What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-06-25 compared with 2025-06-27 · 163 added, 142 removed, 147 unchanged (67% of the section changed)

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Recent Developments

Refer to Note 3— Chapter 11 Proceedings and Emergence in the Notes to Consolidated Financial Statements for a summary of our voluntary filing under Chapter 11 of the Bankruptcy Code, our emergence therefrom and our delisting of our common stock from the Nasdaq.

Refer to Note 12— Debt for details regarding our Exit Note Purchase Agreement and Note 14— Commitments and Contingencies for details regarding our Service Agreements and the Trademark Licensing Agreement.

During Fiscal 2026, the Company executed several strategic, financing, and operational initiatives that impacted its capital structure, liquidity, and operations.

Refer to Note 2 – Basis of Presentation and Significant Accounting Policies for information regarding the Company’s liquidity position, and recent financing activities.

Refer to Note 11 – Debt for additional information on the Company’s Exit Note Purchase Agreement and related debt obligations, including outstanding balances and maturity profile.

Refer to Note 12 – Commitments and Contingencies for information related to legal matters, service agreements, and other contractual obligations.

Refer to Note 13 – Temporary Equity for a discussion of the Company’s capital structure, including the issuance of convertible preferred stock and related impact on stockholders’ equity.

Refer to Note 15 – Common Stock Issuance and Private Investment in Public Equity ("PIPE") Financing Transaction for additional information regarding equity financings completed during Fiscal 2026, including the November 2025 and March 2026 transactions.

References to the “November 2025 PIPE” and “March 2026 PIPE” mean the Company’s equity financings completed in November 2025 and March 2026, respectively (see Note 15 – Common Stock Issuance and PIPE Financing Transaction).

Collectively, these transactions are referred to as the “PIPE Financings.”

Refer to Note 20 – Business Combinations for information on the acquisition of distributor-related operations, including the Cal Microturbine acquisition and the acquisition of Capstone Distributor Support Services Corporation, and the related recognition of intangible assets.

We are the market leader in microturbine energy systems based on the number of microturbines sold annually and total installed base.

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Our microturbines are an inverter-based technology and can be interconnected to other distributed energy resources to form “microgrids” (also called “distribution networks”) located within a specific geographic area and provide power to a group of buildings.

Because our microturbines can provide a reliable source of power and can operate on multiple fuel sources, management believes they help solve the “Energy

Trilemma” of resiliency, sustainability and affordability.

Because our microturbines can provide a reliable source of power and can operate on multiple fuel sources, management believes they help solve the “Energy Trilemma” of resiliency, sustainability and affordability.

Management also believes our products and services offer a level of flexibility not currently offered by other technologies such as reciprocating engines.

We are currently exploring energy conversion options for the smaller end of the power spectrum.

For Fiscal 2025, net revenue was $85.6 million compared to $91.2 million for Fiscal 2024, a 6% decrease from the prior year.

Product and accessories revenue declined $8.9 million, or 18% primarily due to a decrease in sales resulting from distributor hesitancy post emergence from Chapter 11 and our reorganization.

The decrease in product and accessories revenue was offset, in part, by an increase in rental revenue of $3.1 million, or 27%, due to higher utilization of our rental fleet compared to the prior year.

Cost of goods sold totaled $62.3 million in Fiscal 2025 compared to $76.9 million in Fiscal 2024, a 19% decrease due to cost efficiencies, and decreased sales.

Gross profit was $23.3 million in Fiscal 2025 compared to $14.3 million in Fiscal 2024, a 63% increase from the prior year, primarily due to higher margins on rental units, cost efficiencies, and improved margins on product and accessory sales.

During Fiscal 2025, we had net loss of $7.2 million and our basic and diluted net loss per share was $0.38, compared to a $7.4 million net income and $0.39 net income per share, in Fiscal 2024, a 197% decrease from the prior year.

The $14.6 million decrease in net income (loss) was primarily due to the Fiscal 2024 gain on extinguishment of debt and reorganization items, net, of $32.5 million.

Excluding the Fiscal 2024 gain on extinguishment of debt and reorganization items, net, net income improved by $17.9 million.

Refer to Note 3— Chapter 11 Proceedings and Emergence in the Notes to Consolidated Financial Statements for further discussion of our outstanding indebtedness and the post emergence financing.

In the energy efficiency market, we continue to expand our market presence in hotels, office buildings, hospitals, retail and industrial applications globally and it has become the leading market segment in Fiscal 2025, accounting for 51% of product revenue.

In addition to our traditional market verticals, we are actively developing advanced energy solutions for the AI data center market.

The surging demand for artificial intelligence compute power has created a critical need for on-site, high-reliability power generation that traditional utility grids are struggling to meet.

We are developing an 800-volt direct-current microturbine solution designed to interface directly with next-generation AI chip architecture, delivering grid-independent, high-voltage DC power with meaningfully improved efficiency compared to legacy conversion systems.

These integrated AI Power Blocks are scalable from edge deployments to AI giga-campus environments and represent a significant near-term commercial opportunity for the Company.

We have not yet generated revenue from AI data center applications, and commercialization and customer adoption of these solutions remain subject to execution, validation and market risks.

For Fiscal 2026, net revenue was $106.0 million compared to $85.6 million for Fiscal 2025, a 24% increase from the prior year.

Product and Accessories revenue increased $16.6 million, or 41% primarily driven by the marketplace’s increased confidence in Capstone’s long-term business outlook, which allowed us to capture stronger demand and better pricing from customers & distributors.

Rental revenue also increased $1.5 million, or 10%, due to higher utilization of our rental fleet compared to the prior year, and Parts and Services revenue increased $2.3 million or 7% primarily driven by the compounding effect of prior years’ sales.

Cost of goods sold totaled $72.1 million in Fiscal 2026 compared to $62.3 million in Fiscal 2025, a 16% increase primarily driven by product mix.

Gross profit was $33.9 million in Fiscal 2026 compared to $23.3 million in Fiscal 2025, a 45% increase from the prior year, reflecting margin improvement across all three revenue streams.

Product and Accessories gross margin increased approximately 7 percentage points, from 3% to 10%, primarily reflecting improved pricing realization and a more favorable product mix.

Parts and Services gross margin increased approximately 8 percentage points, from 56% to 64%, driven by the higher-margin contribution of an expanding installed base and operating leverage on a largely fixed cost structure.

Rental gross margin increased approximately 9 percentage points, from 35% to 44%, reflecting higher fleet utilization spread over a relatively fixed asset base.

During Fiscal 2026, we reported net income of $2.8 million, or $0.14 per basic share, compared to a net loss of $7.2 million, or $0.38 per basic share, in Fiscal 2025, reflecting a $10.0 million improvement driven primarily by revenue growth of $20.4 million, improved gross margins, and only minimal increases in operating expenses.

Net loss attributable

to common stockholders was $66.8 million, or $3.21 per basic and diluted share for Fiscal 2026, compared to $7.2 million, or $0.38 per basic and diluted share, for Fiscal 2025.

The difference between net income and net loss attributable to common stockholders in Fiscal 2026 reflects a non-cash deemed dividend of $69.6 million arising from the accretion of the Operating Subsidiary's Redeemable Preferred Units to their maximum redemption value immediately prior to their full redemption on March 31, 2026.

This non-cash charge does not affect the Company's revenues, operating cash flows, or total assets, and management believes net income of $2.8 million is the most meaningful measure of the Company's operational performance for the period.

In the energy efficiency market, we continue to expand our market presence in hotels, office buildings, hospitals, retail and industrial applications globally.

The energy efficiency segment remained the leading market segment in Fiscal 2026.

The renewable energy market is fueled by landfill gas, biodiesel and biogas from sources such as food processing, agricultural waste and livestock manure.

Our product sales in the oil and gas and other natural resources market is driven by our microturbines’ reliability, emissions profile and ease of installation.

Our product sales in the oil and gas and other natural resources market are driven by our microturbines’ reliability, emissions profile and ease of installation.

Given the volatility of the oil and gas market, our business strategy is to ensure diversification by also targeting projects within the energy efficiency and renewable energy markets.

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In addition, management closely monitors operating expenses and strives to improve manufacturing efficiencies while simultaneously lowering direct material costs and increasing average selling prices.

The key drivers to our success are higher average selling prices, lower direct material costs, positive new order flow, reduced cash usage and expansion of the Energy-as-a-Service (“EaaS”) business.

An overview of our direction, targets and key initiatives are as follows:

The key drivers to our success are competitive selling prices, lower direct material costs, positive new order flow, reduced cash usage and expansion of the Energy-as-a-Service (“EaaS”) business.

Key Initiatives

Focus on Vertical Markets.

Our industry-leading, highly efficient, low-emission, resilient microturbine energy systems offer scalable solutions in addition to a broad range of customer-tailored solutions.

We target specific market verticals for these products.

Focus on Vertical Markets.

Within the distributed generation markets that we serve, we focus on vertical markets that we identify as having the greatest near-term potential.

In our primary products and applications (energy efficiency, natural resources, renewable energy, critical power supply, microgrid and transportation products), we identify specific targeted vertical market segments.

In our primary products and applications (energy efficiency, natural resources, renewable energy, critical power supply, microgrid, bridge power transportation and EV charging, ports, and AI data center products), we identify specific targeted vertical market segments.

Within each of these segments, we identify what we believe to be the critical factors to success and base our plans on those factors.

Given the volatility of the oil and gas market, we have refocused our business strategy to target projects within the energy efficiency market.

The following table summarizes our percentage or product revenues by vertical markets for which we had product revenues for the periods presented:

Year Ended March 31,

Energy efficiency

Natural resources

Renewable energy

Critical Power Supply

Transportation

Energy Efficiency—CHP/CCHP

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In such applications, our microturbines can maximize the availability of usable energy to provide a significant economic advantage to customers while reducing their on-site emissions.

Combined Heat and Power (“CHP”) and Combined Cooling, Heat and Power (“CCHP”) can improve site economics by capturing the waste heat created from a single combustion process to increase the efficiency of the total system, from approximately 30% to approximately 85% for hot water and chilled water to as much as 90% or more for certain steam and direct drying applications.

Combined Heat and Power (“CHP”) and Combined Cooling, Heat and Power (“CCHP”) can improve site economics by capturing the waste heat created from a single combustion process to increase the efficiency of the total system, from approximately 30% up to 85% for hot water and chilled water to as much as 90% or more for certain steam and direct drying applications.

Compared with more traditional, independent generation sources, the increase in operational efficiency also reduces greenhouse gas emissions through the displacement of other separate systems, which can also reduce operating costs and industrial waste.

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In some cases, these oil and gas or mining operations have no electric utility grid and rely solely on power generated on-site.

There are numerous locations, on a global scale, where the drilling, production, compression and transportation of natural resources and other extraction and production processes create fuel byproducts, which are traditionally burned or released into the atmosphere.

There are numerous locations, on a global scale, where the drilling, production, compression and

transportation of natural resources and other extraction and production processes create fuel byproducts, which are traditionally burned or released into the atmosphere.

Our microturbines can turn these fuel byproducts, such as flare gas, or sour gas, into a useable fuel to provide prime power to these sites.

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Our microturbines have demonstrated effectiveness in these smaller applications and may outperform conventional combustion engines in some situations, including when the gas contains a high amount of sulfur, as the sulfur can contaminate combustion engines’ lube oil, leading to equipment breakdowns and higher lifecycle costs.

Critical Power Supply

Certain mission-critical, high-demand power users, including advanced technology facilities, healthcare campuses, and data-intensive operations, require a level of power reliability that the traditional utility grid alone cannot consistently deliver.

Grid vulnerability during severe weather events, wildfires, and other disruptions has increased the urgency for on-site power solutions capable of operating independently of centralized infrastructure.

Capstone's microturbine solutions offer a compelling alternative to conventional uninterruptible power supply (“UPS”) systems and diesel backup generators for these environments.

Designed for continuous operation, our systems feature built-in black-start capability and seamless transition to stand-alone islanding mode, ensuring uninterrupted power when grid availability cannot be assured.

We believe demand for dispatchable, behind-the-meter critical power solutions will continue to grow as grid reliability concerns persist and the consequences of downtime intensify across these sectors.

Commercial and industrial customers increasingly face a significant timing disconnect between their operational power requirements and the availability of permanent grid infrastructure.

Interconnection queues have lengthened considerably, substations in high-growth areas are operating at or near capacity, and utility construction timelines routinely lag the development schedules of data centers, manufacturing facilities, EV charging networks, and other high-load projects.

Capstone's modular, containerized microturbine solutions address this gap by delivering reliable, dispatchable on-site generation while permanent grid access is secured.

Compared to conventional diesel generation, our low-emission microturbines are better positioned to meet stringent air quality requirements, can be rapidly deployed and scaled to load, and integrate into a facility's long-term energy infrastructure upon grid interconnection.

As grid constraints continue to intensify across high-growth markets, we believe Capstone is well-positioned to capture an expanding opportunity in bridge power, offering customers a cleaner, more flexible alternative to legacy temporary generation solutions.

Microgrid is a group of interconnected loads and distributed energy resources that act as a single controllable energy entity with respect to the grid.

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however, in the event of a widespread outage, the microgrid will disconnect from the main grid and continue to operate independently to maintain the electricity supply to the homes and businesses that are connected to the microgrid’s electricity network.

Our microturbines can meet the needs of microgrid end users by lowering their overall cost to operate and by providing a versatile dispatchable technology that is fuel flexible and scalable enough to fit a wide variety of applications.

Our microturbines can meet the needs of microgrid end users by lowering their overall cost to operate and by providing versatile dispatchable technology that is fuel flexible and scalable enough to fit a wide variety of applications.

We have seen continued development in the microgrid market segment.

Transportation

Transportation and EV Charging

Our technology can also be used to support the Electric Vehicle (“EV”) market by providing power solutions to charge vehicles.

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Our customers have applied our products in EV applications for fleets and remote location charging stations.

We are continuing to pursue global EV charging opportunities to fill the demand for power in this market segment.

Net product orders were approximately $46.0 million and $20.1 million for Fiscal 2025 and 2024, respectively.

Ending backlog was approximately $23.5 million at March 31, 2025 compared to $14.2 million at March 31, 2024.

The book-to-bill ratio was 1.3:1 and 0.4:2 for Fiscal 2025 and 2024, respectively.

Book-to-bill ratio is the ratio of new orders we received to units shipped and billed during a period.

The timing of the backlog is based on the requirement date indicated by our customers and part availability.

However, based on historical experience, management expects that a significant portion of our backlog may not be shipped within the next 12 months.

Additionally, the timing of shipments is subject to change based on several variables (including customer deposits, payments, availability of credit and customer delivery schedule changes), most of which are not within our control and can affect the timing of our revenue.

As a result, management believes the book-to-bill ratio demonstrates the current demand for our products in the given period.

Capstone is actively expanding its global EV charging deployments, targeting fleet operators, remote installations, and high-demand charging environments where grid-independent power solutions deliver the greatest value.

Regulatory pressure to electrify port operations is intensifying, yet marine terminal power infrastructure faces significant constraints in quality, reliability, and availability.

Capstone's containerized microturbine systems address these demands directly, delivering up to 1 MW of ultra-low-emission on-site power and EV charging within a single 30-foot container.

The compact, relocatable form factor eliminates the civil works requirements of permanent infrastructure and allows operators to right-size and reposition generation assets as operational needs evolve.

Our validated 30% hydrogen-natural gas blended and 100% hydrogen operation further positions Capstone to support port operators through current emissions compliance and toward longer-term net-zero objectives.

We believe the convergence of tightening electrification mandates, grid constraints, and demand for fuel-flexible distributed generation creates a substantial and growing opportunity in this vertical.

With a differentiated product profile purpose-built for complex port environments, we are actively pursuing this market as a meaningful contributor to long-term revenue growth.

AI Data Center

Surging demand for AI compute has driven unprecedented capital investment in data center infrastructure globally, while exposing a critical vulnerability:

the inability of traditional utility grids to deliver power at the speed, scale, and reliability that next-generation facilities require.

Grid constraints, rising electricity costs, and the power density demands of modern AI workloads are accelerating the shift toward on-site generation, a shift that plays directly to Capstone's core strengths.

Capstone's microturbine-based systems address the sector's requirements for integrated redundancy, ultra-low emissions, and thermal efficiency.

Waste heat recovery converted to chilled water at approximately one-tenth the energy consumption of conventional electric chillers improves total site efficiency to approximately 85%.

Our microturbines natively produce approximately 760 VDC, a strong technical foundation for the emerging 800 VDC data center standard, enabling a direct-current solution that eliminates multiple AC/DC conversion stages, reduces copper mass by up to 45%, and improves power efficiency by as much as 5% compared to legacy systems.

These integrated AI Power Blocks scale from edge deployments to 200 MW AI campus configurations.

Although revenue contribution from this vertical remains in early stages, we view the AI data center market as one of the most significant long-term growth opportunities in Capstone's history.

We are actively pursuing opportunities in this market and investing in product development, strategic partnerships, and commercial readiness to capitalize on the next generation of AI and data center infrastructure.

With a differentiated technical profile and a compelling 800 VDC product advantage, we believe Capstone is well-positioned to compete for a meaningful share of one of the largest infrastructure buildouts of the decade

Sales and Distribution Channels

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A significant portion of our revenue is derived from sales to distributors that resell our products to end users.

We have a total of 53 distributors, Original Equipment Manufacturers (“OEMs”) and national accounts.

We have a total of 47 distributors and partners, Original Equipment Manufacturers (“OEMs”) and national accounts.

In the United States and Canada, we currently have 8 distributors, OEMs and national accounts.

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We continue to refine our distribution channels to address our specific targeted markets.

In addition to our distributor network, during fiscal year 2026 we expanded our go-to-market strategy to include direct sales through the acquisition of Cal Microturbine, formerly one of our distributors.

This acquisition marks a strategic evolution in how we reach end users, enabling us to capture additional margin, deepen customer relationships, and gain more immediate insight into end-user demand and purchasing patterns.

Through our direct sales channel, we are able to offer customers more tailored service and support while maintaining greater control over pricing and product positioning.

We believe our direct sales capability complements our existing distributor relationships and strengthens our overall commercial platform as we continue to grow.

As part of our EaaS business line, we provide services primarily through our global distribution network.

Together with our global distribution network, we offer a comprehensive factory protection plan (“FPP”) for a fixed fee to perform regularly scheduled and unscheduled maintenance as needed.

Together with our global distribution network, we offer comprehensive service plans for a fixed fee to perform regularly scheduled and unscheduled maintenance as needed.

We provide factory and on-site training to certify all personnel that are allowed to perform service on our microturbines.

FPPs are generally paid quarterly in advance.

LTMAs and FPPs are generally paid monthly or quarterly in advance.

Product Robustness and Life Cycle Maintenance Costs.

We continue to invest in enhancements that relate to high performance and high reliability.

An important element of our continued innovation and product strategy is to focus on the engineering of our product hardware and electronics to make them

work together more effectively and deliver improved microturbine performance, reliability and low maintenance costs to our customers.

An important element of our continued innovation and product strategy is to focus on the engineering of our product hardware and electronics to make them work together more effectively and deliver improved microturbine performance, reliability and low maintenance costs to our customers.

New Product Development.

Our new product development strategy focuses on meeting the specific needs of our target vertical markets.

Our C65, C200, C600, C800, and C1000S Series microturbines will continue to be our foundational product lines.

Our research and development efforts are primarily directed at enhancing the features and capabilities of these existing products.

To bolster power resilience, we are developing Direct Current (“DC”) output power solutions utilizing our core microturbine technology.

This advancement will broaden our applications, allowing our microturbine solutions to be deployed in markets such as EV charging without requiring synchronization with traditional high-voltage Alternating Current (“AC”) utility grids.

This offering will also provide a bridge during the rigorous process of grid interconnect certification from nationally recognized test laboratories.

We are also collaborating with industry leaders to create autonomous power solutions.

These solutions are designed to anticipate overload conditions and proactively supplement insufficient grid resources with readily available microturbine power.

Additionally, we are accelerating the development of onboard remote monitoring systems that are designed to ensure reliable power service and asset telemetry through cloud-based features, significantly improving the user experience.

We are committed to advancing our hydrogen product line.

In March 2022, we launched a commercially available hydrogen-based combined heat and power (CHP) product capable of operating safely on a 30% hydrogen / 70% natural gas mixture.

Building on this progress, we are currently testing a 100% hydrogen gas combustion system through our research and development partnership with Argonne National Laboratory.

Following the successful operation of the C65 model, we are now working towards qualifying a 100% hydrogen-fueled C200 engine.

Our C65, C200, C600, C800, and C1000 Series microturbines will continue to be our foundational product lines, and we are actively expanding this lineup with the development of the C250, a 250-kilowatt engine that has completed successful test runs and is advancing through our commercialization process.

The C250 is designed to serve as a highly efficient, modular building block for distributed generation applications, including AI data center deployments where its power output maps well to the block-power topology increasingly favored by data center operators.

Our research and development efforts are directed at enhancing the features and capabilities of both our existing product lines and these new platform additions.

To bolster power resilience, we have developed an 800-volt direct-current ("800 VDC") output platform utilizing our core microturbine technology.

In October 2025, we announced, together with Microgrids 4 AI, Inc.

("MG4AI"), the integration of this 800 VDC microturbine with MG4AI's modular, liquid-cooled data center kits to create turnkey, grid-independent "AI Power Blocks." Each AI Power Block delivers power, liquid cooling, and compute as a unified, rapidly deployable system.

The 800 VDC architecture directly powers GPU server racks without the AC-to-DC conversion stage required by legacy systems, improving efficiency by eliminating rectification losses and reducing copper distribution requirements by up to 45% compared to conventional 208/480 VAC distribution.

These AI Power Blocks are designed to scale from edge deployments to AI giga-campus environments exceeding 1 GW and are aligned with the 800 VDC architectures endorsed by leading semiconductor and infrastructure platforms.

This advancement also broadens our applications beyond AI data centers, allowing our microturbine solutions to be deployed in EV charging and other direct-current applications without requiring synchronization with traditional high-voltage alternating-current ("AC") utility grids, and providing a bridge during the rigorous grid interconnect certification process.

We are also developing new combustion liner technology capable of delivering approximately 5 ppm NOx without emissions aftertreatment, further strengthening our competitive position in markets with stringent air quality requirements.

Additionally, we are collaborating with industry leaders to create autonomous power solutions designed to anticipate overload conditions and proactively supplement insufficient grid resources with readily available microturbine power.

We are accelerating the development of onboard remote monitoring systems designed to ensure reliable power service and asset telemetry through cloud-based features, significantly improving the user experience.

The Company continues to advance fuel flexibility across its product lines, including validated operation on hydrogen fuel blends.

Our microturbines have demonstrated the capability to operate on hydrogen-blended fuels, which we believe positions the Company to support customers with longer-term decarbonization objectives as hydrogen infrastructure continues to develop.

Cost and Core Competencies .

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In order to utilize manufacturing facilities and technology more effectively, we are focused on continuous improvements in manufacturing processes.

Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, supply management and logistics.

Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, including robotics, supply chain management and logistics.

Management expects to be able to lower our costs as product volumes increase.

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We believe that effective execution in each of these key areas will be necessary to leverage our promising technology and early market leadership into achieving positive cash flow with growing market presence and improving financial performance.

We currently occupy warehouse and office space in Van Nuys, California with a production capacity of approximately 2,000 units per year, depending on product mix.

Critical Accounting Estimates

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(1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board.

In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above.

Changes in estimates used in these and other items could have a material impact on our financial statements.

● Inventories.

Our inventories are valued at the lower of cost (determined on a first in first out basis) or net realizable value.

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A change in forecast could impact the classification of inventories.

● The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments.

The determination of the contractual life of accounts receivable, the aging of outstanding receivables, as well as the historical collections and write-offs, and future assumptions about the collectability are all integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances.

Accounts receivable are analyzed on a quarterly basis to assess the adequacy of reserves for expected credit losses.

Trade accounts receivable are recorded at the invoiced amount and are typically non-interest bearing.

We maintain allowances for estimated credit losses resulting from this analysis.

We evaluate all accounts aged over 60 days past payment terms.

If the financial condition of our customers deteriorates or if other conditions arise that result in an impairment of their ability or intention to make payments, additional allowances may be required.

Refer to Note 2— Basis of Presentation, Significant Accounting Policies and Going Concern in the Notes to Consolidated Financial Statements.

● The Company accounts for noncontrolling interests in the consolidated Operating Subsidiary, which represent the equity interests held by a related party.

Refer to Note 3— Chapter 11 Proceedings and Emergence for details on the formation of the Operating Subsidiary.

The noncontrolling interests in the consolidated Operating Subsidiary are redeemable and are presented as temporary equity in the Company’s Consolidated Balance Sheet.

Refer to Note 10— Temporary Equity for details of the noncontrolling interests.

The Company uses the hypothetical liquidation at book value (“HLBV”) method to attribute the earnings of the consolidated Operating Subsidiary between the controlling and noncontrolling interests .

Under the HLBV method, the amounts reported as noncontrolling interests in the consolidated Operating Subsidiary on the Consolidated Balance Sheets represent the amounts then noncontrolling interests would hypothetically receive at each balance sheet reporting date under the liquidation provisions of the governing agreements assuming the net assets of the consolidated Operating Subsidiary were liquidated at recorded amounts and

distributed between the controlling and noncontrolling interest in accordance with the governing documents.

We separately remeasure and adjust the noncontrolling interest for changes in the redemption value as needed at the end of each period.

We measure the maximum redemption value, which is based on our Common Stock value at period end.

Refer to Note 10 – Temporary Equity for more information.

● Valuation of Intangible Assets Acquired in Business Combinations.

The Company records identifiable intangible assets acquired in business combinations at fair value as of the acquisition date in accordance with ASC Topic 805.

The determination of fair value requires significant judgment and is therefore considered a critical accounting estimate.

The Company estimates the fair value of acquired intangible assets using income-based approaches, which require assumptions regarding projected revenues, customer attrition rates, expected useful lives, and discount rates.

These assumptions are based on management’s estimates of future operating results and market conditions and are developed with the assistance of third-party valuation specialists.

Changes in these assumptions could materially impact the fair value of intangible assets recognized, the allocation of purchase price, and future amortization expense.

In addition, the Company evaluates intangible assets for impairment when indicators are present, which also requires the use of significant estimates.

Refer to Note 8 – Intangible Assets and Note 20 – Business Combinations for more information.

Results of Operations

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Middle East and Africa

Revenue for Fiscal 2025 decreased $5.6 million, or 6%, to $85.6 million from $91.2 million for Fiscal 2024.

The change in revenue for Fiscal 2025 compared to Fiscal 2024 included a decrease in revenue of $7.0 million from the European markets.

The overall decrease in revenue was offset, in part, by increases in revenue of $0.6 million from the United States and Canadian markets, $0.3 million from the Middle East and African markets, $0.3 million from the Latin American markets, and $0.2 million from the Asia and Australia markets.

The decrease in Europe was primarily due to continued instability and higher natural gas costs resulting in a decrease in product deliveries in Fiscal 2025 compared to Fiscal 2024.

The increases in the United States and Canada, Latin America and Asia and Australia were primarily attributable to an increase in our EaaS long-term rental services during Fiscal 2025.

Revenue for Fiscal 2026 increased $20.4 million, or 24%, to $106.0 million from $85.6 million for Fiscal 2025.

Increases in revenue in the United States and Canada were primarily attributable to higher sales in Cal West territories, driven by customers taking advantage of the investment tax credit (“ITC”) safe harbor ahead of its expiration.

In Latin America, revenue growth was primarily driven by increased activity in Mexico, reflecting the reshoring of manufacturing from Asia following announced U.S.

tariffs, as well as changes in interconnection regulations that allowed for larger project sizes.

Decreases in revenue in Europe were primarily due to the conversion of a large customer from rental to product sales during Fiscal 2026, while decreases in Asia and Australia were attributable to reduced funding availability associated with ongoing geopolitical instability in the Middle East.

The following table summarizes our revenue (revenue amounts in millions):

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Parts and Service

For Fiscal 2025, revenue from microturbine products and accessories decreased $8.9 million, or 18%, to $40.2 million from $49.1 million for Fiscal 2024.

The $8.9 million decrease was primarily driven by a decrease in megawatts shipped during Fiscal 2025 compared to the same period last year, due to a decrease in sales due to emergence from Chapter 11 and our reorganization.

Megawatts shipped were 26.7 megawatts and 40.5 megawatts during Fiscal 2025 and Fiscal 2024, respectively.

Average revenue per megawatt shipped was approximately $1.4 million and $1.2 million during Fiscal 2025 and Fiscal 2024, respectively, primarily due to the effect of previously announced product price increases and sale of rental units.

The timing of shipments is variable and based on several factors (including customer deposits, payments, availability of credit and delivery schedule changes), most of which are not within our control and can affect the timing of revenue recognition.

Parts and service revenue, which are part of our EaaS business line and includes revenue from our parts shipments, FPP contracts, and other service revenue, for Fiscal 2025 was consistent year over year, with an increase $0.2 million, or 1%, to $30.9 million from $30.7 million for Fiscal 2024.

For Fiscal 2026, revenue from microturbine products and accessories increased $16.6 million, or 41%, to $56.9 million from $40.3 million for Fiscal 2025.

The $16.6 million increase or additional 10.5 MWs compared to the previous year, was the result of Capstone’s stronger standing as a provider of reliable and high-quality equipment and services in the microturbines market.

Average revenue per megawatt shipped was approximately $1.5 million and $1.4 million during Fiscal 2026 and Fiscal 2025, respectively, primarily driven by the effect of previously announced product price increases and rental unit sales.

The timing of shipments is variable and based on several factors (including customer deposits,

payments, availability of credit and delivery schedule changes), most of which are not within our control and can affect the timing of revenue recognition.

On August 13, 2025, the Company completed the acquisition of Cal Microturbine, LLC, one of the Company’s existing distributors serving the western United States.

Following the acquisition, the Company directly conducts sales, aftermarket parts, and service for customers in California, Hawaii, Nevada, Oregon, and Washington under the business unit “Capstone West Territory.” The acquisition contributed approximately $4.0 million of revenue to the Company’s consolidated results for the period from the closing date through March 31, 2026.

Refer to Note 20 - Business Combination for additional information.

Parts and service revenue for Fiscal 2026 increased $2.3 million, or 7%, to $33.2 million from $30.9 million for Fiscal 2025 benefiting from the impact of direct sales as a result of the Cal Microturbine acquisition.

Rentals revenue for Fiscal 2026 increased $1.5 million, or 10%, to $15.9 million from $14.4 million for Fiscal 2025.

This increase was driven by a 4% increase in rental utilization and increased rental prices.

Sales to E-Finity Distributed Generation (“E-Finity”), Lone Star Power Solutions (“Lone Star”), Horizon Power Systems (“Horizon”) accounted for 13%, 12% and 11%, respectively, of our revenue for Fiscal 2025.

Sales to Cal Microturbine and E-Finity accounted for 16% and 13%, respectively, of our revenue for Fiscal 2024.

This increase was driven by a surge in the average rental prices per MW from $29,500 in Fiscal 2025 to $33,300 in Fiscal 2026.

Customer Concentration .

For the year ended March 31, 2026, sales to E-Finity, Cal Microturbine, DTC, and Lone Star accounted for approximately 17%, 16%, 13% and 10%, respectively, of our total revenue for Fiscal 2026.

Sales to E-Finity, Lone Star, Horizon Power Systems (“Horizon”) accounted for 13%, 12% and 11%, respectively, of our revenue for Fiscal 2025.

Gross Profit.

Cost of goods sold includes direct material costs, production and service center labor and overhead, inventory charges and provision for estimated product warranty expenses.

Cost of goods sold includes direct material costs, production and service center labor and overhead, applicable depreciation, inventory charges and provision for estimated product warranty expenses.

Gross profit was approximately $33.9 million, or 32% of revenue, for Fiscal 2026, compared to gross profit of $23.3 million, or 27% of revenue, for Fiscal 2025.

The increase of $9.0 million during Fiscal 2025 compared to Fiscal 2024 was primarily the result of an increase in rental revenue margins, increase in service revenue margins and increase in product pricing.

During Fiscal 2025 we realized price increases announced in the prior year and started to implement cost-out initiatives, which includes negotiating better pricing with vendors and vendor selection.

The increase of $10.6 million during Fiscal 2026 compared to Fiscal 2025 was primarily driven by increased profitability on product and accessories sales and the rentals and parts & services businesses which increased 10 points and 9 points, respectively.

During Fiscal 2026, we continued to implement cost-out initiatives, which includes negotiating better pricing with vendors and vendor selection.

The following table summarizes our gross profit (in millions except percentages):

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As a percentage of total revenue

The improvement of $3.2 million in product and accessories gross profit during Fiscal 2025 compared to Fiscal 2024 was primarily due to higher product pricing, improved cost efficiencies and product mix in Fiscal 2025.

Product and accessories gross margin as a percentage of product and accessories revenue improved to 2% during Fiscal 2025 from negative 4% during Fiscal 2024, primarily due to higher margin product revenue in Fiscal 2025.

Parts and service gross margin as a percentage of parts and service revenue increased to 56% for Fiscal 2025 compared to 47% for Fiscal 2024 primarily due to increased parts sales within the US market, service agreement pricing and overhead costs absorption in Fiscal 2025.

Rentals gross margin as a percentage of rentals revenue increased to 35% for Fiscal 2025 compared to 19% for Fiscal 2024 primarily due to increased rental pricing and timing of maintenance costs in Fiscal 2025.

Product and accessories gross margin improved $4.4 million or 10% during Fiscal 2026 from 3% during Fiscal 2025, primarily due to higher-margin product revenue in Fiscal 2026.

This improvement occurred despite increased tariffs and higher inbound freight costs during Fiscal 2026.

Parts and service gross margin as a percentage of parts and service revenue increased to 64% for Fiscal 2026 compared to 56% for Fiscal 2025 primarily due to increased parts sales, service agreement pricing and overhead costs absorption in Fiscal 2026.

These improvements were achieved despite increased tariffs and higher inbound freight costs during Fiscal 2026.

Rentals gross margin as a percentage of rentals revenue increased to 44% for Fiscal 2026 compared to 35% for Fiscal 2025 primarily due to higher rental pricing and timing of maintenance costs in Fiscal 2026.

Research and Development (“R&D”) Expenses.

R&D expenses for Fiscal 2025 and 2024 were $2.7 million and $2.5 million, respectively, and was 3% of revenue in Fiscal 2025.

R&D expenses for Fiscal 2026 and 2025 increased to $3.6 million in Fiscal 2026, compared to $2.7 million in Fiscal 2025.

Higher R&D spend drove key cost-out initiatives and reliability projects in Fiscal 2026.

Selling, General and Administrative (“SG&A”) Expenses.

SG&A expenses for Fiscal 2025 decreased $6.0 million to $26.2 million from $32.2 million for Fiscal 2024, and was 31% of revenue in Fiscal 2025.

The net decrease in SG&A expenses was primarily a result of decreases of approximately $4.1 million in legal fees, $1.6 million in stock-based compensation expense, $1.3 million in decreased event sponsorship and one-time contract settlement, and $0.5 million other, partially offset by an increase of $1.5 million of bonus expense.

SG&A expenses for Fiscal 2026 increased $0.7 million to $26.9 million from $26.2 million for Fiscal 2025 and was 25% of revenue in Fiscal 2026.

The net increase in SG&A expenses was driven by higher spend in Fiscal 2026 of $3.6 million related to headcount growth, outside accounting and legal services, partially offset by a $2.9 million reduction in non-recurring expenses relative to Fiscal 2025 related to litigation, restatements, and debt restructuring.

Other Income.

Other income for Fiscal 2026 increased to $3.3 million from $2.3 million in Fiscal 2025.

The increase in other income was primarily due to a full year of CDSSC service fees.

The increase was primarily attributable to the recognition of income related to a customer deposit on a project that did not proceed during Fiscal 2026.

Interest Income.

Interest income for Fiscal 2025 increased to $0.2 million from $0.1 million in Fiscal 2024.

The increase in interest income was primarily due to interest income from a sales-type lease in Fiscal 2025.

Interest income for Fiscal 2026 was $0.2 million, slightly higher than the $0.2 million in Fiscal 2025 driven by our higher cash balances.

Interest Expense.

Interest expense for Fiscal 2025 decreased to $3.9 million from $5.5 million in Fiscal 2024.

The decrease in interest expense was primarily due to a lower average debt balance during Fiscal 2025 due to the Fiscal 2024 restructuring.

Interest expense for Fiscal 2026 increased to $4.1 million from $3.9 million in Fiscal 2025.

The increase in interest expense was primarily due to the New Money Note, interest on leased equipment, and exit debt issuance amortization.

See Liquidity and Capital Resources below for additional discussion on our interest expense.

Income Tax Provision.

Income tax expense increased from $14,000 during Fiscal 2024 to $175,000 during Fiscal 2025.

Income tax expense incurred was related to state taxes.

Income tax expense (benefit) decreased from $175,000 during Fiscal 2025 to ($54,000) during Fiscal 2026.

Income tax benefit incurred was mostly related to prior year true-up adjustments.

The effective income tax rate of (1.9)% differs from the federal and state blended rate primarily as a result of maintaining a full valuation allowance against net deferred tax assets.

At March 31, 2025, we had federal and state net operating loss carryforwards of approximately $5.7 million and $3.8 million, respectively, which may be utilized to reduce future taxable income, subject to any limitations under Section 382 of the Internal Revenue Code of 1986.

On March 31, 2026, we had federal and state net operating loss carryforwards of approximately $8.0 million and $4.2 million, respectively, which may be utilized to reduce future taxable income, subject to any limitations under Section 382 of the Internal Revenue Code of 1986.

We provided a valuation allowance for 100% of our net deferred tax asset of $26.0 million at March 31, 2026 as the realization of the benefits of these favorable tax attributes in future income tax returns is not deemed more likely than not.

Similarly, at March 31, 2024, the net deferred tax asset had a 100% valuation allowance.

Similarly, at March 31, 2025, the net deferred tax asset had a 100% valuation allowance of $2.3 million.

Liquidity and Capital Resources

Our cash requirements depend on many factors, including the execution of our business strategy and plan.

Our cash balance increased $6.6 million during Fiscal 2025, compared to a decrease of $10.8 million during Fiscal 2024.

The increase in cash during Fiscal 2025 was primarily due to cash generated by operating activities, partially offset by cash used in investing and financing activities.

Operating Activities During Fiscal 2025, net cash provided by operating activities was $7.7 million, consisting of net loss for the period of $7.2 million, offset by changes in operating assets and liabilities of $1.9 million and non-cash adjustments (primarily representing depreciation and amortization, non-cash lease expense, and paid-in-kind interest expense) of $13.0 million.

During Fiscal 2024, net cash used by operating activities was $27.7 million, consisting of a net income for the period of $7.4 million less changes in operating assets and liabilities of $12.5 million, further reduced by non-cash adjustments (primarily representing non-cash reorganization items, net, depreciation and amortization, non-cash lease expense, stock-based compensation expense and paid-in-kind interest expense) of $22.5 million.

The increase in net cash provided in operating activities during Fiscal 2025, compared to Fiscal 2024 was primarily driven by the Fiscal 2024 $35.3 million non-cash reorganization items, net, which included our gain on debt extinguishment.

Our cash balance increased $20.2 million during Fiscal 2026, compared to an increase of $6.6 million during Fiscal 2025, with Fiscal 2026 including $0.7 million of restricted cash compared to none in Fiscal 2025.

The increase in cash during Fiscal 2026 was primarily due to cash used in operating and investing activities, offset by cash provided by financing activities.

Operating Activities.

During Fiscal 2026, net cash used in operating activities was $2.5 million, reflecting net income for the period of $2.8 million and non-cash adjustments of $10.4 million including depreciation and amortization, non-cash lease expense, paid-in-kind interest expense, and stock-based compensation.

These were offset by net uses of cash from changes in operating assets and liabilities of $15.8 million, primarily reflecting working capital outflows associated with business growth, including increases in accounts receivable of $7.1 million and inventories of $4.2 million, decreases in customer deposits of $6.1 million and factory protection liability of $1.6 million, which were partially offset by increases in accounts payable of $5.2 million and accrued expenses of $1.8 million.

During Fiscal 2025, net cash provided by operating activities was $7.7 million.

Net loss for the period of $7.2 million was offset by increased use of inventory and prepaids as well as the realization of deferred revenue, less changes in lease assets and liabilities and an increase in accounts receivable.

The net loss was also offset by non-cash adjustments of $13.0 million, primarily non-cash lease expense, depreciation and amortization, and paid-in-kind interest expense.

The following is a summary of the significant sources (uses) of cash from operating activities (in millions):

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Other changes in operating assets and liabilities

Net cash provided (used) in operating activities

(1) Primarily represents non-cash reorganization items, net (in Fiscal 2024), depreciation and amortization, non-cash lease expense, stock-based compensation expense and paid-in-kind interest expense.

The $1.5 million increase in use of cash in accounts receivable resulted from the timing of sales in the last quarter of Fiscal 2025, compared to Fiscal 2024.

The $7.7 million decrease in use of cash in inventory compared to Fiscal 2024 was primarily the result of higher shipments of units in Fiscal 2024 and the focused management of raw material levels during Fiscal 2025.

The $1.3 million increase in use of cash for lease receivable is due to a sales-type lease contract in Fiscal 2025 in connection with a product sale.

The $11.4 million increase of cash provided by accounts payable resulted from the payment of past due accounts in Fiscal 2024 and $3.9 million increase in the use of cash by accrued expenses was primarily due to payments to vendors net of increased accruals related to restructuring during Fiscal 2024, compared to Fiscal 2025.

The $1.2 million increase cash used from prepaid and other assets is primarily the result of usage of prepaid inventory during Fiscal 2025.

The $16.9 million change in other operating assets and liabilities during Fiscal 2025, compared to Fiscal 2024, was primarily driven by the decrease in deferred revenue of $14.4 million primarily driven by increases of shipments in Fiscal 2024 compared to Fiscal 2025, lowering attributable customer deposits, decrease in DSS program deferred revenue and a $2.6 million decrease in FPP liability due to fulfillment of open claims.

Investing Activities Net cash used in investing activities was $0.9 million and $4.7 million during Fiscal 2025 and 2024, respectively.

The decrease was primarily due to fewer additions to our rental fleet during Fiscal 2025.

Financing Activities During Fiscal 2025, we used approximately $0.2 million in cash from financing activities compared to cash generated during Fiscal 2024 of approximately $21.6 million.

The funds generated from financing activities during Fiscal 2024 were primarily the result of $12.0 million of funding under the DIP facility, $7.0 million of funding under the Exit Facility, net of issuance fees of $0.2 million and $3.0 million received from the issuance of additional pre-petition senior secured notes under the A&R Note Purchase Agreement (defined below), offset by $0.2 million cash used for finance lease payments.

Refer to Note 3— Chapter 11 Proceedings and Emergence in the Notes to Consolidated Financial Statements and Note 12— Debt for further discussion of the outstanding debt and post emergence financing.

Net cash (used in) provided by in operating activities

(1) Primarily represents depreciation and amortization, non-cash lease expense and paid-in-kind interest expense.

The $5.0 million increase in use of cash in accounts receivable resulted from increases in both sales and DSO in Fiscal 2026, compared to Fiscal 2025.

The $11.8 million change in inventory compared to Fiscal 2025 was primarily the result of increased spending on long lead inventory in preparation of future shipments.

The $6.2 million increase in cash provided by accounts payable and $2.1 million increase in accrued expenses resulted from more proactive management of vendor payments in Fiscal 2026.

The $8.8 million change in other operating assets and liabilities during Fiscal 2026, compared to Fiscal 2025, was primarily driven by the use of customer deposits and lease receivables and liabilities.

Investing Activities.

Net cash used in investing activities was $0.9 million and $0.9 million during Fiscal 2026 and Fiscal 2025, respectively.

Fiscal 2026 included cash acquired in the Cal Microturbine, LLC acquisition, net of cash paid, as well as investments in fixed assets including our rental fleet.

Refer to Note 20 - Business Combination for additional information.

Financing Activities.

During Fiscal 2026, we generated approximately $23.7 million in cash from financing activities primarily as a result of the November 2025 PIPE of approximately $13.6 million and $104.0 million of proceeds from March 2026 PIPE, partially offset by repayment of outstanding debt to optimize our capital structure.

During Fiscal 2025, net cash used by financing activities was approximately $0.2 million.

Refer to Note 11 – Debt in the Notes to Consolidated Financial Statements for further discussion of outstanding debt and post emergence financing.

Debt Refer to Note 11 - Debt in the Notes to Consolidated Financial Statements for information related to our notes.

Lease Commitments Refer to Note 10 - Leases in the Notes to Consolidated Financial Statements for information related to our leases.

Going Concern 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.

As of March 31, 2025, we had cash of $8.7 million and a working capital deficit of $16.5 million.

We incurred a loss from operations of $5.6 million and generated cash from

operating activities of $7.7 million during Fiscal 2025.

The principal and accrued interest on the Exit New Money Note are due and payable on December 7, 2025.

Management evaluated these conditions in relation to our ability to meet our obligations as they become due.

Our ability to continue current operations and to execute on management’s plan is dependent on our ability to generate cash flows.

On September 28, 2023, we filed for a prepackaged financial restructuring with our Senior Lender, Goldman Sachs under the U.S.

Chapter 11 Bankruptcy laws.

We emerged from Bankruptcy on December 7, 2023, and effected a financial and organizational restructuring.

Refer to Note 3— Chapter 11 Proceedings and Emergence in the Notes to Consolidated Financial Statements for additional information.

In spite of these efforts and given our current cash position, limits to accessing capital and debt funding options, and the obligation for the payment of the Exit New Money Note, there is substantial doubt regarding our ability to continue as a going concern and our ability to meet our financial obligations as they become due over the next twelve months from the date of issuance of our financial statements as of, and for the period ended March 31, 2025.

Impact of Recently Issued Accounting Standards

Refer to Note 2— Basis of Presentation, Significant Accounting Policies and Going Concern in the Notes to Consolidated Financial Statements for information regarding new accounting standards.

Refer to Note 2 - Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements for information regarding new accounting standards.

Quantitative and Qualitative Disclosure about Market Risk.

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What changed 10-K

Item 7. Management’s Discussion and Analysis