AMSC

AMSC Stockholders,

Our strong performance in fiscal 2018 was the result of a
concerted effort undertaken over the past four years to shift
AMSC’s strategic direction and establish a predictable, re-occurring
business in multiple markets. Our systems and solutions leverage
the company’s proprietary smart materials and smart software and
controls to provide enhanced resiliency and improved performance
of megawatt-scale power flow.

Our strategy is working. We transformed technologies into turnkey
products and systems, and we communicated the value of our
solutions to our end markets. We continue to expand our
addressable markets to include the transmission grid (D-VAR), the
distribution grid (VVO), urban grid infrastructure (REG), the marine
market (SPS), and the global wind market – land based and off-
shore (ECS), and we are excited to enter fiscal 2019 with multiple
shots on goal.

In fiscal 2018, we grew and diversified our grid business. We won
our second SPS order from the Navy. We agreed with the
Commonwealth Edison Company of Chicago (ComEd) to deploy a
REG system in Chicago. We secured orders to bring the latest wind
turbine designs to Asian markets, and we finished the fiscal year
with a strong balance sheet. We believe we are well-positioned for
sustained revenue growth in our key markets and entry into new
and large market opportunities, driven by our HTS-based systems
and solutions.

During the fiscal year, we reached a settlement agreement with
Sinovel that secured a crucial win in the ongoing battle to protect
American intellectual property globally. Having closed this chapter
in our history, we look forward to growing AMSC from a position
of financial and operational strength.

We see growth through grid.

During fiscal 2018, our D-VAR team performed again. Not only did
D-VAR sales record a fifth year of consecutive revenue growth, we
concluded the year with a record backlog of D-VAR projects to
execute on in fiscal 2019. We are connecting wind farms to the
transmission grid across the world. We are also providing clean,
reliable power to industrial facilities, domestically and abroad, with
our D-VAR solution. Our growing list of repeat customers is a
testament to the quality and performance of AMSC’s products.

We are growing our presence in the distribution grid market as
well. The introduction of VVO brings enhancements and reliability
to the electric distribution grid that is experiencing increased use of
renewables and Distributed Generation (DG). We believe our VVO
solution expands our addressable market significantly. We began
placing commercial units with multiple U.S. utilities during fiscal
2018 and expect to expand VVO sales fiscal 2019.

We have taken the beachhead in the marine market.

Our SPS is now the baseline degaussing system for the U.S. Navy’s
San Antonio class ship platform (LPD). Our goal is to have our
advanced HTS-based degaussing system designed into additional
vessel platforms and we are aggressively working to that end. We
are also making headway in our efforts to expand AMSC content
per vessel. We believe the Navy’s stated desire to integrate new
“electric weapons” onto its warships could drive the need for HTS-
based in-board power delivery, power generation and potentially
propulsion.

We are anticipating additional SPS orders for the San Antonio class.

Our prospects for growth in the marine market are bright. In fiscal
2019, we plan to work to expand our SPS to additional

opportunities within the Navy, while establishing our
manufacturing and product delivery systems for our current SPS
orders.

Our REG business moved forward in fiscal 2018.

REG was chosen by ComEd to become a permanent part of
Chicago’s power grid. Pending approval by the Department of
Homeland Security (DHS) of our contract modification, we intend
to begin manufacturing of the first Resilient Electric Grid (REG)
system for ComEd.

We have been developing opportunities to deploy our REG product
in a number of utilities across the country. We are working closely
with customers to bring our REG solution to project status.

We plan on delivering new advanced wind turbines to our
partners.

In fiscal 2019, we are starting a new chapter with Inox Wind in
India as we work together to bring a new high-performance 3 MW
wind turbine to market. Inox first licensed our 2 MW wind turbine
design for the Indian market over 10 years ago. Since that time, we
have generated over $200 million in revenue as a preferred partner
to Inox. Our license agreement for a 3 MW turbine design signals a
continued strong partnership with Inox.

We are designing even bigger wind turbines and are focused on
expanding our addressable market to off-shore applications. AMSC
expects to enter the off-shore market in fiscal 2019 with our
Korean partner, Doosan Heavy Industries. Our 5 MW off-shore
turbine design is expected to be our most efficient, high-
performance wind turbine to date, driving down the levelized cost
of wind energy for our partners. We believe Southeast Asia is a
geography well suited for our 5 MW turbine.

The initiatives we have undertaken over the past several years have
changed the company. Our new products are leading an expected
shift in our revenue mix towards a more predictable, re-occurring
revenue base led by our nascent business with the U.S. Navy. We
are successfully diversifying our revenue mix across and within our
Wind and Grid segments.

We are at the beginning of a new multi-year chapter of the AMSC
story. We remain committed to our guiding principle of delivering
value to our shareholders. We look forward to advancing our
march toward sustainable and profitable growth.

Our new chapter is being written by our employees who are
guided by the values for which AMSC has always stood. At AMSC,
we are constantly collaborating. We are always accountable to our
customers. We hire the best and brightest engineers. Our culture is
inherently innovative. We listen to and learn from the markets we
serve. I am grateful for our employees’ commitment. I also thank
you, our customers and stockholders, for your continued support.

I look forward to reporting to you again following the completion
of fiscal 2019.

Daniel Patrick McGahn
Chairman, President and Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2019

OR

For the Transition Period from

to

Commission file number 000-19672

American Superconductor Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction
of Incorporation or Organization)

114 East Main Street
Ayer, Massachusetts
(Address of Principal Executive Offices)

04-2959321
(IRS Employer
Identification Number)

01432
(Zip Code)

Title of each class

Common Stock,
$0.01 par value per share

Registrant’s telephone number, including area code:
(978) 842-3000
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)

Name of each exchange on which registered

AMSC

Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
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 È 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 È No ‘

Indicate by checkmark 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 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 ‘
Non-accelerated filer ‘

È
Accelerated filer
Smaller reporting company È
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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant on September 28, 2018, based on the

closing price of the shares of Common Stock on the Nasdaq Global Select Market on that date ($6.95 per share) was $143.3 million.

Number of shares outstanding of the registrant’s Common Stock, as of May 30, 2019 was 21,449,546.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual meeting of stockholders scheduled to be held on August 1, 2019, to be filed with the

Securities and Exchange Commission (the “SEC”), are incorporated by reference in answer to Part III of this Form 10-K.

AMERICAN SUPERCONDUCTOR CORPORATION

Item

INDEX

PART I

1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . .
7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . .
9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . .
14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

4
16
29
29
29
29

30
31
32
48
49
88
88
89

90
90

90
90
90

15. Exhibits and Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91

PART IV

2

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Annual Report
that relate to future events or conditions, including without limitation, the statements in Part I, “Item 1A. Risk
Factors” and in Part II under “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and located elsewhere herein regarding industry prospects, our addressable markets,
expectations for when our products become operational, capabilities and potential uses of our products, impacts
to our balance sheet as a result of the adoption of the new lease accounting guidance, or our prospective results
of operations or financial position, may be deemed to be forward-looking statements. Without limiting the
foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements represent management’s current
expectations and are inherently uncertain. 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. Such factors include the important factors discussed under the caption “Risk Factors” in
Part 1. Item 1A of this Form 10-K for the fiscal year ended March 31, 2019, which 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K.

3

Item 1.

BUSINESS

Overview

PART I

American Superconductor Corporation (together with its subsidiaries, “AMSC®” or the “Company”) was

founded on April 9, 1987. We are a leading system provider of megawatt-scale power solutions that enhance the
performance of the power grid, protect our Navy’s fleet, and lower the cost of wind power. Our system level
products leverage the Company’s proprietary “smart materials” and “smart software and controls” to provide
enhanced resiliency and improved performance of megawatt-scale power flow.

In the power grid market, we enable electric utilities, industrial facilities, and renewable energy project

developers to connect, transmit and move power through our power electronics and superconductor-based
systems as well as our transmission planning services. We help protect the U.S. Navy surface fleet with advanced
superconductor-based systems and we enable the use of high-efficiency, high performance, and low-weight
magnetic systems which provide superior performance advantages to the traditional methods of mine field
protection for the Navy fleet. 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 capacity and other

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 in-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.

Market opportunities

We provide solutions that address three key drivers of our business:

•

•

•

the evolving electric grid;

the electrification of the Naval fleet; and

the global demand for renewable energy

Our power system products address five market opportunities (areas):

•

Transmission grid. We provide complete systems that enable electric utilities and renewable energy
project developers to connect and transmit power with exceptional efficiency, reliability, security and
affordability. We provide 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 and power quality systems for
wind farms and solar power plants.

• Distribution grid. We provide a direct-connect quality system that is installed on the primary

distribution network in communities, business parks, or wherever enhanced power quality is beneficial
and is designed to increase the reliability and resiliency of the distribution grid to serve the needs of
modern energy consumers. Our systems save utilities time and money by avoiding costly options to
strengthen the distribution grid.

4

• Urban Grid Infrastructure: We design systems to increase the reliability, security and capacity of the

urban grid infrastructure. Today, many urban substations are not networked and can only power a small
section of a city. Our power dense technology based on proprietary smart materials allows for the inter-
connection of substations, controlling the high fault currents that naturally result from such
interconnections. If one substation is compromised, other substations help increase capacity and
reliability. Our system allows instantaneous power outage recovery, potentially doubling to
quadrupling a city’s reliability and resiliency while minimizing grid investment. We design systems
that leverage existing grid assets while protecting cities against storms, outages, cyber and physical
attacks.

• Marine protection systems. We sell advanced degaussing systems to the U.S. Navy

• Wind Power. Our solutions enable 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 drive trains and power ratings of
2 megawatts (“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 beginning on April 1 of that same year. For example, fiscal 2018 refers to the fiscal
year that began on April 1, 2018. Other fiscal years follow similarly.

Competitive strengths

We believe our competitive strengths position us well to execute on our growth plans in the markets we

serve.

• Differentiated technologies. Our products leverage the Company’s proprietary smart materials and

smart software and controls to provide enhanced resiliency and improved performance of megawatt-
scale power flow. Conventional conductors of electricity, such as aluminum and copper wire, lose
energy due to resistance. Using a compound of yttrium barium copper oxide (“YBCO”), we
manufacture and provide high-temperature superconductor (“HTS”) wire that can conduct many times
more electricity than conventional conductors with minimal power loss. Our proprietary Amperium®
superconductor wire was engineered to allow us to tailor the product via laminations to meet the
electrical and mechanical performance requirements of widely varying end-use applications, including
power cables and fault current limiters for the Grid market. Our PowerModule™ power converters are
based on proprietary software and hardware combinations and are used in a broad array of applications,
including our D-VAR® grid interconnection and voltage control systems, as well as our wind turbine
electrical control systems. Our unique proprietary cooler technology enables our ship protection
systems (“SPS”) to perform in harsh environmental conditions in a quiet and efficient manner.

•

•

Turnkey systems. We have developed full system solutions that we sell directly to customers. This
business model leverages our applications expertise, drives value beyond the wire and enables us to
recognize revenue and take ownership over the marketing and sales of the full systems.

Scalable, low-cost manufacturing platform. Our manufacturing of proprietary wind turbine electrical
control systems and power electronics products are primarily assembly operations with minimal fixed
costs. We can increase the production of these products at costs that we believe are low relative to our
competitors. Our proprietary manufacturing technique for Amperium superconductor wire is modular
in nature, which allows us to expand manufacturing capacity at a relatively low incremental cost.

• Robust patent position and engineering expertise. We have an extensive portfolio of awarded patents
and patent applications worldwide and have rights through exclusive and non-exclusive licenses to

5

additional patents and patent applications worldwide. We believe our technology and manufacturing
knowledge base, customer and product expertise and patent portfolio provide a strong competitive
position.

• Unique solutions for the markets we serve. We believe we provide wind turbine manufacturers with a
unique and integrated approach of wind turbine design and engineering, customer support services and
power electronics and control systems. We also believe we are the only company in the world that is
able to provide transmission planning services, grid interconnection and voltage control systems, as
well as superconductor-based distribution systems for power grid operators. This unique scope of
supply provides us with greater insight into our customers’ evolving needs and greater cross-selling
opportunities.

Strategy

Building on these competitive strengths, we plan to focus on driving revenue growth and enhancing our

operating results through the objectives defined below.

• Provide solutions from power generation to delivery. From the generation source to the distribution

system, we focus on providing best-in-class engineering, support services, technologies and solutions
that make the world’s power supplies smarter, cleaner and stronger.

• Focus on “megawatt-scale” power offerings. Our research, product development, and sales efforts
focus on megawatt-scale offerings ranging from designs of power electronics for large wind turbine
platforms to systems that stabilize power flows, integrate renewable power into the grid and carry
power to and from transmission and distribution substations.

• Product innovation. We have a strong record of developing unique solutions for megawatt-scale power
applications and will continue our focus on investing in innovation. Recently, our product development
efforts have included our Resilient Electric Grid (“REG”) system for the electricity grid, SPS for the
U.S. Navy, and D-VAR Volt Var Optimization (“VVO”).

• Pursue Emerging Overseas Markets and Serve Key Markets Locally. We focus our sales efforts on

overseas markets that are investing aggressively in renewable energy and power grid projects. As part
of our strategy, we serve our key target markets with local sales and field service personnel, which
enables us to understand market dynamics and more effectively anticipate customer needs while also
reducing response time. We currently serve target markets such as Australia, China, India, Korea,
South Africa, the United Kingdom, Jordan, Mexico and the United States.

Grid market overview

It is widely believed that the electricity grids around the world require modernization through widespread
technology upgrades if they are to maintain reliability while solving rapidly evolving challenges such as more
frequent severe weather, threats of physical- and cyber-attacks, expanded renewable generation (both large and
small scale) and new types of customer loads such as electric vehicles. In fact, a series of reports written by the
Electric Power Research Institute (“EPRI”) in 2016 emphasize the need for increased resiliency, flexibility and
connectivity in electric grids. According to the EPRI reports, the number of geophysical, meteorological,
hydrological, and climatological events in the U.S. rose to an all-time high of 247 events in 2010 — up
from approximately 200 in 2009 and less than 200 in all years combined from 1980 to 2010. Available data
further indicate that the existing U.S. electrical grid has been stressed by U.S. wind power generation increasing
from 8.7 Gigawatts (“GW”) in 2005 to 82 GW in 2017, and photovoltaics (“PV”) power generation increasing
from almost zero in 2003 to nearly 50 GW as of the end of 2018.

Growth in both wind power and PV is expected to continue with the vast majority of such intermittent
generation sources unsupported by energy storage, placing stress on the power grid. Finally, the Edison Electric

6

Institute estimates that the number of electric vehicles on the road in the U.S. is projected to reach 18.7 million in
2030, up from slightly more than 1 million at the end of 2018. These facts and the dependence on the safety,
security and economy of the electricity grid have prompted broad recognition worldwide of the need to
modernize and enhance the reliability and security of power grids.

Power grid operators worldwide face various challenges, including:

•

Stability. Power grid operators are confronting power quality and stability issues arising from
intermittent renewable energy sources and from the capacity limitations of transmission and overhead
distribution lines and underground cables.

• Reliability. Traditional transmission lines and cables often reach their reliable voltage stability limit
well below their thermal threshold. Driving more power through a power grid when some lines and
cables are operating above their voltage stability limit during times of peak demand can cause either
unacceptably low voltage in the power grid (a brownout) or risk of a sudden, uncontrollable voltage
collapse (a blackout).

• Capacity. The traditional way to enable increases in power grid capacity without losing voltage

stability is to install more overhead power lines and underground cables. However, permitting new
transmission and distribution lines can take 10 years or more due to various public policy issues, such
as environmental, aesthetic, and health concerns. In urban and metropolitan areas, installing additional
conventional underground copper cables is similarly challenging, since many existing underground
corridors carrying power distribution cables are already filled to their physical capacity and cannot
accommodate any additional conventional cables. In addition, adding new conduits requires excavation
to expand existing corridors or create new corridors, which are costly and disruptive undertakings.

• Efficiency. Most overhead lines and underground cables use traditional conductors such as copper and
aluminum, which lose power due to electrical resistance. At transmission voltage, electrical losses
average about 7% in the United States and other developed nations, but can exceed 20% in some
locations due to the distance of the line, quality of the conductor, and the power grid’s architecture and
characteristics, among other factors.

•

Security. Catastrophic equipment failures caused by aging equipment, physical and cyber events, and
weather-related disasters can leave entire sections of an urban environment without power for hours or
days. It can be difficult to recover from extended power outages in urban load centers, worsening
situations where the personal safety of residents and the economic health of businesses are threatened.

Our solutions for the power quality and grid infrastructure market

We address these challenges in the grid market by providing services and solutions designed to increase the

power grid’s capacity, resiliency, reliability, security and efficiency. Our solutions include:

• D-VAR® Systems. Our D-VAR system is a system that consists of power electronics and other static

components used for controlling power flow and voltage in the AC transmission system. Our D-VAR
system aims to increase controllability and power transferability of a network, which allows more
effective utilization of existing assets, and reduces the need for new transmission lines and facilities to
increase electricity availability. The power that flows through AC networks comprises both real power,
measured in watts, and reactive power, measured in Volt Amp Reactive (“VARs”). In simple terms,
reactive power is required to support voltage in the power network. D-VAR systems can provide the
reactive power needed to stabilize voltage on the grid. These systems also can be used to connect wind
farms and solar power plants to the power grid seamlessly as well as to protect certain industrial
facilities against voltage swells and sags. Our D-VAR sales process begins with our group of
experienced transmission planners working with power grid operators, renewable energy developers,
and industrial system operators to identify power grid constraints and determine how our solutions
might improve network performance. These services often lead to sales of grid interconnection

7

solutions for wind farms and solar power plants, and power quality systems for utilities and heavy
industrial operations.

• D-VAR VVO®. We believe D-VAR VVO will allow us to enter the market for products to serve the

distribution power grid. VVO is designed to be a direct-connect 15 kilovolt class power quality system
for a utility’s distribution network to optimally control voltage as distribution networks are increasingly
impacted by distributed generation, such as roof top and community solar. We believe VVO has the
potential to save utilities time and money by avoiding costly options to increase the reliability and
resiliency of the distribution grid and to allow utilities to build a “plug ‘n play” network to serve the
demands of modern energy consumers. The intended target markets of VVO are electric distribution
grids incorporating distributed generation, including where utility grid modernization attributes such as
the following are applicable: mandated efficiency upgrades, mass adoption of rooftop solar, community
solar, utility-owned micro-girds, variable load conditions on the distribution grid and voltage
regulations alternatives.

• REG Systems. Our REG system has two primary applications that increase the reliability and the

capacity of the urban infrastructure. For applications focused on reliability improvement, the REG
system is used in a “ring” or “loop” configuration to interconnect nearby urban substations. This
enables urban utilities to share transmission connections and excess station capacity, while controlling
the high fault currents that naturally result from such interconnections, providing protection against the
adverse effects that follow the loss of critical substation facilities in urban areas. We believe a utility
installing our REG system could double or quadruple its reliability (e.g. N-1 to N-2, or greater) by
networking substations, which is a solution that utilities would generally not consider when using
conventional technology due to the disruptive nature and economic disadvantages of conventional
technology in urban settings. For applications focused on capacity improvement, the REG system can
be used in a “branch” configuration. In this application, the REG system connects an existing large
urban substation with a new, much smaller, and more simplified substation within the city at a lower
cost. The smaller urban substation does not need large power transformers and takes up much less
space, thereby significantly reducing real estate, construction, and other related costs in the urban area.
The key component to the REG system is a breakthrough cable system that combines very high-power
handling capacity with fault current limiting characteristics—features that are attributable to our
proprietary Amperium HTS wire.

Marine market overview

Defense spending has increased over the past two years as the U.S. military moves to rebuild and retool for

competition against other great powers. In spring 2018, the Department of Defense submitted the Navy’s 2019
shipbuilding plan to Congress, covering government fiscal years 2019 to 2048, which if fully carried out, will
represent the largest naval buildup since the Reagan Administration in the 1980s. In September 2018, the Navy’s
fleet numbered 285 battle force ships. The Navy’s requirement, as stated in its 2019 shipbuilding plan, is to build
and maintain a larger fleet of 355 battle force ships. The United States’ fiscal year 2019 defense budget includes
a $299 million request for the Navy Laser Family of Systems, which the Navy has designated a fast-track
initiative, to provide near-term, ship-based laser weapon capabilities. We believe such new warfighting
capabilities will require an HTS-based power distribution solution, potentially creating further demand for our
system.

Since WWII, the Navy fleet has protected its warfare vessels with copper-based degaussing systems. Our
HTS-based degaussing system provides world class mine protection while reducing the weight of the degaussing
system by as much as 80%, and reducing energy consumption by more than half that of legacy degaussing
systems.

We believe that our HTS systems are an enabling technology for the Navy in its mission to create an

all-electric ship (Super Ship). Our HTS-based SPS degaussing system has been designed into the San

8

Antonio-class amphibious warfare ship platform, starting with LPD 28. AMSC and the U.S. Navy have
collaborated on AMSC’s advanced HTS-based ship protection systems. The core components of the ship
protection system are common and transferable to other applications being targeted for ship implementation.

Navy fleets worldwide face various challenges, including:

• Power Capacity: Today’s Navy continues to see increased demand for more power applied from both

on and off the ship (shore power). This need is driven by many factors, including the continued
development of high-power density advanced weapons systems and sensors. Many power dense
applications that naval engineers are working on today are already relying on the independent
development of improved power distribution systems for its implementation. Free Electron Lasers,
High Power Radar, Laser Self Defense Systems, Electro Magnetic Rail Guns and Active Denial
(Directed Energy) systems are just a few of the Navy applications that we believe will demand higher
capacity and more efficient energy transfer before deployment to a platform in the fleet can be realized.

•

Space and Weight Limitations: Advances in sensors and weapons for modern ship applications are
expected to drive the need for new power solutions to be light and compact, for weapons’ power draw
to be more efficiently cooled and for easing installation on new ships and enabling upgrades on
existing ones.

• Efficiency: Increased power demands for routine (peace time) operations are straining the conventional

copper based power cable systems that are currently used. The copper cables are very heavy,
cumbersome, and hard to handle. The weight of the cables requires a coordinated effort between a crew
on the pier and a crew on the ship. In many instances, handling these cables requires the use of a crane
or a boom truck to extend them from the pier-side power substations up to the ship’s connection point.
More efficient, compact, lighter weight power transfer and distribution systems are expected to be
required for tomorrow’s Navy to satisfy its future mission requirements.

Our solutions for the marine market

Each Navy ship can be thought of as having its own power grid. We provide advanced ship protection
systems, power management, and power generation systems that are designed to help fleets increase system
efficiencies, enhance warfare capabilities, and boost reliability, performance and security. Our systems support
the Navy’s mission to “electrify the fleet”. Our systems allow for the ship to generate a large amount of electrical
power and distribute the power through an in-board power system to a propulsion motor by way of a much
smaller, lighter, and higher performing HTS cable system, enabling a more advanced, reliable, and secure
solution with a smaller footprint. Our solutions include:

•

•

Ship Protection Systems. The primary focus of our SPS has been degaussing systems. These systems
reduce a naval ship’s magnetic signature, making it much more difficult for a mine to detect and
damage a ship. Traditionally made of heavy copper wire, degaussing is required on all U.S. Navy
combat ships. Our HTS advanced degaussing system is lightweight, compact, and often outperforms its
conventional counterpart. This HTS system is estimated to enable up to an 80% reduction in total
degaussing system weight, offering significant potential for fuel savings or options to add different
payloads. The core components of a degaussing system are transferable to other applications being
targeted for ship implementation. Our SPS has been designed into the San Antonio class of amphibious
assault vessels. We are also seeking opportunities to propagate SPS throughout the surface fleet,
creating a relatively long-term revenue stream.

In Board Power Delivery Systems. We are working on expanding HTS technology into the fleet
through a variety of applications, including in board power flow and management. The Navy continues
to see increased demand for more power. This need is driven by many factors, including the continued
development of high power density advanced weapons systems and sensors. Many power dense
applications that naval engineers are working on today are already relying on improved power

9

distribution systems for their implementation and deployment. Free Electron Lasers, High Power
Radar, Laser Self Defense Systems, Electro Magnetic Rail Guns and Active Denial (Directed Energy)
systems are just a few of the Navy applications that will demand higher capacity and more efficient
energy transfer before deployment to a platform in the fleet can be realized. Continued space and
weight limitations for these ship applications are expected to drive the need for new power solutions to
be light and compact, easing installation on new ships and enabling upgrades on existing ones. Our
HTS power cables enable high density energy transfer at unsurpassed efficiency levels in a compact,
lightweight package.

• Power Generation Systems. We are also working on expanding HTS technology into the fleet through a
variety of applications including power generation and electric propulsion. The same HTS technology
used in SPS and in board power delivery systems when applied to rotating machines results in high
power density motors and generators. This enables dramatically more power to be produced in the
same machinery space used for conventional systems, which in turn affords the Navy additional power
for high energy density weapons without significant structural changes to the ship.

• Propulsion systems. Our development work in power generation systems for the Navy extends to

HTS-based electric power propulsion. In board power delivery systems and power generation systems,
when applied to high power density motors, enable the transition to electric propulsion. We, along with
Northrop Grumman Corp. successfully completed a full-power test of the world’s first 36.5-MW HTS
ship propulsion motor. The motor, rated at 49,000 horsepower, was successfully tested for a large U.S.
Navy combatant ship at the Navy’s integrated power system land-based test site in Philadelphia.
Incorporating coils of HTS wire that are able to carry 150 times the current of similar-sized copper
wire makes the motor less than half the size of conventional motors used on the first two DDG-1000
hulls and will reduce ship weight by nearly 200 metric tons. This is expected to make new ships more
fuel-efficient. Our technology and systems allow the Navy to free up space for additional war-fighting
capability.

Wind market overview

The global energy mix is transitioning towards an increasing amount of renewable energy, including wind

power. Wind power is unlimited in supply and its generation is a zero-emission process. Wind power has become
a major pillar of power supply throughout the world. Wind power is expected to play a key role in the
achievement of the objectives of the Paris Climate Change agreement and the Sustainable Development Goals.

According to GlobalData, a research firm, approximately 52 GW of wind generation capacity were added
worldwide in calendar 2018, as compared to 51 GW in calendar 2017. GlobalData anticipates that more than 57
GW of additional capacity will be added in 2019.

According to GlobalData, annual wind installations in India for calendar 2018 were 1.6 GW and for

calendar 2019 are estimated to be 2.7 GW.

Several factors are expected to drive the future growth in the wind power market, including substantial
government incentives and mandates that have been established globally, technological improvements, turbine
cost reductions, the development of the offshore wind market, and increasing cost competitiveness with existing
power generation technologies. Technological advances, declining turbine production cost and fluctuating prices
for some fossil fuels continue to increase the competitiveness of wind versus traditional power generation
technologies.

10

Our solutions for the wind market

We address the challenges of the wind power market by designing and engineering wind turbines, providing
extensive support services to wind turbine manufacturers, and manufacturing and selling critical components for
wind turbines.

• Electrical Control Systems. We provide full electrical control systems (“ECS”) to manufacturers of
wind turbines designed by us. Our ECS regulate voltage, control power flows and maximize wind
turbine efficiency, among other functions. To date, we have shipped enough core electrical components
and complete ECS to power over 16,000 Megawatts (“MW”) of wind power. We believe our ECS
represent approximately 5-10% of a wind turbine’s bill of materials.

• Wind Turbine Designs. We design and develop entire state-of-the-art onshore and offshore wind
turbines with power ratings of 2 MWs and higher for manufacturers who are in the business of
producing wind turbines or who plan to enter the business of manufacturing wind turbines. These
customers typically pay us licensing fees, and in some cases royalties, for wind turbine designs, and
purchase from us the ECS needed to operate the wind turbines.

• Customer Support Services. We provide extensive customer support services to wind turbine
manufacturers. These services range from providing designs for customers’ wind turbine
manufacturing plants to establishing and localizing their supply chains and training their employees on
proper wind turbine installation and maintenance. We believe these services enable customers to
accelerate their entry into the wind turbine manufacturing market and lower the cost of their wind
turbine platforms.

Our approach to the wind energy markets allows our customers to use our world-class turbine engineering

capabilities while minimizing their research and development costs. These services and our advanced ECS
provide our customers with the ability to produce standardized or next-generation wind turbines at scale for their
local market or the global market quickly and cost-effectively. Our team of highly experienced engineers works
with clients to customize turbine designs specifically tailored to local markets while providing ongoing access to
field services support and future technological advances.

Customers

We serve customers globally through a localized sales and field service presence in our core target

markets. We have served over 100 customers in the grid market since our inception, including YMC, Inc. and the
U.S. Navy, SSE plc in the United Kingdom, Consolidated Power Projects (Pty) Ltd in South Africa, Fuji Bridex
in Singapore, Vestas Wind Systems A/S in Denmark, and Ergon Energy in Australia. Additionally, our sales
personnel in the United States are supported by manufacturers’ sales representatives. We have designed wind
turbines for and licensed wind turbine designs to wind turbine manufacturing customers including Inox Wind
Limited (“Inox”) in India and Doosan Heavy Industries (“Doosan”) in Korea.

In fiscal 2018, 2017 and 2016, Inox accounted for 34%, 27% and 59% of our total revenues, respectively,
and in fiscal 2018 Vestas accounted for 15% of our total revenues. No other customer accounted for more than
10% of our total revenues in each of fiscal 2018, 2017 and 2016.

Facilities and Manufacturing

Our primary facilities and their primary functions are as follows:

• Ayer, Massachusetts — Corporate headquarters; Grid segment manufacturing, and research and

development

•

Pewaukee, Wisconsin — Grid segment research and development

• Richland, Washington — Grid segment research and development

11

• Klagenfurt, Austria — Wind segment project engineering, customer support and research and

development

• Timisoara, Romania — Wind segment manufacturing

Our global footprint also includes sales and/or field service offices in Australia, China, India, South Korea,

the United Kingdom and McLean, VA.

The principal raw materials used in the manufacture of the Company’s products are nickel, silver, yttruim,
copper, brass, and stainless steel. Major components are insulated gate bi-polar transistors, heatsinks, inductors,
enclosures, transformers, and printed circuit boards. Most of these raw materials are available from multiple
sources in the United States and world markets. Generally, the Company believes that adequate alternative
sources are available for the majority of its key raw material and purchased component needs, however, the
Company is dependent on a single or limited number of suppliers for certain materials and components.

Sales and Marketing

Our strategy is to serve customers locally in our core target markets through a direct sales force operating
out of sales offices worldwide. In addition, we utilize manufacturers’ sales representatives in the United States to
market our products to utilities in North America. The sales force also leverages business development staff for
our various offerings as well as our team of wind turbine engineers and power grid transmission planners, all of
whom help to ensure that we have an in-depth understanding of customer needs and provide cost-effective
solutions for those needs.

Segments

We segment our operations into two market-facing business units: Wind and Grid. We believe this market-

centric structure enables us to more effectively anticipate and meet the needs of wind turbine manufacturers,
power generation project developers, the Navy’s ship protection systems and electric utilities.

Competition

We face competition in various aspects of our technology and product development. We believe that
competitive performance in the marketplace depends upon several factors, including technical innovation, range
of products and services, product quality and reliability, customer service and technical support.

We face competition from other companies offering FACTS systems similar to our D-VAR products. These
include adaptive VAR compensators, Dynamic voltage restorers (“DVRs”), and STATCOMs produced by ABB,
Siemens, and Ingeteam, and battery-based uninterruptable power supply (“UPS”) systems offered by various
companies around the world.

With our HTS-based REG product, we are offering a new approach that provides alternatives to utilities for
power system design. Therefore, we believe that we compete with traditional approaches such as new full-sized
substations, overhead and underground transmission, and urban power transformers.

We believe we are currently the only company that can offer HTS-based SPS products that have been fully
qualified for use aboard U.S. Navy surface combatants. Therefore, the primary competition for our SPS products
is currently coming from defense contractors that provide the copper-based systems that our lighter, more
efficient HTS versions have been developed to replace. Companies such as L3, Excelis, Raytheon, and Textron
have the bulk of the copper-based business today.

Our power module conversion equipment and our electrical control systems are designed and integrated into

our wind turbine designs in a way to achieve maximum performance of the turbine. Typically, we are the

12

exclusive provider of the power module conversion equipment and electrical control systems for our wind
turbine designs. As a result, our power conversion equipment and electrical control systems see limited
competition. Other companies that serve the wind turbine components industry include ABB, and Semikron. We
also face indirect competition in the wind energy market from global manufacturers of wind turbines, such as
Siemens Gamesa, General Electric, and Suzlon. We face competition for the supply of wind turbine engineering
design services from design engineering firms such as Aerodyn.

Patents, licenses and trade secrets

Patent Background

An important part of our business strategy is to develop a strong worldwide patent position in all of our
technology areas. Our intellectual property (“IP”) portfolio includes both patents we own and patents we license
from others. We devote substantial resources to building a strong patent position. Together with the international
counterparts of our patents and patent applications, we own an extensive portfolio of patents and patent
applications worldwide, and have rights through exclusive and non-exclusive licenses. We believe that our
current patent position, together with our ability to obtain licenses from other parties to the extent necessary, will
provide us with sufficient proprietary rights to develop and sell our products. However, for the reasons described
below, we cannot assure you that this will be the case.

Despite the strength of our patent position, a number of U.S. and foreign patents and patent applications of
third parties relate to our current products, to products we are developing, or to technology we are now using in
the development or production of our products. We may need to acquire licenses to those patents, contest the
scope or validity of those patents, or design around patented processes or applications as necessary. If companies
holding patents or patent applications that we need to license are competitors, we believe the strength of our
patent portfolio will significantly improve our ability to enter into license or cross-license arrangements with
these companies. We have already successfully negotiated cross-licenses with several competitors.

Failure to obtain all necessary patents, licenses and other IP rights upon reasonable terms could significantly

reduce the scope of our business and have a material adverse effect on our results of operations. We do not now
know the likelihood of successfully contesting the scope or validity of patents held by others. In any event, we
could incur substantial costs in challenging the patents of other companies. Moreover, third parties could
challenge some of our patents or patent applications, and we could incur substantial costs in defending the scope
and validity of our own patents or patent applications whether or not a challenge is ultimately successful.

Wind and Grid Patents

We have received patents and filed a significant number of additional patent applications on power quality

and reliability systems, including our D-VAR products. Our products are covered by patents and patents pending
worldwide on both our systems and power converter products. The patents and applications focus on inventions
that significantly improve product performance and reduce product costs, thereby providing a competitive
advantage. One invention of note allows for a reduction in the number of power inverters required in the system
by optimally running the inverters in overload mode, thereby significantly reducing overall system costs. Another
important invention uses inverters to offset transients due to capacitor bank switching, which provides improved
system performance.

Under our Windtec Solutions™ brand, we design a variety of wind turbine systems and license these
designs, including expertise and patent rights, to third parties for an upfront fee, plus in some cases, future
royalties. Our wind turbine designs are covered by patents and patents pending worldwide on wind turbine
technology. We have patent coverage on the unique design features of our blade pitch control system, which
ensures optimal aerodynamic flow conditions on the turbine blades and improves system efficiency and
performance. The pitch system includes a patented SafetyLOCK™ feature that causes the blades to rotate to a
feathered position to prevent the rotor blades from spinning during a fault.

13

HTS Patents

Since the discovery of high temperature superconductors in 1986, rapid technical advances have

characterized the HTS industry, which in turn have resulted in a large number of patents, including overlapping
patents, relating to superconductivity. As a result, the patent situation in the field of HTS technology and
products is unusually complex. We have obtained licenses to patents and patent applications covering some HTS
materials. We currently have non-exclusive rights to a fundamental U.S. patent (U.S. 8,060,169 B1) covering 2G
and similar HTS wire and applications and may elect in the future to allow our rights under this license to lapse.
However, we may have to obtain additional licenses to HTS materials and, upon expiration of U.S. 8,060,169
patent to the materials covered by such patent.

We are focusing on the production of our Amperium wire, and we intend to continue to maintain a
leadership position in 2G HTS wire through a combination of patents, licenses and proprietary expertise. In
addition to our owned patents and patent applications in 2G HTS wire, we have obtained licenses from (i) MIT
for the MOD process we use to deposit the YBCO layer, and (ii) Alcatel-Lucent on the YBCO material.

We have extensive patents and patents pending covering applications of HTS wire, such as HTS fault
current limiting technology including our fault current limiting cable, HTS rotating machines and ship protection
systems. Since the superconductor rotating machine and the fault current limiting cable applications are relatively
new, we are building a particularly strong patent position in these areas. At present, we believe we have the
world’s broadest and most fundamental patent position in superconductor rotating machines technology. We
have also filed a series of patents on our concept for our proprietary fault current limiting technology. However,
there can be no assurance that that these patents will be sufficient to assure our freedom of action in these fields
without further licensing from others. See Part I, Item 1A, “Risk Factors,” for more information regarding the
status of the commercialization of our Amperium wire products.

Trade Secrets

Some of the important technology used in our operations and products is not covered by any patent or patent
application owned by or licensed to us. However, we take steps to maintain the confidentiality of this technology
by requiring all employees and all consultants to sign confidentiality agreements and by limiting access to
confidential information. We cannot provide any assurance that these measures will prevent the unauthorized
disclosure or use of that information. In addition, we cannot provide any assurance that others, including our
competitors, will not independently develop the same or comparable technology that is one of our trade secrets.

Employees

As of March 31, 2019, we employed 233 persons, of which 223 are full time employees. None of our

employees is represented by a labor union.

Available information

Our internet address is www.amsc.com. We are not including the information contained in our website as

part of, or incorporating it by reference into, this document. We make available, free of charge, through our
website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such materials with, or furnish such materials to, the SEC.

We intend to disclose on our website any amendments to, or waivers of, our Code of Business Conduct and

Ethics that are required to be disclosed pursuant to the SEC or Nasdaq rules.

14

Information about our Executive Officers

The table and biographical summaries set forth below contain information with respect to our executive

officers as of the date of this filing:

Name

Daniel P. McGahn . . . . . . . . . . . . . . . . . . . .

John W. Kosiba, Jr. . . . . . . . . . . . . . . . . . . .

Age

47

46

Position

President, Chief Executive Officer and Chairman

Senior Vice President, Chief Financial Officer and
Treasurer

Daniel P. McGahn joined us in December 2006 and has been chief executive officer and a member of our

board of directors since June 2011 and chairman of the board since July 2018. He previously served as president
and chief operating officer from December 2009 to June 2011, as senior vice president and general manager of
our AMSC Superconductors business unit from April 2008 until December 2009, as vice president of our AMSC
Superconductors business unit from March 2007 to April 2008 and as vice president of strategic planning and
development from December 2006 to March 2007. From 2003 to 2006, Mr. McGahn served as executive vice
president and chief marketing officer of Konarka Technologies. We believe Mr. McGahn’s qualifications to sit
on our board of directors include his extensive experience with our company, including serving as our president
since 2009, experience in the power electronics industry and strategic planning expertise gained while working in
senior management as a consultant for other public and private companies.

John W. Kosiba, Jr. was appointed senior vice president, chief financial officer and treasurer effective
April 4, 2017. Mr. Kosiba joined us as managing director, finance operations, in June 2010. He then served as
vice president, finance operations, from September 2011 to May 2013. Prior to his appointment as senior vice
president and chief financial officer, Mr. Kosiba served most recently as senior vice president, Gridtec solutions
and finance operations, where he was responsible for (i) overseeing finance and accounting operations,
budgeting, strategic planning and financial planning and analysis for the company, and (ii) managing the
day-to-day business operations of our Gridtec solutions’ business segment. From January 2008 until June 2010,
Mr. Kosiba served as division director and controller of Amphenol Aerospace, a division of Amphenol
Corporation and a manufacturer of interconnect products for the military, commercial aerospace and industrial
markets. In this role, Mr. Kosiba was responsible for overseeing finance, accounting, budgeting, audit and all
aspects of financial planning and analysis for the division.

15

Item 1A. RISK FACTORS

Risks Related to Our Financial Performance

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 recorded net losses in two of the last three fiscal years, followed by a net income of $26.8 million

for the fiscal year ended March 31, 2019, largely as a result of the receipt of payments from Sinovel Wind
Group Co. Ltd. pursuant to the terms of the Settlement Agreement described further herein. We may not be
profitable in fiscal 2019 or future years.

There is currently substantial uncertainty in our business, which makes it difficult to evaluate our business

and future prospects. In addition, our operating results historically have been difficult to predict and have at times
fluctuated from quarter to quarter due to a variety of factors, many of which are outside of our control. As a
result of all of these factors, comparing our operating results on a period-to-period basis may not be meaningful,
and you should not rely on our past results as an indication of our future performance. In addition, we have in the
past, and may continue to, provide public guidance on our expected operating and financial results for future
periods. Such guidance is comprised of forward-looking statements subject to the risks and uncertainties
described in this Annual Report and in our other public filings and statements. Our actual results may not always
be in line with or exceed the guidance we have provided. If our revenue or operating results fall below the
expectations of investors or any securities analysts that follow our company in any period or we do not meet our
guidance, the trading price of our common stock would likely decline.

Our operating expenses do not always vary directly with revenue and may be difficult to adjust in the short

term. As a result, if revenue for a particular quarter is below our expectations, we may not be able to
proportionately reduce operating expenses for that quarter, and therefore such a revenue shortfall would have a
disproportionate effect on our operating results for that 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.

As of March 31, 2019, we had approximately $78.2 million of cash, cash equivalents, and restricted cash,

and during the fiscal year ended March 31, 2019, we generated $42.7 million in cash for our operating activities,
including a net settlement from Sinovel for $52.7 million. We have historically experienced substantial net
losses, although we did report net income of $26.8 million for the fiscal year ended March 31, 2019. From
April 1, 2011 through the date of this Annual Report, our various restructuring activities have resulted in a
substantial reduction of our global workforce. We plan to continue to closely monitor our expenses and, if
required, will further reduce operating costs and capital spending to enhance liquidity.

Our liquidity is highly dependent on our ability to profitably grow our revenues, control our operating costs,

and secure additional financing, if required. We may require additional capital to conduct our business and
adequately respond to future business challenges or opportunities, including, but not limited to, the need to
develop new products or enhance existing products, maintain or expand research and development projects,
collateralize performance bonds or letters of credit, and the need to build inventory or to invest other cash to
support business growth. In order to raise additional capital, we may offer shares of our common stock or other
securities convertible into or exchangeable for our common stock. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the ownership interest of each of our existing
stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders.

In the event that additional liquidity is required, there can be no assurance that such financing would be
available or, if available, that such financing could be obtained upon terms acceptable to us, which would have a
material adverse effect on our business, financial condition and prospects.

16

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.

While we have been required to provide performance bonds in the form of surety bonds or other forms of

security and letters of credit in the past, the size of the bonds and letters of credit was not material. In recent
years, we have entered into contracts that require us to post bonds of significant magnitude and some of our
suppliers have asked us to provide letters of credit. In many instances, we have been required to deposit cash in
escrow accounts as collateral for these instruments, which is unavailable to us for general use for significant
periods of time. Should we be unable to obtain performance bonds or letters of credit in the future, significant
future potential revenue could become unavailable to us. Further, should our working capital situation
deteriorate, we would not be able to access the restricted cash to meet working capital requirements.

Changes in exchange rates could adversely affect our results of operations.

Currency exchange rate fluctuations could have an adverse effect on our revenues and results of operations,

and we could experience losses with respect to hedging activities. In fiscal 2018, 74% of our revenues were
recognized from sales outside of the United States. In addition, approximately 38% of our revenues in fiscal 2018
were derived under sales contracts where prices were denominated in the Euro. Unfavorable currency
fluctuations could require us to increase prices to foreign customers, which could result in a lesser number of
orders, and therefore lower revenues, from such customers. Alternatively, if we do not adjust the prices for our
products in response to unfavorable currency fluctuations, our results of operations could be adversely affected.
In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which
these products are sold, and the currency they receive in payment for such sales could be less valuable at the time
of receipt as a result of exchange rate fluctuations. However, we cannot be certain that our efforts will be
adequate to protect us against significant currency fluctuations or that such efforts will not expose us to
additional exchange rate risks.

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.

Maintaining effective internal control over financial reporting is necessary for us to produce reliable

financial statements.

We note that a system of procedures and controls, no matter how well conceived and operated, can provide

only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent
limitations in all systems of procedures and controls, no evaluation can provide absolute assurance that all
control issues, including instances of fraud, if any, have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple errors or
mistakes. Additionally, procedures and controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override. The design of any system of procedures and
controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over
time, our systems of procedures and controls, as we further develop and enhance them, may become inadequate
because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective system of procedures and controls, misstatements due to
errors or fraud may occur and not be detected. Such misstatements could be material and require a restatement of
our financial statements.

If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely
financial information, and we may be unable to meet our reporting obligations or comply with the requirements
of the SEC or the Sarbanes-Oxley Act of 2002, which could result in the imposition of sanctions, including the

17

inability of registered broker dealers to make a market in our common stock, or an investigation by regulatory
authorities. Any such action or other negative results caused by our inability to meet our reporting requirements
or to comply with legal and regulatory requirements or by our disclosure of an accounting, reporting or control
issue could adversely affect the trading price of our securities and our business. Significant deficiencies or
material weaknesses in our internal control over financial reporting could also reduce our ability to obtain
financing or could increase the cost of any financing we obtain.

Risks Related to Our Operations

A significant portion of our revenues are derived from a single customer. If this customer’s business is

negatively affected, it will adversely impact our business.

Our largest customer is Inox in India. Inox accounted for 34% of our total revenues during the fiscal year
ended March 31, 2019 and 27% of our total revenues during the fiscal year ended March 31, 2018. Revenues
from Inox are supported by a supply contract to purchase, and a license to make, use and supply, wind turbine
ECS. Inox has been active in the new central and state government auction regime in India and has over 900 MW
of orders from the first four Solar Energy Corporation of India Limited (“SECI”) central government auctions,
and 50 MW from the Maharashtra state government auction. However, we cannot predict if and how successful
Inox will be in executing on these orders or in obtaining new orders under the new central and state auction
regime. Any failure by Inox to succeed under this regime, or any delay in Inox’s ability to deliver its wind
turbines, could result in fewer ECS shipments to Inox. If Inox cancels or does not fully perform under the supply
contract or discontinues future purchases from us under the supply contract, we would likely be unable to replace
the related revenues. Any of the foregoing actions would have a material adverse impact on our business,
operating results and financial position.

Our financial condition may have an adverse effect on our customer and supplier relationships.

Our relationships with our customers and suppliers are predicated on the belief that we will continue to
operate. Our customers, particularly in the utility industry, are generally risk averse and may not enter into sales
contracts with us if there is uncertainty regarding our ability to support working capital needs of large scale
projects. This has had, and may continue to have, an adverse effect on our ability to grow our revenues. In
addition, current and future suppliers may be less likely to grant us credit, resulting in a negative impact on our
working capital and cash flows.

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.

As a company that contracts with the U.S. government, we are subject to financial audits and other reviews

by the U.S. government of our costs and performance, accounting, and general business practices relating to
these contracts. Based on the results of these audits, the U.S. government may adjust our contract-related costs
and fees. We cannot be certain that adjustments arising from government audits and reviews would not have a
material adverse effect on our results of operations.

Our U.S. government contracts customarily contain other provisions that give the government substantial
rights and remedies, many of which are not typically found in commercial contracts, including provisions that
allow the government to:

•

•

obtain certain rights to the intellectual property that we develop under the contract;

decline to award future contracts if actual or apparent organizational conflicts of interest are
discovered, or to impose organizational conflict mitigation measures as a condition of eligibility for an
award;

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•

•

suspend or debar us from doing business with the government or a specific government agency; and

pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy
provisions unique to government contracting.

All of our U.S. government contracts, as well as certain of our contracts with third parties that are dependent

on U.S. government contracts, can be terminated by the U.S. government for its convenience, including our
contract with the Department of Homeland Security (“DHS”) to deploy our resilient electric grid (“REG”) system
in Commonwealth Edison Company’s (“ComEd”) electric grid in Chicago, Illinois (“Project REG”). Moving to
the manufacturing and construction stage of Project REG is dependent upon DHS’s approval of the subcontract
agreement entered into between AMSC and ComEd on October 31, 2018 (the “Subcontract Agreement”) for
Project REG. We can provide no assurance that DHS will approve the Subcontract Agreement for Project
REG. Termination-for-convenience provisions typically provide only for our recovery of costs incurred or
committed, and for settlement of expenses and profit on work completed prior to termination. In addition to the
right of the U.S. government to terminate its contracts with us, U.S. government contracts are conditioned upon
the continuing approval by the U.S. Congress of the necessary spending to honor such contracts. Congress often
appropriates funds for a program on a fiscal year basis even though contract performance may take more than
one year. Consequently, at the beginning of many major governmental programs, contracts often may not be fully
funded, and additional monies are then committed to the contract only if, as and when appropriations are made
by the U.S. Congress for future fiscal years. In addition, government shutdowns could prevent or delay such
contracts from being funded.

We cannot be certain that our U.S. government contracts, including our contract for Project REG, or our
contracts with third parties that relate to projects for the U.S. government will not be terminated or suspended in
the future. The U.S. government’s termination of, or failure to fully fund, one or more of our contracts would
have a negative impact on our operating results and financial condition. Further, in the event that any of our
government contracts are terminated for cause, it could affect our ability to obtain future government contracts
which could, in turn, seriously harm our ability to develop our technologies and products.

Our success in addressing the wind energy market is dependent on the manufacturers that license our

designs.

Because an important element of our strategy for addressing the wind energy market involves the license of
our wind turbine designs to manufacturers of those systems, the financial benefits to us from our products for the
wind energy market are dependent on the success of these manufacturers in selling wind turbines based on our
designs. We may not be able to enter into marketing or distribution arrangements with third parties on financially
acceptable terms, or at all, and third parties may not be successful in selling our products or applications
incorporating our products.

Our success is dependent upon attracting and retaining qualified personnel and our inability to do so could

significantly damage our business and prospects.

We have attracted a highly skilled management team and specialized workforce, including scientists,
engineers, researchers, manufacturing, personnel, and marketing and sales professionals. Hiring and retaining
good personnel for our business is challenging, and highly qualified technical personnel are likely to remain a
limited resource for the foreseeable future. We may not be able to hire the necessary personnel to implement our
business strategy. In addition, we may need to provide higher compensation or more training to our personnel
than we currently anticipate. Moreover, any officer or employee can terminate his or her relationship with us at
any time.

Over the past several years, we have substantially reduced our global workforce in order to lower expenses,
reorganize our global operations, and streamline various functions of the business, to match the demand for our

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products. Ongoing employee retention is challenging following these reductions in workforce and organizational
changes since we also must continue to motivate employees and keep them focused on our strategies and goals.
Losing the services of any of our executive officers or key employees could materially and adversely impact our
business.

We may experience difficulties re-establishing our HTS wire production capability in our Ayer,

Massachusetts facility.

As part of our effort to increase manufacturing efficiency, we moved from our former manufacturing facility
located in Devens, Massachusetts to our smaller-scale leased facility located in Ayer, Massachusetts. Moving our
HTS wire manufacturing operations to a different plant involves various risks, including the inability to
commence HTS wire manufacturing within the cost and time frame estimated and the inability to produce a high
quality product with an acceptable yield and cost. Failure to successfully commence the manufacturing of our
HTS wire due to these and other unforeseen risks could adversely affect our ability to meet customer demand for
our products and could increase the cost of production versus projections, both of which could adversely impact
our operating and financial results.

We may not realize all of the sales expected from our backlog of orders and contracts.

We cannot assure you that we will realize the revenue we expect to generate from our backlog in the periods

we expect to realize such revenue, or at all.

In addition, the backlog of orders, if realized, may not result in profitable revenue. Backlog represents the
value of contracts and purchase orders received for which delivery is expected in the next twelve months. Our
customers have the right under some circumstances and with some penalties or consequences to terminate,
reduce or defer firm orders that we have in backlog. In addition, our government contracts are subject to the risks
described above. If our customers terminate, reduce or defer firm orders, we may be protected from certain costs
and losses, but our sales will nevertheless be adversely affected and we may not generate the revenue we expect.

Although we strive to maintain ongoing relationships with our customers, there is an ongoing risk that they

may cancel orders or reschedule orders due to fluctuations in their business needs or purchasing budgets.

Our business and operations would be adversely impacted in the event of a failure or security breach of our

information technology infrastructure.

We rely upon the capacity, reliability, and security of our information technology hardware and software
infrastructure and our ability to expand and update this infrastructure in response to our changing needs. Any
failure to manage, expand, and update our information technology infrastructure or any failure in the operation of
this infrastructure could harm our business. In addition, the costs associated with updating and securing our
information technology infrastructure are likely to increase as such security measures become more complex,
which may harm our operating results and financial condition.

Despite our implementation of security measures, our systems are vulnerable to damages from computer

viruses, natural disasters, unauthorized access and other similar disruptions. Our business is also subject to
break-ins, sabotage, and intentional acts of vandalism by third parties as well as employees. Our business
activities in China may increase our risks to such breaches. Any system failure, accident, or security breach could
result in disruptions to our operations. To the extent that any disruption or security breach results in a loss or
damage to our data, or inappropriate disclosure of confidential information, it could harm our reputation, result in
substantial remediation costs, lead to lost revenues and litigation, increase our insurance premiums and have
other adverse effects on our business.

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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.

We are subject to many rapidly evolving privacy and data protection laws and regulations in Europe and
around the world. This requires us to operate in a complex environment where there are significant constraints on
how we can process personal data across our business. The European General Data Protection Regulation (the
“GDPR”), which became effective in May 2018, has established stringent data protection requirements for
companies doing business in or handling personal data of individuals in the European Union. The GDPR imposes
obligations on data controllers and processors including the requirement to maintain a record of their data
processing and to implement policies and procedures as part of their mandated privacy governance framework.
Breaches of the GDPR could result in substantial fines, which in some cases could be up to four percent of our
worldwide revenue. In addition, a breach of the GDPR or other data privacy or data protection laws or
regulations could result in regulatory investigations, reputational damage, orders to cease/change our use of data,
enforcement notices, as well potential civil claims including class action type litigation. There is a risk that we
may be subject to fines and penalties, litigation and reputational harm if we fail to properly process or protect the
data or privacy of third parties or comply with the GDPR or other applicable data privacy and data protection
regimes.

We rely upon third-party suppliers for the components and subassemblies of many of our Wind and Grid
products, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

Many of our components and subassemblies are currently manufactured for us by a limited number of

qualified suppliers. Any interruption in the supply of components or subassemblies, or our inability to obtain
substitute components or subassemblies from alternate sources at acceptable prices in a timely manner, could
impair our ability to meet the demand of our customers, which would have an adverse effect on our business and
operating results.

We are producing certain Wind products in our manufacturing facility in Romania. In order to minimize
costs and time to market, we have and will continue to identify local suppliers that meet our quality standards to
produce certain of our subassemblies and components. These efforts may not be successful. In addition, any
event which negatively impacts our supply, including, among others, wars, terrorist activities, natural disasters
and outbreaks of infectious disease, could delay or suspend shipments of products or the release of new products
or could result in the delivery of inferior products. Our revenues from the affected products would decline or we
could incur losses until such time as we are able to restore our production processes or put in place alternative
contract manufacturers or suppliers. Even though we carry business interruption insurance policies, we may
suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies.

Many of our revenue opportunities are dependent upon subcontractors and other business collaborators.

Many of the revenue opportunities for our business involve projects, such as the installation of

superconductor cables in power grids and electrical system hardware in wind turbines, in which we collaborate
with other companies, including suppliers of cryogenic systems, manufacturers of electric power cables and
manufacturers of wind turbines. As a result, most of our current and planned revenue-generating projects involve
business collaborators on whose performance our revenue is dependent. If these business collaborators fail to
deliver their products or perform their obligations on a timely basis or fail to generate sufficient demand for the
systems they manufacture, our revenue from the project may be delayed or decreased, and we may not be
successful in selling our products.

If we fail to implement our business strategy successfully, our financial performance could be harmed.

Our future financial performance and success are dependent in large part upon our ability to implement our

business strategy successfully. Our business strategy envisions several initiatives, including driving revenue

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growth and enhancing operating results by increasing customer adoption of our products by targeting high-
growth segments with commercial and system-level products. We may not be able to implement our business
strategy successfully or achieve the anticipated benefits of our business plan. If we are unable to do so, our long-
term growth and profitability may be adversely affected. Even if we are able to implement some or all of the
initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or
at all. In addition, to the extent we have misjudged the nature and extent of industry trends or our competition,
we may have difficulty in achieving our strategic objectives. Any failure to implement our business strategy
successfully may adversely affect our business, financial condition and results of operations. In addition, we may
decide to alter or discontinue certain aspects of our business strategy at any time.

Our ability to implement our business strategy could also be affected by a number of factors beyond our
control, such as increased competition, legal developments, government regulation, general economic conditions,
or increased operating costs or expenses.

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.

Consistent with customary practice in our industry, we guarantee our products and/or services to be free

from defects in material and workmanship under normal use and service. We generally provide a one- to
three-year warranty on our products, commencing upon installation. A provision is recorded upon revenue
recognition to cost of revenues for estimated warranty expense based on historical experience. The possibility of
future product failures or issues related to services we provided could cause us to incur substantial expenses to
repair or replace defective products or re-perform such services potentially in excess of our reserves.
Furthermore, widespread product failures may damage our market reputation and reduce our market share and
cause sales to decline.

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.

The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions
generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for
the purpose of obtaining or retaining business. Many of our customers outside of the United States are, either
directly or indirectly, related to governmental entities and are therefore subject to such anti-bribery laws. Our
policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have
experienced governmental corruption to some degree, and in certain circumstances strict compliance with anti-
bribery laws may conflict with local customs and practices. Our internal control policies and procedures may not
always protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws,
or allegations of such violations, could disrupt our business and result in a material adverse effect on our
business, results of operations and financial condition.

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.

To date, we have had limited success marketing and selling our superconductor products and system-level
solutions. Once our products and solutions are ready for widespread commercial use, we will have to develop a
marketing and sales organization that will effectively demonstrate the advantages of our products over more
traditional products, competing superconductor products and other technologies. We may not be successful in our
efforts to market this technology and we may not be able to establish an effective sales and distribution
organization.

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We may decide to enter into arrangements with third parties for the marketing or distribution of our

products, including arrangements in which our products, such as Amperium wire, are included as a component of
a larger product, such as a power cable system. By entering into marketing and sales alliances, the financial
benefits to us of commercializing our products will be dependent on the efforts of others.

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 prior acquisitions required substantial integration and management efforts. As a result of any
acquisition we pursue, management’s attention and resources may be diverted from our other businesses. An
acquisition may also involve the payment of a significant purchase price, which could reduce our cash position or
dilute our stockholders, and require significant transaction-related expenses.

Achieving the benefits of any acquisition involves additional risks, including:

•

•

•

•

•

difficulty assimilating acquired operations, technologies and personnel;

inability to retain management and other key personnel of the acquired business;

changes in management or other key personnel that may harm relationships with the acquired
business’s customers and employees;

unforeseen liabilities of the acquired business;

diversion of management’s and employees’ attention from other business matters as a result of the
integration process;

• mistaken assumptions about volumes, revenue and costs associated with the acquired business,

including synergies;

•

limitations on rights to indemnity from the seller;

• mistaken assumptions about the overall costs of equity or debt used to finance the acquisition; and

•

unforeseen difficulties operating in new product areas, with new customers, or in new geographic
areas.

We cannot provide any assurance that we will realize any of the anticipated benefits of any acquisition, and

if we fail to realize these anticipated benefits, our operating performance could suffer.

Risks Related to Our Markets

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.

To date, there has been no widespread commercial use of the REG system. It is uncertain whether a robust

commercial market for those new and unproven products will ever develop.

In addition, we believe in-grid demonstrations of REG systems are necessary to convince utilities and power

grid operators of the benefits of this technology. Even if a project is funded, completion of projects can be
delayed as a result of other factors. It is possible that the market demands we currently anticipate for our REG
system will not develop and that they will never achieve widespread commercial acceptance. In such event, we
would not be able to implement our strategy, and our profits could be reduced or eliminated. Even if a
commercial market for our REG systems were to develop, commercial terms requested by utilities and power
grid operators relating to bonding requirements, limitations of liability, warranty periods, or other contractual
provisions, may not be acceptable to us, which could impede our ability to enter into contractual arrangements
for the sale of our REG system.

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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.

At present, the cost of wind energy exceeds the cost of conventional power generation in many locations

around the world. Various governments have used different policy initiatives to encourage or accelerate the
development and adoption of wind energy and other renewable energy sources. Renewable energy policies are in
place in the European Union, certain countries in Asia, including India, China, Japan and South Korea, and many
of the states in Australia and the United States. Examples of government sponsored financial incentives include
capital cost rebates, feed-in tariffs, tax credits, net metering and other incentives to end-users, distributors,
system integrators and manufacturers of wind energy products to promote the use of wind energy and to reduce
dependency on other forms of energy. In the United States, various legislation and regulations designed to
support the growth of wind energy have been implemented or proposed by the federal government, such as the
Production Tax Credit for Renewable Energy (“PTC”) and the Clean Power Plan. Governments, including the
U.S. government, may decide to reduce or eliminate these economic incentives, or curtail legislative programs
supportive of wind energy technologies for political, financial or other reasons. Any reductions in, or
eliminations of, government subsidies, economic incentives or favorable legislative programs before the wind
energy industry reaches a sufficient scale to be cost-effective in a non-subsidized marketplace could reduce
demand for our products and adversely affect our business prospects and results of operations.

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.

We have operations in India and in recent years a significant portion of our total revenues has been derived

from customers in this market. Our financial performance depends upon our ability to carry on our operations
and sell our products in markets such as India, as well as other emerging markets around the world. We are, and
will continue to be, subject to financial, political, economic and business risks in connection with our operations
and sales in these emerging markets. In addition to the business risks inherent in developing and servicing these
markets, economic conditions may be more volatile, legal and regulatory systems less developed and predictable,
and the possibility of various types of adverse governmental action more pronounced in emerging markets. In
addition, inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labor problems
could affect our revenues, expenses and results of operations. Our operations could also be adversely affected by
acts of war, terrorism or the threat of any of these events as well as government actions such as controls on
imports, exports and prices, tariffs, new forms of taxation, or changes in fiscal regimes and increased government
regulation in the countries in which we operate or service customers. Unexpected or uncontrollable events or
circumstances in any of these markets could have a material adverse effect on our financial results and cash
flows.

Our financial performance could be affected by the political and social environment in India. In recent
years, India has experienced civil unrest and terrorism and has been involved in conflicts with neighboring
countries. The potential for hostilities between India and Pakistan has been high in light of tensions related to
recent terrorist incidents in India and the unsettled nature of the regional geopolitical environment, including
events in and related to Afghanistan and Iraq.

With respect to our activities in all emerging markets, we may be impacted by issues with managing foreign

sales operations, including long payment cycles, potential difficulties in accounts receivable collection and,
especially from significant customers, fluctuations in the timing and amount of orders. The adverse effect of any
of these issues on our business could be increased due to the concentration of our business with a small number
of customers. Operations in foreign countries also expose us to risks relating to difficulties in enforcing our
proprietary rights, currency fluctuations and adverse or deteriorating economic conditions. If we experience
problems with obtaining registrations, compliance with foreign country or applicable U.S. laws, or if we

24

experience difficulties in payments or intellectual property matters in foreign jurisdictions, or if significant
political, economic or regulatory changes occur, our results of operations would be adversely affected.

Our products face intense competition, which could limit our ability to acquire or retain customers.

The markets for our products are intensely competitive and many of our competitors have substantially
greater financial resources and research and development, manufacturing and marketing capabilities than we do.
In addition, as our target markets develop, other large industrial companies may enter these fields and compete
with us.

We face competition from other companies offering FACTS systems similar to our D-VAR products. These
include adaptive VAR compensators, Dynamic voltage restorers (“DVRs”), and STATCOMs produced by ABB,
Siemens, and Ingeteam, and battery-based uninterruptible power supply (“UPS”) systems offered by various
companies around the world.

With our HTS-based REG product, we are offering a new approach that provides alternatives to utilities for
power system design. Therefore, we believe that we compete with traditional approaches such as new full-sized
substations, overhead and underground transmission, and urban power transformers.

We believe we are currently the only company that can offer HTS-based SPS products that have been fully
qualified for use aboard U.S. Navy surface combatants. Therefore, the primary competition for our SPS products
is currently coming from defense contractors that provide the copper-based systems that our lighter, more
efficient HTS versions have been developed to replace. Companies such as L3, Excelis, Raytheon, and Textron
have the bulk of the copper-based business today.

As the HTS wire, superconductor electric motors and generators, and power electronic systems markets

develop, other large industrial companies may enter those fields and compete with us. If we are unable to
compete successfully, it may harm our business, which in turn may limit our ability to acquire or retain
customers.

With respect to our Wind business, other companies that serve the wind turbine components industry

include ABB, Hopewind, and Semikron. We also face indirect competition in the wind energy market from
global manufacturers of wind turbines, such as Siemens Gamesa, General Electric, and Suzlon. We face
competition for the supply of wind turbine engineering design services from design engineering firms such as
Aerodyn.

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.

In recent years, a substantial majority of our consolidated revenues were recognized from customers outside

of the United States. For example, 74% of our revenues in fiscal 2018 and 64% of our revenues in fiscal 2017
were recognized from sales outside the United States. We also manufacture certain of our products and purchase
a portion of our raw materials and components from suppliers in other foreign countries. Our international
operations are subject to a variety of risks that we do not face in the United States, including:

•

•

•

potentially longer payment cycles for sales in foreign countries and difficulties in collecting accounts
receivable;

difficulties in staffing and managing our foreign offices and the increased travel, infrastructure and
legal compliance costs associated with multiple international locations;

additional withholding taxes or other taxes on our foreign income and repatriated cash, and tariffs or
other restrictions on foreign trade or investment, including export duties and quotas, trade and
employment restrictions;

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•

•

•

•

imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements;

increased exposure to foreign currency exchange rate risk;

reduced protection for intellectual property rights in some countries; and

political unrest, war or acts of terrorism.

In addition, the current U.S. presidential administration has withdrawn the United States from the Trans-

Pacific Partnership trade agreement, is renegotiating the North American Free Trade Agreement, and has made
various comments suggesting the possible re-negotiation of or withdrawal from other trade agreements and the
potential imposition of new import barriers. Trade tensions between the U.S. and China, as well as those between
the U.S. and Canada, Mexico and other countries have been escalating in recent years. For example, the U.S.
administration has recently imposed new tariffs on products imported from China, which are likely to impact our
products and supplies imported from China to the U.S., and the Chinese government has countered with
additional retaliatory tariffs on U.S. manufactured goods. We cannot predict whether the United States or any
other country will impose new quotas, tariffs, taxes or other trade barriers upon the importation or exportation of
our products or gauge the effect that new barriers would have on our financial position or results of
operations. These new tariffs or any additional tariffs or other trade barriers may cause our costs to increase, our
products to be less competitive, and our business, results of operations and financial position to be materially
adversely affected.

Our overall success in international markets depends, in part, upon our ability to succeed in differing legal,
regulatory, economic, social and political conditions. We may not be successful in developing and implementing
policies and strategies that will be effective in managing these risks in each country where we do business or
conduct operations. Our failure to manage these risks successfully could harm our international operations and
reduce our international sales, thus lowering our total revenue and reducing or eliminating our profits.

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 wind energy market is affected by the price and availability of other fuels, including nuclear, coal,

natural gas and oil, as well as other sources of renewable energy. To the extent renewable energy,
particularly wind energy, becomes less cost-competitive due to reduced government targets, increases in the cost
of wind energy, as a result of new regulations, and incentives that favor alternative renewable energy, cheaper
alternatives or otherwise, demand for wind energy and other forms of renewable energy could decrease. Slow
growth or a long-term reduction in the demand for renewable energy could have a material adverse effect on our
ability to grow our Wind business.

Adverse changes in domestic and global economic conditions could adversely affect our operating results.

We have become increasingly subject to the risks arising from adverse changes in domestic and global
economic conditions. In recent years, the state of both the domestic and global economies has been uncertain due
to the difficulty in obtaining credit, weak economic recovery, and financial market volatility. Adverse credit
conditions in the future could have a negative impact on our ability to execute on future strategic activities. In
addition, if credit is difficult to obtain in the future, some customers may delay or reduce purchases. This could
result in reductions in sales of our products, longer sales cycles, slower adoption of new technologies, increased
accounts receivable and inventory write-offs and increased price competition. Any of these events would likely
harm our business, results of operations and financial condition.

Unfavorable results of legal proceedings could have a material adverse effect on our business, operating

results and financial condition.

From time to time, we may become subject to legal proceedings and claims that arise in or outside the
ordinary course of business. Results of legal proceedings cannot be predicted with certainty. Our insurance

26

coverage may be insufficient, our assets may be insufficient to cover any amounts that exceed our insurance
coverage, and we may have to pay damage awards or otherwise may enter into settlement arrangements in
connection with such claims. Any such payments or settlement arrangements in legal proceedings could have a
material adverse effect on our business, operating results or financial condition. Regardless of merit, legal
proceedings could result in substantial costs and significantly and adversely impact our reputation and divert
management’s attention and resources, which could have a material adverse effect on our business, operating
results or financial condition. In addition, such lawsuits may make it more difficult to finance our operations.

Risks Related to Our Technologies

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent

protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely, in part, on
confidentiality agreements with our employees, contractors, consultants, outside scientific collaborators and other
advisors to protect our trade secrets and other proprietary information. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. In addition, others may independently discover our trade
secrets or independently develop processes or products that are similar or identical to our trade secrets and courts
outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could
be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade
secret protection could adversely affect our competitive business position.

Our patents may not provide meaningful protection for our technology, which could result in us losing

some or all of our market position.

We own or have licensing rights under many patents and pending patent applications. However, the patents
that we own or license may not provide us with meaningful protection of our technologies and may not prevent
our competitors from using similar technologies for a variety of reasons, such as:

•

•

•

the patent applications that we or our licensors file may not result in patents being issued;

any patents issued may be challenged by third parties; and

others may independently develop similar technologies not protected by our patents or design around
the patented aspects of any technologies we develop.

Moreover, we could incur substantial litigation costs in defending the validity of or enforcing our own
patents. We also rely on trade secrets and proprietary know-how to protect our intellectual property. However,
our non-disclosure agreements and other safeguards may not provide meaningful protection for our trade secrets
and other proprietary information. If the patents that we own or license or our trade secrets and proprietary
know-how fail to protect our technologies, our market position may be adversely affected.

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.

Many of our superconductor products are in the early stages of commercialization, while others are still

under development. There are a number of technological challenges that we must successfully address to
complete our development and commercialization efforts for superconductor products. We will also need to
improve the performance and reduce the cost of our Amperium wire to expand the number of commercial
applications for it. We may be unable to meet such technological challenges or to sufficiently improve the
performance and reduce the costs of our Amperium wire. Delays in development, as a result of technological
challenges or other factors, may result in the introduction or commercial acceptance of our superconductor
products later than anticipated.

27

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.

We expect that some or all of the HTS materials, processes and technologies we use in designing and

manufacturing our products are or will become covered by patents issued to other parties, including our
competitors. The owners of these patents may refuse to grant licenses to us, or may be willing to do so only on
terms that we find commercially unreasonable. If we are unable to obtain these licenses, we may have to contest
the validity or scope of those patents or re-engineer our products to avoid infringement claims by the owners of
these patents. It is possible that we will not be successful in contesting the validity or scope of a patent, or that we
will not prevail in a patent infringement claim brought against us. Even if we are successful in such a proceeding,
we could incur substantial costs and diversion of management resources in prosecuting or defending such a
proceeding.

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.

In recent years, there has been significant litigation involving patents and other intellectual property rights in

many technology-related industries. There may be patents or patent applications in the United States or other
countries that are pertinent to our products or business of which we are not aware. The technology that we
incorporate into and use to develop and manufacture our current and future products, including the technologies
we license, may be subject to claims that they infringe the patents or proprietary rights of others. The success of
our business will also depend on our ability to develop new technologies without infringing or misappropriating
the proprietary rights of others. Third parties may allege that we infringe patents, trademarks or copyrights, or
that we misappropriated trade secrets. These allegations could result in significant costs and diversion of the
attention of management. If a successful claim were brought against us and we are found to infringe a third
party’s intellectual property rights, we could be required to pay substantial damages, including treble damages if
it is determined that we have willfully infringed such rights, or be enjoined from using the technology deemed to
be infringing, or using, making or selling products deemed to be infringing. If we have supplied infringing
products or technology to third parties, we may be obligated to indemnify these third parties for damages they
may be required to pay to the patent holder and for any losses they may sustain as a result of the infringement. In
addition, we may need to attempt to license the intellectual property right from such third party or spend time and
money to design around or avoid the intellectual property. Any such license may not be available on reasonable
terms, or at all. An adverse determination may subject us to significant liabilities and/or disrupt our business.

Risks Related to Our Common Stock

Our common stock has experienced, and may continue to experience, significant market price and volume
fluctuations, which may prevent our stockholders from selling our common stock at a profit and could lead to
costly litigation against us that could divert our management’s attention.

The market price of our common stock has historically experienced significant volatility and may continue

to experience such volatility in the future. Factors such as our financial performance, liquidity requirements,
technological achievements by us and our competitors, the establishment of development or strategic
relationships with other companies, strategic acquisitions, new customer orders and contracts, and our
introduction of commercial products may have a significant effect on the market price of our common stock. The
stock market in general, and the stock of high technology companies, in particular, have, in recent years,
experienced extreme price and volume fluctuations, which are often unrelated to the performance or condition of
particular companies. Such broad market fluctuations could adversely affect the market price of our common
stock. Due to these factors, the price of our common stock may decline and investors may be unable to resell
their shares of our common stock for a profit. Following periods of volatility in the market price of a particular
company’s securities, securities class action litigation has often been brought against that company. In the past,
we have been subject to a number of class action lawsuits which were filed against us on behalf of certain

28

purchasers of our common stock. If we become subject to additional litigation of this kind in the future, it could
result in additional substantial litigation costs, a damages award against us and the further diversion of our
management’s attention.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.

PROPERTIES

Our corporate headquarters and Grid manufacturing operations are located in a leased 88,000-square-foot
facility in Ayer, Massachusetts. Our Wind manufacturing operations are located in a leased 62,000-square-foot
facility in Timisoara, Romania.

We also occupy leased facilities located in Australia, Austria, China, India, Wisconsin, Washington and the
United Kingdom with a combined total of approximately 76,000 square feet of space. These leases have varying
expiration dates through November 2022 which can generally be terminated at our request after a six month
advance notice. These locations focus primarily on applications engineering, sales and/or field service and do not
have significant leases or physical presence. We believe all of these facilities are well-maintained and suitable for
their intended uses.

The following table summarizes information regarding our significant leased properties, as of March 31,

2019:

Location

United States

Supporting

Square
footage

Owned/
Leased

Ayer, Massachusetts . . . . . . . . . . . .

Corporate & Grid Segment

88,000

Leased

Romania

Timisoara . . . . . . . . . . . . . . . . . . . . . Wind Segment

62,000

Leased

Item 3.

LEGAL PROCEEDINGS

We are not party to any material legal proceedings.

Item 4. MINE SAFETY DISCLOSURES

Not Applicable.

29

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been listed on the Nasdaq Global Select Market under the symbol “AMSC” since
1991. The following table sets forth the high and low sales price per share of our common stock as reported on
the Nasdaq Global Select Market for each quarter of the two most recent fiscal years.

Fiscal year ended March 31, 2019:
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal year ended March 31, 2018:
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common Stock
Price

High

Low

$ 8.03
7.50
12.50
16.44

$ 7.75
4.98
4.84
6.51

$ 5.31
4.84
5.78
10.62

$ 3.88
2.89
3.06
3.62

Holders

The number of holders of record of our common stock on May 30, 2019 was 199.

Dividend Policy

We have never paid cash dividends on our common stock. We currently intend to retain earnings, if any, to
fund the development and growth of our business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking
into account various factors, including our financial condition, operating results, current and anticipated cash
needs and plans for expansion.

Stock Performance Graph

The following graph compares the cumulative total stockholder return on our common stock from
March 31, 2014 to March 31, 2019 with the cumulative total return of (i) the Nasdaq Composite Index and
(ii) the Nasdaq Electrical Components & Equipment Index.

This graph assumes the investment of $100.00 on March 31, 2014 in our common stock, the Nasdaq
Composite Index and the Nasdaq Electrical Components & Equipment Index, and assumes any dividends are
reinvested. Measurement points are March 31, 2014; March 31, 2015; March 31, 2016; March 31, 2017;
March 31, 2018; and March 31, 2019.

30

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among American Superconductor Corporation,
the Nasdaq Composite Index and the Nasdaq Electrical Components & Equipment Index

Nasdaq Composite - XCMP

Nasdaq Elect. Components - NQUSB2733T

AMSC - USQ

9/30/14

3/31/15

9/30/15

3/31/16

9/30/16

3/31/17

9/30/17

3/31/18

9/30/18

3/31/19

250

200

150

100

50

0

3/31/14

Company/Index

2014

2015

2016

2017

2018

2019

American Superconductor Corporation . . . . . . . . . . . . . .
Nasdaq Composite Index . . . . . . . . . . . . . . . . . . . . . . . . .
Nasdaq Electrical Components & Equipment Index . . . .

100.00
100.00
100.00

40.00
118.12
108.39

47.20
118.77
98.83

42.61
145.94
124.54

36.15
176.24
139.12

79.88
194.97
138.22

Fiscal year ended March 31,

Item 6.

SELECTED FINANCIAL DATA

This item is not required for smaller reporting companies.

31

Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Executive Overview

We are a leading provider of megawatt-scale solutions that enhance the performance of the power grid,
protect our Navy’s fleet, and lower the cost of wind power. In the power grid market, we enable electric utilities,
industrial facilities, and renewable energy project developers to connect, transmit and distribute 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 in-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 electric utilities, power
generation project developers and wind turbine manufacturers.

• Grid. Through our Gridtec Solutions™, our Grid business segment enables electric utilities 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 beginning on April 1 of that same year. For example, fiscal 2018 refers to the fiscal
year beginning on April 1, 2018. Other fiscal years follow similarly.

We have historically experienced recurring operating losses, despite generating net income of $26.8 million
in the fiscal year ended March 31, 2019, and as of March 31, 2019 had an accumulated deficit of $961.5 million.

32

In addition, although we generated positive operating cash flow in the fiscal year ended March 31, 2019, we have
historically experienced recurring negative operating cash flows. At March 31, 2019, we had cash and cash
equivalents of $77.5 million, with no outstanding debt other than ordinary trade payables. Cash generated from
operations for the fiscal year ended March 31, 2019 was $42.7 million. The current period results include the net
gain received from the first and second installments of the Sinovel settlement of $52.7 million in fiscal 2018.

On July 3, 2018, we and our wholly-owned subsidiaries Suzhou AMSC Superconductor Co. Ltd. (“AMSC

China”) and AMSC Austria GmbH (“AMSC Austria”) entered into a settlement agreement (the “Settlement
Agreement”) with Sinovel Wind Group Co., Ltd. (“Sinovel”). The Settlement Agreement settled the previously
disclosed litigation and arbitration proceedings between us and Sinovel (the “Proceedings”), and any other civil
claims, counterclaims, causes of action, rights and obligations directly or indirectly relating to the subject matters
of the Proceedings and our contracts with Sinovel (the “Contracts”), subject to certain exceptions. Under the
terms of the Settlement Agreement, Sinovel agreed to pay AMSC China an aggregate cash amount in Renminbi
(“RMB”) equivalent to $57.5 million, consisting of two installments. Sinovel paid the first installment of the
RMB equivalent of $32.5 million on July 4, 2018, and paid the second installment of the RMB equivalent of
$25.0 million on December 27, 2018.

In addition, pursuant to the terms of the Settlement Agreement, we and AMSC Austria have granted Sinovel

a non-exclusive license for certain of our intellectual property to be used solely in Sinovel’s doubly fed wind
turbines (the “License”). We have agreed not to sue Sinovel, Sinovel’s power converter suppliers or Sinovel’s
customers for use of the technology covered by the License.

On July 25, 2018, we received notice from BASF Corporation (“BASF”) that BASF will not be extending

the term of the Joint Development Agreement dated March 4, 2016 (“JDA”) by and between BASF and us
beyond March 3, 2019. As a result, BASF will not be required to pay $1.0 million in 2019 to us as otherwise
would have been required pursuant to the terms of the JDA. To date, BASF has paid $6.0 million to us under the
JDA.

On October 31, 2018, we entered into a Subcontract Agreement with Commonwealth Edison Company
(“ComEd”) (the “Subcontract Agreement”) for the manufacture and installation of our resilient electric grid
(“REG”) system within ComEd’s electric grid in Chicago, Illinois (the “Project”). As provided in the Subcontract
Agreement, the Subcontract Agreement will become 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
ourselves and DHS. Unless terminated earlier by ourselves 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 have 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 expect funding provided by
DHS in connection with the Subcontract Agreement to be between $9.0 to $11.0 million, which represents the
total amount of revenues we are expected to recognize over the term of the Subcontract Agreement and includes
up to $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 have agreed to deliver
an irrevocable letter of credit in the amount of $5.0 million to secure certain obligations under the Subcontract
Agreement. ComEd has agreed to provide the site and provide all civil engineering work required to support the
installation, 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. Construction of the Project is
expected to commence within six months after DHS’s approval. The REG system is expected to be operational in
2021.

33

Results of Operations

Fiscal Years Ended March 31, 2019 and March 31, 2018

Revenues

Total revenues increased by 16% to $56.2 million in fiscal 2018 from $48.4 million in fiscal 2017. Our

revenues are summarized as follows (in thousands):

Fiscal Years Ended
March 31,

2019

2018

Revenues:

Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$34,290
21,917

$34,109
14,294

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$56,207

$48,403

Revenues in our Grid business unit are derived from our D-VAR product sales, HTS wire sales, ship

protection systems, government-sponsored electric utility projects, license contracts and other prototype
development contracts. We also engineer, install and commission our products on a turnkey-basis for some
customers. The Grid business unit accounted for 61% of total revenues in fiscal 2018 and 70% in fiscal 2017.
Grid revenue remained constant with an increase of 1% to $34.3 million in fiscal 2018 from $34.1 million in
fiscal 2017.

Revenues in our Wind business unit are derived from wind turbine electrical control systems and core
components, wind turbine license and development contracts, service contracts and consulting arrangements. Our
Wind business unit accounted for 39% of total revenues in fiscal 2018 and 30% in fiscal 2017. Revenues in the
Wind business unit increased 53% to $21.9 million in fiscal 2018 from $14.3 million in fiscal 2017. The increase
in Wind business unit revenues was driven primarily by increased revenues from Inox in India due to increased
ECS shipments during fiscal 2018. Inox has been active in the new central and state government auction regime
in India and has over 900 MW of orders from the first four Solar Energy Corporation of India Limited (“SECI”)
central government auctions, and 50 MW from the Maharashtra state government auction. However, we cannot
predict if and how successful Inox will be in executing on these orders or in obtaining new orders under the new
central and state auction regime. Any failure by Inox to succeed under this regime, or any delay in Inox’s ability
to deliver its wind turbines, could result in fewer ECS shipments to Inox.

Cost of Revenues and Gross Margin

Cost of revenues decreased by 5% to $42.2 million in fiscal 2018, compared to $44.6 million in fiscal 2017.
Gross margin increased to 24.9% in fiscal 2018 from 7.8% in fiscal 2017. The increase in gross margin in fiscal
2018 was driven primarily by lower depreciation and reduced fixed factory overhead.

Operating Expenses

Research and development

Research and development (“R&D”) expenses decreased by 15% to $9.9 million, or 18% of revenue in
fiscal 2018, compared to $11.6 million, or 24% of revenue, in fiscal 2017. The decrease in R&D expenses is
primarily the result of lower compensation cost due to decreased headcount.

Selling, general, and administrative

Selling, general and administrative (“SG&A”) expenses decreased by 2% to $22.0 million, or 39% of
revenue in fiscal 2018 from $22.6 million, or 47% of revenue, in fiscal 2017. The decrease in SG&A expenses is
primarily the result of lower compensation cost due to decreased headcount.

34

Gain on Sinovel settlement

We recorded a gain of $52.7 million, net of legal and other direct costs, in the year ended March 31, 2019,

as a result of the receipt of the payments from Sinovel Wind Group Co., Ltd. (“Sinovel”) required by the
Settlement Agreement, described further above.

Amortization of acquisition related intangibles

We recorded $0.3 million in fiscal 2018 and $0.2 million in fiscal 2017 in amortization expense related

to our core technology and know-how, and trade names and trademark intangible assets.

Change in fair value of contingent consideration

The change in fair value of our contingent consideration for a make whole payment related to
our acquisition of Infinia Technology Corporation in 2017 (the “ITC Acquisition”) resulted in a loss of
$0.1 million in fiscal 2017. The change in the fair value was primarily driven by the change in stock price from
the acquisition date through the settlement date.

Restructuring

We recorded restructuring charges of $0.5 million in fiscal 2018 for facility exit costs and $1.5 million in
fiscal 2017, which was comprised of $1.3 million severance pay as a result of the reduction in force announced
on April 4, 2017 and $0.2 million for facility exit costs resulting from the move of the corporate office. Included
in the $1.3 million severance pay, charged to operations in the year ended March 31, 2018, is $0.5 million of
severance pay for one of our former executive officers pursuant to the terms of a severance agreement dated
June 30, 2017. Under the terms of the severance agreement, our former executive officer was entitled to eighteen
months of his base salary, and received his final severance payment in December 2018.

Operating income (loss)

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

Fiscal Years Ended
March 31,

2019

2018

Operating income (loss):

Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated corporate expenses . . . . . . . . . . . . . . . . .

$(10,600)
48,103
(3,480)

$(18,963)
(8,904)
(4,290)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 34,023

$(32,157)

The Grid segment generated operating losses of $10.6 million in fiscal 2018 and $19.0 million in fiscal
2017. The decrease in operating loss for fiscal 2018 is primarily due to lower depreciation and lower operating
expenses compared to the prior year.

The Wind segment generated operating income of $48.1 million in fiscal 2018 and an operating loss of
$8.9 million in fiscal 2017. The increase in operating income for fiscal 2018 was due primarily to the receipt of
the payments from Sinovel required by the Settlement Agreement, as well as increased shipments of ECS to
Inox.

Unallocated corporate expenses in fiscal 2018 consisted of stock-based compensation expense of

$3.0 million, and a restructuring charge of $0.5 million. Unallocated corporate expenses in fiscal 2017 consisted
of stock-based compensation expense of $2.7 million, a restructuring charge of $1.5 million, as well as
$0.1 million for the change in fair value of the contingent consideration for the ITC Acquisition.

35

Change in fair value of warrants

The change in fair value of warrants resulted in a loss of $3.7 million in fiscal 2018 compared to a gain of

$0.7 million in fiscal 2017. The changes in the fair value were primarily due to changes in our stock price, which
is a key valuation metric.

Gain on sale of minority interest

We recorded a gain on sale of minority interest of $0.1 million related to receipt of payment from the prior

sale of Blade Dynamics in fiscal 2018 compared to $1.2 million in fiscal 2017 related to receipt of payments
from the prior sales of our investments in Tres Amigas and Blade Dynamics, which were fully impaired prior to
the time of their sale.

Interest income, net

Interest income, net was $1.1 million in fiscal 2018 compared to interest income, net of $0.1 million for
fiscal 2017. The increase in interest income, net, was driven primarily by higher cash balances earning higher
interest rates than in the prior year.

Other (expense) income, net

Other income, net was $1.6 million in fiscal 2018, compared to other expense, net of $2.8 million in fiscal

2017. The increase in other income, net was due primarily to higher foreign currency gains in fiscal 2018.

Income Taxes

We recorded an income tax expense of $6.4 million in fiscal 2018 compared to an income tax benefit of
$0.2 million in fiscal 2017. The increase in income tax expense was primarily due to the repayment of previously
reserved intercompany trade balances due to AMSC Austria from AMSC China, a dividend paid by AMSC
Austria to the parent company following the Sinovel settlement and deferred tax expense related to withholding
taxes expected on future foreign dividends to the parent.

Please refer to the “Risk Factors” section in Part I, Item 1A, for a discussion of certain factors that may

affect our future results of operations and financial condition.

Non-GAAP Measures

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 generally accepted accounting
principles in the United States (“GAAP”). The non-GAAP measures included in this Form 10-K, however,
should be considered in addition to, and not as a substitute for or superior to the comparable measure prepared in
accordance with GAAP.

We define non-GAAP net loss as net loss before gain on sale of minority investments, gain on Sinovel
settlement, net, stock-based compensation, amortization of acquisition-related intangibles, consumption of zero
cost-basis inventory; changes in fair value of warrants and contingent consideration, non-cash interest expense,
other non-cash or unusual charges, and the tax effect of adjustments indicated in the table below. The tax effect
of adjustments relates primarily to the gain on Sinovel settlement, net. 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

36

strategies. A reconciliation of GAAP to non-GAAP net loss is set forth in the table below (in thousands, except
per share data):

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of interest in minority investments . . . . . . . .
Gain on Sinovel settlement, net
. . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquisition-related intangibles . . . . . . . . .
Consumption of zero cost-basis inventory . . . . . . . . . . . . .
Change in fair value of warrants and contingent

consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended March 31,

2019

2018

$ 26,761
(127)
(52,698)
3,030
340
—

$(32,776)
(1,167)
—
2,692
183
(734)

3,725
—
5,925

(635)
19
177

Non-GAAP net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13,044)

(32,241)

Non-GAAP net loss per share . . . . . . . . . . . . . . . . . . . . . .

$

(0.64)

$

(1.70)

Weighted average shares outstanding - basic and

diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,335

18,967

We incurred non-GAAP net losses of $13.0 million or $0.64 per share for fiscal 2018, compared to

$32.2 million, or $1.70 per share, for fiscal 2017. The decrease in non-GAAP net loss in fiscal 2018 compared to
fiscal 2017 was driven primarily by an increase in net income driven by higher revenues, as well as lower
depreciation and operating costs.

We define non-GAAP operating cash flow as operating cash flow before: the gain on Sinovel settlement
(net of legal fees and expenses); tax effect of Sinovel settlement, net; and other unusual cash flows or items. We
believe non-GAAP operating cash flow assists management and investors in comparing our operating cash flow
across reporting periods on a consistent basis by excluding these non-recurring cash items that we do not believe
are indicative of our core operating cash flow. A reconciliation of GAAP to non-GAAP operating cash flow is set
forth in the table below (in thousands):

Operating cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sinovel settlement (net of legal fees and expenses) . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Tax effect of Sinovel settlement, net

March 31,
2019

$ 42,714
(52,740)
2,377

Non-GAAP operating cash flow . . . . . . . . . . . . . . . . . . . . . . .

$ (7,649)

Liquidity and Capital Resources

We have experienced recurring operating losses and as of March 31, 2019 had an accumulated deficit of
$961.5 million. In addition, although we generated positive operating cash flows in the year ended March 31,
2019, we have historically experienced recurring negative operating cash flows. Although our sales to Inox
increased in the year ended March 31, 2019 compared to the year ended March 31, 2018, we cannot predict if
and how successful Inox will be in executing on SECI orders or in obtaining additional orders under the new
central and state auction regime. Any failure by Inox to succeed under this regime, or any delay in Inox’s ability
to deliver its wind turbines, could result in fewer ECS shipments to Inox

Our cash requirements depend on numerous factors, including whether Inox is successful under the new
central and state auction regime as noted above, the successful completion of our product development activities,

37

our ability to commercialize our REG system and ship protection system solutions, rate of customer and market
adoption of our products, collecting receivables according to established terms, and the continued availability of
U.S. government funding during the product development phase of our Superconductors-based products. We
continue to closely monitor our expenses and, if necessary, expect to further reduce our operating and capital
spending to enhance liquidity.

At March 31, 2019, we had cash, cash equivalents, and restricted cash of $78.2 million, compared to
$34.2 million at March 31, 2018, an increase of $44.0 million. Our cash, cash equivalents and restricted cash
balance as of March 31, 2019 reflects the $52.7 million in payments from Sinovel under the Settlement
Agreement, as described above. As of March 31, 2019, we had approximately $31.6 million of cash, cash
equivalents, and restricted cash in foreign bank accounts. Our cash and cash equivalents, and restricted cash are
summarized as follows (in thousands):

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$77,483
715

$34,084
165

Total cash, cash equivalents, and restricted cash . . . . . . . .

$78,198

$34,249

March 31,
2019

March 31,
2018

Net cash provided by (used in) operating activities was $42.7 million and ($24.8 million) in fiscal 2018 and

2017, respectively. The increase in net cash provided by operations in fiscal 2018 compared to fiscal 2017 was
due primarily to the receipt of the full amount of the Sinovel settlement, offset slightly by lower depreciation
expense in fiscal 2018.

Net cash provided by investing activities was $2.2 million and $15.6 million in fiscal 2018 and 2017,
respectively. The decrease in net cash provided by investing activities in fiscal 2018 compared to fiscal 2017 was
due primarily to the proceeds from the sale of the Devens property in fiscal 2017, with no similar transactions in
fiscal 2018.

Net cash provided by (used in) financing activities was ($0.3 million) and $15.3 million in fiscal 2018 and

2017, respectively. The decrease in net cash provided by financing activities in fiscal 2018 compared to fiscal
2017 was primarily due to the proceeds from our equity offering in fiscal 2017 and the lack of a similar offering
in fiscal 2018.

At March 31, 2019, we had $0.7 million of restricted cash included in long-term assets and at March 31,

2018, we had $0.2 million of restricted cash included in long-term assets. These amounts included in restricted
cash primarily represent deposits to secure surety bonds and letters of credit for various customer contracts.
These deposits are held in interest bearing accounts.

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, including our ability to collect revenues under our agreements with
Inox, control our operating costs, and our ability to 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.

Legal Proceedings

From time to time, we are involved in legal and administrative proceedings and claims of various types. 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

38

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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined under SEC rules, such as relationships with

unconsolidated entities or financial partnerships, which are often referred to as structured finance or special
purpose entities, established for the purpose of facilitating transactions that are not required to be reflected on our
balance sheet except as discussed below.

We occasionally enter into construction contracts that include a performance bond. As these contracts
progress, we continually assess the probability of a payout from the performance bond. Should we determine that
such a payout is probable, we would record a liability.

In addition, we have various contractual arrangements, under which we have committed to purchase certain

minimum quantities of goods or services on an annual basis.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting
Standards Board (“IASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with
Customers (Topic 606). The guidance substantially converges final standards on revenue recognition between the
FASB and IASB providing a framework on addressing revenue recognition issues and, upon its effective date,
replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S.
generally accepted accounting principles. The FASB has subsequently issued multiple amendments to ASU
2014-09 which are all effective for annual reporting periods beginning after December 15, 2017.

As of April 1, 2018, we have adopted ASU 2014-09 and its amendments, reported the impact in our
consolidated financial statements, and implemented changes to our business processes, systems and controls to
support revenue recognition and the related disclosures under this ASU. Our assessment included a detailed
review of representative contracts from each of our revenue streams and a comparison of our historical
accounting policies and practices to the new standard. We adopted the new standards retrospectively with the
cumulative effect of initially applying the guidance recognized at the date of initial application (the modified
retrospective transition method) to all existing contracts that have remaining obligations as of April 1, 2018.
Accordingly, we have elected to retroactively adjust only those contracts that do not meet the definition of a
complete contract at the date of the initial application. This guidance has led us to recognize certain revenue
transactions sooner than in the past on certain contracts, as we need to estimate the revenue we will be entitled to
upon contract completion, and later on other contracts, such as Consulting and Statement of Work transactions,
due to the lack of an enforceable right to payment for performance obligations satisfied over time. There are no
changes in the accounting for our largest revenue stream which includes Inox Wind Ltd as our primary customer.
Across other revenue streams such as D-VAR® Equipment and D-VAR® Turnkey, the timing of revenue
recognition will be affected for multiple types of contracts, primarily multiple performance obligation contracts
in our Grid business unit, but those differences did not have a material impact on our consolidated financial
statements. The adjustment to opening retained earnings was not significant for the period commencing on
April 1, 2018. Additionally, the adoption of this new standard did not have any tax impact on the consolidated
financial statements. As part of this analysis, we evaluated our information technology capabilities and systems,
and did not incur significant information technology costs to modify systems currently in place.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-01

39

enhance the reporting model for financial instruments to provide users of financial statements with more
decision-useful information. This ASU is effective for annual reporting periods beginning after December 15,
2017, and interim periods within those fiscal years. We adopted ASU 2016-01 effective April 1, 2018 and noted
no significant impact to our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU

supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize
lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will
be classified as either finance or operating, with classification affecting the pattern of expense recognition in the
income statement. This ASU and its amendments are effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years.

•

•

In July 2018, the FASB issued ASU 2018-10, Codification improvements to Topic 842, Leases. The
amendments in ASU 2018-10 provide more clarification in regards to the application and requirements
of ASU 2016-02.

In July 2018, the FASB issued ASU 2018-11, Topic 842, Leases — Targeted improvements. The
amendments in ASU 2018-11 provide for the option to adopt the standard prospectively and recognize
a cumulative-effect adjustment to the opening balance of retained earnings as well as offer a new
practical expedient that will allow us to elect, by class of underlying asset, to not separate non-lease
and lease components in certain circumstances and instead to account for those components as a single
item.

We have evaluated the provisions of ASU 2016-02 and its amendments, and assessed the impact the
adoption of this guidance will have on our financial position, results of operations and disclosures. This process
has included identifying the implementation team, applying the revised definition of a lease per Accounting
Standards Codification (“ASC”) 842 to existing agreements and, from that information, creating an initial
population. We have made the policy election to exclude all leases shorter than 12 months from the recognition
of the recording of the right of use (“ROU”) asset and related liabilities. We have elected the package of three
practical expedients in regards to all leases that commenced before the effective date. We made a policy election
to not separate non-lease and lease components for all asset classes. The adoption of this guidance will result in
certain changes to our financial statements to add the related asset and liability accounts for all of our operating
leases. We will continue to assess our agreements for any other impacts that may result from the adoption of this
standard. Based on our analysis of our population of lease agreements we have determined that our initial
population will be made up entirely of operating leases. We have prepared control wording, and are finalizing the
overall lease policy as well as identifying and implementing changes necessary to comply with the provisions of
ASU 2016-02.

ASU 2016-02 became effective on April 1, 2019, and we adopted the new standard using the modified
retrospective transition method, which impacts all leases existing at, or entered into after the period of adoption.
For all leases existing at the time of adoption we will recognize a cumulative effect adjustment to the opening
balance of retained earnings as of April 1, 2019. As a result of the adoption of ASC 842, we expect to recognize
an increase in net lease assets between $3.0 million and $5.0 million and an increase in net lease liabilities
between $3.0 million and $5.0 million related to the recognition of a right-of-use asset and the associated
liability.

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 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. The ASU is effective for annual reporting periods
beginning after December 15, 2019, including interim periods within that year. We are currently evaluating the
impact, if any, the adoption of ASU 2016-13 may have on our consolidated financial statements.

40

In 2016, the FASB issued the following two ASU’s on Statement of Cash Flows (Topic 230). Both
amendments are effective for annual reporting periods beginning after December 15, 2017, including interim
periods within that year.

•

•

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments. The amendments in ASU 2016-15 provide more
guidance towards the classification of multiple different types of cash flows in order to reduce the
diversity in reporting across entities.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash. The amendments in ASU 2016-18 explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be
included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows.

We adopted ASU 2016-15 and ASU 2016-18 effective April 1, 2018 and and the consolidated statement of

cash flow has been prepared to conform with ASU 2016-18 for all periods presented.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory. The amendments in ASU 2016-16 improve the accounting for the income tax
consequences of intra-entity transfers of assets other than inventory. The ASU is effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that year. We adopted ASU
2016-16 effective April 1, 2018 and noted no significant impact to our consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income — Gains and Losses from the

Derecognition of Non-financial Assets (Subtopic 610-20). The amendments in ASU 2017-05 clarify the scope of
Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Non-financial Assets, and add
guidance for partial sales of non-financial assets. Subtopic 610-20, which was issued in May 2014 as a part of
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains
and losses from the transfer of non-financial assets in contracts with non-customers. We adopted ASU 2017-05
effective April 1, 2018 and adjusted the opening balance of accumulated deficit by $0.1 million for recognition
of the deferred gain on the sale of the 64 Jackson Road building that occurred on March 28, 2018.

In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Subtopic 718) Scope

of Modification Accounting. The amendments in ASU 2017-09 provide clarity and reduce both (1) diversity in
practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation — Stock
Compensation, to a change to the terms or conditions of a share-based payment award. The ASU is effective for
annual reporting periods beginning after December 15, 2017, including interim periods within those periods. We
adopted ASU 2017-09 effective April 1, 2018 and noted no significant impact to our consolidated financial
statements.

In July 2017, the FASB issued ASU 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities
from Equity (Topic 480), and Derivatives and Hedging (Topic 815). The amendments in ASU 2017-11 provide
guidance for freestanding equity-linked financial instruments, such as warrants and conversion options in
convertible debt or preferred stock, and should no longer be accounted for as a derivative liability at fair value as
a result of the existence of a down round feature. The ASU is effective for annual reporting periods beginning
after December 15, 2018, including interim periods within those periods. We are currently evaluating the impact
the adoption of ASU 2017-11 and do not expect a significant impact on our consolidated financial statements,
primarily due to the put option feature which requires continued liability classification under ASC 840.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The amendments in ASU 2017-12 provide improved

41

financial reporting of hedging relationships to better portray the economic results of an entity’s risk management
activities in its financial statements. In addition, the amendments in this update make certain targeted
improvements to simplify the application of the hedge accounting guidance. The ASU is effective for annual
reporting periods beginning after December 15, 2018, including interim periods within those periods. We are
currently evaluating the impact the adoption of ASU 2017-12 may have on our consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718):
Improvements to Non-Employee Share Based Payment Accounting. The amendments in ASU 2018-07 provide
for the simplification of the measurement of share-based payment transactions for acquiring goods and services
from non-employees. The ASU is effective for annual reporting periods beginning after December 15, 2018,
including interim periods within those periods. We adopted ASU 2018-07 effective April 1, 2018 and noted no
significant impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the
Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 provide for increased
effectiveness of the disclosures made around fair value measurements while including consideration for costs and
benefits. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim
periods within those periods. We are currently evaluating the impact the adoption of ASU 2018-13 may have on
our consolidated financial statements.

We do not believe that other recently issued accounting pronouncements will have a material impact on our

financial statements.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires that we make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue 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. Our accounting policies that involve the most significant judgments
and estimates are as follows:

• Revenue recognition;

• Accounts receivable;

•

Inventory;

• Valuation of long-lived assets;

• Goodwill;

•

•

Income taxes;

Stock-based compensation;

• Contingencies;

•

•

Product warranty; and

Fair value of financial instruments.

Revenue recognition

On April 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers using the modified
retrospective method, therefore prior period amounts have not been restated and continue to be reported under

42

the accounting standards in effect for those periods. The adoption of this guidance has led to recognizing certain
revenue transactions sooner than in the past on certain contracts, as we are required to estimate the revenue we
will be entitled to upon contract completion, and later on other contracts, such as Consulting and Statement of
Work transactions, due to the lack of an enforceable right to payment for performance obligations satisfied over
time, specifically in the technology product line.

Revenue contracts are defined as an arrangement that creates enforceable rights and obligations of both
parties where collection of the contract price is deemed probable. We record revenue based on a five-step model
which includes identifying the performance obligations, determining the transaction price, allocating the contract
transaction price to the performance obligations, and recognizing the revenue when (or as) control of goods or
services is transferred to the customer. The transfer of control can occur at the time of delivery, installation or
post-installation where applicable.

For certain arrangements, such as contracts to perform research and development, prototype development

contracts and certain customized product sales, we record revenues using the over-time method, measured by the
relationship of costs incurred to total estimated contract costs. Over-time revenue recognition accounting is
predominantly used on certain turnkey power systems installations for electric utilities and long-term prototype
development contracts with the U.S. government. We follow this method when any of the three following criteria
are met: when the customer receives the benefits as they are performed, control transfers to the customer as the
work is performed, or there is no alternative use to us and there is an enforceable right to payment through the
life of the contract. However, the ability to reliably estimate total costs at completion is challenging, especially
on long-term prototype development contracts, and could result in future changes in contract estimates. For
contracts where reasonably dependable estimates of the revenues and costs cannot be made, we follow the point
in time method.

We enter into sales arrangements that may provide for multiple performance obligations to a customer.
Sales of certain products may include extended warranty and support or service packages, and at times include
performance bonds. As these contracts progress, we continually assess the probability of a payout from the
performance bond. Should we determine that such a payout is likely; we would record a liability. We would
reduce revenue to the extent a liability is recorded. In addition, we enter into licensing arrangements that include
training services.

Performance obligations are separated into more than one unit of accounting when (1) the delivered
element(s) have value to the customer on a stand-alone basis, and (2) our promise to transfer the goods or
services to the customer is separately identifiable from other promises in the contract. In general, revenues are
separated between the different product shipments which have stand-alone value, and the various services to be
provided. Revenue for product shipments is generally recognized at a point in time where control of the product
is transferred to the customer, while revenues for the services are generally recognized over the period of
performance. We identify all goods and/or services that are to be delivered separately under a sales arrangement
and allocate the transaction price to each distinct performance obligation using the respective standalone selling
price (“SSP”) which is determined primarily using the cost plus expected margin approach for products and a
relief from royalty method for licenses. Revenue allocated to each performance obligation is recognized when, or
as, the performance obligation is satisfied. We review SSP and the related margins at least annually.

Our license agreements provide either for the payment of contractually determined paid-up front license fees
or milestone based payments in consideration for the grant of rights to manufacture and or sell products using our
patented technologies or know-how. Some of these agreements provide for the release of the licensee from past
and future intellectual property infringement claims. When we can determine that we have no further obligations
other than the grant of the license and that we have fully transferred the technology know-how, we recognize the
revenue under a point in time model. In other license arrangements, we may also agree to provide training
services to transfer the technology know-how. In these arrangements, we have determined that the licenses have
no standalone value to the customer and are not separable from training services as we can only fully transfer the

43

technology know-how through the training component. Accordingly, we account for these arrangements as a
single unit of accounting, and recognize revenue over the period of its performance using the over-time method.
Costs for these arrangements are expensed as incurred.

Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If

it is determined that collectability of any portion of the contract value is not probable, an analysis of variable
consideration will be performed using either the most likely amount or expected value method to determine the
amount of revenue that must be constrained until the scenario causing the variability has been resolved. For
contractual arrangements that involve variable consideration, we recognize revenue for these amounts upon
reaching the constraining event successfully. We do not generally provide for extended payment terms or provide
our customers with a right of return.

Infrequently, we receive requests from customers to hold product being purchased from us for a valid
business purpose. We recognize revenues for such arrangements provided the transaction meets, at a minimum,
the following criteria: a valid business purpose for the arrangement exists; risk of ownership of the purchased
product has been transferred to the buyer; there is a fixed delivery date that is reasonable and consistent with the
buyer’s business purpose; the product is ready for shipment; we have no continuing performance obligation in
regards to the purchased product and these products have been segregated from our inventories and cannot be
used to fill other orders received. There were no such transactions during the fiscal year ended March 31,
2019. For the fiscal year ended March 31, 2018, such transactions recognized as revenue were $3.7 million.

We have elected to record taxes collected from customers on a net basis and do not include tax amounts in

revenue or costs of revenue.

Our 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. Our accounts receivable balance is made up entirely of customer contract
related balances.

See Note 3, “Revenue Recognition,” for further information regarding the Company’s adoption of

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

Accounts Receivable

Accounts receivable consist of amounts owed by commercial companies and government agencies.

Accounts receivable are stated net of allowances for doubtful accounts. Our accounts receivable relate principally
to a limited number of customers. As of March 31, 2019, of our total receivable balance, Vestas accounted for
approximately 21%, and RES System 3, LLC accounted for approximately 16%, with no other customers
accounting for greater than 10% of the balance. As of March 31, 2018, of our total receivable balance, Inox
accounted for approximately 32%, and Fuji Bridex Pte Ltd accounted for approximately 17%, with no other
customers accounting for greater than 10% of the balance. Changes in the financial condition or operations of our
customers may result in delayed payments or non-payments which would adversely impact our cash flows from
operating activities and/or our results of operations. As such, we may require collateral, advanced payment or
other security based upon the customer history and/or creditworthiness. In determining the allowance for
doubtful accounts, we evaluate the collectability of accounts receivable based primarily on the probability of
recoverability based on historical collection and write-off experience, the age of past due receivables, specific
customer circumstances, and current economic trends. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payment, additional allowances may be required.
Failure to accurately estimate the losses for doubtful accounts and ensure that payments are received on a timely
basis could have a material adverse effect on our business, financial condition, results of operations, and cash
flows.

44

Inventory

Inventories include material, direct labor and related manufacturing overhead, and are stated at the lower of
cost, determined on a first-in, first-out basis, or net realizable value determined on a first-in, first-out basis as the
estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal and transportation.. We record inventory when we take delivery and title to the product according to the
terms of each supply contract.

Program costs may be deferred and recorded as inventory on contracts on which costs are incurred in excess

of approved contractual amounts and/or funding, if future recovery of the costs is deemed probable.

At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence.

Inventories that management considers excess or obsolete are reserved. Management considers forecasted
demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product
life cycles when determining excess and obsolescence and net realizable value adjustments. Once inventory is
written down and a new cost basis is established, it is not written back up if demand increases.

We recorded inventory reserves of $0.9 million and $0.4 million during fiscal 2018 and 2017, respectively,

based on evaluating our ending inventories for excess quantities and obsolescence.

Valuation of long-lived assets

We periodically evaluate our long-lived assets, consisting principally of fixed and amortizable intangible
assets for potential impairment. In accordance with the applicable accounting guidance for the treatment of long-
lived assets, we review the carrying value of our long-lived assets or asset group that is held and used, including
intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the
carrying value of the assets may not be recoverable. Under the held and used approach, the asset or asset group to
be tested for impairment should represent the lowest level for which identifiable cash flows are largely
independent of the cash flows of other groups of assets and liabilities. The determination of our asset groups
involves a significant amount of judgment, assumptions and estimates. We evaluate our long-lived assets
whenever events or circumstances suggest that the carrying amount of an asset or group of assets may not be
recoverable from the estimated undiscounted future cash flows.

Our judgments regarding the existence of impairment indicators are based on market and operational

performance. Indicators of potential impairment include:

•

•

•

•

•

•

a significant change in the manner in which an asset group is used;

a significant decrease in the market value of an asset group;

identification of other impaired assets within a reporting unit;

a significant adverse change in its business or the industry in which it is sold;

a current period operating cash flow loss combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated with the asset group; and

significant advances in our technologies that require changes in our manufacturing process.

There were no indicators requiring further impairment testing on our long-lived assets during the fiscal

years ended March 31, 2019 or 2018.

Goodwill

Goodwill represents the excess of cost over net assets of acquired businesses that are consolidated. We
perform our annual assessment of goodwill on February 28 of each fiscal year and whenever events or changes in

45

circumstances or a triggering event indicate that the carrying amount may not be recoverable. Determining
whether a triggering event has occurred often involves significant judgment from management. An entity is
permitted to first assess qualitatively whether it is necessary to perform a goodwill impairment test. The
quantitative impairment test is required only if the entity concludes that it is more likely than not that a reporting
unit’s fair value is less than its carrying amount. We determine the fair value of a reporting unit based on an
income approach utilizing a discounted cash flow adjusted for entity specific factors. In evaluating whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, an entity should
consider the totality of all relevant events or circumstances that affect the fair value or carrying amount of a
reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an
impairment loss equal to the difference is recorded. See Note 4, “Acquisition and Related Goodwill” for further
information and discussion.

We performed our annual assessment of goodwill on February 28, 2019 and noted no triggering events from

the analysis date to March 31, 2019 and determined that there was no impairment to goodwill.

Income taxes

Our provision for income taxes is comprised of a current and a deferred portion. The current income tax

provision is calculated as the estimated taxes payable or refundable on tax returns for the current year. The
deferred income tax provision is calculated for the estimated future tax effects attributable to temporary
differences and carryforwards using expected tax rates in effect in the years during which the differences are
expected to reverse. All deferred tax assets and liabilities are presented as non-current in the Consolidated
Balance Sheet.

We regularly assess our ability to realize our deferred tax assets. Assessments of the realization of deferred

tax assets require that management consider all available evidence, both positive and negative, and make
significant judgments about many factors, including the amount and likelihood of future taxable income. Based
on all the available evidence, we have recorded valuation allowances to reduce our deferred tax assets to the
amount that is more likely than not to be realizable due to the taxable losses that have been incurred since our
inception and uncertainty around our future profitability.

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical
merits, it is more likely than not that the position will be sustained upon audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on
a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in
these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. We
include interest and penalties related to gross unrecognized tax benefits within the provision for income taxes.
See Note 13, “Income Taxes,” of our consolidated financial statements for further information regarding our
income tax assumptions and expenses.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making
significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate
decrease from 34% to 21% effective for tax years beginning after December 31, 2017 and a one-time mandatory
deemed repatriation of cumulative foreign earnings. We have calculated a provisional estimate of the impact of
the Act in our year end income tax provision in accordance with our understanding of the Act and guidance
available as of the date of this filing. See Note 13, “Income Taxes,” of our consolidated financial statements for
the results of this assessment.

46

Stock-based compensation

We measure compensation cost arising from the grant of share-based payments to employees and

non-employees at fair value and recognize such cost over the period during which the employee and
non-employee is required to provide service in exchange for the award, usually the vesting period. Total stock-
based compensation expense recognized during the fiscal years ended March 31, 2019 and 2018, was
$3.0 million and $2.7 million, respectively. For awards with service conditions only, we recognize compensation
cost on a straight-line basis over the requisite service/vesting period. For awards with performance conditions,
accruals of compensation cost are made based on the probable outcome of the performance conditions. The
cumulative effect of changes in the probability outcomes are recorded in the period in which the changes occur.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards

requires the input of highly subjective assumptions, including the expected life of the share-based payment
awards and stock price volatility. Management determined that expected volatility rates should be estimated
based on historical and implied volatilities of our common stock. The expected term represents the average time
that the options that vest are expected to be outstanding based on the vesting provisions and our historical
exercise, cancellation and expiration patterns. The assumptions used in calculating the fair value of share-based
payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and
the application of management judgment. As a result, if circumstances change and we use different assumptions,
our stock-based compensation expense could be materially different in the future. In addition, we are required to
estimate an expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual
forfeiture rate is materially different from our estimate, the stock-based compensation expense could be
significantly different from what we have recorded in the current period. See Note 14, “Stockholders’ Equity,” of
our consolidated financial statements for further information regarding our stock-based compensation
assumptions and expenses.

Our adoption of ASU 2018-07 Compensation — Stock Compensation (Topic 718): Improvements to
Non-Employee Share Based Payment Accounting on April 1, 2018 resulted in the accounting for share-based
payments made to non-employees to be accounted for in the same manner as other share-based payments for
employees, with the measurement being based on the fair value at the grant date. The non-employee share based
payments will be included within our stock compensation currently reported.

Contingencies

From time to time, we are involved in legal and administrative proceedings and claims of various types. 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 the loss is not probable or
cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements. If, with
respect to a matter, it is not both probable to result in liability and the amount of loss cannot be reasonably
estimated, an estimate of possible loss or range of loss shall be disclosed unless such an estimate cannot be made.
We do not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss
contingencies are expensed as incurred. See Note 15, “Commitments and Contingencies”, of our consolidated
financial statements for further information.

Product Warranty

Warranty obligations are incurred in connection with the sale of our products. We generally provide a one to

three year warranty on our products, commencing upon installation. The costs incurred to provide for these
warranty obligations are estimated and recorded as an accrued liability at the time of sale. Future warranty costs
are estimated based on historical performance rates and related costs to repair given products. The accounting
estimate related to product warranty involves judgment in determining future estimated warranty costs. Should
actual performance rates or repair costs differ from estimates, revision to the estimated warranty liability would
be required.

47

Fair Value of Financial Instruments

Our financial instruments consist principally of cash and cash equivalents, accounts receivable, notes

receivable, accounts payable, accrued expenses, and warrants. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses due to their short term nature
approximate fair value at March 31, 2019 and 2018. The estimated fair values have been determined through
information obtained from market sources and management estimates. Notes receivable fair value has been
estimated based on a present value calculation using current market information for a similar term loan with
similar terms. We have appropriately valued notes receivable within Level 2 of the valuation hierarchy. The fair
value for the debt and warrant arrangements has been estimated by management based on the terms that we
believe we could obtain in the current market for debt with the same terms and similar maturities. The warrants
are subject to revaluation at each balance sheet date, and any change in fair value will be recorded as a change in
fair value in other (expense) income until the earlier of the warrants’ exercise or expiration. We rely on
assumptions used in a lattice model to determine the fair value of the warrants. We have appropriately valued the
warrants within Level 3 of the valuation hierarchy.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not required for smaller reporting companies.

48

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
of American Superconductor Corporation

Opinions on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of American Superconductor Corporation

and its subsidiaries (the Company) as of March 31, 2019 and 2018, and the related consolidated statements of
operations, comprehensive income (loss), stockholders’ equity and cash flows for the years then ended, and the
related notes (collectively, the financial statements). We also have audited the Company’s internal control over
financial reporting as of March 31, 2019, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial

position of the Company as of March 31, 2019 and 2018, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2019, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal

control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we

plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.

49

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ RSM US LLP

We have served as the Company’s auditor since 2013.

Boston, Massachusetts
June 5, 2019

50

AMERICAN SUPERCONDUCTOR CORPORATION
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In thousands)

March 31,
2019

March 31,
2018

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net
Note receivable, long term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

77,483
7,855
12,119
2,888
3,053

103,398
8,972
2,890
—
1,719
715
1,357
279

34,084
7,365
19,780
3,000
2,947

67,176
12,513
3,230
2,559
1,719
165
542
271

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 119,330

$

88,175

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, long term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

15,885
4,942
7,557

28,384
7,962
1,698
93

38,137

12,625
1,217
13,483

27,325
8,454
110
57

35,946

Commitments and contingencies (Note 15)
Stockholders’ equity:

Common stock, $0.01 par value, 75,000,000 shares authorized; 21,651,631 and

21,138,689 shares issued at March 31, 2019 and 2018, respectively . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 235,518 and 165,094 shares at March 31, 2019 and 2018,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit

216
1,044,622

211
1,041,113

(2,101)
(5)
(961,539)

(1,645)
883
(988,333)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81,193

52,229

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .

$ 119,330

$

88,175

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

51

AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Fiscal Year Ended
March 31,

2019

2018

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 56,207
42,190

$ 48,403
44,608

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

14,017

3,795

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on Sinovel settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquisition related intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of derivatives and warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income (expense), net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,874
22,028
(52,698)
340
—
450

(20,006)
34,023
(3,725)
127
1,117
1,599

33,141
6,380

11,594
22,577
—
183
71
1,527

35,952
(32,157)
706
1,167
147
(2,800)

(32,937)
(161)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 26,761

$(32,776)

Net income (loss) per common share

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

1.32

1.29

$

$

(1.73)

(1.73)

Weighted average number of common shares outstanding

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,335

18,967

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,726

18,967

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

52

AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) gain, net of tax:

Foreign currency translation (losses) gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other comprehensive (loss) gain, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal Year Ended
March 31,

2019

2018

$26,761

$(32,776)

(888)

(888)

1,386

1,386

Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$25,873

$(31,390)

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

53

AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

Common Stock

Number
of
Shares

Par
Value

Additional
Paid-in
Capital

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss)

Accumulated
Deficit

Total
Stockholders’
Equity

Balance at March 31, 2017 . . . . . . . 14,714 $147 $1,017,510 $(1,371)

$ (503)

$(955,557)

$ 60,226

Issuance of common stock -

ESPP . . . . . . . . . . . . . . . . . .

40 —

174

—

Issuance of common stock -

restricted shares . . . . . . . . .

819

8

(8) —

Stock-based compensation

expense . . . . . . . . . . . . . . . . — —

2,692

Issuance of stock for 401(k)

match . . . . . . . . . . . . . . . . .

81

1

350

Issuance of common stock -

equity offering . . . . . . . . . .

4,600

46

16,906

Issuance of stock in business

acquisition . . . . . . . . . . . . .

885

9

3,489

—

—

—

—

Repurchase of treasury

stock . . . . . . . . . . . . . . . . . . — —

Cumulative translation

adjustment

. . . . . . . . . . . . . — —
Net loss . . . . . . . . . . . . . . . . . . — —

—

—
—

(274)

—
—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

174

—

2,692

351

16,952

3,498

(274)

1,386
—

—
(32,776)

1,386
(32,776)

Balance at March 31, 2018 . . . . . . . 21,139 $211 $1,041,113 $(1,645)

$ 883

$(988,333)

$ 52,229

Issuance of common stock -

ESPP . . . . . . . . . . . . . . . . . .

20 —

157

—

Issuance of common stock -

restricted shares . . . . . . . . .

451

4

(4) —

Stock-based compensation

expense . . . . . . . . . . . . . . . . — —

3,030

Issuance of stock for 401(k)

match . . . . . . . . . . . . . . . . .

42

1

326

Repurchase of treasury

stock . . . . . . . . . . . . . . . . . . — —

Cumulative translation

adjustment

. . . . . . . . . . . . . — —

Cumulative impact of
adoption of ASU
No. 2014-09 . . . . . . . . . . . . — —
Net income . . . . . . . . . . . . . . . — —

—

—

—
—

—

—

(456)

—

—
—

—

—

—

—

—

(888)

—
—

—

—

—

—

—

—

157

—

3,030

327

(456)

(888)

33
26,761

33
26,761

Balance at March 31, 2019 . . . . . . . 21,652 $216 $1,044,622 $(2,101)

$

(5)

$(961,539)

$ 81,193

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

54

AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Fiscal Year Ended
March 31,

2019

2018

Cash flows from operating activities:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by (used in)

$26,761

$(32,776)

operations:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for excess and obsolete inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recovery of prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale from minority interest investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of warrants and contingent consideration . . . . . . . . . . . . . . . .
Non-cash interest (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating asset and liability accounts:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,609
3,030
878
—
(127)
3,725
(224)
(117)

(529)
5,007
(365)
2,839
(2,773)

11,459
2,692
434
(82)
(1,167)
(635)
19
793

1,145
(2,423)
558
(2,956)
(1,888)

Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,714

(24,827)

Cash flows from investing activities:

Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisition, net of cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from financing activities:

Employee taxes paid related to net settlement of equity awards . . . . . . . . . . . . . . .
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from public equity offering, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of employee stock options and ESPP . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effect of exchange rate changes on cash, cash equivalents and restricted cash . . . . . . . . . . .

(952)
3,138
—
127
(144)

2,169

(456)
—
—
157

(299)

(635)

Net increase in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . .

43,949
34,249

(2,534)
16,910
74
1,167
(15)

15,602

(274)
(1,575)
16,952
175

15,278

452

6,505
27,744

Cash, cash equivalents and restricted cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$78,198

$ 34,249

Supplemental schedule of cash flow information:

Issuance of common stock in connection with the purchase of Infinia Technology
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock to settle liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain on sale of 64 Jackson Road building . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ 3,498
1576
350
105
42

2,859
457
—
—

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

55

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 solutions that
enhance the performance of the power grid, protect the Navy’s fleet, and lower the cost of wind power. The
Company’s products leverage its proprietary “smart materials” and “smart software and controls” to provide
enhanced resiliency and improved performance of megawatt-scale power flow.

The Company’s consolidated financial statements 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-K. 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.

Liquidity

The Company has historically experienced recurring operating losses, although the Company generated net
income of $26.8 million in the fiscal year ended March 31, 2019, and as of March 31, 2019, the Company had an
accumulated deficit of $961.5 million. In addition, although the Company generated positive operating cash flow
in fiscal 2018, the Company has historically experienced recurring negative operating cash flows. At March 31,
2019, the Company had cash, cash equivalents and restricted cash of $78.2 million. Cash provided by operations
for the year ended March 31, 2019 was $42.7 million.

On July 3, 2018, the Company and its wholly-owned subsidiaries Suzhou AMSC Superconductor Co. Ltd.

(“AMSC China”) and AMSC Austria GMBH (“AMSC Austria”) entered into a settlement agreement (the
“Settlement Agreement”) with Sinovel Wind Group Co., Ltd. (“Sinovel”). The Settlement Agreement settled the
litigation and arbitration proceedings between the Company and Sinovel. Under the terms of the Settlement
Agreement, Sinovel agreed to pay AMSC China an aggregate cash amount in Renminbi (“RMB”) equivalent to
$57.5 million, consisting of two installments. Sinovel paid the first installment of the RMB equivalent of
$32.5 million on July 4, 2018, which was repatriated to the U.S. entity during the nine months ended
December 31, 2018, and paid the second installment of the RMB equivalent of $25.0 million on December 27,
2018. The Company’s fiscal 2018 results include the net gain received from the settlement with Sinovel of
$52.7 million.

On February 1, 2018, ASC Devens LLC (the “Seller”), a wholly-owned subsidiary of the Company, entered

into a Purchase and Sale Agreement (the “PSA”) with 64 Jackson, LLC (the “Purchaser”) and Stewart Title
Guaranty Company (“Escrow Agent”), to effectuate the sale of certain real property located at 64 Jackson Road,
Devens, Massachusetts, including the building that had served as the Company’s headquarters (collectively, the
“Property”), in exchange for total consideration of $23.0 million, composed of (i) cash consideration of
$17.0 million, and (ii) a $6.0 million subordinated secured commercial promissory note payable to the Company
(the “Seller Note”). Subsequently, the Seller, the Purchaser and Jackson 64 MGI, LLC (“Assignee”) entered into
an Assignment of Purchase and Sale Agreement (the “Assignment Agreement”), pursuant to which the Purchaser
assigned all of its rights and interests in the PSA to the Assignee and the Assignee agreed to assume all of the
Purchaser’s obligations and liabilities under the PSA. The transaction closed on March 28, 2018, at which time
the Company received, from the Assignee, cash consideration, net of certain agreed upon closing costs, of
$16.9 million, and the Seller Note at an interest rate of 1.96%. The Seller Note is secured by a subordinated
second mortgage on the Property and a subordinated second assignment of leases and rents. The Company
received the first $3.0 million payment due pursuant to the Seller Note on March 28, 2019.

In December 2015, the Company entered into a set of strategic agreements valued at approximately

$210.0 million with Inox Wind Ltd. (“Inox” or “Inox Wind”), which includes a multi-year supply contract

56

pursuant to which the Company will supply electrical control systems to Inox and a license agreement allowing
Inox to manufacture a limited number of electrical control systems. After Inox purchases the specified number of
electrical control systems required under the terms of the supply contract, Inox agreed that the Company will
continue as Inox’s preferred supplier and Inox will be required to purchase from the Company a majority of its
electrical control systems requirements for an additional three-year period.

The Company believes that based on the information presented above and its annual 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 year ended March 31, 2019. The Company’s liquidity is
highly dependent on its ability to increase revenues, including its ability to collect revenues under its agreements
with Inox, its ability to control its operating costs, and its ability to raise additional capital, if necessary. 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.

2. Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned

subsidiaries. All significant intercompany balances and transactions are eliminated. Certain reclassifications of
prior years’ amounts have been made to conform to the current year presentation. These reclassifications had no
effect on net income, cash flows from operating activities or stockholders’ equity.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. The Company bases its estimates on historical experience and various other factors believed to
be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, the
Company evaluates its estimates, including those related to revenue recognition, collectability of receivables,
realizability of inventory, goodwill and intangible assets, warranty provisions, stock-based compensation,
valuation of warrant and derivative liabilities, tax reserves, and deferred tax assets. Provisions for depreciation
are based on their estimated useful lives using the straight-line method. Some of these estimates can be subjective
and complex and, consequently, actual results may differ from these estimates under different assumptions or
conditions. While for any given estimate or assumption made by the Company’s management there may be other
estimates or assumptions that are reasonable, the Company believes that, given the current facts and
circumstances, it is unlikely that applying any such other reasonable estimate or assumption would materially
impact the financial statements.

Cash Equivalents

Cash equivalents consist of highly liquid instruments with maturities of three months or less that are

regarded as high quality, low risk investments and are measured using such inputs as quoted prices, and are
classified within Level 1 of the valuation hierarchy. Cash equivalents consist principally of certificates of
deposits and money market accounts.

Accounts Receivable

Accounts receivable consist of amounts owed by commercial companies and government agencies.
Accounts receivable are stated net of allowances for doubtful accounts. The Company’s accounts receivable

57

relate principally to a limited number of customers. As of March 31, 2019, Vestas accounted for approximately
21% and RES System 3, LLC accounted for approximately 16% of the Company’s total receivable balance, with
no other customer accounting for greater than 10% of the balance. As of March 31, 2018, Inox accounted for
approximately 32% and Fuji Bridex Pte Ltd for approximately 17% of the Company’s total receivable balance,
with no other customer accounting for greater than 10% of the balance. Changes in the financial condition or
operations of the Company’s customers may result in delayed payments or non-payments which would adversely
impact its cash flows from operating activities and/or its results of operations. As such, the Company may require
collateral, advanced payment or other security based upon the customer history and/or creditworthiness. In
determining the allowance for doubtful accounts, the Company evaluates the collectability of accounts receivable
based primarily on the probability of recoverability based on historical collection and write-off experience, the
age of past due receivables, specific customer circumstances, and current economic trends. If the financial
condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make
payment, additional allowances may be required. Failure to accurately estimate the losses for doubtful accounts
and ensure that payments are received on a timely basis could have a material adverse effect on the Company’s
business, financial condition, results of operations, and cash flows.

Inventory

Inventories include material, direct labor and related manufacturing overhead, and are stated at the lower of
cost, determined on a first-in, first-out basis, or net realizable value determined on a first-in, first-out basis as the
estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal and transportation. The Company records inventory when it takes delivery and title to the product
according to the terms of each supply contract.

Program costs may be deferred and recorded as inventory on contracts on which costs are incurred in excess

of approved contractual amounts and/or funding, if future recovery of the costs is deemed probable.

At each balance sheet date, the Company evaluates its ending inventories for excess quantities and
obsolescence. Inventories that management considers excess or obsolete are reserved. Management considers
forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions
and product life cycles when determining excess and obsolescence and net realizable value adjustments. Once
inventory is written down and a new cost basis is established, it is not written back up if demand increases.

For the fiscal years ended March 31, 2019 and 2018, the Company recorded inventory reserves of

approximately $0.9 million and $0.4 million, respectively, based on evaluating its ending inventory on hand for
excess quantities and obsolescence.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. The
Company accounts for depreciation and amortization using the straight-line method to allocate the cost of
property, plant and equipment over their estimated useful lives as follows:

Asset Classification

Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Process upgrades to the building . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . .

Estimated Useful Life in Years

40
10-40
3-10
3-5
Shorter of the estimated useful life
or the remaining lease term

Expenditures for maintenance and repairs are expensed as incurred. Upon retirement or other disposition of
assets, the costs and related accumulated depreciation are eliminated from the accounts and the resulting gain or
loss is reflected in operating expenses.

58

Valuation of Long-Lived Assets

The Company periodically evaluates its long-lived assets, consisting principally of fixed assets and
amortizable intangible assets, for potential impairment. In accordance with the applicable accounting guidance
for the treatment of long-lived assets, the Company reviews the carrying value of its long-lived assets or asset
group that is held and used, including intangible assets subject to amortization, for impairment whenever events
and circumstances indicate that the carrying value of the assets may not be recoverable. Under the held and used
approach, the asset or asset group to be tested for impairment should represent the lowest level for which
identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The
Company evaluates its long-lived assets whenever events or circumstances suggest that the carrying amount of
an asset or group of assets may not be recoverable from the estimated undiscounted future cash flows.

There were no indicators requiring impairment testing on the Company’s long-lived assets during the fiscal

years ended March 31, 2019 and 2018.

Goodwill

Goodwill represents the excess of cost over net assets of acquired businesses that are consolidated. The
Company performs its annual assessment of goodwill on February 28th of each fiscal year and whenever events
or changes in circumstances or a triggering event indicate that the carrying amount may not be recoverable.
Determining whether a triggering event has occurred often involves significant judgment from management. An
entity is permitted to first assess qualitatively whether it is necessary to perform a goodwill impairment test. The
quantitative impairment test is required only if the entity concludes that it is more likely than not that a reporting
unit’s fair value is less than its carrying amount. The Company determines the fair value of a reporting unit based
on an income approach utilizing a discounted cash flow adjusted for entity specific factors. In evaluating whether
it is more likely than not that the fair value of a reporting unit is less than its carrying amount, an entity should
consider the totality of all relevant events or circumstances that affect the fair value or carrying amount of a
reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an
impairment loss equal to the difference is recorded. See Note 4, “Acquisition and Related Goodwill” for further
information and discussion.

The Company performed its annual assessment of goodwill on February 28, 2019 and noted no triggering

events from the analysis date to March 31, 2019 and determined that there was no impairment to
goodwill. Additionally, there was no impairment identified for the fiscal year ended March 31, 2018 based on the
assessment performed in prior year.

Equity Method Investments

The Company uses the equity method of accounting for investments in entities in which it has an ownership

interest, but does not exercise a controlling interest in the operating and financial policies of an investee. Under
this method, an investment is carried at the acquisition cost, plus the Company’s equity in undistributed earnings
or losses since acquisition.

The Company periodically tests its investments for potential impairment whenever events and

circumstances indicate a loss in the fair value of the investments may be other than temporary. There were no
minority investments as of March 31, 2019 and 2018.

Revenue Recognition

On April 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers using the
modified retrospective method, therefore prior period amounts have not been restated and continue to be reported
under the accounting standards in effect for those periods. The adoption of this guidance has led to recognizing

59

certain revenue transactions sooner than in the past on certain contracts, as the Company will need to estimate the
revenue it will be entitled to upon contract completion, and later on other contracts, such as Consulting and
Statement of Work transactions, due to the lack of an enforceable right to payment for performance obligations
satisfied over time, specifically in the technology product line.

Revenue contracts are defined as an arrangement that creates enforceable rights and obligations of both
parties where collection of the contract price is deemed probable. The Company records revenue based on a
five-step model which includes identifying the performance obligations, determining the transaction price,
allocating the contract transaction price to the performance obligations, and recognizing the revenue when (or as)
control of goods or services is transferred to the customer. The transfer of control can occur at the time of
delivery, installation or post-installation where applicable.

For certain arrangements, such as contracts to perform research and development, prototype development

contracts and certain customized product sales, the Company records revenues using the over-time method,
measured by the relationship of costs incurred to total estimated contract costs. Over-time revenue recognition
accounting is predominantly used on certain turnkey power systems installations for electric utilities and long-
term prototype development contracts with the U.S. government. The Company follows this method when any of
the three following criteria are met: when the customer receives the benefits as they are performed, control
transfers to the customer as the work is performed, or there is no alternative use to the Company and there is an
enforceable right to payment through the life of the contract. However, the ability to reliably estimate total costs
at completion is challenging, especially on long-term prototype development contracts, and could result in future
changes in contract estimates. For contracts where reasonably dependable estimates of the revenues and costs
cannot be made, the Company follows the point in time method.

The Company enters into sales arrangements that may provide for multiple performance obligations to a
customer. Sales of certain products may include extended warranty and support or service packages, and at times
include performance bonds. As these contracts progress, the Company continually assesses the probability of a
payout from the performance bond. Should the Company determine that such a payout is likely; the Company
would record a liability. The Company would reduce revenue to the extent a liability is recorded. In addition, the
Company enters into licensing arrangements that include training services.

Performance obligations are separated into more than one unit of accounting when (1) the delivered
element(s) have value to the customer on a stand-alone basis, and (2) the Company’s promise to transfer the
goods or services to the customer is separately identifiable from other promises in the contract. In general,
revenues are separated between the different product shipments which have stand-alone value, and the various
services to be provided. Revenue for product shipments is generally recognized at a point in time where control
of the product is transferred to the customer, while revenues for the services are generally recognized over the
period of performance. The Company identifies all goods and/or services that are to be delivered separately
under a sales arrangement and allocates the transaction price to each distinct performance obligation using the
respective standalone selling price (“SSP”) which is determined primarily using the cost plus expected margin
approach for products and a relief from royalty method for licenses. Revenue allocated to each performance
obligation is recognized when, or as, the performance obligation is satisfied. The Company reviews SSP and the
related margins at least annually.

The Company’s license agreements provide either for the payment of contractually determined paid-up front

license fees or milestone based payments in consideration for the grant of rights to manufacture and or sell
products using its patented technologies or know-how. Some of these agreements provide for the release of the
licensee from past and future intellectual property infringement claims. When the Company can determine that it
has no further obligations other than the grant of the license and that the Company has fully transferred the
technology know-how, the Company recognizes the revenue under a point in time model. In other license
arrangements, the Company may also agree to provide training services to transfer the technology know-how. In
these arrangements, the Company has determined that the licenses have no standalone value to the customer and

60

are not separable from training services as the Company can only fully transfer the technology know-how
through the training component. Accordingly, the Company accounts for these arrangements as a single unit of
accounting, and recognizes revenue over the period of its performance using the over-time method. Costs for
these arrangements are expensed as incurred.

Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If

it is determined that collectability of any portion of the contract value is not probable, an analysis of variable
consideration will be performed using either the most likely amount or expected value method to determine the
amount of revenue that must be constrained until the scenario causing the variability has been resolved. For
contractual arrangements that involve variable consideration, the Company recognizes revenue for these amounts
upon reaching the constraining event successfully. The Company does not generally provide for extended
payment terms or provide its customers with a right of return.

Infrequently, the Company receives requests from customers to hold product being purchased from us for a

valid business purpose. The Company recognizes revenues for such arrangements provided the transaction meets,
at a minimum, the following criteria: a valid business purpose for the arrangement exists; risk of ownership of
the purchased product has been transferred to the buyer; there is a fixed delivery date that is reasonable and
consistent with the buyer’s business purpose; the product is ready for shipment; the Company has no continuing
performance obligation in regards to the purchased product and these products have been segregated from our
inventories and cannot be used to fill other orders received. There were no such transactions in revenue for the
fiscal year ended March 31, 2019. For the fiscal year ended March 31, 2018, such transactions recognized as
revenue were $3.7 million.

The Company has elected to record taxes collected from customers on a net basis and does not include tax

amounts in revenue or costs of revenue.

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.

See Note 3, “Revenue Recognition,” for further information regarding the Company’s adoption of

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

Product Warranty

Warranty obligations are incurred in connection with the sale of the Company’s products. The Company
generally provides a one to three year warranty on its products, commencing upon installation. The costs incurred
to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale.
Future warranty costs are estimated based on historical performance rates and related costs to repair given
products. The accounting estimate related to product warranty involves judgment in determining future estimated
warranty costs. Should actual performance rates or repair costs differ from estimates, revision to the estimated
warranty liability would be required.

Research and Development Costs

Research and development costs are expensed as incurred.

Income Taxes

The Company’s provision for income taxes is comprised of a current and a deferred portion. The current
income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current

61

year. The deferred income tax provision is calculated for the estimated future tax effects attributable to temporary
differences and carry-forwards using expected tax rates in effect in the years during which the differences are
expected to reverse.

Deferred income taxes are recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at each fiscal year end based on enacted
tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount
expected to be realized. The Company has provided a valuation allowance against its U.S. and China deferred
income tax assets since the Company believes that it is more likely than not that these deferred tax assets are not
currently realizable due to uncertainty around profitability in the future.

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical
merits, it is more likely than not that the position will be sustained upon audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax
positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in
these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The
Company includes interest and penalties related to gross unrecognized tax benefits within the provision for
income taxes. See Note 13, “Income Taxes,” for further information regarding its income tax assumptions and
expenses.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making
significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate
decrease from 34% to 21% effective for tax years beginning after December 31, 2017 and a one-time mandatory
deemed repatriation of cumulative foreign earnings. See Note 13, “Income Taxes,” for further information
regarding its income tax assumptions and expenses.

Stock-Based Compensation

The Company accounts for stock-based payment transactions using a fair value-based method and

recognizes the related expense in the results of operations.

Stock-based compensation is estimated at the grant date based on the fair value of the award and is

recognized as expense over the requisite service period of the award. The fair value of restricted stock awards is
determined by reference to the fair market value of the Company’s common stock on the date of grant. The
Company uses the Black-Scholes option pricing model to estimate the fair value of awards with service and
performance conditions. For awards with service conditions only, the Company recognizes compensation cost on
a straight-line basis over the requisite service/vesting period. For awards with performance conditions, accruals
of compensation cost are made based on the probable outcome of the performance conditions. The cumulative
effect of changes in the probability outcomes are recorded in the period in which the changes occur.

Determining the appropriate fair value model and related assumptions requires judgment, including
estimating stock price volatilities of the Company’s common stock and expected terms. The expected volatility
rates are estimated based on historical and implied volatilities of the Company’s common stock. The expected
term represents the average time that the options that vest are expected to be outstanding based on the vesting
provisions and the Company’s historical exercise, cancellation and expiration patterns.

The Company estimates pre-vesting forfeitures when recognizing compensation expense based on historical

and forward-looking factors. Changes in estimated forfeiture rates and differences between estimated forfeiture

62

rates and actual experience may result in significant, unanticipated increases or decreases in stock-based
compensation expense from period to period. The termination of employment of certain employees who hold
large numbers of stock-based awards may also have a significant, unanticipated impact on forfeiture experience
and, therefore, on stock-based compensation expense. The Company will update these assumptions on at least an
annual basis and on an interim basis if significant changes to the assumptions are warranted.

The Company’s adoption of ASU 2018-07 Compensation — Stock Compensation (Topic 718):
Improvements to Non-Employee Share Based Payment Accounting on April 1, 2018 also resulted in the
accounting for share-based payments made to non-employees to be accounted for in the same manner as other
share-based payments for employees, with the measurement being based on the fair value at the grant date. The
non-employee share based payments will be included within the Company’s stock compensation currently
reported.

Computation of Net Income (Loss) per Common Share

Basic net income (loss) per share (“EPS”) is computed by dividing net loss by the weighted-average number
of common shares outstanding for the period. 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. For the fiscal years ended March 31,
2019 and 2018, common equivalent shares of 907,988, and 1,157,895, respectively, were not included in the
calculation of diluted EPS as they were considered antidilutive. The following table reconciles the numerators
and denominators of the EPS calculation for the fiscal years ended March 31, 2019 and 2018 (in thousands
except per share amounts):

Fiscal year ended
March 31,

2019

2018

Numerator:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$26,761

$(32,776)

Denominator:

Weighted-average shares of common stock

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average shares subject to repurchase . . . . .

Shares used in per-share calculation — basic . . . . . . .

Shares used in per-share calculation — diluted . . . . . .

Net income (loss) per share — basic . . . . . . . . . . . . . . . . . .

Net income (loss) per share — diluted . . . . . . . . . . . . . . . .

21,265
(930)

20,335

20,726

19,621
(654)

18,967

18,967

$

$

1.32

1.29

$

$

(1.73)

(1.73)

Foreign Currency Translation

The functional currency of all the Company’s foreign subsidiaries is the U.S. dollar, except for AMSC

Austria, for which the local currency (Euro) is the functional currency, and AMSC China, for which the local
currency (Renminbi) is the functional currency. The assets and liabilities of AMSC Austria and AMSC China are
translated into U.S. dollars at the exchange rate in effect at the balance sheet date and income and expense items
are translated at average rates for the period. Cumulative translation adjustments are excluded from net loss and
shown as a separate component of stockholders’ equity. Net foreign currency gains and losses are included in
other income (expense), net on the consolidated statement of operations and were $1.6 million and ($2.8) million,
for the fiscal years ended March 31, 2019 and 2018, respectively. The Company has no restrictions on the foreign
exchange activities of its foreign subsidiaries, including the payment of dividends and other distributions.

63

Risks and Uncertainties

The preparation of financial statements in conformity with GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could materially differ from those estimates and would impact future results of
operations and cash flows.

The Company invests its available cash in high credit, quality financial instruments and invests primarily in

investment-grade marketable securities, including, but not limited to, government obligations, money market
funds and corporate debt instruments.

Several of the Company’s government contracts are being funded incrementally, and as such, are subject to

the future authorization, appropriation, and availability of government funding. The Company has a history of
successfully obtaining financing under incrementally-funded contracts with the U.S. government and it expects
to continue to obtain additional contract modifications in the year ending March 31, 2020 and beyond as
incremental funding is authorized and appropriated by the government.

Contingencies

From time to time, the Company may be involved in legal and administrative proceedings and claims of

various types. The Company records a liability in its consolidated financial statements for these matters when a
loss is known or considered probable and the amount can be reasonably estimated. Management reviews these
estimates in each accounting period as additional information is known and adjusts the loss provision when
appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the
consolidated financial statements. If, with respect to a matter, it is not both probable to result in liability and the
amount of loss cannot be reasonably estimated, an estimate of possible loss or range of loss is disclosed unless
such an estimate cannot be made. The Company does not recognize gain contingencies until they are realized.
Legal costs incurred in connection with loss contingencies are expensed as incurred. See Note 15, “Commitments
and Contingencies,” for further information.

Disclosure of Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable,

accounts payable, accrued expenses, warrants to purchase shares of common stock, derivatives, and a senior
secured term loan. The carrying amounts of cash and cash equivalents, accounts receivable, short-term debt,
accounts payable, and accrued expenses due to their short nature approximate fair value at March 31, 2019 and
2018. The estimated fair values have been determined through information obtained from market sources and
management estimates. The fair value for the warrant arrangements has been estimated by management based on
various assumptions in a lattice model and are subject to revaluation at each balance sheet date. The Company
classifies the estimates used to fair value these instruments as Level 3 inputs. See Note 5, “Fair Value
Measurements” for a full discussion on fair value measurements.

3. Revenue Recognition

On April 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, and all the related

amendments and applied it to all contracts that were not completed as of April 1, 2018 using the modified
retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard
as an adjustment of less than $0.1 million to the opening balance of accumulated deficit. Prior period amounts have
not been restated and continue to be reported under the accounting standards in effect for those periods.

The adoption of this guidance has led to recognizing certain revenue transactions sooner than in the past on

certain contracts, as the Company will need to estimate the revenue it will be entitled to upon contract

64

completion, and later on other contracts, such as Consulting and Statement of Work transactions, due to the lack
of an enforceable right to payment for performance obligations satisfied over time, specifically in the technology
product line. The Company does not expect a material impact to its consolidated statements of operations on an
ongoing basis from the adoption of the new standard.

In addition, the FASB issued Accounting Standards Update (“ASU”) 2017-05, Other Income — Gains and

Losses from the Derecognition of Non-financial Assets (Subtopic 610-20), in February 2017, to amend
ASC 610-20, Other Income—Gains and Losses from the Derecognition of Non-financial Assets (issued at the
same time as ASC 606), which provides a model for the measurement and recognition of gains and losses on the
sale of non-financial assets, such as property and equipment, including real estate. As a result of adopting
ASU 2017-05 on April 1, 2018, the Company recognized an adjustment to the opening balance of accumulated
deficit for the deferred gain from the March 28, 2018 sale of the Company’s former headquarters in Devens,
Massachusetts in the amount of $0.1 million.

The cumulative effect to the Company’s consolidated April 1, 2018 balance sheet from the adoption of the

new revenue standard and the sale of nonfinancial assets was as follows (in thousands):

Assets:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . .
Notes receivable, long term portion . . . . . . . . . . . . .

Liabilities and Stockholders’ Equity:
Accounts payable and accrued expenses . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31,
2018

Opening
Adjustment

April 1,
2018

$

7,365
19,780
2,947
2,559

$ (678)
(1,599)
2,277
105

$

6,687
18,181
5,224
2,664

$ (12,625)
(13,483)

$(2,729)
2,657

$ (15,354)
(10,826)

Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . .

$(988,333)

$

(33)

$(988,366)

Included in the opening adjustment are reclassifications for accounts receivable, deferred program costs and

deferred revenue for previous balances related to agreements that no longer meet the definition of a customer
contract under ASC 606. The impact of adoption on the Company’s opening balances and for the fiscal year
ended March 31, 2019, in all financial statement line items impacted by ASC 606 was immaterial from the
amount that would have been reported under the previous guidance.

The Company’s revenues in its Grid 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 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. As of March 31, 2019, 85% of revenue 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

65

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, as
the Company has determined that this is the point in time that control transfers to the customer.

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 represents 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 the profit cannot be
assured throughout the entire contract then 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 which 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 to not 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 two years, and extended service-type warranties at the customers’ 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

66

the amortization period would exceed twelve months; in such cases the long term amount will be assessed for
materiality. The Company has elected to not 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.

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

Year Ended
March 31, 2019

Grid

Wind

Product Line:
Equipment and systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Services and technology development

$26,645
7,645

$19,287
2,630

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$34,290

$21,917

Region:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,811
7,267
4,212

$

112
21,200
605

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$34,290

$21,917

In the fiscal years ended March 31, 2019 and 2018, 74% and 64% of the Company’s revenues, respectively,

were recognized from sales outside the United States. The Company maintains operations in Austria, Romania,
and the United States and sales and service support centers around the world.

As of March 31, 2019 and March 31, 2018, 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 6, “Accounts Receivable” and Note 7, “Inventory” for a reconciliation to the condensed consolidated
balance sheet) 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:

Beginning balance as of March 31, 2018 . . . . . . . . . . . . .
Impact of adoption of ASC 606 . . . . . . . . . . . . . . . . . . . .
Increases for costs incurred to fulfill performance

obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) due to customer billings . . . . . . . . . .
Decrease due to cost recognition on completed

Unbilled
AR

Deferred
Program
Costs

Contract
Liabilities

$ 3,016
—

$ 2,567
(1,599)

$ 21,937
(2,657)

—
(12,076)

1,585
—

—
20,540

performance obligations . . . . . . . . . . . . . . . . . . . . . . . .

—

(2,212)

—

Increase (decrease) due to recognition of revenue based

on transfer of control of performance obligations . . . .
. . . . . . . . . . . . . . . . . . . . .

Other changes and FX impact

11,324
(51)

(9)
(14)

(23,084)
(1,215)

Ending balance as of March 31, 2019 . . . . . . . . . . . . . . .

$ 2,213

$

318

$ 15,521

67

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 March 31, 2019, the
Company had outstanding performance obligations on existing contracts under ASC 606 to be recognized in the
next twelve months of approximately $47.5 million. There are also approximately $11.6 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 Inox-provided
twelve month forecast 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 year ended March 31, 2019 and 2018:

Inox Wind Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vestas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Wind
Grid

34% 27%
15% <10%

Reportable
Segment

Year Ended
March 31,

2019

2018

4. Acquisition and Related Goodwill

Acquisition of Infinia Technology Corporation

On September 25, 2017, the Company acquired Infinia Technology Corporation (“ITC”) for approximately
$3.8 million (the “Acquisition”). Located in Richmond, Washington, ITC is a technology firm founded in 2009
specializing in the design, development and commercialization of cryo-coolers for a wide range of applications.
This technology supports the Company’s efforts with the U.S. Navy and ship protection systems (“SPS”)
products.

The following table summarizes the consideration paid for ITC and the amounts of the assets acquired and

liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date (in millions):

September 25,
2017

Consideration

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity (884,890 shares of common stock at $4.02

per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . .

Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized amounts of identifiable assets acquired and

liabilities assumed

Core technology and know-how . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . .

Total identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax liability . . . . . . . . . . . . . . . . . . . .

Goodwill recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0.1

3.6
0.6

$4.3

$3.4
0.2
0.0

$3.6
1.1

$1.7

68

The results of ITC’s operations, which were not significant from the date of the Acquisition, September 25,

2017, through March 31, 2019, are included in the Company’s consolidated results. Assuming the Acquisition
had occurred on April 1, 2017, the impact on the consolidated results of the Company would not have been
significant.

Goodwill

At the time of the Acquisition, the Company allocated the purchase price to the assets acquired and
liabilities assumed at their estimated fair values as of the date of Acquisition. The excess of the purchase price
paid by the Company over the estimated fair value of net assets acquired of $1.7 million has been recorded as
goodwill in the Company’s Grid segment. Goodwill represents the value associated with the acquired workforce
and synergies related to the merger of the two companies.

The Company performed its annual assessment of goodwill on February 28, 2019 and noted no triggering

events from the analysis date to March 31, 2019 and determined that there was no impairment to
goodwill. Additionally, no impairment resulted from the assessment performed in the fiscal year ended
March 31, 2018.

5. Fair Value Measurements

A valuation hierarchy for disclosure of the inputs to valuation used to measure fair value has been

established. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the

Company has the ability to access at the measurement date.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for

identical or similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability, and inputs that are derived principally from or
corroborated by observable market data by correlation or other means (market corroborated
inputs).

Level 3 - Unobservable inputs that reflect the Company’s assumptions that market participants would use

in pricing the asset or liability. The Company develops these inputs based on the best information
available, including its own data.

The Company provides a gross presentation of activity within Level 3 measurement roll-forward and details

of transfers in and out of Level 1 and 2 measurements. A change in the hierarchy of an investment from its
current level is reflected in the period during which the pricing methodology of such investment
changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 is made in the event that the
related security is significant to total cash and investments. The Company did not have any transfers of assets and
liabilities from Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the year ended
March 31, 2019.

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level

input that is significant to the fair value measurement.

69

The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as

of March 31, 2019 and 2018 (in thousands):

Total
Carrying
Value

Quoted Prices
in
Active Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

March 31, 2019:
Assets:

Cash equivalents . . . . . . . . . . . . . . . . . . .

$41,839

$41,839

Derivative liabilities:

Warrants . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,942

$ —

$—

$—

$ —

$4,942

Total
Carrying
Value

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

March 31, 2018:
Assets:

Cash equivalents . . . . . . . . . . . . . . . . . . . . . . .

$32,589

$32,589

Derivative liabilities:

Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,217

$ —

$—

$—

$ —

$1,217

The table below reflects the activity for the Company’s major classes of liabilities measured at fair value on

a recurring basis (in thousands):

April 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark to market adjustment

March 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

April 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark to market adjustment

Warrants

$1,217
3,725

$4,942

Warrants

$1,923
(706)

March 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,217

Valuation Techniques

Cash Equivalents

Cash equivalents consist of highly liquid instruments with maturities of three months or less that are

regarded as high quality, low risk investments and are measured using such inputs as quoted prices, and are
classified within Level 1 of the valuation hierarchy. Cash equivalents consist principally of certificates of
deposits and money market accounts.

Warrants

Warrants were issued in conjunction with a Securities Purchase Agreement (the “Purchase Agreement”) with
Capital Ventures International (“CVI”), an equity offering to Hudson Bay Capital in November 2014, and a Loan
and Security Agreement with Hercules Technology Growth Capital, Inc. (“Hercules”). The warrants issued to CVI
expired on October 4, 2017. See Note 12 “Warrants and Derivative Liabilities,” for additional information.

70

Outstanding warrants are subject to revaluation at each balance sheet date, and any change in fair value will be
recorded as a change in fair value in derivatives and warrants until the earlier of their exercise or expiration.

The Company relies on various assumptions in a lattice model to determine the fair value of warrants. The

Company has valued the warrants within Level 3 of the valuation hierarchy. See Note 12, “Warrants and
Derivative Liabilities,” for a discussion of the warrants and the valuation assumptions used.

6. Accounts Receivable

Accounts receivable at March 31, 2019 and March 31, 2018 consisted of the following (in thousands):

Accounts receivable (billed) . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable (unbilled) . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for doubtful accounts . . . . . . . . . . . . . . . .

Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . .

March 31,
2019

March 31,
2018

$5,642
2,213
—

$7,855

$4,403
3016
(54)

$7,365

7. Inventory

Inventory, net of reserves, at March 31, 2019 and March 31, 2018 consisted of the following (in thousands):

March 31,
2019

March 31,
2018

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred program costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,474
1,922
4,405
318

$ 7,526
920
8,767
2,567

Net inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,119

$19,780

The Company recorded inventory write-downs of $0.9 million and $0.4 million for the fiscal years ended
March 31, 2019 and 2018, respectively. These write downs were based on evaluating its inventory on hand for
excess quantities and obsolescence.

Deferred program costs as of March 31, 2019 and March 31, 2018 primarily represent costs incurred on

programs accounted for upon completion of the project when control has transferred to the customer before
revenue and costs will be recognized.

8. Note Receivable

AMSC entered into a purchase and sale agreement dated February 1, 2018 for the Devens facility (including

land, building and building improvements) located at 64 Jackson Road, Devens, Massachusetts to 64 Jackson
Road, LLC, a limited liability company, in the amount of $23.0 million. The terms for payment included a
$1.0 million security deposit, and a note receivable for $6.0 million payable to AMSC with the remaining cash
net of certain adjustments for closing costs at the date of settlement.

The note receivable is due in two $3.0 million installments plus accrued interest at 1.96% rate. The first

installment was paid on March 28, 2019 and the second installment was paid May 23, 2019. The note was
subordinate to East Boston Savings Bank’s mortgage on the Devens property. The note receivable was
discounted to its present value of $5.7 million utilizing a discount rate of 6%, which was based on management’s
assessment of what an appropriate loan at current market rate would be. The $0.3 million discount was recorded
as an offset to the long term portion of the note receivable. As of March 31, 2019, the remaining $0.1 million

71

discount is being amortized to interest income as an offset to the short term portion of the note, over the
remaining term of the note.

In addition, the resulting gain of $0.1 million from the sale of the Devens property which was deferred
previously was recorded as a component of the cumulative effect of an accounting change upon the adoption of
ASU 2017-05 which was issued as a part of ASU 2014-09. This gain was recorded as an offset to the opening
accumulated deficit.

Note receivable as of March 31, 2019 consisted of the following (in thousands):

March 31,
2019

March 31,
2018

Current assets

. . . . . . . . . . . . . . . . . . . . . . .
Note receivable, current
Note receivable discount . . . . . . . . . . . . . . . . . . . . . . .

$3,000
(112)

Total current note receivable . . . . . . . . . . . . . . . . . . . . . . . .

$2,888

Long term assets

Note receivable, long term . . . . . . . . . . . . . . . . . . . . .
Note receivable discount . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain on sale . . . . . . . . . . . . . . . . . . . . . . . . .

Total long term note receivable . . . . . . . . . . . . . . . . . . . . . .

$ —
—
—

$ —

$3,000
—

$3,000

$3,000
(336)
(105)

$2,559

9. Property, Plant and Equipment

The cost and accumulated depreciation of property and equipment at March 31, 2019 and 2018 are as

follows (in thousands):

March 31,
2019

March 31,
2018

Construction in progress - equipment . . . . . . . . . . . . . . . . .
Equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . .

$

603
45,705
1,269
1,955

$

654
72,760
1,878
1,426

Property, plant and equipment, gross . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . .

49,532
(40,560)

76,718
(64,205)

Property, plant and equipment, net . . . . . . . . . . . . . . . . . . .

$ 8,972

$ 12,513

Depreciation expense was $4.3 million and $11.0 million, for the fiscal years ended March 31, 2019 and

2018, respectively. Included in depreciation expense for the year ended March 31, 2018 is $4.9 million of
accelerated depreciation recorded to cost of revenues related to revised estimates of the remaining useful lives of
certain pieces of manufacturing equipment. Construction in progress — equipment primarily includes capital
investments in the Company’s leased facility in Ayer, Massachusetts.

10. Intangible Assets

Intangible assets at March 31, 2019 and 2018 consisted of the following (in thousands):

2019

2018

Gross
Amount

Accumulated
Amortization

Net
Book
Value

Gross
Amount

Accumulated
Amortization

Net
Book
Value

Estimated
Useful
Life

Core technology and know-how . . . .

$4,970

$(2,080)

$2,890

$8,703

$(5,473)

$3,230

5-10

72

The Company recorded intangible amortization expense of $0.3 million and $0.5 million, for the fiscal years

ended March 31, 2019, and 2018, respectively.

Expected future amortization expense related to intangible assets is as follows (in thousands):

Fiscal years ending March 31,

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

340
340
340
340
340
1,190

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,890

The geographic composition of intangible assets is as follows (in thousands):

Intangible assets by geography:
U.S.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,890

$3,230

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,890

$3,230

March 31,

2019

2018

The business segment composition of intangible assets is as follows (in thousands):

Intangible assets by business segments:
Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,890

$3,230

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,890

$3,230

March 31,

2019

2018

11. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at March 31, 2019 and March 31, 2018 consisted of the following

(in thousands):

March 31,
2019

March 31,
2018

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued inventories in-transit . . . . . . . . . . . . . . . . . . . . . . .
Accrued other miscellaneous expenses . . . . . . . . . . . . . . . .
Advanced deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,939
244
1,759
631
5,404
3,363
1,545

$ 3,096
1,207
2,412
—
3,605
536
1,769

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15,885

$12,625

The Company generally provides a one to three year warranty on its products, commencing upon

installation. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense
based on historical experience.

73

Product warranty activity was as follows (in thousands):

Fiscal Years Ended
March 31,

2019

2018

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Change in accruals for warranties during the period . . . .
Settlements during the period . . . . . . . . . . . . . . . . . . . . .

$1,769
727
(951)

$ 2,344
890
(1,465)

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,545

$ 1,769

12. Warrants and Derivative Liabilities

The Company accounts for its warrants and contingent consideration as liabilities due to certain adjustment

provisions within the instruments, which require that they be recorded at fair value. The warrants are subject to
revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of
warrants until the earlier of its expiration or its exercise at which time the warrant liability will be reclassified to
equity. The Company calculated the fair value of the warrants utilizing an integrated lattice model. See Note 5,
“Fair Value Measurements” for further discussion.

Hercules Warrant

The Company issued Hercules warrants to purchase 13,927 shares of common stock (the “First Warrant”)
and 25,641 shares of common stock (the “Second Warrant”) in conjunction with prior term loans that have been
repaid in full. On December 19, 2014, the Company entered into a second amendment to the Loan and Security
Agreement with Hercules (the “Hercules Second Amendment”). In conjunction with the Hercules Second
Amendment, the Company issued Hercules a warrant to purchase 58,823 shares of the Company’s common stock
(the “Hercules Warrant”) which replaced the First Warrant and the Second Warrant. The Hercules Warrant is
exercisable at any time after its issuance at an exercise price of $7.85 per share, subject to certain price-based and
other anti-dilution adjustments, including the equity offering in May 2017, the acquisition of ITC with common
stock in September 2017 and sales of common stock under the ATM entered into in January 2017, and expires on
June 30, 2020. This warrant had a fair value of $0.4 million as of March 31, 2019 and $0.1 million as of
March 31, 2018. On April 8, 2019 Hercules notified the Company of its intent to exercise this warrant on a
cashless basis. Hercules received 22,821 shares of the Company’s common stock on April 17, 2019.

November 2014 Warrant

On November 13, 2014, the Company completed an offering of 909,090 units of the Company’s common
stock with Hudson Bay Capital. Each unit consisted of one share of the Company’s common stock and 0.9 of a
warrant to purchase one share of common stock, or a warrant to purchase in the aggregate 818,181 shares (the
“November 2014 Warrant”). The November 2014 Warrant is exercisable at any time, at an exercise price equal to
$7.81 per share, subject to certain price-based and other anti-dilution adjustments including those noted above,
and expires on November 13, 2019.

74

Following is a summary of the key assumptions used to calculate the fair value of the November 2014

Warrant:

Fiscal Year 2018
Risk-free interest rate . . . . . . . . . . . . . .
Expected annual dividend yield . . . . . .
Expected volatility . . . . . . . . . . . . . . . .
Term (years) . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . .

March 31,
2019

December 31,
2018

September 30,
2018

June 30, 2018

2.43%
—
75.61%
0.62
$4.6 million

2.61%
—
70.29%
0.87
$3.6 million

2.62%
—
63.66%
1.12
$1.3 million

2.40%
—
67.40%
1.37
$1.6 million

March 31,
2018

December 31,
2017

September 30,
2017

June 30, 2017

Fiscal Year 2017
Risk-free interest rate . . . . . . . . . . . . . .
Expected annual dividend yield . . . . . .
Expected volatility . . . . . . . . . . . . . . . .
Term (years) . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . .

2.20%
—
65.86%
1.62
$1.1 million

1.87%
—
65.86%
1.87
$0.4 million

1.49%
—
65.64%
2.12
$0.8 million

1.44%
—
67.21%
2.37
$0.9 million

The Company recorded a net loss, resulting from an increase in the fair value of the November 2014
Warrant of $3.5 million, and a net gain, resulting from a decrease in the fair value of the November 2014
Warrant, of $0.7 million to change in fair value of derivatives and warrants in the fiscal years ended March 31,
2019 and 2018, respectively.

Contingent Consideration

The Company evaluated the ITC acquisition Make Whole Payment set forth in the SPA, which ultimately
required net settlement cash, and determined the contingent consideration qualified for liability classification and
derivative treatment under ASC 815. As a result, for each period the fair value of the contingent consideration
was remeasured and the resulting gain or loss was recognized in operating expenses.

Following is a summary of the key assumptions used to calculate the fair value of the contingent

consideration related to the ITC acquisition:

Fiscal Year 2017
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Expected annual dividend yield . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . .
Term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30,
2017

September 25,
2017

1.09%
—
66.54%
0.31
$0.4 million

1.09%
—
65.71%
0.32
$0.6 million

All of the stock related to this liability was sold as of December 5, 2017 and the amount of the Make Whole

Payment was calculated to be $0.7 million, and subsequently paid on January 5, 2018. As such, no fair value
estimate using a Black-Scholes model was needed as the liability was recorded at the known settlement value for
the period ending December 31, 2017. The Company recorded a net loss of $0.1 million resulting from an
increase in the fair value of the contingent consideration in the fiscal year ended March 31, 2018.

75

13. Income Taxes

Loss before income taxes for the fiscal years ended March 31, 2019, and 2018 are provided in the table as

follows (in thousands):

Fiscal years ended
March 31,

2019

2018

Income/(Loss) before income tax expense:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(24,289)
57,430

$(100,341)
67,404

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 33,141

$ (32,937)

The components of income tax expense (benefit) attributable to continuing operations consist of the

following (in thousands):

Fiscal years ended
March 31,

2019

2018

Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,246
4,399

$

Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,645

374
592

966

Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,588
(853)
735

(1,086)
(41)
(1,127)

Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,380

$ (161)

The reconciliation between the statutory federal income tax rate and the Company’s effective income tax

rate is shown below.

Fiscal years ended
March 31,

2019

2018

(21)% (31)%

Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
Federal rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Deemed dividend and dividends paid . . . . . . . . . . . . . . . . . . . . . —
Foreign income tax rate differential . . . . . . . . . . . . . . . . . . . . . . .
Reversal of uncertain tax benefits . . . . . . . . . . . . . . . . . . . . . . . . —
True-up of NOLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GILTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(60)
37
3
92

4

351
7
(62)
(3)
11
—

(5)
(268)

Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-19% — %

76

The following is a summary of the principal components of the Company’s deferred tax assets and liabilities

(in thousands):

Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . .
Research and development and other tax credit

carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets and intangible assets . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 31,
2019

March 31,
2018

$ 181,657

$ 210,194

13,046
14,781
1,553
2,785

12,828
22,406
1,568
12,996

Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213,822
(196,340)

259,992
(227,686)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . .

17,482

32,306

Deferred tax liabilities:
Intercompany Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . .

(16,028)
(1,794)

(17,822)

(29,130)
(2,744)

(31,874)

Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(340)

$

432

The Tax Cuts and Jobs Act (“Tax Reform Act”), that was signed into law on December 22, 2017,
significantly changed the U.S. tax law by, among other things, lowering the corporate income tax rates,
implementing a territorial tax system, expanding the tax base, imposing a tax on deemed repatriated earnings of
foreign subsidiaries, taxing certain foreign earnings to the U.S. through global intangible low-taxed income
(“GILTI”), modifying officer’s compensation deduction limitations and creating new limitations on deductible
interest expense. The Company recognized the impact of the Tax Reform Act in its consolidated financial
statements for the year ended March 31, 2018. In accordance with Staff Accounting Bulletin No. 118
(“SAB 118”), the Company had a measurement period up to one year beginning December 22, 2017 to obtain,
analyze and prepare the information needed to complete the accounting requirements of the Tax Reform Act. The
Company completed the analysis allowed under SAB 118 when it finalized the deemed repatriation tax
computation in conjunction with the filing of the Company’s 2017 federal and state tax returns and the final
impact did not result in any material change from the original estimate.

The Company has elected to recognize the income tax related to GILTI as a period expense in the period the
tax is incurred or expected to occur for the year ended March 31, 2019. The inclusion of GILTI had no impact on
the Company’s income tax expense or effective tax rate in the period due to the full valuation allowance applied
to the U.S. entity.

The Company has provided a full valuation allowance against its net deferred income tax assets in the U.S.
and China since it is more likely than not that its deferred tax assets will not be realizable. After consideration of
all the available evidence, both positive and negative, the Company has determined that a $196.5 million
valuation allowance at March 31, 2019 is necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized.

At March 31, 2019, the Company had aggregate net operating loss carryforwards in the U.S. for federal and
state income tax purposes of approximately $776.0 million and $198.0 million, respectively, which expire in the
years ending March 31, 2019 through 2039. For U.S. federal tax purpose, approximately $30.0 million of Federal
net operating losses have an indefinite carryforward period. Included in the U.S. net operating loss are
$3.7 million of acquired losses from Power Quality Systems, Inc. and $0.3 million of acquired losses from

77

Infinia Technology Corporation. Research and development and other tax credit carryforwards amounting to
approximately $10.1 million and $3.5 million are available to offset federal and state income taxes, respectively,
and will expire in the years ending March 31, 2019 through 2039.

At March 31, 2019, the Company had aggregate net operating loss carryforwards for its Chinese operation
of approximately $21.8 million, which can be carried forward for five years and begin to expire December 31,
2019.

Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the “IRC”), provides limits on the
extent to which a corporation that has undergone an ownership change (as defined) can utilize any net operating
loss (“NOL”) and general business tax credit carryforwards it may have. The Company updated its study through
June 15, 2017 as a result of the May 2017 equity offering to determine whether Section 382 could limit the use of
its carryforwards in this manner. After completing this study, the Company has concluded that the limitation will
not have a material impact on its ability to utilize its NOL carryforwards. If there were material ownership
changes subsequent to the study, such changes could limit the Company’s ability to utilize its NOL
carryforwards. The Company increased its NOL’s by $0.3 million due to acquired losses in the fiscal year ended
March 31, 2018 from ITC. The Company conducted a study on the acquired NOL and concluded that the
limitations under Section 382 will not have a material impact on its ability to utilize its NOL carryforwards.

The total amount of undistributed foreign earnings available to be repatriated at March 31, 2019 was
$30.0 million resulting in the recording of a $1.7 million deferred tax liability for foreign withholding taxes.

The Company has not recorded a deferred tax asset for the temporary difference associated with the excess
of the tax greater than the book basis in its Chinese subsidiary as the future tax benefit is not expected to reverse
in the foreseeable future.

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical
merits, it is more likely than not that the position will be sustained upon audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax
positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in
these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. The
Company did not identify any uncertain tax positions at March 31, 2019. The Company did not have any gross
unrecognized tax benefits at March 31, 2019 or 2018.

There were no reversals of uncertain tax positions in the fiscal years ended March 31, 2019 and 2018.

The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for
federal and state income taxes. Any unrecognized tax benefits, if recognized, would favorably affect its effective
tax rate in any future period. The Company does not expect that the amounts of unrecognized benefits will
change significantly within the next twelve months.

The Company conducts business globally and, as a result, its subsidiaries file income tax returns in the U.S.

federal jurisdiction and various state and foreign jurisdictions. Major tax jurisdictions include the U.S., China,
Romania and Austria. All U.S. income tax filings for fiscal years ended March 31, 1996 through 2019 remain
open and subject to examination.

All fiscal years from the fiscal year ended March 31, 2014 through 2019 remain open and subject to
examination in Austria. The Company’s tax filings in China for calendar years 2013 and 2014 were examined
with no material exceptions. As of March 31, 2019, the Company remains open to audit for the calendar years
2016 and forward in China. Tax filings in Romania for the fiscal years ended March 31, 2014 through 2019
remain open and subject to examination.

78

14. Stockholders’ Equity

Stock-Based Compensation Plans

As of March 31, 2019, the Company had two active stock plans: the 2007 Stock Incentive Plan, as amended
(the “2007 Plan”) and the Amended and Restated 2007 Director Stock Plan (the “2007 Director Plan”). Both the
2007 Plan and the 2007 Director Plan were approved by the Company’s stockholders on July 29, 2016.

The 2007 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the

Internal Revenue Code of 1986, as amended, nonstatutory stock options, stock appreciation rights, restricted
stock, restricted stock units and other stock-based awards. In the case of options, the exercise price shall be equal
to at least the fair market value of the common stock, as determined by (or in a manner approved by) the Board
of Directors, on the date of grant. The contractual life of options is generally 10 years. Options generally vest
over a 3-5 year period while restricted stock generally vests over a 3 year period.

As of March 31, 2019, the 2007 Director Plan provided for the grant of nonstatutory stock options and stock

awards to members of the Board of Directors who are not also employees of the Company (outside directors).
Under the terms of the 2007 Director Plan, each outside director is granted an option to purchase shares of
common stock with an aggregate grant date value equal to $40,000 upon his or her initial election to the Board
with an exercise price equal to the fair market value of the Company’s common stock on the date of the grant.
These options vest in equal annual installments over a two-year period. In addition, each outside director is
granted an award of shares of common stock with an aggregate grant date value equal to $40,000 3 business days
following the last day of each fiscal year, subject to proration for any partial fiscal year of service.

As of March 31, 2019, the 2007 Plan had 367,507 shares and the 2007 Director Plan had 77,587 shares

available for future issuance.

Stock-Based Compensation

The components of employee stock-based compensation for the years ended March 31, 2019 and 2018 were

as follows (in thousands):

Fiscal years ended
March 31,

2019

2018

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock and stock awards . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . .

$ 221
2,781
28

$ 227
2,434
31

Total stock-based compensation expense . . . . . . . . . . . . . . . . .

$3,030

$2,692

The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is

amortized over the awards’ service period. There is no unrecognized compensation cost for unvested outstanding
stock options for the fiscal year ended March 31, 2019. The total unrecognized compensation cost for unvested
outstanding restricted stock was $2.6 million for the fiscal year ended March 31, 2019. This expense will be
recognized over a weighted-average expense period of approximately 1.5 years.

79

The following table summarizes employee stock-based compensation expense by financial statement line

item for the fiscal years ended March 31, 2019 and 2018 (in thousands):

Fiscal years ended
March 31,

2019

2018

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .

$ 116
365
2,549

$ 137
373
2,182

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,030

$2,692

The following table summarizes the information concerning currently outstanding and exercisable employee

and non-employee options:

Options /
Shares

Outstanding at March 31, 2018 . . . . . . . . . . . . . . .
Canceled/forfeited . . . . . . . . . . . . . . . . . . . . . . . . .

280,891
(116,626)

Outstanding at March 31, 2019 . . . . . . . . . . . . . . .

164,265

Exercisable at March 31, 2019 . . . . . . . . . . . . . . . .

164,265

Weighted-
Average
Exercise
Price

$69.51
31.76

$96.30

$96.30

Fully vested and expected to vest at March 31,

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

164,265

$96.30

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value
(thousands)

3.1

3.0

3.1

$—

$—

$—

There were no stock options granted during the fiscal years ended March 31, 2019 or 2018. Intrinsic value
represents the amount by which the market price of the common stock exceeds the exercise price of the options.
Given the decline in the Company’s stock price, exercisable options as of March 31, 2019 and 2018 had no
intrinsic value.

The following table summarizes the employee and non-employee restricted stock activity for the year ended

March 31, 2019:

Outstanding at March 31, 2018 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

896,486
532,053
(405,802)
(68,789)

Outstanding at March 31, 2019 . . . . . . . . . . . . . .

953,948

Weighted
Average
Grant Date Fair
Value

Intrinsic
Aggregate
Value
(thousands)

$4.65
6.9
6.1
5.04

$5.26

$12,268

The total fair value of restricted stock that was granted during the fiscal years ended March 31, 2019 and
2018 was $3.6 million and $3.3 million, respectively. The total fair value of restricted stock that vested during
the fiscal years ended March 31, 2019 and 2018 was $2.6 million and $1.4 million, respectively.

There were 57,000 performance-based restricted shares awarded during the fiscal year ended March 31,
2019 and 267,125 performance-based restricted shares awarded during the fiscal year ended March 31, 2018.

The remaining shares awarded vest upon the passage of time. For awards that vest upon the passage of time,

expense is being recorded over the vesting period.

80

Employee Stock Purchase Plan

The Company has the 2000 Employee Stock Purchase Plan, as amended (the “ESPP”) which provides
employees with the opportunity to purchase shares of common stock at a price equal to the market value of the
common stock at the end of the offering period, less a 15% purchase discount. As of March 31, 2019, the ESPP
had 239,954 shares available for future issuance. The Company recognized less than $0.1 million of
compensation expense for the fiscal year ended March 31, 2019 and 2018, related to the ESPP.

Equity Offerings

On May 10, 2017, the Company completed an additional equity offering (the “Offering”) which included a

30-day option (the “Option”) to the underwriters to purchase up to an additional 600,000 shares of common stock
at the public offering price. The total net proceeds to the Company during the year ended March 31, 2018 from
the Offering and Option were approximately $17.0 million, after deducting underwriting discounts and
commissions and offering expenses payable by the Company. The Company terminated its At Market Issuance
Sales Agreement (“ATM”) with FBR Capital Markets & Co (“FBR”) in conjunction with the Offering.

15. Commitments and Contingencies

Purchase Commitments

The Company periodically enters into non-cancelable purchase contracts in order to ensure the availability

of materials to support production of its products. Purchase commitments represent enforceable and legally
binding agreements with suppliers to purchase goods or services. The Company periodically assesses the need to
provide for impairment on these purchase contracts and record a loss on purchase commitments when required.

Lease Commitments

Operating leases include minimum payments under leases for the Company’s facilities and certain
equipment. The Company’s primary leased facilities are located in Klagenfurt, Austria; Suzhou, China; Ayer,
Massachusetts; Timisoara, Romania; and Pewaukee, Wisconsin; with a combined total of approximately 187,000
square feet of space. These leases have varying expiration dates through November 2022 which can generally be
terminated at the Company’s request after a six month advance notice. The Company leases other locations
which focus primarily on applications engineering, sales and/or field service and do not have significant leases or
physical presence. See Item 2, “Properties” for further information.

Minimum future lease commitments at March 31, 2019 were as follows (in thousands):

Fiscal years ended March 31,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total
$1,121
894
648
416
65

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,144

Rent expense under the operating leases mentioned above was as follows (in thousands):

Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,286

$1,510

Fiscal years ended
March 31,

2019

2018

81

Legal Contingencies

From time to time, the Company is involved in legal and administrative proceedings and claims of various

types. The Company records a liability in its consolidated financial statements for these matters when a loss is
known or considered probable and the amount can be reasonably estimated. The Company reviews these
estimates each accounting period as additional information is known and adjusts the loss provision when
appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably
estimated, the Company estimates and discloses 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 its consolidated financial statements.

Other

The Company enters into long-term construction contracts with customers that require the Company to
obtain performance bonds. The Company is required to deposit an amount equivalent to some or all the face
amount of the performance bonds into an escrow account until the termination of the bond. When the
performance conditions are met, amounts deposited as collateral for the performance bonds are returned to the
Company. In addition, the Company has various contractual arrangements in which minimum quantities of goods
or services have been committed to be purchased on an annual basis.

As of March 31, 2019, the Company had $0.7 million of restricted cash included in long-term assets. These

amounts included in restricted cash primarily represent deposits to secure letters of credit for various supply
contracts. These deposits are held in interest bearing accounts.

16. Employee Benefit Plans

The Company has implemented a defined contribution plan (the “Plan”) under Section 401(k) of the Internal
Revenue Code. Any contributions made by the Company to the Plan are discretionary. The Company has a stock
match program under which the Company matched, in the form of Company common stock, 50% of the first 6%
of eligible contributions. The Company recorded expense of $0.3 million for the fiscal year ended March 31,
2019, and $0.4 million for the fiscal year ended March 31, 2018, and recorded corresponding charges to
additional paid-in capital related to this program.

17. Restructuring

The Company accounts for charges resulting from operational restructuring actions in accordance with ASC
Topic 420, Exit or Disposal Cost Obligations (“ASC 420”) and ASC Topic 712, Compensation — Nonretirement
Postemployment Benefits (“ASC 712”). In accounting for these obligations, the Company is required to make
assumptions related to the amounts of employee severance, benefits, and related costs and the time period over
which leased facilities will remain vacant, sublease terms, sublease rates and discount rates. Estimates and
assumptions are based on the best information available at the time the obligation arises. These estimates are
reviewed and revised as facts and circumstances dictate; changes in these estimates could have a material effect
on the amount accrued on the consolidated balance sheet.

The $0.5 million charged to operations in the fiscal year ended March 31, 2019 was related to exit costs

incurred primarily during the first half of fiscal 2018 for the move of the Company’s corporate office.

On April 3, 2017, the Board of Directors approved a plan to reduce the Company’s global workforce by
approximately 8%, effective April 4, 2017. The purpose of the workforce reduction was to reduce operating
expenses to better align with the Company’s current revenues. Included in the $1.3 million severance pay,
charged to operations in the fiscal year ended March 31, 2018, is $0.5 million of severance pay for one of the
Company’s former executive officers pursuant to the terms of a severance agreement dated June 30, 2017. Under
the terms of the severance agreement, the Company’s former executive officer was entitled to 18 months of his
base salary, and received his final severance payment in December 2018.

82

The following table presents restructuring charges and cash payments during the years ended March 31,

2019 and 2018 (in thousands):

Severance
pay
and
benefits

Facility
exit and
Relocation
costs

Total

Accrued restructuring balance at April 1, 2018 . . . . . . . . . . . . . . $
Charges to operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

262
—
(262)

$ 173
450
(623)

$

435
450
(885)

Accrued restructuring balance at March 31, 2019 . . . . . . . . . . . . $ — $ — $ —

Accrued restructuring balance at April 1, 2017 . . . . . . . . . . . . . . $ — $ — $ —
1,527
Charges to operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,092)
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,325
(1,063)

202
(29)

Accrued restructuring balance at March 31, 2018 . . . . . . . . . . . . $

262

$ 173

$

435

All restructuring charges discussed above are included within restructuring in the Company’s consolidated

statements of operations. The Company includes accrued restructuring within accounts payable and accrued
expenses in the consolidated balance sheets.

18. Business Segments

The Company reports its financial results in two reportable business segments: Grid and Wind.

Through the Company’s power grid offerings, the Grid business segment enables electric utilities, industrial

facilities, and renewable energy project developers to connect, transmit and distribute power through our
transmission planning services, power electronics, and superconductor-based systems. The sales process is
enabled by transmission planning services that allow it to identify power grid congestion, poor power quality and
other risks, which helps the Company determine how its solutions can improve network performance. These
services often lead to sales of grid interconnection solutions for wind farms and solar power plants, power quality
systems, and transmission and distribution cable systems. The Company also sells ship protection products to the
U.S. Navy through its Grid business segment.

Through the Company’s wind power offerings, the Wind business segment enables manufacturers to field

highly competitive wind turbines through our advanced power electronics and control system products,
engineered designs, and support services. The Company supplies advanced power electronics and control
systems, licenses its highly engineered wind turbine designs, and provides extensive customer support services to
wind turbine manufacturers. The Company’s design portfolio includes a broad range of drive trains and power
ratings of 2 megawatts (“MWs”) and higher. The Company provides a broad range of power electronics and
software-based control systems that are highly integrated and designed for optimized performance, efficiency,
and grid compatibility.

83

The operating results for the two business segments are as follows (in thousands):

Fiscal Years Ended
March 31,

2019

2018

Revenues:

Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$34,290
21,917

$34,109
14,294

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$56,207

$48,403

Fiscal Years Ended
March 31,

2019

2018

Operating income (loss):

Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated corporate expenses . . . . . . . . . . . . . . . . .

$(10,600)
48,103
(3,480)

$(18,963)
(8,904)
(4,290)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 34,023

$(32,157)

Total assets for the two business segments as of March 31, 2019 and March 31, 2018 are as follows (in

thousands):

Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,075
8,167
80,088

$37,012
16,790
34,373

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$119,330

$88,175

March 31,
2019

March 31,
2018

The accounting policies of the business segments are the same as those for the consolidated Company. The

Company’s business segments have been determined in accordance with the Company’s internal management
structure, which is organized based on operating activities. The Company evaluates performance based upon
several factors, of which the primary financial measures are segment revenues and segment operating income
(loss). The disaggregated financial results of the segments reflect allocation of certain functional expense
categories consistent with the basis and manner in which Company management internally disaggregates
financial information for the purpose of assisting in making internal operating decisions. In addition, certain
corporate expenses which the Company does not believe are specifically attributable or allocable to either of the
two business segments have been excluded from the segment operating loss.

Unallocated corporate expenses primarily consist of stock-based compensation expense of $3.0 million and

$2.7 million, in the fiscal years ended March 31, 2019 and 2018, respectively, restructuring charges of
$0.5 million and $1.5 million for the fiscal years ended March 31, 2019 and 2018, and a change in the fair value
of contingent consideration of $0.1 million for the fiscal year ended March 31, 2018.

84

Geographic information about property, plant and equipment associated with particular regions is as follows

(in thousands):

North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,555
345
72

$11,933
478
102

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,972

$12,513

March 31,

2019

2018

19. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting

Standards Board (“IASB”) issued, ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The
guidance substantially converges final standards on revenue recognition between the FASB and IASB providing
a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all existing
revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted
accounting principles. The FASB has subsequently issued multiple amendments to ASU 2014-09 which are all
effective for annual reporting periods beginning after December 15, 2017.

As of April 1, 2018, the Company has adopted ASU 2014-09 and its amendments, reported the impact in its

consolidated financial statements, and implemented changes to its business processes, systems and controls to
support revenue recognition and the related disclosures under this ASU. The Company’s assessment included a
detailed review of representative contracts from each of the Company’s revenue streams and a comparison of its
historical accounting policies and practices to the new standard. The Company adopted the new standards
retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial
application (the modified retrospective transition method) to all existing contracts that have remaining
obligations as of April 1, 2018. Accordingly, the Company has elected to retroactively adjust only those contracts
that do not meet the definition of a complete contract at the date of the initial application. This guidance has led
to recognizing certain revenue transactions sooner than in the past on certain contracts, as the Company will need
to estimate the revenue it will be entitled to upon contract completion, and later on other contracts, such as
Consulting and Statement of Work transactions, due to the lack of an enforceable right to payment for
performance obligations satisfied over time. There were no changes in the accounting for its largest revenue
stream which includes Inox Wind as its primary customer. Across other revenue streams such as D-VAR®
Equipment and D-VAR® turnkey projects, the timing of revenue recognition will be affected for multiple types
of contracts, primarily multiple performance obligation contracts in its Grid business unit, but those differences
did not have a material impact on its consolidated financial statements. The adjustment to opening accumulated
deficit was not significant in the period commencing on April 1, 2018. Additionally, the adoption of this new
standard did not have any tax impact on the consolidated financial statements. As part of this analysis, the
Company evaluated its information technology capabilities and systems, and did not incur significant information
technology costs to modify systems currently in place.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU 2016-01
will enhance the reporting model for financial instruments to provide users of financial statements with more
decision-useful information. This ASU is effective for annual reporting periods beginning after December 15,
2017, and interim periods within those fiscal years. The Company adopted ASU 2016-01 effective April 1, 2018
and noted no significant impact to its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU

supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize

85

lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will
be classified as either finance or operating, with classification affecting the pattern of expense recognition in the
income statement. This ASU and its amendments are effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years.

•

•

In July 2018, the FASB issued ASU 2018-10, Codification improvements to Topic 842, Leases. The
amendments in ASU 2018-10 provide more clarification in regards to the application and requirements
of ASU 2016-02.

In July 2018, the FASB issued ASU 2018-11, Topic 842, Leases — Targeted improvements. The
amendments in ASU 2018-11 provide for the option to adopt the standard prospectively and recognize
a cumulative-effect adjustment to the opening balance of retained earnings as well as offer a new
practical expedient that will allow the Company to elect, by class of underlying asset, to not separate
non-lease and lease components in certain circumstances and instead to account for those components
as a single item.

The Company has evaluated the provisions of ASU 2016-02 and its amendments, and assessing the impact

the adoption of this guidance will have on its financial position, results of operations and disclosures. This
process has included identifying the implementation team, applying the revised definition of a lease per ASC 842
to existing agreements, and from that information, creating an initial population. The Company made the policy
election to exclude all leases shorter than 12 months from the recognition of the recording of the right of use
(“ROU”) asset and related liabilities. The Company elected the package of three practical expedients in regards
to all leases that commenced before the effective date. The Company made a policy election to not separate
non-lease and lease components for all asset classes. The adoption of this guidance will result in certain changes
to the financial statements to add the related asset and liability accounts for all of its operating leases. The
Company will continue to assess its agreements for any other impacts that may result from the adoption of this
standard. Based on the analysis of the initial lease population, the Company has determined that its initial
population will be made up entirely of operating leases. The Company has prepared control wording, is finalizing
the overall lease policies and has identified and implemented any changes that were necessary to comply with the
provisions of ASU 2016-02.

ASU 2016-02 became effective on April 1, 2019, and the Company adopted the standard using the modified
retrospective transition method, which impacts all leases existing at, or entered into after, the period of adoption.
For all leases existing at the time of adoption the Company will recognize a cumulative effect adjustment to its
opening balance of retained earnings as of April 1, 2019. As a result of the adoption of ASC 842, the Company
expects to recognize an increase in net lease assets between $3.0 million and $5.0 million and an increase in net
lease liabilities between $3.0 million and $5.0 million related to the recognition of a right-of-use asset and the
associated liability.

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. The ASU is effective for annual reporting periods
beginning after December 15, 2019, including interim periods within that year. The Company is currently
evaluating the impact, if any, the adoption of ASU 2016-13 may have on its consolidated financial statements.

In 2016, the FASB issued the following two ASU’s on Statement of Cash Flows (Topic 230). Both
amendments are effective for annual reporting periods beginning after December 15, 2017, including interim
periods within that year.

•

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments. The amendments in ASU 2016-15 provide more
guidance towards the classification of multiple different types of cash flows in order to reduce the
diversity in reporting across entities.

86

•

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash. The amendments in ASU 2016-18 explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be
included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows.

The Company adopted ASU 2016-15 and ASU 2016-18 effective April 1, 2018 and the consolidated

statement of cash flow has been prepared to conform with ASU 2016-18 for all periods presented.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory. The amendments in ASU 2016-16 will improve the accounting for the income tax
consequences of intra-entity transfers of assets other than inventory. The ASU is effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that year. The Company adopted
ASU 2016-16 effective April 1, 2018 and noted no significant impact to its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income — Gains and Losses from the

Derecognition of Non-financial Assets (Subtopic 610-20). The amendments in ASU 2017-05 clarify the scope of
Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Non-financial Assets, and add
guidance for partial sales of non-financial assets. Subtopic 610-20, which was issued in May 2014 as a part of
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing
gains and losses from the transfer of non-financial assets in contracts with non-customers. The Company adopted
ASU 2017-05 effective April 1, 2018 and adjusted the opening balance of accumulated deficit by $0.1 million for
recognition of the deferred gain on the sale of the 64 Jackson Road building that occurred on March 28, 2018.

In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Subtopic 718) Scope

of Modification Accounting. The amendments in ASU 2017-09 provide clarity and reduce both (1) diversity in
practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation — Stock
Compensation, to a change to the terms or conditions of a share-based payment award. The ASU is effective for
annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The
Company adopted ASU 2017-09 effective April 1, 2018 and noted no significant impact to its consolidated
financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities
from Equity (Topic 480), and Derivatives and Hedging (Topic 815). The amendments in ASU 2017-11 provide
guidance for freestanding equity-linked financial instruments, such as warrants and conversion options in
convertible debt or preferred stock, and should no longer be accounted for as a derivative liability at fair value as
a result of the existence of a down round feature. The ASU is effective for annual reporting periods beginning
after December 15, 2018, including interim periods within those periods. The Company is currently evaluating
the impact of the adoption of ASU 2017-11 and does not expect a significant impact on its consolidated financial
statements, primarily due to the put option feature within the Company’s warrant agreements which requires
continued liability classification under ASC 480.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The amendments in ASU 2017-12 provide improved
financial reporting of hedging relationships to better portray the economic results of an entity’s risk management
activities in its financial statements. In addition, the amendments in this update make certain targeted
improvements to simplify the application of the hedge accounting guidance. The ASU is effective for annual
reporting periods beginning after December 15, 2018, including interim periods within those periods. The
Company is currently evaluating the impact the adoption of ASU 2017-12 may have on its consolidated financial
statements.

87

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718):
Improvements to Non-Employee Share Based Payment Accounting. The amendments in ASU 2018-07 provide
for the simplification of the measurement of share-based payment transactions for acquiring goods and services
from non-employees. The ASU is effective for annual reporting periods beginning after December 15, 2018,
including interim periods within those periods. The Company adopted ASU 2018-07 effective April 1, 2018 and
noted no significant impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the
Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 provide for increased
effectiveness of the disclosures made around fair value measurements while including consideration for costs and
benefits. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim
periods within those periods. The Company is currently evaluating the impact the adoption of ASU 2018-13 may
have on its consolidated financial statements.

20. Subsequent Events

The Company has performed an evaluation of subsequent events through the time of filing this Annual

Report on Form 10-K with the SEC, and has determined that there are no such events to report.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

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 March 31, 2019. 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 March 31, 2019, 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.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over our financial

reporting. Internal control over financial reporting is defined in Rules 13a–15(f) and 15d–15(f) under the
Exchange Act as a process designed by, or under the supervision of, a company’s chief executive officer and
chief financial officer, and effected by the board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles, and includes those policies
and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of assets;

88

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation

of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures are being made only in accordance with authorizations of management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use or disposition of assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our chief executive officer

and chief financial officer, an evaluation was conducted of the effectiveness of our internal control over financial
reporting based on the Committee of Sponsoring Organizations of the Treadway Commission’s Internal Control
— Integrated Framework (2013 Edition). Based on this evaluation, management concluded that our internal
control over financial reporting was effective as of March 31, 2019.

The effectiveness of our internal control over financial reporting as of March 31, 2019 has been audited by

RSM US LLP, an independent registered public accounting firm, as stated in their report which is included
herein.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended March 31,

2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.

Item 9B. OTHER INFORMATION

None.

89

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this item is contained in part under the caption “Executive Officers” in Part I of this Annual

Report on Form 10-K, and in part in our Proxy Statement for the Annual Meeting of Stockholders to be held in
2019 (the “2019 Proxy Statement”) in the sections “Corporate Governance — Members of the Board,”
“Corporate Governance — Code of Business Conduct and Ethics,” “Corporate Governance —Board
Committees” and “Corporate Governance — Board Committees — Audit Committee,” “Corporate
Governance — Director Nomination Process”, “Corporate Governance — Board Determination of
Independence”, which sections are incorporated herein by reference.

Item 11. EXECUTIVE COMPENSATION

The sections of the 2019 Proxy Statement titled “Information About Executive and Director Compensation,”

“Information About Executive and Director Compensation — Compensation Committee Interlocks and Insider
Participation” and “Information About Executive and Director Compensation — Compensation Committee
Report” are incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The sections of the 2019 Proxy Statement titled “Stock Ownership of Certain Beneficial Owners and
Management” and “Information about Executive Officer and Director Compensation — Securities Authorized
for Issuance Under our Equity Compensation Plans” are incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The sections of the 2019 Proxy Statement titled “Certain Relationships and Related Transactions” and

“Corporate Governance — Board Determination of Independence” and “Corporate Governance — Board
Committees” are incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The section of the 2019 Proxy Statement titled “Ratification of Selection of Independent Registered Public

Accounting Firm (Proposal 4)” is incorporated herein by reference.

90

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Document filed as part of this Annual Report on Form 10-K:

1. Financial Statements

The following financial statements of American Superconductor Corporation, supplemental information and

report of independent registered public accounting firm required by this item are included in Item 8, “Financial
Statements and Supplementary Data,” in this Form 10-K:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at March 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the fiscal years ended March 31, 2019 and 2018 . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss for the fiscal years ended March 31, 2019 and 2018 . . . . . .
Consolidated Statements of Stockholders’ Equity for the fiscal years ended March 31, 2019 and 2018 . . . . .
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2019 and 2018 . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49
51
52
53
54
55
56

2. Financial Statement Schedules

All schedules are omitted because they are not applicable, not required or the required information is shown

in the consolidated financial statements or notes thereto.

3. Exhibits Required by Item 601 of Regulation S-K under the Exchange Act.

See (b) Exhibits.

(b) Exhibits

The list of Exhibits filed as a part of this Annual Report on Form 10-K is set forth on the Exhibit Index

immediately following Item 16, “Form 10-K Summary”, and is incorporated herein by reference.

Item 16. FORM 10-K SUMMARY

None.

91

Exhibit
Number

3.1

3.2

3.3

4.1

4.2

EXHIBIT INDEX

Incorporated by Reference

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed/
Furnished
Herewith

Restated Certificate of Incorporation of the
Registrant, as amended.

Certificate of Amendment of Restated
Certificate of Incorporation of the Registrant,
dated March 24, 2015.

Amended and Restated By-Laws of the
Registrant.

Form of Indenture, between the Registrant
and Wilmington Trust, National Association.

Form of Warrant Agreement, by and
between the Registrant and the American
Stock Transfer and Trust Company, dated
November 13, 2014, and Form of Warrant.

S-3

333-191153

3.1

9/13/2013

8-K

000-19672

3.1

3/24/2015

S-3

333-191153

3.2

9/13/2013

S-3

333-222874

4.1

2/5/2018

8-K

000-19672

4.1

11/13/2014

4.3

Description of Capital Stock

*

10.1+

10.2+

10.3+

10.4+

10.5+

10.6+

10.7+

10.8+

10.9+

2007 Stock Incentive Plan, as amended.

Form of Incentive Stock Option Agreement
under 2007 Stock Incentive Plan, as
amended.

Form of Non-statutory Stock Option
Agreement under 2007 Stock Option Plan, as
amended.

Form of Restricted Stock Agreement
Regarding Awards to Executive Officers
under 2007 Stock Option Plan, as amended.

Form of Restricted Stock Agreement
Regarding Awards to Employees, under
2007 Stock Option Plan, as amended.

Form of Restricted Stock Agreement
(regarding performance-based awards to
executive officers and employees) under
2007 Stock Incentive Plan, as amended.

Form of Option Surrender Agreement under
2007 Stock Incentive Plan, as amended.

Amended and Restated 2007 Director Stock
Plan.

Form of Non-statutory Stock Option
Agreement Under Amended and Restated
2007 Director Stock Plan.

8-K

8-K

000-19672

000-19672

10.1

10.2

8/2/2016

8/7/2007

8-K

000-19672

10.3

8/7/2007

8-K

000-19672

10.4

8/7/2007

8-K

000-19672

10.5

8/7/2007

8-K

000-19672

10.1

5/20/2008

10-Q

000-19672

10.4

11/6/2018

8-K

000-19672

10.2

8/2/2016

8-K

000-19672

10.7

8/7/2007

10.10+

Form of Employee Nondisclosure and
Developments Agreement.

10-K/A

333-43647 10.11

6/7/2018

92

Exhibit
Number

10.11+

10.12+

10.13+

10.14+

10.15+

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed/
Furnished
Herewith

Incorporated by Reference

Amended and Restated Executive Severance
Agreement, dated as of May 24, 2011,
between the Registrant and Daniel P.
McGahn.

Amended and Restated Executive Severance
Agreement, dated as of September 20, 2013,
between the Registrant and James F.
Maguire.

First Amendment to Amended and Restated
Executive Severance Agreement, dated
April 6, 2018, between the Registrant and
James F. Maguire

Executive Severance Agreement, dated as of
January 13, 2012, between the Registrant and
John W. Kosiba.

First Amendment to Executive Severance
Agreement, effective as of July 31, 2017,
between the Registrant and John W. Kosiba.

8-K

000-19672

10.2

5/24/2011

8-K

000-19672

10.1

9/25/2013

10-K

000-19672

10.5

6/6/2018

8-K

000-19672

10.1

4/4/2017

10-Q

000-19672

10.1

11/7/2017

10.16+

Fiscal 2017 Executive Incentive Plan.

10-Q

000-19672

10.1

8/8/2017

10.17+

Fiscal 2018 Executive Incentive Plan.

10.18†

10.19†

10.20†

10.21†

10.22†

Supply Contract, effective as of February 8,
2013, by and between the Registrant and
Inox Wind Limited.

Supply Contract, effective as of June 2,
2014, by and between the Registrant and
Inox Wind Limited.

Amendment No.1 to Supply Contract (dated
June 2, 2014), by and between the Registrant
and Inox Wind Limited, entered into by the
Registrant on August 26, 2015.

Amendment No.2 to Supply Contract (dated
June 2, 2014), by and between the Registrant
and Inox Wind Limited, entered into by the
Registrant on December 14, 2015.

Amendment No.3 to Supply Contract (dated
June 3, 2014), by and between the Registrant
and Inox Wind Limited, entered into on
February 18, 2016.

10.23†

Supply Contract, effective as of August 15,
2014, by and between the Registrant and
Inox Wind Limited.

8-K

8-K

000-19672

10.1

7/3/2018

000-19672

10.1

2/14/2013

8-K

000-19672

10.1

6/5/2014

10-Q

000-19672

10.1

11/3/2015

10-Q

000-19672

10.3

2/9/2016

10-K

000-19672 10.41

5/31/2016

10-Q

000-19672

10.1

11/6/2014

93

Incorporated by Reference

File No.

Exhibit

Filing
Date

Filed/
Furnished
Herewith

000-19672

10.2

11/3/2015

Form

10-Q

10-Q

000-19672

10.3

11/3/2015

10-Q

000-19672

10.4

2/9/2016

10-K

000-19672 10.46

5/31/2016

10-Q

000-19672

10.1

2/9/2016

10-K

000-19672 10.29

6/6/2018

10-K

000-19672 10.30

6/6/2018

10-Q

000-19672

10.2

2/9/2016

8-K

000-19672

10.1

2/1/2018

8-K

000-19672

10.1

4/3/2018

Exhibit
Number

10.24†

10.25†

10.26†

10.27†

Exhibit Description

Amendment No.1 to Supply Contract
(effective as of August 15, 2014), by and
between the Registrant and Inox Wind
Limited, entered into by the Registrant on
February 25, 2015.

Amendment No.2 to Supply Contract
(effective as of August 15, 2014), by and
between the Registrant and Inox Wind
Limited, entered into by the Registrant on
August 26, 2015.

Amendment No.3 to Supply Contract
(effective as of August 15, 2014), by and
between the Registrant and Inox Wind
Limited, entered into on November 19, 2015.

Amendment No.4 to Supply Contract
(effective as of August 15, 2014), by and
between the Registrant and Inox Wind
Limited, entered into on February 18, 2016.

10.28†

Supply Contract, dated December 16, 2015,
by and between the Registrant and Inox
Wind Limited.

10.29†† Amendment No. 1 to Supply Contract,
entered into as of March 14, 2018 and
effective as of November 8, 2017, by and
between the Registrant and Inox Wind
Limited.

10.30†† Amendment No. 2 to Supply Contract,
entered into on May 21, 2018, by and
between the Registrant and Inox Wind
Limited.

10.31†

10.32

10.33

Technology License Agreement, dated
December 16, 2015, by and among AMSC
Austria GMBH, the Registrant and Inox
Wind Limited.

Purchase and Sale Agreement, dated as of
February 1, 2018, by and between ASC
Devens LLC and 64 Jackson, LLC.

Subordinated Secured Commercial
Promissory Note of Jackson 64 MGI, LLC in
favor of ASC Devens LLC dated March 28,
2018.

94

Exhibit
Number

10.34

10.35

10.36

10.37

10.38

10.39

10.40

21.1

23.1

31.1

31.2

32.1

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed/
Furnished
Herewith

Incorporated by Reference

8-K

000-19672

10.2

4/3/2018

8-K

000-19672

10.3

4/3/2018

8-K

000-19672

10.4

4/3/2018

8-K

000-19672

10.5

4/3/2018

10-Q

000-19672

10.1

2/5/2019

*

*

*

*

*

*

**

Assignment of Purchase and Sale
Agreement, dated as of March 26, 2018, by
and among ASC Devens LLC, 64 Jackson,
LLC and Jackson 64 MGI, LLC.

Subordinated Second Mortgage of Jackson
64 MGI, LLC in favor of ASC Devens LLC
effective March 28, 2018.

Subordinated Second Assignment of Leases
and Rents by Jackson 64 MGI, LLC to ASC
Devens LLC dated March 28, 2018.

Intercreditor, Subordination and Standstill
Agreement by and among East Boston
Savings Bank, ASC Devens LLC and
Jackson 64 MGI, LLC dated March 28,
2018.

First Amendment to Intercreditor,
Subordination and Standstill Agreement by
and between East Boston Savings Bank and
ASC Devens LLC dated March 28, 2019.

Subordination of Subordinated Second
Mortgage Rents by ASC Devens LLC to East
Boston Savings Bank dated March 28, 2019.

Subcontract Agreement, dated October 31,
2018, by and between the Registrant and
Commonwealth Edison Company.

Subsidiaries.

Consent of RSM US LLP

Chief Executive Officer — Certification
pursuant to Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

Chief Financial Officer — Certification
pursuant to Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

Chief Executive Officer — Certification
pursuant to Rule13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934 and
18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.

95

Incorporated by Reference

Exhibit
Number

32.2

Exhibit Description

Form

File No.

Exhibit

Chief Financial Officer — Certification
pursuant to Rule 13a-14(b) or Rule
15d-14(b) of the Securities Exchange Act of
1934 and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.

Filing
Date

Filed/
Furnished
Herewith

**

101.INS

XBRL Instance Document.*

101.SCH XBRL Taxonomy Extension Schema

Document.*

101.CAL XBRL Taxonomy Calculation Linkbase

Document.*

101.DEF XBRL Taxonomy Definition Linkbase

Document.*

101.LAB XBRL Taxonomy Label Linkbase

Document.*

101.PRE XBRL Taxonomy Presentation Linkbase

Document.*

†

Confidential treatment previously requested and granted with respect to certain portions, which portions
were omitted and filed separately with the Commission.

+ Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this

Form 10-K.
*
Filed herewith.
** Furnished herewith.

96

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

AMERICAN SUPERCONDUCTOR CORPORATION

BY:

/S/ DANIEL P. MCGAHN
Daniel P. McGahn
Chairman of the Board, President, and
Chief Executive Officer

Date: June 5, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name

Title

Date

/S/ DANIEL P. MCGAHN
Daniel P. McGahn

/S/ JOHN W. KOSIBA, JR.
John W. Kosiba, Jr.

/S/ ARTHUR H. HOUSE
Arthur H. House

/S/ VIKRAM S. BUDHRAJA
Vikram S. Budhraja

/S/ BARBARA G. LITTLEFIELD
Barbara G. Littlefield

/S/ DAVID R. OLIVER, JR.
David R. Oliver, Jr.

Chairman of the Board, President,

June 5, 2019

Chief Executive Officer, and
Director (Principal Executive
Officer)

Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)

June 5, 2019

Lead Independent Director of the
Board

June 5, 2019

Director

June 5, 2019

Director

June 5, 2019

Director

June 5, 2019

97

Corporate Management and Directors

Management Team

Board of Directors 

Daniel P. McGahn 
Chairman, President and Chief Executive Officer

Vikram Budhraja 
President, Electric Power Group, LLC 

John W. Kosiba, Jr.
Senior Vice President, Chief Financial Officer and Treasurer

Arthur H. House 
Chief Cybersecurity Risk Officer, State of Connecticut

Barbara G. Littlefield 
Chief Financial Officer, Poseidon Water, LLC

Daniel P. McGahn
Chairman, President and Chief Executive Officer

David Oliver, Jr.
Rear Admiral, U.S. Navy (Retired)
Chief Operating Officer, European Aeronautic Defense  
and Space Company North America (EADS NA) (Retired)

AMSC 
114 E. Main Street 
Ayer, MA 01432-1832 
Phone: 978-842-3000 

Transfer Agent and Registrar 
American Stock Transfer & Trust Company  
59 Maiden Lane  Plaza Level  
New York, NY 10038  
800-937-5449

The transfer agent is responsible for handling shareholder 
questions about changes of ownership or the name in which  
shares are held. As of June 7, 2019 there were 185 holders 
of record of AMSC common stock.

  Common Stock Listing 
Nasdaq Global Select Market 
Symbol: AMSC

Legal Counsel 
Latham & Watkins LLP 
John Hancock Tower, 20th Floor 
200 Clarendon St 
Boston, MA 02116

Independent Auditors 
RSM U.S. LLP 
80 City Square 
Boston, MA 02129

Form 10-K 
The text of the company’s annual report on form 10-K for the  
fiscal year ended March 31, 2019 (excluding exhibits), as filed  
with the Securities and Exchange Commission, is included herein. 

®

This letter contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding: our future strategy, plans and 
prospects; expectations for future production and revenue growth; diversification of our revenue mix; the addressable market for our products; our goal to have our advanced HTS-based degaussing system 
designed into additional vessel platforms; timing of manufacturing of the first REG system for ComEd; our continued partnership with Inox; our entry into the off-shore market in fiscal 2019; generating 
sustainable and profitable growth; and delivering value to our shareholders. Factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but 
are not limited to the important factors discussed under the caption “Risk Factors” in Part 1. Item 1A of our Form 10-K for the fiscal year ended March 31, 2019, which are included in this Annual Report. The 
forward-looking statements contained in this letter represent management’s estimates as of the date of this letter. 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 letter.