<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 March 31, 1999
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 May 10, 1999, was 8,673,186.
<PAGE>
AstroPower, Inc.
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page No.
--------
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
o Balance Sheets - March 31, 1999 (unaudited) and
December 31, 1998.............................................. 1, 2
o Statements of Income (unaudited) - Three months and six
months ended March 31, 1999 and 1998 .......................... 3
o Statements of Cash Flows (unaudited) - Three months ended
March 31, 1999 and 1998........................................ 4
o Notes to Financial Statements
(unaudited).................................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................... 6-11
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 12
SIGNATURES..................................................... 13
Cautionary Note Regarding Forward-Looking Statements
This quarterly 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, uncertainties and
assumptions as described from time to time in registration statements, annual
reports, and other periodic reports and filings which we file with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address our expectations of sources of capital or which
express our expectation for the future with respect to financial performance or
operating strategies, including statements with respect to year 2000 compliance,
can be identified as forward-looking statements. As a result, there can be no
assurance that our future results will not be materially different from those
described herein as "believed", "anticipated", "estimated" or "expected", which
reflect our current views with respect to future events. We caution readers that
these forward-looking statements speak only as of the date hereof. We hereby
expressly disclaim any obligation or undertaking to release publicly any updates
or revisions to any such statements to reflect any changes in our expectations
or any change in events, conditions or circumstances on which such statement is
based.
<PAGE>
ASTROPOWER, INC
BALANCE SHEETS
Mar. 31 Dec. 31
ASSETS 1999 1998
---------------------------
CURRENT ASSETS: (unaudited)
Cash and cash equivalents ....................... $ 3,134,573 6,545,095
Accounts receivable:
Trade, net ................................ 8,376,640 6,531,144
Other ..................................... 100,943 116,234
Inventories .................................. 5,247,318 3,596,676
Prepaid expenses ............................. 1,146,218 159,948
Deferred tax asset ........................... 1,673,894 1,796,338
------------ -----------
Total current assets ............... 19,679,586 18,745,435
PROPERTY AND EQUIPMENT: ......................... 14,042,198 13,275,675
Less accumulated depreciation and amortization (3,910,006) (3,654,796)
------------ -----------
10,132,192 9,620,879
------------ -----------
Total assets ....................... $ 29,811,778 28,366,314
===========================
1
See accompanying notes financial statements
<PAGE>
ASTROPOWER, INC
BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31 Dec. 31
------------ -----------
1999 1998
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .............................................. $ 3,433,702 2,629,068
Accrued payroll and payroll taxes ............................. 964,812 963,243
Accrued expenses .............................................. 700,453 313,640
------------ -----------
Total current liabilities ....................... 5,098,967 3,905,951
OTHER LIABILITIES:
Deferred compensation and other ............................... 977,980 1,197,479
------------ -----------
Total liabilities ............................... 6,076,946 5,103,430
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock .................................................. 86,548 85,725
Additional paid-in capital .................................... 26,117,391 25,956,474
Unearned compensation ......................................... (221,210) (245,718)
Accumulated deficit ........................................... (2,247,897) (2,533,597)
------------ -----------
Total stockholders' equity .............................. 23,734,832 23,262,884
============ ===========
Total liabilities and stockholders' equity ........ $ 29,811,778 28,366,314
============ ===========
</TABLE>
2
See accompanying notes financial statements
<PAGE>
ASTROPOWER, INC.
STATEMENTS OF INCOME
Three Months Ended March 31
---------------------------
(unaudited)
REVENUES: ................................... 1999 1998
----------- -----------
Product sales ....................... $ 6,300,557 $ 4,224,147
Research contracts .................. 838,428 704,968
----------- -----------
Total revenues ............. 7,138,985 4,929,115
COST OF REVENUES:
Product sales ....................... 4,687,045 3,052,581
Research contracts .................. 614,726 555,769
----------- -----------
Total cost of revenues ..... 5,301,771 3,608,350
----------- -----------
Gross profit ............... 1,837,214 1,320,765
OPERATING EXPENSES:
Product development expenses ........ 556,410 309,772
General and administrative expenses . 654,129 519,519
Selling expenses .................... 259,849 186,136
----------- -----------
Income from operations ..... 366,826 305,338
OTHER EXPENSE (INCOME):
Interest expense .................... 393 114,631
Interest income ..................... (41,711) (135,341)
----------- -----------
Total other expense (income) (41,318) (20,710)
----------- -----------
NET INCOME BEFORE INCOME
TAXES .................................... 408,144 326,048
INCOME TAXES ................................ 122,443 15,000
----------- -----------
NET INCOME .................................. $ 285,701 $ 311,048
=========== ===========
NET INCOME DATA:
Net income per share - basic ........ $ 0.03 0.05
=========== ===========
Net income per share - diluted ...... $ 0.03 0.05
=========== ===========
Weighted average shares
outstanding - basic ............. 8,695,884 6,142,866
=========== ===========
Weighted average shares
outstanding - diluted ........... 9,486,880 8,560,803
=========== ===========
3
See accompanying notes financial statements
<PAGE>
ASTROPOWER, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended March 31
----------------------------
(unaudited)
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 285,701 $ 311,048
Adjustments to reconcile net income to net
cash used in operating activities:
Deferred income taxes .................... 122,443 --
Depreciation and amortization ............ 255,210 148,251
Amortization of Unearned Compensation .... 24,507 55,984
Changes in working capital items:
Accounts receivable ................. (1,845,495) (505,995)
Inventories ......................... (1,650,643) (515,537)
Prepaid expenses .................... (986,272) 172,538
Accounts payable and accrued expenses 1,186,428 (480,681)
Accrued payroll and payroll taxes ... (183,218) (383,299)
Advance from customer ............... 5,020 (144,498)
Other ............................... (19,421) 36,883
----------- ------------
Net cash used in operating activities ..... (2,805,740) (1,305,306)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................... (766,522) (2,448,925)
----------- ------------
Net cash used in investing activities . (766,522) (2,448,925)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from line of credit ........ -- (203,357)
Repayment of long-term debt ............... -- (1,390,174)
Proceeds from issuance of common stock .... 161,740 16,730,004
----------- ------------
Net cash provided by financing activities ....... 161,740 15,136,473
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................ (3,410,522) 11,382,242
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ......................... 6,545,095 4,908,177
CASH AND CASH EQUIVALENTS AT END OF ----------- ------------
PERIOD ...................................... $ 3,134,573 $ 16,290,419
=========== ============
OTHER NONCASH FINANCING AND INVESTING ACTIVITIES:
During the three months ended March 31, 1998, the Company converted all shares
of Series A and Series B Convertible Preferred Stock into common stock on a
one-for-one basis.
During the three months ended March 31, 1998, the Company issued stock options
for 119,000 shares of common stock to Corning Incorporated.
4
See accompanying notes financial statements
<PAGE>
AstroPower, Inc
Notes to Financial Statements
March 31, 1999
(unaudited)
(1) General
The accompanying financial statements for the three month periods ended March
31, 1999 and 1998 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, 1998.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We develop, manufacture, market, and sell 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.
We were incorporated in 1989 as a successor to a business that was
organized in 1983 to develop thin crystalline silicon photovoltaic and related
optoelectronic technology. Our initial revenue came from contract research
performed primarily for agencies of the United States government. We began
commercial solar cell manufacturing operations in 1988 with silicon wafers
purchased from third parties. Since then the commercial portion of our business
has grown steadily with product sales representing 88.3% of total revenues for
the quarter ended March 31, 1999.
We have received significant assistance in our transition from primarily a
contract research organization to a commercial manufacturer of solar cells,
modules and panels. This assistance originated from the U.S. Department of
Energy in the form of cost-sharing designed to assist us in expanding our
manufacturing capabilities and in reducing our manufacturing costs.
We currently generate product revenues from the sale of solar cells,
modules, and panels. Although we are continuing a significant expansion of our
Silicon-Film/TM/ manufacturing capacity, the predominant source of our product
revenues to date has been single crystal products. We recognize product sales
revenue 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, we
also generate 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. We
recognize research contract revenue at the time costs benefiting the contracts
are incurred, which approximates the percentage of completion method.
Solar cells that we manufacture are sold to original equipment
manufacturers that assemble the solar cells into modules. We sell modules to
distributors and value-added resellers. The sale of a module results in
substantially more revenue to us than the sale of solar cells due to the value
of the additional materials, labor and overhead added during the module assembly
process. Accordingly, our product sales are affected not just by changes in
total solar
6
<PAGE>
cells produced, but by changes in the mix between solar cells and modules sold.
In 1994, we began manufacturing modules in substantial quantities as a means of
expanding our customer base. The gross margin percentages for modules are less
than that of solar cells.
We have developed a proprietary process called Silicon-Film/TM/ for the
manufacture of sheets of polycrystalline silicon. We use wafers made from these
sheets in our solar cell manufacturing process. Silicon-Film/TM/ technology has
been under development since our inception in 1983 and, Silicon-Film/TM/
products are currently being shipped to selected customers. Our production of
Silicon-Film/TM/ products takes place in a 60,000 square foot facility that we
leased in January 1998.
For the three months ended March 31, 1999, approximately 79.9% of our
product revenues was generated by sales to customers located outside the United
States. We believe that international sales will continue to account for a
significant portion of our 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 our results of operations.
Substantially, all of our revenues from government contracts are subject
to audit under various federal statues. Although we have received final written
acceptance of our overhead rates through 1993, the Defense Contract Audit Agency
is now disputing certain elements of those submissions as well as the overhead
rates for 1994 and 1995. The dispute is centered on the effect of our
manufacturing operations on our 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 our overhead rates for
1997, 1998 and 1999, inasmuch as we revised our methodology for determining
overhead rates. We believe that adjustments to revenue, if any, will not have a
material adverse effect on our business and financial condition, but may impact
results of operations.
7
<PAGE>
Results of Operations
Three Months Ended March 31, 1999 and 1998
Revenues - Our total revenues were $7.1 million for the three months ended March
31, 1999, an increase of $2.2 million or 44.8% from 1998. Product sales were
$6.3 million for the three months ended March 31, 1999, an increase of $2.1
million or 49.2% from 1998. Our increase in product sales was due to ongoing
strong demand for our products and improvements in manufacturing productivity at
both our manufacturing plants. Contract revenues were $838,000 for the three
months ended March 31, 1999, an increase of $133,000 or 18.9% from 1998. The
increase is a result of incremental funding on our government contracts for the
development of Silicon-Film/TM/.
Gross profit - Our gross profit was $1.8 million for the three months ended
March 31, 1999, an increase of $516,000 or 39.1% from 1998. Product gross profit
for 1999 was $1.6 million, an increase of $442,000 or 37.7% from 1998. Our
product gross margin was 25.6% for the three months ended March 31, 1999. In the
similar 1998 period, the product gross margin was 27.7% and it was 24.5% for the
three months ended December 31, 1998. Our product gross margins for the 1999
first quarter declined from the 1998 period due to the effects of ramping up the
new manufacturing facility. Our product gross margins for the 1999 first quarter
also declined from the similar 1998 period due to issues of manufacturing
productivity that affected our 1998 fourth quarter and the 1999 first quarter.
Our 1999 first quarter increase in product gross margins from the December 1998
quarter was due to improvements in manufacturing productivity. Although we had
improvements, our productivity remains below last year's level. Our gross profit
on research contracts for the three months ended March 31, 1999 was $223,000, an
increase of $74,000 or 49.7% from the 1998 period. Our increase in gross profit
on research contracts was due to the higher level of funding on the government
contracts.
Product development costs - Our product development costs for the three months
ended March 31, 1999 were $556,000, up $246,000 or 79.4% from 1998. The increase
is due to a higher level of activity as a result of the incremental government
funding.
General and administrative expenses - Our general and administrative expenses
for the three months ended March 31, 1999 were $654,000, an increase of $134,000
or 25.8% from the similar 1998 period. The increase is primarily a result of
higher levels of salaries, professional fees and insurance expenses, offset by a
reduced level of employee benefits expense. Certain of these expenses were
affected by our initial public offering which was completed in February 1998.
Selling expenses - Our selling expenses for the three months ended March 31,
1999 were $260,000, an increase of $74,000 or 39.8% from 1998. The increase is
due to higher salary costs as a result of additions to the sales and marketing
staff, and higher travel costs, offset by a lower level of employee benefits
expense.
8
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Interest expense - Our interest expense for the three months ended March 31,
1999 was $400, as compared with $114,000 in the similar 1998 period. The decline
is due to the paydown of $1.8 million of debt in the first quarter of 1998.
Interest income - Our interest income for the three months ended March 31, 1999
was $42,000, as compared with $135,000 in the 1998 period. The reduction was due
to lower cash balances available for investment, as a result of the use of cash
for funding working capital, capital equipment and debt reduction.
Income taxes - Income taxes for the three months ended March 31, 1999 were
$122,000, as compared with $15,000 in 1998. Our 1998 tax provision was
benefitted by the use of our net operating loss carryforwards. In the fourth
quarter of 1998, we eliminated the valuation allowance pertaining to the
remaining net operating loss carryforward. As a result, our tax rate in 1999 has
increased to 30% from 4.6% in the 1998 period.
Liquidity and Capital Resources
On February 19, 1998, we completed an initial public offering of our common
stock, raising net proceeds of $16.7 million.
At March 31, 1999, we had cash of $3.1 million, as compared with $6.5 million at
December 31, 1998. The decrease in the cash balance during the 1999 first
quarter was due to increases in accounts receivable and inventory balances and
to increases in capital expenditures. In addition to these uses of cash, we made
a payment of $450,000 for the assignment to us of wafer supply contracts. We
will be making additional payments totaling another $450,000 over the remainder
of 1999. We purchased the assignment of these contracts in order to have more
direct access to the wafer manufacturers, which we expect to give us better
control over incoming wafers.
Our sources of liquidity as of March 31, 1999 consist principally of cash of
$3.1 million, and available bank credit lines of $4 million. Any borrowings
under our bank facilities will be secured by accounts receivable, inventory and
machinery and equipment.
We expect that the available cash balance, together with projected cash
generated from operations and available bank credit lines, will be sufficient to
fund our activities for the next 15 months.
9
<PAGE>
Impact of Recently Issued Accounting Standards
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. We have adopted this standard effective January 1, 1999. We
believe that the adoption of SOP 98-1 will not have a material effect on our
results of operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting for the Costs of Start-Up Activities (SOP
98-5). This standard requires companies to expense the cost of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. We have adopted this
standard effective January 1, 1999. We believe the adoption of SOP 98-5 will not
have a material impact on our results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The statement is not expected to
affect us because we do not hold any derivative instruments or conduct any
hedging activities.
10
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Year 2000
Our current data processing systems and certain embedded processing systems are
not year 2000 compliant. We have developed and are currently executing a
comprehensive risk-based plan designed to make our computer systems, those
certain embedded processing systems, applications and facilities Year 2000
ready. Our plan covers four stages including (i) inventory, (ii) assessment,
(iii) remediation, and (iv) testing and certification. At year end 1997, we had
substantially completed the inventory stage for our owned systems and
applications. The assessment and remediation processes are currently underway
and we are 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 June 30, 1999.
Testing and certification of these systems and applications are targeted for
completion by September 30, 1999.
Our ongoing transformation from a government research and development
organization to a manufacturing company has necessitated system enhancements to
accommodate this growth. We are therefore addressing the Year 2000 issue through
these planned system augmentations. Total Year 2000 costs for our owned systems
and applications were approximately $250,000 in 1998 and currently estimated to
be approximately $250,000 in 1999, which we expect to fund through operating
cash flows. A majority of these costs are currently believed to be incremental
costs that will not recur in the Year 2000 or thereafter.
We are initiating communications with our critical third party relationships to
determine the extent to which we may be vulnerable to such parties' failure to
resolve their own Year 2000 issues. Where practicable, we will assess and
attempt to mitigate our risks with respect to the failure of these entities to
be Year 2000 ready through the development of appropriate contingency plans. The
effect, if any, on our results of operations from the failure of such parties to
be Year 2000 ready, is not presently reasonably estimable.
11
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AstroPower, Inc.
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
12
<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: May 13, 1999 By: /s/ Allen M. Barnett
----------------------------------------
Allen M. Barnett
President and Chief Executive Officer
Date: May 13, 1999 By: /s/ Thomas J. Stiner
----------------------------------------
Thomas J. Stiner
Vice President and Chief Financial Officer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,134,573
<SECURITIES> 0
<RECEIVABLES> 8,477,583
<ALLOWANCES> 79,695
<INVENTORY> 5,247,318
<CURRENT-ASSETS> 19,679,586
<PP&E> 14,042,198
<DEPRECIATION> 3,910,006
<TOTAL-ASSETS> 29,811,778
<CURRENT-LIABILITIES> 5,098,967
<BONDS> 0
0
0
<COMMON> 86,548
<OTHER-SE> 23,648,284
<TOTAL-LIABILITY-AND-EQUITY> 29,811,778
<SALES> 6,300,557
<TOTAL-REVENUES> 7,138,985
<CGS> 4,687,045
<TOTAL-COSTS> 5,301,771
<OTHER-EXPENSES> 1,461,388
<LOSS-PROVISION> 9,000
<INTEREST-EXPENSE> 393
<INCOME-PRETAX> 408,144
<INCOME-TAX> 122,443
<INCOME-CONTINUING> 285,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285,701
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
