<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, 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 November 10, 1999, was 11,196,808.
<PAGE>
AstroPower, Inc.
FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
PART I: FINANCIAL INFORMATION
------------------------------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
. Balance Sheets - September 30, 1999 (unaudited) and December 31, 1998............ 1, 2
. Statements of Income (unaudited) -
Three months and nine months ended September 30, 1999 and 1998................... 3
. Statements of Cash Flows (unaudited) -
Nine months ended September 30, 1999 and 1998.................................... 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
SIGNATURES........................................................................... 15
</TABLE>
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
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1999 DECEMBER 31, 1998
-------------------- --------------------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents....................................... $ 442,703 6,545,095
Accounts receivable:
Trade, net................................................... 10,661,256 6,531,144
Other........................................................ 130,692 116,234
Inventories..................................................... 7,106,123 3,596,676
Prepaid expenses................................................ 858,394 159,948
Deferred tax assets............................................. 1,207,958 1,796,338
-------------------- --------------------
Total current assets.................................. 20,407,126 18,745,435
INVESTMENT IN JOINT VENTURES.................................... 490,000 -
PROPERTY AND EQUIPMENT: 15,670,417 13,275,675
Less accumulated depreciation and amortization............... (4,390,583) (3,654,796)
-------------------- --------------------
11,279,834 9,620,879
-------------------- --------------------
Total assets.......................................... $32,176,960 28,366,314
==================== ====================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
ASTROPOWER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
--------------------- -------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable....................................... $ 4,639,389 2,629,068
Accrued payroll and payroll taxes...................... 842,513 963,243
Accrued expenses....................................... 236,679 313,640
--------------------- -------------------
Total current liabilities..................... 5,718,581 3,905,951
OTHER LIABILITIES:
Deferred compensation and other........................ 980,768 1,197,479
--------------------- -------------------
Total liabilities............................. 6,699,349 5,103,430
--------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock........................................... 87,338 85,725
Additional paid-in capital............................. 26,723,182 25,956,474
Unearned compensation.................................. (172,199) (245,718)
Accumulated deficit.................................... (1,160,710) (2,533,597)
--------------------- -------------------
Total stockholders' equity................... 25,477,611 23,262,884
--------------------- -------------------
Total liabilities and stockholders' equity. 32,176,960 28,366,314
===================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
ASTROPOWER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------ --------------------------------------
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales ................... $8,584,332 $ 5,247,924 $22,134,613 $14,142,748
Research contracts............... 770,351 910,612 2,349,191 2,331,714
------------------ ----------------- ---------------- ----------------
Total revenues............ 9,354,683 6,158,536 24,483,804 16,474,462
COST OF REVENUES:
Product sales.................... 6,068,258 3,835,657 16,041,732 10,366,567
Research contracts............... 652,536 695,938 1,789,448 1,833,862
------------------ ----------------- ---------------- ----------------
Total cost of revenues.... 6,720,794 4,531,595 17,831,180 12,200,429
------------------ ----------------- ---------------- ----------------
Gross profit.............. 2,633,889 1,626,941 6,652,624 4,274,033
OPERATING EXPENSES:
Product development expenses..... 494,711 340,836 1,540,470 949,379
General and administrative
expenses....................... 815,531 692,282 2,207,773 1,875,938
Selling expenses................. 395,778 276,443 989,239 727,616
------------------ ----------------- ---------------- ----------------
Income from operations.... 927,869 317,380 1,915,142 721,100
OTHER EXPENSE (INCOME):
Interest expense................. 9,621 86,453 10,406 284,042
Interest income.................. (11,637) (180,872) (69,290) (519,259)
Other expense.................... 12,758 0 12,758 0
------------------ ----------------- ---------------- ----------------
Total other expense (income) 10,742 (94,419) (46,126) (235,217)
------------------ ----------------- ---------------- ----------------
NET INCOME BEFORE INCOME TAXES...... 917,127 411,799 1,961,268 956,317
INCOME TAXES........................ 275,138 19,000 588,380 44,000
------------------ ----------------- ---------------- ----------------
NET INCOME.......................... 641,989 392,799 1,372,888 912,317
================== ================= ================ ================
NET INCOME DATA:
Net income per share - basic..... $0.07 $0.05 $0.16 $0.12
================== ================= ================ ================
Net income per share - diluted... $0.07 $0.05 $0.14 $0.12
================== ================= ================ ================
Weighted average shares
Outstanding - basic.............. 8,725,310 8,527,343 8,653,102 7,578,285
================== ================= ================ ================
Weighted averages shares
Outstanding - diluted............ 9,758,268 10,194,699 9,612,795 9,691,039
================== ================= ================ ================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
ASTROPOWER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ 1,372,888 912,317
Adjustments to reconcile net income to net cash (used in)
operating activities:
Deferred income taxes....................................... 588,380 -
Depreciation and amortization............................... 735,787 558,692
Amortization of unearned compensation....................... 73,519 73,529
Stock options issued for services........................... - 44,000
Changes in working capital items:
Accounts receivable.................................... (4,144,570) (3,074,788)
Inventories............................................ (3,509,447) (1,758,026)
Prepaid expenses....................................... (698,446) (34,125)
Accounts payable and accrued expenses.................. 1,929,713 (455,578)
Accrued payroll and payroll taxes...................... (120,730) 19,118
Advance from customer.................................. 3,646 (437,723)
Other.................................................. (216,711) 164,774
------------------ ------------------
Net cash used in operating activities....................... (3,985,971) (3,987,810)
CASH FLOWS FROM INVESTING ACTIVITES:
Capital expenditures........................................ (2,394,742) (4,483,190)
Investment in joint ventures................................ (490,000) -
------------------ ------------------
Net cash used in investing activities.................. (2,884,742) (4,483,190)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments from line of credit.......................... - (203,357)
Repayments of long-term debt................................ - (1,390,174)
Proceeds from issuance of common stock - stock options...... 768,321 113,361
Proceeds from issuance of common stock -
initial public offering.................................. - 16,612,080
------------------ ------------------
Net cash provided by financing activities............................. 768,321 15,131,910
------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................................... (6,102,392) 6,660,910
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.......................................................... 6,545,095 4,908,177
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 442,703 $11,569,087
================== ==================
OTHER NON-CASH FINANCING AND INVESTING ACTIVITIES
</TABLE>
. During the nine months ended September 30, 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 nine months ended September 30, 1998, the Company issued stock
options for 119,000 shares of common stock to Corning Incorporated.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
ASTROPOWER, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(1) GENERAL
The accompanying financial statements for the three-month and nine-month
periods ended September 30, 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.
(2) RECENT EVENTS
On October 18, 1999 the Company completed a follow-on offering of 2,700,000
shares of its common stock at a price to the public of $13.375 per share. Of
the 2,700,000 shares sold, 2,025,000 were offered by the Company and 675,000
shares were offered by selling shareholders. The net proceeds to the Company
from the sale of the 2,025,000 shares were $25.1 million, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
On November 8, 1999 the Company's underwriters for the follow-on offering of
common stock detailed above exercised the entire over-allotment option granted
to them by the Company to purchase an additional 405,000 shares. The net
proceeds to the Company from the sale of these shares were $5.1 million, after
deducting the underwriting discounts and commissions.
The Company has joint ventures with GPU International and Atersa, S.A., and
intends to seek additional alliances with other partners. The joint venture
agreements with GPU International and Atersa, S.A. are in their formative
stages and are expected to be finalized during the fourth quarter of 1999. The
ultimate contractual terms of certain of these joint ventures and alliances
may not permit the Company to consolidate the financial results of such
entities with the Company's financial statements. In these circumstances, the
Company will record its' proportionate share of the earnings or loss of the
entity using the equity method of accounting and will present such earnings or
loss as a separate component of the Company's statement of income.
5
<PAGE>
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 in on-grid applications by existing electric utility customers to
provide a clean, renewable source of alternative or supplementary electric
power. Solar electric power is also used off the electric utility grid for many
applications in the communications and transportation industries and for rural
electrification.
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 91.8% of total revenues for the quarter ended
September 30, 1999.
Historically, 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 also 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
cells produced, but by changes in the mix between solar cells and modules sold.
The gross margin
6
<PAGE>
percentages for modules are less than that of solar cells and as a result,
changes in the mix of solar cells and modules sold may affect total product
gross margins.
For the three months ended September 30, 1999, approximately 67.0% 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 statutes. 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.
We have joint ventures with GPU International and Atersa, S.A., and we intend to
seek additional alliances with other partners. The joint venture agreements with
GPU International and Atersa, S.A. are in their formative stages and are
expected to be finalized during the fourth quarter of 1999. The ultimate
contractual terms of certain of these joint ventures and alliances may not
permit us to consolidate the financial results of such entities with our
financial statements. In these circumstances, we will record our proportionate
share of the earnings or loss of the entity using the equity method of
accounting and will present such earnings or loss as a separate component of our
statement of income.
7
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 1999 and 1998
REVENUES - Our total revenues were $9.4 million for the three months ended
September 30, 1999, an increase of $3.2 million or 51.9% from 1998. Product
sales were $8.6 million for the three months ended September 30, 1999, an
increase of $3.3 million or 63.6% from 1998. Our increase in product sales was
due to ongoing strong demand for our products and improvements in manufacturing
productivity and capacity at both our manufacturing plants. Research contract
revenues were $771,000 for the three months ended September 30, 1999, a decrease
of $140,000 or 15.4% from 1998. The decline in research contract revenues was
due to fewer direct labor hours expended in this area as compared with the
previous year, as well as lower effective overhead rates.
GROSS PROFIT - Our gross profit was $2.6 million for the three months ended
September 30, 1999, an increase of $1.0 million or 61.9% from 1998. Product
gross profit for 1999 was $2.5 million, an increase of $1.1 million or 78.2%
from 1998. Our product gross margin was 29.3% for the three months ended
September 30, 1999. In the similar 1998 period, the product gross margin was
26.9%. The increase in product gross margins was due to continued improvements
in productivity as well as increased production and revenue contribution from
our second manufacturing plant which came on-line in the second quarter of 1998.
Our gross profit on research contracts for the three months ended September 30,
1999 was $118,000, a decrease of $97,000 or 45.1% from the 1998 period. This
decrease is primarily due to lower effective overhead rates.
PRODUCT DEVELOPMENT COSTS - Our product development costs for the three months
ended September 30, 1999 were $495,000, up $154,000 or 45.2% from 1998. The
increase is due to a higher level of development activity in 1999 for our
Silicon-Film products.
GENERAL AND ADMINISTRATIVE EXPENSES - Our general and administrative expenses
for the three months ended September 30, 1999 were $816,000, an increase of
$124,000 or 17.9% from the similar 1998 period. The increase is primarily due to
higher levels of salaries as a result of additional positions to support our
growth, professional fees and insurance expenses, offset by a reduced level of
employee bonus expense.
SELLING EXPENSES - Our selling expenses for the three months ended September 30,
1999 were $396,000, an increase of $120,000 or 43.5% 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 bonus
expense.
INTEREST EXPENSE - Our interest expense for the three months ended September 30,
1999 was $10,000 as compared with $86,000 in the similar 1998 period. The
decline is due to the paydown of debt in 1998.
8
<PAGE>
INTEREST INCOME - Our interest income for the three months ended September 30,
1999 was $12,000, as compared with $181,000 in the 1998 period. The reduction
was due to lower cash balances available for investment, as a result of the use
of cash for the funding of working capital, capital equipment, debt reduction
and the purchase of the assignment of wafer supply contracts discussed in
Liquidity and Capital Resources.
INCOME TAXES - Income taxes for the three months ended September 30, 1999 were
$275,000, as compared with $19,000 in 1998. Our 1998 tax provision was limited
to alternative minimum tax. In the fourth quarter of 1998, we eliminated the
valuation allowance pertaining to the remaining net operating loss carryforward.
As a result, our effective tax rate in 1999 has increased to 30% from 4.6% in
the 1998 period.
9
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES - Our total revenues were $24.5 million for the nine months ended
September 30, 1999, an increase of $8.0 million or 48.6% from 1998. Product
sales were $22.1 million for the nine months ended September 30, 1999, an
increase of $8.0 million or 56.5% from 1998. Our increase in product sales was
due to ongoing strong demand for our products and improvements in manufacturing
productivity and increases in capacity at both our manufacturing plants.
Research contract revenues were $2,350,000 for the nine months ended September
30, 1999, an increase of $18,000 or 0.8% from 1998.
GROSS PROFIT - Our gross profit was $6.7 million for the nine months ended
September 30, 1999, an increase of $2.4 million or 55.7% from 1998. Product
gross profit for 1999 was $6.1 million, an increase of $2.3 million or 61.4%
from 1998. Our product gross margin was 27.5% for the nine months ended
September 30, 1999. In the similar 1998 period, the product gross margin was
26.7%. The increase in product gross margins was due to continued improvements
in productivity as well as increased production volumes and revenue contribution
from our second manufacturing plant which came on-line in the second quarter of
1998. Our gross profit on research contracts for the nine months ended September
30, 1999 was $560,000, an increase of $62,000 or 12.4% from the 1998 period.
PRODUCT DEVELOPMENT COSTS - Our product development costs for the nine months
ended September 30, 1999 were $1.5 million, up $591,000 or 62.3% from 1998. The
increase is due to a higher level of development activity for our Silicon-Film
products.
GENERAL AND ADMINISTRATIVE EXPENSES - Our general and administrative expenses
for the nine months ended September 30, 1999 were $2,208,000, an increase of
$332,000 or 17.7% from the similar 1998 period. The increase is primarily due to
higher levels of salaries as a result of additional positions to support our
growth, professional fees and insurance expenses, offset by a reduced level of
employee bonus expense. Certain of these increased expenses were incurred as a
result of our transition to being a public company through an initial public
offering, which was completed in February 1998.
SELLING EXPENSES - Our selling expenses for the nine months ended September 30,
1999 were $989,000, an increase of $261,000 or 35.9% 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 bonus
expense.
INTEREST EXPENSE - Our interest expense for the nine months ended September 30,
1999 was $10,000, as compared with $284,000 in the similar 1998 period. The
decline is due to the paydown of debt in 1998.
INTEREST INCOME - Our interest income for the nine months ended September 30,
1999 was $69,000, as compared with $519,000 in the 1998 period. The reduction
was due to lower cash
10
<PAGE>
balances available for investment, as a result of the use of cash for the
funding working capital, capital equipment, debt reduction and the purchase of
the assignment of wafer supply contracts discussed in liquidity and capital
resources.
INCOME TAXES - Income taxes for the nine months ended September 30, 1999 were
$588,000, as compared with $44,000 in 1998. Our 1998 tax provision was limited
to alternative minimum tax. In the fourth quarter of 1998, we eliminated the
valuation allowance pertaining to the remaining net operating loss carryforward.
As a result, our effective tax rate in 1999 has increased to 30% from 4.6% in
the 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had cash of $443,000, as compared with $6.5 million at
December 31, 1998. The decrease in the cash balance during the nine months ended
September 30, 1999 was due to increases in accounts receivable and inventory
balances as well as increases in capital expenditures. In addition to these uses
of cash, we made payments totaling $800,000 in the first nine months of 1999 for
the assignment to us of wafer supply contracts. We will be making an additional
payment of $100,000 in the fourth quarter of 1999. These expenditures are being
amortized over the life of the related contracts, which remain in effect through
December 31, 2000. We purchased the assignment of these contracts in order to
have more direct access to the wafer manufacturers, which has given us better
control over incoming wafers. For the nine months ended September 30, 1999, our
capital equipment expenditures totaled approximately $2.4 million, with total
1999 expenditures expected to total approximately $2.8 million. We also funded
investments in two joint ventures aggregating $490,000 during the quarter.
Our sources of liquidity as of September 30, 1999 consist principally of cash of
$443,000 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.
On October 18, 1999, we completed a follow-on offering of 2,700,000 shares of
our common stock at a price to the public of $13.375 per share. Of the 2,700,000
shares sold, 2,025,000 were offered by us and 675,000 shares were offered by
selling shareholders. Our net proceeds from the sale of the 2,025,000 shares
were $25.1 million, after deducting the underwriting discounts and commissions
and estimated offering expenses payable by us.
On November 8, 1999 the Company's underwriters for the follow-on offering of
common stock detailed above exercised the entire over-allotment option granted
to them by the Company to purchase an additional 405,000 shares. The net
proceeds to the Company from the sale of these shares were $5.1 million, after
deducting the underwriting discounts and commissions.
We expect that our available cash balance, together with projected cash
generated from operations, available bank credit lines and the issuance of
shares in the follow-on financing will be sufficient to fund our activities over
the next four years.
11
<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. The
adoption of SOP 98-1 did 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. The adoption of SOP 98-5 did 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.
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the effective date of FASB Statement No. 133 (SFAS 137). SFAS 137 delays the
implementation of SFAS No. 133 until the year 2001.
12
<PAGE>
YEAR 2000
We have developed and are currently executing a comprehensive risk-based plan
designed to make our computer systems, 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 were completed by September 1, 1999. Testing and certification of
these systems and applications has been largely completed 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 have continued communications with our critical third party relationships,
consisting of both customers and suppliers, to determine the extent to which we
may be vulnerable to such parties' failure to resolve their own Year 2000
issues. We have received responses from approximately 40% of the surveys
distributed, with all responses stating that Year 2000 issues are being
addressed. 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 any of these 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, 1999
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit No. DESCRIPTION
----------- -----------
27 FINANCIAL DATA SCHEDULE
14
<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 15, 1999 BY: /S/ Allen M. Barnett
--------------------------------------
Allen M. Barnett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: NOVEMBER 15, 1999 BY: /S/ Thomas J. Stiner
------------------------------------------
Thomas J. Stiner
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 442,703
<SECURITIES> 0
<RECEIVABLES> 10,791,948
<ALLOWANCES> 97,596
<INVENTORY> 7,106,123
<CURRENT-ASSETS> 20,407,126
<PP&E> 15,670,417
<DEPRECIATION> 4,390,583
<TOTAL-ASSETS> 32,176,960
<CURRENT-LIABILITIES> 5,718,581
<BONDS> 0
0
0
<COMMON> 87,338
<OTHER-SE> 25,390,273
<TOTAL-LIABILITY-AND-EQUITY> 32,176,960
<SALES> 22,134,613
<TOTAL-REVENUES> 24,483,804
<CGS> 16,041,732
<TOTAL-COSTS> 17,831,180
<OTHER-EXPENSES> 4,737,482
<LOSS-PROVISION> 27,000
<INTEREST-EXPENSE> 10,406
<INCOME-PRETAX> 1,961,268
<INCOME-TAX> 588,380
<INCOME-CONTINUING> 1,372,888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,372,888
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.14
</TABLE>
