(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2002 | |
| OR | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 001-15957
CAPSTONE TURBINE CORPORATION
| Delaware | 95-4180883 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
21211 Nordhoff Street, Chatsworth, California 91311
818-734-5300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
The number of shares outstanding of the registrant’s common stock as of October 31, 2002 was 81,527,290.
CAPSTONE TURBINE CORPORATION
INDEX
| Page | ||||||||
| Number | ||||||||
| PART I — FINANCIAL INFORMATION | ||||||||
| Item 1 | Consolidated Financial Statements (Unaudited) |
|||||||
Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 |
1 | |||||||
Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2001 and September 30, 2002 |
2 | |||||||
Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2001 and September 30, 2002 |
3 | |||||||
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and September 30, 2002 |
4 | |||||||
Notes to Consolidated Financial Statements |
5 | |||||||
| Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations |
9 | ||||||
| Item 3 | Qualitative and Quantitative Disclosures About Market Risk |
14 | ||||||
| Item 4 | Disclosure Controls and Procedures |
15 | ||||||
| PART II — OTHER INFORMATION | ||||||||
| Item 1 | Legal Proceedings |
16 | ||||||
| Item 2 | Changes in Securities and Use of Proceeds |
16 | ||||||
| Item 3 | Defaults Upon Senior Securities |
16 | ||||||
| Item 4 | Submission of Matters to a Vote of Security Holders |
16 | ||||||
| Item 5 | Other Information — Business Risks |
16 | ||||||
| Item 6 | Exhibits and Reports on Form 8-K |
27 | ||||||
| Signatures | 28 | |||||||
| Certifications | 29 | |||||||
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
CAPSTONE TURBINE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| December 31, | September 30, | |||||||||
| 2001 | 2002 | |||||||||
ASSETS |
||||||||||
Current Assets: |
||||||||||
Cash and cash equivalents |
$ | 170,868,000 | $ | 144,333,000 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $163,000 at December 31, 2001
and $251,000 at September 30, 2002 |
8,016,000 | 5,818,000 | ||||||||
Inventory |
21,973,000 | 16,218,000 | ||||||||
Prepaid expenses and other current assets |
1,422,000 | 2,642,000 | ||||||||
Total current assets |
202,279,000 | 169,011,000 | ||||||||
Equipment and Leasehold Improvements: |
||||||||||
Machinery, equipment, and furniture |
22,895,000 | 24,822,000 | ||||||||
Leasehold improvements |
9,235,000 | 9,275,000 | ||||||||
Molds and tooling |
4,534,000 | 4,866,000 | ||||||||
| 36,664,000 | 38,963,000 | |||||||||
Less accumulated depreciation and amortization |
9,362,000 | 13,923,000 | ||||||||
Total equipment and leasehold improvements |
27,302,000 | 25,040,000 | ||||||||
Deposits on Fixed Assets |
2,550,000 | 1,707,000 | ||||||||
Other Assets |
242,000 | 1,376,000 | ||||||||
Intangible Assets, Net |
21,881,000 | 2,934,000 | ||||||||
Total |
$ | 254,254,000 | $ | 200,068,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current Liabilities: |
||||||||||
Accounts payable |
$ | 3,490,000 | $ | 3,380,000 | ||||||
Accrued salaries and wages |
1,440,000 | 1,768,000 | ||||||||
Other accrued liabilities |
1,263,000 | 1,094,000 | ||||||||
Accrued warranty reserve |
4,145,000 | 4,270,000 | ||||||||
Deferred revenue |
1,471,000 | 633,000 | ||||||||
Current portion of capital lease obligations |
1,308,000 | 1,403,000 | ||||||||
Total current liabilities |
13,117,000 | 12,548,000 | ||||||||
Long-Term Portion of Capital Lease Obligations |
2,525,000 | 1,432,000 | ||||||||
Other Long-Term Liabilities |
1,158,000 | 1,263,000 | ||||||||
Commitments and Contingencies |
— | — | ||||||||
Stockholders’ Equity: |
||||||||||
Common stock, $.001 par value; 415,000,000 shares authorized; 77,207,383 and 77,532,060
shares issued and outstanding at December 31, 2001 and September 30, 2002, respectively |
77,000 | 78,000 | ||||||||
Additional paid-in capital |
521,668,000 | 522,661,000 | ||||||||
Accumulated deficit |
(284,291,000 | ) | (337,914,000 | ) | ||||||
Total stockholders’ equity |
237,454,000 | 184,825,000 | ||||||||
Total |
$ | 254,254,000 | $ | 200,068,000 | ||||||
See accompanying notes to consolidated financial statements.
1
CAPSTONE TURBINE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three | Nine | |||||||||||||||||
| Months Ended | Months Ended | |||||||||||||||||
| September 30 | September 30, | |||||||||||||||||
| 2001 | 2002 | 2001 | 2002 | |||||||||||||||
Revenues |
$ | 3,346,000 | $ | 3,887,000 | $ | 25,811,000 | $ | 15,886,000 | ||||||||||
Cost of Goods Sold |
5,468,000 | 6,301,000 | 27,033,000 | 25,481,000 | ||||||||||||||
Gross Loss |
(2,122,000 | ) | (2,414,000 | ) | (1,222,000 | ) | (9,595,000 | ) | ||||||||||
Operating Costs and Expenses: |
||||||||||||||||||
Research and development |
2,512,000 | 1,880,000 | 8,171,000 | 4,938,000 | ||||||||||||||
Selling, general and administrative |
9,210,000 | 7,057,000 | 30,015,000 | 25,067,000 | ||||||||||||||
Impairment loss |
— | — | — | 15,999,000 | ||||||||||||||
Total operating costs and expenses |
11,722,000 | 8,937,000 | 38,186,000 | 46,004,000 | ||||||||||||||
Loss from Operations |
(13,844,000 | ) | (11,351,000 | ) | (39,408,000 | ) | (55,599,000 | ) | ||||||||||
Interest Income |
1,485,000 | 687,000 | 7,611,000 | 2,266,000 | ||||||||||||||
Interest Expense |
(137,000 | ) | (97,000 | ) | (457,000 | ) | (316,000 | ) | ||||||||||
Other Income |
11,000 | 3,000 | 38,000 | 28,000 | ||||||||||||||
Loss Before Income Taxes |
(12,485,000 | ) | (10,758,000 | ) | (32,216,000 | ) | (53,621,000 | ) | ||||||||||
Provision for Income Taxes |
— | — | 1,000 | 2,000 | ||||||||||||||
Net Loss |
$ | (12,485,000 | ) | $ | (10,758,000 | ) | $ | (32,217,000 | ) | $ | (53,623,000 | ) | ||||||
Weighted Average Common Shares Outstanding |
76,976,934 | 77,526,602 | 76,560,247 | 77,455,926 | ||||||||||||||
Net Loss Per Share of Common Stock — Basic and Diluted |
$ | (0.16 | ) | $ | (0.14 | ) | $ | (0.42 | ) | $ | (0.69 | ) | ||||||
See accompanying notes to consolidated financial statements.
2
CAPSTONE TURBINE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001 and SEPTEMBER 30, 2002
(Unaudited)
| Common Stock | ||||||||||||||||||||
| Additional | ||||||||||||||||||||
| Shares | Paid In | Accumulated | ||||||||||||||||||
| Outstanding | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, December 31, 2000 |
75,771,303 | $ | 76,000 | $ | 516,738,000 | $ | (237,432,000 | ) | $ | 279,382,000 | ||||||||||
Stock-based compensation |
— | — | 1,591,000 | — | 1,591,000 | |||||||||||||||
Exercise of stock options and
employee stock purchases |
1,242,956 | 1,000 | 2,134,000 | — | 2,135,000 | |||||||||||||||
Stock issuance costs |
— | — | (110,000 | ) | — | (110,000 | ) | |||||||||||||
Net loss |
— | — | — | (32,217,000 | ) | (32,217,000 | ) | |||||||||||||
Balance, September 30, 2001 |
77,014,259 | $ | 77,000 | $ | 520,353,000 | $ | (269,649,000 | ) | $ | 250,781,000 | ||||||||||
Balance, December 31, 2001 |
77,207,383 | $ | 77,000 | $ | 521,668,000 | $ | (284,291,000 | ) | $ | 237,454,000 | ||||||||||
Stock-based compensation |
— | — | 780,000 | — | 780,000 | |||||||||||||||
Exercise of stock options and
employee stock purchases |
324,677 | 1,000 | 213,000 | — | 214,000 | |||||||||||||||
Net loss |
— | — | — | (53,623,000 | ) | (53,623,000 | ) | |||||||||||||
Balance, September 30, 2002 |
77,532,060 | $ | 78,000 | $ | 522,661,000 | $ | (337,914,000 | ) | $ | 184,825,000 | ||||||||||
See accompanying notes to consolidated financial statements.
3
CAPSTONE TURBINE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2001 | 2002 | |||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net loss |
$ | (32,217,000 | ) | $ | (53,623,000 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
7,489,000 | 8,065,000 | ||||||||||
Impairment loss |
— | 15,999,000 | ||||||||||
Provision for doubtful accounts |
74,000 | 169,000 | ||||||||||
Provision for inventory reserves |
1,834,000 | 3,002,000 | ||||||||||
Loss on disposal of equipment |
68,000 | 86,000 | ||||||||||
Non-employee stock compensation |
361,000 | — | ||||||||||
Employee stock compensation |
1,230,000 | 780,000 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(3,921,000 | ) | 2,028,000 | |||||||||
Inventory |
(14,692,000 | ) | 1,883,000 | |||||||||
Prepaid expenses and other current assets |
(125,000 | ) | (1,220,000 | ) | ||||||||
Other assets |
— | (267,000 | ) | |||||||||
Accounts payable |
292,000 | (110,000 | ) | |||||||||
Accrued salaries and wages and deferred compensation |
21,000 | 319,000 | ||||||||||
Other accrued liabilities and deferred rent |
2,081,000 | (55,000 | ) | |||||||||
Accrued warranty reserve |
(1,136,000 | ) | 125,000 | |||||||||
Deferred revenue |
(1,865,000 | ) | (838,000 | ) | ||||||||
Net cash used in operating activities |
(40,506,000 | ) | (23,657,000 | ) | ||||||||
Cash Flows from Investing Activities: |
||||||||||||
Acquisition of and deposits on equipment and leasehold improvements |
(15,172,000 | ) | (2,116,000 | ) | ||||||||
Proceeds from sale of equipment |
1,000 | — | ||||||||||
Intangible assets |
(557,000 | ) | — | |||||||||
Net cash used in investing activities |
(15,728,000 | ) | (2,116,000 | ) | ||||||||
Cash Flows from Financing Activities: |
||||||||||||
Repayment of capital lease obligations |
(1,046,000 | ) | (976,000 | ) | ||||||||
Exercise of stock options and employee stock purchases |
2,135,000 | 214,000 | ||||||||||
Stock issuance costs |
(110,000 | ) | — | |||||||||
Net cash provided by (used in) financing activities |
979,000 | (762,000 | ) | |||||||||
Net Decrease in Cash and Cash Equivalents |
(55,255,000 | ) | (26,535,000 | ) | ||||||||
Cash and Cash Equivalents, Beginning of Period |
236,947,000 | 170,868,000 | ||||||||||
Cash and Cash Equivalents, End of Period |
$ | 181,692,000 | $ | 144,333,000 | ||||||||
Supplemental Disclosures of Cash Flow Information: |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 457,000 | $ | 316,000 | ||||||||
Income taxes |
$ | 1,000 | $ | 2,000 | ||||||||
See accompanying notes to consolidated financial statements.
4
CAPSTONE TURBINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Business and Organization
Capstone Turbine Corporation (the “Company”) develops, manufactures, and markets microturbine generator sets for use in stationary, combined heat and power generation, resource recovery, hybrid electric vehicles and other power and heat applications in the markets for distributed power generation. The Company was organized in 1988 and has been commercially producing its microturbine generators since 1998.
The Company has incurred significant operating losses since its inception. Management anticipates incurring additional losses until the Company can produce sufficient revenues to cover costs. To date, the Company has funded its activities primarily through private and public equity offerings.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X promulgated under the Securities Exchange Act of 1934. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at December 31, 2001 was derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. In the opinion of management the interim financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. Results of operations for any interim period are not necessarily indicative of results for any other interim period or for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
3. New Accounting Pronouncements
In July 2001, Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” was issued by the Financial Accounting Standards Board. SFAS No. 142 applies to all acquired intangible assets whether acquired singly, as part of a group, or in a business combination. SFAS No. 142 specifies that goodwill and indefinite lived intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. Intangible assets with a determinable useful life will continue to be amortized over that period. The Company adopted SFAS No. 142 effective January 1, 2002. The initial adoption of SFAS No. 142 did not have a significant impact on the Company’s consolidated financial position or results of operations.
Intangibles consisted of the following:
| December 31, 2001 | September 30, 2002 | |||||||||||||||||||||||