Capstone Green Energy Corp (CGRN) 2002 Q2 法說會逐字稿

Good day ladies and gentleman and welcome to the Capstone Turbine Corp. second quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. As reminded, this conference call is being recorded. I would now like to introduce your hosts for today's conference. Ms you may begin.

Good afternoon and thank you for joining Capstone Turbine to discuss its results for the second quarter of 2002. By now you should have received a copy of the press release that was issued this afternoon, if not, please call my office at 310-407-6555 and we will get a copy to you. On today's call are Dr. Ake Almgren, President and Chief Executive Officer and Karen Clark, Chief Financial Officer of Capstone Turbine. Capstone will be holding a one-hour call today, the format of which will be management's review of the quarter followed by Q&A. Please stay with me for one moment while I read through the safe harbor statement. During the course of the conference call, management may make projections or other forward looking statements regarding the events or future financial performance of the company within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which may cause Capstone's actual results to be materially different from future results expressed or implied in such statements. Capstone undertakes no obligation to release any revisions to any forward-looking statements. For more detailed discussion and facts that may affect Capstone's operating results, we refer you to the company's filings with the Securities and Exchange Commission. At this time, I will turn the call over to Ake Almgren. Ake?

Thank you and good afternoon and thank you for joining us. I would begin today with an update on where we are as a business and what we see happening in the distribution market. Then, I would turn the call over to our CFO Karen Clark to provide a review of our financial results for the second quarter. Finally, I will talk about our focus, actions and our expectations for the next quarter and the rest of the year. Following our comments, we will happy to take your question. Let's start where we are as a business. Last quarter, we told you we were working on our long-term strategic plan. We have completed the first quarter of that with a thorough strategic analysis based on our experience in the DD market and on the information from the industrial sources such as , , Nexus and . I want to take a serious sum of the process, starting with a growth of the new generation, it is not the crest of it, but when because how fast DD will grow. Small scale or less than 5 MW prime power generation doubled from about 7 GW in 1985 to roughly 14 GW in 2000. Meanwhile, standby generation has grown even faster averaging 11 percent per year between 1995 and 2000.

Japan provides an interesting sample of the difference in growth rates between centralized and distributed generation. During the four years from 1997 to 2000, power generation from centralized power plants grew less than 2 percent per year, war distribution generation and the production grew by 18 percent per year. The fastest growing U&A technology during the last decade has been win or PV, thanks to extensive government subsidies in Europe, US, and Japan. Each of these technologies has grown 20-40% per year over the past several years. For the near term, we have set our target to achieve a level of goals consistent with that seen by wind and PV . Further up, our goals are for growth well in excessive to this rate for a period of time. Why do we believe these levels of the sales are possible? First, we have reaffirmed that our products has real applications in all four of the market history.

Combined heat and power or CHP, resource recovery, power quality and reliability and hybrid electric vehicles. In particular, we continue to believe that we have significant near-term opportunities in the CHP market. Second, Capstone offers some of the best values for clean onsite generation in the size range of a great potential. Third, contrary to all the new energetic technologies, so far we have received very few subsidies. However, with growing recognition for the environmental benefits of our micro turbines for low noise, biogas applications and energy efficiency in CHP, hybrid electric vehicles and the like. We have reasons to believe in increased acceptance and support. Four, we have what many regard as the world's leading market driving technology. We also have nearly 2400 units, which to the best of our knowledge represent by far a vast majority of micro turbine sales in the world. Of the installed base we are able to track. We can account for over two million hours of run-time and we are accumulating on the order of 50 to 80,000 more hours each week. Capstone has pioneered the micro turbine technology. Now we're leading the way in developing the market. Despite our product and market advantages, the rate of adoption for our technology has been slower than initially expected.

The present economic environment with tight of capital expenditure makes it significantly more challenging. While It is positive that we have the benefit of selling into really economic opportunities for end-users. In order to convert opportunity into sales today, we and our business partners have to, on a case-to-case basis demonstrate the economic and provide ways for them to be confident with the project specific benefits. To get to a higher rate of adoption, we are working on three key areas. The first, strengthening to safe to better test the target market. We have some very good partners today but we're working on creating the depth and breadth needed to achieve more market coverage and repetitive business. Two, attacking barriers to adoption, you have heard us talk about these efforts already in our three strategic initiatives, which are focused on CHP, reduction of total installed cost, and improvement of total quality and reliability. Further we're working to influence other barriers to adoption, for example in connection standards. Third, developing strategic partners. We believe that strategic partners in our targeted market can speed up the rate of adoption as well as it use Capstone's direct financial burden of leading the chart of introducing the micro turbine technology.

We believe that in time that focuses on these key facility factors, we'll be able to break through to period of accelerated adoption. As part of our strategic planning we developed a revised financial model. This model shows we need to be at this higher level of sales growth to reach breakeven. Based on our strategic analysis, they will soon successfully implement our plans and that they will achieve the intend result, we are expecting to take three to four years to get to these safe levels. Our model continue to show us having cash to get to the point of cash flow positive. The longer time to reach the higher leverage in sales is now reflected in our forecast. This change impacted our second quarter results in two areas. The first was effected challenge marketing asset. Early in the history, Capstone sold its units to market its product in all markets but North America, Europe and Africa. Electric challenge, a company that at that time was a major share holding Capstone acquired those rights for the period through mid 2005. In 1989, Capstone brought back these marketing rights for roughly 28 million dollars with part of the value paid in a capital stock. Because of this purchase we have been able to undertake developing key markets such as Japan.

In each prior quarter, when we evaluate the recoverability of these asset in accordance with the accounting rules our volume stays in the remaining time frame of the license has been such that value is sustained. Our advice forecast now shows the high volume that is going to occur later, than the time frame of the agreement. As margined, all of these in the early years all of them at the expected table margins in the latter years, the net resulted in insufficient margin to support the value of assets. In accordance with the accounting rules of consistent basis is left to write down a 60 million dollars in Q2. This is not to say we don't see these as valuable in our business, but the accounting rules require to take a write down. Of course the write down is a non-cash event. Also, as a result of the change in the forecast, we identified from that inventories in excess of our new anticipated demand level. This resulted in a charge of 1.8 million dollars in the quarter. I think Karen will get into the results now and then I will speak to you further about how we are going forward and what our current outlook is for the 3Q and the rest of the year.

Thank you Ake, first I will provide an overview of the current results, then I'll get into more details. For the quarter revenues were 7.4 million dollars as compared with 13.6 million dollars for the same period a year ago. The loss for the current quarter was 30.8 million dollars or 40 cents per share including 16 million dollars or 21 cents per share from the impairment of the marketing rights and 1.8 million or 2 cents per share related to the excess inventory charge. Excluding these charges, the loss for the current quarter was 13 million dollars or 17 cents per share. A year ago reported net loss was 10.3 million dollars or 13 cents per share. On a Year-To-Date basis, we reported 12 million dollars and the recorded loss was 42.9 million dollars or 55 cents per share including 23 cents per share for the marketing rights impairment and excess inventory write down. This compares with a prior year first half sales of 22.5 million dollars. Net loss of 19.7 million dollars and first year results of 26 cents. Let's get into the details now by starting with shipment.

On last quarter call, we told you we expected shipments of around 3.7 megawatts at the first level of visibility, of which, roughly 90 percent was expected to come from 30 kilowatt unit. Further, we said there to be about another 3 megawatts in the second . The actual shipments were 7.4 megawatts or 10% higher as we had expected at the first and second focal length. And more than one and one halftime, the level realized in the first quarter. Two-third of sales in the second quarter came from 30 kilowatt unit. Geographically, our mix of sales this quarter was roughly 3 quarters to North America and one quarter from the rest of the world. In the quarter, we had sales of 1.8 megawatts in North America representing a purchase under a firm purchase contract. As of the end of the second quarter, all firms purchase commitment like customers have been exhausted and the ongoing contracts no longer require firm commitments. In the quarter sales to three customers accounted for roughly 50 percent of the total.

Shipments in the quarter resulted in 7.4 million dollars of revenue for just over half the revenue of the same period a year ago. Remember, a year ago the company had its record sales period where it was receiving the benefit of demand propelled by the western energy crisis. Compared with the first quarter of this year, sales in the second quarter were roughly 60 percent higher. On a year-to-date basis we have set 12.1 megawatts as compared with 24.1 megawatts last year and revenue year-to-date were 12 million dollars or just over half of the 22.5 million for the first six months of last year. Margins in the current period showed a loss of 4.2 million dollars as compared with the profit of 600,000 dollars in Q2 last year and a loss of 3 million dollars last quarter. As Ake has already described, this period's result included 1.8 million dollars from reserves taken for excess inventory. There were two others key areas that drove the change versus a year ago. The lower volumes in the current year and the higher overhead structure that the company is now incurring due to the addition in the third quarter of last year of the recuperated core manufacturing facility.

Compared with last quarter this quarter's margin excluding the impact of the excess inventory reserves was improved largely due to the higher sales volume. On a year-to-date basis the reported gross loss was 7.2 million dollars as compared with gross profit of 900,000 dollars a year ago. This 8.1 million dollar spread is due to several factors. The lower sales we amounted on the current year, the 1.8 million excess inventory reserves taken this quarter, The overheads from the addition of the recuperated core manufacturing facility, higher scrap charges this year resulting in large parts from engineering changes and higher per unit warranty charges this year which are based on our better understanding of actual warranty cost. Research and development or R&D cost decreased to 1.6 million in the period as compared with 2.9 million dollars in the second quarter of 2001. R&D expenses are reported net of contact offset such as US department of energy and depth micro turbine program. Contact offsets were 1.3 million dollars this quarter as compared with 300,000 dollars a year ago. R&D cost were 200,000 dollars higher in the second quarter of this year versus the first quarter. On a year-to-date basis, R&D costs were 3.1 million dollars as compared with 5.7 million dollars for the first half of last year. These numbers are net of government billing of 2.6 million dollars and 500,000 dollars respectively.

But the underlying spending for R&D has decreased 8 percent in two years. The goods news is that we continued to achieve our R&D objective with a slower level of spending. Selling, general and administrative expenses decreased to 9.7 million dollars compared with 10.9 millions dollars in the second quarter of 2001. First quarter SG&A increased 1.3 million dollars reflecting the timing of cost anticipated in the year. On a year-to-date basis SG&A is down 13 percent from 20.8 million dollars last year to 18.0 million dollars this year. We have been telling you, we expect our operating cost for the year to be roughly equal to those incurred in 2001 due in part to our cost control measures, we now expect operating cost for the full year excluding the marketing rise impairment charge to be roughly 10 percent below last year's level. Other income and expense decreased to 700,000 dollars this quarter from 2.9 million dollars in the second quarter last year. This reflects lower cash balances and lower interest rates in the current period. Other income and expense in the quarter was approximately equal to that realized in the first quarter of this year. On a year-to-date basis, 2002 other income and expense was 4.4 million dollars lower than a year ago, as a result of the lower interest rates and lower cash balances. Thank you. If you have any questions at this time, please press the #1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue please press the pound key. Please limit yourselves to one question. One moment for questions. Our first question is from of Adams, Harkness. Please state your name and affiliation.

Quick question on, just on the relationship with Cummins. Can you give us a little detail about what type of marketing programs that Cummins has entered into? Maybe some of their marketing material and also little flavor about, if they have any dedicated headcount that is trying to, helping to market the MicroTurbine product?

When we did the arrangement with them, Cummins, we immediately recognized that their core business is the engines and that is their main focus. They did see the MicroTurbine as a supplement for niche markets and they then developed a dedicated Cummins package and for this purpose they have a small group at their headquarters and they are all working with their regular regional sales organizations and to my knowledge, the regional distributors have just started.

What are your expectations of how quickly that would ramp up, you know, over the up coming year?

Our mission, what we are seeing so far that it takes longer than we expect, and importantly because it is a bigger organization and to get out and it is one of the leading recuperating engine manufacturers, so to be more sophisticated we really identified what is a good fit for the MicroTurbines. I think they have to realistic, and it takes longer and where we will be looking, as that of niches is the bulk of the business recuperating engines.

All right thank you.

Our next question is from David Kurzman. Please state your affiliation and your name again. David your line is open.

Can you hear me now?

Yeah, your line is open. Please state your name again and your affiliation.

Okay, David Kurzman, HC Wainwright & Company. I had to hop off the call for a brief second but I didn't hear any discussion about the higher problem systems. Can we hear how the development from those is termed?

We did have some, we're making very good progress. As I mentioned, we demonstrated them that we could spin about in full speed which conforms that we have the system in balance and we confirm that it can work without bearings. And I also mentioned that the next step is to do the seams and cycles of adoptions. So we will test the machine under full temperature and full pressure and that's scheduled for the fourth quarter this year.

When is the launch?

In 2004.

Did you get the question?

Sorry, could you repeat your question.

The question was when will launch be of the advanced micro turbine project. Almgren answered that our target right now is 2004. Operator, will you please move us to next question.

Our next question is from Gary Holdsworth. Please state your firm and your name again.

Hi folks its Gary Holdsworth, Wedbush. I wanted to ask a little bit deeper about the inventory charge and does this represent you know off lean inventory or you feel like you might be able to get, you know, value added that inventory eventually or just a little more detail please on the inventory charge.

Sure Gary, the inventory charge is really more an excess issue based on the current forecast, we took a look at the anticipated demand now based on the forecast in, and had to also consider the frequency that we go through, some engineering change orders in the like and from that we had to make some estimates of what would be excess inventories. It is possible that we will use some of this, obviously we do our best job to estimate the reserve in accordance with GAAP, which is aimed at trying to identify what we think will be, genuinely accessed but I hate to throw away money and so we'll doing our to find way to get value out of this inventory.

This is not as something that you know, engineering math you know, big engineering change created in the lack of, you know that would actually have no value than inventory.

No, that's not the situation. It resulted from the change in the forecast.

All right and follow up question about the restructuring you went through. Did, or may be you can give us a head count up date, did the restructuring change any other head count besides normal chambers?

We had 253 head counts at the end of June and that's not for us, the prior period. The reorganization at this point in time that we aligned was really just functionally getting the operation into the areas as Ake described and it was really aimed at its activeness at this stage of the game.

Okay, thank you.

Again we ask you to limit yourself to one question. If you do have additional questions, please reenter the queue. Our next question is from Ali Agha. Please state your firm and your name again.

Yes, Ali Agha from Banc of America Securities. Ake, you had mentioned as you have redone your sales forecast, you're looking at cash to flow positive three to four years from now. Could you remind us what level of sales do you need to turn cash flow positive?

The precise number is a matter of the number assumption about the price, cost compensation and we can't give you a precise number there but the number is in the several thousands per year.

Seven thousand units per year.

Yeah, several, several thousand of units per year.

Okay, if I can just ask one question.

Our next question is from Steve . Please state your name again and your firm.

Yes, Steve with JNP Securities. Could you give us some detail in terms of two things, first of all the three customers accounting for half of the shipments in the quarter, this seems to me, I think somewhat unusual may be who they are and some background in terms of the in prior quarters and I think also there is a statement about one contract manufacturer who did accounting for a very large commitment, just the nature of that commitment.

The concentration that we saw in the quarter is not really a terribly unusually event, it's kind of similar to this pattern we've been talking about for a while where we have an underlying base of much smaller sales volume and then we get some lumpy things that come in and in this particular period, we really had three of those one of which was the customer taking the final commitment on their committed contract and that was a North American customer which was based on a contract signed in 2000 and this was just their last installment. And the remainder of the major customers that accounted for that 60% of sales was some customers in Japan.

Our next question is from Rick Gleason, please state your firm and your name again.

Rick Monetary . Ake, the break-even forecast which you are giving our three to four years, you said is based on several thousand units. Does that assume the current adoption rate and capital spending environment persists for a number of years?

The question about how our break-even forecast and financial more than that year. What we've been doing is to, our strategic process that we have done is the analysis of sort of strategic scenarios and then we have brought that into a financial model. We are working to the next is then you need to to know what that means in terms of capital expenditure and then through actual actions we can do proceed with the model. So that is moderate. I think in general if that we have done so for, I though we kept alive so we have down the capital expenditure for present product and then of course we are looking in a good way willing to use without having too much capital expenditure.

Our next question is from Harold Webber, please take your firm and your name again.

Operator, will you please allow people to get their entire question out and folks if you have a quick follow up question to clarify something, please go ahead and do that. Operator allow them that and we will instruct getting back in the queue if you do have a very different sort of second question. Sorry for the interruption. Please bear with me.

This is Harold Webber with Salomon Smith Barney. Could you do two things, could you talk about the happenings going in regards to the, like the California Power Authority, things of that nature in the other states in the country and you talk about sales, you talk about new units, larger size units I would assume, that sales of those units which is four or five or six times the others, would have a larger impact in regard to your level of cash flow and profitability, and margin, can you address that all?

Basically, in addition to our range of a sort of six, I would say for the next couple of years, on the bulk of the strategic plan for up to the break-even is based over . At the end of that period then we will see the effect of the 200 KW machine, but it will be a posterior for confusion will not be decisive for our plan. As we have said, we have planned to use the two KW machines in the 2004. Regarding the California Power Authority, we were among the qualified company, the California Power Authority, right now, they completely look for funding of this program and then for this year we don't count on any significant impact of that program until we see that has been funded. Then our other initiatives which also mentioning in the New York area that we see some significant programs starting in Europe for CHP, particularly in Germany and also think there are couple of programs in Japan which are focused in Japan, have identified.

Okay, just as a follow up, you started talking about the issue of comparative to and you rebate some of the utility companies, where as they states. It seems that that is something that should be what focusing on and it appears to be me, being in the East Coast, that is something that could have a major impact on sales.

Yes, you are absolutely right and we've been active in trying to interrupt in new energy which is in process to qualify for tax credit and we are in specifically in New York has been very helpful with a number of initiatives and the two areas which, by the time we have reached to believe we will see an increased support, one is the biogas. Biogas is associated in energy. Its large green energy received in number of market to get support, but the area which I think would have the most increasing support is the CHP and the CHP is the fastest-quickest way for higher fuel efficiency used in fossil fuel and these days of global reduction is send just economics is very attractive. There seem a number of these areas being and we are not seeking stale. We are starting for a return.

But what are we doing to get that message out there? I don't see any body, I mean products are servable in that basis; I don't think people realize that?

Some thought we will also feel very impatient when we do these efforts and when some are efficient in terms of the energy given and that's not very visible for abroad. I would like to mention our most specific action here is the during these case studies when we discard the success story and make them known to both our distributors, our end users, and government organizations, whoever that I think would be the best help, we can spread the message that market always makes sense in the number of applications.

Is that happening now?

Yes, we came over the . There are more in the pipeline.

Operator, next question please.

Our next question is from David Anderson. Please restate your name and your firm.

Yeah, Collar David Anderson here. You mentioned the CHP review you did and the list, you have come up with a targeted list. I was curious if you could tell us if there is a significance or industry or sector focus that has come out of that and how you'll attack, may be how you'll gauge success against that one?

We look at them, first of all we just track changes in terms of application; so, we have been supplying CHP applications. The direct is a very good area and that can be used for drying and we would expect even food processing because we have this very very clean XR with a new lubricant. And the other thing, the next application is hot water, and for the hot water, we looked at the typical mark for hot water is for chem and nursing homes and other health care entities. The next one in the pipeline will be the cooling, but that is the end of what we're doing this development mentioned earlier.

Thank you.

Our next question in from Steven Sanders. Please restate your name and your firm.

Sanders, Stevens Inc. I also had a question on the CHP side. You are missing the 16 percent in total cost reductions on a 120kW installation. I wanted to know if you can dig a little deeper there, if you could give us the reference point in terms of dollars per kilowatt you use for the install costs there, you know, does the kit scale well at lower and higher power levels? Is 120 the bulk of the installation? And maybe a comment on how much more costs you could expect to bring out of that in the near term?

I mean, I mean when it comes for specific numbers, I will not give you them in absolute numbers for two reasons. One is that every one of these installations is site specific. That is why when you generalize numbers it is always a risk, but for our internal purpose we use a benchmark base of a 120kW, but I can't disclose that for competitive reasons, but I like to say the following that generally we see that the installing system can cost up to twice the cost of just a micro turbine and there is a wide range, but it can cost to thrice as much as that. That is why we told so much about the total . So, what we use in our benchmark was slightly lower than the, this example about it is up to twice as much as the micro turbine, but it is close to that. And in the first round of attack we looked very much indeed about the system cost and the whole installation, that is why, you may say, we could capture some low hanging , but its reductions. And then, you know, in our continued efforts, we have continued towards the 30 percent deductions.

Ok next call please.

We have a follow up question from Ali Agha.

Karen, a question for you, wanted to just clarify the question, the point you had made about the cash usage budget for the year, the 40 million dollar number that you referred to, was that factoring in working capital usage or not, and related to that, your R&D expense run rate through the six months, should we expect that to continue in the second half as well?

Okay, on the Cap expectations that was inclusive of working capital, but again working capital contains as you know the sales happened earlier in the quarter versus the later in the collection of receivables happening separately. It can impact that number, but it is an approximation, so if in the vicinity of the 40 million plus or minus, so I think you should add clarification. I appreciate the opportunity to make so sure that point is clear. Then R&D, R&D we do expect the latter half of the year to be running higher than the first half in most part, because of the timing of the government billing. You will recall on the last call we mentioned that those credits were fund unloaded and so we will have few of those offset as we move into the back half of the year.

Thank you.

Our next question is from Camaron Jeffery. Please restate your name and your firm.

Hai. It's Camaron Jeffery from Credit Suisse First Boston. Just wondering if you can give us an update on your, if you have any finished goods inventory and also an update on the units that you had in the first quarter? Wonder if any of those has been replaced yet?

As far as the second part of that, about the repossessed units, no those have not been placed yet, they are still found in the foreign warehouse under our control, The end user there is still working on the financing package to acquire those and to our understanding is making excellent progress on that. Ah.. our finished goods inventory was 3.8 million dollars of the total inventory and that was down from 5 million dollars at the end of last quarter. Okay.

Okay, thank you.

You are welcome.

Then you have a follow up question from .

In the context of the Capstone onsite marketing programs, do you think it is likely that a strategic partner such as a US based electric utility may incorporate those materials into its own advertising and marketing program to introduce to their customers and therefore being utilizing Capstone's products or introducing Capstone's products to their customers.

I would love to see this happens. I don't think that is likely for unfortunately the way the deregulation has been made in many places in the US, there are lot of restrictions on them, especially at the wire companies, what they can do and not do and in many cases they are swapped restricted to do any generation even if it is one kilowatt of voltage. However, the word is different and especially in Europe I see that utilities have more opportunities to do DG and in fact I have seen utilities in Europe advertise for DG solutions, is not kept with the Capstone MicroTurbine and the one there are exceptions though and I would like to mention one, which I think has Department in Harvard being a municipal utility have not been restriction and as the investor utilities have so they have been able to get Capstone speak to relay advertising their green annuity programs using of the MicroTurbines. And also in the Capstone onside in one of the combining cases using the interpretations effect as a very good exceptional gas utility making good use of the MicroTurbines.

And just a follow up, Ake, you mentioned European utilities introducing this technology to their customer base. In the first quarter European utilities did order quite a few turbines. What was the status of the order flow in the second quarter from those utilities?

To be straight about it was zero in that it but you could see some perspective utilities and they are big organizations and things takes time. What we did in the first quarter was the second step. In 2001, they bought the first couple of units or unit for technology and the large purchase at the end of the first quarter is the second phase where they do product programs. But for them to get all these units out in the field and then get feed back on that, I think they have to be at least, it will be in the most of this year. So in the next step, which we openly speak, would be a major roll out that we will not see until 2003. And I also would take the opportunity on your question. You said that it is still, I think, an excellent example where you will see the combination of their bulk power, how they can combine in the DG.

Thank you.

Our next question is from Kelly Nash. Please restate your name and your firm.

Kelly Nash with McDonald Investments. I just wondered, if you could break down the sales in the quarter by the market application and then address more specifically what you are doing to facilitate inner .

Okay, we have the sales for applications; we don't disclose revised application part for the quarter and, let me comment on the second phase of the question, the . Yes, what we do there is, is all that unglamorous handwork. We participating in working group, which unfortunately didn't get their proposal accepted. the working group continues, and then, the move to this is state by state, that is for what we have been working, and also, last year in December, we did a major demonstration of interconnection each year in connection using our protective Japan by Tokyo Electric, and then during the second quarter, the first unit in Japan based on this was in fact installed. It will be great if this could be a national but most of the work is in state level.

Okay, and then, just going back to the, even though I appreciate that you are not willing to disclose the market applications. Could you at least give sense for, where a majority of a good portion of them on the combining power units.

I mean, I can be very positive as what we have already said is that, we estimate that the above 30 to 35 percent is CHP and I think, this quarter has not much different in that and the next large volumes, probably in the range of 25-30 percent is the biogas applications resource which also include some of the olden gas found of gas. These are two dominant areas.

Great. Thank you very much.

Our next question is from . Please repeat your name and your firm.

Yes. . I have a question just regarding the mix of the 30 kilo watt versus the 60 kilowatt, at what point in the current forecast, roughly would you expect to back to, you have, in a larger mix of the 60 kilowatt unit?

Yes. I would think, sometimes and during the 2003, because what needs to happen is that, we have to add the functionality to the 60, and one gas applications, today is to see , that is why we recall the medium and we are working on for 60 and not yet scheduled for release. Also, that liquid fuel, diesel, kerosene, are only for the stating, and does all of it takes some time and till we are just on the o60. So, I think, before we see the conversion point, as would see 2003.

Thank you.

We have a followup question from Christine Farkas.

Christine Farkas, Merrill Lynch. Can you give us the unit in the quarter as well as the average selling price and any revenues from parts and accessories? Thank you.

Okay. The unit in the quarter was a total of 400, I am sorry, at all, 206 units. You asked for units?

Average selling price.

Average selling price, any thing else is there, Christine?

The parts and accessories revenue.

Parts and accessories. Okay. The average selling price was 22,000 dollars for the 32 system, and 47,000 dollars for the 60 Kilowatt systems, the and service revenue, were 1.7 million dollars in the quarter for that.

Thanks a lot.

Our final question is from David Smith. Please restate your name and your firm.

Hi, it's David Smith from Salomon Smith Barney. One question. Each time Ake that the visibility you're seeing on the cash flow, would you say based on, I guess, you are saying several thousand units to become break even, this is likely the trough level on cash burn that we're seeing this year and may be you can give us some kind of a sense of what you're anticipating may be on an early Q1 2003 cash burn.

Generally, we're actually monitoring our cash very much. As I said from the melt in capital expenditure is when we tune up and we give out for a new platform, that bulk of our capital expenditure was all for the is burn, and then at the time we introduced the two machine, we will need to do capital expenditure for, to that and that is of course can be done in many ways and we're looking to I would call it a intelligent way to introduce it without coming up with too much caps in upfront and then due to gradual tuning of the .

So, the cash that you got in the balance sheet, do you expect that is sufficient to get you to break even?

Yes.

Okay thanks.

That concludes the question and answer session, Miss. ; I will turn the program back to you.

Okay, and thank you for joining us and we look forward to speaking to you on the next call. Thank you.

Thank you ladies and gentlemen, this concludes today's conference call, thank you for your participation, you may disconnect at this time and have a good day.