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Item 1A. Risk Factors

2021-06-14 compared with 2020-06-29 · 330 added, 404 removed, 218 unchanged (77% of the section changed)

This document contains certain forward‑looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act) pertaining to, among other things,

the COVID-19 pandemic

our results of operations;

profits and losses;

our ability to raise additional capital;

R&D activities;

sales expectations;

our ability to develop markets for our products;

sources for parts;

federal, state and local government regulations;

our relationship with our distributors;

industry and economic conditions applicable to us;

the efficiency, reliability and environmental advantages of our products and their need for maintenance;

our ability to be cost‑competitive and to outperform competition;

customer satisfaction;

the value of using our products;

our ability to achieve economies of scale;

market advantage;

return on investments;

issues with suppliers;

anticipation of product supply requirements;

listing requirements;

our microturbine technology;

the utilization of our products;

the introduction of new technologies;

our production capacity;

international markets;

protection of intellectual property;

cybersecurity threats;

the adequacy of our facilities;

business strategy;

product development;

capital resources;

capital expenditures;

amortization expense of intangibles;

cost of warranties;

stock‑based compensation;

our NOL rights plan;

purchase and lease commitments;

current liabilities;

recently issued accounting standards;

international sanctions risk;

the strength of the U.S.

interest rate sensitivity;

the effect of cost reductions on future business initiatives;

the Tax Cuts and Jobs Act;

growth of the shale gas market.

These statements are based largely on our current expectations, estimates and forecasts and are subject to a number of risks and uncertainties.

Actual results could differ materially from those anticipated by these forward‑looking statements.

Factors that can cause actual results to differ materially include, but are not limited to, those discussed below.

Readers are cautioned not to place undue reliance on these forward‑looking statements, which speak only as of the date hereof.

The following factors should be considered in addition to the other information contained herein in evaluating us and our business.

We assume no obligation to update any of the forward‑looking statements after the filing of this Form 10-K to conform such statements to actual results or to changes in our expectations, except as may be required by law.

The following are risk factors that could affect our business, financial condition, results of operations, and cash flows.

These risk factors should be considered in connection with evaluating the forward‑looking statements contained in this Form 10-K because these factors could cause actual results and conditions to differ materially from those

projected in forward‑looking statements.

These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Form 10-K because these factors could cause actual results, performance, and achievements to differ materially from those projected in forward-looking statements.

Before you invest in our publicly traded securities, you should know that making such an investment involves some risks, including the risks described below.

Additional risks of which we may not be aware or that we currently believe are immaterial may also impair our business operations or our stock price.

If any of the risks actually occur, our business, financial condition, results of operations or cash flow could be negatively affected.

If any of the risks occur, our business, financial condition, results of operations or cash flow could be negatively affected.

In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Form 10-K, our quarterly reports on Form 10-Q and other documents filed by us from time to time.

Summary of Risk Factors

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Risks Related to Our Business Operations and Financial Results

● The ongoing effects of the COVID-19 pandemic could adversely affect our business, financial condition, results of operations, or cash flows.

● Our operating history is characterized by net losses.

We anticipate further losses and we may never become profitable.

● We may be unable to fund our future operating requirements, which could force us to curtail our operations.

● If we are unable to either substantially improve our operating results or obtain additional financing, we may be unable to continue to operate at current levels.

● A sustainable market for microturbines may never develop or may take longer to develop than we anticipate which would adversely affect our results of operations.

● Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure.

● Our products involve a lengthy sales cycle, and we may not anticipate sales levels appropriately, which could impair our results of operations.

● If we do not effectively implement our sales, marketing and service plans, our sales will not grow and our results of operations will suffer.

● Changes to trade regulation, quotas, duties or tariffs, and sanctions caused by the changing U.S.

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.

● 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.

● If any of our distributor relationships is not successful, we may terminate or choose not to renew the related distributor agreement, which may result in interference with the wind down of the relationship or the transition of end-user service agreements and could potentially negatively impact our distribution channel or result in litigation costs or other expenses.

● We have substantial accounts receivable, and increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on our cash flows and results of operations.

● Loss of a significant customer could have a material adverse effect on our results of operations.

● We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales.

● We have realized reductions in our operating costs and, as a result, our ability to cut costs further and sustain our business initiatives may be limited.

● We may incur costs and liabilities as a result of product liability claims.

● Operational restructuring may result in asset impairment or other unanticipated charges.

● We may not be able to manage our growth effectively, expand our production capabilities or improve our operational, financial and management information systems, which would impair our results of operations.

● Our success depends in significant part upon the continuing service of management and key employees.

● Our operations are vulnerable to interruption by fire, earthquake, and other events beyond our control.

● Activities necessary to integrate any future acquisitions may result in costs greater than current expectations or be less successful than anticipated.

Risks Related to Our Product Offerings

● We depend upon the development of new products and enhancements of existing products

● Our operating results are dependent, in large part, upon the successful commercialization of our products.

Failure to produce our products as scheduled and budgeted would materially and adversely affect our business and financial condition.

● We may not be able to produce our products on a timely basis if we fail to correctly anticipate product supply requirements or if we suffer delays in production resulting from issues with our suppliers.

Our suppliers may not

supply us with a sufficient number of components or components of adequate quality, or they may provide components at significantly increased prices.

● Commodity market factors impact our costs and availability of materials.

● We operate in a highly competitive market among competitors that have significantly greater resources than we have and we may not be able to compete effectively.

● 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 a decline in prices for oil and natural gas may have an adverse effect on our revenue, cash flows, profitability, and growth.

● Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets.

● We may not be able to develop sufficiently trained applications engineering, installation, and service support to serve our targeted markets.

● Changes in our product components may require us to replace parts held at distributors.

● Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may not be able to effectively sell our products.

Risks Related to Pending Litigation and Government Regulation

● We operate in a highly regulated business environment, and changes in regulation could impose significant costs on us or make our products less economical, thereby affecting demand for our microturbines.

● We have significant tax assets, usage of which may be subject to limitations in the future.

● We are subject to a number of pending lawsuits.

Risks Related to Data, Security, and Intellectual Property

● Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.

● We face security and cybersecurity risks related to our electronic processing of sensitive and confidential business and product data.

If we are unable to protect our data or the data of our customers, a security breach could damage our reputation and have a material adverse effect on our business.

Risks Related to Ownership of Our Common Stock

● We cannot be certain of the future effectiveness of our internal controls over financial reporting.

If we are unable to maintain effective internal controls over our financial reporting, investors may lose confidence in our ability to provide reliable and timely financial reports and the value of our common stock may decline.

● Future issuances or sales of our common stock or exercises by holders of our outstanding warrants could lower our stock price and dilute the interests of existing stockholders.

● The market price of our common stock has been, and may continue to be, highly volatile and you could lose all or part of your investment in our securities.

● If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

● Provisions in our certificate of incorporation, bylaws and our NOL rights plan, as well as Delaware law, may discourage, delay, or prevent a merger or acquisition at a premium price.

● We do not intend to pay cash dividends.

We have never paid dividends on our capital stock and we do not anticipate paying any dividends in the foreseeable future.

Consequently, any gains from an investment in our securities will likely depend on whether the price of our common stock increases.

General Risk Factors

● Adverse economic conditions may have an impact on our business and financial condition, including some effects we may not be able to predict.

● Our business may be impacted by international instability, war, terrorism, and geopolitical events.

For a more complete discussion of the material risks facing our business, please see below.

Risks Related to Our Business Operations and Financial Results

The ongoing effects of the COVID-19 pandemic could adversely affect our business, financial condition, results of operations, or cash flows.

An infectious disease caused by Severe Acute Respiratory Syndrome Coronavirus 2 (SARS CoV-2) that was first detected in November 2019 in the city of Wuhan, China, known as COVID-19, resulted in an outbreak throughout the world.

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Thereafter, most U.S.

states imposed “stay-at-home”

orders on their populations to stem the spread of COVID-19.

states imposed “stay-at-home” orders on their populations to stem the spread of COVID-19.

Of specific interest to the Company, stay-at-home orders were imposed in the state of California on March 20, 2020.

Governments, public institutions, and other organizations in countries and localities throughout the world have taken and are continuing to take certain emergency measures to combat the spread of COVID-19, including implementation of restrictions on travel and orders that restrict the operations of institutions such as schools and businesses.

We have already furloughed 47 employees in the U.S.

and the remaining 100 employees continue to support essential business operations.

These conditions will negatively impact all aspects of our business.

These conditions have negatively impacted all aspects of our business.

Our business is also dependent on the continued health and productivity of our employees, including our manufacturing employees, sales staff, and corporate management teams.

While the full impact of the COVID-19 outbreak and government response is not yet known, we have experienced initial impacts of this pandemic in the three months ended March 31, 2020 and it could materially harm our business, results of operations and financial condition in the future.

ability to source, maintain inventory and ship raw materials in alignment with our demands, work stoppages, slowdowns and delays, including having most of our employees working outside of our offices, travel restrictions, reduced access to our customers for product training and case support, and cancellation of events, delays in product development efforts, and other negative impacts on our capacity to manufacture, our suppliers’

capacity to source and ship raw materials and our distributors’

ability to sell and support the use of our products.

In addition, due to domestic and international governmental orders restricting certain activities in response to COVID-19, including in Van Nuys, California, where our corporate headquarters and many of our operations, including our principal manufacturing facility, are located, we have experienced, and may in the future experience, certain disruptions in our business, including changes to our on-site operations to reduce manufacturing capacity and implement social distancing, reductions in our suppliers’ ability to source, maintain inventory and ship raw materials in alignment with our demands, work stoppages, slowdowns and delays, including having most of our employees working outside of our offices, travel restrictions, reduced access to our customers for product training and case support, and cancellation of events, delays in product development efforts, and other negative impacts on our capacity to manufacture, our suppliers’ capacity to source and ship raw materials and our distributors’ ability to sell and support the use of our products.

The COVID-19 pandemic has also caused significant uncertainty and volatility in global financial markets.

Due to such volatility, we may not be able to raise additional capital, if needed, on favorable terms, or at all.

Further adverse economic events resulting from the COVID-19 pandemic, including a recession, depression or other sustained economic downturn, could materially and adversely affect our business, access to capital markets and the value of our common stock.

As of April 24, 2020, we entered into a loan with Western Alliance Bank in an aggregate principal amount of $2,610,200 pursuant to PPP under the CARES Act.

Forgiveness of this loan is only available for principal that is used for the limited purposes that qualify for forgiveness.

While we intend to pursue the forgiveness of the PPP loan received in accordance with the requirements and limitations under the CARES Act, no assurance can be provided that forgiveness of any portion of the PPP loan will be obtained.

Further adverse economic events resulting from the COVID-19 pandemic, including sustained economic downturn, could materially and adversely affect our business, access to capital markets and the value of our common stock.

Additionally, our liquidity could be negatively impacted if these conditions continue for a significant period of time and we may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, and meet our financial obligations.

Currently, capital and credit markets have been disrupted by the crisis and our ability to obtain any required financing is not guaranteed and largely dependent upon evolving market

conditions and other factors.

Depending on the continued impact of the crisis, further actions may be required to improve our cash position and capital structure.

Despite the introduction of Covid-19 vaccines, the pandemic remains highly volatile and continues to evolve.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

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Even if we do achieve profitability, we may be unable to increase our sales and sustain or increase our profitability in the future.

Future issuances or sales of our common stock or exercises by holders of our outstanding warrants 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 common stock could have the effect of substantially diluting the interests of our current stockholders.

In addition, the sale of a substantial amount of common stock in the public market, either in the initial issuance or in a subsequent resale by investors who acquired such common stock in a private placement, could have a material adverse effect on the market price of our common stock.

We cannot predict the effect, if any, that future public sales of our common stock or the availability of additional shares of our common stock for sale will have on the market and trading price of our common stock.

In addition, we currently have warrants outstanding for the purchase of up to an aggregate of 1.5 million shares of our common stock and certain of our warrant holders also have the right to require us to register under the Securities Act the shares issuable upon exercise of their warrants.

In addition, some of our outstanding warrants contain anti-dilution provisions that may, under certain circumstances, increase the number of shares issuable thereunder.

To the extent the warrants outstanding are fully exercised, a significant number of shares of common stock will be issued, which will result in dilution to the holders of our shares of common stock and an increase in the number of shares eligible for resale in the public market.

If any of our existing 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.

We may be unable to fund our future operating requirements, which could force us to curtail our operations.

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If adequate capital were not available to us, we likely would be required to significantly curtail our operations or possibly even cease our operations.

On February 4, 2019, we entered into a Note Purchase Agreement (the “Note Purchase Agreement”), by and among us, certain subsidiaries of us party thereto as guarantors, Goldman Sachs Specialty Lending Holdings, Inc.

and any other purchasers party thereto from time to time (collectively, the “Purchaser”) and Goldman Sachs Specialty Lending Holdings, Inc., as collateral agent, in connection with the sale of senior secured notes by us in a private placement exempt from registration under the Securities Act.

Under the Note Purchase Agreement, we sold to the Purchaser $30.0 million aggregate principal amount of senior secured notes (the “Notes”) and the entire principal amount of the Notes is due and payable on February 4, 2022 (the “Maturity Date”).

The Notes do not amortize and the entire principal balance is due in a single payment on the Maturity Date.

As a condition of the Note Purchase Agreement, we shall not permit consolidated liquidity on any date to be less than $12.0 million until February 4, 2020 and thereafter, $9.0 million.

Borrowings under the Note Purchase Agreement will bear interest at a rate of 13.0% per annum, computed on the basis of a 360-day year composed of twelve 30-day months, and payable quarterly on March 31, June 30, September 30 and December 31 of each year until maturity, subject to increase during the occurrence of an event of default.

Obligations under the Note Purchase Agreement are secured by all of our assets, including intellectual property and general intangibles.

The Note Purchase Agreement contains customary covenants, including, among others, covenants that restrict our ability to incur debt, grant liens, make certain investments and acquisitions, pay dividends, repurchase equity interests, repay certain debt, amend certain contracts, enter into affiliate transactions and asset sales or make certain equity issuances (including equity issuances that would cause an ownership change within the meaning of Section 382 of the Internal Revenue Code), and covenants that require us to, among other things, provide annual, quarterly and monthly financial statements, together with related compliance certificates, maintain our property in good repair, maintain insurance and comply with applicable laws.

The Note Purchase Agreement also defines an event of default as, among other things, payment default, bankruptcy events, cross defaults, breaches of covenants and representations and warranties, changes of control, judgment defaults and an ownership change within the meaning of Section 382 of the Internal Revenue Code.

We are party to an Amended and Restated Note Purchase Agreement (the “A&R Note Purchase Agreement”) dated October 1, 2020 (the “Closing Date”) among the Company, certain subsidiaries of the Company, Goldman Sachs Specialty Lending Group, L.P.

(as successor in interest to Goldman Sachs Specialty Lending Holdings, Inc.), as collateral agent (“Goldman” or the “Collateral Agent”) and the purchasers party thereto (the “Purchasers”).

The A&R Note Purchase Agreement amended and restated our Note Purchase Agreement dated February 4, 2019, by and among the Company, certain subsidiaries of the Company, Goldman Sachs Specialty Lending Holdings, Inc.

and the purchasers party thereto under which we sold $30.0 million aggregate principal amount of senior secured notes (the “Notes”) bearing an interest of 13.0% per annum.

Pursuant to the A&R Note Purchase Agreement, the Company issued $20.0 million in additional Notes and all outstanding Notes under the A&R Note Purchase Agreement bear interest at the Adjusted (London Interbank Offer) LIBO Rate (as defined in the A&R Note Purchase Agreement) plus 8.75% per annum, payable on the last day of each interest period of one-, two-, three- or six-months (but, in the case of a six-month interest period, every three-months).

The Notes do not amortize and the entire principal balance is due and payable on October 1, 2023.

As of March 31, 2021, $51.0 million in borrowings were outstanding under the Notes, which includes the accrual for an exit fee to be paid at maturity or upon pre-payment.

Obligations under the A&R Note Purchase Agreement are secured by all of the Company’s assets, including intellectual property and general intangibles.

The A&R Note Purchase Agreement contains customary covenants, including, among others, covenants that restrict our ability to incur debt, grant liens, make certain investments and acquisitions, pay dividends, repurchase equity interests, repay certain debt, amend certain contracts, enter into affiliate transactions and asset sales or make certain equity issuances (including equity issuances that would cause an ownership change within the meaning of Section 382 of the Internal Revenue Code), and covenants that require us to, among other things, provide annual, quarterly and monthly financial statements, together with related compliance certificates, maintain our property in good repair, maintain insurance and comply with applicable laws.

On May 13, 2021, the Company, and the collateral agent, entered into a First Amendment, dated as of May 13, 2021 (the “Amendment”), to the A&R Note Purchase Agreement.

The Amendment amended certain provisions of the A&R Note Purchase Agreement, including to (a) require the Company to expand its Rental Fleet (as defined in the A&R Note Purchase Agreement) by (i) at least 2.00 MW by the 9-month anniversary of the Closing Date (instead of 6.25 MW as provided in the A&R Note Purchase Agreement prior to the Amendment), and (ii) at least 12.50 MW by the 18-month anniversary of the Closing Date (which is unchanged from the covenant set forth in in the A&R Note Purchase Agreement prior to the Amendment), and (b) increase the Company’s minimum consolidated liquidity requirement from $9,000,000 to $12,200,000 for the period from May 13, 2021 to March 31, 2022.

The A&R Note Purchase Agreement also defines an event of default as, among other things, payment default, bankruptcy events, cross defaults, breaches of covenants and representations and warranties, changes of control, judgment defaults and an ownership change within the meaning of Section 382 of the Internal Revenue Code.

An event of default, if not waived, could have a material adverse effect on us.

Our obligations under the Note Purchase Agreement could have important consequences, including the following:

Our obligations under the A&R Note Purchase Agreement could have important consequences, including the following:

● We may have difficulty obtaining additional financing at favorable interest rates to meet our requirements for operations, capital expenditures, general corporate or other purposes.

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● In order to avoid breaches of the Note Purchase Agreement covenant relating to Section 382 changes of ownership, we may be limited in the amount of additional equity securities we are able to sell to raise capital.

Accordingly, our desire to preserve our federal and state net operating loss (“NOL”) carryforwards may cause us to forgo otherwise attractive funding opportunities.

We may be required to repay the Notes immediately if we default on any of the numerous financial or other restrictive covenants contained in the Note Purchase Agreement.

Accordingly, our desire to preserve our federal and state net operating loss (“NOL”) carryforwards may cause us to forgo otherwise attractive funding opportunities.

We may be required to repay the Notes immediately if we default on any of the numerous financial or other restrictive covenants contained in the A&R Note Purchase Agreement.

It is not certain whether we will have, or will be able to obtain, sufficient funds to make any such accelerated payments.

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This compares to $900.9 million, $15.1 million and $29.8 million, respectively, on March 31, 2020.

As a condition of the Note Purchase Agreement with the Purchaser, our consolidated liquidity on any date may not be less than $12.0 million through the first anniversary date of February 4, 2020, and $9.0 million thereafter.

Our business strategy is focused on profitability-oriented initiatives such as reducing operating expenses, diversifying and increasing revenue, and improving gross margin.

We may not be able to execute the business strategy successfully and if we are unable to generate positive cash flow, potential customers may choose not to purchase our

products or utilize our program.

As a condition of the A&R Note Purchase Agreement with the Purchasers, our consolidated liquidity (defined as the aggregate amount of unrestricted cash and cash equivalents included in the consolidated balance of the Company and our subsidiaries, subject to certain conditions as defined in the A&R Note Purchase Agreement) on any date may not be less than $12.2 million for the period from the Amendment Date to March 31, 2022.

Our business strategy is focused on profitability-oriented initiatives such as reducing operating expenses, increasing sales of products and services, thereby diversifying, and increasing revenue, and improving gross margin.

We may not be able to execute the business strategy successfully and if we are unable to generate positive cash flow, potential customers may choose not to purchase our products or utilize our program.

Moreover, the business strategy is based upon projections, which are in turn based upon estimates and assumptions.

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Any such lack of funds would affect our ability to continue to operate at current levels.

These events and circumstances could have a material adverse effect on our ability to raise additional capital and on the market value of our common stock and our ability to maintain our credit facility.

Moreover, should we experience a cash shortage that requires us to curtail or cease our operations, or should we be unable to continue to operate at current levels, you could lose all or part of your investments in our securities.

SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to our shelf registration statement on Form S-3.

SEC regulations limit the amount that companies with a public float of less than $75 million may raise during any 12-month period pursuant to a shelf registration statement on Form S-3, or the Baby Shelf Rule.

We are currently limited by the Baby Shelf Rule and are not able to use the remaining availability under our shelf registration statement to raise more than one-third of our public float.

Furthermore, if we are required to file a new registration statement on another form, we may incur additional costs and be subject to delays due to review by the SEC staff.

Impairment charges on our long‑lived assets, including intangible assets with finite lives would adversely affect our financial position and results of operations.

We evaluate the carrying value of long‑lived assets, including intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

To determine whether impairment has occurred, we compare the undiscounted cash flows of the long‑lived asset group with its carrying value.

The estimation of future cash flows requires significant estimates of factors that include future sales growth, gross margin performance, including our estimates of reductions in our direct material costs, and reductions in operating expenses.

If our sales growth, gross margin performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast, the carrying value of our asset group may prove to be unrecoverable and we may incur impairment charges in the future.

In addition, significant and unanticipated changes in circumstances, such as significant adverse changes in business climate, unanticipated competition, loss of key customers or changes in technology or markets, could require a charge for impairment that can materially and adversely affect our reported net loss and our stockholders’

These events and circumstances could have a material adverse effect on our ability to raise additional capital and on the market value of our common stock and our ability to maintain Notes financing.

Moreover, should we experience a cash shortage that requires us to curtail or cease our operations, which could materially adversely affect the market price of our common stock.

A sustainable market for microturbines may never develop or may take longer to develop than we anticipate which would adversely affect our results of operations.

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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.

In addition, as part of our business strategy, we are focusing our marketing efforts on the energy efficiency, renewable energy, natural resources, critical power, microgrid and transportation markets.

In addition, as part of our business strategy, we are focusing our marketing efforts on the energy

efficiency, renewable energy, natural resources, critical power, microgrid and transportation markets.

We may be unable to grow our business in these target markets.

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● economic downturns and reduction in capital spending;

consumer perceptions of our microturbines’

safety and quality;

● consumer perceptions of our microturbines’ safety and quality;

● the emergence of newer, more competitive technologies and products;

growth of the HEV market;

● growth of the Hybrid Electric Vehicle market;

● decrease in domestic and international incentives.

We depend upon the development of new products and enhancements of existing products.

Our operating results depend on our ability to develop and introduce new products, enhance existing products and reduce the costs to produce our products.

The success of our products is dependent on several factors, including proper product definition, product cost, timely completion and introduction of the products, differentiation of products from those of our competitors, meeting changing customer requirements, emerging industry standards and market acceptance of these products.

The development of new, technologically advanced products and enhancements is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends.

There can be no assurance that we will successfully identify new product opportunities, develop and bring new or enhanced products to market in a timely manner, successfully lower costs and achieve market acceptance of our products, or that products and technologies developed by others will not render our products or technologies obsolete or uncompetitive.

Our operating results are dependent, in large part, upon the successful commercialization of our products.

Failure to produce our products as scheduled and budgeted would materially and adversely affect our business and financial condition.

We cannot be certain that we will deliver ordered products in a timely manner.

We have limited production slots for our products.

Any delays in production will increase our costs, reduce future production slots and could significantly impact our business, financial condition and operating results.

We may not be able to produce our products on a timely basis if we fail to correctly anticipate product supply requirements or if we suffer delays in production resulting from issues with our suppliers.

Our suppliers may not supply us with a sufficient amount of components or components of adequate quality, or they may provide components at significantly increased prices.

Some of our components are currently available only from a single source or limited sources.

We may experience delays in production if we fail to identify alternative suppliers, or if any parts supply is interrupted, each of which could materially adversely affect our business and operations.

In order to reduce manufacturing lead times and ensure adequate component supply, we enter into agreements with certain suppliers that allow them to procure inventories based upon criteria defined by us.

If we fail to anticipate customer demand properly, an oversupply of parts could result in excess or obsolete inventories, which could adversely affect our business.

Additionally, if we fail to correctly anticipate our internal supply requirements, an undersupply of parts could limit our production capacity.

Our inability to meet volume commitments with suppliers could affect the availability or pricing of our parts and components.

A reduction or interruption in supply, a significant increase in price of one or more components or a

decrease in demand of products could materially adversely affect our business and operations and could materially damage our customer relationships.

Financial problems 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.

Inadequate quality of products from suppliers could interrupt our ability to supply quality products to our customers in a timely manner.

Additionally, defects in materials or products supplied by our suppliers that are not identified before our products are placed in service by our customers could result in higher warranty costs and damage to our reputation.

We also outsource certain of our components internationally.

As a result of outsourcing internationally, we may be subject to delays in delivery because of regulations associated with the import/export process, delays in transportation or regional instability.

During the first quarter of Fiscal 2019, we identified a defect in one of the component parts for microturbine systems from one of our single source suppliers.

As a result of this defect we have identified several new suppliers with greater engineering expertise and robust quality management systems.

The transition is complex, lengthy and may result in an interruption in our manufacturing process.

An interruption in our manufacturing process for this component part would adversely impact our results of operations.

The efforts to qualify and dual source these components was completed in the fourth quarter of Fiscal 2019.

During the fourth quarter of Fiscal 2018, we received notification from one of our single source suppliers that they were at maximum capacity and would require prepayment and a significant increase in the price of multiple components in order to fulfill our supply requirements for Fiscal 2019.

Capacity issues at a supplier could cause an interruption in parts and could result in component price increases.

This could impact margins or sales in future quarters.

During the first quarter of Fiscal 2019, we issued a prepayment of approximately $2.2 million to this single source supplier.

A new supplier has been fully qualified and has taken over as the primary source of this commodity for Capstone.

Commodity market factors impact our costs and availability of materials.

Our products contain a number of commodity materials from metals, which include steel, special high temperature alloys, copper, nickel and molybdenum, to computer components.

The availability of these commodities could impact our ability to acquire the materials necessary to meet our production requirements.

The cost of metals has historically fluctuated.

The pricing could impact the costs to manufacture our products.

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.

Adverse economic conditions may have an impact on our business and financial condition, including some effects we may not be able to predict.

Adverse economic conditions may prevent our customers from purchasing our products or delay their purchases, which would adversely affect our business, financial condition and results of operations.

In addition, our ability to access the capital markets may be severely restricted or made very expensive at a time when we need, or would like, to do so, which could have a material adverse impact on our liquidity and financial resources.

Certain industries in which our customers do business and certain geographic areas have been and could continue to be adversely affected by adverse economic conditions.

Our revenue continues to be negatively impacted by the volatility of the global oil and gas markets, a strong U.S.

dollar (making our products more expensive overseas) and ongoing global geopolitical tensions.

Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure.

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Moreover, as we develop new configurations for our microturbines and as our customers place existing configurations in commercial use, our products may perform below expectations.

significant performance below expectations could adversely affect our operating results, financial condition and cash flow and affect the marketability of our products.

Any significant performance below expectations could adversely affect our operating results, financial condition and cash flow and affect the marketability of our products.

We sell our products with warranties.

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Further, we have at times undertaken programs to enhance the performance of units previously sold.

For example, during Fiscal 2017, we recorded a one-time non-cash warranty provision of approximately $5.2 million to proactively retrofit select non-Signature Series C200 microturbines with the more robust new Signature Series generator components to improve product performance and reliability.

Additionally, our warranty provision was negatively impacted in Fiscal 2019 because of a supplier defect that was identified during the first quarter of Fiscal 2019.

For example, during Fiscal 2017, we recorded a non-cash warranty provision of approximately $5.2 million to proactively retrofit select non-Signature Series C200 microturbines with the more robust new Signature Series generator components to improve product performance and reliability.

Additionally, our warranty provision was negatively impacted in Fiscal 2019 and Fiscal 2021 because of a supplier defect identified in fielded units.

In Fiscal 2021 a warranty reserve in the amount of $4.9 million was established related to reliability programs to account for the replacement of remaining high risk failure parts in some of our fielded units due to a supplier defect.

These enhancements have at times been provided at no cost or below our cost.

If we choose to offer such programs again in the future, such actions could result in significant costs.

We operate in a highly competitive market among competitors who have significantly greater resources than we have and we may not be able to compete effectively.

We compete with several technologies, including reciprocating engines, fuel cells and solar power.

Competing technologies may receive certain benefits, like governmental subsidies or promotion, or be able to offer consumer rebates or other incentives that we cannot receive or offer to the same extent.

This could enhance our competitors’

abilities to fund research, penetrate markets or increase sales.

We also compete with other manufacturers of microturbines.

Our competitors include several well‑known companies with histories of providing power solutions.

They have substantially greater resources than we do and have established worldwide presence.

Because of greater resources, some of our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the promotion and sale of their products than we can or lobby for governmental regulations and policies to create competitive advantages vis‑à‑vis our products.

We believe that developing and maintaining a competitive advantage will require continued investment by us in product development and quality, as well as attention to product performance, our product prices, our conformance to industry standards, manufacturing capability and sales and marketing.

In addition, current and potential competitors have established or may in the future establish collaborative relationships among themselves or with third parties, including third parties with whom we have business relationships.

Accordingly, new competitors or alliances may emerge and rapidly acquire significant market share.

Overall, the market for our products is highly competitive and is changing rapidly.

We believe that the primary competitive factors affecting the market for our products, including some that are outside of our control, include:

name recognition, historical performance and market power of our competitors;

product quality and performance;

operating efficiency;

product price;

availability, price and compatibility of fuel;

development of new products and features;

emissions levels.

There is no assurance that we will be able to successfully compete against either current or potential competitors or that competition will not have a material adverse effect on our business, operating results, financial condition and cash flow.

On February 22, 2021 we announced that we had reached a financial settlement in the amount of $5 million arising out of claims pursued in confidential arbitration with such former strategic parts supplier.

We obtained this settlement following a multi-year arbitration process.

Any future product quality issues with our parts suppliers could lead

to lengthy and costly litigation, even if the outcome is ultimately in our favor.

In addition, such quality issues with any of our parts could lead to us to fail to meet the product quality expectations of our own customers, which could adversely affect our operating results, financial condition and cash flow and affect the marketability of our products.

Our products involve a lengthy sales cycle, and we may not anticipate sales levels appropriately, which could impair our results of operations.

The sale of our products typically involves a significant commitment of capital by customers, which can result in the typical delays associated with large capital expenditures.

For these and other reasons, the sales cycle associated with our products is typically lengthy and subject to a number of significant risks over which we have little or no control.

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.

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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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 in 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.

On October 13, 2017, we entered into the Assignment Agreement and the Notes with TI.

Pursuant to the terms of the Assignment Agreement, we agreed to assign to TI the right, title and interest to receivables owed to us from BPC Engineering, our former Russian distributor (“BPC”), upon TI’s payment to us of $2.5 million in three payments by February 1, 2018.

We received payments from TI of approximately $1.0 million under the Assignment Agreement during Fiscal 2018 which was recorded as bad debt recovery.

In connection with the terms of the Note, we granted TI the sole distribution rights for our products and services in the Russian oil and gas sector.

As a result of this appointment, TI agreed to pay us $3.8 million over a three-year period in 35 equal monthly installments starting in August 2018.

On October 13, 2017, we and Hispania Petroleum, S.A.

(the “Guarantor”), entered into a Guaranty Agreement (the “Guaranty Agreement”) whereby the Guarantor guarantees TI’s obligations under the Agreement and Note.

However, due to our limited business relationship with TI and the missed payments on the Assignment Agreement, we deferred recognition of the Assignment Agreement and Note until collectability is reasonably assured.

On June 5, 2018, we entered into the Amended Assignment Agreement and the Amended Note with TI.

Pursuant to the terms of the Amended Assignment Agreement, the right, title and interest to receivables owed to us from BPC was contingent upon TI’s payment to us of the remaining approximately $1.5 million in five payments by September 20, 2019.

The payments of $0.4 million, $0.3 million, and $0.3 million due March 20, 2019, June 20, 2019, and September 20, 2019, respectively, under the Amended Assignment Agreement, have not been received at the time of this filing.

Under the terms of the Amended Note, TI agreed to pay us $3.8 million over a three-year period in 13 equal quarterly installments starting on December 20, 2019.

In September 2019, we sent TI a notice to cure default with a deadline of October 31, 2019.

TI failed to cure the noticed default and we have since terminated TI’s distributor

As a result, the BPC accounts receivable and related accounts receivable reserve of $4.8 million were written off.

As a result of the above amendments, during the three months ended March 31, 2018 we removed product orders related to BPC from backlog for approximately $7.2 million.

This removal was the result of product pricing that we no longer would honor.

Additionally, for Fiscal 2019, we removed product orders related to BPC from backlog for approximately $20.7 million.

During the three months ended June 30, 2019 we removed approximately $4.6 million.

These removals were the result of our continuous review of BPC related backlog with TI which resulted in us no longer honoring the product pricing.

Due to the cancellation of our distributor agreement with TI, we removed product orders related to BPC from backlog for approximately $15.8 million during the three months ended December 31, 2019.

There are no remaining backlog related to BPC as of March 31, 2020.

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

If we do not effectively implement our sales, marketing and service plans, our sales will not grow and our results of operations will suffer.

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If we are not able to address markets for our products successfully, we may not be able to grow our business, compete effectively or achieve profitability.

Our business and financial performance depends in part on the oil and natural gas industry, and a decline in prices for oil and natural gas may have an adverse effect on our revenue, cash flows, profitability and growth.

The significant decline in oil and natural gas prices beginning in late 2014 caused a reduction in our customers' spending and associated drilling and completion activities, which had an adverse effect on our revenue for multiple years.

We experienced an improvement in revenue during Fiscal 2019 due to favorable oil prices, however revenue has decreased in Fiscal 2020 due to declining oil prices.

We continue to be impacted by the volatility of the global oil and gas industry.

If prices were to remain low or decline further, we would expect to see similar declines in our customers' spending which would have an adverse effect on our revenue.

In addition, a worsening of these conditions may result in a material adverse impact on certain of our customers' liquidity and financial position resulting in further spending reductions, delays in the collection of amounts owing to us and similar impacts.

Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets.

As we expand in international markets, customers may have difficulty or be unable to integrate our products into their existing systems or may have difficulty complying with foreign regulatory and commercial requirements.

As a result, our products may require redesign.

Any redesign of the product may delay sales or cause quality issues.

In addition, we may be subject to a variety of other risks associated with international business, including import/export restrictions, fluctuations in currency exchange rates and economic or political instability.

Our business in particular is also subject to risks relating to uncertainties and effects of the implementation of the United Kingdom’s referendum to withdraw membership from the EU (referred to as “Brexit”), including financial, legal, tax and trade implications.

In addition, doing business internationally subjects us to risks relating to political or social unrest, as well as corruption and government regulation, including U.S.

laws such as the Foreign Corrupt Practices Act and the U.K.

Bribery Act, that impose stringent requirements on how we conduct our foreign operations.

If any of these events occur, our businesses may be adversely affected.

Changes to trade regulation, quotas, duties or tariffs, and sanctions caused by the changing U.S.

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.

The current U.S.

administration has voiced strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and may decide to impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include China, Mexico, and other countries from which we

import components or raw materials.

The former U.S.

administration has voiced strong concerns about imports from countries that it perceives as engaging in unfair trade practices.

Any current or future U.S.

administration may decide to impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include China, Mexico, and other countries from which we import components or raw materials.

Any such duties or restrictions could have a material adverse effect on our business, results of operations or financial condition.

Moreover, these new tariffs, or other changes in U.S.

Moreover, any new tariffs, or other changes in U.S.

trade policy, could trigger retaliatory actions by affected countries.

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companies access to critical raw materials.

A “trade war”

of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S.

A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the

potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S.

economy or certain sectors thereof and, thus, to adversely impact our businesses.

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If we are unable to conduct business with new or existing customers or pursue opportunities with sanctioned countries, our business, including revenue, profitability, and cash flows, could be materially adversely affected.

Our business may be impacted by international instability, war, terrorism, and geopolitical events.

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.

A slowdown in economic growth in some emerging markets could result in long sales cycles, greater risk of uncollectible accounts and longer collection cycles.

Fluctuations or devaluations in currency values, especially in emerging markets, could have an adverse effect on us, our suppliers, logistics providers and manufacturing vendors.

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.

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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We believe that retaining or developing relationships with strong OEMs (which to date have typically resold our products under their own brands or packaged our products with other products as part of an integrated unit) or distributors in these targeted markets can improve the rate of adoption as well as reduce the direct financial burden of introducing a new technology and creating a new market.

Because of OEMs’

and distributors’

relationships in their respective markets, the loss of an OEM or distributor could adversely impact the ability to penetrate our target markets.

Because of OEMs’ and distributors’ relationships in their respective markets, the loss of an OEM or distributor could adversely impact the ability to penetrate our target markets.

We offer our OEMs and distributors stated discounts from list price for the products they purchase.

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We have substantial accounts receivable, and increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on our cash flows and results of operations.

Our accounts receivable balance, net of allowances, was $16.2 million as of March 31, 2020 and 2019.

Days sales outstanding in accounts receivable (“DSO”) at the end of Fiscal 2020 was 85 days, compared with 70 days at the end of Fiscal 2019.

We recorded net bad debt expense of approximately $0.4 million during Fiscal 2020, and net bad debt recovery of approximately $0.3 million during Fiscal 2019.

Our accounts receivable balance, net of allowances, was $20.6 million and $16.2 million as of March 31, 2021 and 2020, respectively.

Days sales outstanding in accounts receivable (“DSO”) at the end of Fiscal 2021 was 111 days, compared with 85 days at the end of Fiscal 2020.

We recorded net bad debt recovery of approximately $0.2 million during Fiscal 2021, and net bad debt expense of approximately $0.4 million during Fiscal 2020.

No assurances can be given that future bad debt expense will not increase above current operating levels.

Increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on cash flows and results of operations.

We may experience a delay in payment or may not collect on the Accounts Receivable Assignment Agreement or Promissory Note with Turbine International, LLC.

On October 13, 2017, we entered into the Assignment Agreement and the Notes with TI.

We received payments from TI of approximately $1.0 million under the Assignment Agreement during Fiscal 2018 which was recorded as bad debt recovery.

On October 13, 2017, we and Hispania Petroleum, S.A.

(the “Guarantor”), entered into a Guaranty Agreement (the “Guaranty Agreement”) whereby the Guarantor guarantees TI’s obligations under the Agreement and Note.

In connection with the terms of the Note, we granted TI the sole distribution rights for our products and services in the Russian oil and gas sector.

As a result of this appointment, TI agreed to pay us $3.8 million over a three-year period in 35 equal monthly installments starting in August 2018.

On June 5, 2018, we entered into the Amended Assignment Agreement and the Amended Note with TI.

Pursuant to the terms of the Amended Assignment Agreement, the right, title and interest to receivables owed to us from BPC will be contingent upon TI’s payment to us of the remaining approximately $1.5 million in five payments by September 20, 2019.

Under the terms of the Amended Note, TI agreed to pay us $3.8 million over a three-year period in

13 equal quarterly installments starting on December 20, 2019.

The payments of $0.4 million, $0.3 million, and $0.3 million, due March 20, 2019, June 20, 2019, and September 20, 2019, respectively, under the Amended Assignment Agreement, have not been received at the time of this filing.

In September 2019, we sent TI a notice to cure default with a deadline of October 31, 2019.

TI failed to cure the noticed default and we have since terminated TI’s distributor agreement.

As a result, the BPC accounts receivable and related accounts receivable reserve of $4.8 million were written off.

Increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on results of operations and cash flows.

Loss of a significant customer could have a material adverse effect on our results of operations.

E-Finity accounted for approximately 12% of our revenue for Fiscal 2020.

CAL and E-Finity accounted for approximately 15% and 12%, respectively, of our revenue for Fiscal 2021.

Additionally, E-Finity accounted for 13% of net accounts receivable as of March 31, 2021.

The loss of E-Finity or any other significant customer could have a material adverse effect on our results of operations and financial condition.

The loss of CAL, E-Finity or any other significant customer could have a material adverse effect on our results of operations and financial condition.

We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales.

We believe that we will need to reduce the unit production cost of our products over time to maintain our ability to offer competitively priced products.

Our ability to achieve cost reductions will depend on our ability to develop low cost design enhancements, to obtain necessary tooling and favorable supplier contracts and to increase sales volumes so we can achieve economies of scale.

We cannot provide assurance that we will be able to achieve any such production cost reductions.

Our failure to achieve such cost reductions could have a material adverse effect on our business and results of operations.

We have realized reductions in our operating costs and, as a result, our ability to cut costs further and sustain our business initiatives may be limited.

Since April 2015, we have implemented various initiatives to reduce operating costs across all functions of the Company and focus our business efforts on our most promising near-term product opportunities.

As a result of these cost-cutting initiatives, which we have already undertaken over an extended period of time, we may have a more limited ability to further reduce costs to increase our liquidity should such measures become necessary.

Any further reductions may have a materially negative impact on our business.

We may incur costs and liabilities as a result of product liability claims.

We face a risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other damage.

Although we currently maintain product liability insurance coverage, we may not be able to obtain such insurance on acceptable terms in the future, if at all, or obtain insurance that will provide adequate coverage against potential claims.

Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome.

A significant unsuccessful product liability defense could have a material adverse effect on our financial condition and results of operations.

In addition, we believe our business depends on the strong brand reputation we have developed.

If our reputation is damaged, we may face difficulty in maintaining our market share and pricing with respect to some of our products, which could reduce our sales and profitability.

Operational restructuring may result in asset impairment or other unanticipated charges.

As a result of our corporate strategy, we have identified opportunities to outsource to third-party suppliers certain functions which we currently perform.

We believe outsourcing can reduce product costs, improve product quality and increase operating efficiency.

These actions may not yield the expected results, and outsourcing may result in production delays or lower quality products.

Transitioning to outsourcing may cause certain of our affected employees to leave before the outsourcing is complete.

This could result in a lack of the experienced in-house talent necessary to successfully

implement the outsourcing.

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.

We may not be able to manage our growth effectively, expand our production capabilities or improve our operational, financial and management information systems, which would impair our results of operations.

If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, management and other resources.

Our ability to manage our growth will require us to expand our production capabilities, continue to improve our operational, financial and management information systems, and to motivate and effectively manage our employees.

We cannot provide assurance that our systems, procedures and controls or financial resources will be adequate, or that our management will keep pace with this growth.

We cannot provide assurance that our management will be able to manage this growth effectively.

Our success depends in significant part upon the continuing service of management and key employees.

Our success depends in significant part upon the continuing service of our executive officers, senior management and sales and technical personnel.

The failure of our personnel to execute our strategy or our failure to retain management and personnel could have a material adverse effect on our business.

Our success, growth prospects, and ability to capitalize on market opportunities also depend to a significant extent on our ability to identify, hire, motivate and retain qualified managerial personnel, including senior members of management.

There can be no assurances that we can do so.

Our growth may be constrained by resource limitations as competitors and customers compete for increasingly scarce human capital resources.

The demand for skilled workers is currently high.

Our competitors may be able to offer a work environment with higher compensation or more opportunities than we can.

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, which may adversely impact our business, financial condition and results of operations.

In addition, our internal control systems rely on employees trained in the execution of the controls.

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.

Our operations are vulnerable to interruption by fire, earthquake and other events beyond our control.

Our operations are vulnerable to interruption by fire, earthquake, and other events beyond our control.

Our executive offices, manufacturing facility, and auxiliary inventory storage facility are located in southern California.

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.

If an earthquake, fire, or other natural disaster occurs at or near our facilities, our business, financial condition, operating results and cash flow could be materially adversely affected.

Activities necessary to integrate any future acquisitions may result in costs in excess of current expectations or be less successful than anticipated.

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.

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

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.

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.

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.

Such integration may divert management’s attention from normal daily operations of our business.

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 potential loss of, or harm to, our relationships with employees, customers, consumers and suppliers as a result of integration of new businesses.

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.

Risks Related to Our Product Offerings

We depend upon the development of new products and enhancements of existing products

Our operating results depend on our ability to develop and introduce new products, enhance existing products and reduce the costs to produce our products.

We continued to expand and develop our new hydrogen products during Fiscal 2021, which are commercially available running on a 10% hydrogen – 90% natural gas mix.

Continued development towards a 100% hydrogen product will require a long time horizon and a significant amount of financial resources.

There can be no assurance that we will have the resources or financial ability to develop a 100% hydrogen product.

Our operating results are dependent, in large part, upon the successful commercialization of our products.

Failure to produce our products as scheduled and budgeted would materially and adversely affect our business and financial condition.

We cannot be certain that we will deliver ordered products in a timely manner.

We have limited production slots for our products.

Any delays in production will increase our costs, reduce future production slots and could significantly impact our business, financial condition and operating results.

Our suppliers may not supply us with a sufficient amount of components or components of adequate quality, or they may provide components at significantly increased prices.

Some of our components are currently available only from a single source or limited sources.

If we fail to anticipate customer demand properly, an oversupply of parts could result in excess or obsolete inventories, which could adversely affect our business.

Additionally, if we fail to correctly anticipate our internal supply requirements, an undersupply of parts could limit our production capacity.

Our inability to meet volume commitments with suppliers could affect the availability or pricing of our parts and components.

A reduction or interruption in supply, a significant increase in price of one or more components or a decrease in demand of products could materially adversely affect our business and operations and could materially damage our customer relationships.

Financial problems 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.

Inadequate quality of products from suppliers could interrupt our ability to supply quality products to our customers in a timely manner.

We also outsource certain of our components internationally.

As a result of outsourcing internationally, we may be subject to delays in delivery because of regulations associated with the import/export process, delays in transportation or regional instability.

Commodity market factors impact our costs and availability of materials.

Our products contain a number of commodity materials from metals, which include steel, special high temperature alloys, copper, nickel and molybdenum, to computer components.

The availability of these commodities could impact our ability to acquire the materials necessary to meet our production requirements.

The cost of metals has historically fluctuated.

The pricing could impact the costs to manufacture our products.

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.

We operate in a highly competitive market among competitors that have significantly greater resources than we have and we may not be able to compete effectively.

We compete with several technologies, including reciprocating engines, fuel cells and solar power.

This could enhance our competitors’ abilities to fund research, penetrate markets or increase sales.

We also compete with other manufacturers of microturbines.

Our competitors include several well-known companies with histories of providing power solutions.

They have substantially greater resources than we do and have established worldwide presence.

Accordingly, new competitors or alliances may emerge and rapidly acquire significant market share.

Overall, the market for our products is highly competitive and is changing rapidly.

We believe that the primary competitive factors affecting the market for our products, including some that are outside of our control, include:

● name recognition, historical performance and market power of our competitors;

● product quality and performance;

● operating efficiency;

● product price;

● availability, price and compatibility of fuel;

● development of new products and features;

● emissions levels.

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 a decline in prices for oil and natural gas may have an adverse effect on our revenue, cash flows, profitability and growth.

We experienced a decrease in revenue in Fiscal 2021 and Fiscal 2020 due to declining 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.

If prices were to remain low or decline further, we would expect to see additional declines in our customers' spending which would have an adverse effect on our revenue.

Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets.

As a result, our products may require redesign.

Any redesign of the product may delay sales or cause quality issues.

In addition, doing business internationally subjects us to risks relating to political or social unrest, as well as corruption and government regulation, including laws such as the Foreign Corrupt Practices Act and the U.K.

Bribery Act, that impose stringent requirements on how we conduct our foreign operations.

We may not be able to develop sufficiently trained applications engineering, installation and service support to serve our targeted markets.

Our ability to identify and develop business relationships with companies who can provide quality, cost‑effective application engineering, installation and service can significantly affect our success.

Our ability to identify and develop business relationships with companies that can provide quality, cost-effective application engineering, installation and service can significantly affect our success.

The application engineering and proper installation of our microturbines, as well as proper maintenance and service, are critical to the performance of the units.

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We have entered into agreements with some of our distributors requiring that if we render parts obsolete in inventories they own and hold in support of their obligations to serve fielded microturbines, we are required to replace the affected stock at no cost to the distributors.

It is possible that future changes in our product technology could involve costs that have a material adverse effect on our results of operations, cash flow or financial position.

As a result, it is possible that future changes in our product technology could involve costs that have a material adverse effect on our results of operations, cash flow or financial position.

Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may not be able to effectively sell our products.

Utility companies or governmental entities could place barriers on the installation of our products or the interconnection of the products with the electric grid.

Further, they may charge additional fees to customers who install on-site generation or have the capacity to use power from the grid for back-up or standby purposes.

These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems.

This could make our systems less desirable, thereby adversely affecting our revenue and other operating results.

In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our operations.

The cost of electric power generation bears a close relationship to natural gas and other fuels.

However, changes to electric utility tariffs often require lengthy regulatory approval and include 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.

Risks Related to Pending Litigation and Government Regulation

We operate in a highly regulated business environment, and changes in regulation could impose significant costs on us or make our products less economical, thereby affecting demand for our microturbines.

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We may incur material costs or liabilities in complying with government regulations.

In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations and requirements that may be adopted or imposed in the future.

In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations, requirements and approvals that may be adopted or imposed in the future.

We can provide no assurances that we will be able to obtain any such approvals in a timely manner, or at all.

Non-compliance with applicable regulations could have a material adverse effect on our operating results.

Furthermore, our potential utility customers must comply with numerous laws and regulations.

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For example, as part of electric utility deregulation, federal, state and local governmental authorities may impose transitional charges or exit fees, which would make it less economical for some potential customers to switch to our products.

We can provide no assurances that we will be able to obtain these approvals and changes in a timely manner, or at all.

Non‑compliance with applicable regulations could have a material adverse effect on our operating results.

The market for electricity and generation products is heavily influenced by federal and state government regulations and policies.

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Any reduction or termination of such programs could increase the cost to our potential customers, making our systems less desirable, and thereby adversely affect our revenue and other operating results.

Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may not be able to effectively sell our products.

Utility companies or governmental entities could place barriers on the installation of our products or the interconnection of the products with the electric grid.

Further, they may charge additional fees to customers who install on‑site generation or have the capacity to use power from the grid for back‑up or standby purposes.

These types of restrictions, fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems.

This could make our systems less desirable, thereby adversely affecting our revenue and other operating results.

In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our operations.

The cost of electric power generation bears a close relationship to natural gas and other fuels.

However, changes to electric utility tariffs often require lengthy regulatory approval and include 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.

We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales.

We believe that we will need to reduce the unit production cost of our products over time to maintain our ability to offer competitively priced products.

We cannot provide assurance that we will be able to achieve any such production cost reductions.

Our failure to achieve such cost reductions could have a material adverse effect on our business and results of operations.

We have effected reductions in our operating costs and, as a result, our ability to cut costs further and sustain our business initiatives may be limited.

Beginning in April 2015, we have implemented various initiatives to reduce operating costs across all functions of the Company and focus our business efforts on our most promising near-term product opportunities.

As a result of these cost-cutting initiatives, we may have a more limited ability to further reduce costs to increase our liquidity should such measures become necessary.

Any further reductions may have a materially negative impact on our business.

Potential intellectual property, labor, product liability, stockholder or other litigation may adversely impact our business.

From time to time, we may face litigation relating to intellectual property, labor, product liability, stockholder and other matters.

We have significant tax assets, usage of which may be subject to limitations in the future.

At March 31, 2021, we had federal and state net operating loss carryforwards of approximately $592.7 million and $163.0 million, respectively, which may be utilized to reduce future taxable income, subject to limitations under Section 382 of the Internal Revenue Code of 1986.

These deferred tax assets have been fully offset by a valuation allowance.

Any subsequent accumulations of common stock ownership leading to a change of control under Section 382 of the U.S.

Internal Revenue Code of 1986, including through sales of stock by large stockholders, which are outside of our control, could limit and defer our ability to utilize our net operating loss carryforwards to offset future federal income tax liabilities.

We are subject to a number of pending lawsuits.

We and certain of our current and former officers are named as defendants in a shareholder class action lawsuit filed in the United States District Court for the Central District of California, and in a separate but similar lawsuit brought by two individual shareholders in the United States District Court for the Central District of California.

Additionally, we and certain of our current and former officers and directors are named as defendants in various state and federal derivative suits.

We may be named as defendants in future lawsuits.

These current and future matters may result in significant liabilities and diversion of our management’s time, attention and resources.

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.

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.

Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, financial condition or results of operations.

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.

See Item 3—Legal Proceedings of this Form 10-K for more information regarding currently pending legal proceedings.

In addition, from time to time, we may face litigation relating to intellectual property, labor, product liability, stockholder and other matters.

An adverse judgment could negatively impact our financial position and results of operations, the trading price of our common stock and our ability to obtain future financing on favorable terms or at all.

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Further, our insurance coverage is limited for these and other claims against us, and we may not have adequate insurance or financial resources to pay for our liabilities or losses from any such claims

Risks Related to Data, Security, and Intellectual Property

Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.

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We cannot guarantee that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged by third parties.

Moreover, the expiration of our patents may lead to increased competition with respect to

certain products.

In addition, we cannot be certain that we do not or will not infringe third parties’

intellectual property rights.

Moreover, the expiration of our patents may lead to increased competition with respect to certain products.

In addition, we cannot be certain that we 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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Our business, including our turbines and related energy assets may be vulnerable to a data compromise, computer viruses, physical and electronic break-ins and manipulations and similar disruptions, which may not be prevented by our efforts to secure our computer systems and assets, which include vulnerability scans and patching, network firewalls, identity and access management, data encryption, intrusion detection and prevention devices.

Regular penetration tests of our networks are conducted by a third party service provider and we leverage any findings to further enhance our security.

We also employ secure file transfer options to provide security for processing, transmission and storage of confidential information.

Our critical data is backed up to a separate secured data storage facility.

However, our efforts may not be able to prevent rapidly evolving types of cyber-attacks and a successful breach of our computer systems could result in misappropriation of personal, payment or sensitive business information.

In addition, we rely on associates, contractors and other third parties who may attempt to circumvent our security measures in order to obtain such information, and may purposefully or inadvertently cause a breach involving such information.

The competitive advantages derived from our R&D efforts, the usefulness of our products and services, our reputation and our stock price could be impacted.

Our cybersecurity efforts may not be able to prevent rapidly evolving types of cyber-attacks and a successful breach of our computer systems could result in misappropriation of personal, payment or sensitive business information.

In addition, we rely on associates, contractors and other third parties that may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently cause a breach involving such information.

A security breach involving confidential and proprietary data or the fleet of turbines we have deployed across the globe for our customers could damage our reputation and our ability to retain existing customers or gain new customers and impact the competitive advantages derived from our R&D efforts, the usefulness of our products and services, and ultimately our stock price.

In addition, we may incur material liabilities and remediation costs as a result of a security breach and, our insurance may not be sufficient to cover the impact to the business.

Although we have developed mitigating security controls to reduce our cyber risk and protect our data and our products, our customers’

data and our customers’

turbines from a security breach, such measures cannot provide absolute security and accordingly any security breach may have a material adverse effect on our business.

Moreover, changing privacy laws in the United States, Europe and elsewhere, including the adoption by the European Union of the General Data Protection Regulation (“GDPR”), which became effective May 2018, creates new individual privacy rights and imposes increased obligations on companies handling personal data.

Moreover, evolving privacy laws in the United States, Europe and elsewhere, including the adoption by the European Union of the General Data Protection Regulation (“GDPR”), which became effective May 2018, establishes new individual privacy rights and imposes increased obligations on companies handling personal data.

Consequently, we may incur significant costs related to prevention and compliance with laws regarding the protection and unauthorized disclosure of personal information.

A failure to comply with the stringent rules of the GDPR could result in fines of up to €20 million.

Further, a greater number of our employees are working remotely in response to the COVID-19 pandemic and related government actions, which could expose us to greater risks related to cybersecurity and our information technologies systems.

We may incur costs and liabilities as a result of product liability claims.

We face a risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other damage.

Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome.

A significant unsuccessful product liability defense could have a material adverse effect on our financial condition and results of operations.

In addition, we believe our business depends on the strong brand reputation we have developed.

If our reputation is damaged, we may face difficulty in maintaining our market share and pricing with respect to some of our products, which could reduce our sales and profitability.

We have significant tax assets, usage of which may be subject to limitations in the future.

At March 31, 2020, we had federal and state net operating loss carryforwards of approximately $643.7 million and $162.0 million, respectively, which may be utilized to reduce future taxable income, subject to limitations under Section 382 of the Internal Revenue Code of 1986.

These deferred tax assets have been fully offset by a valuation allowance.

Any subsequent accumulations of common stock ownership leading to a change of control under Section 382 of the U.S.

Internal Revenue Code of 1986, including through sales of stock by large stockholders, all of which are outside of our control, could limit and defer our ability to utilize our net operating loss carryforwards to offset future federal income tax liabilities.

Activities necessary to integrate any future acquisitions may result in costs in excess of current expectations or be less successful than anticipated.

The integration of any acquired businesses or significant assets may require significant attention from our management, and the diversion of management’s attention and resources could have a material adverse effect on our ability to manage our business.

Furthermore, we may not realize the degree or timing of benefits we anticipated when we first enter into these transactions.

If actual integration costs are higher than amounts assumed, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or 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.

Operational restructuring may result in asset impairment or other unanticipated charges.

As a result of our corporate strategy, we have identified opportunities to outsource to third‑party suppliers certain functions which we currently perform.

We believe outsourcing can reduce product costs, improve product quality and increase operating efficiency.

These actions may not yield the expected results, and outsourcing may result in production delays or lower quality products.

Transitioning to outsourcing may cause certain of our affected employees to leave before the outsourcing is complete.

This could result in a lack of the experienced in‑house talent necessary to successfully implement the outsourcing.

If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, management and other resources.

We cannot provide assurance that our systems, procedures and controls or financial resources will be adequate, or that our management will keep pace with this growth.

We cannot provide assurance that our management will be able to manage this growth effectively.

Our success depends in significant part upon the continuing service of management and key employees.

Our success depends in significant part upon the continuing service of our executive officers, senior management and sales and technical personnel.

The failure of our personnel to execute our strategy or our failure to retain management and personnel could have a material adverse effect on our business.

Our success will be dependent on our continued ability to attract, retain and motivate highly skilled employees.

There can be no assurance that we can do so.

Our internal control systems rely on employees trained in the execution of the controls.

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.

Our operations are vulnerable to interruption by fire, earthquake and other events beyond our control.

Our executive offices, manufacturing facility, and auxiliary inventory storage facility are located in southern California.

Because the southern California area is located in an earthquake‑sensitive area, 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.

If an earthquake, fire or other natural disaster occurs at or near our facilities, our business, financial condition, operating results and cash flow could be materially adversely affected.

Risks Related to Ownership of Our Common Stock

We cannot be certain of the future effectiveness of our internal controls over financial reporting.

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Our management concluded that our internal controls over financial reporting were effective as of March 31, 2021.

We may in the future identify material weaknesses in our internal controls over financial reporting that we have not discovered to date.

If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC.

Any such action could adversely affect our financial results and the market price of our securities.

We are subject to a number of pending lawsuits.

Additionally, we and certain of our current and former officers and directors are named as defendants in various state and federal derivative suits.

We may be named as defendants in future lawsuits.

These current and future matters may result in significant liabilities and diversion of our management’s time, attention and resources.

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.

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.

Protracted litigation, including any adverse outcomes, may have an adverse impact on our business, financial condition or results of operations.

See Item 3—Legal Proceedings of this Form 10-K for more information regarding currently pending legal proceedings.

If we fail to meet all applicable Nasdaq Capital Market requirements and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment and adversely affect our ability to raise needed funds.

Our common stock is listed on the Nasdaq Capital Market.

In order to maintain that listing, we must satisfy minimum financial and other requirements.

On November 23, 2018, we received a notice from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) stating that, for the last 30 consecutive business days, the closing bid price for our common stock had been below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided 180 calendar days, or until May 22, 2019, to regain compliance with the minimum bid price requirement.

On May 23, 2019, we received notice that in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Listing

Qualifications Department of Nasdaq had granted us an additional 180 days, or until November 18, 2019, to regain compliance with Nasdaq’s $1.00 per share minimum bid price requirement under Nasdaq Marketplace Listing Rule 5550(a)(2).

The May 23, 2019 notification letter had no effect at that time on the listing of our common stock on The Nasdaq Capital Market or trading of our common stock.

We provided written notice of our intention to cure the minimum bid price deficiency during this additional 180-day period by effecting a reverse stock split if necessary.

On October 21, 2019, following votes of our board of directors and stockholders, we effected a one-for-ten (1:10) reverse stock split of our common stock.

On November 5, 2019, we received written notification from the Nasdaq Listing Qualifications Staff indicating that the bid price for our common stock closed at or above $1.00 per share for at least 10 consecutive business days.

Accordingly, we regained compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Marketplace Listing Rule 5550(a)(2).

If we fail to meet all applicable Nasdaq Capital Market requirements in the future and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock and adversely affect our ability to obtain financing for the continuation of our operations.

This delisting could also impair the value of your investment.

We may in the future identify material weaknesses in our internal controls over financial reporting that could result in a material misstatement of our financial statements.

Our internal control over financial reporting will not prevent or detect all errors and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we may not be able to produce timely and accurate financial statements.

If that were to happen, our investors could lose confidence in our reported financial information, the market price of our common stock could decline and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC.

Future issuances or sales of our common stock or exercises by holders of our outstanding warrants 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 common stock could have the effect of substantially diluting the interests of our current stockholders.

In addition, the sale of a substantial amount of common stock in the public market, either in the initial issuance or in a subsequent resale by investors that acquired such common stock, could have a material adverse effect on the market price of our common stock.

We may sell up to $50.0 million of shares of our common stock in “at-the-market’ offerings pursuant to the sales agreement entered into with H.C.

Wainwright & Co., LLC on June 7, 2018 and as amended on July 15, 2020 and March 29, 2021.

The sale of a substantial number of shares of our common stock pursuant to the sales agreement, or anticipation of 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.

In addition, issuances of any shares of our common stock sold pursuant to the sales agreement will have a dilutive effect on our existing stockholders.

In addition, we currently have warrants outstanding for the purchase of up to an aggregate of 1.1 million shares of our common stock and certain of our warrant holders also have the right to require us to register under the Securities Act the shares issuable upon exercise of their warrants.

In addition, some of our outstanding warrants contain anti-dilution provisions that may, under certain circumstances, increase the number of shares issuable thereunder.

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.

The market price of our common stock has been, and may continue to be, highly volatile and you could lose all or part of your investment in our securities.

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This variability could affect our operating results and thereby adversely affect our stock price.

Many factors that contribute to this volatility are beyond our control and may cause the market price of our common stock to change, regardless of our operating performance.

Many factors that contribute

to this volatility are beyond our control and may cause the market price of our common stock to change, regardless of our operating performance.

Factors that could cause fluctuation in our stock price may include, among other things:

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● further decreases in or continued low levels of oil, natural gas and electricity prices.

In addition, the stock market in general, and the Nasdaq Capital Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected.

The market prices of securities of technology companies and companies servicing the technology industries have been particularly volatile.

These broad market and industry factors may cause a material decline in the market price of our common stock, regardless of our operating performance.

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 that company.

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.

Our business could be negatively affected as a result of a proxy contest.

A proxy contest and any related litigation would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs and require significant time and attention by management, our board of directors and employees, and would divert the attention of our board of directors and senior management from the pursuit of our business strategy, which could adversely affect our results of operations and financial condition.

Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the composition of our board of directors or senior management team arising from a proxy contest could lead to the perception of a change in the direction of our business, instability or lack of continuity which may be exploited by our competitors and may result in the loss of potential business opportunities and may make it more difficult to pursue our strategic initiatives or attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results.

We may choose to initiate, or may become subject to, litigation as a result of the proxy contest or matters arising from the proxy contest, which would serve as a further distraction to our board of directors, management and employees and would require us to incur significant additional costs.

In addition, the market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the uncertainties described above or the outcome of a proxy contest or any related litigation.

Similarly, a proxy contest with any other activist investor could result in the turnover of a majority of our board of directors.

If such a change in the composition of our board of directors were to occur, it could trigger the change of control provisions of certain agreements and arrangements to which we are a party, including the Note Purchase Agreement, our Amended and Restated Severance Pay Plan and, if followed by a qualifying termination of certain of our executive officers the Change in Control Severance Agreements, between us and Darren Jamison, our President and Chief Executive Officer and other executives.

Under the Note Purchase Agreement, a change of control constitutes an event of default that would entitle Goldman Sachs Specialty Lending Holdings, Inc.

to, among other remedies, declare all of our outstanding borrowings under the Note Purchase Agreement immediately due and payable.

Under the Amended and Restated Change of Control Severance Plan and the Amended and Restated Change in Control Severance Agreement, as amended, following a change of control, upon the occurrence of a qualifying termination of Mr.

Jamison or certain of our other executive officers and employees, we will be obligated to make specified severance payments to the terminated employee.

If such a change in our board composition were to occur, and if our board of directors were unable to take certain mitigating action to avoid triggering, or if we were unable to obtain a waiver of, these and other similar change of control provisions to which we are subject, the resulting payments and other obligations required of us could have a material adverse effect on our liquidity and ability to conduct our business or could otherwise materially and adversely affect our business, results of operations and financial condition.

Market conditions may result in volatility in the level of, and fluctuations in, market prices of stocks generally and, in turn, our common stock and sales of substantial amounts of our common stock in the market, in each case being unrelated or disproportionate to changes in our operating performance.

Concerns over global stability and economic conditions in the United States and abroad have contributed to the extreme volatility of the markets which may influence the market price of our common stock.

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.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable independent research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business.

We do not have any control over these analysts.

If one or more of the analysts that covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline.

If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Provisions in our certificate of incorporation, bylaws and our NOL rights plan, as well as Delaware law, may discourage, delay or prevent a merger or acquisition at a premium price.

Provisions of our second amended and restated certificate of incorporation, amended and restated bylaws and our stockholder rights plan, 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.

These provisions include our board’s authorization 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.

We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which could prevent us from engaging in a business combination with a 15% or greater stockholder for a period of three years from the date such stockholder acquired such status unless appropriate board or stockholder approvals are obtained.

On May 6, 2019, we and Broadridge Financial Solutions, Inc.

successor-in-interest to Computershare Inc., as Rights Agent, entered into a Rights Agreement (the “NOL Rights Agreement”) designed to diminish the risk that our ability to use our net operating losses and certain other tax assets to reduce potential future federal income tax obligations would become subject to limitations by reason of us experiencing an “ownership change,”

as defined in Section 382 of the Internal Revenue Code of 1986, as amended.

The NOL Rights Agreement replaces the Company’s Rights Agreement, dated May 6, 2016, by and between the Company and Broadridge Financial Solutions, Inc., as successor-in-interest to Computershare Inc., as rights agent (the “Original Rights Agreement”).

While this NOL Rights Agreement is intended to preserve our net operating losses, it effectively deters current and future purchasers from becoming 4.99% stockholders.

The NOL Rights Agreement could also make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders.

The market price of our common stock may be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on Nasdaq.

Concerns over global stability and economic conditions in the United States and abroad have contributed to the extreme volatility of the markets which may have an effect on the market price of our common stock.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business.

We do not have any control over these analysts.

If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our

stock price would likely decline.

We do not intend to pay cash dividends.

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Consequently, in the foreseeable future, you will likely only experience a gain from your investment in our securities if the price of our common stock increases.

General Risk Factors

Adverse economic conditions may have an impact on our business and financial condition, including some effects we may not be able to predict.

Adverse economic conditions may prevent our customers from purchasing our products or delay their purchases, which would adversely affect our business, financial condition and results of operations.

In addition, our ability to access the capital markets may be severely restricted or made very expensive at a time when we need, or would like, to do so,

which could have a material adverse impact on our liquidity and financial resources.

Certain industries in which our customers do business and certain geographic areas have been and could continue to be adversely affected by adverse economic conditions.

Our revenue continues to be negatively impacted by the volatility of the global oil and gas markets, a strong U.S.

dollar (making our products more expensive overseas) and ongoing global geopolitical tensions.

Our business may be impacted by international instability, war, terrorism, and geopolitical events.

A slowdown in economic growth in some emerging markets could result in long sales cycles, greater risk of uncollectible accounts and longer collection cycles.

Fluctuations or devaluations in currency values, especially in emerging markets, could have an adverse effect on us, our suppliers, logistics providers and manufacturing vendors.

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.

Unresolved Staff Comments.

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.

What changed 10-K

Item 1A. Risk Factors