10-Q/A 1 a10-qa.txt FORM 10-Q/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q/A AMENDMENT NO. 1 TO FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-11512 ______________________ SATCON TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) ______________________ State of Incorporation: DELAWARE I.R.S. Employer ID. No. 04-2857552 161 FIRST STREET CAMBRIDGE, MA 02142-1221 (Address of principal executive offices) (617) 661-0540 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value, 12,296,601 shares outstanding as of January 31, 2000. -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I: FINANCIAL INFORMATION
Page ---- Item 1: Restated Financial Statements Consolidated Balance Sheets (Unaudited).......................... 1 Consolidated Statements of Operations (As restated) (Unaudited).. 2 Consolidated Statements of Cash Flows (As restated) (Unaudited).. 3 Notes to Interim Consolidated Financial Statements (Unaudited)... 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 11 Item 3: Quantitative and Qualitative Disclosures About Market Risk..................................................... 17 PART II: OTHER INFORMATION Item 1. Legal Proceedings....................................... 18 Item 2. Changes in Securities and Use of Proceeds............... 18 Item 3. Defaults Upon Senior Securities......................... 18 Item 4. Submission of Matters to a Vote of Security Holders................................................. 18 Item 5. Other Information....................................... 18 Item 6. Exhibits and Reports on Form 8-K........................ 18 Signature....................................................... 19 Exhibit Index................................................... 20
PART I: FINANCIAL INFORMATION Item 1: Restated Financial Statements SATCON TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, September 30, ------------------ ------------------ 1999 1999 ------------------ ------------------ (Unaudited) (As restated) ASSETS Current assets: Cash and cash equivalents ....................................... $ 3,173,619 $ 2,533,072 Accounts receivable, net of allowance of $469,119 at December 31, 1999 and $386,686 at September 30, 1999............ 3,885,049 2,799,143 Unbilled contract costs, net of allowance of $746,121 at December 31, 1999 and September 30, 1999........................ 1,058,150 1,462,201 Inventory ........................................................ 8,187,440 3,697,972 Prepaid expenses and other current assets......................... 502,250 349,070 ------------ ------------ Total current assets............................................ 16,806,508 10,841,458 Property and equipment, net....................................... 4,542,414 3,260,632 Intangibles, net ................................................. 9,793,710 3,194,609 Other long-term assets............................................ 184,557 103,675 ------------ ------------ Total assets..................................................... $ 31,327,189 $ 17,400,374 ============ ============ LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................... $ 1,358,848 $ 1,563,605 Accrued payroll and payroll related expenses........................ 833,999 479,888 Deferred revenue.................................................... 107,725 113,179 Other accrued expenses.............................................. 1,080,130 620,874 Accrued loss in investment in Beacon Power Corporation.............. -- 333,333 Current portion of long-term debt................................... 16,535 16,226 ------------ ------------ Total current liabilities......................................... 3,397,237 3,127,105 Long-term liabilities: Long-term debt...................................................... 29,619 33,871 Other long-term liabilities......................................... 29,735 29,735 ------------ ------------ Total long-term liabilities....................................... 59,354 63,606 Commitments and contingencies......................................... -- -- Redeemable convertible preferred stock ............................... 5,050,056 4,894,112 Stockholders' equity: Preferred stock; $.01 par value, 1,000,000 shares authorized; 8,000 shares Series A redeemable convertible preferred stock issued and outstanding at December 31, 1999 and September 30, 1999............................................... -- -- Common stock, $.01 par value, 20,000,000 shares authorized; 11,396,570 and 9,617,009 shares issued at December 31, 1999 and September 30, 1999, respectively............................ 113,966 96,170 Additional paid-in capital......................................... 52,915,521 37,074,161 Shares held in escrow, at market; 42,860 shares at December 31, 1999 and September 30, 1999......................... (357,615) (428,600) Amounts receivable from exercise of stock options.................. (1,816,667) (1,816,667) Accumulated deficit................................................ (27,772,487) (25,359,809) Accumulated other comprehensive loss............................... (12,472) -- Treasury stock, at cost; 44,500 shares at December 31, 1999 and September 30, 1999............................................... (249,704) (249,704) ------------ ------------ Total stockholders' equity....................................... 22,820,542 9,315,551 ------------ ------------ Total liabilities, redeemable convertible preferred stock and stockholders' equity................................. $31,327,189 $ 17,400,378 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 1 SATCON TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (As restated) (Unaudited)
For the three months ended December 31, 1999 1998 ------------------ ------------------ Product revenue..................................................... $ 3,161,505 $ 1,994,527 Funded research and development revenue............................. 1,394,902 1,730,572 ----------- ----------- Total revenue....................................................... 4,556,407 3,725,099 Cost of product revenue............................................. 3,001,178 1,523,677 ----------- ----------- Gross margin........................................................ 1,555,229 2,201,422 Research and development expenses................................... 1,723,195 1,428,941 Selling, general and administrative expenses........................ 2,032,536 989,580 Amortization of intangibles......................................... 242,608 77,758 ----------- ----------- Total operating expenses............................................ 3,998,339 2,496,279 ----------- ----------- Operating loss...................................................... (2,443,110) (294,857) Loss from investment in Beacon Power Corporation.................... -- (30,000) Interest income..................................................... 34,123 20,267 Interest expense.................................................... (3,691) -- ----------- ----------- Net loss............................................................ (2,412,678) (304,590) Accretion of redeemable convertible preferred stock discount........ (155,944) -- ----------- ----------- Net loss attributable to common stockholders........................ $(2,568,622) $ (304,590) =========== =========== Net loss per share, basic and diluted............................... $(0.24) $(0.03) =========== =========== Weighted average number of common shares, basic and diluted......... 10,793,030 8,980,249 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 2 SATCON TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (As restated) (Unaudited)
For the three months ended December 31, 1999 1998 -------------------- -------------------- Cash flows from operating activities: Net loss .......................................................... $(2,412,678) $(304,590) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................................... 435,746 218,347 Allowance for doubtful accounts.................................. 82,433 86,207 Loss from investment in Beacon Power Corporation................. -- 30,000 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........................................... 29,801 -- Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable............................................ 1,022,084 (292,291) Prepaid expenses and other assets.............................. 107,957 145,102 Unbilled contract costs........................................ 404,051 (451,922) Inventory...................................................... (381,366) (617,656) Other assets................................................... (81,780) 545,488 Accounts payable............................................... (846,444) 151,753 Accrued expenses and payroll................................... (18,361) 19,435 Other liabilities.............................................. (18,954) 174,186 ----------- ----------- Total adjustments................................................. 735,167 65,011 ----------- ----------- Net cash used in operating activities............................... (1,677,511) (239,579) ----------- ----------- Cash flows from investing activities: Sales and maturities of marketable securities...................... -- 12,428 Patent and intangible expenditures................................. (22,625) (30,360) Capital expenditures............................................... (130,515) (258,101) Cash paid for acquisition, net of cash acquired.................... (24,054) -- Investment in Beacon Power Corporation............................. (333,333) (30,000) ----------- ----------- Net cash used in investing activities............................... (510,527) (306,033) ----------- ----------- Cash flows from financing activities: Borrowing under line of credit..................................... -- 5,000 Repayment of borrowings............................................ (3,943) -- Proceeds from issuance of common stock............................. 2,490,000 -- Proceeds from exercise of stock options............................ 355,000 -- Purchase of treasury stock......................................... -- (55,235) ----------- ----------- Net cash provided/(used) by financing activities.................... 2,841,057 (50,235) ----------- ----------- Effect of exchange rates on cash and cash equivalents............... (12,472) -- ----------- ----------- Net increase/(decrease) in cash and cash equivalents................ 640,547 (595,847) Cash and cash equivalents at beginning of period.................... 2,533,072 1,201,610 ----------- ----------- Cash and cash equivalents at end of period.......................... $ 3,173,619 $ 605,763 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note A. Basis of Presentation ------------------------------ The accompanying unaudited consolidated financial statements include the accounts of SatCon Technology Corporation and its majority-owned subsidiaries (collectively, the "Company") as of December 31, 1999 and have been prepared by the Company in accordance with generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All intercompany accounts and transactions have been eliminated. These consolidated financial statements, which in the opinion of management reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1999, as amended. Operating results for the three-month period ended December 31, 1999 are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company has restated its financial statements for the three-month periods ended December 31, 1999 and 1998. The restatement was prompted by the recently completed initial audit of the financial statements of its affiliate, Beacon Power Corporation ("Beacon Power"), and reflects treating certain costs as expenses rather than being included in the value of the net assets of Beacon Power at December 24, 1997. The Company previously had accounted for these costs either as fixed assets or as part of the net assets of Beacon Power. As a result, certain costs previously capitalized in 1996, 1997 and 1998 should have been expensed as incurred, therefore reducing the Company's investment in Beacon Power by $3.1 million as of December 24, 1997. The adjustments to the financial statements at December 24, 1997, the date which the Company began accounting for its investment in Beacon Power under the equity method of accounting, consisted of a reduction of $37,000 from current assets, a reduction of $3.0 million from property and equipment and intangible assets and an increase of $73,000 of accrued expenses. There is no cumulative effect of this change on the Company's stockholders' equity as of December 31, 1999, since the Company had reduced its investment in Beacon Power to zero. The effect of this change on the reported results for each period is as follows:
CONSOLIDATED STATEMENTS OF OPERATIONS: For the three months ended December 31, 1999 -------------------------------- (As restated) (As reported) ------------------ ------------------ Product revenue..................................................... $ 3,161,505 $ 3,161,505 Funded research and development revenue............................. 1,394,902 1,394,902 ----------- ----------- Total revenue....................................................... 4,556,407 4,556,407 Cost of product revenue............................................. 3,001,178 3,001,178 ----------- ----------- Gross margin........................................................ 1,555,229 1,555,229 Research and development expenses................................... 1,723,195 1,723,195 Selling, general and administrative expenses........................ 2,032,536 2,032,536 Amortization of intangibles......................................... 242,608 242,608 ----------- ----------- Total operating expenses............................................ 3,998,339 3,998,339 ----------- ----------- Operating loss...................................................... (2,443,110) (2,443,110) Loss from investment in Beacon Power Corporation.................... -- (130,504) Interest income..................................................... 34,123 34,123 Interest expense.................................................... (3,691) (3,691) ----------- ----------- Net loss............................................................ (2,412,678) (2,543,182) Accretion of redeemable convertible preferred stock discount........ (155,944) (155,944) ----------- ----------- Net loss attributable to common stockholders........................ $(2,568,622) $(2,699,126) =========== =========== Net loss per share, basic and diluted............................... $(0.24) $(0.25) =========== =========== Weighted average number of common shares, basic and diluted......... 10,793,030 10,793,030 =========== ===========
4 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED): For the three months ended December 31, 1998 --------------------------------- (As restated) (As reported) ------------------ ------------------ Product revenue..................................................... $ 1,994,527 $ 1,994,527 Funded research and development revenue............................. 1,730,572 1,730,572 ----------- ----------- Total revenue....................................................... 3,725,099 3,725,099 Cost of product revenue............................................. 1,523,677 1,523,677 ----------- ----------- Gross margin........................................................ 2,201,422 2,201,422 Research and development expenses................................... 1,723,195 1,428,941 Selling, general and administrative expenses........................ 989,580 989,580 Amortization of intangibles......................................... 77,758 77,758 ----------- ----------- Total operating expenses............................................ 2,496,279 2,496,279 ----------- ----------- Operating loss...................................................... (294,857) (294,857) Loss from investment in Beacon Power Corporation.................... (30,000) (1,064,010) Interest income..................................................... 20,267 20,267 Interest expense.................................................... -- -- ----------- ----------- Net loss attributable to common stockholders........................ $ (304,590) $(1,338,600) =========== =========== Net loss per share, basic and diluted............................... $(0.03) $(0.15) =========== =========== Weighted average number of common shares, basic and diluted......... 8,980,249 8,980,249 =========== ===========
CONSOLIDATED BALANCE SHEET DATA: September 30, 1999 --------------------------- As restated As reported ------------ ------------ Investment in Beacon Power Corporation...... -- -- ------------ ------------ Total assets................................ $ 17,400,374 $ 17,400,374 ============ ============ Accrued losses from investment in Beacon Power Corporation................... $ 333,333 $ 202,829 ------------ ------------ Accumulated deficit......................... $(25,359,809) $(25,229,305) ------------ ------------ Total liabilities, redeemable convertible preferred stock and stockholders' equity... $ 17,400,374 $ 17,400,374 ============ ============
5 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) 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 form 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. 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. 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 For the three months ended December 31, 1999, the Company did not record a loss from its investment in Beacon Power. For the three months ended December 31, 1998, the Company recorded a loss of $30,000 which represented the additional $30,000 committed investment from December 1998 and the recognition of a portion of the suspended losses from Beacon Power. As of June 22, 1999, the Company's investment in Beacon Power had been reduced to zero, and no additional losses were recorded during the period from June 23, 1999 through December 31, 1999. 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, February 12, 2000 (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. At December 31, 1999, the Company has recognized its share of Beacon Power's losses up to the amount of its actual investment in Beacon Power. At December 31, 1999, the Company did not accrue losses of $200,000 relating to its share of Beacon Power's losses incurred through December 31, 1999, which the Company was required to fund pursuant to the terms of the January 7, 2000 Note, as those amounts, including interest, have been repaid as of February 14, 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. MTI funded $2,570,000 of its investment in the Company on October 21, 1999 and received 370,800 shares of the Company's Common Stock and a warrant to purchase 36,000 shares of the Company's Common Stock. The Company has recorded the fair market value of this warrant, as determined by the Black-Scholes option pricing model, of approximately $231,000 and approximately $80,000 of legal, accounting, consultation and filing fees as transaction costs. MTI made the remaining investment on January 31, 2000 of $4,500,000 and received 659,200 shares of the Company's Common Stock and a warrant to purchase 64,000 shares of the Company's Common Stock. The Company will record the fair market value of this warrant, as determined by the Black-Scholes option pricing model, of approximately $1,268,000 as a transaction cost. In addition, the Company received a warrant to purchase 36,000 shares of MTI's common stock on October 21, 1999 and a warrant to purchase 64,000 shares of MTI's common stock on January 31, 2000. 6 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) 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 $160,000 of legal, accounting, consultation and filing fees as a cost of this transaction. The purchase price of the acquisition has been allocated as follows: Cash and cash equivalents ....................................... $ 45,946 Accounts receivable .............................................. 2,190,423 Inventory ........................................................ 2,902,102 Prepaid expenses and other assets................................. 260,239 Property and equipment............................................ 250,000 Intangibles ...................................................... 3,540,423 Accounts payable.................................................. 641,687 Accrued payroll and payroll related expenses...................... 334,129 Deferred revenue.................................................. 13,500 Other accrued expenses............................................ 390.091
The following unaudited pro forma financial information combines the Company 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 occurred on the applicable dates indicated and are not intended to be indicative of future results of operations.
FOR THE THREE MONTHS ENDED --------------------------------- DECEMBER 31, --------------------------------- 1999 1998 ---------------- --------------- Revenue............................................ $ 4,695,996 $ 5,662,099 Operating loss..................................... $(2,761,604) $ (542,301) Net loss........................................... $(2,729,851) $ (553,034) Net loss attributable to common stockholders....... $(2,885,795) $ (553,034) Net loss per share, basic and diluted.............. $ (0.26) $ (0.06)
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 products business. The Company also entered into (i) a sublease with NGC pursuant to which the Company 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 market 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: Inventory..................................................... 1,206,000 Property and equipment........................................ 1,091,643 Intangibles................................................... 3,281,423
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. 7 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 loss:
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 1998 ------------------ ------------------ (as restated) Net loss attributable to common shareholders................................... $(2,568,622) $ (304,590) BASIC: Common shares outstanding, beginning of period................................. 9,529,649 8,990,249 Weighted average common shares issued during the period........................ 1,263,381 -- Weighted average shares repurchased during the period.......................... -- (10,000) ----------- ----------- Weighted average shares outstanding--basic..................................... 10,793,030 8,980,249 =========== =========== Net loss per share, basic...................................................... $ (0.24) $ (0.03) =========== =========== DILUTED: Weighted average shares outstanding--basic..................................... 10,793,030 8,980,249 Weighted average common stock equivalents (a).................................. -- -- ----------- ----------- Weighted average shares outstanding--diluted................................... 10,793,030 8,980,249 =========== =========== Net loss per share, diluted.................................................... $ (0.24) $ (0.03) =========== ===========
(a) not included if antidilutive As of December 31, 1999 and 1998, 2,719,394 and 922,616 options and warrants, respectively, were excluded from the weighted average common shares outstanding as their effect would be antidilutive. Note E. Inventory ----------------- Inventory consists of the following:
DECEMBER 31, SEPTEMBER 30, 1999 1999 ------------- -------------- Raw material................................................... $3,294,832 $1,139,064 Work-in-process................................................ 3,092,421 2,199,199 Finished goods................................................. 1,800,187 359,709 ------------- ------------- $8,187,440 $3,697,972 ============= =============
8 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) Note F. Comprehensive Income ----------------------------- The Company's total comprehensive income is as follows:
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 1998 ------------------- ------------------ (as restated) Net loss.......................................................... $(2,412,678) $ (304,590) =========== =========== Other comprehensive loss, net of tax: Unrealized losses on securities.............................. $ -- $ (5,666) Foreign currency translation adjustment...................... $ (12,472) $ -- =========== =========== Other comprehensive loss.......................................... $ (12,472) $ (5,666) =========== =========== Comprehensive loss................................................ $(2,425,150) $ (310,256) =========== ===========
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 markets and 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 specializes 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 investment in Beacon, 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. 9 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) The following is a summary of the Company's operations by operating segment:
FOR THE THREE MONTHS ENDED -------------------------- DECEMBER 31, ------------ 1999 1998 ------------------ ------------------ Revenue........................................................................... $ 1,394,902 $ 1,730,572 ----------- ----------- Loss from operations, net of amortization of intangibles.......................... $(1,132,470) $ (232,507) =========== =========== Power electronic products: Revenue........................................................................... $ 1,808,008 $ 1,218,382 ----------- ----------- Loss from operations, net of amortization of intangibles.......................... $ (377,783) $ (112,395) =========== =========== Motion-control products: Revenue........................................................................... $ 1,353,497 $ 776,145 ----------- ----------- (Loss)/income from operations, net of amortization of intangibles................. $ (690,249) $ 127,803 =========== ===========
The following is a summary of the Company's long-lived assets by operating segment:
DECEMBER 31, SEPTEMBER 30, ----------------- ----------------- 1999 1999 ----------------- ----------------- Contract engineering: Long-lived assets........... $6,101,163 $1,717,228 ---------- ---------- Power electronic products: Long-lived assets........... $3,875,105 $3,978,027 ---------- ---------- Motion-control products: Long-lived assets........... $4,544,413 $ 863,661 ---------- ----------
The Company operates and markets its services and products on a worldwide basis with its principal markets as follows:
FOR THE THREE MONTHS ENDED -------------------------- DECEMBER 31, ------------ 1999 1998 ----------------- ----------------- Geographic: United States..................................................................... $4,259,643 $3,725,099 Europe............................................................................ 161,665 -- Rest of world..................................................................... 135,099 -- ---------- ---------- Total revenue................................................................ $4,556,407 $3,725,099 ========== ==========
10 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. These factors include, without limitation, those set forth under the caption "Factors Affecting Future Results" below and 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 following discussion reflects restatement of our financial statements for the three-month periods ended December 31, 1999 and 1998. The restatement was prompted by the recently completed initial audit of the financial statements of our affiliate, Beacon Power Corporation ("Beacon Power"), and reflects treating certain costs as expenses rather than being included in the value of the net assets of Beacon Power at December 24, 1997. SatCon Technology Corporation (the "Company" or "SatCon") previously had accounted for these costs either as fixed assets or as part of the net assets of Beacon Power. As a result, certain costs previously capitalized in 1996, 1997 and 1998 should have been expensed as incurred, therefore reducing SatCon's investment in Beacon Power by $3.1 million as of December 24, 1997. The adjustments to SatCon's financial statements at December 24, 1997, which represents the date in which the Company began accounting for its investment in Beacon Power under the equity method, consisted of a reduction of $37,000 from current assets, a reduction of $3.0 million from property and equipment and intangible assets and an increase of $73,000 of accrued expenses. There is no cumulative effect of this change on SatCon's stockholders' equity as of December 31, 1999, since SatCon had reduced its investment in Beacon Power to zero. In addition, for all periods presented, expenses associated with funded research and development activities have been reclassified as research and development expenses from cost of revenue. 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. 11 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. As a result of a recapitalization of Beacon Power on December 24, 1997, the Company began accounting for its investment in Beacon Power using the equity method and has included $1.9 million loss of Beacon Power for the period from December 25, 1997 through June 1998, which equaled its initial investment in Beacon Power. In connection with the additional investment by outside third parties on October 23, 1998, the Company committed $30,000 to Beacon Power and, accordingly, recorded a $30,000 loss from its investment in Beacon Power representing a portion of the suspended losses as of October 23, 1998. For the period October 24, 1998 through June 21, 1999, the Company recorded no additional losses of Beacon Power as its investment in Beacon Power had been reduced to zero as of October 23, 1998. In June and August 1999, Beacon Power received $3.0 million of additional financing commitments, including $1.0 million from the Company. As a result of this additional commitment, the Company has included $1.0 million loss from its investment in Beacon Power representing a portion of the suspended losses as of June 22, 1999. For the period June 23, 1999 through September 30, 1999, the Company recorded no additional losses of Beacon Power as its investment in Beacon Power had been reduced to zero as of June 22, 1999. As of December 31, 1999, the Company has no obligations to provide any additional funding to 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 $29.7 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. 12 COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1999 (AS RESTATED) AND DECEMBER 31, 1998 (AS RESTATED) PRODUCT REVENUE. Product revenue increased by $1.2 million or 59% from $2.0 million to $3.2 million. This increase was attributable to $800,000 in revenue from Ling Electronics and $590,000 increase in revenue from the Company's microelectronics products. These increases were partially offset by a $223,000 decrease in revenue from the Company's high performance motors and magnetic levitation products. FUNDED RESEARCH AND DEVELOPMENT REVENUE. Funded research and development revenue decreased by $336,000 or 19% from $1.7 million to $1.4 million. During the three months ended December 31, 1999, 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 decreased by $646,000 or 29% from $2.2 million to $1.6 million. Gross margin from products decreased by $311,000 and funded research and development decreased by $336,000. Gross margin from product revenue as a percentage of product revenue decreased to 5% from 24%. The decrease in gross margin from product revenue as a percentage of product revenue is due to higher costs for facilities and staffing. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased by $294,000 or 21% from $1.4 million to $1.7 million. The increase was attributable to the Company's increased focus on internally funded research and development programs including the development of power conversion products for the distributed power generation market offset by the decrease in funded research and development revenue. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $1.0 million or 105% from $990,000 to $2.0 million. The increase was primarily due to the inclusion of $484,000 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, the deferral of $300,000 of costs associated with a research and development contract. AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased by $165,000 or 212% from $78,000 to $243,000. The increase was the result of amortization of intangibles recorded in connection with the acquisition of Ling Electronics in 1999 and certain intellectual property and other intangible assets from Northrop Grumman Corporation in November 1999. LOSS FROM INVESTMENT IN BEACON POWER CORPORATION. For the three months ended December 31, 1999, the Company did not record a loss from its investment in Beacon Power. As of September 30, 1998, the Company's remaining initial investment of $1.9 million had been reduced to zero and as of June 22, 1999, the Company's additional $1.0 million investment in Beacon Power had been reduced to zero as a result of the recognition of a portion of the suspended losses in Beacon Power and no additional losses were recorded during the period from June 23, 1999 through December 31, 1999. During December 1998, the Company committed an additional $30,000 in financing to Beacon Power and, accordingly, recorded a $30,000 loss from its investment in Beacon Power representing a portion of its suspended losses from Beacon Power. OTHER INCOME (EXPENSE), NET. Other income, net increased to $30,000 from $20,000. The increase was the result of an increase of cash and cash equivalents being maintained in interest bearing accounts offset by interest expense associated with capital leases entered into during fiscal year 1999. 13 LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, the Company's cash and cash equivalents were $3.2 million, an increase of approximately $641,000 from September 30, 1999. Cash used in operating activities for the three months ended December 31, 1999 was $1.7 million as compared to $240,000 in 1998. Cash used in operating activities during the three months ended December 31, 1999 was primarily attributable to the Company's net loss of approximately offset by a decrease in accounts receivable, depreciation and amortization. Cash used in investing activities for the three months ended December 31, 1999 was $511,000 as compared to $306,000 in 1998. Net cash used in investing activities during the three months ended December 31, 1999, included capital and intellectual property expenditures of $153,000, an investment in Beacon Power of $333,000 and $24,000 for cash paid for Ling Electronics, net of cash acquired. The Company estimates that it will spend an additional $2.0 million on capital expenditures during the next 12 months primarily to expand its capacity to manufacture power conversion products. The Company expects these additions to be financed from cash on hand and from lease financing. Cash provided by financing activities for the three months ended December 31, 1999 was $2.8 million. Net cash provided by financing activities during the three months ended December 31, 1999 includes net proceeds of $2.5 million from the sale of the Company's Common Stock and $355,000 from the exercise of common stock options and warrants. 14 The Company anticipates that the existing $3.2 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 the Company's net sales and revenues or on income from continuing operations. FACTORS AFFECTING FUTURE RESULTS The Company's future results remain difficult to predict and may be affected by a number of factors which could cause actual results to differ materially from forward-looking statements contained in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time. These factors include business conditions within the aerospace, transportation, industrial, utility, telecommunications, silicon wafer manufacturing, factory automation, aircraft and automotive industries and the world economies as a whole, and competitive pressures that may impact research and development spending. The Company's revenue growth is dependent on technology developments and contract research and development for both the government and commercial sectors and no assurance can be given that such investments will continue or that the Company can successfully obtain such funds. In addition, the Company's future growth opportunities are dependent on the introduction of new products that must penetrate aerospace, transportation, industrial, utility, telecommunications, silicon wafer manufacturing, factory 15 automation, aircraft and automotive market segments. No assurance can be given that new products can be developed, or if developed, will be successful; that competitors will not force prices to an unacceptably low level or take market share from the Company; or that the Company can achieve or maintain profits in these markets. Because of these and other factors, past financial performances should not be considered an indicator of future performance. Investors should not use historical trends to anticipate future results and should be aware that the Company's stock price frequently experiences significant volatility. These factors also 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. On October 23, 1998, the Company granted the purchasers of Beacon class D preferred stock the right to cause the Company, under the circumstances described below, to purchase all of Beacon's shares issued to those purchasers and, upon exercise of this "put right," the Company must pay $4,750,000 (plus interest accruing at 12 1/2% per annum from October 23, 1998) in its Common Stock, valued at the average fair 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 the closing date of the transaction, upon certain events of bankruptcy of Beacon and upon the occurrence of certain going private transactions involving the Company. If the put right were to be exercised, the Company would most likely recognize a loss equal to the value of its Common Stock issued upon exercise of the put right. 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. Adoption of SFAS No. 133 is not expected to have a material impact to the Company's consolidated financial position, results of operations or cash flows. EFFECTS OF YEAR 2000 The Company has assessed its software systems and internal operations. The Company believes that it has resolved all potential Year 2000 issues and problems and, to the best of its knowledge, its systems are Year 2000 compliant. However, if the Company's systems do not operate properly with respect to date calculations involving the Year 2000 and subsequent dates, the Company could incur unanticipated expenses to remedy any problems, which could seriously harm its business. The Company may also experience reduced sales of its products as current or potential customers reduce their budgets due to increased expenditures on their own Year 2000 compliance efforts. Additionally, the Company relies on information technology supplied by third parties and its other business partners, including third-party distributors and consultants, who are also heavily dependent on information technology systems and on their own and third-party vendor systems. Year 2000 problems experienced by the Company or any of these third parties could materially adversely affect the Company's business. Prior versions of the Company's products may contain technology from third parties that is not Year 2000 compliant. Given the pervasive nature of the Year 2000 problem, the Company cannot guarantee that disruptions in other industries and market segments will not adversely affect its business. Moreover, the Company's costs related to Year 2000 compliance, which thus far have not been material, could ultimately be significant. In the event that the Company experiences unforeseen disruptions as a result of the Year 2000 problem, the Company's business could be seriously affected. 16 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. 17 PART II: OTHER INFORMATION Item 1. Legal Proceedings: On November 6, 1999, APACE, Inc. ("APACE") commenced an action against the Company in the Supreme Court of the State of New York claiming that the Company had been awarded a "Prime Contract" by the 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 denies the allegations, has moved to stay the action and has filed for arbitration with the American Arbitration Association in Boston, Massachusetts. The American Arbitration Association has decided that the arbitration will go forward in Boston and not New York. In the meantime, APACE has requested that the court permit the action to go forward and for the arbitration to be stayed. At this time, the arbitration is still going forward in Boston, and an arbitrator has been selected. It is anticipated that a preliminary hearing will be scheduled shortly. Item 2. Changes in Securities and Use of Proceeds: RECENT SALES OF UNREGISTERED SECURITIES On October 21, 1999, in connection with its acquisition of Ling Electronics, Inc. and Ling Electronics, Ltd., the Company issued 770,000 shares of its Common Stock to MTI, the parent entity of the two acquired entities. The common stock was issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder, relative to sales by an issuer not involving a public offering. 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 MTI 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 or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. On November 16, 1999, the Company issued 578,761 shares of its Common Stock to NGC in exchange for certain intellectual property, equipment and other assets which were used by NGC in connection with its power electronics products business. In addition, the Company issued to NGC a warrant to purchase 100,000 shares of its Common Stock at an exercise price of $9.725 per share. In connection with this transaction, on February 4, 2000, the Company issued to NGC an additional warrant to purchase 100,000 shares of its Common Stock at an exercise price of $9.725 per share. These warrants expire on December 31, 2006. Both the Common Stock and the warrants were issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. Item 3. Defaults upon Senior Securities: Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: Not applicable. Item 5. Other Information: Not applicable. Item 6 Exhibits and Reports on Form 8-K: (a) Exhibits 10.41 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 Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1999. 10.42 Senior Secured Convertible Promissory Note, dated January 7, 2000, made in favor of the Registrant by Beacon Power Corporation in the amount of $200,000 is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1999. 10.43 Stock Purchase Warrant issued on February 4, 2000 by the Registrant to Northrop Grumman Corporation is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1999. 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. (b) Reports on Form 8-K On November 5, 1999, the Registrant filed a Current Report on Form 8-K, dated October 21, 1999, in connection with its acquisition of Ling Electronics, Inc. and Ling Electronics, Ltd. from Mechanical Technology Incorporated and an investment by Mechanical Technology Incorporated of approximately $7,000,000. On November 24, 1999, the Registrant filed a Current Report on Form 8-K, dated November 16, 1999, in connection with its purchase of certain intellectual property, equipment and other assets from Northrop Grumman Corporation. On January 4, 2000, the Registrant filed a Current Report on Form 8-K/A, dated October 21, 1999, in connection with its acquisition of Ling Electronics, Inc. and Ling Electronics, Ltd. from Mechanical Technology Incorporated. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SATCON TECHNOLOGY CORPORATION Date: August 18, 2000 By: /s/ Sean F. Moran --------------------- Sean F. Moran, Chief Financial Officer (Principal Financial and Accounting Officer) 19 EXHIBIT INDEX 10.41 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 Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1999. 10.42 Senior Secured Convertible Promissory Note, dated January 7, 2000, made in favor of the Registrant by Beacon Power Corporation in the amount of $200,000 is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1999. 10.43 Stock Purchase Warrant issued on February 4, 2000 by the Registrant to Northrop Grumman Corporation is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended December 31, 1999. 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. 20