Capstone Energy Plus (CEPL) risk factors, FY2024 10-K

Risks Related to Our Emergence from Chapter 11

1. 01We emerged from bankruptcy in December 2023, which could adversely affect our business and business relationships
2. 02Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time
3. 03There are significant risks related to our substantial indebtedness
4. 04(iii) an additional $7.0 million new money committed delayed draw term loan facility (the “Exit New Money Notes” and, together with the Exit Roll Up Notes, the “Notes”)
5. 05As a result of the implementation of the Plan and the transactions contemplated thereby, our future results of operations, financial condition, and business may not be comparable to the results of operations, financial condition, and business reflected in our historical financial statements
6. 06It may be difficult for us to attract and retain employees, including members of our senior management, as a result of our Emergence
7. 07There is currently no public trading market for our New Common Stock, and we cannot assure you that an active trading market will develop for the New Common Stock

Risks Related to our Corporate Structure

1. 08We are a holding company with an stockholders’ deficiency and will depend on dividends and distributions from our Operating Subsidiary to pay any dividends
2. 09Holders of the Preferred Units can exercise significant control over our Operating Subsidiary, which could limit our ability to influence the outcome of key corporate actions of our Operating Subsidiary
3. 10The Preferred Member’s 37.5% equity interest in Operating Subsidiary is non-dilutable

Risks Related to Our Restatement

1. 11Refer to Note 14— Commitments and Contingencies in the Notes to Consolidated Financial Statements and to “Legal Proceedings” for information regarding legal proceedings in which we are involved
2. 12The SEC enforcement division is conducting an investigation into the circumstances surrounding the Restatement, the results of which may have a material adverse effect on our financial condition and business
3. 13We have incurred and expect to continue to incur significant expenses related to remediation of material weaknesses in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation
4. 14Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital

Risks Related to Our Business Operations and Financial Results

1. 15We are exposed to floating interest rate risk under the Exit Note Purchase Agreement, which could cause our debt service obligations to increase significantly
2. 16The occurrence of regional epidemics or a global pandemic may adversely affect our business, financial condition and results of operations. For example, the COVID-19 pandemic has and could continue to materially and adversely affect our business, financial condition and results of operations
3. 17A sustainable market for microturbines may never develop or may take longer to develop than we anticipate, which would adversely affect our results of operations
4. 18Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure
5. 19Our products involve a lengthy sales cycle, and we may not anticipate sales levels appropriately, which could impair our results of operations
6. 20If we do not effectively implement our sales, marketing, and service plans, our sales will not grow and our results of operations will suffer
7. 21Changes to trade regulations, quotas, duties or tariffs, and sanctions caused by the changing U.S. and geopolitical environments or otherwise, may increase our costs or limit the amount of raw materials and products that we can import or may otherwise adversely impact our business
8. 22We may not be able to retain or develop relationships with OEMs or distributors in our targeted markets, in which case our sales would not increase as expected
9. 23Increased credit loss expense or delays in collecting accounts receivable could have a material adverse effect on our cash flows and results of operations
10. 24Loss of a significant customer could have a material adverse effect on our results of operations
11. 25We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales
12. 26We may incur costs and liabilities as a result of product liability claims
13. 27Operational restructuring may result in asset impairment or other unanticipated charges
14. 28We may not be able to manage our growth effectively, expand our production capabilities or improve our operational, financial and management information systems, which would impair our results of operations
15. 29Our success depends in significant part upon the continuing service of management and key employees, and several key management and other employees have recently left Capstone
16. 30Our operations are vulnerable to interruption by fire, earthquake, riots, domestic and international instability, war, terrorism, geopolitical events and other events beyond our control
17. 31If an earthquake, fire, or other man-made or natural disaster occurs at or near our facilities, our business, financial condition, operating results and cash flow could be materially adversely affected
18. 32Activities necessary to integrate any future acquisitions may result in costs in excess of current expectations or be less successful than anticipated
19. 33We may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to new or more stringent greenhouse gas regulations designed to address climate change
20. 34among other items, physical long-term changes in freshwater availability and the frequency and severity of weather events as well as customer product changes either through preference or regulation
21. 35While we aim to position ourselves as a solution for climate change-related issues to our customers, there are other solutions in the market that may be cheaper or better suited to our customers’ needs, and we may not be able to capitalize on the move towards renewable energy

Risks Related to Our Product Offerings

1. 36We depend upon the development of new products and enhancements of existing products
2. 37Our operating results are dependent, in large part, upon the successful commercialization of our products. Failure to produce our products as scheduled and budgeted could materially and adversely affect our business and financial condition
3. 38Commodity market factors impact our costs and availability of materials
4. 39We operate in a highly competitive market among competitors that have significantly greater resources than we have, and we may not be able to compete effectively
5. 40we have business relationships. Accordingly, new competitors or alliances may emerge and rapidly acquire significant market share
6. 41Our business and financial performance depends in part on the oil and natural gas industry, where a continued movement towards clean energy and away from fossil fuels, as well as fluctuations in prices for oil and natural gas, may have an adverse effect on our revenue, cash flows, profitability, and growth
7. 42Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets
8. 43We may not be able to develop sufficiently trained applications engineering, installation, and service support to serve our targeted markets
9. 44Changes in our product components may require us to replace parts held at distributors
10. 45Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may not be able to effectively sell our products

Risks Related to Pending Litigation and Government Regulation

1. 46We operate in a highly regulated business environment, and changes in regulation could impose significant costs on us or make our products less economical, thereby affecting demand for our microturbines
2. 47We and certain of our current and former directors and officers are subject to various legal proceedings

Risks Related to Data, Security, and Intellectual Property

1. 48Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights
2. 49We face security and cybersecurity risks related to our electronic processing of sensitive and confidential business and product data. If we are unable to protect our data or the data of our customers, a security breach could damage our reputation and have a material adverse effect on our business

Risks Related to Ownership of Our New Common Stock

1. 50Future issuances or sales of our New Common Stock or exercises by holders of any warrants we may issue could lower our stock price and dilute the interests of existing stockholders
2. 51Once trading in the New Common Stock commences, the market price of our New Common Stock is likely to be highly volatile and you could lose all or part of your investment in our securities
3. 52Market conditions may result in volatility in the level of, and fluctuations in, market prices of stocks generally and, in turn, our New Common Stock. Global financial markets have experienced extreme disruption in recent years, including, among other things, extreme volatility in securities prices
4. 53Provisions in our certificate of incorporation and bylaws, as well as Delaware law, may discourage, delay or prevent a merger or acquisition at a premium price