5, 1997
covering 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
SIX MONTHS ENDED SEPTEMBER 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash, cash equivalents and long-term
marketable securities of $14,054,000 compared to $16,031,000 at March 31, 1997.
This change was the result of 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. Cash consumed by the acquisition of AET on
July 31, 1997 amounted to $121,000, primarily for the retirement of certain AET
bank debts. The other principal uses of cash during the six months ended
September 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 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 a
significant portion of the 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). The Company is currently considering
various alternatives for funding future working capital needs.
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
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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
At the Company's Annual Meeting of Stockholders held on September 5,
1997, the following proposals were adopted by the vote specified
below:
Withheld Authority
to Vote
Proposal For For All Nominees
-------- --- ------------------
1. Election of Directors
Gregory J. Yurek 9,828,531 8,649
Albert J. Baciocco, Jr. 9,827,231 9,949
Frank Borman 9,827,031 10,149
Peter O. Crisp 9,828,331 8,849
Richard Drouin 9,828,331 8,849
Gerard Menjon 9,827,731 9,449
Andrew G.C. Sage, II 9,828,531 8,649
John Vander Sande 9,828,531 8,649
For Against Abstain
--- ------- -------
2. Approval of the 1997
Director Stock Option Plan 9,234,852 579,370 22,958
For Against Abstain
--- ------- -------
3. Ratification of
Independent Auditors 9,806,090 12,598 18,492
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.
12
13
AMERICAN SUPERCONDUCTOR CORPORATION
PART II
OTHER INFORMATION
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Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27.1 Financial Data Schedule
The Company filed a Current Report on Form 8-K dated September 5,
1997. Such Current Report on Form 8-K relates to the Company's
acquisition of SI and includes the restated financial statements of
the Company giving effect to such acquisition.
13
14
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
November 14, 1997 /s/ Gregory J. Yurek
- ----------------- -----------------------------
Date Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
November 14, 1997 /s/ Thomas M. Rosa
- ----------------- -----------------------------
Date Thomas M. Rosa
Corporate Controller
(chief accounting officer)
14
5
1000
U.S. DOLLARS
3-MOS
MAR-31-1998
JUL-01-1997
SEP-30-1997
1
3,649
10,405
3,457
0
4,317
11,754
13,488
(9,866)
25,789
3,439
3,142
0
0
117
19,091
25,789
1,190
2,925
1,159
2,867
2,871
0
61
(2,804)
0
(2,804)
0
0
0
(2,804)
(0.24)
0
