Will Financing Engine Seize-Up at Capstone Turbine?

• The Company: Capstone Turbine Corp., a producer of low-emission microturbine systems.
• The Filing: Registration Statement filed with the SEC on September 18, 2008.
• The Finding: Capstone Turbine expects to raise $29.5 million through an offering of common stock (and warrants). In large part, the proceeds will be used for continued performance testing and commercial production of its C200 microturbine product.

The Upshot: Capstone sells its microturbines for use in cogeneration (using both electricity and heat), resource recovery (converting oilfield and biomass waste gases into
electricity), backup power supply, and remote power applications (when no utility grid is available). After ten years of research, the company shipped its first 200-kilowatt (C200) microturbine  on August 28 to a distributor in Italy for installation in a wastewater treatment facility. This stock offering is critical in raising some of the estimated $35.3 million needed in inventory for the manufacturing and timely shipment of approximately 511 units in backlog of C30 - C200 unit series in Fiscal 2009 (ended March 31).

Management admits that it currently does not have any credit facilities or other committed sources of financing, and will likely need to raise additional cash in coming months to fill new orders, for some of the components and materials used in the manufacturing process have long lead times and must be purchased by Capstone well in advance of scheduled shipping dates.

Capstone represents the lengths a financially-strapped company will go to develop its prized technology. Pursuant to the terms of an OEM Agreement with UTC Power Corp., an affiliate of United Technologies, UTC contributed $12.8 million towards the development of the C200 as part of an integrated cooling and heat exchange power equipment (CCHP) unit sold by UTC. If this customer does not achieve its forecasted sales growth or Capstone fails to complete the specified development and commercialization of the C200, the non-exclusive, perpetual, and worldwide license to the C200 would revert to UTC.

Given the current credit crunch, if additional financing cannot be obtained after this offering, Capstone might be unable to continue as a going concern.

The Questions: After years of hype, can Capstone microturbines finally offer economic advantages over other emerging distributed generation technologies, such as fuel cells, solar power, and wind-power systems?