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Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Mar. 31, 2012
Jun. 07, 2012
Sep. 30, 2011
Document and Entity Information
Entity Registrant Name CAPSTONE TURBINE Corp
Entity Central Index Key 0001009759
Document Type 10-K
Document Period End Date Mar 31, 2012
Amendment Flag false
Current Fiscal Year End Date --03-31
Entity Well-known Seasoned Issuer No
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Filer Category Accelerated Filer
Entity Public Float $ 259.6
Entity Common Stock, Shares Outstanding 299,419,043
Document Fiscal Year Focus 2012
Document Fiscal Period Focus FY
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CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Mar. 31, 2011
Current Assets:
Cash and cash equivalents $ 49,952 $ 33,456
Accounts receivable, net of allowance for doubtful accounts of $2,228 at March 31, 2012 and $212 at March 31, 2011 18,576 19,329
Inventories 18,881 19,267
Prepaid expenses and other current assets 2,974 2,369
Total current assets 90,383 74,421
Property, plant and equipment, net 4,833 5,939
Non-current portion of inventories 1,313 1,454
Intangible assets, net 2,811 3,574
Restricted cash 1,250
Other assets 452 381
Total 99,792 87,019
Current Liabilities:
Accounts payable and accrued expenses 23,061 20,292
Accrued salaries and wages 1,716 1,555
Accrued warranty reserve 1,494 1,081
Deferred revenue 2,995 1,153
Revolving credit facility 10,431 7,080
Current portion of notes payable and capital lease obligations 363 214
Warrant liability 791 20,772
Total current liabilities 40,851 52,147
Long-term portion of notes payable and capital lease obligations 70 83
Other long-term liabilities 254 309
Commitments and contingencies (Note 11)      
Stockholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized; none issued      
Common stock, $.001 par value; 415,000,000 shares authorized; 300,315,313 shares issued and 299,317,493 shares outstanding at March 31, 2012; 259,544,911 shares issued and 258,595,291 shares outstanding at March 31, 2011 300 260
Additional paid-in capital 790,901 747,962
Accumulated deficit (731,412) (712,648)
Treasury stock, at cost; 997,820 shares at March 31, 2012 and 949,620 shares at March 31, 2011 (1,172) (1,094)
Total stockholders' equity 58,617 34,480
Total $ 99,792 $ 87,019
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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2012
Mar. 31, 2011
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars) $ 2,228 $ 212
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 415,000,000 415,000,000
Common stock, shares issued 300,315,313 259,544,911
Common stock, shares outstanding 299,317,493 258,595,291
Treasury stock, shares 997,820 949,620
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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Mar. 31, 2010
Revenue $ 109,371 $ 81,890 $ 61,554
Cost of goods sold 103,944 82,427 69,999
Gross margin (loss) 5,427 (537) (8,445)
Operating expenses:
Research and development 8,237 6,986 6,954
Selling, general and administrative 28,927 26,203 28,383
Total operating expenses 37,164 33,189 35,337
Loss from operations (31,737) (33,726) (43,782)
Other income 31 32
Interest income 2 4 8
Interest expense (857) (873) (673)
Change in fair value of warrant liability 13,983 (3,667) (22,853)
Loss before income taxes (18,578) (38,230) (67,300)
Provision (benefit) for income taxes 186 240 (59)
Net loss $ (18,764) $ (38,470) $ (67,241)
Net loss per common share-basic and diluted (in dollars per share) $ (0.07) $ (0.16) $ (0.34)
Weighted average shares used to calculate basic and diluted net loss per common share (in shares) 266,945 245,941 199,579
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Treasury Stock
Balance at Mar. 31, 2009 $ 50,470 $ 175 $ 666,357 $ (615,100) $ (962)
Balance, shares at Mar. 31, 2009 174,888,521 817,940
Increase (Decrease) in Stockholders' Equity
Purchase of treasury stock (79) (79)
Purchase of treasury stock, shares 78,169
Vested restricted stock awards 1 (1)
Vested restricted stock awards, shares 786,389
Stock-based compensation 4,560 4,560
Exercise of stock options and employee stock purchases 213 213
Exercise of stock options and employee stock purchases, shares 246,857
Stock awards to Board of Directors 66 66
Stock awards to Board of Directors, shares 57,532
Cumulative effect of adoption of new accounting pronouncement (6,587) (14,750) 8,163
Warrants exercised 15,018 7 15,012
Warrants exercised, shares 7,225,434
Issuance of common stock, net of issuance costs 48,214 58 48,155
Issuance of common stock, net of issuance costs, shares 58,260,391
Issuance of common stock for Calnetix Power Solutions acquisition 1,798 2 1,796
Issuance of common stock for Calnetix Power Solutions acquisition, shares 1,550,387 1,550,387
Net loss (67,241) (67,241)
Balance at Mar. 31, 2010 46,432 243 721,408 (674,178) (1,041)
Balance, shares at Mar. 31, 2010 243,015,511 896,109
Increase (Decrease) in Stockholders' Equity
Purchase of treasury stock (53) (53)
Purchase of treasury stock, shares 53,511
Vested restricted stock awards 1 (1)
Vested restricted stock awards, shares 742,460
Stock-based compensation 2,318 2,318
Exercise of stock options and employee stock purchases 74 74
Exercise of stock options and employee stock purchases, shares 72,842
Stock awards to Board of Directors 100 100
Stock awards to Board of Directors, shares 109,554
Warrants exercised 20,981 13 20,968
Warrants exercised, shares 12,473,231
Issuance of common stock for Calnetix Power Solutions acquisition 3,098 3 3,095
Issuance of common stock for Calnetix Power Solutions acquisition, shares 3,131,313 3,131,313
Net loss (38,470) (38,470)
Balance at Mar. 31, 2011 34,480 260 747,962 (712,648) (1,094)
Balance, shares at Mar. 31, 2011 259,544,911 949,620
Increase (Decrease) in Stockholders' Equity
Purchase of treasury stock (78) (78)
Purchase of treasury stock, shares 48,200
Vested restricted stock awards, shares 699,107
Stock-based compensation 1,558 1,558
Exercise of stock options and employee stock purchases 780 1 779
Exercise of stock options and employee stock purchases, shares 785,504
Stock awards to Board of Directors 94 94
Stock awards to Board of Directors, shares 77,971
Warrants exercised 17,401 16 17,385
Warrants exercised, shares 16,657,820
Issuance of common stock, net of issuance costs 23,146 23 23,123
Issuance of common stock, net of issuance costs, shares 22,550,000
Net loss (18,764) (18,764)
Balance at Mar. 31, 2012 $ 58,617 $ 300 $ 790,901 $ (731,412) $ (1,172)
Balance, shares at Mar. 31, 2012 300,315,313 997,820
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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Mar. 31, 2010
Cash Flows from Operating Activities:
Net loss $ (18,764,000) $ (38,470,000) $ (67,241,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,404,000 3,823,000 3,496,000
Amortization of deferred financing costs 169,000 193,000 83,000
Interest expense on second funding liability 55,000 35,000
Provision for allowance for doubtful accounts 2,256,000 231,000 172,000
Inventory write-down 1,525,000 1,123,000 1,238,000
Provision for warranty expenses 4,227,000 2,089,000 1,336,000
Loss on disposal of equipment 3,000 213,000 30,000
Stock-based compensation 1,652,000 2,418,000 4,626,000
Change in fair value of warrant liability (13,983,000) 3,667,000 22,853,000
Changes in operating assets and liabilities:
Accounts receivable (1,503,000) (1,096,000) (7,765,000)
Inventories (998,000) 1,764,000 6,069,000
Prepaid expenses and other assets (220,000) (910,000) 348,000
Accounts payable and accrued expenses 2,660,000 4,966,000 4,134,000
Accrued salaries and wages and long term liabilities 106,000 (151,000) (335,000)
Accrued warranty reserve (3,814,000) (2,044,000) (2,644,000)
Deferred revenue 1,842,000 230,000 (248,000)
Other current liabilities (815,000)
Net cash used in operating activities (21,438,000) (21,899,000) (34,628,000)
Cash Flows from Investing Activities:
Acquisition of and deposits on equipment and leasehold improvements (1,419,000) (1,047,000) (2,002,000)
Changes in restricted cash 1,250,000 (1,250,000)
Net cash used in investing activities (169,000) (2,297,000) (2,002,000)
Cash Flows from Financing Activities:
Net proceeds from (repayment of) revolving credit facility 3,351,000 (491,000) 3,917,000
Payment of deferred financing costs (186,000)
Repayment of notes payable and capital lease obligations (499,000) (448,000) (80,000)
Net proceeds from employee stock-based transactions 702,000 39,000 138,000
Net proceeds from issuance of common stock and warrants 23,146,000 54,089,000
Proceeds from exercise of common stock warrants 11,403,000 11,282,000 6,503,000
Net cash provided by financing activities 38,103,000 10,382,000 64,381,000
Net increase (decrease) in Cash and Cash Equivalents 16,496,000 (13,814,000) 27,751,000
Cash and Cash Equivalents, Beginning of Year 33,456,000 47,270,000 19,519,000
Cash and Cash Equivalents, End of Year 49,952,000 33,456,000 47,270,000
Cash paid during the year for:
Interest 672,000 624,000 540,000
Income taxes 204,000 80,000
Cash received during the period for income tax refund 127,000 222,000 381,000
Supplemental Disclosures of Non-Cash Information:
Issuance of common stock for Calnetix Power Solutions acquisition, shares 3,131,313 1,550,387
Insurance contracts financed by notes payable 635,000 443,000 0
Capital expenditures funded by capital lease borrowings 0 0 224,000
Fixed asset purchases included in accounts payable 187,000 78,000 91,000
Fixed assets purchased with a note payable $ 0 $ 0 $ 117,000
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Description of the Company and Basis of Presentation
12 Months Ended
Mar. 31, 2012
Description of the Company and Basis of Presentation
Description of the Company and Basis of Presentation

1. Description of the Company and Basis of Presentation

        Capstone Turbine Corporation (the "Company") develops, manufactures, markets and services microturbine technology solutions for use in stationary distributed power generation applications, including cogeneration (combined heat and power ("CHP"), integrated combined heat and power ("ICHP"), and combined cooling, heat and power ("CCHP")), renewable energy, natural resources and critical power supply. In addition, the Company's microturbines can be used as battery charging generators for hybrid electric vehicle applications. The Company was organized in 1988 and has been commercially producing its microturbine generators since 1998.

        The Company has incurred significant operating losses since its inception. Management anticipates incurring additional losses until the Company can produce sufficient revenue to cover its operating costs. To date, the Company has funded its activities primarily through private and public equity offerings. As of March 31, 2012, the Company had $139.0 million, or 679 units, in backlog, all of which are expected to be shipped within the next twelve months. However, the timing of shipments is subject to change based on several variables (including customer payments and customer delivery schedules), some of which are beyond the Company's control and can affect the Company's quarterly revenue and backlog. Although the Company has made progress on direct material cost reduction efforts, the Company was behind schedule in reducing costs at the end of Fiscal 2012. In addition, the Company's working capital requirements were higher than planned primarily as a result of increased inventories and warranty reserves. Management believes that existing cash and cash equivalents are sufficient to meet the Company's anticipated cash needs for working capital and capital expenditures for at least the next twelve months; however, if our anticipated cash needs change, it is possible that we may need to raise additional capital in the future. In addition, the Company obtained the right, subject to certain conditions, to require the investors in the Company's March 2012 registered direct placement to purchase up to an aggregate maximum of 19.0 million additional shares of common stock from the Company (the "Put Option") during two option exercise periods. The Company could seek to raise such funds by exercising the Put Option, by selling additional securities to the public or to selected investors, or by obtaining additional debt financing. There is no assurance that the Company will be able to obtain additional funds on commercially favorable terms, or at all. If the Company raises additional funds by issuing additional equity or convertible debt securities, the fully diluted ownership percentages of existing stockholders will be reduced. In addition, any equity or debt securities that the Company would issue may have rights, preferences or privileges senior to those of the holders of its common stock.

        The consolidated financial statements include the accounts of the Company, Capstone Turbine International, Inc., its wholly owned subsidiary that was formed in June 2004 and Capstone Turbine Singapore Pte., Ltd., its wholly owned subsidiary that was formed in February 2011, after elimination of inter-company transactions.

        The Company has conducted a subsequent events review through the date the financial statements were issued, and has concluded that there were no subsequent events requiring adjustments or additional disclosures to the Company's financial statements at March 31, 2012.

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Summary of Significant Accounting Policies
12 Months Ended
Mar. 31, 2012
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

        Cash Equivalents    The Company considers only those investments that are highly liquid and readily convertible to cash with original maturities of three months or less at date of purchase as cash equivalents.

        Restricted Cash    As of March 31, 2011, the Company had maintained $1.3 million as additional security for its line of credit with Wells Fargo. During Fiscal 2012, Wells Fargo released $1.3 million of the restricted cash.

        See Note 10—Revolving Credit Facility, for discussion of the line of credit with Wells Fargo.

        Fair Value of Financial Instruments    The carrying value of certain financial instruments, including cash equivalents, accounts receivable, accounts payable, revolving credit facility and notes payable approximate fair market value based on their short-term nature. See Note 9—Fair Value Measurements, for disclosure regarding the fair value of financial instruments.

        Accounts Receivable    The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.

        Inventories    The Company values inventories at first in first out ("FIFO") and lower of cost or market. The composition of inventory is routinely evaluated to identify slow-moving, excess, obsolete or otherwise impaired inventories. Inventories identified as impaired are evaluated to determine if write-downs are required. Included in the assessment is a review for obsolescence as a result of engineering changes in the Company's products. All inventories expected to be used in more than one year are classified as long-term.

        Depreciation and Amortization    Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the related assets, ranging from two to ten years. Leasehold improvements are amortized over the period of the lease or the estimated useful lives of the assets, whichever is shorter. Intangible assets that have finite useful lives are amortized over their estimated useful lives using the straight-line method with the exception of the backlog of 100 kW microturbines ("TA100") acquired from Calnetix Power Solutions, Inc. ("CPS"). Purchased backlog is amortized based on unit sales.

        Long-Lived Assets    The Company reviews the recoverability of long-lived assets, including intangible assets with finite lives, whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the expected future cash flows from the use of such assets (undiscounted and without interest charges) are less than the carrying value, the Company may be required to record a write-down, which is determined based on the difference between the carrying value of the assets and their estimated fair value. The Company performed an analysis as of March 31, 2012 and determined that the estimated undiscounted cash flows of the long-lived assets exceeded the carrying value of the assets and no write-down was necessary. Intangible assets include a manufacturing license, trade name, technology, backlog and customer relationships. See Note 5—Intangible Assets.

        The estimation of future cash flows requires significant estimates of factors that include future sales growth and gross margin performance. If our sales growth, gross margin performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast the carrying value of our asset groups may prove to be unrecoverable and we may incur impairment charges in the future.

        Deferred Revenue    Deferred revenue consists of deferred product and service revenue and customer deposits. Deferred revenue will be recognized when earned in accordance with the Company's revenue recognition policy. The Company has the right to retain all or part of customer deposits under certain conditions.

        Revenue    The Company's revenue consists of sales of products, parts, accessories and service, which includes FPP, net of discounts. Capstone's 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 repair and maintenance service. The Company's 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 Capstone except for warranties provided on the products and parts sold.

        Revenue is generally recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. Delivery generally occurs when the title and the risks and rewards of ownership have substantially transferred to the customer. Service performed by the Company has consisted primarily of commissioning and time and materials based contracts. The time and materials contracts are usually related to out-of-warranty units. Service revenue derived from time and materials contracts is recognized as the service is performed. The Company also provides maintenance service contracts to customers of its existing installed base. The maintenance service contracts are agreements to perform certain services to maintain a product for a specified period of time. Service revenue derived from maintenance service contracts is recognized on a straight-line basis over the contract period.

        The Company occasionally enters into agreements that contain multiple elements, such as sale of equipment, installation, engineering and/or service. For multiple-element arrangements, the Company recognizes revenue for delivered elements when the delivered item has stand-alone value to the customer, the Company's estimated selling price of each element is known and customer acceptance provisions, if any, have occurred. The Company allocates the total contract value among each element based on their relative selling prices.

        Warranty    The Company provides for the estimated costs of warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the product sold, geography of sale and the length of extended warranties sold. The Company's product warranties generally start from the delivery date and continue for up to eighteen months. Factors that affect the Company's warranty obligation include product failure rates, anticipated hours of product operations and costs of repair or replacement in correcting product failures. These factors are estimates that may change based on new information that becomes available each period. Similarly, the Company also accrues the estimated costs to address reliability repairs on products no longer in warranty when, in the Company's judgment, and in accordance with a specific plan developed by the Company, it is prudent to provide such repairs. The Company assesses the adequacy of recorded warranty liabilities quarterly and makes adjustments to the liability as necessary. When the Company has 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.

        Research and Development ("R&D")    The Company accounts for grant distributions and development funding as offsets to R&D expenses and both are recorded as the related costs are incurred. Total offsets to R&D expenses amounted to $0.8 million, $0.9 million and $1.7 million for the years ended March 31, 2012, 2011 and 2010, respectively.

        Income Taxes    Deferred income tax assets and liabilities are computed for differences between the consolidated financial statement and income tax basis of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized.

        Contingencies    The Company records an estimated loss from a loss contingency when information available prior to issuance of its financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.

        Risk Concentrations    Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. At March 31, 2012, the majority of our cash balances were held at financial institutions located in California, in accounts that are insured by the Federal Deposit Insurance Corporation. Uninsured balances aggregate to approximately $49.8 million as of March 31, 2012. The Company places its cash and cash equivalents with high credit quality institutions. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses.

        Sales to Banking Production Centre ("BPC"), one of the Company's Russian distributors, accounted for 26%, 23% and 14% of our revenue for the years ended March 31, 2012, 2011 and 2010, respectively. Sales to Pumps and Service Company ("Pumps and Service"), one of the Company's domestic distributors, accounted for 19%, 18% and 4% of our revenue for the years ended March 31, 2012, 2011 and 2010, respectively. Sales to Aquatec Maxcon Pty Ltd. ("Aquatec"), our Australian distributor, accounted for 2%, 4% and 14% of our revenue for the years ended March 31, 2012, 2011 and 2010, respectively. Additionally, BPC accounted for 44% of net accounts receivable as of March 31, 2012. BPC and Verdesis S.A. ("Verdesis"), the Company's Belgian distributor, accounted for 26% and 10%, respectively, of net accounts receivable as of March 31, 2011.

        Accounts receivable, net as of March 31, 2012 and March 31, 2011 includes $0.1 million and $9,000, respectively, of other receivables from the U.S. Department of Energy ("DOE") under grants awarded in 2009 and 2010.

        The Company recorded bad debt expense of $2.3 million, $0.2 million and $0.2 million for the years ended March 31, 2012, 2011 and 2010, respectively.

        Certain components of the Company's products are available from a limited number of suppliers. An interruption in supply could cause a delay in manufacturing, which would affect operating results adversely.

        Estimates and Assumptions    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include accounting for doubtful accounts, stock-based compensation, inventory write-downs, valuation of long-lived assets including intangible assets with finite lives, product warranties, income taxes and other contingencies. Actual results could differ from those estimates.

        Net Loss Per Common Share    Basic loss per common share is computed using the weighted-average number of common shares outstanding for the period. Diluted loss per share is also computed without consideration to potentially dilutive instruments because the Company incurred losses which would make such instruments antidilutive. Outstanding stock options at March 31, 2012, 2011 and 2010 were 10.0 million, 10.1 million and 9.2 million, respectively. Outstanding restricted stock units at March 31, 2012, 2011 and 2010 were 1.1 million, 1.5 million and 1.7 million, respectively. As of March 31, 2012, 2011 and 2010, the number of warrants excluded from diluted net loss per common share computations was approximately 26.5 million, 21.7 million and 34.1 million, respectively.

        Stock-Based Compensation    Options or stock awards are recorded at their estimated fair value at the measurement date.

        Restructuring Costs    The Company did not record severance costs during Fiscal 2012 or Fiscal 2011. In February 2010, the Company eliminated 28 employees, or 13% of its workforce. As a result of this restructuring activity, $0.2 million in severance costs were expensed during Fiscal 2010. As of March 31, 2010, the Company had approximately $44,000 in remaining severance cost accruals recorded and paid during the first quarter of Fiscal 2011.

        Segment Reporting    The Company is considered to be a single reporting segment. The business activities of this reporting segment are the development, manufacture and sale of turbine generator sets and their related parts and service. Following is the geographic revenue information based on the primary operating location of the Company's customers:

 
  Year Ended March 31,  
 
  2012   2011   2010  
 
  (In thousands)
 

United States

  $ 41,796   $ 25,630   $ 12,950  

Mexico

    7,798     5,416     4,231  

All other North America

    116     808     1,201  
               

Total North America

    49,710     31,854     18,382  

Russia

    29,722     20,655     9,592  

All other Europe

    17,452     15,375     14,279  
               

Total Europe

    47,174     36,030     23,871  

Asia

    5,692     7,811     5,325  

Australia

    2,749     3,754     8,891  

All other

    4,046     2,441     5,085  
               

Total Revenue

  $ 109,371   $ 81,890   $ 61,554  
               

        The following table summarizes the Company's revenue by product:

 
  Year Ended March 31,  
 
  2012   2011   2010  
 
  (In thousands)
 

C30

  $ 4,426   $ 6,043   $ 6,888  

C65

    28,680     23,377     17,406  

TA100

    681     5,121     1,208  

C200

    7,361     5,289     4,929  

C600

    7,567     2,172     2,801  

C800

    8,728     4,362     5,101  

C1000

    32,475     18,619     10,395  

Waste heat recovery generator

        627      

Unit upgrades

        704      
               

Total from Microturbine Products

    89,918     66,314     48,728  

Accessories, Parts and Service

    19,453     15,576     12,826  
               

Total

  $ 109,371   $ 81,890   $ 61,554  
               

        Substantially all of the Company's operating assets are in the United States.

        Recent Accounting Pronouncements    In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-05, "Presentation of Comprehensive Income", which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments included in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted this updated guidance with no impact on its consolidated financial position or results of operations.

        In May 2011, the FASB issued ASU 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS" ("ASU 2011-04"), which amends current guidance to require common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments change the wording used to describe fair value measurement requirements and disclosures, but often do not result in a change in the application of current guidance. The amendments in ASU 2011-04 are effective for interim and annual periods beginning after December 15, 2011. The company does not believe that the adoption of the provisions of ASU 2011-04 will have a material impact on the Company's consolidated financial position or results of operations.

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Inventories
12 Months Ended
Mar. 31, 2012
Inventories
Inventories

3. Inventories

        Inventories are stated at the lower of standard cost (which approximates actual cost on the first-in, first-out method) or market and consisted of the following as of March 31, 2012 and 2011:

 
  2012   2011  
 
  (In thousands)
 

Raw materials

  $ 18,476   $ 18,649  

Work in process

    151     290  

Finished goods

    1,567     1,782  
           

Total

    20,194     20,721  

Less non-current portion

    (1,313 )   (1,454 )
           

Current portion

  $ 18,881   $ 19,267  
           

        The non-current portion of inventories represents that portion of the inventories in excess of amounts expected to be used in the next twelve months. The non-current inventories are primarily comprised of repair parts for older generation products that are still in operation, but are not technologically compatible with current configurations. The weighted average age of the non-current portion of inventories on hand as of March 31, 2012 is 1.7 years. The Company expects to use the non-current portion of the inventories on hand as of March 31, 2012 over the periods presented in the following table:

Expected Period of Use
  Non-current Inventory
Balance Expected to be Used
 
 
  (In thousands)
 

13 to 24 months

  $ 680  

25 to 36 months

    413  

37 to 48 months

    220  
       

Total

  $ 1,313  
       
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Property, Plant and Equipment
12 Months Ended
Mar. 31, 2012
Property, Plant and Equipment
Property, Plant and Equipment

4. Property, Plant and Equipment

        Property, plant and equipment as of March 31, 2012 and 2011 consisted of the following:

 
  2012   2011   Estimated
Useful Life
 
  (In thousands)
   

Machinery, rental equipment, equipment, automobiles and furniture

  $ 20,506   $ 21,635   2 - 10 years

Leasehold improvements

    9,696     9,663   10 years

Molds and tooling

    4,880     4,773   2 - 5 years
             

 

    35,082     36,071    

Less, accumulated depreciation

    (30,249 )   (30,132 )  
             

Total property, plant and equipment, net

  $ 4,833   $ 5,939    
             

        Depreciation expense for property, plant and equipment was $2.6 million, $2.8 million and $3.2 million for the years ended March 31, 2012, 2011 and 2010, respectively.

        During the three months ended September 30, 2010, the Company sold ten of its microturbine rental units for approximately $430,000. The net book value of the rental equipment related to this sale was approximately $365,000. The Company recognized this sale as revenue and the cost of the units as cost of goods sold.

        During the three months ended September 30, 2009, the Company determined the depreciation of its leasehold improvements had changed from an original estimate of eight years to a revised estimate of 9.1 years because of the extension of lease terms for both manufacturing facilities located in Chatsworth and Van Nuys, California. This change in the estimated depreciation of the leasehold improvements resulted in a decrease in the annual depreciation from $1.3 million per year to $0.9 million per year in Fiscal 2010, a decrease from $0.8 million per year to $0.5 million per year in Fiscal 2011, an increase from $0.2 million per year to $0.5 million per year in Fiscal 2012, an increase from $23,000 per year to $0.4 million per year in Fiscal 2013, and an increase from $22,000 per year to $0.1 million per year in Fiscal 2014. The change in accounting estimate did not result in a change to net loss per common share for the year ended March 31, 2010.

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Intangible Assets
12 Months Ended
Mar. 31, 2012
Intangible Assets
Intangible Assets

5. Intangible Assets

        Intangible assets consisted of the following (in thousands):

 
  March 31, 2012  
 
  Weighted
Average
Amortization
Period
  Intangible
Assets,
Gross
  Accumulated
Amortization
  Intangible
Assets,
Net
 

Manufacturing license

  17 years   $ 3,700   $ 3,437   $ 263  

Technology

  10 years     2,240     485     1,755  

Parts and service customer relationships

  5 years     1,080     468     612  

TA100 customer relationships

  2 years     617     617      

Backlog

  Various     490     309     181  

Trade name

  1.2 years     69     69      
                   

Total

      $ 8,196   $ 5,385   $ 2,811  
                   

 

 
  March 31, 2011  
 
  Weighted
Average
Amortization
Period
  Intangible
Assets,
Gross
  Accumulated
Amortization
  Intangible
Assets,
Net
 

Manufacturing license

  17 years   $ 3,700   $ 3,388   $ 312  

Technology

  10 years     2,240     261     1,979  

Parts and service customer relationships

  5 years     1,080     252     828  

TA100 customer relationships

  2 years     617     360     257  

Backlog

  Various     490     292     198  

Trade name

  1.2 years     69     69      
                   

Total

      $ 8,196   $ 4,622   $ 3,574  
                   

        Amortization expense for the intangible assets was $0.8 million, $1.1 million, and $0.3 million for the years ended March 31, 2012, 2011 and 2010.

        Expected future amortization expense of intangible assets as of March 31, 2012 is as follows:

Year Ending March 31,
  Amortization
Expense
 
 
  (In thousands)
 

2013

  $ 670  

2014

    489  

2015

    453  

2016

    273  

2017

    273  

Thereafter

    653  
       

Total expected future amortization

  $ 2,811  
       

        On February 1, 2010, the Company acquired the TA100 microturbine generator product line (the "MPL") from CPS to expand the Company's microturbine product line and to gain relationships with distributors to supply the Company's products. See Note 14—Acquisition, for discussion of the MPL acquired from CPS. The acquired intangible assets include technology, parts and service customer relationships, the MPL customer relationships, backlog and trade name. These intangible assets have estimated useful lives between one and ten years. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach. Purchased identifiable intangible assets, except for backlog, are amortized on a straight-line basis over their respective useful lives and classified as a component of cost of goods sold or selling, general and administrative expenses based on the function of the underlying asset. Backlog is amortized on a per unit basis as the backlog units are sold and presented as a component of cost of goods sold.

        The manufacturing license provides the Company with the ability to manufacture recuperator cores previously purchased from Solar Turbines Incorporated ("Solar"). The Company is required to pay a per-unit royalty fee over a seventeen-year period for cores manufactured and sold by the Company using the technology. Royalties of approximately $72,800, $62,800, and $56,000 were earned by Solar for the years ended March 31, 2012, 2011 and 2010, respectively. Earned royalties of approximately $17,500 and $17,700 were unpaid as of March 31, 2012 and 2011, respectively, and are included in accrued expenses in the accompanying balance sheets.

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Accrued Warranty Reserve
12 Months Ended
Mar. 31, 2012
Accrued Warranty Reserve
Accrued Warranty Reserve

6. Accrued Warranty Reserve

        Changes in the accrued warranty reserve are as follows as of March 31, 2012, 2011 and 2010:

 
  2012   2011   2010  
 
  (In thousands)
 

Balance, beginning of the period

  $ 1,081   $ 1,036   $ 2,344  

Standard warranty provision

    3,790     2,015     492  

Changes for accrual related to reliability repair programs

    437     74     844  

Deductions for warranty claims

    (3,814 )   (2,044 )   (2,644 )
               

Balance, end of the period

  $ 1,494   $ 1,081   $ 1,036  
               
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Income Taxes
12 Months Ended
Mar. 31, 2012
Income Taxes
Income Taxes

7. Income Taxes

        ASC 740, Income Taxes clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on management's evaluation, the total amount of unrecognized tax benefits related to research and development credits as of March 31, 2012 and 2011 was $2.1 million and $2.0 million, respectively. There were no interest or penalties related to unrecognized tax benefits as of March 31, 2012 or March 31, 2011. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of March 31, 2012 and March 31, 2011 was $2.1 million and $2.0 million, respectively. However, this impact would be offset by an equal increase in the deferred tax valuation allowance as the Company has recorded a full valuation allowance against its deferred tax assets because of uncertainty as to future realization. The fully reserved recognized federal and state deferred tax assets related to research and development credits balance as of March 31, 2012 and 2011 was $9.1 million and $9.0 million, and $7.9 million and $7.6 million, respectively.

        A reconciliation of the beginning and ending amount of total gross unrecognized tax benefits is as follows (in thousands):

Balance at March 31, 2009

  $ 1,375  

Gross increase related to prior year tax positions

    325  

Gross increase related to current year tax positions

    106  

Lapse of statute of limitations

     
       

Balance at March 31, 2010

  $ 1,806  

Gross increase related to prior year tax positions

     

Gross increase related to current year tax positions

    167  

Lapse of statute of limitations

     
       

Balance at March 31, 2011

  $ 1,973  

Gross increase related to prior year tax positions

     

Gross increase related to current year tax positions

    175  

Lapse of statute of limitations

     
       

Balance at March 31, 2012

  $ 2,148  
       

        The Company files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for the years before 2008. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities. The Company's evaluation was performed for the tax years which remain subject to examination by major tax jurisdictions as of March 31, 2012. The Company settled its Internal Revenue Service audit of its U.S. federal tax return for the fiscal year ended March 31, 2010 during the third quarter of the fiscal year ended March 31, 2012, with no findings that resulted in a change to the Company's financial statements. When applicable, the Company accounts for interest and penalties generated by tax contingencies as interest and other expense, net in the statements of operations.

        The Company's deferred tax assets and liabilities consisted of the following at March 31, 2012 and 2011:

 
  2012   2011  
 
  (In thousands)
 

Deferred tax assets:

             

Inventories

  $ 1,492   $ 1,213  

Warranty reserve

    597     427  

Deferred revenue

    466     326  

Net operating loss ("NOL") carryforwards

    215,545     212,705  

Tax credit carryforwards

    17,013     16,573  

Depreciation, amortization and impairment loss

    4,252     3,945  

Other

    5,434     4,505  
           

Deferred tax assets

    244,799     239,694  

Valuation allowance for deferred tax assets

    (234,432 )   (231,009 )
           

Deferred tax assets, net of valuation allowance

    10,367     8,685  

Deferred tax liabilities:

             

Federal benefit of state taxes

    (10,367 )   (8,685 )
           

Net deferred tax assets

  $   $  
           

        Because of the uncertainty surrounding the timing of realizing the benefits of favorable tax attributes in future income tax returns, the Company has placed a valuation allowance against its deferred income tax assets. The change in valuation allowance for Fiscal 2012, 2011 and 2010 was $3.4 million, $4.3 million and $28.8 million, respectively.

        The Company's NOL and tax credit carryforwards for federal and state income tax purposes at March 31, 2012 were as follows (in thousands):

 
  Amount   Expiration
Period
 
  (In thousands)

Federal NOL

  $ 572,543   2018 - 2032

State NOL

  $ 236,198   2018 - 2032

Federal tax credit carryforwards

  $ 9,109   2018 - 2032

State tax credit carryforwards

  $ 7,904   Indefinite

        The NOLs and federal and state tax credits can be carried forward to offset future taxable income, if any. Utilization of the net operating losses and tax credits are subject to an annual limitation of approximately $57.3 million due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The federal tax credit carryforward is a research and development credit, which may be carried forward. The state tax credits consist of a research and development credit can be carried forward indefinitely.

        Tax benefits arising from the disposition of certain shares issued upon exercise of stock options within two years of the date of grant or within one year of the date of exercise by the option holder ("Disqualifying Dispositions") provide the Company with a tax deduction equal to the difference between the exercise price and the fair market value of the stock on the date of exercise. Approximately $27.7 million of the Company's federal and state NOL carryforwards as of March 31, 2012 were generated by Disqualifying Dispositions of stock options and exercises of nonqualified stock options. Upon realization, if any, tax benefits of approximately $10.5 million associated with these stock options would be excluded from the provision for income taxes and credited directly to additional paid-in-capital.

        A reconciliation of income tax (benefit) expense to the federal statutory rate follows:

 
  Year Ended March 31,  
 
  2012   2011   2010  
 
  (In thousands)
 

Federal income tax at the statutory rate

  $ (6,317 ) $ (12,997 ) $ (22,883 )

State taxes, net of federal effect

    (727 )   (1,390 )   (2,749 )

Foreign taxes

    313     461     322  

R&D tax credit

    (455 )   (367 )   (4,037 )

Impact of state rate change

    (693 )   1,541      

Warrant liability

    (5,301 )   9,981      

Expiring NOL

    9,765     6,278      

Valuation allowance

    3,423     (4,343 )   28,817  

Other

    178     1,076     471  
               

Income tax expense (benefit)

  $ 186   $ 240   $ (59 )
               
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Stockholders' Equity
12 Months Ended
Mar. 31, 2012
Stockholders' Equity
Stockholders' Equity

8. Stockholders' Equity

Stock Plans

1993 Incentive Stock Plan and 2000 Equity Incentive Plan

        In 1993, the Board of Directors adopted and the stockholders approved the 1993 Incentive Stock Plan ("1993 Plan"). A total of 7,800,000 shares of common stock were initially reserved for issuance under the 1993 Plan. In June 2000, the Company adopted the 2000 Equity Incentive Plan ("2000 Plan") as a successor plan to the 1993 Plan. The 2000 Plan provides for awards of up to 11,180,000 shares of common stock, plus 7,800,000 shares previously authorized under the 1993 Plan; provided, however, that the maximum aggregate number of shares which may be issued is 18,980,000 shares. The 2000 Plan is administered by the Compensation Committee designated by the Board of Directors. The Compensation Committee's authority includes determining the number of incentive awards and vesting provisions. As of March 31, 2012, there were 395,952 shares available for future grant.

        As of March 31, 2012, the Company had outstanding 3,300,000 non-qualified common stock options issued outside of the 2000 Plan. The Company granted 250,000 of these stock options during the first quarter of Fiscal 2012 and 3,050,000 of the options prior to Fiscal 2008, with exercise prices equal to the fair market value of the Company's common stock on the grant date as inducement grants to new officers and employees of the Company. Included in the 3,300,000 options were 2,000,000 options granted to the Company's President and Chief Executive Officer, 850,000 options granted to the Company's Executive Vice President of Sales and Marketing, 250,000 options granted to the Company's Senior Vice President of Program Management and 200,000 options granted to the Company's Senior Vice President of Human Resources. Although the options were not granted under the 2000 Plan, they are governed by terms and conditions identical to those under the 2000 Plan. All options are subject to the following vesting provisions: one-fourth vests one year after the issuance date and 1/48th vests on the first day of each full month thereafter, so that all shall be vested on the first day of the 48th month after the issuance date. All outstanding options have a contractual term of ten years.

        Options or stock awards issued to non-employees who are not directors of the Company are recorded at their estimated fair value at the measurement date using the Black-Scholes valuation method. There were no such shares issued during the years ended March 31, 2012 and 2011. During the year ended March 31, 2010, the Company issued options to purchase 250,000 shares of common stock to consultants under the 2000 Plan.

        In June 2000, the Company adopted the 2000 Employee Stock Purchase Plan (the "Purchase Plan"), which provides for the granting of rights to purchase common stock to regular full and part-time employees or officers of the Company and its subsidiaries. Under the Purchase Plan, shares of common stock will be issued upon exercise of the purchase rights. Under the Purchase Plan, an aggregate of 900,000 shares may be issued pursuant to the exercise of purchase rights. In August 2010, the Board of Directors adopted and the stockholders approved an amendment and restatement of the Purchase Plan. The amendment and restatement includes an increase of 500,000 shares of common stock that will be available under the Purchase Plan and extends the term of the Purchase Plan for a period of ten years. As amended, the Purchase Plan will continue by its terms through June 30, 2020, unless terminated sooner, and will reserve for issuance a total of 1,400,000 shares of common stock. The maximum amount that an employee can contribute during a purchase right period is $25,000 or 15% of the employee's regular compensation. Under the Purchase Plan, the exercise price of a purchase right is 95% of the fair market value of such shares on the last day of the purchase right period. The fair market value of the stock is its closing price as reported on the Nasdaq Global Market on the day in question. During the fiscal years ended March 31, 2012, 2011 and 2010, the Company issued a total of 21,338 shares, 25,133 shares and 51,313 shares of stock, respectively, to regular full and part-time employees or officers of the Company who elected to participate in the Purchase Plan. As of March 31, 2012, there were 464,968 shares available for future grant under the Purchase Plan.

Valuation and Expense Information

        For the fiscal years ended March 31, 2012, 2011 and 2010, the Company recognized stock-based compensation expense of $1.7 million, $2.4 million and $4.6 million, respectively. The following table summarizes, by statement of operations line item, stock-based compensation expense for the years ended March 31, 2012, 2011 and 2010 (in thousands):

 
  Fiscal Year
Ended March 31,
 
 
  2012   2011   2010  

Cost of goods sold

  $ 136   $ 209   $ 238  

Research and development

    324     211     643  

Selling, general and administrative

    1,192     1,998     3,745  
               

Stock-based compensation expense

  $ 1,652   $ 2,418   $ 4,626  
               

        The Company calculated the estimated fair value of each stock option on the date of grant using the Black-Scholes valuation method and the following weighted-average assumptions:

 
  Fiscal Year
Ended March 31,
 
 
  2012   2011   2010  

Risk-free interest rates

    1.9 %   3.1 %   2.3 %

Expected lives (in years)

    5.0     5.0     6.2  

Dividend yield

    %   %   %

Expected volatility

    89.0 %   97.9 %   90.5 %

Weighted average grant date fair value of options granted during the period

  $ 1.19   $ 1.02   $ 0.95  

        The Company's computation of expected volatility for the fiscal years ended March 31, 2012, 2011 and 2010 was based on historical volatility. The expected life, or term, of options granted is derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding. Management has selected a risk-free rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the options' expected term. Stock-based compensation expense is based on awards that are ultimately expected to vest and accordingly, stock-based compensation recognized in the fiscal years ended March 31, 2012, 2011 and 2010 has been reduced by estimated forfeitures. Management's estimate of forfeitures is based on historical forfeitures.

        Information relating to all outstanding stock options, except for rights associated with the Purchase Plan, is as follows:

 
  Shares   Weighted-
Average
Exercise
Price
  Weighted-
Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
Value
 
 
   
   
  (in years)
   
 

Options outstanding at March 31, 2011

    10,145,990   $ 1.51              

Granted

    833,300   $ 1.71              

Exercised

    (764,166 ) $ 0.99              

Forfeited, cancelled or expired

    (175,473 ) $ 10.17              
                       

Options outstanding at March 31, 2012

    10,039,651   $ 1.41     5.7   $ 492,656  

Options fully vested at March 31, 2012 and those expected to vest beyond March 31, 2012

    9,942,242   $ 1.41     5.7   $ 492,124  

Options exercisable at March 31, 2012

    8,216,080   $ 1.44     5.2   $ 425,026  
                   

        The Company recorded expense of approximately $0.9 million, $1.5 million and $2.6 million associated with its stock options for the fiscal years ended March 31, 2012, 2011 and 2010, respectively. The total intrinsic value of option exercises during the fiscal years ended March 31, 2012, 2011 and 2010, was approximately $0.6 million, $35,000 and $0.1 million, respectively. As of March 31, 2012, there was approximately $1.4 million of total compensation cost related to unvested stock option awards that is expected to be recognized as expense over a weighted average period of 2.2 years.

        During the fiscal years ended March 31, 2012, 2011 and 2010 the Company issued a total of 77,971, 109,554 and 57,532 shares of stock, respectively, to non-employee directors who elected to take payment of all or any part of the directors' fees in stock in lieu of cash. For each term of the Board of Directors (beginning on the date of an annual meeting of stockholders and ending on the date immediately preceding the next annual meeting of stockholders), a non-employee director may elect to receive, in lieu of all or any portion of their annual retainer or committee fee cash payment, a stock award. The shares of stock were valued based on the closing price of the Company's common stock on the date of grant, and the weighted average grant date fair value for these shares during each of the fiscal years ended March 31, 2012, 2011 and 2010 was $1.20, $0.91 and $1.15, respectively.

        The following table outlines the restricted stock unit activity:

Restricted Stock Units
  Shares   Weighted
Average
Grant Date
Fair Value
 

Nonvested restricted stock units outstanding at March 31, 2011

    1,514,198   $ 1.81  

Granted

    489,304   $ 1.47  

Vested and issued

    (699,107 ) $ 1.41  

Forfeited

    (161,133 ) $ 1.09  
             

Nonvested restricted stock units outstanding at March 31, 2012

    1,143,262   $ 1.20  
           

Restricted stock units expected to vest beyond March 31, 2012

    1,059,074   $ 1.20  
           

        The restricted stock units were valued based on the closing price of the Company's common stock on the date of issuance, and compensation cost is recorded on a straight-line basis over the vesting period. The related compensation expense recognized has been reduced by estimated forfeitures. The Company's estimate of forfeitures is based on historical forfeitures. The restricted stock units vest in equal installments over a period of two or four years. For restricted stock units with two year vesting, one-half of such units vest one year after the issuance date and the other half vest two years after the issuance date. For restricted stock units with four year vesting, one-fourth vest annually beginning one year after the issuance date.

        The total fair value of restricted stock units vested and issued by the Company during the years ended March 31, 2012, 2011 and 2010 was approximately $1.1 million, $0.8 million and $0.9 million, respectively. The Company recorded expense of approximately $0.7 million, $1.0 million and $1.0 million associated with its restricted stock awards and units for the fiscal years ended March 31, 2012, 2011 and 2010, respectively. As of March 31, 2012, there was approximately $0.9 million of total compensation cost related to unvested restricted stock units that is expected to be recognized as expense over a weighted average period of 2.3 years.

Stockholder Rights Plan

        The Company has entered into a rights agreement, as amended, with Mellon Investor Services LLC, as rights agent. In connection with the rights agreement, the Company's board of directors authorized and declared a dividend distribution of one preferred stock purchase right for each share of the Company's common stock authorized and outstanding. Each right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $10.00 per unit, subject to adjustment. The description and terms of the rights are set forth in the rights agreement. Initially, the rights are attached to all common stock certificates representing shares then outstanding, and no separate rights certificates are distributed. Subject to certain exceptions specified in the rights agreement, the rights will separate from the common stock and will be exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of common stock, other than as a result of repurchases of stock by the Company or certain inadvertent actions by institutional or certain other stockholders, or (ii) 10 days (or such later date as the Company's Board of Directors shall determine) following the commencement of a tender offer or exchange offer (other than certain permitted offers described in the rights agreement) that would result in a person or group beneficially owning 20% or more of the outstanding shares of the Company's common stock. On June 9, 2011, the Company's Board of Directors unanimously approved a second amendment to the rights agreement, which was approved by the stockholders in August 2011. The second amendment adds an additional "sunset provision," which provides that the rights agreement will expire on the 30th day after the 2014 annual meeting of stockholders unless continuation of the rights agreement is approved by the stockholders at that meeting. The second amendment also provides for an update to the definition of "Beneficial Owner" to include derivative interests in the calculation of a stockholder's ownership. In addition, the second amendment clarifies the manner in which the exchange provision of the rights agreement shall be effected. The rights are intended to protect the Company's stockholders in the event of an unfair or coercive offer to acquire the Company. The rights, however, should not affect any prospective offeror willing to make an offer at a fair price and otherwise in the best interests of the Company and its stockholders, as determined by the Board of Directors. The rights should also not interfere with any merger or other business combination approved by the Board of Directors.

Underwritten and Registered Direct Placement of Common Stock

        Effective March 5, 2012, the Company completed a registered direct placement in which it sold 22.6 million shares of the Company's common stock, par value $.001 per share, and warrants to purchase 22.6 million shares of common stock with an initial exercise price of $1.55 per share, at a price of $1.11 per unit. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock. The warrants expire on October 31, 2013. In addition, the Company obtained the right to require investors in the offering to purchase up to an aggregate maximum of 19.0 million additional shares of common stock from the Company (the "Put Option") during two option exercise periods, the first such option exercise period beginning September 10, 2012 and the second such option exercise period beginning March 4, 2013. The Put Option is subject to certain conditions which may reduce the number of shares that can be sold or eliminate the Put Option. These conditions include a minimum volume-weighted average price (VWAP) and a minimum average trading volume of the Company's common shares during the 30 trading days prior to the exercise of the Put Option. The March 2012 sale resulted in gross proceeds of approximately $25.0 million and proceeds net of direct incremental costs, of approximately $23.1 million.

        Effective January 9, 2012, the Company entered into warrant exercise agreements with two holders of warrants issued by the Company on January 24, 2007 (the "2007 Warrants") to purchase an aggregate of 1.6 million shares of the Company's common stock. Pursuant to the warrant exercise agreements, the holders agreed to exercise the 2007 Warrants at the existing exercise price of $1.17 in exchange for fees in the aggregate amount of approximately $0.3 million. The net proceeds to the Company in connection with the exercise of these 2007 Warrants was approximately $1.6 million.

        Effective November 21, 2011, the Company entered into warrant exercise agreements with (i) two holders of warrants issued by the Company on September 17, 2009 (the "September 2009 Warrants") to purchase an aggregate of 5.8 million shares of the Company's common stock, (ii) four holders of warrants issued by the Company on September 17, 2008 (the "2008 Warrants") to purchase an aggregate of 2.4 million shares of the Company's common stock and (iii) six holders of 2007 Warrants to purchase an aggregate of 5.2 million shares of the Company's common stock. Pursuant to the warrant exercise agreements, the September 2009 Warrant holders agreed to exercise the September 2009 Warrants described above at the existing exercise price of $1.34 in exchange for a fee of an aggregate amount of approximately $5.4 million, the 2008 Warrant holders agreed to exercise the 2008 Warrants described above at the existing exercise price of $1.60 in exchange for a fee of an aggregate amount of approximately $2.2 million and the 2007 Warrant holders agreed to exercise the 2007 Warrants described above at the existing exercise price of $1.17 in exchange for a fee of an aggregate amount of approximately $1.8 million. The net proceeds to the Company in connection with the exercise of the September 2009 Warrants, the 2008 Warrants and the 2007 Warrants was approximately $8.4 million. 2008 Warrants to purchase an additional 0.5 million shares were subsequently exercised on November 22, 2011 at the existing exercise price of $1.60 in exchange for a fee of approximately $0.5 million, resulting in net proceeds of approximately $0.4 million.

        Effective March 9, 2011, the Company entered into warrant exercise agreements with (i) the only two holders of warrants issued by the Company on May 7, 2009 (the "May 2009 Warrants") to purchase an aggregate of 3.6 million shares of the Company's common stock, (ii) one holder of 2008 Warrants to purchase 0.4 million shares of the Company's common stock and (iii) four holders of 2007 Warrants to purchase an aggregate of 8.5 million shares of the Company's common stock. Pursuant to the warrant exercise agreements, the May 2009 Warrant holders agreed to exercise the May 2009 Warrants described above at the existing exercise price of $0.95 per share in exchange for a fee of an aggregate amount of approximately $1.0 million, the 2008 Warrant holder agreed to exercise the 2008 Warrants described above at the existing exercise price of $1.60 per share in exchange for a fee of an aggregate amount of approximately $0.2 million and the 2007 Warrant holders agreed to exercise the 2007 Warrants described above at the existing exercise price of $1.17 per share in exchange for a fee of an aggregate amount of approximately $1.2 million. The net proceeds to the Company in connection with the exercise of the May 2009 Warrants, the 2008 Warrants and the 2007 Warrants, after deducting expenses of approximately $0.4 million, was approximately $11.2 million. Immediately prior to the exercise of these warrants, the Company revalued the warrants and recorded a charge of $6.9 million to operations during the three months ended March 31, 2011. The induced exercise of the warrants resulted in a reduction of the charge to operations by $1.0 million during the three months ended March 31, 2011. The exercise of these warrants resulted in a reduction of the warrant liability of $9.7 million.

        Effective February 24, 2010, the Company completed an underwritten public offering in which it sold 43.8 million shares of the Company's common stock at a price of $1.05 per share. The sale resulted in gross proceeds of approximately $46.0 million and proceeds, net of direct transaction costs, of approximately $42.5 million.

        Effective September 17, 2009, the Company entered into warrant exercise agreements with the holders of May 2009 Warrants to purchase an aggregate of 7.2 million shares of the Company's common stock. Pursuant to the warrant exercise agreements, the Company agreed to issue and sell to these May 2009 Warrant holders September 2009 Warrants to purchase an aggregate of 5.8 million shares of the Company's common stock in exchange for the exercise in full of the May 2009 Warrants at the reduced exercise price of $0.90 per share. In connection with the induced exercise of the warrants, the Company modified the warrant agreements, which resulted in a charge of $3.8 million to operations during the three months ended September 30, 2009. The offering price of the September 2009 Warrants acquired by the holders was $0.0625 per share of common stock, and the initial exercise price of the September 2009 Warrants was $1.42 per share. The September 2009 Warrants were exercisable during the period beginning on September 17, 2009 and continuing through May 7, 2016 and included certain weighted average anti-dilution provisions, subject to certain limitations. The sale of the September 2009 Warrants resulted in gross proceeds of approximately $0.4 million and the Company recorded a $6.4 million warrant liability, which represented the fair value of the September 2009 Warrants on the date of issuance, resulting in a charge of $6.0 million to operations during the three months ended September 30, 2009. The exercise of the May 2009 Warrants resulted in gross proceeds of approximately $6.5 million. As discussed above, on November 21, 2011, September 2009 Warrants to purchase 5.8 million shares were exercised resulting in proceeds of approximately $2.3 million. The February 2010 underwritten public offering triggered certain anti-dilution provisions in the warrants outstanding prior to the offering. As a result, the exercise price of each warrant previously outstanding was adjusted. As of March 31, 2012, none of the September 2009 Warrants were outstanding. See Note 9—Fair Value Measurements for disclosure regarding the fair value of financial instruments.

        Effective May 7, 2009, the Company completed a registered direct placement in which it sold 14.4 million shares of the Company's common stock and May 2009 Warrants to purchase 10.8 million shares of common stock with an initial exercise price of $0.95 per share, at a unit price of $0.865 per unit. Each unit consisted of one share of common stock and a warrant to purchase 0.75 shares of common stock. The seven-year May 2009 Warrants were immediately exercisable and included certain weighted average anti-dilution provisions, subject to certain limitations. The sale resulted in gross proceeds of approximately $12.5 million and proceeds, net of direct transaction costs, of approximately $11.2 million. As discussed above, on March 9, 2011, May 2009 Warrants to purchase 3.6 million shares were exercised resulting in proceeds of approximately $2.4 million. As of March 31, 2012, none of the May 2009 Warrants were outstanding. During Fiscal 2011, the May 2009 Warrants were classified as liabilities under the caption "Warrant liability" in the accompanying balance sheets and recorded at estimated fair value with the corresponding charge under the caption "Change in fair value of warrant liability" in the accompanying statements of operations. See Note 9—Fair Value Measurements for disclosure regarding the fair value of financial instrument.

        Effective September 23, 2008, the Company completed a registered direct placement in which it sold 21.5 million shares of the Company's common stock, par value $.001 per share, and warrants to purchase 6.4 million shares of common stock with an initial exercise price of $1.92 per share, at a price of $14.90 per unit. Each unit consisted of ten shares of common stock and warrants to purchase three shares of common stock. The five-year warrants were immediately exercisable and included certain weighted average anti-dilution provisions, subject to certain limitations. Additionally, the Company has the right, at its option, to accelerate the expiration of the exercise period of the outstanding warrants issued in the offering, in whole or from time to time in part, at any time after the second anniversary of the original issue date of the warrants, subject to certain limitations. The sale resulted in gross proceeds of approximately $32.0 million and proceeds, net of direct incremental costs, of the offering of approximately $29.5 million. As discussed above, on March 9, 2011, warrants to purchase 0.4 million shares were exercised resulting in proceeds of approximately $0.5 million. During Fiscal 2012, warrants to purchase 3.6 million shares were exercised resulting in gross proceeds of approximately $3.1 million. The February 2010, September 2009 and May 2009 underwritten public offerings triggered certain anti-dilution provisions in the warrants outstanding prior to each of the offerings. As a result, the number of shares to be received upon exercise and the exercise price of each warrant previously outstanding were adjusted. Following such adjustments, warrants issued in September 2008 and still outstanding as of March 31, 2012 represented warrants to purchase 3.9 million shares at an exercise price of $1.54 per share. These warrants are classified as liabilities under the caption "Warrant liability" in the accompanying balance sheets and recorded at estimated fair value with the corresponding charge under the caption "Change in fair value of warrant liability" in the accompanying statement of operations. See Note 9—Fair Value Measurements for disclosure regarding the fair value of financial instruments.

        Effective January 24, 2007, the Company completed a registered direct placement in which it sold 40 million shares of the Company's common stock, par value $.001 per share, and warrants to purchase 20 million shares of common stock with an initial exercise price of $1.30 per share, at a price of $1.14 per unit. Each unit consisted of one share of common stock and warrants to purchase 0.5 shares of common stock. The five-year warrants were immediately exercisable and included certain weighted average anti-dilution provisions, subject to certain limitations. During Fiscal 2009, warrants to purchase 3.2 million shares were exercised resulting in proceeds of approximately $4.1 million. During Fiscal 2011, warrants to purchase 8.5 million shares were exercised resulting in gross proceeds of approximately $8.7 million. As discussed above, on January 9, 2012, warrants to purchase 1.6 million shares were exercised resulting in net proceeds of approximately $1.6 million. During Fiscal 2012, warrants to purchase 5.3 million shares were exercised resulting in gross proceeds of approximately $6.4 million and proceeds, net of direct transaction costs, of approximately $6.0 million. In addition, during Fiscal 2012 warrants to purchase 1.2 million shares expired pursuant to the terms of the warrant agreement. The February 2010 and May 2009 underwritten public offerings triggered certain anti-dilution provisions in the warrants outstanding prior to the offering. As a result, the number of shares to be received upon exercise and the exercise price of each warrant previously outstanding were adjusted. As of March 31, 2012, none of the January 2007 Warrants were outstanding. See Note 9—Fair Value Measurements for disclosure regarding the fair value of financial instruments.

        The following table outlines the warrant activity:

 
  March 2012   September 2009   May 2009   September 2008   January 2007  
 
  Shares   Shares   Shares   Shares   Shares  

Balance, March 31, 2009

                6,445,698     15,303,509  

Issuance of warrants

        5,780,347     10,838,151          

Warrants exercised

            (7,225,434 )        

Anti-dilution provision

                1,241,097     1,700,389  
                       

Balance, March 31, 2010

        5,780,347     3,612,717     7,686,795     17,003,898  

Issuance of warrants

                48,042      

Warrants exercised

            (3,612,717 )   (392,190 )   (8,468,324 )

Anti-dilution provision

                     
                       

Balance, March 31, 2011

        5,780,347         7,342,647     8,535,574  

Issuance of warrants

    22,550,000                  

Warrants exercised

        (5,780,347 )       (3,579,239 )   (7,298,234 )

Anti-dilution provision

                146,626      

Warrants expired

                    (1,237,340 )
                       

Balance, March 31, 2012

    22,550,000             3,910,034      
                       
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Fair Value Measurements
12 Months Ended
Mar. 31, 2012
Fair Value Measurements
Fair Value Measurements

9. Fair Value Measurements

        The FASB has established a framework for measuring fair value in generally accepted accounting principles. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:

  •         Level 1.    Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

            Level 2.    Inputs to the valuation methodology include:

    • Quoted prices for similar assets or liabilities in active markets

      Quoted prices for identical or similar assets or liabilities in inactive markets

      Inputs other than quoted prices that are observable for the asset or liability

      Inputs that are derived principally from or corroborated by observable market data by correlation or other means
  •         If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

            Level 3.    Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

        The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

        The table below presents our assets and liabilities that are measured at fair value on a recurring basis during Fiscal 2012 and are categorized using the fair value hierarchy (in thousands):

 
  Fair Value Measurements at March 31, 2012  
 
  Total   Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

  $ 39,790   $ 39,790   $   $  

Warrant liability

  $ (791 ) $   $   $ (791 )

        Cash equivalents includes cash held in money market and U.S. Treasury Funds at March 31, 2012.

        The table below presents our assets and liabilities that are measured at fair value on a recurring basis during Fiscal 2011 and are categorized using the fair value hierarchy (in thousands):

 
  Fair Value Measurements at March 31, 2011  
 
  Total   Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Quoted Prices in
Active Markets for
Identical Assets
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

  $ 8,289   $ 8,289   $   $  

Restricted cash

  $ 1,250   $ 1,250   $   $  

Warrant liability

  $ (20,772 ) $   $   $ (20,772 )

Basis for Valuation

        The carrying values reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. As the Company's obligations under the Credit Facility are based on adjustable market interest rates, the Company has determined that the carrying value approximates the fair value. The carrying values and estimated fair values of these obligations are as follows (in thousands):

 
  As of March 31, 2012   As of March 31, 2011  
 
  Carrying
Value
  Estimated
Fair Value
  Carrying
Value
  Estimated
Fair Value
 

Obligations under the credit facility

  $ 10,431   $ 10,431   $ 7,080   $ 7,080  

        The Company adopted the amended provisions of ASC 815 on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in ASC 815. Warrants issued by the Company in prior periods with certain antidilution provisions for the holder are no longer considered indexed to the Company's own stock, and therefore no longer qualify for the scope exception and must be accounted for as derivatives. These warrants were reclassified as liabilities under the caption "Warrant liability" and recorded at estimated fair value at each reporting date, computed using the Monte Carlo simulation valuation method. The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants, at which time the liability will be reclassified to stockholders' equity, or expiration of the warrants. Changes in the liability from period to period are recorded in the Statements of Operations under the caption "Change in fair value of warrant liability."

        The fair value of the Company's warrant liability (see Note 8—Stockholders' Equity—Underwritten and Registered Direct Placement of Common Stock) recorded in the Company's financial statements is determined using the Monte Carlo simulation valuation method and the quoted price of the Company's common stock in an active market, a Level 3 measurement. Volatility is based on the actual market activity of the Company's stock. The expected life is based on the remaining contractual term of the warrants and the risk free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants' expected life.

        The Company calculated the estimated fair value of warrants on the date of issuance and at each subsequent reporting date using the following assumptions:

 
  Fiscal Year Ended
March 31, 2012
  Fiscal Year Ended
March 31, 2011

Risk-free interest rates range

  0.0% to 1.5%   0.2% to 2.1%

Contractual term (in years)

  0.1 years to 4.9 years   0.8 years to 5.1 years

Expected volatility range

  60.5% to 84.9%   60.0% to 92.3%

        From time to time, the Company sells common stock warrants that are derivative instruments. The Company does not enter into speculative derivative agreements and does not enter into derivative agreements for the purpose of hedging risks.

        As discussed above, the Company adopted authoritative guidance issued by the FASB on contracts in an entity's own equity that requires the common stock warrants to be classified as liabilities at their estimated fair value with changes in fair value at each reporting date recognized in the statement of operations. The table below provides a reconciliation of the beginning and ending balances for the warrant liability which is measured at fair value using significant unobservable inputs (Level 3) (in thousands):

Warrant liability:

       

Balance as of April 1, 2009

  $ 8,163  

Total realized and unrealized (gains) losses:

       

Expense included in change in fair value of warrant liability

    22,853  

Purchases, issuances and settlements

    (4,213 )
       

Balance as of March 31, 2010

  $ 26,803  

Total realized and unrealized (gains) losses:

       

Expense included in change in fair value of warrant liability

    3,667  

Purchases, issuances and settlements

    (9,698 )
       

Balance at March 31, 2011

  $ 20,772  

Total realized and unrealized (gains) losses:

       

Income included in change in fair value of warrant liability

    (13,872 )

Purchases, issuances and settlements

    (6,109 )
       

Balance at March 31, 2012

  $ 791  
       
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Revolving Credit Facility
12 Months Ended
Mar. 31, 2012
Revolving Credit Facility
Revolving Credit Facility

10. Revolving Credit Facility

        The Company maintains two Credit and Security Agreements, as amended (the "Agreements"), with Wells Fargo Bank, National Association ("Wells Fargo"), which provide the Company with a line of credit of up to $15.0 million in the aggregate (the "Credit Facility"). The amount actually available to the Company may be less and may vary from time to time depending on, among other factors, the amount of its eligible inventory and accounts receivable. As security for the payment and performance of the Credit Facility, the Company granted a security interest in favor of Wells Fargo in substantially all of the assets of the Company. The Agreements will terminate in accordance with their terms on September 30, 2014 unless terminated sooner.

        The Agreements include affirmative covenants as well as negative covenants that prohibit a variety of actions without Wells Fargo's consent, including covenants that limit the Company's ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or similar transaction or purchase all or substantially all of the assets or stock of another entity, (d) pay dividends on, or purchase, acquire, redeem or retire shares of, the Company's capital stock, (e) sell, assign, transfer or otherwise dispose of all or substantially all of the Company's assets, (f) change the Company's accounting method or (g) enter into a different line of business. Furthermore, the Agreements contain financial covenants, including (a) a requirement not to exceed specified levels of losses, (b) a requirement to maintain a substantial minimum monthly cash balance to outstanding line of credit advances based upon the Company's financial performance, and (c) limitations on the Company's annual capital expenditures.

        Several times since entering into the Agreements, the Company was in noncompliance with certain covenants under the Credit Facility. In connection with each event of noncompliance, Wells Fargo waived the event of default and, on several occasions, the Company amended the Agreements in response to the default and waiver. The following summarizes the recent events, amendments and waivers:

  • As a result of the Company's non-compliance with the financial covenant in the Agreements regarding the Company's net income as of March 31, 2010, Wells Fargo imposed default pricing of an additional 3.0% effective March 1, 2010. In addition, as a condition of the further amendment of the Agreements, Wells Fargo restricted $5.0 million of cash effective June 11, 2010 as additional security for the Credit Facility.

    On November 9, 2010, the Company entered into an amendment to the Agreements with Wells Fargo to provide for the release by Wells Fargo of the $5.0 million in cash restricted since June 2010 upon the Company's satisfaction of certain conditions. During Fiscal 2011, Wells Fargo released $3.7 million of the restricted cash.

    On March 25, 2011, the Company entered into an amendment to the Agreements that allows the Company to form one wholly-owned subsidiary in each of Singapore and the United Kingdom provided that the amount of cash and cash equivalents that may be held by, or invested in each such subsidiary is within certain agreed upon limits. This amendment also provides that, if requested by Wells Fargo, the Company will grant Wells Fargo a security interest in 65% of the equity interests of each subsidiary to secure indebtedness under the Agreements.

    As of March 31, 2011, the Company determined that it was not in compliance with one of the financial covenants in the Agreements regarding net income. On June 9, 2011, the Company entered into an amendment to the Agreements which provided a waiver of the Company's noncompliance with this financial covenant as of March 31, 2011 and removed the net worth financial covenant for future periods. Additionally, this amendment also set the financial covenants for Fiscal 2012 and authorized the release of the remaining $1.3 million of restricted cash.

    On September 27, 2011, the Company entered into an amendment to the Agreements with Wells Fargo to increase the borrowing capacity available under the Company's revolving line of credit to an aggregate of $15.0 million and extend the maturity date of the line of credit through September 30, 2014. Additionally, this amendment made certain changes to the calculation and payment of interest under the Agreements and the financial covenant requiring a specified ratio of minimum cash balances to unreimbursed line of credit advances.

    As of December 31, 2011, the Company determined that it was not in compliance with one of the financial covenants in the Agreements regarding net income. On February 8, 2012, the Company entered into an amendment to the Agreements which provided a waiver of the Company's noncompliance with this financial covenant as of December 31, 2011 and set the financial covenants for the fourth quarter of Fiscal 2012.

    On June 12, 2012, the Company entered into an amendment to the Agreements which set the financial covenants for Fiscal 2013.

        If the Company had not obtained the waivers and amended the Agreements as described above, the Company would not be able to draw additional funds under the Credit Facility. In addition, the Company has pledged its accounts receivables, inventories, equipment, patents and other assets as collateral for its Agreements, which would be subject to seizure by Wells Fargo if the Company were in default under the Agreements and unable to repay the indebtedness. Wells Fargo also has the option to terminate the Agreements or accelerate the indebtedness during a period of noncompliance. Based on the Company's current forecasts, the Company believes it will maintain compliance with the covenants contained in the amended Agreements for at least the next twelve months. If a covenant violation were to occur, the Company would attempt to negotiate a waiver of compliance from Wells Fargo.

        The Company is required to maintain a Wells Fargo collection account for cash receipts on all of its accounts receivable. These amounts are immediately applied to reduce the outstanding amount on the Credit Facility. The floating rate for line of credit advances is the sum of daily three month London Inter-Bank Offer Rate ("LIBOR"), which interest rate shall change whenever daily three month LIBOR changes, plus applicable margin. Based on the revolving nature of the Company's borrowings and payments, the Company classifies all outstanding amounts as current liabilities. The applicable margin varies based on net income and the minimum interest floor is set at $66,000 each calendar quarter. The Company's borrowing rate at March 31, 2012 and March 31, 2011 was 5.5% and 7.5%, respectively.

        The Company incurred $0.2 million in origination fees in 2009. These fees were capitalized and are being amortized to interest expense through February 2012. The Company is also required to pay an annual unused line fee of one-quarter of one percent of the daily average of the maximum line amount and 1.5% interest with respect to each letter of credit issued by Wells Fargo. These amounts, if any, are also recorded as interest expense by the Company. As of March 31, 2012 and 2011, $10.4 million and $7.1 million in borrowings were outstanding, respectively, under the Credit Facility. Interest expense related to the Credit Facility during each of the years ended March 31, 2012 and 2011 was $0.8 million, which includes $0.2 million in amortization of deferred financing costs. Interest expense related to the Credit Facility during the year ended March 31, 2010 was $0.6 million, which includes $0.1 million in amortization of deferred financing costs.

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Commitments and Contingencies
12 Months Ended
Mar. 31, 2012
Commitments and Contingencies
Commitments and Contingencies

11. Commitments and Contingencies

Purchase Commitments

        As of March 31, 2012, the Company had firm commitments to purchase inventories of approximately $27.7 million through Fiscal 2013. Certain inventory delivery dates and related payments are not firmly scheduled; therefore amounts under these firm purchase commitments will be payable upon the receipt of the related inventories.

Lease Commitments

        The Company leases offices and manufacturing facilities under various non-cancelable operating leases expiring at various times through the fiscal year ending March 31, 2015. All of the leases require the Company to pay maintenance, insurance and property taxes. The lease agreements for primary office and manufacturing facilities provide for rent escalation over the lease term and renewal options for five-year periods. Rent expense is recognized on a straight-line basis over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent, which is included in other long-term liabilities in the accompanying consolidated balance sheets. The balance of deferred rent was approximately $0.3 million as of March 31, 2012 and 2011. Rent expense was approximately $2.1 million, $2.4 million and $2.3 million for the years ended March 31, 2012, 2011 and 2010, respectively.

        On August 27, 2009, the Company entered into a second amendment (the "Chatsworth Amendment") to the Lease Agreement, dated December 1, 1999, for leased premises used by the Company for primary office space, engineering testing and manufacturing located in Chatsworth, California. The Chatsworth Amendment extends the term of the Lease Agreement from May 31, 2010 to July 31, 2014. The Company has two five-year options to extend the term of the Lease Agreement beyond July 31, 2014. The Chatsworth Amendment also sets the monthly base rent payable by the Company under the Lease Agreement at $67,000 per month, with an annual increase in the base rent on August 1, 2010, August 1, 2011, August 1, 2012 and August 1, 2013. On such dates, the base rent shall increase by 5% of the base rent in effect at the time of the increase or a percentage equivalent to the increase in the Consumer Price Index, whichever is greater.

        On August 11, 2009, the Company entered into a second amendment (the "Van Nuys Amendment") to the Lease Agreement, dated September 25, 2000, for leased premises used by the Company for engineering testing and manufacturing located in Van Nuys, California. The Van Nuys Amendment extends the term of the Lease Agreement from November 30, 2010 to December 31, 2012. The Company has one five-year option to extend the term of the Lease Agreement beyond December 31, 2012. The Van Nuys Amendment also adjusts the monthly base rent payable by the Company under the Lease Agreement to the following: $51,000 per month from April 1, 2009 through September 30, 2010; $56,000 per month from October 1, 2010 through December 31, 2011; and $60,000 per month from January 1, 2012 through December 31, 2012.

        At March 31, 2012, the Company's minimum commitments under non-cancelable operating leases were as follows:

Year Ending March 31,
  Operating
Leases
 
 
  (In thousands)
 

2013

  $ 1,551  

2014

    898  

2015

    280  

2016

     

2017

     
       

Total minimum lease payments

  $ 2,729  
       

        During the three months ended September 30, 2009, the Company entered into a 24-month capital lease to finance approximately $61,000 of computer equipment and an 18-month capital lease to finance approximately $163,000 for a forklift. As of March 31, 2011, the 18-month capital lease was paid in full.

        During the three months ended March 31, 2010, the Company purchased office copiers that were financed with notes payable. The outstanding balance of the notes payable was approximately $0.1 million as of March 31, 2012 and 2011. The notes bear interest at 11.0% with principal and interest paid monthly through December 2014. The related office copiers collateralize the notes payable.

        During the three months ended December 31, 2010, the Company incurred $0.4 million of expense upon renewal of insurance contracts, a portion of which was financed by notes payable. The notes bear interest at 4.5% with principal and interest paid monthly through July 2011. The outstanding balance of the notes payable as of March 31, 2011 was approximately $0.2 million. As of March 31, 2012, the renewal of insurance contracts notes payable was paid in full.

        During the three months ended December 31, 2011, the Company incurred $0.6 million of expense upon renewal of insurance contracts, a portion of which was financed by notes payable. The notes bear interest at 2.2% with principal and interest paid monthly through October 2012. The outstanding balance of the notes payable as of March 31, 2012 was approximately $0.3 million.

        The Company owns automobiles that it has financed with notes payable. The outstanding balances of the notes payable as of March 31, 2012 and 2011 were approximately $11,200 and $20,000, respectively. The notes bear interest at 6.8% with principal and interest paid monthly through June 2013. The related automobiles collateralize the notes payable.

Other Commitments

        On April 28, 2011, the Company purchased from CPS for $2.3 million the remaining TA100 microturbine inventory that was not consumed as part of the TA100 manufacturing process and acquired the manufacturing equipment. See Note 14—Acquisition, for discussion of commitments associated with the MPL acquired from CPS.

        On February 1, 2010, the Company and CPS also entered into an agreement pursuant to which we agreed to purchase 125 kW waste heat recovery generator systems from CPS. In exchange for certain minimum purchase requirements of $18.7 million through December 2015, we have exclusive rights to sell the zero-emission waste heat recovery generator for all microturbine applications and for applications 500 kW or lower where the source of heat is the exhaust of a reciprocating engine used in a landfill application. As of March 31, 2012, we were in compliance with the minimum purchase requirements in the agreement.

        In September 2010, the Company was awarded a grant from the DOE for the research, development and testing of a more efficient microturbine Combined Heat and Power (CHP) system. Part of the improved efficiency will come from an improved microturbine design, with a projected electrical efficiency of 42% and power output of 370 kW. The project is estimated to cost approximately $17.4 million. The DOE will contribute $5.0 million toward the project, and the Company will incur approximately $12.4 million in research and development expense. During Fiscal 2012, this project was extended until September 2013. The Company billed the DOE under the contract for this project a cumulative amount of $0.7 million through March 31, 2012.

        In November 2009, the Company was awarded a grant from the DOE for the research, development and testing of a more fuel flexible microturbine capable of operating on a wider variety of biofuels. The project is estimated to cost approximately $3.8 million. The DOE will contribute $2.5 million under the program, and the Company will incur approximately $1.3 million in research and development expense. During Fiscal 2012, this project was extended until September 2013. The Company billed the DOE under this contract a cumulative amount of $1.2 million through March 31, 2012.

        Agreements the Company has with some of its distributors require that if the Company renders parts obsolete in inventories they own and hold in support of their obligations to serve fielded microturbines, then the Company is required to replace the affected stock at no cost to the distributors. While the Company has never incurred costs or obligations for these types of replacements, it is possible that future changes in the Company's product technology could result and yield costs to the Company if significant amounts of inventory are held at distributors. As of March 31, 2012, no significant inventories were held at distributors.

Legal Matters

        In December 2001, a purported stockholder class action lawsuit was filed in the United States District Court for the Southern District of New York (the "District Court") against the Company, two of its then officers, and the underwriters of the Company's initial public offering. The suit purports to be a class action filed on behalf of purchasers of the Company's common stock during the period from June 28, 2000 to December 6, 2000. An amended complaint was filed on April 19, 2002. The plaintiffs allege that the prospectuses for the Company's June 28, 2000 initial public offering and November 16, 2000 secondary offering were false and misleading in violation of the applicable securities laws because the prospectuses failed to disclose the underwriter defendants' alleged agreement to allocate stock in these offerings to certain investors in exchange for excessive and undisclosed commissions and agreements to make additional purchases of stock in the aftermarket at pre-determined prices. Similar complaints have been filed against hundreds of other issuers that have had initial public offerings since 1998; the complaints have been consolidated into an action captioned In re Initial Public Offering Securities Litigation, No. 21 MC 92. On October 9, 2002, the plaintiffs dismissed, without prejudice, the claims against the named officers and directors in the action against the Company, pursuant to the terms of Reservation of Rights and Tolling Agreements entered into with the plaintiffs (the "Tolling Agreements"). Subsequent addenda to the Tolling Agreements extended the tolling period through August 27, 2010. The District Court directed that the litigation proceed within a number of "focus cases" and on October 13, 2004, the District Court certified the focus cases as class actions. The Company's case is not one of these focus cases. The underwriter defendants appealed that ruling, and on December 5, 2006, the Court of Appeals for the Second Circuit reversed the District Court's class certification decision. On August 14, 2007, the plaintiffs filed their second consolidated amended complaints against the six focus cases and on September 27, 2007, again moved for class certification. On November 12, 2007, certain of the defendants in the focus cases moved to dismiss the second consolidated amended class action complaints. On March 26, 2008, the District Court denied the motions to dismiss except as to Section 11 claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period. The motion for class certification was withdrawn without prejudice on October 10, 2008. On April 2, 2009, a stipulation and agreement of settlement between the plaintiffs, issuer defendants and underwriter defendants was submitted to the District Court for preliminary approval. The District Court granted the plaintiffs' motion for preliminary approval and preliminarily certified the settlement classes on June 10, 2009. The settlement "fairness" hearing was held on September 10, 2009. On October 6, 2009, the District Court entered an opinion granting final approval to the settlement and directing that the Clerk of the District Court close these actions. On August 26, 2010, based on the expiration of the tolling period stated in the Tolling Agreements, the plaintiffs filed a Notice of Termination of Tolling Agreement and Recommencement of Litigation against the named officers and directors. The plaintiffs stated to the District Court that they do not intend to take any further action against the named officers and directors at this time. Appeals of the opinion granting final approval were filed, all of which have been dismissed or settled.

        On October 9, 2007, Vanessa Simmonds, a purported stockholder of the Company, filed suit in the U.S. District Court for the Western District of Washington (the "Washington District Court") against The Goldman Sachs Group, Inc., Merrill Lynch & Co., Inc., and Morgan Stanley, the lead underwriters of the Company's initial public offering in June 1999, and the Company's secondary offering of common stock in November 2000, alleging violations of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). The complaint sought to recover from the lead underwriters any "short swing profits" obtained by them in violation of Section 16(b). The suit names the Company as a nominal defendant, contained no claims against the Company, and sought no relief from the Company. Simmonds filed an Amended Complaint on February 27, 2008 (the "Amended Complaint"), naming as defendants Goldman Sachs & Co. and Merrill Lynch Pierce, Fenner & Smith Inc. and again naming Morgan Stanley. The Goldman Sachs Group, Inc. and Merrill Lynch & Co., Inc. were no longer named as defendants. The Amended Complaint asserted substantially similar claims as those set forth in the initial complaint. On July 25, 2008, the Company joined with 29 other issuers to file the Issuer Defendants' Joint Motion to Dismiss. On March 12, 2009, the Washington District Court granted the Issuer Defendants' Joint Motion to Dismiss, dismissing the complaint without prejudice on the grounds that Simmonds had failed to make an adequate demand on the Company prior to filing her complaint. In its order, the Washington District Court stated that it would not permit Simmonds to amend her demand letters while pursuing her claims in the litigation. Because the Washington District Court dismissed the case on the grounds that it lacked subject matter jurisdiction, it did not specifically reach the issue of whether Simmonds' claims were barred by the applicable statute of limitations. However, the Washington District Court also granted the Underwriters' Joint Motion to Dismiss with respect to cases involving non-moving issuers, holding that the cases were barred by the applicable statute of limitations because the issuers' stockholders had notice of the potential claims more than five years prior to filing suit. Simmonds filed a Notice of Appeal on April 10, 2009. The underwriters subsequently filed a Notice of Cross-Appeal, arguing that the dismissal of the claims involving the moving issuers should have been with prejudice because the claims were untimely under the applicable statute of limitations. On December 2, 2010, the Ninth Circuit Court of Appeals (the "Ninth Circuit") affirmed the Washington District Court's decision to dismiss the moving issuers' cases (including the Company's) on the grounds that plaintiff's demand letters were insufficient to put the issuers on notice of the claims asserted against them and further ordered that the dismissals be made with prejudice. The Ninth Circuit, however, reversed and remanded the Washington District Court's decision on the underwriters' motion to dismiss as to the claims arising from the non-moving issuers' initial public offerings, finding plaintiff's claims were not time-barred under the applicable statute of limitations. In remanding, the Ninth Circuit advised the non-moving issuers and underwriters to file in the Washington District Court the same challenges to plaintiff's demand letters that moving issuers had filed. On December 16, 2010, the underwriters filed a petition for panel rehearing and petition for rehearing en banc. Appellant Vanessa Simmonds also filed a petition for rehearing en banc. On January 18, 2011, the Ninth Circuit denied the petition for rehearing and petitions for rehearing en banc. It further ordered that no further petitions for rehearing may be filed. On January 26, 2011, the Ninth Circuit ruled that the mandate in all cases (including the Company's and other moving issuers) was stayed for ninety days pending Simmonds' filing of a petition for writ of certiorari in the United States Supreme Court. On April 5, 2011, Simmonds filed a Petition for Writ of Certiorari with the U.S. Supreme Court seeking reversal of the Ninth Circuit's December 2, 2010 decision relating to the adequacy of the pre-suit demand. On April 15, 2011, underwriter defendants filed a Petition for Writ of Certiorari with the U.S. Supreme Court seeking reversal of the Ninth Circuit's December 2, 2010 decision relating to the statute of limitations issue. On June 27, 2011, the Supreme Court denied Simmonds' petition regarding the demand issue and granted the underwriters' petition relating to the statute of limitations issue. Oral arguments on underwriters' petition were heard on November 29, 2011. On March 26, 2012, the Supreme Court vacated the Ninth Circuit's holding that petitioner's claims were not time-barred, and remanded the cases to the District Court for proceedings consistent with the Supreme Court's opinion. Management believes that the outcome of this litigation will not have a material impact on the Company's business, operating results, cash flows, financial position or results of operations.

        From time to time, the Company may become subject to additional legal proceedings, claims and litigation arising in the ordinary course of business. Other than the matters discussed above, the Company is not a party to any other material legal proceedings, nor is the Company aware of any other pending or threatened litigation that would have a material effect on the Company's business, operating results, cash flows, financial position or results of operations should such litigation be resolved unfavorably.

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Employee Benefit Plans
12 Months Ended
Mar. 31, 2012
Employee Benefit Plans
Employee Benefit Plans

12. Employee Benefit Plans

        The Company maintains a defined contribution 401(k) profit-sharing plan in which all employees are eligible to participate. Employees may contribute up to Internal Revenue Service annual limits or, if less, 90% of their eligible compensation. Employees are fully vested in their contributions to the plan. The plan also provides for both Company matching and discretionary contributions, which are determined by the Board of Directors. The Company began matching 50 cents on the dollar up to 4% of the employee's contributions in October 2006. Prior to that date, no Company contributions had been made since the inception of the plan. The Company's match vests 25% a year over four years starting from the employee's hire date. The expense recorded by the Company for the years ended March 31, 2012, 2011 and 2010 was approximately $0.3 million, $0.2 million and $0.2 million, respectively.

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Other Current Liabilities
12 Months Ended
Mar. 31, 2012
Other Current Liabilities
Other Current Liabilities

13. Other Current Liabilities

        In September 2007, the Company entered into a Development and License Agreement (the "Development Agreement") with UTC Power Corporation ("UTCP"), a division of United Technologies Corporation. The Development Agreement engaged UTCP to fund and support the Company's continued development and commercialization of the Company's 200 kilowatt ("C200") microturbine. Pursuant to the terms of the Development Agreement, UTCP contributed $12.0 million in cash and approximately $800,000 of in-kind services toward the Company's efforts to develop the C200. In return, the Company agreed to pay to UTCP an ongoing royalty of 10% of the sales price of the C200 sold to customers other than UTCP until the aggregate of UTCP's cash and in-kind services investment had been recovered and, thereafter, the royalty would be reduced to 5% of the sales price. In August 2009, the Development Agreement was assigned by UTCP to Carrier Corporation ("Carrier").

        The Company recorded the benefits from this Development Agreement as a reduction of R&D expenses. During the year ended March 31, 2010, the Company recognized approximately $1.3 million of such benefits and there were no in-kind services for the year ended March 31, 2010. In-kind services performed by Carrier under the cost-sharing program were recorded as consulting expense within R&D expenses. The program concluded in June 2009. The reduction of R&D expenses was recognized on a percentage of completion basis, limited by the amount of funding received and/or earned based on milestone deliverables.

        On January 14, 2011, the Company entered into an amendment to the Development Agreement with Carrier. The amendment amends the royalty payment from a certain percentage of the sales prices to a predetermined fixed rate for each microturbine system covered by the amendment. Carrier earned $3.2 million, $1.9 million and $1.5 million in royalties for C200 and C1000 Series system sales during the year ended March 31, 2012, 2011 and 2010, respectively. Earned royalties of $1.0 million and $1.7 million were unpaid as of March 31, 2012 and March 31, 2011, respectively, and are included in accrued expenses in the accompanying balance sheets.

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Acquisition
12 Months Ended
Mar. 31, 2012
Acquisition
Acquisition

14. Acquisition

        On February 1, 2010 (the "Closing Date"), the Company acquired the MPL from CPS to expand the Company's microturbine product line and to gain relationships with distributors to supply the Company's products. The Company entered into an Asset Purchase Agreement ("APA"), subject to an existing license retained by CPS, to purchase all of the rights and assets related to the manufacture and sale of the MPL, including intellectual property, design, tooling, drawings, patents, know-how, distribution and supply agreements.

        The table below summarizes the consideration paid for the rights and assets of the MPL on the Closing Date. No voting interests in CPS were acquired in this transaction.

Description
  Purchase
Price
 
 
  (In thousands)
 

Stock issued at Closing Date

  $ 1,798  

Fair value of consideration at Second Funding Date, stock or cash

    2,990  
       

Total purchase consideration

  $ 4,788  
       

        Pursuant to the APA, the Company issued to CPS 1,550,387 shares of common stock at the Closing Date and agreed to pay additional consideration of $3.1 million on July 30, 2010 (the "Second Funding Date"). The additional consideration was to be paid, at the Company's discretion, in shares of the Company's common stock or cash. The Company elected to satisfy the amount due on the Second Funding Date with common stock and issued 3,131,313 shares to CPS. This second payment constituted a financial instrument which was accounted for as a liability at fair value at the acquisition date in accordance with ASC 480, "Distinguishing Liabilities from Equity." This liability was recorded at fair value on the Closing Date and was accreted to its full settlement value at the Second Funding Date by recording the increase to interest expense.

        The Company determined that the CPS transaction constitutes a business combination in accordance with ASC 805, "Business Combinations." The purchase price was allocated to the tangible and intangible assets acquired based on their estimated fair values on the acquisition date. The Company incurred $0.1 million of costs during Fiscal 2010 related to the acquisition of the MPL. These costs are recorded in selling, general and administrative expenses in the accompanying statement of operations. In October 2010, General Electric Company purchased certain assets of CPS, including the 125 kW waste heat recovery generator systems product line.

        The following table presents the purchase price allocation:

Description
  Purchase
Price
 
 
  (In thousands)
 

Manufacturing equipment

  $ 292  

Intangible Assets:

       

Technology

    2,240  

Parts/service customer relationships

    1,080  

TA100 customer relationships

    617  

Backlog

    490  

Trade name

    69  
       

Total purchase consideration

  $ 4,788  
       

        The financial results of the MPL have been included in the Company's Statements of Operations commencing on the Closing Date. Total revenue and net loss generated from the MPL subsequent to the Closing Date were $1.3 million and $32,500, respectively. The following unaudited pro forma financial information presents the results as if the MPL acquisition had occurred at the beginning of each year (in thousands):

 
  Fiscal Year Ended
March 31, 2010
 

Revenue

  $ 64,279  

Net Loss

    (69,977 )

Supply Agreement

        On the Closing Date, the Company and CPS entered into a manufacturing supply agreement under which CPS would continue to manufacture the TA100 microturbines for the Company through March 31, 2011 (the "Transition Period"). During the Transition Period, CPS leased from the Company on a royalty-free basis the intellectual property required to manufacture TA100 microturbines.

        On April 28, 2011, the Company purchased $2.3 million of the remaining TA100 microturbine inventory that was not consumed as part of the TA100 manufacturing process and acquired the manufacturing equipment.

Original Equipment Manufacturer ("OEM") Agreement

        On the Closing Date, the Company also entered into an agreement with CPS to purchase 125 kW waste heat recovery generator systems from CPS. In exchange for certain minimum purchase requirements through December 2015, the Company has exclusive rights to sell the zero-emission waste heat recovery generator for all microturbine applications and for applications 500 kW or lower where the source of heat is the exhaust of a reciprocating engine used in a landfill application. The Company must meet specified annual sales targets in order to maintain the exclusive rights to sell the waste heat recovery generators. The OEM agreement is being treated as a separate transaction from the MPL acquisition. As of March 31, 2012, we were in compliance with the minimum purchase requirements in the agreement.

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SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
12 Months Ended
Mar. 31, 2012
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

CAPSTONE TURBINE CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED MARCH 31, 2012, 2011 and 2010

(In thousands)

Allowance for Doubtful Accounts:
   
 

Balance, March 31, 2009

  $ 644  

Additions charged to costs and expenses

    420  

Deductions

    (943 )
       

Balance, March 31, 2010

  $ 121  

Additions charged to costs and expenses

    359  

Deductions

    (268 )
       

Balance, March 31, 2011

  $ 212  

Additions charged to costs and expenses

    2,256  

Deductions

    (240 )
       

Balance, March 31, 2012

  $ 2,228  
       
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