UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2003
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 (State or other jurisdiction of incorporation or organization) |
95-4180883 (I.R.S. Employer Identification No.) |
21211 Nordhoff Street, Chatsworth, California 91311
(Address of principal executive offices and zip code)
818-734-5300
(Registrant’s telephone number, including area code)
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 [X] No [ ]
The number of outstanding shares of the registrant’s common stock as of December 31, 2003 was 83,240,545.
1
CAPSTONE TURBINE CORPORATION
INDEX
| Page | ||||||||||
| Number | ||||||||||
PART I — FINANCIAL INFORMATION |
||||||||||
| Item 1. | Consolidated Financial Statements (Unaudited)
|
|||||||||
Consolidated Balance Sheets as of December 31, 2003 and March 31, 2003 |
3 | |||||||||
Consolidated Statements of Operations for the Three Months and Nine Months Ended
December 31, 2003 and December 31, 2002 |
4 | |||||||||
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2003 and December 31, 2002 |
5 | |||||||||
Notes to Consolidated Financial Statements |
6 | |||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
14 | ||||||||
| Item 4. | Controls and Procedures |
14 | ||||||||
PART II — OTHER INFORMATION |
||||||||||
| Item 1. | Legal Proceedings |
15 | ||||||||
| Item 5. | Other Information |
15 | ||||||||
| Item 6. | Exhibits and Reports on Form 8-K |
16 | ||||||||
| Signatures | 17 | |||||||||
2
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CAPSTONE TURBINE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| December 31, | March 31, | |||||||||||
| 2003 | 2003 | |||||||||||
Assets |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 111,719,000 | $ | 132,584,000 | ||||||||
Accounts receivable, net of allowance for doubtful accounts and sales returns of $508,000 at
December 31, 2003 and $414,000 at March 31, 2003 |
2,406,000 | 3,748,000 | ||||||||||
Inventory |
9,149,000 | 12,121,000 | ||||||||||
Prepaid expenses and other current assets |
1,719,000 | 1,341,000 | ||||||||||
Total current assets |
124,993,000 | 149,794,000 | ||||||||||
Equipment and Leasehold Improvements: |
||||||||||||
Machinery, equipment, and furniture |
21,136,000 | 23,914,000 | ||||||||||
Leasehold improvements |
8,499,000 | 8,480,000 | ||||||||||
Molds and tooling |
4,345,000 | 4,365,000 | ||||||||||
| 33,980,000 | 36,759,000 | |||||||||||
Less accumulated depreciation and amortization |
17,749,000 | 16,857,000 | ||||||||||
Total equipment and leasehold improvements, net |
16,231,000 | 19,902,000 | ||||||||||
Non-Current Portion of Inventory |
4,783,000 | 4,412,000 | ||||||||||
Intangible Asset, net |
1,761,000 | 1,961,000 | ||||||||||
Other Assets |
472,000 | 578,000 | ||||||||||
Total |
$ | 148,240,000 | $ | 176,647,000 | ||||||||
Liabilities and Stockholders’ Equity |
||||||||||||
Current Liabilities: |
||||||||||||
Accounts payable |
$ | 2,282,000 | $ | 2,156,000 | ||||||||
Accrued salaries and wages |
1,725,000 | 1,472,000 | ||||||||||
Other accrued liabilities |
1,888,000 | 1,117,000 | ||||||||||
Accrued warranty reserve |
6,725,000 | 6,657,000 | ||||||||||
Deferred revenue |
1,077,000 | 1,253,000 | ||||||||||
Current portion of capital lease obligations |
808,000 | 1,411,000 | ||||||||||
Total current liabilities |
14,505,000 | 14,066,000 | ||||||||||
Long-Term Portion of Capital Lease Obligations |
105,000 | 736,000 | ||||||||||
Other Long-Term Liabilities |
1,185,000 | 1,277,000 | ||||||||||
Commitments and Contingencies |
— | — | ||||||||||
Stockholders’ Equity: |
||||||||||||
Common stock, $.001 par value; 415,000,000 shares authorized; 83,791,753 shares issued
and 83,240,545 shares outstanding at December 31, 2003; 81,700,735 shares issued
and 81,248,782 shares outstanding at March 31, 2003 |
84,000 | 82,000 | ||||||||||
Additional paid-in capital |
529,652,000 | 527,188,000 | ||||||||||
Accumulated deficit |
(396,238,000 | ) | (366,281,000 | ) | ||||||||
Less: Deferred stock compensation |
(540,000 | ) | — | |||||||||
Less: Treasury stock, at cost; 551,208 shares at December 31, 2003;
451,953 shares at March 31, 2003 |
(513,000 | ) | (421,000 | ) | ||||||||
Total stockholders’ equity |
132,445,000 | 160,568,000 | ||||||||||
Total |
$ | 148,240,000 | $ | 176,647,000 | ||||||||
See accompanying notes to consolidated financial statements.
3
CAPSTONE TURBINE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three | Nine | |||||||||||||||||
| Months Ended | Months Ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenues |
$ | 3,251,000 | $ | 3,643,000 | $ | 9,730,000 | $ | 14,938,000 | ||||||||||
Cost of Goods Sold |
6,359,000 | 16,049,000 | 17,649,000 | 33,981,000 | ||||||||||||||
Gross Loss |
(3,108,000 | ) | (12,406,000 | ) | (7,919,000 | ) | (19,043,000 | ) | ||||||||||
Operating Expenses: |
||||||||||||||||||
Research and development |
3,034,000 | 2,028,000 | 7,886,000 | 5,527,000 | ||||||||||||||
Selling, general and administrative |
5,688,000 | 6,779,000 | 15,007,000 | 23,486,000 | ||||||||||||||
Impairment loss on marketing rights |
— | — | — | 15,999,000 | ||||||||||||||
Total operating expenses |
8,722,000 | 8,807,000 | 22,893,000 | 45,012,000 | ||||||||||||||
Loss from Operations |
(11,830,000 | ) | (21,213,000 | ) | (30,812,000 | ) | (64,055,000 | ) | ||||||||||
Interest Income |
302,000 | 574,000 | 1,011,000 | 2,017,000 | ||||||||||||||
Interest Expense |
(38,000 | ) | (90,000 | ) | (154,000 | ) | (292,000 | ) | ||||||||||
Other Income |
(1,000 | ) | (3,000 | ) | (2,000 | ) | 5,000 | |||||||||||
Loss Before Income Taxes |
(11,567,000 | ) | (20,732,000 | ) | (29,957,000 | ) | (62,325,000 | ) | ||||||||||
Provision for Income Taxes |
— | — | — | — | ||||||||||||||
Net Loss |
$ | (11,567,000 | ) | $ | (20,732,000 | ) | $ | (29,957,000 | ) | $ | (62,325,000 | ) | ||||||
Weighted Average Common Shares Outstanding |
82,705,535 | 80,168,807 | 81,908,416 | 78,378,535 | ||||||||||||||
Net Loss Per Share of Common Stock – Basic and Diluted |
$ | (0.14 | ) | $ | (0.26 | ) | $ | (0.37 | ) | $ | (0.80 | ) | ||||||
See accompanying notes to consolidated financial statements.
4
CAPSTONE TURBINE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||||||
| December 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net loss |
$ | (29,957,000 | ) | $ | (62,325,000 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
4,747,000 | 6,808,000 | ||||||||||
Impairment loss on fixed assets and manufacturing license |
— | 5,016,000 | ||||||||||
Impairment loss on marketing rights |
— | 15,999,000 | ||||||||||
Provision for doubtful accounts and sales returns |
280,000 | 90,000 | ||||||||||
Inventory write-down |
56,000 | 4,321,000 | ||||||||||
Provision for warranty expenses |
3,454,000 | 5,328,000 | ||||||||||
Loss on disposal of equipment |
243,000 | 65,000 | ||||||||||
Non-employee stock compensation |
74,000 | — | ||||||||||
Employee and director stock compensation |
462,000 | 759,000 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
1,062,000 | 167,000 | ||||||||||
Inventory |
2,545,000 | 331,000 | ||||||||||
Prepaid expenses and other current assets |
(378,000 | ) | (1,027,000 | ) | ||||||||
Other assets |
— | 100,000 | ||||||||||
Accounts payable |
126,000 | 1,543,000 | ||||||||||
Accrued salaries and wages and deferred compensation |
227,000 | 791,000 | ||||||||||
Other accrued liabilities |
705,000 | 867,000 | ||||||||||
Accrued warranty reserve |
(3,386,000 | ) | (3,098,000 | ) | ||||||||
Deferred revenue |
(176,000 | ) | (653,000 | ) | ||||||||
Net cash used in operating activities |
(19,916,000 | ) | (24,918,000 | ) | ||||||||
Cash Flows from Investing Activities: |
||||||||||||
Acquisition of and deposits on fixed assets |
(1,111,000 | ) | (2,121,000 | ) | ||||||||
Proceeds from disposal of fixed assets |
26,000 | — | ||||||||||
Net cash used in investing activities |
(1,085,000 | ) | (2,121,000 | ) | ||||||||
Cash Flows from Financing Activities: |
||||||||||||
Repayment of capital lease obligations |
(1,162,000 | ) | (994,000 | ) | ||||||||
Exercise of stock options and employee stock purchases |
1,390,000 | 200,000 | ||||||||||
Net proceeds from issuance of common stock |
— | 3,985,000 | ||||||||||
Purchase of treasury stock |
(92,000 | ) | (206,000 | ) | ||||||||
Net cash provided by financing activities |
136,000 | 2,985,000 | ||||||||||
Net Decrease in Cash and Cash Equivalents |
(20,865,000 | ) | (24,054,000 | ) | ||||||||
Cash and Cash Equivalents, Beginning of Period |
132,584,000 | 164,364,000 | ||||||||||
Cash and Cash Equivalents, End of Period |
$ | 111,719,000 | $ | 140,310,000 | ||||||||
Supplemental Disclosures of Cash Flow Information: |
||||||||||||
Cash paid during the period for: |
||||||||||||
Interest |
$ | 154,000 | $ | 292,000 | ||||||||
Income taxes |
$ | — | $ | — | ||||||||
See accompanying notes to consolidated financial statements.
5
CAPSTONE TURBINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business and Organization
Capstone Turbine Corporation (the “Company”) develops, manufactures and sells microturbine generator sets for use in combined heat and power generation, resource recovery, hybrid electric vehicles and other power, heat and cooling applications in the markets for distributed power generation around the world. 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 and expenses. 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. 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, 2002.
Certain reclassifications have been made in some prior year balances to match the current year’s presentation.
3. Change in Fiscal Year
On December 12, 2003, the Company changed its fiscal year end from December 31 to March 31. A report for the three-month transition period from January 1, 2003 through March 31, 2003 was filed with the Securities and Exchange Commission on January 26, 2004. The Company’s new fiscal year commenced on April 1, 2003 and ends on March 31, 2004.
4. New Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (revised in December 2003) (“FIN 46-R”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities (“VIEs”) that either: (i) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (ii) are owned by equity investors who lack an essential characteristic of a controlling financial interest. Generally, application of FIN 46-R is required in financial statements of public entities that have interests in structures commonly referred to as special-purpose entities for periods ending after December 15, 2003, and, for other types of VIEs, for periods ending after March 15, 2004. The Company has reviewed this pronouncement and determined it is not applicable since the Company does not own or have an investment in any VIEs.
5. Inventory
Inventory is stated at the lower of standard cost (which approximates actual cost on the first-in, first-out method) or market and consists of the following:
| December 31, | March 31, | |||||||
| 2003 | 2003 | |||||||
Raw materials |
$ | 9,625,000 | $ | 12,724,000 | ||||
Work in process |
1,959,000 | 2,271,000 | ||||||
6
CAPSTONE TURBINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
| December 31, | March 31, | ||||||||
| 2003 | 2003 | ||||||||
Finished goods |
2,348,000 | 1,538,000 | |||||||
Total |
13,932,000 | 16,533,000 | |||||||
Less non-current portion |
4,783,000 | 4,412,000 | |||||||
Current portion |
$ | 9,149,000 | $ | 12,121,000 | |||||
The non-current portion of inventory represents that portion of the inventory in excess of amounts expected to be sold or used in the next twelve months.
6. Intangible Asset
The intangible asset represents the license granted to the Company to use a former supplier’s intellectual property for the design and manufacture of licensed product for use in microturbines. Additional information is as follows:
| December 31, | March 31, | ||||||||
| 2003 | 2003 | ||||||||
Gross carrying amount |
$ | 3,663,000 | $ | 3,663,000 | |||||
Less accumulated amortization and impairment loss |
1,902,000 | 1,702,000 | |||||||
Net |
$ | 1,761,000 | $ | 1,961,000 | |||||
This intangible asset, which was acquired in 2000, is being amortized over its estimated useful life of ten years. Related amortization expense for the three-month and nine-month periods ended December 31, 2003 was $67,000 and $200,000, respectively, compared with $94,000 and $281,000 for the same periods last year. This intangible asset is scheduled to be fully amortized by 2010 with corresponding amortization estimated to be $66,000, $267,000, $267,000, $267,000, $267,000 and $627,000, for the remainder of fiscal 2004, fiscal years 2005, 2006, 2007, 2008, and thereafter, respectively.
7. Stock-Based Compensation
The following table is presented in accordance with SFAS No. 148 and illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123:
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| In Thousands (except per share amounts) | 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net loss, as reported |
$ | (11,567 | ) | $ | (20,732 | ) | $ | (29,957 | ) | $</ | |||||||