<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: December 31, 1999 Commission File Number 0-19672
-----------------
American Superconductor Corporation
-----------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 04-2959321
- ---------------------------------------------- -----------------------------------------
(State or other jurisdiction of organization (I.R.S. Employer Identification Number)
or incorporation)
</TABLE>
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.
<TABLE>
<S> <C>
Common Stock, par value $.01 per share 15,680,874
- ---------------------------------------- ------------------------------------
Class Outstanding as of January 25, 1999
</TABLE>
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Consolidated Balance Sheets
December 31, 1999 and March 31, 1999 3
Consolidated Statements of Operations
for the three months ended
December 31, 1999 and 1998 and the
nine months ended December 31, 1999
and 1998 4
Consolidated Statements of Cash Flows
for the nine months ended
December 31, 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>
December 31, March 31,
1999 1999
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,500,549 $ 24,969,142
Accounts receivable 5,419,010 4,099,211
Inventory 7,989,260 5,024,552
Prepaid expenses and other current assets 621,248 538,485
--------------- --------------
Total current assets 21,530,067 34,631,390
Property and equipment:
Equipment 19,624,272 15,159,313
Furniture and fixtures 1,324,657 1,243,894
Leasehold improvements 2,673,532 2,657,188
--------------- --------------
23,622,461 19,060,395
Less: accumulated depreciation (14,403,430) (12,945,765)
--------------- --------------
Property and equipment, net 9,219,031 6,114,630
Long-term marketable securities 6,843,821 6,602,829
Long-term accounts receivable 1,875,000 -
Net investment in sales-type lease 279,110 287,110
Other assets 817,057 494,344
--------------- --------------
Total assets $ 40,564,086 $ 48,130,303
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,389,848 $ 4,171,948
Deferred revenue 1,583,883 -
--------------- --------------
Total current liabilities 6,973,731 4,171,948
Commitments
Stockholders' equity:
Common stock, $.01 par value
Authorized shares-50,000,000; issued and outstanding
- 15,628,150 and 15,378,656 at December 31, 1999 and
March 31, 1999, respectively 156,282 153,787
Additional paid-in capital 136,125,045 134,030,618
Deferred warrant costs (732,761) (1,018,391)
Accumulated other comprehensive income (loss) (73,420) 10,392
Accumulated deficit (101,884,791) (89,218,051)
--------------- --------------
Total stockholders' equity 33,590,355 43,958,355
--------------- --------------
Total liabilities and stockholders' equity $ 40,564,086 $ 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 Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue $ 4,533,187 $ 2,237,522 $ 8,712,050 $ 6,854,899
Product sales and prototype
development contracts 490,143 331,890 1,069,569 818,714
Rental/other revenue 8,484 14,412 53,610 100,148
----------- ----------- ------------ ------------
Total revenues 5,031,814 2,583,824 9,835,229 7,773,761
Costs and expenses:
Costs of revenue 5,083,347 2,772,464 9,898,198 8,293,914
Research and development 2,263,876 2,403,671 8,999,343 7,491,248
Selling, general and
administrative 797,941 1,646,254 4,481,563 4,977,920
----------- ----------- ------------ ------------
Total costs and expenses 8,145,164 6,822,389 23,379,104 20,763,082
Interest income 226,425 479,558 871,203 1,528,361
Interest expense - - - (9,827)
Other income (expense), net 3,601 3,091 5,932 11,947
----------- ----------- ------------ ------------
Net loss $(2,883,324) $(3,755,916) $(12,666,740) $(11,458,840)
=========== =========== ============ ============
Net loss per common share
Basic $ (0.19) $ (0.24) $ (0.82) $ (0.76)
=========== =========== ============ ============
Diluted $ (0.19) $ (0.24) $ (0.82) $ (0.76)
=========== =========== ============ ============
Weighted average number of
common shares outstanding
Basic 15,554,214 15,367,619 15,464,834 15,052,153
=========== =========== ============ ============
Diluted 15,554,214 15,367,619 15,464,834 15,052,153
=========== =========== ============ ============
</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>
Nine Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,666,740) $(11,458,840)
Adjustments to reconcile net loss to net cash used by operations:
Depreciation and amortization 1,529,176 1,369,586
Deferred warrant costs 334,813 241,371
Stock compensation expense 96,962 173,312
Changes in operating asset and liability accounts:
Accounts receivable (3,194,799) (567,591)
Inventory (2,964,708) (1,643,703)
Prepaid expenses and other current assets (82,763) (360,085)
Accounts payable and accrued expenses 1,217,900 (457,769)
Deferred revenue 1,583,883 (187,285)
------------ ------------
Total adjustments (1,479,536) (1,432,164)
Net cash used by operating activities (14,146,276) (12,891,004)
Cash flows from investing activities:
Purchase of property and equipment (net) (4,571,403) (2,421,534)
Purchase of long-term marketable securities (315,467) (290,026)
Net investment in sales-type lease 8,000 77,000
Increase in other assets (394,224) (481,867)
------------ ------------
Net cash used in investing activities (5,273,094) (3,116,427)
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 1,950,777 45,882,461
------------ ------------
Net cash provided by financing activities 1,950,777 42,711,059
Net increase (decrease) in cash and cash equivalents (17,468,593) 26,703,628
Cash and cash equivalents at beginning of period 24,969,142 1,842,142
------------ ------------
Cash and cash equivalents at end of period $ 7,500,549 $ 28,545,770
============ ============
Supplemental schedule of cash flow information
Cash paid for interest $ - $ 119,789
Noncash issuance of common stock $ 96,962 $ 173,312
</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 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 users of electrical
power. For large-scale applications, the Company's development efforts are
focused on high temperature superconducting ("HTS") power transmission
cables, motors, transformers, generators and fault current limiters. In the
area of industrial power quality and transmission network power reliability,
the Company is focused on marketing and selling commercial low temperature
superconducting magnetic energy storage ("SMES") devices, and on development
and commercialization of new SMES products. 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.
Included in costs of revenue are research and development expenses related to
externally funded development contracts of approximately $3,287,000 and
$1,801,000 for the three months ended December 31, 1999 and 1998,
respectively, and approximately $6,460,000 and $5,165,000 for the nine months
ended December 31, 1999 and 1998, respectively. Selling, general and
administrative expenses included as costs of revenue were approximately
$1,759,000 and $614,000 for the three months ended December 31, 1999 and
1998, respectively, and approximately $3,297,000 and $2,067,000 for the nine
months ended December 31, 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 December 31, 1999 and 1998 and the
financial position at December 31, 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 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.
6
<PAGE>
AMERICAN SUPERCONDUCTOR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, Continued
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 December 31, 1999 and 1998, common equivalent
shares of 1,543,813 and 71,656 were not included for the calculation of
diluted EPS as they were considered antidilutive. For the nine months ended
December 31, 1999 and 1998, common equivalent shares of 3,391,891 and 203,849
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 government cost-sharing agreements with
the Department of Energy of approximately $347,000 and $473,000, for the
three months ended December 31, 1999 and 1998, respectively, and of
$1,446,000 and $1,293,000, for the nine months ended December 31, 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 SFAS 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 December 31 Nine Months Ended December 31
------------------------------ -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(2,883,324) $(3,755,916) $(12,666,740) $(11,458,840)
Other comprehensive income (47,181) (23,605) (83,812) 39,895
----------- ----------- ------------ ------------
Total comprehensive loss $(2,930,505) $(3,779,521) $(12,750,552) $(11,418,945)
=========== =========== ============ ============
</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 SFAS 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") business 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 December 31 Nine Months Ended December 31
------------------------------ -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
- --------
HTS $ 4,967,931 $ 2,569,412 $ 9,249,385 $ 7,673,613
SMES 63,883 14,412 585,844 100,148
----------- ----------- ----------- ------------
Total $ 5,031,814 $ 2,583,824 $ 9,835,229 $ 7,773,761
=========== =========== =========== ============
Operating Income (loss)
- -----------------------
HTS $(1,302,428) $(2,909,260) $(8,512,629) $ (9,061,180)
SMES
(1,810,922) (1,329,305) (5,031,246) (3,928,141)
----------- ----------- ------------ ------------
Total $(3,113,350) $(4,238,565) $(13,543,875) $(12,989,321)
=========== =========== ============ ============
</TABLE>
The segment assets for the HTS and SMES business segments were as follows:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
HTS $29,987,073 $42,288,549
SMES 10,577,013 5,841,754
----------- -----------
Total $40,564,086 $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. Subsequent Events:
-----------------
On January 24, 2000, the Company filed a registration statement with the
Securities and Exchange Commission to make an offering of its common stock.
Proceeds from the offering will be used for a new plant for manufacturing HTS
wire; for a new SMES manufacturing facility; and for costs associated with
the design, development and commercialization of HTS motors and generators.
The underwriters for the offering will be Banc of America Securities LLC,
CIBC World Markets and Robertson Stephens.
8. 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" ("Statement 133"). 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>
Results of Operations
- ---------------------
American Superconductor Corporation's revenues during the three months ended
December 31, 1999 were $5,032,000, compared to $2,584,000 for the same period of
the prior year. For the nine months ended December 31, 1999, revenues were
$9,835,000 as compared to $7,774,000 for the same period of the prior year.
Revenues for the three and nine-month periods increased by $2,448,000 and
$2,061,000, respectively, compared to the prior-year periods, due primarily to a
new research and development agreement with Pirelli Cavi e Sistemi S.p.A., which
was effective October 1, 1999 and under which the Company recognized $3,000,000
in third-quarter revenue. Of that revenue, $2,500,000 was attributable to past
research and development work performed by the Company prior to October 1, 1999.
For the three months ended December 31, 1999, the Company also recorded funding
of $347,000 under government cost-sharing agreements with the Department of
Energy ("DOE"). Funding under these cost-sharing agreements for the three months
ended December 31, 1998 was $473,000. For the nine months ended December 31,
1999, funding under government cost-sharing agreements was $1,446,000 compared
to $1,293,000 for the same period of the prior year. 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 December 31,
1999 were $8,145,000 compared to $6,822,000 for the same period of the prior
year. Total costs and expenses for the nine months ended December 31, 1999 were
$23,379,000, compared to $20,763,000 for the same period in 1998. 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 $5,730,000 in the three months ended December 31, 1999 from
$4,449,000 for the same period of the prior year. For the nine-month periods
ended December 31, 1999 and 1998, adjusted R&D expenses were $16,204,000 and
$13,323,000, 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
of the increases occurred in the Company's SMES business unit, where adjusted
research and development expenses increased by $715,000 and $1,800,000 in the
three and nine-month periods ended December 31, 1999, respectively, from the
same periods of the prior 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 nine-month periods ended
December 31, 1999 were $3,287,000 and $6,460,000, respectively, compared to
$1,801,000 and $5,165,000 for the same periods last year. R&D
10
<PAGE>
expenditures classified as costs of revenue increased by $1,486,000 and
$1,295,000, in the three and nine-month periods ended December 31, 1999,
respectively, primarily due to the higher contract revenue associated with the
new R&D agreement with Pirelli. Additionally, R&D expenses that were offset by
cost-sharing funding were $179,000 and $244,000 for the three months ended
December 31, 1999 and 1998, respectively. For the nine months ended December 31,
1999, this amount was $745,000 as compared to $667,000 for the same period in
the previous year. Net R&D expenses (exclusive of amounts classified as costs of
revenue and amounts offset by cost-sharing funding) were $2,264,000 in the three
months ended December 31, 1999 compared to $2,404,000 for the same period of the
prior year. For the nine months ended December 31, 1999 and 1998, these amounts
were $8,999,000 and $7,491,000, 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 $2,725,000 for the three months ended December 31, 1999
from $2,489,000 a year earlier. For the nine-month periods ended December 31,
1999 and 1998, adjusted SG&A expenses were $8,479,000 and $7,671,000,
respectively. These increases were 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. 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 nine-month periods ended
December 31, 1999 were $1,759,000 and $3,297,000, respectively, compared to
$614,000 and $2,067,000 for the same periods of the prior year. SG&A
expenditures classified as costs of revenue increased by $1,145,000 and
$1,230,000, in the three and nine-month periods ended December 31, 1999,
respectively, due to the higher contract revenue associated with the new R&D
agreement with Pirelli. Additionally, SG&A expenses that were offset by cost-
sharing funding were $168,000 and $229,000 for the three months ended December
31, 1999 and 1998, respectively. For the nine months ended December 31, 1999,
this amount was $700,000 as compared to $626,000 for the same period of the
prior year. Net SG&A expenses (exclusive of amounts classified as costs of
revenue and amounts offset by cost-sharing funding) were $798,000 in the three
months ended December 31, 1999 compared to $1,646,000 for the same period of the
prior year. For the nine months ended December 31, 1999 and 1998, these amounts
were $4,482,000 from $4,978,000, respectively.
Interest income was $226,000 in the three months ended December 31, 1999
compared to $480,000 for the same period of the prior year. For the nine months
ended December 31, 1999 and 1998, these amounts were $871,000 and $1,528,000,
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.
The Company incurred no interest expense in the three months ended December 31,
1999 or in the same period of the prior year. For the nine-month periods ended
December 31, 1999 and 1998,
11
<PAGE>
interest expense was $0 and $10,000, respectively. This decrease reflects the
Company's retirement of all long-term debt in the three-month period 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 December 31, 1999, the Company had cash, cash equivalents and long-term
marketable securities of $14,344,000 compared to $31,572,000 at March 31, 1999.
The principal uses of cash during the nine months ended December 31, 1999 were
the funding of the Company's operations and the acquisition of capital
equipment, primarily for research and development and manufacturing.
Long-term accounts receivable of $1,875,000 represents the difference between
the $2,500,000 recognized as revenue in the three-month period ended December
31, 1999 for R&D work performed by the Company prior to the effective date
(October 1, 1999) of the new Pirelli agreement, and the amount of the receivable
that is collectable over the next 12 months. 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.
Inventory increased by $2,965,000 during the nine months ended December 31,
1999, primarily in the SMES business unit, reflecting a planned increase in
manufacturing activity to meet near-term customer shipment commitments.
The Company has potential funding commitments of approximately $24,711,000 to be
received after December 31, 1999 from strategic partners and government and
commercial customers compared to $10,326,000 at March 31, 1999. However, these
commitments, including $5,862,000 on U.S. government contracts and subcontracts,
are subject to certain cancellation or buyback provisions.
12
<PAGE>
On January 24, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for an offering of its common stock. Proceeds
from the offering will be used for a new plant for manufacturing HTS wire, for a
new SMES manufacturing facility, and for costs associated with the design,
development and commercialization of HTS motors and generators. The underwriters
for the offering will be Banc of America Securities LLC, CIBC World Markets and
Robertson Stephens.
Year 2000 issues
- ----------------
The Company devoted efforts to 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 four-digit 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 not encountered any significant Year 2000 compliance problems or
events prior to or subsequent to January 1, 2000. 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
will continue to implement any changes required to make such systems Year 2000
compliant. The Company believes that its critical IT systems will continue to
function without substantial Year 2000 compliance problems. The Company had
identified only a few non-critical, but important, IT systems that needed
replacement due to Year 2000 concerns, and the Company replaced these IT systems
with Year 2000 compliant systems providing increased functionality. The Company
believes all of our IT systems were made Year 2000 capable in a time frame that
avoided any material adverse effect on the Company. The Company also evaluated
its critical equipment and critical systems that contain embedded software and
the Company believes that all of its critical non-IT systems will continue to
function without 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. The Company has not encountered any significant Year 2000
compliance problems or events prior or subsequent to January 1, 2000 within the
SMES business unit or with its products. 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.
13
<PAGE>
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. Additionally, the Company established contingency plans to
reduce the Company's exposure resulting from any non-compliance of third
parties. First, the Company increased inventories of critical and/or important
components prior to January 1, 2000, thereby decreasing the Company's dependence
on suppliers that may not have been Year 2000 compliant. Second, the Company
reviewed delivery schedules with its major customers to insure these customers
are able to accept ordered products after January 1, 2000, even if their
internal computer systems are not operating properly. The Company has not
experienced any significant instances where Year 2000 compliance has affected
delivery or receipt of supplies and products.
The Company estimates that, through December 31, 1999, it has spent less than
$150,000 to remediate Year 2000 issues in its IT systems. The Company does not
expect to spend any additional significant amounts to remediate Year 2000 issues
in its IT systems. 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 December 31, 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 were deferred due to the Company's Year 2000
efforts.
The Company does not currently believe that any of the foregoing has had or 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
September 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
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27.1 Financial Data Schedule
(b) On January 24, 2000 the Company filed a Current Report on Form 8-K
which reported, under Item 5 (Other Events), that on December 15,
1999 the Company entered into an agreement with Pirelli Cavi e
Sistemi S.p.A. effective as of October 1, 1999.
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
January 27, 2000 /s/ Gregory J. Yurek
_________________________________ ____________________________________
Date Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
January 27, 2000 /s/ Thomas M. Rosa
_________________________________ ____________________________________
Date Thomas M. Rosa
Chief Accounting Officer, Corporate
Controller and Assistant Secretary
16
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