<Page>


                                                                    EXHIBIT 99.1


WE NEED AN IMMEDIATE INFUSION OF EQUITY CAPITAL TO SUSTAIN OUR OPERATIONS, AND
WE MAY NOT BE ABLE TO RAISE ADDITIONAL FUNDS ON TERMS ACCEPTABLE TO US, OR AT
ALL.

We need an immediate infusion of equity capital to sustain our operations. We
anticipate that our existing cash and cash resources will enable us to fund our
operations through only approximately January 15, 2003. As more fully discussed
below, if Silicon Valley Bank, our senior lender, decides to discontinue lending
to us, which it has the right to do, or we are unable to raise additional equity
by January 15, 2003, we will be forced to furlough or permanently lay off a
significant portion of our work force which will have a material adverse impact
on us. Under these circumstances, we may not be able to continue our operations.
Further, without additional cash resources, we may not be able to keep all or
significant portions of our operations going for a sufficient period of time to
enable us to sell all or portions of our assets or operations at other than
distressed sale prices.

We have incurred significant costs to develop our technologies and products.
These costs have exceeded total revenue. As a result, we have incurred losses in
each of the past five years. As of September 30, 2002, we had an accumulated
deficit of $85.2 million. During the fiscal year ended September 30, 2002, we
incurred a loss of $20.8 million and a reduction in our cash from $20.9 million
to $2.1 million. Due to restructuring activities, we were able to slow our cash
burn rate from $7.9 million in the first quarter of fiscal year 2002 to $5.2
million, $3.5 million and $2.1 million in the second, third and fourth quarters
of fiscal year 2002, respectively.

However, we need to achieve quarterly revenue of approximately $15 million in
order to reach a breakeven cash run rate based on today's cost structure and
expected incremental margins on the additional revenue. Our highest quarterly
revenues for fiscal year 2002 were $11.7 million in the third quarter of
fiscal year 2002. Given our current operating plan, we do not expect to
achieve $15 million of quarterly revenue until the fourth quarter of fiscal
year 2003 at the earliest. As a result, because we had only $2.1 million in
cash at the end of fiscal year 2002, we will need at least $9 million to $10
million in borrowing capacity and additional capital, in the aggregate, in
order to fund our current business plan for the next 12 months. We may also
need additional future funds in order to fund unanticipated operating losses,
to grow, to develop new or enhance existing products and services and to
respond to competitive pressures.

At September 30, 2002, we had a line of credit with Silicon Valley Bank which
enabled us to borrow up to $5 million based on eligible receivables, and none of
the credit line had been used as of that date. The credit line included various
financial covenants which needed to be satisfied in order for us to retain our
right to borrow. One of these covenants required us to raise $4 million of new
equity or subordinated debt by December 1, 2002. We did not raise these funds as
of December 1, 2002 and, as a result, are in default under the credit line and
from December 1, 2002 through December 18, 2002, were not permitted to borrow
against the credit line. As of December 1, 2002, the loan balance was $2.1
million and all receipts from our Electronics and Power Systems divisions were
required to be used to reduce this loan. Although Silicon Valley Bank is not
required to do so while we are in default under our loan agreement, it has
permitted us to use receivables collected from our Applied Technology division.
As a result, from December 1, 2002 through December 18, 2002, we were limited to
available cash and receipts


<Page>


from our Applied Technology division to fund our business until the Silicon
Valley Bank loan was repaid. This level of resources is insufficient to
sustain our ongoing operations as our Applied Technology division generates
less than $1 million of cash receipts in an average month.

On December 19, 2002, we entered into a forebearance agreement with Silicon
Valley Bank pursuant to which Silicon Valley Bank agreed that, unless other
defaults occurred under our credit facility, Silicon Valley Bank would not
exercise its rights as creditor under our loan agreement with them until January
15, 2003. We hope that Silicon Valley Bank's forbearance will enable us
sufficient time to raise $4 million of equity capital or subordinated debt by
January 15, 2003. We acknowledged to Silicon Valley Bank in the forebearance
agreement that we were in material default of our credit facility with Silicon
Valley Bank. The forebearance agreement required us to obtain a signed term
sheet by December 19, 2002 for a transaction structured to raise at least $3
million and, as more fully described below, we believe we have met this
requirement.

On December 19, 2002, we owed Silicon Valley Bank approximately $886,000 and had
a cash balance of approximately $1 million. As a result of executing the
forbearance agreement, we are now able to return to borrowing from the bank, but
are limited to the lesser of 75% of eligible receivables or $2 million. In
addition, all collections can now be used by us to fund operations or pay down
the loan, as they had been prior to the default on December 1, 2002. Although
the line of credit was up to $5 million prior to our default, it was limited to
75% of eligible receivables which typically permitted borrowing in the October
to November period of from approximately $2.2 million to $2.8 million
outstanding at any one time. However, at anytime prior to January 15, 2003,
Silicon Valley Bank may discontinue lending funds to us if, in its business
judgment, it decides to do so.

We intend to work with Silicon Valley Bank in an effort to amend the existing
credit facility before January 15, 2003. The existing credit facility is
scheduled to expire in September, 2003. However, there can be no assurance
that we will be successful in achieving an amended credit facility by January
15, 2003. We believe that we will need to raise at least $3 million of new
equity or subordinated debt, acceptable to Silicon Valley Bank, by January
15, 2003, or we will be unable to borrow funds or use new collections to fund
our business after January 15, 2003. If we are unable to raise these
additional funds, we may not be able to amend our existing credit facility
with Silicon Valley Bank which would permit us to borrow any additional
amounts under the credit facility.

On December 13, 2002, we executed a term sheet with an institutional investor
to raise between $5 and $7 million of equity capital. The term sheet
contemplates that $3 to $5 million of the equity investment will be funded
during the week of January 6, 2003 and the remaining $2 million will be
funded promptly after the registration statement we are required to file with
the Securities and Exchange Commission is declared effective registering all
of the underlying equity securities in this financing. We expect it will take
a minimum of 90 days to file a registration statement and obtain its
effectiveness. We will be unable to file a registration statement until after
we have an initial closing with an institutional investor. To date, the
documentation relating to this financing has been produced by counsel to the
institutional investor but has not been finalized. There can be no guarantee
that we will be able to successfully close this financing and raise the $5 to
$7 million on the terms contemplated by the term sheet or on any other terms.

<Page>


We have agreed with the institutional investor that we will not solicit or
negotiate any additional equity or debt financings through January 14, 2003.
Upon consummation of a financing with the institutional investor, the
institutional investor whould have rights of first refusal and exchange
rights which would generally be triggered upon future financings we may seek
to consummate. The right of first refusal would allow the institutional
investor to purchase future securities issued by us for a period of 12 months
following the initial closing of the financing. For a period of 24 months
following the initial closing, the exchange right would allow the
institutional investor to exchange any shares of preferred stock held by it
into future securities that we may issue at the preferred stock's liquidation
preference. Further, as a result of defaults on our debt obligations to
Silicon Valley Bank, we do not meet the requirements for use of Form S-3, a
short-form registration statement, to register for resale shares of our
common stock underlying the securities issuable to the institutional investor
or other potential financing sources. Each of these factors may adversely
affect our ability to raise additional funds from third parties on terms
acceptable to us, or at all. In addition, we agreed with the institutional
investor in our executed term sheet that we would use Form S-3 to register
the shares of common stock underlying the preferred stock and warrants
contemplated to be issued to the institutional investor. Our failure to be
eligible to use Form S-3 may jeopardize our ability to consummate the
proposed transaction.

The financing with the institutional investor would also require that we seek
the approval of our stockholders, which we will attempt to obtain at our 2003
annual meeting of stockholders. In the event that we do not obtain the
approval of our stockholders, we would be required to redeem all or a portion
of the investment by the institutional investor in cash, which would have a
material adverse effect on us and our operations. The exercise by the
institutional investor of any rights of first refusal or exchange rights may
require us to seek additional approvals of our stockholders, which may not be
required if these rights were not exercised. This may also hinder or delay
our ability to obtain equity funding in the future.

Any securities offered to the institutional investor will not be or
have not been registered under the Securities Act of 1933 and may not be
offered or sold in the United States absent registration or an applicable
exemption from the registration requirements.

If Silicon Valley Bank does not continue to lend money to us through January
15, 2003 or we are unable to close an equity financing with the institutional
investor prior to January 15, 2003, we will be forced to furlough or
permanently lay off a significant portion of our work force. This will have a
material adverse effect on us. Under these circumstances, we may not be able
to continue our operations. Further, without additional cash resources, we
may not be able to keep all or a significant portion of our operations going
for a sufficient period of time to enable us to sell all or portions of our
assets or operations at other than distressed sale prices.

Our financial statements for our fiscal year ended September 30, 2002, which are
included in this Annual Report on Form 10-K, contain an audit report from Grant
Thornton LLP. The audit report contains a going concern qualification which
raises substantial doubt with respect to our ability to continue as a going
concern. The receipt of a going concern qualification may adversely affect our
ability to manage our accounts payable and cause some of our suppliers to deal
with us on a cash-on-delivery basis only. If this were to occur, this would
adversely affect our operations by increasing our immediate need for additional
capital.

If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced
and our stockholders may experience additional dilution. The terms of additional
funding may also limit our operating and financial flexibility. There can be no
assurance that additional financing of any kind will be available to us on terms
acceptable to us, or at all. Failure to obtain future funding when needed or on
acceptable terms would materially, adversely affect our results of operations.


<Page>


WE COULD ISSUE ADDITIONAL COMMON STOCK, WHICH MIGHT DILUTE THE BOOK VALUE OF OUR
COMMON STOCK.

We have authorized 50,000,000 shares of our common stock, of which 16,904,827
shares were issued and outstanding as of December 27, 2002. Our board of
directors has the authority, without action or vote of our stockholders in most
cases, to issue all or a part of any authorized but unissued shares. Such stock
issuances may be made at a price which reflects a discount from the then-current
trading price of our common stock. These issuances would dilute your percentage
ownership interest, which will have the effect of reducing your influence on
matters on which our stockholders vote, and might dilute the book value of our
common stock. You may incur additional dilution of net tangible book value if
holders of stock options, whether currently outstanding or subsequently granted,
exercise their options or if warrant holders exercise their warrants to purchase
shares of our common stock.

We have executed a term sheet with an institutional investor to raise
between $5 million and $7 million pursuant to the issuance of shares of
convertible preferred stock for $15,000 per share and warrants to purchase
5,000 shares of common stock for each share of convertible preferred stock
issued. If we were to enter into an agreement with this institutional
investor on the terms set forth in the term sheet, we could issue up to 467
shares of convertible preferred stock and warrants to purchase up to
2,335,000 shares of our common stock. Each share of convertible preferred
stock would be convertible into a number of shares of common stock equal to
15,000 divided by the conversion price of the convertible preferred stock
(which will initially be $1.50), such that the 467 shares of preferred stock
would initially be convertible into 4,670,000 shares of common stock. The
preferred stock would have a mandatory conversion feature such that if the
closing bid price for our common stock exceeded $3.00 for a period of 20
consecutive trading days, the preferred stock would automatically convert
into common stock at the applicable conversion price. In addition, the
preferred stock and the warrants would have anti-dilution protection whereby
the conversion price or exercise price, as applicable, would be adjusted in
the event of issuances of shares of common stock at a price less than the
conversion price or exercise price then in effect. Any anti-dilution
adjustment would increase the number of shares issuable upon conversion of
the preferred stock or exercise of the warrants, as applicable. The issuance
of shares of our common stock upon conversion of the convertible preferred
stock and upon exercise of the warrants would dilute your percentage
ownership of us and might dilute the book value of our stock. There can be no
assurance that we will be able to close a transaction with this institutional
investor on the terms set forth in our executed term sheet or on any other
terms.

THE SALE OF LARGE NUMBERS OF SHARES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK
PRICE.

As of December 27, 2002, we have reserved 4,148,860 shares of common stock
for issuance upon exercise of stock options and warrants, 1,146,412 shares
for future issuances under our stock plans and 634,770 shares for future
issuances as matching contributions under our 401(k) plan. As of December 27,
2002, holders of warrants and options to purchase an aggregate of 2,315,561
shares of our common stock may exercise those securities and transfer the
underlying common stock at any time subject, in some cases, to Rule 144. In
accordance with registration rights that we have granted to various
individuals and entities requiring us to register their shares

<Page>


for public resale, we also have resale registration statements in effect
registering 4,935,322 shares of our common stock. In addition, if we enter
into an agreement with the institutional investor based on our existing term
sheet, we could issue up to 467 shares of convertible preferred stock that
are initially convertible into 4,670,000 shares of our common stock and
warrants to purchase up to 2,335,000 shares of our common stock. The
preferred stock and the warrants would have anti-dilution protection whereby
the conversion price or exercise price, as applicable, would be adjusted in
the event of issuances of shares of common stock at a price less than the
conversion price or exercise price then in effect, thereby increasing the
number of shares issuable upon conversion of the preferred stock or exercise
of the warrants. In addition, the preferred stock would have a mandatory
conversion feature such that if the closing bid price for our common stock
exceeded $3.00 for a period of 20 consecutive trading days, the preferred
stock would automatically convert into common stock at the applicable
conversion price. The market price of our common stock could decline as a
result of sales of a large number of shares of our common stock in the
market, or the perception that these sales could occur. These sales might
also make it more difficult for us to sell equity securities in the future at
a price that we think is appropriate, or at all.

FINANCIAL INVESTORS MAY HAVE INTERESTS DIFFERENT THAN YOU OR SATCON, AND MAY BE
ABLE TO IMPACT CORPORATE ACTIONS REQUIRING STOCKHOLDER APPROVAL BECAUSE THEY OWN
A SIGNIFICANT AMOUNT OF OUR COMMON STOCK.

If we enter into a financing transaction with the institutional investor
based on our existing term sheet, we would be issuing shares of preferred
stock and warrants to one or more financial investors initially convertible
and exercisable into 4,670,000 shares of our common stock. Based on our
outstanding common stock as of December 27, 2002, this would represent
approximately 21.7% of our outstanding common stock assuming the conversion
of the shares of preferred stock and the exercise of the warrants issuable in
the financing. This percentage could increase significantly based on the
dividend rights of the preferred stock and the anti-dilution provisions of
the warrants and preferred stock contemplated by the financing. These
financial investors may have short-term financial interests different from
SatCon's long-term goals and the long-term goals of our management and other
stockholders. In addition, based on the significant ownership of our
outstanding common stock, these financial investors may be able to impact
corporate actions requiring stockholder approval. The terms of the preferred
stock would also include provisions that would make it difficult, if not
impossible, to sell SatCon to a third party without the consent of the
preferred stockholders.

WE HAVE RECENT AND ANTICIPATED OPERATING LOSSES.

We have recorded annual net losses for each of the fiscal years ended
September 30, 1995 through September 30, 2002. In order to achieve
profitability, we must achieve all or some combination of the following:

<Page>


o      successfully compete in the market for critical power products
       including distributed power generation, UPS and power quality,

o      develop new products for our existing markets,

o      sell these products to existing and new customers,

o      increase gross margins through higher volumes and manufacturing
       efficiencies,

o      control our operating expenses, and

o      develop and manage our distribution capability.

If our revenue does not increase significantly or the increase in our
expenses is greater than expected, we may not achieve or sustain
profitability or generate positive cash flow in the future.

WE EXPECT TO GENERATE A SIGNIFICANT PORTION OF OUR FUTURE REVENUES FROM SALES
OF OUR CRITICAL POWER PRODUCTS AND CANNOT ASSURE MARKET ACCEPTANCE OR
COMMERCIAL VIABILITY OF OUR CRITICAL POWER PRODUCTS.

We intend to continue to expand development of our critical power products.
We cannot assure you that potential customers will select SatCon's products
to incorporate into their systems or that our customers' products will
realize market acceptance, that they will meet the technical demands of their
end users or that they will offer cost-effective advantages over existing
products. Our marketing efforts to date involve development contracts with
several customers, identification of specific market segments for power and
energy management systems and the continuation of marketing efforts of
recently acquired businesses. We cannot know if our commercial marketing
efforts will be successful in the future. Furthermore, we cannot assure you
that our products, in their current form, will be suitable for specific
commercial applications or that further design modifications, beyond
anticipated changes to accommodate different markets, will not be necessary.
Additionally, we may not be able to develop competitive products, our
products may not receive market acceptance, and we may not be able to
profitably compete in this market even if market acceptance is achieved. If
our products do not gain market acceptance or commercial viability, we will
not achieve our anticipated levels of profitability and growth.

WE HAVE LIMITED EXPERIENCE MANUFACTURING PRODUCTS FOR UNINTERRUPTIBLE POWER
SUPPLIES, OR UPS, POWER QUALITY AND DISTRIBUTED POWER SYSTEMS ON A COMMERCIAL
BASIS.

<Page>


To date, we have focused primarily on research and development and have
limited experience manufacturing products for distributed power and power
quality systems on a commercial basis. We have limited manufacturing
capabilities, and are continuing to develop our manufacturing capabilities
and processes. We do not know whether or when we will be able to fully
develop efficient, low-cost manufacturing capability and processes that will
enable us to meet the quality, price, engineering, design and production
standards or production volumes required to successfully mass market our UPS,
power quality and distributed power products. Even if we are successful in
developing our manufacturing capability and processes, we do not know whether
we will do so in time to meet our product commercialization schedule or to
satisfy the requirements of our customers.

WE MAY NOT BE ABLE TO DEVELOP OR SELL OUR UPS AND POWER QUALITY SYSTEM, POWER
CONVERSION SYSTEM, POWER CONTROL MODULES OR OTHER PRODUCTS UNDER DEVELOPMENT.

We have a number of potential products under development including our UPS
and Power Quality System, Power Conversion System and Power Control Modules.
We face many technological challenges that we must successfully address to
complete our development efforts. Our product development involves a high
degree of risk and may require significant capital resources to enable us to
be a low-cost, high-volume manufacturer of reliable products meeting our
customers' needs. Increasing our revenue is dependent upon successful
development and commercialization of our potential products. For example, the
successful development of our distributed power and power quality products
will require significant investment in research and development before we can
determine whether the development of our technology was successful and
whether the resulting products will be commercially viable and accepted by
the marketplace. In addition, many proposed products based on our
technologies will require significant additional expenditures for research
and development. We cannot assure you that any of the products we are
developing, or those that we develop in the future, will be technologically
feasible or accepted by the marketplace. We cannot assure you that
technological developments will not render our products obsolete before we
have successfully commercialized them or at any other time in the future.
Also, we cannot assure you that any of our product development will be
completed on schedule, or at all and, as a result, you may lose all or part
of your investment.

IF WE ARE UNABLE TO MAINTAIN OUR TECHNOLOGICAL EXPERTISE IN DESIGN AND
MANUFACTURING PROCESSES, WE WILL NOT BE ABLE TO SUCCESSFULLY COMPETE.

We believe that our future success will depend upon our ability to develop
and provide products that meet the changing needs of our customers. This
requires that we successfully anticipate and respond to technological changes
in design and manufacturing processes in a cost-effective and timely manner.
As a result, we continually evaluate the advantages and feasibility of new
product design and

<Page>


manufacturing processes. We cannot, however, assure you that our process
development efforts will be successful. The introduction of new products
embodying new technologies and the emergence of shifting customer demands or
changing industry standards could render our existing products obsolete and
unmarketable which would have a significant impact on our ability to generate
revenue. Our future success will depend upon our ability to continue to
develop and introduce a variety of new products and product enhancements to
address the increasingly sophisticated needs of our customers. This will
require us to continue to make substantial product development investments.
We may experience delays in releasing new products and product enhancements
in the future. Material delays in introducing new products or product
enhancements may cause customers to forego purchases of our products and
purchase those of our competitors.

WE ARE HEAVILY DEPENDENT ON CONTRACTS WITH THE U.S. GOVERNMENT AND ITS
AGENCIES OR FROM SUBCONTRACTS WITH THE U.S. GOVERNMENT'S PRIME CONTRACTORS,
FOR REVENUE TO DEVELOP OUR PRODUCTS, AND THE LOSS OF ONE OR MORE OF OUR
GOVERNMENT CONTRACTS COULD PRECLUDE US FROM ACHIEVING OUR ANTICIPATED LEVELS
OF GROWTH AND REVENUES.

Our ability to develop and market our products is heavily dependent upon
maintaining our U.S. government contract revenue and research grants. Most of
our U.S. government contracts are funded incrementally on a year-to-year
basis. Approximately 25% of our revenue during fiscal year 2002 was derived
from government contracts and subcontracts. Any change in our relationship
with the U.S. government or its agencies whether as a result of market,
economic, or competitive pressures, including any decision by the U.S.
government to alter its commitment to our research and development efforts,
could harm our business and financial condition by depriving us of the
resources necessary to develop our products. In addition there can be no
assurance that once a government contract is completed that it will lead to
follow-on contracts for additional research and development, prototype build
and test, or production. Furthermore, contracts with the U.S. government may
be terminated or suspended by the U.S. government at any time, with or
without cause. There can be no assurance that our U.S. government contracts
will not be terminated or suspended in the future, or that contract
suspensions or terminations will not result in unreimbursable expenses or
charges or other adverse effects on us.

The accuracy and appropriateness of our direct and indirect costs and
expenses under our contracts with the U.S. government are subject to
extensive regulation and audit by the Defense Contract Audit Agency or by
other appropriate agencies of the U.S. government. These agencies have the
right to challenge our cost estimates or allocations with respect to any such
contract. Additionally, a substantial portion of the payments to us under
U.S. government contracts are provisional payments that are subject to
potential adjustment upon audit by such agencies. Adjustments that result
from inquiries or audits of our contracts could have a material adverse
impact on our financial condition or results of operations.

<Page>


Since our inception, we have not experienced any material adjustments as a
result of any inquiries or audits, but there can be no assurance that our
contracts will not be subject to material adjustments in the future.

In the event that any of our government contracts are terminated for cause,
it could significantly affect our ability to obtain future government
contracts which could seriously harm our ability to develop our technologies
and products. In addition, our participation in various government business
programs depends upon our continuing eligibility under the regulations of the
United States Small Business Administration. Qualification under these
regulations is based upon the standard industrial classification of the
product or service that is the subject of the program and the level of our
revenues and the number of our employees. Although our current awards under
government programs such as the Small Business Innovative Research, or SBIR,
program and small business procurement set-asides and preferences will not be
affected by increases in the level of our revenues or the number of our
employees, as we grow, we may lose our ability to participate in these
programs in the future. Under these circumstances, although we will still be
able to participate in general government contract and cooperative agreement
programs, we will lose our ability to benefit in the future from many of the
programs in which we have historically participated. During our fiscal years
ended September 30, 2002 and 2001, less than 5% of our revenues have been
obtained under the SBIR program.

A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM CONTRACTS WITH THE U.S.
GOVERNMENT AND ITS AGENCIES OR FROM SUBCONTRACTS WITH THE U.S. GOVERNMENT'S
PRIME CONTRACTORS, AND A SLOWDOWN IN GOVERNMENT SPENDING MAY ADVERSELY AFFECT
OUR ABILITY TO OBTAIN ANTICIPATED REVENUES.

Changes in government policies, priorities or funding levels through agency
or program budget reductions by the U.S. Congress or executive agencies or
the imposition of budgetary constraints could significantly impair our
ability to achieve this level of revenue going forward. Any reductions or
slowdowns in government spending could also severely inhibit our ability to
successfully complete the development and commercialization of our products.
Changes in funding levels could cause the government to cancel existing
contracts or eliminate follow-on phases in the future.

THE U.S. GOVERNMENT HAS CERTAIN RIGHTS RELATING TO OUR INTELLECTUAL PROPERTY.

Many of our patents are the result of retaining ownership of inventions made
under U.S. government-funded research and development programs. With respect
to any invention made with government assistance, the government has a
nonexclusive, nontransferable, irrevocable, paid-up license to use the
technology or have the technology employed for or on behalf of the U.S.
government throughout

<Page>


the world. Under certain conditions, the U.S. government also has "march-in
rights." These rights enable the U.S. government to require us to grant a
nonexclusive, partially exclusive, or exclusive license in any field of use
to responsible applicants, upon terms that are reasonable under the
circumstances. If we refuse, the government can grant the license itself,
provided that it determines that such action is necessary because we have not
achieved practical application of the invention, or to alleviate health or
safety needs, or to meet requirements for public use specified by federal
regulations, or because products using such inventions are not being produced
substantially in the United States. The exercise of these rights by the
government could create potential competitors for us if we later determine to
further develop the technologies and utilize the inventions in which the
government has exercised these rights.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
PATENTS AND PROPRIETARY TECHNOLOGY.

As of December 10, 2002, we held 75 U.S. patents and had 10 patent
applications pending with the U.S. Patent and Trademark Office. We have also
obtained corresponding patents in the rest of North America, Europe, and
Asia. In addition, we have a non-exclusive, royalty-free license for
non-automotive applications for 38 other patents that were originally issued
to our employees and subsequently assigned to DaimlerChrysler in connection
with the now completed Chrysler Patriot racecar project. The expiration date
of our patents range from 2007 to 2021, with the majority expiring after
2016. As a qualifying small business from our inception to date, we have
retained commercial ownership rights to proprietary technology developed
under various U.S. government contracts and grants.

Our patent and trade secret rights are of significant importance to us and to
our future prospects. Our ability to compete effectively against other
companies in our industry will depend, in part, on our ability to protect our
proprietary technology and systems designs relating to our products. Although
we have attempted to safeguard and maintain our proprietary rights, we do not
know whether we have been or will be successful in doing so. Further, our
competitors may independently develop or patent technologies that are
substantially equivalent or superior to ours. No assurance can be given as to
the issuance of additional patents or, if so issued, as to their scope.
Patents granted may not provide meaningful protection from competitors. Even
if a competitor's products were to infringe patents owned by us, it would be
costly for us to pursue our rights in an enforcement action, it would divert
funds and resources which otherwise could be used in our operations and there
can be no assurance that we would be successful in enforcing our intellectual
property rights. Because we intend to enforce our patents, trademarks and
copyrights and protect our trade secrets, we may be involved from time to
time in litigation to determine the enforceability, scope and validity of
these rights. This litigation could result in substantial costs to us and
divert efforts by our

<Page>


management and technical personnel. In addition, effective patent,
trademark, service mark, copyright and trade secret protection may not be
available in every country where we operate or sell our products.

WE MAY NOT BE ABLE TO MAINTAIN THE CONFIDENTIALITY OF OUR PROPRIETARY
KNOWLEDGE.

In addition to our patent rights, we also rely on treatment of our technology
as trade secrets and upon confidentiality agreements, which all of our
employees are required to sign, assigning to us all patent rights and
technical or other information developed by the employees during their
employment with us. We also rely, in part, on contractual provisions to
protect our trade secrets and proprietary knowledge. Our employees have also
agreed not to disclose any trade secrets or confidential information without
our prior written consent. These agreements may be breached, and we may not
have adequate remedies for any breach. Our trade secrets may also be known
without breach of these agreements or may be independently developed by
competitors. Our inability to maintain the proprietary nature of our
technology and information could harm our business, results of operations and
financial condition by adversely affecting our ability to compete in our
markets.

OTHERS MAY ASSERT THAT OUR TECHNOLOGY INFRINGES THEIR INTELLECTUAL PROPERTY
RIGHTS.

We believe that we do not infringe the proprietary rights of others and, to
date, no third parties have asserted an infringement claim against us, but we
may be subject to infringement claims in the future. The defense of any
claims of infringement made against us by third parties could involve
significant legal costs and require our management to divert time from our
business operations. If we are unsuccessful in defending any claims of
infringement, we may be forced to obtain licenses or to pay royalties to
continue to use our technology. We may not be able to obtain any necessary
licenses on commercially reasonable terms or at all. If we fail to obtain
necessary licenses or other rights, or if these licenses are costly, our
operating results may suffer either from reductions in revenues through our
inability to serve customers or from increases in costs to license
third-party technologies.

LOSS OF ANY OF OUR KEY PERSONNEL, AND PARTICULARLY OUR CHIEF EXECUTIVE
OFFICER, COULD HURT OUR BUSINESS BECAUSE OF THEIR EXPERIENCE, CONTACTS AND
TECHNOLOGICAL EXPERTISE.

The loss of the services of one or more of our key employees or an inability
to attract, train and retain qualified and skilled employees, specifically
engineering and sales personnel, could result in the loss of customers or
otherwise inhibit our ability to operate and grow our business successfully.
In addition, our ability to successfully integrate acquired facilities or
businesses depends, in part, on our ability to retain and motivate key
management and employees hired by us in connection with these acquisitions.
We are particularly dependent upon the services

<Page>


of David B. Eisenhaure, our president, chief executive officer, chairman of
the board and founder, as a result of his business and academic
relationships, understanding of government contracts and technical expertise.
The loss of Mr. Eisenhaure's services would have a material adverse effect on
our business and results of operations, including our ability to attract
employees and obtain future contract research and development.

WE EXPECT SIGNIFICANT COMPETITION FOR OUR PRODUCTS AND SERVICES.

In the past, we faced limited competition in providing research services,
prototype development and custom and limited quantity manufacturing. We
expect competition to intensify greatly as commercial applications increase
for our products under development. Many of our competitors and potential
competitors are well established and have substantially greater financial,
research and development, technical, manufacturing and marketing resources
than we do. Some of our competitors and potential competitors are much larger
than we are. If these larger competitors decide to focus on the development
of distributed power and power quality products, they have the manufacturing,
marketing and sales capabilities to complete research, development and
commercialization of these products more quickly and effectively than we can.
There can also be no assurance that current and future competitors will not
develop new or enhanced technologies perceived to be superior to those sold
or developed by us. There can be no assurance that we will be successful in
this competitive environment. Some of our competitors include:

o      Manufacturers of converters and inverters for alternative energy such
       as Trace Engineering, a division of Xantrex Technology, Inc., Asea
       Brown Boveri Ltd., Siemens Corporation and Alstom S.A.;

o      Manufacturers of electronic modules such as Omnirel L.L.C., Aeroflex
       Inc., Teledyne Inc. and DDC & R, Inc.; manufacturers of thin film
       substrates such as MIC Technology, an Aeroflex Company and
       Ultrasource, Inc.;

o      Manufacturers of motors such as MCG Inc., Reliance Electric CO/DE, CMC
       Industries, Inc. and other regional and specialty motor manufacturers;

o      Manufacturers of shaker vibration test systems such as Ling Dynamics
       Systems, Ltd. and Unholtz-Dickie, Corp.;

o      Manufacturers of Uninterruptible Power Supplies such as Piller, Inc.
       and Hitech Power Protection bv.; and

o      Developers of advanced power electronics and machines such as Moog,
       Semikron, Eaton and Silicon Power.

<Page>

PRICE INCREASES OF MATERIALS OR COMPONENTS USED BY US COULD ADVERSELY AFFECT
THE VOLUME OF OUR SALES.

We use materials and components obtained from third-party suppliers to
manufacture many of our products. We expect this to continue as we increase
our manufacturing capabilities and move into high volume production. If
prices of materials and components that we use were to increase, we may not
be able to afford them or to pass these costs on to our customers. In
addition, if we were required to raise the price of our products as a result
of increases in the price of materials or components that we use, demand for
our products may decrease which would reduce our sales.

WE ARE DEPENDENT ON THIRD-PARTY SUPPLIERS FOR THE DEVELOPMENT AND SUPPLY OF
KEY COMPONENTS FOR OUR PRODUCTS.

We use third-party suppliers for components in many of our systems. Some key
components in our UPS product are also supplied by third-party suppliers,
including the diesel engine, motor-generator and flywheel. From time to time,
shipments can be delayed because of industry-wide or other shortages of
necessary materials and components from third-party suppliers. A supplier's
failure to develop and supply components in a timely manner, or to supply
components that meet our quality, quantity or cost requirements, or our
inability to obtain substitute sources of these components on a timely basis
or on terms acceptable to us, could impair our ability to manufacture our
products. If alternative sources are identified, we may not be able to
successfully integrate those components into our system without incurring
additional cost and risk. In addition, to the extent the processes that our
suppliers use to manufacture components are proprietary, we may be unable to
obtain comparable components from alternative suppliers.

Our rotary UPS product consists of a diesel generator, a flywheel energy
storage system, electronics and a proprietary control system. We currently
contract the manufacturing of the diesel generator component to Cummins Inc.,
an independent manufacturer. Our reliance on a single manufacturer exposes us
to a number of risks, including reduced control over manufacturing capacity,
product development, completion and delivery times, product quality and
manufacturing costs. Once development of our rotary UPS product is complete,
if we experience significant demand for our products, the challenges we face
in managing our relationship with Cummins Inc. will be increased.
Furthermore, Cummins Inc. has the right to terminate its relationship with us
without notice. If Cummins Inc. is unable or unwilling to manufacture a
sufficient quantity of diesel generators for us, on the time schedule and
with the quality that we demand, we may be forced to seek to engage
additional or replacement manufacturers, which could result in additional
expenses and delays in product development or shipment.

LONG-TERM CONTRACTS ARE NOT TYPICAL IN OUR BUSINESS, AND REDUCTIONS,
CANCELLATIONS OR DELAYS IN CUSTOMER ORDERS WOULD ADVERSELY AFFECT OUR
OPERATING RESULTS.

We do not usually obtain long-term purchase orders or commitments from our
customers. Instead, we work closely with our customers to develop non-binding

<Page>


forecasts of the future volume of orders. Customers may cancel their orders,
change production quantities from forecasted volumes or delay production for
a number of reasons beyond our control. Significant or numerous
cancellations, reductions or delays in orders by our customers would reduce
our net sales. From time to time, we make capital investments in anticipation
of future business opportunities. There can be no assurance that we will
receive the anticipated business that supports these investments. If we are
unable to obtain this anticipated business, we may not be able to
successfully compete in our markets.

IF WE EXPERIENCE A PERIOD OF SIGNIFICANT GROWTH OR EXPANSION, IT COULD PLACE
A SUBSTANTIAL STRAIN ON OUR RESOURCES.

If we are successful in obtaining rapid market penetration of our products,
we will be required to deliver large volumes of quality products or
components to our customers and licensees on a timely basis and at reasonable
costs to us. We have limited experience in delivering large volumes of our
products and have limited capacity to meet wide-scale production
requirements. We cannot assure you that our efforts to expand our
manufacturing and quality assurance activities will be successful, that we
will be able to satisfy large-scale commercial production on a timely and
cost-effective basis or that growth will not strain our management,
operational and technical resources. We will also be required to continue to
improve our operational, management and financial systems and controls to
meet anticipated growth. Failure to manage our growth could damage our
relationships with our customers and our investors and be extremely costly to
try to resolve.

WE INTEND TO PURSUE STRATEGIC ACQUISITIONS, AND FAILURE TO SUCCESSFULLY
INTEGRATE ACQUIRED BUSINESSES OR ASSETS MAY ADVERSELY AFFECT OUR FINANCIAL
PERFORMANCE.

A component of our business strategy is to seek the acquisition of
businesses, products, assets and technologies that complement or augment our
existing businesses, products, assets and technologies. Since 1997, we have
expanded our business and capabilities through the acquisition of nine
businesses and intellectual property, tooling and other assets from another
entity.

Acquisitions are difficult to identify and complete for a number of reasons,
including competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. We cannot assure you that we will
be able to successfully identify acquisition candidates or complete future
acquisitions. We cannot assure you that we will be able to operate acquired
businesses profitably or otherwise implement our growth strategy
successfully. The successful combination of companies in a rapidly changing
industry such as ours may be more difficult to accomplish than in other
industries. Our ability to integrate any newly acquired entities will require
us to continue to improve our operational, financial and management
information systems and to motivate and effectively manage our employees. If
our management is unable to manage growth effectively, the quality

<Page>


of our products, our ability to identify, hire and retain key personnel and
our results of operations could be materially and adversely affected.

Although successfully completing future acquisitions is an important part of
our overall business strategy, any future acquisitions that we make could
result in:

o      difficulty in integrating our operations, technologies, systems,
       products and services with those of the acquired facility,

o      difficulty in operating in foreign countries, in the case of
       acquisitions that we make outside the United States, and over
       significant geographical distances,

o      diversion of our capital and our management's attention away from
       other business issues,

o      an increase in our expenses and our working capital requirements,

o      potential loss of our key employees and customers of facilities or
       businesses we acquire, and

o      financial risks, such as potential liabilities of the facilities and
       businesses we acquire, our need to incur additional indebtedness, and
       dilution if we issue additional equity securities in connection with
       the acquisitions.

OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS.

Our business exposes us to potential product liability claims which are
inherent in the manufacturing, marketing and sale of our products, and we may
face substantial liability for damages resulting from the faulty design or
manufacture of products or improper use of products by end users. We
currently maintain a low level of product liability insurance, and there can
be no assurance that this insurance will provide sufficient coverage in the
event of a claim. Also, we cannot predict whether we will be able to maintain
such coverage on acceptable terms, if at all, or that a product liability
claim would not harm our business or financial condition. In addition,
negative publicity in connection with the faulty design or manufacture of our
products would adversely affect our ability to market and sell our products.

WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL LAWS THAT EXPOSE US TO POTENTIAL
FINANCIAL LIABILITY.

Our operations are regulated under a number of federal, state and foreign
environmental and safety laws and regulations that govern, among other
things, the discharge of hazardous materials into the air and water as well
as the handling,

<Page>


storage and disposal of these materials. These laws and regulations include
the Clean Air Act, the Clean Water Act, the Resource, Conservation and
Recovery Act, and the Comprehensive Environmental Response, Compensation and
Liability Act, as well as analogous state and foreign laws. Because we use
hazardous materials in our manufacturing processes, we are required to comply
with these environmental laws. In addition, because we generate hazardous
wastes, we, along with any other person who arranges for the disposal of our
wastes, may be subject to potential financial exposure for costs associated
with an investigation and any remediation of sites at which we have arranged
for the disposal of hazardous wastes if those sites become contaminated and
even if we fully comply with applicable environmental laws. In the event of a
violation of environmental laws, we could be held liable for damages and for
the costs of remedial actions. Environmental laws could also become more
stringent over time, imposing greater compliance costs and increasing risks
and penalties associated with any violation.

BUSINESSES AND CONSUMERS MIGHT NOT ADOPT ALTERNATIVE DISTRIBUTED POWER
SOLUTIONS AS A MEANS FOR OBTAINING THEIR ELECTRICITY AND POWER NEEDS.

On-site distributed power generation solutions, such as fuel cell and
microturbine systems, which utilize our products, provide an alternative
means for obtaining electricity and are relatively new methods of obtaining
electricity and other forms of power that businesses and consumers may not
adopt at levels sufficient to grow this part of our business. Traditional
electricity distribution is based on the regulated industry model whereby
businesses and consumers obtain their electricity from a government regulated
utility. For alternative methods of distributed power to succeed, businesses
and consumers must adopt new purchasing practices and must be willing to rely
less upon traditional means of purchasing electricity, and market
participants must be willing to produce products for alternative methods of
power distribution. We cannot assure you that businesses, consumers or market
participants will choose to utilize or service this on-site distributed power
market at levels sufficient to sustain our business. The development of a
mass market for our products may be impacted by many factors which are out of
our control, including:

o      market acceptance of fuel cell and microturbine systems that
       incorporate our products,

o      the cost competitiveness of fuel cell and microturbine systems that
       incorporate our products,

o      the future costs of natural gas, propane and other fuels used by our
       customers' products versus future costs of other forms of fuel and/or
       power,

o      consumer reluctance to try a new product,

o      consumer perceptions regarding the safety of our customers' products,

<Page>


o      regulatory requirements, and

o      the emergence of newer, more competitive technologies and products.

If a mass market fails to develop or develops more slowly than we anticipate,
we may be unable to recover the losses we will have incurred to develop these
products.

THE DISTRIBUTED POWER GENERATION INDUSTRY MAY BECOME SUBJECT TO FUTURE
GOVERNMENT REGULATION WHICH MAY IMPACT OUR ABILITY TO MARKET OUR PRODUCTS.

We do not believe that our products will be subject to existing federal and
state regulations governing traditional electric utilities and other
regulated entities. We do believe that our products will be subject to
oversight and regulation at the local level in accordance with state and
local ordinances relating to building codes, safety, pipeline connections and
related matters. This regulation may depend, in part, upon whether an on-site
distributed power system is placed outside or inside a home. At this time, we
do not know which jurisdictions, if any, will impose regulations upon our
products. We also do not know the extent to which any existing or new
regulations may impact our ability to sell and service our products. Once our
customers' products reach the commercialization stage and they begin
distributing systems to their target markets, federal, state or local
government entities may seek to impose regulations. Any new government
regulation of our products, whether at the federal, state or local level,
including any regulations relating to installation and servicing of our
products, may increase our costs and the price of our products and may have a
negative impact on our revenue and profitability.

UNCERTAINTIES AND ADVERSE TRENDS AFFECTING THE DEREGULATION OF THE ELECTRIC
UTILITY INDUSTRY OR ANY OF OUR MAJOR CUSTOMERS MAY HARM OUR OPERATING RESULTS.

The growth of our distributed power generation business depends in large part
on the continued deregulation of the electric utility industry. Existing
utility companies, which have historically operated without competition, may
attempt to deter or delay the deregulation process. In addition, our
customers may not be able to compete effectively against existing utility
companies in a deregulated market. Changes in federal and state regulation
may also have the effect of deterring further investment in research and
development of alternative energy sources, including fuel cells and
microturbines. Any changes in the deregulation process or procedures, the
inability of our customers to compete effectively against existing utility
companies or changes in federal or state regulation which deter further
investment in alternative energy sources would significantly limit the demand
for our products and our ability to generate anticipated levels of revenue.

<Page>


OUR SHARE PRICE HAS BEEN SUBJECT TO EXTREME PRICE FLUCTUATIONS.

The markets for equity securities in general, and for those of other
companies in our industry, have been volatile, and the market price of our
common stock, which is traded on the Nasdaq National Market under the symbol
SATC, is subject to significant fluctuations. This could be in response to
operating results, announcements of technological innovations or new products
by us, our competitors or our customers, patent or proprietary rights
developments and market conditions for alternative energy and high technology
stocks in general. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. These market fluctuations, as well as general economic conditions,
may adversely affect the market price of our common stock. Past fluctuations
have coincided with fluctuations of other public companies in the alternative
energy sector, market responses to national issues, public release of
information regarding the introduction of new products, the award of
significant contracts, analyst downgrades of our projected stock price and
investment community enthusiasm for the alternative energy sector. There can
be no assurance that the trading price of our common stock will remain at or
near its current level.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, AND IF WE FAIL
TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE
MAY DECREASE SIGNIFICANTLY.

Our annual and quarterly results may vary significantly depending on various
factors, many of which are beyond our control, and may not meet the
expectations of securities analysts or investors. If this occurs, the price
of our stock could decline. Past material quarterly fluctuations have been
caused by:

o      variations in the timing and volume of customer orders relative to our
       manufacturing capacity and staffing levels,

o      the timing of our expenditures in anticipation of future orders,

o      introduction and market acceptance of our new products, and

o      the level of research and development expenses incurred by us which
       are unreimbursed.

Future quarterly fluctuations could be caused by these factors and:

o      our effectiveness in managing our manufacturing processes,

o      changes in competitive and economic conditions generally or in our
       customers' markets,

<Page>


o      the timing of, and the price we pay for, acquisitions and related
       integration costs,

o      changes in the cost or availability of components or skilled labor, and

o      general economic conditions.

Because our operating expenses are based on anticipated revenue levels, our
sales cycle for development work is relatively long and a high percentage of
our expenses are fixed for the short term, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter.

EXISTING STOCKHOLDERS CAN EXERT CONSIDERABLE CONTROL OVER US.

Our officers and directors, and their affiliates, beneficially hold over
one-third of our outstanding shares of common stock, a majority of which is
beneficially held by Mr. Eisenhaure, our president, chief executive officer,
chairman of the board and founder. If all of these stockholders were to vote
together as a group, they would have the ability to exert significant
influence over our board of directors and its policies. As a practical
matter, Mr. Eisenhaure may have the ability to elect our directors and to
determine the outcome of corporate actions requiring stockholder approval,
including votes concerning director elections, bylaw amendments and possible
mergers, corporate control contests and other significant corporate
transactions, irrespective of how some of our other stockholders may vote.
Accordingly, such concentration of ownership may have the effect of delaying,
deterring or preventing a change in control, impeding a merger,
consolidation, takeover or other business combination involving us, or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which in turn could have an adverse
effect on the market price of our common stock.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY, DETER OR
PREVENT THE ACQUISITION OF SATCON, WHICH COULD DECREASE THE VALUE OF YOUR
SHARES.

Some provisions of our certificate of incorporation and bylaws may delay,
deter or prevent a change in control of SatCon or a change in our management
that you as a stockholder may consider favorable. These provisions include:

o      authorizing the issuance of "blank check" preferred stock that could
       be issued by our board of directors to increase the number of
       outstanding shares and deter a takeover attempt,

<Page>


o      a classified board of directors with staggered, three-year terms,
       which may lengthen the time required to gain control of our board of
       directors,

o      prohibiting cumulative voting in the election of directors, which
       would otherwise allow less than a majority of stockholders to elect
       director candidates, and

o      limitations on who may call special meetings of stockholders.

In addition, Section 203 of the Delaware General Corporation Law and
provisions in some of our stock incentive plans may delay, deter or prevent a
change in control of SatCon. Those provisions serve to limit the
circumstances in which a premium may be paid for our common stock in proposed
transactions, or where a proxy contest for control of our board may be
initiated. If a change of control or change in management is delayed,
deterred or prevented, the market price of our common stock could suffer.

 WE ARE SUBJECT TO RISKS INHERENT IN INTERNATIONAL OPERATIONS.

We market and sell our products both inside and outside the United States. We
are currently selling our products in China, Canada and Europe. Revenue from
sales to our international customers for our fiscal years ended September 30,
2002 and 2001 were $7,179,333 and $6,071,107, respectively. Our success
depends, in part, on our ability to secure foreign customers and our ability
to manufacture products that meet foreign regulatory and commercial
requirements. We have limited experience developing and manufacturing our
products to comply with the commercial and legal requirements of
international markets. We face numerous challenges in penetrating
international markets, including unforeseen changes in regulatory
requirements, fluctuations in currency exchange rates, longer accounts
receivable cycles, difficulties in managing international operations,
potentially adverse tax consequences and the challenges of complying with a
wide variety of foreign laws.

TERRORISM HAS CONTRIBUTED TO ECONOMIC INSTABILITY IN THE UNITED STATES AND
AROUND THE WORLD. THE POSSIBILITY OF FUTURE TERRORIST ATTACKS, WAR, OR OTHER
UNFORESEEN EVENTS COULD LEAD TO FURTHER ECONOMIC INSTABILITY AND DEPRESS OUR
STOCK PRICE.

On September 11, 2001, the United States was the target of terrorist attacks
which, among other factors, added to the instability of the global financial
markets, and have contributed to the general volatility in stock prices of
United States publicly traded companies. Since the attacks, a myriad of
developments have unfolded which have effected almost every business in some
manner. These attacks, directly or indirectly, may lead to escalated tensions
or to further acts of

<Page>


terrorism in the United States or elsewhere, which may further contribute to
economic instability in the United States. These events could have a material
adverse effect on the financial condition and operating results of our
business and that of our customers.