Question:

Could you explain the different tiers of distributors?

Answer from Capstone Management:

All Capstone distributors have distribution agreements with similar terms, conditions and pricing. The difference from distributor to distributor is exclusivity. A distributor can have the exclusive right to sell our products in a certain geographic area or vertical market or both. All distributors are required to submit three-year business plans and annual sales targets.

If a distributor does not achieve its annual sales targets, Capstone has the ability to modify the annual sales targets, revoke the distributor’s exclusivity or terminate the agreement. Capstone continuously monitors distributors’ performance against their business plan and annual sales targets and takes remedial action when warranted.

Question:

I noticed there had been a lawsuit filed against the company in 2000. Has this litigation been resolved? If not, what is the current status and what is the potential impact on the company?

 

Answer from Capstone Management:

In December 2001, a stockholder class action lawsuit was filed against the company, two of its then officers, and the underwriter of the Company’s initial public offering. The Plaintiffs allege that the underwriter defendants agreed to allocate stock in the Company’s June 28, 2000 initial public offering and November secondary offering to certain investors in exchange for excessive and undisclosed commissions.

In April 2009 settlement documents were submitted to the court for preliminary approval. In early October 2009 the judge gave final approval of the settlement. Notices of appeal of the opinion granting final approval have been filed.  Because of the inherent uncertainties of litigation and because the settlement remains subject to appeal, the ultimate outcome of the matter is uncertain, and we believe that the outcome of this litigation will not have a material adverse impact on our consolidated financial position and results of operations. 

Please refer to the company’s latest Form 10-Q under “Legal Proceedings” for a detailed explanation of this and other events.

 

Question:

Please compare the economics (price/kwh, energy consumption, payback time, maintenance cost, etc.) of the Bloom Energy fuel cell to Capstone’s microturbines. www.bloomenergy.com.

Answer from Capstone Management:

The Bloom Energy Fuel Cell costs approximately $8,000 per kW compared to Capstone’s

$900 to $1,300 per kW. The Bloom Energy Fuel Cell is 220 lbs per kW compared to Capstone’s 37 lbs per kW. The Bloom Energy Fuel Cell requires 120 gallons of water and Capstone’s microturbine requires no water, grease or engine oil. The Bloom Energy Fuel Cell noise levels are 70 dBa at 6 ft compared to Capstone’s 65 dBa at 10 meters. The Bloom Energy Fuel Cell is approximately 50% electrically efficient compared to Capstone’s C200 which is 33% electrically efficient, but Capstone’s C200 can use its waste heat to achieve overall system efficiency greater than 80%.

           

In addition, most industrial fuel cells cannot operate partially loaded or load follow. Most fuel cells require several hours, if not days, to start up and cool down. Microturbines can operate in a range from zero to full load and load follow both electrically and thermally depending on the host facility’s energy requirements to achieve the maximum system efficiency across the load profile.

           

Overall, Capstone management does not see fuel cell technology as viable competition for microturbine technology today without large federal and state incentives. Capstone has sold over 5,000 microturbines worldwide in a multitude of applications,  compared to a limited number of fuel cells that are sold primarily in markets with large financial incentives like Japan, Korea, Connecticut and California.

Question:

Do you sell or integrate an organic rankine cycle generator to salvage waste thus boosting overall efficiency?

Answer from Capstone Management:

Yes, the Calnetix acquisition also included a strategic OEM agreement to sell the Calnetix 125kW waste heat generator product. This rankine cycle generator makes approximately 125kW of electricity off 400kW of Capstone microturbine exhaust.

Question:

What is the breakeven point in units need or MWs needed to be sold when the company will be cash flow positive per quarter?

Answer from Capstone Management:

Based on our recent progress and assuming achievement of targeted contribution margins, our financial model indicates that we will achieve positive cash flow when we ship approximately 200 units in a quarter, depending on product mix. If Capstone does not achieve its cost reduction initiatives or if the Company is forced to discount its products from today’s pricing, the number of units required would increase.