-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MkJRYxEsUsuUcyM7sKORQuGd1RlJwvoFhE+nMReMoE0HPXzHG/FzjmSm9PvT/nTl gnOqcmFzhZE2utu/0qEB3Q== 0000927016-99-002095.txt : 19990518 0000927016-99-002095.hdr.sgml : 19990518 ACCESSION NUMBER: 0000927016-99-002095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SATCON TECHNOLOGY CORP CENTRAL INDEX KEY: 0000889423 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 042857552 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11512 FILM NUMBER: 99627530 BUSINESS ADDRESS: STREET 1: 161 FIRST STREET CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176610540 MAIL ADDRESS: STREET 1: 161 FIRST STREET CITY: CAMBRIDGE STATE: MA ZIP: 02142 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1999 Commission File Number 1-11512 ______________________ SATCON TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) ______________________ State of Incorporation: Delaware I.R.S. Employer ID. No. 04-2857552 161 First Street Cambridge, MA 02142-1221 (Address of principal executive offices) (617) 661-0540 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value, 9,161,409 shares outstanding as of April 30, 1999. - ------------------------------------------------------------------------------- TABLE OF CONTENTS PART I: FINANCIAL INFORMATION Page ---- ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets (Unaudited)................................. 1 Consolidated Statements of Operations (Unaudited)....................... 2 Consolidated Statements of Cash Flows (Unaudited)....................... 3 Notes to Interim Consolidated Financial Statements (Unaudited).......... 4 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 8 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................. 13 PART II: OTHER INFORMATION Items No. 1 through 6.................................................. 14 Signature.............................................................. 16 SATCON TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, September 30, ---------------- ---------------- 1999 1998 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents ...................................................... $ 233,861 $ 1,201,610 Marketable securities ........................................................ 381,078 657,431 Accounts receivable, net of allowance of $20,000 at March 31, 1999 and $51,836 at September 30, 1998 ............................................... 3,182,711 3,347,405 Unbilled contract costs, net of allowance of $57,611 at March 31, 1999 and September 30, 1998............................................................ 2,654,094 1,196,318 Inventory ...................................................................... 5,270,640 3,678,067 Prepaid expenses and other assets............................................... 357,918 358,308 Amounts due from related party.................................................. -- 596,453 ------------ ------------ Total current assets....................................................... 12,080,302 11,035,592 Property and equipment, net.......................................................... 3,019,149 2,677,786 Intangibles, net .................................................................... 3,345,485 2,967,988 Investment in Beacon Power Corporation............................................... 1,215,746 1,458,183 Other assets......................................................................... 259,554 27,041 ------------ ------------ Total assets............................................................... $ 19,920,236 $ 18,166,590 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit.................................................................. $ 1,521,481 -- Accounts payable................................................................ 1,455,712 $ 1,447,897 Accrued payroll and payroll related expenses.................................... 505,580 352,701 Deferred revenue................................................................ 177,408 197,930 Other accrued expenses.......................................................... 424,936 385,999 Current portion of long-term debt............................................... -- 146,594 ------------ ------------ Total current liabilities.................................................. 4,085,117 2,531,121 Long-term liabilities: Long-term debt.................................................................. -- 221,462 ------------ ------------ Total long-term liabilities................................................ -- 221,462 Commitments and contingencies........................................................ Stockholders' equity: Preferred stock; $.01 par value, 1,000,000 shares authorized; none issued and outstanding............................................................... -- -- Common stock, $.01 par value, 20,000,000 shares authorized; 9,161,409 shares issued at March 31, 1999 and 9,018,549 shares at September 30, 1998........... 91,614 90,185 Additional paid-in capital...................................................... 29,135,280 28,377,718 Retained earnings/(deficit)..................................................... (13,134,686) (12,870,440) Net unrealized losses on marketable securities, net of tax effect............... (15,085) (10,380) Treasury stock, at cost; 44,500 shares at March 31, 1999 and 28,300 shares at September 30, 1998......................................................... (242,004) (173,076) ------------ ------------ Total stockholders' equity................................................. 15,835,119 15,414,007 ------------ ------------ Total liabilities and stockholders' equity............................ $ 19,920,236 $ 18,166,590 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 1 SATCON TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended For the six months ended March 31, March 31, 1999 1998 1999 1998 --------------- --------------- --------------- ----------------- Revenue...................................................... $3,784,553 $4,325,548 $7,531,985 $ 8,021,167 ---------- ---------- ---------- ----------- Cost of revenue.............................................. 2,590,014 3,052,082 5,317,945 5,730,867 Selling, general and administrative expenses................. 1,025,748 1,163,303 1,875,966 2,542,295 Research and development expenses............................ 51,717 21,999 152,600 287,030 Goodwill amortization........................................ 94,035 82,408 171,793 137,595 ---------- ---------- ---------- ----------- Total operating expenses..................................... 3,761,514 4,319,792 7,518,304 8,697,787 ---------- ---------- ---------- ----------- Operating income/(loss)...................................... 23,039 5,756 13,681 (676,620) Loss from Investment in Beacon Power Corporation............. -- (969,984) (272,437) (969,984) Other income/(loss).......................................... (9,012) -- (9,012) -- Interest income/(expense), net............................... (16,745) 53,199 3,522 106,363 ---------- ---------- ---------- ----------- Net loss..................................................... $ (2,718) $ (911,029) $ (264,246) $(1,540,241) ========== ========== ========== =========== Net loss per weighted average share, basic and diluted....... $.00 $(.10) $(.03) $(.17) ========== ========== ========== =========== Weighted average number of common shares, basic and diluted.. 9,066,226 8,954,871 9,023,237 8,900,069
The accompanying notes are an integral part of the consolidated financial statements. 2 SATCON TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended March 31, 1999 1998 -------------------- -------------------- Cash flows from operating activities: Net loss ......................................................... $ (264,246) $(1,540,241) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................... 467,089 426,414 Allowance for unbilled contract costs....................... -- (7,175) Allowance for doubtful accounts............................. (31,836) 13,487 Allowance for inventory..................................... (208,776) -- Loss from Investment in Beacon Power Corp................... 272,437 969,984 Loss on sale of marketable securities....................... 9,012 -- Changes in operating assets and liabilities: Accounts receivable...................................... 34,420 (794,518) Prepaid expenses and other assets........................ (189,801) 73,451 Unbilled contract costs.................................. (1,457,776) 335,009 Inventory................................................ (1,413,350) (661,669) Other assets............................................. 744,322 (65,208) Accounts payable......................................... 14,115 102,648 Accrued expenses and payroll............................. 59,123 (329,056) Deferred revenue......................................... (20,522) 165,862 ----------- ----------- Total adjustments.............................................. (1,721,543) 229,229 ----------- ----------- Net cash used in operating activities............................... (1,985,789) (1,311,012) ----------- ----------- Cash flows from investing activities: Sales and maturities of marketable securities..................... 262,504 566,883 Patent and intangible expenditures................................ (40,167) (399,753) Capital expenditures.............................................. (280,974) (667,702) Acquisitions...................................................... (245,876) -- Investment in Beacon Power Corporation............................ (30,000) (1,676,540) ----------- ----------- Net cash used in investing activities............................... (334,513) (2,177,112) ----------- ----------- Cash flows from financing activities: Repayment of borrowings.......................................... (100,000) (42,842) Proceeds from line of credit...................................... 1,521,481 -- Proceeds from exercise of stock options........................... -- 581,739 Proceeds from exercise of warrants................................ -- 1,221,873 Purchase of treasury stock........................................ (68,928) -- ----------- ----------- Net cash provided by financing activities........................... 1,352,553 1,760,770 ----------- ----------- Net decrease in cash and cash equivalents........................... (967,749) (1,727,354) Cash and cash equivalents at beginning of period.................... 1,201,610 4,256,504 ----------- ----------- Cash and cash equivalents at end of period.......................... $ 233,861 $ 2,529,150 =========== ===========
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 March 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, 1998. Operating results for the three-month and six-month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Note B. Significant Events - -------------------------- Beacon Power Corporation On October 23, 1998, the Company entered into a Securities Purchase Agreement (the "Agreement") with Beacon Power Corporation ("Beacon"), Perseus Capital, L.L.C. ("Perseus"), Duquesne Enterprises ("Duquesne") and Micro Generation Technology Fund, L.L.C ("Micro", and together with Perseus and Duquesne the "Purchasers"). Pursuant to the terms of the Agreement, (i) the Purchasers purchased from Beacon and Beacon issued, sold and delivered to the Purchasers 1,900,000 shares (the "Shares") of Beacon's Class D Preferred Stock, $.01 par value per share; (ii) the Purchasers have the right to receive certain warrants to purchase shares of Beacon's common stock, $.01 par value per share ("Beacon's Common Stock"); (iii) the Company granted the Purchasers the right (the "Put Right") to cause the Company, in circumstances described below, to purchase all of the Shares and all of Beacon's Common Stock issuable upon conversion of the Shares; and (iv) upon exercise of the Put Right pursuant to the terms of the Agreement, the Company must pay the consideration contemplated by the Agreement in shares of the Company's common stock, $.01 par value per share (the "Common Stock"), valued at the average fair value for the fifteen trading days before and after notice of exercise of the Put Right. The aggregate consideration received by Beacon was $4,750,000. The Put Right is exercisable within sixty days of the second, third, forth and fifth anniversary of the closing date of the transaction, upon certain events of bankruptcy of Beacon and upon the occurrence of certain going private transactions involving the Company. If the Put Right were to be exercised, the Company would most likely recognize a loss equal to the value of the Company's shares issued upon exercise of the Put Right. The Company retained approximately 19.9% of Beacon's outstanding voting stock. Accordingly, as a result of the third-party financing obtained on October 23, 1998, the Company's remaining investment in Beacon from October 23, 1998 going forward will be accounted for on a cost basis. The Company will continue to review its investment in Beacon. While the Company continues to be optimistic regarding the long term prospects for Beacon and flywheel technology, Beacon has not yet successfully introduced a flywheel product and will need substantial additional financing to continue its operations. If, in the future, the Company determines that its investment in Beacon does not have any remaining value, the Company would take appropriate actions to write-off the remaining cost of its investment. 4 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) Issuance of Common Stock On January 4, 1999, the Company issued 100,000 shares of Common Stock to two individuals in connection with the purchase by K&D MagMotor Corp., a wholly- owned subsidiary of the Company, of certain assets and assumption of certain liabilities of Inductive Components, Inc. ("Inductive") and Lighthouse Software, Inc. ("Lighthouse," and together with Inductive, the "Sellers"). These shares were issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. On March 9, 1999, the Company issued 42,860 shares of Common Stock to an escrow agent in connection with a consulting agreement entered into by the Company and Mr. Albert R. Snider pusuant to which Mr. Snider will perform such consulting, advisory and related services as the Company may reasonably request from time to time between October 1, 1999 and October 1, 2002. These shares were issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. Line of Credit On December 16, 1998, the Company obtained a $2,000,000 discretionary demand line of credit (the "Line of Credit"), bearing interest at the bank's prime rate of interest plus 1 1/2%. Available borrowings are based on a formula of eligible accounts receivable and inventory and will be used for capital expenditures, working capital and general corporate purposes. On May 7, 1999, the Company increased the Line of Credit to $3,000,000. Acquisitions On January 4, 1999, the Company acquired substantially all of the assets and assumed certain of the liabilities of Inductive and Lighthouse pursuant to the terms of an Asset Purchase Agreement, dated as of January 4, 1999, among K&D, the Company, Inductive, Lighthouse and Thomas Glynn, the sole stockholder of Inductive and the majority stockholder of Lighthouse. The aggregate consideration paid by the Company for the acquired assets of the Sellers consisted of (i) 100,000 shares of the Company's Common Stock and (ii) the repayment of $245,876 of debt owed by the Sellers to a third-party bank. On March 31, 1999, the Company entered into an agreement to purchase substantially all of the assets and assume certain liabilities of HyComp, Inc. pursuant to the terms of an Asset Purchase Agreement dated March 31, 1999 by and between HyComp, Inc. and HyComp Acquisition Corp., a wholly-owned subsidiary of the Company (the "HyComp Asset Purchase Agreement"). 5 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) Note C. Income per Share - ------------------------ The following is the reconciliation of the numerators and denominators of the basic and diluted per share computations of loss:
For the three months ended For the six months ended March 31, March 31, 1999 1998 1999 1998 ------------- ------------- ------------ ------------ Net loss........................................................ $ (2,718) $ (911,029) $ (264,246) $(1,540,241) Basic: Common shares outstanding, beginning of period.................. 8,978,249 8,918,844 8,990,249 8,769,146 Weighted average common shares issued during the period......... 90,477 36,027 45,238 130,923 Weighted average shares repurchased during the period........... (2,500) -- (12,250) -- ---------- ---------- ---------- ----------- Weighted average shares outstanding--basic...................... 9,066,226 8,954,871 9,023,237 8,900,069 ========== ========== ========== =========== Net loss per weighted average share, basic...................... $ 0.00 $ (0.10) $ (.03) $ (.17) ========== ========== ========== =========== Diluted: Weighted average shares outstanding--basic...................... 9,066,226 8,954,871 9,023,237 8,900,069 Weighted average common stock equivalents (a)................... -- -- -- -- ---------- ---------- ---------- ----------- Weighted average shares outstanding--diluted.................... 9,066,226 8,954,871 9,023,237 8,900,069 ========== ========== ========== =========== Net loss per weighted average share, diluted.................... $ 0.00 $ (0.10) $ (.03) $ (.17) ========== ========== ========== ===========
(a) not included if antidilutive Note D. Inventory - ------------------- Inventory consists of the following:
March 31, September 30, 1999 1998 ------------------- ------------------- Raw material............................................................. $2,297,687 $1,783,803 Work-in-process.......................................................... 2,406,484 1,788,241 Finished goods........................................................... 566,469 106,023 ------------------- ------------------- $5,270,640 $3,678,067 =================== ===================
6 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) Note E. Comprehensive Income - ---------------------------- As of October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. Financial statements for prior periods must be restated. The Company's total comprehensive income is as follows:
For the three months ended For the six months ended March 31, March 31, 1999 1998 1999 1998 ------------ -------------- ------------ ------------ Net loss.......................................................... $(2,718) $(911,029) $(264,246) $(1,540,241) ======= ========= ========= =========== Other comprehensive income/(loss), net of tax: Unrealized gains/(losses) on securities...................... $ 961 $ 4,170 $ (4,705) $ 6,136 ------- --------- --------- ----------- Other comprehensive income/(loss)................................. $ 961 $ 4,170 $ (4,705) $ 6,136 ------- --------- --------- ----------- Comprehensive loss................................................ $(1,757) $(906,859) $(268,951) $(1,534,105) ======= ========= ========= ===========
Note F. Subsequent Events - -------------------------- On April 12, 1999, the Company completed the acquisition of HyComp, Inc. pursuant to the terms of the HyComp Asset Purchase Agreement. The aggregate consideration paid by the Company for the acquired assets of HyComp, Inc. was approximately $750,000. In addition, the Company assumed certain liabilities aggregating approximately $250,000. 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and Section 27A of the Securities Act of 1933. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. The factors include, without limitation, those set forth below under the caption "Factors Affecting Future Results." Results of Operations The following table sets forth, for the periods indicated, the percentage of revenue for certain items in the Company's Statement of Operations for each period:
For the three months For the six months Ended March 31, Ended March 31, ----------------------------------------------------------- 1999 1998 1999 1998 ----------------------------------------------------------- Revenue....................................................... 100.0% 100.0% 100.0% 100.0% Cost of revenue............................................... 68.4 70.6 70.6 71.4 Selling, general and administrative expenses.................. 27.1 26.9 24.9 31.7 Research and development expenses............................. 1.4 0.5 2.0 3.6 Goodwill amortization......................................... 2.5 1.9 2.3 1.7 Total operating expenses (excluding cost of revenue).................................................... 31.0 29.3 29.2 37.0 Operating income/(loss)....................................... 0.6 0.1 0.2 (8.4) Loss from Investment in Beacon Power Corporation.............. - (22.4) (3.6) (12.1) Other income/(loss)........................................... (0.2) - (0.1) - Interest income/(expense), net................................ (0.4) 1.2 - 1.3 Net loss...................................................... (0.1) (21.1) (3.5) (19.2)
Three Months Ended March 31, 1999 ("Q2 1999") Compared to the Three Months - -------------------------------------------------------------------------- Ended March 31, 1998 ("Q2 1998") - -------------------------------- Revenue. The Company's revenue decreased approximately $541,000 or 12.5%, from Q2 1998 to Q2 1999. The decrease is primarily attributable to a reduction in revenue related to research and development contracts. Cost of revenue. Cost of revenue decreased approximately $462,000 or 15.1%, from Q2 1998 to Q2 1999. The decrease in cost of revenue is primarily attributable to a decrease in effort on research and development contracts. Research and development expenses. Research and development expenses increased approximately $30,000 or 135.1% from Q2 1998 to Q2 1999. The increase is attributable to the continued development of magnetic bearings and suspension systems and electro-optic and sensor inspection systems. Goodwill amortization. Goodwill amortization increased approximately $12,000 or 14.1% from Q2 1998 to Q2 1999. This was primarily the result of goodwill recorded in connection with the acquisition of Inductive and Lighthouse in January 1999. Other income/(loss),net. Other income/(loss), net decreased approximately $9,000 from Q2 1998 to Q2 1999. The loss was the result of the sale of a marketable security. Interest income/(expense), net. Interest income/(expense), net decreased approximately $70,000 or 131.5% from Q2 1998 to Q2 1999. The decrease is the result of increased borrowings under the Line of Credit to approximately $1,521,000 at March 31, 1999 and the decrease in marketable securities of approximately $1,035,000 or 73.1% from March 31, 1998 to March 31, 1999. 8 Six Months Ended March 31, 1999 ("Q2 1999 YTD") Compared to the Six Months Ended - -------------------------------------------------------------------------------- March 31, 1998 ("Q2 1998 YTD") - ------------------------------ Revenue. The Company's revenue decreased approximately $489,000 or 6.1%, from Q2 1998 YTD to Q2 1999 YTD. The decrease is primarily attributable to a reduction in revenue related to research and development contracts. This decrease in revenue was partially offset by increases of sale of manufactured products. The Company began shipping production orders for Satcon's Integrated Suspension and Motor System ("ISAM") during 1999. Cost of revenue. Cost of revenue decreased approximately $413,000 or 7.2%, from Q2 1998 YTD to Q2 1999 YTD. The decrease in cost of revenue is primarily attributable to a decrease in effort on research and development contracts. Selling, general and administrative expenses. Selling, general and administrative expenses decreased approximately $666,000 or 26.2% from Q2 1998 YTD to Q2 1999 YTD. The decrease is primarily the result of the recapitalization of Beacon. During 1997, the Company formed Beacon, a wholly-owned subsidiary, to continue the work of the Company's Energy Systems Division. During a recapitalization of Beacon in December 1997, the Company converted a significant portion of its ownership of Beacon to convertible preferred stock. The Company retained approximately 19.9% of Beacon's outstanding voting stock. Although the Company owned less than 20% of the outstanding voting stock of Beacon, based on other factors, there was a presumption that the Company had the ability to exercise significant influence, and the equity method was required for the fair presentation subsequent to this recapitalization. The Company's share of losses from Beacon is shown as a single amount in the statement of operations, "Loss from Investment in Beacon Power Corporation." On October 23, 1998, Beacon completed a $4,750,000 private placement of equity securities with Perseus, Duquesne and Micro. Beacon is utilizing the proceeds from the private placement to continue field trials and begin early production of the 20C1000 Cable/Telecom Flywheel System. Beacon's focus is limited to providing flywheel energy storage products for stationary terrestrial applications. The Company is neither required to consolidate nor reflect its pro-rata share of Beacon's losses for any period subsequent to the third-party financing Beacon obtained in October 1998. This decrease was partially offset by increases of expenses related to K&D MagMotor and SatCon Film Microelectronics, Inc. ("FMI"). Research and development. Research and development expenses decreased approximately $134,000 or 46.8% from Q2 1998 YTD to Q2 1999 YTD. The decrease is primarily the result of the recapitalization of Beacon. This decrease was partially offset by increases of expenses related to the continued development of magnetic bearings and suspension systems and electro-optic and sensor inspection systems. Goodwill amortization. Goodwill amortization increased approximately $34,000 or 24.9% from Q2 1998 YTD to Q2 1999 YTD. This was primarily the result of the acquisition of Inductive and Lighthouse by K&D Magmotor Corp. Loss from Investment in Beacon Power Corporation. On May 20, 1997, the Company formed its subsidiary, Beacon, through a strategic partnership with Duquesne, a subsidiary of DOE, Inc., to manufacture and distribute the Company's flywheel energy storage systems. Duquesne made an initial investment totaling $5,000,000 in the Company to fund flywheel product development. Beacon assumed the activities of the Company's Energy Systems Division which was formed in October 1995 to focus on the product development and marketing of flywheel "Inertial Battery" systems for such markets as utilities, cable television and telecommunications, where uninterruptible power supplies (UPS) are critical to maintaining services. In December 1997, Beacon obtained equity financing from private investors and the Company converted a significant portion of its ownership of Beacon to convertible preferred stock. The Company retained approximately 19.9% of Beacon's outstanding voting stock. On October 23, 1998, Beacon completed a $4,750,000 private placement of equity securities with Perseus, Duquesne and Micro Generation Technology Fund, L.L.C. Beacon is utilizing the proceeds from the private placement to continue field trials and begin early production of the 20C1000 Cable/Telecom Flywheel System. Beacon's focus is limited to providing flywheel energy storage products for stationary terrestrial applications. The Company is not required to consolidate or reflect its pro-rata share of Beacon's losses for any period subsequent to the third-party financing Beacon obtained in October 1998. Consequently, for the remainder of the fiscal year ended September 30, 1999, the Company will carry its investment in Beacon at its remaining cost of approximately $1,216,000 and will not be consolidating or otherwise reflecting Beacon's results of operations in its financial statements. The Company will continue to review its investment in Beacon. While the Company continues to be optimistic regarding the long term prospects for Beacon and the flywheel technology, Beacon has not yet successfully introduced a flywheel product and will need substantial additional financing to continue its operations. If in the future the Company determines that its investment in Beacon does not have any remaining value, the Company would take appropriate actions to write-off the remaining cost of its investment. 9 Other income/(loss),net. Other income, net increased approximately $9,000 from Q2 1998 YTD to Q2 1999 YTD. The loss was the result of the sale of a marketable security. Interest income/(expense), net. Interest income, net decreased approximately $103,000 or 96.7% from Q2 1998 YTD to Q2 1999 YTD. The decrease is the result of increased borrowings under the Line of Credit to approximately $1,521,000 at March 31, 1999 and the decrease in marketable securities of approximately $1,035,000 or 73.1% from March 31, 1998 to March 31, 1999. Liquidity and Capital Resources The Company's cash and cash equivalents was approximately $234,000 as of March 31, 1999, a decrease of approximately $968,000 from September 30, 1998. Cash used in operating activities was approximately $1,986,000 for Q2 1999 YTD, compared to approximately $1,311,000 for Q2 1998 YTD. The cash used in operating activities is primarily the result of an increase in inventory related to the introduction of a new line of standard regulators. On December 16, 1998, the Company obtained a $2,000,000 discretionary demand line of credit (the "Line of Credit"), bearing interest at the bank's prime rate of interest plus 1 1/2%. Available borrowings are based on a formula of eligible accounts receivable and inventory and will be used for capital expenditures, working capital and general corporate purposes. On May 7, 1999, the Company increased the Line of Credit to $3,000,000. The Company anticipates that its existing cash resources, cash flow from operations and the Line of Credit will be sufficient to fund its operations through at least March 31, 1999, and to repurchase up to 5 percent of the outstanding shares of the Company's Common Stock under a stock repurchase program (the "Repurchase Program") provided that the Company meets its operating plan. Under the Repurchase Program, the Company plans to purchase shares of the Company's Common Stock on the open market from time to time, depending on market conditions. To the extent cash flows from operations are insufficient to fund the Company's activities, it may be necessary to raise additional funds through equity or debt financing. The Company's ability to generate cash from operations depends upon, among other things, revenue growth, its credit and payment terms with vendors and collection of accounts receivable. If such sources of cash prove insufficient, the Company will be required to make changes in its operations or to seek additional debt or equity financing. There can be no assurance that cash generated from operations will be sufficient to meet its operating requirements or that additional debt or equity financing will be available on terms acceptable to the Company, or at all. Effects of Inflation The Company believes that inflation and changing prices over the past three years have not had a significant impact on the Company's net sales and revenues or on income from continuing operations. Factors Affecting Future Results The Company's future results remain difficult to predict and may be affected by a number of factors which could cause actual results to differ materially from forward-looking statements contained in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time. These factors include business conditions within the automotive, telecommunications, industrial machinery, and semiconductor industries and the world economies as a whole, and competitive pressures that may impact research and development spending. The Company's revenue growth is dependent on technology developments and contract research and development for both the government and commercial sectors and no assurance can be given that such investments will continue or that the Company can successfully obtain such funds. In addition, the Company's future growth opportunities are dependent on the introduction of new products that must penetrate automotive, telecommunications, industrial, and computer market segments. No assurance can be given that new products can be developed, or if developed, will be successful; that competitors will not force prices to an unacceptably low level or take market share from the Company; or that the Company can achieve or maintain profits in these markets. Because of these and other factors, past financial performances should not be considered an indicator of future performance. Investors should not use historical trends to anticipate future results and should be aware that the Company's stock price frequently experiences significant volatility. 10 On October 23, 1998, the Company entered into the Agreement with Beacon, Perseus, Duquesne and Micro. Pursuant to the terms of the agreement, (i) the Purchasers purchased from Beacon and Beacon issued, sold and delivered to the Purchasers the Shares) of Beacon's Class D Preferred Stock, $.01 par value per share; (ii) the Purchasers have the right to receive certain warrants to purchase shares of Beacon's Common Stock; (iii) the Company granted the Purchasers the Put Right to cause the Company, in circumstances described below, to purchase all of the Shares and all of Beacon's Common Stock issuable upon conversion of the Shares; and (iv) upon exercise of the Put Right pursuant to the terms of the agreement, the Company must pay the consideration contemplated by the agreement in shares of the Company's Common Stock, valued at the average fair value for the fifteen trading days before and after notice of exercise of the Put Right. The aggregate consideration received by Beacon was $4,750,000. The Put Right is exercisable within sixty days of the second, third, forth and fifth anniversary of the closing date of the transaction, upon certain events of bankruptcy of Beacon and upon the occurrence of certain going private transactions involving the Company. If the Put Right were to be exercised, the Company would most likely recognize a loss equal to the value of the Company's shares issued upon exercise of the Put Right. Effect of Recent Accounting Pronouncements In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related Information." SFAS 131 is effective for fiscal years beginning after December 15, 1997 and establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products and services, geographical areas and major customers. The Company will adopt SFAS 131 in the fiscal year ending September 30, 1999. This Statement need not be applied to interim financial periods in the initial year of application, however, comparative information for interim financial statements in the year of application will be reported in financial statements for interim periods in the second year of application. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for fiscal years beginning after June 15, 1999 and establishes a new model for accounting for derivatives and hedging activities. The Company will adopt SFAS 133 beginning in the first quarter of the fiscal year ending September 30, 2000. Adoption of SFAS 131 and SFAS 133 are not expected to have a material impact to the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. Effects of Year 2000 The year 2000 ("Y2K") issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Certain computer programs that have date-sensitive software and use two digits only may recognize a date using "00" as the year 1900 rather than the year 2000. The Company recognizes the need to ensure its operations will not be adversely impacted by the Y2K software failures and has established a project team to address the Y2K risks. The project team has coordinated the identification of, and will coordinate the implementation of, changes to computer hardware and software applications that will attempt to ensure availability and integrity of the Company's information systems and the reliability of its operational systems and manufacturing processes. The Company is also assessing the potential overall impact of Y2K on its business, results of operations and financial position. The Company has reviewed its information and operational systems and manufacturing processes in order to identify those products, services or systems that are not Y2K compliant. As a result of this review, the Company has determined that it will be required to modify or replace certain information and operational systems so that they will be Y2K compliant. These modifications and replacements are being, and will continue to be, made in conjunction with the Company's overall system initiatives. The total cost of these Y2K compliance measures has not been, and is not anticipated to be, material to the Company's financial position or its results of operations. The Company expects to complete its Y2K project during fiscal year 1999. Based on available information, the Company does not believe any material exposure to significant business interruption exists as a result of Y2K compliance issues. Accordingly, the Company has not adopted any formal contingency plan in the event its Y2K project is not completed in a timely manner. These costs and the timing in which the Company plans to complete its Y2K modifications and testing processes are based on management's best estimates. However, there can be no assurance that the Company will timely identify and remediate all significant Y2K problems, that remedial efforts will not involve significant time and expense or that such problems will not have a material adverse effect on the Company's business, results of operations or financial position. 11 The Company also faces risks to the extent that suppliers of products, services and systems purchased by the Company and others with whom the Company transacts business do not comply with the Y2K requirements. The Company is identifying significant suppliers and customers to determine the extent to which the Company is vulnerable to these third parties' failure to remediate their own Y2K issues. In the event any such third party cannot provide the Company the products, services or systems that meet the Y2K requirements on a timely basis, the Company's results of operations could be materially and adversely affected. To the extent Y2K issues cause significant delays in, or cancellation of, decisions to purchase the Company's products or services, the Company's business, results of operations or financial position would be materially adversely affected. 12 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company maintains an investment portfolio consisting of debt securities of various issuers, types and maturities. These securities are classified as available for sale, and consequently are recorded on the balance sheet at market value, with the unrecorded gain or loss recorded through the equity section. These instruments are not leveraged, and are not held for purposes of trading. The following table summarizes derivative financial instruments included in marketable securities held by the Company at March 31, 1999, which are sensitive to changes in interest rates:
For the years ended September 30, Total Face Total Fair Description 1999 2000 2001 2002 2003 Thereafter Value Value - ----------- ---- ---- ---- ---- ---- ---------- ---------- ---------- Floater $350,000 $350,000 $325,500 Average Interest Rate 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% CMO $ 48,695 $ 48,695 $ 55,578 Average Interest Rate 5.6% 5.6% 5.6% 5.6% 5.6% 5.6%
13 PART II: OTHER INFORMATION Item 1. Legal Proceedings: On December 12, 1997, FMI filed suit against Albert R. Snider for breach of certain representations made by Mr. Snider, including statements of inventory balances, in the Asset Purchase Agreement, dated as of April 3, 1997, between FMI and Mr. Snider relating to the purchase by the Company of the business of FMI. The suit was filed in the United States District Court in Boston, Massachusetts. The parties dismissed the lawsuit because settlement discussions between the Company and Mr. Snider were ongoing. However, those settlement discussions were unsuccessful, and the lawsuit was reinstated on July 17, 1998. Mr. Snider filed a counterclaim seeking, among other things, payments allegedly due from the Company under a promissory note and unspecified damages under the Massachusetts unfair trade practices statute. Mr. Snider's motion for partial summary judgement on the promissory note counterclaim was denied by the District Court on October 15, 1998. On December 30, 1998, Mr. Snider filed a motion to amend his counterclaim, seeking to assert two additional claims against the Company for: (i) the Company's breach of an alleged promise to make Mr. Snider a member of the Company's Board of Directors; and (ii) alleged misrepresentations in the Company's financial statements. The additional claims sought unspecified damages, and/or an order requiring the Company to offer Mr. Snider a seat on the Company's Board of Directors. On January 21, 1999, the District Court denied Mr. Snider's motion to amend his counterclaim. On January 28, 1999, Mr. Snider filed a motion asking the court to reconsider its January 21, 1999 order. On February 12, 1999, the District Court also denied the motion. Pursuant the the terms of the Agreement, dated March 1, 1999, by and between the Company, FMI and Mr. Snider (the "Settlement Agreement"), the parties reached a definitive settlement arangement regarding this litigation. On March 9, 1999, the parties filed a Stipulation of Dismissal With Prejudice with the District Court and no further action is required by either party with respect to this matter. Pursuant to the terms of the Settlement Agreement, the Company made a $100,000 cash payment to Mr. Snider on March 9, 1999 and the parties executed mutual general releases dismissing any and all claims between them. In addition, the Settlement Agreement provides a right of first refusal in favor of the Company with respect to certain shares of the Company's Common Stock, beneficially owned by Mr. Snider. Concurrently with the execution of the Settlement Agreement, the Company and Mr. Sneder entered into a consulting agreement pursuant to which Mr. Snider will perform such consulting, advisory and related services as the Company may reasonably request from time to time between October 1, 1999 and October 1, 2002. In exchange for these services, the Company issued 42,860 shares of its Common Stock to an escrow agent who will release such shares to Mr. Snider or his nominees on January 2, 2001. Disclosure relating to this litigation was previously set forth in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1998. Item 2. Changes in Securities and Use of Proceeds: On January 4, 1999, the Company issued 100,000 shares of Common Stock to two individuals in connection with MagMotor's purchase of certain assets and assumption of certain liabilities of Inductive and Lighthouse. These shares were issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. On March 9, 1999, the Company issued 42,860 shares of Common Stock to an escrow agent in connection with a consulting agreement entered into by the Company and Mr. Snider pusuant to which Mr. Snider will perform such consulting, advisory and related services as the Company may reasonably request from time to time between October 1, 1999 and October 1, 2002. These shares were issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. Item 3. Defaults upon Senior Securities: Not applicable. 14 Item 4. Submission of Matters to a Vote of Security Holders: At the Company's Annual Meeting of Stockholders (the "Annual Meeting") held on March 17, 1999, the Company's stockholders approved the following:
PROPOSAL FOR AGAINST/ ABSTAIN BROKER WITHHELD NON-VOTES (1) To elect the following Class II Directors: John P. O'Sullivan 8,398,584 0 323,960 0 Michael C. Turmelle. 8,394,846 0 327,698 0 The other directors of the Company, whose terms of office as directors continued after the Annual Meeting are Marshall J. Armstrong, Anthony J. Villiotti, David B. Eisenhaure and James L. Kirtley, Jr., Ph.D. (2) To approve an amendment to the Company's Certificate of Incorporation increasing from 15,000,000 to 20,000,000 the number of authorized shares of Common Stock. 8,465,834 201,266 55,444 0 (3) To approve the Company's 1998 Stock Incentive Plan. 5,359,339 616,696 25,714 2,720,795 (4) To ratify the selection of PricewaterhouseCoopers LLP as Independent auditors for the fiscal year ending September 30, 1999. 8,684,549 31,096 6,899 0
Item 5. Other Information: Not applicable. Item 6 Exhibits and Reports on Form 8-K: (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K On January 11, 1999, the Company filed a Current Report on Form 8-K, dated January 4, 1999, in connection with the Asset Purchase Agreement, dated January 4, 1999, among K&D MagMotor Corp., a wholly-owned subsidiary of SatCon Technology Corporation, Inductive, Lighthouse and Thomas Glynn, the sole stockholder of Inductive and the majority stockholder of Lighthouse. 15 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: May 17, 1999 By: /S/ MICHAEL C. TURMELLE ------------------------------------ Michael C. Turmelle, Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS SEP-30-1999 MAR-31-1999 233,861 381,078 3,182,711 20,000 5,270,640 12,080,302 3,019,149 0 19,920,236 4,085,117 0 0 0 91,614 15,743,505 19,920,236 0 7,531,985 0 5,317,945 2,200,359 0 0 (264,246) 0 (264,246) 0 0 0 (264,246) (0.03) (0.03) PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION AS REPORTED WITHIN THE FORM 10-Q ON THE BALANCE SHEET IN ACCORDANCE WITH SFAS NO. 128, "EARNINGS PER SHARE--BASIC" IS REPORTED AS THE VALUE FOR THE (EPS-PRIMARY) TAG AND "EARNINGS PER SHARE--DILUTED" IS REPORTED AS THE VALUE FOR THE (EPS-DILUTED) TAG
-----END PRIVACY-ENHANCED MESSAGE-----