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Financial report summary
?Competition
Capstone Green EnergyRisks
- Risks Related to Our Business, Industry and Supply Chain
- We have incurred losses and anticipate continued losses and negative cash flows.
- Our cost reduction strategy for manufacturing may not succeed or may be significantly delayed, which may result in our inability to deliver improved margins.
- We have debt and finance obligations outstanding and may incur additional debt in the future, which may adversely affect our financial condition and future financial results.
- Unanticipated increases or decreases in business growth may result in adverse financial consequences for us.
- Our business and operations may be adversely affected by new outbreaks of COVID-19 variants or other outbreaks of contagious diseases.
- Risks Related to Sales of our Products
- We derive significant revenue from contracts awarded through competitive bidding processes involving substantial costs and risks. Our contracted projects may not convert to revenue, and our project awards and sales pipeline may not convert to contracts, which may have a material adverse effect on our revenue and cash flows.
- We have signed product sales contracts, EPCs, PPAs and long-term service agreements with customers subject to contractual, technology, operating, commodity (i.e. natural gas) and fuel pricing risks as well as market conditions that may affect our operating results.
- We extend product warranties for our products, which products are complex and could contain defects and may not operate at expected performance levels, which could impact sales and market adoption of our products, affect our operating results or result in claims against us.
- We currently face and will continue to face significant competition, including from products using other energy sources that may be lower priced or have preferred environmental characteristics.
- Our plans are dependent on market acceptance of our products.
- We must complete development of our new products and develop additional commercially viable products in order to achieve our long-term revenue targets.
- Our products use inherently dangerous, flammable fuels, operate at high temperatures and use corrosive carbonate material, each of which could subject our business to product liability claims.
- Risks Related to Privacy, Data Protection and Cybersecurity
- We are increasingly dependent on information technology, and disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations and the operations of our power plant platforms. In addition, increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services.
- Tax, Accounting, Compliance and Regulatory Risks
- We are required to maintain effective internal control over financial reporting. In a prior fiscal year, our management identified a material weakness in our internal control over financial reporting. If other control deficiencies are identified in the future, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports in a timely manner, which may adversely affect investor confidence in our Company and, as a result, the value of our common stock.
- Our results of operations could vary as a result of changes to our accounting policies or the methods, estimates and judgments we use in applying our accounting policies.
- We may be affected by environmental and other governmental regulation.
- A negative government audit could result in an adverse adjustment of our revenue and costs and could result in civil and criminal penalties.
- Exports of certain of our products are subject to various export control regulations and may require a license or permission from the U.S. Department of State, the U.S. Department of Energy or other agencies.
- Risks Related to Our Need for Additional Capital
- We will need to raise additional capital, and such capital may not be available on acceptable terms, if at all. If we do raise additional capital utilizing equity, existing stockholders will suffer dilution. If we do not raise additional capital, our business could fail or be materially and adversely affected.
- Risks Related to our Intellectual Property and Technology Licenses
- We depend on our intellectual property, and our failure to protect that intellectual property could adversely affect our future growth and success.
- The U.S. government has certain rights relating to our intellectual property, including the right to restrict or take title to certain patents.
- Risks Related to Our Common and Preferred Stock
- Provisions of Delaware and Connecticut law and of our certificate of incorporation and by-laws may make a takeover more difficult.
- Our By-laws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a judicial forum deemed favorable by the stockholder for disputes with us or our directors, officers or employees.
- The rights of our Series B Preferred Stock could negatively impact our cash flows and dilute the ownership interest of our stockholders.
- The Series B Preferred Stock ranks senior to our common stock with respect to payments upon liquidation, dividends, and distributions.
- Financial markets worldwide have experienced heightened volatility and instability which may have a material adverse impact on our Company, our customers and our suppliers.
- Our future success will depend on our ability to attract and retain qualified management, technical, and other personnel.
- We are subject to risks inherent in international operations.
Management Discussion
- Management evaluates our results of operations and cash flows using a variety of key performance indicators, including revenues compared to prior periods and internal forecasts, costs of our products and results of our cost reduction initiatives, and operating cash use. These are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections. Results of Operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”).
- Total revenues for the three months ended January 31, 2024 of $16.7 million reflects a decrease of $20.4 million from $37.1 million for the same period in the prior year. Cost of revenues for the three months ended January 31, 2024 of $28.4 million reflects a decrease of $3.4 million from $31.8 million for the same period in the prior year. A discussion of the changes in product revenues, service agreements revenues, generation revenues and Advanced Technologies contract revenues follows.
- There were no product revenues for the three months ended January 31, 2024 compared to $9.1 million for the three months ended January 31, 2023. Our December 2021 Settlement Agreement (the “Settlement Agreement”) with POSCO Energy Co., Ltd. and its subsidiary, Korea Fuel Cell Co., Ltd. (“KFC”), included an option to purchase an additional 14 modules (in addition to the 20 modules that were purchased by KFC during fiscal year 2022). This option included a material right related to an extended warranty obligation for the modules. The option was not exercised by KFC as of the expiration date of December 31, 2022 and, as a result, the Company recognized $9.1 million of product revenues for the three months ended January 31, 2023, which represents the consideration allocated to the material right if the option had been exercised.