<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 SEPTEMBER 30, 2000
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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4180883
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
21211 NORDHOFF STREET, CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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 [ ] No [X]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 74,938,602 shares of
Common Stock, $.001 par value, as of September 30, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
CAPSTONE TURBINE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 1999 and September 30,
2000...................................................... 1
Condensed Statements of Operations for the Three Months
Ended September 30, 1999 and September 30, 2000 and for
the Nine Months Ended September 30, 1999 and September 30,
2000...................................................... 2
Condensed Statement of Stockholders' (Deficiency) Equity for
the Nine Months Ended September 30, 2000.................. 3
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and September 30, 2000................. 4
Notes to Condensed Financial Statements..................... 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 9
Overview.................................................... 9
Three Months Ended September 30, 2000 Compared to Three
Months Ended September 30, 1999........................... 9
Nine Months Ended September 30, 2000 Compared to Nine Months
Ended September 30, 1999.................................. 10
Liquidity and Capital Resources............................. 11
Qualitative and Quantitative Disclosures About Market
Item 3. Risk...................................................... 12
Risk Factors................................................ 12
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........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures............................................................ 17
</TABLE>
i
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPSTONE TURBINE CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 6,858,000 $ 229,783,000
Accounts receivable, net of allowance for doubtful
accounts of $50,000 at December 31, 1999 and $85,000 at
September 30, 2000..................................... 2,425,000 3,384,000
Inventory (Note 5)........................................ 8,803,000 10,976,000
Prepaid expenses and other current assets................. 2,217,000 1,440,000
------------- -------------
Total Current Assets.............................. 20,303,000 245,583,000
------------- -------------
Equipment and Leasehold Improvements:
Machinery, equipment and furniture........................ 11,824,000 13,336,000
Leasehold improvements.................................... 137,000 2,902,000
Molds and tooling......................................... 541,000 994,000
------------- -------------
12,502,000 17,232,000
Less accumulated depreciation and amortization.............. 4,570,000 6,203,000
------------- -------------
Total equipment and leasehold improvements........ 7,932,000 11,029,000
------------- -------------
Deposits on fixed assets.................................... 3,374,000 5,296,000
Other assets................................................ 422,000 752,000
Intangible assets, net...................................... 4,896,000 26,856,000
------------- -------------
Total............................................. $ 36,927,000 $ 289,516,000
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,728,000 $ 4,581,000
Accrued salaries and wages................................ 677,000 1,026,000
Other accrued liabilities................................. 2,340,000 978,000
Accrued warranty reserve.................................. 3,168,000 6,037,000
Deferred revenue.......................................... 4,696,000 5,951,000
Current portion of capital lease obligations.............. 1,400,000 1,582,000
------------- -------------
Total current liabilities......................... 14,009,000 20,155,000
------------- -------------
Non-current Liabilities:
Long-term portion of capital lease obligations............ 4,499,000 4,381,000
Other long-term liabilities............................... 161,000
Accrued dividends payable................................. 6,175,000
------------- -------------
Total non-current liabilities..................... 10,674,000 4,542,000
------------- -------------
Commitments and Contingencies (Note 8)
Total redeemable preferred stock (Note 6)................... 156,469,000
------------- -------------
Stockholders' (Deficiency) Equity (Note 6):
Common stock, $.001 par value; 415,000,000 shares
authorized; 2,377,826 and 74,938,602 shares issued and
outstanding at December 31, 1999 and September 30, 2000
respectively........................................... 2,000 75,000
Additional paid in capital................................ 495,818,000
Accumulated deficit....................................... (144,227,000) (231,074,000)
------------- -------------
Total stockholders' (deficiency) equity........... (144,225,000) 264,819,000
------------- -------------
Total............................................. $ 36,927,000 $ 289,516,000
============= =============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 4
CAPSTONE TURBINE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues (Note 3)................... $ 759,000 $ 6,197,000 $ 1,315,000 $ 16,029,000
Cost of Goods Sold.................. 1,990,000 7,278,000 4,570,000 20,658,000
------------ ------------ ------------ -------------
Gross Profit (Loss)............ (1,231,000) (1,081,000) (3,255,000) (4,629,000)
Operating Costs and Expenses:
Research and development.......... 2,259,000 2,953,000 6,681,000 8,416,000
Selling, general and
administrative................. 2,748,000 7,203,000 7,818,000 17,264,000
------------ ------------ ------------ -------------
Total operating costs and
expenses................ 5,007,000 10,156,000 14,499,000 25,680,000
------------ ------------ ------------ -------------
Income (Loss) from Operations....... (6,238,000) (11,237,000) (17,754,000) (30,309,000)
Interest Income..................... 133,000 3,385,000 350,000 6,007,000
Interest Expense.................... (151,000) (197,000) (463,000) (733,000)
Other Income (Expense).............. 3,000 (32,000) 5,000 (31,000)
------------ ------------ ------------ -------------
Profit (Loss) Before Income Taxes... (6,253,000) (8,081,000) (17,862,000) (25,066,000)
Provision for Income Taxes.......... 1,000 1,000
------------ ------------ ------------ -------------
Net Income (Loss)................... (6,253,000) (8,081,000) (17,863,000) (25,067,000)
------------ ------------ ------------ -------------
Preferred Stock Dividends,
Accretion, and Repurchase......... (5,167,000) (6,287,000) (559,862,000)
------------ ------------ ------------ -------------
Net Loss Attributable to Common
Shareholders...................... $(11,420,000) $ (8,081,000) $(24,150,000) $(584,929,000)
============ ============ ============ =============
Weighted Average Common Shares
Outstanding....................... 2,352,736 74,931,668 2,267,993 36,317,944
============ ============ ============ =============
Net Loss Per Share of Common
Stock -- Basic and Diluted........ $ (4.85) $ (0.11) $ (10.65) $ (16.11)
============ ============ ============ =============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
CAPSTONE TURBINE CORPORATION
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
SHARES PAID IN ACCUMULATED
OUTSTANDING AMOUNT CAPITAL DEFICIT TOTAL
----------- ------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1999..................... 2,377,826 $ 2,000 $ -- $(144,227,000) $(144,225,000)
Common stock warrants
granted.................. 8,132,000 8,132,000
Common stock options
granted.................. 1,239,000 1,239,000
Exercise of options and
warrants................. 10,793,693 12,000 2,831,000 2,843,000
Repurchase of preferred
stock.................... 2,209,000 454,000 2,663,000
Accretion of preferred
stock.................... (13,883,000) (457,593,000) (471,476,000)
Dividends accrued for
preferred stock.......... (1,028,000) (1,028,000)
Beneficial conversion
feature preferred
stock.................... (89,567,000) (89,567,000)
Dividends waived on
preferred stock.......... 440,000 6,309,000 6,749,000
Conversion of preferred
stock.................... 51,312,037 51,000 341,296,000 479,645,000 820,992,000
Issuance of common stock... 10,455,046 10,000 153,554,000 153,564,000
Net loss................... (25,067,000) (25,067,000)
---------- ------- ------------ ------------- -------------
Balance, September 30,
2000..................... 74,938,602 $75,000 $495,818,000 $(231,074,000) $ 264,819,000
========== ======= ============ ============= =============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 6
CAPSTONE TURBINE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(17,863,000) $(25,067,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,829,000 4,847,000
Provision for inventory reserve........................ 407,000
Loss on sale of equipment.............................. 179,000 35,000
Non-employee stock compensation........................ 74,000 60,000
Employee stock compensation............................ 70,000 1,239,000
Changes in operating assets and liabilities:
Accounts receivable.................................. (699,000) (959,000)
Prepaid expenses and other assets.................... (284,000) 447,000
Inventory............................................ (968,000) (2,580,000)
Accounts payable..................................... (300,000) 2,853,000
Accrued salaries and wages........................... 215,000 349,000
Other accrued liabilities............................ (3,192,000) (1,201,000)
Accrued warranty reserve............................. 410,000 2,869,000
Deferred revenue..................................... 665,000 1,255,000
------------ ------------
Net cash used in operating activities............. (19,864,000) (15,446,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment and leasehold improvements......... (3,020,000) (5,251,000)
Proceeds from sale of equipment............................. 1,445,000 1,253,000
Deposits on fixed assets.................................... 907,000 (1,922,000)
Intangible assets........................................... (1,000,000) (16,550,000)
------------ ------------
Net cash used in investing activities............. (1,668,000) (22,470,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations...................... (790,000) (1,150,000)
Exercise of stock options and warrants...................... 44,000 3,549,000
Net proceeds from issuance of common stock.................. 153,572,000
Net proceeds from issuance of Series F preferred stock...... 21,789,000
Net proceeds from issuance of Series G preferred stock...... 120,362,000
Repurchase of preferred stock............................... (15,492,000)
------------ ------------
Net cash provided by financing activities......... 21,043,000 260,841,000
------------ ------------
Net Increase in Cash and Cash Equivalents................... (489,000) 222,925,000
Cash and Cash Equivalents, Beginning of Period.............. 4,943,000 6,858,000
------------ ------------
Cash and Cash Equivalents, End of Period.................... $ 4,454,000 $229,783,000
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest............................................... $ 463,000 $ 588,000
Income taxes........................................... $ 1,000 $ 1,000
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
CAPSTONE TURBINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Business. Capstone Turbine Corporation (the "Company") develops,
manufactures, and markets microturbine generator sets for use in stationary,
vehicular, and other electrical distributed generation applications. The Company
was organized in 1988 and has been commercially producing its microturbine
generator since 1998.
Organization. On June 22, 2000, the Company reincorporated as a Delaware
Corporation. On June 28, 2000, the Company's Registration Statement on Form S-1,
File No. 333-33024, became effective, and the Company consummated the sale of
10,454,545 shares of common stock in an initial public offering (See Note 5).
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X
promulgated under the Securities and Exchange Act of 1934. Correspondingly, 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, 1999 was derived from audited financial statements
included in the Company's Registration Statement on Form S-1. In the opinion of
management the 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 Registration Statement on Form S-1.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission staff (the "Staff") issued Staff
Accounting Bulletin Number 101 -- Revenue Recognition in Financial Statements
("SAB 101") in December 1999. Under the Company's revenue recognition policy,
product revenue is recognized upon shipment of the product to the customer.
There are no rights of return privileges on product sales. Therefore, there was
no impact on the Company's operating results as a result of its adoption of SAB
101.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instrument and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments. It
requires the recognition of all derivatives as either assets or liabilities in
the statement of position and measurement of the instruments at fair value. The
Company is required to adopt SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133," on January 1, 2001 and is currently evaluating
the impact on the financial statements.
5
<PAGE> 8
CAPSTONE TURBINE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SEGMENT REPORTING
The Company has a single operating segment under Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information." The Company's business activities in its operating segment
are the development, manufacture and sale of microturbine generator sets. Set
forth below is a breakdown of the Company's revenues by region:
<TABLE>
<CAPTION>
THREE-MONTHS THREE-MONTHS NINE-MONTHS NINE-MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
North America................. $590,000 $4,009,000 $1,059,000 $10,261,000
Asia.......................... 99,000 1,867,000 161,000 5,264,000
Europe........................ 70,000 321,000 95,000 504,000
-------- ---------- ---------- -----------
Total............... $759,000 $6,197,000 $1,315,000 $16,029,000
======== ========== ========== ===========
</TABLE>
5. INVENTORIES
Inventories are stated at the lower of standard cost (which approximates
actual cost on the first-in, first-out method) or market value. The amounts
below are net of $3,243,000 and $2,120,000 of obsolescence reserves at December
31, 1999 and September 30, 2000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Raw materials............................................. $7,579,000 $ 8,788,000
Work in process........................................... 1,036,000 1,694,000
Finished goods............................................ 188,000 494,000
---------- -----------
Total........................................... $8,803,000 $10,976,000
========== ===========
</TABLE>
6. CAPITAL STRUCTURE
On June 28, 2000, the Company entered into an agreement to sell
approximately 10.5 million shares of common stock at an offering price of $16.00
per share through an initial public stock offering. All of the shares sold in
the offering were sold by the Company. The gross proceeds from the initial
public offering were $167.3 million and the Company incurred $13.7 million in
costs in connection with the offering. All of the proceeds from the offering
were received July 5, 2000.
Prior to the public offering, the Company had several series of preferred
stock outstanding. It therefore accreted the difference between the redemption
value of each series of preferred stock and the net proceeds received in each
preferred stock offering under the effective interest method from the respective
stock issuance date of each series to the respective redemption date. The
accretion was recorded as a component of earnings attributable to common
shareholders. The Company also recorded the accrual of preferred stock dividends
under the effective interest method. In February 2000, the Company issued its
Series G preferred stock, which was issued with an $89.6 million beneficial
conversion feature, as the fair value of the common stock into which the
preferred stock was convertible exceeded the carrying value.
As a result of the Company's public offering, the remaining fair value
accretion with respect to its preferred stock of $471.5 million was recorded as
a component of loss attributable to common shareholders during the nine-month
period ended September 30, 2000. All outstanding shares of the Company's
preferred stock converted into approximately 51.3 million shares of common stock
as a result of the public offering. Of the $821.0 million carrying value of the
preferred stock, $479.6 million was recorded as an increase to accumulated
deficit and $341.3 million was recorded as an increase to additional paid-in
capital, amounts
6
<PAGE> 9
CAPSTONE TURBINE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
equal to previously recorded accretion charges. The following summarizes the
Redeemable Preferred Stock as of December 31, 1999:
<TABLE>
<S> <C>
Series A preferred stock, $.001 par value; 6,570,000 shares
issued and outstanding (involuntary liquidation preference
of $6,570,000, net of unamortized accretion of origination
fees of $37,000).......................................... $ 15,183,000
Series B preferred stock, $.001 par value; 3,333,334 shares
issued and outstanding (involuntary liquidation preference
of $5,000,000, net of unamortized accretion of origination
fees of $34,000).......................................... $ 8,928,000
Series C preferred stock, $.001 par value; 7,655,018 shares
issued and outstanding (involuntary liquidation preference
of $15,310,000, net of unamortized accretion of
origination fees of $266,000)............................. $ 23,324,000
Series D preferred stock, $.001 par value; 3,125,000 shares
issued and outstanding (involuntary liquidation preference
of $12,500,000, net of unamortized accretion of
origination fees of $14,000).............................. $ 14,313,000
Series E preferred stock, $.001 par value; 10,664,111 shares
issued and outstanding (involuntary liquidation preference
of $63,985,000, net of unamortized accretion of
origination fees of $995,000)............................. $ 62,984,000
Series F preferred stock, $.001 par value; 11,129,246 shares
issued and outstanding (involuntary liquidation preference
of $22,258,000, net of unamortized accretion of
origination fees of $2,697,000)........................... $ 20,903,000
Promissory notes associated with Series G preferred stock... $ 10,834,000
------------
Total redeemable preferred stock.................. $156,469,000
============
</TABLE>
The Company accrued $1.0 million in preferred stock dividends, which were
recorded as a component of earnings attributable to common shareholders during
the nine-month period ended September 30, 2000. $6.7 million in accrued
preferred stock dividends were waived as a result of the automatic conversion of
preferred stock into common stock and were also reversed, which resulted in an
increase to accumulated deficit of $6.3 million and an increase to additional
paid-in capital of $440,000, amounts equal to previously recorded dividend
accrual charges.
As part of a stock repurchase and settlement agreement entered into by the
Company in May 2000, the Company reacquired 2,319,129 shares of Series E
preferred stock for $6.68 per share, which was less than the carrying value on
the reacquisition date. The excess carrying value over the reacquisition price
of $2.2 million was recorded as additional paid-in capital and included as a
component of net earnings attributable to common shareholders during the
nine-months ended September 30, 2000.
10,793,693 shares of common stock were issued from the exercise of common
and preferred stock warrants during the nine-month period ended September 30,
2000.
7. STOCK OPTION PLANS
In June 2000, the Company adopted the 2000 Equity Incentive Plan, as a
successor plan to the 1993 Incentive Stock Plan. The 2000 Plan provides for
awards of up to 3,300,000 shares of common stock, plus the number of shares
previously authorized and remaining available under the 1993 Plan. In June 2000,
the Company adopted the 2000 Employee Stock Purchase Plan, which provides for
the issuance of up to 900,000 shares.
The Company has elected to continue to apply Accounting Principle Board
Opinion ("APB Opinion") No. 25, "Accounting for Stock Issued to Employees," in
its employee stock-based compensation arrangements. Under APB Opinion No. 25,
compensation cost is recognized based on the intrinsic value of the equity
instrument awarded. Expense for common stock options granted to non-employees is
recorded based upon the fair value of the equity instrument awarded calculated
through the use of an option-pricing model.
7
<PAGE> 10
CAPSTONE TURBINE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During 1999 and the nine-months ended September 30, 2000, the Company
issued common stock options at less than the fair value of its common stock.
Accordingly, the Company recorded stock-based compensation expense of $44,000
and $488,000 for the three-month periods ended September 30, 1999 and September
30, 2000, and $70,000 and $1,239,000 for the nine-month periods ended September
30, 1999 and September 30, 2000, respectively. Stock-based compensation expense
for the nine-month period ended September 30, 1999 was included in cost of goods
sold, research and development and selling, general, and administrative expenses
in the amounts of $1,000, $13,000 and $56,000, respectively. Stock-based
compensation expense for the nine-month period ended September 30, 2000 was
included in cost of goods sold, research and development, and selling, general,
and administrative expenses in the amounts of $43,000, $233,000, and $963,000,
respectively. As of September 30, 2000, the Company had $6.6 million in deferred
stock compensation related to stock options, which will be recognized as
stock-based compensation expense through 2004 as the amortization is based on
the vesting period.
8. COMMITMENTS AND CONTINGENCIES
In August 2000, the Company entered into a Transition Agreement and Amended
and Restated License Agreement with a supplier, requiring a total of $9.1
million in payments. $3.1 million was paid in August 2000 and the balance is
owed based on various milestones through April 2001. Under the terms of the
Agreements, the Company will acquire fixed assets and manufacturing technology,
which will provide the Company with the ability to manufacture components
previously purchased from the supplier. The Agreements require the Company to
pay a per unit royalty fee over a seventeen-year period. As a result of these
agreements, the Company and supplier mutually terminated any obligations under
their prior agreements.
9. RELATED PARTY TRANSACTIONS
In 1999, the Company reacquired contractual marketing rights for certain
territories from a shareholder. As part of the agreement, the Company paid $5.0
million in 1999 and $4.0 million in January 2000. In February 2000, the Company
issued 1,250,000 shares of preferred stock with a fair value of $8.3 million as
part of the consideration paid to reacquire the marketing rights. Because the
stock issuance was part of the consideration, it was recorded at its fair value
in accordance with SFAS 123. In addition, the agreement for the repurchase of
the marketing rights provided for the acceleration of future royalty payments in
the event of an initial public offering. In July 2000, the Company paid $11.0
million in royalty payments, consisting of $204,000 in previously recorded
royalty liability and $10.8 million in accelerated royalty liability. As of
September 30, 2000, the Company has recorded as an intangible asset $25.3
million reflecting the repurchase of the marketing rights, which are being
amortized over the original agreement period of 6 years. The Company recorded
$1.4 million and $2.8 million in amortization expense relating to this
intangible asset to selling, general, and administrative expenses for the
three-month and nine-month periods ended September 30, 2000, respectively.
During June and July 2000, the Company loaned an aggregate of $300,000 to
two of its senior vice presidents. The loans are secured by deeds of trusts and
bear interest at 6.80%. As of September 30, 2000, $300,000 of the principal
amount of the loans were outstanding. The notes require repayment in four annual
installments beginning in 2001.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Form 10-Q and within
Capstone's Registration Statement on Form S-1, File No. 333-33024. When used in
the following discussion, the words "believes", "anticipates", "intends",
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected.
These risks include those identified under "Risk Factors" in Capstone's
Registration Statement on Form S-1, File No. 333-33024 and those identified at
the end of this discussion in this filing. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
hereof.
OVERVIEW
Capstone develops, manufactures and markets microturbine technology for use
in stationary, combined heat and power generation, resource recovery, hybrid
electric vehicle, and other power and heat applications in the multi-billion
dollar market for distributed power generation. Our microturbines provide power
at the site of consumption and to hybrid electric vehicles that combine a
primary source battery with an auxiliary power source, such as a microturbine,
to enhance performance. We believe the simple and flexible design of our
microturbines will enable our distributors and end users to develop an
increasingly broad range of applications to fit their particular power needs.
Capstone expects its microturbines to provide the commercial power generation
industry with clean, multifunctional, and scalable distributed power sources.
We began commercial sales of our units in 1998 targeting the emerging
distributed generation industry that is being driven by fundamental changes in
power requirements. We are currently focusing on strengthening our sales and
marketing efforts, development of new products, acquisition of intellectual
property rights and manufacturing facility expansion, which will result in
higher operating expenses. We intend to achieve long-run profitability through
production efficiencies and economies of scale. Specifically, we have
consolidated our administrative and production operations into one building, we
are entering into new supplier contracts to reduce overall unit costs and we are
developing new higher profit margin products.
We sell complete microturbine units subassemblies and components. Our
microturbines can be fueled by natural gas, propane, sour gas, kerosene and
diesel. We will continue investing significant resources to develop new products
and enhancements, including enhancements that enable greater kilowatt power
production, additional fuel capabilities and additional distributed power
generation solutions such as co-generation applications.
Since inception through September 30, 2000, we generated cumulative
operating losses of approximately $141.5 million and we expect to continue to
sustain operating losses through fiscal year 2001. Our sales cycles vary by
application and geographic region, and in many cases require long lead times
between identifying customer needs and providing commercially available
solutions. As a result of anticipated increases in our operating expenses
resulting from our expansion and the difficulty in forecasting revenue levels,
we expect our quarterly performance to fluctuate. We are also a young company
with respect to sales growth, and therefore period-to-period comparisons between
years may not necessarily be meaningful.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenues for the three-months ended September 30, 2000 increased
$5.4 million to $6.2 million compared to $759,000 for the three months ended
September 30, 1999. The increase in revenues is attributable to our expanding
marketing efforts, which have resulted in a larger customer base. Revenues for
the three-month periods ending September 30, 2000 and 1999 were derived
primarily from unit sales of our 30-kilowatt product for various commercial
applications and fuel types. In September 2000, we shipped our first 60-kilowatt
unit. During the three months ended September 30, 2000, we shipped 211 units, an
increase of 189 units over the 22 units we shipped in the three months ended
September 30, 1999.
Gross Profit (Loss). Cost of goods sold includes direct material costs,
assembly and testing, compensation and benefits, overhead allocations for
facilities and administration, and warranty reserve charges. Our
9
<PAGE> 12
gross loss for the three months ended September 30, 2000 decreased $176,000 to
($1.1) million compared to ($1.2) million for the three months ended September
30, 1999. Gross loss as a percentage of revenue declined as production overhead
costs were allocated over larger volumes of production. Costs for replacement
parts and systems are charged against our warranty reserve, which is accrued
through charges to costs of goods sold. The warranty reserve charge increased
$804,000 to $1.1 million for the three-months ended September 30, 2000 from
$247,000 for the three months ended September 30, 1999 due to an increase in
unit shipments. Warranty charges continued to decline on a per unit basis and we
reduced our per unit warranty charge during the third quarter of fiscal year
2000 based on our actual warranty loss experience.
Research and Development Expenses. Research and development expenses
include compensation, the engineering department overhead allocations for
administration and facilities, and material costs associated with development.
Research and development expenses are for existing products line expansion and
for next generation products. Research and development expenses for the
three-months ended September 30, 2000 increased $694,000, or 31%, to $3.0
million compared to $2.3 million for the three-months ended September 30, 1999.
Research and development expenses related primarily to the development of our
60-kilowatt unit and the broadening of our existing product line for new fuel
types and applications.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses include compensation and related expenses in support of
our general corporate functions, which include human resources, finance and
accounting, information systems and legal services. Selling, general, and
administrative expenses for the three months ended September 30, 2000 increased
$4.5 million, or 162%, to $7.2 million compared to $2.7 million for the three
months ended September 30, 1999. The Company continues to expand its selling and
marketing efforts through increases in staff headcount and related overhead
expenses, which contributed to most of the increases versus last year during the
same period. We anticipate this trend to continue as we enter into new markets
and develop sales and marketing programs. $444,000 of the increase is
attributable to non-cash, stock-based compensation expense and $1.8 million to
marketing rights amortization expense. Stock-based compensation expenses will
continue at least through 2004, as the expense is based on the vesting period of
the underlying instruments. Marketing rights amortization expenses will continue
through 2005, as the expense is amortized over the original tenure of the
contract.
Interest and Other Income (Expense). Interest and other income (expense)
for the three months ended September 30, 2000 increased $3.2 million to $3.2
million compared to ($15,000) for the three months ended September 30, 1999. The
increase is primarily attributable to higher interest income from higher average
investment balances due to the funds received from the Series G preferred stock
issuance in February 2000 and the initial public offering in July 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues. Revenues for the nine-months ended September 30, 2000 increased
$14.7 million to $16.0 million compared to $1.3 million for the nine-months
ended September 30, 1999. The increase in revenues is attributable to greater
sales to a larger customer base, which has resulted from expanding our marketing
efforts. Revenues for the nine-month periods ending September 30, 2000 and 1999
were derived almost entirely from unit sales of our 30-kilowatt products. These
units were used for various commercial applications and operated using different
fuel types. During the nine months ended September 30, 2000, we shipped 548
units, an increase of 508 units over the 40 units we shipped in the nine months
ended September 30, 1999. Our backlog of orders at September 30, 2000 was 890
units, as compared to 173 units at September 30, 1999. In September, 2000, we
shipped our first 60-kilowatt unit.
Gross Profit (Loss). Cost of goods sold includes direct material costs,
assembly and testing, compensation and benefits, overhead allocations for
facilities and administration, and warranty reserve charges. Our gross loss
increased $1.3 million, or 39%, to ($4.6) million for the nine months ended
September 30, 2000 from a gross loss of ($3.3) million for the nine months ended
September 30, 1999. Gross loss as a percentage of revenue declined as production
overhead costs were allocated over larger volumes of production. Costs for
replacement parts and systems are charged against our warranty reserve, which is
accrued through charges to costs of goods sold. The warranty reserve charge
increased $3.5 million to $4.1 million for the nine months
10
<PAGE> 13
ended September 30, 2000 from $622,000 for the nine months ended September 30,
1999 due to an increase in unit shipments. Warranty charges continued to decline
on a per unit basis, as we reduced our per unit warranty charge based on our
actual warranty loss experience.
Research and Development Expenses. Research and development expenses
include compensation, the engineering department overhead allocations for
administration and facilities, and material costs associated with development.
Research and development expenses were for expanding the functionality of our
30-kilowatt family of products, development of the 60-kilowatt family of
products and for next generation products. Research and development expenses for
the nine months ended September 30, 2000 increased $1.7 million, or 26%, to $8.4
million compared to $6.7 million for the nine-months ended September 30, 1999.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses include compensation and related expenses in support of
our general corporate functions, which include human resources, finance and
accounting, information systems and legal services. Selling, general, and
administrative expenses for the nine months ended September 30, 2000 increased
$9.5 million, or 121%, to $17.3 million compared to $7.8 million for the nine
months ended September 30, 1999. The primary cause of the increase was 15 new
employees and general overhead associated with our growth. $1.2 million of the
increase was attributable to non-cash, stock-based compensation expense and $2.8
million to marketing rights amortization expense relating to the repurchase of
marketing rights from Fletcher Challenge Limited. Stock-based compensation
expenses will continue at least through 2004, as the expense is based on the
vesting period of the underlying instruments. Marketing rights amortization
expenses will continue through 2005, as the expense is being amortized over the
original tenure of the contract.
Interest and Other Income (Expense). Interest and other income (expense)
consists primarily of interest income earned on our cash and cash equivalents
and interest charges in connection with our capital leases. Interest and other
income (expense) for the nine months ended September 30, 2000 increased $5.3
million to $5.2 million compared to ($108,000) for the nine months ended
September 30, 1999. The increase is primarily attributable to higher interest
income from higher average investment balances due to the funds received from
our Series G preferred stock issuance in February 2000 and our initial public
offering in July 2000.
LIQUIDITY AND CAPITAL RESOURCES
We expect to continue to devote substantial capital resources to the
development of our sales and marketing programs, to expand our production
facilities and staffing, and to expand our research and development activities.
Cash flow from operations is likely to remain negative in the foreseeable
future.
Our net cash used by operating activities was ($15.4) million for the nine
months ended September 30, 2000 compared to ($20.0) million for the nine months
ended September 30, 1999. Net cash used in investing activities was ($22.5)
million for the nine months ended September 30, 2000 compared to net cash used
by investing activities of ($2.0) million for the nine months ended September
30, 1999. Investing activities in 2000 primarily consisted of equipment
purchases, leasehold improvements associated with our new facility, deposits on
assets to be used in recuperator core production and the acquisition of
marketing rights.
We have financed our operations and investing activities primarily through
equity issuances. Our net cash provided by financing activities was $260.8
million for the nine months ended September 30, 2000, compared to $21.0 million
for the nine months ended September 30, 1999. The primary source of cash
provided by financing activities was from the issuance of Series G preferred
stock and the issuance of common stock in our initial public offering. The cash
provided by financing activities was partially reduced as we reacquired $15.5
million of Series E preferred stock as part of a stock repurchase and settlement
agreement.
We have invested our cash in U.S. Government securities with maturities of
less than 90 days and overnight government funds.
11
<PAGE> 14
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY
We currently develop products in the United States and market our products
in North America, Europe and Asia. As a result, factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets
could affect our financial results. As all of our sales and supplies are
currently made in U.S. dollars, we do not utilize foreign exchange contracts to
reduce our exposure to foreign currency fluctuations. We also have no foreign
currency translations in our reported financial statements. In the future, as
our customers and vendor bases expand, we anticipate that we will enter into
transactions that are denominated in foreign currencies.
INTEREST
We have no long-term debt outstanding and do not use any derivative
instruments.
INFLATION
We do not believe that inflation has had a material effect on our financial
position or results of operations during the past three years. However, we
cannot predict the future effects of inflation, including interest rate
fluctuations and market fluctuations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instrument and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments. It
requires the recognition of all derivatives as either assets or liabilities in
the statement of position and measurement of the instruments at fair value. We
are required to adopt SFAS No. 133, as amended, on January 1, 2001 and we are
currently evaluating the impact on the financial statements.
The Securities and Exchange Commission staff (the "Staff") issued Staff
Accounting Bulletin Number 101 -- Revenue Recognition in Financial Statements
("SAB 101") in December 1999. There was no impact on the Company's operating
results as a result of its adoption of SAB 101.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY CHARACTERIZED BY NET LOSSES, WE ANTICIPATE
CONTINUED LOSSES THROUGH AT LEAST 2001 AND WE MAY NEVER BECOME PROFITABLE.
Since our inception in 1988, we have reported net losses for each year. Our
net losses were $30.6 million in 1997, $33.1 million in 1998, $29.5 million in
1999, and $25.1 million for the nine-months ended September 30, 2000. We
anticipate incurring additional net losses through at least 2001. Since
inception through September 30, 2000, we have recorded cumulative losses of
approximately $141.5 million. We have only been commercially producing Capstone
Microturbines since December 1998 and have made only limited sales to date.
Also, because we are in the early stages of selling our products, we have
relatively few customers. Even if we do achieve profitability, we may be unable
to increase our sales and sustain or increase our profitability in the future.
IF WE ARE UNABLE TO MANUFACTURE RECUPERATOR CORES INTERNALLY, OUR ASSEMBLY AND
PRODUCTION OF MICROTURBINES MAY SUFFER DELAYS AND INTERRUPTIONS.
Solar Turbines Incorporated has been our sole supplier of recuperator
cores, which are heat exchangers that preheat incoming air before it enters the
combustion chamber and are an essential component of our microturbines. Solar is
a wholly-owned subsidiary of Caterpillar Inc. At present we are not aware of any
other suppliers which could produce these cores to our specifications within our
time requirements. In September
12
<PAGE> 15
2000, we exercised contractual rights to begin using Solar's intellectual
property to manufacture recuperator cores ourselves. We estimate that the
transition from purchasing recuperator cores from Solar to manufacturing them
ourselves will take approximately nine to twelve months to complete. However,
since we have never before manufactured recuperator cores, the transition period
may be longer. We cannot assure you that this transition will be without
disruption. Any delays or disruptions in this transition process may result in
interruptions of assembly and shipment of our products. Also, we cannot assure
you that Solar will honor the license agreement, that a court would enforce it,
or that we will be able to meet our obligations under it. If we had to develop
and produce our own recuperator cores without using Solar's intellectual
property, we estimate it could take up to three years to begin production.
WE MAY NOT BE ABLE TO CONTROL OUR WARRANTY EXPOSURE AND OUR WARRANTY RESERVE MAY
NOT BE SUFFICIENT TO MEET OUR WARRANTY EXPENSE, WHICH COULD IMPAIR OUR FINANCIAL
CONDITION.
We sell our products with warranties. However, these warranties vary from
product to product with respect to the time period covered and the extent of the
warranty protection. Malfunctions of our product could expose us to significant
warranty expenses. Because we are in the early stages of production and few of
our products have completed a full warranty term, we cannot be certain that we
have adequately determined our warranty exposure. Moreover, as we develop new
configurations for our microturbines or as our customers place existing
configurations in commercial use for long periods of time, we expect to
experience product malfunctions that cause our products to fall substantially
below our 98% availability target level. While our microturbines have often
achieved this availability target when using high pressure natural gas, we are
still working to achieve this availability target across all of our units and
for all fuel sources. We recorded a warranty reserve charge of $4.1 million or
26% of revenue for the nine months ended September 30, 2000 and $2.6 million or
39% of revenue for the year ended December 31, 1999. While management believes
that the warranty reserve is reasonable, there can be no assurance that the
reserve will be sufficient to cover our warranty expenses in the future.
Although we attempt to reduce our risk of warranty claims through warranty
disclaimers, we cannot assure you that our efforts will effectively limit our
liability. Any significant incurrence of warranty expense could have a material
adverse effect on our financial condition.
IF WE DO NOT EFFECTIVELY IMPLEMENT OUR SALES AND MARKETING EXPANSION PROGRAM,
OUR SALES WILL NOT GROW AND OUR PROFITABILITY WILL SUFFER.
We need to increase our internal sales and marketing staff in order to
enhance our sales efforts. We cannot assure you that the expense of such
internal expansion will not exceed the net revenues generated, or that our sales
and marketing team will successfully compete against the more extensive and
well-funded sales and marketing operations of our current and future
competitors. In addition, to grow our sales, we have begun to hire new
management team members to provide more sales and marketing expertise. Since
these management team members will not have a proven track record with us, we
cannot assure you that they will be successful in overseeing their functional
areas. Our inability to recruit, or our loss of, important sales and marketing
personnel, or the inability of new sales personnel to effectively sell and
market our microturbine system could materially adversely affect our business
and results of operations.
WE MAY NOT BE ABLE TO ESTABLISH STRATEGIC MARKETING RELATIONSHIPS, IN WHICH CASE
OUR SALES WOULD NOT INCREASE AS EXPECTED.
We are in the early stages of developing our distribution network. In order
to expand our customer base, we believe that we must enter into strategic
marketing alliances or similar collaborative relationships, in which we ally
ourselves with companies that have particular expertise in or more extensive
access to desirable markets. Providing volume price discounts and other
allowances along with significant costs incurred in customizing our products may
reduce the potential profitability of these relationships. We may not be able to
identify appropriate distributors on a timely basis, and we cannot assure you
that the distributors with which we partner will focus adequate resources on
selling our products or will be successful in selling them. In addition, we
cannot assure you that we will be able to negotiate collaborative relationships
on favorable terms
13
<PAGE> 16
or at all. The lack of success of our collaborators in marketing our products
may adversely affect our financial condition and results of operations.
THE 60-KILOWATT CAPSTONE MICROTURBINE MAY NOT REACH THE LEVEL OF SALES THAT WE
ANTICIPATE OR IT MAY ERODE SALES OF OUR 30-KILOWATT UNIT.
The successful launch of our next generation 60-kilowatt microturbine, the
Capstone 60, is very important to our market penetration strategy. Factors that
could hinder the successful launch of our Capstone 60 microturbine include
potential engineering, production or performance problems, including problems in
developing the ability to operate on multiple fuels or in multiple modes of
operation and an unstable supply or unsatisfactory quality of components from
vendors. We cannot guarantee you that demand for our 60+ kilowatt unit will
develop or that if it does develop, that it will not diminish over time. It is
also possible that production of the 60-kilowatt unit could replace or diminish
the sales of our 30-kilowatt unit. If so, our results of operations would be
adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH OR IMPROVE OUR MANAGEMENT
INFORMATION SYSTEMS, WHICH WOULD IMPAIR OUR PROFITABILITY.
If we are successful in executing our business plan, we will experience
growth in our business that could place a significant strain on our management
and other resources. Our ability to manage our growth will require us to
continue to improve our operational, financial and management information
systems, to implement new systems and to motivate and effectively manage our
employees. We cannot assure that our management will be able to effectively
manage this growth.
WE MAY NOT EFFECTIVELY EXPAND OUR PRODUCTION CAPABILITIES, WHICH WOULD
NEGATIVELY IMPACT OUR SALES.
We anticipate a significant increase in our business operations, which will
require expansion of our internal and external production capabilities. We may
experience delays or problems in our expected production expansion that could
significantly impact our business. Several factors could delay or prevent our
expected production expansion, including our:
- inability to purchase parts or components in adequate quantities or
sufficient quality;
- failure to increase our assembly and test operations;
- failure to hire and train additional personnel;
- failure to develop and implement manufacturing processes and equipment;
- inability to find and train proper partner companies in other countries
with whom we can build product distribution, marketing, or development
relationships; and
- inability to acquire new space for additional production capacity.
OUR SUPPLIERS AND MANUFACTURERS MAY NOT SUPPLY US WITH A SUFFICIENT AMOUNT OF
COMPONENTS OR COMPONENTS OF ADEQUATE QUALITY, AND WE MAY NOT BE ABLE TO PRODUCE
OUR PRODUCT.
Although we generally attempt to use standard parts and components for our
products, some of our components are currently available only from a single
source or from limited sources. Also, we cannot guarantee that any of the parts
or components that we purchase will be of adequate quality or that the prices we
pay for these parts or components will not increase. We may experience delays in
production of our Capstone Microturbines if we fail to identify alternate
vendors, or any parts supply is interrupted or reduced or there is a significant
increase in production costs, each of which could materially adversely affect
our business and operations.
14
<PAGE> 17
OUR PRODUCTS INVOLVE A LENGTHY SALES CYCLE AND WE MAY NOT ANTICIPATE SALES
LEVELS APPROPRIATELY, WHICH COULD IMPAIR OUR PROFITABILITY.
The sale of our products typically involves a significant commitment of
capital by customers, with the attendant delays frequently associated with large
capital expenditures. We are targeting, in part, customers in the utility
industry, which generally commit to a larger number of products when ordering
and which have a lengthy process for approving capital expenditures. We have
also targeted the hybrid electric vehicle market, which requires a significant
amount of lead-time due to implementation costs incurred. For these and other
reasons, the sales cycle associated with our products is typically lengthy and
subject to a number of significant risks over which we have little or no
control. We expect to plan our production and inventory levels based on internal
forecasts of customer demand, which is highly unpredictable and can fluctuate
substantially. If sales in any period fall significantly below anticipated
levels, our financial condition and results of operations could suffer. In
addition, our operating expenses are based on anticipated sales levels, and a
high percentage of our expenses are generally fixed in the short term. As a
result of these factors, a small fluctuation in timing of sales can cause
operating results to vary from period to period.
Because we are in the early stages of selling our products, with relatively
few customers, we expect our order flow to continue to be uneven from period to
period. Because a significant portion of our expenses are fixed, a small
variation in the timing of recognition of revenue can cause significant
variations in operating results from quarter to quarter.
POTENTIAL INTELLECTUAL PROPERTY, SHAREHOLDER OR OTHER LITIGATION MAY ADVERSELY
IMPACT OUR BUSINESS.
Because of the nature of our business, we may face litigation relating to
intellectual property matters, labor matters, product liability and shareholder
disputes. Any litigation could be costly, divert management attention or result
in increased costs of doing business. Although we intend to vigorously defend
any future lawsuits, we cannot assure you that we would ultimately be
successful. An adverse judgment could negatively impact the price of our common
stock and our ability to obtain future financing on favorable terms or at all.
15
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 28, 2000 the Commission declared effective Registration Statement
(Registration Statement No. 333-33024) as filed with the Commission in
connection with our initial public offering of Common Stock, which was managed
by Goldman, Sachs & Co., Merrill Lynch & Co., and Morgan Stanley Dean Witter.
Pursuant to such Registration Statement, on July 5, 2000 we consummated the
issuance and sale of an aggregate of 10,454,545 shares our Common Stock, for a
gross aggregate offering price of $167.3 million. We incurred underwriting
commissions of approximately $11.7 million and other expenses of approximately
$2.0 million.
From the date of receipt through September 30, 2000, the net proceeds of
our initial public offering were used to fund operating losses, the repurchase
of marketing rights from Fletcher Challenge Limited, capital expenditures and
for general corporate purposes. With the exception of marketing rights acquired
from Fletcher Challenge Limited for $11,000,000, none of the net proceeds of the
offering were paid, directly or indirectly, to any director or officer of
Capstone or any of their associates, or to persons owning ten percent or more of
any class of our equity securities, or any affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
EXHIBIT 27.1 -- Financial Data Schedule.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAPSTONE TURBINE CORPORATION
By: /s/ JEFFREY WATTS
------------------------------------
Jeffrey Watts,
Senior Vice President Finance and
Administration
and Chief Financial Officer
Date: October 24, 2000
17
