Capstone Green Energy Holdings Inc

EXPLANATORY NOTE

All references in this Annual Report on Form 10-K to “the Company,” “we,” “us,” “our,” or “Capstone” are to Capstone Green Energy Corporation and its consolidated subsidiaries prior to the Effective Date (as defined below) and to Capstone Green Energy Holdings, Inc. and its consolidated subsidiaries following the Effective Date.

As previously reported in the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2023, the Company and its wholly owned direct subsidiaries, Capstone Turbine International, Inc. and Capstone Turbine Financial Services, LLC (together with the Company, the “Debtors”), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). Concurrent with the petition, the Debtors (i) entered into the Transaction Support Agreement (“TSA”) with the pre-petition senior secured creditor, Broad Street Credit Holdings, LLC (“Broad Street”), and Goldman Sachs Specialty Lending Group, L.P. (the “Collateral Agent”) and (ii) filed with the Bankruptcy Court a joint prepackaged Chapter 11 plan of reorganization (as amended, restated, supplemented or otherwise modified from time to time, the “Plan”).

On October 24, 2023, in accordance with the TSA and the Plan, the Debtors filed a supplement to the Plan (the “Plan Supplement”) with the Bankruptcy Court. On November 9, 2023, the Debtors filed certain additional exhibits to the Plan Supplement. On November 14, 2023, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan, including the Plan Supplement and all exhibits and schedules thereto, and all other documents filed in connection with the Plan. On December 7, 2023 (the “Effective Date”), the Plan, including the Plan Supplement and all exhibits and schedules thereto, became effective in accordance with its terms and the Debtors emerged from the Chapter 11 Cases (as defined below) without any need for further action or order of the Bankruptcy Court.

In connection with the Plan, on December 7, 2023, the Company completed a series of transactions pursuant to which, among other things, Capstone Turbine International, Inc. was re-named “Capstone Green Energy Holdings, Inc.” and became the successor to Capstone Green Energy Corporation for SEC reporting purposes by operation of Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended.

Background of Restatement

As previously disclosed in the Current Report on Form 8-K of the Company filed with the SEC on September 22, 2023, the Audit Committee of the Board Directors of the Company (the “Audit Committee”), in consultation with Company’s management, concluded that, as a result of apparent errors primarily related to revenue recognition associated with bill and hold transactions, certain previously issued consolidated financial statements were materially incorrect and should no longer be relied upon.

In June 2023, prior to the issuance of our consolidated financial statements for the fiscal year ended March 31, 2023, the Audit Committee commenced an investigation (the “Revenue Recognition Investigation”) into certain accounting and internal control matters, principally focused on certain revenue recognition matters. The Revenue Recognition Investigation was conducted with the assistance of outside counsel and forensic accountants retained by the Audit Committee. Following the conclusion of the Revenue Recognition Investigation, the Company’s management, under the direction of the Audit Committee and in consultation with outside counsel, conducted certain additional procedures over the historical financial statements, accounting policies and financial reporting, as well as the Company’s internal control over financial reporting.

As a result of the Revenue Recognition Investigation and additional procedures performed by management, the Audit Committee and management, in consultation with the Company’s independent auditors, determined that certain previously issued financial statements were required to be restated to correct for the following: (i) timing of revenue recognition related to bill-and-hold arrangements including the removal of certain finance leases derived from bill and hold arrangements; (ii) timing of recognizing certain expenses associated with the Company’s factory protection plan (“FPP”) offered to customers; and (iii) reclassification of term note payable (the “Restatement”).

Restatement of Previously Issued Consolidated Financial Statements

This Comprehensive Annual Report on Form 10-K for the fiscal years ended March 31, 2023 and 2022 includes restatement of the following information:

For a more detailed description of the financial impact of the Restatement on the unaudited quarterly financial information, see Note 16 – Restatement of Consolidated Quarterly Financial Information (unaudited).

The Company has not filed, and does not intend to file, amendments to the Quarterly Reports on Form 10-Q as of and for the three months ended June 30, 2022, September 30, 2022, and December 31, 2022 (the “Affected Quarterly Periods”). Accordingly, investors should rely only on the financial information and other disclosures regarding the Affected Quarterly Periods in this Form 10-K or in the Company’s future filings with the SEC (as applicable) and not on any previously furnished or filed reports, related earnings releases, investor presentations or similar communications of the Company describing the Company’s financial results for the Affected Quarterly Periods.

In connection with the Restatement, the Company restated the consolidated financial statements as of and for the years ended March 31, 2022 and March 31, 2021, as well as the relevant unaudited quarterly financial information for the quarterly periods ended June 30, 2021, September 30, 2021, December 31, 2021, June 30, 2020, September 30, 2020, and December 31, 2020 in its 2022 Annual Report, as amended, on Form 10-K/A, filed with the SEC on June 12, 2024.

Audit Committee Investigation in Respect of FPP** **

Based on information learned as part of the Restatement process, the Audit Committee commenced an additional investigation (the “FPP Investigation” and, together with the Revenue Recognition Investigation, the “Audit Committee Investigations”) into FPP related practices. The FPP Investigation was conducted with the assistance of outside counsel retained by the Audit Committee. Through the FPP Investigation, the Audit Committee identified evidence that, at times during the fiscal years covered in this Annual Report, former senior executives delayed shipment of available parts under the FPP and delayed recording the associated expense on the Company’s financial statements. The Audit Committee

Investigations found no evidence that either the Audit Committee, the full Board or current executive officers were aware of such activity. The financial statement impact of such activity in prior reporting periods, if any, has been addressed through the Company’s Restatement. As part of the Restatement process, the Company corrected its accounting treatment of FPP expenses so that claims are recorded at the time a claim is received and accepted, as opposed to when the claim is satisfied.

Internal Control Considerations

In connection with the Company’s review of its financial statements leading to the Restatement and the findings of the Audit Committee Investigations, the Company identified material weaknesses in its internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected and corrected on a timely basis. Therefore, the Company’s management concluded that material weaknesses remain in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective as of March 31, 2023. See Item 9A. Controls and Procedure, for additional information and discussion related to material weaknesses in internal control over financial reporting and the Company’s related remediation activities.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains or refers to certain statements that are not historical fact and are “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. Words such as “expect,” “anticipate,” “should,” “believe,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend” and variations of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements contain these identifying words.

These statements are based largely on our current expectations, estimates and forecasts and are subject to a number of risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K, which could cause actual results, performance and achievements to differ materially from those anticipated by these forward-looking statements. Furthermore, new risks may emerge from time to time and it is not possible for us to predict all risks, nor can we assess the impact of all factors on the business or the extent to which any factor, or combination of factors, may cause actual results, performance or achievement to differ materially from those contained in any forward-looking statements.

Forward-looking statements speak only as of the date when made and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Factors to consider when evaluating these forward-looking statements include, but are not limited to:

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The above description of risks and uncertainties is by no means all-inclusive, but highlights certain factors that we believe are important for your consideration. For a more detailed description of risk factors, please refer to Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.