To date, there has been no widespread commercial use of HTS products. Even if the technological hurdles currently limiting commercial uses of HTS products are overcome, it is uncertain whether a robust commercial market for those new and unproven products will ever develop. To date, many projects to install superconductor cables and products in power grids have been funded
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. For instance, the Chinese government has, in the past, restricted lending from banks to companies in China as a means to fight inflation, resulting in a limitation of access to credit. Problems with collections from, or sales to, any one of those customers could reduce our revenue and harm our financial performance. Operations in foreign countries also expose us to risks
In recent years, a substantial majority of our consolidated revenues were recognized from customers outside of the United States. For example,
78% of our revenues in fiscal 2016 and 85% of our revenues in fiscal 2015
and 86% of our revenues in fiscal 2014 were recognized from sales outside the United States. 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;
|
potentially longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable; | ·
| 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;
|
difficulties in staffing and managing our foreign offices and the increased travel, infrastructure and legal compliance costs associated with multiple international locations; | ·
| 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
|
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; | ·
| political unrest, war or acts of terrorism.
|
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 new U.S. presidential administration has withdrawn the United States from the Trans-Pacific Partnership 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. 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.
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.
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.
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.
For example, based, in part, upon evidence obtained through an internal investigation and a criminal investigation conducted by Austrian authorities regarding the actions of a former employee of our Austrian subsidiary, we believe that Sinovel illegally obtained and used our intellectual property in violation of civil and criminal intellectual property laws. In July 2011, a former employee of our Austrian subsidiary was arrested in Austria on charges of economic espionage and fraudulent manipulation of data. In September 2011, the former employee pled guilty to the charges, and was imprisoned. On September 13, 2011, we commenced a series of legal actions in China against Sinovel and other parties alleging the illegal use of our intellectual property. We cannot provide any assurance as to the outcome of these legal actions. This or future litigation with Sinovel could result in substantial costs and divert management’s attention and resources, which could have an adverse effect on our business, operating results and financial condition. In addition, such proceedings may make it more difficult to finance our operations. If we are unsuccessful in this litigation and fail to maintain adequate protection of this intellectual property, our competitive business position would be adversely affected. For more information about these legal proceedings, see Part I, Item 3, “Legal Proceedings.”
22
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
|
the patent applications that we or our licensors file may not result in patents being issued; | ·
| others may independently develop similar technologies not protected by our patents or design around the patented aspects of any technologies we develop.
|
any patents issued may be challenged by third parties; andothers 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.
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.
23
Risks Related to Our Legal Matters
We have filed a demand for arbitration and other lawsuits against our former largest customer, Sinovel, regarding amounts we contend are overdue. We cannot be certain as to the outcome of these proceedings.
On March 31, 2011, Sinovel refused to accept contracted scheduled shipments with a revenue value of approximately $65.2 million. In addition, as of March 31, 2011, we had approximately $62.0 million of receivables (excluding value-added tax) outstanding from Sinovel. We have not received payment from Sinovel for these outstanding receivables that are now past due, nor have we been notified as to when, if ever, they will accept contracted shipments that were scheduled for delivery after March 31, 2011. No payment has been received from Sinovel since early March 2011. Because Sinovel did not give us notice that it intended to delay deliveries as required under the contracts, we believe that these actions constitute material breaches of our contracts. Additionally, we believe that Sinovel illegally obtained and used our intellectual property in violation of civil and criminal intellectual property laws.
On September 13, 2011, we filed a claim for arbitration against Sinovel in Beijing, China to compel Sinovel to pay us for past product shipments and to accept all contracted but not yet delivered core electrical components and spare parts under all existing contracts with us. In addition, we have filed civil complaints in China against Sinovel alleging the illegal use of our intellectual property. Sinovel has filed counterclaims against us with the Beijing Arbitration Commission for breach of the same contracts under which we filed our original arbitration claim. Sinovel claims, among other things, that the goods supplied by us do not conform to the standards specified in the contracts and has claimed net damages in the amount of approximately 1.2 billion Chinese yuan (“RMB”) (approximately
$190.0$174 million). Sinovel also filed a claim with the Beijing Arbitration Commission against us for breach of the same contracts under which we filed our original arbitration claim. Sinovel claimed, among other things, that the goods supplied by us do not conform to the standards specified in the contracts and claimed damages in the amount of approximately RMB 105.0 million (approximately
$17.0$15 million). As the legal proceedings continue, we and Sinovel may identify additional amounts in dispute. We cannot provide any assurance as to the outcome of these legal actions or that, if we prevail, we ultimately will be able to collect any amounts awarded. Moreover, these legal proceedings could result in the incurrence of significant legal and related expenses, which may not be recoverable depending on the outcome of the litigation. An award by the arbitration panel or court in favor of Sinovel and/or the incurrence of significant legal fees that are not recoverable could adversely impact our operating results. For more information about these legal proceedings, see Part I, Item 3, “Legal Proceedings.”
In April 2016, we were notified that our income tax filings in China were to be examined for the 2013 and 2014 calendar years. The income tax filings in these years include carried-forward tax positions related to the aforementioned events in 2011. These positions include, but are not limited to, the continuing requirement to repay liabilities to other AMSC legal entities for the purchase of raw materials and other components incorporated into the goods sold to Sinovel, which are not able to be repaid by our subsidiary in China until it is paid the past-due amounts owed by Sinovel. While we believe our tax positions are appropriate, there can be no assurance that the Tax Authority in China will not challenge these positions in a manner that would result in an adverse ruling against us, which could result in a disruption to our operations in China, and could have an adverse effect on our business and results of operations.
We have been named as a party in various legal proceedings, and we may be named in additional litigation, all of which will require significant management time and attention, result in significant legal expenses and may result in an unfavorable outcome, which could have a material adverse effect on our business, operating results and financial condition.
We are and may become subject to various legal proceedings and claims that arise in or outside the ordinary course of business. Certain current lawsuits and pending proceedings are described under Part I, Item 3. “Legal Proceedings.”
The results of these lawsuits and future legal proceedings cannot be predicted with certainty.
Also, our insurance 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 current or future litigation could have a material adverse effect on our business, operating results or financial condition. Even if the plaintiffs’ claims are not successful, current future litigation 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.24
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 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 |
Our corporate headquarters
FACTS manufacturing and
Amperium wireGrid manufacturing operations are located in a 355,000-square-foot facility owned by us and located in Devens, Massachusetts.
We also occupy leased facilities located in New Berlin, Wisconsin; Suzhou, China; Klagenfurt, Austria; and Timisoara, Romania with a combined total of approximately
183,000180,000 square feet of space. These leases have varying expiration dates through March 2021 which can generally be terminated at our request after a six month advance notice. Our other 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 and owned properties, as of March 31,
2016:2017:Location
| Supporting
| Square footage
| | | Owned/Leased
|
United States
| | | | | | |
Location | Supporting | Square footage | | Owned/Leased |
United States | | | | |
Devens, Massachusetts | Corporate & Grid Segment | 355,000 | 355,000
| | | Owned |
New Berlin, Wisconsin | Wind & Grid Segments | 50,000 | 50,000
| | | Leased |
China | | | | | | |
Suzhou & Beijing | Wind Segment | 39,000 | 39,000
| | | Leased |
Austria | | | | | | |
Klagenfurt | Wind Segment | 28,000 | 32,000
| | | Leased |
Romania | | | | | | |
Timisoara | Wind Segment | 62,000 | 62,000
| | | Leased |
Item
|
| |
Item 3. | LEGAL PROCEEDINGS |
On September 13, 2011, we commenced a series of legal actions in China against Sinovel. Our Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd., filed a claim for arbitration with the Beijing Arbitration Commission in accordance with the terms of our supply contracts with Sinovel. The case is captioned (2011) Jing Zhong An Zi No. 0963. On March 31, 2011, Sinovel refused to accept contracted shipments of 1.5 MW and 3 MW wind turbine core electrical components and spare parts that we were prepared to deliver. We allege that these actions constitute material breaches of our contracts because Sinovel did not give us notice that it intended to delay deliveries as required under the contracts. Moreover, we allege that Sinovel has refused to pay past due amounts for prior shipments of core electrical components and spare parts. We are seeking compensation for past product shipments and retention (including interest) in the amount of approximately RMB 485 million (approximately $76$70 million) due to Sinovel’s breaches of our contracts. We are also seeking specific performance of our existing contracts as well as reimbursement of all costs and reasonable expenses with respect to the arbitration. The value of the undelivered components under the existing contracts, including the deliveries refused by Sinovel in March 2011, amounts to approximately RMB 4.6 billion (approximately $720$667 million).25
On October 8, 2011, Sinovel filed with the Beijing Arbitration Commission an application under the caption (2011) Jing Zhong An Zi No. 0963, for a counterclaim against us for breach of the same contracts under which we filed our original arbitration claim. Sinovel claimed,claims, among other things, that the goods supplied by us do not conform to the standards specified in the contracts and claimedclaims damages in the amount of approximately RMB 370 million (approximately $58$54 million). On October 17, 2011, Sinovel filed with the Beijing Arbitration Commission a request for change of counterclaim to increase its damage claim to approximately
RMB 1 billion (approximately $157$145 million). On December 22, 2011, Sinovel filed with the Beijing Arbitration Commission an additional request for change of counterclaim to increase its damages claim to approximately RMB 1.2 billion (approximately $190$174 million). On February 27, 2012, Sinovel filed with the Beijing Arbitration Commission an application under the caption (2012) Jing Zhong An Zi No. 0157, against us for breach of the same contracts under which we filed our original arbitration claim. Sinovel claimed,claims, among other things, that the goods supplied by us do not conform to the standards specified in the contracts and claimedclaims damages in the amount of approximately RMB 105 million (approximately $17$15 million). We believe that Sinovel’s claims are without merit and we intend to defend these actions vigorously. Since the proceedings in this matter are still in the early technical review phase, we cannot reasonably estimate possible losses or range of losses at this time. We also submitted a civil action application to the Beijing No. 1 Intermediate People’s Court under the caption (2011) Yi Zhong Min Chu Zi No. 15524, against Sinovel for software copyright infringement on September 13, 2011. The application alleges Sinovel’s unauthorized use of portions of our wind turbine control software source code developed for Sinovel’s 1.5MW wind turbines and the binary code, or upper layer, of our software for the PM3000 power converters in 1.5MW wind turbines. In July 2011, a former employee of our Austrian subsidiary was arrested in Austria on charges of economic espionage and fraudulent manipulation of data. In September 2011, the former employee pled guilty to the charges, and was imprisoned. As a result of our internal investigation and a criminal investigation conducted by Austrian authorities, we believe that this former employee was contracted by Sinovel through an intermediary while employed by us and improperly obtained and transferred to Sinovel portions of our wind turbine control software source code developed for Sinovel’s 1.5MW wind turbines. Moreover, we believe the former employee illegally used source code to develop for Sinovel a software modification to circumvent the encryption and remove technical protection measures on the PM3000 power converters in 1.5MW wind turbines in the field. We are seeking a cease and desist order with respect to the unauthorized copying, installation and use of our software, monetary damages of approximately RMB 38 million ($6(approximately $6 million) for our economic losses and reimbursement of all costs and reasonable expenses. The Beijing No. 1 Intermediate People’s Court accepted the case, which was necessary in order for the case to proceed. On September 15, 2014, the Beijing No. 1 Intermediate People’s Court held its first substantive hearing in the Beijing case. At the hearing, the parties presented evidence, reviewed claims, and answered questions from the court. On April 24, 2015, we received notification from the Beijing No. 1 Intermediate People’s Court that it dismissed the case for what it cited was a lack of evidence. On May 6, 2015, we filed an appeal of the Beijing No. 1 Intermediate People’s Court decision to dismiss the case with the Beijing Higher People’s Court. On September 8, 2015, the Beijing Higher People’s Court held its first substantive hearing on our appeal of the Beijing No. 1 Intermediate People’s Court’s dismissal of the case. At the hearing, the parties presented evidence and answered questions from the court. We are awaiting a decision from the Beijing Higher People’s Court. We submitted a civil action application to the Beijing Higher People’s Court against Sinovel and certain of its employees for trade secret infringement on September 13, 2011 under the caption (2011) Gao Min Chu Zi No. 4193. The application alleges the defendants’ unauthorized use of portions of our wind turbine control software source code developed for Sinovel’s 1.5MW wind turbines as described above with respect to the Copyright Action. We are seeking monetary damages of approximately RMB 2.9 billion (approximately $453$421 million) for the trade secret infringement as well as reimbursement of all costs and reasonable expenses. The Beijing Higher People’s Court has accepted the case, which was necessary in order for the case to proceed. On December 22, 2011 the Beijing Higher People’s Court transferred the case to the Beijing No. 1 Intermediate People’s Court under the caption (2011) Gao Min Chu Zi No. 4193. On June 7, 2012, we received an Acceptance Notice from the Beijing No.1 Intermediate People’s Court under the caption (2012) Yi Zhong Min Chu Zi No.6833. The Beijing No. 1 Intermediate Court held the first substantive hearing on May 11, 2015. On June 15, 2015, we submitted a request for the withdrawal of our complaint to the Beijing No. 1 Intermediate Court. On June 16, 2015, the Beijing No. 1 Intermediate Court granted our request. We immediately filed a civil action application to the Beijing Intellectual Property Court against the same parties and seeking the same amount of monetary damages for trade secret infringement on June 16, 2015 under the caption (2015) Jin Zhi Min Chu Zi No. 1135. On January 18, 2016, the Beijing Intellectual Property Court held its first substantive hearing on our trade secret infringement case. At the hearing, the parties presented evidence, reviewed claims and answered questions from the court. We are awaiting a decision from the Beijing Intellectual Property Court.26
On September 16, 2011, we filed a civil copyright infringement complaint in the Hainan Province No. 1 Intermediate People’s Court against Dalian Guotong Electric Co. Ltd. (“Guotong”), a supplier of power converter products to Sinovel, and Huaneng Hainan Power, Inc. (“Huaneng”), a wind farm operator that has purchased Sinovel wind turbines containing Guotong power converter products. The case is captioned (2011) Hainan Yi Zhong Min Chu Zi No. 62. The application alleges that our PM1000 converters in certain Sinovel wind turbines have been replaced by converters produced by Guotong. Because the Guotong converters are being used in wind turbines containing our wind turbine control software, we believe that our copyrighted software is being infringed. We are seeking a cease and desist order with respect to the unauthorized use of our software, monetary damages of approximately RMB 1.2 million ($0.2(approximately $0.2 million) for our economic losses (with respect to Guotong only) and reimbursement of all costs and reasonable expenses. The court has accepted the case, which was necessary in order for the case to proceed. In addition, upon the request of the defendant Huaneng, Sinovel has been added by the court to this case as a defendant and Huaneng has been released from this case. On November 18, 2014, the Hainan No. 1 Intermediate People’s Court held its first substantive hearing in the Hainan case. At the hearing, the parties presented evidence, reviewed claims, and answered
questions from the court. On June 3, 2015, we received notification from the Hainan No. 1 Intermediate People’s Court that it dismissed the case for what it cited was a lack of evidence. On June 18, 2015, we filed an appeal of the Hainan No. 1 Intermediate People’s Court decision to dismiss the case with the Hainan Higher People’s Court. On August 20, 2015, the Hainan Higher People’s Court accepted the appeal under the caption (2015) QiongZhi MinZhongZi No.6. On November 26, 2015, the Hainan Higher People’s Court held its first substantive hearing on our appeal of the Hainan No. 1 Intermediate People’s Court’s dismissal of the case. At the hearing, the parties presented evidence and answered questions from the court. We are awaiting a decisionOn August 17, 2016, we received notification from the Hainan Higher People’s Court that it dismissed the case for what it cited was a lack of evidence. We intend to file an appeal of the Hainan Higher People’s Court’s decision with China’s Supreme People’s Court. China’s Supreme People’s Court has discretion to decide whether to hear the appeal. |
| |
Item 4. | MINE SAFETY DISCLOSURES |
|
| |
Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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.
The sales prices in this table have been adjusted to reflect the 1-for-10 reverse stock split effected March 24, 2015. | Common Stock | |
| Price | |
| High | | | Low | |
Fiscal year ended March 31, 2016: | | | | | | | |
First quarter | $ | 10.89 | | | $ | 5.10 | |
Second quarter | | 5.94 | | | | 3.26 | |
Third quarter | | 7.89 | | | | 3.81 | |
Fourth quarter | | 9.05 | | | | 5.28 | |
| | | | | | | |
Fiscal year ended March 31, 2015: | | | | | | | |
First quarter | $ | 16.90 | | | $ | 12.50 | |
Second quarter | | 21.50 | | | | 14.00 | |
Third quarter | | 14.30 | | | | 6.98 | |
Fourth quarter | | 8.80 | | | | 5.67 | |
|
| | | | | | | | |
| | Common Stock Price |
| | High | | Low |
Fiscal year ended March 31, 2017: | | | | |
First quarter | | $ | 12.50 |
| | $ | 7.44 |
|
Second quarter | | 9.63 |
| | 6.21 |
|
Third quarter | | 8.55 |
| | 6.01 |
|
Fourth quarter | | 7.82 |
| | 5.86 |
|
| | | | |
Fiscal year ended March 31, 2016: | | | | |
First quarter | | $ | 10.89 |
| | $ | 5.10 |
|
Second quarter | | 5.94 |
| | 3.26 |
|
Third quarter | | 7.89 |
| | 3.81 |
|
Fourth quarter | | 9.05 |
| | 5.28 |
|
The number of holders of record of our common stock on May
25, 201623, 2017 was
326.151.
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. The Term Loans with Hercules Technology Growth Capital, Inc. which are discussed further in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, prohibit us from paying cash dividends.
The following graph compares the cumulative total stockholder return on our common stock from March 31,
20112012 to March 31,
20162017 with the cumulative total return of (i) the Russell 2000 Index
and (ii) the Russell Microcap
Index and the S&P 500. We added the Russell Microcap Index in this Annual Report because we believe that this index is more closely aligned to our size and market capitalization than the S&P 500.Index. This graph assumes the investment of $100.00 on March 31,
20112012 in our common stock, the Russell 2000 Index and the Russell Microcap Index,
and the S&P 500, and assumes any dividends are reinvested. Measurement points are March 31, 2012; March 31, 2013; March 31, 2014; March 31, 2015;
March 31, 2016; and March 31,
2016.28
2017.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among American Superconductor Corporation, the Russell 2000 Index
and the Russell Microcap Index and the S&P 500 Index
Company/Index | 3/31/11 | | 3/31/12 | | 3/31/13 | | 3/31/14 | | 3/31/15 | | 3/31/16 | |
American Superconductor Corp. | | 100.00 | | | 16.57 | | | 10.74 | | | 6.47 | | | 2.59 | | | 3.06 | |
Russell Microcap | | 100.00 | | | 96.64 | | | 111.39 | | | 146.61 | | | 150.45 | | | 129.13 | |
Russell 2000 | | 100.00 | | | 98.43 | | | 112.80 | | | 139.06 | | | 148.51 | | | 132.06 | |
S&P 500 | | 100.00 | | | 108.54 | | | 123.69 | | | 150.73 | | | 169.92 | | | 172.95 | |
29
|
| | | | | | | | | | | | | | | | | | |
Company/Index | | 3/31/2012 | | 3/31/2013 | | 3/31/2014 | | 3/31/2015 | | 3/31/2016 | | 3/31/2017 |
American Superconductor Corp. | | 100.00 |
| | 64.81 |
| | 39.80 |
| | 15.63 |
| | 18.45 |
| | 16.65 |
|
Russell Microcap | | 100.00 |
| | 115.27 |
| | 151.72 |
| | 155.68 |
| | 133.63 |
| | 168.71 |
|
Russell 2000 | | 100.00 |
| | 114.60 |
| | 141.28 |
| | 150.88 |
| | 134.17 |
| | 166.92 |
|
Item
|
| |
Item 6. | SELECTED FINANCIAL DATA |
The following selected financial data reflects the results of operations and balance sheet data for the fiscal years ended March 31,
20122013 to
2016.2017. Per share data has been restated to reflect the 1-for-10 reverse stock split effected on March 24, 2015. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K, in order to understand further the factors that may affect the comparability of the financial data presented below.
| Fiscal year ended March 31, | |
| 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| (In thousands, except per share data) | |
| | | | | | | | | | | | | | | | | | | |
Revenues | $ | 96,023 | | | $ | 70,530 | | | $ | 84,117 | | | $ | 87,419 | | | $ | 76,543 | |
Net loss | | (23,139 | ) | | | (48,656 | ) | | | (56,258 | ) | | | (66,131 | ) | | | (136,827 | ) |
Net loss per common share - basic | | (1.76 | ) | | | (5.74 | ) | | | (8.98 | ) | | | (12.46 | ) | | | (26.91 | ) |
Net loss per common share - diluted | | (1.76 | ) | | | (5.74 | ) | | | (8.98 | ) | | | (12.46 | ) | | | (26.91 | ) |
Total assets | | 135,318 | | | | 133,825 | | | | 168,509 | | | | 216,754 | | | | 255,056 | |
Working capital | | 42,334 | | | | 17,319 | | | | 35,459 | | | | 40,428 | | | | 57,248 | |
Cash, cash equivalents, marketable securities and restricted cash | | 40,721 | | | | 24,548 | | | | 49,421 | | | | 50,199 | | | | 66,209 | |
Long term debt, net of discount | | 1,367 | | | | 3,877 | | | | 6,380 | | | | 9,248 | | | | - | |
Stockholders’ equity | | 83,549 | | | | 79,893 | | | | 112,259 | | | | 125,118 | | | | 164,879 | |
|
| | | | | | | | | | | | | | | |
| Fiscal year ended March 31, |
| 2017 | 2016 | 2015 | 2014 | 2013 |
| (In thousands, except per share data) |
Revenues | $ | 75,195 |
| $ | 96,023 |
| $ | 70,530 |
| $ | 84,117 |
| $ | 87,419 |
|
Net loss | (27,373 | ) | (23,139 | ) | (48,656 | ) | (56,258 | ) | (66,131 | ) |
Net loss per common share - basic | (1.98 | ) | (1.76 | ) | (5.74 | ) | (8.98 | ) | (12.46 | ) |
Net loss per common share - diluted | (1.98 | ) | (1.76 | ) | (5.74 | ) | (8.98 | ) | (12.46 | ) |
Total assets | 100,244 |
| 135,318 |
| 133,825 |
| 168,509 |
| 216,754 |
|
Working capital | 23,483 |
| 42,334 |
| 17,319 |
| 35,459 |
| 40,428 |
|
Cash, cash equivalents, marketable securities and restricted cash | 27,744 |
| 40,721 |
| 24,548 |
| 49,421 |
| 50,199 |
|
Long term debt, net of discount | — |
| 1,367 |
| 3,877 |
| 6,380 |
| 9,248 |
|
Stockholders’ equity | 60,226 |
| 83,549 |
| 79,893 |
| 112,259 |
| 125,118 |
|
Included in the net loss for the fiscal year ended March 31, 2017 was stock-based compensation expense of $2.9 million, gain on sale of our minority investment of $0.3 million, and a gain from the change in fair value of warrants and derivatives of $1.3 million. Included in the net loss for the fiscal year ended March 31, 2016 was stock-based compensation expense of $3.2 million, restructuring and impairment charges of $0.8 million, gains on sales of our minority investments of $3.1 million, non-cash interest expense of $0.4 million, and a loss from the change in fair value of warrants and derivatives of $0.2 million. Included in the net loss for the fiscal year ended March 31, 2015 was stock-based compensation expense of $5.9 million, restructuring and impairment charges of $5.4 million, non-cash interest expense of $0.6 million, arbitration award expense of $9.0 million and a gain from the change in fair value of warrants and derivatives of $4.0 million. Included in the net loss for the fiscal year ended March 31, 2014 was stock-based compensation expense of $10.7 million, restructuring and impairment charges of $3.0 million, a prepaid value added tax reserve of $1.4 million, non-cash interest expense of $7.7 million, a loss on extinguishment of debt of $5.2 million and a gain from the change in fair value of warrants and derivatives of $1.9 million. Included in the net loss for the fiscal year ended March 31, 2013 was stock-based compensation expense of $8.1 million, restructuring and impairment charges of $7.9 million, a loss contingency of $1.8 million, non-cash interest expense of $12.4 million as well as gains from the change in fair value of warrants and derivatives and recoveries of adverse purchase commitments of $7.6 million and $7.8 million, respectively.
Included in the net loss for the fiscal year ended March 31, 2012 was stock-based compensation expense of $9.9 million, a write-off of an advance payment to The Switch Engineering OY (“The Switch”) of $20.6 million, restructuring and impairment charges of $9.2 million, expense of patent costs of $4.9 million, and Sinovel legal expenses of $5.8 million.30
Item 7.
|
|
|
Item 7. | MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
We are a leading provider of megawatt-scale solutions that lower the cost of wind power and enhance the performance of the power grid. In the wind power market, we enable manufacturers to field highly competitive wind turbines through our advanced power electronics products, engineering, and support services. In the power grid market, we enable electric utilities and renewable energy project developers to connect, transmit and distribute power through our transmission planning services and power electronics and superconductor-based products. Our wind and power grid products and services provide exceptional reliability, security, efficiency and affordability to our customers.
Our wind and power grid solutions help to improve energy efficiency, alleviate power grid capacity constraints and increase the adoption of renewable energy generation. Demand for our solutions is driven by the growing needs for renewable sources of electricity, such as wind and solar energy, and for modernized smart grids that improve power reliability, security and quality. Concerns about these factors have led to increased spending by corporations as well as supportive government regulations and initiatives on local, state, national and global 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: 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 and electric utilities.
|
| ●
| |
| ● | Wind. Through our Windtec SolutionsTM™, 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. |
|
| ●
| |
| ● | Grid. Through our Gridtec SolutionsTM™, 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. |
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
20152016 refers to the fiscal year beginning on April 1,
2015.2016. Other fiscal years follow similarly.
We have experienced recurring operating losses and as of March 31,
20162017 had an accumulated deficit of
$928.2$955.6 million. In addition, we have experienced recurring negative operating cash
flows.flows and our Wind segment revenues decreased substantially in fiscal 2016 compared to fiscal 2015. From April 1, 2011 through the date of this filing, we have reduced our global workforce substantially, including an 8% reduction in force, primarily affecting employees in our Devens, Massachusetts facility, effective April 4, 2017. At March 31,
2016,2017, we had cash and cash equivalents of
$39.3$26.8 million. Cash used in operations for the year ended March 31,
20162017 was
$4.6$11.2 million.
On January 27, 2017, we entered into an At Market Issuance Sales Agreement ("ATM"), under which we were permitted to sell, at our discretion, up to $10.0 million of shares of our common stock. During the three months ended March 31, 2017, we realized net proceeds of $2.5 million from the sale of 379,693 shares of our common stock at an average price of $6.79 per share. See also "Liquidity and Capital Resources" below for additional discussion.
Over the last several years, we have entered into several debt and equity financing arrangements in order to enhance liquidity. Since April 1, 2012,During the fiscal years ended March 31, 2013 through 2017, we have generated aggregate cash flows from financing activities of $71.0$69.9 million. This amount includes proceeds from our April 2015In addition, on May 10, 2017, we completed an additional equity offering, which generated net proceeds
of approximately
$22.3$14.7 million, after deducting underwriting discounts and commissions and estimated offering
expenses.expenses payable by us. We terminated the ATM in conjunction with this offering. See Note 9, “Debt”,
and Note 12, “Stockholders’ Equity”
, and Note 19 “Subsequent Events” for further discussion of these financing arrangements.
We believe that we are in compliance with the covenants and restrictions included in the agreements governing our debt arrangements as of March 31, 2016.31
In March 2016, the Company entered into a set of agreements to jointly develop an advanced low cost manufacturing process for second generation high temperature superconductor wire with BASF Corporation (“BASF”). Under the joint development agreement, the Company’s manufacturing know-how for its Amperium® superconductor wire and BASF's chemical solution deposition production technology will be combined. As part of the agreements, the Company also entered into a royalty-bearing, non-exclusive license under which the Company agreed to provide BASF a specified portion of its second generation (2G) high temperature superconductor (HTS) wire manufacturing technology.
Our cash requirements depend on numerous factors, including the successful completion of our product development activities, our ability to commercialize our Resilient Electric Grid
REG(“REG”) 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 basedSuperconductors-based products. In December 2015, we entered into a set of strategic agreements valued at approximately $210.0 million with Inox, which includes a multi-year supply contract pursuant to which
the Companywe will supply electric control systems to Inox and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years. After this initial three to four year period, Inox agreed that
the Companywe will continue as Inox’s preferred supplier and Inox will be required to purchase from
the Companyus a majority of its electric control systems requirements for an additional three-year period.
These agreements are expected to provide a foundation for the business as we pursue our longer-term objectives. During the fourth quarter of fiscal 2015, Inox made the upfront payment of $6.0 million required under the license agreement, but as of the date of this Annual Report it has not made the $2.0 million advance payment required under the supply contract. Significant deviations to our business plan with regard to these factors and events, including any prolonged disruption in our revenues with our largest customers, which are important drivers to our business, could have a material adverse effect on our operating performance, financial condition, and future business prospects. We expect to pursue the expansion of our operations through internal growth, diversification of our customer base, and potential strategic alliances. See “Liquidity and Capital Resources” below for additional discussion.
On October 6, 2015, 100%
Business Goals
We intend to pursue the following goals during fiscal year 2017.
Complete remaining obligations under our agreement with the DHS to deploy our REG system in ComEd’s electric grid, and, subject to the agreement of DHS and ComEd, proceed to the manufacturing and construction phase of the outstanding common stock of Blade Dynamics Limited (“Blade Dynamics”) was acquired by a subsidiary of General Electric Company. After deducting transaction expenses, we received net proceeds of $2.8 millionproject.
Receive an order for SPS from the sale, which was recorded asU.S. Navy.
Have at least one additional city perform a gainREG deployment study.
Receive the first commercial orders for VVO.
Increase our grid sales over the prior year.
We intend to pursue the following goals during fiscal year 2018.
Receive a commercial REG order.
Receive an order for our multi-ship module product from the year ended March 31, 2016. Additionally, under the terms of the purchase agreement, we may be entitled to receive up toU.S. Navy.
Receive an additional $1.2 million in proceeds, uponSPS order from the successful achievement of certain milestones by Blade Dynamics over the next three years. On March 11, 2016, we sold 100% of our minority investment in Tres Amigas toU.S. Navy.
Receive an
investor for $0.6 million. We received $0.3 million according to the terms of the purchase agreement upon closing, which was recorded asadditional SPS order from a
gain during the three months ended March 31, 2016. The final $0.3 million is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions which is expected to occur during the first half of fiscal 2016. See Note 15, “Minority Investments”, for further information about such investment.foreign navy.
Achieve revenues from commercial VVO sales.
Fiscal Years Ended March 31, 20162017 and March 31, 20152016
Total revenues increaseddecreased by 36%22% to $75.2 million in fiscal 2016 from $96.0 million in fiscal 2015 from $70.5 million in fiscal 2014.2015. Our revenues are summarized as follows (in thousands):
| Fiscal Years Ended March 31, | |
| 2016 | | | 2015 | |
Revenues: | | | | | | | |
Wind | $ | 68,883 | | | $ | 51,307 | |
Grid | | 27,140 | | | | 19,223 | |
Total | $ | 96,023 | | | $ | 70,530 | |
|
| | | | | | | |
| Fiscal Years Ended March 31, |
| 2017 | | 2016 |
Revenues: | | | |
Wind | $ | 47,269 |
| | $ | 68,883 |
|
Grid | 27,926 |
| | 27,140 |
|
Total | $ | 75,195 |
| | $ | 96,023 |
|
Revenues in our Wind business unit
consist of revenuesare derived from wind turbine electrical systems and core components, wind turbine license and development contracts, service contracts and consulting arrangements. Our Wind business unit accounted for
72%63% of total revenues in fiscal
20152016 and
73%72% in fiscal
2014.2015. Revenues in the Wind business unit
increased 34%decreased 31% to
$47.3 million in fiscal 2016 from $68.9 million in fiscal
2015 from $51.3 million in fiscal 2014.2015. The
increasedecrease in Wind business unit revenues was driven primarily by
higherlower revenues from Inox in India.
Such decrease in revenues was due to fewer than anticipated ECS shipments to Inox, which resulted from Inox's working capital constraints, particularly in the first half of 2016, and what we believe, based on our discussions with Inox, is a temporary demand dislocation caused by the reaction in certain states in India to a recent national wind energy auction that resulted in a record-low power purchase tariff.
Revenues in our Grid business unit
consist of revenuesare derived from our
FACTS products, including D-VAR
and D-SVC product sales, HTS wire sales, revenues under 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
28%37% of total revenues in fiscal
20152016 and
27%28% in fiscal
2014.2015. Grid revenue increased
41%3% to
$27.9 million in fiscal 2016 from $27.1 million in fiscal
2015 from $19.2 million in fiscal 2014.2015. The increase in
revenuesGrid revenue was primarily due to higher D-VAR system revenues and
thehigher HTS project revenues which were partially offset by lower license
to BASF.32
revenue from BASF Corporation ("BASF").
Revenues from Project HYDRA and Project REG represented 6%7% and 9%6% of our Grid business unit’s revenue for fiscal 20152016 and 2014,2015, respectively. Our revenues for these projects are derived by funding from the Department of Homeland Security (“DHS”). Project HYDRA is a project with Consolidated Edison, Inc. (“ConEd”) to demonstrate our REG product in ConEd’s electric grid. Project REG is a project with Commonwealth Edison, Inc. (“ComEd”) to permanently install our REG product in ComEd’s electric grid. This fault current limiting cable system is designed to utilize customized Amperium® HTS wire, and ancillary controls to deliver more power through the grid while also being able to suppress power surges that can disrupt service. DHS has committed 100% of the total expected funding of $29.0 million for Project HYDRA. Under Project REG, DHS is expected to invest up to $60.0 million to enable the deployment of the REG system in Chicago’s electric grid. We have substantially completed the first phase of the project which among other things, has resulted in the creation of a detailed deployment plan. In the fiscal year ended March 31, 2015, DHS committed funding of $1.5 million for this phase of the project. During the fiscal year ended March 31, 2016, DHS committed funding of an additional $3.7 million, for a total of $5.2 million. This additional funding serves as a bridge between the detailed deployment plan and construction phases of the project. The period of performance to complete the engineering work extends through MayDecember 31, 2017.2018. The final phase of the project involves the delivery of the REG system and the associated construction and deployment of the system in ComEd’s grid. We will not begin this phase of the project until all parties agree to proceed. There can be no assurance that all parties will agree to proceed with the project. Cost of Revenues and Gross Margin
Cost of revenues decreased by 13% to $64.4 million in fiscal 2016, compared to $74.0 million in fiscal 2015. Gross margin decreased to 14.4% in fiscal 2016 from 22.9% in fiscal 2015. The decrease in gross margin in fiscal 2016 was driven primarily by lower Wind revenue as discussed above.
Operating Expenses
Research and development
R&D expenses increased by 2% to $12.5 million, or 17% of revenue in fiscal 2016, compared to $12.3 million, or 13% of revenue, in fiscal 2015. The increase in R&D expenses is primarily the result of new product development expenses in our Grid segment, partially offset by lower employee compensation expenses.
Selling, general, and administrative
Selling, general and administrative (“SG&A”) expenses decreased by 11% to $25.7 million, or 34% of revenue in fiscal 2016 from $28.9 million, or 30% of revenue, in fiscal 2015. The decrease in SG&A expenses in fiscal 2016 was primarily due to lower employee compensation expenses, as well as a decrease in software and license expenses.
Amortization of acquisition related intangibles
We recorded $0.2 million in both fiscal 2016 and fiscal 2015 in amortization expense related to our core technology and know-how, and trade names and trademark intangible assets.
Restructuring and impairments
We recorded restructuring and impairment charges of $0.8 million in fiscal 2015. For fiscal 2015, this consists primarily of an impairment charge of $0.7 million to fully impair our investment in Tres Amigas.
Operating loss
Our operating loss is summarized as follows (in thousands):
|
| | | | | | | |
| Fiscal Years Ended March 31, |
| 2017 | | 2016 |
Operating loss: | | | |
Wind | $ | (4,174 | ) | | $ | (1,256 | ) |
Grid | (20,476 | ) | | (14,835 | ) |
Unallocated corporate expenses | (2,892 | ) | | (4,027 | ) |
Total | $ | (27,542 | ) | | $ | (20,118 | ) |
Wind operating loss increased to $4.2 million in fiscal 2016 compared to $1.3 million in fiscal 2015. The increase in operating loss for fiscal 2016 was primarily attributable to decreased revenues as discussed above.
Grid operating loss increased to $20.5 million in fiscal 2016 from $14.8 million in fiscal 2015. The increase in operating loss for fiscal 2016 is primarily due to an unfavorable D-VAR revenue mix, lower license revenue from BASF in fiscal 2016 at 100% margin, as well as increased product development costs in fiscal 2016.
Unallocated corporate expenses in fiscal 2016 consisted entirely of stock-based compensation expense. Unallocated corporate expenses in fiscal 2015 included restructuring and impairment charges of $0.8 million and $3.2 million in stock-based compensation expense.
Change in fair value of derivatives and warrants
The change in fair value of derivatives and warrants resulted in a gain of $1.3 million in fiscal 2016 and a loss of $0.2 million in fiscal 2015. The changes in the fair value were primarily due to changes in our stock price, which is a key valuation metric on the derivative liabilities.
Gain on sale of minority interest
We recorded a gain on sale of minority interest of $0.3 million in fiscal 2016, related to the receipt of the final payment for the sale of our investment in Tres Amigas. We recorded a gain on sale of minority interests of $3.1 million in fiscal 2015, related to the sale of our investment in Blade Dynamics and the receipt of the first payment from the sale of our investment in Tres Amigas. Both of these investments were fully impaired prior to the time of their sale.
Interest expense, net
Interest expense, net was $0.4 million in fiscal 2016 compared to $1.0 million for fiscal 2015. The decrease in interest expense, net was primarily driven by lower interest expense due to the maturity of one of our term loans with Hercules Technology Growth Capital, Inc. (“Hercules”) in November 2016.
Other income (expense), net
Other income, net was less than $0.1 million in fiscal 2016, compared to other expense, net of $2.5 million in fiscal 2015. The decrease in other expense, net was due primarily to gains from foreign currency fluctuations in fiscal 2016.
Income Taxes
We recorded an income tax expense of $1.1 million in fiscal 2016, compared to $2.4 million in fiscal 2015. The decrease in income tax expense was driven primarily by decreases in income taxes in foreign jurisdictions and foreign withholding taxes.
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.
Fiscal Years Ended March 31, 2016 and March 31, 2015
Revenues
Total revenues increased by 36% to $96.0 million in fiscal 2015 from $70.5 million in fiscal 2014. Our revenues are summarized as follows (in thousands):
|
| | | | | | | |
| Fiscal Years Ended March 31, |
| 2016 | | 2015 |
Revenues: | | | |
Wind | $ | 68,883 |
| | $ | 51,307 |
|
Grid | 27,140 |
| | 19,223 |
|
Total | $ | 96,023 |
| | $ | 70,530 |
|
Our Wind business unit accounted for 72% of total revenues in fiscal 2015 and 73% in fiscal 2014. Revenues in the Wind business unit increased 34% to $68.9 million in fiscal 2015 from $51.3 million in fiscal 2014. The increase in Wind business unit revenues was driven primarily by higher revenues from Inox in India.
The Grid business unit accounted for 28% of total revenues in fiscal 2015 and 27% in fiscal 2014. Grid revenue increased 41% to $27.1 million in fiscal 2015 from $19.2 million in fiscal 2014. The increase in revenues was primarily due to higher D-VAR system revenues and the license to BASF.
Revenues from Project HYDRA and Project REG represented 6% and 9% of our Grid business unit’s revenue for fiscal 2015 and 2014, respectively. Our revenues for these projects are derived by $5.2 million of funding from DHS. The period of performance to complete the engineering work extends through December 31, 2018. The final phase of the project involves the delivery of the REG system and the associated construction and deployment of the system in ComEd’s grid. We will not begin this phase of the project until all parties agree to proceed. There can be no assurance that all parties will agree to proceed with the project.
Cost of Revenues and Gross Margin
Cost of revenues increased by 10% to $74.0 million in fiscal 2015, compared to $67.4 million in fiscal 2014. Gross margin increased to 22.9% in fiscal 2015 from 4.4% in fiscal 2014. The increase in gross margin in fiscal 2015 was driven primarily by higher revenues, including increased royalty and license revenue compared to fiscal 2014.
R&D expenses increased by 4% to $12.3 million, or 13% of revenue in fiscal 2015, compared to $11.9 million, or 17% of revenue, in fiscal 2014. The slight increase is primarily the result of new product development expenses in our Grid segment, partially offset by lower stock compensation expense.
Selling, general, and administrative
Selling, general and administrative (“SG&A”) expenses decreased by 1% to $28.9 million, or 30% of revenue in fiscal 2015 from $29.2 million, or 41% of revenue, in fiscal 2014. The slight decrease in SG&A expenses in fiscal 2015 was primarily due to lower stock compensation expense, partially offset by the reversal of legal costs for the Catlin insurance claim as result of our settlement agreement with Catlin Insurance Company (“Catlin”) in fiscal 2014.
Amortization of acquisition related intangibles
We recorded $0.2 million in both fiscal 2015 and fiscal 2014 in amortization expense related to our core technology and know-how, and trade names and trademark intangible assets.
Restructuring and impairments
We recorded restructuring and impairment charges of $0.8 million in fiscal 2015, compared to $5.4 million in fiscal 2014. For fiscal 2015, this consists primarily of an impairment charge of $0.7 million to fully impair our investment in Tres Amigas. For fiscal 2014, this consists of restructuring charges of $0.6 million for employee severance costs, and $1.3 million for facility and relocation costs primarily for the consolidation of our Grid manufacturing operations into our Devens facility. In addition, we recorded an impairment charge of $3.5 million to fully impair our minority investment in Blade Dynamics.
Our operating loss is summarized as follows (in thousands):
| Fiscal Years Ended March 31, | |
| 2016 | | | 2015 | |
Operating loss: | | | | | | | |
Wind | $ | (1,256 | ) | | $ | (14,321 | ) |
Grid | | (14,835 | ) | | | (26,890 | ) |
Unallocated corporate expenses | | (4,027 | ) | | | (11,306 | ) |
Total | $ | (20,118 | ) | | $ | (52,517 | ) |
33
|
| | | | | | | |
| Fiscal Years Ended March 31, |
| 2016 | | 2015 |
Operating loss: | | | |
Wind | $ | (1,256 | ) | | $ | (14,321 | ) |
Grid | (14,835 | ) | | (26,890 | ) |
Unallocated corporate expenses | (4,027 | ) | | (11,306 | ) |
Total | $ | (20,118 | ) | | $ | (52,517 | ) |
Wind generated an operating loss of $1.3 million in fiscal 2015 compared to an operating loss of $14.3 million in fiscal 2014. The decrease in operating loss for fiscal 2015 was primarily attributable to increased revenues, partially offset by a lower consumption of previously written-off inventory used in our electrical control systems. Additionally, fiscal 2014 included a one-time charge of $9.0 million relating to the arbitration award to Ghodawat.
Grid operating loss decreased to $14.8 million in fiscal 2015 from $26.9 million in fiscal 2014. The decrease in operating loss for fiscal 2015 is primarily attributed to higher D-VAR system revenues, increased production which resulted in better factory absorption, and license revenue recognized from the license agreement with BASF in the fourth quarter of fiscal 2015.
Unallocated corporate expenses in fiscal 2015 included restructuring and impairment charges of $0.8 million and $3.2 million in stock-based compensation expense. Unallocated corporate expenses in fiscal 2014 included restructuring and impairment charges of $5.4 million and $5.9 million in stock-based compensation expense.
Change in fair value of derivatives and warrants
The change in fair value of derivatives and warrants resulted in a loss of $0.2 million in fiscal 2015 and a gain of $4.0 million in fiscal 2014. The changes in the fair value were primarily due to changes in our stock price, which is a key valuation metric on the derivative liabilities.
Gain on sale of minority interest
We recorded a gain on sale of minority interests of $3.1 million in the fiscal year ended March 31, 2016, related to the sale of our investments in Blade Dynamics and Tres Amigas. Both of these investments had been fully impaired at the time of their sale.
Interest expense, net was $1.0 million in fiscal 2015 compared to $1.9 million for fiscal 2014. The decrease in interest expense, net was primarily driven by lower interest expense due to the maturity of one of our term loans with Hercules Technology Growth Capital, Inc. (“Hercules”) in December 2014.
Other (expense) income, net
Other expense, net was $2.5 million in fiscal 2015, compared to other income, net of $1.6 million in fiscal 2014. The decrease in other income, net was due primarily to losses from foreign currency fluctuations as a result of the strengthening of the Euro against the U.S. dollar in fiscal 2015.
We recorded an income tax expense of $2.4 million in fiscal 2015, compared to an income tax benefit of $0.2 million in fiscal 2014. The increase in income tax expense was driven primarily by increases in income taxes in foreign jurisdictions and foreign withholding taxes.
Certain asset write-offs in our foreign jurisdictions are considered permanent differences and are not tax deductible. Other asset write-offs, such as inventory and prepaid value-added taxes in China, are not currently deductible and result in deferred tax assets. Due to uncertainty around the realization of these deferred tax assets, they have been fully reserved as of the end of the fiscal years ended March 31, 2016, 2015 and, 2014, respectively.
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.
Fiscal Years Ended March 31, 2015 and March 31, 2014
Revenues
Total revenues decreased by 16% to $70.5 million in fiscal 2014 from $84.1 million in fiscal 2013. Our revenues are summarized as follows (in thousands):
| Fiscal Years Ended | |
| March 31, | |
| 2015 | | | 2014 | |
Revenues: | | | | | | | |
Wind | $ | 51,307 | | | $ | 55,608 | |
Grid | | 19,223 | | | | 28,509 | |
Total | $ | 70,530 | | | $ | 84,117 | |
Our Wind business unit accounted for 73% of total revenues in fiscal 2014 and 66% in fiscal 2013. Revenues in the Wind business unit decreased 8% to $51.3 million in fiscal 2014 from $55.6 million in fiscal 2013. The decrease in Wind business unit revenues was driven primarily by lower revenues in China partially offset by higher revenues from Inox in India.
The Grid business unit accounted for 27% of total revenues in fiscal 2014 and 34% in fiscal 2013. Grid revenue decreased 33% to $19.2 million in fiscal 2014 from $28.5 million in fiscal 2013. The decrease in revenues was primarily due to lower D-VAR system revenues.
Revenues from Project HYDRA and Project REG represented 9% and 7% of our Grid business unit’s revenue for fiscal 2014 and 2013, respectively. Our revenues for these projects are derived by funding from DHS. DHS has committed 100% of the total expected funding of $29.0 million for Project HYDRA. Under Project REG, DHS is expected to invest up to $60.0 million to enable the deployment of the REG system in Chicago’s electric grid. We are currently working on the first phase of the project which among other things, will result in the creation of a detailed deployment plan. Funding of $1.5 million for this phase of the project has been committed by DHS. Subsequent phases of the project involve the delivery of the REG system and the associated construction and deployment of the system in ComEd’s grid. We will not begin these phases of the project until all parties agree to proceed. There can be no assurance that all parties will agree to proceed with the project.
Cost of Revenues and Gross Margin
Cost of revenues decreased by 7% to $67.4 million in fiscal 2014, compared to $72.9 million in fiscal 2013. Gross margin decreased to 4.4% in fiscal 2014 from 13.4% in fiscal 2013. The decrease in gross margin in fiscal 2014 was driven primarily by higher 100% margin revenue from Chinese and other customers in fiscal 2013 compared to fiscal 2014, partially offset by higher usage of previously written off inventory used in our electrical control systems in fiscal 2014.
Operating Expenses
Research and development
R&D expenses decreased by $0.3 million to $11.9 million, or 17% of revenue for fiscal 2014 compared to $12.2 million, or 14% of revenue for fiscal 2013. The decrease in fiscal 2014 was driven primarily due to the decreased headcount and related labor spending as a result of restructuring activities undertaken in fiscal 2013, as well as a reduction in spending required to support license and development for our Wind customers.
Selling, general, and administrative
SG&A expenses decreased by 22% to $29.2 million, or 41% of revenue in fiscal 2014 from $37.2 million, or 44% of revenue in fiscal 2013. The decrease in SG&A expenses in fiscal 2014 was primarily due to lower stock compensation expense and the reversal of legal costs for the Catlin insurance claim as result of our settlement agreement with Catlin.
35
Arbitration award expense
We recorded an arbitration award expense of $9.0 million in the year ended March 31, 2015 following a decision by the ICC Court on August 29, 2014, finding us liable for damages of approximately €8.3 million under a breach of contract proceeding against Ghodawat Energy Pvt. Ltd. (“Ghodawat”). We entered into an agreement to settle this claim with Ghodawat for €7.45 million on February 4, 2015. We paid the settlement amount on February 10, 2015. As a result of this settlement, we recorded a reversal of an excess accrual of approximately $1.2 million during the fourth quarter of fiscal 2014.
Amortization of acquisition related intangibles
We recorded $0.2 million in fiscal 2014 and $0.3 million in fiscal 2013 in amortization expense related to our core technology and know-how, and trade names and trademark intangible assets.
Restructuring and impairments
We recorded restructuring and impairment charges of $5.4 million in fiscal 2014, compared to $3.0 million in fiscal 2013. For fiscal 2014, this consists of restructuring charges of $0.6 million for employee severance costs, and $1.3 million for facility and relocation costs primarily for the consolidation of our Grid manufacturing operations into our Devens facility. In addition, we recorded an impairment charge of $3.5 million to fully impair our minority investment in Blade Dynamics. For fiscal 2013, the restructuring and impairment charges primarily consisted of employee severance costs of $1.7 million and an impairment charge of $1.3 million for our minority investment in Blade Dynamics.
Operating loss
Our operating loss is summarized as follows (in thousands):
| Fiscal Years Ended | |
| March 31, | |
| 2015 | | | 2014 | |
Operating loss: | | | | | | | |
Wind | $ | (14,321 | ) | | $ | (5,213 | ) |
Grid | | (26,890 | ) | | | (22,523 | ) |
Unallocated corporate expenses | | (11,306 | ) | | | (13,693 | ) |
Total | $ | (52,517 | ) | | $ | (41,429 | ) |
Wind generated an operating loss of $14.3 million in fiscal 2014 compared to an operating loss of $5.2 million in fiscal 2013. The increase in operating loss for fiscal 2014 was primarily attributable to lower revenues and the approximately $9.0 million arbitration award expense associated with the Ghodowat settlement, partially offset by the reversal of legal expenses associated with the Catlin settlement.
Grid operating loss increased to $26.9 million in fiscal 2014 from $22.5 million in fiscal 2013. The increase in operating loss for fiscal 2014 is primarily attributed to the lower revenues.
Unallocated corporate expenses in fiscal 2014 included restructuring and impairment charges of $5.4 million and $5.9 million in stock-based compensation expense. Unallocated corporate expenses in fiscal 2013 included restructuring and impairment charges of $3.0 million and $10.7 million in stock-based compensation expense.
Change in fair value of derivatives and warrants
The change in fair value of derivatives and warrants resulted in gains of $4.0 million in fiscal 2014 and $1.9 million in fiscal 2013. The gains were driven by mark-to-market adjustments due primarily to our lower stock price on the derivative liabilities and the extinguishment of our unsecured, senior convertible note (the “Exchanged Note”) with Capital Ventures International (“CVI”) in fiscal 2013. See “Loss on extinguishment of debt” below.
Loss on extinguishment of debt
We recorded a $5.2 million loss in fiscal 2013 related to extinguishment of the Exchanged Note in exchange for approximately 663,000 shares of common stock.
36
Interest expense, net
Interest expense, net was $1.9 million in fiscal 2014 compared to $9.7 million for fiscal 2013. The decrease in interest expense, net was primarily driven by lower non-cash interest expense due to the conversion of the remaining outstanding balance on the Exchanged Note into common stock on March 2, 2014.
Other income (expense), net
Other income, net was $1.6 million in fiscal 2014, compared to other expense, net of $1.0 million in fiscal 2013. The increase in other income, net was due primarily to gains from foreign currency fluctuations as a result of the strengthening of the U.S. dollar against the Euro.
Income Taxes
We recorded an income tax benefit of $0.2 million in fiscal 2014, compared to income tax expense of $0.9 million in fiscal 2013. The decrease in income tax expense was driven primarily by a reversal of an uncertain tax position in Austria upon completion of tax audits for prior tax periods.
Certain asset write-offs in our foreign jurisdictions are considered permanent differences and are not tax deductible. Other asset write-offs, such as inventory and prepaid value-added taxes in China, are not currently deductible and result in deferred tax assets. Due to uncertainty around the realization of these deferred tax assets, they have been fully reserved as of the end of the fiscal years ended March 31, 2015 and March 31, 2014.
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 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.
37
We define non-GAAP net loss as net loss before gain on sale of interest in minority investments, stock-based compensation, arbitration award expense, amortization of acquisition-related intangibles, restructuring and impairment charges, consumption of zero cost-basis inventory, changes in fair value of derivatives and warrants, non-cash interest expense and other non-cash or unusual charges,
net ofand any tax effects related to these items, indicated in the table below. 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
or non-recurring charges
and other items that we do not believe are indicative of our core operating performance.
We also regard non-GAAP net loss as a useful measure of operating performance which more closely aligns net loss with cash used in/provided by continuing operations. In addition, we use non-GAAP net loss as a factor in evaluating management’s performance when determining incentive compensation and to evaluate the effectiveness of our business strategies. A reconciliation of
non-GAAPGAAP to
GAAPnon-GAAP net loss is set forth in the table below (in thousands, except per share data):
| Year ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | | |
Net loss | $ | (23,139 | ) | | $ | (48,656 | ) | | $ | (56,258 | ) |
Gain on sale of interest in minority investments, net of tax effect | | (2,919 | ) | | | - | | | | - | |
Stock-based compensation | | 3,248 | | | | 5,936 | | | | 10,696 | |
Arbitration award expense | | - | | | | 8,987 | | | | - | |
Amortization of acquisition-related intangibles | | 157 | | | | 157 | | | | 287 | |
Restructuring and impairment charges | | 779 | | | | 5,366 | | | | 2,998 | |
Sinovel litigation | | - | | | | - | | | | 18 | |
Consumption of zero cost-basis inventory | | (4,960 | ) | | | (7,982 | ) | | | (4,308 | ) |
Prepaid VAT reserve | | - | | | | - | | | | 1,426 | |
Change in fair value of derivatives and warrants | | 228 | | | | (3,963 | ) | | | (1,872 | ) |
Loss on extinguishment of debt | | - | | | | - | | | | 5,197 | |
Non-cash interest expense | | 359 | | | | 566 | | | | 7,713 | |
Non-GAAP net loss | $ | (26,247 | ) | | $ | (39,589 | ) | | $ | (34,103 | ) |
| | | | | | | | | | | |
Non-GAAP net loss per share | $ | (1.99 | ) | | $ | (4.67 | ) | | $ | (5.45 | ) |
Weighted average shares outstanding - basic and diluted | | 13,178 | | | | 8,477 | | | | 6,262 | |
|
| | | | | | | | | | | |
| Year ended March 31, |
| 2017 | | 2016 | | 2015 |
Net loss | $ | (27,373 | ) | | $ | (23,139 | ) | | $ | (48,656 | ) |
Gain on sale of interest in minority investments, net of tax effect | (325 | ) | | (2,919 | ) | | — |
|
Stock-based compensation | 2,892 |
| | 3,248 |
| | 5,936 |
|
Arbitration award expense | — |
| | — |
| | 8,987 |
|
Amortization of acquisition-related intangibles | 157 |
| | 157 |
| | 157 |
|
Restructuring and impairment charges | — |
| | 779 |
| | 5,366 |
|
Consumption of zero cost-basis inventory | (1,373 | ) | | (4,960 | ) | | (7,982 | ) |
Change in fair value of derivatives and warrants | (1,304 | ) | | 228 |
| | (3,963 | ) |
Non-cash interest expense | 156 |
| | 359 |
| | 566 |
|
Tax effect of adjustments | 220 |
| | — |
| | — |
|
Non-GAAP net loss | (26,950 | ) | | (26,247 | ) | | (39,589 | ) |
| | | | | |
Non-GAAP net loss per share | $ | (1.95 | ) | | $ | (1.99 | ) | | $ | (4.67 | ) |
Weighted average shares outstanding - basic and diluted | 13,804 |
| | 13,178 |
| | 8,477 |
|
We generated a non-GAAP net loss of
$27.0 million, or $1.95 per share, for fiscal 2016, compared to $26.2 million, or $1.99 per share, for fiscal 2015,
compared toand $39.6 million, or $4.67 per share, for fiscal
2014,2014. The increase in non-GAAP net loss in fiscal 2016 over 2015 was primarily related to increased net loss as a result of lower revenues, partially offset by lower adjustments to net loss from the gain on sale of minority investments, lower stock compensation expense and
$34.1 million, or $5.45 per share, for fiscal 2013.lower consumption of zero cost-basis inventory. The decrease in non-GAAP net loss in fiscal 2015 over 2014 was primarily related to higher revenues in both business units, as well as higher gross
margin as previously discussed. The increase in non-GAAP net loss in fiscal 2014 over 2013 was primarily related to lower revenues in fiscal 2014 and mix of higher margin revenue with no cost in fiscal 2013 from Chinese and other customers.38
margin.
Liquidity and Capital Resources
Our cash requirements depend on numerous factors, including the successful completion of our product development activities, our ability to commercialize our REG and ship protection system solutions, 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 basedSuperconductors-based products.
In December 2015, we entered into a set of strategic agreements valued at approximately $210.0 million with Inox, which includes a multi-year supply contract pursuant to which the Company will supply electric control systems to Inox and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years. After this initial three to four year period, 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 electric control systems requirements for an additional three-year period. During the fourth quarter of fiscal 2015, Inox made the upfront payment of $6.0 million required under the license agreement, but as of the date of this Annual Report it has not made the $2.0 million advance payment required under the supply contract. These agreements are expected to provide a foundation for the business as we pursue our longer-term objectives. Significant deviations from our business plan with regard to these factors and events, including any prolonged disruption in our revenues with our largest customers, which are important drivers to our business, could have a material adverse effect on our operating performance, financial condition, and future business prospects. We expect to pursue the expansion of our operations through internal growth, diversification of our customer base, and potential strategic alliances.
At March 31, 2016,2017, we had cash, cash equivalents, and restricted cash of $40.7$27.7 million, compared to $24.5$40.7 million at March 31, 2015, an increase2016, a decrease of $16.2$13.0 million. Our cash and cash equivalents, and restricted cash are summarized as follows (in thousands):
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
Cash and cash equivalents | $ | 39,330 | | | $ | 20,490 | |
Restricted cash | | 1,391 | | | | 4,058 | |
Total cash, cash equivalents, and restricted cash | $ | 40,721 | | | $ | 24,548 | |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Cash and cash equivalents | $ | 26,784 |
| | $ | 39,330 |
|
Restricted cash | 960 |
| | 1,391 |
|
Total cash, cash equivalents, and restricted cash | $ | 27,744 |
| | $ | 40,721 |
|
As of March 31,
2016,2017, we had approximately
$22.0$9.0 million of cash, cash equivalents, and restricted cash in foreign bank accounts, with a majority of this cash located in Europe. The
increasedecrease in total cash and cash equivalents, and restricted cash was due primarily to cash
provided by financingused in operating activities. See further discussion below.
Net cash used in operating activities was
$11.2 million, $4.6 million
$32.7 million and
$13.3$32.7 million in fiscal
2016, 2015
2014 and
2013,2014, respectively. The
decreaseincrease in net cash used in operations in fiscal
2016 compared to fiscal 2015 was due primarily to non-recurring payments for customer deposits and licenses in fiscal 2015 and higher net loss for the reasons discussed above. The decrease in fiscal 2015 compared to fiscal 2014 was
primarily due
primarily to lower net loss for the reasons discussed above.
The increase in fiscal 2014 compared to fiscal 2013 was primarily driven by our higher net loss exclusive of non-cash items, the arbitration settlement payment to Ghodawat, and less cash generated by working capital in fiscal 2014 compared to fiscal 2013.Net cash provided by investing activities was
$0.2 million, $4.9 million
$1.8 million and
$4.0$1.8 million in fiscal
2016, 2015
and 2014,
and 2013, respectively.
The decrease in net cash provided by investing activities in fiscal 2016 compared to fiscal 2015 was due primarily to a decrease in restricted cash as well as lower proceeds related to the sale of our minority interests. The increase in net cash provided by investing activities in fiscal 2015 compared to fiscal 2014 was
duedriven primarily
toby the proceeds from the sale of our minority interests in Blade Dynamics and Tres Amigas.
The decrease in net cash provided by investing activities in fiscal 2014 compared to fiscal 2013 was driven primarily by a decrease in the change for restricted cash.Net cash
(used in)/provided by financing activities was
($1.1 million), $18.2 million
$8.8 million and
$12.8$8.8 million in fiscal
2016, 2015
2014 and
2013,2014, respectively. The
increasedecrease in net cash provided by financing activities in fiscal
20152016 compared to fiscal
20142015 was primarily due to net proceeds of $22.3 million from the issuance of 4.0 million shares of common stock in April 2015,
compared to net proceeds of $2.5 million from sales of 379,693 shares of common stock under the ATM during the fiscal quarter ended March 31, 2017. The increase in cash provided by financing activities in fiscal 2015 compared to fiscal 2014 is primarily due to net proceeds from the April 2015 equity offering, which was an increase of $7.3 million over
the prior year periodfiscal 2014 net offering proceeds from the sale of shares under
our At-Market Sales Arrangementa previous at market issuance sales agreement and an equity offering in November 2014. See Note 10, “Warrants and Derivative Liabilities” for further information on the November 2014 equity offering. Additionally, amounts used to repay debt decreased by $3.3 million compared to
the prior year periodfiscal 2014 due to the repayment in full of one of our term loans in the prior-year period.
The decrease in cash provided by financing activities in fiscal 2014 compared to fiscal 2013 is primarily due to the net proceeds received from our debt arrangements in fiscal 2013 and an increase in repayment under these debt arrangements in fiscal 2014, partially offset by net proceeds from a public equity offering in November 2014.At March 31, 20162017 and 2015,2016, we had $0.5$0.8 million and $2.8$0.5 million, respectively, of restricted cash included in current assets, and $0.9$0.2 million and $1.2$0.9 million, respectively 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.39
On November 15, 2013, we amended our Loan and Security Agreement (the “Term Loan”) with Hercules and entered into a new term loan (the “Term Loan B”), borrowing $10.0 million. After closing fees and expenses, we received net proceeds of $9.8 million. The Term Loan B
bearsbore an interest rate equal to 11% plus the percentage, if any, in which the prime rate as reported by The Wall Street Journal exceeds 3.75%. We made interest-only payments from December 1, 2013 to May 31, 2014.
If we achieved certain revenue targets for the six-month period ending March 31, 2014, interest only payments would continue through August 31, 2014. We did not achieve the revenue required to extend this interest only period. Beginning June 1, 2014, we began making payments on the Term Loan B in equal monthly installments which
will endended at maturity on November 1, 2016.
On December 19, 2014, we entered into another amendment with Hercules (the “Hercules Second Amendment”) and entered into a new term loan (the “Term Loan C” or "Term Loan"), borrowing an additional $1.5 million (we collectively refer to the Term Loan B, and Term Loan C as the “Term Loans”).million. After closing fees and expenses,
the net proceeds from the Term Loan C were $1.4 million. The Term Loan C bears the same interest rate as the Term Loan
B.B, which increased to 11.25% effective March 16, 2017. We are making interest only payments until maturity on June 1, 2017, when the loan is scheduled to be repaid in its entirety.
The Term
Loans areLoan C is secured by substantially all of our existing and future assets, including a mortgage on real property owned by our wholly-owned subsidiary, ASC Devens LLC, and located at 64 Jackson Road, Devens, Massachusetts. The Term
Loans containLoan contains certain covenants that restrict our ability to, among other things, incur or assume certain debt, merge or consolidate, materially change the nature of our business, make certain investments, acquire or dispose of certain assets, make guarantees or grant liens on our assets, make certain loans, advances or investments, declare dividends or make distributions or enter into transactions with affiliates. In addition, there is a covenant that requires us to maintain a minimum unrestricted cash balance (the “Minimum Threshold”) in the United States. As part of the Hercules Second Amendment, this Minimum Threshold was amended to be the lower of $5.0 million or the aggregate outstanding principal balance of the
Term Loans.then outstanding term loans. As a result of the April 2015 offering (see discussion below), the Minimum Threshold was reduced to the lesser of $2.0 million or the aggregate outstanding principal balance of the
Term Loans.then outstanding term loans. As of March 31,
2016,2017, the Minimum Threshold was
$2.0$1.5 million. The events of default under the Term
LoansLoan include, but are not limited to, failure to pay amounts due, breaches of covenants, bankruptcy events, cross defaults under other material indebtedness and the occurrence of a material adverse effect and/or change in control. In the case of a continuing event of default, Hercules may, among other remedies, declare due all unpaid principal amounts outstanding and any accrued but unpaid interest and foreclose on all collateral granted to Hercules as security under the Term
Loans.Loan.
We believe we are in and expect to remain in compliance with the covenants and restrictions under the Term
LoansLoan as of the date of this Annual Report on Form 10-K. If we fail to stay in compliance with our covenants or experience some other event of default, we may be forced to repay the outstanding principal on the Term
Loans.Loan.
We have experienced recurring operating losses and as of March 31, 2016,2017, had an accumulated deficit of $928.2$955.6 million. In addition, we have experienced recurring negative operating cash flows.flows and our Wind segment revenues decreased substantially in fiscal 2016 as compared to fiscal 2015. From April 1, 2011 through the date of this filing, we have reduced our global workforce substantially, including an 8% reduction in force, primarily affecting employees in our Devens, Massachusetts facility, effective April 4, 2017. We expect to incur restructuring charges of $1.5 million to $2.0 million in cash severance expenses in the fiscal quarter ending June 30, 2017 in connection with the workforce reduction. We plan to closely monitor our expenses and, if required, expect to further reduce operating costs and capital spending to enhance liquidity. At March 31, 2016,2017, we had cash and cash equivalents of $39.3$26.8 million, as compared toand cash used in operations of $4.6$11.2 million for the year ended March 31, 2016. 2017.
In April 2015, we completed an equity offering which raised net proceeds of $22.3 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us from the sale of 4.0 million shares of our common stock at a public offering price of $6.00 per share. On October 6, 2015, 100% of the outstanding common stock of Blade Dynamics was acquired by a subsidiary of General Electric Company. After deducting transaction expenses, we received net proceeds of $2.8 million from the sale, which was recorded as a gain during the year ended March 31, 2016.
Additionally, under the terms of the purchase agreement, we may be entitled to receive up to an additional $1.2 million in proceeds, upon the successful achievement of certain milestones by Blade Dynamics over the next three years. On March 11, 2016, we sold 100% of our minority investment in Tres Amigas to an investor for $0.6 million. We received $0.3 million according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final $0.3 million,
is to be paid when Tres Amigas achieveswhich was due upon the
earlierachievement of certain agreed-upon financing conditions,
which is expected to occurwas received and recorded as a gain during the
first halfthird quarter of fiscal 2016.
In addition, in December 2015,On January 27, 2017, we entered into
the ATM. During the three months ended March 31, 2017, we realized net proceeds of $2.5 million from the sale of 379,693 shares of our common stock at an average price of $6.79 per share. No sales of our common stock were made under the ATM after March 31, 2017. On May 4, 2017, we provided to FBR Capital Markets & Co., the sales agent, a
setnotice of
strategic agreements valuedtermination of the ATM. Also, on May 10, 2017, we completed an equity offering, which raised net proceeds of $14.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us from the sale of 4.0 million shares of our common stock at
approximately $210.0 million with Inox, as discussed above. These agreements are expected to provide a
foundation for the business as we pursue our longer-term objectives.public offering price of $4.00 per share.
We believe,
based on the information presented above and our annual assessment, that we have sufficient available liquidity to fund our operations, capital expenditures and scheduled cash payments under our debt obligations for the next twelve
months.months following the issuance of our financial statements. Our liquidity is highly dependent on our ability to increase revenues, control our operating costs,
and our ability to maintain compliance with the covenants and restrictions on our debt obligations (or obtain waivers from our lender in the event of non-compliance), and our ability to raise additional capital, if necessary. There can be no assurance that we will be able to continue to raise additional capital from other sources or execute on any other means of improving our liquidity as described above.
40
We are involved in legal and administrative proceedings and claims of various types. See Part II, Item 1, “Legal Proceedings,” for additional information. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. We review these estimates each accounting period as additional information is known and adjust the loss provision when appropriate. If a matter is both probable to result in liability and the amounts of loss can be reasonably estimated, we estimate and disclose the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements.
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.
Contractual obligations represent future cash commitments and liabilities under agreements with third parties. Operating leases include minimum payments under leases for our facilities and certain equipment; see Item 2, “Properties,” for more information. Purchase commitments represent enforceable and legally binding agreements with suppliers to purchase goods or services. As of March 31,
2016,2017, we are committed to make the following payments under contractual obligations (in thousands):
| | | | Payments Due by Period | |
| | | | | Less than | | | | | | | | | | | More than | |
| Total | | | 1 year | | | 1-3 Years | | | 3-5 Years | | | 5 Years | |
Non-cancellable purchase commitments | $ | 20,403 | | | $ | 20,403 | | | $ | - | | | $ | - | | | $ | - | |
Senior Term Loans | | 4,167 | | | | 2,667 | | | | 1,500 | | | | - | | | | - | |
Operating leases (rent) | | 2,029 | | | | 1,047 | | | | 653 | | | | 329 | | | | - | |
Operating leases (other) | | 170 | | | | 88 | | | | 69 | | | | 13 | | | | - | |
Total contractual obligations | $ | 26,769 | | | $ | 24,205 | | | $ | 2,222 | | | $ | 342 | | | $ | - | |
|
| | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| Total | | Less than 1 year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Non-cancellable purchase commitments | $ | 4,940 |
| | $ | 4,926 |
| | $ | 14 |
| | $ | — |
| | $ | — |
|
Senior Term Loans | 1,500 |
| | 1,500 |
| | — |
| | — |
| | — |
|
Operating leases (rent) | 1,597 |
| | 960 |
| | 473 |
| | 164 |
| | — |
|
Operating leases (other) | 87 |
| | 62 |
| | 21 |
| | 4 |
| | — |
|
Total contractual obligations | $ | 8,124 |
| | $ | 7,448 |
| | $ | 508 |
| | $ | 168 |
| | $ | — |
|
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (IASB) issued ASU 2014-09,ASU Revenue from Contracts with Customers 2014-09 (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 the following amendments to ASU is2014-09 which are all effective for annual reporting periods beginning after December 15, 2017.
In March 2016 the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations.
In April 2016 the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance.
In May 2016 the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow- Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other
amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers.
In December 2016 the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.
We are currently evaluating the
provisions of ASU 2014-09 and its amendments, and assessing the impact
if any, the adoption of
ASU 2014-09 maythis guidance will have on our
current practices.financial position, results of operations and disclosures. We anticipate the adoption of this guidance will result in certain changes in the identification of deliverables in our contracts and allocation of transaction price. We are required to adopt the new standards in the first quarter of fiscal 2018 using one of two application methods: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We are currently evaluating the available adoption methods.
In July 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. To account for such awards, a reporting entity should apply existing guidance in FASB Accounting Standards Codification Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. This ASU is effective for annual reporting periods and interim periods, within those annual periods beginning after December 15, 2015. We are currently evaluating the impact, if any, the adoption ofadopted ASU 2014-12 may haveeffective April 1, 2016 and conclude that there is no material impact on our current practices. In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The new standard explicitly requires the assessment at interim and annual periods, and provides management with its own disclosure guidance. This ASU is effective for annual reporting periods and interim periods, within those annual periods ending after December 15, 2016. We are currently evaluating the impact, if any, the adoption ofadopted ASU 2014-15 may haveeffective March 31, 2017 and concluded there is no material impact on our current practices.41
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require an entity to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability as opposed to an asset. Amortization of the costs will continue to be reported as interest expense. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption ofadopted ASU 2015-03 may have on our current practiceseffective April 1, 2016 and currently do not believeconcluded that there will be anis no material impact on our consolidated results of operations, financial condition, or cash flow. In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in ASU 2015-10 clarify and correct some of the difference that arose between original guidance from FASB, EITF and other sources, and the translation into the new Codification. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption ofadopted ASU 2015-10 may have on our current practiceseffective April 1, 2016 and currently do not believeconcluded that there will be anis no material impact on our consolidated results of operations, financial condition, or cash flow. In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in ASU 2015-11 clarify the proper way to identify market value in the use of lower of cost or market value valuation method. As market value could be determined multiple ways under prior standards, it will now be considered as net realizable value. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption ofadopted ASU 2015-11 may haveeffective March 31, 2017 and concluded there is no material impact on our current practices. In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years. We are currently evaluating the impact, if any, the adoption ofadopted ASU 2015-16 may have on our current practices,effective April 1, 2016 and currently do not believeconcluded that there will be anis no material impact on our consolidated results of operations, financial condition, or cash flow.In November 2015, the FASB issued ASU 2015-17
Balance Sheet Classification of Deferred Taxes. This ASU simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. We early-adopted ASU 2015-17 effective January 1, 2016 on a prospective basis. Adoption of this ASU resulted in all deferred tax assets and liabilities being presented as non-current in the Consolidated Balance Sheet as of January 1, 2016. No prior periods were retrospectively adjusted.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. We are currently evaluating the impact, if any, the adoption of ASU 2016-01 may have on our current practices.
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 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the effects adoption of this guidance will have on our consolidated financial statements.In March 2016, the FASB issued ASU 2016-08
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent consideration. The ASU is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact, if any, the adoption of ASU 2016-08 may have on our current practices.In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in ASU 2016-09 will simplify several aspects of the accounting for share-based payment transactions, including tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.2016. We adopted ASU 2016-09 effective April 1, 2016 and concluded that there is no material impact on our current practices.
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 2016-09 2016-13 may have on
our current practices.42
In April2016, 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 2016-102016-15, Revenue from ContractsStatement 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 Customerscash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
We are currently evaluating the impact, if any, the adoption of ASU 2016-15 and ASU 2016-18 may have on our current practices.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 606)740): Identifying Performance Obligations and LicensingIntra-Entity Transfers of Assets Other Than Inventory. The amendments in ASU 2016-10 will clarify2016-16 improve the identificationaccounting for the income tax consequences of performance obligations and the licensing implementation guidance. intra-entity transfers of assets other than inventory. The ASU is effective for annual reporting periods beginning after December 15, 2017.2017, including interim periods within that year. We are currently evaluating the impact, if any, the adoption of ASU 2016-10 2016-16 may have on our current practices. In January 2017, the FASB issued ASU 2017-01, Business Combinations. The amendments in ASU 2017-01 clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. We are currently evaluating the impact the adoption of ASU 2017-01 may have on our current practices.
In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures. The amendments in ASU 2017-03 provide additional detail surrounding disclosures required related to adoption of new pronouncements. The ASU is effective for the periods of each related pronouncement. We are currently evaluating the impact the adoption of ASU 2017-03 may have on our current practices.
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 to add guidance for partial sales of non-financial assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting Standards Update 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 are currently evaluating the impact the adoption of ASU 2017-05 may have on our current practices.
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:
| ·
| Valuation of long-lived assets;
|
Inventory;Valuation of long-lived assets; | ·
| Stock-based compensation;
|
Income taxes;Stock-based compensation; | ·
| Fair value of financial instruments.
|
Debt; andFair value of financial instruments.
We recognize revenue for product sales upon customer acceptance, which can occur at the time of delivery, installation, or post-installation, where applicable, provided persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured, revenue is recognized on a cash basis of accounting. Certain of our contracts involve retention amounts which are contingent upon meeting certain performance requirements through the expiration of the contract warranty periods. For contractual arrangements that involve retention, we recognize revenue for these amounts upon the expiration of the warranty period, meeting the performance requirements and when collection of the fee is reasonably assured.
For certain arrangements, such as contracts to perform research and development, prototype development contracts and certain product sales, we record revenues using the percentage-of-completion method, measured by the relationship of costs incurred to total estimated contract costs. Percentage-of-completion 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 since reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made. 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 completed-contract method.
We enter into sales arrangements that may provide for multiple deliverables 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.
43
Deliverables 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) delivery of the undelivered element(s) is probable and substantially in our control. 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 recognized in accordance with our policy for product sales, while revenues for the services are 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 revenue to each deliverable
based on the element’s fair value as determined by vendor-specific objective evidence (“VSOE”), which is the price charged when that element is sold separately, or third-party evidence (“TPE”). When VSOE and TPE are unavailable, fair value is based on our best estimate of selling price utilizing a cost plus reasonable margin consistent with how we have set pricing historically for similar products and services. When our estimates are used to determine fair value, we make our estimates using reasonable and objective evidence to determine the price. We review VSOE and TPE at least annually. If we conclude we are unable to establish fair values for one or more undelivered elements within a multiple-element arrangement using VSOE then we use TPE or the best estimate of the selling price for that unit of accounting, being the price at which the vendor would transact if the unit of accounting were sold by the vendor regularly on a standalone basis.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 intellectual property infringements past and future 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 knowhow, we will recognize the revenue. In certain arrangements we may also agree to provide training services to transfer the technology know-how. In other license 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 technology
knowhowknow-how through the training
component.component. Accordingly, we account for these arrangements as a single unit of accounting, and recognize revenue over the period of its performance and milestones that have been achieved. Costs for these arrangements are expensed as incurred.In
In December 2015, we entered into a set of strategic agreements valued at approximately $210.0 million with Inox, which includes a multi-year supply contract pursuant to which we will supply electric control systems to Inox and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years. We determined this license has standalone value to the customer and can be separated from the supply contract. The license agreement includes customer acceptance criteria to demonstrate the know-how to manufacture the electrical control systems has been fully transferred. We
willcontinue to defer revenue recognition for the allocable portion of the license until this acceptance criteria has been met.
In March 2016, we entered into a set of agreements to jointly develop an advanced low cost manufacturing process for second generation high temperature superconductor wire with BASF. In the joint development, our manufacturing know-how for our Amperium® superconductor wire and BASF's chemical solution deposition production technology will beare being combined. As part of the agreements, we also entered into a royalty-bearing, non-exclusive license under which we will provide BASF a specified portion of our second generation (2G) high temperature superconductor (HTS) wire manufacturing technology. We determined that the license rights we provide to BASF have standalone value from the ongoing joint development effort. We transferred the license rights to BASF in March 2016, recording $3.0M of license revenues in the fiscal year ended March 31, 2016 as there were no remaining obligations associated with these rights. Any newly developed intellectual property as a result of the joint development will be owned by BASF. Should this development effort be successful, we have the right to incorporate this new technology into our manufacturing process on a royalty-free basis. BASF has also agreed to make guaranteed annual payments to us through fiscal 2017 and has an option to continue the joint development through fiscal 2018. We will recordare recording revenue for the research and development services we are providing over the term of the arrangement. 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.
Customer deposits received in advance of revenue recognition are recorded as deferred revenue until customer acceptance is received. Deferred revenue also represents the amount billed to and/or collected from commercial and government customers on contracts which permit billings to occur in advance of contract performance/revenue recognition.
44
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, 2016,2017, of our total receivable balance, Inox accounted for approximately 84% of our total receivable balance,52%, and SSE plc accounted for
approximately 17%, with no other customers accounting for greater than 10% of the balance. As of March 31,
2015,2016, Inox accounted for approximately
56%84% of our total receivable balance, 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.
Inventories include material, direct labor and related manufacturing overhead, and are stated at the lower of cost or
marketnet realizable value determined on a first-in, first-out basis. 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
$1.6 million during fiscal 2016 and $2.7 million during fiscal 2015,
and $1.4 million during fiscal 2014, respectively, based on evaluating our ending inventories for excess quantities and obsolescence. We recorded an inventory reserve of approximately $63.9 million during fiscal 2010 based on our evaluation of forecasted demand in relation to the inventory on hand and market conditions surrounding our products as a result of the assumption that Sinovel and certain other customers in China would fail to meet their contractual obligations and demand that was previously forecasted would fail to materialize. If, in any period, we are able to sell inventories that were not valued or that had been reserved in a previous period, related revenues would be recorded without any offsetting charge to cost of revenues, resulting in a net benefit to our gross profit in that period. In fiscal
2016, 2015,
and 2014,
and 2013,$1.4 million, $5.0 million,
$8.0 million, and
$4.3$8.0 million respectively, were recognized as a net benefit to gross profit for inventory previously reserved in fiscal year 2010.
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;
|
a significant change in the manner in which an asset group is used; | ·
| identification of other impaired assets within a reporting unit;
|
a significant decrease in the market value of an asset group; | ·
| a significant adverse change in its business or the industry in which it is sold;
|
45
| ·
| 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
|
identification of other impaired assets within a reporting unit; | ·
| significant advances in our technologies that require changes in our manufacturing process.
|
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.
On April 3, 2017, the Board of Directors approved a plan to reduce our global workforce by approximately 8%, effective April 4, 2017 primarily in our Devens, Massachusetts facility. The Board of Directors also approved a move from our currently owned 355,000 square-foot facility in Devens, Massachusetts to a smaller facility better suited for our 2G wire process and our systems manufacturing. Since the restructuring activities impacted our Superconductor and Corporate assets group, we concluded that there were indicators of potential impairment of our long-lived assets that required further analysis for these assets groups as of March 31, 2017. We conducted assessments of the recoverability of these assets by comparing the carrying value of the assets to the pre-tax undiscounted cash flows estimated to be generated by those assets over their remaining book useful lives. Based on the calculations performed by management, the sum of the undiscounted cash flows forecasted to be generated by certain assets were less than the carrying value of those assets. Therefore, there were indicators that certain of our assets were impaired and we performed additional analysis. An evaluation of the level of impairment was made by comparing the fair value of the definite long-lived tangible and intangible assets of its reporting units against their carrying values.
The fair values for the impacted property and equipment were based on what we could reasonably expect to sell each asset for from the perspective of a market participant. The determination of the fair value of our property and equipment includes estimates and judgments regarding marketability and ultimate sales price of individual assets. We utilized market data and approximations from comparable analyses to arrive at the fair value of the impacted property and equipment. The fair values of the amortizable intangible assets related to core technology and trade names were determined using primarily the relief-from-royalty method over the estimated economic lives of these assets from a perspective of a market participant. During the fiscal year ended March 31, 2017, we determined that the long-lived assets for the Superconductor and Corporate asset groups were not impaired as their estimated fair values exceed the carrying values.
Our provision for income taxes is
composedcomprised 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.
During November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires thatAll deferred tax assets and liabilities
be classified as non-current in a statement of financial position. We early-adopted ASU 2015-17 effective January 1, 2016 on a prospective basis. Adoption of this ASU resulted in all deferred tax assets and liabilities beingare presented as non-current in the Consolidated Balance
Sheet as of January 1, 2016. No prior periods were retrospectively adjusted.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 11, “Income Taxes,” of our consolidated financial statements for further information regarding our income tax assumptions and expenses.
We evaluate our permanent reinvestment assertions with respect to foreign earnings at each reporting period. We have not recorded a deferred tax asset for the temporary difference associated with the excess of the tax basis over the book basis in our Austrian and Chinese subsidiaries as the future tax benefit is not expected to reverse in the foreseeable future. We have recorded a deferred tax liability as of March 31,
20162017 for the undistributed earnings of our remaining foreign subsidiaries for which we can no longer assert are permanently reinvested. The total amount of undistributed earnings available to be repatriated at March 31,
20162017 was
$1.2$2.1 million resulting in the recording of a
$0.4$0.7 million net deferred federal and state income tax liability. See Note 11, “Income Taxes,” of our consolidated financial statements for the results of this assessment.
We measure compensation cost arising from the grant of share-based payments to employees at fair value and recognize such cost over the period during which the 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,
2017, 2016,
and 2015
and 2014 was
$2.9 million, $3.2 million,
$5.9 million, and
$10.7$5.9 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 12, “Stockholders’ Equity,” of our consolidated financial statements for further information regarding our stock-based compensation assumptions and expenses.
46
Our adoption of ASU 2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting also resulted in the prospective classification of excess tax benefits as cash flows from operating activities in the same manner as other cash flows related to income taxes within the consolidated statements of cash flows. Based on the prospective method of adoption chosen, the classification of excess tax benefits within the consolidated statements of cash flows for prior periods presented has not been adjusted to reflect the change.
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. During the fiscal year ended March 31, 2015, we reversed legal expenses of approximately $2.2 million incurred in connection with the Ghodawat arbitration that were covered by our Catlin settlement. See Note 13, “Commitments and Contingencies”, of our consolidated financial statements for further information.
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.
Debt
For debt arrangements, we consider any embedded equity-linked components and account for the fair value of any embedded warrants and derivatives. We elect not to use the fair value option for recording debt arrangements and elect to record the debt at the stated value of the loan agreement on the date of issuance. Any other elements present are reviewed to determine if they are embedded derivatives requiring bifurcation and requiring valuation under the fair value option. Derivatives and warrants, which meet the condition to satisfy an obligation by issuing a variable number of equity shares, are recorded at fair value. The carrying value assigned to the host instrument will be the difference between the previous carrying value of the host instrument and the fair value of the warrants and derivatives. There is no immediate gain/loss from the initial recognition and measurement if the embedded derivative is accounted for separately from its host contract. There is an offsetting debt discount or premium as a result of the fair value assigned to the warrants and derivatives, as well as any debt issuance costs, which is amortized under the effective interest method over the term of the loan. Each reporting period, fair value is assessed for the warrants and derivatives with the change in value being recorded as other income/loss. See Note 9, “Debt,” and Note 10, “Warrants and Derivative Liabilities,” of our consolidated financial statements for a full discussion regarding the activity and financial impact for our debt, warrants and derivative liabilities.
Fair Value of Financial Instruments
Our financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, derivatives, warrants, and the term loans. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses due to their short nature approximate fair value at March 31, 20162017 and 2015.2016. The estimated fair values have been determined through information obtained from market sources and management estimates. The fair value for the debt and warrant arrangements havehas 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
|
| |
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as our business practices evolve and could have a material adverse impact on our financial results.
47
Cash and cash equivalents
Our exposure to market risk through financial instruments, such as investments in marketable securities, is limited to interest rate risk and is not material. Our investments in marketable securities consist primarily of government-backed securities and commercial paper and are designed, in order of priority, to preserve principal, provide liquidity, and maximize income. Investments are monitored to limit exposure to mortgage-backed securities and similar instruments responsible for the recent turmoil in the credit markets. Interest rates are variable and fluctuate with current market conditions. We do not believe that a 10% change in interest rates would have a material impact on our financial position or results of operations.
Foreign currency exchange risk
The functional currency of each of our 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 income (loss) and shown as a separate component of stockholders’ equity.
We face exposure to movements in foreign currency exchange rates whenever we, or any of our subsidiaries, enter into transactions with third parties that are denominated in currencies other than our functional currency. Intercompany transactions between entities that use different functional currencies also expose us to foreign currency risk. Gross margins of products we manufacture in the U.S and sell in currencies other than the U.S. dollar are also affected by foreign currency exchange rate movements. In addition, a portion of our earnings is generated by our foreign subsidiaries, whose functional currencies are other than the U.S. dollar, and our revenues and earnings could be materially impacted by movements in foreign currency exchange rates upon the translation of the earnings of such subsidiaries into the U.S. dollar. If the functional currency for AMSC Austria and AMSC China were to fluctuate by 10% the net effect would be immaterial to our consolidated financial statements.
Foreign currency gains (losses), are included in net loss and were
$0.1 million, ($2.3) million
$2.7 million and
($0.1)$2.7 million for the fiscal years ended March 31,
2017, 2016
and 2015,
and 2014, respectively.
48
Item
|
| |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of American Superconductor Corporation
We have audited the accompanying consolidated balance sheets of American Superconductor Corporation and its subsidiaries (collectively, the “Company”) as of March 31,
20162017 and
2015,2016, and the related consolidated statements of operations, comprehensive loss,
stockholders’stockholders' equity, and cash flows for each of the three years in the period ended March 31,
2016,2017, and the financial statement schedule of American Superconductor Corporation and subsidiaries listed in Item
1515(a)2 as of March 31,
20162017 and
20152016 and for each of the three years in the period ended March 31,
2016.2017. We also have audited the
Company’sCompany's internal control over financial reporting as of March 31,
2016,2017, based on criteria established in Internal Control
–- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The
Company’sCompany's management is responsible for these financial statements and
the financial statement schedule, 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 these financial statements and the financial statement schedule and an opinion on the
Company’sCompany's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.
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 (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) 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 (c) 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Superconductor Corporation and its subsidiaries as of March 31, 20162017 and 2015,2016, and the results of their operations and their cash flows for each of the three years in the three-year period ended March 31, 2016,2017, in conformity with accounting principles generally accepted in the United States of America, and in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Also in our opinion, American Superconductor Corporation and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016,2017, based on criteria established in Internal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Boston, Massachusetts
AMERICAN SUPERCONDUCTOR CORPORATION
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | $ | 39,330 | | | $ | 20,490 | |
Accounts receivable, net | | 19,264 | | | | 9,879 | |
Inventory | | 18,512 | | | | 20,596 | |
Prepaid expenses and other current assets | | 5,778 | | | | 10,764 | |
Restricted cash | | 457 | | | | 2,822 | |
Total current assets | | 83,341 | | | | 64,551 | |
| | | | | | | |
Property, plant and equipment, net | | 49,778 | | | | 56,097 | |
Intangibles, net | | 854 | | | | 1,422 | |
Restricted cash | | 934 | | | | 1,236 | |
Deferred tax assets | | 96 | | | | 7,766 | |
Other assets | | 315 | | | | 2,753 | |
| | | | | | | |
Total assets | $ | 135,318 | | | $ | 133,825 | |
| | | | | | | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued expenses | $ | 23,156 | | | $ | 21,615 | |
Note payable, current portion, net of discount of $42 as of March 31, 2016 and $244 as of March 31, 2015 | | 2,624 | | | | 3,756 | |
Derivative liabilities | | 3,227 | | | | 2,999 | |
Deferred revenue | | 12,000 | | | | 11,019 | |
Deferred tax liabilities | | - | | | | 7,843 | |
Total current liabilities | | 41,007 | | | | 47,232 | |
| | | | | | | |
Note payable, net of discount of $133 as of March 31, 2016 and $290 as of March 31, 2015 | | 1,367 | | | | 3,877 | |
Deferred revenue | | 9,269 | | | | 2,756 | |
Deferred tax liabilities | | 63 | | | | - | |
Other liabilities | | 63 | | | | 67 | |
Total liabilities | | 51,769 | | | | 53,932 | |
| | | | | | | |
Commitments and contingencies (Note 13) | | | | | | | |
| | | | | | | |
Stockholders' equity: | | | | | | | |
Common stock, $0.01 par value, 75,000,000 shares authorized; 14,107,126 and 9,624,275 shares issued at March 31, 2016 and 2015, respectively | | 141 | | | | 96 | |
Additional paid-in capital | | 1,011,813 | | | | 985,921 | |
Treasury stock, at cost, 51,506 and 34,067 shares at March 31, 2016 and 2015, respectively | | (881 | ) | | | (771 | ) |
Accumulated other comprehensive income (loss) | | 660 | | | | (308 | ) |
Accumulated deficit | | (928,184 | ) | | | (905,045 | ) |
Total stockholders' equity | | 83,549 | | | | 79,893 | |
| | | | | | | |
Total liabilities and stockholders' equity | $ | 135,318 | | | $ | 133,825 | |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 26,784 |
| | $ | 39,330 |
|
Accounts receivable, net | 7,956 |
| | 19,264 |
|
Inventory | 17,462 |
| | 18,512 |
|
Prepaid expenses and other current assets | 2,703 |
| | 5,778 |
|
Restricted cash | 795 |
| | 457 |
|
Total current assets | 55,700 |
| | 83,341 |
|
| | | |
Property, plant and equipment, net | 43,438 |
| | 49,778 |
|
Intangibles, net | 301 |
| | 854 |
|
Restricted cash | 165 |
| | 934 |
|
Deferred tax assets | 407 |
| | 96 |
|
Other assets | 233 |
| | 315 |
|
| | | |
Total assets | $ | 100,244 |
| | $ | 135,318 |
|
| | | |
| | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 14,490 |
| | $ | 23,156 |
|
Note payable, current portion, net of discount of $19 as of March 31, 2017 and $42 as of March 31, 2016 | 1,481 |
| | 2,624 |
|
Derivative liabilities | 1,923 |
| | 3,227 |
|
Deferred revenue | 14,323 |
| | 12,000 |
|
Total current liabilities | 32,217 |
| | 41,007 |
|
| | | |
Note payable, net of discount of $133 as of March 31, 2016 | — |
| | 1,367 |
|
Deferred revenue | 7,631 |
| | 9,269 |
|
Deferred tax liabilities | 125 |
| | 63 |
|
Other liabilities | 45 |
| | 63 |
|
Total liabilities | 40,018 |
| | 51,769 |
|
| | | |
Commitments and contingencies (Note 13) |
|
| |
|
|
| | | |
Stockholders' equity: | | | |
Common stock, $0.01 par value, 75,000,000 shares authorized; 14,713,839 and 14,107,126 shares issued at March 31, 2017 and 2016, respectively | 147 |
| | 141 |
|
Additional paid-in capital | 1,017,510 |
| | 1,011,813 |
|
Treasury stock, at cost, 97,529 and 51,506 shares at March 31, 2017 and 2016, respectively | (1,371 | ) | | (881 | ) |
Accumulated other comprehensive (loss) income | (503 | ) | | 660 |
|
Accumulated deficit | (955,557 | ) | | (928,184 | ) |
Total stockholders' equity | 60,226 |
| | 83,549 |
|
| | | |
Total liabilities and stockholders' equity | $ | 100,244 |
| | $ | 135,318 |
|
The accompanying notes are an integral part of the consolidated financial statements.
50
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) | Fiscal Year Ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | | |
Revenues | $ | 96,023 | | | $ | 70,530 | | | $ | 84,117 | |
| | | | | | | | | | | |
Cost of revenues | | 74,041 | | | | 67,442 | | | | 72,858 | |
| | | | | | | | | | | |
Gross profit | | 21,982 | | | | 3,088 | | | | 11,259 | |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Research and development | | 12,303 | | | | 11,878 | | | | 12,173 | |
Selling, general and administrative | | 28,861 | | | | 29,217 | | | | 37,230 | |
Arbitration award expense | | - | | | | 8,987 | | | | - | |
Restructuring and impairments | | 779 | | | | 5,366 | | | | 2,998 | |
Amortization of acquisition related intangibles | | 157 | | | | 157 | | | | 287 | |
Total operating expenses | | 42,100 | | | | 55,605 | | | | 52,688 | |
| | | | | | | | | | | |
Operating loss | | (20,118 | ) | | | (52,517 | ) | | | (41,429 | ) |
| | | | | | | | | | | |
Change in fair value of derivatives and warrants | | (228 | ) | | | 3,963 | | | | 1,872 | |
Loss on extinguishment of debt | | - | | | | - | | | | (5,197 | ) |
Gain on sale of minority interests | | 3,092 | | | | - | | | | - | |
Interest expense, net | | (1,037 | ) | | | (1,882 | ) | | | (9,661 | ) |
Other (expense) income, net | | (2,457 | ) | | | 1,596 | | | | (991 | ) |
| | | | | | | | | | | |
Loss before income tax expense | | (20,748 | ) | | | (48,840 | ) | | | (55,406 | ) |
| | | | | | | | | | | |
Income tax expense (benefit) | | 2,391 | | | | (184 | ) | | | 852 | |
| | | | | | | | | | | |
Net loss | $ | (23,139 | ) | | $ | (48,656 | ) | | $ | (56,258 | ) |
| | | | | | | | | | | |
Net loss per common share | | | | | | | | | | | |
Basic | $ | (1.76 | ) | | $ | (5.74 | ) | | $ | (8.98 | ) |
Diluted | $ | (1.76 | ) | | $ | (5.74 | ) | | $ | (8.98 | ) |
| | | | | | | | | | | |
Weighted average number of common shares outstanding | | | | | | | | | | | |
Basic | | 13,178 | | | | 8,477 | | | | 6,262 | |
Diluted | | 13,178 | | | | 8,477 | | | | 6,262 | |
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2017 | | 2016 | | 2015 |
Revenues | $ | 75,195 |
| | $ | 96,023 |
| | $ | 70,530 |
|
| | | | | |
Cost of revenues | 64,352 |
| | 74,041 |
| | 67,442 |
|
| | | | | |
Gross profit | 10,843 |
| | 21,982 |
| | 3,088 |
|
| | | | | |
Operating expenses: | | | | | |
Research and development | 12,540 |
| | 12,303 |
| | 11,878 |
|
Selling, general and administrative | 25,688 |
| | 28,861 |
| | 29,217 |
|
Arbitration award expense | — |
| | — |
| | 8,987 |
|
Restructuring and impairments | — |
| | 779 |
| | 5,366 |
|
Amortization of acquisition related intangibles | 157 |
| | 157 |
| | 157 |
|
Total operating expenses | 38,385 |
| | 42,100 |
| | 55,605 |
|
| | | | | |
Operating loss | (27,542 | ) | | (20,118 | ) | | (52,517 | ) |
| | | | | |
Change in fair value of derivatives and warrants | 1,304 |
| | (228 | ) | | 3,963 |
|
Gain on sale of minority interests | 325 |
| | 3,092 |
| | — |
|
Interest expense, net | (383 | ) | | (1,037 | ) | | (1,882 | ) |
Other income (expense), net | 65 |
| | (2,457 | ) | | 1,596 |
|
| | | | | |
Loss before income tax expense (benefit) | (26,231 | ) | | (20,748 | ) | | (48,840 | ) |
| | | | | |
Income tax expense (benefit) | 1,142 |
| | 2,391 |
| | (184 | ) |
| | | | | |
Net loss | $ | (27,373 | ) | | $ | (23,139 | ) | | $ | (48,656 | ) |
| | | | | |
Net loss per common share | | | | | |
Basic | $ | (1.98 | ) | | $ | (1.76 | ) | | $ | (5.74 | ) |
Diluted | $ | (1.98 | ) | | $ | (1.76 | ) | | $ | (5.74 | ) |
| | | | | |
Weighted average number of common shares outstanding | | | | | |
Basic | 13,804 |
| | 13,178 |
| | 8,477 |
|
Diluted | 13,804 |
| | 13,178 |
| | 8,477 |
|
The accompanying notes are an integral part of the consolidated financial statements.
51
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| Fiscal Year Ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | | |
Net loss | $ | (23,139 | ) | | $ | (48,656 | ) | | $ | (56,258 | ) |
| | | | | | | | | | | |
Other comprehensive gain (loss), net of tax: | | | | | | | | | | | |
Foreign currency translation gains (losses) | | 968 | | | | (2,147 | ) | | | 727 | |
Total other comprehensive gain (loss), net of tax | | 968 | | | | (2,147 | ) | | | 727 | |
Comprehensive loss | $ | (22,171 | ) | | $ | (50,803 | ) | | $ | (55,531 | ) |
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2017 | | 2016 | | 2015 |
Net loss | $ | (27,373 | ) | | $ | (23,139 | ) | | $ | (48,656 | ) |
| | | | | |
Other comprehensive (loss) gain, net of tax: | | | | | |
Foreign currency translation (losses) gains | (1,163 | ) | | 968 |
| | (2,147 | ) |
Total other comprehensive (loss) gain, net of tax | (1,163 | ) | | 968 |
| | (2,147 | ) |
Comprehensive loss | $ | (28,536 | ) | | $ | (22,171 | ) | | $ | (50,803 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
| | Common Stock | | Additional | | | | | Accumulated Other | | | | | Total | |
| | Number | | Par | | Paid-in | | Treasury | | Comprehensive | | Accumulated | | Stockholders' | |
| | of Shares | | Value | | Capital | | Stock | | Income (Loss) | | Deficit | | Equity | |
Balance at March 31, 2013 | | | 6,030 | | $ | 60 | | $ | 924,390 | | $ | (313 | ) | $ | 1,112 | | $ | (800,131 | ) | $ | 125,118 | |
Issuance of common stock - ESPP | | | 10 | | | - | | | 168 | | | - | | | - | | | - | | | 168 | |
Issuance of common stock - restricted shares | | | 178 | | | 2 | | | 500 | | | - | | | - | | | - | | | 502 | |
Stock-based compensation expense | | | - | | | - | | | 10,696 | | | - | | | - | | | - | | | 10,696 | |
Issuance of stock for 401(k) match | | | 21 | | | - | | | 425 | | | - | | | - | | | - | | | 425 | |
Issuance of common stock-ATM, net of costs | | | 487 | | | 5 | | | 7,453 | | | - | | | - | | | - | | | 7,458 | |
Issuance of common stock to settle liabilities | | | 1,167 | | | 12 | | | 23,468 | | | - | | | - | | | - | | | 23,480 | |
Repurchase of treasury stock | | | - | | | - | | | - | | | (57 | ) | | - | | | - | | | (57 | ) |
Cumulative translation adjustment | | | - | | | - | | | - | | | - | | | 727 | | | - | | | 727 | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (56,258 | ) | | (56,258 | ) |
Balance at March 31, 2014 | | | 7,893 | | $ | 79 | | $ | 967,100 | | $ | (370 | ) | $ | 1,839 | | $ | (856,389 | ) | $ | 112,259 | |
Issuance of common stock - ESPP | | | 17 | | | - | | | 124 | | | - | | | - | | | - | | | 124 | |
Issuance of common stock - restricted shares | | | 301 | | | 3 | | | (3 | ) | | - | | | - | | | - | | | - | |
Stock-based compensation expense | | | - | | | - | | | 5,936 | | | - | | | - | | | - | | | 5,936 | |
Issuance of stock for 401(k) match | | | 35 | | | - | | | 392 | | | - | | | - | | | - | | | 392 | |
Issuance of common stock-ATM, net of costs | | | 375 | | | 4 | | | 5,835 | | | - | | | - | | | - | | | 5,839 | |
Issuance of common stock-Hudson Bay Capital | | | 909 | | | 9 | | | 5,216 | | | - | | | - | | | - | | | 5,225 | |
Issuance of common stock to settle liabilities | | | 94 | | | 1 | | | 1,322 | | | - | | | - | | | - | | | 1,323 | |
Reverse stock split | | | - | | | - | | | (1 | ) | | - | | | - | | | - | | | (1 | ) |
Repurchase of treasury stock | | | - | | | - | | | - | | | (401 | ) | | - | | | - | | | (401 | ) |
Cumulative translation adjustment | | | - | | | - | | | - | | | - | | | (2,147 | ) | | - | | | (2,147 | ) |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (48,656 | ) | | (48,656 | ) |
Balance at March 31, 2015 | | | 9,624 | | $ | 96 | | $ | 985,921 | | $ | (771 | ) | $ | (308 | ) | $ | (905,045 | ) | $ | 79,893 | |
Issuance of common stock - ESPP | | | 8 | | | - | | | 30 | | | - | | | - | | | - | | | 30 | |
Issuance of common stock - restricted shares | | | 409 | | | 4 | | | (4 | ) | | - | | | - | | | - | | | - | |
Stock-based compensation expense | | | - | | | - | | | 3,248 | | | - | | | - | | | - | | | 3,248 | |
Issuance of stock for 401(k) match | | | 66 | | | 1 | | | 376 | | | - | | | - | | | - | | | 377 | |
Issuance of common stock-equity offering | | | 4,000 | | | 40 | | | 22,242 | | | - | | | - | | | - | | | 22,282 | |
Repurchase of treasury stock | | | - | | | - | | | - | | | (110 | ) | | - | | | - | | | (110 | ) |
Cumulative translation adjustment | | | - | | | - | | | - | | | - | | | 968 | | | - | | | 968 | |
Net loss | | | - | | | - | | | - | | | - | | | - | | | (23,139 | ) | | (23,139 | ) |
Balance at March 31, 2016 | | | 14,107 | | $ | 141 | | $ | 1,011,813 | | $ | (881 | ) | $ | 660 | | $ | (928,184 | ) | $ | 83,549 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders' Equity |
| Number of Shares | | Par Value | | | | | |
Balance at March 31, 2014 | 7,893 |
| | $ | 79 |
| | $ | 967,100 |
| | $ | (370 | ) | | $ | 1,839 |
| | $ | (856,389 | ) | | $ | 112,259 |
|
Issuance of common stock - ESPP | 17 |
| | — |
| | 124 |
| | — |
| | — |
| | — |
| | 124 |
|
Issuance of common stock - restricted shares | 301 |
| | 3 |
| | (3 | ) | | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | 5,936 |
| | — |
| | — |
| | — |
| | 5,936 |
|
Issuance of stock for 401(k) match | 35 |
| | — |
| | 392 |
| | — |
| | — |
| | — |
| | 392 |
|
Issuance of common stock-ATM, net of costs | 375 |
| | 4 |
| | 5,835 |
| | — |
| | — |
| | — |
| | 5,839 |
|
Issuance of common stock-Hudson Bay Capital | 909 |
| | 9 |
| | 5,216 |
| | — |
| | — |
| | — |
| | 5,225 |
|
Issuance of common stock to settle liabilities | 94 |
| | 1 |
| | 1,322 |
| | — |
| | — |
| | — |
| | 1,323 |
|
Reverse stock split | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Repurchase of treasury stock | — |
| | — |
| | �� |
| | (401 | ) | | — |
| | — |
| | (401 | ) |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | (2,147 | ) | | — |
| | (2,147 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (48,656 | ) | | (48,656 | ) |
Balance at March 31, 2015 | 9,624 |
| | $ | 96 |
| | $ | 985,921 |
| | $ | (771 | ) | | $ | (308 | ) | | $ | (905,045 | ) | | $ | 79,893 |
|
Issuance of common stock - ESPP | 8 |
| | — |
| | 30 |
| | — |
| | — |
| | — |
| | 30 |
|
Issuance of common stock - restricted shares | 409 |
| | 4 |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | 3,248 |
| | — |
| | — |
| | — |
| | 3,248 |
|
Issuance of stock for 401(k) match | 66 |
| | 1 |
| | 376 |
| | — |
| | — |
| | — |
| | 377 |
|
Issuance of common stock-equity offering | 4,000 |
| | 40 |
| | 22,242 |
| | — |
| | — |
| | — |
| | 22,282 |
|
Repurchase of treasury stock | — |
| | — |
| | — |
| | (110 | ) | | — |
| | — |
| | (110 | ) |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | 968 |
| | — |
| | 968 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (23,139 | ) | | (23,139 | ) |
Balance at March 31, 2016 | 14,107 |
| | $ | 141 |
| | $ | 1,011,813 |
| | $ | (881 | ) | | $ | 660 |
| | $ | (928,184 | ) | | $ | 83,549 |
|
Issuance of common stock - restricted shares | 174 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | 2,892 |
| | — |
| | — |
| | — |
| | 2,892 |
|
Issuance of stock for 401(k) match | 53 |
| | — |
| | 284 |
| | — |
| | — |
| | — |
| | 284 |
|
Issuance of common stock-equity offering | 380 |
| | 4 |
| | 2,523 |
| | — |
| | — |
| | — |
| | 2,527 |
|
Repurchase of treasury stock | — |
| | — |
| | — |
| | (490 | ) | | — |
| | — |
| | (490 | ) |
Cumulative translation adjustment | — |
| | — |
| | — |
| | — |
| | (1,163 | ) | | — |
| | (1,163 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (27,373 | ) | | (27,373 | ) |
Balance at March 31, 2017 | 14,714 |
| | $ | 147 |
| | $ | 1,017,510 |
| | $ | (1,371 | ) | | $ | (503 | ) | | $ | (955,557 | ) | | $ | 60,226 |
|
The accompanying notes are an integral part of the consolidated financial statements.
53
AMERICAN SUPERCONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Fiscal Year Ended March 31, | |
| | 2016 | | | 2015 | | | 2014 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net loss | $ | (23,139 | ) | | | (48,656 | ) | | $ | (56,258 | ) | |
Adjustments to reconcile net loss to net cash used in operations: | | | | | | | | | | | | |
Depreciation and amortization | | 7,972 | | | | 9,554 | | | | 10,615 | | |
Stock-based compensation expense | | 3,248 | | | | 5,936 | | | | 10,696 | | |
Impairment of minority interest investments | | 746 | | | | 3,464 | | | | 1,265 | | |
Provision for excess and obsolete inventory | | 2,713 | | | | 1,386 | | | | 316 | | |
Write-off prepaid taxes | | 289 | | | | - | | | | 1,426 | | |
Gain on sale from minority interest investments | | (3,092 | ) | | | - | | | | - | | |
Loss from minority interest investments | | 356 | | | | 743 | | | | 1,008 | | |
Change in fair value of derivatives and warrants | | 228 | | | | (3,963 | ) | | | (1,872 | ) | |
Loss on extinguishment of debt | | - | | | | - | | | | 5,197 | | |
Reversal of Catlin legal costs | | - | | | | (2,220 | ) | | | - | | |
Non-cash interest expense | | 359 | | | | 566 | | | | 7,713 | | |
Other non-cash items | | 1,462 | | | | (2,436 | ) | | | 1,980 | | |
Changes in operating asset and liability accounts: | | | | | | | | | | | | |
Accounts receivable | | (9,318 | ) | | | (2,677 | ) | | | 11,379 | | |
Inventory | | (782 | ) | | | (1,887 | ) | | | 13,043 | | |
Prepaid expenses and other current assets | | 5,608 | | | | (2,330 | ) | | | 12,512 | | |
Accounts payable and accrued expenses | | 1,543 | | | | 5,579 | | | | (10,861 | ) | |
Deferred revenue | | 7,248 | | | | 4,265 | | | | (21,426 | ) | |
Net cash used in operating activities | | (4,559 | ) | | | (32,676 | ) | | | (13,267 | ) | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchase of property, plant and equipment | | (1,201 | ) | | | (737 | ) | | | (278 | ) | |
Proceeds from the sale of property, plant and equipment | | 47 | | | | 18 | | | | 54 | | |
Change in restricted cash | | 2,669 | | | | 2,248 | | | | 4,669 | | |
Proceeds from sale of minority interests | | 3,092 | | | | - | | | | - | | |
Change in other assets | | 266 | | | | 280 | | | | (436 | ) | |
Net cash provided by investing activities | | 4,873 | | | | 1,809 | | | | 4,009 | | |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Employee taxes paid related to net settlement of equity awards | | (110 | ) | | | (401 | ) | | | (57 | ) | |
Proceeds from the issuance of debt, net of expenses | | - | | | | 1,422 | | | | 9,842 | | |
Repayment of debt | | (4,000 | ) | | | (7,295 | ) | | | (4,615 | ) | |
Proceeds from public equity offering, net | | 22,282 | | | | 14,933 | | | | 7,458 | | |
Proceeds from exercise of employee stock options and ESPP | | 30 | | | | 124 | | | | 168 | | |
Net cash provided by financing activities | | 18,202 | | | | 8,783 | | | | 12,796 | | |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | 324 | | | | (540 | ) | | | 333 | | |
| | | | | | | | | | | | |
Net increase/(decrease) in cash and cash equivalents | | 18,840 | | | | (22,624 | ) | | | 3,871 | | |
Cash and cash equivalents at beginning of year | | 20,490 | | | | 43,114 | | | | 39,243 | | |
Cash and cash equivalents at end of year | $ | 39,330 | | | $ | 20,490 | | | $ | 43,114 | | |
| | | | | | | | | | | | |
Supplemental schedule of cash flow information: | | | | | | | | | | | | |
Cash paid for income taxes, net of refunds | $ | 1,723 | | | $ | 362 | | | $ | 864 | | |
Issuance of common stock to settle liabilities | | 377 | | | | 1,715 | | | | 24,407 | | |
Cash paid for interest | | 709 | | | | 1,362 | | | | 990 | | |
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net loss | $ | (27,373 | ) | | $ | (23,139 | ) | | $ | (48,656 | ) |
Adjustments to reconcile net loss to net cash used in operations: | | | | | |
Depreciation and amortization | 7,519 |
| | 7,972 |
| | 9,554 |
|
Stock-based compensation expense | 2,892 |
| | 3,248 |
| | 5,936 |
|
Impairment of minority interest investments | — |
| | 746 |
| | 3,464 |
|
Provision for excess and obsolete inventory | 1,615 |
| | 2,713 |
| | 1,386 |
|
Write-off prepaid taxes | — |
| | 289 |
| | — |
|
Gain on sale from minority interest investments | (325 | ) | | (3,092 | ) | | — |
|
Loss from minority interest investments | — |
| | 356 |
| | 743 |
|
Change in fair value of derivatives and warrants | (1,304 | ) | | 228 |
| | (3,963 | ) |
Reversal of Catlin legal costs | — |
| | — |
| | (2,220 | ) |
Non-cash interest expense | 156 |
| | 359 |
| | 566 |
|
Other non-cash items | (940 | ) | | 1,462 |
| | (2,436 | ) |
Changes in operating asset and liability accounts: | | | | | |
Accounts receivable | 11,143 |
| | (9,318 | ) | | (2,677 | ) |
Inventory | (815 | ) | | (782 | ) | | (1,887 | ) |
Prepaid expenses and other current assets | 2,729 |
| | 5,608 |
| | (2,330 | ) |
Accounts payable and accrued expenses | (7,938 | ) | | 1,543 |
| | 5,579 |
|
Deferred revenue | 1,426 |
| | 7,248 |
| | 4,265 |
|
Net cash used in operating activities | (11,215 | ) | | (4,559 | ) | | (32,676 | ) |
| | | | | |
Cash flows from investing activities: | | | | | |
Purchase of property, plant and equipment | (656 | ) | | (1,201 | ) | | (737 | ) |
Proceeds from the sale of property, plant and equipment | 29 |
| | 47 |
| | 18 |
|
Change in restricted cash | 431 |
| | 2,669 |
| | 2,248 |
|
Proceeds from sale of minority interests | 325 |
| | 3,092 |
| | — |
|
Change in other assets | 63 |
| | 266 |
| | 280 |
|
Net cash provided by investing activities | 192 |
| | 4,873 |
| | 1,809 |
|
| | | | | |
Cash flows from financing activities: | | | | | |
Employee taxes paid related to net settlement of equity awards | (490 | ) | | (110 | ) | | (401 | ) |
Proceeds from the issuance of debt, net of expenses | — |
| | — |
| | 1,422 |
|
Repayment of debt | (3,167 | ) | | (4,000 | ) | | (7,295 | ) |
Proceeds from ATM sales, net | 2,527 |
| | — |
| | 5,839 |
|
Proceeds from public equity offering, net | — |
| | 22,282 |
| | 9,094 |
|
Proceeds from exercise of employee stock options and ESPP | — |
| | 30 |
| | 124 |
|
Net cash (used in) provided by financing activities | (1,130 | ) | | 18,202 |
| | 8,783 |
|
| | | | | |
Effect of exchange rate changes on cash and cash equivalents | (393 | ) | | 324 |
| | (540 | ) |
| | | | | |
Net (decrease)/increase in cash and cash equivalents | (12,546 | ) | | 18,840 |
| | (22,624 | ) |
Cash and cash equivalents at beginning of year | 39,330 |
| | 20,490 |
| | 43,114 |
|
Cash and cash equivalents at end of year | $ | 26,784 |
| | $ | 39,330 |
| | $ | 20,490 |
|
| | | | | |
Supplemental schedule of cash flow information: | | | | | |
Cash paid for income taxes, net of refunds | $ | 992 |
| | $ | 1,723 |
| | $ | 362 |
|
Issuance of common stock to settle liabilities | 399 |
| | 377 |
| | 1,715 |
|
Cash paid for interest | 280 |
| | 709 |
| | 1,362 |
|
The accompanying notes are an integral part of the consolidated financial statements.
54
1.
NatureNature of the Business and Operations and LiquidityNature 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 provider of megawatt-scale solutions that lower the cost of wind power and enhance the performance of the power grid. In the wind power market, the Company enables manufacturers to field wind turbines through its advanced engineering, support services and power electronics products. In the power grid market, the Company enables electric utilities and renewable energy project developers to connect, transmit and distribute power through its transmission planning services and power electronics and superconductor-based products. The Company’s wind and power grid products and services provide exceptional reliability, security, efficiency and affordability to its customers.
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.
On March 24, 2015, the Company effected a 1-for-10 reverse stock split of its common stock. Trading of the Company’s common stock reflected the reverse stock split beginning on March 25, 2015. Unless otherwise indicated, all historical references to shares of common stock, shares of restricted stock, restricted stock units, shares underlying options, warrants or calculations that use common stock for per share financial reporting have been adjusted for comparative purposes to reflect the impact of the 1-for-10 reverse stock split as if it had occurred at the beginning of the earliest period presented.
The Company has experienced recurring operating losses and as of March 31,
2016,2017, the Company had an accumulated deficit of
$928.2$955.6 million. In addition, the Company has experienced recurring negative operating cash flows. At March 31,
2016,2017, the Company had cash and cash equivalents of
$39.3$26.8 million. Cash used in operations for the year ended March 31,
20162017 was
$4.6$11.2 million.
From April 1, 2011 through the date of this filing, the Company has reduced its global workforce
substantially.substantially, including an 8% reduction in force, primarily affecting employees in its Devens, Massachusetts facility, effective April 4, 2017. The Company has taken actions to consolidate certain business operations to reduce facility costs. As of March 31,
2016,2017, the Company had a global workforce of
369354 persons. The Company plans to closely monitor its expenses and, if required, expects to further reduce operating costs and capital spending to enhance liquidity.
The Company expects to incur restructuring charges of $1.5 million to $2.0 million in cash severance expenses in the first quarter of fiscal 2017, in connection with the workforce reduction.
Over the last several years, the Company has entered into several debt and equity financing arrangements in order to enhance liquidity.
Since April 1, 2012,During the
fiscal years ended March 31, 2013 through 2017, the Company
has generated aggregate cash flows from financing activities of
$71.0 million. This amount includes$69.9 million, including net proceeds
of $2.5 million during the three months ended March 31, 2017 from
the Company's At Market Issuance Sales Agreement ("ATM") with FBR Capital Markets & Co. In addition, on May 10, 2017, the Company completed an
April 2015additional equity offering, which generated net proceeds of approximately
$22.3$14.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
The Company terminated the ATM in conjunction with this equity offering. See Note 9, “Debt”,
and Note 12 “Stockholders’ Equity”
, and Note 19, "Subsequent Events" for further discussion of these financing arrangements. The Company believes that it is in compliance with the covenants and restrictions included in the agreements governing its debt arrangements as of March 31,
2016.2017.
In December 2015, the Company entered into a set of strategic agreements valued at approximately $210.0 million with Inox, which includes a multi-year supply contract pursuant to which the Company will supply electric control systems to Inox Wind Ltd. (“Inox”) and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years. After this initial three to four year period, 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 electric control systems requirements for an additional three-year period.
During the fourth quarter of fiscal 2015, Inox made the upfront payment of $6.0 million required under the license agreement, but as of the date of this Annual Report it has not made the $2.0 million advance payment required under the supply contract. These agreements are expected to provide a foundation for the business as the Company pursues its longer-term objectives.On October 6, 2015, 100% of the outstanding common stock of Blade Dynamics Limited (“Blade Dynamics”) was acquired by a subsidiary of General Electric Company. After deducting transaction expenses, the Company received net proceeds of $2.8 million from the sale, which was recorded as a gain in the fiscal year ended March 31, 2016. Additionally, under the terms of the purchase agreement, the Company may be entitled to receive up to an additional $1.2 million in proceeds, upon the successful achievement of certain milestones by Blade Dynamics over the next three years.
On March 11, 2016, the Company sold 100% of its minority share investment in Tres Amigas LLC (“Tres Amigas”) to an investor for $0.6 million. The Company received $0.3 million according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final $0.3 million is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions, which is expected to occur during the first half of fiscal 2016. See Note 15, “Minority Investments”, for further information about such investment.
55
The Company believes based on the information presented above, and its annual management assessment, that it has sufficient liquidity to fund its operations, capital expenditures and scheduled cash payments under its debt obligations to meet the liquidity needs for the next twelve months.months following the issuance of the financial statements. The Company’s liquidity is highly dependent on its ability to increase revenues, its ability to control its operating costs, its ability to maintain compliance with the covenants and restrictions on its debt obligations (or obtain waivers from the lender in the event of non-compliance), 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 from other sources or execute on any other means of improving liquidity described above.
2. Summary of Significant Accounting Policies
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.
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 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 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 relate principally to a limited number of customers. As of March 31,
2016,2017, Inox, accounted for approximately
84%52%, and SSE plc for approximately 17% of the Company’s total receivable balance, with no other customer accounting for greater than 10% of the balance. As of March 31,
2015,2016, Inox, accounted for approximately
56%84% 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.
Inventories include material, direct labor and related manufacturing overhead, and are stated at the lower of cost or
marketnet realizable value determined on a first-in, first-out basis. The Company records inventory when it takes delivery and title to the product according to the terms of each supply contract.
56
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,
20162017 and
2015,2016, the Company recorded inventory reserves of approximately
$2.7$1.6 million and
$1.4$2.7 million, respectively, based on evaluating its ending inventory on hand for excess quantities and obsolescence. For the fiscal years ended March 31,
2017, 2016,
2015, and
2014,2015, the Company recorded benefits of
$1.4 million, $5.0 million,
$8.0 million, and
$4.3$8.0 million, respectively, for the usage of inventories previously reserved.
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 | | Estimated Useful Life in Years |
Building | | 40 |
Process upgrades to the building | | 10-40 |
Machinery and equipment | | 3-10 |
Furniture and fixtures | | 3-5 |
Leasehold improvements | | 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.
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.
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 primarily in its Devens, Massachusetts facility. The Board of Directors also approved a move from the Company's currently owned 355,000 square-foot facility in Devens, Massachusetts to a smaller facility better suited for its 2G wire process and systems manufacturing. Since the restructuring activities impacted its Superconductor and Corporate assets group, the Company concluded that there were indicators of potential impairment of its long-lived assets that required further analysis for these assets groups as of March 31, 2017. The Company conducted assessments of the recoverability of these assets by comparing the carrying value of the assets to the pre-tax undiscounted cash flows estimated to be generated by those assets over their remaining book useful lives. Based on the calculations performed by management, the sum of the undiscounted cash flows forecasted to be generated by certain assets were less than the carrying value of those assets. Therefore, there were indicators that certain of its assets were impaired and the Company performed additional analysis. An evaluation of the level of impairment was made by comparing the fair value of the definite long-lived tangible and intangible assets of its reporting units against their carrying values.
The fair values for the impacted property and equipment were based on what the Company could reasonably expect to sell each asset for from the perspective of a market participant. The determination of the fair value of its property and equipment includes estimates and judgments regarding marketability and ultimate sales price of individual assets. The Company utilized market data and approximations from comparable analyses to arrive at the fair value of the impacted property and equipment. The
fair values of the amortizable intangible assets related to core technology and trade names were determined using primarily the relief-from-royalty method over the estimated economic lives of these assets from a perspective of a market participant. During the fiscal year ended March 31, 2017, the Company determined that the long-lived assets for the Superconductor and Corporate asset groups were not impaired as the estimated fair values exceeded the carrying values.
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. During the year ended March 31, 2016, the Company recorded an impairment charge of $0.7 million on its investment in Tres Amigas. During the
fiscal yearsyear ended March 31, 2015,
and 2014, the Company recorded
an impairment
chargescharge of $3.5
and $1.3 million
respectively, on its investment in Blade Dynamics. Both of these minority investments have been sold as of March 31,
2016.2017. See Note 15, “Minority Investments”, for further discussion.
57
The Company recognizes revenue for product sales upon customer acceptance, which can occur at the time of delivery, installation or post-installation where applicable, provided persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and the collectability is reasonably assured. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectability is not reasonably assured, revenue is recognized on a cash basis of accounting. Certain of the Company’s contracts involve retention amounts which are contingent upon meeting certain performance requirements through the expiration of the contract warranty periods. For contractual arrangements that involve retention, the Company recognizes revenue for these amounts upon the expiration of the warranty period, meeting the performance requirements and when collection of the fee is reasonably assured.
During the year ended March 31, 2011, the Company determined that revenues from certain of its customers in China could not be recorded for shipments made according to the delivery terms, as the fee was not fixed or determinable or collectability was not reasonably assured. For these customers, the Company is utilizing a cash basis of accounting with cash applied first against accounts receivable balances, then costs of shipments (inventory and value added taxes) before recognizing any gross margin. Payments of
$3.7$0.9 million were received from these customers during the fiscal year ended March 31,
2014,2017, for past shipments and recorded as revenue. There were no payments received for past shipments in the fiscal years ended March 31, 2016 and 2015.
For certain arrangements, such as contracts to perform research and development, prototype development contracts and certain product sales, the Company records revenues using the percentage-of-completion method, measured by the relationship of costs incurred to total estimated contract costs. Percentage-of-completion 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 since reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made. 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 completed-contract method.
The Company enters into sales arrangements that may provide for multiple deliverables 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.
Deliverables 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) delivery of the undelivered element(s) is probable and substantially in the control of the Company. 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 recognized in accordance with the Company’s policy for product sales, while revenues for the services are 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 revenue to each deliverable based on the element’s fair value as determined by vendor-specific objective evidence (“VSOE”), which is the price charged when that element is sold separately, or third-party evidence (“TPE”). When VSOE and TPE are unavailable, fair value is based on the Company’s
best estimate of selling price utilizing a cost plus reasonable margin consistent with how the Company has set pricing historically for similar products and services. When the Company’s estimates are used to determine fair value, management makes its estimates using reasonable and objective evidence to determine the price. The Company reviews VSOE and TPE at least annually. If the Company concludes it is unable to establish fair values for one or more undelivered elements within a multiple-element arrangement using VSOE then the Company uses TPE or the best estimate of the selling price for that unit of accounting, being the price at which the vendor would transact if the unit of accounting were sold by the vendor regularly on a standalone basis.
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
ourits patented technologies or know-how. Some of these agreements provide for the release of the licensee from intellectual property infringements past and future 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
knowhow,know-how, the Company recognizes the revenue under a completed contract 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 are not separable from training services as the Company can only fully transfer the technology
knowhowknow-how through the training
component.component. Accordingly, the Company accounts for these arrangements as a single unit of accounting, and recognizes revenue over the period of its performance and milestones that have been achieved. Costs for these arrangements are expensed as incurred.58
In
In December 2015, the Company entered into a set of strategic agreements valued at approximately $210.0 million with Inox, which includes a multi-year supply contract pursuant to which the Company will supply electric control systems to Inox and a license agreement allowing Inox to manufacture a limited number of electrical control systems over the next three to four years.
WeThe Company determined this license has standalone value to the customer and can be separated from the supply contract. The license agreement includes customer acceptance criteria to demonstrate that the know-how to manufacture the electrical control systems has been fully transferred. The Company will deferis deferring recognition of the revenue allocable to the license until this acceptance criteria has been met. In March 2016, the Company entered into a set of agreements to jointly develop an advanced, low cost manufacturing process for second generation high temperature superconductor wire with BASF. Under the joint development agreement, the Company’s manufacturing know-how for its Amperium® superconductor wire and BASF's chemical solution deposition production technology will be combined. As part of the agreements, the Company also entered into a royalty-bearing, non-exclusive license under which the Company agreed to provide BASF a specified portion of its second generation (2G) high temperature superconductor (HTS) wire manufacturing
technology. technology. The Company determined that the license rights it provides to BASF have standalone value from the ongoing joint development effort.
WeThe Company transferred the license rights to BASF in March 2016 recording $3.0M of license revenue in the fiscal year ended March 31, 2016 as there were no remaining obligations associated with these rights.
Any newly developed intellectual property as a result of the joint development will be owned by BASF. Should this development effort be successful, the Company has the right to incorporate this new technology into its manufacturing process on a royalty-free basis. BASF has also agreed to make guaranteed annual payments to the Company through fiscal 2017 and has an option to continue the joint development through fiscal 2018. The Company will recordis recording revenue for the research and development services being provided over the term of the arrangement.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.
Customer deposits received in advance of revenue recognition are recorded as deferred revenue until customer acceptance is received. Deferred revenue also represents the amount billed to and/or collected from commercial and government customers on contracts which permit billings to occur in advance of contract performance/revenue recognition.
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.
The Company’s provision for income taxes is
composedcomprised 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 carry-forwards using expected tax rates in effect in the years during which the differences are expected to reverse.
During November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The Company early-adopted ASU 2015-17 effective January 1, 2016 on a prospective basis. Adoption of this ASU resulted in all deferred tax assets and liabilities being presented as non-current in the Consolidated Balance Sheet as of January 1, 2016. No prior periods were retrospectively adjusted.
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
certain foreign 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.
59
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 11, “Income Taxes,” for further information regarding
ourits income tax assumptions and expenses.
The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period. The Company has not recorded a deferred tax asset for the temporary difference associated with the excess of the tax basis over its book basis in its Austrian and Chinese subsidiaries as the future tax benefit is not expected to reverse in the foreseeable future. The Company has recorded a deferred tax liability as of March 31,
20162017 for the undistributed earnings of its remaining foreign subsidiaries for which it can no longer assert are permanently reinvested. The total amount of undistributed earnings available to be repatriated at March 31,
20162017 was
$1.2$2.1 million resulting in the recording of a
$0.4$0.7 million net deferred federal and state income tax liability. See Note 11, “Income Taxes,” for further information regarding
ourits income tax assumptions and expenses.
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 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.
60
The Company's adoption of ASU 2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting also resulted in the prospective classification of excess tax benefits as cash flows from operating
activities in the same manner as other cash flows related to income taxes within the consolidated statements of cash flows. Based on the prospective method of adoption chosen, the classification of excess tax benefits within the consolidated statements of cash flows for prior periods presented has not been adjusted to reflect the change.
Computation of Net Loss per Common Share
Basic net loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. 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,
2017, 2016,
2015, and
2014,2015, common equivalent shares of
1,538,418, 1,552,959,
1,567,352, and
643,158,1,567,352, 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,
2017, 2016,
2015, and
20142015 (in thousands except per share amounts):
| Fiscal year ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | | |
Numerator: | | | | | | | | | | | |
Net loss | $ | (23,139 | ) | | $ | (48,656 | ) | | $ | (56,258 | ) |
Denominator: | | | | | | | | | | | |
Weighted-average shares of common stock outstanding | | 13,295 | | | | 8,559 | | | | 6,411 | |
Weighted-average shares subject to repurchase | | (117 | ) | | | (82 | ) | | | (149 | ) |
Shares used in per-share calculation ― basic | | 13,178 | | | | 8,477 | | | | 6,262 | |
Shares used in per-share calculation ― diluted | | 13,178 | | | | 8,477 | | | | 6,262 | |
Net loss per share ― basic | $ | (1.76 | ) | | $ | (5.74 | ) | | $ | (8.98 | ) |
Net loss per share ― diluted | $ | (1.76 | ) | | $ | (5.74 | ) | | $ | (8.98 | ) |
|
| | | | | | | | | | | |
| Fiscal year ended March 31, |
| 2017 | | 2016 | | 2015 |
Numerator: | | | | | |
Net loss | $ | (27,373 | ) | | $ | (23,139 | ) | | $ | (48,656 | ) |
Denominator: | | | | | |
Weighted-average shares of common stock outstanding | 14,231 |
| | 13,295 |
| | 8,559 |
|
Weighted-average shares subject to repurchase | (427 | ) | | (117 | ) | | (82 | ) |
Shares used in per-share calculation ― basic | 13,804 |
| | 13,178 |
| | 8,477 |
|
Shares used in per-share calculation ― diluted | 13,804 |
| | 13,178 |
| | 8,477 |
|
Net loss per share ― basic | $ | (1.98 | ) | | $ | (1.76 | ) | | $ | (5.74 | ) |
Net loss per share ― diluted | $ | (1.98 | ) | | $ | (1.76 | ) | | $ | (5.74 | ) |
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 (losses) are included in net loss and were
($2.3)$0.1 million,
$2.8$(2.3) million, and
($0.1)$2.8 million for the fiscal years ended March 31,
2017, 2016
2015 and
2014,2015, respectively. The Company has no restrictions on the foreign exchange activities of its foreign subsidiaries, including the payment of dividends and other distributions.
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 receive additional contract modifications in the year ending March 31,
20172018 and beyond as incremental funding is authorized and appropriated by the government.
61
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 13, “Commitments and Contingencies,” for further information regarding the Company’s pending litigation.
Debt
For debt arrangements, the Company considers any embedded equity-linked components and accounts for the fair value of any embedded warrants and derivatives. The Company elects not to use the fair value option for recording debt arrangements and elects to record the debt at the stated value of the loan agreement on the date of issuance. Any other elements present are reviewed to determine if they are embedded derivatives requiring bifurcation and requiring valuation under the fair value option. Derivatives and warrants, which meet the condition to satisfy an obligation by issuing a variable number of equity shares, are recorded at fair value. The carrying value assigned to the host instrument will be the difference between the previous carrying value of the host instrument and the fair value of the warrants and derivatives. There is no immediate gain/loss from the initial recognition and measurement if the embedded derivative is accounted for separately from its host contract. There is an offsetting debt discount or premium as a result of the fair value assigned to the warrants and derivatives, as well as any debt issuance costs, which is amortized under the effective interest method over the term of the loan. Each reporting period, fair value is assessed for the warrants and derivatives with the change in value being recorded as other income/loss. See Note 9, “Debt,” and Note 10, “Warrants and Derivative Liabilities,” for a full discussion regarding the activity and financial impact for the Company’s debt, warrants and derivative liabilities.
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,
20162017 and
2015.2016. The estimated fair values have been determined through information obtained from market sources and management estimates. The fair value for the
debt and warrant arrangements
havehas been estimated by management based on the terms that it believes it could obtain in the current market for debt with the same terms and similar maturities. The Company classifies the estimates used to fair value these instruments as Level 3 inputs See Note 3, “Fair Value Measurements” for a full discussion on fair value measurements.
3. 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 and Level 2 to Level 3 of the fair value measurement hierarchy during the year ended March 31,
2016.62
2017.
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.
The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as of March 31,
20162017 and
20152016 (in thousands):
| Total | | | Quoted Prices in | | | Significant Other | | | Significant | |
| Carrying | | | Active Markets | | | Observable Inputs | | | Unobservable Inputs | |
| Value | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
March 31, 2016: | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Cash equivalents | $ | 16,040 | | | $ | 16,040 | | | $ | - | | | $ | - | |
Derivative liabilities: | | | | | | | | | | | | | | | |
Warrants | $ | 3,227 | | | $ | - | | | $ | - | | | $ | 3,227 | |
| | | | | | | | | | | | | | | |
| Total | | | Quoted Prices in | | | Significant Other | | | Significant | |
| Carrying | | | Active Markets | | | Observable Inputs | | | Unobservable Inputs | |
| Value | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
March 31, 2015: | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Cash equivalents | $ | 12,519 | | | $ | 12,519 | | | $ | - | | | $ | - | |
Derivative liabilities: | | | | | | | | | | | | | | | |
Warrants | $ | 2,999 | | | $ | - | | | $ | - | | | $ | 2,999 | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Total Carrying Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
March 31, 2017: | |
| | | | | | |
Assets: | |
| | | | | | |
Cash equivalents | $ | 14,105 |
| | $ | 14,105 |
| | $ | — |
| | $ | — |
|
Derivative liabilities: | | | |
| | |
| | |
Warrants | $ | 1,923 |
| | $ | — |
| | $ | — |
| | $ | 1,923 |
|
| | | | | | | |
| Total Carrying Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
March 31, 2016: | |
| | | | | | |
Assets: | |
| | | | | | |
Cash equivalents | $ | 16,040 |
| | $ | 16,040 |
| | $ | — |
| | $ | — |
|
Derivative liabilities: | |
| | |
| | |
| | |
|
Warrants | $ | 3,227 |
| | $ | — |
| | $ | — |
| | $ | 3,227 |
|
The table below reflects the activity for the Company’s major classes of liabilities measured at fair value on a recurring basis (in thousands):
| | | Warrants | |
April 1, 2015 | | | $ | 2,999 | |
Mark to market adjustment | | | | 228 | |
Balance at March 31, 2016 | | | $ | 3,227 | |
| | | | | |
| | | | | |
| | | Warrants | |
April 1, 2014 | | | $ | 2,601 | |
Warrant issuance with equity offering | | | | 4,255 | |
Warrant issuance with senior secured term loan | | | | 106 | |
Mark to market adjustment | | | | (3,963 | ) |
Balance at March 31, 2015 | | | $ | 2,999 | |
|
| | | |
| Warrants |
April 1, 2016 | $ | 3,227 |
|
Mark to market adjustment | (1,304 | ) |
Balance at March 31, 2017 | $ | 1,923 |
|
| |
| Warrants |
April 1, 2015 | $ | 2,999 |
|
Mark to market adjustment | 228 |
|
Balance at March 31, 2016 | $ | 3,227 |
|
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 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”). See Note 9, “Debt,” and Note 10 “Warrants and Derivative Liabilities,” for additional information. These 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.
63
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 10, “Warrants and Derivative Liabilities,” for a discussion of the warrants and the valuation assumptions used.
Accounts receivable at March 31, 20162017 and March 31, 20152016 consisted of the following (in thousands):
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
Accounts receivable (billed) | $ | 18,089 | | | $ | 8,946 | |
Accounts receivable (unbilled) | | 1,229 | | | | 987 | |
Less: Allowance for doubtful accounts | | (54 | ) | | | (54 | ) |
Accounts receivable, net | $ | 19,264 | | | $ | 9,879 | |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Accounts receivable (billed) | $ | 7,436 |
| | $ | 18,089 |
|
Accounts receivable (unbilled) | 574 |
| | 1,229 |
|
Less: Allowance for doubtful accounts | (54 | ) | | (54 | ) |
Accounts receivable, net | $ | 7,956 |
| | $ | 19,264 |
|
Inventory at March 31, 20162017 and March 31, 20152016 consisted of the following (in thousands):
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
Raw materials | $ | 9,665 | | | $ | 9,411 | |
Work-in-process | | 3,411 | | | | 2,117 | |
Finished goods | | 3,215 | | | | 7,487 | |
Deferred program costs | | 2,221 | | | | 1,581 | |
Net inventory | $ | 18,512 | | | $ | 20,596 | |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Raw materials | $ | 4,263 |
| | $ | 9,665 |
|
Work-in-process | 426 |
| | 3,411 |
|
Finished goods | 8,016 |
| | 3,215 |
|
Deferred program costs | 4,757 |
| | 2,221 |
|
Net inventory | $ | 17,462 |
| | $ | 18,512 |
|
The Company recorded inventory write-downs of
$2.7$1.6 million and
$1.4$2.7 million for the fiscal years ended March 31,
20162017 and
2015,2016, respectively. These write downs were based on evaluating its inventory on hand for excess quantities and obsolescence.
Deferred program costs as of March 31,
20162017 and March 31,
20152016 primarily represent costs incurred on programs accounted for under contract accounting where the Company needs to complete development milestones before revenue and costs will be recognized.
6. Property, Plant and Equipment
The cost and accumulated depreciation of property and equipment at March 31,
20162017 and
20152016 are as follows (in thousands):
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
Land | $ | 3,643 | | | $ | 3,643 | |
Construction in progress - equipment | | 601 | | | | 130 | |
Buildings | | 34,549 | | | | 34,549 | |
Equipment and software | | 73,659 | | | | 81,855 | |
Furniture and fixtures | | 1,215 | | | | 1,156 | |
Leasehold improvements | | 3,600 | | | | 4,132 | |
Property, plant and equipment, gross | | 117,267 | | | | 125,465 | |
Less accumulated depreciation | | (67,489 | ) | | | (69,368 | ) |
Property, plant and equipment, net | $ | 49,778 | | | $ | 56,097 | |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Land | $ | 3,643 |
| | $ | 3,643 |
|
Construction in progress - equipment | 601 |
| | 601 |
|
Buildings | 34,549 |
| | 34,549 |
|
Equipment and software | 73,445 |
| | 73,659 |
|
Furniture and fixtures | 1,201 |
| | 1,215 |
|
Leasehold improvements | 2,442 |
| | 3,600 |
|
Property, plant and equipment, gross | 115,881 |
| | 117,267 |
|
Less accumulated depreciation | (72,443 | ) | | (67,489 | ) |
Property, plant and equipment, net | $ | 43,438 |
| | $ | 49,778 |
|
Depreciation expense was
$7.0 million, $7.4 million,
$9.0 million, and
$9.9$9.0 million, for the fiscal years ended March 31,
2017, 2016,
and 2015,
and 2014, respectively.
See Note 16, “Restructuring and Impairments,” for additional information regarding the effect the Company’s restructuring plan had on property, plant and equipment.64
Intangible assets at March 31,
20162017 and
20152016 consisted of the following (in thousands):
| 2016 | | | 2015 | | | |
| Gross | | | Accumulated | | | Net Book | | | Gross | | | Accumulated | | | Net Book | | | Estimated |
| Amount | | | Amortization | | | Value | | | Amount | | | Amortization | | | Value | | | Useful Life |
Licenses | $ | 4,422 | | | $ | (3,739 | ) | | $ | 683 | | | $ | 4,422 | | | $ | (3,328 | ) | | $ | 1,094 | | | 7 |
Core technology and know-how | | 5,010 | | | | (4,839 | ) | | | 171 | | | | 4,858 | | | | (4,530 | ) | | | 328 | | | 5-10 |
Intangible assets | $ | 9,432 | | | $ | (8,578 | ) | | $ | 854 | | | $ | 9,280 | | | $ | (7,858 | ) | | $ | 1,422 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | |
| Gross Amount | | Accumulated Amortization | | Net Book Value | | Gross Amount | | Accumulated Amortization | | Net Book Value | | Estimated Useful Life |
Licenses | $ | 4,422 |
| | $ | (4,134 | ) | | $ | 288 |
| | $ | 4,422 |
| | $ | (3,739 | ) | | $ | 683 |
| | 7 |
Core technology and know-how | 4,806 |
| | (4,793 | ) | | 13 |
| | 5,010 |
| | (4,839 | ) | | 171 |
| | 5-10 |
Intangible assets | $ | 9,228 |
| | $ | (8,927 | ) | | $ | 301 |
| | $ | 9,432 |
| | $ | (8,578 | ) | | $ | 854 |
| | |
The Company recorded intangible amortization expense of $0.6 million, $0.6 million, and
$0.8$0.6 million for the fiscal years ended March 31,
2017, 2016,
and 2015,
and 2014, respectively.
Expected future amortization expense related to intangible assets is as follows (in thousands):
Fiscal years ending March 31, | Total | |
2017 | $ | 553 | |
2018 | | 301 | |
Total | $ | 854 | |
|
| | | |
Fiscal years ending March 31, | Total |
2018 | 301 |
|
Total | $ | 301 |
|
The geographic composition of intangible assets is as follows (in thousands):
| March 31, | |
| 2016 | | | 2015 | |
Intangible assets by geography: | | | | | | | |
U.S. | $ | 854 | | | $ | 1,422 | |
Europe | | - | | | | - | |
Total | $ | 854 | | | $ | 1,422 | |
|
| | | | | | | |
| March 31, |
| 2017 | | 2016 |
Intangible assets by geography: | | | |
U.S. | $ | 301 |
| | $ | 854 |
|
Total | $ | 301 |
| | $ | 854 |
|
The business segment composition of intangible assets is as follows (in thousands):
| March 31, | |
| 2016 | | | 2015 | |
Intangible assets by business segments: | | | | | | | |
Wind | $ | - | | | $ | - | |
Grid | | 854 | | | | 1,422 | |
Total | $ | 854 | | | $ | 1,422 | |
|
| | | | | | | |
| March 31, |
| 2017 | | 2016 |
Intangible assets by business segments: | | | |
Grid | 301 |
| | 854 |
|
Total | $ | 301 |
| | $ | 854 |
|
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at March 31, 20162017 and March 31, 20152016 consisted of the following (in thousands):
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
Accounts payable | $ | 5,837 | | | $ | 7,062 | |
Accrued inventories in-transit | | 1,908 | | | | 1,127 | |
Accrued other miscellaneous expenses | | 3,003 | | | | 3,254 | |
Accrued compensation | | 7,526 | | | | 5,960 | |
Income taxes payable | | 1,281 | | | | 278 | |
Accrued warranty | | 3,601 | | | | 3,934 | |
Total | $ | 23,156 | | | $ | 21,615 | |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Accounts payable | $ | 3,207 |
| | $ | 5,837 |
|
Accrued inventories in-transit | 313 |
| | 1,908 |
|
Accrued other miscellaneous expenses | 2,240 |
| | 3,003 |
|
Accrued compensation | 5,042 |
| | 7,526 |
|
Income taxes payable | 1,344 |
| | 1,281 |
|
Accrued warranty | 2,344 |
| | 3,601 |
|
Total | $ | 14,490 |
| | $ | 23,156 |
|
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.
Product warranty activity was as follows (in thousands):
| | | Fiscal Years Ended March 31, | | Fiscal Years Ended March 31, |
| 2016 | | | 2015 | | 2017 | | 2016 |
Balance at beginning of period | $ | 3,934 | | | $ | 3,207 | | $ | 3,601 |
| | $ | 3,934 |
|
Change in accruals for warranties during the period | | 1,865 | | | | 2,839 | | 1,219 |
| | 1,865 |
|
Settlements during the period | | (2,198 | ) | | | (2,112 | ) | (2,476 | ) | | (2,198 | ) |
Balance at end of period | $ | 3,601 | | | $ | 3,934 | | $ | 2,344 |
| | $ | 3,601 |
|
Senior Secured Term Loans
On November 15, 2013, the Company amended its existing Loan and Security Agreement with Hercules, and entered into a term loan (the “Term Loan B”), borrowing $10.0 million. After closing fees and expenses, the net proceeds to the Company for the Term Loan B were $9.8 million. The Term Loan B
bearsbore an interest rate of 11% plus the percentage, if any, by which the prime rate as reported by the Wall Street Journal exceeds 3.75%. The Company
is repayingrepaid the Term Loan B in equal monthly installments ending on November 1,
2016. The principal balance of2016, when the
Term Loan B is approximately $2.7 million as of March 31, 2016.loan was repaid in full. The Company
will paypaid an end of term fee of $0.5 million upon the
earlier of maturity
or prepayment of the Term Loan
B. The Company hasB, which had been accrued
at inception of the
end of term fee and recordedloan with a corresponding amount
recorded into the debt discount.
The Term Loan B includes a mandatory prepayment feature which allows Hercules the right to use any of the Company’s net proceeds from specified asset dispositions greater than $1.0 million in a calendar year to pay off any outstanding accrued interest and principal balance on the Term Loan B. The Company determined the fair value to be de-minimis for this feature. In addition, the Company incurred $0.2 million of legal and origination costs
inat the
three months ended December 31, 2013,inception of the loan, which have been recorded as a debt discount.
On December 19, 2014, the Company entered into a second amendment with Hercules (the “Hercules Second Amendment”) and entered into a new term loan, borrowing an additional $1.5 million (the “Term Loan C”). After closing fees and expenses, the net proceeds to the Company for the Term Loan C were $1.4 million. The Term Loan
B and Term Loan C
are collectivelyis also referred to as the “Term
Loans”Loan”. The Term Loan C also bears the same interest rate as the Term Loan
B.B, which increased to 11.25% effective March 16, 2017. The Company will make interest only payments until maturity on June 1, 2017, when the loan is scheduled to be repaid in its entirety. The maturity date of the Term Loan C was extended from March 1, 2017 to June 1, 2017 due to the Company’s April 2015 equity offering which raised more than $10 million in new capital before December 31, 2015. The Company will pay an end of term fee of approximately $0.1 million upon earlier of maturity or prepayment of the Term Loan C. The Company has accrued the end of term fee and recorded a corresponding amount in the debt discount. The Term Loan C includes
the samea mandatory prepayment feature
asthat allows Hercules the right to use any of the Company's net proceeds from specified asset dispositions greater than $1.0 million in a calendar year to pay off any outstanding accrued interest and principle balances on the Term Loan
B.C. The Company determined the fair value to be de-minimus for this feature. In addition, the Company incurred approximately $0.1 million of legal and origination costs in the three months ended December 31, 2014, which have been recorded as a debt discount.
Hercules received 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 a prior term loan which has been repaid in full and the Term Loan B. Due to certain adjustment provisions within the warrants, they qualified for liability accounting and the fair value of the warrants $0.4 million and $0.2 million, respectively, was recorded upon issuance to debt discount and a warrant liability. In conjunction with the Hercules Second Amendment, the First Warrant and Second Warrant were
cancelledcanceled and replaced with the issuance of a new warrant (the “Hercules Warrant”) to purchase 58,823 shares of common stock at an exercise price of $11.00 per share, subject to adjustment. The Warrant expires on June 30, 2020. See Note 10, “Warrants and Derivative Liabilities”, for a discussion on the Warrant and the valuation assumptions used.
Under Term Loan B, the total debt discount including the Warrant, end of term fee and legal and origination costs of $1.0 million
is beingwas amortized into interest expense over the term of the Term Loan B using the effective interest method. During the years ended March 31,
20162017 and
2015,2016, the Company recorded non-cash interest expense for amortization of the debt discount related to the Term Loan B of
$0.2less than $0.1 million and
$0.4$0.2 million, respectively. Under Term Loan C, the total debt discount, including the Warrant, end of term fee and legal and origination costs of $0.3 million is being amortized into interest expense over the term of the Term Loan C using the effective interest method. During each of the fiscal years ended March 31,
20162017 and
2015,2016, the Company recorded non-cash interest expense for amortization of the debt discount related to the Term Loan C of $0.1
million, and less than $0.1 million, respectively.66
million.
The Term
Loans areLoan is secured by substantially all of the Company’s existing and future assets, including a mortgage on real property owned by the Company’s wholly-owned subsidiary, ASC Devens LLC, and located at 64 Jackson Road, Devens, Massachusetts. The Term
Loans containLoan contains certain covenants that restrict the Company’s ability to, among other things, incur or assume certain debt, merge or consolidate, materially change the nature of the Company’s business, make certain investments, acquire or dispose of certain assets, make guarantees or grant liens on its assets, make certain loans, advances or investments, declare dividends or make distributions or enter into transactions with affiliates. In addition, there is a covenant that requires the Company to maintain a minimum unrestricted cash balance (the “Minimum Threshold”) in the United States. As a result of the Company’s April 2015 equity offering, the Minimum Threshold was reduced to the lesser of $2.0 million or the aggregate outstanding principal balance of the
Term Loans.then outstanding term loans. As of March 31,
2016,2017, the Minimum Threshold was
$2.0$1.5 million. The events of default under the Term
LoansLoan include, but are not limited to, failure to pay amounts due, breaches of covenants, bankruptcy events, cross defaults under other material indebtedness and the occurrence of a material adverse effect and/or change in control. In the case of a continuing event of default, Hercules may, among other remedies, declare due all unpaid principal amounts outstanding and any accrued but unpaid interest and foreclose on all collateral granted to Hercules as security under the Term
Loans.Although the Company believes that it is in compliance with the covenants and restrictions under the Term Loans as of March 31, 2016, there can be no assurance that the Company will continue to be in compliance.
Senior Convertible Note
On April 4, 2012, the Company entered into a Purchase Agreement with CVI and completed a private placement of a senior convertible note (the “Note”). After fees and expenses, the net proceeds of the Note were $23.2 million. On March 2, 2014 the Note was extinguished for approximately 663,000 shares of common stock. As a result of this transaction, the Company recorded a loss on the extinguishment of debt of $5.2 million during the three months ended March 31, 2014. During the year ended March 31, 2014 the Company recorded non-cash interest expense for the amortization of the debt discount related to the Note of $4.1 million. In conjunction with the Note, CVI received a warrant to purchase 309,406 shares of common stock. Due to certain adjustment provisions within the warrant it qualified for liability accounting. See Note 10, “Warrants and Derivative Liabilities”, for a discussion on the Warrant and the valuation assumptions used.
Loan.
Interest expense
on the Note and Term Loans for the fiscal years ended March 31,
2017, 2016
and 2015,
and 2014, was
$0.4 million, $1.0 million
$1.7 million and
$9.7$1.7 million, respectively, which included
$0.2 million, $0.4 million
$0.5 million and
$7.7$0.5 million, respectively, of non-cash interest expense related to the amortization of the debt discount and payment of the Note in Company common stock at a discount.
Although the Company believes that it is in compliance with the covenants and restrictions under the Term Loan as of March 31, 2017, there can be no assurance that the Company will remain in compliance until the maturity of the Term Loan.
10. Warrants and Derivative Liabilities
Senior Convertible Note Warrant
On April 4, 2012, the Company entered into the Purchase Agreement with CVI. The Purchase Agreement included a warrant to purchase 309,406 shares of the Company’s common stock (the “Original Warrant”). Pursuant to an exchange in October 2013, the Original warrant was exchanged for a new warrant (the “Exchanged Warrant”). The Exchanged Warrant is exercisable at any time on or after the date that is six months after the issuance of the Original Warrant and entitles CVI to purchase shares of the Company’s common stock for a period of five years from the date the Original Warrant becomes exercisable at an exercise price equal to
$15.94$15.70 per share,
subjectafter giving effect to certain price-based and other anti-dilution
adjustments.adjustments including the sale of common stock under the ATM entered into in January 2017. See Note 12, "Stockholders Equity" for further discussion. The Exchanged Warrant may not be exercised if, after giving effect to the conversion, CVI together with its affiliates, would beneficially own in excess of 4.99% of the Company’s common stock. This percentage may be raised to any other percentage not in excess of 9.99% at the option of CVI, upon at least 61-days prior notice to the Company, or lowered to any other percentage, at the option of CVI, at any time.
The Company calculated the fair value of the warrant, utilizing an integrated lattice model. The lattice model is an option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option’s life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. See Note 3, “Fair Value Measurements” for further discussion
The Company accounts for the Exchanged Warrant as a liability due to certain adjustment provisions within the warrant, which requires that it be recorded at fair value. The Exchanged Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise at which time the warrant liability will be reclassified to equity.
67
Following is a summary of the key assumptions used to calculate the fair value of the Exchanged Warrant:
| March 31, | | | December 31, | | | September 30, | | | June 30, | | | | | | | | | | | | | |
Fiscal Year 15 | 2016 | | | 2015 | | | 2015 | | | 2015 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | 0.66 | % | | | 0.96 | % | | | 0.64 | % | | | 0.74 | % | | | | | | | | | | | | |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | — | % | | | | | | | | | | | | |
Expected volatility | | 76.76 | % | | | 76.68 | % | | | 73.39 | % | | | 71.61 | % | | | | | | | | | | | | |
Term (years) | 1.51 | | | 1.76 | | | 2.01 | | | 2.26 | | | | | | | | | | | | | |
Fair value | $0.4 million | | | $0.3 million | | | $0.1 million | | | $0.2 million | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, | | | December 31, | | | September 30, | | | June 30, | | | | | | | | | | | | | |
Fiscal Year 14 | 2015 | | | 2014 | | | 2014 | | | 2014 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | 0.73 | % | | | 1.00 | % | | | 1.07 | % | | | 0.98 | % | | | | | | | | | | | | |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | — | % | | | | | | | | | | | | |
Expected volatility | | 70.42 | % | | | 72.38 | % | | | 76.20 | % | | | 83.50 | % | | | | | | | | | | | | |
Term (years) | 2.51 | | | 2.76 | | | 3.01 | | | 3.26 | | | | | | | | | | | | | |
Fair value | $0.3 million | | | $0.5 million | | | $1.5 million | | | $2.3 million | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Post-modification | | | Pre-modification | | | | | | | | | | | | | |
| March 31, | | | December 31, | | | October 9, | | | October 9, | | | September 30, | | | June 30, | | | March 31, | |
Fiscal Year 13 | 2014 | | | 2013 | | | 2013 | | | 2013 | | | 2013 | | | 2013 | | | 2013 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | 1.11 | % | | | 1.17 | % | | | 1.05 | % | | | 1.05 | % | | | 1.02 | % | | | 1.13 | % | | | 0.67 | % |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | — | % | | | — | % | | | — | % | | | — | % |
Expected volatility | | 80.99 | % | | | 75.60 | % | | | 71.45 | % | | | 71.45 | % | | | 71.98 | % | | | 71.90 | % | | | 71.74 | % |
Term (years) | 3.51 | | | 3.76 | | | 3.99 | | | 3.99 | | | | 4.01 | | | | 4.27 | | | | 4.51 | |
Fair value | $ 2.2 million | | | $ 2.2 million | | | $ 3.2 million | | | $ 2.2 million | | | $ 2.5 million | | | $ 3.0 million | | | $ 3.4 million | |
|
| | | | | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, | | | |
Fiscal Year 16 | 2017 | | 2016 | | 2016 | | 2016 | | | |
Risk-free interest rate | 0.91% | | 0.56% | | 0.59% | | 0.48% | | | |
Expected annual dividend yield | — | | — | | — | | — | | | |
Expected volatility | 44.12% | | 58.04% | | 70.50% | | 76.30% | | | |
Term (years) | 0.51 | | 0.76 | | 1.01 | | 1.26 | | | |
Fair value | $— | | $0.1 million | | $0.2 million | | $0.4 million | | | |
| | | | | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, | | | |
Fiscal Year 15 | 2016 | | 2015 | | 2015 | | 2015 | | | |
Risk-free interest rate | 0.66% | | 0.96% | | 0.64% | | 0.74% | | | |
Expected annual dividend yield | — | | — | | — | | — | | | |
Expected volatility | 76.76% | | 76.68% | | 73.39% | | 71.61% | | | |
Term (years) | 1.51 | | 1.76 | | 2.01 | | 2.26 | | | |
Fair value | $0.4 million | | $0.3 million | | $0.1 million | | $0.2 million | | | |
| | | | | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, | |
Fiscal Year 14 | 2015 | | 2014 | | 2014 | | 2014 | | 2014 | |
Risk-free interest rate | 0.73% | | 1.00% | | 1.07% | | 0.98% | | 1.11% | |
Expected annual dividend yield | — | | — | | — | | — | | — | |
Expected volatility | 70.42% | | 72.38% | | 76.20% | | 83.50% | | 80.99% | |
Term (years) | 2.51 | | 2.76 | | 3.01 | | 3.26 | | 3.51 | |
Fair value | $0.3 million | | $0.5 million | | $1.5 million | | $2.3 million | | $2.2 million | |
| | | | | | | | | | |
The Company recorded a net gain, resulting from the decrease in the fair value of the Exchanged Warrant, of $0.4 million in the fiscal year ended March 31, 2017. The Company recorded a net loss, resulting from an increase in the fair value of the Exchanged Warrant, of $0.1 million, and a net gain,
resulting from a decrease in the fair value of the Exchanged Warrant, of $1.9
million and $1.2 million to change in fair value of derivatives and warrants in the fiscal years ended March 31, 2016
and 2015,
and 2014 respectively.
On December 19, 2014, the Company entered into the Hercules Second Amendment, (see Note 10, “Debt” for additional information). In conjunction with the agreement, the Company issued the Hercules Warrant to purchase 58,823 shares of the Company’s common stock. The Hercules Warrant is exercisable at any time after its issuance at an
initial exercise price of
$11.00$9.38 per share, subject to certain price-based and other anti-dilution adjustments,
including sales of common stock under the ATM entered into in January 2017, and expires on June 30, 2020.
As a result of the equity offering in April 2015, the exercise price of the Hercules Warrant was reduced to $9.41 per share.See Note 12, "Stockholders Equity" for further discussion. The Company accounts for the Hercules Warrant as a liability due to certain provisions within the warrant. The Hercules Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.
68
Following is a summary of the key assumptions used to calculate the fair value of the Hercules Warrant:
| March 31, | | | December 31, | | | September 30, | | | June 30, | |
Fiscal Year 15 | 2016 | | | 2015 | | | 2015 | | | 2015 | |
| | | | | | | | | | | | | | | |
Risk-free interest rate | | 1.08 | % | | | 1.65 | % | | | 1.31 | % | | | 1.63 | % |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | — | % |
Expected volatility | | 70.25 | % | | | 73.57 | % | | | 75.32 | % | | | 72.57 | % |
Term (years) | | 4.25 | | | | 4.50 | | | | 4.75 | | | | 5.00 | |
Fair value | $0.2 million | | | $0.2 million | | | $0.1 million | | | $0.2 million | |
| | | | | | | | | | | | | | | |
| | | | | | | | | New Issuance | | | | | |
| March 31, | | | December 31, | | | December 19, | | | | | |
Fiscal Year 14 | 2015 | | | 2014 | | | 2014 | | | | | |
| | | | | | | | | | | | | | | |
Risk-free interest rate | | 1.41 | % | | | 1.73 | % | | | 1.74 | % | | | | |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | | |
Expected volatility | | 74.60 | % | | | 77.43 | % | | | 70.26 | % | | | | |
Term (years) | | 5.25 | | | | 5.50 | | | | 5.53 | | | | | |
Fair value | $0.2 million | | | $0.2 million | | | $0.2 million | | | | | |
|
| | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, |
Fiscal Year 16 | 2017 | | 2016 | | 2016 | | 2016 |
Risk-free interest rate | 1.55% | | 1.57% | | 0.97% | | 0.86% |
Expected annual dividend yield | — | | — | | — | | — |
Expected volatility | 66.51% | | 67.28% | | 67.98% | | 68.34% |
Term (years) | 3.25 | | 3.50 | | 3.75 | | 4.00 |
Fair value | $0.2 million | | $0.2 million | | $0.2 million | | $0.3 million |
| | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, |
Fiscal Year 15 | 2016 | | 2015 | | 2015 | | 2015 |
Risk-free interest rate | 1.08% | | 1.65% | | 1.31% | | 1.63% |
Expected annual dividend yield | — | | — | | — | | — |
Expected volatility | 70.25% | | 73.57% | | 75.32% | | 72.57% |
Term (years) | 4.25 | | 4.50 | | 4.75 | | 5.00 |
Fair value | $0.2 million | | $0.2 million | | $0.1 million | | $0.2 million |
| | | | | | | |
| | | | | New Issuance | | |
| March 31, | | December 31, | | December 19, | | |
Fiscal Year 14 | 2015 | | 2014 | | 2014 | | |
Risk-free interest rate | 1.41% | | 1.73% | | 1.74% | | |
Expected annual dividend yield | — | | — | | — | | |
Expected volatility | 74.60% | | 77.43% | | 70.26% | | |
Term (years) | 5.25 | | 5.50 | | 5.53 | | |
Fair value | $0.2 million | | $0.2 million | | $0.2 million | | |
The Company recorded no significant change, in the fair value of the Hercules Warrant in the fiscal years ended March 31,
2017, 2016 and
2015.2015, respectively.
On November 13, 2014, the Company completed an offering of approximately 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
initial exercise price equal to
$11.00$9.33 per share, subject to certain price-based and other anti-dilution adjustments,
including sales of common stock under the ATM entered into in January 2017, and expires on November 13, 2019.
As a result of the April 2015 equity offering, the exercise price of the November 2014 Warrant was reduced to $9.41 per share. See Note 12, "Stockholders Equity" for further discussion. The Company accounts for the November 2014 Warrant as a liability due to certain provisions within the warrant. The November 2014 Warrant is subject to revaluation at each balance sheet date and any change in fair value is recorded as a change in fair value of derivatives and warrants until the earlier of its expiration or its exercise, at which time the warrant liability will be reclassified to equity.
69
Following is a summary of the key assumptions used to calculate the fair value of the November 2014 Warrant:
| March 31, | | | December 31, | | | September 30, | | | June 30, | |
Fiscal Year 15 | 2016 | | | 2015 | | | 2015 | | | 2015 | |
| | | | | | | | | | | | | | | |
Risk-free interest rate | | 0.98 | % | | | 1.51 | % | | | 1.17 | % | | | 1.44 | % |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | — | % |
Expected volatility | | 69.88 | % | | | 70.02 | % | | | 73.02 | % | | | 74.18 | % |
Term (years) | | 3.62 | | | | 3.87 | | | | 4.12 | | | | 4.37 | |
Fair value | $2.6 million | | | $2.1 million | | | $1.3 million | | | $1.8 million | |
| | | | | | | | | | | | | | | |
| | | | | | | | | New Issuance | | | | | |
| March 31, | | | December 31, | | | November 13, | | | | | |
Fiscal Year 14 | 2015 | | | 2014 | | | 2014 | | | | | |
| | | | | | | | | | | | | | | |
Risk-free interest rate | | 1.28 | % | | | 1.61 | % | | | 1.64 | % | | | | |
Expected annual dividend yield | | — | % | | | — | % | | | — | % | | | | |
Expected volatility | | 75.96 | % | | | 78.00 | % | | | 72.86 | % | | | | |
Term (years) | | 4.62 | | | | 4.87 | | | | 5.00 | | | | | |
Fair value | $2.5 million | | | $3.2 million | | | $4.3 million | | | | | |
|
| | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, |
Fiscal Year 16 | 2017 | | 2016 | | 2016 | | 2016 |
Risk-free interest rate | 1.41% | | 1.43% | | 0.93% | | 0.77% |
Expected annual dividend yield | — | | — | | — | | — |
Expected volatility | 66.53% | | 69.31% | | 68.96% | | 70.01% |
Term (years) | 2.62 | | 2.87 | | 3.12 | | 3.37 |
Fair value | $1.8 million | | $2.3 million | | $2.3 million | | $3.2 million |
| | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, |
Fiscal Year 15 | 2016 | | 2015 | | 2015 | | 2015 |
Risk-free interest rate | 0.98% | | 1.51% | | 1.17% | | 1.44% |
Expected annual dividend yield | — | | — | | — | | — |
Expected volatility | 69.88% | | 70.02% | | 73.02% | | 74.18% |
Term (years) | 3.62 | | 3.87 | | 4.12 | | 4.37 |
Fair value | $2.6 million | | $2.1 million | | $1.3 million | | $1.8 million |
| | | | | | | |
| | | | | New Issuance | | |
| March 31, | | December 31, | | November 13, | | |
Fiscal Year 14 | 2015 | | 2014 | | 2014 | | |
Risk-free interest rate | 1.28% | | 1.61% | | 1.64% | | |
Expected annual dividend yield | — | | — | | — | | |
Expected volatility | 75.96% | | 78.00% | | 72.86% | | |
Term (years) | 4.62 | | 4.87 | | 5.00 | | |
Fair value | $2.5 million | | $3.2 million | | $4.3 million | | |
The Company recorded
a net gain, resulting from a decrease in the fair value of the November 2014 Warrant, of $0.8 million, a net loss, resulting from an increase in the fair value of the November 2014 Warrant, of $0.1 million, and a net gain,
resulting from a decrease in the fair value of the November 2014 Warrant, of $1.8 million to change in fair value of derivatives and warrants in the fiscal years ended March 31,
2017, 2016 and 2015, respectively.
The Company prepared its estimates for the assumptions used to determine the fair value of the warrants issued in conjunction with both the Exchanged Note, the Term Loans, and the November 2014 Warrant utilizing the respective terms of the warrants with similar inputs, as described above.
11. Income Taxes
Income (loss)
Loss before income taxes for the fiscal years ended March 31,
2017, 2016,
2015, and
20142015 are provided in the table as follows (in thousands):
| Fiscal years ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
Income (loss) before income tax expense: | | | | | | | | | | | |
U.S. | $ | (29,436 | ) | | $ | (40,277 | ) | | $ | (91,558 | ) |
Foreign | | 8,688 | | | | (8,563 | ) | | | 36,152 | |
Total | $ | (20,748 | ) | | $ | (48,840 | ) | | $ | (55,406 | ) |
|
| | | | | | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Loss before income tax expense: | | | | | |
U.S. | $ | (31,664 | ) | | $ | (29,436 | ) | | $ | (40,277 | ) |
Foreign | 5,433 |
| | 8,688 |
| | (8,563 | ) |
Total | $ | (26,231 | ) | | $ | (20,748 | ) | | $ | (48,840 | ) |
The components of income tax expense (benefit) attributable to continuing operations consist of the following (in thousands):
| Fiscal years ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
Current | | | | | | | | | | | |
Federal | $ | 459 | | | $ | 47 | | | $ | 287 | |
State | | - | | | | - | | | | - | |
Foreign | | 1,950 | | | | (274 | ) | | | 614 | |
Total current | | 2,409 | | | | (227 | ) | | | 901 | |
| | | | | | | | | | | |
Deferred | | | | | | | | | | | |
Federal | | (18 | ) | | | 43 | | | | (49 | ) |
State | | - | | | | - | | | | - | |
Foreign | | - | | | | - | | | | - | |
Total deferred | | (18 | ) | | | 43 | | | | (49 | ) |
| | | | | | | | | | | |
Income tax (benefit) expense | $ | 2,391 | | | $ | (184 | ) | | $ | 852 | |
|
| | | | | | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Current | | | | | |
Federal | $ | 765 |
| | $ | 459 |
| | $ | 47 |
|
State | — |
| | — |
| | — |
|
Foreign | 619 |
| | 1,950 |
| | (274 | ) |
Total current | 1,384 |
| | 2,409 |
| | (227 | ) |
| | | | | |
Deferred | | | |
| | |
|
Federal | 60 |
| | (18 | ) | | 43 |
|
State | — |
| | — |
| | — |
|
Foreign | (302 | ) | | — |
| | — |
|
Total deferred | (242 | ) | | (18 | ) | | 43 |
|
| | | | | |
Income tax (benefit) expense | $ | 1,142 |
| | $ | 2,391 |
| | $ | (184 | ) |
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, |
| 2016 | | 2015 | | 2014 |
Statutory federal income tax rate | | (34 | ) | % | | (34 | ) | % | | (34 | ) | % |
State income taxes, net of federal benefit | | 1 | | | | 2 | | | | - | | |
Deemed dividend and dividends paid | | 5 | | | | 1 | | | | 1 | | |
Foreign income tax rate differential | | 5 | | | | 6 | | | | (6 | ) | |
Stock options | | 1 | | | | 1 | | | | 2 | | |
Nondeductible expenses | | - | | | | 1 | | | | 1 | | |
Research and development tax credit | | (5 | ) | | | - | | | | - | | |
Deferred warrants | | - | | | | (3 | ) | | | (1 | ) | |
Interest expense | | - | | | | - | | | | 5 | | |
Extinguishment of debt | | - | | | | - | | | | 3 | | |
Reversal of uncertain tax benefits | | - | | | | (6 | ) | | | - | | |
True-up of foreign NOLs | | 19 | | | | - | | | | - | | |
Settlement of intercompany balances | | (9 | ) | | | - | | | | - | | |
Nondeductible foreign currency exchange remeasurement loss | | 10 | | | | - | | | | - | | |
Valuation allowance | | 18 | | | | 32 | | | | 30 | | |
Effective income tax rate | | 11 | | % | | - | | % | | 1 | | % |
71
|
| | | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Statutory federal income tax rate | (34 | )% | | (34 | )% | | (34 | )% |
State income taxes, net of federal benefit | — |
| | 1 |
| | 2 |
|
Deemed dividend and dividends paid | 20 |
| | 5 |
| | 1 |
|
Foreign income tax rate differential | (1 | ) | | 5 |
| | 6 |
|
Stock options | — |
| | 1 |
| | 1 |
|
Nondeductible expenses | — |
| | — |
| | 1 |
|
Research and development tax credit | (2 | ) | | (5 | ) | | — |
|
Deferred warrants | (2 | ) | | — |
| | (3 | ) |
Reversal of uncertain tax benefits | — |
| | — |
| | (6 | ) |
True-up of NOLs | (40 | ) | | 19 |
| | — |
|
Settlement of intercompany balances | — |
| | (9 | ) | | — |
|
Nondeductible foreign currency exchange remeasurement loss | — |
| | 10 |
| | — |
|
Valuation allowance | 63 |
| | 18 |
| | 32 |
|
Effective income tax rate | 4 | % | | 11 | % | | — | % |
The following is a summary of the principal components of the Company’s deferred tax assets and liabilities (in thousands):
| March 31, | | | March 31, | |
| 2016 | | | 2015 | |
Deferred tax assets: | | | | | | | |
Net operating loss carryforwards | $ | 281,098 | | | $ | 272,498 | |
Research and development and other tax credit carryforwards | | 11,878 | | | | 10,655 | |
Accruals and reserves | | 28,088 | | | | 37,153 | |
Fixed assets and intangible assets | | 2,393 | | | | 2,432 | |
Other | | 14,494 | | | | 18,514 | |
Gross deferred tax assets | | 337,951 | | | | 341,252 | |
Valuation allowance | | (301,393 | ) | | | (294,860 | ) |
Total deferred tax assets | | 36,558 | | | | 46,392 | |
| | | | | | | |
Deferred tax liabilities: | | | | | | | |
Intercompany debt | | (27,117 | ) | | | (36,298 | ) |
Other | | (9,408 | ) | | | (10,174 | ) |
Total deferred tax liabilities | | (36,525 | ) | | | (46,472 | ) |
Net deferred tax asset (liability) | $ | 33 | | | $ | (80 | ) |
|
| | | | | | | |
| March 31, 2017 | | March 31, 2016 |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 297,961 |
| | $ | 281,098 |
|
Research and development and other tax credit carryforwards | 11,965 |
| | 11,878 |
|
Accruals and reserves | 26,222 |
| | 28,088 |
|
Fixed assets and intangible assets | 2,250 |
| | 2,393 |
|
Other | 12,454 |
| | 14,494 |
|
Gross deferred tax assets | 350,852 |
| | 337,951 |
|
Valuation allowance | (315,092 | ) | | (301,393 | ) |
Total deferred tax assets | 35,760 |
| | 36,558 |
|
| | | |
Deferred tax liabilities: | |
| | |
|
Intercompany debt | (25,841 | ) | | (27,117 | ) |
Other | (9,637 | ) | | (9,408 | ) |
Total deferred tax liabilities | (35,478 | ) | | (36,525 | ) |
Net deferred tax asset | $ | 282 |
| | $ | 33 |
|
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation- Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of excess tax benefits in the consolidated statements of cash flows. This amendment is effective for annual periods beginning after December 15, 2016 and early adoption is permitted. The Company elected to early adopt the new guidance in the fourth quarter of fiscal 2016 which requires them to reflect any adjustments as of April 1, 2016, the beginning of the annual period that includes the interim period of adoption. The Company has not changed the way it accounts for forfeitures. Prior to April 1, 2016, the Company recognized the excess tax benefits of stock-based compensation expense as additional paid-in capital ("APIC"), and tax deficiencies of stock-based compensation expense in the income tax provision or as APIC to the extent that there were sufficient recognized excess tax benefits previously recognized. As a result of the prior guidance that the excess tax benefits reduce taxes payable prior to being recognized as an increase in capital, the Company had not recognized certain deferred tax assets (all tax attributes such as loss ) that could be attributed to tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Effective April 1, 2016, the Company early adopted a change in accounting policy in accordance with ASU 2016-09 to account for excess tax benefits and tax deficiencies as income tax expense or benefit, treated as discrete items in the reporting period in which they occur, and to recognize previously unrecognized deferred tax assets that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. No prior periods were restated as a result of this change in accounting policy as the Company previously maintained a valuation allowance against its deferred tax assets that could be attributed to equity compensation in excess of compensation recognized for financial reporting. As a result of the early adoption of ASU 2016-09, the Company recognized an increase to their deferred tax asset of $18.0M offset by an increase in the Company’s valuation allowance. There was no impact to the Company’s financial statements as a result of the adoption
The Company has provided a full valuation allowance against its net deferred income tax assets since it is more likely than not that its deferred tax assets are not currently realizable due to the net operating losses incurred by the Company since its inception and net operating losses forecasted in the future.
During the year ended March 31, 2017, the Company’s valuation allowance increased by approximately $13.7M, primarily due to the increase in the Company’s net operating loss. The Company has recorded a deferred tax asset of approximately $13.0 million reflecting the benefit of deductions from the exercise of stock options. This deferred tax asset has been fully reserved since it is more likely than not that the tax benefit from the exercise of stock options will not be realized.
The tax benefit will be recorded as a credit to additional paid-in capital if realized.
At March 31,
2016,2017, the Company had aggregate net operating loss carryforwards in the U.S. for federal and state income tax purposes of approximately
$791.0$798.0 million and
$177.0$143.0 million, respectively, which expire in the years ending March 31,
20172018 through
2036.2037. Included in the U.S. net operating loss is $3.7 million of acquired losses from Power Quality Systems, Inc.
and $52.5 million from excess tax deductions from stock options exercised in the years ending March 31, 2006 through 2016. Pursuant to the guidance on accounting for stock-based compensation, the deferred tax asset relating to excess tax benefits from these exercises was not recognized for financial statement purposes. The future benefit from these deductions will be recorded as a credit to additional paid-in capital when realized. Research and development and other tax credit carryforwards amounting to approximately
$9.3$9.5 million and
$2.9$3.2 million are available to offset federal and state income taxes, respectively, and will expire in the years ending March 31,
20172018 through
2036.2037.
At March 31, 2016,2017, the Company had aggregate net operating loss carryforwards for its Austrian subsidiary, AMSC Austria GmbH, of approximately $42.6$37.1 million which can be carried forward indefinitely subject to certain annual limitations. At March 31, 2016,2017, the Company had aggregate net operating loss carryforwards for its Chinese operation of approximately $32.0$17.9 million, which can be carried forward for five years and begin to expire December 31, 2016. At March 31, 2016, the Company had aggregate net operating loss carryforwards from Romania of $0.5 million, which can be carried forward through March 31, 2023.2017. Also the Company had immaterial amounts of current and net operating loss carryforwards for its other foreign operations which can be carried forward indefinitely. 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 NOL and general business tax credit carryforwards it may have. The Company conducted a study as a result of the April 2015 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 net operating loss carryforwards. If there were material ownership changes subsequent to the study it could limit the ability to utilize its net operating loss carryforwards.
The Company plans to conduct a study during fiscal 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.
The Company has not recorded a deferred tax asset for the temporary difference associated with the excess of its tax basis over the book basis in its Austrian and Chinese subsidiaries as the future tax benefit is not expected to reverse in the foreseeable future.
The Company has recorded a deferred tax liability as of March 31,
20162017 for the undistributed earnings of its remaining foreign subsidiaries for which it can no longer assert are permanently reinvested. The total amount of undistributed earnings available to be repatriated at March 31,
20162017 was
$1.2$2.1 million resulting in the recording of a
$0.4$0.7 million net deferred federal and state income tax liability.
72
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,
2016.2017. The Company did not have any gross unrecognized tax benefits at March 31,
20162017 or
2015.2016.
During the fiscal year ended March 31, 2015, the Company concluded a tax audit for the period April 1, 2008 through March 31, 2011 with its foreign subsidiary in Austria. The results of this audit found no material exceptions to the Company’s tax positions.
A tabular roll-forward
There were no reversals of
uncertain tax positions in the
Company’s uncertainties in incomeyears ended March 31, 2017 and 2016. During the fiscal period ended March 31, 2015, the Company reversed uncertain tax
provision liability is presented below (in thousands):positions of $1.1 million. Balance at March 31, 2014 | $ | 1,061 | |
Reversal of uncertain tax positions | | (1,061 | ) |
Balance at March 31, 2015 | $ | - | |
Reversal of uncertain tax positions | | - | |
Balance at March 31, 2016 | $ | - | |
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. Interest and penalties recorded in prior periods were immaterial and subsequently reversed in the year ended March 31, 2015.
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, 1995 through 2016 remain open and subject to examination and all fiscal years from the year ended March 31, 2012 through 2016 remain open and subject to examination in Austria. The Company’s tax filings in China for calendar years 2013 and 2014
are currently being examined.were examined with no material exceptions. Although the 2013 and 2014 tax years in China were audited, they remain subject to further review until the statute of limitations has expired. The statute of limitations in China for the tax authorities to audit is generally three years. Tax filings in China for calendar years 2008 through 2012
and 2015 through 2016 remain open and subject to examination. Tax filings in Romania for the years ended March 31, 2014 through 2016 remain open and subject to examination.
12. Stockholders’ Equity
Stock-Based Compensation
The components of employee stock-based compensation for the years ended March 31, 2016, 2015 and 2014 were as follows (in thousands):
| Fiscal years ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
Stock options | $ | 663 | | | $ | 1,851 | | | $ | 2,730 | |
Restricted stock and stock awards | | 2,574 | | | | 4,063 | | | | 7,936 | |
Employee stock purchase plan | | 11 | | | | 22 | | | | 30 | |
Total stock-based compensation expense | $ | 3,248 | | | $ | 5,936 | | | $ | 10,696 | |
The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The total unrecognized compensation cost for unvested outstanding stock options was $0.6 million for the fiscal year ended March 31, 2016. This expense will be recognized over a weighted-average expense period of approximately 2.4 years. The total unrecognized compensation cost for unvested outstanding restricted stock was $2.6 million for the fiscal year ended March 31, 2016. This expense will be recognized over a weighted-average expense period of approximately 1.8 years.
73
The following table summarizes employee stock-based compensation expense by financial statement line item for the fiscal years ended March 31, 2016, 2015 and 2014 (in thousands):
| Fiscal years ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
Cost of revenues | $ | 274 | | | $ | 719 | | | $ | 1,002 | |
Research and development | | 418 | | | | 1,728 | | | | 2,751 | |
Selling, general and administrative | | 2,556 | | | | 3,489 | | | | 6,943 | |
Total | $ | 3,248 | | | $ | 5,936 | | | $ | 10,696 | |
The following table summarizes the information concerning currently outstanding and exercisable employee and non-employee options:
| | | | | | | | | Weighted- | | | | | |
| | | | | Weighted- | | | Average | | | | | |
| | | | | Average | | | Remaining | | | Aggregate | |
| | | | Exercise | | | Contractual | | | Intrinsic Value | |
| Options / Shares | | | Price | | | Term | | | (thousands) | |
Outstanding at March 31, 2015 | | 380,940 | | | $ | 84.57 | | | | | | | | | |
Granted | | - | | | | | | | | | | | | | |
Exercised | | - | | | | | | | | | | | | | |
Cancelled/forfeited | | (14,391 | ) | | | 115.35 | | | | | | | | | |
Outstanding at March 31, 2016 | | 366,549 | | | $ | 83.39 | | | | 5.7 | | | $ | - | |
Exercisable at March 31, 2016 | | 261,656 | | | $ | 110.06 | | | | 4.8 | | | $ | - | |
Fully vested and expected to vest at March 31, 2016 | | 357,776 | | | $ | 85.07 | | | | 5.6 | | | $ | - | |
There were no stock options granted during the fiscal year ended March 31, 2016. The weighted-average grant-date fair value of stock options granted during the fiscal years ended March 31, 2015 and 2014 was per share, $10.18 per share, and $16.20 per share, respectively. 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, 2016, 2015 and 2014 had no intrinsic value.
The weighted average assumptions used in the Black-Scholes valuation model for stock options granted during the fiscal years ended March 31, 2016, 2015, and 2014 are as follows:
| Fiscal years ended March 31, | |
| 2016 | | 2015 | | | 2014 | |
Expected volatility | N/A | | | 85.5 | % | | | 75.1 | % |
Risk-free interest rate | N/A | | | 1.9 | % | | | 1.7 | % |
Expected life (years) | N/A | | | 5.8 | | | | 5.9 | |
Dividend yield | None | | None | | | None | |
The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company’s common stock and the implied volatility of the Company’s traded options. The expected term was estimated based on an analysis of the Company’s historical experience of exercise, cancellation, and expiration patterns. The risk-free interest rate is based on the average of the five and seven year U.S. Treasury rates.
74
The following table summarizes the employee and non-employee restricted stock activity for the year ended March 31, 2016:
| | | | | Weighted | | | Intrinsic | |
| | | | | Average | | | Aggregate | |
| | | | | Grant Date | | | Value | |
| Shares | | | Fair Value | | | (thousands) | |
Outstanding at March 31, 2015 | | 340,588 | | | $ | 20.82 | | | | | |
Granted | | 420,189 | | | | 6.24 | | | | | |
Vested | | (262,984 | ) | | | 14.56 | | | | | |
Forfeited | | (14,949 | ) | | | 76.22 | | | | | |
Outstanding at March 31, 2016 | | 482,844 | | | $ | 9.62 | | | $ | 3,670 | |
The total fair value of restricted stock that was granted during the fiscal years ended March 31, 2016, 2015 and 2014 was $2.6 million, $5.6 million, and $4.5 million, which includes $0.5 million for bonus and severance, respectively. The total fair value of restricted stock that vested during the fiscal years ended March 31, 2016, 2015 and 2014 was $1.7 million, $3.1 million, $3.7 million, which includes $0.5 million for bonus and severance, respectively.
There were no performance-based restricted stock shares awarded during the fiscal year ended March 31, 2016. The restricted stock awarded during the fiscal years ended March 31, 2015 and 2014 includes approximately 38,021, and 40,201 shares, respectively, of performance-based restricted stock, which would vest upon achievement of certain financial performance measurements. Included in the table above are 6,666 shares of restricted stock units outstanding.
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.
Stock-Based Compensation Plans
As of March 31,
2016,2017, 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”).
The 2007 Plan replaced the Company’s 2004 Stock Incentive Plan upon the approval by the Company’s stockholders on August 3, 2007. The 2007 Director Plan replaced the Second Amended and Restated 1997 Director Stock Option Plan, which expired pursuant to its terms on May 2, 2007. Both the 2007 Plan and the 2007 Director Plan were approved by the Company’s stockholders on August 1, 2014.
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,
2016,2017, 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 as of March 31, 2014, each outside director was granted an option to purchase 1,000 shares of common stock upon his or her initial election to the Board of Directors 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, as of March 31, 2014, each outside director was granted an award of 300 shares of common stock three business days following each annual meeting of stockholders, provided that such outside director had served as a director for at least one year. Under the terms of the 2007 Director Plan effective April 1, 2014, 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, effective April 1, 2014, each outside director is granted an award of shares of common stock with an aggregate grant date value equal to $40,000 three business days following the last day of each fiscal year, subject to proration for any partial fiscal year of service.
As of March 31,
2016,2017, the 2007 Plan had
195,1941,405,110 shares and the 2007 Director Plan had
35,505150,802 shares available for future issuance.
75
Stock-Based Compensation
The components of employee stock-based compensation for the years ended March 31, 2017, 2016 and 2015 were as follows (in thousands):
|
| | | | | | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Stock options | $ | 323 |
| | $ | 663 |
| | $ | 1,851 |
|
Restricted stock and stock awards | 2,569 |
| | 2,574 |
| | 4,063 |
|
Employee stock purchase plan | — |
| | 11 |
| | 22 |
|
Total stock-based compensation expense | $ | 2,892 |
| | $ | 3,248 |
| | $ | 5,936 |
|
The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The total unrecognized compensation cost for unvested outstanding stock options was $0.4 million for the fiscal year ended March 31, 2017. This expense will be recognized over a weighted-average expense period of approximately 1.9 years. The total unrecognized compensation cost for unvested outstanding restricted stock was $1.8 million for the fiscal year ended March 31, 2017. This expense will be recognized over a weighted-average expense period of approximately 1.3 years.
The following table summarizes employee stock-based compensation expense by financial statement line item for the fiscal years ended March 31, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Cost of revenues | $ | 185 |
| | $ | 274 |
| | $ | 719 |
|
Research and development | 214 |
| | 418 |
| | 1,728 |
|
Selling, general and administrative | 2,493 |
| | 2,556 |
| | 3,489 |
|
Total | $ | 2,892 |
| | $ | 3,248 |
| | $ | 5,936 |
|
The following table summarizes the information concerning currently outstanding and exercisable employee and non-employee options:
|
| | | | | | | | | | | | |
| Options / Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term | | Aggregate Intrinsic Value (thousands) |
Outstanding at March 31, 2016 | 366,549 |
| | $ | 83.39 |
| | | | |
|
Granted | 9,703 |
| | 6.80 |
| | | | |
|
Exercised | — |
| | — |
| | | | |
|
Canceled/forfeited | (24,244 | ) | | 107.26 |
| | | | |
|
Outstanding at March 31, 2017 | 352,008 |
| | $ | 79.63 |
| | 5.1 | | $ | 0.6 |
|
Exercisable at March 31, 2017 | 282,005 |
| | $ | 96.09 |
| | 5.0 | | $ | — |
|
Fully vested and expected to vest at March 31, 2017 | 347,256 |
| | $ | 80.54 |
| | 4.5 | | $ | 0.5 |
|
There were 9,703 stock options granted during the fiscal year ended March 31, 2017 at a weighted average grant date fair value of $4.06 per share. There were no stock options granted during the fiscal year ended March 31, 2016 and the weighted-average grant-date fair value of stock options granted during the fiscal year ended March 31, 2015 was $10.18 per share. 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, 2017, 2016 and 2015 had no intrinsic value.
The weighted average assumptions used in the Black-Scholes valuation model for stock options granted during the fiscal years ended March 31, 2017, 2016, and 2015 are as follows:
|
| | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Expected volatility | 67.6 | % | | N/A | | 85.5 | % |
Risk-free interest rate | 1.3 | % | | N/A | | 1.9 | % |
Expected life (years) | 5.7 |
| | N/A | | 5.9 |
|
Dividend yield | None |
| | N/A | | None |
|
The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company’s common stock and the implied volatility of the Company’s traded options. The expected term was estimated based on an analysis of the Company’s historical experience of exercise, cancellation, and expiration patterns. The risk-free interest rate is based on the average of the five and seven year U.S. Treasury rates.
The following table summarizes the employee and non-employee restricted stock activity for the year ended March 31, 2017:
|
| | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value | | Intrinsic Aggregate Value (thousands) |
Outstanding at March 31, 2016 | 482,844 |
| | $ | 9.62 |
| | |
|
Granted | 171,000 |
| | 10.23 |
| | |
|
Vested | (228,919 | ) | | 10.51 |
| | |
Forfeited | — |
| | — |
| | |
|
Outstanding at March 31, 2017 | 424,925 |
| | $ | 9.40 |
| | $ | 2,915 |
|
The total fair value of restricted stock that was granted during the fiscal years ended March 31, 2017, 2016 and 2015 was $1.7 million, $2.6 million, and $5.6 million, respectively. The total fair value of restricted stock that vested during the fiscal years ended March 31, 2017, 2016 and 2015 was $2.3 million, $1.7 million, $3.1 million, respectively.
There were no performance-based restricted stock shares awarded during the fiscal years ended March 31, 2017 and 2016, respectively. The restricted stock awarded during the fiscal year ended March 31, 2015 includes approximately 38,021 shares of performance-based restricted stock, which would vest upon achievement of certain financial performance measurements. Included in the table above are 3,333 shares of service-based restricted stock units outstanding, which are expected to vest during the first quarter of fiscal 2017.
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.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (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, 2017, the ESPP had 300,013 shares available for future issuance. The Company recognized
no compensation expense for the fiscal year ended March 31, 2017, compensation expense of less than $0.1 million during the year fiscal ended March 31, 2016 and $0.1 million for
each of the fiscal years ended March 31, 2015,
and 2014, respectively, related to the ESPP.
As of March 31, 2016 the ESPP had no shares available for future issuance.On April 29, 2015, the Company completed an equity offering with Cowen and Company, LLC, under which the Company sold 4.0 million shares of its common stock at an offering price of $6.00 per share. After underwriting, commissions and expenses, the Company received net proceeds from the offering of approximately $22.3 million.
ATM Arrangement
On January 27, 2017, the Company entered into an ATM arrangement, pursuant to which, the Company could, at its discretion, sell up to $10.0 million of the Company’s common stock through its sales agent, FBR. Sales of common stock made under the ATM were made pursuant to the prospectus supplement dated January 27, 2017, which supplements the prospectus dated October 1, 2014, included in the shelf registration statement that AMSC filed with the Securities and Exchange Commission (“SEC”) on September 19, 2014.
During the year ended March 31, 2017, the Company received net proceeds of $2.5 million, from sales of approximately 379,693 shares of its common stock at an average sales price of approximately $6.79 per share under the ATM. No sales of the Company's common stock were made under the ATM after March 31, 2017. On May 4, 2017, the Company provided to FBR Capital Markets & Co., the sales agent, a notice of termination of the ATM.
13. Commitments and Contingencies
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.
Operating leases include minimum payments under leases for the Company’s facilities and certain equipment. The Company’s primary leased facilities are located in New Berlin, Wisconsin; Suzhou and Beijing, China; Klagenfurt, Austria; and Timisoara, Romania with a combined total of approximately
183,000180,000 square feet of space. These leases have varying expiration dates through March 2021 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,
20162017 were as follows (in thousands):
Fiscal years ended March 31, | Total | |
2017 | $ | 1,135 | |
2018 | | 469 | |
2019 | | 252 | |
2020 | | 176 | |
2021 | | 165 | |
Thereafter | | - | |
Total | $ | 2,197 | |
|
| | | |
Fiscal years ended March 31, | Total |
2018 | $ | 1,022 |
|
2019 | 315 |
|
2020 | 179 |
|
2021 | 168 |
|
Total | $ | 1,684 |
|
Rent expense under the operating leases mentioned above was as follows (in thousands):
| | |
| Fiscal years ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
Rent expense | $ | 1,628 | | | $ | 2,091 | | | $ | 2,152 | |
|
| | | | | | | | | | | |
| Fiscal years ended March 31, |
| 2017 | | 2016 | | 2015 |
Rent expense | $ | 1,338 |
| | $ | 1,628 |
| | $ | 2,091 |
|
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.
76
On February 4, 2015, AMSC Austria entered into a Settlement Agreement with Ghodawat, which provided for, among other things, (i) a payment by AMSC Austria to Ghodawat of €7.45 million, and (ii) upon payment by AMSC Austria to Ghodawat, the full settlement of any and all disputes and claims between the parties (including their respective parent and affiliated companies), in particular relating to or arising out of the award. The Company paid the settlement amount during the fourth quarter of fiscal 2014. As a result of this agreement, the Company reversed a portion of the accrued arbitration liability and recorded a gain of approximately $1.2 million in the fourth quarter of fiscal 2014. The Company’s insurer, Catlin Specialty Insurance Company (“Catlin”) sought and received a ruling from the Massachusetts Superior Court that coverage does not apply to the arbitration award liability. On January 14, 2015, the Company and AMSC Austria entered into a Settlement Agreement and Release with Catlin, which provided for, among other things, (i) the Company’s and AMSC Austria’s release of all claims against Catlin relating to the arbitration award liability and (ii) Catlin’s release of all claims against the Company and AMSC Austria relating to approximately $2.3 million reimbursed to date under the insurance policy for expenses incurred in connection with the arbitration proceedings. As a result of the settlement with Catlin, in the fourth quarter of fiscal 2014, the Company reversed an accrual of approximately $2.2 million for expenses previously reimbursed by Catlin under the policy.
On September 13, 2011, the Company commenced a series of legal actions in China against Sinovel Wind Group Co. Ltd. (“Sinovel”). The Company’s Chinese subsidiary, Suzhou AMSC Superconductor Co. Ltd., filed a claim for arbitration with the Beijing Arbitration Commission in accordance with the terms of the Company’s supply contracts with Sinovel. The case is captioned (2011) Jing Zhong An Zi No. 0963. The Company alleges that Sinovel committed various material breaches of its contracts with the Company and that Sinovel has refused to pay past due amounts for prior shipments of core electrical components and spare parts. The Company is seeking compensation for past product shipments and retention (including interest) in the amount of approximately RMB 485 million (approximately $76$70 million) due to Sinovel’s breaches of its contracts. The Company is also seeking specific performance of its existing contracts as well as reimbursement of all costs and reasonable expenses with respect to the arbitration. The value of the undelivered components under the existing contracts, including the deliveries refused by Sinovel in March 2011, amounts to approximately RMB 4.6 billion (approximately $720$667 million). On October 8, 2011, Sinovel filed with the Beijing Arbitration Commission an application under the caption (2011) Jing Zhong An Zi No. 0963, for a counterclaim against the Company for breach of the same contracts under which the Company filed its original arbitration claim. Sinovel claimed, among other things, that the goods supplied by the Company do not conform to the standards specified in the contracts and claimed damages in the amount of approximately RMB 1.2 billion (approximately $190$174 million). On February 27, 2012, Sinovel filed with the Beijing Arbitration Commission an application under the caption (2012) Jing Zhong An Zi No. 0157, against the Company for breach of the same contracts under which the Company filed its original arbitration claim. Sinovel claims, among other things, that the goods supplied by the Company do not conform to the standards specified in the contracts and claimed damages in the amount of approximately RMB 105 million (approximately $17$15 million). The Company believes that Sinovel’s claims are without merit and it intends to defend these actions vigorously. Since the proceedings in this matter are still in the early technical review phase, the Company cannot reasonably estimate possible losses or range of losses at this time. 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,
2016,2017, the Company had
$0.5$0.8 million of restricted cash included in current assets and
$0.9$0.2 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.
14. 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 $0.4 million, for each of the fiscal years ended March 31,
2017, 2016,
2015, and
2014,2015, and recorded corresponding charges to additional paid-in capital related to this program.
77
Investment in Tres Amigas LLC
The Company made an investment in Tres Amigas, focused on providing the first common interconnection of America’s three power grids to help the country achieve its renewable energy goals and facilitate the smooth, reliable and efficient transfer of green power from region to region. The Company’s original investment in Tres Amigas was $5.4 million.
During the three months ended June 30, 2015, the Company determined that as a result of delays in Tres Amigas securing financing for the project, as well as the Company’s expectation that its investment would not be recoverable based on recent adverse market indicators for potential sales of the Company’s share of the investment, that its investment in Tres Amigas required further analysis for other-than-temporary impairment. The Company recorded an impairment charge of $0.7 million to fully impair this investment in the fiscal year ended March 31, 2016.
On March 11, 2016, the Company sold 100% of its minority share investment in Tres Amigas to an investor for $0.6 million. The Company received $0.3 million according to the terms of the purchase agreement upon closing, which was recorded as a gain during the three months ended March 31, 2016. The final $0.3 million
is to be paid when Tres Amigas achieves the earlier of certain agreed-upon financing conditions which is expected to occur during the first half of fiscal 2016. Investment in Blade Dynamics Ltd.
The Company acquired (through its Austrian subsidiary), a minority ownership position in Blade Dynamics, a designerwas received and manufacturer of advanced wind turbine blades based on proprietary materials and structural technologies. The Company’s original investment was for $8.0 million in cash. During the year ended March 31, 2015, the Company determined that its investment was no longer recoverable and therefore recorded an impairment charge of $3.5 million.
On October 6, 2015, 100% of the outstanding common stock of Blade Dynamics was acquired by a subsidiary of General Electric Company. After deducting transaction expenses, AMSC received net proceeds of $2.8 million from the sale, which was recorded as a gain during the fiscal year ended March 31, 2016. Additionally, under the terms of the purchase agreement, AMSC may be entitled to receive up to an additional $1.2 million in proceeds upon the successful achievement of certain milestones by Blade Dynamics over the next three years.
2017.
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. During the fiscal
yearsyear ended March 31, 2015,
and 2014, the Company undertook restructuring activities, approved by the Board of Directors, in order to reorganize its global operations, streamline various functions of the business, and reduce its global workforce to better reflect the demand for its products. During the year ended March 31,
2014,2015, the Company undertook a plan to consolidate its Grid manufacturing activities into its Devens, Massachusetts facility and close its facility in Middleton, Wisconsin which was completed during the year ended March 31,
2015.2016. In addition, the Company established a new Wind manufacturing facility in Romania, and as a result, reduced the headcount in its operation in China. The Company is maintaining its headcount in China at a level necessary to support demand from its Chinese customers.
There was no restructuring activity in the fiscal year ended March 31, 2017. The Company recorded restructuring charges for severance and other costs of approximately less than $0.1 million
$1.9 million and
$1.7$1.9 million during the fiscal years ended March 31, 2016
2015 and
2014,2015, respectively, primarily associated with the consolidation of the Company’s manufacturing activities in the United States and China. From April 1, 2011 through March 31,
2016,2017, the Company’s various restructuring activities resulted in a substantial reduction of its global workforce. All amounts related to these restructuring activities have been paid as of March 31,
2016.78
2017. The Company announced an additional restructuring plan on April 4, 2017 (see Note 19, "Subsequent Events" for further discussion).
The following table presents restructuring charges and cash payments during the year ended March 31, 2016 (in thousands):
| Severance pay | | | Facility exit and | | | | | |
| and benefits | | | Relocation costs | | | Total | |
Accrued restructuring balance at April 1, 2014 | $ | 844 | | | $ | - | | | $ | 844 | |
Charges to operations | | 618 | | | | 1,284 | | | | 1,902 | |
Cash payments | | (1,282 | ) | | | (1,284 | ) | | | (2,566 | ) |
Accrued restructuring balance at March 31, 2015 | $ | 180 | | | $ | - | | | $ | 180 | |
Charges to operations | | (5 | ) | | | 38 | | | | 33 | |
Cash payments | | (175 | ) | | | (38 | ) | | | (213 | ) |
Accrued restructuring balance at March 31, 2016 | $ | - | | | $ | - | | | $ | - | |
|
| | | | | | | | | | | |
| Severance pay and benefits | | Facility exit and Relocation costs | | Total |
Accrued restructuring balance at April 1, 2015 | $ | 180 |
| | $ | — |
| | $ | 180 |
|
Charges to operations | (5 | ) | | 38 |
| | 33 |
|
Cash payments | (175 | ) | | (38 | ) | | (213 | ) |
Accrued restructuring balance at March 31, 2016 | $ | — |
| | $ | — |
| | $ | — |
|
All restructuring charges discussed above are included within restructuring and impairments in the Company’s consolidated statements of operations. The Company includes accrued restructuring within accounts payable and accrued expenses in the consolidated balance sheets.
The Company reports its financial results in two reportable business segments: Wind and Grid.
Through the Company’s Windtec Solutions, the Wind business segment enables manufacturers to field wind turbines with exceptional power output, reliability and affordability. 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 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.
Through the Company’s Gridtec Solutions, the Grid business segment enables electric utilities and renewable energy project developers to connect, transmit and distribute power with exceptional efficiency, reliability and affordability. 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.
The operating results for the two2 business segments are as follows (in thousands):
| Fiscal Years Ended March 31, | |
| 2016 | | | 2015 | | | 2014 | |
Revenues: | | | | | | | | | | | |
Wind | $ | 68,883 | | | $ | 51,307 | | | $ | 55,608 | |
Grid | | 27,140 | | | | 19,223 | | | | 28,509 | |
Total | $ | 96,023 | | | $ | 70,530 | | | $ | 84,117 | |
| Fiscal Years Ended March 31, | | |
| 2016 | | | 2015 | | | 2014 | | | | | | | | |
Operating loss: | | | | | | | | | | | | |
| | Fiscal Years Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Revenues: | | | | |
| | |
Wind | $ | (1,256 | ) | | $ | (14,321 | ) | | $ | (5,213 | ) | $ | 47,269 |
| | $ | 68,883 |
| | $ | 51,307 |
|
Grid | | (14,835 | ) | | | (26,890 | ) | | | (22,523 | ) | 27,926 |
| | 27,140 |
| | 19,223 |
|
Unallocated corporate expenses | | (4,027 | ) | | | (11,306 | ) | | | (13,693 | ) | |
Total | $ | (20,118 | ) | | $ | (52,517 | ) | | $ | (41,429 | ) | $ | 75,195 |
| | $ | 96,023 |
| | $ | 70,530 |
|
None.
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, 2016.2017. 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