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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 March 27, 2004

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,
28,090,736 shares outstanding as of April 30, 2004.


TABLE OF CONTENTS

 
   Page
PART I. FINANCIAL INFORMATION    
Item 1. Financial Statements    
Financial Statements of SatCon Technology Corporation    
  Consolidated Balance Sheets as of March 27, 2004 (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   20
Item 3. Quantitative and Qualitative Disclosures About Market Risk   41
Item 4. Controls and Procedures   42

PART II. OTHER INFORMATION
 
 
Item 1. Legal Proceedings   43
Item 2. Changes in Securities and Use of Proceeds   43
Item 3. Defaults Upon Senior Securities   43
Item 4. Submission of Matters to a Vote of Security Holders   44
Item 5. Other Information   44
Item 6. Exhibits and Reports on Form 8-K   44
Signature   45
Exhibit Index   46


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

 
   March 27,
2004
   September 30,
2003
  
 
   (Unaudited)

   (Audited)

  
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 3,324,579   $ 728,415  
  Restricted cash and cash equivalents     165,384     506,776  
  Accounts receivable, net of allowance of $935,576 and $937,030 at March 27, 2004 and September 30, 2003, respectively     4,507,658     5,498,998  
  Unbilled contract costs and fees, net of allowance of $200,000 and $0 at March 27, 2004 and September 30, 2003, respectively     927,109     802,804  
  Funded research and development expenses in excess of billings     102,705     150,411  
  Inventory     4,858,084     5,802,120  
  Prepaid expenses and other current assets     1,000,768     726,357  
   
 
 
    Total current assets     14,886,287     14,215,881  
Warrants to purchase common stock     93,924     97,490  
Property and equipment, net     6,243,559     6,927,411  
Goodwill, net     704,362     704,362  
Intangibles, net     2,654,387     2,918,188  
Other long-term assets     100,034     118,610  
   
 
 
    Total assets   $ 24,682,553   $ 24,981,942  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:              
  Bank line of credit   $ —   $ 1,801,869  
  Current portion of long-term debt     222,337     271,090  
  Accounts payable     3,405,270     5,967,651  
  Accrued payroll and payroll related expenses     1,223,085     1,340,244  
  Other accrued expenses     2,036,314     2,917,176  
  Accrued contract losses     208,750     387,778  
  Deferred revenue     673,045     2,447,054  
  Accrued restructuring costs     495,612     495,612  
   
 
 
    Total current liabilities     8,264,413     15,628,474  
Redeemable convertible Series A preferred stock (132.7 shares issued and outstanding; face value: $12,500 per share; liquidation preference: 150%)     —     1,658,750  
Redeemable convertible Series B preferred stock (495 shares issued and outstanding; face value: $5,000 per share; liquidation preference: 100%)     2,475,000     —  
Convertible subordinated debentures (Face value: $762,500; liquidation preference: 150%)     —     762,500  
Long-term debt, net of current portion     409,005     501,590  
Other long-term liabilities     148,540     268,482  
Commitments and contingencies              
Stockholders' equity:              
  Common stock; $0.01 par value, 50,000,000 shares authorized; 27,883,970 and 21,023,200 shares issued and outstanding at March 27, 2004 and September 30, 2003, respectively     278,840     210,232  
  Additional paid-in capital     138,552,541     122,792,791  
  Accumulated deficit     (125,265,636 )   (116,701,523 )
  Accumulated other comprehensive loss     (180,150 )   (139,354 )
   
 
 
    Total stockholders' equity     13,385,595     6,162,146  
   
 
 
    Total liabilities and stockholders' equity   $ 24,682,553   $ 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
   Six Months Ended
  
 
   March 27,
2004
   March 29,
2003
   March 27,
2004
   March 29,
2003
  
Revenue:                          
Product revenue   $ 6,205,099   $ 4,250,142   $ 12,413,645   $ 9,580,805  
Funded research and development and other revenue     1,953,968     1,126,065     3,932,570     2,475,812  
   
 
 
 
 
    Total revenue     8,159,067     5,376,207     16,346,215     12,056,617  
   
 
 
 
 
Operating costs and expenses:                          
Cost of product revenue     5,164,265     5,577,724     10,362,417     11,678,316  
Research and development and other revenue expenses:                          
  Funded research and development and other revenue expenses     1,416,360     939,764     2,795,142     2,176,500  
  Unfunded research and development expenses     316     532,875     1,301     1,113,710  
   
 
 
 
 
    Total research and development and other revenue expenses     1,416,676     1,472,639     2,796,443     3,290,210  
Selling, general and administrative expenses     2,565,195     3,913,950     4,806,678     7,693,675  
Amortization of intangibles     111,671     147,328     223,343     294,061  
Write-off of impaired goodwill and intangible assets     —     5,751,082     —     5,751,082  
   
 
 
 
 
    Total operating costs and expenses     9,257,807     16,862,723     18,188,881     28,707,344  
   
 
 
 
 
Operating loss     (1,098,740 )   (11,486,516 )   (1,842,666 )   (16,650,727 )
Net unrealized loss on warrants to purchase common stock     (46,348 )   (9,246 )   (3,566 )   (3,409 )
Net unrealized gain on Series B warrants     —     —     35,442     —  
Write-down of investment in Beacon Power Corporation     —     (541,885 )   —     (541,885 )
Other income     —     55,700     —     55,700  
Interest income     4,114     841     6,524     2,541  
Interest expense     (6,501,480 )   (169,940 )   (6,759,847 )   (367,928 )
   
 
 
 
 
Net loss   $ (7,642,454 ) $ (12,151,046 ) $ (8,564,113 ) $ (17,505,708 )
   
 
 
 
 
Net loss per weighted average share, basic and diluted   $ (0.29 ) $ (0.68 ) $ (0.34 ) $ (1.01 )
   
 
 
 
 
Weighted average number of common shares, basic and diluted     26,783,766     17,831,359     25,529,189     17,354,495  

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 six months ended March 29, 2003

(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   —     —     —     (17,505,708 )   —     —     —     (17,505,708 ) $ (17,505,708 )
Change in unrealized gain (loss) on Beacon Power Corporation common stock   —     —     —     —     47,059     —     47,059     47,059     47,059  
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   302,589     3,026     410,342     —     —     —     —     413,368     —  
Issuance of warrants to purchase common stock   —     —     20,100     —     —     —     —     20,100     —  
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     —     —     —     —     —     —     —     —  
Foreign currency translation adjustment   —     —     —     —     —     93,347     93,347     93,347     93,347  
   
 
 
 
 
 
 
 
 
 
Comprehensive loss                                                 $ (16,823,417 )
                                                 
 
Balance, March 29, 2003 (Unaudited)   18,664,952   $ 170,442   $ 116,231,134   $ (102,726,069 )   —   $ (139,846 ) $ (139,846 ) $ 13,535,661        
   
 
 
 
 
 
 
 
       

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 six months ended March 27, 2004

(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   —     —     —     (8,564,113 )   —     (8,564,113 ) $ (8,564,113 )
Issuance of common stock to 401(k) Plan   107,070     1,071     256,976     —     —     258,047     —  
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   2,201,176     22,012     1,834,850     —     —     1,856,862     —  
Issuance of common stock in connection with cashless exercise of warrants to purchase common stock   209,422     2,094     (2,094 )   —     —     —     —  
Issuance of common stock in connection with the exercise of stock options to purchase common stock   67,750     677     42,153     —     —     42,830     —  
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 Auerelius Consulting Group   90,000     900     193,950     —     —     194,850     —  
Issuance of options and warrants to purchase common stock to non-employees   —     —     46,634     —     —     46,634     —  
Issuance of warrants to convertible subordinated debentures holders   —     —     46,577     —     —     46,577     —  
To record beneficial conversion feature of convertible subordinated debentures   —     —     138,977     —     —     138,977     —  
Issuance of warrants to Series B preferred stockholders   —     —     1,242,441     —     —     1,242,441     —  
To record beneficial conversion feature of the Series B preferred stock   —     —     3,655,607     —     —     3,655,607     —  
Issuance of warrants to BHP in connection with the issuance of the Series B preferred stock   —     —     435,166     —     —     435,166     —  
Issuance of common stock in connection with the conversion of redeemable convertible Series B preferred stock   2,080,000     20,800     5,179,200     —     —     5,200,000     —  
Mark-to-market Series B warrants   —     —     (35,442 )   —     —     (35,442 )   —  
Foreign currency translation adjustment   —     —     —     —     (40,796 )   (40,796 )   (40,796 )
   
 
 
 
 
 
 
 
Comprehensive loss                                     $ (8,604,909 )
                                     
 
Balance, March 27, 2004 (Unaudited)   27,883,970   $ 278,840   $ 138,552,541   $ (125,265,636 ) $ (180,150 ) $ 13,385,595        
   
 
 
 
 
 
       

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

5


SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
   Six Months Ended
  
 
   March 27, 2004
   March 29, 2003
  
Cash flows from operating activities:              
  Net loss   $ (8,564,113 ) $ (17,505,708 )
    Adjustments to reconcile net loss to net cash used in operating activities:              
      Depreciation and amortization     991,881     1,246,082  
      Provision for uncollectible accounts     216,249     157,462  
      Provision for excess and obsolete inventory     140,785     645,112  
      Net unrealized loss on warrants to purchase common stock     3,566     3,409  
      Net unrealized gain on Series B warrants     (35,442 )   —  
      Write-down of impaired goodwill and intangible assets     —     5,751,082  
      Write-down of investment in Beacon Power Corporation     —     541,885  
      Non-cash compensation and consulting expense     467,444     413,368  
      Non-cash interest expense     6,676,368     68,350  
      Gain on sale of equipment     —     (55,700 )
    Changes in operating assets and liabilities:              
      Accounts receivable     975,091     2,755,093  
      Unbilled contract costs and fees     (324,305 )   713,310  
      Prepaid expenses and other current assets     (450,616 )   (336,444 )
      Inventory     803,251     (1,504,488 )