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, 2021

☐

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 Green Energy 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	CGRN	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 9, 2022 was 15,265,722.

Table of Contents

CAPSTONE GREEN ENERGY CORPORATION

INDEX

		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2021 and 2020	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 4.	Controls and Procedures	39

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 6.	Exhibits	41

Signatures		42

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	December 31,		March 31,
	2021		2021
Assets
Current Assets:
Cash and cash equivalents	$	31,267	$	49,533
Accounts receivable, net of allowances of $335 at December 31, 2021 and $314 at March 31, 2021		26,842		20,593
Inventories, net		17,290		11,829
Prepaid expenses and other current assets		5,158		4,953
Total current assets		80,557		86,908
Property, plant, equipment and rental assets, net		14,262		9,630
Non-current portion of inventories		1,635		1,845
Other assets		8,790		7,639
Total assets	$	105,244	$	106,022
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	26,340	$	19,767
Accrued salaries and wages		1,722		1,889
Accrued warranty reserve		1,428		5,850
Deferred revenue		5,231		6,374
Current portion of notes payable and lease obligations		707		576
Total current liabilities		35,428		34,456
Deferred revenue - non-current		927		765
Term note payable, net		50,940		52,865
Long-term portion of notes payable and lease obligations		5,984		4,762
Total liabilities		93,279		92,848
Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued		—		—
Common stock, $.001 par value; 51,500,000 shares authorized, 15,343,125 shares issued and 15,244,162 shares outstanding at December 31, 2021; 12,898,144 shares issued and 12,824,190 shares outstanding at March 31, 2021		15		13
Additional paid-in capital		946,621		934,381
Accumulated deficit		(932,593)		(919,271)
Treasury stock, at cost; 98,963 shares at December 31, 2021 and 73,954 shares at March 31, 2021		(2,078)		(1,949)
Total stockholders’ equity		11,965		13,174
Total liabilities and stockholders' equity	$	105,244	$	106,022

See accompanying notes to condensed consolidated financial statements

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CAPSTONE GREEN ENERGY 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,
	2021		2020		2021		2020
Revenue:
Product and accessories	$	12,329	$	12,760	$	29,183	$	26,572
Parts and service		8,280		7,916		24,704		23,202
Total revenue		20,609		20,676		53,887		49,774
Cost of goods sold:
Product and accessories		12,689		12,324		30,479		26,471
Parts and service		5,703		4,880		15,833		13,896
Total cost of goods sold		18,392		17,204		46,312		40,367
Gross margin		2,217		3,472		7,575		9,407
Operating expenses:
Research and development		767		735		2,637		1,703
Selling, general and administrative		5,293		4,816		17,055		13,234
Total operating expenses		6,060		5,551		19,692		14,937
Loss from operations		(3,843)		(2,079)		(12,117)		(5,530)
Other income (expense)		(21)		(11)		639		4
Interest income		5		7		16		23
Interest expense		(1,287)		(1,230)		(3,800)		(3,835)
Gain (loss) on debt extinguishment		—		(4,282)		1,950		(4,282)
Loss before provision for income taxes		(5,146)		(7,595)		(13,312)		(13,620)
Provision for income taxes		—		—		10		10
Net loss		(5,146)		(7,595)		(13,322)		(13,630)
Less: Deemed dividend on purchase warrant for common shares		—		—		—		15
Net loss attributable to common stockholders	$	(5,146)	$	(7,595)	$	(13,322)	$	(13,645)

Net loss per common share attributable to common stockholders—basic and diluted	$	(0.34)	$	(0.69)	$	(0.92)	$	(1.25)
Weighted average shares used to calculate basic and diluted net loss per common share attributable to common stockholders		15,236		11,081		14,548		10,935

See accompanying notes to condensed consolidated financial statements

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CAPSTONE GREEN ENERGY 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, 2021	12,898,144	$	13	$	934,381	$	(919,271)	73,954	$	(1,949)	$	13,174
Purchase of treasury stock	—		—		—		—	3,353		(29)		(29)
Vested restricted stock awards	19,096		—		29		—	—		—		29
Stock-based compensation	—		—		305		—	—		—		305
Issuance of common stock, net of issuance costs	2,289,651		2		11,203		—	—		—		11,205
Net loss	—		—		—		(2,182)	—		—		(2,182)
Balance, June 30, 2021	15,206,891		15		945,918		(921,453)	77,307		(1,978)		22,502
Purchase of treasury stock	—		—		—		—	20,006		(92)		(92)
Vested restricted stock awards	48,313		—		53		—	—		—		53
Stock-based compensation	—		—		333		—	—		—		333
Stock awards to Board of Directors	70,260		—		—		—	—		—		—
Issuance of common stock, net of issuance costs	—		—		(26)		—	—		—		(26)
Net loss	—		—		—		(5,994)	—		—		(5,994)
Balance, September 30, 2021	15,325,464		15		946,278		(927,447)	97,313		(2,070)		16,776
Purchase of treasury stock	—		—		—		—	1,650		(8)		(8)
Vested restricted stock awards	17,661		—		8		—	—		—		8
Stock-based compensation	—		—		335		—	—		—		335
Net loss	—		—		—		(5,146)	—		—		(5,146)
Balance, December 31, 2021	15,343,125	$	15	$	946,621	$	(932,593)	98,963	$	(2,078)	$	11,965


				Additional							Total
	Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance, March 31, 2020	10,286,366	$	10	$	915,755	$	(900,869)	57,577	$	(1,875)	$	13,021
Purchase of treasury stock	—		—		—		—	3,442		(4)		(4)
Vested restricted stock awards	16,126		—		4		—	—		—		4
Stock-based compensation	—		—		210		—	—		—		210
Issuance of common stock, net of issuance costs	782,448		1		1,371		—	—		—		1,372
Change in warrants valuation	—		—		99		—	—		—		99
Net loss	—		—		—		(1,823)					(1,823)
Balance, June 30, 2020	11,084,940		11		917,439		(902,692)	61,019		(1,879)		12,879
Purchase of treasury stock	—		—		—		—	9,403		(39)		(39)
Vested restricted stock awards	1,670		—		39		—	—		—		39
Stock-based compensation	—		—		219		—	—		—		219
Stock awards to Board of Directors	57,098		—		(38)		—	—		—		(38)
Deemed dividend on purchase warrant for common shares	—		—		15		(15)	—		—		—
Net loss	—		—		—		(4,212)	—		—		(4,212)
Balance, September 30, 2020	11,143,708		11		917,674		(906,919)	70,422		(1,918)		8,848
Vested restricted stock awards	14,939		—		—		—	—		—		—
Stock-based compensation	—		—		249		—	—		—		249
Warrants issued	—		—		760		—	—		—		760
Net loss	—		—		—		(7,595)	—		—		(7,595)
Balance, December 31, 2020	11,158,647	$	11	$	918,683	$	(914,514)	70,422	$	(1,918)	$	2,262

See accompanying notes to condensed consolidated financial statements

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CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	December 31,
	2021		2020
Cash Flows from Operating Activities:
Net loss	$	(13,322)	$	(13,630)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,337		1,072
Amortization of financing costs and discounts		26		614
Amortization of right-of-use assets		552		289
Loss (gain) on debt extinguishment		(1,950)		4,282
Reduction in accounts receivable allowances		—		(228)
Inventory provision		386		138
Provision for warranty expenses		358		535
Gain on disposal of equipment		—		(1)
Stock-based compensation		973		678
Changes in operating assets and liabilities:
Accounts receivable		(6,249)		(2,612)
Inventories		(5,637)		9,402
Prepaid expenses, other current assets and other assets		509		899
Accounts payable and accrued expenses		5,953		(774)
Accrued salaries and wages and long term liabilities		(168)		(173)
Accrued warranty reserve		(4,780)		(946)
Deferred revenue		(981)		(2,911)
Net cash used in operating activities		(22,993)		(3,366)
Cash Flows from Investing Activities:
Expenditures for property, plant, equipment and rental assets		(5,748)		(1,269)
Net cash used in investing activities		(5,748)		(1,269)
Cash Flows from Financing Activities:
Net proceeds from term note payable		—		20,833
Repayment of notes payable and lease obligations		(590)		(655)
Cash used in employee stock-based transactions		(129)		(43)
Net proceeds from issuance of common stock and warrants		11,194		1,402
Net cash provided by financing activities		10,475		21,537
Net increase (decrease) in Cash and Cash Equivalents		(18,266)		16,902
Cash and Cash Equivalents, Beginning of Period		49,533		15,068
Cash and Cash Equivalents, End of Period	$	31,267	$	31,970
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	3,818	$	3,038
Income taxes	$	17	$	14
Supplemental Disclosures of Non-Cash Information:
Acquisition of property and equipment through accounts payable	$	118	$	39
Renewal of insurance contracts financed by notes payable	$	567	$	593
Issuance of common stock for services to be received	$	75	$	—
Deemed dividend	$	—	$	15

See accompanying notes to condensed consolidated financial statements

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CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

Capstone Green Energy Corporation (“Capstone”, or the “Company”) is a provider of customized microgrid solutions and on-site energy technology systems focused on helping customers around the globe meet their environmental, energy savings, and resiliency goals. These solutions include stationary distributed power generation applications and distribution networks, 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 April 2021, the Company added additional products to its portfolio and shifted its focus to four key business lines. The Energy Conversion Products business line is driven by the Company’s industry-leading, highly efficient, low-emission, resilient microturbine energy systems, which offer scalable solutions in addition to a broad range of customer-tailored solutions, including hybrid energy systems and larger frame industrial turbines. Through the Energy as a Service business line, the Company offers rental solutions utilizing its microturbine energy systems and battery storage systems, comprehensive factory protection plan service contracts that guarantee life-cycle costs, as well as aftermarket spare parts. The Company’s two emerging business lines are Energy Storage Products and Hydrogen Energy Solutions. The Energy Storage Products business line is driven by the design and installation of microgrid storage systems creating customized solutions using a combination of battery technologies and monitoring software. Through the Company’s Hydrogen Energy Solutions business line, it offers customers a variety of hydrogen products, including the Company’s microturbine energy systems. Because these are new offerings, Energy Storage Products and Hydrogen Energy Solutions revenue has been immaterial to date. The Company was organized in 1988 and has been commercially producing its microturbine generators since 1998.

2. Basis of Presentation and Significant Accounting Policies

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, 2021 was derived from audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the Fiscal year ended March 31, 2021. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. 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 2021 filed with the SEC on June 14, 2021. 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.

Certain reclassifications have been made to the prior year’s financial statements to enhance comparability with the current year’s financial statements. As a result, certain line items have been amended in the Condensed Consolidated Statements of Operations and the related notes to the consolidated financial statements. Comparative figures have been adjusted to conform to the current year’s presentation. The items were reclassified as follows (in thousands):


	Previously Reported					After Reclassification
	Three Months Ended December 31, 2020		Nine Months Ended December 31, 2020			Three Months Ended December 31, 2020		Nine Months Ended December 31, 2020
Product, accessories and parts	$	15,374	$	33,654	Product and accessories	$	12,760	$	26,572
Service		5,302		16,120	Parts and service		7,916		23,202
Total revenue	$	20,676	$	49,774	Total revenue	$	20,676	$	49,774

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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 Fiscal Year 2021 filed with the SEC on June 14, 2021, that have had a material impact on the Company's condensed consolidated financial statements and related notes.

Evaluation of Ability to Maintain Current Level of Operations In connection with the preparation of these condensed consolidated financial statements for the three and nine months ended December 31, 2021, 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 over the next twelve months from the date of issuance of the Company’s third quarter of Fiscal 2022 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 COVID-19 pandemic, volatility of the global oil and gas markets, and a strong U.S. dollar in certain markets making its products more expensive in such markets. The Company incurred a net loss of $13.3 million and used net cash in operating activities of $23.0 million for the nine months ended December 31, 2021. Cash used for working capital requirements for the quarter was primarily for increases in inventory, as a result of the Company’s efforts to grow its long-term rental fleet from 10.6 MW to 21.1 MW during Fiscal 2022, as well as the delayed timing of accounts receivable collections due to the COVID-19 pandemic. Additionally, the Company used cash to replace parts under its reliability repair program established during the fourth quarter of Fiscal 2021. As of December 31, 2021, the Company had cash and cash equivalents of $31.3 million, working capital of $45.2 million, outstanding debt of $50.9 million at fair value (see Note 10 – Term Note Payable for further discussion of the outstanding debt), and inventory purchase commitments of approximately $40.1 million through Fiscal 2023. 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 and consequently may extend beyond 2023.

Management evaluated these conditions in relation to the Company’s ability to meet its obligations as they become due over the next twelve months from the date of issuance of these condensed consolidated financial statements. The Company’s ability to continue current operations and to execute on management’s plans is dependent on its ability to generate sufficient cash flows from operations. While no assurances can be provided, management believes that the Company will continue to make progress on its path to profitability by continuing to maintain low operating expenses and further developing its geographical and vertical markets. The Company may seek to raise funds by selling additional securities (through at-the-market offerings or otherwise) 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, the fully diluted ownership percentages of existing stockholders will be reduced. In addition, any equity that the Company would issue may include 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 debt agreements as further described in Note 10 – Term Note Payable, and funds received under offerings of Common Stock as further described in Note 8 – Offerings of Common Stock and Warrants, 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 the Company’s third quarter of Fiscal 2022 interim condensed consolidated financial statements.

Company Response to COVID-19

In March 2020, the Company began to monitor the global effects of COVID-19, the worldwide spread of which led the World Health Organization (“WHO”) to characterize it as a pandemic on March 11, 2020. Thereafter, most U.S. states imposed “stay-at-home” orders on their populations to stem the spread of COVID-19. Of specific interest to the Company, stay-at-home orders were imposed in the state of California on March 20, 2020.

On March 23, 2020 the Company enacted a Business Continuity Plan in response to COVID-19. Beginning March 30, 2020, the Company furloughed 52 employees, leaving behind only staff deemed essential for day-to-day administrative operations for a minimum period of 45 days. The Company’s Leadership Team volunteered to take a 25% temporary salary cut. In addition, 25 other top Company managers volunteered to take a similar 15% reduction in salary. Several employees returned to work June 1, 2020, most with the 15% voluntary salary cuts, with others returning in a staggered manner through the end of September 2020. Additionally, in March 2020, the Board voted to take a temporary 25% reduction in base cash retainer in support of the Company’s Business Continuity Plan. As a result of the continued global economic slowdown due to COVID-19 and the associated decline in global crude oil prices, the Company eliminated 26 positions on June 1, 2020. During the period of March 30, 2020 to June 1, 2020, the Company had limited production

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capability of new microturbine products, but had pre-built approximately 5.9 MW of microturbine finished goods during March 2020 for shipment during this period of suspended production. On September 28, 2020 salaries were returned to 100% and remaining furloughed employees returned to work. The Company’s vendor supply chain has also been impacted by the pandemic; however, the Company has been able to maintain sufficient supply flow to continue operations as of the date hereof.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”). The Company determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was necessary to support the Company’s ongoing operations. Under the PPP, the Company could obtain a U.S. Small Business Administration loan in an amount equal to the average of the Company’s monthly payroll costs (as defined under the PPP) for calendar 2019 multiplied by 2.5 (approximately 10 weeks of payroll costs). Section 1106 of the CARES Act contains provisions for the forgiveness of all or a portion of a PPP loan, subject to the satisfaction of certain requirements. The amount eligible for forgiveness is, subject to certain limitations, the sum of the Company’s payroll costs, rent and utilities paid by the Company during the eight-week period beginning on the funding date of the PPP loan.

On April 24, 2020, the Company closed on a PPP loan in the amount of $2,610,200, which was transferred by the Company into an account dedicated to allowable uses of the PPP loan proceeds. On May 13, 2020, the Company repaid $660,200 of the loan in accordance with the Fourth Amendment to the Note Purchase Agreement between the Company and Goldman Sachs Specialty Lending Group, L.P. In February 2021, the Company applied for forgiveness in full of the original balance of the PPP loan and the loan was forgiven in full on June 30, 2021. The Company received a refund of $660,200 and recorded these amounts within other income on the Company’s Condensed Consolidated Statements of Operations.

Basis for Consolidation These 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 December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The new guidance removes certain exceptions to the general principles of Accounting Standards Codification (“ASC”) 740 in order to simplify the complexities of its application. These changes include eliminations to the exceptions for intraperiod tax allocation, recognizing deferred tax liabilities related to outside basis differences, and year-to-date losses in interim periods, among others. The effective date of this guidance for public companies is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 on April 1, 2021 and it did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Not yet adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this ASU reduce the number of accounting models for convertible debt instruments and convertible preferred stock in order to simplify the accounting for convertible instruments and reduce complexity. In addition, it amends the guidance for scope exception surrounding derivatives for contracts in an entity’s own equity. In each case, the related guidance surrounding EPS has also been amended. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently evaluating the impact of ASU 2020-06 on its condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU provide guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on

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expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable forecasts. With certain exceptions, transition to the new guidance will be through a cumulative effect adjustment to opening accumulated deficit as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which defers the adoption of ASU 2016-13 for Smaller Reporting Companies (“SRCs”) as defined by the SEC for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-13 on its condensed consolidated financial statements and related disclosures.

Other standards issued but not yet effective, which are not discussed, are not considered material to the Company.

4. Customer Concentrations and Accounts Receivable

E-Finity Distributed Generation, LLC (“E-Finity”) and RSP Systems, two of the Company’s domestic distributors, and Radian Oil & Gas Services Co, one of the Company’s international direct customers, accounted for 13%, 10%, and 10% of revenue for the three months ended December 31, 2021, respectively. Cal Microturbine, one of the Company’s domestic distributors, and Supernova Energy Services, one of the Company’s Latin American distributors, accounted for 24% and 12% of revenue for the three months ended December 31, 2020, respectively. E-Finity accounted for 15% of revenue for the nine months ended December 31, 2021. Cal Microturbine accounted for 16% of revenue for the nine months ended December 31, 2020.

Additionally, E-Finity accounted for 20% and 13% of net accounts receivable as of December 31, 2021 and March 31, 2021, respectively. The Company recorded a net bad debt recovery of approximately $0.2 million during the three and nine months ended December 31, 2020. The Company had no bad debt expense during the three and nine months ended December 31, 2021.

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 (in thousands):


	December 31,		March 31,
	2021		2021
Raw materials	$	20,995	$	15,755
Work in process		—		(30)
Finished goods		—		—
Total		20,995		15,725
Less: inventory reserve		(2,070)		(2,051)
Less: non-current portion		(1,635)		(1,845)
Total inventory, net-current portion	$	17,290	$	11,829

The non-current portion of inventories represent the portion of inventories in excess of amounts expected to be sold or used in the next twelve months and primarily comprise of repair parts for older generation products still in operation but not technologically compatible with current configurations. The weighted average age of the non-current portion of inventories on hand as of December 31, 2021 is 1.1 years. The Company expects to use the non-current portion of the inventories on hand as of December 31, 2021 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	$	831
25 to 36 months		804
Total	$	1,635

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6. Property, Plant, Equipment and Rental Assets

Property, plant, equipment and rental assets consisted of the following (in thousands):


	December 31,		March 31,
	2021		2021
Machinery, equipment, automobiles and furniture	$	15,681	$	15,523
Leasehold improvements		8,566		8,069
Molds and tooling		3,336		3,192
Rental assets		13,439		8,378
		41,022		35,162
Less: accumulated depreciation		(26,760)		(25,532)
Total property, plant, equipment and rental assets, net	$	14,262	$	9,630

During the nine months ended December 31, 2021, the Company deployed an additional 7.1 megawatts (“MWs”) of microturbine systems with a book value of approximately $5.1 million under its long-term rental program, bringing the total rental fleet to 17.7 MWs.

The Company regularly assesses the useful lives of property and equipment and retires assets no longer in service. Depreciation expense for property, plant, equipment and rental assets was $0.5 million and $0.3 million for the three months ended December 31, 2021 and 2020, respectively. Depreciation expense for property, plant, equipment and rental assets was $1.2 million and $1.0 million for the nine months ended December 31, 2021 and 2020, respectively.

7. Stock-Based Compensation

The following table summarizes, by condensed consolidated statements of operations line item, stock-based compensation expense (in thousands):


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2021		2020		2021		2020
Cost of goods sold	$	29	$	22	$	86	$	59
Research and development		22		11		57		29
Selling, general and administrative		284		216		830		590
Stock-based compensation expense	$	335	$	249	$	973	$	678

Stock Plans

2000 Equity Incentive Plan and 2017 Equity Incentive Plan

In June 2017, the Company’s Board adopted the Capstone Green Energy Corporation 2017 Equity Incentive Plan (the “2017 Plan”), which was approved by the stockholders at the Company’s 2017 annual meeting of stockholders on August 31, 2017 (the “2017 Annual Meeting”). The 2017 Plan initially provided for awards of up to 300,000 shares of Common Stock. The 2017 Plan is administered by the Compensation and Human Capital Committee designated by the Board (the “Compensation Committee”). The Compensation Committee’s authority includes determining the number of incentive awards and vesting provisions. On June 5, 2018, the Company’s Board of Directors adopted an amendment of the 2017 Plan to increase the aggregate number of shares of Common Stock authorized for issuance under the 2017 Plan by 300,000 shares of Common Stock. The amendment of the 2017 Plan was approved by the Company’s stockholders at the 2018 annual meeting of stockholders on August 30, 2018. Since this time, the Company’s stockholders have approved amendments to increase the aggregate number of shares authorized for issuance under the 2017 Plan by an additional 1,600,000 shares of Common Stock, including, most recently, on June 2, 2021, the Company’s Board of Directors adopted Amendment No. 4 (the “Plan Amendment”) of the 2017 Plan to increase the aggregate number of shares of Common Stock authorized for issuance under the 2017 Plan by 500,000 shares of Common Stock. The Plan amendment was approved by the Company’s stockholders at the 2021 annual meeting of stockholders on August 27, 2021.

As of December 31, 2021, there were 796,894 shares available for future grants under the 2017 Plan.

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Restricted Stock Units and Performance Restricted Stock Units

The Company issued restricted stock units under the Company’s 2000 Equity Incentive Plan, as well as issued (and may in the future issue) restricted stock units under the 2017 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. The restricted stock units issued to employees vest over a period of two, three or four years. For restricted stock units with two year vesting, 100% vests on the second year anniversary. For restricted stock units with three year vesting, one-third vest annually beginning one year after the issuance date. 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 summarizes restricted stock unit and performance restricted stock unit (“PRSU”) activity during the nine months ended December 31, 2021:


		Weighted
		Average Grant
		Date Fair
Restricted Stock Units and Performance Restricted Stock Units	Shares	Value
Non-vested restricted stock units outstanding at March 31, 2021	497,281	$	5.65
Granted	318,713		5.45
Vested and issued	(155,330)		5.13
Forfeited	(11,930)		5.60
Non-vested restricted stock units outstanding at December 31, 2021	648,734		5.68
Restricted stock units expected to vest beyond December 31, 2021	648,734	$	5.68

The following table provides additional information on restricted stock units and performance restricted stock units:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Restricted stock compensation expense (in thousands)	$	335	$	249	$	973	$	678
Aggregate fair value of restricted stock units vested and issued (in thousands)	$	94	$	87	$	798	$	352
Weighted average grant date fair value of restricted stock units granted during the period	$	4.70	$	6.22	$	5.45	$	4.39

As of December 31, 2021, there was approximately $2.5 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 2.3 years.

The Company’s PRSU activity is included in the above restricted stock units tables. The PRSU program has a three-year performance measurement period. The performance measurement period begins on April 1 of the first fiscal year and ends on March 31 of the third fiscal year after the grant date. The program is intended to have overlapping performance measurement periods (e.g., a new three-year cycle begins each year on April 1), subject to Compensation Committee approval. At the end of each performance measurement period, the Compensation Committee will determine the achievement against the performance objectives.

During the nine months ended December 31, 2021, the Company granted 35,986 PRSUs with a three-year performance measurement period. The target PRSU awards for each participant will be paid upon achievement of the target level of performance for aftermarket sales absorption and payoff or refinancing of its debt with a reduced rate, taking into account the applicable weighting for the individual metric. Achievement of a performance goal at the threshold level will result in a payment that is 50% of the target PRSU award. Achievement of a performance goal at the maximum level will result in a payment that is 150% of the target PRSU award. The Compensation Committee will use an interpolation table that weights performance between levels for determining the portion of the Target PRSU that is earned. There were no PRSUs granted during the nine months ended December 31, 2020.

The weighted average per share grant date fair value of PRSUs granted during the nine months ended December 31, 2021 was $8.39. Based on the Company’s assessment as of December 31, 2021, the Company does not expect to meet the threshold of the performance measurements for the Fiscal 2022 and Fiscal 2020 PRSUs, and as a result, no compensation expense was recorded during the nine months ended December 31, 2021 or during the nine months ended December 31, 2020. Compensation expense is recognized over the corresponding requisite service period and will be

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adjusted in subsequent reporting periods if the Company’s assessment of the probable level of achievement of the performance goals change. The Company will continue to assess the likelihood of the PRSU threshold being met until the end of the applicable performance period.

Stockholder Rights Plan

On May 6, 2019, the Board declared a dividend of one right (a “New Right”) for each of the Company’s issued and outstanding shares of Common Stock. The dividend was paid to the stockholders of record at the close of business on May 16, 2019 (the “Record Date”). Each New Right entitles the registered holder, subject to the terms of the NOL Rights Agreement (as defined below), to purchase from the Company one one-thousandth of a share of the Company’s Series B Junior Participating Preferred Stock (the “Preferred Stock”) at a price of $5.22 (the “Exercise Price”), subject to certain adjustments. The description and terms of the New Rights are set forth in the Rights Agreement dated as of May 6, 2019 (the “NOL Rights Agreement”) between the Company and Broadridge Financial Solutions, Inc., as Rights Agent (the “Rights Agent”).

The NOL Rights Agreement replaced the Company’s Rights Agreement, dated May 6, 2016, by and between the Company and Broadridge Financial Solutions, Inc., as successor-in-interest to Computershare Inc., as rights agent (the “Original Rights Agreement”). The Original Rights Agreement, and the rights thereunder to purchase fractional shares of Preferred Stock, expired at 5:00 p.m., New York City time, on May 6, 2019 and the NOL Rights Agreement was entered into immediately thereafter.

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, as amended (the “Tax Code”). 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 Tax Code, 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 Tax Code by (i) discouraging any person or group from becoming a 4.9% or greater shareholder and (ii) discouraging any existing 4.9% or greater shareholder from acquiring additional shares of the Company’s stock.