Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-15957

Capstone Turbine Corporation

(Exact name of registrant as specified in its charter)

Delaware		95-4180883
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

16640 Stagg Street Van Nuys, California (Address of principal executive offices)		91406 (Zip Code)

818-734-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $.001 per share	CPST	NASDAQ Capital Market
Series B Junior Participating Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock as of February 6, 2020 was 9,117,918.

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CAPSTONE TURBINE CORPORATION

INDEX

		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2019	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2019 and 2018	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2019 and 2018	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

Signatures		52

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	December 31,		March 31,
	2019		2019
Assets
Current Assets:
Cash and cash equivalents	$	16,730	$	29,727
Accounts receivable, net of allowances of $267 at December 31, 2019 and $5,298 at March 31, 2019		19,821		16,222
Inventories, net		20,855		20,343
Prepaid expenses and other current assets		3,904		3,818
Total current assets		61,310		70,110
Property, plant, equipment and rental assets, net		7,744		5,291
Non-current portion of inventories		1,229		1,403
Intangible assets, net		19		187
Other assets		8,363		2,972
Total assets	$	78,665	$	79,963
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	19,351	$	16,638
Accrued salaries and wages		1,403		1,637
Accrued warranty reserve		2,134		2,614
Deferred revenue		4,941		7,167
Current portion of notes payable and lease obligations		471		31
Total current liabilities		28,300		28,087
Deferred revenue - non-current		1,120		1,069
Term note payable, net		27,657		27,099
Long-term portion of notes payable and lease obligations		5,205		212
Other long-term liabilities		—		342
Total liabilities		62,282		56,809
Commitments and contingencies (Note 15)
Stockholders’ Equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued		—		—
Common stock, $.001 par value; 51,500,000 shares authorized, 8,841,634 shares issued and 8,804,910 shares outstanding at December 31, 2019; 7,216,910 shares issued and 7,190,671 shares outstanding at March 31, 2019		9		7
Additional paid-in capital		912,097		903,803
Accumulated deficit		(893,907)		(878,884)
Treasury stock, at cost; 36,724 shares at December 31, 2019 and 26,239 shares at March 31, 2019		(1,816)		(1,772)
Total stockholders’ equity		16,383		23,154
Total liabilities and stockholders' equity	$	78,665	$	79,963

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Revenue:
Product, accessories and parts	$	12,010	$	13,310	$	42,070	$	49,022
Service		5,373		4,720		15,296		12,371
Total revenue		17,383		18,030		57,366		61,393
Cost of goods sold:
Product, accessories and parts		10,815		12,534		36,506		45,109
Service		3,940		3,256		12,286		10,185
Total cost of goods sold		14,755		15,790		48,792		55,294
Gross margin		2,628		2,240		8,574		6,099
Operating expenses:
Research and development		972		891		2,811		2,713
Selling, general and administrative		5,280		4,574		17,015		15,535
Total operating expenses		6,252		5,465		19,826		18,248
Loss from operations		(3,624)		(3,225)		(11,252)		(12,149)
Other income (expense)		6		(23)		165		(44)
Interest expense		(1,289)		(202)		(3,853)		(506)
Loss before provision for income taxes		(4,907)		(3,450)		(14,940)		(12,699)
Provision for income taxes		—		—		8		5
Net loss		(4,907)		(3,450)		(14,948)		(12,704)
Less: Deemed dividend on purchase warrant for common shares		—		—		75		—
Net loss attributable to common stockholders	$	(4,907)	$	(3,450)	$	(15,023)	$	(12,704)

Net loss per common share attributable to common stockholders—basic and diluted	$	(0.59)	$	(0.50)	$	(1.94)	$	(1.94)
Weighted average shares used to calculate basic and diluted net loss per common share attributable to common stockholders		8,367		6,955		7,730		6,547

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)
(Unaudited)


				Additional							Total
	Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance, March 31, 2019	7,216,910	$	7	$	903,803	$	(878,884)	26,239	$	(1,772)	$	23,154
Purchase of treasury stock	—		—		—		—	78		—		—
Vested restricted stock awards	229		—		—		—	—		—		—
Stock-based compensation	—		—		262		—	—		—		262
Issuance of common stock, net of issuance costs	143,387		1		1,221		—	—		—		1,222
Net loss	—		—		—		(5,593)	—		—		(5,593)
Balance, June 30, 2019	7,360,526	$	8	$	905,286	$	(884,477)	26,317	$	(1,772)	$	19,045
Purchase of treasury stock	—		—		—		—	3,987		(26)		(26)
Vested restricted stock awards	1,250		—		26		—	—		—		26
Stock-based compensation	—		—		104		—	—		—		104
Exercise of stock options and employee stock purchases	522		—		3		—	—		—		3
Stock awards to Board of Directors	26,315		—		(24)		—	—		—		(24)
Issuance of common stock, net of issuance costs	616,443		—		4,815		—	—		—		4,815
Deemed dividend on purchase warrant for common shares	—		—		75		(75)	—		—		—
Net loss	—		—		—		(4,448)	—		—		(4,448)
Balance, September 30, 2019	8,005,056		8		910,285		(889,000)	30,304		(1,798)		19,495
Purchase of treasury stock	—		—		—		—	6,420		(18)		(18)
Vested restricted stock awards	19,961		—		17		—	—		—		17
Stock-based compensation	—		—		303		—	—		—		303
Issuance of common stock, net of issuance costs	376,617		—		1,201		—	—		—		1,201
Warrants exercised	440,000		1		—		—	—		—		1
Change in warrants valuation	—		—		291		—	—		—		291
Net loss	—		—		—		(4,907)	—		—		(4,907)
Balance, December 31, 2019	8,841,634	$	9	$	912,097	$	(893,907)	36,724	$	(1,816)	$	16,383


				Additional							Total
	Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance, March 31, 2018	5,706,260	$	57	$	889,585	$	(862,224)	14,596	$	(1,658)	$	25,760
Purchase of treasury stock	—		—		—		—	168		(3)		(3)
Vested restricted stock awards	469		—		3		—	—		—		3
Stock-based compensation	—		—		227		—	—		—		227
Warrants exercised	346,691		3		4,967		—	—		—		4,970
Issuance of common stock, net of issuance costs	380,621		4		(4)		—	—		—		—
Net loss	—		—		—		(4,898)	—		—		(4,898)
Balance, June 30, 2018	6,434,041	$	64	$	894,778	$	(867,122)	14,764	$	(1,661)	$	26,059
Purchase of treasury stock	—		—		—		—	6,254		(70)		(70)
Vested restricted stock awards	330		—		70		—	—		—		70
Stock-based compensation	—		—		224		—	—		—		224
Exercise of stock options and employee stock purchases	102		—		1		—	—		—		1
Stock awards to Board of Directors	45,719		—		(70)		—	—		—		(70)
Issuance of common stock, net of issuance costs	301,608		4		3,105		—	—		—		3,109
Net loss	—		—		—		(4,357)	—		—		(4,357)
Balance, September 30, 2018	6,781,800		68		898,108		(871,479)	21,018		(1,731)		24,966
Purchase of treasury stock	—		—		—		—	3		—		—
Vested restricted stock awards	12,090		—		—		—	—		—		—
Stock-based compensation	—		—		292		—	—		—		292
Issuance of common stock, net of issuance costs	386,458		4		2,862		—	—		—		2,866
Net loss	—		—		—		(3,450)	—		—		(3,450)
Balance, December 31, 2018	7,180,348	$	72	$	901,262	$	(874,929)	21,021	$	(1,731)	$	24,674

See accompanying notes to condensed consolidated financial statements

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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	December 31,
	2019		2018
Cash Flows from Operating Activities:
Net loss	$	(14,948)	$	(12,704)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,223		957
Amortization of financing costs and discounts		850		132
Amortization of right-of-use assets		779		—
(Reduction) in accounts receivable allowances		(77)		(345)
Inventory provision		489		617
Provision for warranty expenses		459		1,921
(Gain) loss on disposal of equipment		(13)		7
Stock-based compensation		669		743
Changes in operating assets and liabilities:
Accounts receivable		(3,522)		3,088
Inventories		(827)		(3,401)
Prepaid expenses, other current assets and other assets		591		(3,821)
Accounts payable and accrued expenses		1,956		2,185
Accrued salaries and wages and long term liabilities		(234)		(258)
Accrued warranty reserve		(939)		(1,034)
Deferred revenue		(2,176)		(684)
Net cash used in operating activities		(15,720)		(12,597)
Cash Flows from Investing Activities:
Expenditures for property, equipment and rental assets		(3,900)		(3,070)
Net cash used in investing activities		(3,900)		(3,070)
Cash Flows from Financing Activities:
Net proceeds from revolving credit facility		—		2,209
Repayment of notes payable and lease obligations		(593)		(144)
Cash used in employee stock-based transactions		(44)		(73)
Net proceeds from issuance of common stock and warrants		7,260		10,948
Net cash provided by financing activities		6,623		12,940
Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash		(12,997)		(2,727)
Cash, Cash Equivalents and Restricted Cash, Beginning of Year		29,727		19,408
Cash, Cash Equivalents and Restricted Cash, End of Year	$	16,730	$	16,681
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	2,625	$	343
Income taxes	$	15	$	5
Supplemental Disclosures of Non-Cash Information:
Acquisition of property and equipment through accounts payable	$	7	$	—
Renewal of insurance contracts which was financed by notes payable	$	—	$	260
Deemed dividend	$	75	$	—

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE TURBINE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Business and Organization

Capstone Turbine Corporation (the “Company”) develops, manufactures, markets and services microturbine technology solutions for use in stationary distributed power generation and distribution networks applications, including energy efficient cogeneration combined heat and power (“CHP”), integrated combined heat and power (“ICHP”), and combined cooling, heat and power (“CCHP”), as well as renewable energy, natural resources and critical power supply applications. Microturbines allow customers to produce power on-site in parallel with the electric grid or stand-alone when no utility grid is available. Several technologies are used to provide “on-site power generation” (also called “distributed generation”) such as reciprocating engines, solar photovoltaic power (“PV”), wind turbines and fuel cells. Our microturbines can be interconnected to other distributed energy resources to form “microgrids” (also called “distribution networks”) located within a specific geographic area and provide power to a group of buildings. In addition, the Company’s microturbines have been used as battery charging generators for hybrid electric vehicles and to provide power to a vessel’s electrical loads in marine applications. We sell microturbine units, components and accessories, as well as offer long-term microturbine rentals. We also remanufacture microturbine engines and provide new and remanufactured aftermarket spare parts, accessories, services, and comprehensive long-term service contracts for up to 20 years. The Company was organized in 1988 and has been commercially producing its microturbine generators since 1998.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The condensed consolidated balance sheet at March 31, 2019 was derived from audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019. In the opinion of management, the interim condensed consolidated financial statements include all adjustments (including normal recurring adjustments) necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. Results of operations for any interim period are not necessarily indicative of results for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the Fiscal Year 2019. This Quarterly Report on Form 10-Q (this “Form 10-Q”) refers to the Company’s fiscal years ending March 31 as its “Fiscal” years.

Significant Accounting Policies There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the Fiscal Year 2019 filed with the SEC on June 11, 2019, that have had a material impact on the Company's condensed consolidated financial statements and related notes, except for the accounting policy for lease recognition as a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-02, as discussed in Note 3—Recently Issued Accounting Standards.

Reverse Stock Split At the annual meeting of stockholders of the Company held on August 29, 2019, the Company’s stockholders approved an amendment to our Second Amended and Restated Certificate of Incorporation (the “Amendment”) to effect a reverse stock split of our common stock at a ratio in the range of one-for-five (1:5) to one-for-ten (1:10). Pursuant to such authority granted by the stockholders, the Company’s board of directors approved a one-for-ten (1:10) reverse stock split (the “Reverse Stock Split”) of the common stock and the filing of the Amendment. The certificate was filed with the Secretary of State of Delaware, effective on October 21, 2019 and the Reverse Stock Split became effective as of that date as filed with the SEC under the Securities and Exchange Act. Accordingly, all references to numbers of common shares, including the number of common shares on an as-if-converted basis, per-share data and share prices and exercise prices in the accompanying condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.

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Evaluation of Ability to Maintain Current Level of Operations In connection with preparing the condensed consolidated financial statements for the nine months ended December 31, 2019, 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 third quarter of Fiscal 2020 interim condensed consolidated 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 impact of the volatility of the global oil and gas markets, a strong U.S. dollar in certain markets making its products more expensive in such markets and ongoing global geopolitical tensions. The Company incurred a net loss of $14.9 million and used cash in operating activities of $15.7 million for the nine months ended December 31, 2019. The Company’s working capital requirements during the nine months ended December 31, 2019 were higher than management’s expectations, which included higher accounts receivable due to delayed collections and higher inventory. The Company’s net loss expanded during the nine months ended December 31, 2019 compared to the same period the previous year primarily because of higher interest expense and higher selling, general and administrative expense, partially offset by higher gross margins from our accessories, parts and service business. As of December 31, 2019, the Company had cash and cash equivalents of $16.7 million, and outstanding debt of $30.0 million (see Note 11 – Term Note Payable for further discussion of the outstanding debt).

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 maintain low operating expenses and develop its geographical and vertical markets. The Company may seek to raise funds by selling additional securities (through at-the-market offerings or otherwise). 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, the fully diluted ownership percentages of existing stockholders will be reduced. In addition, any equity that the Company would issue may have rights, preferences or privileges senior to those of the holders of its common stock.

Based on the Company’s current operating plan, management anticipates that, given current working capital levels, current financial projections and funds received under the note purchase agreement, 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 our third quarter of Fiscal 2020 financial statements.

Basis for Consolidation The condensed consolidated financial statements include the accounts of the Company, Capstone Turbine International, Inc., its wholly owned subsidiary that was formed in June 2004 and Capstone Turbine Financial Services, LLC, its wholly owned subsidiary that was formed in October 2015, after elimination of inter-company transactions.

3. Recently Issued Accounting Pronouncements

Adopted

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. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which provides additional implementation guidance on the previously issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. 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. On April 1, 2019, the Company adopted this standard. See Note 16—Leases for additional discussion of the impact of the adoption of ASU 2016-02.

In June 2018, the FASB issued ASU 2018-07, “Share-Based Payment Arrangements with Nonemployees” (Topic 505), (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for share-based payments granted to

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nonemployees for goods and services. Under ASU 2018-07, most of the guidance on such payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. Under the ASU 2018-07, the measurement of equity-classified nonemployee share-based payments will be fixed on the grant date, as defined in ASC 718, and will use the term nonemployee vesting period, rather than requisite service period. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted if financial statements have not yet been issued. The Company adopted ASU 2018-07 on April 1, 2019 and it did not have a material impact on the Company’s condensed consolidated financial statements.

On August 17, 2018, the SEC issued Release No. 33-10532, “Disclosure Update and Simplification”, (“Release No. 33-10532”) which amends certain redundant, duplicative, outdated, superseded or overlapping disclosure requirements. The amendments in this rule are intended to facilitate the disclosure of information to investors and to simplify compliance without significantly impacting the mix of information provided to investors. The amendments also expand the disclosure requirements regarding the analysis of stockholders’ equity for interim financial statements, in which entities will be required to present a reconciliation for each period for which a statement of comprehensive income is required to be filed. The final rule became effective on November 5, 2018, however the SEC announced that it would not object if a filer’s first presentation of the changes in stockholders’ equity were included in its Form 10-Q for the quarter that begins after the effective date of the amendments. The Company adopted Release No. 33-10532 on April 1, 2019 and it did not have a material impact on the Company’s financial disclosures.

4. Customer Concentrations and Accounts Receivable

Sales to Optimal Group Australia Pty Ltd, one of the Company’s Australian distributors, accounted for 11% of revenue for the three months ended December 31, 2019. Sales to E-Finity Distributed Generation, LLC (“E-Finity”) and Cal Microturbine (“CAL”), two of the Company’s domestic distributors and DTC Soluciones Inmobiliarias S.A. de C.V., one of the Company’s Mexican distributors (“DTC”), accounted for 14%, 13% and 13%, respectively, of revenue for the three months ended December 31, 2018. For the nine months ended December 31, 2019 and 2018, E-Finity accounted for 12% of revenue.

Additionally, E-Finity accounted for 12% of net accounts receivable as of December 31, 2019. Reliable Secure Power Systems, (“RSP”), one of the Company’s domestic distributors and E-Finity, accounted for 14% and 10%, respectively, of net accounts receivable as of March 31, 2019.

On October 13, 2017, the Company entered into an Accounts Receivable Assignment Agreement (the “Assignment Agreement”) and Promissory Note (the “Note”) with Turbine International, LLC (“TI”).

Pursuant to the terms of the Assignment Agreement, the Company agreed to assign to TI the right, title and interest to receivables owed to the Company from BPC Engineering, its former Russian distributor (“BPC”), upon TI’s payment to the Company of $2.5 million in three payments by February 1, 2018. The Company received payments from TI of approximately $1.0 million under the Assignment Agreement during Fiscal 2018, which was recorded as bad debt recovery.

On October 13, 2017, the Company and Hispania Petroleum, S.A. (the “Guarantor”) entered into a Guaranty Agreement (the “Guaranty Agreement”) whereby the Guarantor guarantees TI’s obligations under the Agreement and Note. However, due to the Company’s limited business relationship with TI and the missed payments on the Assignment Agreement, the Company deferred recognition of the Assignment Agreement and Note until collectability is reasonably assured.

In connection with the terms of the Note, the Company granted TI the sole distribution rights for its products and services in the Russian oil and gas sector. As a result of this appointment, TI agreed to pay the Company $3.8 million over a three-year period in 35 equal monthly installments starting in August 2018.

On June 5, 2018, the Company entered into an amendment to the Assignment Agreement (the “Amended Assignment Agreement”) and the Note (the “Amended Note”) with TI. Pursuant to the terms of the Amended Assignment Agreement, the right, title and interest to receivables owed to the Company from BPC was be contingent upon TI’s payment to the Company of the remaining approximately $1.5 million in five payments by September 20, 2019. Under the terms of the Amended Note, TI agreed to pay the Company $3.8 million over a three-year period in 13 equal quarterly installments starting on December 20, 2019. The payments of $0.4 million, $0.3 million, and $0.3 million, due March 20, 2019, June 20, 2019, and September 20, 2019, respectively, under the Amended Assignment

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Agreement, have not been received at the time of this filing. In September 2019, the Company sent TI a notice to cure default with a deadline of October 31, 2019. TI failed to cure the noticed default and the Company has since terminated TI’s distributor agreement. As a result, the BPC accounts receivable and related accounts receivable reserve of $4.8 million were written off.

The Company recorded a net bad debt recovery of $0.1 million during the nine months ended December 31, 2019. No bad debt recovery or expense was recorded in the three months ended December 31, 2019. The Company recorded a net bad debt recovery of approximately $0.4 million and $0.3 million during the three and nine months ended December 31, 2018, respectively.

As of March 31, 2015, the Company had an amount owed of approximately $8.1 million by BPC. As of September 30, 2019, the Company cumulatively collected approximately $1.8 million from BPC on their accounts receivable, which has been previously reserved. The Company cumulatively collected approximately $1.5 million from TI, under the terms of the Assignment Agreement and the Amended Assignment Agreement. The BPC accounts receivable and related accounts receivable reserve of $4.8 million were written off as of December 31, 2019.

5. Inventories

Inventories are valued at the lower of cost (determined on a first in first out (“FIFO”) basis) or net realizable value and consisted of the following as of December 31, 2019 and March 31, 2019 (in thousands):


	December 31,		March 31,
	2019		2019
Raw materials	$	22,628	$	24,426
Work in process		603		—
Finished goods		1,742		1,207
Total		24,973		25,633
Less inventory reserve		(2,889)		(3,887)
Less non-current portion		(1,229)		(1,403)
Current portion	$	20,855	$	20,343

The non-current portion of inventories represents the portion of the inventories in excess of amounts expected to be sold or 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 December 31, 2019 is 1.2 years. The Company expects to use the non-current portion of the inventories on hand as of December 31, 2019 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	$	647
25 to 36 months		582
Total	$	1,229

6. Property, Plant, Equipment and Rental Assets

Property, plant, equipment and rental assets consisted of the following as of December 31, 2019 and March 31, 2019 (in thousands):


	December 31,		March 31,
	2019		2019
Machinery, equipment, automobiles and furniture	$	15,728	$	15,344
Leasehold improvements		11,114		11,074
Molds and tooling		3,099		2,893
Rental assets		5,502		2,818
		35,443		32,129
Less, accumulated depreciation		(27,699)		(26,838)
Total property, plant, equipment and rental assets, net	$	7,744	$	5,291

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During the third quarter of Fiscal 2020, the Company deployed approximately $0.7 million of its C1000 Signature Series systems (0.8 megawatts “MW”) under its long-term rental program, bringing the total rental fleet to 7.0 MWs. During the nine months ended December 31, 2019, the Company deployed approximately $2.7 million of its C1000 Signature Series systems under its long-term rental program.

The Company regularly reassesses the useful lives of property and equipment and retires assets no longer in service. Depreciation expense for property, equipment and rental assets was $0.3 million each for the three months ended December 31, 2019 and 2018. Depreciation expense for property, equipment and rental assets was $1.0 million and $0.8 million for the nine months ended December 31, 2019 and 2018, respectively.

7. Intangible Assets

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


	December 31, 2019
	Weighted
	Average	Intangible
	Amortization	Assets,		Accumulated		Intangible
	Period	Gross		Amortization		Assets, Net
Manufacturing license	17 years	$	3,700	$	3,700	$	—
Technology	10 years		2,240		2,221		19
Trade name & parts, service and TA100 customer relationships	1.2 to 5 years		1,766		1,766		—
Total		$	7,706	$	7,687	$	19


	March 31, 2019
	Weighted
	Average	Intangible
	Amortization	Assets,		Accumulated		Intangible
	Period	Gross		Amortization		Assets, Net
Manufacturing license	17 years	$	3,700	$	3,700	$	—
Technology	10 years		2,240		2,053		187
Trade name & parts, service and TA100 customer relationships	1.2 to 5 years		1,766		1,766		—
Total		$	7,706	$

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