<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the three months ended September 30, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number
000-23657
AstroPower, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0315869
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification
Number)
Solar Park
Newark, Delaware 19716-2000
(Address of principal executive offices) (Zip Code)
302-366-0400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such report(s), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO _____
-----
(Registrant became subject to filing requirements on February 12, 1998)
The number of shares outstanding of the Registrant's common stock, $0.01 par
value, as of November 6, 1998, was 8,532,528.
<PAGE>
AstroPower, Inc.
FORM 10-Q FOR THE THREE MONTHS ENDED September 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
PART I: FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - September 30, 1998 (unaudited) and December 31, 1997............ 1,2
Statements of Income (unaudited) -
Three months and nine months ended September 30, 1998 and 1997................... 3
Statements of Cash Flows (unaudited) -
Nine months ended September 30, 1998 and 1997.................................... 4
Notes to Financial Statements (unaudited)........................................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................. 6-13
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................ 14-15
SIGNATURES...................................................................... 16
</TABLE>
This report on Form 10-Q contains forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements involve risks and uncertainties,
as described in the Company's Registration Statement, Annual Report on Form 10-K
for the year ended December 31, 1997, and other periodic reports filed with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address the Company's expectations of sources of capital
or which express the Company's expectation for the future with respect to
financial performance or operating strategies can be identified as forward
looking statements. As a result, there can be no assurance that the Company's
future results will not be materially different from those described herein as
believed, anticipated, estimated or expected, which reflect the current views of
the Company with respect to future events. The Company hereby expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any such statements to reflect any change in the Company's
expectations or any change in events, conditions or circumstances on which such
statement is based.
<PAGE>
ASTROPOWER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------- -------------
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash and cash equivalents (including restricted cash of $742,522 in 1998).... $11,569,087 $ 4,908,177
Accounts receivable
Trade, net.................................................................. 6,400,987 3,326,200
Other....................................................................... 97,889 35,872
Inventories................................................................. 3,360,347 1,602,321
Prepaid expenses............................................................ 431,146 350,471
----------- -----------
Total current assets........................................................ 21,859,456 10,223,041
PROPERTY AND EQUIPMENT: 12,284,175 7,750,316
Less accumulated depreciation and amortization.............................. (3,416,886) (2,858,195)
----------- -----------
8,867,289 4,892,121
----------- -----------
Total assets............................................................... $30,726,745 $15,115,162
=========== ===========
</TABLE>
1
See accompanying notes to financial statements.
<PAGE>
ASTROPOWER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable......................................... $2,075,583 $ 2,314,495
Notes payable............................................ 0 261,357
Current maturities of long-term debt..................... 0 55,000
Accrued payroll and payroll taxes........................ 1,182,160 978,256
Accrued expenses......................................... 184,559 394,564
Advance from customer.................................... 173,167 610,891
---------- -----------
Total current liabilities............................. 3,615,469 4,614,563
OTHER LIABILITIES:
Long-term debt, excluding current maturities............. 5,000,000 6,277,174
Deferred compensation and other.......................... 399,634 463,900
---------- -----------
5,399,634 6,741,074
---------- -----------
Total liabilities..................................... 9,015,103 11,355,637
---------- -----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A Convertible Preferred Stock..................... 0 5,798,725
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Series B Convertible Preferred Stock..................... 0 3,364
Common Stock............................................. 85,279 37,698
Additional paid-in capital............................... 25,929,682 3,288,017
Note receivable.......................................... 0 (79,125)
Unearned compensation.................................... (270,224) (343,743)
Accumulated deficit...................................... (4,033,095) (4,945,411)
----------- -----------
Total stockholders' equity (deficit).................. 21,711,642 (2,039,200)
----------- -----------
Total liabilities and stockholders' equity (deficit).. $30,726,745 $15,115,162
=========== ===========
</TABLE>
2
See accompanying notes to financial statements.
<PAGE>
ASTROPOWER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(unaudited) (unaudited)
REVENUES: 1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Product sales............................... $ 5,247,924 $3,572,073 $14,142,748 $ 9,333,817
Research contracts.......................... 910,612 844,516 2,331,714 2,778,211
----------- ---------- ----------- -----------
Total revenues.............................. 6,158,536 4,416,589 16,474,462 12,112,028
COST OF REVENUES:
Product sales............................... 3,835,657 2,526,356 10,366,567 6,747,199
Research contracts.......................... 695,938 606,099 1,833,862 1,953,654
----------- ---------- ----------- -----------
Total cost of revenues................ 4,531,595 3,132,455 12,200,429 8,700,853
----------- ---------- ----------- -----------
Gross profit.......................... 1,626,941 1,284,134 4,274,033 3,411,175
OPERATING EXPENSES:
Product development expenses................ 340,836 261,327 949,379 754,645
General and administrative expenses......... 692,282 525,024 1,875,938 1,445,721
Selling expenses............................ 276,443 218,390 727,616 624,478
----------- ---------- ----------- -----------
Income from operations................ 317,380 279,393 721,100 586,331
OTHER EXPENSE (INCOME):
Interest expense............................ 86,453 93,332 284,042 217,340
Interest income............................. (180,872) (32,439) (519,259) (40,909)
Other expense (income)...................... 0 5,273 0 (4,550)
----------- ---------- ----------- -----------
Total other expense (income).......... (94,419) 66,166 (235,217) 171,881
NET INCOME BEFORE INCOME
TAXES......................................... 411,799 213,227 956,317 414,450
INCOME TAXES................................... 19,000 5,000 44,000 9,000
----------- ---------- ----------- -----------
NET INCOME..................................... $392,799 $ 208,227 $ 912,317 $ 405,450
=========== ========== =========== ===========
NET INCOME DATA:
Net income per share - basic................ $0.05 0.06 0.12 0.11
=========== ========== =========== ===========
Net income per share - diluted.............. $0.05 0.04 0.12 0.08
=========== ========== =========== ===========
Weighted average shares
outstanding - basic....................... 8,527,343 3,712,168 7,578,285 3,711,234
=========== ========== =========== ===========
Weighted average shares
outstanding - diluted..................... 10,194,699 6,437,883 9,691,039 6,010,987
=========== ========== =========== ===========
</TABLE>
3
See accompanying notes to financial statements.
<PAGE>
ASTROPOWER, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended September 30
----------------------------------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
------------ ------------
<S> <C> <C>
Net income............................................................... $ 912,317 $ 405,450
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization.......................................... 558,692 399,048
Stock options issued................................................... 117,529 49,013
Changes in working capital items:
Accounts receivable.................................................. (3,074,788) (811,718)
Inventories.......................................................... (1,758,026) 11,144
Prepaid expenses..................................................... (34,125) (68,751)
Accounts payable and accrued expenses................................ (455,578) 125,101
Accrued payroll and payroll taxes.................................... 19,118 141,849
Deferred revenue..................................................... 0 0
Advance from customer................................................ (437,723) 404,167
Other................................................................ 164,774 (22,384)
------------ ------------
Net cash provided by (used in) operating activities...................... (3,987,810) 632,919
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................... (4,483,190) (374,070)
------------ ------------
Net cash used in investing activities.................................... (4,483,190) (374,070)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................................... 0 5,618,077
Net repayments from line of credit..................................... (203,357) 0
Repayment of long-term debt............................................ (1,390,174) (834,865)
Proceeds from issuance of common stock................................. 16,725,441 4,700
Proceeds from issuance of preferred stock.............................. 0 60,000
------------ ------------
Net cash provided by financing activities................................ 15,131,910 4,847,912
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....................................................... 6,660,910 5,106,761
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.................................................... 4,908,177 24,930
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................................................. $11,569,087 $ 5,131,691
=========== ===========
</TABLE>
OTHER NONCASH FINANCING ACTIVITIES:
On February 19, 1998, the Company converted all shares of its Series A and
Series B Convertible Preferred Stock into 2,194,709 shares of common stock on a
one-for-one basis.
During the nine months ended September 30, 1998, the Company issued stock
options for 119,000 shares of common stock to Corning Incorporated.
4
See accompanying notes to financial statements.
<PAGE>
AstroPower, Inc.
Notes to Financial Statements
September 30, 1998
(unaudited)
(1) General
-------
The accompanying financial statements for the three month and nine month periods
ended September 30, 1998 and 1997 have been prepared by AstroPower, Inc.
(Company) without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary to present fairly the financial position and
operating results of the Company as of and for the respective periods. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. However, management
of the Company believes that the disclosures herein are adequate to make the
information presented not misleading. The accompanying financial statements
should be read in conjunction with the financial statements contained in the
Company's Annual Report Form 10-K for the year ended December 31, 1997.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company develops, manufactures, markets, and sells photovoltaic solar
cells, modules and panels for generating solar electric power. Solar cells are
semiconductor devices which convert sunlight directly into electricity. Solar
electric power is used off the electric utility grid for many applications in
the communications and transportation industries and in remote villages and
homes. Solar electric power is also used in on-grid applications by existing
electric utility customers to provide a clean, renewable source of alternative
or supplementary electric power.
The Company was incorporated in 1989 as a successor to a business that was
organized in 1983 to develop thin crystalline silicon photovoltaic and related
optoelectronic technology. Initial revenue came from contract research
performed primarily for agencies of the United States government. The Company
commenced commercial solar cell manufacturing operations in 1988 with silicon
wafers purchased from third parties. Since then the commercial portion of the
business has grown steadily with product sales representing 85.2 % of total
revenues for the quarter ended September 30, 1998.
The Company has received significant assistance in its transition from
primarily a contract research organization to a commercial manufacturer of solar
cells and modules. Such assistance originated from the U.S. Department of
Energy in the form of cost-sharing contracts designed to assist the Company in
expanding its manufacturing capabilities and in reducing its manufacturing
costs.
The Company currently generates product revenues from the sale of solar
cells, modules, and panels. Although the Company is continuing a significant
expansion of its Silicon-Film(TM) manufacturing capacity in 1998, the
predominant source of its product revenues to date has been single crystal
products. Product sales are recognized upon shipment. Solar cell prices and
manufacturing costs vary depending upon supply and demand in the market for
solar cells and modules, order size, yields, the costs of raw materials,
particularly reclaimed silicon wafers recycled from the semiconductor industry,
and other factors. In addition, the Company also earns revenue from contracts
with various federal government agencies to conduct research on advanced
Silicon-Film(TM) products and optoelectronic devices. Generally, these contracts
last from 6 months to three years. The Company recognizes research contract
revenue at the time costs benefiting the contracts are incurred, which
approximates the percentage of completion method.
-6-
<PAGE>
Solar cells manufactured by the Company are sold to original equipment
manufacturers that assemble the solar cells into modules. Modules are sold to
distributors and value-added resellers. The sale of a module results in
substantially more revenue to the Company than the sale of solar cells due to
the value of the additional materials, labor and overhead added during the
module assembly process. Accordingly, the Company's product sales are affected
not just by changes in total solar cells produced, but by changes in the mix
between solar cells and modules sold. In 1994, the Company commenced
manufacturing modules in substantial quantities as a means of expanding its
customer base. Currently, the gross margin percentages for modules are less than
that of solar cells.
The Company has developed a proprietary process called Silicon-Film(TM) for
the manufacture of sheets of polycrystalline silicon. Wafers made from these
sheets are used in the Company's solar cell manufacturing process. Silicon-
Film(TM) technology has been under development since the Company's inception in
1983 and, after several successful field tests, Silicon-Film(TM) products are
currently being shipped to selected customers. The Company leased space in
January 1998 for a new plant for production of Silicon-Film(TM) solar cells,
modules and panels. The facility came on line and began making its first
commercial shipments in the second quarter of 1998. When operating at full
capacity, this 60,000 square foot facility is expected to produce approximately
9MW of product per year. This facility was funded in part by a $5.0 million
convertible promissory note (the "Promissory Note") issued in August 1997 to
Corning Incorporated.
For the nine months ended September 30, 1998, approximately 85% of the
Company's product revenues was generated by sales to customers located outside
the United States. The Company believes that international sales will continue
to account for a significant portion of its product sales for the foreseeable
future. Current sales are denominated in U.S. dollars and foreign exchange rate
fluctuations have not had an impact on the Company's results of operations.
Substantially all of the Company's revenues from government contracts are
subject to audit under various federal statutes. Although the Company has
received final written acceptance of its overhead rates through 1993, it has
been advised that the Defense Contract Audit Agency is disputing certain
elements of those submissions as well as those overhead rates for 1994 and 1995.
The dispute is centered on the effect of the Company's manufacturing operations
on its government contract overhead rates during the years of transition from a
contract research and development organization to commercial manufacturing. The
overhead rates for 1996 have been submitted, but have not yet been audited. This
dispute does not affect the Company's overhead rates for 1997 and 1998, inasmuch
as the Company revised its methodology for determining overhead rates. It is
management's opinion that adjustments to revenue, if any, will not have a
material adverse effect on the Company's business and financial condition, but
may impact results of operations.
-7-
<PAGE>
Results of Operations
Three Months Ended September 30, 1998 and 1997
Revenues. Total revenues for the three-month period ended September 30, 1998
- ---------
were $6.2 million, an increase of $1.8 million or 39.4% from $4.4 million for
the three-month period ended September 30, 1997. Product sales for the three-
month period ended September 30, 1998 were $5.2 million, an increase of $1.6
million or 46.9% from $3.6 million for the comparable 1997 period. The
increase in product sales was attributable to continued strong demand from our
customers and productivity improvements from both of the Company's manufacturing
facilities. Research contract revenue for the three month period ended
September 30, 1998 was $911,000; an increase of $66,000 or 7.8% from $845,000
for the three months ended September 30, 1997. The increase in contract
research revenue was primarily attributable to a modification granted on a
contract, which increased, the funding for the quarter ended September 30, 1998.
This increase was offset by a reduction of the Company's contract overhead
rates as a result of its ongoing transformation from a government contractor to
a manufacturing company.
Gross profit. Gross profit for the three months ended September 30, 1998 was
- -------------
$1.6 million, an increase of $342,000 or 26.7% from $1.3 million for the three
month period ended September 30, 1997. Gross profit on product sales for the
three months ended September 30, 1998 was $1.4 million, an increase of 35.1%
from $1.0 in the comparable period in 1997. The product gross margin was 26.9%
for the three months ended September 30, 1998, as compared with 29.3% in the
comparable 1997 period. Improvements in manufacturing productivity and
manufacturing volumes, which reduced manufacturing costs, were offsets by costs
associated with the scale-up of the Company's new manufacturing facility. These
costs are expected to affect the fourth quarter product gross margin as well.
Research contract gross profit for the three months ended September 30, 1998 was
$215,000, as compared with $239,000 in the comparable 1997 period. The decline
in contract gross profit, which had been expected, was due to reduced amounts of
overhead expenses that were previously allocated and billed to government
contracts, as the result of the ongoing transition to a manufacturing company.
Product development costs. Product development costs for the three months
- --------------------------
ended September 30, 1998 were $341,000, an increase of $80,000 or 30.4% from
$261,000 for the three months ended September 30, 1997. The increase is
a result of a higher level of development activity.
General and administrative expenses. General and administrative expenses for
- ------------------------------------
the three months ended September 30, 1998 were $692,000, an increase of
$167,000 or 31.8% from $525,000 in the comparable 1997 period. The increase
is a result of a higher level of professional services, as well as higher
salaries and benefits costs.
-8-
<PAGE>
Selling expenses. Selling expenses for the three months ended September 30,
- -----------------
1998 were $276,000, an increase of $58,000 or 26.6% from the comparable period
in 1997. Higher levels of salaries, benefits, and travel in 1998, were
generally offset by reductions in sales commissions paid to third parties.
There were no such commissions in the 1998 period.
Interest expense. Interest expense for the three months ended September 30,
- -----------------
1998 was $86,000, a decrease of $7,000 or 7.4% from $93,000 in the 1997 period.
The decrease is a result of lower average debt levels outstanding in the current
quarter.
Interest income. Interest income was $181,000 for the three months ended
- ----------------
September 30, 1998, as compared with $32,000 for the similar period in 1997.
The increase in interest income is a result of the investment of the proceeds
from the Company's initial public offering in February 1998, as well as the
unexpended proceeds from the Promissory Note.
Income taxes. Income taxes for the three months ended September 30, 1998 were
- -------------
$19,000, as compared with $5,000 for the comparable period in 1997. The
provision represents the Company's estimated AMT liability. The Company's
effective tax rate is affected by its Net Operating Loss ("NOL") carry forward.
Nine Months Ended September 30, 1998 and 1997
Revenues. Total revenues for the nine month period ended September 30, 1998
- ---------
were $16.5 million, an increase of $4.4 million or 36.0% from $12.1 million for
the nine month period ended September 30, 1997. Product sales for the nine
month period ended September 30, 1998 were $14.1 million, an increase of $4.8
million or 51.5% from $9.3 million for the comparable 1997 period. The
increase in product sales was attributable to continued strong demand from our
customers and productivity improvements from both of the Company's manufacturing
facilities. Research contract revenue for the nine month period ended September
30, 1998 was $2.3 million, a decline of $446,000 or 16.1% from $2.8 million for
the nine months ended September 30, 1997. The decline in contract research
revenue, which was expected, was primarily attributable to a reduction of the
Company's contract overhead rates as a result of its ongoing transformation from
a government contractor to a manufacturing company.
Gross profit. Gross profit for the nine months ended September 30, 1998 was
- -------------
$4.3 million, an increase of $863,000 or 25.3% from $3.4 million for the nine
month period ended September 30, 1997. Gross profit on product sales for the
nine months ended September 30, 1998 was $3.8 million, an increase of 46.0%
from $2.6 million in the comparable period in 1997. The product gross margin
was 26.7% for the nine months ended September 30, 1998, as compared with 27.7%
in the comparable 1997 period.
-9-
<PAGE>
Improvements in manufacturing productivity and manufacturing volumes, which
reduced manufacturing costs, were offset by costs associated with the scale-up
of the Company's new manufacturing facility. These costs are expected to affect
the fourth quarter gross margin as well. Research contract gross profit for the
nine months ended September 30, 1998 was $498,000, as compared with $824,000 in
the comparable 1997 period. The decline in contract gross profit, which had been
expected, was due to reduced amounts of billable overhead expenses that were
previously allocated to government contracts, which have declined as the result
of the ongoing transition to a manufacturing company.
Product development costs. Product development costs for the nine months ended
- --------------------------
September 30, 1998 were $949,000, an increase of $194,000 or 25.8% from the
nine months ended September 30, 1997. The increase is a result of a higher
level of development activity, as well as the cost of common stock options
issued to Corning for services performed in the nine months ended September 30,
1998 under the terms of an agreement with Corning.
General and administrative expenses. General and administrative expenses for
- ------------------------------------
the nine months ended September 30, 1998 were $1.9 million, an increase of
$430,000 or 29.8% from $1.4 million in the comparable 1997 period. The
increase is a result of a higher level of professional services, as well as
higher salaries and benefits costs.
Selling expenses. Selling expenses for the nine months ended September 30, 1998
- -----------------
were $728,000, an increase of $104,000 or 16.5% from the comparable period in
1997. Higher levels of salaries, benefits, and travel in 1998 were generally
offset by reductions in sales commissions paid to third parties. There were no
such commissions in the 1998 period.
Interest expense. Interest expense for the nine months ended September 30, 1998
- -----------------
was $284,000, an increase of $67,000 or 30.7% from $217,000 in the 1997 period.
The increase is a result of higher average debt levels outstanding in the
current year, principally as a result of the Promissory Note issued in August
1997.
Interest income. Interest income was $519,000 for the nine months ended
- ----------------
September 30, 1998, as compared to $41,000 for the similar period in 1997. The
increase in interest income is a result of the investment of the proceeds from
the Company's initial public offering in February 1998, as well as the
unexpended proceeds from the Promissory Note.
Income taxes. Income taxes for the nine months ended September 30, 1998 were
- -------------
$44,000, as compared to $9,000 for the nine months ended September 30, 1997.
The provision represents the Company's estimated Alternative Minimum Tax
liability. The Company's effective tax rate is affected by its NOL carry
forward.
-10-
<PAGE>
Liquidity and Capital Resources
On February 19, 1998, the Company completed an initial public offering
of its common stock, raising net proceeds of $16.7 million.
At September 30, 1998, the Company had cash of $11.6 million, as
compared with $4.9 million at December 31, 1997. At September 30, 1998,
approximately $743,000 of this balance was restricted for use in connection with
the Company's new manufacturing facility in accordance with the terms of the
Promissory Note. Principal uses of cash for the nine-months ended September 30,
1998 were additions to plant and equipment (as part of the scale-up of the new
manufacturing plant), working capital, and debt reduction.
On October 9, 1998 the Company prepaid the $5 million convertible
promissory note to Corning Incorporated. As part of this transaction, related
research and development and security agreements dated August 19, 1997 were
terminated. Options to purchase 119,000 shares of the Company's common stock
were cancelled and rights of first refusal with respect to financing, merger,
licensing, and sale of assets were terminated. In addition, $49,000 of accrued
interest was forgiven. Approximately $4.3 million of the amount was used towards
the funding of the Company's new manufacturing facility, including plant,
equipment, and working capital.
The Company has established a new $3 million credit facility with a
financial institution, with a term expiring in October 2001. Any draws under
the facility will bear interest at the prime rate and will be secured by
accounts receivable, inventory and machinery and equipment.
The Company expects that the available cash balance, together with
projected cash generated from operations, will be sufficient to fund its
activities for the next 24 months.
-11-
<PAGE>
Income Taxes
NOL carry forwards totaling approximately $4.0 million are available
to reduce future federal and state taxable income as of September 30, 1998. The
NOL carry forwards expire through 2012. The Tax Reform Act of 1986 and other
income tax regulations contain provisions which may limit the NOL carry forwards
available to be used in any given year, if certain events occur, including
changes in ownership interests. The Company has established a valuation
allowance for the entire amount of the net deferred tax assets at September 30,
1998.
Accounting Pronouncements
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), was
issued in June 1997. This statement establishes standards for the way public
business enterprises report information about operating segments. It also
establishes standards for related disclosure about products and services,
geographical areas, and major customers. The Company will adopt the disclosure
prescribed by SFAS 131 in its 1998 Annual Report as required.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", was issued in June 1997. The statement establishes
standards for reporting and display of comprehensive income in financial
statements. This statement was adopted effective January 1, 1998 and such
adoption did not have a material effect on the Company's financial statements.
Effects of Inflation and Exchange Rates
The Company has not been materially affected by inflation or changes
in foreign exchange rates. However, there can be no assurance that the
Company's business will not be affected by inflation or foreign exchange rates
in the future.
-12-
<PAGE>
Year 2000
The Company's current data processing systems are not Year 2000
compliant. The Company has developed and is currently executing a comprehensive
risk-based plan designed to make its computer systems, applications and
facilities Year 2000 ready. The plan covers four stages including (I) inventory,
(ii) assessment, (iii) remediation, and (iv) testing and certification. At year
end 1997, the Company had substantially completed the inventory stage for its
Company-owned systems and applications. The assessment and remediation processes
are currently underway and the Company is utilizing both internal and external
resources to reprogram, or replace where necessary, and test the software for
Year 2000 modifications. The remediation process is targeted to be largely
completed by March 31, 1999. Testing and certification of these systems and
applications are targeted for completion by mid-1999.
The Company's ongoing transformation from a government research and development
organization to a manufacturing company has necessitated system enhancements to
accommodate this growth. The Company is therefore embodying the Year 2000 issue
with these planned system augmentations. Total Year 2000 costs for the Company-
owned systems and applications are currently estimated to be approximately
$250,000 in 1998 and approximately $250,000 in 1999, which are expected to be
funded through operating cash flows. A large majority of these costs are
currently believed to be incremental expenses that will not recur in the Year
2000 or thereafter.
The Company is initiating communications with its critical external
relationships to determine the extent to which the Company may be vulnerable to
such parties' failure to resolve their own Year 2000 issues. Where practicable,
the Company will assess and attempt to mitigate its risks with respect to the
failure of these entities to be Year 2000 ready. The effect, if any, on the
Company's results of operations from the failure of such parties to be Year 2000
ready, is not presently reasonably estimable.
-13-
<PAGE>
AstroPower, Inc.
FORM 10-Q FOR THE THREE MONTHS ENDED September 30, 1998
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any material litigation and is not
aware of any pending or threatened litigation against the Company that
could have a material adverse effect upon the Company's business,
operating results, or financial condition.
ITEM 2. Changes in Securities
NONE.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders the quarter
ended September 30, 1998.
ITEM 5. Other Matters
On October 9, 1998 the Company prepaid its four-year $5
million convertible note to Corning Incorporated which was issued in
August 1997 to obtain funding for its start-up of the Company's new
9MW manufacturing facility. Approximately of the loan from Corning was
used as funding in part of this facility, including plant, equipment,
and working capital.
Corning's investment in AstroPower was part of a strategic
investment by Corning involving several companies in the energy
generation and storage fields. Corning subsequently decided to
discontinue the energy program, providing AstroPower with an
opportunity to prepay the loan. Corning has advised AstroPower that
its action was based entirely on Corning's desire to focus on its core
operations and did not reflect in any way on AstroPower's proprietary
Silicon-Film(TM) technology, which Corning said consistently met or
exceeded its expected performance. Corning provided the Company with
valuable advice and assistance during the planning and fit-up stages
of the new factory. The prepayment terminated Corning's right to
convert the note into approximately 1,111,111 shares of AstroPower
Common Stock and also terminated other agreements relating to new
technology, certain first offer rights to provide equity financing for
the Company and with respect to any sale or merger of the Company or
sale or licensing of its technology or assets.
In connection with the prepayment, options to purchase
119,000 shares of the Company's Common Stock which were issued to
Corning for consulting services were cancelled and accrued interest of
$49,000 was forgiven.
AstroPower's Board of Directors decided that the opportunity
to prepay the loan was in the best interests of shareholders in
general and also served to significantly reduce the potential dilution
of outstanding shares.
-14-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 1998.
-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.
AstroPower, Inc.
Date: November 10, 1998 By: /s/ Allen M. Barnett
----------------------
Allen M. Barnett
President and Chief
Executive Officer
Date: November 10, 1998 By: /s/ Thomas J. Stiner
---------------------
Thomas J. Stiner
Vice President and Chief Financial
Officer
(Principal Financial Officer)
-16-
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