An overview of our direction, targets and key initiatives are as follows:
Our Energy Conversion Products business line is driven by
our industry-leading, highly efficient, low-emission, resilient microturbine
1) energy systems offering scalable solutions in addition to a broad range of
The following table summarizes our percentage of product revenues by vertical markets for which we had product revenues for the periods presented:
Natural Resources-Crude Oil, Natural Gas, Shale Gas & Mining
released into the atmosphere. Our microturbines can turn these fuel byproducts - flare gas, or associated gas, into a useable fuel to provide prime power to these sites.
Sales and Distribution Channels We seek out distributors that have business
experience and capabilities to support our growth plans in our targeted
markets. A significant portion of our revenue is derived from sales to
distributors that resell our products to end users. We have a total of 66
2) distributors, OEMs and national accounts. In the United States and Canada, we
currently have 10 distributors, OEMs and national accounts. Outside of the
United States and Canada, we currently have 56 distributors, OEMs and national
accounts. We continue to refine our distribution channels to address our
primarily through our global distribution network. Together with our global
distribution network we offer a comprehensive factory protection plan for a
3) fixed fee to perform regularly scheduled and unscheduled maintenance as
needed. We provide factory and on-site training to certify all personnel that
are allowed to perform service on our microturbines. Factory protection plans
are generally paid quarterly in advance.
Product Robustness and Life Cycle Maintenance Costs We continue to invest in
enhancements that relate to high performance and high reliability. An
4) important element of our continued innovation and product strategy is to focus
on the engineering of our product hardware and electronics to make them work
together more effectively and deliver improved microturbine performance,
reliability and low maintenance cost to our customers.
New Product Development Our new product development is targeted specifically
to meet the needs of our selected vertical markets. We expect that our
5) existing product platforms, the C65, C200 and C1000 Series microturbines,
Cost and Core Competencies We believe that the core competencies of our
products are air-bearing technology, advanced combustion technology and
sophisticated power electronics to form efficient and ultra-low emission
electricity and cooling and heat production systems. Our core intellectual
property is contained within our air-bearing technology. We continue to review
6) avenues for cost reduction by sourcing to the best value supply chain option.
In order to utilize manufacturing facilities and technology more effectively,
we are focused on continuous improvements in manufacturing processes.
Additionally, considerable effort is being directed to manufacturing cost
reduction through process improvement, product design, advanced manufacturing
technology, supply management and logistics. Management expects to be able to
We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Our revenue consists of sales of products, parts, accessories and service,
which includes FPPs, net of discounts. Our distributors purchase products,
parts and FPPs for sale to end users and are also required to provide a variety
of additional services, including application engineering, installation,
commissioning and post-commissioning service. Our standard terms of sales to
distributors and direct end users include transfer of title, care, custody and
control at the point of shipment, payment terms ranging from full payment in
advance of shipment to payment in 90 days, no right of return or exchange, and
no post-shipment performance obligations by us except for warranties provided
on the products and parts sold. We recognize revenue when all of the following
criteria are met: persuasive evidence of an arrangement exists, delivery has
? occurred or service has been rendered, selling price is fixed or determinable
and collectability is reasonably assured. Service revenue derived from time and
materials contracts is recognized as the service is performed. FPP contracts
are agreements to perform certain agreed-upon service to maintain a product for
a specified period of time. Service revenue derived from FPP contracts is
recognized on a straight-line basis over the contract period. We occasionally
enter into agreements that contain multiple elements, such as equipment,
installation, engineering and/or service. Effective January 1, 2018, we
launched our DSS program to fund additional support for distributor business
development activities, customer lead generation, brand awareness and tailored
marketing services for each of our major geography and market vertical. Service
revenue derived from our DSS program is recognized on a pro rata basis as the
Our inventories are valued at the lower of cost (determined on a first in first
out ("FIFO") basis) or net realizable value. We routinely evaluate the
? composition of our inventories and identify slow-moving, excess, obsolete or
otherwise impaired inventories. Inventories identified as impaired are
evaluated to determine if write-downs are required. Included in this assessment
changes in our product. Future product enhancement and development may render
certain inventories obsolete, resulting in additional write-downs of
inventories. In addition, inventories are classified as current or long-term
based on our sales forecast and also, in part, based on our projected usage for
We provide for the estimated cost of warranties at the time revenue from sales
is recognized. We also accrue the estimated costs to address reliability
repairs on products no longer under warranty when, in our judgment, and in
accordance with a specific plan developed by us, it is prudent to provide such
repairs. We estimate warranty expenses based upon historical and projected
product failure rates, estimated costs of parts, labor and shipping to repair
or replace a unit and the number of units covered under the warranty period.
While we engage in extensive quality programs and processes, our warranty
obligation is affected by failure rates and service costs in correcting
failures. As we have more units commissioned and longer periods of actual
? performance, additional data becomes available to assess future warranty costs.
When we have sufficient evidence that product changes are altering the
historical failure occurrence rates, the impact of such changes is then taken
into account in estimating future warranty liabilities. Changes in estimates
are recorded in the period that new information, such as design changes, cost
of repair and product enhancements, becomes available. Should actual failure
rates or service costs differ from our estimates, revisions to the warranty
liability would be required and could be material to our financial condition,
results of operations and cash flow. During Fiscal 2021, we recorded a specific
$4.9 million warranty reserve related to reliability programs to account for
the replacement of remaining high risk failure parts in some of our fielded
units due to a supplier defect.
Trade accounts receivable are recorded at the invoiced amount and typically
non-interest bearing. We maintain allowances for estimated losses resulting
from the inability of our customers to make required payments and other
? accounts receivable allowances. We evaluate all accounts aged over 60 days past
payment terms. If the financial condition of our customers deteriorates or if
We recognize stock-based compensation expense associated with stock options in
the statement of operations. Determining the amount of stock-based compensation
? to be recorded requires us to develop estimates to be used in calculating the
grant-date fair value of stock options. We calculate the grant-date fair values
using the Black-Scholes valuation model.
The use of Black-Scholes model requires us to make estimates of the following assumptions:
Expected volatility-The estimated stock price volatility was derived based upon
? our actual historic stock prices over the expected option life, which
represents our best estimate of expected volatility.
Expected option life-The expected life, or term, of options granted was derived
? from historical exercise behavior and represents the period of time that stock
option awards are expected to be outstanding.
Risk-free interest rate-We used the yield on zero-coupon U.S. Treasury
? securities for a period that is commensurate with the expected life assumption
as the risk-free interest rate.
Year Ended March 31, 2022 Compared to Year Ended March 31, 2021
The following table summarizes our revenue (revenue amounts in millions):
Parts and service revenue for Fiscal 2022 increased $1.3 million, or 4%, to $32.4 million from $31.1 million for Fiscal 2021. The increase in revenue was primarily driven by an increase in rentals, FPP revenue, and spare parts, partially offset by lower engineering service revenue.
Inventory charges increased $0.8 million during Fiscal 2022 compared to Fiscal 2021 primarily as the result of an increase in the provision for excess and obsolete inventory.
Research and Development Expenses ("R&D") R&D expenses for Fiscal 2022 increased $1.0 million, or 42%, to $3.4 million from $2.4 million for Fiscal 2021, as a result of lower costs from our COVID-19 Business Continuity Plan during Fiscal 2021.
The following is a summary of the significant sources (uses) of cash from operating activities (amounts in thousands):
Net cash provided by (used) in operating activities $ (27,498) $
Represents warranty provision, change in fair value of warrant liability, (1) depreciation and amortization, stock-based compensation expense, inventory
provision and accounts receivable allowances.
September 2019 Pre-Funded and Series D Warrants
The advance under the PPP Loan bore interest at a rate per annum of 1%.
We believe that the implementation of the expense reduction plan will help better align our current cost structure to support our higher margin EaaS revenues.
? the continuing impact of the COVID-19 pandemic on the global economy;
? the continuing impact from the ongoing conflict between Russia and Ukraine;
? the market acceptance of our products and services;
? our business, product and capital expenditure plans;
? capital improvements to new and existing facilities;
? our competitors' response to our products and services;
? our relationships with customers, distributors, dealers and project resellers;
? our customers' ability to afford and/or finance our products.
In March 2022, we implemented an expense reduction plan, which included furloughs, employment terminations and pay cuts. See "-Initiative to Shift Towards Energy as a Service and Reduce Operating Costs" "Risk Factors--Our recently implemented expenses reduction plan and organizational changes undertaken to align to our focus on our EaaS business and achieving profitability may not be successful."
Impact of Recently Issued Accounting Standards
Refer to Note 2 - Summary of Significant Accounting policies in the Notes to Consolidated Financial Statements for information regarding new accounting standards.
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