<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
AMENDMENT NO. 2 TO FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 1-11512
------------------------
SATCON TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
------------------------
State of Incorporation: DELAWARE I.R.S. Employer ID. No.: 04-2857552
161 FIRST STREET
CAMBRIDGE, MA 02142-1221
(Address of principal executive offices)
(617) 661-0540
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value,
13,698,466 shares outstanding as of May 5, 2000.
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<PAGE>
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ITEM 1: RESTATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (As restated) (Unaudited)....... 1
Consolidated Statements of Operations (As restated)
(Unaudited)............................................... 2
Consolidated Statement of Changes in Stockholders' Equity
(As restated) (Unaudited)................................. 3
Consolidated Statements of Cash Flows (As restated)
(Unaudited)............................................... 4
Notes to Interim Consolidated Financial Statements
(Unaudited)............................................... 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 14
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................... 19
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........... 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... 20
ITEM 5. OTHER INFORMATION................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 21
SIGNATURE................................................... 22
EXHIBIT INDEX............................................... 23
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: RESTATED FINANCIAL STATEMENTS
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(AS RESTATED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------ -------------
(UNAUDITED)
------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,746,244 $ 2,533,072
Accounts receivable, net of allowance of $441,208 at
March 31, 2000 and $386,686 at September 30, 1999....... 6,623,053 2,799,143
Unbilled contract costs and fees, net of allowance of
$746,121 at March 31, 2000 and September 30, 1999....... 1,255,581 1,462,201
Inventory................................................. 7,613,256 3,697,972
Loan to Beacon Power Corporation.......................... 300,000 --
Prepaid expenses and other current assets................. 535,771 349,070
------------ ------------
Total current assets.................................... 26,073,905 10,841,458
Investment in Beacon Power Corporation...................... -- 414,729
Warrants to purchase Mechanical Technology Incorporated
common stock.............................................. 5,708,949 --
Property and equipment, net................................. 4,585,628 3,260,632
Intangibles, net............................................ 9,732,692 3,194,609
Other long-term assets...................................... 219,771 103,675
------------ ------------
Total assets............................................ $46,320,945 $ 17,815,103
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,443,741 $ 1,563,605
Accrued payroll and payroll related expenses.............. 1,015,331 479,888
Deferred revenue.......................................... 436,375 113,179
Funding commitment to Beacon Power Corporation............ -- 333,333
Other accrued expenses.................................... 1,135,425 620,874
Current portion of long-term debt......................... 16,848 16,226
------------ ------------
Total current liabilities............................... 4,047,720 3,127,105
Long-term debt, net of current portion...................... 25,602 33,871
Other long-term liabilities................................. 29,735 29,735
Contingent obligation to Class D preferred stockholders of
Beacon Power Corporation.................................. 5,605,990 5,309,115
Redeemable convertible preferred stock...................... -- 4,894,112
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares
authorized; none and 8,000 shares Series A redeemable
convertible preferred stock issued and outstanding at
March 31, 2000 and September 30, 1999, respectively..... -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 13,663,382 and 9,617,009 shares issued at
March 31, 2000 and September 30, 1999, respectively..... 136,634 96,170
Additional paid-in capital................................ 71,610,617 37,074,161
Shares held in escrow, at market value; 42,860 shares at
March 31, 2000 and September 30, 1999................... (1,117,039) (428,600)
Amounts receivable from exercise of stock options......... (700,001) (1,816,667)
Accumulated deficit....................................... (35,262,786) (30,254,195)
Accumulated other comprehensive income.................... 2,194,177 --
Treasury stock, at cost; 44,500 shares at March 31, 2000
and September 30, 1999.................................. (249,704) (249,704)
------------ ------------
Total stockholders' equity.............................. 36,611,898 4,421,165
------------ ------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity....................... $46,320,945 $ 17,815,103
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AS RESTATED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Product revenue............................ $ 5,648,570 $ 1,772,226 $ 8,810,075 $ 3,766,753
Funded research and development revenue.... 1,895,857 1,889,994 3,290,759 3,620,566
----------- ----------- ----------- -----------
Total revenue............................ 7,544,427 3,662,220 12,100,834 7,387,319
Cost of product revenue.................... 4,885,985 1,915,144 7,887,163 3,438,821
----------- ----------- ----------- -----------
Gross margin............................... 2,658,442 1,747,076 4,213,671 3,948,498
----------- ----------- ----------- -----------
Research and development expenses.......... 1,892,822 1,465,434 3,616,017 2,894,375
Selling, general and administrative
expenses................................. 2,420,168 1,028,748 4,452,704 2,018,328
Amortization of intangibles................ 328,955 94,035 571,563 171,793
----------- ----------- ----------- -----------
Total operating expenses................... 4,641,945 2,588,217 8,640,284 5,084,496
----------- ----------- ----------- -----------
Operating loss............................. (1,983,503) (841,141) (4,426,613) (1,135,998)
Loss from Beacon Power Corporation......... (148,438) (1,382,942) (711,604) (2,822,963)
Other income/(loss)........................ 14,308 (9,012) 11,525 (9,012)
Interest income............................ 86,033 11,803 120,156 32,070
Interest expense........................... (1,147) (28,548) (2,055) (28,548)
----------- ----------- ----------- -----------
Net loss................................... (2,032,747) (2,249,840) (5,008,591) (3,964,451)
Accretion of redeemable convertible
preferred stock discount................. (2,949,944) -- (3,105,888) --
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders............................. $(4,982,691) $(2,249,840) $(8,114,479) $(3,964,451)
=========== =========== =========== ===========
Net loss per weighted average share, basic
and diluted.............................. $ (0.40) $ (0.25) $ (0.70) $ (0.44)
=========== =========== =========== ===========
Weighted average number of common shares,
basic and diluted........................ 12,398,497 9,059,082 11,595,763 9,019,666
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(AS RESTATED)
(UNAUDITED)
<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, 1999 (as
restated).................... 9,617,009 $96,170 $37,074,161 42,860 $ (428,600) $(1,816,667) $(30,254,195)
Net loss....................... -- -- -- -- -- -- (5,008,591)
Common stock issued in
connection with Ling
acquisition.................. 770,000 7,700 7,748,656 -- -- -- --
Common stock issued in
connection with MTI
investment................... 1,030,000 10,300 6,964,926 -- -- -- --
MTI warrants received in
connection with MTI
investment................... -- -- 3,495,438 -- -- -- --
Valuation adjustment for MTI
warrants..................... -- -- -- -- -- -- --
Common stock issued in
connection with NGC
acquisition.................. 578,761 5,788 5,465,770 -- -- -- --
Conversion of redeemable
preferred stock into common
stock........................ 1,025,641 10,256 7,989,744 -- -- -- --
Exercise of common stock
options...................... 623,971 6,240 4,962,978 -- -- 1,116,666 --
Exercise of common stock
warrants..................... 18,000 180 140,220 -- -- -- --
Valuation adjustment for common
stock held in escrow......... -- -- 688,439 -- (688,439) -- --
Amortization of deferred
consulting expense related to
shares held in escrow........ -- -- 186,173 -- -- -- --
Accretion of redeemable
convertible preferred stock
discount..................... -- -- (3,105,888) -- -- -- --
Foreign currency translation
adjustment................... -- -- -- -- -- -- --
---------- -------- ----------- ------ ----------- ----------- ------------
Balance, March 31, 2000........ 13,663,382 $136,634 $71,610,617 42,860 $(1,117,039) $ (700,001) $(35,262,786)
========== ======== =========== ====== =========== =========== ============
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE TREASURY TREASURY STOCKHOLDERS'
INCOME/(LOSS) SHARES STOCK EQUITY
-------------- -------- --------- -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1999 (as
restated).................... -- 44,500 $(249,704) $ 4,421,165
Net loss....................... -- -- -- (5,008,591)
Common stock issued in
connection with Ling
acquisition.................. -- -- -- 7,756,356
Common stock issued in
connection with MTI
investment................... -- -- -- 6,975,226
MTI warrants received in
connection with MTI
investment................... -- -- -- 3,495,438
Valuation adjustment for MTI
warrants..................... 2,213,511 -- -- 2,213,511
Common stock issued in
connection with NGC
acquisition.................. -- -- -- 5,471,558
Conversion of redeemable
preferred stock into common
stock........................ -- -- -- 8,000,000
Exercise of common stock
options...................... -- -- -- 6,085,884
Exercise of common stock
warrants..................... -- -- -- 140,400
Valuation adjustment for common
stock held in escrow......... -- -- -- --
Amortization of deferred
consulting expense related to
shares held in escrow........ -- -- -- 186,173
Accretion of redeemable
convertible preferred stock
discount..................... -- -- -- (3,105,888)
Foreign currency translation
adjustment................... (19,334) -- -- (19,334)
----------- ------ --------- -----------
Balance, March 31, 2000........ $ 2,194,177 44,500 $(249,704) $36,611,898
=========== ====== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
SATCON TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AS RESTATED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(5,008,591) $(3,964,451)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 977,691 467,089
Allowance for doubtful accounts....................... 54,522 48,164
Allowance for inventory excess and obsolescence....... 150,000 491,071
Loss from Beacon Power Corporation.................... 711,604 2,822,963
Loss on sale of marketable securities................. -- 9,012
Non-cash compensation expense related to issuance of
common stock options to non-employees............... -- 56,362
Non-cash compensation expense related to common stock
held in escrow...................................... 186,173 --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable................................... (1,941,409) 34,420
Unbilled contract costs and fees...................... 206,620 (1,357,776)
Prepaid expenses and other current assets............. 73,538 390
Inventory............................................. 268,707 (1,413,350)
Other long-term assets................................ (76,281) 554,131
Accounts payable...................................... (761,551) 14,115
Accrued expenses and payroll.......................... 47,920 127,789
Other liabilities..................................... 309,696 39,478
----------- -----------
Total adjustments....................................... 207,230 1,893,858
----------- -----------
Net cash used in operating activities....................... (4,801,361) (2,070,593)
----------- -----------
Cash flows from investing activities:
Sales and maturities of marketable securities............. -- 262,504
Patent and intangible expenditures........................ (94,718) (40,167)
Purchase of property and equipment........................ (368,076) (196,170)
Cash used in acquisitions................................. (24,054) (245,876)
Loan to Beacon Power Corporation.......................... (300,000) --
Investment in Beacon Power Corporation.................... (333,333) (30,000)
----------- -----------
Net cash used in investing activities....................... (1,120,181) (249,709)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit........................... -- 1,521,481
Repayment of borrowings................................... (7,647) (100,000)
Net proceeds from issuance of common stock................ 6,975,226 --
Proceeds from exercise of stock options and warrants...... 6,226,284 --
Purchase of treasury stock................................ -- (76,628)
Deferred financing fees................................... (39,815) --
----------- -----------
Net cash provided by financing activities................... 13,154,048 1,344,853
----------- -----------
Effect of foreign currency exchange rates on cash and cash
equivalents............................................... (19,334) --
----------- -----------
Net increase/(decrease) in cash and cash equivalents........ 7,213,172 (975,449)
Cash and cash equivalents at beginning of period............ 2,533,072 1,201,610
----------- -----------
Cash and cash equivalents at end of period.................. $ 9,746,244 $ 226,161
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of SatCon Technology Corporation and its majority-owned subsidiaries
(collectively, the "Company") as of March 31, 2000 and have been prepared by the
Company in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All intercompany accounts and transactions have been
eliminated. These consolidated financial statements, which in the opinion of
management reflect all adjustments (including normal recurring adjustments)
necessary for a fair presentation, should be read in conjunction with the
financial statements and notes thereto included in the Company's Amendment
No. 2 to its Annual Report on Form 10-K for the year ended September 30, 1999.
Operating results for the three-month and six-month periods ended March 31, 2000
are not necessarily indicative of the results that may be expected for any
future interim period or for the entire fiscal year.
The financial statements as of September 30, 1999 and for the three and six
month periods ended March 31, 1999 and 2000 have been restated. The Company has
determined that the recapitalization of Beacon Power Corporation on
December 24, 1997 did not qualify as a divestiture of a subsidiary for
accounting purposes in accordance with 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 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. In June 1999, in connection with a bridge note financing at
Beacon Power, the Company determined that risks and other incidents of ownership
of Beacon Power had passed with sufficient certainty to other investors and the
Company began accounting for its investment in Beacon Power under the equity
method of accounting. The Company has recorded the face value of and cumulative
dividends on Beacon Power's Class D preferred stock issued on October 23, 1998
as an additional investment in Beacon Power. The Class D preferred stockholders
of Beacon Power have the right to require the Company to purchase their shares
of Class D preferred stock in certain events. While the Company currently
believes that the Class D preferred stockholders will not exercise this right,
the Company has recorded the face value and the cumulative dividends as a
liability.
In addition as of March 31, 2000, the Company has restated its balance sheet
to record the fair value of warrants received from Mechanical Technology
Incorporated in connection with the Company's October 1999 and January 2000
issuance of common stock to Mechanical Technology Incorporated. See Note C for
additional discussion.
The financial statements reflect the following changes:
- As of September 30, 1999, the Company recorded its net investment balance
in Beacon Power of $414,729 and its contingent obligation to the Class D
preferred stockholders of Beacon Power of $5,309,115.
- The Company's share of Beacon Power's net loss for the three and six
months ended March 31, 2000 and 1999 increased by $148,438, $711,604,
$1,382,942, and $2,792,963, respectively.
- As of March 31, 2000, the Company has recorded the contingent obligation
to the Class D preferred stockholders of Beacon Power of $5,605,990.
5
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- As of March 31, 2000, the Company has recorded the fair value of the
warrants to purchase Mechanical Technology Incorporated common stock of
$5,708,949 and has recorded an unrealized gain of $2,213,511.
The as restated and as reported consolidated statements of operations data
and consolidated balance sheet data follows:
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
--------------------------------
AS RESTATED AS REPORTED
--------------- --------------
<S> <C> <C>
Loss from Beacon Power Corporation......................... $ (148,438) $ --
Net loss................................................... (2,032,747) (1,884,309)
Net loss attributable to common stockholders............... (4,982,691) (4,834,253)
Net loss per weighted average share, basic and diluted..... (0.40) (0.39)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
--------------------------------
AS RESTATED AS REPORTED
--------------- --------------
<S> <C> <C>
Loss from Beacon Power Corporation......................... $(1,382,942) $ --
Net loss attributable to common stockholders............... (2,249,840) (866,898)
Net loss per weighted average share, basic and diluted..... (0.25) (0.10)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 2000
--------------------------------
AS RESTATED AS REPORTED
--------------- --------------
<S> <C> <C>
Loss from Beacon Power Corporation......................... $ (711,604) $ --
Net loss................................................... (5,008,591) (4,296,987)
Net loss attributable to common stockholders............... (8,114,479) (7,402,875)
Net loss per weighted average share, basic and diluted..... (0.70) (0.64)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1999
--------------------------------
AS RESTATED AS REPORTED
--------------- --------------
<S> <C> <C>
Loss from Beacon Power Corporation......................... $ (2,822,963) $ (30,000)
Net loss attributable to common stockholders............... (3,964,451) (1,171,488)
Net loss per weighted average share, basic and diluted..... (0.44) (0.13)
</TABLE>
6
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
--------------------------- ---------------------------
AS RESTATED AS REPORTED AS RESTATED AS REPORTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in Beacon Power Corporation...... $ -- $ -- $ 414,729 $ --
Warrants to purchase Mechanical Technology
Incorporated common stock.................. 5,708,949 -- -- --
Total assets................................ 46,320,945 40,611,996 17,815,103 17,400,374
Funding commitment to Beacon Power
Corporation................................ -- -- 333,333 333,333
Contingent obligation to Class D preferred
stockholders of Beacon Power Corporation... 5,605,990 -- 5,309,115 --
Additional paid-in-capital.................. 71,610,617 68,115,179 37,074,161 37,074,161
Accumulated deficit......................... (35,262,786) (29,656,796) (30,254,195) (25,359,809)
Accumulated other comprehensive
income/(loss).............................. 2,194,177 (19,334) -- --
Total liabilities, redeemable convertible
preferred stock and stockholders' equity... 46,320,945 40,611,996 17,815,103 17,400,374
</TABLE>
The financial statements for fiscal 1997, 1998 and 1999 had previously been
restated in connection with the initial audit of Beacon Power. For a discussion
of that restatement, see Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements and notes
thereto included in the Company's Amendment No. 1 to the Annual Report on
Form 10-K as filed on August 15, 2000. The financial statements for the three
and six months ended March 31, 1999 and six months ended March 31, 2000 have
also been previously restated. For a discussion of that restatement, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto included in the
Company's Amendment No. 1 to Form 10-Q for the quarterly period ended March 31,
2000 as filed on August 18, 2000. The as reported financial information
presented here includes the effects of the August 15 and 18, 2000 restatements.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
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 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, the Company receives periodic progress payments or payment 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 March 31, 2000, the Company has accrued $50,000 for
anticipated contract losses. There were no anticipated contract losses at
September 30, 1999.
7
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Deferred revenue consists of payments received from customers in advance of
services performed, product shipped or installation completed.
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 $163,689 and $282,746 at March 31,
2000 and September 30, 1999, respectively.
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.
NOTE C. SIGNIFICANT EVENTS
INVESTMENT IN BEACON POWER CORPORATION
The Company accounts for its investment in Beacon Power under the equity
method of accounting. During the three and six months ended March 31, 2000, the
Company recorded its share of Beacon Power's losses of $148,438 and $711,604,
respectively. The Company's investment in Beacon Power was reduced to zero as of
December 31, 1999. 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. At March 31,
2000, the contingent obligation to the Class D preferred stockholders is
$5,405,990 consisting of $4,750,000 face value and $855,990 of cumulative
dividends. During the three and six months ended March 31, 1999, the Company
accounted for its investment in accordance with SAB 30 and included 100% of
Beacon Power's losses in its results of operations in a manner similar to the
equity method of accounting. In June 1999, in connection with a bridge note
financing at Beacon Power, the Company determined that risks and other incidents
of ownership of Beacon Power had passed with sufficient certainty to other
investors and the Company began to account for its investment in Beacon Power
under the equity method of accounting.
On January 7, 2000, the Company purchased from Beacon Power a convertible
promissory note with a principal amount of $200,000. The note bore interest at
12 1/2% per annum and was 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. At March 31, 2000 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.
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, $.01
par value per share (the "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
8
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 using the Black-Scholes option pricing model.
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 the 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 March 31, 2000, the warrants have an
unrealized gain of $2,213,511 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.
ACQUISITIONS
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 has incurred approximately $177,000 of legal, accounting,
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 revenue............................................ 13,500
Other accrued expenses...................................... 560,437
</TABLE>
The following unaudited pro forma financial information combines the
Company's and Ling Electronics' 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
9
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
occurred on the applicable dates indicated and are not intended to be indicative
of future results of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.................................... $ 7,544,427 $ 5,837,220 $12,240,423 $11,499,319
Operating loss............................. $(1,983,503) $(1,160,905) $(4,746,818) $(1,703,206)
Net loss (as restated)..................... $(2,032,747) $(2,571,945) $(5,327,475) $(4,534,659)
Net loss attributable to common
stockholders (as restated)............... $(4,982,691) $(2,571,945) $(8,433,363) $(4,534,659)
Net loss per share, basic and diluted (as
restated)................................ $(0.40) $(0.26) $(0.72) $(0.46)
</TABLE>
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 value 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 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.
PREFERRED STOCK CONVERSION
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 $2,789,031 of the
discount on redeemable preferred stock.
10
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE D. 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>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders............................ $(4,982,691) $(2,249,840) $(8,114,479) $(3,964,451)
=========== =========== =========== ===========
BASIC AND DILUTED:
Common shares outstanding, beginning of
period.................................. 11,309,210 8,978,249 9,529,649 8,990,249
Weighted average common shares issued
during the period....................... 1,089,287 83,333 2,066,114 41,667
Weighted average shares repurchased during
the period.............................. -- (2,500) -- (12,250)
----------- ----------- ----------- -----------
Weighted average shares outstanding--basic
and diluted............................. 12,398,497 9,059,082 11,595,763 9,019,666
=========== =========== =========== ===========
Net loss per weighted average share, basic
and diluted............................. $(0.40) $(0.25) $(0.70) $(0.44)
=========== =========== =========== ===========
</TABLE>
------------------------
As of March 31, 2000 and 1999, 2,646,624 and 1,374,616 common stock
equivalents, respectively, were excluded from the diluted weighted average
common shares outstanding as their effect would be antidilutive.
NOTE E. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---------- -------------
<S> <C> <C>
Raw material................................................ $3,133,147 $1,139,064
Work-in-process............................................. 2,796,395 2,199,199
Finished goods.............................................. 1,683,714 359,709
---------- ----------
$7,613,256 $3,697,972
========== ==========
</TABLE>
11
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE F. COMPREHENSIVE INCOME/(LOSS)
The Company's total comprehensive income/(loss) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C>
Net loss................................... $(2,032,747) $(2,249,840) $(5,008,591) $(3,964,451)
=========== =========== =========== ===========
Other comprehensive income/(loss), net of
tax:
Unrealized gains/(losses) on
securities............................. -- 961 -- (4,705)
Valuation adjustment for MTI warrants.... 2,265,440 -- 2,213,511 --
Foreign currency translation
adjustment............................. (6,862) -- (19,334) --
----------- ----------- ----------- -----------
Other comprehensive income/(loss).......... 2,258,578 961 2,194,177 (4,705)
----------- ----------- ----------- -----------
Comprehensive income/(loss)................ $ 225,831 $(2,248,879) $(2,814,414) $(3,969,156)
=========== =========== =========== ===========
</TABLE>
NOTE G. 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 and Ling Electronics specialize in
the engineering and manufacturing of motion control products.
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 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.
12
<PAGE>
SATCON TECHNOLOGY CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following is a summary of the Company's operations by operating segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Research and development:
Product revenue............................ $ 62,486 $ -- $ 62,486 $ --
Funded research and development revenue.... 1,895,857 1,889,994 3,290,759 3,620,566
----------- ---------- ----------- ----------
Total revenue............................ $ 1,958,343 $1,889,994 $ 3,353,245 $3,620,566
----------- ---------- ----------- ----------
Loss/(income) from operations, net of
goodwill amortization.................... $ (414,428) $ 28,652 $(1,546,898) $ (203,855)
=========== ========== =========== ==========
Power electronic products:
Product revenue............................ $ 1,701,393 $1,270,434 $ 3,509,401 $2,488,816
----------- ---------- ----------- ----------
Loss from operations, net of goodwill
amortization............................. $(1,005,793) $ (561,375) $(1,383,576) $ (673,770)
=========== ========== =========== ==========
Motion control products:
Product revenue............................ $ 3,884,691 $ 501,792 $ 5,238,188 $1,277,937
----------- ---------- ----------- ----------
Loss from operations, net of goodwill
amortization............................. $ (234,327) $ (214,383) $ (924,576) $ (86,580)
=========== ========== =========== ==========
</TABLE>
The following is a summary of the Company's long-lived assets excluding
investment in Beacon Power Corporation and warrants to purchase Mechanical
Technology Incorporated common stock, by operating segment:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---------- -------------
<S> <C> <C>
Research and development:
Long-lived assets................................. $6,164,623 $1,717,228
---------- ----------
Power electronic products:
Long-lived assets................................. $3,738,747 $3,978,027
---------- ----------
Motion control products:
Long-lived assets................................. $4,634,721 $ 863,661
---------- ----------
</TABLE>
The Company operates and markets its services and products on a worldwide
basis with its principal markets as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue by geographic region:
United States.............................. $6,887,982 $3,662,220 $11,147,625 $7,387,319
Europe..................................... 217,735 -- 379,400 --
Asia....................................... 395,324 -- 426,241 --
Rest of world.............................. 43,386 -- 147,568 --
---------- ---------- ----------- ----------
Total revenue............................ $7,544,427 $3,662,220 $12,100,834 $7,387,319
========== ========== =========== ==========
</TABLE>
13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. The
factors include, without limitation, those set forth in Exhibit 99 to the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000,
which are expressly incorporated by reference herein.
The financial statements as of September 30, 1999 and for the three and six
month periods ended March 31, 1999 and 2000 have been restated. The Company has
determined that the recapitalization of Beacon Power Corporation on
December 24, 1997 did not qualify as a divestiture of a subsidiary for
accounting purposes in accordance with 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 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. In June 1999, in connection with a bridge note financing at
Beacon Power, the Company determined that risks and other incidents of ownership
of Beacon Power had passed with sufficient certainty to other investors and the
Company began accounting for its investment in Beacon Power under the equity
method of accounting. The Company has recorded the face value of and cumulative
dividends on Beacon Power's Class D preferred stock issued on October 23, 1998
as an additional investment in Beacon Power. The Class D preferred stockholders
of Beacon Power have the right to require the Company to purchase their shares
of Class D preferred stock in certain events. While the Company currently
believes that the Class D preferred stockholders will not exercise this right,
the Company has recorded the face value and the cumulative dividends as a
liability.
In addition as of March 31, 2000, the Company has restated its balance sheet
to record the fair value of warrants received from Mechanical Technology
Incorporated in connection with the Company's October 1999 and January 2000
issuance of common stock to Mechanical Technology Incorporated. See Note C to
the financial statements for additional discussion.
The financial statements reflect the following changes:
- As of September 30, 1999, the Company recorded its net investment balance
in Beacon Power of $415,000 and its contingent obligation to the Class D
preferred stockholders of Beacon Power of $5.3 million.
- The Company's share of Beacon Power's net loss for the three and six
months ended March 31, 2000 and 1999 increased by $148,000, $712,000,
$1,383,000, and $2,793,000, respectively.
- As of March 31, 2000, the Company has recorded the contingent obligation
to the Class D preferred stockholders of Beacon Power of $5.6 million.
- As of March 31, 2000, the Company has recorded the fair value of the
warrants to purchase Mechanical Technology Incorporated common stock of
$5.7 million and has recorded an unrealized gain of $2.2 million.
The financial statements for fiscal 1997, 1998 and 1999 had previously been
restated in connection with the initial audit of Beacon Power. For a discussion
of that restatement, see Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements and notes
thereto included in the Company's Amendment No. 1 to its Annual Report on Form
10-K as filed on August 15, 2000. The financial statements for the three and six
months ended March 31, 1999 and six months ended March 31, 2000 have also been
previously restated. For a discussion of that restatement, see Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial
14
<PAGE>
statements and notes thereto included in the Company's Amendment No. 1 to Form
10-Q for the quarterly period ended March 31, 2000, as filed on August 18, 2000.
The financial information presented here includes the effects of the August 15
and 18, 2000 restatements.
OVERVIEW
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.
On May 20, 1997, the Company formed Beacon Power. On October 23, 1998,
Beacon Power completed a $4.8 million private placement of its Class D preferred
stock and warrants to third-party investors, and the Company relinquished
significant control of Beacon Power. 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 the
Company. On April 7, 2000, Beacon Power issued 1,226,141 shares of its Class E
preferred stock and 306,535 Class E warrants in exchange for the conversion of
all of its outstanding bridge notes of which the Company received 347,407 shares
of Beacon Power's Class E preferred stock and 86,852 Class E warrants. On
April 21, 2000, Beacon Power raised an additional $4.1 million through the sale
of additional bridge notes that are convertible into Beacon Power's Class F
preferred stock. The Company did not participate in this financing.
The results of the Company's operations include $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, the Company began accounting for its
investment in Beacon Power in accordance with SAB 30 and has 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,
the Company's initial investment of $1.9 million and the additional deemed
investment of $4.8 million and accrued dividends of $410,000 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 of accounting and has
included in its results through March 31, 2000 its share of Beacon Power's
losses of $2.1 million. As of December 31, 1999, the Company's additional
investment in Beacon Power had been reduced to zero and the Company's contingent
obligation to Beacon Power's Class D preferred
15
<PAGE>
stockholders at March 31, 2000 was $5.6 million. 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.
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, an in
some situations, the payment of a fee. These contracts may contain incentive
clauses providing for increases or decreases in fees depending on how costs
compare with a budget. On fixed-price contracts, revenue is 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. Revenue from manufactured products is
recognized upon shipment, or, if the product requires installation, the revenue
is recognized upon installation of the product.
The Company has incurred significant costs to develop its technology and
products. These cost have exceeded total revenue. As a result, the Company has
incurred net losses in each of the past five fiscal years and for the six months
ended March 31, 2000. As of March 31, 2000, the Company had an accumulated
deficit of $35.2 million. The Company intends to significantly increase its
capital expenditures and operating expenses to rapidly expand its manufacturing
capabilities and for general corporate purposes, including product development
activities, sales and marketing and administrative activities. Because the
Company expects to continue to invest in its business ahead of anticipated
future revenues, the Company expects to incur operating losses for at least the
next two years.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 (AS RESTATED) AND MARCH 31,
1999 (AS RESTATED)
PRODUCT REVENUE. Product revenue increased by $3.9 million or 219% from
$1.8 million to $5.6 million. This increase was attributable to $2.7 million in
revenue from Ling Electronics and a $1.1 million increase in revenue from the
Company's microelectronics products, high performance motors and magnetic
levitation products.
FUNDED RESEARCH AND DEVELOPMENT REVENUE. Funded research and development
revenue was substantially unchanged at $1.9 million for each period. During the
three months ended March 31, 2000 the Company devoted more resources to
internally funded research and development programs including development of
power conversion products for the distributed power generation market.
GROSS MARGIN. Gross margin increased by $911,000 or 52% from $1.7 million
to $2.7 million. Gross margin from products increased by $906,000 and gross
margin from product revenue as a percentage of product revenue increased to 14%
from (8%). The improvement in gross margin from product revenue as a percentage
of revenue is due to improved plant utilization at MagMotor and also to higher
revenue and gross margin from Ling Electronics.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $427,000 or 29% from $1.5 million to $1.9 million. The increase was
attributable to the Company's increased focus on internally funded research and
development projects including the development of power conversion products for
the distributed power generation market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million or 135% from $1.0 million to
$2.4 million. The increase was primarily due to the inclusion of $725,000 of
costs from Ling Electronics, $300,000 of costs for facilities and staffing in an
effort to meet expected growth and demand for our products and in 1999 and the
deferral of $400,000 of costs associated with a research and development
contract.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by
$235,000 or 250% from $94,000 to $329,000. 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.
16
<PAGE>
LOSS FROM BEACON POWER CORPORATION. Loss from Beacon Power decreased by
$1.2 million or 89% from $1.4 million to $148,000. During the three months ended
March 31, 2000, the Company recorded $148,000 of its share of Beacon Power's
losses under the equity method of accounting. As of December 31, 1999, the
Company's investment in Beacon Power had been reduced to zero, however, the
Company continues 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 three months ended March 31, 1999, the
Company recorded 100% of Beacon Power's losses of $1.4 million in accordance
with SAB 30, in a manner similar to the equity method of accounting.
OTHER INCOME (EXPENSE), NET. Other income, net increased to $99,000 from
$26,000 of other expense, net. The increase was the result of an increase in
cash and cash equivalents being maintained in interest bearing accounts, offset
by interest expense associated with capital leases entered into during fiscal
year 1999.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 2000 (AS RESTATED) AND MARCH 31,
1999 (AS RESTATED)
PRODUCT REVENUE. Product revenue increased by $5.0 million or 134% from
$3.8 million to $8.8 million. This increase was attributable to $3.5 million in
revenue from Ling Electronics and a $1.5 million increase in revenue from the
Company's microelectronics products, high performance motors and magnetic
levitation products.
FUNDED RESEARCH AND DEVELOPMENT REVENUE. Funded research and development
revenue decreased by $330,000 or 9% from $3.6 million to $3.3 million. During
the six months ended March 31, 2000 the Company 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 $265,000 or 7% from $3.9 million to
$4.2 million. Gross margin from products increased by $595,000 and gross margin
from product revenue as a percentage of product revenue increased to 10% from
9%. The improvement in gross margin from product revenue as a percentage of
product revenue is due to gross margin from Ling Electronics, offset by a
decrease in gross margin from the Company's microelectronics products, high
performance motors and magnetic levitation products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $722,000 or 25% from $2.9 million to $3.6 million. The increase was
attributable to the Company's 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 increased $2.4 million or 121% from $2.0 million to
$4.5 million. The increase was primarily due to $1.2 million of costs from Ling
Electronics, $600,000 of costs for facilities and staffing in an effort to meet
expected growth and demand for our products and in 1999, the deferral of
$700,000 of costs associated with a research and development contract.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased $400,000
or 233% from $172,000 to $572,000. 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
Corporation in November 1999.
LOSS FROM BEACON POWER CORPORATION. Loss from Beacon Power decreased by
$2.1 million or 75% from $2.8 million to $711,000. During the six months ended
March 31, 2000, the Company recorded $711,000 of Beacon Power's losses under the
equity method of accounting. As of December 31, 1999, the Company's investment
in Beacon Power had been reduced to zero, however, the Company continues 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 six months ended March 31, 1999, the Company recorded 100% of Beacon
Power's losses of $2.8 million in accordance with SAB 30, in a manner similar to
the equity method of accounting.
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OTHER INCOME (EXPENSE), NET. Other income, net increased to $130,000 from
$5,000 of other expense, net. The increase was the result of an increase in cash
and cash equivalents being maintained in interest bearing accounts, offset by
interest expense associated with capital leases entered into during fiscal year
1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily through the sale of private equity
securities, public security offerings, borrowings on its line of credit and
capital equipment leases.
As of March 31, 2000, the Company's cash and cash equivalents were
$9.7 million, an increase of $7.2 million from September 30, 1999. Cash used in
operating activities for the six months ended March 31, 2000 was $4.8 million as
compared to $2.1 million in 1999. Cash used in operating activities during the
six months ended March 31, 2000 was primarily attributable to the Company's net
loss and an increase in accounts receivable partially offset by depreciation and
amortization.
Cash used in investing activities during the six months ended March 31, 2000
was $1.1 million as compared to $250,000 in 1999. Net cash used in investing
activities during the six months ended March 31, 2000 included capital
expenditures of $368,000, an investment in Beacon Power of $333,000 and a loan
to Beacon Power for $300,000, which was repaid on April 27, 2000. The Company
estimates that it will spend an additional $2.0 million on capital expenditures
during the next 12 months primarily at its Advanced Fuel Cell Division to expand
its capacity to manufacture its power conversion products. The Company expects
these additions will be financed from cash on hand and from lease financing.
Cash provided by financing activities for the six months ended March 31,
2000 was $13.2 million as compared to $1.3 million in 1999. Net cash provided by
financing activities during the six months ended March 31, 2000 includes net
proceeds of $7.0 million from the sale of the Company's Common Stock and
$6.2 million from the exercise of Common Stock options and warrants.
On October 23, 1998, the Company granted the purchasers of Beacon Power's
Class D redeemable preferred stock the right to cause the Company 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,
the Company 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 its
common stock. The Company has recorded as of March 31, 2000, the face value of
the put right of $4.8 million plus cumulative dividends of $856,000 as a
liability. If the put right is exercised, the Company 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.
The Company anticipates that the existing $9.7 million in cash and cash
equivalents will be sufficient to fund operations for at least the next twelve
months. However, there can be no assurance that the Company will not require
additional financings within this time frame or that any additional financing,
if needed, will be available to the Company on terms acceptable to the Company,
if any.
EFFECTS OF INFLATION
The Company believes that inflation and changing prices over the past three
years have not had a significant impact on its net revenue or on its income from
continuing operations.
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
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<PAGE>
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 the Company will record a
cumulative adjustment to reflect the impact of adopting this accounting
standard. The Company currently does not expect that the adoption of SFAS
No. 133 will have a material impact on its financial condition or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Bulletin No. 101 (SAB No. 101), "Revenue Recognition." This bulletin, as
amended, establishes guidelines for revenue recognition and is effective for all
periods beginning after March 15, 2000. 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 No. 25,
including (a) the definition of employees for purposes of applying Opinion
No. 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company develops products in the United States and sells them worldwide.
As a result, the Company's financial results could be affected by factors such
as changes in foreign exchange rates or weak economic conditions in foreign
markets. Since the Company's sales are currently priced in U.S. dollars and are
translated to local currency amounts, a strengthening of the dollar could make
the Company's products less competitive in foreign markets. Interest income and
expense are sensitive to changes in the general level of U.S. interest rates,
particularly since the Company's investments are in short-term instruments and
the Company's available line of credit requires interest payments calculated at
variable rates. Based on the nature and current levels of the Company's
investments and debt, however, the Company has concluded that there is no
material market risk exposure.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
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. Department of Energy and that the Company had
failed or refused to negotiate a subcontract with APACE. APACE is seeking
$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. At this time, the
arbitration is still going forward in Boston, and an arbitrator has been
selected. The arbitration is scheduled to commence on June 1, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
RECENT SALES OF UNREGISTERED SECURITIES
On October 21, 1999, in connection with an investment, the Company issued
370,800 shares of its Common Stock to Mechanical Technology Incorporated. In
addition, the Company issued to Mechanical Technology Incorporated a warrant to
purchase 36,000 shares of its 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 659,200
shares of its Common Stock and a warrant to purchase 64,000 shares of its Common
Stock at an exercise price of $8.80 per share. This warrant expires on
January 31, 2004. Both the Common Stock and the warrants were issued in reliance
upon the exemptions from registration under Section 4(2) of the Securities Act
of 1933, as amended, or Regulation D promulgated thereunder, relative to sales
by an issuer not involving any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
At the Company's Annual Meeting of Stockholders (the "Annual Meeting") held
on March 15, 2000, the Company's stockholders approved the following:
<TABLE>
<CAPTION>
AGAINST/ BROKER
PROPOSAL FOR WITHHELD ABSTAIN NON-VOTES
-------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
(1) To elect the following Class III Directors:
Marshall J. Armstrong........................ 10,210,787 0 310,190 0
Thomas A. Hurkmans........................... 10,210,687 0 310,290 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AGAINST/ BROKER
PROPOSAL FOR WITHHELD ABSTAIN NON-VOTES
-------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
</TABLE>
The other directors of the Company, whose terms of office as directors
continued after the Annual Meeting are David B. Eisenhaure, James L. Kirtley,
Jr., Ph.D, Michael C. Turmelle and Alan P. Goldberg.
<TABLE>
<S> <C> <C> <C> <C>
(2) To approve an amendment to the Company's
Certificate of Incorporation increasing from
20,000,000 to 25,000,000 the number of
authorized shares of Common Stock........... 10,211,184 299,443 10,350 2,500
(3) To approve the Company's 1999 Stock
Incentive Plan.............................. 6,803,079 511,356 18,140 3,190,902
(4) To ratify the selection of Arthur Andersen
LLP as independent auditors for the fiscal
year ending September 30, 2000.............. 10,416,874 94,255 9,848 2,500
</TABLE>
ITEM 5. OTHER INFORMATION:
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(A) EXHIBITS
<TABLE>
<S> <C>
10.1 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.
10.2 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 herein
by reference to Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 2000.
27 Financial Data Schedule.
99 Risk Factors are incorporated herein by reference to Exhibit
99 to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 2000.
</TABLE>
(B) REPORTS ON FORM 8-K
On January 4, 2000, the Company filed a Current Report on Form 8-K/A, dated
October 21, 1999, in connection with the Company's acquisition of Ling
Electronics, Inc. and Ling Electronics, Ltd. from Mechanical Technology
Incorporated.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
SATCON TECHNOLOGY CORPORATION
By: /s/ SEAN F. MORAN
-----------------------------------------
SEAN F. MORAN, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
Date: September 18, 2000 OFFICER)
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- ------------------------------------------------------------
<S> <C>
10.1 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.
10.2 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 herein
by reference to Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 2000.
27 Financial Data Schedule.
99 Risk Factors are incorporated herein by reference to Exhibit
99 to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 2000.
</TABLE>
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