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, 2015 was derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015. In the opinion of management, the interim condensed consolidated financial statements include all adjustments (consisting of 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 year ended March 31, 2015. 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.

 

The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company continues to be negatively impacted by the continuing softness of the global oil and gas markets, a substantially stronger U.S. dollar (making our products more expensive overseas) and ongoing geopolitical tensions in Russia, North Africa and the Middle East. The Company’s net loss from operations for the second quarter of Fiscal 2016 was $7.6 million. The Company’s cash and cash equivalents as of September 30, 2015 and March 31, 2015 were $10.6 million ($15.6 million when combined with restricted cash related to the Credit Facility) and $32.2 million, respectively. See Note 11—Revolving Credit Facility for discussion of the line of credit with Wells Fargo Bank, National Association (“Wells Fargo”). Cash and cash equivalents and restricted cash, less the amount outstanding under the Credit Facility, was $0.4 million and $19.3 million as of September 30, 2015 and March 31, 2015, respectively. The Company’s working capital requirements during the second quarter of Fiscal 2016 were higher than planned primarily as a result of lower than expected revenue, slower collection of accounts receivable and lower than anticipated inventory turns primarily because of finished goods that did not ship in the quarter.

 

Management believes that the Company will make progress on its path to profitability by improving its net loss from operations by lowering its operating costs and the continued development of other geographical and vertical markets. In addition, management has the ability to manage certain operating assets and liabilities, specifically the procurement of inventory and timing of payments of accounts payable, capital expenditures and certain operating expenses depending on the results of its operations to preserve its cash and cash equivalents. Additionally, the Company has an at-the-market offering program in place pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock. See Note 9— Underwritten and Registered Direct Placement of Common Stock for disclosure with respect to the at-the-market offering program. Management also believes that the Company will maintain compliance with the covenants contained in the amended Credit Facility agreements through the end of Fiscal 2016. If a covenant violation were to occur, the Company would attempt to negotiate a waiver of non-compliance from Wells Fargo.

 

If the Company is unable to manage its cash flows in the areas discussed above, the Company may need to raise additional capital in the near term. The Company may seek to raise funds by selling additional securities (through the at-the-market offering discussed above or some other offering) 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. Should the Company be unable to execute its plans (including raising funds through the at-the-market offering program and maintaining availability under its Credit Facility) or obtain additional financing that may be needed, the Company may need to significantly reduce its operations or it may be unable to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

The condensed consolidated financial statements include the accounts of the Company, Capstone Turbine Singapore, Pte. Ltd., its wholly owned subsidiary that was formed in February 2011, and Capstone Turbine International, Inc., its wholly owned subsidiary that was formed in June 2004, after elimination of inter-company transactions.