<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number 1-11512
----------------------
SATCON TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
----------------------
State of Incorporation: Delaware I.R.S. Employer ID. No.
04-2857552
161 First Street
Cambridge, MA 02142-1221
(Address of principal executive offices)
(617) 661-0540
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value, 7,349,774 shares outstanding as of June 30, 1996.
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TABLE OF CONTENTS
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS Page
----
Balance Sheets ............................................................... 1
Statements of Operations ..................................................... 2
Statements of Cash Flows ..................................................... 3
Notes to Financial Statements ................................................ 4
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................ 5
PART II: OTHER INFORMATION
Items No. 1 through 6 ........................................................ 9
Signatures .................................................................. 10
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SATCON TECHNOLOGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
-------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $2,070,040 $2,187,987
Marketable securities........................................... 5,945,118 10,386,288
Accounts receivable, net of allowance of $130,919 .............. 2,922,837 2,076,002
Unbilled contract costs, net of allowance of $66,500 ........... 3,023,693 1,396,367
Prepaid expenses and other assets............................... 615,301 609,252
-------------- ---------------
Total current assets............ 14,576,989 16,655,896
-------------- ---------------
Property and equipment, net............................................ 3,913,553 2,772,018
Other assets............................................................ 520,986 365,052
-------------- ---------------
Total assets.................... $19,011,528 $19,792,966
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ 534,910 624,955
Accrued payroll and payroll taxes............................... 85,844 6,326
Accrued vacation................................................ 183,817 147,663
Other accrued expenses.......................................... 75,898 88,025
Deferred income taxes........................................... - 173,282
-------------- ---------------
Total current liabilities....... 880,469 1,040,251
-------------- ---------------
Commitments.............................................................
STOCKHOLDERS' EQUITY
Preferred stock; $.01 par value, 1,000,000 shares authorized; none iss - -
Common stock; $.01 par value, 10,000,000 shares authorized;
7,349,774 and 7,166,601 shares at June 30, 1996 and
and September 30, 1995, respectively, issued and outstanding.... 73,498 71,666
Additional paid-in capital.............................................. 18,478,802 18,284,486
Retained earnings....................................................... (355,855) 443,139
Unrealized losses on marketable securities, net of tax effect .......... (65,386) (46,576)
-------------- ---------------
Total stockholders' equity...... 18,131,059 18,752,715
-------------- ---------------
Total liabilities and stockholde $19,011,528 $19,792,966
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
SATCON TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE> -----------
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue......................................... $2,150,038 $530,552 $7,745,897 $9,283,089
------------- ------------- ------------- -------------
Cost of sales................................... 892,826 365,054 3,373,274 5,331,425
Selling, general and administrative expenses.... 1,865,078 1,447,961 5,639,698 4,063,211
Research and development expenses............... 5,388 1,730,136 83,500 2,033,778
------------- ------------- ------------- -------------
Total operating expenses........................ 2,763,292 3,543,151 9,096,472 11,428,414
------------- ------------- ------------- -------------
Operating loss.................................. (613,254) (3,012,599) (1,350,575) (2,145,325)
Interest income, net............................ 128,088 70,384 384,612 264,584
------------- ------------- ------------- -------------
Loss before income taxes........................ (485,166) (2,942,215) (965,963) (1,880,741)
Provision/(benefit) for income taxes............ 25,032 (1,176,886) (166,969) (752,297)
------------- ------------- ------------- -------------
Net loss........................................ (510,198) (1,765,329) (798,994) (1,128,444)
============= ============= ============= =============
Loss per common and equivalent share............ ($0.07) ($0.25) ($0.11) ($0.16)
============= ============= ============= =============
Weighted average shares outstanding............. 7,344,616 7,107,666 7,263,900 7,057,887
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SATCON TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ ($798,994) ($1,128,444)
----------- -----------
Adjustments to reconcile net loss to net
cash (used in)/provided by operating activities:
Depreciation and amortization............. 587,952 396,677
Provision for bad debts................... 0 -
Changes in operating assets and liabilities:
Accounts receivable..................... (946,834) 5,359,204
Prepaid expenses........................ (6,048) (18,707)
Unbilled contract costs................. (1,627,326) 5,500,927
Other assets............................ (158,522) (152,771)
Accounts payable........................ (90,045) (794,303)
Accrued expenses and payroll............ 103,545 (92,009)
Deferred income taxes................... (173,282) (752,297)
----------- -----------
Total adjustments....................................... (2,310,560) 9,446,721
----------- -----------
Net cash (used in) provided by operating activities..... (3,109,554) 8,318,277
Cash flows from investing activities:
Purchases of marketable securities available for (1,450,000) (9,054,344)
Sales and maturities of marketable securities... 5,872,360 3,500,961
Capital expenditures............................ (1,626,901) (1,588,971)
----------- -----------
Net cash (used in) provided by investing activities..... 2,795,459 (7,142,354)
Cash flows from financing activities:
Proceeds from exercise of stock options......... 196,148 247,508
Financing Fees Paid............................. - (283,742)
----------- -----------
Net cash (used in) provided by financing activities..... 196,148 (36,234)
----------- -----------
Net (decrease)/increase in cash and cash equivalents ... (117,947) 1,139,689
Cash and cash equivalents at beginning of period........ 2,187,987 908,011
----------- -----------
Cash and cash equivalents at end of period.............. $2,070,040 $2,047,700
=========== ===========
Supplemental Disclosure
- ---------------------------------------
Cash Paid for Interest.................................. - $311
Cash Paid For Income Taxes.............................. 4,408 8,620
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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SatCon Technology Corporation
Notes to Financial Statements
Note A. Basis of Presentation
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These financial statements, which in the opinion of management reflect all
adjustments (including normal recurring adjustments) necessary for a fair
presentation, should be read in conjunction with the financial statements and
notes thereto included in the Company's Report on Form 10-K for the year ended
September 30, 1995. Operating results for the three and nine month periods
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for any future interim period or for the entire fiscal year.
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Item 2. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
- ---------------------
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
revenues for certain items in the Company's Statement of Operations for each
period:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 41.5 68.8 43.5 57.4
Selling, general and administrative... 86.8 272.9 72.8 43.8
Research and development.............. 0.2 326.1 1.1 21.9
Total operating expenses
(excluding cost of sales)............. 87.0 599.0 73.9 65.7
Operating loss........................ (28.5) (567.8) (17.4) (23.1)
Interest income net................... 5.9 13.3 5.0 2.9
Loss before taxes..................... (22.6) (554.6) (12.4) (20.2)
Provision/(benefit) for income taxes.. 1.1 (221.8) (2.1) (8.1)
Net loss.............................. (23.7) (332.7) (10.3) (12.1)
</TABLE>
Three Months Ended June 30, 1996 (Q3 1996) Compared to the Three Months Ended
- -----------------------------------------------------------------------------
June 30, 1995 (Q3 1995)
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Revenues. The Company's revenues for Q3 1996 increased $1,619,486 or 305.2%
from Q3 1995. The increase is primarily due to an increase in revenue of
approximately $950,000 from contracts with the United States Government and its
agencies, an increase of approximately $552,000 from contracts with Chrysler
Corporation related to the continued testing and evaluation of drive train
components for the Patriot Hybrid Vehicle Program, and an increase in revenue
of approximately $112,000 related to work on commercial customer contracts.
During Q3 1996 Chrysler Corporation announced the cancellation of the Patriot
Hybrid Vehicle Program. Chrysler has announced that it intends to transition
technologies utilized in the Patriot Program to their Hybrid Electric Vehicle
(HEV) program being sponsored by the U.S. Government's Super Car Initiative.
The Company expects involvement with Chrysler in this effort; however, as of
August 14, 1996, no contractual agreement has been determined between SatCon
Technology and Chrysler Corporation relating to the HEV program. The Company
has not to date recorded any revenues associated with the Chrysler HEV Program.
Cost of Sales. Cost of sales for Q3 1996 increased $527,772, or 144.5%, from Q3
1995. The increase is primarily due to an increase in work on government
contracts, contracts with Chrysler Corporation for the continued development,
testing, and evaluation of drive train components as part of the Patriot Hybrid
Vehicle Program, and other commercial contracts. The decrease in cost of sales,
as a percentage of revenue, is primarily due to decreased purchases of direct
materials and subcontract costs.
5
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Selling, General and Administrative. Selling, general and administrative
expenses for Q3 1996 increased $417,117, or 28.8%, from Q3 1995. The increase
is primarily the result of a startup during Q3 of 1996 of a facility in Tucson,
Arizona. Facilities expense increased approximately $90,000 due to the exercise
of an option in the Company's lease agreement for additional space at 161 First
Street, Cambridge, Massachusetts. The Company now occupies the entire building.
Depreciation expense increased approximately $61,000 due to the purchases of
computer, laboratory, inspection and test, and manufacturing equipment during
fiscal year 1995 and 1996.
Research and Development. Internally funded research and development expenses
for Q3 1996 were $5,388, compared to $1,730,136 for Q3 1995. The decrease in
research and development spending is primarily the result of a reallocation of
engineering resources from internally funded research and development to
development efforts on contracts from U.S. Government and commercial customers.
The Company continues to pursue commercial product opportunities capitalizing on
the Company's Active Motion Control technology base.
Nine Months Ended June 30, 1996 (Q3 1996 YTD) Compared to the Nine Months Ended
- -------------------------------------------------------------------------------
June 30, 1995 (Q3 1995 YTD)
- ---------------------------
Revenues. The Company's revenues for Q3 1996 YTD were $7,745,897, a decrease of
$1,537,192 or 16.5%, from Q3 1995 YTD. The decrease is primarily due to a
decrease in revenue of approximately $2,900,000 from contracts with Chrysler
Corporation for the development of drive train components as part of the Patriot
Hybrid Vehicle Program. This decrease in Chrysler revenue was partially offset
by an increase in revenue of approximately $1,355,000 related to work on
government development contracts. During Q3 1996 Chrysler Corporation announced
the cancellation of the Patriot Hybrid Vehicle Program. Chrysler has announced
that it intends to transition technologies utilized in the Patriot Program to
their Hybrid Electric Vehicle (HEV) program being sponsored by the U.S.
Government's Super Car Initiative. The Company expects involvement with
Chrysler in this effort; however, as of August 14, 1996, no contractual
agreement has been determined between SatCon Technology and Chrysler Corporation
relating to the HEV program. The Company has not to date recorded any revenues
associated with the Chrysler HEV Program.
Cost of Sales. Cost of sales for Q3 1996 YTD were $3,373,274, a decrease of
$1,958,151 or 36.7%, from Q3 1995 YTD. The decrease is primarily due to a
decrease in work during fiscal year 1996 on contracts with Chrysler Corporation
for the development of drive train components as part of the Patriot Hybrid
Vehicle Program. The decrease in cost of sales, as a percentage of revenue, is
primarily due to decreased purchases of direct materials and subcontract costs.
Selling, General and Administrative. Selling, general and administrative
expenses for Q3 1996 YTD were $5,639,698, an increase of $1,576,487 or 38.8%,
from Q3 1995 YTD. The increase is primarily the result of a startup during Q3 of
1996 of a facility in Tucson, Arizona. Facilities expense increased
approximately $250,000 due to the exercise of an option in the Company's lease
agreement for additional space at 161 First Street, Cambridge, Massachusetts.
The Company now occupies the entire building. Depreciation expense increased
approximately $191,000 due to the purchases of computer, laboratory, inspection
and test, and manufacturing equipment during fiscal year 1995 and 1996.
Research and Development. Internally funded research and development expenses
for Q3 1996 YTD were $83,500 compared to $2,033,778 for Q3 1995 YTD. The
decrease in research and development spending
6
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is primarily the result of a reallocation of engineering resources from
internally funded research and development to development efforts on contracts
from U.S. Government and commercial customers. The Company continues to pursue
commercial product opportunities capitalizing on the Company's Active Motion
Control technology base.
Liquidity and Capital Resources
The Company's cash and cash equivalents was $2,070,040 as of June 30, 1996, a
decrease of $117,947 from September 30, 1995. For the nine month period ended
June 30, 1996 cash used by operating activities was $3,109,554. This is
primarily attributable to the increase in accounts receivable and unbilled
contract costs from $3,472,369 as of September 30, 1995, to $5,946,530 as of
June 30, 1996, primarily due to extended billing and payment terms with a
commercial customer. As of July 29, 1996, approximately $1,200,000 of
outstanding accounts receivable with this commercial customer were collected.
The Company expects to collect the remaining balances related to the increase
during the next few months. The remainder of the cash used for operating
activities is primarily a result of an increase in other assets and accrued
payroll, and a decrease in deferred income taxes and accounts payable, and the
net loss net of income tax benefit for the period.
Cash provided by investing activities as of June 30, 1996, was $2,795,459. The
cash provided relates primarily to the sale and maturity of approximately
$5,872,000 of marketable securities to fund operations prior to the collection
of outstanding invoices. The cash provided was partially offset by purchases of
marketable securities of approximately $1,450,000 and capital expenditures of
approximately $1,600,000. The capital expenditures primarily relate to the
purchase of incoming inspection equipment, furniture and fixtures, leasehold
improvements, computer equipment, and the internally funded, ongoing
construction of a pre-production flywheel system. This system is intended to
further the commercialization of a flywheel based uninterruptable power system
(UPS) for the communications and electric utility markets. The Company has
capitalized approximately $410,000 of costs associated with this effort.
In January 1995 the Company established a $3,000,000 line of credit with First
NH Bank. The line of credit was renewed March 18, 1996. Borrowings under the
line will be unsecured and charged interest at prime rate. The line of credit
expires on January 31, 1997. No funds have been as yet advanced under this
facility.
Factors Affecting Future Results
The Company's future results remain difficult to predict and may be affected by
a number of factors which could cause actual results to differ materially from
the forward-looking statements contained in this Form 10-Q and presented
elsewhere by management from time to time. These factors include business
conditions within the automotive, telecommunications, industrial machinery and
semiconductor industries and the world economies as a whole, and competitive
pressures that may impact research and development spending. The Company's
revenue growth is dependent on technology developments and contract R&D for both
the government and commercial sectors and no assurance can be given that such
investments will continue or that the Company can successfully obtain such
funds. In addition, the Company's future growth opportunities are dependent on
the introduction of new products that must penetrate automotive,
telecommunications, industrial, and computer market segments. No assurance can
be given that new products can be developed, or if developed, will be
successful; that competitors will not force prices to an unacceptably low level
or take market share from the Company; or that the Company can achieve or
7
<PAGE>
maintain profits in these markets. Because of these and other factors, past
financial performance should not be considered an indicator of future
performance. Investors should not use historical trends to anticipate future
results and should be aware that the Company's stock price frequently
experiences significant volatility.
Effect of Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This standard is effective for financial statements for Fiscal
years beginning after December 15, 1995. The Company's analysis of this new
standard indicates that it will not have a material effect on the Company's
financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which encourages companies to
recognize compensation expense in the income statement based on the fair value
of the underlying common stock at the date the awards are granted. However, it
will permit continued accounting under APB Opinion 25, "Accounting for Stock
Issued to Employees," accompanied by a disclosure of the pro forma effects on
net income and earnings per share had the new accounting rules been applied.
The statement is effective for fiscal year 1997. The Company plans to account
for stock based compensation in accordance with APB Opinion 25.
Effects of Inflation
The Company believes that inflation over the past three years has not had a
significant impact on the Company's sales or operating results.
8
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's Annual Meeting of Stockholders held on June 20, 1996, the
Company's stockholders approved the following:
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST ABSTAIN WITHHELD
(1) Election of Directors:
<S> <C> <C> <C> <C>
David Eisenhaure 6,690,889 21,100
James Kirtley 6,690,689 21,300
John O'Sullivan 6,690,889 21,100
William Stanton 6,690,889 21,100
Michael Turmelle 6,690,289 21,700
Marshall Armstrong 6,690,689 21,100
(2) Approval of 1996 Stock 6,341,762 248,030 72,580
Option Plan
(3) Ratification of Coopers & 6,690,925 14,763 6,301
Lybrand as auditors for the
current fiscal year
</TABLE>
Item 5. Other Information:
Not applicable.
Item 6 Exhibits and Reports on Form 8-K:
A) Exhibit 27 - Financial Data Schedule (for EDGAR filing purposes only)
B) The Company has filed no reports on Form 8-K during the quarter for which
this report is filed.
9
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Signature
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SatCon Technology Corporation
Date: August 14, 1996 By: /s/ David B. Eisenhaure
David B. Eisenhaure, President and Chief
Executive Officer
Date: August 14, 1996 By: /s/ Michael C. Turmelle
Michael C. Turmelle, Vice President,
Chief Financial Officer and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,070,040
<SECURITIES> 5,945,118
<RECEIVABLES> 2,922,837
<ALLOWANCES> 130,919
<INVENTORY> 0
<CURRENT-ASSETS> 14,576,989
<PP&E> 3,913,553
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,011,528
<CURRENT-LIABILITIES> 880,469
<BONDS> 0
0
0
<COMMON> 73,498
<OTHER-SE> 18,057,561
<TOTAL-LIABILITY-AND-EQUITY> 19,011,528
<SALES> 0
<TOTAL-REVENUES> 7,745,897
<CGS> 0
<TOTAL-COSTS> 3,373,274
<OTHER-EXPENSES> 5,723,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (965,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (798,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (798,994)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
