{"url_path":"/sec/cgeh/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-25","source_url":"https://www.sec.gov/Archives/edgar/data/1009759/0001104659-26-077817-index.html","accession_number":"0001104659-26-077817","cik":"0001009759","ticker":"CGEH","issuer_name":"Capstone Energy Plus, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1009759/0001104659-26-077817-index.html","primary_entity_key":"0001009759","primary_entity_name":"Capstone Energy Plus, Inc."},"word_count":6908,"has_tables":true,"body_markdown":"**Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.**\n\n*The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under “Note Regarding Forward-Looking Statements” and Item 1A (Risk Factors) in this Form 10-K. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Form 10-K.*\n\n**Recent Developments**\n\nDuring Fiscal 2026, the Company executed several strategic, financing, and operational initiatives that impacted its capital structure, liquidity, and operations.\n\nRefer to Note 2 – Basis of Presentation and Significant Accounting Policies for information regarding the Company’s liquidity position, and recent financing activities.\n\nRefer to Note 11 – Debt for additional information on the Company’s Exit Note Purchase Agreement and related debt obligations, including outstanding balances and maturity profile.\n\nRefer to Note 12 – Commitments and Contingencies for information related to legal matters, service agreements, and other contractual obligations.\n\nRefer to Note 13 – Temporary Equity for a discussion of the Company’s capital structure, including the issuance of convertible preferred stock and related impact on stockholders’ equity.\n\n36\n\n[Table of Contents](#TOC)\n\nRefer to Note 15 – Common Stock Issuance and Private Investment in Public Equity (\"PIPE\") Financing Transaction for additional information regarding equity financings completed during Fiscal 2026, including the November 2025 and March 2026 transactions. References to the “November 2025 PIPE” and “March 2026 PIPE” mean the Company’s equity financings completed in November 2025 and March 2026, respectively (see Note 15 – Common Stock Issuance and PIPE Financing Transaction). Collectively, these transactions are referred to as the “PIPE Financings.”\n\nRefer to Note 20 – Business Combinations for information on the acquisition of distributor-related operations, including the Cal Microturbine acquisition and the acquisition of Capstone Distributor Support Services Corporation, and the related recognition of intangible assets.\n\n**Overview**\n\nWe are the market leader in microturbine energy systems based on the number of microturbines sold annually and total installed base. Generally, power purchased from the electric utility grid is less costly than power produced by distributed generation technologies in simple cycle mode. Utilities may also charge fees to interconnect with their power grids. However, when considering and including the waste heat from our microturbine (CHP and CCHP) the economic benefit improves significantly. Further, our highly efficient, low emission, resilient technology can produce thermal energy at a lower carbon footprint. These benefits can be enhanced when fuel costs are low, where the costs of connecting to the grid may be high or impractical (such as remote power applications or new grid services need to be provided), where reliability and power quality are of critical importance, or in situations where peak shaving could be economically advantageous because of highly variable electricity prices. Our microturbines are an inverter-based technology and can be interconnected to other distributed energy resources to form “microgrids” (also called “distribution networks”) located within a specific geographic area and provide power to a group of buildings. Because our microturbines can provide a reliable source of power and can operate on multiple fuel sources, management believes they help solve the “Energy Trilemma” of resiliency, sustainability and affordability. Management also believes our products and services offer a level of flexibility not currently offered by other technologies such as reciprocating engines.\n\nIn addition to our traditional market verticals, we are actively developing advanced energy solutions for the AI data center market. The surging demand for artificial intelligence compute power has created a critical need for on-site, high-reliability power generation that traditional utility grids are struggling to meet. We are developing an 800-volt direct-current microturbine solution designed to interface directly with next-generation AI chip architecture, delivering grid-independent, high-voltage DC power with meaningfully improved efficiency compared to legacy conversion systems. These integrated AI Power Blocks are scalable from edge deployments to AI giga-campus environments and represent a significant near-term commercial opportunity for the Company. We have not yet generated revenue from AI data center applications, and commercialization and customer adoption of these solutions remain subject to execution, validation and market risks.\n\nFor Fiscal 2026, net revenue was $106.0 million compared to $85.6 million for Fiscal 2025, a 24% increase from the prior year. Product and Accessories revenue increased $16.6 million, or 41% primarily driven by the marketplace’s increased confidence in Capstone’s long-term business outlook, which allowed us to capture stronger demand and better pricing from customers & distributors. Rental revenue also increased $1.5 million, or 10%, due to higher utilization of our rental fleet compared to the prior year, and Parts and Services revenue increased $2.3 million or 7% primarily driven by the compounding effect of prior years’ sales. Cost of goods sold totaled $72.1 million in Fiscal 2026 compared to $62.3 million in Fiscal 2025, a 16% increase primarily driven by product mix. Gross profit was $33.9 million in Fiscal 2026 compared to $23.3 million in Fiscal 2025, a 45% increase from the prior year, reflecting margin improvement across all three revenue streams. Product and Accessories gross margin increased approximately 7 percentage points, from 3% to 10%, primarily reflecting improved pricing realization and a more favorable product mix. Parts and Services gross margin increased approximately 8 percentage points, from 56% to 64%, driven by the higher-margin contribution of an expanding installed base and operating leverage on a largely fixed cost structure. Rental gross margin increased approximately 9 percentage points, from 35% to 44%, reflecting higher fleet utilization spread over a relatively fixed asset base.\n\nDuring Fiscal 2026, we reported net income of $2.8 million, or $0.14 per basic share, compared to a net loss of $7.2 million, or $0.38 per basic share, in Fiscal 2025, reflecting a $10.0 million improvement driven primarily by revenue growth of $20.4 million, improved gross margins, and only minimal increases in operating expenses. Net loss attributable\n\n37\n\n[Table of Contents](#TOC)\n\nto common stockholders was $66.8 million, or $3.21 per basic and diluted share for Fiscal 2026, compared to $7.2 million, or $0.38 per basic and diluted share, for Fiscal 2025. The difference between net income and net loss attributable to common stockholders in Fiscal 2026 reflects a non-cash deemed dividend of $69.6 million arising from the accretion of the Operating Subsidiary's Redeemable Preferred Units to their maximum redemption value immediately prior to their full redemption on March 31, 2026. This non-cash charge does not affect the Company's revenues, operating cash flows, or total assets, and management believes net income of $2.8 million is the most meaningful measure of the Company's operational performance for the period.\n\nIn the energy efficiency market, we continue to expand our market presence in hotels, office buildings, hospitals, retail and industrial applications globally. The energy efficiency segment remained the leading market segment in Fiscal 2026. The renewable energy market is fueled by landfill gas, biodiesel and biogas from sources such as food processing, agricultural waste and livestock manure. Our product sales in the oil and gas and other natural resources market are driven by our microturbines’ reliability, emissions profile and ease of installation. Given the volatility of the oil and gas market, our business strategy is to ensure diversification by also targeting projects within the energy efficiency and renewable energy markets.\n\nWe continue to focus on improving our products based on customer input, building brand awareness and new channels to market by developing a diversified network of strategic distribution partners. Our focus is on products and solutions that provide near-term opportunities to drive repeatable business rather than discrete projects for niche markets. In addition, management closely monitors operating expenses and strives to improve manufacturing efficiencies while simultaneously lowering direct material costs and increasing average selling prices. The key drivers to our success are competitive selling prices, lower direct material costs, positive new order flow, reduced cash usage and expansion of the Energy-as-a-Service (“EaaS”) business.\n\n**Key Initiatives**\n\nFocus on Vertical Markets. Our industry-leading, highly efficient, low-emission, resilient microturbine energy systems offer scalable solutions in addition to a broad range of customer-tailored solutions. We target specific market verticals for these products.\n\nWithin the distributed generation markets that we serve, we focus on vertical markets that we identify as having the greatest near-term potential. In our primary products and applications (energy efficiency, natural resources, renewable energy, critical power supply, microgrid, bridge power transportation and EV charging, ports, and AI data center products), we identify specific targeted vertical market segments. Within each of these segments, we identify what we believe to be the critical factors to success and base our plans on those factors. Given the volatility of the oil and gas market, we have refocused our business strategy to target projects within the energy efficiency market.\n\n*Energy Efficiency—CHP/CCHP*\n\nEnergy efficiency refers to the proper utilization of both electrical and thermal energies in the power production process. In such applications, our microturbines can maximize the availability of usable energy to provide a significant economic advantage to customers while reducing their on-site emissions. Combined Heat and Power (“CHP”) and Combined Cooling, Heat and Power (“CCHP”) can improve site economics by capturing the waste heat created from a single combustion process to increase the efficiency of the total system, from approximately 30% up to 85% for hot water and chilled water to as much as 90% or more for certain steam and direct drying applications. Compared with more traditional, independent generation sources, the increase in operational efficiency also reduces greenhouse gas emissions through the displacement of other separate systems, which can also reduce operating costs and industrial waste.\n\n*Natural Resources – Crude Oil, Natural Gas, Shale Gas & Mining*\n\nOur microturbines are installed in the natural resource market for use in both onshore and offshore applications, including oil and gas exploration, production, and at compression and transmission sites as a highly efficient and reliable source of power. In some cases, these oil and gas or mining operations have no electric utility grid and rely solely on power generated on-site. There are numerous locations, on a global scale, where the drilling, production, compression and\n\n38\n\n[Table of Contents](#TOC)\n\ntransportation of natural resources and other extraction and production processes create fuel byproducts, which are traditionally burned or released into the atmosphere. Our microturbines can turn these fuel byproducts, such as flare gas, or sour gas, into a useable fuel to provide prime power to these sites.\n\n*Renewable Energy*\n\nThere is a growing transition to renewable energy sources and technologies on a global scale. Our microturbines run efficiently on renewable fuels such as methane and other biogases from landfills, wastewater treatment facilities and renewable natural gas. They also run efficiently on other small biogas applications like food processing plants, livestock farms and agricultural green waste operations. Microturbines can burn these renewable fuels with minimal emissions, thereby, in some cases, avoiding the imposition of penalties incurred for pollution while simultaneously producing electricity from this “free” renewable fuel source for use at the site or in the surrounding areas. Our microturbines have demonstrated effectiveness in these smaller applications and may outperform conventional combustion engines in some situations, including when the gas contains a high amount of sulfur, as the sulfur can contaminate combustion engines’ lube oil, leading to equipment breakdowns and higher lifecycle costs.\n\n*Critical Power Supply*\n\nCertain mission-critical, high-demand power users, including advanced technology facilities, healthcare campuses, and data-intensive operations, require a level of power reliability that the traditional utility grid alone cannot consistently deliver. Grid vulnerability during severe weather events, wildfires, and other disruptions has increased the urgency for on-site power solutions capable of operating independently of centralized infrastructure.\n\nCapstone's microturbine solutions offer a compelling alternative to conventional uninterruptible power supply (“UPS”) systems and diesel backup generators for these environments. Designed for continuous operation, our systems feature built-in black-start capability and seamless transition to stand-alone islanding mode, ensuring uninterrupted power when grid availability cannot be assured. We believe demand for dispatchable, behind-the-meter critical power solutions will continue to grow as grid reliability concerns persist and the consequences of downtime intensify across these sectors.\n\n*Bridge Power*\n\nCommercial and industrial customers increasingly face a significant timing disconnect between their operational power requirements and the availability of permanent grid infrastructure. Interconnection queues have lengthened considerably, substations in high-growth areas are operating at or near capacity, and utility construction timelines routinely lag the development schedules of data centers, manufacturing facilities, EV charging networks, and other high-load projects.\n\nCapstone's modular, containerized microturbine solutions address this gap by delivering reliable, dispatchable on-site generation while permanent grid access is secured. Compared to conventional diesel generation, our low-emission microturbines are better positioned to meet stringent air quality requirements, can be rapidly deployed and scaled to load, and integrate into a facility's long-term energy infrastructure upon grid interconnection. As grid constraints continue to intensify across high-growth markets, we believe Capstone is well-positioned to capture an expanding opportunity in bridge power, offering customers a cleaner, more flexible alternative to legacy temporary generation solutions.\n\n*Microgrid*\n\nMicrogrid is a group of interconnected loads and distributed energy resources that act as a single controllable energy entity with respect to the grid. Distributed energy resources typically include other dual-mode microturbines, reciprocating engines, solar photovoltaic (PV), wind turbines, fuel cells and battery storage. Microgrids can be connected to larger electricity grids; however, in the event of a widespread outage, the microgrid will disconnect from the main grid and continue to operate independently to maintain the electricity supply to the homes and businesses that are connected to the microgrid’s electricity network. Our microturbines can meet the needs of microgrid end users by lowering their overall cost to operate and by providing versatile dispatchable technology that is fuel flexible and scalable enough to fit a wide variety of applications. We have seen continued development in the microgrid market segment.\n\n39\n\n[Table of Contents](#TOC)\n\n*Transportation and EV Charging*\n\nOur technology can also be used to support the Electric Vehicle (“EV”) market by providing power solutions to charge vehicles. Our products can fill a void in the EV market for vehicle charging capacity and convenience. Our customers have applied our products in EV applications for fleets and remote location charging stations. Capstone is actively expanding its global EV charging deployments, targeting fleet operators, remote installations, and high-demand charging environments where grid-independent power solutions deliver the greatest value.\n\n*Ports*\n\nRegulatory pressure to electrify port operations is intensifying, yet marine terminal power infrastructure faces significant constraints in quality, reliability, and availability. Capstone's containerized microturbine systems address these demands directly, delivering up to 1 MW of ultra-low-emission on-site power and EV charging within a single 30-foot container. The compact, relocatable form factor eliminates the civil works requirements of permanent infrastructure and allows operators to right-size and reposition generation assets as operational needs evolve. Our validated 30% hydrogen-natural gas blended and 100% hydrogen operation further positions Capstone to support port operators through current emissions compliance and toward longer-term net-zero objectives.\n\nWe believe the convergence of tightening electrification mandates, grid constraints, and demand for fuel-flexible distributed generation creates a substantial and growing opportunity in this vertical. With a differentiated product profile purpose-built for complex port environments, we are actively pursuing this market as a meaningful contributor to long-term revenue growth.\n\n*AI Data Center*\n\nSurging demand for AI compute has driven unprecedented capital investment in data center infrastructure globally, while exposing a critical vulnerability: the inability of traditional utility grids to deliver power at the speed, scale, and reliability that next-generation facilities require. Grid constraints, rising electricity costs, and the power density demands of modern AI workloads are accelerating the shift toward on-site generation, a shift that plays directly to Capstone's core strengths.\n\nCapstone's microturbine-based systems address the sector's requirements for integrated redundancy, ultra-low emissions, and thermal efficiency. Waste heat recovery converted to chilled water at approximately one-tenth the energy consumption of conventional electric chillers improves total site efficiency to approximately 85%. Our microturbines natively produce approximately 760 VDC, a strong technical foundation for the emerging 800 VDC data center standard, enabling a direct-current solution that eliminates multiple AC/DC conversion stages, reduces copper mass by up to 45%, and improves power efficiency by as much as 5% compared to legacy systems. These integrated AI Power Blocks scale from edge deployments to 200 MW AI campus configurations.\n\nAlthough revenue contribution from this vertical remains in early stages, we view the AI data center market as one of the most significant long-term growth opportunities in Capstone's history. We are actively pursuing opportunities in this market and investing in product development, strategic partnerships, and commercial readiness to capitalize on the next generation of AI and data center infrastructure. With a differentiated technical profile and a compelling 800 VDC product advantage, we believe Capstone is well-positioned to compete for a meaningful share of one of the largest infrastructure buildouts of the decade\n\nSales and Distribution Channels\n\n*Distributors*\n\nWe seek out distributors that have business experience and capabilities to support our growth plans in our target markets. A significant portion of our revenue is derived from sales to distributors that resell our products to end users. We have a total of 47 distributors and partners, Original Equipment Manufacturers (“OEMs”) and national accounts. In the United States and Canada, we currently have 8 distributors, OEMs and national accounts. Outside of the United States and Canada, we currently have 39 distributors, OEMs and national accounts. We continue to refine our distribution channels to address our specific targeted markets.\n\n40\n\n[Table of Contents](#TOC)\n\n*Direct Sales*\n\nIn addition to our distributor network, during fiscal year 2026 we expanded our go-to-market strategy to include direct sales through the acquisition of Cal Microturbine, formerly one of our distributors. This acquisition marks a strategic evolution in how we reach end users, enabling us to capture additional margin, deepen customer relationships, and gain more immediate insight into end-user demand and purchasing patterns. Through our direct sales channel, we are able to offer customers more tailored service and support while maintaining greater control over pricing and product positioning. We believe our direct sales capability complements our existing distributor relationships and strengthens our overall commercial platform as we continue to grow.\n\nService. As part of our EaaS business line, we provide services primarily through our global distribution network. Together with our global distribution network, we offer comprehensive service plans for a fixed fee to perform regularly scheduled and unscheduled maintenance as needed. We provide factory and on-site training to certify all personnel that are allowed to perform service on our microturbines. LTMAs and FPPs are generally paid monthly or quarterly in advance.\n\nProduct Robustness and Life Cycle Maintenance Costs. We continue to invest in enhancements that relate to high performance and high reliability. An important element of our continued innovation and product strategy is to focus on the engineering of our product hardware and electronics to make them work together more effectively and deliver improved microturbine performance, reliability and low maintenance costs to our customers.\n\nNew Product Development. Our new product development strategy focuses on meeting the specific needs of our target vertical markets. Our C65, C200, C600, C800, and C1000 Series microturbines will continue to be our foundational product lines, and we are actively expanding this lineup with the development of the C250, a 250-kilowatt engine that has completed successful test runs and is advancing through our commercialization process. The C250 is designed to serve as a highly efficient, modular building block for distributed generation applications, including AI data center deployments where its power output maps well to the block-power topology increasingly favored by data center operators. Our research and development efforts are directed at enhancing the features and capabilities of both our existing product lines and these new platform additions.\n\nTo bolster power resilience, we have developed an 800-volt direct-current (\"800 VDC\") output platform utilizing our core microturbine technology. In October 2025, we announced, together with Microgrids 4 AI, Inc. (\"MG4AI\"), the integration of this 800 VDC microturbine with MG4AI's modular, liquid-cooled data center kits to create turnkey, grid-independent \"AI Power Blocks.\" Each AI Power Block delivers power, liquid cooling, and compute as a unified, rapidly deployable system. The 800 VDC architecture directly powers GPU server racks without the AC-to-DC conversion stage required by legacy systems, improving efficiency by eliminating rectification losses and reducing copper distribution requirements by up to 45% compared to conventional 208/480 VAC distribution. These AI Power Blocks are designed to scale from edge deployments to AI giga-campus environments exceeding 1 GW and are aligned with the 800 VDC architectures endorsed by leading semiconductor and infrastructure platforms. This advancement also broadens our applications beyond AI data centers, allowing our microturbine solutions to be deployed in EV charging and other direct-current applications without requiring synchronization with traditional high-voltage alternating-current (\"AC\") utility grids, and providing a bridge during the rigorous grid interconnect certification process.\n\nWe are also developing new combustion liner technology capable of delivering approximately 5 ppm NOx without emissions aftertreatment, further strengthening our competitive position in markets with stringent air quality requirements. Additionally, we are collaborating with industry leaders to create autonomous power solutions designed to anticipate overload conditions and proactively supplement insufficient grid resources with readily available microturbine power. We are accelerating the development of onboard remote monitoring systems designed to ensure reliable power service and asset telemetry through cloud-based features, significantly improving the user experience.\n\nThe Company continues to advance fuel flexibility across its product lines, including validated operation on hydrogen fuel blends. Our microturbines have demonstrated the capability to operate on hydrogen-blended fuels, which we believe positions the Company to support customers with longer-term decarbonization objectives as hydrogen infrastructure continues to develop.\n\n41\n\n[Table of Contents](#TOC)\n\nCost and Core Competencies. We believe that the core competencies of our products are our recuperator design, air bearing technology, advanced combustion technology and sophisticated power electronics to form efficient and ultra-low emission electricity and cooling and heat production systems. Our core intellectual property is contained within our air bearing technology. We continue to review avenues for cost reduction by sourcing from the best value supply chain option. In order to utilize manufacturing facilities and technology more effectively, we are focused on continuous improvements in manufacturing processes. Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, including robotics, supply chain management and logistics. Management expects to be able to lower our costs as product volumes increase.\n\nOur manufacturing designs include the use of conventional technology, which has been proven in high-volume automotive and turbocharger production for many years. Many components used in the manufacture of our products are readily fabricated from commonly available raw materials or off-the-shelf items available from multiple supply sources; however, certain items are custom made to meet our specifications and require longer lead times. We believe that in most cases, adequate capacity exists at our suppliers and that alternative sources of supply are available or could be developed within a reasonable period of time; however, it may be more challenging to transition to another supplier from single source suppliers with long lead times. We regularly reassess the adequacy and abilities of our suppliers to meet our future needs.\n\nWe believe that effective execution in each of these key areas will be necessary to leverage our promising technology and early market leadership into achieving positive cash flow with growing market presence and improving financial performance.\n\n**Critical Accounting Estimates**\n\nOur discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosures of contingent liabilities. On an ongoing basis, we evaluate our estimates, including but not limited to those related to credit losses, inventories, warranty obligations, redeemable noncontrolling interest valuation and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates and assumptions which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.\n\nWe consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.\n\nManagement has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board. In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.\n\n●**Inventories.** Our inventories are valued at the lower of cost (determined on a first in first out basis) or net realizable value. We routinely evaluate the composition of our inventories and identify slow-moving, excess, obsolete or otherwise impaired inventories. Inventories identified as impaired are evaluated to determine if write-downs are required. Included in this assessment is a review for obsolescence as a result of engineering changes in our product. Future product enhancement and development may render certain inventories obsolete, resulting in additional write-downs of inventories. In addition, inventories are classified as current or long-term based on our sales forecast and, in part, based on our projected usage for warranty claims and service. A change in forecast could impact the classification of inventories.\n\n42\n\n[Table of Contents](#TOC)\n\n●**Valuation of Intangible Assets Acquired in Business Combinations.**The Company records identifiable intangible assets acquired in business combinations at fair value as of the acquisition date in accordance with ASC Topic 805. The determination of fair value requires significant judgment and is therefore considered a critical accounting estimate. The Company estimates the fair value of acquired intangible assets using income-based approaches, which require assumptions regarding projected revenues, customer attrition rates, expected useful lives, and discount rates. These assumptions are based on management’s estimates of future operating results and market conditions and are developed with the assistance of third-party valuation specialists. Changes in these assumptions could materially impact the fair value of intangible assets recognized, the allocation of purchase price, and future amortization expense. In addition, the Company evaluates intangible assets for impairment when indicators are present, which also requires the use of significant estimates. Refer to Note 8 – Intangible Assets and Note 20 – Business Combinations for more information.\n\n**Results of Operations**\n\nYear Ended March 31, 2026, Compared to Year Ended March 31, 2025\n\nThe following table summarizes our revenue by geographic markets (in millions):\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Year Ended March 31,**\n\n​\n\n​\n\n​\n\n**2026**\n\n​\n\n**2025**\n\n​\n\nUnited States and Canada\n\n**  ​ ​ ​**\n\n$\n\n70.7\n\n​\n\n$\n\n56.5\n\n \n\nEurope\n\n​\n\n​\n\n9.9\n\n​\n\n​\n\n11.3\n\n​\n\nLatin America\n\n​\n\n​\n\n19.0\n\n​\n\n​\n\n9.1\n\n​\n\nAsia and Australia\n\n​\n\n​\n\n5.2\n\n​\n\n​\n\n8.1\n\n​\n\nMiddle East and Africa\n\n​\n\n​\n\n1.2\n\n​\n\n​\n\n0.6\n\n​\n\nTotal\n\n​\n\n$\n\n106.0\n\n​\n\n$\n\n85.6\n\n​\n\nRevenue. Revenue for Fiscal 2026 increased $20.4 million, or 24%, to $106.0 million from $85.6 million for Fiscal 2025. Increases in revenue in the United States and Canada were primarily attributable to higher sales in Cal West territories, driven by customers taking advantage of the investment tax credit (“ITC”) safe harbor ahead of its expiration. In Latin America, revenue growth was primarily driven by increased activity in Mexico, reflecting the reshoring of manufacturing from Asia following announced U.S. tariffs, as well as changes in interconnection regulations that allowed for larger project sizes. Decreases in revenue in Europe were primarily due to the conversion of a large customer from rental to product sales during Fiscal 2026, while decreases in Asia and Australia were attributable to reduced funding availability associated with ongoing geopolitical instability in the Middle East.\n\nThe following table summarizes our revenue (revenue amounts in millions):\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Year Ended March 31,**\n\n \n\n​\n\n​\n\n**2026**\n\n​\n\n**2025**\n\n \n\n​\n\n**  ​ ​ ​**\n\n**Revenue**\n\n**  ​ ​ ​**\n\n**Megawatts**\n\n**  ​ ​ ​**\n\n**Units**\n\n**  ​ ​ ​**\n\n**Revenue**\n\n**  ​ ​ ​**\n\n**Megawatts**\n\n**  ​ ​ ​**\n\n**Units**\n\n** **\n\nMicroturbine Product\n\n​\n\n$\n\n54.8\n\n \n\n37.2\n\n \n\n112\n\n​\n\n$\n\n38.1\n\n \n\n26.7\n\n \n\n109\n\n​\n\nAccessories\n\n​\n\n \n\n2.1\n\n \n\n​\n\n​\n\n​\n\n​\n\n \n\n2.2\n\n \n\n​\n\n​\n\n​\n\n​\n\nTotal Product and Accessories\n\n​\n\n \n\n56.9\n\n \n\n​\n\n​\n\n​\n\n​\n\n \n\n40.3\n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nParts and Service\n\n​\n\n​\n\n33.2\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n30.9\n\n​\n\n​\n\n​\n\n​\n\n​\n\nRentals\n\n​\n\n​\n\n15.9\n\n \n\n​\n\n​\n\n​\n\n​\n\n​\n\n14.4\n\n \n\n​\n\n​\n\n​\n\n​\n\nTotal\n\n​\n\n$\n\n106.0\n\n \n\n​\n\n​\n\n​\n\n​\n\n$\n\n85.6\n\n \n\n​\n\n​\n\n​\n\n​\n\nFor Fiscal 2026, revenue from microturbine products and accessories increased $16.6 million, or 41%, to $56.9 million from $40.3 million for Fiscal 2025. The $16.6 million increase or additional 10.5 MWs compared to the previous year, was the result of Capstone’s stronger standing as a provider of reliable and high-quality equipment and services in the microturbines market. Average revenue per megawatt shipped was approximately $1.5 million and $1.4 million during Fiscal 2026 and Fiscal 2025, respectively, primarily driven by the effect of previously announced product price increases and rental unit sales. The timing of shipments is variable and based on several factors (including customer deposits,\n\n43\n\n[Table of Contents](#TOC)\n\npayments, availability of credit and delivery schedule changes), most of which are not within our control and can affect the timing of revenue recognition.\n\nOn August 13, 2025, the Company completed the acquisition of Cal Microturbine, LLC, one of the Company’s existing distributors serving the western United States. Following the acquisition, the Company directly conducts sales, aftermarket parts, and service for customers in California, Hawaii, Nevada, Oregon, and Washington under the business unit “Capstone West Territory.” The acquisition contributed approximately $4.0 million of revenue to the Company’s consolidated results for the period from the closing date through March 31, 2026. Refer to Note 20 - Business Combination for additional information.\n\nParts and service revenue for Fiscal 2026 increased $2.3 million, or 7%, to $33.2 million from $30.9 million for Fiscal 2025 benefiting from the impact of direct sales as a result of the Cal Microturbine acquisition.\n\nRentals revenue for Fiscal 2026 increased $1.5 million, or 10%, to $15.9 million from $14.4 million for Fiscal 2025. This increase was driven by a surge in the average rental prices per MW from $29,500 in Fiscal 2025 to $33,300 in Fiscal 2026.\n\nCustomer Concentration. For the year ended March 31, 2026, sales to E-Finity, Cal Microturbine, DTC, and Lone Star accounted for approximately 17%, 16%, 13% and 10%, respectively, of our total revenue for Fiscal 2026. Sales to E-Finity, Lone Star, Horizon Power Systems (“Horizon”) accounted for 13%, 12% and 11%, respectively, of our revenue for Fiscal 2025.\n\nGross Profit.  Cost of goods sold includes direct material costs, production and service center labor and overhead, applicable depreciation, inventory charges and provision for estimated product warranty expenses. Gross profit was approximately $33.9 million, or 32% of revenue, for Fiscal 2026, compared to gross profit of $23.3 million, or 27% of revenue, for Fiscal 2025. The increase of $10.6 million during Fiscal 2026 compared to Fiscal 2025 was primarily driven by increased profitability on product and accessories sales and the rentals and parts & services businesses which increased 10 points and 9 points, respectively. During Fiscal 2026, we continued to implement cost-out initiatives, which includes negotiating better pricing with vendors and vendor selection.\n\nThe following table summarizes our gross profit (in millions except percentages):\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Year Ended March 31,**\n\n​\n\n​\n\n​\n\n**March 31,**\n\n​\n\n​\n\n**  ​ ​ ​**\n\n**2026**\n\n**  ​ ​ ​**\n\n**2025**\n\n​\n\n**Gross Profit**\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nProduct and accessories\n\n​\n\n$\n\n5.5\n\n​\n\n$\n\n1.1\n\n​\n\nAs a percentage of product and accessories revenue\n\n​\n\n \n\n10\n\n%\n\n \n\n3\n\n%\n\n​\n\n​\n\n \n\n​\n\n​\n\n \n\n​\n\n​\n\nParts and services\n\n​\n\n$\n\n21.4\n\n​\n\n$\n\n17.2\n\n​\n\nAs a percentage of parts and service revenue\n\n​\n\n \n\n64\n\n%\n\n \n\n56\n\n%\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nRentals\n\n​\n\n$\n\n7.0\n\n​\n\n$\n\n5.0\n\n​\n\nAs a percentage of rentals revenue\n\n​\n\n \n\n44\n\n%\n\n \n\n35\n\n%\n\n​\n\n​\n\n \n\n​\n\n​\n\n \n\n​\n\n​\n\nTotal Gross Profit\n\n​\n\n$\n\n33.9\n\n \n\n$\n\n23.3\n\n​\n\nAs a percentage of total revenue\n\n​\n\n​\n\n32\n\n%\n\n​\n\n27\n\n%\n\nProduct and accessories gross margin improved $4.4 million or 10% during Fiscal 2026 from 3% during Fiscal 2025, primarily due to higher-margin product revenue in Fiscal 2026. This improvement occurred despite increased tariffs and higher inbound freight costs during Fiscal 2026. Parts and service gross margin as a percentage of parts and service revenue increased to 64% for Fiscal 2026 compared to 56% for Fiscal 2025 primarily due to increased parts sales, service agreement pricing and overhead costs absorption in Fiscal 2026. These improvements were achieved despite increased tariffs and higher inbound freight costs during Fiscal 2026. Rentals gross margin as a percentage of rentals revenue increased to 44% for Fiscal 2026 compared to 35% for Fiscal 2025 primarily due to higher rental pricing and timing of maintenance costs in Fiscal 2026.\n\n44\n\n[Table of Contents](#TOC)\n\nResearch and Development (“R&D”) Expenses. R&D expenses for Fiscal 2026 and 2025 increased to $3.6 million in Fiscal 2026, compared to $2.7 million in Fiscal 2025. Higher R&D spend drove key cost-out initiatives and reliability projects in Fiscal 2026.\n\nSelling, General and Administrative (“SG&A”) Expenses. SG&A expenses for Fiscal 2026 increased $0.7 million to $26.9 million from $26.2 million for Fiscal 2025 and was 25% of revenue in Fiscal 2026. The net increase in SG&A expenses was driven by higher spend in Fiscal 2026 of $3.6 million related to headcount growth, outside accounting and legal services, partially offset by a $2.9 million reduction in non-recurring expenses relative to Fiscal 2025 related to litigation, restatements, and debt restructuring.\n\nOther Income. Other income for Fiscal 2026 increased to $3.3 million from $2.3 million in Fiscal 2025. The increase was primarily attributable to the recognition of income related to a customer deposit on a project that did not proceed during Fiscal 2026.\n\nInterest Income. Interest income for Fiscal 2026 was $0.2 million, slightly higher than the $0.2 million in Fiscal 2025 driven by our higher cash balances.\n\nInterest Expense. Interest expense for Fiscal 2026 increased to $4.1 million from $3.9 million in Fiscal 2025. The increase in interest expense was primarily due to the New Money Note, interest on leased equipment, and exit debt issuance amortization. See Liquidity and Capital Resources below for additional discussion on our interest expense.\n\nIncome Tax Provision. Income tax expense (benefit) decreased from $175,000 during Fiscal 2025 to ($54,000) during Fiscal 2026. Income tax benefit incurred was mostly related to prior year true-up adjustments. The effective income tax rate of (1.9)% differs from the federal and state blended rate primarily as a result of maintaining a full valuation allowance against net deferred tax assets.\n\nOn March 31, 2026, we had federal and state net operating loss carryforwards of approximately $8.0 million and $4.2 million, respectively, which may be utilized to reduce future taxable income, subject to any limitations under Section 382 of the Internal Revenue Code of 1986. We provided a valuation allowance for 100% of our net deferred tax asset of $26.0 million at March 31, 2026 as the realization of the benefits of these favorable tax attributes in future income tax returns is not deemed more likely than not. Similarly, at March 31, 2025, the net deferred tax asset had a 100% valuation allowance of $2.3 million.\n\n**Liquidity and Capital Resources**\n\nOur cash requirements depend on many factors, including the execution of our business strategy and plan. Our cash balance increased $20.2 million during Fiscal 2026, compared to an increase of $6.6 million during Fiscal 2025, with Fiscal 2026 including $0.7 million of restricted cash compared to none in Fiscal 2025. The increase in cash during Fiscal 2026 was primarily due to cash used in operating and investing activities, offset by cash provided by financing activities.\n\nOperating Activities. During Fiscal 2026, net cash used in operating activities was $2.5 million, reflecting net income for the period of $2.8 million and non-cash adjustments of $10.4 million including depreciation and amortization, non-cash lease expense, paid-in-kind interest expense, and stock-based compensation. These were offset by net uses of cash from changes in operating assets and liabilities of $15.8 million, primarily reflecting working capital outflows associated with business growth, including increases in accounts receivable of $7.1 million and inventories of $4.2 million, decreases in customer deposits of $6.1 million and factory protection liability of $1.6 million, which were partially offset by increases in accounts payable of $5.2 million and accrued expenses of $1.8 million.\n\nDuring Fiscal 2025, net cash provided by operating activities was $7.7 million. Net loss for the period of $7.2 million was offset by increased use of inventory and prepaids as well as the realization of deferred revenue, less changes in lease assets and liabilities and an increase in accounts receivable.  The net loss was also offset by non-cash adjustments of $13.0 million, primarily non-cash lease expense, depreciation and amortization, and paid-in-kind interest expense.\n\n45\n\n[Table of Contents](#TOC)\n\nThe following is a summary of the significant sources (uses) of cash from operating activities (in millions):\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n**Year Ended March 31,**\n\n \n\n​\n\n​\n\n**March 31,**\n\n​\n\n​\n\n**  ​ ​ ​**\n\n**2026**\n\n**  ​ ​ ​**\n\n**2025**\n\n** **\n\nNet income (loss)\n\n  ​ ​ ​\n\n$\n\n2.8\n\n  ​ ​ ​\n\n$\n\n(7.2)\n\n​\n\nNon-cash operating activities(1)\n\n​\n\n \n\n10.4\n\n​\n\n \n\n13.0\n\n​\n\nChanges in operating assets and liabilities:\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\n​\n\nAccounts receivable\n\n​\n\n \n\n(7.1)\n\n​\n\n \n\n(2.1)\n\n​\n\nInventories\n\n​\n\n \n\n(4.2)\n\n​\n\n \n\n7.6\n\n​\n\nLease receivable\n\n​\n\n​\n\n(0.6)\n\n​\n\n​\n\n(1.3)\n\n​\n\nAccounts payable\n\n​\n\n \n\n5.2\n\n​\n\n \n\n(1.0)\n\n​\n\nAccrued expenses\n\n​\n\n​\n\n1.8\n\n​\n\n​\n\n(0.3)\n\n​\n\nOperating lease liability, net\n\n​\n\n​\n\n(3.0)\n\n​\n\n​\n\n(4.0)\n\n​\n\nPrepaid expenses, other current assets and other assets\n\n​\n\n​\n\n0.1\n\n​\n\n​\n\n2.1\n\n​\n\nOther changes in operating assets and liabilities\n\n​\n\n \n\n(7.9)\n\n​\n\n \n\n0.9\n\n​\n\nNet cash (used in) provided by in operating activities\n\n​\n\n$\n\n(2.5)\n\n​\n\n$\n\n7.7\n\n​\n\n(1)Primarily represents depreciation and amortization, non-cash lease expense and paid-in-kind interest expense.\n\nThe $5.0 million increase in use of cash in accounts receivable resulted from increases in both sales and DSO in Fiscal 2026, compared to Fiscal 2025. The $11.8 million change in inventory compared to Fiscal 2025 was primarily the result of increased spending on long lead inventory in preparation of future shipments. The $6.2 million increase in cash provided by accounts payable and $2.1 million increase in accrued expenses resulted from more proactive management of vendor payments in Fiscal 2026. The $8.8 million change in other operating assets and liabilities during Fiscal 2026, compared to Fiscal 2025, was primarily driven by the use of customer deposits and lease receivables and liabilities.\n\nInvesting Activities. Net cash used in investing activities was $0.9 million and $0.9 million during Fiscal 2026 and Fiscal 2025, respectively. Fiscal 2026 included cash acquired in the Cal Microturbine, LLC acquisition, net of cash paid, as well as investments in fixed assets including our rental fleet. Refer to Note 20 - Business Combination for additional information.\n\nFinancing Activities. During Fiscal 2026, we generated approximately $23.7 million in cash from financing activities primarily as a result of the November 2025 PIPE of approximately $13.6 million and $104.0 million of proceeds from March 2026 PIPE, partially offset by repayment of outstanding debt to optimize our capital structure. During Fiscal 2025, net cash used by financing activities was approximately $0.2 million. Refer to Note 11 – Debt in the Notes to Consolidated Financial Statements for further discussion of outstanding debt and post emergence financing.\n\nDebt Refer to Note 11 - Debt in the Notes to Consolidated Financial Statements for information related to our notes.\n\nLease Commitments Refer to Note 10 - Leases in the Notes to Consolidated Financial Statements for information related to our leases.\n\n**Impact of Recently Issued Accounting Standards**\n\nRefer to Note 2 - Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements for information regarding new accounting standards.\n\n**Item ****7A. Quantitative and Qualitative Disclosure about Market Risk.**\n\nAs a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.\n\n46\n\n[Table of Contents](#TOC)\n\n**Item ****8. Financial Statements and Supplementary Data.**\n\nOur Consolidated Financial Statements are included in this Form 10-K. Supplementary data incorporated in this Item 8 by reference within the Exhibits.\n\n**Item ****9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.**\n\nNone."}