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Capstone Announces Third Quarter Results

25 October 2000

Capstone Announces Third Quarter Results

    CHATSWORTH, Calif.--Oct. 24, 2000--Capstone Turbine Corporation , a leading producer of low-emission microturbine systems, today reported revenue of $6.2 million for the third quarter ended September 30, 2000, compared with revenue of $759,000 for the third quarter of 1999. The increase in revenue reflects greater sales to a larger customer base, which has resulted from the Company's expanding marketing efforts.
    "We made great progress in the third quarter and were able to achieve a number of important milestones that are key to the long-term growth of the Company," said Dr. Ake Almgren, President and CEO of Capstone Turbine Corporation.

    Quarterly highlights

-- Capstone shipped its first commercial 60-kilowatt microturbine power system.
-- Capstone was awarded a $10 million grant by the United States Department of Energy to develop an Advanced Microturbine System.
-- Capstone moved into a new 100,000 sq. ft. facility in Los Angeles that has the capacity to produce up to 20,000 Capstone MicroTurbine systems per year.
-- Capstone announced a licensing agreement with Solar Turbines Incorporated to acquire the manufacturing technology and fixed assets to produce recuperator cores, an integral part of the Capstone MicroTurbine system.
-- Capstone signed distribution agreements covering 756 units. Agreements were signed with American Energy Savings (126 units), Cinergy Corp. (52 units), Energy Co-Opportunity (76 units), The Hanover Co. (100 units), Harza Engineering Co. Inc. (250 units), Mariah Energy (126 units), and RealEnergy, Inc. (26 units).

    "As evidenced by the distribution agreements we signed during the quarter with some of the leading players in the energy, engineering and oil and natural gas industries, we are seeing strong and growing demand for our microturbine systems," said Dr. Almgren.
    "Shortly after the quarter ended, we had some exciting developments in regards to the hybrid electric vehicle market. Capstone entered into an agreement with Hyundai Motor Co. and Enova Systems to develop and integrate a series of hybrid electric drive systems that utilize our microturbines. The first prototype hybrid model is expected to be produced in the first half of 2001 and Hyundai plans to install the hybrid drive system in its Santa Fe sport-utility vehicle for testing and evaluation, and then expand the application to commercial buses in 2002," said Dr. Almgren.
    Dr. Almgren noted that while the Company experienced a temporary slowdown in production while it transitioned to its new facility, Capstone shipped 211 units in the third quarter. "During this period, our backlog grew to 890 units, as well," added Dr. Almgren.
    "From a research and development perspective, we achieved a major milestone by shipping our first 60-kilowatt microturbine system," said Dr. Almgren. "We expect to ramp-up shipments of the 60-kilowatt system in the fourth quarter and continue that trend next year. Our current research and development efforts are focused on multiple additional 60-kilowatt product releases, which include stand-alone operation, dual-mode operation, and operation on additional gaseous and liquid fuels."

    Quarterly Financials

    Capstone posted revenues of $6.2 million for the third quarter, as compared with $759,000 in the comparable prior year quarter. Capstone reported a net loss attributable to common shareholders of $8.1 million, or $0.11 per share, for the third quarter. This compares with a net loss of $11.4 million, or $4.85 per share, for the same period of 1999.
    The decrease in the net loss per share was primarily attributable to revenue growth resulting from an increase in the number of units shipped, 211 in the third quarter 2000, compared with 22 units in the same period of 1999.
    Research and Development expenses increased to $3.0 million, compared with $2.3 million in the third quarter of 1999. Research and development expenses related primarily to the development of the Company's 60-kilowatt microturbine system and the broadening of its existing product line for new fuel types and applications.
    SG&A increased to $7.2 million, compared with $2.7 million in the third quarter of 1999. This increase is primarily attributable to expanding sales and marketing efforts, including the hiring of additional employees and general overhead expenses. The Company anticipates that this trend will continue as it enters into new markets and develops expanded sales and marketing programs. $1.8 million of the increase was attributable to non-cash charges relating to stock-based compensation expense and marketing rights amortization.

    Company Overview and Outlook

    "During the third quarter, we took steps to begin production of a key component of our microturbines -- the recuperative core. When complete, we will have eliminated a key supply risk affecting the company," said Jeff Watts, Chief Financial Officer. "Having exercised our rights under our agreement with Solar Turbine Inc., we expect to begin working in a collaborative manner with Solar to manufacture recuperator cores in our own facilities. As a result, Capstone should add another substantial competitive advantage by having the only automated recuperator core manufacturing processes in the world.
    "We are also pleased that we have been able to achieve diversification within the total sales of our microturbine systems," said Mr. Watts. "We are diversified geographically, as we ship roughly two-thirds of our production into the North American market and one-third into the rest of the world, primarily Japan and Western Europe.
    "We are diversified in the number of sales made for each application of our microturbine systems. Shipments are spread pretty evenly among the core applications, which include resource recovery, micro-cogeneration, backup and stand-by power/peak shaving, and hybrid electric vehicles.
    "And from both a geographic perspective and an application perspective, we are diversified by customer. We will continue to work to achieve a high level of diversification within our current markets, while also identifying new and emerging markets. An emerging market about which we are particularly excited is the Power Quality and Reliability market, otherwise known as the `9s market.' This market focuses on the provision of a reliable primary or back-up power supply for increasingly electricity-dependent enterprises. We expect to see substantial growth in this market in the years to come," said Mr. Watts.

    


                     CAPSTONE TURBINE CORPORATION
                       STATEMENT OF OPERATIONS
                             (Unaudited)

                         Three                       Nine
                      Months Ended                Months Ended
                      September 30,               September 30,
                   1999          2000          1999          2000

Revenues          $ 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)

-0-

                     CAPSTONE TURBINE CORPORATION
                            BALANCE SHEETS

                                       December 31,      September 30,
                                          1999               2000
                                                          (Unaudited)

Assets

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                                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

Total redeemable preferred stock       156,469,000                  -

Stockholders' (Deficiency) Equity:
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