<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q/A
AMENDMENT NO. 1 TO 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, 1998
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, 9,118,549 shares
outstanding as of January 31, 1999.
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS
Page
----
<S> <C>
Consolidated Balance Sheets (Unaudited)......................... 1
Consolidated Statements of Operations (Unaudited)............... 2
Consolidated Statements of Cash Flows (Unaudited)............... 3
Notes to Interim Consolidated Financial Statements (Unaudited).. 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 8
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS........................................... 12
PART II: OTHER INFORMATION
Items No. 1 through 6........................................... 13
Signature....................................................... 15
</TABLE>
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1998 1998
---- ----
(as Restated)
--------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................................. $ 605,763 $ 1,201,610
Marketable securities .................................................................... 639,338 657,431
Accounts receivable, net of allowance of $138,043 at December 31, 1998 and
$51,836 at September 30, 1998 ........................................................... 3,553,489 3,347,405
Unbilled contract costs, net of allowance of $57,611 at December 31, 1998 and
September 30, 1998........................................................................ 1,648,240 1,196,318
Inventory .................................................................................. 4,295,723 3,678,067
Prepaid expenses and other assets........................................................... 213,206 358,308
Amounts due from related party.............................................................. 6,455 596,453
------------ ------------
Total current assets................................................................... 10,962,214 11,035,592
Property and equipment, net...................................................................... 2,800,778 2,677,786
Intangibles, net ................................................................................ 2,915,109 2,967,988
Investment in Beacon Power Corporation........................................................... 424,173 1,458,183
Other assets..................................................................................... 71,551 27,041
------------ ------------
Total assets........................................................................... $ 17,173,825 $ 18,166,590
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.............................................................................. $ 5,000 $ --
Accounts payable............................................................................ 1,599,650 1,447,897
Accrued payroll and payroll related expenses................................................ 375,378 352,701
Deferred liabilities........................................................................ 372,116 197,930
Other accrued expenses...................................................................... 382,757 385,999
Current portion of long-term debt........................................................... 170,415 146,594
------------ ------------
Total current liabilities.............................................................. 2,905,316 2,531,121
Long-term liabilities:
Long-term debt.............................................................................. 197,641 221,462
------------ ------------
Total long-term liabilities............................................................ 197,641 221,462
Commitments and contingencies....................................................................
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares authorized; none issued
and outstanding........................................................................... -- --
Common stock, $.01 par value, 15,000,000 shares authorized; 9,018,549 shares
Issued at December 31, 1998 and September 30, 1998........................................ 90,185 90,185
Additional paid-in capital.................................................................. 28,434,080 28,377,718
Retained earnings/(deficit)................................................................. (14,209,040) (12,870,440)
Net unrealized losses on marketable securities, net of tax effect........................... (16,046) (10,380)
Treasury stock, at cost; 40,300 shares at December 31, 1998 and 28,300 shares
at September 30, 1998..................................................................... (228,311) (173,076)
------------ ------------
Total stockholders' equity.............................................................. 14,070,868 15,414,007
------------ ------------
Total liabilities and stockholders' equity............................................. $ 17,173,825 $ 18,166,590
============ ============
</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>
For the three months ended
December 31,
1998 1997
------------- ----------
(as Restated)
<S> <C> <C>
Revenue........................................................... $ 3,725,099 $3,695,619
----------- ----------
Cost of revenue................................................... 2,851,735 2,678,785
Selling, general and administrative expenses...................... 989,580 1,378,992
Research and development expenses................................. 100,883 265,031
Amortization...................................................... 77,758 55,187
----------- ----------
Total operating expenses.......................................... 4,019,956 4,377,995
----------- ----------
Operating loss.................................................... (294,857) (682,377)
Loss from Investment in Beacon Power Corporation.................. (1,064,010) --
Interest income, net.............................................. 20,267 53,164
----------- ----------
Net loss before income taxes...................................... $(1,338,600) $ (629,213)
----------- ----------
Provision/(benefit) for income taxes.............................. -- --
Net loss.......................................................... $(1,338,600) $ (629,213)
=========== ==========
Net loss per weighted average share, basic and diluted............ $ (.15) $ (.07)
=========== ==========
Weighted average number of common shares, basic and diluted....... 8,980,249 8,845,266
</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>
For the three months ended
December 31,
1998 1997
------------- -----------
(as Restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................. $(1,338,600) $ (629,212)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................................... 218,347 203,618
Allowance for unbilled contract costs........................... -- (7,175)
Allowance for doubtful accounts................................. 86,207 6,377
Loss from Investment in Beacon Power Corp....................... 1,064,010 --
Non-cash compensation expense related to issuance
of common stock warrants to non-employees...................... 56,362 --
Changes in operating assets and liabilities:
Accounts receivable.......................................... (292,291) (498,364)
Prepaid expenses and other assets............................ 145,102 201,844
Unbilled contract costs...................................... (451,922) 301,919
Inventory.................................................... (617,656) (120,466)
Other assets................................................. 545,488 (55,644)
Accounts payable............................................. 151,753 (31,693)
Accrued expenses and payroll................................. 19,435 (235,466)
Deferred liabilities......................................... 174,186 3,538
----------- ----------
Total adjustments.................................................. 1,099,021 (231,512)
----------- ----------
Net cash used in operating activities................................... (239,579) (860,724)
----------- ----------
Cash flows from investing activities:
Sales and maturities of marketable securities......................... 12,428 9,288
Patent and intangible expenditures.................................... (30,360) (118,622)
Capital expenditures.................................................. (258,101) (575,487)
Investment in Beacon Power Corporation................................ (30,000) --
----------- ----------
Net cash used in investing activities................................... (306,033) (684,821)
----------- ----------
Cash flows from financing activities:
Repayment of borrowings.............................................. -- (27,611)
Proceeds from line of credit.......................................... 5,000 --
Proceeds from exercise of stock options............................... -- 7,004
Proceeds from exercise of warrants.................................... -- 1,231,650
Purchase of treasury stock............................................ (55,235) --
----------- ----------
Net cash (used in)/provided by financing activities..................... (50,235) 1,211,043
----------- ----------
Net decrease in cash and cash equivalents............................... (595,847) (334,502)
Cash and cash equivalents at beginning of period........................ 1,201,610 4,256,504
----------- ----------
Cash and cash equivalents at end of period.............................. $ 605,763 $3,922,002
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note A. Basis of Presentation
- -----------------------------
The accompanying unaudited consolidated financial statements include the
accounts of SatCon Technology Corporation and its majority-owned subsidiaries
(collectively, the "Company") as of December 31, 1998 and 1997 and have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial reporting 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. All intercompany accounts and transactions
have been eliminated. 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 Annual
Report on Form 10-K for the year ended September 30, 1998. Operating results
for the three-month period ended December 31, 1998 are not necessarily
indicative of the results that may be expected for any future interim period or
for the entire fiscal year.
In May 1999, the Company appointed Arthur Andersen LLP as the Company's
independent public accountants. In connection with the finalization of the
Company's financial results for the three and nine months ended June 30, 1999,
the Company, with the assistance of Arthur Andersen LLP, conducted a review of
its accounting policies and assessed the realizability of certain assets. As a
result of this effort, the Company has:
. changed the accounting method for its investment in Beacon Power
Corporation from the cost method to the equity method, effective
October 23, 1998. See Note B.
. provided the following additional valuation reserves and adjustments
which impact the results through December 31, 1998:
<TABLE>
<CAPTION>
Three months ended
December 31, 1998
------------------
<S> <C>
Accounts receivable......................... $ 80,000
Warranty reserve............................ 12,000
Sales return reserve........................ 22,000
--------
$114,000
========
</TABLE>
. written off $196,000 of machinery and equipment, $84,000 of which
relates to the first quarter ended December 31, 1998.
. accrued rent expense of $90,000 which was recorded ratably over the
first three quarters of fiscal 1999.
. recorded the fair market value, $56,000, of a warrant granted to a
non-employee in November 1998.
Based upon this review, the Company concluded that it was necessary to
revise its previously disclosed unaudited results of operations for the
three months ended December 31, 1998. A summary of the impact of such
restatement on the consolidated financial statements for the unaudited
three months ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31, 1998
(Unuadited)
As previously reported As restated
<S> <C> <C>
Total operating expenses $3,756,790 $ 4,019,956
Operating Loss (9,358) (294,857)
Loss from Investment in Beacon Power Corporation (272,437) (1,064,010)
Net Loss (261,528) (1,338,600)
Net loss per share, basic and diluted $ (.03) $ (.15)
</TABLE>
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
4
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note B. Significant Events
- --------------------------
Beacon Power Corporation
On October 23, 1998, the Company entered into a Securities Purchase
Agreement (the "Agreement") with Beacon Power Corporation ("Beacon"), Perseus
Capital, L.L.C. ("Perseus"), Duquesne Enterprises, Inc. ("Duquesne") and Micro
Generation Technology Fund, L.L.C ("Micro", and together with Perseus and
Duquesne the "Purchasers"). Pursuant to the terms of the Agreement, (i) the
Purchasers purchased from Beacon and Beacon issued, sold and delivered to the
Purchasers 1,900,000 shares (the "Shares") of Beacon's Class D Preferred
Stock, $.01 par value per share; (ii) the Purchasers have the right to receive
certain warrants to purchase shares of Beacon's common stock, $.01 par value per
share ("Beacon's Common Stock"); (iii) 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's Common Stock issuable
upon conversion of the Shares; and (iv) 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, $.01 par
value per share (the "Common Stock"), valued at the average fair value for the
fifteen trading days before and after notice of exercise of the Put Right. The
aggregate consideration received by Beacon was $4,750,000. The Put Right is
exercisable within sixty days of the second, third, fourth and fifth anniversary
of the closing date of the transaction, upon certain events of bankruptcy of
Beacon and upon the occurrence of certain going private transactions involving
the Company. If the Put Right were to be exercised, the Company would most
likely recognize a loss equal to the value of the Company's shares issued upon
exercise of the Put Right. The Company retained approximately .1% of Beacon's
outstanding voting stock. The Company owns shares of Series A Preferred stock of
Beacon. Series A preferred stock is non-voting and is convertible at anytime
into Beacon's Common Stock. On an as converted basis, the Company would own
approximately 70% of Beacon's outstanding voting stock.
After consultation with its new independent public accountants, Arthur
Andersen LLP, the Company retroactively changed its method of accounting for its
investment in Beacon to the equity method, effective October 23, 1998. This
change resulted in an additional $791,573 loss in the investment in Beacon
during the three months ended December 31, 1998.
Issuance of Common Stock Purchase Warrants
On November 11, 1998, the Company issued to certain individuals, who
formerly held warrants issued by the Company in connection with the Company's
initial public offering in November 1992, Common Stock Purchase Warrants to
purchase up to 67,125 shares of the Company's Common Stock at an exercise price
of $11.43 per share. These warrants expire on November 11, 1999 and were issued
in reliance upon the exemptions from registration under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, relative to sales by an
issuer not involving any public offering. The Company has charged the fair value
of the options, as determined by using the Black-Scholes option pricing model,
of approximately $56,000, to selling, general and administrative expenses during
the three months ended December 31, 1998.
Line of Credit
On December 16, 1998, the Company obtained a $2,000,000 discretionary
demand line of credit (the "Line of Credit"), bearing interest at the bank's
prime rate of interest plus 1 1/2%. Available borrowings are based on a formula
of eligible accounts receivable and inventory and will be used for capital
expenditures, working capital and general corporate purposes.
5
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note C. Income per Share
- ------------------------
The following is the reconciliation of the numerators and denominators of
the basic and diluted per share computations of loss:
<TABLE>
<CAPTION>
For the three months ended
December 31,
1998 1997
----------- ----------
(as Restated)
<S> <C> <C>
Net loss........................................................ $(1,338,600) $ (629,212)
Basic:
Common shares outstanding, beginning of period.................. 8,990,249 8,769,146
Weighted average common shares issued during the period......... -- 76,120
Weighted average shares repurchased during the period........... (10,000) --
----------- ----------
Weighted average shares outstanding--basic...................... 8,980,249 8,845,266
=========== ==========
Net loss per weighted average share, basic...................... $ (0.15) $ (.07)
=========== ==========
Diluted:
Weighted average shares outstanding--basic...................... 8,980,249 8,845,266
Weighted average common stock equivalents (a)................... -- --
----------- ----------
Weighted average shares outstanding--diluted.................... 8,980,249 8,845,266
=========== ==========
Net loss per weighted average share, diluted.................... $ (0.15) $ (.07)
=========== ==========
</TABLE>
(a) not included if antidilutive
As of December 31, 1998, 922,616 and 699,760 options and warrants,
respectively, were excluded from the weighted average common shares outstanding
as their effect would be anti-dilutive.
On January 15, 1999, the Company granted options to purchase up to 334,000
shares of the Company's Common Stock. These options are exercisable at a price
of $5.688 and expire in January 2009. On January 26, 1999, the Company granted
additional options to purchase up to 40,000 shares of the Company's Common
Stock. These options are exercisable at a price of $5.875 and expire in January
2009. The shares of Common Stock or potential shares of Common Stock outstanding
at the end of the period would not have changed if this transaction occurred
before the end of the period.
Note D. Inventory
- -----------------
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Raw material............................ $2,394,468 $1,783,803
Work-in-process......................... 1,780,424 1,788,241
Finished goods.......................... 120,831 106,023
---------- ----------
$4,295,723 $3,678,067
========== ==========
</TABLE>
6
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note E. Comprehensive Income
- ----------------------------
As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. Financial statements for prior periods must be restated.
The Company's total comprehensive income is as follows:
<TABLE>
<CAPTION>
For the three months ended
December 31,
1998 1997
---- ----
(as Restated)
<S> <C> <C>
Net loss.......................................................... $(1,338,600) $(629,212)
=========== =========
Other comprehensive income/(loss), net of tax:
Unrealized gains/(losses) on securities...................... $ (5,666) $ 1,966
----------- ---------
Other comprehensive income/(loss)................................. $ (5,666) $ 1,966
----------- ---------
Comprehensive loss................................................ $(1,338,600) $(627,246)
=========== =========
</TABLE>
Note F. Subsequent Events
- -------------------------
On January 4, 1999, the Company issued 100,000 shares of Common Stock to
two individuals in connection with K&D MagMotor Corp.'s, a wholly-owned
subsidiary of the Company, purchase of certain assets and assumption of certain
liabilities of Inductive Components, Inc. and Lighthouse Software, Inc. These
shares were issued in reliance upon the exemptions from registration under
Section 4(2) of the Securities Act or Regulation D promulgated thereunder,
relative to sales by an issuer not involving any public offering.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934 as amended,
and Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"). 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
revenue for certain items in the Company's Statement of Operations for each
period:
<TABLE>
<CAPTION>
For the three months
ended December 31,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
Revenue.............................................................. 100.0 % 100.0 %
Cost of revenue...................................................... 76.6 % 72.5
Selling, general and administrative.................................. 26.6 % 37.3
Research and development............................................. 2.7 % 7.2
Goodwill amortization................................................ 2.1 % 1.5
Total operating expenses (excluding cost of revenue)................. 31.4 % 46.0
Operating loss....................................................... (7.9)% (18.5)
Loss from Investment in Beacon Power Corporation..................... (28.6)% -
Interest income, net................................................. 0.5 1.4
Net loss before income taxes......................................... (35.9)% (17.0)%
Provision/(benefit) for income taxes................................. 0.0 % 0.0%
Net loss............................................................. (35.9)% (17.0)
</TABLE>
Three Months Ended December 31, 1998 ("Q1 1999") Compared to the Three Months
- -----------------------------------------------------------------------------
December 31, 1997("Q1 1998")
- ----------------------------
Revenue. The Company's revenue increased approximately $29,000 or .1%, from Q1
1998 to Q1 1999. The increase is attributable to increased sale of manufactured
products of approximately $279,000. The Company began shipping production orders
for SatCon's Integrated Suspension and Motor system ("ISAM" ) during Q1 1999.
This increase in revenue was partially offset by decreases in revenue related to
research and development contracts.
Cost of Revenue. Cost of revenue increased approximately $173,000 or 6.5%,
from Q1 1998 to Q1 1999. The increase in cost of revenue is attributable to
increased sale of manufactured products partially offset by a decrease in effort
on research and development contracts.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased approximately $389,000 or 28.2% from Q1 1998
to Q1 1999. The decrease is primarily the result of the recapitalization of
Beacon. During 1997, the Company formed Beacon, a wholly-owned subsidiary, to
continue the work of the Company's Energy Systems Division. During a
recapitalization of Beacon in December 1997, the Company converted a significant
portion of its ownership of Beacon to convertible preferred stock. The Company
retained approximately .1% of Beacon's outstanding voting stock. Although the
Company owned less than 20% of the outstanding voting stock of Beacon, based on
other factors, there was a presumption that the Company had the ability to
exercise significant influence, and the equity method was required for the fair
presentation subsequent to this recapitalization. The Company's share of losses
from Beacon is shown as a single amount in the statement of operations, "Loss
from Investment in Beacon Power Corporation." This decrease was partially offset
by warrants granted to purchase 67,125
8
<PAGE>
shares of common stock to consultants at a price of $11.43 per share with a fair
market value of $56,000. In addition, the decrease was offset by increases of
expenses related to K&D MagMotor and SatCon Film Microelectronics, Inc. ("FMI").
Research and development. Research and development expenses decreased
approximately $164,000 or 61.9% from Q1 1998 to Q1 1999. The decrease is
primarily the result of the recapitalization of Beacon. This decrease was
partially offset by increases of expenses related to the continued development
of magnetic bearings and suspension systems and electro-optic and sensor
inspection systems.
Amortization. Amortization increased approximately $23,000 or 40.9% from Q1
1998 to Q1 1999. This was primarily the result of the final installment of the
non-compete agreement in connection with the acquisition of FMI in April 1997.
Loss from Investment in Beacon Power Corporation. After consultation with its
new independent public accountants, Arthur Andersen LLP, the Company
retroactively changed its method of accounting for its investment in Beacon to
the equity method, effective October 23, 1998. This change resulted in an
additional $792,000 loss in the investment in Beacon. In future periods, the
Company will continue to record its share of Beacon's losses up to the amount of
its actual and committed investment.
Interest income, net. Interest income, net decreased approximately $33,000 or
61.9% from Q1 1998 to Q1 1999. The decrease is primarily the result of the
decrease in marketable securities of approximately $1,330,000 or 67.5% from
December 31, 1997 to December 31, 1998.
Liquidity and Capital Resources
The Company's cash and cash equivalents was approximately $606,000 as of
December 31, 1998, a decrease of approximately $596,000 from September 30, 1998.
Cash used in operating activities was approximately $240,000 for Q1 1999,
compared to approximately $861,000 for Q1 1998. The cash used in operating
activities is primarily the result of an increase in inventory related to the
introduction of a new line of standard regulators.
On December 16, 1998, the Company obtained a $2,000,000 discretionary demand
line of credit (the "Line of Credit"), bearing interest at the bank's prime rate
of interest plus 1 1/2%. Available borrowings are based on a formula of eligible
accounts receivable and inventory and will be used for capital expenditures,
working capital and general corporate purposes.
The Company anticipates that its existing cash resources, cash flow from
operations and the Line of Credit will be sufficient to fund its operations
through at least December 31, 1999, provided that the Company meets its
operating plan. To the extent cash flows from operations is insufficient to fund
the Company's activities, it may be necessary to raise additional funds through
equity or debt financing. The Company's ability to generate cash from operations
depends upon, among other things, revenue growth, its credit and payment terms
with vendors, the collection of accounts receivable, and the availability of the
Company's Line of Credit. If such sources of cash prove insufficient or it is
otherwise unable to obtain necessary third party funding through the issuance of
debt or equity securities or otherwise, the Company will be required to make
changes in its operations, sell assets or otherwise seek protection from its
creditors. Any of these actions will likely have a material adverse effect on
the Company.
The Company has currently outstanding a stock repurchase program which
authorizes the Company to repurchase up to 5% of its outstanding common stock
(the "Repurchase Program"). Under the Repurchase Program the Company is
authorized to purchase shares of the Company's common stock on the open market
from time to time, depending on market conditions.
Effects of Inflation
The Company believes that inflation and changing prices over the past three
years have not had a significant impact on the Company's net sales and revenues
or on income from continuing operations.
9
<PAGE>
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 Quarterly Report on 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.
On October 23, 1998, the Company entered into the Agreement with Beacon,
Perseus, Duquesne and Micro. Pursuant to the terms of the Agreement, (i) the
Purchasers purchased from Beacon and Beacon issued, sold and delivered to the
Purchasers the Shares) of Beacon's Class D Preferred Stock, $.01 par value per
share; (ii) the Purchasers have the right to receive certain warrants to
purchase shares of Beacon's Common Stock; (iii) 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's Common Stock
issuable upon conversion of the Shares; and (iv) 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, valued at
the average fair value for the fifteen trading days before and after notice of
exercise of the Put Right. The aggregate consideration received by Beacon was
$4,750,000. The Put Right is exercisable within sixty days of the second, third,
fourth and fifth anniversary of the closing date of the transaction, upon
certain events of bankruptcy of Beacon and upon the occurrence of certain going
private transactions involving the Company. If the Put Right were to be
exercised, the Company would most likely recognize a loss equal to the value of
the Company's shares issued upon exercise of the Put Right.
Effect of Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information." SFAS 131 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. The Company will adopt SFAS
131 in the fiscal year ending September 30, 1999. This Statement need not be
applied to interim financial periods in the initial year of application,
however, comparative information for interim financial statements in the year of
application will be reported in financial statements for interim periods in the
second year of application..
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for fiscal years beginning after June 15,
1999 and establishes a new model for accounting for derivatives and hedging
activities. The Company will adopt SFAS 133 beginning in the first quarter of
the fiscal year ending September 30, 2001.
Adoption of SFAS 131 and SFAS 133 are 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.
10
<PAGE>
Effects of Year 2000
The year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Certain
computer programs that have date-sensitive software and use two digits only may
recognize a date using "00" as the year 1900 rather than the year 2000.
The Company recognizes the need to ensure its operations will not be adversely
impacted by the Y2K software failures and has established a project team to
address the Y2K risks. The project team has coordinated the identification of,
and will coordinate the implementation of, changes to computer hardware and
software applications that will attempt to ensure availability and integrity of
the Company's information systems and the reliability of its operational systems
and manufacturing processes. The Company is also assessing the potential overall
impact of Y2K on its business, results of operations and financial position.
The Company has reviewed its information and operational systems and
manufacturing processes in order to identify those products, services or systems
that are not Y2K compliant. As a result of this review, the Company has
determined that it will be required to modify or replace certain information and
operational systems so that they will be Y2K compliant. These modifications and
replacements are being, and will continue to be, made in conjunction with the
Company's overall system initiatives. The total cost of these Y2K compliance
measures has not been, and is not anticipated to be, material to the Company's
financial position or its results of operations. The Company expects to complete
its Y2K project during fiscal year 1999. Based on available information, the
Company does not believe any material exposure to significant business
interruption exists as a result of Y2K compliance issues. Accordingly, the
Company has not adopted any formal contingency plan in the event its Y2K project
is not completed in a timely manner. These costs and the timing in which the
Company plans to complete its Y2K modifications and testing processes are based
on management's best estimates. However, there can be no assurance that the
Company will timely identify and remediate all significant Y2K problems, that
remedial efforts will not involve significant time and expense or that such
problems will not have a material adverse effect on the Company's business,
results of operations or financial position.
The Company also faces risks to the extent that suppliers of products,
services and systems purchased by the Company and others with whom the Company
transacts business do not comply with the Y2K requirements. The Company is
identifying significant suppliers and customers to determine the extent to which
the Company is vulnerable to these third parties' failure to remediate their own
Y2K issues. In the event any such third party cannot provide the Company the
products, services or systems that meet the Y2K requirements on a timely basis,
the Company's results of operations could be materially and adversely affected.
To the extent Y2K issues cause significant delays in, or cancellation of,
decisions to purchase the Company's products or services, the Company's
business, results of operations or financial position would be materially
adversely affected.
11
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Interest Rate Risk
The Company maintains an investment portfolio consisting of debt securities of
various issuers, types and maturities. These securities are classified as
available for sale, and consequently are recorded on the balance sheet at market
value, with the unrecorded gain or loss recorded through the equity section.
These instruments are not leveraged, and are not held for purposes of trading.
The following table summarizes derivative financial instruments included in
marketable securities held by the Company at December 31, 1998, which are
sensitive to changes in interest rates:
<TABLE>
<CAPTION>
For the years ended September 30, _
Total Face Total Fair
Description 1999 2000 2001 2002 2003 Thereafter Value Value
- ----------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floater $350,000 $350,000 $325,500
Average Interest Rate 5.3% 5.3% 5.3% 5.3% 5.3% 5.3%
CMO $ 57,590 $ 57,590 $ 64,463
Average Interest Rate 5.6% 5.6% 5.6% 5.6% 5.6% 5.6%
Structured Notes $250,000 $250,000 $249,375
Average Interest Rate 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
</TABLE>
12
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings:
On December 12, 1997, FMI filed suit against Albert R. Snider for breach of
certain representations made by Mr. Snider, 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. The suit was
filed in the United States District Court in Boston, Massachusetts. The parties
dismissed the lawsuit because settlement discussions between the Company and Mr.
Snider were ongoing. However, those settlement discussions were unsuccessful,
and the lawsuit was reinstated on July 17, 1998. Mr. Snider filed a counterclaim
seeking, among other things, payments allegedly due from the Company under a
promissory note and unspecified damages under the Massachusetts unfair trade
practices statute. Mr. Snider's motion for partial summary judgment on the
promissory note counterclaim was denied by the District Court on October 15,
1998.
On December 30, 1998, Mr. Snider filed a motion to amend his counterclaim,
seeking to assert two additional claims against the Company for: (i) the
Company's breach of an alleged promise to make Mr. Snider a member of the
Company's Board of Directors; and (ii) alleged misrepresentations in the
Company's financial statements. The proposed additional claims seek unspecified
damages, and/or an order requiring the Company to offer Mr. Snider a seat on the
Company's Board of Directors. On January 21, 1999, the District Court denied Mr.
Snider's motion to amend his counterclaim. Mr. Snider has filed a motion asking
the court to reconsider its January 21, 1999 order. The Company has opposed this
motion. The parties have initiated discovery. The Company believes it has
sufficient reserves on the books of FMI for the overstatement in inventory
balances.
Item 2. Changes in Securities and Use of Proceeds:
On November 11, 1998, the Company issued to certain individuals, who formerly
held warrants issued by the Company in connection with the Company's initial
public offering in November 1992, Common Stock Purchase Warrants to purchase up
to 67,125 shares of the Company's Common Stock at an exercise price of $11.43
per share. These warrants expire on November 11, 1999 and were issued in
reliance upon the exemptions from registration under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, relative to sales by an
issuer not involving any public offering.
On January 4, 1999, the Company issued 100,000 shares of Common Stock to two
individuals in connection with MagMotor's purchase of certain assets and
assumption of certain liabilities of Inductive Components, Inc. and Lighthouse
Software, Inc. These shares were issued in reliance upon the exemptions from
registration under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder, relative to sales by an issuer not involving any public
offering.
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
27 Financial Data Schedule
(b) Reports on Form 8-K
On October 30, 1998, the Company filed a Current Report on Form 8-K, dated
October 23, 1998, in connection with the Securities Purchase Agreement, dated
October 23, 1998, by and among Beacon Power Corporation, Perseus Capital,
L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C. and the
Company.
13
<PAGE>
On January 14, 1999, the Company filed a Current Report on Form 8-K, dated
January 4, 1999, in connection with the Asset Purchase Agreement, dated as of
January 4, 1999, among K&D MagMotor Corp., a wholly-owned subsidiary of SatCon
Technology Corporation, Inductive Components, Inc. ("Inductive"), Lighthouse
Software, Inc. ("Lighthouse") and Thomas Glynn, the sole stockholder of
Inductive and the majority stockholder of Lighthouse.
14
<PAGE>
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 20, 1999 By: /s/ Michael C. Turmelle
-------------------------------------------------
Michael C. Turmelle, Vice President,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 605,763
<SECURITIES> 639,338
<RECEIVABLES> 3,691,532
<ALLOWANCES> 138,043
<INVENTORY> 4,295,723
<CURRENT-ASSETS> 10,962,214
<PP&E> 2,800,778<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,173,825
<CURRENT-LIABILITIES> 2,905,316
<BONDS> 0
0
0
<COMMON> 90,185
<OTHER-SE> 13,980,683
<TOTAL-LIABILITY-AND-EQUITY> 17,173,825
<SALES> 0
<TOTAL-REVENUES> 3,725,099
<CGS> 0
<TOTAL-COSTS> 2,851,735
<OTHER-EXPENSES> 1,168,221
<LOSS-PROVISION> (1,064,010)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,338,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,338,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,338,600)
<EPS-BASIC> (0.15)<F2>
<EPS-DILUTED> (0.15)<F2>
<FN>
<F1>PP&E is shown net of accumulated depreciation as reported wihin the Form 10-
Q on the Balance Sheet
<F2>In accordance with SFAS No. 128, "Earnings per share - Basic" is reporated
as the value for the EPS-PRIMARY tag and "Earnings per share - Diluted" is
reported as the value for the EPS-DILUTED tag
</FN>
</TABLE>
