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EXHIBIT 99
CONSOLIDATED FINANCIAL STATEMENTS OF SATCON TECHNOLOGY CORPORATION
TABLE OF CONTENTS
PAGE
--------
PART I: FINANCIAL STATEMENTS OF SATCON TECHNOLOGY
CORPORATION
Report of Independent Public Accountants.................... 36
Report of Independent Accountants........................... 37
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2000 and
1999.................................................... 38
Consolidated Statements of Operations for the Years Ended
September 30, 2000, 1999
and 1998................................................ 39
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended
September 30, 2000, 1999 and 1998....................... 40
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000, 1999
and 1998................................................ 41
Notes to Consolidated Financial Statements................ 42
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SatCon Technology Corporation:
We have audited the accompanying consolidated balance sheet of SatCon
Technology Corporation and its subsidiaries (a Delaware corporation) as of
September 30, 2000 and 1999 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
then ended. These financial statements are the responsibility of SatCon
Technology Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SatCon Technology
Corporation and its subsidiaries as of September 30, 2000 and 1999 and the
results of their operations and their cash flows for each of the years then
ended in conformity with auditing standards generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 28, 2000
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
SatCon Technology Corporation:
In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and of cash flows for the year ended September 30, 1998
present fairly, in all material respects, the results of operations and cash
flows of SatCon Technology Corporation and its subsidiaries for the year ended
September 30, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule for the year ended
September 30, 1998 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above. We have not audited the consolidated financial
statements of SatCon Technology Corporation for any period subsequent to
September 30, 1998.
As discussed in Note A, the accompanying consolidated financial statements
for the year ended September 30, 1998 reflect revised accounting for the
recapitalization of Beacon Power Corporation.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 17, 1998,
except to the restatement described
in Note A, as to which the date is
September 11, 2000
37
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
--------------------------
2000 1999
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,814,324 $ 2,533,072
Accounts receivable, net of allowance of $320,222 and
$386,686 at September 30, 2000 and 1999, respectively... 7,495,942 2,799,143
Unbilled contract costs and fees, net of allowance of $0
and $746,121 at September 30, 2000 and 1999,
respectively............................................ 824,829 1,462,201
Inventory................................................. 8,001,661 3,697,972
Prepaid expenses and other current assets................. 614,622 349,070
------------ -----------
Total current assets.................................. 25,751,378 10,841,458
Investment in Beacon Power Corporation...................... -- 414,729
Warrants to purchase Mechanical Technology Incorporated
common stock.............................................. 2,473,713 --
Property and equipment, net................................. 6,257,476 3,260,632
Intangibles, net............................................ 9,080,089 3,194,609
Other long-term assets...................................... 924,583 103,675
------------ -----------
Total assets........................................ $ 44,487,239 $17,815,103
============ ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,074,517 $ 1,563,605
Accrued payroll and payroll-related expenses.............. 1,284,884 479,888
Deferred revenue.......................................... 1,525,116 113,179
Funding commitment to Beacon Power Corporation............ -- 333,333
Other accrued expenses.................................... 1,459,218 620,874
Current portion of long-term debt......................... 17,494 16,226
------------ -----------
Total current liabilities............................. 7,361,229 3,127,105
Long-term debt, net of current portion...................... 16,377 33,871
Other long-term liabilities................................. 197,349 29,735
Commitments and contingencies (Note H)
Contingent obligation to Class D preferred stockholders of
Beacon Power Corporation.................................. 5,793,879 5,309,115
Series A redeemable convertible preferred stock............. -- 4,894,112
Stockholders' equity:
Preferred stock; $0.01 par value, 1,000,000 shares
authorized no shares issued and outstanding at September
30, 2000; 8,000 shares series A redeemable convertible
preferred stock issued and outstanding at September 30,
1999.................................................... --
Common stock, $0.01 par value, 25,000,000 shares
authorized; 13,841,185 and 9,617,009 shares issued at
September 30, 2000 and 1999, respectively............... 138,412 96,170
Additional paid-in capital................................ 72,498,540 37,074,161
Common stock held in escrow, at market value; 0 and 42,860
shares at September 30, 2000 and 1999, respectively..... -- (428,600)
Amounts receivable from exercise of stock options......... -- (1,816,667)
Accumulated deficit....................................... (40,195,340) (30,254,195)
Accumulated other comprehensive loss...................... (1,073,503) --
Treasury stock, at cost; 44,500 shares at September 30,
2000 and 1999........................................... (249,704) (249,704)
------------ -----------
Total stockholders' equity............................ 31,118,405 4,421,165
------------ -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity...................... $ 44,487,239 $17,815,103
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
38
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Product revenue...................................... $ 22,427,428 $ 9,122,498 $ 7,520,188
Funded research and development revenue.............. 8,627,601 6,355,383 8,010,735
------------ ------------ -----------
Total revenue........................................ 31,055,029 15,477,881 15,530,923
Cost of product revenue.............................. 19,069,192 9,510,941 5,474,067
------------ ------------ -----------
Gross margin......................................... 11,985,837 5,966,940 10,056,856
------------ ------------ -----------
Research and development expenses.................... 10,300,765 6,554,464 6,793,634
Selling, general and administrative expenses......... 9,969,580 8,818,706 4,523,424
Amortization of intangibles.......................... 1,217,490 371,087 290,957
------------ ------------ -----------
Total operating expenses............................. 21,487,835 15,744,257 11,608,015
------------ ------------ -----------
Operating loss....................................... (9,501,998) (9,777,317) (1,551,159)
Other income (loss).................................. 9,891 (150,464) --
Interest income...................................... 453,631 42,287 179,861
Interest expense..................................... (3,176) (115,692) (10,206)
------------ ------------ -----------
Net loss before income taxes and loss from Beacon
Power Corporation.................................. (9,041,652) (10,001,186) (1,381,504)
Provision for income taxes........................... -- -- (3,872)
Loss from Beacon Power Corporation................... (899,493) (4,340,567) (3,472,438)
------------ ------------ -----------
Net loss............................................. (9,941,145) (14,341,753) (4,857,814)
Accretion of redeemable convertible preferred stock
discount........................................... (3,105,888) (50,904) --
------------ ------------ -----------
Net loss attributable to common stockholders......... $(13,047,033) $(14,392,657) $(4,857,814)
============ ============ ===========
Net loss per share, basic and diluted................ $ (1.03) $ (1.57) $ (.54)
============ ============ ===========
Weighted average number of common shares, basic and
diluted............................................ 12,629,822 9,176,041 8,956,671
============ ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
39
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
AMOUNTS
RECEIVABLE
COMMON COMMON FROM
ADDITIONAL SHARES STOCK EXERCISE OF
COMMON COMMON PAID-IN HELD IN HELD IN STOCK
SHARES STOCK CAPITAL ESCROW ESCROW OPTIONS
---------- -------- ----------- -------- --------- -----------
Balance, September 30, 1997....................... 8,769,146 $ 87,691 $26,576,600 -- -- --
Net loss.......................................... -- -- -- -- -- --
Exercise of stock options......................... 100,266 1,003 580,736 -- -- --
Exercise of warrants.............................. 149,137 1,491 1,220,382 -- -- --
Treasury stock purchased.......................... -- -- -- -- -- --
Change in net unrealized losses on marketable
securities...................................... -- -- -- -- -- --
---------- -------- ----------- ------- --------- -----------
Balance, September 30, 1998....................... 9,018,549 $ 90,185 $28,377,718 -- -- --
Net loss.......................................... -- -- -- -- -- --
Exercise of stock options......................... 455,600 4,556 3,173,445 -- -- (1,816,667)
Treasury stock purchased.......................... -- -- -- -- -- --
Common stock issued in acquisitions............... 100,000 1,000 567,800 -- -- --
Common stock issued in connection with settlement
agreement which is held in escrow............... 42,860 429 189,762 42,860 (190,191) --
Compensation expense related to stock options and
warrants issued to non-employees................ -- -- 2,208,639 -- -- --
Valuation adjustment for common stock held in
escrow.......................................... -- -- 238,409 -- (238,409) --
Warrants issued in connection with the sale of
redeemable preferred stock...................... -- -- 2,369,292 -- -- --
Change in net unrealized losses on marketable
securities...................................... -- -- -- -- -- --
Accretion of redeemable convertible preferred
stock discount.................................. -- -- (50,904) -- -- --
---------- -------- ----------- ------- --------- -----------
Balance, September 30, 1999....................... 9,617,009 $ 96,170 $37,074,161 42,860 $(428,600) $(1,816,667)
Net loss.......................................... -- -- -- -- -- --
Common stock issued in connection with Ling
acquisition..................................... 770,000 7,700 7,748,656 -- -- --
Common stock issued in connection with MTI
investment...................................... 1,030,000 10,300 6,964,926 -- -- --
MTI warrants received in connection with MTI
investment...................................... -- -- 3,495,438 -- -- --
Valuation adjustment for MTI warrants............. -- -- -- -- -- --
Common stock issued in connection with NGC asset
acquisition..................................... 578,761 5,788 5,465,770 -- -- --
Conversion of redeemable convertible preferred
stock into common stock......................... 1,025,641 10,256 7,989,744 -- -- --
Exercise of common stock options.................. 701,774 7,018 5,496,853 -- --
Exercise of common stock warrants................. 118,000 1,180 1,111,720 -- -- --
Payments on amounts receivable from exercise of
stock options................................... -- -- -- -- -- 1,816,667
Valuation adjustment for common stock held in
escrow.......................................... -- -- 257,160 -- (257,160) --
Common stock released from escrow................. -- -- -- (42,860) 685,760 --
Accretion of redeemable convertible preferred
stock discount.................................. -- -- (3,105,888) -- -- --
Foreign currency translation adjustment........... -- -- -- -- -- --
---------- -------- ----------- ------- --------- -----------
Balance, September 30, 2000....................... 13,841,185 $138,412 $72,498,540 -- $ -- $ --
========== ======== =========== ======= ========= ===========
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE TREASURY TREASURY
DEFICIT LOSS SHARES STOCK
------------ ------------- -------- ---------
Balance, September 30, 1997....................... $(11,054,628) $ (20,215) -- --
Net loss.......................................... (4,857,814) -- -- --
Exercise of stock options......................... -- -- -- --
Exercise of warrants.............................. -- -- -- --
Treasury stock purchased.......................... -- -- 28,300 $(173,076)
Change in net unrealized losses on marketable
securities...................................... -- 9,835 -- --
------------ ----------- ------ ---------
Balance, September 30, 1998....................... $(15,912,442) $ (10,380) 28,300 $(173,076)
Net loss.......................................... (14,341,753) -- -- --
Exercise of stock options......................... -- -- -- --
Treasury stock purchased.......................... -- -- 16,200 (76,628)
Common stock issued in acquisitions............... -- -- -- --
Common stock issued in connection with settlement
agreement which is held in escrow............... -- -- -- --
Compensation expense related to stock options and
warrants issued to non-employees................ -- -- -- --
Valuation adjustment for common stock held in
escrow.......................................... -- -- -- --
Warrants issued in connection with the sale of
redeemable preferred stock...................... -- -- -- --
Change in net unrealized losses on marketable
securities...................................... -- 10,380 -- --
Accretion of redeemable convertible preferred
stock discount.................................. -- -- -- --
------------ ----------- ------ ---------
Balance, September 30, 1999....................... $(30,254,195) -- 44,500 (249,704)
Net loss.......................................... (9,941,145) -- -- --
Common stock issued in connection with Ling
acquisition..................................... -- -- -- --
Common stock issued in connection with MTI
investment...................................... -- -- -- --
MTI warrants received in connection with MTI
investment...................................... -- -- -- --
Valuation adjustment for MTI warrants............. -- (1,021,725) -- --
Common stock issued in connection with NGC asset
acquisition..................................... -- -- -- --
Conversion of redeemable convertible preferred
stock into common stock......................... -- -- -- --
Exercise of common stock options.................. -- -- -- --
Exercise of common stock warrants................. -- -- -- --
Payments on amounts receivable from exercise of
stock options................................... -- -- --
Valuation adjustment for common stock held in
escrow.......................................... -- -- -- --
Common stock released from escrow................. -- -- -- --
Accretion of redeemable convertible preferred
stock discount.................................. -- -- -- --
Foreign currency translation adjustment........... -- (51,778) -- --
------------ ----------- ------ ---------
Balance, September 30, 2000....................... $(40,195,340) $(1,073,503) 44,500 $(249,704)
============ =========== ====== =========
TOTAL
STOCKHOLDERS'
EQUITY
---------------------------
Balance, September 30, 1997....................... $ 15,589,448
Net loss.......................................... (4,857,814)
Exercise of stock options......................... 581,739
Exercise of warrants.............................. 1,221,873
Treasury stock purchased.......................... (173,076)
Change in net unrealized losses on marketable
securities...................................... 9,835
---------------------------
Balance, September 30, 1998....................... $ 12,372,005
Net loss.......................................... (14,341,753)
Exercise of stock options......................... 1,361,334
Treasury stock purchased.......................... (76,628)
Common stock issued in acquisitions............... 568,800
Common stock issued in connection with settlement
agreement which is held in escrow............... --
Compensation expense related to stock options and
warrants issued to non-employees................ 2,208,639
Valuation adjustment for common stock held in
escrow.......................................... --
Warrants issued in connection with the sale of
redeemable preferred stock...................... 2,369,292
Change in net unrealized losses on marketable
securities...................................... 10,380
Accretion of redeemable convertible preferred
stock discount.................................. (50,904)
---------------------------
Balance, September 30, 1999....................... $ 4,421,165
Net loss.......................................... (9,941,145)
Common stock issued in connection with Ling
acquisition..................................... 7,756,356
Common stock issued in connection with MTI
investment...................................... 6,975,226
MTI warrants received in connection with MTI
investment...................................... 3,495,438
Valuation adjustment for MTI warrants............. (1,021,725)
Common stock issued in connection with NGC asset
acquisition..................................... 5,471,558
Conversion of redeemable convertible preferred
stock into common stock......................... 8,000,000
Exercise of common stock options.................. 5,503,871
Exercise of common stock warrants................. 1,112,900
Payments on amounts receivable from exercise of
stock options................................... 1,816,667
Valuation adjustment for common stock held in
escrow.......................................... --
Common stock released from escrow................. 685,760
Accretion of redeemable convertible preferred
stock discount.................................. (3,105,888)
Foreign currency translation adjustment........... (51,778)
---------------------------
Balance, September 30, 2000....................... $ 31,118,405
===========================
The accompanying notes are an integral part of these consolidated financial
statements.
40
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Cash flows from operating activities:
Net loss.................................................. $ (9,941,145) $(14,341,753) $(4,857,814)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 2,038,391 1,013,037 625,976
Allowance for unbilled contract costs and fees...... -- 688,510 (19,065)
Allowance for doubtful accounts..................... 265,744 334,850 (94,424)
Allowance for inventory............................. 658,774 870,021 (549,765)
Loss from Beacon Power Corporation.................. 899,493 4,340,567 3,472,438
Loss on sale of marketable securities............... -- 87,535 --
Write-off impaired assets........................... -- 255,544 50,104
Compensation expense related to release of stock
from escrow, issuance of stock options and
warrants to non-employees......................... 385,760 2,208,639 --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable............................... (3,025,520) 89,858 (301,909)
Unbilled contract costs and fees.................. 637,372 (954,393) 532,573
Prepaid expenses and other assets................. 144,687 31,455 (8,529)
Inventory......................................... (628,472) (601,120) (1,550,819)
Other long-term assets............................ 8,072 517,402 (607,245)
Accounts payable.................................. 869,225 72 647,689
Accrued expenses and payroll...................... 641,266 (98,163) (291,061)
Other liabilities................................. 1,566,051 (72,763) 6,802
------------ ------------ -----------
Total adjustments....................................... 4,460,843 8,711,051 1,912,765
------------ ------------ -----------
Net cash used in operating activities....................... (5,480,302) (5,630,702) (2,945,049)
------------ ------------ -----------
Cash flows from investing activities:
Sales and maturities of marketable securities............. -- 580,144 1,340,609
Patent and intangible expenditures........................ (78,962) (102,227) (431,526)
Purchases of property and equipment....................... (2,463,777) (220,416) (601,331)
Acquisitions, net of cash acquired........................ (24,054) (995,876) --
Investment in Beacon Power Corporation.................... (333,333) (696,667) (2,007,508)
------------ ------------ -----------
Net cash used in by investing activities.................... (2,900,126) (1,435,042) (1,699,756)
------------ ------------ -----------
Cash flows from financing activities:
Repayment of capital lease obligations.................... (16,226) (100,000) (40,625)
Borrowings under line of credit........................... -- 2,657,234 --
Repayment of borrowings under line of credit.............. -- (2,657,234) --
Net proceeds from issuance of redeemable convertible
preferred stock......................................... -- 7,212,500 --
Net proceeds from issuance of common stock................ 6,975,226 -- --
Proceeds from exercise of stock options and payment of
amounts receivable from exercise of stock options....... 7,320,538 1,361,334 581,739
Proceeds from exercise of warrants........................ 1,112,900 -- 1,221,873
Purchase of treasury stock................................ -- (76,628) (173,076)
Deferred equity financing costs........................... (678,980) -- --
------------ ------------ -----------
--
Net cash provided by financing activities................... 14,713,458 8,397,206 1,589,911
------------ ------------ -----------
Effect of foreign currency exchange rates on cash and cash
equivalents............................................... (51,778) -- --
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents........ 6,281,252 1,331,462 (3,054,894)
Cash and cash equivalents at beginning of year.............. 2,533,072 1,201,610 4,256,504
------------ ------------ -----------
Cash and cash equivalents at end of year.................... $ 8,814,324 $ 2,533,072 $ 1,201,610
============ ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
41
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION
SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon develops enabling technologies for the emerging distributed power
generation and power quality markets. SatCon also manufactures power and energy
management products that convert, condition, store and manage electricity for
businesses and consumers that require high-quality, uninterruptible power.
SatCon is utilizing its engineering and manufacturing expertise to develop
products to serve the distributed power generation and power quality markets,
including products for fuel cell and microturbine power generation systems,
hybrid-electric vehicles and flywheel energy storage systems. SatCon believes
the family of products it is developing will be integral components of
distributed power generation and power quality systems.
In the past three years, SatCon has expanded its business and capabilities
through the following acquisitions:
- K&D Magmotor Corp.--a manufacturer of custom electric motors, acquired in
January 1997.
- Film Microelectronics, Inc. ("FMI")--a manufacturer of hybrid
microelectronics, acquired in April 1997.
- Inductive Components, Inc.--a value-added supplier of customized electric
motors, acquired in January 1999.
- Lighthouse Software, Inc.--a supplier of control software for machine
tools, acquired in January 1999.
- HyComp, Inc.--a manufacturer of electronic multi-chip modules, acquired in
April 1999.
- Ling Electronics, Inc.--a manufacturer of test equipment, power
converters, amplifiers and converters, acquired in October 1999.
All of these acquisitions were accounted for using the purchase method of
accounting. In addition, in November 1999, the Company acquired intellectual
property, tooling and other assets from Northrop Grumman Corporation enabling
the Company to manufacture and sell electric drivetrains. See Note O.
RESTATEMENTS
During fiscal 2000, the Company has restated its financial statements on two
separate occasions. A description of each restatement is as follows:
AUGUST 2000 RESTATEMENT
In August 2000, the Company restated its financial statements for fiscal
1997, 1998 and 1999. The restatement was prompted by the initial audit of the
financial statements of its affiliate, Beacon Power Corporation ("Beacon Power")
and reflects treating certain costs as expenses rather than being included in
the value of the net assets of Beacon Power at December 24, 1997 (see Note E).
The Company previously had accounted for these costs either as fixed assets or
as part of the net assets of Beacon Power. The Company had capitalized
$2.9 million of costs incurred during 1996, 1997 and 1998 in developing design
documentation, tooling and test fixtures for Beacon Power's flywheel energy
storage system. At the time
42
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
these costs were capitalized, the Company believed that it had a fully
functional design that could meet customer performance requirements and that the
product could be manufactured and sold at a profit so that the capitalized costs
would be recovered. The Company believed that its flywheel energy storage
product was beyond the research and development stage. As part of the initial
audit of Beacon Power during 2000 for the period from inception (May 1997)
through December 31, 1999, the Company reviewed the audit evidence supporting
the capitalized costs and determined that these costs had not been properly
capitalized. Accordingly, the Company has expensed these costs as incurred. In
addition, as a result of the initial audit of the financial statements of Beacon
Power, additional immaterial adjustments were made to the historical financial
statements of Beacon Power. A summary of the additional adjustments is as
follows:
Record additional revenue during 1997....................... $ 45,000
Reclassification of certain SG&A expenses to R&D during
1997...................................................... $264,000
Write-off certain current assets including inventory and
accounts receivable....................................... $ 37,000
Write-off certain intangibles............................... $ 91,000
Record additional accrued expenses.......................... $ 73,000
As a result, the Company's investment in Beacon Power was reduced by
$3.1 million as of December 24, 1997. The adjustments to the financial
statements at December 24, 1997, the date on which the Company initially began
accounting for its investment in Beacon Power under the equity method of
accounting, consisted of a reduction of $37,000 from current assets, a reduction
of $3.0 million from property and equipment and intangible assets and an
increase of $73,000 of accrued expenses. The Company has adjusted its
accumulated deficit as of September 30, 1996 for the effect of the 1996
restatement. The cumulative effect of this change on the Company's stockholders'
equity as of September 30, 1996 was a reduction of $924,192. The cumulative
effect of this change on the Company's stockholders' equity as of September 30,
1999 was a reduction of $130,504. The effect of this change on the reported
results for each period is as follows:
43
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS:
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
---------------------------
AS RESTATED AS REPORTED
------------ ------------
Product revenue............................................. $ 9,122,498 $ 9,122,498
Funded research and development revenue..................... 6,355,383 6,355,383
------------ ------------
Total revenue............................................... 15,477,881 15,477,881
Cost of product revenue..................................... 9,510,941 9,510,941
------------ ------------
Gross margin................................................ 5,966,940 5,966,940
------------ ------------
Research and development expenses........................... 6,554,464 6,554,464
Selling, general and administrative expenses................ 8,818,706 8,818,706
Amortization of intangibles................................. 371,087 371,087
------------ ------------
Total operating expenses.................................... 15,744,257 15,744,257
------------ ------------
Operating loss.............................................. (9,777,317) (9,777,317)
Other losses................................................ (150,464) (150,464)
Interest income............................................. 42,287 42,287
Interest expense............................................ (115,692) (115,692)
------------ ------------
Net loss before loss from Beacon Power Corporation.......... (10,001,186) (10,001,186)
Loss from Beacon Power Corporation.......................... (1,030,000) (2,357,679)
------------ ------------
Net loss.................................................... (11,031,186) (12,358,865)
Accretion of redeemable convertible preferred stock
discount.................................................. (50,904) (50,904)
------------ ------------
Net loss attributable to common stockholders................ $(11,082,090) $(12,409,769)
============ ============
Net loss per share, basic and diluted....................... $ (1.21) $ (1.35)
============ ============
Weighted average number of common shares, basic and
diluted................................................... 9,176,041 9,176,041
============ ============
44
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
FOR THE YEAR ENDED
SEPTEMBER 30, 1998
-------------------------
AS RESTATED AS REPORTED
----------- -----------
Product revenue............................................. $ 7,520,188 $ 7,520,188
Funded research and development revenue..................... 8,010,735 7,965,735
----------- -----------
Total revenue............................................... 15,530,923 15,485,923
Cost of product revenue..................................... 5,474,067 5,474,067
----------- -----------
Gross margin................................................ 10,056,856 10,011,856
----------- -----------
Research and development expenses........................... 6,793,634 5,863,296
Selling, general and administrative expenses................ 4,523,424 4,787,070
Amortization of intangibles................................. 290,957 290,957
----------- -----------
Total operating expenses.................................... 11,608,015 10,941,323
----------- -----------
Operating loss.............................................. (1,551,159) (929,467)
Interest income............................................. 179,861 179,861
Interest expense............................................ (10,206) (10,206)
----------- -----------
Net loss before income taxes and loss from Beacon Power
Corporation............................................... (1,381,504) (759,812)
Loss from Beacon Power Corporation.......................... (1,888,619) (3,541,817)
Provision for income taxes.................................. (3,872) (3,872)
----------- -----------
Net loss attributable to common stockholders................ $(3,273,995) $(4,305,501)
=========== ===========
Net loss per share, basic and diluted....................... $ (.37) $ (.48)
=========== ===========
Weighted average number of common shares, basic and
diluted................................................... 8,956,671 8,956,671
=========== ===========
FOR THE YEAR ENDED
SEPTEMBER 30, 1997
---------------------------
AS RESTATED AS REPORTED
------------ ------------
Product revenue............................................. $ 3,728,042 $ 3,728,042
Funded research and development revenue..................... 8,738,293 8,738,293
------------ ------------
Total revenue............................................... 12,466,335 12,466,335
Cost of product revenue..................................... 2,683,389 2,683,389
------------ ------------
Gross margin................................................ 9,782,946 9,782,946
------------ ------------
Research and development expenses........................... 11,442,465 9,876,968
Selling, general and administrative expenses................ 6,197,951 6,197,951
Amortization of intangibles................................. 120,467 120,467
------------ ------------
Total operating expenses.................................... 17,760,883 16,195,386
------------ ------------
Operating loss.............................................. (7,977,937) (6,412,440)
Interest income............................................. 283,131 283,131
Interest expense............................................ (13,933) (13,933)
------------ ------------
Net loss attributable to common stockholders................ $ (7,708,739) $ (6,143,242)
============ ============
Net loss per share, basic and diluted....................... $ (.97) $ (.77)
============ ============
Weighted average number of common shares, basic and
diluted................................................... 7,959,309 7,959,309
============ ============
45
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
CONSOLIDATED BALANCE SHEET DATA:
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------------- ---------------------------
AS RESTATED AS REPORTED AS RESTATED AS REPORTED
------------ ------------ ------------ ------------
Investment in Beacon Power
Corporation.......................... -- -- -- $ 1,458,183
Total assets........................... $ 17,400,374 $ 17,400,374 $ 16,708,407 $ 18,166,590
Accrued losses from investment in
Beacon Power Corporation............. $ 333,333 $ 202,829 -- --
Accumulated deficit.................... $(25,359,809) $(25,229,305) $(14,328,623) $(12,870,440)
Total liabilities, redeemable
convertible
preferred stock and stockholders'
equity............................... $ 17,400,374 $ 17,400,374 $ 16,708,407 $ 18,166,590
SEPTEMBER 2000 RESTATEMENT
In September 2000, the Company restated the financial statements for fiscal
years 1998 and 1999. The Company determined that the recapitalization of Beacon
Power Corporation on December 24, 1997 did not qualify as a divestiture of a
subsidiary for accounting purposes in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 30/Topic 5E (SAB Topic 5.E.)
"Accounting for Divestiture of a Subsidiary or Other Business Operation," as the
Company had not transferred the risk and other incidents of ownership of Beacon
Power with sufficient certainty. In accordance with SAB Topic 5.E., the Company
has included 100% of Beacon Power's net loss in its statements of operations
from December 24, 1997 to May 1999 in a manner similar to the equity method of
accounting and has included the assets and liabilities transferred to Beacon
Power as separate components in its September 30, 1998 balance sheet. In June
1999, in connection with a bridge note financing at Beacon Power, the Company
determined that the risks and other incidents of ownership of Beacon Power had
passed with sufficient certainty to other investors and the Company began
accounting for its investment in Beacon Power under the equity method of
accounting. The Company has recorded the face value of and cumulative dividends
on Beacon Power's Class D preferred stock issued on October 23, 1998 as an
additional investment in Beacon Power. As more fully discussed in Note E, the
Class D preferred stockholders have the right to require the Company to purchase
their shares of Class D preferred stock in certain events. The Company has
recorded the face value and the cumulative dividends as a liability.
The accompanying financial data reflect the following changes:
- The Company's share of Beacon Power's net loss for fiscal 1998 and 1999
increased by $1,583,819 and $3,310,567, respectively.
- As of September 30, 1998, the Company wrote off all of its advances to
Beacon Power of $596,453 and recorded the assets and liabilities
transferred to Beacon Power of $576,786 and $1,564,152, respectively.
- As of September 30, 1999, the Company recorded its net investment balance
in Beacon Power of $414,729 and its contingent obligation to the Class D
preferred stockholders of Beacon Power of $5,309,115.
- The as restated and as reported consolidated statements of operations data
and consolidated balance sheet data follows (the as reported financial
information presented here includes the effects of the August 2000
restatement discussed above):
46
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
---------------------------
AS RESTATED AS REPORTED
------------ ------------
Loss from Beacon Power Corporation............... $ (4,340,567) $ (1,030,000)
Net loss......................................... (14,341,753) (11,031,186)
Net loss attributable to common stockholders..... (14,392,657) (11,082,090)
Net loss per share, basic and diluted............ (1.57) (1.21)
FOR THE YEAR ENDED
SEPTEMBER 30, 1998
---------------------------
AS RESTATED AS REPORTED
------------ ------------
Loss from Beacon Power Corporation............... $ (3,472,438) $ (1,888,619)
Net loss attributable to common stockholders..... (4,857,814) (3,273,995)
Net loss per share, basic and diluted............ (.54) (.37)
CONSOLIDATED BALANCE SHEET DATA:
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------------- ---------------------------
AS RESTATED AS REPORTED AS RESTATED AS REPORTED
------------ ------------ ------------ ------------
Amount due from Beacon Power
Corporation.......................... $ -- $ -- $ -- $ 596,453
Investment in Beacon Power
Corporation.......................... 414,729 -- -- --
Assets transferred to Beacon Power
Corporation.......................... -- -- 576,786 --
Total assets........................... 17,815,103 17,400,374 16,688,740 16,708,407
Funding commitment to Beacon Power
Corporation.......................... 333,333 333,333 -- --
Liabilities transferred to Beacon Power
Corporation.......................... -- -- 1,564,152 --
Contingent obligation to Class D
preferred stockholders of Beacon
Power Corporation.................... 5,309,115 -- -- --
Accumulated deficit.................... (30,254,195) (25,359,809) (15,912,442) (14,328,623)
Total liabilities, redeemable
convertible preferred stock and
stockholders' equity................. 17,815,103 17,400,374 16,688,740 16,708,407
The Company's financial statements as of September 30, 1999 and 2000 and for
the years ended September 30, 1998, 1999 and 2000 include the effects of the
August 2000 and September 2000 restatements.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of SatCon and its
majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
47
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is the local
currency. Assets and liabilities of foreign subsidiaries are translated at the
rates in effect at the balance sheet date, while stockholders' equity (deficit)
is translated at historical rates. Statements of operations and cash flow
amounts are translated at the average rate for the period. Translation
adjustments are included as a component of accumulated other comprehensive loss.
Foreign currency gains and losses arising from transactions are reflected in the
loss from operations and were not significant during the year ended
September 30, 2000.
REVENUE RECOGNITION
The Company recognizes revenue from product sales in accordance with Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." Product revenue is
recognized when there is persuasive evidence of an arrangement, delivery of the
product to the customer has occurred, at which time title generally is passed to
the customer, and the Company has determined that collection of a fixed fee is
probable, all of which occur upon shipment of the product. If the product
requires installation to be performed by the Company, all revenue related to the
product is deferred and recognized upon the completion of the installation. The
Company provides for a warranty reserve at the time the product revenue is
recognized.
The Company performs funded research and development and product development
for commercial companies and government agencies under both cost reimbursement
and fixed-price contracts. Product development revenue is included in product
revenue. Cost reimbursement contracts provide for the reimbursement of allowable
costs and, in some situations, the payment of a fee. These contracts may contain
incentive clauses providing for increases or decreases in the fees depending on
how costs compare with a budget. On fixed-price contracts, revenue is generally
recognized on the percentage of completion method based upon the proportion of
costs incurred to the total estimated costs for the contract. Revenue from
reimbursement contracts is recognized as the services are performed. In each
type of contract, the Company receives periodic progress payments or payments
upon reaching interim milestones. All payments to the Company for work performed
on contracts with agencies of the U.S. government are subject to audit and
adjustment by the Defense Contract Audit Agency. Adjustments are recognized in
the period made. When the current estimates of total contract revenue for
commercial product development contracts indicate a loss, a provision for the
entire loss on the contract is recorded. Any losses incurred in performing
funded research and development projects are recognized as research and
development expense as incurred. As of September 30, 2000, the Company has
accrued $150,000 for anticipated contract losses on commercial contracts. There
were no anticipated contract losses at September 30, 1999.
Cost of revenue includes cost of product revenue including material, labor
and overhead and costs associated with product development contracts. Costs
incurred in connection with funded research and development arrangements are
included in research and development expenses.
Deferred revenue consists of payments received from customers in advance of
services performed, product shipped or installation completed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits and highly liquid
investments with maturities of three months or less when acquired. Cash
equivalents are stated at cost, which approximates market value.
48
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INVENTORY
Inventories are stated at the lower of cost or market and costs are
determined based on the first-in, first-out method of accounting and include
material, labor and manufacturing overhead costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the asset's estimated useful life.
The estimated useful lives of property and equipment are as follows:
ESTIMATED LIVES
---------------
Computer equipment and software........... 3-5 years
Electronic laboratory and shop 5 years
equipment...............................
Mechanical laboratory and shop 10 years
equipment...............................
Sales and demonstration equipment......... 3-10 years
Furniture and fixtures.................... 7-10 years
Leasehold improvements.................... Lesser of the life of the lease or the
useful life of the improvement
When assets are retired or otherwise disposed of, the cost and related
depreciation and amortization are eliminated from the accounts and any resulting
gain or loss is reflected in other income.
LONG-LIVED ASSETS
The Company periodically evaluates the potential impairment of its
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. At the occurrence of a
certain event or change in circumstances or at each balance sheet date, the
Company evaluates the potential impairment of an asset based on future
undiscounted cash flows. In the event that impairment exists, the Company will
measure the amount of such impairment based on the present value of estimated
future cash flows using a discount rate commensurate with the risks involved.
Factors that management considers in performing this assessment include current
operating results, trends and prospects and, in addition, demand, competition
and other economic factors. At September 30, 2000 and 1999, the Company
determined that there had been no impairment of its long-lived assets, except as
in Notes D and G.
49
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Intangibles consisted of the following:
SEPTEMBER 30,
ESTIMATED ------------------------
LIVES 2000 1999
----------- ----------- ----------
Patents................................. 15-20 years $ 755,748 $ 676,786
Identifiable intangible assets from
MagMotor acquisition.................. 5 years 44,250 44,250
Goodwill from MagMotor acquisition...... 7 years 65,198 65,198
Identifiable intangible assets from FMI
acquisition........................... 5-10 years 1,750,000 1,750,000
Goodwill from FMI acquisition........... 15 years 826,218 826,218
Identifiable intangible assets from
Inductive/ Lighthouse acquisition..... 5 years 275,000 275,000
Goodwill from Inductive/Lighthouse
acquisition........................... 10 years 389,079 389,079
Goodwill from Ling acquisition.......... 7 years 3,754,910 --
Identifiable intangible assets from NGC
acquisition........................... 3-10 years 3,281,423 --
----------- ----------
11,141,826 4,026,531
Less: accumulated amortization.......... 2,061,737 831,922
----------- ----------
$ 9,080,089 $3,194,609
=========== ==========
Amortization expense related to intangibles for the years ended
September 30, 2000, 1999 and 1998 was $1,229,815, $389,685 and $303,674,
respectively.
TREASURY STOCK
The Company was authorized to repurchase up to 5% of the Company's
outstanding shares of common stock through July 2000. Under the repurchase
program, the Company purchased 44,500 shares of the Company's outstanding common
stock at a cost of $249,704.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period
reported. Actual results could differ from these estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statements of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which is the asset and liability method for accounting and reporting for income
taxes. Under SFAS No. 109, deferred tax assets and deferred tax liabilities are
recognized based on temporary differences between the financial reporting and
income tax basis of assets and liabilities using statutory rates. In addition,
SFAS No. 109 requires a valuation allowance
50
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
against net deferred tax assets if, based upon the available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for stock-based Compensation," requires the
measurement of the fair value of stock options or warrants granted to employees
to be included in the statement of operations or, alternatively, disclosed in
the notes to consolidated financial statements. The Company has determined that
it will account for stock-based compensation of employees under the intrinsic
value method of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees" and elect the disclosure-only alternative under
SFAS No. 123. The Company records the fair market value of stock options and
warrants granted to non-employees in exchange for services in accordance with
Emerging Issues Task Force (EITF) No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services," in the consolidated statement of operations.
NET LOSS PER BASIC AND DILUTED COMMON SHARE
The Company reports net loss per basic and diluted common share in
accordance with SFAS No. 128, "Earnings Per Share," which establishes standards
for computing and presenting earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit
risk principally consist of cash equivalents, trade accounts receivable,
unbilled contract costs and amounts receivable from exercise of stock options.
The Company's trade accounts receivable and unbilled contract costs and fees
are primarily from sales to U.S. government agencies and commercial customers.
The Company does not require collateral and has not historically experienced
significant credit losses related to receivables or unbilled contract costs and
fees from individual customers or groups of customers in any particular industry
or geographic area.
The Company deposits its cash and invests in short-term investments
primarily through a regional commercial bank and an investment company. Credit
exposure to any one entity is limited by Company policy.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred. Research
and development expense includes costs incurred in connection with funded
research and development arrangements.
COMPREHENSIVE LOSS
Comprehensive loss includes net loss, unrealized gains and losses on
marketable securities, valuation adjustment for warrants to purchase shares of
Mechanical Technology Incorporated's common stock and foreign currency
translation adjustments.
51
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, unbilled contract costs and fees, warrants to purchase
shares of Mechanical Technology Incorporated's common stock, accounts payable,
debt instruments, contigent obligation to Class D preferred stockholders of
Beacon Power Corporation and amounts receivable from exercise of stock options.
The estimated fair values of these financial instruments approximate their
carrying values at September 30, 2000 and 1999. The estimated fair values have
been determined through information obtained from market sources and management
estimates.
RECLASSIFICATIONS
Certain prior-year balances have been reclassified to conform to
current-year presentations. For all periods presented, expenses associated with
funded research and development activities have been reclassified as research
and development expenses from cost of revenue.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133," which defers the effective
date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. The Company will adopt
SFAS No. 133 beginning in the first quarter of the fiscal year ending
September 30, 2001. Upon adoption of SFAS No. 133, the Company will be required
to record an unrealized loss on the fair value of the warrants to purchase
shares of Mechanical Technology Incorporated's common stock in its results of
operations as a cumulative effect of a change in accounting principle of
$1.0 million reflecting the impact of adopting this accounting standard. The
Company will be required to record future unrealized gains and losses on the
fair value of the warrants in its results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 140 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. Under SFAS No. 140,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS No. 140 also provides standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for certain transactions occurring after
March 31, 2001 and certain disclosures for the fiscal year ending September 30,
2001. The Company is currently evaluating the impact of SFAS No. 140 on its
financial statements and related disclosures, but does not expect that adoption
of SFAS No. 140 will have a material impact on its financial statements.
B. UNBILLED CONTRACT COSTS AND FEES
Unbilled contract costs and fees represent revenue recognized in excess of
amounts billed due to contractual provisions or deferred costs that have not yet
been recognized as revenue or billed to the
52
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. UNBILLED CONTRACT COSTS AND FEES (CONTINUED)
customer. These amounts included retained fee and unliquidated costs totaling
$209,832 and $282,746 at September 30, 2000 and 1999, respectively.
C. INVENTORY
Inventory includes material, labor and overhead and consisted of the
following:
SEPTEMBER 30,
-----------------------
2000 1999
---------- ----------
Raw material......................................... $3,081,265 $1,139,064
Work-in-process...................................... 2,932,965 2,199,199
Finished goods....................................... 1,987,431 359,709
---------- ----------
$8,001,661 $3,697,972
========== ==========
D. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
SEPTEMBER 30,
------------------------
2000 1999
----------- ----------
Machinery and equipment............................. $ 8,059,916 $4,505,287
Furniture and fixtures.............................. 305,777 280,769
Computer software................................... 744,308 621,583
Leasehold improvements.............................. 751,793 648,734
----------- ----------
9,861,794 6,056,373
Less: accumulated depreciation and amortization..... 3,604,318 2,795,741
----------- ----------
$ 6,257,476 $3,260,632
=========== ==========
Depreciation and amortization expense relating to property and equipment for
the years ended September 30, 2000, 1999 and 1998 was $808,577, $633,964 and
$540,213, respectively.
As of September 30, 2000 and 1999, there was $19,903 and $29,910 of capital
leases that were included in machinery and equipment and computer software,
respectively.
During 1999, the Company determined that certain of its machinery and
equipment with a net book value totaling $105,544 was impaired based on a
significant change in the manner in which the asset was used, and such assets
were written-off during 1999. These assets included $86,492 of tooling costs
associated with the introduction of brushless motor products at the Company's
MagMotor Division that were impaired based on design changes in the product and
$19,052 of optics equipment at the Company's Technology Center that were
abandoned. These impairment losses have been included in cost of product revenue
and research and development expenses, respectively.
53
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVESTMENT IN BEACON POWER CORPORATION
On May 28, 1997, SatCon Technology Corporation entered into a Securities
Purchase Agreement, dated as of May 28, 1997, by and among the Company, Beacon
Power, ("Beacon Power"), a new wholly-owned subsidiary of the Company and
Duquesne Enterprises ("Duquesne"). Pursuant to the terms of the Agreement,
Duquesne purchased from the Company and the Company issued, sold and delivered
to Duquesne 798,138 shares of the Company's Common Stock. The aggregate
consideration received by the Company was $5,000,000. In exchange for a capital
contribution, the Company received all of the capital stock of Beacon Power,
consisting of 3,375,000 shares of Beacon Power's Common Stock and 1,125,000
shares of Beacon Power's preferred stock, par value $0.01 per share, as adjusted
to reflect a 1:1.125 stock split. Duquesne also entered into agreements pursuant
to which it will act as exclusive distributor of Beacon Power's products,
subject to certain exceptions, in seven Mid-Atlantic States and the District of
Columbia.
During a recapitalization of Beacon Power on December 24, 1997, Beacon Power
obtained equity financing of $30,000 from private investors and the Company
converted approximately 80% of its ownership of Beacon Power to nonvoting
Class A convertible preferred stock ("Class A Stock") and transferred certain
assets and liabilities to Beacon Power. Upon completion of this
recapitalization, the Company owned 20% of the voting stock of Beacon Power and
99.9% of the capital stock of Beacon Power. Each share of Class A Stock that the
Company held was convertible into two shares of common stock at the option of
the Company. The Class A Stock was nonvoting and upon liquidation, the Company
was entitled to receive, out of funds then generally available prior to any
payment with respect to the holders of common stock, $4.45 per share, plus any
declared and unpaid dividends thereon. The Company had the right to receive the
same dividends as declared by the Board of Directors of Beacon Power on common
shares on an "as-if-converted" basis. The Class A Stock would automatically be
converted into shares of common stock upon the closing of a public offering of
common stock of Beacon Power, upon a vote of the Board of Directors of Beacon
Power or upon the automatic conversion of the Class D preferred stock of Beacon
Power. Class A Stock was subordinate to Class D, E and F preferred stock of
Beacon Power and had parity with Class B and C preferred stock. The Class A
Stock did not have redemption features.
The Company has determined that the recapitalization of Beacon Power on
December 24, 1997 did not qualify as a divestiture of a subsidiary for
accounting purposes as described in SAB Topic 5.E. "Accounting for Divestiture
of a Subsidiary or Other Business Operation," as the Company had not transferred
risks and other incidents of ownership of Beacon Power with sufficient certainty
as the Company was the only stockholder of Beacon Power at risk of loss of its
investment. In accordance with SAB Topic 5.E., the Company has included 100% of
Beacon Power's net loss in its statements of operations as of December 24, 1997,
in a manner similar to the equity method of accounting and has included the
assets and liabilities transferred to Beacon Power as separate components in its
September 30,
54
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
1998 balance sheet. The book value of assets and liabilities transferred to
Beacon Power on December 24, 1997 was as follows:
Accounts receivable......................................... $ 14,487
Prepaid expenses and other assets........................... 67,147
Subscriptions receivable.................................... 2,007,508
Accounts payable............................................ (50,000)
Accrued payroll and payroll related expenses................ (32,298)
Accrued expenses............................................ (118,225)
-----------
Investment in Beacon Power Corporation...................... $ 1,888,619
===========
At September 30, 1998, prior to the 1:1.25 stock split, the Company owned
19.9% of the voting stock of Beacon Power, 99.9% of the outstanding capital
stock of Beacon Power and had amounts of $596,453 due from Beacon Power. These
amounts arose from transactions after December 24, 1997, whereby the Company
advanced money and made payments for certain expenses incurred by Beacon Power.
These advances have been written off as of September 30, 1998. These advances
were subsequently repaid in connection with the October 23, 1998 financing.
On October 23, 1998, the Company entered into a Securities Purchase
Agreement, by and among Beacon Power, Perseus Capital, L.L.C. ("Perseus"), DQE
Enterprises, Inc., Micro Generation Technology Fund, L.L.C ("Micro", and
together with Perseus and DQE Enterprises, the "Purchasers") and the Company.
Pursuant to the terms of the Agreement: (i) the Purchasers purchased from Beacon
Power and Beacon Power issued, sold and delivered to the Purchasers 1,900,000
shares (the "Shares") of Beacon Power's Class D Redeemable Preferred Stock,
$0.01 par value per share; (ii) the Class D Redeemable Preferred Stock earns
cumulative dividends at an annual rate of 12.5% through May 23, 2000 and 6% on
and after this date; (iii) the Purchasers have the right to receive certain
warrants to purchase shares of Beacon Power's common stock, $0.01 par value per
share ("Beacon Power's Common Stock"); (iv) the Company granted the Purchasers
the right (the "Put Right") to cause the Company, in circumstances described
below, to purchase all of the Shares and all of Beacon Power's Common Stock
issuable upon conversion of the Shares; and (v) upon exercise of the Put Right
pursuant to the terms of the Agreement, the Company must pay the consideration
contemplated by the Agreement in shares of the Company's common stock, $0.01 par
value per share. The aggregate consideration received by Beacon Power was
$4,750,000. The Put Right is exercisable within 60 days of the second, third,
fourth and fifth anniversary of the closing date of the transaction, upon
certain events of bankruptcy of Beacon Power and upon the occurrence of certain
going private transactions involving the Company. The Put Right will terminate,
if not previously exercised, on the earlier of (i) October 23, 2003, (ii) upon
the listing of Beacon Power's Common Stock on the New York Stock Exchange or the
Nasdaq National Market, or (iii) with respect to put rights resulting from an
event described above, 100 days after the Purchasers receive written notice from
the Company requesting that the Purchasers either exercise or waive their put
rights resulting from that event. The Company has recorded the face value of and
cumulative dividends on Beacon Power's Class D Preferred Stock as a liability.
As of September 30, 1999, the contingent obligation to the Class D preferred
stockholders is $5,309,115, consisting of $4,750,000 face value and $559,115 of
cumulative dividends.
55
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
Upon completion of the issuance of the Class D preferred stock of Beacon
Power and at September 30, 1999, the Company owned .1% of Beacon Power's voting
stock and 67% of Beacon Power's outstanding capital stock.
In June 1999, the Company committed to provide up to $1,000,000 of
additional financing to Beacon Power representing a minority share, 33%, of a
funding commitment received by Beacon Power and, therefore, increased its
investment in Beacon Power and accrued the funding commitment of $1,000,000. As
a result of this financing, the Company determined that risks and other
incidents of ownership of Beacon Power had passed with sufficient certainty to
other investors and, therefore, began accounting for its investment in Beacon
Power under the equity method.
On June 22, 1999, the Company entered into a note with Beacon Power (the
"June 22, 1999 Note") with a principal amount of $125,000 due and payable on the
earlier of (i) September 22, 1999 ("Maturity Date") or (ii) upon the occurrence
of an event of default, as defined therein. The note bore interest at 12% per
annum. The June 22, 1999 Note was issued pursuant to the terms of a Note
Purchase Agreement, dated as of June 22, 1999, by and among Beacon Power, the
Purchasers named therein, and the Company (the "Note Purchase Agreement").
Interest on the June 22, 1999 Note was payable on the Maturity Date.
On July 6, 1999, the Company entered into an additional note with Beacon
Power (the "July 6, 1999 Note") with a principal amount of $125,000 due and
payable on the earlier of (i) Maturity Date or (ii) upon the occurrence of an
event of default. The note bore interest at 12% per annum (the "July 6, 1999
Note" and, together with the June 22, 1999 Note, the "Notes"). The July 6, 1999
Note was also issued pursuant to the terms of the Note Purchase Agreement.
Interest on the July 6, 1999 Note was payable on the Maturity Date.
In August 1999, the Company exchanged in full the Notes and $83,333.33 for a
note with a principal amount of $333,333.33 ("Bridge Note") plus accrued
interest due and payable on the earlier of (i) the date of conversion of the
note as described below or (ii) upon the occurrence of an event of default. The
Bridge Note bore interest at 12% per annum. The Bridge Note was issued pursuant
to the terms of a Note and Warrant Purchase Agreement, dated as of August 2,
1999, by and among Beacon Power, the Purchasers named therein, and the Company
(the "Note and Warrant Purchase Agreement"). Interest on the Bridge Note was
payable on the Maturity Date.
Pursuant to the terms of the Note and Warrant Purchase, the Company entered
into two additional notes, each with a principal amount of $333,333.33 on
September 16, 1999 and October 19, 1999. The Bridge Note and the additional
notes each with a principal amount of $333,333.33 are collectively referred to
as the "Bridge Securities." At September 30, 1999, the Company has $333,333
payable under this $1,000,000 commitment to Beacon Power.
On January 7, 2000, the Company entered into a $200,000 convertible
promissory note with Beacon Power. This convertible promissory note is due and
payable on the earlier of (i) the maturity date, as defined, or (ii) upon the
occurrence of an event of default by Beacon Power. The note bears interest at
12 1/2% per annum. Interest on the January 7, 2000 Note is due and payable on
the maturity date. The Company did not accrue losses of $200,000 relating to its
share of Beacon Power's losses incurred through December 31, 1999, as those
amounts, including interest, were repaid on February 14, 2000.
On February 25, 2000, the Company entered into a $300,000 convertible
promissory note with Beacon Power. This convertible promissory note is due and
payable on the earlier of (i) the maturity date, as defined, or (ii) upon the
occurrence of an event of default by Beacon Power. The note bears interest at
56
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
12 1/2% per annum. Interest on the February 25, 2000 Note is due and payable on
the maturity date. The Company did not accrue losses up to $300,000 relating to
its share of Beacon Power's losses incurred through March 31, 2000, as those
amounts, including interest, were repaid on April 27, 2000.
On April 7, 2000, Beacon Power issued 1,226,141 shares of its class E
redeemable preferred stock and warrants to purchase 306,535 shares of its
class E preferred stock in exchange for the conversion of all of its outstanding
bridge notes of which the Company received 347,407 shares of Beacon Power's
class E redeemable preferred stock and a warrant to purchase 86,852 shares of
Beacon Power's class E redeemable preferred stock. As of April 7, 2000, the
Company owned 11.0% of Beacon Power's voting stock and 61.0% of Beacon Power's
outstanding capital stock. On April 21, 2000, Beacon Power raised an additional
$4.1 million through the sale of additional bridge notes and warrants to
purchase 41,000 shares of Beacon Power's common stock. The Company did not
participate in this financing. On May 23, 2000, Beacon Power issued 6,785,711
shares of its class F preferred stock and additional warrants to purchase shares
of Beacon Power's common stock. The shares of class F preferred stock and the
additional warrants were issued in consideration for the cancellation of
$5.2 million in bridge notes and an additional $23.3 million cash investment by
existing and new investors. The Company did not participate in this financing
either. As of May 23, 2000, the Company owned 3.5% of Beacon Power's voting
stock and 33.0% of Beacon Power's outstanding capital stock.
As of September 30, 2000, the Company owned approximately 3% of the
outstanding voting stock of Beacon Power and 32% of the capital stock of Beacon
Power. On November 22, 2000, Beacon Power completed an initial public offering
(IPO) of its common stock and issued 8,000,000 shares of common stock at $6.00
per share. Upon completion of the initial public offering, the Company owned
approximately 25% of Beacon Power's voting and capital stock.
The results of the Company's operations included $3,111,381 loss of Beacon
Power from May 8, 1997 to December 24, 1997 under the consolidation method of
accounting. On December 24, 1997, the Company began accounting for its
investment in Beacon Power in accordance with SAB Topic 5.E. and has included
100% of Beacon Power's $7,079,297 loss for the period from December 25, 1997
through May 1999 in a manner similar to the equity method of accounting, at
which time, the Company's initial investment of $1,888,619, the $30,000
additional investment and the additional deemed investment of $4,750,000 and
accrued dividends of $410,678 had been written down to zero. In June 1999, the
Company committed up to $1,000,000 of additional financing to Beacon Power,
representing a minority share, 33%, of a funding commitment received by Beacon
Power, and the Company began accounting for its investment in Beacon Power under
the equity method. As of June 30, 1999, the Company owned approximately 0.1% of
the voting stock of Beacon Power; however, as the Company was providing 33% of
the current funding to Beacon Power, the Company has included 33% of Beacon
Power's losses in its results of operation until the $1,000,000 investment was
reduced to zero in December 1999. The Company continued to record losses from
Beacon Power after December 31, 1999 to the extent of the additional dividends
that accrued on the contingent obligation to class D preferred stockholders of
Beacon Power. From June 1999 through September 30, 2000, the Company has
included in its results from operations its share of Beacon Power's losses of
$1,633,201. At September 30, 2000, the Company's investment in Beacon Power had
been reduced to zero and the contingent obligation to Beacon Power's Class D
preferred stockholders was $5,722,629. The Company continues to record
additional losses from Beacon Power to the extent of additional interest accrued
on the contingent obligation to the Class D preferred stockholders of Beacon
Power.
57
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
In connection with Beacon Power's initial public offering, the Put Right was
terminated and the contingent obligation to class D preferred stockholders of
Beacon Power will be reclassified as additional paid in capital. In addition,
the Company's preferred stock holdings in Beacon Power were converted into
9,694,812 shares of Beacon Power common stock. In accordance with SEC SAB
No. 51, the Company's investment and additional paid in capital will be written
up during the first quarter of fiscal 2001 to reflect its beneficial interest in
the book value of the stockholders' equity of Beacon Power, which the Company
estimates to be approximately $15.0 million. After the write-up of the Company's
investment in Beacon Power, the Company will continue to account for its
investment in Beacon Power under the equity method of accounting and will record
its share of future losses from Beacon Power on a one-quarter trailing basis
until its investment in Beacon Power has been reduced to zero.
If in the future, the Company's ownership interest in Beacon Power's
outstanding capital stock is reduced to below 20% and the Company determines
that it does not have the ability to exercise significant influence over the
operating and financial policies over Beacon Power, the Company's investment in
Beacon Power will be accounted for using the fair value method as set forth in
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," based upon the carrying value of the Company's investment in Beacon
Power at the time the Company's interest is reduced to below 20%. At that time,
the Company will no longer be required to record its share of any losses from
Beacon Power. The value of the investment will be carried at fair market value
with any unrealized holding gains or losses to be included in stockholders'
equity as a component of other comprehensive income.
Beacon Power accounted for $470,996, $72,644 and $424,418 of the Company's
total revenue for the fiscal years ended September 30, 2000, 1999 and 1998,
respectively. At September 30, 2000 and 1999, the Company had $346,066 and
$5,390, respectively, of accounts receivable and unbilled contract costs and
fees from Beacon Power.
F. LINE OF CREDIT
In December 1998, as modified, the Company obtained a $3,000,000 demand
discretionary line of credit with a bank. The line of credit bears interest at
the bank's prime rate plus 1 1/2%. Available borrowings were based on a formula
of eligible accounts receivable and inventory. There were no amounts outstanding
under the line of credit at September 30, 1999. During 1999, the maximum amount
outstanding on the line of credit was $2,657,234. The Company has pledged all
assets of the Company as collateral against this line of credit. On August 29,
2000, the Company terminated the line of credit.
G. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30,
--------------------
2000 1999
--------- --------
Capital lease obligations.............................. $ 33,871 $ 50,097
Less: Current portion.................................. (17,494) (16,226)
--------- --------
$ 16,377 $ 33,871
========= ========
58
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. LONG-TERM DEBT (CONTINUED)
At September 30, 2000, maturities of these obligations are as follows:
FISCAL YEAR
-----------
2001........................................................ $ 17,494
2002........................................................ 10,778
2003........................................................ 5,599
--------
33,871
Less: Current Portion....................................... (17,494)
--------
$ 16,377
========
On March 1, 1999, the Company reached a definitive settlement arrangement
with Albert R. Snider (the "Settlement Agreement"), the holder of a note payable
that commenced on April 16, 1997, regarding a suit filed against Mr. Snider for
breach of certain representations made by him, including statements of inventory
balances in the Asset Purchase Agreement dated as of April 3, 1997 between FMI
and Mr. Snider relating to the purchase of the business of FMI and a
counterclaim filed by Mr. Snider seeking, among other things, payments allegedly
due from the Company under a promissory note.
Pursuant to the terms of the Settlement Agreement, the Company made a
$100,000 cash payment to Mr. Snider on March 9, 1999 and the parties executed
mutual general releases dismissing any and all claims between them. In addition,
the Settlement Agreement provides a right of first refusal in favor of the
Company with respect to certain shares of the Company's Common Stock,
beneficially owned by Mr. Snider. Concurrently with the execution of the
Settlement Agreement, the Company and Mr. Snider entered into a consulting
agreement pursuant to which Mr. Snider will perform certain consulting, advisory
and related services as the Company may reasonably request from time to time
between October 1, 1999 and October 1, 2002. In exchange for these services, the
Company issued 42,860 shares of its Common Stock to Mr. Snider, which were held
by an escrow agent. The Company has recorded these shares held in escrow at
market value and as a reduction to stockholders' equity as of September 30,
1999.
On April 26, 2000, the escrow agent, as authorized by the Company released
the 42,860 shares of common stock that were held in escrow to Mr. Snider. The
Company recorded these securities at fair value until they were released from
escrow at a market price of $16.00 per share or $685,760. The Company determined
that the value of these securities exceeded the net realizable value of the
underlying services to be received by $235,760. The Company has charged this
excess amount to selling, general and administrative expenses during the fiscal
year ended September 30, 2000. The Company is amortizing the realizable asset of
$450,000 over the three-year period of service through September 30, 2002. At
September 30, 2000, the unamortized value of this asset is $300,000.
H. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities under various operating leases that expire
through October 2005. The Company has also entered into a master leasing
agreement to lease various items of equipment not to exceed $600,000. The
availability under this facility has expired as of September 30, 1999.
59
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum annual rentals under lease agreements at September 30, 2000
are as follows:
FISCAL YEAR
-----------
2001........................................................ $2,015,395
2002........................................................ 1,916,712
2003........................................................ 1,545,762
2004........................................................ 280,850
2005........................................................ 201,996
Thereafter.................................................. 16,833
----------
Total (not reduced by minimum sublease rentals of
$889,872)................................................. $5,977,548
==========
Total rental expense including operating expenses and real estate taxes for
operating leases amounted to $2,157,506, $1,683,749 and $1,235,867 for the years
ended September 30, 2000, 1999 and 1998, respectively.
Certain of the facility leases contain escalation clauses, effective
October 1, 1998, rental expense has been recognized on a straight-line basis
over the remaining lease term. At September 30, 2000 and 1999, deferred rent
expense amounted to $207,739 and $110,390, respectively.
LITIGATION
On October 15, 1997, the Company received a letter from the Department of
the Air Force ("the Air Force") stating that it may terminate for default an
approximately $1.6 million contract between the Air Force and the Company for
development of a satellite component, unless perceived performance problems were
cured. As of that date, the Company had received payments of approximately $1.4
million in connection with this contract. In the event of an actual default, the
Company could be liable for extra costs incurred by the U.S. government in
developing the component and could be required to return a portion of the monies
the Company received on this contract. On December 15, 1997, the Air Force
issued a "Show Cause Notice" to the Company requiring the Company to demonstrate
to the Air Force why the contract should not be terminated "for cause." On
December 31, 1997, the Company responded to the Air Force's "Show Cause Notice,"
explaining the Company's view that the Company should not be terminated for
cause. On May 11, 2000, the Company contacted the Air Force again to offer to
settle these differences and to explore obtaining additional settlement amounts.
On August 3, 2000, the Company sent a memorandum to the Air Force explaining the
basis of a settlement request of $353,248. Also on August 3, 2000, the Company
received from the Air Force a proposed settlement offer in which the contract
would be concluded through a contract modification with no additional payment,
but without termination for cause. As of September 30, 1999, the Company had
provided a full reserve of $521,000 against the unbilled contract costs and fees
to the Department of the Air Force. As of September 30, 2000, all of the
$521,000 unbilled contract costs and fees had been written off. The contract is
still subject to normal audit and accounting of final cost.
On November 6, 1999, APACE, Inc. ("APACE") commenced an action against the
Company to the Supreme Court of the State of New York claiming the Company had
been awarded a prime contract by the U.S. Department of Energy ("DOE") and that
the Company had failed or refused to negotiate a subcontract with APACE,
allegedly in breach of a contract between the Company and APACE. APACE is
seeking in excess of $1,000,000 in damages. The Company denied the allegations,
moved to stay the action
60
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and filed for arbitration with the American Arbitration Association in Boston,
Massachusettes. The American Arbitration Association decided that the
arbitration would go forward in Boston. In the meantime, APACE requested that
the court permit the action to go forward and for the arbitration to compelling
arbitration and staying APACE's action pending arbitration to be conducted by
the American Arbitration Association in Boston.
On June 26, 2000, APACE served the Company with an amended answering
statement and counterciaim, including additional allegations that the Company
has engaged in unfair and deceptive trade practices and that the Company's
actins were willful and knowing. Based on these allegations, APACE is seeking
multiple damages, as well as attorneys' fees and expenses. On July 19, 2000, the
Company filed an answer to APACE's amended answering statement and counterclaim,
denying the allegations and asserting various defenses.
An arbitrator has been selected and the arbitration is scheduled to go
forward in Boston for nine days in February, March and April 2001. The parties
have exchanged some discovery, and expect to make a further exchange early in
2001.
The final outcome of this matter is not presently determinable and,
therefore, no provision for any liability that may result has been recorded in
the Company's financial statements.
From time to time, the Company is a party to routine litigation and
proceedings in the ordinary course of business. The Company is not aware of any
current or pending litigation to which the Company is or may be a party that the
Company believes could materially adversely affect the Company's results of
operations or financial condition.
I. EMPLOYEE BENEFIT PLAN
The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the
Plan, any regular employee, as defined by the Plan, who has completed six months
of service and has attained the age of 21 years is eligible to participate.
Under the terms of the Plan, an employee may defer up to 15% of his or her
compensation through contributions to the Plan. During 1999, the Company
extended the Plan to its wholly-owned subsidiaries. The Company made matching
contributions to the Plan of $366,264, $218,729 and $86,883 during 2000, 1999
and 1998, respectively.
61
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INCOME TAXES
The provision for income taxes consists of the following:
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Current payable:
Federal.............................................. (14,699) -- --
State................................................ -- -- $ 3,872
Foreign.............................................. 14,699 -- --
----------- ----------- -----------
-- -- $ 3,872
----------- ----------- -----------
Deferred tax expense/(benefit):
Federal.............................................. $(2,962,183) $(3,888,031) $(1,349,519)
State................................................ (890,122) (1,167,905) (404,950)
Change in valuation allowance........................ 3,852,305 5,055,936 1,754,469
----------- ----------- -----------
-- -- --
----------- ----------- -----------
-- -- $ 3,872
=========== =========== ===========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of September 30, 2000
and 1999, the components of the net deferred tax assets/(liabilities) are as
follows:
2000 1999
------------ ------------
Federal net operating loss............................... $ 13,385,851 $ 5,566,879
State net operating loss, net of federal benefit......... 1,912,496 495,980
Credits.................................................. 421,035 499,585
Depreciation............................................. (227,657) 336,038
Loss from Beacon Power Corporation....................... 4,932,397 3,128,804
Other.................................................... 834,326 1,562,820
Valuation allowance...................................... (21,258,448) (11,590,106)
------------ ------------
Net deferred income taxes................................ -- --
============ ============
The Company has placed a full valuation allowance against its net deferred
tax assets since the Company believes it is more likely than not that it will
not be able to utilize its deferred tax asset.
62
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the federal statutory rate due
to the following:
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------------
2000 1999 1998
-------- -------- --------
Tax at statutory rate............................... (34.0)% (34.0)% (34.0)%
State taxes--net of federal benefit................. (6.2) (6.2) (6.2)
Other............................................... 1.6 (0.7) (0.5)
Change in valuation allowance....................... 38.6 40.9 40.8
----- ----- -----
Effective tax rate.................................. -- % -- % 0.1 %
===== ===== =====
At September 30, 2000, the Company had net operating loss carry-forwards of
approximately $39,370,000 and $30,590,000 for federal and state income tax
purposes, respectively. The federal net operating losses expire beginning
September 30, 2008 through 2020. The state net operating losses will expire
beginning September 30, 2000 through 2005. The use of these losses may be
limited due to ownership change limitations under Section 382 of the Internal
Revenue Code.
K. STOCKHOLDERS' EQUITY
INVESTMENT FROM MECHANICAL TECHNOLOGY INCORPORATED
On October 21, 1999, the Company received a $7,070,000 investment from
Mechanical Technology Incorporated ("MTI"). In consideration for MTI's
investment, MTI received 1,030,000 shares of the Company's Common Stock at a
discounted price of approximately $6.80 per share, and warrants to purchase an
additional 100,000 shares of the Company's Common Stock at an exercise price of
$8.80 per share and an expiration date four years from the date of issuance. MTI
funded $2,570,000 of its investment in the Company on October 21, 1999 and
received 370,800 of the 1,030,000 shares of the Company's Common Stock and a
warrant to purchase 36,000 of the 100,000 shares of the Company's Common Stock.
MTI made the remaining investment on January 31, 2000 of $4,500,000 and received
the remaining 659,200 shares of the Company's Common Stock and a warrant to
purchase the remaining 64,000 shares of the Company's Common Stock. The Company
incurred approximately $95,000 of legal, accounting, consultation and filing
fees in connection with this transaction. The Company has valued the warrants
issued to MTI on October 21, 1999 and January 31, 2000, at $231,912 and
$1,273,509, respectively using the Black-Scholes option pricing model.
In addition, the Company received a warrant to purchase 108,000 shares of
MTI's common stock on October 21, 1999 and a warrant to purchase 192,000 shares
of MTI's common stock on January 31, 2000 at exercise prices of $12.56 per
share, as adjusted to reflect a 3:1 stock split in April 2000, and expiration
dates four years from the date of issuance. The Company has valued the warrant
received on October 21, 1999 and January 31, 2000 at $568,553 and $2,926,885,
respectively, using the Black-Scholes option pricing model, and has recorded the
warrants as an asset and additional paid in capital. In accordance with EITF
No. 96-11, "Accounting for Forward Contracts and Purchased Options to Acquire
Securities Covered by FASB Statement No. 115," options that are entered into to
purchase securities that will be accounted for under SFAS 115 should, at
inception, be designated as held-to-maturity, available-for-sale, or trading and
accounted for in a manner consistent with the accounting prescribed by
SFAS No. 115 for that category of securities. The Company has designated that
the securities to be purchased under the warrant agreement
63
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. STOCKHOLDERS' EQUITY (CONTINUED)
will be available-for-sale securities and, therefore, the Company has marked to
market the fair value of the warrants at each reporting period dated and has
recorded any unrealized gains and losses as a component of accumulated other
comprehensive loss included in stockholders' equity. At September 30, 2000, the
warrants have an unrealized loss of $1,021,725, which is included in accumulated
other comprehensive loss included in stockholders' equity.
STOCK OPTIONS
Under the Company's 1992, 1994, 1996, 1998 and 1999 Stock Option Plans
(collectively, the "Plans"), both qualified and non-qualified stock options may
be granted to certain officers, employees, directors and consultants to purchase
up to 3,050,000 shares of the Company's Common Stock. At September 30, 2000,
2,773,550 of the 3,050,000 stock options available for grant under the Plans
have been granted.
The Plans are subject to the following provisions:
The aggregate fair market value (determined as of the date the option is
granted) of the common stock that any employee may purchase in any calendar year
pursuant to the exercise of qualified options may not exceed $100,000. No person
who owns, directly or indirectly, at the time of the granting of a qualified
option to him or her, more than 10% of the total combined voting power of all
classes of stock of the Company shall be eligible to receive any qualified
options under the Plans unless the option price is at least 110% of the fair
market value of the common stock subject to the option, determined on the date
of grant. Non-qualified options are not subject to this limitation.
Qualified options are issued only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to employees of the Company. Options granted under the Plans
may not be granted with an exercise price less than 100% of fair value of the
Company's common stock, as determined by the Board of Directors on the grant
date.
Options under the Plans must be granted within 10 years from the effective
date of the Plan. Qualified options granted under the Plans cannot be exercised
more than 10 years from the date of grant, except that qualified options issued
to 10% or greater stockholders are limited to five-year terms. All options
granted under the Plans provide for the payment of the Company's exercise price
in cash, or by delivery to the Company of shares of common stock already owned
by the optionee having fair market value equal to the exercise price of the
options being exercised, or by a combination of such methods of payment.
Generally, the options vest and become exercisable ratably over a four-year
period.
The Plans contain antidilutive provisions authorizing appropriate
adjustments in certain circumstances. Shares of common stock subject to options
that expire without being exercised or that are canceled as a result of the
cessation of employment are available for further grants.
64
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's stock options as of September 30,
2000, 1999 and 1998 and changes for the years then ended are presented below.
2000 1999 1998
-------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ---------- -------- --------- --------
Outstanding at beginning of year......... 1,851,227 $ 8.06 820,910 $9.58 700,427 $8.44
Granted................................ 820,050 16.62 1,604,000 7.03 319,000 11.20
Exercised.............................. (701,774) 7.84 (455,600) 6.98 (100,266) 5.80
Canceled............................... (92,398) 7.83 (118,083) 8.84 (98,251) 10.55
--------- ------ ---------- ----- -------- -----
Outstanding at end of year............... 1,877,105 $11.89 1,851,227 $8.06 820,910 $9.58
========= ====== ========== ===== ======== =====
Options exercisable at year-end.......... 463,764 $ 9.26 840,560 $8.57 413,403 $8.48
========= ====== ========== ===== ======== =====
The following table summarizes information about stock options outstanding
as of September 30, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------- ----------- --------- -------- ----------- --------
$ 5.00--$ 7.81 311,456 7.9 $ 5.67 70,509 $ 5.53
$ 8.05--$10.50 708,548 8.0 8.43 253,673 9.02
$ 11.00--$13.38 240,751 7.3 11.67 139,582 11.57
$ 16.13--$20.63 546,350 9.4 17.55 -- --
$ 31.25--$37.25 70,000 9.8 31.30 -- --
--------- ----- ------- ------- ------
1,877,105 8.4 $ 11.89 463,764 $ 9.26
========= ===== ======= ======= ======
At September 30, 2000, an additional 276,450 shares were available under the
Plans for future grants.
During 1999, the Company granted fully vested and immediately exercisable
options to purchase 755,000 shares of the Company's common stock to consultants
at exercise prices ranging from $5.75 to $10.00 per share, of which 300,000
stock options were granted outside of the Plans. The Company has recorded the
fair value of the options, as determined by the Black-Scholes option pricing
model, of $2,152,277, to selling, general and administrative expenses during the
year ended September 30, 1999. As of September 30, 1999, options to purchase
450,000 shares at an exercise price of $7.00 per share were exercised. As of
September 30, 1999, the Company received $1,333,333 of cash on these exercises
and the remaining amount due from the stockholders is classified within
stockholders' equity as amounts receivable from exercise of stock options. As of
September 30, 2000, options to purchase 750,000 shares at exercise prices
ranging from $5.75 to $10.00 per share have been exercised. As of September 30,
2000, the Company has received full payment on these exercises.
During 2000, the Company granted 216,000 non-qualified stock options to
employees at an exercise price of $17.56 per share outside of the Board approved
Plans, which are included in the above table.
65
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
On June 5, 1998, the Company issued to certain individuals, in settlement of
a claim asserted against the Company, Common Stock Purchase Warrants to purchase
up to 68,795 shares of common stock, as amended, at an exercise price of $11.43
per share. The value of these warrants was not material to the financial
statements. These warrants expired on November 11, 1999, unexercised.
On November 11, 1998, the Company issued common stock warrants to purchase
up to 67,125 shares of the Company's Common Stock at an exercise price of $11.43
per share. The Company has recorded the fair value of these warrants, as
determined by the Black-Scholes option-pricing model, of $56,362, to selling,
general and administrative expenses during the year ended September 30, 1999.
These warrants expired on November 11, 1999 unexercised.
On August 25, 1999, in connection with the $8 million private placement of
8,000 shares of the Company's Series A Convertible Preferred Stock, $0.01 par
value per share, with Brown Simpson Strategic Growth Funds (see Note L), the
Company issued common stock warrants to purchase up to 120,000 and 675,000
shares of common stock at an exercise price of $7.80 and $8.54, respectively.
These warrants expire on August 25, 2003. The Company has valued these warrants
at $2,369,292, using the Black-Scholes option pricing model. At September 30,
1999, none of these warrants were exercised. At September 30, 2000, 18,000
shares of common stock had been purchased at an exercise price of $7.80 per
share.
On October 21, 1999, in connection with an investment by MTI, the Company
issued a warrant to purchase up to 36,000 shares of the Company's Common Stock
at an exercise price of $8.80 per share. This warrant expires on October 21,
2003. On January 31, 2000, in connection with a second closing of this
investment, the Company issued an additional warrant to purchase up to 64,000
shares of the Company's Common Stock at an exercise price of $8.80 per share.
This warrant expires on January 31, 2004. The Company valued the warrants issued
to MTI on October 12, 1999 and January 31, 2000 at $231,912 and $1,273,509,
respectively, using the Black-Scholes option pricing model. At September 30,
2000, none of these warrants had been exercised.
On November 16, 1999, in connection with the acquisition of certain
intellectual property, equipment and other assets from Northrop Grumman
Corporation, the Company issued a warrant to purchase up to 100,000 shares of
the Company's Common Stock at an exercise price of $9.725 per share. The Company
has valued this warrant at $631,000 using the Black-Scholes option pricing
model. As of September 30, 2000, all of these warrants had been exercised.
On February 4, 2000, the Company issued to Northrop Grumman Corporation an
additional warrant to purchase up to 100,000 shares of the Company's Common
Stock at an exercise price of $9.725 per share. This warrant is exercisable upon
the occurrence of certain defined events. As of September 30, 2000, this warrant
is not yet exercisable. This warrant expires on December 31, 2006. As of
September 30, 2000, the fair value of this warrant, using the Black-Scholes
option pricing model, was $936,485, which will be added to the purchase price of
the assets acquired from Northrop Grumman Corporation when it becomes
exerciseable.
STOCK-BASED COMPENSATION
Had compensation cost for the Company's stock-based compensation been
determined based on fair value at the grant dates as calculated in accordance
with SFAS No. 123, the Company's net loss and loss
66
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. STOCKHOLDERS' EQUITY (CONTINUED)
per share for the years ended September 30, 2000, 1999 and 1998 would have been
increased to the pro forma amounts indicated below:
2000 1999 1998
----------------------- ----------------------- -----------------------
NET LOSS NET LOSS NET LOSS
ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER
TO COMMON COMMON TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ -------- ------------ -------- ------------ --------
As reported....................... $(13,047,033) $(1.03) $(14,392,657) $(1.57) $(4,857,814) $(.54)
Pro forma......................... $(17,092,280) $(1.35) $(15,597,109) $(1.70) $(5,433,804) $(.61)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996 and additional awards in future years are anticipated.
The fair value of each stock option is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: an expected life of seven years, expected volatility ranging from
80.1% to 112.3%, no dividends, and risk-free interest rate of 6.17% for
September 30, 2000; an expected life of seven years, expected volatility of
80.0%, no dividends, and risk-free interest rate of 6.08% for September 30,
1999; and an expected life of seven years, expected volatility of 57.9%, no
dividends, and risk-free interest rate of 5.76% for September 30, 1998. The
weighted average price of the fair value of options granted for years ended
September 30, 2000, 1999 and 1998 are $14.05, $5.21 and $7.14, respectively.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25." This interpretation clarifies the application of APB Opinion
No. 25, including (a) the definition of employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
Interpretation is effective July 1, 2000, and the effects of applying the
Interpretation are recognized on a prospective basis. The adoption of this
Interpretation did not have a material impact on the Company's financial
condition or results of operations.
COMMON STOCK OFFERING
On October 30, 2000, the Company filed for a public offering of its Common
Stock. In connection with this offering, the Company has incurred $678,980 of
deferred equity financing costs that are included in other long-term assets at
September 30, 2000.
67
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"). The Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions.
On August 25, 1999, the Company completed an $8 million private placement of
8,000 shares of its Series A Redeemable Convertible Preferred Stock, $0.01 par
value per share (the "Series A Preferred Stock"), with Brown Simpson Strategic
Growth Funds ("Brown Simpson"). The Series A Preferred Stock is initially
convertible into 1,025,641 shares of the Company's common stock, $0.01 par value
per share (the "Common Stock").
In connection with the transaction, Brown Simpson also received warrants to
purchase up to 675,000 fully vested and immediately exercisable additional
shares of Common Stock at $8.54 per share (the "Brown Simpson Warrants"). The
Brown Simpson Warrants expire on August 25, 2003. The Company has valued these
warrants at $1,818,558 based on the fair value of these warrants, as determined
by the Black-Scholes option pricing model, and has recorded this amount as a
discount to the Preferred Stock. In addition, the Company incurred direct costs
of $1,338,234 in connection with this preferred stock offering which have also
been recorded as a discount to the Series A Preferred Stock.
H.C. Wainwright & Co., Inc. ("H.C. Wainwright") served as placement agent
for the transaction and received a commission of $560,000 and warrants to
purchase 120,000 shares of the Company's Common Stock at $7.80 per share. These
warrants expire on August 25, 2003. H.C. Wainwright will also receive a future
fee in the amount of 4% of any monies received by the Company upon the exercise
of the Brown Simpson Warrants. The Company has recorded the fair value of these
warrants, as determined by the Black-Scholes option pricing model, of $550,734
as a discount to the Series A Preferred Stock.
The Company has valued the Series A Preferred Stock at issuance to be
$4,843,208 based on the relative fair market values of the financial instruments
issued in connection with this placement and net of offering costs. The Company
is accreting the carrying value of the preferred stock to its redemption value
of $8,000,000 at August 25, 2003, using the effective interest method. As of
September 30, 1999, the Company accreted $50,904 and recorded this as a charge
against additional paid-in capital.
On March 7, 2000, the preferred stockholders elected to convert all 8,000
shares of the Series A Preferred Stock into 1,025,641 shares of the Company's
Common Stock, which resulted in the accretion of an additional $3,105,888 of the
discount on the redeemable preferred stock during the year ended September 30,
2000.
68
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. SIGNIFICANT CUSTOMERS
Significant customers, defined as those customers that account for 10% or
more of total net revenue in a fiscal year or 10% or more of accounts receivable
and unbilled contract costs and fees at the end of a fiscal year, were as
follows:
PERCENTAGE OF
ACCOUNTS RECEIVABLE
AND UNBILLED
CONTRACT COSTS AND
PERCENTAGE OF TOTAL REVENUE FEES AT
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------
CUSTOMER 2000 1999 1998 2000 1999
-------- -------- -------- -------- -------- --------
U.S. government:
U.S. Department of Defense..................... * 20.6% 22.1% 10.3% 20.4%
U.S. Department of Energy...................... 11.5% * * * 20.0%
Applied Materials................................ 10.6% * * 22.3% *
------------------------
* Less than 10%
N. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING ACTIVITIES
YEAR ENDED SEPTEMBER 30,
--------------------------------------
2000 1999 1998
----------- ---------- -----------
Accretion of redeemable convertible preferred stock
discount.............................................. $ 3,105,888 $ 50,904 $ --
=========== ========== ===========
Acquisition of equipment under capital leases........... $ -- $ 49,813 $ --
=========== ========== ===========
Contingent obligation to Class D preferred stockholders
of Beacon Power Corporation........................... $ 484,764 $5,309,115 $ --
=========== ========== ===========
Conversion of redeemable convertible preferred stock to
common stock.......................................... $ 8,000,000 $ -- $ --
=========== ========== ===========
Common stock held in escrow issued in connection with
settlement agreement.................................. $ -- $ 190,191 $ --
=========== ========== ===========
Valuation adjustment for common stock held in escrow.... $ 257,160 $ 238,409 $ --
=========== ========== ===========
Warrants issued in connection with MTI investment....... $ 1,505,421 $ -- $ --
=========== ========== ===========
MTI warrant received in connection with MTI
investment............................................ $ 3,495,438 $ -- $ --
=========== ========== ===========
Valuation adjustment for MTI warrants................... $(1,021,725) $ -- $ --
=========== ========== ===========
69
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
N. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
Net cash paid for the acquisitions of Inductive Components Inc., Lighthouse
Software, Inc., HyComp, Inc., Ling Electronics, Inc. and certain intellectual
property, equipment and other assets from Northrop Grumman Corporation was as
follows:
YEAR ENDED SEPTEMBER 30,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Fair value of assets................................ $ 11,200,265 $ 1,742,812 --
Cost in excess of net assets of companies acquired,
net............................................... 3,754,910 389,079 --
Liabilities assumed, including transaction costs.... (2,476,383) (567,215) --
Fair value of common stock issued................... (12,408,792) (568,800) --
------------ ------------ ------------
Cash paid........................................... $ 70,000 $ 995,876 --
Less: Cash acquired................................. (45,946) -- --
------------ ------------ ------------
Net cash paid for the acquisitions.................. $ 24,054 $ 995,876 --
============ ============ ============
INTEREST AND INCOME TAXES PAID
Cash paid for interest and income taxes was as follows:
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- -------- --------
Interest....................................... $ 3,176 $115,692 $10,206
======== ======== =======
Income taxes................................... -- -- $ 5,772
======== ======== =======
O. ACQUISITIONS
INDUCTIVE COMPONENTS, INC. AND LIGHTHOUSE SOFTWARE, INC.
On January 4, 1999, the Company's MagMotor subsidiary acquired substantially
all of the assets and assumed certain liabilities of Inductive Components, Inc.
and Lighthouse Software, Inc., pursuant to the terms of an Asset Purchase
Agreement, dated January 4, 1999, among MagMotor, the Company, Inductive
Components, Inc, Lighthouse Software, Inc. and Thomas Glynn, the sole
stockholder of Inductive Components, Inc. and the majority stockholder of
Lighthouse Software, Inc. The aggregate consideration paid by the Company for
the acquired assets of Inductive Components, Inc. and Lighthouse Software, Inc.
was 100,000 shares of the Company's common stock, valued at $5.6875 per share or
$568,750. In addition, the Company assumed indebtedness of approximately
$246,000. The Company has included in its consolidated results of operations the
acquisition of Inductive Components, Inc. and Lighthouse Software, Inc. under
the purchase method of accounting. The purchase price has been allocated as
follows:
Inventory................................................... $ 50,000
Property and equipment...................................... 100,597
Intangibles................................................. 275,000
Goodwill.................................................... 389,079
--------
$814,676
========
70
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. ACQUISITIONS (CONTINUED)
The pro forma financial information has not been presented, as the
acquisitions of Inductive Components, Inc. and Lighthouse Software, Inc. are not
material.
HYCOMP, INC.
On April 12, 1999, the Company executed an agreement to purchase
substantially all of the assets and assume certain liabilities of HyComp, Inc.
("HyComp"). This agreement was dated March 31, 1999 and was by and between
HyComp and HyComp Acquisition Corp., a wholly-owned subsidiary of the Company.
The aggregate consideration paid by the Company for the acquired assets of
HyComp consisted of (i) $750,000 in cash; (ii) the assumption of certain
liabilities and obligations of HyComp in the amount of approximately $422,000;
(iii) transaction costs of $95,000; and (iv) a 5% royalty to HyComp on certain
sales through April 12, 2000. At September 30, 1999, the Company has recorded
$50,000 of accrued royalties. The Company has included in its consolidated
results of operations the acquisition of HyComp under the purchase method of
accounting. The purchase price has been allocated as follows:
Accounts receivable......................................... $ 38,556
Inventory................................................... 318,359
Deposits.................................................... 19,800
Property and equipment...................................... 940,500
----------
$1,317,215
==========
The pro forma financial information has not been presented as the
acquisition of HyComp is not material.
LING ELECTRONICS, INC.
On October 21, 1999, the Company acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. (collectively, "Ling Electronics") from MTI. In consideration
for the acquisition of Ling Electronics, MTI received $70,000 and 770,000 shares
of the Company's Common Stock valued at $9.8438 per share or $7,579,726. In
addition, the Company incurred approximately $177,000 of legal, accounting,
consultation and filing fees as a cost of this transaction. The purchase price
of the acquisition has been allocated as follows:
Cash and cash equivalents................................... $ 45,946
Accounts receivable......................................... 1,937,023
Inventory................................................... 3,127,991
Prepaid expenses and other assets........................... 260,239
Property and equipment...................................... 250,000
Goodwill.................................................... 3,754,910
Accounts payable............................................ (641,687)
Accrued payroll and payroll related expenses................ (334,129)
Deferred revenues........................................... (13,500)
Other accrued expenses...................................... (560,437)
----------
$7,826,356
==========
71
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. ACQUISITIONS (CONTINUED)
The following unaudited pro forma financial information combines SatCon and
Ling's results of operations as if the acquisition had taken place on
October 1, 1998. The pro forma results are not necessarily indicative of what
the results of operations actually would have been if the transaction had
occurred on the applicable dates indicated and are not intended to be indicative
of future results of operations.
YEAR ENDED SEPTEMBER 30,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
(UNAUDITED)
Revenue................................ $ 31,194,618 $ 23,849,881 $ 27,764,923
Operating loss......................... $ (9,822,203) $(11,316,689) $ (2,433,575)
Net loss............................... $(10,260,029) $(15,881,125) $ (5,740,230)
Net loss attributable to common
stockholders......................... $(13,365,917) $(15,932,029) $ (5,740,230)
Net loss per share, basic and
diluted.............................. $ (1.06) $ (1.60) $ (0.59)
NORTHROP GRUMMAN CORPORATION
On November 16, 1999, the Company purchased certain intellectual property,
equipment and other assets from Northrop Grumman Corporation ("NGC"). These
assets were used by NGC in connection with its power electronics product
business. The Company is amortizing the purchase price allocated to completed
technology on a straight-line basis over a 10-year period. The Company is
depreciating the purchase price allocated to property and equipment on a
straight-line basis over a 10-year period. The Company also entered into (i) a
sublease with NGC pursuant to which it agreed to a five-year sublease for
approximately 14,863 square feet of rentable space in the Baltimore, Maryland
area and (ii) a three-year Transition Services Agreement providing the Company
access to certain test facilities and personnel of NGC on a fee basis. In
consideration for these foregoing assets and agreements, NGC received 578,761
shares of the Company's Common Stock valued at $8.3438 per share or $4,829,066.
In addition, the Company issued to NGC a warrant to purchase an additional
100,000 shares of the Company's Common Stock at an exercise price of $9.725 per
share. The Company has recorded the fair value of this warrant, as determined by
the Black-Scholes option pricing model, of approximately $631,000 and
approximately $119,000 of legal, accounting, consultation and filing fees as a
cost of this transaction. On February 4, 2000, the Company issued to NGC an
additional warrant to purchase 100,000 shares of the Company's Common Stock at
an exercise price of $9.725 per share. This warrant is exercisable upon the
occurrence of certain
72
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. ACQUISITIONS (CONTINUED)
defined events, none of which had occurred as of September 30, 2000. The
purchase price of the asset purchase has been allocated as follows:
Inventory................................................... $1,206,000
Property and equipment...................................... 1,091,643
Intangibles:
Completed technology...................................... $3,142,882
Transition services agreement............................. 101,542
Favorable lease........................................... 36,999
----------
Total intangibles..................................... 3,281,423
----------
$5,579,066
==========
The pro forma financial information has not been presented, as this
transaction is the purchase of assets rather than as a business combination. The
Company has determined that this transaction was the acquisition of assets and
not the acquisition of a business as this business ceased operations more than
12 months prior to this acquisition of assets, the Company did not acquire
facilities, employees or customer base and there is not sufficient continuity of
the acquired entity's operations prior to and after the transaction.
For the fiscal year ended September 30, 2000, the Company recognized
$413,991 of revenue, primarily related to funded research and development
arrangements, from NGC. At September 30, 2000, the Company had $62,492 of
accounts receivable and unbilled contract costs and fees from NGC.
P. LOSS PER SHARE
The following is the reconciliation of the numerators and denominators of
the basic and diluted loss per share computations:
FOR THE YEARS ENDED
SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Net loss attributable to common shareholders......... $(13,047,033) $(14,392,657) $(4,857,814)
============ ============ ===========
BASIC AND DILUTED:
Common shares outstanding, beginning of year....... 9,529,649 8,990,249 8,769,146
Weighted average common shares issued during the
year............................................. 3,100,173 200,017 190,163
Weighted average shares repurchased during the
year............................................. -- (14,225) (2,638)
------------ ------------ -----------
Weighted average shares outstanding--basic and
diluted.......................................... 12,629,822 9,176,041 8,956,671
============ ============ ===========
Net loss per share, basic and diluted.............. $ (1.03) $ (1.57) $ (.54)
============ ============ ===========
At September 30, 2000, 1999 and 1998, 44,500, 44,500 and 28,300 common
shares, respectively, were excluded from common shares outstanding as they were
held in treasury. At September 30, 2000 and 1999, 42,860 common shares were
excluded from common shares outstanding as they were held in escrow.
73
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P. LOSS PER SHARE (CONTINUED)
At September 30, 2000, 1999 and 1998, options and warrants to purchase
2,854,105, 2,782,147, and 884,758 shares of common stock, respectively, were
excluded from the diluted weighted average common shares outstanding as their
effect would be antidilutive.
Q. COMPREHENSIVE LOSS
The Company's total comprehensive loss is as follows:
FOR THE YEARS ENDED
SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Net loss............................................. $ (9,941,145) $(14,341,753) $(4,857,814)
============ ============ ===========
Other comprehensive income/(loss), net of tax:
Unrealized gains on securities................... $ -- $ 10,380 $ 9,835
Valuation adjustment for MTI warrants............ (1,021,725) -- --
Foreign currency translation adjustment.......... (51,778) -- --
------------ ------------ -----------
Other comprehensive (loss)/income................ $ (1,073,503) $ 10,380 $ 9,835
------------ ------------ -----------
Comprehensive loss................................... $(11,014,648) $(14,331,373) $(4,847,979)
============ ============ ===========
R. SEGMENT DISCLOSURES
As of October 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products and services, geographical areas and
major customers. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and assess their performance.
The Company's organizational structure is based on strategic business units
that perform services and offer various products to the principal markets in
which the Company's products are sold. These business units equate to three
reportable segments: research and development, power electronic products and
motion-control products.
The Company performs research and development services in collaboration with
third parties. Film Microelectronics, Inc. designs and manufactures power
electronics products. The Magmotor and Ling Divisions specialize in the
engineering and manufacturing of motion-control products. The Company's
principal operations and markets are located in North America.
The accounting policies of each of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on revenue and profit and loss from operations
before income taxes, interest income, interest expense, other income and losses
and loss from investment in Beacon Power Corporation, excluding the effects of
amortization of intangible assets associated with acquisitions. Common costs not
directly attributable to a particular segment are allocated among segments based
on management's estimates.
74
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. SEGMENT DISCLOSURES (CONTINUED)
The following is a summary of the Company's operations by operating segment:
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
2000 1999 1998
----------- ------------ -------------
Research and development:
Product revenue................................. $ 31,486 -- --
Funded research and development revenue......... $ 8,627,601 $ 6,355,383 $ 8,010,735
----------- ------------ -------------
Total revenue................................. $ 8,659,087 $ 6,355,383 $ 8,010,735
----------- ------------ -------------
Loss from operations, net of amortization of
intangibles................................. $(3,838,907) $ (6,577,012) $ (1,454,707)
=========== ============ =============
Electronics products:
Product revenue............................... $ 8,584,446 $ 6,306,085 $ 5,909,765
----------- ------------ -------------
(Loss) income from operations, net of
amortization of intangibles................. $(3,128,643) $ (2,073,946) $ 504,528
=========== ============ =============
Motion-control products:
Product revenue............................... $13,811,496 $ 2,816,413 $ 1,610,423
----------- ------------ -------------
Loss from operations, net of amortization of
intangibles................................. $(1,316,958) $ (755,272) $ (310,023)
=========== ============ =============
Consolidated:
Product revenue............................... $22,427,428 $ 9,122,499 $ 7,520,188
Funded research and development revenue....... $ 8,627,601 $ 6,355,383 $ 8,010,735
----------- ------------ -------------
Total revenue................................. $31,055,029 $ 15,477,882 $ 15,530,923
=========== ============ =============
Loss from operations, net of amortization..... $(8,284,508) $ (9,406,230) $ (1,260,202)
Amortization of intangibles................... $(1,217,490) $ (371,087) $ (290,957)
----------- ------------ -------------
Operating loss................................ $(9,501,998) $ (9,777,317) $ (1,551,159)
Other income (loss)........................... $ 9,891 $ (150,464) $ --
Interest income............................... $ 453,631 $ 42,287 $ 179,861
Interest expense.............................. $ (3,176) $ (115,692) $ (10,206)
----------- ------------ -------------
Net loss before income taxes and loss from
Beacon Power Corporation.................... $(9,041,652) $(10,001,186) $ (1,381,504)
=========== ============ =============
75
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. SEGMENT DISCLOSURES (CONTINUED)
The following is a summary of the Company's total segment assets by
operating segment:
SEPTEMBER 30,
-------------------------
2000 1999
----------- -----------
Research and development:
Segment assets............................................ $18,464,754 $ 6,283,773
Electronics products:
Segment assets............................................ $10,132,575 $ 8,643,258
Motion-control products:
Segment assets............................................ $13,416,197 $ 2,473,343
Consolidated:
Segment assets............................................ $42,013,526 $17,400,374
Investment in Beacon Power Corporation.................... $ -- $ 414,729
Warrants to purchase Mechanical Technology
Incorporated common stock................................. $ 2,473,713 $ --
----------- -----------
Total assets................................................ $44,487,239 $17,815,103
=========== ===========
The Company operates and markets its services and products on a worldwide
basis with its principal markets as follows:
YEAR ENDED SEPTEMBER 30,
----------------------------------------
2000 1999 1998
----------- ------------ -----------
Revenue by geographic region:
United States...................................... $27,701,844 $ 14,627,000 $15,333,525
Rest of world...................................... 3,353,185 850,981 197,398
----------- ------------ -----------
Total revenue.................................... $31,055,029 $ 15,477,981 $15,530,923
=========== ============ ===========
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