<PAGE>
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
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
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
</TABLE>
2
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
-------------- --------------
(unaudited)
<S> <C> <C>
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
============== ==============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended September 30 Six Months Ended September 30
------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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)
============ ============ ============ ============
</TABLE>
Other comprehensive income represents changes in foreign currency translation
and unrealized gains and losses on investments.
7
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended September 30 Six Months Ended September 30
--------------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
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)
============ =========== ============= ============
</TABLE>
The segment assets for the HTS and SMES business segments were as follows:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
HTS $32,882,769 $42,288,549
SMES 7,948,428 5,841,754
----------- -----------
Total $40,831,197 $48,130,303
=========== ===========
</TABLE>
The accounting policies of the business segments are the same as those described
in Note 2.
8
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Withheld Authority
to Vote
Proposal For For all Nominees
- -------- ---- ------------------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
2. Ratification of
Independent Auditors 13,747,822 16,745 12,075 -
</TABLE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,241
<SECURITIES> 6,908
<RECEIVABLES> 4,007
<ALLOWANCES> 0
<INVENTORY> 6,020
<CURRENT-ASSETS> 24,699
<PP&E> 22,148
<DEPRECIATION> (13,890)
<TOTAL-ASSETS> 40,831
<CURRENT-LIABILITIES> 5,765
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 34,912
<TOTAL-LIABILITY-AND-EQUITY> 40,831
<SALES> 458
<TOTAL-REVENUES> 2,533
<CGS> 542
<TOTAL-COSTS> 2,542
<OTHER-EXPENSES> 5,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,789)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
