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UNITED STATES
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 December 27, 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 ý    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 ý

        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,
26,673,320 shares outstanding as of February 2, 2004.


TABLE OF CONTENTS

 
   Page
PART I. FINANCIAL INFORMATION    
Item 1. Financial Statements    
Financial Statements of SatCon Technology Corporation    
  Consolidated Balance Sheets as of December 27, 2003 (Unaudited) and September 30, 2003 (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   17
Item 3. Quantitative and Qualitative Disclosures About Market Risk   36
Item 4. Controls and Procedures   36

PART II. OTHER INFORMATION
 
 
Item 1. Legal Proceedings   37
Item 2. Changes in Securities and Use of Proceeds   37
Item 3. Defaults Upon Senior Securities   38
Item 4. Submission of Matters to a Vote of Security Holders   38
Item 5. Other Information   38
Item 6. Exhibits and Reports on Form 8-K   39
Signature   40
Exhibit Index   41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

 
   December 27,
2003
   September 30,
2003
  
 
   (Unaudited)

   (Audited)

  
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 5,207,836   $ 728,415  
  Restricted cash and cash equivalents     165,373     506,776  
  Accounts receivable, net of allowance of $948,986 and $937,030 at December 27, 2003 and September 30, 2003, respectively     5,309,019     5,498,998  
  Unbilled contract costs and fees     942,151     802,804  
  Funded research and development expenses in excess of billings     —     150,411  
  Inventory     4,944,800     5,802,120  
  Prepaid expenses and other current assets     1,748,390     726,357  
   
 
 
    Total current assets     18,317,569     14,215,881  
Warrants to purchase common stock     140,272     97,490  
Property and equipment, net     6,570,934     6,927,411  
Goodwill, net     704,362     704,362  
Intangibles, net     2,786,067     2,918,188  
Other long-term assets     118,610     118,610  
   
 
 
    Total assets   $ 28,637,814   $ 24,981,942  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:              
  Bank line of credit   $ —   $ 1,801,869  
  Current portion of long-term debt     247,011     271,090  
  Accounts payable     4,645,197     5,967,651  
  Accrued payroll and payroll related expenses     1,468,327     1,340,244  
  Other accrued expenses     2,268,777     2,917,176  
  Accrued contract losses     304,082     387,778  
  Deferred revenue     1,170,732     2,447,054  
  Accrued restructuring costs     495,612     495,612  
  Liability to redeemable convertible Series B preferred stockholders     7,675,000     —  
   
 
 
    Total current liabilities     18,274,738     15,628,474  
Redeemable convertible Series A preferred stock (none and 132.7 shares issued and outstanding at December 27, 2003 and September 30, 2003, respectively; face value: $12,500 per share; liquidation preference: 150%)     —     1,658,750  
Convertible subordinated debentures (Face value: $762,500; liquidation preference: 150%)     —     762,500  
Long-term debt, net of current portion     455,934     501,590  
Other long-term liabilities     147,277     268,482  
Commitments and contingencies              
Stockholders' equity:              
  Common stock; $0.01 par value, 50,000,000 shares authorized; 25,142,052 and 21,023,200 shares issued and outstanding at December 27, 2003 and September 30, 2003, respectively     251,421     210,232  
  Additional paid-in capital     127,291,131     122,792,791  
  Accumulated deficit     (117,623,182 )   (116,701,523 )
  Accumulated other comprehensive loss     (159,505 )   (139,354 )
   
 
 
    Total stockholders' equity     9,759,865     6,162,146  
   
 
 
    Total liabilities and stockholders' equity   $ 28,637,814   $ 24,981,942  
   
 
 

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

2


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
   Three Months Ended
  
 
   December 27,
2003
   December 28,
2002
  
Revenue:              
Product revenue   $ 6,208,546   $ 5,330,663  
Funded research and development and other revenue     1,978,602     1,590,267  
   
 
 
    Total revenue     8,187,148     6,920,930  
   
 
 
Operating costs and expenses:              
Cost of product revenue     5,198,152     6,100,592  
Research and development and other revenue expenses:              
  Funded research and development and other revenue expenses     1,378,782     1,380,318  
  Unfunded research and development expenses     985     580,835  
   
 
 
    Total research and development and other revenue expenses     1,379,767     1,961,153  
Selling, general and administrative expenses     2,241,483     3,779,725  
Amortization of intangibles     111,672     146,733  
   
 
 
    Total operating costs and expenses     8,931,074     11,988,203  
   
 
 
Operating loss     (743,926 )   (5,067,273 )
Net unrealized gain on warrants to purchase common stock     42,782     5,837  
Net gain on Series B warrants     35,442     —  
Interest income     2,410     1,700  
Interest expense     (258,367 )   (197,988 )
   
 
 
Net loss   $ (921,659 ) $ (5,257,724 )
   
 
 

Net loss per weighted average share, basic and diluted
 
$
(0.04
)
$
(0.31
)
   
 
 
Weighted average number of common shares, basic and diluted     24,274,611     16,877,630  
   
 
 

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 three months ended December 28, 2002

(Unaudited)

 
    
    
    
    
   Accumulated Other Comprehensive Loss
    
    
  
 
   Common
Shares
   Common
Stock
   Additional
Paid-in
Capital
   Accumulated
Deficit
   Unrealized
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   —     —     —     (5,257,724 )   —     —     —     (5,257,724 ) $ (5,257,724 )
Change in unrealized loss on Beacon Power Corporation common stock   —     —     —     —     235,296     —     235,296     235,296     235,296  
Issuance of common stock to 401(k)
Plan		   163,181     1,632     217,029     —     —     —     —     218,661     —  
Issuance of warrants to purchase common stock   —     —     20,100     —     —     —     —     20,100     —  
Foreign currency translation adjustment   —     —     —     —     —     55,764     55,764     55,764     55,764  
                                                 
 
Comprehensive loss                                                 $ (4,966,664 )
   
 
 
 
 
 
 
 
 
 
Balance, December 28, 2002   16,904,827   $ 169,048   $ 116,037,821   $ (90,478,085 ) $ (353,648 ) $ (177,429 ) $ (531,077 ) $ 25,197,707        
   
 
 
 
 
 
 
 
       

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 three months ended December 27, 2003

(Unaudited)

 
   Common
Shares
   Common
Stock
   Additional
Paid-in
Capital
   Accumulated
Deficit
   Accumulated
Other
Comprehensive
Loss
   Total
Stockholders'
Equity
   Comprehensive
Loss
  
Balance, September 30, 2003 (Audited)   21,023,200   $ 210,232   $ 122,792,791   $ (116,701,523 ) $ (139,354 ) $ 6,162,146        
Net loss   —     —     —     (921,659 )   —     (921,659 ) $ (921,659 )
Issuance of common stock to 401(k) Plan   48,804     488     138,115     —     —     138,603     —  
Issuance of common stock in connection with exercise of Series A warrant to purchase common stock   28,000     280     —     —     —     280     —  
Issuance of common stock in connection with exercise of warrants to purchase common stock   1,826,176     18,262     1,527,350     —     —     1,545,612     —  
Issuance of common stock in connection with cashless exercise of warrants to purchase common stock   76,520     765     (765 )   —     —     —     —  
Issuance of common stock in connection with the exercise of stock options to purchase common stock   17,000     170     10,540     —     —     10,710     —  
Issuance of common stock in connection with the conversion of redeemable convertible Series A preferred stock   1,327,000     13,270     1,645,480     —     —     1,658,750     —  
Issuance of common stock in connection with the conversion of convertible subordinated debentures   666,000     6,660     825,840     —     —     832,500     —  
Issuance of common stock in lieu of first year interest on convertible subordinated debentures   8,298     83     23,981     —     —     24,064     —  
Issuance of common stock in lieu of first six -months dividend on redeemable convertible Series B preferred stock   76,054     761     229,454     —     —     230,215     —  
Issuance of common stock to Aurelius Consulting Group   45,000     450     101,700     —     —     102,150     —  
Issuance of warrants to purchase common stock   —     —     32,087     —     —     32,087     —  
Mark-to-market Series B warrants   —     —     (35,442 )   —     —     (35,442 )   —  
Foreign currency translation adjustment   —     —     —     —     (20,151 )   (20,151 )   (20,151 )
                                     
 
Comprehensive loss                                     $ (941,810 )
   
 
 
 
 
 
 
 
Balance, December 27, 2003   25,142,052   $ 251,421   $ 127,291,131   $ (117,623,182 ) $ (159,505 ) $ 9,759,865        
   
 
 
 
 
 
       

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

5


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
   Three Months Ended
  
 
   December 27,
2003
   December 28,
2002
  
Cash flows from operating activities:              
  Net loss   $ (921,659 ) $ (5,257,724 )
    Adjustments to reconcile net loss to net cash used in operating activities:              
      Depreciation and amortization     512,908     631,629  
      Provision for uncollectible accounts     16,299     157,462  
      Provision for excess and obsolete inventory     —     115,179  
      Net unrealized gain on warrants to purchase common stock     (42,782 )   (5,837 )
      Net gain on Series B warrants     (35,442 )   —  
      Non-cash compensation expense     240,753     218,661  
      Non-cash interest expense     186,502     72,824  
    Changes in operating assets and liabilities:              
      Accounts receivable     173,680     1,160,936  
      Unbilled contract costs and fees     (139,347 )   594,224  
      Prepaid expenses and other current assets     (182,007 )   (78,791 )
      Inventory     1,595,262     (657,091 )
      Other long-term assets     —     20,000  
      Accounts payable     (1,322,454 )   403,422  
      Accrued payroll and payroll related expenses, other expenses, accrued contract losses and restructuring costs     (1,223,843 )   244,442  
      Other liabilities     (1,405,244 )   672,783  
   
 
 
    Total adjustments     (1,625,715 )   3,549,843  
   
 
 
  Net cash used in operating activities     (2,547,374 )   (1,707,881 )
   
 
 
  Cash flows from investing activities:              
    Purchases of property and equipment     (24,310 )   (161,947 )
   
 
 
  Net cash used in investing activities     (24,310 )   (161,947 )
   
 
 
  Cash flows from financing activities:              
    Net (repayments) borrowings under bank line of credit     (1,801,869 )   500,739  
    Repayment of long-term debt     (69,735 )   (64,099 )
    Proceeds from issuance of convertible subordinated debentures     70,000     —  
    Net proceeds from issuance of convertible preferred stock     6,974,855     —  
    Net proceeds from exercise of warrants and options to purchase common stock     1,556,602     —  
   
 
 
  Net cash provided by financing activities     6,729,853     436,640  
   
 
 
  Effect of foreign currency exchange rates on cash and cash equivalents     (20,151 )   55,764  
   
 
 
  Net increase (decrease) in cash and cash equivalents, including restricted cash and cash equivalents     4,138,018     (1,377,424 )
  Cash and cash equivalents at beginning of period, including restricted cash and cash equivalents     1,235,191     2,120,306  
   
 
 
  Cash and cash equivalents at end of period, including restricted cash and cash equivalents   $ 5,373,209   $ 742,882  
   
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION              
Non-Cash Investing and Financing Activities:              
Valuation adjustment for warrants to purchase common stock   $ 42,782   $ 5,837  
Valuation adjustment for Series B warrants   $ 35,422   $ —  
Change in unrealized loss on Beacon Power Corporation common stock   $ —   $ 235,296  
Interest and Income Taxes Paid:              
Interest   $ 71,865   $ 185,543  
Income Taxes   $ —   $ —  

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

6


SATCON TECHNOLOGY CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 27, 2003 AND DECEMBER 28, 2002

(Unaudited)

Note A. Basis of Presentation

        The accompanying unaudited consolidated financial statements include the accounts of SatCon Technology Corporation and its wholly-owned subsidiaries (collectively, the "Company") as of December 27, 2003 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. According, 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, 2003. Operating results for the three months ended December 27, 2003 are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year.

Note B. Realization of Assets and Liquidity

        The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial losses from operations in recent years. In addition, the Company has used, rather than provided, cash in its operations.

        The Company has incurred significant costs to develop its technologies and products. These costs have exceeded total revenue. As a result, the Company has incurred losses in each of the past five years. As of December 27, 2003, it had an accumulated deficit of $117,623,182. During the three months ended December 27, 2003, the Company incurred a loss of $921,659. In addition, the Company's business plan envisions a significant increase in revenue and significant reductions in the cost structure and the cash burn rate from the results experienced in the recent past. If, however, the Company is unable to realize its plan, it may not be in compliance with loan covenants which may cause a default, as defined in the loan agreement, and may be forced to raise additional funds by selling stock, restructuring its borrowing, selling assets, or taking other actions to conserve its cash position. In addition, the Company's stock is listed on the Nasdaq National Market which requires it to comply with Nasdaq's Maketplace Rules. These rules require that the Company maintain a market value of at least $50 million or have total assets of at least $50 million and at least $50 million of total revenue and that the stock price stay above $1.00, among others. If the Company fails to maintain these rules and the Company' Common Stock is delisted from the Nasdaq National Market, there could be greater difficulty in obtaining financing.

        In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon the continued operations of the Company. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

        In October 2003, all of the holders of warrants issued in connection with the February 2003 financing transaction, exercised their warrants to purchase 1,574,000 shares of the Company's Common Stock. These warrants had an initial exercise price of $1.50, but as a result of the Company not meeting

7


certain financial parameters in its fiscal fourth quarter, the exercise price would have been adjusted to $1.00 upon the filing of the Company's Form 10-K for the fiscal year ended September 30, 2003. The Company offered these warrant holders an opportunity to exercise these warrants at $1.00 per share in October 2003 in exchange for the holders to waive their right to any penalties resulting from the fact that the registration statement underlying the securities issued in the February 2003 financing transaction had not been declared effective by the United States Securities and Exchange Commission (the "SEC") prior to June 19, 2003.

        In October 2003, the holders of the redeemable convertible Series A Preferred Stock converted 132.7 shares into 1,327,000 shares of the Company's Common Stock. As a result of this conversion, the Company recorded the remaining unamortized balance of the prepaid first year dividends, or $67,976, in October 2003.

        In October 2003, the holders of the convertible subordinated debentures converted $762,500 into 610,000 shares of the Company's Common Stock. As a result of this conversion, the Company recorded the remaining unamortized balance of the prepaid first year interest, or $81,155, in October 2003. Also in October 2003, an additional investment of $70,000 was made by issuing $70,000 of convertible subordinated debentures. The Company also issued 8,298 shares of Common Stock as payment of the first year interest, valued based on the average of the closing bid and ask price of the Common Stock on the Nasdaq National Market for the five trading days preceding February 18, 2003. These secured convertible subordinated debentures were subsequently converted at a conversion price per share of $1.25 into 56,000 shares of Common Stock. As a result of this conversion, the Company recorded all of the interest on these debentures in October 2003. In connection with this transaction, the Company issued warrants to purchase up to 28,000 shares of Common Stock. Warrants which were exercised at a price of $1.00 per share, and warrants to purchase up to 28,000 shares of Common Stock which were exerciseable for one business day after the date of their issuance and had an exercise price of $0.01 per share.

        On October 31, 2003, the Company completed a $7.7 million equity transaction involving the issuance of 1,535 shares of its Series B Convertible Preferred Stock, $0.01 par value per share (the