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, 2023

☐

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 August 1, 2024, the registrant had 18,546,649 shares of 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 CORPORATION

INDEX

		Page Number
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of September 30, 2023 and March 31, 2023	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2023 and 2022	4

	Condensed Consolidated Statements of Stockholders’ Deficiency for the Three Months and Six Months September 30, 2023 and 2022	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2023 and 2022	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 4.	Controls and Procedures	48

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 5.	Other Information	50

Item 6.	Exhibits	52

Signatures		54

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	September 30,		March 31,
	2023		2023
Assets
Current Assets:
Cash and cash equivalents	$	2,504	$	12,839
Accounts receivable, net of allowances of $4,375 at September 30, 2023 and $4,813 at March 31, 2023		8,713		7,102
Inventories		29,080		37,328
Prepaid expenses and other current assets		7,343		7,447
Total current assets		47,640		64,716
Property, plant, equipment and rental assets, net		26,482		24,275
Finance lease right-of-use assets		4,693		4,529
Operating lease right-of-use assets		14,146		8,808
Non-current portion of inventories		3,643		3,112
Other assets		2,527		2,591
Total assets	$	99,131	$	108,031
Liabilities and Stockholders’ Deficiency
Current Liabilities:
Accounts payable and accrued expenses	$	29,634	$	30,290
Accrued salaries and wages		1,276		1,223
Accrued warranty reserve		1,732		1,576
Deferred revenue		14,930		23,372
Finance lease liability, current		934		773
Operating lease liability, current		3,834		2,492
Factory protection plan liability		10,711		10,844
Term note payable		—		50,983
Total current liabilities		63,051		121,553
Deferred revenue, non-current		746		817
Finance lease liability, non-current		2,794		2,903
Operating lease liability, non-current		10,596		6,588
Other non-current liabilities		263		265
Total liabilities not subject to compromise		77,450		132,126
Liabilities subject to compromise (Note 3)		56,954		—
Total liabilities		134,404		132,126
Commitments and contingencies (Note 15)
Stockholders’ Deficiency:
Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued		—		—
Common stock, $.001 par value; 51,500,000 shares authorized, 19,167,971 shares issued and 19,038,456 shares outstanding at September 30, 2023; 18,511,555 shares issued and 18,394,541 shares outstanding at March 31, 2023		19		18
Additional paid-in capital		955,630		955,228
Accumulated deficit		(988,768)		(977,202)
Treasury stock, at cost; 129,515 shares at September 30, 2023 and 117,014 shares at March 31, 2023		(2,154)		(2,139)
Total stockholders’ deficiency		(35,273)		(24,095)
Total liabilities and stockholders' deficiency	$	99,131	$	108,031

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Revenue, net:
Product and accessories	$	15,092	$	9,594	$	28,299	$	19,392
Parts, service and rentals		13,276		10,530		23,972		19,497
Total revenue, net		28,368		20,124		52,271		38,889
Cost of goods sold:
Product and accessories		15,332		11,044		29,462		20,813
Parts, service and rentals		7,781		5,690		14,117		12,172
Total cost of goods sold		23,113		16,734		43,579		32,985
Gross profit		5,255		3,390		8,692		5,904
Operating expenses:
Research and development		653		603		1,318		1,093
Selling, general and administrative		9,160		5,107		15,964		10,026
Total operating expenses		9,813		5,710		17,282		11,119
Loss from operations		(4,558)		(2,320)		(8,590)		(5,215)
Other income (expense)		(4)		(50)		6		(48)
Interest income		41		26		99		32
Interest expense		(1,822)		(1,305)		(3,519)		(2,616)
Reorganization items, net		453		—		453		—
Loss before provision for income taxes		(5,890)		(3,649)		(11,551)		(7,847)
Provision (benefit) for income taxes		(3)		4		15		6
Net loss		(5,887)		(3,653)		(11,566)		(7,853)
Less: Deemed dividend on purchase warrant for common shares		—		97		—		97
Net loss attributable to common stockholders	$	(5,887)	$	(3,750)	$	(11,566)	$	(7,950)

Net loss per common share attributable to common stockholders—basic and diluted	$	(0.32)	$	(0.22)	$	(0.63)	$	(0.50)
Weighted average shares used to calculate basic and diluted net loss per common share attributable to common stockholders		18,492		16,785		18,457		16,056

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

(In thousands, except share amounts)
(Unaudited)


				Additional							Total
	Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	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	519,218		1		4		—	3,730		(4)		1
Stock-based compensation	—		—		81		—	—		—		81
Stock awards to Board of Directors	97,275		—		—		—	—		—		—
Net loss	—		—		—		(5,887)	—		—		(5,887)
Balance, September 30, 2023	19,167,971	$	19	$	955,630	$	(988,768)	129,515	$	(2,154)	$	(35,273)


				Additional							Total
	Common Stock			Paid-in		Accumulated		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Deficit		Shares	Amount		Deficiency
Balance, March 31, 2022	15,398,368	$	15	$	946,969	$	(952,583)	101,633	$	(2,088)	$	(7,687)
Vested restricted stock awards	33,234		—		36		—	9,296		(36)		—
Stock-based compensation	—		—		232		—	—		—		232
Net loss	—		—		—		(4,200)					(4,200)
Balance, June 30, 2022	15,431,602		15		947,237		(956,783)	110,929		(2,124)		(11,655)
Vested restricted stock awards	28,882		—		15		—	6,085		(15)		—
Stock-based compensation	—		—		154		—	—		—		154
Stock awards to Board of Directors	54,585		—		—		—	—		—		—
Issuance of common stock, net of issuance costs	2,934,498		3		7,247		—	—		—		7,250
Deemed dividend on purchase warrant for common shares	—		—		97		(97)	—		—		—
Net loss	—		—		—		(3,653)	—		—		(3,653)
Balance, September 30, 2022	18,449,567	$	18	$	954,750	$	(960,533)	117,014	$	(2,139)	$	(7,904)

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended September 30,
	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(11,566)	$	(7,853)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,960		1,470
Amortization of financing costs and discounts		29		51
Paid-in-kind interest expense		162		—
Amortization of right-of-use assets		1,564		475
Allowance for credit loss		—		75
Inventory provision		341		420
Provision for warranty expenses		232		364
Loss on disposal of equipment		—		279
Stock-based compensation		387		386
Non-cash reorganization items		(453)		—
Changes in operating assets and liabilities:
Accounts receivable		(1,942)		2,076
Inventories		7,656		(4,631)
Prepaid expenses, other current assets and other assets		168		(874)
Accounts payable and accrued expenses		2,329		(871)
Operating lease liability		(1,551)		(531)
Accrued salaries and wages and long-term liabilities		53		(23)
Accrued warranty reserve		(76)		(185)
Deferred revenue		(8,513)		5,366
Factory protection plan liability		(133)		1,022
Net cash used in operating activities		(9,353)		(2,984)
Cash Flows from Investing Activities:
Expenditures for property, plant, equipment and rental assets		(3,917)		(2,564)
Net cash used in investing activities		(3,917)		(2,564)
Cash Flows from Financing Activities:
Net proceeds from term note payable		3,000		—
Repayment of notes payable and lease obligations		(65)		(482)
Net proceeds from issuance of common stock and warrants		—		7,251
Net cash provided by financing activities		2,935		6,769
Net increase (decrease) in Cash and Cash Equivalents		(10,335)		1,221
Cash and Cash Equivalents, Beginning of Period		12,839		22,559
Cash and Cash Equivalents, End of Period	$	2,504	$	23,780

See accompanying notes to condensed consolidated financial statements.

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CAPSTONE GREEN ENERGY CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

Capstone Green Energy Corporation (“Capstone” or the “Company”) 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 meet their environmental, energy savings, and resiliency goals. These solutions include stationary distributed power generation applications and distribution networks for critical power supply and cogeneration systems, such as combined heat and power (“CHP”), integrated combined heat and power (“ICHP”), and combined cooling, heat and power (“CCHP”). The Energy Conversion Products business line is driven by the Company’s industry-leading, highly clean and efficient, low-emission, resilient microturbine energy systems, which offer 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”) solutions as well as energy rental solutions utilizing its microturbine energy. The Company’s emerging business line is Hydrogen Energy Solutions. Through the Company’s Hydrogen Energy Solutions business line, it offers customers the ability to run on hydrogen blended fuel source. Because these are still emerging offerings, Hydrogen Energy Solutions revenue has been immaterial to date. The Company was organized in 1988 and has been commercially producing its microturbine generators since 1998.

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 (“generally accepted accounting principles” or “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 generally accepted accounting principles for complete financial statements. The Condensed Consolidated Balance Sheet as of March 31, 2023 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, 2023. 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 fiscal year ended March 31, 2023 filed with the Securities Exchange Commission (“SEC”) on June 13, 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 These Condensed Consolidated Financial Statements include the accounts of the Company, Capstone Turbine International, Inc., its wholly owned subsidiary, after elimination of inter-company transactions.

Reclassification Certain items in prior financial statements have been reclassified to conform to the current presentation and provide comparability but have no effect on the reported results of operations. The Company reclassified certain revenue stream and cost of goods sold on the Condensed Consolidated Statements of Operations for the six months ended September 30, 2022 to conform to the presentation of the current period. The reclassification has not materially impacted the Company’s financial statements and did not result in a change in total revenue, net income or cash flows from operations for the periods presented.

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 2023 filed with the SEC, that have had a material impact on the Company's Condensed Consolidated Financial Statements.

Bankruptcy Accounting— The Condensed Consolidated Financial Statements included herein have been prepared as if the Company were a going concern and in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations (“ASC 852”). See Note 3 – Chapter 11

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Proceedings for further details regarding the bankruptcy. As a result, the Company has segregated liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 Cases and have classified these items as “Liabilities Subject to Compromise” on the Condensed Consolidated Balance Sheets. In addition, the Company has classified all income, expenses, gains or losses that were incurred or realized as a result of the proceedings since filing for Chapter 11 as “Reorganization Items” in the Company’s Condensed Consolidated Statements of Operations.

Segment Reporting The Company determines its reporting units in accordance with FASB ASC Topic No. 280, Segment Reporting (“ASC 280”). The Company evaluates a reporting segment by first identifying its operating segments under ASC 280. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company defines its CODM to be the Chief Financial Officer. The Company is considered to be a single reporting segment. The business activities of this reporting segment are the development, manufacture and sale of turbine generator sets and their related parts and service.

Going Concern In connection with the preparation of these Condensed Consolidated Financial Statements for the three and six months ended September 30, 2023, 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, 2023, the Company had cash and cash equivalents of $2.5 million, and $57.0 million in borrowings were outstanding under the Notes. The Company incurred a net loss of $11.6 million and used cash from operating activities of $9.4 million during the six months ended September 30, 2023.

Subsequent to September 30, 2023, the Company reduced its outstanding debt via proceedings in U.S. Chapter 11 Bankruptcy Court. 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, as further discussed in Note 3 – Chapter 11 Proceedings in the Notes to Condensed Consolidated Financial Statements. 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, 2023.

Trade Accounts Receivable and Allowance for Credit Loss On April 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Topic No. 326 - Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology referred to as the current expected credit loss (“CECL”) The CECL model applies to financial assets measured at amortized cost, including accounts receivable. Under the CECL model, the Company identifies allowances for credit losses based on future expected losses when accounts receivable are created rather than when losses are probable.

The Company applies a historical loss rate based on historic write-offs 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. Refer to Note 5- Customer Concentrations and Accounts Receivable in the Notes to Condensed Consolidated Financial Statements for details of the allowance for credit loss recorded.

3. Chapter 11 Proceedings

Voluntary Filing under Chapter 11

Plan of Reorganization— On September 28, 2023 (the “Petition Date”), Capstone Green Energy Corporation and its wholly owned direct subsidiaries, Capstone Turbine International, Inc. and Capstone Turbine Financial Services, LLC (the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the

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“Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 proceedings were jointly administered under the caption, In re Capstone Green Energy Corporation, Inc., et al. as Case No. 23-11634 (the “Chapter 11 Cases”). The Debtors continued to operate their business in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. At hearings before the Bankruptcy Court on September 29, 2023, the Debtors obtained approval from the Bankruptcy Court of certain “first day” motions containing customary relief intended to assure the Debtors’ ability to continue their ordinary course operations during the Chapter 11 Cases.

Concurrent with the petition, the Debtors entered into the Transaction Support Agreement (“TSA”) with the prepetition senior secured creditor, Broad Street Credit Holdings, LLC. (“Broad Street”), and Goldman Sachs Specialty Lending Group, L.P. (the “Collateral Agent”). The TSA, among other things, provided that Broad Street and the Collateral Agent would support the Debtors’ restructuring efforts as set forth in, and subject to the terms and conditions of, the TSA. The TSA contained customary conditions, representations, and warranties of the parties and is subject to a number of conditions, including, among others, the accuracy of the representations and warranties of the parties and compliance with the obligations set forth in the TSA. The TSA also provided for termination by the parties upon the occurrence of certain events.

Overview of the Plan— On September 28, 2023, the Debtors filed their Joint Prepackaged Chapter 11 Plan of Reorganization of Capstone Green Energy Corporation and its Debtor Affiliates (the “Plan”) and Disclosure Statement for the Joint Prepackaged Chapter 11 Plan of Reorganization (the “Disclosure Statement”). On October 24, 2023, a Plan supplement was filed, which included schedules for enterprise valuations, assumed and rejected executory contracts, among other updates. Additional updates were filed in early November 2023 for the completion of schedules and exhibits containing information including governance documents, service contracts and other asset listing materials. On November 13, 2023, the Court held a combined hearing to consider approval of the adequacy of the Disclosure Statement and confirmation of the Plan, On November 14, 2023, the Court entered an order confirming the Plan and the Debtors satisfied all conditions required for Plan effectiveness and the Company emerged from the Chapter 11 Cases on December 7, 2023 (the “Effective Date”).

The following is a summary of certain provisions of the Plan that became effective on December 7, 2023, and is not intended to be a complete description of the Plan. The following summary is qualified in its entirety by reference to the full text of the Plans (including the Plan Supplement). Capitalized terms used but not defined in the following "Treatment of Claims" section of this Quarterly Report on Form 10-Q have the meanings set forth in the U.S. Plan.

All of the Capstone Green Energy Corporation’s assets and liabilities [(other than the equity of Capstone Turbine International, Inc., certain impaired debt obligations and debtor-in-possession notes, and specific assets and liabilities directly related to the distributer support services activities (referred to in the Plan as “Retained Assets”) and tax attributes] were transferred to a new subsidiary called Capstone Green Energy LLC (“Operating Subsidiary”);

Capstone Turbine International, Inc. contributed all assets to Capstone Green Energy LLC;

Capstone Green Energy LLC issued the preferred units, representing 37.5% equity ownership, and common units, representing 62.5% equity ownership, to Capstone Green Energy Corporation;

Capstone Green Energy Corporation contributed all common units of Capstone Green Energy LLC to Capstone Turbine International, Inc. providing a 62.5% equity ownership in Capstone Green Energy, LLC;

Capstone Turbine International, Inc. became a public company and was renamed Capstone Green Energy Holdings, Inc. and became the successor to Capstone Green Energy Corporation for purposes of Securities and Exchange Commission registration, and is the successor with respect to any claims against, or interest in, Capstone Green Energy Corporation and any Debtor subsidiary; provided that, for the avoidance of doubt Capstone Turbine International, Inc. is not the successor to Capstone Green Energy Corporation for United States federal, state or local income tax purposes, and is not the successor to Capstone with respect to the employment of the directors, officers, and employees of the Debtors or relating to any employment obligations;

Capstone Green Energy Corporation became a private company (“Reorganized PrivateCo”) that continued to own the Retained Assets and the preferred units of Capstone Green Energy LLC and has no liabilities relating to, arising under or in connection with any claims against, or interest in, any Debtor;

The holder of the Pre-Petition Secured Claim and purchaser DIP Claim (both defined terms as described below), received one hundred percent (100%) of the equity interests in Reorganized PrivateCo in exchange for agreed-upon portions of such Claims;

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Existing shareholders of Capstone Green Energy Corporation received one hundred (100%) percent of the common stock of Capstone Green Energy Holdingd, Inc., subject to any dilution from any stock issued pursuant to the employee incentive stock plan, including the shares of class B common stock issued to certain key employees and directors;

Reorganized PrivateCo and Capstone Green Energy LLC entered into the Services Agreement with respect to ongoing support for the Retained Assets of Reorganized PrivateCo.

DIP Note Purchase Agreement— On October 3, 2023, the Debtors entered into a super-priority senior secured debtor-in-possession note purchase agreement (the “DIP Note Purchase Agreement”) with Broad Street and the Collateral Agent. Broad Street provided the Debtors with a credit facility (the “DIP Facility”) in an aggregate principal amount of $30.0 million (the “DIP Claim”), consisting of (1) $12.0 million new money DIP notes, and (2) a roll-up of a portion of secured obligations under the existing pre-petition debt with Broad Street in the amount of $18.0 million, subject to the terms and conditions set forth in the DIP Note Purchase Agreement. On September 28, 2023, the Debtors filed the Motion of Debtors for Interim and Final Orders (I) Authorizing the Debtors to Obtain Senior Secured Postpetition Financing, (II) Granting Liens and Superpriority Administrative Expense Status, (III) Authorizing the Use of Cash Collateral, (IV) Granting Adequate Protection to Pre-Petition Secured Parties, (V) Scheduling a Final Hearing, and (VI) Granting Related Relief (the “DIP Motion”) seeking the Bankruptcy Court’s approval of the DIP Facility and certain related relief. A copy of the DIP Note Purchase Agreement was attached to the joint prepackaged Chapter 11 plan of reorganization (as amended, restated, supplemented or otherwise modified from time to time, the “Plan”) filed as part of the voluntary petition.

On October 2, 2023, the Bankruptcy Court granted the DIP Motion and entered an interim order (the “Interim DIP Order”) approving the DIP Facility on an interim basis and providing the Debtors with the necessary liquidity to continue to operate in Chapter 11. Upon entry of the Interim DIP Order and satisfaction of all applicable conditions precedent, as set forth in the DIP Note Purchase Agreement, the Debtors were authorized to make a single, initial draw of $9.0 million on the DIP Facility (the “Initial Draw”). The remaining $3.0 million of the DIP Facility became available to be drawn by the Debtors on November 13, 2023, after the Bankruptcy Court entered the Final DIP Order (the “Final Order”). The amount was drawn by the Debtors on October 24, 2023, after the entry of the Final Order and compliance with the terms, conditions, and covenants to be set forth in the DIP Note Purchase Agreement. Substantially all of the Debtors’ assets were encumbered by first-priority liens of the purchaser under the DIP Note Purchase Agreement. Pursuant to the terms of the Plan, on the Effective Date, the obligations of Old Capstone pursuant to the DIP Note Purchase Agreement, dated as of October 2, 2023 were cancelled and converted into an Exit Facility.

Treatment of claims

Secured Tax Claims, Other Secured Claims, Other Priority Claims were unimpaired, expected to be paid in full during the course of the bankruptcy proceedings, or reinstated to be paid in full after emergence.

General Unsecured Claims were unimpaired and received cash in the amount of such allowed claim as of the Effective Date or during the ordinary course of business following such date.

Pre-Petition Secured Claim was impaired and received in full satisfaction and discharge of the holder’s claim the pro rata amount (pro rata along with the DIP Claims) of the Reorganized PrivateCo equity and the indirect ownership of Capstone Green Energy LLC preferred units issued to Reorganized PrivateCo.

DIP Claim received in full satisfaction, settlement, release and discharge of such claim the pro rata amount (pro rata along with Pre-Petition Secured Claim) of the Reorganized PrivateCo equity and the indirect ownership of Capstone Green Energy LLC preferred units issued to Reorganized PrivateCo, and exit financing roll-over notes issued at emergence, which is referred to as par to of the Exit Facility as defined below.

Equity Interests were impaired and deemed to reject the Plan. Each shareholder in Capstone Green Energy Corporation received its pro rata share of 100% of Capstone Green Energy Holdings, Inc., subject to dilution for the executive stock plans. The shares in Capstone Green Energy Corporation, including any warrants, restricted stock or similar contractual equity rights thereto were cancelled and terminated and received no other distribution of value.

Exit Facility— The DIP Facility converted into an Exit Facility for an aggregate principal amount of $28.0 million, consisting of (1) $7.0 million new money notes, (2) a roll-up of a $20 million portion of the secured DIP Claim plus accrued and unpaid interest thereon, subject to the terms and conditions set forth in the Exit Note Purchase Agreement by and among Capstone Green Energy LLC, as the issuer, Capstone Green Energy Holdings, Inc. and Capstone Turbine Financial Services, LLC, as the guarantors, Broad Street and the Collateral Agent. The new money notes mature two years from the Effective Date, and the roll-up debts mature three years from the Effective Date. Interest is

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calculated using a SOFR rate plus an applicable margin, and a portion is paid-in-kind until the third year following emergence. In the original Plan, the exit facility was to be for an aggregate principal amount of $25.0 million, with only $5.0 million in new money notes. The final approved Plan increased the new money notes to $7.0 million upon the confirmation of the Plan by Bankruptcy Court.

Basis of Presentation— Effective on the Petition Date, the Company applied accounting standards applicable to reorganizations, ASC 852, in preparing the accompanying Condensed Consolidated Financial Statements as of and for the three months ended September 30, 2023 which requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, prepetition obligations of the Debtors that may be impacted by the Chapter 11 Cases have been classified as Liabilities Subject to Compromise (“LSTC”) in the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2023. These liabilities are reported at the amounts the Company anticipates will be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. In addition, certain charges related to the Chapter 11 Cases are recorded as Reorganization items in the accompanying unaudited Condensed Consolidated Financial Statement of Operations.

Debtors-In-Possession—- As of September 30, 2023, the Debtors were operating as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Financial statements of a company reporting as a debtor under supervision of the Bankruptcy Court are labeled as “Debtor-in-Possession”.

Emergence—- At emergence on December 7, 2023, the Company evaluated the criteria to apply fresh-start accounting under ASC 852 and determined the prepetition shareholders maintained control of the Company during and after the reorganization and did not lose control as a result of the reorganization. As prepetition shareholders did not lose control, fresh-start did not apply and historical activities and balances will remain at carrying value. At emergence, the restructured debt was treated as a debt extinguishment and the shareholders’ equity was revised to reflect the new common stock of Capstone Green Energy Holdings, Inc.

Reorganization Items— Reorganization items represent the direct and incremental costs related to the Company’s Chapter 11 cases, such as professional fees, prepetition liability claim adjustments and losses that are probable and can be estimated, net of interest income earned on accumulated cash during the Chapter 11 process and net gains on the sale of assets or resulting from certain settlement agreements related to the Company’s restructuring activities. The Company’s restructuring activities may result in additional charges and other adjustments for expected allowed claims (including claims that may be subsequently allowed by the U.S. Bankruptcy Court) and other reorganization items that could be material to the Company’s financial position or results of operations in any given period.

The Company incurred $59,000 of charges for professional fees paid from the Petition Date through September 30, 2023, offset by net amount of $512,000 for adjustment of debt to approved claim in the accompanying unaudited Condensed Consolidated Statement of Operations.

Interest Expense — Interest expense related to prepetition LSTC was reported only to the extent that it was paid during the pendency of the Chapter 11 cases or was permitted by orders of the U.S. Bankruptcy Court. Contractual interest (at non-default rates) owed to unrelated parties on prepetition LSTC not reflected on the Company’s Condensed Consolidated Financial Statements was $0.1 million incurred from the Petition Date through September 30, 2023.

Liabilities Subject to Compromise— The accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2023, includes amounts classified as LSTC, which represent prepetition liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. The Company has suspended accruing and paying interest and amortizing deferred financing costs, discounts and premiums, as applicable, on the Petition Date for the Pre-Petition Secured Note Claim, which is the only claim class that is subject to compromise. These amounts represent the Debtors' current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases and may differ from actual future settlement amounts. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments could be material and will be recorded in reorganization items in the accompanying unaudited Condensed Consolidated Statement of Operations.

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The amounts of liabilities subject to compromise at September 30, 2023 consisted of the following (in thousands):


Existing Pre-Petition Secured Claim	$	56,954
Total liabilities subject to compromise	$	56,954

4. Recently Issued Accounting Pronouncements

Recently Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The amendments in this ASU provide guidance for estimating credit losses on certain types of financial instruments, including trade receivables, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable forecasts. With certain exceptions, the transition to the new guidance will be through a cumulative effect adjustment to opening accumulated deficit as of the beginning of the first reporting period in which the guidance is adopted. On April 1, 2023, the Company adopted Topic 326. The standard required entities to record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The adoption did not have a material impact on its financial statements and no adjustment was made to retained earnings.

Not Yet Adopted

In November 2023, the FASB issued 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. 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 and will not have a material impact on its financial statements. 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. 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, which is expected to result in enhanced disclosures.

5. Customer Concentrations and Accounts Receivable

Accounts receivables are presented on the Condensed Consolidated Balance Sheets, net of estimated credit losses. The carrying amounts of trade accounts receivable represent the maximum credit risk exposure of these assets. On a quarterly basis, in accordance with 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 lifetime expected credit losses. The Company evaluated its current estimate of expected credit losses and determined that there was no significant change. It took into account certain economic factors in calculating the risk factors used to determine the CECL historical loss rate for each aging bucket. Additionally, the Company analyzed the risk of our receivables using geography and other customer circumstances to determine our allowance for credit risk. Changes in the CECL allowance for accounts receivable are as follows (in thousands):


Balance, March 31, 2023	$	4,813
Provision for credit loss		—
Write-offs		(438)
Balance, September 30, 2023	$	4,375

E-Finity Distributed Generation (“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. RSP Systems,

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Capstone Engineered Solutions, Cal Microturbine, and Horizon Power Systems, four of the Company’s domestic distributors, accounted for 15%, 13%, 12%, and 10% of revenue for the three months ended September 30, 2022, respectively. E-Finity and Cal Microturbine accounted for 16% and 10% of revenue for the six months ended September 30, 2023, respectively. Cal Microturbine accounted for 18% of revenue for the six months ended September 30, 2022.

Additionally, E-Finity, IBT Energies and Supernova Energy Services accounted for 20%, 10% and 10% of net accounts receivable as of September 30, 2023, respectively. E-Finity accounted for 12% of net accounts receivable as of March 31, 2023. The Company recorded a credit loss expense of $0.1 million during the six months ended September 30, 2022.

6. 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, 2023		March 31, 2023
Raw materials	$	26,334	$	26,745
Finished goods		6,389		13,695
Total		32,723		40,440
Less: non-current portion		(3,643)		(3,112)
Total inventory, net-current portion	$	29,080	$	37,328

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 repair parts for older generation products that are still in operation but are not technologically compatible with current configurations. The weighted average age of the non-current portion of inventories on hand as of September 30, 2023 is 1.07 years. The Company expects to use the non-current portion of the inventories on hand as of September 30, 2023 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	$	1,569
25 to 36 months		2,074
Total	$	3,643

7. Property, Plant, Equipment and Rental Assets

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


	September 30,		March 31,
	2023		2023
Machinery, equipment, automobiles and furniture	$	14,976	$	14,760
Leasehold improvements		8,868		8,868
Molds and tooling		3,516		3,516
Rental assets		30,701		26,868
		58,061		54,012
Less: accumulated depreciation		(31,579)		(29,737)
Total property, plant, equipment and rental assets, net	$	26,482	$	24,275

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 $1.0 million and $0.9 million for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense for property, plant, equipment and rental assets was $2.0 million and $1.6 million for the six months ended September 30, 2023 and 2022, respectively

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8. Equity

The following table summarizes, by Condensed Consolidated Statements of Operations line item, stock-based compensation expense (in thousands):



	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Cost of goods sold	$	14	$	13	$	29	$	16
Research and development		(2)		25		24		50
Selling, general and administrative		69		116		334		320
Stock-based compensation expense	$	81	$	154	$	387	$	386

Stock Plans

2000 and 2017 Equity Incentive Plans

In June 2017, the Company’s Board of Directors (the “Board”) adopted the Capstone Green Energy Corporation 2017 Equity Incentive Plan (the “2017 Plan”), which was approved by the stockholders at the Company’s 2017 annual meeting of stockholders on August 31, 2017 (the “2017 Annual Meeting”). The 2017 Plan initially provided for awards of up to 300,000 shares of Common Stock. The 2017 Plan is administered by the Compensation and Human Capital Committee designated by the Board (the “Compensation Committee”). The Compensation Committee’s authority includes determining the number of incentive awards and vesting provisions. On June 5, 2018, the Company’s Board adopted an amendment to the 2017 Plan to increase the aggregate number of shares of Common Stock authorized for issuance under the 2017 Plan by 300,000 shares of Common Stock. The amendment of the 2017 Plan was approved by the Company’s stockholders at the 2018 annual meeting of stockholders on August 30, 2018. Since this time, the Company’s stockholders have approved amendments to increase the aggregate number of shares authorized for issuance under the 2017 Plan by an additional 2,200,000 shares of Common Stock, including, most recently, on June 7, 2022. The Company’s Board adopted Amendment No. 6 (the “Plan Amendment”) to the 2017 Plan on June 7, 2022 to increase the aggregate number of shares of Common Stock authorized for issuance under the 2017 Plan by 600,000 shares of Common Stock. The Plan amendment was approved by the Company’s stockholders at the 2022 annual meeting of stockholders on September 12, 2022.

As of September 30, 2023, there were 862,496 shares available for future grants under the 2017 Plan.

See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company’s adoption of the 2023 Equity Incentive Plan.

Restricted Stock Units and Performance Restricted Stock Units

The Company issued restricted stock units under the Company’s 2000 Equity Incentive Plan, as well as issued (and may in the future issue) restricted stock units under the 2017 Plan to employees, non-employee directors and consultants. The restricted stock units are valued based on the closing price of the Company’s Common Stock on the date of issuance, and compensation cost is recorded on a straight-line basis over the vesting period. The restricted stock units issued to employees vest over a period of two, three or four years. For restricted stock units with two-year vesting, 100% vests on the second-year anniversary of the grant date. For restricted stock units with three-year vesting, one-third vest annually beginning one year after the issuance date. For restricted stock units with four-year vesting, one-fourth vest annually beginning one year after the issuance date. The restricted stock units issued to non-employee directors vest one

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year after the issuance date. The following table summarizes restricted stock unit and performance restricted stock unit (“PRSU”) activity during the six months ended September 30, 2023:


		Weighted
		Average Grant
		Date Fair
Restricted Stock Units and Performance Restricted Stock Units	Shares	Value
Non-vested restricted stock units outstanding at March 31, 2023	842,631	$	3.13
Granted	1,187,538		1.20
Vested and issued	(656,419)		1.08
Forfeited	(557,145)		0.71
Non-vested restricted stock units outstanding at September 30, 2023	816,605		2.54
Restricted stock units expected to vest beyond September 30, 2023 (1)	816,605	$	2.54

(1)	Unvested RSUs expected to vest beyond the Effective Date were cancelled on the Effective Date in accordance with the Plan. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company’s emergence from bankruptcy.

The following table provides additional information on restricted stock units and performance restricted stock units:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Restricted stock compensation expense (in thousands)	$	81	$	154	$	387	$	386
Aggregate fair value of restricted stock units vested and issued (in thousands)	$	58	$	212	$	105	$	341
Weighted average grant date fair value of restricted stock units granted during the period	$	1.20	$	2.57	$	1.20	$	2.48

During the six months ended September 30, 2023, the Company granted 433,844 RSU with a three-year vesting period. At September 30, 2023, there was approximately $1.1 million of total compensation cost related to unvested restricted stock units that was expected to be recognized as expense over a weighted average period of 2.1 years, however upon the Effective Date of the bankruptcy Plan, the expense was no longer recognized by the Company. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Company’s bankruptcy.

The Company’s PRSU activity is included in the above restricted stock unit tables. The PRSU program has a three-year performance measurement period. The performance measurement occurs in the third year (for a three-year grant) following the grant date. The program is intended to have overlapping performance measurement periods (e.g., a new three-year cycle begins each year on April 1), subject to Compensation Committee approval. The overall performance at the end of the three-year period will be defined as the average of the yearly goals to determine the payout. Overall performance and payout at the end of the three-year period will be defined as the average of the three annual goals achievement. At the end of each performance measurement period, the Compensation Committee will determine the achievement against the performance objectives.

During the six months ended September 30, 2023, the Company granted 245,216 PRSUs with a three-year performance measurement and the criteria measured by the Company’s aftermarket sales absorption. During the six months ended September 30, 2022, the Company granted 72,412 PRSUs with a three-year performance measurement and the criteria measured by the Company’s cash flow from operations and aftermarket sales absorption.

The weighted average per share grant date fair value of PRSUs granted during the six months ended September 30, 2023 and 2022, was $1.20 and $3.80, respectively. Based on the Company’s assessment as of September 30, 2023, the Company will not meet the threshold of the performance measurements, and as a result, no compensation expense was recorded during the six months ended September 30, 2023 and 2022. The PRSU awards for each participant were cancelled on the Effective Date in accordance with Plan. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Plan.

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Stockholder Rights Plan

On May 6, 2019, the Board declared a dividend of one right (a “New Right”) for each of the Company’s issued and outstanding shares of Common Stock. The dividend was paid to the stockholders of record at the close of business on May 16, 2019 (the “Record Date”). Each New Right entitles the registered holder, subject to the terms of the NOL Rights Agreement (as defined below), to purchase from the Company one one-thousandth of a share of the Company’s Series B Junior Participating Preferred Stock (the “Preferred Stock”) at a price of $5.22 (the “Exercise Price”), subject to certain adjustments. The description and terms of the New Rights are set forth in the Rights Agreement dated as of May 6, 2019 (the “NOL Rights Agreement”) between the Company and Broadridge Financial Solutions, Inc., as Rights Agent (the “Rights Agent”).

The NOL Rights Agreement replaced 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”). The Original Rights Agreement, and the rights thereunder to purchase fractional shares of Preferred Stock, expired at 5:00 p.m., New York City time, on May 6, 2019 and the NOL Rights Agreement was entered into immediately thereafter.

The purpose of the NOL Rights Agreement is to diminish the risk that the Company’s ability to use its net operating losses and certain other tax assets (collectively, “Tax Benefits”) to reduce potential future federal income tax obligations would become subject to limitations by reason of the Company’s experiencing an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Tax Code”). A company generally experiences such an ownership change if the percentage of its stock owned by its “5-percent shareholders,” as defined in Section 382 of the Tax Code, increases by more than 50 percentage points over a rolling three-year period. The NOL Rights Agreement is designed to reduce the likelihood that the Company will experience an ownership change under Section 382 of the Tax Code by (i) discouraging any person or group from becoming a 4.9% or greater shareholder and (ii) discouraging any existing 4.9% or greater shareholder from acquiring additional shares of the Company’s stock.

The New Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public announcement or filing that a person has, or group of affiliated or associated persons have, become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons who, at any time after the date of the NOL Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 4.9% or more of the Company’s outstanding shares of Common Stock, subject to certain exceptions or (ii) the close of business on the tenth business day after the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”). Certain synthetic interests in securities created by derivative positions, whether or not such interests are considered to be ownership of the underlying Common Stock or are reportable for purposes of Regulation 13D of the Exchange Act, are treated as beneficial ownership of the number of shares of Common Stock equivalent to the economic exposure created by the derivative position, to the extent actual shares of the Common Stock are directly or indirectly held by counterparties to the derivatives contracts.

With respect to certificates representing shares of Common Stock outstanding as of the Record Date, until the Distribution Date, the New Rights will be evidenced by such certificates for shares of Common Stock registered in the names of the holders thereof, and not by separate Rights Certificates, as described further below. With respect to book entry shares of Common Stock outstanding as of the Record Date, until the Distribution Date, the New Rights will be evidenced by the balances indicated in the book entry account system of the transfer agent for the Common Stock. Until the earlier of the Distribution Date and the Expiration Date, as described below, the transfer of any shares of Common Stock outstanding on the Record Date will also constitute the transfer of the New Rights associated with such shares of Common Stock. As soon as practicable after the Distribution Date, separate certificates evidencing the New Rights (“Right Certificates”) will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date, and such Right Certificates alone will evidence the New Rights.

The New Rights, which are not exercisable until the Distribution Date, will expire prior to the earliest of (i) May 6, 2022 or such later day as may be established by the Board prior to the expiration of the New Rights, provided that the extension is submitted to the Company’s stockholders for ratification at the next annual meeting of stockholders of the Company succeeding such extension; (ii) the time at which the New Rights are redeemed pursuant to the NOL Rights Agreement; (iii) the time at which the New Rights are exchanged pursuant to the NOL Rights Agreement; (iv) the time at which the New Rights are terminated upon the occurrence of certain transactions; (v) the close of business on the first day after the Company’s 2019 annual meeting of stockholders, if approval by the stockholders of the Company of the NOL

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Rights Agreement has not been obtained on or prior to the close of business on the first day after the Company’s 2019 annual meeting of stockholders; (vi) the close of business on the effective date of the repeal of Section 382 of the Tax Code, if the Board determines that the NOL Rights Agreement is no longer necessary or desirable for the preservation of Tax Benefits; and (vii) the close of business on the first day of a taxable year of the Company to which the Board determines that no Tax Benefits are available to be carried forward, (the earliest of (i), (ii), (iii), (iv), (v), (vi) and (vii) is referred to as the “Expiration Date”).

Each share of Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) an amount equal to 1,000 times the aggregate quarterly dividend declared per share of Common Stock since the immediately preceding quarterly dividend payment date for the Common Stock (or, with respect to the first quarterly dividend payment on the Common Stock, since the first issuance of the Preferred Stock). Each share of Preferred Stock will entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount received per one share of Common Stock.

On April 7, 2022, the Board approved an extension of the NOL Rights Agreement from May 6, 2022 to May 6, 2025. This extension was approved by the stockholders at the 2022 annual meeting of stockholders held on September 12, 2022. Refer to Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements in regard to termination of NOL Rights Agreement.

9. Warrants

Warrants

Goldman Warrants

On February 4, 2019, the Company sold to Goldman Sachs & Co. LLC (the “Holder”), a Purchase Warrant for Common Shares (the “Warrant”) pursuant to which the Holder may purchase shares of the Company’s Common Stock in an aggregate amount of up to 404,634 shares (the “Warrant Shares”). The Warrant was sold to the Holder at a purchase price of $150,000, in a private placement exempt from registration under the Securities Act. The Warrant may be exercised by the Holder at any time after August 4, 2019 at an exercise price equal to $8.86 and expired on February 4, 2024. The value of the Warrant was $2.3 million and has been classified as an equity instrument in additional paid in capital in the Company’s Condensed Consolidated Balance Sheets.

On December 9, 2019, the Company entered into an Amendment No. 1 to the Warrant with Special Situations Investing Group II, LLC (as successor in interest to Goldman Sachs & Co. LLC) (the “Warrant Holder”) that increased the number of Warrant Shares issuable under the Warrant and to decrease the exercise price from $8.86 per share to $3.80 per share.

On June 16, 2020, the Company entered into an Amendment No. 2 to the Warrant with the Warrant Holder that increased the number of Warrant Shares issuable under the Warrant and decreased the exercise price from $3.80 per share to $2.61 per share. Amendment No. 2 also amends the Warrant such that the Per Share Anti-Dilution Price (as defined therein) is equal to the exercise price per share as provided in Amendment No. 2 to the Warrant.

As a result of the decreases in exercise price, the Company recorded additional debt discounts with a corresponding entry to additional paid in capital in the Condensed Consolidated Balance Sheets and Statements of Stockholders Equity. As of September 30, 2023, the Holder was permitted to purchase shares of the Company’s Common Stock in an aggregate amount of up to 463,067 warrant shares at an exercise price of $2.61 per share. The Warrants were cancelled on the Effective Date in accordance with the Plan. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Plan.

Goldman “2020 Warrant”

On October 1, 2020, the Company entered into an Amendment No. 3 to the Warrant with the Warrant Holder that amends the Warrant to, among other things, make certain changes necessitated by the issuance of a second warrant (the “2020 Warrant”) to the Warrant Holder pursuant to the Company’s entry into an Amended & Restated (“A&R”) Note Purchase Agreement (see Note 13 – Term Note Payable). The Company sold to the Warrant Holder the 2020 Warrant to purchase up to 291,295 shares (the “2020 Warrant Shares”) of the Company’s Common Stock. The 2020 Warrant was

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sold to the Warrant Holder at a purchase price of $10,000, in a private placement exempt from registration under the Securities Act. The 2020 Warrant may be exercised by the Warrant Holder at any time after October 1, 2020 at an exercise price equal to $4.76 and expired on February 4, 2024. The value of the 2020 Warrant was $0.8 million and was classified as an equity instrument in additional paid in capital in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2023, the Holder was permitted to purchase shares of the Company’s Common Stock in an aggregate amount of up to 291,295 warrant shares at an exercise price of $2.75 per share. The 2020 Warrant was cancelled on the Effective Date in accordance with the Plan. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Plan.

September 2019 Pre-Funded and Series D Warrants

On September 4, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional and accredited investors pursuant to which the Company agreed to issue and sell in a registered direct offering (the “Registered Direct Offering”) an aggregate of 580,000 shares of Common Stock, at a negotiated purchase price of $5.00 per share, and Pre-Funded Warrants to purchase up to an aggregate of 440,000 shares of Common Stock at a negotiated purchase price of $5.00 per Pre-Funded Warrant, for aggregate gross proceeds of approximately $5.1 million (580,000 shares of Common Stock plus 440,000 Pre-Funded warrants at a $5.00 per share purchase price), before deducting placement agent fees and other offering expenses. Net proceeds from the offering were $4.6 million. The offering closed on September 9, 2019. On October 24, 2019, a warrant holder exercised its rights to the warrant agreement to exercise on a cash basis 440,000 Pre-Funded Warrants at an exercise price of $0.001 per share under the warrant agreement.

In a concurrent private placement, the Company issued to the purchasers warrants to purchase 765,000 shares of Common Stock, which represent 75% of the number of shares of Common Stock and shares underlying the Pre-Funded Warrants purchased in the Registered Direct Offering, pursuant to the Securities Purchase Agreement. The Common Warrants will be exercisable for shares of Common Stock at an initial exercise price of $6.12 per share for a period of five years, starting on April 2, 2020 and expiring on April 2, 2025. In January 2021, three warrant holders exercised their rights to the warrant agreement to exercise on a cashless basis 690,000 Series D warrants at an exercise price of $6.12 per share under the warrant agreement. In accordance with the terms of the warrant agreement, after taking into account the shares withheld to satisfy the cashless exercise option, the Company issued 352,279 shares of Common Stock. As of September 30, 2023, there were 75,000 Series D warrants outstanding. The pre-funded warrants and Series D warrants were each cancelled on the Effective Date in accordance with the Plan. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Plan.

August 2022 Warrants

On August 24, 2022, the Company issued 2,934,498 of common stock warrants with an exercise price of $2.75 (the “August 2022 Warrants”) pursuant to an underwriting agreement, dated as of August 18, 2022, by and between the Company, Lake Street Capital Markets, LLC and Joseph Gunnar and Company, LLC. The August 2022 Warrants were cancelled on the Effective Date in accordance with the Plan. See Note 18–Subsequent Events in the Notes to Condensed Consolidated Financial Statements for further discussion of the Plan.

10. Fair Value Measurements

The FASB has established a framework for measuring fair value using generally accepted accounting principles. 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:

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Quoted prices for similar assets or liabilities in active markets

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

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

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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.

Basis for Valuation

The carrying values reported in the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the immediate or short-term maturities of these financial instruments. As of September 30, 2023, the Three-Year Term Note was classified as an LSTC on the accompanying unaudited Condensed Consolidated Balance Sheet as discussed in Note 3 – Chapter 11 Proceedings. The term note payable’s fair value, including accrued interest, is equivalent to the amount of the claim. The carrying values and estimated fair values of this obligation are as follows (in thousands):

September 30, 2023