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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _______________ to ________________
COMMISSION FILE NO. 0-19672
AMERICAN SUPERCONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2959321
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Two Technology Drive, Westborough, Massachuetts 01581
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 836-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On April 30, 1997, the aggregate market value of voting Common Stock held
by nonaffiliates of the registrant was $105,103,725, based on the closing
price of the Common Stock on the Nasdaq National Market on April 30, 1997.
Number of shares of Common Stock outstanding as of June 20, 1997 was
11,575,266.
Documents Incorporated By Reference
Document Form 10-K Part
- -------- --------------
Definitive Proxy Statement with Part III
respect to the Annual Meeting of
Stockholders for the fiscal year
ended March 31, 1997, to be filed
with the Securities and Exchange
Commission by July 29, 1997
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TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Business 2
2. Properties 19
3. Legal Proceedings 19
4. Submission of Matters to a Vote of Security Holders 19
PART II
5. Market for Registrant's Common Stock and Related
Stockholder Matters 21
6. Selected Financial Data 21
7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 22
8. Financial Statements and Supplementary Data 22
9. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
10. Directors and Executive Officers of the Registrant 23
11. Executive Compensation 23
12. Security Ownership of Certain Beneficial Owners and
Management 23
13. Certain Relationships and Related Transactions 23
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 23
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For
this purpose, any statements contained herein that are not statements of
historical fact, including without limitation, the statements under "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and located elsewhere herein regarding
industry prospects and the Company's results of operations or financial
position, may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements represent management's current expectations and are
inherently uncertain. The important factors discussed below under the caption
"Management's Discussion
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and Analysis of Financial Conditions and Results of Operations -- Future
Operating Results," among others, could cause actual results to differ
materially from those indicated by forward-looking statements made herein and
presented elsewhere by management from time to time. Investors are warned that
actual results may differ from management's expectations.
ITEM 1. BUSINESS
American Superconductor Corporation (the "Company") develops and
commercializes high temperature superconductor ("HTS") wires, wire products and
systems, including current leads, multistrand conductors, electromagnetic coils
and electromagnets, and subsystems comprising electromagnetic coils integrated
with appropriate cooling systems. The focus of the Company's development and
commercialization efforts is on electrical equipment for use by electric
utilities and industrial users of electrical power. For large-scale
applications, the Company's development efforts are focused on power
transmission cables, motors, transformers, generators and fault current
limiters. In the area of power quality, the Company is focused on marketing and
selling commercial, low temperature superconducting magnetic energy storage
("SMES") devices, on development and commercialization of new SMES products, and
on development of power electronic subsystems and engineering services for the
power quality marketplace.
In April 1997, the Company acquired Superconductivity, Inc. ("SI"), a
manufacturer of low temperature SMES products. The Company believes that this
acquisition provides the Company with a strong presence in the power quality
market. The Company plans to expand sales and manufacturing capacity for the
existing SI family of low temperature superconductor ("LTS") SMES products and
intends to convert these products to HTS SMES products in the future. The
Company also plans to incorporate HTS current leads into the SI family of LTS
SMES products in order to improve the efficiency of operation of the LTS SMES
products and to reduce the manufacturing costs. Over the next two years the
Company plans a number of development programs to expand the SI family of LTS
SMES products. The Company has had under development certain cryocooled power
electronics subsystems. While the Company plans to continue to develop
cryocooled power electronics subsystems for military applications under
government contracts, the Company plans to refocus most of its power electronics
development efforts and resources on power electronics for SMES products.
Superconductors lose all resistance to the flow of direct electrical
current and nearly all resistance to the flow of alternating electrical current
when cooled below a "critical" temperature, which is different for each
superconducting material. Superconducting wires provide significant advantages
over conventional wires because superconducting wires conduct electricity with
little or no energy loss, and therefore can transmit much larger amounts of
electricity than conventional wires of the same size.
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The following graph illustrates the loss of resistance of a
superconducting material at the critical temperature:
[Graph depicting increase in resistance in a Silver Sheathed Bismuth-based
Copper Oxide Superconductor from .0000025 to .00001 as temperature increases
from 100K (-280(degree) Fahrenheit) to 300K (80(degree)Fahrenheit)]
It is anticipated that HTS wires and wire products, if successfully
developed, could be used in a wide spectrum of electric power systems, including
power transmission cables, large-scale electric motors, transformers, electric
generators, fault current limiters and SMES devices; and in a wide range of high
field electromagnet systems, including magnetic resonance imaging ("MRI")
medical systems, magnetic separation equipment, and magnetically levitated
transportation systems. There can be no assurance, however, that commercial
uses of HTS wires and wire products will ever be practical.
LTS products are currently used in a number of applications targeted by
the Company. For example, the Company believes that MRI diagnostic equipment
currently represents the single largest commercial use of LTS materials. LTS
materials are also used in SMES units and magnetic separation equipment. LTS
products have been under development since the early 1960s and LTS technology is
relatively mature as compared with HTS technology. However, commercial
acceptance of LTS products in other power applications has been significantly
limited by the cooling requirements of LTS materials. LTS materials generally
require costly cooling by liquid helium at nearly the absolute zero temperature
or cooling by cryocoolers generating at up to 10K Kelvin ("K") (-441(degree)
Fahrenheit).
HTS wires maintain their superconductivity at higher temperatures than LTS
wires and can be cooled with liquid nitrogen or closed-cycle refrigerators at
temperatures above 20K (-423(degree) Fahrenheit), which are much less expensive
and easier to utilize than liquid helium. Closed-cycle refrigerators operate in
much the same way as household refrigerators, but because of their lower
operating temperature they are substantially more complicated to build and
maintain. It is anticipated by the Company that specially designed closed-cycle
refrigerators can be used to cool HTS electromagnetic coils. Closed-cycle
refrigerators are not expected to be usable to cool power cables; it is
presently anticipated that HTS power cables would be cooled by maintaining
liquid nitrogen within hollow cores of an HTS cable, much the same as oil is now
maintained within the cores of some conventional underground power cables. It is
anticipated that HTS transformers would be cooled by submerging the coils in
liquid nitrogen. The liquid nitrogen
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acts both as a coolant and a dielectric. Therefore, while HTS products may
replace or compete with LTS products in certain applications in which LTS
products are currently used, the Company believes that the less demanding
cooling requirements of HTS materials will permit their use in a broad range of
applications not currently available to LTS products.
The Company has produced and sold prototype HTS electromagnetic coils and
multistrand conductors for use in several development and demonstration
programs. Nevertheless, significantly better strength, flexibility, and
electrical performance must be achieved, over longer wire lengths, for
commercial applications of HTS wire and wire products to be realized. Despite
the advances being made, to date neither the Company nor, to the Company's
knowledge, any other company has produced HTS wires in commercial quantities,
and substantial barriers to commercialization continue to exist.
The Company's strategy is to develop these products through a combination
of Company-, customer-, and government-sponsored programs, as well as through
other research programs and to market these products through strategic partners
or directly through its sales and marketing organization. The Company has
established research arrangements with several U.S. National Laboratories and
with Superlink Joint Venture of New Zealand, a joint venture organized by
Industrial Research Limited and Electricity Corporation of New Zealand
("Superlink"), and is currently a party to development contracts with several
U.S. government agencies to build prototype HTS electromagnetic coils. The
Company has sold several prototype HTS products to private-sector companies,
including HTS wires to ABB Secheron SA ("ABB") and Pirelli Cable Corporation and
HTS motor coils to Rockwell Automation. In addition, the Company has
collaborative research and development agreements with a number of companies,
including without limitation Pirelli Cavi S.p.A. ("Pirelli") and the Electric
Power Research Institute, Inc. ("EPRI"). Ultimately, if the Company is
successful in developing HTS wires for commercial applications, the Company
intends to introduce and market large-scale power products through strategic
partners, and to introduce and market, directly through the Company's sales and
marketing organization or through distributors, products in the power quality
area, magnet coils and current leads. Currently, the Company has an exclusive
distribution agreement with ESKOM, the largest utility in South Africa, to
distribute the SI SMES products in South Africa.
SUPERCONDUCTIVITY
A superconductor is a perfect conductor of electricity; it carries direct
current with 100% efficiency since no energy is dissipated by resistive heating.
Once induced in a superconducting loop, direct current can literally flow
undiminished forever. Superconductors can also conduct alternating current, but
with some slight dissipation of energy.
Three conditions must be met for superconducting materials to exhibit
superconducting behavior:
-- The material must be cooled below a characteristic
temperature known as its superconducting transition or critical
temperature (Tc);
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-- The current passing through a given cross-section of the
material must be below a characteristic level known as the critical
current density (Jc); and
-- The magnetic field to which the material is exposed must be
below a characteristic value known as the critical magnetic field
(Hc).
These conditions are interdependent, and define the environmental
operating conditions for the superconductor.
The initial discovery of superconductive materials was made in 1911.
Before 1986, the critical temperatures for all known superconductors did not
exceed 23 Kelvin (23K or -418(degree) Fahrenheit; 0K is absolute zero, or
- -459(degree) Fahrenheit). The use of superconductivity has not been practical
for widespread commercial applications principally because commercially
available superconductors (i.e., LTS materials) are made superconductive only
when these materials are cooled to near 0K. Although it is technologically
possible to cool LTS materials to a temperature at which they become
superconductive, broad commercialization of LTS materials has been inhibited by
the high cost associated with the cooling process. For example, liquid helium,
which can be used to cool materials to about 4K (-452(degree) Fahrenheit), and
which has been commonly used to cool LTS materials, is expensive and difficult
to use.
In 1986, a breakthrough in superconductivity occurred when two scientists,
Dr. K. Alex Muller, who is currently a consultant to the Company, and Dr. J.
Georg Bednorz, at an IBM laboratory in Zurich, Switzerland identified a ceramic
oxide compound which was shown to be superconductive at 36K (-395(degree)
Fahrenheit). This discovery earned them the Nobel Prize for Physics in 1987. A
series of related ceramic oxide compounds which have higher critical
temperatures were subsequently discovered.
THE COMPANY'S HTS DEVELOPMENT
The Company was organized in 1987, following research at the Massachusetts
Institute of Technology ("MIT") relating to the fabrication of high temperature
superconductors from ceramic oxides using a process called the metallic
precursor process. See "-- HTS Wire Production Processes." The principal
researchers at MIT were Gregory J. Yurek, the Company's Chairman, President and
Chief Executive Officer and at the time a professor at MIT, and John Vander
Sande, a professor at MIT and a director of and consultant to the Company. MIT
filed the patent application on the results of this research and then granted
the Company a license under such patent application in return for license fees
and shares of the Company's Common Stock. See "-- Patents, Trade Secrets and
Licenses, Patents and the Processing of HTS Materials." Since its inception, the
Company's efforts have been directed towards the development of HTS wire and its
applications, primarily in the electric power sector, including electric
utilities and industrial users of electric power. In late 1987 the Company
developed its first length of current-carrying HTS wire. In 1989 the Company
added electromagnetic coils, electromagnets and multistrand conductors to its
development program, and in December 1989 the Company sold its first prototype
coil to a commercial customer. Since commencing operations in 1987, the Company
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has been able to significantly increase both the length and the current-carrying
capacity of its HTS wires as well as the magnetic field strength generated by
its HTS electromagnetic coils.
The Company has chosen to focus on HTS wires and HTS wire products (rather
than HTS electronics applications) because it believes that HTS wires and wire
products offer the largest potential commercial market in the HTS field. See "--
Markets." The Company is not devoting any efforts to the discovery of new HTS
materials (although in both its internal development program and its
collaborative program with Superlink the Company is exploring certain materials
for use in HTS wires). The Company primarily focuses on processing the most
promising of the HTS materials available into wires and from these wires,
manufacturing components and subsystems, such as multistrand conductors,
electromagnetic coils and electromagnets. In most cases, higher level
integration is performed in collaboration with or by the Company's customers
and/or strategic partners.
The Company has obtained patent licenses for a number of HTS materials.
The Company may be required to obtain licenses with respect to other known HTS
materials. In addition, as new HTS materials are discovered, the Company expects
that patent or other proprietary rights will be asserted with respect to such
materials, and that the Company may be required to obtain licenses for the use
of such materials. While the Company is optimistic that it will be able to
obtain such licenses on commercially reasonable terms, there can be no assurance
of this. See "-Patents, Trade Secrets and Licenses -- Patents and the Choice of
HTS Materials." Furthermore, the Company's ability to apply its current wire
processing and component and subsystem manufacturing processes to newly
discovered HTS materials will depend on the nature of the materials, although
the Company believes that its manufacturing processes are sufficiently generic
that they can be adapted to newly discovered HTS materials.
HTS WIRE PRODUCTION PROCESSES
The Company produces HTS wires by a variety of techniques. The principal
technique involves deformation processing, which is in some respects closely
analogous to the technique used in the existing metal wire industry. In this
approach a metal tube, typically silver, is packed with a precursor powder and
sealed to form a "billet." The billet is then deformed into a wire shape by a
variety of classical deformation processing techniques: extrusion, wire-drawing,
multifilamentary bundling and rolling. Finally, the wire is heat-treated to
transform the precursor powder inside the wire into a high-temperature
superconductor. The resulting multifilamentary composite structure, consisting
of many fine superconducting filaments imbedded in a metal matrix, is considered
by the Company to be a preferred method of achieving flexibility and durability
in its wires and wire products. This composite structure is the subject of a
patent owned by MIT, based on work by Dr. Yurek and Dr. Vander Sande, which
patent is licensed to the Company on an exclusive basis until 1998. The Company
has the option to extend the exclusive period until 2010 under certain
conditions. See "-- Patents, Trade Secrets and Licenses."
The Company has pursued two basic approaches to the deformation processing
of silver-sheathed, powder-in-tube, multifilamentary composite wires. They
differ principally in the
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type of powder that is packed into the silver billet. One, referred to as the
oxide-powder-in-tube or "OPIT" process, involves the use of oxide powders. The
Company is presently focused primarily on the OPIT process and has established a
pilot manufacturing line using this method. The pilot line has produced
sufficient lengths of wire with sufficient performance to enable the Company to
use the wire in prototype electromagnetic coils and multistrand conductors.
In the alternative technique for making multifilamentary wires, referred
to as the metallic precursor or "MP" process, metallic (rather than oxide)
powders are packed into the silver billet. The metallic powder is an alloy of
the metal elements in the ceramic superconducting compound, which is formed in a
subsequent step in this process. With metals packed into the billet, deformation
occurs in the generally more ductile metallic state, analogous to standard
deformation of metal wires such as copper. During heat treatment in the MP
process, oxygen is transported through the silver sheath to oxidize the metal
powder and then the resulting oxides react to form the superconductor. The
metallic precursor used in the MP process is easier to deform than the ceramic
precursor used in the OPIT process, permitting a larger number of finer
filaments and hence higher flexibility and durability. Promising results have
been demonstrated at the Company using the MP process, especially in the wire's
flexibility and durability, although the critical current density is at present
lower than that achieved by the OPIT process. The MP process has the potential
to displace the OPIT process used by the Company and its competitors if current
density can be improved. Inco Alloys International, Inc. has terminated an
earlier agreement with the Company which had helped support this development,
and work on MP at the Company now continues at a lower level, with the
expectation of a longer term impact. The MP process has been patented by MIT,
based on work by Dr. Yurek and Dr. Vander Sande, and licensed to the Company on
an exclusive basis until 1998. The Company has an option to extend the exclusive
period until 2010 under certain conditions. See "-- Patents, Trade Secrets and
Licenses."
Precise control of initial composition, heat-treatment temperatures and
their interplay with the deformation are required to obtain the best
superconducting performance of the wire material. The Company may be required to
obtain additional patent licenses in order to practice certain aspects of both
processes. While the Company is optimistic that it will be able to obtain such
licenses on commercially reasonable terms, there can be no assurance of this.
See "-- Patents, Trade Secrets and Licenses."
Within the past few years, very high levels of current carrying
performance have been reported in small laboratory samples of "coated
conductors," which are comprised of a thick film of HTS material deposited on a
flexible substrate, typically with an intermediate buffer layer. One variation
of this process is called IBAD, or ion beam assisted deposition. In this
process, thick films of HTS material are deposited on an aligned buffer layer
(the IBAD layer) which is placed on a flexible substrate. This process improves
the alignment of the HTS thick films and consequently their electrical
performance. Initially developed by Fujikura Ltd. ("Fujikura"), the Company
believes that this process has been significantly improved by Los Alamos
National Laboratory. Another variant of this process, called deformation
texturing of substrates, has been developed by Toshiba and significantly
improved by Oak Ridge National Laboratory. The
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Company has studied both processes and believes that these processes have the
potential to be future processes for manufacturing HTS wire with high current
carrying capacity. However, only short wire samples are now being fabricated at
high-performance levels and it is still uncertain whether these processes can be
used for cost-effective manufacturing on a larger scale. The Company is pursuing
the development of these processes in collaboration with EPRI, Los Alamos
National Laboratory, Massachusetts Institute of Technology and other
organizations. There can be no assurance, however, that the Company will succeed
in developing this technology for commercial use or, if necessary, obtain
licenses for these processes on commercially reasonable terms.
STATUS OF HTS WIRE DEVELOPMENT
During the last several years considerable progress in the development of
HTS wire has occurred, both at the Company and at other institutions and
companies worldwide. There remain, however, significant technical problems that
must be overcome before HTS wires can be produced in commercial amounts for the
full range of potential applications. The critical current density of long wire
lengths has been increased significantly during the past fiscal year. However,
it must be increased further from present levels to higher levels already
demonstrated on short-length research samples. In addition, the mechanical
properties of the wire must be adequate to permit it to be wound in a variety of
shapes to create multistrand conductors, electromagnetic coils and
electromagnets without loss of the wire's critical current density during
winding. The wire must also withstand forces arising from the interplay of its
own current with a surrounding magnetic field. For alternating current magnet
and coil applications, special conductor architectures must be developed.
The HTS wires used in the electromagnetic coils, electromagnets and
multistrand conductors must have critical current densities in the
superconducting filament of the wires (excluding any metal sheathing,
strengthening members, etc.) in the range of 30,000 to 100,000 Amperes per
square centimeter (A/cm2) in the magnetic field required for the application.
Most applications will require magnetic fields in the range of 0.1 to 5 Tesla (a
typical LTS magnet in an MRI system operates at about 0.5 to 1.5 Tesla; a
kitchen magnet typically has a magnetic field of less than 0.05 Tesla).
Research samples of HTS wires have already exhibited sufficient current
density in very high magnetic fields to enable applications to be developed. The
Company has reported that short lengths of multifilamentary HTS wires (typically
one centimeter) produced on a laboratory scale have filament critical current
densities of 100,000 A/cm2 in a magnetic field of up to 3 Tesla at 20K
(-423(degree) Fahrenheit). The challenge is to produce cost effective wires with
these electrical properties by high-volume manufacturing processes in long
lengths (typically greater than 10,000 feet) and with the flexibility, strength
and durability required to fabricate and utilize multistrand conductors,
electromagnetic coils and electromagnets in end-use applications.
The Company has made considerable progress in achieving these combined
goals; it has achieved filament critical current density of 12,700 A/cm2 at
77K (-321(degree) Fahrenheit) in zero applied magnetic field in wires 3,800 feet
long with sufficient flexibility to allow winding of
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electromagnetic coils with 1.25 inch inner diameters. The Company routinely
manufactures wire in several hundred-foot lengths with over 16,500 A/cm2 at
77K. An earlier generation of the Company's wires were incorporated into a
number of demonstration products. During the fiscal year, Pirelli Cavi S.p.A
built and demonstrated a 50 meter cable conductor that carried 3,300 amps of
current. Rockwell built and demonstrated a 280 hp HTS motor utilizing the rotor
coils built and delivered by the Company. The Company's wire was also
incorporated into an HTS transformer prototype built by Asea Brown Boveri, which
was recently installed in a grid and is now providing power for the headquarters
of the electric utility of Geneva, Switzerland during a test period of several
months. However, considerable progress is still required to meet the commercial
needs of electric power and high-field magnet customers. The Company believes
that several years of further development will be necessary before HTS wires and
wire products are available for significant commercial end-use applications,
although HTS wires of sufficient performance are now available for the Company's
commercial current lead product and laboratory magnets.
In addition to the technical hurdles described above, there are energy
losses when alternating current is employed in a superconductor (as opposed to
the zero loss that occurs when the superconductor carries direct current), and
it has been established in LTS wires that these losses can be reduced in a
multifilamentary configuration. While the Company has produced prototype
multifilamentary composite wires, the superconducting and mechanical properties
of such wires must be improved before they can be used for commercial
alternating current magnet applications. The Company has started a program to
develop wires specifically for these applications. However, there can be no
assurance that the Company will succeed in developing this technology for
commercial use, or if necessary, obtain licenses for these processes on
commercially reasonable terms.
THE COMPANY'S HTS COIL, MAGNET, CONDUCTOR AND CRYOINTEGRATION DEVELOPMENT
Simultaneously with its development of HTS wires, the Company is engaged
in the development of electromagnetic coils, electromagnets and alternating
current cables using these wires, and the integration of these products with
related cooling systems (known as "cryointegration"). Electromagnetic coils are
wire-wound structures such as those used in the rotors or stators of electric
motors; electromagnets are coils used to produce a magnetic field, such as that
required for magnetic resonance imaging. Alternating current cables are bundles
of HTS wires woven together to form a long conducting body, such as that needed
for alternating current applications such as power transformers.
The Company's HTS prototype coils, electromagnets and conductors are made
from multifilamentary wires. This form of wire, which is more flexible and
durable than single filament wires that contain the same amount of
superconductor, can permit winding with no further high temperature heat
treatment being required (referred to as the "react and wind" method). The
Company believes that this approach permits more versatile application of its
wires to a variety of prototypes, although the alternative method, the "wind and
react" technique, may be appropriate in certain circumstances. The "wind and
react" technique, which can also use
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multifilamentary wires, means that an additional heat treatment is required
after winding a coil, electromagnet or cable. Both techniques are being utilized
by the Company.
The Company has delivered increasingly advanced prototypes of
electromagnetic coils and multistrand conductors, including a coil which
produces a magnetic field of 2.16 Tesla at 27K (-411(degree) Fahrenheit) when
cooled by a mechanical cryocooler, and a coil which produces 3.36 Tesla at 4.2K
(-452(degree) Fahrenheit) when cooled by liquid helium, which magnetic fields
exceed the maximum field obtainable from iron. However, there remain significant
hurdles to overcome before commercial quality products can be produced. These
hurdles include further increasing the field strength of the Company's coils,
increasing the size of the coils and improving the integration of the cooling
system and the cooling agent used in the cooling system with the coils.
The Company has also developed and is selling commercially current leads
which incorporate the Company's multifilamentary wires, and which, as compared
to normal metal leads, reduce the heat loss in cryogenic systems operating at
temperatures between 77K (-321(degree) Fahrenheit) and lower temperatures.
MARKETS
The expected markets for the Company's products can be divided into two
main market segments: electric power systems (large-scale power products and
products for power quality) and high field magnet systems. Large-scale power
products include power transmission cables, motors, transformers, fault current
limiters and generators. Power quality products include SMES devices and power
electronic subsystems. High field magnetic systems are utilized in applications
such as magnetic resonance imaging (MRI) medical systems, magnetic separation
systems, particle accelerators, ion beam steering magnets and magnetically
levitated transportation systems.
The HTS wire that might be used in most of these systems, with the
exception of the power transmission cables, will be in the form of
electromagnetic coils or electromagnets. In the case of power transmission
cables, the HTS wire will be in the form of multistrand conductors. The Company
is also currently producing products from its multifilamentary wires for a
third, and smaller, market segment, current leads.
The Company believes that the markets for the Company's HTS wire products
initially will be development contracts and demonstration projects, although the
Company expects a small commercial market for current leads and research
electromagnets to develop. Purchasers of the Company's HTS wire products are
expected initially to be government agencies and large private companies, and
the Company's marketing efforts are directed to these purchasers. The size of
this market will depend on funding levels and interest in prototype development.
In addition to the sale of HTS wire products during this period, the Company
expects, but cannot assure, that there will be a continuing market for its HTS
development abilities in the form of additional collaborative arrangements
similar to the ones already in place. Because of the episodic nature of these
arrangements, the Company is not able to estimate the size of the market for the
Company's HTS expertise. After this initial period, assuming the Company has
been successful in developing HTS products, the Company expects that it will
market its products to commercial customers.
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The Company believes that the acquisition of SI provides the Company with
a strong presence in the power quality market. SI's product line consists of
commercial products focused on meeting the power quality needs of large
industrial customers. The Company currently markets products that are in the one
to two megawatt (MW) range. Over the next two years, the Company plans to extend
the product line by increasing the capacity to 10 MW while achieving ongoing
cost reductions to enhance the price competitiveness of the products. Since
1991, SI has demonstrated and field tested a number of SMES systems at various
industrial and data processing centers. The Company is currently in the process
of commissioning commercial systems at Tinker Air Force base in Oklahoma City,
OK, serving a data processing application. In addition, the Company and its
distributor ESKOM are testing a system at a paper mill in South Africa.
The Company has to broaden its marketing and sales organization and
activities and has to reduce the costs of the SMES systems in order to fully
realize the market potential of its products and services. The Company estimates
that the total market potential for industrial power quality applications is
approximately $500 million. There is no assurance that the Company will be able
to achieve the planned product growth and cost reductions or be able to
penetrate its identified markets with its product line.
PRODUCTS
If the Company is successful in developing its technology for commercial
applications, the Company intends to develop the following product lines in the
next several years.
Power Transmission Cables. In cooperation with Pirelli, the Company is
developing HTS wires for underground HTS cables designed to provide more
efficient and economical ways for utilities to satisfy demands for power.
Motors and Generators. The Company is designing, developing and
fabricating HTS rotor coils for use in high-horsepower electric motors with the
potential for use in major industrial and utility applications. HTS motors
utilizing these rotor coils would potentially be half the weight and size of
conventional motors and in addition would provide greater operating efficiency.
The Company and Reliance Electric Company, a Rockwell International subsidiary,
are developing a 1,000 hp motor under a Superconducting Partner Initiative. The
same rotor coil technology could also be used for developing large generators.
Transformers. The Company is developing alternating current HTS wire which
can be used for fabrication of HTS transformers. These HTS transformers would
potentially be significantly smaller in size and weight as compared to
conventional transformers. In addition, these HTS transformers would provide
improved operating efficiencies and provide environmental benefits by replacing
the dielectric oil, used in conventional, copper-based transformers, with liquid
nitrogen.
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13
Current Limiters. The Company plans to develop current limiters which
would instantaneously protect a power grid from electric surges caused by
lightning, short circuits and other common fluctuations.
Superconducting Magnetic Energy Storage. The Company is presently
producing SMES devices which store electricity that can be tapped instantly to
protect power users from voltage sags or brief outages. The Company is marketing
LTS SMES systems through SI, its subsidiary.
Current Leads. The Company is presently producing, on a commercial basis,
HTS wire-based current leads designed to reduce heat load while providing
electric current for applications operating at temperatures below about 77K
(-321 Fahrenheit), such as LTS magnetic resonance imaging, LTS SMES devices,
accelerator or research magnets.
Specialty Magnets. The Company has produced or is presently producing HTS
magnets for specialty applications such as ion beam steering accelerators,
magnetic separation and laboratory research.
The Company currently intends to use its internal facilities and expertise
for manufacturing current limiters, specialty magnets and SMES devices. For
transformers, cables and motors and generators the Company plans to supply the
HTS wire and/or HTS coils for the manufacturing of the complete system through
alliances with other organizations.
COMPETITION
There are a number of companies in the United States, Europe and Japan
engaged in attempts to develop and produce commercial amounts of HTS wire.
However, to the Company's knowledge, no significant commercial amounts of HTS
wire have been produced to date. For HTS applications, the Company's principal
competitors presently are several Japanese companies, Siemens A.G. in Germany
("Siemens"), Alcatel Alsthom in France, B.I.C.C. and Oxford Instruments in
England, NKT in Denmark, Intermagnetics General Corporation ("IGC"), Midwest
Superconductivity, Inc. and 3M in the United States. The most significant
competitors appear to be in Japan, where Sumitomo Electric Industries, Ltd.
("SEI"), Showa Electric Wire & Cable Co., Ltd., Mitsubishi Electric Corporation,
Hitachi, Ltd., Hitachi Cable, Ltd., Furukawa Electric Co., Ltd., Fujikura and
Kobe Steel, Ltd. all are directing significant efforts to flexible, long-length
HTS wire development. Some of these companies are also developing HTS magnets
and systems, including SEI, IGC and Siemens.
LTS products are currently used in a number of applications targeted by
the Company. For example, the Company believes that magnetic resonance imaging
(MRI) diagnostic equipment currently represents the single largest commercial
use of LTS materials. LTS materials are also used in superconducting magnetic
energy storage (SMES) units, high energy physics systems, such as particle
accelerators, laboratory magnets, and magnetic separation equipment. LTS
products have been under development since the early 1960s and LTS technology is
relatively mature as compared with HTS technology. However, further commercial
acceptance of LTS products has been significantly limited by the cooling
requirements of LTS materials. LTS
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materials generally require costly cooling by liquid helium at nearly the
absolute zero temperature or cooling by cryocoolers operating at up to 10K
(-441(degree) Fahrenheit). Because HTS wires maintain their superconductivity at
higher temperatures, they can be cooled with liquid nitrogen or with
closed-cycle refrigerators at temperatures above 20K (-423(degree) Fahrenheit),
which are generally less expensive and easier to utilize than liquid helium or
lower temperature cryocoolers. Therefore, while HTS products may compete with
LTS products in certain applications in which LTS products are currently used,
the Company believes that the less demanding cooling requirements of HTS
materials will permit their use in a broad range of applications not currently
available to LTS products. However, the ability of the Company's HTS products to
compete with respect to applications in which LTS products are currently used
may be hindered because LTS manufacturers have already established a market in
these areas.
The Company does not know of any competitors producing commercially
available LTS SMES products that compete with the SMES products offered by the
Company's subsidiary, SI. However, at least one company, IGC, is developing SMES
systems for power quality applications, and the Company believes there is a
government-sponsored program in Japan to develop SMES systems for power quality
applications. As a product, SMES also competes against dynamic voltage restorers
(DVRs) produced by companies such as Westinghouse, flywheels under development
by various companies around the world, and Uninterruptible Power Supply (UPS)
systems supported by batteries which are widely manufactured and used around the
world.
Many of the Company's competitors have substantially greater financial
resources, research and development personnel and manufacturing and marketing
capabilities than the Company. In addition, as the HTS and power quality market
develop, it is possible that other large industrial companies may enter this
field.
PATENTS, TRADE SECRETS AND LICENSES
The HTS Patent Background
Since the discovery of high temperature superconductors in 1986, a large
number of patents have been applied for and granted worldwide relating to
superconductivity. The scope of the claims in different granted patents often
overlap, and similar patents in different countries may have different claims or
be owned by different entities. As a result, the patent situation in the field
of HTS technology and products is unusually complex.
There are a number of United States and foreign patents and patent
applications, held by third parties, that relate to the Company's current
products or to products under development, or to the technology now or later to
be utilized by the Company in the development or production of certain present
and future products. Additional patents relating to the Company's technology,
processes or applications may be issued to third parties in the future. The
Company will need to acquire licenses to, or to successfully contest the scope
or validity of, patents owned by third parties. The extent to which the Company
may be able to acquire necessary licenses upon commercially reasonable terms,
and the cost of any such licenses (to the extent available), is not known. The
likelihood of successfully contesting the scope or validity of any such patents
is also
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uncertain; and, in any event, the Company could incur substantial costs in
challenging the patents of other companies. Moreover, the Company could incur
substantial litigation costs in defending the scope and validity of its own
patents.
To understand the Company's approach to patents in light of these
circumstances, it is useful to analyze HTS patents in relation to the aspects
the Company must consider in the process of designing and manufacturing HTS
products: the choice of material used to make an HTS product, the choice of the
processing method to be applied to that material, the choice of components or
subsystems to be fabricated and the fabrication methods used and the initial use
or application of the finished HTS product.
Patents and the Choice of HTS Materials
Presently, the materials from which HTS products are made are copper
oxides, or "cuprates." The Company does not anticipate that anyone will receive
a broad basic patent on cuprates, but there can be no assurance in this regard.
There are a number of HTS materials within the cuprate family. A number of
patents have been issued with regard to certain specific HTS materials within
the cuprate family and the Company believes that a number of other patent
applications for various HTS materials within the cuprate family are pending.
At any given time, the Company will have a preference for utilizing one
or a few specific HTS materials in the production of its products for commercial
application, and any HTS material used by the Company is likely to be covered by
one or more patents issued to other parties. Because of the number and scope of
patents pending or issued in various parts of the world, the Company may be
required to obtain multiple licenses to use any particular material.
The Company jointly owns or has obtained licenses with respect to patents
covering certain HTS materials. However there is no assurance that the Company
will be able to obtain on commercially reasonable terms all the licenses that
may be needed for the Company to use preferred HTS materials.
Patents and the Processing of HTS Materials
The Company is pursuing three methods for processing the materials the
Company currently intends to use: the MP method, the OPIT method, and the
"coated conductor" technology. See "--HTS Wire Production Processes." The
Company's strategy is to obtain a proprietary position in each of these
processes through a combination of patents, licensing and proprietary know-how.
If alternative processes become more promising in the future, the Company will
also seek to develop a proprietary position in these alternative processes.
The Company has filed a number of patent applications which are applicable
to one or more of the MP method, the OPIT method, and coated conductor
technology, including a number of patent applications directed to producing
ceramic materials using the MP method. Some of these applications have been
issued as patents in the U.S. and abroad while others are pending. The Company
also has acquired options to exclusively license additional intellectual
property in
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the coated conductor area through its collaborations with EPRI, Los Alamos
National Laboratory and the Massachusetts Institute of Technology.
The Company holds licenses on a number of patents and applications
directed to making HTS materials using the MP method. One issued U.S. patent
under which the Company has such a license covers the basic MP technology;
another covers MP technology with certain specified noble metals as an additive.
The Company's licenses require the payment of royalties based on net sales of
products based on the licensed processes (including certain minimum annual
royalties that are not significant in amount).
In the United States, AT&T has been issued a patent on OPIT processing,
and may have a dominant U.S. position in the OPIT processing area. To the
Company's knowledge, AT&T has not been active in developing HTS wire for
commercial purposes. The Company has been advised by its outside patent counsel
that, in such counsel's opinion, to the extent the OPIT patent of AT&T purports
to cover anything currently done by the Company, it is invalid. However, no
assurance can be given that AT&T will not assert that its patent is valid and
infringed by the Company, that a court would not uphold the patent's validity
and find that infringement had occurred, or that AT&T would license its patent
to the Company on commercially reasonable terms.
Additional U.S. patents and foreign patents have been issued with claims,
directed to HTS processing methods in general, which, if valid, may cover both
the MP and the OPIT methods used by the Company. Several U.S. and foreign
patents have been issued with claims which, if valid, may cover various aspects
of the coated conductor process. In addition, the Company has learned that a
number of additional U.S. and foreign patent applications have been filed which
contain similar claims. To the extent any of these issued patents are valid and
cover any processing methods used by the Company, or if any of the pending
applications result in a valid patent with claims covering the Company's
methods, the Company would be required to obtain licenses under any applicable
patents.
Patents and Wire Structure
The Company has a license under an issued U.S. patent that covers
composites (including multifilamentary wires) of HTS ceramics and noble metals
such as silver.
A number of other companies have also filed, and in some instances, have
been issued patents on various aspects of wire structure. To the extent any of
these issued patents are valid and cover the wire structures used by the
Company, or to the extent any of the pending applications result in a valid
patent with claims covering the Company's methods, the Company would be required
to obtain licenses under any applicable patents.
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HTS Component and Subsystem Fabrication Patents; HTS Application Patents;
Power Quality and SMES.
The Company has been issued several patents and filed several additional
patent applications regarding the design and fabrication of electromagnetic
coils and electromagnets, the integration of these products with an appropriate
coolant or cryocooler and the application of these products to certain specific
end uses, as well as several patent applications on cryocooled power
electronics. The Company's SI subsidiary holds several issued patents and
pending applications on power quality systems which ASC now owns as a result of
the SI acquisition.
Since the HTS and cryocooled power engineering application fields are
relatively new, significant applications can and are being patented by others. A
number of other companies have also filed, and in some instances, have been
issued patents on various applications of HTS wire, cryocooled power electronics
and component and subsystem fabrication methods. To the extent any existing or
future third party patents are pertinent to these aspects of the Company's
operations, the Company would be required to obtain licenses under the
applicable patents.
General
The HTS industry has been characterized over the past several years by
rapid technical advances which in turn have resulted in a large number of new
patent applications and issued patents. These in turn have created a situation
where most major potential HTS manufacturers, including the Company and its
competitors, own or may obtain patents which may interfere with each other. The
Company believes that, in this situation, companies holding patent positions
which may complement positions held by others in the industry are more likely to
be willing to enter into cross-licensing arrangements with such other patent
owners than companies that do not have such patent positions. The Company
believes that its licensed patents covering basic materials and composites of
HTS ceramics and noble metals will improve the strength of its patent portfolio
and therefore its position in these future licensing developments. See "--
Patents, Trade Secrets and Licenses -- Patents and Wire Structure."
However, it is possible that the Company could be required to obtain
licenses under a number of different patents and from a number of different
patent holders in connection with various aspects of its present and planned
business operations. Although the Company believes that it will be able to
obtain any necessary licenses on commercially reasonable terms, there can be no
assurance that all necessary licenses will be available on commercially
reasonable terms. Further, to the extent the Company is required to obtain
multiple licenses, the costs to the Company may increase significantly. The
failure to obtain all necessary licenses upon reasonable terms could
significantly reduce the scope of the Company's business and otherwise have a
material adverse effect on the Company's operations.
Trade Secrets
Some of the technology used in, and that may be important to, the
Company's operations and products is not covered by any patent or patent
application owned by or licensed to the Company. However, the Company takes
steps to maintain the confidentiality of this technology by requiring all
employees and all consultants to sign confidentiality agreements and limiting
access to confidential information. However, no assurance can be given that
these measures will
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prevent the unauthorized disclosure or use of such information. Further, there
is no assurance that others, including the Company's competitors, will not
independently develop the same or comparable technology.
STRATEGIC RELATIONSHIPS, RESEARCH ARRANGEMENTS AND GOVERNMENT CONTRACTS
The Company is party to a number of strategic relationships, research
arrangements and government contracts, its most significant strategic corporate
agreement being with Pirelli and its newest with Electricite de France ("EDF").
The Pirelli alliance, originally established in February 1990, is designed to
combine Pirelli's cable technology, manufacturing and marketing expertise with
the Company's proprietary wire-forming technologies for the purpose of
developing and producing HTS wires for cables used to transmit both electric
power and control signals. The EDF relationship, established in April 1997,
involves the exchange of information relating to developments in HTS and related
fields and trends in the electricity industry, and the review of technical,
industrial and commercial topics by the parties through an advisory board
comprised of persons from both the Company and EDF. The Company has also
established a number of collaborative research relationships with various
organizations such as Superlink Developments, Ltd., four U.S. Department of
Energy Laboratories, the U.S. Department of Commerce National Institute of
Standards and Technology, and the Electric Power Research Institute. Finally,
the Company is party to a number of government contracts, with entities such as
Wright-Patterson Air Force Base, the Naval Research Laboratory and the U.S.
Department of Energy through its Superconductivity Partnership Initiative,
relating to the development and supply of prototype products.
The Company believes strategic relationships, research arrangements and
government contracts provide it with three important benefits. First, they have
assisted the Company in meeting and exceeding the technical benchmarks it has
established for itself. Second, they have provided the Company with development
and marketing rights to important technologies. Third, various parties to these
arrangements have provided the Company, in exchange for the technology and
marketing rights and equity interests provided by the Company, with funding that
has been critical to the Company as its research and development efforts
progress toward commercialization.
The following table sets forth a partial listing of the Company's
strategic relationships, research arrangements and government contracts.
STRATEGIC CORPORATE RELATIONSHIPS
PIRELLI CAVI S.P.A. HTS cable wires for power
cable applications
ELECTRIC POWER RESEARCH INSTITUTE HTS materials processing and
wire development
ELECTRICITE DE FRANCE electric utility industry applications
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RESEARCH ARRANGEMENTS
U.S. DEPARTMENT OF ENERGY HTS materials processing and
LABORATORIES -- AMES, wire development
ARGONNE, LOS ALAMOS,
OAK RIDGE NATIONAL
LABORATORIES
UNIVERSITY OF WISCONSIN HTS materials processing and
APPLIED SUPERCONDUCTIVITY wire development
CENTERS
U.S. DEPARTMENT OF COMMERCE HTS materials processing and
NATIONAL INSTITUTE wire development
OF STANDARDS AND TECHNOLOGY
SUPERLINK DEVELOPMENTS, LTD. HTS materials processing
techniques
GOVERNMENT PROGRAMS
WRIGHT-PATTERSON AIR FORCE HTS coils for an aerospace
BASE electric generator
NAVAL RESEARCH LABORATORY HTS coils for electric motors
and generators
U.S. DEPARTMENT OF ENERGY HTS cryocooled motors
SUPERCONDUCTIVITY PARTNERSHIP
INITIATIVE (THROUGH RELIANCE
ELECTRIC COMPANY)
U.S. DEPARTMENT OF ENERGY HTS cables for power
SUPERCONDUCTIVITY PARTNERSHIP transmission
INITIATIVE (THROUGH PIRELLI
CABLES NORTH AMERICA)
RESEARCH AND DEVELOPMENT
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The Company's research and development expenses in fiscal 1997 were
approximately $7,709,000. Externally funded research and development programs
accounted for approximately $5,322,000 of these expenses in fiscal 1997.
EMPLOYEES
As of March 31, 1997, the Company employed a total of 146 persons, 23 of
whom have Ph.D.s in materials science, physics or related fields. With the
acquisition of SI on April 8, 1997, the Company added 33 employees. No Company
employees are represented by a labor union. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES.
The Company's operations are located in approximately 102,000 square feet
of space in Westborough, Massachusetts and approximately 27,000 square feet of
space in Middleton, Wisconsin. The Company occupies the Westborough facility
under a lease which expires on May 31, 1998 and has an option to extend the
lease for two additional five-year terms. The Company occupies the Middleton
facility under a lease which expires on December 31, 1998.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any subsidiary is involved in any material legal
proceedings other than routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of the Company's security-holders
during the fourth quarter of the fiscal year ended March 31, 1997.
Executive Officers of the Company
The following table sets forth the names, ages and offices of all
executive officers of the Company:
Name Age Office
- ---- --- ------
Gregory J. Yurek 50 President, Chief Executive Officer and
Chairman of the Board of Directors
Alexis P. Malozemoff 53 Chief Technical Officer
Ramesh L. Ratan 47 Executive Vice President, Corporate
Development, Chief Financial Officer
and Secretary
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Gero Papst 53 Managing Director, American
Superconductor Europe GmbH
John Scudiere 44 Vice President, Operations
Carl J. Russo 48 Director of Advanced Technologies
Roland E. Lefebvre 46 Vice President, Sales and Marketing
Paul F. Koeppe 47 President, SI
Dr. Yurek co-founded the Company and has been a director since July 1987,
President since March 1989, Chief Executive Officer since December 1989 and
Chairman of the Board since October 1991. Dr. Yurek also served as Vice
President, Research and Chief Technical Officer from August 1988 until March
1989 and as Chief Operating Officer from March 1989 until December 1989. Prior
to joining the Company, Dr. Yurek was a Professor of Materials Science and
Engineering at MIT for 13 years.
Dr. Malozemoff joined the Company as Vice President, Research and
Development in January 1991 and was elected Chief Technical Officer in January
1993. Prior to joining the Company, Dr. Malozemoff spent 19 years at IBM in a
variety of research and management positions, most recently as IBM Research
Coordinator for High Temperature Superconductivity.
Mr. Ratan joined the Company as Executive Vice President, Corporate
Development, and Chief Financial Officer in January 1995. Mr. Ratan was elected
Secretary of the Company in June 1995. Prior to joining the Company, from
November 1986 to January 1995, Mr. Ratan served as Senior Vice President, Chief
Financial Officer and Secretary of Repligen Corporation, a biotechnology
company.
Dr. Papst joined the Company in January 1993 as Managing Director of
American Superconductor Europe GmbH, the Company's European subsidiary. Prior to
joining the Company, Dr. Papst was President of Otto Oeko-Tech GmbH & Co., an
environmental technology company, from 1987 to 1992.
Mr. Scudiere joined the Company in November 1993, was promoted to Vice
President, Manufacturing in July 1994 and was promoted to Vice President,
Operations in May 1996. Prior to joining the Company, Mr. Scudiere was Director,
Programs and Marketing for Oxford Superconductor Technology, a superconductor
manufacturer, from August 1990 to October 1993. Prior to August 1990, Mr.
Scudiere was Manager, Liquid Propellant Development Program for General Electric
Corporation, a diversified manufacturing and services company.
Dr. Russo joined the Company in January 1988 as Manager of Technical
Applications and was promoted to Director of Advanced Technologies in January
1991.
Mr. Lefebvre joined the Company in May 1996 as Vice President, Sales and
Marketing. Prior to joining the Company, Mr. Lefebvre spent 23 years at General
Electric Company in a variety of positions, most recently as General Manager,
National Account Sales.
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Mr. Koeppe joined the Company as President of the Company's subsidiary,
SI, in April 1997 with the Company's acquisition of SI. From 1988 until the
acquisition, Mr. Koeppe served as the President and a Director of SI.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The quarterly range of high and low closing sales prices of the Company's
Common Stock for the Company's two most recent fiscal years as reported on the
Nasdaq National Market is shown below.
Quarter Ended High Low
- ------------- ---- ---
June 30, 1995 19 1/4 13 1/4
September 30, 1995 14 1/4 12 1/4
December 31, 1995 15 1/4 10 1/2
March 31, 1996 15 3/4 12 1/4
June 30, 1996 14 3/4 12 3/8
September 30, 1996 15 3/4 11 5/8
December 31, 1996 15 1/8 10 3/8
March 31, 1997 11 3/4 7 7/8
The Company has never paid cash dividends on its Common Stock, and the
Company does not expect to pay any cash dividends on its Common Stock in the
foreseeable future.
The number of shareholders of record on June 20, 1997 was 396.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below for each of the years ended
March 31, 1997, 1996, 1995, 1994 and 1993 have been derived from the Company's
consolidated financial statements that have been audited by Coopers & Lybrand
L.L.P., independent accountants. These financial data should be read in
conjunction with the Consolidated Financial Statements and the
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Notes thereto and the other financial information appearing elsewhere in this
Annual Report on Form 10-K.
Year ended March 31,
--------------------
1997 1996 1995 1994 1993
----------- ----------- ------------ ------------ ------------
Revenues 7,174,487 7,130,899 $ 4,270,246 $ 3,944,447 $ 3,189,884
Net loss (10,422,131) (7,319,873) (5,771,642) (5,405,735) (4,304,420)
Net loss
per share (1.09) (.77) (0.62) (0.67) (0.55)
Total
assets 23,612,633 33,028,398 40,470,404 46,005,433 24,106,000
Working
capital 2,654,522 5,915,438 2,912,309 5,169,641 15,181,822
Long-term
Marketable
Securities 15,446,106 22,257,898 31,671,395 35,344,102 5,084,145
Stockholders'
equity 21,404,441 31,731,367 38,488,791 44,160,744 22,138,749
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by this Item is attached as Appendix A hereto and
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All financial statements required to be filed hereunder are filed as
Appendix B hereto, are listed under Item 14(a), and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this item is contained in part under the caption
"Executive Officers of the Company" in Part I of this Annual Report on Form
10-K, and in part in the Company's Proxy Statement for the Annual Meeting of
Stockholders for the fiscal year ended March 31, 1997 (the "1997 Proxy
Statement") in the section "Election of Directors - Nominees," which section is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The response to this item is contained in the 1997 Proxy Statement in the
sections "Election of Directors - Directors' Compensation," "- Executive
Compensation," "- Employment Agreements with Senior Executives," and
"- Compensation Committee Interlocks and Insider Participation," which sections
are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The response to this item is contained in the 1997 Proxy Statement in the
section "Beneficial Ownership of Common Stock," which section is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is contained in the 1997 Proxy Statement in the
section "Election of Directors - Certain Business Relationships," which section
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as Appendix B hereto and are
included as part of this Annual Report on Form 10-K.
Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets
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Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in
Stockholders' Equity
Notes to Consolidated Financial Statements
The Company is not filing any financial statement schedules as part
of this Annual Report on Form 10-K because they are not applicable
or the required information is included in the financial statements
or notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
Company's fiscal year ended March 31, 1997. A report on Form 8-K was
filed on April 23, 1997 to report a transaction pursuant to Item 2
of Form 8-K describing the acquisition of all of the capital stock
of Superconductivity, Inc., a Delaware corporation ("SI"), by means
of a merger of SI into a subsidiary of the Registrant. A report on
Form 8-K/A was filed on June 23, 1997 to amend Item 7 of the Form
8-K filed on April 23, 1997 and include financial statements of the
business acquired and pro forma financial information.
(c) The list of Exhibits filed as a part of this Annual Report on Form
10-K is set forth on the Exhibit Index immediately preceding such
Exhibits, and is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN SUPERCONDUCTOR CORPORATION
By: /s/ Gregory J. Yurek
-----------------------------------
Gregory J. Yurek
Chairman of the Board, President and
Chief Executive Officer
Date: June 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Gregory J. Yurek Director, Chairman of ) June 27, 1997
- --------------------- the Board, President and )
Gregory J. Yurek Chief Executive Officer )
(Principal Executive Officer) )
)
)
)
)
/s/ Ramesh L. Ratan Executive Vice President, ) June 27, 1997
- -------------------- Corporate Development, )
Ramesh L. Ratan Chief Financial Officer )
(Principal Financial )
Officer and Principal )
Accounting Officer) )
and Secretary )
)
)
)
/s/ Albert J. Baciocco, Jr. Director ) June 27, 1997
- --------------------------- )
Albert J. Baciocco, Jr. )
)
)
/s/ Frank Borman Director ) June 27, 1997
- ------------------- )
Frank Borman )
)
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Name Title Date
- ---- ----- ----
)
/s/ Peter O. Crisp Director ) June 27, 1997
- ------------------- )
Peter O. Crisp )
)
)
/s/ Richard Drouin Director ) June 27, 1997
- ------------------ )
Richard Drouin )
)
)
/s/George W. McKinney Director ) June 27, 1997
- --------------------- )
George W. McKinney, III )
)
)
/s/Gerard J. Menjon Director ) June 27, 1997
- ------------------- )
Gerard J. Menjon )
)
)
/s/ Andrew G.C. Sage, II Director ) June 27, 1997
- ------------------------ )
Andrew G.C. Sage, II )
)
)
/s/John B. Vander Sande Director ) June 27, 1997
- ----------------------- )
John B. Vander Sande )
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APPENDIX A
American Superconductor Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
American Superconductor Corporation (the "Company") was founded in 1987 to
develop for commercialization high temperature superconducting ("HTS") wires and
wire products. As the Company is moving toward commercialization of the
technology, the Company is no longer reporting its financial statements as a
development stage enterprise.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED MARCH 31, 1997 AND MARCH 31, 1996.
Revenues from research and development contracts, prototype development
contracts and the sale of prototypes increased to $7,174,000 in fiscal 1997 from
$7,131,000 in fiscal 1996. This increase was due primarily to work performed on
a research and development contract with Asea Brown Boveri (ABB) and increases
in funding on various U. S. Government grants and prototype development
contracts. This increase was largely offset by a drop in prototype sales
associated with a major cable prototype on which the Company concluded shipping
HTS wire in the year ended March 31, 1996, and by the discontinuation (effective
December 31, 1996) of the joint research and development program on metallic
precursor wire technology with Inco Alloys International, Inc., which had been
providing $1.1 million in annual funding.
In addition to reported revenues, the Company also received funding of
$1,706,000 in fiscal 1997 under government cost-sharing agreements as compared
to $985,000 in fiscal 1996. The increased cost-sharing funding was primarily due
to the award of a $20.5 million Phase II Superconductivity Partnership
Initiative (SPI) contract on commercial-scale HTS motors by the Department of
Energy to the Company and Reliance Electric Company (a Rockwell Automation
business). The Company expects to receive approximately $7.3 million over the
next five years (including the year ended March 31, 1997) and Reliance expects
to receive $2.9 million, with each company investing a corresponding amount of
their own funds to bring the total program value to $20.5 million. The Company
anticipates that a portion of its funding in the future will continue to come
from cost-sharing agreements as the Company continues to develop joint programs
with government agencies. Funding from government cost-sharing agreements is
recorded as an offset to research and development and selling, general and
administrative expenses, as required by government contract accounting
guidelines, rather than as revenue.
The Company's total operating expenses in fiscal 1997 were $18,035,000
compared to $15,992,000 in fiscal 1996. Costs of revenue, which include costs of
research and development contracts and costs of prototypes and prototype
development contracts, increased to $7,508,000 in fiscal 1997 compared to
$7,331,000 in fiscal 1996. This increase reflects expenditures to support the
increase in contract and prototype development revenues, including the hiring of
additional personnel and purchases of materials and equipment, partially offset
by lower costs of revenue associated with the decreased sales of prototypes.
Research and development ("R&D") expenses increased to $7,709,000 in fiscal
1997 from $5,341,000 the prior year. This increase was due to the continued
scale-up of the Company's internal research and development activities including
the hiring of additional personnel and purchases of materials and equipment. In
addition to these expenses, a portion of R&D expenditures related to externally
funded development contracts has been classified as costs of revenue (rather
than as R&D expenses). R&D expenditures included as costs of revenue during
fiscal 1997 and fiscal 1996 were $5,322,000 and $5,256,000, respectively.
Additionally, R&D expenses that were offset by cost share funding were $879,000
and $584,000 in fiscal years 1997 and 1996, respectively.
Selling, general and administrative ("SG&A") expenses were $2,818,000 in
fiscal 1997 as compared to $3,319,000 in fiscal 1996. This decrease was
primarily the result of certain SG&A expenditures that were offset by the
increased funding received under cost sharing agreements. The SG&A amounts
offset by cost share funding were $828,000 and $378,000 in fiscal years 1997 and
1996, respectively. In addition to these expenses, a portion of SG&A
expenditures related to externally funded development contracts has been
classified as costs of revenue (rather than as SG&A expenses). SG&A expenditures
included as costs of revenue during fiscal 1997 and fiscal 1996 were $2,186,000
and $2,075,000, respectively.
Interest income decreased to $1,172,000 in fiscal 1997, as compared to
$1,579,000 in fiscal 1996. This decrease primarily reflects lower cash, cash
equivalents and long-term marketable securities balances available for
investment as a
29
result of cash being used to fund the Company's operations and to purchase
capital equipment. Other expense, net is comprised primarily of miscellaneous
taxes net of gains on the disposition of excess capital equipment.
Transaction fees of $710,000 in fiscal 1997 related to the costs incurred
through March 31, 1997 in connection with the Company's acquisition of
Superconductivity, Inc. ("SI"), a developer and manufacturer of low temperature
superconductor products for the industrial power quality market, and consisted
primarily of financial advisory and legal fees. On April 8, 1997, the Company
completed the transaction (the "Merger") in which the Company acquired all of
the outstanding stock of SI by means of a merger of SI into a subsidiary of the
Company. The Company will account for the Merger as a pooling of interests and
begin reporting results on a consolidated basis effective in fiscal 1998.
The Company expects to continue to incur operating losses for at least the
next few years, as it continues to devote significant financial resources to its
research and development activities.
The Company expects to be a party to agreements which, from time to time, may
result in costs incurred exceeding expected revenues under such contracts. The
Company may enter into such agreements for a variety of reasons including, but
not limited to, entering new product application areas, furthering the
development of key technologies, and advancing the demonstration of commercial
prototypes in critical market applications.
In October 1995, Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" was issued. The expense recognition
provision encouraged by SFAS 123 would require fair-value based financial
accounting to recognize compensation expense for employee stock option plans.
The Company made a determination to elect the disclosure only alternative and
accordingly the Company has disclosed the pro forma net loss and per share
amounts in the notes to the financial statements using the fair value based
method beginning in fiscal 1997, with comparable disclosures for fiscal 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier application is not permitted. The Statement requires
restatement of all prior-period earnings per share presented after the effective
date. SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company will adopt SFAS 128 in fiscal
1998 and has determined the impact to be immaterial.
FISCAL YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995.
Revenues from research and development contracts, prototype development
contracts and the sale of prototypes increased to $7,131,000 in fiscal 1996 from
$4,270,000 in fiscal 1995. This increase was due primarily to the expansion of
the corporate development contract with Pirelli Cavi S.p.A. and an increase in
sales of prototypes. This increase was partially offset by the completion of
work and related funding under a collaborative research and development
agreement in August 1994.
The Company also received funding of $985,000 in fiscal 1996 under government
cost-sharing agreements as compared to $2,866,000 in fiscal 1995. This lower
level of cost-sharing funding was primarily due to a decrease in work performed
under several cost-sharing contracts with the Department of Energy and the
Department of Commerce which were completed during fiscal 1996. Funding was
recorded as an offset to research and development and selling, general and
administrative expenses, as required by government contract accounting
guidelines, rather than as revenue.
The Company's total operating expenses in fiscal 1996 were $15,992,000,
compared to $11,887,000 in fiscal 1995. Costs of revenue, which include costs of
research and development contracts and costs of prototypes and prototype
development contracts, increased to $7,331,000 in fiscal 1996 compared to
$4,397,000 in fiscal 1995. This increase reflects expenditures to support the
increase in sales of prototypes, including the hiring of additional personnel
and purchases of materials and equipment.
Research and development expenses increased to $5,341,000 in fiscal 1996 from
$4,634,000 the prior year. This increase was due to the continued scale-up of
the Company's internal research and development activities including the hiring
of additional personnel and purchases of materials and equipment. In addition to
these expenses, a portion of R&D expenditures related to externally funded
development contracts has been classified as costs of revenue (rather than as
research and development expenses). R&D expenditures included as costs of
revenue during fiscal 1996 and fiscal 1995 were $5,256,000, and $3,032,000,
respectively. Additionally, R&D expenses that were offset by cost share funding
were $584,000 and $1,673,000 in fiscal years 1996 and 1995, respectively.
Selling, general and administrative expenses were $3,319,000 in fiscal 1996
as compared to $2,857,000 in fiscal 1995. This increase reflects increased
staffing, recruiting costs, and legal costs associated with the signing of
several corporate development agreements and other expenses necessary to support
the overall increase in the Company's revenues, sales and marketing programs and
internal research and development activities. In addition to these expenses, a
portion of SG&A expenditures related to externally funded development contracts
has been classified as costs of revenue (rather than as SG&A expenses). SG&A
expenditures included as costs of contract revenue during fiscal 1996 and fiscal
30
1995 were $2,075,000 and $1,365,000, respectively. The SG&A amounts offset by
cost share funding were $378,000 and $956,000 in fiscal years 1996 and 1995,
respectively.
Interest income decreased to $1,579,000 in fiscal 1996 as compared to
$1,869,000 in fiscal 1995. This decrease primarily reflects lower cash, cash
equivalents and long-term marketable securities balances available for
investment as a result of cash being used to fund the Company's operations and
to purchase capital equipment. Other expense, net is comprised primarily of
miscellaneous taxes net of gains on the disposition of excess capital equipment.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had cash, cash equivalents and long-term
marketable securities totaling $16,023,000 compared to cash, cash equivalents
and long-term marketable securities totaling $26,363,000 at March 31, 1996. In
fiscal 1997, approximately $8,909,000 was used to fund the Company's operations.
An additional $1,415,000 was used to acquire capital equipment, primarily for
research and development and manufacturing, and to make leasehold improvements
to its facilities.
On April 7, 1997, the Company entered into a strategic alliance agreement
with an affiliate of Electricite de France (EDF) under which EDF purchased one
million shares of the Company's common stock at $10 per share. The Company
intends to use this $10,000,000 equity investment by EDF, which is not included
in the Company's cash balance as of March 31, 1997, to accelerate the
development and commercialization of HTS technology for uses specific to the
electric utility industry.
On April 8, 1997, the Company completed the Merger with Superconductivity,
Inc. (SI). The transaction was effected through the exchange of 942,961 shares
of the Company's common stock for all of the issued and outstanding shares of
SI, based on a Merger exchange ratio of .3292 shares of Company common stock for
each share of SI common stock. As a result of the Merger, the Company also
assumed approximately $6.4 million of SI's liabilities, approximately
$3.9 million of which were paid in April, 1997.
The Company has potential funding commitments of approximately $13,393,000 to
be received after March 31, 1997 from strategic partners and government agencies
(all of which is due within the next four years). However, a total of $8,143,000
of these commitments is derived from government contracts and is therefore
subject to the continued availability and appropriation of government funding.
The Company's policy is to invest available funds in short-term,
intermediate-term, and long-term investment grade marketable securities,
including but not limited to government obligations, repurchase agreements,
certificates of deposit and money market funds.
Transaction gains and losses from foreign currency transactions have not been
material to date.
To date, inflation has not had a material impact on the Company's financial
results.
FUTURE OPERATING RESULTS
The Company does not provide forecasts of its future financial performance.
However, various statements included in this Annual Report, as well as other
statements made from time to time by Company representatives, which are not
statements of historical facts (including but not limited to statements
concerning the future commercial success of the Company) constitute forward
looking statements and are made under the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. There are a number of
important factors which could cause the Company's actual results of operations
and financial condition in the future to vary from that indicated in such
forward looking statements. Factors that may cause such differences include,
without limitation, the risks, uncertainties and other information set forth
below.
The Company's products are in the early stages of commercialization and
testing and there can be no assurance that these products will be technically or
commercially successful or that the Company will be able to manufacture adequate
quantities of its products at commercially acceptable cost levels or on a timely
basis. The Company believes that several years of further development will be
necessary before HTS wires and wire products will be available for significant
commercial end-use applications.
On April 8, 1997, the Company completed the Merger with SI, a developer and
manufacturer of low temperature superconductor products for the industrial power
quality market. The Company believes the acquisition of SI provides the Company
with a strong commercial presence in this market. However, there can be no
assurance that this Merger will produce the benefits anticipated by the Company.
The Company expects to incur operating losses for at least the next few
years, as it continues to devote significant financial resources to its research
and development activities.
31
The Company expects that some or all of the HTS materials used in
manufacturing its products, and certain of the methods used by the Company in
processing HTS materials, are or will become covered by patents issued to other
parties (who may include competitors of the Company). Accordingly, the Company
will need to acquire licenses to, or successfully contest the validity of, such
patents in order to avoid patent infringement claims being brought against it.
Although the Company expects that it will be able to obtain, on commercially
reasonable terms, any required licenses, there can be no assurance that it will
be able to do so. If the Company does not obtain such licenses, the Company may
be forced to contest the validity of such patents or may face an infringement
claim by the owners of such patents. The outcome of any such litigation is
impossible to predict with certainty, and, regardless of its outcome, the
Company may incur substantial costs in connection with any such litigation. The
Company generally relies on a combination of patent protection and trade secret
law to protect its proprietary technology. There can be no assurance that the
steps taken by the Company to protect its technology will be adequate to prevent
misappropriation by third parties or that third parties will not be able to
independently develop similar technology.
The HTS industry is characterized by rapidly advancing technology and the
Company encounters intense competition in the development of HTS products,
particularly from several major Japanese companies, including Sumitomo Electric
Industries, Ltd., Showa Electric Wire & Cable Co., Ltd., Hitachi, Ltd., Hitachi
Cable, Ltd., Furukawa Electric Co., Ltd., Fujikura Ltd., Mitsubishi Electric
Corporation, and Kobe Steel, Ltd. Other competitors include Siemens A.G. in
Germany, B.I.C.C. and Oxford Instruments in England, Alcatel-Alsthom in France,
NKT in Denmark, and Intermagnetics General Corporation, Midwest
Superconductivity, Inc., and 3M in the United States. The future success of the
Company will depend in large part on its ability to keep pace with advancing HTS
technology and such industry standards as may develop. There can be no assurance
that the Company's development efforts will not be rendered obsolete by research
efforts and technological advances made by others. Moreover, many of the
Company's competitors have substantially greater financial resources and
research and development, manufacturing and marketing capabilities than the
Company. In addition, as the HTS industry develops, it is possible that other
large industrial companies may enter this field.
The Company believes that revenues from funded development contracts and the
sale of prototypes, together with its current cash and marketable securities,
should provide adequate funding to meet the Company's cash requirements for its
planned operations for at least the next year. Thereafter, the Company may need
substantial additional funds for its research and development programs,
operating expenses, licensing fees, scale-up of manufacturing capabilities,
expansion of sales and marketing capabilities, potential acquisitions and
working capital. Moreover, the Company may need additional funds sooner than
anticipated if the Company's performance deviates significantly from its current
operating plan or if there are significant changes in competitive or other
market factors. There can be no assurance that such funds, whether from equity
or debt financing, development contracts or other sources, will be available on
terms acceptable to the Company. Insufficient funds may require the Company to
reduce, delay or eliminate certain research and development activities or to
license or sell to others certain proprietary technology, which could delay,
either temporarily or permanently, the development of certain products and
technologies currently under development by the Company.
For the Company to be financially successful, it must manufacture the
products developed by it in commercial quantities, at acceptable costs and on a
timely basis. The production of significant quantities at competitive costs
presents a number of technological and engineering challenges for the Company,
and significant start-up costs and unforeseen expenses may be incurred in
connection with attempts to manufacture commercial quantities of the Company's
products. In addition, the Company will be required to develop a marketing and
sales force that effectively demonstrates the advantages of its products over
more traditional products. The Company may also elect to enter into agreements
or relationships with third parties regarding the commercialization or marketing
of its products. There can be no assurance that the Company will be successful
in its marketing efforts, that it will be able to establish adequate sales and
distribution capabilities, that it will be able to enter into marketing
agreements or relationships with third parties on financially acceptable terms,
or that any such third parties will be successful in marketing the Company's
products.
32
APPENDIX B
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American Superconductor Corporation:
We have audited the accompanying consolidated balance sheets of American
Superconductor Corporation as of March 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American
Superconductor Corporation as of March 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 9, 1997
33
American Superconductor Corporation
SELECTED FINANCIAL DATA
Year ended March 31 1997 1996 1995 1994 1993
=============================================================================================================================
Revenues $ 7,174,487 $ 7,130,899 $ 4,270,246 $ 3,944,447 $ 3,189,884
Net loss (10,422,131) (7,319,873) (5,771,642) (5,405,735) (4,304,420)
Net loss per share (1.09) (0.77) (0.62) (0.67) (0.55)
Total assets 23,612,633 33,028,398 40,470,404 46,005,433 24,106,000
Working capital 2,654,522 5,915,438 2,912,309 5,169,641 15,181,822
Cash and marketable securities* 16,023,020 26,362,601 33,138,679 41,232,122 21,629,969
Stockholders' equity 21,404,441 31,731,367 38,488,791 44,160,744 22,138,749
- -----------------------------------------------------------------------------------------------------------------------------
The Company has paid no dividends.
* Includes Cash and Cash Equivalents, Short-Term Investments and Long-Term
Marketable Securities.
34
American Superconductor Corporation
CONSOLIDATED BALANCE SHEETS
March 31 1997 1996
======================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 576,914 $ 4,104,703
Accounts receivable 2,518,331 1,485,628
Notes receivable 383,607 607,536
Inventory 1,054,141 779,428
Prepaid expenses and other current assets 329,721 226,179
- --------------------------------------------------------------------------------------
Total current assets 4,862,714 7,203,474
Property and equipment:
Equipment 8,064,091 6,779,649
Furniture and fixtures 733,794 710,473
Leasehold improvements 1,732,215 1,663,806
- --------------------------------------------------------------------------------------
10,530,100 9,153,928
Less accumulated depreciation and amortization (7,268,315) (5,606,374)
- --------------------------------------------------------------------------------------
Property and equipment, net 3,261,785 3,547,554
Long-term marketable securities 15,446,106 22,257,898
Other assets 42,028 19,472
- --------------------------------------------------------------------------------------
Total assets $ 23,612,633 $ 33,028,398
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,208,192 $ 1,288,036
- --------------------------------------------------------------------------------------
Total current liabilities 2,208,192 1,288,036
Obligation under capital lease, net of current portion - 8,995
Commitments (Note 7)
Stockholders' equity:
Common stock ($.01 par value); 20,000,000
shares authorized; 9,562,157 and
9,487,277 shares issued and outstanding
at March 31, 1997 and 1996, respectively 95,622 94,873
Additional paid-in capital 64,182,878 63,460,452
Deferred compensation (25,480) (50,960)
Deferred contract costs-warrants (557,265) -
Unrealized loss on investments (143,661) (61,970)
Cumulative translation adjustment (9,892) 4,602
Accumulated deficit (42,137,761) (31,715,630)
- --------------------------------------------------------------------------------------
Total stockholders' equity 21,404,441 31,731,367
- --------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 23,612,633 $ 33,028,398
======================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
35
American Superconductor Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31 1997 1996 1995
=======================================================================================================
Revenues:
Contract revenue $ 5,296,970 $ 4,764,548 $ 3,162,872
Prototypes and prototype development contracts 1,877,517 2,366,351 1,107,374
- ------------------------------------------------------------------------------------------------------
Total revenues 7,174,487 7,130,899 4,270,246
- ------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of revenue 7,507,626 7,331,390 4,396,572
Research and development 7,708,759 5,341,437 4,634,017
Selling, general and administrative 2,818,320 3,319,451 2,856,812
- -------------------------------------------------------------------------------------------------------
Total costs and expenses 18,034,705 15,992,278 11,887,401
- -------------------------------------------------------------------------------------------------------
Interest income 1,171,969 1,579,035 1,868,606
Other expense, net (23,777) (37,529) (23,093)
Transaction fees (710,105) - -
- -------------------------------------------------------------------------------------------------------
Other income, net 438,087 1,541,506 1,845,513
- -------------------------------------------------------------------------------------------------------
Net loss $(10,422,131) $(7,319,873) $(5,771,642)
=======================================================================================================
Net loss per common share $ (1.09) $ (.77) $ (0.62)
=======================================================================================================
Weighted average number of
common shares outstanding 9,560,818 9,470,931 9,380,787
=======================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
36
American Superconductor Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31 1997 1996 1995
==========================================================================================================
Operating activities:
Net loss $(10,422,131) $(7,319,873) $(5,771,642)
Adjustments to reconcile net loss to net
cash from operations:
Forgiveness of notes receivable 206,744 104,778 -
Depreciation and amortization 1,701,749 1,623,901 1,453,850
Gain on disposals of property and equipment (9,697) - -
Deferred compensation expense 25,480 29,960 112,680
Deferred contract costs-warrants 79,613 - -
Changes in operating asset
and liability accounts:
Accounts receivable (1,032,702) 364,014 (1,052,483)
Inventory (274,713) (88,354) (559,626)
Prepaid expenses and other current assets (103,542) (25,071) (21,883)
Accounts payable and accrued expenses 920,156 (684,582) 136,924
- ----------------------------------------------------------------------------------------------------------
Net cash used by operating activities (8,909,043) (5,995,227) (5,702,180)
Investing activities:
Notes receivable (82,815) (40,973) (671,341)
Repayment of notes receivable 100,000 - -
Purchase of property and equipment (1,415,199) (1,309,634) (1,688,916)
Sale of long-term marketable securities 6,730,101 9,924,608 3,099,626
Decrease (increase) in other assets (37,130) 28,676 (701)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 5,294,957 8,602,677 738,668
Financing activities:
Net proceeds from issuance of stock 86,297 29,969 542,776
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 86,297 29,969 542,776
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,527,789) 2,637,419 (4,420,736)
Cash and cash equivalents at beginning of year 4,104,703 1,467,284 5,888,020
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 576,914 $ 4,104,703 $ 1,467,284
==========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
37
American Superconductor Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
-------------- Additional
Number of Par Paid-in Deferred
Shares Value Capital Compensation
- --------------------------------------------------------------------------------------------------
Balance at March 31, 1994 9,333,608 $93,336 $62,889,244 $(193,600)
Exercise of stock options 132,540 1,325 512,696
Issuance of common stock 1,500 15 28,740
Amortization of deferred
compensation 112,680
Purchase of fractional shares (21)
Cumulative translation
adjustment
Unrealized loss on investments
Net Loss
- --------------------------------------------------------------------------------------------------
Balance at March 31, 1995 9,467,627 94,676 63,430,680 (80,920)
Exercise of stock options 19,660 197 29,772
Amortization of deferred
compensation 29,960
Purchase of fractional shares (10)
Cumulative translation
adjustment
Unrealized gain on investments
Net Loss
- --------------------------------------------------------------------------------------------------
Balance at March 31, 1996 9,487,277 94,873 63,460,452 (50,960)
Exercise of stock options 74,880 749 85,548
Amortization of deferred
compensation 25,480
Cumulative translation
adjustment
Deferred contract costs - warrant 636,878
Warrant expense
Unrealized loss on investments
Net Loss
- --------------------------------------------------------------------------------------------------
Balance at March 31, 1997 9,562,157 $95,622 $64,182,878 $ (25,480)
==================================================================================================
Deferred Unrealized Cumulative Total
Contract Gain/Loss on Translation Accumulated Stockholders'
Costs Investments Adjustment Deficit Equity
- --------------------------------------------------------------------------------------------------------------
Balance at March 31, 1994 $(4,121) $(18,624,115) $ 44,160,744
Exercise of stock options 514,021
Issuance of common stock 28,755
Amortization of deferred
compensation 112,680
Purchase of fractional shares
Cumulative translation
adjustment 17,314 17,314
Unrealized loss on investments (573,081) (573,081)
Net Loss (5,771,642) (5,771,642)
- --------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 (573,081) 13,193 (24,395,757) 38,488,791
Exercise of stock options 29,969
Amortization of deferred
compensation 29,960
Purchase of fractional shares
Cumulative translation
adjustment (8,591) (8,591)
Unrealized gain on investments 511,111 511,111
Net Loss (7,319,873) (7,319,873)
- --------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 (61,970) 4,602 (31,715,630) 31,731,367
Exercise of stock options 86,297
Amortization of deferred
compensation 25,480
Cumulative translation
adjustment (14,494) (14,494)
Deferred contract costs - warrant (636,878)
Warrant expense 79,613 79,613
Unrealized loss on investments (81,691) (81,691)
Net Loss (10,422,131) (10,422,131)
- --------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $(557,265) $(143,661) $(9,892) $(42,137,761) $ 21,404,441
==============================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
38
American Superconductor Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
American Superconductor Corporation (the "Company") was organized to develop and
commercialize high temperature superconducting (HTS) wires, wire products and
systems which include electromagnetic coils, electromagnets and multistrand
conductors for incorporation in compact, cost-effective electric power and
magnet systems such as electric generators, power transmission lines,
large-scale electric motors, transformers, current limiters, and superconducting
magnetic energy storage (SMES) devices. As the Company is moving toward
commercialization of the technology, the Company is no longer reporting its
financial statements as a development stage enterprise.
The Company has devoted substantially all of its efforts to conducting
research and development. The Company has recorded contract revenue related to
research and development contracts of approximately $5,297,000, $4,765,000 and
$3,163,000 for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively. As discussed in Note 8, a significant portion of this contract
revenue relates to development contracts with two stockholders, Inco Alloys
International, Inc. ("Inco") and Pirelli Cavi S.p.A. ("Pirelli"). Included in
costs of revenue are research and development expenses of approximately
$5,322,000, $5,256,000 and $3,032,000 for the fiscal years ended March 31, 1997,
1996 and 1995, respectively. Selling, general and administrative expenses also
included as costs of revenue for the fiscal years ended March 31, 1997, 1996 and
1995 were approximately $2,186,000, $2,075,000 and $1,365,000, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated.
RECLASSIFICATION
Certain prior year amounts have been reclassified to be consistent with current
year presentation.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist of government obligations, short-term certificates of deposit and
repurchase agreements.
ACCOUNTS RECEIVABLE
Due to scheduled billing requirements specified under certain contracts, a
portion of the Company's accounts receivable balance at March 31, 1997 and 1996
was unbilled. The unbilled portion included in the accounts receivable balance
was approximately $1,090,000 or 43% of total accounts receivable and $588,000 or
40% of total accounts receivable at March 31, 1997 and 1996, respectively. The
Company expects the amounts to be billed in the next year.
39
LONG-TERM MARKETABLE SECURITIES
Long-term marketable securities, with original maturities of more than 12 months
when purchased, consist primarily of U.S. Treasury Notes and a U.S. government
agency security. These marketable securities are stated at amortized cost plus
accrued interest which approximates fair value. Interest income is accrued as
earned.
INVENTORY
Inventory, consisting of raw materials, work in progress, and finished goods is
stated at the lower of cost (first in, first out) or market.
March 31 1997 1996
- ------------------------------------------------------------------------------------
Raw materials $ 536,000 $417,000
Work-in-progress 348,000 323,000
Finished goods 170,000 39,000
--------- --------
$1,054,000 $779,000
========== ========
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
- ----------------------------------------------------------------------------------
Equipment 3 years
Furniture and fixtures 3 years
Leasehold improvements shorter of lease term or useful life of asset
Maintenance and repairs are charged to expense as incurred while betterments are
capitalized. Upon retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the determination of net income or loss.
RESEARCH AND DEVELOPMENT
Research and product development costs are expensed as incurred.
RESEARCH AND DEVELOPMENT CONTRACTS
The Company has entered into contracts to perform research and development (see
Note 8). Revenues from these contracts are recognized utilizing the percentage
of completion method measured by the relationship of costs incurred to total
contract costs. Costs include direct engineering and development costs and
applicable overhead. The Company generally recognizes its prototype revenue upon
shipment or, for certain programs, on the percentage of completion method of
accounting.
NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average number of
common shares outstanding. Common equivalent shares are included in the
per-share valuations only when the effect of their inclusion would be dilutive.
40
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which
is effective for fiscal years ending after December 15, 1997, including interim
periods. Earlier application is not permitted. The Statement requires
restatement of all prior-period earnings per share presented after the effective
date. SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share. The Company will adopt SFAS 128 in fiscal
year 1998 and has determined the impact to be immaterial.
FOREIGN CURRENCY TRANSLATION
The functional currency of the foreign subsidiary is the local currency. The
assets and liabilities of this operation are translated into U.S. dollars at the
exchange rate in effect at the balance sheet date and income and expense items
are translated at average rates for the period. The effects of these
translations are excluded from net loss as a separate component of stockholders'
equity. Transaction gains and losses from foreign currency transactions have not
been material to date.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact future results
of operations and cash flows.
The Company invests its cash and cash equivalents and investments with high
credit quality financial institutions and invests primarily in short-term,
intermediate-term, and long-term investment grade marketable securities,
including but not limited to government obligations, repurchase agreements, and
money market funds.
The Company's receivables are comprised mostly of amounts owed by government
agencies and some commercial companies. The Company does not require collateral
or other security to support customer receivables. The Company believes any
credit losses will not be material.
3. RELATED PARTY TRANSACTIONS
In fiscal 1995 the Company made a series of loans to an officer of the Company
in the aggregate amount of $671,000 which included accrued interest. The
Compensation Committee of the Board of Directors forgave $206,700 and $104,800
in fiscal years 1997 and 1996, respectively, of principal and accrued interest
of the loans. In addition, the officer repaid $100,000 of principal in November
1996. The remaining principal and interest on the loan, which is approximately
$331,000, is repayable on November 1, 1998.
4. LONG-TERM MARKETABLE SECURITIES
Long-Term Marketable Securities at March 31, 1997, consist of the following:
Aggregate Fair Gross
Cost Value Unrealized Loss
- --------------------------------------------------------------------------------------------------------------
U.S. government and U.S. government agency securities $15,589,767 $15,446,106 $143,661
41
The Company's long-term marketable securities are classified as
available-for-sale securities and, accordingly, are recorded at amortized cost
plus accrued interest which approximates fair value. The difference between cost
and fair value is included in stockholders' equity. All of these securities
mature in one to three years.
5. INCOME TAXES
The principal components of the Company's deferred tax liabilities and assets
are the following:
March 31 1997 1996
- ------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforward $ 17,749,000 $ 13,936,000
Research and development and other credits 1,021,000 746,000
Depreciation 637,000 450,000
Other 114,000 48,000
Valuation allowance (19,521,000) (15,180,000)
- ------------------------------------------------------------------------------------------------
Net - -
================================================================================================
At March 31, 1997, the Company had available for federal income tax purposes net
operating loss carryforwards of approximately $44,300,000 which commence
expiring in years 2005 through 2012. Based on the Internal Revenue Code, and
changes in ownership of the Company, utilization of these net operating loss
carryforwards may be subject to annual limitations. The Company also had
approximately $1,021,000 of research and development and other credit
carryforwards that are available to offset federal and state income taxes which
expire in years 2005 through 2012.
6. STOCKHOLDERS' EQUITY
In November 1994, the Board of Directors declared a three-for-two stock split in
the form of a 50% stock dividend effective November 28, 1994, for stockholders
of record on November 14, 1994. All share and per share data have been restated
to reflect the split.
STOCK BASED COMPENSATION PLANS
Under APB 25 no compensation expense has been recorded. The Company adopted
the disclosure only option under Statement of Financial Accounting Standards
(SFAS) 123 "Accounting for Stock-Based Compensation" as of March 31, 1997. Pro
forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its stock
options under the fair value method of that Statement. Consistent with the
method of SFAS 123, the Company's net loss and net loss per share would have
been increased to the pro forma amounts indicated below:
For the years ended March 31 1997 1996
- -------------------------------------------------------------------------------------
Net Loss As Reported $(10,422) $(7,320)
(in thousands) Pro Forma $(11,096) $(7,470)
Loss Per Share As Reported $(1.09) $(0.77)
Pro Forma $(1.16) $(0.79)
42
The pro forma amounts include the effects of all activity under the Company's
stock based compensation plans since April 1, 1995. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
1997 and 1996, respectively: the weighted average risk free interest rate of
6.4% and 5.5% in 1997 and 1996, respectively; expected stock price volatility of
45%; no dividends; and a weighted average life of the options of 5 years. The
weighted average fair value of options granted during 1997 and 1996 was $5.02
per share and $6.42 per share, respectively. The Company anticipates it will
have additional activity under these plans in the future.
STOCK OPTION PLANS
The Company has five stock option plans including two Directors' Plans. The
stock option plans (the "Plans") include the 1987 Stock Plan (the "1987 Plan"),
the 1993 Stock Option Plan (the "1993 Plan"), the 1996 Stock Incentive Plan (the
"1996 Plan"), the 1991 Directors' Stock Option Plan (the "1991 Directors Plan")
and the 1994 Directors' Stock Option Plan (the "1994 Directors Plan"). The Plans
are administered by the Compensation Committee of the Board of Directors and
permit the Company to sell or award common stock or to grant stock options for
the purchase of common stock.
The Plans provide for the issuance of incentive stock options and non-qualified
stock options to purchase the Company's common stock. In the case of incentive
stock options, the exercise price shall be equal to at least the fair market
value of the common stock, as determined by the Board of Directors, on the date
of grant. In the event that non-qualified stock options are granted under the
1987 Plan, the exercise price shall be not less than the lesser of the book
value per share of common stock at the end of the fiscal year preceding the date
of grant or 50% of the fair market value at the time of grant.
The 1991 and 1994 Directors' Plans are stock option plans for members of the
Board of Directors who are not also employees of the Company ("outside
directors"). The 1994 Directors' Plan provides for the automatic grant of stock
options for the purchase of common stock of the Company by outside directors at
an exercise price equal to fair market value at the grant date. The 1991
Directors' Plan is no longer operative.
Options granted under the Plans become exercisable ratably over a four or five
year period and expire 10 years from the date of grant (subject to earlier
termination in certain circumstances).
43
The following table summarizes information about stock options outstanding at
March 31, 1997.
Outstanding Exercisable
----------- -----------
Weighted
Average Weighted Weighted
Remaining Number Average Number Average
Range of Contractual Outstanding Exercise Exercisable Exercise
Exercise Price Life at 3/31/97 Price 3/31/97 Price
- -------------- ---- ---------- ----- ------- -----
$ .27 -1.07 3.3 140,350 $ .44 140,350 $ .44
$ 6.23 -9.75 8.4 894,765 $ 9.11 217,465 $ 7.48
$ 10.25 -13.50 8.3 565,650 $12.47 152,370 $11.61
$ 14.00 -18.50 7.5 404,400 $16.78 164,660 $17.25
$ 19.83 -23.25 7.3 540,500 $21.72 222,050 $21.67
------- -------
$ .27 -23.25 2,545,665 896,895
========= =======
The following table summarizes the information concerning currently outstanding
and exercisable options:
Weighted-Average Number
Shares Exercise Price Exercisable
- ----------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 1994 979,935 $ 7.79 231,386
- ----------------------------------------------------------------------------------------------------------------
Granted 746,500 $20.89
Exercised (132,540) $ 3.89
Canceled (49,410) $14.02
- ----------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 1995 1,544,485 $14.25 375,495
- ----------------------------------------------------------------------------------------------------------------
Granted 482,600 $13.71
Exercised (19,660) $ 1.44
Canceled (14,670) $19.11
- ----------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 1996 1,992,755 $14.21 652,885
- ----------------------------------------------------------------------------------------------------------------
Granted 766,650 $10.43
Exercised (74,880) $ 1.11
Canceled (138,860) $17.49
================================================================================================================
Outstanding at March 31, 1997 2,545,665 $13.28 896,895
================================================================================================================
Available for grant at March 31, 1997 934,810
=======
DEFERRED COMPENSATION
The Company recorded an increase to additional paid-in capital and a
corresponding charge to deferred compensation of approximately $127,000 in
fiscal year 1993 related to the issuance of 10,000 shares of common stock.
Compensation expense related to this and other prior stock transactions of
approximately $25,000, $30,000, and $113,000 was recorded for the fiscal years
ended March 31, 1997, 1996 and 1995, respectively.
44
7. COMMITMENTS
The Company pays all real estate taxes and operating expenses related to its
lease, which expires in May 1998 and which provides the Company with an option
to extend the lease for two additional five-year periods.
Rent expense was approximately $382,000, $382,000, and $372,000 for the
fiscal years ended March 31, 1997, 1996, and 1995, respectively.
In October 1992, the Company entered into a five-year collaborative
technology development agreement with Superlink Joint Venture. The Company has
the right to terminate this agreement under certain conditions.
Research and development expenses related to the technical agreement with
Superlink Joint Venture were approximately $135,000, $150,000 and $230,000 for
the fiscal years ended March 31, 1997, 1996, and 1995, respectively.
Minimum lease and funding commitments at March 31, 1997 are as follows:
- ------------------------------------------------------------------------------
1998 $432,000
1999 $ 64,000
8. RESEARCH AND DEVELOPMENT AGREEMENTS
In March of 1996, the Company extended its development contract with Pirelli, a
stockholder in the Company, to jointly develop high temperature superconducting
cable wires. The Company terminated its development contracts with both Hoechst
AG and Inco Alloys International in August 1994 and December 1996, respectively.
The Company recorded revenues under these contracts as follows:
For the years ended March 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Inco $ 825,000 $1,100,000 $1,100,000
Pirelli 2,500,000 2,831,000 1,000,000
Hoechst - - 500,000
- --------------------------------------------------------------------------------------------------------------
$3,325,000 $3,931,000 $2,600,000
==============================================================================================================
Future funding commitments under the Pirelli contract are approximately
$5,250,000 over the next two and one-half years.
45
In March 1996, the Company entered into a new strategic alliance with the
Electric Power Research Institute (EPRI) to develop and commercialize
next-generation HTS wire. Under this agreement, warrants to purchase common
stock of the Company will be granted to EPRI and become exercisable over the
next five years. The Company will receive exclusive license rights to
jointly-developed intellectual property from EPRI. This agreement is subject to
early termination if certain conditions are not met. The Company recorded an
increase to additional paid-in capital and a corresponding charge to deferred
contract costs of approximately $637,000 in fiscal 1997 relating to these
warrants. Warrant expense related to this agreement was approximately $80,000
for the fiscal year ended March 31, 1997.
9. COST-SHARING ARRANGEMENTS
The Company has entered into several cost-sharing arrangements with various
agencies of the United States government. These funds are used to directly
offset the Company's research and development and selling, general and
administrative expenses and to purchase capital equipment. The Company has
recorded costs (including capital equipment purchases) and funding under these
agreements of $3,197,000 and $1,706,000, respectively, for fiscal 1997 and
$2,590,000 and $985,000, respectively, for fiscal 1996. At March 31, 1997, total
funding received to date under these agreements was $5,853,000. Future funding
expected to be received under existing agreements is approximately $6,355,000
over the next four years subject to continued future funding allocations.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
March 31 1997 1996
- --------------------------------------------------------------------------------
Accounts payable $1,958,739 $1,101,856
Accrued expenses 34,153 35,815
Accrued vacation 215,300 150,365
- --------------------------------------------------------------------------------
$2,208,192 $1,288,036
================================================================================
11. EMPLOYEE BENEFIT PLAN
Effective March 1, 1992, the Company implemented a deferred compensation plan
under Section 401(k) of the Internal Revenue Code (the "Plan"). Under the Plan,
eligible employees are permitted to contribute, subject to certain limitations,
up to 15% of their gross salary. The Company does not have post-retirement or
post-employment benefit plans.
46
12. SUBSEQUENT EVENTS
SUPERCONDUCTIVITY, INC.
- -----------------------
In April 1997, the Company completed a transaction (the "Merger") with
Superconductivity, Inc. ("SI"), a manufacturer of low temperature superconductor
products for the industrial power quality market. This transaction, in which the
Company acquired all of the outstanding stock of SI by means of a merger of SI
into a subsidiary of the Company, will be accounted for as a pooling of
interests. The Merger was effected through the exchange of 942,961 shares of the
Company's common stock for all of the issued and outstanding shares of SI, based
on a merger exchange ratio of .3292 shares of the Company's common stock for
each share of SI common stock. The following unaudited pro forma results of
operations assume the Merger had occurred on April 1, 1994, and include the
audited results of the Company for the years ended March 31, 1997, 1996 and 1995
combined with the audited results of SI for the years ended December 31, 1996,
1995, and 1994, respectively.
For the fiscal years ended 1997 1996 1995
---- ---- ----
(In thousands)
Revenues:
ASC $7,174 $7,131 $4,270
SI 3,376 3,633 4,323
----- ----- -----
Combined $10,550 $10,764 $8,593
======= ======= ======
Net loss:
ASC ($10,422) ($7,320) ($5,772)
SI (2,955) (2,378) (1,264)
------- ------- -------
Combined ($13,377) ($9,698) ($7,036)
========= ======== ========
Expenses incurred by the Company in connection with the Merger amounting to
$710,105 have been included in the net loss for 1997. Additional merger expenses
of approximately $1,458,000 were recorded by SI in the quarter ended March 31,
1997, and are not included in the above results of operations. Effective with
the Merger, SI's fiscal year end will be changed from December 31 to March 31 to
conform with the Company's fiscal year-end.
ELECTRICITE DE FRANCE
- ---------------------
In April 1997, the Company entered into a strategic alliance agreement with an
affiliate of Electricite de France (EDF) under which EDF purchased one million
shares of the Company's common stock at $10 per share. The Company intends to
use the proceeds of this $10 million equity investment to accelerate the
development and commercialization of HTS technology for uses specific to the
electric utility industry.