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, 2022

☐

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 10, 2023, was 18,347,840.

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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, 2022 and March 31, 2022	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2022 and 2021	4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2022 and 2021	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2022 and 2021	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	25

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

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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,
	2022		2022
Assets
Current Assets:
Cash and cash equivalents	$	16,618	$	22,559
Accounts receivable, net of allowances of $1,013 at December 31, 2022 and $845 at March 31, 2022		15,119		24,665
Inventories, net		25,602		18,465
Prepaid expenses and other current assets		7,125		5,519
Total current assets		64,464		71,208
Property, plant, equipment and rental assets, net		25,906		18,038
Non-current portion of accounts receivable		107		1,212
Non-current portion of inventories		3,055		1,680
Other assets		11,334		8,635
Total assets	$	104,866	$	100,773
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	26,087	$	25,130
Accrued salaries and wages		1,421		1,147
Accrued warranty reserve		1,540		1,483
Deferred revenue		9,699		9,185
Current portion of notes payable and lease obligations		2,201		675
Term note payable		50,974		—
Total current liabilities		91,922		37,620
Deferred revenue - non-current		817		981
Term note payable - non-current		—		50,949
Long-term portion of notes payable and lease obligations		11,036		5,809
Total liabilities		103,775		95,359
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, 18,464,854 shares issued and 18,347,840 shares outstanding at December 31, 2022; 15,398,368 shares issued and 15,296,735 shares outstanding at March 31, 2022		18		15
Additional paid-in capital		954,982		946,969
Accumulated deficit		(951,770)		(939,482)
Treasury stock, at cost; 117,014 shares at December 31, 2022 and 101,633 shares at March 31, 2022		(2,139)		(2,088)
Total stockholders’ equity		1,091		5,414
Total liabilities and stockholders' equity	$	104,866	$	100,773

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,
	2022		2021		2022		2021
Revenue, net:
Product and accessories	$	10,003	$	12,329	$	29,773	$	29,183
Parts, service and rentals		9,603		8,280		29,260		24,704
Total revenue, net		19,606		20,609		59,033		53,887
Cost of goods sold:
Product and accessories		11,629		12,689		33,017		30,479
Parts, service and rentals		5,308		5,703		16,465		15,833
Total cost of goods sold		16,937		18,392		49,482		46,312
Gross profit		2,669		2,217		9,551		7,575
Operating expenses:
Research and development		634		767		1,726		2,637
Selling, general and administrative		5,397		5,293		15,423		17,055
Total operating expenses		6,031		6,060		17,149		19,692
Loss from operations		(3,362)		(3,843)		(7,598)		(12,117)
Other income (expense)		5		(21)		(43)		639
Interest income		43		5		74		16
Interest expense		(1,900)		(1,287)		(4,618)		(3,800)
Gain (loss) on debt extinguishment		—		—		—		1,950
Loss before provision for income taxes		(5,214)		(5,146)		(12,185)		(13,312)
Provision for income taxes		—		—		6		10
Net loss		(5,214)		(5,146)		(12,191)		(13,322)
Less: Deemed dividend on purchase warrant for common shares		—		—		97		—
Net loss attributable to common stockholders	$	(5,214)	$	(5,146)	$	(12,288)	$	(13,322)

Net loss per common share attributable to common stockholders—basic and diluted	$	(0.28)	$	(0.34)	$	(0.73)	$	(0.92)
Weighted average shares used to calculate basic and diluted net loss per common share attributable to common stockholders		18,351		15,236		16,824		14,548

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 share amounts)
(Unaudited)


				Additional							Total
	Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Deficit		Shares	Amount		Equity
Balance, March 31, 2022	15,398,368	$	15	$	946,969	$	(939,482)	101,633	$	(2,088)	$	5,414
Purchase of treasury stock	—		—		—		—	9,296		(36)		(36)
Vested restricted stock awards	33,234		—		36		—	—		—		36
Stock-based compensation	—		—		232		—	—		—		232
Net loss	—		—		—		(2,059)	—		—		(2,059)
Balance, June 30, 2022	15,431,602		15		947,237		(941,541)	110,929		(2,124)		3,587
Purchase of treasury stock	—		—		—		—	6,085		(15)		(15)
Vested restricted stock awards	28,882		—		15		—	—		—		15
Stock-based compensation	—		—		154		—	—		—		154
Stock awards to Board of Directors	54,585		—		—		—	—		—		—
Issuance of common stock, net of issuance costs	2,934,498		3		7,247		—	—		—		7,250
Deemed dividend on purchase warrant for common shares	—		—		97		(97)	—		—		—
Net loss	—		—		—		(4,918)	—		—		(4,918)
Balance, September 30, 2022	18,449,567		18		954,750		(946,556)	117,014		(2,139)		6,073
Vested restricted stock awards	35,915		—		—		—	—		—		—
Stock-based compensation	—		—		232		—	—		—		232
Net loss	—		—		—		(5,214)	—		—		(5,214)
Balance, December 31, 2022	18,485,482	$	18	$	954,982	$	(951,770)	117,014	$	(2,139)	$	1,091


				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

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,
	2022		2021
Cash Flows from Operating Activities:
Net loss	$	(12,191)	$	(13,322)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,345		1,337
Amortization of financing costs and discounts		60		26
Amortization of right-of-use assets		848		552
Gain on debt extinguishment		—		(1,950)
Bad debt expense		237		—
Inventory provision		771		386
Provision for warranty expenses		369		358
Provision for sales returns, net		81		—
Stock-based compensation		617		973
Changes in operating assets and liabilities:
Accounts receivable		9,077		(6,249)
Inventories		(9,080)		(5,637)
Prepaid expenses, other current assets and other assets		(933)		509
Accounts payable and accrued expenses		(276)		5,953
Accrued salaries and wages and long-term liabilities		274		(168)
Accrued warranty reserve		(312)		(4,780)
Deferred revenue		350		(981)
Net cash used in operating activities		(7,763)		(22,993)
Cash Flows from Investing Activities:
Expenditures for property, plant, equipment and rental assets		(3,999)		(5,748)
Net cash used in investing activities		(3,999)		(5,748)
Cash Flows from Financing Activities:
Repayment of notes payable and lease obligations		(1,429)		(590)
Cash used in employee stock-based transactions		(52)		(129)
Net proceeds from issuance of common stock and warrants		7,302		11,194
Net cash provided by financing activities		5,821		10,475
Net increase (decrease) in Cash and Cash Equivalents		(5,941)		(18,266)
Cash and Cash Equivalents, Beginning of Period		22,559		49,533
Cash and Cash Equivalents, End of Period	$	16,618	$	31,267
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	4,128	$	3,818
Income taxes	$	13	$	17
Supplemental Disclosures of Non-Cash Information:
Acquisition of property and equipment through accounts payable and notes payable	$	565	$	118
Renewal of insurance contracts financed by notes payable	$	665	$	567
Issuance of common stock for services to be received	$	—	$	75
Deemed dividend	$	97	$	—
Right-of-use assets obtained in exchange for lease obligations	$	9,764	$	—

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, on site resilient green Energy as a Service (“EaaS”) 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 still emerging 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, 2022 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, 2022. 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 2022 filed with the SEC on July 13, 2022. 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 Fiscal Year 2022 filed with the SEC on July 13, 2022, that have had a material impact on the Company's condensed consolidated financial statements and related notes.

Liquidity and Going Concern In connection with the preparation of these condensed consolidated financial statements for the three and nine months ended December 31, 2022, 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 become due over the next twelve months from the date of the issuance of the financial statements. Management assessed that there were such conditions and events, primarily the October 1, 2023, due date for the Goldman Sachs outstanding debt of $51.0 million at fair value (see Note 10 – Term Note Payable for further discussion of the outstanding debt). As of December 31, 2022, the Company had cash and cash equivalents of $16.6 million. While the Company believes internally generated cash will adequately fund operating and investment activities over the next twelve months, there will not be sufficient internally generated cash, nor does the Company expect that it could obtain sufficient financing through underwritten public offerings, at-the-market offerings or other similar methods, to retire the outstanding debt. The Company has engaged Greenhill & Co., LLC (“Greenhill”), a global investment banking firm, to assess financing

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alternatives related to the Note Payable as well as to raise incremental capital for general corporate purposes. Greenhill’s refinancing efforts are ongoing as of December 31, 2022. As there is no guarantee that the Company will successfully complete these financing activities, these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of the financial statements are issued.

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

Not yet adopted

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 expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable forecasts. With certain exceptions, the 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.

Management considers the applicability and impact of all Accounting Standards Updates (“ASUs”). The ASUs not listed were assessed and determined by management to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial position and/or results of operations.

4. Customer Concentrations and Accounts Receivable

RSP Systems and Cal Microturbine, two of the Company’s domestic distributors, accounted for 21% and 14% of revenue for the three months ended December 31, 2022, respectively. E-Finity Distributed Generation, LLC (“E-Finity”), one of the Company’s domestic distributors, Radian Oil & Gas Services Co, one of the Company’s international direct customers, and RSP Systems, accounted for 13%, 10%, and 10% of revenue for the three months ended December 31, 2021, respectively. Cal Microturbine and RSP Systems accounted for 16% and 13% of revenue for the nine months ended December 31, 2022, respectively. E-Finity accounted for 15% of revenue for the nine months ended December 31, 2021.

Additionally, E-Finity accounted for 13% and 28% of net accounts receivable as of December 31, 2022 and March 31, 2022, respectively. The Company recorded a net bad debt expense of $0.2 million during the three and nine months ended December 31, 2022. The Company had no bad debt expense during the three and nine months ended December 31, 2021.

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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,
	2022		2022
Raw materials	$	30,648	$	20,071
Finished goods		399		1,935
Total		31,047		22,006
Less: inventory reserve		(2,390)		(1,861)
Less: non-current portion		(3,055)		(1,680)
Total inventory, net-current portion	$	25,602	$	18,465

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 is primarily comprised of repair parts for older generation products still in operation but not technologically compatible with current configurations. The non-current portion also includes inventory that has long lead times. The weighted average age of the non-current portion of inventories on hand as of December 31, 2022 is 0.8 years. The Company expects to use the non-current portion of the inventories on hand as of December 31, 2022 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	$	1,645
25 to 36 months		1,410
Total	$	3,055

6. Property, Plant, Equipment and Rental Assets

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


	December 31,		March 31,
	2022		2022
Machinery, equipment, automobiles and furniture	$	14,603	$	15,945
Leasehold improvements		8,868		8,848
Molds and tooling		3,516		3,469
Rental assets		28,519		17,079
		55,506		45,341
Less: accumulated depreciation		(29,600)		(27,303)
Total property, plant, equipment and rental assets, net	$	25,906	$	18,038

During the nine months ended December 31, 2022, the Company deployed an additional 12.4 megawatts (“MWs”) of microturbine systems with a book value of approximately $11.4 million under its long-term rental program, bringing the total rental fleet to 33.5 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 $0.9 million and $0.5 million for the three months ended December 31, 2022 and 2021, respectively. Depreciation expense for property, plant, equipment and rental assets was $2.3 million and $1.2 million for the nine months ended December 31, 2022 and 2021, respectively.

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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,
	2022		2021		2022		2021
Cost of goods sold	$	8	$	29	$	23	$	86
Research and development		24		22		73		57
Selling, general and administrative		200		284		521		830
Stock-based compensation expense	$	232	$	335	$	617	$	973

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 to 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 2,200,000 shares of Common Stock, including, most recently, on June 7, 2022, the Company’s Board of Directors adopted Amendment No. 6 (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 600,000 shares of Common Stock. The Plan amendment was approved by the Company’s stockholders at the 2022 annual meeting of stockholders on September 12, 2022.

As of December 31, 2022, there were 1,117,061 shares available for future grants under the 2017 Plan.

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

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date. The following table summarizes restricted stock unit and performance restricted stock unit (“PRSU”) activity during the nine months ended December 31, 2022:


		Weighted
		Average Grant
		Date Fair
Restricted Stock Units and Performance Restricted Stock Units	Shares	Value
Non-vested restricted stock units outstanding at March 31, 2022	591,805	$	5.66
Granted	512,164		2.11
Vested and issued	(152,616)		5.81
Forfeited	(214,517)		4.55
Non-vested restricted stock units outstanding at December 31, 2022	736,836		3.48
Restricted stock units expected to vest beyond December 31, 2022	736,836	$	3.48

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,
	2022		2021		2022		2021
Restricted stock compensation expense (in thousands)	$	232	$	335	$	617	$	973
Aggregate fair value of restricted stock units vested and issued (in thousands)	$	37	$	94	$	423	$	798
Weighted average grant date fair value of restricted stock units granted during the period	$	1.59	$	4.70	$	2.11	$	5.45

As of December 31, 2022, there was approximately $1.7 million of total compensation cost related to unvested restricted stock units that is expected to be recognized as an 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 occurs in the third year (for a three-year grant) following 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. The overall performance at the end of the three-year period will be defined as the average of the yearly goals to determine the payout. Overall performance and payout at the end of the three-year period will be defined as the average of the three annual goals performance versus that years actual. 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, 2022, the Company granted 72,412 PRSUs with a three-year performance measurement and the criteria measured by the Company’s aftermarket sales absorption. 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 cash flow from operations and aftermarket sale absorption, taking into account the applicable weighing 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 weighs performance between levels for determining the portion of the Target PRSU that is earned.

The weighted average per share grant date fair value of PRSUs granted during the nine months ended December 31, 2022 and 2021, was $3.80 and $8.39, respectively. Based on the Company’s assessment as of December 31, 2022, the Company will not meet the threshold of the performance measurements, and as a result, no compensation expense was recorded during the nine months ended December 31, 2022 and 2021. Compensation expense is 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 change. The Company will continue to assess the likelihood of the PRSU threshold being met until the end of the applicable performance period.

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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.

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 have, become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons who, at any time after the date of the NOL Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 4.9% 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 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.

With respect to certificates representing shares of Common Stock outstanding as of the Record Date, until the Distribution Date, the New Rights will be evidenced by such certificates for shares of Common Stock registered in the names of the holders thereof, and not by separate Rights Certificates, as described further below. With respect to book entry shares of Common Stock outstanding as of the Record Date, until the Distribution Date, the New Rights will be evidenced by the balances indicated in the book entry account system of the transfer agent for the Common Stock. Until the earlier of the Distribution Date and the Expiration Date, as described below, the transfer of any shares of Common Stock outstanding on the Record Date will also constitute the transfer of the New Rights associated with such shares of Common Stock. As soon as practicable after the Distribution Date, separate certificates evidencing the New Rights (“Right Certificates”) will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date, and such Right Certificates alone will evidence the New Rights.

The New Rights, which are not exercisable until the Distribution Date, will expire prior to the earliest of (i) May 6, 2022 or such later day as may be established by the Board 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 2019 annual meeting of stockholders, if approval by the stockholders of the Company of the NOL

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Rights Agreement has not been obtained on or prior to the close of business on the first day after the Company’s 2019 annual meeting of stockholders; (vi) the close of business on the effective date of the repeal of Section 382 of the Tax Code, if the Board 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 determines that no Tax Benefits are available to be carried forward, (the earliest of (i), (ii), (iii), (iv), (v), (vi) and (vii) is referred to as the “Expiration Date”).

Each share of 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 aggregate quarterly dividend declared per share of Common Stock since the immediately preceding quarterly dividend payment date for the Common Stock (or, with respect to the first quarterly dividend payment on the Common Stock, since the first issuance of the Preferred Stock). Each share of 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 Preferred Stock will be entitled to receive 1,000 times the amount received per one share of Common Stock.

On April 7, 2022, the Board approved an extension of the NOL Rights Agreement from May 6, 2022 to May 6, 2025. This extension was approved by the stockholders at the 2022 annual meeting of stockholders held on September 12, 2022.

8. Offerings of Common Stock and Warrants

Common Stock Offerings

On June 17, 2021, the Company entered into an amended and restated underwriting agreement (the “Wainwright Underwriting Agreement”) with H.C. Wainwright & Co., LLC (”Wainwright”) whereby the Company agreed to sell to Wainwright, and Wainwright agreed to purchase, in a firm commitment underwritten public offering 1,904,763 shares (the “Wainwright Shares”) of the Company’s Common Stock, $0.001 par value per share (the “Wainwright Offering”). The offering price to the public in the Offering was $5.25 per share of Common Stock, and the Underwriter agreed to purchase the Wainwright Shares from the Company pursuant to the Wainwright Underwriting Agreement at a price of $4.91 per share, representing an underwriting discount of 6.5%. Pursuant to the Wainwright Underwriting Agreement, the Company also granted Wainwright an option to purchase, for a period of 30 days from the date of the Underwriting Agreement, up to an additional 285,714 shares of Common Stock (the “Option Shares”). On June 21, 2021, Wainwright exercised the option in full.

The Wainwright Offering of the Wainwright Shares was registered pursuant to a shelf registration statement (No. 333-254290) on Form S-3 filed by the Company with the Securities and Exchange Commission on March 22, 2021, and declared effective on April 14, 2021 (the “Registration Statement”), and made pursuant to a prospectus supplement, dated June 17, 2021, and accompanying prospectus that form a part of the Registration Statement relating to the Offering. The Offering closed on June 22, 2021, and the Company received net proceeds of $10.5 million after deducting $1.0 million in underwriting discounts, commissions and offering expenses paid by the Company.

On August 18, 2022, the Company entered into an underwriting agreement (the “Lake Street Underwriting Agreement”) with Lake Street Capital Markets, LLC and Joseph Gunnar and Company, LLC (the “Underwriters”) whereby the Company agreed to sell to the Underwriters, and the Underwriters agreed to purchase, in a firm commitment underwritten public offering 2,934,498 (the “Lake Street Shares”) of the Company’s Common Stock, $0.001 par value per share (the “Lake Street Offering”) and accompanying warrants to purchase up to 2,934,498 shares of common stock. The offering price to the public in the Offering was $2.75 per share of Common Stock and accompanying warrant, and the Underwriter agreed to purchase the shares and accompanying warrants from the Company pursuant to the Underwriting Agreement at a price of $2.585 per share and accompanying warrant, representing an underwriting discount of 6.0%.

The Lake Street Offering of the Lake Street Shares was registered pursuant to the Registration Statement, and made pursuant to a prospectus supplement, dated August 22, 2022, and accompanying prospectus that form a part of the Registration Statement relating to the Lake Street Offering. The Lake Street Offering closed on August 24, 2022, and the Company received net proceeds of $7.3 million after deducting $0.8 million in underwriting discounts, commissions and offering expenses paid by the Company.

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Warrants

Goldman Warrant

On February 4, 2019, the Company sold to Goldman Sachs & Co. LLC (the “Holder”), a Purchase Warrant for Common Shares (the “Warrant”) pursuant to which the Holder may purchase shares of the Company’s Common Stock in an aggregate amount of up to 404,634 shares (the “Warrant Shares”). The Warrant was sold to the Holder at a purchase price of $150,000, in a private placement exempt from registration under the Securities Act. The Warrant may be exercised by the Holder at any time after August 4, 2019 at an exercise price equal to $8.86 and will expire on February 4, 2024. The Warrant contains standard adjustment provisions in the event of additional stock issuances below the exercise price of the warrant, stock splits, combinations, rights offerings and similar transactions. The value of the Warrant was $2.3 million, and has been classified as an equity instrument in additional paid in capital in the Company’s condensed consolidated balance sheets. As of December 31, 2022, the Holder may purchase shares of the Company’s Common Stock in an aggregate amount of up to 463,067 shares.

On December 9, 2019, the Company entered into an Amendment No. 1 to the Purchase Warrant for Common Shares (the “Amendment No. 1”) with Special Situations Investing Group II, LLC (as successor in interest to Goldman Sachs & Co. LLC) (the “Warrant Holder”) that amends the Warrant. The Amendment No. 1 amended the Warrant to increase the number of Warrant Shares issuable under the Warrant (on a post-reverse split basis) and to decrease the exercise price from $8.86 per share (on a post-reverse split basis) to $3.80 per share (the “Per Share Warrant Exercise Price”). The Amendment No. 1 also amends the Warrant such that the Per Share Anti-Dilution Price is equal to the Per Share Warrant Exercise Price. As a result of the decrease in exercise price, the Company recorded the change in valuation of $0.3 million as additional debt discount with a corresponding entry to additional paid-in capital in the condensed consolidated balance sheets and statements of stockholders equity.

On June 16, 2020, the Company entered into an Amendment No. 2 to the Purchase Warrant for Common Shares (“Amendment No. 2”) with the Warrant Holder to increase the number of Warrant Shares (as defined therein) issuable under the Warrant and to decrease the exercise price from $3.80 per share to $2.61 per share (the “Per Share Warrant Exercise Price”). The Company would receive aggregate gross proceeds of $1,186,313 if the outstanding Warrant is exercised at the new Per Share Warrant Exercise Price.

Goldman “2020 Warrant”

On October 1, 2020, the Company entered into an Amendment No. 3 to the Purchase Warrant for Common Shares (the “Amendment No. 3”) with Special Situations Investing Group II, LLC (as successor in interest to Goldman Sachs & Co. LLC) (the “Warrant Holder”) that amends that certain Purchase Warrant for Common Shares originally issued by the Company to Goldman Sachs & Co. LLC, dated February 4, 2019, as amended (the “Original Warrant”). Amendment No. 3 amends the Original Warrant to amend Section 2.1, Section 2.2(c) and Section 18.1 of the Original Warrant to, among other things, make certain changes necessitated by the issuance of a second warrant (the “2020 Warrant”) to the Warrant Holder pursuant to the Company’s entry into the Amended & Restated (“A&R”) Note Purchase Agreement (see Note 10 – Term Note Payable).

On October 1, 2020, and pursuant to the Company’s entry into the A&R Note Purchase Agreement, the Company sold to the Warrant Holder the 2020 Warrant to purchase up to 291,295 shares (the “2020 Warrant Shares”) of the Company’s Common Stock. The 2020 Warrant was sold to the Warrant Holder at a purchase price of $10,000, in a private placement exempt from registration under the Securities Act. The 2020 Warrant may be exercised by the Warrant Holder at any time after October 1, 2020 at an exercise price equal to $4.76 and will expire on February 4, 2024. The 2020 Warrant contains standard adjustment provisions in the event of additional stock issuances below the exercise price of the warrant, stock splits, combinations, rights offerings and similar transactions. The value of the 2020 Warrant was $0.8 million, and has been classified as an equity instrument in additional paid in capital in the Company’s consolidated balance sheets. The value of the Warrant was determined using the Black-Scholes Option Pricing model using the following assumptions:


Risk-free interest rate		0.2%
Contractual term		3 years
Expected volatility