What changed in this filing

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Item 1A. Risk Factors

2024-06-13 compared with 2022-07-14 · 363 added, 258 removed, 333 unchanged (65% of the section changed)

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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.

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

References to impacts on the trading price of the New Common Stock (as defined below) assume that the New Common Stock will resume trading on an over-the-counter basis.

As of the date of the filing of this Annual Report, no quote of the New Common Stock is published.

There can be no assurances as to when over-the-counter trading will resume.

See “—There is currently no public trading market for our New Common Stock.”

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 Emergence from Chapter 11

● Emergence (as defined below) may have a negative impact on our business relationships.

● Long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.

● There are significant risks related to our substantial indebtedness.

● Financial results after Emergence may not reflect historical trends or meet our expectations.

● Increased levels of employee attrition as a result of our Emergence, including among senior management.

● There is currently no public trading market for our New Common Stock.

Risks Related to Our Corporate Structure

● We are a holding company with nominal net worth and will depend on dividends and distributions from our Operating Subsidiary (as defined below) to pay any dividends.

● Holders of the Preferred Units (as defined below) can exercise significant control over our Operating Subsidiary, which could limit our ability to influence the outcome of key corporate actions of our Operating Subsidiary.

Risks Related to Our Restatement

● We have restated our consolidated financial statements for prior annual and interim periods and have concluded two Audit Committee Investigations, all of which have affected and may continue to affect investor confidence, our stock price, our ability to raise capital in the future, our reputation with our customers, and our ability to timely file our periodic reports with the SEC, and has resulted in stockholder litigation against certain of our current and former executives and may result in additional litigation in the future.

● The SEC enforcement division is conducting an investigation into the circumstances surrounding the Restatement, the results of which may have a material adverse effect on our financial condition and business.

● We have incurred and expect to continue to incur significant expenses related to the Audit Committee Investigations (as defined below), Restatement and remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation.

● The Audit Committee Investigations, the findings thereof, and the Restatement process have diverted, and may continue to divert, management and other human resources from the operation of our business.

● Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital.

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.

● Our recently implemented expenses reduction plan and organizational changes undertaken to align to our focus on our EaaS business and achieving profitability may not be successful.

● 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.

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

we were in breach of our secured note purchase agreement as of May 27, 2022.

● 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 are exposed to floating interest rate risk under the Exit Note Purchase Agreement, which could cause our debt service obligations to increase significantly.

● Regional epidemics or global pandemics may materially and adversely affect our business, financial condition and results of operations.

● 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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● 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.

● Changes to trade regulations, 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.

● If any of our distributor relationships are 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 channels or result in litigation costs or other expenses or cash flow.

● 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.

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● 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.

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● 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.

● Our success depends in significant part upon the continuing service of management and key employees, and several key management and other employees have recently left Capstone.

● Our operations are vulnerable to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events 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.

● We may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to new or more stringent greenhouse gas regulations designed to address climate change.

Risks Related to Our Product Offerings

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● 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 may be subject to lawsuits.

● We and certain of our former directors and officers are subject to various legal proceedings.

Risks Related to Data, Security, and Intellectual Property

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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.

Risks Related to Ownership of Our New Common Stock

● Our management has identified material weaknesses in its internal control over financial reporting and we determined that our disclosure controls and procedures were ineffective as of March 31, 2023.

If we fail to remediate the material weaknesses or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results may be affected, and such failure may adversely affect investor confidence and business operations.

● Future issuances or sales of our New Common Stock or exercises by holders of any warrants we may issue could lower our stock price and dilute the interests of existing stockholders.

● Once trading in the New Common Stock commences, the market price of our New Common Stock is likely 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.

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

● 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.

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

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

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

Risks Related to Our Emergence from Chapter 11

We emerged from bankruptcy in December 2023, which could adversely affect our business and business relationships.

We emerged from bankruptcy on the Effective Date.

It is possible that having recently emerged from the Chapter 11 Cases could adversely affect our business and relationships with vendors, suppliers, service providers, customers, employees, and other third parties.

The risks we may face as a result of our recent Emergence include, but not are limited to, the following:

● vendors or other contract counterparties could terminate their relationship with us or require financial assurances or other enhanced performances;

● we may face challenges in renewing existing contracts and competing for new business;

● it may be more difficult to attract, motivate, and/or retain key executives and employees;

● employees may be distracted from the performance of their duties or more inclined to pursue other employment opportunities;

● competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted.

We cannot accurately predict or quantify the impacts or material adverse effects of the residual risk and uncertainties associated with our Emergence, or the occurrence of one or more of these risks could have on our results of operations, financial condition, business, and reputation.

We cannot assure you that having recently been subject to bankruptcy protection will not adversely affect our future results of operations, financial condition, and business.

Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.

On March 31, 2023, we had cash and cash equivalents of $12.8 million and working capital deficiency of $56.8 million.

This compares to $22.6 million and $29.3 million, respectively, as of March 31, 2022.

On May 31, 2024, we had cash and cash equivalents of approximately $0.8 million.

We face uncertainty regarding the adequacy of our long-term liquidity and capital resources.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred

significant professional fees and other costs in connection with the preparation and administration of the Chapter 11 Cases.

In addition, the Notes (as defined below) bear interest at a rate equal to the Adjusted Term SOFR (as defined in the Exit Note Purchase Agreement) plus 7.00% per annum.

100% of the interest payable under the Notes is payable in kind until December 7, 2024, after which we must start paying cash interest.

We cannot assure you that cash on hand at Emergence, cash flow from operations, and the financing pursuant to the Exit Facility will be sufficient to continue to fund our operations or to pay cash interest on the Notes when due.

Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things, our ability to:

(i) comply with the terms and conditions of the Exit Note Purchase Agreement and associated agreements, (ii) maintain adequate cash on hand, and (iii) generate cash flow from operations.

There are significant risks related to our substantial indebtedness.

We are party to an Exit Note Purchase Agreement (the “Exit Note Purchase Agreement”), by and among Operating Subsidiary, as the issuer, the Company and Capstone Financial Services, as the guarantors (the “Guarantors”), Purchaser and the Collateral Agent (each as defined in the Exit Note Purchase Agreement).

The Exit Note Purchase Agreement provides for:

(i) a roll up of the $12.6 million DIP New Money Notes (plus any accrued unpaid interest);

(ii) a roll up of $8.0 million of DIP Roll Up Notes (plus any accrued unpaid interest) (collectively with the roll up of the $12.6 million DIP New Money Notes, the “Exit Roll Up Notes”);

(iii) an additional $7.0 million new money committed delayed draw term loan facility (the “Exit New Money Notes” and, together with the Exit Roll Up Notes, the “Notes”), of which $3.0 million was drawn at closing.

The Exit Note Purchase Agreement also provides for a $10.0 million uncommitted incremental facility.

As of May 31, 2024, we had $29.7 million in borrowing outstanding under the Notes.

The Exit Roll Up Notes mature on December 7, 2026, and the Exit New Money Notes mature on December 7, 2025.

The Exit 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, and a minimum liquidity covenant and minimum consolidated adjusted EBITDA covenant.

As of March 31, 2024, we were not in compliance with the minimum adjusted EBITDA covenant contained in the Exit Note Purchase Agreement.

In anticipation of such default, we obtained a waiver from the Purchaser and the Collateral Agent on March 27, 2024.

There can be no assurance that the Purchaser and the Collateral Agent will waive any future defaults that may occur.

If future defaults occur, the Purchaser and the Collateral Agent can exercise their rights and remedies under the Exit Note Purchase Agreement (and other security related documents), including a right to accelerate the maturity of our repayment obligations under the Notes.

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

● We may have difficulty obtaining additional financing to meet our requirements to repay the Notes at their respective maturities on December 7, 2025 and December 7, 2026 and to meet our requirements for operations, capital expenditures, and general corporate or other purposes.

There is no assurance that we will be able to repay or refinance the Notes at or prior to their respective maturity dates (or upon acceleration based upon events of default).

● The Collateral Agent has a lien on substantially all of our assets under the Exit Note Purchase Agreement, securing our obligations under the Notes, may enforce any and all liens and security interests on the collateral we have used to secure the Notes, and we may forfeit our right to such collateral.

A default leading to the Purchaser and the Collateral Agent accelerating the maturity of the indebtedness under the Notes would have a material adverse effect on our business and financial condition, and, if the Purchaser and the Collateral Agent exercise their rights and remedies, we could be forced to seek bankruptcy protection again.

● We are required to dedicate a substantial portion of our cash flow to the payment of principal and, beginning in December 2024, interest on the Notes, which reduces the amount of funds available for operations, capital expenditures and future acquisitions.

Our actual financial results after Emergence may not be comparable to our historical financial information or to our projections filed with the Bankruptcy Court.

As a result of the implementation of the Plan and the transactions contemplated thereby, our future results of operations, financial condition, and business may not be comparable to the results of operations, financial condition, and business reflected in our historical financial statements.

In connection with the disclosure statement we filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate the feasibility of the Plan and our ability to continue operations upon our Emergence.

Those projections were prepared solely for the purpose of bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors.

At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize.

Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic, and competitive risks, and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects.

Actual results may vary significantly from those contemplated by the projections.

As a result, investors should not rely on these projections.

It may be difficult for us to attract and retain employees, including members of our senior management, as a result of our Emergence.

As a result of our Emergence, it may be difficult for us to attract and retain employees, including members of senior management.

A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations.

Our ability to engage, motivate, and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us following our Emergence may be challenging given the uncertainties currently facing our business and changes we may make to our organizational structure to adjust to changing circumstances.

The loss of members of our senior management team could impair our ability to execute our strategy and implement operational initiatives, which would be likely to have a material adverse effect on our business, financial condition, and results of operations.

There is currently no public trading market for our New Common Stock, and we cannot assure you that an active trading market will develop for the New Common Stock.

As a result of the implementation of the Plan and the transactions contemplated thereby, the stockholders of Capstone Green Energy Corporation received their pro rata share of 18,540,877 shares of the common stock of Capstone Green Energy Holdings, Inc., par value $0.001 per share (the “New Common Stock”).

There is currently no public trading market for the New Common Stock because we have not been current in our annual and quarterly reports pursuant to Section 13 and 15(d) of the Exchange Act (the “Reporting Obligations”), we have been unable to obtain a ticker symbol for the New Common Stock or to obtain quotation on any OTC Markets Group, Inc.

As such, the New Common Stock can only be traded between brokers and no quote is published.

We will not be current on our Reporting Obligations until we file delinquent Quarterly Reports on Form 10-Q and will not become current in connection with the filing of this Annual Report.

We cannot provide any assurance that over-the-counter trading will resume or that the trading volume or price will increase if over-the-counter trading does resume.

Not being listed on an established securities exchange has an adverse effect on the liquidity of the New Common Stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of our company.

This may result in lower prices for the New Common Stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for the New Common Stock.

Risks Related to our Corporate Structure

We are a holding company with nominal net worth and will depend on dividends and distributions from our Operating Subsidiary to pay any dividends.

The Company is a holding company with nominal net worth.

We do not have any material assets nor conduct any business operations other than our investment in the Operating Subsidiary.

Our business operations are conducted

primarily out of the Operating Subsidiary and certain of its subsidiaries.

As a result, in addition to the restrictions on payment of dividends that apply under the terms of our existing indebtedness and the limited liability company agreement of Operating Subsidiary (as defined below) (the “Operating Subsidiary LLC Agreement”), our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from the Operating Subsidiary.

Payments to us from the Operating Subsidiary will be contingent upon its earnings and subject to any limitations on the ability of such entity to make payments or other distributions to us, including limitations contained in the Operating Subsidiary LLC Agreement.

Holders of the Preferred Units can exercise significant control over our Operating Subsidiary, which could limit our ability to influence the outcome of key corporate actions of our Operating Subsidiary.

Pursuant to the Operating Subsidiary LLC Agreement, the Operating Subsidiary may not undertake certain actions without the prior written approval of Goldman Sachs.

Subject to certain exceptions, the Operating Subsidiary must not, among other things:

(1) alter or change the rights, preferences or privileges of the Preferred Units or amend any of the Operating Subsidiary’s governing documents;

(2) make any change in corporate form, including conversion to a corporation;

(3) increase the authorized number of Preferred Units;

(4) issue any Common Units or equivalents to any person or group of persons (other than the Company), or approve the sale by the Company of Common Units or equivalents to any person or group of persons, such that after the issuance or sale, as applicable, such person or group of persons would own an aggregate number of Common Units in excess of 25% of the actually outstanding Common Units on the date of the Operating Subsidiary LLC Agreement;

(5) create any new class of units with preference over, or parity with, the Preferred Units;

(6) authorize, issue or reclassify any securities issued by New Subsidiary, its subsidiaries and controlled affiliates (the “Restricted Entities”), other than issuances of Common Units to the Company;

(7) sell, issue, sponsor, create or distribute any digital tokens, cryptocurrency or other blockchain-based assets;

(8) incur new third party indebtedness exceeding $5.0 million, other than (A) debt contemplated by the TSA, (B) lease or other obligations relating to the rental of equipment to customers or otherwise for energy-as-a-service (EaaS) business activity and (C) debt permitted under the DIP Note Purchase Agreement (see Note 17 – Subsequent Events – DIP Note Purchase Agreement in the Notes to Consolidated Financial Statements);

(9) declare or pay distributions other than (A) for tax purposes and (B) distributions from the Operating Subsidiary’s subsidiaries or controlled affiliate to the Operating Subsidiary or its wholly owned subsidiaries;

(10) effectuate any liquidation event;

(11) acquire any business, ownership of any equity securities in any person other than a wholly owned subsidiary, or enter into a joint venture arrangement;

(12) conduct any public offering or direct listing on a national securities exchange;

(13) enter into any merger or other transaction resulting in the Operating Subsidiary’s equity interests being listed or quoted for trading on an exchange or otherwise subject to registration;

(14) commence, settle, defend or make any material decisions with respect to any material settlement or litigation;

(15) make any material change to the nature of the Operating Subsidiary’s Existing Business (as defined in the Operating Subsidiary LLC Agreement);

or (16) enter into any affiliated party transaction except for (A) payments to holders of Common Units (including the Company) in accordance with the terms of the Services Agreement (as defined below) and (B) compensation arrangements.

In addition, pursuant to the Operating Subsidiary LLC Agreement, the Company, its subsidiaries and controlled affiliates may not, without the consent of the holders of a majority of the Preferred Units held by the Preferred Members (which, on the effective date of the New Subsidiary LLC Agreement is solely Capstone Distributor Support Services, Inc.), engage in any business opportunities, make any investments or enter into any transactions, including any of the foregoing which are or would reasonably be expected to be within the scope of, or would reasonably be deemed to be beneficial to, the “Existing Business” (as defined in the Operating Subsidiary LLC Agreement) of Operating Subsidiary.

Further, pursuant to the Operating Subsidiary LLC Agreement, at any time during the six-month period following the sixth anniversary of the effective date of the Operating Subsidiary LLC Agreement, the Preferred Requisite Members may elect to have all, but not less than all, of the then outstanding Preferred Units redeemed.

In such event, Operating Subsidiary will redeem all, but not less than all, of the Preferred Units, except Operating Subsidiary may not make such payment if (a) such payment is prohibited by Delaware Law or (b) Operating Subsidiary is, or by such payment would be, insolvent.

The aggregate price for Preferred Units will be an amount equal to the greater of (i) the $10,449,863, plus declared but unpaid distributions, or (ii) the fair market value of the Preferred Units on an as-converted to Common Units basis at the time of such redemption.

The Preferred Member’s 37.5% equity interest in the Operating Subsidiary is non-dilutable.

See “Management’s Discussion and Analysis of Financial Condition—Operating Subsidiary LLC Agreement” for a more detailed description of the terms of the Operating Subsidiary LLC Agreement and the restrictions imposed on the Company and its subsidiaries pursuant to the Operating Subsidiary LLC Agreement.

Risks Related to Our Restatement

We have restated our consolidated financial statements for prior annual and interim periods and have concluded two Audit Committee Investigations, has all of which have affected and may continue to affect investor confidence, our stock price, our ability to raise capital in the future, our reputation with our customers, and our ability to timely file our periodic reports with the SEC, and has resulted in stockholder litigation against certain of our current and former directors and executives and may result in additional litigation in the future.

We have restated our consolidated financial statements for prior annual and interim periods.

This Restatement was required to correct for the following:

(i) the timing of revenue recognition related to bill-and-hold arrangements, (ii) the timing of recognizing certain expenses associated with factory protection plan contracts.

These issues were investigated by our audit committee and (iii) reclassification of term not payable (the “Revenue Recognition Investigation”) and are addressed in the Restatement, as well as other immaterial misstatements.

Such Restatement:

● has had and may continue to have the effect of eroding investor confidence in us and our financial reporting and accounting practices and processes;

● has resulted in our failure to timely file our periodic reports with the SEC;

● has negatively impacted and may continue to negatively impact the trading of our common stock;

● has resulted in stockholder litigation against certain of our current and former directors and executives and may result in additional litigation;

● has resulted in an investigation by the SEC enforcement division;

● may make it more difficult, expensive, and time consuming for us to raise capital on acceptable terms, or at all;

● may make it more difficult for us to pursue transactions or implement business strategies that might otherwise be beneficial to our business;

● may negatively impact our reputation with our customers.

In addition, based on information learned as part of the Restatement process, the Audit Committee commenced an investigation (the “FPP Investigation” and, together with the Revenue Recognition Investigation, the “Audit Committee Investigations”) into FPP related practices.

The FPP Investigation was conducted with the assistance of outside counsel retained by the Audit Committee.

Through the FPP Investigation, the Audit Committee identified evidence that, at times during the fiscal years covered in this Annual Report, former senior executives delayed shipment of available parts under the FPP and delayed recording the associated expense on the Company’s financial statements.

The Audit Committee Investigations found no evidence that either the Audit Committee, the full Board or current executive officers were aware of such activity.

The financial statement impact of such activity in prior reporting periods, if any, has been addressed through the Company’s Restatement.

As part of the Restatement process, the Company corrected its accounting treatment of FPP expenses so that claims are recorded at the time a claim is received and accepted, as opposed to when the claim is satisfied.

Refer to Note 13 – Commitments and Contingencies – Legal Matters in the Notes to Consolidated Financial Statements and to “Business—Legal Proceedings” for information regarding legal proceedings in which we are involved.

The SEC enforcement division is conducting an investigation into the circumstances surrounding the Restatement, the results of which may have a material adverse effect on our financial condition and business.

Following the conclusion of each Audit Committee Investigations, the Audit Committee self-reported its findings to the Division of Enforcement of the SEC.

Following the self-report, the SEC enforcement division has commenced an investigation relating to the circumstances surrounding the Restatement and the findings of the Audit Committee in respect of the FPP Investigation (the “SEC Investigation”).

We are cooperating with the SEC in connection with its investigation.

Investigations of this nature are inherently uncertain and their results cannot be predicted.

Regardless of the outcome, the SEC Investigation has had and may continue to have an adverse impact on us because of legal costs, diversion of management resources, and other factors.

The SEC Investigation could also result in reputational harm to us, which, among

other things, may limit our ability to obtain new customers and enter into new agreements with our existing customers, or our ability to obtain financing, and have a material adverse effect on our current and future business, financial condition, results of operations and prospects.

We cannot predict the duration or outcome of the SEC Investigation at this time.

Further, as a result of the conclusions of the Revenue Recognition Investigation and the Restatement, certain of our directors and officers are currently the subject of securities class action litigation.

See Note 13 – Commitments and Contingencies – Legal Matters in the Notes to Consolidated Financial Statements and “Business—Legal Proceedings” for information about the SEC Investigation and legal proceedings involving the Company’s directors and officers.

The Restatement, as well as our reported material weaknesses in internal control over financial reporting (including the related disclosure of the Audit Committee Investigations made in this Annual Report on Form 10-K), may subject us to additional litigation or regulatory examinations, investigations, proceedings, or orders.

Our management has devoted and may be required to devote significant time and attention to these matters.

If any of these or potential future matters are resolved adversely against us, there may be a material adverse effect on our business, financial condition, and results of operations.

Additionally, while we cannot estimate our potential exposure to these or any potential future matters at this time, we have already expended significant resources investigating the underlying claims and addressing these matters and expect to continue to need to expend significant resources.

Our insurance coverage may not be sufficient to compensate for all potential liability.

Although we maintain applicable insurance, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

We have incurred and expect to continue to incur significant expenses related to the Audit Committee Investigations, Restatement, and remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation .

We have devoted substantial internal and external resources towards the Audit Committee Investigations and the Restatement and expect to continue to devote substantial such resources towards the implementation of enhanced procedures and controls over deficiencies that resulted in the Restatement and the remediation of other deficiencies in our internal control over financial reporting.

Because of these efforts, we have incurred and expect that we will continue to incur significant fees and expenses for legal, accounting, financial, and other consulting and professional services, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented, or replaced.

We have taken a number of remediation efforts in response to the Audit Committee Investigations.

However, there can be no assurance that these steps will be successful.

To the extent these steps are unsuccessful or incomplete, or we identify additional problems requiring remediation, we may be required to devote significant additional management time and incur significant additional expense.

The incurrence of significant additional expense or the requirement that management devotes substantial time that could reduce the time available to execute on our business strategies, could have a material adverse effect on our business, financial condition, and results of operations.

The Audit Committee Investigations, the findings thereof, and the Restatement process have diverted, and may continue to divert, management and other human resources from the operation of our business.

The absence of timely and accurate financial information has hindered and may in the future hinder our ability to effectively manage our business.

The Audit Committee Investigations, the findings thereof, and the process of the Restatement have diverted, and may continue to divert, management and other human resources from the operation of our business.

Our Board, members of management, and accounting, legal, administrative and other staff and outside consultants have spent significant time on the Audit Committee Investigations, the findings thereof, and the process of the Restatement and will likely spend significant time on the remediation of disclosure controls and procedures and internal control over our financial reporting.

These resources have been, and will likely continue to be, diverted from the strategic and day-to-day management of our business, which may have an adverse effect on our results of operations, financial condition and ability to accomplish our strategic objectives.

Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital.

This Annual Report on Form 10-K for the year ended March 31, 2023 is being filed nearly one year after its due date and we have not yet filed our Quarterly Reports on Form 10-Q for the first three quarters of Fiscal 2024.

Because these filings have not been made within the timeframes required by SEC rules, we have not remained current in our reporting requirements with the SEC, and we will not be eligible to use a registration statement on Form S-3 that would allow us to continuously incorporate by reference our SEC reports into the registration statement, or to use “shelf” registration statements to conduct offerings, until approximately one year from the date we regain and maintain status as a current filer.

To pursue an offering now, we are required to conduct the offering on an exempt basis, such as in accordance with Rule 144A, or file a registration statement on Form S-1.

Using a Form S-1 registration statement for a public offering would likely take significantly longer than using a registration statement on Form S-3 and increase our transaction costs, and could, to the extent we are not able to conduct offerings using alternative methods, adversely impact our ability to raise capital or complete acquisitions of other companies in a timely manner.

Risks Related to Our Business Operations and Financial Results

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.

The subsequent spread of COVID-19 to the U.S.

and many other parts of the world led the World Health Organization to characterize COVID-19 as a pandemic on March 11, 2020.

Thereafter, most U.S.

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.

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.

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.

Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern.

In connection with preparing the consolidated financial statements for the fiscal year ended March 31, 2023, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about our ability to meet our obligations as they became due for the next twelve months from the date of issuance of our Fiscal 2023 consolidated financial statements.

Management assessed that there were such conditions and events, primarily our current cash position, lack of liquidity, limits to accessing capital and debt funding options.

Management concluded, and our auditors agreed, that these conditions raise substantial doubt about our ability to continue as a going concern for a period of one year from the date the financial statements are issued.

The substantial doubt about our ability to continue as a going concern may negatively impact relationships with third parties with whom we do business, including customers, vendors and lenders, may impact our ability to raise additional capital for our business plan, and may lead us to seek bankruptcy protection again.

If we are unable to continue as a going concern, holders of our securities might lose their entire investment.

We are exposed to floating interest rate risk under the Exit Note Purchase Agreement, which could cause our debt service obligations to increase significantly.

We are exposed to market risk from changes in interest rates.

All outstanding Notes bear interest at the Adjusted Term SOFR rate plus 7.00% per annum.

The Adjusted Term SOFR rate is a floating rate.

The Federal Reserve has raised, and may in the future further raise, interest rates to combat the effects of recent high inflation.

Any further increase in Adjusted Term SOFR will increase the Company’s debt service obligations, which could have a negative impact on the Company’s cash flow, financial position or operating results, including cash available for servicing the Company’s indebtedness, or result in increased borrowing costs in the future.

Regional epidemics or global pandemics may materially and adversely affect our business, financial condition and results of operations.

The occurrence of regional epidemics or a global pandemic may adversely affect our business, financial condition and results of operations.

For example, the COVID-19 pandemic has and could continue to materially and adversely affect our business, financial condition and results of operation.

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.

Our liquidity has been negatively impacted due, in part, to such effects.

Further, our ability to raise additional capital has also been impacted by the COVID-19 pandemic and the resulting macroeconomic effects.

Further adverse economic events resulting from the COVID-19 pandemic, including sustained economic downturn, supply chain disruptions, or increasing cost pressures, 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.

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.

We do not yet know the full extent of potential impacts on our business or the global economy as a whole.

However, these effects could adversely impact 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.

Since inception, we have incurred annual operating losses.

We expect this trend to continue until such time that we can sell a sufficient number of units and achieve a cost structure to become profitable.

Our business is such that we have relatively few repeat end use customers and limited repeat business compared to our competitors.

As a result, we

may not maintain or increase revenue.

We may not have adequate cash resources to reach the point of profitability, and we may never become profitable.

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

Our recently implemented expenses reduction plan and organizational changes undertaken to align to our focus on our EaaS business and achieving profitability may not be successful.

In March 2022, we implemented an expenses reduction plan and announced our efforts to reduce our operating costs and modify our operating model to better match our expanding EaaS business.

Beginning on February 28, 2022, we furloughed 17 employees for a period of 120 days, eliminated the position of Chief Revenue Officer, which was held by Jim Crouse, effective April 15, 2022, instituted 15% temporary pay cuts for approximately 36 employees and 25% temporary pay cuts for members of our senior leadership team, among other actions.

We believe these changes were needed to streamline our organization and reallocate our resources to better align with our current strategic goals, including our current focus of achieving profitability and expanding our EaaS business.

However, these expense reduction measures have and may continue to yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, attrition beyond our intended reduction-in-force, a reduction in morale among our remaining employees, and the risk that we may not achieve the anticipated benefits, all of which may have an adverse effect on our results of operations or financial condition.

In addition, while positions have been eliminated certain functions necessary to our reduced operations remain, particularly with respect to our financial and accounting function, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees or to external service providers.

We may also discover that the reductions in workforce and cost cutting measures will make it difficult for us to pursue new opportunities and initiatives and require us to hire qualified replacement personnel, which may require us to incur additional and unanticipated costs and expenses.

We may further discover that, despite the implementation of our expense reduction plan, we may require additional capital to continue expanding our EaaS business and we may be unable to obtain such capital.

Moreover, there is no assurance we will be successful in our pursuit of expanding our EaaS business.

Our failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our business, financial condition, and results of operations.

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

we were in breach of our secured note purchase agreement as of May 27, 2022.

To the extent that the funds we now have on hand are insufficient to fund our future operating requirements, we would need to raise additional funds, through further public or private equity or debt financings depending upon prevailing market conditions.

These financings may not be available or, if available, may be on terms that are not favorable to us and could result in dilution to our stockholders and reduction of the trading price of our stock.

The state of capital markets when we seek to raise additional capital could also impede our ability to raise additional capital on favorable terms or at all.

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

In March 2022, we implemented an expense reduction plan, which included furloughs, employment terminations and pay cuts.

See “— Our recently implemented expenses reduction plan and organizational changes undertaken to align to our focus on our EaaS business and achieving profitability may not be successful .”

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, 2022, $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 the A&R Note Purchase Agreement prior to the Amendment), and (b) increase the Company’s minimum consolidated liquidity requirement from $9 million to $12.2 million, for the period from May 13, 2021 to March 31, 2022, and $9 million thereafter.

The financial covenants of the A&R Note Purchase Agreement require the Company not to exceed specified levels of Adjusted EBITDA losses relative to its financial model, beginning with the fiscal quarter ending September 30, 2021.

As of March 31, 2022, we were not in compliance with the Adjusted EBITDA covenant contained in the A&R Note Purchase Agreement and did not cure such non-compliance by prepaying the Notes.

As a result, we were in breach of the Adjusted EBITDA covenant as of May 27, 2022.

On July 13, 2022 we entered into the Second Amendment to the A&R Note Purchase Agreement (the “A&R NPA Second Amendment”) with the purchaser thereunder (the “Purchaser”) and Goldman Sachs Specialty Lending Group, L.P.

as collateral agent (the “Collateral Agent”), pursuant to which (i) the Purchaser and the Collateral Agent waived our breach of the Adjusted EBITDA covenant and (ii) the A&R Note Purchase Agreement has been amended to, among other things, add certain new covenants, including requirements that we use our commercially reasonable best efforts to both (a) raise at least $10 million through a sale of our common stock by September 14, 2022 and (b) refinance the Notes by October 1, 2022.

See Item 9B “Other Information” for a summary of the A&R NPA Second Amendment.

The A&R Note Purchase Agreement, as amended, 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 A&R Note Purchase Agreement, as amended, 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.

● We will be required to dedicate a substantial portion of our cash flow to the payment of principal and interest on the Notes, which will reduce the amount of funds available for operations, capital expenditures and future acquisitions.

● Goldman Sachs Specialty Lending Holdings, Inc., as collateral agent under the Note Purchase Agreement, may enforce any and all liens and security interests on the collateral we have used to secure the Notes and we may forfeit our right to such collateral.

● 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 again default on any of the numerous financial and other covenants contained in the A&R Note Purchase Agreement, including any of those added pursuant to the A&R NPA Second Amendment, and Goldman does not waive such default.

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

If any outstanding indebtedness under the Notes is accelerated, our assets may not be sufficient to repay such indebtedness.

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.

We have experienced recurring operating losses and as of March 31, 2022, we had an accumulated deficit of approximately $938.4 million.

On March 31, 2022, we had cash and cash equivalents of $22.6 million, and working capital of $35.9 million.

This compares to $919.3 million, $49.5 million and $52.5 million, respectively, on March 31, 2021.

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, and $9.0 million thereafter.

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.

In particular, we are focused on expanding our Energy-as-a-Service business.

We may not be able to execute our 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.

There can be no assurance as to the accuracy of the projections, estimates and assumptions which underlie the business strategy or as to our ability to execute the business strategy successfully.

Should we be unable to execute our plans to increase sales and margins while controlling costs, we may be unable to continue to operate at our current levels on a longer-term basis.

In particular, we must generate positive cash flow from operations and net income and otherwise improve our results of operations substantially on a longer-term basis.

Our available cash and proceeds from future financings, if any, that we may be able to obtain, may not be sufficient to fund our operating expenses, capital expenditures and other cash requirements.

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 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.

Our products represent an emerging market, and we do not know whether our targeted customers will accept our technology or will purchase our products in sufficient quantities to allow our business to grow.

Our products represent an alternative technology, and we do not know whether our targeted customers will accept our technology or will purchase our products in sufficient quantities to allow our business to grow.

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.

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● the future costs and availability of fuels used by our microturbines;

● economic downturns and reduction in capital spending;

● economic downturns and reductions in capital spending;

● consumer perceptions of our microturbines’ safety and quality;

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● growth of the hybrid electric vehicle market;

● decrease in domestic and international incentives.

● decreases in domestic and international incentives.

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

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

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

For example, our warranty provision was negatively impacted in 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.

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.

As of March 31, 2023, the balance for the warranty reserve was $1.6 million.

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.

In addition, such quality issues with any of our parts could lead 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.

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

We plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially.

our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially.

If sales in any period fall significantly below anticipated levels, our financial condition, results of operations, and cash flow would suffer.

If demand in any period increases well above anticipated levels, we may have difficulties in responding, incur greater costs to respond, or be unable to fulfill the demand in sufficient time to retain the

order, which would negatively impact our operations.

In addition, our operating expenses are based on anticipated sales levels, and a high percentage of our expenses are generally fixed in the short term.

As a result of these factors, a small fluctuation in timing of sales can cause operating results to vary materially from period to period.

Further, our inventory balance as of March 31, 2023 was $40.4 million, compared to $31.8 million as of March 31, 2022, as restated.

This increase was due to purchases of long lead time inventory, and there is a risk that our inventory balances continue to rise, and consequently see a backlog of obsolete or excess inventory.

Net product orders for Fiscal 2023 were $35.5 million and contributed to an ending backlog of $42.8 million at March 31, 2023.

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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.

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

Changes to trade regulations, 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 former U.S.

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

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

Any current or future U.S.

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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.

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

government imposes sanctions through executive orders restricting U.S.

companies from conducting business activities with specified individuals and companies, and requires export licenses for certain of such activities.

Following Russia’s military invasion of Ukraine in March 2022, we re-evaluated our efforts in the Russian and the surrounding Commonwealth of Independent States (CIS) markets and have ceased exploring growth opportunities in such markets.

We do however continue to evaluate customer orders and ensure that we are in compliance with all laws and regulations upon acceptance and before shipment.

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

Following Russia’s military invasion of Ukraine in March 2022, we re-evaluated our efforts in the Russian and the surrounding CIS markets and have ceased exploring growth opportunities in such markets.

We do, however, continue to

evaluate customer orders and ensure that we are in compliance with all laws and regulations upon acceptance and before shipment.

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

The Israeli invasion of Gaza has caused division among world leaders.

Actions could be imposed against the United States for its support of Israel.

This could impact business activity and our ability to source parts and components and sell our products internationally.

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.

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

Our relationships with distributors have come under strain due to our efforts in Fiscal 2023 to collect on our accounts receivables and increase prices.

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

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

In the future, to attract and retain OEMs and distributors we may provide volume price discounts or otherwise incur significant costs that may reduce the potential revenue from these relationships.

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Our inability to have appropriate distribution in our target markets may adversely affect our financial condition, results of operations and cash flow.

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.

Successfully managing our distribution channel in an effort to reach various potential customer segments for our products and services is a complex process.

Each of our distributors is a strategically placed independent partner that provides for marketing and selling of our products and services on our behalf.

If any of our distributor relationships are 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 channels or result in litigation costs or other expenses.

Successfully managing our distribution channels in an effort to reach various potential customer segments for our products and services is a complex process.

Each of our distributors is a strategically placed independent partner that provides for the marketing and selling of our products and services on our behalf.

If our distribution relationships are not successful, we may lose sales opportunities, customers, and revenues.

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Days sales outstanding in accounts receivable (“DSO”) at the end of Fiscal 2023 was 46 days, compared with 90 days at the end of Fiscal 2022.

We recorded net bad debt recovery of approximately $0.2 million during Fiscal 2021, and net bad debt expense of approximately $1.1 million during Fiscal 2022.

We recorded net bad debt expense of approximately $4.3 million and $0.4 million during Fiscal 2023 and 2022, respectively.

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

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

E-Finity accounted for approximately 18% of our revenue for Fiscal 2022.

E-Finity and RSP Systems accounted for approximately 12% and 11%, respectively, of our revenue for Fiscal 2023.

Additionally, E-Finity accounted for 12% of net accounts receivable as of March 31, 2023.

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 E-Finity, RSP Systems, 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.

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

In fact, we have implemented three price increases in the past eighteen months in reaction to increased costs.

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.

In March 2022, we implemented an expense reduction plan, which included furloughs, employment terminations and pay cuts.

See “— Our recently implemented expenses reduction plan and organizational changes undertaken to align to our focus on our EaaS business and achieving profitability may not be successful .” 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.

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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.

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 management and key employees, and several key management and other employees have recently left Capstone.

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

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In March 2022, we implemented an expense reduction plan, which included furloughs, employment terminations, and pay cuts.

See “— Our recently implemented expenses reduction plan and organizational changes undertaken to align to our focus on our EaaS business and achieving profitability may not be successful .”

In May 2023, we implemented a second round of expense reductions, which included furloughs to employees.

We also recently suffered departures of other key personnel, including in accounting/finance and information technology.

In August 2023, Darren Jamison, our long time President and Chief Executive Officer, resigned from his positions with the Company.

Robert Flexon, Chair of our Board, served as our Interim President and Chief Executive Officer from August 2023 until March 2024, when Vincent Canino succeeded him as President and Chief Executive Officer.

Our Chief Financial Officer, John Juric, joined the Company in March 2023 following the departure of the Company’s Interim Chief Financial Officer, Scott Robinson.

These departures have placed additional strain on our remaining personnel, and we do not expect to replace all of the departed employees, so the increased burdens on the remaining personnel are expected to continue for the foreseeable future.

Accordingly, our recent losses of key employees could adversely impact our business, financial condition, and results of operations.

In addition, if we are unable to successfully integrate the new members of management, including the new Chief Executive Officer, into our leadership team, our operations and financial condition may be adversely affected.

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.

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In addition, we have already experienced involuntary turnover due to increased commuting costs for our employees.

If gas prices remain high for a sustained period, we may experience further involuntary turnover as employees seek to shorten their commutes.

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

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In addition, our internal control systems rely on employees trained in the execution of the controls, particularly within our financial and accounting function.

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.

Loss of these employees or our inability to replace them with similarly skilled and trained individuals or new processes in a timely manner could adversely impact our internal control mechanisms further.

See “— Our management has identified material weaknesses in its internal control over financial reporting and we determined that our disclosure controls and procedures were ineffective as of March 31, 2023.

Our operations are vulnerable to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events 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.

While we take steps to mitigate the impact of severe weather, environmental and natural disasters, the frequency and severity of which may be impacted by climate change and other natural and manmade events, such events could result in severe disruption to our business operations at these facilities.

While we take

steps to mitigate the impact of severe weather and environmental and natural disasters, the frequency and severity of which may be impacted by climate change and other natural and manmade events, such events could result in severe disruption to our business operations at these facilities.

The combination of high inflation, illegal immigration, the cost of living, and reduced spending on law enforcement in and around our location in Southern California poses an elevated risk of social disturbances and riots.

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

Domestic and international political and economic instability or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption, expropriation and other economic or political uncertainties could interrupt and negatively affect the performance of our services, sale of our products or other business operations.

See “— Changes to trade regulations, 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 ” for a discussion of the impact of Russia’s military invasion of Ukraine on our business and results of 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.

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

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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.

Such integration may divert management’s attention from the 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 the 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.

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Increased input costs, such as fuel, utility, transportation, and compliance-related costs, could increase our operating costs.

On October 7, 2023, California Governor Gavin Newsom signed three landmark climate disclosure bills that are more stringent than the recently enacted SEC rules.

California’s group of new laws address (i) GHG emissions reporting in compliance with the Greenhouse Gas Protocol (GHG Protocol), (ii) climate-related financial risk reporting in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), and (iii) disclosure of information about certain emissions claims and the sale and use of carbon offsets.

Although the SEC’s climate disclosure proposal includes GHG Protocol and TCFD requirements, unlike the SEC’s proposed rule, the California requirements apply to certain private and public companies with business activities in California.

AB 1305 addresses voluntary carbon market disclosures.

It applies to entities that (i) operate and make emissions claims within California;

or (ii) buy or sell carbon offsets within California.

SB 253 is the Climate Corporate Data Accountability Act.

It applies only to business entities with annual revenue over $1 billion that do business in California.

It requires disclosure of scope 1, scope 2, and scope 3 GHG emissions.

Annual reporting of scope 1 and scope 2 GHC emissions will be required for covered entities beginning in 2026 (for the 2025 fiscal year).

Annual reporting of scope 3 GHG emissions will be required beginning in 2027.

SB 261 addresses climate-related financial risks of greenhouse gases.

It applies to business entities that do business in California if their annual revenue exceeds $500 million.

Disclosure will be required on or before January 1, 2026 and biennially thereafter.

While we aim to position ourselves as a solution for climate change-related issues to our customers, there are other solutions in the market that may be cheaper or better suited to our customers’ needs, and we may not be able to capitalize on the move towards renewable energy.

As the impact of any future GHG legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict its potential impact which could have a material adverse effect on our results of operations, financial condition and cash flows.

As the impact of any future GHG legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope, and design of the mandates or standards, we are currently unable to predict their potential impact, which could have a material adverse effect on our results of operations, financial condition and cash flows.

Risks Related to Our Product Offerings

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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.

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

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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 addition, the COVID-19 pandemic continues to cause labor shortages and disrupt global supply chains, which has contributed to prolonged disruptions.

The COVID-19 pandemic is also contributing to growing inflationary pressures, particularly in the U.S., where inflation continues to show signs of acceleration.

In addition, the COVID-19 pandemic caused labor shortages and disrupted global supply chains, which has contributed to prolonged disruptions.

The COVID-19 pandemic also contributed to growing inflationary pressures.

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.

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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.

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

Financial problems of suppliers on whom we rely could limit our supply of components or increase our costs.

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The pricing could impact the costs to manufacture our products.

During Fiscal 2022, as a result of COVID-19 and other ongoing macroeconomic events, we saw significant price increases in the cost of our commodity materials.

During Fiscal 2023 and 2022, as a result of COVID-19 and other ongoing macroeconomic events, we saw significant price increases in the cost of our commodity materials.

If we are not able to acquire commodity materials at prices and on terms satisfactory to us or at all, our operating results may be materially adversely affected.

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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:

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

We believe that the primary competitive factors affecting the market for our products, including some that are outside of our control, include, but are not limited to:

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

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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.

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.

Revenue in the oil and natural gas industry has been in decline for several years from our historical highs, due to volatility in oil prices, as well as a movement towards clean energy and away from fossil fuels, which has impacted capital expenditures in the oil and natural gas industry.

Our business and financial performance depends in part on the oil and natural gas industry, where a continued movement towards clean energy and away from fossil fuels, as well as fluctuations in prices for oil and natural gas, may have an adverse effect on our revenue, cash flows, profitability, and growth.

Revenue in the oil and natural gas industry has been in decline for several years from historical highs, due to volatility in oil prices, as well as a movement towards clean energy and away from fossil fuels, which has impacted capital expenditures in the oil and natural gas industry.

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

If prices were to decline and remain low for a sustained period, we would expect to see additional 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 other similar adverse effects.

Despite a recent increase in oil prices, we have not yet seen a corresponding increase in sales activity, primarily due to the customers in our natural resources market vertical not yet increasing their spend on capital expenditures that would include our microturbine product.

In addition, a worsening of these conditions may have a material adverse impact on certain of our customers’ liquidity and financial positions, resulting in further spending reductions, delays in the collection of amounts owing to us, and other similar adverse effects.

Despite a recent increase in oil prices, we have not yet seen a corresponding significant increase in sales activity, primarily due to the customers in our natural resources market vertical not yet increasing their spend on capital expenditures that would include our microturbine product.

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

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As a result, our products may require redesign.

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

Any redesign of our products 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.

Our business in particular is also subject to risks relating to the uncertainties and effects of the implementation of the United Kingdom’s withdrawal of 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 laws such as the Foreign Corrupt Practices Act and the U.K.

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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.

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

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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,

requirements and approvals 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.

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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.

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

At March 31, 2022, we had federal and state net operating loss carryforwards of approximately $566.5 million and $177.1 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, as amended, 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 may be subject to lawsuits.

We may be named as defendants in future lawsuits.

We and certain of our former directors and officers are subject to various legal proceedings.

We are currently involved in the SEC Investigation and certain of our current and former directors and officers are involved in stockholder litigation related to our Restatement, and we and our directors and officers may be named as defendants in other types of legal proceedings in the future.

See “— We are involved in an ongoing government investigation by the SEC, the results of which may have a material adverse effect on our financial condition and business .”

On March 13, 2024, Cal Microturbine, a distributor of the Company, submitted a demand for arbitration before the American Arbitration Association seeking, among other things, approximately $24.5 million in damages and alleging

that the Company breached its distributor agreement with Cal Microturbine and committed fraud in allowing another company, Capstone Engineered Solutions, to sell, rent and service turbines in Cal Microturbine’s exclusive territory under the distribution agreement.

The matter is in its preliminary stages with no hearing date set as of the date hereof.

See “Legal Proceedings” for discussion of this and other legal proceedings faced by the Company.

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

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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.

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

Whether or not resolved in a manner adverse to us, any litigation could be costly, divert management attention, or result in increased costs of doing business.

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.

See Note 13 – Commitments and Contingencies – Legal Matters in the Notes to Consolidated Financial Statements for information about legal proceedings involving the Company.

Risks Related to Data, Security, and Intellectual Property

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We seek to protect our intellectual property rights through a combination of patent, trademark, copyright, and trade secret laws, as well as licensing and confidentiality agreements.

These protections may not be adequate to prevent third parties from using our intellectual property without our authorization, breaching any confidentiality agreements with us, copying or reverse engineering our products, or

developing and marketing products that are substantially equivalent to or superior to our own.

The unauthorized use of our intellectual property by others could reduce our competitive advantage and harm our business.

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

11 of our 16 active U.S.

patents expired in 2023 and 2024.

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

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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.

As a manufacturer of high technology commercial products, we face security and cyber security threats, as well as the potential for business disruptions associated with information technology failures or cyber security attacks.

As a manufacturer of high technology commercial products, we face security and cybersecurity threats, as well as the potential for business disruptions associated with information technology failures or cybersecurity attacks.

Given the nature of our business, we collect, process, and retain sensitive and confidential customer and associated data, in addition to proprietary business information.

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.

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.

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 the misappropriation of personal, payment or sensitive business information, as well as, among other things, unfavorable publicity, litigation by affected parties, damage to sources of competitive advantage, disruptions to our operations, loss of customers, financial obligations for damages related to the theft or misuse of such information, and costs to remediate such security vulnerabilities, any of which could have a substantial impact on our results of operations, financial condition or cash flows.

Both the frequency and magnitude of cyberattacks is expected to increase and attackers are becoming more sophisticated.

Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, the conflict in Israel or increasing tension with China, may create a heightened risk of cybersecurity attacks.

To the extent artificial intelligence capabilities improve and are increasingly adopted, they may be used to identify vulnerabilities and craft increasingly sophisticated cybersecurity attacks.

Vulnerabilities may be introduced from the use of artificial intelligence by us, our customers or third parties.

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.

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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.

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.

Moreover, evolving privacy laws in the United States, Europe, and elsewhere, including the adoption by the European Union of the General Data Protection Regulation, which became effective May 2018, establish new individual privacy rights and impose 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.

Further, a greater number of our employees are working remotely, which could expose us to greater risks related to cybersecurity and our information technologies systems.

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.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual reports on Form 10-K our assessment of the effectiveness of our internal controls over financial reporting.

This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial reporting.

Our management concluded that our internal controls over financial reporting were effective as of March 31, 2022.

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.

Pursuant to the A&R NPA Second Amendment, we are required to use our commercially reasonable efforts to raise at least $10 million through a sale of our common stock by September 14, 2022.

We may also sell up to $50 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 capital raise contemplated by the A&R NPA Second Amendment, the at-the-market offering sales agreement or otherwise, or anticipation of any such sales, could cause the trading price of our common stock to decline or make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire.

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.

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 0.8 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 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.

An investment in our securities is risky, and stockholders could lose their investment in our securities or suffer significant losses and wide fluctuations in the market value of their investment.

The market price of our common stock is highly volatile and is likely to continue to be highly volatile.

Given the continued uncertainty surrounding many variables that may affect our business and the industry in which we operate, our ability to foresee results for future periods is limited.

Risks Related to Ownership of Our New Common Stock

Our management has identified material weaknesses in its internal control over financial reporting and we determined that our disclosure controls and procedures were ineffective as of March 31, 2023.

In connection with our review of our financial statements leading to the Restatement and in the course of preparing our financial statements for Fiscal 2023, we identified material weaknesses in our internal controls over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified material weaknesses related to (i) an inappropriate tone at the top established by certain former senior executives, (ii) our lack of sufficient qualified professionals with an appropriate level of accounting and internal control knowledge, training and experience, (iii) our failure to perform a sufficient review of accounting policies to ensure ongoing adherence with U.S.

GAAP, (iv) our failure to design and maintain effective internal control over financial reporting for systems, products, parts, and accessories sales subject to bill and hold arrangements with customers and (v) our failure to design and maintain effective internal control over financial reporting related to the proper accounting, presentation and disclosure for FPP service contracts, including the cost recognition of parts and labor associated with FPP service contracts.

To address our material weaknesses, we need to make changes to our program and controls as set forth in Part II, Item 9A “Controls and Procedures.” We will not be able to remediate these material weaknesses unless and until these steps have been completed and have been operating effectively for a sufficient period of time.

We cannot assure you that the measures we plan to take will in fact be sufficient to remediate the control deficiencies that led to the material weaknesses in our internal control over financial reporting or that such measures will prevent or avoid potential future material weaknesses, and our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.

Further, additional weaknesses in our internal control over financial reporting may be discovered in the future.

If we are unable to remediate our material weaknesses and otherwise implement and maintain effective internal control over financial reporting, our ability to record, process and report financial information accurately, and to prepare

financial statements and satisfy our public reporting obligations within required time periods, could be adversely affected.

If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements.

In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, investors may lose confidence in our financial reporting and the prices of our securities may decline as a result.

We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

Future issuances or sales of our New Common Stock or exercises by holders of any warrants we may issue could lower our stock price and dilute the interests of existing stockholders.

We may issue additional shares of our New Common Stock in the future.

The issuance of a substantial amount of New Common Stock could have the effect of substantially diluting the interests of our current stockholders.

Further, the Preferred Units issued pursuant to the Operating Subsidiary LLC Agreement are non-dilutable, and therefore, any issuances of New Common Stock will have an even greater dilutive effect in respect of our current stockholders’ indirect equity interests in the Operating Subsidiary.

The sale of a substantial number of shares of our New Common Stock, or anticipation of any such sales, could cause the trading price of our New 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.

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

If any of our stockholders sell substantial amounts of our New 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.

Once trading in the New Common Stock commences, the market price of our New Common Stock is likely to be highly volatile and you could lose all or part of your investment in our securities.

There is no history trading activity for our New Common Stock.

See “— There is currently no public trading market for our New Common Stock .” An investment in our securities is risky, and stockholders could lose their investment in our securities or suffer significant losses and wide fluctuations in the market value of their investment.

The commencement of trading in the New Common Stock depends on our ability to become current in our Reporting Obligations.

Once trading in the New Common Stock commences, the market price of our New Common Stock is likely to be highly volatile.

Given the continued uncertainty surrounding many variables that may affect our business, including the Emergence, and the industry in which we operate, our ability to foresee results for future periods is limited.

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 New Common Stock to change, regardless of our operating performance.

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

● actual or anticipated variations in quarterly operating results;

● the limited market for our New Common Stock;

● our ability to become current in our Reporting Obligations and be quoted on the OTC Pink tier, or any other OTC tier or national securities exchange in the future;

● market sentiment toward alternative energy stocks in general or toward us;

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● changes in the market valuations or earnings of our competitors or other technology companies;

● the trading of options on our common stock;

● the trading of options on our New Common Stock;

● announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures, or other strategic initiatives;

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● additions or departures of key personnel;

● sales or purchases of our common stock;

● the trading volume of our common stock;

● developments relating to litigation or governmental investigations;

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

Market conditions may result in volatility in the level of, and fluctuations in, market prices of stocks generally and, in turn, our common stock.

For example, between April 1, 2019 and March 31, 2022, the market price of our common stock ranged from $8.90 to $4.12.

Global financial markets have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in securities prices.

We are unable to predict the likely duration and severity of the current disruptions in financial markets and adverse economic conditions throughout the world.

● sales or purchases of our New Common Stock;

● the trading volume of our New Common Stock;

● developments relating to the SEC Investigation, litigation or other governmental investigations;

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

Market conditions may result in volatility in the level of, and fluctuations in, market prices of stocks generally and, in turn, our New Common Stock.

Global financial markets have experienced extreme disruption in recent years, including, among other things, extreme volatility in securities prices.

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.

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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.

The trading market for our New 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.

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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.

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

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of the General Corporation Law of the State of Delaware, could discourage, delay, or prevent unsolicited proposals to merge with or acquire us, even though such proposals may be at a premium price or otherwise beneficial to you.

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 the NOL Rights Agreement, which is 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”).

On April 7, 2022, our Board approved an extension of the NOL Rights Agreement from May 6, 2022 to May 6, 2025, subject to obtaining shareholder approval ratifying such extension.

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.

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.

We have never paid cash dividends on our capital stock, and we do not anticipate paying any cash 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.

We have not paid dividends on any of our capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business.

As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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, such as recent supply chain disruptions, labor shortages and persistent inflation, 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.

Adverse economic developments affect businesses such as ours and those of third parties on which we rely in a number of ways that could result in unfavorable consequences to us.

Current economic conditions or a deepening economic downturn in the United States and elsewhere may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity.

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.

See “—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” for a discussion of the impact of Russia’s military invasion of Ukraine on our business and results of 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 have not paid cash dividends on any of our capital stock to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business.

In addition, our ability to distribute dividends is subject to restrictions that apply under the terms of our existing indebtedness and Operating Subsidiary LLC Agreement.

See “— We are a holding company with nominal net worth and will depend on dividends and distributions from our Operating Subsidiary to pay any dividends .” As a result, capital appreciation, if any, of our New Common Stock will be your sole source of gain for the foreseeable future.

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

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