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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2002
 
or
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                         to                         .
 
Commission File No. 000-31953
 
 
CATALYTICA ENERGY SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
  
77-0410420
(State or other jurisdiction of
Incorporation or organization)
  
(IRS Employer
Identification Number)
 
430 Ferguson Drive
Mountain View, California 94043
(Address of principal executive offices)
 
(650) 960-3000
(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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  x
 
As of November 12, 2002, there were outstanding 17,560,684 shares of the Registrant’s common stock, par value $0.001, which is the only class of common stock of the Registrant registered under Section 12(g) of the Securities Act of 1933.

Table of Contents
 
CATALYTICA ENERGY SYSTEMS, INC.
 
FORM 10-Q
 
TABLE OF CONTENTS
 
September 30, 2002
 
           
Page No.
PART I.
   
FINANCIAL INFORMATION
       
             
Item 1.
   
Financial Statements
       
             
         
3
             
         
4
             
         
5
             
         
6
             
Item 2.
        
10
             
Item 3.
        
21
             
Item 4.
        
21
             
PART II.
   
OTHER INFORMATION
       
             
Item 6.
        
22
             
         
23
             
         
24

2

Table of Contents
PART I—FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
CATALYTICA ENERGY SYSTEMS, INC. (a company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine-month periods ended September 30, 2002 and 2001
and for the period from January 1, 1988 (inception) through September 30, 2002
(In thousands, except per share amounts)
(Unaudited)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
       
Cumulative Amounts from January 1, 1988 (inception) through September 30, 2002
  
    
2002
     
2001
     
2002
     
2001
       
Revenue:
                                               
Research and development contracts
   
$
1,497
 
   
$
1,177
 
   
$
3,269
 
   
$
4,835
 
     
$
57,309
 
Costs and expenses:
                                               
Research and development
   
 
3,489
 
   
 
3,804
 
   
 
10,548
 
   
 
11,412
 
     
 
94,335
 
Selling, general and administrative
   
 
2,184
 
   
 
661
 
   
 
8,134
 
   
 
4,342
 
     
 
31,225
 
Legal settlements
   
 
—  
 
   
 
3,000
 
   
 
—  
 
   
 
3,000
 
     
 
4,500
 
Spin-off and related transaction costs
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
     
 
5,304
 
Costs associated with discontinued product line
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
     
 
9,299
 
    
  
  
  
    
Total costs and expenses
   
 
5,673
 
   
 
7,465
 
   
 
18,682
 
   
 
18,754
 
     
 
144,663
 
    
  
  
  
    
Operating loss
   
 
(4,176
)
   
 
(6,288
)
   
 
(15,413
)
   
 
(13,919
)
     
 
(87,354
)
Interest income, net
   
 
280
 
   
 
671
 
   
 
980
 
   
 
2,041
 
     
 
5,850
 
Loss on equity investments
   
 
—  
 
   
 
(243
)
   
 
—  
 
   
 
(578
)
     
 
(10,258
)
Impairment charge to implied goodwill of an equity investment
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
     
 
(2,145
)
    
  
  
  
    
Net loss
   
$
(3,896
)
   
$
(5,860
)
   
$
(14,433
)
   
$
(12,456
)
     
$
(93,907
)
    
  
  
  
    
Basic and diluted net loss per share
   
$
(0.22
)
   
$
(0.37
)
   
$
(0.82
)
   
$
(0.90
)
           
    
  
  
  
          
Weighted average shares used in computing basic and diluted net loss per share
   
 
17,548
 
   
 
15,854
 
   
 
17,518
 
   
 
13,856
 
           
    
  
  
  
          
 
See accompanying notes.

3

Table of Contents
CATALYTICA ENERGY SYSTEMS, INC. (a company in the development stage)
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
    
September 30, 2002
     
December 31, 2001
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
60,203
 
   
$
70,064
 
Short-term investments
   
 
10,197
 
   
 
17,583
 
Accounts receivable, net
   
 
1,110
 
   
 
1,324
 
Inventory
   
 
430
 
   
 
178
 
Prepaid expenses and other assets
   
 
422
 
   
 
536
 
    
  
Total current assets
   
 
72,362
 
   
 
89,685
 
    
  
Property and equipment:
                  
Land
   
 
611
 
   
 
—  
 
Building, leasehold improvements and equipment
   
 
18,710
 
   
 
14,682
 
Less accumulated depreciation and amortization
   
 
(11,536
)
   
 
(9,905
)
    
  
    
 
7,785
 
   
 
4,777
 
    
  
Long term deposits
   
 
371
 
   
 
300
 
Notes receivable from related parties, net
   
 
301
 
   
 
378
 
    
  
Total assets
   
$
80,819
 
   
$
95,140
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
629
 
   
$
829
 
Accrued payroll and benefits
   
 
2,236
 
   
 
2,432
 
Accrued legal settlements
   
 
750
 
   
 
3,000
 
Accrued liabilities and other
   
 
1,227
 
   
 
2,034
 
Current portion of long-term debt and capital lease obligations
   
 
196
 
   
 
60
 
    
  
Total current liabilities
   
 
5,038
 
   
 
8,355
 
Long-term debt and capital lease obligations
   
 
3,077
 
   
 
63
 
    
  
Total liabilities
   
 
8,115
 
   
 
8,418
 
    
  
Stockholders’ equity:
                  
Common stock
   
 
18
 
   
 
17
 
Additional paid-in capital
   
 
166,761
 
   
 
166,439
 
Deferred compensation
   
 
(168
)
   
 
(260
)
Deficit accumulated during the development stage
   
 
(93,907
)
   
 
(79,474
)
    
  
Total stockholders’ equity
   
 
72,704
 
   
 
86,722
 
    
  
Total liabilities and stockholders’ equity
   
$
80,819
 
   
$
95,140
 
    
  
 
See accompanying notes.

4

Table of Contents
CATALYTICA ENERGY SYSTEMS, INC. (a company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 2002 and 2001
and for the period from January 1, 1988 (inception) through September 30, 2002
(In thousands)
(Unaudited)
 
    
Nine Months Ended September 30,
       
Cumulative Amounts from January 1, 1988 (inception) through September 30, 2002
  
    
2002
     
2001
       
Cash flows from operating activities:
                             
Net loss
   
$
(14,433
)
   
$
(12,456
)
     
$
(93,907
)
Adjustments to reconcile net loss to net cash used in operating activities:
                             
Depreciation and amortization
   
 
2,159
 
   
 
1,318
 
     
 
4,649
 
Notes payable issued for contract modification
   
 
200
 
   
 
—  
 
     
 
200
 
Forgiveness of notes receivable from related parties
   
 
—  
 
   
 
100
 
     
 
723
 
Provision for uncollectable accounts
   
 
—  
 
   
 
(200
)
     
 
500
 
Loss on equity investments
   
 
—  
 
   
 
577
 
     
 
10,258
 
Stock based compensation
   
 
104
 
   
 
184
 
     
 
936
 
Impairment charge to implied goodwill of an equity investment
   
 
—  
 
   
 
—  
 
     
 
1,645
 
Changes in:
                             
Accounts and notes receivable</