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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
Commission File Number 1-11512
----------------------
SATCON TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
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State of Incorporation: I.R.S. Employer Identification.
Delaware 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, 7,447,695 shares outstanding as of December 31,
1996.
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TABLE OF CONTENTS
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS Page
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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......................................................... 8
Signatures.................................................................... 9
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SATCON TECHNOLOGY CORPORATION
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
--------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $4,312,921 $3,770,925
Marketable securities ..................................................... 1,392,800 3,435,743
Accounts receivable, net of allowance of $130,900 ......................... 2,580,594 2,881,790
Unbilled contract costs, net of allowance of $432,500 .................... 2,064,845 1,563,254
Prepaid expenses and other assets.......................................... 621,738 442,745
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Total current assets............................... 10,972,898 12,094,457
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Property and equipment, net ................................................... 4,373,118 4,347,784
Other assets.................................................................... 758,298 740,214
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Total assets....................................... $16,104,314 $17,182,455
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... 96,633 605,048
Accrued payroll and payroll taxes.......................................... 237,636 183,747
Other accrued expenses..................................................... 281,817 294,492
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Total current liabilities.......................... 616,086 1,083,287
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Commitments..................................................................... - -
STOCKHOLDERS' EQUITY
Preferred stock; $.01 par value, 1,000,000 shares authorized; none issued..... - -
Common stock; $.01 par value, 10,000,000 shares authorized;
7,447,695 and 7,359,074 shares at December 31, 1996 and
and September 30, 1996, respectively, issued and outstanding............... 74,477 73,591
Additional paid-in capital...................................................... 18,518,527 18,487,209
Retained earnings............................................................... (3,074,862) (2,421,697)
Unrealized losses on marketable securities, net of tax effect .................. (29,914) (39,935)
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Total stockholders' equity......................... 15,488,228 16,099,168
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Total liabilities and stockholders' equity......... $16,104,314 $17,182,455
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</TABLE>
The accompanying notes are an integral part of the financial statements
1
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SATCON TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Revenue........................................................................ $2,133,558 $2,407,962
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Cost of sales.................................................................. 704,380 874,725
Selling, general and administrative expenses................................... 2,147,749 1,963,420
Research and development expenses.............................................. 33,223 40,138
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Total operating expenses....................................................... 2,885,352 2,878,283
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Operating loss................................................................. (751,794) (470,321)
Interest income, net........................................................... 98,629 137,495
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Loss before income taxes....................................................... (653,165) (332,826)
Benefit for income taxes....................................................... - (133,160)
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Net loss....................................................................... (653,165) (199,666)
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Loss per common and common equivalent share.................................... ($0.09) ($0.03)
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Weighted average shares outstanding............................................ 7,386,173 7,170,151
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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SATCON TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................... ($653,165) ($199,666)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........................... 324,036 142,408
Changes in operating assets and liabilities:
Accounts receivable................................. 301,196 (1,618,409)
Prepaid expenses.................................... (153,994) (77,311)
Unbilled contract costs............................. (501,592) (195,880)
Other assets........................................ 8,099 (58,872)
Accounts payable.................................... (508,416) 80,728
Accrued expenses and payroll........................ 41,215 82,141
Deferred income taxes............................... - (133,160)
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Total adjustments............................................................ (489,456) (1,778,355)
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Net cash used in operating activities........................................ (1,142,621) (1,978,021)
Cash flows from investing activities:
Sales and maturities of marketable securities................. 2,052,965 1,433,366
Patent & trademark expenditures............................... (28,623) (6,439)
Deferred financing fees....................................... (25,000) -
Capital expenditures.......................................... (346,930) (554,624)
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Net cash provided by investing activities.................................... 1,652,412 872,303
Cash flows from financing activities:
Proceeds from exercise of stock options....................... 32,205 37,175
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Net increase/(decrease) in cash and cash equivalents ........................ 541,996 (1,068,543)
Cash and cash equivalents at beginning of period............................. 3,770,925 2,187,987
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Cash and cash equivalents at end of period................................... $4,312,921 $1,119,444
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</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
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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, 1996. Operating results for the three month period ended December
31, 1996 are not necessarily indicative of the results that may be expected for
any future interim period or for the entire fiscal year.
Note B. Significant Events
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Line of Credit
The Company's $3,000,000 line of credit expired on January 31, 1997. No funds
were advanced under this facility. The Company has entered into negotiations to
replace this line of credit.
K&D Acquistion
On January 23, 1997, SatCon Technology Corporation (the "Company" or "SatCon")
acquired substantially all of the assets and assumed certain of the liabilities
of K&D Magmotor Corporation ("K&D") pursuant to the terms of an Asset Purchase
Agreement, dated as of January 2, 1997, by and among the Company, K&D and K&D's
principal stockholder (the "Stockholder") (the "Asset Purchase Agreement"). The
aggregate consideration paid by the Company for the acquired assets of K&D was
approximately $210,000 in cash and 30,000 shares of the Company's common stock,
par value $.01 per share.
The terms of the Asset Purchase Agreement were determined on the basis of arms-
length negotiations. Prior to the execution of the Asset Purchase Agreement,
the Company did not have any material relationship with K&D or the Stockholder.
K&D, headquartered in Worcester, Massachusetts, is a manufacturer of custom
electric motors targeting the factory automation, medical, semi conductor and
packaging markets. The Company currently intends to continue to use the assets
in the same manner in which they were used by K&D immediately prior to the
acquisition.
4
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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This Form 10-Q contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements. The factors
include, without limitation, those set forth below under the caption "Factors
Affecting Future Results."
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
December 31,
1996 1995
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<S> <C> <C>
Revenues............................. 100.0% 100.0%
Cost of sales........................ 33.0 36.3
Selling, general and administrative.. 100.7 81.5
Research and development............. 1.5 1.7
Total operating expenses
(excluding cost of sales)............ 102.2 83.2
Operating loss....................... (35.2) (19.5)
Interest income, net................. 4.6 5.7
Loss before taxes.................... (30.6) (13.8)
Benefit for income taxes............. - (5.5)
Net loss............................. (30.6) (8.3)
</TABLE>
Three Months Ended December 31, 1996 ("Q1 1997") Compared to the Three Months
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Ended December 31, 1995 ("Q1 1996")
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Revenues. The Company's revenues decreased $274,404, or 11.4%, from Q1 1996 to
Q1 1997. The decrease is primarily due to a decrease in revenue of approximately
$910,000 from contracts with Chrysler Corporation ("Chrysler") for the
development of drive train components as part of the Patriot Hybrid Vehicle
Program and a decrease of approximately $375,000 related to completion of other
commercial contracts. During fiscal year 1996, Chrysler 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. As of February 12, 1997, no contractual agreement has been
entered between SatCon and Chrysler relating to the HEV Program. The decrease in
revenues was partially offset
5
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by increased revenues of approximately $1,017,000 related to work on various
government research and development contracts.
Cost of Sales. Cost of sales decreased $170,345, or 19.5%, from Q1 1996 to Q1
1997. The decrease is primarily due to a decrease in work on contracts with
Chrysler for the development of drive train components as part of the Patriot
Hybrid Vehicle Program. As a percentage of revenue, cost of sales decreased
from 36.3% in Q1 1996 to 33.0% in Q1 1997. The decrease in cost of sales, as a
percentage of revenue, is primarily due to a decrease in direct material and
subcontract costs as a percentage of cost of sales related to the shift from
work on the Chrysler Patriot Program, which had high material costs, to work on
several labor intensive research and development contracts funded by the U.S.
Government which typically have higher margins.
Selling, General and Administrative. Selling, general and administrative
expenses increased $184,329, or 9.4%, from Q1 1996 to Q1 1997. This increase is
primarily the result of an increase in depreciation expense of approximately
$181,000 related to sales and demonstration units added in fiscal year 1996.
Research and Development. Research and development expenses decreased $6,915, or
17.2% from Q1 1996 to Q1 1997. The Company expects to continue its efforts to
develop technology through a combination of internally funded research and
development and the award of development contracts from the U.S. Government and
commercial customers. These efforts are aimed at commercial product
opportunities.
Liquidity and Capital Resources
The Company's cash and cash equivalents was $4,312,921 as of December 31, 1996,
an increase of $541,996 from September 30, 1996. Cash used in operating
activities was $1,142,621 at the end of Q1 1997, as compared to $1,978,021 at
the end of Q1 1996. The cash used in operating activities is primarily the
result of a net increase of approximately $200,400 in accounts receivable and
unbilled contract costs due to extended billing and payment terms with two
customers. The remainder of the cash used by operating activities is primarily
the result of the decrease in accounts payable and the net loss for the period.
Cash provided by investing activities as of December 31, 1996, is $1,652,412.
Approximately $2,000,000 relates to sales and maturities of marketable
securities. Cash provided by investing activities was partially offset by
capital expenditures of approximately $347,000. The capital expenditures
primarily relate to computer hardware, computer software and sales and
demonstration units.
The Company's $3,000,000 line of credit expired on January 31, 1997. No funds
were advanced under this facility. The Company has entered into negotiations to
replace this line of credit.
The Company anticipates that its existing cash resources and cash flow from
operations will be sufficient to fund its operations through September 30, 1997,
provided it meets its operating plan. The Company's ability to finance its
operations will be dependent on its ability to renegotiate its bank line of
credit for a
6
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continued availability of borrowing thereunder. There can be no assurance that
the Company will be successful in renegotiating its line of credit. The
Company's ability to generate cash from operations depends upon, among other
things, revenue growth, its credit and payment terms with vendors, and
collections of accounts receivable. If such sources of cash prove insufficient,
the Company will be required to make changes in its operations or to seek
additional debt or equity financing. There can be no assurances that cash
generated from operations will be sufficient to meet its operating requirements,
or if required, that additional debt or equity financing will be available on
terms acceptable to the Company.
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
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 research and
development 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 maintain profits in these markets. Because of these and
other factors, past financial performances 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 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 revenues or operating results.
7
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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.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6 Exhibits and Reports on Form 8-K.
A) Exhibit 27 - Financial Data Schedule
B) The Company filed no reports on Form 8-K during the quarter for which this
report is filed.
8
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Signature
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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: February 14, 1997 By: /s/ David B. Eisenhaure
--------------------------------
David B. Eisenhaure, President
and Chief Executive Officer
Date: February 14, 1997 By: /s/ Michael C. Turmelle
--------------------------------
Michael C. Turmelle, Vice
President, Chief Financial
Officer and Treasurer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 4,312,921
<SECURITIES> 1,392,800
<RECEIVABLES> 2,580,594
<ALLOWANCES> 563,419
<INVENTORY> 0
<CURRENT-ASSETS> 10,972,898
<PP&E> 4,373,118<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,104,314
<CURRENT-LIABILITIES> 616,086
<BONDS> 0
0
0
<COMMON> 74,477
<OTHER-SE> 15,413,751
<TOTAL-LIABILITY-AND-EQUITY> 16,104,314
<SALES> 0
<TOTAL-REVENUES> 2,133,558
<CGS> 0
<TOTAL-COSTS> 704,380
<OTHER-EXPENSES> 2,180,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (653,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> (653,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (653,165)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<FN>
<F1>
PP&E is shown net of accumulated depreciation as reported within the Form 10-Q
on the Balance Sheet.
</FN>
</TABLE>
