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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

 


 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2021

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____.

Commission File Number: 0-19672

 


American Superconductor Corporation

(Exact name of registrant as specified in its charter)

 


 

Delaware

04-2959321

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

114 East Main St. Ayer, Massachusetts

01432

(Address of principal executive offices)

(Zip Code)

 

(978) 842-3000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,
$0.01 par value per share

AMSC

Nasdaq Global Select Market

 

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   ☒

Shares outstanding of the Registrant’s common stock:

 

Common Stock, par value $0.01 per share

 

28,457,749

Class

 

Outstanding as of January 28, 2022

 



 

 

 

 

 
 

AMERICAN SUPERCONDUCTOR CORPORATION

INDEX

 

 

 

Page No.

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

31

 

 

 

Item 1A.

Risk Factors

31

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

Item 3.

Defaults Upon Senior Securities

31

 

 

 

Item 4.

Mine Safety Disclosure

31

 

 

 

Item 5.

Other Information

31

 

 

 

Item 6.

Exhibits

32

 

 

 

Signature

 

33

 

2

 

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

  

December 31, 2021

  

March 31, 2021

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $43,887  $67,814 

Marketable securities

  -   5,140 

Accounts receivable, net

  21,049   13,267 

Inventory, net

  20,942   13,306 

Prepaid expenses and other current assets

  6,404   3,546 

Restricted cash

  2,651   2,157 

Total current assets

  94,933   105,230 
         

Property, plant and equipment, net

  14,118   8,997 

Intangibles, net

  11,955   9,153 

Right-of-use assets

  3,408   3,747 

Goodwill

  43,471   34,634 

Restricted cash

  6,018   5,568 

Deferred tax assets

  1,030   1,223 

Other assets

  363   314 

Total assets

 $175,296  $168,866 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

Current liabilities:

        

Accounts payable and accrued expenses

 $24,332  $19,810 

Lease liability, current portion

  701   612 

Debt, current portion

  72   - 

Contingent consideration

  2,610   7,050 

Deferred revenue, current portion

  24,112   13,266 

Total current liabilities

  51,827   40,738 
         

Deferred revenue, long-term portion

  7,366   7,991 

Lease liability, long-term portion

  2,842   3,246 

Deferred tax liabilities

  89   274 

Debt, long-term portion

  113   - 

Other liabilities

  24   25 

Total liabilities

  62,261   52,274 
         

Commitments and Contingencies (Note 16)

          
         

Stockholders' equity:

        

Common stock

  289   280 

Additional paid-in capital

  1,132,155   1,121,495 

Treasury stock

  (3,639)  (3,593)

Accumulated other comprehensive loss

  (296)  (277)

Accumulated deficit

  (1,015,474)  (1,001,313)

Total stockholders' equity

  113,035   116,592 

Total liabilities and stockholders' equity

 $175,296  $168,866 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

 

3

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(In thousands, except per share data)

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 31,

   

December 31,

 
   

2021

   

2020

   

2021

   

2020

 

Revenues

  $ 26,799     $ 23,632     $ 80,126     $ 65,961  
                                 

Cost of revenues

    23,227       19,676       69,925       51,444  
                                 

Gross margin

    3,572       3,956       10,201       14,517  
                                 

Operating expenses:

                               

Research and development

    2,657       3,029       8,368       8,248  

Selling, general and administrative

    6,777       7,085       20,615       18,609  

Amortization of acquisition-related intangibles

    628       360       1,840       601  

Change in fair value of contingent consideration

    (2,110 )     2,740       (4,440 )     2,740  

Total operating expenses

    7,952       13,214       26,383       30,198  
                                 

Operating loss

    (4,380 )     (9,258 )     (16,182 )     (15,681 )
                                 

Interest income, net

    12       53       68       373  

Other income (expense), net

    45       (274 )     7       (920 )

Loss before income tax expense (benefit)

    (4,323 )     (9,479 )     (16,107 )     (16,228 )
                                 

Income tax expense (benefit)

    1       (1,546 )     (1,946 )     (1,166 )
                                 

Net loss

  $ (4,324 )   $ (7,933 )   $ (14,161 )   $ (15,062 )
                                 

Net loss per common share

                               

Basic

  $ (0.16 )   $ (0.31 )   $ (0.52 )   $ (0.65 )

Diluted

  $ (0.16 )   $ (0.31 )   $ (0.52 )   $ (0.65 )
                                 

Weighted average number of common shares outstanding

                               

Basic

    27,352       25,470       27,145       23,011  

Diluted

    27,352       25,470       27,145       23,011  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(In thousands)

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 31,

   

December 31,

 
   

2021

   

2020

   

2021

   

2020

 

Net loss

  $ (4,324 )   $ (7,933 )   $ (14,161 )   $ (15,062 )

Other comprehensive (loss) gain, net of tax:

                               

Foreign currency translation (loss) gain

    20       (143 )     (19 )     (189 )

Total other comprehensive (loss) gain, net of tax

    20       (143 )     (19 )     (189 )

Comprehensive loss

  $ (4,304 )   $ (8,076 )   $ (14,180 )   $ (15,251 )

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

5

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND nine MONTHS ENDED December 31, 2021 AND 2020

 

(In thousands)

 

   

Common Stock

   

Additional

            Accumulated Other            

Total

 
    Number of Shares     Par Value     Paid-in Capital     Treasury Stock     Comprehensive Loss     Accumulated Deficit     Stockholders' Equity  

Balance at March 31, 2021

    27,988     $ 280     $ 1,121,495     $ (3,593 )   $ (277 )   $ (1,001,313 )   $ 116,592  

Issuance of common stock - bonus payout

    111       1       1,681                         1,682  

Issuance of common stock - restricted shares

    318       3       (3 )                        

Stock-based compensation expense

                1,292                         1,292  

Issuance of stock for 401(k) match

    7             112                         112  

Issuance of common stock - Neeltran acquisition

    302       3       4,384                         4,387  

Repurchase of treasury stock

                      (46 )                 (46 )

Cumulative translation adjustment

                            (63 )           (63 )

Net loss

                                  (5,403 )     (5,403 )

Balance at June 30, 2021

    28,726     $ 287     $ 1,128,961     $ (3,639 )   $ (340 )   $ (1,006,716 )   $ 118,553  

Issuance of common stock - ESPP

    10             125                         125  

Issuance of common stock - bonus payout

    47       1       597                         598  

Stock-based compensation expense

                1,101                         1,101  

Issuance of stock for 401(k) match

    10             137                         137  

Cumulative translation adjustment

                            24             24  

Net loss

                                  (4,434 )     (4,434 )

Balance at September 30, 2021

    28,793     $ 288     $ 1,130,921     $ (3,639 )   $ (316 )   $ (1,011,150 )   $ 116,104  

Issuance of common stock - restricted shares

    54       1       (1 )                        

Stock-based compensation expense

                1,120                         1,120  

Issuance of stock for 401(k) match

    8             115                         115  

Cumulative translation adjustment

                            20             20  

Net loss

                                  (4,324 )     (4,324 )

Balance at December 31, 2021

    28,855     $ 289     $ 1,132,155     $ (3,639 )   $ (296 )   $ (1,015,474 )   $ 113,035  

 

   

Common Stock

   

Additional

            Accumulated Other            

Total

 
    Number of Shares     Par Value     Paid-in Capital     Treasury Stock     Comprehensive Loss     Accumulated Deficit     Stockholders' Equity  

Balance at March 31, 2020

    22,902     $ 229     $ 1,053,507     $ (2,666 )   $ (216 )   $ (978,635 )   $ 72,219  

Issuance of common stock - restricted shares

    493       5       (5 )                        

Stock-based compensation expense

                909                         909  

Issuance of stock for 401(k) match

    13             88                         88  

Repurchase of treasury stock

                      (377 )                 (377 )

Cumulative translation adjustment

                            (3 )           (3 )

Net loss

                                  (3,417 )     (3,417 )

Balance at June 30, 2020

    23,408     $ 234     $ 1,054,499     $ (3,043 )   $ (219 )   $ (982,052 )   $ 69,419  

Issuance of common stock - ESPP

    8             99                         99  

Issuance of common stock - restricted shares

    33                                      

Stock-based compensation expense

                849                         849  

Issuance of stock for 401(k) match

    9             101                         101  

Repurchase of treasury stock

                      (293 )                 (293 )

Cumulative translation adjustment

                            (43 )           (43 )

Net loss

                                  (3,712 )     (3,712 )

Balance at September 30, 2020

    23,458     $ 234     $ 1,055,548     $ (3,336 )   $ (262 )   $ (985,764 )   $ 66,420  

Issuance of common stock - restricted shares, net of forfeitures

    (32 )                                    

Stock-based compensation expense

                839                         839  

Issuance of stock for 401(k) match

    5             82                         82  

Issuance of common stock - stock offering

    3,670       37       51,440                         51,477  

Issuance of common stock - NEPSI acquisition

    874       9       12,424                         12,433  

Repurchase of treasury stock

                      (257 )                 (257 )

Cumulative translation adjustment

                            (143 )           (143 )

Net loss

                                  (7,933 )     (7,933 )

Balance at December 31, 2020

    27,975     $ 280     $ 1,120,333     $ (3,593 )   $ (405 )   $ (993,697 )   $ 122,918  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

6

 

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands)

 

   

Nine Months Ended December 31,

 
   

2021

   

2020

 

Cash flows from operating activities:

               
                 

Net loss

  $ (14,161 )   $ (15,062 )

Adjustments to reconcile net loss to net cash used in operations:

               

Depreciation and amortization

    4,009       3,811  

Stock-based compensation expense

    3,513       2,597  

Provision for excess and obsolete inventory

    1,627       1,610  

Deferred income taxes

    (2,136 )     (1,828 )

Change in fair value of contingent consideration

    (4,440 )     2,740  

Non-cash interest income

    (49 )     (48 )

Other non-cash items

    407       291  

Unrealized foreign exchange loss on cash and cash equivalents

    (118 )     366  

Changes in operating asset and liability accounts:

               

Accounts receivable

    (4,528 )     6,376  

Inventory

    (279 )     7,419  

Prepaid expenses and other assets

    85       6  

Accounts payable and accrued expenses

    (236 )     (7,894 )

Deferred revenue

    381       (5,255 )

Net cash used in operating activities

    (15,925 )     (4,871 )
                 

Cash flows from investing activities:

               

Purchase of property, plant and equipment

    (710 )     (1,574 )

Sale of marketable securities

          25,006  

Cash paid for acquisition, net of cash acquired

    (11,479 )     (26,000 )

Proceeds from the maturity of marketable securities

    5,189        

Change in other assets

    (56 )     (5 )

Net cash used in investing activities

    (7,056 )     (2,573 )
                 

Cash flows from financing activities:

               

Repurchase of treasury stock

    (46 )     (927 )

Repayment of debt

    (30 )      

Proceeds from public equity offering, net

    -       51,477  

Proceeds from exercise of employee stock options and ESPP

    125       99  

Net cash provided by financing activities

    49       50,649  
                 

Effect of exchange rate changes on cash

    (51 )     73  
                 

Net increase/(decrease) in cash, cash equivalents and restricted cash

    (22,983 )     43,278  

Cash, cash equivalents and restricted cash at beginning of period

    75,539       30,864  

Cash, cash equivalents and restricted cash at end of period

  $ 52,556     $ 74,142  
                 

Supplemental schedule of cash flow information:

               

Cash paid for income taxes, net of refunds

  $ 445     $ 630  

Non-cash investing and financing activities

               

Issuance of common stock in connection with the purchase of Northeast Power Systems, Inc.

  $     $ 12,433  

Issuance of common stock in connection with the purchase of Neeltran, Inc.

  $ 4,387     $  

Issuance of common stock to settle liabilities

    2,643       271  

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

7

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. Nature of the Business and Operations and Liquidity

 

Nature of the Business and Operations

 

American Superconductor Corporation (together with its subsidiaries, “AMSC®” or the “Company”) was founded on April 9, 1987. The Company is a leading system provider of megawatt-scale power resiliency solutions that Orchestrate the Rhythm and Harmony of Power on the Grid™ and that protect and expand the capability of the Navy’s fleet. The Company’s system level products leverage its proprietary “smart materials” and “smart software and controls” to provide enhanced resiliency and improved performance of megawatt-scale power flow.

 

These unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with United States generally accepted accounting principles (“GAAP”) and the Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q. The going concern basis of presentation assumes that the Company will continue operations and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods ended  December 31, 2021 and 2020 and the financial position at  December 31, 2021; however, these results are not necessarily indicative of results which may be expected for the full year. The interim condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended  March 31, 2021, and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended  March 31, 2021 filed with the SEC on June 2, 2021.

 

Liquidity

 

The Company has historically experienced recurring operating losses and as of December 31, 2021, the Company had an accumulated deficit of $1,015 million. In addition, the Company has historically experienced recurring negative operating cash flows.  At December 31, 2021, the Company had cash and cash equivalents of $43.9 million. Cash used in operations for the nine months ended  December 31, 2021 was $15.9 million.

 

In February 2021, the Company filed a shelf registration statement on Form S-3 that will expire in February 2024 (the “Form S-3”). The Form S-3 allows the Company to offer and sell from time-to-time up to $250 million of common stock, debt securities, warrants or units comprised of any combination of these securities. The Form S-3 is intended to provide the Company flexibility to conduct registered sales of the Company's securities, subject to market conditions, in order to fund the Company's future capital needs. The terms of any future offering under the Form S-3 will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

 

On May 6, 2021 (the "Neeltran Acquisition Date"), the Company entered into a Purchase and Sale Agreement (the "Real Property Purchase Agreement") and a Stock Purchase Agreement (the "Neeltran Stock Purchase Agreement") with the selling equity holders named therein. Also on May 6, 2021, pursuant to the Real Property Purchase Agreement, the Company's wholly-owned Connecticut limited liability company, AMSC Husky LLC ("AMSC Husky"), purchased the real property that served as Neeltran's headquarters for $4.3 million, of which (a) $2.4 million was paid in immediately available funds by AMSC Husky to the owners of such real property, and (b) $1.9 million was paid directly to TD Bank as full payment for the outstanding indebtedness secured by the mortgage on such real property.  Pursuant to the terms of the Neeltran Stock Purchase Agreement and concurrently with entering into such agreement, the Company purchased all of the issued and outstanding shares of capital stock of (i) Neeltran, Inc., a Connecticut corporation ("Neeltran") that supplies rectifiers and transformers to industrial customers, and (ii) Neeltran International, Inc., a Connecticut corporation ("International"), for: (a) $1.0 million in cash, and (b) 301,556 shares of the Company's common stock, $.01 par value per share (the "AMSC Shares"), that were paid and issued to the Neeltran selling stockholders, respectively at closing (the "Neeltran Acquisition"). The Company also paid $1.1 million to International selling stockholders at closing to pay off previous loans made by them to Neeltran. Additionally, the Company paid approximately $7.6 million on behalf of the selling equity holders, including $1.9 million of indebtedness secured by the mortgage on the real property as described above, directly to Neeltran lenders at closing to extinguish outstanding Neeltran indebtedness to third parties on behalf of the sellers.

 

In March 2020, the World Health Organization declared the disease caused by the novel coronavirus, COVID-19, to be a pandemic. COVID-19 has spread throughout the globe, including in the Commonwealth of Massachusetts where the Company’s headquarters are located, and in other areas where the Company has business operations. In response to the outbreak, the Company has followed the guidelines of the U.S. Centers for Disease Control and Prevention and applicable state government authorities to protect the health and safety of the Company’s employees, families, suppliers, customers and communities. While these existing measures and, COVID-19 generally, have not materially disrupted the Company’s business to date, any future actions necessitated by the COVID-19 pandemic may result in disruption to the Company’s business.

 

While the COVID-19 pandemic continues to rapidly evolve, the Company is experiencing some inflation pressure in its supply chains, some delays in sourcing materials needed for its products, and some production disruption resulting from higher than typical employee absenteeism due to the highly contagious omicron variant. The Company continues to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of the Company’s business. The extent to which the outbreak impacts the Company’s business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity of the COVID-19 pandemic, the spread of new variations of the virus, the actions to contain it or treat its impact and the effectiveness and adoption of vaccines and treatments, among others.  If the Company, its customers or suppliers experience prolonged shutdowns or other business disruptions, including global supply chain disruptions, the Company’s business, liquidity, results of operations and financial condition are likely to be materially adversely affected, and the Company’s ability to access the capital markets may be limited. 

 

The Company believes that based on the information presented above and its quarterly management assessment, it has sufficient liquidity to fund its operations and capital expenditures for the next twelve months following the issuance of the financial statements for the nine months ended December 31, 2021. The Company’s liquidity is highly dependent on its ability to increase revenues and gross margin, its ability to control its operating costs, and its ability to raise additional capital, if necessary.  The impact of the COVID-19 pandemic on the global financing markets may reduce the Company's ability to raise additional capital, if necessary, which could negatively impact the Company's liquidity.  There can be no assurance that the Company will be able to continue to raise additional capital, on favorable terms or at all, from other sources or execute on any other means of improving liquidity described above.

 

8

 
 
 

2. Acquisitions

 

2021 Acquisition of Neeltran

 

As described in Note 1, "Nature of the Business and Operations and Liquidity", on the Neeltran Acquisition Date, pursuant to the terms of the Neeltran Stock Purchase Agreement, the Company purchased all of the issued and outstanding shares of capital stock of Neeltran and International for $1.0 million in cash and the AMSC Shares, that were paid and issued, respectively, to the Neeltran selling stockholders. The Company also paid $1.1 million to International selling stockholders to pay off previous loans made by them to Neeltran.

 

Additionally, the Company paid approximately $7.6 million, including $1.9 million of indebtedness secured by the mortgage on the real property as described below, directly to Neeltran lenders at closing to extinguish outstanding Neeltran indebtedness to third parties. Pursuant to the terms of the Real Property Purchase Agreement, AMSC Husky purchased the real property that serves as Neeltran's headquarters for $4.3 million, of which (a) $2.4 million was paid from immediately available funds by AMSC Husky to the selling parties, and (b) $1.9 million was paid directly to TD Bank as full payment for the outstanding indebtedness secured by the mortgage on such real property. The total purchase price of $16.4 million includes cash paid, the fair value of the AMSC Shares issued at closing and the debt payoff on behalf of the sellers as follows (in millions):

 

Cash payment

 $4.4 

Issuance of 301,556 shares of Company's common stock

  4.4 

Debt payment to third party lenders on behalf of sellers

  7.6 

Total consideration

 $16.4 

 

The Neeltran Acquisition completed by the Company during the nine months ended December 31, 2021 has been accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. The Company allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the date of Neeltran Acquisition. The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill. As Neeltran was previously a private company, the adoption of Accounting Standards Codification 842 ("ASC 842") was completed as part of the Neeltran Acquisition. See Note 15 "Leases" for further details. Neeltran had previously adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606") as part of prior year audited financial statements.  

 

The following table summarizes the allocation of the purchase price based on the estimated fair value of the assets acquired and liabilities assumed in connection with the Neeltran Acquisition (in millions):

 

Cash and short-term investments

  $ 0.5  

Net working capital (excluding inventory and deferred revenue)

    (0.9 )

Inventory

    9.0  

Property, plant and equipment

    6.5  

Deferred revenue

    (10.0 )

Deferred tax liability

    (2.3 )

Net tangible assets/(liabilities)

    2.8  
         

Backlog

    0.1  

Trade names and trademarks

    1.2  

Customer relationships

    3.5  

Net identifiable intangible assets/(liabilities)

    4.8  
         

Goodwill

    8.8  
         

Total purchase consideration

  $ 16.4  
 
               Inventory include s a $0.6 million adjustment to step up the inventory balance to fair value consistent with the purchase price allocation. The fair value was based on the estimated selling price of the inventory, less the remaining manufacturing and selling cost and a normal profit margin on those manufacturing and selling efforts. The inventory step up adjustment increased cost of revenue $0.6 million in the nine month period ended December 31, 2021 as the inventory was sold. This increase is not reflected in the pro forma condensed combined statements of operations because it does not have a continuing impact beyond the first year.

 

Backlog of $0.1 million was evaluated using the multi period excess earnings method under the income approach. The contracts with customers do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over a two year period with the expense being allocated to cost of revenues.



 Customer relationships of $3.5 million relates to customers currently under contract and was determined based on a multi period excess earnings method under the income approach. The method of amortization being utilized is the economic consumption over 7 years with the expense being allocated to SG&A.

 

 Trade names and trademarks of $1.2 million were reviewed using the assumption that the Company would continue to utilize the Neeltran trade name indefinitely. The relief from royalty method was utilized using a 1% royalty rate on revenues with a 24.5% discount rate over 15 years.

        
9

 

The goodwill represents the value associated with the acquired workforce and expected synergies related to the business combinations of the two companies. Goodwill resulting from the Neeltran Acquisition was assigned to the Company's Grid business segment. Goodwill recognized in the Neeltran Acquisition is not deductible for tax purposes. This purchase price allocation is preliminary and has not been finalized as the analysis on the assets and liabilities acquired, primarily the tax liability may require further adjustments to our purchase accounting that could result in a measurement period adjustment that would impact our recorded net assets and goodwill as of May 6, 2021. Material changes, if any, to the preliminary allocation summarized above will be reported once the related uncertainties are resolved but no later than May 6, 2022.  The $2.3 million of deferred tax liability is primarily related to inventory step up and intangibles. 
 
         The results of Neeltran's operations, are included in the Company's consolidated results from the date of the Neeltran Acquisition of May 6, 2021, for the nine months ended December 31, 2021. In the unaudited consolidated results for the nine months ended December 31, 2021, Neeltran contributed $ 17.1 million of revenue and  $1.2 million in net loss for the Company.

 

2020 Acquisition of NEPSI

 

On October 1, 2020 (the "NEPSI Acquisition Date"), the Company entered into a Stock Purchase Agreement (the "NEPSI Stock Purchase Agreement") with the selling stockholders named therein. Pursuant to the terms of the NEPSI Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding (i) shares of capital stock of Northeast Power Systems, Inc., a New York corporation ("NEPSI"), and (ii) membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as NEPSI's headquarters (the "NEPSI Acquisition"). NEPSI is a U.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. Prior to the NEPSI Acquisition, the Company had purchased $0.4 million of products from NEPSI in fiscal year 2019 for which NEPSI was paid and had recorded revenue.

 

Pursuant to the NEPSI Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of NEPSI, and membership interest in the realty entity, for which the Company paid $26.0 million in cash and issued 873,657 restricted shares of the Company’s common stock. Additionally, the Company may issue to the selling stockholders up to an additional 1,000,000 shares of common stock upon NEPSI’s achievement of specified revenue objectives during varying periods of up to four years following closing of the NEPSI Acquisition. This contingent consideration is recorded as a derivative liability based on a Monte Carlo simulation to determine fair value at the time of issuance. NEPSI is now a wholly-owned subsidiary of the Company and is operated and reported as a component of its Grid business unit.

 

The NEPSI Acquisition completed by the Company during the fiscal year ended March 31, 2021 has been accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. The Company allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the date of NEPSI Acquisition. The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as goodwill.  As NEPSI was previously a private company, the adoption of ASC 606 was completed as part of the NEPSI Acquisition.  See Note 3 "Revenue Recognition" for further details.  There were no leases acquired and the NEPSI Acquisition had no impact to the Company's reporting under ASC 842.

 

The total purchase price of approximately $42.4 million includes the fair value of shares of the Company’s common stock issued at closing, cash paid, and contingent consideration as follows (in millions):

 

Cash payment

 $26.0 

Issuance of 873,657 shares of Company’s common stock

  12.4 

Contingent consideration

  4.0 

Total consideration

 $42.4 

 

Total consideration consists of (a) cash of $26.0 million, (b) issuance of the Company's common stock, using $14.23 per share, which was the closing price on the day that the Company acquired NEPSI, and (c) $4.0 million of contingent consideration for the earnout liability valued as of the NEPSI Acquisition Date. NEPSI Acquisition costs of $0.3 million were recorded in selling, general and administrative ("SG&A") costs for the fiscal year ended March 31, 2021.

 

The fair value of the contingent consideration was determined using a Monte Carlo model and is accounted for as a derivative liability which is revalued at the fair value determined at each subsequent balance sheet date until the contingencies are resolved and the shares to be issued are determined, with the change in fair value recorded in the current period operating loss or (income).  See Note 13, "Contingent Consideration" for further details and a summary of key assumptions used to determine fair value in each period.

 

10

 

The following table summarizes the allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed and related deferred income taxes in connection with the NEPSI Acquisition (in millions):

 

Net working capital (excluding inventory and deferred revenue)

  $ 0.1  

Inventory

    4.2  

Property, plant and equipment

    2.3  

Deferred revenue

    (2.7 )

Deferred tax liability

    (1.7 )

Net tangible assets/(liabilities)

    2.2  
         

Backlog

    0.6  

Trade names and trademarks

    0.6  

Customer relationships

    6.1  

Net identifiable intangible assets/(liabilities)

    7.3  
         

Goodwill

    32.9  
         

Total purchase consideration

  $ 42.4  

 

Inventory includes a $1.0 million adjustment to step up the inventory balance to fair value consistent with the purchase price allocation.  The fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling cost and a normal profit margin on those manufacturing and selling efforts. The $1.0 million step up adjustment increased cost of revenue in the fiscal year ended March 31, 2021 as the inventory was sold.  This increase is not reflected in the pro forma condensed combined statements of operations because it does not have a continuing impact beyond the first year.

 

Backlog of $0.6 million was evaluated using the multi period excess earnings method under the income approach. The contracts with customers do not provide for any guarantees to source all future requirements from the Company. The amortization method being utilized is economic consumption estimated over a two year period with the expense being allocated to cost of revenues.

 

Customer relationships of $6.1 million relates to customers currently under contract and was determined based on a multi period excess earnings method under the income approach. The method of amortization being utilized is the economic consumption over 7 years with the expense being allocated to SG&A.

 

Trade names and trademarks of $0.6 million were reviewed, using the assumption that the Company would continue to utilize the NEPSI trade name indefinitely. The relief from royalty method was utilized using an 8% royalty rate on revenues with a 13% discount rate over 8 years. 

 

Goodwill represents the value associated with the acquired workforce and expected synergies related to the business combination of the two companies. Goodwill resulting from the NEPSI Acquisition was assigned to the Company’s Grid business segment.  Goodwill recognized in the NEPSI Acquisition is not deductible for tax purposes. The $1.7 million of deferred tax liability is primarily related to inventory step up and intangibles. 

 

Unaudited Pro Forma Operating Results

 

The unaudited pro forma condensed consolidated statement of operations for the three and nine months ended December 31, 2021 and  2020 is presented as if the NEPSI Acquisition and Neeltran Acquisition had occurred on April 1, 2020.
 
  

Three Months Ended December 31,

  

Nine Months Ended December 31,

 
  

2021

  

2020

  

2021

  

2020

 

Revenues

  

$ 26,799

   

$ 26,528

   

$ 82,957

   

$ 91,387

 

Operating loss

  

(4,390)

   

(12,509)

   

(15,521)

   

(21,100)

 

Net loss

  

$ (4,333)

   

$ (13,137)

   

$ (16,142)

   

$ (16,883)

 
                 

Net loss per common share

                

Basic

  

$ (0.16)

   

$ (0.51)

   

$ (0.59)

   

$ (0.71)

 

Diluted

  

$ (0.16)

   

$ (0.51)

   

$ (0.59)

   

$ (0.71)

 

Shares - basic

  

27,351

   

25,772

   

27,185

   

23,898

 

Shares - diluted

  

27,351

   

25,772

   

27,185

   

23,898

 

 

 
The pro forma amounts include the historical operating results of the Company, NEPSI and Neeltran, with appropriate adjustments that give effect to acquisition related costs, income taxes, intangible amortization resulting from the NEPSI Acquisition and Neeltran Acquisition and certain conforming accounting policies of the Company. The pro forma amounts are not necessarily indicative of the operating results that would have occurred if the NEPSI Acquisition and Neeltran Acquisition and related transactions had been completed at the beginning of the applicable periods presented. In addition, the pro forma amounts are not necessarily indicative of operating results in future periods.
 
11

 

 

3. Revenue Recognition

 

The Company’s revenues in its Grid business segment are derived primarily through enabling the transmission and distribution of power, providing planning services that allow it to identify power grid needs and risks, and developing ship protection systems for the U.S. Navy. The Company’s revenues in its Wind business segment are derived primarily through supplying advanced power electronics and control systems, licensing its highly engineered wind turbine designs, and providing extensive customer support services to wind turbine manufacturers. The Company records revenue based on a five-step model in accordance with ASC 606. For its customer contracts, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) control of goods or services is transferred to the customer. In the three and nine months ended December 31, 2021, 79% and 76% of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time. In the three and nine months ended December 31, 2020, 78% and 79% of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time.

 

In the Company's equipment and system product line, each contract with a customer summarizes each product sold to a customer, which typically represents distinct performance obligations. A contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales transfer control to the customer in line with the contracted delivery terms and revenue is recorded at the point in time when title and risk transfer to the customer, which is primarily upon delivery, as the Company has determined that this is the point in time that control transfers to the customer.

 

The Company's equipment and system product line includes certain contracts which do not meet the requirements of an exchange transaction and therefore do not fall within the scope of ASC 606.  As these non-exchange transaction contracts are considered grant revenue and do not fall within any specific accounting literature, the Company follows guidance within ASC 606 by analogy to recognize grant revenue over time.  In the three and nine months ended December 31, 2021, the Company recorded $0.1 million and $0.9 million in grant revenue, respectively, which is included in the Company’s Grid business segment revenue. In the three and nine months ended December 31, 2020, the Company recorded $1.1 million and $1.8 million in grant revenue, respectively, which is included in the Company's Grid segment revenue.

 

In the Company's service and technology development product line, there are several different types of transactions and each begins with a contract with a customer that summarizes each product sold to a customer, which typically represent distinct performance obligations. The technology development transactions are primarily for activities that have no alternative use and for which a profit can be expected throughout the life of the contract. In these cases, the revenue is recognized over time, but in the instances where a reasonable profit margin cannot be assured throughout the entire contract, the revenue is recognized at a point in time. Each contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach. The ongoing service transactions are for service contracts that provide benefit to the customer simultaneously as the Company performs its obligations, and therefore this revenue is recognized ratably over time throughout the effective period of these contracts. The transaction prices on these contracts are allocated based on an adjusted market approach which is re-assessed annually for reasonableness. The field service transactions include contracts for delivery of goods and completion of services made at the customer's requests, which are not deemed satisfied until the work has been completed and/or the requested goods have been delivered, so all of this revenue is recognized at the point in time when the control changes, and at allocated prices based on the adjusted market approach driven by standard price lists. The royalty transactions are related to certain contract terms on transactions in the Company's equipment and systems product line based on activity as specified in the contracts. The transaction prices of these agreements are calculated based on an adjusted market approach as specified in the contract. The Company reports royalty revenue for usage-based royalties when the sales have occurred. In circumstances when collectability is not assured and a contract does not exist under ASC 606, revenue is deferred until a non-refundable payment has been received for substantially all the amount that is due and there are no further remaining performance obligations.

 

The Company's service contracts can include a purchase order from a customer for specific goods in which each item is a distinct performance obligation satisfied at a point in time at which control of the goods is transferred to the customer.  This transfer occurs based on the contracted delivery terms or when the requested service work has been completed. The transaction price for these goods is allocated based on the adjusted market approach considering similar transactions under similar circumstances. Service contracts are also derived from ongoing maintenance contracts and extended service-type warranty contracts. In these transactions, the Company is contracted to provide an ongoing service over a specified period of time. As the customer is consuming the benefits as the service is being provided, the revenue is recognized over time ratably.

 

The Company’s policy is not to accept volume discounts, product returns, or rebates and allowances within its contracts. In the event a contract was approved with any of these terms, it would be evaluated for variable consideration, estimated and recorded as a reduction of revenue in the same period the related product revenue was recorded.

 

The Company provides assurance-type warranties on all product sales for a term of typically one to three years, and extended service-type warranties at the customer's option for an additional term ranging up to four additional years. The Company accrues for the estimated warranty costs for assurance warranties at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. For all extended service-type warranties, the Company recognizes the revenue ratably over time during the effective period of the services.

 

The Company records revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent with revenue-producing activities. The Company has elected to recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is recognized. The Company has elected to recognize incremental costs of obtaining a contract as expense when incurred except in contracts where the amortization period would exceed twelve months; in such cases the long-term amount will be assessed for materiality. The Company has elected not to adjust the promised amount of consideration for the effects of a significant financing component if the period of financing is twelve months or less.

 

The Company’s contracts with customers do not typically include extended payment terms and may include milestone billing over the life of the contract. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from delivery.  

 

12

 

The following tables disaggregate the Company’s revenue by product line and by shipment destination (in thousands):

 

   

Three Months Ended December 31, 2021

   

Nine Months Ended December 31, 2021

 

Product Line:

 

Grid

   

Wind

   

Grid

   

Wind

 

Equipment and systems

  $ 23,416     $ 1,309     $ 67,605     $ 4,168  

Services and technology development

    1,634       440       5,564       2,789  

Total

  $ 25,050     $ 1,749     $ 73,169     $ 6,957  
                                 

Region:

                               

Americas

  $ 16,739     $ 56     $ 57,498     $ 134  

Asia Pacific

    7,064       1,690       10,931       6,781  

EMEA

    1,247       3       4,740       42  

Total

  $ 25,050     $ 1,749     $ 73,169     $ 6,957  

 

   

Three Months Ended December 31, 2020

   

Nine Months Ended December 31, 2020

 

Product Line:

 

Grid

   

Wind

   

Grid

   

Wind

 

Equipment and systems

  $ 15,930     $ 6,153     $ 47,729     $ 12,828  

Services and technology development

    1,156       393       3,420       1,984  

Total

  $ 17,086     $ 6,546     $ 51,149     $ 14,812  
                                 

Region:

                               

Americas

  $ 13,394     $ 14     $ 39,626     $ 56  

Asia Pacific

    351       6,461       6,736       14,463  

EMEA

    3,341       71       4,787       293  

Total

  $ 17,086     $ 6,546     $ 51,149     $ 14,812  

 

As of December 31, 2021, and 2020, the Company’s contract assets and liabilities primarily relate to the timing differences between cash received from a customer in connection with contractual rights to invoicing and the timing of revenue recognition following completion of performance obligations. The Company's accounts receivable balance is made up entirely of customer contract related balances. Changes in the Company’s contract assets, which are included in “Unbilled accounts receivable” and “Deferred program costs” (see Note 8, “Accounts Receivable” and Note 9, “Inventory” for a reconciliation to the condensed consolidated balance sheets) and "Contract liabilities", which are included in the current portion and long-term portion of "Deferred revenue" in the Company’s condensed consolidated balance sheets, are as follows (in thousands):

 

    Unbilled Accounts Receivable     Deferred Program Costs     Contract Liabilities  

Beginning balance as of March 31, 2021

  $ 5,765     $ 977     $ 21,257  

Increases for costs incurred to fulfill performance obligations

          3,140        

Increase for balances acquired

          634       10,048  

Increase (decrease) due to customer billings

    (11,214 )           55,354  

Decrease due to cost recognition on completed performance obligations

          (4,128 )      

Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations

    12,186             (55,318 )

Other changes and FX impact

          (8 )     137  

Ending balance as of December 31, 2021

  $ 6,737     $ 615     $ 31,478  

 

    Unbilled Accounts Receivable     Deferred Program Costs     Contract Liabilities  

Beginning balance as of March 31, 2020

  $ 5,711     $ 1,631     $ 26,142  

Increases for costs incurred to fulfill performance obligations

          6,635        

Increase for balance acquired

    101             2,700  

Increase (decrease) due to customer billings

    (8,255 )           42,785  

Decrease due to cost recognition on completed performance obligations

          (6,969 )      

Increase (decrease) due to recognition of revenue based on transfer of control of performance obligations

    6,644             (48,274 )

Other changes and FX impact

          33       1,025  

Ending balance as of December 31, 2020

  $ 4,201     $ 1,330     $ 24,378  

 

13

 

The Company’s remaining performance obligations represent the unrecognized revenue value of the Company’s contractual commitments. The Company’s performance obligations may vary significantly each reporting period based on the timing of major new contractual commitments. As of December 31, 2021, the Company had outstanding performance obligations on existing contracts under ASC 606 to be recognized in the next twelve months of approximately $80.6 million. There are also approximately $8.0 million of outstanding performance obligations to be recognized over a period of thirteen to sixty months. The remaining performance obligations are subject to customer actions and therefore the timing of revenue recognition cannot be reasonably estimated. The twelve-month performance obligations include anticipated shipments to Inox based on the twelve-month rolling forecast provided by Inox on the multi-year supply contract. The quantities specified in any forecast provided by Inox related to the multi-year supply contract are firm and irrevocable for the first three months of a twelve-month rolling forecast. The timing of the performance obligations beyond the twelve-month forecast provided by Inox are not determinable and therefore are not included in the total remaining performance obligations. 

 

The following table sets forth customers who represented 10% or more of the Company’s total revenues for the three and nine months ended December 31, 2021 and 2020:

 

     

Three Months Ended

   

Nine Months Ended

 
 

Reportable

 

December 31,

   

December 31,

 
 

Segment

 

2021

   

2020

   

2021

   

2020

 

Inox Wind Limited

Wind

  <10%       24 %     <10%       12 %

Fuji Bridex PTE Ltd

Grid

  20 %     <10%       10 %     <10%  

EPC Services

Grid

 

<10%

      14 %     <10%       17 %
 

4. Stock-Based Compensation

 

The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for the three and nine months ended  December 31, 2021 and 2020 (in thousands):

 

  

Three Months Ended December 31,

  

Nine Months Ended December 31,

 
  

2021

  

2020

  

2021

  

2020

 

Cost of revenues

 $36  $(23) $148  $35 

Research and development

  190   179   629   470 

Selling, general and administrative

  894   683   2,736   2,092 

Total

 $1,120  $839  $3,513  $2,597 

 

The Company issued 370,700 shares of restricted stock awards and 166,648 shares of immediately vested common stock, of which 158,356 shares were issued in-lieu of cash bonuses during the nine months ended  December 31, 2021. The Company issued 27,341 shares of immediately vested common stock and 697,167 shares of restricted stock awards during the nine months ended December 31, 2020. These restricted stock awards generally vest over 2-3 years.  Awards for restricted stock include both time-based and performance-based awards.  For options and restricted stock awards that vest upon the passage of time, expense is being recorded over the vesting period.  Performance-based awards are expensed over the requisite service period based on probability of achievement.

 

The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The Company has no unrecognized compensation cost for unvested outstanding stock options at December 31, 2021. The total unrecognized compensation cost for unvested outstanding restricted stock was $6.5 million at December 31, 2021. This expense will be recognized over a weighted-average expense period of approximately 1.6 years.

 

The Company did not grant any stock options during the three and nine months ended  December 31, 2021 or December 31, 2020.

 

 

5. Computation of Net Loss per Common Share

 

Basic net loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS is computed by dividing the net loss by the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period, calculated using the treasury stock method. Common equivalent shares include the effect of restricted stock, exercise of stock options and warrants and contingently issuable shares. Stock options and warrants that are out-of-the-money with exercise prices greater than the average market price of the underlying common shares and shares of performance-based restricted stock where the contingency was not met are excluded from the computation of diluted EPS as the effect of their inclusion would be anti-dilutive.  For each of the three and nine months ended December 31, 2021, and 2020, 1.1 million shares were not included in the calculation of diluted EPS.  Of these, 1.0 million relate to shares tied to the derivative liability for which the contingency has not yet been met, and 0.1 million relate to outstanding stock options as they were considered anti-dilutive. 

 

The following table reconciles the numerators and denominators of the earnings per share calculation for the three and nine months ended  December 31, 2021 and 2020 (in thousands, except per share data):

 

  

Three Months Ended December 31,

  

Nine Months Ended December 31,

 
  

2021

  

2020

  

2021

  

2020

 

Numerator:

                

Net loss

 $(4,324) $(7,933) $(14,161) $(15,062)

Denominator:

                

Weighted-average shares of common stock outstanding

  28,418   26,532   28,234   24,143 

Weighted-average shares subject to repurchase

  (1,066)  (1,062)  (1,089)  (1,132)

Shares used in per-share calculation ― basic

  27,352   25,470   27,145   23,011 

Shares used in per-share calculation ― diluted

  27,352   25,470   27,145   23,011 

Net loss per share ― basic