<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, 2000 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 Identification Number)
organization or incorporation)
Two Technology Drive
Westborough, Massachusetts 01581
--------------------------------
(Address of principal executive offices, including zip code)
(508) 836-4200
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO______
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 20,202,388
---------------------------------------- -----------------------------------
Class Outstanding as of November 13, 2000
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
________
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Consolidated Balance Sheets
September 30, 2000 (unaudited) and March 31, 2000 3
Consolidated Statements of Operations for the three months ended
September 30, 2000 and 1999 and the six months ended September
30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows
for the six months ended
September 30, 2000 and 1999 (unaudited) 5
Notes to Interim Consolidated Financial Statements 6-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
Part II - Other Information 21
Signatures 22
</TABLE>
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
---------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $52,075,929 $126,917,768
Accounts receivable 12,367,020 7,317,009
Inventory 12,457,378 9,246,950
Prepaid expenses and other current assets 1,138,003 809,129
---------------- ---------------
Total current assets 78,038,330 144,290,856
Property and equipment:
Equipment 29,890,670 20,300,734
Furniture and fixtures 1,801,550 1,670,029
Leasehold improvements 3,020,377 3,006,814
---------------- ---------------
34,712,597 24,977,577
Less: accumulated depreciation (16,688,717) (15,199,346)
---------------- ---------------
Property and equipment, net 18,023,880 9,778,231
Long-term marketable securities 147,937,114 91,737,449
Long-term accounts receivable 1,500,000 1,750,000
Net investment in sales-type lease 279,110 279,110
Goodwill 1,240,663 0
Other assets 1,494,820 1,078,610
---------------- ---------------
Total assets $248,513,917 $248,914,256
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $7,012,299 $6,339,023
Deferred revenue 15,000 371,250
---------------- ---------------
Total current liabilities 7,027,299 6,710,273
Long-term deferred revenue 3,418,473 1,259,883
Commitments
Stockholders' equity:
Common stock, $.01 par value
Authorized shares-50,000,000; issued and outstanding
- 20,189,401 and 19,734,714 at September 30, 2000 and
March 31, 2000, respectively 201,894 197,347
Additional paid-in capital 355,013,192 348,903,034
Deferred compensation (477,299) (530,333)
Deferred warrant costs (486,938) (637,552)
Accumulated other comprehensive income (loss) 134,879 (172,515)
Accumulated deficit (116,317,583) (106,815,881)
---------------- ---------------
Total stockholders' equity 238,068,145 240,944,100
---------------- ---------------
Total liabilities and stockholders' equity $248,513,917 $248,914,256
================ ===============
</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,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue $694,556 $2,052,401 $1,394,988 $4,188,863
Product sales and prototype
development contracts 3,999,048 458,315 7,197,502 569,426
Rental/other revenue 23,900 22,563 49,352 45,126
--------------- --------------- --------------- ---------------
Total revenues 4,717,504 2,533,279 8,641,842 4,803,415
Costs and expenses:
Costs of revenue 3,528,064 2,541,908 7,146,636 4,814,851
Research and development 6,030,797 3,449,361 11,338,140 6,735,466
Selling, general and
administrative 3,715,354 1,639,185 6,670,225 3,683,623
--------------- --------------- --------------- ---------------
Total costs and expenses 13,274,215 7,630,454 25,155,001 15,233,940
Interest income 3,499,307 305,338 6,993,730 644,778
Other income (expense), net 12,480 2,415 17,727 2,331
--------------- --------------- --------------- ---------------
Net loss $(5,044,924) $(4,789,422) $(9,501,702) $(9,783,416)
=============== =============== ================= ===============
Net loss per common share
Basic $(0.25) $(0.31) $(0.47) $(0.63)
=============== =============== ================= ===============
Diluted $(0.25) $(0.31) $(0.47) $(0.63)
=============== =============== ================= ===============
Weighted average number of
common shares outstanding
Basic 20,151,987 15,446,525 20,019,403 15,419,899
=============== =============== ================= ===============
Diluted 20,151,987 15,446,525 20,019,403 15,419,899
=============== =============== ================= ===============
</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,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,501,702) $ (9,783,416)
Adjustments to reconcile net loss to net cash used by operations:
Depreciation and amortization 1,577,990 944,699
Deferred compensation expense 53,034
Deferred warrant costs 177,259 221,728
Stock compensation expense
Changes in operating asset and liability accounts :
Accounts receivable (4,747,733) 91,942
Inventory (2,950,448) (995,277)
Prepaid expenses and other current assets (328,874) 107,373
Accounts payable and accrued expenses 673,276 332,711
Deferred revenue - current and long-term 1,802,340 1,259,883
-------------- --------------
Total adjustments (3,655,758) 2,022,432
Net cash used by operating activities (13,157,460) (7,760,984)
Cash flows from investing activities:
Purchase of property and equipment (net) (9,561,224) (3,088,658)
Purchase of long-term marketable securities (55,874,482) (340,944)
Purchase of assets of Integrated Electronics, LLC (755,000) -
Net investment in sales-type lease - 8,000
Increase in other assets (416,210) (192,567)
-------------- --------------
Net cash used in investing activities (66,606,916) (3,614,169)
Cash flows from financing activities:
Net proceeds from issuance of common stock 4,922,537 647,246
-------------- --------------
Net cash provided by financing activities 4,922,537 647,246
Net increase (decrease) in cash and cash equivalents (74,841,839) (10,727,907)
Cash and cash equivalents at beginning of period 126,917,768 24,969,142
-------------- --------------
Cash and cash equivalents at end of period $52,075,929 $14,241,235
============== ==============
Supplemental schedule of cash flow information:
Noncash issuance of common stock $ 1,218,557 $ 59,373
</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, is a world leader in developing and manufacturing products
using superconducting materials and power electronic devices for electric
power applications. The focus of the Company's development and
commercialization efforts is on electrical equipment for use by electric
utilities and industrial and commercial users of electrical power. For
large-scale applications, the Company's development efforts are focused on
high temperature superconducting ("HTS") power transmission cables, motors,
generators and transformers. In the area of industrial power quality and
transmission network power reliability, the Company is focused on marketing
and selling commercial superconducting magnetic energy storage ("SMES")
devices, on development and commercialization of new SMES products, on
development of power electronics subsystems, and on providing engineering
services in the area of power quality and transmission network reliability
for industrial, commerical and utility customers. The Company operates in
two business segments.
The Company currently derives a substantial portion of its revenue from
research and development contracts. A significant portion of this contract
revenue relates to a development contract with Pirelli Cables and Systems
("Pirelli"), who (through an affiliated company) is a stockholder of the
Company.
Included in costs of revenue are research and development expenses related
to externally funded development contracts of approximately $1,117,000 and
$1,752,000 for the three months ended September 30, 2000 and 1999,
respectively, and approximately $2,456,000 and $3,174,000 for the six
months ended September 30, 2000 and 1999, respectively. Selling, general
and administrative expenses included as costs of revenue were approximately
$312,000 and $801,000 for the three months ended September 30, 2000 and
1999, respectively, and approximately $751,000 and $1,538,000 for the six
months ended September 30, 2000 and 1999, respectively.
2. Basis of Presentation:
----------------------
The accompanying consolidated financial statements are unaudited, except
for those dated as of March 31, 2000, 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, 2000 and 1999 and the financial position at September 30, 2000.
6
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
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, 2000 which are contained in the Company's Annual
Report on Form 10-K covering the year ended March 31, 2000.
On June 1, 2000, the Company acquired substantially all of the assets of
Integrated Electronics, LLC ("IE"). The IE acquisition was accounted for
under the purchase method of accounting. Goodwill of $1,329,282 represented
the excess of the purchase price of $1,833,125 over the fair value of the
acquired assets of $503,843 at June 1, 2000. The purchase price consisted
of cash paid to IE of $675,000, miscellaneous transaction costs of $80,000,
and the value of 37,500 shares of the Company's common stock at June 1,
2000 of $1,078,125. The fair value of the assets acquired were accounts
receivable of $52,278, inventory of $259,980, and fixed assets of $191,585.
These asset purchases are included under "Purchase of assets of Integrated
Electronics, LLC" in the Consolidated Statements of Cash Flows for the
period ended September 30, 2000 and thus are excluded from the "Changes in
operating asset and liability accounts" section of the Consolidated
Statements of Cash Flows.
Certain prior year amounts have been reclassified to be consistent with
the 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,
2000 and 1999, common equivalent shares of 1,976,674 and 664,678 were not
included for the calculation of diluted EPS as they were considered
antidilutive. For the six months ended September 30, 2000 and 1999, common
equivalent shares of 2,230,780 and 804,136 were also not included for the
calculation of diluted EPS as they were also considered antidilutive.
4. Cost-Sharing Agreements:
-----------------------
The Company did not receive any funding under government cost-sharing
agreements in the three months ended September 30, 2000, compared to
approximately $470,000 from two Department of Energy cost-sharing
agreements in the three months ended September 30, 1999. For the six months
ended September 30, 2000 and 1999, government cost-sharing funding was
$194,000 and $1,098,000, respectively. This funding was used to directly
offset research and development and selling, general and administrative
expenses.
7
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
___
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
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(5,044,924) $(4,789,422) $(9,501,702) $(9,783,416)
Other comprehensive income 471,042 296 307,394 (36,631)
----------- ----------- ----------- -----------
Total comprehensive loss $(4,573,882) $(4,789,126) $(9,194,308) $(9,820,047)
=========== =========== =========== ===========
</TABLE>
Other comprehensive income represents changes in foreign currency
translation and unrealized gains and losses on investments.
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. 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, generators and transformers.
The SMES business segment is focused on marketing and selling commercial SMES
devices, on development and commercialization of new SMES products, on
development of power electronic subsystems and on providing engineering services
in the area of power quality and transmission network reliability for
industrial, commercial and utility customers.
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
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ----- ---- ----
<S> <C> <C> <C> <C>
Revenues
--------
HTS $1,414,204 $2,300,212 $3,194,937 $4,281,454
SMES 3,303,300 233,067 5,446,905 521,961
------------ ------------ ------------ -------------
Total $4,717,504 $2,533,279 $8,641,842 $4,803,415
============ ============ ============ =============
</TABLE>
8
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
___
Operating Income (loss)
-----------------------
HTS $(6,880,179) $(3,234,070) $(12,808,494) $ (6,605,035)
SMES (1,341,600) (1,545,520) (3,034,090) (3,220,323)
Unallocated
Corporate
Expenses (334,932) (317,585) (670,575) (605,167)
------------- ------------ --------------- -------------
Total $(8,556,711) $(5,097,175) $(16,513,159) $(10,430,525)
============= ============ =============== =============
The segment assets for the HTS and SMES business segments were as follows:
September 30, 2000 March 31, 2000
------------------ --------------
HTS $ 22,545,748 $ 16,265,634
SMES 25,955,126 13,993,405
Corporate Cash and
Marketable Securities 200,013,043 218,655,217
------------- -------------
Total $ 248,513,917 $ 248,914,256
============= =============
The accounting policies of the business segments are the same as those described
in Note 2, except that certain corporate expenses which we do not believe are
specifically attributable or allocable to either business segment have been
excluded from the segment operating losses.
7. New Accounting Pronouncements:
-----------------------------
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.
9
<PAGE>
Statement 133, as amended by Statement 138, effective July 1, 2000, is effective
for fiscal years beginning after June 15, 1999. In June 1999, FASB issued
Statement 137 which defers the effective date to 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). We believe the impact on our
financial statements of adopting Statement 133 will be immaterial.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB 101, "Revenue
Recognition," which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The SEC has subsequently delayed the implementation date of SAB 101 until
no later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. We believe the impact on our financial statements of adopting SAB 101
will be immaterial.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25". This interpretation clarifies (a) the definition of employee
for purposes of applying Opinion 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. This interpretation is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. To the extent that this interpretation
covers events occurring during the period after December 15, 1998, or January
12, 2000, but before the effective date of July 1, 2000, the effects of applying
this interpretation are recognized on a prospective basis from July 1, 2000.
There is no impact on our financial statements in the current quarter as a
result of adopting FIN 44. We believe the future impact on our financial
statements as a result of this interpretation will be immaterial.
10
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
Results of Operations
---------------------
Total revenues during the three months ended September 30, 2000 were $4,718,000,
compared to $2,533,000 for the same period a year earlier. For the six months
ended September 30, 2000, revenues were $8,642,000 as compared to $4,803,000 for
the comparable period in 1999. Revenues for the quarter and six-month period
increased by $2,185,000 and $3,839,000, respectively, compared to the same
prior-year periods. The increase in revenue resulted from higher sales of
Superconducting Magnetic Energy Storage (SMES) products. SMES sales in the
quarter were $3,303,000, compared to $233,000 during the second quarter of last
year, an increase of $3,070,000. SMES sales for the recent six-month period were
$5,447,000, compared to $522,000 recorded during the first six months of last
year, an increase of $4,925,000. These increases were partially offset by lower
HTS business unit revenues of $886,000 and $1,087,000 for the quarter and
six-month periods ended September 30, 2000, respectively, compared to the same
prior-year periods. HTS business unit revenues declined due to lower development
contract funding, but were partially offset by higher product/prototype
development revenues.
For the three months ended September 30, 2000, we did not record any funding
under government cost-sharing agreements. For the three months ended September
30, 1999, we recorded $470,000 of funding under two cost sharing agreements with
the Department of Energy ("DOE"). For the six months ended September 30, 2000,
funding under government cost-sharing agreements was $194,000 compared to
$1,098,000 for the comparable period in 1999. We anticipate that a portion of
our funding in the future will continue to come from cost-sharing agreements as
we continue 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.
Total costs and expenses for the three months ended September 30, 2000 were
$13,274,000 compared to $7,630,000 for the same period last year. Total costs
and expenses for the first six months of the current fiscal year were
$25,155,000, compared to $15,234,000 for the same period last year. The increase
in costs and expenses was primarily the result of our increased investment in
research and development and increased costs of revenue associated mainly with
the higher level of SMES product sales.
Adjusted research and development ("R&D") expenses, which include amounts
classified as costs of revenue and amounts offset by cost sharing funding,
increased to $7,148,000 in the three months ended September 30, 2000 from
$5,443,000 for the same period of the prior year. For the six-month periods
ended September 30, 2000 and 1999, adjusted research and development expenses
were $13,894,000 and $10,475,000, respectively. These increases were due to the
continued scale-up of our internal research and development activities including
the hiring of additional personnel and the purchases of materials and equipment.
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
11
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
revenue during the three and six-month periods ended September 30, 2000 were
$1,117,000 and $2,456,000, respectively, compared to $1,752,000 and $3,174,000
for the same periods last year. Additionally, R&D expenses that were offset by
cost sharing funding were $0 and $242,000 for the second quarter ended September
30, 2000 and 1999, respectively. For the six months ended September 30, 2000,
this amount was $100,000 as compared to $566,000 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 $6,031,000 in
the three months ending September 30, 2000 from $3,449,000 for the same period
last year. For the six months ending September 30, 2000 and 1999, these amounts
were $11,338,000 and $6,735,000, respectively.
Adjusted selling, general and administrative ("SG&A") expenses, which include
amounts classified as costs of revenue and amounts offset by cost sharing
funding, increased to $4,027,000 for the three months ended September 30, 2000,
compared to $2,668,000 for the same period a year earlier. For the six-month
periods ended September 30, 2000 and 1999, adjusted SG&A expenses were
$7,515,000 and $5,754,000, respectively. These increases were primarily due to
the hiring of additional personnel and related expenses incurred to support
corporate development and marketing activities and future planned growth. 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, 2000 were $312,000 and
$751,000, respectively, compared to $801,000 and $1,538,000 for the same periods
last year. Additionally, SG&A expenses that were offset by cost sharing funding
were $0 and $228,000 for the second quarter ended September 30, 2000 and 1999,
respectively. For the six months ended September 30, 2000, this amount was
$94,000 as compared to $532,000 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 $3,715,000 in the three months
ending September 30, 2000 compared to $1,639,000 for the same period last year.
For the six months ending September 30, 2000 and 1999, these amounts were
$6,670,000 and $3,684,000, respectively.
Interest income was $3,499,000 in the quarter ended September 30, 2000 compared
to $305,000 for the same period in the previous year. For the six months ended
September 30, 2000 and 1999, these amounts were $6,994,000 and $645,000,
respectively. These increases in interest income reflect the higher cash
balances available for investment as a result of receiving $205,625,000 in net
proceeds from our March, 2000 public offering of 3,500,000 shares of common
stock.
We expect to continue to incur operating losses in the next year, as we continue
to devote significant financial resources to our research and development
activities and commercialization efforts.
12
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
We expect to be party to agreements which, from time to time, may result in
costs incurred exceeding expected revenues under such contracts. We 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 below for a discussion of
certain factors that may affect our future results of operations and financial
condition.
Liquidity and Capital Resources
-------------------------------
At September 30, 2000, we had cash, cash equivalents and long-term marketable
securities of $200,013,000 compared to $218,655,000 at March 31, 2000. The
principal uses of cash during the three months ended September 30, 2000 were the
funding of our operations, the acquisition of capital equipment, primarily for
research and development and manufacturing, and expenditures for our planned new
HTS manufacturing facility in Devens, Massachusetts.
Long-term accounts receivable of $1,500,000 represents the amount due after
September 30, 2001 on the $2,500,000 recognized as revenue in the year ended
March 31, 2000 for R&D work performed by us prior to the effective date (October
1, 1999) of the Pirelli development agreement. The $2,500,000 payment by Pirelli
for R&D performed before October 1, 1999 is guaranteed by the agreement and is
payable in quarterly installments over the five-year period between October 1,
1999 and September 30, 2004.
Goodwill of $1,241,000 at September 30, 2000 represents the excess of the
purchase price paid for the acquisition of substantially all of the assets of
Integrated Electronics, LLC ("IE") on June 1, 2000, over the fair value of IE's
assets, less amortization. The IE transaction was accounted for under the
purchase method of accounting. Goodwill was initially calculated to be
$1,329,000, and will be amortized over a five-year period beginning June 1,
2000, in an amount equal to $22,000 per month. Results of operations for IE
since June 1, 2000 are incorporated in our consolidated financial results.
We have potential funding commitments of approximately $17,463,000 to be
received after September 30, 2000 from strategic partners and government and
commercial customers compared to $21,324,000 at March 31, 2000. However, these
commitments, including $1,881,000 on U.S. government contracts and subcontracts,
are subject to certain cancellation or buyback provisions.
To date, inflation has not had a material impact on our financial results.
13
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
New Accounting Pronouncements
-----------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") 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 instrument'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, as amended by Statement 138, effective July 1, 2000, is effective
for fiscal years beginning after June 15, 1999. In June 1999, FASB issued
Statement 137 which defers the effective date to 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). We believe the impact on our
financial statements of adopting Statement 133 will be immaterial.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,"Revenue
Recognition," which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. The SEC has subsequently delayed the implementation date of SAB 101 until
no later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. We believe the impact on our financial statements of adopting SAB 101
will be immaterial.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25". This Interpretation clarifies (a) the definition of employee
for purposes of applying Opinion 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. To the extent that this Interpretation
covers events occurring during the period after December 15, 1998, or January
12, 2000, but before the effective date of July 1, 2000, the effects of applying
this Interpretation are recognized on a prospective basis from July 1, 2000.
There is no impact on our financial statements in the current quarter as a
result of adopting FIN 44. We believe the future impact on our financial
statements as a result of this interpretation will be immaterial.
14
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our exposure to market risk through derivative financial instruments and other
financial instruments, such as investments in short-term marketable securities
and long-term debt, is not material.
FUTURE OPERATING RESULTS
Various statements included herein, as well as other statements made from time
to time by our representatives, which relate to future matters (including but
not limited to statements concerning our future commercial success) constitute
forward looking statements and are made under the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. There are a number of
important factors which could cause our actual results of operations and
financial condition in the future to vary from that indicated in such forward
looking statements. Factors that may cause such differences include, without
limitation, the risks, uncertainties and other information set forth below.
We have a history of operating losses and we expect to continue to incur losses
in the future.
We have been principally engaged in research and development activities. We
have incurred net losses in each year since our inception. Our net loss for
fiscal 1998, fiscal 1999, fiscal 2000, and the first six months of FY2001 was
$12,378,000, $15,326,000, $17,598,000, and $9,502,000, respectively. Our
accumulated deficit as of September 30, 2000 was $116,318,000. We expect to
continue to incur operating losses in the next year and there can be no
assurance that we will ever achieve profitability.
There are a number of technological challenges that must be successfully
addressed before our superconducting products can gain widespread commercial
acceptance.
Many of our products are in the early stages of commercialization and
testing, while others are still under development. We do not believe any company
has yet successfully developed and commercialized significant quantities of HTS
wire or wire products. There are a number of technological challenges that we
must successfully address to complete our development and commercialization
efforts. For example, we face engineering challenges in producing HTS wire in
longer lengths and commercial quantities. We also believe that several years of
further development in the cable and motor industries will be necessary before a
substantial number of additional commercial applications for our HTS wire in
these industries can be developed and
15
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
proven. We may also need to improve the quality of our HTS wire to expand the
number of commercial applications for it. We may be unable to meet such
technological challenges. Delays in development, as a result of technological
challenges or other factors, may result in the introduction of our products
later than anticipated.
The commercial uses of superconducting products are very limited today, and a
widespread commercial market for our products may not develop.
To date, there has been no widespread commercial use of HTS products.
Although LTS products are currently used in several commercial applications,
commercial acceptance of LTS products, other than for medical magnetic resonance
imaging and superconducting magnetic energy storage products, has been
significantly limited by the cooling requirements of LTS materials. Even if the
technological hurdles currently limiting commercial uses of HTS and LTS products
are overcome, it is uncertain whether a robust commercial market for those new
and unproven products will ever develop. It is possible that the market demands
we currently anticipate for our HTS and LTS products will not develop and that
superconducting products will never achieve widespread commercial acceptance.
We expect to spend significant amounts on the expansion of our manufacturing
capacity, and our expansion projects may not be successful.
In anticipation of significantly increased demand for our products, we have
announced plans to build a facility exclusively dedicated to HTS wire
manufacturing at the Devens Commerce Center in Devens, Massachusetts, and have
begun construction of this facility. Over the next two years, we plan to use a
portion of the net proceeds from our March 2000 stock offering to buy land,
construct a building and purchase equipment for the new HTS wire manufacturing
facility in Devens, and for a new SMES manufacturing facility. We can only
estimate the costs of these projects, and the actual costs may be significantly
in excess of our estimates. In addition, we may be unable to lease suitable
space for our new facilities on commercially acceptable terms, the completion of
those new facilities may be delayed, or we may experience start-up difficulties
or other problems once those facilities become operational. Finally, if
increased demand for our products does not materialize, we will not generate
sufficient revenue to offset the cost of establishing and operating these
facilities.
We have no experience manufacturing our products in commercial quantities.
To be financially successful, we will have to manufacture our products in
commercial quantities at acceptable costs while also preserving the quality
levels achieved in manufacturing these products in limited quantities. This
presents a number of technological and engineering
16
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
challenges for us. We cannot assure you that we will be successful in developing
product designs and manufacturing processes that permit us to manufacture our
HTS and SMES products in commercial quantities at commercially acceptable costs
while preserving quality. In addition, we may incur significant start-up costs
and unforeseen expenses in our product design and manufacturing efforts.
We have historically focused on research and development activities and have
limited experience in marketing and selling our products.
We have been primarily focused on research and development of our
superconducting products. Consequently, our management team has limited
experience directing our commercialization efforts which are essential to our
future success. To date, we only have limited experience marketing and selling
our products, and there are very few people anywhere who have significant
experience marketing or selling superconducting products. Once our products are
ready for commercial use, we will have to develop a marketing and sales
organization that will effectively demonstrate the advantages of our products
over both more traditional products and competing superconducting products or
other technologies. We may not be successful in our efforts to market this new
and unfamiliar technology, and we may not be able to establish an effective
sales and distribution organization.
We may decide to enter into arrangements with third parties for the
marketing or distribution of our products, including arrangements in which our
products, such as HTS wire, are included as a component of a larger product,
such as a motor. We have entered into a marketing and sales alliance with GE
Industrial Systems giving GE the exclusive right to offer our Distributed-SMES
(D-SMES) product line in the United States to utilities and the right to sell
industrial Power Quality-SMES (PQ-SMES) systems to certain of GE's global
industrial accounts. By entering into marketing and sales alliances, the
financial benefits to us of commercializing our products are dependent on the
efforts of others. We may not be able to enter into marketing or distribution
arrangements with third parties on financially acceptable terms, and third
parties may not be successful in selling our products or applications
incorporating our products.
We depend on our strategic relationships with our corporate partners for the
successful development and marketing of applications for our superconducting
products.
Our business strategy depends upon strategic relationships with corporate
partners, which are intended to provide funding and technologies for our
development efforts and assist us in marketing and distributing our products.
Although we currently are party to a number of strategic relationships, we may
not be able to maintain these relationships, and these relationships may not be
technologically or commercially successful.
17
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
We have an agreement with Pirelli relating to HTS wire for cables used to
transmit both electric power and control signals. In general, we are obligated
to sell our HTS cable wire exclusively to Pirelli, and Pirelli is obligated to
buy this HTS wire exclusively from us or to pay us royalties for any of this
wire that it manufactures for use in these applications anywhere in the world
other than Japan. Pirelli continues to provide us with substantial funding and
has been critical in assisting us in the development and commercialization of
HTS cable wire. Consequently, we are significantly dependent on Pirelli for the
commercial success of this cable wire in these applications.
As we move toward commercialization of several of our products, we plan to
use strategic alliances as an important means of marketing and selling our
products. We have entered into a marketing and sales alliance with GE giving GE
the exclusive right to offer our D-SMES product line in the United States to
utilities and the right to sell industrial PQ-SMES systems to certain of GE's
global industrial accounts. Any strategic relationships established may not
provide us with the commercial benefits we anticipate.
Our products face intense competition both from superconducting products
developed by others and from traditional, non-superconducting products and
alternative technologies.
As we begin to market and sell our superconducting products, we will face
intense competition both from competitors in the superconducting field and from
vendors of traditional products and new technologies. There are many companies
in the United States, Europe, Japan and Australia engaged in the development of
HTS products, including 3M, Siemens, Alcatel and Sumitomo Electric Industries.
The superconducting industry is characterized by rapidly changing and advancing
technology. Our future success will depend in large part upon our ability to
keep pace with advancing HTS and LTS technology and developing industry
standards. In addition, our SMES products compete with a variety of
non-superconducting products such as dynamic voltage restorers and battery-based
power supply systems. Research efforts and technological advances made by others
in the superconducting field or in other areas with applications to the power
quality and reliability markets may render our development efforts obsolete.
Many of our competitors have substantially greater financial resources, research
and development, manufacturing and marketing capabilities than we have. In
addition, as the HTS, power quality and power reliability markets develop, other
large industrial companies may enter those fields and compete with us.
Third parties have or may acquire patents that cover the high temperature
superconducting materials we use or may use in the future to manufacture our
products.
We expect that some or all of the HTS materials and technologies we use in
designing and manufacturing our products are or will become covered by patents
issued to other parties, including our competitors. If that is the case, we will
need either to acquire licenses to these patents or to successfully contest the
validity of these patents. The owners of these patents may
18
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
refuse to grant licenses to us, or may be willing to do so only on terms that we
find commercially unreasonable. If we are unable to obtain these licenses, we
may have to contest the validity or scope of those patents to avoid infringement
claims by the owners of these patents. It is possible that we will not be
successful in contesting the validity or scope of a patent, or that we will not
prevail in a patent infringement claim brought against us. Even if we are
successful in such a proceeding, we could incur substantial costs and diversion
of management resources in prosecuting or defending such a proceeding.
There are numerous patents issued in the field of superconducting materials and
our patents may not provide meaningful protection for our technology.
We own or have licensing rights under many patents and pending patent
applications. However, the patents that we own or license may not provide us
with meaningful protection of our technologies, and may not prevent our
competitors from using similar technologies, for a variety of reasons, such as
the following:
. The patent applications that we or our licensors file may not result
in patents being issued.
. Patents and patent applications may be challenged by third parties. For
example, several interference or opposition proceedings have been
initiated with respect to patent applications or patents under which we
hold exclusive licenses. These proceedings could result in a loss of
patents or applications, which would also result in a loss of our
rights under them; and in the case of an interference might also result
in the issuance of a similar patent to the party initiating the
interference proceeding.
. Others may independently develop similar technologies not protected by
our patents or design around the patented aspects of any technologies
we develop.
Moreover, we could incur substantial litigation costs in defending the validity
of our own patents. We also rely on trade secrets and proprietary know-how to
protect our intellectual property. However, our non-disclosure agreements and
other safeguards may not provide meaningful protection for our trade secrets and
other proprietary information.
Our success is dependent upon attracting and retaining qualified personnel.
Our success will depend in large part upon our ability to attract and
retain highly qualified research and development, management, manufacturing,
marketing and sales personnel. Hiring those persons may be especially difficult
due to the specialized nature of our business. In addition, the demand for
qualified personnel is particularly acute in the New England and
19
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2000
Wisconsin areas, where most of our operations are located, due to the currently
low unemployment rate in these regions.
We are particularly dependent upon the services of Dr. Gregory J. Yurek,
our co-founder and our Chairman of the Board, President and Chief Executive
Officer, and Dr. Alexis P. Malozemoff, our Chief Technical Officer. The loss of
the services of either of those individuals could significantly damage our
business and prospects.
20
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
PART II
OTHER INFORMATION
-----------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's Annual Meeting of Stockholders held on July 28, 2000,
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 17,775,875 381,756
Albert J. Baciocco, Jr. 17,774,775 382,856
Frank Borman 17,771,375 386,256
Peter O. Crisp 17,774,775 382,856
Richard Drouin 17,774,875 382,756
Gerard Menjon 16,036,365 2,121,266
Andrew G.C. Sage, II 17,772,075 385,556
John Vander Sande 17,775,875 381,756
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
2. To approve amendments to
the Company's 1996 Stock
Incentive Plan 6,069,261 5,017,156 49,475 7,021,739
3. To approve amendments to the
Company's 1997 Director Stock
Option Plan 6,936,682 4,139,397 59,813 7,021,739
4. To approve 2000 Employee
Stock Purchase Plan 10,310,322 774,499 51,071 7,021,739
5. Ratification of Independent
Auditors 18,115,061 26,469 16,101 -
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 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 3.1 Amended and Restated By-Laws of the Company
Exhibit 27.1 Financial Data Schedule
21
<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 14, 2000 /s/ Gregory J. Yurek
------------------------------- -----------------------------------
Date Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
November 14, 2000 /s/ Thomas M. Rosa
------------------------------- -----------------------------------
Date Thomas M. Rosa
Chief Accounting Officer, Corporate
Controller and Assistant Secretary
22
