Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies
6 Months Ended
Sep. 30, 2014
Commitments and Contingencies  
Commitments and Contingencies

15.  Commitments and Contingencies


Purchase Commitments


As of September 30, 2014, the Company had firm commitments to purchase inventories of approximately $45.3 million through Fiscal 2017. Certain inventory delivery dates and related payments are not firmly 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 balance sheets. The balance of deferred rent was approximately $48,000 and $0.1 million, as of September 30, 2014 and March 31, 2014, respectively. Rent expense was approximately $0.6 million during each of the three months ended September 30, 2014 and 2013. Rent expense was approximately $1.2 million and $1.1 million during the six months ended September 30, 2014 and 2013, 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 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.


At September 30, 2014, the Company’s minimum commitments under non-cancelable operating leases were as follows (in thousands):


Year Ending March 31,





























Total minimum lease payments






Other Commitments


In September 2010, the Company was awarded a grant from the U.S. Department of Energy (“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 project is estimated to cost approximately $17.4 million. The DOE will contribute $5.0 million toward the project, and the Company will incur approximately $12.4 million in research and development expense. The contract is over a five-year period and will be completed by September 2015. The Company billed the DOE under the contract for this project a cumulative amount of $3.9 million through September 30, 2014.


The Company has agreements with some of its distributors requiring it to replace stocked parts if the Company renders parts obsolete in inventories the distributors own and hold in support of their obligations to serve fielded microturbines without charge 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 September 30, 2014 and March 31, 2014, no significant inventories were held at distributors.


Legal Matters


From time to time, the Company may become subject to certain legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of management, the Company is not currently a party to any material legal proceedings, nor is the Company aware of any other pending or threatened litigation that would have a material effect on the Company’s operating results, cash flows, financial position or results of operations should such litigation be resolved unfavorably.