Capstone Turbine Corporation (NASDAQ:CPST) has pulled somewhat of an about-face. The company has registered 21,485,660 shares of common stock and warrants to purchase an additional 6,445,698 shares of common stock in a secondary offering. It plans to issue units at $14.90 per unit consisting of ten shares of common stock and warrants to purchase three shares of common stock. The warrants will be exercisable for a period of five years at an exercise price of $1.92 per share. This is rather contrary to what the company said before as it stated it would seek lines of credit and/or bank loans as its last choice was to resort to a securities sale.
The financing is expected to close on or about September 23, 2008. Netproceeds of approximately $29.5 million will be used to fund productdevelopment, corporate growth, and for general corporate purposes.Wachovia Capital Markets is the lead placement agent and NorthlandSecurities acted as financial advisor.
This is not all bad news. Capital has been an issue for a couple ofquarters as their operations are in need of expansion and as it hascommented that it needs more suppliers. The dilution is one thing.The problem we have here is that this was the sort of thing thatmanagement said it was against. The other issue is that they had amajor gowth spurt and they had a time where every alternative energyplayer under the sun could raise cash and not see their stocks getcrushed. Management waited far too long here to make this transaction.
Capstone was our top pick for alternative energy stocks from late 2007when shares were $1.21 and our only calls to sell were when this stockwas up 150% and 200% where we noted to take the original investmentamount out of the stock and let the profits ride. That was great for awhile, but hindsight would say that good things never last forever. Westill believe the prospects are strong for Capstone and really don’t goalong with the notion that TheStreet.com said about it potentially going to zero.The biggest issue we have now though is a management credibility gap.Last resorts of one month ago are becoming the norm now in a tightening creditenvironment.
We would surmise that management was hoping for the best here and thatthings would not have gone the way they did over the last 60 days. Aswe have said on many occasions, "Hoping and praying are both great, butthey are horrible business strategies."
Wall Street is pretty irked about this too. Shares are down about 15%at $1.48 in pre-market trading. Its 52-week high is $4.42.
Jon C. Ogg
September 18, 2008