SEC Filing | AMSC

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, 1999 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 (I.R.S. Employer organization or incorporation) Identification 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 15,485,069 - ----------------------------------------- --------------------------------- Class Outstanding as of November 12, 1999

AMERICAN SUPERCONDUCTOR CORPORATION INDEX ----- Page No. -------- Part I - Financial Information Consolidated Balance Sheets September 30, 1999 and March 31, 1999 3 Consolidated Statements of Operations for the three months ended September 30, 1999 and 1998 and the six months ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the six months ended September 30, 1999 and 1998 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 Signatures 16 2

AMERICAN SUPERCONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS September 30, March 31, 1999 1999 -------------- -------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 14,241,235 $ 24,969,142 Accounts receivable 4,007,269 4,099,211 Inventory 6,019,829 5,024,552 Prepaid expenses and other current assets 431,112 538,485 -------------- -------------- Total current assets 24,699,445 34,631,390 Property and equipment: Equipment 18,161,361 15,159,313 Furniture and fixtures 1,320,722 1,243,894 Leasehold improvements 2,665,781 2,657,188 -------------- -------------- 22,147,864 19,060,395 Less: accumulated depreciation (13,890,464) (12,945,765) -------------- -------------- Property and equipment, net 8,257,400 6,114,630 Long-term marketable securities 6,908,331 6,602,829 Net investment in sales-type lease 279,110 287,110 Other assets 686,911 494,344 -------------- -------------- Total assets $ 40,831,197 $ 48,130,303 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 4,504,659 $ 4,171,948 Deferred revenue 1,259,883 -- -------------- -------------- Total current liabilities 5,764,542 4,171,948 Commitments Stockholders' equity: Common stock, $.01 par value Authorized shares-50,000,000; issued and outstanding - 15,447,267 and 15,378,656 at September 30, 1999 and March 31, 1999, respectively 154,473 153,787 Additional paid-in capital 134,767,859 134,030,618 Deferred warrant costs (827,971) (1,018,391) Accumulated other comprehensive income (loss) (26,240) 10,392 Accumulated deficit (99,001,466) (89,218,051) -------------- -------------- Total stockholders' equity 35,066,655 43,958,355 -------------- -------------- Total liabilities and stockholders' equity $ 40,831,197 $ 48,130,303 ============== ============== The accompanying notes are an integral part of the consolidated financial statements. 3

AMERICAN SUPERCONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended September 30, September 30, 1999 1998 1999 1998 ------------- ------------- -------------- -------------- Revenues: Contract Revenue $ 2,052,401 $ 2,388,991 $ 4,188,863 $ 4,617,377 Product sales and prototype development contracts 458,315 355,287 569,426 486,824 Rental/other revenue 22,563 63,167 45,126 85,736 ------------- ------------- -------------- -------------- Total revenues 2,533,279 2,807,445 4,803,415 5,189,937 Costs and expenses: Costs of revenue 2,541,908 2,820,839 4,814,851 5,521,450 Research and development 3,449,361 2,457,945 6,735,466 5,087,577 Selling, general and administrative 1,639,185 1,827,806 3,683,622 3,331,666 ------------- ------------- -------------- ------------- Total costs and expenses 7,630,454 7,106,590 15,233,939 13,940,693 Interest income 305,338 552,729 644,778 1,048,803 Interest expense -- -- -- (9,827) Other income (expense), net 2,415 5,611 2,331 8,856 ------------- ------------- ------------- -------------- Net loss $ (4,789,422) $ (3,740,805) $ (9,783,415) $ (7,702,924) ============ ============= ============ ============= Net loss per common share Basic $ (0.31) $ (0.24) $ (0.63) $ (0.52) ============ ============= ============ ============= Diluted $ (0.31) $ (0.24) $ (0.63) $ (0.52) ============ ============= ============ ============= Weighted average number of common shares outstanding Basic 15,446,525 15,331,814 15,419,899 14,893,559 ============ ============= ============ ============ Diluted 15,446,525 15,331,814 15,419,899 14,893,559 ============ ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 4

AMERICAN SUPERCONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended September 30, 1999 1998 ------------ ------------ Cash flows from operating activities: Net loss $ (9,783,416) $ (7,702,924) Adjustments to reconcile net loss to net cash used by operations: Depreciation and amortization 944,699 893,179 Deferred warrant costs 221,728 160,913 Stock compensation expense 59,373 149,608 Changes in operating asset and liability accounts: Accounts receivable 91,942 (385,398) Inventory (995,277) (1,277,165) Prepaid expenses and other current assets 107,373 25,285 Accounts payable and accrued expenses 332,711 (552,572) Deferred revenue 1,259,883 (135,685) ------------ ------------- Total 2,022,432 (1,121,835) Net cash used by operating activities (7,760,983) (8,824,759) Cash flows from investing activities: Purchase of property and equipment (net) (3,088,659) (1,706,161) Purchase of long-term marketable securities (340,944) (254,577) Net investment in sales-type lease 8,000 53,000 Increase in other assets (192,567) (421,850) Net cash used in investing activities (3,614,170) (2,329,588) Cash flows from financing activities: Payments on notes payable -- (29,609) Payments on long-term debt -- (3,141,793) Net proceeds from issuance of common stock 647,246 45,875,861 ------------ ------------- Net cash provided by financing activities 647,246 42,704,459 Net increase (decrease) in cash and cash equivalents (10,727,907) 31,550,112 Cash and cash equivalents at beginning of period 24,969,142 1,842,142 ------------ ------------- Cash and cash equivalents at end of period $ 14,241,235 $ 33,392,254 ============ ============= Supplemental schedule of cash flow information: Cash paid for interest $ -- $ 119,789 Noncash issuance of common stock $ 59,373 $ 149,608 The accompanying notes are an integral part of the consolidated financial statements. 5

AMERICAN SUPERCONDUCTOR CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF THE 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 industrial power quality and transmission network 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. The Company operates in two business segments. 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 Pirelli Cavi E Sistemi S.p.A. ("Pirelli") and Electricite de France who (through affiliated companies) are stockholders of the Company. The four-year development contract with Pirelli expired on September 30, 1999. The Company has been conducting HTS research under contracts with Pirelli since February 1, 1990, and negotiations are underway between the two parties for another multi-year extension of the Pirelli development contract. Nonetheless, the contract contains certain commercial provisions providing benefits that inure to both parties and extend beyond the four-year development program term. Included in costs of revenue are research and development expenses related to externally funded development contracts of approximately $1,752,000 and $1,740,000 for the three months ended September 30, 1999 and 1998, respectively, and approximately $3,174,000 and $3,364,000 for the six months ended September 30, 1999 and 1998, respectively. Selling, general and administrative expenses included as costs of revenue were approximately $801,000 and $737,000 for the three months ended September 30, 1999 and 1998, respectively, and approximately $1,538,000 and $1,453,000 for the six months ended September 30, 1999 and 1998, respectively. 2. BASIS OF PRESENTATION: ---------------------- The accompanying consolidated financial statements are unaudited, except for those dated as of March 31, 1999, 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, 1999 and 1998 and the financial position at September 30, 1999. 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 6

AMERICAN SUPERCONDUCTOR CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED for the year ended March 31, 1999 which are contained in the Company's Annual Report on Form 10-K covering the year ended March 31, 1999. Certain prior year amounts have been reclassified to be consistent with current year presentation. 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, 1999 and 1998, common equivalent shares of 664,678 and 175,245 were not included for the calculation of diluted EPS as they were considered antidilutive. For the six months ended September 30, 1999 and 1998, common equivalent shares of 804,136 and 323,508 were also not included for the calculation of diluted EPS as they were also considered antidilutive. 4. COST-SHARING AGREEMENTS: ----------------------- The Company received funding under a government cost-sharing agreement with the Department of Energy of approximately $470,000 and $282,000, for the three months ended September 30, 1999 and 1998, respectively, and of $1,098,000 and $819,000, for the six months ended September 30, 1999 and 1998, respectively. This funding was used to directly offset research and development and selling, general and administrative expenses. 5. 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 ------------------------------- -------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net loss $ (4,789,422) $ (3,740,805) $ (9,783,416) $ (7,702,924) Other comprehensive income 296 58,274 (36,631) 63,500 ------------ ------------ ------------ ------------ Total comprehensive loss $(4,789,126) $(3,682,531) $ (9,820,047) $ (7,639,424) ============ ============ ============ ============ Other comprehensive income represents changes in foreign currency translation and unrealized gains and losses on investments. 7

AMERICAN SUPERCONDUCTOR CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. BUSINESS SEGMENT INFORMATION: ----------------------------- The Company adopted Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"), as of March 31, 1999. Prior year information was restated in conformity with this accounting standard. The Company has two reportable business segments as defined by FAS 131--High Temperature Superconducting ("HTS") business segment, and the Superconducting Magnetic Energy Storage ("SMES") segment. The HTS business segment develops and commercializes HTS wire, wire products and systems. The focus of this segment's development efforts is on HTS wire for power transmission cables, motors, transformers, generators and fault current limiters for large-scale applications. The SMES business segment is focused on marketing and selling commercial low temperature SMES devices, on development and commercialization of new SMES products, and on development of power electronic subsystems and engineering services for industrial power quality and transmission network reliability applications. The operating segment results for the HTS and SMES business segments were as follows: Three Months Ended September 30 Six Months Ended September 30 --------------------------------- ------------------------------ 1999 1998 1999 1998 ------------- ------------ --------------- ------------- REVENUES - -------- HTS $ 2,300,212 $ 2,744,278 $ 4,281,454 $ 5,104,201 SMES 233,067 63,167 521,961 85,736 ------------ ----------- ------------- ------------ Total $ 2,533,279 $ 2,807,445 $ 4,803,415 $ 5,189,937 ============ =========== ============= ============ OPERATING INCOME (LOSS) - ---------------------- HTS $ (3,551,655) $(2,924,634) $ (7,210,202) $(6,154,935) SMES (1,545,520) (1,374,511) (3,220,323) (2,595,821) ------------ ----------- ------------- ------------ Total $ (5,097,175) $(4,299,145) $ (10,430,525) $ (8,750,756) ============ =========== ============= ============ The segment assets for the HTS and SMES business segments were as follows: September 30, 1999 March 31, 1999 ------------------ -------------- HTS $32,882,769 $42,288,549 SMES 7,948,428 5,841,754 ----------- ----------- Total $40,831,197 $48,130,303 =========== =========== The accounting policies of the business segments are the same as those described in Note 2. 8

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, 2000. 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. 9

AMERICAN SUPERCONDUCTOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 RESULTS OF OPERATIONS - --------------------- American Superconductor Corporation's revenues during the three months ended September 30, 1999 were $2,533,000, compared to $2,807,000 for the same period a year earlier. For the six months ended September 30, 1999, revenues were $4,803,000 as compared to $5,190,000 for the comparable period in 1998. Revenues for the quarter and six-month period decreased by $274,000 and $387,000, respectively, compared to the prior-year periods, due primarily to a planned reduction in funding under the Company's four-year development contract with Pirelli. Pirelli contract revenue was $375,000 in the quarter ended September 30, 1999, compared to $625,000 in the quarter ended September 30, 1998, a reduction of $250,000. Pirelli contract revenue was $750,000 in the six-month period ended September 30, 1999, compared to $1,250,000 in the six-month period ended September 30, 1998, a reduction of $500,000. The Company's four-year development contract with Pirelli expired on September 30, 1999. The Company has been conducting HTS research under contracts with Pirelli since February 1, 1990, and negotiations are underway between the two parties for another multi-year extension of the Pirelli development contract. Nonetheless, the contract contains certain commercial provisions providing benefits that inure to both parties and extend beyond the four-year development program term. For the three months ended September 30, 1999, the Company also recorded funding of $470,000 under government cost-sharing agreements with the Department of Energy ("DOE"). Funding under these cost-sharing agreements for the three months ended September 30, 1998 was $282,000. For the six months ended September 30, 1999, funding under government cost-sharing agreements was $1,098,000 compared to $819,000 for the comparable period in 1998. 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, 1999 were $7,630,000 compared to $7,107,000 for the same period last year. Total costs and expenses for the first six months of the current fiscal year were $15,234,000, compared to $13,941,000 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. Adjusted research and development ("R&D") expenses, which include amounts classified as costs of revenue and amounts offset by cost sharing funding, increased to $5,443,000 in the second quarter from $4,344,000 a year earlier. For the six-month periods ended September 30, 1999 and 1998, adjusted research and development expenses were $10,475,000 and $8,874,000, respectively. These increases were 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. Over half the increases occurred in the Company's SMES business unit, where adjusted research and development expenses increased by $661,000 and $1,085,000 in the three and six-month 10

AMERICAN SUPERCONDUCTOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 periods ended September 30, 1999, respectively, from the same periods last year, as a result of higher R&D spending to support the Company's Distributed-SMES product line. 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 periods ended September 30, 1999 were $1,752,000 and $3,174,000 respectively, compared to $1,740,000 and $3,364,000 for the same periods last year. Additionally, R&D expenses that were offset by cost sharing funding were $242,000 and $146,000 for the second quarter of fiscal years 2000 and 1999, respectively. For the six months ended September 30, 1999, this amount was $566,000 as compared to $422,000 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 $3,449,000 in the three months ending September 30, 1999 from $2,458,000 for the same period last year. For the six months ending September 30, 1999 and 1998, these amounts were $6,735,000 and $5,088,000, respectively. Adjusted selling, general and administrative ("SG&A") expenses, which include amounts classified as costs of revenue and amounts offset by cost sharing funding, were $5,754,000 for the six months ended September 30, 1999 compared to $5,182,000 for the same period a year earlier. This increase was primarily due to the hiring of additional personnel and related expenses incurred to support corporate development activities and future planned growth, as well as increased marketing activities, primarily in the SMES business unit. For the quarter ended September 30, 1999, these expenses were $2,668,000 compared to $2,701,000 for the same period the prior year. A portion of the SG&A expenditures related to externally funded development contracts has been classified as costs of revenue (rather than as SG&A expenses). These SG&A expenditures that were included as costs of revenue during the three and six-month periods ended September 30, 1999 were $801,000 and $1,538,000, respectively, compared to $737,000 and $1,453,000 for the same periods last year. Additionally, SG&A expenses that were offset by cost sharing funding were $228,000 and $136,000 for the second quarter of fiscal years 2000 and 1999, respectively. For the six months ended September 30, 1999, this amount was $532,000 as compared to $397,000 for the comparable period in the previous year. Net SG&A expenses (exclusive of amounts classified as costs of revenue and amounts offset by cost sharing funding) were $1,639,000 in the three months ending September 30, 1999 compared to $1,828,000 for the same period last year. For the six months ending September 30, 1999, net SG&A increased to $3,684,000 from $3,332,000 for the same period last year. Interest income was $305,000 in the quarter ended September 30, 1999 compared to $553,000 for the same period in the previous year. For the six months ended September 30, 1999 and 1998, these amounts were $645,000 and $1,049,000, respectively. These decreases primarily reflect the reduced cash balances available for investment as a result of cash being used to fund the Company's operations and purchase capital equipment. 11

AMERICAN SUPERCONDUCTOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 Interest expense was $0 in the quarter ended September 30, 1999 and $0 for the same period in the previous year. For the six-month periods ending September 30, 1999 and 1998, these amounts were $0 and $10,000, respectively. This decrease reflects the Company's retirement of all long-term debt in the quarter ended June 30, 1998. 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, 1999 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, 1999, the Company had cash, cash equivalents and long-term marketable securities of $21,150,000 compared to $31,572,000 at March 31, 1999. The principal uses of cash during the six months ended September 30, 1999 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 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 through the end of fiscal year 2001. 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. 12

AMERICAN SUPERCONDUCTOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 YEAR 2000 ISSUES - ---------------- The Company 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 needed replacement due to Year 2000 concerns, and the Company already has replaced these IT systems with Year 2000 compliant systems providing increased functionality. The Company believes all 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 any remaining 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 operating results or 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 SMES business unit has previously manufactured several SMES units that contained computer systems that may have been susceptible to Year 2000 compliance problems. The Company has upgraded and tested these systems to insure Year 2000 compliance. 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 has investigated 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 process has included questionnaires, interviews, on-site visits and other available means. The Company has substantially completed this process and is continually reviewing information received through this investigation. Regardless of the 13

AMERICAN SUPERCONDUCTOR CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 responses that the Company has received from such third parties, the Company has established contingency plans to reduce the Company's exposure resulting from any non-compliance of third parties. First, the Company is building inventories of critical and/or important components prior to January 1, 2000, thereby decreasing the Company's dependence on suppliers that are not Year 2000 compliant. Second, the Company is reviewing delivery schedules with its major customers. 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, 1999, it has spent less than $125,000 to remediate Year 2000 issues in its IT systems, and the Company estimates that it will spend less than an additional $25,000 to remediate Year 2000 issues in its IT systems. Additionally, the Company accelerated into fiscal 1999 the planned replacement of its E-mail software, and has completed the implementation of its new financial systems software to avoid potential Year 2000 problems. For the development, deployment and testing of SMES system computer upgrades to remedy Year 2000 problems, the Company has spent, through September 30, 1999, approximately $50,000. 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. 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 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK --------------------------------------------------------- There were no material changes in the Company's exposure to market risk from June 30, 1999. 14

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, 1999, 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 13,700,327 76,315 Albert J. Baciocco, Jr. 13,700,327 76,315 Frank Borman 13,700,327 76,315 Peter O. Crisp 13,700,327 76,315 Richard Drouin 13,700,327 76,315 Gerard Menjon 13,700,327 76,315 Andrew G.C. Sage, II 13,700,327 76,315 John Vander Sande 13,700,327 76,315 Broker For Against Abstain Non-Votes --- ------- ------- --------- 2. Ratification of Independent Auditors 13,747,822 16,745 12,075 - 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 15

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 15, 1999 /s/ Gregory J. Yurek - -------------------------------- -------------------------------------------- Date Gregory J. Yurek Chairman of the Board, President and Chief Executive Officer November 15, 1999 /s/ Thomas M. Rosa - -------------------------------- ------------------------------------------- Date Thomas M. Rosa Chief Accounting Officer, Corporate Controller and Assistant Secretary 16

5 1,000 3-MOS MAR-31-2000 JUL-01-1999 SEP-30-1999 14,241 6,908 4,007 0 6,020 24,699 22,148 (13,890) 40,831 5,765 0 0 0 154 34,912 40,831 458 2,533 542 2,542 5,089 0 0 (4,789) 0 (4,789) 0 0 0 (4,789) (0.31) (0.31)