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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, 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
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(State or other jurisdiction of organization (I.R.S. Employer Identification Number)
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 15,366,981
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Class Outstanding as of November 13, 1998
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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, 1998 and March 31, 1998 3
Consolidated Statements of Operations for the
three months ended September 30, 1998
and 1997 and the six months ended
September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the six months ended
September 30, 1998 and 1997 5
Notes to Interim Consolidated Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II - Other Information 15-16
Signatures 17
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AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1998 1998
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 33,392,254 $ 1,842,142
Accounts receivable 3,377,033 2,991,635
Inventory 4,507,138 3,229,973
Prepaid expenses and other current assets 520,143 545,428
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Total current assets 41,796,568 8,609,178
Property and equipment:
Equipment 14,113,027 12,502,756
Furniture and fixtures 1,027,631 946,630
Leasehold improvements 2,020,065 1,980,090
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17,160,723 15,429,476
Less: accumulated depreciation (11,899,755) (11,006,576)
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Property and equipment, net 5,260,968 4,422,900
Long-term marketable securities 6,460,021 6,167,030
Net investment in sales-type lease 292,940 345,940
Other assets 428,017 6,167
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Total assets $ 54,238,514 $ 19,551,215
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,780,890 $ 3,333,462
Deferred revenue 51,600 187,285
Current portion of long-term debt -- 29,609
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Total current liabilities 2,832,490 3,550,356
Long-term debt (less current portion) -- 3,141,793
Commitments
Stockholders' equity:
Common stock, $.01 par value
Authorized shares-50,000,000; issued
and outstanding shares-15,351,700 and
11,756,793 at September 30, 1998 and
March 31, 1998, respectively 153,517 117,568
Additional paid-in capital 133,960,535 87,961,911
Deferred contract costs - warrants (1,176,637) (1,328,446)
Unrealized gain (loss) on investments 71,120 32,706
Cumulative translation adjustment (7,712) (32,798)
Accumulated deficit (81,594,799) (73,891,875)
Total stockholders' equity 51,406,024 12,859,066
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Total liabilities and stockholders' equity $ 54,238,514 $ 19,551,215
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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 Six Months Ended
September 30, September 30,
1998 1997 1998 1997
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Revenues:
Contract revenue $ 2,388,991 $ 1,685,795 $ 4,617,377 $ 2,789,239
Product sales and prototype
development contracts 355,287 1,190,431 486,824 3,355,712
Rental/other revenue 63,167 48,773 85,736 345,647
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Total revenues 2,807,445 2,924,999 5,189,937 6,490,598
Costs and expenses:
Costs of revenue 2,820,839 2,866,830 5,521,450 5,805,539
Research and development 2,457,945 1,486,278 5,087,577 3,452,832
Selling, general and
administrative 1,827,806 1,474,712 3,331,666 2,982,035
----------- ----------- ----------- -----------
Total costs and expenses 7,106,590 5,827,820 13,940,693 12,240,406
Transaction fees -- (80,481) -- (110,298)
Interest income 552,729 222,614 1,048,803 494,577
Interest expense -- (60,544) (9,827) (136,536)
Other income (expense), net 5,611 17,729 8,856 (14,432)
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Net loss $(3,740,805) $(2,803,503) $(7,702,924) $(5,516,497)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.24) $ (0.24) $ (0.52) $ (0.48)
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Diluted $ (0.24) $ (0.24) $ (0.52) $ (0.48)
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Weighted average number of
common shares outstanding
Basic 15,331,814 11,647,901 14,893,559 11,609,523
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Diluted 15,331,814 11,647,901 14,893,559 11,609,523
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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)
Six Months Ended
September 30,
1998 1997
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Cash flows from operating activities:
Net loss $(7,702,924) $ (5,516,497)
Adjustments to reconcile net loss to net cash used by operations:
Depreciation and amortization 893,179 972,821
Loss (gain) on disposals of property and equipment -- 24,569
Deferred contract costs-warrant 160,913 79,612
Stock compensation expense 149,608 90,572
Changes in operating asset and liability accounts :
Accounts receivable (385,398) (505,837)
Inventory (1,277,165) (927,590)
Prepaid expenses and other current assets 25,285 8,416
Accounts payable and accrued expenses (552,572) (2,526,260)
Notes payable-line of credit -- (875,000)
Deferred revenue (135,685) (1,610,248)
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Total adjustments (1,121,835) (5,268,945)
Net cash used by operating activities (8,824,759) (10,782,407)
Cash flows from investing activities:
Notes receivable -- (90,707)
Repayment of notes receivable -- 53,190
Purchase of property and equipment (net) (1,706,161) (932,409)
Purchase of long-term marketable securities (254,577) (3,000,000)
Sale of long-term marketable securities -- 8,193,779
Net investment in sales-type lease 53,000 --
Decrease (increase) in other assets (421,850) 34,169
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Net cash provided (used) by investing activities (2,329,588) 4,258,022
Cash flows from financing activities:
Net repayments on line of credit -- (469,982)
Principal payments-note payable (3,171,402) 4,692
Net proceeds from issuance of common stock and warrants 45,875,861 10,064,939
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Net cash provided by financing activities 42,704,459 9,599,649
Net increase (decrease) in cash and cash equivalents 31,550,112 3,072,229
Cash and cash equivalents at beginning of period 1,842,142 584,804
Effect of SI's excluded results -- (7,844)
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Cash and cash equivalents at end of period $33,392,254 $ 3,649,189
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Supplemental schedule of cash flow information:
Cash paid for interest $ 119,789 $ 21,010
Noncash issuance of common stock $ 149,608 $ 90,572
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 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 September
30, 1998 and 1997 and the financial position at September 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
$1,740,000 and $1,478,000 for the three months ended September 30, 1998 and
1997, respectively, and approximately $3,364,000 and $2.396,000 for the six
months ended September 30, 1998 and 1997, respectively.
Certain prior year amounts have been reclassified to be consistent with
current year presentation.
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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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 September 30,
1998 and 1997, common equivalent shares of 175,245 and 225,901 were not
included for the calculation of diluted EPS as they were considered
antidilutive. For the six months ended September 30, 1998 and 1997, common
equivalent shares of 323,508 and 186,996 were also not included for the
calculation of diluted EPS as they were also 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:
The Company received funding under a government cost-sharing agreement with
the Department of Energy.of approximately $282,000 and $354,000, for the
three months ended September 30, 1998 and 1997, respectively, and of
$819,000 and $803,000, for the six months ended September 30, 1998 and
1997, respectively. 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.
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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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 September 30 Six Months Ended September 30
-------------------------------- -------------------------------
1998 1997 1998 1997
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Net loss $(3,740,805) $(2,803,503) $(7,702,924) $(5,516,497)
Other comprehensive income 58,274 49,755 63,500 145,065
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Total comprehensive loss $(3,682,531) $(2,753,748) $(7,639,424) $(5,371,432)
=========== =========== =========== ===========
Other comprehensive income represents changes in foreign currency
translation and unrealized gains and losses on investments.
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
its financial statements will be immaterial.
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AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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8. SUBSEQUENT EVENTS:
On October 30, 1998, the Company adopted a Shareholder Rights Plan, and
pursuant to the Plan declared a dividend of one Right for each outstanding
share of common stock. For shares issued after such dividend, a Right
attaches to each share of common stock issued. The Right entitles the
holder to purchase one share of common stock at an exercise price of $60.
The Rights will become exercisable, in general, only if a person or group
has acquired, or obtained the right to acquire, beneficial ownership of 15
percent or more of the Company's common stock or makes a tender or exchange
offer to acquire 15 percent or more of the Company's common stock. If a
person or a group becomes a 15 percent holder (with certain exceptions),
each Right will entitle the holder thereof, other than the acquiring
shareholder, to purchase common stock of the Company at one-half of the
market price. If the Company engages in a merger or other business
combination in which the Company does not survive, each Right entitles the
holder to purchase common stock of the acquiring company at one-half of the
market price. The Rights may be redeemed by the Company at a price of
$0.001 per Right at any time prior to 10 business days after the
announcement that a party acquired 15 percent or more of the Company's
common stock. If not previously redeemed, the Rights will expire on October
30, 2008.
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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, 1998
RESULTS OF OPERATIONS
American Superconductor Corporation's revenues during the three months ended
September 30, 1998 were $2,807,000 compared to $2,925,000 for the same period a
year earlier. For the six months ended September 30, 1998, revenues were
$5,190,000 as compared to $6,491,000 for the comparable period in 1997. Revenues
from the Company's Power Quality ("PQ") Solutions business unit declined
$2,974,000 in the six months ended September 30, 1998 from the same period last
year, which included the shipments of a large PQ DC(TM) SMES system and a PQ
VR(TM) SMES system. There were no SMES system shipments in the first six months
of fiscal 1999. This decrease in product sales was partially offset by a
$1,828,000 increase in contract revenue largely associated 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
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 September 30, 1998, the Company also recorded funding
of $282,000 under a government cost-sharing agreement with the Department of
Energy ("DOE"). Funding under this cost-sharing agreement for the three months
ended September 30, 1997 was $354,000. For the six months ended September 30,
1998, funding under government cost-sharing agreements was $819,000 compared to
$803,000 for the comparable period in 1997. 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 September 30,
1998 were $7,107,000 compared to $5,828,000 for the same period last year. Total
costs and expenses for the first six months of the current fiscal year were
$13,941,000, compared to $12,240,000 for the same period last year. The increase
in costs and expenses was primarily the result of the Company's increased
investment in research and development expenses.
Adjusted research and development ("R&D") expenses, which include amounts
classified as costs of revenue and amounts offset by cost sharing funding,
increased to $4,344,000 in the second quarter from $3,147,000 a year earlier.
For the six-month periods ended September 30, 1998 and 1997, adjusted research
and development expenses were $8,874,000 and $6,263,000, respectively. This
increase was due to the continued scale-up of the Company's internal research
and development activities. 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 three and six-month
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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, 1998
periods ended September 30, 1998 were $1,740,000 and $3,364,000 respectively,
compared to $1,478,000 and $2,396,000 for the same periods last year.
Additionally, R&D expenses that were offset by cost sharing funding were
$146,000 and $183,000 for the second quarter of fiscal years 1999 and 1998,
respectively. For the six months ended September 30, 1998, this amount was
$422,000 as compared to $414,000 for the comparable period in the previous year.
Net R&D expenses (exclusive of amounts classified as costs of revenue and
amounts offset by cost sharing funding) increased to $2,458,000 in the three
months ending September 30, 1998 from $1,486,000 for the same period last year.
For the six-months ending September 30, 1998 and 1997, these amounts were
$5,088,000 and $3,453,000, respectively.
Selling, general and administrative ("SG&A") expenses for the quarter ended
September 30, 1998 were $1,828,000 compared to $1,475,000 for the same period
the prior year. On a year-to-date basis, selling, general and administrative
expenses were $3,332,000 compared to $2,982,000 for the same period a year
earlier. These increases were primarily due to increased salaries and related
expenses incurred to support corporate development activities and future planned
growth, as well as increases in directors' compensation. The SG&A amounts offset
by cost-sharing funding were $136,000 and $171,000 in the second quarter of
fiscal years 1999 and 1998, respectively. For the six months ended September 30,
1998, this amount was $397,000 compared to $389,000 for the comparable period in
1997. 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, 1998 were $737,000 and
$1,453,000, respectively. For the three and six month periods ended September
30, 1997, these costs were $680,000 and $1,087,000, respectively. This increase
is primarily due to the increased contract revenue in the three and six month
periods ended September 30, 1998, resulting in more SG&A expenses being
classified as costs of revenue.
Interest income was $553,000 in the quarter ended September 30, 1998 compared to
$223,000 for the same period in the previous year. For the six months ended
September 30, 1998 and 1997, these amounts were $1,049,000 and $495,000,
respectively. These increases primarily reflect the additional cash balances
available for investment as a result of the Company's 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 from this offering.
Interest expense was $0 in the quarter ended September 30, 1998 compared to
$61,000 for the same period in the previous year. For the six-months ending
September 30, 1998 and 1997, these amounts were $10,000 and $137,000,
respectively. These decreases primarily reflect 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.
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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, 1998
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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash, cash equivalents and long-term
marketable securities of $39,852,000 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 six months
ended September 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1998
YEAR 2000 ISSUES
The Company, like most other major companies, is currently addressing a
universal problem commonly referred to as "Year 2000 Compliance," which relates
to the ability of computer programs and systems to properly recognize and
process date sensitive information before and after January 1, 2000. Many
computer programs and systems recognize dates using two-digit year data (rather
than four-digit data), and therefore may be unable to determine the correct
century for the year. Failure to properly recognize and process date information
may cause such programs and systems to fail to operate or to operate with
erroneous results.
The Company has analyzed and continues to analyze its internal information
technology ("IT") systems ("IT systems") to identify any computer programs that
are not Year 2000 compliant and implement any changes required to make such
systems Year 2000 compliant. The Company believes that its critical IT systems
currently are capable of functioning without substantial Year 2000 compliance
problems. The Company has identified only a few non-critical, but important, IT
systems that must be replaced due to Year 2000 concerns, and the Company already
has plans to replace these IT systems with Year 2000 compliant systems providing
increased functionality. The Company believes such IT systems will be Year 2000
capable in a time frame that will avoid any material adverse effect on the
Company. Also, the Company does not believe that the expenditures related to
replacing or upgrading any of its IT systems to make them Year 2000 compliant
will have a material adverse effect on the financial condition of the Company.
The Company has evaluated its critical equipment and critical systems that
contain embedded software and the Company believes that all of its critical
Non-IT systems are capable of functioning without substantial Year 2000
compliance problems.
A substantial portion of the current products being developed, manufactured
and/or sold by the Company (e.g. HTS wire and related products) contain no
computer programs and as such pose no significant Year 2000 compliance concerns.
The Power Quality Division's SMES units currently being manufactured contain
computer programs that may be susceptible to Year 2000 compliance problems. The
Company is in the process of upgrading and testing these computer programs to
insure Year 2000 compliance, and believes that all changes will be in place in
the second calendar quarter of 1999 on both currently manufactured equipment and
units that have been previously sold. However, the Company's products are often
used by its customers in systems that contain third party products. Therefore,
even though the Company's current products may be Year 2000 compliant, the
failure of such third party products to be Year 2000 compliant, or to properly
interface with the Company's current products, may result in a system failure.
The Company is investigating each of its significant vendors, suppliers,
financial service organizations, service providers and customers to confirm that
the Company's operations will not be materially adversely affected by the
failure of any such third party to have Year 2000 compliant computer programs.
This is being undertaken by a process that includes
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questionnaires, interviews, on-site visits and other available means. This
Company expects to complete this process by the end of the first calendar
quarter of 1999. Regardless of the responses that the Company receives from such
third parties, the Company is establishing contingency plans to reduce the
Company's exposure resulting from the non-compliance of third parties. First,
the Company plans to build inventories of critical and/or important components
prior to January 1, 2000, and thereby decrease the Company's dependence on
suppliers that are not Year 2000 compliant. Second, the Company plans to review
delivery schedules with its major customers, commencing in the third calendar
quarter of 1999. Such review should enable customers to accept ordered products
after January 1, 2000, even if their internal computer systems are not operating
properly.
The Company estimates that, through September 30, 1998, it has spent less than
$20,000 to remediate Year 2000 issues in its IT systems, and the Company
estimates that it will spend less than an additional $100,000 to remediate Year
2000 issues in its IT systems. Additionally, the Company is accelerating into
fiscal 1999 the planned replacement of its E-mail software and financial systems
software because such software has potential Year 2000 problems. For the
development and deployment of SMES system computer programs to remedy Year 2000
problems, the Company has spent, through September 30, 1998, approximately
$5,000 and estimates it will spend an additional $5,000 to complete such program
development and deployment. All of such expenditures are included in the budgets
of the various departments of the Company tasked with various aspects of the
Year 2000 project. No IT projects have been deferred due to the Company's Year
2000 efforts.
Finally, the Company is in the process of developing contingency plans to be
implemented as part of its efforts to identify and correct any Year 2000
compliance problems. Such plans are expected to be completed by the end of the
third calendar quarter of 1999.
The Company does not currently believe that any of the foregoing will have a
material adverse effect on its financial condition or its results of operations.
However, the process of evaluating the Company's products and third party
products and systems is ongoing. Although not expected, failures of critical
suppliers, critical customers, critical IT systems, critical non-IT systems, or
products sold by the Company (including any delay in the deployment of SMES
computer program upgrades) could have a material adverse effect on the Company's
financial condition or results of operations. Year 2000 Compliance has many
issues and aspects, not all of which the Company is able to accurately forecast
or predict. There is no way to assure that Year 2000 Compliance will not have
adverse effects on the Company, some of which could be material. Many of the
Company's statements related to Year 2000 are forward-looking statements and
actual results could differ materially from those anticipated above.
14
15
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 July
29, 1998, 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 13,067,509 362,122
Albert J. Baciocco, Jr. 13,070,899 358,732
Frank Borman 12,636,082 793,549
Peter O. Crisp 13,071,449 358,182
Richard Drouin 13,070,599 359,032
Gerard Menjon 13,071,699 357,932
Andrew G.C. Sage, II 13,066,849 362,782
John Vander Sande 13,070,914 358,717
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
2. Approval of amendment
to Restated Certificate
of Incorporation 11,222,476 1,997,320 209,835 -
3. Approval of amendment to
1996 Stock Incentive Plan 5,100,299 2,449,854 224,243 5,655,235
4. Ratification of
Independent Auditors 13,354,353 32,507 42,771 -
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.
15
16
AMERICAN SUPERCONDUCTOR CORPORATION
PART II
OTHER INFORMATION
-----------
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27.1 Financial Data Schedule
16
17
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
11/13/98 /S/ Gregory J. Yurek
- --------------------------------- --------------------------------------
Date Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
11/13/98 /S/ Thomas M. Rosa
- --------------------------------- --------------------------------------
Date Thomas M. Rosa
Chief Accounting Officer, Corporate
Controller and Assistant Secretary
17
5
1,000
U.S. DOLLARS
3-MOS
MAR-31-1999
JUL-01-1998
SEP-30-1998
1
33,392
6,460
3,377
0
4,507
41,797
17,161
(11,900)
54,239
2,832
0
0
0
154
51,252
54,239
355
2,807
531
2,821
4,286
0
0
(3,741)
0
(3,741)
0
0
0
(3,741)
(0.24)
(0.24)
