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The following is a summary of the principal risks that could adversely affect our business, operations, and financial results.
−Removed: ● Risks Related to Our Emergence from Chapter 11 and Reorganization, such as those associated with the impact of emergence, our long-term liquidity requirements, our substantial indebtedness, comparable results, our current corporate structure and our business relationships.
−Removed: ● Risks Related to Our Corporate Structure , such as those associated to the fact that we are a holding company and the significant control that holders of our Preferred Units have over our Operating Subsidiary.
−Removed: ● Risks Related to Our Restatement, such as those related to the impact of the Restatement (as defined below) on investor confidence and our ability to raise capital in the future, stockholder litigation and the expenses incurred related to the remediation of material weaknesses identified by management.
−Removed: ● Risks Related to Our Business Operations and Finance Results , such as those associated with our ability to fund future operating requirements, that a sustainable market for microturbines may never develop, our lengthy sales cycle, changes to trade regulations, quotas, duties or tariffs, and sanctions, relationships with our OEMs and our distributors, customer concentration risk, product liability claims, our dependence upon the continuing service of management and key employees, and our vulnerability to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events and other events beyond our control.
+Added: ● Risks Related to Liquidity Requirements, such as our substantial indebtedness and our ability to meet our debt obligations as they become due.
+Added: ● Risks Related to Our Business Operations and Finance Results , such as those associated with the profitability, safety and regulatory environment of AI, our ability to fund future operating requirements, that a sustainable market for microturbines may never develop, our ability to enter into and compete in the emerging data center market for our products, our lengthy sales cycle, changes to trade regulations, quotas, duties or tariffs, and sanctions, relationships with our OEMs and our distributors, customer concentration risk, product warranty or liability claims, our dependence upon the continuing service of management and key employees, and our vulnerability to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events and other events beyond our control.
● Risks Related to Our Product Offerings , such as those associated with our ability to successfully commercialize our products, our ability to produce our products as scheduled and budgeted, our dependence on our suppliers;
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and our dependence in part on the oil and natural gas industry.
−Removed: ● Risks Related to Government Regulation and Pending Litigation , such as those associated with the highly regulated business environment in which we operate, export import controls, particularly with regard to China, Mexico and Canada and the legal proceedings in which we and certain of our current and former directors and officers are involved.
+Added: ● Risks Related to Government Regulation and Litigation , such as those associated with the highly regulated business environment in which we operate, export-import and tariff controls, and litigation or other proceedings that may arise in the ordinary course of business.
● Risks Related to Data, Security, and Intellectual Property , such as those associated with our ability to adequately protect our intellectual property rights and cybersecurity risks.
−Removed: ● Risks Related to Ownership of Our Common Stock , such as those associated with the material weaknesses in internal control over financial reporting identified by management, and the likelihood that the market for the common stock will be limited and the price of our common stock will be highly volatile.
+Added: ● Risks Related to Ownership of Our Common Stock , such as those associated with potential future dilution, the terms and conditions contained in the Certificate of Designation, and the likelihood that the market for the Common Stock will be limited and the price of our Common Stock will be highly volatile.
For a more complete discussion of the material risks facing our business, please see below.
−Removed: Risks Related to Our Emergence from Chapter 11
−Removed: There are significant risks related to our substantial indebtedness and our long-term liquidity requirements following our emergence from Chapter 11 and reorganization and the adequacy of our capital resources is difficult to predict at this time.
−Removed: Following our emergence from Chapter 11 and reorganization, we are party to an Exit Note Purchase Agreement (the “Exit Note Purchase Agreement”), for an aggregated principal amount of $28.1 million, consisting of $21.1 million Exit Roll Up Notes, including accrued and unpaid interest, commitment fees and $7.0 million of Exit New Money Notes (together the “Notes”) subject to the terms and conditions set forth in the Exit Note Purchase Agreement by and among the Operating Subsidiary, as the issuer, the Guarantors, Purchaser and the Collateral Agent.
+Added: Risks Related to Substantial Indebtedness and Long-Term Liquidity
+Added: There are significant risks related to our substantial indebtedness and our long-term liquidity.
+Added: Following our emergence from Chapter 11 and reorganization, we are party to an Exit Note Purchase Agreement (the “Exit Note Purchase Agreement”), for an aggregated principal amount of $21.1 million, including accrued and unpaid interest, commitment fees (the “Exit Notes”) subject to the terms and conditions set forth in the Exit Note Purchase Agreement by and among the Operating Subsidiary, as the issuer, the Guarantors, Purchaser and the Collateral Agent.
The Exit Note Purchase Agreement also provides for a $10.0 million uncommitted incremental facility.
−Removed: As of March 31, 2025, we had $32.2 million in borrowings outstanding under the Notes, including accrued and unpaid interest, net of debt issuance costs.
−Removed: The Exit Roll Up Notes mature on December 7, 2026, and the Exit New Money Notes mature on December 7, 2025.
−Removed: The Notes issued pursuant to the Exit Note Purchase Agreement are secured by a lien on substantially all of the present and future property and assets of Operating Subsidiary and each Guarantor, subject to customary exceptions and exclusions.
+Added: As of March 31, 2026, we had $25.3 million in borrowings outstanding under the Exit Notes, including accrued and unpaid interest, net of debt issuance costs.
+Added: The Exit Notes mature on December 7, 2026.
+Added: The Exit Notes issued pursuant to the Exit Note Purchase Agreement are secured by a lien on substantially all of the present and future property and assets of Operating Subsidiary and each Guarantor, subject to customary exceptions and exclusions.
The Exit Note Purchase Agreement also includes conditions precedent, representations and warranties, affirmative and negative covenants, events of default, and other customary provisions, including financial covenants with respect to minimum consolidated liquidity and minimum consolidated adjusted EBITDA.
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We believe there is a degree of risk that the consolidated liquidity and consolidated adjusted EBITDA financial covenants discussed below will not be satisfied as forecasted.
−Removed: We have secured, and may need to secure additional waivers of the covenants or an amendment to the Exit Note Purchase Agreement with the senior lender, but no assurance can be given that additional waivers or an amendment will be obtained.
−Removed: We have the right to cure an event of default for a breach of the consolidated adjusted EBITDA covenant with a prepayment on the Notes up to the amount that is required to achieve
−Removed: the minimum consolidated adjusted EBITDA covenant for the quarter.
+Added: We have in the past secured and may need to secure additional waivers of the covenants or an amendment to the Exit Note Purchase Agreement with the senior lender, but no assurance can be given that additional waivers or an amendment will be obtained.
+Added: We have the right to cure an event of default for a breach of the consolidated adjusted EBITDA covenant with a prepayment on the Notes up to the amount that is required to achieve the minimum consolidated adjusted EBITDA covenant for the quarter.
In the event the Company does not cure the breach, the requisite Purchaser may cause the Collateral Agent to enforce any and all liens and security interests created pursuant to the Collateral Documents and may enforce any and all rights and remedies available.
−Removed: As of the date of this Annual Report on Form 10-K, the Exit Roll Up Notes, net of discount is classified as long term on the Company’s Consolidated Balance Sheet as of March 31, 2025, and the Exit New Money Notes are classified as current liabilities on our balance sheet.
+Added: As of the date of this Annual Report on Form 10-K, the Exit Notes, net of discount is classified as current liabilities on the Company’s Consolidated Balance Sheet as of March 31, 2026.
Our obligations under the Exit Note Purchase Agreement have important consequences, including the following:
−Removed: ● We may have difficulty obtaining additional financing to meet our requirements to repay the Notes at their respective maturities on December 7, 2025 and December 7, 2026 and to meet our requirements for operations, capital expenditures, and general corporate or other purposes.
−Removed: There is no assurance that we will be able to repay or refinance the Notes at or prior to their respective maturity dates (or upon acceleration based upon events of default).
−Removed: ● The Collateral Agent has a lien on substantially all of our assets under the Exit Note Purchase Agreement, securing our obligations under the Notes, may enforce any and all liens and security interests on the collateral we have used to secure the Notes, and we may forfeit our right to such collateral.
−Removed: A default leading to the Purchaser and the Collateral Agent accelerating the maturity of the indebtedness under the Notes would have a material adverse effect on our business and financial condition, and, if the Purchaser and the Collateral Agent exercise their rights and remedies, we could be forced to seek bankruptcy protection again.
−Removed: ● We were required to dedicate a portion of our cash flow to the payment of interest beginning in December 2024 on the Notes, which reduces the amount of funds available for operations, capital expenditures and future acquisitions.
+Added: ● We have not yet secured additional financing to meet our requirements to repay the Exit Notes at their maturity on December 7, 2026.
+Added: And, while we are actively engaged in refinancing opportunities, there is no assurance that we will be able to repay or refinance the Exit Notes at or prior to their maturity date (or upon acceleration based upon events of default).
+Added: ● The Collateral Agent has a lien on substantially all of our assets under the Exit Note Purchase Agreement, securing our obligations under the Exit Notes, may enforce any and all liens and security interests on the collateral we have used to secure the Exit Notes, and we may forfeit our right to such collateral.
+Added: A default leading to the Purchaser and the Collateral Agent accelerating the maturity of the indebtedness under the Exit Notes would have a material adverse effect on our business and financial condition, and, if the Purchaser and the Collateral Agent exercise their rights and remedies, we could be forced to seek bankruptcy protection again.
+Added: ● We were required to dedicate a portion of our cash flow to the payment of interest beginning in December 2024 on the Exit Notes, which reduces the amount of funds available for operations, capital expenditures and future acquisitions.
● We are exposed to floating interest rate risk under the Exit Note Purchase Agreement, which could cause our debt service obligations to increase significantly.
−Removed: All outstanding Notes bear interest at the Adjusted Term secured overnight financing rate (SOFR)rate plus 7% per annum.
+Added: All outstanding Exit Notes bear interest at the Adjusted Term secured overnight financing rate (SOFR) rate plus 7% per annum.
The Adjusted Term SOFR rate is a floating rate.
If we are unable to raise additional capital when required on acceptable terms, we may be required to file for bankruptcy protection again, go out of business, or suffer disruptions in our business.
−Removed: Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern.
−Removed: In connection with preparing the consolidated financial statements for the fiscal year ended March 31, 2025, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about our ability to meet our obligations as they became due for the next twelve months from the date of issuance of our Fiscal 2025 consolidated financial statements.
−Removed: Management assessed that there were such conditions and events, primarily our current cash position, lack of liquidity, limits to accessing capital and debt funding options.
−Removed: Management concluded, and our auditors agreed, that these conditions raise substantial doubt about our ability to continue as a going concern for a period of one year from the date the financial statements are issued.
−Removed: The substantial doubt about our ability to continue as a going concern may negatively impact relationships with third parties with whom we do business, including customers, vendors and lenders, may impact our ability to raise additional capital for our business plan, and may lead us to seek bankruptcy protection again.
−Removed: If we are unable to continue as a going concern, holders of our securities might lose their entire investment.
−Removed: Our actual financial results after emergence may not be comparable to our historical financial information or to our projections filed with the Bankruptcy Court.
−Removed: As a result of the implementation of the Plan of Reorganization and the transactions contemplated thereby, our future results of operations, financial condition, and business may not be comparable to the results of operations, financial condition, and business reflected in our historical financial statements.
−Removed: In connection with the disclosure statement, we filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate the feasibility of the Plan of
−Removed: Reorganization and our ability to continue operations upon our emergence from Chapter 11.
−Removed: Those projections were prepared solely for the purpose of bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors.
−Removed: At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize.
−Removed: Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic, and competitive risks, and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects.
−Removed: Actual results may vary significantly from those contemplated by the projections.
−Removed: As a result, investors should not rely on these projections.
−Removed: It may be difficult for us to attract and retain employees, including members of our senior management, as a result of our emergence from Chapter 11.
−Removed: As a result of our emergence from Chapter 11, it may be difficult for us to attract and retain employees, including members of senior management.
−Removed: A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations.
−Removed: Our ability to engage, motivate, and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us following our emergence may be challenging given the uncertainties currently facing our business and changes we may make to our organizational structure to adjust to changing circumstances.
−Removed: The loss of members of our senior management team could impair our ability to execute our strategy and implement operational initiatives, which would be likely to have a material adverse effect on our business, financial condition, and results of operations.
−Removed: There is currently limited public trading market for our common stock on the OTC market, and we cannot assure you that a more active trading market will develop for our common stock.
−Removed: As a result of the implementation of the Plan of Reorganization and the transactions contemplated thereby, the stockholders of Capstone Green Energy Corporation received their pro rata share of 18,540,877 shares of common stock of Capstone Green Energy Holdings, Inc., par value $0.001 per share (the “Common Stock”).
−Removed: As of this filing, the Company’s Common Stock trades on the Over the Counter (“OTC”) market under the ticker symbol CGEH, after becoming current in our annual and quarterly reports pursuant to Section 13 and 15(d) of the Exchange Act (the “Reporting Obligations”).
−Removed: We cannot provide any assurance that the trading volume or price will increase with over-the-counter trading.
−Removed: Being listed on a more limited marketplace such as OTC, may have an adverse effect on the liquidity of the Common Stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of our company.
−Removed: This may result in lower prices for the Common Stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for the Common Stock.
−Removed: Risks Related to our Corporate Structure
−Removed: We are a holding company and will depend on dividends and distributions from our Operating Subsidiary to pay any dividends.
−Removed: The Company is a holding company with assets consisting primarily of our investment in the Operating Subsidiary, of which Goldman Sachs owns a 37.5% non-dilutable equity interest.
−Removed: Our business operations are conducted primarily out of the Operating Subsidiary and certain of its subsidiaries.
−Removed: As a result, in addition to the restrictions on payment of dividends that apply under the terms of our existing indebtedness and the limited liability company agreement of Operating Subsidiary (the “Capstone Green Energy LLC Agreement”), our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from the Operating Subsidiary.
−Removed: Payments to us from the Operating Subsidiary will be contingent upon its earnings and subject to any limitations on the ability of such entity to make payments or other distributions to us, including limitations contained in the Capstone Green Energy LLC Agreement.
−Removed: Holders of the Preferred Units can exercise significant control over our Operating Subsidiary, which could limit our ability to influence the outcome of key corporate actions of our Operating Subsidiary.
−Removed: Pursuant to the Capstone Green Energy LLC Agreement, the Operating Subsidiary may not undertake certain actions without the prior written approval of Goldman Sachs, such as among other things, incurring any new third-party indebtedness exceeding $5.0 million, declaring any distributions, conducting any public offering or acquiring any business.
−Removed: In addition, pursuant to the Capstone Green Energy LLC Agreement, the Company, its subsidiaries and controlled affiliates may not, without the consent of the holders of a majority of the Preferred Units held by the Preferred Members (which, on the effective date of the Capstone Green Energy LLC Agreement is solely Capstone Distributor Support Services Corporation), engage in any business opportunities, make any investments or enter into any transactions, including any of the foregoing which are or would reasonably be expected to be within the scope of, or would reasonably be deemed to be beneficial to, the “Existing Business” (as defined in the Capstone Green Energy LLC Agreement) of the Operating Subsidiary.
−Removed: Further, pursuant to the Capstone Green Energy LLC Agreement, at any time during the six-month period between December 7, 2029 and June 7, 2030, the Preferred Requisite Members may elect to have all, but not less than all, of the then outstanding Preferred Units redeemed.
−Removed: In such event, Operating Subsidiary must redeem all, but not less than all, of the Preferred Units, except Operating Subsidiary may not make such payment if (a) such payment is prohibited by Delaware Law or (b) Operating Subsidiary is, or by such payment would be, insolvent.
−Removed: The aggregate price for Preferred Units will be an amount equal to the greater of (i) the $10,449,863, plus declared but unpaid distributions, or (ii) the fair market value of the Preferred Units on an as-converted to Common Units basis at the time of such redemption.
−Removed: The Preferred Member’s 37.5% equity interest in Operating Subsidiary is non-dilutable.
−Removed: Risks Related to Our Restatement
−Removed: We have restated our consolidated financial statements for prior annual and interim periods and have concluded two Audit Committee Investigations, all of which have affected and may continue to affect investor confidence, our stock price, our ability to raise capital in the future, our reputation with our customers, and our ability to timely file our periodic reports with the SEC, and has resulted in stockholder litigation against certain of our current and former directors and executives and may result in additional litigation in the future.
−Removed: The Consolidated Financial Statements of Capstone Green Energy Corporation, the predecessor to our Operating Subsidiary, for prior annual and interim periods were restated (the “Restatement”).
−Removed: This Restatement was required to correct for the following:
−Removed: (i) the timing of revenue recognition related to bill-and-hold arrangements, including the removal of certain finance leases derived from bill-and-hold arrangements;
−Removed: (ii) the timing of recognizing certain expenses associated with factory protection plan contracts;
−Removed: and (iii) reclassification of term note payable, as well as other immaterial misstatements.
−Removed: Such Restatement:
−Removed: ● has had and may continue to have the effect of eroding investor confidence in us and our financial reporting and accounting practices and processes;
−Removed: ● has resulted in our failure to timely file our periodic reports with the SEC;
−Removed: ● has negatively impacted and may continue to negatively impact the trading of our common stock;
−Removed: ● has resulted in stockholder litigation against certain of our current and former directors and executives and may result in additional litigation;
−Removed: ● may make it more difficult, expensive, and time consuming for us to raise capital on acceptable terms, or at all;
−Removed: ● may make it more difficult for us to pursue transactions or implement business strategies that might otherwise be beneficial to our business;
−Removed: ● may negatively impact our reputation with our customers.
−Removed: In addition, based on information learned as part of the Restatement process, the Audit Committee commenced an investigation (the “FPP Investigation” and, together with the Revenue Recognition Investigation (as defined below), the “Audit Committee Investigations”) into FPP related practices.
−Removed: The Audit Committee Investigations were conducted with the assistance of outside counsel retained by the Audit Committee.
−Removed: Through the FPP Investigation, the Audit Committee identified evidence that, at times during the fiscal years covered in this Annual Report, former senior executives
−Removed: delayed shipment of available parts under the FPP and delayed recording the associated expense on the Company’s financial statements.
−Removed: The financial statement impact of such activity in prior reporting periods, if any, has been addressed through the Company’s Restatement.
−Removed: As part of the Restatement process, the Company corrected its accounting treatment of sales and FPP expenses so that bill-and-hold sales are recorded when all elements for revenue recognition as a bill-and-hold sale have been met and claims under the FPP program are recorded at the time a claim is received and accepted, as opposed to when the claim is satisfied.
−Removed: Refer to Note 14— Commitments and Contingencies in the Notes to Consolidated Financial Statements and to “Legal Proceedings” for information regarding legal proceedings in which we are involved.
−Removed: We have incurred and expect to continue to incur significant expenses related to remediation of material weaknesses in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation .
−Removed: We have devoted substantial internal and external resources towards the Audit Committee Investigations and the Restatement and expect to continue to devote resources towards the implementation of enhanced procedures and controls over material weaknesses that resulted in the Restatement and the remediation of other deficiencies in our internal control over financial reporting.
−Removed: Because of these efforts, we have incurred significant fees and expenses for legal, accounting, financial, and other consulting and professional services, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented, or replaced.
−Removed: We have made a number of remediation efforts in response to the Audit Committee Investigations.
−Removed: However, there can be no assurance that these steps will be successful.
−Removed: To the extent these steps are unsuccessful or incomplete, or we identify additional problems requiring remediation, we may be required to devote significant additional management time and incur significant additional expense.
−Removed: The incurrence of significant additional expense or the requirement that management devotes substantial time that could reduce the time available to execute on our business strategies, could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: Our access to the public markets to raise debt or equity capital depends on our ability to continue to timely file our periodic reports within the SEC limits.
−Removed: The Annual Report on Form 10-K for the year ended March 31, 2023 was filed nearly one year after its due date, our Quarterly Reports on Form 10-Q for the first three quarters of Fiscal 2024 and the Annual Report on Form 10-K for the year ended March 31, 2024, and the first quarter of Fiscal 2025 were not timely filed.
−Removed: Because these filings were not filed within the timeframes required by SEC rules, we will not be eligible to use a registration statement on Form S-3 that would allow us to continuously incorporate by reference our SEC reports into the registration statement, or to use “shelf” registration statements to conduct offerings, until approximately one year from the date we regain and maintain status as a current filer.
−Removed: To pursue an offering now, we are required to conduct the offering on an exempt basis, such as in accordance with Rule 144A, or file a registration statement on Form S-1.
−Removed: Using a Form S-1 registration statement for a public offering would likely take significantly longer than using a registration statement on Form S-3 and increase our transaction costs, and could, to the extent we are not able to conduct offerings using alternative methods, adversely impact our ability to raise capital or complete acquisitions of other companies in a timely manner.
Risks Related to Our Business Operations and Financial Results
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To succeed, demand for our products must increase significantly in existing markets, and there must be strong demand for products that we introduce in the future.
−Removed: In addition, as part of our business strategy, we are focusing our marketing efforts on expanding our EaaS business and on the energy efficiency, renewable energy and natural resources markets.
−Removed: We may be unable to grow our business in these target markets.
−Removed: If a sustainable market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we have incurred to develop our products, we may have further impairment of assets, and we may be unable to meet our operational expenses.
−Removed: development of a sustainable market for our systems may be hindered by many factors, including some that are out of our control.
+Added: In addition, as part of our business strategy, we are focusing our marketing efforts on the data center, energy efficiency, renewable energy and natural resources markets, and expanding our EaaS business.
+Added: If a sustainable market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we have incurred to develop our products, we may have further impairment of assets,
+Added: and we may be unable to meet our operational expenses.
+Added: The development of a sustainable market for our systems may be hindered by many factors, including some that are out of our control.
Examples include:
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● the cost competitiveness of our microturbines;
−Removed: ● costs associated with the installation and commissioning of our microturbines;
● maintenance and repair costs associated with our microturbines;
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● decreases in domestic and international incentives.
+Added: There are uncertainties and risks related to the profitability, safety and regulatory environment of AI that could adversely affect our business and operations.
+Added: In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, investments, strategic acquisitions, mergers, partnerships, joint ventures and alliances related to AI-infrastructure and data centers that involve significant risks and uncertainties.
+Added: We only recently began to pursue initiatives in AI related technologies and have not made any sales to AI infrastructure clients.
+Added: Some of our competitors, including competitors that have significantly greater resources, have already successfully generated revenues from AI business lines.
+Added: AI technologies and their uses are currently evolving rapidly.
+Added: If we fail to successfully integrate our products in AI infrastructure or develop new products in response to changes in technology or industry standards or fail to bring product enhancements or new product developments to market quickly enough, our products could rapidly become less competitive or obsolete for use in the development of AI infrastructure.
+Added: Thus, the future profitability of any AI-related investments is highly uncertain and such investments may adversely affect our business and operations.
+Added: The regulatory landscape surrounding AI is also evolving rapidly, and we anticipate increased scrutiny and potential regulation in the near and long term.
+Added: If we continue to invest in utilizing our products for the development of AI data centers and other AI infrastructure, then any such developments may significantly impact our business and operations in ways that are difficult to predict.
+Added: Governments and regulatory bodies are considering measures to ensure the responsible development and deployment of AI systems, including transparency, accountability, and fairness guidelines.
+Added: The amount of energy used for AI has also received significant attention, and it is expected that energy efficiency and sustainability will be critical factors regulating AI data centers.
+Added: Any future regulation of AI systems and related activities, including energy efficiency, could adversely affect our business and operations.
+Added: Our business may depend upon the demand for data centers.
+Added: Slower expansion of AI data centers due to actual or perceived deceleration in AI adoption or other factors could have an adverse impact on our business, financial condition and results of operations.
+Added: While we sell our solutions to customers in a variety of industries and for a variety of applications, we may see a significant increase in demand for our products to meet the power needs of AI data centers, which are experiencing increased demand for reliable, on-site power.
+Added: These AI data centers are experiencing this increased demand largely as a result of the large power consumption requirements of AI computing and the lack of available generation, transmission and interconnection from the utility grid.
+Added: A deceleration in AI adoption, changes in customer capital expenditure priorities, financing constraints (including reduced availability of project finance or tax equity), longer permitting or construction lead times, local moratoria, protests or siting restrictions on data centers or distributed generation, or improved grid interconnection timelines could adversely affect AI data centers’ demand for our solutions.
+Added: The rate at which AI will continue to be adopted, and the resulting increase in power needs by AI data centers and the development of new AI data centers, is inherently difficult to predict and beyond our control.
+Added: However, if AI adoption does not continue at the pace that we expect, or at all, our business, financial condition and results of operations could be adversely affected.
+Added: We have an evolving business model and strategy, which includes an increasing focus on diversifying into partnerships with data centers for AI and HPC companies.
+Added: To remain current in an energy industry that is rapidly evolving, we expect the services and products associated with such activities to continue to evolve and accordingly, our business model may also need to evolve.
+Added: Our growth strategy includes exploring expansion and diversification of our revenue sources into new markets.
+Added: For example, we are increasing our focus on the data center market.
+Added: We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to the business, damage our reputation or limit our growth.
+Added: Such modifications may increase the complexity of our business and place significant strain on our management, personnel, operations, systems, technical performance, financial resources and internal financial control and reporting functions.
+Added: Moreover, we may not be able to manage growth effectively, which could damage our reputation, limit our growth and adversely affect our operating results.
+Added: Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities within the data center market or other markets.
+Added: Additionally, any such changes to our business model or strategy could subject us to additional regulatory scrutiny and requirements, including licensing and permitting requirements.
+Added: Any of the foregoing could have a material adverse effect on our business, prospects, financial condition and operating results.
Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure.
−Removed: In order to achieve our goal of improving the quality and lowering the total costs of ownership of our products, we may require engineering changes.
−Removed: Such improvement initiatives may render existing inventories obsolete or excessive.
+Added: Our goal of improving the quality and lowering the total costs of ownership of our products may require engineering changes.
+Added: Such improvement initiatives may render existing inventories obsolete.
Despite our continuous quality improvement initiatives, we may not meet customer expectations.
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We sell our products with warranties.
−Removed: There can be no assurance that the provision for estimated product warranty will be sufficient to cover our warranty expenses in the future.
−Removed: We cannot ensure that our efforts to reduce our risk through warranty disclaimers will effectively limit our liability.
Any significant incurrence of warranty expense in excess of estimates could have a material adverse effect on our operating results, financial condition and cash flow.
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For these and other reasons, the sales cycle associated with our products is typically lengthy and subject to several significant risks over which we have little or no control.
+Added: AI and data center customers and other large loads also tend to have longer sales cycles.
+Added: Prospective customers often undertake a significant evaluation process that may further extend the sales cycle, and which evaluation may be negatively impacted by general market and economic conditions such as inflation, rising interest rates, availability of capital, a recessionary environment, geopolitical instability, energy availability and costs, and the availability and effects of government initiatives.
We plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially.
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As a result of these factors, a small fluctuation in timing of sales can cause operating results to vary materially from period to period.
−Removed: Net product orders for Fiscal 2025 were $46.0 million and contributed to an ending backlog of $23.5 million at March 31, 2025.
−Removed: The book-to-bill ratio was 1.3:1 for Fiscal 2025.
−Removed: Book-to-bill ratio is the ratio of new orders we received to units shipped and billed during a period.
−Removed: However, because our backlog represents only the estimated amount of future
−Removed: product revenue to be recognized under negotiated contracts as shipments convert backlog to recognized revenue for accounting purposes, we may not be able to fully realize the revenue value reported in our backlog, and our backlog may not be indicative of future revenues.
The timing of the backlog is based on the requirement date indicated by our customers.
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and geopolitical environments or otherwise, may increase our costs or limit the amount of raw materials and products that we can import or may otherwise adversely impact our business.
−Removed: While our production is located in the United States, a high percentage of our parts used in the production of our vehicles are sourced from China, Mexico and Canada.
−Removed: Further, our products contain a number of commodity materials from metals, which include steel, special high temperature alloys, copper, nickel, and molybdenum, to computer components.
−Removed: We import a significant volume of critical and limited source parts and raw materials which are subject to increasing tariffs.
−Removed: While we believe this is the best strategic business model, it also is more subject to risks associated with international trade conflicts including between the United States and such countries, particularly with respect to export and import controls and laws.
−Removed: For example, during the first quarter of 2025, the United States introduced trade policy actions that have increased import tariffs across a wide range of countries at various rates, including from certain jurisdictions from which we import parts.
−Removed: Such tariffs, if continued, will affect shipments from such jurisdictions.
+Added: While our production is located in the United States, a majority of the total items on our bill of materials are sourced domestically;
+Added: however, certain critical or limited-source components and raw materials used in our products are sourced internationally, including from China, Mexico, Canada, and other jurisdictions.
+Added: Further, our products contain a number of commodity materials, including steel, special high-temperature alloys, copper, nickel, and molybdenum, as well as computer components.
+Added: We import certain critical and limited-source parts and raw materials, which are subject to increasing tariffs.
+Added: As a result, we remain subject to risks associated with international trade conflicts, tariffs, export and import controls, sanctions, supply chain constraints, transportation costs, and geopolitical conditions.
+Added: For example, during recent periods, we have experienced significant price increases in the cost of certain commodity materials and components, and we may continue to see price increases due to tariffs, supply chain constraints, or other market factors.
+Added: Subsequent modifications and delays to, or invalidation of, various tariffs and associated refund procedures, litigation, and developments, including impacts from the U.S.
+Added: Supreme Court decision invalidating the use of the International Emergency Economic Powers Act to authorize certain tariffs, have produced heightened uncertainty with respect to trade and tariff policies, which could continue to impact the global trade environment and tariff rates applicable to goods we or our suppliers import and export.
The timeline, structure, and scope of any potential regulatory policies are uncertain, making it difficult for us to plan for or mitigate these risks effectively.
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companies from conducting business activities with specified individuals and companies and requires export licenses for certain of such activities.
−Removed: Following Russia’s military invasion of Ukraine in March 2022, we re-evaluated our efforts in the Russian and the surrounding CIS markets and have ceased exploring growth opportunities in such markets.
+Added: Following Russia’s military invasion of Ukraine in March 2022, we re-evaluated our efforts in the Russian and the
+Added: surrounding CIS markets and have ceased exploring growth opportunities in such markets.
We do, however, continue to evaluate customer orders and ensure that we are in compliance with all laws and regulations upon acceptance and before shipment.
−Removed: If we are unable to conduct business with new or existing customers or pursue opportunities with sanctioned
−Removed: countries, including Russia, our business, including our revenue, profitability, and cash flows, could be materially adversely affected.
+Added: If we are unable to conduct business with new or existing customers or pursue opportunities with sanctioned countries, including Russia, our business, including our revenue, profitability, and cash flows, could be materially adversely affected.
We may not be able to retain or develop relationships with OEMs or distributors in our targeted markets, in which case our sales would not increase as expected.
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At any given time, we may be in disputes with one or more distribution partners.
−Removed: See “We and certain of our current and former directors and officers are subject to various legal proceedings” and “Legal Proceedings” for information about the Company’s legal proceedings with Cal Microturbine.
Any such dispute could result in lengthy and costly litigation, even if the outcome is ultimately in our favor.
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Loss of a significant customer could have a material adverse effect on our results of operations.
−Removed: E-Finity, Lone Star, and Horizon accounted for approximately 13%, 12% and 11%, respectively, of our revenue for Fiscal 2025.
−Removed: Additionally, Lone Star and Optimal accounted for 18% and 10%, respectively, of net accounts receivable as of March 31, 2025.
+Added: E-Finity Distributed Generation (“E-Finity”), Cal Microturbine, DTC Soluciones SA de CV (“DTC”), and Lone Star Power Solutions (“Lone Star”), accounted for approximately 17%, 16%, 13% and 10%, respectively, of our revenue for Fiscal 2026.
+Added: Additionally, E-Finity, Lone Star and RSP Systems accounted for approximately 14%, 14% and 10%, respectively, of total accounts receivable as of March 31, 2026.
The loss of any significant customer could have a material adverse effect on our results of operations and financial condition.
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This could result in a lack of the experienced in-house talent necessary to successfully implement the outsourcing effort.
−Removed: Further, depending on the nature of operations outsourced and the structure of agreements we reach with suppliers to perform these functions, we may experience impairment in the value of manufacturing assets related to the outsourced functions or other unanticipated charges, which could have a material adverse effect on our operating results.
+Added: Further, depending on the nature of operations outsourced and the structure of agreements we reach with suppliers to perform these functions, and to the extent restructuring activities affect the use or expected cash flows of other long-lived assets, additional impairment charges may result, or other unanticipated charges, which could have a material adverse effect on our operating results.
Our success depends in significant part upon the continuing service of management, directors and other key personnel, and several key management and other employees have recently left Capstone.
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There can be no assurances that we can do so.
−Removed: Our growth may be constrained by resource limitations as competitors and customers compete for increasingly scarce human capital resources.
−Removed: The demand for skilled workers is
−Removed: currently high.
−Removed: We face an increasingly competitive labor market due to sustained labor shortages and are subject to inflationary pressures on employee wages and salaries which may increase labor costs.
−Removed: In addition, we have already experienced involuntary turnover due to increased commuting costs for our employees.
−Removed: Our competitors may be able to offer a work environment with higher compensation or more opportunities than we can.
−Removed: If we are unable to attract and retain a sufficient number of skilled personnel, our ability to successfully implement our business plan, grow our Company and maintain or expand our product offerings may be adversely affected, and the costs of doing so may increase.
−Removed: In addition, our internal control systems rely on employees trained in the execution of the controls, particularly within our financial and accounting function.
+Added: Our growth may be constrained by resource limitations as competitors and customers compete for human capital resources.
+Added: If we are unable to attract and retain a sufficient number
+Added: of skilled personnel, our ability to successfully implement our business plan, grow our Company and maintain or expand our product offerings may be adversely affected, and the costs of doing so may increase.
+Added: In addition, our internal control systems rely on employees trained in the execution of the controls, particularly within our financial and accounting functions.
Loss of these employees or our inability to replace them with similarly skilled and trained individuals or new processes in a timely manner could adversely impact our internal control mechanisms further.
−Removed: See “ Our management identified material weaknesses in its internal control over financial reporting and we determined that our disclosure controls and procedures were ineffective as of March 31, 2024, of which one material weakness remains unremediated as of March 31, 2025.
−Removed: If we fail to remediate the material weakness or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results may be affected, and such failure may adversely affect investor confidence and business operations ” for a discussion of the material weaknesses in the Company’s internal control over financial reporting.
−Removed: Our operations are vulnerable to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events, pandemics and other events beyond our control.
−Removed: Our operations are vulnerable to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events, pandemics and other events beyond our control.
−Removed: Our executive offices, manufacturing facility, and auxiliary inventory storage facility are located in Southern California.
−Removed: Because the Southern California area is located in an earthquake-sensitive area and because we have no redundancy facility located within or outside of Southern California, we are particularly susceptible to the risk of damage to, or total destruction of, our facilities in Southern California and the surrounding transportation infrastructure, which could affect our ability to make and transport our products.
−Removed: In addition, the greater Los Angeles area has experienced major fire danger and damage in the past five years, including most recently in January 2025, and may experience major fires in the future.
−Removed: While we take steps to mitigate the impact of severe weather and environmental and natural disasters, the frequency and severity of which may be impacted by climate change and other natural and manmade events, such events could result in severe disruption to our business operations at these facilities.
−Removed: The combination of high inflation, illegal immigration, the cost of living, and reduced spending on law enforcement in and around our location in Southern California poses an elevated risk of social disturbances and riots.
−Removed: Domestic and international political and economic instability or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption, expropriation and other economic or political uncertainties could interrupt and negatively affect the performance of our services, sale of our products or other business operations.
−Removed: See “ Changes to trade regulations, quotas, duties or tariffs, and sanctions caused by the changing U.S.
−Removed: and geopolitical environments or otherwise, may increase our costs or limit the amount of raw materials and products that we can import or may otherwise adversely impact our business ” for a discussion of the impact of global trade policy and Russia’s military invasion of Ukraine on our business and results of operations.
−Removed: A slowdown in economic growth in some emerging markets could result in long sales cycles, greater risk of uncollectible accounts and longer collection cycles.
−Removed: Fluctuations or devaluations in currency values, especially in emerging markets, could have an adverse effect on us, our suppliers, logistics providers and manufacturing vendors.
−Removed: All of these factors could result in increased costs or decreased revenues, and could materially and adversely affect our product sales, financial condition and results of operations.
Activities necessary to integrate any future acquisitions may result in costs in excess of current expectations or be less successful than anticipated.
−Removed: We may acquire other businesses in the future, and the success of these transactions will depend on, among other things, our ability to develop productive relationships with the corresponding distributors and to integrate assets and personnel, if any, acquired in these transactions and to apply our internal controls processes to these acquired businesses.
−Removed: Future acquisitions may require us to raise financing, including by issuing common stock that would dilute our current stockholders’ percentage ownership, assume or otherwise be subject to liabilities of an acquired company, record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic
−Removed: impairment charges, incur amortization expenses related to certain intangible assets, incur large acquisition and integration costs, immediate write-offs, and restructuring and other related expenses, and become subject to litigation.
−Removed: The benefits of an acquisition may also take considerable time to develop, and we cannot be certain that any particular acquisition will produce the intended benefits in a timely manner or to the extent anticipated, or at all.
−Removed: We may experience difficulties integrating the operations, technologies, products, and personnel of an acquired company or be subjected to liability for the target’s pre-acquisition activities or operations as a successor in interest.
−Removed: Such integration may divert management’s attention from the normal daily operations of our business.
−Removed: Future acquisitions may also expose us to potential risks, including risks associated with entering markets in which we have no or limited prior experience, especially when competitors in such markets have stronger market positions, the possibility of insufficient revenues to offset the expenses we incur in connection with an acquisition and the potential loss of, or harm to, our relationships with employees, customers, consumers and suppliers as a result of integration of new businesses.
−Removed: If we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations, and cash flows could be materially adversely affected.
+Added: Future acquisitions, including our acquisition of Cal Microturbine, LLC on August 13, 2025, involve integration, financing, diligence, customer-retention, cybersecurity, litigation, accounting and other risks.
+Added: If we are unable to integrate acquired businesses, retain customers or personnel, realize expected synergies or avoid unanticipated liabilities, costs, impairments or other charges, our business, financial condition, results of operations and cash flows could be materially adversely affected.
+Added: Our acquisition of Cal Microturbine, LLC on August 13, 2025 may fail to generate a financial return or realize anticipated synergies sufficient to offset acquisition costs.
+Added: This transaction involves significant challenges and risks including that the transaction does not advance our business strategy or strategic goals, that we do not realize a satisfactory return on our investment, that we cannot realize anticipated tax benefits or incur tax costs, that we acquire liabilities and/or litigation, that our due diligence process did not identify significant issues or liabilities, diversion of management’s attention from our other businesses, unknown or unanticipated cybersecurity issues, as well as heightened vulnerabilities during integration, that we face challenges retaining customers of the acquired business, and the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased cash and non-cash expenses.
Risks Related to Our Product Offerings
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We do not currently have and there can be no assurance that we will develop the resources or financial ability to develop a 100% hydrogen product.
+Added: Development of higher output microturbines and the refinement and commercialization of our 800 VDC, AI data center and related power solutions may require additional engineering, certification, customer validation, supplier support and capital investment, and may not be completed on schedule, within budget or accepted by customers.
Our operating results are dependent, in large part, upon the successful commercialization of our products.
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Our inability to meet volume commitments with suppliers could affect the availability or pricing of our parts and components.
−Removed: A reduction or interruption in supply, a significant increase in the price of one or more components, or a decrease in demand of our products could materially adversely affect our business and operations and could materially damage our customer
−Removed: relationships.
−Removed: Financial problems of suppliers on whom we rely could limit our supply of components or increase our costs.
+Added: A reduction or interruption in supply, a significant increase in the price of one or more components, or a decrease in demand of our products could materially adversely affect our business and operations and could materially damage our customer relationships.
+Added: Financial constraints of suppliers on whom we rely could limit our supply of components or increase our costs.
Also, we cannot guarantee that any of the parts or components that we purchase will be of adequate quality or that the prices we pay for the parts or components will not increase.
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The pricing could impact the costs to manufacture our products.
−Removed: During Fiscal 2024, we saw significant price increases in the cost of our commodity materials, and may continue to see price increases due to tariffs.
+Added: During recent periods, we have experienced significant price increases in the cost of certain commodity materials and components, and we may continue to see price increases due to tariffs, supply chain constraints or other market factors.
If we are not able to acquire commodity materials at prices and on terms satisfactory to us or at all, our operating results may be materially adversely affected.
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Our business and financial performance depends in part on the oil and natural gas industry, where a continued movement towards clean energy and away from fossil fuels, as well as fluctuations in prices for oil and natural gas, may have an adverse effect on our revenue, cash flows, profitability, and growth.
−Removed: Revenue in the oil and natural gas industry has been in decline for several years from historical highs, due to volatility in oil prices, as well as a movement towards clean energy and away from fossil fuels, which has impacted capital expenditures in the oil and natural gas industry.
+Added: Revenue in the oil and natural gas industry is affected by volatility in oil prices, as well as a movement towards clean energy and away from fossil fuels, which has impacted capital expenditures in the oil and natural gas industry.
We continue to be impacted by the volatility of the global oil and gas industry.
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In addition, a worsening of these conditions may have a material adverse impact on certain of our customers’ liquidity and financial positions, resulting in further spending reductions, delays in the collection of amounts owing to us, and other similar adverse effects.
−Removed: Despite a recent increase in oil prices, we have not yet seen a corresponding significant increase in sales activity, primarily due to the customers in our natural resources market vertical not yet increasing their spend on capital expenditures that would include our microturbine products.
+Added: Despite a recent increase in oil prices, we have not yet seen a corresponding significant increase in sales activity, primarily due to customers in our natural resources market vertical moderating their spend on capital expenditures that would include our microturbine products.
Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets.
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The cost of electric power generation bears a close relationship to natural gas and other fuels.
−Removed: However, changes to electric utility tariffs often require lengthy regulatory approval and include a mix of fuel types as well as customer categories.
+Added: However, changes to electric utility tariffs often require lengthy regulatory approval and include
+Added: a mix of fuel types as well as customer categories.
Potential customers may perceive the resulting swings in natural gas and electric pricing as an increased risk of investing in on-site generation.
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Non-compliance with applicable regulations could have a material adverse effect on our operating results.
−Removed: Furthermore, our potential utility customers must comply with numerous
−Removed: laws and regulations.
+Added: Furthermore, our potential utility customers must comply with numerous laws and regulations.
The deregulation of the utility industry may also create challenges for our marketing efforts.
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Increased input costs, such as fuel, utility, transportation, and compliance-related costs, could increase our operating costs.
−Removed: We and certain current and former directors and officers are subject to various legal proceedings.
−Removed: We were previously involved in a SEC investigation and certain current and former directors and officers are currently involved in stockholder litigation related to our Restatement, and we and our directors and officers may be named as defendants in other types of legal proceedings in the future.
−Removed: On March 13, 2024, Cal Microturbine, a distributor of the Company, submitted a demand for arbitration before the American Arbitration Association seeking, among other things, approximately $24.5 million in damages and alleging that the Company breached its distributor agreement with Cal Microturbine and committed fraud in allowing another company, Capstone Engineered Solutions, to sell, rent and service turbines in Cal Microturbine’s exclusive territory under the distribution agreement.
−Removed: On August 18, 2024, Cal Microturbine amended its complaint and reduced its damage claim to $18.8 million.
−Removed: See “Legal Proceedings” for discussion of this and other legal proceedings faced by the Company.
−Removed: These current and future matters may result in significant liabilities and diversion of our management’s time, attention, and resources.
−Removed: Given the uncertain nature of litigation generally, we are not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome in these matters.
−Removed: In view of these uncertainties, the outcome of these matters may result in charges in excess of any established reserves and, to the extent available, liability insurance.
−Removed: Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, financial condition or results of operations.
−Removed: In addition, any significant judgment or settlement amount may require us to incur additional indebtedness, adversely affect our liquidity, and ability to service our indebtedness, or require us to restructure or amend the terms of our indebtedness.
+Added: Our prior restatement and related Audit Committee investigations may continue to affect investor confidence, our reputation and our ability to raise capital.
+Added: We previously restated certain prior-period financial statements and concluded related Audit Committee investigations.
+Added: Although the Restatement occurred in prior periods and related disclosure has been streamlined elsewhere in this Annual Report, related matters may continue to affect investor confidence, our reputation and our ability to raise capital.
+Added: We may be involved in litigation and other proceedings that could adversely affect us.
+Added: From time to time, we may be involved in claims, litigation, investigations and other proceedings arising in the ordinary course of business, including commercial, employment, contractual, collection and other matters.
+Added: Litigation and regulatory proceedings are inherently uncertain and may result in substantial costs, diversion of management’s attention, adverse judgments, settlements or other consequences that could adversely affect our business, financial condition or results of operations.
Risks Related to Data, Security, and Intellectual Property
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Moreover, the expiration of our patents may lead to increased competition with respect to certain products.
−Removed: In addition, we cannot be certain that we do not or will not infringe third parties’ intellectual property rights.
+Added: In addition, we cannot be certain that we
+Added: do not or will not infringe third parties’ intellectual property rights.
Any such claim, even if it is without merit, may be expensive and time consuming to defend, subject us to damages, cause us to cease making, using or selling certain products that incorporate the disputed intellectual property, require us to redesign our products, divert management time and attention and/or require us to enter into costly royalty or licensing arrangements.
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Both the frequency and magnitude of cyberattacks is expected to increase and attackers are becoming more sophisticated.
−Removed: Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, the conflict in Israel or increasing tension with China, may create a heightened risk of cybersecurity attacks.
+Added: Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, the conflicts in Israel and Iran or increasing tension with China, may create a heightened risk of cybersecurity attacks.
To the extent artificial intelligence capabilities improve and are increasingly adopted, they may be used to identify vulnerabilities and craft increasingly sophisticated cybersecurity attacks.
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Risks Related to Ownership of Our Common Stock
−Removed: Our management identified material weaknesses in its internal control over financial reporting and we determined that our disclosure controls and procedures were ineffective as of March 31, 2024, of which one material weakness remains unremediated as of March 31, 2025.
−Removed: If we fail to remediate the material weakness or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results may be affected, and such failure may adversely affect investor confidence and business operations.
−Removed: In connection with our review of our financial statements leading to the Restatement and in the course of preparing our financial statements for Fiscal 2024, we identified material weaknesses in our internal controls over financial reporting.
−Removed: A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
−Removed: We identified material weaknesses related to (i) an inappropriate tone at the top established by certain former senior executives, (ii) our lack of sufficient qualified professionals with an appropriate level of accounting and internal control knowledge, training and experience, (iii) our failure to perform a sufficient review of accounting policies to ensure ongoing adherence with U.S.
−Removed: GAAP, (iv) our failure to design and maintain effective internal control over financial reporting for systems, products, parts, and accessories sales subject to bill and hold arrangements with customers and (v) our failure to design and maintain effective internal control over financial reporting related to the proper accounting, presentation and disclosure for FPP service contracts, including the cost recognition of parts and labor associated with FPP service contracts.
−Removed: To address our material weaknesses, we made changes to our program and controls as set forth in Part II, Item 9A “Controls and Procedures.” We have been able to remediate all but one of the five original material weaknesses.
−Removed: In the course of preparing our financial statements for Fiscal 2025, we identified the following material weakness in our internal controls over financial reporting:
−Removed: our failure to design and maintain effective internal control over financial reporting relating to the proper accounting, presentation and disclosure for FPP service contracts, including the cost recognition of parts and labor associated with FPP service contracts.
−Removed: We will not be able to remediate this final material weakness unless the proposed steps have been completed and have been operating effectively for a sufficient period of time.
−Removed: We cannot assure you that the measures we plan to take will in fact be sufficient to remediate the control deficiencies that led to this material weakness in our internal control over financial reporting or that such measures will prevent or avoid potential future material weaknesses, and our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.
−Removed: Further, additional weaknesses in our internal control over financial reporting may be discovered in the future.
−Removed: If we are unable to remediate this material weakness and otherwise implement and maintain effective internal control over financial reporting, our ability to record, process and report financial information accurately, and to prepare financial statements and satisfy our public reporting obligations within required time periods, could be adversely affected.
−Removed: If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements.
−Removed: In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, investors may lose confidence in our financial reporting and the prices of our securities may decline as a result.
−Removed: We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
−Removed: Future issuances or sales of our Common Stock or exercises by holders of any warrants we may issue could lower our stock price and dilute the interests of existing stockholders.
+Added: We are a holding company and will depend on dividends and distributions from our Operating Subsidiary to pay any dividends.
+Added: The Company is a holding company with assets consisting primarily of our investment in the Operating Subsidiary.
+Added: Our business operations are conducted primarily out of the Operating Subsidiary and certain of its subsidiaries.
+Added: As a result, in addition to the restrictions on payment of dividends that apply under the terms of our existing indebtedness, our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from the Operating Subsidiary.
+Added: Payments to us from the Operating Subsidiary will be contingent upon its earnings and subject to any limitations on the ability of such entity to make payments or other distributions to us.
+Added: Future issuances or sales of our Common Stock, exercises by holders of any warrants we may issue or conversion of the Series A Preferred Stock could lower our stock price and dilute the interests of existing stockholders.
We may issue additional shares of our Common Stock in the future.
The issuance of a substantial amount of our Common Stock could have the effect of substantially diluting the interests of our current stockholders.
−Removed: Further, the Preferred Units issued pursuant to the Capstone Green Energy LLC Agreement are non-dilutable, and therefore, any issuances of Common Stock will have an even greater dilutive effect in respect of our current stockholders’ indirect equity interests in the Operating Subsidiary.
The sale of a substantial number of shares of our Common Stock, or anticipation of any such sales, could cause the trading price of our Common Stock to decline or make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire.
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If any of our stockholders sell substantial amounts of our Common Stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market and trading price of our securities, even if there is no relationship between such sales and the performance of our business.
+Added: Holders of our Series A Preferred Stock are entitled to certain dividend payments under the Certificate of Designation that may increase over time and could adversely affect our financial condition and results of operations.
+Added: The Series A Preferred Stock will accrue a cumulative dividend at the rate (the “Dividend Rate”) of 5.00% per annum on the original issue price (as increased by prior PIK Dividends) (the “PIK Dividend”), compounding annually and payable in kind by increasing the liquidation preference and accreted value of the Series A Preferred Stock.
+Added: The PIK Dividend will automatically accrue daily from the date of issuance and compound on each anniversary thereof without requirement of any further action (including the declaration of dividends) by the Company.
+Added: Beginning on June 30, 2030, we may elect to pay accrued and unpaid dividends for any quarterly period in cash, provided that we satisfy minimum earnings, leverage and liquidity requirements (the “Minimum Financial Metrics”).
+Added: The Series A Preferred Stock will also entitle holders to participate in any dividends or distributions paid or made on the Common Stock on an as-converted basis.
+Added: If the Common Stock is not listed on a national securities exchange on or before the date that is eighteen (18) months after the closing date of the Preferred Stock Investment (the “Preferred Stock Investment Closing Date”), the dividend rate will increase by two hundred (200) basis points per annum on such date and an additional one hundred (100) basis points on each anniversary of such date thereafter.
+Added: Beginning on the four (4) year anniversary of the Preferred Stock Investment Closing Date and on each June 30, September 30, December 31 and March 31 thereafter, (x) the Regular Dividend Rate (as defined in the Certificate of Designation) will increase by two hundred (200) basis points during certain periods if the Minimum Financial Metrics are not satisfied or one hundred (100) basis points if the Minimum Financial Metrics are satisfied, subject, in each case, to a maximum regular dividend rate of thirteen percent (13.0%) per annum.
+Added: If such rate increases occur, our financial obligations to the holders of the Series A Preferred Stock could become significantly more burdensome.
+Added: Also, our ability to make payments due to the holders of our Series A Preferred Stock using cash is limited by the amount of cash we have on hand at the time such payments are due as well as certain provisions of the Delaware General Corporation Law (the “DGCL”).
+Added: The Certificate of Designation contains anti-dilution provisions that may dilute the interests of our common stockholders, depress the price of our common stock and make it difficult for us to raise additional capital.
+Added: If we issue Common stock or Securities convertible into or exercisable for common stock at a price less than the then-applicable conversion price of the Preferred Shares (the “Conversion Price”), then the Conversion Price will be reduced on a weighted-average basis that provides for more significant adjustment in the case of securities issued at a price (or deemed price) that is less than 50% of the then-effective Conversion Price.
+Added: The Conversion Price is also subject to customary adjustments in the case of a spinoff, recapitalization, rights distribution or similar transaction, with distribution of rights, options or warrants at an exercise price below the then-applicable Conversion Price triggering additional adjustment under the weighted-average basis described above.
+Added: Such adjustments can dilute the book value per share of Common Stock.
+Added: In addition, the perceived risk of dilution may cause our stockholders to be more inclined to sell their Common Stock, which may in turn depress the price of our shares of common stock regardless of our business performance.
+Added: We may also find it more difficult to raise additional equity capital while any of the Preferred Shares remain outstanding.
+Added: The Certificate of Designation contains protective provisions and preemptive rights that may make it difficult to procure additional financing and that may affect our financial condition and results of operations.
+Added: The Certificate of Designation contains certain protective provisions that require the prior approval of the Majority Holders (as defined in the Certificate of Designation) before we may take certain actions, including, but not limited to, the acquisition of assets, the incurrence of indebtedness and liens, transactions with stockholders, sales and dispositions of assets, the payment of dividends and other distributions, the issuance of equity capital, any change in the authorized number of directors and any voluntary bankruptcy filing, in each case subject to certain exceptions.
+Added: These protective provisions may limit our flexibility in raising capital, pursuing strategic transactions or otherwise managing our business, which may have an adverse effect on our financial condition and results of operations.
+Added: If we require additional funding while these restrictions remain in effect, we may be unable to effect a financing transaction on terms acceptable to us, or at all, while also remaining in compliance with the terms of the Certificate of Designation, or we may be forced to seek a waiver from the holders of the Series A Preferred Stock, which such holders are not obligated to grant to us.
+Added: The Certificate of Designation also provides that eligible holders of the Series A Preferred Stock have the right to participate, on a pro rata basis, in certain future offerings of our equity and debt securities.
+Added: These preemptive rights could make it more difficult or time-consuming for us to consummate future capital-raising transactions, and the participation of Series A Preferred Stockholders in such offerings could increase the overall dilution to our existing common stockholders.
+Added: Under the securities purchase agreement we entered into with certain investors on November 24, 2025 (the “2025 PIPE Purchase Agreement”), the Company is restricted from entering into or effecting variable rate transactions until January 2, 2027.
+Added: These protective provisions and other limitations may limit our flexibility in raising capital or incurring any indebtedness, which may have an adverse effect on our financial condition.
+Added: There is currently limited public trading market for our common stock on the OTC market, and we cannot assure you that a more active trading market will develop for our common stock.
+Added: As of this filing, the Company’s Common Stock trades on the Over the Counter (“OTC”) market under the ticker symbol CGEH.
+Added: We cannot provide any assurance that the trading volume or price will increase with over-the-counter trading.
+Added: Being listed on a more limited marketplace such as OTC, may have an adverse effect on the liquidity of the Common Stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of our company.
+Added: This may result in lower prices for the Common Stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for the Common Stock.
The market price of our Common Stock is likely to be highly volatile and you could lose all or part of your investment in our securities.
There is limited trading activity for our Common Stock in the OTC market.
−Removed: An investment in our securities is risky, and stockholders could lose their investment in our securities or suffer significant losses and wide fluctuations in the market value of their investment.
−Removed: Even with the commencement of trading of our Common Stock on the OTC market, the market price of our Common Stock is likely to be highly volatile.
+Added: An investment in our securities is risky, and stockholders could lose their investment in our securities or suffer significant losses and wide fluctuations in the market value of their investment and the market price of our Common Stock is likely to be highly volatile.
Given the continued uncertainty surrounding many variables that may affect our business, and the industry in which we operate, our ability to foresee results for future periods is limited.
9 unchanged sentences
● errors, omissions, or failures by third parties in meeting commitments to us;
−Removed: ● changes in the market valuations or earnings of our competitors or other technology companies;
+Added: ● changes in the market valuations or earnings of our competitors or other technology and energy companies;
● announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures, or other strategic initiatives;
7 unchanged sentences
● additions or departures of key personnel;
−Removed: ● the trading volume of our Common Stock;
● developments relating to litigation or governmental investigations;
−Removed: ● decreases in or continued low levels of oil, natural gas and electricity prices.
+Added: ● decreases in levels of oil, natural gas and electricity prices.
Market conditions may result in volatility in the level of, and fluctuations in, market prices of stocks generally and, in turn, our Common Stock.
Global financial markets have experienced extreme disruption in recent years, including, among other things, extreme volatility in securities prices.
−Removed: In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against the Company.
−Removed: Certain of our current and former directors and officers are involved in stockholder litigation related to our Restatement, and we and our directors and officers may be named as defendants in other types of legal proceedings in the future.
−Removed: Refer to “ Legal Proceedings ” This type of litigation, regardless of whether we prevail on the underlying claim, could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our financial condition, results of operations and cash flow.
+Added: In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has been instituted against the Company.
+Added: We and our directors and officers may be named as defendants in other types of legal proceedings in the future.
+Added: This type of litigation, regardless of whether we prevail on the underlying claim, could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our financial condition, results of operations and cash flow.
Provisions in our certificate of incorporation and bylaws, as well as Delaware law, may discourage, delay or prevent a merger or acquisition at a premium price.
−Removed: Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of the General Corporation Law of the State of Delaware, could discourage, delay, or prevent unsolicited proposals to merge with or acquire us, even though such proposals may be at a premium price or otherwise beneficial to you.
+Added: Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of the General Corporation Law of the State of Delaware, could discourage, delay, or prevent unsolicited proposals to merge with or acquire us, even though such proposals may be at a premium price or otherwise beneficial to common stockholders.
These provisions include authorization by our Board of Directors (the “Board”) to issue shares of preferred stock, on terms the Board determines in its discretion, without stockholder approval, and the following provisions of Delaware law that restrict many business combinations.
5 unchanged sentences
We have not paid cash dividends on any of our capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business.
−Removed: In addition, our ability to distribute dividends is subject to restrictions that apply under the terms of our existing indebtedness and Capstone Green Energy LLC Agreement.
+Added: In addition, our ability to distribute dividends is subject to restrictions that apply under the terms of our existing indebtedness and the Certificate of Designation.
Refer to “ We are a holding company and will depend on dividends and distributions from our Operating Subsidiary to pay any dividends .” As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future.
1 unchanged sentence
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.