<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 March 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, 9,018,549 shares outstanding as of
March 31, 1998.
- --------------------------------------------------------------------------------
<PAGE>
SatCon Technology Corporation hereby amends and restates its Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998 in its entirety to
read as follows:
TABLE OF CONTENTS
PART 1: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS Page
----
Consolidated Balance Sheets (Unaudited)................................ 1
Consolidated Statements of Operations (Unaudited)...................... 2
Consolidated Statements of Cash Flows (Unaudited)...................... 3
Notes to Consolidated Financial Statements (Unaudited)................. 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................... 6
PART II: OTHER INFORMATION
Items No. 1 through 6 ................................................. 10
Signatures ............................................................ 11
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited)
---------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $2,529,150 $4,256,504
Marketable securities........................................ 1,415,654 1,976,400
Accounts receivable, net of allowance of $172,730 at March
31, 1998 and $159,243 at September 30, 1997.............. 3,715,153 2,965,559
Unbilled contract costs, net of allowance of $537,580 at
March 31, 1998 and $1,130,468 at September 30, 1997...... 1,381,992 1,709,826
Inventory.................................................... 2,222,364 1,577,483
Prepaid expenses and other assets............................ 343,475 416,926
------------ -------------
Total current assets................................... 11,607,788 12,902,698
Property and equipment, net........................................ 2,610,621 4,784,355
Intangibles, net.................................................. 2,796,698 2,992,659
Investment in Beacon Power Corporation............................. 4,030,016 -
Other assets....................................................... 34,660 29,726
------------ -------------
Total assets...................................... $21,079,783 $20,709,438
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 952,855 $ 850,208
Accrued payroll and payroll related expenses................. 363,506 392,235
Deferred revenue............................................. 261,989 191,128
Other accrued expenses....................................... 455,424 788,049
Amounts due to related party................................. 331,526 -
Current portion of long-term debt............................ 91,919 85,784
------------ -------------
Total current liabilities.............................. 2,457,219 2,307,404
Long-term liabilities:
Note Payable................................................. - 6,737
Long-term debt............................................... 273,920 316,160
------------ -------------
Total long-term liabilities............................ 273,920 322,897
Commitments and contingencies......................................
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares authorized;
none issued............................................... - -
Common stock, $.01 par value, 15,000,000 shares authorized;
9,018,549 shares at March 31, 1998 and 8,769,146 shares at
September 30, 1997, issued and outstanding................ 90,185 87,691
Additional paid-in capital................................... 28,377,718 26,576,600
Retained earnings/(deficit).................................. (10,105,180) (8,564,939)
Unrealized losses on marketable securities, net of
tax effect................................................ (14,079) (20,215)
------------ -------------
Total stockholders' equity............................. 18,348,644 18,079,137
------------ -------------
Total liabilities and stockholders' equity......... $21,079,783 $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 Six months ended
March 31, March 31,
----------------------------- ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue........................................... $4,325,548 $2,908,114 $ 8,021,167 $ 5,041,672
---------- ---------- ----------- -----------
Cost of revenue................................... 2,395,452 1,349,353 4,553,814 2,053,733
Selling, general and administrative expenses...... 1,819,933 1,897,858 3,719,348 4,045,607
Research and development expenses................. 21,999 10,399 287,030 43,623
Goodwill amortization............................. 82,408 - 137,595 -
---------- ---------- ----------- -----------
Total operating expenses.......................... 4,319,792 3,257,610 8,697,787 6,142,963
Operating income/(loss)........................... 5,756 (349,496) (676,620) (1,101,291)
Loss from Investment in Beacon Power Corporation.. (969,984) - (969,984) -
Interest income, net.............................. 53,199 42,559 106,363 141,189
---------- ---------- ----------- -----------
Net loss.......................................... $ (911,029) $ (306,937) $(1,540,241) $ (960,102)
========== ========== =========== ===========
Net loss per weighted average share,
basic and diluted................................ $ (0.10) $(0.04) $(0.17) $(0.13)
========== ========== =========== ===========
Weighted average number of common shares,
basic and diluted............................... 8,954,871 7,477,885 8,900,069 7,432,029
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
March 31,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $(1,540,241) ($960,102)
----------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......................................... 426,414 389,112
Allowance for unbilled contract costs................................. (7,175) -
Allowance for doubtful accounts....................................... 13,487 -
Loss from Investment in Beacon Power Corporation...................... 969,984 -
Changes in operating assets and liabilities:
Accounts receivable............................................... (794,518) 1,233,862
Prepaid expenses and other assets................................. 73,451 32,388
Unbilled contract costs........................................... 335,009 (1,692,629)
Inventory......................................................... (661,669) (90,090)
Other assets...................................................... (65,208) 219,108
Accounts payable.................................................. 102,648 (384,251)
Accrued expenses and payroll...................................... 3,569 63,687
Deferred revenue.................................................. 165,862 -
Other accrued expenses............................................ (332,625) -
----------- ----------
Total adjustments......................................................... 229,229 (228,813)
----------- ----------
Net cash used in operating activities................................................ (1,311,012) (1,188,915)
----------- ----------
Cash flows from investing activities:
Sales and maturities of marketable securities............................. 566,883 2,067,063
Patent & intangible expenditures.......................................... (399,753) (62,427)
Deferred financing fees................................................... - (189,143)
Capital expenditures...................................................... (667,702) (597,916)
Acquisitions.............................................................. - (210,000)
Investment in Beacon Power Corporation.................................... (1,676,540) -
----------- ----------
Net cash provided/(used) by investing activities..................................... (2,177,112) 1,007,577
Cash flows from financing activities:
Repayment of borrowings................................................... (42,842) -
Proceeds from exercise of stock options................................... 581,739 86,700
Proceeds from exercise of warrants........................................ 1,221,873 -
----------- ----------
Net cash provided by financing activities............................................ 1,760,770 86,700
----------- ----------
Net decrease in cash and cash equivalents............................................ (1,727,354) (94,638)
Cash and cash equivalents at beginning of period..................................... 4,256,504 3,770,925
----------- ----------
Cash and cash equivalents at end of period........................................... $ 2,529,150 $3,676,287
=========== ==========
</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
<PAGE>
SATCON TECHNOLOGY CORPORATION
Notes to 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 March 31, 1998 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 Report on Form
10-K for the year ended September 30, 1997. Operating results for the three and
six month periods ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any future interim period or for the entire
fiscal year.
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.
Note B. Significant Events
- --------------------------
Beacon Power Corporation
During a recapitalization of Beacon Power Corporation ("Beacon") on December 24,
1997, Beacon obtained equity financing from private investors and the Company
converted a significant portion of its ownership of Beacon to convertible
preferred stock. The Company retained approximately 19.9% 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 impact on the consolidated financial statements at
December 24, 1997 was as follows:
<TABLE>
<S> <C>
Accounts Receivable.................................. $ (31,437)
Inventory............................................ (16,788)
Prepaid expenses and other assets.................... (70,478)
Property and Equipment, net.......................... (2,859,572)
Intangibles, net..................................... (90,957)
Accrued payroll and payroll related expenses......... 32,298
Deferred revenue..................................... 95,000
Cash................................................. (2,058,066)
-----------
Investment in Beacon Power Corporation............... $ 5,000,000
===========
</TABLE>
On October 23, 1998, the Company entered into a Securities Purchase Agreement
(the "Agreement"), by and among Beacon, Perseus Capital, L.L.C. ("Perseus"),
Duquesne Enterprises ("Duquesne"), Micro Generation Technology Fund, L.L.C.
("Micro", and together with Perseus and Duquesne, the "Purchasers") and the
Company. 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, 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 19.9% of Beacon's outstanding voting stock. Accordingly, as a
result of the third-party financing obtained on October 23, 1998 the Company's
remaining investment in Beacon from October 23, 1998 going forward will be
accounted for on a cost basis.
The Company will continue to review its investment in Beacon. While the Company
continues to be optimistic regarding the long term prospects for Beacon and the
flywheel technology, Beacon has not yet successfully introduced a flywheel
product and will need substantial additional financing to continue its
operations. If in the future the Company determines that its investment in
Beacon does not have any remaining value, the Company would take appropriate
actions to write-off the remaining cost of the investment.
4
<PAGE>
Note C. SFAS No. 128
- --------------------
As of October 1, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128 ("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 for
prior periods presented as a result of adoption of SFAS No. 128 due to the
antidilutive effect of the Company's outstanding options. As of March 31, 1998,
there was 584,494 stock options outstanding. The following is the reconciliation
of the numerators and denominators of the basic and diluted per share
computations for net income/(loss):
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------------------------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss..................................................... $ (911,029) $ (306,937) $ (1,540,241) $ (960,102)
============ ============ ============ ============
BASIC:
Common shares outstanding, beginning of period.............. 8,918,844 7,447,695 8,769,146 7,359,074
Weighted average common shares issued during the period...... 36,027 30,190 130,923 72,955
------------ ------------ ------------ ------------
Weighted average common shares outstanding-basic,
end of period.............................................. 8,954,871 7,477,885 8,900,069 7,432,029
============ ============ ============ ============
Net loss per weighted average share, basic................... $ (0.10) $ ( 0.04) $ (0.17) $ (0.13)
============ ============ ============ ============
DILUTED:
Common shares outstanding, beginning of period.............. 8,918,844 7,447,695 8,769,146 7,359,074
Weighted average common shares issued during the period...... 36,027 30,190 130,923 72,955
Weighted average common stock equivalents (a)................ - - - -
------------ ------------ ------------ ------------
Weighted average common shares outstanding-diluted,
end of period.............................................. 8,954,871 7,477,885 8,900,069 7,432,029
============ ============ ============ ============
Net loss per weighted average share, diluted................. $ (0.10) $ (0.04) $ (0.17) $ (0.13)
============ ============ ============ ============
</TABLE>
(a) not included if antidilutive
On April 21, 1998, the Company's Board of Directors issued options to purchase
up to 317,000 shares of the Company's common stock. These options are
exercisable at an average price of $11.39 per share and expire in April 2008.
The shares of common stock or potential shares of common stock outstanding at
the end of the period would not have changed materially if this transaction
occurred before the end of the period.
5
<PAGE>
Note D. Derivative Financial Instruments
- ----------------------------------------
The following table summarizes derivative financial instruments included in
marketable securities held by the Company at March 31, 1998, which are sensitive
to changes in interest rates:
<TABLE>
<CAPTION>
For the years ended September 30,
Total Total
Description 1998 1999 2000 2001 2002 Thereafter Face Value Fair Value
- ----------------- ---- ---- ---- ---- ---- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floater $150,000 $350,000 $500,000 $474,938
Average
Interest Rate 5.8% 5.9% 5.9% 5.9% 5.9% 5.9%
CMO $ 93,338 $ 93,338 $ 92,443
Average
Interest Rate 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%
Structured Notes $250,000 $250,000 $246,875
Average
Interest Rate 6.0% 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>
March 31, September 30,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
Raw material ................... $ 952,406 $ 651,460
Work-in-process................. 963,319 637,657
Finished goods.................. 306,639 288,366
------------- -------------
$ 2,222,364 $ 1,577,483
============= =============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
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".
6
<PAGE>
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>
Three months ended Six months ended
March 31, March 31,
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Revenue............................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue....................................... 55.4 46.4 56.7 40.7
Selling, general and administrative................... 42.1 65.2 46.4 80.2
Research and development.............................. 0.5 0.4 3.6 0.9
Goodwill amortization................................. 1.9 0.0 1.7 0.0
Total operating expenses
(excluding cost of sales)............................. 44.5 65.6 51.7 81.1
Operating income/(loss)............................... 0.1 (12.0) (8.4) (21.8)
Loss from investment in Beacon Power Corporation...... (22.4) - (12.1) -
Interest income, net.................................. 1.2 1.5 1.3 2.8
Net loss.............................................. (21.1) (10.5) (19.2) (19.0)
</TABLE>
Three Months Ended March 31, 1998 ("Q2 1998") Compared to the Three Months Ended
- --------------------------------- ----------- ----------------------------------
March 31, 1997 ("Q2 1997")
- -------------- -----------
Revenue. The Company's revenue increased approximately $1,417,000 or 48.7%,
from Q2 1997 to Q2 1998. The increase in revenue is primarily due to the
acquisition of Film Microelectronics, Inc. ("FMI") which closed on April 16,
1997. The acquisition of FMI represents incremental revenue of approximately
$1,423,000. The increase in revenue is also due to an increase in the sale of
manufactured products at K&D Magmotor Corporation ("K&D") of approximately
$193,000 offset by decreases in revenue of approximately $199,000 related to
work on various research and development contracts.
Cost of Revenue. Cost of revenue increased approximately $1,046,000 or 77.5%,
from Q2 1997 to Q2 1998. The increase is primarily due to the addition of cost
of revenue associated with K&D and FMI of approximately $169,000 and $922,000,
respectively. These increase were partially offset by a decrease in effort on
research and development contracts.
Selling, General and Administrative. Selling, general and administrative
expenses decreased approximately $78,000 or 4.1%, from Q2 1997 to Q2 1998.
During 1997, the Company formed Beacon, a wholly-owned subsidiary, to continue
the work of its 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 19.9%
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."
Loss from Investment in Beacon Power Corporation. On May 20, 1997, the Company
formed its subsidiary, Beacon, through a strategic partnership with Duquesne
Enterprises, a subsidiary of DOE, Inc., to manufacture and distribute the
Company's flywheel energy storage systems. Duquesne Enterprises made an initial
investment totaling $5,000,000 in the Company to fund flywheel product
development. Beacon assumed the activities of the Company's Energy Systems
Division which was formed in October 1995 to focus on the product development
and marketing of flywheel "Inertial Battery" systems for such markets as
utilities, cable television and telecommunciations, where uninterruptible power
supplies (UPS) are critical to maintaining services. In December 1997, Beacon
obtained equity financing from private investors and the Company converted a
significant portion of its ownership of Beacon to convertible preferred stock.
The Company retained approximately 19.9% of Beacon's outstanding voting stock.
On October 23, 1998, Beacon completed a $4,750,000 private placement of equity
securities with Perseus Capital L.L.C., Duquesne Enterprises and Micro
Generation Technology Fund, L.L.C. Beacon will utilize the proceeds from the
private placement toward the completion of the commercialization of the 20C1000
Cale/Telecom Flywheel System. Beacon's focus is limited to providing flywheel
energy storage products for stationary terrestrial applications.
As set forth in Note J to the Company's audited consolidated financial
statements for the year ended September 30, 1997, upon converting the majority
of its equity ownership interest in Beacon to convertible preferred stock in
December 1997, the Company believed that the appropriate accounting treatment
for its investment in Beacon was to account for the investment on the cost basis
and to treat Beacon as a non-consolidated entity. The Company has reported its
financial results since the second quarter of 1998 without reflecting Beacon's
losses in its results of operations and showing its investment in Beacon at cost
on its balance sheet.
In auditing the Company's financial statements for the year ended September 30,
1998, the Company's independent accountants advised the Company that the
treatment of Beacon as a non-consolidated entity was inappropriate for the
period subsequent to December 1997 and prior to the October 1998 financing.
Consequently, the Company is amending its financial results for the second
quarter of fiscal year 1998 and has included approximately $970,000 of loss from
its investment in Beacon since December 1997 in the financial statements for the
three months ended March 31, 1998. This resulted in a net loss of approximately
$911,000 (or $.10 per share) for the three months ended March 31, 1998. The
balance sheet reflects a corresponding increase in retained earnings/(deficit).
The loss reported in connection with Beacon has not affected the business
prospects or cash position of either the Company or Beacon and the Company has
no further funding commitments to Beacon.
The Company has been advised by its independent accountants that they concur
with the Company's view that the Company is neither required to consolidate nor
reflect its pro-rata share of Beacon's losses for any period subsequent to the
third-party financing Beacon obtained in October 1998. Consequently, during the
fiscal year ended September 30, 1999, the Company will carry its investment in
Beacon at its remaining cost of approximately $1,458,000 and will not be
consolidating or otherwise reflecting Beacon's results of operations in its
financial statements.
The Company will continue to review its investment in Beacon. While the Company
continues to be optimistic regarding the long term prospects for Beacon and the
flywheel technology, Beacon has not yet successfully introduced a flywheel
product and will need substantial additional financing to continue its
operations. If in the future the Company determines that its investment in
Beacon does not have any remaining value, the Company would take appropriate
actions to write-off the remaining cost of its investment.
Six Months Ended March 31, 1998 ("Q2 1998 YTD") Compared to the Six Months Ended
- ------------------------------- --------------- --------------------------------
March 31, 1997 ("Q2 1997 YTD")
- -------------- ---------------
Revenue. The Company's revenue increased approximately $2,979,000 or 59.1%,
from Q2 1997 YTD to Q2 1998 YTD. The increase in revenue is primarily due to
the two acquisitions closed in 1997, K&D and FMI. These two acquisitions
7
<PAGE>
represent incremental revenue of approximately $3,139,000. The increase in
revenue is also due to an increase in the sale of manufactured products at K&D
of approximately $193,000 offset by decreases in revenue of approximately
$353,000 related to work on various research and development contracts.
Cost of Revenue. Cost of revenue increased approximately $2,500,000 or 121.7%,
from Q2 1997 YTD to Q2 1998 YTD. The increase is primarily due to the addition
of cost of revenue associated with K&D and FMI of approximately $497,000 and
$1,917,000, respectively.
Selling, General and Administrative. Selling, general and administrative
expenses decreased approximately $326,000 or 8.1%, from Q2 1997 YTD.
During 1997, the Company formed Beacon, a wholly-owned subsidiary, to continue
the work of its 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 19.9%
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."
Research and Development. Research and development expenses increased
approximately $243,000 or 558.0%. This increase is primarily due to the
development of the flywheel energy storage system for Beacon. During 1997, the
Company formed Beacon, a wholly-owned subsidiary, to continue the work of its
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 19.9% 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."
Loss from Investment in Beacon Power Corporation. On May 20, 1997, the Company
formed its subsidiary, Beacon, through a strategic partnership with Duquesne
Enterprises, a subsidiary of DOE, Inc., to manufacture and distribute the
Company's flywheel energy storage systems. Duquesne Enterprises made an initial
investment totaling $5,000,000 in the Company to fund flywheel product
development. Beacon assumed the activities of the Company's Energy Systems
Division which was formed in October 1995 to focus on the product development
and marketing of flywheel "Inertial Battery" systems for such markets as
utilities, cable television and telecommunciations, where uninterruptible power
supplies (UPS) are critical to maintaining services. In December 1997, Beacon
obtained equity financing from private investors and the Company converted a
significant portion of its ownership of Beacon to convertible preferred stock.
The Company retained approximately 19.9% of Beacon's outstanding voting stock.
On October 23, 1998, Beacon completed a $4,750,000 private placement of equity
securities with Perseus Capital L.L.C., Duquesne Enterprises and Micro
Generation Technology Fund, L.L.C. Beacon will utilize the proceeds from the
private placement toward the completion of the commercialization of the 20C1000
Cale/Telecom Flywheel System. Beacon's focus is limited to providing flywheel
energy storage products for stationary terrestrial applications.
As set forth in Note J to the Company's audited consolidated financial
statements for the year ended September 30, 1997, upon converting the majority
of its equity ownership interest in Beacon to convertible preferred stock in
December 1997, the Company believed that the appropriate accounting treatment
for its investment in Beacon was to account for the investment on the cost basis
and to treat Beacon as a non-consolidated entity. The Company has reported its
financial results since the second quarter of 1998 without reflecting Beacon's
losses in its results of operations and showing its investment in Beacon at cost
on its balance sheet.
In auditing the Company's financial statements for the year ended September 30,
1998, the Company's independent accountants advised the Company that the
treatment of Beacon as a non-consolidated entity was inappropriate for the
period subsequent to December 1997 and prior to the October 1998 financing.
Consequently, the Company is amending its financial results for the second
quarter of fiscal year 1998 and has included approximately $970,000 of loss from
its investment in Beacon since December 1997 in the financial statements for the
six months ended March 31, 1998. This resulted in a net loss of approximately
$911,000 (or $.17 per share) for the six months ended March 31, 1998. The
balance sheet reflects a corresponding increase in retained earnings/(deficit).
The loss reported in connection with Beacon has not affected the business
prospects or cash position of either the Company or Beacon and the Company has
no further funding commitments to Beacon.
THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents was approximately $2,529,000 as of March
31, 1998, a decrease of approximately $1,727,000 from September 30, 1997. Cash
used in operating activities was approximately $1,311,000 for Q2 1998 YTD,
compared to approximately $1,189,000 for Q2 1997 YTD. The cash used in operating
activities is primarily the result of a net loss and an increase in inventory
related to the introduction of a new line of standard regulators.
The Company anticipates that its existing cash resources and cash flow from
operations will be sufficient to fund its operations at least through March 31,
1999, 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
8
<PAGE>
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 a Securities Purchase Agreement,
by and among Beacon, Perseus Capital L.L.C. ("Perseus"), Duquesne, Micro
Generation Technology Fund, L.L.C. ("Micro", and together with Perseus and
Duquesne, the "Purchasers") and the Company. 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, 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 Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 is effective for fiscal years beginning after December 15,
1997 and requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. The Company will adopt SFAS 130 beginning in the first quarter of
the fiscal year ending September 30, 1999.
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 beginning in the first quarter of the fiscal year ending September 30, 1999.
Adoption of SFAS 130 and SFAS 131 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.
EFFECTS OF INFLATION
The Company believes that inflation over the past three years has not had a
significant impact on the Company's revenue or operating results.
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.
9
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities and Use of Proceeds:
Not applicable.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's Annual Meeting of Stockholders held on March 11, 1998, the
Company's stockholders approved the following:
PROPOSAL FOR AGAINST/ ABSTAIN BROKER
WITHHELD NON-VOTERS
(1) Election of Class I
Directors for the ensuing
three years:
David B. Eisenhaure 7,539,641 222,143 0 0
James L. Kirtley, Jr.,Ph.D. 7,539,641 222,143 0 0
The other directors of the Company, whose terms of office as directors continued
after the Annual Meeting are John P. O'Sullivan, Michael C. Turmelle, Marshall
J. Armstrong and Anthony J. Villiotti.
(2) Ratification of
Coopers & Lybrand L.L.P.
as auditors for the fiscal
year ending September 30,
1998. 7,744,146 11,634 6,004 0
Item 5. Other Information:
Not applicable.
Item 6 Exhibits and Reports
on Form 8-K:
(a) Exhibits
11 Statement Regarding Computation of Earning 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.
10
<PAGE>
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: January 29, 1999 By: /s/ David B. Eisenhaure
----------------------------------------
David B. Eisenhaure, President and Chief
Executive Officer
Date: January 29, 1999 By: /s/ Michael C. Turmelle
----------------------------------------
Michael C. Turmelle, Vice President,
Chief Financial Officer and Treasurer
11
<PAGE>
SATCON TECHNOLOGY CORPORATION
FORM 10-Q; FISCAL YEAR 1998; QUARTER ENDED MARCH 31, 1998
COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
---------- ---------- ---------- ----------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss............................................................. $ (911,029) $ (306,937) $(1,540,241) $ (960,102)
========== ========== =========== ==========
BASIC:
Common shares outstanding, beginning of period....................... 8,918,844 7,447,695 8,769,146 7,359,074
Weighted average common shares issued during the period.............. 36,027 30,190 130,923 72,955
---------- ---------- ----------- ----------
Weighted average common shares outstanding-basic, end of period...... 8,954,871 7,477,885 8,900,069 7,432,029
========== ========== =========== ==========
Net loss per weighted average share, basic........................... $ ( 0.10) $ (0.04) $ (0.17) $ (0.13)
========== ========== =========== ==========
DILUTED:
Common shares outstanding, beginning of period....................... 8,918,844 7,447,695 8,769,146 7,359,074
Weighted average common shares issued during the period.............. 36,027 30,190 130,923 72,955
Weighted average common stock equivalents(a)......................... - - - -
---------- ---------- ----------- ----------
Weighted average common shares outstanding-diluted,
end of period.............................................. 8,954,871 7,477,885 8,900,069 7,432,029
========== ========== =========== ==========
Net loss per weighted average share, diluted......................... $ (0.10) $ (0.04) $ (0.17) $ (0.13)
========== ========== =========== ==========
</TABLE>
(a) not included if antidilutive
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,529,150
<SECURITIES> 1,415,654
<RECEIVABLES> 3,715,153
<ALLOWANCES> 172,730
<INVENTORY> 2,222,364
<CURRENT-ASSETS> 11,607,788
<PP&E> 2,610,621<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,079,783
<CURRENT-LIABILITIES> 2,457,219
<BONDS> 0
0
0
<COMMON> 90,185
<OTHER-SE> 18,258,459
<TOTAL-LIABILITY-AND-EQUITY> 21,079,783
<SALES> 0
<TOTAL-REVENUES> 4,325,548
<CGS> 0
<TOTAL-COSTS> 2,395,452
<OTHER-EXPENSES> 1,924,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,540,241)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,540,241)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,540,241)
<EPS-PRIMARY> (0.17)<F2>
<EPS-DILUTED> (0.17)<F2>
<FN>
<F1> PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION AS REPORTED WITHIN THE FORM
10-Q ON THE BALANCE SHEET
<F2> IN ACCORDANCE WITH SFAS NO. 128 "EARNINGS PER SHARE BASIC" IS REPORTED 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>
