# American Superconductor Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [American Superconductor Corp](/companies/amsc.md) (CIK 880807)
- Form: 10-Q
- Filed: 2022-11-01
- Accepted by EDGAR: Nov 1, 2022, 16:08 ET
- Period: 2022-09-30
- Accession: 0001437749-22-025367
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/880807/000143774922025367/amsc20220930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/880807/000143774922025367/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $27.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2022-04-01 to 2022-09-30 | $50.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $25.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2022-04-01 to 2022-09-30 | $46.2m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $2.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-04-01 to 2022-09-30 | $4.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $2.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2022-04-01 to 2022-09-30 | $5.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $7.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2022-04-01 to 2022-09-30 | $14.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$8.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-04-01 to 2022-09-30 | −$17.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | −$14.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-04-01 to 2022-09-30 | $18.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$9.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-04-01 to 2022-09-30 | −$18.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.35 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-04-01 to 2022-09-30 | −$0.67 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.35 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-04-01 to 2022-09-30 | −$0.67 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 27,867,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-04-01 to 2022-09-30 | 27,714,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-04-01 to 2022-09-30 | −$11.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-04-01 to 2022-09-30 | $560.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $27.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $95.0m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $171.7m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $66.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $76.4m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $58.0k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $72.0k | us-gaap:DebtCurrent |
| Shareholders' equity | at 2022-09-30 | $95.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,684 characters.

*This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that relate to future events or conditions, including without limitation, the statements in Part II, “Item 1A. Risk Factors” and in Part I under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects, our prospective results of operations or financial position, the benefits of our acquisition of Northeast Power Systems, Inc. ("NEPSI") and Neeltran, Inc. ("Neeltran"), changes in macroeconomic and market conditions, including increasing inflation and impacts from the COVID-19 pandemic, sourcing, production disruption, material delays and global supply chain disruptions and adoption of accounting changes 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. There are a number of important factors that could materially impact the value of our common stock or cause actual results to differ materially from those indicated by such forward-looking statements. These important factors include, but are not limited to: We have a history of operating losses, which may continue in the future. Our operating results may fluctuate significantly from quarter to quarter and may fall below expectations in any particular fiscal quarter; We have a history of negative operating cash flows, and we may require additional financing in the future, which may not be available to us; We may be required to issue performance bonds or provide letters of credit, which restricts our ability to access any cash used as collateral for the bonds or letters of credit; Changes in exchange rates could adversely affect our results of operations; If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired and may lead investors and other users to lose confidence in our financial data; We may not realize all of the sales expected from our backlog of orders and contracts; Our contracts with the U.S. government are subject to audit, modification or termination by the U.S. government and include certain other provisions in favor of the government. The continued funding of such contracts remains subject to annual congressional appropriation, which, if not approved, could reduce our revenue and lower or eliminate our profit; The COVID-19 pandemic could adversely impact our business, financial condition and results of operations; Changes in U.S. government defense spending could negatively impact our financial position, results of operations, liquidity and overall business; We rely upon third-party suppliers for the components and subassemblies of many of our Grid and Wind products, making us vulnerable to supply shortages and price fluctuations, which could harm our business; Uncertainty surrounding our prospects and financial condition may have an adverse effect on our customer and supplier relationships; We have not manufactured our Amperium wire in commercial quantities, and a failure to manufacture our Amperium wire in commercial quantities at acceptable cost and quality levels would substantially limit our future revenue and profit potential; Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could significantly damage our business and prospects; A significant portion of our Wind segment revenues are derived from a single customer. If this customer's business is negatively affected, it could adversely impact our business; Our success in addressing the wind energy market is dependent on the manufacturers that license our designs; Our business and operations would be adversely impacted in the event of a failure or security breach of our or any critical third parties information technology infrastructure and networks; Failure to comply with evolving data privacy and data protection laws and regulations or to otherwise protect personal data, may adversely impact our business and financial results; Many of our revenue opportunities are dependent upon subcontractors and other business collaborators; If we fail to implement our business strategy successfully, our financial performance could be harmed; Problems with product quality or product performance may cause us to incur warranty expenses and may damage our market reputation and prevent us from achieving increased sales and market share; Many of our customers outside of the United States may be either directly or indirectly related to governmental entities, and we could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar worldwide anti-bribery laws outside the United States; We have had limited success marketing and selling our superconductor products and system-level solutions, and our failure to more broadly market and sell our products and solutions could lower our revenue and cash flow; We may acquire additional complementary businesses or technologies, which may require us to incur substantial costs for which we may never realize the anticipated benefits; Our success depends upon the commercial adoption of the REG system, which is currently limited, and a widespread commercial market for our products may not develop; Adverse changes in domestic and global economic conditions could adversely affect our operating results; We have operations in, and depend on sales in, emerging markets, including India, and global conditions could negatively affect our operating results or limit our ability to expand our operations outside of these markets. Changes in India’s political, social, regulatory and economic environment may affect our financial performance; Our products face competition, which could limit our ability to acquire or retain customers; Our international operations are subject to risks that we do not face in the United States, which could have an adverse effect on our operating results; Growth of the wind energy market depends largely on the availability and size of government subsidies, economic incentives and legislative programs designed to support the growth of wind energy; Lower prices for other fuel sources may reduce the demand for wind energy development, which could have a material adverse effect on our ability to grow our Wind business; The increasing focus on environmental sustainability and social initiatives could increase our costs, and inaction could harm our reputation and adversely impact our financial results; We may be unable to adequately prevent disclosure of trade secrets and other proprietary information; Our patents may not provide meaningful protection for our technology, which could result in us losing some or all of our market position; There are a number of technological challenges that must be successfully addressed before our superconductor products can gain widespread commercial acceptance, and our inability to address such technological challenges could adversely affect our ability to acquire customers for our products; Third parties have or may acquire patents that cover the materials, processes and technologies we use or may use in the future to manufacture our Amperium products, and our success depends on our ability to license such patents or other proprietary rights; Our technology and products could infringe intellectual property rights of others, which may require costly litigation and, if we are not successful, could cause us to pay substantial damages and disrupt our business; We face risks related to our legal proceedings; We face risks related to our common stock; and the other important factors discussed under the caption "Risk Factors" in Part 1. Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, and our other reports filed with the SEC. These important factors, 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. Any such forward-looking statements represent management’s estimates as of the date of this Quarterly Report on Form 10-Q. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.*

American Superconductor®, Amperium®, AMSC®, D-VAR®, PowerModule™, D-VAR VVO®, PQ-IVR®, SeaTitan®, Gridtec™ Solutions, Windtec™ Solutions, Smarter, Cleaner...Better Energy™, Orchestrate the Rhythm and Harmony of Power on the Grid™, actiVAR®, armorVAR™, NEPSI™ and Neeltran™ and SafetyLOCK™ are trademarks or registered trademarks of American Superconductor Corporation or our subsidiaries. We reserve all of our rights with respect to our trademarks or registered trademarks regardless of whether they are so designated in this Quarterly Report on Form 10-Q by an ® or ™ symbol. All other brand names, product names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

### Executive Overview

We are a leading system provider of megawatt-scale resiliency solutions that orchestrate the rhythm and harmony of power on the grid™, and that protect and expand the capability of the U.S. Navy's fleet. In the power grid market, we enable electric utilities, industrial facilities, and renewable energy project developers to connect, transmit and distribute smarter, cleaner and better power through our transmission planning services and power electronics and superconductor-based systems. In the wind power market, we enable manufacturers to field highly competitive wind turbines through our advanced power electronics and control system products, engineering, and support services. Our power grid and wind products and services provide exceptional reliability, security, efficiency and affordability to our customers.

Our power system solutions help to improve energy efficiency, alleviate power grid capacity constraints, improve system resiliency, and increase the adoption of renewable energy generation. Demand for our solutions is driven by the growing needs for modernized smart grids that improve power reliability, security and quality, the U.S. Navy's effort to upgrade on-board power systems to support fleet electrification, and the need for increased renewable sources of electricity, such as wind and solar energy. Concerns about these factors have led to increased spending by corporations and the military, as well as supportive government regulations and initiatives on local, state, and national levels, including renewable portfolio standards, tax incentives and international treaties.

We manufacture products using two proprietary core technologies: PowerModule™ programmable power electronic converters and our Amperium® high temperature superconductor (“HTS”) wires. These technologies and our system-level solutions are protected by a broad and deep intellectual property portfolio consisting of hundreds of patents and licenses worldwide.

We operate our business under two market-facing business units: Grid and Wind. We believe this market-centric structure enables us to more effectively anticipate and meet the needs of the U.S. Navy, electric utilities, industrial facilities, power generation project developers and wind turbine manufacturers.

- *Grid.* Through our Gridtec™ Solutions, our Grid business segment enables electric utilities, industrial facilities, and renewable energy project developers to connect, transmit and distribute power with exceptional efficiency, reliability, security and affordability. We provide transmission planning services that allow us to identify power grid congestion, poor power quality, and other risks, which help us determine how our solutions can improve network performance. These services often lead to sales of our grid interconnection solutions for wind farms and solar power plants, power quality systems and transmission and distribution cable systems. We also sell ship protection products to the U.S. Navy through our Grid business segment.
- *Wind.* Through our Windtec™ Solutions, our Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. We supply advanced power electronics and control systems, license our highly engineered wind turbine designs, and provide extensive customer support services to wind turbine manufacturers. Our design portfolio includes a broad range of drivetrains and power ratings of 2 MW and higher. We provide a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.

Our fiscal year begins on April 1 and ends on March 31. When we refer to a particular fiscal year, we are referring to the fiscal year that began on April 1 of that same year. For example, fiscal 2022 refers to the fiscal year that began on April 1, 2022. Other fiscal years follow similarly.

On October 31, 2018, we entered into a Subcontract Agreement with Commonwealth Edison Company (“ComEd”) (the “Subcontract Agreement”) for the manufacture and installation of the Company’s resilient electric grid ("REG") system within ComEd’s electric grid in Chicago, Illinois (the “Project”). As provided in the Subcontract Agreement, the Subcontract Agreement became effective upon the signing of an amendment by us and the U.S. Department of Homeland Security (“DHS”) to the existing contract (the “Prime Contract”) between us and DHS on June 20, 2019. Unless terminated earlier by us, ComEd or DHS according to the terms of the Subcontract Agreement, the term of the Subcontract Agreement will continue until we complete our warranty obligations under the Subcontract Agreement. Under the terms of the Subcontract Agreement, we agreed, among other things, to provide the REG system and to supervise ComEd’s installation of the REG system in Chicago. As part of our separate cost sharing arrangement with DHS under the Prime Contract, we received funding provided by DHS in connection with the Subcontract Agreement of approximately $10.0 million, which represents the total amount of revenue we recognized over the term of the Subcontract Agreement and includes $1.0 million that we have agreed to reimburse ComEd for costs incurred by ComEd while undertaking its tasks under the Subcontract Agreement (the “Reimbursement Amount”). In addition, we are required to deliver an irrevocable letter of credit in the amount of $5.0 million to secure certain Company obligations under the Subcontract Agreement, which we have done, and deposited $5.0 million in an escrow account as collateral to secure such letter of credit. ComEd has agreed to provide the site and provide all civil engineering work required to support the operation and integration of the REG system into ComEd’s electric grid. Other than the Reimbursement Amount, ComEd is responsible for its own costs and expenses. DHS’s approval to commence with construction was obtained on June 20, 2019. Substation work on the project began in late 2019 and we successfully integrated the REG system on Com Ed's electric power grid and the REG system became fully operational in August 2021.

The COVID-19 pandemic continues to rapidly evolve. We are experiencing substantial inflationary pressure in our supply chain, some delays in sourcing materials needed for our products and some production disruption resulting from higher than typical employee absenteeism which have increased our cost of revenues and decreased gross margin. The extent to which the pandemic impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence. Changes in macroeconomic and market conditions arising from the COVID-19 pandemic, or for other reasons, such as the ongoing war between Russia and Ukraine, inflation, rising interest rates, labor force availability, sourcing, material delays and global supply chain disruptions could have a material adverse effect on our business, financial condition and results of operation.

### Critical Accounting Policies and Estimates

The preparation of the unaudited condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ under different assumptions or conditions. There were no significant changes in the critical accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

### Results of Operations

### Three and six months ended September 30, 2022, compared to the three and six months ended September 30, 2021

### Revenues

Total revenues decreased 1% to $27.7 million for the three months ended September 30, 2022 and total revenues decreased 6% to $50.4 million for the six months ended September 30, 2022, compared to $27.9 million and $53.3 million for the three and six months ended September 30, 2021, respectively. Our revenues are summarized as follows (in thousands):

| Revenues: | Three Months Ended September 30, 2022 | 2021 | Six Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Grid | $25,698 | $24,619 | $45,527 | $48,119 |
| Wind | 1,982 | 3,289 | 4,833 | 5,209 |
| Total | $27,680 | $27,908 | $50,360 | $53,328 |

Our Grid business unit accounted for 93% and 90% of total revenues for the three and six months ended September 30, 2022, respectively, compared to 88% and 90% for the three and six months ended September 30, 2021, respectively. Our Grid business unit revenues increased 4% to $25.7 million in the three months ended September 30, 2022, from $24.6 million in the three months ended September 30, 2021. Our Grid business unit revenues decreased 5% to $45.5 million in the six months ended September 30, 2022, from $48.1 million in the six months ended September 30, 2021. The increase in the Grid business unit revenue in the three months ended September 30, 2022, was primarily driven by higher NEPSI revenues than in the prior year period. The decrease in the Grid business unit revenue in the six months ended September 30, 2022, was primarily driven by lower D-VAR revenues than in the prior year period.

Our Wind business unit accounted for 7% and 10% of total revenues for the three and six months ended September 30, 2022, respectively, compared to 12% and 10% for the three and six months ended September 30, 2021, respectively. Revenues in the Wind business unit decreased 40% and 7% to $2.0 million and $4.8 million in the three and six months ended September 30, 2022, from $3.3 million and $5.2 million in the three and six months ended September 30, 2021, respectively. The decrease in the three months ended September 30, 2022, was driven by fewer royalty collections and shipments of electrical control systems ("ECS") to Inox in the three months ended September 30, 2022. The decrease in the six months ended September 30, 2022 was driven by lower license and development revenue as well as fewer royalty collections than in the prior year period.

### Cost of Revenues and Gross Margin

Cost of revenues increased by 4% to $25.7 million for the three months ended September 30, 2022, compared to $24.6 for the three months ended September 30, 2021. Cost of revenues decreased by 1% to $46.2 million for the six months ended September 30, 2022, compared to $46.7 million for the six months ended September 30, 2021. Gross margin was 7% and 8% for the three and six months ended September 30, 2022, respectively compared to 12% and 13% for the three and six months ended September 30, 2021. The decrease in gross margin in the three and six months ended September 30, 2022, was due to lower revenues, an unfavorable product mix and inflation pressure in our supply chain.

### Operating Expenses

#### Research and development

Research and development ("R&D") expense decreased 13% in each of the three and six months ended September 30, 2022, to $2.3 million from $2.7 million in the three months ended September 30, 2021, and to $5.0 million from $5.7 million in the six months ended September 30, 2021. The decrease in R&D expense was due to an increase in cost share revenues and a higher utilization of our research engineers supporting funded projects.

#### Selling, general, and administrative

Selling, general and administrative ("SG&A") expenses increased 10% in the three months ended September 30, 2022, to $7.3 million from $6.7 million in the three months ended September 30, 2021. The increase in SG&A expense in the three months ended September 30, 2022, was due to higher overall compensation expense than in the prior year period. SG&A expenses increased 8% to $14.9 million in the six months ended September 30, 2022, compared to $13.8 million in the six months ended September 30, 2021. The increase in SG&A expense in the six months ended September 30, 2022, was due to higher overall compensation expense than in the prior year period.

#### Amortization of acquisition related intangibles

We recorded amortization expense related to our core technology and know-how, customer relationships, and other intangible assets of $0.7 million and $1.4 million in the three and six months ended September 30, 2022, respectively, and $0.6 million and $1.2 million in the three and six months ended September 30, 2021, respectively. The increase in amortization expense is a result of additional expense tied to the acquisition of Neeltran.

#### Change in fair value of contingent consideration

The change in fair value of our contingent consideration for the earnout payment on the NEPSI Acquisition resulted in a gain of $0.3 million and $0.1 million in the three and six months ended September 30, 2022, respectively, compared to a gain of $2.4 million and $2.3 million in the three and six months ended September 30, 2021, respectively. The change in the fair value was primarily driven by a decreased likelihood of achieving certain revenue targets and a decline in the Company's stock price.

### Operating loss

Our operating loss is summarized as follows (in thousands):

| Operating loss: | Three Months Ended September 30, 2022 | 2021 | Six Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Grid | $(6,495) | $(5,836) | $(13,776) | $(11,180) |
| Wind | (868) | 205 | (1,254) | (558) |
| Unallocated corporate expenses | (729) | 1,329 | (1,931) | (63) |
| Total | $(8,092) | $(4,302) | $(16,961) | $(11,801) |

Our Grid business segment generated operating losses of $6.5 million and $13.8 million in the three and six months ended September 30, 2022, compared to $5.8 million and $11.2 million in the three and six months ended September 30, 2021. The increase in the Grid business unit operating loss in the three months ended September 30, 2022, was due to lower gross margins due to an unfavorable product mix, and higher operating expenses. The increase in the grid business unit operating loss in the six months ended September 30, 2022 was due to lower revenues and gross margins due to an unfavorable product mix, and higher operating expenses.

Our Wind business segment generated operating losses of $0.9 million and $1.3 million in the three and six months ended September 30, 2022, compared to an operating profit of $0.2 million and an operating loss of $0.6 million in the three and six months ended September 30, 2021, respectively. The increase in the Wind business unit operating loss was due to lower revenues and gross margins, and higher operating expenses.

Unallocated corporate expenses included a gain on contingent consideration of $0.3 million and $0.1 million in the three and six months ended September 30, 2022. Additionally, unallocated corporate expenses primarily consisted of stock-based compensation expense of $1.0 million and $1.1 million in the three months ended September 30, 2022 and 2021, respectively, and $2.1 million and $2.4 million in the six months ended September 30, 2022 and 2021, respectively.

### Interest income, net

Interest income, net, was less than $0.1 million in both the three and six months ended September 30, 2022 and September 30, 2021, respectively.

### China dissolution

China dissolution, was $1.9 million in each of the three and six months ended September 30, 2022, respectively, compared to no activity in each of the three and six months ended September 30, 2021 . The increase in China dissolution during the three and six months ended September 30, 2022, was driven by the liquidation of our China entity, resulting in a foreign currency gain/loss from the cumulative translation release of $1.9 million in the three and six months ended September 30, 2022 in which there was no similar transaction in the three and six months ended September 30, 2021.

### Other income (expense), net

Other income, net, was $0.1 million and $0.2 million in the three and six months ended September 30, 2022, respectively, compared to other income, net, of less than $0.1 million in the three months ended September 30, 2021 and other expense, net of less than $0.1 million in the six months ended September 30, 2021. The decrease in other expense during the three and six months ended September 30, 2022, was driven by the impacts of favorable fluctuations in foreign currencies during the respective period.

### Income Taxes

Income tax benefit was less than $0.1 million in the three months ended September 30, 2022 and income tax expense was less than $0.1 million in the six months ended September 30, 2022. Income tax expense was $0.2 million in the three months ended September 30, 2021 and income tax benefit was $1.9 million in the six months ended September 30, 2021. The increase in income tax benefit in the three months ended September 30, 2022 compared to the same period in fiscal 2021 was primarily due to lower withholding taxes from foreign jurisdictions in the three months ended September 30, 2022. The increase in income tax expense in the six months ended September 30, 2022 compared to the same period in fiscal 2021 was a result of the release of the valuation allowance to offset the recording of the deferred tax liability from the Neeltran Acquisition in the six months ended September 30, 2021.

### Net loss

Net loss was $9.9 million and $18.6 million in the three and six months ended September 30, 2022, compared to $4.4 million and $9.8 million in the three and six months ended September 30, 2021. The increase in net loss was driven primarily by the increased operating loss due to lower revenues and gross margins.

### Non-GAAP Financial Measure - Non-GAAP Net Loss

Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measures included in this Quarterly Report on Form 10-Q, however, should be considered in addition to, and not as a substitute for or superior to the comparable measures prepared in accordance with GAAP.

We define non-GAAP net loss as net loss before China dissolution, stock-based compensation, amortization of acquisition-related intangibles, acquisition costs, change in fair value of contingent consideration, and other non-cash or unusual charges. We believe non-GAAP net loss assists management and investors in comparing our performance across reporting periods on a consistent basis by excluding these non-cash charges and other items that we do not believe are indicative of our core operating performance. In addition, we use non-GAAP net loss as a factor to evaluate the effectiveness of our business strategies. A reconciliation of GAAP to non-GAAP net loss is set forth in the table below (in thousands, except per share data):

|  | Three Months Ended September 30, 2022 | 2021 | Six Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(9,881) | $(4,434) | $(18,590) | $(9,837) |
| China dissolution | 1,921 | — | 1,921 | — |
| Stock-based compensation | 1,019 | 1,100 | 2,052 | 2,393 |
| Amortization of acquisition-related intangibles | 688 | 668 | 1,400 | 1,289 |
| Acquisition costs | — | (7) | — | (2,330) |
| Change in fair value of contingent consideration | (290) | (2,430) | (120) | 681 |
| Non-GAAP net loss | $(6,542) | $(5,103) | $(13,337) | $(7,804) |
| Non-GAAP net loss per share - basic | $(0.23) | $(0.19) | $(0.48) | $(0.29) |
| Weighted average shares outstanding - basic | 27,867 | 27,252 | 27,714 | 27,040 |

We incurred non-GAAP net losses of $6.5 million and $13.3 million, or $0.23 and $0.48 per share, for the three and six months ended September 30, 2022, compared to $5.1 million and $7.8 million, or $0.19 and $0.29 per share, for the three and six months ended September 30, 2021. The increase in the non-GAAP net loss for the three and six months ended September 30, 2022 was due to a higher operating loss driven by lower gross margin and higher operating expenses.

### Liquidity and Capital Resources

We have experienced recurring operating losses and, as of September 30, 2022, had an accumulated deficit of $1,039 million.

Our cash requirements depend on numerous factors, including the successful completion of our product development activities, our ability to commercialize our REG and ship protection system solutions, the rate of customer and market adoption of our products, collecting receivables according to established terms, the continued availability of U.S. government funding during the product development phase of our superconductor-based products and whether Inox is successful in executing on Solar Energy Corporation of India Limited orders or in obtaining additional orders under the new central and state auction regime. We continue to closely monitor our expenses and, if required, expect to reduce our operating and capital spending to enhance liquidity.

In February 2021, we filed a shelf registration statement on Form S-3 that will expire in February 2024 (the “Form S-3”). The Form S-3 allows us 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 us flexibility to conduct registered sales of our securities, subject to market conditions, in order to fund our 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.

As of September 30, 2022, we had cash, cash equivalents and restricted cash of $37.4 million, compared to $49.5 million as of March 31, 2022, a decrease of $12.1 million. As of September 30, 2022, we had approximately $1.9 million of cash, cash equivalents, and restricted cash in foreign bank accounts. Our cash, cash equivalents, and restricted cash are summarized as follows (in thousands):

|  | September 30, 2022 | March 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $27,811 | $40,584 |
| Restricted cash | 9,542 | 8,902 |
| Total cash, cash equivalents, and restricted cash | $37,354 | $49,486 |

For the six months ended September 30, 2022, net cash used in operating activities was $11.6 million, compared to $11.7 million for the six months ended September 30, 2021. The decrease in net cash used in operations was due primarily to an increase in inventory purchases offset by accounts receivable collections in the six months ended September 30, 2022 as compared to September 30, 2021.

For the six months ended September 30, 2022, net cash used in investing activities was $0.7 million, compared to $6.8 million for the six months ended September 30, 2021. The decrease in net cash used in investing activities was primarily due to the cash that was used to pay for the Neeltran Acquisition in the six months ended September 30, 2021. There was no such transaction in the six months ended September 30, 2022.

For the six months ended September 30, 2022 and 2021, respectively, net cash provided by financing activities remained consistent at less than $0.1 million.

As of September 30, 2022, we had $6.0 million of restricted cash included in long-term assets and $3.6 million of restricted cash included in current assets. These amounts of restricted cash primarily represent deposits to secure letters of credit for various supply contracts and long-term projects, including the irrevocable letter of credit in the amount of $5.0 million to secure certain of our obligations under the Subcontract Agreement with ComEd. These deposits are held in interest bearing accounts.

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the consolidated balance sheet as of September 30, 2022, while others are considered future commitments. We have various contractual arrangements, under which we have committed to purchase certain minimum quantities of goods or services on an annual basis. For information regarding our other contractual obligations, refer to Note 13, "Contingent Consideration," Note 14, "Debt," Note 15, "Leases" and Note 16, "Commitments and Contingencies" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We believe we have sufficient available liquidity to fund our operations and capital expenditures for the next twelve months. In addition, we may seek to raise additional capital, which could be in the form of loans, convertible debt or equity, to fund our operating requirements and capital expenditures. Our liquidity is highly dependent on our ability to increase revenues, improve upon gross margins, control our operating costs, and raise additional capital, if necessary. There can be no assurance that we will be able to raise additional capital on favorable terms or at all, or execute on any other means of improving our liquidity as described above. Additionally, the impact of the COVID-19 pandemic and adverse macroeconomic conditions on the global financial markets may reduce our ability to raise additional capital, if necessary, which could negatively impact our liquidity.

### Legal Proceedings

We are involved in legal and administrative proceedings and claims of various types. See Part II, Item 1, “Legal Proceedings,” for additional information. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. We review these estimates each accounting period as additional information is known and adjust the loss provision when appropriate. If a matter is both probable to result in liability and the amounts of loss can be reasonably estimated, we estimate and disclose the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements.

### Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, *Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments*. The amendments in ASU 2016-13 will provide more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Following the release of ASU 2019-10 in November 2019, the new effective date, as long as we remain a smaller reporting company, would be annual reporting periods beginning after December 15, 2022. We have evaluated the impact of the adoption of ASU 2016-13, and do not expect it to have a material impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, *Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers*. The amendments in ASU 2021-08 will improve the accounting for acquired revenue contracts with customers in a business combination. Following the release of ASU 2021-08 in October 2021, the new effective date will be annual reporting periods beginning after December 15, 2022. We are currently evaluating the impact, if any, that the adoption of ASU 2021-08 may have on our consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, *Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance*. The amendments in ASU 2021-10 improve financial reporting by requiring disclosures that increase the transparency of transactions with government accounted for by applying a grant or contribution accounting model by analogy. Following the release of ASU 2021-10 in November 2021, the effective date was annual reporting periods beginning after December 15, 2021. As of April 1, 2022, we have adopted ASU 2021-10 and noted no material impact on our consolidated financial statements.

We do not believe that, outside of those disclosed here, there are any other recently issued accounting pronouncements that will have a material impact on our consolidated financial statements.

## Controls and procedures

As filed, 2,026 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

#### Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 196 characters.

There have been no material changes to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on June 1, 2022.

Filed Nov 1, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-025367. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.