−Removed: Capstone Green Energy Corporation (“Capstone”, “We” or the “Company”) is a provider of customized microgrid solutions and on-site energy technology systems focused on helping customers around the globe meet their environmental, energy savings, and resiliency goals.
+Added: Capstone Green Energy Corporation (“Capstone”, “We” 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.
In April 2021, we added additional products to our portfolio and shifted our focus to four key business lines.
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Together with our distributors, we offer new and remanufactured parts as well as a comprehensive factory protection plan through long-term service agreements ranging from 5 to 20 years.
−Removed: We also offer our microturbines for rent through our long-term rental program.
+Added: We also offer our microturbines for rent through our long-term rental program (which form a part of our EaaS business).
In addition to our existing microturbine products, we offer additional energy conversion products in the form of Baker Hughes 5 MW, 12 MW, and 16 MW industrial gas turbines, where we will purchase and resell their product.
−Removed: The Company is currently exploring energy conversion options for the smaller end of the power spectrum.
We offer microturbines designed for commercial, industrial, and onshore and offshore oil and gas applications with product offerings ranging from 30 kilowatts (“kW”) to one megawatt (“MW”) in electric power output, which can be deployed in arrays up to 10 MWs.
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We also manufacture and supply controllers that provide complete automated system control, including electrical load following and custom logic to protect against expensive local utility demand charges.
−Removed: These controllers include the legacy Capstone Logic Controllers (CLC) and the new Capstone PowerSync family of system controllers.
−Removed: Beginning Fiscal 2022 we intend to begin manufacturing modular hybrid energy stations and lithium-ion battery energy storage systems (“BESS”) to be sold either individually or combined as part of a custom microturbine-battery storage solution.
+Added: These controllers include the legacy Capstone Logic Controllers (CLC) and the Capstone PowerSync family of system controllers.
Our microturbines can be fueled by various sources, including natural gas, propane, butane, various sour gases, renewable fuels such as renewable natural gas, landfill gas, biogas or digester gas, kerosene, diesel and biodiesel.
Our microturbines are available with integrated unit mounted heat exchangers, making them easy to engineer and install in applications where hot water, chilled water, air conditioning and steam is desired.
−Removed: Alternative fuels, in particular hydrogen, are increasingly important and the Company recently demonstrated that it could reliably run on a 10% hydrogen / 90% natural gas mix and is currently testing a 70% hydrogen / 30% natural gas mix through its R&D partnership with Argonne National Laboratory.
−Removed: These are promising milestones on the development roadmap to 100% hydrogen solutions.
−Removed: We estimate that over the last three years, we have helped save companies approximately $700 million on energy costs and over one million tons of carbon.
+Added: Alternative fuels, in particular hydrogen, are increasingly important and the Company recently released a commercial microturbine that can reliably run on a 30% hydrogen / 70% natural gas mix.
+Added: This is a promising milestone on the development roadmap to 100% hydrogen solutions.
Our microturbines are sold primarily through distributors and Original Equipment Manufacturers (“OEMs”).
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This Annual Report on Form 10-K (this “Form 10-K”) refers to our fiscal years ending March 31 as “Fiscal” years.
+Added: Initiative to Shift Towards Energy as a Service and Reduce Operating Costs
+Added: In March 2022, we implemented an expense reduction plan and announced our efforts to reduce operating costs and modify our operating model to better match our expanding EaaS business.
+Added: In order to implement the expense reduction plan, we undertook a holistic review of our operations, taking the growing EaaS business into account.
+Added: Beginning on February 28, 2022, we furloughed 17 employees for a period of 120 days, eliminated the position of Chief Revenue Officer, held by Jim Crouse, effective April 15, 2022, instituted 15% temporary pay cuts for approximately 36 employees and 25% temporary pay cuts for members of our senior leadership team, among other actions.
+Added: We believe that the implementation of the expenses reduction plan will help better align our current cost structure to support our higher margin EaaS revenues, which serves customers that are looking to outsource their energy management, while also lowering energy costs.
Company Response to COVID-19
−Removed: In March 2020, the Company began to monitor the global effects of COVID-19, the worldwide spread of which led the World Health Organization (“WHO”) to characterize it as a pandemic on March 11, 2020.
+Added: In March 2020, we began to monitor the global effects of COVID-19, the worldwide spread of which led the World Health Organization (“WHO”) to characterize it as a pandemic on March 11, 2020.
Thereafter, most U.S.
states imposed “stay-at-home” orders on their populations to stem the spread of COVID-19.
−Removed: Of specific interest to the Company, stay-at-home orders were imposed in the state of California on March 20, 2020.
+Added: Of specific interest to us, stay-at-home orders were imposed in the state of California on March 20, 2020.
On March 23, 2020 we enacted a Business Continuity Plan in response to COVID-19.
Beginning March 30, 2020, we furloughed 52 employees, leaving behind only staff deemed essential for day-to-day administrative operations for a minimum period of 45 days.
−Removed: Our Leadership Team volunteered to take a 25% temporary salary cut.
+Added: Our senior leadership team volunteered to take a 25% temporary salary cut.
In addition, 25 other top Company managers volunteered to take a similar 15% reduction in salary.
Several employees returned to work June 1, 2020, most with the 15% voluntary salary cuts, with others scheduled to return in a staggered manner through to the end of September.
−Removed: Additionally, in March 2020, the Board voted to take a temporary 25% reduction in base cash retainer in support of our Business Continuity Plan.
+Added: Additionally, in March 2020, our board of directors (the “Board”) voted to take a temporary 25% reduction in base cash retainer in support of our Business Continuity Plan.
As a result of the continued global economic slowdown due to COVID-19 and the associated decline in global crude oil prices, we eliminated 26 positions on June 1, 2020.
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On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”).
−Removed: The Company determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was necessary to support the
−Removed: Company’s ongoing operations.
+Added: The Company determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was necessary to support the Company’s ongoing operations.
Under the PPP, the Company could obtain a U.S.
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On May 13, 2020, the Company repaid $660,200 of the loan in accordance with the Fourth Amendment to the Note Purchase Agreement between the Company and Goldman Sachs Specialty Lending Group, L.P.
−Removed: In February 2021, the Company applied for forgiveness in full of the original balance of the PPP loan and is awaiting review and approval.
−Removed: No assurance can be provided that forgiveness of any portion of the PPP loan will be obtained.
−Removed: Our 30 kW (“C30”) microturbine can produce enough electricity to power a small convenience store or cathodic protection for an oil or natural gas pipeline.
+Added: In February 2021, the Company applied for forgiveness in full of the original balance of the PPP loan and the loan was forgiven in full on June 30, 2021.
+Added: The Company received a refund of $660,200 and recorded these amounts within other income on the Company’s Consolidated Statements of Operations.
+Added: Despite the introduction of COVID-19 vaccines and improvements in the global economy as a whole during Fiscal 2022, the pandemic remains volatile and continues to evolve, including the emergence of variants of the virus, such as the Omicron variant.
+Added: We will continue to assess our operations, considering the guidance of local governments and global health organizations.
Our 65 kW (“C65”) microturbine can produce enough heat to provide hot water to a 100 room hotel while also providing about one third of its electrical requirements.
Our 200 kW (“C200”) microturbine is well suited for larger hotels, office, commercial and industrial buildings, and wastewater treatment plants, among others.
−Removed: By packaging the C200 microturbine power modules into single enclosures which are available in multiple sizes and are built in similar dimensions to a standard shipping container or International Organization for Standardization sizes, we have created an upgradable family of microturbine offerings from 400 kW up to 1000 kW or 1 MW in a compact footprint engineered to function as a single source of power.
+Added: By packaging the C200 microturbine power modules into single enclosures which are available in multiple sizes and are built in similar dimensions to a standard shipping container, we have created an upgradable family of microturbine offerings from 400 kW up to 1000 kW or 1 MW in a compact footprint engineered to function as a single source of power.
Our 400 kW, 600 kW, 800 kW and 1000 kW (“C1000S Series”) microturbines are well suited for utility substations, larger commercial and industrial facilities and remote oil and gas applications.
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Our natural gas fueled C65, C200S and C1000S series microturbines were certified by the California Air Resources Board (“CARB”) as meeting its stringent 2007 emissions requirements—the same emissions standard used to certify fuel cells and the same emissions levels that a central power plant must satisfy.
−Removed: Our C65 and C200 Landfill and Digester Gas systems were certified by the CARB as meeting its 2008 waste gas emissions requirements for landfill and digester gas applications.
+Added: Our C65 and C200 Landfill and Digester Gas systems were certified by the CARB as meeting its 2008 waste gas
+Added: emissions requirements for landfill and digester gas applications.
These low emission levels not only provide an environmentally friendly product, but also eliminate permitting requirements in several municipalities for continuously operated onsite power generation.
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Our electronic controls manage microturbines using our proprietary software and advanced algorithms.
−Removed: The controls start the turbogenerator and manage its load, coordinate the functioning of the microturbine with the grid, manage the speed, fuel flow and exhaust temperature of the microturbine, convert the variable frequency, up to a maximum of 1,600 Hertz and variable voltage power produced by the generator into a usable output of either 50 or 60 Hertz AC for stationary applications or DC for hybrid electric vehicle applications, and provide digital communications to externally maintain and control the equipment.
+Added: The controls start the turbogenerator and manage its load, coordinate the functioning of the microturbine with the grid, manage the speed, fuel flow and exhaust temperature of the microturbine, convert the variable frequency, and provide digital communications to externally maintain and control the equipment.
The electrical output of our units can be paralleled in multiple unit configurations through our Advanced Power Server product and a digital communications cable to serve larger installations requiring electrical loads of up to ten megawatts.
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Our C65, as well as our C200 and C1000 Signature Series grid connect and stand-alone microturbines are listed by Underwriters Laboratories (“UL”) as meeting the UL 2200 stationary engine generator standards and the UL 1741 utility interconnection requirements.
−Removed: Our C30 and C60 microturbines are certified by the California Energy Commission and were the first products to comply with the requirements of its “Rule 21” grid interconnection standard.
+Added: Our C65 microturbine is certified by the California Energy Commission and were the first products to comply with the requirements of its “Rule 21” grid interconnection standard.
This standard streamlines the process for connecting distributed generation systems to the grid in California.
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In addition to our existing microturbine products, we offer additional energy conversion products in the form of Baker Hughes 5 MW, 12 MW, and 16 MW industrial gas turbines, where we will purchase and resell their product.
−Removed: The Company is currently exploring energy conversion options for the smaller end of the power spectrum.
−Removed: During Fiscal 2022, we intend to begin manufacturing modular hybrid energy stations and lithium-ion BESS to be sold either individually or combined as part of a custom microturbine-battery storage solution.
Stationary power generation applications can vary greatly depending on load size and demand location.
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Organizations of all sizes have used the heat generated by our microturbines at the many different types of commercial and industrial applications they serve, including hotels and resorts, hospitals, and medical centers, as well as office buildings and large retail facilities.
−Removed: During Fiscal 2021, we continued to expand and develop our new hydrogen products.
−Removed: We released our first commercially available hydrogen-based Combined Heat and Power (CHP) product, which can reliably 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.
−Removed: We are continuing our research and development partnership with Argonne National Laboratory and are already testing a 70% hydrogen-30% natural gas configuration.
+Added: During Fiscal 2022, we continued to expand and develop our new hydrogen products with the release of a commercially available hydrogen-based Combined Heat and Power (CHP) product, which can reliably run on a 30% hydrogen-70% natural gas mix.
+Added: We are continuing our research and development partnership with Argonne National Laboratory and are already testing higher hydrogen blend configurations, with the goal of a 100% hydrogen microturbine.
Argonne National Laboratory is a national science and technology research laboratory operated by the University of Chicago Argonne, LLC for the United States Department of Energy.
−Removed: In addition, in May 2021, we announced a demonstration project with Blue Economy CRC, a cooperative research center in partnership that was established to bring together sustainable seafood production and renewable energy to further develop Australia’s aquaculture industry.
−Removed: This demonstration microturbine system is intended to run on 100% hydrogen.
Renewable Energy
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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.
−Removed: 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.
+Added: Our microturbines have
+Added: 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.
We offer C65 and C200 stand-alone digester products to the renewable energy market segment.
−Removed: With these products, we are able to target many different types of renewable energy applications, including biogas producing facilities in third world countries and in remote locations that offer a valuable fuel source for the generation of electricity.
−Removed: The performance of our C65 digester gas system has been routinely evaluated to ensure that the combustion system is stable from 0 to 100 percent power output.
+Added: With these products, we can target many different types of renewable energy applications, including biogas producing facilities in third world countries and in remote locations that offer a valuable fuel source for the generation of electricity.
+Added: The performance of our C65 digester gas system has been routinely evaluated to ensure that the combustion system is stable from zero to 100 percent power output.
Minor controls changes have been implemented to increase stability at low power levels.
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The addressable market for our microturbines in the United States shale reserves industry is significant.
−Removed: The shale gas market for microturbines may grow as demand for natural gas continues to rise and the U.S.
+Added: The shale gas market for microturbines may grow as demand for natural gas continues to rise in the U.S.
as the Environmental Protection Agency (“EPA”), the Department of the Interior and other federal and state agencies work to reduce the emission of hazardous air pollutants associated with natural gas development, including limitations on the flaring of excess gases.
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However, any growth in the oil and gas sector within our natural resources market is primarily driven by oil prices.
−Removed: The C30, C65 and C200 microturbines can be configured to meet Class 1 Zone 2 hazardous location requirements for the natural resources market.
+Added: The C65 and C200 microturbines can be configured to meet Class 1 Zone 2 hazardous location requirements for the natural resources market.
Hazardous location requirements are met through package ventilation changes for purging and pressurizing package air to avoid potential flammable mixtures as well as controls for emergency disconnect of fuel and electrical sources.
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They may also help reduce electrical expenditures in the years following a disaster when electric utility rates may be increased to pay for the expenses for grid infrastructure repairs and improvements associated with these disasters.
−Removed: Transportation
−Removed: Our technology can also be used in hybrid electric vehicle (“HEV”) applications.
−Removed: Our customers have applied our products in HEV applications such as transit buses and Class 7 and 8 work trucks.
−Removed: In these applications, the microturbine acts as an onboard battery charger to recharge the battery system as needed.
−Removed: The benefits of microturbine-powered HEV hybrids include extended range, fuel economy gains, quieter operation and reduced emissions when compared with traditional internal combustion engines.
−Removed: Internal combustion diesel engine manufacturers have been challenged for the last several years to develop technology improvements, prior to aftertreatment that reduce emissions to levels specified by the EPA and CARB 2007 and 2010 standards.
−Removed: Many manufacturers are incorporating aftertreatment that increases upfront equipment costs, vehicle weight and life cycle costs, and may reduce overall engine efficiency.
−Removed: Additionally, our technology is also used in marine applications.
−Removed: Our customers have applied our products in the commercial vessel and luxury yacht market segments.
−Removed: The application for our marine products is for use as a ship auxiliary generator set.
−Removed: In this application, the microturbines provide power to the vessel’s electrical loads and, in some cases, the vessel is able to utilize the exhaust energy to increase the overall efficiency of the application, reducing overall fuel consumption and emissions.
−Removed: Another feasible 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 battery charger and range extender.
−Removed: Our marine customers use both liquid fueled and natural gas microturbine products.
−Removed: Vessel owners can receive the same benefits as
−Removed: users of stationary products:
−Removed: low emissions with no exhaust after treatment, long maintenance intervals, high reliability, low noise and no vibration.
−Removed: In Fiscal 2020 and Fiscal 2021, transportation products were only for customer demonstrations.
Sales and Marketing
−Removed: We primarily sell and market our microturbine product, parts and service through our global network of authorized distributors and a new direct sales team, which was formed in January 2020 to focus on OEMs and national accounts.
−Removed: In January 2020, we divided our sales and marketing team into two separate organizations.
−Removed: One organization remains focused on developing and managing our existing worldwide distribution channel and leading all marketing and advertising activities as we continue building our Company into a strong and recognizable worldwide brand.
−Removed: The second organization is responsible for growing our Company's national account business and long-term rental fleet.
−Removed: Under the terms of the A&R Note Purchase Agreement with Goldman Sachs, we are required to grow our rental fleet to 21.1 MW, from our current fleet size of 10.6 MW, by March 31, 2022.
+Added: We primarily sell and market our microturbine product, parts, and service through our global network of authorized distributors and our direct sales team, which focuses on OEMs and national accounts.
+Added: Our sales and marketing team operate as two separate organizations.
+Added: Our marketing team is focused on developing and managing our existing worldwide distribution channel and leading all marketing and advertising activities as we continue building our Company into a strong and recognizable worldwide brand.
+Added: Our direct solutions sale team is responsible for growing our Company's national account business and long-term rental fleet.
+Added: Under the terms of the A&R Note Purchase Agreement with Goldman Sachs, we were required to grow our rental fleet to 21.1 MW by March 31, 2022.
+Added: Our rental fleet was 21.1 MW as of March 31, 2022.
+Added: We have continued to fulfill rental contracts beyond the 21.1 MW by renting unused equipment from our distributors and then re-renting them to our customers, and are looking at other solutions, including additional capital to continue to grow the rental fleet.
Additionally, this team is responsible for business development, licensing, new product partnerships, and new fuels, such as hydrogen, and further growing our renewable market segment participation.
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Through our global distribution network, we offer a comprehensive factory protection plan (“FPP”) for a fixed fee to perform regularly scheduled and unscheduled maintenance as needed.
−Removed: We provide factory and onsite training to certify all personnel that perform sales, applications, commissioning, and long-term service on our microturbines.
+Added: We provide factory and onsite training to certify all
+Added: personnel that perform sales, applications, commissioning, and long-term service on our microturbines.
Individuals who are certified are called Authorized Service Providers and must be employed by a distributor or an end user in order to perform work pursuant to a FPP.
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However, the geopolitical environment in this region is still volatile, which can have an impact on our sales.
−Removed: Europe and Russia
−Removed: To address the European market, including Russia, we are strengthening our relationships with existing and new distributors and have increased local sales and service support.
−Removed: We have an office in the United Kingdom for the purpose of working with our local distributors on a daily basis to identify and understand growth opportunities.
−Removed: Upon the successful resolution of Brexit, we have recently upgraded our Integrated Remanufacturing Facility (IRF) in the United Kingdom to make new and remanufactured parts readily available to our distributors.
+Added: To address the European market, we are strengthening our relationships with existing and new distributors and have increased local sales and service support.
+Added: We have an office in the United Kingdom for the purpose of working with our local distributors daily to identify and understand growth opportunities.
+Added: We have upgraded our Integrated Remanufacturing Facility (IRF) in the United Kingdom to make new and remanufactured parts readily available to our distributors.
Europe has a history of extensive use of distributed generation technologies.
−Removed: We continue to diversify the Company’s overall presence in Russia and the surrounding Commonwealth of Independent States (CIS) as we explore new growth opportunities in these areas with multiple new distributors.
−Removed: The rebuilding of our business in Russia and the surrounding CIS area continues to evolve including the addition of our new Russia oil and gas distributor Arman Energo.
−Removed: Further, the continuation or escalation of geopolitical instability in Russia and Ukraine could continue to negatively impact our operations, sales, and future growth prospects in that region.
−Removed: Sales to Cal Microturbine (“CAL”) and E-Finity Distributed Generation, LLC (“E-Finity”), our domestic distributors, accounted for 15% and 12%, respectively, of our revenue for Fiscal 2021.
−Removed: Sales to E-Finity accounted for 12% of our revenue for Fiscal 2020.
+Added: Following Russia’s military invasion of Ukraine in February 2022, we re-evaluated our efforts in the Russian and the surrounding Commonwealth of Independent States (CIS) markets and have ceased exploring growth opportunities in such markets.
+Added: We do however continue to evaluate customer orders and ensure that we are in compliance with all laws and regulations upon acceptance and before shipment.
+Added: Due to the ongoing conflict between Russia and Ukraine, and the resulting economic impacts to the European and Russia region, we expect revenue in the region to be negatively impacted in Fiscal 2023.
+Added: Sales to E-Finity Distributed Generation, LLC (“E-Finity”), our domestic distributor, accounted for 18% of our revenue for Fiscal 2022.
+Added: Sales to Cal Microturbine (“CAL”) and E-Finity, our domestic distributors, accounted for 15% and 12%, respectively, of our revenue for Fiscal 2021.
Additionally, E-Finity accounted for 28% and 13% of net accounts receivable as of March 31, 2022 and March 31, 2021, respectively.
−Removed: We recorded net bad debt recovery of approximately $0.2 million during Fiscal 2021.
−Removed: We recorded net bad debt expense of approximately $0.4 million during Fiscal 2020 primarily due to the uncertainty of collections from certain distributors at the initial onset of the COVID-19 pandemic.
+Added: We recorded net bad debt expense of approximately $1.1 million during Fiscal 2022 and a net bad debt recovery of approximately $0.2 million during Fiscal 2021.
The market for our products is highly competitive.
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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.
−Removed: Because our microturbines can provide a reliable source of power and can operate on multiple fuel sources, management believes we offer a level of flexibility not currently offered by other technologies such as reciprocating engines.
+Added: Because our microturbines
+Added: can provide a reliable source of power and can operate on multiple fuel sources, management believes we offer a level of flexibility not currently offered by other technologies such as reciprocating engines.
Our reciprocating engine competitors have products and markets that are well developed and technologies that have been proven for some time.
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These types of restrictions, fees or charges could hamper the ability to install or effectively use our product, or increase the cost to our potential customers for using our systems.
−Removed: This could make our systems less economical for our customers, thereby adversely affecting our sales and ultimately our revenue and profitability.
+Added: This could make our systems less economical for our customers,
+Added: thereby adversely affecting our sales and ultimately our revenue and profitability.
In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our operations.
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The deduction percentage will phase down from 100% to 0% by 2027.
−Removed: As a result, we may see a positive impact on our sales in the United States
−Removed: due to the availability of these tax incentives.
+Added: As a result, we may see a positive impact on our sales in the United States due to the availability of these tax incentives.
However, other CHP and gas-powered distributed energy technology-providers will also benefit from the return of these tax incentives, and fuel cell technologies will receive a 26% ITC level with a phase down to 22% by 2023 and expiration in 2024.
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However, single source suppliers with long lead times may be more challenging to transition to another supplier.
−Removed: We have an ongoing program to develop alternative back up suppliers for sole source parts wherever possible, however this has been challenging with low production volumes and increased pricing.
+Added: We have an ongoing program to develop alternative back up suppliers for sole source parts wherever possible, but this has been challenging with low production volumes and increased pricing.
We regularly reassess the adequacy and abilities of our suppliers to meet our future needs.
We continue to evaluate and implement new systems designed to provide improved quality, reliability, service, greater efficiency, and lower supply chain costs.
−Removed: During Fiscal 2021, we remained focused on mitigating supply chain issues, such as the costs of commodities and delayed lead times, related to the ongoing global COVID-19 pandemic.
+Added: During Fiscal 2022, we remained focused on mitigating supply chain issues, such as the costs of commodities and delayed lead times, related to the ongoing global COVID-19 pandemic and other macroeconomic conditions.
Localization of the vast majority our immediate supply chain within a 300-mile radius of our factory located in Van Nuys, California mitigates much of the global stressors associated with a typical geographically dispersed supply chain, as many of our suppliers were sharing similar experiences of the pandemic in the same magnitude we were experiencing in parallel.
−Removed: Our prior years’ strategy of locating dual-sources and establishing long-term purchasing agreements helped to mitigate interruptions in our supply chain.
−Removed: Global freight delays, tariffs and costs remain a concern from a logistics perspective, however with a highly-localized supply chain, much of these effects are limited.
+Added: Our strategy of locating dual-sources and establishing long-term purchasing agreements helped to mitigate interruptions in our supply chain.
+Added: Global freight delays, tariffs and costs remain a concern from a logistics perspective.
+Added: With a highly localized supply chain, however, much of these effects are limited.
To address delays, we increased planning fence lead-times within our ERP system to drive material purchases earlier, and we attempt to source products locally as much as possible.
−Removed: As with Fiscal 2020, the COVID-19 situation still remains fluid, and we are keeping in place proactive measures in the form of safety stocks and dual sourcing to prevent potential interruptions to our supply chain.
+Added: We are keeping in place proactive measures in the form of safety stocks and dual sourcing to prevent potential interruptions to our supply chain.
+Added: Despite these efforts we did experience both supply chain related delays and cost increases in the second half of Fiscal 2022 and expect this to continue into the first half of Fiscal 2023.
We have substantially increased our focus on process controls and validations, supplier controls, distribution controls and providing our operations teams with the training and tools necessary to drive continuous improvement in product quality.
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Our strategy is to identify primary and secondary sources for critical components, both domestic and international, for when available to minimize production line down time due to unavailability of such parts, which could affect our ability to meet manufacturing schedules on build or a linear basis.
−Removed: In April 2019, we executed multiple new Long Term Agreements (“LTA”), including a new 10-year LTA with a new supplier.
−Removed: The LTA from the new
−Removed: supplier will initially reduce annual direct material costs by an estimated $2 million per year once the transition is completed.
−Removed: The strategy to reduce direct material costs is based on partnering with our supply base to drive collaborative cost improvements within its value chain, which will enable significant material cost reductions.
−Removed: In 2007, we entered into a Development and License Agreement (“Development Agreement”) with Carrier Corporation (“Carrier”) regarding the payment of royalties on the sale of each of our C200 microturbines.
−Removed: On July 25, 2018, we and Carrier entered a Second Amendment whereby we concluded our royalty obligation under the Development Agreement and were released from any future royalty payment obligations.
−Removed: The Second Amendment also removed non-compete provisions from the Development Agreement, allowing us to design, market or sell our C200 System in conjunction with any energy system and compete with Carrier products in the CCHP market.
−Removed: There is no further royalty obligation to Carrier.
We have an approximately 42,300 square foot manufacturing footprint in our Van Nuys location in Southern California with production capacity of approximately 2,000 units per year, depending on product mix.
−Removed: 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.
Research and Development (“R&D”)
−Removed: Our engineering mission flexed in Fiscal 2021 to supporting business operational goals and enhancing system availability to ensure continuity during the global pandemic.
−Removed: While these successful efforts became our primary objectives, we continued to emphasize the expansion of our existing suite of products, focusing on alternative fuels and technologies, maintaining relevance in the global evolution of grid interconnection requirements, and the evolution of the PowerSync Controller.
−Removed: We focus our engineering efforts on coordinating our product design and manufacturing processes to bring our products to market in a cost-effective and timely manner.
+Added: In Fiscal 2022 we continued supporting business operational goals and enhancing system availability to ensure continuity during the global pandemic and other macroeconomic factors.
+Added: While these successful efforts became our primary objectives, we continued to emphasize the expansion of our existing suite of products, focusing on alternative fuels and technologies and continuing development in the global evolution of grid interconnection requirements.
+Added: We focus our engineering efforts on coordinating our product design and manufacturing processes to bring our products to market in a cost-effective, reliable and timely manner.
For Fiscal 2022 and 2021, R&D expenses were $3.4 million and $2.4 million, respectively, representing 5% and 4% of total revenue, respectively, for these fiscal years.
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The first patent issued is for a multi-staged lean pre-vaporizing, pre-mixing fuel injector providing ultra-low emissions that meet EPA Tier 4 requirements for power generation.
−Removed: Under this new program, exhaust emissions from these engines will be required to decrease by more than 90%.
+Added: Under this program, exhaust emissions from these engines will be required to decrease by more than 90%.
The second patent is for a multiple-fuel capable, pre-mixed, low emission injector for high flame speed fuel combustion.
This patent is the foundation for continued development in achieving high reliability and performance with hydrogen content fuels.
−Removed: We partnered with the United States Department of Energy (“DOE”), which provided funding during Fiscal 2017 in the amount of $335,000 for one year to Argonne National Laboratory to conduct testing on a 70% hydrogen-30% natural gas configuration.
−Removed: Hydrogen testing was on hold while the test facility implemented mechanisms for safe handling, detection, and delivery of the hydrogen gas.
−Removed: The safety challenges have been resolved, and testing has begun.
−Removed: Funding has been extended to the 2021 government fiscal year for completion of the testing.
+Added: During Fiscal 2022 we continued to partner with Argonne National Laboratory and University of California, Irvine on the development of a 30% Hydrogen-70% natural gas configuration, which was commercially launched in March 2022.
Capstone and Argonne National Laboratory are also partnering on a microturbine derivative utilizing Argonne’s high-efficiency, fast-charging, and fast discharging Thermal Energy Storage System.
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The Thermal Energy Storage System modeling and simulation was completed towards the end of Fiscal 2020.
−Removed: During Fiscal 2021 design was completed on the assembly of the small scale system to be installed at Argonne using their C65 test system.
−Removed: We expect, Fiscal 2022 will see the procurement and assembly of the hardware at Argonne, and testing to validate the models that were developed.
−Removed: We continue support of University of California, Irvine (“UCI”) through their Advanced Power and Energy Program, which works to evaluate microturbine operation using hydrogen and natural gas fuel blends.
−Removed: The testing completed in Fiscal 2021 is sponsored by the local gas authority as they evaluate the impacts of gas grid hydrogen injection.
−Removed: We and UCI continue to be key partners in advancing academic research while furthering commercialization of hydrogen technology in Fiscal 2022.
−Removed: Leveraging off this partnership, UCI has completed the first phase of analysis in associated gas combustion in catalog Capstone products.
+Added: During Fiscal 2021 design was completed on the assembly of
+Added: the small scale system to be installed at Argonne using their C65 test system.
+Added: In Fiscal 2022, we initiated procurement and assembly of the hardware for Argonne to validate the models that were developed.
+Added: We continue support of the University of California, Irvine (“UCI”) through their Advanced Power and Energy Program, which works to evaluate microturbine operation using hydrogen and other fuel blends.
+Added: The testing completed in Fiscal 2022 demonstrated the outstanding performance of our patented hydrogen injector design on up to 100% hydrogen across broad operating regimes.
+Added: We and UCI continue to be key partners in advancing academic research while furthering commercialization of hydrogen technology.
+Added: Leveraging off this partnership, UCI has embarked on the second phase of analysis in associated gas combustion in catalog Capstone products.
Associated gas is represented by higher hydrocarbons, which are more challenging to maintain in gaseous state.
As more pressure is placed on flaring at oil and gas locations, the expansion of our fuel acceptability limits enables customers a reliable, resilient, and environmentally conscientious way of handling waste gases.
−Removed: Work continues in Fiscal 2022 to model and validate the combustion characteristics of associated gas, and update associated product documentation.
−Removed: Our product development activities during Fiscal 2021 continued with the evolution of the new family of PowerSync controllers used for Capstone microturbines.
−Removed: We also further advanced a project to modernize control electronics, providing common functionality, minimizing near term obsolescence concerns, and enabling long term support.
−Removed: Leveraging our academic relationships, Capstone completed an initial analysis on the effective limits of our patented combustion system relative to higher hydrocarbon fuels.
−Removed: We partnered with Phoenix Contact in a joint effort to improve on-site controls and integration with end-use customer facilities.
−Removed: The main objectives of developing the new PowerSync controller line were to further increase system reliability, availability and make our microturbines easier to use for both end-user customers as well as our distribution partners.
−Removed: Capstone and Phoenix Contact have been using customer feedback to make further improvements to software and hardware.
−Removed: Grid interconnection standards have continued to evolve, with more emphasis being placed on harmonization of requirements.
−Removed: AS-4777 certification for the C65 was able to be completed in Fiscal 2021.
−Removed: The remaining TUV Rheinland witness test efforts planned during Fiscal 2021 were postponed due to the COVID-19 pandemic.
−Removed: Capstone used the remainder of the year for development work on the multiple updated certification requirements including German (BDEW, now VDE-4110) and Italian (CEI 0-16) medium voltage operation, German low voltage VDE-4105 operation, and California Rule 21 (soon to be incorporated into UL 1741 Supplement B).
−Removed: This work will enable consolidation of the efforts during Fiscal 2022 witness tests.
−Removed: Capstone and Argonne National Laboratory are also partnering on a microturbine derivative utilizing Argonne’s high-efficiency, fast-charging, and fast discharging Thermal Energy Storage System.
−Removed: This effort is funded through the Department of Energy’s Technology Commercialization Fund.
−Removed: The thermal storage system is expected to improve the microturbine’s overall efficiency increasing value to the customer.
−Removed: The Thermal Energy Storage System modeling and simulation was completed towards the end of Fiscal 2020.
−Removed: During Fiscal 2021 design was completed on the assembly of the small scale system to be installed at Argonne using their C65 test system.
−Removed: Fiscal 2022 will see the procurement and assembly of the hardware at Argonne, and testing to validate the models that were developed.
−Removed: In addition, we continue to work both cost reduction and performance enhancement activities to improve the value of our microturbine products for our customer base.
+Added: The importance of our collaboration has been demonstrated in Fiscal 2022 with our growing Energy-as-a-Service bitcoin rental fleet which utilize waste gas at expired oil and gas sites to provide high value to these power intensive operations.
+Added: Grid interconnection standards have continued to evolve, with more emphasis being placed on reactive power support and harmonization of requirements.
+Added: VDE-4105 German low voltage directive certification for the C65 was able to be completed in Fiscal 2022.
+Added: Additionally, Capstone’s products were certified to meet the IEEE 2030.5 and California Rule 21 standards enabling communication with grid operators.
+Added: Through the use of a third party gateway, Capstone controllers can now report and be adjusted by utilities to balance power quality on the grid during times of variable output of renewables, and in response to emergencies.
+Added: The remaining TUV Rheinland witness test efforts planned during Fiscal 2023 will focus on the complying with updated certification requirements including German (VDE-4110 Medium Voltage), Australian (AS-4777), and USA (UL1741-SB) standards.
+Added: Capstone continues to work cost reduction and performance enhancement activities to improve the value of our microturbine products for our customer base, and to enhance our return on investment in Energy-as-a-Service offerings.
Cost reduction activities are focused on leveraging the capabilities of our supply base and internal design lean manufacturing improvements.
Product enhancements are focused on reducing the already very low maintenance requirements for our products, while at the same time improving operational efficiency, thereby reducing our customers’ total cost of ownership.
+Added: While both of these activities have been affected by post-pandemic supply chain constraints in availability and lead-time, it has also opened up some new opportunities in support of these goals.
Because of our single moving assembly, manufacturers believe there is also the opportunity to produce a lower cost product in larger automotive volumes.
−Removed: Our focus is on a next generation product that would include existing components and a liquid cooled set of electronics that are consistent with the size, cost and cooling strategies employed on vehicles today.
+Added: Our focus is on a next generation product that would include existing components and a liquid cooled set of electronics that are consistent with the size, cost and cooling advances that are employed on vehicles today.
Although we believe the hybrid electric bus and truck market has the potential to be a beneficial option for the bus and truck manufacturers, we temporarily suspended our development efforts with respect to C30 microturbines targeted at this market in response to our lower revenue.
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Our compressed natural gas (“CNG”) fueled microturbines also meet extremely strict emission standards, including the U.S.
−Removed: Environmental Protection Agency and CARB 2010 emissions requirements for On Road
−Removed: HDDE for Urban Bus.
+Added: Environmental Protection Agency and CARB 2010 emissions requirements for On Road HDDE for Urban Bus.
Test emissions from our natural gas microturbines measured dramatically less than the emissions levels set forth by the CARB standard including NOx at 75% and CO at 96% less than the required levels.
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In partnership with one of our long-term EMEA distributors, Capstone 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.
−Removed: In Fiscal 2021, the private yacht power system was land tested, sea trialed, and launched, enabling the owner to eliminate onboard ship vibrations associated with reciprocating engines, while also having low emissions without after treatment.
+Added: 2021, the private yacht power system was land tested, sea trialed, and launched, enabling the owner to eliminate onboard ship vibrations associated with reciprocating engines, while also having low emissions without after treatment.
Capstone received a follow-on certification from Lloyd’s for Classification of Special Service Craft 2018, Part 10, Chapter 2.
−Removed: Our C65 Hybrid UPS product line has been evolving over the years.
−Removed: After having received the 2011 NOVA Award from the Construction Innovation Forum for the C65 Hybrid UPS Microturbine at Syracuse University’s data center—labeled one of the greenest data centers in the world, we have continued development of our C65 Hybrid UPS system and have installations at Sempra in Monterey Park, California and our own data center in Van Nuys, California as well as two Department of Homeland Security installations, among several others.
−Removed: The product utilizes our inverter electronics and controls technology to provide continuous power quality to meet the customer’s critical load.
−Removed: The load inverter is connected through a central power bus to provide power from one of three available power sources, including the utility grid, battery storage system, or microturbine generator.
−Removed: Power to the critical load is synchronized to an available utility grid to allow direct bypass of the critical load to the utility grid.
−Removed: This redundant functionality is provided in a single integrated package that can be scaled to a larger seamless power unit through our multipack feature.
−Removed: These units can also be combined with a heat recovery module or an absorption chiller to provide higher total output efficiency.
−Removed: Unlike current UPS products combined with reciprocating engines for backup, our low emissions Hybrid UPS product allows for continuous operation year-round, allowing customers the ability to receive a payback on their capital equipment investment.
−Removed: Although we believe the industrial UPS market has the potential to be a beneficial option for businesses that require constant supply of reliable energy, we temporarily suspended our development efforts with respect to C65 microturbines targeted at this market in response to our lower revenue.
−Removed: We currently intend to continue with the next phase of development after we achieve profitability.
Protecting our Intellectual Property Rights and Patents
We rely on a combination of patent, trade secret, copyright, “know how”, and trademark laws and nondisclosure agreements to establish and protect our intellectual property rights in our products.
−Removed: We have 37 U.S.
−Removed: and 3 international active patents (in certain cases covering the same technology in multiple jurisdictions).
−Removed: The patents we have obtained will expire between the second half of calendar years 2021 and 2037.
+Added: In this regard, we have 29 U.S.
+Added: active patents.
+Added: The patents we have obtained will expire between calendar years 2022 and 2037.
We actively evaluate our patent portfolio and pursue new patent applications as we develop new technological innovations, as needed.
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Human Capital
−Removed: On February 16, 2021, our board of directors adopted an amended charter governing our Compensation and Human Capital Committee, after discussing the rapid movement to expand the role of the Compensation Committee beyond traditional compensation-related matters.
−Removed: In accordance with its recently amended charter, our Compensation and Human Capital Committee is responsible for reviewing, monitoring and providing recommendations to our board of directors on our workplace policies and practices, including corporate culture and employee engagement, talent management and leadership development, employee diversity and inclusion, ensuring a respectful workplace free of discrimination and harassment.
+Added: On February 16, 2021, our Board adopted an amended charter governing our Compensation and Human Capital Committee, after discussing the rapid movement to expand the role of the Compensation Committee beyond traditional compensation-related matters.
+Added: In accordance with its recently amended charter, our Compensation and Human Capital Committee is responsible for reviewing, monitoring, and providing recommendations to our Board on our workplace policies and practices, including corporate culture and employee engagement, talent management and leadership development, employee diversity and inclusion, ensuring a respectful workplace free of discrimination and harassment.
We are committed to maintaining, and continuing to foster, our diverse and inclusive work environment.
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Workforce Statistics
−Removed: As of March 31, 2021, we had 122 full-time employees and 1 part time employee.
+Added: As of March 31, 2022, we had 133 full-time employees and one part time employee.
No employees are covered by collective bargaining arrangements.
We consider relations with our employees to be good.
+Added: In March 2022, we implemented an expense reduction plan, which included furloughs, employment terminations and pay cuts.
+Added: See “—Initiative to Shift Towards Energy as a Service and Reduce Operating Costs.”
Corporate Information
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Available Information
−Removed: This Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are made available free of charge on our Internet website (http://www.capstoneturbine.com) as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).
+Added: This Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are made available free of charge on our Internet website (http://www.capstonegreenenergy.com) as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).
These filings are also available on the SEC’s website at www.sec.gov.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.