<PAGE>
================================================================================
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 December 31, 1997
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, 8,918,844 shares outstanding as of
December 31, 1997.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PART 1: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS
Page
----
<S> <C>
Consolidated Balance Sheets .....................................................................1
Consolidated Statements of Operations ...........................................................2
Consolidated 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
</TABLE>
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited)
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 3,922,002 $ 4,256,504
Marketable securities............................................... 1,969,078 1,976,400
Accounts receivable, net of allowance of $165,620 at December 31,
1997 and $159,243 at September 30, 1997....................... 3,457,546 2,965,559
Unbilled contract costs, net of allowance of $537,580 at December 31,
1997 and $1,130,468 at September 30, 1997..................... 1,415,082 1,709,826
Inventory, net of allowance of $718,541 at December 31, 1997 and
$758,541 at September 30, 1997................................ 1,681,161 1,577,483
Prepaid expenses and other assets................................... 215,082 416,926
---------------- ----------------
Total current assets............................................ 12,659,951 12,902,698
Property and equipment, net................................................. 2,660,973 4,784,355
Intangibles, net............................................................ 2,474,364 2,992,659
Investment in affiliate..................................................... 5,000,000 -
Other assets................................................................ 25,484 29,726
---------------- ----------------
Total assets.................................................... $ 22,820,772 $ 20,709,438
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 818,515 $ 850,208
Accrued payroll and payroll related expenses........................ 336,700 392,235
Deferred revenue.................................................... 194,666 191,128
Other accrued expenses.............................................. 575,820 788,049
Accounts payable to affiliate....................................... 1,823,456
Short term portion of long term debt................................ 87,068 85,784
---------------- ----------------
Total current liabilities....................................... 3,836,225 2,307,404
Long term liabilities:
Note Payable........................................................ - 6,737
Long term debt...................................................... 294,002 316,160
---------------- ----------------
Total long term liabilities..................................... 294,002 322,897
Commitments.................................................................
STOCKHOLDERS' EQUITY
Preferred stock; $.01 par value, 1,000,000 shares authorized; none issued ..
Common stock, $.01 par value, 15,000,000 shares authorized; 8,918,844 and
8,769,146 shares at December 31, 1997 and September 30, 1997,
respectively, issued and outstanding.................................. 89,188 87,691
Additional paid-in capital.................................................. 27,813,757 26,576,600
Retained earnings/(loss).................................................... (9,194,151) (8,564,939)
Unrealized losses on marketable securities, net of tax effect............... (18,249) (20,215)
---------------- ----------------
Total stockholders' equity....................................... 18,690,545 18,079,137
---------------- ----------------
Total liabilities and stockholders' equity $ 22,820,772 $ 20,709,438
================ ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Revenue.................................................... $3,695,619 $2,133,558
--------------- ---------------
Cost of sales.............................................. 2,158,362 704,380
Selling, general and administrative expenses............... 1,899,415 2,147,749
Research and development expenses.......................... 265,031 33,223
Goodwill amortization...................................... 55,187 -
--------------- ---------------
Total operating expenses................................... 4,377,995 2,885,352
Operating loss............................................. (682,376) (751,794)
Interest income, net....................................... 53,164 98,629
--------------- ---------------
Net loss................................................... (629,212) (653,165)
=============== ===============
Net loss per basic and diluted common share................ $ (.07) $ (.09)
=============== ===============
Weighted average shares outstanding........................ 8,845,266 7,386,173
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (629,212) $ (653,165)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................. 203,618 324,036
Reserve for unbilled contract costs ........................... (7,175)
Allowance for doubtful accounts ............................... 6,377
Changes in operating assets and liabilities:
Accounts receivable ...................................... (498,364) 301,196
Prepaid expenses and other assets ........................ 201,844 (153,994)
Unbilled contract costs .................................. 301,919 (501,592)
Inventory ................................................ (120,466)
Other assets ............................................. (55,644) 8,099
Accounts payable ......................................... (31,693) (508,416)
Accrued expenses and payroll ............................. (23,237) 41,215
Deferred revenue ......................................... 3,538
Other accrued expenses ................................... (212,229)
---------------- ----------------
Total adjustments ................................................... (231,514) (489,456)
---------------- ----------------
Net cash used in operating activities .................................. (860,724) (1,142,621)
---------------- ----------------
Cash flows from investing activities:
Sales and maturities of marketable securities ..................... 9,288 2,052,965
Patent and trademark expenditures ................................. (62,361) (28,623)
Deferred financing fees ........................................... --- (25,000)
Capital Expenditures .............................................. (575,487) (346,930)
Acquisitions....................................................... (56,261)
---------------- ----------------
Net cash provided by/(used in) investing activities .................... (684,821) 1,652,412
---------------- ----------------
Cash flows from financing activities:
Repayment of short-term borrowings ................................ (27,611)
Proceeds from exercise of stock options ........................... 7,004 32,205
Proceeds from exercise of stock warrants .......................... 1,231,650
---------------- ----------------
Net cash provided by financing activities .............................. 1,211,043 32,205
---------------- ----------------
Net increase/(decrease) in cash ........................................ (334,502) 541,996
Cash and cash equivalents at beginning of period ....................... 4,256,504 3,770,925
---------------- ----------------
Cash and cash equivalents at end of period ............................. $ 3,922,002 $ 4,312,921
================ ================
</TABLE>
Refer to Note B. for noncash transactions occurring during the period.
The accompanying notes are an integral part of the
consolidated financial statements.
3
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SatCon Technology Corporation
Notes to Financial Statements
Note A. Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated 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 consolidated 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, 1997. Operating results for the
three month period ended December 31, 1997 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
- --------------------------
Beacon Power Corporation
During a recapitalization of Beacon Power Corporation ("Beacon") on December 24,
1997, the Company converted a significant portion of its ownership of Beacon to
preferred stock. The Company now holds less than 20% of the common stock of
Beacon. The Company's investment in Beacon is accounted for on a cost basis. The
impact on the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
December 31,
1997
(Unaudited)
----------------
<S> <C>
Inventory......................................................... $ (16,788)
Prepaid expenses and other assets................................. (59,500)
Property and Equipment, net....................................... (2,709,224)
Intangibles, net.................................................. (423,330)
Accrued payroll and payroll related expenses...................... 32,298
Accounts payable to affiliate..................................... (1,823,456)
----------------
Investment in affiliate........................................... $ 5,000,000
================
</TABLE>
Accounts payable to affiliate represents cash and cash equivalents transferred
to Beacon subsequent to December 31, 1997.
Note C. SFAS No. 128
- --------------------
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options. All earnings per share
amounts for all periods have been presented to conform to SFAS No. 128
requirements. There was no effect on the earnings per share disclosures as a
result
4
<PAGE>
of adoption of SFAS No. 128 due to the antidilutive effect of the Company's
outstanding options. As of December 31, 1997, there was 699,760 stock options
outstanding.
Note D. Derivative Financial Instruments
- --------------------------------------------------------------------------
The following table summarizes derivative financial instruments included in
marketable securities held by the Company at December 31, 1997, which are
sensitive to changes in interest rates:
<TABLE>
<CAPTION> For the Years ended September 30, Fair
Description 1998 1999 2000 2001 2002 Thereafter Total Value
----------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floater $150,000 $350,000 $500,000 $474.000
Average
Interest Rate 5.3% 5.8% 5.8% 5.8% 5.8% 5.8%
CMO $103,922 $103,922 $102.321
Average
Interest Rate 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Structured Notes $550,000 $250,000 $800,000 $792.688
Average
Interest Rate 5.0% 6.0% 6.0% 6.0% 6.0% 6.0%
</TABLE>
The instruments held by the Company are not leveraged and are held for purposes
other than trading.
Note E. Inventory
- -----------------
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited)
-------------- -----------------
<S> <C> <C>
Raw material................................................. $ 872,756 $ 651,460
Work-in-process.............................................. 571,276 637,657
Finished goods............................................... 237,129 288,366
-------------- -----------------
$ 1,681,161 $ 1,577,483
============== =================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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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:
5
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<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Revenues................................................. 100.0% 100.0%
Cost of sales............................................ 58.4 33.0
Selling, general and administrative...................... 51.4 100.7
Research and development................................. 7.2 1.5
Goodwill Amortization.................................... 1.5 0.0
Total operating expenses
(excluding cost of sales)................................ 60.1 102.2
Operating loss........................................... (18.5) (35.2)
Interest income, net..................................... 1.5 4.6
Loss before taxes........................................ (17.0) (30.6)
Benefit for income taxes................................. - -
Net loss................................................. (17.0) (30.6)
</TABLE>
Three Months Ended December 31, 1997 ("Q1 1998") Compared to the Three Months
- -----------------------------------------------------------------------------
Ended December 31, 1996 ("Q1 1997")
- -----------------------------------
Revenues. The Company's revenues increased approximately $1,562,000 or 73.2%,
from Q1 1998 to Q1 1997. The increase in revenues is primarily due to the two
acquisitions closed in 1997, K&D Magmotor Corporation ("Magmotor") and Film
Microelectronics Inc. ("FMI"). These two acquisitions represent an increase in
revenues of approximately $1,900,000 offset by reduction in revenues of
approximately $350,000 related to work on various government research and
development contracts.
Cost of Sales. Cost of sales increased approximately $1,454,000 or 206.4%, from
Q1 1998 to Q1 1997. The increase in cost of sales is primarily due to additional
costs related to Magmotor and FMI of approximately $1,500,000.
Selling, General and Administrative. Selling, general and administrative
expenses decreased approximately $248,000 or 11.6%. The decrease in spending is
primarily due to the management of travel and other selling and administrative
costs.
Research and Development. Research and development expenses increased
approximately $232,000 or 697.7%. This increased is primarily due to the
development of the fly wheel energy storage system for Beacon. During the
recapitalization of Beacon on December 24, 1997, Satcon converted a significant
portion of its ownership of Beacon to preferred stock. SatCon now holds less
than 20% of Beacon's common stock; therefore, effective December 24, 1997,
SatCon's investment in Beacon is accounted for on a cost basis.
Liquidity and Capital Resources
The Company's cash and cash equivalents was approximately $3,922,000 as of
December 31, 1997, a decrease of approximately $335,000 from September 30, 1997.
Cash used in operating activities was approximately $861,000 for Q1 1998,
compared to approximately $1,143,000 for Q1 1997. The cash used in operating
activities is primarily the result of a net loss.
6
<PAGE>
The Company anticipates that its existing cash resources and cash flow from
operations will be sufficient to fund its operations through September 30, 1998,
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 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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information." The statement is effective for fiscal years
beginning after December 15, 1997 and 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.
Adoption of SFAS No. 131 is not expected to have a material impact to the
Company's consolidated financial position, results of operations or cash flows
and any effect will be limited to the form and content of its disclosures.
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.
7
<PAGE>
Effects of Year 2000
Neither the cost of addressing Year 2000 compliance nor the consequence of
incomplete or untimely resolution of problems related to the Year 2000 represent
a known material event or uncertainty that would affect future financial
results, or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition.
8
<PAGE>
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) Exhibits
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter for which this
report is filed.
9
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Signatures
- ----------
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 13, 1998 By: /s/ David B. Eisenhaure
----------------------------------------
David B. Eisenhaure, President and Chief
Executive Officer
Date: February 13, 1998 By: /s/ Michael C. Turmelle
----------------------------------------
Michael C. Turmelle, Vice President,
Chief Financial Officer and Treasurer
10
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EXHIBIT 11
SATCON TECHNOLOGY CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Calculation of Shares:
Weighted Average Shares Outstanding 8,845,266 7,386,173
--------- ---------
Weighted Average Shares Outstanding--Basic 8,845,266 7,386,173
--------- ---------
Additional Shares Assumed Exercised with
Full Dilution--Options -- --
Additional Shares Assumed Exercised with
Full Dilution--Warrants -- --
--------- ---------
Weighted Average Shares Outstanding--Diluted 8,845,266 7,386,173
--------- ---------
Calculation of Earnings Per Share:
Net Income (629,212) (653,165)
Basic Earnings Per Share (.07) (.09)
Diluted Earnings Per Share (.07) (.09)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 3,922,002
<SECURITIES> 1,969,078
<RECEIVABLES> 3,457,546
<ALLOWANCES> 165,620
<INVENTORY> 1,681,161
<CURRENT-ASSETS> 12,659,951
<PP&E> 2,660,973<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,820,772
<CURRENT-LIABILITIES> 3,836,225
<BONDS> 0
0
0
<COMMON> 89,188
<OTHER-SE> 18,601,357
<TOTAL-LIABILITY-AND-EQUITY> 22,820,772
<SALES> 0
<TOTAL-REVENUES> 3,695,619
<CGS> 0
<TOTAL-COSTS> 2,158,362
<OTHER-EXPENSES> 2,219,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (629,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (629,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (629,212)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
<FN>
<F1>PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION AS REPORTED WITHIN THE FORM 10-Q
ON THE BALANCE SHEET.
</FN>
</TABLE>
