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• A decrease in inventory of $1.8 million during the year ended March 31, 2011 compared to a decrease in inventory of $6.1 million during the year ended March 31, 2010. Management initiatives to reduce inventory resulted in further reductions in inventory levels. Investing Activities—Net cash used in investing activities of $2.3 million during the year ended March 31, 2011 relates to restricted cash of $1.3 million held as additional security for the Credit Facility (defined below). In addition, we used $1.0 million for the acquisition of fixed assets during the year ended March 31, 2011. We used $2.0 million for the acquisition of fixed assets during the year ended March 31, 2010. Financing Activities—During Fiscal 2011, we generated $10.4 million from financing activities compared to cash generated during Fiscal 2010 of $64.4 million. The funds generated from financing activities in Fiscal 2011 were primarily the result of the March 2011 warrant exercise transaction described below. Effective March 9, 2011, we entered into warrant exercise agreements with (i) the only two holders (the ‘‘2009 Holders’’) of warrants to purchase an aggregate of 3,612,717 shares of the Company’s common stock, par value $0.001 per share (‘‘Common Stock’’), issued by the Company on May 7, 2009 (the ‘‘2009 Warrants’’) (ii) one holder (the ‘‘2008 Holder’’) of warrants to purchase an aggregate of 392,191 shares of Common Stock issued by the Company on September 23, 2008 (the ‘‘2008 Warrants’’) and (iii) four holders (the ‘‘2007 Holders’’) of warrants to purchase an aggregate of 8,468,323 shares of Common Stock issued by the Company on January 24, 2007 (the ‘‘2007 Warrants’’). Pursuant to the Warrant Exercise Agreements, the 2009 Holders agreed to exercise the 2009 Warrants at the existing exercise price of $0.95 per share in exchange for a fee of an aggregate amount of approximately $1.0 million, the 2008 Holder agreed to exercise the 2008 Warrants at the existing exercise price of $1.60 per share in exchange for a fee of an aggregate amount of approximately $156,876 and the 2007 Holders agreed to exercise the 2007 Warrants at the existing exercise price of $1.17 per share in exchange for a fee of an aggregate amount of approximately $1.2 million. The net proceeds to the Company in connection with the exercise of the 2009 Warrants, the 2008 Warrants and the 2007 Warrants, after deducting expenses of approximately $0.4 million, is approximately $11.2 million. Immediately prior to the exercise of these warrants, we revalued the warrants and recorded a charge of $6.9 million to operations during the three months ended March 31, 2011. In connection with the induced exercise of the warrants, we modified the warrant agreements, which resulted in a reduction of the charge to operations by $1.0 million during the three months ended March 31, 2011. The exercise of these warrants resulted in a reduction of the warrant liability of $9.7 million. The funds generated from financing activities during Fiscal 2010 were primarily the result of an underwritten offering, a warrant exercise transaction and issuance of new warrants and a registered offering of our common stock and warrants, which were completed effective February 24, 2010, September 17, 2009 and May 7, 2009, respectively. The underwritten offering resulted in gross proceeds of approximately $46.0 million and proceeds net of direct transaction costs of $42.4 million. The exercise of warrants and issuance of new warrants in September 2009 resulted in gross proceeds of approximately $6.5 million and $0.4 million, respectively. The offering of our common stock and warrants in May 2009 resulted in gross proceeds of approximately $12.5 million and proceeds, net of direct transaction costs, of approximately $11.2 million. Employee stock purchases, net of repurchases of shares of our common stock for employee taxes due on vesting of restricted stock units, resulted in approximately $40,000 of net cash generated during Fiscal 2011, compared with $0.1 million of net cash during Fiscal 2010. During Fiscal 2011 and Fiscal 2010, we generated additional financing from the Credit Facility by drawing down our line of credit when funds were available. We maintain two Credit and Security Agreements (the ‘‘Agreements’’) with Wells Fargo. The Agreements provide the Company with a line of credit of up to $10 million in the aggregate (the 46PDF Image | 2011 Annual Report Capstone Turbine Corporation
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