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TABLE OF CONTENTS

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 June 26, 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,
28,200,010 shares outstanding as of July 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 June 26, 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   21
Item 3. Quantitative and Qualitative Disclosures About Market Risk   43
Item 4. Controls and Procedures   44

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


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


SATCON TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS

 
   June 26,
2004
   September 30,
2003
  
 
   (Unaudited)

   (Audited)

  
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 2,287,222   $ 728,415  
  Restricted cash and cash equivalents     131,811     506,776  
  Accounts receivable, net of allowance of $990,222 and $937,030 at June 26, 2004 and September 30, 2003, respectively     5,509,827     5,498,998  
  Unbilled contract costs and fees     826,906     802,804  
  Funded research and development expenses in excess of billings     356,392     150,411  
  Inventory     5,084,251     5,802,120  
  Prepaid expenses and other current assets     863,410     726,357  
   
 
 
  Total current assets     15,059,819     14,215,881  
Warrants to purchase common stock     16,724     97,490  
Property and equipment, net     5,936,618     6,927,411  
Goodwill, net     704,362     704,362  
Intangibles, net     2,522,707     2,918,188  
Other long-term assets     100,034     118,610  
   
 
 
  Total assets   $ 24,340,264   $ 24,981,942  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Bank line of credit   $ —   $ 1,801,869  
  Current portion of long-term debt     198,487     271,090  
  Accounts payable     3,911,074     5,967,651  
  Accrued payroll and payroll related expenses     1,520,711     1,340,244  
  Other accrued expenses     1,794,589     2,917,176  
  Accrued contract losses     342,577     387,778  
  Deferred revenue     370,504     2,447,054  
  Accrued restructuring costs     495,612     495,612  
   
 
 
  Total current liabilities     8,633,554     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 (425 shares issued and outstanding; face value: $5,000 per share; liquidation preference: 100%)     2,125,000     —  
Convertible subordinated debentures (Face value: $762,500; liquidation
preference: 150%)		     —     762,500  
Long-term debt, net of current portion     362,958     501,590  
Other long-term liabilities     154,427     268,482  
Commitments and contingencies              
Stockholders' equity:              
  Common stock; $0.01 par value, 50,000,000 shares authorized; 28,144,277 and 21,023,200 shares issued and outstanding at June 26, 2004 and September 30, 2003, respectively     281,443     210,232  
  Additional paid-in capital     139,057,486     122,792,791  
  Accumulated deficit     (126,060,745 )   (116,701,523 )
  Accumulated other comprehensive loss     (213,859 )   (139,354 )
   
 
 
  Total stockholders' equity     13,064,325     6,162,146  
   
 
 
  Total liabilities and stockholders' equity   $ 24,340,264   $ 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
   Nine Months Ended
  
 
   June 26,
2004
   June 28,
2003
   June 26,
2004
   June 28,
2003
  
Revenue:                          
Product revenue   $ 6,840,972   $ 5,010,513   $ 19,254,617   $ 14,591,318  
Funded research and development and other revenue     1,771,056     1,078,972     5,703,626     3,554,784  
   
 
 
 
 
Total revenue     8,612,028     6,089,485     24,958,243     18,146,102  
   
 
 
 
 
Operating costs and expenses:                          
Cost of product revenue     5,483,030     8,117,143     15,845,447     19,795,459  
Research and development and other revenue expenses:                          
  Funded research and development and other revenue expenses     1,415,758     850,060     4,210,900     3,026,560  
  Unfunded research and development expenses     4,188     313,281     5,489     1,426,991  
   
 
 
 
 
  Total research and development and other revenue expenses     1,419,946     1,163,341     4,216,389     4,453,551  
Selling, general and administrative expenses     2,248,449     3,280,977     7,055,127     10,974,652  
Amortization of intangibles     111,671     98,979     335,014     393,040  
Write-off of impaired long-lived assets     —     700,000     —     700,000  
Write-off of impaired goodwill and intangible assets     —     —     —     5,751,082  
   
 
 
 
 
  Total operating costs and expenses     9,263,096     13,360,440     27,451,977     42,067,784  
   
 
 
 
 
Operating loss     (651,068 )   (7,270,955 )   (2,493,734 )   (23,921,682 )
Net unrealized gain/(loss) on warrants to purchase common stock     (77,200 )   15,894     (80,766 )   12,485  
Net unrealized gain on Series B warrants     —     —     35,442     —  
Write-down of investment in Beacon Power Corporation     —     —     —     (541,885 )
Realized gain on sale of Beacon Power Corporation common stock     —     795,258     —     795,258  
Other income     2,479     —     2,479     55,700  
Interest income     2,545     1,831     9,069     4,372  
Interest expense     (71,865 )   (316,863 )   (6,831,712 )   (684,791 )
   
 
 
 
 
Net loss   $ (795,109 ) $ (6,774,835 ) $ (9,359,222 ) $ (24,280,543 )
   
 
 
 
 
Net loss per weighted average share, basic and diluted    $ (0.03 ) $ (0.36 ) $ (0.35 ) $ (1.36 )
   
 
 
 
 
Weighted average number of common shares, basic and diluted     28,078,113     18,885,876     26,378,830     17,864,955  
   
 
 
 
 

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 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   —     —     —     (24,280,543 )   —     —     —     (24,280,543 ) $ (24,280,543 )
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     —     —     —     —     —     —     —     —  
Foreign currency translation adjustment   —     —     —     —     —     96,688     96,688     96,688     96,688  
   
 
 
 
 
 
 
 
 
 
Comprehensive loss                                                 $ (23,516,890 )
                                                 
 
Balance, June 28, 2003 (Unaudited)   18,930,061   $ 173,093   $ 116,589,828   $ (109,500,904 ) $ 78,021   $ (136,505 ) $ (58,484 ) $ 7,203,533        
   
 
 
 
 
 
 
 
       

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 26, 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   —     —     —     (9,359,222 )   —     (9,359,222 ) $ (9,359,222 )
Issuance of common stock to 401(k) Plan   161,786     1,618     399,235     —     —     400,853     —  
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   2,246,467     22,465     1,834,850     —     —     1,857,315     —  
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   88,050     880     56,239     —     —     57,119     —  
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   2,220,000     22,200     5,527,800     —     —     5,550,000     —  
Mark-to-market Series B warrants   —     —     (35,442 )   —     —     (35,442 )   —  
Foreign currency translation adjustment   —     —     —     —     (74,505 )   (74,505 )   (74,505 )
   
 
 
 
 
 
 
 
Comprehensive loss                                     $ (9,433,727 )
                                     
 
Balance, June 26, 2004 (Unaudited)   28,144,277   $ 281,443   $ 139,057,486   $ (126,060,745 ) $ (213,859 ) $ 13,064,325        
   
 
 
 
 
 
       

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 26, 2004
   June 28, 2003
  
Cash flows from operating activities:              
  Net loss   $ (9,359,222 ) $ (24,280,543 )
    Adjustments to reconcile net loss to net cash used in operating activities:              
      Depreciation and amortization     1,458,884     1,808,411  
      Provision for uncollectible accounts     82,471     114,408  
      Provision for excess and obsolete inventory     209,757     3,948,724  
      Net unrealized (gain)/loss on warrants to purchase common stock     80,766     (12,485 )
      Net unrealized loss on Series B warrants     (35,442 )   —  
      Write-off of impaired long-lived assets     —     700,000  
      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     610,250     1,050,078  
      Non-cash interest expense     6,731,579     112,993  
      Gain on sale of equipment     —     (55,700 )
      Gain on sale of Beacon Power Corporation common stock