<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, 1999
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, 9,161,409 shares
outstanding as of April 30, 1999.
================================================================================
<PAGE>
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
ITEM 1: FINANCIAL STATEMENTS
<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..................................... 9
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................................. 14
PART II: OTHER INFORMATION
Items No. 1 through 6............................................................. 15
Signature......................................................................... 18
</TABLE>
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
--------------- ----------------
1999 1998
--------------- ----------------
(as Restated)
---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 226,161 $ 1,201,610
Marketable securities.................................................................. 381,078 657,431
Accounts receivable, net of allowance of $100,000 at March 31, 1999 and
$51,836 at September 30, 1998........................................................ 3,102,711 3,347,405
Unbilled contract costs, net of allowance of $57,611 at March 31, 1999 and
September 30, 1998................................................................... 2,554,094 1,196,318
Inventory ............................................................................. 4,570,793 3,678,067
Prepaid expenses and other assets...................................................... 357,918 358,308
Amounts due from related party......................................................... -- 596,453
-------------- ------------
Total current assets.............................................................. 11,192,755 11,035,592
Property and equipment, net................................................................. 2,689,942 2,677,786
Intangibles, net ........................................................................... 3,489,888 2,967,988
Investment in Beacon Power Corporation...................................................... -- 1,458,183
Other assets................................................................................ 69,363 27,041
-------------- ------------
Total assets...................................................................... $ 17,441,948 $ 18,166,590
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit......................................................................... $ 1,521,481 $ --
Accounts payable....................................................................... 1,455,712 1,447,897
Accrued payroll and payroll related expenses........................................... 505,580 352,701
Deferred liabilities................................................................... 237,408 197,930
Other accrued expenses................................................................. 393,602 385,999
Current portion of long-term debt...................................................... -- 146,594
-------------- ------------
Total current liabilities......................................................... 4,113,783 2,531,121
Long-term liabilities:
Long-term debt......................................................................... -- 221,462
-------------- ------------
Total long-term liabilities....................................................... -- 221,462
Commitments and contingencies...............................................................
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares authorized; none issued
outstanding.......................................................................... -- --
Common stock, $.01 par value, 20,000,000 shares authorized; 9,161,409 shares
issued at March 31, 1999 and 9,018,549 shares at September 30, 1998.................. 91,614 90,185
Additional paid-in capital............................................................. 29,213,072 28,377,718
Shares held in escrow, at market; 42,860 shares at June 30, 1999....................... (211,621) --
Retained earnings/(deficit)............................................................ (15,500,111) (12,870,440)
Net unrealized losses on marketable securities, net of tax effect...................... (15,085) (10,380)
Treasury stock, at cost; 44,500 shares at March 31, 1999 and 28,300 shares
at September 30, 1998................................................................ (249,704) (173,076)
-------------- ------------
Total stockholders' equity........................................................ 13,328,165 15,414,007
-------------- ------------
Total liabilities and stockholders' equity................................... $ 17,441,948 $ 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 For the six months ended
March 31, March 31,
1999 1998 1999 1998
--------------- -------------- --------------- ---------------
(as Restated) (as Restated)
--------------- ---------------
<S> <C> <C> <C> <C>
Revenue........................................................... $ 3,662,220 $4,325,548 $ 7,387,319 $ 8,021,167
----------- ---------- ----------- -----------
Cost of revenue................................................... 3,328,861 3,052,082 6,180,596 5,730,867
Selling, general and administrative expenses...................... 1,028,748 1,163,303 2,018,328 2,542,295
Research and development expenses................................. 51,717 21,999 152,600 287,030
Amortization...................................................... 94,035 82,408 171,793 137,595
----------- ---------- ----------- -----------
Total operating expenses.......................................... 4,503,361 4,319,792 8,523,317 8,697,787
----------- ---------- ----------- -----------
Operating income/(loss)........................................... (841,141) 5,756 (1,135,998) (676,620)
Loss from Investment in Beacon Power Corporation.................. (424,173) (969,984) (1,488,183) (969,984)
Other income/(loss)............................................... (9,012) -- (9,012) --
Interest income/(expense), net.................................... (16,745) 53,199 3,522 106,363
----------- ---------- ----------- -----------
Net loss.......................................................... $(1,291,071) $ (911,029) $(2,629,671) $(1,540,241)
=========== ========== =========== ===========
Provision/(benefit) for income taxes.............................. -- -- -- --
Net loss.......................................................... $(1,291,071) $ (911,029) $(2,629,671) $(1,540,241)
=========== ========== =========== ===========
Net loss per weighted average share, basic and diluted............ $ (0.14) $ (0.10) $ (0.29) $ (0.17)
=========== ========== =========== ===========
Weighted average number of common shares, basic and diluted....... 9,059,082 8,954,871 9,019,666 8,900,069
</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 six months ended
March 31,
1999 1998
------------ ------------
(as Restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $(2,629,671) $(1,540,241)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................................ 467,089 426,414
Allowance for unbilled contract costs........................ -- (7,175)
Allowance for doubtful accounts.............................. 48,164 13,487
Allowance for inventory...................................... 491,071 --
Loss from Investment in Beacon Power Corp.................... 1,488,183 969,984
Loss on sale of marketable securities........................ 9,012 --
Non-cash compensation expense related to issuance
of common stock warrants to non-employees................. 56,362 --
Changes in operating assets and liabilities..................
Accounts receivable...................................... 34,420 (794,518)
Prepaid expenses and other assets........................ 390 73,451
Unbilled contract costs.................................. (1,357,776) 335,009
Inventory................................................ (1,413,350) (661,669)
Other assets............................................. 554,131 (65,208)
Accounts payable......................................... 14,115 102,648
Accrued expenses and payroll............................. 127,789 (329,056)
Deferred liabilities..................................... 39,478 165,862
----------- -----------
Total adjustments............................................... 559,078 229,229
----------- -----------
Net cash used in operating activities................................ (2,070,593) (1,311,012)
----------- -----------
Cash flows from investing activities:
Sales and maturities of marketable securities...................... 262,504 566,883
Patent and intangible expenditures................................. (40,167) (399,753)
Capital expenditures............................................... (196,170) (667,702)
Acquisitions....................................................... (245,876) --
Accounts payable to affiliate...................................... -- (1,676,540)
Investment in Beacon Power Corporation............................. (30,000)
----------- -----------
Net cash used in investing activities................................ (249,709) (2,177,112)
----------- -----------
Cash flows from financing activities:
Repayment of borrowings........................................... (100,000) (42,842)
Proceeds from line of credit....................................... 1,521,481 --
Proceeds from exercise of stock options............................ -- 581,739
Proceeds from exercise of warrants................................. -- 1,221,873
Purchase of treasury stock......................................... (76,628) --
----------- -----------
Net cash provided by financing activities............................ 1,344,853 1,760,770
----------- -----------
Net decrease in cash and cash equivalents............................ (975,449) (1,727,354)
Cash and cash equivalents at beginning of period..................... 1,201,610 4,256,504
----------- -----------
Cash and cash equivalents at end of period........................... $ 226,161 $ 2,529,150
=========== ===========
</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 March 31, 1999 and 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 Annual
Report on Form 10-K for the year ended September 30, 1998. Operating results for
the three-month and six-month period ended March 31, 1999 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 March 31, 1999:
<TABLE>
<CAPTION>
Three months Six months
ended ended
March 31, March 31,
1999 1999
----------------------------
<S> <C> <C>
Accounts receivable......................... -- $ 80,000
Unbilled contract costs..................... $ 100,000 100,000
Inventory................................... 700,000 700,000
Warranty reserve............................ 12,000 24,000
Sales return reserve........................ 22,000 45,000
----------------------------
$ 834,000 $ 949,000
============================
</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 previsously disclosured unaudited results of operations for the three and
six months ended March 31, 1999. A summary of the impact of such restatement on
the consolidated financial statements for the unaudited three and six months
ended March 31, 1999 is as follows:
4
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
(Unaudited)
As Previously As Restated
Reported
<S> <C> <C>
Total operating expenses $ 3,761,514 $ 4,503,361
Operating income (loss) 23,039 (841,141)
Loss from Investment in Beacon Power Corporation - (424,173)
Net Loss (2,718) (1,291,071)
Net Loss per share, basic and diluted $ 0.00 $ (0.14)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended March 31, 1999
(Unaudited)
As Previously As Restated
Reported
<S> <C> <C>
Total operating expenses $ 7,518,304 $ 8,523,317
Operating income (loss) 13,681 (1,135,998)
Loss from Investment in Beacon Power Corporation (272,437) (1,488,183)
Net Loss (264,246) (2,629,671)
Net Loss per share, basic and diluted $ (0.03) $ (0.29)
</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.
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.
5
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 $1,216,000 loss in the investment in Beacon
through March 31, 1999. The effect of this change on the quarterly results for
fiscal 1999 is as follows:
<TABLE>
<CAPTION>
As Previously Reported As Restated
--------------------------------------
Equity in the loss of Beacon:
<S> <C> <C>
Quarter ended December 31, 1998................... $ 272,437 $ 1,064,010
Quarter ended March 31, 1999...................... -- 424,173
--------------------------------------
Six months ended March 31, 1999................... $ 272,437 $ 1,488,183
======================================
</TABLE>
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.
Issuance of Common Stock
On January 4, 1999, the Company issued 100,000 shares of Common Stock to
two individuals in connection with the purchase by K&D MagMotor Corp., a wholly-
owned subsidiary of the Company, of certain assets and assumption of certain
liabilities of Inductive Components, Inc. ("Inductive") and Lighthouse Software,
Inc. ("Lighthouse," and together with Inductive, the "Sellers"). These shares
were issued in reliance upon the exemptions from registration under Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"), or Regulation
D promulgated thereunder, relative to sales by an issuer not involving any
public offering.
On March 9, 1999, the Company issued 42,860 shares of Common Stock to an
escrow agent in connection with a consulting agreement entered into by the
Company and Mr. Albert R. Snider pursuant to which Mr. Snider will perform such
consulting, advisory and related services as the Company may reasonably request
from time to time between October 1, 1999 and October 1, 2002. 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.
At March 31, 1999, as previously stated, the Company accounted for the
$190,191 initial fair market value of the shares issued to Mr. Snider as a
prepaid expense with a corresponding increase to stockholders' equity. The
Company has (i) reclassified the prepaid expense to stockholders' equity, and
(ii) marked the value of the shares placed in escrow to fair market value at
March 31, 1999. As long as the shares remain in escrow, the Company will
continue to mark the shares to their fair market value.
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. On May 7, 1999, the Company
increased the Line of Credit to $3,000,000.
6
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Acquisitions
On January 4, 1999, the Company acquired substantially all of the assets and
assumed certain of the liabilities of Inductive and Lighthouse pursuant to the
terms of an Asset Purchase Agreement, dated as of January 4, 1999, among K&D,
the Company, Inductive, Lighthouse and Thomas Glynn, the sole stockholder of
Inductive and the majority stockholder of Lighthouse. The aggregate
consideration paid by the Company for the acquired assets of the Sellers
consisted of (i) 100,000 shares of the Company's Common Stock and (ii) the
repayment of $245,876 of debt owed by the Sellers to a third-party bank.
On March 31, 1999, the Company entered into an agreement to purchase
substantially all of the assets and assume certain liabilities of HyComp, Inc.
pursuant to the terms of an Asset Purchase Agreement dated March 31, 1999 by and
between HyComp, Inc. and HyComp Acquisition Corp., a wholly-owned subsidiary of
the Company (the "HyComp Asset Purchase Agreement").
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 For the six months ended
March 31, March 31,
1999 1998 1999 1998
------------- ------------ ------------ ------------
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
Net loss........................................................ $ (1,291,071) $ (911,029) $ (2,629,671) $ (1,540,241)
Basic:
Common shares outstanding, beginning of period.................. 8,978,249 8,918,844 8,990,249 8,769,146
Weighted average common shares issued during the period......... 83,333 36,027 41,667 130,923
Weighted average shares repurchased during the period........... (2,500) -- (12,250) --
------------ ----------- ------------- ------------
Weighted average shares outstanding--basic...................... 9,059,082 8,954,871 9,019,666 8,900,069
============ =========== ============= ============
Net loss per weighted average share, basic...................... $ (0.14) $ (0.10) $ (0.29) $ (0.17)
============ =========== ============= ============
Diluted:
Weighted average shares outstanding--basic...................... 9,059,082 8,954,871 9,019,666 8,900,069
Weighted average common stock equivalents (a)................... -- -- -- --
------------ ----------- ------------- ------------
Weighted average shares outstanding--diluted.................... 9,059,082 8,954,871 9,019,666 8,900,069
============ =========== ============= ============
Net loss per weighted average share, diluted.................... $ (0.14) $ (0.10) $ (0.29) $ (0.17)
============ =========== ============= ============
</TABLE>
(a) not included if antidilutive
As of March 31, 1999 and 1998, 1,374,616 and 584,494 options and warrants,
respectively, were excluded from the weighted average common shares outstanding
as their effect would be anti-dilutive.
7
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Note D. Inventory
- -----------------
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------ -------------
<S> <C> <C>
Raw material............................. $ 1,774,375 $ 1,783,803
Work-in-process.......................... 2,229,949 1,788,241
Finished goods........................... 566,469 106,023
------------- -------------
$ 4,570,7930 $ 3,678,067
============= =============
</TABLE>
During the quarter ended June 30, 1999, the Company performed a review of
the inventory valuation methodologies. The Company determined that adjustments
totalling approximately $700,000 were required to reduce inventory and increase
cost of revenue for the quarter ended March 31, 1999.
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 For the six months ended
March 31, March 31,
1999 1998 1999 1998
-------------- ------------ ------------- -------------
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
Net loss......................................................... $ (1,291,071) $ (911,029) $ (2,629,671) $ (1,540,241)
============== ============ ============= =============
Other comprehensive income/(loss), net of tax:
Unrealized gains/(losses) on securities..................... $ 961 $ 4,170 $ (4,705) $ 6,136
-------------- ------------ ------------- -------------
Other comprehensive income/(loss)................................ $ 961 $ 4,170 $ (4,705) $ 6,136
-------------- ------------ ------------- -------------
Comprehensive loss............................................... $ (1,290,110) $ (906,859) $ (2,634,376) $ (1,534,105)
============== ============ ============= =============
</TABLE>
Note F. Subsequent Events
- --------------------------
On April 12, 1999, the Company executed an agreement to purchase substantially
all of the assets and assume certain liabilities of HyComp, Inc. ("HyComp").
This agreement was dated as of March 31, 1999 and was by and between HyComp and
HyComp Acquisition Corp., a wholly-owned subsidiary of the Company. On April 12,
1999 (the "Closing Date"), the Company completed the acquisition of HyComp. The
aggregate consideration paid by the Company for the acquired assets of HyComp
consisted of (i) $750,000 in cash; (ii) the assumption of certain liabilities
and obligations of HyComp in the amount of approximately $250,000; (iii)
transaction costs of $73,000, and (iv) the Company agreed to pay a 5% royalty to
HyComp on certain sales for 52 weeks subsequent to the Closing Date.
8
<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. 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 For the six months
Ended March 31, Ended March 31,
-----------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue...................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue.............................................. 90.9% 70.6 83.7% 71.4
Selling, general and administrative expenses................. 28.1% 26.9 27.3% 31.7
Research and development expenses............................ 1.4% 0.5 2.1% 3.6
Amortization................................................. 2.6% 1.9 2.3% 1.7
Total operating expenses (excluding cost of
revenue).................................................. 32.1% 29.3 31.7% 37.0
Operating income/(loss)...................................... (23.0)% 0.1 (15.4)% (8.4)
Loss from Investment in Beacon Power Corporation............. (11.6)% (22.4) (20.1)% (12.1)
Other income/(loss).......................................... (0.2)% - (0.1) -
Interest income/(expense), net............................... (0.5)% 1.2 0.0% 1.3
Net loss before income taxes................................. (35.3)% (21.1)% (35.6)% (19.2)%
Provision/(benefit) for income taxes......................... 0.0% 0.0% 0.0% 0.0%
Net loss..................................................... (35.3)% (21.1)% (35.6)% (19.2)%
</TABLE>
Three Months Ended March 31, 1999 ("Q2 1999") Compared to the Three Months Ended
- --------------------------------------------------------------------------------
March 31, 1998 ("Q2 1998")
- --------------------------
Revenue. The Company's revenue decreased approximately $541,000 or 12.5%,
from Q2 1998 to Q2 1999. The decrease is primarily attributable to a reduction
in revenue related to research and development contracts.
Cost of revenue. Cost of revenue increased approximately $277,000 or 9.1%,
from Q2 1998 to Q2 1999. During the quarter ended June 30, 1999, the Company
performed a review of the inventory valuation methodologies. The Company
determined that adjustments totalling approximately $700,000 were required to
reduce inventory and increase cost of revenue for the quarter ended March 31,
1999. These increases were partially offset by a decrease in effort on research
and development contracts.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased approximately $135,000 or 11.6% from Q2 1998
to Q2 1999. The decrease is primarily the result of a reduction of professional
fees and travel due to better management in these expenses.
Research and development expenses. Research and development expenses
increased approximately $30,000 or 135.1% from Q2 1998 to Q2 1999. The increase
is attributable to the continued development of magnetic bearings and suspension
systems and electro-optic and sensor inspection systems.
9
<PAGE>
Amortization. Amortization increased approximately $12,000 or 14.1% from Q2
1998 to Q2 1999. This was primarily the result of goodwill recorded in
connection with the acquisition of Inductive and Lighthouse in January 1999.
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 $1,216,000 loss in the investment in Beacon thru March 31, 1999. The
effect of this change on the quarterly results for fiscal 1999 is as follows:
<TABLE>
<CAPTION>
As Previously Reported As Restated
---------------------------------------
<S> <C> <C>
Equity in the loss of Beacon:
Quarter ended December 31, 1998.......... $ 272,437 $ 1,064,010
Quarter ended March 31, 1999............. -- 424,173
---------------------------------------
Six months ended March 31, 1999.......... $ 272,437 $ 1,488,183
========================================
</TABLE>
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.
Other income/(loss), net. Other income/(loss), net decreased approximately
$9,000 from Q2 1998 to Q2 1999. The loss was the result of the sale of a
marketable security.
Interest income/(expense), net. Interest income/(expense), net decreased
approximately $70,000 or 131.5% from Q2 1998 to Q2 1999. The decrease is the
result of increased borrowings under the Line of Credit to approximately
$1,521,000 at March 31, 1999 and the decrease in marketable securities of
approximately $1,035,000 or 73.1% from March 31, 1998 to March 31, 1999.
Six Months Ended March 31, 1999 ("Q2 1999 YTD") Compared to the Six Months Ended
- --------------------------------------------------------------------------------
March 31, 1998 ("Q2 1998 YTD")
- -----------------------------
Revenue. The Company's revenue decreased approximately $634,000 or 7.9%,
from Q2 1998 YTD to Q2 1999 YTD. The decrease is primarily attributable to a
reduction in revenue related to research and development contracts. This
decrease in revenue was partially offset by increases of sale of manufactured
products. The Company began shipping production orders for SatCon's Integrated
Suspension and Motor System ("ISAM") during 1999.
Cost of revenue. Cost of revenue increased approximately $450,000 or 7.8%,
from Q2 1998 YTD to Q2 1999 YTD. During the quarter ended June 30, 1999, the
Company performed a review of the inventory valuation methodologies. The Company
determined that adjustments totalling approximately $700,000 were required to
reduce inventory and increase cost of revenue for the quarter ended March 31,
1999. These increases were partially offset by a decrease in effort on research
and development contracts.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased approximately $524,000 or 20.6% from Q2 1998
YTD to Q2 1999 YTD. 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
10
<PAGE>
amount in the statement of operations, "Loss from Investment in Beacon Power
Corporation." This decrease was partially 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 $134,000 or 46.8% from Q2 1998 YTD to Q2 1999 YTD. 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 $34,000 or 24.9% from Q2
1998 YTD to Q2 1999 YTD. This was primarily the result of the acquisition of
Inductive and Lighthouse by K&D Magmotor Corp.
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 $1,216,000 loss in the investment in Beacon. The effect of this
change on the quarterly results for fiscal 1999 is as follows:
<TABLE>
<CAPTION>
As Previously Reported As Restated
--------------------------------------------
<S> <C> <C>
Equity in the loss of Beacon:
Quarter ended December 31, 1998................. $ 272,437 $ 1,064,010
Quarter ended March 31, 1999.................... -- 424,173
--------------------------------------------
Six months ended March 31, 1999................. $ 272,437 $ 1,488,183
============================================
</TABLE>
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.
Other income/(loss), net. Other income, net increased approximately $9,000
from Q2 1998 YTD to Q2 1999 YTD. The loss was the result of the sale of a
marketable security.
Interest income/(expense), net. Interest income, net decreased
approximately $103,000 or 96.7% from Q2 1998 YTD to Q2 1999 YTD. The decrease is
the result of increased borrowings under the Line of Credit to approximately
$1,521,000 at March 31, 1999 and the decrease in marketable securities of
approximately $1,035,000 or 73.1% from March 31, 1998 to March 31, 1999.
Liquidity and Capital Resources
The Company's cash and cash equivalents was approximately $226,000 as of
March 31, 1999, a decrease of approximately $975,000 from September 30, 1998.
Cash used in operating activities was approximately $2,071,000 for Q2 1999,
compared to approximately $1,311,000 for Q2 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
11
<PAGE>
collection of accounts receivable, and the availability of the 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.
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
12
<PAGE>
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, 2000.
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.
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.
13
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 March 31, 1999, which are sensitive
to changes in interest rates:
For the years ended September 30,_
<TABLE>
<CAPTION>
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 $ 48,695 $ 48,695 $ 55,578
Average Interest Rate 5.6% 5.6% 5.6% 5.6% 5.6% 5.6%
</TABLE>
14
<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 by the Company 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 additional claims sought 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. On January 28, 1999, Mr. Snider filed
a motion asking the court to reconsider its January 21, 1999 order. On February
12, 1999, the District Court also denied the motion.
Pursuant the the terms of the Agreement, dated March 1, 1999, by and
between the Company, FMI and Mr. Snider (the "Settlement Agreement"), the
parties reached a definitive settlement arangement regarding this litigation. On
March 9, 1999, the parties filed a Stipulation of Dismissal With Prejudice with
the District Court and no further action is required by either party with
respect to this matter.
Pursuant to the terms of the Settlement Agreement, the Company made a
$100,000 cash payment to Mr. Snider on March 9, 1999 and the parties executed
mutual general releases dismissing any and all claims between them. In addition,
the Settlement Agreement provides a right of first refusal in favor of the
Company with respect to certain shares of the Company's Common Stock,
beneficially owned by Mr. Snider. Concurrently with the execution of the
Settlement Agreement, the Company and Mr. Sneder entered into a consulting
agreement pursuant to which Mr. Snider will perform such consulting, advisory
and related services as the Company may reasonably request from time to time
between October 1, 1999 and October 1, 2002. In exchange for these services, the
Company issued 42,860 shares of its Common Stock to an escrow agent who will
release such shares to Mr. Snider or his nominees on January 2, 2001.
Disclosure relating to this litigation was previously set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1998 and the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1998.
Item 2. Changes in Securities and Use of Proceeds:
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 and Lighthouse. 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.
On March 9, 1999, the Company issued 42,860 shares of Common Stock to an
escrow agent in connection with a consulting agreement entered into by the
Company and Mr. Snider pusuant to which Mr. Snider will perform such consulting,
advisory and related services as the Company may reasonably request from time to
time between October 1, 1999 and October 1, 2002. 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.
15
<PAGE>
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 (the "Annual Meeting") held on
March 17, 1999, the Company's stockholders approved the following:
<TABLE>
<CAPTION>
PROPOSAL ABSTAIN
BROKER NON-VOTES FOR AGAINST WITHHELD
<S> <C> <C> <C> <C>
(1) To elect the following
Class II Directors:
John P. O'Sullivan 0 8,398,584 0 323,960
Michael C. Turmelle. 0 8,394,846 0 327,698
</TABLE>
The other directors of the Company, whose terms of office as directors continued
after the Annual Meeting are Marshall J. Armstrong, Anthony J. Villiotti,
David B. Eisenhaure and James L. Kirtley, Jr., Ph.D.
<TABLE>
<S> <C> <C> <C> <C>
(2) To approve an amendment
to the Company's Certificate
of Incorporation increasing from
15,000,000 to 20,000,000 the
number of authorized shares of
Common Stock. 0 8,465,834 201,266 55,444
(3) To approve the Company's
1998 Stock Incentive Plan. 2,720,795 5,359,339 616,696 25,714
(4) To ratify the selection of
PricewaterhouseCoopers LLP as
Independent auditors for the fiscal
year ending September 30, 1999. 0 8,684,549 31,096 6,899
</TABLE>
Item 5. Other Information:
Not applicable.
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
10.24 License and Technical Assistance Agreement dated as of June 7, 1999 by
and between Delco Remy America, Inc. and the Registrant.
27 Financial Data Schedule
16
<PAGE>
(b) Reports on Form 8-K
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 January
4, 1999, among K&D MagMotor Corp., a wholly-owned subsidiary of SatCon
Technology Corporation, Inductive, Lighthouse and Thomas Glynn, the sole
stockholder of Inductive and the majority stockholder of Lighthouse.
17
<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)
18
<PAGE>
Exhibit 10.24
LICENSE AND TECHNICAL ASSISTANCE AGREEMENT
------------------------------------------
THIS AGREEMENT, is made and entered into as of June 7, 1999 by and between
SatCon Technology Corporation, a corporation duly organized and validly existing
under the laws of the State of Delaware, ("Licensor"), and Delco Remy America,
Inc., a corporation duly organized and validly existing under the laws of the
State of Delaware ("Licensee").
RECITALS
WHEREAS, Licensor possesses certain expertise and has developed confidential
technical know-how, data, equipment, manufacturing processes, software and other
trade secret expertise and certain other intellectual property in enhancing
rotating electrical machines and the integration of this enhancement into
certain products manufactured by Licensee as described herein;
WHEREAS, Licensee desires to acquire a license under and utilize and sublicense
such intellectual property in the manufacture of rotating electrical machines by
Licensee as specified below; and
WHEREAS, Licensor desires to grant to Licensee the right to utilize and
sublicense such intellectual property and to provide certain technical
assistance to Licensee upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Licensor and Licensee agree to be
legally bound by this Agreement as follows:
Section 1. Definitions
- ---------- -----------
Whenever used in this Agreement, the following terms shall have the following
meanings:
1.1 "Affiliate" of a party shall mean any other person or entity which controls
such party, which the party controls or which is under common control with
such party. "Control" shall mean the direct or indirect ability to direct
the management and policies of such party, person or entity, whether
through ownership, contract or otherwise, provided that any entity which
owns at least fifty percent 50% of another party shall be considered an
affiliate of such party, regardless of whether such party would be
considered to be under the control of such party as defined herein.
1.2 "Effective Date" shall mean the date of this Agreement.
1.3 "Enhanced Products" shall mean Licensee Products incorporating Technology.
1.4 "Field" shall mean technology for enhancing rotating electrical machine
performance for use with starter/alternator systems.
1.5 "Force Majeure" shall have the meaning provided in Section 1 0. 1 of this
Agreement.
1.6 "Improvements" shall have the meaning provided in Section 3.2 of this
Agreement.
1.7 "Incremental Gross Margin" shall mean the product of (i) the difference
between the weighted average sale price of Enhanced Products and the
weighted average sales price for comparable Licensee Products, less (ii)
the direct and indirect cost by Licensee of incorporating the Technology in
such Licensee Products,
<PAGE>
where the costs of incorporation include, but are not limited to,
material, manufacturing labor, plant burden and additional warranty
expenses.
1.8 "Licensee" shall have the meaning provided in the preamble to this
Agreement.
1.9 "Licensee Products" shall mean products manufactured by Licensee which
contain rotating electrical motors, but which do not incorporate
Technology.
1.10 "Licensor" shall have the meaning provided in the preamble to this
Agreement.
1.11 "Patents" shall mean, all foreign and domestic: (a) patents in the Field
which Licensor owns or controls and has the right to license to Licensee;
and (b) patent applications in the Field (including provisionals,
divisionals, continuations and continuations-in-part of such applications)
which Licensor owns or controls and (c) substitutions, extensions,
reissues, renewals, reexamination certificates and inventors certificates
relating to the foregoing patents and patent applications, which Licensor
owns or controls.
1.12 "Prototype Date" shall have the meaning provided in Section 4.1 of the
Agreement.
1.13 "Specifications" shall have the meaning provided in Exhibit A of this
Agreement.
1.14 "Technical Information" shall mean confidential technical know-how, data,
equipment, information, manufacturing processes, software, and other trade
secrets owned or controlled by Licensor and useful for enhancing rotating
electrical procedures and for integrating this enhancement into products.
1.15 "Technology" shall mean Technical Information, Patents, copyrights owned
or controlled by Licensor, registrations, applications or other
intellectual property protection owned or controlled by Licensor. Patents
and said other intellectual property protection are listed in Exhibit B
---------
Section 2. Grant of Rights
- ---------- ---------------
2.1 Subject to the terms and conditions of this Agreement, Licensor hereby
grants to Licensee an exclusive, worldwide license, including the right to
grant sublicenses, under the Technology to make, have made, use, offer for
sale, import and sell Enhanced Products in the Field. Such exclusive
license shall become a non-exclusive license in accordance with Section
4.1 (b).
2.2 The parties estimate that the Technology will be incorporated into
Licensee Products within one year of completion of the engineering samples
which meet the performance and commercial requirements set forth in
Exhibit A hereto (the "Specifications").
2.3 Any invention, improvement, or discovery of Licensee with respect to the
Technical Information shall be the property of Licensee. Licensee shall be
permitted, at its own expense, and in its own name, to file for or obtain
letters patent or take other steps necessary to protect its property.
Page 2 of 16
<PAGE>
2.4 Licensee shall notify any sublicensee hereunder of all rights and
obligations of Licensee under this Agreement which are sublicensed to such
sublicensee. Licensee shall notify Licensor of any sublicense by Licensee
within sixty (60) days of the effective date of such sublicense.
Section 3. Technical Information and Documentation
- ---------- ---------------------------------------
3.1 Licensor will provide Technical Information with respect to the Technology
including engineering drawings and specifications, testing results,
material specifications, circuit diagrams, and other information as may be
necessary for Licensee to manufacture and assemble the Enhanced Products.
3.2 During the term of this Agreement, Licensor will advise Licensee of any
improvements, modifications, or additions to the Technology and any changes
regarding engineering drawings and specifications, testing results,
material specifications, circuit diagrams, and such other information
(collectively, the "Improvements") as such are developed by Licensor. Such
Improvements shall become part of the licensed Technology, subject to the
terms of this Agreement.
Section 4. Term
- ---------- ----
4.1 Unless terminated earlier in accordance with Section 8 hereunder or
extended by mutual agreement:
(a) The exclusive license under Section 2.1 shall remain in full force and
effect for forty eight (48) months from the date which Licensor
delivers to Licensee a proof-of-concept prototype which incorporates
the Technology and meets the Specifications (the "Prototype Date").
(b) Upon the expiration of the exclusive license and sublicense pursuant
to paragraph (a), such license shall become non-exclusive and shall
remain in full force and effect, in the case of any Enhanced Product
in a certain jurisdiction, until the later of: (a) ten (10) years from
the "Prototype Date" in such jurisdiction; or (b) the expiration of
the last to expire of the Patents used in the Enhanced Product in such
jurisdiction. For all purposes relating to this Agreement, a patent
shall be deemed to cover a product if manufacture, use, or sale of
such product infringes at least one claim of such patent in accordance
with established principles of claim interpretation in the
jurisdiction where the patent applies.
Section 5. Technical Assistance
- ---------- --------------------
5.1 As mutually agreed upon by the parties for up to a total of ten (10) days,
Licensee shall send its employees to be trained by Licensors personnel in
Licensors establishments. Licensor's technical personnel shall advise and
assist Licensee's or its designees technical personnel on matters
concerning the functionality, design, failure modes, manufacturing,
sourcing of components, and integration of the Technology into Licensee
Products.
Page 3 of 16
<PAGE>
[INTENTIONALLY LEFT BLANK]
Page 4 of 16
<PAGE>
Section 7. Non-Disclosure/Confidentiality
- ---------- ------------------------------
7.1 Licensee agrees to maintain the Technology as secret and confidential and
not to disclose the Technology to any third person or party, except:
1. as expressly authorized by this Agreement;
2. to its Affiliates, sublicensees, employees, agents, consultants,
and other representatives, to accomplish the purposes of this
Agreement so long as such persons are under an obligation of
confidentiality no less stringent than as set forth herein;
3. as necessary to obtain approval from a governmental agency in
order to market the Enhanced Products;
4) as otherwise may be required by law, regulation or judicial
order, or;
5) as embodied in Enhanced Products.
This Article 7 shall survive any cancellation, termination (whether for
cause or otherwise) or expiration of this Agreement.
7.2 The obligation with respect to the Technology disclosed by Licensee shall
not apply to the extent that the Licensee can demonstrate that:
(a) the disclosed information at the time of disclosure is publicly
available;
(b) the disclosed information became publicly available by publication or
otherwise, except by breach of the provisions of this Agreement;
(c) the disclosed information can be established by written evidence to
have been in the possession of the receiving party at the time of
disclosure or to have been independently developed by employees of the
receiving party who did not have access to the Technology; or
(d) the disclosed information is received from a third party not under a
duty of confidentiality to the disclosing party without similar
restrictions and without breach of this Agreement.
7.3 In the event Licensee shall be compelled by any court having jurisdiction
over Licensee to disclose any part of the Technology, Licensee shall
provide Licensor with immediate notice of such request so that Licensor may
seek a protective order, or take such other action as Licensor may deem
appropriate. In no event shall Licensee disclose such information without
notifying Licensor prior to disclosure.
Page 5 of 16
<PAGE>
Section 8. Default
- ---------- -------
8.1 The occurrence of one or more of the following events shall constitute a
"Default" under this Agreement:
(a) Licensee shall fail to pay any amount when due under this Agreement,
and such amount remains unpaid thirty (30) days after such due date;
(b) Licensee shall breach any other provision of this Agreement and shall
fail to cure such breach within sixty (60) days after receipt of
Licensor's written notice to Licensee of such breach;
(c) Licensee shall breach Section 7 of this Agreement; or
(d) either party shall be unable to perform a material obligation (other
than the non-payment of fees or expenses due hereunder) of this
Agreement as a result of a Force Majeure, which Force Majeure lasts in
excess of three (3) months.
8.2 In the event of a Default, the non-defaulting party shall have the right to
immediately terminate this Agreement and shall be entitled to damages,
including attorney's fees, incurred as a result of such default, in
addition to such other relief afforded under this Agreement provided,
however, that in no event shall either party be entitled to indirect,
punitive, or exemplary damages as a result of a Default.
Section 9. Force Majeure
- ---------- -------------
9.1 Neither party shall be liable to the other if, and to the extent that the
performance or delay in performance of any of its obligations under this
Agreement is prevented, restricted, delayed, or interrupted due to
circumstances beyond the reasonable control of such party, including, but
not limited to government legislation, fires, floods, explosions,
epidemics, accidents, acts of God, wars, riots, strikes, lockouts or other
concerted acts of workmen, acts of government and/or shortages of materials
(a "Force Majeure"). The party claiming an event of Force Majeure shall
promptly notify the other party in writing, and provide full particulars of
the cause or event and the date of first occurrence thereof, as soon as
possible after the event and also efforts to remove the cause of non-
performance, and both parties shall resume performance hereunder with the
utmost dispatch when such cause is removed unless the Agreement is
previously terminated under Section 8.
9.2 A condition of Force Majeure shall not relieve a party to pay any sum due
under this Agreement prior to or during the event of Force Majeure.
Page 6 of 16
<PAGE>
Section 10. Notices
- --------------------
10.1 All notices and other communications under this Agreement shall be in
writing and may be given by delivering the same by hand at, or by sending
the same by an overnight courier that maintains verification of delivery,
or by facsimile, with confirmed answer back, to the relevant address set
out below or such other address as either Party may notify the other from
time-to-time. Any such notice given as set forth above shall be deemed to
have been given or received at the time of delivery (if delivery by hand)
and upon verified receipt (if sent by post, facsimile, or overnight
courier).
If to Licensor to:
SATCON TECHNOLOGY CORPORATION
161 First Street
Cambridge, MA 02142
Telephone: (617) 661-0540
Facsimile: (617) 661-3373
Attention: Michael C. Turmelle, VP & CFO
If to Licensee to:
DELCO REMY AMERICA, INC.
2902 Enterprise Drive
Anderson, IN 46013
Telephone: (765) 778-6565
Facsimile: (765) 778-6454
Attention: Sr. VP, Heavy Duty Systems Division
Neither party shall by mere lapse of time, without giving notice, be deemed to
have waived any breach by the other party of any of the provisions of this
Agreement.
Section 11. Warranty
- ---------------------
11.1 Licensor represents and warrants that it has the appropriate corporate
authority to enter into and perform its obligations under this Agreement
and that Licensor's execution, delivery and performance of this Agreement
will not violate any other agreements or commitments of Licensor.
11.2 Licensor represents and warrants that it has not entered into any
agreements related to the license of the Technology in the Field and shall
have neither the right nor ability to use, assign, license, or sell,
without the prior written consent of Licensee, all or any part of the
Technology in the Field.
11.3 Licensor represents and warrants that none of the components of the
Technology as it exists on the date hereof infringe upon any published
third party patent known to Licensor.
11.4 Licensor represents and warrants that it holds good title to all of the
various components of the Technology free and clear of any third party
claims, interests, assessments or licenses, and that it is otherwise
vested with such title to the Technology, and each of its constituent
parts, which might be necessary to grant the license pursuant to this
Agreement.
Page 7 of 16
<PAGE>
11.5 Except as provided in Section 12 below, in no event shall either party be
liable to the other for any consequential, incidental, special, punitive,
or other indirect damages including, but not limited to, damages related
to lost profits or lost data.
Section 12. Indemnity
- ----------------------
12.1 Licensor will defend, indemnify, and hold Licensee harmless from and
against any and all claims, demands, liabilities, actions, suits, or
proceedings asserting that the Technology infringes any protected trade
secret, patent or copyright of another and will pay resulting costs,
damages, and attorney fees finally awarded (except that in no event will
Licensor be liable for lost profits or for any other incidental,
consequential, special, or punitive damages other than such damages
awarded against Licensee in favor of a third party), provided that:
(a) Licensee promptly notifies Licensor of the claim;
(b) Licensee cooperates with Licensor in the defense; and
(c) Licensor has sole control of the defense and all related settlement
negotiations.
The right of indemnification shall survive the termination of this Agreement.
12.2 Licensee will defend, indemnify, and hold Licensor harmless from and
against any and all claims, demands, liabilities, actions, suits, or
proceedings asserting that Licensee's improvements to the Technology were
created in violation of the protected trade secrets, patent or copyright
arising solely out of Licensee's activities under this Agreement
including, but not limited to, product liability claims arising out of the
design or manufacture of Enhanced Products incorporating or utilizing
Licensee's improvements, and Licensee will pay resulting costs, damages,
and attorney fees finally awarded (except that in no event will Licensee
be liable for lost profits or for any other incidental, consequential,
special, or punitive damages other than such damages awarded against
Licensor in favor of a third party) provided that:
(a) Licensor promptly notifies Licensee of the claim;
(b) Licensor cooperates with Licensee in the defense; and
(c) Licensee has sole control of the defense and all related settlement
negotiations.
The foregoing states the entire obligation of Licensee, and the sole remedies of
Licensor, with respect to infringement of third party proprietary rights.
Section 13. Settlement of Disputes
- -----------------------------------
13.1 Any dispute or controversy concerning the calculation or payment of
royalties and any other amounts that may be due pursuant to this Agreement
shall be finally settled by arbitration held according to the commercial
arbitration rules, in effect on the date of this contract, of the American
Arbitration Association ("AAA"). The arbitration shall be held in Chicago,
Illinois in accordance with the substantive laws of Indiana.
Page 8 of 16
<PAGE>
13.2 The arbitration panel shall consist of three arbitrators; each party may
appoint one arbitrator and a third arbitrator shall be appointed by
agreement of the two party-appointed arbitrators. In the event that the
party-appointed arbitrators cannot select the third arbitrator, then the
AAA shall appoint a third arbitrator. The panel of arbitrators shall base
its decision on the testimony of accountants, engineers, and other
technical experts which each party may present.
13.3 Judgment upon the award of such arbitrators shall be final and binding on
both parties, and any right of appeal, therefore, is hereby waived.
Judgment upon the award rendered may be entered in any court having
jurisdiction, or application may be made to such court for confirmation of
the award.
13.4 Unless otherwise divided or awarded by the panel, the costs for
arbitration shall be finally paid by the losing party or, if the panel
rules in favor of both parties, shall be paid by each party in proportion
to their respective awards, except that each party shall bear its own
attorney's fees.
Section 14. Miscellaneous
- --------------------------
14.1 The terms of this Agreement can be waived or modified only by an express
agreement in writing signed by both parties.
14.2 This Agreement and the agreements specifically referred to herein,
constitute the entire understanding of the parties with respect to the
Technology and no representations, promises, warranties, covenants, or
undertakings other than those contained in these agreements exist.
14.3 This Agreement shall be governed by the laws of Indiana, notwithstanding
the conflict of laws of any other state; provided, however, that if a
patent dispute shall arise, the patent law of the country in which the
patent is registered shall apply.
14.4 In the event any provision of this Agreement is held to be unenforceable
by any court, such provision shall be reformed by the court and the
parties to the extent that it can be reformed, and to the extent it
cannot, such provision shall be severed from the Agreement and the
remaining provisions shall remain fully enforceable and binding upon the
parties.
14.5 Upon expiration or termination of this Agreement, the provisions relating
to confidentiality, proprietary protection of the Technology, limitation
of liability, audit and verification and Licensee's obligation to Licensor
for fees accrued but unpaid shall survive.
14.6 This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns.
14.7 The following Exhibits are part of this Agreement:
Exhibit A Specifications - Minimum Performance and Commercial
Requirements for Proof of Concept Prototype Verification
Exhibit B Patents and Patents under Submission
Page 9 of 16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
Licensor: Licensee:
SATCON TECHNOLOGY CORPORATION DELCO REMY AMERICA, INC.
/s/ Michael C. Turmelle /s/ Richard L. Stanley
By By
Vice President & CFO President
Title Title
Page 10 of 16
<PAGE>
Exhibit A: Specifications - Minimum Performance and Commercial Requirements For
Proof of Concept Verification
Testing Requirements
- --------------------
1. For proof of concept verification one unit will be tested.
2. Performance - Prior to all tests, units are to be initially tested as
specified in Section B. 1, except that output is not to be stabilized.
Unless specified otherwise, after each test in each portion of Section C,
the following requirements must be met for the alternator to pass the test:
2.1. Output current must be within ++5% of the original performance.
2.2. Voltage regulation must be in tolerance and within ++0.2V (12V
alternators)/ ++0.4V (24 & 32V alternators) of initial reading when
voltage is checked at 8,000 rpm with a 20 amp load at room
temperature.
3. Temperature- All tests are to be performed at room temperature, except as
noted. Room temperature is considered to be 250C ++30C. All other
temperatures are ++50C.
4. Speed- Alternator speed is stated for each test. Tolerance is ++l 0% of
specified speed for each test.
Performance Specifications
- --------------------------
1. Stabilized performance
1. 1. Industry reference specification: SAE J56
1.2. Test Conditions: Unit is to be tested at each voltage and at each
temperature.
1.2.1. Voltage: Increase regulator set point to achieve full field
current
1.2.2. Speed: 1,000 rpm to 8,000 rpm
1.2.3. Electrical load: Load as needed to achieve 14V/28V set
point.
1.2.4. Temperature: 25'C and 93'C.
1.2.5. Duration: Less than ++2.0/1.0 Amp change (12V/24V
alternators) within 10 minutes, or 30 minute test time
minimum.
1.2.6. Procedure: per SAE J56, measure output with alternator
temperature stabilized at several discrete speeds and with
regulator setting raised to assure that the regulator is
full on.
1.2.7. Passing criteria: Output of unit while operating in the
active bridge mode must be at least 45 % higher than in the
diode mode at 1500 rpm.
2. Input characteristics:
2.1. Plot alternator typical input characteristics (efficiency, torque,
power) following test conditions and procedure in section B.1.
Efficiency of the unit while in active bridge mode should be equal to
or better than the unit in diode mode over the entire speed range.
2.2. Temperature: 250C only
Page 11 of 16
<PAGE>
3. Indicator light flicker (alternators with Indicator or Lamp terminal only)
3.1. Industry reference specification: None
3.2. Test Conditions:
3.2.1. Voltage: Appropriate for alternator model (using battery)
3.2.2. Speed: 2,000 rpm and 5,000 rpm
3.2.3. Electrical load: 1 amp to rated output at each speed
3.2.4. Temperature: Room temperature
3.2.5. Duration: N/A
3.2.6. Procedure:
3.2.6.1. Connect 2W light (12V alternators)/3W light (24V
alternators) to Indicator light (or similar) terminal
3.2.6.2. Vary load per 3.2.3 at each speed
3.2.7. Passing criteria: No noticeable flicker of light
4. Parasitic current draw
4.1. Industry reference specification: None
4.2. Test Conditions
4.2.1. Voltage: 12.8V/25.6V (1 2V/24 & 32V alternators)
4.2.2. Speed: 0 rpm- alternator does not rotate during this test
4.2.3. Electrical load: None
4.2.4. Temperature: Room temperature
4.2.5. Duration: N/A
4.2.6. Procedure: With alternator connected to battery or power
supply and no connections to any other terminals (except
ground), measure parasitic current draw into B+ and sense (if
used) terminals
4.2.8. Passing criteria:
4.2.8.1. Less than or equal to 2.0 mA: 12V alternators
4.2.8.2. Less than or equal to 3.0 mA: 24 and 32V alternators
5. Maximum Speed Range
5.1. The maximum continuous operating speed for the alternator is 1 0,000
rpm.
5.2. The maximum intermittent operating speed for the alternator is 12,000
rpm.
6. Voltage regulation vs. temperature (flat compensated regulators only- refer
to regulator performance specification for temperature compensated
regulators). The nominal voltage setting is defined as the voltage at 8,000
rpm with a 50% load at room temperature..
6.1. Industry reference specification: None
6.2. Test Conditions
6.2.1. Voltage: Regulator controlled
6.2.2. Speed: 6,000 rpm
6.2.3. Electrical load: 50% of available output
6.2.4. Temperature: -350C, +250C, and +1250C regulator backplate
temperature
6.2.5. Duration: Less than 30 seconds (to avoid voltage change due to
alternator selfheating)
6.2.6. Procedure: Run alternator at each temperature condition until
voltage stabilizes [less than 0.02V (12V)/0.04V (24 & 32V)]
change in 10 seconds).
6.2.7. Passing criteria: Voltage must remain within ++0.7V
(12V)/++1.2V (24V) of nominal throughout the temperature
range.
Page 12 of 16
<PAGE>
7. Voltage regulation vs. load. Nominal voltage setting is defined as the
voltage at 8,000 rpm with a 20 amp load at room temperature.
7.1. Industry reference specification: None
7.2. Test Conditions
7.2.1. Voltage: Regulator controlled
7.2.2. Speed: 6,000 rpm
7.2.3. Electrical load: Vary from 5% to 95% of available output
7.2.4. Temperature: Room temperature
7.2.5. Duration: Less than 30 seconds (to avoid voltage change
due to alternator selfheating)
7.2.6. Procedure: Run alternator at stated speed and vary load
from minimum to maximum. Record voltage variance.
7.2.7. Passing criteria: Voltage must remain within ++0.3V
(12V)/++0.6V (24 & 32V) of nominal at all loads.
8. Voltage regulation vs. speed. Nominal voltage setting is defined as the
voltage at 8,000 rpm with a 20 amp load at room temperature.
8.1. Industry reference specification: None
8.2. Test Conditions
8.2.1. Voltage: Regulator controlled
8.2.2. Speed: 2,000 to 1 0,000 rpm
8.2.3. Electrical load: 20 amps
8.2.4. Temperature: Room temperature
8.2.5. Duration: Less than 30 seconds (to avoid voltage change
due to alternator selfheating)
8.2.6. Procedure: Run alternator with stated load and vary speed
from minimum to maximum. Record voltage variance.
8.2.7. Passing criteria: Voltage must remain within ++0.2V
(12V)/++0.4V (24V) of nominal at all alternators speeds
between 2,000 and 10,000 rpm
9. Non-Battery Operation
9.1. Industry reference specification:
9.2. Test Conditions
9.2.1. Voltage: Regulator controlled
9.2.2. Speed: Vary from 2,000 to 1 0,000 rpm
9.2.3. Electrical load: Vary from 5% to 95% of available output
at 6000 rpm.
9.2.4. Temperature: Room temperature
9.2.5. Duration: Less than one minute (to avoid voltage change
due to alternator selfheating)
9.2.6. Procedure: Begin with alternator running in it's normal
configuration with a battery at 6000 RPM and 50%
available load. Disconnect battery only. Run alternator
with stated load and vary speed from minimum to maximum;
record voltage variance, then run alternator at stated
speed and vary load from minimum to maximum. Record
voltage variance.
Passing criteria: Voltage must remain within the specified
maximum voltage PLUS 2 volts, and the specified minimum voltage
MINUS 2 volts (if the specified voltage is 14.0 ++0.3 volts, the
non-battery specification would be 11.7 to 16.3 volts).
10. Operating Temperatures
1 0. 1. The alternator shall be capable of operating continuously at inlet
temperatures of -400C
to 1050C.
Page 13 of 16
<PAGE>
Output Voltage Ripple
The alternator output voltage peak to peak ripple at full load shall not exceed
.0005 times the alternator speed in RPM in both the active bridge and diode
modes. Example: 1.5Vp-p @ 3000 GRPM.
C.) ELECTRICAL TESTS
1. Capability to withstand voltage transients, reverse polarity, load dump
1. 1. Load dump
1. 1. 1. Industry reference specification: SAE J1455 Section
4.11.2.2
1.1.2. Test Conditions
1.1.2.1. Voltage: Load applied to reduce output voltage
to 13/26 volts (1 2V/24V alternators)
1.1.2.2. Speed: 10,000 rpm
1.1.2.3. Electrical load: Full available output
1.1.2.4. Temperature: Room temperature
1.1.2.5. Environmental conditions: NA
1.1.2.6. Duration: Maintain above
conditions for at least 30 seconds
before test.
1.1.2.7. Procedure: Quickly remove all
loads and measure resulting
voltage peak with an oscilloscope.
1.1.2.8. Passing criteria: Voltage peak less than 40/60
volts for 12/24-32 volt alternators.
Alternator
must operate properly per section A.2.
1.2. Reverse polarity
1.2.1. Industry reference specification: SAE J1455, Section
4.11.
1.2.2. Test Conditions
1.2.2.1. Voltage: As described in procedure.
1.2.2.2. Speed: 0 rpm- alternator does not rotate
during this test
1.2.2.3. Electrical load: None
1.2.2.4. Temperature: Room temperature
1.2.2.5. Environmental conditions: NA
1.2.2.6. Duration: 1 minute
1.2.2.7. Procedure: Apply 24/48 volts from a power
supply or battery with 0.2/0.4 ohm source
impedance for 12/24-32 volt alternators.
1.2.2.8. Passing criteria: Per section A.2.
1.3. Voltage transients
1.3.1. Industry reference specification: SAE J1455, Section
4.11.2.2-Twice voltage jump start.
1.3.2. Test Conditions
1.3.2.1. Voltage: 24V/48V for 12/24-32 volt
alternators
1.3.2.2. Speed: 0 rpm- alternator does not rotate
during this test
1.3.2.3. Electrical load: None
1.3.2.4. Temperature: Room temperature
1.3.2.5. Environmental conditions: NA
1.3.2.6. Duration: 5 minutes
1.3.2.7. Procedure: Apply test voltage to
Output terminal for specified
time.
1.3.2.8. Passing criteria: Per section
A.2.
Page 14 of 16
<PAGE>
1.4. Transient immunity
1.4.1. Test Conditions
1.4.1.1. Voltage: Regulator controlled
1.4.1.2. Speed: 5,000 rpm
1.4.1.3. Electrical load: 20 amps
1.4.1.4. Temperature: Room temperature
1.4.1.5. Environmental conditions: NA
1.4.1.6. Duration: 10 Pulses at 1 second intervals
1.4.1.7. Procedure: Transient consists of a rise to 600
volts or a fall to -600 volts immediately decaying back
to system voltage with a 1 millisecond time constant
and a source impedance of 20 ohms. With alternator
operating as specified, apply a total of 10 positive
and 10 negative transients to all available terminals,
one terminal at a time. Time between positive and
negative transient series is not defined.
1.4.1.8. Passing criteria: Per section A.2.
Page 15 of 16
<PAGE>
Exhibit B: Patent Applications and Patents
Patent Applications Resulting Patent
47706-P Pending
47705-P Pending
47751 -P Pending
47707-P Pending
47708-P Pending
Page 16 of 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 226,161
<SECURITIES> 381,078
<RECEIVABLES> 3,202,711
<ALLOWANCES> 100,000
<INVENTORY> 4,570,793
<CURRENT-ASSETS> 11,192,755
<PP&E> 2,689,942<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,441,948
<CURRENT-LIABILITIES> 4,113,783
<BONDS> 0
0
0
<COMMON> 91,614
<OTHER-SE> 13,236,551
<TOTAL-LIABILITY-AND-EQUITY> 17,441,948
<SALES> 0
<TOTAL-REVENUES> 7,387,319
<CGS> 0
<TOTAL-COSTS> 6,180,596
<OTHER-EXPENSES> 2,342,721
<LOSS-PROVISION> (1,488,183)
<INTEREST-EXPENSE> (3,522)
<INCOME-PRETAX> (2,629,671)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,629,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,629,671)
<EPS-BASIC> (0.29)<F2>
<EPS-DILUTED> (0.29)<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>
