AMERICAN SUPERCONDUCTOR CORP DE

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE Three and Nine Months EndedDecember 31, 2023** AND 2022**

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business and Operations and Liquidity

Nature of the Business and Operations

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

These unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with United States generally accepted accounting principles (“GAAP”) and the Securities and Exchange Commission’s (“SEC”) instructions to Form10-Q. Certain prior period amounts were reclassified to conform to the presentation in the current period. The going concern basis of presentation assumes that the Company will continue operations and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those instructions. The year-end condensed balance sheet data was derived from audited financial statements but doesnot include all disclosures required by GAAP. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods ended* December 31, 2023* and2022 and the financial position at* December 31, 2023*; however, these results arenot necessarily indicative of results which* maybe expected for the full year. The interim condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2023,and notes thereto, included in the Company’s Annual Report on Form10*-K for the year ended* March 31, 2023filed with the SEC on May 31, 2023.*

Liquidity

The Company has historically experienced recurring operating losses and as of** *** December 31, 2023*, the Company had an accumulated deficit of $1,065.1 million. In addition, the Company has historically experienced recurring negative operating cash flows. At* December 31, 2023*, the Company had cash and cash equivalents of $24.0 million. Cash used in operations for thenine months ended* December 31, 2023* was $0.1 million.

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

In recent periods, the Company has experienced inflationary pressure in its supply chain and some delays in sourcing materials needed for its products resulting in some production disruption, both of which have increased the Company’s cost of revenues and decreased gross margin. While the impact of inflation has been challenging, the Company has taken actions to limit this pressure, including adjusting the pricing of its products and services. Changes in macroeconomic conditions arising from various reasons, such as the ongoing wars between Russia and Ukraine and Israel and Hamas, inflation, COVID-19, rising interest rates, labor force availability, sourcing, material delays and global supply chain disruptions, could have a material adverse effect on the Company’s business, financial condition and results of operation.

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From time-to-time the Company* mayundertake restructuring activities in order to align the global organization in a manner that the Company believes will better position it to achieve its long-term goals. In January 2023,the Company undertook a reduction in force that involved approximately 5% of the global workforce. This restructuring is expected to incur $1.0 million of cash expenses, of which $0.9 million has been paid as of December 31, 2023* and the remaining $0.1 million is expected to be paid by* March 31, 2024,and to result in annualized cost savings of approximately $5.0 million, beginning in fiscal2023.*

The Company believes that based on the information presented above and its quarterly management assessment, it has sufficient liquidity to fund its operations and capital expenditures for the nexttwelve months following the issuance of the unaudited condensed consolidated financial statements for thenine months ended* December 31, 2023*. The Company’s liquidity is highly dependent on its ability to increase revenues, its ability to control its operating costs, and its ability to raise additional capital, if necessary. The impact of COVID-19 and other sources of instability, including the wars between Russia and Ukraine and Israel and Hamas, on the global financing markets* mayreduce the Company's ability to raise additional capital, if necessary, which could negatively impact the Company's liquidity. There can beno* assurance that the Company will be able to continue to raise additional capital, on favorable terms or at all, from other sources or execute on any other means of improving liquidity described above.

2. Revenue Recognition

The Company’s revenues in its Grid business segment are derived primarily through enabling the transmission and distribution of power, providing planning services that allow it to identify power grid needs and risks, and developing ship protection systems for the U.S. Navy. The Company’s revenues in its Wind business segment are derived primarily through supplying advanced power electronics and control systems, licensing its highly engineered wind turbine designs, and providing extensive customer support services to wind turbine manufacturers. The Company records revenue based on afive-step model in accordance with Accounting Standards Codification ("ASC")606. For its customer contracts, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) control of goods or services is transferred to the customer. In thethree andnine months ended* December 31, 2023*,85% and 80% of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time. In thethree andnine months ended* December 31, 2022*,87% and 80% of revenue, respectively, was recognized at the point in time when control transferred to the customer, with the remainder being recognized over time.

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

In the Company's service and technology development product line, there are several different types of transactions, and each begins with a contract with a customer that summarizes each product sold to a customer, which typically represents distinct performance obligations. The technology development transactions are primarily for activities that haveno alternative use and for which a profit can be expected throughout the life of the contract. In these cases, the revenue is recognized over time, but in the instances where the profit cannot be assured throughout the entire contract then the revenue is recognized at a point in time. Each contract's transaction price is allocated to each distinct performance obligation using the respective standalone selling price which is determined primarily using the cost-plus expected margin approach. The ongoing service transactions are for service contracts that provide benefit to the customer simultaneously as the Company performs its obligations, and therefore this revenue is recognized ratably over time throughout the effective period of these contracts. The transaction prices on these contracts are allocated based on an adjusted market approach which is re-assessed annually for reasonableness. The field service transactions include contracts for delivery of goods and completion of services made at the customer's requests, which arenot deemed satisfied until the work has been completed and/or the requested goods have been delivered, so all of this revenue is recognized at the point in time when the control changes, and at allocated prices based on the adjusted market approach driven by standard price lists. The royalty transactions are related to certain contract terms on transactions in the Company's equipment and systems product line based on activity as specified in the contracts. The transaction prices of these agreements are calculated based on an adjusted market approach as specified in the contract. The Company reports royalty revenue for usage-based royalties when the sales have occurred. In circumstances when collectability isnot assured and a contract doesnot exist under ASC606, revenue is deferred until a non-refundable payment has been received for substantially all the amount that is due and there areno further remaining performance obligations.

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

The Company’s policy isnot to accept volume discounts, product returns, or rebates and allowances within its contracts. In the event a contract was approved with any of these terms, it would be evaluated for variable consideration, estimated and recorded as a reduction of revenue in the same period the related product revenue was recorded.

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

The Company records revenue net of sales tax, value added tax, excise tax and other taxes collected concurrent with revenue-producing activities. The Company has elected to recognize the cost for freight and shipping when control over the products sold passes to customers and revenue is recognized. The Company has elected to recognize incremental costs of obtaining a contract as expense when incurred except in contracts where the amortization period would exceedtwelve months; in such cases the long-term amount will be assessed for materiality. The Company has electednot to adjust the promised amount of consideration for the effects of a significant financing component if the period of financing istwelve months or less. The Company has elected to recognize revenue based on the As invoiced practical expedient if there is a right to consideration from a customer in an amount that corresponds directly with the value of the Company's performance.

The Company monitors costs to meet its obligations on its customer contracts. When it is evident that there is a loss expected on a contract, a contract loss is accrued in the period. Several long-term contracts that were acquired from Neeltran, Inc. (“Neeltran”) were impacted by higher than planned costs due to required design changes and inflation on material costs, resulting in an increase to the contract loss accrual of $1.6 million and $3.2 million in thethree andnine months ended* December 31, 2022*, respectively, which negatively impacted the Company's gross margins. The contract loss accrual decreased by $2.5 million and $3.4 million in each of thethree andnine months ended* December 31, 2023*, respectively, as projects have been completed.

The Company’s contracts with customers donot typically include extended payment terms and* may*include milestone billing over the life of the contract. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days from delivery.

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

As of* December 31, 2023*, and2022, the Company’s contract assets and liabilities primarily relate to the timing differences between cash received from a customer in connection with contractual rights to invoicing and the timing of revenue recognition following completion of performance obligations. The Company's accounts receivable balance is made up entirely of customer contract related balances. Changes in the Company’s contract assets, which are included in “Unbilled accounts receivable” and “Deferred program costs” (see Note7, “Accounts Receivable” and Note8, “Inventory” for a reconciliation to the condensed consolidated balance sheets) and "Contract liabilities", which are included in the current portion and long-term portion of "Deferred revenue" in the Company’s condensed consolidated balance sheets, are as follows (in thousands):

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The Company’s remaining performance obligations represent the unrecognized revenue value of the Company’s contractual commitments. The Company’s performance obligations* mayvary significantly each reporting period based on the timing of major new contractual commitments. As of December 31, 2023*, the Company had outstanding performance obligations on existing contracts under ASC606 to be recognized in the next twelve months of approximately $137.2 million. There are also approximately $30.2 million of outstanding performance obligations to be recognized over a period ofthirteen tosixty months. The remaining performance obligations are subject to customer actions and therefore the timing of revenue recognition cannot be reasonably estimated.

The following table sets forth customers who represented10% or more of the Company’s total revenues for thethree andnine months ended* December 31, 2023* and2022:

3. Stock-Based Compensation

The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for thethree andnine months ended* December 31, 2023* and2022 (in thousands):

The Company issuedno shares and 681,500 shares of restricted stock during thethree andnine months ended* December 31, 2023*, respectively. The Company issuedno shares of immediately vested common stock during thethree months ended* December 31, 2023* and 53,675 shares of immediately vested common stock during thenine months ended* December 31, 2023*. The Company issued 550,000 shares of restricted stock andno shares of immediately vested common stock during thethree months ended* December 31, 2022* and 888,500 shares of restricted stock and 25,806 shares of immediately vested common stock during thenine months ended* December 31, 2022*. These restricted stock awards generally vest over 2-3 years. Awards for restricted stock include both time-based and performance-based awards. For options and restricted stock awards that vest upon the passage of time, expense is being recorded over the vesting period. Performance-based awards are expensed over the requisite service period based on probability of achievement.

The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over theawards’ service period. The total unrecognized compensation cost for unvested stock options was less than $0.1 million as of* December 31, 2023*. This expense will be recognized over a weighted average of approximately 0.4 years. The total unrecognized compensation cost for unvested outstanding restricted stock was$5.8 million as of* December 31, 2023*. This expense will be recognized over a weighted-average expense period of approximately 1.7 years.

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The Company grantedno stock options during thethree andnine months ended* December 31, 2023*. The Company grantedno stock options in thethree months ended* December 31, 2022*, and 20,564 stock options during thenine months ended* December 31, 2022*. The stock options granted during thenine months ended* December 31, 2022* will vest in equal annual installments over 2 years. The weighted average assumptions used in the Black Scholes valuation model for stock options granted during thenine months ended* December 31, 2022* are as follows:

4. Computation of Net Loss per Common Share

Basic net loss per share (“EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Where applicable, diluted EPS is computed by dividing the net loss by the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period, calculated using the treasury stock method. Common equivalent shares include the effect of restricted stock, exercise of stock options and warrants and contingently issuable shares. Stock options and warrants that are out-of-the-money with exercise prices greater than the average market price of the underlying common shares and shares of performance-based restricted stock where the contingency wasnot met are excluded from the computation of diluted EPS as the effect of their inclusion would be anti-dilutive. For each of thethree andnine months ended* December 31, 2023*,0.3 million shares werenot included in the calculation of diluted EPS. Of these, 0.3 million relate to shares associated with the contingent consideration derivative liability for which the contingency hasnot yet been met, and less than 0.1 million relate to outstanding stock options as they were considered anti-dilutive. For each of thethree andnine months ended* December 31, 2022*,1.1 million shares werenot included in the calculation of diluted EPS. Of these, 1.0 million relate to shares associated with the contingent consideration derivative liability for which the contingency hasnot yet been met, and 0.1 million relate to outstanding stock options as they were considered anti-dilutive.

The following table reconciles the numerators and denominators of the earnings per share calculation for thethree andnine months ended* December 31, 2023* and2022 (in thousands, except per share data):

5. Goodwill and Other Intangibles

Goodwill

Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill isnot amortized but reviewed for impairment. Goodwill is reviewed annually on* February**28th* and whenever events or changes in circumstances indicate that the carrying value of the goodwill mightnot be recoverable.

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There wereno changes to goodwill during thenine months ended* December 31, 2023* or year ended* March 31, 2023*.

The Company didnot identify any triggering events in thethree andnine months ended* December 31, 2023* that would require interim impairment testing of goodwill.

Other Intangibles

Intangible assets at* December 31, 2023* and* March 31, 2023* consisted of the following (in thousands):

The Company recorded intangible amortization expense related to customer relationship and core technology and know-how of $0.5 million and$1.6 million, in thethree andnine months ended* December 31, 2023*, respectively, and $0.7 million and $2.1 million in thethree andnine months ended* December 31, 2022*, respectively. Additionally, the Company recordedno intangible amortization related to backlog that is reported in cost of revenues in thethree months ended* December 31, 2023* and less than $0.1 million inthenine months ended* December 31, 2023*. The Company recorded less than $0.1 million related to backlog that is reported in cost of revenuesinthethree andnine months ended* December 31, 2022*, respectively.

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

The Company's intangible assets relate entirely to the Grid business segment operations in the United States.

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6. 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 intothree broad levels as follows:

The Company provides a gross presentation of activity within Level3 measurement roll-forward and details of transfers in and out of Level1 and2 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 Level1 to Level2 or Level3 is made in the event that the related security is significant to total cash and investments. The Company didnot have any transfers of assets and liabilities from Level1, Level2 or Level3 of the fair value measurement hierarchy during thenine months ended* December 31, 2023*.

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.

Valuation Techniques

Cash Equivalents

Cash equivalents consist of highly liquid instruments with maturities ofthree months or less that are regarded as high quality, low risk investments, are measured using such inputs as quoted prices and are classified within Level1 of the valuation hierarchy. Cash equivalents consist principally of certificates of deposits and money market accounts.

Contingent Consideration

Contingent consideration relates to the earnout payment set forth in the Stock Purchase Agreement governing the acquisition of Northeast Power Systems, Inc ("NEPSI") that provides that the selling stockholders* mayreceive up to an additional 300,000 shares of common stock of the Company upon the achievement of certain specified revenue objectives over varying periods of up tofour* years following the NEPSI Acquisition Date. See Note13, "Contingent Consideration" for further discussion. The Company relied on a Monte Carlo method to determine the fair value of the contingent consideration on the closing of the acquisition of NEPSI and continues to revalue the fair value of the contingent consideration using the same method at each subsequent balance sheet date until the contingencies are resolved and the shares to be issued are determined, with the change in fair value recorded in the current period operating loss.

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The following table provides the assets and liabilities carried at fair value on a recurring basis, measured as of* December 31, 2023* and* March 31, 2023* (in thousands):

The table below reflects the activity for the Company’s contingent consideration derivative liability measured at fair value on a recurring basis (in thousands):

7. Accounts Receivable

Accounts receivable at* December 31, 2023* and* March 31, 2023* consisted of the following (in thousands):

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8. Inventory

Inventory, net of reserves, at* December 31, 2023* and* March 31, 2023* consisted of the following (in thousands):

The Company recorded inventory write-downs of $0.5 million and $0.2 million for thethree months ended* December 31, 2023* and2022, respectively. The Company recorded inventory write-downs of $1.5 million and $1.2 million for thenine months ended* December 31, 2023* and2022, respectively. These write-downs were based on the Company's evaluation of its inventory on hand for excess quantities and obsolescence.

Deferred program costs as of* December 31, 2023* and* March 31, 2023*, primarily represent costs incurred on programs where the Company needs to complete performance obligations before the related revenue and costs will be recognized.

9. Prepaid and Other Current Assets

During fiscal2022, the Company conducted an analysis as to whether it was entitled to employee retention credits (“ERC”) under the CARES Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of2020 and the American Rescue Plan Act of2021. Based on the analysis, the Company determined that it was entitled to an ERC of approximately $3.3 million related to payroll taxes paid in thefirst andsecond quarters of2021 and thefirst quarter of2020. The Company determined it met all the criteria required under the gross receipts test of the applicable Internal Revenue Service regulations related to ERCs.

As accounting for payroll tax credits arenot within the scope of ASC740, Income Taxes, the Company has chosen to account for the ERCs by analogizing to the International Accounting Standards Board IAS20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. The Company evaluated its eligibility for the ERC and determined that it met all the criteria to claim a refundable tax credit against the employer portion of Social Security taxes for up to 70% of the qualified wages the Company paid to employees for thethree month periods ended* March 31, 2021and June 30, 2021and for up to 50% of the qualified wages the Company paid to employees for thethree* month period ended* March 31, 2020.*

The Company recorded a $3.3 million receivable in Prepaid expenses and other current assets and a benefit of $1.8 million to Cost of revenues, $0.8 million to SG&A and $0.7 million to Research and development in the fiscal year ended* March 31, 2023for the ERC that is expected to be received based on the amended filings. During thenine* months ended* December 31, 2023*, the Company received $3.0 million for the initial claims that were processed. The remaining balance is expected to be received during the remainder of fiscal2023.

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10. Property, Plant and Equipment

The cost and accumulated depreciation of property, plant and equipment at* December 31, 2023* and* March 31, 2023* are as follows (in thousands):

Depreciation expense was $0.6 million and $0.6 million for thethree months ended* December 31, 2023* and2022, respectively. Depreciation expense was $1.7 million and $2.0 million for thenine months ended* December 31, 2023* and2022, respectively.

11. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at* December 31, 2023* and* March 31, 2023* consisted of the following (in thousands):

The Company generally provides aone tothree year warranty on its products, commencing upon delivery or installation where applicable. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience.

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Product warranty activity was as follows (in thousands):

12. Income Taxes

The Company recorded income tax expense of $0.1 million and $0.3 million in thethree andnine months ended* December 31, 2023*, respectively. The Company recorded an income tax expense of $0.1 million in each of thethree andnine months ended* December 31, 2022*, respectively.

Accounting for income taxes requires atwo-step approach to recognizing and measuring uncertain tax positions. Thefirst step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely thannot the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. Thesecond step is to measure the tax benefit as the largest amount that is more than50% likely to be realized upon ultimate settlement. The Company re-evaluates these uncertain tax positions on a quarterly basis. The evaluation is based on factors including, butnot 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 didnot identify any uncertain tax positions in thenine months ended* December 31, 2023* and didnot have any gross unrecognized tax benefits as of* December 31, 2023*.

13. Contingent Consideration

On* October 1, 2020 (the "NEPSI Acquisition Date"), the Company entered into a Stock Purchase Agreement (the "NEPSI Stock Purchase Agreement") with the selling stockholders named therein. Pursuant to the terms of the NEPSI Stock Purchase Agreement and concurrently with entering into such agreement, the Company acquired all of the issued and outstanding (i) shares of capital stock of NEPSI, and (ii) membership interests of Northeast Power Realty, LLC, a New York limited liability company, which holds the real property that serves as NEPSI's headquarters (the "NEPSI Acquisition"). NEPSI is a U.S.-based global provider of medium-voltage metal-enclosed power capacitor banks and harmonic filter banks for use on electric power systems. NEPSI is a wholly-owned subsidiary of the Company and is operated by its Grid business unit. The purchase price was $26.0 million in cash and 873,657 restricted shares of common stock of the Company. As part of the transaction, the selling stockholders mayreceive up to an additional 1,000,000 shares of common stock of the Company upon the achievement of certain specified revenue objectives during varying periods of up tofour* years following closing of the NEPSI Acquisition. NEPSI has recognized revenues in excess of*$75.0* million during thethree years after the NEPSI Acquisition Date. As a result, the Company issued 399,999 shares of common stock of the Company and cash in lieu of a fractional share of common stock to the selling stockholders during the quarter ended* December 31, 2023,*following certification of the achievement of specified earnout revenue objectives.

The Company evaluated the NEPSI Acquisition earnout payment set forth in the NEPSI Stock Purchase Agreement, which is expected to require settlement in the Company's common stock, and determined the contingent consideration qualified for liability classification and derivative treatment under ASC815, Derivatives and Hedging. As a result, for each period, the fair value of the contingent consideration will be remeasured and the resulting gain or loss will be recognized in operating expenses until the share amount is fixed.

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Following is a summary of the key assumptions used in a Monte Carlo simulation to calculate the fair value of the contingent consideration related to the NEPSI Acquisition:

During thethree andnine months ended* December 31, 2023the Company issued 399,999 shares and cash in lieu of a fractional share of common stock related to the achievement of specified revenue objectives at a fair value of $3.1 million. One specified revenue objective, which would have earned the selling stockholders 300,000 shares of Company common stock, wasnot* achieved, leaving 300,000 shares of common stock remaining for potential issuance upon the achievement of the last specified revenue objective by* September 30, 2024.The Company recorded losses of $0.9 million and $3.1 million resulting from the increases in the fair value of the contingent consideration in thethree* andnine months ended* December 31, 2023*, respectively.

14. Debt

As part of the acquisition of Neeltran, the Company identified four equipment financing agreements that Neeltran had entered into prior to the acquisition of Neeltran on* May 6, 2021.The current debt balance is less than $0.1 million as of December 31, 2023* and was$0.1 million as of * March 31, 2023*.

15. Leases

The Company determines whether a contract is or contains a lease at inception of a contract. The Company defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property or equipment (an identified asset) for a period of time in exchange for consideration. Control over the use of the identified asset means that the Company has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

The discount rate was calculated using an incremental borrowing rate based on an assessment prepared by the Company through the use of Company credit ratings, consideration of its lease populations potential risk to its total capital structure, and a market rate for a collateralized loan for its risk profile, calculated by athird party.

Operating Leases

All significant lease arrangements are recognized at lease commencement. Operating lease right–of-use assets and lease liabilities are recognized at commencement. The operating lease right-of-use asset includes any lease payments related to initial direct cost and prepayments and excludes any lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company enters into a variety of operating lease agreements through the normal course of its business, but primarily real estate leases to support its operations. The real estate lease agreements generally provide for fixed minimum rental payments and the payment of real estate taxes and insurance. Many of these real estate leases haveone or more renewal options that allow the Company, at its discretion, to renew the lease for varying periods up tofive years or to terminate the lease. Only renewal options or termination rights that the Company believed were likely to be exercised were included in the lease calculations.

The Company also enters into leases for vehicles, IT equipment and service agreements, and other leases related to its manufacturing operations that are also included in the right-of-use assets and lease liability accounts if they are for a term of longer thantwelve months. However, many of these leases are either short-term in nature or immaterial. The Company has made the policy election to exclude short-term leases from the condensed consolidated balance sheet.

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Finance Leases

As of* December 31, 2023*, the right-of-use asset related to the finance lease, net of accumulated amortization is $0.0 million, and is included in the property and equipment, net on the Company's condensed consolidated balance sheet.

Finance lease right-of-use assets and lease liabilities are recognized similar to an operating lease, at the lease commencement date or the date the lessor makes the leased asset available for use. Finance lease right-of-use assets are generally amortized on a straight-line basis over the lease term, and the carrying amount of the finance lease liabilities are (1) accreted to reflect interest using the incremental borrowing rate if the rate implicit in the lease isnot readily determinable, and (2) reduced to reflect lease payments made during the period. Amortization expense for finance lease right-of-use assets and interest accretion on finance lease liabilities are recorded to depreciation expense and interest expense, respectively in the Company's condensed consolidated statement of operations.

Supplemental balance sheet information related to leases at* December 31, 2023*, and* March 31, 2023* are as follows (in thousands):

The costs related to the Company's finance lease arenot material. The costs related to the Company's operating leases for thethree andnine months ended* December 31, 2023* and2022 are as follows (in thousands):

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The Company’s estimated minimum future lease obligations under the Company's leases are as follows (in thousands):

16. Commitments and Contingencies

Legal Contingencies

From time to time, the Company is involved in legal and administrative proceedings and claims of various types. The Company records a liability in its condensed 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 condensed consolidated financial statementsnot misleading. If the loss isnot probable or cannot be reasonably estimated, a liability isnot recorded in its condensed consolidated financial statements.

Other

The Company enters into long-term construction contracts with customers that require the Company to obtain performance bonds. The Company is required to deposit an amount equivalent to some or all the face amount of the performance bonds into an escrow account until the termination of the bond. When the performance conditions are met, amounts deposited as collateral for the performance bonds are returned to the Company. In addition, the Company has various contractual arrangements in which minimum quantities of goods or services have been committed to be purchased on an annual basis.

As of* December 31, 2023*, the Company had $0.4 million of restricted cash included in long-term assets and $0.7 million of restricted cash included in current assets. As of* March 31, 2023*, the Company had $0.6 million of restricted cash included in long term assets and $1.7 million of restricted cash included in current assets. These amounts included in restricted cash primarily represent deposits to secure letters of credit for various supply contracts and long-term projects or collateral deposits. These deposits are held in interest bearing accounts.

17.Restructuring

The Company accounts for charges resulting from operational restructuring actions in accordance with ASC Topic420**, Exit or Disposal Cost Obligations (“ASC420”) and ASC Topic712**, Compensation—Nonretirement Postemployment Benefits (“ASC712”). 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 condensed consolidated balance sheet.

On* January 24, 2023**,* the Company approved a plan to reduce its global workforce by approximately 5%, effective as of such date. The purpose of the workforce reduction was to reduce operating expenses to better align with the Company’s current revenues. In fiscal2022**, the Company recorded restructuring charges of $1.0 million as a result of this reduction in force, which was comprised of severance pay. All amounts related to these restructuring activities are expected to be paid by* March 31, 2024.*

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The following table presents restructuring charges and cash payments during thenine months ended* December 31, 2023* and year ended* March 31, 2023 (*in thousands):



All restructuring charges discussed above are included within restructuring in the Company’s condensed consolidated statements of operations. The Company includes accrued restructuring within accounts payable and accrued expenses in the condensed consolidated balance sheets. The Company's restructuring charges relate primarily to the Grid business segment operations in the United States.

18. Business Segments

The Company reports its financial results intwo reportable business segments: Grid and Wind. In accordance with ASC280, Segment Reporting, we aggregate four operating segments intoone reporting segment for financial reporting purposes due to their similar operating and financial characteristics. Our operating segments reflect the way in which internally-reported financial information is used to make decisions and allocate resources.

Through the Company’s power grid offerings, the Grid business segment enables electric utilities, industrial facilities, and renewable energy project developers to connect, transmit and distribute smarter, cleaner and better power through its transmission planning services, power electronics, and superconductor-based systems. The sales process is enabled by transmission planning services that allow it to identify power grid congestion, poor power quality and other risks, which helps the Company determine how its solutions can improve network performance. These services often lead to sales of grid interconnection solutions for wind farms and solar power plants, power quality systems, and transmission and distribution cable systems. The Company also sells ship protection products to the U.S. Navy through its Grid business segment.

Through the Company’s wind power offerings, the Wind business segment enables manufacturers to field highly competitive wind turbines through its advanced power electronics and control system products, engineered designs, and support services. The Company supplies advanced power electronics and control systems, licenses its highly engineered wind turbine designs, and provides extensive customer support services to wind turbine manufacturers. The Company’s design portfolio includes a broad range of drive trains and power ratings of2 megawatts ("MWs") and higher. The Company provides a broad range of power electronics and software-based control systems that are highly integrated and designed for optimized performance, efficiency, and grid compatibility.

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The operating results for thetwo business segments are as follows (in thousands):

The accounting policies of the business segments are the same as those for the consolidated Company. The Company’s business segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment revenues and segment operating loss. The disaggregated financial results of the segments reflect allocation of certain functional expense categories consistent with the basis and manner in which Company management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In addition, certain corporate expenses which the Company doesnot believe are specifically attributable or allocable to either of thetwo business segments have been excluded from the segment operating loss.

Unallocated corporate expenses consisted of net losses of $0.9 million and $3.1 million resulting from the increases in the fair value of contingent consideration in thethree andnine months ended* December 31, 2023*, respectively. There are 300,000 shares remaining for potential issuance upon the achievement of the last specified revenue objective under the NEPSI Stock Purchase Agreement by* September 30, 2024.Unallocated corporate expenses consisted of a gain on contingent consideration of $0.2 million and $0.3 million in thethree* andnine months ended* December 31, 2022*, respectively. Additionally, unallocated corporate expenses consisted of stock-based compensation expenseof $1.1 million and $1.4 million in thethree months ended* December 31, 2023* and2022, respectively, and $3.6 million and $3.5 million in thenine months ended* December 31, 2023* and2022, respectively.

Total assets for thetwo business segments as of* December 31, 2023* and* March 31, 2023*, are as follows (in thousands):

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19. Recent Accounting Pronouncements

In* June 2016**,* the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in ASU2016-13 will provide more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Following the release of ASU2019-10 in* November 2019,the effective date, as long as the Company remains a smaller reporting company, was annual reporting periods beginning after December 15, 2022.As of April 1, 2023,the Company has adopted ASU2016*-13 and notedno material impact on its condensed consolidated financial statements.

In* October 2021,the FASB issued ASU2021*-08, Business Combinations (Topic805*): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers*. The amendments in ASU2021-08 will improve the accounting for acquired revenue contracts with customers in a business combination. Following the release of ASU2021-08 in* October 2021,the effective date was annual reporting periods beginning after December 15, 2022.As of April 1, 2023,the Company has adopted ASU2021*-08 and notedno material impact on its condensed consolidated financial statements.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*. The amendments in ASU2023-07 improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. Following the release of ASU2023-07 in* November 2023,the effective date will be annual reporting periods beginning after December 15, 2024.As of December 31, 2023,*the Company is evaluating the impact on its condensed consolidated financial statements.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*. The amendments in ASU2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. Following the release of ASU2023-09 in* December 2023,the effective date will be annual reporting periods beginning after December 15, 2024.As of December 31, 2023,*the Company is evaluating the impact on its condensed consolidated financial statements.

20. Subsequent Events

The Company has performed an evaluation of subsequent events through the time of filing this Quarterly Report on Form10-Q with the SEC and has determined that there areno such events to report.

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