SATCON TECHNOLOGY CORP - 10-Q Quarterly Report

Back to GetFilings.com

QuickLinks -- Click here to rapidly navigate through this document

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 June 29, 2002
Commission File Number 1-11512

SATCON TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

04-2857552
(IRS Employer Identification No.)

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 ý No o

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,
16,741,646 shares outstanding as of July 31, 2002.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Statements of SatCon Technology Corporation
	Consolidated Balance Sheets as of June 29, 2002 (Unaudited) and as of September 30, 2001 (Audited)	3
	Consolidated Statements of Operations (Unaudited)	4
	Consolidated Statement of Changes in Stockholders' Equity (Unaudited)	5
	Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Interim Consolidated Financial Statements (Unaudited)	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		30
Item 2. Changes in Securities and Use of Proceeds		30
Item 3. Defaults Upon Senior Securities		30
Item 4. Submission of Matters to a Vote of Security Holders		30
Item 5. Other Information		30
Item 6. Exhibits and Reports on Form 8-K		30
Signature		31
Exhibit Index		32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SATCON TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

			June 29, 2002			September 30, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	4,247,532		$	11,051,465
	Marketable securities			—			9,872,317
	Accounts receivable, net of allowance of $737,640 at June 29, 2002 and $775,706 at September 30, 2001			7,294,045			8,636,740
	Unbilled contract costs and fees			1,023,513			578,098
	Inventory			11,538,444			11,413,616
	Prepaid expenses and other current assets			942,058			913,860

		Total current assets		25,045,592			42,466,096
Investment in Beacon Power Corporation				1,035,300			7,152,984
Warrants to purchase common stock				22,358			576,915
Property and equipment, net				9,435,311			7,778,904
Goodwill, net				6,234,653			6,234,653
Intangibles, net				3,892,293			4,347,601
Other long-term assets				172,306			219,306

		Total assets	$	45,837,813		$	68,776,459

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Current portion of long-term debt		$	311,178		$	331,824
	Accounts payable			5,206,419			7,419,898
	Accrued payroll and payroll related expenses			1,904,883			1,437,665
	Other accrued expenses			2,984,967			2,271,502
	Deferred revenue			1,037,987			1,381,040

		Total current liabilities		11,445,434			12,841,929
Long-term debt, net of current portion				790,748			1,039,487
Other long-term liabilities				141,201			149,274
Contingent obligation to common stock warrant holders				—			234,699
Stockholders' equity:
	Preferred stock; $0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding			—			—
	Common stock; $0.01 par value, 50,000,000 shares authorized; 16,600,089 and 16,539,597 shares issued and outstanding at June 29, 2002 and September 30, 2001, respectively			166,001			165,396
	Additional paid-in capital			115,002,883			114,593,612
	Accumulated deficit			(79,848,753	)		(64,459,763	)
	Accumulated other comprehensive income (loss)			(1,859,701	)		4,211,825

		Total stockholders' equity		33,460,430			54,511,070

		Total liabilities and stockholders' equity	$	45,837,813		$	68,776,459

The accompanying notes are an integral part of these consolidated financial statements.

SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

			Three Months Ended						Nine Months Ended
			June 29, 2002			June 30, 2001			June 29, 2002			June 30, 2001
Revenue:
Product revenue			$	8,758,121		$	7,562,978		$	22,347,890		$	23,490,125
Funded research and development and other revenue				2,996,198			3,076,851			8,046,656			8,179,847

		Total revenue		11,754,319			10,639,829			30,394,546			31,669,972

Operating costs and expenses:
Cost of product revenue				7,849,003			6,225,769			21,606,070			19,084,186
Research and development and other revenue expenses:
	Funded research and development and other revenue expenses			1,910,781			2,076,568			5,236,104			5,798,089
	Unfunded research and development expenses			1,108,486			1,478,212			4,752,742			4,311,088

		Total research and development and other revenue expenses		3,019,267			3,554,780			9,988,846			10,109,177
Selling, general and administrative expenses				3,911,287			3,560,648			11,789,757			9,407,917
Write-off of public offering costs				—			95,021			—			1,420,627
Amortization of intangibles (including goodwill for 2001)				149,079			322,735			446,303			968,205
Restructuring costs				1,500,000			—			1,500,000			—

		Total operating costs and expenses		16,428,636			13,758,953			45,330,976			40,990,112

Operating loss				(4,674,317	)		(3,119,124	)		(14,936,430	)		(9,320,140	)
Net realized gain on sale of marketable securities				—			—			16,956			—
Net unrealized gain/loss on warrants to purchase common stock				(168,700	)		767,644			(512,306	)		(224,777	)
Other expense				(132,027	)		—			(132,027	)		—
Interest income				9,927			150,245			273,807			415,554
Interest expense				(30,862	)		(33,943	)		(98,990	)		(72,485	)

Net loss before loss from Beacon Power Corporation and cumulative effect of change in accounting principle				(4,995,979	)		(2,235,178	)		(15,388,990	)		(9,201,848	)
Loss from Beacon Power Corporation				—			(1,303,306	)		—			(3,697,512	)

Net loss before cumulative effect of change in accounting principle				(4,995,979	)		(3,538,484	)		(15,388,990	)		(12,899,360	)
Cumulative effect of change in accounting principle				—			854,113			—			(167,612	)

Net loss				(4,995,979	)		(2,684,371	)		(15,388,990	)		(13,066,972	)
Cumulative effect of change in accounting principle				—			(1,940,798	)		—			(1,940,798	)

Net loss attributable to common stockholders			$	(4,995,979	)	$	(4,625,169	)	$	(15,388,990	)	$	(15,007,770	)

Net loss before cumulative effect of change in accounting principle per weighted average share, basic and diluted			$	(0.30	)	$	(0.24	)	$	(0.93	)	$	(0.92	)
Cumulative effect of change in accounting principle per weighted average share, basic and diluted				—			(0.08	)		—			(0.15	)

Net loss per weighted average share, basic and diluted			$	(0.30	)	$	(0.32	)	$	(0.93	)	$	(1.07	)

Weighted average number of common shares, basic and diluted				16,569,843			14,492,407			16,549,679			14,063,268

The accompanying notes are an integral part of these consolidated financial statements.

SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the nine months ended June 29, 2002

(Unaudited)

	Common Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity			Comprehensive Loss
Balance, September 30, 2001	16,539,597	$	165,396	$	114,593,612	$	(64,459,763	)	$	4,211,825		$	54,511,070
Net loss	—		—		—		(15,388,990	)		—			(15,388,990	)	$	(15,388,990	)
Change in unrealized gain (loss) on marketable securities	—		—		—		—			(26,367	)		(26,367	)		(26,367	)
Change in unrealized gain (loss) on Beacon Power Corporation common stock	—		—		—		—			(6,117,684	)		(6,117,684	)		(6,117,684	)
Reclassification of common stock warrants from liability to equity	—		—		192,448		—			—			192,448
Stock-based compensation related to options to purchase common stock to consultants	—		—		20,831		—			—			20,831
Issuance of common stock to 401(k) Plan	60,492		605		195,992		—			—			196,597
Foreign currency translation adjustment	—		—		—		—			72,525			72,525			72,525

Comprehensive loss															$	(21,460,516	)

Balance, June 29, 2002	16,600,089	$	166,001	$	115,002,883	$	(79,848,753	)	$	(1,859,701	)	$	33,460,430

The accompanying notes are an integral part of these consolidated financial statements.

SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

				Nine Months Ended
				June 29, 2002			June 30, 2001
Cash flows from operating activities:
	Net loss			$	(15,388,990	)	$	(13,066,972	)
		Adjustments to reconcile net loss to net cash used in operating activities:
			Depreciation and amortization		1,616,180			1,794,157
			Allowance for doubtful accounts		125,007			153,391
			Allowance for excess and obsolete inventory		1,008,000			1,000,399
			Loss from Beacon Power Corporation		—			3,697,512
			Net realized gain on sale of marketable securities		(16,956	)		—
			Net unrealized loss on warrants to purchase common stock		554,557			1,246,502
			Change in contingent obligation to common stock warrant holders		(42,251	)		(854,113	)
			Amortization of prepaid consulting expense		—			112,500
			Common stock issued in connection with settlement agreement		—			162,500
			Write-off of public offering costs		—			1,420,627
			Stock-based compensation expense		217,428			—
		Changes in operating assets and liabilities:
			Accounts receivable		1,217,688			(321,565	)
			Unbilled contract costs and fees		(445,415	)		494,971
			Prepaid expenses and other current assets		(28,198	)		(290,246	)
			Inventory		(1,132,828	)		(3,048,640	)
			Other long-term assets		47,000			68,270
			Accounts payable		(2,213,479	)		1,631,295
			Accrued expenses and payroll		1,180,683			268,942
			Other liabilities		(351,126	)		(264,615	)

		Total adjustments			1,736,290			7,271,887

	Net cash used in operating activities				(13,652,700	)		(5,795,085	)

	Cash flows from investing activities:
		Patent and intangible expenditures			—			(19,200	)
		Purchases of property and equipment			(2,817,279	)		(1,343,147	)
		Purchases of marketable securities			—			(9,845,950	)
		Proceeds from the sale of marketable securities			9,889,273			—
		Acquisitions, net of cash acquired			—			(169,364	)

	Net cash provided by (used in) investing activities				7,071,994			(11,377,661	)

	Cash flows from financing activities:
		Proceeds from long-term debt			—			1,505,182
		Repayment of long-term debt			(269,385	)		(342,138	)
		Net proceeds from issuance of common stock			—			17,090,573
		Proceeds from exercise of stock options			—			677,077
		Proceeds from exercise of stock warrants			—			6,329,520
		Deferred equity financing costs			—			(741,647	)

	Net cash (used in) provided by financing activities				(269,385	)		24,518,567

	Effect of foreign currency exchange rates on cash and cash equivalents				46,158			(3,189	)

	Net increase in cash and cash equivalents				(6,803,933	)		7,342,632
	Cash and cash equivalents at beginning of period				11,051,465			8,814,324

	Cash and cash equivalents at end of period			$	4,247,532		$	16,156,956

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-Cash Investing and Financing Activities:
Accretion of redeemable preferred stock discount				$	—		$	1,940,798
Contingent obligation to Class D preferred stockholders of Beacon Power Corporation				$	—		$	(5,793,879	)
Valuation adjustment for warrants to purchase common stock				$	(554,557	)	$	224,777
Net gain on investment in Beacon Power Corporation				$	—		$	10,779,224
Contingent obligation to common stock warrant holders				$	(42,251	)	$	651,308
Retirement of treasury shares				$	—		$	(249,704	)
Change in unrealized gain(loss) on marketable securities				$	(26,367	)	$	—
Change in unrealized gain(loss) on Beacon Power Corporation common stock				$	(6,117,684	)	$	—

The accompanying notes are an integral part of these consolidated financial statements.

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 June 29, 2002 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, as amended, for the year ended September 30, 2001. Operating results for the three and nine months ended June 29, 2002 are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year.

Change in Reporting Period

In fiscal year 2002, the Company has changed the reporting periods for operational purposes for the first three quarters of its fiscal year to the 13-week periods ending on the last Saturday of the last month of each quarter. As a result, the Company's third quarter of fiscal year 2002 ended on June 29, 2002. The Company believes that due to this fact there is no material difference between the 2002 and 2001 reporting period for the three and nine month periods and that the results of both periods are comparable.

Note B. Liquidity and Capital Resources

Since inception, the Company has financed its operations and met its capital expenditure requirements primarily through the sale of private equity securities, public security offerings, borrowings on a line of credit and capital equipment leases.

As of June 29, 2002, the Company's cash, cash equivalents and marketable securities were $4.2 million, a decrease of $16.7 million from September 30, 2001. Cash used in operating activities for the nine months ended June 29, 2002 was $13.7 million as compared to $5.8 million for the nine months ended June 30, 2001. Cash used in operating activities during the nine months ended June 29, 2002 was primarily attributable to the Company's net loss offset by non-cash items such as depreciation and amortization, increases in allowances for doubtful accounts and excess and obsolete inventory, unrealized loss from warrants to purchase common stock, change in contingent obligation to common stock warrant holders and non-cash compensation expense.

Cash used in investing activities during the nine months ended June 29, 2002 was $2.8 million, excluding the sale of marketable securities of $9.9 million, as compared to $1.5 million, excluding the purchase of marketable securities of $9.8 million, for the nine months ended June 30, 2001. Net cash used in investing activities during the nine months ended June 29, 2002 included capital expenditures of $2.8 million primarily at the Company's Power Systems Division to expand its capacity to manufacture its power conversion products. The Company estimates that its capital expenditures for the balance of fiscal year 2002 will approximate depreciation. The Company expects these additions will be financed principally from lease financing and, to a lesser extent, cash on hand.

Cash used by financing activities for the nine months ended June 29, 2002 was $269,000 as compared to $24.5 million provided by financing activities for the nine months ended June 30, 2001.

Net cash used by financing activities during the nine months ended June 29, 2002 includes $269,000 of repayment of long-term debt.

The Company leases equipment and office space under non-cancelable capital and operating leases. Future minimum rental payments, as of June 29, 2002, under the capital and operating leases with non-cancelable terms are as follows:

Year Ended September 30,	Capital Leases		Operating Leases
2002	$	91,683	$	612,754
2003		366,733		2,147,815
2004		279,550		739,570
2005		236,456		501,108
2006		316,762		262,367
Thereafter		—		1,168,000

Total (Operating lease commitments not reduced by minimum sublease rentals of $209,366)	$	1,291,184	$	5,431,614

The Company anticipates that, barring unforeseen circumstances, the existing cash and cash equivalents available at June 29, 2002 will be sufficient to fund operations through September 30, 2002. However, in the event that the Company is unable to realize cost-saving measures that are underway, its expenses are higher than anticipated or its revenues or collections are lower or slower than anticipated, the Company may need additional cash prior to September 30, 2002. The Company may also need additional future funds in order to fund unanticipated operating losses, to grow, to develop new or enhance existing products and services, to respond to competitive pressures or to acquire complementary businesses, products or technologies. Sources of additional funding could include obtaining a credit facility or the issuance of debt or equity securities. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the Company's stockholders will be reduced and the Company's stockholders may experience additional dilution. The terms of additional funding may also limit the Company's operating and financial flexibility. There can be no assurance that additional financing of any kind will be available to the Company on terms acceptable to the Company, or at all. If adequate funds are not available or are not available on acceptable terms, the Company would be required to scale back its operations. Failure to obtain future funding when needed or on acceptable terms would materially, adversely affect the Company's financial position and results of operations.

In late July 2002 the Company received a letter of commitment from the Silicon Valley Bank for a $5 million revolving line of credit. This commitment provided that the line of credit will be secured by most of the assets of the Company and is formula based with a 75% draw against eligible receivables as defined in the agreement, and requires the Company to raise $4 million of subordinated debt or equity by December 1, 2002. On August 2, 2002 the Company accepted the terms of the commitment and is working with the bank on the documentation and the other conditions to close the loan before the expiration of the commitment. However, there can be no assurance that the Company will close the loan or, if the loan closes, that the Company will be able to raise the $4 million of equity or subordinated debt as specified by December 1, 2002 to continue the loan. Further, if the Company's cash at June 29, 2002 is insufficient to fund operations through September 30, 2002, and the Company does not close the proposed loan with the Silicon Valley Bank or, if the loan is closed the Company is unable to raise the $4 million of equity or subordinated debt by December 1, 2002, the Company will need to consider other options. Some of the options include selling assets or businesses, restructuring the Company so that it is able to operate using only its cash flow or securing some other form of financing. There can be no assurance, however, that the Company would be successful in executing any of these options. If the Company is not successful, it will likely have a material adverse effect on the Company's financial position and results of operation.