Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward‑looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward‑looking statements. Factors that might cause a difference include, but are not limited to, those discussed under Item 1A (Risk Factors) in this Form 10-K. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Form 10-K.
Overview
We are the market leader in microturbines based on the number of microturbines sold. Generally, power purchased from the electric utility grid is less costly than power produced by distributed generation technologies. Utilities may also charge fees to interconnect to their power grids. However, we can provide economic benefits to end users in instances where the waste heat from our microturbine has value (combined heat and power (“CHP”) and combined cooling, heat and power (“CCHP”)), where fuel costs are low (renewable energy/renewable fuels), where the costs of connecting to the grid may be high or impractical (such as remote power applications), where reliability and power quality are of critical importance, or in situations where peak shaving could be economically advantageous because of highly variable electricity prices. Because Capstone microturbines can provide a reliable source of power and can operate on multiple fuel sources, management believes they offer a level of flexibility not currently offered by other technologies such as reciprocating engines.
We continue to execute on our three-pronged business profitability plan to reduce operating expenses; diversify and increase revenue; and improve gross margin. During Fiscal 2017 our net loss decreased by 5% to $23.9 million and our basic and diluted loss per share improved by 46% to $0.75 compared to $25.2 and $1.39, respectively, in the same period of the previous year. The improvement in the net loss during Fiscal 2017 was primarily the result of a reduction of operating expenses of approximately 30% from Fiscal 2016. The improvement in the net loss per share during Fiscal 2017 was primarily the result of an increase in weighted average shares outstanding to 32.1 million for Fiscal 2017 from 18.2 million for Fiscal 2016. Our accessories, parts and service revenue increased 8% to a record high of $28.9 million or 37% of total revenue compared to $26.8 million or 31% of total revenue in Fiscal 2016 as global microturbine installations and factory protection plan revenue continued to expand. During Fiscal 2017, our revenue from the Russian market was approximately 11% of revenue compared to 2% of revenue the same period last year as we continue to rebuild our business in the Russian market by adding additional distributors in Russia and the Commonwealth of Independent States (“CIS”). Our revenue continues to be negatively impacted by the volatility of the global oil and gas markets, a strong U.S. dollar (making our products more expensive overseas) and ongoing geopolitical tensions in Russia, North Africa and the Middle East.
Our products continue to gain interest in all six of the major vertical markets (energy efficiency, renewable energy, natural resources, critical power supply, transportation and marine). In the energy efficiency market, we continue to expand our market presence in hotels, office buildings, hospitals, retail and industrial applications globally. The renewable energy market is fueled by landfill gas, biodiesel, and biogas from sources such as food processing, agricultural waste and cow, pig and chicken manure. Our product sales in the oil and gas and other natural resources market is driven by our microturbines’ reliability, emissions profile and ease of installation. Given the volatility of the oil and gas market, however, we have refocused our business strategy to target projects within the energy efficiency and renewal energy markets. The actual shift to the energy efficiency market is reflected in the product shipment by vertical markets table on page 38. We have also seen increased interest in critical power supply applications as customers want solutions that can handle both primary and backup power.
We continue to focus on improving our products based on customer input, building brand awareness and new channels to market by developing a diversified network of strategic distribution partners. Our focus is on products and solutions that provide near term opportunities to drive repeatable business rather than discrete projects for niche markets. In addition, management closely monitors operating expenses and strives to improve manufacturing efficiencies while simultaneously lowering direct material costs and increasing average selling prices. The key drivers to our success are
revenue growth, higher average selling prices, lower direct material costs, positive new order flow and reduced cash usage.
An overview of our direction, targets and key initiatives follows:
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1)
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Focus on Vertical Markets
Within the distributed generation markets that we serve, we focus on vertical markets that we identify as having the greatest near-term potential. In our primary products and applications (energy efficiency, renewable energy, natural resources, critical power supply, transportation products and marine), we identify specific targeted vertical market segments. Within each of these segments, we identify what we believe to be the critical factors to success and base our plans on those factors. Given the volatility of the oil and gas market, we have refocused our business strategy to target projects within the energy efficiency and renewable energy markets.
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The following table summarizes our product shipments by vertical markets:
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Fiscal Year
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Ended March 31,
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2017
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2016
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Energy efficiency
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59
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%
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53
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%
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Natural resources
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34
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%
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37
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%
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Renewable energy
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7
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%
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10
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%
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Critical Power Supply
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<1
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%
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—
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%
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Energy Efficiency—CHP/CCHP
Energy efficiency refers to the proper utilization of both electrical and thermal energies in the power production process. In such applications, our microturbines are able to maximize the availability of usable energy to provide a significant economic advantage to customers while reducing their onsite emissions. CHP and CCHP can improve site economics by capturing the waste heat created from a single combustion process to increase the efficiency of the total system, from approximately 30 percent to 80 percent or more. Compared with more traditional, independent generation sources, the increase in operational efficiency also reduces greenhouse gas emissions through the displacement of other separate systems, which can also reduce operating costs.
Natural Resources—Crude Oil, Natural Gas, Shale Gas & Mining
Our microturbines are installed in the natural resource market for use in both onshore and offshore applications, including oil and gas exploration, production, and at compression and transmission sites as a highly efficient and reliable source of power. In some cases, these oil and gas or mining operations have no electric utility grid and rely solely on power generated onsite. There are numerous locations, on a global scale, where the drilling, production, compression and transportation of natural resources and other extraction and production processes create fuel byproducts, which are traditionally burned or released into the atmosphere. Our microturbines can turn these fuel byproducts - flare gas, or associated gas, into a useable fuel to provide prime power to these sites.
Renewable Energy
There is a growing transition to renewable energy sources and technologies happening on a global scale. Our microturbines run efficiently on renewable fuels such as methane and other biogases from landfills, wastewater treatment facilities and other small biogas applications like food processing plants, livestock farms and agricultural waste operations. Microturbines can burn these renewable fuels with minimal emissions, thereby, and in some cases, avoiding the imposition of penalties incurred for pollution while simultaneously producing electricity from this “free” fuel source for use at the site or in the surrounding areas. Our microturbines have demonstrated effectiveness in these smaller
applications and may outperform conventional combustion engines in some situations, including when the gas contains a high amount of sulfur.
Critical Power Supply
Because of the potentially catastrophic consequences of system failure, momentary or otherwise, certain high demand power users, including high technology, health care and information systems facilities require higher levels of reliability in their power generation service. To meet these customer requirements, traditional solutions utilize UPS to protect critical loads from power disturbances along with back-up diesel generators for extended outages. We offer an alternative solution that can both meet customer reliability requirements and reduce operating costs.
Transportation
Our technology also can be used in HEV applications. Our customers have applied our products in HEV applications such as transit buses and Class 7 and 8 work trucks. In these applications, the microturbine acts as an onboard battery charger to recharge the battery system as needed. The benefits of microturbine-powered HEV hybrids include extended range, fuel economy gains, quieter operation, reduced emissions and higher reliability when compared with traditional internal combustion engines. Internal combustion diesel engine manufacturers have been challenged for the last several years to develop technology improvements, prior to aftertreatment that reduce emissions to levels specified by the EPA and CARB 2007 and 2010 standards. Many manufacturers are incorporating aftertreatment that increases upfront equipment costs, vehicle weight and life cycle costs, which and may reduce overall engine efficiency.
Marine
Our technology is also used in marine applications. Our customers have applied our products in the commercial vessel and luxury yacht market segments. The most feasible application for our marine products is for use as a ship auxiliary engine. In this application, the microturbines provide power to the vessel’s electrical loads and, in some cases, the vessel is able to utilize the exhaust energy to increase the overall efficiency of the application, thereby reducing overall fuel consumption and emissions. Another feasible application is similar to our HEV application where the vessel is driven by an electric propulsion system and the microturbine serves as an on board range extender.
Backlog
Net product orders were $43.8 million and $53.9 million for Fiscal 2017 and Fiscal 2016, respectively. Ending backlog was $113.0 million at March 31, 2017 compared to $109.6 at March 31, 2016. Book-to-bill ratio was 1.1:1 and 1.0:1 for Fiscal 2017 and Fiscal 2016, respectively. Book-to-bill ratio is the ratio of new orders we received to units shipped and billed during a period.
A portion of our backlog is concentrated in the international oil and gas market which may impact the overall timing of shipments or the conversion of backlog to revenue. The timing of the backlog is based on the requirement date indicated by our customers. However, based on historical experience, management expects that a significant portion of our backlog may not be shipped within the next 18 months. Additionally, the timing of shipments is subject to change based on several variables (including customer deposits, payments, availability of credit and customer delivery schedule changes), most of which are not in our control and can affect the timing of our revenue. As a result, management believes the book-to-bill ratio demonstrates the current demand for our products in the given period.
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2)
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Sales and Distribution Channels
We seek out distributors that have business experience and capabilities to support our growth plans in our targeted markets. A significant portion of our revenue is
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derived from sales to distributors who resell our products to end users. We have 92 distributors and Original Equipment Manufacturers (“OEMs”). In the United States and Canada, we currently have 23 distributors and OEMs. Outside of the United States and Canada, we currently have 69 distributors and OEMs. We continue to refine our distribution channels to address our specific targeted markets.
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3)
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Service
We provide service primarily through our global distribution network. Together with our global distribution network we offer a comprehensive FPP for a fixed annual fee to perform regularly scheduled and unscheduled maintenance as needed. We provide factory and on-site training to certify all personnel that are allowed to perform service on our microturbines. FPPs are generally paid quarterly in advance. Our FPP backlog at the end of Fiscal 2017 and Fiscal 2016 was $77.1 million and $66.5 million, respectively, which represents the value of the contractual agreement for FPP services that has not been earned and extends through Fiscal 2031. Additionally, we offer new and remanufactured parts through our global distribution network. Service revenue in Fiscal 2017 was approximately 18% of total revenue.
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4)
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Product Robustness and Life Cycle Maintenance Costs
We continue to invest in enhancements that relate to high performance and high reliability. An important element of our continued innovation and product strategy is to focus on the engineering of our product hardware and electronics to make them work together more effectively and deliver improved microturbine performance, reliability and low maintenance cost to our customers.
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5)
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New Product Development
Our new product development is targeted specifically to meet the needs of our selected vertical markets. We expect that our existing product platforms, the C30, C65, C200 and C1000 Series microturbines, will be our foundational product lines for the foreseeable future. Our research and development project portfolio is centered on enhancing the features of these base products. More recently, due to our cost reduction efforts, our focus is on expanding the existing products, including the launch of our C1000 Signature Series microturbine in December 2015.
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Our product development activities during Fiscal 2017 included new-patented fuel injector and certification of our C65 microturbine to applicable European Union medium voltage grid interconnection standards. In addition, we continued our development in our C200S ICHP microturbine and overall cost reduction for our Signature Series. We developed a new-patented multi-staged lean pre-vaporizing, pre-mixing fuel injector providing ultra-low emissions that meet EPA Tier 4 requirements for power generation. Under this new program, exhaust emissions from these engines will be required to decrease by more than 90%. Our C65, C200 and C1000 Series microturbines became VDE, BDEW and CEI certified during Fiscal 2017. These new standards were attained following the development and implementation of new microturbine system software architecture. The C200S microturbine incorporates numerous system and design upgrades intended to improve overall product quality, reliability, and performance. Our new C200S ICHP product further supports our effort to diversify our business into the CHP and CCHP energy efficiency markets, and the new roof mounted integrated CHP heat recovery modules designed specifically for our Signature Series product we aim to add additional revenue opportunities.
We are also developing a more efficient microturbine CHP system with the support of the DOE, which awarded us a grant of $5.0 million in support of this development program, of which $4.2 million was allocated to us and was used through September 30, 2015. We successfully completed the first phase of the development program on September 30, 2015 and achieved 270 kW with a prototype C250 microturbine in our development test lab. Management intends to continue with the next phase of development and commercialization after we achieve profitability. The next phase will be to continue development of the C250 product architecture as well as the associated power electronics and software controls required for successful commercialization.
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6)
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Cost and Core Competencies
We believe that the core competencies of our products are air‑bearing technology, advanced combustion technology and sophisticated power electronics to form efficient and
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ultra‑low emission electricity and cooling and heat production systems. Our core intellectual property is contained within our air‑bearing technology. We continue to review avenues for cost reduction by sourcing to the best value supply chain option. In order to
utilize manufacturing facilities and technology more effectively, we are focused on continuous improvements in manufacturing processes. Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, supply management and logistics. Management expects to be able to leverage our costs as product volumes increase.
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We believe that effective execution in each of these key areas will be necessary to leverage Capstone’s promising technology and early market leadership into achieving positive cash flow with growing market presence and improving financial performance. Based on our recent progress and assuming achievement of targeted cost reductions and product mix, pricing and performance, our financial model indicates that we will achieve positive cash flow when we generate $25 million in quarterly revenue with a 25% gross margin. We are in the process of consolidating our manufacturing processes into our Van Nuys location. We believe that once this is complete we will have a production capacity of approximately 2,000 units per year, depending on product mix. We believe we will be able to support this production capacity level by adding additional shifts, which would increase working capital requirements, and making some additional capital expenditures.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent liabilities. On an on‑going basis, we evaluate our estimates, including but not limited to those related to long‑lived assets, including finite‑lived intangible assets and fixed assets, bad debts, inventories, warranty obligations, stock‑based compensation, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that we believe 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 from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
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·
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We evaluate the carrying value of long‑lived assets, including intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Factors that are considered important that could trigger an impairment review include a current‑period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that demonstrates continuing losses or insufficient income associated with the use of a long‑lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on undiscounted estimated future cash flows compared with the carrying value of the related assets. If the undiscounted estimated future cash flows are less than the carrying value, an impairment loss is recognized and the loss is measured by the difference between the carrying value and the estimated fair value of the asset group. The estimated fair value of the assets is determined using the best information available. On a quarterly basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long‑lived assets may not be recoverable. Intangible assets include a manufacturing license, technology, backlog and customer relationships. We reevaluate the useful life determinations for these intangible assets each reporting period to determine whether events and circumstances warrant a revision in their remaining useful lives. We performed an analysis as of March 31, 2017 and 2016 and as a result, approximately $17,000 and $0.1 million of purchased TA100 backlog was written off to align with management’s decision to limit the production of TA100 systems on a case-by-case basis for key customers. See Note 5—Intangible Assets in the “Notes to Consolidated Financial Statements.”
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·
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Our inventories are valued on a first in first out (“FIFO”) basis and at the lower of cost or market. We routinely evaluate the composition of our inventories and identify slow‑moving, excess, obsolete or otherwise impaired inventories. Inventories identified as impaired are evaluated to determine if write‑downs are required. Included in this assessment is a review for obsolescence as a result of engineering changes in our product. Future product enhancement and development may render certain inventories obsolete, resulting in additional write‑downs of inventories. In addition, inventories are classified as current or long‑term based on our sales forecast and also, in part, based on our projected usage for warranty claims and service. A change in forecast could impact the classification of inventories.
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·
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We provide for the estimated cost of warranties at the time revenue from sales is recognized. We also accrue the estimated costs to address reliability repairs on products no longer under warranty when, in our judgment, and in accordance with a specific plan developed by us, it is prudent to provide such repairs. We estimate warranty expenses based upon historical and projected product failure rates, estimated costs of parts, labor and shipping to repair or replace a unit and the number of units covered under the warranty period. While we engage in extensive quality programs and processes, our warranty obligation is affected by failure rates and service costs in correcting failures. As we have more units commissioned and longer periods of actual performance, additional data becomes available to assess future warranty costs. When we have sufficient evidence that product changes are altering the historical failure occurrence rates, the impact of such changes is then taken into account in estimating future warranty liabilities. Changes in estimates are recorded in the period that new information, such as design changes, cost of repair and product enhancements, becomes available. Should actual failure rates or service costs differ from our estimates, revisions to the warranty liability would be required and could be material to our financial condition, results of operations and cash flow.
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·
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Our revenue consists of sales of products, parts, accessories and service, which includes FPPs, net of discounts. Our distributors purchase products, parts and FPPs for sale to end users and are also required to provide a variety of additional services, including application engineering, installation, commissioning and post‑commissioning service. Our standard terms of sales to distributors and direct end users include transfer of title, care, custody and control at the point of shipment, payment terms ranging from full payment in advance of shipment to payment in 90 days, no right of return or exchange, and no post‑shipment performance obligations by us except for warranties provided on the products and parts sold. We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, selling price is fixed or determinable and collectability is reasonably assured. Service revenue derived from time and materials contracts is recognized as the service is performed. FPP contracts are agreements to perform certain agreed‑upon service to maintain a product for a specified period of time. Service revenue derived from FPP contracts is recognized on a straight‑line basis over the contract period. We occasionally enter into agreements that contain multiple elements, such as equipment, installation, engineering and/or service.
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·
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Trade accounts receivable are recorded at the invoiced amount and typically non‑interest bearing. We maintain allowances for estimated losses resulting from the inability of our customers to make required payments and other accounts receivable allowances. We evaluate all accounts aged over 60 days past payment terms. If the financial condition of our customers deteriorates or if other conditions arise that result in an impairment of their ability or intention to make payments, additional allowances may be required.
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We have a history of unprofitable operations. These losses generated significant federal and state net operating loss (“NOL”) carryforwards. We record a valuation allowance against the net deferred income tax assets associated with these NOLs if it is “more likely than not” that we will not be able to utilize them to offset future income taxes. Because of the uncertainty surrounding the timing of realizing the benefits of our favorable tax attributes in future income tax returns, a valuation allowance has been provided against all of our net deferred income tax assets. We currently provide for income taxes only to the extent that we expect to pay cash taxes, primarily foreign and state taxes. It is possible, however, that we could be profitable in the future at levels which could cause management to determine that it is more likely than not
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that we will realize all or a portion of the NOL carryforwards. Upon reaching such a conclusion, we would record the amount of net deferred tax assets that are expected to be realized. Such adjustment would increase income in the period that the determination was made.
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·
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We recognize stock‑based compensation expense associated with stock options in the statement of operations. Determining the amount of stock‑based compensation to be recorded requires us to develop estimates to be used in calculating the grant‑date fair value of stock options. We calculate the grant‑date fair values using the Black‑Scholes valuation model.
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The use of Black‑Scholes model requires us to make estimates of the following assumptions:
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·
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Expected volatility
—The estimated stock price volatility was derived based upon our actual historic stock prices over the expected option life, which represents our best estimate of expected volatility.
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·
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Expected option life
—The expected life, or term, of options granted was derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding.
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·
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Risk‑free interest rate
—We used the yield on zero‑coupon U.S. Treasury securities for a period that is commensurate with the expected life assumption as the risk‑free interest rate.
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The amount of stock‑based compensation cost is recorded on a straight-line basis over the vesting period. During the fiscal year ended March 31, 2017, we adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting and established an accounting policy election to assume zero forfeiture for awards and account for forfeitures when they occur.
Results of Operations
Year Ended March 31, 2017 Compared to Year Ended March 31, 2016
The following table summarizes our revenue by geographic markets (amounts in millions):
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Year Ended March 31,
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2017
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2016
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Revenue
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|
Revenue
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United States and Canada
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|
$
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33.7
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|
$
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36.9
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|
Europe and Russia
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22.9
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16.3
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Latin America
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|
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8.6
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15.0
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Asia and Australia
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|
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10.0
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16.3
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Middle East and Africa
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|
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2.0
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|
|
0.7
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|
Total
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$
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77.2
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$
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85.2
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Revenue
Revenue for Fiscal 2017 decreased $8.0 million, or 9%, to $77.2 million from $85.2 million for Fiscal 2016. The change in revenue for Fiscal 2017 compared to Fiscal 2016 included decreases in revenue of $6.4 million from the Latin American market, $6.3 million from the Asian and Australian markets and $3.2 million from the United States and Canadian markets. These overall decreases in revenue were offset by increases in revenue of $6.6 million from the European and Russian markets and $1.3 million from the Middle East and African markets. The decrease in revenue in the Latin American market during Fiscal 2017 compared to the same period the previous year was primarily the result of a strong U.S. dollar and reduced capital and operational spending, particularly in the upstream and midstream sectors of the oil and gas markets. The decrease in revenue in the Asian and Australian markets was primarily the result of large non-recurring microturbine product shipments for specific projects that had occurred during Fiscal 2016. The decrease in revenue in the United States and Canadian markets during Fiscal 2017 compared to the same period the previous year was primarily the result of the continued volatility in the global oil and gas market. The increase
in revenue in the European and Russian markets during Fiscal 2017 compared to the same period the previous year was primarily because of our strategic initiative to improve the diversification of our revenue, the improvement of sales from BPC and additional revenue from new distributors in the Russian market. The increase in revenue in the Middle East and African markets during Fiscal 2017 compared to the same period in the previous year was primarily the result of our continued investment in key growth initiatives in those markets. Despite the increase in revenue in the Russian, Middle East and African markets, our revenue continues to be negatively impacted by the volatility of the global oil and gas markets, a strong U.S. dollar (making our products more expensive overseas) and ongoing geopolitical tensions in Russia, North Africa and the Middle East.
The following table summarizes our revenue (revenue amounts in millions):
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Year Ended March 31,
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2017
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|
2016
|
|
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|
Revenue
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Megawatts
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|
Units
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|
Revenue
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|
Megawatts
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Units
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|
Microturbine Product
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|
$
|
48.3
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|
49.3
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|
269
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|
$
|
58.4
|
|
60.0
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Accessories and Parts
|
|
|
15.0
|
|
|
|
|
|
|
14.7
|
|
|
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Service
|
|
|
13.9
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|
|
|
|
|
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12.1
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|
|
|
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Total Accessories, Parts and Service
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|
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28.9
|
|
|
|
|
|
|
26.8
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|
|
|
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|
Total
|
|
$
|
77.2
|
|
|
|
|
|
$
|
85.2
|
|
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|
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For Fiscal 2017, revenue from microturbine products decreased $10.1 million, or 17%, to $48.3 million from $58.4 million for Fiscal 2016. Megawatts shipped during Fiscal 2017 decreased 10.7 megawatts, or 18%, to 49.3 megawatts from 60.0 megawatts during Fiscal 2016. The decrease in revenue and megawatts shipped was because of delays of certain oil and gas projects, globally, resulting from the continued volatility in the oil and gas market. The timing of shipments is subject to change based on several variables (including customer deposits, payments, availability of credit and delivery schedule changes), most of which are not within our control and can affect the timing of our revenue. Average revenue per megawatt shipped was approximately $1.0 million during each of Fiscal 2017 and 2016.
For Fiscal 2017, revenue from our accessories and parts increased $0.3 million, or 2%, to $15.0 million from $14.7 million for Fiscal 2016. The increase in revenue from accessories and parts was primarily because of an increase in sales of accessories. During the three months ended March 31, 2017, we shipped ten of our new roof mounted integrated CHP heat recovery modules designed for our C1000 Signature Series systems, which added approximately $0.4 million of new accessories revenue.
Service revenue for Fiscal 2017 increased $1.8 million, or 15%, to $13.9 million from $12.1 million for Fiscal 2016. The increase in service revenue was primarily the result of our growing installed base and an increase in our energy efficiency customers purchasing our FPP service agreements.
Sales to E-Finity Distributed Generation, LLC (“E-Finity), one of our domestic distributors, accounted for 14% and 11% of our revenue for the years ended March 31, 2017 and 2016. Sales to Horizon Power Systems (“Horizon”), one of our domestic distributors, accounted for 11% and 15% of our revenue for Fiscal 2017 and Fiscal 2016, respectively. Sales to Dtc Soluciones Inmobiliarias S.A. de C.V. (“DTC”), one of our Mexican distributors, accounted for 10% of our revenue for the year ended March 31, 2016. Sales to Optimal Group Australia Pty Ltd (“Optimal”), one of our Australian distributors, accounted for 10% of our revenue for the year ended March 31, 2016.
Gross Margin
Cost of goods sold includes direct material costs, production and service center labor and overhead, inventory charges and provision for estimated product warranty expenses. The gross margin was $1.8 million, or 2% of revenue, for Fiscal 2017 compared to a gross margin of $12.8 million, or 15% of revenue, for Fiscal 2016. The decrease in gross margin of $11.0 million, compared to Fiscal 2016 was primarily because of incremental warranty expense of $6.9 million, lower volume of microturbines shipped and a shift in product mix of $6.0 million, offset by decreases in production labor and overhead expense of $0.9 million, inventory charges of $0.7 million and royalty expense of $0.3 million. In addition to consolidating our manufacturing processes into our Van Nuys location, management continues to implement initiatives to improve gross margin in Fiscal 2018 by further reducing
manufacturing overhead and fixed and direct material costs and improving product performance as we work to achieve profitability.
Warranty expense is a combination of a standard warranty provision recorded at the time revenue is recognized and changes, if any, in estimates for reliability repair programs. Reliability repair programs are based upon estimates that are recorded in the period that new information becomes available, including design changes, cost of repair and product enhancements, which can include both in-warranty and out-of-warranty systems. The increase in warranty expense of $6.9 million during Fiscal 2017 compared to Fiscal 2016 was primarily because of a one-time non-cash warranty provision to retrofit proactively select non-Signature Series C200 microturbines with the more robust new Signature Series generator components to improve product performance, reliability and customer satisfaction. In addition, warranty expense during Fiscal 2017 compared to Fiscal 2016 reflects accommodations and timing of claims in the current period and the result of a benefit in the same period last year related to the decrease in the number of units covered under warranty. Management expects warranty expense in Fiscal 2018 to be lower than in Fiscal 2017 primarily as a result of a decrease in reliability repair programs.
Production and service center labor and overhead expense decreased $0.9 million during Fiscal 2017 compared to Fiscal 2016 as a result of decreases in salaries expense of $1.0 million, $0.2 million of business travel expense, and $0.1 million of consulting expense. These decreases were primarily the result of our cost reduction program to lower labor and overhead expenses throughout the organization. These decreases were offset by an increase in manufacturing supplies expense of $0.4 million during Fiscal 2017 compared to Fiscal 2016 primarily because of the closeout of purchasing agreements resulting from changes in product configuration and engineering changes.
Inventory charges decreased $0.7 million during Fiscal 2017 compared to Fiscal 2016 primarily as the result of a decrease in the provision for excess and obsolete inventory. During Fiscal 2017 and Fiscal 2016, we made an allowance of approximately $0.5 million and $0.8 million, respectively, for slow-moving inventory in relation to our TA100 product line.
Royalty expense decreased $0.3 million during Fiscal 2017 compared to Fiscal 2016 primarily as a result of lower sales of our C1000 Series systems.
The following table summarizes our gross margin (in millions except percentages):
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Gross Margin
|
|
|
|
|
|
|
|
Product
|
|
$
|
(6.9)
|
|
$
|
5.6
|
|
As a percentage of product revenue
|
|
|
-14
|
%
|
|
10
|
%
|
|
|
|
|
|
|
|
|
Accessories, parts and service
|
|
$
|
8.7
|
|
$
|
7.2
|
|
As a percentage of accessories, parts and service revenue
|
|
|
30
|
%
|
|
27
|
%
|
|
|
|
|
|
|
|
|
Total Gross Margin
|
|
$
|
1.8
|
|
$
|
12.8
|
|
As a percentage of total revenue
|
|
|
2
|
%
|
|
15
|
%
|
Product gross margin decreased to a negative 14% during Fiscal 2017 compared to Fiscal 2016 primarily because of a one-time non-cash warranty provision, a decrease in product shipments and a shift in product mix. Accessories, parts and service gross margin increased to 30% during Fiscal 2017 compared to Fiscal 2016 primarily because of our growing installed base, increase in energy efficiency customers purchasing our FPP service agreements and timing of FPP services performed.
Research and Development Expenses (“R&D”)
R&D expenses for Fiscal 2017 decreased $4.8 million, or 47%, to $5.4 million from $10.2 million for Fiscal 2016. The overall decrease in R&D expenses of approximately $4.8 million resulted from decreases in salaries expense of approximately $2.5 million, supplies expense of $1.7 million, consulting expense of $0.7 million and business travel expense of $0.1 million. These overall decreases were offset by a
reduction in cost-sharing benefits of $0.2 million. As part of our initiatives to reduce operating expenses and achieve profitability, during Fiscal 2016, we reduced the number of active research projects, which included the development of the C250 microturbine. Management expects R&D expenses in Fiscal 2018 to be lower than in Fiscal 2017 as a result of the continued cost reduction initiatives.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for Fiscal 2017 decreased $6.4 million, or 24%, to $20.7 million from $27.1 million for Fiscal 2016. The net decrease in SG&A expenses was comprised of decreases of approximately $3.5 million in salaries expense, $0.9 million in marketing expense, $0.8 million in professional services expense, including accounting expenses, $0.5 million in business travel expense, $0.5 million in facilities expense and $0.4 million in consulting expense. These overall decreases were offset by an increase in supplies expense of $0.2 million. These decreases were primarily the result of our cost reduction program to lower operating expenses throughout the organization. Excluding bad debt recovery, management expects SG&A expenses in Fiscal 2018 to be lower than in Fiscal 2017 primarily as a result of our continued initiatives to reduce operating expenses and achieve profitability.
Interest Expense
Interest expense decreased $0.1 million, or 17%, to $0.5 million during Fiscal 2017 from $0.6 million for Fiscal 2016. Interest expense is primarily from the average balances outstanding under our former credit facility with Wells Fargo. As of March 31, 2017, we had total debt of $11.5 million outstanding under the credit facility.
Income Tax Provision
Income tax expense decreased $1,000, or 5%, to $19,000 during Fiscal 2017 from $20,000 during Fiscal 2016. Income tax expense incurred was related to state and foreign taxes. The effective income tax rate of −0.1% differs from the federal and state blended statutory rate of approximately 35% primarily as a result of recording taxable losses. At March 31, 2017, we had federal and state net operating loss carryforwards of approximately $678 million and $160.2 million, respectively, which may be utilized to reduce future taxable income, subject to limitations under Section 382 of the Internal Revenue Code of 1986. We provided a valuation allowance for 100% of our net deferred tax asset of $269.3 million at March 31, 2017 because the realization of the benefits of these favorable tax attributes in future income tax returns is not deemed more likely than not. Similarly, at March 31, 2016, the net deferred tax asset was fully reserved.
Quarterly Results of Operations
The following table presents unaudited quarterly financial information. This information was prepared in accordance with GAAP, and, in the opinion of management, contains all adjustments necessary for a fair presentation of such quarterly information when read in conjunction with the financial statements included elsewhere herein. Our operating results for any prior quarters may not necessarily indicate the results for any future periods.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2017
|
|
Year Ended March 31, 2016
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
(Unaudited)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Revenue
|
|
$
|
22,921
|
|
$
|
20,185
|
|
$
|
14,998
|
|
$
|
19,065
|
|
$
|
18,867
|
|
$
|
21,459
|
|
$
|
17,905
|
|
$
|
26,980
|
|
Cost of goods sold
|
|
|
20,802
|
|
|
24,184
|
|
|
14,328
|
|
|
16,066
|
|
|
16,764
|
|
|
17,408
|
|
|
15,977
|
|
|
22,295
|
|
Gross margin
|
|
|
2,119
|
|
|
(3,999)
|
|
|
670
|
|
|
2,999
|
|
|
2,103
|
|
|
4,051
|
|
|
1,928
|
|
|
4,685
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D
|
|
|
1,135
|
|
|
1,282
|
|
|
1,350
|
|
|
1,621
|
|
|
1,959
|
|
|
2,905
|
|
|
2,872
|
|
|
2,416
|
|
SG&A
|
|
|
5,021
|
|
|
4,848
|
|
|
5,036
|
|
|
5,746
|
|
|
5,310
|
|
|
7,002
|
|
|
6,705
|
|
|
8,089
|
|
Loss from operations
|
|
|
(4,037)
|
|
|
(10,129)
|
|
|
(5,716)
|
|
|
(4,368)
|
|
|
(5,166)
|
|
|
(5,856)
|
|
|
(7,649)
|
|
|
(5,820)
|
|
Net loss
|
|
$
|
(4,631)
|
|
$
|
(8,909)
|
|
$
|
(5,865)
|
|
$
|
(4,516)
|
|
$
|
(5,319)
|
|
$
|
(6,015)
|
|
$
|
(7,882)
|
|
$
|
(5,975)
|
|
Net loss per common share—basic (1)
|
|
$
|
(0.13)
|
|
$
|
(0.26)
|
|
$
|
(0.19)
|
|
$
|
(0.17)
|
|
$
|
(0.25)
|
|
$
|
(0.34)
|
|
$
|
(0.48)
|
|
$
|
(0.36)
|
|
Net loss per common share—diluted (1)
|
|
$
|
(0.13)
|
|
$
|
(0.28)
|
|
$
|
(0.19)
|
|
$
|
(0.17)
|
|
$
|
(0.25)
|
|
$
|
(0.34)
|
|
$
|
(0.48)
|
|
$
|
(0.36)
|
|
|
(1)
|
|
Loss per-share amounts for each of the three months ended June 30, 2015 and September 30, 2015, has been retroactively adjusted to reflect our 1-for-20 reverse stock split, which was effective November 6, 2015.
|
During the three months ended March 31, 2017, we recorded approximately $0.2 million in bad debt recovery with respect to the collection of cash for receivables from BPC previously reserved during Fiscal 2015. During the three months ended March 31, 2017 we made an allowance of approximately $0.5 million in cost of goods sold for slow-moving inventory in relation to our TA100 product line.
During the three months ended March 31, 2016, we recorded approximately $1.4 million in bad debt recovery in SG&A with respect to the collection of cash for receivables from EMI previously reserved during Fiscal 2015. During the three months ended March 31, 2016 we made an allowance of approximately $0.7 million in cost of goods sold for slow-moving inventory in relation to our TA100 product line.
Liquidity and Capital Resources
Our cash requirements depend on many factors, including the execution of our plan. We expect to continue to devote substantial capital resources to running our business and implementing the strategic changes summarized herein. Our planned capital expenditures for the year ending March 31, 2018 include approximately $1.0 million for plant and equipment costs related to manufacturing and operations. We have invested our cash in institutional funds that invest in high quality short‑term money market instruments to provide liquidity for operations and for capital preservation.
Our cash, cash equivalents and restricted cash balances increased $3.0 million during the year ended March 31, 2017, compared to a decrease of $15.5 million during the year ended March 31, 2016. The overall improvement in cash used during Fiscal 2017 compared to Fiscal 2016 was primarily the result of proceeds from the issuance of common stock and warrants and underwritten public offerings as described below.
Operating Activities
During the year ended March 31, 2017, we used $18.5 million in cash in our operating activities, which consisted of a net loss for the period of $23.9 million and cash used for working capital of $3.4 million, offset by non‑cash adjustments (primarily warranty provision, accounts receivable allowances, depreciation and amortization, stock based compensation and inventory provision) of $8.8 million. During the year ended March 31, 2016, we used $22.5 million in cash in our operating activities, which consisted of a net loss for the period of $25.2 million and cash used for working capital of $2.4 million, offset by non‑cash adjustments of $5.1 million.
The following is a summary of the significant sources (uses) of cash from operating activities (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Net loss
|
|
$
|
(23,921)
|
|
$
|
(25,191)
|
|
Non-cash operating activities(1)
|
|
|
8,828
|
|
|
5,092
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,903)
|
|
|
1,021
|
|
Inventories
|
|
|
1,491
|
|
|
5,161
|
|
Accounts payable and accrued expenses
|
|
|
1,405
|
|
|
(8,317)
|
|
Other changes in operating assets and liabilities
|
|
|
(4,446)
|
|
|
(234)
|
|
Net cash used in operating activities
|
|
$
|
(18,546)
|
|
$
|
(22,468)
|
|
|
(1)
|
|
Represents
warranty provision, change in fair value of warrant liability, depreciation and amortization, stock-based compensation expense, inventory provision and accounts receivable allowances.
|
The change in non-cash operating activities during the year ended March 31, 2017 compared to the same period the previous year was primarily the result of a warranty provision to retrofit proactively select non-Signature Series C200 microturbines with the more robust new Signature Series generator components to improve product performance, reliability and customer satisfaction. In addition, non-cash operating activities includes the change in fair value of warrant liability for certain warrants issued in our October 2016 Offering (defined below) of common stock and warrants. The change in accounts receivable was the result of lower revenue and slower collection of accounts receivable during the year ended March 31, 2017 compared to the year ended March 31, 2016. The change in inventory was primarily the result of a decrease in raw materials and finished goods during the year ended March 31, 2017 compared to the same period the previous year. The change in accounts payable and accrued expenses was primarily the result of the level of inventory receipts and timing of payments made by us during the year ended March 31, 2017 compared to the same period the previous year. The change in other operating assets and liabilities was primarily because of warranty payments for the proactive retrofit of certain non-Signature Series C200 microturbines during the year ended March 31, 2017 compared to the year ended March 31, 2016.
Investing Activities
Net cash used in investing activities of $0.2 million and $1.5 million during the years ended March 31, 2017 and 2016 relates primarily to the acquisition of fixed assets.
Financing Activities
During the year ended March 31, 2017, we generated approximately $21.7 million in financing activities compared to cash generated during the year ended March 31, 2016 of approximately $8.5 million. The funds generated from financing activities during the year ended March 31, 2017 were primarily the result of proceeds from the October 2016 Offering of common stock and warrants described below, the April 2016 Offering (defined below), and proceeds from the credit facility, offset by repayments of notes payable and capital lease obligations. The funds generated from financing activities during the year ended March 31, 2016 were primarily the result of proceeds from the at-the-market offering program described below, offset by net repayments under the credit facility and the repayment of notes payable and capital lease obligations.
On October 18, 2016, we entered into a securities purchase agreement with certain accredited investors, pursuant to which we agreed to sell 3,600,000 shares of common stock, pre-funded Series B warrants to purchase up to 2,700,000 shares of common stock (“the October 2016 Offering”), and Series A warrants to purchase up to 6,300,000 shares of common stock. Pursuant to a placement agent agreement, dated as of October 18, 2016, we engaged
Oppenheimer & Co. Inc. as the lead placement agent for the offering and ROTH Capital Partners, LLC as co-placement agent for the offering. Each share of common stock was sold at a price of $1.20. Each Series B warrant was issued with an exercise price of $1.20 per share of common stock, $1.19 of which was pre-funded at closing and $0.01 of which is payable upon exercise. Each Series A warrant was issued with an initial exercise price of $1.34 per share of common stock. These Series A warrants contain anti-dilution provisions that reduce the exercise price of the warrants if certain dilutive issuances occur. The anti-dilution provisions of the Series A warrants are subject to approval by our stockholders. The Series A warrants are classified as liabilities under the caption “Warrant liability” in the accompanying balance sheets and recorded at estimated fair value with the corresponding charge under the caption “Change in fair value of warrant liability” in the accompanying statements of operations. See Part I, Item 1, Note 10—Fair Value Measurements for disclosure regarding the fair value of financial instruments. The net proceeds to us from this offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $6.8 million. The offering closed on October 21, 2016.
On April 19, 2016, we entered into an underwriting agreement with Oppenheimer & Co. Inc. as the sole book-running manager, and Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC, as the co-manager, related to public offering of 2.7 million shares of our common stock and pre-funded Series B warrants to purchase up to 5.5 million shares of common stock, which were offered in lieu of common stock to those purchasers whose purchase of common stock in the offering otherwise would result in the purchaser beneficially owning more than 4.99% of our outstanding common stock following the completion of the offering (the “April 2016 Offering”). Also included in the offering were Series A warrants to purchase 4.1 million shares of common stock. Every two shares of common stock were sold with one Series A warrant to purchase one share of common stock at a collective negotiated price of $3.50. Every two Series B warrants were sold with one Series A warrant to purchase one share of common stock at a collective negotiated price of $3.48. The net proceeds to us from the sale of the common stock and warrants, after deducting fees and other offering expenses, were approximately $13.1 million. The offering closed on April 22, 2016.
Effective August 28, 2015, we entered into a sales agreement with respect to an at-the-market offering program pursuant to which we may offer and sell, from time to time at its sole discretion, shares of our common stock, having an aggregate offering price of up to $30.0 million. We will set the parameters for sales of the shares, including the number to be sold, the time period during which sales are requested to be made, any limitation on the number that may be sold in one trading day and any minimum price below which sales may not be made. During the three months ended March 31, 2017, we issued 0.4 million shares of our common stock under the at-the-market offering program and the net proceeds to us from the sale of our common stock were approximately $0.3 million after deducting commissions paid of approximately $8,800. As of March 31, 2017, 7.3 million shares of our common stock were sold pursuant to the at-the-market offering program and the net proceeds to us from the sale of the common stock were approximately $12.8 million after deducting commissions paid of approximately $0.4 million. As of March 31, 2017, $12.2 million remained available for issuance with respect to the at-the-market offering program.
There were no stock options exercised during the years ended March 31, 2017 and 2016, respectively. Employee stock purchases, net of repurchases of shares of our common stock for employee taxes due on vesting of restricted stock units, resulted in approximately $16,000 of net cash used during the year ended March 31, 2017, compared with $0.1 million of net cash used during the year ended March 31, 2016.
Former Credit Facility
We maintained two Credit Agreements, with Wells Fargo, which provided us with a line of credit of up to $20.0 million in the aggregate (the “Credit Agreements”). The twelfth amendment to the Credit Agreements provided us the right, under certain circumstances, to increase the borrowing capacity available under our revolving lines of credit to an aggregate maximum of $20.0 million from an aggregate maximum of $15.0 million (the “Accordion Feature”). In addition, Wells Fargo provided us with a non-revolving capital expenditure line of credit up to $0.5 million to acquire additional eligible equipment for use in our business. Effective as of June 30, 2015, we exercised the Accordion Feature, thereby increasing the maximum borrowing capacity available to a maximum of $20.0 million. The amount actually available to us varied from time to time depending on, among other factors, the amount of our eligible inventory and accounts receivable. As security for the payment and performance of the credit facility, we granted a security interest in favor of Wells Fargo in substantially all of our assets. As of March 31, 2017 and March 31, 2016, $11.5 million and $9.5 million in borrowings were outstanding, respectively, under the credit facility.
The Credit Agreements included affirmative covenants as well as negative covenants that prohibit a variety of actions without Wells Fargo’s consent, including covenants that limit our ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or similar transaction or purchase all or substantially all of the assets or stock of another entity, (d) pay dividends on, or purchase, acquire, redeem or retire shares of, our capital stock, (e) sell, assign, transfer or otherwise dispose of all or substantially all of our assets, (f) change our accounting method or (g) enter into a different line of business. Furthermore, the Credit Agreements contained financial covenants, including (i) a requirement not to exceed specified levels of losses, (ii) a requirement to maintain a substantial minimum monthly cash balance to outstanding line of credit advances based upon our financial performance, and (iii) limitations on our annual capital expenditures.
Several times since entering into the Credit Agreements we were not in compliance with certain covenants under the credit facility. In connection with each event of noncompliance, Wells Fargo waived the event of default and, on several occasions, we amended the Credit Agreements in response to the default and waiver.
On June 10, 2015, we received from Wells Fargo a waiver of one such event of noncompliance, and as a condition of the amended Credit Agreements, we had restricted $5.0 million of cash equivalents as additional security for the credit facility.
If we had not obtained the waivers and amended the Credit Agreements, we would not have been able to draw additional funds under the credit facility. In addition, we pledged our accounts receivables, inventories, equipment, patents and other assets as collateral for our Credit Agreements, which would be subject to seizure by Wells Fargo if we were in default under the Credit Agreements and unable to repay the indebtedness. Wells Fargo also had the option to terminate the Credit Agreements or accelerate the indebtedness during a period of noncompliance. On February 7, 2017, we and Wells Fargo entered into an amendment to the Credit Agreements regarding the release of restricted cash and the exclusion of certain items from the financial covenant calculations. As of March 31, 2017, we were in compliance with the covenants contained in the amended Credit Agreements for Fiscal 2017.
Upon closing with Bridge Bank, our existing credit facilities with Wells Fargo were paid off in full.
New Credit Facility
On June 2, 2017, we entered into two secured credit facilities (the “Bridge Bank Credit Agreements”) with Western Alliance Bank through its Bridge Bank division (“Bridge Bank”), with credit support provided by the Export-Import Bank of the United States through its working capital guarantee program. Under the terms of the Bridge Bank Credit Agreements, we may borrow up to $12.0 million on a revolving basis depending on, among other factors, the amount of our eligible inventory and accounts receivable. The Bridge Bank Credit Agreements are for a two-year period ending June 2, 2019.
Total borrowings, letter of credit obligations and the then aggregate committed amount of cash management services under the Bridge Bank Credit Agreements may not exceed 85% of the sum of unrestricted cash and the amount of cash collateral held at Bridge Bank. As a condition of the Bridge Bank Credit Agreements, we have restricted $5.0 million of cash equivalents as additional security for the credit facility. Borrowings under the Bridge Bank Credit Agreements will bear per annum interest at the prime rate plus 1.5 percent, subject to increase during the occurrence of an event of default. Obligations under the Bridge Bank Credit Agreements are secured by all of our assets, including intellectual property and general intangibles.
The Bridge Bank Credit Agreements include affirmative covenants as well as negative covenants that prohibit a variety of actions without Bridge Bank’s consent, including covenants that limit our ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or similar transaction or purchase all or substantially all of the assets or stock of another entity, or (d) sell, assign, transfer or otherwise dispose of our assets.
The financial covenants of the domestic credit agreement with Bridge Bank (the “Domestic Facility”) requires us not to exceed specified levels of losses relative to our financial model and the outstanding line of credit advances may not exceed 85% of the sum of unrestricted cash and the amount of cash collateral held at Bridge Bank. The Domestic Facility also defines an event of default to include a material adverse effect on our business. An event of default for this or any other reason, if not waived, could have a material adverse effect on us.
Working Capital
Cash used in working capital was $3.4 million during the year ended March 31, 2017, an increase of $1.0 million from the $2.4 million cash used during the year ended March 31, 2016. We attribute the increase in our working capital primarily because of higher warranty payments and accounts receivable, offset by decreases in
inventory and accounts payable payments made by us. Additionally, we didn’t fully achieve our planned number of product shipments during the year ended March 31, 2017, resulting in lower than expected revenue primarily in the oil and gas markets.
Based on our current operating plan, we anticipates that, given current working capital levels, current financial projections, the ability to borrow under our credit facility with Bridge Bank and the funds raised by selling additional securities through the at-the-market offering as of the date of issuance of our Fiscal 2017 financial statements. We believe we will be able to meet our financial obligations as they become due over the next twelve months from the date of issuance of our Fiscal 2017 financial statements. We believe we will be able to meet our financial obligations as they become due over the next twelve months from the date of issuance of our Fiscal 2017 financial statements.
Evaluation of Ability to Maintain Current Level of Operations
In connection with preparing the consolidated financial statements for the year ended March 31, 2017, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about our ability to meet our obligations as they became due for the next twelve months from the date of issuance of our Fiscal 2017 financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, negative cash flows from operating activities, the continued negative impact by the volatility of the global oil and gas markets, a strong U.S. dollar (making our products more expensive overseas) and ongoing geopolitical tensions in Russia, North Africa and Middle East. Our working capital requirements during Fiscal 2017 were higher than planned, primarily as a result of warranty claims related to the proactive retrofit for non-Signature Series C200 microturbines. Additionally, we did not fully achieve our planned number of product shipments during Fiscal 2017, resulting in lower than expected revenue. We incurred a net loss of $23.9 million and used cash in operating activities of $18.5 million for Fiscal 2017. In addition, at March 31, 2017, we had cash, cash equivalents and restricted cash of $19.7 million, and outstanding borrowings under our credit facility of $11.5 million.
Management evaluated these conditions in relation to our ability to meet our obligations as they become due. Our ability to continue current operations and to execute on management’s plan is dependent on our ability to generate cash flows from operations. Management believes that we will continue to make progress on our path to profitability by continuing to lower our operating costs and to develop our geographical and vertical markets. We may seek to raise funds by selling additional securities (through the at-the-market offering or otherwise) to the public or to selected investors or by obtaining additional debt financing. There is no assurance that we will be able to obtain additional funds on commercially favorable terms or at all. If we raise additional funds by issuing additional equity or convertible debt securities, the fully diluted ownership percentages of existing stockholders will be reduced. In addition, any equity or debt securities that we would issue may have rights, preferences or privileges senior to those of the holders of our common stock.
Based on our current operating plan, management anticipates that, given current working capital levels, current financial projections, the ability to borrow under our new credit facility and the funds raised by selling additional securities through the at-the-market offering as of the date of issuance of our Fiscal 2017 financial statements, we will be able to meet our financial obligations as they become due over the next twelve months from the date of issuance of its Fiscal 2017 financial statements.
Depending on the timing of our future sales and collection of related receivables, managing inventory costs and the timing of inventory purchases and deliveries required to fulfill the backlog, our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will require us to achieve significantly increased sales volume which is dependent on many factors, including:
|
·
|
|
the market acceptance of our products and services;
|
|
·
|
|
our business, product and capital expenditure plans;
|
|
·
|
|
capital improvements to new and existing facilities;
|
|
·
|
|
our competitors’ response to our products and services;
|
|
·
|
|
our relationships with customers, distributors, dealers and project resellers; and
|
|
·
|
|
our customers’ ability to afford and/or finance our products.
|
Our accounts receivable balance, net of allowances, was $17.0 million and $13.6 million as of March 31, 2017 and March 31, 2016, respectively. Days sales outstanding in accounts receivable, (“DSO”), increased by two days to 68 days as of March 31, 2017 compared to 66 days as of March 31, 2016. We recorded net bad debt recovery of approximately $1.5 million for each of the years ended March 31, 2017 and 2016. During Fiscal 2015, we recorded approximately $7.1 million and $2.6 million with respect to the accounts receivable allowances from BPC and EMI, respectively.
No assurances can be given that future bad debt expense will not increase above current operating levels. Increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on cash flows and results of operations. In addition, our ability to access the capital markets may be severely restricted or made very expensive at a time when we need, or would like, to do so, which could have a material adverse impact on our liquidity and financial resources. Certain industries in which our customers do business and certain geographic areas have been and could continue to be adversely affected by the current economic environment.
Off‑Balance Sheet Arrangements
We do not have any material off‑balance sheet arrangements.
Inflation
Inflation did not have a material impact on our results of operations or financial condition for the fiscal years ended March 31, 2017 and 2016. In an effort to offset the adverse impact of inflation on earnings, we have historically raised selling prices on all products, parts, accessories and services. However, any future adverse impact of inflation on our raw materials and energy costs may not be similarly recoverable through our selling price increases.
Impact of Recently Issued Accounting Standards
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which amends guidance and presentation related to restricted cash in the statement of cash flows, including stating that amounts generally described as restricted cash and restricted cash equivalents should be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. We adopted ASU 2016-18 for the fiscal year ended March 31, 2017, and retrospectively applied ASU 2016-18 as required.
Prior to the adopting ASU No. 2016-18, our consolidated statements of cash flows reported changes in restricted cash as financing activities and excluded restricted cash from the beginning and ending balances of cash and cash equivalents. The effect on prior periods of adopting the new guidance includes: (i) increase in cash, cash equivalents, and restricted cash balance as of March 31, 2016 to $16.7 million and (ii) increase of $5.0 million in cash flows used in financing activities for the fiscal year ended March 31, 2016. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheets that sum to amounts reported on the consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Cash and cash equivalents
|
|
$
|
14,191
|
|
$
|
11,704
|
|
Restricted cash
|
|
|
5,514
|
|
|
5,002
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
19,705
|
|
$
|
16,706
|
|
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 changes certain aspects of accounting for share-based payments to employees and involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Specifically, ASU 2016-09 requires that all income tax effects of share-based awards be recognized as income tax expense or benefit in the reporting period in which they occur. Additionally, ASU 2016-09 amends existing guidance to allow forfeitures of share-based awards to be recognized as they occur. Previous guidance required that share-based compensation expense include an estimate of forfeitures. We have elected to early adopt ASU 2016-09 as of April 1, 2016 and made a policy election to account for forfeitures as they occur. As of March 31, 2016, the Company had $11.2 million of unrealized excess tax benefits associated with share-based compensation. As a result of the adoption of ASU 2016-09 the Company recognized these tax benefits as a credit to retained earnings and a debit to the deferred tax asset. See Note 8—Income Taxes for further discussion on changes as a result of the adoption of ASU 2016-09. Other than these reclassifications, the effect of excess tax benefits on the provision for income taxes, and the adjustment to retained earnings, we do not believe the adoption of ASU 2016-09 will materially impact our consolidated financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). The purpose of ASU 2016-02 is to provide financial statement users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 will result in the recognition of a right-of-use asset and a lease liability for most operating leases. New disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires a modified retrospective transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective with the option to elect certain practical expedients. Early adoption is permitted. We are currently evaluating the impact of ASU 2016-02 on our consolidated financial position and results of operations.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost or net realizable value. ASU 2015-11 is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. We do not believe that the provisions of ASU 2015-11 will have a material effect on our consolidated financial position or results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). The ASU was issued as part of FASB’s current plan to simplify overly complex standards. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The update requires retrospective application to all prior period amounts presented. This update is effective for annual and interim periods beginning on or after December 15, 2015, with early application permitted for financial statements that have not been issued. We adopted ASU 2015-03 with no impact on our consolidated financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We adopted ASU 2014-15 with no impact on our consolidated financial position or results of operations.
Revenue Recognition Related ASUs:
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).
ASU 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (“ASU 2014-09”), which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
In March 2016, the FASB issued FASB ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (“ASU 2016-08”). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (“ASU 2016-10”). ASU 2016-10 clarifies the implementation guidance for identifying performance obligations and determining when to recognize revenue on licensing agreements for intellectual property.
In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition and Derivatives and Hedging: Rescission of SEC Guidance Because of ASU 2014-09 and ASU 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (“ASU 2016-11”). ASU 2016-11 rescinds certain SEC staff comments previously made in regard to these ASU’s.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) that provide guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.
In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to ASU 2014-09. The amendments in ASU 2014-09 affect narrow aspects of the guidance in ASU 2014-09, which is not yet effective. The amendments in ASU 2014-09 address loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type contracts, and various disclosures.
We are evaluating our existing revenue recognition policies and the impact of ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016- 10, ASU 2016-11, ASU 2016-12 and ASU 2016-20, if any, on our financial position and results of operations. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for ASU 2014-09. We will be required to adopt the revenue recognition standard in annual reporting periods beginning after December 15, 2017 (fiscal year ending March 31, 2019) and interim periods within those annual periods.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this Item.
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements and Financial Statement Schedule included in this Form 10‑K beginning at page F‑1 are incorporated in this Item 8 by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this Form 10‑K for the year ended March 31, 2017, an evaluation was performed under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a‑15(e) under the Exchange Act). Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective as of March 31, 2017 to ensure that the information required to be disclosed by us in reports we submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms prescribed by the SEC. Additionally, such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a‑15(f) or 15d‑15(f) under the Exchange Act as a process designed by, or under the supervision of, our CEO and CFO and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
|
·
|
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
|
|
·
|
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|
|
·
|
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that we maintained effective internal control over financial reporting as of March 31, 2017.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors
The information required by this Item will be included in the Company’s 2017 Proxy Statement to be filed with the U.S. Securities and Exchange Commission (“SEC”) in connection with the solicitation of proxies for the Company’s 2017 Annual Meeting of Shareholders (“2017 Proxy Statement”) and is incorporated herein by reference. Such Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates.
Item 11. Executive Compensation.
The information required by this Item will be included in the Company’s 2017 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be included in the Company’s 2017 Proxy Statement and is incorporated herein by reference
.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be included in the Company’s 2017 Proxy Statement and is incorporated herein by reference
.
Item 14. Principal Accounting Firm Fees and Services.
The information required by this Item will be included in the Company’s 2017 Proxy Statement and is incorporated herein by reference
.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) 1. and 2. Financial statements and financial statement schedule
The financial statements, notes and financial statement schedule are listed in the Index to Consolidated Financial Statements on page F‑1 of this Report.
3. Exhibits
The exhibits filed as part of this Form 10-K are set forth on the Exhibit Index immediately following the signatures of this Form 10-K. The Exhibit Index is incorporated herein by reference.
Item 16. Form 10-K Summary.
Not applicable.
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial statement schedules not included in this Form 10‑K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Capstone Turbine Corporation, Inc.:
We have audited the accompanying consolidated balance sheet of Capstone Turbine Corporation (the “Company”) as of March 31, 2017, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company has retrospectively changed its method of reporting cash flows during the year ended March 31, 2017 due to the adoption of FASB ASU 2016-18, Restricted Cash.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capstone Turbine Corporation, as of March 31, 2017, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
We have also audited the adjustment to the consolidated financial statements of the Company as of and for the year ended March 31, 2016 to retrospectively apply the change in the method of reporting cash flows, as described in Note 2 to the consolidated financial statements. In our opinion, such adjustment is appropriate and has been properly applied. We were not engaged to audit, review or apply any procedures to the consolidated financial statements of the Company as of and for the year ended March 31, 2016 other than with respect to the adjustment and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements of the Company as of and for the year ended March 31, 2016 taken as a whole.
(signed) Marcum LLP
Irvine, California
June 13, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Capstone Turbine Corporation:
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in note 2, the accompanying consolidated balance sheet of Capstone Turbine Corporation and subsidiaries as of March 31, 2016, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year then ended. The 2016 financial statements before the effects of the adjustments discussed in note 2 are not presented herein. The 2016 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2016 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in note 2, present fairly, in all material respects, the financial position of Capstone Turbine Corporation and subsidiaries as of March 31, 2016, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by a successor auditor.
(signed) KPMG LLP
Los Angeles, California
June 9, 2016
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,191
|
|
$
|
11,704
|
|
Restricted cash
|
|
|
5,514
|
|
|
5,002
|
|
Accounts receivable, net of allowances of $6,845 at March 31, 2017 and $8,909 at March 31, 2016
|
|
|
17,003
|
|
|
13,575
|
|
Inventories
|
|
|
14,538
|
|
|
16,126
|
|
Prepaid expenses and other current assets
|
|
|
3,073
|
|
|
2,636
|
|
Total current assets
|
|
|
54,319
|
|
|
49,043
|
|
Property, plant and equipment, net
|
|
|
2,115
|
|
|
3,537
|
|
Non-current portion of inventories
|
|
|
961
|
|
|
2,143
|
|
Intangible assets, net
|
|
|
651
|
|
|
941
|
|
Other assets
|
|
|
225
|
|
|
228
|
|
Total assets
|
|
$
|
58,271
|
|
$
|
55,892
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
14,719
|
|
$
|
13,187
|
|
Accrued salaries and wages
|
|
|
1,819
|
|
|
1,880
|
|
Accrued warranty reserve
|
|
|
3,766
|
|
|
1,639
|
|
Deferred revenue
|
|
|
5,050
|
|
|
4,368
|
|
Revolving credit facility
|
|
|
11,533
|
|
|
9,459
|
|
Current portion of notes payable and capital lease obligations
|
|
|
302
|
|
|
361
|
|
Warrant liability
|
|
|
2,917
|
|
|
—
|
|
Total current liabilities
|
|
|
40,106
|
|
|
30,894
|
|
Long-term portion of notes payable and capital lease obligations
|
|
|
26
|
|
|
74
|
|
Other long-term liabilities
|
|
|
158
|
|
|
184
|
|
Total liabilities
|
|
|
40,290
|
|
|
31,152
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; 10,000,000 shares authorized; none issued
|
|
|
—
|
|
|
—
|
|
Common stock, $.001 par value; 515,000,000 shares authorized, 38,920,174 shares issued and 38,803,630 shares outstanding at March 31, 2017; 23,857,516 shares issued and 23,753,873 shares outstanding at March 31, 2016
|
|
|
39
|
|
|
24
|
|
Additional paid-in capital
|
|
|
870,457
|
|
|
853,288
|
|
Accumulated deficit
|
|
|
(850,876)
|
|
|
(826,955)
|
|
Treasury stock, at cost; 116,544 shares at March 31, 2017 and 103,643 shares at March 31, 2016
|
|
|
(1,639)
|
|
|
(1,617)
|
|
Total stockholders’ equity
|
|
|
17,981
|
|
|
24,740
|
|
Total liabilities and stockholders’ equity
|
|
$
|
58,271
|
|
$
|
55,892
|
|
See accompanying notes to consolidated financial statements.
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
Product, accessories and parts
|
|
$
|
63,325
|
|
$
|
73,116
|
|
Service
|
|
|
13,844
|
|
|
12,095
|
|
Total revenue
|
|
|
77,169
|
|
|
85,211
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
Product, accessories and parts
|
|
|
64,453
|
|
|
61,866
|
|
Service
|
|
|
10,927
|
|
|
10,578
|
|
Total cost of goods sold
|
|
|
75,380
|
|
|
72,444
|
|
Gross margin
|
|
|
1,789
|
|
|
12,767
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,388
|
|
|
10,152
|
|
Selling, general and administrative
|
|
|
20,651
|
|
|
27,106
|
|
Total operating expenses
|
|
|
26,039
|
|
|
37,258
|
|
Loss from operations
|
|
|
(24,250)
|
|
|
(24,491)
|
|
Other expense
|
|
|
(470)
|
|
|
(40)
|
|
Interest income
|
|
|
31
|
|
|
—
|
|
Interest expense
|
|
|
(536)
|
|
|
(640)
|
|
Change in fair value of warrant liability
|
|
|
1,323
|
|
|
—
|
|
Loss before income taxes
|
|
|
(23,902)
|
|
|
(25,171)
|
|
Provision for income taxes
|
|
|
19
|
|
|
20
|
|
Net loss
|
|
$
|
(23,921)
|
|
$
|
(25,191)
|
|
|
|
|
|
|
|
|
|
Net loss per common share—basic and diluted
|
|
$
|
(0.75)
|
|
$
|
(1.39)
|
|
Weighted average shares used to calculate basic and diluted net loss per common share
|
|
|
32,074
|
|
|
18,162
|
|
See accompanying notes to consolidated financial statements.
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
Treasury Stock
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Shares
|
|
Amount
|
|
Equity
|
|
Balance, March 31, 2015
|
|
16,590,058
|
|
$
|
17
|
|
$
|
837,965
|
|
$
|
(801,764)
|
|
62,794
|
|
$
|
(1,514)
|
|
$
|
34,704
|
|
Purchase of treasury stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
40,849
|
|
|
(103)
|
|
|
(103)
|
|
Vested restricted stock awards
|
|
250,735
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
2,406
|
|
|
—
|
|
—
|
|
|
—
|
|
|
2,406
|
|
Exercise of stock options and employee stock purchases
|
|
5,658
|
|
|
—
|
|
|
13
|
|
|
—
|
|
—
|
|
|
—
|
|
|
13
|
|
Stock awards to Board of Directors
|
|
92,520
|
|
|
—
|
|
|
164
|
|
|
—
|
|
—
|
|
|
—
|
|
|
164
|
|
Issuance of common stock, net of issuance costs
|
|
6,918,545
|
|
|
7
|
|
|
12,740
|
|
|
—
|
|
—
|
|
|
—
|
|
|
12,747
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,191)
|
|
—
|
|
|
—
|
|
|
(25,191)
|
|
Balance, March 31, 2016
|
|
23,857,516
|
|
|
24
|
|
|
853,288
|
|
|
(826,955)
|
|
103,643
|
|
|
(1,617)
|
|
|
24,740
|
|
Purchase of treasury stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
12,901
|
|
|
(22)
|
|
|
(22)
|
|
Vested restricted stock awards
|
|
96,111
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
706
|
|
|
—
|
|
—
|
|
|
—
|
|
|
706
|
|
Exercise of stock options and employee stock purchases
|
|
10,063
|
|
|
—
|
|
|
9
|
|
|
—
|
|
—
|
|
|
—
|
|
|
9
|
|
Stock awards to Board of Directors
|
|
65,167
|
|
|
—
|
|
|
104
|
|
|
—
|
|
—
|
|
|
—
|
|
|
104
|
|
Issuance of common stock, net of issuance costs
|
|
14,891,317
|
|
|
15
|
|
|
16,350
|
|
|
—
|
|
—
|
|
|
—
|
|
|
16,365
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,921)
|
|
—
|
|
|
—
|
|
|
(23,921)
|
|
Balance, March 31, 2017
|
|
38,920,174
|
|
$
|
39
|
|
$
|
870,457
|
|
$
|
(850,876)
|
|
116,544
|
|
$
|
(1,639)
|
|
$
|
17,981
|
|
See accompanying notes to consolidated financial statements.
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,921)
|
|
$
|
(25,191)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,577
|
|
|
1,746
|
|
Amortization of deferred financing costs
|
|
|
173
|
|
|
172
|
|
Accounts receivable allowances
|
|
|
(1,525)
|
|
|
(1,459)
|
|
Inventory provision
|
|
|
1,278
|
|
|
1,925
|
|
Provision for warranty expenses
|
|
|
7,052
|
|
|
111
|
|
Loss on disposal of equipment
|
|
|
365
|
|
|
27
|
|
Stock-based compensation
|
|
|
810
|
|
|
2,570
|
|
Change in fair value of warrant liability
|
|
|
(1,323)
|
|
|
—
|
|
Warrant issuance expenses
|
|
|
421
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,903)
|
|
|
1,021
|
|
Inventories
|
|
|
1,491
|
|
|
5,161
|
|
Prepaid expenses and other current assets
|
|
|
(117)
|
|
|
314
|
|
Accounts payable and accrued expenses
|
|
|
1,405
|
|
|
(8,317)
|
|
Accrued salaries and wages and long term liabilities
|
|
|
(87)
|
|
|
(210)
|
|
Accrued warranty reserve
|
|
|
(4,925)
|
|
|
(1,655)
|
|
Deferred revenue
|
|
|
683
|
|
|
1,317
|
|
Net cash used in operating activities
|
|
|
(18,546)
|
|
|
(22,468)
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
Expenditures for property and equipment
|
|
|
(204)
|
|
|
(1,513)
|
|
Net cash used in investing activities
|
|
|
(204)
|
|
|
(1,513)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
Net proceeds from (repayments of) revolving credit facility
|
|
|
2,074
|
|
|
(3,494)
|
|
Repayment of notes payable and capital lease obligations
|
|
|
(497)
|
|
|
(697)
|
|
Cash used in employee stock-based transactions
|
|
|
(16)
|
|
|
(91)
|
|
Net proceeds from issuance of common stock and warrants
|
|
|
20,188
|
|
|
12,748
|
|
Net cash provided by financing activities
|
|
|
21,749
|
|
|
8,466
|
|
Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash
|
|
|
2,999
|
|
|
(15,515)
|
|
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
|
|
|
16,706
|
|
|
32,221
|
|
Cash, Cash Equivalents and Restricted Cash, End of Period
|
|
$
|
19,705
|
|
$
|
16,706
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
363
|
|
$
|
473
|
|
Income taxes
|
|
$
|
24
|
|
$
|
24
|
|
Supplemental Disclosures of Non-Cash Information:
|
|
|
|
|
|
|
|
Acquisition of property and equipment through accounts payable
|
|
$
|
45
|
|
$
|
28
|
|
Renewal of insurance contracts which was financed by notes payable
|
|
$
|
503
|
|
$
|
477
|
|
Acquisition of property and equipment in consideration for the issuance of a note payable
|
|
$
|
—
|
|
$
|
101
|
|
See accompanying notes to consolidated financial statements.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Capstone Turbine Corporation (the “Company”) develops, manufactures, markets and services microturbine technology solutions for use in stationary distributed power generation applications, including cogeneration (combined heat and power (“CHP”), integrated combined heat and power (“ICHP”), and combined cooling, heat and power (“CCHP”)), renewable energy, natural resources and critical power supply. In addition, the Company’s microturbines can be used as battery charging generators for hybrid electric vehicle applications. The Company was organized in 1988 and has been commercially producing its microturbine generators since 1998.
This Annual Report on Form 10‑K (this “Form 10‑K”) refers to the Company’s fiscal years ended March 31 as its “Fiscal” years.
The consolidated financial statements include the accounts of the Company, Capstone Turbine International, Inc., its wholly owned subsidiary that was formed in June 2004, Capstone Turbine Singapore Pte., Ltd., its wholly owned subsidiary that was formed in February 2011, and Capstone Turbine Financial Services, LLC, its wholly owned subsidiary that was formed in October 2015, after elimination of inter-company transactions. In connection with the Company’s strategic plan to reduce its operating expenses, the Company is in the process of dissolving Capstone Turbine Singapore Pte., Ltd.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers only those investments that are highly liquid and readily convertible to cash with original maturities of three months or less at date of purchase as cash equivalents.
Fair Value of Financial Instruments
The carrying value of certain financial instruments, including cash equivalents, accounts receivable, accounts payable, revolving credit facility and notes payable approximate fair market value based on their short‑term nature. See Note 10—Fair Value Measurements, for disclosure regarding the fair value of other financial instruments.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and are typically non‑interest bearing. The Company maintains allowances for estimated losses resulting from the inability of customers to make required payments and other accounts receivable allowances. Changes in the accounts receivable allowances are as follows as of March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
Balance, March 31, 2015
|
|
$
|
11,041
|
|
Accounts receivable allowances
|
|
|
(1,459)
|
|
Deductions
|
|
|
(673)
|
|
Balance, March 31, 2016
|
|
|
8,909
|
|
Accounts receivable allowances
|
|
|
(1,525)
|
|
Deductions
|
|
|
(539)
|
|
Balance, March 31, 2017
|
|
$
|
6,845
|
|
Inventories
The Company values inventories at first in first out (“FIFO”) basis and lower of cost or market. The composition of inventory is routinely evaluated to identify slow-moving, excess, obsolete or otherwise impaired inventories. Inventories identified as impaired are evaluated to determine if write-downs are required. Included in the assessment is a review for obsolescence as a result of engineering changes in the Company’s products. All inventories expected to be used in more than one year are classified as long-term. During Fiscal 2017 and Fiscal 2016, we recorded an allowance of approximately $0.5 million and $0.8 million, respectively, for slow-moving inventory in relation to our TA100 product line.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation and Amortization
Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the related assets, ranging from two to ten years. Leasehold improvements are amortized over the lease term or the estimated useful lives of the assets, whichever is shorter. Intangible assets that have finite useful lives are amortized over their estimated useful lives using the straight-line method with the exception of the backlog of 100 kW microturbines (“TA100”) acquired from Calnetix Power Solutions, Inc. (“CPS”). Purchased backlog is amortized based on unit sales and presented as a component of cost of goods sold.
Long-Lived Assets
The Company reviews the recoverability of long-lived assets, including intangible assets with finite lives, whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the expected future cash flows from the use of such assets (undiscounted and without interest charges) are less than the carrying value, the Company may be required to record a write‑down, which is determined based on the difference between the carrying value of the assets and their estimated fair value. The Company performed an analysis as of March 31, 2017 and 2016 and as a result, approximately $17,000 and $0.1 million of purchased TA100 backlog was written off to align with management’s decision to limit the production of TA100 systems on a case-by-case basis for key customers. Intangible assets include a manufacturing license, trade name, technology, backlog and customer relationships. See Note 5—Intangible Assets.
Deferred Revenue
Deferred revenue consists of deferred product and service revenue and customer deposits. Deferred revenue will be recognized when earned in accordance with the Company’s revenue recognition policy. The Company has the right to retain all or part of customer deposits under certain conditions.
Revenue
The Company’s revenue consists of sales of products, parts, accessories and service, which includes a comprehensive Factory Protection Plan (“FPP”), net of discounts. Capstone’s distributors purchase products, parts and FPPs for sale to end users and are also required to provide a variety of additional services, including application engineering, installation, commissioning and post‑commissioning repair and maintenance service. The Company’s standard terms of sales to distributors and direct end‑users include transfer of title, care, custody and control at the point of shipment, payment terms ranging from full payment in advance of shipment to payment in 90 days, no right of return or exchange, and no post‑shipment performance obligations by Capstone except for warranties provided on the products and parts sold.
Revenue from the sale of products, parts and accessories is generally recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred. Delivery generally occurs when the title and the risks and rewards of ownership have substantially transferred to the customer. Assuming all other revenue recognition criteria have been met, if it is determined that collection is not reasonably assured, revenue will not be recognized until collectability is reasonably assured, which is generally upon receipt of payment. Management’s estimates regarding the collectability of a particular sale may impact the timing of actual revenue recognized each period.
Service performed by the Company has consisted primarily of time and materials based contracts. The time and materials contracts are usually related to out‑of‑warranty units. Service revenue derived from time and materials contracts is recognized as the service is performed. The Company also provides maintenance service contracts to customers of its existing installed base. The maintenance service contracts are agreements to perform certain services to maintain a product for a specified period of time. Service revenue derived from maintenance service contracts is recognized on a straight‑line basis over the contract period.
Warranty
The Company provides for the estimated costs of warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the product sold and geography of sale. The Company’s product warranties generally start from the delivery date and continue for up to twenty-four months. Factors that affect the Company’s warranty obligation include product failure rates, anticipated hours of product operations and costs of repair or replacement in correcting product failures. These factors are estimates that may change based on new information that becomes available each period. Similarly, the Company also accrues the estimated costs to address
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reliability repairs on products no longer in warranty when, in the Company’s judgment, and in accordance with a specific plan developed by the Company, it is prudent to provide such repairs. The Company assesses the adequacy of recorded warranty liabilities quarterly and makes adjustments to the liability as necessary. When the Company has sufficient evidence that product changes are altering the historical failure occurrence rates, the impact of such changes is then taken into account in estimating future warranty liabilities.
Research and Development (“R&D”)
The Company accounts for grant distributions and development funding as offsets to R&D expenses and both are recorded as the related costs are incurred. There were no offsets to R&D during the fiscal year ended March 31, 2017. Total offset to R&D expenses was $0.2 million for the fiscal year ended March 31, 2016.
Income Taxes
Deferred income tax assets and liabilities are computed for differences between the consolidated financial statement and income tax basis of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized.
Contingencies
The Company records an estimated loss from a loss contingency when information available prior to issuance of its financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.
Risk Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. At March 31, 2017, the majority of our cash balances were held at financial institutions located in California. The accounts at these institutions are insured by the Federal Deposit Insurance Corporation up to certain limits. Balances that exceed the insurance coverage aggregate to approximately $19.0 million as of March 31, 2017. The Company places its cash and cash equivalents with high credit quality institutions. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses.
Sales to E‑Finity Distributed Generation, LLC (“E‑Finity), one of the Company’s domestic distributors, accounted for 14% and 11% of our revenue for the fiscal years ended March 31, 2017 and 2016. Sales to Horizon Power Systems (“Horizon”), one of the Company’s domestic distributors, accounted for 11%, and 15% of our revenue for the fiscal year ended March 31, 2017 and 2016, respectively. Sales to Dtc Soluciones Inmobiliarias S.A. de C.V. (“DTC”), one of the Company’s Mexican distributors, accounted for 10% of revenue for the fiscal year ended March 31, 2016. Sales to Optimal Group Australia Pty Ltd (“Optimal”), one of the Company’s Australian distributors, accounted for 10% of revenue for the fiscal year ended March 31, 2016. Additionally, E-Finity, DTC and Reliable Secure Power Systems, one of the Company’s domestic distributors (“RSP”), accounted for 29%, 12% and 10%, respectively, of net accounts receivable as of March 31, 2017. DTC, Optimal, RSP, and Regale Energy Zrt, the Company’s Hungarian distributor (“Regale”), accounted for 28%, 11%, 10% and 10%, respectively, of net accounts receivable as of March 31, 2016.
The Company recorded bad debt recovery of approximately $1.5 million for each of the fiscal years ended March 31, 2017 and 2016. During the fiscal year ended March 31, 2015, the Company recorded approximately $7.1 million and $2.6 million with respect to the accounts receivable allowances from BPC Engineering (“BPC”), one of the Company’s Russian distributors and Electro Mecanique Industries (“EMI”), one of the Company’s distributors in the Middle East and Africa, respectively.
Certain components of the Company’s products are available from a limited number of suppliers. An interruption in supply could cause a delay in manufacturing, which would affect operating results adversely.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include accounting for accounts receivable allowances, stock‑based compensation, inventory write‑downs, valuation of long‑lived assets including intangible assets with finite lives, product warranties, income taxes and other contingencies. Actual results could differ from those estimates.
Net Loss Per Common Share
Basic loss per common share is computed using the weighted‑average number of common shares outstanding for the period. Diluted loss per share is also computed without consideration to potentially dilutive instruments because the Company incurred losses which would make such instruments antidilutive. Outstanding stock options at March 31, 2017 and 2016 were 0.3 million and 0.5 million, respectively. Outstanding restricted stock units at each of March 31, 2017 and 2016 were 0.3 million. As of March 31, 2017, the number of warrants excluded from diluted net loss per common share computations was approximately 10.4 million. As of March 31, 2016, the Company did not have any warrants outstanding.
Stock‑Based Compensation
Options or stock awards are recorded at their estimated fair value at the measurement date. The Company recognizes compensation cost for options and stock awards that have a graded vesting schedule on a straight‑line basis over the requisite service period for the entire award.
Evaluation of Ability to Maintain Current Level of Operations
In connection with preparing the consolidated financial statements for the fiscal year ended March 31, 2017, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to meet its obligations as they became due for the next twelve months from the date of issuance of its Fiscal 2017 financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, negative cash flows from operating activities, the continued negative impact caused by the volatility of the global oil and gas markets, a strong U.S. dollar (making our products more expensive overseas) and ongoing geopolitical tensions in Russia, North Africa and the Middle East. The Company’s working capital requirements during the fiscal year ended March 31, 2017 were higher than planned, primarily as a result of warranty claims related to the proactive retrofit for non-Signature Series C200 microturbines. Additionally, the Company did not fully achieve its planned number of product shipments during the fiscal year ended March 31, 2017, resulting in lower than expected revenue. The Company incurred a net loss of $23.9 million and used cash in operating activities of $18.5 million during the fiscal year ended March 31, 2017. In addition, as of March 31, 2017, the Company had cash, cash equivalents and restricted cash of $19.7 million, and outstanding borrowings under its credit facility of $11.5 million.
Management evaluated these conditions in relation to the Company’s ability to meet its obligations as they become due. The Company’s ability to continue current operations and to execute on management’s plans is dependent on its ability to generate cash flows from operations. Management believes that the Company will continue to make progress on its path to profitability by continuing to lower its operating costs and to develop its geographical and vertical markets. The Company may seek to raise funds by selling additional securities (through the at-the-market offering or otherwise) to the public or to selected investors or by obtaining additional debt financing. There is no assurance that the Company will be able to obtain additional funds on commercially favorable terms or at all. If the Company raises additional funds by issuing additional equity or convertible debt securities, the fully diluted ownership percentages of existing stockholders will be reduced. In addition, any equity or debt securities that the Company would issue may have rights, preferences or privileges senior to those of the holders of its common stock.
On June 2, 2017, the Company, entered into two secured credit facilities (the “Bridge Bank Credit Agreements”) with Western Alliance Bank through its Bridge Bank division (“Bridge Bank”), with credit support provided by the Export-Import Bank of the United States through its working capital guarantee program. Under the terms of the Bridge Bank Credit Agreements, the Company may borrow up to $12.0 million on a revolving basis depending on, among other factors, the amount of its eligible inventory and accounts receivable. The Bridge Bank Credit Agreements are for a two-year period ending June 2, 2019. See Note 11—Revolving Credit Facility, for discussion of the
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
credit facilities with Bridge Bank.
The Company maintained two Credit and Security Agreements, with Wells Fargo Bank, National Association (“Wells Fargo”), which provided the Company with a credit facility up to $20.0 million in the aggregate. Upon closing with Bridge Bank the Company’s existing credit facilities with Wells Fargo, were paid off in full.
Based on the Company’s current operating plan, management anticipates that, given current working capital levels, current financial projections
, the ability to borrow under its credit facility with Bridge Bank and the
funds raised by selling additional securities through the at-the-market offering as of the date of issuance of its Fiscal 2017 financial statements
, the Company will be able to meet its financial obligations as they become due over the next twelve months from the date of issuance of its Fiscal 2017 financial statements.
Segment Reporting
The Company is considered to be a single reporting segment. The business activities of this reporting segment are the development, manufacture and sale of turbine generator sets and their related parts and service. Following is the geographic revenue information based on the primary operating location of the Company’s customers (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
United States
|
|
$
|
33,746
|
|
$
|
36,667
|
|
Mexico
|
|
|
2,777
|
|
|
11,598
|
|
All other North America
|
|
|
—
|
|
|
318
|
|
Total North America
|
|
|
36,523
|
|
|
48,583
|
|
Russia
|
|
|
8,379
|
|
|
1,828
|
|
All other Europe
|
|
|
14,537
|
|
|
14,513
|
|
Total Europe
|
|
|
22,916
|
|
|
16,341
|
|
Asia
|
|
|
4,960
|
|
|
7,643
|
|
Australia
|
|
|
4,985
|
|
|
8,557
|
|
All other
|
|
|
7,785
|
|
|
4,087
|
|
Total Revenue
|
|
$
|
77,169
|
|
$
|
85,211
|
|
The following table summarizes the Company’s revenue by product (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
C30
|
|
$
|
2,608
|
|
$
|
1,815
|
|
C65
|
|
|
11,985
|
|
|
12,291
|
|
C200
|
|
|
1,878
|
|
|
3,884
|
|
C600
|
|
|
5,058
|
|
|
6,194
|
|
C800
|
|
|
4,615
|
|
|
8,058
|
|
C1000
|
|
|
21,537
|
|
|
25,877
|
|
Waste heat recovery generator
|
|
|
100
|
|
|
—
|
|
Unit upgrades
|
|
|
512
|
|
|
281
|
|
Total from Microturbine Products
|
|
|
48,293
|
|
|
58,400
|
|
Accessories and Parts
|
|
|
15,032
|
|
|
14,716
|
|
Total Product, Accessories and Parts
|
|
|
63,325
|
|
|
73,116
|
|
Service
|
|
|
13,844
|
|
|
12,095
|
|
Total Revenue
|
|
$
|
77,169
|
|
$
|
85,211
|
|
Substantially all of the Company’s operating assets are in the United States.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recent Accounting Pronouncements
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which amends guidance and presentation related to restricted cash in the statement of cash flows, including stating that amounts generally described as restricted cash and restricted cash equivalents should be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company adopted ASU 2016-18 for the fiscal year ended March 31, 2017, and retrospectively applied ASU 2016-18 as required.
Prior to the adopting ASU No. 2016-18, the Company’s consolidated statements of cash flows reported changes in restricted cash as financing activities and excluded restricted cash from the beginning and ending balances of cash and cash equivalents. The effect on prior periods of adopting the new guidance includes: (i) increase in cash, cash equivalents, and restricted cash balance as of March 31, 2016 to $16.7 million and (ii) increase of $5.0 million in cash flows used in financing activities for the fiscal year ended March 31, 2016. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheets that sum to amounts reported on the consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Cash and cash equivalents
|
|
$
|
14,191
|
|
$
|
11,704
|
|
Restricted cash
|
|
|
5,514
|
|
|
5,002
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
19,705
|
|
$
|
16,706
|
|
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 changes certain aspects of accounting for share-based payments to employees and involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Specifically, ASU 2016-09 requires that all income tax effects of share-based awards be recognized as income tax expense or benefit in the reporting period in which they occur. Additionally, ASU 2016-09 amends existing guidance to allow forfeitures of share-based awards to be recognized as they occur. Previous guidance required that share-based compensation expense include an estimate of forfeitures. The Company has elected to early adopt ASU 2016-09 as of April 1, 2016 and made a policy election to account for forfeitures as they occur. As of March 31, 2016, the Company had $11.2 million of unrealized excess tax benefits associated with share-based compensation. As a result of the adoption of ASU 2016-09 the Company recognized these tax benefits as a credit to retained earnings and a debit to the deferred tax asset. See Note 8—Income Taxes for further discussion on changes as a result of the adoption of ASU 2016-09. Other than these reclassifications, the effect of excess tax benefits on the provision for income taxes, and the adjustment to retained earnings, the Company does not believe the adoption of ASU 2016-09 will materially impact its consolidated financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). The purpose of ASU 2016-02 is to provide financial statement users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 will result in the recognition of a right-of-use asset and a lease liability for most operating leases. New disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires a modified retrospective transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial position and results of operations.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or net realizable value. ASU 2015-11 is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not believe that the provisions of ASU 2015-11 will have a material effect on its consolidated financial position or results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). The ASU was issued as part of FASB’s current plan to simplify overly complex standards. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The update requires retrospective application to all prior period amounts presented. This update is effective for annual and interim periods beginning on or after December 15, 2015, with early application permitted for financial statements that have not been issued. The Company adopted ASU 2015-03 with no impact on its consolidated financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company adopted ASU 2014-15 with no impact on its consolidated financial position or results of operations.
Revenue Recognition Related ASUs:
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (“ASU 2014-09”), which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
In March 2016, the FASB issued FASB ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (“ASU 2016-08”). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (“ASU 2016-10”). ASU 2016-10 clarifies the implementation guidance for identifying performance obligations and determining when to recognize revenue on licensing agreements for intellectual property.
In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition and Derivatives and Hedging: Rescission of SEC Guidance Because of ASU 2014-09 and ASU 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (“ASU 2016-11”). ASU 2016-11 rescinds certain SEC staff comments previously made in regard to these ASU’s.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) that provide guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.
In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to ASU 2014-09. The amendments in ASU 2014-09 affect narrow aspects of the guidance in ASU 2014-09, which is not yet effective. The amendments in ASU 2014-09 address loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type contracts, and various disclosures.
The Company is evaluating its existing revenue recognition policies and the impact of ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016- 10, ASU 2016-11, ASU 2016-12 and ASU 2016-20, if any, on its financial position and results of operations. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for ASU 2014-09. The Company will be required to adopt the revenue recognition standard in annual reporting periods beginning after December 15, 2017 (fiscal year ending March 31, 2019) and interim periods within those annual periods.
3. Inventories
Inventories are valued on a FIFO basis and lower of cost or market and consisted of the following as of March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Raw materials
|
|
$
|
15,035
|
|
$
|
16,539
|
|
Work in process
|
|
|
—
|
|
|
554
|
|
Finished goods
|
|
|
464
|
|
|
1,176
|
|
Total
|
|
|
15,499
|
|
|
18,269
|
|
Less non-current portion
|
|
|
(961)
|
|
|
(2,143)
|
|
Current portion
|
|
$
|
14,538
|
|
$
|
16,126
|
|
The non‑current portion of inventories represents that portion of the inventories in excess of amounts expected to be used in the next twelve months. The non‑current inventories are primarily comprised of repair parts for older generation products that are still in operation, but are not technologically compatible with current configurations. The weighted average age of the non‑current portion of inventories on hand as of March 31, 2017 is 1.9 years. The Company expects to use the non‑current portion of the inventories on hand as of March 31, 2017 over the periods presented in the following table (in thousands):
|
|
|
|
|
|
|
|
Non-current Inventory
|
|
|
|
|
Balance Expected
|
|
Expected Period of Use
|
|
|
to be Used
|
|
13 to 24 months
|
|
$
|
716
|
|
25 to 36 months
|
|
|
198
|
|
37 to 48 months
|
|
|
47
|
|
Total
|
|
$
|
961
|
|
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2017 and 2016 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Machinery, rental equipment, equipment, automobiles and furniture
|
|
$
|
17,657
|
|
$
|
19,016
|
|
Leasehold improvements
|
|
|
9,870
|
|
|
9,855
|
|
Molds and tooling
|
|
|
2,866
|
|
|
2,824
|
|
|
|
|
30,393
|
|
|
31,695
|
|
Less, accumulated depreciation
|
|
|
(28,278)
|
|
|
(28,158)
|
|
Total property, plant and equipment, net
|
|
$
|
2,115
|
|
$
|
3,537
|
|
Depreciation expense for property, plant and equipment was $1.3 million for each of the fiscal years ended March 31, 2017 and 2016.
5. Intangible Assets
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Intangible
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
Assets,
|
|
Accumulated
|
|
Intangible
|
|
|
|
Period
|
|
Gross
|
|
Amortization
|
|
Assets, Net
|
|
Manufacturing license
|
|
17 years
|
|
$
|
3,700
|
|
$
|
3,684
|
|
$
|
16
|
|
Technology
|
|
10 years
|
|
|
2,240
|
|
|
1,605
|
|
|
635
|
|
Trade name & parts, service and TA100 customer relationships
|
|
1.2 to 5 years
|
|
|
1,766
|
|
|
1,766
|
|
|
—
|
|
Total
|
|
|
|
$
|
7,706
|
|
$
|
7,055
|
|
$
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Intangible
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
Assets,
|
|
Accumulated
|
|
Intangible
|
|
|
|
Period
|
|
Gross
|
|
Amortization
|
|
Assets, Net
|
|
Manufacturing license
|
|
17 years
|
|
$
|
3,700
|
|
$
|
3,635
|
|
$
|
65
|
|
Technology
|
|
10 years
|
|
|
2,240
|
|
|
1,381
|
|
|
859
|
|
Backlog
|
|
Various
|
|
|
490
|
|
|
473
|
|
|
17
|
|
Trade name & parts, service and TA100 customer relationships
|
|
1.2 to 5 years
|
|
|
1,766
|
|
|
1,766
|
|
|
—
|
|
Total
|
|
|
|
$
|
8,196
|
|
$
|
7,255
|
|
$
|
941
|
|
Amortization expense for the intangible assets was $0.3 million and $0.4 million for each of the fiscal years ended March 31, 2017 and 2016. During the years ended March 31, 2017 and 2016, approximately $17,000 and $0.1 million of purchased TA100 backlog was written off to align with management’s decision to limit the production of TA100 systems on a case-by-case basis for key customers.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expected future amortization expense of intangible assets as of March 31, 2017 is as follows (in thousands):
|
|
|
|
|
|
|
Amortization
|
|
Year Ending March 31,
|
|
Expense
|
|
2018
|
|
|
240
|
|
2019
|
|
|
224
|
|
2020
|
|
|
187
|
|
Thereafter
|
|
|
—
|
|
Total expected future amortization
|
|
$
|
651
|
|
The manufacturing license provides the Company with the ability to manufacture recuperator cores previously purchased from Solar Turbines Incorporated (“Solar”). The Company is required to pay a per‑unit royalty fee over a seventeen-year period for cores manufactured and sold by the Company using the technology. Royalties of approximately $32,100 and $35,000 were earned by Solar for the fiscal years ended March 31, 2017 and 2016, respectively. Earned royalties of approximately $10,000 and $35,000 were unpaid as of March 31, 2017 and 2016, respectively, and are included in accrued expenses in the accompanying balance sheets.
6. Accrued Warranty Reserve
During the fiscal year ended March 31, 2017, the Company recorded a one-time non-cash warranty provision of approximately $5.2 million to retrofit proactively selected non-Signature Series C200 microturbines with the more robust new Signature Series generator components to improve product performance and reliability. The balance of this reliability repair program as of March 31, 2017 was $2.2 million. Changes in the accrued warranty reserve are as follows as of March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Balance, beginning of the period
|
|
$
|
1,639
|
|
$
|
3,183
|
|
Standard warranty provision
|
|
|
1,944
|
|
|
127
|
|
Accrual related to reliability repair programs
|
|
|
5,108
|
|
|
(16)
|
|
Deductions for warranty claims
|
|
|
(4,925)
|
|
|
(1,655)
|
|
Balance, end of the period
|
|
$
|
3,766
|
|
$
|
1,639
|
|
7. Deferred Revenue
Changes in deferred revenue are as follows as of March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
FPP Balance, beginning of the period
|
|
$
|
2,929
|
|
$
|
2,491
|
|
FPP Billings
|
|
|
13,447
|
|
|
11,419
|
|
FPP Revenue recognized
|
|
|
(12,962)
|
|
|
(10,981)
|
|
Balance attributed to FPP contracts
|
|
|
3,414
|
|
|
2,929
|
|
Deposits
|
|
|
1,636
|
|
|
1,439
|
|
Deferred revenue balance, end of the period
|
|
$
|
5,050
|
|
$
|
4,368
|
|
Deferred revenue attributed to FPP contracts represents the unearned portion of our agreements. FPP agreements are generally paid quarterly in advance with revenue recognized on a straight line basis over the contract period. Deposits are primarily non-refundable cash payments from distributors for future orders.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes
Current income tax provision is the amount of income taxes reported or expected to be reported on our income tax return. The provision for current income taxes for the fiscal year ended March 31, 2017 was $19,000, which was related to state income and foreign taxes. The Company did not have current federal income taxes for the fiscal year ended March 31, 2017.
Actual income tax expense differed from the amount computed by applying statutory corporate income tax rates to loss from operations before income taxes. A reconciliation of income tax (benefit) expense to the federal statutory rate follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Federal income tax at the statutory rate
|
|
$
|
(8,127)
|
|
$
|
(8,558)
|
|
State taxes, net of federal effect
|
|
|
(225)
|
|
|
(250)
|
|
Foreign taxes
|
|
|
31
|
|
|
109
|
|
R&D tax credit
|
|
|
(298)
|
|
|
(451)
|
|
Impact of state rate change
|
|
|
(270)
|
|
|
478
|
|
Warrant liability
|
|
|
(474)
|
|
|
—
|
|
Valuation allowance
|
|
|
5,918
|
|
|
5,596
|
|
Shortfall in tax benefit—stock compensation
|
|
|
3,352
|
|
|
3,058
|
|
Other
|
|
|
112
|
|
|
38
|
|
Income tax expense (benefit)
|
|
$
|
19
|
|
$
|
20
|
|
The Company’s deferred tax assets and liabilities consisted of the following at March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,921
|
|
$
|
2,903
|
|
Warranty reserve
|
|
|
1,383
|
|
|
616
|
|
Bad debt reserve
|
|
|
2,514
|
|
|
3,350
|
|
Deferred revenue
|
|
|
1,254
|
|
|
1,101
|
|
Net operating loss (“NOL”) carryforwards
|
|
|
244,874
|
|
|
226,007
|
|
Tax credit carryforwards
|
|
|
19,784
|
|
|
19,411
|
|
Depreciation, amortization and impairment loss
|
|
|
2,505
|
|
|
3,045
|
|
Other
|
|
|
2,517
|
|
|
4,212
|
|
Deferred tax assets
|
|
|
277,752
|
|
|
260,645
|
|
Valuation allowance for deferred tax assets
|
|
|
(269,299)
|
|
|
(252,349)
|
|
Deferred tax assets, net of valuation allowance
|
|
|
8,453
|
|
|
8,296
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Federal benefit of state taxes
|
|
|
(8,453)
|
|
|
(8,296)
|
|
Net deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
Because of the uncertainty surrounding the timing of realizing the benefits of favorable tax attributes in future income tax returns, the Company has placed a valuation allowance against its net deferred income tax assets. The change in valuation allowance for fiscal years ended March 31, 2017 and 2016 was $17.0 million and $5.6 million, respectively. The $17.0 million change in valuation allowance for fiscal year ended March 31, 2017 includes a current year income tax expense of $5.9 million and recognition of previously unrecognized excess tax benefits of $11.2 million as a result of the Company’s adoption of ASU 2016-09.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s NOL and tax credit carryforwards for federal and state income tax purposes at March 31, 2017 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
|
|
|
|
Amount
|
|
Period
|
|
Federal NOL
|
|
$
|
677,995
|
|
2018 - 2035
|
|
State NOL
|
|
$
|
160,223
|
|
2017 - 2035
|
|
Federal tax credit carryforwards
|
|
$
|
10,093
|
|
2018 - 2035
|
|
State tax credit carryforwards
|
|
$
|
9,692
|
|
Indefinite
|
|
The NOLs and federal and state tax credits can be carried forward to offset future taxable income, if any. Utilization of the NOLs and tax credits are subject to an annual limitation of approximately $57.3 million due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The federal tax credit carryforward is a research and development credit, which may be carried forward. The state tax credits consist of a research and development credit can be carried forward indefinitely.
Accounting Standards Codification (“ASC”) 740, Income Taxes clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on management’s evaluation, the total amount of unrecognized tax benefits related to research and development credits as of March 31, 2017 and 2016 was $2.8 million and $2.7 million, respectively. There were no interest or penalties related to unrecognized tax benefits as of March 31, 2017 or March 31, 2016. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of March 31, 2017 and March 31, 2016 was $2.8 million and $2.7 million, respectively. However, this impact would be offset by an equal increase in the deferred tax valuation allowance as the Company has recorded a full valuation allowance against its deferred tax assets because of uncertainty as to future realization. The fully reserved recognized federal and state deferred tax assets related to research and development credits balance as of March 31, 2017 and 2016 was $10.2 million and $9.8 million, and $9.9 million and $9.5 million, respectively.
A reconciliation of the beginning and ending amount of total gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at March 31, 2015
|
|
$
|
2,564
|
|
Gross increase related to prior year tax positions
|
|
|
13
|
|
Gross increase related to current year tax positions
|
|
|
124
|
|
Lapse of statute of limitations
|
|
|
—
|
|
Balance at March 31, 2016
|
|
$
|
2,701
|
|
Gross increase related to prior year tax positions
|
|
|
—
|
|
Gross increase related to current year tax positions
|
|
|
124
|
|
Lapse of statute of limitations
|
|
|
—
|
|
Balance at March 31, 2017
|
|
$
|
2,825
|
|
The Company files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for the years before 2012. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities. The Company’s evaluation was performed for the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2017. When applicable, the Company accounts for interest and penalties generated by tax contingencies as interest and other expense, net in the statements of operations.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders’ Equity
The following table summarizes, by statement of operations line item, stock-based compensation expense for the fiscal years ended March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Cost of goods sold
|
|
$
|
65
|
|
$
|
325
|
|
Research and development
|
|
|
29
|
|
|
74
|
|
Selling, general and administrative
|
|
|
716
|
|
|
2,171
|
|
Stock-based compensation expense
|
|
$
|
810
|
|
$
|
2,570
|
|
2000 Equity Incentive Plan
In June 2000, the Company adopted the 2000 Equity Incentive Plan (“2000 Plan”). The 2000 Plan provides for a total maximum aggregate number of shares which may be issued of 1,849,000 shares. The 2000 Plan is administered by the Compensation Committee designated by the Board of Directors. The Compensation Committee’s authority includes determining the number of incentive awards and vesting provisions. In August 2015, the Board of Directors adopted and the shareholders approved an amendment to the 2000 Plan. The amendment includes an increase of 450,000 shares of common stock available under the 2000 Plan. As of March 31, 2017, there were 136,555 shares available for future grants under the 2000 Plan.
Stock Options
The Company issues stock options under the 2000 Plan to employees, non-employee directors and consultants that vest and become exercisable over a four-year period and expire 10 years after the grant date. The Company uses a Black-Scholes valuation model to estimate the fair value of the options at the grant date, and compensation cost is recorded on a straight-line basis over the vesting period. During the year ended March 31, 2017, the Company established an accounting policy election to assume zero forfeiture for stock options and account for forfeitures when they occur. All options are subject to the following vesting provisions: one-fourth vest one year after the issuance date and 1/48th vest on the first day of each full month thereafter, so that all options will be vested on the first day of the 48th month after the grant date. Information relating to stock options for fiscal year ended March 31, 2017, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Exercise Price
|
|
Term
|
|
Value
|
|
|
|
|
|
|
|
|
(in years)
|
|
|
|
|
Options outstanding at March 31, 2016
|
|
467,631
|
|
$
|
22.68
|
|
|
|
|
|
|
Granted
|
|
88,930
|
|
$
|
1.70
|
|
|
|
|
|
|
Exercised
|
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Forfeited, cancelled or expired
|
|
(242,024)
|
|
$
|
24.32
|
|
|
|
|
|
|
Options outstanding at March 31, 2017
|
|
314,537
|
|
$
|
15.48
|
|
5.4
|
|
|
—
|
|
Options fully vested at March 31, 2017 and those expected to vest beyond March 31, 2017
|
|
314,537
|
|
$
|
15.48
|
|
5.4
|
|
|
—
|
|
Options exercisable at March 31, 2017
|
|
225,607
|
|
$
|
20.92
|
|
3.8
|
|
|
—
|
|
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Black-Scholes Model Valuation Assumptions
The Company calculated the estimated fair value of each stock option on the date of grant using the Black Scholes valuation method and the following weighted average assumptions:
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
March 31,
|
|
2017
|
2016
|
Risk-free interest rates
|
|
1.3
|
%
|
|
1.5
|
%
|
Expected lives (in years)
|
|
5.7
|
|
|
5.7
|
|
Dividend yield
|
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
|
133.9
|
%
|
|
59.0
|
%
|
Weighted average grant date fair value of options granted during the period
|
$
|
1.52
|
|
$
|
6.84
|
|
The Company’s computation of expected volatility for the years ended March 31, 2017 and 2016 was based on historical volatility. The expected life, or term, of options granted is derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding. Management has selected a risk-free rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the options’ expected term.
The Company recorded expense of approximately $20,000 and $1.2 million associated with its stock options for the fiscal years ended March 31, 2017 and 2016, respectively. As of March 31, 2017, there was approximately $0.1 million of total compensation cost related to unvested stock option awards that is expected to be recognized as expense over a weighted average period of 3.4 years. During the fiscal year ended March 31, 2016, the Company’s executive management team voluntarily agreed to cancel and terminate a total of 65,508 unvested stock options that had been previously issued to them. There was approximately $0.7 million of total compensation cost related to the cancellation of these stock options recorded during the fiscal year ended March 31, 2016.
Restricted Stock Units and Performance Restricted Stock Units
The Company issues restricted stock units under the 2000 Plan to employees, non-employee directors and consultants. The restricted stock units are valued based on the closing price of the Company’s common stock on the date of issuance, and compensation cost is recorded on a straight-line basis over the vesting period. During the fiscal year ended March 31, 2017, the Company established an accounting policy election to assume zero forfeiture for restricted stock units and account for forfeitures when they occur. The restricted stock units vest in equal installments over a period of four years. For restricted stock units with four year vesting, one-fourth vest annually beginning one year after the issuance date. The restricted stock units issued to non-employee directors vest one year after the issuance date. The following table outlines the restricted stock and PRSU activity:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
Date Fair
|
|
Restricted Stock and Performance Restricted Stock Units
|
|
Shares
|
|
Value
|
|
Nonvested restricted stock units outstanding at March 31, 2016
|
|
256,787
|
|
$
|
6.53
|
|
Granted
|
|
230,439
|
|
|
1.64
|
|
Vested and issued
|
|
(96,111)
|
|
|
8.35
|
|
Forfeited
|
|
(74,406)
|
|
|
4.65
|
|
Nonvested restricted stock units outstanding at March 31, 2017
|
|
316,709
|
|
|
2.85
|
|
Restricted stock units expected to vest beyond March 31, 2017
|
|
316,686
|
|
$
|
2.85
|
|
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides additional information on restricted stock units for the Company’s fiscal years ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Restricted stock compensation expense (in thousands)
|
|
$
|
686
|
|
$
|
891
|
|
Aggregate fair value of restricted stock units vested and issued (in thousands)
|
|
$
|
132
|
|
$
|
346
|
|
Weighted average grant date fair value of restricted stock units granted during the period
|
|
$
|
1.64
|
|
$
|
3.34
|
|
As of March 31, 2017, there was approximately $0.5 million of total compensation cost related to unvested restricted stock units that is expected to be recognized as expense over a weighted average period of 1.5 years.
PRSU activity is included in the above restricted stock units tables. In May 2014, the Compensation Committee of the Company’s Board of Directors approved the new Performance Restricted Stock Unit Program, which is applicable to certain senior employees. The Chief Executive Officer is the only participant for Fiscal 2017. For the first year of the program, the PRSU grant for the Chief Executive Officer is broken out into two performance measurement periods. The first performance measurement period began on April 1, 2015 and will end on March 31, 2017; the second performance measurement period has a three-year term that began on April 1, 2015 and will end on March 31, 2018. Any earned PRSU awards will vest 50% after the end of the applicable performance measurement period and 50% one year thereafter.
There were no PRSUs granted during the fiscal year ended March 31, 2017. The weighted average per share grant date fair value of PRSUs granted during the fiscal year ended March 31, 2016 was $15.50. Based on our assessment as of March 31, 2017, the PRSU threshold for the first performance measurement likely will not be met and as a result no compensation expense was recorded or recognized during the fiscal year ended March 31, 2017. Compensation expense, if any, will be recognized over the corresponding requisite service period and will be adjusted in subsequent reporting periods if the Company’s assessment of the probable level of achievement of the performance goals changes. The Company will continue to periodically assess the likelihood of the PRSU threshold being met until the end of the applicable performance period.
Restricted Stock Awards
The Company issues restricted stock awards under the 2000 Plan to employees and non-employee directors. During the fiscal years ended March 31, 2017 and 2016, the Company granted stock awards to non-employee directors who elected to take payment of all or any part of the directors’ fees in stock in lieu of cash. During the fiscal year ended March 31, 2016, the Company granted stock awards in lieu of cash to employees for variable compensation. The following table outlines the restricted stock awards activity for the Company’s fiscal years ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
Restricted stock awards compensation expense (in thousands)
|
|
$
|
104
|
|
$
|
431
|
|
Restricted stock awards granted
|
|
|
65,167
|
|
|
305,725
|
|
Weighted average grant date fair value of restricted stock awards granted during the period
|
|
$
|
1.59
|
|
$
|
1.41
|
|
For each term of the Board of Directors (beginning on the date of an annual meeting of stockholders and ending on the date immediately preceding the next annual meeting of stockholders), a non-employee director may elect to
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
receive a stock award in lieu of all or any portion of their annual retainer or committee fee cash payment. The shares of stock were valued based on the closing price of the Company’s common stock on the date of grant.
2000 Employee Stock Purchase Plan
In June 2000, the Company adopted the 2000 Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan provides for the granting of rights to purchase common stock to regular full and part-time employees or officers of the Company and its subsidiaries. Under the Purchase Plan, shares of common stock will be issued upon exercise of the purchase rights. Under the Purchase Plan, an aggregate of 70,000 shares may be issued pursuant to the exercise of purchase rights. The Purchase Plan will continue by its terms through June 30, 2020, unless terminated sooner. The maximum amount that an employee can contribute during a purchase right period is $25,000 or 15% of the employee’s regular compensation. Under the Purchase Plan, the exercise price of a purchase right is 95% of the fair market value of such shares on the last day of the purchase right period. The fair market value of the stock is its closing price as reported on the Nasdaq Capital Market on the day in question. During the fiscal years ended March 31, 2017 and 2016, the Company issued a total of 10,063 shares and 5,658 shares of stock, respectively, to regular full and part-time employees or officers of the Company who elected to participate in the Purchase Plan. As of March 31, 2017, there were 4,757 shares available for future grant under the Purchase Plan.
Grants outside of the 2000 Plan
As of March 31, 2017, the Company had outstanding 88,930 non-qualified common stock options and 14,820 restricted stock units issued outside of the 2000 Plan. The Company granted these stock options and restricted stock units during Fiscal 2017 as inducement grants to the new Vice President, Manufacturing of the Company, with exercise prices equal to the fair market value of the Company’s common stock on the grant date.
Although the options and restricted stock units were not granted under the 2000 Plan, they are governed by terms and conditions identical to those under the 2000 Plan. All options are subject to the following vesting provisions: one-fourth vest one year after the issuance date and 1/48th vest on the first day of each full month thereafter, so that all options will be vested on the first day of the 48th month after the grant date. All outstanding options have a contractual term of ten years. The restricted stock units vest in equal installments over a period of four years.
Stockholder Rights Plan
On May 6, 2016, the Company entered into Amendment No. 5 (the “Amendment”) to the Rights Agreement, dated as of July 7, 2005, as amended by Amendment No. 1, dated as of July 3, 2008, Amendment No. 2, dated as of June 9, 2011, Amendment No. 3, dated as of July 1, 2014 and Amendment No. 4, dated as of August 5, 2014, (the “Original Rights Agreement”) between the Company and Computershare Inc.
The Amendment accelerated the expiration of the Company’s preferred share purchase rights (the “Original Rights”) from 5:00 p.m., California time, on the 30 day after the Company’s 2017 annual meeting of stockholders to 5:00 p.m., California time, on May 6, 2016, and had the effect of terminating the Original Rights Agreement on that date. At the time of the termination of the Original Rights Agreement, all of the Original Rights distributed to holders of the Company’s common stock pursuant to the Original Rights Agreement expired.
On May 6, 2016, the Company entered into a rights agreement (the “NOL Rights Agreement”) with Computershare Inc., as rights agent. In connection with the NOL Rights Agreement, the Company’s Board of Directors authorized and declared a dividend distribution of one preferred stock purchase right (a “New Right”) for each share of the Company’s common stock authorized and outstanding. Each New Right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series B Junior Participating Preferred Stock,
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
par value $0.001 per share, at a purchase price of $8.76 per unit, subject to adjustment. The description and terms of the New Rights are set forth in the NOL Rights Agreement.
The purpose of the NOL Rights Agreement is to diminish the risk that the Company’s ability to use its net operating losses and certain other tax assets (collectively, “Tax Benefits”) to reduce potential future federal income tax obligations would become subject to limitations by reason of the Company’s experiencing an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986. A company generally experiences such an ownership change if the percentage of its stock owned by its “5-percent shareholders,” as defined in Section 382 of the Internal Revenue Code of 1986, increases by more than 50 percentage points over a rolling three-year period. The NOL Rights Agreement is designed to reduce the likelihood that the Company will experience an ownership change under Section 382 of the Internal Revenue Code of 1986 by (i) discouraging any person or group from becoming a 4.99% shareholder and (ii) discouraging any existing 4.99% shareholder from acquiring additional shares of the Company’s stock.
The New Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public announcement or filing that a person has, or group of affiliated or associated persons or persons acting in concert have, become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons or persons acting in concert who, at any time after the date of the NOL Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of the Company’s outstanding shares of common stock, subject to certain exceptions or (ii) the close of business on the tenth business day after the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”). Certain synthetic interests in securities created by derivative positions, whether or not such interests are considered to be ownership of the underlying common stock or are reportable for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are treated as beneficial ownership of the number of shares of common stock equivalent to the economic exposure created by the derivative position, to the extent actual shares of the common stock are directly or indirectly held by counterparties to the derivatives contracts.
The New Rights, which are not exercisable until the Distribution Date, will expire prior to the earliest of (i) May 6, 2019 or such later day as may be established by the Board of Directors prior to the expiration of the New Rights, provided that the extension is submitted to the Company’s stockholders for ratification at the next annual meeting of stockholders of the Company succeeding such extension; (ii) the time at which the New Rights are redeemed pursuant to the NOL Rights Agreement; (iii) the time at which the New Rights are exchanged pursuant to the NOL Rights Agreement; (iv) the time at which the New Rights are terminated upon the occurrence of certain transactions; (v) the close of business on the first day after the Company’s 2017 annual meeting of stockholders, if approval by the stockholders of the Company of the NOL Rights Agreement has not been obtained on or prior to the close of business on the first day after the Company’s 2017 annual meeting of stockholders; (vi) the close of business on the effective date of the repeal of Section 382 of the Internal Revenue Code of 1986, if the Board of Directors determines that the NOL Rights Agreement is no longer necessary or desirable for the preservation of Tax Benefits; and (vii) the close of business on the first day of a taxable year of the Company to which the Board of Directors determines that no Tax Benefits are available to be carried forward.
Each share of Series B Junior Participating Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) an amount equal to 1,000 times the dividend declared per share of common stock. Each share of Series B Junior Participating Preferred Stock will entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of common stock are converted or exchanged, each share of Series B Junior Participating Preferred Stock will be entitled to receive 1,000 times the amount received per one share of common stock.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Offerings of Common Stock and Warrants and At-the-Market Offering Program
On October 18, 2016, the Company entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company agreed to sell 3.6 million shares of common stock, pre-funded Series B warrants to purchase up to 2.7 million shares of common stock, and Series A warrants to purchase up to 6.3 million shares of common stock. Pursuant to a placement agent agreement, dated as of October 18, 2016, the Company engaged Oppenheimer & Co. Inc. as the lead placement agent for the offering and ROTH Capital Partners, LLC as co-placement agent for the offering. Each share of common stock was sold at a price of $1.20. Each Series B warrant was issued with an exercise price of $1.20 per share of common stock, $1.19 of which was pre-funded at closing and $0.01 of which is payable upon exercise. Each Series A warrant was issued with an initial exercise price of $1.34 per share of common stock. These Series A warrants contain anti-dilution provisions that reduce the exercise price of the warrants if certain dilutive issuances occur. The anti-dilution provisions of the Series A warrants are subject to approval by the Company’s stockholders. The Series A warrants are classified as liabilities under the caption “Warrant liability” in the accompanying balance sheets and recorded at estimated fair value with the corresponding charge under the caption “Change in fair value of warrant liability” in the accompanying statements of operations. See Note 10—Fair Value Measurements for disclosure regarding the fair value of financial instruments. The net proceeds to the Company from this offering, after deducting the placement agent fees and other estimated offering expenses, were approximately $6.8 million. The offering closed on October 21, 2016.
On April 19, 2016, the Company entered into an underwriting agreement with Oppenheimer & Co. Inc. as the sole book-running manager, and Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC, as the co-manager, related to the public offering of 2.7 million shares of our common stock and pre-funded Series B warrants to purchase up to 5.5 million shares of common stock, which were offered in lieu of common stock to those purchasers whose purchase of common stock in the offering otherwise would result in the purchaser beneficially owning more than 4.99% of the Company’s outstanding common stock following the completion of the offering. Also included in the offering were Series A warrants to purchase 4.1 million shares of common stock. Every two shares of common stock were sold with one Series A warrant to purchase one share of common stock at a collective negotiated price of $3.50. Every two Series B warrants were sold with one Series A warrant to purchase one share of common stock at a collective negotiated price of $3.48. The Series A warrants are exercisable, subject to certain limitations, during the period commencing six months after the date of the issuance and expire five years after the first day they are exercisable. The pre-funded Series B warrants were exercisable, subject to certain limitations, upon issuance and expire nine months from the date of issuance, subject to extension under certain circumstances. The net proceeds to the Company from the sale of the common stock and warrants, after deducting fees and other offering expenses, were approximately $13.1 million. The offering closed on April 22, 2016.
The following table outlines the warrant activity:
|
|
|
|
|
|
|
|
Series A
|
|
Series B
|
|
|
|
Warrants
|
|
Warrants
|
|
Balance, March 31, 2016
|
|
—
|
|
—
|
|
Issuance of warrants
|
|
10,407,500
|
|
8,215,000
|
|
Warrants exercised
|
|
—
|
|
(8,215,000)
|
|
Balance, March 31, 2017
|
|
10,407,500
|
|
—
|
|
Effective August 28, 2015, the Company entered into a sales agreement with respect to an at-the-market offering program pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $30.0 million. The Company will set the parameters for sales of the shares, including the number to be sold, the time period during which sales are requested to be made, any limitation on the number that may be sold in one trading day and any minimum price below which sales may not be made. During the three months ended March 31, 2017, we issued 0.4 million shares of the Company’s common stock
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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
under the at-the-market offering program and the net proceeds to the Company from the sale of the Company’s common stock were approximately $0.3 million after deducting commissions paid of approximately $8,800. As of March 31, 2017, 7.3 million shares of the Company’s common stock were sold pursuant to the at-the-market offering program and the net proceeds to the Company from the sale of the common stock were approximately $12.8 million after deducting commissions paid of approximately $0.4 million. As of March 31, 2017, $12.2 million remained available for issuance with respect to the at-the-market offering program.
10. Fair Value Measurements
The FASB has established a framework for measuring fair value in generally accepted accounting principles. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1.
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2.
Inputs to the valuation methodology include:
|
·
|
|
Quoted prices for similar assets or liabilities in active markets
|
|
·
|
|
Quoted prices for identical or similar assets or liabilities in inactive markets
|
|
·
|
|
Inputs other than quoted prices that are observable for the asset or liability
|
|
·
|
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means
|
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3.
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below presents our assets and liabilities that are measured at fair value on a recurring basis during Fiscal 2017 and are categorized using the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Cash equivalents
|
|
$
|
7,520
|
|
$
|
7,520
|
|
$
|
—
|
|
$
|
—
|
|
Restricted cash
|
|
$
|
5,514
|
|
$
|
5,514
|
|
$
|
—
|
|
$
|
—
|
|
Warrant liability
|
|
$
|
(2,917)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(2,917)
|
|
Cash equivalents include cash held in money market and U.S. Treasury Funds at March 31, 2017.
The table below presents our assets and liabilities that are measured at fair value on a recurring basis during Fiscal 2016 and are categorized using the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Significant Other
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Cash equivalents
|
|
$
|
3,002
|
|
$
|
3,002
|
|
$
|
—
|
|
$
|
—
|
|
Restricted cash
|
|
$
|
5,002
|
|
$
|
5,002
|
|
$
|
—
|
|
$
|
—
|
|
Cash equivalents include cash held in money market and U.S. Treasury Funds at March 31, 2016.
Basis for Valuation
The carrying values reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. As the Company’s obligations under the Credit Facility are based on adjustable market interest rates, the Company has determined that the carrying value approximates the fair value. The carrying values and estimated fair values of these obligations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
|
March 31, 2017
|
|
March 31, 2016
|
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
|
Value
|
|
Fair Value
|
|
Value
|
|
Fair Value
|
|
Obligations under the credit facility
|
|
$
|
11,533
|
|
$
|
11,533
|
|
$
|
9,459
|
|
$
|
9,459
|
|
During the fiscal year ended March 31, 2017, the Company sold and issued additional warrants that provide certain anti-dilution protections for the Holders. See Note 9— Offerings of Common Stock and Warrants and At-the-Market Offering Program for further discussion. The fair value of the Series A warrants issued on October 21, 2016 was $4.2 million after giving effect to anti-dilution adjustments under the assumption that the anti-dilution mechanism contained in the Series A warrants was in effect. The change in the estimated fair value of the Series A warrants from the October 21, 2016 to March 31, 2017 was $1.3 million and has been recorded under the caption “Change in fair value of warrant liability” in the accompanying statement of operations. The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants, modification of the warrants, or expiration of the warrants. Changes in the fair value of Series A warrants will be recorded in the statements of operations under the
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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
caption “Change in fair value of warrant liability.”
The fair value of the Company’s warrant liability (see Note 9— Offerings of Common Stock and Warrants and At-the-Market Offering Program) recorded in the Company’s financial statements was determined using the Monte Carlo simulation valuation method and the quoted price of the Company’s common stock in an active market, a Level 3 measurement. Volatility was based on the actual market activity of the Company’s stock. The expected life is based on the remaining contractual term of the warrants, and the risk free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ expected life.
The Company calculated the estimated fair value of warrants on the date of issuance and at each subsequent reporting date using the following assumptions:
|
|
|
|
|
|
Year Ended
|
|
|
|
March 31, 2017
|
|
Risk-free interest rate
|
|
1.9%
|
|
Contractual term
|
|
5.1 years
|
|
Expected volatility
|
|
67.6%
|
|
From time to time, the Company sells common stock warrants that are derivative instruments. The Company does not enter into speculative derivative agreements and does not enter into derivative agreements for the purpose of hedging risks.
As discussed above, the Company adopted authoritative guidance issued by the FASB on contracts in an entity’s own equity that requires the common stock warrants to be classified as liabilities at their estimated fair value with changes in fair value at each reporting date recognized in the statements of operations. The table below provides a reconciliation of the beginning and ending balances for the warrant liability which is measured at fair value using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
Balance, March 31, 2016
|
|
$
|
—
|
|
Total realized and unrealized (gains) losses:
|
|
|
|
|
Income included in change in fair value of warrant liability
|
|
|
1,323
|
|
Issuances
|
|
|
(4,240)
|
|
Balance, March 31, 2017
|
|
$
|
(2,917)
|
|
11. Revolving Credit Facility
Former Credit Facility
The Company maintained two Credit and Security Agreements, as amended (the “Credit Agreements”), with Wells Fargo Bank, National Association (“Wells Fargo”), which provided the Company with a line of credit of up to $20.0 million in the aggregate. As previously disclosed, the twelfth amendment to the Credit Agreements provided the Company the right, under certain circumstances, to increase the borrowing capacity available under the Company’s revolving lines of credit to an aggregate maximum of $20.0 million from an aggregate maximum of $15.0 million (the “Accordion Feature”). In addition, Wells Fargo provided the Company with a non‑revolving capital expenditure line of credit up to $0.5 million to acquire additional eligible equipment for use in the Company’s business. Effective as of June 30, 2015, the Company exercised the Accordion Feature, thereby increasing the maximum borrowing capacity available to a maximum of $20.0 million. The amount actually available to the Company varied from time to time depending on, among other factors, the amount of its eligible inventory and accounts receivable. As security for the payment and performance of the credit facility, the Company granted a security interest in favor of Wells Fargo in substantially all of the assets of the Company.
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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Credit Agreements included affirmative covenants as well as negative covenants that prohibit a variety of actions without Wells Fargo’s consent, including covenants that limit the Company’s ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or similar transaction or purchase all or substantially all of the assets or stock of another entity, (d) pay dividends on, or purchase, acquire, redeem or retire shares of, the Company’s capital stock, (e) sell, assign, transfer or otherwise dispose of all or substantially all of the Company’s assets, (f) change the Company’s accounting method or (g) enter into a different line of business. Furthermore, the Credit Agreements contain financial covenants, including (i) a requirement not to exceed specified levels of losses, (ii) a requirement to maintain a substantial minimum cash balance relative to the outstanding line of credit advances, which was $9.8 million as of March 31, 2017, and (iii) limitations on the Company’s annual capital expenditures. The Credit Agreements also defined an event of default to include a material adverse effect on the Company’s business, as determined by Wells Fargo. An event of default for this or any other reason, if not waived, would have a material adverse effect on the Company.
Several times since entering into the Credit Agreements the Company was not in compliance with certain covenants under the credit facility. In connection with each event of noncompliance, Wells Fargo waived the event of default and, on several occasions, the Company amended the Credit Agreements in response to the default and waiver.
On June 10, 2015, the Company received from Wells Fargo a waiver of one such event of noncompliance, and as a condition of the amended Credit Agreements, the Company had restricted $5.0 million of cash equivalents as additional security for the credit facility.
If the Company had not obtained the waivers and amended the Credit Agreements, the Company would not have been able to draw additional funds under the credit facility. In addition, the Company has pledged its accounts receivable, inventories, equipment, patents and other assets as collateral for its Credit Agreements, which would be subject to seizure by Wells Fargo if the Company were in default under the Credit Agreements and unable to repay the indebtedness. Wells Fargo also has the option to terminate the Credit Agreements or accelerate the indebtedness during a period of noncompliance. As of March 31, 2017, the Company was in compliance with the covenants contained in the amended Credit Agreements for Fiscal 2017. On February 7, 2017, the Company and Wells Fargo entered into an amendment to the Credit Agreements regarding the release of restricted cash and the exclusion of certain items from the financial covenant calculations.
The Company is required to maintain a Wells Fargo collection account for cash receipts on all of its accounts receivable. These amounts are immediately applied to reduce the outstanding amount on the credit facility. The floating rate for line of credit advances is the sum of daily three month London Inter-Bank Offer Rate (“LIBOR”), which interest rate shall change whenever daily three month LIBOR changes, plus applicable margin. Based on the revolving nature of the Company’s borrowings and payments, the Company classifies all outstanding amounts as current liabilities. The applicable margin varies based on net income and the minimum interest floor is set at $66,000 each calendar quarter. The Company’s borrowing rate was 4.9% and 4.4% at March 31, 2017 and March 31, 2016, respectively.
The Company is also required to pay an annual unused line fee of one‑quarter of one percent of the daily average of the maximum line amount and 1.5% interest with respect to each letter of credit issued by Wells Fargo. These amounts, if any, are also recorded as interest expense by the Company. As of March 31, 2017 and March 31, 2016, $11.5 million and $9.5 million in borrowings were outstanding, respectively, under the credit facility. As of March 31, 2017, approximately $6.8 million was available for additional borrowing. Interest expense related to the credit facility during each of the fiscal years ended March 31, 2017 and 2016 was $0.5 million, which includes $0.2 million in amortization of deferred financing costs.
New Credit Facility
On June 2, 2017, the Company, entered into two secured credit facilities (the “Bridge Bank Credit Agreements”) with Western Alliance Bank through its Bridge Bank division (“Bridge Bank”), with credit support provided by the Export-Import Bank of the United States through its working capital guarantee program. Under the terms of the Bridge Bank Credit Agreements, the Company may borrow up to $12.0 million on a revolving basis depending on, among other factors, the amount of its eligible inventory and accounts receivable. The Bridge Bank Credit Agreements are for a two-year period ending June 2, 2019. Upon closing with Bridge Bank the Company’s existing credit facilities with Wells Fargo, were paid off in full.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total borrowings, letter of credit obligations and the then aggregate committed amount of cash management services under the Bridge Bank Credit Agreements may not exceed 85% of the sum of unrestricted cash and the amount of cash collateral held at Bridge Bank. As a condition of the Bridge Bank Credit Agreements, the Company has restricted $5.0 million of cash equivalents as additional security for the credit facility. Borrowings under the Bridge Bank Credit Agreements will bear per annum interest at the prime rate plus 1.5 percent, subject to increase during the occurrence of an event of default. Obligations under the Bridge Bank Credit Agreements are secured by all of the Company’s assets, including intellectual property and general intangibles.
The Bridge Bank Credit Agreements include affirmative covenants as well as negative covenants that prohibit a variety of actions without Bridge Bank’s consent, including covenants that limit the Company’s ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or similar transaction or purchase all or substantially all of the assets or stock of another entity, or (d) sell, assign, transfer or otherwise dispose of the Company’s assets.
The financial covenants of the domestic credit agreement with Bridge Bank (the “Domestic Facility”) requires the Company not to exceed specified levels of losses relative to its financial model and the outstanding line of credit advances may not exceed 85% of the sum of unrestricted cash and the amount of cash collateral held at Bridge Bank. The Domestic Facility also defines an event of default to include a material adverse effect on the Company’s business. An event of default for this or any other reason, if not waived, could have a material adverse effect on the Company.
12. Commitments and Contingencies
Purchase Commitments
As of March 31, 2017, the Company had firm commitments to purchase inventories of approximately $32.1 million through Fiscal 2020. Certain inventory delivery dates and related payments are not scheduled; therefore amounts under these firm purchase commitments will be payable upon the receipt of the related inventories.
Lease Commitments
The Company leases offices and manufacturing facilities under various non‑cancelable operating leases expiring at various times through the fiscal year ending March 31, 2020. All of the leases require the Company to pay maintenance, insurance and property taxes. The lease agreements for primary office and manufacturing facilities provide for rent escalation over the lease term and renewal options for five‑year periods. Rent expense is recognized on a straight-line basis over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent, which is included in other long‑term liabilities in the accompanying consolidated balance sheets. The balance of deferred rent was approximately $0.2 million as each of March 31, 2017 and 2016. Rent expense was approximately $2.3 million and $2.5 million for the years ended March 31, 2017 and 2016, respectively.
On July 31, 2014, the Company and Northpark Industrial (“Northpark”) entered into a Third Amendment to Lease (the “Third Amendment”) to amend the Standard Industrial/Commercial Single-Tenant Lease - Net, dated December 1, 1999, as amended (the “Lease”), pursuant to which the Company leases the premises located at 21211 Nordhoff Street, Chatsworth, California for use as primary office space, engineering testing and manufacturing. The Third Amendment extended the term of the Lease for a period of two months commencing on August 1, 2014 and ending on September 30, 2014 and set the monthly base rent payable by the Company under the Lease at $81,001 per month.
On September 30, 2014, the Company and Northpark entered into a Fourth Amendment to Lease (the “Fourth Amendment”) to amend the Lease by extending the term of the Lease for a period of five years commencing on October 1, 2014 and ending on September 30, 2019. The Fourth Amendment also adjusts the monthly base rent payable by the
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company under the Lease to the following: $39,500 per month from October 1, 2014 through November 30, 2014; $79,000 per month from December 1, 2014 through September 30, 2015; $81,225 per month from October 1, 2015 through September 30, 2016; $83,600 per month from October 1, 2016 through September 30, 2017; $86,000 per month from October 1, 2017 through September 30, 2018; and $88,500 per month from October 1, 2018 through September 30, 2019. The Fourth Amendment also provides the Company with an option to extend the Lease by an additional five-year term following the expiration of the term of the Lease as amended by the Fourth Amendment and provides that Northpark will perform certain capital improvements to the leased premises’ HVAC system.
On March 28, 2013, the Company and Prologis, L.P., formerly known as AMB Property, L.P., entered into a third amendment (the “Van Nuys Third Amendment”) to the Lease Agreement dated September 25, 2000, for leased premises used by the Company for engineering testing and manufacturing located in Van Nuys, California. The Van Nuys Third Amendment extends the term of the Lease Agreement from December 31, 2012 to December 31, 2017. The Van Nuys Third Amendment also adjusts the monthly base rent payable by the Company under the Lease Agreement to the following: $60,000 per month from January 1, 2013 through June 30, 2015 and $65,000 per month from July 1, 2015 through December 31, 2017.
On June 7, 2017 the Company and Prologis, L.P entered into a Fourth Amendment to Lease (the “Van Nuys Fourth Amendment”) to amend the Lease by extending the term of the Lease for a period of sixty-two (62) months commencing on December 31, 2017 to February 28, 2023. The Van Nuys Fourth Amendment also adjusts the monthly base rent payable by the Company under the Lease Agreement to the following: $0 per month from January 1, 2018 through February 28, 2018; $66,846 per month from March 1, 2018 through December 31, 2018; $68,852 per month from January 1, 2019 through December 31, 2019; $70,917 per month from January 1, 2020 through December 31, 2020; $73,045 per month from January 1, 2021 through December 31, 2021; $75,236 per month from January 1, 2022 through December 31, 2022; and $77,493 per month from January 1, 2023 through February 28, 2023. The Van Nuys Fourth Amendment also provides the Company with an option to extend the Lease by an additional five year term following the expiration of the term of the Lease as amended by the Lease Amendment and provides that Prologis, L.P. will contribute a tenant improvement allowance toward the Company’s approved alterations to the premises.
At March 31, 2017, the Company’s minimum commitments under non-cancelable operating leases were as follows (in thousands):
|
|
|
|
|
|
|
Operating
|
|
Year Ending March 31,
|
|
Leases
|
|
2018
|
|
$
|
1,697
|
|
2019
|
|
|
1,143
|
|
2020
|
|
|
627
|
|
2021
|
|
|
96
|
|
2022
|
|
|
96
|
|
Thereafter
|
|
|
310
|
|
Total minimum lease payments
|
|
$
|
3,969
|
|
Other Commitments
In September 2010, the Company was awarded a grant from the DOE for the research, development and testing of a more efficient microturbine CHP system. Part of the improved efficiency will come from an improved microturbine design, with a projected electrical efficiency of 42% and power output of 370 kW. The contract was over a five-year period and was completed in September 2015. The project was estimated to cost approximately $11.7 million. The DOE will contribute $5.0 million toward the project, of which $4.2 million was allocated to the Company, and the Company will incur approximately $6.7 million in research and development expense. The Company billed the DOE under the contract for this project a cumulative amount of $4.2 million through September 30, 2015, the date on which the contract was completed.
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has agreements with certain of its distributors requiring that if the Company renders parts obsolete in inventories the distributors own and hold in support of their obligations to serve fielded microturbines, then the Company is required to replace the affected stock at no cost to the distributors. While the Company has never incurred costs or obligations for these types of replacements, it is possible that future changes in the Company’s product technology could result and yield costs to the Company if significant amounts of inventory are held at distributors. As of March 31, 2017, no significant inventories were held at distributors.
Legal Matters
Federal Securities Class Action
Two putative securities class action complaints were filed against the Company and certain of its current and former officers in the United States District Court for the Central District of California under the following captions: David Kinney, etc. v. Capstone Turbine, et al., No. 2:15-CV-08914 on November 16, 2015 (the “Kinney Complaint”) and Kevin M. Grooms, etc. v. Capstone Turbine, et al., No. 2:15-CV-09155 on December 18, 2015 (the “Grooms Complaint”).
The putative class in the Kinney Complaint is comprised of all purchasers of the Company’s securities between November 7, 2013 and November 5, 2015. The Kinney Complaint alleges material misrepresentations and omissions in public statements regarding BPC and the likelihood that BPC would not be able to fulfill many legal and financial obligations to the Company. The Kinney Complaint also alleges that the Company’s financial statements were not appropriately adjusted in light of this situation and were not maintained in accordance with GAAP, and that the Company lacked adequate internal controls over accounting. The Kinney Complaint alleges that these public statements and accounting irregularities constituted violations by all named defendants of Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, as well as violations of Section 20(a) of the Exchange Act by the individual defendants. The Grooms Complaint makes allegations and claims that are substantially identical to those in the Kinney Complaint, and both complaints seek compensatory damages of an undisclosed amount. On January 16, 2016, several shareholders filed motions to consolidate the Kinney and Grooms actions and for appointment as lead plaintiff. On February 29, 2016, the Court granted the motions to consolidate, and appointed a lead plaintiff. On May 6, 2016, a Consolidated Amended Complaint with allegations and claims substantially identical to those of the Kinney Complaint was filed in the consolidated action. The putative class period in the Consolidated Amended Complaint is June 12, 2014 to November 5, 2015. Defendants filed a motion to dismiss the Consolidated Amended Complaint on June 17, 2016. On March 10, 2017, the Court issued an order granting Defendants’ motion to dismiss in its entirety with leave to amend. Plaintiffs filed an amended complaint on April 28, 2017. Defendants’ motion to dismiss was filed June 2, 2017. The Company has not recorded any liability as of March 31, 2017 since any potential loss is not probable or reasonably estimable given the preliminary nature of the proceedings.
State Derivative Lawsuits — California
On February 18, 2016, a purported shareholder derivative action was filed in Los Angeles Superior Court in the State of California against the Company and certain of its current and former officers and directors under the following caption: Stesiak v. Jamison, et al., No. BC610782. The lawsuit alleges that certain of the Company’s current and former officers and directors knew or should have known that BPC would be unable to fulfill its obligations to the Company, but allowed the Company to make false and misleading statements regarding BPC and the Company’s financial condition. The complaint also alleges that the defendants failed to timely adjust the Company’s account receivables and backlog to reflect BPC’s inability to pay the Company. The complaint asserts causes of action for breach of fiduciary duty and unjust enrichment. It demands damages for the amount of damage sustained by the Company as a result of the individual defendants’ alleged breach of fiduciary duties and unjust enrichment, that the Company institute corporate governance reforms, and disgorgement from the individual defendants. On May 5, 2016, the parties filed a stipulation and proposed order seeking to stay this action until such time as the defendants’ motion(s) to dismiss the federal securities class action are either granted with prejudice or denied in whole or in part. On May 10, 2016, the Court
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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
entered that proposed order. Given that the federal securities class action was dismissed with leave to amend, this case is still stayed. A status conference is scheduled for September 20, 2017.
On June 8, 2016, a purported shareholder derivative action entitled Velma Kilpatrick v. Simon, et al., No. BC623167, was filed in Los Angeles Superior Court in the State of California against the Company and certain of its current and former officers and directors. The complaint alleges that certain of the Company’s current and former officers and directors knew or should have known that BPC would be unable to fulfill its obligations to the Company, but allowed the Company to make false and misleading statements regarding BPC and the Company’s financial condition. The complaint also alleges that the defendants failed to timely adjust the Company’s account receivables and backlog to reflect BPC’s inability to pay the Company. The complaint asserts causes of action for breach of fiduciary duty. It demands damages for the amount of damage sustained by the Company as a result of the individual defendants’ alleged breach of fiduciary duties, and that the Company institute corporate governance reforms. On August 23, 2016, the parties filed a stipulation and proposed order seeking to stay this action until such time as the defendants’ motion(s) to dismiss the federal securities class action are either granted with prejudice or denied in whole or in part. Given that the federal securities class action was dismissed with leave to amend, this case is still stayed. A status conference is scheduled for September 26, 2017.
On December 27, 2016, a purported shareholder derivative action entitled Andre Rosowsky v. Jamison, et al., No. 30-2016-00894859-CU-MC-CJC was filed in Orange County Superior Court in the State of California against the Company and certain of its current and former officers and directors. The complaint alleges that certain of the Company’s current and former officers and directors knew or should have known that BPC would be unable to fulfill its obligations to the Company, but allowed the Company to make false and misleading statements regarding BPC and the Company’s financial condition. The complaint also alleges that the defendants failed to timely adjust the Company’s account receivables and backlog to reflect BPC’s inability to pay the Company. The complaint asserts causes of action for breach of fiduciary duty and unjust enrichment. It demands damages for the amount of damage sustained by the Company as a result of the individual defendants’ alleged breach of fiduciary duties, that the Company institute corporate governance reforms, and restitution from the individual defendants. On April 14, 2017, the case was removed to the United States District Court for the Central District of California. On May 5, 2017, the plaintiff voluntarily dismissed his complaint without prejudice.
Federal Derivative Lawsuits
On March 7, 2016, a purported shareholder derivative action was filed in the United States District Court for the Central District of California against the Company and certain of its current and former officers and directors under the following caption: Haber v. Jamison, et al., No. CV16-01569-DMG (RAOx). The lawsuit alleges that certain of the Company’s current and former officers and directors knew or should have known that BPC would be unable to fulfill its obligations to the Company, but allowed the Company to make false and misleading statements regarding BPC and the Company’s financial condition. The complaint asserts a cause of action for breach of fiduciary duty. It demands damages for the amount of damage sustained by the Company as a result of the individual defendants’ alleged breach of fiduciary duties, and equitable relief, including that the Company institute appropriate corporate governance reforms. On May 11, 2016, the parties filed a stipulation and proposed order seeking to stay this action until such time as the defendants’ motion(s) to dismiss the federal securities class action are either granted with prejudice or denied in whole or in part. On May 13, 2016, the Court entered that proposed order. Given that the federal securities class action was dismissed with leave to amend, this case is still stayed.
On July 12, 2016 and July 18, 2016, respectively, two additional purported shareholder derivative actions were filed in the United States District Court for the Central District of California against the Company and certain of its current and former officers and directors, under the caption Tuttle v. Atkinson, et al., No. CV16-05127, and Boll v. Jamison, et al., No. CV16-5282, respectively. The lawsuits allege that certain of the Company’s current and former officers and directors knew or should have known that BPC would be unable to fulfill its obligations to the Company, but allowed the Company to make false and misleading statements regarding BPC and the Company’s financial
Table of Contents
CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
condition. The Tuttle complaint asserts causes of action for breach of fiduciary duty, gross mismanagement, and unjust enrichment, and the Boll complaint asserts causes of action for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. Both complaints demand damages sustained by the Company as a result of the individual defendants’ alleged breaches of fiduciary duties, and equitable relief, including that the Company institute appropriate corporate governance reforms. The federal derivative actions have been stayed until such time as the defendants’ motion(s) to dismiss the federal securities class action are either granted with prejudice or denied in whole or in part. Given that the federal securities class action was dismissed with leave to amend, these cases are still stayed.
13. Employee Benefit Plans
The Company maintains a defined contribution 401(k) profit‑sharing plan in which all employees are eligible to participate. Employees may contribute up to Internal Revenue Service annual limits or, if less, 90% of their eligible compensation. Employees are fully vested in their contributions to the plan. The plan also provides for both Company matching and discretionary contributions, which are determined by the Board of Directors. The Company has been matching 50 cents on the dollar up to 4% of the employee’s contributions since October 2006. Prior to that date, no Company contributions had been made since the inception of the plan. The Company’s match vests 25% a year over four years starting from the employee’s hire date. The Company recorded expense of approximately $0.3 million for each of the fiscal years ended March 31, 2017 and 2016.
14. Other Current Liabilities
The Company is a party to a Development and License Agreement with Carrier Corporation (“Carrier”) regarding the payment of royalties on the sale of each of the Company’s 200 kilowatt (“C200”) microturbines. During the three months ended September 30, 2013, we reached our repayment threshold level and the fixed rate royalty was reduced by 50%. Carrier earned $0.9 million and $1.2 million in royalties for C200 and C1000 Series system sales during the year ended March 31, 2017 and 2016, respectively. Earned royalties of $0.3 million and $0.2 million were unpaid as of March 31, 2017 and March 31, 2016, respectively, and are included in accrued expenses in the accompanying balance sheets.
15. Subsequent Events
The Company has evaluated all subsequent events through the filing date of this Form 10-K with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of March 31, 2017, and events which occurred subsequently but were not recognized in the financial statements. Except as described in Note 2—Summary of Significant Accounting Policies, Note 11—Revolving Credit Facility and Note 12—Commitments and Contingencies, there were no other subsequent events which required recognition, adjustment to or disclosure in the financial statements.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CAPSTONE TURBINE CORPORATION
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Date: June 13, 2017
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By:
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/s/ Jayme L. Brooks
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Jayme L. Brooks
Chief Financial Officer & Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer)
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KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Capstone Turbine Corporation, hereby severally constitute Darren R. Jamison and Jayme L. Brooks, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, this Annual Report on Form 10‑K and any and all amendments to said Form 10‑K, and generally to do all such things in our names and in our capacities as officers and directors to enable Capstone Turbine Corporation to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10‑K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ Darren R. Jamison
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President, Chief Executive Officer and Director (Principal Executive Officer)
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June 13, 2017
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Darren R. Jamison
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/s/ Jayme L. Brooks
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Chief Financial Officer and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)
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June 13, 2017
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Jayme L. Brooks
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/s/ Holly A. Van Deursen
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Chairman of the Board of Directors
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June 13, 2017
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Holly A. Van Deursen
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/s/ Paul DeWeese
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Director
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June 13, 2017
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Paul DeWeese
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/s/ Yon Y. Jorden
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Director
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June 13, 2017
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Yon Y. Jorden
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/s/ Noam Lotan
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Director
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June 13, 2017
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Noam Lotan
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/s/ Gary J. Mayo
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Director
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June 13, 2017
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Gary J. Mayo
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/s/ Eliot G. Protsch
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Director
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June 13, 2017
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Eliot G. Protsch
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/s/ Gary D. Simon
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Director
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June 13, 2017
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Gary D. Simon
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Exhibit Index
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Exhibit
Number
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Description
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2.1
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Asset Purchase Agreement between Capstone Turbine Corporation and Calnetix Power Solutions, Inc., dated February 1, 2010(a)
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2.2
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Amendment to Asset Purchase Agreement between Capstone Turbine Corporation and Calnetix Power Solutions, Inc., dated March 31, 2011(b)
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2.3
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Second Amendment to Asset Purchase Agreement between Capstone Turbine Corporation and Calnetix Power Solutions, Inc., dated April 28, 2011(b)
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3.1
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Second Amended and Restated Certificate of Incorporation of Capstone Turbine Corporation(c)
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3.2
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Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Capstone Turbine Corporation, filed November 6, 2015(d)
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3.3
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Second Amended and Restated Bylaws of Capstone Turbine Corporation(e)
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3.4
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Certificate of Elimination of Series A Junior Participating Preferred Stock, dated May 9, 2016(f)
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3.5
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Certificate of Designations of Series B Junior Participating Preferred Stock of Capstone Turbine Corporation(f)
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3.6
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Specimen stock certificate(g)
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3.7
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Rights Agreement, dated July 7, 2005, between Capstone Turbine Corporation and Mellon Investor Services LLC(n)
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3.8
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Amendment No. 1 to Rights Agreement, dated July 3, 2008, between Capstone Turbine Corporation and Mellon Investor Services LLC(i)
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3.9
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Amendment No. 2 to Rights Agreement, dated June 9, 2011, between Capstone Turbine Corporation and Mellon Investor Services LLC(b)
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4.1
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Amendment No. 3 to Rights Agreement, dated July 1, 2014, between Capstone Turbine Corporation and Computershare Inc. as successor-in-interest to Mellon Investor Services LLC(j)
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4.2
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Amendment No. 4 to Rights Agreement, dated August 5, 2014, between Capstone Turbine Corporation and Computershare Inc. as successor-in-interest to Mellon Investor Services LLC(k)
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4.3
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Amendment No. 5 to Rights Agreement, dated May 6, 2016, between Capstone Turbine Corporation and Computershare Inc. as successor-in-interest to Mellon Investor Services LLC(m)
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4.4
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NOL Rights Agreement, dated May 6, 2016, between Capstone Turbine Corporation and Computershare Inc.(m)
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4.5
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Form of Series A Warrant issued to investors in the April 2016 public offering(l)
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4.6
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Form of Pre-Funded Series B Warrant issued to investors in the April 2016 public offering(l)
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4.7
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Form of Series A Warrant issued to investors in the October 2016 public offering(rr)
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4.8
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Form of Pre-Funded Series B Warrant issued to investors in the October 2016 public offering(rr)
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10.1
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Amended and Restated License Agreement, dated August 2, 2000, by and between Solar Turbines Incorporated and Capstone Turbine Corporation(m)
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10.2
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Transition Agreement, dated August 2, 2000, by and between Capstone Turbine Corporation and Solar Turbines Incorporated(m)
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10.3
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Lease between Capstone Turbine Corporation and Northpark Industrial—Leahy Division LLC, dated December 1, 1999, as amended, for leased premises at 21211 Nordhoff Street, Chatsworth, California(n)
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Exhibit
Number
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Description
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10.4
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Third Amendment to Lease, dated July 31, 2014, between Capstone Turbine Corporation and Northpark Industrial, for leased premises at 21211 Nordhoff Street, Chatsworth, California(k)
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10.5
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Fourth Amendment to Lease, dated September 30, 2014, between Capstone Turbine Corporation and Northpark Industrial, for leased premises at 21211 Nordhoff Street, Chatsworth, California(o)
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10.6
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Lease between Capstone Turbine Corporation and Prologis, L.P., formerly known as AMB Property, L.P., dated September 25, 2000, as amended, for leased premises at 16640 Stagg Street, Van Nuys, California(p)
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10.7
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Fourth Amendment to Lease, dated June 7, 2017, between Capstone Turbine Corporation and Prologis, L.P., for leased premises at 16640 Stagg Street, Van Nuys, California
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10.8
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*
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Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan as amended and restated effective August 30, 2012(q)
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10.9
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*
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Amendment to the Capstone Turbine Corporation Amended and Restated 2000 Equity Incentive Plan, effective August 27, 2015(r)
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10.10
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*
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Form of Stock Option Agreement for Amended and Restated 2000 Equity Incentive Plan(s)
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10.11
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*
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Form of Stock Bonus Agreement for Capstone Turbine Corporation 2000 Equity Incentive Plan(t)
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10.12
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*
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Amended and Restated Capstone Turbine Corporation Change of Control Severance Plan(u)
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10.13
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Development and License Agreement between Capstone Turbine Corporation and Carrier Corporation, successor-in-interest to UTC Power Corporation, dated September 4, 2007(v)
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10.14
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First Amendment to the Development and License Agreement between Capstone Turbine Corporation and Carrier Corporation, successor-in-interest to UTC Power Corporation, dated January 14, 2011(b)
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10.15
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Business Financing Agreement between Capstone Turbine Corporation and Western Alliance Bank, dated June 2, 2017(tt)
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10.16
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Export-Import Bank of the United States Working Capital Guarantee Program—Borrower Agreement between Capstone Turbine Corporation and Western Alliance Bank, dated June 2, 2017(tt)
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10.17
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Intellectual Property Security Agreement between Capstone Turbine Corporation and Western Alliance Bank, dated June 2, 2017(tt)
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10.18
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Credit and Security Agreement between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated February 9, 2009 (Domestic Facility)(w)
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10.19
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Credit and Security Agreement between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated February 9, 2009 (Ex-Im Subfacility)(w)
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10.20
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First Amendment to Credit and Security Agreement between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 9, 2009(w)
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10.21
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Second Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated November 5, 2009(x)
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10.19
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Third Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 11, 2010(t)
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10.20
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Fourth Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 29, 2010(y)
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10.21
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Fifth Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated November 9, 2010(z)
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Exhibit
Number
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Description
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10.22
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Sixth Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated March 23, 2011(aa)
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10.23
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Seventh Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 9, 2011(b)
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10.24
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Eighth Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated September 27, 2011(bb)
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10.25
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Ninth Amendment to the Credit and Security Agreements and Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated February 8, 2012(cc)
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10.26
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Tenth Amendment to the Credit and Security Agreements between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 12, 2012(dd)
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10.27
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Eleventh Amendment to the Credit and Security Agreements between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 7, 2013(p)
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10.28
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Waiver of Defaults between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated April 25, 2014(ee)
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10.29
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Twelfth Amendment to the Credit and Security Agreements between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 9, 2014(ff)
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10.30
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Letter Agreement, dated September 16, 2014, between by and between Capstone Turbine Corporation and Wells Fargo Bank, NA(gg)
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10.31
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Thirteenth Amendment to the Credit and Security Agreements and Waiver of Default between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated November 3, 2014(hh)
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10.32
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Fourteenth Amendment to the Credit and Security Agreements, Waiver of Default and Consent between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 10, 2015(ii)
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10.33
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Fifteenth Amendment to the Credit and Security Agreements, Waiver of Default and Consent between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated November 2, 2015(jj)
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10.34
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Sixteenth Amendment to the Credit and Security Agreements, between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated June 7, 2016(nn)
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10.35
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Seventeenth Amendment to the Credit and Security Agreements, between Capstone Turbine Corporation and Wells Fargo Bank, NA, dated February 7, 2017(ss)
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10.36
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*
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Capstone Turbine Corporation Amended and Restated Executive Performance Incentive Plan as amended and restated effective August 29, 2013(kk)
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10.37
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*
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Amendment to the Capstone Turbine Corporation Amended and Restated Executive Performance Incentive Plan, dated June 9, 2014(ll)
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10.38
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*
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Letter Agreement between Capstone Turbine Corporation and Darren R. Jamison, dated December 1, 2006 (mm)
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10.39
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*
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Amendment to Letter Agreement between Capstone Turbine Corporation and Darren R. Jamison, effective April 8, 2009(w)
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10.40
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*
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Form of Inducement Stock Option Agreement(oo)
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10.41
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*
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Form of Inducement Restricted Stock Unit Agreement(oo)
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10.42
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*
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Amended and Restated Change in Control Severance Agreement with Darren R. Jamison, dated June 14, 2012(dd)
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10.43
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*
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First Amendment to Amended and Restated Change in Control Severance Agreement with Darren R. Jamison, effective June 14, 2015(ii)
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Exhibit
Number
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Description
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10.44
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Underwriting Agreement dated May 1, 2014 by and between Capstone Turbine Corporation and Cowen and Company, LLC, as representative of the several underwriters(pp)
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10.45
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*
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Capstone Turbine Corporation Severance Pay Plan as amended and restated effective February 1, 2010(ii)
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10.46
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Sales Agreement, dated August 28, 2015, by and between Capstone Turbine Corporation and Cowen & Company, LLC(qq)
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10.47
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Underwriting Agreement dated April 19, 2016 by and between Capstone Turbine Corporation and Oppenheimer & Co. Inc., as representative of the several underwriters(l)
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10.48
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Placement Agent Agreement by and between the Company and Oppenheimer & Co. Inc., as representative of the placement agents named therein, dated October 18, 2016(rr)
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10.49
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Form of Securities Purchase Agreement used in the October 2016 offering (rr)
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14.1
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Code of Business Conduct(ee)
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14.2
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Code of Ethics for Senior Financial Officers and Chief Executive Officer(ee)
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21
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Subsidiary List
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23.1
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Consent of Marcum LLP
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23.2
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Consent of KPMG LLP
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24
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Power of Attorney (included on the signature page of this Form 10-K)
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002
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32
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes–Oxley Act of 2002
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Schema Document
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101.CAL
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XBRL Calculation Linkbase Document
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101.LAB
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XBRL Label Linkbase Document
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101.PRE
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XBRL Presentation Linkbase Document
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101.DEF
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XBRL Definition Linkbase Document
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*Management contract or compensatory plan or arrangement
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(a)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on February 5, 2010 (File No. 001-15957).
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(b)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011 (File No. 001-15957).
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(c)
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Incorporated by reference to Capstone Turbine Corporation’s Registration Statement on Form S-1/A, dated May 8, 2000 (File No. 333-33024).
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(d)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on November 6, 2015 (File No. 001-15957).
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(e)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed March 13, 2017 (File No. 001-15957).
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(f)
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Incorporated by reference
to Capstone Turbine Corporation’s Current Report on Form 8-K
, filed on May 6, 2016 (File No. 001-15957)
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(g)
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Incorporated by reference to Capstone Turbine Corporation’s Registration Statement on Form S-1/A, dated June 21, 2000 (File No. 333-33024).
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(h)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on July 8, 2005 (File No. 001-15957).
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(i)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on July 10, 2008 (File No. 001-15957).
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(j)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on July 2, 2014 (File No. 001-15957).
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(k)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on August 5, 2014 (File No. 001-15957).
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(l)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on April 21, 2016 (File No. 001-15957).
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(m)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on October 16, 2000 (File No. 001-15957).
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(n)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on September 2, 2009 (File No. 001-15957).
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(o)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on October 6, 2014 (File No. 001-15957).
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(p)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 (File No. 001-15957).
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(q)
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Incorporated by reference to Appendix A to Capstone Turbine Corporation’s Definitive Proxy Statement, filed on July 17, 2012 (File No. 001-15957).
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(r)
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Incorporated by reference to Appendix B to Capstone Turbine Corporation’s Definitive Proxy Statement, filed on July 15, 2015 (File No. 001-15957).
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(s)
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Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 (File No. 001-15957).
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(t)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010 (File No. 001-15957).
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(u)
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Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004 (File No. 001-15957).
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(v)
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Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 (File No. 001-15957).
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(w)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009 (File No. 001-15957).
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(x)
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Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 (File No. 001-15957).
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(y)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on July 1, 2010 (File No. 001-15957).
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(z)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on November 12, 2010 (File No. 001-15957).
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(aa)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on March 25, 2011 (File No. 001-15957).
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(bb)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on October 3, 2011 (File No. 001-15957).
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(cc)
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Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2011 (File No. 001-15957).
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(dd)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended on March 31, 2012 (File No. 001-15957).
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(ee)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 (File No. 001-15957).
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(ff)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on June 10, 2014 (File No. 001-15957).
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(gg)
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Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on September 19, 2014 (File No. 001-15957).
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(hh)
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Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 (File No. 001-15957).
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(ii)
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Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended on March 31, 2015 (File No. 001-15957).
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(jj)
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|
Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 (File No. 001-15957).
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|
(kk)
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|
Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 (File No. 001-15957).
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(ll)
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|
Incorporated by reference to Appendix B to Capstone Turbine Corporation’s Definitive Proxy Statement, filed on July 16, 2014 (File No. 001-15957).
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(mm)
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|
Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2006 (File No. 001-15957).
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|
(nn)
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|
Incorporated by reference to Capstone Turbine Corporation’s Annual Report on Form 10-K for the fiscal year ended on March 31, 2016 (File No. 001-15957).
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|
(oo)
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|
Incorporated by reference to Capstone Turbine Corporation’s Registration Statement on Form S-8, dated June 17, 2009 (File No. 333-160049).
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(pp)
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|
Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on May 1, 2014 (File No. 001-15957).
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(qq)
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|
Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on August 28, 2015 (File No. 001-15957).
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|
(rr)
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|
Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on October 18, 2016 (File No. 001-15957).
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|
(ss)
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|
Incorporated by reference to Capstone Turbine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2016 (File No. 001-15957).
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|
(tt)
|
|
Incorporated by reference to Capstone Turbine Corporation’s Current Report on Form 8-K, filed on June 7, 2017 (File No. 001-15957).
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