CAPSTONE GREEN ENERGY CORPORATION The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under "Note Regarding Forward-Looking Statements" and Item 1A (Risk Factors) in this Form 10-K. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Form 10-K.
Overview
We are the market leader in microturbines based on the number of microturbines sold. Generally, power purchased from the electric utility grid is less costly than power produced by distributed generation technologies. Utilities may also charge fees to interconnect to their power grids. However, we can provide economic benefits to end users in instances where the waste heat from our microturbine has value (CHP) and (CCHP), where fuel costs are low (renewable energy/renewable fuels), where the costs of connecting to the grid may be high or impractical (such as remote power applications), where reliability and power quality are of critical importance, or in situations where peak shaving could be economically advantageous because of highly variable electricity prices. Our microturbines can be interconnected to other distributed energy resources to form "microgrids" (also called "distribution networks") located within a specific geographic area and provide power to a group of buildings. Because our microturbines can provide a reliable source of power and can operate on multiple fuel sources, management believes they offer a level of flexibility not currently offered by other technologies such as reciprocating engines. In addition to our existing microturbine products, we offer additional energy conversion products in the form ofBaker Hughes 5 MW, 12 MW, and 16 MW industrial gas turbines, where we will purchase and resell their product. The Company is currently exploring energy conversion options for the smaller end of the power spectrum. We will begin to manufacture modular hybrid energy stations and lithium-ion BESS to be sold either individually or combined as part of a custom microturbine-battery storage solution. We added a new Energy Storage Products business line in Fiscal 2022 and thus there has been no revenue to date. Our goals for Fiscal 2021 were to improve cash flow, working capital, and our balance sheet generally; grow revenue through accelerating global product sales; diversify into additional market verticals and geographies; increase aftermarket sales absorption; and continue to grow our rental fleet. During Fiscal 2021 our net loss was$18.4 million and our basic and diluted net loss per share was$1.63 , compared to$22.0 million and$2.70 , respectively, in the same period of the previous fiscal year. Our net loss improved during Fiscal 2021 primarily because of lower overhead and operating expenses incurred as a result of implementing our COVID-19 Business Continuity Plan, as well as lower FPP costs as our reliability improved due to the reduced impact of the part defect from a supplier first identified during the first quarter of Fiscal 2019, partially offset by lower overall gross margins from lower revenue levels and increased discounting driven by the COVID-19 pandemic and loss on extinguishment of debt of$4.3 million . OnOctober 1, 2020 , the Company entered into an Amended & Restated Note Purchase Agreement (the "A&R Note Purchase Agreement"), and issued$20.0 million in additional Notes. See Note 11-Term Note Payable, in the Notes to Consolidated Financial Statements for discussion with respect to this A&R Note Purchase Agreement. OnJuly 15, 2020 , we entered into an amended Sales Agreement withH.C. Wainwright & Co., LLC with respect to an at-the-market offering program (the "ATM Program") pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock. OnMarch 19, 2021 , we entered into a second amendment to the Sales Agreement, which modified the Sales Agreement to, among other things, reflect the Company's filing of a new Registration Statement on Form S-3 with theSEC onMarch 22, 2021 and set the maximum number of shares of our Common Stock that we may offer and sell through or to H.C. Wainwright at$50,000,000 , subject to certain limitations set forth in the amendment. See Note 9-Stockholders' Equity, in the Notes to Consolidated Financial Statements for discussion with respect to the Sales Agreement. Our products continue to gain interest in all our major vertical markets (energy efficiency, renewable energy, natural resources, critical power supply, microgrid and transportation). In the energy efficiency market, we continue to expand our market presence in hotels, office buildings, hospitals, retail, and industrial applications globally. The renewable energy market is fueled by landfill gas, biodiesel, and biogas from sources such as food processing, agricultural waste and 39
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livestock manure. Our product sales in the oil and gas and other natural resources market is driven by our microturbines' reliability, emissions profile and ease of installation. Given the volatility of the oil and gas market, our business strategy is to target projects within the energy efficiency and renewable energy markets. We continue to focus on improving our products based on customer input, building brand awareness and new channels to market by developing a diversified network of strategic distribution partners. Our focus is on products and solutions that provide near term opportunities to drive repeatable business rather than discrete projects for niche markets. In addition, management closely monitors operating expenses and strives to improve manufacturing efficiencies while simultaneously lowering direct material costs and increasing average selling prices. The key drivers to our success are revenue growth, higher average selling prices, lower direct material costs, positive new order flow and reduced cash usage.
An overview of our direction, targets and key initiatives follows:
Our Energy Conversion Products business line is driven by the
Company's industry-leading, highly efficient, low-emission, resilient
1) microturbine energy systems offering scalable solutions in addition to a broad
range of customer-tailored solutions. We target specific market verticals for
these products.
Focus on Vertical Markets Within the distributed generation markets that we
serve, we focus on vertical markets that we identify as having the greatest
near-term potential. In our primary products and applications (energy
efficiency, renewable energy, natural resources, critical power supply,
microgrid and transportation products), we identify specific targeted vertical
market segments. Within each of these segments, we identify what we believe to
be the critical factors to success and base our plans on those factors. Given
the volatility of the oil and gas market, we have refocused our business
strategy to target projects within the energy efficiency and renewable energy
markets.
The following table summarizes our product shipments by vertical markets:
Year Ended
March 31,
2021 2020
Energy efficiency 61 % 54 %
Natural resources 25 % 32 %
Renewable energy 13 % 14 %
Critical Power Supply - -
Microgrid 1 % -
Transportation - -
Energy Efficiency-CHP/CCHP
Energy efficiency refers to the proper utilization of both electrical and thermal energies in the power production process. In such applications, our microturbines are able to maximize the availability of usable energy to provide a significant economic advantage to customers while reducing their onsite emissions. CHP and CCHP can improve site economics by capturing the waste heat created from a single combustion process to increase the efficiency of the total system, from approximately 30 percent to 80 percent or more. Compared with more traditional, independent generation sources, the increase in operational efficiency also reduces greenhouse gas emissions through the displacement of other separate systems, which can also reduce operating costs.
Natural Resources-Crude Oil, Natural Gas,
Our microturbines are installed in the natural resource market for use in both
onshore and offshore applications, including oil and gas exploration,
production, and at compression and transmission sites as a highly efficient and
reliable source of power. In some cases, these oil and gas or mining operations
have no electric utility grid and rely solely on power generated onsite. There
are numerous locations, on a global scale, where the drilling, production,
compression and transportation of natural resources and
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other extraction and production processes create fuel byproducts, which are traditionally burned or 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.
Renewable Energy
There is a growing transition to renewable energy sources and technologies on a global scale. Our microturbines run efficiently on renewable fuels such as methane and other biogases from landfills, wastewater treatment facilities and renewable natural gas. They also run efficiently on other small biogas applications like food processing plants, livestock farms and agricultural green waste operations. Microturbines can burn these renewable fuels with minimal emissions, thereby, and in some cases, avoiding the imposition of penalties incurred for pollution while simultaneously producing electricity from this "free" renewable fuel source for use at the site or in the surrounding areas. Our microturbines have demonstrated effectiveness in these smaller applications and may outperform conventional combustion engines in some situations, including when the gas contains a high amount of sulfur, as the sulfur can contaminate combustion engines lube oil leading to equipment breakdowns and higher lifecycle costs. Critical Power Supply Because of the potentially catastrophic consequences of system failure, momentary or otherwise, certain high demand power users, including high technology, health care and information systems facilities require higher levels of reliability in their power generation service. To meet these customer requirements, traditional solutions utilizeUninterruptible Power Supplies ("UPS") to protect critical loads from power disturbances along with back-up diesel generators for extended outages. We offer an alternative solution that can both meet customer reliability requirements and reduce operating costs. We have seen continued development in the critical market segment as it relates to heath care facilities. Microgrid Microgrid is a group of interconnected loads and distributed energy resources that acts as a single controllable energy entity with respect to the grid. Distributed energy resources typically include other dual-mode microturbines, reciprocating engines, solar photovoltaic (PV), wind turbine, fuel cells and battery storage. Microgrids can be connected to larger electricity grids; however, in the event of a widespread outage, the microgrid will disconnect from the main grid and continue to operate independently to maintain the electricity supply to the homes and businesses that are connected to the microgrid's electricity network. Our microturbines have the ability to meet the needs of microgrid end-users by lowering their overall cost to operate and by providing a versatile dispatchable technology that is fuel flexible and scalable enough to fit a wide variety of applications. We have seen continued development in the microgrid market segment. Transportation Our technology is also used in Hybrid Electric Vehicle ("HEV") applications. Our customers have applied our products in HEV applications such as transit buses and Class 7 and 8 work trucks. In these applications, the microturbine acts as an onboard battery charger to recharge the battery system as needed. The benefits of microturbine-powered HEV hybrids include extended range, fuel economy gains, quieter operation, reduced emissions, and higher reliability when compared with traditional internal combustion engines. Additionally, our technology is used in marine applications. Our customers have applied our products in the commercial vessel and luxury yacht market segments. The application for our marine products is for use as a ship auxiliary engine. In this application, the microturbines provide power to the vessel's electrical loads and, in some cases, the vessel can utilize the exhaust energy to increase the overall efficiency of the application, thereby reducing overall fuel consumption and emissions. Another feasible 41
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application is similar to our HEV application where the vessel is driven by an electric propulsion system and the microturbine serves as an on board range extender. Transportation is a developing market segment for us. In Fiscal 2020 and Fiscal 2021, transportation products were only for customer demonstrations. We have experienced continued development in these vertical markets and remain focused on the development of these applications.
Backlog
Net product orders were approximately$25.9 million and$33.8 million for Fiscal 2021 and Fiscal 2020, respectively. Ending backlog was approximately$29.4 million atMarch 31, 2021 compared to$37.7 million atMarch 31, 2020 . Book-to-bill ratio was 1.1:1 and 1.4:1 for Fiscal 2021 and 2020, respectively. Book-to-bill ratio is the ratio of new orders we received to units shipped and billed during a period. A portion of our backlog is concentrated in the oil and gas market which may impact the overall timing of shipments or the conversion of backlog to revenue. The timing of the backlog is based on the requirement date indicated by our customers. However, based on historical experience, management expects that a significant portion of our backlog may not be shipped within the next 18 months. Additionally, the timing of shipments is subject to change based on several variables (including customer deposits, payments, availability of credit and customer delivery schedule changes), most of which are not in our control and can affect the timing of our revenue. As a result, management believes the book-to-bill ratio demonstrates the current demand for our products in the given period.
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 65
2) distributors, OEMs and national accounts. In
currently have 10 distributors, OEMs and national accounts. Outside of the
accounts. We continue to refine our distribution channels to address our
specific targeted markets.
EffectiveJanuary 1, 2018 , we launched our Distributor Support System ("DSS program") to provide additional support for distributor business development activities, customer lead generation, brand awareness and tailored marketing services for each of our major geography and market verticals. This program is funded by our distributors and was developed to provide improved worldwide distributor training, sales efficiency, website development and company branding and provide funding for increased strategic marketing activities. See Note 2-Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for additional discussion of revenue recognition for this program. Service As part of our Energy as a Service business line, we provide service
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.
Our FPP backlog at the end of Fiscal 2021 and Fiscal 2020 was approximately$75.1 million and$82.4 million , respectively, which represents the value of the contractual agreement for FPP services that has not been earned and extends through Fiscal 2041. Additionally, we offer new and remanufactured parts through our global distribution network. Service revenue in Fiscal 2021 was approximately 32% of total revenue.
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.
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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 C30, C65, C200 and C1000 Series microturbines,
will be our foundational product lines for the foreseeable future. Our
research and development project portfolio is centered on enhancing the
features of these base products.
During Fiscal 2020, we introduced and expanded our PowerSync family of
controllers, easily customizable for our microturbine systems. Additionally, we
delivered our first production self-cleanable severe environment air filtration
system for our Signature Series line of microturbine products.
We continue to modernize electronics to today's standards, providing common
functionality and enabling long term support. To support our global fleet during
Fiscal 2020, we achieved Australian AS4777 certification for our C200 product
line, and UK G99 Grid Interconnect type approval for our C65 and C200 product
lines. In addition, Germany released VDE 4110 for Medium Voltage Grid
Interconnection, to augment the BDEW certification. We achieved "Prototype
Confirmation" for this new specification that enables continued operability in
Germany .
In partnership with one of our long-term EMEA distributors, we developed a
marine C65 for a private yacht manufacturer and in Fiscal 2020 we delivered the
product and also received certification from Lloyd's Register EMEA for Lloyd's
Register Rules and Regulations for the Classification of Special Service Craft
2018 - Part 6.
We are also developing a more efficient microturbine CHP system with the support
of the DOE , which awarded us a grant of $5.0 million in support of this
development program, of which $4.2 million was allocated to us and was used
through September 30, 2015 . We successfully completed the first phase of the
development program on September 30, 2015 and achieved 270 kW with a prototype
C250 microturbine in our development test lab. Management intends to continue
with the next phase of development and commercialization after we achieve
profitability. The next phase will be to continue development of the C250
product architecture, as well as the associated power electronics and software
controls required for successful commercialization.
During Fiscal 2021, we continued to expand and develop our new hydrogen
products. We released our first commercially available hydrogen-based combined
heat and power (CHP) product, which can safely run on a 10% hydrogen-90% natural
gas mix, and we are targeting a commercial release of a product that will run on
a 30% hydrogen-70% natural gas mix product by March 31, 2022 . In furtherance of
those efforts, we are testing a 70% hydrogen-30% natural gas configuration
through our research and development partnership with Argonne National
Laboratory .
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
leverage our costs as product volumes increase.
Our manufacturing designs include the use of conventional technology, which has
been proven in high- volume automotive and turbocharger production for many
years. Many components used in the manufacture of our products are readily
fabricated from commonly available raw materials or off the shelf items
available from multiple supply sources; however, certain items are custom made
to meet our specifications that require longer lead time. We believe that in
most cases, adequate capacity exists at our suppliers and that alternative
sources of supply are available or could be developed within a reasonable period
of time; however, single source suppliers with long lead times may be more
challenging to transition to another supplier. We regularly reassess the
adequacy and abilities of our suppliers to meet our future needs.
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We believe that effective execution in each of these key areas will be necessary to leverage our promising technology and early market leadership into achieving positive cash flow with growing market presence and improving financial performance. We currently occupy warehouse and office space inVan Nuys, California with a production capacity of approximately 2,000 units per year, depending on product mix. We believe we will be able to support this production capacity level by adding additional shifts, which would increase working capital requirements, and making some additional capital expenditures when necessary. Reverse Stock Split At the annual meeting of stockholders of the Company held onAugust 29, 2019 , the Company's stockholders approved an amendment to our Second Amended and Restated Certificate of Incorporation (the "Amendment") to effect a reverse stock split of our common stock at a ratio in the range of one-for-five (1:5) to one-for-ten (1:10). Pursuant to such authority granted by the stockholders, the Company's board of directors approved a one-for-ten (1:10) reverse stock split (the "Reverse Stock Split") of the common stock and the filing of the Amendment. The Certificate of Amendment was filed with the Secretary ofState of Delaware , effective onOctober 21, 2019 and the Reverse Stock Split became effective as of that date. Accordingly, all references to numbers of shares of common stock, including the number of shares of common stock on an as-if-converted basis, per-share data and share prices and exercise prices in the accompanying condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent liabilities. On an on-going basis, we evaluate our estimates, including but not limited to those related to long-lived assets, including finite-lived intangible assets and fixed assets, bad debts, inventories, warranty obligations, stock-based compensation, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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
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
distributors purchase our products.
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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
? is a review for obsolescence as a result of engineering 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 warranty claims and
service. A change in forecast could impact the classification of inventories.
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
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
other conditions arise that result in an impairment of their ability or intention to make payments, additional allowances may be required. We have a history of unprofitable operations. These losses generated
significant federal and state net operating loss ("NOL") carryforwards. We
record a valuation allowance against the net deferred income tax assets
associated with these NOLs if it is "more likely than not" that we will not be
able to utilize them to offset future income taxes. Because of the uncertainty
surrounding the timing of realizing the benefits of our favorable tax
attributes in future income tax returns, a valuation allowance has been
? provided against all of our net deferred income tax assets. We currently
provide for income taxes only to the extent that we expect to pay cash taxes,
primarily foreign and state taxes. It is possible, however, that we could be
profitable in the future at levels, which could cause management to determine
that it is more likely than not that we will realize all or a portion of the
NOL carryforwards. Upon reaching such a conclusion, we would record the amount
of net deferred tax assets that are expected to be realized. Such adjustment
would increase income in the period that the determination was made.
We evaluate the carrying value of long-lived assets, including intangible
assets with finite lives, for impairment whenever events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. Factors that are considered important that could trigger an
impairment review include a current-period operating or cash flow loss combined
with a history of operating or cash flow losses and a projection or forecast
? that demonstrates continuing losses or insufficient income associated with the
use of a long-lived asset or asset group. Other factors include a significant
change in the manner of the use of the asset or a significant negative industry
or economic trend. This evaluation is performed based on undiscounted estimated
future cash flows compared with the carrying value of the related assets. If
the undiscounted estimated future cash flows are less than the carrying value,
an impairment loss is recognized and the loss is measured by the difference
between the carrying value and the estimated fair value of the asset
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group. The estimated fair value of the assets is determined using the best
information available. On a quarterly basis, we assess whether events or changes
in circumstances have occurred that potentially indicate the carrying value of
long-lived assets may not be recoverable. Intangible assets include a
manufacturing license, technology, backlog, and customer relationships. We
reevaluate the useful life determinations for these intangible assets each
reporting period to determine whether events and circumstances warrant a
revision in their remaining useful lives. We performed an analysis as of March
31, 2021 and determined that there was no impairment. See Note 5-Intangible
Assets in the Notes to Consolidated Financial Statements.
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
? securities for a period that is commensurate with the expected life assumption
as the risk-free interest rate.
The amount of stock-based compensation cost is recorded on a straight-line basis over the vesting period.
Results of Operations
Year Ended
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
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
Year Ended Year Ended
March 31, 2020 March 31, 2020
Product, accessories and parts $ 48,143 Product and accessories $ 35,338
Service 20,783 Parts and service 33,588
Total revenue $ 68,926 Total revenue $ 68,926
The following table summarizes our revenue by geographic markets (amounts in
millions):
Year Ended March 31,
2021 2020
Revenue Revenue
United States and Canada $ 32.8 $ 32.2
Europe and Russia 17.2 16.5
Latin America 7.2 9.1
Asia and Australia 9.3 8.6
Middle East and Africa 1.1 2.5
Total $ 67.6 $ 68.9
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Revenue for Fiscal 2021 decreased$1.3 million , or 2%, to$67.6 million from$68.9 million for Fiscal 2020. The change in revenue for Fiscal 2021 compared to Fiscal 2020 included decreases in revenue of$1.9 million from the Latin American markets and$1.4 million from theMiddle East and African markets. These overall decreases in revenue were offset by increases in revenue of$0.7 million from the European and Russian markets,$0.7 million from the Asian and Australian markets, and$0.6 million fromthe United States and Canadian markets. The slight decrease in revenue in all geographic markets during Fiscal 2021 compared to the same period the previous year was primarily because of (i) lower parts revenue due to the COVID-19 pandemic, which affected the timing of customer demand for our products; (ii) as well as weakness in the oil and gas market as a result of a decline in oil prices and (iii) continued movement towards clean energy and away from fossil fuels, which impacted capital expenditures in the natural resources market during Fiscal 2021.
The following table summarizes our revenue (revenue amounts in millions):
Year Ended March 31,
2021 2020
Revenue Megawatts Units Revenue Megawatts Units
Microturbine Product $ 34.1 33.5 234 $ 33.8 33.2 214
Accessories 2.4 1.5
Total Product and Accessories 36.5 35.3
Parts and Service 31.1 33.6
Total $ 67.6 $ 68.9
For Fiscal 2021, revenue from microturbine products and accessories increased
$1.2 million , or 3%, to $36.5 million from $35.3 million for Fiscal 2020. The
increase in revenue was primarily because of an increase in product volume and a
strengthening of the United States and Canadian markets compared to the same
period last year. Megawatts shipped during Fiscal 2021 increased 0.3 megawatts,
or 1%, to 33.5 megawatts from 33.2 megawatts during Fiscal 2020. Average revenue
per megawatt shipped was approximately $1.0 million in both Fiscal 2021 and
2020. The timing of shipments is subject to change based on several variables
(including customer deposits, payments, availability of credit and delivery
schedule changes), most of which are not within our control and can affect the
timing of our revenue.
Parts and service revenue for Fiscal 2021 decreased $2.5 million , or 7%, to
$31.1 million from $33.6 million for Fiscal 2020. The decrease in revenue was
primarily a result of lower parts revenue due to COVID-19 shutdowns and movement
restrictions in all of our global markets, partially offset by higher service
revenue due to increases in our Energy as a Service business line, which
includes revenue from our FPP contracts and other service revenue.
Sales to CAL and E-Finity accounted for 15% and 12%, respectively, of our
revenue for the fiscal year ended
Gross Margin Cost of goods sold includes direct material costs, production and service center labor and overhead, inventory charges and provision for estimated product warranty expenses. Gross margin was approximately$6.9 million , or 10% of revenue, for Fiscal 2021, compared to gross margin of$9.1 million , or 13% of revenue, for Fiscal 2020. The decrease in gross margin of$2.2 million during Fiscal 2021 compared to Fiscal 2020 was primarily because of an incremental increase of$5.3 million in warranty expense, partially offset by a$1.0 million increase in our direct material costs margin, a decrease in production and service center labor and overhead expense of$1.7 million , and lower inventory charges of$0.4 million . Management continues to implement initiatives to improve gross margin in Fiscal 2022 by further reducing manufacturing overhead and direct material costs and improving product performance as we work to achieve profitability.
Direct material costs margin, calculated as total revenue less our direct
material costs, increased
The increase in warranty expense of
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Production and service center labor and overhead expense decreased$1.7 million during Fiscal 2021 compared to Fiscal 2020 primarily because of decreases of approximately$1.1 million in labor costs from our COVID-19 Business Continuity Plan actions,$0.7 million in facilities costs,$0.3 million in consulting expense,$0.3 million in supplies expense and$0.1 million in import tax costs, partially offset by$0.8 million in overhead allocated to finished goods inventory.
Inventory charges decreased
The following table summarizes our gross margin (in millions except
percentages):
Year Ended March 31,
2021 2020
Gross Margin
Product and accessories $ (5.5) $ -
As a percentage of product and accessories revenue (15) % - %
Parts and service$ 12.4 $
9.1
As a percentage of parts and service revenue 40 %
27 %
Total Gross Margin$ 6.9 $
9.1
As a percentage of total revenue 10 %
13 %
Product and accessories gross margin decreased$5.5 million during Fiscal 2021 compared to Fiscal 2020 primarily due to: (i) the establishment of a warranty reserve to replace high-risk parts in fielded units affected by sub-optimal parts initially provided by a former strategic parts supplier; (ii) a decrease in volume of product shipments from weakness in the oil and gas market due to a decline in oil price; (iii) the continued movement towards clean energy and away from fossil fuels, which impacted capital expenditures in the natural resources market during Fiscal 2021; and (iv) the COVID-19 pandemic, which has affected the timing of customer demand for our products compared to the same period last year. Parts and service gross margin improved$2.5 million during Fiscal 2021 compared to Fiscal 2020 primarily due to lower FPP costs as our reliability improves as we work through the part defect from a supplier first identified during the first quarter of Fiscal 2019. Product and accessories gross margin as a percentage of product and accessories revenue decreased to (15)% during Fiscal 2021 from 0% during Fiscal 2020, primarily driven by the warranty reserve mentioned above. Parts and service gross margin as a percentage of parts and service revenue improved to 40% for Fiscal 2021 compared to 27% for Fiscal 2020 primarily due to Fiscal 2020 being burdened by higher FPP costs as we worked through the part defect from a supplier identified during the first quarter of Fiscal 2019.
Research and Development Expenses ("R&D") R&D expenses for Fiscal 2021
decreased
Selling, General and Administrative ("SG&A") Expenses SG&A expenses for Fiscal
2021 decreased $3.8 million , or 17%, to $18.4 million from $22.2 million for
Fiscal 2020. The net decrease in SG&A expenses was primarily due to cost savings
from our COVID-19 Business Continuity Plan which comprised of decreases of
approximately $1.5 million in labor costs, $1.1 million in travel and
entertainment expense, $0.1 million in consulting expense and $0.1 million in
supplies expense, additionally there was a $1.0 million decrease in facilities
costs driven by our consolidation of facilities.
Interest Expense Interest expense for Fiscal 2021 and 2020 were each
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Loss on Extinguishment of Debt We recognized a loss on extinguishment of debt of approximately$4.3 million during Fiscal 2021. The loss on extinguishment of debt comprised of the write-off of approximately$1.5 million of unamortized debt issuance costs, a facility fee in the amount of$1.0 million paid to the lender, an accrual of$1.0 million for anticipated exit fees due upon repayment of the principal balance to the lender, and the fair value of common stock warrants issued to the warrant holder in connection with Amendment No. 3 to the Purchase Warrant of$0.8 million . Income Tax Provision Income tax expense increased$6,000 , or 50%, to$19,000 during Fiscal 2021 from$12,000 during Fiscal 2020. Income tax expense incurred was related to state and foreign taxes. The effective income tax rate of -0.1% differs from the federal and state blended statutory rate of approximately 23.2% primarily as a result of maintaining a full valuation allowance against net deferred tax assets. AtMarch 31, 2021 , we had federal and state net operating loss carryforwards of approximately$592.7 million and$163.0 million , respectively, which may be utilized to reduce future taxable income, subject to any limitations under Section 382 of the Internal Revenue Code of 1986. We provided a valuation allowance for 100% of our net deferred tax asset of$159.7 million atMarch 31, 2021 because the realization of the benefits of these favorable tax attributes in future income tax returns is not deemed more likely than not. Similarly, atMarch 31, 2020 , the net deferred tax asset was fully reserved.
Quarterly Results of Operations
The following table presents unaudited quarterly financial information. This information was prepared in accordance with GAAP, and, in the opinion of management, contains all adjustments necessary for a fair presentation of such quarterly information when read in conjunction with the financial statements included elsewhere herein. Our operating results for any prior quarters may not necessarily indicate the results for any future periods.
(In thousands, except per share data)
Year Ended March 31, 2021 Year Ended March 31, 2020
Fourth Third Second First Fourth Third Second First
(Unaudited) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Revenue $ 17,862 $ 20,676 $ 14,906 $ 14,193 $ 11,560 $ 17,383 $ 20,740 $ 19,244
Cost of goods sold 20,413 17,204 12,344 10,820 11,102 14,755 17,659 16,379
Gross margin (2,551) 3,472 2,562 3,373 458 2,628 3,081 2,865
Operating
expenses:
R&D 714 735 599 370 838 972 900 938
SG&A 5,158 4,816 4,872 3,546 5,195 5,280 5,499 6,237
Loss from
operations (8,423) (2,079) (2,909) (543) (5,575) (3,624) (3,318) (4,310)
Net loss (1) $ (4,757) $ (7,595) $ (4,212) $ (1,823) $ (6,950) $ (4,907) $ (4,448) $ (5,593)
Net loss per
common share-basic
and diluted (1) $ (0.39) $ (0.69) $ (0.38) $ (0.17) $ (0.74) $ (0.59) $ (0.59) $ (0.77) --------------------------------------------------------------------------------
Loss per-share amounts for all periods has been retroactively adjusted to
(1) reflect the Company's 1-for-10 reverse stock split, which was effective
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Liquidity and Capital Resources
Our cash requirements depend on many factors, including the execution of our business strategy and plan. Our cash and cash equivalents balances increased$34.4 million during Fiscal 2021, compared to a decrease of$14.6 million during Fiscal 2020. The increase in cash and cash equivalents during Fiscal 2021 compared to the decrease in cash and cash equivalents during Fiscal 2020 was primarily the result of net cash of$19.0 million received from the issuance of$20.0 million in additional senior secured notes under the A&R Note Purchase Agreement withGoldman Sachs Specialty Lending Group, L.P. ("Goldman Sachs") entered into during the third quarter of Fiscal 2021, net cash proceeds from the sale of our common stock of approximately$15.9 million after deducting commissions paid of approximately$0.5 million and approximately$2.0 million net cash received from the PPP Loan after deducting amounts subsequently repaid, entered into in the first quarter of Fiscal 2021, as described below. Additionally, during the fourth quarter of Fiscal 2021, we received a financial settlement in the amount of$5.0 million arising out of claims pursued in confidential arbitration with such former strategic parts supplier. During Fiscal 2022, in addition to funding our operations and sustaining capital expenditures, our significant cash requirements include approximately$8.0 million to build our long-term rental fleet to 21.1 MW in accordance with covenants in our Note Purchase Agreement with Goldman Sachs, approximately$5.0 million in interest payments to service the Goldman Sachs Notes, and approximately$5.0 million to replace high-risk parts in fielded units affected by the sub-optimal parts initially provided by the former strategic parts supplier. OnOctober 1, 2020 , we entered into an Amended & Restated Note Purchase Agreement (the "A&R Note Purchase Agreement") with respect to our existing$30.0 million in outstanding Notes (as defined below) issued to Goldman Sachs. The A&R Note Purchase Agreement amended and restated that certain Note Purchase Agreement, as amended, datedFebruary 4, 2019 , by and among the Company, the Collateral Agent and the other parties party thereto. Under the A&R Note Purchase Agreement, we issued$20.0 million in additional Notes. We received net cash proceeds of$19.0 million after deducting a$1.0 million facility fee paid to the lender. The entire principal amount of the Notes is due and payable onOctober 1, 2023 . As ofMarch 31, 2021 ,$51.0 million in borrowing were outstanding under the Notes, which includes the accrual for an exit fee to be paid at maturity or upon pre-payment. OnApril 24, 2020 , we received an unsecured loan in the principal amount of$2,610,200 fromWestern Alliance Bank , anArizona corporation under the Small Business Administration Paycheck Protection Program enabled by the Coronavirus Aid, Relief and Economic Security Act of 2020 (the "PPP Loan") and onMay 13, 2020 , we repaid$660,200 of the PPP Loan in accordance with the Fourth Amendment to the Note Purchase Agreement between the Company and Goldman Sachs. OnMarch 23, 2020 the Company enacted the Business Continuity Plan in response to COVID-19. BeginningMarch 30, 2020 , the Company furloughed approximately 52 employees, leaving behind only staff deemed essential for day-to-day administrative operations for a minimum period of 45 days. Our Leadership Team volunteered to take a 25% temporary salary cut. In addition, approximately 25 other top Company managers volunteered to take a similar 15% reduction in salary and the Board voted to take a temporary 25% reduction in base cash retainer. As a result of the continued global economic slowdown due to COVID-19 and the associated decline in global crude oil prices, we eliminated 26 positions onJune 1, 2020 . During the period ofMarch 30, 2020 toJune 1, 2020 , we had a limited production capability of new microturbine products but had pre-built approximately 5.9 MW of microturbine finished goods duringMarch 2020 , for shipment during this period of suspended production. OnSeptember 28, 2020 salaries were returned to 100% and remaining furloughed employees returned to work. Our vendor supply chain has been impacted by the pandemic; however, we have been able to maintain sufficient supply flow to continue operations of the date hereof. We believe these programs will supplement our current and future available capital resources. Operating Activities During Fiscal 2021, net cash provided by operating activities was$1.7 million , consisting of a net loss for the period of$18.4 million , offset by cash provided from working capital of$6.4 million and non-cash adjustments (primarily warranty provision, accounts receivable allowances, depreciation and amortization, stock based compensation and inventory provision) of$13.7 million . During Fiscal 2020, net cash used in operating activities was$19.7 million , consisting of a net loss for the period of$21.9 million and cash used for working capital of$4.0 million , offset by non-cash adjustments of$6.2 million . 50
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The following is a summary of the significant sources (uses) of cash from operating activities (amounts in thousands):
Year Ended March 31,
2021 2020
Net loss $ (18,387) $ (21,898)
Non-cash operating activities(1) 13,678 6,160
Changes in operating assets and liabilities: Accounts receivable (4,125)
(449)
Inventories 8,702
(1,499)
Accounts payable and accrued expenses 4,652
(2,567)
Prepaid expenses, other current assets and other assets 653
1,215
Other changes in operating assets and liabilities (3,472)
(660)
Net cash provided by (used in) operating activities
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Represents warranty provision, change in fair value of warrant liability, (1) depreciation and amortization, stock-based compensation expense, inventory
provision and accounts receivable allowances.
The change in non-cash operating activities during Fiscal 2021 compared to Fiscal 2020 was primarily driven by the loss on extinguishment of debt accounting resulting from entering into the A&R Note Purchase Agreement with Goldman Sachs during Fiscal 2021. Additionally, contributing to the change was warranty expense during Fiscal 2021 as a result of the warranty reserve established 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. The change in accounts receivable during Fiscal 2021 was primarily the result of lower collections from certain customers, compared to Fiscal 2020. The change in inventory was primarily the result of a decrease in both raw materials and finished goods during Fiscal 2021, as we continued to manage inventory alongside the decreases in revenue as a result of the COVID-19 pandemic. The change in accounts payable and accrued expenses was primarily the result of the level of inventory receipts and timing of payments made by us during Fiscal 2021 compared to Fiscal 2020. The change in other operating assets and liabilities during the Fiscal 2021 compared to Fiscal 2020, was primarily the result of decreases in deferred revenue attributable to FPP contracts, customer deposits and our DSS program. Investing Activities Net cash used in investing activities of$3.2 million and$4.2 million during Fiscal 2021 and 2020, respectively, related primarily to the additions of our rental fleet of approximately$2.4 million and$3.2 million , respectively. The remaining amounts were primarily for sustaining our production and facilities. Financing Activities During Fiscal 2021, we generated approximately$36.0 million in cash from financing activities compared to cash generated during Fiscal 2020 of approximately$9.2 million . The funds generated from financing activities during the fiscal year endedMarch 31, 2021 were primarily the result of$19.0 million in net proceeds from our A&R Note Purchase Agreement with Goldman Sachs, net borrowings under the PPP Loan, as well as$15.9 million in proceeds from the at-the-market offering program described below. The funds generated from financing activities during Fiscal 2020 were primarily the result of proceeds from theSeptember 2019 registered direct offering and proceeds from the at-the-market offering program described below.
At-the-market offerings
OnJune 7, 2018 , we entered into a Sales Agreement withH.C. Wainwright & Co., LLC (the "Sales Agreement") with respect to an at-the-market offering program (the "ATM Program") pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to$25.0 million . We will set the parameters for sales of the shares, including the number to be sold, the time period during which sales are requested to be made, any limitation on the number that may be sold in one trading day and any minimum price below which sales may not be made. During Fiscal 2021, we issued approximately 2.0 million shares of our common stock under the ATM program and the net proceeds to us from the sale of our common stock were approximately$15.9 million after deducting commissions paid of approximately$0.5 million . During our fourth fiscal quarter endedMarch 31, 2021 , we issued 1,242,253 shares of our common stock under the ATM program and the net proceeds to us were approximately$14.5 million after deducting commissions paid of approximately$0.5 million . OnJuly 15, 2020 , we entered into an 51
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amendment to the Sales Agreement, which modified the Sales Agreement to, among other things, amend the termination provisions of the Agreement and amend the maximum amount of shares of our common stock that we may offer and sell through or toH.C. Wainwright & Co., LLC from time to time under the ATM Program OnMarch 19, 2021 , we entered into a second amendment to the Sales Agreement, which modified the Sales Agreement to, among other things, reflect the Company's filing of a new Registration Statement on Form S-3 with theSEC onMarch 22, 2021 and set the maximum amount of shares of our common stock that we may offer and sell through or to H.C. Wainwright at$50.0 million , subject to certain limitations set forth in the amendment. As ofMarch 31, 2021 , approximately$3.9 million remained available for issuance with respect to this ATM Program. As ofApril 14, 2021 , upon the effectiveness of the Registration Statement on Form S-3, approximately$50.0 Million remained available for issuance with respect to this ATM Program. Warrants Series A Warrants As ofMarch 31, 2021 , there were 271,875 Series A warrants outstanding. 217,875 Series A warrants were issued with an exercise price of$25.50 per share of common stock, are exercisable into an aggregate amount of up to 217,875 shares of our common stock, and have an expiration date ofOctober 25, 2021 . 54,000 Series A warrants with anti-dilution provisions were issued with an initial exercise price of$13.40 per share of common stock, are exercisable into an aggregate amount of up to 54,000 shares of our common stock, and have an expiration date ofApril 22, 2021 . As ofMarch 31, 2021 , because of the anti-dilution provisions, these warrants had an adjusted exercise price of$1.15 per share of common stock. Goldman Warrant OnFebruary 4, 2019 , we sold toGoldman Sachs & Co. LLC (the "Holder"), a Purchase Warrant for shares of our common stock (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"). Our common stock and warrant transactions during Fiscal 2021 triggered certain anti-dilution provisions in the warrants outstanding. As ofMarch 31, 2021 , the Holder may purchase shares of the Company's common stock in an aggregate amount of up to 463,067 shares at an exercise price of$2.61 .
Goldman "2020 Warrant"
OnOctober 1, 2020 , the Company entered into an Amendment No. 3 to the Purchase Warrant for shares of our common stock (the "Amendment No. 3") withSpecial Situations Investing Group II, LLC (as successor in interest toGoldman Sachs & Co. LLC ) (the "Warrant Holder") that amended that certain Purchase Warrant for shares of our common stock originally issued by the Company toGoldman Sachs & Co. LLC , datedFebruary 4, 2019 , as amended (the "Original Warrant"). As ofMarch 31, 2021 , the holder may purchase shares of the Company's common stock in an aggregate amount of up to 291,295 shares at an exercise price of$4.76 .
OnSeptember 4, 2019 , we entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with certain institutional and accredited investors pursuant to which we agreed to issue and sell in a registered direct offering (the "Registered Direct Offering") an aggregate of 580,000 shares of our common stock at a negotiated purchase price of$5.00 per share, and pre-funded warrants to purchase up to an aggregate of 440,000 shares of our common stock at a negotiated purchase price of$5.00 per Pre-Funded Warrant, for aggregate gross proceeds of approximately$5.1 million (580,000 shares of common stock plus 440,000 pre-funded warrants at a$5.00 per share purchase price), before deducting placement agent fees and other offering expenses. In a concurrent private placement, we agreed to issue to the purchasers warrants to purchase 765,000 shares of common stock, which represent 75% of the number of shares of common stock and shares underlying the Pre-Funded Warrants purchased in the Registered Direct Offering, pursuant to the Securities Purchase Agreement. The Common Warrants are exercisable for shares of common stock at an initial exercise price of$6.12 per share for a period of five years, starting onApril 2, 2020 and expiring onApril 2, 2025 . InJanuary 2021 , three warrant holders exercised their rights to the warrant agreement to exercise on a cashless basis 690,000 Series D warrants at an exercise price of$6.12 per share 52
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under the warrant agreement. In accordance with terms of the warrant agreement, after taking into account the shares withheld to satisfy the cashless exercise option, we issued 352,279 shares of common stock. As ofMarch 31, 2021 , there were 75,000 Series D warrants outstanding at an exercise price of$6.12 . There were no stock options exercised during Fiscal 2021 and 2020. Repurchases of shares of our common stock for employee taxes due upon vesting of restricted stock units, net of employee stock purchases, resulted in approximately$0.1 million of net cash used during Fiscal 2021 and 2020. Three-year Term Note OnFebruary 4, 2019 , we entered into a Note Purchase Agreement, by and among us, certain subsidiaries of us as guarantors,Goldman Sachs Specialty Lending Holdings, Inc. , as collateral agent and any other Purchasers party thereto from time to time , in connection with the sale of senior secured notes of us in a private placement exempt from registration under the Securities Act of 1933, as amended. Under the Note Purchase Agreement, we sold to the Purchaser$30.0 million aggregate principal amount of senior secured notes (the "Notes"). The first interest payment on the Notes was onMarch 31, 2019 . OnOctober 1, 2020 , pursuant to A&R Note Purchase Agreement, we increased the amount of borrowing under the Notes by$20.0 million to$50.0 million , and all outstanding Notes bear interest at the Adjusted (London Interbank Offer) LIBO Rate (as defined in the A&R Note Purchase Agreement) plus 8.75% per annum. The Notes do not amortize and the entire principal balance is due in a single payment on the maturity date. As ofMarch 31, 2021 ,$51.0 million in borrowings were outstanding under the Notes, which includes the accrual for an exit fee to be paid at maturity or upon pre-payment. Pursuant to the First Amendment to the A&R Note Purchase dated as ofMay 13, 2021 , the minimum consolidated liquidity requirement increased from$9.0 million to$12.0 million . As ofMarch 31, 2021 , we were in compliance with the covenants contained in the A&R Note Purchase Agreement. Paycheck Protection Program Loan OnApril 15, 2020 , we applied for an unsecured PPP Loan in the principal amount of$2,610,200 under the Small Business Administration Paycheck Protection Program enabled by the Coronavirus Aid, Relief and Economic Security Act of 2020. OnApril 24, 2020 , we entered into a promissory note withWestern Alliance Bank . The Company received the full amount of the PPP Loan onApril 24, 2020 . In accordance with the requirements of the CARES Act, we intend to use proceeds from the PPP Loan to support fixed costs such as payroll costs, rent and utilities. OnMay 13, 2020 , we repaid$660,200 of the PPP Loan in accordance with the Fourth Amendment to the Note Purchase Agreement between the Company andGoldman Sachs Specialty Lending Group, L.P.
The advance under the PPP Loan bears interest at a rate per annum of 1%. The PPP
Loan matures on
The PPP Loan may be forgiven partially or fully if the funding received is used for payroll costs, interest on mortgages, rent, and utilities, provided that at least 75% of the forgiven amount has been used for payroll costs. Forgiveness is based on the Company maintaining, or quickly rehiring employees and maintaining applicable salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. Any forgiveness of the PPP Loan shall be subject to approval of the SBA and will require the Company andWestern Alliance to apply to the SBA for such treatment in the future. InJanuary 2021 , management applied for forgiveness on the PPP Loan. Management will account for forgiveness on the PPP Loan in accordance with ASC 470 and record a gain on extinguishment of debt on its condensed consolidated financial statements and related footnote disclosures, provided forgiveness be approved by the SBA. InFebruary 2021 , the Company applied for forgiveness of the original balance in full and is awaiting for review and approval. No assurance can be provided that forgiveness of any portion of the PPP loan will be obtained. Working Capital Cash provided from working capital was$6.4 million during Fiscal 2021, an improvement of$10.4 million from the cash used for working capital of$4.0 million during Fiscal 2020. These decreases in cash used for working capital and other operating assets and liabilities were primarily due to reductions in inventory and accounts payable payments, partially offset by an increase in accounts receivable and changes in customer deposits. Evaluation of Ability to Maintain Current Level of Operations In connection with preparing the consolidated financial statements for the fiscal year endedMarch 31, 2021 , management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about our ability to meet our obligations as they became 53
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due for the next twelve months from the date of issuance of our Fiscal 2021 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 negative impact by the volatility of the global oil and gas markets, a strongU.S. dollar in certain markets making our products more expensive in such markets, the COVID-19 pandemic, and ongoing global geopolitical tensions. We incurred a net loss of$18.4 million and provided cash from operating activities of$1.7 million during the Fiscal 2021. Our working capital requirements during Fiscal 2021 were in-line with management's expectations, which included reductions in inventory and accounts payable primarily due to our lower revenue levels. Our net loss improved during Fiscal 2021 primarily due to reduced overhead and operating expenses resulting from our COVID-19 Business Continuity Plan, as well as reduced FPP costs as our reliability improved due to the reduced impact of the part defect from a supplier first identified during the first quarter of Fiscal 2019. As ofMarch 31, 2021 , we had cash and cash equivalents of$49.5 million , and outstanding debt of$51.0 million at fair value (see Note 11-Term Note Payable in the Notes to the Consolidated Financial Statements for further discussion of the outstanding debt). Depending on the timing of our future sales and collection of related receivables, managing inventory costs and the timing of inventory purchases and deliveries required to fulfill the backlog, our future capital requirements may vary materially from those now planned. The amount of capital that we will need in the future will require us to achieve significantly increased sales volume which is dependent on many factors, including:
? the continuing impact of the COVID-19 pandemic on the global economy and
specifically on oil and gas markets;
? 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;
and
? our customers' ability to afford and/or finance our products.
Our accounts receivable balance, net of allowances, was$20.6 million and$16.2 million as ofMarch 31, 2021 and 2020, respectively. Days sales outstanding in accounts receivable, ("DSO"), increased to 105 days as ofMarch 31, 2021 , compared to 85 days as ofMarch 31, 2020 due to delayed collections in all markets due to the COVID-19 pandemic and the weakening oil and gas markets. We recorded net bad debt recovery of approximately$0.2 million and net bad debt expense of approximately$0.4 million , for Fiscal 2021 and 2020, respectively. Our allowance for doubtful accounts, was$0.3 million and$0.7 million as ofMarch 31, 2021 and 2020, respectively. No assurances can be given that future bad debt expense will not increase above current operating levels. Increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on cash flows and results of operations. In addition, our ability to access the capital markets may be severely restricted or made very expensive at a time when we need, or would like, to do so, which could have a material adverse impact on our liquidity and financial resources. Certain industries in which our customers do business and certain geographic areas have been and could continue to be adversely affected by the previously referenced economic and geopolitical considerations.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
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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