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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 28, 2003

Commission File Number 1-11512

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

Delaware
(State or other jurisdiction of
Incorporation or organization)		   04-2857552
(IRS Employer Identification No.)

161 First Street
Cambridge, Massachusetts
(Address of principal executive offices)
 
02142-1221
(Zip Code)

(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 o    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    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,
19,164,458 shares outstanding as of August 8, 2003.


TABLE OF CONTENTS

 
   Page
PART I. FINANCIAL INFORMATION    
Item 1. Financial Statements    
Financial Statements of SatCon Technology Corporation    
  Consolidated Balance Sheets as of June 28, 2003 (Unaudited) and September 30, 2002 (Audited)   2
  Consolidated Statements of Operations (Unaudited)   3
  Consolidated Statements of Changes in Stockholders' Equity (Unaudited)   4
  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   23
Item 3. Quantitative and Qualitative Disclosures About Market Risk   40
Item 4. Controls and Procedures   40

PART II. OTHER INFORMATION
 
 
Item 1. Legal Proceedings   41
Item 2. Changes in Securities and Use of Proceeds   41
Item 3. Defaults Upon Senior Securities   41
Item 4. Submission of Matters to a Vote of Security Holders   41
Item 5. Other Information   41
Item 6. Exhibits and Reports on Form 8-K   41
Signature   42
Exhibit Index   43


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

 
   June 28,
2003
   September 30,
2002
  
 
   (Unaudited)

   (Audited)

  
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 1,077,995   $ 2,120,306  
  Restricted cash and cash equivalents (Note B)     750,000     —  
  Accounts receivable, net of allowance of $1,012,730 at June 28, 2003 and $898,322 at September 30, 2002     3,120,996     7,227,006  
  Unbilled contract costs and fees     1,181,763     1,607,244  
  Inventory (Note F)     8,496,565     10,246,022  
  Prepaid expenses and other current assets     1,013,046     988,040  
   
 
 
    Total current assets     15,640,365     22,188,618  
Investment in Beacon Power Corporation (Note C)     205,692     800,005  
Warrants to purchase common stock (Note C)     28,473     15,988  
Property and equipment, net (Note C)     7,320,335     9,239,363  
Goodwill, net (Note C)     704,362     6,234,653  
Intangible assets, net (Note C)     3,062,976     3,729,483  
Other long-term assets     141,029     152,015  
   
 
 
    Total assets   $ 27,103,232   $ 42,360,125  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:              
  Bank line of credit   $ 896,336   $ —  
  Current portion of long-term debt     282,779     266,808  
  Accounts payable     6,725,960     5,877,805  
  Accrued payroll and payroll related expenses     1,688,114     1,669,372  
  Other accrued expenses     2,745,110     1,772,180  
  Deferred revenue and customer deposits     2,988,627     638,769  
  Accrued restructuring costs     499,981     992,496  
  Liability related to Series A Preferred stock (Note D)     3,176,000     —  
   
 
 
    Total current liabilities     19,002,907     11,217,430  
Long-term debt, net of current portion     559,252     772,679  
Other long-term liabilities     337,813     444,406  
Stockholders' equity:              
  Preferred stock; $0.01 par value, 1,000,000 shares authorized; 253.8 and -0- shares issued and outstanding at June 28, 2003 and September 30, 2002, respectively (Note D)     —     —  
  Common stock; $0.01 par value, 50,000,000 shares authorized; 18,930,061 and 16,741,646 shares issued and outstanding at June 28, 2003 and September 30, 2002, respectively     173,093     167,416  
  Additional paid-in capital     116,476,835     115,800,692  
  Accumulated deficit     (109,388,184 )   (85,220,361 )
  Accumulated other comprehensive loss     (58,484 )   (822,137 )
   
 
 
    Total stockholders' equity     7,203,260     29,925,610  
   
 
 
    Total liabilities and stockholders' equity   $ 27,103,232   $ 42,360,125  
   
 
 

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

2


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
   Three Months Ended
   Nine Months Ended
  
 
   June 28,
2003
   June 29,
2002
   June 28,
2003
   June 29,
2002
  
Revenue:                          
Product revenue   $ 5,010,513   $ 8,758,121   $ 14,591,318   $ 22,347,890  
Funded research and development and other revenue     1,426,208     2,996,198     4,312,637     8,046,656  
   
 
 
 
 
    Total revenue     6,436,721     11,754,319     18,903,955     30,394,546  
   
 
 
 
 
Operating costs and expenses:                          
Cost of product revenue     8,117,143     7,849,003     19,795,459     21,606,070  
Research and development and other revenue expenses:                          
  Funded research and development and other revenue expenses     1,197,420     1,910,781     3,784,686     5,236,104  
  Unfunded research and development expenses     313,281     1,108,486     1,426,991     4,752,742  
   
 
 
 
 
    Total research and development and other revenue expenses     1,510,701     3,019,267     5,211,677     9,988,846  
Selling, general and administrative expenses     3,280,977     3,911,287     10,974,652     11,789,757  
Amortization of intangibles     98,979     149,079     393,040     446,303  
Restructuring costs     —     1,500,000     —     1,500,000  
Write-off of impaired long-lived assets (Note C)     700,000     —     700,000     —  
Write-off of impaired goodwill and intangible assets (Note C)     —     —     5,751,082     —  
   
 
 
 
 
    Total operating costs and expenses     13,707,800     16,428,636     42,825,910     45,330,976  
   
 
 
 
 
Operating loss     (7,271,079 )   (4,674,317 )   (23,921,955 )   (14,936,430 )
Net realized gain on sale of marketable securities     —     —     —     16,956  
Net unrealized gain/(loss) on warrants to purchase common stock     15,894     (168,700 )   12,485     (512,306 )
Write-down of investment in Beacon Power Corporation (Note C)     —     —     (541,885 )   —  
Realized gain on sale of Beacon Power Corporation common stock (Note C)     795,258     —     795,258     —  
Other income/(expense)     —     (132,027 )   55,700     (132,027 )
Interest income     1,831     9,927     4,372     273,807  
Interest expense     (203,870 )   (30,862 )   (571,798 )   (98,990 )
   
 
 
 
 
Net loss   $ (6,661,966 ) $ (4,995,979 ) $ (24,167,823 ) $ (15,388,990 )
   
 
 
 
 
Series A preferred stock dividend     (112,993 )   —     (112,993 )   —  
   
 
 
 
 
Net loss attributable to common stockholders   $ (6,774,959 ) $ (4,995,979 ) $ (24,280,816 ) $ (15,388,990 )
   
 
 
 
 

Net loss attributable to common stockholders per weighted average share, basic and diluted
 
$
(0.36
)
$
(0.30
)
$
(1.36
)
$
(0.93
)
   
 
 
 
 
Weighted average number of common shares, basic and diluted     18,885,876     16,569,843     17,864,955     16,549,679  
   
 
 
 
 

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

3


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the nine months ended June 29, 2002

(Unaudited)

 
    
    
    
    
   Accumulated Other Comprehensive Loss
    
    
  
 
   Common
Shares
   Common
Stock
   Additional
Paid-in
Capital
   Accumulated
Deficit
   Net Unrealized Gain on Marketable Securities
   Unrealized
Gain/(Loss) on
Beacon Power
Corporation
   Foreign
Currency
Translation
Adjustment
   Total
Accumulated
Other
Comprehensive
Income/(Loss)
   Total
Stockholders'
Equity
   Comprehensive
Loss
  
Balance, September 30, 2001 (Audited)   16,539,597   $ 165,396   $ 114,593,612   $ (64,459,763 ) $ 26,367   $ 4,364,035   $ (178,577 ) $ 4,211,825   $ 54,511,070        
Net loss   —     —     —     (15,388,990 )   —     —     —     —     (15,388,990 ) $ (15,388,990 )
Change in unrealized gain on marketable securities   —     —     —     —     (26,367 )   —     —     (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 )   (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     72,525  
                                                       
 
Comprehensive loss                                                       $ (21,460,516 )
   
 
 
 
 
 
 
 
 
 
 
Balance, June 29, 2002   16,600,089   $ 166,001   $ 115,002,883   $ (79,848,753 )   —   $ (1,753,649 ) $ (106,052 ) $ (1,859,701 ) $ 33,460,430        
   
 
 
 
 
 
 
 
 
       

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

4


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the nine months ended June 28, 2003

(Unaudited)

 
    
    
    
    
   Accumulated Other Comprehensive Loss
    
    
  
 
   Common
Shares
   Common
Stock
   Additional
Paid-in
Capital
   Accumulated
Deficit
   Unrealized
Gain/(Loss) on
Beacon Power
Corporation
   Foreign Currency
Translation
Adjustment
   Total Accumulated
Other
Comprehensive
Loss
   Total
Stockholders'
Equity
   Comprehensive
Loss
  
Balance, September 30, 2002 (Audited)   16,741,646   $ 167,416   $ 115,800,692   $ (85,220,361 ) $ (588,944 ) $ (233,193 ) $ (822,137 ) $ 29,925,610        
Net loss   —     —     —     (24,167,823 )   —     —     —     (24,167,823 ) $ (24,167,823 )
Change in unrealized gain (loss) on Beacon Power Corporation common stock   —     —     —     —     125,080     —     125,080     125,080     125,080  
Other than temporary write-down of investment in Beacon Power Corporation   —     —     —     —     541,885     —     541,885     541,885     541,885  
Issuance of common stock to 401(k) Plan   567,698     5,677     598,570     —     —     —     —     604,247     —  
Issuance of warrants to purchase common stock   —     —     190,566     —     —     —     —     190,566     —  
Issuance of common stock in connection with Series A warrant exercise   1,258,549     —     —     —     —     —     —     —     —  
Issuance of common stock in lieu of first year dividend on Series A Preferred Stock   362,168     —     —     —     —     —     —     —     —  
Series A preferred stock dividend   —     —     (112,993 )   —     —     —     —     (112,993 )   —  
Foreign currency translation adjustment   —     —     —     —     —     96,688     96,688     96,688     96,688  
                                                 
 
Comprehensive loss                                                 $ (23,404,170 )
   
 
 
 
 
 
 
 
 
 
Balance, June 28, 2003   18,930,061   $ 173,093   $ 116,476,835   $ (109,388,184 ) $ 78,021   $ (136,505 ) $ (58,484 ) $ 7,203,260        
   
 
 
 
 
 
 
 
       

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

5


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
   Nine Months Ended
  
 
   June 28,
2003
   June 29,
2002
  
Cash flows from operating activities:              
  Net loss   $ (24,167,823 ) $ (15,388,990 )
    Adjustments to reconcile net loss to net cash used in operating activities:              
      Depreciation and amortization     1,808,411     1,616,180  
      Allowance for doubtful accounts     114,408     125,007  
      Allowance for excess and obsolete inventory and accrued losses on purchase commitments     3,948,724     1,008,000  
      Net realized gain on sale of marketable securities     —     (16,956 )
      Net unrealized (gain)/loss on warrants to purchase common stock     (12,485 )   554,557  
      Change in contingent obligation to common stock warrant holders     —     (42,251 )
      Write-off of impaired long-lived assets     700,000     —  
      Write-off of impaired goodwill and intangible assets     5,751,082     —  
      Write-down of investment in Beacon Power Corporation     541,885     —  
      Non-cash compensation expense     604,247     217,428  
      Non-cash expense in connection with issuance of warrants and deferred financing costs     445,831     —  
      Gain on sale of equipment     (55,700 )   —  
      Gain on sale of Beacon Power Corporation common stock     (795,258 )   —  
      Changes in operating assets and liabilities:              
        Accounts receivable     3,991,602     1,217,688  
        Unbilled contract costs and fees     425,481     (445,415 )
        Prepaid expenses and other current assets     (393,264 )   (28,198 )
        Inventory     (1,461,325 )   (1,132,828 )
        Other long-term assets     10,986     47,000  
        Accounts payable     848,155     (2,213,479 )
        Accrued expenses and payroll     (113,723 )   1,180,683  
        Other liabilities     2,243,265     (351,126 )
   
 
 
    Total adjustments     18,602,322</