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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                  FORM 10-K/A

                          AMENDMENT NO. 3 TO FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
                         COMMISSION FILE NUMBER 1-11512

                         SATCON TECHNOLOGY CORPORATION

             (Exact name of Registrant as specified in its Charter)

<TABLE>
<S>                                            <C>
                  DELAWARE                                      04-2857552
       (State or other Jurisdiction of                       (I.R.S. Employer
       Incorporation or Organization)                     Identification Number)

              161 FIRST STREET,
          CAMBRIDGE, MASSACHUSETTS                                 02142
  (Address of principal executive offices)                      (ZIP CODE)
</TABLE>

                                 (617) 661-0540
              (Registrant's telephone number, including area code)

       Securities registered pursuant to Section 12(b) of the Act: None.

           Securities registered pursuant to Section 12(g) of the Act

                                 TITLE OF CLASS
                          COMMON STOCK, $.01 PAR VALUE

                            ------------------------

    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 /X/  NO / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A.  /X/

    The aggregate market value of the Registrant's Common Stock, $.01 par value
per share, held by non-affiliates of the Registrant was $106,871,599 based on
the last reported sale price of the Registrant's Common Stock on the Nasdaq
National Market as of the close of business on December 12, 2000 ($13.125).
There were 13,877,185 shares of Common Stock outstanding as of December 12,
2000.

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                                     PART I

ITEM 1. BUSINESS

OVERVIEW

    SatCon was organized as a Massachusetts corporation in 1985 and
reincorporated as a Delaware corporation in 1992. We are developing enabling
technologies for the emerging distributed power generation and power quality
markets. We design, develop and manufacture high-efficiency products and a
variety of standard and custom high-performance motors to suit specific
applications. Our power and energy management products convert, store and manage
electricity for businesses and consumers that require high-quality,
uninterruptible power. We are utilizing our engineering and manufacturing
expertise to develop products we believe will be integral components of
distributed power generation and power quality systems. Our specialty motors are
typically designed and manufactured for unique customer requirements such as
high power-to-size requirements or high efficiency.

    We have been developing technology in power and energy management since our
inception. Power and energy management is the combination of products and
technology to improve the efficiency of machines and systems in the generation,
storage or usage of energy. Over the past 15 years, we have been pursuing a dual
approach for growth in these markets. The first objective is to develop
technology that meets a market demand and then transition that technology into
commercial products. The second objective is to expand our manufacturing
capabilities and product base through acquisitions.

    Prior to 1993, we were primarily funded through research and development
contracts with the U.S. government. These contracts were directed at developing
new technologies in motion control, control software and electronics. Through
this work, we built an engineering base in magnetics, motor/drive technology,
digital signal processing and high-speed electronics. From 1993 to 1996, we
expanded that base through commercially-funded research and development to
include high-power electronics, high-density packaging and advanced materials.
Together, these engineering skills formed the foundation for our power and
energy management technology. Since 1996, we have concentrated on employing that
technology to solving market needs and transitioning from technology development
to product development and manufacturing.

    Beginning in 1996 we introduced our first two commercial products, the
"Inertial Battery 20C1000" and the "Century 1 ISAM", which were transitioning
from the laboratory to the marketplace. Today the "Inertial Battery 20C1000" has
evolved into the 2kWh (kilowatt hour) flywheel energy storage device of our
affiliate, Beacon Power Corporation. Our second product, the "Century 1 ISAM,"
or integrated suspension and motor system, now called MagLev-TM-, is used in
Applied Materials' rapid thermal processing equipment, and represents a large
portion of the revenue generated by our MagMotor division which manufactures
motors.

    Over the past five years, we have continued to transition our technology
into new products that are sold commercially, including our RF, or radio
frequency, satellite uplinks, aluminum nitride power resistors for cellular
telephones, and high efficiency motors for industrial automation. Since 1996,
our revenue has increased from $9.4 million, primarily from funded research and
development, to $31.1 million in 2000, of which $22.4 million, or 72%, was
derived from product sales. We are also introducing new products, which we
expect to transition into commercial production over the next few years,
products such as our PowerGate-TM- power conversion system, GridLink-TM- utility
grid interface and our six-degree-of-freedom shaker test system for vibration
testing of electronic components.

    Since 1996, we have expanded our business and capabilities through several
acquisitions. In January 1997, we acquired K&D MagMotor Corp., a manufacturer of
custom and standard electric motors, which is now our MagMotor division. In
April 1997, we acquired Film Microelectronics, Inc., a manufacturer of thin film
substrates and hybrid microelectronics. In January 1999, we acquired Inductive
Components, Inc., a value-added supplier of customized electric motors, and
Lighthouse Software, Inc., a supplier of control software for machine tools. We
acquired HyComp, Inc., a manufacturer of hybrid

                                       2
<PAGE>
microelectronics in April 1999 followed by Ling Electronics, Inc., a
manufacturer of shaker vibration test systems, power converters, amplifiers and
controllers, which we acquired in October 1999. In November 1999, we acquired
intellectual property, tooling and other assets from Northrop Grumman
Corporation enabling us to manufacture and sell electric drivetrains.

    These acquisitions have provided us with increased revenues, a manufacturing
capability to transition our technology into commercial products, and a market
presence from which we can derive the need for new products based on our
technology. Over the past five years, we have sought to expand our markets in
power and energy management to include telecommunications, industrial
automation, semiconductor manufacturing, aircraft, satellites, electric and
hybrid-electric vehicles and distributed power generation.

    In fiscal year 2000, we organized SatCon into three operating segments:
motion control products, electronics products and funded research and
development. In our motion control products segment, our MagMotor division's
annual revenue increased by 128% from fiscal year 1999 to fiscal year 2000. Of
the $3.6 million increase in our MagMotor division's sales, a large proportion
was due to sales of our MagLev-TM- systems to Applied Materials. There was also
an increase in sales of our value-added motor product lines. We sell these
motors into the semiconductor and factory automation markets such as those sold
into the machine tool markets. We also realized the benefits of a national sales
representative network that has increased our overall sales efforts.

    In October 1999, we completed the acquisition of Ling Electronics. This
acquisition has brought $7.4 million in increased revenue to our motion control
products segment. Ling Electronics also offers us opportunities to introduce new
products based on our technology. Earlier in fiscal year 2000, we commenced the
development of a new six-degree-of-freedom magnetic levitation shaker system
that tests electronics components.

    In our electronics products segment, annual revenue increased by 36% from
fiscal year 1999 to fiscal year 2000. The increase was primarily driven by new
product sales of Film Microelectronics' RF product lines, which include
satellite uplink amplifiers, communications uplinks and power resistors for
cellular telephones.

    During fiscal year 2000, we introduced our new PowerGate-TM- power
conversion system, our GridLink-TM- utility grid interface system that allows
distributed power systems to operate in either grid-parallel (connected to the
grid) and/or grid-independent (disconnected from the grid) modes, and our
MegaVerter-TM- modular power inverter for higher power commercial and industrial
range distributed power generation systems.

    We also successfully installed a new automated assembly line in our
Marlborough, Massachusetts facility. We anticipate having the initial capability
of manufacturing 25,000 PowerGate-TM- power converter systems per year by the
end of fiscal year 2001 and to be able to expand our capacity as demand
increases. The assembly line is already producing electronic circuits for other
applications, including RF amplifier circuits.

    At our Technology Center, revenue from funded research and development
increased by $2.3 million from fiscal year 1999 to fiscal year 2000, primarily
as a result of work performed under the Department of Energy's AIPM, automotive
integrated power module, program to develop low-cost power conversion modules
for electric and hybrid-electric automobiles. The work builds on and further
develops our hybrid-electric automotive power conversion technology and
products.

    Also, at the beginning of fiscal year 2000, we acquired the power
electronics products assets of Northrop Grumman. These assets, previously
developed as part of the electric vehicle group of Westinghouse, include power
electronics, controllers, and motors for electric and hybrid-electric vehicles,
micro-turbine power generation and energy storage products. In addition to their
power electronics product base, we received extensive intellectual property,
including all product development and designs and patents for several power
electronics products and system designs.

                                       3
<PAGE>
    We and our affiliate, Beacon Power Corporation, are focusing our development
and manufacturing efforts on products for high-growth markets in the following
categories:

<TABLE>
<CAPTION>
PRODUCT CATEGORY               PRODUCTS                       MARKETS
----------------               --------                       -------
<S>                            <C>                            <C>
Electronics and power          Inverters, hybrid              Distributed power generation
electronics                    microcircuits, thin film       (including fuel cells and
                               substrates, and amplifiers     microturbines),
                                                              telecommunications, aircraft,
                                                              satellites and medical
                                                              instruments

High-performance motors        Industrial automation motors,  Hybrid-electric vehicles,
                               shaker systems, and electric   industrial automation,
                               drivetrains                    machine tools, semiconductor
                                                              manufacturers

Beacon Power's flywheel and    Flywheels                      Uninterruptible power
energy storage                                                supplies
</TABLE>

    We are developing products for the distributed power generation and power
quality markets that we believe will establish industry standards. Our products
have been developed for use in both residential and larger industrial fuel cell
power generation systems. Plug Power, Inc., H Power Corp. and IdaTech LLC,
formerly Northwest Power Systems LLC, are currently evaluating our PowerGate-TM-
power electronics and control software for use in their residential fuel cell
power generation systems, and we have received orders for 30 of our residential
fuel cell power conversion systems from Plug Power, orders for three systems
from H Power, orders for two systems from Nuvera Fuel Cells and an order for one
system from IdaTech. Beacon Power has received a sales commitment for 100
flywheel energy storage systems from TLER Associates Ltd., a company that
develops housing in Mexico, and a sales commitment for flywheels from Cox
Communications, Inc. In addition, Beacon Power is conducting field tests of its
flywheel energy storage systems with Bell Atlantic Network Services, Inc., now
part of Verizon Communications, Century Communications Corporation, now part of
Adelphia Communications Corporation, and WinDBreak Cable. Beacon Power is
developing flywheel energy storage systems using technology developed by us and
licensed to Beacon Power. As of December 31, 2000, we beneficially owned
approximately 23.4% of Beacon Power's common stock.

    We have specialized engineering expertise in the areas of power electronics,
electromechanics, mechanical and thermal dynamics, system controls and
microelectronic design. We have leveraged research and development funding from
industry and government sources to design, develop and manufacture electronics
for power conversion, amplification and storage, high-performance electric
motors, electric drivetrains, flywheel energy storage systems and system
controls software. We continue to pursue industry and government funding to
supplement the on-going development of our products.

INDUSTRY BACKGROUND

    Distributed power, or on-site power independent of the electric utility
grid, locates power-generating capability closer to the end user, while power
quality systems maintain high quality electricity despite power surges and
shortages. These systems include fuel cell and microturbine power generation
systems, hybrid-electric vehicles and flywheel energy storage systems that store
electricity in mechanical form and are an alternative to traditional lead-acid
batteries.

                                       4
<PAGE>
    The distributed power generation and power quality industries are entering a
period of rapid expansion as products approach commercialization and mass
production. In the United States, this expansion is being driven by several
factors, including:

    - INCREASING DEMAND FOR ELECTRICITY, DRIVEN BY THE PROLIFERATION OF
      COMPUTERS AND E-COMMERCE. The demand for electricity has increased rapidly
      in recent years due in large part to the use of computers, the Internet,
      e-commerce and telecommunications products. According to the Energy
      Information Administration, or EIA, over the past two decades, the
      percentage of energy provided by electricity to U.S. housing units
      increased from 23% of all energy consumed in 1978 to 35% in 1997. In a
      1999 report, Greening Earth Society science advisor Mark Mills estimated
      that the share of all U.S. electricity currently consumed by
      computer-based microprocessors was 13% and that within two decades, 30% to
      50% of the nation's electric supply may be required to meet the direct and
      indirect needs of the Internet. This growth continues a long-term trend
      toward electrification of energy use throughout the developed world.

    - GROWING DEMAND FOR HIGH-QUALITY POWER, AS MORE MISSION-CRITICAL AND
      SENSITIVE ELECTRONICS ARE CONNECTED TO THE ELECTRIC UTILITY GRID. The
      growing importance of e-commerce and the proliferation of electronics and
      computer networks that are power-quality sensitive has heightened the
      awareness of the importance of the quality and reliability of electricity.
      Power-quality problems such as power outages, voltage instability and low
      voltage in the power delivery network are significant problems for modern
      computers and telecommunications equipment. As the Internet economy grows,
      avoiding downtime and damaged equipment due to power-related problems will
      become increasingly important. According to the Electric Power Research
      Institute, or EPRI, power disruptions cost the economy approximately
      $30 billion each year.

    - CAPACITY CONSTRAINTS ON THE ELECTRIC UTILITY GRID THAT HAVE RESULTED IN
      DECREASED RELIABILITY IN CERTAIN POWER MARKETS. Historically, the growth
      in the demand for electricity has met the expansion of the existing
      infrastructure, including additional investments in centralized generating
      plants, high-voltage transmission lines and distribution wires. Reliance
      upon this infrastructure has been and continues to be problematic for a
      number of reasons. First, according to the Department of Energy, capacity
      reserve margins have shown a declining trend since 1982, indicating the
      increased potential for power outages during peak periods. Second, some
      areas of the country have experienced capacity constraints and
      weather-related outages due to the nature of the existing transmission and
      distribution system. Finally, there is difficulty in finding suitable
      locations for additional generating plants and transmission towers, due to
      environmental concerns and local zoning laws.

    - HEIGHTENING ENVIRONMENTAL CONCERNS REGARDING TRANSPORTATION VEHICLES AND
      CONVENTIONAL POWER GENERATION. Among the most significant environmental
      effects of energy production and consumption is the emission of greenhouse
      gases, such as carbon dioxide, methane and nitrous oxide. The United
      States, as one of the world's largest producers and consumers of fossil
      fuels, is responsible for a major portion of the global energy-related
      emissions. Utilities, due to their reliance on coal-burning power plants,
      and automobiles are two of the largest sources of air pollution.
      Environmental concerns, such as those that prompted the Kyoto Protocol,
      are emphasizing the need to find cleaner forms of transportation and power
      generation.

    As a result of these market dynamics, power generation and environmental
concerns, business and residential consumers are seeking more reliable, cleaner
and cost-effective alternatives to traditional power generation. We believe that
distributed power generation and power quality products will meet these demands.
We are focused on selling our enabling products into the distributed power
generation, hybrid-electric vehicle and uninterruptible power supply markets.

    DISTRIBUTED POWER GENERATION

    With the deregulation of the electric utility industry, the ability to offer
new forms of electrical power generation such as distributed power generation is
creating new markets, products and opportunities.

                                       5
<PAGE>
Distributed power, or on-site power independent of the electric utility grid,
locates power generating capability closer to the end user. The distributed
generation of electrical power from fuel cells or microturbine systems is
potentially an environmentally cleaner, more efficient and more reliable means
of producing electricity compared to conventional generation and distribution
methods. Distributed power generation systems can also alleviate congestion on
highly loaded utility distribution networks and offer an alternative to power
line extensions in remote regions. In response to the many power outages in
1999, the U.S. Department of Energy's Power Outage Study Team recommended the
increased use of distributed power. Fuel cells and microturbines are two
technologies that are being developed to address the distributed power
generation market.

    Fuel cells are power generation devices that combine hydrogen, derived from
a source such as natural gas or propane, with oxygen to create electricity
through an electrochemical reaction rather than through internal combustion. As
a result, fuel cells release only a minimal amount of carbon dioxide into the
atmosphere. The only other by-products of fuel cell power generation systems are
water and heat, which can be used as a supplemental source of heat for homes and
buildings. Fuel cells typically generate a varying level of low-voltage direct
current, or DC, electricity which is then converted to useable alternating
current, or AC, electricity using power electronics and control software.

    Microturbines are small turbines that generate electricity. Microturbines
operate on the same principle as a jet engine but can use a variety of
commercially available fuels, such as natural gas, diesel, kerosene and propane.
Microturbines generate a high-frequency AC electricity, which is then converted
to useable household or industrial current through power electronics and control
software.

    HYBRID-ELECTRIC VEHICLES

    Prices of oil and refined products will strongly influence the demand for
hybrid-electric vehicles. In the last year, significant increases in crude oil
and gasoline prices have renewed a national public policy debate regarding
substitute fuel sources. We believe these higher prices, if sustained, will
increase demand for substitute fuel sources and may result in regulatory
incentives to develop and commercialize vehicles powered by alternative fuel
sources.

    In addition, automobiles are a major contributor to air pollution, and we
believe that new hybrid-electric vehicles can help to solve this problem. The
Clean Air Act Amendments of 1990 and the National Energy Policy Act of 1992 have
caused automobile manufacturers to concentrate on the development of
low-emission vehicles and zero-emission vehicles such as hybrid-electric or
electric vehicles. The California Air Resource Board also has adopted
regulations that require 10% of a manufacturer's new car sales in California be
zero-emission vehicles by 2003.

    While electric cars offer the promise of zero emissions, they are unable to
provide the driving range and performance demanded by consumers due to
performance limitations of existing battery power technology. Hybrid-electric
vehicles can reduce air pollution while offering greater driving range and
performance than electric vehicles. Hybrid-electric vehicles function by
creating mechanical energy from a source such as an internal combustion engine
or fuel cell. The mechanical energy is then transformed into electricity by a
generator and transferred to an electric drivetrain which propels the vehicle.
Excess electricity is stored in an energy storage system consisting of a battery
or flywheel. All hybrid-electric vehicles require complex power and control
electronics to convert, condition and manage electricity, as well as
high-performance motors, electric drivetrains and energy storage systems.

    We believe that fuel cell hybrid-electric vehicles have the potential to be
the leading alternative to internal combustion engines in meeting clean air
initiatives while offering greater driving range and performance than electric
vehicles. The U.S. government has formed the Partnership for a New Generation of
Vehicles with Ford Motor Co., General Motors Corp. and DaimlerChrysler AG to
develop hybrid-electric vehicles that will be capable of achieving 80 miles per
gallon by 2004, and we believe that each of these automakers has made
significant progress in developing hybrid-electric vehicles.

                                       6
<PAGE>
    UNINTERRUPTIBLE POWER SUPPLIES

    Uninterruptible power supply, or UPS, systems maintain a predictable quality
of electricity during power outages or periods of low power quality. As a
result, UPS systems are used to support the operation of computers,
manufacturing facilities and communication and other electronic networks in the
event of power losses. Of these applications, we believe the communications
market will be among the earliest adopters of UPS systems. Low power quality
represents problems for industries where equipment can lose synchronization and
shut down during brief power disruptions. The growth of the Internet, e-commerce
and automated manufacturing is driving the demand for UPS systems. As technology
further impacts all segments of the economy, a larger group of businesses and
individuals are demanding more reliable, high-quality power.

    A leading market for UPS systems is voice, data and cable networks since
these networks must maintain operation in the event of power loss. Currently,
when power is lost or its quality drops, lead-acid batteries provide back-up
electricity until a generator can be engaged. Batteries are typically stored in
central locations in easily maintained, climate-controlled rooms. However, the
increased demand for communication bandwidth, the growth of fiber-optic
technology and the desire to locate telephone switching equipment closer to end
users is driving the trend to locate back-up battery systems in remote storage
cabinets throughout communication networks. Because these remote storage
cabinets are not climate-controlled, batteries have poor reliability and reduced
life expectancy. The dangers of explosion and acid spills are additional
environmental concerns associated with lead-acid batteries.

    We believe that flywheel energy storage systems present an attractive
alternative to lead-acid batteries due to their long life and ability to operate
effectively in remote locations. An electric motor spins a flywheel to its
operating speed. The flywheel spins on magnetic bearings in a vacuum. Magnetic
bearings use magnetic fields instead of mechanical bearings and lubricants to
"float" rotating objects such as a flywheel so that there is no surface contact
and minimal friction. While the flywheel spins, it stores kinetic energy, or
energy created by motion. During power outages or periods of low power quality,
the flywheel motor converts to a generator and, like a battery, transfers the
stored electricity to the end user.

    OUR OPPORTUNITY

    The increased demand for reliable, high-quality, cleaner power is creating a
growing market for distributed power generation and power quality systems. All
of these systems require power and energy management products to convert, store
and manage electricity. In order to be commercially viable and operate
effectively, these power and energy management products must be highly reliable,
efficient, low-cost and compact. Many of these products must be highly
customized to meet the evolving needs of the distributed power generation and
power quality marketplace. We believe that a significant opportunity exists to
manufacture and supply power and energy management products that meet these
criteria.

OUR SOLUTION

    Our solution is to provide critical power products and systems necessary for
the successful commercialization of distributed power generation and power
quality systems. Our products and systems include our PowerGate-TM- and
MegaVerter-TM- power electronics, our control software, our GridLink-TM- utility
interface, high-performance motors and electric drivetrains and a flywheel
energy storage system being developed by Beacon Power. We believe our solution
encompasses the following key attributes demanded by the emerging distributed
power and power quality markets:

    - PERFORMANCE. At a minimum, distributed power generation and power quality
      systems must provide the same degree of quality power that is provided by
      the traditional electric utility system that supplies electric power for
      commercial, industrial and residential usage. Our products use proprietary
      designs to ensure that high-quality power is produced during peak as well
      as steady-state operations.

                                       7
<PAGE>
    - RELIABILITY. We design our products to support the long-life, always-on
      requirements of the distributed power generation and power quality
      markets. We have experience designing and manufacturing high-reliability,
      long-life electronics for applications such as aircraft navigation systems
      and satellite uplink electronics. We design, manufacture and test our
      electronics to last at least fifteen years.

    - EFFICIENCY. The overall efficiency of a distributed power generation
      system, or its ability to deliver power with minimum energy loss, is vital
      to its effective commercialization and depends on the efficiency of all of
      its component parts. We apply our power electronics expertise to design
      and manufacture our products to meet the efficiency needs of our customers
      as defined by their specifications and the end use of the product.

    - LOW-COST. The widespread commercial acceptance of distributed power
      systems is dependent upon the reduction in cost of key components. We
      design our products to be low-cost by making them as compact and as easy
      to manufacture as possible. During 2000, we installed equipment for a
      semi-automated production line in our Marlborough, Massachusetts facility
      which will further automate the manufacturing process for fuel cell power
      conversion products thereby reducing the cost of these systems. This
      production line became operational in December 2000 at which point we
      commenced production of RF satellite uplink electronics as well as
      components for our power converters. We expect the production line to be
      capable of producing 25,000 power conversion systems by the end of 2001
      but will employ the line to build products for which we have orders in
      order to expedite the development of low-cost manufacturing processes
      using this capability.

    - HIGH POWER DENSITY. High power density, or the ability to convert,
      condition and manage large amounts of energy within a compact design, is
      required for cost reduction and is critical in applications such as
      automobiles where weight and space requirements are stringent. We design
      our products to meet the distributed power market's demands for high power
      density.

    - FLEXIBILITY. Due to the rapidly evolving nature of the distributed power
      and power quality industries, our engineers work closely with our
      customers to address overall systems design issues as well as to ensure
      that our products meet their system specifications. We develop and
      manufacture our products for use in various distributed power generation
      and power quality systems such as fuel cells, microturbines, cogeneration
      systems and UPS systems that are modular and scalable to meet a wide range
      of power requirements.

STRATEGY

    Our objective is to be a leading provider of the power and energy management
products necessary for the successful commercialization of distributed power
generation systems, such as fuel cells and microturbines, hybrid-electric
vehicles and power quality products, such as flywheel energy storage systems. We
believe that by designing and developing our products across multiple markets
and multiple applications, our success should be less dependent upon the
adoption of a specific application or on the business of a single market
participant. To accomplish our objective, we are pursuing the following key
strategies:

    - DESIGN AND DEVELOP INNOVATIVE POWER AND ENERGY MANAGEMENT PRODUCTS. We are
      developing proprietary products that are integral components in
      distributed power generation and power quality systems such as our
      PowerGate-TM- converter, GridLink-TM- utility interface and MegaVerter-TM-
      converter. We believe that we have a competitive advantage resulting from
      our engineering expertise in the areas of power electronics,
      electromagnetics, mechanical and thermal dynamics, system controls and
      microelectronic design that we have been working on since 1985. We have
      leveraged research and development funding from government and industry
      sources to build a technology base within these areas that has resulted in
      59 U.S. patents and 17 patent applications pending with the U.S. patent
      and trademark office. In addition, 36 other patents have been issued

                                       8
<PAGE>
      to our employees and assigned to DaimlerChrysler in connection with the
      Chrysler Patriot racecar project.

    - ESTABLISH OUR PRODUCTS AS INDUSTRY STANDARDS. We seek to establish our
      power conversion products as industry standards and become a major
      supplier to the distributed power generation and power quality markets by
      working with our customers to determine cost and performance requirements
      as we design and build our products to meet those requirements. Since we
      are establishing these requirements early in the product life cycle while
      we are one of the few suppliers, we hope that our products will set the
      industry standard. We believe that our engineering expertise and
      experience in manufacturing highly reliable products is positioning us to
      establish standards for our distributed power generation and power quality
      products.

    - INSTALL LOW-COST, HIGH-VOLUME MANUFACTURING CAPABILITIES. We seek to
      establish low-cost, high-volume manufacturing capabilities to give us a
      competitive advantage in our markets. We are developing semi-automated
      manufacturing processes and expanding our manufacturing capacity in order
      to reduce costs as production volumes increase. During 2000, we installed
      equipment for a semi-automated production line in our Marlborough,
      Massachusetts facility that we expect to be capable of producing up to
      25,000 of our residential fuel cell power conversion systems annually.
      This production line became operational in December 2000 at which point we
      commenced production of RF satellite uplink electronics as well as
      components for our power converters. We expect the production line to be
      capable of producing 25,000 power conversion systems by the end of 2001
      but will employ the line to build products for which we have orders in
      order to expedite the development of low-cost manufacturing processes
      using this capability. In the future, we expect to add additional
      production lines for fuel cell power conversion systems as demand
      dictates.

    - ACQUIRE NEW PRODUCTS, MANUFACTURING CAPABILITIES AND TECHNOLOGIES. We
      believe that the acquisition of new products, manufacturing capabilities
      and technologies will enhance our competitive position and growth
      opportunities. Historically, the acquisition of products or companies has
      been a key element of our business strategy. The acquisition of MagMotor
      provided us with revenue in the industrial automation market, a
      manufacturing capability with which to build our new MagLev systems for
      Applied Materials and opportunities for expansion of MagMotor's product
      line into new markets and with new customers as we did with the machine
      tool market. We had similar experiences with Film Microelectronics and
      Ling Electronics, and we anticipate that acquisitions will continue to
      play a role in our strategy.

PRODUCTS

    We design, develop and manufacture high-efficiency, high-reliability and
long-lived power and energy management products that convert, store and manage
electricity. We are using our electronics and manufacturing expertise to develop
products that meet the high-reliability, high-efficiency, low-cost and
compact-size requirements of the distributed power generation and power quality
markets. Our products are sold through our operating divisions in the following
segments:

    ELECTRONICS SEGMENT. The electronics segment includes power electronics,
fuel cell power conversion systems, hybrid microcircuits, thin film substrates
and amplifiers. Revenues for fiscal year 2000 within this category totaled $8.6
million, $8.3 million of which was generated in hybrid microcircuits, thin film
substrates and amplifiers. Approximately $300,000 of revenue was generated by
fuel cell power conversion systems, which are still in the development and test
stage. The following are descriptions of our product categories within the
electronics segment.

    POWER ELECTRONICS

    - FUEL CELL POWER CONVERSION SYSTEM. We have developed a PowerGate-TM-
      residential fuel cell power conversion system that combines DC to DC
      converters, a DC to AC inverter and a controller with control software. We
      have also developed our GridLink-TM- utility interface which is designed
      to allow

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      distributed power generation systems such as fuel cells, microturbines,
      UPS systems and others to operate in either grid-parallel (connected to
      the grid) or grid-independent (disconnected from the grid) modes. The
      following diagram outlines the various components of a typical fuel cell
      power generation system and identifies our products that have been
      developed for use in the system:

Within a box, there is a diagram entitled "PowerGate-TM- Power Conversion
System." Preceding the diagram is the following text: "In a typical residential
fuel cell power generation system, a fuel processor separates hydrogen from a
hydrocarbon source, such as natural gas. The fuel cell stack then creates low
voltage DC electricity through an electrochemical reaction. By-products from the
fuel cell stack are heat and hot water which can be used in the home. Since the
fuel cell stack generates the average amount of electricity needed, the energy
storage device, such as a lead-acid battery or Beacon Power's flywheel, stores
electricity to handle peak loads created when several appliances call for more
than the average amount of power. Our power conversion system, shown below,
transitions the power into useable AC electricity while transferring the power
between the fuel cell power generation system."

The diagram follows, which is a graphic portrayal of the different components of
the PowerGate-TM- Power Conversion System, with arrows flowing from and to
numbered boxes, and a graphical representation of a power utility transmission
tower and a residential dwelling. The boxes are shaded to denote which products
are manufactured by SatCon and which products are manufactured by SatCon's
Beacon Power affiliate, with a corresponding legend.

Beneath the diagram, is the following text, numbered to correspond to the
numbers in the boxes in the diagram above:

"1. Motors and motor controllers are used for auxiliary functions, such as pumps
    that provide compressed air for the fuel cell.

2.  The power converter controller and software determines where the DC
    electricity needs to be routed--either to the home or to the energy storage
    device.

3.  The DC to DC converter transfers DC power between the fuel cell stack, the
    energy storage device and the DC to AC inverter.

4.  The DC to AC inverter provides high-quality AC electricity to the home.

5.  The GridLink-TM- utility interface allows the power generation system to
    operate in either grid-parallel (connected to the electric utility grid) or
    grid-independent (disconnected from the electric utility grid) modes.

6.  An energy storage device, such as a lead-acid battery or Beacon Power's
    flywheel, can be used to provide power to support higher load requirements
    when operating independent from the electric utility grid."

The entire PowerGate-TM- Power Conversion System graphic and explanatory text is
surrounded by a box.

    Our products have been developed for use in both residential and larger
industrial fuel cell power generation systems. Plug Power, H Power and IdaTech
are currently evaluating our PowerGate-TM- power electronics and control
software for use in their residential fuel cell power generation systems, and we
have received orders for 30 of our residential fuel cell power conversion
systems from Plug Power, orders for three systems from H Power, orders for two
systems from Nuvera Fuel Cells and an order for one system from IdaTech.

    We have also developed a technology to make modular inverter units that can
be combined and scaled to handle high-power requirements. Using this technology,
we developed the MegaVerter-TM- for use in connection with large, commercial
sized, fuel cell or microturbine power generation systems that produce power
ranging from 200 kilowatts to 5 megawatts. We have agreed to develop power
electronics and control software for FuelCell Energy, Inc. at our own cost for
evaluation by FuelCell Energy for use in their industrial fuel cell power
generation system. Under this agreement, we plan to install a MegaVerter-TM- in
a 250 kilowatt fuel cell power generation system that is currently powering
FuelCell Energy's facility in Danbury, Connecticut. Revenue for our fiscal years
ended September 30, 2000, 1999 and 1998 from our fuel cell power conversion
systems was approximately $300,000, $0 and $0, respectively.

    - HYBRID MICROCIRCUITS. We manufacture standard and custom hybrid
      microcircuits, which are a combination of several electronic components
      imbedded in a miniature printed circuit board. Due to their size,
      versatility and high reliability, these hybrid microcircuits are used in a
      broad spectrum of applications including communications, industrial,
      medical, military and aerospace. Some of our microcircuit products have
      been employed by our customers as follows:

       - Radio frequency amplifiers that are currently used in satellite uplink
         systems such as the Mobil SpeedPass, satellite television and wireless
         Internet service,

       - Motor controllers, such as high reliability motor controllers for
         helicopter hoist systems, and

       - Video amplifiers, such as those used for a cruise missile video camera
         system.

    - THIN FILM SUBSTRATES. Thin film substrates are miniature printed circuits
      onto which small electronic components are mounted, such as those used in
      hybrid microcircuits. Our thin film products are integrated into
      electronic devices that require small, high-reliability components such as
      cellular telephones and other wireless communications devices. We
      manufacture power resistors for cellular telephones using aluminum nitride
      as the thin film substrate instead of beryllium oxide. Beryllium oxide is
      hazardous, and its use in manufacturing is restricted in the United States
      and banned in Europe. In addition to producing thin film substrates for
      other manufacturers, we use our thin film substrates in our own hybrid
      microcircuit products.

    - AMPLIFIERS. We sell amplifiers which take an input signal and replicate it
      using amplified power to boost the signal. We sell amplifiers for a
      variety of applications, including telecommunications uplinks, power
      amplifiers for aircraft applications and video amplifiers for cruise
      missiles.

                                       10
<PAGE>
    Revenue for our fiscal years ended September 30, 2000, 1999 and 1998 from
our microelectronic products, which consist of our hybrid microcircuits, thin
film substrates and amplifiers, was approximately $8.3 million, $6.3 million and
$5.9 million, respectively.

    MOTION CONTROL SEGMENT. The motion control segment includes high-performance
motors and electric drivetrains such as motors for fuel cells, magnetic
levitation systems, shaker vibration test systems, electric drivetrains,
industrial automation and machine tool motors. Revenues for fiscal year 2000
within this category totaled $13.8 million. The majority of the revenues, $7.4
million, were generated by the sale of Ling Electronics' shaker vibration test
systems. Revenues of $3.3 million were generated by the sale of magnetic
levitation systems to Applied Materials. Industrial automation and machine tool
motors generated $3.1 million in revenues. Motors for fuel cell automobiles
generated little revenue as these motors are in the development and test phase.
Electric drivetrains also contributed little revenue as we are just beginning to
re-market these products that were acquired as part of the asset purchase of the
electronics products group of Northrop Grumman.

    HIGH-PERFORMANCE MOTORS AND ELECTRIC DRIVETRAINS

    We design and manufacture a variety of standard and custom high-performance
motors to suit specific applications. Our specialty motors are typically
designed and manufactured for unique customer requirements such as high
power-to-size requirements or high efficiency. We believe that our technical and
design expertise enables us to shorten the time between receiving customer
specifications and designing and building motors that meet these specifications.
Some of our products include:

    - MAGNETIC LEVITATION SYSTEMS. We manufacture magnetic levitation, or
      MagLev-TM-, systems that enable machinery to rotate or move without
      contacting other machine parts. Our MagLev-TM- systems use
      electro-magnetic fields to lift mechanical components without any surface
      contact. Sensors within the system determine the actual position of the
      levitated object and send signals to a high-speed digital controller,
      which commands electricity to activate the electro-magnets thereby making
      the object move away from any surface it is about to contact. This is done
      at extremely high speeds in order to maintain the stability of the
      levitated object and can be accomplished with objects that spin, such as
      motors, or objects that move in one direction, like pistons or push rods.
      Our largest selling MagLev-TM- system is the integrated suspension and
      motor, or ISAM, system that is sold to Applied Materials, Inc. for silicon
      wafer manufacturing. Because none of the rotating parts contact any other
      parts, the ISAM system does not require lubrication and is ideal for
      applications such as silicon wafer production where a contaminant-free
      environment is critical. Applied Materials has the exclusive right to use
      this product in rapid thermal processing equipment for silicon wafers, and
      we are Applied Materials' sole source provider. MagLev-TM- technology is
      also used in the manufacture of magnetic bearings for Beacon Power's
      flywheel. We have also developed MagLev-TM- systems for applications such
      as vibration isolators and magnetic bearings for jet engines and turbines.
      We are currently developing new applications for use in silicon wafer
      manufacturing, laser printing, equipment testing and other manufacturing
      applications. Revenue for our fiscal years ended September 30, 2000, 1999
      and 1998 from our MagLev-TM- systems was approximately $3.3 million,
      $1.0 million and $1,000, respectively.

    - SHAKER VIBRATION TEST SYSTEMS. We sell shaker vibration test systems that
      enable manufacturers to understand how their mechanical and electronic
      products will perform after exposure to vibrations. Our shaker vibration
      test systems are designed to replicate vibrations ranging from continuous
      shaking to high impact forces such as those arising from dropping a
      product on the floor or landing a plane. Our shaker vibration test systems
      are used for testing a variety of products, including small electronic
      components, computer hardware, consumer electronics, automobiles and
      aerospace and satellite structures. In addition, since our acquisition of
      Ling Electronics in October 1999, we have begun to sell a line of
      digitally modulated power amplifiers. We sell these amplifiers
      individually and as components of our shaker vibration test systems.
      Revenue for our fiscal years ended

                                       11
<PAGE>
      September 30, 2000, 1999 and 1998 from our shaker vibration test systems
      was approximately $7.4 million, $0 and $0, respectively.

    - ELECTRIC DRIVETRAINS. In November 1999, we acquired certain intellectual
      property and assets from Northrop Grumman Corporation to give us the
      ability to manufacture and sell electric drivetrains which convert
      electricity into mechanical energy for propulsion of automobiles. Northrop
      Grumman developed this intellectual property while designing a
      100-horsepower electric drivetrain for DaimlerChrysler for light duty,
      high-power electric vans and utility vehicles and a 230-horsepower
      electric drivetrain for a 33,000 pound vehicle such as a bus or truck.
      Prior to November 1999, over 300 of the 100-horsepower motors were
      installed in DaimlerChrysler's electric powered interurban commuter
      minivans, and a 230-horsepower electric drivetrain was installed in a Blue
      Bird Corporation bus as part of the Cedar Rapids Electric Transportation
      Coalition. We are currently pursuing opportunities to sell these products
      in the electric drivetrain marketplace. To date, we have not received any
      revenue from the sale of electric drivetrains.

    - FUEL CELL MOTORS. We are currently developing a line of high-performance
      motors for auxiliary uses, such as fuel pumps, in fuel cell
      hybrid-electric vehicles. We are also developing these high-performance
      motors for use in commercial and residential fuel cell power generation
      systems.

    - INDUSTRIAL AUTOMATION MOTORS. We manufacture brush and brushless DC motors
      for the industrial automation market. These small, high-efficiency motors
      are available with a variety of options including optical encoders,
      tachometers, brakes, custom cables and connectors. Our industrial
      automation motors are typically used in semiconductor equipment
      manufacturing, medical device assembly and other automated assembly
      processes.

    - MACHINE TOOL MOTORS. We manufacture a line of precise positioning motors
      for use with machine tools such as computer numerical controlled machines.
      These include machining centers, lathes and milling machines.

    Revenue for our fiscal years ended September 30, 2000, 1999 and 1998 from
our high-performance motors, which consist of fuel cell motors, industrial
automation motors and machine tool motors, was approximately $3.1 million,
$1.8 million and $1.6 million, respectively.

ENERGY STORAGE SYSTEMS.

    FLYWHEEL ENERGY STORAGE SYSTEMS

    We have been developing flywheels for energy storage and other applications
since 1985. Our flywheel development programs included the development of
flywheel energy storage systems for the Chrysler Patriot hybrid-electric
vehicle, for a U.S. Marine Corps field communications system and for a combined
satellite control and energy storage system. In 1995, we began development of a
stationary flywheel energy storage system to provide uninterruptible back-up
power. In 1997, after we formed Beacon Power, we contributed this technology to
Beacon Power pursuant to an exclusive license, enabling Beacon Power to pursue
the development of a stationary, terrestrial flywheel energy storage system.
Currently, we do not have revenues generated by flywheel energy storage systems.
This business currently resides within our affiliate, Beacon Power. However, we
retain the right to market flywheels for such applications as space vehicles. As
a result, the primary value of this category is our beneficial ownership, as of
November 30, 2000, of 25.3% of Beacon Power's common stock. See "Beacon Power
Corporation."

    FUNDED RESEARCH AND DEVELOPMENT SEGMENT

    We perform funded research and development in connection with government
programs and for third parties. We pursue funded research and development in
areas where we have technical expertise and where we believe there is
significant commercial application for the developed technology. We have
performed funded research and development in connection with the development of
each of our product

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<PAGE>
areas. Revenue for our fiscal years ended September 30, 2000, 1999 and 1998 from
funded research and development was approximately $8.7 million, $6.4 million and
$8.0 million, respectively.

    In 1999, we entered into an agreement with the U.S. Department of Energy, or
DOE, for the research, development and demonstration of a power conversion
system for a new generation of hybrid-electric vehicles. Under this government
contract, we expect to design a power conversion system that can be manufactured
at high volume and low cost. We believe that the resulting design will enable us
to enhance our manufacturing capabilities to produce our power conversion
products for distributed power generation systems. This program will be funded
half by us and half by DOE. The total DOE approved budget for this program is
$10.0 million through September 29, 2002. As of November 30, 2000, DOE has
funded $5.4 million of this budget. Revenues in fiscal year 2000 and 1999 for
this program totaled $3.4 million and $1.0 million, respectively. The additional
DOE funding of $4.6 million is subject to congressional appropriation and DOE
approval.

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<PAGE>
BEACON POWER CORPORATION

    BUSINESS.  Since its formation, Beacon Power has been developing stationary
flywheel energy storage systems to offer customers an environmentally cleaner,
more reliable alternative to lead-acid batteries for energy storage and power
quality management. Lead-acid batteries have three primary deficiencies. Weather
extremes and frequent discharging and recharging limit their reliability and
useful lives, they cannot be remotely monitored currently, and they represent an
environmental risk due to the threat of explosion and battery acid spills.

    Beacon Power is developing its flywheel energy storage system to operate in
all weather conditions, to offer remote monitoring, to have no limitations on
charge and discharge cycles and to have a longer useful life than batteries.
Beacon Power's flywheel energy storage system consists of a rotating, composite
rim that spins on magnetic bearings in a vacuum. The flywheel is powered up to
its operational speed by an internal motor. Because of negligible friction,
little power is required to maintain the flywheel's operating speed. During
power outages or periods of low power quality, the flywheel motor converts to a
generator and, like a battery, transfers the stored electricity to the end user.
The following is a diagram of a flywheel energy storage system:

Graphic of a flywheel (cutaway to reveal internal components inside protective
casing), with arrows pointing on the left hand side from the following text
descriptions to the diagram: "Vacuum Housing," "Motor/Generator," "Magnetic
Bearings" and "Composite Rim." On the right hand side of the diagram, there are
four bullets with the following text, descending from top to bottom:

  -  "Motor/generator draws power from a power source to spin up the flywheel.
  -  Flywheel spins in a vacuum on magnetic bearings with negligible friction.
  -  Energy is stored in the flywheel.
  -  To provide power, the motor transitions into a generator."

The entire flywheel cutaway graphic and explanatory text is surrounded by a box.

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<PAGE>
    Because of its advantages over lead-acid batteries, Beacon Power's flywheel
energy storage system may be a viable alternative for use in applications where
the loss or disruption of electricity could have potentially significant
economic impacts. Beacon Power's current market focus is to provide flywheel
energy storage systems to telecommunication service providers who must maintain
service during power outages. We believe that the lifetime costs and
functionality of a flywheel energy storage system will compare favorably to
lead-acid batteries in many applications. Over the long-term, if the cost of
manufacturing flywheel energy storage systems is significantly lowered, these
systems could potentially replace batteries that are planned for use in fuel
cell power generation systems.

    In January 2000, Beacon Power received a sales commitment for 100 flywheel
energy storage systems for $15,000 per system from TLER. These systems are
designed to be used for back-up power for a residential telephone system in
Mexico. In June 2000, Beacon Power received an initial order for flywheels from
Cox Communications. In addition, Beacon Power has conducted field tests of its
flywheel energy storage systems with Bell Atlantic Network Services, Inc., now
part of Verizon Communications, Century Communications Corporation, now part of
Adelphia Communications Corporation, and WinDBreak Cable. Beacon Power is
located in Wilmington, Massachusetts, where it occupies a 52,000 square foot
facility. As of September 30, 2000, Beacon Power had a total of 80 full-time
employees and one independent contractor, of which approximately 60 were
engineers, scientists and other degreed professionals.

    FORMATION AND FINANCING HISTORY.  In May 1997, we formed Beacon Power to
develop stationary, terrestrial flywheel energy storage systems for commercial
applications. At that time, DQE Enterprises, Inc., who is currently one of our
investors, made a $5 million investment in SatCon, and we were required to
contribute the $5 million to the capital of Beacon Power to fund its development
efforts. As a condition of DQE Enterprises' investment in us, we granted Beacon
Power a perpetual, worldwide, royalty-free, exclusive right and license to our
flywheel technology for stationary, terrestrial applications.

    On October 23, 1998, Beacon Power completed a $4.8 million private placement
of its class D preferred stock and warrants to Perseus Capital L.L.C., DQE
Enterprises and Micro-Generation Technology Fund, L.L.C. At that time, we
relinquished significant control of Beacon Power and Beacon Power came under the
control of its third-party investors. From June 1999 through March 31, 2000,
Beacon Power was financed through the issuance of approximately $4.7 million of
bridge notes and warrants to its investors, including approximately
$1.0 million from us. On April 7, 2000, Beacon Power issued 1,226,141 shares of
its class E preferred stock and warrants to purchase 306,535 shares of its
class E preferred stock in exchange for the conversion of all of its outstanding
bridge notes of which we received 347,407 shares of Beacon Power's class E
preferred stock and a warrant to purchase 86,852 shares of its class E preferred
stock.

    On April 21, 2000, Beacon Power raised an additional $4.1 million through
the sale of additional bridge notes and warrants to purchase 82,000 shares of
Beacon Power's common stock. We did not participate in this financing. On
May 23, 2000, Beacon Power issued 6,785,711 shares of its class F preferred
stock and additional warrants to purchase shares of Beacon Power's common stock.
The exercise price and the number of shares subject to these additional warrants
were based on the initial public offering price of Beacon Power's common stock.
The shares of class F preferred stock and the additional warrants were issued in
consideration for the cancellation of $5.2 million in bridge notes and an
additional $23.3 million cash investment by existing and new investors. We did
not participate in this financing either.

    Beacon Power's class D preferred stock, class E preferred stock and class F
preferred stock accrue quarterly dividends in arrears at a rate of 12.5% through
May 23, 2000 and 6% thereafter. Beacon Power also has consulting arrangements
with Perseus, DQE Enterprises and Micro pursuant to which Beacon Power must pay
consulting fees in shares of its class A preferred stock.

    On November 22, 2000, Beacon Power completed an initial public offering of
its common stock and issued 8,000,000 shares of its common stock at $6.00 per
share. Upon the closing of Beacon Power's initial

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<PAGE>
public offering, each share of Beacon Power's class A, C, D, E and F preferred
stock was converted into two shares of Beacon Power's common stock or 29,359,530
shares of common stock. In addition, upon the closing of Beacon Power's initial
public offering, Beacon Power issued 873,794 shares of common stock in payment
for consulting fees and accrued dividends on Beacon Power's class D and E
preferred stock. On December 19, 2000, Beacon Power issued an additional
1,200,000 shares of its common stock at $6.00 per share to cover
over-allotments. On December 20, 2000, Beacon Power issued 985,507 shares of its
common stock in connection with the cashless exercise of warrants to purchase
shares of Beacon Power's common stock. On December 22, 2000, Beacon Power issued
997,369 shares of its common stock in connection with the cashless exercise of
warrants to purchase shares of Beacon Power's common stock. As of December 22,
2000, we beneficially owned approximately 23.4% of Beacon Power's common stock.

    BOARD COMPOSITION.  Beacon Power's board of directors currently consists of
seven members. By agreement of Beacon Power's stockholders, two members are
currently designated by Perseus Capital, one member is designated by DQE
Enterprises, one member is designated by Mechanical Technology Incorporated, one
member is designated by GE Capital Equity Investments, Inc. and one member is
designated by us, which is currently David B. Eisenhaure, our chairman of the
board, president and chief executive officer. The seventh member of Beacon
Power's board of directors is William E. Stanton, Beacon Power's president and
chief executive officer.

OUR OPERATING DIVISIONS

    We currently develop and market our products and services through the
following three operating segments:

    ELECTRONICS PRODUCTS.  Our electronics products segment consists of the
following two divisions:

      ADVANCED FUEL CELL POWER PRODUCTS.  Our Advanced Fuel Cell Power Products
      division is establishing manufacturing facilities and processes for the
      production of power electronics for the distributed power generation and
      power quality markets. It also manufactures various multi-chip modules. We
      acquired our Advanced Fuel Cell Power Products division's Marlborough,
      Massachusetts facility in April 1999. As of September 30, 2000, we had 22
      employees working in our Advanced Fuel Cell Power Products division.

      FILM MICROELECTRONICS.  Our Film Microelectronics division, or FMI,
      designs and manufactures standard and custom microelectronic circuits for
      telecommunications, commercial and government aerospace, industrial,
      medical and automotive markets. We acquired FMI in April 1997. FMI is
      located in North Andover, Massachusetts and, as of September 30, 2000, had
      75 employees.

    MOTION CONTROL PRODUCTS.  Our motion control products segment consists of
the following two divisions:

      MAGMOTOR.  Our MagMotor division designs and manufactures standard and
      custom high-performance motors for the industrial machinery, factory
      automation and automotive markets. We acquired MagMotor in January 1997.
      In January 1999, we acquired Inductive Components which we integrated into
      our MagMotor division. MagMotor is located in Worcester, Massachusetts
      and, as of September 30, 2000, had 61 employees.

      LING ELECTRONICS.  Our Ling Electronics division manufactures shaker
      vibration test systems, power converters, amplifiers and controllers. We
      acquired Ling in October 1999 from Mechanical Technology Incorporated.
      Ling is located in Anaheim, California and, as of September 30, 2000, had
      57 employees.

    FUNDED RESEARCH AND DEVELOPMENT.  Our funded research and development
segment consists of the following two divisions:

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<PAGE>
      TECHNOLOGY CENTER.  Our Technology Center, located in Cambridge,
      Massachusetts, focuses on funded research and development. It also
      supports the product development efforts of our other operating divisions.
      The business of Lighthouse Software that we acquired in January 1999 has
      been integrated into our Technology Center. As of September 30, 2000, our
      Technology Center had 80 employees of which 31 were engineers. Our
      engineers have 19 advanced degrees including 8 doctorates.

      ELECTRONIC POWER PRODUCTS.  Our Electronic Power Products division was
      formed in connection with the acquisition of certain intellectual property
      and other assets from Northrop Grumman in November 1999. Through this
      acquisition, we acquired expertise in power electronics and the design and
      development of electric drivetrains for use in electric and
      hybrid-electric vehicles. This division is engaged primarily in contract
      research and development. The Electronic Power Products division is
      located in Baltimore, Maryland and, as of September 30, 2000, had 10
      employees.

SIGNIFICANT CUSTOMERS

    The U.S. Department of Defense accounted for 9.8%, 20.6% and 22.1% of our
total revenue for our fiscal years ended September 30, 2000, 1999 and 1998,
respectively. For the fiscal year ended September 30, 2000, revenue from the
U.S. Department of Energy and Applied Materials accounted for 11.5% and 10.6% of
our total revenue, respectively.

RESEARCH AND DEVELOPMENT

    We believe that the continued and timely development of new products and
enhancements to our existing products are necessary to maintain our competitive
position. We use technologies developed by our Technology Center and our
Electronic Power Products division, together with information supplied by our
distributors and customers, to design and develop new products and product
enhancements and to reduce the time-to-market for our products.

    $8.6 million, or 27.8%, of our revenue during the year ended September 30,
2000 was attributable to research and development activities funded by
commercial customers and U.S. government agency sponsors. Under the agreements
funded by the U.S. government, the government retains a royalty-free license to
use the technology developed for government purposes and we retain exclusive
rights to the technology for commercial and industrial applications. The rights
to technology developed under contracts funded by commercial customers are
negotiated on a case-by-case basis. We expended $3.5 million, $726,000 and
$346,000 on internally-funded research and development during our years ended
September 30, 2000, 1999 and 1998, respectively. During the year ended
September 30, 2000, our most concentrated effort was directed toward building
the power inverter for a fuel cell on-site power generation system.

SALES AND MARKETING

    We sell our products and services both domestically and internationally
through our direct sales force and through independent distributors and
representatives. Our direct sales staff manages our key customer accounts,
provides customer support and identifies significant market opportunities in
their respective markets.

    Each of our divisions manages its own marketing organization and is
responsible for developing sales and advertising literature, such as product
announcements, catalogs, brochures and magazine articles in trade and other
publications. Publication of significant events or material information is
handled through our corporate office.

    We maintain close contact with our customers' design and engineering staffs
in order to provide the appropriate products for our customers' applications. We
maintain this close working relationship with our customers throughout the life
of a product, and we believe that it has been a key component of our customers'
satisfaction.

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    We compete for and market our research and development contracts through
several methods, including pursuing new and existing customer relationships in
the commercial and government sectors, responding to Small Business Innovative
Research calls for proposals and calls for proposals listed in the daily
publication, COMMERCE BUSINESS DAILY, seeking to maintain a strong technical
reputation within the community, responding to unsolicited requests for
proposals and through our Internet site.

BACKLOG

    Our backlog consists primarily of research and development contracts and
orders for power electronic and motion control products. At September 30, 2000,
the backlog was $23.3 million for work to be performed and products to be
shipped during the year ending September 30, 2001 and beyond. Many of our
contracts and sales orders may be canceled at any time with limited or no
penalty. In addition, contract awards may be subject to funding approval from
the U.S. government and commercial entities, which involves political, budgetary
and other considerations over which we have no control. Our backlog at
September 30, 1999 was $7.3 million.

COMPETITION

    The market for our products is competitive and subject to rapid
technological change. The market is significantly affected by new product
introductions and other market activities of industry participants. We currently
or potentially compete with:

    - manufacturers of converters and inverters for fuel cells such as Trace
      Engineering, a division of Xantrex Technology, Inc., Asea Brown
      Boveri Ltd., Siemens Corporation and Alstom S.A.,

    - manufacturers of hybrid microcircuits 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.,

    - manufacturers of electric vehicle drivetrains such as Lockheed Martin
      Corp., Solectria Corporation, Delphi Automotive Systems, Corp., Siemens
      Corporation and Visteon Corporation,

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

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

    - developers of flywheel technology such as Active Power, Inc., Trinity
      Flywheel Power and U.S. Flywheel Systems.

    Many of our competitors have significantly greater financial resources than
we do and are able to devote greater resources to the development, promotion,
sale and support of their products and may have more manufacturing expertise and
capacity. In addition, many of our competitors have more extensive customer
bases and broader customer relationships than we do.

    We believe that competitive factors for our products include:

    - performance

    - reliability

    - efficiency

    - pricing

    - functionality

    - reputation of the vendor

    - service

    - ease of use

    - flexibility

    - manufacturing capacity

    - customization capabilities

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    We believe that we are positioned to compete favorably on the basis of each
of these factors in each of our markets.

MANUFACTURING

    We manufacture our products in approximately 80,000 square feet of
manufacturing space at four facilities in Marlborough, Massachusetts; Worcester,
Massachusetts; North Andover, Massachusetts and Anaheim, California. We have
existing manufacturing capacity to meet our current needs. Our goal is to mass
manufacture high volume, low-cost products. We have a semi-automated production
line in our Marlborough, Massachusetts facility that we expect to be capable of
producing up to 25,000 of our residential fuel cell power conversion systems
annually. We intend to add additional production lines for our products in the
future as demand dictates. We have made and expect to continue to make
technological improvements that reduce the costs to manufacture our products.

    We believe that most of the raw materials used in our products are readily
available from a variety of vendors. Additionally, we design and develop our
products to use commodity parts in order to simplify the manufacturing process.

INTELLECTUAL PROPERTY

    Our success and competitiveness depend on our ability to develop and
maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright law and contract restrictions to
protect the proprietary aspects of our technology. We seek to limit disclosure
of our intellectual property by requiring employees, consultants, and any third
parties with access to our proprietary information to execute confidentiality
agreements and by restricting access to that information. These legal
protections afford only limited protection for our technology.

    We currently own 59 U.S. patents and have 17 patent applications pending
with the U.S. patent and trademark office. In addition, 36 other patents have
been issued to our employees and assigned to DaimlerChrysler in connection with
the Chrysler Patriot racecar project. DaimlerChrysler granted us a
non-exclusive, royalty-free license to these patents for non-automotive
applications. Our 59 U.S. patents and the 36 patents assigned to DaimlerChrysler
are distributed among the following five application areas:

    - motor related applications,

    - magnetic levitation and magnetic bearings,

    - flywheels,

    - distributed power generation and hybrid-electric vehicles, and

    - power electronics and controls.

    The expiration dates of these patents range from 2007 to 2018. With the
exception of two patents, most of our patents expire in or after 2012, with the
majority expiring in 2014 and 2016.

    In 1997, we granted Beacon Power a perpetual, worldwide, royalty-free,
exclusive right and license to our flywheel technology for stationary,
terrestrial applications. As a qualifying small business, we have retained
commercial ownership rights to proprietary technology developed under various
U.S. government contracts and grants, including small business innovation
research contracts. Our patent and trade secret rights are of material
importance to us and to our future prospects.

    Most of the 59 U.S. patents described above 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

                                       19
<PAGE>
throughout 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.

    Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products or
technologies is difficult. Litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any such resulting litigation could result
in substantial costs and diversion of resources and could have a material
adverse effect on our business, results of operations and financial condition.

    We cannot assure you that third parties will not claim infringement with
respect to our current or future products. Any such claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all. A successful claim of intellectual property infringement against us and our
failure or inability to license the infringed technology or develop or license
technology with comparable functionality could have a material adverse effect on
our business, results of operations and financial condition.

    We depend upon intellectual property developments which sometimes derive in
whole or in part from U.S. government contracts and subcontracts. Our rights to
these intellectual property developments vary by contract, depending upon such
factors as whether the government wholly or only partly funded the contract, and
the terms of the negotiation between us and the government department. Some
contracts may give us exclusive rights to commercialize the invention, reserving
to the government only those rights which it needs for government functions.
Other contracts may give broader rights to the government. At the least, most of
these contracts provide us with a non-exclusive, non-assignable license to use a
development for commercial purposes, however most of our technology developed
through government-funded contracts is protected through patents and exclusive
rights.

GOVERNMENT REGULATION

    We presently are subject to various federal, state and local laws and
regulations relating to, among other things, safe working conditions, handling
and disposal of hazardous and potentially hazardous substances and emissions of
pollutants into the atmosphere. To date, we believe that we have obtained all
necessary government permits and have been in substantial compliance with all of
these applicable laws and regulations.

GOVERNMENT CONTRACTS

    We act as a prime contractor or major subcontractor for many different U.S.
government programs, including those that involve the development of
electro-mechanical transportation, navigation and energy-related products. Over
its lifetime, a program may be implemented by the award of many individual
contracts and subcontracts, or contracts with option years, or partially funded
contracts.

    U.S. government contracts include provisions permitting termination, in
whole or in part, without prior notice, at the U.S. government's discretion. The
U.S. government pays compensation for work

                                       20
<PAGE>
actually done and commitments made at the time of termination, and some
allowance for profit on the work performed. The U.S. government may also
terminate for default in performance and pay only the value delivered to the
U.S. government. It can also hold the contractor responsible for reprocurement
costs.

    Our government contract business is also subject to specific procurement
statutes and regulations and a variety of socioeconomic and other requirements.
Failure to comply with these regulations and requirements could lead to loss of
contract or suspension or debarment from U.S. government contracting or
subcontracting for a period of time. Examples of these statutes and regulations
are those related to procurement integrity, export control, employment
practices, the accuracy of records and the recording of costs.

    Sales to the U.S. government may be affected by changes in research
interests in the areas in which we engage, changing government department
budgets, and changing procurement policies.

EMPLOYEES

    At September 30, 2000, we had a total of 278 full-time employees, three
part-time employees and 24 contract employees. Of the total, 110 persons were
employed in engineering, 127 in manufacturing, 45 in administration and 23 in
sales and marketing. None of our employees are represented by a union. We
believe that our relations with our employees are good.

ITEM 2. PROPERTIES

    We lease office, manufacturing and research and development space in the
following locations:

<TABLE>
<CAPTION>
                                                                   APPROXIMATE NUMBER   EXPIRATION
          LOCATION                        PRIMARY USE                OF SQUARE FEET      OF LEASE
----------------------------  -----------------------------------  ------------------   ----------
<S>                           <C>                                  <C>                  <C>
Cambridge, Massachusetts      Corporate headquarters and research
                              and development                            33,000            2003
North Andover, Massachusetts  Manufacturing                              15,000            2002
Worcester, Massachusetts      Manufacturing                              17,000            2003
Marlborough, Massachusetts    Manufacturing                              24,000            2005
Baltimore, Maryland           Research and development                   16,000            2002
Anaheim, California           Manufacturing                              60,000            2003
</TABLE>

    Our Cambridge, Massachusetts lease contains an additional 13,000 square feet
of space which is subleased to a third party until December 31, 2002. Our
Anaheim, California lease contains an additional 25,000 square feet of
manufacturing space for a total of 85,000 square feet. The additional space is
subleased to a third party until May 31, 2001. We also lease 8,800 square feet
in Tucson, Arizona until March 31, 2001, which we have subleased to a third
party through that lease term.

    We believe our facilities are adequate for our current needs and that
adequate facilities for expansion, if required, are available. See also
"Business--Our Operating Divisions."

ITEM 3. LEGAL PROCEEDINGS

    On October 15, 1997, we received a letter from the Department of the Air
Force stating that it may terminate for default an approximately $1.6 million
contract between the Air Force and us for development of a satellite component,
unless perceived performance problems were cured. As of that date, we received
payments of approximately $1.4 million in connection with this contract. In the
event of an actual default, we could be liable for extra costs incurred by the
U.S. government in developing the component and could be required to return a
portion of the monies we received for this contract. On December 15, 1997, the
Air Force issued a "Show Cause Notice" to us requiring us to demonstrate to the
Air Force why the contract should not be terminated "for cause." On
December 31, 1997, we responded to

                                       21
<PAGE>
the Air Force's "Show Cause Notice," explaining our view that we should not be
terminated for cause. On May 11, 2000, we contacted the Air Force again to offer
to settle our differences and to explore obtaining additional settlement
amounts. On August 3, 2000, we sent a memorandum to the Air Force explaining the
basis of a settlement request of $353,248. Also on August 3, 2000, we received
from the Air Force a proposed settlement offer.

    On September 15, 2000, we entered into a settlement agreement with the Air
Force in which the contract was to be closed and considered completed through a
contract modification with no additional payment, but without termination for
cause. Pursuant to the settlement agreement, we accepted the amount already paid
by the Air Force, $1,220,156, in full settlement and final payment. The Air
Force and we agreed that the settlement constituted full accord and satisfaction
of all of our claims against the Air Force arising under or relating to the
contract and released the Air Force from any further request for equitable
adjustment.

    On November 6, 1999, APACE, Inc. commenced an action against us in the
Supreme Court of the State of New York claiming that we had been awarded a prime
contract by the U.S. Department of Energy and that we had failed or refused to
negotiate a subcontract with APACE, allegedly in breach of a contract between us
and APACE. APACE is seeking in excess of $1,000,000 in damages. We denied the
allegations, moved to stay the action and filed for arbitration with the
American Arbitration Association in Boston, Massachusetts. The American
Arbitration Association decided that the arbitration would go forward in Boston.
In the meantime, APACE requested that the court permit the action to go forward
and for the arbitration to be stayed. On March 21, 2000, the Supreme Court of
the State of New York issued an order compelling arbitration and staying APACE's
action pending arbitration to be conducted by the American Arbitration
Association in Boston.

    On June 26, 2000, APACE served us with an amended answering statement and
counterclaim, including additional allegations that we have engaged in unfair
and deceptive trade practices and that our actions were willful and knowing.
Based on these allegations, APACE is seeking multiple damages, as well as
attorneys' fees and expenses. On July 19, 2000, we filed an answer to APACE's
amended answering statement and counterclaim, denying the allegations and
asserting various affirmative defenses.

    An arbitrator was selected and the arbitration was scheduled to go forward
in Boston for nine days in February, March and April of 2001. The parties had
exchanged some discovery, and expected to make a further exchange early in 2001.

    On February 7, 2001, APACE, Roger M. Slotkin, Jeffrey Waxweiler and we
entered into a settlement agreement with respect to all claims concerning, in
connection with or arising from the APACE litigation and arbitration. Pursuant
to the settlement agreement, we paid and delivered to APACE $60,000 and issued
12,500 shares of our common stock to APACE. We are not obligated to register
these shares under the Securities Act of 1933, as amended. The American
Arbitration Association has been notified that the arbitration proceeding will
be dismissed without any recovery by any party, and APACE's counsel will be
filing a voluntary notice of dismissal in the Supreme Court for the State of New
York shortly. The settlement agreement also contained mutual releases of the
parties relating to all claims.

    Sean F. Moran, our Chief Financial Officer, is named as a defendant in three
shareholder class action complaints filed in the United States District Court
for the District of Massachusetts. The complaints, captioned RO NEMETH-COSLETT
V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN (filed on or about
June 8, 2000), MARK CASAZZA V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND
SEAN MORAN (filed on or about June 26, 2000), and RODNEY M. ROCKEFELLER AND LARA
LEE ROCKEFELLER V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN
(filed on or about August 2, 2000), allege violations of the federal securities
laws by Anika Therapeutics, Inc., J. Melville Engle, who serves as Anika's Chief
Executive Officer, and Sean F. Moran, who served as Anika's Chief Financial
Officer from February 1993 to January 2000. The complaints allege a two-year
putative class period through May 30, 2000, and allege that Anika and the
individual defendants violated the federal securities laws by making material
misrepresentations and

                                       22
<PAGE>
omissions that relate to Anika's press releases and historical financial
statements for 1998 and the first three quarters of 1999.

    Anika has previously reported publicly that it was the subject of an
informal investigation by the SEC as disclosed by Anika in March 2000, which
later became a formal investigation by the SEC as disclosed by Anika in May
2000. Anika has reported that in connection with the formal investigation, the
SEC has required Anika to provide information in connection with certain revenue
recognition matters. Anika has reported that these matters related to Anika's
historical accounting for sales of its product under a long-term supply and
distribution agreement. In March 2000, Anika restated its financial results for
1998 and the first three quarters of 1999 to change its revenue recognition
policy under this long-term supply contract.

    From time to time, we are a party to routine litigation and proceedings in
the ordinary course of business. We are not aware of any current or pending
litigation to which we are or may be a party that we believe could materially
adversely affect our results of operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

    No matter was submitted to a vote of security holders during the fourth
quarter of the year covered by this report through the solicitation of proxies
or otherwise.

                                       23
<PAGE>
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is publicly traded on the Nasdaq National Market under the
symbol "SATC."

    The following table sets forth the range of high and low sales prices of our
common stock as reported on the Nasdaq National Market for fiscal years 1999 and
2000:

<TABLE>
<CAPTION>
                                                                       HIGH       LOW
                                                                     --------   --------
       <S>                                                           <C>        <C>
       YEAR ENDED SEPTEMBER 30, 1999
       First Quarter...............................................   $ 7.75     $ 3.69
       Second Quarter..............................................     6.56       3.63
       Third Quarter...............................................     9.88       4.50
       Fourth Quarter..............................................    10.44       7.06
       YEAR ENDED SEPTEMBER 30, 2000
       First Quarter...............................................   $10.44     $ 7.31
       Second Quarter..............................................    44.75       8.00
       Third Quarter...............................................    28.81      10.50
       Fourth Quarter..............................................    41.00      23.50
</TABLE>

    On December 20, 2000, the last reported sale price of our common stock as
reported on the Nasdaq National Market was $9.3438 per share. As of
December 12, 2000, there were 13,877,185 shares of our common stock outstanding
held by approximately 190 holders of record.

DIVIDEND POLICY

    We have never paid dividends on our common stock. We currently intend to
retain earnings, if any, to fund the development and growth of our business and
do not anticipate paying cash dividends for the foreseeable future. Payment of
future cash dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion.

RECENT SALES OF UNREGISTERED SECURITIES

    On September 27, 2000, we issued 100,000 shares of our common stock to
Northrop Grumman Corporation in connection with the exercise by Northrop Grumman
Corporation of a warrant we issued to Northrop Grumman Corporation at an
exercise price of $9.75 per share. The common stock was issued in reliance upon
the exemptions from registration under Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, relative to sales by an issuer not
involving any public offering.

                                       24
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    Our financial statements for the years ended September 30, 1999, 1998, 1997
and 1996 have been restated. All financial information included in this Annual
Report on Form 10-K/A reflect the restatements. For a discussion of the
restatements, see our financial statements and related notes included elsewhere
in this Annual Report on Form 10-K/A.

    You should read the data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes appearing elsewhere in
this Annual Report on Form 10-K/A. The selected consolidated financial data set
forth below for the fiscal years ended September 30, 2000, 1999 and 1998 and the
consolidated balance sheet data as of September 30, 2000 and 1999 are derived
from our audited consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K/A. The selected consolidated statement of operations
data for the fiscal years ended September 30, 1997 and 1996 and the consolidated
balance sheet data as of September 30, 1998, 1997 and 1996 are derived from our
audited consolidated financial statements that are not included in this Annual
Report on Form 10-K/A. The statement of operations for the fiscal year ended
September 30, 2000 includes the results of Ling Electronics beginning from
October 21, 1999, the date on which we acquired Ling Electronics and the
acquisition of assets from Northrop Grumman Corporation beginning from
November 16, 1999, the date which we acquired assets from Northrop Grumman
Corporation.

<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED SEPTEMBER 30,
                                                        ----------------------------------------------------
                                                          2000       1999       1998       1997       1996
                                                        --------   --------   --------   --------   --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Product revenue.......................................  $ 22,427   $  9,123   $ 7,520    $ 3,728    $    --
Funded research and development and other revenue.....     8,628      6,355     8,011      8,738      9,385
                                                        --------   --------   -------    -------    -------
      Total revenue...................................    31,055     15,478    15,531     12,466      9,385
                                                        --------   --------   -------    -------    -------
Operating costs and expenses:
Cost of product revenue...............................    19,069      9,511     5,474      2,683         --
Research and development and other revenue expenses:
  Funded research and development and other revenue
    expenses..........................................     6,848      5,828     5,517      7,388      6,395
  Unfunded research and development expenses..........     3,453        726     1,277      4,055      1,818
                                                        --------   --------   -------    -------    -------
      Total research and development and other revenue
        expenses......................................    10,301      6,554     6,794     11,443      8,213
Selling, general and administrative expenses..........     9,970      8,819     4,523      6,198      5,569
Amortization of intangibles...........................     1,217        371       291        120         --
                                                        --------   --------   -------    -------    -------
  Total operating costs and expenses..................    40,557     25,255    17,082     20,444     13,782
                                                        --------   --------   -------    -------    -------
Operating loss........................................    (9,502)    (9,777)   (1,551)    (7,978)    (4,397)
Other income (loss)...................................       460       (224)      170        269        464
                                                        --------   --------   -------    -------    -------
Net loss before income taxes and loss from Beacon
  Power Corporation...................................    (9,042)   (10,001)   (1,381)    (7,709)    (3,933)
Benefit/(provision) for income taxes..................        --         --        (4)        --        144
Loss from Beacon Power Corporation....................      (899)    (4,341)   (3,473)        --         --
                                                        --------   --------   -------    -------    -------
Net loss..............................................    (9,941)   (14,342)   (4,858)    (7,709)    (3,789)
Accretion of redeemable convertible preferred stock
  discount............................................    (3,106)       (51)       --         --         --
                                                        --------   --------   -------    -------    -------
Net loss attributable to common stockholders..........  $(13,047)  $(14,393)  $(4,858)   $(7,709)   $(3,789)
                                                        ========   ========   =======    =======    =======
Net loss per share, basic and diluted.................  $  (1.03)  $  (1.57)  $ (0.54)   $ (0.97)   $ (0.52)
                                                        ========   ========   =======    =======    =======
Weighted average number of common shares, basic and
  diluted.............................................    12,630      9,176     8,957      7,959      7,286
                                                        ========   ========   =======    =======    =======
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
                                                                          AS OF SEPTEMBER 30,
                                                          ----------------------------------------------------
                                                            2000       1999       1998       1997       1996
                                                          --------   --------   --------   --------   --------
                                                                             (IN THOUSANDS)
<S>                                                       <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA
Cash and cash equivalents...............................  $ 8,814    $ 2,533    $ 1,202    $ 4,257    $ 3,771
Assets transferred to Beacon Power Corporation..........       --         --        577         --         --
Total assets............................................   44,487     17,815     16,689     18,219     16,354
Working capital.........................................   18,390      7,714      7,905     10,595     11,011
Liabilities transferred to Beacon Power Corporation.....       --         --      1,564         --         --
Total long-term liabilities, net of current portion.....      214         64        239        323         --
Contingent obligation to Class D preferred stockholders
  of Beacon Power Corporation...........................    5,794      5,309         --         --         --
Redeemable convertible preferred stock..................       --      4,894         --         --         --
Stockholders' equity....................................   31,118      4,421     12,372     15,589     15,175
</TABLE>

                                       26
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    On four separate occasions since January 1, 1999, we have restated our
financial results. These restatements, announced on January 13, 1999, August 16,
1999, August 8, 2000 and September 12, 2000, affected various reporting periods
during our fiscal years ended September 30, 1996 through 1999 and our nine-month
period ended June 30, 2000. The restatements primarily related to the accounting
for our investment in Beacon Power, and other various accounting matters
including accounting for stock options and warrants, providing additional
reserves for accounts receivable, inventory, warranty and sales returns and
writing off certain property and equipment. On September 18, 2000, the SEC's
enforcement division requested that we meet with them to explain the
circumstances surrounding the restatements announced on August 8, 2000 and
September 12, 2000. On September 22, 2000, David B. Eisenhaure and Sean F.
Moran, our President and Chief Financial Officer, respectively, along with our
independent public accountants and outside counsel, met with various
representatives of the SEC in response to their inquiry. We explained the
circumstances surrounding our August 2000 and September 2000 restatements and
responded to the SEC's questions. We expect that the SEC will have additional
questions. The SEC may seek to meet with individuals, which may include our
employees as well as representatives of Beacon Power and our former and current
independent accountants. We will cooperate fully with any further SEC inquiry.

    The following discussion reflects the restatement of our financial
statements for fiscal years 1998 and 1999. For a discussion of the restatements,
see our financial statements and related notes included elsewhere in this Annual
Report on Form 10-K/A.

OVERVIEW

    We are developing enabling technologies for the emerging distributed power
generation and power quality markets. We manufacture power and energy management
products that convert, store and manage electricity for businesses and consumers
that require high-quality, uninterruptible power. We are utilizing our
engineering and manufacturing expertise to develop products to serve the
distributed power generation and power quality markets, including products for
fuel cell and microturbine power generation systems, hybrid-electric vehicles
and flywheel energy storage systems. We believe the family of products we are
developing will be integral components of distributed power generation and power
quality systems.

    In the past three years, we have expanded our business and capabilities
through the following acquisitions:

    - K&D Magmotor Corp.--a manufacturer of custom and standard electric motors,
      acquired in January 1997.

    - Film Microelectronics, Inc.--a manufacturer of thin film substrates and
      hybrid microelectronics, acquired in April 1997.

    - Inductive Components, Inc.--a value-added supplier of customized electric
      motors, acquired in January 1999.

    - Lighthouse Software, Inc.--a supplier of control software for machine
      tools, acquired in January 1999.

    - HyComp, Inc.--a manufacturer of hybrid microelectronics, acquired in
      April 1999.

    - Ling Electronics, Inc.--a manufacturer of shaker vibration test systems,
      power converters, amplifiers and controllers, acquired in October 1999.

All of these acquisitions were accounted for using the purchase method of
accounting. In addition, in November 1999, we acquired intellectual property,
tooling and other assets from Northrop Grumman Corporation enabling us to
manufacture and sell electric drivetrains. See Note O to our Consolidated

                                       27
<PAGE>
Financial Statements in this Annual Report on Form 10-K/A for more information
regarding our acquisitions.

    In May 1997, we formed Beacon Power Corporation to develop stationary,
terrestrial flywheel energy storage systems for commercial applications. On
October 23, 1998, Beacon Power completed a $4.8 million private placement of its
class D redeemable preferred stock and warrants to third-party investors, and we
relinquished significant control of Beacon Power. As of October 23, 1998, we
owned 0.1% of Beacon Power's voting stock and 67.0% of Beacon Power's
outstanding capital stock. From June 1999 through March 31, 2000, Beacon Power
was financed through the issuance of approximately $4.7 million of bridge notes
and warrants to its investors, including $1.0 million from us. On April 7, 2000,
Beacon Power issued 1,226,141 shares of its class E redeemable preferred stock
and warrants to purchase 306,535 shares of its class E preferred stock in
exchange for the conversion of all of its outstanding bridge notes of which we
received 347,407 shares of Beacon Power's class E redeemable preferred stock and
a warrant to purchase 86,852 shares of its class E preferred stock. As of
April 7, 2000, we owned 11.0% of Beacon Power's voting stock and 61.0% of Beacon
Power's outstanding capital stock. On April 21, 2000, Beacon Power raised an
additional $4.1 million through the sale of additional bridge notes and warrants
to purchase 41,000 shares of Beacon Power's common stock. We did not participate
in this financing. On May 23, 2000, Beacon Power issued 6,785,711 shares of its
class F preferred stock and additional warrants to purchase shares of Beacon
Power's common stock. The shares of class F preferred stock and the additional
warrants were issued in consideration for the cancellation of $5.2 million in
bridge notes and an additional $23.3 million cash investment by existing and new
investors. We did not participate in this financing either. As of May 23, 2000,
we owned 3.5% of Beacon Power's voting stock and 33.0% of Beacon Power's
outstanding capital stock. As of September 30, 2000, we owned approximately 3.5%
of the outstanding voting stock of Beacon Power and 32.1% of the capital stock
of Beacon Power on a common equivalent basis after taking all dividend accruals
into account. On November 22, 2000, Beacon Power completed an initial public
offering of its common stock and issued 8,000,000 shares of its common stock at
$6.00 per share. Upon the closing of Beacon Power's initial public offering,
each share of Beacon Power's class A, C, D, E and F preferred stock was
converted into two shares of Beacon Power's common stock, or 29,359,530 shares
of common stock, of which we received 9,691,440 shares of Beacon Power's common
stock. In addition, upon the closing of Beacon Power's initial public offering,
Beacon Power issued 873,794 shares of common stock in payment for consulting
fees and accrued dividends on Beacon Power's class D and E preferred stock, of
which we received 11,098 shares of Beacon Power's common stock. After these
events, we owned approximately 25.0% of Beacon Power's outstanding voting stock.
On December 19, 2000, Beacon Power issued an additional 1,200,000 shares of its
common stock at $6.00 per share to cover over-allotments. As of December 19,
2000, we owned approximately 24.2% of Beacon Power's outstanding voting stock.
On December 20, 2000, Beacon Power issued 985,507 shares of Beacon Power's
common stock in connection with the cashless exercise of warrants to purchase
common stock. As of December 20, 2000, we owned approximately 23.7% of Beacon
Power's outstanding voting stock. On December 22, 2000, Beacon Power issued
997,369 shares of Beacon Power's common stock in connection with the cashless
exercise of warrants to purchase common stock. As of December 22, 2000, we owned
approximately 23.1% of Beacon Power's outstanding voting stock. As of
December 31, 2000, we owned approximately 23.1% of Beacon Power's outstanding
voting stock, or 9,705,910 shares of common stock, which had a fair market value
of approximately $97.1 million. Additionally, we have a warrant to purchase
173,704 shares of Beacon Power's common stock at an exercise price of $1.25 per
share.

    The results of our operations include a $3.1 million loss of Beacon Power
from May 8, 1997 to December 24, 1997 under the consolidation method of
accounting. On December 24, 1997, we began accounting for our investment in
Beacon Power in accordance with SEC Staff Accounting Bulletin No. 30/Topic 5.E.
(SAB 30) "Accounting for Divesture of a Subsidiary or Other Business Operation"
and have included 100% of Beacon Power's $7.1 million loss for the period from
December 25, 1997 through May 1999 in a manner similar to the equity method of
accounting, at which time, our initial investment of $1.9 million, the $30,000
additional investment and the additional deemed investment of $4.8 million and

                                       28
<PAGE>
accrued dividends of $410,000 had been written down to zero. In June 1999, we
committed up to $1.0 million of additional financing to Beacon Power,
representing a minority share of a funding commitment received by Beacon Power
and we began accounting for our investment in Beacon Power under the equity
method of accounting and have included in our results through September 30, 2000
our share of Beacon Power's losses of $1.6 million. As of September 30, 2000,
our additional investment in Beacon Power had been reduced to zero and our
contingent obligation to Beacon Power's class D preferred stockholders was
$5.8 million. We will continue to record additional losses from Beacon Power to
the extent of additional dividends accrued on the contingent obligation to the
class D preferred stockholders of Beacon Power.

    On November 17, 2000, Beacon Power listed its common stock on the Nasdaq
National Market. In connection with the listing, the put right granted to the
class D preferred stockholders of Beacon Power was terminated and the contingent
obligation to class D preferred stockholders of Beacon Power was reclassified to
additional paid-in capital. On November 22, 2000, Beacon Power completed an
initial public offering of its common stock. In accordance with SEC Staff
Accounting Bulletin No. 51, our investment in Beacon Power and additional
paid-in capital was written up to reflect our beneficial interest in the book
value of the stockholders' equity of Beacon Power at November 22, 2000, which
was approximately $15.0 million, less losses previously recorded in connection
with the put right obligation in the amount of $5.8 million, for a net gain of
$9.1 million. On December 19, 2000, Beacon Power issued an additional 1,200,000
shares of its common stock at $6.00 per share to cover over-allotments. Our
investment and additional paid-in capital was written up by $1.6 million in
accordance with SAB No. 51 to reflect our beneficial interest in the increase in
book value of the stockholders' equity of Beacon Power at December 19, 2000.
After the write-up of our investment in Beacon Power, we will continue to
account for our investment in Beacon Power under the equity method of accounting
and record our share of losses from Beacon Power.

    If in the future, our ownership interest in Beacon Power's outstanding
capital stock is reduced to below 20% and we determine that we do not have the
ability to exercise significant influence over the operating and financial
policies of Beacon Power, our investment in Beacon Power will be accounted for
using the fair value method as set forth in SFAS No. 115 based upon the carrying
value of our investment in Beacon Power. At that time, we will no longer be
required to record our share of any losses from Beacon Power. Under the fair
value method, the value of the investment will be carried at fair market value
with any unrealized holding gains or losses to be included in stockholders'
equity as a component of other comprehensive income.

    We recognize revenue from product sales in accordance with Staff Accounting
Bulletin No. 101 "Revenue Recognition." Product revenue is recognized when there
is persuasive evidence of an arrangement, delivery of the product to the
customer has occurred and we have determined that collection of a fixed fee is
probable. Title to the product generally passes upon shipment of the product as
the products are shipped FOB shipping point, except for certain foreign
shipments. If the product requires installation to be performed by us, all
revenue related to the product is deferred and recognized upon the completion of
the installation. We provide for a warranty reserve at the time the product
revenue is recognized.

    We perform funded research and development and product development for
commercial companies and government agencies under both cost reimbursement and
fixed-price contracts. Cost reimbursement contracts provide for the
reimbursement of allowable costs and, in some situations, the payment of a fee.
These contracts may contain incentive clauses providing for increases or
decreases in the fee depending on how costs compare with budget. On fixed-price
contracts, revenue is generally recognized on the percentage of completion
method based upon the proportion of costs incurred to the total estimated costs
for the contract. Revenue from reimbursement contracts is recognized as services
are performed. In each type of contract, we receive periodic progress payments
or payment upon reaching interim milestones. All payments to us for work
performed on contracts with agencies of the U.S. government are subject to audit
and adjustment by the Defense Contract Audit Agency. Adjustments are recognized
in the period made.

                                       29
<PAGE>
When the current estimates of total contract revenue for commercial product
development contracts indicate a loss, a provision for the entire loss on the
contract is recorded. Any losses incurred in performing funded research and
development projects are recognized as research and development expense as
incurred.

    Cost of product revenue includes cost of product revenue, including
material, labor and overhead. Costs incurred in connection with funded research
and development and other revenue arrangements are included in research and
development and other revenue expenses.

    We have incurred significant costs to develop our technology and products.
These costs have exceeded total revenue. As a result, we have incurred net
losses for the fiscal years ended 2000, 1999, 1998, 1997 and 1996. As of
September 30, 2000, we had an accumulated deficit of $40.2 million. We intend to
significantly increase our capital expenditures and operating expenses to
rapidly expand our manufacturing capabilities and for general corporate
purposes, including product development activities, sales and marketing and
administrative activities. Because we expect to continue to invest in our
business ahead of anticipated future revenues, we expect to incur operating
losses at least through the next two years.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

    This Annual Report on Form 10-K/A contains or incorporates forward-looking
statements within the meaning of section 27A of the Securities Act of 1933 and
section 21E of the Securities Act of 1934. You can identify these
forward-looking statement by our use of the words "believes," "anticipates,"
"plans," "expects," "may," "will," "intends," "estimates," and similar
expressions, whether in the negative or in the affirmative. Although we believe
that these forward-looking statements reasonably reflect our plans, intentions
and expectations, our actual results could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements we make.
We have included important factors in the cautionary statements below under the
heading "Factors Affecting Future Results" that we believe could cause our
actual results to differ materially from the forward-looking statements that we
make. These factors also include, without limitation, those set forth in Exhibit
99 to this Form 10-K/A, which are expressly incorporated by reference herein. We
do not intend to update information contained in any forward-looking statements
we make.

RESULTS OF OPERATIONS

    FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED
    SEPTEMBER 30, 1999

    PRODUCT REVENUE.  Product revenue increased by $13.3 million or 146% from
$9.1 million to $22.4 million. This increase was attributable to $7.4 million in
revenue from Ling Electronics, $2.3 million from increased volume in our
microelectronics products, primarily from radio frequency amplifiers that are
currently used in satellite uplink systems, satellite television and wireless
Internet service, $2.3 million from increased volume in our magnetic levitation
products and $1.3 million from increased volume from high performance motors.

    FUNDED RESEARCH AND DEVELOPMENT AND OTHER REVENUE.  Funded research and
development and other revenue increased by $2.3 million or 36% from
$6.4 million to $8.6 million. This increase was attributable to an additional
$2.4 million in funded research and development revenue from a Department of
Energy program to develop low-cost power conversion modules for electric and
hybrid-electric vehicles and was partially offset by our increased focus on
internally funded research projects including the development of power
conversion products for the distributed power generation market. For the fiscal
year ended September 30, 2000 and 1999, revenue from commercial contracts, which
represents other revenue, is included in funded research and development and
other revenue and amounted to $763,000 and $768,000, respectively.

    COST OF PRODUCT REVENUE.  Cost of product revenue increased $9.6 million or
100.5% from $9.5 million to $19.1 million. The increase was primarily
attributable to the increase in product revenue offset by

                                       30
<PAGE>
improved plant utilization at MagMotor and Film Microelectronics. Gross margin
from product revenue as percentage of product revenue increased to 15% from
(4%).

    FUNDED RESEARCH AND DEVELOPMENT AND OTHER REVENUE EXPENSES.  Funded research
and development and other revenue expenses increased by $1.0 million or 17.5%
from $5.8 million to $6.8 million. The increase was primarily attributable to an
additional $1.8 million in funded research and development expenses related to
the Department of Energy program. For the fiscal year ended September 30, 2000
and 1999, costs and expenses from commercial contracts, which represents other
revenue expenses, are included in funded research and development and other
revenue expenses and amounted to $398,000 and $704,000, respectively.

    UNFUNDED RESEARCH AND DEVELOPMENT EXPENSES.  Unfunded research and
development expenses increased by $2.7 million or 375.5% from $726,000 to
$3.5 million. The increase was primarily attributable to an additional
$1.1 million in unfunded research and development expenses related to the
Department of Energy program.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased by $1.2 million or 13% from $8.8 million to
$10.0 million. The increase was primarily due to the inclusion of $2.9 million
of costs from Ling Electronics, $800,000 of costs for facilities and staffing in
an effort to meet expected growth and demand for our products and the inclusion
of a full year of expenses related to Inductive Components and Lighthouse
Software which were acquired in January 1999 and HyComp which was acquired in
April 1999. These increases were offset by the recording of $2.2 million of
non-cash stock-based compensation expense related to the issuance of stock
options and warrants to consultants and $1.0 million of additional reserves for
unbilled contract costs and fees and accounts receivable in 1999. Based on the
facts and circumstances during 1999, we established a reserve of $521,000 for
unbilled contract costs and fees related to a contract with the Department of
the Air Force which was terminable by the Department of the Air Force if it
determined that we were in default under the contract as discussed in Note H to
our financial statements. In addition during 1999, we provided $513,000 in
reserve for unbilled contract costs and fees and accounts receivable to properly
reflect the reserve requirements.

    AMORTIZATION OF INTANGIBLES.  Amortization of intangibles increased $846,000
or 228% from $371,000 to $1.2 million. This increase was the result of
amortization of intangibles recorded in connection with the acquisitions of
Inductive Components and Lighthouse Software in January 1999, Ling Electronics
in October 1999 and certain intellectual property and other intangible assets
from Northrop Grumman in November 1999.

    OTHER INCOME (LOSS).  Other income increased to $460,000 from $224,000 of
other loss. The increase was the result of an increase in cash and cash
equivalents being maintained in interest-bearing accounts and a decrease of
interest expense associated with our line of credit.

    LOSS FROM BEACON POWER CORPORATION.  Loss from Beacon Power decreased by
$3.4 million or 79% from $4.3 million to $899,000. During the year ended
September 30, 2000, we recorded our share of Beacon Power's losses of $899,000,
under the equity method of accounting. As of December 31, 1999, our investment
in Beacon Power had been reduced to zero, however, we continued to record losses
from Beacon Power to the extent of additional interest accrued on the contingent
obligation to the class D preferred stockholders of Beacon Power. During the
year ended September 30, 1999, we recorded 100% of Beacon Power's losses of
$3.6 million in accordance with SAB Topic 5.E., in a manner similar to the
equity method of accounting through May 1999 and in June 1999, we began
accounting for our investment in Beacon Power under the equity method of
accounting and recorded our share of Beacon Power's losses of $734,000 from June
1999 to September 1999.

    FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED
    SEPTEMBER 30, 1998

    PRODUCT REVENUE.  Product revenue increased $1.6 million or 21% from
$7.5 million to $9.1 million. This increase was attributable to $1.0 million
from the introduction of our magnetic levitation products and

                                       31
<PAGE>
$396,000 from increased volume in our microelectronics products, primarily from
radio frequency amplifiers that are currently used in satellite uplink systems,
satellite television and wireless Internet service and $202,000 from increased
volume from high performance motors.

    FUNDED RESEARCH AND DEVELOPMENT AND OTHER REVENUE.  Funded research and
development and other revenue decreased by $1.7 million or 21% from
$8.0 million to $6.4 million. During the year ended September 30, 1999, we
devoted more resources to internally funded research and development programs
including the development of power conversion products for the distributed power
generation market. For the fiscal year ended September 30, 1999 and 1998,
revenue from commercial contracts, which represents other revenue, is included
in funded research and development and other revenue and amounted to $768,000
and $25,000, respectively.

    COST OF PRODUCT REVENUE.  Cost of product revenue increased $4.0 million or
73.7% from $5.5 million to $9.5 million. The increase was due to increased costs
incurred in developing new products and for additional staffing and facility
costs. In addition, we also recorded a $870,000 provision for obsolete and slow
moving inventory. Gross margin from product revenue as a percentage of product
revenue decreased to (4%) from 27%.

    FUNDED RESEARCH AND DEVELOPMENT AND OTHER REVENUE EXPENSES.  Funded research
and development and other revenue expenses increased by $311,000 or 5.6% from
$5.5 million to $5.8 million. For the fiscal year ended September 30, 1999 and
1998, costs and expenses from commercial contracts, which represents other
revenue expenses, are included in funded research and development and other
revenue expenses and amounted to $704,000 and $15,000, respectively.

    UNFUNDED RESEARCH AND DEVELOPMENT EXPENSES.  Unfunded research and
development expenses decreased by $550,000 or 43.1% from $1.3 million to
$726,000. The decrease was the result of accounting for our investment in Beacon
Power as of December 24, 1997, in accordance with SAB 30 and thus no longer
including Beacon Power's unfunded research and development expenses in our
results. In 1998, we included $1.2 million of Beacon Power's unfunded research
and development expenses in our results through December 24, 1997, at which time
we began accounting for our investment in Beacon Power in accordance with
SAB 30. This decrease was partially offset by an increase in our effort to
develop distributed power conversion systems and other internal research and
development programs.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased $4.3 million or 95% from $4.5 million to
$8.8 million. This increase was primarily due to $2.2 million of non-cash
stock-based compensation expense related to the issuance of stock options and
warrants to consultants in 1999, $1.0 million of additional reserves for
unbilled contract costs and fees and accounts receivable and $800,000 in costs
for facilities and staffing in an effort to meet expected growth and demand for
our products. Based on the facts and circumstances during 1999, we established a
reserve against $521,000 of unbilled contract costs and fees related to a
contract with the Department of the Air Force which was terminable by the
Department of the Air Force if it determined that we were in default under the
contract. In addition, we provided $513,000 in reserves for unbilled contract
costs and fees and accounts receivable to properly reflect the reserve
requirements.

    AMORTIZATION OF INTANGIBLES.  Amortization of intangibles increased $80,000
or 27% from $291,000 to $371,000. This increase was the result of the
acquisition of Inductive Components and Lighthouse Software in January 1999.

    OTHER INCOME (LOSS).  Other loss increased to $224,000 from $170,000 of
other income as a result of increased interest expense and decreased interest
income.

    LOSS FROM BEACON POWER CORPORATION.  Loss from Beacon Power increased
$868,000 or 25% from $3.5 million to $4.3 million. As of December 24, 1997, we
began accounting for our investment in Beacon Power in accordance with SAB
Topic 5.E. and we have included 100% of Beacon Power's net loss of $3.5 million
in our results during the year ended September 30, 1998 in a manner similar to
the equity method

                                       32
<PAGE>
of accounting. During 1999, we continued to account for our investment in Beacon
Power in accordance with SAB Topic 5.E. until May 1999 and have included $3.6
million of Beacon Power's net loss in our results during that period. In June
1999, we began accounting for our investment in Beacon Power under the equity
method of accounting and have recorded an additional $734,000 of our share of
losses from Beacon Power during June 1999 to September 1999.

QUARTERLY RESULTS OF OPERATIONS

    The following table presents unaudited quarterly statement of operations
data for the eight quarters ended September 30, 2000. This data has been
prepared on a basis consistent with our audited financial statements included
elsewhere in this Annual Report on Form 10-K/A. This data includes all
adjustments, consisting solely of normal recurring adjustments, that we believe
necessary for a fair presentation of this information. The operating results for
any quarter are not necessarily indicative of results to be expected for any
future period.

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                          ---------------------------------------------------------------------------------------
                                          SEPT. 30,   JUNE 30,   MAR. 31,   DEC. 31,   SEPT. 30,   JUNE 30,   MAR. 31,   DEC. 31,
                                            2000        2000       2000       1999       1999        1999       1999       1998
                                          ---------   --------   --------   --------   ---------   --------   --------   --------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>         <C>        <C>        <C>        <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Product revenue.........................   $ 8,159    $ 5,459    $ 5,648    $ 3,161     $ 2,733    $ 2,623    $ 1,772    $ 1,995
Funded research and development and
  other revenue.........................     2,102      3,235      1,896      1,395       1,266      1,469      1,890      1,730
                                           -------    -------    -------    -------     -------    -------    -------    -------
      Total revenue.....................    10,261      8,694      7,544      4,556       3,999      4,092      3,662      3,725
                                           -------    -------    -------    -------     -------    -------    -------    -------
Operating costs and expenses:
Cost of product revenue.................     6,583      4,599      4,886      3,001       2,784      3,288      1,915      1,524
Research and development and other
  revenue expenses:
  Funded research and development and
    other revenue expenses..............     1,415      2,741      1,598      1,094       1,181      1,907      1,413      1,326
  Unfunded research and development
    expenses............................     1,326      1,203        295        629         345        229         52        101
                                           -------    -------    -------    -------     -------    -------    -------    -------
      Total research and development and
        other revenue expenses..........     2,741      3,944      1,893      1,723       1,526      2,136      1,465      1,427
Selling, general and administrative
  expenses..............................     2,963      2,555      2,420      2,032       1,624      5,176      1,029        990
Amortization of intangibles.............       322        323        329        243          98        101         94         78
                                           -------    -------    -------    -------     -------    -------    -------    -------
  Total operating costs and expenses....    12,609     11,421      9,528      6,999       6,032     10,701      4,503      4,019
                                           -------    -------    -------    -------     -------    -------    -------    -------
Operating loss..........................    (2,348)    (2,727)    (1,984)    (2,443)     (2,033)    (6,609)      (841)      (294)
Other income (loss).....................       185        146         99         30         (31)      (186)       (26)        19
                                           -------    -------    -------    -------     -------    -------    -------    -------
Net loss before loss from Beacon Power
  Corporation...........................    (2,163)    (2,581)    (1,885)    (2,413)     (2,064)    (6,795)      (867)      (275)
Loss from Beacon Power Corporation......       (72)      (116)      (148)      (563)       (512)    (1,006)    (1,383)    (1,440)
                                           -------    -------    -------    -------     -------    -------    -------    -------
Net loss................................    (2,235)    (2,697)    (2,033)    (2,976)     (2,576)    (7,801)    (2,250)    (1,715)
Accretion of redeemable convertible
  preferred stock discount..............        --         --     (2,950)      (156)        (51)        --         --         --
                                           -------    -------    -------    -------     -------    -------    -------    -------
Net loss attributable to common
  stockholders..........................   $(2,235)   $(2,697)   $(4,983)   $(3,132)    $(2,627)   $(7,801)   $(2,250)   $(1,715)
                                           =======    =======    =======    =======     =======    =======    =======    =======
Net loss per share, basic and diluted...   $ (0.16)   $ (0.20)   $ (0.40)   $ (0.29)    $ (0.28)   $ (0.85)   $ (0.25)   $ (0.19)
                                           =======    =======    =======    =======     =======    =======    =======    =======
Weighted average number of common
  shares, basic and diluted.............    13,685     13,642     12,398     10,793       9,488      9,177      9,059      8,980
                                           =======    =======    =======    =======     =======    =======    =======    =======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of private equity
securities, public security offerings, borrowings on our line of credit and
capital equipment leases.

                                       33
<PAGE>
    As of September 30, 2000, our cash and cash equivalents were $8.8 million,
an increase of $6.3 million from September 30, 1999. Cash used in operating
activities for the year ended September 30, 2000 was $5.5 million as compared to
$5.6 million in 1999. Cash used in operating activities during the year ended
September 30, 2000 was primarily attributable to our net loss and an increase in
accounts receivable and inventory partially offset by non-cash items such as
depreciation and amortization, loss from Beacon Power and compensation expense
related to issuance of stock options and warrants to non-employees.

    Cash used in investing activities during the year ended September 30, 2000
was $2.9 million as compared to $1.4 million in 1999. Net cash used in investing
activities during the year ended September 30, 2000 included capital
expenditures of $2.5 million and an investment in Beacon Power of $333,000. We
estimate that we will spend an additional $9.6 million on capital expenditures
through fiscal year 2001 primarily at our Advanced Fuel Cell Power Products
division to expand our capacity to manufacture our power conversion products. We
expect these additions will be financed principally from lease financing and, to
a lesser extent, cash on hand. If we are unable to obtain lease financing, our
capital expenditures would be expected to be approximately $1.0 million.

    Cash provided by financing activities for the year ended September 30, 2000
was $14.7 million as compared to $8.4 million in 1999. Net cash provided by
financing activities during the year ended September 30, 2000 includes net
proceeds of $7.0 million from the sale of our common stock and $8.4 million from
the exercise of common stock options and warrants.

    On October 23, 1998, we granted the purchasers of Beacon Power's class D
redeemable preferred stock the right to cause us under certain circumstances to
purchase all of Beacon Power's shares of class D redeemable preferred stock
issued to those purchasers and upon exercise of this put right, we must pay
$4.8 million plus cumulative dividends at 12.5% per year since October 23, 1998
through May 22, 2000, and 6% per year thereafter, in our common stock. We have
recorded as of September 30, 2000, the face value of the put right of
$4.8 million plus cumulative dividends of $1.0 million as a liability. If the
put right is exercised, we would reclassify the value of the contingent
obligation to the class D preferred stockholders of Beacon Power to common stock
and additional paid-in capital.

    In November 2000, Beacon Power completed an initial public offering of its
common stock and issued 8,000,000 shares of common stock at $6.00 per share. In
connection with the initial public offering, the put right was terminated and
the contingent obligation to class D preferred stockholders of Beacon Power will
be reclassified as additional paid in capital. In addition, our preferred stock
in Beacon Power was converted into 9,694,812 shares of Beacon Power's common
stock. In accordance with SEC Staff Accounting Bulletin No. 51, our investment
and additional paid in capital will be written up during the first quarter of
fiscal 2001 to reflect our beneficial interest in the book value of the
stockholders' equity of Beacon Power, which we estimate to be approximately
$15.0 million.

    We anticipate that the existing $8.8 million in cash and cash equivalents at
September 30, 2000 will be sufficient to fund operations for at least the next
twelve months. However, there can be no assurance that we will not require
additional financings within this time frame or that any additional financing,
if needed, will be available to us on terms acceptable to us, if at all.

FACTORS AFFECTING FUTURE RESULTS

    Our future results remain difficult to predict and may be affected by a
number of factors which could cause actual results to differ materially from
forward-looking statements contained in this Annual Report on Form 10-K/A and
presented elsewhere by management from time to time. These factors include
business conditions within the distributed power, power quality, aerospace,
transportation, industrial, utility, telecommunications, silicon wafer
manufacturing, factory automation, aircraft and automotive industries and the
world economies as a whole, and competitive pressures that may impact research
and development spending. Our revenue growth is dependent on technology
developments and contract research and development for both the government and
commercial sectors and no assurance can be given that these investments will
continue or that we will be able to obtain such funds. In addition, our growth

                                       34
<PAGE>
opportunities are dependent on the introduction of new products that must
penetrate distributed power, power quality, aerospace, transportation,
industrial, utility, telecommunications, silicon wafer manufacturing, factory
automation, aircraft and automotive markets. No assurance can be given that new
products can be developed, or if developed, will be successful; that competitors
will not force prices to an unacceptably low level or take market share from us;
or that we can achieve or maintain profits in these or any new markets. Because
of these and other factors, past financial performance should not be considered
an indicator of future performance. Investors should not use historical trends
to anticipate future results and should be aware that the market price of our
common stock experiences significant volatility.

EFFECTS OF INFLATION

    We believe that inflation and changing prices over the past three years have
not had a significant impact on our net revenue or on our income from continuing
operations.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which defers the effective date of Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities" to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair value. We will adopt
SFAS No. 133 beginning in the first quarter of the fiscal year ending
September 30, 2001. Upon adoption of SFAS No. 133, we will be required to record
an unrealized loss on the fair value of the warrants to purchase shares of
Mechanical Technology Incorporated's common stock, of $1.0 million in our
results of operations as a cumulative effect of change in accounting principle,
and we will record future unrealized gains and losses on the fair value of the
warrants to purchase shares of Mechanical Technology Incorporated's common stock
and the warrant to purchase shares of Beacon Power's common stock in our results
of operations.

    In September 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 140 (SFAS No. 140), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 140 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Under SFAS
No. 140, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 140 also provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. SFAS No. 140 is effective for certain transactions
occurring after March 31, 2001 and certain disclosures for the fiscal year
ending September 30, 2001. We are currently evaluating the impact of SFAS
No. 140 on our financial statements and related disclosures, but do not expect
that any impact will be material.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    We develop products in the United States and sell them worldwide. As a
result, our financial results could be affected by factors such as changes in
foreign exchange rates or weak economic conditions in foreign markets. Since our
sales are currently priced in U.S. dollars and are translated to local currency
amounts, a strengthening of the dollar could make our products less competitive
in foreign markets. Interest income is sensitive to changes in the general level
of U.S. interest rates, particularly since our investments are in short-term
instruments. Based on the nature and current levels of our investments, however,
we have concluded that there is no material market risk exposure.

                                       35
<PAGE>
ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
PART I: FINANCIAL STATEMENTS OF SATCON TECHNOLOGY
  CORPORATION

Report of Independent Public Accountants....................     38

Report of Independent Accountants...........................     39

Consolidated Financial Statements:
  Consolidated Balance Sheets as of September 30, 2000 and
    1999....................................................     40
  Consolidated Statements of Operations for the Years Ended
    September 30, 2000, 1999
    and 1998................................................     41
  Consolidated Statements of Changes in Stockholders' Equity
    for the Years Ended
    September 30, 2000, 1999 and 1998.......................     42
  Consolidated Statements of Cash Flows for the Years Ended
    September 30, 2000, 1999
    and 1998................................................     43
  Notes to Consolidated Financial Statements................     44

Schedule II: Valuation and Qualifying Accounts for the Years
  Ended
  September 30, 2000, 1999 and 1998.........................     81

PART II: FINANCIAL STATEMENTS OF BEACON POWER CORPORATION

Independent Auditors' Report................................     82

Consolidated Balance Sheets at December 31, 2000 and 1999...     83

Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998 and for the Period May 8,
  1997 (date of inception) to December 31, 2000.............     84

Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 2000, 1999 and 1998 and
  for the Period May 8, 1997 (date of inception) to December
  31, 2000..................................................     85

Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998 and for the Period May 8,
  1997 (date of inception) to December 31, 2000.............     88

Notes to Consolidated Financial Statements..................     89
</TABLE>

                                       36
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
SatCon Technology Corporation:

    We have audited the accompanying consolidated balance sheet of SatCon
Technology Corporation and its subsidiaries (a Delaware corporation) as of
September 30, 2000 and 1999 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
then ended. These financial statements are the responsibility of SatCon
Technology Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SatCon Technology
Corporation and its subsidiaries as of September 30, 2000 and 1999 and the
results of their operations and their cash flows for each of the years then
ended in conformity with auditing standards generally accepted in the United
States.

                                          /s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
November 28, 2000

                                       37
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

SatCon Technology Corporation:

    In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and of cash flows for the year ended September 30, 1998
present fairly, in all material respects, the results of operations and cash
flows of SatCon Technology Corporation and its subsidiaries for the year ended
September 30, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule for the year ended
September 30, 1998 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above. We have not audited the consolidated financial
statements of SatCon Technology Corporation for any period subsequent to
September 30, 1998.

    As discussed in Note A, the accompanying consolidated financial statements
for the year ended September 30, 1998 reflect revised accounting for the
recapitalization of Beacon Power Corporation.

                                          /s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
December 17, 1998,
except to the restatement described
in Note A, as to which the date is
September 11, 2000

                                       38
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,
                                                              --------------------------
                                                                  2000          1999
                                                              ------------   -----------
<S>                                                           <C>            <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $  8,814,324   $ 2,533,072
  Accounts receivable, net of allowance of $320,222 and
    $386,686 at September 30, 2000 and 1999, respectively...     7,495,942     2,799,143
  Unbilled contract costs and fees, net of allowance of $0
    and $746,121 at September 30, 2000 and 1999,
    respectively............................................       824,829     1,462,201
  Inventory.................................................     8,001,661     3,697,972
  Prepaid expenses and other current assets.................       614,622       349,070
                                                              ------------   -----------
      Total current assets..................................    25,751,378    10,841,458
Investment in Beacon Power Corporation......................            --       414,729
Warrants to purchase Mechanical Technology Incorporated
  common stock..............................................     2,473,713            --
Property and equipment, net.................................     6,257,476     3,260,632
Intangibles, net............................................     9,080,089     3,194,609
Other long-term assets......................................       924,583       103,675
                                                              ------------   -----------
        Total assets........................................  $ 44,487,239   $17,815,103
                                                              ============   ===========
  LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                    STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................  $     17,494   $    16,226
  Accounts payable..........................................     3,074,517     1,563,605
  Accrued payroll and payroll-related expenses..............     1,284,884       479,888
  Other accrued expenses....................................     1,459,218       620,874
  Deferred revenue..........................................     1,525,116       113,179
  Funding commitment to Beacon Power Corporation............            --       333,333
                                                              ------------   -----------
      Total current liabilities.............................     7,361,229     3,127,105
Long-term debt, net of current portion......................        16,377        33,871
Other long-term liabilities.................................       197,349        29,735
Commitments and contingencies (Note H)
Contingent obligation to Class D preferred stockholders of
  Beacon Power Corporation..................................     5,793,879     5,309,115
Series A redeemable convertible preferred stock.............            --     4,894,112
Stockholders' equity:
  Preferred stock; $0.01 par value, 1,000,000 shares
    authorized no shares issued and outstanding at September
    30, 2000; 8,000 shares series A redeemable convertible
    preferred stock issued and outstanding at September 30,
    1999....................................................                          --
  Common stock; $0.01 par value, 25,000,000 shares
    authorized; 13,841,185 and 9,617,009 shares issued at
    September 30, 2000 and 1999, respectively...............       138,412        96,170
  Additional paid-in capital................................    72,498,540    37,074,161
  Common stock held in escrow, at market value; none and
    42,860 shares at September 30, 2000 and 1999,
    respectively............................................            --      (428,600)
  Amounts receivable from exercise of stock options.........            --    (1,816,667)
  Accumulated deficit.......................................   (40,195,340)  (30,254,195)
  Accumulated other comprehensive loss......................    (1,073,503)           --
  Treasury stock, at cost; 44,500 shares at September 30,
    2000 and 1999...........................................      (249,704)     (249,704)
                                                              ------------   -----------
      Total stockholders' equity............................    31,118,405     4,421,165
                                                              ------------   -----------
        Total liabilities, redeemable convertible preferred
        stock and stockholders' equity......................  $ 44,487,239   $17,815,103
                                                              ============   ===========
</TABLE>

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

                                       39
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED SEPTEMBER 30,
                                                       -----------------------------------------
                                                           2000           1999          1998
                                                       ------------   ------------   -----------
<S>                                                    <C>            <C>            <C>
Revenue:
Product revenue......................................  $ 22,427,428   $  9,122,498   $ 7,520,188
Funded research and development and other revenue....     8,627,601      6,355,383     8,010,735
                                                       ------------   ------------   -----------
    Total revenue....................................    31,055,029     15,477,881    15,530,923
                                                       ------------   ------------   -----------
Operating costs and expenses:
Cost of product revenue..............................    19,069,192      9,510,941     5,474,067
Research and development and other revenue expenses:
  Funded research and development and other revenue
    expenses.........................................     6,847,439      5,828,277     5,517,135
  Unfunded research and development expenses.........     3,453,326        726,187     1,276,499
                                                       ------------   ------------   -----------
    Total research and development and other revenue
      expenses.......................................    10,300,765      6,554,464     6,793,634
Selling, general and administrative expenses.........     9,969,580      8,818,706     4,523,424
Amortization of intangibles..........................     1,217,490        371,087       290,957
                                                       ------------   ------------   -----------
    Total operating costs and expenses...............    40,557,027     25,255,198    17,082,082
                                                       ------------   ------------   -----------
Operating loss.......................................    (9,501,998)    (9,777,317)   (1,551,159)
Other income (loss)..................................         9,891       (150,464)           --
Interest income......................................       453,631         42,287       179,861
Interest expense.....................................        (3,176)      (115,692)      (10,206)
                                                       ------------   ------------   -----------
Net loss before income taxes and loss from Beacon
  Power Corporation..................................    (9,041,652)   (10,001,186)   (1,381,504)
Provision for income taxes...........................            --             --        (3,872)
Loss from Beacon Power Corporation...................      (899,493)    (4,340,567)   (3,472,438)
                                                       ------------   ------------   -----------
Net loss.............................................    (9,941,145)   (14,341,753)   (4,857,814)
Accretion of redeemable convertible preferred stock
  discount...........................................    (3,105,888)       (50,904)           --
                                                       ------------   ------------   -----------
Net loss attributable to common stockholders.........  $(13,047,033)  $(14,392,657)  $(4,857,814)
                                                       ============   ============   ===========
Net loss per share, basic and diluted................  $      (1.03)  $      (1.57)  $      (.54)
                                                       ============   ============   ===========
Weighted average number of common shares, basic and
  diluted............................................    12,629,822      9,176,041     8,956,671
                                                       ============   ============   ===========
</TABLE>

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

                                       40
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                           CONSOLIDATED STATEMENTS OF
                        CHANGES IN STOCKHOLDERS' EQUITY

             FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                                                                   AMOUNTS
                                                                                                                 RECEIVABLE
                                                                                           COMMON     COMMON        FROM
                                                                            ADDITIONAL     SHARES      STOCK     EXERCISE OF
                                                      COMMON      COMMON      PAID-IN     HELD IN     HELD IN       STOCK
                                                      SHARES      STOCK       CAPITAL      ESCROW     ESCROW       OPTIONS
                                                    ----------   --------   -----------   --------   ---------   -----------
<S>                                                 <C>          <C>        <C>           <C>        <C>         <C>
BALANCE, SEPTEMBER 30, 1997.......................   8,769,146   $ 87,691   $26,576,600        --           --            --
Net loss..........................................          --         --            --        --           --            --
Exercise of stock options.........................     100,266      1,003       580,736        --           --            --
Exercise of warrants..............................     149,137      1,491     1,220,382        --           --            --
Treasury stock purchased..........................          --         --            --        --           --            --
Change in net unrealized losses on marketable
  securities......................................          --         --            --        --           --            --
                                                    ----------   --------   -----------   -------    ---------   -----------
BALANCE, SEPTEMBER 30, 1998.......................   9,018,549   $ 90,185   $28,377,718        --           --            --
Net loss..........................................          --         --            --        --           --            --
Exercise of stock options.........................     455,600      4,556     3,173,445        --           --    (1,816,667)
Treasury stock purchased..........................          --         --            --        --           --            --
Common stock issued in acquisitions...............     100,000      1,000       567,800        --           --            --
Common stock issued in connection with settlement
  agreement which is held in escrow...............      42,860        429       189,762    42,860     (190,191)           --
Compensation expense related to stock options and
  warrants issued to non-employees................          --         --     2,208,639        --           --            --
Valuation adjustment for common stock held in
  escrow..........................................          --         --       238,409        --     (238,409)           --
Warrants issued in connection with the sale of
  redeemable preferred stock......................          --         --     2,369,292        --           --            --
Change in net unrealized losses on marketable
  securities......................................          --         --            --        --           --            --
Accretion of redeemable convertible preferred
  stock discount..................................          --         --       (50,904)       --           --            --
                                                    ----------   --------   -----------   -------    ---------   -----------
BALANCE, SEPTEMBER 30, 1999.......................   9,617,009   $ 96,170   $37,074,161    42,860    $(428,600)  $(1,816,667)
Net loss..........................................          --         --            --        --           --            --
Common stock issued in connection with Ling
  acquisition.....................................     770,000      7,700     7,748,656        --           --            --
Common stock issued in connection with MTI
  investment......................................   1,030,000     10,300     6,964,926        --           --            --
MTI warrants received in connection with MTI
  investment......................................          --         --     3,495,438        --           --            --
Valuation adjustment for MTI warrants.............          --         --            --        --           --            --
Common stock issued in connection with NGC asset
  acquisition.....................................     578,761      5,788     5,465,770        --           --            --
Conversion of redeemable convertible preferred
  stock into common stock.........................   1,025,641     10,256     7,989,744        --           --            --
Exercise of common stock options..................     701,774      7,018     5,496,853        --           --
Exercise of common stock warrants.................     118,000      1,180     1,111,720        --           --            --
Payments on amounts receivable from exercise of
  stock options...................................          --         --            --        --           --     1,816,667
Valuation adjustment for common stock held in
  escrow..........................................          --         --       257,160        --     (257,160)           --
Common stock released from escrow.................          --         --            --   (42,860)     685,760            --
Accretion of redeemable convertible preferred
  stock discount..................................          --         --    (3,105,888)       --           --            --
Foreign currency translation adjustment...........          --         --            --        --           --            --
                                                    ----------   --------   -----------   -------    ---------   -----------
BALANCE, SEPTEMBER 30, 2000.......................  13,841,185   $138,412   $72,498,540        --           --            --
                                                    ==========   ========   ===========   =======    =========   ===========

<CAPTION>

                                                                    ACCUMULATED
                                                                       OTHER
                                                    ACCUMULATED    COMPREHENSIVE   TREASURY   TREASURY
                                                      DEFICIT          LOSS         SHARES      STOCK
                                                    ------------   -------------   --------   ---------
<S>                                                 <C>            <C>             <C>        <C>
BALANCE, SEPTEMBER 30, 1997.......................  $(11,054,628)   $   (20,215)        --           --
Net loss..........................................    (4,857,814)            --         --           --
Exercise of stock options.........................            --             --         --           --
Exercise of warrants..............................            --             --         --           --
Treasury stock purchased..........................            --             --     28,300    $(173,076)
Change in net unrealized losses on marketable
  securities......................................            --          9,835         --           --
                                                    ------------    -----------     ------    ---------
BALANCE, SEPTEMBER 30, 1998.......................  $(15,912,442)   $   (10,380)    28,300    $(173,076)
Net loss..........................................   (14,341,753)            --         --           --
Exercise of stock options.........................            --             --         --           --
Treasury stock purchased..........................            --             --     16,200      (76,628)
Common stock issued in acquisitions...............            --             --         --           --
Common stock issued in connection with settlement
  agreement which is held in escrow...............            --             --         --           --
Compensation expense related to stock options and
  warrants issued to non-employees................            --             --         --           --
Valuation adjustment for common stock held in
  escrow..........................................            --             --         --           --
Warrants issued in connection with the sale of
  redeemable preferred stock......................            --             --         --           --
Change in net unrealized losses on marketable
  securities......................................            --         10,380         --           --
Accretion of redeemable convertible preferred
  stock discount..................................            --             --         --           --
                                                    ------------    -----------     ------    ---------
BALANCE, SEPTEMBER 30, 1999.......................  $(30,254,195)            --     44,500     (249,704)
Net loss..........................................    (9,941,145)            --         --           --
Common stock issued in connection with Ling
  acquisition.....................................            --             --         --           --
Common stock issued in connection with MTI
  investment......................................            --             --         --           --
MTI warrants received in connection with MTI
  investment......................................            --             --         --           --
Valuation adjustment for MTI warrants.............            --     (1,021,725)        --           --
Common stock issued in connection with NGC asset
  acquisition.....................................            --             --         --           --
Conversion of redeemable convertible preferred
  stock into common stock.........................            --             --         --           --
Exercise of common stock options..................            --             --         --           --
Exercise of common stock warrants.................            --             --         --           --
Payments on amounts receivable from exercise of
  stock options...................................            --             --                      --
Valuation adjustment for common stock held in
  escrow..........................................            --             --         --           --
Common stock released from escrow.................            --             --         --           --
Accretion of redeemable convertible preferred
  stock discount..................................            --             --         --           --
Foreign currency translation adjustment...........            --        (51,778)        --           --
                                                    ------------    -----------     ------    ---------
BALANCE, SEPTEMBER 30, 2000.......................  $(40,195,340)   $(1,073,503)    44,500    $(249,704)
                                                    ============    ===========     ======    =========

<CAPTION>

                                                               TOTAL
                                                           STOCKHOLDERS'
                                                              EQUITY
                                                    ---------------------------
<S>                                                 <C>
BALANCE, SEPTEMBER 30, 1997.......................  $                15,589,448
Net loss..........................................                   (4,857,814)
Exercise of stock options.........................                      581,739
Exercise of warrants..............................                    1,221,873
Treasury stock purchased..........................                     (173,076)
Change in net unrealized losses on marketable
  securities......................................                        9,835
                                                    ---------------------------
BALANCE, SEPTEMBER 30, 1998.......................  $                12,372,005
Net loss..........................................                  (14,341,753)
Exercise of stock options.........................                    1,361,334
Treasury stock purchased..........................                      (76,628)
Common stock issued in acquisitions...............                      568,800
Common stock issued in connection with settlement
  agreement which is held in escrow...............                           --
Compensation expense related to stock options and
  warrants issued to non-employees................                    2,208,639
Valuation adjustment for common stock held in
  escrow..........................................                           --
Warrants issued in connection with the sale of
  redeemable preferred stock......................                    2,369,292
Change in net unrealized losses on marketable
  securities......................................                       10,380
Accretion of redeemable convertible preferred
  stock discount..................................                      (50,904)
                                                    ---------------------------
BALANCE, SEPTEMBER 30, 1999.......................  $                 4,421,165
Net loss..........................................                   (9,941,145)
Common stock issued in connection with Ling
  acquisition.....................................                    7,756,356
Common stock issued in connection with MTI
  investment......................................                    6,975,226
MTI warrants received in connection with MTI
  investment......................................                    3,495,438
Valuation adjustment for MTI warrants.............                   (1,021,725)
Common stock issued in connection with NGC asset
  acquisition.....................................                    5,471,558
Conversion of redeemable convertible preferred
  stock into common stock.........................                    8,000,000
Exercise of common stock options..................                    5,503,871
Exercise of common stock warrants.................                    1,112,900
Payments on amounts receivable from exercise of
  stock options...................................                    1,816,667
Valuation adjustment for common stock held in
  escrow..........................................                           --
Common stock released from escrow.................                      685,760
Accretion of redeemable convertible preferred
  stock discount..................................                   (3,105,888)
Foreign currency translation adjustment...........                      (51,778)
                                                    ---------------------------
BALANCE, SEPTEMBER 30, 2000.......................  $                31,118,405
                                                    ===========================
</TABLE>

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

                                       41
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED SEPTEMBER 30,
                                                              -----------------------------------------
                                                                  2000           1999          1998
                                                              ------------   ------------   -----------
<S>                                                           <C>            <C>            <C>
Cash flows from operating activities:
  Net loss..................................................  $ (9,941,145)  $(14,341,753)  $(4,857,814)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation and amortization.......................     2,038,391      1,013,037       625,976
        Allowance for unbilled contract costs and fees......            --        688,510       (19,065)
        Allowance for doubtful accounts.....................       265,744        334,850       (94,424)
        Allowance for excess and obsolete inventory.........       658,774        870,021      (549,765)
        Loss from Beacon Power Corporation..................       899,493      4,340,567     3,472,438
        Loss on sale of marketable securities...............            --         87,535            --
        Write-off impaired assets...........................            --        255,544        50,104
        Compensation expense related to release of stock
          from escrow, issuance of stock options and
          warrants to non-employees.........................       385,760      2,208,639            --
        Changes in operating assets and liabilities, net of
        effects of acquisitions:
          Accounts receivable...............................    (3,025,520)        89,858      (301,909)
          Unbilled contract costs and fees..................       637,372       (954,393)      532,573
          Prepaid expenses and other assets.................       144,687         31,455        (8,529)
          Inventory.........................................      (628,472)      (601,120)   (1,550,819)
          Other long-term assets............................         8,072        517,402      (607,245)
          Accounts payable..................................       869,225             72       647,689
          Accrued expenses and payroll......................       641,266        (98,163)     (291,061)
          Other current liabilities.........................     1,566,051        (72,763)        6,802
                                                              ------------   ------------   -----------
    Total adjustments.......................................     4,460,843      8,711,051     1,912,765
                                                              ------------   ------------   -----------
Net cash used in operating activities.......................    (5,480,302)    (5,630,702)   (2,945,049)
                                                              ------------   ------------   -----------
Cash flows from investing activities:
  Sales and maturities of marketable securities.............            --        580,144     1,340,609
  Patent and intangible expenditures........................       (78,962)      (102,227)     (431,526)
  Purchases of property and equipment.......................    (2,463,777)      (220,416)     (601,331)
  Acquisitions, net of cash acquired........................       (24,054)      (995,876)           --
  Investment in Beacon Power Corporation....................      (333,333)      (696,667)   (2,007,508)
                                                              ------------   ------------   -----------
Net cash used in investing activities.......................    (2,900,126)    (1,435,042)   (1,699,756)
                                                              ------------   ------------   -----------
Cash flows from financing activities:
  Repayment of long-term debt...............................       (16,226)      (100,000)      (40,625)
  Borrowings under line of credit...........................            --      2,657,234            --
  Repayment of borrowings under line of credit..............            --     (2,657,234)           --
  Net proceeds from issuance of redeemable convertible
    preferred stock.........................................            --      7,212,500            --
  Net proceeds from issuance of common stock................     6,975,226             --            --
  Proceeds from exercise of stock options and payment of
    amounts receivable from exercise of stock options.......     7,320,538      1,361,334       581,739
  Proceeds from exercise of warrants........................     1,112,900             --     1,221,873
  Purchase of treasury stock................................            --        (76,628)     (173,076)
  Deferred equity financing costs...........................      (678,980)            --            --
                                                              ------------   ------------   -----------
                                                                        --
Net cash provided by financing activities...................    14,713,458      8,397,206     1,589,911
                                                              ------------   ------------   -----------
Effect of foreign currency exchange rates on cash and cash
  equivalents...............................................       (51,778)            --            --
                                                              ------------   ------------   -----------
Net increase (decrease) in cash and cash equivalents........     6,281,252      1,331,462    (3,054,894)
Cash and cash equivalents at beginning of year..............     2,533,072      1,201,610     4,256,504
                                                              ------------   ------------   -----------
Cash and cash equivalents at end of year....................  $  8,814,324   $  2,533,072   $ 1,201,610
                                                              ============   ============   ===========
</TABLE>

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

                                       42
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES

    ORGANIZATION

    SatCon Technology Corporation (the "Company" or "SatCon") was organized as a
Massachusetts corporation in February 1985 and reincorporated in Delaware in
1992. SatCon develops enabling technologies for the emerging distributed power
generation and power quality markets. SatCon also manufactures power and energy
management products that convert, store and manage electricity for businesses
and consumers that require high-quality, uninterruptible power. SatCon is
utilizing its engineering and manufacturing expertise to develop products to
serve the distributed power generation and power quality markets, including
products for fuel cell and microturbine power generation systems,
hybrid-electric vehicles and flywheel energy storage systems. SatCon believes
the family of products it is developing will be integral components of
distributed power generation and power quality systems.

    In the past three years, SatCon has expanded its business and capabilities
through the following acquisitions:

    - K&D Magmotor Corp.--a manufacturer of custom electric motors, acquired in
      January 1997.

    - Film Microelectronics, Inc. ("FMI")--a manufacturer of hybrid
      microelectronics, acquired in April 1997.

    - Inductive Components, Inc.--a value-added supplier of customized electric
      motors, acquired in January 1999.

    - Lighthouse Software, Inc.--a supplier of control software for machine
      tools, acquired in January 1999.

    - HyComp, Inc.--a manufacturer of electronic multi-chip modules, acquired in
      April 1999.

    - Ling Electronics, Inc.--a manufacturer of test equipment, power
      converters, amplifiers and converters, acquired in October 1999.

    All of these acquisitions were accounted for using the purchase method of
accounting. In addition, in November 1999, the Company acquired intellectual
property, tooling and other assets from Northrop Grumman Corporation enabling
the Company to manufacture and sell electric drivetrains. See Note O.

RESTATEMENTS

    During fiscal 2000, the Company has restated its financial statements on two
separate occasions. A description of each restatement is as follows:

AUGUST 2000 RESTATEMENT

    In August 2000, the Company restated its financial statements for fiscal
1997, 1998 and 1999. The restatement was prompted by the initial audit of the
financial statements of its affiliate, Beacon Power Corporation ("Beacon Power")
and reflects treating certain costs as expenses rather than being included in
the value of the net assets of Beacon Power at December 24, 1997 (see Note E).
The Company previously had accounted for these costs either as fixed assets or
as part of the net assets of Beacon Power. The Company had capitalized
$2.9 million of costs incurred during 1996, 1997 and 1998 in developing design
documentation, tooling and test fixtures for Beacon Power's flywheel energy
storage system. At the time these costs were capitalized, the Company believed
that it had a fully functional design that could meet

                                       43
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
customer performance requirements and that the product could be manufactured and
sold at a profit so that the capitalized costs would be recovered. The Company
believed that its flywheel energy storage product was beyond the research and
development stage. As part of the initial audit of Beacon Power during 2000 for
the period from inception (May 1997) through December 31, 1999, the Company
reviewed the audit evidence supporting the capitalized costs and determined that
these costs had not been properly capitalized. Accordingly, the Company has
expensed these costs as incurred. In addition, as a result of the initial audit
of the financial statements of Beacon Power, additional immaterial adjustments
were made to the historical financial statements of Beacon Power. A summary of
the additional adjustments is as follows:

<TABLE>
<S>                                                           <C>
Record additional revenue during 1997.......................  $ 45,000
Reclassification of certain SG&A expenses to R&D during
  1997......................................................  $264,000
Write-off certain current assets including inventory and
  accounts receivable.......................................  $ 37,000
Write-off certain intangibles...............................  $ 91,000
Record additional accrued expenses..........................  $ 73,000
</TABLE>

As a result, the Company's investment in Beacon Power was reduced by
$3.1 million as of December 24, 1997. The adjustments to the financial
statements at December 24, 1997, the date on which the Company initially began
accounting for its investment in Beacon Power under the equity method of
accounting, consisted of a reduction of $37,000 from current assets, a reduction
of $3.0 million from property and equipment and intangible assets and an
increase of $73,000 of accrued expenses. The Company has adjusted its
accumulated deficit as of September 30, 1996 for the effect of the 1996
restatement. The cumulative effect of this change on the Company's stockholders'
equity as of September 30, 1996 was a reduction of $924,192. The cumulative
effect of this change on the Company's stockholders' equity as of September 30,
1999 was a reduction of $130,504. The effect of this change on the reported
results for each period is as follows:

                                       44
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS:

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED
                                                                  SEPTEMBER 30, 1999
                                                              ---------------------------
                                                              AS RESTATED    AS REPORTED
                                                              ------------   ------------
<S>                                                           <C>            <C>
Revenue:
Product revenue.............................................  $  9,122,498   $  9,122,498
Funded research and development and other revenue...........     6,355,383      6,355,383
                                                              ------------   ------------
    Total revenue...........................................    15,477,881     15,477,881
                                                              ------------   ------------
Operating costs and expenses:
Cost of product revenue.....................................     9,510,941      9,510,941
Research and development and other revenue expenses:
  Funded research and development and other revenue
    expenses................................................     5,828,277      5,828,277
  Unfunded research and development expenses................       726,187        726,187
                                                              ------------   ------------
    Total research and development and other revenue
      expenses..............................................     6,554,464      6,554,464
Selling, general and administrative expenses................     8,818,706      8,818,706
Amortization of intangibles.................................       371,087        371,087
                                                              ------------   ------------
Total operating costs and expenses..........................    25,255,198     25,255,198
                                                              ------------   ------------
Operating loss..............................................    (9,777,317)    (9,777,317)
Other losses................................................      (150,464)      (150,464)
Interest income.............................................        42,287         42,287
Interest expense............................................      (115,692)      (115,692)
                                                              ------------   ------------
Net loss before loss from Beacon Power Corporation..........   (10,001,186)   (10,001,186)
Loss from Beacon Power Corporation..........................    (1,030,000)    (2,357,679)
                                                              ------------   ------------
Net loss....................................................   (11,031,186)   (12,358,865)
Accretion of redeemable convertible preferred stock
  discount..................................................       (50,904)       (50,904)
                                                              ------------   ------------
Net loss attributable to common stockholders................  $(11,082,090)  $(12,409,769)
                                                              ============   ============
Net loss per share, basic and diluted.......................  $      (1.21)  $      (1.35)
                                                              ============   ============
Weighted average number of common shares, basic and
  diluted...................................................     9,176,041      9,176,041
                                                              ============   ============
</TABLE>

                                       45
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)

<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED
                                                                 SEPTEMBER 30, 1998
                                                              -------------------------
                                                              AS RESTATED   AS REPORTED
                                                              -----------   -----------
<S>                                                           <C>           <C>
Revenue:
Product revenue.............................................  $ 7,520,188   $ 7,520,188
Funded research and development and other revenue...........    8,010,735     7,965,735
                                                              -----------   -----------
Total revenue...............................................   15,530,923    15,485,923
                                                              -----------   -----------
Operating costs and expenses:
Cost of product revenue.....................................    5,474,067     5,474,067
Research and development and other revenue expenses:
  Funded research and development and other revenue.........    5,517,135     5,517,135
  Unfunded research and development expenses................    1,276,499       346,161
                                                              -----------   -----------
    Total research and development and other revenue
      expenses..............................................    6,793,634     5,863,296
Selling, general and administrative expenses................    4,523,424     4,787,070
Amortization of intangibles.................................      290,957       290,957
                                                              -----------   -----------
Total operating costs and expenses..........................   17,082,082    16,415,390
                                                              -----------   -----------
Operating loss..............................................   (1,551,159)     (929,467)
Interest income.............................................      179,861       179,861
Interest expense............................................      (10,206)      (10,206)
                                                              -----------   -----------
Net loss before income taxes and loss from Beacon Power
  Corporation...............................................   (1,381,504)     (759,812)
Loss from Beacon Power Corporation..........................   (1,888,619)   (3,541,817)
Provision for income taxes..................................       (3,872)       (3,872)
                                                              -----------   -----------
Net loss attributable to common stockholders................  $(3,273,995)  $(4,305,501)
                                                              ===========   ===========
Net loss per share, basic and diluted.......................  $      (.37)  $      (.48)
                                                              ===========   ===========
Weighted average number of common shares, basic and
  diluted...................................................    8,956,671     8,956,671
                                                              ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED
                                                                  SEPTEMBER 30, 1997
                                                              ---------------------------
                                                              AS RESTATED    AS REPORTED
                                                              ------------   ------------
<S>                                                           <C>            <C>
Revenue:
Product revenue.............................................  $  3,728,042   $  3,728,042
Funded research and development and other revenue...........     8,738,293      8,738,293
                                                              ------------   ------------
  Total revenue.............................................    12,466,335     12,466,335
                                                              ------------   ------------
Operating costs and expenses:
Cost of product revenue.....................................     2,683,389      2,683,389
Research and development and other revenue expenses:
  Funded research and development and other revenue
    expenses................................................     7,387,761      7,387,761
  Unfunded research and development expenses................     4,054,704      2,489,207
                                                              ------------   ------------
    Total research and development and other revenue
      expenses..............................................    11,442,465      9,876,968
Selling, general and administrative expenses................     6,197,951      6,197,951
Amortization of intangibles.................................       120,467        120,467
                                                              ------------   ------------
Total operating costs and expenses..........................    20,444,272     18,878,775
                                                              ------------   ------------
Operating loss..............................................    (7,977,937)    (6,412,440)
Interest income.............................................       283,131        283,131
Interest expense............................................       (13,933)       (13,933)
                                                              ------------   ------------
Net loss attributable to common stockholders................  $ (7,708,739)  $ (6,143,242)
                                                              ============   ============
</TABLE>

                                       46
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED
                                                                  SEPTEMBER 30, 1997
                                                              ---------------------------
                                                              AS RESTATED    AS REPORTED
                                                              ------------   ------------
<S>                                                           <C>            <C>
Net loss per share, basic and diluted.......................  $       (.97)  $       (.77)
                                                              ============   ============
Weighted average number of common shares, basic and
  diluted...................................................     7,959,309      7,959,309
                                                              ============   ============
</TABLE>

CONSOLIDATED BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                             SEPTEMBER 30, 1999            SEPTEMBER 30, 1998
                                         ---------------------------   ---------------------------
                                         AS RESTATED    AS REPORTED    AS RESTATED    AS REPORTED
                                         ------------   ------------   ------------   ------------
<S>                                      <C>            <C>            <C>            <C>
Investment in Beacon Power
  Corporation..........................            --             --             --   $  1,458,183
Total assets...........................  $ 17,400,374   $ 17,400,374   $ 16,708,407   $ 18,166,590
Accrued losses from investment in
  Beacon Power Corporation.............  $    333,333   $    202,829             --             --
Accumulated deficit....................  $(25,359,809)  $(25,229,305)  $(14,328,623)  $(12,870,440)
Total liabilities, redeemable
  convertible
  preferred stock and stockholders'
  equity...............................  $ 17,400,374   $ 17,400,374   $ 16,708,407   $ 18,166,590
</TABLE>

SEPTEMBER 2000 RESTATEMENT

    In September 2000, the Company restated the financial statements for fiscal
years 1998 and 1999. The Company determined that the recapitalization of Beacon
Power Corporation on December 24, 1997 did not qualify as a divestiture of a
subsidiary for accounting purposes in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 30/Topic 5E (SAB Topic 5.E.)
"Accounting for Divestiture of a Subsidiary or Other Business Operation," as the
Company had not transferred the risk and other incidents of ownership of Beacon
Power with sufficient certainty. In accordance with SAB Topic 5.E., the Company
has included 100% of Beacon Power's net loss in its statements of operations
from December 24, 1997 to May 1999 in a manner similar to the equity method of
accounting and has included the assets and liabilities transferred to Beacon
Power as separate components in its September 30, 1998 balance sheet. In June
1999, in connection with a bridge note financing at Beacon Power, the Company
determined that the risks and other incidents of ownership of Beacon Power had
passed with sufficient certainty to other investors and the Company began
accounting for its investment in Beacon Power under the equity method of
accounting. The Company has recorded the face value of and cumulative dividends
on Beacon Power's Class D preferred stock issued on October 23, 1998 as an
additional investment in Beacon Power. As more fully discussed in Note E, the
Class D preferred stockholders have the right to require the Company to purchase
their shares of Class D preferred stock in certain events. The Company has
recorded the face value and the cumulative dividends as a liability.

    The accompanying financial data reflect the following changes:

    - The Company's share of Beacon Power's net loss for fiscal 1998 and 1999
      increased by $1,583,819 and $3,310,567, respectively.

    - As of September 30, 1998, the Company wrote off all of its advances to
      Beacon Power of $596,453 and recorded the assets and liabilities
      transferred to Beacon Power of $576,786 and $1,564,152, respectively.

                                       47
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
    - As of September 30, 1999, the Company recorded its net investment balance
      in Beacon Power of $414,729 and its contingent obligation to the Class D
      preferred stockholders of Beacon Power of $5,309,115.

    - The as restated and as reported consolidated statements of operations data
      and consolidated balance sheet data follows (the as reported financial
      information presented here includes the effects of the August 2000
      restatement discussed above):

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED
                                                       SEPTEMBER 30, 1999
                                                   ---------------------------
                                                   AS RESTATED    AS REPORTED
                                                   ------------   ------------
<S>                                                <C>            <C>
Loss from Beacon Power Corporation...............  $ (4,340,567)  $ (1,030,000)
Net loss.........................................  $(14,341,753)  $(11,031,186)
Net loss attributable to common stockholders.....  $(14,392,657)  $(11,082,090)
Net loss per share, basic and diluted............  $      (1.57)  $      (1.21)
</TABLE>

<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED
                                                       SEPTEMBER 30, 1998
                                                   ---------------------------
                                                   AS RESTATED    AS REPORTED
                                                   ------------   ------------
<S>                                                <C>            <C>
Loss from Beacon Power Corporation...............  $ (3,472,438)  $ (1,888,619)
Net loss attributable to common stockholders.....  $ (4,857,814)  $ (3,273,995)
Net loss per share, basic and diluted............  $       (.54)  $       (.37)
</TABLE>

CONSOLIDATED BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                             SEPTEMBER 30, 1999            SEPTEMBER 30, 1998
                                         ---------------------------   ---------------------------
                                         AS RESTATED    AS REPORTED    AS RESTATED    AS REPORTED
                                         ------------   ------------   ------------   ------------
<S>                                      <C>            <C>            <C>            <C>
Amount due from Beacon Power
  Corporation..........................            --             --             --   $    596,453
Investment in Beacon Power
  Corporation..........................  $    414,729             --             --             --
Assets transferred to Beacon Power
  Corporation..........................            --             --   $    576,786             --
Total assets...........................  $ 17,815,103   $ 17,400,374   $ 16,688,740   $ 16,708,407
Funding commitment to Beacon Power
  Corporation..........................  $    333,333   $    333,333             --             --
Liabilities transferred to Beacon Power
  Corporation..........................            --             --   $  1,564,152             --
Contingent obligation to Class D
  preferred stockholders of Beacon
  Power Corporation....................  $  5,309,115             --             --             --
Accumulated deficit....................  $(30,254,195)  $(25,359,809)  $(15,912,442)  $(14,328,623)
Total liabilities, redeemable
  convertible preferred stock and
  stockholders' equity.................  $ 17,815,103   $ 17,400,374   $ 16,688,740   $ 16,708,407
</TABLE>

                                       48
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
    The Company's financial statements as of September 30, 1999 and 2000 and for
the years ended September 30, 1998, 1999 and 2000 include the effects of the
August 2000 and September 2000 restatements.

    BASIS OF CONSOLIDATION

    The consolidated financial statements include the accounts of SatCon and its
majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.

    FOREIGN CURRENCY TRANSLATION

    The functional currency of the Company's foreign subsidiary is the local
currency. Assets and liabilities of foreign subsidiaries are translated at the
rates in effect at the balance sheet date, while stockholders' equity (deficit)
is translated at historical rates. Statements of operations and cash flow
amounts are translated at the average rate for the period. Translation
adjustments are included as a component of accumulated other comprehensive loss.
Foreign currency gains and losses arising from transactions are reflected in the
loss from operations and were not significant during the year ended
September 30, 2000.

    REVENUE RECOGNITION

    The Company recognizes revenue from product sales in accordance with Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." Product revenue is
recognized when there is persuasive evidence of an arrangement, delivery of the
product to the customer has occurred and the Company has determined that
collection of a fixed fee is probable. Title to the product generally passes
upon shipment of the product as the products are shipped FOB shipping point
except for certain foreign shipments. If the product requires installation to be
performed by the Company, all revenue related to the product is deferred and
recognized upon the completion of the installation. The Company provides for a
warranty reserve at the time the product revenue is recognized.

    The Company performs funded research and development and product development
for commercial companies and government agencies under both cost reimbursement
and fixed-price contracts. Product development revenue is included in product
revenue. Cost reimbursement contracts provide for the reimbursement of allowable
costs and, in some situations, the payment of a fee. These contracts may contain
incentive clauses providing for increases or decreases in the fees depending on
how costs compare with a budget. On fixed-price contracts, revenue is generally
recognized on the percentage of completion method based upon the proportion of
costs incurred to the total estimated costs for the contract. Revenue from
reimbursement contracts is recognized as the services are performed. In each
type of contract, the Company receives periodic progress payments or payments
upon reaching interim milestones. All payments to the Company for work performed
on contracts with agencies of the U.S. government are subject to audit and
adjustment by the Defense Contract Audit Agency. Adjustments are recognized in
the period made. When the current estimates of total contract revenue for
commercial product development contracts indicate a loss, a provision for the
entire loss on the contract is recorded. Any losses incurred in performing
funded research and development projects are recognized as research and
development expense as incurred. As of September 30, 2000, the Company has
accrued $150,000 for anticipated contract losses on commercial contracts. There
were no anticipated contract losses at September 30, 1999. For the

                                       49
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
fiscal years ended September 30, 2000, 1999 and 1998, revenue from commercial
contracts, which represents other revenue, is included in funded research and
development and other revenue and amounted to $763,023, $767,954 and $24,655,
respectively.

    Cost of product revenue includes cost of product revenue including material,
labor and overhead. Costs incurred in connection with funded research and
development and other revenue arrangements are included in research and
development and other revenue expenses.

    For the fiscal years ended September 30, 2000, 1999 and 1998, costs and
expenses from commercial contracts, which represents other revenue expenses, are
included in funded research and development and other revenue expenses and
amounted to $397,527, $704,347 and $14,987, respectively.

    Deferred revenue consists of payments received from customers in advance of
services performed, product shipped or installation completed.

    CASH AND CASH EQUIVALENTS

    Cash and cash equivalents include demand deposits and highly liquid
investments with maturities of three months or less when acquired. Cash
equivalents are stated at cost, which approximates market value.

    INVENTORY

    Inventories are stated at the lower of cost or market and costs are
determined based on the first-in, first-out method of accounting and include
material, labor and manufacturing overhead costs.

    PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the asset's estimated useful life.
The estimated useful lives of property and equipment are as follows:

<TABLE>
<CAPTION>
                                                       ESTIMATED LIVES
                                                       ---------------
<S>                                         <C>
Computer equipment and software...........  3-5 years
Electronic laboratory and shop              5 years
  equipment...............................
Mechanical laboratory and shop              10 years
  equipment...............................
Sales and demonstration equipment.........  3-10 years
Furniture and fixtures....................  7-10 years
Leasehold improvements....................  Lesser of the life of the lease or the
                                            useful life of the improvement
</TABLE>

    When assets are retired or otherwise disposed of, the cost and related
depreciation and amortization are eliminated from the accounts and any resulting
gain or loss is reflected in other income.

    LONG-LIVED ASSETS

    The Company periodically evaluates the potential impairment of its
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. At the occurrence of a
certain event or change in circumstances or at each balance sheet date, the
Company

                                       50
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
evaluates the potential impairment of an asset based on future undiscounted cash
flows. In the event that impairment exists, the Company will measure the amount
of such impairment based on the present value of estimated future cash flows
using a discount rate commensurate with the risks involved. Factors that
management considers in performing this assessment include current operating
results, trends and prospects and, in addition, demand, competition and other
economic factors. At September 30, 2000 and 1999, the Company determined that
there had been no impairment of its long-lived assets, except as in Notes D and
G.

    Intangibles consisted of the following:

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,
                                           ESTIMATED    ------------------------
                                             LIVES         2000          1999
                                          -----------   -----------   ----------
<S>                                       <C>           <C>           <C>
Patents.................................  15-20 years   $   755,748   $  676,786
Identifiable intangible assets from
  MagMotor acquisition..................  5 years            44,250       44,250
Goodwill from MagMotor acquisition......  7 years            65,198       65,198
Identifiable intangible assets from FMI
  acquisition...........................  5-10 years      1,750,000    1,750,000
Goodwill from FMI acquisition...........  15 years          826,218      826,218
Identifiable intangible assets from
  Inductive/ Lighthouse acquisition.....  5 years           275,000      275,000
Goodwill from Inductive/Lighthouse
  acquisition...........................  10 years          389,079      389,079
Goodwill from Ling acquisition..........  7 years         3,754,910           --
Identifiable intangible assets from NGC
  acquisition...........................  3-10 years      3,281,423           --
                                                        -----------   ----------
                                                         11,141,826    4,026,531
Less: accumulated amortization..........                  2,061,737      831,922
                                                        -----------   ----------
                                                        $ 9,080,089   $3,194,609
                                                        ===========   ==========
</TABLE>

    Amortization expense related to intangibles for the years ended
September 30, 2000, 1999 and 1998 was $1,229,815, $389,685 and $303,674,
respectively.

    TREASURY STOCK

    The Company was authorized to repurchase up to 5% of the Company's
outstanding shares of common stock through July 2000. Under the repurchase
program, the Company purchased 44,500 shares of the Company's outstanding common
stock at a cost of $249,704.

    USE OF ESTIMATES

    The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the

                                       51
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
reported amounts of revenue and expenses during the period reported. Actual
results could differ from these estimates.

    INCOME TAXES

    The Company accounts for income taxes in accordance with Statements of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which is the asset and liability method for accounting and reporting for income
taxes. Under SFAS No. 109, deferred tax assets and deferred tax liabilities are
recognized based on temporary differences between the financial reporting and
income tax basis of assets and liabilities using statutory rates. In addition,
SFAS No. 109 requires a valuation allowance against net deferred tax assets if,
based upon the available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.

    STOCK-BASED COMPENSATION

    SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
measurement of the fair value of stock options or warrants granted to employees
to be included in the statement of operations or, alternatively, disclosed in
the notes to consolidated financial statements. The Company has determined that
it will account for stock-based compensation of employees under the intrinsic
value method of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees" and elect the disclosure-only alternative under
SFAS No. 123. The Company records the fair market value of stock options and
warrants granted to non-employees in exchange for services in accordance with
Emerging Issues Task Force (EITF) No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services," in the consolidated statement of operations.

    NET LOSS PER BASIC AND DILUTED COMMON SHARE

    The Company reports net loss per basic and diluted common share in
accordance with SFAS No. 128, "Earnings Per Share," which establishes standards
for computing and presenting earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.

    CONCENTRATION OF CREDIT RISK

    Financial instruments that subject the Company to concentrations of credit
risk principally consist of cash equivalents, trade accounts receivable,
unbilled contract costs and amounts receivable from exercise of stock options.

    The Company's trade accounts receivable and unbilled contract costs and fees
are primarily from sales to U.S. government agencies and commercial customers.
The Company does not require collateral and has not historically experienced
significant credit losses related to receivables or unbilled contract costs and
fees from individual customers or groups of customers in any particular industry
or geographic area.

                                       52
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
    The Company deposits its cash and invests in short-term investments
primarily through a regional commercial bank and an investment company. Credit
exposure to any one entity is limited by Company policy.

    RESEARCH AND DEVELOPMENT COSTS

    The Company expenses research and development costs as incurred. Research
and development and other revenue expenses include costs incurred in connection
with both funded research and development and other revenue arrangements and
unfunded research and development activities.

    COMPREHENSIVE LOSS

    Comprehensive loss includes net loss, unrealized gains and losses on
marketable securities, valuation adjustment for warrants to purchase shares of
Mechanical Technology Incorporated's common stock and foreign currency
translation adjustments.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, unbilled contract costs and fees, warrants to purchase
shares of Mechanical Technology Incorporated's common stock, accounts payable,
debt instruments, contigent obligation to Class D preferred stockholders of
Beacon Power Corporation and amounts receivable from exercise of stock options.
The estimated fair values of these financial instruments approximate their
carrying values at September 30, 2000 and 1999. The estimated fair values have
been determined through information obtained from market sources and management
estimates.

    RECLASSIFICATIONS

    Certain prior-year balances have been reclassified to conform to
current-year presentations. For all periods presented, expenses associated with
funded research and development and other revenue activities have been
reclassified to funded research and development and other revenue expenses from
cost of revenue.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133," which defers the effective
date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. The Company will adopt
SFAS No. 133 beginning in the first quarter of the fiscal year ending
September 30, 2001. Upon adoption of SFAS No. 133, the Company will be required
to record an unrealized loss on the fair value of the warrants to purchase
shares of Mechanical Technology Incorporated's common stock in its results of
operations as a cumulative effect of a change in accounting principle of
$1.0 million reflecting the impact of adopting this accounting standard. The
Company will be required to record future unrealized gains and losses on the
fair value of the warrants to purchase shares of

                                       53
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A.  ORGANIZATION, RESTATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
Mechanical Technology Incorporated's common stock and the warrant to purchase
shares of Beacon Power's common stock in its results of operations.

    In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 140 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. Under SFAS No. 140,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. SFAS No. 140 also provides standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for certain transactions occurring after
March 31, 2001 and certain disclosures for the fiscal year ending September 30,
2001. The Company is currently evaluating the impact of SFAS No. 140 on its
financial statements and related disclosures, but does not expect that adoption
of SFAS No. 140 will have a material impact on its financial statements.

B.  UNBILLED CONTRACT COSTS AND FEES

    Unbilled contract costs and fees represent revenue recognized in excess of
amounts billed due to contractual provisions or deferred costs that have not yet
been recognized as revenue or billed to the customer. These amounts included
retained fee and unliquidated costs totaling $209,832 and $282,746 at
September 30, 2000 and 1999, respectively.

C.  INVENTORY

    Inventory includes material, labor and overhead and consisted of the
following:

<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,
                                                       -----------------------
                                                          2000         1999
                                                       ----------   ----------
<S>                                                    <C>          <C>
Raw material.........................................  $3,081,265   $1,139,064
Work-in-process......................................   2,932,965    2,199,199
Finished goods.......................................   1,987,431      359,709
                                                       ----------   ----------
                                                       $8,001,661   $3,697,972
                                                       ==========   ==========
</TABLE>

                                       54
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

D.  PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,
                                                      ------------------------
                                                         2000          1999
                                                      -----------   ----------
<S>                                                   <C>           <C>
Machinery and equipment.............................  $ 8,059,916   $4,505,287
Furniture and fixtures..............................      305,777      280,769
Computer software...................................      744,308      621,583
Leasehold improvements..............................      751,793      648,734
                                                      -----------   ----------
                                                        9,861,794    6,056,373
Less: accumulated depreciation and amortization.....    3,604,318    2,795,741
                                                      -----------   ----------
                                                      $ 6,257,476   $3,260,632
                                                      ===========   ==========
</TABLE>

    Depreciation and amortization expense relating to property and equipment for
the years ended September 30, 2000, 1999 and 1998 was $808,577, $633,964 and
$540,213, respectively.

    As of September 30, 2000 and 1999, there was $19,903 and $29,910 of capital
leases that were included in machinery and equipment and computer software,
respectively.

    During 1999, the Company determined that certain of its machinery and
equipment with a net book value totaling $105,544 was impaired based on a
significant change in the manner in which the asset was used, and such assets
were written-off during 1999. These assets included $86,492 of tooling costs
associated with the introduction of brushless motor products at the Company's
MagMotor Division that were impaired based on design changes in the product and
$19,052 of optics equipment at the Company's Technology Center that were
abandoned. These impairment losses have been included in cost of product revenue
and unfunded research and development expenses, respectively.

                                       55
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  INVESTMENT IN BEACON POWER CORPORATION

    On May 8, 1997, the Company incorporated Beacon Power Corporation ("Beacon
Power") as a wholly-owned subsidiary of the Company and received 6,750,000
shares of Beacon Power's common stock and 1,125,000 shares of Beacon Power's
Class A convertible preferred stock ("Class A Stock").

    On May 28, 1997, SatCon Technology Corporation entered into a Securities
Purchase Agreement, dated as of May 28, 1997, by and among the Company, Beacon
Power and Duquesne Enterprises ("Duquesne"). Pursuant to the terms of the
Agreement, Duquesne purchased from the Company and the Company issued, sold and
delivered to Duquesne 798,138 shares of the Company's Common Stock. The
aggregate consideration received by the Company was $5,000,000. As part of the
Company's agreement with Duquesne, on May 28, 1997, the Company committed to
provide $5.0 million of funding to Beacon Power. This $5.0 million commitment
was contributed to the capital of Beacon Power during fiscal 1997 and 1998.
Additionally, as of May 28, 1997, the Company also contributed certain flywheel
assets and technology to the capital of Beacon Power. Duquesne also entered into
agreements pursuant to which it will act as exclusive distributor of Beacon
Power's products, subject to certain exceptions, in seven mid-atlantic states
and the District of Columbia.

    During a recapitalization of Beacon Power on December 24, 1997, Beacon Power
obtained equity financing of $30,000 from private investors and the Company
converted 6,746,628 shares of Beacon Power's common stock for 3,373,313 shares
of Beacon Power's nonvoting Class A stock, which represented approximately 80%
of its ownership of Beacon Power and transferred certain assets and liabilities
to Beacon Power. Upon completion of this recapitalization, the Company owned 20%
of the voting stock of Beacon Power and 99.9% of the capital stock of Beacon
Power. Each share of Class A Stock that the Company held was convertible into
two shares of common stock at the option of the Company. The Class A Stock was
nonvoting and upon liquidation, the Company was entitled to receive, out of
funds then generally available prior to any payment with respect to the holders
of common stock, $4.45 per share, plus any declared and unpaid dividends
thereon. The Company had the right to receive the same dividends as declared by
the Board of Directors of Beacon Power on common shares on an "as-if-converted"
basis. The Class A Stock would automatically be converted into shares of common
stock upon the closing of a public offering of common stock of Beacon Power,
upon a vote of the Board of Directors of Beacon Power or upon the automatic
conversion of the Class D preferred stock of Beacon Power. Class A Stock was
subordinate to Class D, E and F preferred stock of Beacon Power and had parity
with Class B and C preferred stock. The Class A Stock did not have redemption
features.

    The Company has determined that the recapitalization of Beacon Power on
December 24, 1997 did not qualify as a divestiture of a subsidiary for
accounting purposes as described in SAB Topic 5.E. "Accounting for Divestiture
of a Subsidiary or Other Business Operation," as the Company had not transferred
risks and other incidents of ownership of Beacon Power with sufficient certainty
as the Company was the only stockholder of Beacon Power at risk of loss of its
investment. In accordance with SAB Topic 5.E., the Company has included 100% of
Beacon Power's net loss in its statements of operations as of December 24, 1997,
in a manner similar to the equity method of accounting and has included the
assets and liabilities transferred to Beacon Power as separate components in its
September 30,

                                       56
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
1998 balance sheet. The book value of assets and liabilities transferred to
Beacon Power on December 24, 1997 was as follows:

<TABLE>
<CAPTION>

<S>                                                           <C>
Accounts receivable.........................................  $    14,487
Prepaid expenses and other assets...........................       67,147
Subscriptions receivable....................................    2,007,508
Accounts payable............................................      (50,000)
Accrued payroll and payroll related expenses................      (32,298)
Accrued expenses............................................     (118,225)
                                                              -----------
Investment in Beacon Power Corporation......................  $ 1,888,619
                                                              ===========
</TABLE>

    At September 30, 1998, the Company owned 19.9% of the voting stock of Beacon
Power, 99.9% of the outstanding capital stock of Beacon Power and had amounts of
$596,453 due from Beacon Power. These amounts arose from transactions after
December 24, 1997, whereby the Company advanced money and made payments for
certain expenses incurred by Beacon Power. These advances have been written off
as of September 30, 1998. These advances were subsequently repaid in connection
with the October 23, 1998 financing.

    On October 23, 1998, the Company entered into a Securities Purchase
Agreement, by and among Beacon Power, Perseus Capital, L.L.C. ("Perseus"), DQE
Enterprises, Inc., Micro Generation Technology Fund, L.L.C ("Micro", and
together with Perseus and DQE Enterprises, the "Purchasers") and the Company.
Pursuant to the terms of the Agreement: (i) the Purchasers purchased from Beacon
Power and Beacon Power issued, sold and delivered to the Purchasers 1,900,000
shares (the "Shares") of Beacon Power's Class D redeemable preferred stock,
$0.01 par value per share; (ii) the Class D redeemable preferred stock earns
cumulative dividends at an annual rate of 12.5% through May 23, 2000 and 6% on
and after this date; (iii) the Purchasers have the right to receive certain
warrants to purchase shares of Beacon Power's common stock, $0.01 par value per
share ("Beacon Power's Common Stock"); (iv) the Company granted the Purchasers
the right (the "Put Right") to cause the Company, in circumstances described
below, to purchase all of the Shares and all of Beacon Power's Common Stock
issuable upon conversion of the Shares; and (v) upon exercise of the Put Right
pursuant to the terms of the Agreement, the Company must pay the consideration
contemplated by the Agreement in shares of the Company's common stock, $0.01 par
value per share. The aggregate consideration received by Beacon Power was
$4,750,000. The Put Right is exercisable within 60 days of the second, third,
fourth and fifth anniversary of the closing date of the transaction, upon
certain events of bankruptcy of Beacon Power and upon the occurrence of certain
going private transactions involving the Company. The Put Right will terminate,
if not previously exercised, on the earlier of (i) October 23, 2003, (ii) upon
the listing of Beacon Power's Common Stock on the New York Stock Exchange or the
Nasdaq National Market, or (iii) with respect to put rights resulting from an
event described above, 100 days after the Purchasers receive written notice from
the Company requesting that the Purchasers either exercise or waive their put
rights resulting from that event. The Company has recorded the face value of and
cumulative dividends on Beacon Power's Class D preferred stock as a liability.
As of September 30, 1999, the contingent obligation to the Class D preferred
stockholders is $5,309,115, consisting of $4,750,000 face value and $559,115 of
cumulative dividends.

                                       57
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
    Upon completion of the issuance of the Class D preferred stock of Beacon
Power and at September 30, 1999, the Company owned .1% of Beacon Power's voting
stock and 67% of Beacon Power's outstanding capital stock.

    In June 1999, the Company committed to provide up to $1,000,000 of
additional financing to Beacon Power representing a minority share, 33%, of a
funding commitment received by Beacon Power and, therefore, increased its
investment in Beacon Power and accrued the funding commitment of $1,000,000. As
a result of this financing, the Company determined that risks and other
incidents of ownership of Beacon Power had passed with sufficient certainty to
other investors and, therefore, began accounting for its investment in Beacon
Power under the equity method.

    On June 22, 1999, the Company entered into a note with Beacon Power (the
"June 22, 1999 Note") with a principal amount of $125,000 due and payable on the
earlier of (i) September 22, 1999 ("Maturity Date") or (ii) upon the occurrence
of an event of default, as defined therein. The note bore interest at 12% per
annum. The June 22, 1999 Note was issued pursuant to the terms of a Note
Purchase Agreement, dated as of June 22, 1999, by and among Beacon Power, the
Purchasers named therein, and the Company (the "Note Purchase Agreement").
Interest on the June 22, 1999 Note was payable on the Maturity Date.

    On July 6, 1999, the Company entered into an additional note with Beacon
Power (the "July 6, 1999 Note") with a principal amount of $125,000 due and
payable on the earlier of (i) Maturity Date or (ii) upon the occurrence of an
event of default. The July 6, 1999 Note bore interest at 12% per annum (the
"July 6, 1999 Note" and, together with the June 22, 1999 Note, the "Notes"). The
July 6, 1999 Note was also issued pursuant to the terms of the Note Purchase
Agreement. Interest on the July 6, 1999 Note was payable on the Maturity Date.

    In August 1999, the Company exchanged in full the Notes and $83,333.33 for a
note with a principal amount of $333,333.33 ("Bridge Note") plus accrued
interest due and payable on the earlier of (i) the date of conversion of the
note as described below or (ii) upon the occurrence of an event of default. The
Bridge Note bore interest at 12% per annum. The Bridge Note was issued pursuant
to the terms of a Note and Warrant Purchase Agreement, dated as of August 2,
1999, by and among Beacon Power, the Purchasers named therein, and the Company
(the "Note and Warrant Purchase Agreement"). Interest on the Bridge Note was
payable on the Maturity Date.

    Pursuant to the terms of the Note and Warrant Purchase, the Company entered
into two additional notes, each with a principal amount of $333,333.33 on
September 16, 1999 and October 19, 1999. The Bridge Note and the additional
notes each with a principal amount of $333,333.33 are collectively referred to
as the "Bridge Securities." At September 30, 1999, the Company has $333,333
payable under this $1,000,000 commitment to Beacon Power.

    On January 7, 2000, the Company entered into a $200,000 convertible
promissory note with Beacon Power. This convertible promissory note is due and
payable on the earlier of (i) the maturity date, as defined, or (ii) upon the
occurrence of an event of default by Beacon Power. The note bears interest at
12 1/2% per annum. Interest on the January 7, 2000 Note is due and payable on
the maturity date. The Company did not accrue losses of $200,000 relating to its
share of Beacon Power's losses incurred through December 31, 1999, as those
amounts, including interest, were repaid on February 14, 2000.

    On February 25, 2000, the Company entered into a $300,000 convertible
promissory note with Beacon Power. This convertible promissory note is due and
payable on the earlier of (i) the maturity date, as defined, or (ii) upon the
occurrence of an event of default by Beacon Power. The note bears interest at

                                       58
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
12 1/2% per annum. Interest on the February 25, 2000 Note is due and payable on
the maturity date. The Company did not accrue losses up to $300,000 relating to
its share of Beacon Power's losses incurred through March 31, 2000, as those
amounts, including interest, were repaid on April 27, 2000.

    On April 7, 2000, Beacon Power issued 1,226,141 shares of its Class E
redeemable preferred stock and warrants to purchase 306,535 shares of its
Class E preferred stock in exchange for the conversion of all of its outstanding
bridge notes of which the Company received 347,407 shares of Beacon Power's
Class E redeemable preferred stock and a warrant to purchase 86,852 shares of
Beacon Power's Class E redeemable preferred stock. As of April 7, 2000, the
Company owned 11.0% of Beacon Power's voting stock and 61.0% of Beacon Power's
outstanding capital stock. On April 21, 2000, Beacon Power raised an additional
$4.1 million through the sale of additional bridge notes and warrants to
purchase 41,000 shares of Beacon Power's common stock. The Company did not
participate in this financing. On May 23, 2000, Beacon Power issued 6,785,711
shares of its Class F preferred stock and additional warrants to purchase shares
of Beacon Power's common stock. The shares of Class F preferred stock and the
additional warrants were issued in consideration for the cancellation of
$5.2 million in bridge notes and an additional $23.3 million cash investment by
existing and new investors. The Company did not participate in this financing
either. As of May 23, 2000, the Company owned 3.5% of Beacon Power's voting
stock and 33.0% of Beacon Power's outstanding capital stock.

    As of September 30, 2000, the Company owned approximately 3% of the
outstanding voting stock of Beacon Power and 32% of the capital stock of Beacon
Power.

    The results of the Company's operations included $3,111,381 loss of Beacon
Power from May 8, 1997 to December 24, 1997 under the consolidation method of
accounting. On December 24, 1997, the Company began accounting for its
investment in Beacon Power in accordance with SAB Topic 5.E. and has included
100% of Beacon Power's $7,079,297 loss for the period from December 25, 1997
through May 1999 in a manner similar to the equity method of accounting, at
which time, the Company's initial investment of $1,888,619, the $30,000
additional investment and the additional deemed investment of $4,750,000 and
accrued dividends of $410,678 had been written down to zero. In June 1999, the
Company committed up to $1,000,000 of additional financing to Beacon Power,
representing a minority share, 33%, of a funding commitment received by Beacon
Power, and the Company began accounting for its investment in Beacon Power under
the equity method. As of June 30, 1999, the Company owned approximately 0.1% of
the voting stock of Beacon Power; however, as the Company was providing 33% of
the current funding to Beacon Power, the Company has included 33% of Beacon
Power's losses in its results of operation until the $1,000,000 investment was
reduced to zero in December 1999. The Company continued to record losses from
Beacon Power after December 31, 1999 to the extent of the additional dividends
that accrued on the contingent obligation to class D preferred stockholders of
Beacon Power. From June 1999 through September 30, 2000, the Company has
included in its results from operations its share of Beacon Power's losses of
$1,633,201. At September 30, 2000, the Company's investment in Beacon Power had
been reduced to zero and the contingent obligation to Beacon Power's Class D
preferred stockholders was $5,793,879. The Company continues to record
additional losses from Beacon Power to the extent of additional interest accrued
on the contingent obligation to the Class D preferred stockholders of Beacon
Power.

    On November 17, 2000, Beacon Power listed its common stock on the Nasdaq
National Market. In connection with the listing, the put right granted to the
Class D preferred stockholders of Beacon Power

                                       59
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E.  INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)
was terminated and the contingent obligation to Class D preferred stockholders
of Beacon Power was reclassified to additional paid-in capital.

    On November 22, 2000, Beacon Power completed an initial public offering of
its common stock and issued 8,000,000 shares of its common stock at $6.00 per
share. Upon the closing of Beacon Power's initial public offering, each share of
Beacon Power's Class A, C, D, E and F preferred stock was converted into two
shares of Beacon Power's common stock, or 29,359,530 shares of common stock, of
which the Company received 9,691,440 shares of Beacon Power's common stock. In
addition, upon the closing of Beacon Power's initial public offering, Beacon
Power issued 873,794 shares of common stock in payment for consulting fees and
accrued dividends on Beacon Power's class D and E preferred stock, of which the
Company received 11,098 shares of Beacon Power's common stock. After these
events, the Company owned approximately 25.0% of Beacon Power's outstanding
voting stock. In accordance with SEC Staff Accounting Bulletin (SAB) No. 51, in
connection with the initial public offering, the Company's investment in Beacon
Power and additional paid-in capital was written up to reflect its beneficial
interest in the book value of the stockholders' equity of Beacon Power at
November 22, 2000, which was $14,988,382, less losses previously recorded in
connection with the put right obligation in the amount of $5,831,879 for a net
gain of $9,156,503.

    If in the future, the Company's ownership interest in Beacon Power's
outstanding capital stock is reduced to below 20% and the Company determines
that it does not have the ability to exercise significant influence over the
operating and financial policies of Beacon Power, the Company's investment in
Beacon Power will be accounted for using the fair value method as set forth in
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," based upon the carrying value of the Company's investment in Beacon
Power. At that time, the Company will no longer be required to record its share
of any losses from Beacon Power. The value of the investment will be carried at
fair market value with any unrealized holding gains or losses to be included in
stockholders' equity as a component of other comprehensive income.

    Beacon Power accounted for $470,996, $72,644 and $424,418 of the Company's
total revenue for the fiscal years ended September 30, 2000, 1999 and 1998,
respectively. At September 30, 2000 and 1999, the Company had $346,066 and
$5,390, respectively, of accounts receivable and unbilled contract costs and
fees from Beacon Power.

F.  LINE OF CREDIT

    In December 1998, as modified, the Company obtained a $3,000,000 demand
discretionary line of credit with a bank. The line of credit bears interest at
the bank's prime rate plus 1 1/2%. Available borrowings were based on a formula
of eligible accounts receivable and inventory. There were no amounts outstanding
under the line of credit at September 30, 1999. During 1999, the maximum amount
outstanding on the line of credit was $2,657,234. The Company has pledged all
assets of the Company as collateral against this line of credit. On August 29,
2000, the Company terminated the line of credit.

                                       60
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

G.  LONG-TERM DEBT

    Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,
                                                         --------------------
                                                           2000        1999
                                                         ---------   --------
<S>                                                      <C>         <C>
Capital lease obligations..............................  $  33,871   $ 50,097
Less: Current portion..................................    (17,494)   (16,226)
                                                         ---------   --------
                                                         $  16,377   $ 33,871
                                                         =========   ========
</TABLE>

    At September 30, 2000, maturities of these obligations are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S>                                                           <C>
2001........................................................  $ 17,494
2002........................................................    10,778
2003........................................................     5,599
                                                              --------
                                                                33,871
Less: Current Portion.......................................   (17,494)
                                                              --------
                                                              $ 16,377
                                                              ========
</TABLE>

    On March 1, 1999, the Company reached a definitive settlement arrangement
with Albert R. Snider (the "Settlement Agreement"), the holder of a note payable
that commenced on April 16, 1997, regarding a suit filed against Mr. Snider for
breach of certain representations made by him, including statements of inventory
balances in the Asset Purchase Agreement dated as of April 3, 1997 between FMI
and Mr. Snider relating to the purchase of the business of FMI and a
counterclaim filed by Mr. Snider seeking, among other things, payments allegedly
due from the Company under a promissory note.

    Pursuant to the terms of the Settlement Agreement, the Company made a
$100,000 cash payment to Mr. Snider on March 9, 1999 and the parties executed
mutual general releases dismissing any and all claims between them. In addition,
the Settlement Agreement provides a right of first refusal in favor of the
Company with respect to certain shares of the Company's Common Stock,
beneficially owned by Mr. Snider. Concurrently with the execution of the
Settlement Agreement, the Company and Mr. Snider entered into a consulting
agreement pursuant to which Mr. Snider will perform certain consulting, advisory
and related services as the Company may reasonably request from time to time
between October 1, 1999 and October 1, 2002. In exchange for these services, the
Company issued 42,860 shares of its Common Stock to Mr. Snider, which were held
by an escrow agent. The Company has recorded these shares held in escrow at
market value and as a reduction to stockholders' equity as of September 30,
1999.

    On April 26, 2000, the escrow agent, as authorized by the Company released
the 42,860 shares of common stock that were held in escrow to Mr. Snider. The
Company recorded these securities at fair value until they were released from
escrow at a market price of $16.00 per share or $685,760. The Company determined
that the value of these securities exceeded the net realizable value of the
underlying services to be received by $235,760. The Company has charged this
excess amount to selling, general and administrative expenses during the fiscal
year ended September 30, 2000. The Company is amortizing the realizable asset of
$450,000 over the three-year period of service through September 30, 2002. At
September 30, 2000, the unamortized value of this asset is $300,000.

                                       61
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

H.  COMMITMENTS AND CONTINGENCIES

    OPERATING LEASES

    The Company leases its facilities under various operating leases that expire
through October 2005. The Company has also entered into a master leasing
agreement to lease various items of equipment not to exceed $600,000. The
availability under this facility has expired as of September 30, 1999.

    Future minimum annual rentals under lease agreements at September 30, 2000
are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S>                                                           <C>
2001........................................................  $2,015,395
2002........................................................   1,916,712
2003........................................................   1,545,762
2004........................................................     280,850
2005........................................................     201,996
Thereafter..................................................      16,833
                                                              ----------
Total (not reduced by minimum sublease rentals of
  $889,872).................................................  $5,977,548
                                                              ==========
</TABLE>

    Total rental expense including operating expenses and real estate taxes for
operating leases amounted to $2,157,506, $1,683,749 and $1,235,867 for the years
ended September 30, 2000, 1999 and 1998, respectively.

    Certain of the facility leases contain escalation clauses, effective
October 1, 1998, rental expense has been recognized on a straight-line basis
over the remaining lease term. At September 30, 2000 and 1999, deferred rent
expense amounted to $207,739 and $110,390, respectively.

LITIGATION

    On October 15, 1997, the Company received a letter from the Department of
the Air Force ("the Air Force") stating that it may terminate for default an
approximately $1.6 million contract between the Air Force and the Company for
development of a satellite component, unless perceived performance problems were
cured. As of that date, the Company had received payments of approximately $1.4
million in connection with this contract. In the event of an actual default, the
Company could be liable for extra costs incurred by the U.S. government in
developing the component and could be required to return a portion of the monies
the Company received on this contract. On December 15, 1997, the Air Force
issued a "Show Cause Notice" to the Company requiring the Company to demonstrate
to the Air Force why the contract should not be terminated "for cause." On
December 31, 1997, the Company responded to the Air Force's "Show Cause Notice,"
explaining the Company's view that the Company should not be terminated for
cause. On May 11, 2000, the Company contacted the Air Force again to offer to
settle these differences and to explore obtaining additional settlement amounts.
On August 3, 2000, the Company sent a memorandum to the Air Force explaining the
basis of a settlement request of $353,248. Also on August 3, 2000, the Company
received from the Air Force a proposed settlement offer.

    On September 15, 2000, the Company and the Air Force entered into a
settlement agreement in which the contract was to be closed and considered
completed through a contract modification with no additional payment, but
without termination for cause. Pursuant to the settlement agreement, the Company
accepted the amount already paid by the Air Force, $1,220,156, in full
settlement and final payment. The Company and the Air Force agreed that the
settlement constituted full accord and satisfaction of all of the

                                       62
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

H.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company's claims against the Air Force arising under or relating to the contract
and released the Air Force from any further request for equitable adjustment.

    As of September 30, 2000, all of the $521,000 unbilled contract costs and
fees relating to this contract had been written off.

    On November 6, 1999, APACE, Inc. ("APACE") commenced an action against the
Company to the Supreme Court of the State of New York claiming the Company had
been awarded a prime contract by the U.S. Department of Energy ("DOE") and that
the Company had failed or refused to negotiate a subcontract with APACE,
allegedly in breach of a contract between the Company and APACE. APACE is
seeking in excess of $1,000,000 in damages. The Company denied the allegations,
moved to stay the action and filed for arbitration with the American Arbitration
Association in Boston, Massachusettes. The American Arbitration Association
decided that the arbitration would go forward in Boston. In the meantime, APACE
requested that the court permit the action to go forward and for the arbitration
to compelling arbitration and staying APACE's action pending arbitration to be
conducted by the American Arbitration Association in Boston.

    On June 26, 2000, APACE served the Company with an amended answering
statement and counterciaim, including additional allegations that the Company
has engaged in unfair and deceptive trade practices and that the Company's
actins were willful and knowing. Based on these allegations, APACE is seeking
multiple damages, as well as attorneys' fees and expenses. On July 19, 2000, the
Company filed an answer to APACE's amended answering statement and counterclaim,
denying the allegations and asserting various defenses.

    An arbitrator has been selected and the arbitration is scheduled to go
forward in Boston for nine days in February, March and April 2001. The parties
have exchanged some discovery and expect to make a further exchange early in
2001.

    The final outcome of this matter is not presently determinable and,
therefore, no provision for any liability that may result has been recorded in
the Company's financial statements.

    From time to time, the Company is a party to routine litigation and
proceedings in the ordinary course of business. The Company is not aware of any
current or pending litigation to which the Company is or may be a party that the
Company believes could materially adversely affect the Company's results of
operations or financial condition.

I.  EMPLOYEE BENEFIT PLAN

    The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the
Plan, any regular employee, as defined by the Plan, who has completed six months
of service and has attained the age of 21 years is eligible to participate.
Under the terms of the Plan, an employee may defer up to 15% of his or her
compensation through contributions to the Plan. During 1999, the Company
extended the Plan to its wholly-owned subsidiaries. The Company made matching
contributions to the Plan of $366,264, $218,729 and $86,883 during 2000, 1999
and 1998, respectively.

                                       63
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

J.  INCOME TAXES

    The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED SEPTEMBER 30,
                                                         ---------------------------------------
                                                            2000          1999          1998
                                                         -----------   -----------   -----------
<S>                                                      <C>           <C>           <C>
Current payable:
  Federal..............................................      (14,699)           --            --
  State................................................           --            --   $     3,872
  Foreign..............................................       14,699            --            --
                                                         -----------   -----------   -----------
                                                                  --            --   $     3,872
                                                         -----------   -----------   -----------

Deferred tax expense/(benefit):
  Federal..............................................  $(2,962,183)  $(3,888,031)  $(1,349,519)
  State................................................     (890,122)   (1,167,905)     (404,950)
  Change in valuation allowance........................    3,852,305     5,055,936     1,754,469
                                                         -----------   -----------   -----------
                                                                  --            --            --
                                                         -----------   -----------   -----------
                                                                  --            --   $     3,872
                                                         ===========   ===========   ===========
</TABLE>

    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of September 30, 2000
and 1999, the components of the net deferred tax assets/(liabilities) are as
follows:

<TABLE>
<CAPTION>
                                                               2000           1999
                                                           ------------   ------------
<S>                                                        <C>            <C>
Federal net operating loss...............................  $ 13,385,851   $  5,566,879
State net operating loss, net of federal benefit.........     1,912,496        495,980
Credits..................................................       421,035        499,585
Depreciation.............................................      (227,657)       336,038
Loss from Beacon Power Corporation.......................     4,932,397      3,128,804
Other....................................................       834,326      1,562,820
Valuation allowance......................................   (21,258,448)   (11,590,106)
                                                           ------------   ------------
Net deferred income taxes................................            --             --
                                                           ============   ============
</TABLE>

    The Company has placed a full valuation allowance against its net deferred
tax assets since the Company believes it is more likely than not that it will
not be able to utilize its deferred tax asset.

                                       64
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

J.  INCOME TAXES (CONTINUED)

    The provision for income taxes differs from the federal statutory rate due
to the following:

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED
                                                                     SEPTEMBER 30,
                                                          ------------------------------------
                                                            2000          1999          1998
                                                          --------      --------      --------
<S>                                                       <C>           <C>           <C>
Tax at statutory rate...............................       (34.0)%       (34.0)%       (34.0)%
State taxes--net of federal benefit.................        (6.2)         (6.2)         (6.2)
Other...............................................         1.6          (0.7)         (0.5)
Change in valuation allowance.......................        38.6          40.9          40.8
                                                           -----         -----         -----
Effective tax rate..................................          -- %          -- %         0.1 %
                                                           =====         =====         =====
</TABLE>

    At September 30, 2000, the Company had net operating loss carry-forwards of
approximately $39,370,000 and $30,590,000 for federal and state income tax
purposes, respectively. The federal net operating losses expire beginning
September 30, 2008 through 2020. The state net operating losses will expire
beginning September 30, 2000 through 2005. The use of these losses may be
limited due to ownership change limitations under Section 382 of the Internal
Revenue Code.

K.  STOCKHOLDERS' EQUITY

INVESTMENT FROM MECHANICAL TECHNOLOGY INCORPORATED

    On October 21, 1999, the Company received a $7,070,000 investment from
Mechanical Technology Incorporated ("MTI"). In consideration for MTI's
investment, MTI received 1,030,000 shares of the Company's Common Stock at a
discounted price of approximately $6.80 per share, and warrants to purchase an
additional 100,000 shares of the Company's Common Stock at an exercise price of
$8.80 per share and an expiration date four years from the date of issuance. MTI
funded $2,570,000 of its investment in the Company on October 21, 1999 and
received 370,800 of the 1,030,000 shares of the Company's Common Stock and a
warrant to purchase 36,000 of the 100,000 shares of the Company's Common Stock.
MTI made the remaining investment on January 31, 2000 of $4,500,000 and received
the remaining 659,200 shares of the Company's Common Stock and a warrant to
purchase the remaining 64,000 shares of the Company's Common Stock. The Company
incurred approximately $95,000 of legal, accounting, consultation and filing
fees in connection with this transaction. The Company has valued the warrants
issued to MTI on October 21, 1999 and January 31, 2000, at $231,912 and
$1,273,509, respectively, using the Black-Scholes option-pricing model.

    In addition, the Company received a warrant to purchase 108,000 shares of
MTI's common stock on October 21, 1999 and a warrant to purchase 192,000 shares
of MTI's common stock on January 31, 2000 at exercise prices of $12.56 per
share, as adjusted to reflect a 3:1 stock split in April 2000, and expiration
dates four years from the date of issuance. The Company has valued the warrant
received on October 21, 1999 and January 31, 2000 at $568,553 and $2,926,885,
respectively, using the Black-Scholes option-pricing model, and has recorded the
warrants as an asset and additional paid in capital. In accordance with EITF
No. 96-11, "Accounting for Forward Contracts and Purchased Options to Acquire
Securities Covered by FASB Statement No. 115," options that are entered into to
purchase securities that will be accounted for under SFAS 115 should, at
inception, be designated as held-to-maturity, available-for-sale, or trading and
accounted for in a manner consistent with the accounting prescribed by
SFAS No. 115 for that category of securities. The Company has designated that
the securities to be purchased under the warrant agreement

                                       65
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K.  STOCKHOLDERS' EQUITY (CONTINUED)
will be available-for-sale securities and, therefore, the Company has marked to
market the fair value of the warrants at each reporting period dated and has
recorded any unrealized gains and losses as a component of accumulated other
comprehensive loss included in stockholders' equity. At September 30, 2000, the
warrants have an unrealized loss of $1,021,725, which is included in accumulated
other comprehensive loss included in stockholders' equity.

    STOCK OPTIONS

    Under the Company's 1992, 1994, 1996, 1998 and 1999 Stock Option Plans
(collectively, the "Plans"), both qualified and non-qualified stock options may
be granted to certain officers, employees, directors and consultants to purchase
up to 3,050,000 shares of the Company's Common Stock. At September 30, 2000,
2,773,550 of the 3,050,000 stock options available for grant under the Plans
have been granted.

    The Plans are subject to the following provisions:

    The aggregate fair market value (determined as of the date the option is
granted) of the common stock that any employee may purchase in any calendar year
pursuant to the exercise of qualified options may not exceed $100,000. No person
who owns, directly or indirectly, at the time of the granting of a qualified
option to him or her, more than 10% of the total combined voting power of all
classes of stock of the Company shall be eligible to receive any qualified
options under the Plans unless the option price is at least 110% of the fair
market value of the common stock subject to the option, determined on the date
of grant. Non-qualified options are not subject to this limitation.

    Qualified options are issued only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to employees of the Company. Options granted under the Plans
may not be granted with an exercise price less than 100% of fair value of the
Company's common stock, as determined by the Board of Directors on the grant
date.

    Options under the Plans must be granted within 10 years from the effective
date of the Plan. Qualified options granted under the Plans cannot be exercised
more than 10 years from the date of grant, except that qualified options issued
to 10% or greater stockholders are limited to five-year terms. All options
granted under the Plans provide for the payment of the Company's exercise price
in cash, or by delivery to the Company of shares of common stock already owned
by the optionee having fair market value equal to the exercise price of the
options being exercised, or by a combination of such methods of payment.
Generally, the options vest and become exercisable ratably over a four-year
period.

    The Plans contain antidilutive provisions authorizing appropriate
adjustments in certain circumstances. Shares of common stock subject to options
that expire without being exercised or that are canceled as a result of the
cessation of employment are available for further grants.

                                       66
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K.  STOCKHOLDERS' EQUITY (CONTINUED)
    A summary of the status of the Company's stock options as of September 30,
2000, 1999 and 1998 and changes for the years then ended are presented below.

<TABLE>
<CAPTION>
                                                   2000                   1999                    1998
                                           --------------------   ---------------------   --------------------
                                                       WEIGHTED                WEIGHTED               WEIGHTED
                                           NUMBER OF   AVERAGE    NUMBER OF    AVERAGE    NUMBER OF   AVERAGE
                                            SHARES      PRICE       SHARES      PRICE      SHARES      PRICE
                                           ---------   --------   ----------   --------   ---------   --------
<S>                                        <C>         <C>        <C>          <C>        <C>         <C>
Outstanding at beginning of year.........  1,851,227    $ 8.06       820,910    $9.58      700,427     $8.44
  Granted................................    820,050     16.62     1,604,000     7.03      319,000     11.20
  Exercised..............................   (701,774)     7.84      (455,600)    6.98     (100,266)     5.80
  Canceled...............................    (92,398)     7.83      (118,083)    8.84      (98,251)    10.55
                                           ---------    ------    ----------    -----     --------     -----
Outstanding at end of year...............  1,877,105    $11.89     1,851,227    $8.06      820,910     $9.58
                                           =========    ======    ==========    =====     ========     =====
Options exercisable at year-end..........    463,764    $ 9.26       840,560    $8.57      413,403     $8.48
                                           =========    ======    ==========    =====     ========     =====
</TABLE>

    The following table summarizes information about stock options outstanding
as of September 30, 2000.

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                        ----------------------------------   ----------------------
                                      WEIGHTED    WEIGHTED                 WEIGHTED
                                       AVERAGE    AVERAGE                  AVERAGE
      RANGE OF            NUMBER      REMAINING   EXERCISE     NUMBER      EXERCISE
   EXERCISE PRICES      OUTSTANDING     LIFE       PRICE     EXERCISABLE    PRICE
---------------------   -----------   ---------   --------   -----------   --------
<S>                     <C>           <C>         <C>        <C>           <C>
$       5.00--$ 7.81       311,456        7.9     $  5.67       70,509      $ 5.53
$       8.05--$10.50       708,548        8.0        8.43      253,673        9.02
$      11.00--$13.38       240,751        7.3       11.67      139,582       11.57
$      16.13--$20.63       546,350        9.4       17.55           --          --
$      31.25--$37.25        70,000        9.8       31.30           --          --
                         ---------      -----     -------      -------      ------
                         1,877,105        8.4     $ 11.89      463,764      $ 9.26
                         =========      =====     =======      =======      ======
</TABLE>

    At September 30, 2000, an additional 276,450 shares were available under the
Plans for future grants.

    During 1999, the Company granted fully vested and immediately exercisable
options to purchase 755,000 shares of the Company's common stock to consultants
at exercise prices ranging from $5.75 to $10.00 per share, of which 300,000
stock options were granted outside of the Plans. The Company has recorded the
fair value of the options, as determined by the Black-Scholes option pricing
model, of $2,152,277, to selling, general and administrative expenses during the
year ended September 30, 1999. As of September 30, 1999, options to purchase
450,000 shares at an exercise price of $7.00 per share were exercised. As of
September 30, 1999, the Company received $1,333,333 of cash on these exercises
and the remaining amount due from the stockholders is classified within
stockholders' equity as amounts receivable from exercise of stock options. As of
September 30, 2000, options to purchase 750,000 shares at exercise prices
ranging from $5.75 to $10.00 per share have been exercised. As of September 30,
2000, the Company has received full payment on these exercises.

    During 2000, the Company granted 216,000 non-qualified stock options to
employees at an exercise price of $17.56 per share outside of the Board approved
Plans, which are included in the above table.

                                       67
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K.  STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS

    On June 5, 1998, the Company issued to certain individuals, in settlement of
a claim asserted against the Company, Common Stock Purchase Warrants to purchase
up to 68,795 shares of common stock, as amended, at an exercise price of $11.43
per share. The value of these warrants was not material to the financial
statements. These warrants expired on November 11, 1999, unexercised.

    On November 11, 1998, the Company issued common stock warrants to purchase
up to 67,125 shares of the Company's Common Stock at an exercise price of $11.43
per share. The Company has recorded the fair value of these warrants, as
determined by the Black-Scholes option-pricing model, of $56,362, to selling,
general and administrative expenses during the year ended September 30, 1999.
These warrants expired on November 11, 1999 unexercised.

    On August 25, 1999, in connection with the $8 million private placement of
8,000 shares of the Company's Series A Convertible Preferred Stock, $0.01 par
value per share, with Brown Simpson Strategic Growth Funds (see Note L), the
Company issued common stock warrants to purchase up to 120,000 and 675,000
shares of common stock at an exercise price of $7.80 and $8.54, respectively.
These warrants expire on August 25, 2003. The Company has valued these warrants
at $2,369,292, using the Black-Scholes option-pricing model. At September 30,
1999, none of these warrants were exercised. At September 30, 2000, 18,000
shares of common stock had been purchased at an exercise price of $7.80 per
share.

    On October 21, 1999, in connection with an investment by MTI, the Company
issued a warrant to purchase up to 36,000 shares of the Company's Common Stock
at an exercise price of $8.80 per share. This warrant expires on October 21,
2003. On January 31, 2000, in connection with a second closing of this
investment, the Company issued an additional warrant to purchase up to 64,000
shares of the Company's Common Stock at an exercise price of $8.80 per share.
This warrant expires on January 31, 2004. The Company valued the warrants issued
to MTI on October 12, 1999 and January 31, 2000 at $231,912 and $1,273,509,
respectively, using the Black-Scholes option-pricing model. At September 30,
2000, none of these warrants had been exercised.

    On November 16, 1999, in connection with the acquisition of certain
intellectual property, equipment and other assets from Northrop Grumman
Corporation, the Company issued a warrant to purchase up to 100,000 shares of
the Company's Common Stock at an exercise price of $9.725 per share. The Company
has valued this warrant at $631,000 using the Black-Scholes option-pricing
model. As of September 30, 2000, all of these warrants had been exercised.

    On February 4, 2000, the Company issued to Northrop Grumman Corporation an
additional warrant to purchase up to 100,000 shares of the Company's Common
Stock at an exercise price of $9.725 per share. This warrant is exercisable upon
the occurrence of certain defined events. As of September 30, 2000, this warrant
is not yet exercisable. This warrant expires on December 31, 2006. As of
September 30, 2000, the fair value of this warrant, using the Black-Scholes
option-pricing model, was $936,485, which will be added to the purchase price of
the assets acquired from Northrop Grumman Corporation when it becomes
exerciseable.

    STOCK-BASED COMPENSATION

    Had compensation cost for the Company's stock-based compensation been
determined based on fair value at the grant dates as calculated in accordance
with SFAS No. 123, the Company's net loss and loss

                                       68
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K.  STOCKHOLDERS' EQUITY (CONTINUED)
per share for the years ended September 30, 2000, 1999 and 1998 would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                             2000                      1999                      1998
                                    -----------------------   -----------------------   -----------------------
                                      NET LOSS                  NET LOSS                  NET LOSS
                                    ATTRIBUTABLE   LOSS PER   ATTRIBUTABLE   LOSS PER   ATTRIBUTABLE   LOSS PER
                                     TO COMMON      COMMON     TO COMMON      COMMON     TO COMMON      COMMON
                                    STOCKHOLDERS    SHARE     STOCKHOLDERS    SHARE     STOCKHOLDERS    SHARE
                                    ------------   --------   ------------   --------   ------------   --------
<S>                                 <C>            <C>        <C>            <C>        <C>            <C>
As reported.......................  $(13,047,033)   $(1.03)   $(14,392,657)   $(1.57)   $(4,857,814)    $(.54)
Pro forma.........................  $(17,092,280)   $(1.35)   $(15,597,109)   $(1.70)   $(5,433,804)    $(.61)
</TABLE>

    The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996 and additional awards in future years are anticipated.

    The fair value of each stock option is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: an expected life of seven years, expected volatility ranging from
80.1% to 112.3%, no dividends, and risk-free interest rate of 6.17% for
September 30, 2000; an expected life of seven years, expected volatility of
80.0%, no dividends, and risk-free interest rate of 6.08% for September 30,
1999; and an expected life of seven years, expected volatility of 57.9%, no
dividends, and risk-free interest rate of 5.76% for September 30, 1998. The
weighted average price of the fair value of options granted for years ended
September 30, 2000, 1999 and 1998 are $14.05, $5.21 and $7.14, respectively.

    In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25." This interpretation clarifies the application of APB Opinion
No. 25, including (a) the definition of employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
Interpretation is effective July 1, 2000, and the effects of applying the
Interpretation are recognized on a prospective basis. The adoption of this
Interpretation did not have a material impact on the Company's financial
condition or results of operations.

COMMON STOCK OFFERING

    On October 30, 2000, the Company filed for a public offering of its Common
Stock. In connection with this offering, the Company has incurred $678,980 of
deferred equity financing costs that are included in other long-term assets at
September 30, 2000.

                                       69
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L.  PREFERRED STOCK

    The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"). The Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by stockholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions.

    On August 25, 1999, the Company completed an $8 million private placement of
8,000 shares of its Series A Redeemable Convertible Preferred Stock, $0.01 par
value per share (the "Series A Preferred Stock"), with Brown Simpson Strategic
Growth Funds ("Brown Simpson"). The Series A Preferred Stock is initially
convertible into 1,025,641 shares of the Company's common stock, $0.01 par value
per share (the "Common Stock").

    In connection with the transaction, Brown Simpson also received warrants to
purchase up to 675,000 fully vested and immediately exercisable additional
shares of Common Stock at $8.54 per share (the "Brown Simpson Warrants"). The
Brown Simpson Warrants expire on August 25, 2003. The Company has valued these
warrants at $1,818,558 based on the fair value of these warrants, as determined
by the Black-Scholes option-pricing model, and has recorded this amount as a
discount to the Preferred Stock. In addition, the Company incurred direct costs
of $1,338,234 in connection with this preferred stock offering which have also
been recorded as a discount to the Series A Preferred Stock.

    H.C. Wainwright & Co., Inc. ("H.C. Wainwright") served as placement agent
for the transaction and received a commission of $560,000 and warrants to
purchase 120,000 shares of the Company's Common Stock at $7.80 per share. These
warrants expire on August 25, 2003. H.C. Wainwright will also receive a future
fee in the amount of 4% of any monies received by the Company upon the exercise
of the Brown Simpson Warrants. The Company has recorded the fair value of these
warrants, as determined by the Black-Scholes option-pricing model, of $550,734
as a discount to the Series A Preferred Stock.

    The Company has valued the Series A Preferred Stock at issuance to be
$4,843,208 based on the relative fair market values of the financial instruments
issued in connection with this placement and net of offering costs. The Company
is accreting the carrying value of the preferred stock to its redemption value
of $8,000,000 at August 25, 2003, using the effective interest method. As of
September 30, 1999, the Company accreted $50,904 and recorded this as a charge
against additional paid-in capital.

    On March 7, 2000, the preferred stockholders elected to convert all 8,000
shares of the Series A Preferred Stock into 1,025,641 shares of the Company's
Common Stock, which resulted in the accretion of an additional $3,105,888 of the
discount on the redeemable preferred stock during the year ended September 30,
2000.

                                       70
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

M.  SIGNIFICANT CUSTOMERS

    Significant customers, defined as those customers that account for 10% or
more of total net revenue in a fiscal year or 10% or more of accounts receivable
and unbilled contract costs and fees at the end of a fiscal year, were as
follows:

<TABLE>
<CAPTION>
                                                                                       PERCENTAGE OF
                                                                                    ACCOUNTS RECEIVABLE
                                                                                       AND UNBILLED
                                                                                    CONTRACT COSTS AND
                                                    PERCENTAGE OF TOTAL REVENUE           FEES AT
                                                      YEAR ENDED SEPTEMBER 30,         SEPTEMBER 30,
                                                   ------------------------------   -------------------
CUSTOMER                                             2000       1999       1998       2000       1999
--------                                           --------   --------   --------   --------   --------
<S>                                                <C>        <C>        <C>        <C>        <C>
U.S. government:
  U.S. Department of Defense.....................    *          20.6%      22.1%      10.3%      20.4%
  U.S. Department of Energy......................    11.5%      *          *          *          20.0%
Applied Materials................................    10.6%      *          *          22.3%      *
</TABLE>

------------------------

*   Less than 10%

N.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

NON-CASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
                                                                 YEAR ENDED SEPTEMBER 30,
                                                          --------------------------------------
                                                             2000          1999         1998
                                                          -----------   ----------   -----------
<S>                                                       <C>           <C>          <C>
Accretion of redeemable convertible preferred stock
  discount..............................................  $ 3,105,888   $   50,904            --
                                                          ===========   ==========   ===========
Acquisition of equipment under capital leases...........           --   $   49,813            --
                                                          ===========   ==========   ===========
Contingent obligation to Class D preferred stockholders
  of Beacon Power Corporation...........................  $   484,764   $5,309,115            --
                                                          ===========   ==========   ===========
Conversion of redeemable convertible preferred stock to
  common stock..........................................  $ 8,000,000           --            --
                                                          ===========   ==========   ===========
Common stock held in escrow issued in connection with
  settlement agreement..................................           --   $  190,191            --
                                                          ===========   ==========   ===========
Valuation adjustment for common stock held in escrow....  $   257,160   $  238,409            --
                                                          ===========   ==========   ===========
Warrants issued in connection with MTI investment.......  $ 1,505,421           --            --
                                                          ===========   ==========   ===========
MTI warrant received in connection with MTI
  investment............................................  $ 3,495,438           --            --
                                                          ===========   ==========   ===========
Valuation adjustment for MTI warrants...................  $(1,021,725)          --            --
                                                          ===========   ==========   ===========
</TABLE>

                                       71
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

N.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
    Net cash paid for the acquisitions of Inductive Components Inc., Lighthouse
Software, Inc., HyComp, Inc., Ling Electronics, Inc. and certain intellectual
property, equipment and other assets from Northrop Grumman Corporation was as
follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED SEPTEMBER 30,
                                                      ------------------------------------------
                                                          2000           1999           1998
                                                      ------------   ------------   ------------
<S>                                                   <C>            <C>            <C>
Fair value of assets................................  $ 11,200,265   $  1,742,812             --
Cost in excess of net assets of companies acquired,
  net...............................................     3,754,910        389,079             --
Liabilities assumed, including transaction costs....    (2,476,383)      (567,215)            --
Fair value of common stock issued...................   (12,408,792)      (568,800)            --
                                                      ------------   ------------   ------------
Cash paid...........................................  $     70,000   $    995,876             --
Less: Cash acquired.................................       (45,946)            --             --
                                                      ------------   ------------   ------------
Net cash paid for the acquisitions..................  $     24,054   $    995,876             --
                                                      ============   ============   ============
</TABLE>

    INTEREST AND INCOME TAXES PAID

    Cash paid for interest and income taxes was as follows:

<TABLE>
<CAPTION>
                                                      FOR THE YEARS ENDED
                                                         SEPTEMBER 30,
                                                 ------------------------------
                                                   2000       1999       1998
                                                 --------   --------   --------
<S>                                              <C>        <C>        <C>
Interest.......................................  $  3,176   $115,692   $10,206
                                                 ========   ========   =======
Income taxes...................................        --         --   $ 5,772
                                                 ========   ========   =======
</TABLE>

O.  ACQUISITIONS

    INDUCTIVE COMPONENTS, INC. AND LIGHTHOUSE SOFTWARE, INC.

    On January 4, 1999, the Company's MagMotor subsidiary acquired substantially
all of the assets and assumed certain liabilities of Inductive Components, Inc.
and Lighthouse Software, Inc., pursuant to the terms of an Asset Purchase
Agreement, dated January 4, 1999, among MagMotor, the Company, Inductive
Components, Inc., Lighthouse Software, Inc. and Thomas Glynn, the sole
stockholder of Inductive Components, Inc. and the majority stockholder of
Lighthouse Software, Inc. The aggregate consideration paid by the Company for
the acquired assets of Inductive Components, Inc. and Lighthouse Software, Inc.
was 100,000 shares of the Company's common stock, valued at $5.6875 per share or
$568,750. In addition, the Company assumed indebtedness of approximately
$246,000. The Company has included in its consolidated results of operations the
acquisition of Inductive Components, Inc. and Lighthouse Software, Inc. under
the purchase method of accounting. The purchase price has been allocated as
follows:

<TABLE>
<S>                                                           <C>
Inventory...................................................  $ 50,000
Property and equipment......................................   100,597
Intangibles.................................................   275,000
Goodwill....................................................   389,079
                                                              --------
                                                              $814,676
                                                              ========
</TABLE>

                                       72
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

O.  ACQUISITIONS (CONTINUED)
    The pro forma financial information has not been presented, as the
acquisitions of Inductive Components, Inc. and Lighthouse Software, Inc. are not
material.

    HYCOMP, INC.

    On April 12, 1999, the Company executed an agreement to purchase
substantially all of the assets and assume certain liabilities of HyComp, Inc.
("HyComp"). This agreement was dated March 31, 1999 and was by and between
HyComp and HyComp Acquisition Corp., a wholly-owned subsidiary of the Company.
The aggregate consideration paid by the Company for the acquired assets of
HyComp consisted of (i) $750,000 in cash; (ii) the assumption of certain
liabilities and obligations of HyComp in the amount of approximately $422,000;
(iii) transaction costs of $95,000; and (iv) a 5% royalty to HyComp on certain
sales through April 12, 2000. At September 30, 1999, the Company has recorded
$50,000 of accrued royalties. The Company has included in its consolidated
results of operations the acquisition of HyComp under the purchase method of
accounting. The purchase price has been allocated as follows:

<TABLE>
<S>                                                           <C>
Accounts receivable.........................................  $   38,556
Inventory...................................................     318,359
Deposits....................................................      19,800
Property and equipment......................................     940,500
                                                              ----------
                                                              $1,317,215
                                                              ==========
</TABLE>

    The pro forma financial information has not been presented as the
acquisition of HyComp is not material.

LING ELECTRONICS, INC.

    On October 21, 1999, the Company acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. (collectively, "Ling Electronics") from MTI. In consideration
for the acquisition of Ling Electronics, MTI received $70,000 and 770,000 shares
of the Company's Common Stock valued at $9.8438 per share or $7,579,726. In
addition, the Company incurred approximately $177,000 of legal, accounting,
consultation and filing fees as a cost of this transaction. The purchase price
of the acquisition has been allocated as follows:

<TABLE>
<S>                                                           <C>
Cash and cash equivalents...................................  $   45,946
Accounts receivable.........................................   1,937,023
Inventory...................................................   3,127,991
Prepaid expenses and other assets...........................     260,239
Property and equipment......................................     250,000
Goodwill....................................................   3,754,910
Accounts payable............................................    (641,687)
Accrued payroll and payroll related expenses................    (334,129)
Deferred revenues...........................................     (13,500)
Other accrued expenses......................................    (560,437)
                                                              ----------
                                                              $7,826,356
                                                              ==========
</TABLE>

                                       73
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

O.  ACQUISITIONS (CONTINUED)
    The following unaudited pro forma financial information combines SatCon and
Ling's results of operations as if the acquisition had taken place on
October 1, 1998. The pro forma results are not necessarily indicative of what
the results of operations actually would have been if the transaction had
occurred on the applicable dates indicated and are not intended to be indicative
of future results of operations.

<TABLE>
<CAPTION>
                                                  YEAR ENDED SEPTEMBER 30,
                                         ------------------------------------------
                                             2000           1999           1998
                                         ------------   ------------   ------------
                                                        (UNAUDITED)
<S>                                      <C>            <C>            <C>            <C>
Revenue................................  $ 31,194,618   $ 23,849,881   $ 27,764,923
Operating loss.........................  $ (9,822,203)  $(11,316,689)  $ (2,433,575)
Net loss...............................  $(10,260,029)  $(15,881,125)  $ (5,740,230)
Net loss attributable to common
  stockholders.........................  $(13,365,917)  $(15,932,029)  $ (5,740,230)
Net loss per share, basic and
  diluted..............................  $      (1.06)  $      (1.60)  $      (0.59)
</TABLE>

NORTHROP GRUMMAN CORPORATION

    On November 16, 1999, the Company purchased certain intellectual property,
equipment and other assets from Northrop Grumman Corporation ("NGC"). These
assets were used by NGC in connection with its power electronics product
business. The Company is amortizing the purchase price allocated to completed
technology on a straight-line basis over a 10-year period. The Company is
depreciating the purchase price allocated to property and equipment on a
straight-line basis over a 10-year period. The Company also entered into (i) a
sublease with NGC pursuant to which it agreed to a five-year sublease for
approximately 14,863 square feet of rentable space in the Baltimore, Maryland
area and (ii) a three-year Transition Services Agreement providing the Company
access to certain test facilities and personnel of NGC on a fee basis. In
consideration for these foregoing assets and agreements, NGC received 578,761
shares of the Company's Common Stock valued at $8.3438 per share or $4,829,066.
In addition, the Company issued to NGC a warrant to purchase an additional
100,000 shares of the Company's Common Stock at an exercise price of $9.725 per
share. The Company has recorded the fair value of this warrant, as determined by
the Black-Scholes option pricing model, of approximately $631,000 and
approximately $119,000 of legal, accounting, consultation and filing fees as a
cost of this transaction. On February 4, 2000, the Company issued to NGC an
additional warrant to purchase 100,000 shares of the Company's Common Stock at
an exercise price of $9.725 per share. This warrant is exercisable upon the
occurrence of certain

                                       74
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

O.  ACQUISITIONS (CONTINUED)
defined events, none of which had occurred as of September 30, 2000. The
purchase price of the asset purchase has been allocated as follows:

<TABLE>
<S>                                                           <C>          <C>
Inventory...................................................               $1,206,000
Property and equipment......................................                1,091,643
Intangibles:
  Completed technology......................................  $3,142,882
  Transition services agreement.............................     101,542
  Favorable lease...........................................      36,999
                                                              ----------
      Total intangibles.....................................                3,281,423
                                                                           ----------
                                                                           $5,579,066
                                                                           ==========
</TABLE>

    The pro forma financial information has not been presented, as this
transaction is the purchase of assets rather than as a business combination. The
Company has determined that this transaction was the acquisition of assets and
not the acquisition of a business as this business ceased operations more than
12 months prior to this acquisition of assets, the Company did not acquire
facilities, employees or customer base and there is not sufficient continuity of
the acquired entity's operations prior to and after the transaction.

    For the fiscal year ended September 30, 2000, the Company recognized
$413,991 of revenue, primarily related to funded research and development
arrangements, from NGC. At September 30, 2000, the Company had $62,492 of
accounts receivable and unbilled contract costs and fees from NGC.

P.  LOSS PER SHARE

    The following is the reconciliation of the numerators and denominators of
the basic and diluted loss per share computations:

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED
                                                                     SEPTEMBER 30,
                                                       -----------------------------------------
                                                           2000           1999          1998
                                                       ------------   ------------   -----------
<S>                                                    <C>            <C>            <C>
Net loss attributable to common shareholders.........  $(13,047,033)  $(14,392,657)  $(4,857,814)
                                                       ============   ============   ===========

BASIC AND DILUTED:
  Common shares outstanding, beginning of year.......     9,529,649      8,990,249     8,769,146
  Weighted average common shares issued during the
    year.............................................     3,100,173        200,017       190,163
  Weighted average shares repurchased during the
    year.............................................            --        (14,225)       (2,638)
                                                       ------------   ------------   -----------
  Weighted average shares outstanding--basic and
    diluted..........................................    12,629,822      9,176,041     8,956,671
                                                       ============   ============   ===========
  Net loss per share, basic and diluted..............  $      (1.03)  $      (1.57)  $      (.54)
                                                       ============   ============   ===========
</TABLE>

    For the fiscal years ended September 30, 2000, 1999 and 1998, 44,500, 44,500
and 28,300 common shares, respectively, were excluded from common shares
outstanding as they were held in treasury. For the fiscal year ended
September 30, 1999, 42,860 common shares were excluded from common shares
outstanding as they were held in escrow.

                                       75
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

P.  LOSS PER SHARE (CONTINUED)
    At September 30, 2000, 1999 and 1998, options and warrants to purchase
2,854,105, 2,782,147, and 884,758 shares of common stock, respectively, were
excluded from the diluted weighted average common shares outstanding as their
effect would be antidilutive.

Q.  COMPREHENSIVE LOSS

    The Company's total comprehensive loss is as follows:

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED
                                                                     SEPTEMBER 30,
                                                       -----------------------------------------
                                                           2000           1999          1998
                                                       ------------   ------------   -----------
<S>                                                    <C>            <C>            <C>
Net loss.............................................  $ (9,941,145)  $(14,341,753)  $(4,857,814)
                                                       ============   ============   ===========
Other comprehensive income/(loss), net of tax:
    Unrealized gains on securities...................            --   $     10,380   $     9,835
    Valuation adjustment for MTI warrants............  $ (1,021,725)            --            --
    Foreign currency translation adjustment..........       (51,778)            --            --
                                                       ------------   ------------   -----------
    Other comprehensive (loss)/income................  $ (1,073,503)  $     10,380   $     9,835
                                                       ------------   ------------   -----------
Comprehensive loss...................................  $(11,014,648)  $(14,331,373)  $(4,847,979)
                                                       ============   ============   ===========
</TABLE>

R.  SEGMENT DISCLOSURES

    As of October 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products and services, geographical areas and
major customers. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and assess their performance.

    The Company's organizational structure is based on strategic business units
that perform services and offer various products to the principal markets in
which the Company's products are sold. These business units equate to three
reportable segments: research and development, electronic products and motion-
control products.

    The Company performs research and development services in collaboration with
third parties. Film Microelectronics, Inc. designs and manufactures power
electronics products. The Magmotor and Ling Divisions specialize in the
engineering and manufacturing of motion-control products. The Company's
principal operations and markets are located in North America.

    The accounting policies of each of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on revenue and profit and loss from operations
before income taxes, interest income, interest expense, other income and loss
and loss from investment in Beacon Power Corporation, excluding the effects of
amortization of intangible assets associated with acquisitions. Common costs not
directly attributable to a particular segment are allocated among segments based
on management's estimates.

                                       76
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

R.  SEGMENT DISCLOSURES (CONTINUED)
    The following is a summary of the Company's operations by operating segment:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED SEPTEMBER 30,
                                                      ------------------------------------------------
                                                         2000              1999              1998
                                                      -----------      ------------      -------------
<S>                                                   <C>              <C>               <C>
Research and development:
Product revenue.................................      $    31,486                --                 --
Funded research and development and other
  revenue.......................................        8,627,601      $  6,355,383      $   8,010,735
                                                      -----------      ------------      -------------
  Total revenue.................................      $ 8,659,087      $  6,355,383      $   8,010,735
                                                      -----------      ------------      -------------
  Loss from operations, net of amortization of
    intangibles.................................      $(3,838,907)     $ (6,577,012)     $  (1,454,707)
                                                      ===========      ============      =============
Electronics products:
  Product revenue...............................      $ 8,584,446      $  6,306,085      $   5,909,765
                                                      -----------      ------------      -------------
  (Loss) income from operations, net of
    amortization of intangibles.................      $(3,128,643)     $ (2,073,946)     $     504,528
                                                      ===========      ============      =============
Motion-control products:
  Product revenue...............................      $13,811,496      $  2,816,413      $   1,610,423
                                                      -----------      ------------      -------------
  Loss from operations, net of amortization of
    intangibles.................................      $(1,316,958)     $   (755,272)     $    (310,023)
                                                      ===========      ============      =============

Consolidated:
  Product revenue...............................      $22,427,428      $  9,122,499      $   7,520,188
  Funded research and development and other
    revenue.....................................        8,627,601         6,355,383      $   8,010,735
                                                      -----------      ------------      -------------
  Total revenue.................................      $31,055,029      $ 15,477,882      $  15,530,923
                                                      ===========      ============      =============
  Loss from operations, net of amortization.....      $(8,284,508)     $ (9,406,230)     $  (1,260,202)
  Amortization of intangibles...................       (1,217,490)         (371,087)          (290,957)
                                                      -----------      ------------      -------------
  Operating loss................................       (9,501,998)       (9,777,317)        (1,551,159)
  Other income (loss)...........................            9,891          (150,464)                --
  Interest income...............................          453,631            42,287            179,861
  Interest expense..............................           (3,176)         (115,692)           (10,206)
                                                      -----------      ------------      -------------
  Net loss before income taxes and loss from
    Beacon Power Corporation....................      $(9,041,652)     $(10,001,186)     $  (1,381,504)
                                                      ===========      ============      =============
</TABLE>

                                       77
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

R.  SEGMENT DISCLOSURES (CONTINUED)
    The following is a summary of the Company's total segment assets by
operating segment:

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,
                                                              -------------------------
                                                                 2000          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
Research and development:
  Segment assets............................................  $18,464,754   $ 6,283,773
Electronics products:
  Segment assets............................................  $10,132,575   $ 8,643,258
Motion-control products:
  Segment assets............................................  $13,416,197   $ 2,473,343
Consolidated:
  Segment assets............................................  $42,013,526   $17,400,374
  Investment in Beacon Power Corporation....................  $        --   $   414,729
  Warrants to purchase Mechanical Technology
    Incorporated common stock...............................  $ 2,473,713   $        --
                                                              -----------   -----------
Total assets................................................  $44,487,239   $17,815,103
                                                              ===========   ===========
</TABLE>

    The Company operates and markets its services and products on a worldwide
basis with its principal markets as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED SEPTEMBER 30,
                                                       ----------------------------------------
                                                          2000           1999          1998
                                                       -----------   ------------   -----------
<S>                                                    <C>           <C>            <C>
Revenue by geographic region:
  United States......................................  $27,701,844   $ 14,627,000   $15,333,525
  Rest of world......................................    3,353,185        850,981       197,398
                                                       -----------   ------------   -----------
    Total revenue....................................  $31,055,029   $ 15,477,981   $15,530,923
                                                       ===========   ============   ===========
</TABLE>

                                       78
<PAGE>
       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTARY SCHEDULE

To the Board of Directors of SatCon Technology Corporation:

    We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated statements of SatCon Technology Corporation
and its subsidiaries for each of the years ended September 30, 2000 and 1999 and
have issued our report thereon dated November 28, 2000. Our audits were made for
the purpose of forming an opinion on those consolidated financial statements
taken as a whole. The schedule listed in the financial statement schedule index
is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and is
not a part of the basic consolidated financial statements. This schedule has
been subjected to auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements for each of the years
ended September 30, 2000 and 1999 taken as a whole.

                                          /S/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
November 28, 2000

                                       79
<PAGE>
                          FINANCIAL STATEMENT SCHEDULE

                 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                               ADDITIONS
                                 BALANCE AT    CHARGED TO    ADDITIONS                      BALANCE
                                  BEGINNING    COSTS AND        FROM                        AT END
                                  OF PERIOD     EXPENSES    ACQUISITIONS    DEDUCTIONS     OF PERIOD
                                 -----------   ----------   ------------   ------------   -----------
<S>                              <C>           <C>          <C>            <C>            <C>
YEAR ENDED SEPTEMBER 30, 1998:
  Allowance for doubtful
    accounts...................  $   159,243   $   29,014           --     $   (136,421)  $    51,836
  Allowance for unbilled
    contract costs.............  $ 1,130,468           --           --     $ (1,072,857)  $    57,611
  Deferred tax valuation
    allowance..................  $ 4,111,568   $2,689,999           --               --   $ 6,801,567
  Allowance for excess and
    obsolete inventory.........  $   758,541           --           --     $   (549,765)  $   208,776
  Reserve for product warranty
    expense....................  $    16,511           --           --     $    (16,511)           --
  Accrued costs for
    consolidation of
    facilities.................  $   498,000           --           --     $   (398,000)  $   100,000

YEAR ENDED SEPTEMBER 30, 1999:
  Allowance for doubtful
    accounts...................  $    51,836   $  345,433           --     $    (10,583)  $   386,686
  Allowance for unbilled
    contract costs.............  $    57,611   $  688,510           --               --   $   746,121
  Deferred tax valuation
    allowance..................  $ 6,801,567   $4,788,539           --               --   $11,590,106
  Allowance for excess and
    obsolete inventory.........  $   208,776   $  870,021           --               --   $ 1,078,797
  Reserve for product warranty
    expense....................           --   $   36,000           --               --   $    36,000
  Accrued costs for
    consolidation of
    facilities.................  $   100,000           --           --               --   $   100,000

YEAR ENDED SEPTEMBER 30, 2000:
  Allowance for doubtful
    accounts...................  $   386,686   $  265,742           --     $   (332,208)  $   320,220
  Allowance for unbilled
    contract costs.............  $   746,121           --           --     $   (746,121)           --
  Deferred tax valuation
    allowance..................  $11,590,106   $9,668,342           --               --   $21,258,448
  Allowance for excess and
    obsolete inventory.........  $ 1,078,797   $  658,774           --     $   (543,621)  $ 1,193,950
  Reserve for product warranty
    expense....................  $    36,000   $  264,096     $195,384     $    (30,365)  $   465,115
  Accrued costs for
    consolidation of
    facilities.................  $   100,000           --           --               --   $   100,000
</TABLE>

                                       80
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of

Beacon Power Corporation:

    We have audited the accompanying consolidated balance sheets of Beacon Power
Corporation and subsidiary (the "Company") (a development stage company) as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for the three years
ended December 31, 2000 and for the period from May 8, 1997 (date of inception)
through December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Beacon Power
Corporation and subsidiary as of December 31, 2000 and 1999, and the results of
its operations and its cash flows for the three years ended December 31, 2000
and the period from May 8, 1997 (date of inception) through December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 9, 2001

                                       81
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY

                         (A DEVELOPMENT STAGE COMPANY)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  2000           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
Assets
Current assets:
  Cash and cash equivalents.................................  $ 62,497,102   $    234,350
  Inventory.................................................       207,613             --
  Prepaid expenses and other current assets.................       857,137         15,987
                                                              ------------   ------------
    Total current assets....................................    63,561,852        250,337
Property and equipment, Net (Note 3)........................     3,417,884        566,013
Prepaid financing costs.....................................            --         81,934
Deposits....................................................       673,278         57,150
Other assets................................................        84,992         18,066
                                                              ------------   ------------
Total assets................................................  $ 67,738,006   $    973,500
                                                              ============   ============
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
  Accounts payable..........................................  $  1,728,330   $    413,146
  Accrued compensation and benefits.........................       277,086        109,206
  Accrued interest..........................................            --        164,140
  Accrued loss on sales commitments.........................            --        325,000
Due to related party (Note 15)..............................        52,725             --
  Dividends payable (Note 10)...............................     1,159,373             --
  Other accrued expenses....................................       981,671         43,222
  Current portion of capital lease obligations (Note 5).....       138,648         73,291
                                                              ------------   ------------
    Total current liabilities...............................     4,337,833      1,128,005
Dividends payable (Notes 7, 8 and 16).......................            --        749,005
Notes payable to investors (Note 4).........................            --      3,150,000
Capital lease obligations, net of current portion (Note
  5)........................................................        92,245          2,875
Commitments (Note 6)
Class D redeemable convertible preferred stock (liquidation
  preference of $4,750,000).................................            --      4,534,816
Stockholders' equity (deficiency):
  Preferred stock:
    Class A Convertible, $.01 par value; 6,000,000 shares
      authorized, 4,767,907 shares issued and outstanding in
      1999 (liquidation preference $21,217,186).............            --      5,741,451
    Class B Convertible, $.01 par value; 1 share authorized;
      no shares issued and outstanding......................            --             --
    Class C Convertible, $.01 par value; 6 shares
      authorized, issued and outstanding in 1999............            --         29,866
    Preferred stock, par value $.01; 10,000,000 authorized;
      no shares issued or outstanding.......................            --             --
  Common stock, $.01 par value; 110,000,000 shares
    authorized; 42,033,314 and 16,848 shares issued and
    outstanding in 2000 and 1999, respectively..............       420,333            168
  Deferred consulting expense, net..........................            --       (100,000)
  Deferred stock compensation...............................    (2,070,659)       (56,648)
  Additional paid-in capital................................   132,958,758        515,318
  Deficit accumulated during the development stage..........   (68,000,504)   (14,721,356)
                                                              ------------   ------------
    Total stockholders' equity (deficiency).................    63,307,928     (8,591,201)
                                                              ------------   ------------
Total liabilities and stockholders' equity (deficiency).....  $ 67,738,006   $    973,500
                                                              ============   ============
</TABLE>

                See notes to consolidated financial statements.

                                       82
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY

                         (A DEVELOPMENT STAGE COMPANY)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                       CUMULATIVE
                                                                                          FROM
                                                                                      MAY 8, 1997
                                                                                        (DATE OF
                                                                                       INCEPTION)
                                            YEAR ENDED    YEAR ENDED    YEAR ENDED      THROUGH
                                           DECEMBER 31    DECEMBER 31   DECEMBER 31   DECEMBER 31
                                               2000          1999          1998           2000
                                           ------------   -----------   -----------   ------------
<S>                                        <C>            <C>           <C>           <C>
Revenue..................................  $     50,000   $   268,868   $        --   $    551,184

Operating expenses:
  Selling, general and administrative....     4,630,915     1,558,985     1,188,165      8,546,536
  Research and development...............    12,714,823     3,506,031     3,523,572     22,036,300
  Loss on sales commitments..............        50,974       325,000            --        375,974
  Depreciation and amortization..........       401,013       218,594        78,208        697,815
                                           ------------   -----------   -----------   ------------
    Total operating expenses.............    17,797,725     5,608,610     4,789,945     31,656,625
                                           ------------   -----------   -----------   ------------
Loss from operations.....................   (17,747,725)   (5,339,742)   (4,789,945)   (31,105,441)

Other income (expense):
  Interest income........................       747,202        25,118        11,277        900,245
  Interest expense.......................      (370,299)     (356,869)      (14,730)      (741,898)
  Other income (expense).................       (47,216)           --            --        (47,216)
                                           ------------   -----------   -----------   ------------
    Total other income (expense), net....       329,687      (331,751)       (3,453)       111,131
                                           ------------   -----------   -----------   ------------

Net loss.................................   (17,418,038)   (5,671,493)   (4,793,398)   (30,994,310)

Preferred stock dividends (Note 10)......   (35,796,675)     (916,852)     (112,153)   (36,825,680)

Accretion of redeemable convertible
  preferred stock........................       (64,435)      (41,671)       (6,908)      (113,014)
                                           ------------   -----------   -----------   ------------

Loss to common shareholders..............  $(53,279,148)  $(6,630,016)  $(4,912,459)  $(67,933,004)
                                           ============   ===========   ===========   ============

Loss per share--basic and diluted........  $     (10.77)  $   (393.52)  $   (291.58)
                                           ============   ===========   ===========

Weighted-average common shares
  outstanding............................     4,946,411        16,848        16,848
                                           ============   ===========   ===========
</TABLE>

                See notes to consolidated financial statements.

                                       83
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY

                         (A DEVELOPMENT STAGE COMPANY)

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                                                   CLASS A                  CLASS C
                                                               PREFERRED STOCK          PREFERRED STOCK         COMMON STOCK
                                                           ------------------------   -------------------   ---------------------
                                                             SHARES       AMOUNT       SHARES     AMOUNT      SHARES      AMOUNT
                                                           ----------   -----------   --------   --------   ----------   --------
<S>                                                        <C>          <C>           <C>        <C>        <C>          <C>
Balance at May 8, 1997 (Date of Inception)...............          --   $        --        --    $     --           --   $     --
Issuance of founder's shares.............................          --            --        --          --    6,750,000     67,500
Issuance of Class A preferred stock......................   1,125,000     5,000,000        --          --           --         --
Recapitalization.........................................   3,373,313        67,466        --          --   (6,746,626)   (67,466)
Rounding for fractional shares...........................          --            --        --          --           (2)        --
Issuance of Class C preferred and common stock...........          --            --         6      29,866       13,476        134
Accrual of consulting expense............................          --            --        --          --           --         --
Repayment of subscription receivable.....................          --            --        --          --           --         --
Net loss.................................................          --            --        --          --           --         --
                                                           ----------   -----------   --------   --------   ----------   --------
Balance, December 31, 1997...............................   4,498,313     5,067,466         6      29,866       16,848        168

Issuance of Class A preferred stock for services.........     120,000       300,000        --          --           --         --
Issuance of Class A preferred stock for services and
  interest on loans......................................       4,594        11,485        --          --           --         --
Dividend on Class D redeemable convertible preferred
  stock..................................................          --            --        --          --           --         --
Repayment of subscription receivable.....................          --            --        --          --           --         --
Amortization of deferred consulting expense, net.........          --            --        --          --           --         --
Accretion of redeemable preferred stock to redemption
  value..................................................          --            --        --          --           --         --
Net loss.................................................          --            --        --          --           --         --
                                                           ----------   -----------   --------   --------   ----------   --------
Balance, December 31, 1998...............................   4,622,907     5,378,951         6      29,866       16,848        168

Issuance of Class A preferred stock for services.........     145,000       362,500        --          --           --         --
Dividend on Class D redeemable convertible preferred
  stock..................................................          --            --        --          --           --         --
Deferred stock compensation..............................          --            --        --          --           --         --
Amortization of deferred stock compensation..............          --            --        --          --           --         --
Amortization of deferred consulting expense, net.........          --            --        --          --           --         --
Issuance of warrants to holders of Class D redeemable
  convertible preferred stock............................          --            --        --          --           --         --
Issuance of warrants for bridge loans....................          --            --        --          --           --         --
Accretion of redeemable preferred stock to redemption
  value..................................................          --            --        --          --           --         --
Net loss.................................................          --            --        --          --           --         --
                                                           ----------   -----------   --------   --------   ----------   --------
Balance, December 31, 1999...............................   4,767,907     5,741,451         6      29,866       16,848        168

Dividends on redeemable convertible preferred stock......          --            --        --          --           --         --
Issuance of warrants.....................................          --            --        --          --           --         --
Deferred stock compensation..............................          --            --        --          --           --         --
Amortization of deferred stock compensation..............          --            --        --          --           --         --
Accretion of redeemable preferred stock to redemption
  value..................................................          --            --        --          --           --         --
Proceeds from stock offering.............................          --            --        --          --    9,200,000     92,000
Conversion of Class A preferred stock....................  (4,767,907)   (5,741,451)       --          --    9,535,814     95,358
Conversion of Class C preferred stock....................          --            --        (6)    (29,866)          12         --
Conversion of redeemable convertible preferred stock.....          --            --        --          --   19,823,704    198,237
Deferred consulting......................................          --            --        --          --           --         --
Common stock issuance for consulting.....................          --            --        --          --      134,464      1,345
Payment of accrued dividend..............................          --            --        --          --      859,330      8,593
Cashless warrant exercise................................          --            --        --          --    1,982,876     19,829
Exercise of stock options................................          --            --        --          --      480,266      4,803
Net loss.................................................          --            --        --          --           --         --
                                                           ----------   -----------   --------   --------   ----------   --------
Balance, December 31, 2000...............................          --   $        --        --    $     --   42,033,314   $420,333
                                                           ==========   ===========   ========   ========   ==========   ========
</TABLE>

                See notes to consolidated financial statements.

                                       84
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY

                         (A DEVELOPMENT STAGE COMPANY)

        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (CONTINUED)

<TABLE>
<CAPTION>
                                               DEFERRED      DEFERRED      ADDITIONAL       STOCK
                                              CONSULTING      STOCK         PAID-IN      SUBSCRIPTION   ACCUMULATED
                                               EXPENSE     COMPENSATION     CAPITAL       RECEIVABLE      DEFICIT
                                              ----------   ------------   ------------   ------------   ------------
<S>                                           <C>          <C>            <C>            <C>            <C>
Balance at May 8, 1997 (Date of
  Inception)................................  $      --    $        --    $         --   $        --    $         --
Issuance of founder's shares................         --             --              --            --         (67,500)
Issuance of Class A preferred stock.........         --             --              --    (5,000,000)             --
Recapitalization............................         --             --              --            --              --
Rounding for fractional shares..............         --             --              --            --              --
Issuance of Class C preferred and common
  stock.....................................         --             --              --            --              --
Accrual of consulting expense...............     87,500             --              --            --              --
Repayment of subscription receivable........         --             --              --     2,992,492              --
Net loss....................................         --             --              --            --      (3,111,381)
                                              ---------    -----------    ------------   -----------    ------------
Balance, December 31, 1997..................     87,500             --              --    (2,007,508)     (3,178,881)

Issuance of Class A preferred stock for
  services..................................   (150,000)            --              --            --              --
Issuance of Class A preferred stock for
  services and interest on loans............         --             --              --            --              --
Dividend on Class D redeemable convertible
  preferred stock...........................         --             --              --            --        (112,153)
Repayment of subscription receivable........         --             --              --     2,007,508              --
Amortization of deferred consulting expense,
  net.......................................     25,000             --              --            --              --
Accretion of redeemable preferred stock to
  redemption value..........................         --             --              --            --          (6,908)
Net loss....................................         --             --              --            --      (4,793,398)
                                              ---------    -----------    ------------   -----------    ------------
Balance, December 31, 1998..................    (37,500)            --              --            --      (8,091,340)

Issuance of Class A preferred stock for
  services..................................   (125,000)            --              --            --              --
Dividend on Class D redeemable convertible
  preferred stock...........................         --             --              --            --        (636,852)
Deferred stock compensation.................         --        (65,318)         65,318            --              --
Amortization of deferred stock
  compensation..............................         --          8,670              --            --              --
Amortization of deferred consulting expense,
  net.......................................     62,500             --              --            --              --
Issuance of warrants to holders of Class D
  redeemable convertible preferred stock....         --             --         280,000            --        (280,000)
Issuance of warrants for bridge loans.......         --             --         170,000            --              --
Accretion of redeemable preferred stock to
  redemption value..........................         --             --              --            --         (41,671)
Net loss....................................         --             --              --            --      (5,671,493)
                                              ---------    -----------    ------------   -----------    ------------
Balance, December 31, 1999..................   (100,000)       (56,648)        515,318            --     (14,721,356)

Dividends on redeemable convertible
  preferred stock...........................         --             --              --            --      (1,496,675)
Issuance of warrants........................         --             --      36,070,366            --     (34,300,000)
Deferred stock compensation.................         --     (2,944,649)      2,944,649            --              --
Amortization of deferred stock
  compensation..............................         --        930,638              --            --              --
Accretion of redeemable preferred stock to
  redemption value..........................         --             --              --            --         (64,435)
Proceeds from stock offering, net of
  expenses..................................         --             --      49,249,537            --              --
Conversion of Class A preferred stock.......         --             --       5,646,093            --              --
Conversion of Class C preferred stock.......         --             --          29,866            --              --
Conversion of redeemable convertible
  preferred stock...........................         --             --      36,496,431            --              --
Deferred consulting.........................    598,284             --              --            --              --
Common stock issuance for consulting........   (498,284)            --         496,939            --              --
Payment of accrued dividend.................         --             --       1,077,714            --              --
Cashless warrant exercise...................         --             --         (19,829)           --              --
Exercise of stock options...................         --             --         451,674            --              --
Net loss....................................         --             --              --            --     (17,418,038)
                                              ---------    -----------    ------------   -----------    ------------
Balance, December 31, 2000..................  $      --    $(2,070,659)   $132,958,758   $         0    $(68,000,504)
                                              =========    ===========    ============   ===========    ============
</TABLE>

                See notes to consolidated financial statements.

                                       85
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY

                         (A DEVELOPMENT STAGE COMPANY)

        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (CONTINUED)

<TABLE>
<CAPTION>
                                                                  TOTAL
                                                              STOCKHOLDERS'
                                                              (DEFICIENCY)
                                                                 EQUITY
                                                              -------------
<S>                                                           <C>
Balance at May 8, 1997 (Date of Inception)..................            --
Issuance of founder's shares................................            --
Issuance of Class A preferred stock.........................            --
Recapitalization............................................            --
Rounding for fractional shares..............................            --
Issuance of Class C preferred and common stock..............        30,000
Accrual of consulting expense...............................        87,500
Repayment of subscription receivable........................     2,992,492
Net loss....................................................    (3,111,381)
                                                              ------------
Balance, December 31, 1997..................................        (1,389)

Issuance of Class A preferred stock for services............       150,000
Issuance of Class A preferred stock for services and
  interest on loans.........................................        11,485
Dividend on Class D redeemable convertible preferred
  stock.....................................................      (112,153)
Repayment of subscription receivable........................     2,007,508
Amortization of deferred consulting expense, net............        25,000
Accretion of redeemable preferred stock to redemption
  value.....................................................        (6,908)
Net loss....................................................    (4,793,398)
                                                              ------------
Balance, December 31, 1998..................................    (2,719,855)

Issuance of Class A preferred stock for services............       237,500
Dividend on Class D redeemable convertible preferred
  stock.....................................................      (636,852)
Deferred stock compensation.................................            --
Amortization of deferred stock compensation.................         8,670
Amortization of deferred consulting expense, net............        62,500
Issuance of warrants to holders of Class D redeemable
  convertible preferred stock...............................            --
Issuance of warrants for bridge loans.......................       170,000
Accretion of redeemable preferred stock to redemption
  value.....................................................       (41,671)
Net loss....................................................    (5,671,493)
                                                              ------------
Balance, December 31, 1999..................................    (8,591,201)

Dividends on redeemable convertible preferred stock.........    (1,496,675)
Issuance of warrants........................................     1,770,366
Deferred stock compensation.................................            --
Amortization of deferred stock compensation.................       930,638
Accretion of redeemable preferred stock to redemption
  value.....................................................       (64,435)
Proceeds from stock offering................................    49,341,537
Conversion of Class A preferred stock.......................            --
Conversion of Class C preferred stock.......................            --
Conversion of redeemable convertible preferred stock........    36,694,668
Deferred consulting.........................................       598,284
Common stock issuance for consulting........................            --
Payment of accrued dividend.................................     1,086,307
Cashless warrant exercise...................................            --
Exercise of stock options...................................       456,477
Net loss....................................................   (17,418,038)
                                                              ------------
Balance, December 31, 2000..................................  $ 63,307,928
                                                              ============
</TABLE>

                See notes to consolidated financial statements.

                                       86
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY

                         (A DEVELOPMENT STAGE COMPANY)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                CUMULATIVE
                                                                                                   FROM
                                                                                               MAY 8, 1997
                                                                                                 (DATE OF
                                                                                                INCEPTION)
                                                     YEAR ENDED    YEAR ENDED    YEAR ENDED      THROUGH
                                                    DECEMBER 31    DECEMBER 31   DECEMBER 31   DECEMBER 31
                                                        2000          1999          1998           2000
                                                    ------------   -----------   -----------   ------------
<S>                                                 <C>            <C>           <C>           <C>
Cash flows from operating activities:
  Net loss........................................  $(17,418,038)  $(5,671,493)  $(4,793,398)  $(30,994,310)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization.................       401,013      218,594        78,208         697,815
    Loss on sale of fixed assets..................        47,416           --            --          47,416
    Interest expense relating to issuance of
      warrants....................................       201,000      170,000            --         371,000
    Amortization of deferred consulting expense,
      net.........................................       598,284      300,000       175,000       1,160,784
    Amortization of deferred stock compensation...       930,638           --            --         930,638
    Warrants issued for consulting services.......     1,569,366           --            --       1,569,366
    Accrued loss on sales commitments.............        50,974      325,000            --         375,974
    Services and interest expense paid in
      preferred stock.............................            --           --        11,485          11,485
  Changes in operating assets and liabilities:
    Inventory.....................................      (207,613)          --            --        (207,613)
    Prepaid expenses and other current assets.....      (841,150)       4,320        (5,820)       (857,137)
    Accounts payable..............................     1,315,184     (409,577)      772,723       1,728,330
    Accrued compensation and benefits.............       167,880       41,023        37,141         277,086
    Accrued interest..............................       111,420      164,140            --         275,560
    Due to related party..........................        52,725      (18,611)       18,611          52,725
    Accrued loss on sales commitments.............      (375,974)          --            --        (375,974)
    Other accrued expenses and current
      liabilities.................................       938,449       36,270       (16,359)        990,341
                                                    ------------   -----------   -----------   ------------
    Net cash used in operating activities.........   (12,458,426)  (4,840,334)   (3,722,409)    (23,946,514)

Cash flows from investing activities:
  Increase in other assets........................      (683,054)    (110,180)      (19,823)       (840,204)
  Repayment of note receivable from officer.......            --           --        40,000              --
  Purchases of property and equipment.............    (3,019,266)    (350,881)     (257,423)     (3,627,570)
                                                    ------------   -----------   -----------   ------------
    Net cash used in investing activities.........    (3,702,320)    (461,061)     (237,246)     (4,467,774)

Cash flows from financing activities:
  Initial public stock offering, net of
    expenses......................................    49,341,537           --            --      49,341,537
  Exercise of employee stock options..............       456,477           --            --         456,477
  Issuance of preferred stock.....................    28,351,791           --     4,486,237      32,868,028
  Repayment of subscription receivable............            --           --     2,007,508       5,000,000
  Repayment of capital leases.....................      (126,307)    (105,406)      (72,939)       (304,652)
  Proceeds from notes payable issued to
    investors.....................................       400,000    3,150,000            --       3,550,000
                                                    ------------   -----------   -----------   ------------
    Net cash provided by financing activities.....    78,423,498    3,044,594     6,420,806      90,911,390

Increase (decrease) in cash and cash
  equivalents.....................................    62,262,752   (2,256,801)    2,461,151      62,497,102

Cash and cash equivalents, beginning of period....       234,350    2,491,151        30,000              --
                                                    ------------   -----------   -----------   ------------

Cash and cash equivalents, end of period..........  $ 62,497,102   $  234,350    $2,491,151    $ 62,497,102
                                                    ============   ===========   ===========   ============
</TABLE>

                See notes to consolidated financial statements.

                                       87
<PAGE>
                    BEACON POWER CORPORATION AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS AND OPERATIONS

    NATURE OF BUSINESS.  Beacon Power Corporation (the "Company" or "Beacon") (a
development stage company) was incorporated on May 8, 1997 as a wholly owned
subsidiary of SatCon Technology Corporation ("SatCon"). Since its inception,
Beacon has been engaged in the development of flywheel devices for storing and
transmitting kinetic energy. During the fourth quarter of 2000, the Company
shipped its first seven units. Because the Company has not yet generated a
significant amount of revenue from its principal operations, it is continuing to
be accounted for as a development stage company under Statement of Financial
Accounting Standards No. 7. The Company has a single operating segment,
manufacturing alternative power sources. The Company has no organizational
structure dictated by product lines, geography or customer type.

    OPERATIONS.  The Company has experienced net losses since its inception and,
as of December 31, 2000, had an accumulated deficit of approximately
$68.0 million. The Company is currently facing the challenge of ongoing
development and refinement of its commercial product. This ongoing research and
development is expected to require significant outlays of capital. As discussed
in Note 10, during the fourth quarter of 2000, the Company completed an initial
public offering of its common stock and raised approximately $49.3 million net
of offering expenses. Management believes that this funding is sufficient to
continue its operations as a going concern through at least December 31, 2001.

2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

    ACCOUNTING PRINCIPLES.  The accompanying consolidated financial statements
have been prepared using accounting principles generally accepted in the United
States of America.

    CONSOLIDATION.  The accompanying consolidated financial statements include
the accounts of the Company and its subsidiary Beacon Power Securities
Corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.

    RECAPITALIZATION.  The accompanying financial statements reflect a
recapitalization of the Company in 1997 when one shareholder exchanged shares of
common stock for Class A preferred stock.

    STOCK SPLIT.  The accompanying financial statements reflect a 2-for-1 split
of the Company's common stock, which occurred immediately prior to the
effectiveness of the Company's initial public stock offering. All share and per
share information herein has been retroactively restated to reflect this split.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    USE OF ESTIMATES.  The preparation of consolidated financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

    CASH AND CASH EQUIVALENTS.  Cash and cash equivalents include demand
deposits and highly liquid investments with maturity of three months or less
when acquired. Cash equivalents are stated at cost, which approximates market
value.

                                       88
<PAGE>
    INVENTORY.  Inventory consists of raw materials at December 31, 2000 and is
carried at the lower of cost or market utilizing the first-in first-out ("FIFO")
method.

    PROPERTY AND EQUIPMENT.  Property and equipment, including leasehold
improvements, are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets.

    PREPAID FINANCING COSTS.  Prepaid financing costs consist of legal,
financing and other related expenses incurred in connection with the Class E
financing and the initial public offering of the Company's common stock
completed during the year ending December 31, 2000. Prepaid financing costs are
netted against the proceeds of the offering.

    OTHER ASSETS.  Other assets consist of unamortized legal expenses related to
patents.

    LOSS ON SALES COMMITMENTS.  Substantially all of the Company's sales
commitments are firm and have fixed-prices. Revenue and cost of revenue on such
sales commitments are recorded as deliveries are made. The direct costs to
manufacture products covered by the Company's firm sales commitments are in
excess of the fixed selling prices. Direct costs consist of materials and direct
labor costs. These excess costs have been estimated and accrued as losses on
sales commitments in the period in which the sales commitment is made. Estimates
of costs to manufacture products are reviewed and revised periodically and
changes in estimated losses from such revisions are recorded in the accounting
period in which the revisions are made. At December 31, 2000, no estimated
losses on sales commitments are anticipated.

    LONG-LIVED ASSETS.  In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121 long-lived assets to be held and used by the Company
are reviewed to determine whether any events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. The
conditions considered include whether or not the asset is in service, has become
obsolete, or whether external market circumstances indicate that the carrying
amount may not be recoverable. The Company recognizes a loss for the difference
between the estimated fair value of the asset and the carrying amount. The fair
value of the asset is measured using either available market prices or estimated
discounted cash flows. The Company's analyses indicate that there has been no
impairment of long-lived assets.

    REVENUE RECOGNITION.  Revenue relates to work performed under research and
development contracts and delivery of units. Revenue is recognized as services
are performed or when products are shipped and all related costs are estimable.

    STOCK-BASED COMPENSATION.  Compensation expense associated with awards of
stock or options to employees is measured using the intrinsic-value method.
Deferred compensation expense associated with awards to non-employees is
measured using the fair-value method and is amortized over the vesting period of
three years using an accelerated calculation under FASB Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans."

    INCOME TAXES.  Deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and tax loss and credit carryforwards using the currently
enacted tax rates and laws. A valuation allowance is provided to the extent
realization of deferred tax assets is not considered more likely than not.

    RESEARCH AND DEVELOPMENT.  Research and development costs are expensed as
incurred.

    FINANCIAL INSTRUMENTS.  The carrying amount of cash and cash equivalents,
accounts payable, accrued expenses, notes payable to investors and capital lease
obligations approximate their fair values.

    CONCENTRATION OF CREDIT RISK.  Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
primarily of cash and cash equivalents. Substantially all of the Company's cash
and cash equivalents are managed by one financial institution. At December 31,
2000 and 1999, the Company had cash balances at a financial institution in
excess of federally insured limits.

                                       89
<PAGE>
However, the Company does not believe that it is subject to unusual credit risk
beyond the normal credit risk associated with commercial banking relationships.

    COMPREHENSIVE LOSS.  Comprehensive loss is the same as net loss for all
periods presented.

    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.  In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Statement, as
amended, is effective for fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 on January 1, 2000, did not have a material impact on
the Company's financial condition or results of operations.

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101
established guidelines for revenue recognition and was implemented by the
Company in the fourth quarter of 2000. The adoption of SAB 101 did not have a
material impact on the Company's financial condition or results of operations.

    LOSS PER SHARE--BASIC AND DILUTED.  Basic loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
each period. Diluted loss per share was computed in the same manner. At
December 31, 2000 the impact of the Company's outstanding potential common
shares, including options and warrants (computed using the treasury stock
method) totaling 9,084,625 shares, were excluded from the calculation because
such items were antidilutive.

3.  PROPERTY AND EQUIPMENT

    Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
                                           ESTIMATED
                                             USEFUL
                                             LIVES         2000        1999
                                           ----------   ----------   ---------
<S>                                        <C>          <C>          <C>
Machinery and equipment..................   5 years     $  694,486   $ 298,180
Furniture and fixtures...................   7 years         54,433      41,521
Office equipment.........................   3 years      1,217,263     159,894
Leasehold improvements...................  Lease term    1,489,569     108,809
Equipment under capital lease
  obligations............................  Lease term      535,450     254,411
                                                        ----------   ---------
    Total................................                3,991,201     862,815
Less accumulated depreciation and
  amortization...........................                 (573,317)   (296,802)
                                                        ----------   ---------
Property and equipment, net..............               $3,417,884   $ 566,013
                                                        ==========   =========
</TABLE>

4.  NOTES PAYABLE TO INVESTORS

    At December 31, 1999, notes payable to investors consisted of Senior Secured
Convertible Promissory Notes (the "Senior Notes") held by the Company's primary
investors. The Senior Notes called for interest to be payable at an annual rate
of 12.5%, increasing to 15% after six months if the Class E redeemable
convertible preferred stock ("Class E Stock") funding had not occurred at that
time. In connection with the issuance of the Senior Notes, the investors
received warrants to purchase shares of the Company's common stock (see Note
10). On April 7, 2000, the Senior Notes and accrued interest were converted into
Class E Stock. The Class E Stock was later converted into common stock as a
result of the Company's initial public stock offering during the fourth quarter
of 2000.

                                       90
<PAGE>
5.  CAPITAL LEASE OBLIGATIONS

    The Company leases equipment under capital lease agreements expiring through
January 2003. Future obligations under such capital leases as of December 31,
2000 are as follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $ 159,043
2002........................................................     94,392
2003........................................................      2,580
                                                              ---------
                                                                256,014
Less amount representing interest...........................    (25,121)
                                                              ---------
                                                                230,893
Less current portion of capital lease obligations...........   (138,648)
                                                              ---------
Capital lease obligations, excluding current portion........  $  92,245
                                                              =========
</TABLE>

6.  COMMITMENTS

    The Company leases office and light manufacturing space under an operating
lease through September 30, 2007 and has an operating lease for certain office
equipment expiring October 2001. At December 31, 2000, the Company has provided
the lessor with an irrevocable letter of credit in the amount of $450,000. This
letter of credit is secured by a cash deposit. The Company is also obligated
under leases for its former office and light manufacturing space which expired
January 30, 2001

    Future minimum annual lease payments under non-cancelable operating leases
as of December 31, 2000 are as follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $477,387
2002........................................................   461,622
2003........................................................   490,675
2004........................................................   490,675
2005........................................................   500,359
Thereafter..................................................  $926,472
</TABLE>

    Total rent expense was $473,576, $199,405 and $146,255, during 2000, 1999
and 1998, respectively.

7.  PREFERRED STOCK

    CLASS A CONVERTIBLE PREFERRED STOCK.  Each share of Class A convertible
preferred stock ("Class A Stock") was convertible into two shares of common
stock at the option of the holder. The Class A Stock was nonvoting. The Class A
Stock plus accrued dividends automatically converted into shares of common stock
as a result of the public offering of common stock of the Company during the
fourth quarter of 2000.

    CLASS B AND C CONVERTIBLE PREFERRED STOCK.  The Company authorized both
Class B and C convertible preferred stock of which only Class C shares were
outstanding at December 31, 1999. Class B shares were never issued. Class C
convertible preferred stock ("Class C Stock") was convertible into two shares of
common stock at the option of the holder. The holders of the Class C Stock had
voting rights equivalent to the number of shares of common stock into which
their shares of Class C Stock converted. The Class C Stock plus accrued
dividends automatically converted into shares of common stock as a result of the
public offering of common stock of the Company during the fourth quarter of
2000.

                                       91
<PAGE>
8.  REDEEMABLE PREFERRED STOCK

    CLASS D REDEEMABLE CONVERTIBLE PREFERRED STOCK.  The Company authorized
6,000,000 shares of Class D redeemable convertible preferred stock ("Class D
Stock") with a par value of $.01 per share. On October 23, 1998, the Company
issued 1,900,000 shares of Class D Stock and received net proceeds of
approximately $4,486,000. Issuance costs totaled approximately $264,000 and were
being accreted to the carrying value of the Class D Stock over the period to the
stock's earliest redemption date. Each share of Class D Stock was convertible
into two shares of common stock at the option of the holder. The Class D Stock
earned cumulative dividends at an annual rate of 12.5% through May 23, 2000 and
6% on and after this date, payable quarterly. Dividends could be paid in shares
of Class D Stock through May 23, 2000 after which they could be paid only in
cash. The Class D Stock plus dividends totaling $1,025,204 were automatically
converted into 4,620,164 shares of common stock as a result of the public
offering of common stock of the Company during the fourth quarter of 2000.
Cumulative dividends from May 23, 2000 to November 22, 2000 not paid on Class D
Stock total $174,216 as of December 31, 2000. These dividends were paid in full
in February 2001.

    CLASS E REDEEMABLE CONVERTIBLE PREFERRED STOCK.  During April 2000, the
Company authorized 2,000,000 shares of $.01 par value per share Class E
redeemable convertible preferred Stock (Class E Stock). On April 7, 2000, the
Company converted $3,550,000 of bridge loans plus interest of $275,559 into
1,226,141 shares of Class E Stock (the "Class E conversion"). Each share of
Class E Stock was convertible into two shares of common stock at the option of
the holder. The Class E Stock earned cumulative dividends at an annual rate of
12.5% through May 23, 2000 and 6% on and after this date, payable quarterly.
Dividends could be paid in shares of Class E Stock through May 23, 2000 and
after which they could be paid only in cash. The Class E Stock plus dividends
totaling $61,103 were automatically converted into 2,491,448 shares of common
stock as a result of the public offering of common stock of the Company during
the fourth quarter of 2000. Cumulative dividends from May 23, 2000 to
November 22, 2000 not paid on Class E Stock total $117,304 as of December 31,
2000. These dividends were paid in full in February 2001.

    CLASS F REDEEMABLE CONVERTIBLE PREFERRED STOCK.  During May 2000 the Company
authorized 7,500,000 shares of $.01 par value Class F redeemable convertible
preferred Stock (Class F Stock). On May 23, 2000, the Company sold 6,785,711
shares of Class F Stock for a total of $28,500,000, and simultaneously,
outstanding Class F Bridge Loans of $5,200,000 were converted to Class F Stock
at the rate of $4.20 per share. Each share of Class F Stock was convertible into
two shares of common stock at the option of the holder. The Class F Stock earns
cumulative dividends at an annual rate of 6%, payable quarterly. Dividends are
payable in cash. The Class F Stock was automatically converted into 13,571,422
shares of common stock as a result of the public offering of common stock of the
Company during the fourth quarter of 2000. Cumulative dividends from May 23,
2000 to November 22, 2000 total $867,853 as of December 31, 2000. These
dividends were paid in full in February 2001.

    As a result of the initial public offering of the Company's common stock and
the conversion of all outstanding shares of all classes of the preferred stock,
the Company amended its charter and cancelled all its classes of preferred
stock. The Company then added a new class of preferred stock that can be issued
in the future by filing a Certificate of Designations with the specific terms as
set by its Board of Directors. At December 31, 2000, there are 10 million shares
of preferred stock authorized with none outstanding.

9.  COMMON STOCK

    INITIAL PUBLIC OFFERING.  During the fourth quarter of 2000, the Company
sold 9,200,000 shares of its common stock, inclusive of the underwriters' over
allotment, at an initial public offering price of $6 per share. Net proceeds to
the Company as a result of the stock offering totaled approximately
$49.3 million reflecting gross proceeds of $55.2 million net of underwriter
commissions of approximately $3.9 million and other estimated offering costs of
approximately $2.0 million.

                                       92
<PAGE>
    RESERVED SHARES.  At December 31, 2000, 13,722,268 shares of common stock
were reserved for issuance under the Company's stock option plan and outstanding
warrants.

10. STOCK WARRANTS

    At its inception in 1997, the Company issued a warrant to purchase 1,125,000
shares of common stock to an investor at the price of $2.67 per share (the "1997
warrant"). The warrant expired unexercised on May 28, 1999. Value ascribed to
this warrant was not material.

    CLASS D STOCK WARRANTS.  Under the conditions of the Class D Stock offering,
the Company issued warrants in October 1999 to three investors to purchase
772,500 shares of common stock at $1.67, 772,500 shares of common stock at
$2.25, and 772,500 shares of common stock at $3.00 (the "October 1999
warrants"). The estimated fair value of the warrants at the date of their
issuance was $280,000. This amount has been recorded as a dividend to the
holders of the Class D Stock and credited to additional paid-in-capital. These
warrants expire December 31, 2004.

    Additional warrants were issued under the Class D Stock agreement during
April 2000 to three investors to purchase 712,500 shares of common stock at
$1.67 per share, 712,500 shares of common stock at $2.25 per share, and 712,500
shares of common stock at $3.00 per share. Upon issuance of these warrants, the
Company recorded a dividend of approximately $1,300,000 for the fair market
value of these warrants based on the Black-Scholes option pricing model. These
warrants expire December 31, 2004.

    In December 2000, an investor exercised a portion of its warrants, in a
cashless transaction, to purchase 300,000 shares of the Company's common stock
at $1.67, 300,000 shares of the Company's common stock at $2.25 and 300,000
shares of the Company's common stock at $3.00 per share. Net shares issued
totaled 608,843.

    CLASS E STOCK WARRANTS.  In conjunction with the issuance of the Senior
Notes in August 1999, the Company issued warrants to four investors to purchase
315,000 shares of Class E Stock at an exercise price of $2.50 per share (the
"August 1999 warrants"). The estimated fair value of these warrants at the date
of grant was $170,000. This amount was recorded as a discount on the Senior
Notes and was charged to interest expense in 1999, as the Senior Notes were
demand notes. These warrants were to expire on August 2, 2004.

    In conjunction with the Class E Stock conversion (See Note 8), warrants
totaling 315,000, issued in conjunction with the issuance of the Senior Notes in
August 1999, were cancelled. In exchange, warrants to purchase 306,535 shares of
Class E Stock at $2.50 per share were issued. These warrants expire April 7,
2005. The estimated fair market value of these warrants is approximately
$344,000. Since these warrants replace the August 2, 1999 warrants, the amount
allocated to the August 2, 1999 warrants have been reallocated to Class E
Redeemable Preferred Warrants and the remaining $174,000 has been charged to
interest expense in the year ended December 31, 2000. As a result of the initial
public stock offering by the Company in the fourth quarter of 2000, the holders
of the warrants are now entitled to purchase 613,070 shares of the Company's
common stock instead of the Class E Stock.

    In December 2000, an investor exercised its warrants, in a cashless
transaction, to purchase 84,433 shares of the Company's common stock.

    CLASS F STOCK WARRANTS.  In conjunction with the issuance of the Class F
Stock, the Company issued warrants to seven investors to purchase 6,333,333
shares of its common stock at an exercise price of $2.25. The estimated fair
value of the warrants at the date of their issuance was $33,000,000. This amount
has been recorded as a dividend to the holders of the Class F Stock and credited
to additional paid-in-capital. These warrants expire on May 23, 2005. During
December 2000, two investors exercised their warrants, in a cashless
transaction, to purchase 1,289,600 shares of the Company's common stock.

                                       93
<PAGE>
    CONSULTANT WARRANTS.  The Company issued warrants to two consultants that
are exercisable for an aggregate of 70,000 shares of its common stock at an
exercise price of $6.00 per share. The holder of one of these warrants
exercisable for 50,000 shares of common stock may exercise its warrant at any
time prior to January 31, 2002. The holder of the other warrant exercisable for
20,000 shares of common stock may exercise its warrant at any time prior to
August 2, 2005. Upon the issuance of these warrants, the Company recorded a
charge to consulting expense of $213,861.

    On October 24, 2000, the Company issued 240,000 warrants to an investor at
an exercise price of $2.10 per share in conjunction with an agreement by an
affiliate of that investor to provide the Company with technical expertise. One
half of the warrants vest immediately, the remainder vest as services are
utilized. During the fourth quarter of 2000, the company recorded a charge to
consulting expense for $1,355,505 to recognize the fair market value of the
vested warrants. The Company has deferred the remaining warrants and will
revalue the amount and record additional expense as necessary in future quarters
as the remaining services are provided. Deferred compensation relating to these
warrants at December 31, 2000, is approximately $1,100,000. The agreement
terminates and any unvested options are forfeited on November 1, 2003.

    All warrants were valued on the date of grant using the Black-Scholes
(common stock) or the Binary Option Pricing Model (preferred stock). The
assumptions used to value these warrants were as follows:

<TABLE>
<CAPTION>
                                         APRIL                   AUGUST      OCTOBER
                                          2000        2000        1999         1999         1997
                                        WARRANTS    WARRANTS    WARRANTS     WARRANTS     WARRANTS
                                       ----------   --------   ----------   ----------   ----------
<S>                                    <C>          <C>        <C>          <C>          <C>
Risk-free interest rate..............    6.15%        6.5%       5.62%        5.86%        6.25%
Expected life of warrant.............  12 months    Various    30 months    27 months    24 months
Expected dividend payment rate, as a
  percentage of the stock price on
  the date of grant..................      0%          0%          0%           0%           0%
Assumed volatility...................     73%         100%        60%          60%          48%
</TABLE>

11. STOCK OPTIONS

    The Company's option plans provide for the granting of stock options to
purchase up to 9,000,000 shares of the Company's common stock. Options may be
granted to employees, officers, directors and consultants of the Company with
terms of up to 10 years. Under the terms of the option plans, incentive stock
options ("ISOs") are to be granted at fair market value of the Company's stock
at the date of grant, and nonqualified stock options ("NSOs") are to be granted
at a price determined by the Board of Directors. ISOs and NSOs generally vest
ratably over 36 months from the grant date and have contractual lives of up to
10 years.

                                       94
<PAGE>
    Stock option activity since inception is as follows:

<TABLE>
<CAPTION>
                                                             WEIGHTED-   WEIGHTED-
                                                              AVERAGE     AVERAGE
                                                 NUMBER OF   EXERCISE      FAIR
                                                  SHARES       PRICE       VALUE
                                                 ---------   ---------   ---------
<S>                                              <C>         <C>         <C>
Outstanding at inception.......................         --
  Granted......................................    647,874     $0.89       $0.35
                                                 ---------     -----       -----
Outstanding, December 31, 1997.................    647,874      0.89
  Granted......................................    199,126      0.89        0.38
  Canceled, forfeited or expired...............    (10,000)     0.89
                                                 ---------     -----       -----
Outstanding, December 31, 1998.................    837,000      0.89
  Granted......................................  1,467,000      0.89        0.40
  Canceled, forfeited or expired...............   (295,688)     0.89
                                                 ---------     -----       -----
Outstanding, December 31, 1999.................  2,008,312      0.89
  Granted......................................  3,343,688      3.15        1.78
  Exercised....................................   (480,266)     0.89
  Canceled, forfeited or expired...............   (238,694)     2.37
                                                 ---------     -----       -----
Outstanding, December 31, 2000.................  4,733,040     $2.50
                                                 =========     =====       =====
</TABLE>

    The following table summarizes information about stock options outstanding
at December 31, 2000:

<TABLE>
<CAPTION>
                                                                          VESTED
                                         WEIGHTED-                ----------------------
                                          AVERAGE     WEIGHTED-                WEIGHTED-
                            NUMBER       REMAINING     AVERAGE                  AVERAGE
                          OF OPTIONS    CONTRACTUAL   EXERCISE      NUMBER     EXERCISE
EXERCISE PRICE            OUTSTANDING      LIFE         PRICE     OF OPTIONS     PRICE
--------------            -----------   -----------   ---------   ----------   ---------
<S>                       <C>           <C>           <C>         <C>          <C>
$0.89...................   1,771,352        8.74      $    0.89     612,960      $0.89
$1.78-$2.50.............   1,548,188        9.20      $    2.23      66,667      $1.78
$3.10-$4.10.............     640,000        9.49      $    3.49      80,000      $4.10
$5.10-$6.00.............     498,000        9.52      $    5.64          --      $  --
$6.10-$7.12.............     275,500        9.84      $    6.34      60,000      $6.00
</TABLE>

    Included in the above schedules are grants of 160,000 and 162,000 options
made to non-employee consultants in 2000 and 1999, respectively.

    As described in Note 2, the Company uses the intrinsic-value method to
measure compensation expense associated with grants of stock options to
employees. If the Company had used the fair value method to measure
compensation, reported net loss would have been as follows:

<TABLE>
<CAPTION>
                                                                                     CUMULATIVE FROM
                                                                                       MAY 8, 1997
                                                                                        (DATE OF
                                           YEAR ENDED    YEAR ENDED    YEAR ENDED     INCEPTION) TO
                                          DECEMBER 31    DECEMBER 31   DECEMBER 31     DECEMBER 31
                                              2000          1999          1998            2000
                                          ------------   -----------   -----------   ---------------
<S>                                       <C>            <C>           <C>           <C>
Net loss to common shareholders as
  reported..............................  $(53,279,148)  $(6,630,016)  $(4,912,459)   $(67,933,004)
Net loss--pro forma.....................   (54,175,173)   (7,154,362)   (4,987,251)    (69,653,514)
Loss per share--as reported.............  $     (10.77)  $   (393.52)  $   (291.58)
Loss per share--pro forma...............  $     (10.95)  $   (424.64)  $   (296.01)
</TABLE>

                                       95
<PAGE>
    The fair value of the options on their grant date was measured using the
Black-Scholes option-pricing model. Key assumptions used to apply this
option-pricing model are as follows:

<TABLE>
<CAPTION>
                                                      2000                  1999       1998
                                          -----------------------------   --------   --------
<S>                                       <C>                             <C>        <C>
Risk-free interest rate.................         6.5% and 6.25%             6.0%      5.75%
Expected life of option.................             3 years              3 years    3 years
Expected dividend payment rate, as a
  percentage of the stock price on the
  date of grant.........................               0%                    0%         0%
Assumed volatility......................              100%                  60%        58%
</TABLE>

    The option-pricing model used was designed to value readily tradable stock
options with relatively short lives. However, management believes that the
assumptions used to value the options and the model applied yield a reasonable
estimate of the fair value of the grants made under the circumstances (see also
Note 15).

12. EMPLOYEE STOCK PURCHASE PLAN

    On October 15, 2000 the Company adopted an Employee Stock Purchase Plan (the
"Plan") under which eligible employees are able to purchase shares of the
Company's Common Stock at 85% of the market value at the date of the start of
each six month option period or the end of such period, whichever is lower.
Under the provisions of the Plan up to 1,000,000 shares are authorized. No
shares have been issued under this Plan at December 31, 2000.

13. INCOME TAXES

    The components of the provision (benefit) for income taxes consisted of the
following:

<TABLE>
<CAPTION>
                                                                                        CUMULATIVE FROM
                                                                                          MAY 8, 1997
                                                                                           (DATE OF
                                            YEAR ENDED     YEAR ENDED     YEAR ENDED     INCEPTION) TO
                                           DECEMBER 31,   DECEMBER 31,   DECEMBER 31,    DECEMBER 31,
                                               2000           1999           1998            2000
                                           ------------   ------------   ------------   ---------------
<S>                                        <C>            <C>            <C>            <C>
Federal--deferred........................  $(5,115,236)   $(1,995,158)   $(1,594,955)     $(9,743,219)
State--deferred..........................     (993,055)      (352,087)      (282,933)      (1,809,758)
Increase in valuation allowance..........    6,108,291      2,347,245      1,877,888       11,552,977
                                           -----------    -----------    -----------      -----------
Provision (benefit) for income taxes.....  $        --    $        --    $        --      $        --
                                           ===========    ===========    ===========      ===========
</TABLE>

    A reconciliation of the statutory federal rate to the effective rate for all
periods is as follows:

<TABLE>
<S>                                                           <C>
Statutory federal rate benefit..............................    (34)%
State, net of federal effect................................     (6)
Valuation allowance provided................................     40
                                                                ---
Effective rate..............................................     --%
                                                                ===
</TABLE>

                                       96
<PAGE>
    The components of the Company's deferred tax assets and liabilities
consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                         2000          1999
                                                      -----------   ----------
<S>                                                   <C>           <C>
Long-term assets:
  Net operating loss carryforwards..................  $10,403,206   $4,728,408
  Research and development credits..................    1,017,264      524,958
  Loss on sales commitments.........................           --      130,000
  Other.............................................      132,506       61,320
                                                      -----------   ----------
Net deferred tax assets before valuation
  allowance.........................................   11,552,977    5,444,686
Less valuation allowance............................  (11,552,977)  (5,444,686)
                                                      -----------   ----------
Net deferred tax assets.............................  $        --   $       --
                                                      ===========   ==========
</TABLE>

    The valuation allowance increased by $6,108,291 in 2000 and $2,347,245 in
1999, primarily due to the generation of net operating loss carryforwards and
credits for which realization is not reasonably assured.

    The Company has available for future periods federal and state tax net
operating loss carryforwards for federal and state purposes of approximately
$23,564,000 and $23,330,000, respectively, as of December 31, 2000. In addition,
the Company has business credits of approximately $539,000 and 47,000 for
federal and state purposes, respectively as of December 31, 2000. The net
operating loss carryforwards expire beginning in 2012 and 2002 for federal and
state tax purposes, respectively. The federal research and development credits
begin to expire in 2012. The Company did not pay any income taxes from inception
to December 31, 2000.

    Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss carryforwards which could be utilized annually
to offset future taxable income and income tax liabilities. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.

14. BENEFIT PLAN

    In 1998, the Company created a 401(k) Profit Sharing Plan (the "Plan") for
its full-time employees. Each participant in the Plan may elect to contribute a
percentage of his or her annual compensation to the Plan on a pre-tax basis up
to the annual limit established by the Internal Revenue Service. The Company
matches employee contributions at a rate of 50% up to the first 6% of the
employee's contributions. The Company may also elect to make a profit-sharing
contribution based on the discretion of the Board of Directors. Employee
contributions are fully vested. Company matching and profit sharing
contributions vest 20% after two years of service consisting of at least 1,000
hours per calendar year and 20% annually thereafter. Company contributions were
$102,085, $41,963, and $19,376 during 2000, 1999 and 1998, respectively.

15. RELATED PARTY TRANSACTIONS

    CONSULTING AGREEMENTS.  The Company entered into consulting agreements with
three investors. The contracts were seven-year agreements, renewable annually
thereafter, for consulting services to be provided by the investors in exchange
for annual issuances of shares of the Company's Class A Stock. During 2000, 1999
and 1998, $586,000, $300,000 and $175,000, respectively, was recorded as
consulting expense relating to these agreements, and 67,232 (ultimately 134,464
shares of common stock), 145,000 and 120,000 shares of Class A Stock in 2000,
1999 and 1998, respectively, were issued as compensation under these contracts.
Prepaid and accrued consulting expenses have been recorded annually, based on
the terms and dates of the consulting agreements. The services provided by the
investors were recorded based

                                       97
<PAGE>
upon the value of the securities issued. These contracts all expired upon the
completion of the initial public offering of the Company's common stock in
November 2000.

    PATENTS.  The Company has entered into an agreement with SatCon whereby
SatCon granted the Company a perpetual license to use the technology patented by
SatCon relating to the field of flywheel energy storage products, systems and
processes for stationary terrestrial applications.

    SERVICES AGREEMENTS.  Prior to 2000, SatCon performed certain research and
development, administrative and other services for the Company. Amounts paid to
SatCon for such services rendered amounted to approximately $551,000, $59,000,
$443,000 and $2,404,000 during 2000, 1999, 1998 and the period from inception to
December 31, 2000, respectively. No amounts were payable to SatCon relating to
such services at either December 31, 2000 or 1999.

    INVENTORY.  The Company uses Satcon to perform certain engineering and other
processing tasks on certain of the electrical components of its product. At
December 31, 2000, the Company had $153,500 of its inventory at Satcon for
processing.

    DISTRIBUTION AGREEMENT.  In 1997, the Company signed a 20-year agreement
which granted an investor exclusive rights to distribute certain of the
Company's products in a territory comprised of seven Mid-Atlantic states and the
District of Columbia. However, the Company retained the right to distribute
products directly to cable television and telephone companies.

16. SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

    During 2000, the Company converted its bridge notes of $3,550,000 and
accrued interest on those notes totaling $275,560 into Class E redeemable
convertible preferred stock.

    As indicated in Note 11 above, in April 2000, the Company cancelled certain
warrants that were issued in conjunction with the Class E Preferred stock. This
resulted in a charge to Additional Paid in Capital of $170,000.

    As a result of its initial public stock offering during the fourth quarter
of 2000, the Company converted 4,767,907 shares of its Class A Preferred Stock
into 9,535,814 shares of its common stock.

    As a result of its initial public stock offering during the fourth quarter
of 2000, the Company converted 6 shares of its Class C preferred stock into 12
shares of its common stock.

    As a result of its initial public stock offering during the fourth quarter
of 2000, the Company converted all of its outstanding shares of its Class D, E
and F redeemable convertible preferred stock into 19,823,704 shares of its
common stock.

    During 2000, the company paid dividends on its redeemable convertible
preferred stock totaling $1,086,307 through the issuance of 859,330 shares of
its common stock.

    As a result of its initial public stock offering during the fourth quarter
of 2000, the Company paid accrued consulting dividends totaling $498,284 with
134,464 shares of its common stock.

    During 2000, the Company recorded an increase in deferred compensation from
the issuance of non-qualified stock options to third parties of $1,844,649. This
is offset by a credit to additional paid in capital.

    In December 2000, the Company issued 1,982,876 shares of its common stock as
a result of two holders of the Company's warrants exercising a portion of their
warrants in a cashless exercise transaction.

    During 2000, 1999 and 1998, the Company acquired assets totaling $281,034,
$0 and $254,411 of assets with capital leases.

                                       98
<PAGE>
    During 1999 the Company issued warrants valued at $450,000 in conjunction
with certain financing arrangements.

    During 1999 the Company issued non-qualified stock options valued at $65,318
for certain consulting agreements.

                                       99
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    On May 12, 1999, we dismissed PricewaterhouseCoopers LLP from its position
as our independent public accountants. The decision to change accountants was
recommended by our Audit Committee and approved by our Board of Directors. None
of the reports of PricewaterhouseCoopers LLP on our financial statements for the
years ended September 30, 1998 and 1997 contained an adverse opinion or
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles. During the years ended September 30, 1998 and
1997, and any subsequent interim period immediately preceding the date of
dismissal of PricewaterhouseCoopers LLP, we had no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused PricewaterhouseCoopers LLP to make reference to such
matter of disagreement(s) in connection with its report on our financial
statements. None of the reportable events listed in Item 304 (a) (1) (v) of
Regulation S-K under the Securities Act of 1934, as amended, occurred with
respect to the years ended September 30, 1998 and 1997 or the subsequent interim
period preceding the dismissal of PricewaterhouseCoopers LLP.

    On May 25, 1999, we engaged Arthur Andersen LLP as our independent public
accountants. The decision to engage Arthur Andersen LLP was recommended by our
Audit Committee and approved by our Board of Directors. During our two most
recent fiscal years, and any subsequent interim period prior to engaging Arthur
Andersen LLP, (i) neither we nor anyone on our behalf consulted Arthur Andersen
LLP regarding the application of accounting principles to a specific completed
or proposed transaction or the type of audit opinion that might be rendered on
our financial statements; and (ii) no written report or oral advice concerning
the same was provided to us that Arthur Andersen LLP concluded was an important
factor considered by us in reaching a decision as to any accounting, auditing or
financial reporting issue.

                                      100
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS OF SATCON

    For each member of our board of directors, there follows information given
by each concerning his principal occupation and business experience for the past
five years, the name of other publicly held companies on which he serves as a
director and his age and length of service as a director of SatCon.

    No director or executive officer is related by blood, marriage or adoption
to any other director or executive officer.

    Pursuant to a securities purchase agreement, dated as of May 28, 1997, by
and among SatCon, Beacon Power and DQE Enterprises, Inc., Anthony J. Villiotti
was elected to SatCon's board of directors on June 30, 1997. On January 13,
2000, Mr. Villiotti resigned from his position as a director of SatCon, and the
board of directors appointed Thomas A. Hurkmans, as the representative of DQE
Enterprises, to fill the vacancy resulting from the resignation of
Mr. Villiotti. Mr. Hurkmans was elected to SatCon's board of directors by the
stockholders on March 15, 2000. Pursuant to the terms of this agreement, as long
as DQE Enterprises owns five percent of our common stock, we must recommend that
our stockholders vote for DQE Enterprises' representative and cause to be voted
for such representative the shares of common stock for which our management or
board of directors holds proxies or are otherwise entitled to vote.

    Pursuant to a securities purchase agreement, dated as of October 21, 1999,
between SatCon and Mechanical Technology Incorporated, Alan P. Goldberg was
elected to SatCon's board of directors as of November 15, 1999. Pursuant to the
terms of this agreement, as long as Mechanical Technology Incorporated owns five
percent of our common stock, we must recommend that our stockholders vote for
Mechanical Technology Incorporated's representative. We have also agreed to
appoint an additional member to our board of directors based on recommendations
by Mechanical Technology Incorporated.

CURRENT DIRECTORS--TERMS EXPIRING IN 2004 (CLASS I DIRECTORS)

DAVID B. EISENHAURE, age 55, became a director in 1985.

    DAVID B. EISENHAURE joined SatCon as President, Chief Executive Officer and
Chairman of the Board of Directors in 1985. Prior to founding SatCon,
Mr. Eisenhaure was associated with the Charles Stark Draper Laboratory,
Incorporated from 1974 to 1985, and with its predecessor, the Massachusetts
Institute of Technology's Instrumentation Laboratory, from 1967 to 1974.
Mr. Eisenhaure holds S.B., S.M. and an Engineer's Degree in Mechanical
Engineering from the Massachusetts Institute of Technology. In addition to his
duties at SatCon, Mr. Eisenhaure holds an academic position at M.I.T., serving
as a lecturer in the Department of Mechanical Engineering. Mr. Eisenhaure also
serves on the board of directors of Mechanical Technology Incorporated and
Beacon Power.

ALAN P. GOLDBERG, age 55, became a director in 1999.

    ALAN P. GOLDBERG joined SatCon as a director in 1999. Mr. Goldberg has
served as President and Co-Chief Executive Officer and as a Director of First
Albany Companies Inc., an investment bank, since 1993. Mr. Goldberg also serves
on the board of directors of Mechanical Technology Incorporated and Beacon
Power. Mr. Goldberg is active in industry and civic organizations and serves on
the board of several non-profit institutions. He received a B.A. degree in
Government from Tufts University.

JAMES L. KIRTLEY, JR., PH.D., age 55, became a director in 1992.

    JAMES L. KIRTLEY, JR., PH.D., joined SatCon as a consultant in 1985 and
became a director in 1992. On March 1, 1998, Dr. Kirtley commenced employment
with SatCon on a full-time basis as the Vice President and General Manager of
SatCon's Technology Center. In February 2000, Dr. Kirtley was promoted to Vice

                                      101
<PAGE>
President and Chief Scientist at SatCon. Dr. Kirtley is also a Professor of
Electrical Engineering at M.I.T. and became a member of the M.I.T. faculty in
1971. Dr. Kirtley received his S.B., S.M., E.E. and Ph.D. degrees in Electrical
Engineering from M.I.T.

CURRENT DIRECTORS--TERMS EXPIRING IN 2002 (CLASS II DIRECTORS)

MICHAEL C. TURMELLE, age 42, became a director in 1993.

    MICHAEL C. TURMELLE joined SatCon in September 1987, where he served as
Controller from September 1987 until November 1991, as Secretary since
June 1993 and as Vice President, Chief Financial Officer and Treasurer from
November 1991 until January 2000. Mr. Turmelle became a director in June 1993.
In January 2000, Mr. Turmelle was promoted from Chief Financial Officer to Chief
Operating Officer. From July 1984 to August 1987, Mr. Turmelle held several
positions with HADCO Corporation, a manufacturer of circuit boards. From
February 1982 to June 1984, Mr. Turmelle was employed by the aerospace division
of General Electric Corporation and held several positions, including internal
auditor. Mr. Turmelle holds a B.A. degree in Economics from Amherst College.

GERALD L. WILSON, age 61, became a director in 2000.

    GERALD L. WILSON joined SatCon as a director in July 2000. Dr. Wilson is the
former Dean of the School of Engineering at M.I.T. and the Vannevar Bush
Professor of Engineering at M.I.T. Dr. Wilson has served on M.I.T.'s faculty
since 1965 and currently serves as a Professor of Electrical and Mechanical
Engineering. Dr. Wilson also serves as the Chairman of the Science Advisory
Boards of General Motors Corporation and Pratt and Whitney, a division of United
Technologies Corporation, and as a member of the science advisory board for
Cummins Engine Company, Inc. He is a director of Analogic Corporation and NSTAR,
a company formed by the merger of BEC Energy and Commonwealth Energy System.
Dr. Wilson received his S.B. and S.M. in Electrical Engineering and his Sc.D. in
Mechanical Engineering from M.I.T.

CURRENT DIRECTORS--TERMS EXPIRING IN 2003 (CLASS III DIRECTORS)

MARSHALL J. ARMSTRONG, age 65, became a director in 1994.

    MARSHALL J. ARMSTRONG joined SatCon as a director in 1994. Mr. Armstrong
previously served as Chief Executive Officer and Chairman of the Board of Thermo
Power Corporation from 1992 through 1997. Thermo Power provided research and
development relating to engines, cogeneration and refrigeration equipment to the
marine, food processing, transportation, power generating, petrochemical and
pharmaceutical industries. From January 1998 to September 1999, Mr. Armstrong
served as Senior Vice President of Thermo Electron Corporation, where he has
been employed since 1968 in various capacities including management of Thermo
Electron's government affairs. Mr. Armstrong also served as a Director of Thermo
Sentron, Inc. Mr. Armstrong holds an M.S. degree from George Washington
University and a B.S. degree in Mechanical Engineering from the University of
Vermont.

THOMAS A. HURKMANS, age 35, became a director in 2000.

    THOMAS A. HURKMANS joined SatCon as a director in January 2000. Since 1995,
Mr. Hurkmans has served as the President of DQE Enterprises, Inc., a
wholly-owned subsidiary of DQE, Inc. which acquires and develops businesses
involved in energy-services and technologies, communications and electronic
commerce. From 1991 through 1995, Mr. Hurkmans served as a Vice President of DQE
Enterprises. Prior to joining DQE Enterprises, Mr. Hurkmans founded and served
as the President of Organization Technologies Group, a computer software
company. In addition, he was employed as an investment banker with Merrill
Lynch & Co., Inc., where he advised energy and communications companies on
strategic and financial matters including acquisitions, divestitures and capital
formation. Mr. Hurkmans received a B.A. degree in Economics from Bates College.

                                      102
<PAGE>
EXECUTIVE OFFICERS OF SATCON

SEAN F. MORAN, age 43, became an executive officer in 2000.

    SEAN F. MORAN joined SatCon in January 2000 and has served as Vice President
of Finance, Chief Financial Officer and Treasurer since February 2000. Prior to
joining SatCon, Mr. Moran served as Vice President of Finance, Chief Financial
Officer and Treasurer of Anika Therapeutics, Inc., a biotechnology company,
since February 1993. He served as Treasurer of MedChem Products, Inc., a
manufacturer of medical devices, from May 1991 to February 1993. Mr. Moran also
served as Controller of MedChem Products, Inc. from September 1990 to May 1991.
Mr. Moran received a B.S. in Business Administration and an M.B.A. from Babson
College.

    For additional information relating to our executive officers, see
disclosure regarding Messrs. Eisenhaure and Turmelle and Dr. Kirtley set forth
under the heading "Directors of SatCon."

    For information relating to shares of common stock owned by each of our
directors and executive officers, see "Security Ownership of Certain Beneficial
Owners and Management."

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    Section 16(a) of the Securities Exchange Act of 1934 requires our directors,
executive officers and holders of more than 10% of our common stock to file with
the SEC initial reports of ownership of our common stock and other equity
securities on a Form 3 and reports of changes in such ownership on a Form 4 or
Form 5. Officers, directors and 10% stockholders are required by SEC regulations
to furnish us with copies of all Section 16(a) forms they file. To our
knowledge, based solely on a review of our records and written representations
by the persons required to file such reports, all filing requirements of
Section 16(a) were satisfied with respect to our most recent fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

    SUMMARY COMPENSATION TABLE.  The following table sets forth information
concerning the annual and long-term compensation for services rendered to SatCon
for the fiscal years ended September 30, 2000, 1999 and 1998, of those persons
who were at September 30, 2000 (i) the chief executive officer of SatCon and
(ii) each other executive officer of SatCon whose annual compensation exceeded
$100,000.

                                      103
<PAGE>
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                           LONG-TERM
                                                            ANNUAL COMPENSATION           COMPENSATION
                                                    -----------------------------------   ------------
                                                                                             AWARDS
                                                                                          ------------
                                                                           OTHER ANNUAL    SECURITIES     ALL OTHER
                                          FISCAL                           COMPENSATION    UNDERLYING    COMPENSATION
NAME AND PRINCIPAL POSITION                YEAR     SALARY($)   BONUS($)       ($)        OPTIONS (#)        ($)
---------------------------              --------   ---------   --------   ------------   ------------   ------------
<S>                                      <C>        <C>         <C>        <C>            <C>            <C>
David B. Eisenhaure....................    2000     $225,500        --        $3,900(3)      100,000        $9,787(4)
  President, Chief Executive               1999     $225,500        --        $5,400(3)       40,000        $9,787(4)
  Officer and Chairman                     1998     $215,254        --        $4,400(3)       40,000        $9,787(4)
  of the Board

Michael C. Turmelle(1).................    2000     $148,500        --        $3,900(3)       81,750        $7,995(4)
  Vice President, Chief                    1999     $148,500        --        $5,400(3)       40,000        $7,995(4)
  Operating Officer,                       1998     $141,750        --        $4,400(3)       40,000        $7,995(4)
  Secretary and Director

Sean F. Moran(2).......................    2000     $111,457        --            --         150,000            --
  Vice President, Chief
  Financial Officer and
  Treasurer
</TABLE>

------------------------

(1) In January 2000, Mr. Turmelle was promoted from Chief Financial Officer to
    Chief Operating Officer.

(2) Mr. Moran joined SatCon in January 2000 and has served as Vice President of
    Finance, Chief Financial Officer and Treasurer since February 2000.

(3) Amounts consist of board of director fees paid to Messrs. Eisenhaure and
    Turmelle in their capacity as directors of SatCon of $900 per quarter and
    $200 per board of directors meeting attended.

(4) Amounts include the dollar value of term life insurance premiums paid by
    SatCon on a $1,000,000 term life insurance policy of which members of the
    executive officers' families are the beneficiaries.

    OPTION GRANTS TABLE.  The following table sets forth information concerning
individual grants of stock options to purchase our common stock made to the
executive officers named in the Summary Compensation Table during the fiscal
year ended September 30, 2000.

                                      104
<PAGE>
                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                             POTENTIAL REALIZABLE
                                                                                               VALUE AT ASSUMED
                                                                                                ANNUAL RATES OF
                                                                                                  STOCK PRICE
                                                                                               APPRECIATION FOR
                                                   INDIVIDUAL GRANTS                            OPTION TERM(3)
                               ----------------------------------------------------------   -----------------------
                                  NUMBER OF
                                 SECURITIES        % OF TOTAL
                                 UNDERLYING      OPTIONS GRANTED   EXERCISE
                               OPTIONS GRANTED   TO EMPLOYEES IN     PRICE     EXPIRATION
NAME                               (#)(1)        FISCAL YEAR(2)    ($/SHARE)      DATE        5% ($)      10% ($)
----                           ---------------   ---------------   ---------   ----------   ----------   ----------
<S>                            <C>               <C>               <C>         <C>          <C>          <C>
David B. Eisenhaure..........      100,000            12.19%        $17.56       4/14/10    $1,104,528   $2,799,090
Michael C. Turmelle..........       81,750             9.97%        $17.56       4/14/10    $  902,951   $2,288,256
Sean F. Moran................      150,000            18.29%        $17.56       1/19/10    $1,656,791   $4,198,635
</TABLE>

------------------------

(1) Mr. Eisenhaure's and Mr. Turmelle's stock options were granted on April 14,
    2000 and vest over four-year periods. Mr. Moran's stock option was granted
    on January 19, 2000 and vests in equal annual increments over a five-year
    period.

(2) In the fiscal year ended September 30, 2000, we granted stock options to
    purchase an aggregate of 826,350 shares of our common stock to our
    employees, including executive officers.

(3) Amounts reported in these columns represent amounts that may be realized
    upon exercise of the stock options immediately prior to the expiration of
    their term assuming the specified compounded rates of appreciation (5% and
    10%) on our common stock over the term of the stock options. These numbers
    are calculated based on rules promulgated by the SEC and do not reflect our
    estimate of future stock price growth. Actual gains, if any, on stock option
    exercises and common stock holdings are dependent on the timing of such
    exercise and the future performance of our common stock.

    AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE.  The
following table sets forth certain information regarding stock options exercised
during the fiscal year ended September 30, 2000 and held as of September 30,
2000 by the executive officers named in the Summary Compensation Table.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                       NUMBER OF
                                                                      SECURITIES             VALUE OF
                                                                      UNDERLYING            UNEXERCISED
                                                                      UNEXERCISED          IN-THE-MONEY
                                                                   OPTIONS AT FISCAL     OPTIONS AT FISCAL
                                                                      YEAR-END(#)         YEAR-END($)(2)
                             SHARES ACQUIRED ON   VALUE REALIZED     EXERCISABLE/          EXERCISABLE/
NAME                            EXERCISE (#)          ($)(1)         UNEXERCISABLE         UNEXERCISABLE
----                         ------------------   --------------   -----------------   ---------------------
<S>                          <C>                  <C>              <C>                 <C>
David B. Eisenhaure........            --                  --       72,501/139,999     $1,883,650/$2,942,005
Michael C. Turmelle........        30,750            $580,560       69,566/115,884     $1,797,922/$2,438,770
Sean F. Moran..............            --                  --          -- /150,000     $      -- /$2,728,050
</TABLE>

------------------------

(1) Represents the difference between the exercise price and the fair market
    value of the common stock on the date of exercise.

(2) Value is based on the closing sale price of our common stock on
    September 29, 2000, the last trading day of the fiscal year ended
    September 30, 2000 ($35.75), less the applicable option exercise price.

                                      105
<PAGE>
COMPENSATION OF DIRECTORS

    Since November 1992, each of our directors has received a fee of $200 for
each board of directors meeting attended, as well as a retainer of $900 per
quarter.

    During the fiscal year ended September 30, 2000, we granted stock options to
purchase shares of our common stock to the members of the board of directors as
follows: Mr. Armstrong: 26,000; Mr. Eisenhaure: 100,000; Mr. Goldberg: 15,000;
Mr. Hurkmans: 15,000; Dr. Kirtley: 76,600; Mr. Turmelle: 81,750; and
Dr. Wilson: 15,000. The stock option exercise price for Messrs. Armstrong,
Goldberg and Hurkmans is $17.563 per share, and these stock options were
immediately exercisable upon grant. The stock option exercise price for
Dr. Wilson is $31.25 per share, and this stock option was immediately
exercisable upon grant. The stock option exercise price for Messrs. Eisenhaure
and Turmelle and Dr. Kirtley is $17.563 per share, and these stock options vest
over four years.

    In addition, on November 8, 2000, our board of directors adopted a director
stock option program, pursuant to which (i) each individual who first becomes a
non-employee director of SatCon will receive a nonstatutory stock option to
purchase 15,000 shares of our common stock on the date of his or her initial
election to the board of directors; and (ii) on the date of each annual meeting
of stockholders of SatCon commencing with the annual meeting of stockholders in
2001 (other than a director who is initially elected to our board of directors
at any such annual meeting of stockholders or, if previously, at any time after
the prior year's annual meeting of stockholders), provided that he or she is
serving as a director immediately following the date of such annual meeting of
stockholders, (a) each non-employee director will be granted a nonstatutory
stock option to purchase 5,000 shares of our common stock and (b) each
non-employee director who is serving as chairman of our audit committee or
compensation committee will be granted a nonstatutory stock option to purchase
an additional 1,000 shares of our common stock. These nonstatutory stock options
will be immediately exercisable and will have exercise prices equal to the
closing price of our common stock on the Nasdaq National Market on the date of
grant.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
  ARRANGEMENTS

    We have entered into key employee agreements with Messrs. Eisenhaure and
Turmelle which expire on June 30, 2001. The employee agreements provide for
automatic renewal for three-year periods unless written notice of termination is
given by either party not less than three months prior to the expiration date.
In addition, pursuant to the employee agreements, each of Messrs. Eisenhaure and
Turmelle is entitled to receive benefits offered to our employees generally as
well as a severance payment equal to 100% of his annual salary, payable in
twelve equal monthly installments if:

    - SatCon or a substantial portion of SatCon is acquired without the approval
      of our board of directors,

    - his employment is terminated without cause, or

    - without his consent, his salary is reduced, there is a substantial change
      in his position, there is a change in his principal place of employment
      from the greater Boston, Massachusetts area or the employee agreement is
      not renewed following the expiration of its term.

    The employee agreements also contain provisions prohibiting
Messrs. Eisenhaure and Turmelle from competing with SatCon for a one-year period
following termination of employment.

    In addition, on March 22, 2000, we entered into a change in control letter
agreement with Mr. Moran pursuant to which Mr. Moran is entitled to receive
severance payments equal to 100% of his annual salary in the event of the
termination of Mr. Moran's employment (including a material adverse change in
his authority, duties or compensation without his prior consent or the
relocation of his place of work more than 100 miles from our executive offices)
within one year of the occurrence of a "change in control event"

                                      106
<PAGE>
(as defined in the change in control agreement). As a condition to receiving
these severance payments, Mr. Moran must deliver a general release to SatCon
within 60 days of his termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    During the fiscal year ended September 30, 2000, Messrs. Armstrong,
Goldberg, Hurkmans, John P. O'Sullivan, Jr. and Villiotti served as members of
our compensation committee. For information regarding Mr. Goldberg's
relationship with Mechanical Technology Incorporated and Mr. Hurkmans'
relationship with DQE Enterprises see "Certain Relationships and Related
Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth, as of December 31, 2000, information
concerning the beneficial ownership of our common stock by:

    - each person known by us to own beneficially five percent or more of the
      outstanding shares of our common stock,

    - each of our executive officers and directors, and

    - all executive officers and directors as a group.

    The number of shares beneficially owned by each 5% stockholder, director or
executive officer is determined under rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and also any
shares which the individual or entity has the right to acquire on or before
March 1, 2001 through the exercise of any stock option, warrant or other right.
Unless otherwise indicated, each person or entity has sole investment and voting
power (or shares such power with his or her spouse) with respect to the shares
set forth in the following table. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial ownership of
those shares.

<TABLE>
<CAPTION>
                                                       NUMBER OF SHARES
                                                         BENEFICIALLY     PERCENTAGE OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                    OWNED(2)           BENEFICIALLY OWNED
---------------------------------------                ----------------   --------------------------
<S>                                                    <C>                <C>
5% STOCKHOLDERS
Brown Simpson Partners I, Ltd.(3)....................        1,246,900                8.6%
  152 West 57th Street, 40th Floor
  New York, NY 10019
DQE Enterprises, Inc.(4).............................          813,138                5.8
  One Northshore Center, Suite 100
  12 Federal Street
  Pittsburgh, PA 15212
Mechanical Technology Incorporated(5)................        1,900,000               13.6
  325 Washington Avenue Extension
  Albany, NY 12205
Zesiger Capital Group LLC(6).........................          743,600                5.4
  320 Park Avenue, 30th Floor
  New York, NY 10022
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Marshall J. Armstrong................................           26,000                  *
David B. Eisenhaure(7)...............................        4,562,588               32.4
</TABLE>

                                      107
<PAGE>

<TABLE>
<CAPTION>
                                                       NUMBER OF SHARES
                                                         BENEFICIALLY     PERCENTAGE OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                    OWNED(2)           BENEFICIALLY OWNED
---------------------------------------                ----------------   --------------------------
<S>                                                    <C>                <C>
Alan P. Goldberg(8)..................................        1,915,000               13.7
  c/o Mechanical Technology Incorporated
  325 Washington Avenue Extension
  Albany, NY 12205
Thomas A. Hurkmans(9)................................          813,138                5.8
  c/o DQE Enterprises, Inc.
  One Northshore Center, Suite 100
  12 Federal Street
  Pittsburgh, PA 15212
James L. Kirtley, Jr.................................           59,933                  *
Sean F. Moran........................................           33,000                  *
Michael C. Turmelle..................................          114,861                  *
Gerald L. Wilson.....................................           15,000                  *
All executive officers and directors as a group              5,639,520               39.4%
(eight persons)(7)(8)(9).............................
</TABLE>

------------------------

*   Less than 1%

(1) The address for all executive officers and directors, other than
    Mr. Goldberg and Mr. Hurkmans, is c/o SatCon Technology Corporation,
    161 First Street, Cambridge, Massachusetts 02142.

(2) Includes the following number of shares of common stock issuable upon the
    exercise of outstanding stock options which may be exercised on or before
    March 1, 2001: Mr. Armstrong: 26,000; Mr. Eisenhaure: 85,834; Mr. Goldberg:
    15,000; Mr. Hurkmans: 15,000; Dr. Kirtley: 56,733; Mr. Moran: 30,000;
    Mr. Turmelle: 79,966; Dr. Wilson: 15,000; all executive officers and
    directors as a group: 323,533.

(3) Consists of 520,800 shares of common stock held by Brown Simpson Partners
    I, Ltd. and 675,000 shares of common stock issuable upon exercise of a
    warrant held by Brown Simpson Partners I, Ltd.

(4) Includes 15,000 shares of common stock issuable upon exercise of a stock
    option held by Mr. Hurkmans. DQE Enterprises and Mr. Hurkmans have entered
    into an arrangement by which DQE Enterprises will receive the financial
    benefits of such option. Mr. Hurkmans disclaims beneficial ownership of
    these shares.

(5) Includes 100,000 shares of common stock issuable upon exercise of warrants
    held by Mechanical Technology Incorporated.

(6) This information is taken from a Schedule 13G filed with the SEC on
    February 12, 2001. Zesiger Capital Group LLC is a registered investment
    advisor registered under Section 203 of the Investment Advisors Act of 1940.
    Zesiger Capital Group reports dispositive power over 743,600 shares of our
    common stock. These shares are held in discretionary accounts which Zesiger
    Capital Group manages, and no single client account owns more than 5% of the
    shares. Zesiger Capital Group disclaims beneficial ownership of these
    shares.

(7) Includes 1,800,000 shares of common stock held by Mechanical Technology
    Incorporated and 100,000 shares of common stock issuable upon exercise of
    warrants held by Mechanical Technology Incorporated. Mr. Eisenhaure is a
    director of Mechanical Technology Incorporated and disclaims beneficial
    ownership of these shares.

(8) Includes 1,800,000 shares of common stock held by Mechanical Technology
    Incorporated and 100,000 shares of common stock issuable upon exercise of
    warrants held by Mechanical Technology

                                      108
<PAGE>
    Incorporated. Mr. Goldberg is a director of Mechanical Technology
    Incorporated and disclaims beneficial ownership of these shares.

(9) Includes 798,138 shares of common stock held by DQE Enterprises of which
    Mr. Hurkmans is the President. Also includes 15,000 shares of common stock
    issuable upon exercise of a stock option held by Mr. Hurkmans. DQE
    Enterprises and Mr. Hurkmans have entered into an arrangement by which DQE
    Enterprises will receive the financial benefits of such option.
    Mr. Hurkmans disclaims beneficial ownership of these shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    BEACON POWER AND DQE ENTERPRISES

    Pursuant to the terms of a securities purchase agreement, dated October 23,
1998, between Beacon Power, Perseus Capital, L.L.C., DQE Enterprises, Inc.,
Micro Generation Technology Fund, L.L.C. and SatCon:

    - Beacon Power sold to these investors 1,900,000 shares of Beacon Power's
      class D preferred stock,

    - the investors received warrants to purchase an aggregate of 2,227,500
      shares of Beacon Power's common stock, and

    - we granted the investors the right to cause us, in the circumstances and
      for the consideration described below, to purchase all of their shares of
      Beacon Power's class D preferred stock and all of their shares of Beacon
      Power's common stock issuable upon conversion of their shares of class D
      preferred stock.

    Upon exercise of this "put right" by a class D preferred stock investor, we
would have been required to pay the stated value of the shares of Beacon Power's
class D preferred stock acquired by that investor plus accrued and unpaid
dividends, in shares of our common stock. For this purpose, our common stock
would have been valued at the average fair market value for the 15 trading days
before and after notice of exercise of the put right. The put right was
exercisable within 60 days of the second, third, fourth and fifth anniversary of
the closing date of the transaction, upon events relating to the bankruptcy of
Beacon Power, upon the occurrence of going private transactions involving SatCon
and upon the deregistration of our common stock by the SEC or the delisting or
other removal of our common stock from trading on the Nasdaq National Market.
The put right terminated on November 17, 2000, the date of the listing of Beacon
Power's common stock on the Nasdaq National Market.

    The shares of Beacon Power's class D preferred stock were not registered
under the Securities Act of 1933, as amended, but the investors entered into
registration rights agreements with Beacon Power and SatCon. The aggregate
consideration received by Beacon Power was $4,750,000. Of the 1,900,000 shares
of Beacon Power's class D preferred stock issued pursuant to this securities
purchase agreement, DQE Enterprises purchased 400,000 shares of Beacon Power's
class D preferred stock for an aggregate purchase price of $1,000,000. DQE
Enterprises also received warrants to purchase 450,000 shares of Beacon Power's
common stock.

    From June 1999 through March 31, 2000, Beacon Power was financed through the
issuance of approximately $4.7 million of bridge notes and warrants to the
investors, including $890,000 from DQE Enterprises. On April 7, 2000, pursuant
to the terms of a second securities purchase agreement, Beacon Power issued
1,226,141 shares of its class E preferred stock and warrants to purchase 306,535
shares of its class E preferred stock in exchange for the conversion of all of
its outstanding bridge notes. In this transaction, DQE Enterprises received
204,797 shares of Beacon Power's class E preferred stock and a warrant to
purchase 51,199 shares of its class E preferred stock.

    On April 21, 2000, Beacon Power raised an additional $4.1 million through
the sale of additional bridge notes and warrants to purchase shares of Beacon
Power's common stock. On May 23, 2000,

                                      109
<PAGE>
pursuant to the terms of a third securities purchase agreement, Beacon Power
issued 6,785,711 shares of its class F preferred stock and additional warrants
to purchase shares of Beacon Power's common stock. The exercise price and the
number of shares subject to these additional warrants were based on the initial
public offering price of Beacon Power's common stock. The shares of class F
preferred stock and the additional warrants were issued in consideration for the
cancellation of $5.2 million in bridge notes and an additional $23.3 million
cash investment by existing and new investors. DQE Enterprises received 476,190
shares of Beacon Power's class F preferred stock and a warrant to purchase
shares of Beacon Power's common stock in exchange for the cancellation of a
$300,000 bridge note and an additional cash investment of $1.7 million.

    Pursuant to the terms of a letter agreement, dated October 23, 1998,
Mr. Eisenhaure agreed with the purchasers that, in the event that at any time on
or prior to the full exercise or expiration of the put right, the number of
authorized shares of our common stock that were legally available for issuance
in satisfaction of the put right was less than 1,000,000 more than the total
number of shares of our common stock required to satisfy our obligations under
the put right, then Mr. Eisenhaure would take all action under his control to
increase the number of authorized shares of our common stock.

    The terms of the securities purchase agreements were determined on the basis
of arms-length negotiations. Prior to the execution of the 1998 securities
purchase agreement, neither SatCon nor Beacon Power had any material
relationship with Perseus Capital, L.L.C. or Micro Generation Technology Fund,
L.L.C. In May 1997, DQE Enterprises made an investment in us and received
warrants to purchase shares of Beacon Power's common stock. In connection with
that transaction, DQE Enterprises entered into agreements with SatCon and Beacon
Power pursuant to which, among other things, DQE Enterprises acts as exclusive
distributor of Beacon Power's products, subject to certain exceptions, in seven
Mid-Atlantic States and the District of Columbia. Beacon Power also entered into
a consulting agreement with DQE Enterprises pursuant to which DQE Enterprises
was compensated by Beacon Power in the amount of $150,000 per annum in exchange
for consulting services provided by DQE Enterprises to Beacon Power. On
October 23, 1998, Beacon Power and DQE Enterprises modified this consulting
arrangement so that Beacon Power was obligated to pay for DQE Enterprises'
consulting services in shares of Beacon Power's common stock. On November 1,
1999, this agreement was further modified to provide for payment by Beacon Power
to DQE Enterprises in shares of Beacon Power's class A preferred stock. In
addition, the shares of Beacon Power's common stock that had been issued to DQE
Enterprises under the consulting agreement were cancelled and shares of Beacon
Power's class A preferred stock were issued to DQE Enterprises. On October 31,
2000, the consulting agreement was terminated, and Beacon Power issued 60,000
shares of its class A preferred stock to DQE Enterprises as a final payment.

    Beacon Power was organized by SatCon in May 1997 to continue the development
and distribution of the stationary, terrestrial applications of our flywheel
energy storage technology. DQE Enterprises owns of record more than five percent
of our common stock, and Mr. Hurkmans, the President of DQE Enterprises, serves
on our board of directors.

    BEACON POWER AND MECHANICAL TECHNOLOGY INCORPORATED

    On April 21, 2000, in connection with Beacon Power's bridge note and warrant
financing, Mechanical Technology Incorporated loaned $1.2 million to Beacon
Power and received a warrant to purchase 12,000 shares of Beacon Power's common
stock. On May 23, 2000, pursuant to the terms of the third securities purchase
agreement described above, Beacon Power issued 1,428,571 shares of its class F
preferred stock and an additional warrant to purchase shares of Beacon Power's
common stock to Mechanical Technology Incorporated. The exercise price of $2.25
and the number of shares subject to this additional warrant (1,333,333) were
based on the initial public offering price of Beacon Power's common stock. In
December 2000, Mechanical Technology Incorporated exercised this additional
warrant pursuant to a cashless exercise provision contained in the warrant and
received 985,507 shares of Beacon Power's common stock. The shares of class F
preferred stock and the additional warrant were issued in

                                      110
<PAGE>
consideration for the cancellation of the $1.2 million represented by the bridge
note and an additional $4.8 million cash investment by Mechanical Technology
Incorporated. On August 25, 2000, Mechanical Technology Incorporated exercised
its warrant for 12,000 shares of Beacon Power's common stock in full for an
aggregate exercise price of $50,400. Mechanical Technology Incorporated owns of
record more than five percent of our common stock, and Mr. Goldberg, a director
of Mechanical Technology Incorporated and co-chief executive officer of First
Albany Companies Inc., serves on our board of directors. Mr. Goldberg also
serves on Beacon Power's board of directors.

    ACQUISITION OF LING ELECTRONICS AND INVESTMENT BY MECHANICAL TECHNOLOGY
     INCORPORATED

    In October 1999, we acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. from Mechanical Technology Incorporated. In consideration for
the acquisition of Ling Electronics and an investment by Mechanical Technology
Incorporated in SatCon, Mechanical Technology Incorporated received a total of
1,800,000 shares of our common stock and warrants to purchase an additional
100,000 shares of our common stock at an exercise price of $8.80 per share. On
October 21, 1999, Mechanical Technology Incorporated funded $2,570,000 of its
investment in us and received 370,800 shares of our common stock and issued a
warrant to us to purchase 108,000 shares of Mechanical Technology Incorporated's
common stock at an exercise price of $12.56 per share. At a second closing of
Mechanical Technology Incorporated's investment, on January 31, 2000, we issued
to Mechanical Technology Incorporated 659,200 shares of our common stock and a
warrant to purchase an additional 64,000 shares of our common stock at an
exercise price of $8.80 per share in exchange for $4,500,000 in cash and a
warrant to purchase 192,000 shares of Mechanical Technology Incorporated's
common stock at an exercise price of $12.56 per share. In connection with these
transactions, Alan P. Goldberg, a director of Mechanical Technology Incorporated
and co-chief executive officer of First Albany Companies Inc., was elected a
member of our board of directors on November 15, 1999. We have also agreed to
appoint an additional member to our board of directors based on recommendations
by Mechanical Technology Incorporated, and Mechanical Technology Incorporated
agreed to appoint Mr. Eisenhaure to its board of directors. Mr. Eisenhaure
currently serves on the board of directors of Mechanical Technology
Incorporated.

    PLUG POWER AND BEACON POWER

    As of December 31, 2000, Mechanical Technology Incorporated owned 1,800,000
shares of our common stock and warrants to purchase 100,000 shares of our common
stock. As of December 31, 2000, Mechanical Technology Incorporated owned
13,704,315 shares, or 31.4%, of Plug Power's common stock. We sell electronic
components to Plug Power, and we believe these transactions are on an
arms-length basis. Sales transactions with Plug Power accounted for $53,000 and
$34,000 in revenues in fiscal years 1999 and 2000, respectively. In addition, we
perform funded research and development and sell power electronic boards and
components to Beacon Power, and we believe these transactions are also on an
arms-length basis. Sales transactions with Beacon Power accounted for $424,000,
$73,000 and $471,000 in revenues in fiscal years 1998, 1999 and 2000,
respectively.

    LOANS TO MICHAEL C. TURMELLE

    In October 1999 and December 1999, we loaned an aggregate of $85,000 to
Mr. Turmelle. The loans were represented by two promissory notes for $10,000 and
$75,000, respectively. Under the terms of the promissory notes, the loans bore
interest at 5.74% per annum, and principal and interest was due and payable in
full on December 15, 2000. On April 1, 2000, Mr. Turmelle repaid to SatCon
$86,569, the entire principal amount of the loans plus all outstanding accrued
interest. Mr. Turmelle is our Vice President, Chief Operating Officer and
Secretary and is one of our directors.

                                      111
<PAGE>
    CONSULTING AGREEMENT WITH MARSHALL J. ARMSTRONG

    On July 19, 2000, we entered into a consulting agreement with Marshall J.
Armstrong, one of our directors. In consideration for Mr. Armstrong providing
consulting, advisory and related services under the consulting agreement, we
have agreed to pay Mr. Armstrong $2,000 per day (which amount will be
proportionately less for partial days) for services performed as well as
reimbursement of reasonable and necessary expenses incurred by Mr. Armstrong in
connection with the consulting agreement. As of December 31, 2000, we have paid
Mr. Armstrong $3,000 under the terms of the consulting agreement.

    We believe that each of the transactions described above, other than the
loan to Mr. Turmelle, was carried out on terms that were no less favorable to us
than those that would have been obtained from unaffiliated third parties. We
believe that the loan to Mr. Turmelle was a reasonable employee benefit based on
Mr. Turmelle's tenure and position with SatCon.

    For executive officer compensation and option exercise information, see
"Compensation of Executive Officers."

                                      112
<PAGE>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on Form
    10-K/A:

1.  CONSOLIDATED FINANCIAL STATEMENT OF SATCON TECHNOLOGY CORPORATION AND ITS
    SUBSIDIARIES:

    Consolidated Balance Sheets as of September 30, 2000 and 1999

    Consolidated Statements of Operations for the Years Ended September 30,
    2000, 1999 and 1998

    Consolidated Statements of Changes in Stockholders' Equity for the Years
    Ended September 30, 2000, 1999 and 1998

    Consolidated Statements of Cash Flows for the Years Ended September 30,
    2000, 1999 and 1998

    Notes to Consolidated Financial Statements

2.  FINANCIAL STATEMENT SCHEDULE OF SATCON TECHNOLOGY CORPORATION AND ITS
    SUBSIDIARIES:

    Schedule II; Valuation and Qualifying Accounts for the Years Ended
    September 30, 2000, 1999 and 1998

    All other financial statement schedules not listed have been omitted because
    they are either not required, not applicable, or the information has been
    included elsewhere in the consolidated financial statements or notes
    thereto.

3.  FINANCIAL STATEMENT OF BEACON POWER CORPORATION:

    Consolidated Balance Sheets at December 31, 2000 and 1999

    Consolidated Statements of Operations for the years ended December 31, 2000,
    1999 and 1998 and for the Period May 8, 1997 (date of inception) to December
    31, 2000

    Consolidated Statements of Stockholders' Equity (Deficit) for the years
    ended December 31, 2000, 1999 and 1998 and for the Period May 8, 1997 (date
    of inception) to December 31, 2000

    Consolidated Statements of Cash Flows for the years ended December 31, 2000,
    1999 and 1998 and for the Period May 8, 1997 (date of inception) to December
    31, 2000

    Notes to Consolidated Financial Statements

4.  EXHIBITS:

    The exhibits listed in the Exhibit Index immediately preceding the exhibits
are filed as part of this Annual Report on Form 10-K/A.

(b) Reports on Form 8-K:

    We did not file any reports on Form 8-K during the quarter ended
    September 30, 2000.

                                      113
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts on May 29, 2001.

<TABLE>
<S>                                                    <C>  <C>
                                                       SATCON TECHNOLOGY CORPORATION

                                                       By:           /s/ DAVID B. EISENHAURE
                                                            -----------------------------------------
                                                                       David B. Eisenhaure
                                                              PRESIDENT, CHIEF EXECUTIVE OFFICER AND
                                                                      CHAIRMAN OF THE BOARD
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, This
report has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
                       NAME                                    CAPACITY                    DATE
                       ----                                    --------                    ----
<C>                                                  <S>                            <C>
                                                     Chairman of the Board of
              /s/ DAVID B. EISENHAURE                  Directors, President and
     ----------------------------------------          Chief Executive Officer         May 29, 2001
                David B. Eisenhaure                    (Principal Executive
                                                       Officer)

                                                     Vice President, Chief
                 /s/ SEAN F. MORAN                     Financial Officer and
     ----------------------------------------          Treasurer (Principal            May 29, 2001
                   Sean F. Moran                       Financial and Principal
                                                       Accounting Officer)

              /s/ MICHAEL C. TURMELLE                Director, Vice President,
     ----------------------------------------          Chief Operating Officer and     May 29, 2001
                Michael C. Turmelle                    Secretary

             /s/ JAMES L. KIRTLEY, JR.
     ----------------------------------------        Director, Vice President, and     May 29, 2001
               James L. Kirtley, Jr.                   Chief Scientist

             /s/ MARSHALL J. ARMSTRONG
     ----------------------------------------        Director                          May 29, 2001
               Marshall J. Armstrong

               /s/ ALAN P. GOLDBERG
     ----------------------------------------        Director                          May 29, 2001
                 Alan P. Goldberg

              /s/ THOMAS A. HURKMANS
     ----------------------------------------        Director                          May 29, 2001
                Thomas A. Hurkmans

               /s/ GERALD L. WILSON
     ----------------------------------------        Director                          May 29, 2001
                 Gerald L. Wilson
</TABLE>

                                      114
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                          DESCRIPTION
-----------                          -----------
<S>          <C>
2.1          Amended and Restated Asset Purchase Agreement among SatCon
             Film Microelectronics, Inc., Film Microelectronics Inc., and
             Albert R. Snider, dated as of April 3, 1997, is incorporated
             herein by reference to Exhibits to the Registrant's Current
             Report on Form 8-K dated April 16, 1997.
2.2          Stock Purchase Agreement, dated as of October 21, 1999, by
             and among the Registrant, Mechanical Technology
             Incorporated, Ling Electronics, Inc. and Ling Electronics,
             Ltd. is incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated October 21,
             1999.
2.3          Asset Purchase Agreement, dated as of November 16, 1999, by
             and between the Registrant and Northrop Grumman Corporation
             is incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated November 16,
             1999.
3.1          Certificate of Incorporation of the Registrant is
             incorporated herein by reference to Exhibits to the
             Registrant's Registration Statement on Form S-1 (File No.
             33-49286).
3.2          Bylaws of the Registrant is incorporated herein by reference
             to Exhibits to the Registrant's Registration Statement on
             Form S-1 (File No. 33-49286).
3.3          Certificate of Amendment of Certificate of Incorporation of
             the Registrant, as filed with the Secretary of State of the
             State of Delaware on May 12, 1997, is incorporated herein by
             reference to Exhibits to the Registrant's Quarterly Report
             on Form 10-Q for the period ended March 31, 1997.
3.4          Bylaws Amendment of the Registrant is incorporated herein by
             reference to Exhibits to the Registrant's Quarterly Report
             on Form 10-Q for the period ended March 31, 1997.
3.5          Certificate of Amendment of Certificate of Incorporation of
             the Registrant, as filed with the Secretary of State of the
             State of Delaware on March 17, 1999, is incorporated herein
             by reference to Exhibits to the Registrant's Current Report
             on Form 8-K dated August 25, 1999.
3.6          Certificate of Designation of Series and Statement of
             Variations of Relative Rights, Preferences and Limitations
             of Preferred Stock, dated as of August 25, 1999, relating to
             the Series A Preferred Stock is incorporated herein by
             reference to Exhibits to the Registrant's Current Report on
             Form 8-K dated August 25, 1999.
3.7          Certificate of Amendment of Certificate of Incorporation of
             the Registrant, as filed with the Secretary of State of the
             State of Delaware on March 15, 2000 is incorporated by
             reference to Exhibits to the Registrant's Annual Report on
             Form 10-K for the year ended September 30, 2000.
3.8          Certificate of Amendment of Certificate of Incorporation of
             the Registrant, as filed with the Secretary of State of the
             State of Delaware on May 4, 2001, is incorporated herein by
             reference to Exhibits to the Registrant's Quarterly Report
             on Form 10-Q for the period ended March 31, 2001.
4.1          Specimen Certificate of Common Stock, $.01 par value, is
             incorporated herein by reference to Exhibits to the
             Registrant's Registration Statement on Form S-1 (File
             No. 33-49286).
10.1(*)      Employment Agreement, dated July 1, 1992, between the
             Registrant and David B. Eisenhaure is incorporated herein by
             reference to Exhibits to the Registrant's Registration
             Statement on Form S-1 (File No. 33-49286).
10.2(*)      Employment Agreement, dated July 1, 1992, between the
             Registrant and Michael C. Turmelle is incorporated herein by
             reference to Exhibits to the Registrant's Registration
             Statement on Form S-1 (File No. 33-49286).
10.3         Change of Control Letter Agreement, dated March 22, 2000,
             between the Registrant and Sean F. Moran is incorporated
             herein by reference to Exhibits to the Registrant's
             Quarterly Report on Form 10-Q for the period ended March 31,
             2000.
10.4(*)      1992 Stock Option Plan is incorporated herein by reference
             to Exhibits to the Registrant's Registration Statement on
             Form S-1 (File No. 33-49286).
</TABLE>

                                      115
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                          DESCRIPTION
-----------                          -----------
<S>          <C>
10.5(*)      1994 Stock Option Plan is incorporated herein by reference
             to Exhibits to the Registrant's Annual Report on Form 10-K
             for the year ended September 30, 1994.
10.6(*)      1996 Stock Option Plan is incorporated herein by reference
             to Exhibits to the Registrant's Annual Report on Form 10-K
             for the year ended September 30, 1996.
10.7(*)      1998 Stock Incentive Plan is incorporated herein by
             reference to Exhibit B to the Registrant's Definitive
             Schedule 14A filed January 26, 1999.
10.8(*)      1999 Stock Incentive Plan is incorporated herein by
             reference to Exhibits to the Registrant's Annual Report on
             Form 10-K for the year ended September 30, 1999.
10.9         Lease, dated October 21, 1993, between the Registrant and
             Gunwyn/First Street Limited Partnership is incorporated
             herein by reference to Exhibits to the Registrant's
             Registration Statement on Form S-1 (File No. 33-49286) and
             First Amendment to Lease, dated June 22, 1998, by and
             between the Registrant and Gunwyn/First Street Limited
             Partnership is incorporated herein by reference to Exhibits
             to the Registrant's Annual Report on Form 10-K for the
             period ended September 30, 1998.
10.10(+)     Manufacturing Agreement between Applied Materials, Inc. and
             its wholly-owned subsidiaries and the Registrant, dated as
             of February 20, 1997, is incorporated herein by reference to
             Exhibits to the Registrant's Quarterly Report on Form 10-Q
             for the period ended March 31, 1997.
10.11        Securities Purchase Agreement, dated as of May 28, 1997, by
             and among the Registrant, Beacon Power Corporation and DQE
             Enterprises, Inc. is incorporated herein by reference to
             Exhibits to the Registrant's Current Report on Form 8-K
             dated May 28, 1997.
10.12        Securities Purchase Agreement, dated as of October 23, 1998,
             by and among Beacon Power Corporation, Perseus Capital,
             L.L.C., DQE Enterprises, Inc., Micro Generation Technology
             Fund, L.L.C. and the Registrant is incorporated herein by
             reference to Exhibits to the Registrant's Current Report on
             Form 8-K dated October 23, 1998.
10.13        Amended and Restated License Agreement, dated as of October
             23, 1998, by and between the Registrant and Beacon Power
             Corporation is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated October
             23, 1998.
10.14        Registration Rights Statement, dated as of October 23, 1998,
             by and among Beacon Power Corporation, Perseus Capital,
             L.L.C., DQE Enterprises, Inc., Micro Generation Technology
             Fund, L.L.C., and the Registrant, setting forth certain
             registration rights granted by the Registrant is
             incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated October 23,
             1998.
10.15        Registration Rights Statement, dated as of October 23, 1998,
             by and among Beacon Power Corporation, Perseus Capital,
             L.L.C., DQE Enterprises, Inc., Micro Generation Technology
             Fund, L.L.C. and the Registrant, setting forth certain
             registration rights granted by Beacon Power Corporation is
             incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated October 23,
             1998.
10.16        Lease, dated February 27, 1996, by and between the
             Registrant and Diamond Management, Inc. is incorporated
             herein by reference to Exhibits to the Registrant's Annual
             Report on Form 10-K for the year ended September 30, 1998.
10.17        Lease, dated March 5, 1998, by and between the Registrant
             and Harold W. Slovin is incorporated herein by reference to
             Exhibits to the Registrant's Annual Report on Form 10-K for
             the year ended September 30, 1998.
10.18        North America Distributor Agreement, dated June 4, 1998, by
             and between SatCon Film Microelectronics, Inc., a division
             of the Registrant, and Falcon Electronics, Inc. is
             incorporated herein by reference to Exhibits to the
             Registrant's Annual Report on Form 10-K for the year ended
             September 30, 1998.
10.19        Asset Purchase Agreement, dated as of January 4, 1999, among
             K&D MagMotor Corp., the Registrant, Inductive Components,
             Inc., Lighthouse Software, Inc. and Thomas Glynn is
             incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated January 4,
             1999.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                          DESCRIPTION
-----------                          -----------
<S>          <C>
10.20        Asset Purchase Agreement, dated as of March 31, 1999, by and
             between HyComp, Inc. and HyComp Acquisition Corp., a
             wholly-owned subsidiary of the Registrant, is incorporated
             herein by reference to Exhibits to the Registrant's
             Quarterly Report on Form 10-Q for the period ended June 30,
             1999.
10.21        Note Purchase Agreement, dated as of June 22, 1999, by and
             among Beacon Power Corporation, Perseus Capital, L.L.C., DQE
             Enterprises, Inc., Micro Generation Technology Fund, L.L.C.
             and the Registrant is incorporated herein by reference to
             Exhibits to the Registrant's Quarterly Report on Form 10-Q
             for the period ended June 30, 1999.
10.22        Note and Warrant Purchase Agreement, dated as of August 2,
             1999, by and among Beacon Power Corporation, Perseus
             Capital, L.L.C., DQE Enterprises, Inc., Micro Generation
             Technology Fund, L.L.C. and the Registrant is incorporated
             herein by reference to Exhibits to the Registrant's
             Quarterly Report on Form 10-Q for the period ended June 30,
             1999.
10.23        License and Technical Assistance Agreement, dated as of June
             7, 1999, by and between Delco Remy America, Inc. and the
             Registrant is incorporated herein by reference to Exhibits
             to the Registrant's Amendment No. 1 to the Quarterly Report
             on Form 10-Q for the period ended March 31, 1999.
10.24        Securities Purchase Agreement, dated as of August 25, 1999,
             among the Registrant and the purchasers listed on Schedule I
             thereto is incorporated herein by reference to Exhibits to
             the Registrant's Current Report on Form 8-K dated August 25,
             1999.
10.25        Registration Rights Agreement, dated as of August 25, 1999,
             among the Registrant and the investors named on the
             signature pages thereof is incorporated herein by reference
             to Exhibits to the Registrant's Current Report on Form 8-K
             dated August 25, 1999.
10.26        Form of Warrants issued on August 25, 1999 in connection
             with the sale of the Series A Preferred Stock is
             incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated August 25,
             1999.
10.27        Securities Purchase Agreement, dated as of October 21, 1999,
             between the Registrant and Mechanical Technology
             Incorporated is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated October
             21, 1999.
10.28        SatCon Registration Rights Agreement, dated as of October
             21, 1999, between the Registrant and Mechanical Technology
             Incorporated is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated October
             21, 1999.
10.29        MTI Registration Rights Agreement, dated as of October 21,
             1999, between Mechanical Technology Incorporated and the
             Registrant is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated October
             21, 1999.
10.30        Form of Stock Purchase Warrant issued on October 21, 1999 by
             the Registrant to Mechanical Technology Incorporated is
             incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated October 21,
             1999.
10.31        Form of Stock Purchase Warrant issued on October 21, 1999 by
             Mechanical Technology Incorporated to the Registrant is
             incorporated herein by reference to Exhibits to the
             Registrant's Current Report on Form 8-K dated October 21,
             1999.
10.32        Sublease, dated November 16, 1999, between the Registrant
             and Northrop Grumman Corporation is incorporated herein by
             reference to Exhibits to the Registrant's Current Report on
             Form 8-K dated November 16, 1999.
10.33        Transition Services Agreement, dated as of November 16,
             1999, between the Registrant and Northrop Grumman
             Corporation is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated
             November 16, 1999.
10.34        Memorandum of Understanding, entered into on November 16,
             1999, between the Registrant and Northrop Grumman
             Corporation is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated
             November 16, 1999.
10.35        Registration Rights Agreement, dated as of November 16,
             1999, between the Registrant and Northrop Grumman
             Corporation is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated
             November 16, 1999.
</TABLE>

                                      117
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                          DESCRIPTION
-----------                          -----------
<S>          <C>
10.36        Stock Purchase Warrant issued on February 4, 2000 by the
             Registrant to Northrop Grumman Corporation is incorporated
             herein by reference to the Registrant's Quarterly Report on
             Form 10-Q for the period ended December 31, 1999.
10.37        Promissory Note, dated October 6, 1999, made in favor of the
             Registrant by Michael C. Turmelle in the amount of $10,000,
             together with Promissory Note, dated December 6, 1999, made
             in favor of the Registrant by Michael C. Turmelle in the
             amount of $75,000, is incorporated herein by reference to
             the Registrant's Quarterly Report on Form 10-Q for the
             period ended December 31, 1999.
10.38        Demand Promissory Note, dated February 25, 2000, made in
             favor of the Registrant by Beacon Power Corporation in the
             amount of $300,000, together with First Amendment to Demand
             Promissory Note, dated March 16, 2000 is incorporated by
             reference to Exhibits to the Registrant's Quarterly Report
             on Form 10-Q for the period ended March 31, 2000.
10.39        Consulting Agreement, dated July 19, 2000, between the
             Registrant and Marshall J. Armstrong is incorporated herein
             by reference to the Registrant's Quarterly Report on Form
             10-Q for the period ended June 30, 2000.
10.40        Agreement between the Department of Energy and the
             Registrant is incorporated by reference to Exhibits to the
             Registrant's Annual Report on Form 10-K for the year ended
             September 30, 2000.
10.41        Master Lease Agreement, dated as of August 31, 2000, by and
             between General Electric Corporation and the Registrant is
             incorporated by reference to Exhibits to the Registrant's
             Quarterly Report on Form 10-Q for the period ended
             December 31, 2000.
10.42        Cooperation Agreement by and between the Registrant and
             Beacon Power Corporation, dated April 25, 2001, is
             incorporated herein by reference to Exhibits to the
             Registrant's Quarterly Report on Form 10-Q for the period
             ended March 31, 2001.
10.43        Warrant, dated May 25, 2001, issued to Brown Simpson
             Partners I, Ltd. is incorporated herein by reference to
             Exhibits to the Registrant's Current Report on Form 8-K
             dated May 25, 2001.
10.44        Amendment No. 1 to Registration Rights Agreement, dated as
             of May 25, 2001, among the Registrant and the parties whose
             names appear on Schedule I thereto is incorporated herein by
             reference to the Registrant's Current Report on Form 8-K
             dated May 25, 2001.
16           Letter Regarding Registrant's Change in Certifying
             Accountant is incorporated herein by reference to Exhibits
             to the Registrant's Current Report on Form 8-K dated May 12,
             1999.
21.1(**)     Subsidiaries of the Registrant.
23.1         Consent of Arthur Andersen LLP.
23.2         Consent of PricewaterhouseCoopers LLP.
23.3         Consent of Deloitte & Touche LLP.
99           Risk Factors.
</TABLE>

------------------------

(*) Management contract or compensatory plan or arrangement required to be filed
    as an Exhibit to the Annual Report on Form 10-K for the year ended
    September 30, 1999.

(**) Previously filed.

(+) Confidential treatment has been granted with respect to certain portions of
    this Exhibit.

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