Turbine Maker Seeks Jump-Start From Investors

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Is Capstone Turbine Corp. trying to calm suppliers or satisfy its auditors?

Maybe both. The Chatsworth company, which develops and manufactures small turbine engines used to generate electricity, last week raised $23.1 million by selling new shares to institutional investors. Analysts said the move, which came as Capstone shares traded at just about $1, was a simple attempt to boost the company’s balance sheet before the end of its fiscal year March 31.

The offering was expected to close March 5 and an agreement was announced to sell 22.6 million shares for $1.11 each. Investors also received warrants to purchase additional shares.

Officials from Capstone did not return calls for comment. In Securities and Exchange Commission filings, the company said it would use the proceeds for general corporate purposes.

Capstone stock has traded for as much as $2.14 in the past year, and the choice to offer shares now as the stock slumps suggests the company needed an immediate cash infusion to satisfy auditors, said Shawn Severson, a managing director at JMP Securities in San Francisco.

“This was more of an accounting issue that came into play,” Severson said. “The auditors wanted them to have more cash on the balance sheets at year’s end.”

From March through December last year, the company posted a net loss of $10.5 million and reported its cash on hand shrank from $33.5 million to $22.9 million.

Walter Nasdeo, managing director with Ardour Capital Investments LLC in New York, agreed that the company sold shares to strengthen its balance sheet, but more for the sake of customer confidence.

“If I’m a supplier, how do I know you’re going to be here in two years?” Nasdeo said.

Severson said Capstone, which has never been profitable, is growing and that the next year should be a big one for the company. That could mean a good deal for investors who purchased shares and warrants. The warrants give investors the option to purchase shares at $1.55 through October 2013.

But those investors could also be forced to purchase more stock if the company again runs short on cash. The deal allows Capstone to compel this week’s purchasers to buy up to 19 million additional shares – for as much as $50 million – during the next year.

New Widget

Cerritos company Calnetix Technologies LLC last week released a new control system for magnetic bearings.

Magnetic bearings are used in manufacturing equipment for the biotech and semiconductor industries, and are controlled by giant computers, sometimes as big as a fridge.

But Calnetix has made one it claims is among the smallest on the market. The Insight 3600 is about the size of two large pizza boxes and costs as much as 70 percent less than previous systems, said Herman Artinian, vice president of business development at the company.

Magnetic bearings have typically been much more expensive than traditional bearing systems. They use the same principle as a magnetic levitation train – electromagnetic repulsion instead of ball bearings and oil. As such, they don’t need lubrication, which cuts down on the potential for contamination.

Artinian said the new cheaper control system should make magnetic bearings a viable option in more industries, such as food processing.

“Bringing the cost down definitely opens up a lot of other applications to magnetic bearings,” he said.

The bearing control system monitors the position of a spinning shaft hundreds of times per second and adjusts the amount of power going to different magnets within the bearing to keep the shaft aligned properly.

Already, the 60-employee company, which develops and assembles the units at its Cerritos headquarters, is producing the new control systems for General Electric Co. and two undisclosed companies in the oil and gas industry.

Artinian would not reveal how much the new control system costs, but said a basic magnetic bearing system, including the bearing and controller, would cost about $10,000.

Conference Coming

SurfWare Inc., a Camarillo company that writes software for computer-controlled manufacturing equipment, will unveil the latest version of its marquee Surfcam software later this month at the biennial Westec trade show.

SurfWare Vice President Peter Marton said Westec, the largest manufacturing trade event on the West Coast, is a huge venue for his company and others in Southern California’s manufacturing sector.

“It’s one of the most important shows for us. Many times in this industry, this is where things are conceived,” Marton said. “And it’s right in our backyard.”

The event, organized by the Society of Manufacturing Engineers, will bring SurfWare and more than 500 other exhibitors to the Los Angeles Convention Center March 27 through 29. More information is available at www.westeconline.com.

Staff reporter James Rufus Koren can be reached at [email protected] or at (323) 549-5225, ext. 225.

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