<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SATCON TECHNOLOGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 04-2857552
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
161 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142-1221
(617) 661-0540
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
DAVID B. EISENHAURE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SATCON TECHNOLOGY CORPORATION
161 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142-1221
(617) 661-0540
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JEFFREY N. CARP, ESQ. DAVID B. WALEK, ESQ.
HALE AND DORR LLP ROPES & GRAY
60 STATE STREET ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 951-7000
TELECOPY: (617) 526-5000 TELECOPY: (617) 951-7050
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE (2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share (1)................. $115,000,000 $30,360
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
-----------------------------------------------------------------------------
SatCon Technology Corporation is offering shares of common stock with this
prospectus. All of the shares are being sold by SatCon.
The common stock is listed on the Nasdaq National Market under the symbol
"SATC." On October 27, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $30.125 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Price to the public......................................... $ $
Underwriting discounts and commissions...................... $ $
Net proceeds to SatCon...................................... $ $
</TABLE>
SatCon has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of additional
shares from SatCon at the public offering price, less the underwriting discount,
within 30 days following the date of this prospectus to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares to purchasers on , 2000.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
BANC OF AMERICA SECURITIES LLC
FAC/EQUITIES
The date of this prospectus is , 2000
<PAGE>
Description of the inside of the prospectus cover and the two-page graphical
fold-out:
At the top of the inside of the cover page is the heading "Turning Tomorrow's
Technology Into Today's Products" half on the white border and half on the blue
background of the page.
The first picture, above the caption "Manufacturing Facility at Film
Microelectronics Division," depicts two employees in sanitary clothing, gloves
and protective eyewear working with various materials in the manufacturing
process.
The second picture, above the caption "Manufacturing Facility at Magmotor
Division," depicts four employees wearing lab coats assembling products.
In the lower right hand corner of the page, half on the blue background and half
on the white border, is the SatCon logo.
The fold out contains several pictures and a graphic set on a white background
with blue borders at the top and bottom of the pages. Reading right to left
across both pages and printed in gray on the white background are the words "IPS
System" (near the top of the pages), "Fuel Cells" (near the center of the pages)
and "Microturbines" (near the bottom of the pages).
At the top of the foldout is the heading "SatCon Technology Corporation." Just
below is the heading "The Future of Power and Energy Management." The foldout is
divided by a blue vertical line on the right page. The pictures on the left of
the blue line are under the heading "our products." The artistic rendition and
pictures on the right of the blue line are under the heading "end uses."
Under the heading "our products" and above the caption "Beacon Power Flywheel
Energy Storage System" is a picture of a flywheel and the flywheel cover. Below
that picture on the left page, and above the caption "High Performance Motors"
are pictures of six motors of varying size. On the right half of the left page,
and at the vertical center, above the caption "Hybrid Microcircuits" is a
picture of a rectangular circuit board. Two pictures are centered on the fold of
the two pages. The top picture, above the caption "Power Conversion Systems"
depicts a power conversion system with various electronic components, wires, and
metal framework, bearing the SatCon logo. The bottom picture, above the caption
"100hp Electric Drivetrain" is a electric motor bearing the name "Chrysler
Electric."
Under the heading "end uses" is an artistic rendition depicting a residential
fuel cell and surrounding landscaping. To the right of the rendition is the
caption "Residential Fuel Cell Distributed Power Generation Systems." Below are
side-by-side photographs of a cellular telephone and a satellite with the
caption "Wireless Telecommunications Products." At the bottom of the page is a
photograph of a Chrysler minivan with a caption to the right reading "Chrysler's
EPIC (Electric Powered Intraurban Commuter) Minivan."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 10
Forward-Looking Statements; Market Data..................... 22
Use of Proceeds............................................. 23
Price Range of Common Stock................................. 24
Dividend Policy............................................. 24
Capitalization.............................................. 25
Selected Consolidated Financial Data........................ 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 37
Management.................................................. 56
Certain Transactions........................................ 59
Principal Stockholders...................................... 62
Description of Capital Stock................................ 64
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find More Information......................... 69
Index to Financial Statements............................... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD
CONSIDER BEFORE MAKING AN INVESTMENT DECISION. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE SECTION TITLED "RISK FACTORS" AND THE
FINANCIAL STATEMENTS AND NOTES RELATING TO THOSE STATEMENTS.
SATCON TECHNOLOGY CORPORATION
OVERVIEW
We are developing enabling technologies for the emerging distributed power
generation and power quality markets. We design, develop and manufacture
high-efficiency, high-reliability and long-lived power and energy management
products. Our products convert, condition, store and manage electricity for
businesses and consumers that require high-quality, uninterruptible power. We
are utilizing our engineering and manufacturing expertise to develop products to
serve the distributed power generation and power quality markets, including
products for fuel cell and microturbine power generation systems,
hybrid-electric vehicles and flywheel energy storage systems. We believe the
family of products we are developing will be integral components of distributed
power generation and power quality systems.
We and our affiliate, Beacon Power Corporation, are focusing our development and
manufacturing efforts on products for high-growth markets in the following
categories:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY MARKET PRODUCT DESCRIPTION
---------------- -------------- -------------------
<S> <C> <C>
Power electronics and control Distributed power generation: fuel Convert, condition and manage
software cells and microturbines electricity
High-performance motors and electric Hybrid-electric vehicles Transform electricity to mechanical
drivetrains energy for propulsion and auxiliary
uses
Beacon Power's flywheel energy Uninterruptible power supplies Provide back-up energy storage and
storage systems power quality for telecommunications
and computer networks to replace
lead-acid batteries
</TABLE>
We are working with companies in the distributed power generation and power
quality markets to develop products that we believe will establish industry
standards. Plug Power, Inc., H Power Corp. and IdaTech LLC, formerly Northwest
Power Systems LLC, are currently evaluating our PowerGate-TM- power electronics
and control software for use in their residential fuel cell power generation
systems. In addition, we have received an order from Nuvera Fuel Cells, Inc. for
two of our PowerGate-TM- power converters. We are also working with FuelCell
Energy, Inc. to develop our MegaVerter-TM- power electronics and control
software for use in their industrial fuel cell power generation system. A major
automotive manufacturer is evaluating our high-performance motors for auxiliary
uses in fuel cell hybrid-electric vehicles. Beacon Power has received an order
for 100 flywheel energy storage systems from TLER Associates, Ltd., a Mexican
telephone company, and an initial order for flywheels from Cox
Communications, Inc. In addition, Beacon Power is conducting field tests of its
flywheel energy storage systems with Bell Atlantic Network Services, Inc., now
part of Verizon Communications, Century Communications Corporation, now part of
Adelphia Communications Corporation, and WinDBreak Cable.
MARKET OPPORTUNITY
The distributed power generation and power quality industries are entering a
period of rapid expansion as products approach commercialization and mass
production. In the United States, this expansion is being driven by several
factors, including:
- Increasing demand for electricity, driven by the proliferation of
computers and e-commerce,
3
<PAGE>
- Growing demand for high-quality power, as more mission-critical and
sensitive electronics are connected to the electric utility grid,
- Capacity constraints on the electric utility grid that have resulted in
decreased reliability in certain power markets, and
- Heightening environmental concerns regarding transportation vehicles and
conventional power generation.
Business and residential consumers are seeking more reliable, cleaner and
cost-effective alternatives to traditional power generation. We believe that
distributed power generation and power quality products will meet these demands.
We are focused on selling our enabling products into the distributed power
generation, hybrid-electric vehicle and uninterruptible power supply markets.
DISTRIBUTED POWER GENERATION
Distributed power, or on-site power independent of the electric utility grid,
locates power-generating capability closer to the end user. The distributed
generation of electrical power from fuel cells or microturbine systems is
potentially an environmentally cleaner, more efficient and more reliable means
of producing electricity compared to conventional generation and distribution
methods. Distributed power generation systems can also alleviate congestion on
highly loaded distribution networks and offer an alternative to power line
extensions in remote regions.
In response to the many power outages in 1999, the U.S. Department of Energy's
Power Outage Study Team recommended the increased use of distributed power.
Assuming sustained investment, according to the Electric Power Research
Institute's, or EPRI's, ELECTRICITY TECHNOLOGY ROADMAP, at least 20 gigawatts of
distributed resources are forecast for installation in the United States in the
coming decade. Fuel cells and microturbines are two technologies that are being
developed to address the distributed power generation market.
The EPRI report listed several advances that could lead to the commercialization
of distributed power generation products, including:
- Distributed power generation that moves closer to the end user with
greater conversion efficiency, and
- Power electronics that can improve power quality and reliability while
handling the dramatic increases in power flow and power market
transactions.
HYBRID-ELECTRIC VEHICLES
Prices of oil and refined products will influence the demand for hybrid-electric
vehicles. In the last year, significant increases in crude oil and gasoline
prices have renewed a national public policy debate regarding substitute fuel
sources. We believe these higher prices, if sustained, will increase demand for
substitute fuel sources and may result in regulatory incentives to develop and
commercialize vehicles powered by alternative fuel sources.
In addition, automobiles are a major contributor to atmospheric carbon dioxide
and other emissions. According to the Department of Energy's Partnership for a
New Generation of Vehicles, concentrations of carbon dioxide are expected to
double within the next century, as the number of registered vehicles is expected
to climb from 194 million in 1993 to as many as 270 million in 2010. We believe
the market potential for alternative fuel vehicles, including fuel cell
hybrid-electric vehicles, will increase during this period.
We believe that fuel cell hybrid-electric vehicles have the potential to be the
leading alternative to internal combustion engines in meeting clean air
initiatives while offering greater driving range and
4
<PAGE>
performance than electric vehicles. The United States Council for Automotive
Research reports that a hybrid vehicle with two power sources could be twice as
energy-efficient as today's internal combustion engine. Although the primary
source of power could initially be a direct injection compression ignition
engine, industry scientists believe fuel cells will also be a viable electricity
source.
UNINTERRUPTIBLE POWER SUPPLIES
Uninterruptible power supply, or UPS, systems maintain a predictable quality of
electricity during power outages or periods of low power quality. As a result,
UPS systems are used to support the operation of computers, manufacturing
facilities and communication and other electronic networks in the event of power
losses. Of these applications, we believe the communications market will be
among the earliest adopters of flywheel UPS systems. Until recently, back-up
power for telephone systems was provided from central stations with a
combination of batteries and generators. Recently, with the introduction of
fiber cables, back-up power is being decentralized into remote terminal cabinets
located closer to the equipment. Batteries in these cabinets are not climate
controlled and do not provide the same level of reliability as the centralized
stations.
We believe that flywheel energy storage systems present an attractive
alternative to lead-acid batteries due to their long life and ability to operate
effectively in remote locations. According to THE ADVANCED LEAD-ACID BATTERY
CONSORTIUM, in excess of 4 billion watt-hours of valve-regulated lead-acid
batteries were sold to the communications markets in the United States in 1997.
At this rate, if flywheels displaced these batteries, the U.S. communications
powering market would require at least 2 million 2kWh-flywheels per year.
OUR OPPORTUNITY
The increased demand for reliable, high-quality, cleaner power is creating a
growing market for distributed power generation and power quality systems. All
of these systems require power and energy management products to convert,
condition, store and manage electricity. In order to be commercially viable and
operate effectively, these power and energy management products must be highly
reliable, efficient, low-cost and compact. Many of these products must be highly
customized to meet the evolving needs of the distributed power generation and
power quality marketplace. We believe that a significant opportunity exists to
manufacture and supply power and energy management products that meet these
criteria.
OUR SOLUTION
Our solution is to provide critical power products and systems necessary for the
successful commercialization of distributed power generation and power quality
systems. Our products and systems include our PowerGate-TM- and MegaVerter-TM-
power electronics, MicroGrid-TM- control software, GridLink-TM- utility
interface, high-performance motors and electric drivetrains and a flywheel
energy storage system being developed by Beacon Power. We believe our solution
encompasses the following key attributes demanded by the emerging distributed
power and power quality markets:
- PERFORMANCE. We use proprietary designs to ensure that high-quality power
is produced during peak as well as steady-state operations.
- RELIABILITY. We design our products to support the long-life, always-on
requirements of the distributed power generation and power quality
markets.
- EFFICIENCY. We apply our power electronics expertise to design and
manufacture our products to meet the efficiency needs of our customers.
- LOW-COST. We design our products to be low-cost by making them as compact
and as easy to manufacture as possible.
5
<PAGE>
- HIGH POWER DENSITY. We engineer our products to convert, condition and
manage large amounts of energy within a compact design.
- FLEXIBILITY. We develop and manufacture products for use in various
distributed power generation systems and many of our products are modular
and scalable to meet a wide range of power requirements.
STRATEGY
Our objective is to be a leading provider of the power and energy management
products necessary for the successful commercialization of distributed power
generation systems, such as fuel cells and microturbines, hybrid-electric
vehicles and power quality products, such as flywheel energy storage systems. We
believe that by designing and developing our products across multiple markets
and multiple applications, our success should be less dependent upon the
adoption of a specific application or on the business of a single market
participant. To accomplish our objective, we are pursuing the following key
strategies:
- DESIGN AND DEVELOP INNOVATIVE POWER AND ENERGY MANAGEMENT PRODUCTS. We are
developing proprietary products that are integral components in
distributed power generation and power quality systems.
- ESTABLISH OUR PRODUCTS AS INDUSTRY STANDARDS. We believe that our
engineering expertise, high-reliability manufacturing and industry
relationships will position us to establish the industry standards for our
products.
- INSTALL LOW-COST, HIGH-VOLUME MANUFACTURING CAPABILITIES. We are
developing and installing semi-automated manufacturing processes and
expanding our manufacturing capacity in order to reduce costs as
production volumes increase.
- ACQUIRE NEW PRODUCTS, MANUFACTURING CAPABILITIES AND TECHNOLOGIES. We
believe that the acquisition of new products, manufacturing capabilities
and technologies will enhance our competitive position and growth
opportunities.
BEACON POWER CORPORATION
SatCon has been developing flywheels for energy storage and other applications
since 1985. In May 1997, we formed Beacon Power to develop stationary,
terrestrial flywheel energy storage systems for commercial applications. These
systems are designed to offer customers an environmentally cleaner, more
reliable alternative to lead-acid batteries for energy storage and power quality
management. Because of its advantages over lead-acid batteries, Beacon Power's
flywheel energy storage system may be a viable alternative for use in
applications where the loss or disruption of electricity could have potentially
significant economic impacts. Beacon Power's initial market focus is to provide
a flywheel energy storage system to telecommunication service providers who must
maintain electricity during power outages. We believe that the economics of a
flywheel energy storage system will compare favorably to lead-acid batteries in
many applications.
As of June 30, 2000, we owned approximately 3.5% of the outstanding voting stock
of Beacon Power and 32.1% of the capital stock of Beacon Power on a common
equivalent basis after taking all dividend accruals into account. As of
June 30, 2000, we owned approximately 24.8% of the capital stock of Beacon Power
on a fully diluted basis after taking all dividend accruals into account and
giving consideration to all outstanding options and warrants, other than
warrants issued on May 23, 2000 to investors in Beacon Power, the number of
shares subject to which is not ascertainable until consummation of an initial
public offering of Beacon Power's common stock. On August 9, 2000, Beacon Power
filed a registration statement with the Securities and Exchange Commission, or
SEC, for an initial public offering of its common stock. See "Business--Beacon
Power Corporation."
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by SatCon.............................. shares
Common stock to be outstanding after the offering........... shares
Use of proceeds............................................. We intend to use the net proceeds from
this offering for manufacturing
equipment, manufacturing facilities and
other capital expenditures, for general
corporate purposes, including research
and development and working capital,
and for acquisitions that could provide
additional product offerings,
additional industry expertise, a
broader client base or an expanded
geographic presence. See "Use of
Proceeds."
Nasdaq National Market symbol............................... SATC
</TABLE>
The number of shares outstanding after this offering is based on our shares of
common stock outstanding as of June 30, 2000 and excludes:
- 1,869,906 shares subject to options outstanding as of June 30, 2000 at a
weighted average exercise price of $11.06 per share,
- 318,284 additional shares reserved for issuance under our stock option
plans, and
- 1,077,000 shares subject to warrants outstanding as of June 30, 2000 at a
weighted average exercise price of $8.71.
------------------------
Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option and all references to years,
or year end, refer to our fiscal year end of September 30.
SatCon was organized as a Massachusetts corporation in February 1985 and
reincorporated as a Delaware corporation in 1992. Our principal office is
located at 161 First Street, Cambridge, Massachusetts 02142, and our telephone
number is (617) 661-0540.
GridLink-TM-, MagLev-TM-, MegaVerter-TM-, MicroGrid-TM- and PowerGate-TM- are
trademarks of SatCon. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Set forth below are our summary consolidated statements of operations data for
the years ended September 30, 1997, 1998 and 1999, and for the nine months ended
June 30, 1999 and 2000, and summary balance sheet data as of June 30, 2000, on
an actual basis and on an as adjusted basis to give effect to the sale of
shares of our common stock in this offering at an assumed public
offering price of $ per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us.
Our financial statements for the years ended September 30, 1997, 1998 and 1999,
and for the nine months ended June 30, 1999 and 2000 have been restated. All
financial information included in this prospectus reflects the restatements. For
a discussion of the restatements, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included in Amendment No. 2 to our Annual Report on Form 10-K/A as
filed with the SEC on September 18, 2000.
The statement of operations for the nine months ended June 30, 2000 includes the
results of Ling Electronics beginning from October 21, 1999, the date on which
we acquired Ling Electronics. Unaudited pro forma combined consolidated
statements of operations for the year ended September 30, 1999 and for the nine
months ended June 30, 2000 that give effect to the acquisition as if it had
occurred as of October 1, 1998 appear elsewhere in this prospectus.
This information should be read in conjunction with our consolidated financial
statements and related notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Product revenue........................................... $ 3,728 $ 7,520 $ 9,123 $ 6,389 $ 14,269
Funded research and development revenue................... 8,738 8,011 6,355 5,090 6,526
------- ------- -------- -------- --------
Total revenue............................................. 12,466 15,531 15,478 11,479 20,795
Cost of product revenue................................... 2,683 5,474 9,511 6,727 12,486
------- ------- -------- -------- --------
Gross margin.............................................. 9,783 10,057 5,967 4,752 8,309
------- ------- -------- -------- --------
Research and development expenses......................... 11,443 6,794 6,554 5,030 7,560
Selling, general and administrative expenses.............. 6,198 4,523 8,819 7,194 7,008
Amortization of intangibles............................... 120 291 371 273 894
------- ------- -------- -------- --------
Total operating expenses.................................. 17,761 11,608 15,744 12,497 15,462
------- ------- -------- -------- --------
Operating loss............................................ (7,978) (1,551) (9,777) (7,745) (7,153)
Loss from Beacon Power Corporation........................ -- (3,473) (4,341) (3,829) (828)
Other income (expense), net............................... 269 170 (224) (192) 276
------- ------- -------- -------- --------
Net loss before income taxes.............................. (7,709) (4,854) (14,342) (11,766) (7,705)
Provision for income taxes................................ -- 4 -- -- --
------- ------- -------- -------- --------
Net loss.................................................. (7,709) (4,858) (14,342) (11,766) (7,705)
Accretion of redeemable convertible preferred stock
discount................................................ -- -- (51) -- (3,106)
------- ------- -------- -------- --------
Net loss attributable to common stockholders.............. $(7,709) $(4,858) $(14,393) $(11,766) $(10,811)
======= ======= ======== ======== ========
Net loss per share, basic and diluted..................... $ (0.97) $ (0.54) $ (1.57) $ (1.30) $ (0.88)
======= ======= ======== ======== ========
Weighted average number of common shares, basic and
diluted................................................. 7,959 8,957 9,176 9,072 12,278
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................. $ 9,576
Total assets.............................................. 43,495
Working capital........................................... 19,664
Total long term liabilities, net of current portion....... 51
Contingent obligation to class D preferred stockholders of
Beacon Power Corporation................................ 5,723
Stockholders' equity...................................... 32,451
</TABLE>
9
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISKS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. ADDITIONAL RISKS NOT
PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS. ANY OF THESE RISKS COULD HAVE A MATERIAL AND NEGATIVE EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS. THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT.
RISKS RELATING TO OUR BUSINESS
WE EXPECT TO GENERATE A SIGNIFICANT PORTION OF OUR FUTURE REVENUES FROM SALES OF
OUR PRODUCTS TO THE DISTRIBUTED POWER AND POWER QUALITY MARKETS, AND NO
ASSURANCE CAN BE GIVEN THAT WE WILL REALIZE ANY OF THESE REVENUES.
On-site distributed power and power quality solutions, such as fuel cells and
microturbines, which utilize our products are relatively new methods of
producing electricity and have not historically accounted for much revenue in
the electricity generation market. We have no experience manufacturing large
volumes of our products for mass marketed fuel cell and microturbine systems,
and, as a result, we currently generate only limited revenues from these
products. Additionally, the existing market for these alternative distributed
power products is limited, and there can be no assurance that this market will
develop or that our products will be demanded in sufficient quantities to
generate our expected revenues. If any of the foregoing were to occur, we would
not achieve our anticipated levels of profitability and growth, which would harm
our business and financial condition.
WE CANNOT ASSURE MARKET ACCEPTANCE OR COMMERCIAL VIABILITY OF OUR DISTRIBUTED
POWER AND POWER QUALITY PRODUCTS.
We intend to continue to expand development of our products for the distributed
power generation and power quality markets. However, we cannot assure you that
manufacturers of these distributed power solutions will select our products to
be incorporated into their solutions. Additionally, we cannot assure you that
our customers' products will realize market acceptance, that they will meet the
technical demands of their end users or that they will offer cost-effective
advantages over existing utilities. Our marketing efforts to date involve
development contracts with several customers, identification of specific market
segments for power and energy management systems and the continuation of
marketing efforts of recently acquired businesses. We cannot know if our
commercial marketing efforts will be successful in the future. Furthermore, we
cannot assure you that our products, in their current form, will be suitable for
specific commercial applications or that further design modifications, beyond
anticipated changes to accommodate different markets, will not be necessary.
Additionally, we may not be able to develop competitive products, our products
may not receive market acceptance, and we may not be able to profitably compete
in this market even if market acceptance is achieved. If our products do not
gain market acceptance or commercial viability our business and financial
condition would be harmed.
WE HAVE NO EXPERIENCE MANUFACTURING PRODUCTS FOR DISTRIBUTED POWER AND POWER
QUALITY SYSTEMS ON A COMMERCIAL BASIS.
To date, we have focused primarily on research and development and have no
experience manufacturing products for distributed power and power quality
systems on a commercial basis. We have installed equipment for a semi-automated
production line in our Marlborough, Massachusetts facility that we expect to be
capable of producing up to 25,000 of our residential fuel cell power conversion
systems annually. We expect this manufacturing line to be operational by
December 2000 and are continuing to develop our manufacturing capabilities and
processes. We do not know whether or when we will be able to fully develop
efficient, low-cost manufacturing capability and processes that will enable us
to meet the quality, price, engineering, design and production standards or
production volumes required to successfully mass market our distributed power
10
<PAGE>
and power quality products. Even if we are successful in developing our
manufacturing capability and processes, we do not know whether we will do so in
time to meet our product commercialization schedule or to satisfy the
requirements of our customers.
WE HAVE RECENT AND ANTICIPATED OPERATING LOSSES.
We have recorded net losses for the fiscal years ended September 30, 1995, 1996,
1997, 1998 and 1999 and for the nine months ended June 30, 2000. In order to
achieve profitability, we must achieve all or some combination of the following:
- successfully compete in the market for distributed power and power quality
products,
- develop new products for our existing markets,
- sell these products to existing and new customers,
- increase gross margins through higher volumes and manufacturing efficiencies,
- control our operating expenses, and
- develop and manage our distribution capability.
If our revenue does not increase significantly or the increase in our expenses
is greater than expected, we may not achieve or sustain profitability or
generate positive cash flow in the future. We cannot assure you that we will
accomplish these objectives or be profitable in the future. We expect to
continue to incur operating losses at least through fiscal year 2001, and we may
never become profitable.
WE MAY NOT BE ABLE TO DEVELOP OR SELL OUR DISTRIBUTED POWER, POWER QUALITY AND
OTHER PRODUCTS UNDER DEVELOPMENT.
We have a number of potential products under development including our
residential fuel cell power conversion system and the converter, inverter and
controller contained in this conversion system. We face many technological
challenges that we must successfully address to complete our development
efforts. Our product development involves a high degree of risk and may require
significant capital resources to enable us to be a low-cost, high-volume
manufacturer of reliable products meeting our customers' needs. Returns to our
investors are dependent upon successful development and commercialization of our
potential products. For example, the successful development of our distributed
power and power quality products will require significant investment in research
and development before we can determine whether the development of our
technology was successful and whether the resulting products will be
commercially viable and accepted by the marketplace. In addition, many proposed
products based on our technologies will require significant additional
expenditures for research and development. We cannot assure you that any of the
products we are developing, or those that we develop in the future, will be
technologically feasible or accepted by the marketplace. Also, we cannot assure
you that any of our product development will be completed on schedule, or at
all.
WE ARE HEAVILY DEPENDENT ON CONTRACTS WITH THE U.S. GOVERNMENT, AND PARTICULARLY
THE U.S. DEPARTMENT OF ENERGY, FOR REVENUE TO DEVELOP OUR DISTRIBUTED POWER AND
POWER QUALITY PRODUCTS, AND THE LOSS OF ONE OF OUR GOVERNMENT CONTRACTS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our ability to develop and market our products is heavily dependent upon
maintaining our U.S. government contract revenue and research grants. Most of
our U.S. government contracts are funded incrementally on a year-to-year basis.
We expect that 15% or more of our revenue during fiscal year 2000 will be
derived from government contracts and subcontracts. Any change in our
relationship with the U.S. government or its agencies whether as a result of
market, economic, or competitive pressures, including any decision by the U.S.
government to alter its commitment to our research and development efforts could
harm our business and financial condition by depriving us of the resources
necessary to develop our distributed power and power quality products.
Furthermore, contracts with the U.S. government may be terminated or suspended
by the U.S. government at any time, with or without cause. There can be no
assurance that our U.S. government contracts will not be terminated or suspended
in the future, or that contract suspensions or
11
<PAGE>
terminations will not result in unreimbursable expenses or charges or other
adverse effects on us. See "Business--Government Contracts."
The accuracy and appropriateness of our direct and indirect costs and expenses
under our contracts with the U.S. government are subject to extensive regulation
and audit by the Defense Contract Audit Agency or by other appropriate agencies
of the U.S. government. These agencies have the right to challenge our cost
estimates or allocations with respect to any such contract. Additionally, a
substantial portion of the payments to us under U.S. government contracts are
provisional payments that are subject to potential adjustment upon audit by such
agencies. Adjustments that result from inquiries or audits of our contracts
could have a material adverse impact on our financial condition or results of
operations. Since our inception, we have not experienced any material
adjustments as a result of any such inquiries or audits, but there can be no
assurance that our contracts will not be subject to material adjustments in the
future.
In the event that any of our government contracts are terminated for cause, it
could significantly affect our ability to obtain future government contracts
which could seriously harm our financial condition or results of operations. In
addition, our participation in various government business programs depends upon
the level of our revenues or the number of our employees. As we grow, we may
lose our ability to participate in such government programs as the Small
Business Innovative Research program and small business procurement set-asides
and preferences. Under these circumstances, although we will still be able to
participate in general government contract and cooperative agreement programs,
we will lose our ability to benefit from many of the programs in which we have
historically participated.
A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM CONTRACTS WITH THE U.S.
GOVERNMENT AND ITS AGENCIES OR FROM SUBCONTRACTS WITH THE U.S. GOVERNMENT'S
PRIME CONTRACTORS AND A SLOWDOWN IN GOVERNMENT SPENDING MAY ADVERSELY AFFECT OUR
BUSINESS.
Changes in government policies, priorities or funding levels through agency or
program budget reductions by the U.S. Congress or executive agencies or the
imposition of budgetary constraints could significantly impair our ability to
achieve this level of revenue going forward. Any such reductions or slowdowns in
government spending could severely inhibit our ability to successfully complete
the development and commercialization of our products and could seriously harm
our financial condition or results of operations.
THE U.S. GOVERNMENT HAS CERTAIN RIGHTS RELATING TO OUR INTELLECTUAL PROPERTY.
Many of our patents are the result of U.S. government-funded research and
development programs. All of our U.S. patents that have resulted from
government-funded research are subject to the risk of the exercise of "march-in"
rights by the U.S. government. March-in rights refer to the right of the U.S.
government or government agency to exercise its non-exclusive, royalty-free,
irrevocable worldwide license to any technology developed under contracts funded
by the government if the contractor fails to continue to develop the technology.
In addition, the U.S. government also has the right to take title to these
patents and license the patented technology to third parties if the contractor
fails to utilize the patents. The exercise of these rights by the government
could materially adversely affect our business, results of operations and
financial condition.
IF WE ARE UNABLE TO MAINTAIN OUR TECHNOLOGICAL EXPERTISE IN DESIGN AND
MANUFACTURING PROCESSES, WE WILL NOT BE ABLE TO SUCCESSFULLY COMPETE.
We believe that our future success will depend upon our ability to develop and
provide distributed power and power quality products that meet the changing
needs of our customers. This requires that we successfully anticipate and
respond to technological changes in design and manufacturing processes in a
cost-effective and timely manner. As a result, we continually evaluate the
advantages and feasibility of new product design and manufacturing processes. We
cannot, however, assure you that our process development efforts will be
successful. The introduction of new products embodying new technologies and the
emergence of shifting customer demands or changing industry
12
<PAGE>
standards could render our existing products obsolete and unmarketable which
would have a material adverse effect on our business, operating results and
financial condition. Our future success will depend upon our ability to continue
to develop and introduce a variety of new products and product enhancements to
address the increasingly sophisticated needs of our customers. This will require
us to continue to make substantial product development investments. We may
experience delays in releasing new products and product enhancements in the
future. Material delays in introducing new products or product enhancements may
cause customers to forego purchases of our products and purchase those of our
competitors.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR PATENTS
AND PROPRIETARY TECHNOLOGY.
We currently own 58 U.S. patents which expire between 2007 and 2018. We also
have 14 patent applications pending with the U.S. Patent and Trademark Office.
As a qualifying small business from our inception to date, we have retained
commercial ownership rights to proprietary technology developed under various
U.S. government contracts and grants.
Our patent and trade secret rights are of significant importance to us and to
our future prospects. Our ability to compete effectively against other companies
in our industry will depend, in part, on our ability to protect our proprietary
technology and systems designs relating to our distributed power and power
quality products. Although we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have been or will be successful in
doing so. Further, our competitors may independently develop or patent
technologies that are substantially equivalent or superior to ours. No assurance
can be given as to the issuance of additional patents or, if so issued, as to
their scope. Patents granted may not provide meaningful protection from
competitors. Even if a competitor's products were to infringe patents owned by
us, it would be costly for us to pursue our rights in an enforcement action, it
would divert funds and resources which otherwise could be used in our operations
and there can be no assurance that we would be successful in enforcing our
intellectual property rights. Because we intend to enforce our patents,
trademarks and copyrights and protect our trade secrets, we may be involved from
time to time in litigation to determine the enforceability, scope and validity
of these rights. This litigation could result in substantial costs to us and
divert efforts by our management and technical personnel. In addition, effective
patent, trademark, service mark, copyright and trade secret protection may not
be available in every country where we operate or sell our products.
WE MAY NOT BE ABLE TO MAINTAIN THE CONFIDENTIALITY OF OUR PROPRIETARY KNOWLEDGE.
In addition to our patent rights, we also rely on treatment of our technology as
trade secrets and upon confidentiality agreements, which all of our employees
are required to sign, assigning to us all patent rights and technical or other
information developed by the employees during their employment with us. We also
rely, in part, on contractual provisions to protect our trade secrets and
proprietary knowledge. Our employees have also agreed not to disclose any trade
secrets or confidential information without our prior written consent. These
agreements may be breached, and we may not have adequate remedies for any
breach. Our trade secrets may also be known without breach of such agreements or
may be independently developed by competitors. Our inability to maintain the
proprietary nature of our technology and information could harm our business,
results of operations and financial condition by adversely affecting our ability
to compete.
OTHERS MAY ASSERT THAT OUR TECHNOLOGY INFRINGES THEIR INTELLECTUAL PROPERTY
RIGHTS.
We believe that we do not infringe the proprietary rights of others and, to
date, no third parties have asserted an infringement claim against us, but we
may be subject to infringement claims in the future. The defense of any claims
of infringement made against us by third parties could involve significant legal
costs and require our management to divert time from our business operations.
Either of these
13
<PAGE>
consequences of an infringement claim could have a material adverse effect on
our operating results. If we are unsuccessful in defending any claims of
infringement, we may be forced to obtain licenses or to pay royalties to
continue to use our technology. We may not be able to obtain any necessary
licenses on commercially reasonable terms or at all. If we fail to obtain
necessary licenses or other rights, or if these licenses are costly, our
operating results may suffer either from reductions in revenues through our
inability to serve customers or from increases in costs to license third-party
technologies.
WE HAVE EXCLUSIVELY LICENSED OUR INTELLECTUAL PROPERTY RIGHTS FOR OUR FLYWHEEL
TECHNOLOGY FOR STATIONARY, TERRESTRIAL APPLICATIONS TO OUR AFFILIATE, BEACON
POWER, WHOM WE NO LONGER CONTROL, AND BEACON POWER'S DECISIONS REGARDING THE USE
OR DEVELOPMENT OF THIS INTELLECTUAL PROPERTY MAY NOT BE IN OUR BEST INTEREST.
In 1997, we granted Beacon Power a perpetual, worldwide, royalty-free, exclusive
right and license to our flywheel technology for stationary, terrestrial
applications. In the future, we may not agree with strategic decisions made by
Beacon Power, including decisions relating to product development, marketing and
market focus, and we will be unable to alter any strategic decisions with which
we do not agree. There can be no assurance that Beacon Power will pursue market
opportunities that complement our products in a timely manner, or at all. As a
result, even though we developed the technology used by Beacon Power, we may not
be able to address the market demand for stationary, terrestrial flywheel energy
storage systems unless we develop or license alternative technology to meet the
needs of our customers. There can be no assurance that any alternative
technology will be developed or will be available to us under a license on
acceptable terms, or at all. In addition, we may not agree with the terms and
conditions of any future Beacon Power financings. We anticipate that our
economic stake in Beacon Power will continue to be substantially diluted in the
future as Beacon Power obtains additional third-party funding to pursue its
business plan. On August 9, 2000, Beacon Power filed a registration statement
with the SEC for an initial public offering of its common stock.
WE CANNOT ASSURE MARKET ACCEPTANCE OR COMMERCIAL VIABILITY OF BEACON POWER'S
STATIONARY FLYWHEEL ENERGY STORAGE SYSTEM OR ANY OF ITS OTHER PRODUCTS.
The existing market for Beacon Power's alternative distributed power products is
limited, and there can be no assurance that this market will develop or that
Beacon Power's products will realize market acceptance or be demanded in
sufficient quantities to generate anticipated revenues. Even if market
acceptance is achieved, there can be no assurance that Beacon Power can
profitably compete in this market. In addition, Beacon Power's products may not
function as anticipated or may not compete effectively with other products
produced by their competitors, and we cannot assure you that Beacon Power's
products will meet the technical demands of their end users or that they will
offer cost-effective advantages over existing technologies. If any of the
foregoing were to occur, Beacon Power would not achieve its anticipated levels
of profitability and growth which would diminish the value of our investment in
Beacon Power.
Many proposed products based on technologies owned by or licensed to Beacon
Power will require significant additional expenditures for research and
development. We cannot assure you that any of the products Beacon Power is
developing, or those that they develop in the future, will be technologically
feasible, suitable for specific commercial applications without design
modifications beyond anticipated changes to accommodate different markets or
accepted by the marketplace. In addition, we cannot assure you that Beacon
Power's product development will be completed on schedule, or at all. If Beacon
Power is unable to successfully develop and market, on a commercially viable
basis, its flywheel products, the value of our investment in Beacon Power could
be significantly diminished.
14
<PAGE>
LOSS OF ANY OF OUR KEY PERSONNEL, AND PARTICULARLY OUR CHIEF EXECUTIVE OFFICER,
COULD HURT OUR BUSINESS BECAUSE OF THEIR EXPERIENCE, CONTACTS AND TECHNOLOGICAL
EXPERTISE.
The loss of the services of one or several of our key employees or an inability
to attract, train and retain qualified and skilled employees, specifically
engineering and sales personnel, could result in the loss of customers or
otherwise inhibit our ability to operate and grow our business successfully. In
addition, our ability to successfully integrate acquired facilities or
businesses depends, in part, on our ability to retain and motivate key
management and employees hired by us in connection with these acquisitions. We
are particularly dependent upon the services of David B. Eisenhaure, our
president, chief executive officer, chairman of the board and founder as a
result of his business and academic relationships, understanding of government
contracts and technical expertise. The loss of Mr. Eisenhaure's services would
have a material adverse effect on our business and results of operations,
including our ability to attract employees and obtain future contract research
and development.
WE EXPECT SIGNIFICANT COMPETITION FOR OUR PRODUCTS AND SERVICES.
To date, we have faced only limited competition in providing research services,
prototype development and custom and limited quantity manufacturing. We expect
competition to intensify greatly as commercial applications increase for our
products under development. Many of our competitors and potential competitors
are well established and have substantially greater financial, research and
development, technical, manufacturing and marketing resources than we do. Some
of our competitors and potential competitors are much larger than we are. If
these larger competitors decide to focus on the development of distributed power
and power quality products, they have the manufacturing, marketing and sales
capabilities to complete research, development and commercialization of these
products more quickly and effectively than we can. There can also be no
assurance that current and future competitors will not develop new or enhanced
technologies perceived to be superior to those sold or developed by us. There
can be no assurance that we will be successful in this competitive environment.
PRICE INCREASES OF MATERIALS OR COMPONENTS USED BY US COULD ADVERSELY AFFECT THE
VOLUME OF OUR SALES.
We use materials and components obtained from third-party suppliers to
manufacture many of our products. We expect this to continue as we increase our
manufacturing capabilities and move into high volume production. If prices of
materials and components that we use were to increase, we may not be able to
pass these costs on to our customers. In addition, if we were required to raise
the price of our products as a result of increases in the price of materials or
components that we use, demand for our products may decrease reducing our sales
which may harm our business and financial condition. To date, we have not
entered into long-term contracts which fix prices or limit price increases for
materials or components during the term of the contract and we do not expect to
do so in the future.
WE ARE DEPENDENT ON THIRD-PARTY SUPPLIERS FOR THE DEVELOPMENT AND SUPPLY OF KEY
COMPONENTS FOR OUR PRODUCTS.
From time to time, shipments can be delayed because of industry-wide or other
shortages of necessary materials and components from third-party suppliers. A
supplier's failure to develop and supply components in a timely manner, or to
supply components that meet our quality, quantity or cost requirements, or our
inability to obtain substitute sources of these components on a timely basis or
on terms acceptable to us, could impair our ability to manufacture our products.
In addition, to the extent the processes that our suppliers use to manufacture
components are proprietary, we may be unable to obtain comparable components
from alternative suppliers.
LONG-TERM CONTRACTS ARE NOT TYPICAL IN OUR BUSINESS, AND REDUCTIONS,
CANCELLATIONS OR DELAYS IN CUSTOMER ORDERS WOULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
We do not usually obtain long-term purchase orders or commitments from our
customers. Instead, we work closely with our customers to
15
<PAGE>
develop non-binding forecasts of the future volume of orders. Customers may
cancel their orders, change production quantities from forecasted volumes or
delay production for a number of reasons beyond our control. Significant or
numerous cancellations, reductions or delays in orders by our customers would
reduce our net sales. From time to time we make capital investments in
anticipation of future business opportunities like the significant investment we
are making to install a semi-automated production line in our Marlborough,
Massachusetts facility for residential fuel cell power conversion systems. There
can be no assurance that we will receive the anticipated business that supports
these investments. If we are unable to obtain this anticipated business, our
operating results and financial condition may be harmed.
IF WE EXPERIENCE A PERIOD OF SIGNIFICANT GROWTH OR EXPANSION, IT COULD PLACE A
SUBSTANTIAL STRAIN ON OUR RESOURCES.
If we are successful in obtaining rapid market penetration of our products, we
will be required to deliver large volumes of quality products or components to
our customers and licensees on a timely basis and at reasonable costs to us. We
have limited experience in delivering large volumes of our products and have
limited capacity to meet wide-scale production requirements. We cannot assure
you that our efforts to expand our manufacturing and quality assurance
activities will be successful, that we will be able to satisfy large-scale
commercial production on a timely and cost-effective basis or that growth will
not strain our management, operational and technical resources. We will also be
required to continue to improve our operational, management and financial
systems and controls to meet anticipated growth. Failure to manage growth would
have a material adverse effect on our business.
WE MAY NEED ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS AND MAY NOT BE
ABLE TO RAISE ADDITIONAL FUNDS ON TERMS ACCEPTABLE TO US, OR AT ALL.
If we are unable to increase our revenues and achieve positive cash flow, we
will need to raise additional funds. We may also need additional financing if
we:
- need additional cash to fund research and development costs of products
currently under development,
- decide to expand faster than currently planned,
- develop new or enhanced services or products ahead of schedule,
- need to respond to competitive pressures, or
- decide to acquire complementary products, businesses or technologies.
We cannot assure you that we will be able to raise additional funds on terms
acceptable to us, if at all. If future financing is not available or is not
available on acceptable terms, we may not be able to fund our future needs which
would have a material adverse effect on our business, results of operations and
financial condition. In addition, we may have to issue securities that may have
rights, preferences and privileges senior to our common stock.
WE INTEND TO PURSUE STRATEGIC ACQUISITIONS, AND FAILURE TO SUCCESSFULLY
INTEGRATE ACQUIRED BUSINESSES OR ASSETS MAY ADVERSELY AFFECT OUR FINANCIAL
PERFORMANCE.
A component of our business strategy is to seek the acquisition of businesses,
products, assets and technologies that complement or augment our existing
businesses, products, assets and technologies. Since 1997, we have expanded our
business and capabilities through the acquisition of six businesses and
intellectual property, tooling and other assets from another entity.
Acquisitions are difficult to identify and complete for a number of reasons,
including competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. We cannot assure you that we will be
able to successfully identify acquisition candidates or complete future
acquisitions. We cannot assure you that we will be able to operate acquired
businesses profitably or otherwise implement our growth strategy successfully.
The successful combination of companies in a rapidly changing industry such as
ours may be more difficult to accomplish than in other industries.
16
<PAGE>
Our ability to integrate any newly acquired entities will require us to continue
to improve our operational, financial and management information systems and to
motivate and effectively manage our employees. If our management is unable to
manage growth effectively, the quality of our products, our ability to identify,
hire and retain key personnel and our results of operations could be materially
and adversely affected.
Although successfully completing future acquisitions is an important part of our
overall business strategy, any future acquisitions that we make could result in:
- difficulty in integrating our operations, technologies, systems, products and
services with those of the acquired facility,
- difficulty in operating in foreign countries, in the case of acquisitions that
we make outside the United States, and over significant geographical
distances,
- diversion of our capital and our management's attention away from other
business issues,
- an increase in our expenses and our working capital requirements,
- potential loss of our key employees and customers of facilities or businesses
we acquire, and
- financial risks, such as:
- potential liabilities of the facilities and businesses we acquire,
- our need to incur additional indebtedness, and
- dilution if we issue additional equity securities.
If any of our recent or future acquisitions are not successful, it is likely
that our financial performance will be adversely affected.
OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
Our business exposes us to potential product liability claims which are inherent
in the manufacturing, marketing and sale of our products, and we may face
substantial liability for damages resulting from the faulty design or
manufacture of products or improper use of products by end users. We currently
maintain a low level of product liability insurance, and there can be no
assurance that this insurance will provide sufficient coverage in the event of a
claim. Also, we cannot predict whether we will be able to maintain such coverage
on acceptable terms, if at all, or that a product liability claim would not harm
our business or financial condition. In addition, negative publicity in
connection with the faulty design or manufacture of our products would adversely
affect our ability to market and sell our products.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL LAWS THAT EXPOSE US TO POTENTIAL
FINANCIAL LIABILITY.
Our operations are regulated under a number of federal, state and foreign
environmental and safety laws and regulations that govern, among other things,
the discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of these materials. These laws and regulations
include the Clean Air Act, the Clean Water Act, the Resource, Conservation and
Recovery Act, and the Comprehensive Environmental Response, Compensation and
Liability Act, as well as analogous state and foreign laws. Compliance with
these environmental laws is a major consideration for us because we use
hazardous materials in our manufacturing process. In addition, because we are a
generator of hazardous wastes, we, along with any other person who arranges for
the disposal of our wastes, may be subject to potential financial exposure for
costs associated with an investigation and any remediation of sites at which we
have arranged for the disposal of hazardous wastes if such sites become
contaminated and even if we fully comply with applicable environmental laws. In
the event of a violation of environmental laws, we could be held liable for
damages and for the costs of remedial actions. Environmental laws could also
become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which also could
negatively impact our operating results.
17
<PAGE>
RISKS RELATING TO OUR INDUSTRY
BUSINESSES AND CONSUMERS MIGHT NOT ADOPT ALTERNATIVE DISTRIBUTED POWER SOLUTIONS
AS A MEANS FOR OBTAINING THEIR ELECTRICITY AND POWER NEEDS.
On-site distributed power generation solutions, such as fuel cell and
microturbine products, which utilize our products, provide an alternative means
for obtaining electricity, and are relatively new methods of obtaining
electricity and other forms of power that businesses and consumers may not adopt
at levels sufficient to sustain our business. Traditional electricity
distribution is based on the regulated industry model whereby businesses and
consumers obtain their electricity from a government regulated utility. For
alternative methods of distributed power to succeed, businesses and consumers
must adopt new purchasing practices and must be willing to rely less upon
traditional means of purchasing electricity, and market participants must be
willing to produce products for alternative methods of power distribution. We
cannot assure you that businesses, consumers or market participants will choose
to utilize or service this on-site distributed power market at levels sufficient
to sustain our business. If a mass market fails to develop or develops more
slowly than we anticipate, we may be unable to recover the losses we will have
incurred to develop these products, and our business or financial condition may
be harmed. The development of a mass market for our products may be impacted by
many factors which are out of our control, including:
- market acceptance of fuel cell and microturbine systems that incorporate our
distributed power and power quality products,
- the cost competitiveness of fuel cell and microturbine systems that
incorporate our distributed power and power quality products,
- the future costs of natural gas, propane and other fuels used by our
customers' products versus future costs of other forms of fuel and/or power,
- consumer reluctance to try a new product,
- consumer perceptions regarding the safety of our customers' products,
- regulatory requirements, and
- the emergence of newer, more competitive technologies and products.
A MASS MARKET FOR HYBRID-ELECTRIC VEHICLES MAY NEVER DEVELOP OR MAY TAKE LONGER
TO DEVELOP THEN WE ANTICIPATE.
If a mass market fails to develop or develops more slowly than we anticipate for
hybrid-electric automobiles, we may be unable to recover the expenditures we
will have incurred to develop our products and may be unable to achieve
profitability in that portion of our business and could negatively impact our
overall profitability. Many factors which are out of our control may have a
negative effect on the development of a mass market for our hybrid-electric
vehicle components. These factors include:
- the competitiveness of alternative fuel vehicles,
- the availability, future costs and safety of hydrogen, natural gas or other
potential alternative fuels,
- consumer reluctance to adopt alternative fuel products,
- original equipment manufacturer reluctance to replace current technology,
- consumer perceptions,
- regulatory requirements, and
- the emergence of newer, breakthrough technologies and products by our
competitors in the alternative fuel vehicle market.
THE DISTRIBUTED POWER GENERATION INDUSTRY MAY BECOME SUBJECT TO FUTURE
GOVERNMENT REGULATION WHICH MAY IMPACT OUR ABILITY TO MARKET OUR PRODUCTS.
We do not believe that our products will be subject to existing federal and
state regulations governing traditional electric utilities and other regulated
entities. We do believe that our products will be subject to oversight and
regulation at the local level in accordance with state and local ordinances
relating to building codes, safety, pipeline connections and related matters.
Such regulation may depend, in part, upon whether an on-site distributed power
system is placed outside or inside a home. At this time, we do not know which
jurisdictions, if any, will impose regulations upon our products.
18
<PAGE>
We also do not know the extent to which any existing or new regulations may
impact our ability to sell and service our product. Once our customers' products
reach the commercialization stage and they begin distributing systems to their
target markets, federal, state or local government entities may seek to impose
regulations. Any new government regulation of our products, whether at the
federal, state or local level, including any regulations relating to
installation and servicing of our products, may increase our costs and the price
of our products, and may have a negative impact on our revenue and
profitability, and therefore, harm our business, prospects, results of
operations, or financial condition.
UNCERTAINTIES AND ADVERSE TRENDS AFFECTING THE DEREGULATION OF THE ELECTRIC
UTILITY INDUSTRY OR ANY OF OUR MAJOR CUSTOMERS MAY HARM OUR OPERATING RESULTS.
The growth of our distributed power generation business depends in large part on
the continued deregulation of the electric utility industry. Existing utility
companies, which have historically operated without competition, may attempt to
deter or delay the deregulation process. In addition, our customers may not be
able to compete effectively against existing utility companies in a deregulated
market. Changes in federal and state regulation may also have the effect of
deterring further investment in research and development of alternative energy
sources, including fuel cells and microturbines. Any changes in the deregulation
process or procedures, the inability of our customers to compete effectively
against existing utility companies or changes in federal or state regulation
which deter further investment in alternative energy sources could harm our
operating results and financial condition.
RISKS RELATING TO THIS OFFERING
OUR SHARE PRICE HAS BEEN SUBJECT TO EXTREME PRICE FLUCTUATIONS.
The markets for equity securities in general, and for those of other companies
in our industry, have been volatile, and the market price of our common stock,
which is traded on the Nasdaq National Market under the symbol SATC, may be
subject to significant fluctuations. This could be in response to operating
results, announcements of technological innovations or new products by us, our
competitors or our customers, patent or proprietary rights developments and
market conditions for distributed energy and high technology stocks in general.
In addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have been unrelated or disproportionate to the
operating performance of individual companies. These market fluctuations, as
well as general economic conditions, may adversely affect the market price of
our common stock. There can be no assurance that the trading price of our common
stock will remain at or near its current level.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE SIGNIFICANTLY.
Our annual and quarterly results may vary significantly depending on various
factors, many of which are beyond our control and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our stock
could decline. These factors include:
- variations in the timing and volume of customer orders relative to our
manufacturing capacity and staffing levels,
- introduction and market acceptance of our customers' new products,
- changes in demand for our customers' existing products,
- the timing of our expenditures in anticipation of future orders,
- effectiveness in managing our manufacturing processes,
- changes in competitive and economic conditions generally or in our customers'
markets,
- the timing of, and the price we pay for, acquisitions and related integration
costs,
- changes in the cost or availability of components or skilled labor,
19
<PAGE>
- the level of research and development expenses incurred by us which are
unreimbursed, and
- general economic conditions.
Because our operating expenses are based on anticipated revenue levels, our
sales cycle for development work is relatively long and a high percentage of our
expenses are fixed for the short term, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter.
EXISTING STOCKHOLDERS CAN EXERT CONSIDERABLE CONTROL OVER US.
As of September 30, 2000, our officers and directors, and their affiliates,
beneficially owned approximately 39.3% of our outstanding common stock of which
approximately 19.0% is held by Mr. Eisenhaure, our president, chief executive
officer, chairman of the board and founder. If all of these stockholders were to
vote together as a group, they would have the ability to exert significant
influence over our board of directors and its policies. As a practical matter,
Mr. Eisenhaure may have the ability to elect our directors and to determine the
outcome of corporate actions requiring stockholder approval, including votes
concerning director elections, by-law amendments and possible mergers, corporate
control contests and other significant corporate transactions, irrespective of
how some of our other stockholders may vote. Accordingly, such concentration of
ownership may have the effect of delaying, deterring or preventing a change in
control, impeding a merger, consolidation, takeover or other business
combination involving us, or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, which in turn
could have an adverse effect on the market price of our common stock.
WE COULD ISSUE ADDITIONAL COMMON STOCK, WHICH MIGHT DILUTE THE BOOK VALUE OF OUR
COMMON STOCK.
We have authorized 25,000,000 shares of our common stock, of which 13,839,935
shares were issued and outstanding as of September 30, 2000. In connection with
this offering, we will issue an additional [ ] shares of our common stock.
Our board of directors has the authority, without action or vote of our
stockholders, to issue all or part of the authorized but unissued shares. These
issuances would dilute your percentage ownership interest and might dilute the
book value of our common stock. See "Description of Capital Stock--Common
Stock."
THE SALE OF LARGE NUMBERS OF SHARES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK
PRICE.
[ ] shares of common stock will be outstanding immediately following this
offering. In addition, as of June 30, 2000, we have reserved 2,946,906 shares of
common stock for issuance upon exercise of stock options and warrants and
318,284 shares for future issuances under our stock plans. All the [ ] shares
of common stock sold in this offering, plus any shares issued upon exercise of
the underwriters' over-allotment option in this offering, will be freely
transferable, unless they are held by our "affiliates" as that term is used
under the Securities Act. Of the [ ] remaining shares of common stock that will
be outstanding immediately following this offering, [ ] shares will be
transferable without restriction, [ ] shares will be transferable subject to
Rule 144 and lock-up agreements that prohibit any sales until 90 days following
this offering without the consent of the underwriters, and [ ] shares not
subject to lock-up agreements will be transferable pursuant to Rule 144. In
addition, as of June 30, 2000, holders of warrants and options to purchase an
aggregate of 1,355,614 shares of our common stock may exercise those securities
and transfer the underlying common stock at any time subject, in some cases, to
Rule 144. In accordance with registration rights that we have granted to various
individuals and entities requiring us to register their shares for public
resale, we also have resale registration statements in effect registering
4,935,322 shares of our common stock.
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market, or the perception that
such share sales could occur. These sales might also make it more difficult for
us to sell equity securities in the future at a price that we think is
appropriate, or at all.
20
<PAGE>
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The public offering price is substantially higher than the net tangible book
value per share of our common stock. Therefore, you will incur immediate
dilution in net tangible book value of $ per share, based on a public
offering price of $ per share. You may incur additional dilution of net
tangible book value if holders of stock options, whether currently outstanding
or subsequently granted, exercise their options or if warrantholders exercise
their warrants to purchase our common stock.
IF INVESTORS IN BEACON POWER EXERCISE THEIR RIGHT TO REQUIRE US TO BUY THEIR
BEACON POWER SHARES FOR OUR COMMON STOCK, OUR STOCK PRICE WILL LIKELY SUFFER.
On October 23, 1998, we granted the purchasers of Beacon Power's class D
preferred stock the right to cause us, under the circumstances described below,
to purchase all of Beacon Power's class D shares issued to those purchasers for
our common stock with a value equal to $4,750,000 plus interest at a rate of
12.5% per annum accruing thereon from October 23, 1998 through May 23, 2000 and
6.0% from that date on. For this purpose, our common stock is valued at the
average fair market value for the fifteen trading days before and after notice
of exercise of the put right. The put right is exercisable within sixty days of
the second, third, fourth and fifth anniversary of October 23, 1998, upon
certain events of bankruptcy of Beacon Power, upon the occurrence of certain
going private transactions involving us and upon the deregistration of our
common stock by the SEC or the delisting or other removal of our common stock
from trading on the Nasdaq National Market. The exercise of the put right by
Beacon Power's stockholders for any reason would likely be viewed negatively by
our stockholders, and our stock price could decline. The put right terminates on
the earlier of October 23, 2003 or upon the listing of Beacon Power's common
stock on the New York Stock Exchange or the Nasdaq National Market. On
August 9, 2000, Beacon Power filed a registration statement with the SEC for an
initial public offering of its common stock on the Nasdaq National Market.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY, DETER OR PREVENT
THE ACQUISITION OF SATCON, WHICH COULD DECREASE THE VALUE OF YOUR SHARES.
Some provisions of our certificate of incorporation and bylaws may delay, deter
or prevent a change in control of SatCon or a change in our management that you
as a stockholder may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be issued
by our board of directors to increase the number of outstanding shares and
thwart a takeover attempt,
- a classified board of directors with staggered, three-year terms, which may
lengthen the time required to gain control of our board of directors,
- prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates, and
- limitations on who may call special meetings of stockholders.
In addition, Section 203 of the Delaware General Corporation Law and provisions
in some of our stock incentive plans may delay, deter or prevent a change in
control of SatCon. Those provisions serve to limit the circumstances in which a
premium may be paid for our common stock in proposed transactions, or where a
proxy contest for control of our board may be initiated. If a change of control
or change in management is delayed, deterred or prevented, the market price of
our common stock could suffer.
21
<PAGE>
FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus includes forward-looking statements. Some of the forward-looking
statements can be identified by the use of forward-looking words such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimates" or "anticipates" or the negative of those words
or other comparable terminology. Forward-looking statements involve risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. These factors
include systems failures, technological changes, volatility of securities
markets, government regulations and economic conditions and competition in the
areas in which we conduct our operations. For a discussion of factors that could
cause actual results to differ, please see the discussion under "Risk Factors"
appearing elsewhere in this prospectus. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made, and we
cannot assure you that our future results, levels of activity, performance or
achievements will meet these expectations.
This prospectus also contains third-party estimates and data regarding the size
and growth of the power and energy management market and power generation in
general. These market data have been included in studies published by the Energy
Information Administration, the Greening Earth Society, the Electric Power
Research Institute and the U.S. Department of Energy. These data include
projections that are based on a number of assumptions, including increasing
worldwide use of power energy management, power generation, power conversion and
energy storage systems. If any of these assumptions is incorrect, actual results
may differ from the projections based on those assumptions, and these markets
may not grow at the rates projected by these data, or at all. The failure of
these markets to grow at these projected rates may have a material adverse
effect on our business and the market price of our common stock.
22
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering of common stock,
after deducting the estimated underwriting discounts and offering expenses
payable by us, will be approximately $ million, or $ million if the
underwriters' over-allotment option is exercised in full, assuming a public
offering price of $ per share.
We intend to use the net proceeds from this offering as follows:
- for manufacturing equipment, manufacturing facilities and other capital
expenditures, and
- for general corporate purposes, including research and development and
working capital.
We also intend to continue to consider, from time to time, acquisitions that
could provide additional new product offerings, additional industry expertise, a
broader client base or an expanded geographic presence, and a portion of the net
proceeds from this offering may be used for such acquisitions. From time to
time, we have engaged in discussions with third parties concerning potential
acquisitions of product lines, technologies and businesses. There are no pending
negotiations or arrangements relating to any acquisitions at the present time.
We have not yet determined the amount of net proceeds to be used for each of the
purposes indicated. Accordingly, our board of directors and our management will
have broad discretion over the use of the net proceeds of the offering. Pending
these uses, the net proceeds will be invested in short-term, investment grade
securities, certificates of deposit or direct or guaranteed obligations of the
U.S. government.
23
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock has been publicly traded since November 12, 1992 on the Nasdaq
National Market under the symbol "SATC."
The following table sets forth the range of high and low sales prices of our
common stock as reported on the Nasdaq National Market for fiscal years 1999,
2000 and 2001 to date:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
First Quarter............................................... $ 7.75 $ 3.69
Second Quarter.............................................. 6.56 3.63
Third Quarter............................................... 9.88 4.50
Fourth Quarter.............................................. 10.44 7.06
YEAR ENDED SEPTEMBER 30, 2000
First Quarter............................................... $10.44 $ 7.31
Second Quarter.............................................. 44.75 8.00
Third Quarter............................................... 28.81 10.50
Fourth Quarter.............................................. 41.00 23.50
YEAR ENDING SEPTEMBER 30, 2001
First Quarter (through October 27, 2000).................... $36.75 $22.00
</TABLE>
On October 27, 2000, the last reported sale price of our common stock as
reported on the Nasdaq National Market was $30.125 per share. As of
September 30, 2000, there were 13,839,935 shares of our common stock outstanding
held by approximately 195 holders of record.
DIVIDEND POLICY
We have never paid dividends on our common stock. We currently intend to retain
earnings, if any, to fund the development and growth of our business and do not
anticipate paying cash dividends for the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our board of directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
24
<PAGE>
CAPITALIZATION
The following table shows, as of June 30, 2000:
- our capitalization on an actual basis, and
- our capitalization on an as adjusted basis to give effect to the sale by
us of shares of our common stock at an assumed public offering price
of $ per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us.
This information should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 9,576 $
======== ======
Total long-term liabilities, net of current portion......... 51
Contingent obligation to class D preferred stockholders of
Beacon Power Corporation.................................. 5,723
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding............ --
Common stock, $0.01 par value, 25,000,000 shares
authorized; 13,706,550 and shares issued,
actual and as adjusted, respectively.................... 137
Additional paid-in capital................................ 71,255
Amounts receivable from exercise of stock options......... (700)
Accumulated deficit and other comprehensive loss.......... (37,992)
Treasury stock, at cost; 44,500 shares.................... (249)
-------- ------
Total stockholders' equity.............................. 32,451
-------- ------
Total capitalization.................................. $ 38,225 $
======== ======
</TABLE>
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Our financial statements for the years ended September 30, 1997, 1998 and 1999
and for the nine months ended June 30, 1999 and 2000 have been restated. All
financial information included in this prospectus reflect the restatements. For
a discussion of the restatements, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included in Amendment No. 2 to our Annual Report on Form 10-K/A as
filed with the SEC on September 18, 2000.
You should read the data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. The selected consolidated financial data set forth below for
the fiscal years ended September 30, 1997, 1998 and 1999 and the consolidated
balance sheet data as of September 30, 1998 and 1999 are derived from our
audited consolidated financial statements appearing elsewhere in this
prospectus. The selected consolidated statement of operations data for the
fiscal year ended September 30, 1996 and the consolidated balance sheet data as
of September 30, 1995, 1996 and 1997 are derived from our audited consolidated
financial statements that are not included in this prospectus. The selected
consolidated statement of operations data for the nine month period ended
June 30, 1999 and 2000 and the consolidated balance sheet data as of June 30,
2000 are derived from our unaudited consolidated financial statements appearing
elsewhere in this prospectus. The unaudited consolidated financial statements
have been prepared on substantially the same basis as the audited financial
statements and include, in the opinion of our management, all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the information set forth therein. The statement of operations
for the nine months ended June 30, 2000 includes the results of Ling Electronics
beginning from October 21, 1999, the date on which we acquired Ling Electronics.
Unaudited pro forma combined consolidated statements of operations for the year
ended September 30, 1999 and for the nine months ended June 30, 2000 that give
effect to the acquisition as if it had occurred as of October 1, 1998 appear
elsewhere in this prospectus. The selected consolidated financial data for the
nine months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended September 30, 2000 or any other future
period.
26
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Product revenue.................................... $ -- $ -- $ 3,728 $ 7,520 $ 9,123 $ 6,389 $ 14,269
Funded research and development revenue............ 11,475 9,385 8,738 8,011 6,355 5,090 6,526
-------- -------- -------- -------- -------- -------- --------
Total revenue...................................... 11,475 9,385 12,466 15,531 15,478 11,479 20,795
Cost of product revenue............................ -- -- 2,683 5,474 9,511 6,727 12,486
-------- -------- -------- -------- -------- -------- --------
Gross margin....................................... 11,475 9,385 9,783 10,057 5,967 4,752 8,309
-------- -------- -------- -------- -------- -------- --------
Research and development expenses.................. 11,431 8,213 11,443 6,794 6,554 5,030 7,560
Selling, general and administrative expenses....... 2,512 5,569 6,198 4,523 8,819 7,194 7,008
Amortization of intangibles........................ -- -- 120 291 371 273 894
-------- -------- -------- -------- -------- -------- --------
Total operating expenses........................... 13,943 13,782 17,761 11,608 15,744 12,497 15,462
-------- -------- -------- -------- -------- -------- --------
Operating loss..................................... (2,468) (4,397) (7,978) (1,551) (9,777) (7,745) (7,153)
Loss from Beacon Power Corporation................. -- -- -- (3,473) (4,341) (3,829) (828)
Other income (expense), net........................ 451 464 269 170 (224) (192) 276
-------- -------- -------- -------- -------- -------- --------
Net loss before income taxes....................... (2,017) (3,933) (7,709) (4,854) (14,342) (11,766) (7,705)
Provision/(benefit) for income taxes............... (807) (144) -- 4 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss........................................... (1,210) (3,789) (7,709) (4,858) (14,342) (11,766) (7,705)
Accretion of redeemable convertible preferred stock
discount......................................... -- -- -- -- (51) -- (3,106)
-------- -------- -------- -------- -------- -------- --------
Net loss attributable to common stockholders....... $ (1,210) $ (3,789) $ (7,709) $ (4,858) $(14,393) $(11,766) $(10,811)
======== ======== ======== ======== ======== ======== ========
Net loss per share, basic and diluted.............. $ (0.17) $ (0.52) $ (0.97) $ (0.54) $ (1.57) $ (1.30) $ (0.88)
======== ======== ======== ======== ======== ======== ========
Weighted average number of common shares, basic and
diluted.......................................... 7,080 7,286 7,959 8,957 9,176 9,072 12,278
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF JUNE 30,
---------------------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.............................. $ 2,188 $ 3,771 $ 4,257 $ 1,202 $ 2,533 $ 9,576
Assets transferred to Beacon Power Corporation......... -- -- -- 577 -- --
Total assets........................................... 19,793 16,354 18,219 16,689 17,815 43,495
Working capital........................................ 15,616 11,011 10,595 7,905 7,714 19,664
Liabilities transferred to Beacon Power Corporation.... -- -- -- 1,564 -- --
Total long-term liabilities, net of current portion.... -- -- 323 239 64 51
Contingent obligation to class D preferred stockholders
of Beacon Power Corporation.......................... -- -- -- -- 5,309 5,723
Redeemable convertible preferred stock................. -- -- -- -- 4,894 --
Stockholders' equity................................... 18,753 15,175 15,589 12,372 4,421 32,451
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS.
On four separate occasions since January 1, 1999, we have restated our financial
results. These restatements, announced on January 13, 1999, August 16, 1999,
August 8, 2000 and September 12, 2000, affected various reporting periods during
our fiscal years ended September 30, 1996 through 1999 and our nine-month period
ended June 30, 2000. The restatements primarily related to the accounting for
our investment in Beacon Power, and other various accounting matters including
accounting for stock options and warrants, providing additional reserves for
accounts receivable, inventory, warranty and sales returns and writing off
certain property and equipment. On September 18, 2000, the SEC's enforcement
division requested that we meet with them to explain the circumstances
surrounding the restatements announced on August 8, 2000 and September 12, 2000.
On September 22, 2000, David B. Eisenhaure and Sean F. Moran, our President and
Chief Financial Officer, respectively, along with our independent public
accountants and outside counsel, met with various representatives of the SEC in
response to their inquiry. They explained the circumstances surrounding our
August 2000 and September 2000 restatements and responded to the SEC's
questions. We expect that the SEC will have additional questions. The SEC may
seek to meet with individuals, which may include our employees as well as
representatives of Beacon Power and our former and current independent
accountants. We expect to cooperate fully with any further SEC inquiry.
The following discussion reflects the restatement of our financial statements
for fiscal years 1997, 1998 and 1999 and for the nine months ended June 30, 1999
and 2000. For a discussion of the restatements see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes included in Amendment No. 2 to our Annual Report on
Form 10-K/A as filed with the SEC on September 18, 2000.
OVERVIEW
We are developing enabling technologies for the emerging distributed power
generation and power quality markets. We manufacture power and energy management
products that convert, condition, store and manage electricity for businesses
and consumers that require high-quality, uninterruptible power. We are utilizing
our engineering and manufacturing expertise to develop products to serve the
distributed power generation and power quality markets, including products for
fuel cell and microturbine power generation systems, hybrid-electric vehicles
and flywheel energy storage systems. We believe the family of products we are
developing will be integral components of distributed power generation and power
quality systems.
In the past four years, we have expanded our business and capabilities through
the following acquisitions:
- K&D MagMotor Corp.--a manufacturer of custom and standard electric motors,
acquired in January 1997.
- Film Microelectronics, Inc.--a manufacturer of thin film substrates and
hybrid microelectronics, acquired in April 1997.
- Inductive Components, Inc.--a value-added supplier of customized electric
motors, acquired in January 1999.
- Lighthouse Software, Inc.--a supplier of control software for machine
tools, acquired in January 1999.
- HyComp, Inc.--a manufacturer of hybrid microelectronics, acquired in
April 1999.
28
<PAGE>
- Ling Electronics, Inc.--a manufacturer of shaker vibration test systems,
power converters, amplifiers and controllers, acquired in October 1999.
All of these acquisitions were accounted for using the purchase method of
accounting. In addition, in November 1999, we acquired intellectual property,
tooling and other assets from Northrop Grumman Corporation, a manufacturer of
electric drivetrains. See Note P to our Consolidated Financial Statements in
this prospectus for more information regarding our acquisitions.
In May 1997, we formed Beacon Power Corporation to develop stationary,
terrestrial flywheel energy storage systems for commercial applications. On
October 23, 1998, Beacon Power completed a $4.8 million private placement of its
class D redeemable preferred stock and warrants to third-party investors, and we
relinquished significant control of Beacon Power. As of October 23, 1998, we
owned 0.1% of Beacon Power's voting stock and 67.0% of Beacon Power's
outstanding capital stock. From June 1999 through March 31, 2000, Beacon Power
was financed through the issuance of approximately $4.7 million of bridge notes
and warrants to its investors, including $1.0 million from us. On April 7, 2000,
Beacon Power issued 1,226,141 shares of its class E redeemable preferred stock
and warrants to purchase 306,535 shares of its class E preferred stock in
exchange for the conversion of all of its outstanding bridge notes of which we
received 347,407 shares of Beacon Power's class E redeemable preferred stock and
a warrant to purchase 86,852 shares of its class E preferred stock. As of
April 7, 2000, we owned 11.0% of Beacon Power's voting stock and 61.0% of Beacon
Power's outstanding capital stock. On April 21, 2000, Beacon Power raised an
additional $4.1 million through the sale of additional bridge notes and warrants
to purchase 41,000 shares of Beacon Power's common stock. We did not participate
in this financing. On May 23, 2000, Beacon Power issued 6,785,711 shares of its
class F preferred stock and additional warrants to purchase shares of Beacon
Power's common stock. The exercise price and the number of shares subject to
these additional warrants will be based on the initial public offering price of
Beacon Power's common stock. The shares of class F preferred stock and the
additional warrants were issued in consideration for the cancellation of
$5.2 million in bridge notes and an additional $23.3 million cash investment by
existing and new investors. We did not participate in this financing either. As
of May 23, 2000, we owned 3.5% of Beacon Power's voting stock and 33.0% of
Beacon Power's outstanding capital stock.
As of June 30, 2000, we owned approximately 3.5% of the outstanding voting stock
of Beacon Power and 32.1% of the capital stock of Beacon Power on a common
equivalent basis after taking all dividend accruals into account. As of
June 30, 2000, we owned approximately 24.8% of the capital stock of Beacon Power
on a fully diluted basis after taking all dividend accruals into account and
giving consideration to all outstanding options and warrants, other than
warrants issued on May 23, 2000 to investors in Beacon Power, the number of
shares subject to which is not ascertainable until consummation of an initial
public offering of Beacon Power's common stock. On August 9, 2000, Beacon Power
filed a registration statement with the SEC for an initial public offering of
its common stock. See Beacon Power's financial statements in this prospectus for
more information regarding Beacon Power's outstanding capitalization.
The results of our operations include a $3.1 million loss of Beacon Power from
May 8, 1997 to December 24, 1997 under the consolidation method of accounting.
On December 24, 1997, we began accounting for our investment in Beacon Power in
accordance with SEC Staff Accounting Bulletin No. 30/Topic 5E (SAB) "Accounting
for Divesture of a Subsidiary or Other Business Operation" and have included
100% of Beacon Power's $7.1 million loss for the period from December 25, 1997
through May 1999 in a manner similar to the equity method of accounting, at
which time, our initial investment of $1.9 million, the $30,000 additional
investment and the additional deemed investment of $4.8 million and accrued
dividends of $410,000 had been written down to zero. In June 1999, we committed
up to $1.0 million of additional financing to Beacon Power, representing a
minority share of a funding commitment received by Beacon Power and we began
accounting for our investment in Beacon Power under the equity method of
accounting and have included in our results through
29
<PAGE>
June 30, 2000 our share of Beacon Power's losses of $1.6 million. As of
December 31, 1999, our additional investment in Beacon Power had been reduced to
zero and our contingent obligation to Beacon Power's class D preferred
stockholders was $5.7 million as of June 30, 2000. We will continue to record
additional losses from Beacon Power to the extent of additional dividends
accrued on the contingent obligation to the class D preferred stockholders of
Beacon Power.
Upon the conversion of Beacon Power's redeemable preferred stock into common
stock and upon the future sale of equity securities of Beacon Power, our
investment in Beacon Power and additional paid in capital will be written up, in
accordance with SEC Staff Accounting Bulletin No. 51, to reflect our beneficial
interest in the book value of the stockholders' equity of Beacon Power.
Accordingly, upon the conversion of Beacon Power's redeemable preferred stock
into common stock or upon the future sale of equity securities of Beacon Power,
we will write up our investment in Beacon Power to an amount equal to the
product of (x) our ownership percentage in Beacon Power's outstanding capital
stock at the time redeemable preferred stock is converted or equity securities
sold and (y) the book value of the stockholders' equity of Beacon Power after
such conversion or sale. After the write-up of our investment in Beacon Power,
we will continue to account for our investment in Beacon Power under the equity
method of accounting and will record our share of future losses from Beacon
Power on a one-quarter trailing basis until our investment in Beacon Power has
been reduced to zero. If in the future our ownership interest in Beacon Power's
outstanding capital stock is reduced to below 20% and we determine that we do
not have significant control over Beacon Power, our investment in Beacon Power
will be accounted for using the cost method based upon the carrying value of our
investment in Beacon Power at the time our interest is reduced to below 20%. At
that time, we will no longer be required to record our share of any losses from
Beacon Power. Under the cost method, the value of the investment will be carried
at fair market value with any unrealized holding gains or losses to be included
in stockholders' equity as a component of other comprehensive income.
Revenue from manufactured products is recognized upon shipment, or if the
product requires installation, then revenue is recognized upon installation of
the product. We provide for a warranty reserve at the time the product revenue
is recognized.
We perform funded research and development in collaboration with third parties
under both cost reimbursement and fixed-price contracts. Cost reimbursement
contracts provide for the reimbursement of allowable costs and, in some
situations, the payment of a fee. These contracts may contain incentive clauses
providing for increases or decreases in the fee depending on how costs compare
with budget. On fixed-price contracts, revenue is generally recognized on the
percentage of completion method based upon the proportion of costs incurred to
the total estimated costs for the contract. Revenue from reimbursement contracts
is recognized as services are performed. In each type of contract, we receive
periodic progress payments or payment upon reaching interim milestones. All
payments to us for work performed on contracts with agencies of the U.S.
government are subject to audit and adjustment by the Defense Contract Audit
Agency. Adjustments are recognized in the period made. When the current
estimates of total contract revenue and contract costs indicate a loss, a
provision for the entire loss on the contract is recorded.
We have incurred significant costs to develop our technology and products. These
costs have exceeded total revenues. As a result, we have incurred net losses for
the fiscal years ended 1995, 1996, 1997, 1998 and 1999 and for the nine months
ended June 30, 2000. As of June 30, 2000, we had an accumulated deficit of
$38.0 million. We intend to significantly increase our capital expenditures and
operating expenses to rapidly expand our manufacturing capabilities and for
general corporate purposes, including product development activities, sales and
marketing and administrative activities. Because we expect to continue to invest
in our business ahead of anticipated future revenues, we expect to incur
operating losses at least through fiscal year 2001.
30
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999
PRODUCT REVENUE. Product revenue increased by $7.9 million or 123% from
$6.4 million to $14.3 million. This increase was attributable to $5.2 million in
revenue from Ling Electronics and a $2.7 million increase in revenue from our
microelectronics products, high performance motors and magnetic levitation
products.
FUNDED RESEARCH AND DEVELOPMENT REVENUE. Funded research and development
revenue increased by $1.4 million or 28% from $5.1 million to $6.5 million. This
increase was attributable to $3.2 million in funded research and development
revenue from a Department of Energy program to develop low-cost power conversion
modules for electric and hybrid-electric vehicles and was partially offset by
our increased focus on internally funded research projects including the
development of power conversion products for the distributed power generation
market.
GROSS MARGIN. Gross margin increased by $3.6 million or 75% from $4.8 million
to $8.3 million. Gross margin from products increased by $2.1 million and funded
research and development increased by $1.4 million. Gross margin from product
revenue as a percentage of product revenue increased to 13% from (5%). The
improvement in gross margin from product revenue as a percentage of product
revenue is due to improved plant utilization at MagMotor and Film
Microelectronics and also to higher revenue and gross margin from Ling
Electronics.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
by $2.5 million or 50% from $5.0 million to $7.6 million. The increase was
attributable to the $1.4 million increase in funded research and development
revenue as well as our increased focus on internally funded research projects
including the development of power conversion products for the distributed power
generation market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $186,000 or 3% from $7.2 million to
$7.0 million. The decrease was primarily due to the recording of $2.2 million of
non-cash stock-based compensation expense related to the issuance of stock
options and warrants to consultants and $1.0 million of additional reserves for
unbilled contract costs and fees and accounts receivable in 1999. These
decreases were offset by the inclusion of $1.9 million of costs from Ling
Electronics and $900,000 of costs for facilities and staffing in an effort to
meet expected growth and demand for our products.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased $622,000 or
228% from $273,000 to $895,000. This increase was the result of amortization of
intangibles recorded in connection with the acquisitions of Inductive and
Lighthouse in January 1999, Ling Electronics in October 1999 and certain
intellectual property and other intangible assets from Northrop Grumman in
November 1999.
LOSS FROM BEACON POWER CORPORATION. Loss from Beacon Power decreased by
$3.0 million or 78% from $3.8 million to $828,000. During the nine months ended
June 30, 2000, we recorded $828,000 of our share of Beacon Power's losses under
the equity method of accounting. As of December 31, 1999, our investment in
Beacon Power had been reduced to zero, however, we continue to record losses
from Beacon Power to the extent of additional dividends accrued on the
contingent obligation of the class D preferred stockholders of Beacon Power.
During the nine months ended June 30, 1999, we recorded 100% of Beacon Power's
losses of $3.6 million in accordance with SAB 30, in a manner similar to the
equity method of accounting through May 1999 and in June 1999, we began
accounting for our investment in Beacon Power under the equity method of
accounting and recorded our share of Beacon Power's losses of $272,000.
31
<PAGE>
OTHER INCOME (EXPENSE), NET. Other income, net increased to $276,000 from
$193,000 of other expense, net. The increase was the result of an increase in
cash and cash equivalents being maintained in interest-bearing accounts and a
decrease of interest expense associated with our line of credit.
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1998
PRODUCT REVENUE. Product revenue increased $1.6 million or 21% from
$7.5 million to $9.1 million. Product revenue increased by $396,000 for power
electronics products and $1.2 million for motion control products.
FUNDED RESEARCH AND DEVELOPMENT REVENUE. Funded research and development
revenue decreased by $1.7 million or 21% from $8.0 million to $6.4 million.
During the year ended September 30, 1999, we devoted more resources to
internally funded research and development programs including the development of
power conversion products for the distributed power generation market.
GROSS MARGIN. Gross margin decreased by $4.1 million from $10.1 million to
$6.0 million. Gross margin from products decreased by $2.4 million and funded
research and development revenue decreased by $1.7 million. Gross margin from
product revenue as a percentage of product revenue decreased to (4)% of product
revenue in 1999 from 27% in the prior year. Gross margin from product sales as a
percentage of product revenue decreased due to increased costs incurred in
developing new products and for additional staffing and facility costs. In
addition, we also recorded a $900,000 provision for obsolete and slow moving
inventory.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
$240,000 or 4% from $6.8 million to $6.6 million. The decrease was the result of
accounting for our investment in Beacon Power as of December 24, 1997 in
accordance with SAB 30 and thus no longer including Beacon Power's research and
development expenses in our results. In 1998, we included $1.2 million of Beacon
Power's research and development expenses in our results through December 24,
1997, at which time we began accounting for our investment in Beacon Power in
accordance with SAB 30. This decrease was partially offset by an increase in our
effort to develop distributed power conversion systems and other internal
research and development programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.3 million or 95% from $4.5 million to
$8.8 million. This increase was primarily due to $2.2 million of non-cash,
stock-based compensation expense related to the issuance of stock options and
warrants to consultants in 1999, $1.0 million of additional reserves for
unbilled contract costs and fees and accounts receivable and $800,000 in costs
for facilities and staffing in an effort to meet expected growth and demand for
our products.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased $80,000 or
27% from $291,000 to $371,000. This increase was the result of the acquisition
of Inductive and Lighthouse in January 1999.
LOSS FROM BEACON POWER CORPORATION. Loss from Beacon Power increased $868,000
or 25% from $3.5 million to $4.3 million. As of December 24, 1997, we began
accounting for our investment in Beacon Power in accordance with SAB 30 and we
have included 100% of Beacon Power's net loss of $3.5 million in our results
during the year ended September 30, 1998 in a manner similar to the equity
method of accounting. During 1999, we continued to account for our investment in
Beacon Power in accordance with SAB 30 until May 1999 and have included $3.6
million of Beacon Power's net loss in our results during that period. In June
1999, we began accounting for our investment in Beacon Power under the equity
method of accounting and have recorded an additional $734,000 of our share of
losses from Beacon Power during 1999.
OTHER INCOME (EXPENSE), NET. Other expense, net increased to $224,000 from
$170,000 of other income, net as a result of increased interest expense and
decreased interest income.
32
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1997
PRODUCT REVENUE. Product revenue increased by $3.8 million or 102% from
$3.7 million to $7.5 million. The increase in product revenue was primarily due
to the impact of recording a full year of revenue in 1998 for MagMotor and Film
Microelectronics versus recording less than a full year of revenue during 1997.
FUNDED RESEARCH AND DEVELOPMENT REVENUE. Funded research and development
revenue decreased by $727,000 or 8% from $8.7 million to $8.0 million. During
the year ended September 30, 1998, we devoted more resources to internally
funded research and development programs including the development of power
conversion products for the distributed power generation market.
GROSS MARGIN. Gross margin increased by $274,000 from $9.8 million to
$10.1 million. Gross margin from products increased by $1.0 million while funded
research and development revenue decreased by $727,000. Gross margin from
product revenue as a percentage of product revenue decreased to 27% of product
revenue from 28% in the prior year. Gross margin from product revenue as a
percentage of product revenue decreased due to increased costs incurred in
developing new products and for additional staffing and facility costs.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
$4.6 million or 41% from $11.4 million to $6.8 million. During 1997, we expensed
$4.3 million of product development costs related to Beacon Power's flywheel
system and the Integrated Suspension and Motor System (ISAM) products. In
December 1997, we began accounting for our investment in Beacon Power in
accordance with SAB 30 and only included $1.2 million of Beacon Power's research
and development expenses in our fiscal year 1998 results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $1.7 million or 27% from $6.2 million to
$4.5 million. During 1997, we established a reserve of $500,000 for expenses,
primarily lease cancellation costs relating to the consolidation of our Tucson
Space division into our Technology Center. In 1997, we also included
$1.1 million of selling, general and administrative expense of Beacon Power in
our results. In December 1997, we began accounting for our investment in Beacon
Power in accordance with SAB 30 and only included $39,000 of Beacon Power's
selling, general and administrative expenses in our fiscal year 1998 results.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased $171,000 or
143% from $120,000 to $291,000. The increase was the result of a full year of
goodwill amortization in connection with the acquisitions of MagMotor and Film
Microelectronics.
LOSS FROM BEACON POWER CORPORATION. As of December 24, 1997, we began
accounting for our investment in Beacon Power in accordance with SAB 30 and we
have included 100% of Beacon Power's net loss of $3.5 million in our results
during the year ended September 30, 1998 in a manner similar to the equity
method of accounting.
OTHER INCOME (EXPENSE), NET. Other income, net decreased $99,000 or 37% from
$269,000 to $170,000. The decrease was primarily the result of a decrease of
interest income on marketable securities.
33
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly statement of operations data
for the eight quarters ended June 30, 2000. This data has been prepared on a
basis consistent with our audited financial statements appearing elsewhere in
this prospectus. This data includes all adjustments, consisting solely of normal
recurring adjustments, that we believe necessary for a fair presentation of this
information. The operating results for any quarter are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999 1999 1999 2000 2000
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Product revenue....................... $ 2,077 $ 1,995 $ 1,772 $ 2,623 $ 2,733 $ 3,161 $ 5,648 $ 5,459
Funded research and development
revenue............................. 1,743 1,730 1,890 1,469 1,266 1,395 1,896 3,235
------- ------- ------- ------- ------- ------- ------- -------
Total revenue......................... 3,820 3,725 3,662 4,092 3,999 4,556 7,544 8,694
Cost of product revenue............... 1,887 1,524 1,915 3,288 2,784 3,001 4,886 4,599
------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......................... 1,933 2,201 1,747 804 1,215 1,555 2,658 4,095
------- ------- ------- ------- ------- ------- ------- -------
Research and development expenses..... 1,001 1,428 1,465 2,136 1,526 1,723 1,893 3,944
Selling, general and administrative
expenses............................ 1,133 990 1,029 5,176 1,624 2,032 2,420 2,555
Amortization of intangibles........... 78 78 94 101 98 243 329 323
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 2,212 2,496 2,588 7,413 3,248 3,998 4,642 6,822
------- ------- ------- ------- ------- ------- ------- -------
Operating loss........................ (279) (295) (841) (6,609) (2,033) (2,443) (1,984) (2,727)
Loss from Beacon Power Corporation.... (1,099) (1,440) (1,383) (1,006) (512) (563) (148) (116)
Other income (expense), net........... 27 20 (26) (186) (31) 30 99 146
------- ------- ------- ------- ------- ------- ------- -------
Net loss before income taxes.......... (1,351) (1,715) (2,250) (7,801) (2,576) (2,976) (2,033) (2,697)
Provision for income taxes............ 4 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net loss.............................. (1,355) (1,715) (2,250) (7,801) (2,576) (2,976) (2,033) (2,697)
Accretion of redeemable convertible
preferred stock discount............ -- -- -- -- (51) (156) (2,950) --
------- ------- ------- ------- ------- ------- ------- -------
Net loss attributable to common
stockholders........................ $(1,355) $(1,715) $(2,250) $(7,801) $(2,627) $(3,132) $(4,983) $(2,697)
======= ======= ======= ======= ======= ======= ======= =======
Net loss per share, basic and
diluted............................. $ (0.15) $ (0.19) $ (0.25) $ (0.85) $ (0.28) $ (0.29) $ (0.40) $ (0.20)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of common
shares, basic and diluted........... 9,008 8,980 9,059 9,177 9,488 10,793 12,398 13,642
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital expenditure
requirements primarily through the sale of private equity securities, public
security offerings, borrowings on our line of credit and capital equipment
leases.
As of June 30, 2000, our cash and cash equivalents were $9.6 million, an
increase of $7.0 million from September 30, 1999. Cash used in operating
activities for the nine months ended June 30, 2000 was $4.6 million as compared
to $3.0 million in 1999. Cash used in operating activities during the nine
months ended June 30, 2000 was primarily attributable to our net loss and an
increase in accounts receivable partially offset by depreciation and
amortization.
Cash used in investing activities during the nine months ended June 30, 2000 was
$1.5 million as compared to $793,000 in 1999. Net cash used in investing
activities during the nine months ended June 30, 2000 included capital
expenditures of $1.0 million and an investment in Beacon Power of $333,000. We
estimate that we will spend an additional $11.0 million on capital expenditures
through fiscal year 2001 primarily at our Advanced Fuel Cell Power Products
division to expand our capacity to manufacture our power conversion products. We
expect these additions will be financed from cash on hand and from lease
financing.
34
<PAGE>
Cash provided by financing activities for the nine months ended June 30, 2000
was $13.1 million as compared to $3.1 million in 1999. Net cash provided by
financing activities during the nine months ended June 30, 2000 includes net
proceeds of $7.0 million from the sale of our common stock and $6.5 million from
the exercise of common stock options and warrants.
On October 23, 1998, we granted the purchasers of Beacon Power's class D
redeemable preferred stock the right to cause us under certain circumstances to
purchase all of Beacon Power's shares of class D redeemable preferred stock
issued to those purchasers and upon exercise of this put right, we must pay
$4.8 million plus cumulative dividends at 12.5% per year since October 23, 1998
through May 22, 2000, and 6% per year thereafter, in our common stock. We have
recorded as of June 30, 2000, the face value of the put right of $4.8 million
plus cumulative dividends of $973,000 as a liability. If the put right is
exercised, we would reclassify the value of the contingent obligation to the
class D preferred stockholders of Beacon Power to common stock and additional
paid-in capital.
We anticipate that the existing $9.6 million in cash and cash equivalents at
June 30, 2000 will be sufficient to fund operations for at least the next twelve
months. However, there can be no assurance that we will not require additional
financings within this time frame or that any additional financing, if needed,
will be available to us on terms acceptable to us, if at all.
EFFECTS OF INFLATION
We believe that inflation and changing prices over the past three years have not
had a significant impact on our net revenue or on our income from continuing
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell them worldwide. As a result,
our financial results could be affected by factors such as changes in foreign
exchange rates or weak economic conditions in foreign markets. Since our sales
are currently priced in U.S. dollars and are translated to local currency
amounts, a strengthening of the dollar could make our products less competitive
in foreign markets. Interest income is sensitive to changes in the general level
of U.S. interest rates, particularly since our investments are in short-term
instruments. Based on the nature and current levels of our investments, however,
we have concluded that there is no material market risk exposure.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which defers the effective date of Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities" to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair value. We will adopt
SFAS No. 133 beginning in the first quarter of the fiscal year ending
September 30, 2001. Upon adoption of SFAS No. 133, we will be required to record
any unrealized gains or losses on the fair value of our investment in
derivatives in our results of operations. Adoption of SFAS No. 133 is not
currently expected to have a material impact to our consolidated financial
position, results of operations or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition." This Bulletin, as amended, established guidelines for revenue
recognition and is effective for fiscal year 2001. We do not expect that the
adoption of the guidance required by SAB No. 101 will have a material impact on
our financial condition or results of operations.
35
<PAGE>
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion
No. 25." This Interpretation clarifies the application of Opinion 25, including
(a) the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequences of various modifications to the terms of a
previously fixed stock option or award and (d) the accounting for an exchange of
stock compensation awards in a business combination. The Interpretation is
effective July 1, 2000, and the effects of applying the Interpretation are
recognized on a prospective basis. We do not expect that the adoption of this
Interpretation will have a material impact on our financial condition or results
of operations.
36
<PAGE>
BUSINESS
OVERVIEW
We are developing enabling technologies for the emerging distributed power
generation and power quality markets. We design, develop and manufacture
high-efficiency, high-reliability and long-lived power and energy management
products. Our products convert, condition, store and manage electricity for
businesses and consumers that require high-quality, uninterruptible power. We
are utilizing our engineering and manufacturing expertise to develop products to
serve the distributed power generation and power quality markets, including
products for fuel cell and microturbine power generation systems,
hybrid-electric vehicles and flywheel energy storage systems. We believe the
family of products we are developing will be integral components of distributed
power generation and power quality systems.
We and our affiliate, Beacon Power, are focusing our development and
manufacturing efforts on products for high-growth markets in the following
categories:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY MARKET PRODUCT DESCRIPTION
---------------- -------------- -------------------
<S> <C> <C>
Power electronics and control Distributed power generation: Convert, condition and manage
software fuel cells and microturbines electricity
High-performance motors and Hybrid-electric vehicles Transform electricity to
electric drivetrains mechanical energy for
propulsion and auxiliary uses
Beacon Power's flywheel Uninterruptible power Provide back-up energy
energy storage systems supplies storage and power quality for
telecommunications and
computer networks to replace
lead-acid batteries
</TABLE>
We are working with companies in the distributed power generation and power
quality markets to develop products that we believe will establish industry
standards. Plug Power, Inc., H Power Corp. and IdaTech LLC, formerly Northwest
Power Systems LLC, are currently evaluating our PowerGate-TM- power electronics
and control software for use in residential fuel cell power generation systems.
In addition, we have received an order from Nuvera Fuel Cells for two of our
PowerGate-TM- power converters. We are also working with FuelCell Energy, Inc.
to develop our MegaVerter-TM- power electronics and control software for use in
industrial fuel cell power generation systems. A major automotive manufacturer
is evaluating our high-performance motors for auxiliary uses in fuel cell
hybrid-electric vehicles. Beacon Power has received an order for 100 flywheel
energy storage systems from TLER Associates Ltd. and an initial order for
flywheels from Cox Communications, Inc. In addition, Beacon Power is conducting
field tests of its flywheel energy storage systems with Bell Atlantic Network
Services, Inc., now part of Verizon Communications, Century Communications
Corporation, now part of Adelphia Communications Corporation, and WinDBreak
Cable.
Beacon Power is developing flywheel energy storage systems using technology
developed by us and licensed to Beacon Power. As of June 30, 2000, we owned
approximately 3.5% of the outstanding voting stock of Beacon Power and 32.1% of
the capital stock of Beacon Power on a common equivalent basis after taking all
dividend accruals into account. As of June 30, 2000, we owned approximately
24.8% of the capital stock of Beacon Power on a fully diluted basis after giving
consideration to all outstanding options and warrants, other than warrants
issued on May 23, 2000 to investors in Beacon Power, the number of shares
subject to which is not ascertainable until consummation of an initial public
offering of Beacon Power's common stock. See "--Beacon Power Corporation." On
August 9, 2000, Beacon Power filed a registration statement with the SEC for an
initial public offering of its common stock.
37
<PAGE>
We have specialized engineering expertise in the areas of power electronics,
electromechanics, mechanical and thermal dynamics, system controls and
microelectronic design. Since 1995, we have leveraged research and development
funding from industry and government sources to design, develop and manufacture
electronics for power conversion, amplification and storage, high-performance
electric motors, electric drivetrains, flywheel energy storage systems and
system controls software. We continue to pursue industry and government funding
to supplement the on-going development of our products.
INDUSTRY BACKGROUND
The distributed power generation and power quality industries are entering a
period of rapid expansion as products approach commercialization and mass
production. In the United States, this expansion is being driven by several
factors, including:
- INCREASING DEMAND FOR ELECTRICITY, DRIVEN BY THE PROLIFERATION OF
COMPUTERS AND E-COMMERCE. The demand for electricity has increased rapidly
in recent years due in large part to the use of computers, the Internet,
e-commerce and telecommunications products. According to the Energy
Information Administration, or EIA, over the past two decades, the
percentage of energy provided by electricity to U.S. housing units
increased from 23% of all energy consumed in 1978 to 35% in 1997. In a
1999 report, Greening Earth Society science advisor Mark Mills estimated
that the share of all U.S. electricity currently consumed by
computer-based microprocessors was 13% and that within two decades, 30% to
50% of the nation's electric supply may be required to meet the direct and
indirect needs of the Internet. This growth continues a long-term trend
toward electrification of energy use throughout the developed world.
- GROWING DEMAND FOR HIGH-QUALITY POWER, AS MORE MISSION-CRITICAL AND
SENSITIVE ELECTRONICS ARE CONNECTED TO THE ELECTRIC UTILITY GRID. The
growing importance of e-commerce and the proliferation of electronics and
computer networks that are power-quality sensitive has heightened the
awareness of the importance of the quality and reliability of electricity.
Power-quality problems such as power outages, voltage instability and low
voltage in the power delivery network are significant problems for modern
computers and telecommunications equipment. As the Internet economy grows,
avoiding downtime and damaged equipment due to power-related problems will
become increasingly important. According to the Electric Power Research
Institute, or EPRI, power disruptions cost the economy approximately
$30 billion each year.
- CAPACITY CONSTRAINTS ON THE ELECTRIC UTILITY GRID THAT HAVE RESULTED IN
DECREASED RELIABILITY IN CERTAIN POWER MARKETS. Historically, the growth
in the demand for electricity has met the expansion of the existing
infrastructure, including additional investments in centralized generating
plants, high-voltage transmission lines and distribution wires. Reliance
upon this infrastructure has been and continues to be problematic for a
number of reasons. First, according to the Department of Energy, capacity
reserve margins have decreased from 33% in 1982 to 15% in 1997, indicating
the increased potential for power outages during peak periods. Second,
some areas of the country have experienced capacity constraints and
weather-related outages due to the nature of the existing transmission and
distribution system. Finally, there is difficulty in finding suitable
locations for additional generating plants and transmission towers, due to
environmental concerns and local zoning laws.
- HEIGHTENING ENVIRONMENTAL CONCERNS REGARDING TRANSPORTATION VEHICLES AND
CONVENTIONAL POWER GENERATION. Among the most significant environmental
effects of energy production and consumption is the emission of greenhouse
gases, such as carbon dioxide, methane and nitrous oxide. The United
States, as one of the world's largest producers and consumers of fossil
fuels, is responsible for a major portion of the global energy-related
emissions. Utilities, due to their reliance on coal-burning power plants,
and automobiles are two of the largest sources of air
38
<PAGE>
pollution. Environmental concerns, such as those that prompted the Kyoto
Protocol, are emphasizing the need to find cleaner forms of transportation
and power generation.
As a result of these market dynamics, power generation and environmental
concerns, business and residential consumers are seeking more reliable, cleaner
and cost-effective alternatives to traditional power generation. We believe that
distributed power generation and power quality products will meet these demands.
We are focused on selling our enabling products into the distributed power
generation, hybrid-electric vehicle and uninterruptible power supply markets.
DISTRIBUTED POWER GENERATION
With the deregulation of the electric utility industry, the ability to offer new
forms of electrical power generation such as distributed power generation is
creating new markets, products and opportunities. Distributed power, or on-site
power independent of the electric utility grid, locates power generating
capability closer to the end user. The distributed generation of electrical
power from fuel cells or microturbine systems is potentially an environmentally
cleaner, more efficient and more reliable means of producing electricity
compared to conventional generation and distribution methods. Distributed power
generation systems can also alleviate congestion on highly loaded utility
distribution networks and offer an alternative to power line extensions in
remote regions. In response to the many power outages in 1999, the U.S.
Department of Energy's Power Outage Study Team recommended the increased use of
distributed power. Fuel cells and microturbines are two technologies that are
being developed to address the distributed power generation market.
Fuel cells are power generation devices that combine hydrogen, derived from a
source such as natural gas or propane, with oxygen to create electricity through
an electrochemical reaction rather than through internal combustion. As a
result, fuel cells release only a minimal amount of carbon dioxide into the
atmosphere. The only other by-products of fuel cell power generation systems are
water and heat, which can be used as a supplemental source of heat for homes and
buildings. Fuel cells typically generate a varying level of low-voltage direct
current, or DC, electricity which is then converted to useable alternating
current, or AC, electricity using power electronics and control software.
Microturbines are small turbines that generate electricity. Microturbines
operate on the same principle as a jet engine but can use a variety of
commercially available fuels, such as natural gas, diesel, kerosene and propane.
Microturbines generate a high-frequency AC electricity, which is then converted
to useable household or industrial current through power electronics and control
software.
HYBRID-ELECTRIC VEHICLES
Prices of oil and refined products will strongly influence the demand for
hybrid-electric vehicles. In the last year, significant increases in crude oil
and gasoline prices have renewed a national public policy debate regarding
substitute fuel sources. We believe these higher prices, if sustained, will
increase demand for substitute fuel sources and may result in regulatory
incentives to develop and commercialize vehicles powered by alternative fuel
sources.
In addition, automobiles are a major contributor to air pollution, and we
believe that new hybrid-electric vehicles can help to solve this problem. The
Clean Air Act Amendments of 1990 and the National Energy Policy Act of 1992 have
caused automobile manufacturers to concentrate on the development of
low-emission vehicles and zero-emission vehicles such as hybrid-electric or
electric vehicles. The California Air Resource Board also has adopted
regulations that require 10% of a manufacturer's new car sales in California be
zero-emission vehicles by 2003.
While electric cars offer the promise of zero emissions, they are unable to
provide the driving range and performance demanded by consumers due to
performance limitations of existing battery power technology. Hybrid-electric
vehicles can reduce air pollution while offering greater driving range and
39
<PAGE>
performance than electric vehicles. Hybrid-electric vehicles function by
creating mechanical energy from a source such as an internal combustion engine
or fuel cell. The mechanical energy is then transformed into electricity by a
generator and transferred to an electric drivetrain which propels the vehicle.
Excess electricity is stored in an energy storage system consisting of a battery
or flywheel. All hybrid-electric vehicles require complex power and control
electronics to convert, condition and manage electricity, as well as
high-performance motors, electric drivetrains and energy storage systems.
We believe that fuel cell hybrid-electric vehicles have the potential to be the
leading alternative to internal combustion engines in meeting clean air
initiatives while offering greater driving range and performance than electric
vehicles. The U.S. government has formed the Partnership for a New Generation of
Vehicles with Ford Motor Co., General Motors Corp. and DaimlerChrysler AG to
develop hybrid-electric vehicles that will be capable of achieving 80 miles per
gallon by 2004, and we believe that each of these automakers have made
significant progress in developing hybrid-electric vehicles.
UNINTERRUPTIBLE POWER SUPPLIES
Uninterruptible power supply, or UPS, systems maintain a predictable quality of
electricity during power outages or periods of low power quality. As a result,
UPS systems are used to support the operation of computers, manufacturing
facilities and communication and other electronic networks in the event of power
losses. Of these applications, we believe the communications market will be
among the earliest adopters of UPS systems. Low power quality represents
problems for industries where equipment can lose synchronization and shut down
during brief power disruptions. The growth of the Internet, e-commerce and
automated manufacturing is driving the demand for UPS systems. As technology
further impacts all segments of the economy, a larger group of businesses and
individuals are demanding more reliable, high-quality power.
A leading market for UPS systems is voice, data and cable networks since these
networks must maintain operation in the event of power loss. Currently, when
power is lost or its quality drops, lead-acid batteries provide back-up
electricity until a generator can be engaged. Batteries are typically stored in
central locations in easily maintained, climate-controlled rooms. However, the
increased demand for communication bandwidth, the growth of fiber-optic
technology and the desire to locate telephone switching equipment closer to end
users is driving the trend to locate back-up battery systems in remote storage
cabinets throughout communication networks. Because these remote storage
cabinets are not climate-controlled, batteries have poor reliability and reduced
life expectancy. The dangers of explosion and acid spills are additional
environmental concerns associated with lead-acid batteries.
We believe that flywheel energy storage systems present an attractive
alternative to lead-acid batteries due to their long life and ability to operate
effectively in remote locations. An electric motor spins a flywheel to its
operating speed. While the flywheel spins on magnetic bearings in a vacuum, it
stores kinetic energy. During power outages or periods of low power quality, the
flywheel motor converts to a generator and, like a battery, transfers the stored
electricity to the end user.
OUR OPPORTUNITY
The increased demand for reliable, high-quality, cleaner power is creating a
growing market for distributed power generation and power quality systems. All
of these systems require power and energy management products to convert,
condition, store and manage electricity. In order to be commercially viable and
operate effectively, these power and energy management products must be highly
reliable, efficient, low-cost and compact. Many of these products must be highly
customized to meet the evolving needs of the distributed power generation and
power quality marketplace. We believe that a
40
<PAGE>
significant opportunity exists to manufacture and supply power and energy
management products that meet these criteria.
OUR SOLUTION
Our solution is to provide critical power products and systems necessary for the
successful commercialization of distributed power generation and power quality
systems. Our products and systems include our PowerGate-TM- and MegaVerter-TM-
power electronics, MicroGrid-TM- control software, GridLink-TM- utility
interface, high-performance motors and electric drivetrains and a flywheel
energy storage system being developed by Beacon Power. We believe our solution
encompasses the following key attributes demanded by the emerging distributed
power and power quality markets:
- PERFORMANCE. At a minimum, distributed power generation and power quality
systems must provide the same degree of quality power that is provided by
the traditional electric utility system. Our products use proprietary
designs to ensure that high-quality power is produced during peak as well
as steady-state operations.
- RELIABILITY. We design our products to support the long-life, always-on
requirements of the distributed power generation and power quality
markets. We have experience designing and manufacturing high-reliability,
long-life electronics for applications such as aircraft navigation systems
and satellite uplink electronics. We design, manufacture and test our
electronics to last at least fifteen years.
- EFFICIENCY. The overall efficiency of a distributed power generation
system, or its ability to deliver power with minimum energy loss, is vital
to its effective commercialization and depends on the efficiency of all of
its component parts. We apply our power electronics expertise to design
and manufacture our products to meet the efficiency needs of our
customers.
- LOW-COST. The widespread commercial acceptance of distributed power
systems is dependent upon the reduction in cost of key components. We
design our products to be low-cost by making them as compact and as easy
to manufacture as possible. During 2000, we installed equipment for a
semi-automated production line in our Marlborough, Massachusetts facility
which will further automate the manufacturing process for fuel cell power
conversion products thereby reducing the cost of these systems. We expect
to have this production line operational by December 2000.
- HIGH POWER DENSITY. High power density, or the ability to convert,
condition and manage large amounts of energy within a compact design, is
required for cost reduction and is critical in applications such as
automobiles where weight and space requirements are stringent. We design
our products to meet the distributed power market's demands for high power
density.
- FLEXIBILITY. Due to the rapidly evolving nature of the distributed power
and power quality industries, our engineers work closely with our
customers to address overall systems design issues as well as to ensure
that our products meet their system specifications. We develop and
manufacture our products for use in various distributed power generation
and power quality systems that are modular and scalable to meet a wide
range of power requirements.
STRATEGY
Our objective is to be a leading provider of the power and energy management
products necessary for the successful commercialization of distributed power
generation systems, such as fuel cells and microturbines, hybrid-electric
vehicles and power quality products, such as flywheel energy storage systems. We
believe that by designing and developing our products across multiple markets
and multiple applications, our success should be less dependent upon the
adoption of a specific application
41
<PAGE>
or on the business of a single market participant. To accomplish our objective,
we are pursuing the following key strategies:
- DESIGN AND DEVELOP INNOVATIVE POWER AND ENERGY MANAGEMENT PRODUCTS. We are
developing proprietary products that are integral components in
distributed power generation and power quality systems. We believe that we
have a competitive advantage resulting from our engineering expertise in
the areas of power electronics, electromechanics, mechanical and thermal
dynamics, system controls and microelectronic design. Since 1995, we have
leveraged research and development funding from government and industry
sources. We currently own 58 U.S. patents and have 14 patent applications
pending with the U.S. patent and trademark office. In addition, 36 other
patents have been issued to our employees and assigned to DaimlerChrysler
through the Chrysler Patriot racecar project.
- ESTABLISH OUR PRODUCTS AS INDUSTRY STANDARDS. We seek to establish our
power conversion products as industry standards and become a major
supplier to the distributed power generation and power quality markets. We
believe that our engineering expertise, high-reliability manufacturing and
industry relationships position us to establish the industry standards for
our distributed power generation and power quality products. We will
continue to focus on establishing strategic relationships with leading
companies in the distributed power generation and power quality industries
for the development, manufacture and supply of key component parts.
- INSTALL LOW-COST, HIGH-VOLUME MANUFACTURING CAPABILITIES. We seek to
establish low-cost, high-volume manufacturing capabilities to give us a
competitive advantage in our markets. We are developing semi-automated
manufacturing processes and expanding our manufacturing capacity in order
to reduce costs as production volumes increase. During 2000, we installed
equipment for a semi-automated production line in our Marlborough,
Massachusetts facility that we expect to be capable of producing up to
25,000 of our residential fuel cell power conversion systems annually. We
expect to have this production line operational by December 2000. In the
future, we expect to add additional production lines for fuel cell power
conversion systems as demand dictates.
- ACQUIRE NEW PRODUCTS, MANUFACTURING CAPABILITIES AND TECHNOLOGIES. We
believe that the acquisition of new products, manufacturing capabilities
and technologies will enhance our competitive position and growth
opportunities. Historically, the acquisition of products or companies has
been a key element of our business strategy, and we anticipate that
acquisitions will continue to play a role in our strategy.
PRODUCTS
We design, develop and manufacture high-efficiency, high-reliability and
long-lived power and energy management products that convert, condition, store
and manage electricity. We are using our electronics and manufacturing expertise
to develop products that meet the high-reliability, high-efficiency, low cost
and compact size requirements of the distributed power generation and power
quality markets. Our products include the following:
POWER ELECTRONICS AND CONTROL SOFTWARE
- CONVERTERS. We sell converters which are electronic devices that convert
one type of electricity to another, such as DC electricity at one voltage
level to DC electricity at another voltage level. We have developed and
sold customized converters that are integrated into systems such as the
Chrysler Patriot hybrid-electric racecar, Allied Signal's microturbine
auxiliary power unit for aircraft and Williams International's
microturbine hybrid-electric automobile drivetrains. We also manufacture
and sell power converters as part of the motor controllers in our DC motor
products.
42
<PAGE>
- INVERTERS. We sell inverters which are electronic devices that switch DC
electricity to AC electricity. We have developed and sold customized
inverters for use on ships as part of motor drives, in helicopter hoist
systems, in the Chrysler Patriot hybrid-electric racecar, in connection
with the Power Electronics Building Blocks program for the Office of Naval
Research and in the microturbine hybrid-electric drivetrain electronics
that we developed for Williams International.
- CONTROLLERS. We sell controllers, which are a combination of electronics
and software, that monitor and regulate power flow from various system
components to ensure that end-use power requirements are satisfied. Our
controllers include proprietary digital signal processing software that
allows them to control a wide range of power sources, including batteries,
flywheels, fuel cells and microturbines. We sell controllers for a variety
of applications including distributed power generation and power quality
systems, motors and magnetic levitation systems. Our controller, the
MicroGrid-TM-, controls the flow of electricity to and from the various
components of the fuel cell power generation system. The MicroGrid-TM- is
available separately or as part of our residential fuel cell power
conversion system.
- FUEL CELL POWER CONVERSION SYSTEM. We have developed a PowerGate-TM-
residential fuel cell power conversion system that combines DC to DC
converters, a DC to AC inverter and a MicroGrid-TM- controller with
control software. We have also developed our GridLink-TM- utility
interface which is designed to allow distributed power generation systems
such as fuel cells, microturbines, UPS systems and others to operate in
either grid-parallel (connected to the grid) or grid-independent
(disconnected from the grid) modes. The following diagram outlines the
various components of a typical fuel cell power generation system and
identifies our products that have been developed for use in the system:
43
<PAGE>
Within a box, there is a diagram entitled "PowerGate-TM- Power Conversion
System." Preceding the diagram is the following text: "In a typical residential
fuel cell power generation system, a fuel processor separates hydrogen from a
hydrocarbon source, such as natural gas. The fuel cell stack then creates low
power DC electricity through an electrochemical reaction. By-products from the
fuel cell stack are heat and hot water which can be used in the home. Since the
fuel cell stack generates the average amount of electricity needed, the energy
storage device, such as a lead-acid battery or Beacon Power's flywheel, stores
electricity to handle peak loads created when several appliances call for more
than the average amount of power. Our power conversion system, shown below,
transitions the power into useable AC electricity while transferring the power
between the fuel cell power generation system.
The diagram follows, which is a graphic portrayal of the different components of
the PowerGate-TM- Power Conversion System, with arrows flowing from and to
numbered boxes, and a graphical representation of a power utility transmission
tower and a residential dwelling. The boxes are shaded to denote which products
are manufactured by SatCon and which products are manufactured by SatCon's
affiliate, with a corresponding legend.
Beneath the diagram, is the following text, numbered to correspond to the
numbers in the boxes in the diagram above:
1. "Motors and motor controllers are used for auxiliary functions, such as
pumps that provide compressed air for the fuel cell.
2. The MicroGrid-TM- power converter controller and software determines where
the DC electricity needs to be routed--either to the home or to the energy
storage device.
3. The DC to DC converters transfers DC power between the fuel cell stack, the
energy storage device and the DC to AC inverter.
4. The DC to AC inverter provides high-quality AC electricity to the home.
5. The GridLink-TM- utility interface allows the power generation system to
operate in either grid-parallel (connected to the electric utility grid) or
grid-independent (disconnected from the electric utility grid) modes.
6. An energy storage device, such as a lead-acid battery or Beacon Power's
flywheel, can be used to provide power to support higher load requirements
when operating independent from the electric utility grid."
The entire PowerGate-TM- Power Conversion System graphic and explanatory text is
surrounded by a box.
Our products have been developed for use in both residential and larger
industrial fuel cell power generation systems. Plug Power, H Power and IdaTech
are currently evaluating our PowerGate-TM- power electronics and control
software for use in their residential fuel cell power generation systems, and we
have received orders for 30 of our residential fuel cell power conversion
systems from Plug Power, orders for three systems from H Power, orders for two
systems from Nuvera Fuel Cells and an order for one system from IdaTech.
We have also developed a technology to make modular inverter units that can be
combined and scaled to handle high-power requirements. Using this technology, we
developed the MegaVerter-TM- for use in connection with large, commercial sized,
fuel cell or microturbine power generation systems that
44
<PAGE>
produce power ranging from 200 kilowatts to 5 megawatts. We have a collaborative
arrangement with FuelCell Energy to develop power electronics and control
software for use in their industrial fuel cell power generation system. Under
this agreement, we plan to install a MegaVerter-TM- in a 250 kilowatt fuel cell
power generation system that is currently powering FuelCell Energy's facility in
Danbury, Connecticut.
- HYBRID MICROCIRCUITS. We manufacture standard and custom hybrid
microcircuits, which are a combination of several electronic components
imbedded in a miniature printed circuit board. Due to their size,
versatility and high reliability, these hybrid microcircuits are used in a
broad spectrum of applications including communications, industrial,
medical, military and aerospace. Some of our microcircuit products
include:
- Radio frequency amplifiers that are currently used in satellite uplink
systems such as the Mobil SpeedPass, satellite television and wireless
Internet service,
- Motor controllers, such as high reliability motor controllers for
helicopter hoist systems, and
- Video amplifiers, such as those used for a cruise missile video camera
system.
- THIN FILM SUBSTRATES. Thin film substrates are miniature printed circuits
onto which small electronic components are mounted, such as those used in
hybrid microcircuits. Our thin film products are integrated into
electronic devices that require small, high-reliability components such as
cellular telephones and other wireless communications devices. We
manufacture power resistors for cellular telephones using aluminum nitride
as the thin film substrate instead of beryllium oxide. Beryllium oxide is
hazardous, and its use in manufacturing is restricted in the United States
and banned in Europe. In addition to producing thin film substrates for
other manufacturers, we use our thin film substrates in our own hybrid
microcircuit products.
- AMPLIFIERS. We sell amplifiers which take an input signal and replicate it
using amplified power to boost the signal. We sell amplifiers for a
variety of applications, including telecommunications uplinks, power
amplifiers for aircraft applications and video amplifiers for cruise
missiles. In addition, since our acquisition of Ling Electronics in
October 1999, we have begun to sell a line of digitally modulated power
amplifiers. We sell these amplifiers individually and as components of our
shaker vibration test systems.
HIGH-PERFORMANCE MOTORS AND ELECTRIC DRIVETRAINS
We design and manufacture a variety of standard and custom high-performance
motors to suit specific applications. Our specialty motors are typically
designed and manufactured for unique customer requirements such as high
power-to-size requirements or high efficiency. We believe that our technical and
design expertise enables us to shorten the time between receiving customer
specifications and designing and building motors that meet these specifications.
Some of our products include:
- FUEL CELL MOTORS. We are currently developing a line of high-performance
motors for auxiliary uses, such as fuel pumps, in fuel cell
hybrid-electric vehicles. We are also developing these high-performance
motors for use in commercial and residential fuel cell power generation
systems.
- MAGNETIC LEVITATION SYSTEMS. We manufacture magnetic levitation, or
MagLev-TM-, systems that enable machinery to rotate or move without
contacting other machine parts. Our largest selling MagLev-TM- system is
the integrated suspension and motor, or ISAM, system that is sold to
Applied Materials, Inc. for silicon wafer manufacturing. Because none of
the rotating parts contact any other parts, the ISAM system does not
require lubrication and is ideal for applications such as silicon wafer
production where a contaminant-free environment is critical. Applied
Materials has the exclusive right to use this product in rapid thermal
processing equipment for silicon wafers, and we are Applied Materials'
sole source provider. MagLev-TM-
45
<PAGE>
technology is also used in the manufacture of magnetic bearings for Beacon
Power's flywheel. We have also developed MagLev-TM- systems for
applications such as vibration isolators and magnetic bearings for jet
engines and turbines. We are currently developing new applications for use
in silicon wafer manufacturing, laser printing, equipment testing and
other manufacturing applications.
- SHAKER VIBRATION TEST SYSTEMS. We sell shaker vibration test systems that
enable manufacturers to understand how their mechanical and electronic
products will perform after exposure to vibrations. Our shaker vibration
test systems are designed to replicate vibrations ranging from continuous
shaking to high impact forces such as those arising from dropping a
product on the floor or landing a plane. Our shaker vibration test systems
are used for testing a variety of products, including small electronic
components, computer hardware, consumer electronics, automobiles and
aerospace and satellite structures.
- ELECTRIC DRIVETRAINS. In November 1999, we acquired certain intellectual
property and assets from Northrop Grumman Corporation to give us the
ability to manufacture and sell electric drivetrains which convert
electricity into mechanical energy for propulsion of automobiles. Northrop
Grumman developed this intellectual property while designing a
100-horsepower electric drivetrain for DaimlerChrysler for light duty,
high-power electric vans and utility vehicles and a 230-horsepower
electric drivetrain for a 33,000 pound vehicle such as a bus or truck.
Prior to November 1999, over 300 of the 100-horsepower motors were
installed in DaimlerChrysler's electric powered interurban commuter
minivans, and a 230-horsepower electric drivetrain was installed in a Blue
Bird Corporation bus as part of the Cedar Rapids Electric Transportation
Coalition. We are currently pursuing opportunities to sell these products
in the electric drivetrain marketplace.
- INDUSTRIAL AUTOMATION MOTORS. We manufacture brush and brushless DC motors
for the industrial automation market. These small, high-efficiency motors
are available with a variety of options including optical encoders,
tachometers, brakes, custom cables and connectors. Our industrial
automation motors are typically used in semiconductor equipment
manufacturing, medical device assembly and other automated assembly
processes.
- MACHINE TOOL MOTORS. We manufacture a line of precise positioning motors
for use with machine tools such as computer numerical controlled machines.
These include machining centers, lathes and milling machines.
FLYWHEEL ENERGY STORAGE SYSTEMS
We have been developing flywheels for energy storage and other applications
since 1985. Our flywheel development programs included the development of
flywheel energy storage systems for the Chrysler Patriot hybrid-electric
vehicle, for a U.S. Marine Corps field communications system and for a combined
satellite control and energy storage system. In 1995, we began development of a
stationary flywheel energy storage system to provide uninterruptible back-up
power. In 1997, after we formed Beacon Power, we contributed this technology to
Beacon Power pursuant to an exclusive license, enabling Beacon Power to pursue
the development of a stationary, terrestrial flywheel energy storage system. See
"Beacon Power Corporation."
FUNDED RESEARCH AND DEVELOPMENT
We perform funded research and development in connection with government
programs and for third parties. We pursue funded research and development in
areas where we have technical expertise and where we believe there is
significant commercial application for the developed technology. We have
performed funded research and development in connection with the development of
each of our product areas.
46
<PAGE>
In 1999, we entered into an agreement with the U.S. Department of Energy, or
DOE, for the research, development and demonstration of a power conversion
system for a new generation of hybrid-electric vehicles. Under this government
contract, we expect to design a power conversion system that can be manufactured
at high volume and low cost. We believe that the resulting design will enable us
to enhance our manufacturing capabilities to produce our power conversion
products for distributed power generation systems. This program will be funded
half by us and half by DOE. The total DOE approved budget for this program is
$10.0 million through September 29, 2002. As of June 30, 2000, DOE has funded
$4.4 million of this budget. The additional DOE funding of $5.6 million is
subject to congressional appropriation and DOE approval.
BEACON POWER CORPORATION
BUSINESS. Since its formation, Beacon Power has been developing stationary
flywheel energy storage systems to offer customers an environmentally cleaner,
more reliable alternative to lead-acid batteries for energy storage and power
quality management. Lead-acid batteries have three primary deficiencies. Weather
extremes and frequent discharging and recharging limit their reliability and
useful lives, they cannot be remotely monitored currently, and they represent an
environmental risk due to the threat of explosion and battery acid spills.
Beacon Power is developing its flywheel energy storage system to operate in all
weather conditions, to offer remote monitoring, to have no limitations on charge
and discharge cycles and to have a longer useful life than batteries. Beacon
Power's flywheel energy storage system consists of a rotating, composite rim
that spins on magnetic bearings in a vacuum. The flywheel is powered up to its
operational speed by an internal motor. Because of negligible friction, little
power is required to maintain the flywheel's operating speed. During power
outages or periods of low power quality, the flywheel motor converts to a
generator and, like a battery, transfers the stored electricity to the end user.
The following is a diagram of a flywheel energy storage system:
Graphic of a flywheel (cutaway to reveal internal components inside protective
casing), with arrows pointing on the left hand side from the following text
descriptions to the diagram: "Vacuum Housing," "Motor/Generator," "Magnetic
Bearings" and "Composite Rim." On the right hand side of the diagram, there are
four bullets with the following text, descending from top to bottom:
- "Motor/generator draws power from a power source to spin up the flywheel.
- Flywheel spins in a vacuum on magnetic bearings with negligible friction.
- Energy is stored in the flywheel.
- To provide power, the motor transitions into a generator."
The entire flywheel cutaway graphic and explanatory text is surrounded by a box.
47
<PAGE>
Because of its advantages over lead-acid batteries, Beacon Power's flywheel
energy storage system may be a viable alternative for use in applications where
the loss or disruption of electricity could have potentially significant
economic impacts. Beacon Power's current market focus is to provide flywheel
energy storage systems to telecommunication service providers who must maintain
service during power outages. We believe that the lifetime costs and
functionality of a flywheel energy storage system will compare favorably to
lead-acid batteries in many applications. Over the long-term, if the cost of
manufacturing flywheel energy storage systems is significantly lowered, these
systems could potentially replace batteries that are planned for use in fuel
cell power generation systems.
In January 2000, Beacon Power received an order for 100 flywheel energy storage
systems for $15,000 per system from TLER. These systems will be used for back-up
power for a residential telephone system in Mexico. These systems are required
to be delivered by June 2001. In June 2000, Beacon Power received an initial
order for flywheels from Cox Communications. In addition, Beacon Power is
conducting field tests of its flywheel energy storage systems with Bell Atlantic
Network Services, Inc., now Verizon Communications, Century Communications
Corporation, now part of Adelphia Communications Corporation, and WinDBreak
Cable. Beacon Power is located in Woburn, Massachusetts, where it occupies an
approximately 20,000 square foot facility. Beacon Power has signed a lease and
expects to move into an approximately 52,000 square foot facility in the
Wilmington, Massachusetts area in the second half of 2000. As of June 30, 2000,
Beacon Power had a total of 62 full-time employees and one independent
contractor, of which approximately 46 were engineers, scientists and other
degreed professionals.
FORMATION AND FINANCING HISTORY. In May 1997, we formed Beacon Power to develop
stationary, terrestrial flywheel energy storage systems for commercial
applications. At that time, DQE Enterprises, Inc., who is currently one of our
investors, made a $5 million investment in SatCon, and we were required to
contribute the $5 million to the capital of Beacon Power to fund its development
efforts. As a condition of DQE Enterprises' investment in us, we granted Beacon
Power a perpetual, worldwide, royalty-free, exclusive right and license to our
flywheel technology for stationary, terrestrial applications.
On October 23, 1998, Beacon Power completed a $4.8 million private placement of
its class D preferred stock and warrants to Perseus Capital L.L.C., DQE
Enterprises and Micro-Generation Technology Fund, L.L.C. At that time, we
relinquished significant control of Beacon Power and Beacon Power came under the
control of its third-party investors. From June 1999 through March 31, 2000,
Beacon Power was financed through the issuance of approximately $4.7 million of
bridge notes and warrants to its investors, including approximately
$1.0 million from us. On April 7, 2000, Beacon Power issued 1,226,141 shares of
its class E preferred stock and warrants to purchase 306,535 shares of its
class E preferred stock in exchange for the conversion of all of its outstanding
bridge notes of which we received 347,407 shares of Beacon Power's class E
preferred stock and a warrant to purchase 86,852 shares of its class E preferred
stock.
On April 21, 2000, Beacon Power raised an additional $4.1 million through the
sale of additional bridge notes and warrants to purchase 41,000 shares of Beacon
Power's common stock. We did not participate in this financing. On May 23, 2000,
Beacon Power issued 6,785,711 shares of its class F preferred stock and
additional warrants to purchase shares of Beacon Power's common stock. The
exercise price and the number of shares subject to these additional warrants
will be based on the initial public offering price of Beacon Power's common
stock. The shares of class F preferred stock and the additional warrants were
issued in consideration for the cancellation of $5.2 million in bridge notes and
an additional $23.3 million cash investment by existing and new investors. We
did not participate in this financing either.
Beacon Power's class D preferred stock, class E preferred stock and class F
preferred stock accrue quarterly dividends in arrears at a rate of 6%. Beacon
Power also has consulting arrangements with
48
<PAGE>
Perseus, DQE Enterprises and Micro pursuant to which Beacon Power must pay
consulting fees in shares of its class A preferred stock.
As of June 30, 2000, we owned approximately 3.5% of the outstanding voting stock
of Beacon Power and 32.1% of the capital stock of Beacon Power on a common
equivalent basis after taking all dividend accruals into account. As of
June 30, 2000, we owned approximately 24.8% of the capital stock of Beacon Power
on a fully diluted basis after taking all dividend accruals into account and
giving consideration to all outstanding options and warrants, other than
warrants issued on May 23, 2000 to investors in Beacon Power, the number of
shares subject to which is not ascertainable until consummation of an initial
public offering of Beacon Power's common stock. See Beacon Power's financial
statements in this prospectus for more information regarding Beacon Power's
outstanding capitalization. On August 9, 2000, Beacon Power filed a registration
statement with the SEC for an initial public offering of its common stock.
BOARD COMPOSITION. Beacon Power's board of directors currently consists of
seven members. By agreement of Beacon Power's stockholders, two members are
currently designated by Perseus Capital, one member is designated by DQE
Enterprises, one member is designated by Mechanical Technology Incorporated, one
member is designated by GE Capital Equity Investments, Inc. and one member is
designated by us, which is currently David B. Eisenhaure, our chairman of the
board, president and chief executive officer. The seventh member of Beacon
Power's board of directors is William E. Stanton, Beacon Power's president and
chief executive officer.
OUR OPERATING DIVISIONS
We currently develop and market our products and services through the following
three operating segments:
POWER ELECTRONIC PRODUCTS. Our power electronic products segment consists of
the following two divisions:
ADVANCED FUEL CELL POWER PRODUCTS. Our Advanced Fuel Cell Power Products
division is establishing manufacturing facilities and processes for the
production of power electronics for the distributed power generation and power
quality markets. It also manufactures various multi-chip modules. We acquired
our Advanced Fuel Cell Power Products division's Marlborough, Massachusetts
facility in April 1999. As of June 30, 2000, we had 22 employees working in
our Advanced Fuel Cell Power Products division.
FILM MICROELECTRONICS. Our Film Microelectronics division, or FMI, designs
and manufactures standard and custom microelectronic circuits for
telecommunications, commercial and government aerospace, industrial, medical
and automotive markets. We acquired FMI in April 1997. FMI is located in North
Andover, Massachusetts and, as of June 30, 2000, had 65 employees.
MOTION CONTROL PRODUCTS. Our motion control products segment consists of the
following two divisions:
MAGMOTOR. Our MagMotor division designs and manufactures standard and custom
high-performance motors for the industrial machinery, factory automation and
automotive markets. We acquired MagMotor in January 1997. In January 1999, we
acquired Inductive Components which we integrated into our MagMotor division.
MagMotor is located in Worcester, Massachusetts and, as of June 30, 2000, had
53 employees.
LING ELECTRONICS. Our Ling Electronics division manufactures shaker vibration
test systems, power converters, amplifiers and controllers. We acquired Ling
in October 1999 from Mechanical Technology Incorporated. Ling is located in
Anaheim, California and, as of June 30, 2000, had 57 employees.
49
<PAGE>
FUNDED RESEARCH AND DEVELOPMENT. Our funded research and development segment
consists of the following two divisions:
TECHNOLOGY CENTER. Our Technology Center, located in Cambridge,
Massachusetts, focuses on funded research and development. It also supports
the product development efforts of our other operating divisions. The business
of Lighthouse that we acquired in January 1999 has been integrated into our
Technology Center. As of June 30, 2000, our Technology Center had 87 employees
of which 37 were engineers. Our engineers have 25 advanced degrees including
13 doctorates.
ELECTRONIC POWER PRODUCTS. Our Electronic Power Products division was formed
in connection with the acquisition of certain intellectual property and other
assets from Northrop Grumman in November 1999. Through this acquisition, we
acquired expertise in power electronics and the design and development of
electric drivetrains for use in electric and hybrid-electric vehicles. This
division is engaged primarily in contract research and development. The
Electronic Power Products division is located in Baltimore, Maryland and, as
of June 30, 2000, had nine employees.
SIGNIFICANT CUSTOMERS
The U.S. Department of Defense accounted for 44.6%, 22.1% and 20.6% of our total
revenue for our fiscal years ended September 30, 1997, 1998 and 1999,
respectively. For the nine months ended June 30, 2000, revenue from our contract
with the U.S. Department of Energy to develop compact, low-cost power converters
for automotive applications were 15.9% of our total revenue, and we anticipate
that revenues from this contract will exceed 10% of our total revenues for our
fiscal year ending September 30, 2000.
RESEARCH AND DEVELOPMENT
We believe that the continued and timely development of new products and
enhancements to our existing products are necessary to maintain our competitive
position. We use technologies developed by our Technology Center and our
Electronic Power Products division, together with information supplied by our
distributors and customers, to design and develop new products and product
enhancements and to reduce the time-to-market for our products.
SALES AND MARKETING
We sell our products and services both domestically and internationally through
our direct sales force and through independent distributors and representatives.
Our direct sales staff manages our key customer accounts, provides customer
support and identifies significant market opportunities in their respective
markets.
Each of our divisions manages its own marketing organization and is responsible
for developing sales and advertising literature, such as product announcements,
catalogs, brochures and magazine articles in trade and other publications.
Publication of significant events or material information is handled through our
corporate office.
We maintain close contact with our customers' design and engineering staffs in
order to provide the appropriate products for our customers' applications. We
maintain this close working relationship with our customers throughout the life
of a product, and we believe that it has been a key component of our customers'
satisfaction.
50
<PAGE>
COMPETITION
The market for our products is competitive and subject to rapid technological
change. The market is significantly affected by new product introductions and
other market activities of industry participants. We currently or potentially
compete with:
- manufacturers of converters and inverters for fuel cells such as Trace
Engineering, a division of Xantrex Technology, Inc., Asea Brown
Boveri Ltd., Siemens Corporation and Alstom S.A.,
- manufacturers of hybrid microcircuits such as Omnirel L.L.C.,
Aeroflex Inc., Teledyne Inc. and DDC & R, Inc.,
- manufacturers of thin film substrates such as MIC Technology, an Aeroflex
Company and Ultrasource, Inc.,
- manufacturers of electric vehicle drivetrains such as Lockheed Martin
Corp., Solectria Corporation, Delphi Automotive Systems, Corp., Siemens
Corporation and Visteon Corporation,
- manufacturers of motors such as MCG Inc., Reliance Electric CO/DE, CMC
Industries, Inc. and other regional and specialty motor manufacturers,
- manufacturers of shaker vibration test systems such as Ling Dynamics
Systems, Ltd. and Unholtz-Dickie, Corp., and
- developers of flywheel technology such as Active Power, Inc., Trinity
Flywheel Power and U.S. Flywheel Systems.
Many of our competitors have significantly greater financial resources than we
do and are able to devote greater resources to the development, promotion, sale
and support of their products and may have more manufacturing expertise and
capacity. In addition, many of our competitors have more extensive customer
bases and broader customer relationships than we do.
We believe that competitive factors for our products include:
- performance
- reliability
- efficiency
- pricing
- functionality
- reputation of the vendor
- service
- ease of use
- flexibility
- manufacturing capacity
- customization capabilities
We believe that we are positioned to compete favorably on the basis of each of
these factors in each of our markets.
MANUFACTURING
We manufacture our products in approximately 80,000 square feet of manufacturing
space at four facilities in Marlborough, Massachusetts; Worcester,
Massachusetts; North Andover, Massachusetts and Anaheim, California. We have
existing manufacturing capacity to meet our current needs. Our goal is to mass
manufacture high volume, low-cost products. During 2000, we installed equipment
for a semi-automated production line in our Marlborough, Massachusetts facility
that we expect to be capable of producing up to 25,000 of our residential fuel
cell power conversion systems annually. We expect to have this production line
operational by December 2000. We intend to add additional production lines for
our products in the future as demand dictates. We have made and expect to
continue to make technological improvements that reduce the costs to manufacture
our products.
51
<PAGE>
We believe that most of the raw materials used in our products are readily
available from a variety of vendors. Additionally, we design and develop our
products to use commodity parts in order to simplify the manufacturing process.
INTELLECTUAL PROPERTY
Our success and competitiveness depend on our ability to develop and maintain
the proprietary aspects of our technology and operate without infringing on the
proprietary rights of others. We rely on a combination of patent, trademark,
trade secret and copyright law and contract restrictions to protect the
proprietary aspects of our technology. We seek to limit disclosure of our
intellectual property by requiring employees, consultants, and any third parties
with access to our proprietary information to execute confidentiality agreements
and by restricting access to that information. These legal protections afford
only limited protection for our technology.
We currently own 58 U.S. patents and have 14 patent applications pending with
the U.S. patent and trademark office. In addition, 36 other patents have been
issued to our employees and assigned to DaimlerChrysler through the Chrysler
Patriot racecar project. DaimlerChrysler granted us a non-exclusive,
royalty-free license to these patents for non-automotive applications. In 1997,
we granted Beacon Power a perpetual, worldwide, royalty-free, exclusive right
and license to our flywheel technology for stationary, terrestrial applications.
As a qualifying small business, we have retained commercial ownership rights to
proprietary technology developed under various U.S. government contracts and
grants, including small business innovation research contracts. Our patent and
trade secret rights are of material importance to us and to our future
prospects.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our products or technologies
is difficult. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any such resulting litigation could result
in substantial costs and diversion of resources and could have a material
adverse effect on our business, results of operations and financial condition.
We cannot assure you that third parties will not claim infringement with respect
to our current or future products. Any such claims, with or without merit, could
be time-consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all. A successful
claim of intellectual property infringement against us and our failure or
inability to license the infringed technology or develop or license technology
with comparable functionality could have a material adverse effect on our
business, results of operations and financial condition.
We depend upon intellectual property developments which sometimes derive in
whole or in part from U.S. government contracts and subcontracts. Our rights to
these intellectual property developments vary by contract, depending upon such
factors as whether the government wholly or only partly funded the contract, and
the terms of the negotiation between us and the government department. Some
contracts may give us exclusive rights to commercialize the invention, reserving
to the government only those rights which it needs for government functions.
Other contracts may give broader rights to the government. At the least, most of
these contracts provide us with a non-exclusive, non-assignable license to use a
development for commercial purposes.
GOVERNMENT REGULATION
We presently are subject to various federal, state and local laws and
regulations relating to, among other things, safe working conditions, handling
and disposal of hazardous and potentially hazardous
52
<PAGE>
substances and emissions of pollutants into the atmosphere. To date, we believe
that we have obtained all necessary government permits and have been in
substantial compliance with all of these applicable laws and regulations.
GOVERNMENT CONTRACTS
We act as a prime contractor or major subcontractor for many different U.S.
government programs, including those that involve the development of
electro-mechanical transportation, navigation and energy-related products. Over
its lifetime, a program may be implemented by the award of many individual
contracts and subcontracts, or contracts with option years, or partially funded
contracts.
U.S. government contracts include provisions permitting termination, in whole or
in part, without prior notice, at the U.S. government's discretion. The U.S.
government pays compensation for work actually done and commitments made at the
time of termination, and some allowance for profit on the work performed. The
U.S. government may also terminate for default in performance and pay only the
value delivered to the U.S. government. It can also hold the contractor
responsible for reprocurement costs.
Our government contract business is also subject to specific procurement
statutes and regulations and a variety of socioeconomic and other requirements.
Failure to comply with these regulations and requirements could lead to loss of
contract or suspension or debarment from U.S. government contracting or
subcontracting for a period of time. Examples of these statutes and regulations
are those related to procurement integrity, export control, employment
practices, the accuracy of records and the recording of costs.
Sales to the U.S. government may be affected by changes in research interests in
the areas in which we engage, changing government department budgets, and
changing procurement policies.
EMPLOYEES
At June 30, 2000, we had a total of 293 full-time employees, three part-time
employees and 13 contract employees. Of the total, 108 persons were employed in
engineering, 120 in manufacturing, 46 in administration and 19 in sales and
marketing. None of our employees are represented by a union. We believe that our
relations with our employees are good.
FACILITIES
We lease office, manufacturing and research and development space in the
following locations:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER EXPIRATION
LOCATION PRIMARY USE OF SQUARE FEET OF LEASE
---------------------------- ----------------------------------- ------------------ ----------
<S> <C> <C> <C>
Cambridge, Massachusetts Corporate headquarters and research
and development 33,000 2003
North Andover, Massachusetts Manufacturing 15,000 2002
Worcester, Massachusetts Manufacturing 17,000 2003
Marlborough, Massachusetts Manufacturing 20,000 2005
Baltimore, Maryland Research and development 16,000 2000
Anaheim, California Manufacturing 60,000 2003
</TABLE>
Our Cambridge, Massachusetts lease contains an additional 13,000 square feet of
space which is subleased to a third party until December 31, 2002. Our Anaheim,
California lease contains an additional 25,000 square feet of manufacturing
space for a total of 85,000 square feet. The additional space is subleased to a
third party until May 31, 2001. We also lease 8,800 square feet in Tucson,
Arizona until March 31, 2001, which we have subleased to a third party through
that lease term.
53
<PAGE>
We believe our facilities are adequate for our current needs and that adequate
facilities for expansion, if required, are available.
LEGAL PROCEEDINGS
On October 15, 1997, we received a letter from the Department of the Air Force
stating that it may terminate for default an approximately $1.6 million contract
between the Air Force and us for development of a satellite component, unless
perceived performance problems were cured. As of that date, we received payments
of approximately $1.4 million in connection with this contract. In the event of
an actual default, we could be liable for extra costs incurred by the U.S.
government in developing the component and could be required to return a portion
of the monies we received for this contract. On December 15, 1997, the Air Force
issued a "Show Cause Notice" to us requiring us to demonstrate to the Air Force
why the contract should not be terminated "for cause." On December 31, 1997, we
responded to the Air Force's "Show Cause Notice," explaining our view that we
should not be terminated for cause. On May 11, 2000, we contacted the Air Force
again to offer to settle our differences and to explore obtaining additional
settlement amounts. On August 3, 2000, we sent a memorandum to the Air Force
explaining the basis of a settlement request of $353,248. Also on August 3,
2000, we received from the Air Force a proposed settlement offer. On
September 15, 2000, we entered into a settlement agreement in which the contract
was to be closed and considered completed through a contract modification with
no additional payment, but without termination for cause. The contract is still
subject to normal audit and accounting of final cost.
On November 6, 1999, APACE, Inc. commenced an action against us in the Supreme
Court of the State of New York claiming that we had been awarded a prime
contract by the U.S. Department of Energy and that we had failed or refused to
negotiate a subcontract with APACE, allegedly in breach of a contract between us
and APACE. APACE is seeking in excess of $1,000,000 in damages. We denied the
allegations, moved to stay the action and filed for arbitration with the
American Arbitration Association in Boston, Massachusetts. The American
Arbitration Association decided that the arbitration would go forward in Boston.
In the meantime, APACE requested that the court permit the action to go forward
and for the arbitration to be stayed. On March 21, 2000, the Supreme Court of
the State of New York issued an order compelling arbitration and staying APACE's
action pending arbitration to be conducted by the American Arbitration
Association in Boston.
On June 26, 2000, APACE served us with an amended answering statement and
counterclaim, including additional allegations that we have engaged in unfair
and deceptive trade practices and that our actions were willful and knowing.
Based on these allegations, APACE is seeking multiple damages, as well as
attorneys' fees and expenses. On July 19, 2000, we filed an answer to APACE's
amended answering statement and counterclaim, denying the allegations and
asserting various affirmative defenses.
At this time, the arbitration is scheduled to go forward in Boston at some time
in 2001, and an arbitrator has been selected. The parties have exchanged some
discovery, and expect to make a further exchange early in 2001.
Sean F. Moran, our Chief Financial Officer, is named as a defendant in three
shareholder class action complaints filed in the United States District Court
for the District of Massachusetts. The complaints, captioned RO NEMETH-COSLETT
V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN (filed on or about
June 8, 2000), MARK CASAZZA V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND
SEAN MORAN (filed on or about June 26, 2000), and RODNEY M. ROCKEFELLER AND LARA
LEE ROCKEFELLER V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN
(filed on or about August 2, 2000), allege violations of the federal securities
laws by Anika Therapeutics, Inc., J. Melville Engle, who serves as Anika's Chief
Executive Officer, and Sean F. Moran, who served as Anika's Chief Financial
Officer from February 1993 to January 2000. The complaints allege a two-year
putative class period through May 30, 2000, and allege that Anika and the
individual defendants violated the federal securities laws by making
54
<PAGE>
material misrepresentations and omissions that relate to Anika's press releases
and historical financial statements for 1998 and the first three quarters of
1999.
Anika has previously reported publicly that it was the subject of an informal
investigation by the SEC as disclosed by Anika in March 2000, which later became
a formal investigation by the SEC as disclosed by Anika in May 2000. Anika has
reported that in connection with the formal investigation, the SEC has required
Anika to provide information in connection with certain revenue recognition
matters. Anika has reported that these matters related to Anika's historical
accounting for sales of its product under a long-term supply and distribution
agreement. In March 2000, Anika restated its financial results for 1998 and the
first three quarters of 1999 to change its revenue recognition policy under this
long-term supply contract.
From time to time, we are a party to routine litigation and proceedings in the
ordinary course of business. We are not aware of any current or pending
litigation to which we are or may be a party that we believe could materially
adversely affect our results of operations or financial condition.
55
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and key employees, and their respective ages
as of September 30, 2000, are as follows:
<TABLE>
<CAPTION>
AGE POSITION(S)
-------- -----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
David B. Eisenhaure................ 54 President, Chief Executive Officer and Director
Michael C. Turmelle................ 41 Vice President, Chief Operating Officer, Secretary
and Director
Sean F. Moran...................... 42 Vice President of Finance, Chief Financial Officer
and Treasurer
James L. Kirtley, Jr............... 54 Vice President, Chief Scientist and Director
Marshall J. Armstrong.............. 65 Director
Alan P. Goldberg................... 55 Director
Thomas A. Hurkmans................. 34 Director
Gerald L. Wilson................... 61 Director
KEY EMPLOYEES:
Donald G. Flodin................... 44 Vice President, Corporate Development
Gary M. Colello.................... 41 General Manager, Advanced Fuel Cell Power Products
James F. O'Rourke.................. 46 General Manager, MagMotor and Ling Electronics
Laban E. Lesster................... 62 General Manager, Technology Center
Joseph A. Duncan................... 47 Director of Operations, Film Microelectronics
</TABLE>
DAVID B. EISENHAURE joined SatCon as President, Chief Executive Officer and
Chairman of the Board of Directors in 1985. Prior to founding SatCon,
Mr. Eisenhaure was associated with the Charles Stark Draper Laboratory,
Incorporated from 1974 to 1985, and with its predecessor, the Massachusetts
Institute of Technology's Instrumentation Laboratory, from 1967 to 1974.
Mr. Eisenhaure holds S.B., S.M. and an Engineer's degree in Mechanical
Engineering from the Massachusetts Institute of Technology. In addition to his
duties at SatCon, Mr. Eisenhaure holds an academic position at M.I.T., serving
as a lecturer in the Department of Mechanical Engineering. Mr. Eisenhaure also
serves on the board of directors of Mechanical Technology Incorporated and
Beacon Power.
MICHAEL C. TURMELLE joined SatCon in September 1987, where he served as
Controller from September 1987 until November 1991, as Secretary since
June 1993 and as Vice President, Chief Financial Officer and Treasurer from
November 1991 until January 2000. Mr. Turmelle became a director in June 1993.
In January 2000, Mr. Turmelle was promoted from Chief Financial Officer to Chief
Operating Officer. From July 1984 to August 1987, Mr. Turmelle held several
positions with HADCO Corporation, a manufacturer of circuit boards. From
February 1982 to June 1984, Mr. Turmelle was employed by the aerospace division
of General Electric Corporation and held several positions, including internal
auditor. Mr. Turmelle holds a B.A. degree in Economics from Amherst College.
SEAN F. MORAN joined SatCon in January 2000 and has served as Vice President of
Finance, Chief Financial Officer and Treasurer since February 2000. Prior to
joining SatCon, Mr. Moran served as Vice President of Finance, Chief Financial
Officer and Treasurer of Anika Therapeutics, Inc., a biotechnology company,
since February 1993. He served as Treasurer of MedChem Products, Inc., a
manufacturer of medical devices, from May 1991 to February 1993. Mr. Moran also
served as Controller of MedChem Products from September 1990 to May 1991.
Mr. Moran received a B.S. in Business Administration and an M.B.A. from Babson
College.
56
<PAGE>
JAMES L. KIRTLEY, JR., PH.D, joined SatCon as a consultant in 1985 and became a
director in 1992. On March 1, 1998, Dr. Kirtley commenced employment with SatCon
on a full-time basis as the Vice President and General Manager of the
Corporation's Technology Center. In February 2000, Dr. Kirtley was promoted to
Vice President and Chief Scientist at SatCon. Dr. Kirtley is also a Professor of
Electrical Engineering at M.I.T. and became a member of the M.I.T. faculty in
1971. Dr. Kirtley received his S.B., S.M., E.E. and Ph.D. degrees in Electrical
Engineering from M.I.T.
MARSHALL J. ARMSTRONG joined SatCon as a director in 1994. Mr. Armstrong
previously served as Chief Executive Officer and Chairman of the Board of Thermo
Power Corporation from 1992 through 1997. Thermo Power provides research and
development relating to engines, cogeneration and refrigeration equipment to the
marine, food processing, transportation, power generating, petrochemical and
pharmaceutical industries. From January 1998 to September 1999, Mr. Armstrong
has served as Senior Vice President of Thermo Electron Corporation, where he has
been employed since 1968 in various capacities and presently manages Thermo
Electron's government affairs. Mr. Armstrong also serves as a Director of Thermo
Sentron, Inc. Mr. Armstrong holds an M.S. degree from George Washington
University and a B.S. degree in Mechanical Engineering from the University of
Vermont.
ALAN P. GOLDBERG joined SatCon as a director in 1999. Mr. Goldberg has served as
President and Co-Chief Executive Officer and as a Director of First Albany
Companies Inc., an investment bank, since 1993. Mr. Goldberg also serves on the
board of directors of Mechanical Technology Incorporated and Beacon Power.
Mr. Goldberg is active in industry and civic organizations and serves on the
board of several non-profit institutions. He received a B.A degree in Government
from Tufts University.
THOMAS A. HURKMANS joined SatCon as a director in January 2000. Since 1995,
Mr. Hurkmans has served as the President of DQE Enterprises, Inc., a
wholly-owned subsidiary of DQE, Inc. which acquires and develops businesses
involved in energy-services and technologies, communications and electronic
commerce. From 1991 through 1995, Mr. Hurkmans served as a Vice President of DQE
Enterprises. Prior to joining DQE Enterprises, Mr. Hurkmans founded and served
as the President of Organization Technologies Group, a computer software
company. In addition, he was employed as an investment banker with Merrill
Lynch & Co., Inc., where he advised energy and communications companies on
strategic and financial matters including acquisitions, divestitures and capital
formation. Mr. Hurkmans received a B.A. degree in Economics from Bates College.
GERALD L. WILSON joined SatCon as a director in July 2000. Dr. Wilson is the
former Dean of the School of Engineering at M.I.T. and the Vannevar Bush
Professor of Engineering at M.I.T. Dr. Wilson has served on M.I.T.'s faculty
since 1965 and currently serves as a Professor of Electrical and Mechanical
Engineering. Dr. Wilson also serves as the Chairman of the Science Advisory
Boards of General Motors Corporation and Pratt and Whitney, a division of United
Technologies Corporation, and as a member of the science advisory board for
Cummins Engine Company, Inc. He is a trustee of Commonwealth Energy System and a
director of Analogic Corporation and NSTAR, a company formed by the merger of
BEC Energy and Commonwealth Energy System.
DONALD G. FLODIN joined SatCon as Director of Programs and Business Development
in September 1999 and was promoted to Vice President, Corporate Development in
July 2000. Prior to joining SatCon, Mr. Flodin was the Director of the
Anti-Submarine Warfare Business area for Northrop Grumman Corporation's Oceanic
Division, a supplier of sonar systems and equipment, from June 1996 to
September 1999. From June 1994 to June 1996, Mr. Flodin served as Director of
Engineering for Northrop Grumman's Sonar Systems Engineering Department, a
supplier of sonar systems and equipment. Mr. Flodin holds a B.S.E.E. degree from
the University of Rhode Island and an M.B.A. from Loyola College.
GARY M. COLELLO joined SatCon as General Manager of Film Microelectronics in
April 1997. In February 2000, Mr. Colello was promoted to General Manager of
Advanced Fuel Cell Power Products. Prior to joining SatCon, Mr. Colello was Vice
President of Engineering at Omnirel L.L.C., an
57
<PAGE>
electronics manufacturer, from January 1996 to April 1997, and Program Manager
at SatCon from July 1993 to January 1996. Mr. Colello holds a B.S. in Biomedical
Engineering and B.S. and B.A. degrees in Materials Engineering from Rensselear
Polytechnic Institute.
JAMES F. O'ROURKE joined SatCon in December 1994 and has served as General
Manager of MagMotor since January 1998 and General Manager of Ling Electronics
since October 1999. Prior to joining MagMotor, Mr. O'Rourke served as Manager of
Drive Systems at SatCon from December 1994 to December 1997 and as Vice
President of Manufacturing at Beacon Power from December 1997 to January 1998.
Prior to joining SatCon, Mr. O'Rourke was Director of Business Development for
Textron Automotive (McCord Winn division), a manufacturer of electronic
automotive parts, from August 1987 to December 1994. Mr. O'Rourke holds a B.S.
degree in Industrial Engineering from Lowell Technical Institute.
LABAN E. LESSTER joined SatCon as Director of Engineering of the Technology
Center in February 1999 and was promoted to General Manager in January 2000.
Prior to joining SatCon, Mr. Lesster was Director of Engineering and Chief
Scientist at the Northrop Grumman Corporation Oceanic Division, a manufacturer
of underwater systems, from April 1998 to January 1999. Mr. Lesster served as
Department Manager of Vehicle Engineering at Westinghouse Electric Corporation,
a manufacturer of electrical systems, (subsequently, Northrop Grumman following
the acquisition of Westinghouse by Northrop Grumman) from August 1992 to
March 1998. Mr. Lesster holds B.A. and M.A. degrees from Oxford University and a
DIC (research degree) from Imperial College, London University.
JOSEPH A. DUNCAN joined Film Microelectronics as Director of Operations in
January 1999. Prior to joining SatCon, Mr. Duncan was Operations Manager of the
Analogic Data Conversion Product Group at Analogic Corporation, a
microelectronics manufacturer, from November 1990 to January 1999. Mr. Duncan
holds B.S.E.E. and M.S. degrees in Engineering Management from Northeastern
University.
58
<PAGE>
CERTAIN TRANSACTIONS
BEACON POWER AND DQE ENTERPRISES
Pursuant to the terms of a securities purchase agreement, dated as of
October 23, 1998, between Beacon Power, Perseus Capital, L.L.C., DQE
Enterprises, Micro Generation Technology Fund, L.L.C. and us:
- Beacon Power sold to these investors 1,900,000 shares of Beacon Power's
class D preferred stock,
- the investors received warrants to purchase an aggregate of 2,227,500
shares of Beacon Power's common stock, and
- we granted the investors the right to cause us, in the circumstances and
for the consideration described below, to purchase all of their shares of
Beacon Power's class D preferred stock and all of their shares of Beacon
Power's common stock issuable upon conversion of their shares of class D
preferred stock.
Upon exercise of this "put right" by a class D preferred stock investor, we must
pay the stated value of the shares of Beacon Power's class D preferred stock
acquired by that investor plus accrued and unpaid dividends, in shares of our
common stock. For this purpose, our common stock would be valued at the average
fair market value for the 15 trading days before and after notice of exercise of
the put right. The put right is exercisable within 60 days of the second, third,
fourth and fifth anniversary of the closing date of the transaction, upon events
relating to the bankruptcy of Beacon Power, upon the occurrence of going private
transactions involving SatCon and upon the deregistration of our common stock by
the SEC or the delisting or other removal of our common stock from trading on
the Nasdaq National Market. The put right terminates on the earlier of
October 23, 2003 or upon the listing of Beacon Power's common stock on the New
York Stock Exchange or the Nasdaq National Market. On August 9, 2000, Beacon
Power filed a registration statement with the SEC for an initial public offering
of its common stock on the Nasdaq National Market.
The shares of Beacon Power's class D preferred stock were not registered under
the Securities Act, but the investors entered into registration rights
agreements with Beacon Power and us. The aggregate consideration received by
Beacon Power was $4,750,000. Of the 1,900,000 shares of Beacon Power's class D
preferred stock issued pursuant to this securities purchase agreement, DQE
Enterprises purchased 400,000 shares of Beacon Power's class D preferred stock
for an aggregate purchase price of $1,000,000. DQE Enterprises also received
warrants to purchase 450,000 shares of Beacon Power's common stock.
From June 1999 through March 31, 2000, Beacon Power was financed through the
issuance of approximately $4.7 million of bridge notes and warrants to the
investors, including $890,000 from DQE Enterprises. On April 7, 2000, pursuant
to the terms of a second securities purchase agreement, Beacon Power issued
1,226,141 shares of its class E preferred stock and warrants to purchase 306,535
shares of its class E preferred stock in exchange for the conversion of all of
its outstanding bridge notes. In this transaction, DQE Enterprises received
204,797 shares of Beacon Power's class E preferred stock and a warrant to
purchase 51,199 shares of its class E preferred stock.
On April 21, 2000, Beacon Power raised an additional $4.1 million through the
sale of additional bridge notes and warrants to purchase shares of Beacon
Power's common stock. On May 23, 2000, pursuant to the terms of a third
securities purchase agreement, Beacon Power issued 6,785,711 shares of its
class F preferred stock and additional warrants to purchase shares of Beacon
Power's common stock. The exercise price and the number of shares subject to
these additional warrants will be based on the initial public offering price of
Beacon Power's common stock. The shares of class F preferred stock and the
additional warrants were issued in consideration for the cancellation of
$5.2 million in bridge notes and
59
<PAGE>
an additional $23.3 million cash investment by existing and new investors. DQE
Enterprises received 476,190 shares of Beacon Power's class F preferred stock
and a warrant to purchase shares of Beacon Power's common stock in exchange for
the cancellation of a $300,000 bridge note and an additional cash investment of
$1.7 million.
Pursuant to the terms of a letter agreement, dated as of October 23, 1998,
Mr. Eisenhaure has agreed with the purchasers that, in the event that at any
time on or prior to the full exercise or expiration of the put right, the number
of authorized shares of our common stock that are legally available for issuance
in satisfaction of the put right is less than 1,000,000 more than the total
number of shares of our common stock required to satisfy our obligations under
the put right, then Mr. Eisenhaure will take all action under his control to
increase the number of authorized shares of our common stock.
The terms of the securities purchase agreements were determined on the basis of
arms-length negotiations. Prior to the execution of the 1998 securities purchase
agreement, neither we nor Beacon Power had any material relationship with
Perseus Capital or Micro Generation Technology Fund. In May 1997, DQE
Enterprises made an investment in SatCon and received warrants to purchase
shares of Beacon Power's common stock. In connection with that transaction, DQE
Enterprises entered into agreements with us and Beacon Power pursuant to which,
among other things, DQE Enterprises acts as exclusive distributor of Beacon
Power's products, subject to certain exceptions, in seven Mid-Atlantic States
and the District of Columbia. Beacon Power also entered into a consulting
agreement with DQE Enterprises pursuant to which DQE Enterprises is compensated
by Beacon Power in the amount of $150,000 per annum in exchange for consulting
services provided by DQE Enterprises to Beacon Power. On October 23, 1998,
Beacon Power and DQE Enterprises modified this consulting arrangement so that
Beacon Power was obligated to pay for DQE Enterprises' consulting services in
shares of Beacon Power's common stock. On November 1, 1999, this agreement was
further modified to provide for payment by Beacon Power to DQE Enterprises in
shares of Beacon Power's class A preferred stock. In addition, the shares of
Beacon Power's common stock that had been issued to DQE Enterprises under the
consulting agreement were cancelled and shares of Beacon Power's class A
preferred stock were issued to DQE Enterprises.
Beacon Power was organized by us in May 1997 to continue the development and
distribution of the stationary, terrestrial applications of our flywheel energy
storage technology. DQE Enterprises owns of record more than five percent of our
common stock, and Mr. Hurkmans, the President of DQE Enterprises, serves on our
board of directors.
BEACON POWER AND MECHANICAL TECHNOLOGY INCORPORATED
On April 21, 2000, in connection with Beacon Power's bridge note and warrant
financing, Mechanical Technology Incorporated loaned $1.2 million to Beacon
Power and received a warrant to purchase 12,000 shares of Beacon Power's common
stock. On May 23, 2000, pursuant to the terms of the third securities purchase
agreement described above, Beacon Power issued 1,428,571 shares of its class F
preferred stock and an additional warrant to purchase shares of Beacon Power's
common stock to Mechanical Technology Incorporated. The exercise price and the
number of shares subject to this additional warrant will be based on the initial
public offering price of Beacon Power's common stock. The shares of class F
preferred stock and the additional warrant were issued in consideration for the
cancellation of the $1.2 million represented by the bridge note and an
additional $4.8 million cash investment by Mechanical Technology Incorporated.
On August 25, 2000, Mechanical Technology Incorporated exercised its warrant for
12,000 shares of Beacon Power's common stock in full for an aggregate exercise
price of $50,400. Mechanical Technology Incorporated owns of record more than
five percent of our common stock, and Mr. Goldberg, a director of Mechanical
Technology Incorporated and co-chief executive officer of First Albany Companies
Inc., serves on our board of directors. Mr. Goldberg also serves on Beacon
Power's board of directors.
60
<PAGE>
ACQUISITION OF LING ELECTRONICS AND INVESTMENT BY MECHANICAL TECHNOLOGY
INCORPORATED
In October 1999, we acquired Ling Electronics, Inc. and Ling Electronics, Ltd.
from Mechanical Technology Incorporated in addition to an investment by
Mechanical Technology Incorporated in SatCon. In consideration for the
acquisition of Ling Electronics and Mechanical Technology Incorporated's
investment, Mechanical Technology Incorporated received a total of 1,800,000
shares of our common stock and a warrant to purchase an additional 36,000 shares
of our common stock at an exercise price of $8.80 per share. On October 21,
1999, Mechanical Technology Incorporated funded $2,570,000 of its investment in
SatCon and received 370,800 shares of common stock and issued a warrant to us to
purchase 108,000 shares of Mechanical Technology Incorporated's common stock at
an exercise price of $12.56 per share. In connection with this transaction, on
January 31, 2000, we issued to Mechanical Technology Incorporated 659,200 shares
of our common stock and a warrant to purchase an additional 64,000 shares of our
common stock at an exercise price of $8.80 per share in exchange for $4,500,000
in cash and a warrant to purchase 192,000 shares of Mechanical Technology
Incorporated's common stock at an exercise price of $12.56 per share. In
connection with these transactions, Alan P. Goldberg, a director of Mechanical
Technology Incorporated and co-chief executive officer of First Albany
Companies Inc., was elected a member of our board of directors on November 15,
1999. We have also agreed to appoint an additional member to our board of
directors based on recommendations by Mechanical Technology Incorporated, and
Mechanical Technology Incorporated agreed to appoint Mr. Eisenhaure to its board
of directors. Mr. Eisenhaure currently serves on the board of directors of
Mechanical Technology Incorporated.
PLUG POWER AND BEACON POWER
First Albany Corporation, a wholly-owned subsidiary of First Albany
Companies, Inc., or FACI, is an NASD member and an underwriter of this offering
through its division, FAC/Equities. As of June 30, 2000, FACI owned 11,753,744
shares, or 33.0%, of Mechanical Technology Incorporated's common stock, which
owns 1,800,000 shares of our common stock and warrants to purchase 100,000
shares of our common stock. As of June 30, 2000, Mechanical Technology
Incorporated owned 13,704,315 shares, or 31.5%, of Plug Power's common stock. We
sell electronic components to Plug Power, and we believe these transactions are
on an arms-length basis. In addition, we sell power electronic boards and
components to Beacon Power, and we believe these transactions are also on an
arms-length basis.
LOANS TO MICHAEL C. TURMELLE
In October 1999 and December 1999, we loaned an aggregate of $85,000 to
Mr. Turmelle. The loans were represented by two promissory notes for $10,000 and
$75,000, respectively. Under the terms of the promissory notes, the loans bore
interest at 5.74% per annum, and principal and interest was due and payable in
full on December 15, 2000. On April 1, 2000, Mr. Turmelle repaid to us $86,569,
the entire principal amount of the loans plus all outstanding accrued interest.
Mr. Turmelle is our vice president, chief operating officer and secretary and is
one of our directors.
CONSULTING AGREEMENT WITH MARSHALL J. ARMSTRONG
On July 19, 2000, we entered into a consulting agreement with Marshall J.
Armstrong, one of our directors. In consideration for Mr. Armstrong providing
consulting, advisory and related services under the consulting agreement, we
have agreed to pay Mr. Armstrong $2,000 per day (which amount will be
proportionately less for partial days) for services performed as well as
reimbursement of reasonable and necessary expenses incurred by Mr. Armstrong in
connection with the consulting agreement. As of September 30, 2000, we have paid
Mr. Armstrong $3,000 under the terms of the consulting agreement.
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 30, 2000, information concerning
the beneficial ownership of our common stock by:
- each person known by us to own beneficially five percent (5%) or more of
the outstanding shares of our common stock,
- each of our executive officers and directors, and
- all executive officers and directors as a group.
The number of shares beneficially owned by each 5% stockholder, director or
executive officer is determined under rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and also any
shares which the individual or entity has the right to acquire on or before
November 29, 2000 through the exercise of any stock option, warrant or other
right. Unless otherwise indicated, each person or entity has sole investment and
voting power (or shares the power with his spouse) with respect to the shares
set forth in the following table. The inclusion in this table of any shares
deemed beneficially owned does not constitute an admission of beneficial
ownership of those shares.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER OF SHARES ------------------------------
BENEFICIALLY BENEFICIALLY OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) PRIOR TO OFFERING OFFERING
--------------------------------------- ------------------ ------------------ ---------
<S> <C> <C> <C>
Brown Simpson Partners I, Ltd.(3)................... 1,195,800 8.2% %
152 West 57th Street, 40th Floor
New York, NY 10019
DQE Enterprises..................................... 798,138 5.8
One Northshore Center, Suite 100
12 Federal Street
Pittsburgh, PA 15212
Mechanical Technology Incorporated(4)............... 1,900,000 13.6
325 Washington Avenue Extension
Albany, NY 12205
Marshall J. Armstrong............................... 26,000 *
David B. Eisenhaure (5)............................. 2,649,255 19.0
Alan P. Goldberg (6)................................ 1,915,000 13.7
c/o Mechanical Technology Incorporated
325 Washington Avenue Extension
Albany, NY 12205
Thomas A. Hurkmans (7).............................. 813,138 5.9
c/o DQE Enterprises
One Northshore Center, Suite 100
12 Federal Street
Pittsburgh, PA 15212
James L. Kirtley, Jr. .............................. 61,400 *
Sean F. Moran....................................... 3,000 *
Michael C. Turmelle................................. 102,461 *
Gerald L. Wilson.................................... 15,000 *
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER OF SHARES ------------------------------
BENEFICIALLY BENEFICIALLY OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) PRIOR TO OFFERING OFFERING
--------------------------------------- ------------------ ------------------ ---------
<S> <C> <C> <C>
All executive officers and directors as a group
(eight persons) (6)(7)............................ 5,585,254 39.3% %
</TABLE>
------------------------
* Less than 1%
(1) The address for all executive officers and directors, other than
Mr. Goldberg and Mr. Hurkmans, is c/o SatCon Technology Corporation, 161
First Street, Cambridge, Massachusetts 02142.
(2) Includes the following number of shares of common stock issuable upon the
exercise of outstanding stock options which may be exercised on or before
November 29, 2000: Mr. Armstrong: 26,000; Mr. Eisenhaure: 72,501;
Mr. Goldberg: 15,000; Mr. Hurkmans: 15,000; Dr. Kirtley: 58,400;
Mr. Turmelle: 69,566; Dr. Wilson: 15,000; all executive officers and
directors as a group: 271,467.
(3) Consists of 520,800 shares of common stock held by Brown Simpson Partners I,
Ltd. and 675,000 shares of common stock issuable upon exercise of a warrant
held by Brown Simpson Partners I, Ltd.
(4) Includes 100,000 shares of common stock issuable upon exercise of warrants
held by Mechanical Technology Incorporated.
(5) Does not include 1,900,000 shares of common stock beneficially owned by
Mechanical Technology Incorporated, of which Mr. Eisenhaure is a director.
(6) Includes 1,800,000 shares of common stock held by Mechanical Technology
Incorporated and 100,000 shares of common stock issuable upon exercise of
warrants held by Mechanical Technology Incorporated. Mr. Goldberg is a
director of Mechanical Technology Incorporated and disclaims beneficial
ownership of these shares.
(7) Includes 798,138 shares of common stock held by DQE Enterprises, of which
Mr. Hurkmans is the President. Mr. Hurkmans disclaims beneficial ownership
of these shares.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
We are authorized to issue up to 25,000,000 shares of common stock, of which
13,839,935 shares are issued and outstanding as of September 30, 2000. The
following summary description of the common stock is qualified in its entirety
by reference to our certificate of incorporation.
The holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, holders of
common stock are entitled to receive ratably such dividends as may be declared
by our board of directors out of funds legally available therefor, and, upon the
liquidation, dissolution or winding up of SatCon, are entitled to share ratably
in all assets remaining after payment of liabilities and payment of accrued
dividends and liquidation preference on the preferred stock, if any. Holders of
our common stock have no preemptive rights and have no rights to convert their
common stock into any other securities. Our outstanding common stock is, and the
common stock to be outstanding upon completion of the offering will be, validly
issued, fully paid, and nonassessable.
PREFERRED STOCK
We are authorized to issue up to 1,000,000 shares of preferred stock. Our
preferred stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by our board of directors, without further
action by stockholders and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion, redemption rights and sinking fund provisions. The
issuance of preferred stock could reduce the rights, including voting rights, of
the holders of common stock, and, therefore, reduce the value of our common
stock. In particular, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with or sell our assets to
a third party, thereby preserving control of SatCon by existing management.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS UNDER DELAWARE LAW
In accordance with Delaware law, our certificate of incorporation eliminates in
certain circumstances the liability of our directors for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director:
- for a breach of the director's duty of loyalty to us or our stockholders,
- for acts or omissions by the director not in good faith or which involve
intentional misconduct or a knowing violation of law,
- for a willful or negligent declaration of an unlawful dividend, stock
purchase or redemption, or
- for transactions from which the director derived an improper personal
benefit.
In addition, our bylaws include provisions to indemnify our officers and
directors and other persons against expenses, judgments, fines and amounts paid
in settlement in connection with threatened, pending or completed suits of
proceedings against such persons by reason of serving or having served as
officers, directors or in other capacities, except in relation to matters with
respect to which such persons shall be determined not to have acted in good
faith, unlawfully or in the best interests of SatCon. With respect to matters as
to which our officers and directors and others are determined to be liable for
misconduct or negligence in the performance of their duties, our bylaws provide
for indemnification only to the extent that we determine that such person acted
in good faith and in a manner not opposed to the best interests of SatCon.
64
<PAGE>
However, insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling SatCon
pursuant to Delaware state law, as well as the foregoing charter and bylaw
provisions, we have been informed that in the opinion of the SEC, such
indemnification as it relates to federal securities laws is against public
policy, and therefore, unenforceable.
Further, insofar as limitation of liabilities may be so permitted pursuant to
Delaware state law, as well as the foregoing charter and bylaw provisions, such
limitation of liabilities does not apply to any liabilities arising under
federal securities laws.
DIVIDEND POLICY
We have not paid dividends on our common stock or preferred stock since our
inception, and we have no intention of paying any dividends to our stockholders
in the foreseeable future. We intend to reinvest earnings, if any, in the
development and expansion of our business. Any declaration of dividends in the
future will be at the election of our board of directors and will depend upon
our earnings, capital requirements and financial position, general economic
conditions, requirements of any bank lending arrangements which may then be in
place and other pertinent factors.
TRANSFER AGENT AND REGISTRAR
The name and address of the transfer agent and registrar for our common stock is
EquiServe L.P., 150 Royall Street, Canton, Massachusetts 02021.
65
<PAGE>
UNDERWRITING
We will enter into an underwriting agreement with the underwriters named below.
CIBC World Markets Corp., Banc of America Securities LLC and FAC/Equities, a
division of First Albany Corporation, are acting as representatives of the
underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp.....................................
Banc of America Securities LLC..............................
FAC/Equities, a division of First Albany Corporation........
-------
Total...................................................
=======
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-
defaulting underwriters may be increased or the underwriting agreement may be
terminated, depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The underwriters are offering the shares
subject to various conditions and may reject all or part of any order. The
representatives have advised us that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to other securities dealers at such price less a concession of
$ per share. The underwriters may also allow, and such dealers may reallow,
a concession not in excess of $ per share to other dealers. After the
shares are released for sale to the public, the representatives may change the
offering price and other selling terms at various times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of additional shares from us to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ . The total proceeds to us will be $ . The underwriters have
severally agreed that, to the extent the over-allotment option is exercised,
they will each purchase a number of additional shares proportionate to the
underwriter's initial amount reflected in the foregoing table.
66
<PAGE>
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may
sell more shares of our common stock in connection with this offering than
the number of shares than they have committed to purchase. This
over-allotment creates a short position for the underwriters. This short
sales position may involve either "covered" short sales or "naked" short
sales. Covered short sales are short sales made in an amount not greater
than the underwriters' over-allotment option to purchase additional shares
in this offering described above. The underwriters may close out any
covered short position either by exercising their over-allotment option or
by purchasing shares in the open market. To determine how they will close
the covered short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market, as
compared to the price at which they may purchase shares through the
over-allotment option. Naked short sales are short sales in excess of the
over-allotment option. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that, in
the open market after pricing, there may be downward pressure on the price
of the shares that could adversely affect investors who purchase shares in
this offering.
- Penalty bids--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
- Passive market making--Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to limitations, until the time, if ever, at which a stabilizing bid is
made.
Similar to other purchase transactions, the underwriters' purchases to cover the
syndicate short sales or to stabilize the market price of our common stock may
have the effect of raising or maintaining the market price of our common stock
or preventing or mitigating a decline in the market price of our common stock.
As a result, the price of the shares of our common stock may be higher than the
price that might otherwise exist in the open market. The imposition of a penalty
bid might also have an effect on the price of the shares if it discourages
resales of the shares.
Neither we nor the underwriters makes any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ------------------------- ---------------------------
<S> <C> <C> <C>
SatCon................... $ $ $
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
67
<PAGE>
We, our officers and directors and substantially all other stockholders have
agreed to a 90-day "lock up" with respect to shares of common stock that
they beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that, subject to certain exceptions for a period of
90 days after the date of the underwriting agreement, we and such persons may
not offer, sell, pledge or otherwise dispose of these securities without the
prior written consent of CIBC World Markets Corp.
Our shares of common stock are listed on the Nasdaq National Market under the
symbol "SATC."
First Albany Corporation, a wholly-owned subsidiary of First Albany
Companies Inc., or FACI, is an NASD member and an underwriter of this offering
through its division FAC/Equities. As of June 30, 2000, FACI owned 11,753,744
shares, or 33.0%, of Mechanical Technology Incorporated's common stock.
Mechanical Technology Incorporated owns 1,800,000 shares of our common stock and
owns warrants to purchase an additional 100,000 shares of our common stock. Alan
P. Goldberg, one of our directors, also serves as president, co-chief executive
officer and a director of FACI, as president, co-chief executive officer and a
director of First Albany Corporation and as a director of Mechanical Technology
Incorporated. This offering is being made pursuant to the provisions of Rule
2720(c)(3)(B) of the Conduct Rules of the National Association of Securities
Dealers, Inc.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Hale and Dorr LLP, Boston, Massachusetts. Legal matters in connection
with this offering will be passed upon for the underwriters by Ropes & Gray,
Boston, Massachusetts.
EXPERTS
The financial statements of SatCon Technology Corporation as of September 30,
1999 and for the year then ended, included in this prospectus and elsewhere in
the Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
The financial statements as of September 30, 1998 and for each of the two years
in the period ended September 30, 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Ling Electronics, Inc. and Subsidiary as of
September 30, 1999 and 1998 and for each of the two years in the period ended
September 30, 1999 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Beacon Power as of December 31, 1998 and 1999 and
for the years then ended and the period from May 8, 1997 (date of Beacon Power's
inception) to December 31, 1997 and the period from May 8, 1997 (Date of
Inception) to December 31, 1999, included in this prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein. Such financial statements have been included herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
68
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 (including its exhibits and
schedules) with the SEC under the Securities Act with respect to our common
stock to be sold in this offering. This prospectus, which is only a part of the
registration statement, contains all of the material information relating to
this offering. With respect to references made in this prospectus to any
contract, agreement or other document of ours, such references are not
necessarily complete, and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document, where you may read the document itself for a complete description of
its terms. You may review a copy of the registration statement, including
exhibits, at the SEC's public reference room at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048 or
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Please call 1-800-SEC-0330 for further information about the operation of
the public reference rooms. The registration statement and our other SEC filings
can also be reviewed by accessing the SEC's Internet site at HTTP://WWW.SEC.GOV,
which contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
We also file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information on file at the public reference rooms. You can also request copies
of these documents, for a copying fee, by writing to the SEC.
We intend to furnish our stockholders with annual reports containing financial
statements audited by our independent auditors and to make available to our
stockholders, quarterly reports containing unaudited financial data for the
first three quarters of each fiscal year.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
FINANCIAL STATEMENTS OF SATCON TECHNOLOGY CORPORATION AND
PART I: ITS SUBSIDIARIES
Report of Independent Public Accountants (Arthur Andersen
LLP)...................................................... F-2
Report of Independent Accountants (PricewaterhouseCoopers
LLP)...................................................... F-3
Consolidated Balance Sheets as of September 30, 1998 and
1999 and
June 30, 2000 (unaudited)................................. F-4
Consolidated Statements of Operations for the Years Ended
September 30, 1997, 1998 and 1999 and for the Nine Months
Ended June 30, 1999
and 2000 (unaudited)...................................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1997, 1998 and 1999 and
the Nine Months Ended June 30, 2000 (unaudited)........... F-6
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1998 and 1999 and for the Nine Months
Ended June 30, 1999
and 2000 (unaudited)...................................... F-7
Notes to Consolidated Financial Statements.................. F-8
FINANCIAL STATEMENTS OF LING ELECTRONICS, INC. AND ITS
PART II: SUBSIDIARY
Report of Independent Accountants (PricewaterhouseCoopers
LLP)...................................................... F-38
Consolidated Balance Sheets as of September 30, 1998
and 1999.................................................. F-39
Consolidated Statements of Operations for the Years Ended
September 30, 1998
and 1999.................................................. F-40
Consolidated Statements of Shareholder's Deficit for the
Years Ended September 30, 1998 and 1999................... F-41
Consolidated Statements of Cash Flow for the Years Ended
September 30, 1998
and 1999.................................................. F-42
Notes to Consolidated Financial Statements.................. F-43
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL
PART III: STATEMENTS
Introduction to Unaudited Pro Forma Combined Consolidated
Financial Statements...................................... F-50
Unaudited Pro Forma Combined Consolidated Statement of
Operations for the Year Ended September 30, 1999.......... F-51
Unaudited Pro Forma Combined Consolidated Statement of
Operations for the Nine Months Ended June 30, 2000........ F-52
Notes to Unaudited Pro Forma Combined Consolidated Financial
Statements................................................ F-53
PART IV: FINANCIAL STATEMENTS OF BEACON POWER CORPORATION
Independent Auditors' Report (Deloitte & Touche LLP)........ F-54
Balance Sheets as of December 31, 1998 and 1999............. F-55
Statements of Operations for the Period from May 8, 1997
(Date of Inception) to December 31, 1997 and for the Year
Ended December 31, 1998 and 1999 and for the Period from
May 8, 1997 (Date of Inception) to December 31, 1999...... F-56
Statements of Stockholders' Deficiency for the Period from
May 8, 1997 (Date of Inception) to December 31, 1997 and
for the Years Ended December 31, 1998 and 1999............ F-57
Statements of Cash Flows for the Period from May 8, 1997
(Date of Inception) to December 31, 1997 and for the Year
Ended December 31, 1998 and 1999 and for the Period from
May 8, 1997 (Date of Inception) to December 31, 1999...... F-58
Notes to Financial Statements............................... F-59
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SatCon Technology Corporation:
We have audited the accompanying consolidated balance sheet of SatCon Technology
Corporation and its subsidiaries (a Delaware corporation) as of September 30,
1999 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SatCon Technology Corporation
and its subsidiaries as of September 30, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 27, 1999
(except with respect to the
matter discussed in Note A for which
the date is September 11, 2000)
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
SatCon Technology Corporation:
In our opinion, the consolidated balance sheet as of September 30, 1998 and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows for each of the two years in the period ended
September 30, 1998 present fairly, in all material respects, the financial
position, results of operations and cash flows of SatCon Technology Corporation
and its subsidiaries at September 30, 1998 and for each of the two years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule for the years ended September 30, 1998 and 1997 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of SatCon Technology Corporation
for any period subsequent to September 30, 1998.
As discussed in Note A, the accompanying consolidated financial statements for
the year ended September 30, 1998 reflect revised accounting for the
recapitalization of Beacon Power Corporation.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 17, 1998,
except to the restatement described
in Note A, as to which the date is
September 11, 2000
F-3
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1998 1999 2000
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,201,610 $ 2,533,072 $ 9,576,144
Marketable securities..................................... 657,431 -- --
Accounts receivable, net of allowance of $51,836 in 1998,
$386,686 in 1999 and $450,938 in 2000................... 3,347,405 2,799,143 6,245,472
Unbilled contract costs and fees, net of allowance of
$57,611 in 1998 and $746,121 in 1999 and 2000........... 1,196,318 1,462,201 428,809
Inventory................................................. 3,678,067 3,697,972 8,038,428
Prepaid expenses and other current assets................. 338,017 349,070 646,320
----------- ----------- -----------
Total current assets.................................... 10,418,848 10,841,458 24,935,173
Assets transferred to Beacon Power Corporation.............. 576,786 -- --
Investment in Beacon Power Corporation...................... -- 414,729 --
Warrant to purchase Mechanical Technology Incorporated
common stock.............................................. -- -- 3,502,423
Property and equipment, net................................. 2,677,786 3,260,632 5,040,888
Intangibles, net............................................ 2,967,988 3,194,609 9,417,068
Other long-term assets...................................... 47,332 103,675 599,848
----------- ----------- -----------
Total assets............................................ $16,688,740 $17,815,103 $43,495,400
=========== =========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,447,897 $ 1,563,605 $ 1,914,230
Accrued payroll and payroll related expenses.............. 352,701 479,888 1,004,978
Deferred revenue.......................................... 197,930 113,179 965,757
Funding commitment to Beacon Power Corporation............ -- 333,333 --
Other accrued expenses.................................... 368,252 620,874 1,369,370
Current portion of long-term debt......................... 146,594 16,226 17,168
----------- ----------- -----------
Total current liabilities............................... 2,513,374 3,127,105 5,271,503
Liabilities transferred to Beacon Power Corporation......... 1,564,152 -- --
Long-term debt, net of current portion...................... 221,462 33,871 20,874
Other long-term liabilities................................. 17,747 29,735 29,735
Commitments and contingencies (Note I)
Contingent obligation to Class D preferred stockholders of
Beacon Power Corporation.................................. -- 5,309,115 5,722,629
Redeemable convertible preferred stock...................... -- 4,894,112 --
Stockholders' equity:
Preferred stock; $0.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding in 1998,
8,000 shares series A redeemable convertible preferred
stock issued and outstanding in 1999 and no shares
issued and outstanding in 2000.......................... -- -- --
Common stock, $0.01 par value, 25,000,000 shares
authorized; 9,018,549 in 1998, 9,617,009 in 1999 and
13,706,550 in 2000 shares issued........................ 90,185 96,170 137,065
Additional paid-in capital................................ 28,377,718 37,074,161 71,254,765
Common stock held in escrow, at market value; none in
1998, 42,860 shares in 1999 and none in 2000............ -- (428,600) --
Amounts receivable from exercise of stock options......... -- (1,816,667) (700,001)
Accumulated deficit....................................... (15,912,442) (30,254,195) (37,959,946)
Accumulated other comprehensive loss...................... (10,380) -- (31,520)
Treasury stock, at cost; 28,300 shares in 1998 and 44,500
shares in 1999 and 2000................................. (173,076) (249,704) (249,704)
----------- ----------- -----------
Total stockholders' equity.............................. 12,372,005 4,421,165 32,450,659
----------- ----------- -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity...................... $16,688,740 $17,815,103 $43,495,400
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
Product revenue................... $ 3,728,042 $ 7,520,188 $ 9,122,498 $ 6,389,193 $ 14,269,299
Funded research and development
revenue......................... 8,738,293 8,010,735 6,355,383 5,089,705 6,526,033
----------- ----------- ------------ ------------ ------------
Total revenue................. 12,466,335 15,530,923 15,477,881 11,478,898 20,795,332
Cost of product revenue........... 2,683,389 5,474,067 9,510,941 6,726,740 12,486,079
----------- ----------- ------------ ------------ ------------
Gross margin.................. 9,782,946 10,056,856 5,966,940 4,752,158 8,309,253
----------- ----------- ------------ ------------ ------------
Research and development
expenses........................ 11,442,465 6,793,634 6,554,464 5,029,541 7,559,907
Selling, general and
administrative expenses......... 6,197,951 4,523,424 8,818,706 7,194,338 7,008,006
Amortization of intangibles....... 120,467 290,957 371,087 272,840 894,755
----------- ----------- ------------ ------------ ------------
Total operating expenses.......... 17,760,883 11,608,015 15,744,257 12,496,719 15,462,668
----------- ----------- ------------ ------------ ------------
Operating loss.................... (7,977,937) (1,551,159) (9,777,317) (7,744,561) (7,153,415)
Loss from Beacon Power
Corporation..................... -- (3,472,438) (4,340,567) (3,828,541) (828,243)
Other (losses) income............. -- -- (150,464) (150,464) 2,425
Interest income................... 283,131 179,861 42,287 32,666 275,979
Interest expense.................. (13,933) (10,206) (115,692) (74,816) (2,497)
----------- ----------- ------------ ------------ ------------
Net loss before income taxes...... (7,708,739) (4,853,942) (14,341,753) (11,765,716) (7,705,751)
Provision for income taxes........ -- 3,872 -- -- --
----------- ----------- ------------ ------------ ------------
Net loss.......................... (7,708,739) (4,857,814) (14,341,753) (11,765,716) (7,705,751)
Accretion of redeemable
convertible preferred stock
discount........................ -- -- (50,904) -- (3,105,888)
----------- ----------- ------------ ------------ ------------
Net loss attributable to common
stockholders.................... $(7,708,739) $(4,857,814) $(14,392,657) $(11,765,716) $(10,811,639)
=========== =========== ============ ============ ============
Net loss per share, basic and
diluted......................... $ (.97) $ (.54) $ (1.57) $ (1.30) $ (0.88)
=========== =========== ============ ============ ============
Weighted average number of common
shares, basic and diluted....... 7,959,309 8,956,671 9,176,041 9,072,060 12,277,950
=========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AMOUNTS
RECEIVABLE
COMMON COMMON FROM
ADDITIONAL SHARES STOCK EXERCISE OF
COMMON COMMON PAID-IN HELD IN HELD IN STOCK ACCUMULATED
SHARES STOCK CAPITAL ESCROW ESCROW OPTIONS DEFICIT
---------- -------- ----------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996........ 7,359,074 $ 73,591 $18,487,209 -- -- -- $ (3,345,889)
Net loss........................... -- -- -- -- -- -- (7,708,739)
Exercise of stock options.......... 161,934 1,619 408,390 -- -- -- --
Change in net unrealized losses on
marketable securities............ -- -- -- -- -- -- --
Stock issued in acquisition........ 450,000 4,500 2,871,750 -- -- -- --
Securities purchase agreement...... 798,138 7,981 4,809,251 -- -- -- --
---------- -------- ----------- ------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1997........ 8,769,146 $ 87,691 $26,576,600 -- -- -- $(11,054,628)
Net loss........................... -- -- -- -- -- -- (4,857,814)
Exercise of stock options.......... 100,266 1,003 580,736 -- -- -- --
Exercise of warrants............... 149,137 1,491 1,220,382 -- -- -- --
Treasury stock purchased........... -- -- -- -- -- -- --
Change in net unrealized losses on
marketable securities............ -- -- -- -- -- -- --
---------- -------- ----------- ------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1998........ 9,018,549 $ 90,185 $28,377,718 -- -- -- $(15,912,442)
Net loss........................... -- -- -- -- -- -- (14,341,753)
Exercise of stock options.......... 455,600 4,556 3,173,445 -- -- (1,816,667) --
Treasury stock purchased........... -- -- -- -- -- -- --
Common stock issued in
acquisitions..................... 100,000 1,000 567,800 -- -- -- --
Common stock issued in connection
with settlement agreement which
is held in escrow................ 42,860 429 189,762 42,860 (190,191) -- --
Compensation expense related to
stock options and warrants issued
to non-employees................. -- -- 2,208,639 -- -- -- --
Valuation adjustment for common
stock held in escrow............. -- -- 238,409 -- (238,409) -- --
Warrants issued in connection with
the sale of redeemable preferred
stock............................ -- -- 2,369,292 -- -- -- --
Change in net unrealized losses on
marketable securities............ -- -- -- -- -- -- --
Accretion of redeemable convertible
preferred stock discount......... -- -- (50,904) -- -- -- --
---------- -------- ----------- ------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 1999........ 9,617,009 $ 96,170 $37,074,161 42,860 $ (428,600) $(1,816,667) $(30,254,195)
Net loss (unaudited)............... -- -- -- -- -- -- (7,705,751)
Common stock issued in connection
with Ling acquisition
(unaudited)...................... 770,000 7,700 7,748,656 -- -- -- --
Common stock issued in connection
with MTI investment
(unaudited)...................... 1,030,000 10,300 6,964,926 -- -- -- --
MTI warrant received in connection
with MTI investment
(unaudited)...................... -- -- 3,495,438 -- -- -- --
Valuation adjustment for MTI
warrant (unaudited).............. -- -- -- -- -- -- --
Common stock issued in connection
with NGC acquisition
(unaudited)...................... 578,761 5,788 5,465,770 -- -- -- --
Conversion of redeemable preferred
stock into common stock
(unaudited)...................... 1,025,641 10,256 7,989,744 -- -- -- --
Exercise of common stock options
(unaudited)...................... 667,139 6,671 5,224,578 -- -- 1,116,666 --
Exercise of common stock warrants
(unaudited)...................... 18,000 180 140,220 -- -- -- --
Valuation adjustment for common
stock held in escrow
(unaudited)...................... -- -- 257,160 -- (257,160) -- --
Common stock released from escrow
(unaudited)...................... -- -- -- (42,860) 685,760 -- --
Accretion of redeemable convertible
preferred stock discount
(unaudited)...................... -- -- (3,105,888) -- -- -- --
Foreign currency translation
adjustment (unaudited)........... -- -- -- -- -- -- --
---------- -------- ----------- ------- ----------- ----------- ------------
BALANCE, JUNE 30, 2000
(UNAUDITED)...................... 13,706,550 $137,065 $71,254,765 -- $ -- $ (700,001) $(37,959,946)
========== ======== =========== ======= =========== =========== ============
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE TREASURY TREASURY STOCKHOLDERS'
LOSS SHARES STOCK EQUITY
------------- -------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996........ $(39,935) -- -- $15,174,976
Net loss........................... -- -- -- (7,708,739)
Exercise of stock options.......... -- -- -- 410,009
Change in net unrealized losses on
marketable securities............ 19,720 -- -- 19,720
Stock issued in acquisition........ -- -- -- 2,876,250
Securities purchase agreement...... -- -- -- 4,817,232
-------- ------ --------- -----------
BALANCE, SEPTEMBER 30, 1997........ $(20,215) -- -- $15,589,448
Net loss........................... -- -- -- (4,857,814)
Exercise of stock options.......... -- -- -- 581,739
Exercise of warrants............... -- -- -- 1,221,873
Treasury stock purchased........... -- 28,300 $(173,076) (173,076)
Change in net unrealized losses on
marketable securities............ 9,835 -- -- 9,835
-------- ------ --------- -----------
BALANCE, SEPTEMBER 30, 1998........ $(10,380) 28,300 $(173,076) $12,372,005
Net loss........................... -- -- -- (14,341,753)
Exercise of stock options.......... -- -- -- 1,361,334
Treasury stock purchased........... -- 16,200 (76,628) (76,628)
Common stock issued in
acquisitions..................... -- -- -- 568,800
Common stock issued in connection
with settlement agreement which
is held in escrow................ -- -- -- --
Compensation expense related to
stock options and warrants issued
to non-employees................. -- -- -- 2,208,639
Valuation adjustment for common
stock held in escrow............. -- -- -- --
Warrants issued in connection with
the sale of redeemable preferred
stock............................ -- -- -- 2,369,292
Change in net unrealized losses on
marketable securities............ 10,380 -- -- 10,380
Accretion of redeemable convertible
preferred stock discount......... -- -- -- (50,904)
-------- ------ --------- -----------
BALANCE, SEPTEMBER 30, 1999........ -- 44,500 $(249,704) $ 4,421,165
Net loss (unaudited)............... -- -- -- (7,705,751)
Common stock issued in connection
with Ling acquisition
(unaudited)...................... -- -- -- 7,756,356
Common stock issued in connection
with MTI investment
(unaudited)...................... -- -- -- 6,975,226
MTI warrant received in connection
with MTI investment
(unaudited)...................... -- -- -- 3,495,438
Valuation adjustment for MTI
warrant (unaudited).............. 6,985 -- -- 6,985
Common stock issued in connection
with NGC acquisition
(unaudited)...................... -- -- -- 5,471,558
Conversion of redeemable preferred
stock into common stock
(unaudited)...................... -- -- -- 8,000,000
Exercise of common stock options
(unaudited)...................... -- -- -- 6,347,915
Exercise of common stock warrants
(unaudited)...................... -- -- -- 140,400
Valuation adjustment for common
stock held in escrow
(unaudited)...................... -- -- -- --
Common stock released from escrow
(unaudited)...................... -- -- -- 685,760
Accretion of redeemable convertible
preferred stock discount
(unaudited)...................... -- -- -- (3,105,888)
Foreign currency translation
adjustment (unaudited)........... (38,505) -- -- (38,505)
-------- ------ --------- -----------
BALANCE, JUNE 30, 2000
(UNAUDITED)...................... $(31,520) 44,500 $(249,704) $32,450,659
======== ====== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(7,708,739) $(4,857,814) $(14,341,753) $(11,765,716) $(7,705,751)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 969,010 625,976 1,013,037 744,486 1,499,041
Allowance for unbilled contract costs and fees...... 697,968 (19,065) 688,510 630,299 --
Allowance for doubtful accounts..................... 28,324 (94,424) 334,850 187,970 64,252
Allowance for inventory............................. 758,541 (549,765) 870,021 714,536 300,000
Loss from Beacon Power Corporation.................. -- 3,472,438 4,340,567 3,828,541 828,243
Loss on sale of marketable securities............... -- -- 87,535 87,535 --
Write-off impaired assets........................... 2,593,558 50,104 255,544 260,790 --
Compensation expense related to issuance of stock
options and warrants to non-employees............. -- -- 2,208,639 2,183,373 --
Compensation expense related to common stock held in
escrow............................................ -- -- -- -- 348,260
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable............................... 535,797 (301,909) 89,858 12,954 (1,573,558)
Unbilled contract costs and fees.................. (749,462) 532,573 (954,393) (285,748) 1,033,392
Prepaid expenses and other current assets......... 62,174 (8,529) 31,455 (63,949) 112,989
Inventory......................................... (1,161,843) (1,550,819) (601,120) (754,876) (306,465)
Other long-term assets............................ 212,339 (607,245) 517,402 558,739 10,485
Accounts payable.................................. (385,868) 647,689 72 284,122 (291,062)
Accrued expenses and payroll...................... (898,970) (291,061) (98,163) 322,194 271,512
Other liabilities................................. -- 6,802 (72,763) 43,721 839,078
----------- ----------- ------------ ------------ -----------
Total adjustments................................... 2,661,568 1,912,765 8,711,051 8,754,687 3,136,167
----------- ----------- ------------ ------------ -----------
Net cash used in operating activities................... (5,047,171) (2,945,049) (5,630,702) (3,011,029) (4,569,584)
----------- ----------- ------------ ------------ -----------
Cash flows from investing activities:
Purchases of marketable securities.................. (600,000) -- -- -- --
Sales and maturities of marketable securities....... 2,079,064 1,340,609 580,144 580,144 --
Patent and intangible expenditures.................. (150,534) (431,526) (102,227) (51,333) (90,123)
Deferred investing fees............................. 56,313 -- -- -- --
Purchase of property and equipment.................. (931,229) (601,331) (220,416) (170,574) (1,033,657)
Acquisitions, net of cash acquired.................. (112,986) -- (995,876) (995,876) (24,054)
Investment in Beacon Power Corporation.............. -- (2,007,508) (696,667) (155,000) (333,333)
----------- ----------- ------------ ------------ -----------
Net cash used in investing activities................... 340,628 (1,699,756) (1,435,042) (792,639) (1,481,167)
----------- ----------- ------------ ------------ -----------
Cash flows from financing activities:
Repayment of borrowings............................. (35,119) (40,625) (100,000) (100,000) (12,055)
Borrowings under line of credit..................... -- -- 2,657,234 2,617,296 --
Repayment of borrowings under line of credit........ -- -- (2,657,234) -- --
Proceeds from issuance of redeemable convertible
preferred stock................................... -- -- 7,212,500 -- --
Proceeds from issuance of common stock.............. 4,817,232 -- -- -- 6,975,226
Proceeds from exercise of stock options............. 410,009 581,739 1,361,334 678,000 6,347,915
Proceeds from exercise of warrants.................. -- 1,221,873 -- -- 140,400
Purchase of treasury stock.......................... -- (173,076) (76,628) (76,628) --
Deferred financing fees............................. -- -- -- -- (319,158)
----------- ----------- ------------ ------------ -----------
Net cash provided by financing activities............... 5,192,122 1,589,911 8,397,206 3,118,668 13,132,328
----------- ----------- ------------ ------------ -----------
Effect of foreign currency exchange rates on cash and
cash equivalents...................................... -- -- -- -- (38,505)
----------- ----------- ------------ ------------ -----------
Net increase/(decrease) in cash and cash equivalents.... 485,579 (3,054,894) 1,331,462 (685,000) 7,043,072
Cash and cash equivalents at beginning of period........ 3,770,925 4,256,504 1,201,610 1,201,610 2,533,072
----------- ----------- ------------ ------------ -----------
Cash and cash equivalents at end of period.............. $ 4,256,504 $ 1,201,610 $ 2,533,072 $ 516,610 $ 9,576,144
=========== =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon develops enabling technologies for the emerging distributed power
generation and power quality markets. SatCon also manufactures power and energy
management products that convert, condition, store and manage electricity for
businesses and consumers that require high-quality, uninterruptible power.
SatCon is utilizing its engineering and manufacturing expertise to develop
products to serve the distributed power generation and power quality markets,
including products for fuel cell and microturbine power generation systems,
hybrid-electric vehicles and flywheel energy storage systems. SatCon believes
the family of products it is developing will be integral components of
distributed power generation and power quality systems.
In the past three years, SatCon has expanded its business and capabilities
through the following acquisitions:
- K&D Magmotor Corp.--a manufacturer of custom electric motors, acquired in
January 1997.
- Film Microelectronics, Inc.--a manufacturer of hybrid microelectronics,
acquired in April 1997.
- Inductive Components, Inc.--a value-added supplier of customized electric
motors, acquired in January 1999.
- Lighthouse Software, Inc.--a supplier of control software for machine
tools, acquired in January 1999.
- HyComp, Inc.--a manufacturer of electronic multi-chip modules, acquired in
April 1999.
- Ling Electronics, Inc.--a manufacturer of test equipment, power
converters, amplifiers and converters, acquired in October 1999.
All of these acquisitions were accounted for using the purchase method of
accounting. In addition, in November 1999, the Company acquired intellectual
property, tooling and other assets from Northrop Grumman Corporation enabling
the Company to manufacture and sell electric drivetrains. See Note P.
The financial statements as of June 30, 2000 and for the nine months ended
June 30, 1999 and 2000 are unaudited. These unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for the interim period ended June 30, 2000 are not necessarily
indicative of results to be expected for the entire fiscal year or future
periods.
RESTATEMENT
The Company has restated its financial statements for fiscal 1997, 1998 and 1999
and for the nine months ended June 30, 1999 and 2000. For a discussion of this
restatement see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's
F-8
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements and related notes included in Amendment No. 2 to the
Company's Annual Report on Form 10-K/A as filed with the SEC on September 18,
2000.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of SatCon and its
majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is the local
currency. Assets and liabilities of foreign subsidiaries are translated at the
rates in effect at the balance sheet date, while stockholders' equity (deficit)
is translated at historical rates. Statements of operations and cash flow
amounts are translated at the average rate for the period. Translation
adjustments are included as a component of accumulated other comprehensive loss.
Foreign currency gains and losses arising from transactions are reflected in the
loss from operations and were not significant during the nine months ended
June 30, 2000.
REVENUE RECOGNITION
Revenue from manufactured products is recognized upon shipment or, if the
product requires installation, then revenue is recognized upon installation of
the product. The Company provides for a warranty reserve at the time the product
revenue is recognized.
The Company performs funded research and development in collaboration with third
parties under both cost reimbursement and fixed-price contracts. Cost
reimbursement contracts provide for the reimbursement of allowable costs and, in
some situations, the payment of a fee. These contracts may contain incentive
clauses providing for increases or decreases in the fees depending on how costs
compare with a budget. On fixed-price contracts, revenue is generally recognized
on the percentage of completion method based upon the proportion of costs
incurred to the total estimated costs for the contract. Revenue from
reimbursement contracts is recognized as the services are performed. In each
type of contract, the Company receives periodic progress payments or payments
upon reaching interim milestones. All payments to the Company for work performed
on contracts with agencies of the U.S. government are subject to audit and
adjustment by the Defense Contract Audit Agency. Adjustments are recognized in
the period made. When the current estimates of total contract revenue and
contract costs indicate a loss, a provision for the entire loss on the contract
is recorded. As of June 30, 2000, the Company has accrued $150,000 for
anticipated contract losses. There were no anticipated contract losses at
September 30, 1999 and 1998.
Deferred revenue consists of payments received from customers in advance of
services performed, product shipped or installation completed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits and highly liquid investments
with a maturity of three months or less when acquired. Cash equivalents are
stated at cost, which approximates market value.
F-9
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with the Statement
of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in debt
securities at the time of purchase and reevaluates such determination at each
balance sheet date. Debt securities for which the Company does not have the
intent or ability to hold to maturity are classified as available for sale.
Securities available for sale are carried at fair value, based on quoted market
prices, with the unrealized gains and losses, net of tax effect, reported in a
separate component of stockholders' equity, except for unrealized losses
determined to be permanent in nature. Such unrealized losses are included in the
determination of net income in the period in which management determines the
decline to be permanent. The Company is not actively involved in the purchase
and sale of investments classified as trading. At September 30, 1998 and 1999
and June 30, 2000, the Company had no investments that qualified as trading or
held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity or,
in the case of mortgage-backed securities, over the estimated life of the
security. Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense. The cost of
securities sold is based on the specific identification method.
INVENTORY
Inventories are stated at the lower of cost or market and costs are determined
based on the first-in, first-out method of accounting and include material,
labor and manufacturing overhead costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the asset's estimated useful life.
The estimated useful lives of property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED LIVES
---------------------------------------------
<S> <C>
Computer equipment and software.............. 3- 5 years
Electronic laboratory and shop equipment..... 5 years
Mechanical laboratory and shop equipment..... 10 years
Sales and demonstration equipment............ 3-10 years
Furniture and fixtures....................... 7-10 years
Leasehold improvements....................... Lesser of the life of the lease or the useful
life of the improvement
</TABLE>
When assets are retired or otherwise disposed of, the cost and related
depreciation and amortization are eliminated from the accounts and any resulting
gain or loss is reflected in other income.
F-10
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company periodically evaluates the potential impairment of its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. At the occurrence of a certain event
or change in circumstances or at each balance sheet date, the Company evaluates
the potential impairment of an asset based on future undiscounted cash flows. In
the event that impairment exists, the Company will measure the amount of such
impairment based on the present value of estimated future cash flows using a
discount rate commensurate with the risks involved. Factors that management
considers in performing this assessment include current operating results,
trends and prospects and, in addition, demand, competition and other economic
factors. At September 30, 1998 and 1999 and June 30, 2000, the Company
determined that there had been no impairment of its long-lived assets, except as
discussed in Note E.
Intangibles, which consist primarily of intellectual property, goodwill and a
non-compete agreement, are amortized on a straight-line basis over periods
ranging from 5 to 15 years. At September 30, 1998 and 1999 and June 30, 2000,
accumulated amortization of intangibles amounted to $442,237, $831,922 and
$1,735,919, respectively.
TREASURY STOCK
The Company is authorized to repurchase up to 5% of the Company's outstanding
shares of common stock through July 2000. Under the repurchase program, the
Company plans to purchase shares of the Company's outstanding common stock on
the open market from time-to-time, depending on market conditions.
USE OF ESTIMATES
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the period reported. Actual
results could differ from these estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which is the asset and liability method for
accounting and reporting for income taxes. Under SFAS No. 109, deferred tax
assets and deferred tax liabilities are recognized based on temporary
differences between the basis of assets and liabilities using statutory rates.
In addition, SFAS No. 109 requires a valuation allowance against net deferred
tax assets if, based upon the available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
STOCK-BASED COMPENSATION
The Company recognizes stock-based compensation in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires that
companies recognize compensation expense for grants of stock, stock options, and
other equity instruments based on fair value, or, for grants to
F-11
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
employees, provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements using the fair value method.
NET LOSS PER BASIC AND DILUTED COMMON SHARE
The Company reports net loss per basic and diluted common share in accordance
with SFAS No. 128, "Earnings Per Share," which establishes standards for
computing and presenting loss per share. Basic loss per share is computed by
dividing net loss attributable to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted loss per share
reflects the potential dilution, if any, that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the loss of the
Company.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit risk
consist principally of cash equivalents, investments in marketable securities,
trade accounts receivable, unbilled contract costs and amounts receivable from
exercise of stock options.
The Company's trade accounts receivable and unbilled contract costs and fees are
primarily from sales to U.S. government agencies and several commercial
customers. The Company does not require collateral and has not historically
experienced significant credit losses related to receivables or unbilled
contract costs and fees from individual customers or groups of customers in any
particular industry or geographic area.
The Company deposits its cash and invests in short-term investments and
marketable securities primarily through two regional commercial banks and an
investment company. Credit exposure to any one entity is limited by company
policy.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred.
COMPREHENSIVE LOSS
Comprehensive loss includes net loss, as well as other changes in stockholders'
equity, except stockholders' investments and distributions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, unbilled contract costs and fees, accounts payable, debt
instruments and amounts receivable from exercise of stock options. The book
value of such financial instruments approximate their respective fair values due
to their short-term maturities.
F-12
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to current year
presentations. For all periods presented, expenses associated with funded
research and development activities have been reclassified as research and
development expenses from cost of revenue.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which defers the effective date of Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities" to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair value. The Company will
adopt SFAS No. 133 beginning in the first quarter of the fiscal year ending
September 30, 2001. Upon adoption of SFAS No. 133, the Company will be required
to record any unrealized gains or losses on the fair value of its investments in
derivatives in its results of operations and will record a cumulative adjustment
to reflect the impact of adopting this accounting standard. Adoption of SFAS
No. 133 is not expected to have a material impact to SatCon's consolidated
financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition." This bulletin, as amended, established
guidelines for revenue recognition and is effective for fiscal 2001. The Company
does not expect that the adoption of the guidance required by SAB No. 101 will
have a material impact on its financial condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44 "Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion
No. 25." This interpretation clarifies the application of Opinion 25, including
(a) the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. The Interpretation is
effective July 1, 2000 and the effects of applying the Interpretation are
recognized on a prospective basis. The Company does not expect that the adoption
of this Interpretation will have a material impact on its financial condition or
results of operations.
B. MARKETABLE SECURITIES
At September 30, 1998, marketable securities have been categorized as available
for sale, and as a result, are stated at fair value.
F-13
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
B. MARKETABLE SECURITIES (CONTINUED)
As of September 30, 1998, marketable securities consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST AGGREGATE FAIR UNREALIZED UNREALIZED
SECURITY CATEGORY BASIS VALUE GAINS LOSSES
----------------- -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Corporate debt securities..................... $597,197 $583,939 $ 8,149 $(21,407)
Mortgage-backed securities.................... 70,614 73,492 2,878 --
-------- -------- ------- --------
$667,811 $657,431 $11,027 $(21,407)
======== ======== ======= ========
</TABLE>
The change in net unrealized losses during 1997, 1998 and 1999 were $32,866,
$23,312, and $10,380, respectively, and are included in the balance sheet in
other comprehensive income as a separate component of stockholders' equity, net
of tax effect.
Proceeds from sales and maturities of marketable securities during 1997, 1998
and 1999 were $2,079,064, $1,340,609, and $580,144, respectively. Gross realized
losses from the sale of securities classified as available for sale during 1997,
1998 and 1999 were $0, $0, and $87,535, respectively.
C. UNBILLED CONTRACT COSTS AND FEES
Unbilled contract costs and fees represent revenue recognized in excess of
amounts billed due to contractual provisions or deferred costs that have not yet
been recognized as revenue or billed to the customer. These amounts included
retained fee and unliquidated costs totaling $363,087, $282,746 and $191,049 at
September 30, 1998 and 1999 and June 30, 2000, respectively.
D. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- JUNE 30,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Raw material............................................. $1,783,803 $1,139,064 $3,680,799
Work-in-process.......................................... 1,788,241 2,199,199 3,466,694
Finished goods........................................... 106,023 359,709 890,935
---------- ---------- ----------
$3,678,067 $3,697,972 $8,038,428
========== ========== ==========
</TABLE>
F-14
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
E. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- JUNE 30,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment.................................. $3,391,758 $4,505,287 $6,616,198
Sales and demonstration equipment........................ 19,052 -- --
Furniture and fixtures................................... 265,173 280,769 312,940
Computer software........................................ 556,876 621,583 753,347
Leasehold improvements................................... 626,216 648,734 749,189
---------- ---------- ----------
4,859,075 6,056,373 8,431,674
Less accumulated depreciation and amortization........... 2,181,289 2,795,741 3,390,786
---------- ---------- ----------
$2,677,786 $3,260,632 $5,040,888
========== ========== ==========
</TABLE>
Depreciation and amortization expense for the years ended September 30, 1997,
1998, and 1999 and for the nine months ended June 30, 1999 and 2000 was
$736,924, $540,213, $633,964, $457,758 and $595,045, respectively.
As of September 30, 1998, there was no equipment under capital lease. As of
September 30, 1999 and June 30, 2000, there was $19,903 and $29,910 of capital
leases that were included in machinery and equipment and computer software,
respectively.
During 1997 and 1999, the Company determined that certain of its machinery and
equipment with a net book value totaling $2,593,558 and $105,544, respectively,
was impaired based on a change in the needs of its customers and such assets
were written-off during 1997 and 1999, respectively.
F. INVESTMENT IN BEACON POWER CORPORATION
On May 28, 1997, SatCon Technology Corporation entered into a Securities
Purchase Agreement (the "Agreement"), dated as of May 28, 1997, by and among the
Company, Beacon Power Corporation ("Beacon Power"), a new wholly-owned
subsidiary of the Company, and Duquesne Enterprises ("Duquesne"). Pursuant to
the terms of the Agreement, Duquesne purchased from the Company and the Company
issued, sold and delivered to Duquesne 798,138 shares (the "Shares") of the
Company's Common Stock. The aggregate consideration received by the Company was
$5,000,000. In exchange for a capital contribution, the Company received all of
the capital stock of Beacon Power, consisting of 3,375,000 shares of Beacon
Power's Common Stock and 1,125,000 shares of Beacon Power's preferred stock, par
value $.01 per share, as adjusted to reflect a 1:1.125 stock split. Duquesne
also entered into agreements pursuant to which it will act as exclusive
distributor of Beacon Power's products, subject to certain exceptions, in seven
Mid-Atlantic States and the District of Columbia.
During a recapitalization of Beacon Power on December 24, 1997, Beacon Power
obtained equity financing from private investors and the Company converted a
significant portion of its ownership of Beacon Power to non-voting convertible
preferred stock and transferred certain assets and liabilities to Beacon Power.
The Company has determined that the recapitalization of Beacon Power on December
24, 1997 did not qualify as a divestiture of a subsidiary for accounting
purposes as described in SEC Staff Accounting Bulletin No. 30/Topic 5E (SAB 30)
"Accounting for Divestiture of a Subsidiary or Other Business Operation" as the
Company had not transferred risks and other incidents of ownership of Beacon
Power with sufficient certainty. In accordance with SAB 30, the Company has
included 100% of Beacon Power's net loss in its statements of operations from
December 24, 1997 to May 1999 in a
F-15
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
manner similar to the equity method of accounting and has included the assets
and liabilities transferred to Beacon Power as separate components in its
September 30, 1998 balance sheet. The book value of assets and liabilities
transferred to Beacon Power on December 24, 1997 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable......................................... $ 14,487
Prepaid expenses and other assets........................... 67,147
Subscriptions receivable.................................... 2,007,508
Accounts payable............................................ (50,000)
Accrued payroll and payroll related expenses................ (32,298)
Accrued expenses............................................ (118,225)
-----------
Investment in Beacon Power Corporation...................... $ 1,888,619
===========
</TABLE>
At September 30, 1998, the Company had amounts of $596,453 due from Beacon
Power. These amounts arose from transactions after December 24, 1997, whereby
the Company advanced money and made payments for certain expenses incurred by
Beacon Power. These advances have been written off as of September 30, 1998.
These advances were subsequently repaid in connection with the October 23, 1998
financing.
On October 23, 1998, the Company entered into a Securities Purchase Agreement,
by and among Beacon Power, Perseus Capital, L.L.C. ("Perseus"), DQE Enterprises,
Inc., Micro Generation Technology Fund, L.L.C ("Micro", and together with
Perseus and DQE Enterprises, the "Purchasers") and the Company. Pursuant to the
terms of the Agreement, (i) the Purchasers purchased from Beacon Power and
Beacon Power issued, sold and delivered to the Purchasers 1,900,000 shares (the
"Shares") of Beacon Power's Class D Redeemable Preferred Stock, $.01 par value
per share; (ii) the Class D Redeemable Preferred Stock earns cumulative
dividends at an annual rate of 12.5% through May 23, 2000 and 6% on and after
this date; (iii) the Purchasers have the right to receive certain warrants to
purchase shares of Beacon Power's common stock, $.01 par value per share
("Beacon Power's Common Stock"); (iv) 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 Power's Common Stock issuable
upon conversion of the Shares; and (v) 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 15 trading days before
and after notice of exercise of the Put Right. The aggregate consideration
received by Beacon Power was $4,750,000. The Put Right is exercisable within 60
days of the second, third, fourth and fifth anniversary of the closing date of
the transaction, upon certain events of bankruptcy of Beacon Power and upon the
occurrence of certain going private transactions involving the Company. The Put
Right will terminate, if not previously exercised, on the earlier of
(i) October 23, 2003, (ii) upon the listing of Beacon Power's Common Stock on
the New York Stock Exchange or the Nasdaq National Market, or (iii) with respect
to put rights resulting from an event described above, 100 days after the
Purchasers receive written notice from the Company requesting that the
Purchasers either exercise or waive their put rights resulting from that event.
The Company has recorded the face value of and cumulative dividends on Beacon
Power's Class D Preferred Stock as an additional investment in Beacon Power.
While the Company currently believes that the Class D preferred stockholders
will not exercise the Put Right, the Company has recorded the face value and the
cumulative dividends on the class D preferred stock of Beacon Power as a
liability. As of
F-16
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
September 30, 1999, the contingent obligation to the Class D preferred
stockholders is $5,309,115 consisting of $4,750,000 face value and $559,115 of
cumulative dividends. If the Put Right is exercised, the Company would
reclassify the value of the contingent obligation to the Class D preferred
stockholders as common stock and additional paid in capital.
In June 1999, the Company committed to provide up to $1,000,000 of additional
financing to Beacon Power representing a minority share of a funding commitment
received by Beacon Power and therefore increased its investment in Beacon Power
and accrued the funding commitment of $1,000,000. As a result of this financing,
the Company determined that risks and other incidents of ownership of Beacon
Power had passed with sufficient certainty to other investors and therefore,
began accounting for its investment in Beacon Power under the equity method.
On June 22, 1999, the Company purchased from Beacon Power a note (the "June 22,
1999 Note") with a principal amount of $125,000 due and payable on the earlier
of (i) September 22, 1999 ("Maturity Date") or (ii) upon the occurrence of an
event of default, as defined therein. The note bears interest at 12% per annum;
provided that, if the note is not repaid in full on or prior to Maturity Date,
the interest rate would increase to 15% per annum. The June 22, 1999 Note was
issued pursuant to the terms of a Note Purchase Agreement, dated as of June 22,
1999, by and among Beacon Power, the Purchasers named therein, and the Company
(the "Note Purchase Agreement"). Interest on the June 22, 1999 Note is payable
on the Maturity Date.
On July 6, 1999, the Company purchased from Beacon Power an additional note (the
"July 6, 1999 Note") with a principal amount of $125,000 due and payable on the
earlier of (i) Maturity Date or (ii) upon the occurrence of an event of default.
The note bears interest at 12% per annum; provided, that if the note is not
repaid in full on or prior to Maturity Date, the interest rate would increase to
15% per annum (the "July 6, 1999 Note" and together with the June 22, 1999 Note,
the "Notes"). The July 6, 1999 Note was also issued pursuant to the terms of the
Note Purchase Agreement. Interest on the July 6, 1999 Note is payable on the
Maturity Date.
In August 1999, the Company exchanged in full the Notes and $83,333.33 for a
note with a principal amount of $333,333.33 ("Bridge Note") plus accrued
interest due and payable on the earlier of (i) the date of conversion of the
note as described below or (ii) upon the occurrence of an event of default. The
Bridge Note bears interest at 12% per annum; provided that if the Funding Date
(as defined below) does not occur within six months, such interest rate shall
increase effective February 2, 2000 to 15% per annum. The Bridge Note was issued
pursuant to the terms of a Note and Warrant Purchase Agreement, dated as of
August 2, 1999, by and among Beacon Power, the Purchasers named therein, and the
Company (the "Note and Warrant Purchase Agreement"). Interest on the Bridge Note
is payable on the Maturity Date.
Pursuant to the terms of the Note and Warrant Purchase, the Company purchased
two (2) additional notes each with a principal amount of $333,333.33 on
September 16, 1999 and October 19, 1999. The Bridge Note and the additional
notes each with a principal amount of $333,333.33 are collectively referred to
as the "Bridge Securities." At September 30, 1999, the Company has $333,333
payable under this commitment to Beacon Power.
Warrants to purchase shares of Beacon Power Securities were issued in connection
with each issuance of the Bridge Securities. The warrants are for the purchase
of the type of securities to be issued upon conversion of the Bridge Securities
or if such securities are not converted, Beacon Power common stock. The number
of shares of Beacon Power securities that will be subject to the warrants will
be
F-17
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
determined by dividing (i) 25% of the principal amount of the Bridge Securities
issued by (ii) the price per share of the Bridge Securities, or, if the Bridge
Securities are not converted, $2.50.
On April 7, 2000, the Bridge Securities were converted into 347,407 shares of
Beacon Power's Class E redeemable preferred stock and a warrant to purchase
86,852 shares of Class E redeemable preferred stock.
On January 7, 2000, the Company purchased from Beacon Power a convertible
promissory note with a principal amount of $200,000 due and payable on the
earlier of (i) the maturity date, as defined (the "Maturity Date"), or
(ii) upon the occurrence of an event of default by Beacon Power. The note bears
interest at 12 1/2% per annum; provided, that if the note is not repaid in full
on or prior to the Maturity Date, the interest rate increases to 15% per annum
(the "January 7, 2000 Note"). Interest on the January 7, 2000 Note is due and
payable on the Maturity Date. The Company did not accrue losses of $200,000
relating to its share of Beacon Power's losses incurred through December 31,
1999, as those amounts, including interest, were repaid on February 14, 2000.
On February 25, 2000, the Company purchased from Beacon Power a convertible
promissory note with a principal amount of $300,000 due and payable on the
earlier of (i) the maturity date, as defined (the "Maturity Date"), or
(ii) upon the occurrence of an event of default by Beacon Power. The note bears
interest at 12 1/2% per annum; provided, that if the note is not repaid in full
on or prior to the Maturity Date, the interest rate increases to 15% per annum
(the "February 25, 2000 Note"). Interest on the February 25, 2000 Note is due
and payable on the Maturity Date. The Company did not accrue losses up to
$300,000 relating to its share of Beacon Power's losses incurred through
March 31, 2000, as those amounts, including interest, were repaid on April 27,
2000.
The results of the Company's operations include $3,111,381 loss of Beacon Power
from May 8, 1997 to December 24, 1997 under the consolidation method of
accounting. On December 24, 1997, the Company began accounting for its
investment in Beacon Power in accordance with SAB 30 and has included 100% of
Beacon Power's $7,079,297 loss for the period from December 25, 1997 through May
1999 in a manner similar to the equity method of accounting, at which time, the
Company's initial investment of $1,888,619, the $30,000 additional investment
and the additional deemed investment of $4,750,000 and accrued dividends of
$410,678 had been written down to zero. In June 1999 the Company committed up to
$1.0 million of additional financing to Beacon Power, representing a minority
share of a funding commitment received by Beacon Power, and the Company began
accounting for its investment in Beacon Power under the equity method and has
included in its results through June 30, 2000 its share of Beacon Power's losses
of $1,561,951. At December 31, 1999, the Company's additional investment in
Beacon Power had been reduced to zero. The Company's contingent obligation to
Beacon Power's Class D preferred stockholders was $5,722,629 at June 30, 2000.
The Company will continue to record additional losses from Beacon Power to the
extent of additional dividends accrued on the contingent obligation to the
Class D preferred stockholders of Beacon Power.
Upon the conversion of Beacon Power's redeemable preferred stock into common
stock or upon the future sale of equity securities of Beacon Power, the
Company's investment in Beacon Power and additional paid in capital will be
written up, in accordance with SEC Staff Accounting Bulletin No. 51, to reflect
its beneficial interest in the book value of the stockholders' equity of Beacon
Power. Accordingly, upon the conversion of Beacon Power's redeemable preferred
stock into common stock and upon the future sale of equity securities of Beacon
Power, the Company will write up its
F-18
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
investment in Beacon Power to an amount equal to the product of (x) the
Company's ownership percentage in Beacon Power's outstanding capital stock at
the time redeemable preferred stock is converted or common stock sold and (y)
the book value of the stockholders' equity of Beacon Power after such conversion
or sale. After the write-up of the Company's investment in Beacon Power, the
Company will continue to account for its investment in Beacon Power under the
equity method of accounting and will record its share of future losses from
Beacon Power on a one-quarter trailing basis until its investment in Beacon
Power has been reduced to zero.
If in the future the Company's ownership interest in Beacon Power's outstanding
capital stock is reduced to below 20% and the Company determines that it does
not have significant control over Beacon Power, the Company's investment in
Beacon Power will be accounted for using the cost method based upon the carrying
value of the Company's investment in Beacon Power at the time the Company's
interest is reduced to below 20%. At that time the Company will no longer be
required to record its share of any losses from Beacon Power. Under the cost
method, the value of the investment will be carried at fair market value with
any unrealized holding gains or losses to be included in stockholders' equity as
a component of other comprehensive income.
G. LINE OF CREDIT
In December 1998, as modified, the Company obtained a $3,000,000 demand
discretionary line of credit with a bank. The line of credit bore interest at
the bank's prime rate plus 1 1/2% (9 3/4% as of September 30, 1999). Available
borrowings were based on a formula of eligible accounts receivable and
inventory. There were no amounts outstanding under the line of credit at
September 30, 1999 or June 30, 2000. During 1999, the maximum amount outstanding
on the line of credit was $2,657,234. The Company had pledged all assets of the
Company as collateral against this line of credit. On August 29, 2000, the
Company terminated the line of credit.
H. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Note payable due in 52 weekly payments. The total note of
$443,804 commenced on April 16, 1997...................... $368,056 $ -- $ --
Capital lease obligations................................... -- 50,097 38,042
Less: Current portion....................................... (146,594) (16,226) (17,168)
-------- -------- --------
$221,462 $ 33,871 $ 20,874
======== ======== ========
</TABLE>
F-19
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
H. LONG-TERM DEBT (CONTINUED)
At September 30, 1999, maturities of these obligations are as follows:
<TABLE>
<S> <C>
FISCAL YEAR
------------------------------------------------------------
2000...................................................... $ 16,226
2001...................................................... 17,494
2002...................................................... 10,778
2003...................................................... 5,599
--------
50,097
Less: Current portion....................................... (16,226)
--------
$ 33,871
========
</TABLE>
On March 1, 1999, the Company reached a definitive settlement arrangement with
Albert R. Snider (the "Settlement Agreement"), the holder of the note payable
which commenced on April 16, 1997, regarding the suit filed against Mr. Snider
for breach of certain representations made by him, including statements of
inventory balances in the Asset Purchase Agreement, dated as of April 3, 1997,
between FMI and Mr. Snider relating to the purchase of the business of FMI and a
counterclaim filed by Mr. Snider seeking, among other things, payments allegedly
due from the Company under a promissory note.
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. Snider entered into a consulting agreement pursuant to which
Mr. Snider will perform certain 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 or before January 2, 2001. The Company has
recorded these shares held in escrow at market value and as a reduction to
stockholders' equity as of September 30, 1999.
On April 26, 2000, the Company released the 42,860 shares of common stock that
were held in escrow for Mr. Snider. The Company marked to market these
securities until they were released from escrow at a market price of $16.00 per
share or $685,760. The Company determined that the fair market value of these
securities exceeded the net realizable value of the underlying services to be
received by $235,760. The Company has charged this amount to selling, general
and administrative expenses during the nine months ended June 30, 2000. The
Company is amortizing the realizable asset of $450,000 over the period of
service through September 30, 2002. At June 30, 2000, the unamortized value of
this asset is $337,500.
I. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities under various operating leases that expire
through 2003. The Company has also entered into a master leasing agreement to
lease various items of equipment not to exceed $600,000. At September 30, 1999,
the availability under this facility has expired.
F-20
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
I. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum annual rentals under the lease agreements at September 30, 1999
are as follows:
<TABLE>
<S> <C>
FISCAL YEAR
------------------------------------------------------------
2000...................................................... $1,471,382
2001...................................................... 1,520,400
2002...................................................... 1,446,996
2003...................................................... 1,215,498
2004...................................................... 280,850
Thereafter................................................ 218,829
----------
Total (not reduced by minimum sublease rentals of
$1,265,847)............................................. $6,153,955
==========
</TABLE>
Total rental expense including operating expenses and real estate taxes for
operating leases amounted to $1,245,238, $1,235,867, $1,683,749, $1,130,345 and
$1,296,437 for the years ended September 30, 1997, 1998 and 1999 and for the
nine months ended June 30, 1999 and 2000, respectively.
Certain of the facility leases contain escalation clauses, effective October 1,
1998, rental expense has been recognized on a straight-line basis over the
remaining lease term. At September 30, 1999 and June 30, 2000, deferred rent
expense amounted to $110,390 and $187,917, respectively.
In the fourth quarter of 1997, the Company decided to consolidate its operating
facility in Tucson, AZ with its facility in Cambridge, MA. As a result, the
Company accrued approximately $498,000, primarily related to the buyout of the
facility lease. At September 30, 1998 and 1999 and June 30, 2000, the Company
had a reserve of $100,000, primarily related to the lease cancellation costs.
LITIGATION
On October 15, 1997, the Company received a letter from the Department of the
Air Force stating that it may terminate for default an approximately
$1.6 million contract between the Air Force and the Company for development of a
satellite component, unless perceived performance problems were cured. As of
that date, the Company had received payments of approximately $1.4 million in
connection with this contract. In the event of an actual default, the Company
could be liable for extra costs incurred by the U.S. government in developing
the component and could be required to return a portion of the monies the
Company received on this contract. On December 15, 1997, the Air Force issued a
"Show Cause Notice" to the Company requiring the Company to demonstrate to the
Air Force why the contract should not be terminated "for cause." On
December 31, 1997, the Company responded to the Air Force's "Show Cause Notice,"
explaining the Company's view that the Company should not be terminated for
cause. On May 11, 2000, the Company contacted the Air Force again to offer to
settle these differences and to explore obtaining additional settlement amounts.
On August 3, 2000, the Company sent a memorandum to the Air Force explaining the
basis of a settlement request of $353,248. Also on August 3, 2000, the Company
received from the Air Force a proposed settlement offer. On September 15, 2000,
the Company entered into a settlement agreement in which the contract was to be
closed and considered completed through a contract modification with no
additional payment, but without termination for cause. The contract is still
subject to normal audit and accounting of final cost.
On November 6, 1999, APACE, Inc. commenced an action against the Company in the
Supreme Court of the State of New York claiming the Company had been awarded a
prime contract by the U.S.
F-21
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
I. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Department of Energy and that the Company had failed or refused to negotiate a
subcontract with APACE, allegedly in breach of a contract between the Company
and APACE. APACE is seeking in excess of $1,000,000 in damages. The Company
denied the allegations, moved to stay the action and filed for arbitration with
the American Arbitration Association in Boston, Massachusetts. The American
Arbitration Association decided that the arbitration would go forward in Boston.
In the meantime, APACE requested that the court permit the action to go forward
and for the arbitration to be stayed. On March 21, 2000, the Supreme Court of
the State of New York issued an order compelling arbitration and staying APACE's
action pending arbitration to be conducted by the American Arbitration
Association in Boston.
On June 26, 2000, APACE served the Company with an amended answering statement
and counterclaim, including additional allegations that the Company has engaged
in unfair and deceptive trade practices and that the Company's actions were
willful and knowing. Based on these allegations, APACE is seeking multiple
damages, as well as attorneys' fees and expenses. On July 19, 2000, the Company
filed an answer to APACE's amended answering statement and counterclaim, denying
the allegations and asserting various defenses.
At this time, the arbitration is scheduled to go forward in Boston at some time
in 2001, and an arbitrator has been selected. The parties have exchanged some
discovery, and expect to make a further exchange early in 2001.
The final outcome of this matter is not presently determinable and, therefore,
no provision for any liability that may result has been recorded in the
Company's financial statements.
J. EMPLOYEE BENEFIT PLAN
The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the Plan,
any regular employee, as defined by the Plan, who has completed six months of
service and has attained the age of 21 years is eligible to participate. Under
the terms of the Plan, an employee may defer up to 15% of his or her
compensation through contributions to the Plan. During 1999, the Company
extended the Plan to its wholly-owned subsidiaries. The Company made matching
contributions to the Plan of $133,018, $86,883, $218,729, $151,181 and $265,869
for the years ended September 30, 1997, 1998 and 1999 and for the nine months
ended June 30, 1999 and 2000, respectively.
F-22
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
K. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Current payable:
Federal.............................. -- -- --
State................................ -- $ 3,872 --
----------- ----------- -----------
-- 3,872 --
----------- ----------- -----------
Deferred tax expense/(benefit):
Federal.............................. $(1,823,584) $(1,349,519) $(3,888,031)
State................................ (680,530) (404,950) (1,167,905)
Change in valuation allowance........ 2,504,114 1,754,469 5,055,936
----------- ----------- -----------
-- -- --
----------- ----------- -----------
-- $ 3,872 --
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of September 30, 1998
and 1999, the components of the net deferred tax assets/(liabilities) are as
follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Federal net operating loss.................................. $ 4,081,970 $ 5,566,879
State net operating loss, net of federal benefit............ 666,053 495,980
Unrealized losses on marketable securities.................. 4,116 --
Credits..................................................... 455,982 499,585
Depreciation................................................ 15,318 336,038
Loss from Beacon Power Corporation.......................... 1,388,976 3,128,804
Other....................................................... 189,152 1,562,820
Valuation allowance......................................... (6,801,567) (11,590,106)
------------ ------------
Net deferred income taxes................................... -- --
============ ============
</TABLE>
The Company has placed a full valuation allowance against its net deferred tax
assets since the Company believes it is "more likely than not" that it will not
be able to utilize its deferred tax asset.
A decrease in net deferred tax assets and a decrease in the valuation allowance
in the amount of approximately $1,240,000 each has been made to account for the
recapitalization of Beacon Power Corporation during the year ended
September 30, 1998.
F-23
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
K. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the federal statutory rate due to
the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Tax at statutory rate.................. (34.0)% (34.0)% (34.0)%
State taxes--net of federal benefit.... (7.3) (6.2) (6.2)
Other.................................. 0.6 (0.5) (0.7)
Change in valuation allowance.......... 40.7 40.8 40.9
----------- ----------- -----------
Effective tax rate..................... -- % 0.1 % -- %
=========== =========== ===========
</TABLE>
At September 30, 1999, the Company had net operating loss carry-forwards of
approximately $16,550,000 and $7,976,000 for federal and state income tax
purposes, respectively. The federal net operating losses expire beginning
September 30, 2008 through 2019. The state net operating losses will expire
beginning September 30, 2000 through 2004. The use of these losses may be
limited due to ownership change limitations under Section 382 of the Code.
L. STOCKHOLDERS' EQUITY
INVESTMENT FROM MECHANICAL TECHNOLOGY INCORPORATED
On October 21, 1999, the Company received a $7,070,000 investment from
Mechanical Technology Incorporated ("MTI"). In consideration for MTI's
investment, MTI received 1,030,000 shares of the Company's Common Stock at a
discounted price of approximately $6.80 per share, and warrants to purchase an
additional 100,000 shares of the Company's Common Stock at an exercise price of
$8.80 per share and an expiration date four years from the date of issuance. MTI
funded $2,570,000 of its investment in the Company on October 21, 1999 and
received 370,800 of the 1,030,000 shares of the Company's Common Stock and a
warrant to purchase 36,000 of the 100,000 shares of the Company's Common Stock.
MTI made the remaining investment on January 31, 2000 of $4,500,000 and received
the remaining 659,200 shares of the Company's Common Stock and a warrant to
purchase the remaining 64,000 shares of the Company's Common Stock. The Company
incurred approximately $95,000 of legal, accounting, consultation and filing
fees in connection with this transaction. The Company has determined the value
of the warrants issued to MTI on October 21, 1999 and January 31, 2000 to be
$231,912 and $1,273,509, respectively.
In addition, the Company received a warrant to purchase 108,000 shares of MTI's
common stock on October 21, 1999 and a warrant to purchase 192,000 shares of
MTI's common stock on January 31, 2000 at exercise prices of $12.56 per share,
as adjusted to reflect a 3:1 stock split in April 2000 and expiration dates four
years from date of issuance. The Company has valued the warrant received on
October 21, 1999 and January 31, 2000 at $568,553 and $2,926,885, respectively,
using the Black-Scholes option pricing model and has recorded the warrants as an
asset and additional paid in capital. In accordance with EITF 96-11 "Accounting
for Forward Contracts and Purchased Options to Acquire Securities Covered by
FASB Statement No. 115," the Company has marked to market the fair value of the
warrant at each reporting period date and has recorded any unrealized gains and
losses as a component of other comprehensive income/(loss) included in
stockholders' equity. At June 30, 2000, the warrants have an unrealized gain of
$6,985 which is included in other comprehensive income/(loss). Upon the adoption
of SFAS No 133, the warrants will be considered derivatives, and the Company
will be required to record unrealized gains or losses in its statement of
operations.
F-24
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
L. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
Under the Company's 1992, 1994, 1996, 1998 and 1999 Stock Option Plans
(collectively the "Plans"), both qualified and non-qualified stock options may
be granted to certain officers, employees, directors and consultants to purchase
up to 3,050,000 shares of the Company's Common Stock. At June 30, 2000, all
2,731,716 of the 3,050,000 stock options available for grant under the Plans
have been granted.
The Plans are subject to the following provisions:
The aggregate fair market value (determined as of the date the option is
granted) of the common stock that any employee may purchase in any calendar year
pursuant to the exercise of qualified options may not exceed $100,000. No person
who owns, directly or indirectly, at the time of the granting of a qualified
option to him or her, more than 10% of the total combined voting power of all
classes of stock of the Company shall be eligible to receive any qualified
options under the Plans unless the option price is at least 110% of the fair
market value of the common stock subject to the option, determined on the date
of grant. Non-qualified options are not subject to this limitation.
Qualified options are issued only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company. Options granted under the Plans
may not be granted with an exercise price less than 100% of fair value of the
Company's common stock, as determined by the Board of Directors on the grant
date.
Options under the Plans must be granted within 10 years from the effective date
of the Plan. Qualified options granted under the Plans cannot be exercised more
than 10 years from the date of grant, except that qualified options issued to
10% or greater stockholders are limited to five-year terms. All options granted
under the Plans provide for the payment of the Company's exercise price in cash,
or by delivery to the Company of shares of common stock already owned by the
optionee having fair market value equal to the exercise price of the options
being exercised, or by a combination of such methods of payment.
The Plans contain antidilutive provisions authorizing appropriate adjustments in
certain circumstances. Shares of common stock subject to options that expire
without being exercised or that are canceled as a result of the cessation of
employment are available for further grants.
During 1999, the Company granted 755,000 non-qualified stock options to
consultants at exercise prices ranging from $5.75 to $10.00 per share of which
300,000 stock options were granted outside of the Plans. During 2000, the
Company granted 216,000 non-qualified stock options to employees at an exercise
price of $17.56 per share outside of the Plans.
F-25
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
L. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity is presented below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------ NINE MONTHS ENDED
1997 1998 1999 JUNE 30, 2000
-------------------- -------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- -------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 713,392 $ 7.08 700,427 $ 8.44 820,910 $9.58 1,851,227 $ 8.06
Granted................ 144,000 8.97 319,000 11.20 1,604,000 7.03 745,050 15.30
Exercised.............. (144,466) 2.25 (100,266) 5.80 (455,600) 6.98 (667,139) 7.84
Canceled............... (12,499) 10.71 (98,251) 10.55 (118,083) 8.84 (59,232) 6.96
-------- ------ -------- ------ --------- ----- ---------- ------
Outstanding at end of
period................. 700,427 $ 8.44 820,910 $ 9.58 1,851,227 $8.06 1,869,906 $11.06
======== ====== ======== ====== ========= ===== ========== ======
Exercisable at end of
period................. 503,660 $ 8.14 413,403 $ 8.48 840,560 $8.57 377,950 $ 9.47
======== ====== ======== ====== ========= ===== ========== ======
</TABLE>
The following table summarizes information about stock options outstanding as of
September 30, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 5.00--$ 7.81............ 776,328 7.0 $ 5.97 359,328 $ 6.29
$ 8.75--$10.50............ 773,399 7.8 8.84 345,732 9.72
$11.00--$13.38............ 301,500 7.9 11.45 135,500 11.69
--------- --- ------ ------- ------
1,851,227 7.5 $ 8.06 840,560 $ 8.57
========= === ====== ======= ======
</TABLE>
The following table summarizes information about stock options outstanding as of
June 30, 2000.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$5.00--$7.81.............. 320,577 8.0 $ 5.66 79,630 $ 5.52
$8.05--$10.50............. 747,229 8.3 $ 8.41 149,739 $ 9.48
$11.00--$13.38............ 255,750 7.6 $11.68 148,581 $11.55
$16.13--20.63............. 546,350 9.6 $17.55 -- --
--------- --- ------ ------- ------
1,869,906 8.5 $11.06 377,950 $ 9.47
========= === ====== ======= ======
</TABLE>
During 1999, the Company granted fully vested options to purchase 755,000 shares
of the Company's common stock to consultants at prices ranging from $5.75 to
$10.00 per share. The Company has recorded the fair value of the options, as
determined by the Black-Scholes option pricing model, of $2,152,277, to selling,
general and administrative expenses during the year ended September 30, 1999. As
of September 30, 1999, options to purchase 450,000 shares at $7.00 per share
have been exercised. As of September 30, 1999, the Company received $1,333,333
of cash and the
F-26
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
L. STOCKHOLDERS' EQUITY (CONTINUED)
remaining amount due from the stockholders is classified within stockholders'
equity as amounts receivable from exercise of stock options. As of June 30,
2000, the Company had received the remaining $1,816,667 receivable from the
exercise of stock options.
During the nine months ended June 30, 2000, options to purchase an additional
300,000 shares at prices ranging from $5.75 to $10.00 per share have been
exercised. As of June 30, 2000, the Company received $1,625,000 of cash, and the
remaining amount due from the stockholders is classified within stockholders'
equity as amounts receivable from the exercise of stock options.
WARRANTS
On June 5, 1998, the Company issued to certain individuals, in settlement of a
claim asserted against the Company, Common Stock Purchase Warrants to purchase
up to 68,795 shares of common stock, as amended, at an exercise price of $11.43
per share. These warrants expired on November 11, 1999 unexercised.
On November 11, 1998, the Company issued common stock warrants to purchase up to
67,125 shares of the Company's Common Stock at an exercise price of $11.43 per
share. The Company has recorded the fair value of these warrants as determined
by the Black-Scholes option pricing model, of $56,362, to selling, general and
administrative expenses during the year ended September 30, 1999. These warrants
expired on November 11, 1999 unexercised.
On August 25, 1999, in connection with the $8 million private placement of 8,000
shares of the Company's Series A Convertible Preferred Stock, $0.01 par value
per share with Brown Simpson Strategic Growth Funds (See Note M), the Company
issued common stock warrants to purchase up to 120,000 and 675,000 shares of
common stock at an exercise price of $7.80 and $8.54, respectively. These
warrants expire on August 25, 2003. At September 30, 1999, none of these
warrants have been exercised. At June 30, 2000, 18,000 shares of common stock
had been purchased at an exercise price of $7.80 per share.
On October 21, 1999, in connection with an investment by MTI (see Note L), the
Company issued a warrant to purchase up to 36,000 shares of the Company's Common
Stock at an exercise price of $8.80 per share. This warrant expires on
October 21, 2003. On January 31, 2000, in connection with a second closing of
this investment, the Company issued an additional warrant to purchase up to
64,000 shares of the Company's Common Stock at an exercise price of $8.80 per
share. This warrant expires on January 31, 2004. At June 30, 2000, none of these
warrants had been exercised.
On November 16, 1999, in connection with the acquisition of certain intellectual
property, equipment and other assets from Northrop Grumman Corporation, the
Company issued a warrant to purchase up to 100,000 shares of the Company's
Common Stock at an exercise price of $9.725 per share. This warrant expires on
December 31, 2006. As of June 30, 2000, none of these warrants had been
exercised.
On February 4, 2000, the Company issued to Northrop Grumman Corporation an
additional warrant to purchase up to 100,000 shares of the Company's Common
Stock at an exercise price of $9.725 per share. This warrant is exercisable upon
the occurrence of certain defined events. As of June 30, 2000, this warrant is
not yet exercisable. This warrant expires on December 31, 2006.
F-27
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
L. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK-BASED COMPENSATION
Had compensation cost for the Company's stock-based compensation been determined
based on fair value at the grant dates as calculated in accordance with SFAS
No. 123, the Company's net loss and loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1997 1998 1999
----------------------- ----------------------- -----------------------
NET LOSS NET LOSS NET LOSS
ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER
TO COMMON COMMON TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
As reported.......... $(7,708,739) $ (.97) $(4,857,814) $(.54) $(14,392,657) $(1.57)
Pro forma............ $(7,780,546) $ (.98) $(5,433,804) $(.61) $(15,597,109) $(1.70)
<CAPTION>
NINE MONTHS ENDED JUNE 30,
-------------------------------------------------
1999 2000
----------------------- -----------------------
NET LOSS NET LOSS
ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER
TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
As reported.......... $(11,765,716) $(1.30) $(10,811,639) $(0.88)
Pro forma............ $(12,584,425) $(1.39) $(13,819,003) $(1.13)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996 and additional awards in future years are anticipated.
The fair value of each stock option is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: an expected life of seven years, expected volatility of 57.9%, no
dividends, and risk-free interest rate of 6.13% for September 30, 1997; an
expected life of seven years, expected volatility of 57.9%, no dividends, and
risk-free interest rate of 5.76% for September 30, 1998; an expected life of
seven years, expected volatility of 80.0%, no dividends, and risk-free interest
rate of 6.08% for September 30, 1999 an expected life of seven years, expected
volatility of 80.0%, no dividends, and risk-free interest rate of 6.08% for June
30, 1999; and an expected life of seven years, expected volatility of 94.3%, no
dividends, and risk-free interest rate of 6.00% for June 30, 2000. The weighted
average price of the fair value of options granted for years ended
September 30, 1997, 1998 and 1999 and for the nine months ended June 30, 1999
and 2000 are $5.80, $7.14, $5.21, $4.37 and $12.82 respectively.
M. PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred Stock,
$0.01 par value per share ("Preferred Stock"). The Preferred Stock may be issued
in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by stockholders, and
may include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption
rights and sinking fund provisions.
On August 25, 1999, the Company completed an $8 million private placement of
8,000 shares of its Series A Redeemable Convertible Preferred Stock, $0.01 par
value per share (the "Series A Preferred Stock"), with Brown Simpson Strategic
Growth Funds ("Brown Simpson"). The Series A Preferred Stock is initially
convertible into 1,025,641 shares of the Company's common stock, $0.01 par value
per share (the "Common Stock").
In connection with the transaction, Brown Simpson also received warrants to
purchase up to 675,000 additional shares of Common Stock at $8.54 per share (the
"Brown Simpson Warrants"). The Brown
F-28
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
M. PREFERRED STOCK (CONTINUED)
Simpson Warrants expire on August 25, 2003. The Company has valued these
warrants at $1,818,558 based on the fair value of these warrants, as determined
by the Black-Scholes option pricing model and has recorded this amount in
addition to direct costs of $1,338,234 as transactions cost of this preferred
stock offering.
H.C. Wainwright & Co., Inc. ("H.C. Wainwright") served as placement agent for
the transaction and received a commission of $560,000 and warrants to purchase
120,000 shares of the Company's Common Stock at $7.80 per share. These warrants
expire on August 25, 2003. H.C. Wainwright will also receive a future fee in the
amount of 4% of any monies received by the Company upon the exercise of the
Brown Simpson Warrants. The Company has recorded the fair value of these
warrants, as determined by the Black-Scholes option pricing model, of $550,734
as a transaction cost of this preferred stock offering.
The Company has valued the redeemable convertible preferred stock at issuance to
be $4,843,208 based on the relative fair market values of the financial
instruments issued in connection with this placement. The Company will accrete
the carrying value of the redeemable convertible preferred stock to its
redeemable value of $8,000,000 at August 25, 2003, in the event that the average
bid price for the 60 trading days prior is $5.00 or less, using the effective
interest method. As of September 30, 1999, the Company has accreted $50,904 and
recorded this as a charge against additional paid-in capital.
On March 7, 2000, the preferred stockholders elected to convert all 8,000 shares
of the redeemable preferred stock into 1,025,641 shares of the Company's Common
Stock, which resulted in the accretion of an additional $3,105,888 of the
discount on redeemable preferred stock during the nine months ended June 30,
2000.
N. SIGNIFICANT CUSTOMERS
Significant customers, defined as those customers that account for 10% or more
of total net revenue in a fiscal year, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
----------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------ -------------------
CUSTOMER 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. government:
U.S. Department of Defense.................... 44.6% 22.1% 20.6% 23.9% *
U.S. Department of Energy..................... * * * * 15.9%
</TABLE>
------------------------
* Less than 10%
F-29
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
O. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------------- ---------------------------
1997 1998 1999 1999 2000
-------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Accretion of redeemable convertible
preferred stock discount........... $ -- $ -- $ 50,904 $ -- $3,105,888
======= ======= ========== ========== ==========
Acquisition of equipment under
capital leases..................... $ -- $ -- $ 49,813 $ -- $ --
======= ======= ========== ========== ==========
Contingent obligation to Class D
preferred stockholders of Beacon
Power Corporation.................. $ -- $ -- $5,309,115 $5,160,677 $ 413,514
======= ======= ========== ========== ==========
Conversion of redeemable preferred
stock to common stock.............. $ -- $ -- $ -- $ -- $8,000,000
======= ======= ========== ========== ==========
Common stock released from escrow.... $ -- $ -- $ -- $ -- $ 685,760
======= ======= ========== ========== ==========
</TABLE>
INTEREST AND INCOME TAXES PAID
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest.................................... $13,933 $10,206 $115,692 $ 7,520 $ 2,497
======= ======= ======== ======== ========
Income taxes................................ $ 5,800 $ 5,772 -- -- --
======= ======= ======== ======== ========
</TABLE>
P. ACQUISITIONS
K&D MAGMOTOR CORPORATION
On January 23, 1997, the Company acquired substantially all of the assets and
assumed certain of the liabilities of K&D MagMotor Corporation ("MagMotor")
pursuant to the terms of an Asset Purchase Agreement, dated as of January 2,
1997, by and among the Company, MagMotor and MagMotor's principal stockholder
(the "Stockholder") (the "Asset Purchase Agreement"). The aggregate
consideration paid by the Company for the acquired assets of MagMotor was
approximately $210,000 in cash and 30,000 shares of the Company's common stock,
par value $0.01 per share valued at $6.625 per share or $198,750. MagMotor's
assets, including machinery and equipment and inventory, were recorded at their
estimated market value of $250,000 and $160,000, respectively.
MagMotor is a manufacturer of custom electric motors targeting the factory
automation, medical, semi-conductor and packaging markets. The Company continues
to use the assets in the same manner in which they were used by MagMotor
immediately prior to the acquisition. The Company has included
F-30
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
P. ACQUISITIONS (CONTINUED)
in its consolidated results of operations the acquisition of MagMotor under the
purchase method of accounting.
The pro forma financial information has not been presented as the acquisition of
MagMotor is not material.
FILM MICROELECTRONICS, INC.
On April 16, 1997, the Company acquired substantially all of the assets of Film
Microelectronics, Inc. ("FMI"), pursuant to the Asset Purchase Agreement, dated
as of April 3, 1997, by and among the Company, FMI and FMI's principal
stockholder. In addition, the Company assumed trade payables aggregating
approximately $900,000 and the assumption of indebtedness of approximately
$1 million. The aggregate consideration paid by the Company for the acquired
assets of FMI was 420,000 shares of the Company's common stock, par value $0.01
per share (the "Common Stock"), valued at $6.375 per share or $2,677,500.
FMI is a manufacturer of production and custom integrated circuits for the
communications, industrial, military and aerospace markets. The Company
continues to use the assets in the same manner in which they were used by FMI
immediately prior to the acquisition. FMI's assets have been recorded at their
estimated market values with the excess purchase price assigned to goodwill,
which is being amortized over 15 years.
The Company has included in its consolidated results of operations the
acquisition of FMI under the purchase method of accounting. The following
unaudited pro forma financial information combines SatCon and FMI's results of
operations as if the acquisition had taken place on October 1, 1996. The pro
forma results are not necessarily indicative of what the results of operations
actually would have been if the transaction had occurred on the applicable dates
indicated and are not intended to be indicative of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Net revenue................................................. $14,974,765
Net operating loss.......................................... $(8,589,880)
Net loss.................................................... $(8,110,334)
Net loss per share.......................................... $ (.99)
</TABLE>
INDUCTIVE COMPONENTS, INC. AND LIGHTHOUSE SOFTWARE, INC.
On January 4, 1999, the Company's MagMotor subsidiary acquired substantially all
of the assets and assumed certain liabilities of Inductive Components, Inc. and
Lighthouse Software, Inc. The aggregate consideration paid by the Company for
the acquired assets of Inductive Components, Inc. and Lighthouse Software, Inc.
was 100,000 shares of the Company's common stock, valued at $5.6875 per share or
$568,750. In addition, the Company assumed indebtedness of approximately
$246,000. The Company has included in its consolidated results of operations the
acquisition of Inductive and
F-31
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
P. ACQUISITIONS (CONTINUED)
Lighthouse under the purchase method of accounting. The purchase price has been
allocated as follows:
<TABLE>
<S> <C>
Inventory................................................... $ 50,000
Property and equipment...................................... 100,597
Intangibles................................................. 275,000
Goodwill.................................................... 389,079
--------
$814,676
========
</TABLE>
The pro forma financial information has not been presented, as the acquisitions
of Inductive Components, Inc. and Lighthouse Software, Inc. are not material.
HYCOMP, INC.
On April 12, 1999, the Company executed an agreement to purchase substantially
all of the assets and assume certain liabilities of HyComp, Inc. ("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 $422,000;
(iii) transaction costs of $95,000; and (iv) a 5% royalty to HyComp on certain
sales through April 12, 2000. At September 30, 1999, the Company has recorded
$50,000 of accrued royalties. The Company has included in its consolidated
results of operations the acquisition of HyComp under the purchase method of
accounting. The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 38,556
Inventory................................................... 318,359
Deposits.................................................... 19,800
Property and equipment...................................... 940,500
----------
$1,317,215
==========
</TABLE>
The pro forma financial information has not been presented as the acquisition of
HyComp is not material.
LING ELECTRONICS, INC.
On October 21, 1999, the Company acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. (collectively, "Ling Electronics") from MTI. In consideration
for the acquisition of Ling Electronics, MTI received $70,000 and 770,000 shares
of the Company's Common Stock valued at $9.8438 per share or $7,579,726. In
addition, the Company incurred approximately $177,000 of legal, accounting,
F-32
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
P. ACQUISITIONS (CONTINUED)
consultation and filing fees as a cost of this transaction. The purchase price
of the acquisition has been allocated as follows:
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 45,946
Accounts receivable......................................... 1,937,023
Inventory................................................... 3,127,991
Prepaid expenses and other assets........................... 260,239
Property and equipment...................................... 250,000
Intangibles................................................. 3,754,910
Accounts payable............................................ 641,687
Accrued payroll and payroll related expenses................ 334,129
Deferred revenues........................................... 13,500
Other accrued expenses...................................... 560,437
</TABLE>
The following unaudited pro forma financial information combines SatCon and
Ling's results of operations as if the acquisition had taken place on
October 1, 1998. The pro forma results are not necessarily indicative of what
the results of operations actually would have been if the transaction had
occurred on the applicable dates indicated and are not intended to be indicative
of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
1998 1999 1999 2000
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue................................. $27,764,923 $ 23,849,881 $ 17,380,898 $ 20,934,921
Operating loss.......................... $(2,433,575) $(11,316,689) $ (8,709,769) $ (7,473,620)
Net loss................................ $(5,740,230) $(15,881,125) $(11,879,121) $ (8,024,635)
Net loss attributable to common
stockholders.......................... $(5,740,230) $(15,932,029) $(11,879,121) $(11,130,523)
Net loss per share, basic and diluted... $ (0.59) $ (1.60) $ (1.21) $ (0.90)
</TABLE>
NORTHROP GRUMMAN CORPORATION
On November 16, 1999, the Company purchased certain intellectual property,
equipment and other assets from Northrop Grumman Corporation ("NGC"). These
assets were used by NGC in connection with its power electronics product
business. The Company also entered into (i) a sublease with NGC pursuant to
which it agreed to a five-year sublease for approximately 14,863 square feet of
rentable space in the Baltimore, Maryland area and (ii) a three-year Transition
Services Agreement providing the Company access to certain test facilities and
personnel of NGC on a fee basis. In consideration for these foregoing assets and
agreements, NGC received 578,761 shares of the Company's Common Stock valued at
$8.3438 per share or $4,829,066. In addition, the Company issued to NGC a
warrant to purchase an additional 100,000 shares of the Company's Common Stock
at an exercise price of $9.725 per share. The Company has recorded the fair
value of this warrant, as determined by the Black-Scholes option pricing model,
of approximately $631,000 and approximately $119,000 of legal, accounting,
consultation and filing fees as a cost of this transaction. On February 4, 2000,
the Company issued to NGC an additional warrant to purchase 100,000 shares of
the Company's Common Stock at
F-33
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
P. ACQUISITIONS (CONTINUED)
an exercise price of $9.725 per share. This warrant is exercisable upon the
occurrence of certain defined events. The purchase price of the asset purchase
has been allocated as follows:
<TABLE>
<S> <C>
Inventory................................................... $1,206,000
Property and equipment...................................... 1,091,643
Intangibles................................................. 3,281,423
</TABLE>
The pro forma financial information has not been presented, as the Company views
this transaction, as the purchase of assets rather than as a business
combination.
Net cash paid for the acquisitions of K&D MagMotor Corporation, Film
Microelectronics, Inc., Inductive Components Inc., Lighthouse Software, Inc.,
HyComp, Inc., Ling Electronics, Inc. and certain intellectual property,
equipment and other assets from Northrop Grumman Corporation was as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Fair value of assets........... $ 4,723,408 -- $ 1,742,812 $ 1,742,812 $ 11,200,265
Cost in excess of net assets of
companies acquired, net...... 987,678 -- 389,079 389,079 3,754,910
Liabilities assumed, including
transaction costs............ (2,624,836) -- (567,215) (567,215) (2,476,383)
Stock issued................... (2,876,250) -- (568,800) (568,800) (12,408,792)
----------- --------- ----------- ----------- ------------
Cash paid...................... $ 210,000 -- $ 995,876 $ 995,876 $ 70,000
Less: Cash acquired............ (97,014) -- -- -- (45,946)
----------- --------- ----------- ----------- ------------
Net cash paid for the
acquisitions................. $ 112,986 -- $ 995,876 $ 995,876 $ 24,054
=========== ========= =========== =========== ============
</TABLE>
F-34
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Q. LOSS PER SHARE
The following is the reconciliation of the numerators and denominators of the
basic and diluted per share computations of net loss:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
---------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net loss attributable to
common stockholders....... $(7,708,739) $(4,857,914) $(14,392,657) $(11,765,716) $(10,811,639)
=========== =========== ============ ============ ============
BASIC AND DILUTED:
Common shares outstanding,
beginning of period....... 7,359,074 8,769,146 8,990,249 8,990,249 9,529,649
Weighted average common
shares issued during the
period.................... 600,235 190,163 200,017 95,378 2,748,301
Weighted average shares
repurchased during the
period.................... -- (2,638) (14,225) (13,567) --
----------- ----------- ------------ ------------ ------------
Weighted average shares
outstanding--basic and
diluted................... 7,959,309 8,956,671 9,176,041 9,072,060 12,277,950
=========== =========== ============ ============ ============
Net loss per share, basic
and diluted............... $ (0.97) $ (0.54) $ (1.57) $ (1.30) $ (0.88)
=========== =========== ============ ============ ============
</TABLE>
At September 30, 1997, 1998 and 1999 and June 30, 1999 and 2000, 1,000,427,
884,758, 2,782,147, 1,327,951 and 2,946,906 options and warrants, respectively,
were excluded from the diluted weighted average common shares outstanding as
their effect would be antidilutive.
F-35
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
R. COMPREHENSIVE LOSS
The Company's total comprehensive loss is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net loss.................... $(7,708,739) $ (4,857,814) $(14,341,753) $(11,765,716) $(7,705,751)
Other comprehensive income/
(loss), net of tax:
Unrealized gains on
securities.............. 19,720 9,835 10,380 10,380 --
Valuation adjustment for
MTI warrants............ -- -- -- -- 6,985
Foreign currency
translation
adjustment.............. -- -- -- -- (38,505)
----------- ------------ ------------ ------------ -----------
Other comprehensive income/
(loss).................... 19,720 9,835 10,380 10,380 (31,520)
----------- ------------ ------------ ------------ -----------
Comprehensive loss.......... $(7,689,019) $ (4,847,979) $(14,331,373) $(11,755,336) $(7,737,271)
=========== ============ ============ ============ ===========
</TABLE>
S. SEGMENT DISCLOSURES
As of October 1, 1998, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131 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. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and assess their performance.
The Company's organizational structure is based on strategic business units that
offer various products to the principal markets in which the Company's products
are sold. These business units equate to three reportable segments: research and
development, power electronic products and motion control products.
The Company provides research and development services in collaboration with
third parties. Film Microelectronics, Inc designs and manufactures power
electronics products. The MagMotor Division specializes in the engineering and
manufacturing of motion control products. The Company's principal operations and
markets are located in North America.
The accounting policies of each of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on revenue and profit and loss from operations before income
taxes, interest income, interest expense, other income and losses and loss from
investment in Beacon Power Corporation, excluding the effects of amortization of
intangible assets associated with acquisitions. Common costs not directly
attributable to a particular segment are allocated among segments based on
management's estimates.
F-36
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
S. SEGMENT DISCLOSURES (CONTINUED)
The following is a summary of the Company's operations by operating segment:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Research and development:
Product revenue......................... -- -- -- -- $ 76,486
Funded research and development
revenue............................... $ 8,738,293 $8,010,735 $ 6,355,383 $ 5,089,705 $ 6,526,033
----------- ---------- ----------- ----------- -----------
Total revenue......................... $ 8,738,293 $8,010,735 $ 6,355,383 $ 5,089,705 $ 6,602,519
----------- ---------- ----------- ----------- -----------
Loss from operations, net of
amortization........................ $(8,088,347) $(1,454,707) $(6,577,012) $(5,367,417) $(2,834,148)
=========== ========== =========== =========== ===========
Power electronic products:
Product revenue....................... $ 2,594,023 $5,909,765 $ 6,306,085 $ 4,547,803 $ 5,936,330
----------- ---------- ----------- ----------- -----------
Income (loss) from operations, net of
amortization........................ $ 137,268 $ 504,528 $(2,073,946) $(1,668,190) $(1,911,135)
=========== ========== =========== =========== ===========
Motion control products:
Product revenue....................... $ 1,134,019 $1,610,423 $ 2,816,413 $ 1,841,390 $ 8,256,483
----------- ---------- ----------- ----------- -----------
Income (loss) from operations, net of
amortization........................ $ 93,609 $ (310,023) $ (755,272) $ (436,114) $(1,513,377)
=========== ========== =========== =========== ===========
</TABLE>
The following is a summary of the Company's long-lived assets excluding assets
transferred to Beacon Power Corporation, investment in Beacon Power Corporation
and warrants to purchase Mechanical Technology Incorporated common stock by
operating segment:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- JUNE 30,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Research and development:
Long-lived assets......................................... $1,842,517 $1,717,228 $6,234,921
---------- ---------- ----------
Power electronic products:
Long-lived assets......................................... $3,416,341 $3,978,027 $4,338,258
---------- ---------- ----------
Motion control products:
Long-lived assets......................................... $ 434,248 $ 863,661 $4,484,625
---------- ---------- ----------
</TABLE>
The Company operates and markets its services and products on a worldwide basis
with its principal markets as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue by geographic region:
North America....................... $12,466,335 $15,530,923 $15,477,881 $11,478,898 $19,645,417
Asia................................ -- -- -- -- 602,480
Europe.............................. -- -- -- -- 399,867
Rest of world....................... -- -- -- -- 147,568
----------- ----------- ----------- ----------- -----------
Total revenue..................... $12,466,335 $15,530,923 $15,477,881 $11,478,898 $20,795,332
=========== =========== =========== =========== ===========
</TABLE>
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of Ling Electronics, Inc. and
Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholder's equity and cash flows
present fairly, in all material respects, the financial position of Ling
Electronics, Inc. and its subsidiary at September 30, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Albany, New York
December 3, 1999
F-38
<PAGE>
LING ELECTRONICS, INC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 44 $ 64
Accounts receivable, less allowance of $99 in 1998 and
$113 in 1999............................................ 3,698 2,377
Inventories, net.......................................... 2,524 2,807
Prepaid expenses and other assets......................... 106 122
------- -------
Total current assets.................................... 6,372 5,370
Property and equipment, net................................. 392 394
------- -------
Total assets............................................ $ 6,764 $ 5,764
======= =======
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable.......................................... $ 1,423 $ 409
Accrued liabilities....................................... 1,143 811
Advance due Parent Company................................ 5,474 6,907
------- -------
Total liabilities....................................... 8,040 8,127
------- -------
Commitments and contingencies
Shareholder's deficit:
Common stock, par value $0.01, 5,000,000 shares
authorized, 32,398 shares issued........................ -- --
Additional paid-in capital................................ 1,636 1,636
Retained deficit.......................................... (2,901) (3,988)
Accumulated other comprehensive loss...................... (11) (11)
------- -------
Total shareholder's deficit............................. (1,276) (2,363)
------- -------
Total liabilities and shareholder's deficit............. $ 6,764 $ 5,764
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-39
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Net sales................................................. $12,234 $ 8,372
Cost of sales............................................. 8,986 6,213
------- -------
Gross profit............................................ 3,248 2,159
Operating expenses:
Product development..................................... 99 188
Selling and commissions................................. 1,772 1,427
General and administrative.............................. 1,812 1,631
------- -------
Total operating expenses.............................. 3,683 3,246
------- -------
Net loss.............................................. $ (435) $(1,087)
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) DEFICIT
-------- ---------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1997.............. 32,398 $ -- $1,636 $(2,466) $ (19) $ (849)
Comprehensive income (loss):
Net loss................................ (435) (435)
Foreign currency translation
adjustment............................ 8 8
-------
Total comprehensive loss................ (427)
------ ---------- ------ ------- ------- -------
Balances, September 30, 1998.............. 32,398 -- 1,636 (2,901) (11) (1,276)
Comprehensivce income (loss):
Net loss................................ (1,087) (1,087)
Foreign currency translation
adjustment............................ -- --
-------
Total comprehensive loss................ (1,087)
------ ---------- ------ ------- ------- -------
Balances, September 30, 1999.............. 32,398 $ -- $1,636 $(3,988) $ (11) $(2,363)
====== ========== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(435) $(1,087)
Adjustments to reconcile net loss to net cash used in
operating activities:
Allowance for doubtful accounts......................... 5 14
Reserve for obsolete inventory.......................... (46) (41)
Depreciation and amortization........................... 139 135
Loss on sale of fixed asset............................. -- 4
Foreign currency translation adjustment................. 8 --
Changes in operating assets and liabilities:
Accounts receivable................................... (468) 1,307
Inventories........................................... (156) (242)
Prepaid expenses and other assets..................... 5 (16)
Accounts payable...................................... 198 (1,014)
Accrued liabilities................................... 261 (332)
----- -------
Net cash used in operating activities..................... (489) (1,272)
----- -------
Cash flows from investing activities:
Purchases of property and equipment..................... (90) (141)
----- -------
Net cash used in investing activities..................... (90) (141)
----- -------
Cash flows from financing activities:
Advances from Parent Company............................ 586 1,433
----- -------
Net cash provided by financing activities................. 586 1,433
----- -------
Increase in cash and cash equivalents....................... 7 20
Cash and cash equivalents--beginning of year................ 37 44
----- -------
Cash and cash equivalents--end of year...................... $ 44 $ 64
===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ling Electronics, Inc. (the "Company"), of Anaheim California, designs,
manufacturers and markets electro-dynamic vibration test systems, high-intensity
sound transducers, power conversion equipment and power amplifiers used to
perform reliability testing and stress screening during product development and
quality control. This mode of testing is used by industry and the military to
reveal design and manufacturing flaws in a broad range of precision products,
from satelite parts to computer components.
On October 21, 1999, SatCon Technology Corporation ("SatCon") completed its
acquisition of the Company from Mechanical Technology, Incorporated. (the
"Parent Company") in connection with an additional investment by the Parent
Company of approximately $7,000 in SatCon. In consideration for the acquisition
of the Company and the Parent Company's investment, the Parent Company will
receive 1,800,000 shares of SatCon's common stock, $.01 par value per share, and
warrants to purchase an additional 100,000 shares of SatCon's common stock. The
Parent Company funded $2,570 of its investment in SatCon on October 21, 1999,
and will make the remaining investment by the end of January 2000. In addition,
SatCon will also receive warrants to purchase 100,000 shares of the Parent
Company's common stock. In connection with the acquisition, the advances due to
the Parent Company were contributed to capital by the Parent Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its sister company (a wholly-owned subsidiary of the Parent Company) Ling
Electronics, Ltd., after eliminating intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the consolidated 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 and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid short-term
investments with maturities of less than three months. Cash and cash equivalents
are carried at cost, which approximates market.
INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated (or amortized in the
case of leasehold improvements) using primarily the straight-line method over
their estimated useful lives ranging from
F-43
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
three to ten years. Significant additions or improvements extending assets'
useful lives are capitalized; normal maintenance and repair costs are expensed
as incurred. The cost of fully depreciated (or amortized) assets remaining in
use are included in the respective asset and accumulated depreciation (or
amortization) accounts. When items are sold or retired, related gains or losses
are included in operations.
Assessments whether there has been a permanent impairment in the value of
property and equipment are periodically performed by considering factors such as
expected future operating income, trends and prospects, as well as the effects
of demand, competition and other economic factors. Management believes no
permanent impairment has incurred.
REVENUE RECOGNITION
Sales of products are recognized when products are shipped to customers. Sales
of products under long-term contracts are recognized under the
percentage-of-completion method. Percentage-of-completion is based on the ratio
of incurred costs to current estimated total costs at completion. Total contract
losses are charged to operations during the period such losses are estimable.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiary are translated at
year-end rates of exchange, and revenues and expenses are translated at the
average rates of exchange prevailing for the year. The effects of unrealized
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated in shareholder's equity.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on the enacted tax laws
and statutory rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the taxes payable for the period and
the change during the period in deferred tax assets and liabilities.
The Company will be included in the consolidated federal tax return filed by the
Parent Company through October 21, 1999, the date the Company was sold to SatCon
Technology Corporation. The Company's tax provision has been computed using the
separate return method for the allocation of federal income taxes. Deferred
taxes are recorded on the separate company financial statements until the
underlying temporary differences giving rise to the deferred taxes turn and the
taxes become currently payable/receivable.
F-44
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which established standards for the
reporting and display of comprehensive income. The Company has adopted SFAS No.
130 effective October 1, 1997. Comprehensive income includes such items as
foreign currency translation adjustments, etc. These amounts are presented as a
component of shareholder's deficit, consistent with the Company's previous
practice. SFAS No. 130 does not affect current principles of measurement of
revenues and expenses and accordingly, the adoption of SFAS No. 130 had no
effect on the Company's results of operations or financial position.
2. BASIS OF PRESENTATION
The Company's consolidated financial statements have been presented on the basis
that it will continue as a going-concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company reported net losses of $435 and $1,087 for the years ended
September 30, 1998 and 1999, respectively, and had a deficit in equity of $2,363
at September 30, 1999.
However, as discussed in Note 1, the Company was acquired on October 21, 1999 by
SatCon. Therefore, these financial statements do not consider whether the
Company will continue as a going concern. Continuation will be dependent on
business decision made by the management of SatCon, funding provided by SatCon
and the Company's results of operations.
3. INVENTORIES
Inventories at September 30, consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Finished goods.............................................. $ 32 $ --
Work in progress............................................ 685 794
Raw materials, components and assemblies.................... 2,147 2,312
------ ------
2,864 3,106
Less, provision for obsolete inventory...................... (340) (299)
------ ------
$2,524 $2,807
====== ======
</TABLE>
F-45
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, consists of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Leasehold improvements.................................... $ 446 $ 453
Machinery and equipment................................... 1,776 1,783
Furniture and fixtures.................................... 561 560
Computer equipment and software........................... 359 374
Jigs, dies and molds...................................... 191 201
Construction in progress.................................. -- 78
Vehicles.................................................. 36 36
------- -------
3,369 3,485
Less, accumulated depreciation and amortization........... (2,977) (3,091)
------- -------
$ 392 $ 394
======= =======
</TABLE>
Depreciation and amortization expense was $139 and $135 for the years ended
September 30, 1998 and 1999, respectively. Repairs and maintenance expense was
$122 and $103 for the years ended September 30, 1998 and 1999, respectively.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION
During October 1998, a legal action brought by a group of investors against the
Parent Company related to a stock purchase agreement and side letter agreements
for the sale of the stock of the Company was determined in favor of the Parent
Company.
In February 1995, the Company made a voluntary disclosure to the United States
Department of Commerce regarding unlicensed exports of certain products shipped
in the first four months of fiscal 1995. The Company has fully cooperated with
the Office of Export Enforcement, which has not taken any action to-date.
Possible administrative sanctions include: no action; a warning letter; denial
of export privileges; and/or imposition of civil penalties. Foreign sales
represent a significant portion of the Company's total revenue. The final
outcome of this matter is not presently determinable and, therefore, no
provision for any liability that may result has been recorded in the Company's
financial statements.
LEASE COMMITMENTS
Future minimum rental payments required under noncancelable operating leases
are: $409 in 2000; $424 in 2001; $440 in 2002; and $344 in 2003. Rent expense
under all leases was $372 for each year in the years ended September 30, 1998
and 1999.
Future minimum rental income under non-cancelable operating sub-leases are: $160
in 2000; and $92 in 2001. There was no rental income for the year ended
September 30, 1998. Rental income under all sub-leases was $164 for the year
ended September 30, 1999.
F-46
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYEE SAVINGS PLAN
The Parent Company maintains a voluntary savings and retirement plan (Internal
Revenue Code Section 401(k) Plan) covering substantially all employees. The plan
allows eligible employees to contribute a percentage of their pretax
compensation and allows the Parent Company's management to make discretionary
matching contributions. The investment of contributions to the plan is
self-directed by the participants in the plan.
6. INCOME TAXES
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates.
There was no income tax expense or benefit for the years ended September 30,
1998 or 1999.
The significant components of deferred income tax expense (benefit) for the
years ended September 30, are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax (benefit) expense............................. $ 62 $ (21)
Net operating loss carryforward--federal................... (132) (274)
Net operating loss carryforward--state..................... (18) (36)
Net operating loss carryforward--foreign................... (60) (46)
------ ------
(148) (377)
Change in valuation allowance.............................. 148 377
------ ------
$ -- $ --
====== ======
</TABLE>
The Company's effective income tax rate from continuing operations differed from
the federal statutory rate as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Federal statutory tax rate.................................. (34)% (34)%
State taxes, net of federal tax effect...................... 0% 0%
Change in valuation allowances.............................. 34% 35%
Other, net.................................................. 0% (1)%
--- ---
0% 0%
=== ===
</TABLE>
F-47
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
6. INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities as of September 30, consist of the
following tax effects relating to temporary differences and carryforwards:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Current deferred tax assets:
Bad debt reserve.......................................... $ 30 $ 45
Inventory valuation....................................... 154 119
Inventory capitalization.................................. 18 23
Vacation pay.............................................. 40 29
Warranty and other sale obligations....................... 12 68
Other reserves and accruals............................... 3 8
----- -----
257 292
Valuation allowance......................................... (257) (292)
----- -----
Net current deferred tax assets........................... $ -- $ --
===== =====
</TABLE>
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Noncurrent deferred tax assets:
Net operating loss--federal............................. $ 774 $ 1,048
Net operating loss--state............................... 123 159
Net operating loss--foreign............................. 137 183
Property, plant and equipment........................... 26 12
------- -------
1,060 1,402
Valuation allowance....................................... (1,060) (1,402)
------- -------
Net noncurrent deferred tax assets...................... $ -- $ --
======= =======
</TABLE>
The valuation allowance is $1,317 and $1,694 at September 30, 1998 and 1999,
respectively. During the year ended September 30, 1999, the valuation allowance
increased by $377.
At September 30, 1999, the Company has unused federal net operating loss
carryforwards of approximately $3,083. The federal net operating loss
carryforwards, if unused, will begin to expire in 2009. The use of $1,887 of
these carryforwards is limited on an annual basis, pursuant to the Internal
Revenue Code, due to certain changes in ownership and equity transactions. At
September 30, 1999, the Company has unused state net operating loss
carryforwards of approximately $1,766. The state net operating loss
carryforwards, if unused, will begin to expire in 2000. The use of $1,163 of
these carryforwards is limited on an annual basis. At September 30, 1999, the
Company has unused foreign net operating losses of approximately $592. The
acquisition of the Company in October 1999 by SatCon will further limit the
availability of the loss carryforward.
The Company made cash payments, net of refunds, for income taxes of $2 and $3
for the years ended September 30, 1998 and 1999, respectively.
F-48
<PAGE>
LING ELECTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
7. SEGMENT AND CONCENTRATION INFORMATION
The Company operates in a single industry segment and sells its products on a
worldwide basis with its principal markets listed in the table below:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Geographic
United States........................................... $ 8,120 $ 5,849
Europe.................................................. 1,142 1,015
Japan................................................... 1,514 531
Pacific Rim............................................. 847 543
China................................................... 466 278
Canada.................................................. 54 97
Rest World.............................................. 91 59
------- -------
Total sales............................................. $12,234 $ 8,372
======= =======
</TABLE>
Sales concentrations to individual customers consisted primarily of sales to one
and two customers, which were approximately $2,736 and $834 and represented
approximately 22% and 10% of consolidated sales for the years ended
September 30, 1998 and 1999, respectively. No other customer accounted for more
than 10% of consolidated sales for the years ended September 30, 1998 or 1999.
Financial instruments which subject the Company to concentrations of credit risk
consist principally of accounts receivable. Accounts receivable for three and
one customers were approximately $772 and $739 and represented approximately 21%
and 31% of consolidated accounts receivable at September 30, 1998 and 1999,
respectively. No other customer accounted for more than 10% of consolidated
accounts receivable at September 30, 1998 or 1999.
8. RELATED PARTY TRANSACTIONS
The Parent Company periodically advances cash to the Company to fund working
capital requirements. The Parent Company advanced the Company $586 and $1,433
for the years ended September 30, 1998 and 1999, respectively. These cash
advances have been accumulated and recorded as advances due Parent Company, do
not bear interest and are payable at the discretion of the Parent Company.
The Parent Company assesses the Company an annual charge to absorb
administrative overhead costs incurred at the Parent Company. This charge was
$484 and $524 for the years ended September 30, 1998 and 1999, and has been
recorded as a component of general and administrative expenses.
F-49
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
On October 21, 1999, SatCon Technology Corporation ("SatCon") completed its
acquisition of Ling Electronics, Inc. and Ling Electronics, Ltd. (collectively,
"Ling") from Mechanical Technology Incorporated ("MTI"). In consideration for
the acquisition of Ling, MTI received $70,000 and 770,000 shares of SatCon's
common stock, $0.01 par value per share.
The following unaudited pro forma combined consolidated statements of operations
for the year ended September 30, 1999 and the nine months ended June 30, 2000
give effect to the acquisition described above accounted for under the purchase
method of accounting. The unaudited pro forma combined consolidated financial
statements are based on historical consolidated financial statements of SatCon
and Ling under the assumptions and adjustments set forth in the accompanying
notes to the unaudited pro forma combined consolidated financial statements.
The unaudited pro forma combined consolidated statements of operations for the
year ended September 30, 1999 and the nine months ended June 30, 2000 assumes
the acquisition was consummated on October 1, 1998 and October 1, 1999,
respectively.
For purposes of presenting the unaudited pro forma combined consolidated balance
sheet, Ling's assets and liabilities have been recorded at their estimated fair
values and the excess purchase price has been assigned to goodwill. These fair
values are based on preliminary estimates. Upon completion of a detailed review
of assets and liabilities, including intangibles, certain adjustments may be
required to finalize the purchase accounting that could be material to SatCon's
financial statements.
The unaudited pro forma combined consolidated financial statements may not be
indicative of the results that actually would have occurred if the acquisition
had been consummated on the dates indicated or which may be obtained in the
future. The unaudited pro forma combined consolidated financial statements
should be read in conjuction with the historical consolidated financial
statements of SatCon and Ling.
F-50
<PAGE>
SATCON TECHNOLOGY CORPORATION
UNAUDITED PRO FORMA COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1999
----------------------------------------------------------
SATCON LING PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue........................ $ 9,122,498 $ 8,372,000 $ 17,494,498
Funded research and development
revenue.............................. 6,355,383 -- 6,355,383
------------ ----------- --------- ------------
Total revenue........................ 15,477,881 8,372,000 -- 23,849,881
Cost of product revenue.................. 9,510,941 6,213,000 (84,044) 15,639,897
------------ ----------- --------- ------------
Gross margin............................. 5,966,940 2,159,000 84,044 8,209,984
------------ ----------- --------- ------------
Research and development expenses........ 6,554,464 188,000 6,742,464
Selling, general and administrative
expenses............................... 8,818,706 3,058,000 11,876,706
Goodwill amortization.................... 371,087 536,416(2) 907,503
------------ ----------- --------- ------------
Total operating expenses................. 15,744,257 3,246,000 536,416 19,526,673
------------ ----------- --------- ------------
Operating loss........................... (9,777,317) (1,087,000) (452,372) (11,316,689)
Loss from Beacon Power Corporation....... (4,340,567) (4,340,567)
Other losses............................. (150,464) (150,464)
Interest income.......................... 42,287 42,287
Interest expense......................... (115,692) (115,692)
------------ ----------- --------- ------------
Net loss before income taxes............. (14,341,753) (1,087,000) (452,372) (15,881,125)
Provision for income taxes............... -- --
------------ ----------- --------- ------------
Net loss................................. $(14,341,753) $(1,087,000) $(452,372) $(15,881,125)
------------ ----------- --------- ------------
Accretion of redeemable convertible
preferred stock discount............... $ (50,904) $ -- $ -- $ (50,904)
------------ ----------- --------- ------------
Net loss attributable to common
stockholders........................... $(14,392,657) $(1,087,000) $(452,372) $(15,932,029)
============ =========== ========= ============
Net loss per share, basic and diluted.... $ (1.57) $ (1.60)
============ ============
Weighted average number of common shares,
basic and diluted...................... 9,176,041 9,946,041
============ ============
</TABLE>
F-51
<PAGE>
SATCON TECHNOLOGY CORPORATION
UNAUDITED PRO FORMA COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------
SATCON LING PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue........................ $ 14,269,299 $ 139,589 $ 14,408,888
Funded research and development
revenue.............................. 6,526,033 -- 6,526,033
------------- ------------ ----------- -------------
Total revenue........................ 20,795,332 139,589 -- 20,934,921
Cost of product revenue.................. 12,486,079 236,291 12,722,370
------------- ------------ ----------- -------------
Gross margin............................. 8,309,253 (96,702) -- 8,212,551
------------- ------------ ----------- -------------
Research and development expenses........ 7,559,907 70,065 7,629,972
Selling, general and administrative
expenses............................... 7,008,006 123,488 7,131,494
Amortization of intangibles.............. 894,755 29,950(2) 924,705
------------- ------------ ----------- -------------
Total operating expenses................. 15,462,668 193,553 29,950 15,686,171
------------- ------------ ----------- -------------
Operating loss........................... (7,153,415) (290,255) (29,950) (7,473,620)
Loss from Beacon Power Corporation....... (828,243) -- -- (828,243)
Other income, net........................ 2,425 1,321 3,746
Interest income.......................... 275,979 275,979
Interest expense......................... (2,497) (2,497)
------------- ------------ ----------- -------------
Net loss before income taxes............. (7,705,751) (288,934) (29,950) (8,024,635)
Provision/(benefit) for income taxes..... -- -- --
------------- ------------ ----------- -------------
Net income/(loss)........................ (7,705,751) (288,934) (29,950) (8,024,635)
============= ============ =========== =============
Accretion of redeemable convertible
preferred stock discount............... (3,105,888) -- -- (3,105,888)
------------- ------------ ----------- -------------
Net income/(loss) attributable to common
stockholders........................... $ (10,811,639) $ (288,934) $ (29,950) $ (11,130,523)
============= ============ =========== =============
Net income/(loss) per weighted average
share, basic and diluted............... $ (0.88) $ (0.90)
============= =============
Weighted average number of common shares,
basic and diluted...................... 12,277,950 12,320,728
============= =============
</TABLE>
F-52
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma combined consolidated statements of operations have been
prepared to reflect the acquisition as if it occurred on October 1, 1998. The
excess of the purchase price over the fair value of the net assets acquired is
being amortized on a straight-line basis over a 7-year period. Pro forma net
loss per share has been computed using the weighted average shares of common
stock outstanding adjusted for the issuance of 770,000 shares in connection with
the acquisition.
The following is a summary of adjustments reflected in the unaudited pro forma
combined consolidated statements of operations:
(1) Represents the adjustment to depreciation expense to reflect the fair
value of Ling's property, plant and equipment.
(2) Represents the amortization of goodwill associated with the acquisition
of Ling.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Beacon Power Corporation:
We have audited the accompanying balance sheets of Beacon Power Corporation (the
"Company")(a development stage company) as of December 31, 1998 and 1999, and
the related statements of operations, stockholders' deficiency and cash flows
for the years then ended and for the period from May 8, 1997 (date of inception)
through December 31, 1997 and the period from May 8, 1997 (date of inception)
through December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Beacon Power Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the years then ended and the period from May 8, 1997 (date of inception)
through December 31, 1997 and the period from May 8, 1997 (date of inception)
through December 31, 1999 in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 25, 2000
F-54
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $2,491,151 $ 234,350
Prepaid expenses and other current assets................. 20,307 15,987
---------- ------------
Total current assets.................................. 2,511,458 250,337
PROPERTY AND EQUIPMENT, Net................................. 433,726 566,013
PREPAID FINANCING COSTS..................................... -- 81,934
DEPOSITS.................................................... 42,595 57,150
OTHER ASSETS................................................ 4,375 18,066
---------- ------------
TOTAL ASSETS................................................ $2,992,154 $ 973,500
========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 822,723 $ 413,146
Accrued compensation and benefits......................... 68,183 109,206
Accrued interest.......................................... -- 164,140
Accrued loss on sales commitments......................... -- 325,000
Due to related party...................................... 18,611 --
Other accrued expenses.................................... 15,622 43,222
Current portion of capital lease obligations.............. 105,406 73,291
---------- ------------
Total current liabilities............................. 1,030,545 1,128,005
---------- ------------
DIVIDENDS PAYABLE........................................... 112,153 749,005
---------- ------------
NOTES PAYABLE TO INVESTORS.................................. -- 3,150,000
---------- ------------
CAPITAL LEASE OBLIGATIONS, Net of current portion........... 76,166 2,875
---------- ------------
COMMITMENTS (Note 6)
CLASS D REDEEMABLE CONVERTIBLE
PREFERRED STOCK (Liquidation preference of $4,750,000)...... 4,493,145 4,534,816
---------- ------------
STOCKHOLDERS' (DEFICIENCY) EQUITY:
Preferred stock:
Class A Convertible, $.01 par value; 6,000,000, shares
authorized 4,622,907 and 4,767,907 shares issued and
outstanding in 1998 and 1999 respectively, (liquidation
preference, $20,571,936 and $21,217,186,
respectively).......................................... 5,345,218 5,707,718
Class B Convertible, $.01 par value; 1 share authorized;
no shares issued and outstanding....................... -- --
Class C Convertible, $.01 par value; 6 shares
authorized, issued and outstanding..................... 29,933 29,933
Common stock, $.01 par value; 30,000,000 shares
authorized; 8,424 shares issued and outstanding........ 84 84
Deferred consulting expense, net.......................... (37,500) (100,000)
Deferred stock compensation............................... -- (56,648)
Additional paid-in capital................................ -- 515,318
Deficit accumulated during the development stage.......... (8,057,590) (14,687,606)
---------- ------------
Total stockholders' deficiency........................ (2,719,855) (8,591,201)
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY.............. $2,992,154 $ 973,500
========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-55
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF (DATE OF
INCEPTION) TO YEAR ENDED YEAR ENDED INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
REVENUE.................................................. $ 232,316 $ -- $ 268,868 $ 501,184
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Selling, general and administrative.................... 1,168,471 1,188,165 1,558,985 3,915,621
Research and development............................... 2,291,874 3,523,572 3,506,031 9,321,477
Loss on sales commitments.............................. -- -- 325,000 325,000
Depreciation and amortization.......................... -- 78,208 218,594 296,802
----------- ----------- ----------- ------------
Total operating expenses............................. 3,460,345 4,789,945 5,608,610 13,858,900
----------- ----------- ----------- ------------
LOSS FROM OPERATIONS..................................... (3,228,029) (4,789,945) (5,339,742) (13,357,716)
----------- ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income........................................ 116,648 11,277 25,118 153,043
Interest expense....................................... -- (14,730) (356,869) (371,599)
----------- ----------- ----------- ------------
Total other income (expense), net.................... 116,648 (3,453) (331,751) (218,556)
----------- ----------- ----------- ------------
NET LOSS................................................. (3,111,381) (4,793,398) (5,671,493) (13,576,272)
PREFERRED STOCK DIVIDENDS................................ -- (112,153) (916,852) (1,029,005)
ACCRETION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK...... -- (6,908) (41,671) (48,579)
----------- ----------- ----------- ------------
LOSS TO COMMON SHAREHOLDERS.............................. $(3,111,381) $(4,912,459) $(6,630,016) $(14,653,856)
=========== =========== =========== ============
LOSS PER SHARE--BASIC AND DILUTED........................ $ (369.35) $ (583.15) $ (787.04)
=========== =========== ===========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING............... 8,424 8,424 8,424
=========== =========== ===========
</TABLE>
F-56
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
CLASS A CLASS C
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 8, 1997 (DATE OF INCEPTION)............ -- $ -- -- $ -- -- $ --
Issuance of founder's shares........................ -- -- -- -- 3,375,000 33,750
Issuance of Class A preferred stock................. 1,125,000 5,000,000 -- -- -- --
Recapitalization.................................... 3,373,313 33,733 -- -- (3,373,314) (33,733)
Issuance of Class C preferred and common stock...... -- -- 6 29,933 6,738 67
Repayment of subscription receivable................
Accrual of consulting expense....................... -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- --
---------- ---------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1997............................ 4,498,313 5,033,733 6 29,933 8,424 84
Issuance of Class A preferred stock for services.... 120,000 300,000 -- -- -- --
Issuance of Class A preferred stock for services and
interest on loans................................. 4,594 11,485 -- -- -- --
Dividend on Class D preferred stock................. -- -- -- -- -- --
Repayment of subscription receivable................ -- -- -- -- -- --
Amortization of deferred consulting expense, net.... -- -- -- -- -- --
Accretion of redeemable preferred stock to
redemption value.................................. -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- --
---------- ---------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1998............................ 4,622,907 5,345,218 6 29,933 8,424 84
Issuance of Class A preferred stock for services.... 145,000 362,500 -- -- -- --
Dividend on Class D preferred stock................. -- -- -- -- -- --
Deferred stock compensation......................... -- -- -- -- -- --
Amortization of deferred stock compensation......... -- -- -- -- -- --
Amortization of deferred consulting expense, net.... -- -- -- -- -- --
Issuance of warrants to holders of Class D shares... -- -- -- -- -- --
Issuance of warrants for bridge loans............... -- -- -- -- -- --
Accretion of redeemable preferred stock to
redemption value.................................. -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- --
---------- ---------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1999............................ $4,767,907 $5,707,718 6 $29,933 8,424 $ 84
========== ========== ========== ======= ========== ========
<CAPTION>
DEFICIT
DEFERRED ACCUMULATED
CONSULTING DEFERRED ADDITIONAL STOCK DURING THE
EXPENSE, STOCK PAID-IN SUBSCRIPTION DEVELOPMENT
NET COMPENSATION CAPITAL RECEIVABLE STAGE
---------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT MAY 8, 1997 (DATE OF INCEPTION)............ -- $ -- $ -- $ -- --
Issuance of founder's shares........................ -- -- -- -- (33,750)
Issuance of Class A preferred stock................. -- -- -- (5,000,000) --
Recapitalization.................................... -- -- -- -- --
Issuance of Class C preferred and common stock...... -- -- -- -- --
Repayment of subscription receivable................ 2,992,492 --
Accrual of consulting expense....................... 87,500 -- -- -- --
Net loss............................................ -- -- -- -- (3,111,381)
--------- -------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1997............................ 87,500 -- -- (2,007,508) (3,145,131)
Issuance of Class A preferred stock for services.... (150,000) -- -- -- --
Issuance of Class A preferred stock for services and
interest on loans................................. -- -- -- -- --
Dividend on Class D preferred stock................. -- -- -- -- (112,153)
Repayment of subscription receivable................ -- -- -- 2,007,508 --
Amortization of deferred consulting expense, net.... 25,000 -- -- -- --
Accretion of redeemable preferred stock to
redemption value.................................. -- -- -- -- (6,908)
Net loss............................................ -- -- -- -- (4,793,398)
--------- -------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1998............................ (37,500) -- -- -- (8,057,590)
Issuance of Class A preferred stock for services.... (125,000) -- -- -- --
Dividend on Class D preferred stock................. -- -- -- -- (636,852)
Deferred stock compensation......................... -- (65,318) 65,318 -- --
Amortization of deferred stock compensation......... -- 8,670 -- -- --
Amortization of deferred consulting expense, net.... 62,500 -- -- -- --
Issuance of warrants to holders of Class D shares... -- -- 280,000 -- (280,000)
Issuance of warrants for bridge loans............... -- -- 170,000 -- --
Accretion of redeemable preferred stock to
redemption value.................................. -- -- -- -- (41,671)
Net loss............................................ -- -- -- -- (5,671,493)
--------- -------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1999............................ $(100,000) $(56,648) $ 515,318 $ -- $(14,687,606)
========= ======== ========== =========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIENCY
-------------
<S> <C>
BALANCE AT MAY 8, 1997 (DATE OF INCEPTION)............ $ --
Issuance of founder's shares........................ --
Issuance of Class A preferred stock................. --
Recapitalization.................................... --
Issuance of Class C preferred and common stock...... 30,000
Repayment of subscription receivable................ 2,992,492
Accrual of consulting expense....................... 87,500
Net loss............................................ (3,111,381)
------------
BALANCE, DECEMBER 31, 1997............................ (1,389)
Issuance of Class A preferred stock for services.... 150,000
Issuance of Class A preferred stock for services and
interest on loans................................. 11,485
Dividend on Class D preferred stock................. (112,153)
Repayment of subscription receivable................ 2,007,508
Amortization of deferred consulting expense, net.... 25,000
Accretion of redeemable preferred stock to
redemption value.................................. (6,908)
Net loss............................................ (4,793,398)
------------
BALANCE, DECEMBER 31, 1998............................ (2,719,855)
Issuance of Class A preferred stock for services.... 237,500
Dividend on Class D preferred stock................. (636,852)
Deferred stock compensation......................... --
Amortization of deferred stock compensation......... 8,670
Amortization of deferred consulting expense, net.... 62,500
Issuance of warrants to holders of Class D shares... --
Issuance of warrants for bridge loans............... 170,000
Accretion of redeemable preferred stock to
redemption value.................................. (41,671)
Net loss............................................ (5,671,493)
------------
BALANCE, DECEMBER 31, 1999............................ $ (8,591,201)
============
</TABLE>
F-57
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF (DATE OF
INCEPTION) TO YEAR ENDED YEAR ENDED INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(3,111,381) $(4,793,398) $(5,671,493) $(13,576,272)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. -- 78,208 218,594 296,802
Interest expense relating to issuance of
warrants.................................... -- -- 170,000 170,000
Amortization of deferred consulting expense,
net......................................... 87,500 175,000 300,000 562,500
Services and interest expense paid in
preferred stock............................. -- 11,485 -- 11,485
Accrued loss on sales commitments............. -- -- 325,000 325,000
Changes in operating assets and liabilities:
Accounts receivable......................... (14,487) 14,487 -- --
Prepaid expenses and other current assets... -- (20,307) 4,320 (15,987)
Accounts payable............................ 50,000 772,723 (409,577) 413,146
Accrued compensation and benefits........... 31,042 37,141 41,023 109,206
Accrued interest............................ -- -- 164,140 164,140
Due to related party........................ -- 18,611 (18,611) --
Other accrued expenses and current
liabilities............................... 31,981 (16,359) 36,270 51,892
----------- ----------- ----------- ------------
Net cash used in operating activities..... (2,925,345) (3,722,409) (4,840,334) (11,488,088)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets........................ (27,147) (19,823) (110,180) (157,150)
Repayment (issuance) of note receivable from
officer....................................... (40,000) 40,000 -- --
Purchases of property and equipment............. -- (257,423) (350,881) (608,304)
----------- ----------- ----------- ------------
Net cash used in investing activities..... (67,147) (237,246) (461,061) (765,454)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subscription receivable............ 2,992,492 2,007,508 -- 5,000,000
Issuance of Class C preferred stock............. 30,000 -- -- 30,000
Issuance of Class D redeemable preferred
stock......................................... -- 4,486,237 -- 4,486,237
Repayment of capital leases..................... -- (72,939) (105,406) (178,345)
Proceeds from notes payable issued to
investors..................................... -- -- 3,150,000 3,150,000
----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities.................................... 3,022,492 6,420,806 3,044,594 12,487,892
----------- ----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 30,000 2,461,151 (2,256,801) 234,350
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... -- 30,000 2,491,151 --
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 30,000 $ 2,491,151 $ 234,350 $ 234,350
=========== =========== =========== ============
SUMMARY OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of Class A Preferred Stock for
subscription receivable....................... $ 5,000,000 $ -- $ -- $ 5,000,000
=========== =========== =========== ============
Acquisition of assets with capital leases....... $ -- $ 254,411 $ -- $ 254,411
=========== =========== =========== ============
Issuance of warrants in conjunction with
financing..................................... $ -- $ -- $ 450,000 $ 450,000
=========== =========== =========== ============
Issuance of non-qualified stock options to
consultants................................... $ -- $ -- $ 65,318 $ 65,318
=========== =========== =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-58
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND OPERATIONS
NATURE OF BUSINESS--Beacon Power Corporation (the "Company" or "Beacon") (a
development stage company) was incorporated on May 8, 1997 as a wholly owned
subsidiary of SatCon Technology Corporation ("SatCon"). Since its inception,
Beacon has been engaged in the development of flywheel devices for storing and
transmitting kinetic energy. As of December 31, 1999, the Company has not yet
commenced its planned principal activities of marketing and manufacturing such
devices and accordingly is accounted for as a development stage company under
Statement of Financial Accounting Standards No. 7. As of December 31, 1999, a
majority of the Company's outstanding shares is owned by SatCon. However, in
conjunction with the October 1998 Class D preferred stock offering, the
Company's minority investors were granted the right to appoint a majority of the
members of the Company's Board of Directors.
The Company has a single operating segment, manufacturing alternative power
sources. The Company has no organizational structure dictated by product lines,
geography or customer type.
OPERATIONS--The Company has experienced net losses since its inception and, as
of December 31, 1999, had an accumulated deficit of approximately
$14.7 million. The Company is currently facing the challenge of finalizing
development of a viable commercial product and raising adequate capital to
sustain operations. As discussed in Note 15, during the period during
January 1, 2000 to May 25, 2000, the Company secured additional financing of
approximately $32 million. Management believes that this funding is sufficient
to continue its operations as a going concern through at least December 31,
2000.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
ACCOUNTING PRINCIPLES--The accompanying financial statements have been prepared
using accounting principles generally accepted in the United States of America.
RECAPITALIZATION--The accompanying financial statements reflect a
recapitalization of the Company in 1997 when one shareholder exchanged shares of
common stock for Class A preferred stock.
STOCK SPLIT--The accompanying financial statements reflect a 1.125 for 1 split
of the Company's preferred and common stock. All share and per share information
herein has been retroactively restated to reflect this split.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include demand deposits and
highly liquid investments with a maturity of three months or less when acquired.
Cash equivalents are stated at cost, which approximates market value.
PROPERTY AND EQUIPMENT--Property and equipment, including leasehold
improvements, are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets.
F-59
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PREPAID FINANCING COSTS--Prepaid financing costs consist of legal, financing and
other related expenses incurred in connection with the Class E financing
completed during the year ending December 31, 2000 and will be amortized over
the terms of the obligations using the effective interest method.
OTHER ASSETS--Other assets consist of unamortized legal expenses related to
patents.
LOSSES ON SALES COMMITMENTS--Substantially all of the Company's sales
commitments are firm fixed-price. Revenue and cost of revenue on such sales
commitments are recorded as deliveries are made. The direct costs to manufacture
products covered by the Company's firm sales commitments are in excess of the
fixed selling prices. Direct costs consist of materials and direct labor costs.
These excess costs have been estimated and accrued as losses on sales
commitments in the period in which the sales commitment is made. Estimates of
costs to manufacture products are reviewed and revised periodically and accruals
for estimated losses from such revisions are recorded in the accounting period
in which the revisions are made.
LONG-LIVED ASSETS--In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121 long-lived assets to be held and used by the Company
are reviewed to determine whether any events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. The
conditions considered include whether or not the asset is in service, has become
obsolete, or whether external market circumstances indicate that the carrying
amount may not be recoverable. The Company recognizes a loss for the difference
between the estimated fair value of the asset and the carrying amount. The fair
value of the assets is measured using either available market prices or
estimated discounted cash flows. The Company's analyses indicate that there has
been no impairment of long-lived assets.
REVENUE RECOGNITION--Revenue relates to work performed under research and
development contracts. Revenue is recognized as services are performed.
STOCK-BASED COMPENSATION--Compensation expense associated with awards of stock
or options to employees is measured using the intrinsic-value method. Deferred
compensation expense associated with awards to nonemployees is measured using
the fair-value method and is amortized over the vesting period of three years.
INCOME TAXES--Deferred income tax assets and liabilities are determined based on
the differences between the financial reporting and tax bases of assets and
liabilities and tax loss and credit carryforwards using the currently enacted
tax rates and laws. A valuation allowance is provided to the extent realization
of deferred tax assets is not considered more likely than not.
RESEARCH AND DEVELOPMENT--Research and development costs are expensed as
incurred.
FINANCIAL INSTRUMENTS--The carrying amount of cash and cash equivalents,
accounts payable, accrued expenses, notes payable to investors and capital lease
obligations approximate their fair values.
CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject the
Company to significant concentration of credit risk consist primarily of cash
and cash equivalents. Substantially all of the Company's cash and cash
equivalents are managed by one financial institution. At December 31, 1998 and
1999, the Company had cash balances at a financial institution in excess of
federally insured limits.
F-60
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
However, the Company does not believe that it is subject to unusual credit risk
beyond the normal credit risk associated with commercial banking relationships.
COMPREHENSIVE LOSS--Comprehensive loss is the same as net loss for all periods
presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The statement, as amended, is effective
for fiscal years beginning after June 15, 2000. Management is currently
evaluating the effect of adopting SFAS No. 133 on the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition" (SAB 101). SAB 101 established
guidelines for revenue recognition and is effective for periods beginning no
later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. Management does not expect that the adoption of SAB 101 will
have a material impact on the Company's financial condition or results of
operations.
NET LOSS PER SHARE
HISTORICAL LOSS PER SHARE--Historical loss per share has been computed using the
weighted-average number of shares of common stock outstanding during each
period. Diluted loss per share was computed in the same manner. The impact of
the Company's outstanding potential common shares, such as options and warrants
(computed using the treasury stock method) and convertible preferred stock, were
excluded from the calculation because such items were antidilutive.
The weighted average number of shares of common stock issuable during the years
ended December 31, 1999, and 1998, the period from May 8, 1997 to December 31,
1997 and the period from May 8, 1997 through December 31, 1999 aggregated
8,149,460, 7,247,769, and 1,850,478, and 5,338,018, respectively, upon the
exercise of options and warrants and the conversion of preferred stock
outstanding.
F-61
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES 1998 1999
---------- -------- --------
<S> <C> <C> <C>
Machinery and equipment..................... 5 years $214,635 $298,180
Furniture and fixtures...................... 7 years 19,423 41,521
Office equipment............................ 3 years 10,904 159,894
Leasehold improvements...................... lease term 12,561 108,809
Equipment under capital lease obligations... lease term 254,411 254,411
-------- --------
Total..................................... 511,934 862,815
Less accumulated depreciation and
amortization.............................. (78,208) (296,802)
-------- --------
Property and equipment, net............... $433,726 $566,013
======== ========
</TABLE>
4. NOTES PAYABLE TO INVESTORS
At December 31, 1999, notes payable to investors consists of Senior Secured
Convertible Promissory Notes (the "Senior Notes") held by the Company's primary
investors. The Senior Notes bear interest, which is payable upon conversion, at
an annual rate of 12.5%, increasing to 15% after six months if the Class E
redeemable convertible preferred stock ("Class E Stock") funding had not
occurred at that time. The notes are secured by substantially all of the assets
of the Company. In connection with the issuance of the Senior Notes, the
investors received warrants to purchase shares of the Company's common stock
(see Note 10).
On April 7, 2000, the Senior Notes and accrued interest were converted into
Class E Stock (see Note 15).
5. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital lease agreements expiring through
2001. Future obligations under such capital leases as of December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000........................................................ $77,530
2001........................................................ 3,067
-------
80,597
Less amount representing interest........................... 4,431
-------
76,166
Less current portion of capital lease obligations........... 73,291
-------
Capital lease obligations, excluding current portion........ $ 2,875
=======
</TABLE>
6. COMMITMENTS
The Company leases office and light manufacturing space under operating leases
expiring through January 30, 2001 and an operating lease for office equipment
expiring October 2001.
F-62
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS (CONTINUED)
Future minimum annual lease payments under noncancelable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $241,506
2001........................................................ 25,449
</TABLE>
Total rent expense was $146,255 and $199,405, during 1998 and 1999, and $345,660
for the period from inception to December 31, 1999.
7. PREFERRED STOCK
CLASS A CONVERTIBLE PREFERRED STOCK--Each share of Class A convertible preferred
stock ("Class A Stock") is convertible into one share of common stock at the
option of the holder. The Class A Stock is nonvoting. Upon liquidation, holders
of Class A Stock are entitled to receive, out of funds then generally available
prior to any payment with respect to the holders of common stock, $4.45 per
share, plus any declared and unpaid dividends thereon. Holders of the Class A
Stock have the right to receive the same dividends as declared by the Board of
Directors on common shares on an "as-if-converted" basis. The Class A Stock will
automatically be converted into shares of common stock upon the closing of a
public offering of common stock of the Company, upon a vote of the Board of
Directors or upon the automatic conversion of the Class D preferred stock (see
Note 8). Class A Stock is subordinate to Class D, E and F preferred stock and
has parity with Class B and C preferred stock. The Class A stock does not have
redemption features.
7. PREFERRED STOCK (CONTINUED)
CLASS B AND C CONVERTIBLE PREFERRED STOCK--The Company has authorized both Class
B and Class C Convertible Preferred Stock. Only Class C shares are outstanding.
Class B shares were never issued. Class B and C shares have identical conversion
and voting rights. Each share of Class C convertible preferred stock ("Class C
Stock") is convertible into one share of common stock at the option of the
holder. The holders of the Class C Stock have voting rights equivalent to the
number of shares of common stock into which their shares of Class C Stock
convert. The Class C Stock has the right to receive the same dividends as
declared by the Board of Directors on common shares on an "as-if-converted"
basis. The Class C Stock will automatically be converted into shares of common
stock upon the closing of a public offering of common stock of the Company, upon
a vote of the Board of Directors, upon the automatic conversion of the Class D
preferred Stock (see Note 8), or upon conversion of the Class A Stock. Class B
and C Stock have parity with Class A in liquidation and are subordinate to
Class D, E and F preferred stock. The Class B and C Stock do not have redemption
features.
8. REDEEMABLE PREFERRED STOCK
CLASS D REDEEMABLE CONVERTIBLE PREFERRED STOCK--The Company has authorized
6,000,000 shares of Class D convertible preferred stock ("Class D Stock") with a
par value of $.01 per share. On October 23, 1998, the Company issued 1,900,000
shares of Class D Stock and received net proceeds of approximately $4,486,000.
Issuance costs totaled approximately $264,000 and are being accreted to the
carrying value of the Class D Stock over the period to the stock's earliest
redemption date. Each share of Class D Stock is convertible into one share of
common stock at the option of the holder. The
F-63
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE PREFERRED STOCK (CONTINUED)
holders of the Class D Stock have voting rights equivalent to the number of
shares of common stock into which their shares of Class D Stock convert. Holders
of the Class D Stock are also entitled to appoint representatives to the Board
of Directors. The Class D Stock earns cumulative dividends at an annual rate of
12.5% through May 23, 2000 and 6% on and after this date, payable quarterly.
Dividends can be paid in shares of Class D Stock through May 23, 2000 and after
this date, are payable only in cash. Cumulative dividends not paid on Class D
Stock total $112,153 and $749,005 as of December 31, 1998 and 1999,
respectively. Upon liquidation, holders of Class D Stock are entitled to
receive, out of funds then generally available, unpaid dividends previously
declared or accrued and a per share amount of $2.50. The Class D Stock is
redeemable by the holder at any time after December 31, 2004 for the stated
value of $2.50 per share plus accrued, but unpaid, dividends. The Class D Stock
will automatically be converted into shares of common stock upon a change in
ownership of 50% of the Company's outstanding voting stock, upon a merger or
consolidation of the Company or upon the sale of significant assets of the
Company, or upon the closing of a qualified public offering.
Pursuant to the Stock Purchase Agreement related to the Class D Stock (the
"Class D Agreement"), the Company is bound by certain covenants. The Class D
Stock is senior to the Class A, B and C Stock, subordinate to Class F preferred
stock and has parity with Class E preferred Stock (see Note 15).
9. COMMON STOCK
DIVIDENDS--Dividends may be declared and paid on the common stock as and when
determined by the Board of Directors subject to any preferential dividend rights
of any then outstanding shares of preferred stock.
RESERVED SHARES--At December 31, 1999, 9,130,420 shares of common stock were
reserved for issuance under the Company's stock option plan, outstanding
warrants and for the potential conversion of preferred stock.
10. STOCK WARRANTS
At its inception in 1997, the Company issued a warrant to purchase 562,500
shares of common stock to an investor at the price of $5.33 per share (the "1997
warrant"). The warrant expired unexercised on May 28, 1999. Value ascribed to
this warrant was not material.
Under the conditions of the Class D Stock offering, the Company issued warrants
in October 1999 to three investors to purchase 386,250 shares of common stock at
$3.33, 386,250 shares of common stock at $4.50, and 386,250 shares of common
stock at $6 (the "October 1999 warrants"). The estimated fair value of the
warrants at the date of their issuance was $280,000. This amount has been
recorded as a dividend to the holders of the Class D Stock and credited to
additional paid-in-capital. These warrants expire December 31, 2004. Additional
warrants were issued under the Class D agreement during April 2000 (see
Note 15).
In conjunction with the issuance of the Senior Notes in August 1999, the Company
issued warrants to four investors to purchase 315,000 shares of Class E Stock
(or common stock if the warrant was exercised prior to the Class E Stock
financing (see Note 15)) at an exercise price of $2.50 per share (the "August
1999 warrants"). The estimated fair value of the warrants at the date of grant
was
F-64
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK WARRANTS (CONTINUED)
$170,000. This amount has been recorded as a discount on the Senior Notes and
was charged to interest expense in 1999 as the Senior Notes are demand notes.
These warrants expire on August 2, 2004.
In conjunction with the Class E conversion in April 2000 (see Note 15), the
August 1999 warrants were cancelled.
All warrants were valued on the date of grant using the Black-Scholes (common
stock) or the Binary Option Pricing Model (preferred stock). The assumptions
used to value these warrants were as follows:
<TABLE>
<CAPTION>
AUGUST OCTOBER
1997 1999 1999
WARRANT WARRANTS WARRANTS
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate.................................. 6.25% 5.62% 5.86%
Expected life of warrant................................. 24 months 30 months 27 months
Expected dividend payment rate, as a percentage of the
stock price on the date of grant....................... 0% 0.0% 0%
Assumed volatility....................................... 48% 60% 60%
</TABLE>
11. STOCK OPTIONS
The Company's option plans provide for the granting of stock options to purchase
up to 4,500,000 shares of the Company's common stock. Options may be granted to
employees, officers, directors and consultants of the Company with terms of up
to 10 years. Under the terms of the option plans, incentive stock options
("ISOs") are to be granted at fair market value of the Company's stock at the
date of grant, and nonqualified stock options ("NSOs") are to be granted at a
price determined by the Board of Directors. ISOs and NSOs generally vest ratably
over 36 months from the grant date and have contractual lives of up to
10 years.
Stock option activity since inception is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
---------- --------- ---------
<S> <C> <C> <C>
Outstanding at inception.................................... --
Granted................................................... 323,937 $1.78 $0.69
----------
Outstanding, December 31, 1997.............................. 323,937 1.78
Granted................................................... 99,563 1.78 0.75
Canceled, forfeited or expired............................ (5,000) 1.78
----------
Outstanding, December 31, 1998.............................. 418,500 1.78
Granted................................................... 733,500 1.78 0.80
Canceled, forfeited or expired............................ (147,844) 1.78
---------- -----
Outstanding, December 31, 1999.............................. 1,004,156 $1.78
========== =====
</TABLE>
F-65
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS (CONTINUED)
The following table summarized information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
VESTED
WEIGHTED- --------------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE AVERAGE
OF OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OF OPTIONS PRICE
-------------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$1.78 1,004,156 8.64 $1.78 189,122 $1.78
====== ========= ==== ====== ======= ======
</TABLE>
As described in Note 2, the Company uses the intrinsic-value method to measure
compensation expense associated with grants of stock options to employees. If
the Company had used the fair value method to measure compensation, reported net
loss would have been as follows:
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF INCEPTION) (DATE OF INCEPTION)
TO YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Net loss to common shareholders as
reported.......................... $(3,111,381) $(4,912,459) $(6,630,016) $(14,653,856)
Net loss pro forma.................. (3,336,722) (4,987,251) (7,154,362) (15,478,335)
Loss per share--as reported......... (369.35) (583.15) (787.04) (1,739.54)
Loss per share--pro forma........... (396.10) (592.03) (849.28) (1,837.41)
</TABLE>
The fair value of the options on their grant date was measured using the
Black-Scholes option-pricing model. Key assumptions used to apply this
option-pricing model are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.5% 5.75% 6.0%
Expected life of option..................................... 3 years 3 years 3 years
Expected dividend payment rate, as a percentage of the stock
price on the date of grant................................ 0% 0% 0%
Assumed volatility.......................................... 50% 58% 60%
</TABLE>
The option-pricing model used was designed to value readily tradable stock
options with relatively short lives. However, management believes that the
assumptions used to value the options and the model applied yield a reasonable
estimate of the fair value of the grants made under the circumstances.
F-66
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
The components of the provision (benefit) for income taxes consisted of the
following:
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF INCEPTION) (DATE OF INCEPTION)
THROUGH YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Federal--deferred................... $(1,037,870) $(1,594,955) $(1,995,158) $(4,627,983)
State--deferred..................... (181,683) (282,933) (352,087) (816,703)
Increase in valuation allowance..... 1,219,553 1,877,888 2,347,245 5,444,686
----------- ----------- ----------- -----------
Provision (benefit) for income
taxes............................. $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
Taxes during interim periods are computed using the estimated rate effective for
the entire year. Changes to the estimated rate are reflected in periods in which
the estimated charge occurs.
A reconciliation of the statutory federal rate to the effective rate for all
periods is as follows:
<TABLE>
<S> <C>
Statutory federal rate benefit.............................. (34)%
State, net of federal effect................................ (6)
Valuation allowance provided................................ 40
---
Effective rate.............................................. --%
===
</TABLE>
The components of the Company's deferred tax assets and liabilities consisted of
the following at December 31:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Long-term assets:
Net operating loss carryforwards................. $ 2,643,962 $ 4,728,408
Research and development credits................. 444,513 524,958
Loss on contracts................................ -- 130,000
Other............................................ 8,966 61,320
----------- -----------
Net deferred tax assets before valuation
allowance........................................ 3,097,441 5,444,686
Less valuation allowance........................... (3,097,441) (5,444,686)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased by $1,877,888 in 1998 and $2,347,245 in 1999,
primarily due to the generation of net operating loss carryforwards and credits
for which realization is not reasonably assured.
The Company has available for future periods federal and state tax net operating
loss carryforwards for federal and state purposes of approximately $11,850,000
and $11,616,000, respectively, as of December 31, 1999. In addition, the Company
has business credits of approximately $524,958 as of December 31, 1999. The net
operating loss carryforwards expire beginning in 2012 and 2002 for federal and
state tax purposes, respectively. The federal research and development credits
begin to expire in 2012. The Company did not pay any income taxes from inception
to December 31, 1999.
F-67
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
Under the provisions of the Internal Revenue Code, certain substantial changes
in the Company's ownership may have limited, or may limit in the future, the
amount of net operating loss carryforwards which could be utilized annually to
offset future taxable income and income tax liabilities. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.
13. BENEFIT PLAN
In 1998, the Company created a 401(k) Profit Sharing Plan (the "Plan") for its
full-time employees. Each participant in the Plan may elect to contribute a
percentage of his or her annual compensation to the Plan on a pre-tax basis up
to the annual limit established by the Internal Revenue Service ($10,200 for
1999). The Company matches employee contributions at a rate of 50% up to the
first 6% of the employee's contributions. The Company may also elect to make a
profit-sharing contribution based on the discretion of the Board of Directors.
Employee contributions are fully vested. Company matching and profit sharing
contributions vest 20% after two years of service consisting of at least
1,000 hours per calendar year and 20% annually thereafter. Company contributions
were $19,376, $41,963 and $61,339 during 1998, 1999, and the Period from
Inception to December 31, 1999, respectively.
14. RELATED-PARTY TRANSACTIONS
CONSULTING AGREEMENTS--The Company entered into consulting agreements with three
investors in 1998 and 1997. The contracts are seven-year agreements, renewable
annually thereafter, for consulting services to be provided by the investors in
exchange for annual issuances of shares of the Company's Class A Stock. During
1997, 1998, 1999 and the period from inception, $87,500, $175,000, $300,000, and
$562,500, respectively, was recorded as consulting expense relating to these
agreements, and 120,000 and 145,000 shares of Class A Stock in 1998 and 1999,
respectively, were issued or issuable as compensation under these contracts.
Prepaid and accrued consulting expenses have been recorded annually, based on
the terms and dates of the consulting agreements. The services provided by the
investors were recorded based upon the value of the securities issued. These
contracts all expire immediately upon an initial public offering of the
Company's common stock.
PATENTS--The Company has entered into an agreement with SatCon whereby SatCon
granted the Company a perpetual license to use the technology patented by SatCon
relating to the field of flywheel energy storage products, systems and processes
for stationary terrestrial applications.
SERVICES AGREEMENTS--SatCon performs certain research and development,
administrative and other services for the Company. Amounts paid to SatCon for
such services rendered amounted to approximately $1,351,000, $443,000, $59,000
and $1,853,000 during 1997, 1998, 1999 and the period from inception to
December 31, 1999, respectively. As of December 31, 1998, there was $18,611 due
to SatCon relating to such services.
DISTRIBUTION AGREEMENT--In 1997, the Company signed a 20-year agreement which
granted an investor (DQE Enterprises, Inc.) exclusive rights to distribute
certain of the Company's products in a territory comprised of seven Mid-Atlantic
states and the District of Columbia. However, the Company retained the right to
distribute products directly to cable television and telephone companies.
F-68
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS
BRIDGE FINANCING--On January 7, 2000, the Company received $600,000 of bridge
loans bearing annual interest at a rate of 12.5%; $200,000 of these loans were
repaid in February 2000 and the remaining loans were converted into Class E
redeemable convertible preferred stock (the "Class E Stock") in conjunction with
the Class E conversion (see below).
In February, March and April 2000, the Company received additional bridge
financing of $1,400,000 from previous investors and $4,100,000 from new and
previous investors (the "Class F Bridge Loans"). The Class F Bridge Loans bear
annual interest at a rate of 6%. $5,200,000 of these loans were converted into
Class F redeemable convertible preferred stock ("Class F Stock") in May 2000,
(see below). The remaining $300,000 plus interest was repaid in April 2000.
In conjunction with the April bridge loans, investors were granted warrants to
purchase 41,000 shares of the Company's common stock at $4.20 per share. These
warrants expire April 21, 2005. The estimated fair value of such warrants is
$27,000 based on the Black-Scholes Pricing Model.
WARRANTS ISSUED UNDER CLASS D AGREEMENT--Under the conditions of the Class D
Stock offering, the Company issued warrants in April 2000 to three investors to
purchase 356,250 shares of common stock at $3.33, 356,250 shares of common stock
at $4.50, and 356,250 shares of common stock at $6. Upon issuance of these
warrants the Company recorded a dividend of approximately $1,300,000 for the
fair market value of these warrants based on the Black-Scholes Pricing Model.
These warrants expire December 31, 2004.
CLASS E CONVERSION--During April 2000, the Company authorized 2,000,000 shares
of $.01 par value per share Class E Stock. On April 7, 2000, the Company
converted $3,550,000 of bridge loans plus interest of $275,559 into 1,226,141
shares of Class E Stock (the "Class E conversion"). Each share of Class E Stock
is convertible into one share of common stock at the option of the holder.
Holders of the Class E Stock have voting rights equivalent to the number of
shares of common stock into which their shares of Class E Stock convert. Holders
of the Class E Stock also share with the Class D Stock shareholders the right to
appoint representatives to the Board of Directors. The Class E Stock earns
cumulative dividends at an annual rate of 12.5% through May 23, 2000 and 6% on
and after this date, payable quarterly. Dividends are payable in shares of
Class E Stock through May 23, 2000 and after this date, are payable in cash.
Upon liquidation, holders of Class E Stock are entitled to receive, out of funds
then generally available unpaid dividends previously declared or accrued and a
per share amount of $3.12. The Class E Stock is redeemable by the holder at any
time after December 31, 2004 for the stated value of $3.12 per share plus
accrued but unpaid dividends. The Class E Stock will automatically be converted
into shares of common stock upon a change in ownership of 50% of the Company's
outstanding voting stock, upon a merger or consolidation of the Company, upon
the sale of significant assets of the Company, or upon consummation of a
qualified public offering.
Class E Stock is senior to Class A, B and C Stock, on parity with Class D Stock
and subordinate to Class F Stock.
In conjunction with the Class E conversion, warrants totaling 315,000, issued in
conjunction with the issuance of the Senior Notes in August 1999 (Note 10), were
cancelled. In exchange, warrants to purchase 306,535 shares of Class E Stock at
$2.50 per share were issued. These warrants expire April 7, 2005. The estimated
fair market value of these warrants is approximately $344,000 based on the
Binary Option Pricing Model.
F-69
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (CONTINUED)
Pursuant to the stock purchase agreement related to the Class E Stock, the
Company is bound by certain covenants.
CLASS F ISSUANCE--During May 2000 the Company authorized 7,500,000 shares of
$.01 par value Class F Stock. On May 23, 2000, the Company sold 6,785,711 shares
of Class F Stock for a total of $28.5 million, and accordingly, the outstanding
Class F Bridge Loans of $5,200,000 were converted to Class F Stock.
Each share of Class F Stock is convertible into one share of common stock at the
option of the holder. Holders of the Class F Stock have voting rights equivalent
to the number of shares of common stock into which their shares of Class F Stock
convert. The Class F Stock earns cumulative dividends at an annual rate of 6%,
payable quarterly. Dividends are payable in cash. The Class F Stock will
automatically be converted into shares of common stock immediately prior to a
merger or consolidation of the Company or upon the sale of significant assets of
the Company, or the consummation of a qualified public offering. The Class F
shareholders are entitled to appoint representatives to the Board of Directors.
The Class F stock is redeemable by the holder at any time after May 23, 2005 at
a price per share equal to the sum of the Class F stated value, initially $4.20
per share, multiplied by the number of shares to be redeemed, plus all accrued
but unpaid dividends.
The Class F Stock is senior to all other classes of preferred stock.
Upon liquidation, holders of the Class F stock are entitled to receive, out of
funds then generally available, unpaid dividends previously paid or accrued and
a per share amount equal to the Class F stated value.
Pursuant to the Stock Purchase Agreement related to the Class F Stock (the
"Class F Agreement"), the Company is bound by certain covenants.
Under the conditions of the Class F Agreement, the Company will issue warrants
for shares of common stock equal to $14,250,000 divided by the warrant price.
The warrant price is defined as 75% of the lower of: (i) the effective price per
share of common stock paid by the acquirer in a sale transaction as determined
by a nationally recognized banking firm chosen by the Company and approved by a
majority of the purchasers that hold a majority of the aggregate preferred
shares and conversion shares (shares of common stock issuable upon conversion of
the Class F Stock) as of the date of consummation of such sale transaction and
(ii) the initial price in the first qualified offering of the Company's common
stock. These warrants expire on May 23, 2005 and no warrants have been issued at
this time.
* * * * * *
F-70
<PAGE>
--------------------------------------------------------------------------------
[LOGO]
SATCON TECHNOLOGY CORPORATION
SHARES
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2000
CIBC WORLD MARKETS
BANC OF AMERICA SECURITIES LLC
FAC/EQUITIES
--------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION, WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THE COMMON STOCK.
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be incurred in connection
with the sale and distribution of the securities being registered hereby, all of
which will be borne by the Registrant, other than the underwriting discounts and
commissions. All amounts shown are estimates except the SEC registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... 17,500
Blue Sky fees and expenses.................................. 5,000
Transfer Agent and Registrar fees........................... 25,000
Accounting fees and expenses................................ 200,000
Legal fees and expenses..................................... 500,000
Printing and mailing expenses............................... 250,000
Miscellaneous............................................... 160,140
----------
Total................................................... $1,200,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. SatCon has included such a provision in its Certificate of
Incorporation. This provision reads as follows:
"To the maximum extent permitted by Section 102(b)(7) of the
General Corporation Law of Delaware, a director of this
Corporation shall not be personally liable to the Corporation or
its stockholders for monetary demands for breach of fiduciary duty
as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper
personal benefit."
Section 145 of the General Corporation Law of Delaware provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and
II-1
<PAGE>
only to the extent that the adjudicating court like determines that such
indemnification is proper under the circumstances. SatCon's Bylaws include the
following provision:
"Reference is made to Section 145 and any other relevant
provisions of the General Corporation Law of the State of
Delaware. Particular reference is made to the class of persons,
hereinafter called "Indemnitees", who may be indemnified by a
Delaware corporation pursuant to the provisions of such
Section 145, namely, any person or the heirs, executors, or
administrators of such person, who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such
corporation or is or was serving at the request of such
corporation as a director, officer, employee, or agent of another
corporation, partnership joint venture, trust, or other
enterprise. The Corporation shall, and is hereby obligated to,
indemnify the Indemnitees, and each of them in each and every
situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory provisions.
The Corporation shall indemnify the Indemnitees, and each of them,
in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless
permitted or empowered, to make such indemnification, it being
understood that, before making such indemnification with respect
to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods
referred to in Subsection (d) of such Section 145, a determination
as to whether each Indemnitee acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful, and (ii) that no such indemnification shall
be made unless it is determined that such Indemnitee acted in good
faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, in the
case of any criminal action or proceeding, had no reasonable cause
to believe that his conduct was unlawful."
SatCon has purchased directors' and officers' liability insurance which would
indemnify its directors and officers against damages arising out of certain
kinds of claims which might be made against them based on their negligent acts
or omissions while acting in their capacity as such.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1(**) Form of Underwriting Agreement.
2.1 Amended and Restated Asset Purchase Agreement among SatCon
Film Microelectronics, Inc., Film Microelectronics Inc., and
Albert R. Snider, dated as of April 3, 1997, is incorporated
herein by reference to Exhibits to the Registrant's Current
Report on Form 8-K dated April 16, 1997.
2.2 Stock Purchase Agreement, dated as of October 21, 1999, by
and among the Registrant, Mechanical Technology
Incorporated, Ling Electronics, Inc. and Ling Electronics,
Ltd. is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 21,
1999.
2.3 Asset Purchase Agreement, dated as of November 16, 1999, by
and between the Registrant and Northrop Grumman Corporation
is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated November 16,
1999.
3.1 Certificate of Incorporation of the Registrant is
incorporated herein by reference to Exhibits to the
Registrant's Registration Statement on Form S-1 (File No.
33-49286).
3.2 Bylaws of the Registrant is incorporated herein by reference
to Exhibits to the Registrant's Registration Statement on
Form S-1 (File No. 33-49286).
3.3 Certificate of Amendment of Certificate of Incorporation of
the Registrant, as filed with the Secretary of State of the
State of Delaware on May 12, 1997, is incorporated herein by
reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1997.
3.4 Bylaws Amendment of the Registrant is incorporated herein by
reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1997.
3.5 Certificate of Amendment of Certificate of Incorporation of
the Registrant, as filed with the Secretary of State of the
State of Delaware on March 17, 1999, is incorporated herein
by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated August 25, 1999.
3.6 Certificate of Designation of Series and Statement of
Variations of Relative Rights, Preferences and Limitations
of Preferred Stock, dated as of August 25, 1999, relating to
the Series A Preferred Stock is incorporated herein by
reference to Exhibits to the Registrant's Current Report on
Form 8-K dated August 25, 1999.
4.1 Specimen Certificate of Common Stock, $.01 par value, is
incorporated herein by reference to Exhibits to the
Registrant's Registration Statement on Form S-1 (File No.
33-49286).
5.1(**) Opinion of Hale and Dorr LLP.
10.1(*) Employment Agreement, dated July 1, 1992, between the
Registrant and David B. Eisenhaure is incorporated herein by
reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-49286).
10.2(*) Employment Agreement, dated July 1, 1992, between the
Registrant and Michael C. Turmelle is incorporated herein by
reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-49286).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.3 Change of Control Letter Agreement, dated March 22, 2000,
between the Registrant and Sean F. Moran is incorporated
herein by reference to Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31,
2000.
10.4(*) 1992 Stock Option Plan is incorporated herein by reference
to Exhibits to the Registrant's Registration Statement on
Form S-1 (File No. 33-49286).
10.5(*) 1994 Stock Option Plan is incorporated herein by reference
to Exhibits to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994.
10.6(*) 1996 Stock Option Plan is incorporated herein by reference
to Exhibits to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1996.
10.7(*) 1998 Stock Incentive Plan is incorporated herein by
reference to Exhibit B to the Registrant's Definitive
Schedule 14A filed January 26, 1999.
10.8(*) 1999 Stock Incentive Plan is incorporated herein by
reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1999.
10.9 Lease, dated October 21, 1993, between the Registrant and
Gunwyn/First Street Limited Partnership is incorporated
herein by reference to Exhibits to the Registrant's
Registration Statement on Form S-1 (File No. 33-49286).
10.10 Manufacturing Agreement between Applied Materials, Inc. and
its wholly-owned subsidiaries and the Registrant, dated as
of February 20, 1997, is incorporated herein by reference to
Exhibits to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1997.
10.11 Securities Purchase Agreement, dated as of May 28, 1997, by
and among the Registrant, Beacon Power Corporation and DQE
Enterprises, Inc. is incorporated herein by reference to
Exhibits to the Registrant's Current Report on Form 8-K
dated May 28, 1997.
10.12 Securities Purchase Agreement, dated as of October 23, 1998,
by and among Beacon Power Corporation, Perseus Capital,
L.L.C., DQE Enterprises, Inc., Micro Generation Technology
Fund, L.L.C. and the Registrant is incorporated herein by
reference to Exhibits to the Registrant's Current Report on
Form 8-K dated October 23, 1998.
10.13 Amended and Restated License Agreement, dated as of October
23, 1998, by and between the Registrant and Beacon Power
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
23, 1998.
10.14 Registration Rights Statement, dated as of October 23, 1998,
by and among Beacon Power Corporation, Perseus Capital,
L.L.C., DQE Enterprises, Inc., Micro Generation Technology
Fund, L.L.C., and the Registrant, setting forth certain
registration rights granted by the Registrant is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 23,
1998.
10.15 Registration Rights Statement, dated as of October 23, 1998,
by and among Beacon Power Corporation, Perseus Capital,
L.L.C., DQE Enterprises, Inc., Micro Generation Technology
Fund, L.L.C. and the Registrant, setting forth certain
registration rights granted by Beacon Power Corporation is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 23,
1998.
10.16 Lease, dated February 27, 1996, by and between the
Registrant and Diamond Management, Inc. is incorporated
herein by reference to Exhibits to the Registrant's Annual
Report on Form 10-K for the year ended September 30, 1998.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.17 Lease, dated March 5, 1998, by and between the Registrant
and Harold W. Slovin is incorporated herein by reference to
Exhibits to the Registrant's Annual Report on Form 10-K for
the year ended September 30, 1998.
10.18 North America Distributor Agreement, dated June 4, 1998, by
and between SatCon Film Microelectronics, Inc., a division
of the Registrant, and Falcon Electronics, Inc. is
incorporated herein by reference to Exhibits to the
Registrant's Annual Report on Form 10-K for the year ended
September 30, 1998.
10.19 Asset Purchase Agreement, dated as of January 4, 1999, among
K&D MagMotor Corp., the Registrant, Inductive Components,
Inc., Lighthouse Software, Inc. and Thomas Glynn is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated January 4,
1999.
10.20 Asset Purchase Agreement, dated as of March 31, 1999, by and
between HyComp, Inc. and HyComp Acquisition Corp., a
wholly-owned subsidiary of the Registrant, is incorporated
herein by reference to Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30,
1999.
10.21 Note Purchase Agreement, dated as of June 22, 1999, by and
among Beacon Power Corporation, Perseus Capital, L.L.C., DQE
Enterprises, Inc., Micro Generation Technology Fund, L.L.C.
and the Registrant is incorporated herein by reference to
Exhibits to the Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1999.
10.22 Note and Warrant Purchase Agreement, dated as of August 2,
1999, by and among Beacon Power Corporation, Perseus
Capital, L.L.C., DQE Enterprises, Inc., Micro Generation
Technology Fund, L.L.C. and the Registrant is incorporated
herein by reference to Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30,
1999.
10.23 License and Technical Assistant Agreement, dated as of June
7, 1999, by and between Delco Remy America, Inc. and the
Registrant is incorporated herein by reference to Exhibits
to the Registrant's Amendment No. 1 to the Quarterly Report
on Form 10-Q for the period ended March 31, 1999.
10.24 Securities Purchase Agreement, dated as of August 25, 1999,
among the Registrant and the purchasers listed on Schedule I
thereto is incorporated herein by reference to Exhibits to
the Registrant's Current Report on Form 8-K dated August 25,
1999.
10.25 Registration Rights Agreement, dated as of August 25, 1999,
among the Registrant and the investors named on the
signature pages thereof is incorporated herein by reference
to Exhibits to the Registrant's Current Report on Form 8-K
dated August 25, 1999.
10.26 Form of Warrants issued on August 25, 1999 in connection
with the sale of the Series A Preferred Stock is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated August 25,
1999.
10.27 Securities Purchase Agreement, dated as of October 21, 1999,
between the Registrant and Mechanical Technology
Incorporated is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
21, 1999.
10.28 SatCon Registration Rights Agreement, dated as of October
21, 1999, between the Registrant and Mechanical Technology
Incorporated is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
21, 1999.
10.29 MTI Registration Rights Agreement, dated as of October 21,
1999, between Mechanical Technology Incorporated and the
Registrant is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
21, 1999.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.30 Form of Stock Purchase Warrant issued on October 21, 1999 by
the Registrant to Mechanical Technology Incorporated is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 21,
1999.
10.31 Form of Stock Purchase Warrant issued on October 21, 1999 by
Mechanical Technology Incorporated to the Registrant is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 21,
1999.
10.32 Sublease, dated November 16, 1999, between the Registrant
and Northrop Grumman Corporation is incorporated herein by
reference to Exhibits to the Registrant's Current Report on
Form 8-K dated November 16, 1999.
10.33 Transition Services Agreement, dated as of November 16,
1999, between the Registrant and Northrop Grumman
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated
November 16, 1999.
10.34 Memorandum of Understanding, entered into on November 16,
1999, between the Registrant and Northrop Grumman
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated
November 16, 1999.
10.35 Registration Rights Agreement, dated as of November 16,
1999, between the Registrant and Northrop Grumman
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated
November 16, 1999.
10.36 Form of Stock Purchase Warrant issued on November 16, 1999
by the Registrant to Northrop Grumman Corporation is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated November 16,
1999.
10.37 Stock Purchase Warrant issued on February 4, 2000 by the
Registrant to Northrop Grumman Corporation is incorporated
herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the period ended December 31, 1999.
10.38 Promissory Note, dated October 6, 1999, made in favor of the
Registrant by Michael C. Turmelle in the amount of $10,000,
together with Promissory Note, dated December 6, 1999, made
in favor of the Registrant by Michael C. Turmelle in the
amount of $75,000, is incorporated herein by reference to
the Registrant's Quarterly Report on Form 10-Q for the
period ended December 31, 1999.
10.39 Demand Promissory Note, dated February 25, 2000, made in
favor of the Registrant by Beacon Power Corporation in the
amount of $300,000, together with First Amendment to Demand
Promissory Note, dated March 16, 2000 is incorporated by
reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 2000.
10.40 Consulting Agreement, dated July 19, 2000, between the
Registrant and Marshall J. Armstrong is incorporated herein
by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 2000.
16 Letter Regarding Registrant's Change in Certifying
Accountant is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated May 12,
1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
23.4 Consent of Deloitte & Touche LLP.
</TABLE>
------------------------
(*) Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to the Annual Report on Form 10-K for the year ended
September 30, 1999.
(**) To be filed by amendment.
(b) Financial Statement Schedules
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END
PERIOD EXPENSES DEDUCTIONS OF PERIOD
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Allowance for doubtful accounts........... $ 130,900 $ 30,750 $ (2,407) $ 159,243
Allowance for unbilled contract costs..... $ 432,500 $ 909,100 $ (211,132) $ 1,130,468
Deferred tax valuation allowance.......... $2,030,929 $2,080,639 -- $ 4,111,568
Allowance for obsolete inventory.......... -- $ 758,541 -- $ 758,541
Reserve for product warranty expense...... -- $ 16,511 -- $ 16,511
Accrued costs for consolidation of
facilities.............................. -- $ 498,000 -- $ 498,000
YEAR ENDED SEPTEMBER 30, 1998:
Allowance for doubtful accounts........... $ 159,243 $ 29,014 $ (136,421) $ 51,836
Allowance for unbilled contract costs..... $1,130,468 -- $(1,072,857) $ 57,611
Deferred tax valuation allowance.......... $4,111,568 $2,689,999 -- $ 6,801,567
Allowance for obsolete inventory.......... $ 758,541 -- $ (549,765) $ 208,776
Reserve for product warranty expense...... $ 16,511 -- $ (16,511) --
Accrued costs for consolidation of
facilities.............................. $ 498,000 -- $ (398,000) $ 100,000
YEAR ENDED SEPTEMBER 30, 1999:
Allowance for doubtful accounts........... $ 51,836 $ 345,433 $ (10,583) $ 386,686
Allowance for unbilled contract costs..... $ 57,611 $ 688,510 -- $ 746,121
Deferred tax valuation allowance.......... $6,801,567 $4,788,539 -- $11,590,106
Allowance for obsolete inventory.......... $ 208,776 $ 870,021 -- $ 1,078,797
Reserve for product warranty expense...... -- $ 36,000 -- $ 36,000
Accrued costs for consolidation of
facilities.............................. $ 100,000 -- -- $ 100,000
</TABLE>
All other schedules have been omitted because they are not required or because
the required information is given in the Registrant's Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the
foregoing, any increase or
II-7
<PAGE>
decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The Registrant hereby undertakes that, for purposes of determining any liability
under the Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the indemnification provisions described herein, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on
October 30, 2000.
<TABLE>
<S> <C> <C>
SATCON TECHNOLOGY CORPORATION
By: /s/ DAVID B. EISENHAURE
-----------------------------------------
David B. Eisenhaure
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of SatCon Technology Corporation,
hereby severally constitute and appoint David B. Eisenhaure, Michael C.
Turmelle, and Jeffrey N. Carp, Esq., and each of them singly, our true and
lawful attorneys with full power to any of them, and to each of them singly, to
sign for us and in our names in the capacities indicated below the Registration
Statement on Form S-3 filed herewith and any and all pre-effective and
post-effective amendments to said Registration Statement and generally to do all
such things in our name and behalf in our capacities as officers and directors
to enable SatCon Technology Corporation, to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID B. EISENHAURE Chairman of the Board, President,
--------------------------------- Chief Executive Officer and Director October 30, 2000
David B. Eisenhaure (Principal Executive Officer)
Vice President of Finance, Chief
/s/ SEAN F. MORAN Financial Officer and Treasurer
--------------------------------- (Principal Financial Officer and October 30, 2000
Sean F. Moran Principal Accounting Officer)
/s/ MICHAEL C. TURMELLE Director, Vice President, Chief
--------------------------------- Operating Officer and Secretary October 30, 2000
Michael C. Turmelle
/s/ JAMES L. KIRTLEY, JR. Director, Vice President and Chief
--------------------------------- Scientist October 30, 2000
James L. Kirtley, Jr.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARSHALL J. ARMSTRONG Director
--------------------------------- October 30, 2000
Marshall J. Armstrong
/s/ ALAN P. GOLDBERG Director
--------------------------------- October 30, 2000
Alan P. Goldberg
/s/ THOMAS A. HURKMANS Director
--------------------------------- October 30, 2000
Thomas A. Hurkmans
/s/ GERALD L. WILSON Director
--------------------------------- October 30, 2000
Gerald L. Wilson
</TABLE>
II-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
To the Board of Directors of
SatCon Technology Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of SatCon Technology Corporation and its
subsidiaries and have issued our report thereon dated December 27, 1999 (except
with respect for the matter discussed in Note A for which the date is August 7,
2000). Our audit was made for the purpose of forming an opinion on those
consolidated financial statements taken as a whole. The schedule listed in Item
16(b) is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and is
not a part of the basic consolidated financial statements. This schedule has
been subjected to auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Boston, Massachusetts
December 27, 1999
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1.1(**) Form of Underwriting Agreement.
2.1 Amended and Restated Asset Purchase Agreement among SatCon
Film Microelectronics, Inc., Film Microelectronics Inc., and
Albert R. Snider, dated as of April 3, 1997, is incorporated
herein by reference to Exhibits to the Registrant's Current
Report on Form 8-K dated April 16, 1997.
2.2 Stock Purchase Agreement, dated as of October 21, 1999, by
and among the Registrant, Mechanical Technology
Incorporated, Ling Electronics, Inc. and Ling Electronics,
Ltd. is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 21,
1999.
2.3 Asset Purchase Agreement, dated as of November 16, 1999, by
and between the Registrant and Northrop Grumman Corporation
is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated November 16,
1999.
3.1 Certificate of Incorporation of the Registrant is
incorporated herein by reference to Exhibits to the
Registrant's Registration Statement on Form S-1 (File No.
33-49286).
3.2 Bylaws of the Registrant is incorporated herein by reference
to Exhibits to the Registrant's Registration Statement on
Form S-1 (File No. 33-49286).
3.3 Certificate of Amendment of Certificate of Incorporation of
the Registrant, as filed with the Secretary of State of the
State of Delaware on May 12, 1997, is incorporated herein by
reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1997.
3.4 Bylaws Amendment of the Registrant is incorporated herein by
reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1997.
3.5 Certificate of Amendment of Certificate of Incorporation of
the Registrant, as filed with the Secretary of State of the
State of Delaware on March 17, 1999, is incorporated herein
by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated August 25, 1999.
3.6 Certificate of Designation of Series and Statement of
Variations of Relative Rights, Preferences and Limitations
of Preferred Stock, dated as of August 25, 1999, relating to
the Series A Preferred Stock is incorporated herein by
reference to Exhibits to the Registrant's Current Report on
Form 8-K dated August 25, 1999.
4.1 Specimen Certificate of Common Stock, $.01 par value, is
incorporated herein by reference to Exhibits to the
Registrant's Registration Statement on Form S-1 (File No.
33-49286).
5.1(**) Opinion of Hale and Dorr LLP.
10.1(*) Employment Agreement, dated July 1, 1992, between the
Registrant and David B. Eisenhaure is incorporated herein by
reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-49286).
10.2(*) Employment Agreement, dated July 1, 1992, between the
Registrant and Michael C. Turmelle is incorporated herein by
reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-49286).
10.3 Change of Control Letter Agreement, dated March 22, 2000,
between the Registrant and Sean F. Moran is incorporated
herein by reference to Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31,
2000.
10.4(*) 1992 Stock Option Plan is incorporated herein by reference
to Exhibits to the Registrant's Registration Statement on
Form S-1 (File No. 33-49286).
10.5(*) 1994 Stock Option Plan is incorporated herein by reference
to Exhibits to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.6(*) 1996 Stock Option Plan is incorporated herein by reference
to Exhibits to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1996.
10.7(*) 1998 Stock Incentive Plan is incorporated herein by
reference to Exhibit B to the Registrant's Definitive
Schedule 14A filed January 26, 1999.
10.8(*) 1999 Stock Incentive Plan is incorporated herein by
reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1999.
10.9 Lease, dated October 21, 1993, between the Registrant and
Gunwyn/First Street Limited Partnership is incorporated
herein by reference to Exhibits to the Registrant's
Registration Statement on Form S-1 (File No. 33-49286).
10.10 Manufacturing Agreement between Applied Materials, Inc. and
its wholly-owned subsidiaries and the Registrant, dated as
of February 20, 1997, is incorporated herein by reference to
Exhibits to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1997.
10.11 Securities Purchase Agreement, dated as of May 28, 1997, by
and among the Registrant, Beacon Power Corporation and DQE
Enterprises, Inc. is incorporated herein by reference to
Exhibits to the Registrant's Current Report on Form 8-K
dated May 28, 1997.
10.12 Securities Purchase Agreement, dated as of October 23, 1998,
by and among Beacon Power Corporation, Perseus Capital,
L.L.C., DQE Enterprises, Inc., Micro Generation Technology
Fund, L.L.C. and the Registrant is incorporated herein by
reference to Exhibits to the Registrant's Current Report on
Form 8-K dated October 23, 1998.
10.13 Amended and Restated License Agreement, dated as of October
23, 1998, by and between the Registrant and Beacon Power
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
23, 1998.
10.14 Registration Rights Statement, dated as of October 23, 1998,
by and among Beacon Power Corporation, Perseus Capital,
L.L.C., DQE Enterprises, Inc., Micro Generation Technology
Fund, L.L.C., and the Registrant, setting forth certain
registration rights granted by the Registrant is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 23,
1998.
10.15 Registration Rights Statement, dated as of October 23, 1998,
by and among Beacon Power Corporation, Perseus Capital,
L.L.C., DQE Enterprises, Inc., Micro Generation Technology
Fund, L.L.C. and the Registrant, setting forth certain
registration rights granted by Beacon Power Corporation is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 23,
1998.
10.16 Lease, dated February 27, 1996, by and between the
Registrant and Diamond Management, Inc. is incorporated
herein by reference to Exhibits to the Registrant's Annual
Report on Form 10-K for the year ended September 30, 1998.
10.17 Lease, dated March 5, 1998, by and between the Registrant
and Harold W. Slovin is incorporated herein by reference to
Exhibits to the Registrant's Annual Report on Form 10-K for
the year ended September 30, 1998.
10.18 North America Distributor Agreement, dated June 4, 1998, by
and between SatCon Film Microelectronics, Inc., a division
of the Registrant, and Falcon Electronics, Inc. is
incorporated herein by reference to Exhibits to the
Registrant's Annual Report on Form 10-K for the year ended
September 30, 1998.
10.19 Asset Purchase Agreement, dated as of January 4, 1999, among
K&D MagMotor Corp., the Registrant, Inductive Components,
Inc., Lighthouse Software, Inc. and Thomas Glynn is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated January 4,
1999.
10.20 Asset Purchase Agreement, dated as of March 31, 1999, by and
between HyComp, Inc. and HyComp Acquisition Corp., a
wholly-owned subsidiary of the Registrant, is
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
incorporated herein by reference to Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1999.
10.21 Note Purchase Agreement, dated as of June 22, 1999, by and
among Beacon Power Corporation, Perseus Capital, L.L.C., DQE
Enterprises, Inc., Micro Generation Technology Fund, L.L.C.
and the Registrant is incorporated herein by reference to
Exhibits to the Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1999.
10.22 Note and Warrant Purchase Agreement, dated as of August 2,
1999, by and among Beacon Power Corporation, Perseus
Capital, L.L.C., DQE Enterprises, Inc., Micro Generation
Technology Fund, L.L.C. and the Registrant is incorporated
herein by reference to Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30,
1999.
10.23 License and Technical Assistant Agreement, dated as of June
7, 1999, by and between Delco Remy America, Inc. and the
Registrant is incorporated herein by reference to Exhibits
to the Registrant's Amendment No. 1 to the Quarterly Report
on Form 10-Q for the period ended March 31, 1999.
10.24 Securities Purchase Agreement, dated as of August 25, 1999,
among the Registrant and the purchasers listed on Schedule I
thereto is incorporated herein by reference to Exhibits to
the Registrant's Current Report on Form 8-K dated August 25,
1999.
10.25 Registration Rights Agreement, dated as of August 25, 1999,
among the Registrant and the investors named on the
signature pages thereof is incorporated herein by reference
to Exhibits to the Registrant's Current Report on Form 8-K
dated August 25, 1999.
10.26 Form of Warrants issued on August 25, 1999 in connection
with the sale of the Series A Preferred Stock is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated August 25,
1999.
10.27 Securities Purchase Agreement, dated as of October 21, 1999,
between the Registrant and Mechanical Technology
Incorporated is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
21, 1999.
10.28 SatCon Registration Rights Agreement, dated as of October
21, 1999, between the Registrant and Mechanical Technology
Incorporated is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
21, 1999.
10.29 MTI Registration Rights Agreement, dated as of October 21,
1999, between Mechanical Technology Incorporated and the
Registrant is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated October
21, 1999.
10.30 Form of Stock Purchase Warrant issued on October 21, 1999 by
the Registrant to Mechanical Technology Incorporated is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 21,
1999.
10.31 Form of Stock Purchase Warrant issued on October 21, 1999 by
Mechanical Technology Incorporated to the Registrant is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated October 21,
1999.
10.32 Sublease, dated November 16, 1999, between the Registrant
and Northrop Grumman Corporation is incorporated herein by
reference to Exhibits to the Registrant's Current Report on
Form 8-K dated November 16, 1999.
10.33 Transition Services Agreement, dated as of November 16,
1999, between the Registrant and Northrop Grumman
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated
November 16, 1999.
10.34 Memorandum of Understanding, entered into on November 16,
1999, between the Registrant and Northrop Grumman
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated
November 16, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.35 Registration Rights Agreement, dated as of November 16,
1999, between the Registrant and Northrop Grumman
Corporation is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated
November 16, 1999.
10.36 Form of Stock Purchase Warrant issued on November 16, 1999
by the Registrant to Northrop Grumman Corporation is
incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated November 16,
1999.
10.37 Stock Purchase Warrant issued on February 4, 2000 by the
Registrant to Northrop Grumman Corporation is incorporated
herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the period ended December 31, 1999.
10.38 Promissory Note, dated October 6, 1999, made in favor of the
Registrant by Michael C. Turmelle in the amount of $10,000,
together with Promissory Note, dated December 6, 1999, made
in favor of the Registrant by Michael C. Turmelle in the
amount of $75,000, is incorporated herein by reference to
the Registrant's Quarterly Report on Form 10-Q for the
period ended December 31, 1999.
10.39 Demand Promissory Note, dated February 25, 2000, made in
favor of the Registrant by Beacon Power Corporation in the
amount of $300,000, together with First Amendment to Demand
Promissory Note, dated March 16, 2000 is incorporated by
reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 2000.
10.40 Consulting Agreement, dated July 17, 2000, between the
Registrant and Marshall J. Armstrong is incorporated herein
by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 2000.
16 Letter Regarding Registrant's Change in Certifying
Accountant is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated May 12,
1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
</TABLE>
------------------------
(*) Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to the Annual Report on Form 10-K for the year ended
September 30, 1999.
(**) To be filed by amendment.
