UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-15957

Capstone Green Energy Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		20-1514270
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

16640 Stagg Street Van Nuys, California (Address of principal executive offices)		91406 (Zip Code)

818-734-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.001 per share	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of November 12, 2024, the registrant had 18,540,789 shares of voting common stock, par value $0.001 per share, and 508,475 shares of non-voting common stock, par value $0.001 per share, outstanding.

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CAPSTONE GREEN ENERGY HOLDINGS, INC.

TABLE OF CONTENTS

		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of September 30, 2024 and March 31, 2024	3

	Condensed Consolidated Statements of Operations for the Three and Six months Ended September 30, 2024 and 2023	4

	Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders’ Deficiency for the Three and Six Months September 30, 2024 and 2023	5

	Condensed Consolidated Statements of Cash Flows for the Six months Ended September 30, 2024 and 2023	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34

Item 4.	Controls and Procedures	34

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

Signatures

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	September 30,		March 31,
	2024		2024
Assets
Current Assets:
Cash	$	2,713	$	2,085
Accounts receivable, net of allowances of $3,712 at September 30, 2024 and $3,287 at March 31, 2024		8,633		6,552
Inventories		19,877		20,642
Prepaid expenses and other current assets		4,172		5,449
Total current assets		35,395		34,728
Property, plant, equipment and rental assets, net		22,428		25,854
Finance lease right-of-use assets		4,089		4,391
Operating lease right-of-use assets		10,326		12,279
Non-current portion of inventories		3,206		3,917
Other assets		2,862		3,037
Total assets	$	78,306	$	84,206
Liabilities, Temporary Equity and Stockholders’ Deficiency
Current Liabilities:
Accounts payable and accrued expenses	$	21,108	$	18,212
Accrued salaries and wages		1,147		1,220
Accrued warranty reserve		1,145		1,437
Deferred revenue, current		9,267		11,183
Finance lease liability, current		926		964
Operating lease liability, current		3,991		4,041
Factory protection plan liability		5,566		7,259
Exit new money notes, net of discount, current		—		28,911
Total current liabilities		43,150		73,227
Deferred revenue, non-current		617		675
Finance lease liability, non-current		1,854		2,300
Operating lease liability, non-current		6,604		8,527
Exit new money notes, net of discount, non-current		30,855		—
Other non-current liabilities		264		264
Total liabilities		83,344		84,993
Commitments and contingencies (Note 13)
Temporary equity:
Redeemable noncontrolling interests		13,859		13,859
Stockholders’ deficiency:
Preferred stock, $.001 par value; 1,000,000 shares authorized, and none issued		—		—
Common stock, $.001 par value; 59,400,000 shares authorized, 18,540,789 shares issued and outstanding at September 30, 2024 and March 31, 2024		18		18
Non-voting common stock, $.001 par value; 600,000 shares authorized, 508,475 shares issued and outstanding at September 30, 2024 and March 31, 2024		1		1
Additional paid-in capital		955,254		955,145
Accumulated deficit		(974,170)		(969,810)
Total stockholders’ deficiency		(18,897)		(14,646)
Total liabilities, temporary equity and stockholders' deficiency	$	78,306	$	84,206

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Revenue, net:
Product and accessories	$	11,270	$	15,092	$	16,631	$	28,299
Parts, services and rentals		11,452		13,276		21,733		23,972
Total revenue, net		22,722		28,368		38,364		52,271
Cost of goods sold:
Product and accessories		10,589		15,332		16,549		29,462
Parts, services and rentals		5,123		7,781		11,019		14,117
Total cost of goods sold		15,712		23,113		27,568		43,579
Gross profit		7,010		5,255		10,796		8,692
Operating expenses:
Research and development		592		653		1,139		1,318
Selling, general and administrative		6,400		9,160		13,183		15,964
Total operating expenses		6,992		9,813		14,322		17,282
Income (loss) from operations		18		(4,558)		(3,526)		(8,590)
Other income (loss), net		622		(4)		1,213		6
Interest income		1		41		3		99
Interest expense		(1,039)		(1,822)		(2,017)		(3,519)
Reorganization items, net		—		453		—		453
Loss before provision (benefit) for income taxes		(398)		(5,890)		(4,327)		(11,551)
Provision (benefit) for income taxes		25		(3)		33		15
Net loss	$	(423)	$	(5,887)	$	(4,360)	$	(11,566)

Net loss per share of common stock and non-voting common stock—basic and diluted	$	(0.02)	$	(0.32)	$	(0.23)	$	(0.63)
Weighted average shares used to calculate basic and diluted net loss per share of common stock and non-voting common stock		19,049		18,492		19,049		18,457

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIENCY

(In thousands, except share amounts)
(Unaudited)



	Temporary Equity			Permanent Equity
	Redeemable						Non-Voting			Additional				Total
	Noncontrolling Interest			Common Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	LLC Units	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Deficiency
Balance, March 31, 2024	10,449,863	$	13,859	18,540,789	$	18	508,475	$	1	$	955,145	$	(969,810)	$	(14,646)
Stock-based compensation	—		—	—		—	—		—		57		—		57
Net loss	—		—	—		—	—		—		—		(3,937)		(3,937)
Balance, June 30, 2024	10,449,863		13,859	18,540,789		18	508,475		1		955,202		(973,747)		(18,526)
Stock-based compensation	—		—	—		—	—		—		52		—		52
Net loss	—		—	—		—	—		—		—		(423)		(423)
Balance, September 30, 2024	10,449,863	$	13,859	18,540,789	$	18	508,475	$	1	$	955,254	$	(974,170)	$	(18,897)




				Non-Voting			Additional							Total
	Common Stock			Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Shares	Amount		Deficiency
Balance, March 31, 2023	18,511,555	$	18	—	$	—	$	955,228	$	(977,202)	117,014	$	(2,139)	$	(24,095)
Vested restricted stock awards	39,923		—	—		—		11		—	8,771		(11)		—
Stock-based compensation	—		—	—		—		306		—	—		—		306
Net loss	—		—	—		—		—		(5,679)					(5,679)
Balance, June 30, 2023	18,551,478		18	—		—		955,545		(982,881)	125,785		(2,150)		(29,468)
Vested restricted stock awards	10,743		—	—		—		4		—	3,730		(4)		—
Issuance of non-voting common stock	—		—	508,475		1		—		—	—		—		1
Stock awards to Board of Directors	97,275		—	—		—		—		—	—		—		—
Stock-based compensation	—		—	—		—		81		—	—		—		81
Net loss	—		—	—		—		—		(5,887)	—		—		(5,887)
Balance, September 30, 2023	18,659,496	$	18	508,475	$	1	$	955,630	$	(988,768)	129,515	$	(2,154)	$	(35,273)

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended September 30,
	2024		2023
Cash Flows from Operating Activities:
Net loss	$	(4,360)	$	(11,566)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,076		1,960
Amortization of financing costs and discounts		35		29
Paid-in-kind interest expense		1,909		162
Non-cash lease expense		1,953		1,564
Provision for credit loss expense		414		—
Inventory write-down		458		341
(Benefit) provision for warranty expenses		(223)		232
Stock-based compensation		109		387
Non-cash reorganization items, net		—		(453)
Changes in operating assets and liabilities:
Accounts receivable		(2,870)		(1,942)
Inventories		2,831		7,656
Prepaid expenses, other current assets and other assets		1,452		168
Accounts payable and accrued expenses		2,896		2,329
Operating lease liability, net		(1,973)		(1,551)
Accrued salaries and wages and long-term liabilities		(73)		53
Accrued warranty reserve		(69)		(76)
Deferred revenue		(1,974)		(8,513)
Factory protection plan liability		(1,693)		(133)
Net cash provided by (used in) operating activities		898		(9,353)
Cash Flows from Investing Activities:
Expenditures for property, plant, equipment and rental assets		(162)		(3,917)
Net cash used in investing activities		(162)		(3,917)
Cash Flows from Financing Activities:
Proceeds from three-year term note		—		3,000
Repayment of finance lease obligations		(108)		(65)
Net cash provided by (used in) financing activities		(108)		2,935
Net increase (decrease) in Cash		628		(10,335)
Cash, Beginning of Period		2,085		12,839
Cash, End of Period	$	2,713	$	2,504
Supplemental Disclosures of Non-Cash Information:
Acquisition of property and equipment through accounts payable	$	—	$	680
Settlement of lease liabilities through accounts receivable	$	375	$	—
Right-of-use assets obtained in exchange for lease obligations	$	—	$	447
Rental assets transferred to inventory	$	1,813	$	—

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

Capstone Green Energy Holdings, Inc. (f/k/a Capstone Turbine International, Inc.), along with its consolidated operating subsidiary Capstone Green Energy LLC (the “Operating Subsidiary”) is a provider of customized microgrid solutions, on-site resilient Energy-as-a-Service (“EaaS”) solutions, and on-site energy technology systems focused on helping customers around the globe solve the “Energy Trilemma” of resiliency, sustainability, and affordability. These solutions include stationary distributed power generation applications and distribution networks, including cogeneration (combined heat and power (“CHP”), integrated combined heat and power (“ICHP”), and combined cooling, heat and power (“CCHP”), renewable energy, natural resources, and critical power supply. The Company’s inverter-based technologies solve resiliency by being able to seamlessly connect to the electric grid or be the backbone of a localized microgrid. The Company’s Energy Conversion Products business line is driven by the Company’s industry-leading, highly efficient, low-emission, resilient microturbine energy systems offering scalable solutions in addition to a broad range of customer-tailored solutions. Through the EaaS business line the Company offers build, own, operate and maintain (“BOOM”) as well as energy rental solutions utilizing the Company’s microturbine energy systems. The Company offers comprehensive factory protection plan service contracts that limit life-cycle costs, as well as providing aftermarket spare parts. The Company’s emerging business line is Hydrogen Energy Solutions. Through the Hydrogen Energy Solutions business line, the Company offers customers the ability to run on hydrogen blended fuel source. Because this is still an emerging offering, Hydrogen Energy Solutions revenue has been immaterial to date.

Historically, the business described above was conducted by Capstone Green Energy Corporation, which was organized in 1988 and has been commercially producing its microturbine generators since 1998. In connection with the emergence from Chapter 11 Bankruptcy (the “Chapter 11 Bankruptcy”) on December 7, 2023 (the “Effective Date”), Capstone Green Energy Corporation was reorganized (the “Reorganization”) and became a privately-held company (“Reorganized PrivateCo”). Capstone Turbine International, Inc., a former wholly owned subsidiary of Capstone Green Energy Corporation, which was incorporated in Delaware on June 10, 2004, became a publicly-traded company and was renamed Capstone Green Energy Holdings, Inc. The Operating Subsidiary was also formed as part of the Reorganization.

As a result of the delay in filing the Company’s periodic reports with the Securities Exchange Commission (“SEC”) and the requirements relating to Market Value of Listed Securities (“MVLS”), the Company was unable to comply with the Nasdaq listing standards. The Company’s common stock was suspended from trading on the Nasdaq Capital Market effective October 5, 2023 and formally delisted effective October 23, 2023. The Company filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 on October 17, 2024, and with the filing, the Company became current with all of its periodic filings with the SEC.

All references in these footnotes to “the Company,” “we,” “us,” “our,” or “Capstone” are to Capstone Green Energy Corporation and its consolidated subsidiaries for the three and six months ended September 30, 2023 and to Capstone Green Energy Holdings, Inc. and its consolidated subsidiaries as of September 30, 2024 and March 31, 2024 and for the three and six months ended September 30, 2024.

2. Basis of Presentation, Significant Accounting Policies and Going Concern

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). They do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Balance Sheet as of March 31, 2024 was derived from audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim Condensed Consolidated Financial Statements include all adjustments (including normal recurring adjustments) necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. Results of operations for any interim period are not necessarily indicative of results for any other interim period or for the full year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the

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fiscal year ended March 31, 2024 filed with the SEC on September 26, 2024. This Quarterly Report on Form 10-Q (this “Form 10-Q”) refers to the Company’s fiscal years ending March 31 as its “Fiscal” years.

Basis for Consolidation The Condensed Consolidated Financial Statements included in this filing include the accounts of the Company, the Operating Subsidiary and Capstone Turbine Financial Services, LLC, its wholly owned subsidiary that was formed in October 2015, after elimination of inter-company transactions.

Significant Accounting Policies Except as described below, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for Fiscal Year 2024 filed with the SEC, that have had a material impact on the Company's Condensed Consolidated Financial Statements.

Going Concern In connection with the preparation of these Condensed Consolidated Financial Statements for the three months and six ended September 30, 2024, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to meet its obligations as they become due over the next twelve months from the date of the issuance of the financial statements. As of September 30, 2024, the Company had cash of $2.7 million and a working capital deficit of $7.8 million. The Company incurred a net loss of $4.4 million during the six months ended September 30, 2024.

On September 28, 2023, the Company filed for a prepackaged financial restructuring with its Senior Lender, Goldman Sachs under the U.S. Chapter 11 Bankruptcy laws. The Company emerged from bankruptcy on December 7, 2023 and effected a financial and organizational restructuring. However, given its current cash position, lack of liquidity, limits to accessing capital and debt funding options, and current economic and market risks, there is substantial doubt regarding the Company’s ability to continue as a going concern and its ability to meet its financial obligations as they become due over the next twelve months from the date of issuance of the financial statements as of, and for the period ended September 30, 2024.

3. Recently Issued Accounting Pronouncements

Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (Topic 280). This update applies to all public entities that are required to report segment information in accordance with Topic 280. The amendments in this update revise reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024— i.e., beginning with the Company’s Annual Report on Form 10-K for its fiscal year ended March 31, 2025 and interim periods thereafter. Early adoption is permitted. The standard should be applied retrospectively to all prior periods presented in the financial statements. The adoption of this guidance will impact the Company’s disclosures only. The Company is in the process of assessing the effect adoption will have on its annual consolidated financial statement disclosure.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures (Topic 740), which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this update are effective for annual periods beginning after December 15, 2024— i.e., beginning with the Company’s Annual Report on Form 10-K for its fiscal year ended March 31, 2026 and interim periods thereafter. The Company is in the process of evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures.

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4. Customer Concentrations and Accounts Receivable

Accounts receivables are presented on the Condensed Consolidated Balance Sheets, net of estimated credit losses. The Company applies the aging method by pooling receivables based on levels of delinquency and applying historical loss rates on what has been historically uncollectible by aging categories. The historical loss rate is adjusted for current conditions and reasonable and supportable forecasts of future losses, as necessary. Additionally, the allowance for credit loss calculation includes subjective adjustments for qualitative risk factors that could likely cause estimated credit losses to differ from historical experience. The factors include assessments of various economic conditions, significant events that occurred, geographic location, size and credit ratings of the customers. The Company may also record a specific reserve for individual accounts when the Company becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. Accounts deemed uncollectible are written off against the allowance for credit loss.

In accordance with Accounting Standard Codification (“ASC”) 326, the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for credit loss that reflects its best estimate of the current expected credit losses (“CECL”) on a quarterly basis.

Changes in the CECL allowance for accounts receivable are as follows (in thousands):


Balance, March 31, 2024	$	3,287
Provision for credit loss		414
Recoveries		11
Balance, September 30, 2024	$	3,712

E-Finity Distributed Generation (“E-Finity”), Arctic Energy Inc. (“Arctic”) and Lone Star Power Solutions, LLC (“Lone Star”), three of the Company’s domestic distributors, and GET/CWS Limited, one of the Company’s international customers, accounted for 21%, 14%, 10% and 11% of revenue for the three months ended September 30, 2024, respectively. E-Finity and Cal Microturbine, two of the Company’s domestic distributors, accounted for 21% and 11% of revenue for the three months ended September 30, 2023, respectively. E-Finity and Lone Star accounted for 17% and 13% of revenue for the six months ended September 30, 2024, respectively. E-Finity and Cal Microturbine accounted for 16% and 10% of revenue for the six months ended September 30, 2023, respectively.

Additionally, GET/CWS Limited accounted for 29% of net accounts receivable as of September 30, 2024. Supernova Energy Services SAS (“Supernova”), one of the Company’s international distributors, and Capstone Engineered Solutions (“CES”), one of the Company’s domestic distributors, accounted for 14% and 11% of net accounts receivable as of March 31, 2024, respectively. The Company recorded a credit loss expense of $0.3 million and zero during the three months ended September 30, 2024 and 2023, respectively. The Company recorded a credit loss expense of $0.4 million and zero during the six months ended September 30, 2024 and 2023, respectively.

5. Inventories

Inventories are valued at the lower of cost (determined on a first-in, first-out (“FIFO”) basis) or net realizable value and consisted of the following (in thousands):


	September 30,		March 31,
	2024		2024
Raw materials	$	21,848	$	23,779
Finished goods		1,235		780
Total		23,083		24,559
Less: non-current portion		(3,206)		(3,917)
Total inventory, net non-current portion	$	19,877	$	20,642

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The non-current portion of inventories represents that portion of inventories in excess of amounts expected to be sold or used in the next twelve months. The non-current inventories are primarily comprised of parts for older generation products that are still in operation but are not technologically compatible with current configurations. The Company expects to use the non-current portion of the inventories on hand as of September 30, 2024 over the periods presented in the following table (in thousands):


		Non-current Inventory
		Balance Expected
Expected Period of Use		to be Used
13 to 24 months	$	1,176
25 to 36 months		2,030
Total	$	3,206

6. Property, Plant, Equipment and Rental Assets

Property, plant, equipment and rental assets consisted of the following (in thousands):


	September 30,		March 31,
	2024		2024
Machinery, equipment, automobiles and furniture	$	14,933	$	14,921
Leasehold improvements		8,889		8,889
Molds and tooling		3,476		3,476
Rental assets		29,747		31,762
Total property, plant, equipment and rental assets		57,045		59,048
Less: accumulated depreciation		(34,617)		(33,194)
Total Property, plant, equipment and rental assets, net	$	22,428	$	25,854

The Company regularly assesses the useful lives of property and equipment and retires assets no longer in service. Depreciation expense for property, plant, equipment and rental assets was $1.1 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively. Depreciation expense for property, plant, equipment and rental assets was $2.1 million and $2.0 million for the six months ended September 30, 2024 and 2023, respectively.

7. Temporary Equity

Redeemable Preferred Units

Redeemable noncontrolling interests are reported on the Condensed Consolidated Balance Sheet as Temporary Equity.

During Fiscal 2024, in connection with the Reorganization, the Operating Subsidiary issued 10,449,863 Series A Redeemable Preferred Units (the “Preferred Units”) that include a redemption feature. The Preferred Units have an aggregate value representing 37.5% equity ownership in the Operating Subsidiary (“Aggregate Purchase Price”). At any time during the six-month period following the sixth anniversary of the Effective Date, the holders of the Preferred Units may elect to have all, but not less than all, of the then outstanding Preferred Units redeemed. Therefore, the Preferred Units are probable of becoming redeemable and are classified as temporary (‘mezzanine’) equity.

The Preferred Units also provide the holder with the option to convert all or less than all of the Preferred Units into Operating Subsidiary Common Units (“Common Units”) at any time and from time to time without the payment of additional consideration. If the holder elects to convert the Preferred Units, the specified number of Preferred Units to be converted will be divided by the total number of Preferred Units then outstanding times 37.50% of the Common Units deemed outstanding. To the extent some, but not all of the Preferred Units are converted, the 37.50% percentage will be proportionately reduced, and the same adjustment will apply for purposes of calculating other as-converted entitlements of the Preferred Units. None of the Preferred Units had been converted into Common Units as of September 30, 2024.

Additionally, the Preferred Units provide the holder with a put option to sell the shares to the Operating Subsidiary and the Liquidation Preference provides the holder with the option to exchange the Preferred Units for cash (together, the “Features”).

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The holder of the noncontrolling interest hold a liquidation preference that protects the holder from absorbing losses. The Company incurred a net loss of $0.4 million and $4.4 million during the three and six months ended September 30, 2024, respectively, therefore, there were no earnings to allocate to Operating Subsidiary.

The fair value of $1.23 and $1.33 per Preferred Unit at September 30, 2024 and March 31, 2024, respectively, below were determined through the use of an option-pricing method (“OPM”) that treats the common and preferred units as call options on the enterprise value of the Company with exercise prices based on the liquidation preference of the preferred units. The OPM incorporated multiple thresholds that represent future change of control sale prices where the payout structure would differ based on the rights and preferences of each share class. The OPM used was the Black-Scholes Merton (“BSM”) model to price the call option, which includes the below variables. The enterprise value utilized by the Company in the OPM represents the value agreed upon by the parties involved in the restructuring as approved by the Bankruptcy Court:


	September 30,			March 31,
	2024			2024
Fair value of common units	$	1.04		$	1.15
Dividend yield		—	%		—	%
Volatility		96.5	%		93.0	%
Risk-free interest rate		3.6	%		4.2	%
Expected term		5.7 years			6.2 years

At each reporting period, the Company remeasures the redemption value of the Preferred Units and adjusts the carrying value, if that value exceeds the initial fair value, to equal the maximum redemption value to retained earnings. The initial fair value was $13.9 million. Subsequent remeasurements of fair value have not exceeded the initial fair value; therefore, no adjustments have been made prior to the current period. The remeasurement as of September 30, 2024 resulted in a fair value of $12.8 million, which does not exceed the initial fair value; therefore, an adjustment to the carrying value was not recorded.

8. Fair Value Measurements

The FASB has established a framework for measuring fair value using GAAP. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2. Inputs to the valuation methodology include:

●

Quoted prices for similar assets or liabilities in active markets

●

Quoted prices for identical or similar assets or liabilities in inactive markets

●

Inputs other than quoted prices that are observable for the asset or liability

●

Inputs that are derived principally from or corroborated by observable market data by correlation or other means

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs.

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Basis for Valuation

The carrying values reported in the Condensed Consolidated Balance Sheets for cash, accounts receivable, accounts payable and the exit notes approximate their fair values because of the immediate or short-term maturities of these financial instruments. The fair value of the Company’s Exit Notes (as defined below) on the date of issuance approximated their carrying value based on a comparable market yield analysis completed by the Company. Financial and nonfinancial assets and liabilities measured on a recurring basis are those that are adjusted to fair value at each reporting period and include the Company’s Preferred Units. The Company used the BSM model (Level 3) with standard valuation inputs to value the Preferred Units as detailed in Note 7— Temporary Equity.

9. Balance Sheet Information

Prepaid Expenses and Other Assets

As of September 30, 2024, the Company had $2.3 million of royalty-related assets remaining recorded within the Prepaid expenses and other current assets and Other assets line items on the accompanying Condensed Consolidated Balance Sheets. The assets are being amortized over a 15-year period through September 2033 using an effective royalty rate.

A 15-year amortization period is the minimum expected life cycle of the current generation of products. The effective royalty rate is calculated as the prepaid royalty settlement divided by total projected C200 System units over the 15-year amortization period. On a quarterly basis, the Company performs a re-forecast of C200 System unit shipments to determine if an adjustment to the effective royalty rate is necessary and accordingly whether an impairment exists. The Company determined an impairment did not exist as of September 30, 2024.

The current and long-term portions of prepaid royalties and prepaid and other assets were as follows (in thousands):


	September 30,		March 31,
	2024		2024
Other royalty-related current assets	$	124	$	124
Other royalty-related non-current assets		2,180		2,239
Total royalty-related assets	$	2,304	$	2,363
Prepaid vendor inventory		2,491		3,417
Prepaid insurance		790		908
Deposits		360		366
Prepaid taxes		589		397
Other assets		500		1,035
Total Prepaid expenses, and other current assets and Other assets	$	7,034	$	8,486

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of (in thousands):


	September 30,		March 31,
	2024		2024
Trade payables	$	18,753	$	15,095
Accrued professional fees		578		2,827
Accrued commissions		174		148
Accrued service claims		177		278
Other		1,426		(136)
Total Accounts payable and accrued expenses	$	21,108	$	18,212

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10. Accrued Warranty Reserve

The Company provides for the estimated costs of warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the microturbine product sold and the geography of sale. The Company’s product warranties generally start from the delivery date and continue for up to twenty-four months. Factors that affect the Company’s warranty obligation include product failure rates, anticipated hours of product operations and costs of repair or replacement in correcting product failures. These factors are estimates that may change based on new information that becomes available each period. Similarly, the Company also accrues the estimated costs to address reliability repairs on products no longer in warranty when, in the Company’s judgment, and in accordance with a specific plan developed by the Company, it is prudent to provide such repairs. The Company assesses the adequacy of recorded warranty liabilities quarterly and adjusts to the liability, as necessary. When the Company has sufficient evidence that product changes are altering the historical failure occurrence rates, the impact of such changes is then taken into account in estimating future warranty liabilities.

Changes in the accrued warranty reserve consisted of the following (in thousands):


	September 30,		March 31,
	2024		2024
Balance, beginning of the year	$	1,437	$	1,576
Standard warranty (benefit) provision		(223)		32
Deductions for warranty claims		(69)		(171)
Balance, end of the period	$	1,145	$	1,437

11. Debt

Exit Note Purchase Agreement

The Company entered into an Exit Facility during Fiscal 2024 (the “Exit Note Purchase Agreement”), for an aggregated principal amount of $28.1 million, consisting of $21.1 million of Exit Roll Up Notes, including accrued and unpaid interest and commitment fees and $7.0 million of Exit New Money Notes (together the “Exit Notes”) subject to the terms and conditions set forth in the Exit Note Purchase Agreement by and among Operating Subsidiary, as the issuer, the Company and Capstone Financial Services, as the guarantors (the “Guarantors”), Broad Street Credit Holdings LLC (the “Purchaser”) and Goldman Sachs Specialty Lending Holdings, Inc. (the “Collateral Agent”).

The Exit Note Purchase Agreement also provides for a $10.0 million uncommitted incremental facility. The proceeds from the fully drawn $7.0 million of Exit New Money Notes were used to fund restructuring expenses and for working capital, for general corporate purposes. The Exit Notes bear interest at a rate equal to the Adjusted Term SOFR (as defined in the Exit Note Purchase Agreement) plus 7.00% per annum. A portion of the interest on the Exit Notes is paid-in-kind until the third year following December 7, 2023.

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

The scheduled maturities of the Company’s debt are as follows as of September 30, 2024:


Year Ending March 31,
2025 (remainder of fiscal year)	$	—
2026		7,676
2027		23,364
2028		—
2029		—
Thereafter		—
Total principal payments and debt maturities		31,040
Less unamortized issuance costs		(185)
Net principal payments and debt maturities	$	30,855

The Exit Notes issued pursuant to the Exit Note Purchase Agreement are secured by a lien on substantially all of the present and future property and assets of Operating Subsidiary and each Guarantor, subject to customary exceptions

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and exclusions. The Exit Note Purchase Agreement also includes conditions precedent, representations and warranties, affirmative and negative covenants, events of default, and other customary provisions, including financial covenants with respect to minimum consolidated liquidity and minimum consolidated adjusted EBITDA.

On March 27, 2024, the Company obtained a waiver from the Purchaser and the Collateral Agent in anticipation of default on March 31, 2024. The waiver granted was specific to the $1.0 million consolidated adjusted EBITDA covenant for the measurement date of March 31, 2024, and covered the period through June 30, 2024. There can be no assurance that the Purchase 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 the Company’s repayment obligations under the Exit Notes. The Company has the right to cure an event of default for a breach of the consolidated adjusted EBITDA covenant with a prepayment on the Exit Notes up to the amount that is required to achieve the minimum consolidated adjusted EBITDA covenant for the quarter. In the event the Company does not cure the breach, the requisite Purchaser may cause the Collateral Agent to enforce any and all liens and security interests created pursuant to the Collateral Documents and may enforce any and all rights and remedies available. The Company believes it is probable the consolidated liquidity and consolidated adjusted EBITDA financial covenants discussed below will be satisfied for all measurement dates in the upcoming 12 months. Accordingly, the Exit New Money Notes, net of discount were reclassified to a non-current liability on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2024. As of September 30, 2024, the Company is in compliance with all financial covenants.

On June 28, 2024, the Company entered into the First Amendment (the “First Amendment”) to the Exit Note Purchase Agreement. The First Amendment provides for: (i) the amendment of the minimum consolidated adjusted EBITDA financial covenant to (a) allow adjustment for costs related to the restatement of, or other adjustments to, the financial statements of the Company for the period beginning on the Closing Date (as defined in the Exit Note Purchase Agreement) and ending at the end of the 2025 Fiscal Year and (b) the minimum consolidated adjusted EBITDA financial covenant to be first tested at the quarter ended September 30, 2024, (ii) the amendment of the minimum consolidated liquidity financial covenant to (a) reduce the minimum consolidated liquidity to $1,000,000 from September 30, 2024 to March 30, 2025 and (b) defer the testing of the minimum consolidated liquidity financial covenant to September 30, 2024 and (iii) the extension of the deadline for the delivery of the Company’s audited financial statements for the fiscal year ended March 31, 2024 (the “fiscal 2024 financial statements”) to September 27, 2024 and the removal of the covenant that the fiscal 2024 financial statements be accompanied by a report and opinion of an independent certified public accountant which is not subject to any “going concern” or like qualification.

The minimum consolidated liquidity covenant will be tested at all times from and after September 30, 2024, and requires the Company and its subsidiaries to maintain a minimum average Consolidated Liquidity (as defined in the First Amendment) during any seven consecutive day period of no less than:

(i) from September 30, 2024 to March 30, 2025, $1,000,000;

(ii) from March 31, 2025 to June 29, 2025, $2,500,000;

(iii) from June 30, 2025 to September 29, 2025, $3,000,000;

(iv) from September 30, 2025 to March 30, 2026, $3,500,000; and

(v) from March 31, 2026 to December 7, 2026, $4,000,000.

The minimum consolidated adjusted EBITDA covenant will be tested on the last day of each fiscal quarter, commencing with September 30, 2024, and will require the Company and its subsidiaries to maintain a minimum consolidated adjusted EBITDA (as defined in the First Amendment) as at the end of any fiscal quarter (i) from the Closing Date until September 30, 2024, for the period of the fiscal quarters then ended in such calendar year and (ii) from October 1, 2024, for the four fiscal quarter period then ended, to be less than the correlative amount indicated below (with corresponding calendar quarters also included as reference):

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Fiscal Quarter Ending	Consolidated Adjusted EBITDA
September 30, 2024	$2,500,000
December 31, 2024	$4,000,000
March 31, 2025	$5,000,000
June 30, 2025	$5,500,000
September 30, 2025	$6,000,000
December 31, 2025	$6,500,000
March 31, 2026	$8,000,000
June 30, 2026	$8,000,000
September 30, 2026	$8,000,000

As of September 30, 2024, the Company has an outstanding Exit Notes balance of $30.9 million, comprised of $21.1 million of Exit Roll Up Notes, (includes accrued interest of $1.1 million), $7.0 million of Exit New Money Notes and $2.9 million of total PIK interest, less debt issuance costs of $0.2 million. Debt issuance costs in relation to the Exit New Money Notes and the Exit Roll Up Notes are being amortized over the term at an effective interest rate of 12.35% as of September 30, 2024.

12. Revenue Recognition

The Company derives its revenues primarily from the sale of microturbine products, accessories, parts, equipment rentals and services.

The Company determines revenue recognition through the following steps:

●

Identification of the contract, or contracts, with a customer

●

Identification of the performance obligations in the contract

●

Determination of the transaction price

●

Allocation of the transaction price to the performance obligations in the contract

●

Recognition of revenue when, or as, the Company satisfies a performance obligation

Microturbine Products The Company recognizes revenue when the performance obligation identified under the terms of the contract with its customer is satisfied, which generally occurs, for microturbine products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with a microturbine product is recognized at a point in time when the microturbine product is shipped to the customer. On occasion, the Company enters into bill-and-hold arrangements. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (i) the reason for the bill-and-hold arrangement is substantive; (ii) the product is segregated from the Company’s other inventory items held for sale; (iii) the product is ready for shipment to the customer; and (iv) the Company does not have the ability to use the product or direct it to another customer.

Accessories The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for accessories, upon the transfer of control in accordance with the contractual terms and conditions of the sale.

Parts and Services Revenue from extended warranties and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a system has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue. The Company extends payment terms past one year only on a limited basis, and thus any financing component is not considered material.

Factory Protection Plan and Service Cost Reimbursement In addition to the provision of standard warranties, the Company offers Factory Protection Plans (“FPP”) to minimize product downtime and control maintenance costs to

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ensure the microturbine system will operate when needed and perform as intended at the lowest cost of ownership. Revenue related to the Company’s performance obligation to provide replacement parts as needed is recognized over the 30-day FPP contract period with automatic renewals for 5, 10, 15, or 20 years under ASC 606. The related costs are accrued at the time a customer submits an order, and the order’s compliance with the terms of the plan are confirmed, for a replacement part to reflect the Company’s obligation. The accrual reflects the Company’s best estimate of the probable liability under the replacement part obligation. The provision is periodically adjusted to reflect actual experience. FPP contracts typically go into effect once the standard warranty expires.

Comprehensive factory protection plan service contracts require payment at the beginning of the contract period. Advance payments are not considered a significant financing component as they are typically received less than one year before the related performance obligations are satisfied. These payments are treated as a contract liability and are classified in deferred revenue in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statement of Operations. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statement of Operations on a straight-line basis over the expected term of the contract.

Some FPPs offer labor reimbursement on the labor performed on a microturbine system. Due to the nature of the arrangement, labor reimbursements are accounted for under ASC 460. An Authorized Service Provider (ASP) must perform the labor. ASPs submit claims for labor reimbursements and are credited for the cost of labor if the repairs meet the Company’s prescribed standards. The Company is unable to develop a reasonable estimate of the maximum potential payout under these arrangements because the FPPs do not contain a limit on the number of labor reimbursements that may be submitted. However, given historical practice, the Company has priced the FPP to cover all costs incurred related to the labor reimbursement and is not exposed to significant losses over the FPP premium.

The labor reimbursement is separate and distinct from the parts offering; therefore, the Company allocates a portion of the transaction price to the labor reimbursement based on SSP. The Company applies judgment in determining the SSP as the labor reimbursement is not sold separately. The Company will recognize a liability at the inception of the executed FPP agreement for the premium received in advance for the Labor offering. Income will be recognized on a net, straight-line basis with labor reimbursement costs recognized when incurred.

Significant Judgments - Contracts with Multiple Performance Obligations

The Company enters into contracts with its customers that often include promises to transfer multiple products, parts, accessories, FPP and services. A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.

Products, parts and accessories are distinct as such services are often sold separately. In determining whether FPP and service contracts are distinct, the Company considers the following factors for each FPP and services agreement: availability of the services from other vendors, the nature of the services, the timing of when the services contract was signed in comparison to the product delivery date and the contractual dependence of the product on the customer’s satisfaction with the professional services work. To date, the Company has concluded that all of the FPP and services contracts included in contracts with multiple performance obligations are distinct.

The Company allocates the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. The SSP is the price at which the Company would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation.

The Company determines SSP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, the size and volume of the Company’s transactions, the customer demographic, the geographic area where systems and services are sold, price lists, its go-to-market strategy, historical sales and contract prices. The determination of SSP is made through approval by the Company’s management, taking into consideration the go-to-market strategy. As the Company’s go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to SSP.

In certain cases, the Company is able to establish SSP based on observable prices of products or services sold separately in comparable circumstances to similar customers. The Company uses a single amount to estimate SSP when it has observable prices.

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If SSP is not directly observable, for example when pricing is highly variable, the Company uses a range of SSP. The Company determines the SSP range using information that may include market conditions or other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customer size and geography.

The following table presents disaggregated revenue by business group (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Microturbine Products	$	10,885	$	14,468	$	16,147	$	27,475
Accessories		385		624		484		824
Total Product and Accessories		11,270		15,092		16,631		28,299

Parts and Services		7,923		9,637		15,822		17,303
Rentals		3,529		3,639		5,911		6,669
Total Revenue	$	22,722	$	28,368	$	38,364	$	52,271

The following table presents disaggregated revenue by geography based on the primary operating location of the Company’s customers (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
United States	$	15,855	$	17,313	$	24,786	$	28,847
Mexico		1,126		2,519		1,618		3,243
All other North America		107		116		137		687
Total North America		17,088		19,948		26,541