Capstone Green Energy Corp (fka CGRNQ)

[Seasound]

This is about as uplifting as the market as a whole. Unloading over 4 million shares by # 3 ranked, by total shares held, IH GILDER, GAGNON, HOWE & CO. isn't exactly a vote of confidence; although I suppose it could have been worse as they slip to position # 4 for now. Hope this doesn't start a new trend, but then again we are continually reminded that "Historically speaking, however, purchases of this stock in the dollar range have been handsomely rewarded with speculative spikes to the $1.50-$2 range. Worth keeping an eye on." My eyes are starting to glass over quite frankly with that regurgitated comment.

DJ says that one key metric to profitability is higher sales of the higher margin C800 and C1000--lets see some product shipments. During the same Q&A he hedged about how long the C200 warranty fiasco is going to continue draining resources. He states that they are taking things slowly (at least 18 months before anticipated roll out) on the C250, so as not to repeat past mistakes, on his watch, made in rolling out the C200, which was supposedly vetted and tested in a very careful and methodical way itself. It continues to be painfully obvious each quarter that it wasn't. Capstone touted the early roll out and ahead of schedule C200 in a News Release on August 28, 2008. So now DJ hires a Rolls Royce employee to hopefully get the not so ready for prime-time turbine up to spec--the alternative isn't pretty given that Capstone's "up time" is a main selling point. To my limited knowledge no one at Capstone has been called on the carpet to answer the question as to who is responsible for this "unexpected" premature or pending failure of units in the field although the same cast of characters continue to mime the same line as they did in the above link.

Connected at the hip are the Royalty payments to United Technologies Climate, Controls & Security division(UTC.) Ironically, "The second production C200 is scheduled for shipment to UTC Power Corporation" states Mark Gilbreth in the above linked Press Release. During the latest CC DJ stated that he would like to buy the UTC Royalty contract out, but taking a little history tour on the UT site demonstrates that they are quite adept at writing royalty contracts, therefore I would expect that a buy-out isn't in the cards and that this situation will continue to be a drag for some time to come, especially since it includes any derivative of the C200, i.e. the C600, C800, and the C1000. See The Development and License Agreement between Capstone Turbine Corporation (“Capstone”) and Carrier Corporation (“Carrier”), effective September 4, 2007 and as amended from time to time (“Development Agreement”) (1) for fun, facts, and figures.

For those who may think that 43K is chump change on a million dollar unit, that might be the case if we were wallowing in profits. Every dollar counts on the bottom line--a good illustration of that fact is that Q213 slide 10 lists "Increased Utility Cost" as one of the factors in the Gross Margin Analysis. I've asked this question recently, but received no answer--does Capstone practice what it preaches when it comes to CHP? Does the plant utilize a Capstone Turbine CHP unit? Granted this is but a small piece of the pie (although it made the slide presentation) but wouldn't a customer ask the same question? I'll pose the question to "Ask Management" and hope for a reply.

I only have myself to blame for not doing more due diligence on this company prior to taking my positions. Would I have taken the same hook line and sinker 6 years ago when DJ came onboard? Who knows, but then again Capstone is a "Story stock" and will continue to be one until either the story ends prematurely, due any amount of excuses given for lack of profitability, or they turn a buck and start a new book. JMHO, of course.