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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Year Ended December 31, 2009

Commission file number 1-11512



SATCON TECHNOLOGY CORPORATION(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction of
incorporation or organization)

04-2857552(I.R.S. Employer Identification Number)27 Drydock Avenue, Boston, Massachusetts(Address of principal executive offices)

02210(Zip Code)


(617) 897-2400(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of Class

Name of Exchange on Which RegisteredCommon Stock, $.01 Par Value

The NASDAQ Stock Market, LLC


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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o    No o

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 or any amendment to
this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the registrant's Common Stock, $.01 par value per share, held by non-affiliates of the registrant was $126,313,220 based
on the last reported sale price of the registrant's Common Stock on the Nasdaq Capital Market as of the close of business on the last business day of the registrant's most recently completed second
quarter ($1.80). There were 71,001,440 shares of Common Stock outstanding as of February 28, 2010.

DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrant's Proxy Statement for its 2010 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.



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Satcon Technology Corporation

TABLE OF CONTENTS



PAGEPart IItem 1.

Business


3Item 1A.

Risk Factors


11Item 1B.

Unresolved Staff Comments


21Item 2.

Properties


21Item 3.

Legal Proceedings


21Item 4.

Submission of Matters to a Vote of Security Holders


21Part IIItem 5.

Market For Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities


22Item 6.

Selected Consolidated Financial Data


22Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operation


25Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


38Item 8.

Consolidated Financial Statements and Supplementary Data


40Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure


103Item 9A.

Controls and Procedures


103Item 9B.

Other Information


104Part IIIItem 10.

Directors, Executive Officers and Corporate Governance


104Item 11.

Executive Compensation


104Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters


104Item 13.

Certain Relationships and Related Transactions, and Director
Independence


104Item 14.

Principal Accounting Fees and Services


104Part IVItem 15.

Exhibits, Financial Statement Schedules


105Signatures


106


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PART I

This Annual Report on Form 10-K 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 statements 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. The forward-looking statements contained in this
Annual Report are generally located in the material set forth under the headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations," but may be found in other locations as well. Although we believe that these forward-looking statements reasonably reflect our plans, intentions and expectations disclosed in the
forward-looking statements, 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 under the heading "Risk Factors" under Item 1A that we believe could cause our actual results to differ materially from the forward-looking statements that
we make. Forward-looking statements contained in this Annual Report speak only as of the date of this report. Subsequent events or circumstances occurring after such date may render these statements
incomplete or out of date. We undertake no obligation and expressly disclaim any duty to update such statements.

Item 1.    BUSINESS

Overview

Satcon Technology Corporation ("Satcon" or "Company") is a world leading technology provider of utility grade power conversion
solutions for the renewable energy market. Our products feature the widest range of power ratings in the industry, and are utilized by businesses and utility companies to efficiently convert renewable
energy sources into stable and reliable electrical power.

Our
suite of photovoltaic and fuel cell power inverters offer rugged and reliable solutions that enhance the total output and power production of a solar installation. We also offer
system design services and solutions for management, monitoring, and performance measurement to maximize capital investment and improve overall quality and performance over the entire lifespan of an
installation.

Revenue Comparison with Prior Years

Consolidated revenues for the years ended December 31, 2009, 2008 and 2007 were as follows:

Year Ended December 31,2009

2008

2007United States

$
39,734,485

$
46,371,717

$
26,424,104International


12,801,148


7,921,617


6,608,537Total

$
52,535,633

$
54,293,334

$
33,032,641


These
numbers have been adjusted to reflect the January 2010 sale of our Satcon Applied Technology business unit and the September 2008 sales of our Electronics and Power Systems US
business units. See Note D (Discontinued Operations) to the Consolidated Financial Statements.

Industry Background & Market Opportunity

The worldwide demand for clean and renewable sources of energy, such as solar, is being driven globally by a variety of factors. These
factors include increasing electricity usage, power grid capacity constraints, fossil fuel price volatility, and harmful levels of pollution and greenhouse gases. As a result of these and other
challenges facing traditional energy sources, individuals, businesses, utilities and

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governments
are seeking more reliable, efficient and cleaner solutions for their power needs through renewable portfolio standards (RPS), tax incentives, and international treaties.

Within
this renewable energy market we believe that the fastest growth area for Satcon involves large-scale, utility grade renewable energy and distributed power generation. These
solutions require power quality control products to manage the performance of individual solar installations and monitor how it will interconnect with larger energy infrastructure (grid). In order to
be commercially viable and operate effectively, these solutions must be highly reliable, efficient, and deliver the command and control performance required to profitably manage multi-megawatt solar
power plants. Our intellectual property, in the form of technical expertise and innovative product offerings, uniquely positions the company to provide the next generation of large-scale, utility
grade renewable energy projects with the energy storage, power quality, and distributed power systems they will require.

Products

We deliver a full suite of power conversion solutions and services for large commercial and utility scale renewable energy
installations through our Renewable Energy Solutions business.

Renewable Energy Solutions

We produce a broad range of products to provide the critical bridge between clean energy sources and large-scale power grids, helping
companies meet the rising demand for clean energy with unparalleled efficiency and profitability.

Our
solutions for renewable energy consist of two core product offerings:





Our
solutions have powered a number of North America's high profile micro- and island-grid projects including:



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Revenues
for the years ended December 31, 2009, 2008 and 2007 from our Renewable Energy Solutions business unit were as follows:

Year Ended December 31,(Amounts in Millions)

2009

2008

2007Product RevenueAlternative Energy Products

$
47.7

$
52.2

$
25.4Other Legacy


4.8


2.1


7.6Total Product Revenue

$
52.5

$
54.3

$
33.0


Financial Results by Business Segment

In prior years we have included segment disclosures as it related to the operations of our business units. With the sale in 2008 of our
Electronics and Power Systems US business units and the classification in 2009 of our Applied Technology business unit as part of discontinued operations, we view our operations as one segment and as
one business unit. Accordingly, until such time as circumstances change and we determine that we have reportable segments, we will no longer report this information. See Note S to the
Consolidated Financial Statements included in this Annual Report on Form 10-K.

Satcon Product Attributes

We strive to meet our customers' needs by providing power conversion solutions and systems that encompass the following key
attributes:



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Sales, Marketing and Service

We sell our products and services through direct sales personnel, distributor arrangements and sales agent arrangements which comprise
a global market presence for Satcon. Our direct sales staff manages our key customer accounts, regional distributors and agents, as well as, provides customer support and identifies significant market
opportunities in their respective markets.

In
order to maximize our customer's return on assets and investment profitability, we offer a suite of services focused on delivering optimized design and installation support. We also
maintain localized customer service capabilities at sites throughout North America, Europe and Asia. Our services provide technical support throughout the entire lifespan of a product. We believe
these factors are essential to building close, long-term value for our customers, and maintaining our competitive edge.

Strategy

Our strategy is to drive revenue growth, expand our leadership position in key markets, and enhance operating results by increasing the
adoption of our products in the large commercial and utility scale renewable energy market. Our focus continues to be:



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Competition

We believe that competitive performance in the marketplace for power conversion and control products depends upon several factors,
including product price, technical innovation, product quality and reliability, range of products, customer service and technical support. Satcon remains focused on solving large-scale power
production challenges and we have aligned all resources within our organization behind this focus. Our technical innovation emphasizing product performance and reliability, supported by our commitment
to strong customer service and technical support, enables us to continue to compete successfully against our competitors. The following represent our main competitors:



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Our
ability to continue to compete successfully with these companies depends on our ability to continue to innovate through our products and services.

Significant Customers

There was one customer (SunPower Corporation) that was classified as a significant customer in 2009 due to sales to this customer
exceeding 10% of our annual revenue (approximately 14%). In addition, there was one customer (Enfinity, NV) that was classified as a significant customer in 2009 due to its gross receivable
balance at December 31, 2009 exceeding 10% of our total gross receivables at December 31, 2009 (approximately 10%).

For
2008, two customers (SunPower Corporation and Fuel Cell Energy) were classified as significant customers due to sales to each customer exceeding 10% of our annual revenues
(approximately 12% and 17%, respectively) and both customers' accounts receivable balance exceeded 10% of our total gross accounts receivable at December 31, 2008 (approximately 14% and 14%,
respectively).

Backlog

Our backlog consists primarily of orders for power control systems and product development contracts. At December 31, 2009, our
backlog was approximately $11.9 million. Of this amount, approximately $11.9 million is scheduled to be shipped during 2010. 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.

Research and Development

We believe that the continued and timely development of new products and enhancements to our existing products is necessary to maintain
our competitive position. We use technologies developed by our business units, 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.

We
expended approximately $8.4 million, $5.1 million and $2.3 million on internally-funded research and development during the years ended December 31, 2009,
2008 and 2007, respectively.

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Manufacturing Facilities

We manufacture our products at our facilities located in Burlington, Ontario, Canada, Boston, Massachusetts and through our contract
manufacturing partner in Asia. Our overall manufacturing process has a current production capacity of approximately 800MW per year.

Reducing
product cost is essential to our ability to further penetrate the market with our power conversion solutions and service offerings. 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. We have
made and expect to continue to make technological improvements that reduce the costs to manufacture our products.

Our
manufacturing facilities are subject to certain environmental laws and regulations, particularly with respect to industrial waste and emissions. Compliance with these laws and
regulations has not had a material impact on our capital expenditures or competitive position.

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 technologies. 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.

Innovation
is at the core of our business. Satcon's success in transitioning its technology development programs to commercially successful solutions has been consistently recognized by
governments and industry. A select list of awards and recognitions is included below:



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As
of December 31, 2009, we held approximately 47 U.S. patents and had 2 patent applications pending with the U.S. Patent and Trademark Office. The expiration dates of our patents
range from 2011 to 2027, with the majority expiring after 2015.

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

Foreign Operations

We have foreign operations through our facility in Burlington, Ontario, Canada and our sales and service offices in Prague, Czech
Republic, Shenzhen, China and Shanghai, China.

Government Regulation

We presently are subject to various federal, state and local laws and regulations relating to, among other things, export control
energy generation, 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 the necessary government permits and have been in substantial compliance with all of these applicable laws and regulations.

Government Contracts

On occasion we act as a prime contractor or major subcontractor for many different U.S. government programs that involve 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 generally pays
compensation for work 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 re-procurement costs.

Our
government contracts are also subject to specific procurement statutes and regulations and a variety of socio-economic and other factors. 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.
With the sale of our Applied Technology business unit in January 2010 we have no significant revenues from continuing operations being derived from government contracts.

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Employees

At December 31, 2009, we had a total of 226 full-time employees, 8 part-time employees and 34 contract
employees. Of the total, 90 persons were employed in engineering, 115 in manufacturing, 44 in administration and 19 in sales and marketing. Our future success depends in large part on the continued
service of our key technical and senior management personnel, and on our ability to attract, retain and motivate qualified employees, particularly those highly skilled design, process and test
engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a
material adverse effect on us. None of our employees are represented by a union. We believe that relations with our employees are good.

Reports

Our web site iswww.Satcon.com.We make available on this site our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after such reports are electronically filed with the SEC. These reports may be accessed through our website: http://investor.Satcon.com.

Item 1A.    Risk Factors

The risks described below may materially impact your investment in our company or may in the future, and, in
some cases already do, materially affect us and our business, financial condition and results of operations. You should carefully consider these factors with respect to your investment in our
securities. This section includes or refers to certain forward-looking statements; you should read the explanation of the qualifications and limitations on such forward-looking statements beginning on
pages 4 of this report.

Risks Related to Our Company

We have a history of operating losses, may not be able to achieve profitability and may require additional capital in order to sustain our businesses.

For each of the past ten fiscal years, we have experienced losses from operating our businesses. As of December 31, 2009, we had
an accumulated deficit of approximately $231.7 million. During the year ended December 31, 2009 we had a loss from continuing operations of approximately $30.0 million. If,
however, we are unable to operate on a cash flow breakeven basis in the future, we may need to raise additional capital in order to sustain our operations. There can be no assurance that we will be
able to achieve such results or to raise such funds if they are required.

We could issue additional common stock, which might dilute the book value of our common stock.

We have authorized 200,000,000 shares of our common stock, of which 70,567,781 shares were issued and outstanding as of
December 31, 2009. Our board of directors has the authority, without action or vote of our stockholders in most cases, to issue all or a part of any authorized but unissued shares. Such stock
issuances may be made at a price that reflects a discount from the then-current trading price of our common stock. In addition, in order to raise the capital that we may need at today's
stock prices, we will need to issue securities that are convertible into or exercisable for a significant amount of our common stock. These issuances would dilute your percentage ownership interest,
which will have the effect of reducing your influence on matters on which our stockholders vote, and might dilute the book value of our common stock. You may incur additional dilution of net tangible
book value if holders of stock options, whether currently outstanding or subsequently granted, exercise their options or if warrant holders exercise their warrants to purchase shares of our common
stock.

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The sale or issuance of a large number of shares of our common stock could depress our stock price.

As of February 28, 2010, we have reserved 35,636,364 shares of common stock for issuance upon exercise of stock options and
warrants and 9,015,820 shares for future issuances under our stock plans. We have also reserved 251,678 shares of common stock for issuance upon conversion of the outstanding Series B Preferred
Stock, which can be converted at any time. In addition, we have reserved 24,038,461 shares of common stock for issuance upon conversion of the outstanding Series C Preferred Stock, which can be
converted at any time. As of March 1, 2010, holders of warrants and options to purchase an aggregate of 30,310,731 shares of our common stock may exercise those securities and transfer the
underlying common stock at any time subject, in some cases, to Rule 144.

The execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for our customers, and is affected by general
economic conditions.

The
current recessionary condition of the general economy and limited availability of credit and liquidity could materially and adversely affect our business
and results of operations. Many purchasers of our inverters and other products require financing from third-parties to finance their operations. Given the current recession and the restricted credit
markets, certain of our
customers may be unable or unwilling to finance the cost to purchase our products or may be forced to cancel previously submitted orders or delay taking shipment until suitable credit is again
available. Collecting payment from customers facing liquidity challenges may also be difficult. These factors could materially and adversely affect our anticipated revenue and growth and, accordingly,
our results of operations, cash flows and financial condition.

If we are unable to maintain our technological expertise in design and manufacturing processes, we will not be able to successfully compete.

We believe that our future success will depend upon our ability to develop and provide products that meet the changing needs of our
customers. This requires that we successfully anticipate and respond to technological changes in design and manufacturing processes in a cost-effective and timely manner. As a result, we
continually evaluate the advantages and feasibility of new product design and manufacturing processes. We cannot, however, assure you that our process improvement efforts will be successful. The
introduction of new products embodying new technologies and the emergence of shifting customer demands or changing industry standards could render our existing products obsolete and unmarketable,
which would have a significant impact on our ability to generate revenue. Our future success will depend upon our ability to continue to develop and introduce a variety of new products and product
enhancements to address the increasingly sophisticated needs of our customers. We may experience delays in releasing new products and product enhancements in the future. Material delays in introducing
new products or product enhancements may cause customers to forego purchases of our products and purchase those of our competitors.

The U.S. government has certain rights relating to our intellectual property.

Many of our patents are the result of inventions made under U.S. government-funded research and development programs. With respect to
any invention made with government assistance, the government has a nonexclusive, nontransferable, irrevocable, paid-up license to use the technology or have the technology employed for or
on behalf of the U.S. government throughout the world. Under certain conditions, the U.S. government also has "march-in rights," which 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.

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Our business could be adversely affected if we are unable to protect our patents and proprietary technology.

As of February 28, 2010, we held approximately 47 U.S. patents and had 2 patent applications pending with the U.S. Patent and
Trademark Office. The expiration dates of our patents range from 2011 to 2027, with the majority expiring after 2015. As a qualifying small business from our inception to date, we have retained
commercial ownership rights to proprietary technology developed under various U.S. government contracts and grants.

Our
patent and trade secret rights are of significant importance to us and to our future prospects. Our ability to compete effectively against other companies in our industry will
depend, in part, on our ability to protect our proprietary technology and systems designs relating to our products. Although we have attempted to safeguard and maintain our proprietary rights, we do
not know whether we have been or will be successful in doing so. Further, our competitors may independently develop or patent technologies that are substantially equivalent or superior to ours. No
assurance can be given as to the issuance of additional patents or, if so issued, as to their scope. Patents granted may not provide meaningful protection from competitors. Even if a competitor's
products were to infringe patents owned by us, it would be costly for us to pursue our rights in an enforcement action and there can be no assurance that we would be successful in enforcing our
intellectual property rights. Because we intend to enforce our patents, trademarks and copyrights and protect our trade secrets, we may be involved from time to time in litigation to determine the
enforceability, scope and validity of these rights. This litigation could result in substantial costs to us and divert resources from operational goals. In addition, effective patent, trademark,
service mark, copyright and trade secret protection may not be available in every country where we operate or sell our products. In addition, certain of our customers may request that we provide them
with assurances that elements of our intellectual property be available for their use in the event that we are prevented from satisfying our service and warranty obligations to them or their
customers.

We may not be able to maintain confidentiality of our proprietary knowledge.

In addition to our patent rights, we also rely on treatment of our technology as trade secrets through confidentiality agreements,
which all of our employees are required to sign, assigning to us all patent rights and other intellectual property developed by our employees during their employment with us. Our employees have also
agreed not to disclose any trade secrets or confidential information without our prior written consent. We also rely on non-disclosure agreement to protect our trade secrets and
proprietary knowledge. These agreements may be breached, and we may not have adequate remedies for any breach. Our trade secrets may also be known without breach of these agreements or may be
independently developed by competitors. Failure to maintain the proprietary nature of our technology and information could harm our results of operations and financial condition by reducing or
eliminating our technological advantages in the marketplace.

Others may assert that our technology infringes their intellectual property rights.

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

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Our success is dependent upon attracting and retaining highly qualified personnel and the loss of key personnel could significantly hurt our business.

To achieve success, we must attract and retain highly qualified technical, operational and executive employees. The loss of the
services of key employees or an inability to attract, train and retain qualified and skilled employees, specifically engineering, operations and business development personnel, could result in the
loss of business or could otherwise negatively impact our ability to operate and grow our business successfully.

We expect significant competition for our products and services.

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

We are dependent on third-party suppliers for the supply of key components for our products.

We use third-party suppliers for components in many of our systems. From time to time, shipments can be delayed because of
industry-wide or other shortages of necessary materials and components from third-party suppliers. A supplier's failure to supply components in a timely manner, or to supply components
that meet our quality, quantity or cost requirements, or our inability to obtain substitute sources of these components on a timely basis or on terms acceptable to us, could impair our ability to
deliver our products in accordance with contractual obligations.

We are in the process of establishing a contract manufacturing relationship with a Chinese supplier for certain of our inverter products.

We
are in the process of commencing a contract manufacturing relationship with a supplier in Asia for the manufacture of certain of our inverters as a means of
reducing our costs and increasing the quality for those products, thereby enabling us to maintain a competitive advantage in the marketplace for these products. Our Asian partner, working closely with
us, will in turn be developing a common Asian supply chain for the components that are incorporated into our inverters. While we believe that our Asian contract manufacturer is qualified to
manufacture these inverters for us, we may need to address short-term quality and delivery scheduling issues as we develop this new supply chain for these inverters. If we were to
encounter significant quality or delivery schedule concerns it might materially and adversely affect our relationships with customers for these inverters and our results of operations.

If we experience a period of significant growth or expansion, it could place a substantial strain on our resources.

If our power control products are successful in achieving rapid market penetration, we may be required to deliver large volumes of
technically complex products or components to our customers on a timely basis at reasonable costs to us. We have limited experience in ramping up our manufacturing capabilities to meet large-scale
production requirements and delivering large volumes of our power

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control
products. If we were to commit to deliver large volumes of our power control products, we cannot assure you that we will be able to satisfy large-scale commercial production on a timely and
cost-effective basis or that such growth will not strain our operational, financial and technical resources.

Our business could be subject to product liability claims.

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

We are subject to a variety of environmental laws that expose us to potential financial liability.

Our operations are regulated under a number of federal, state and foreign environmental and safety laws and regulations that govern,
among other things, the discharge or release of hazardous materials into the air and water as well as the handling, storage and disposal of these materials. These laws and regulations include the
Clean Air Act, the Clean Water Act, the Resource, Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act, as well as analogous state and foreign
laws. Because we use hazardous materials in certain of our manufacturing processes, we are required to comply with these environmental laws. In addition, because we generate hazardous wastes, we,
along with any other person who arranges for the
disposal of our wastes, may be subject to potential financial exposure for costs associated with an investigation and remediation of sites at which we have arranged for the disposal of hazardous
wastes if those sites become contaminated and even if we fully comply with applicable environmental laws. If we were found to be a responsible party, we could be held jointly and severably liable for
the costs of remedial actions. To date, we have not been cited for any improper discharge or release of hazardous materials.

Businesses and consumers might not adopt alternative energy solutions as a means for obtaining their electricity and power needs.

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



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

Our quarterly operating results are subject to fluctuations, and if we fail to meet the expectations of securities analysts or investors, our share price may decrease
significantly.

Our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control. Because our
operating expenses are based on anticipated revenue levels, our sales cycle for development work is relatively long and a high percentage of our expenses are fixed for the short term, a small
variation in the timing of recognition of revenue can cause significant variations in operating results from quarter to quarter. If our earnings do not meet the expectations of securities analysts or
investors, the price of our stock could decline.

Provisions in our charter documents and Delaware law may delay, deter or prevent the acquisition of Satcon, which could decrease the value of your shares.

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



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

We are subject to stringent export laws and risks inherent in international operations.

We market and sell our products and services both inside and outside the United States. We are currently selling our products and
services throughout North America and in certain countries in South America, Asia and Europe. Certain of our products are subject to the International Traffic in Arms Regulations (ITAR) 22 U.S.C 2778,
which restricts the export of information and material that may be used for military or intelligence applications by a foreign person. Additionally, certain products of ours are subject to export
regulations administered by the Department of Commerce, Bureau of Industry Security, which require that we obtain an export license before we can export certain products or technology. Failure to
comply with these laws could result in enforcement responses by the government, including substantial monetary penalties, denial of export privileges, debarment from government contracts and possible
criminal sanctions.

Revenue
from sales to our international customers for the years ended December 31, 2009, 2008 and 2007 were approximately $13.0 million, $7.9 million and
$6.6 million, respectively. Our success depends, in part, on our ability to expand our market for our products and services to foreign customers and our ability to manufacture products that
meet foreign regulatory and commercial

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requirements.
We have limited experience developing and manufacturing our products to comply with the commercial and legal requirements of international markets. We face numerous challenges in
penetrating international markets, including unforeseen changes in regulatory requirements, export restrictions, fluctuations in currency exchange rates, longer accounts receivable cycles,
difficulties in managing international operations, and the challenges of complying with a wide variety of foreign laws.

We are exposed to credit risks with respect to some of our customers.

To
the extent our customers do not advance us sufficient funds to finance our costs during the execution phase of our contracts, we are exposed to the risk
that they will be unable to accept delivery or that they will be unable to make payment at the time of delivery. Occasionally, we accept the risk of dealing with thinly financed entities. In addition,
the parent of one of our customers has filed for bankruptcy. To date, we have never received any orders from this customer but there can be no assurance that the bankruptcy filing will not impact the
availability of credit to that customer or the submission of potential orders to us. We attempt to mitigate this risk by seeking to negotiate more timely progress payments and utilizing other risk
management procedures.

Our loan agreement with Silicon Valley Bank subjects us to various restrictions, which may limit our ability to pursue business opportunities.

Our
loan agreement with Silicon Valley Bank subjects us to various restrictions on our ability to engage in certain activities without the prior written
consent of the bank, including, among other things, our ability to:



The
agreement also subjects us to various financial and other covenants with which we must comply on an ongoing or periodic basis. The financial covenant requires us to maintain a
minimum level of tangible net worth, as defined, which varies from month to month. If we violate this or any other covenant, any outstanding debt under this agreement could become immediately due and
payable, the bank could proceed against any collateral securing indebtedness and our ability to borrow funds in the future may be restricted or eliminated. These restrictions may also limit our
ability to pursue business opportunities or strategies that we would otherwise consider to be in the best interests of the Company.

The holders of our certain of our outstanding warrants have the right to put those warrants to us for cash if we issue common stock or common stock equivalents at a price
per share less than $1.65.

As
of February 28, 2010, we had outstanding Warrant As to purchase up to an aggregate of 2,005,911 shares of common stock and Warrant Cs to purchase up
to an aggregate of 946,971shares of common stock. The holder of those warrants may put those warrants to us for a cash amount equal to their Black-Scholes value if we issue common stock or common
stock equivalents at a price per share less than $1.65, subject to certain exceptions. These rights are exercisable for the 45-day period following any such issuance. The existence of
these rights could limit our ability to raise necessary capital in the future. Furthermore, the exercise of these rights could materially impact our capital resources and materially affect our ability
to fund operations.

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Risks Related to Our Private Placement of Series C Preferred Stock and Related Warrants

The holders of our Series C Preferred Stock are entitled to receive liquidation payments in preference to the holders of our common stock.

As of February 28, 2010, 25,000 shares of our Series C Preferred Stock were outstanding. Upon a liquidation of our
company, the holders of shares of Series C Preferred Stock are entitled to receive a liquidation payment prior to the payment of any amount with respect to the shares of our common stock. The
amount of this preferential liquidation payment is the greater of (i) $1,000 per share of Series C Preferred Stock, plus the amount of any accrued but unpaid dividends on those shares,
or (ii) the amount per share that a holder would have received if, immediately prior to the liquidation, that holder's share had been converted to our common stock. Dividends accrue on the
shares of Series C Preferred Stock at a rate of 5% per annum. Because of the substantial liquidation preference to which the holders of the Series C Preferred Stock are entitled, the
amount available to be distributed to the holders of our common stock upon a liquidation of our company could be substantially limited or reduced to zero.

We are responsible for having the resale of shares of common stock underlying the Series C Preferred Stock and related warrants registered with the SEC within defined
time periods and will incur liquidated damages if the shares are not registered with the SEC within those defined time periods.

Pursuant
to our agreement with the investors in the Series C Preferred Stock financing transaction, we were obligated to (i) file a
registration statement covering the resale of the common stock underlying the Series C Preferred Stock and related warrants with the SEC by the earlier of (x) five business days after we
filed our 2007 Annual Report on Form 10-K and (y) April 7, 2008 (which we satisfied), (ii) use our best efforts to cause the registration statement to be
declared effective within 60 days following the required filing date (which we satisfied), and are required to (iii) use our best efforts to keep the registration statement effective
until the earlier of (x) the date all of the securities covered by the registration statement have been publicly sold and (y) the date all of the securities covered by the registration
statement may be sold without restriction under SEC Rule 144. If we fail to comply with these or certain other provisions, then we will be required to pay liquidated damages of one twentieth of
a percent (.05%) of the aggregate purchase price paid by the investors for the securities that can be registered on the registration statement for each day the failure continues. The total liquidated
damages under this provision are capped at 9.9% of the aggregate purchase price paid by the investors in the private placement. Any such payments could materially affect our ability to fund
operations.

The certificate of designation governing the Series C Preferred Stock contains various covenants and restrictions which may limit our ability to operate our
business.

Under
the certificate of designation governing the Series C Preferred Stock we are not permitted, without the affirmative vote or written consent of the
holders of 50% of the Series C Preferred Stock, directly or indirectly, to take any of the following actions or agree to take any of the following actions:



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These
restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities, any of which could have a material
adverse impact on our business.

The holders of the Series C Preferred Stock will have substantial voting power on matters submitted to a vote of stockholders.

Generally,
the holders of Series C Preferred Stock are entitled to vote on all matters on which the holders of our common stock are entitled to vote,
voting together with the holders of our common stock as a single class. Each share of Series C Preferred Stock is entitled to 694 votes. Based on 71,001,440 shares of common stock outstanding
as of February 28, 2010, the outstanding shares of Series C Preferred Stock represent, in the aggregate, 19.6% of the voting power of our stock. The voting percentage held by the
investors would increase to the extent the shares of Series C Preferred Stock are converted or the warrants issued in the private placement are exercised. Because the investors will own a
significant percentage of our voting power, they may have considerable influence in determining the outcome of any corporate transaction or other matter submitted to our stockholders for approval,
including the election of directors and approval of merger, consolidations and the sale of all or substantially all of our assets.

In
addition, the ownership by the investors of a substantial percentage of our total voting power and the terms of the Series C convertible preferred stock could make it more
difficult and expensive for a third party to pursue a change of control of our company, even if a change of control would generally be beneficial to our stockholders.

The Series C Preferred Stock is redeemable at the option of the holders under certain circumstances.

On
or after November 8, 2011, the holders of two-thirds of the outstanding shares of Series C Preferred Stock may require us to
redeem all or any portion of the outstanding shares of Series C Preferred Stock. The redemption price is equal to 120% of the stated liquidation preference amount, to the extent that the
redemption is made in cash, or 140% of the stated liquidation preference amount to the extent that, at our election, the redemption is made in shares of our common stock. If the redemption is made in
shares of common stock, the shares will be based on the fair market value of the common stock, based on a 10 day volume weighted average, as of the redemption date. Depending on our cash
resources at the time that this redemption right is exercised, we may or may not be able to fund the redemption from our available cash resources. If we were unable to fund the redemption from
available cash we would need to find an alternative source of financing to do so. The can be no

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assurances
that we would be able to raise such funds if they are required. If we were not able to finance the redemption in cash, we would have to make the redemption payment in shares of our common
stock which would be dilutive to our common stockholders.

The investors in our private placement of Series C Preferred Stock will have the right to designate up to four individuals to be elected to our board of
directors.

In
the purchase agreement, we agreed that for as long as each investor beneficially owns at least 25% of the Series C Preferred Stock and warrants
issued to them in the private placement, each investor would be entitled to designate one individual to be nominated to our board of directors. We also agreed that as long as either investor or both
investors beneficially owns at least 25% of the Series C Preferred Stock and warrants issued to them in the private placement, we would include one investor designee in the corporate governance
and nominating committee and one investor designee on the compensation committee of our board of directors. Upon the first closing, our board of directors elected Philip J. Deutch, as the designee of
NGP Energy Technology Partners, L.P., and David J. Prend, as the designee of RockPort Capital Partners II, L.P., to serve on our board.

Upon
the second closing, as required under the purchase agreement, our board of directors was reduced from nine directors to seven directors, and the investors jointly had the right to
designate one additional director who is "independent" (as that term is defined in the regulations of the Nasdaq Stock Market) to serve as a director. Accordingly, effective as of the second closing,
three existing directors resigned and the board duly appointed Robert G. Schoenberger, Chairman of the Board and Chief Executive Officer of Unitil Corporation, as the investors' additional independent
designee. However, in the event the size of our board of directors is increased to nine members in order to comply with Nasdaq rules, the investors will be entitled to designate an additional
independent director.

The
number of investor designees will be appropriately adjusted to the extent required by the applicable rules of Nasdaq.

Because
the holders of Series C Preferred Stock will have the right to designate these members to our board of directors, as well as designees to serve on our board committees,
they will be able to exert considerable influence over the board level decision-making at our company.

The Series C Preferred Stock private placement had a substantial dilutive effect on our common stock, and subsequent anti-dilution adjustments could
increase the dilutive effect.

Consummation
of the private placement had a substantial dilutive effect on our common stockholders. The aggregate number of shares issued pursuant to the
private placement substantially increased the number of shares of our capital stock outstanding on an as converted basis. As a result, the percentage ownership of our common stockholders significantly
declined as a result of the private placement. As a result of the private placement, the investors own approximately 46.77% of the outstanding shares of our capital stock, on an as converted basis
assuming conversion of all the shares of Series C Preferred Stock and exercise of all warrants (excluding the additional warrants that may be issued from time to time upon the exercise of
certain existing warrants).

Furthermore,
the anti-dilution protection provided to both the Series C Preferred stock and the warrants could substantially increase the number of shares of our
common stock currently outstanding. Upon a dilutive issuance, the conversion price or exercise price will be adjusted down and the number of shares issuable upon conversion or exercise of the
Series C Preferred Stock and warrants will increase. Accordingly, if any shares of our capital stock are issued below the current conversion price, there will be additional dilution.

Finally,
sales in the public market of the common stock acquired upon conversion of the Series C Preferred Stock or exercise of the warrants, or the perception that such sales
could occur, could

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adversely
affect the prevailing market price of our common stock and impair our ability to raise funds in additional stock financings.

Item 1B.    UNRESOLVED STAFF COMMENTS

None.

Item 2.    PROPERTIES

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

Location

Primary Use

Approximate
Number of
Square Feet

Expiration
of LeaseBoston, MA

Corporate headquarters and research and development


28,000


2011Boston, MA

Research and development and manufacturing


16,000


2016Freemont, CA

Sales and marketing


8,000


2011Burlington, Ontario, Canada

Manufacturing


60,000


2010Prague, Czech Republic

Sales and marketing


5,000


2014Shenzhen, China

Sales and marketing


8,000


2011Shanghai, China

Sales and marketing


5,000


2011


We
believe our facilities are adequate for our current needs and that adequate facilities for expansion, if required, are available.

Item 3.    LEGAL PROCEEDINGS

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 or net cash flows.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is publicly traded on the Nasdaq Capital 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 Capital Market for our years ended December 31, 2008 and 2009:

High

LowYear ended December 31, 2008First Quarter

$
2.14

$
1.39Second Quarter

$
3.32

$
1.77Third Quarter

$
2.84

$
1.80Fourth Quarter

$
1.93

$
1.44Year ended December 31, 2009First Quarter

$
1.88

$
1.10Second Quarter

$
2.43

$
1.64Third Quarter

$
2.27

$
1.69Fourth Quarter

$
2.82

$
1.86


On
March 1, 2010, the last reported sale price of our common stock as reported on the Nasdaq Capital Market was $2.45 per share. As of March 1, 2010, there were 71,001,440
shares of our common stock outstanding held by approximately 225 holders of record. The number of record holders does not include beneficial owners of common stock whose shares are held in the names
of banks, brokers, nominees or other fiduciaries.

Dividend Policy

We have never paid cash 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. In addition, under the terms of our
Series B Preferred Stock, we may not pay dividends on our common stock without the consent of the holders of at least 75% of the outstanding shares of Series B Preferred Stock.
Furthermore, under the terms of our Series C Preferred Stock, we may not pay dividends on our common stock without the consent of the holders of at least 67% of the outstanding Series C
Preferred Stock. In addition, we may not pay dividends on our common stock, unless we have paid all dividends owing on the Series B Preferred Stock and Series C Preferred Stock. Finally,
under our credit facility with Silicon Valley Bank, we may not pay dividends on our common stock without the consent of the Bank.

Recent Sales of Unregistered Securities

None

Item 6.    SELECTED CONSOLIDATED FINANCIAL DATA

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. The selected consolidated financial data set forth
below for the years ended December 31, 2009, 2008 and 2007, and the consolidated balance sheet data as of December 31, 2009 and 2008 are derived from our audited

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consolidated
financial statements appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of operations data for the year ended
December 31, 2006, the three month transition period ended December 31, 2005 and our fiscal year ended September 30, 2005 and the consolidated balance sheet data as of
December 31, 2007, 2006 and 2005 and September 30, 2005 are derived from our audited consolidated financial statements that are not included in this Annual Report on
Form 10-K. All data set forth below has been adjusted to reflect the classification of our Applied Technology business unit's assets as a discontinued operation, as the sale was
finalized in the first quarter of 2010, along with the sale of our Electronics and Power Systems US business units, which were finalized in the third quarter of 2008. The results of operations for the
Applied Technology, the Electronics and the Power Systems US business units are captured in the line item "Loss from discontinued operations" below. See Note D (Discontinued Operations) to the
Consolidated Financial Statements.

Year Ended December 31,

Three
Months Ended
December 31,

Fiscal
Year Ended
September 30,2009

2008

2007

2006

2005

2005Statement of Operations DataProduct revenue

$
52,536

$
54,293

$
33,033

$
14,164

$
1,817

$
11,556Cost of product revenue


49,334


45,818


33,456


13,545


1,888


10,462Gross margin

$
3,202

$
8,475

$
(423
)
$
619

$
(72
)
$
1,095Operating expenses:Research and development


8,411


5,061


2,256


611


10


56Selling, general and administrative


18,169


14,575


7,980


8,129


1,469


6,140Restructuring charges


261


1,307





1,419





(256
)Gain on sale of assets











(406
)




(318
)Write-off of impaired long-lived assets











(1,612
)




(0
)Total operating expenses from continuing operations

$
26,841

$
20,944

$
10,236

$
8,141

$
1,479

$
5,622Operating loss

$
(23,640
)
$
(12,468
)
$
(10,660
)
$
(7,522
)
$
(1,550
)
$
(4,527
)Net unrealized loss on warrnats to purchase common stock

















(7
)Change in fair value of notes and warrants


(5,722
)

265


(2,252
)

(4,192
)




Other income (expense)


(287
)

707


(546
)

35


(65
)

(120
)Interest income


9


216


280


384


47


42Interest expense


(324
)

(329
)

(3,788
)

(1,493
)

(73
)

(634
)Net loss from continuing operations

$
(29,964
)
$
(11,610
)
$
(16,965
)
$
(12,788
)
$
(1,641
)
$
(5,246
)Income (loss) from discontinued operations, net


92


(1,869
)

(801
)

(6,990
)

333


(4,999
)Gain on sale of discontinued operations, net





274











Net loss

$
(29,872
)
$
(13,205
)
$
(17,766
)
$
(19,778
)
$
(1,308
)
$
(10,246
)Deemed dividend and accretion on Series C preferred stock and warrants


(3,777
)

(2,975
)










Dividend on Series C preferred stockholders


(1,396
)

(1,250
)

(12,048
)







Net loss attributable to common stockholders

$
(35,044
)
$
(17,429
)
$
(29,814
)
$
(19,778
)
$
(1,308
)
$
(10,246
)Net loss attributable to common stockholders per weighted average share, basic and diluted

$
(0.57
)
$
(0.34
)
$
(0.66
)
$
(0.50
)
$
(0.03
)
$
(0.31
)Weighted average number of common shares, basic and diluted


61,727


50,685


45,434


39,290


38,356


32,900


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Year Ended December 31,

Three
Months Ended
December 31,

As of
September 30,(in thousands)2009

2008

2007

2006

2005

2005Balance Sheet DataCash and cash equivalents, including restricted cash and cash equivalents

$
13,403

$
10,042

$
12,700

$
8,275

$
9,279

$
6,711Total assets


48,692


36,897


46,609


30,577


28,328


27,732Working capital


14,530


12,005


19,616


6,007


10,690


11,393Redeemable convertible Series B preferred stock


375


1,450


1,700


1,725


2,125


2,125Redeemable convertible Series C preferred stock


22,257


17,249


13,276








Convertible subordinated debentures











12,740





Investor warrant and placement agent warrant liability


4,977


2,407


3,244


2,921





Other long-term liabilities, net of current portion


5,812


2,571


1,679


108


452


460Stockholders' equity (deficit)

$
(14,033
)
$
(9,185
)
$
4,363

$
(2,468
)
$
14,501

$
15,602


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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Information

This Annual Report on Form 10-K, including, without limitations, this Item 7, 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
statements 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 under the heading "Risk Factors" under Item 1A above that we
believe could cause our actual results to differ materially from the forward-looking statements that we make. Forward-looking statements contained in this Annual Report speak only as of the date of
this report. Subsequent events or circumstances occurring after such date may render these statements incomplete or out of date. We undertake no obligation and expressly disclaim any duty to update
such statements.

Overview

We are a world leading technology provider of utility grade power conversion solutions for the renewable energy market. Our products
feature the widest range of power ratings in the industry, and are utilized by businesses and utility companies to efficiently convert renewable energy sources into stable and reliable electrical
power.

Our
suite of photovoltaic and fuel cell power inverters offer rugged and reliable solutions that enhance the total output and power production of a solar installation. We also offer
system design services and solutions for management, monitoring, and performance measurement to maximize capital investment and improve overall quality and performance over the entire lifespan of an
installation.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of our operations are based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires
management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition,
receivable reserves, inventory reserves, goodwill and intangible assets, contract losses and income taxes. Management bases its estimates on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting estimates were discussed with our Audit Committee.

The
significant accounting policies that management believes are most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition

We recognize revenue from product sales in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Product
revenue is recognized when there is persuasive evidence of an

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arrangement,
the fee is fixed or determinable, delivery of the product to the customer has occurred and we have determined that collection of the fee is probable. Title to the product passes upon
shipment of the product, as the products are typically 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. If the product requires specific customer acceptance, revenue is deferred until customer acceptance occurs or the
acceptance provisions lapse, unless we can objectively and reliably demonstrate that the criteria specified in the acceptance provisions are satisfied. When appropriate, we provide for a warranty
reserve at the time the product revenue is recognized. If a contract involves the provisions of multiple elements and the elements qualify for separation, total estimated contact revenue is allocated
to each element based on the relative fair value of each element provided. The amount of revenue allocated to each element is limited to the amount that is not contingent upon the delivery of another
element in the future. Revenue is recognized on each element as described above.

We
perform funded research and development and product development for commercial companies and government agencies under both cost reimbursement and fixed-price contracts through our
discontinued Applied Technology division and through our engineering group. 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 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 services are
performed. In each type of contract, we receive periodic progress payments or payment upon reaching interim milestones and retain the rights to the intellectual property developed in government
contracts. 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. The Defense Contract Audit Agency has agreed-upon the final indirect cost rates for the fiscal year ended September 30, 2004. When the current estimates of total
contract revenue and contract costs for product development contracts indicate a loss, a provision for the entire loss on the contract is recorded. As of December 31, 2008 and 2007, we have
accrued approximately $1.1 million and $1.3 million, respectively, for anticipated contract losses on commercial contracts. For the year ended December 31, 2009 there have been no
provisions for anticipated contract losses on commercial contracts. With the sale of Applied Technology subsidiary we expect revenue from
the percentage of completion type contracts or from cost reimbursement contracts in future periods to be nominal.

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

Deferred
revenue consists of payments received from customers in advance of services performed, product shipped or installation completed. When an item is deferred for revenue
recognition purposes, the deferred revenue is recorded as a liability and the deferred costs are recorded as a component of inventory in our consolidated balance sheets. Deferred revenue also consists
of cash received for extended product warranties.

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.

Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for
uncollectible amounts is based primarily on a specific analysis

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of
accounts in the receivable portfolio and historical write-off experience. While management believes the allowance to be adequate, if the financial condition of our customers were to
deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

Inventory

We value our inventory at the lower of actual cost to purchase and/or manufacture the inventory or the current estimated market value
of the inventory, and costs are
determined based on the first-in, first-out method of accounting and include material, labor and manufacturing overhead costs. We periodically review inventory quantities on
hand and record a provision for excess and/or obsolete inventory within cost of sales based primarily on our historical usage, as well as based on estimated forecast of product demand. A significant
decrease in demand for our products could result in a short-term increase in the cost of inventory purchases and an increase of excess inventory quantities on hand. In addition, our
industry is characterized by rapid technological change, frequent new product development, and rapid product obsolescence that could result in an increase in the amount of obsolete inventory
quantities on hand. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our inventory and our reported operating results.

Warranty

We offer warranty coverage for our products for periods typically ranging from 1 to 5 years after shipment. We estimate the
anticipated costs of repairing products under warranty based on the historical or expected cost of the repairs and expected failure rates. The assumptions used to estimate warranty accruals are
reevaluated quarterly, at a minimum, in light of actual experience and, when appropriate, the accruals or the accrual percentage is adjusted based on specific estimates of project repair costs and
quantity of product returns. Our determination of the appropriate level of warranty accrual is based on estimates of the percentage of units affected and the repair costs. Estimated warranty costs are
recorded at the time of sale of the related product, and are recorded within cost of sales in the consolidated statements of operations.

Convertible Debt Instruments and Warrant Liabilities

We accounted for our senior secured convertible notes (the "Convertible Notes"), which were paid off on November 7, 2007, and
associated warrants as a hybrid instrument. The Convertible Notes included features that qualify as embedded derivatives, such as (i) the holders' conversion option, (ii) our option to
settle the Convertible Notes at the scheduled dates in cash or shares of our common stock and (iii) premiums and penalties we would be liable to pay in the event of default. We irrevocably
elected, as of January 1, 2007, to measure the Convertible Notes in their entirety at fair value with changes in fair value recognized as either gain or loss. Subsequent to the
pay-off of the Convertible Notes, we will continue to account for the associated warrants as described above.

We
recorded interest expense under the Convertible Notes based on the greater of (i) 7% or (ii) the six-month LIBOR, in effect at the time plus 350 basis
points, as well as the amortization of the debt discount, which we computed using the effective interest method. The debt discount represents the difference between our gross proceeds of
$12.0 million and the fair value of the
convertible debt upon issuance, after separately valuing the investor warrants, the placement agent warrants and the Convertible Notes on a relative fair value basis. By amortizing the debt discount
to interest expense, rather than recognizing it as a change in fair value of the Convertible debt instrument and warrants, which is a separate line item in our statement of operations, we believe our
interest expense line item more appropriately reflects the cost of the debt associated with the Convertible Notes.

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We
determined the fair values of the Convertible Notes, investor warrants and placement agent warrants using valuation models we consider to be appropriate. Our stock price has the most
significant influence on the fair value of the Convertible Notes and related warrants. An increase in our common stock price would cause the fair values of both the Convertible Notes and warrants to
increase, because the conversion and exercise prices, respectively, of such instruments are fixed at $1.65 and $1.815 per share, respectively, and result in a charge to our statement of operations. A
decrease in our stock price would likewise cause the fair value of the Convertible Notes and the warrants to decrease and result in a credit to our statement of operations. If the price of our common
stock were to decline significantly, however, the decrease in the fair value of the Convertible Notes would be limited by the instrument's debt characteristics. Under such circumstances, our estimated
cost of capital would become another significant variable affecting the fair value of the Convertible Notes.

Income Taxes

The preparation of our consolidated financial statements requires us to estimate our income taxes in each of the jurisdictions in which
we operate, including those outside the United States, which may be subject to certain risks that ordinarily would not be expected in the United States. The income tax accounting process involves
estimating our actual current exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These
differences result in the recognition of deferred tax assets and liabilities. We must then record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to
be realized.

Significant
management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against deferred
tax assets. We have recorded a full valuation allowance against our deferred tax assets of approximately $57.4 million as of December 31, 2009, due to uncertainties related to our
ability to utilize these assets. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ
from these estimates or we adjust these estimates in future periods we may need to adjust our valuation allowance which could materially impact our financial position and results of operations.

We
account for income taxes utilizing asset and liability method for accounting and reporting for income taxes. Under this method, 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, we are required to establish 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.

The
tax years 1994 through 2009 remain open to examination by major taxing jurisdictions to which we are subject, which are primarily in the United States, as carry forward attributes
generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they are or will be used in a future period. We are currently not under
examination by the Internal Revenue Service or any other jurisdiction for any tax years. We did not recognize any interest and penalties associated with unrecognized tax benefits in the accompanying
financial statements. We would record any such interest and penalties as a component of interest expense. We do not expect any material changes to the unrecognized benefits within 12 months of
the reporting date.

Redeemable Convertible Series B Preferred Stock

We initially accounted for our Series B Preferred Stock and associated warrants by allocating the proceeds received net of
transaction costs based on the relative fair value of the redeemable convertible Series B Preferred Stock and the warrants issued to the investors, and then to any beneficial conversion

28

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Table of Contents

rights
contained in the convertible redeemable preferred securities. We determined the initial value of the Series B Preferred Stock and investor warrants using valuation models we consider to
be appropriate. The Series B Preferred Stock is classified within the liability section of our balance sheet. To the extent that the Series B Preferred Stock is subject to a
remeasurement event, or is otherwise modified, the Series B Preferred Stock will be reclassified to temporary equity.

Redeemable Convertible Series C Preferred Stock

We initially accounted for our issuance of Series C Preferred Stock and associated warrants by allocating the proceeds received
net of transaction costs based on the relative fair value of the redeemable convertible Series C Preferred Stock and the warrants issued to the investors, and then to any beneficial conversion
rights contained in the convertible redeemable preferred securities and classifying the Series C Preferred Stock as temporary equity on the balance sheet between the captions for liabilities
and permanent shareholder's equity. We determined the initial value of the Series C Preferred Stock and investor warrants using valuation models we consider to be appropriate.

The
re-pricing of the exercise price of the first tranche warrants from $1.44 to $1.25, as described in the footnotes to the financial statements, was treated as a
cancellation of the original warrants issued on November 8, 2007 and a re-issuance or new warrants on December 21, 2007. The difference in fair value of the warrant was
included in the allocation of net proceeds associated with the second closing of the Series C Preferred Stock on December 21, 2007. We treated this as a deemed dividend on the
Series C Preferred Stock. As of December 31, 2007 we recorded $11,947,881 as a deemed dividend to the holders of the Series C Preferred Stock, which included the beneficial
conversion feature of $11,762,887 and $184,994 related to the accretion of the Series C Preferred Stock to its redemption value through the date that the holders of the Series C
Preferred Stock may first exercise their redemption right. We are using the effective interest method to accrete the carrying value of the Series C Preferred stock through November 8,
2011, at which time the value of the Series C Preferred Stock would be $30.0 million, 120% of its face value.

Recent Accounting Pronouncements

See Note U of our Notes to Consolidated Financial Statements for information regarding recently issued accounting
pronouncements.

Results of Operations

All data set forth below has been adjusted to reflect the sale of our Electronics and Power Systems US business units, which were
finalized in the third quarter of 2008. In addition, the results set forth below have been adjusted to reflect the classification of our Applied Technology business unit as "held for sale" and the
ultimate sale on January 11, 2010. The results of operations for the Applied Technology, the Electronics and the Power Systems US business units were
captured in "Loss from discontinued operations." See Note D (Discontinued Operations) to the Consolidated Financial Statements.

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Table of Contents

Year Ended December 31, 2009 ("2009") Compared to the Year Ended December 31, 2008 ("2008").

Revenue.Total Company revenue decreased $1.8 million, or 3%, from $54.3 million in 2008 to $52.5 million in 2009.

Year Ended
December 31,(Amounts in Millions)

2009

2008

Change $

% ChangeProduct RevenueAlternative Energy Products

$
47.7

$
52.2

$
(4.5
)

(9
)%Other Legacy


4.8


2.1


2.7


129
%Total Revenue

$
52.5

$
54.3

$
(1.8
)

(3
)%


Alternative
Energy Product revenue decreased by $4.5 million, or 9%, from $52.2 million in 2008 to $47.7 million in 2009. This decrease was driven by the challenging
macroeconomic market conditions and tough credit markets which affect our customers' ability to fund large scale renewable energy projects. This decrease was partially offset by an increase in our
legacy power products offerings of $2.7 million, or 129%, due to the recognition of revenue on previously delivered legacy products in the early part of 2009. We expect legacy product revenue
to decline as we continue to focus efforts on our renewable energy solutions.

Gross Margin.Total Company gross margin decreased from 15.6% in 2008 to 6.1% in 2009 due to lower volumes during the period and
transition costs
associated with expanding our manufacturing and supply chain internationally while maintaining existing capacity in North America. This global capacity expansion and low cost supply chain are crucial
to our long term competitiveness, and were partially offset by material cost reductions and labor efficiency improvements in both factories. In addition, the $4.2 million of deferred frequency
converter revenues recognized during 2009 had no gross margin as the amount recognized as revenue equaled the related costs recognized for the period.

Research and development expenses.We expended approximately $8.4 million on research and development in 2009 compared with
$5.1 million spent in 2008. The increase in spending during 2009 was driven by a planned increase in costs associated with certification of our new products and continued new product
development, including increases in our technical staffing. These additional resources are developing the new products, features and customer solutions which we believe will allow us to take advantage
of both short-term and long-term market opportunities. This investment in research and development is critical to both our current and future success and we anticipate this
level of investment to continue.

Selling, general and administrative expenses.Selling, general and administrative expenses increased by approximately $3.6 million
from
$14.6 million in 2008 to $18.2 million in 2009. Approximately $0.9 million of the increase is directly attributable to compensation costs related to the issuance of stock options
to our employees and directors charged to operations. Approximately $3.3 million of the increase was due to the higher sales and marketing costs related to international business development
expansion into Europe and Asia, company re-branding and our increased outbound marketing efforts in 2009 compared to 2008. This was partially offset by a $0.6 million decrease in
general corporate costs.

Restructuring costs.In August 2009, we eliminated certain positions within our operations and sales organizations in accordance with a
plan of
reorganization approved by the Board of Directors. As a result of the 2009 restructuring we recorded approximately $0.3 million in payroll and related costs for 2009. As of December 31,
2009 approximately $38,000 remains to be paid to the terminated employees. None of the terminated employees were required to provide any services subsequent to their receiving notification.

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In
2008, we initiated and completed the sale of the Electronics and Power Systems US operating divisions and formalized the release of personnel. As a result of these changes and the
sale of the divisions in 2008, we accrued approximately $0.5 million in salary-related costs, costs associated with the modification of existing options held by certain of the severed employees
and relocation costs.            Other costs associated with the restructuring that are related to the Electronics and Power Systems US divisions were recorded in their respective divisions
and
are included in the loss from discontinued operations for the periods presented, as discussed below, in loss from discontinued operations.

Change in fair value of warrant liabilities.The change in fair value of the warrants for 2009 was a charge of approximately
$5.7 million.
Approximately $2.5 million related to the change in valuation of our Warrant As, Warrant Cs and placement agent warrants. The remaining $3.2 million charge related to our Series C
Preferred Stock warrants and their change in fair value which was due to our adoption during the period of ASC 815-40-15. As a result of this adoption, warrants to purchase
19,799,022 shares of our common stock, originally classified as equity, were reclassified to warrant liabilities and were required to be fair valued moving forward. The change in fair value of the
warrants for 2008 was a credit of approximately $0.3 million related solely to the Warrant As and Warrant Cs. In July 2009 warrants to purchase 19,799,022 shares of our common stock were
modified resulting in these warrants being classified as equity and therefore not requiring any fair value adjustments in the future. See Note C.Significant Accounting
Policies and Basis of PresentationWarrant Liabilitiesfor a description of the modifications made to such warrants. The most significant factor that contributes to
the change in fair value of the warrants is our stock price (See Note GConvertible Debt Instrument and Warrant Liabilities).

Other Income (expense).Other expense was approximately $0.3 million for 2009 compared to other income of approximately
$0.7 million
for 2008. Other expense for 2009 consists primarily of approximately $0.5 million related to the issuance of warrants to purchase 380,000 shares of common stock to holders of our
Series C Preferred Stock for modifying the anti-dilution provisions of their existing warrants along with $0.1 million in fees paid related to consulting services for the
valuation of our warrant instruments as well as other expenses not related to ongoing operations, offset by approximately $0.5 million related to foreign exchange impact of operations and
translation of inter-company balances. Other income, net for 2008 consists primarily of approximately $0.7 million related to foreign exchange impact of operations and translation of
inter-company balances.

Interest income.Interest income decreased from approximately $0.2 million in 2008 to approximately $0 million in 2009. The
decrease is
directly attributable to our cash on hand and interest rates.

Interest expense.Interest expense for 2009 was approximately $0.3 million, which is comprised primarily of the
following:



In
2008 interest expense was approximately $0.3 million and was comprised of the following:



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Income (loss) from discontinued operations.Loss from discontinued operations represents the results of operations of our Applied
Technology, Power
Systems US and Electronics divisions. Our Applied Technology division was sold in January 2010 and our Electronics and Power Systems US divisions were sold during the third quarter of 2008. The income
from discontinued operations for 2009 was approximately $0.1 million as compared to a loss from discontinued operations of approximately $1.9 million in 2008. See Note D
"Discontinued Operations" for more information related to the sale of these divisions.

Gain on sale of discontinued operations.As a result of the sale of the Power Systems US and Electronics divisions in 2008, we recorded
income of
approximately $0.3 million. See Note D "Discontinued Operations" for more information related to the sale of these divisions and the composition of the net gain calculated for each
division. The gain on the sale of our Applied Technology division will be recorded during our first quarter ended March 31, 2010 and is anticipated to be a gain of approximately
$0.5 million.

Deferred Revenue.Total deferred revenue was $6.0 million at December 31, 2009, comprised of $0.5 million
of current deferred revenue and $5.5 million of long-term deferred revenue, a decrease of $0.7 million from the $6.7 million balance at December 31, 2008. We
record deferred revenue (i) when a customer pays in advance or (ii) when provisions for revenue recognition on items shipped have not been achieved or the items have not yet been
received by the customer due to shipping terms such as FOB destination. When an item is deferred for revenue recognition purposes, the deferred revenue is recorded as a liability and the deferred
costs are recorded as a component of inventory in our consolidated balance sheets. Deferred revenue also consists of cash received for extended product warranties. Currently deferred revenue is
composed of approximately $6.0 million, $0.4 million related to pre-payments on orders currently being manufactured and $5.6 million on deferred revenue related to
extended warranties sold to customers that purchased our products.

Year Ended December 31, 2008 ("2008") Compared to the Year Ended December 31, 2007 ("2007").

Revenue.Total Company revenue increased $21.3 million, or 65%, from $33.0 million in 2007 to $54.3 million in 2008.

Year Ended
December 31,(Amounts in Millions)

2008

2007

Change $

% ChangeProduct RevenueAlternative Energy Products

$
52.2

$
25.4

$
26.8


106
%Other Legacy


2.1


7.6

$
(5.5
)

(72
)%Total Revenue

$
54.3

$
33.0

$
21.3


65
%


Product
revenue increased by $21.3 million, or 65%, from $33.0 million in 2007 to $54.3 million in 2008. This was driven by the commercial adoption of our utility
grade inverters, resulting in an annual increase of $26.8 million, or 106%. This increase was partially offset by a decrease in our legacy power products offerings of $5.5 million, or
72%, as we continue to focus efforts on our renewable energy solutions.

Gross Margin.Gross margins increased from (1.3)% in 2007 to approximately 15.6% in 2008 due to
material cost reduction programs, increased labor efficiency and increased photovoltaic inverter unit volumes. In 2007, gross margins included an additional $1.3 million in cost overruns on a
Navy project, for which we are seeking some economic relief due to design changes, increases in major component costs and increases in anticipated exchange rates; we have not booked any benefit for
such relief as of December 31, 2008 or 2007.

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Research and development expenses.We expended approximately $5.1 million on research and development in 2008 compared with
$2.3 million spent in 2007. The increase in spending during 2008 was driven by an increase in technical staffing. These additional resources are developing the new products, features and
customer solutions which we believe will allow us to take advantage of both short-term and long-term market opportunities. This investment in research and development is
critical to both our current and future success and we anticipate this level of investment to continue.

Selling, general and administrative expenses.Selling, general and administrative expenses increased by approximately $6.6 million
from
$8.0 million in 2007 to $14.6 million in 2008. Approximately $1.1 million of the increase is directly attributable to compensation costs related to the issuance of stock options
to our employees and directors charged to operations during 2008. Approximately $2.3 million of the increase was associated with increased corporate costs and approximately $3.2 million
of the increase was due to the higher sales and marketing costs directly related to the increase in product revenue, international business development, company re-branding and our
increased outbound marketing efforts in 2008 compared to 2007.

Restructuring costs.In 2008 we successfully executed a restructuring of our company. In connection with the restructuring, we
eliminated the
positions of the presidents of the Applied Technology and Renewable Energy Solutions divisions, formalized the release of our Vice President of Finance and former Chief Executive Officer. In addition,
we completed the sale of our Electronics and Power Systems US divisions. As a result of these significant changes in 2008, we recorded a charge of approximately $1.4 million in salary-related
costs and costs associated with the modification of existing options held by certain of the severed employees. The cash component of this severance will be paid out over the next 12 months.
Other costs associated with the restructuring that were related to the Electronics and Power Systems US divisions were recorded in the respective divisions and are included in the loss from
discontinued operations for the periods presented, as discussed below. During 2007 we recorded approximately $0.1 million in restructuring costs associated with the 2006 restructuring of one of
our business units.

Change in fair value of the convertible notes and related warrants.The change in fair value of the convertible Notes and warrants for
2008 was a
credit of approximately $0.3 million. The change in fair value of the convertible notes and warrants for 2007 was a charge of approximately $2.3 million. The most significant factor that
contributes to the change in fair value of the convertible notes and related warrants is our stock price. The convertible notes were paid off in November 2007. (See
Note GConvertible Debt Instrument and Warrant Liabilities)

Other Income (expense).Other income was approximately $0.7 million for 2008 compared to other expense of approximately
$0.5 million
for 2007. Other income, net for 2008 consists primarily of approximately $0.7 million related to foreign exchange impact of operations and translation of inter-company balances. Other expense
for 2007 consists primarily of a gain of approximately $0.4 million related to foreign exchange impact of operations and translation of inter-company balances and $0.1 million in
consulting services related to the valuation of our Convertible Notes and other expenses not related to ongoing operations.

Interest income.Interest income decreased slightly from approximately $0.3 million in 2007 to approximately $0.2 million in
2008. The
decrease is directly attributable to our cash on hand.

Interest expense.Interest expense for 2008 was approximately $0.3 million, which is comprised primarily of the
following:



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Table of Contents

In
2007 interest expense was approximately $3.8 million and was comprised of the following:



Loss from discontinued operations.Loss from discontinued operations represents the results of operations of our Applied Technology,
Power Systems US
and Electronics divisions. The loss from discontinued operations for 2008 was approximately $1.9 million as compared to approximately $0.8 million in 2007. See Note D
"Discontinued Operations" for more information related to the sale of these divisions.

Gain on sale of discontinued operations.As a result of the sale of the Power Systems US and Electronics divisions in 2008, we recorded
income of
approximately $0.3 million. See Note D "Discontinued Operations" for more information related to the sale of these divisions and the composition of the net gain calculated for each
division.

Deferred Revenue.Total deferred revenue was $6.7 million at December 31, 2008, comprised of $4.2 million of current
deferred
revenue and $2.5 million of long-term deferred revenue, a decrease of $1.0 million from the $7.7 million balance at December 31, 2007. We record deferred
revenue (i) when a customer pays in advance or (ii) when provisions for revenue recognition on items shipped have not been achieved or the items have not yet been received by the
customer due to shipping terms such as FOB destination. When an item is deferred for revenue recognition purposes, the deferred revenue is recorded as a liability and the deferred costs are recorded
as a component of inventory in our consolidated balance sheets. Deferred revenue also consists of cash received for extended product warranties. Deferred revenue as of December 31, 2008 is
composed of approximately $3.4 million related to pre-payments received on an order which has been shipped but not recognized, $0.8 million related to
pre-payments on orders currently being manufactured and $2.5 million on deferred revenue related to extended warranties sold to customers that purchased our products.

Quarterly Results of Operations (Unaudited)

The following table presents unaudited quarterly statement of operations data for the eight quarters ended December 31, 2009.
This data has been prepared on a basis consistent with our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. This data includes all
adjustments, consisting solely of normal recurring adjustments, which 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. In addition, all data set forth below has been adjusted to reflect the sale of our Applied Technology business unit in January 2010, and the
sale of our Electronics and Power Systems US business units, which were finalized in the third quarter of 2008. The results of operations for the Applied Technology, Electronics and Power Systems US
business units

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Table of Contents

are
captured in the line item "Loss from discontinued operations" below. See Note D (Discontinued Operations) to the Consolidated Financial Statements.

CONSOLIDATED
Three Months EndedDec. 31,
2009

Oct. 3,
2009

July 4,
2009

April 4,
2009

Dec. 31,
2008

Sept. 27,
2008

June 28,
2008

Mar. 29,
2008(in thousands, except per share data)Statement of Operations DataProduct revenue

$
21,487

$
10,041

$
7,628

$
13,380

$
17,346

$
17,215

$
9,556

$
10,176Total revenue

$
21,487

$
10,041

$
7,628

$
13,380

$
17,346

$
17,215

$
9,556

$
10,176Cost of product revenue


18,648


10,466


7,935


12,285


12,976


13,964


9,167


9,710Total cost of revenue

$
18,648

$
10,466

$
7,935

$
12,285

$
12,976

$
13,964

$
9,167

$
9,710Gross margin

$
2,840

$
(425
)
$
(308
)
$
1,095

$
4,370

$
3,251

$
389

$
466Operating expenses:Research and development


2,108


2,188


2,244


1,871


1,442


1,642


1,109


868Selling, general and administrative


4,791


4,612


4,418


4,348


4,430


4,175


3,946


2,024Restructuring charges


49


211








279


422


607


Total operating expenses from continuing operations

$
6,949

$
7,010

$
6,662

$
6,220

$
6,151

$
6,239

$
5,662

$
2,892Operating loss

$
(4,109
)
$
(7,436
)
$
(6,970
)
$
(5,125
)
$
(1,781
)
$
(2,988
)
$
(5,273
)
$
(2,426
)Change in fair value of notes and warrants


(1,822
)

(305
)

1,776


(5,370
)

1,087


2,042


(2,397
)

(467
)Other income (expense)


(45
)

384


(487
)

(139
)

313


153


(18
)

259Interest income





3


2


4


19


57


71


69Interest expense


(65
)

(39
)

(138
)

(82
)

(88
)

(98
)

(98
)

(46
)Net loss from continuing operations

$
(6,042
)
$
(7,393
)
$
(5,816
)
$
(10,713
)
$
(449
)
$
(835
)
$
(7,714
)
$
(2,612
)Income (loss) from discontinued operations, net


15


135


(17
)

(42
)

637


(1,415
)

(302
)

(789
)Gain (loss) on sale of discontinued operations, net














(54
)

328





Net loss

$
(6,027
)
$
(7,257
)
$
(5,833
)
$
(10,754
)
$
134

$
(1,922
)
$
(8,016
)
$
(3,401
)Deemed dividend and accretion on Series C preferred stock to redemption value


(1,089
)

(978
)

(888
)

(821
)

(786
)

(755
)

(796
)

(637
)Dividend on Series C preferred stock


(368
)

(320
)

(387
)

(321
)

(324
)

(311
)

(311
)

(304
)Net loss attributable to common stockholders

$
(7,484
)
$
(8,556
)
$
(7,108
)
$
(11,897
)
$
(977
)
$
(2,988
)
$
(9,122
)
$
(4,342
)Net loss attributable to common stockholders per weighted average share, basic and diluted

$
(0.11
)
$
(0.12
)
$
(0.13
)
$
(0.23
)
$
(0.02
)
$
(0.06
)
$
(0.18
)
$
(0.09
)Weighted average number of common shares, basic and diluted


70,412


70,240


54,718


51,538


51,375


50,013


50,415


49,935


35

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Table of Contents

Liquidity and Capital Resources

As of December 31, 2009, we had $13.4 million of cash, of which approximately $34,000 was restricted. As of
December 31, 2009, $3.0 million is outstanding under our line of credit.

Based
upon our current working capital position, current operating plans and expected business conditions, we believe that our current cash, as well as the availability from our line of
credit with Silicon Valley Bank, will be adequate to fund our operations through December 31, 2010. Beyond 2010, we expect to fund our working capital needs and other commitments primarily
through our operating cash flow, which we expect to improve as our product costs continue to decrease and as our unit volumes grow. We also expect to rely on our credit facility to fund a portion of
our capital needs and other commitments. We have availability under our line of credit of $5.7 million as of January 31, 2010.

Our
funding plans for our working capital needs and other commitments may be adversely impacted if we fail to realize our underlying assumed levels of revenues and expenses, or if we
fail to remain in compliance with the covenants of our bank line. If either of those events occur, we may need to raise additional funds in order to sustain operations by selling equity or taking
other actions to conserve our
cash position, which could include selling of certain assets, delaying capital expenditures and incurring additional indebtedness, subject to the restrictions in the 2007 preferred stock financing and
in the credit facility with Silicon Valley Bank. Such actions would likely require the consent of the Investors and/or Silicon Valley Bank, and there can be no assurance that such consents would be
given. Furthermore, there can be no assurance that we will be able to raise such funds if they are required.

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

We
have incurred significant costs to develop our technologies and products. These costs have exceeded total revenue. As a result, we have incurred losses in each of the past five years.
As of December 31, 2009, we had an accumulated deficit of approximately $231.7 million. Since inception, we have financed our operations and met our capital expenditure requirements
primarily through the sale of private equity securities and convertible debt, public security offerings, borrowings under our lines of credit and capital equipment leases.

As
of December 31, 2009, our cash and cash equivalents were $13.4 million, including restricted cash and cash equivalents of $34,000; this represents an increase in our
cash and cash equivalents of approximately $3.4 million from the $10.0 million on hand at December 31, 2008. Cash used in operating activities from continuing operations for the
year ended December 31, 2009 was $14.7 million as compared to $8.3 million for the year ended December 31, 2008. Cash used in operating activities from continuing
operations during the year ended December 31, 2009 was primarily attributable to the net loss from continuing operations of approximately $29.9 million offset by non-cash
items such as the change in the fair value of our warrants, depreciation and amortization, deferred revenue, increases in allowances for uncollectible accounts and excess and obsolete inventory,
non-cash compensation and consulting expense, non-cash interest expense and decreases in working capital.

Cash
used in investing activities from continuing operations during the year ended December 31, 2009 was $3.8 million as compared to cash provided by investing activities
from continuing operations of $3.7 million for the year ended December 31, 2008. Cash used in investing activities during the fiscal year ended December 31, 2009 was a result of
capital expenditures of $3.8 million. Cash provided by investing activities from continuing operations during the fiscal year ended December 31, 2008 was a

36

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Table of Contents

result
of net proceeds from the sale of two of our divisions of $5.1 million offset by capital expenditures of $1.4 million.

Cash
provided by financing activities from continuing operations for the year ended December 31, 2009 was $21.8 million as compared to $4.1 million for the year
ended December 31, 2008. Net cash provided by financing activities from continuing operations during 2009 includes approximately $21.5 million related to the sale of common stock and
approximately $0.2 million received from the exercise of stock options and warrants. Net cash provided by financing activities from continuing operations during 2008 includes borrowings under
our line of credit of $3.0 million and approximately $1.7 million received from the exercise of stock options and warrants to purchase common stock, offset by approximately
$0.6 million related to payments to certain Warrant A and Warrant C holders that exercised their redemption rights under these warrants.

Cash
provided by discontinued operations was $0.6 million for the year ended December 31, 2009 as compared to cash used in discontinued operations of $2.0 million
for the year ended December 31, 2008. Net cash provided by operating activities from discontinued operations was $0.6 million in 2009 compared to cash used in operating activities of
$1.7 million in 2008. Net cash used in investing activities from discontinued operations was $0.1 million in 2009 compared to $0.2 million in 2008. Net cash used in financing
activities from discontinued operations was $0 in 2009 and 2008.

Payments Due Under Contractual Obligations

The following table summarizes the payments due under our contractual obligations at December 31, 2009, and the effect such
obligations are expected to have on liquidity and cash flow in future periods:

Calendar Years Ending December 31,

Capital Leases

Operating Leases2010




$
1,246,1832011





907,0892012





386,9492014





243,5252015





251,643Thereafter





411,287Total

$


$
3,446,676


We
lease equipment and office space under non-cancelable capital and operating leases. The future minimum rental payments, as of December 31, 2009, under the capital
and operating leases with non-cancelable terms are included in the table above.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising
capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not
consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.

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.

37

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Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially
from those discussed in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial
instruments for speculative or trading purposes.

Interest Rate Risk

We are exposed to market risk from changes in interest rates primarily through our investing and financing activities. In addition, our
ability to fund working capital requirements may be impacted if we are not able to obtain appropriate financing at acceptable rates.

Our
investing strategy, to manage interest rate exposure, is to invest in short-term, highly liquid investments. Our investment policy also requires investment in approved
instruments with an initial maximum allowable maturity of twelve months. Currently, our short-term investments are in money market funds with original maturities of 90 days or less.
At December 31, 2009, our short-term investments approximated market value.

At
December 31, 2009 we had a revolving line-of-credit available to us of up to $10.0 million, of which $3.0 million was outstanding. Our
revolving line-of-credit bears an interest rate of the Bank's prime rate plus 1%, which resulted in a rate of 5% at December 31, 2009.

The
effect of interest rate fluctuations on outstanding borrowings as of December 31, 2009 over the next twelve months is quantified and summarized as follows:

Interest Expense
IncreaseInterest rates increase by 100 basis points

$
30,000Interest rates increase by 200 basis points

$
60,000


Foreign Currency Risk

We face exposure to movements in foreign currency exchange rates whenever we, or any of our subsidiaries, enter into transactions with
third parties that are denominated in currencies other than ours, or its, functional currency. Intercompany transactions between entities that use different functional currencies also expose us to
foreign currency risk. During the year ended December 31, 2009, the net impact of foreign currency changes on transactions was a gain of $0.3 million. We do not use derivative financial
instruments or other financial instruments to hedge such economic exposures.

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In
addition, because a substantial portion of our earnings is generated by our foreign subsidiaries, whose functional currencies are other than the U.S. Dollar (in which we report our
consolidated financial results), our earnings could be materially impacted by movements in foreign currency exchange rates, particularly that of the Canadian Dollar, upon the translation of the
earnings of such subsidiaries into the U.S. Dollar. Mitigating this risk is the fact that a majority of our sales in our Canadian subsidiary are denominated in US dollars and therefore not subject to
any movements in the exchange rate. If the U.S. Dollar had been uniformly stronger by 1%, 5% or 10%, compared to the actual average exchange rates used to translate the financial results of our
foreign subsidiaries, our net product sales revenue would not have been materially impacted. Since a majority of operating costs in our Canadian subsidiary are incurred in their local currency
movement in the exchange rate could impact our net income would have been impacted by approximately the following amounts:

Approximate
decrease in
net lossIf, during the year ended December 31, 2009, the U.S. dollar was stronger by:1%

$
541,0005%

$
2,604,00010%

$
4,970,000


39

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Table of Contents

Item 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS



PageConsolidated Financial Statements of Satcon Technology CorporationReport of Independent Registered Public Accounting Firm

41Consolidated Financial Statements:Consolidated Balance Sheets as of December 31, 2009 and 2008

43Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007

44Consolidated Statements of Changes in Stockholders' Equity (Deficit) and Comprehensive Loss for the Years Ended
December 31, 2009, 2008 and 2007

45Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007

48Notes to Consolidated Financial Statements

49Schedule II: Valuation and Qualifying Accounts for the Years Ended December 31, 2009, 2008 and
2007

102


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of Satcon Technology Corporation:

We
have audited the accompanying consolidated balance sheets of Satcon Technology Corporation and its subsidiaries (the Company) (a Delaware corporation) as of December 31, 2009
and 2008, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and comprehensive loss and cash flows for each of the years ended December 31, 2009,
2008 and 2007. We have also audited the financial statement schedule for the years ended December 31, 2009, 2008 and 2007 listed in item 15 (2). We have also audited Satcon Technology
Corporation and its subsidiaries' internal control over financial reporting as of December 31, 2009, based on criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
these financial statements and the financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management's Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on these financial statements and schedule and an opinion on the Company's internal control over financial reporting based on our
audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Satcon Technology Corporation and
its subsidiaries as of December 31, 2009 and 2008, and the consolidated results of its operations, changes in stockholders' equity (deficit), and its cash flows for each of the years ended
December 31, 2009, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of

41

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Table of Contents

America.
In addition, in our opinion, the financial statement schedule listed in the item 15 (2) presents fairly, in all material respects, the information set forth therein when read in
conjunction with the
related consolidated financial statements. Also in our opinion, Satcon Technology Corporation and its subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

As
discussed in Note C to the Consolidated Financial Statements, effective January 1, 2009, the Company adopted ASC Topic 815-40-15 and changed its
accounting for certain warrants.

/s/
Caturano and Company, P. C.

Boston,
Massachusetts
March 11, 2010

42

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Table of Contents



SATCON TECHNOLOGY CORPORATION        CONSOLIDATED BALANCE SHEETS

December 31,
2009

December 31,
2008ASSETSCurrent assets:Cash and cash equivalents

$
13,369,208

$
9,957,716Restricted cash and cash equivalents


34,000


84,000Accounts receivable, net of allowance of $196,909 and $168,219 at December 31, 2009 and 2008, respectively


17,577,640


11,471,671Unbilled contract costs and fees


202,228


398,707Inventory


11,898,571


11,457,532Prepaid expenses and other current assets


717,535


1,040,441Current assets of discontinued operations


35,004


Total current assets

$
43,834,186

$
34,410,067Property and equipment, net


4,633,926


1,844,279Non-current assets of discontinued operations


224,227


642,929Total assets

$
48,692,339

$
36,897,275LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Line of credit

$
3,000,000

$
3,000,000Accounts payable


20,751,975


8,588,313Accrued payroll and payroll related expenses


2,235,349


1,951,606Other accrued expenses


2,710,568


2,825,255Accrued contract loss





1,131,370Accrued restructuring costs


38,034


602,782Deferred revenue


451,008


4,214,389Current liabilities of discontinued operations


117,702


91,180Total current liabilities

$
29,304,636

$
22,404,895Warrant liabilities

$
4,976,774

$
2,407,438Deferred revenue, net of current portion


5,531,413


2,512,794Redeemable convertible Series B preferred stock (75 and 290 shares issued and outstanding at December 31, 2009 and 2008, respectively; face value
$5,000 per share; liquidation preference $375,000 and $1,450,000, respectively).


375,000


1,450,000Other long-term liabilities


280,472


58,282Total liabilities

$
40,468,295

$
28,833,409Commitments and contingencies (Note K)Redeemable convertible Series C preferred stock (25,000 shares issued and outstanding at December 31, 2009 and 2008, face value $1,000 per share,
liquidation preference $27,600,000 and $26,350,000 at December 31, 2009 and 2008 respectively)

$
22,257,423

$
17,248,593Stockholders' deficit:Common stock; $0.01 par value, 200,000,000 shares authorized; 70,567,781and 51,479,822 shares issued and outstanding at December 31, 2009 and 2008,
respectively

$
705,678

$
514,798Additional paid-in capital


218,599,384


182,222,762Accumulated deficit


(231,656,734
)

(189,962,435
)Accumulated other comprehensive loss


(1,681,707
)

(1,959,852
)Total stockholders' deficit

$
(14,033,379
)
$
(9,184,727
)Total liabilities and stockholders' deficit

$
48,692,339

$
36,897,275


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

43

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Table of Contents



SATCON TECHNOLOGY CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,2009

2008

2007Revenue:Product revenue

$
52,535,633

$
54,293,334

$
33,032,641Cost of revenue:Cost of product revenue

$
49,334,132

$
45,818,090

$
33,455,956Gross margin

$
3,201,501

$
8,475,244

$
(423,315
)Operating expenses:Research and development

$
8,411,469

$
5,061,472

$
2,256,088Selling, general and administrative


18,169,124


14,574,713


7,980,955Restructuring charges


260,685


1,307,452


Total operating expenses from continuing operations

$
26,841,278

$
20,943,637

$
10,237,043Operating loss from continuing operations

$
(23,639,777
)
$
(12,468,393
)
$
(10,660,358
)Change in fair value of notes and warrants


(5,721,580
)

264,628


(2,252,264
)Other (expense) income, net


(286,678
)

707,450


(545,895
)Interest income


8,972


216,238


280,392Interest expense


(323,995
)

(329,459
)

(3,787,380
)Net loss from continuing operations

$
(29,963,058
)
$
(11,609,536
)
$
(16,965,505
)Income (loss) from discontinued operations, net

$
91,677

$
(1,869,327
)
$
(800,272
)Gain on sale of discontinued operations, net





274,043


Net loss

$
(29,871,381
)
$
(13,204,820
)
$
(17,765,777
)Deemed dividend and accretion on Series C preferred stock

$
(3,776,550
)
$
(2,974,502
)
$
(11,947,881
)Dividend on Series C preferred stock


(1,396,280
)

(1,250,000
)

(100,000
)Net loss attributable to common stockholders

$
(35,044,211
)
$
(17,429,322
)
$
(29,813,658
)Net loss per weighted average share, basic and diluted:From loss on continuing operations attributable to common stockholders

$
(0.57
)
$
(0.31
)
$
(0.64
)From income (loss) on discontinued operations




$
(0.04
)
$
(0.02
)From gain on sale of discontinued operations




$
0.01


Net loss attributable to common stockholders per weighted average share, basic and diluted

$
(0.57
)
$
(0.34
)
$
(0.66
)Weighted average number of common shares, basic and diluted


61,727,000


50,684,564


45,433,539


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

44

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SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS

For the Year Ended December 31, 2009

Common
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss

Total
Stockholders'
Equity
(Deficit)

Comprehensive
LossBalance, December 31, 2008


51,479,822

$
514,798

$
182,222,762

$
(189,962,435
)
$
(1,959,852
)
$
(9,184,727
)

Cumulative effect of a change in accounting principleJanuary 1, 2009 reclassification of warrants to warrant liabilities
(Note C)








(10,218,623
)

(11,822,918
)




(22,041,541
)

Net loss











(29,871,381
)




(29,871,381
)
$
(29,871,381
)Issuance of common stock in connection with underwritten public offering, net of issuance costs of $1,745,525


17,891,346


178,913


21,334,312








21,513,225


Reclassification of Series C preferred stock warrant liability to additional paid in capital due to warrant modification








25,193,785








25,193,785


Issuance of warrants to Series C preferred stockholders








82,000








82,000


Beneficial conversion feature on Series C preferred stock








82,000








82,000


Series C preferred stock deemed dividend








(82,000
)







(82,000
)

Issuance of warrants to Series C preferred stockholders for modification of anti-dilution feature








515,000








515,000


Adjustment to conversion price of Series B preferred stock due to anti-dilution provisions








55,369








55,369


Issuance of common stock to 401(k) Plan


69,650


697


107,262








107,959


Issuance of common stock in connection with the exercise of stock options, issuance of restricted stock to consultants


218,384


2,184


362,784








364,968


Issuance of common stock in connection with the non-cash exercise of warrants to purchase common stock


132,589


1,326


(1,326
)










Issuance of common stock in connection with the conversion of Series B preferred stock


719,528


7,195


1,067,805








1,075,000


Issuance of common stock in lieu of six-month cash dividend on redeemable convertible Series B preferred stock


56,462


565


85,805








86,370


Accretion of Series C preferred stock to its redemption value








(3,694,550
)







(3,694,550
)

Dividend on Series C preferred stock








(1,396,280
)







(1,396,280
)

Employee stock-based compensation








2,883,279








2,883,279


Foreign currency translation adjustment














278,145


278,145


278,145Comprehensive loss



















$
(29,593,236
)Balance, December 31, 2009


70,567,781

$
705,678

$
218,599,384

$
(231,656,734
)
$
(1,681,707
)
$
(14,033,379
)


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

45

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SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS

For the Year Ended December 31, 2008

Common
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
Equity
(Deficit)

Comprehensive
LossBalance, December 31, 2007


49,803,979

$
498,040

$
180,933,100

$
(176,757,615
)
$
(310,232
)
$
4,363,293

$
Net loss











(13,204,820
)




(13,204,820
)
$
(13,204,820
)Issuance of warrants to Series C preferred stockholders








126,000








126,000Beneficial conversion feature on Series C preferred stock








126,000








126,000Series C preferred stock deemed dividend








(126,000
)







(126,000
)Accretion of Series C preferred stock to its redemption value








(2,848,502
)







(2,848,502
)Dividend on Series C preferred stock








(1,250,000
)







(1,250,000
)Issuance of common stock to 401(k) Plan


279,831


2,798


575,434








578,232Issuance of common stock in connection with the exercise of stock options to purchase common stock


891,168


8,912


1,435,607








1,444,519Issuance of common stock in lieu of six-month cash dividend on redeemable convertible Series B preferred stock.


86,241


862


132,804








133,666Issuance of common stock in connection with the exercise of warrants to purchase common stock


174,967


1,750


239,560








241,310Issuance of restricted stock to employees


82,346


823


144,930








145,753Issuance of common stock in connection with the conversion of Series B preferred stock


161,290


1,613


248,387








250,000Issuance of warrants to purchase common stock to contractor








121,000








121,000Employee stock-based compensation








2,364,442








2,364,442Foreign currency translation adjustment














(1,649,620
)

(1,649,620
)

(1,649,620
)Comprehensive loss



















$
(14,854,440
)Balance, December 31, 2008


51,479,822

$
514,798

$
182,222,762

$
(189,962,435
)
$
(1,959,852
)
$
(9,184,727
)


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

46

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SATCON TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS

For the Year Ended December 31, 2007

Common
Shares

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
Equity
(Deficit)

Comprehensive
LossBalance, December 31, 2006


40,105,073

$
401,051

$
156,379,193

$
(158,991,838
)
$
(256,486
)
$
(2,468,080
)Net loss











(17,765,777
)




(17,765,777
)
$
(17,765,777
)Beneficial conversion feature on Series C preferred stock








11,762,887








11,762,887


Series C preferred stock deemed dividend








(11,762,887
)







(11,762,887
)

Issuance of warrants and re-pricing of warrants to Series C preferred stock holders








10,092,623








10,092,623


Accretion of Series C preferred stock to its carrying value








(184,994
)







(184,994
)

Dividend on Series C preferred stock








(100,000
)







(100,000
)

Issuance of common stock to 401(k) Plan


474,379


4,744


562,417








567,161


Issuance of common stock in connection with the exercise of stock options to purchase common stock


27,205


272


20,420








20,692


Issuance of common stock in connection with the termination of Worcester lease


850,000


8,500


1,113,500








1,122,000


Issuance of common stock in lieu of cash principal payments on the Convertible Notes


3,163,186


31,632


3,777,814








3,809,446


Issuance of common stock in lieu of cash interest on the convertible notes


396,522


3,965


514,200








518,165


Issuance of common stock in connection with the exercise of Warrant Bs


3,636,368


36,364


5,525,006








5,561,370


Issuance of common stock to convertible note holders as incentive to accelerate pay-off of the Convertible Notes


749,999


7,500


907,499








914,999


Issuance of common stock upon conversion of a portion of the convertible notes


318,182


3,182


521,818








525,000Employee stock-based compensation








1,112,099








1,112,099


Issuance of common stock in lieu of six-months cash dividend on redeemable convertible Series B preferred stock


70,045


700


137,156








137,856


Issuance of common stock in connection with the conversion of Series B preferred stock


13,020


130


24,870








25,000


Adjustment to conversion price of Series B preferred stock, due to anti-dilution provisions








529,479








529,479


Foreign currency translation adjustment














(53,746
)

(53,746
)

(53,746
)Comprehensive loss



















$
(17,819,523
)Balance, December 31, 2007


49,803,979

$
498,040

$
180,933,100

$
(176,757,615
)
$
(310,232
)
$
4,363,293


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

47

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Table of Contents



SATCON TECHNOLOGY CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,2009

2008

2007Cash flows from operating activities:Net loss

$
(29,871,381
)
$
(13,204,820
)
$
(17,765,777
)Net (income) loss from discontinued operations


(91,677
)

1,869,327


800,272Net gain on sale of discontinued operations





(274,043
)

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:Depreciation and amortization


1,263,886


769,998


430,140Provision for uncollectible accounts


28,690


80,142


47,019Provision for excess and obsolete inventory


185,577


360,035


206,780Non-cash compensation expense related to issuance of stock options and warrants to employees and non-employees and issuance of common stock to 401(k) Plan,
including stock based compensation costs from continuing operations of $2,797,138, $2,196,166 and $853,944 for the years ended December 31, 2009, 2008 and 2007, respectively.


3,476,639


2,584,295


2,328,087Change in fair value of Senior Secured Convertible Notes and investor and placement agent warrant liability


5,721,580


(264,628
)

2,252,264Non-cash interest expense


122,406


130,334


3,581,760Non-cash restructuring charges





274,552


Changes in operating assets and liabilities:Accounts receivable


(4,019,988
)

(5,205,154
)

(2,132,106
)Unbilled contract costs and fees


196,479


137,860


(269,320
)Prepaid expenses and other assets


366,796


(56,174
)

(1,067,106
)Inventory


1,105,815


(1,965,474
)

(7,914,938
)Other long-term assets





32,931


(17,469
)Accounts payable


10,408,195


2,392,434


3,806,333Accrued expenses and payroll


(324,674
)

790,114


2,188,225Accrued restructuring


(564,748
)

602,782


Accrued contract losses


(1,213,995
)

94,700


1,447,161Deferred revenue, current and long portion


(1,668,073
)

2,510,183


1,992,591Other current liabilities


222,190


(11,793
)

70,075Total adjustments

$
15,306,775

$
3,257,137

$
6,949,496Net cash used in operating activities in continuing operations

$
(14,656,283
)
$
(8,352,399
)
$
(10,016,009
)Cash flows from investing activities:Purchases of property and equipment


(3,752,449
)

(1,451,678
)

(1,203,475
)Net proceeds from sale of business segments





5,136,881


Net cash provided by (used in) investing activities in continuing operations

$
(3,752,449
)
$
3,685,203

$
(1,203,475
)Cash flows from financing activities:Net borrowings under line of credit





3,000,000


Proceeds from short-term loan


1,297,200





10,000,000Repayment of short-term loan


(1,297,200
)




(10,000,000
)Net proceeds from public sale of common stock


21,513,225





Net proceeds from issuance of convertible redeemable Series C preferred stock








23,856,281Repayment of Senior Secured Convertible Notes








(9,477,293
)Payments related to warrant holder redemption rights





(572,250
)

(2,099,958
)Decrease in restricted cash


50,000





1,000,000Net proceeds from exercise of warrants to purchase common stock





241,310


4,688,642Net proceeds from exercise of options to purchase common stock


200,468


1,444,519


20,692Net cash provided by financing activities in continuing operations

$
21,763,693

$
4,113,579

$
17,988,364Net increase (decrease) in cash and cash equivalents from continuing operations

$
3,354,961

$
(553,617
)
$
6,768,880Cash flows from discontinued operationsNet cash provided by (used) in operating activities of discontinued operations

$
644,944

$
(1,741,226
)
$
(303,826
)Net cash used in investing activities of discontinued operations

$
(75,715
)
$
(211,297
)
$
(63,959
)Net cash used in financing activities of discontinued operations

$


$


$
(123,219
)Net increase (decrease) in cash and cash equivalents from discontinued operations

$
569,229

$
(1,952,523
)
$
(491,004
)Effects of foreign currency exchange rates on cash and cash equivalents

$
(512,698
)
$
(151,710
)
$
(853,137
)Net increase (decrease) in cash and cash equivalents

$
3,411,492

$
(2,657,850
)
$
5,424,739Cash and cash equivalents at beginning of year

$
9,957,716

$
12,615,566

$
7,190,827Cash and cash equivalents at end of year

$
13,369,208

$
9,957,716

$
12,615,566


See Note Q for non cash disclosures

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

48

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Table of Contents

SATCON TECHNOLOGY CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2009, 2008 AND 2007

A. THE COMPANY

Satcon Technology Corporation (the "Company" or "Satcon") was organized as a Massachusetts corporation in February 1985 and reincorporated in Delaware in 1992. The Company is a leading
clean energy technology provider of utility grade power solutions for the renewable and distributed energy markets. The Company delivers power conversion solutions and system design services for
large-scale renewable energy plants. The Company's products are utilized by businesses and utility companies to efficiently convert renewable energy sources into stable and reliable electrical power.

The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

B. REALIZATION OF ASSETS AND LIQUIDITY

The Company anticipates that its current cash along with the availability under its credit facility with Silicon Valley Bank will be sufficient to fund its operations through at least
December 31, 2010. The Company has developed a business plan that envisions a significant increase in revenue and significant reductions in the cost structure and the cash burn rate from the
results experienced in the recent past and allow the Company to remain in compliance with the covenants of the credit facility. Although the Company believes it has developed a realistic business
plan, there is no assurance that it can achieve these objectives. Accordingly, if the Company is unable to realize its business plan or does not remain in compliance with the covenants of the credit
facility, the Company may need to raise additional funds in the future in order to sustain operations by selling equity or taking other actions to conserve its cash position, which could include
selling of certain assets and incurring additional indebtedness, subject to the restrictions in the 2007 preferred stock financing and in the credit facility with Silicon Valley Bank. Such actions
would likely require the consent of the investors in that financing (the "Investors") and/or Silicon Valley Bank, and there can be no assurance that such consents would be given. Furthermore, there
can be no assurance that the Company will be able to raise such funds if they are required.

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Basis of Consolidation

The consolidated financial statements include the accounts of Satcon and its wholly owned subsidiary (Satcon Satcon Power Systems
Canada, Ltd., and its discontinued operating subsidiaries Satcon Applied Technology, Satcon Electronics, Inc. and Satcon Power Systems, Inc.). All intercompany accounts and
transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes revenue from product sales in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.
Product revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery of
the product to the customer has occurred and the Company has determined that collection of the fee is probable. Title to the product passes upon shipment of the product, as the products are typically
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. If

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

the
product requires specific customer acceptance, revenue is deferred until customer acceptance occurs or the acceptance provisions lapse, unless the Company can objectively and reliably demonstrate
that the criteria specified in the acceptance provisions are satisfied. When appropriate the Company provides for a warranty reserve at the time the product revenue is recognized. If a contract
involves the provisions of multiple elements and the elements qualify for separation, total estimated contract revenue is allocated to each element based on the relative fair value of each element
provided. The amount of revenue allocated to each element is limited to the amount that is not contingent upon the delivery of another element in the future. Revenue is recognized on each element as
described above.

The
Company performs funded research and development and product development for commercial companies and government agencies under both cost reimbursement and fixed-price contracts
through its discontinued Satcon Applied Technology division and through its engineering group. 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. As of December 31, 2009 the Company had no provision for contract losses on
commercial contracts. As of December 31, 2008, the Company has accrued approximately $1.1 million, respectively, for anticipated contract losses on commercial contracts. With the sale of
the Applied Technology subsidiary the Company expects revenues recognized in future periods on a percentage of completion method or from cost reimbursement contracts to be nominal.

Cost
of product revenue includes materials, labor and overhead.

Deferred
revenue primarily consists of cash received for extended product warranties, preventative maintenance plans and up-time guarantee programs. Deferred revenue also
consists of payments received from customers in advance of services performed, product shipped or installation completed. When an item is deferred for revenue recognition purposes, the deferred
revenue is recorded as a liability and the deferred costs are recorded as a component of inventory in the consolidated balance sheets.

Unbilled Contract Costs and Fees and Funded Research and Development Costs in Excess of Billings

Unbilled contract costs and fees represent revenue recognized in excess of amounts billed due to contractual provisions or deferred
costs that have not been recognized as revenue or billed to the customer.

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

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. At December 31, 2009 and 2008, the Company has restricted cash as indicated in the table below.

December 31,Restricted Cash

2009

2008Security deposits

$
34,000

$
34,000Certificates of deposit





50,000Total restricted cash

$
34,000

$
84,000


Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for
uncollectible amounts is based primarily on a specific analysis of accounts in the receivable portfolio and historical write-off experience. While management believes the allowance to be
adequate, if the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

Inventory

Inventory is 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. The Company periodically reviews quantities of inventory on hand and compares these amounts to expected usage of each particular product or
product line. The Company records, as a charge to cost of sales, any amounts required to reduce the carrying value to net realizable value.

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:

Estimated LivesMachinery and equipment

2 - 10 yearsFurniture and fixtures

7 - 10 yearsComputer software

3 yearsLeasehold improvements

Lesser of the remaining life of the lease
or the useful life of the improvement


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
operating expenses.

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

Foreign Currency Translation

The functional currency of the Company's foreign subsidiary is its local currency. Assets and liabilities of foreign subsidiaries are
translated at the rates in effect at the balance sheet date, while stockholders' equity (deficit) including the long-term portion of intercompany advances are 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 income.
Foreign currency gains were as follows for years ended December 31, 2009, 2008 and 2007:

December 31,2009

2008

2007(Amounts in thousands)Other income/(expense)(1)

$
342.0

$
740.0

$
446.0


(1)All
foreign currency transaction gains and losses are recorded as a component of other income (expense).


Use of Estimates

The preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, 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 reported amounts of revenue and expenses during the period reported. Management believes the most significant estimates include
the net realizable value of accounts receivable and inventory, warranty provisions, the recoverability of long-lived assets, the accrued contract losses on fixed-price contracts, the
recoverability of deferred tax assets and the fair value of equity and financial instruments. Actual results could differ from these estimates.

Income Taxes

The Company accounts for income taxes utilizing the asset and liability method for accounting and reporting for income taxes. Under
this method, 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, the Company is required to establish 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.

The
Company is required to recognize the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax
authorities. The amount recognized is the amount that represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability is recognized for any
benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalties (if applicable) on that excess. In
addition, the Company is required to provide a tabular reconciliation of the change in the aggregate unrecognized tax benefits claimed, or expected to

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

be
claimed, in tax returns and disclosure relating to the accrued interest and penalties for unrecognized tax benefits. Discussion is also required for those uncertain tax positions where it is
reasonably possible that the estimate of the tax benefit will change significantly in the next twelve months.

As
of December 31, 2009, the Company had federal and state net operating losses ("NOL") carry forwards and federal and state R&D credit carry forwards, which may be
available to offset future federal and state income tax liabilities which expire at various dates through 2030. Utilization of the NOL and R&D credit carry forwards may be subject to a substantial
annual limitation due to ownership change limitations that have occurred previously or that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as well as
similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carry forwards that can be utilized annually to offset future taxable income and tax,
respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a
corporation by more than 50 percentage points over a rolling three-year period. Since the Company's formation, the Company has raised capital
through the issuance of capital stock on several occasions (both pre and post initial public offering) which, combined with the purchasing shareholders' subsequent disposition of those shares, may
have resulted in a change of control, as defined by Section 382, or could result in a change of control in the future upon subsequent disposition. The Company has not currently completed a
study to assess whether a change of control has occurred or whether there have been multiple changes of control since the Company's formation due to the significant complexity and cost associated with
such study. If the Company has experienced a change of control at any time since Company formation, utilization of its NOL or R&D credit carry forwards would be subject to an annual limitation under
Section 382 which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then
could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or R&D credit carry forwards before utilization. Further, until a study is
completed and any limitation known, no amounts are being presented as an uncertain tax position. The Company does not expect to have any taxable income for the foreseeable future. The Company has a
full valuation allowance against the net operating losses and credits.

The
tax years 1994 through 2009 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United States, as carryforward
attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they are or will be used in a future period. The Company is
currently not under examination by the Internal Revenue Service or any other jurisdiction for any tax years. The Company did not recognize any interest and penalties associated with unrecognized tax
benefits in the accompanying financial statements. The Company would record any such interest and penalties as a component of interest expense. The Company does not expect any material changes to the
unrecognized benefits within 12 months of the reporting date.

Accounting for Stock-based Compensation

The Company has several stock-based employee compensation plans, as well as stock options issued outside of such plans as an inducement
to engage new executives. Stock-based compensation

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

cost
is measured at the grant date based on the value of the award and is recognized as expense over the service period.

The
Company uses the Black-Scholes valuation model for valuing options. This model incorporates several assumptions, including volatility, expected life and discount rate. The Company
uses historical volatility as it believes it is more reflective of market conditions and a better indicator of volatility. The Company uses the simplified calculation of expected life for its
"plain-vanilla" option grants. The simplified method for "plain-vanilla" options calculates the expected life based on a preset formula
where the expected life is equal to the sum of vesting term of the option and the contractual term of the option divided by two. If the Company determines that another method used to estimate expected
volatility is more reasonable than the Company's current methods, or if another method for calculating these input assumptions is prescribed by authoritative guidance, the fair value calculated for
share-based awards could change significantly. Higher volatility and longer expected lives would result in an increase to share-based compensation determined at the date of grant.

The
Company recognized the full impact of its share-based payment plans in the consolidated financial statements for the year ended December 31, 2009, 2008 and 2007 and did not
capitalize any such costs on the consolidated balance sheets, as such costs that qualified for capitalization were not material. The following table presents share-based compensation expense included
in the Company's consolidated statement of operations:

Year Ended December 31,2009

2008

2007Cost of product revenue

$
171,067

$
96,249

$
97,664Unfunded research and development and other revenue expenses


332,970


154,641


60,779Selling, general and administrative expenses


2,293,102


1,945,276


695,501Share based compensation expense from continuing operations, before tax

$
2,797,139

$
2,196,166

$
853,944Share based compensation expense from discontinued operations


86,140


168,276


258,155Total share based compensation expense, before tax

$
2,883,279

$
2,364,442

$
1,112,099Income tax benefit








Net share-based compensation expense

$
2,883,279

$
2,364,442

$
1,112,099


Compensation
expense associated with the granting of stock options to employees is being recognized on a straight line basis over the service period of the option. In instances where the
actual compensation expense would be greater than that calculated using the straight line method, the actual compensation expense is recorded in that period.

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

At December 31, 2009 approximately $6.7 million in unrecognized compensation expense remains to be
recognized in future periods. The table below summaries the recognition of the deferred compensation expense associated with employee stock options over the next five years as follows:

Calendar Years Ending December 31,

Non Cash
Stock-Based
Compensation
Expense2010

$
2,724,4032011

$
2,648,6712012

$
1,249,4912013

$
120,1102014

$
Total

$
6,742,675


During
the year ended December 31, 2008, the Company accelerated unvested options for two of its senior executives in connection with their departures. In addition, the Company
extended the time to exercise these options, normally ninety days, to two years from the date of their respective last days of employment. As a result, the Company recorded a non-cash
restructuring charge in 2008 of approximately $0.3 million, of which approximately $0.1 million related to the acceleration of unvested options and $0.2 million related to the
extension of time to exercise these options. The Company valued these changes using the Black-Scholes option pricing model.

The
weighted-average grant-date fair value of options granted during the year ended December 31, 2009, 2008 and 2007 were $1.50, $2.03 and $1.39, respectively, per
option. 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 range of assumptions:

Year Ended December 31,2009

2008

2007Assumptions:Expected life(1)

5.0 years to 6.25 years

5.0 years to 6.25 years

5.0 years to 6.25 yearsExpected volatility ranging from(2)

72.9% - 82.96%

80.0% - 89.5%

81.9% - 89.9%Dividends

none

none

NoneRisk-free interest rate(3)

1.50% - 2.50%

2.70% - 3.38%

3.23% - 4.83%Forfeiture Rate(4)

6.25%

6.25%

6.25%


(1)The
option life was determined using the simplified method for estimating expected option life, which qualify as "plain-vanilla" options.(2)The
stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company's common stock over the most
recent period equal to the expected option life of the grant, the historical short term trend of the option and other factors, such as expected changes in volatility arising from planned changes in
the Company's business operations.


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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

(3)The
risk-free interest rate for each grant is equal to the U.S. Treasury yield curve in effect at the time of grant for instruments with a
similar expected life.(4)The
estimated forfeiture rate for each option grant is 6.25%. The Company periodically reviews the estimated forfeiture rate, in light of actual experience.


Net Loss per Basic and Diluted Common Share

The Company reports net loss per basic and diluted common share in accordance with standards established for computing and presenting
earnings per share. Basic earnings per share excludes dilution and is computed by dividing income attributable 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, except when the effect would be anti-dilutive. See Note R, Loss Per Share, for more information
related to options, warrants and convertible Preferred Stock which would be considered anti-dilutive.

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 deposits in bank accounts. The Company deposits its cash and invests in short-term investments primarily through a national commercial bank.
Deposits in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC) are exposed to loss in the event of nonperformance by the institution. The Company has had cash deposits in
excess of the FDIC insurance coverage.

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

Significant
customers are 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 period. The table below details out customers that were considered significant,

56

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

greater
than 10%, as it pertains to both annual revenues for the years ended December, 31, 2009, 2008 and 2007 and accounts receivable and unbilled contract costs as of December 31, 2009 and
2008.

Year

Revenue

Accounts Receivable and Unbilled Contract Costs2009

SunPower Corporation (approximately 14%)

**

Enfinity, NV (approximately 10%)2008

Fuel Cell Energy, Inc.(approximately 17%)
SunPower Corporation (approximately 12%)

Fuel Cell Energy, Inc. (approximately 14%)
SunPower Corporation (approximately 14%)2007

Phelps Dodge, Inc. (approximately 17%)

Not RequiredNVT, LLC (approximately 18%)


*Represents
less than 10% of either the fiscal year revenue or the total accounts receivable balance at December 31, 2009 or 2008.


Research and Development Costs

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

Comprehensive Income (Loss)

Comprehensive income (loss) includes net loss and foreign currency translation adjustments.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash equivalents, accounts receivable, unbilled contract costs and fees, warrants to
purchase shares of common stock, accounts payable and debt instruments. The estimated fair values of these financial instruments approximate their carrying values at December 31, 2009 and 2008.
The estimated fair values have been determined through information obtained from market sources and management estimates. The Company's warrant liability is recorded at fair value. See "Fair Value
Measurements" section below.

Fair Value Measurements

The Company's financial assets and liabilities are measured using unputs from the three levels of fair value hierarchy which are as
follows:

Level 1

Quoted prices in active markets for identical assets or liabilities.Level 2

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

Assets
and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2009 are as follows:

Fair Value Measurements at Reporting Date UsingDescription

Balance as of
December 31,
2009

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)AssetsMoney market funds(2)

$
10,003,805

$
10,003,805

$


$
Total Assets

$
10,003,805

$
10,003,805

$


$
LiabilitiesLong-term warrant liability(1)

$
4,976,774

$


$
4,976,774

$
Total Liabilities

$
4,976,774

$


$
4,976,774

$



Assets
and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2008 are as follows:

Fair Value Measurements at Reporting Date UsingBalance as of
December 31,
2008

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)AssetsMoney market funds(2)

$
4,243,989

$
4,243,989

$


$
Total Assets

$
4,243,989

$
4,243,989

$


$
LiabilitiesLong-term warrant liability(1)

$
2,407,438

$


$
2,407,438

$
Total Liabilities

$
2,407,438

$


$
2,407,438

$



(1)Within
the Company's Level 2 financial assets, which consists of long term investor warrant liabilities comprised of the Warrant As, Warrant Cs, and
the placement agent warrants. The Warrant As and Warrant Cs are being fair valued using observable inputs utilizing a binomial lattice model and the placement agent warrants are being fair valued
using observable inputs with the Black-Scholes option pricing model. (see Note G. Convertible Debt Instruments and Warrant
LiabilitiesValuationMethodology and Significant Assumptionsand Note IRedeemable
Convertible Series B and Series C Preferred Stockand warrant liabilities below).(2)Included
as a component of cash and cash equivalents on accompanying consolidated balance sheets.


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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)




Warrant Liabilities

On January 1, 2009, the Company adopted ASC 815-40-15 relating to evaluating whether an instrument is
considered indexed to an entity's own stock. The Company's evaluation of the Series C Preferred Stock Warrants determined that the 19,799,023 Series C Preferred Stock Warrants did not
qualify for a scope exception under ASC 815-40-15 as they were determined not to be indexed to the Company's stock as prescribed by ASC 815-40-15. As a
result, on the date of adoption, January 1, 2009, the Company reclassified these warrants from additional paid in capital to warrant liabilities through a cumulative effect of a change in
accounting principle. The initial value of the warrant liability at adoption was $22,041,541.

For
the period through July 3, 2009, the Company recorded a charge to change in fair value of warrants of approximately $3.2 million for the increase in the fair value
related to these warrants during the period. The warrants did not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants were recognized currently in
earnings until such time as the warrants were modified in the manner described below, or exercised or expired. These common stock purchase warrants do not trade in an active securities market, and as
such, the Company estimated the fair value of these warrants using the Black-Scholes option pricing model using the following assumptions:

January 1, 2009

April 4, 2009

July 3, 2009Assumptions:Expected life

5.9 - 6.7 years

5.6 - 6.5 years

5.4 - 6.2 yearsExpected volatility

80% - 85%

75% - 85%

75% - 80%Dividends

none

none

noneRisk-free interest rate

1.69% - 1.83%

2.06% - 2.35%

2.56% - 2.87%


On
July 3, 2009, the Company modified certain provisions contained within the Series C Preferred Stock Warrants. Under the terms of the original Series C Preferred
Stock Warrants (prior to their modification), in addition to standard anti-dilution protection for stock splits or dividends, stock combinations, mergers, liquidation or similar events,
the exercise price and number of shares issuable upon exercise of these warrants were subject to adjustment in the event of certain dilutive issuances (the "Dilutive Issuance Provision"). Upon each
adjustment of the exercise price pursuant to the Dilutive Issuance Provision, the number of shares subject to the warrant were also to be adjusted by multiplying the current exercise price prior to
the adjustment by the number of shares subject to the warrant and dividing the product by the exercise price resulting from the adjustment. The Dilutive Issuance Provision was modified to
(i) limit the instances in which a dilutive issuance will cause an adjustment to the exercise price of the warrants and (ii) eliminate the provision that correspondingly increased the
number of shares underlying the warrants in the event of a dilutive issuance that causes an adjustment to the exercise price. As a result of this modification these warrants were determined to be
equity instruments by the Company, as they now qualify for the scope exception under ASC 815-40-15. Previously the warrants, due to the adoption of the
provisions of ASC 815-40, were accounted for as a derivative liability. The Company is no longer required to mark these warrants to fair value each quarter. (See Note G. Convertible
Debt Instruments and Warrant Liabilities)

In
addition, the Company determined the fair value of the investor warrants (the Warrant As and Warrant Cs) and placement agent warrants using valuation models it considers to be
appropriate. The

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

C. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Continued)

Company's
stock price has the most significant influence on the fair value of its warrants. An increase in the Company's common stock price would cause the fair values of the warrants to increase,
because the exercise price of the warrants is fixed at $1.815 per share and result in a charge to our statement of operations. A decrease in the Company's stock price would likewise cause the fair
value of the warrants to decrease and result in a credit to our statement of operations. See Note G for valuation discussion.

Redeemable Convertible Series B Preferred Stock

The Company initially accounted for its Series B Preferred Stock and associated by allocating the proceeds received net of
transaction costs based on the relative fair value of the redeemable convertible Series B Preferred Stock and the warrants issued to the investors, and then to any beneficial conversion rights
contained in the convertible redeemable preferred securities. The Company determined the initial value of the Series B Preferred Stock and investor warrants using valuation models it considers
to be appropriate. The Series B Preferred Stock is classified within the liability section of the Company's balance sheet. To the extent that the Series B Preferred Stock is subject to a
remeasurement event or is otherwise modified, the Series B Preferred Stock will be reclassified to temporary equity.

Redeemable Convertible Series C Preferred Stock

The Company initially accounted for its issuance of Convertible Series C Preferred Stock (the "Series C Preferred
Stock"), and associated warrants by allocating the proceeds received net of transaction costs based on the relative fair value of the redeemable convertible Series C Preferred Stock and the
warrants issued to the Investors, and then to any beneficial conversion rights contained in the convertible redeemable preferred securities. The Series C Preferred Stock is classified as
temporary equity on the balance sheet. The Company determined the initial value of the Series C Preferred Stock and investor warrants using valuation models it considers to be appropriate. The
Company is using the effective interest method to accrete the carrying value of the Series C Preferred
stock through the earliest possible redemption date (November 8, 2011), at which time the value of the Series C Preferred Stock would be $30.0 million or 120% of its face value.

D. DISCONTINUED OPERATIONS

Subsequent to December 31, 2009, the Company sold its Applied Technology business unit for approximately $1.0 million in cash and $0.5 million in
non-cash consideration consisting of working capital retained at the date of the sale. Prior to the sale the Applied Technology business unit was reported by the Company as its own
operating segment. Operations associated with the Applied Technology business unit have been classified as income (loss) from discontinued operations in the accompanying consolidated statements of
operations, and cash flows associated with this segment are included in cash flows from discontinued operations in the consolidated statements of cash flows. The Company evaluated the assets of the
Applied Technology business unit and as of December 31, 2009 has classified them as held for sale. The Company will record a gain on the sale of the Applied Technology business unit of
approximately $0.5 million in its results of operations for the first quarter of 2010.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

D. DISCONTINUED OPERATIONS (Continued)

On
September 26, 2008, the Company sold its Electronics and Power Systems US business segments to two unrelated companies, for approximately $5.6 million in cash and
$0.5 million in non-cash consideration consisting of the accounts receivable balance for the Power Systems US division. Prior to the sale, each of these divisions were reported by
the Company as its own operating segment. Operations associated with these discontinued segments have been classified as loss from discontinued operations in the accompanying consolidated statements
of operations, and cash flows associated with these segments are included in cash flows from discontinued operations in the consolidated statements of cash flows. Net sales and net income (loss) from
discontinued operations by division was as follows:

Year Ended December 31,Division

2009

2008

2007ElectronicsNet Sales




$
8,250,768

$
9,581,788Net Loss




$
(1,094,326
)
$
(500,370
)Power Systems, USNet Sales




$
5,021,022

$
4,962,172Net Loss




$
(40,406
)
$
(632,833
)Applied TechnologyNet Sales

$
6,232,687

$
8,228,769

$
8,994,582Net Income (Loss)

$
91,677

$
(734,594
)
$
332,931Discontinued OperationsTotal Net Sales

$
6,232,687

$
21,500,559

$
23,538,542Total Net Income (Loss)

$
91,677

$
(1,869,326
)
$
(800,272
)


The
Company has not allocated interest to discontinued operations. The Company has also eliminated all intercompany activity associated with discontinued operations.

The
net assets of the Electronics and Power Systems US divisions at December 31, 2009 and 2008 were $0. The net assets of the Applied Technology division as of December 31,
2009 and 2008 consisted of the following, which have been reclassified in the accompanying consolidated balance sheets:

December 31,
2009

December 31,
2008Prepaid expenses


35,004


Current assets of discontinued operations

$
35,004

$
Property and equipment, net


56,076


120,689Goodwill other long-term assets


168,151


522,240Non-current assets of discontinued operations

$
224,227

$
642,929Accrued payroll and related expenses


117,702


91,180Current liabilities of discontinued operations

$
117,702

$
91,180Long-term liabilities of discontinued operations

$


$



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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

D. DISCONTINUED OPERATIONS (Continued)

The sale of the Electronics and Power Systems US divisions resulted in a gain on sale of discontinued
operations for the year ended December 31, 2008 as follows:

Electronics

Power Systems, US

TotalNet current assets sold

$
3,417,632

$
404,474

$
3,822,106Long-term assets sold


1,120,176


45,556


1,165,732Total net assets sold

$
4,537,808

$
450,030

$
4,987,838Consideration, net

$
4,994,137

$
267,744

$
5,261,881Gain (loss) on sale of discontinued operations

$
456,329

$
(182,286
)
$
274,043


E. INVENTORY

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

December 31,2009

2008Raw material

$
7,268,446

$
4,920,780Work-in-process


2,588,205


6,182,835Finished goods


2,041,920


353,917$
11,898,571

$
11,457,532


The
provision for excess and obsolete inventory, from continuing operations, net of usage, for the years ended December 31, 2009, 2008 and 2007 was $185,577, $360,035 and
$206,780, respectively.

F. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

December 31,2009

2008Machinery and equipment

$
4,153,178

$
2,205,454Assets under construction

$
1,616,022


Furniture and fixtures


324,689


133,958Computer software


707,667


175,056Leasehold improvements


1,098,882


986,592$
7,900,438

$
3,501,060Less: accumulated depreciation and amortization


(3,266,512
)

(1,656,781
)$
4,633,926

$
1,844,279


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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

F. PROPERTY AND EQUIPMENT (Continued)

Depreciation
and amortization expense from continuing operations relating to property and equipment for the years ended December 31, 2009, 2008 and 2007 was $1.3 million,
$0.8 million and $0.4 million, respectively.

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES

Features of the Convertible Notes and Warrants

On July 19, 2006, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with the purchasers named
therein (the "Purchasers") in connection with the private placement (the "Private Placement") of:



On
November 7, 2007, the Convertible Notes were retired by cash redemption.



The Warrant As originally entitled the holders thereof to purchase up to an aggregate of 3,636,368 shares of the Company's common stock
at a price of $1.815 per share for a period beginning six months from the date of such warrants and ending on the seventh anniversary of the date of such warrants. The period prior to six months from
the date of the warrants is hereinafter referred to as the "non-exercise period." The exercise price and the number of shares underlying these warrants are subject to adjustment for stock
splits, stock dividends, combinations, distributions of assets or evidence of indebtedness, mergers, consolidations, sales of all or substantially all assets, tender offers, exchange offers,
reclassifications or compulsory share exchanges.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)

If
a change of control of the Company occurs, as defined, the holders may elect to require the Company to purchase the Warrant As for a purchase price equal to the Black-Scholes value of
the remaining unexercised portion of each Warrant A.

For
so long as any Warrant As remain outstanding, the Company may not issue any common stock or common stock equivalents at a price per share less than $1.65. In the event of a breach of
this provision, the holders may elect to require the Company to purchase the Warrant As for a purchase price equal to the Black-Scholes value of the remaining unexercised portion of each Warrant A. As
a result of the November 8, 2007 and December 20, 2007 preferred stock financing, as described in Note I below, the holders were entitled for a limited period of time
(45 days after each issuance) to exercise this right. During the fourth quarter of fiscal 2007, the Company paid approximately $1.4 million to redeem Warrant As representing 1,242,426
shares of common stock. During the quarter ended March 29, 2008, the Company paid approximately $0.4 million to redeem Warrant As representing 303,031 shares of common stock. (See table
below for assumptions used in valuing the warrants redeemed). As of December 31, 2009, Warrant As to purchase 2,090,911 shares of common stock were outstanding.



The Warrant Bs entitled the holders thereof to purchase up to an aggregate of 3,636,368 shares of our common stock at a price of $1.68
per share for a period of 90 trading days beginning the later of six months from the date of such warrants and the date the SEC declares effective the Registration Statement.

On
July 17, 2007, the holders of the Warrant Bs exercised such warrants in full, acquiring 3,636,638 shares of common stock at $1.31 per share. The Company received proceeds of
approximately $4.8 million. To entice the holders of the Warrant Bs to exercise such warrants the Company reduced the exercise price from $1.68 to $1.31 per share. As a result of reducing the
exercise price the Company recorded a charge to operations in 2007 related to the warrant modification of approximately $0.9 million to change in fair value of the Convertible Notes and
warrants on the accompanying statement of operations. Pursuant to the original terms of the Warrant Bs, upon exercise of the Warrant Bs, the warrant holders were entitled to receive additional
warrants ("Warrant Cs") to purchase a number of shares of common stock equal to 50% of the number of shares of common stock purchased upon exercise of the Warrant Bs. As a result of the full exercise
of the Warrant Bs, the holders received Warrant Cs to purchase 1,818,187 shares of common stock at an exercise price of $1.815 per share for a period beginning six months from the date of such
warrants and ending on the seventh anniversary of the date of such warrants.



As discussed above, upon the exercise of the Warrant Bs, the holders were entitled to receive additional warrants (the "Warrant Cs").
The Warrant Cs originally entitled the holders thereof to purchase up to an aggregate of 1,818,187 shares of our common stock at a price of $1.815 per share for a period beginning six months from the
date of such warrants and ending on the seventh anniversary of the date of such warrants. The period prior to six months from the date of the warrants is hereinafter referred to as the
"non-exercise period." The exercise price and the number of shares underlying these

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)

warrants
are subject to adjustment for stock splits, stock dividends, combinations, distributions of assets or evidence of indebtedness, mergers, consolidations, sales of all or substantially all
assets, tender offers, exchange offers, reclassifications or compulsory share exchanges.

If
a change of control of the Company occurs, as defined, the holders may elect to require the Company to purchase the Warrant Cs for a purchase price equal to the Black-Scholes value of
the remaining unexercised portion of each Warrant C.

For
so long as any Warrant Cs remain outstanding, the Company may not issue any common stock or common stock equivalents at a price per share less $1.65. In the event of a breach of this
provision, the holders may elect to require the Company to purchase the Warrant Cs for a purchase price equal to the Black-Scholes value of the remaining unexercised portion of each Warrant C. As a
result of the November 8, 2007 and December 20, 2007 preferred stock financing, as described in Note I below, the holders were entitled for a limited period of time
(45 days after each issuance) to exercise this right. During the fourth quarter of fiscal 2007, the Company paid approximately $0.7 million to redeem Warrant Cs representing 621,215
shares of common stock. During the quarter ended March 29, 2008, the Company paid approximately $0.2 million to redeem Warrant Cs representing 151,516 shares of common stock. (See table
below for assumptions used in valuing the warrants redeemed). As of December 31, 2009, Warrant Cs to purchase 1,045,456 shares of common stock were outstanding.

If
following the later of (i) the effective date of the Registration Statement and (ii) the six month anniversary of the issuance date, the volume weighted average price
per share of the Company's common stock for any 20 consecutive trading days exceeds 200% of the exercise price, then, if certain conditions are satisfied, the Company may require the holders of the
Warrant Cs to exercise up to 50% of the unexercised portions of such warrants. If following the 24 month anniversary of the issuance date, the volume weighted average price per share of the
Company's common stock for any 20 consecutive trading days exceeds 300% of the exercise price, then, if certain equity conditions are satisfied, the Company may require the holders of the Warrant Cs
to exercise all or any part of the unexercised portions of such warrants

The
table below summarizes Black-Scholes option pricing model range of assumptions that were used in valuing the warrants redeemed for both the Warrant As and Warrant Cs.

Assumptions:

Warrant As

Warrant CsExpected life

5.68 years to 5.69 years

6.67 years to 6.68 yearsExpected volatility ranging from

83.0%

85.0%Dividends

none

noneRisk-free interest rate

3.75% - 3.84%

3.85% - 3.93%




First Albany Capital ("FAC") acted as placement agent in connection with the Private Placement. In addition to a cash transaction fee,
FAC or its designees were entitled to receive five-year warrants to purchase 218,182 shares of the Company's common stock at an exercise price of $1.87 per share. These warrants will be
callable after the second anniversary of the closing of the Private Placement if the 20-day volume weighted average price per share of the Company's common stock exceeds 175% of the

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)

exercise
price. At the direction of FAC, these Placement Agent warrants were issued to First Albany Companies Inc., the parent of FAC. As of December 31, 2009 and 2008, Placement Agent
warrants to purchase 218,182 shares of common stock were outstanding, respectively.

Accounting for the Warrants

Upon issuance, the Warrant As, Warrant Bs and Warrant Cs, along with the Placement Agent Warrants (together the "Warrants"), did not
meet the requirements for equity classification, because such warrants (a) must be settled in registered shares, (b) are subject to substantial liquidated damages if the Company is
unable to maintain the effectiveness of the resale registration of the shares and (c) there is a cash-out election using a Black-Scholes valuation under various circumstances.
Therefore these Warrants are required to be accounted for as freestanding derivative instruments. Changes in fair value are recognized as either a gain or loss in the statement of operations under the
caption "Change in fair value of notes and warrants."

Upon
issuance, the Company allocated $2.7 million of the initial proceeds to the Warrants and immediately marked them to fair value resulting in a derivative liability of
$4.9 million and a charge to other expense of $2.2 million. As of December 31, 2009 and 2008, the remaining outstanding Warrants have been marked to fair value resulting in a
derivative liability of $5.0 million and $2.4 million, respectively.

The
credit / (charge) to Change in fair value of notes and warrants, for the year ended December 31, 2009, 2008 and 2007 was ($2.6) million, $0.3 million and ($2.3)
million, respectively, related to Warrant As, Bs and Cs and placement agent warrants. The Company recorded a charge to Change in Fair Value of notes and warrants related to its Series C
Preferred Stock warrants of ($3.2) million for the year ended December 31, 2009.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)

A
summary of the changes in the fair value of the Convertible Notes and the Warrant Liabilities:

Fair Value
of Notes

Fair Value
of Warrant
Liabilities

TotalBalance December 31, 2006

$
12,740,482

$
2,920,553

$
15,661,035Amortization of debt discount


2,115,442





2,115,442Fair value adjustment(4)


(1,044,185
)

(1,451,903
)

(2,496,088
)Redemptions:Cash(2)


(8,057,852
)




(8,057,852
)Cash paid related to pre-payment premium of 20%(2)


(1,419,440
)




(1,419,440
)Stock(1)


(3,809,447
)




(3,809,447
)Note holder conversion @ $1.65 per share


(525,000
)




(525,000
)Modification charge of Warrant Bs(4)





872,728


872,728Exercise of Warrant Bs and reclassification to equity





(872,728
)

(872,728
)Charge related to the initial issuance of Warrant Cs(4)





1,775,666


1,775,666Change in fair value of redeemed Warrant As and Cs at redemption(3)(4)





2,099,958


2,099,958Warrant Redemptions:Cash Paid for Warrant A redemption(3)





(1,363,622
)

(1,363,622
)Cash paid for Warrant C redemption(3)





(736,336
)

(736,336
)Balance at December 31, 2007

$


$
3,244,316

$
3,244,316Fair value adjustment(4)





(836,878
)

(836,878
)Change in fair value of redeemed Warrant As and Cs at redemption(3)(4)





572,250


572,250Warrant Redemptions:Cash Paid for Warrant A redemption(3)





(387,591
)

(387,591
)Cash paid for Warrant C redemption(3)





(184,659
)

(184,659
)Balance at December 31, 2008

$


$
2,407,438

$
2,407,438Change in accounting principle(5)





22,041,541


22,041,541Fair value adjustment(4)





2,569,336


2,569,336Series C Preferred Stock Warrant fair value adjustment(4)





3,152,244


3,152,244Reclassification of Series C Preferred Stock Warrants to equity(6)





(25,193,785
)

(25,193,785
)Balance at December 31, 2009

$


$
4,976,774

$
4,976,774


(1)Includes
a fair value adjustment of $365,217.(2)The
Company redeemed the Convertible Notes in full on November 7, 2007. Pursuant to the terms of the Convertible Notes, the Company was required to
pay a premium of 20% of the then outstanding balance of the Convertible Notes.


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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)

(3)As
a result of the Series C Preferred Stock financing, certain holders of both Warrant As (1,242,426) and Warrant Cs (621,215), through
December 31, 2007, exercised their right of redemption, resulting in the Company paying to each redeeming warrant holder the Black-Scholes value of these warrants on the date of notification of
redemption. During the year ended December 31, 2008, holders of both Warrant As (303,031) and Warrant Cs (151,516) exercised their right of redemption, resulting in the Company paying to each
redeeming warrant holder the Black-Scholes value of these warrants on the date of notification of redemption.(4)Amounts
included in change in fair value of Convertible Notes and warrants on consolidated statement of operations.(5)19,799,022
of the Company's issued and outstanding common stock purchase warrants previously treated as equity pursuant to the derivative treatment
exemption were no longer afforded equity treatment. As such, effective January 1, 2009 the Company reclassified the fair value of these common stock purchase warrants, which have exercised
price reset features, from equity to liability status as if these warrants were treated as derivative liability since their date of issuance.(6)On
July 3, 2009, the Company modified certain provisions contained within the common stock purchase warrants issued in connection with the
Series C Preferred Stock financing. See Note C. Significant Accounting Policies and Basis of ConsolidationWarrant Liabilities for a description of the modifications. As a
result of these modifications 19,799,022 of the Company's issued and outstanding common stock purchase warrants, previously treated as a derivative liability on January 1, 2009 will now be
treated as equity pursuant to the derivative treatment exemptions afforded the Company. In addition, as a result of this modification, the Company will no longer be required to mark these warrants to
their fair value each quarter.


Under
the provisions of the Convertible Notes, the Company could elect to make principal and interest payments in shares of its common stock if the Equity Conditions were satisfied. With
the Equity Conditions satisfied the Company elected to pay the April 30, 2007 and July 31, 2007 interest payments in shares of its common stock. As a result, the Company recorded the
following charges as it relates to the interest payment on the Convertible Notes (interest on the Convertible Notes was due quarterly on the last day of January, April, July and October,
respectively):

Due Date

Shares

Cash Interest
$ Value

Fair Value
of Shares
Issued

Additional
Expense
RecordedApril 30, 2007


226,746

$
252,824

$
303,941

$
51,117July 31, 2007


169,776

$
214,858

$
210,059

$
(4,799
)


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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)

ValuationMethodology and Significant Assumptions

The valuation of derivative instruments utilizes certain estimates and judgments that affect the fair value of the instruments. Fair
values for the Company's derivatives are estimated by utilizing valuation models that consider current and expected stock prices, volatility, dividends, forward yield curves and discount rates. Such
amounts and the recognition of such amounts are subject to significant estimates which may change in the future.

In
estimating the fair value of the Convertible Notes and Warrants the following methods and significant input assumptions were applied:



Input

July 19,
2006

Dec. 31,
2006

March 31,
2007

June 30,
2007

Sept. 29.
2007

Nov. 7,
2007(1)Quoted Stock Price

$
1.68

$
1.14

$
1.30

$
1.22

$
1.14

$
1.44Conversion Price

$
1.65

$
1.65

$
1.65

$
1.65

$
1.65

$
1.65Time to Maturity (in years)


5.00


4.55


4.30


4.05


3.80


3.70Stock Volatility


90
%

90
%

84
%

82
%

70
%

70
%Risk-Free Rate


5.02
%

4.71
%

4.54
%

4.91
%

4.11
%

3.71
%Dividend Rate


0
%

0
%

0
%

0
%

0
%

0
%


(1)The
Convertible Notes were paid off in full on November 7, 2007.




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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)



Warrant AsInput

Dec. 31,
2007

Mar. 29,
2008

June 28,
2008

Sept. 27,
2008

Dec. 31,
2008

Apr. 4,
2009

Jul. 4
2009

Oct. 3
2009

Dec. 31,
2009Quoted Stock Price

$
1.650

$
1.84

$
3.01

$
2.10

$
1.55

$
1.88

$
1.80

$
2.01

$
2.82Exercise Price

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815Time to Maturity (in years)


5.60


5.30


5.10


4.80


4.60


4.30


4.00


3.80


3.60Stock Volatility


83
%

80
%

80
%

72
%

73
%

75
%

75
%

75
%

75
%Risk-Free Rate


3.53
%

2.57
%

3.37
%

2.96
%

1.44
%

1.69
%

1.98
%

1.72
%

2.00
%Dividend Rate


0
%

0
%

0
%

0
%

0
%

0
%

0
%

0
%

0
%Non-Exercise Period


N/A


N/A


N/A


N/A


N/A


N/A


N/A


N/A


N/A




Warrant Cs(1)Input

Dec. 31,
2007

Mar. 29,
2008

June 28,
2008

Sept. 27,
2008

Dec. 31,
2008

Apr. 4,
2009

Jul. 4
2009

Oct 3
2009

Dec. 31,
2009Quoted Stock Price

$
1.650

$
1.84

$
3.01

$
2.10

$
1.55

$
1.88

$
1.80

$
2.01

$
2.82Exercise Price

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815

$
1.815Time to Maturity (in years)


6.5


6.3


6.1


5.8


5.50


5.30


5.0


4.8


4.50Stock Volatility


85
%

85
%

85
%

80
%

80
%

75
%

75
%

75
%

75
%Risk-Free Rate


3.64
%

2.77
%

3.50
%

3.19
%

1.63
%

1.97
%

2.43
%

2.14
%

2.44
%Dividend Rate


0
%

0
%

0
%

0
%

0
%

0
%

0
%

0
%

0
%Non-Exercise Period


Until 1/17/08


N/A


N/A


N/A


N/A


N/A


N/A


N/A


N/A


(1)Warrant
Cs were issued on July 17, 2007 upon the exercise of the Warrant Bs.




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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

G. CONVERTIBLE DEBT INSTRUMENTS AND WARRANT LIABILITIES (Continued)



Input

Dec. 31,
2007

March 29,
2008

June 28,
2008

Sept. 27,
2008

Dec. 31,
2008

Apr. 4,
2009

Jul. 4
2009

Oct. 3
2009

Dec. 31,
2009Quoted Stock Price

$
1.65

$
1.84

$
3.01

$
2.10

$
1.55

$
1.88

$
1.80

$
2.01

$
2.82Exercise Price

$
1.87

$
1.87

$
1.87

$
1.87

$
1.87

$
1.87

$
1.87

$
1.87

$
1.87Time to Maturity (in years)


3.55


3.31


3.06


2.81


2.55


2.29


2.04


1.79


1.55Stock Volatility


70
%

70
%

75
%

75
%

80
%

75
%

85
%

80
%

75
%Risk-Free Rate


3.175
%

1.91
%

2.93
%

2.33
%

0.89
%

1.08
%

1.00
%

0.77
%

0.84
%Dividend Rate


0
%

0
%

0
%

0
%

0
%

0
%

0
%

0
%

0
%Non-Exercise Period


N/A


N/A


N/A


N/A


N/A


N/A


N/A


N/A


N/A




H. LINE OF CREDIT

On February 26, 2008, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Silicon Valley Bank (the "Bank"). Under the terms of the Loan Agreement,
the Bank agreed to provide the Company with a credit line up to $10.0 million. The Company's obligations under the Loan Agreement are secured by substantially all of the assets of the Company
and advances under the Loan Agreement are limited to 80% of eligible receivables and the lesser of 25% of the value of the Company's eligible inventory, as defined, or $1.0 million. Interest on
outstanding borrowings accrues at a rate per annum equal to the Prime Rate plus one percent (1.0%) per annum, as defined, or the LIBOR Rate plus three and three quarter percent (3.75%) per annum. The
Loan Agreement contains certain financial covenants relating to tangible net worth, as defined, which the Company must satisfy in order to borrow under the agreement. In addition, the Company agreed
to

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

H. LINE OF CREDIT (Continued)

pay
to the Bank a collateral monitoring fee of $750 per month and agreed to the following additional terms: (i) $50,000 commitment fee, $25,000 to be paid at signing of the Loan Agreement and
$25,000 to be paid on the one year anniversary of the Loan Agreement; (ii) an unused line fee in the amount of 0.5% per annum of the average unused portion of the revolving line; and
(iii) an early termination fee of 0.5% of the total credit line if the Company terminates the Loan Agreement prior to 12 months from the Loan Agreement's effective date.

As
of December 31, 2009 and 2008, the Company had $3.0 million outstanding under the Loan Agreement and the Bank's prime rate was 4% and 5%, respectively. The rate used was
the Bank's prime rate of 4% and 5% plus 1% or (5% and 6% at December 31, 2009 and 2008, respectively).

The
Company has certain financial covenants under the Loan Agreement. At December 31, 2009, the Company's most restrictive covenant under the line of credit was a tangible net
worth covenant, as defined, which was set at approximately $15.0 million. At December 31, 2009, the Company's tangible net worth, as defined, was approximately $14.5 million,
which was less than the covenant requirement; the Company has obtained a waiver from the Bank related to this. The Company also has a liquidity covenant, as defined, which was set at approximately
$4.0 million. As of December 31, 2009, the Company's liquidity, as defined, was approximately $18.7 million, which exceeded the covenant requirement. As of December 31,
2009, the Company had availability of $5.4 million under the line of credit.

On
February 18, 2010, the Company entered into the Fourth Loan Modification Agreement with the Bank. The Fourth Loan Modification modified the term of the Loan Agreement to expire
on March 19, 2010.

On
March 10, 2010, the Company entered into the Fifth Loan Modification Agreement with the Bank. The Fifth Loan Modification Agreement amended certain provisions of the Loan
Agreement. Among other modifications and amendments, (i) the term of the Loan Agreement has been extended to October 18, 2011, (ii) the Company's tangible net worth covenant, as
defined, has been set at approximately $7.5 million and (iii) the Company's liquidity covenant, as defined, has been set at approximately $4.0 million. In addition to the above,
pursuant to the terms of the Fifth Loan Modification Agreement, the Bank provided the Company two additional tranches of term debt each in a maximum principal amount of $1,000,000, which, if drawn
down, would reduce availability under the revolving credit line. The Company paid a modification fee of $37,500 in connection with the Fifth Loan Modification Agreement.

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK

Series B Convertible Preferred Stock.

On October 31, 2003, the Company completed a $7.7 million equity transaction involving the issuance of 1,535 shares of
its Series B Convertible Preferred Stock, $0.01 par value per share (the "Series B Preferred Stock"), and warrants to purchase up to 1,228,000 shares of the Company's common stock, to
accredited investors (the "October 2003 Financing Transaction"). In connection with the October 2003 Financing Transaction, the Company issued shares of Series B Preferred Stock for $5,000 per
share. The Series B Preferred Stock is convertible into a number of shares of common stock equal to $5,000 divided by the conversion price of the Series B Preferred Stock, which was
initially

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

$2.50.
As of December 31, 2009, 2008, and 2007 the conversion price for the Series B Preferred Stock was $1.49, $1.55 and $1.55, respectively. During 2009, 215 shares of Series B
Preferred Stock were converted by their holders resulting in the Company issuing 719,528 shares of common stock. During 2008, 50 shares of Series B Preferred Stock were converted by their
holder resulting in the Company issuing 161,290 shares of common stock. During 2007, 5 shares of Series B Preferred Stock were converted by their holder resulting in the Company issuing 13,020
shares of common stock. As of December 31, 2009, 2008, and 2007, 75, 290, and 340 shares of Series B Preferred Stock were outstanding, respectively. As of December 31, 2009, 2008,
and 2007, the liquidation preference of the remaining 75, 290, and 340 shares of Series B Preferred Stock was $375,000, $1,450,000, and $1,700,000 respectively, and these were convertible into
251,678, 935,484, and 1,096,774 shares of common stock, respectively.

As
a result of the issuance of shares of approximately 17.9 million shares of common stock during the year ended December 31, 2009, the Company adjusted the conversion
price on the Series B Preferred Stock to $1.49 from $1.55 at December 31, 2008 and recorded a charge of $55,369.

Dividends on Series B Preferred Stock

The shares of Series B Preferred Stock initially bore a cumulative dividend at a rate of 6% per annum; pursuant to its terms,
this was increased to a rate of rate of 8% per annum on October 1, 2005. Dividends on the Series B Preferred Stock are payable semi-annually and, except in certain limited
circumstances, may be paid by the Company, at its option, either through the issuance of shares of common stock or in cash. If the Company elects to pay the dividend in shares of common stock, the
Company will issue a number of shares of common stock equal to the quotient of the dividend payment divided by the greater of 80% of the average closing bid and ask price of the common stock on the
Nasdaq Stock Market for the 15 trading days ending on the 11th trading day prior to the date the dividend is required to be paid, and the conversion price, which was initially $2.50, but
which has since been adjusted in accordance with the terms of the Series B Preferred Stock to $1.49 and $1.55 (as of December 31, 2009 and 2008, respectively). The Company has paid all
dividends in shares of common stock, in lieu of cash dividends. The table below details out the number of shares and the amount charged to interest expense during the respective periods:

Period

Shares Issued

$ Value of DividendYear ended December 31, 2007


70,045

$
137,856Year ended December 31, 2008


86,241

$
133,666Year ended December 31, 2009


56,462

$
86,370


As
part of the October 2003 Financing Transaction, the Company also issued warrants to purchase up to 1,228,000 shares of its common stock (See Note N). These warrants were
exercisable for a five-year term and had an initial exercise price of $3.32 per share, which represented 110% of the average closing price of the common stock for the five trading days
preceding October 31, 2003. The exercise price had been adjusted due to anti-dilution provisions to $2.93 per share. These warrants were immediately exercisable and would expire on
October 31, 2008. During 2008, warrants to purchase an aggregate of 1,116,000 shares of common stock, expired unexercised.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

Burnham
Hill Partners, LLC, a division of Pali Capital, Inc. ("BHP"), served as placement agent for this transaction. As part of its commission BHP, or its assigns,
received warrants, with an exercise price of $0.01 per share, to purchase an aggregate of 150,430 shares of common stock. These warrants were immediately exercisable and would expire on
October 31, 2008. The Company valued these warrants at $435,166, using the Black-Scholes option-pricing model and has treated this as a transaction cost. Warrants to purchase an aggregate of
5,182 shares of common stock, expired unexercised during 2008.

Liquidation Preference on Series B Preferred Stock

In the event of a liquidation of the Company, the holders of shares of the Series B Preferred Stock are entitled to receive a
liquidation payment prior to the payment of any amount with respect to the shares of the common stock. The amount of this preferential liquidation payment is $5,000 per share of Series B
Preferred Stock, plus the amount of any accrued but unpaid dividends on those shares. After payment of the full liquidation preference amount, the holders of the Series B Preferred Stock will
not be entitled to any further participation as such in any distribution of the Company's assets.

Optional Conversion of Series B Preferred Stock

The Series B Preferred Stock is convertible into common stock at any time at the option of the holder. Each outstanding share of
Series B Preferred Stock is convertible into a number of shares of common stock equal to $5,000 divided by the conversion price of the Series B Preferred Stock, which was initially
$2.50, but which has since been adjusted in accordance with the terms of the Series B Preferred Stock to $1.49 and $1.55 (as of December 31, 2009 and 2008, respectively). The
Series B Preferred Stock has anti-dilution protections which adjust the conversion price, in the event of the issuance of shares of common stock at a price less than the conversion
price then in effect. If the Company issues equity securities for a per share price less than the conversion price of the Series B Preferred Stock, which was initially $2.50, the conversion
price will be adjusted downwards using a weighted average calculation.

Mandatory Conversion of Series B Preferred Stock

If certain conditions described below are met, each share of Series B Preferred Stock will be automatically converted into a
number of shares of common stock equal to $5,000 divided by the conversion price of the Series B Preferred Stock, which was initially $2.50, but which has since been adjusted in accordance with
the terms of the Series B Preferred Stock to $1.49 and $1.55 (as of December 31, 2009 and 2008, respectively). Mandatory conversion may only occur if the average of the closing bid and
ask price of the common stock on the Nasdaq Stock Market exceeds $5.00 (as adjusted for stock splits, stock dividends, combinations and similar transactions) for 20 consecutive trading days and either
the registration statement governing the underlying shares of common stock is effective or the shares of common stock issuable upon conversion of the Series B Preferred Stock can be sold
without restriction pursuant to Rule 144 of the Securities Act of 1933. The mandatory conversion date will be extended for so long as the following events have occurred and are
continuing:



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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)



If,
however, on the mandatory conversion date, a holder is prohibited from converting all of its shares of Series B Preferred Stock as a result of the restrictions described below
under "Conversion Restrictions," such shares of Series B Preferred Stock will not be converted, will remain outstanding and will not accrue any dividends.

Conversion Restrictions

Unless the Company seeks and obtains stockholder approval, the number of shares of common stock the Company may issue upon the
conversion of the shares of Series B Preferred Stock (when aggregated with the number of shares of common stock issued as dividends on
the Series B Preferred Stock and upon exercise of the warrants issued to the placement agent and its affiliates for the Series B Preferred Stock financing) is limited to 4,947,352 shares
(representing 19.999% of the Company's total outstanding common stock as of October 31, 2003 immediately prior to the issuance of the Series B Preferred Stock). In addition, no holder
may convert shares of Series B Preferred Stock if conversion of those shares would result in the holder owning more than 4.99% of the common stock then outstanding or would result in the holder
beneficially owning more than 9.999% of the common stock then outstanding, unless the holder waives this limitation at least 61 days prior to the proposed conversion.

Failure to Convert

If for any reason upon an optional or mandatory conversion the Company cannot issue shares of common stock which have been registered
for resale pursuant to an effective registration statement, then the Company will be obligated to issue as many shares of common stock as its is able to issue. If the Company does not have enough
shares of common stock to cover the conversion of all outstanding shares of Series B Preferred Stock, then with respect to the unconverted shares of Series B Preferred Stock (other than
unconverted Series B Preferred Stock resulting from the restrictions described above under "Conversion Restrictions"), the holder will have the right to (i) void its conversion notice,
(ii) require the Company to redeem the unconverted shares of Series B Preferred Stock at a price per share equal to $6,250 plus liquidated damages and any accrued but unpaid dividends or
(iii) require the Company to issue shares of common stock that have not been registered pursuant to the Securities Act. If the holder elects redemption, the Company may pay the redemption price
either in cash or in shares

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

of
common stock based on the quotient of the redemption price divided by the greater of 80% of the average of the closing bid and ask price of the common stock on the Nasdaq Stock Market for
the 15 trading days ending on the 11th trading day prior to the redemption date and the conversion price, which was initially $2.50, but which has since been adjusted in
accordance with the terms of the Series B Preferred Stock to $1.49, $1.55 and $1.55 (as of December 31, 2009, 2008, and 2007 respectively).

Redemption of Series B Preferred Stock

The holders of Series B Preferred Stock are entitled to redeem their shares of Series B Preferred Stock immediately prior
to the consolidation, merger or business combination of the Company with another entity (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or a consolidation, merger or other business combination in which holders of the Company's voting power immediately prior to the transaction continue after the transaction
to hold, directly or indirectly, the voting power of
the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities), the sale or
transfer of more than 50% of the Company's assets (other than inventory in the ordinary course of business) or the closing of a purchase, tender or exchange offer made to the holders of more than 50%
of the outstanding common stock. In such an event, the redemption price per share will equal $6,250 plus any accrued but unpaid dividends and liquidated damages. The Company may pay the redemption
price in either cash or shares of common stock based on the quotient of the redemption price divided by the greater of 80% of the average of the closing bid and ask price of the common stock on the
Nasdaq Stock Market for the 15 trading days ending on the 11th trading day prior to the redemption date and the conversion price, which was initially $2.50, but which has since been
adjusted in accordance with the terms of the Series B Preferred Stock to $1.49, $1.55 and $1.55 (as of December 31, 2009, 2008, and 2007 respectively).

In
addition, the holders of Series B Preferred Stock are entitled to redeem their shares of Series B Preferred Stock if the following events
occur:



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

With
respect to the events set forth in the first three bullet points above, the redemption price per share will equal $6,000 plus liquidated damages and any accrued but unpaid
dividends. With respect to the event described in the fourth bullet point above, the redemption price per share will be the greater of (i) $6,000 plus liquidated damages and any accrued but
unpaid dividends and (ii) the product of the number of shares of common stock issuable upon the relevant shares of Series B Preferred Stock multiplied by the highest closing price for
the common stock during the period beginning on the date of first occurrence of the event and ending one day prior to the date of payment of the redemption price. If the effectiveness of the
registration statement lapses, listing is suspended or the holders receive a notice that the Company will not or cannot comply with a conversion notice, the Company may choose to pay the redemption
price in shares of common stock based on the quotient of the redemption price divided by the greater of 80% of the average of the closing bid and ask price of the common stock on the Nasdaq Stock
Market for the 15 trading days ending on the 11th trading day prior to the redemption date and the conversion price, which was initially $2.50, but which has since been adjusted in accordance
with the terms of the Series B Preferred Stock to $1.49, $1.55 and $1.55 (as of December 31, 2009, 2008, and 2007 respectively).

Commencing
October 31, 2006 (and so long as a registration statement covering the resale of the shares of common stock underlying the Series B Preferred Stock and related
warrants is effective and none of the events listed in the four bullet points above has occurred and is continuing), the Company may redeem all or any portion of the outstanding Series B
Preferred Stock upon five days prior written notice at a price per share of $7,500, plus liquidated damages and any accrued but unpaid dividends. However, if a holder has delivered a conversion notice
to the Company within three trading days of receipt of the Company's redemption notice for all or a portion of the shares of Series B Preferred Stock, such shares of Series B Preferred
Shares which the Company has designated for redemption may be converted by the holder. In addition, if during the period between the date of the Company's redemption notice and the redemption date a
holder becomes entitled to redeem the Series B Preferred Stock as a result of a consolidation, merger or business combination of the Company with another entity, the sale or transfer of more
than 50% of the Company's assets (other than inventory in the ordinary course of business) or the closing of a purchase, tender or exchange offer made to the holders of more than 50% of the common
stock, the right of the holder with respect to the conversion will take precedence over the Company's redemption notice. If a holder delivers a conversion notice but is prohibited from converting all
of its shares of Series B Preferred Stock as a result of the restrictions described above under "Conversion Restrictions," such shares of Series B Preferred Stock will not be converted,
will remain outstanding and will not accrue any dividends.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

Accounting for the Series B Preferred Stock and Adjustments to the Conversion Price

The Company accounted for the transaction by allocating the proceeds received net of transaction costs based on the relative fair value
of the redeemable convertible Series B Preferred Stock and the warrants issued to the investors, and then to any beneficial conversion rights contained in the convertible redeemable preferred
securities as follows:

Security

Face
Value

Fair
Value

Allocation of
Proceeds, Net of
Transaction Costs

Beneficial
Conversion
Feature

DiscountRedeemable convertible Series B Preferred Stock

$
7,675,000

$
12,398,195

$
5,247,393

$
3,655,607

$
6,083,214Warrants




$
2,935,558

$
1,242,441








Series C Convertible Preferred Stock

On November 8, 2007, the Company entered into a Stock and Warrant Purchase agreement with Rockport Capital Partners
II, L.P. and NGP Energy Technology Partners, L.P. (the "Investors"). Under this purchase agreement, the Investors agreed to purchase in a private placement up to 25,000 shares of the
Company's newly created Series C convertible preferred stock (the "Series C Preferred Stock") and warrants to purchase up to 19,711,539 shares of common stock, for an
aggregate gross purchase price of $25.0 million. Each share of Series C Preferred Stock initially converts into common stock at a price equal to $1.04 per share, subject to adjustment.

This
private placement occurred in two closings. The first closing occurred on November 8, 2007. At the first closing, the Company issued 10,000 shares of Series C
Preferred Stock at $1,000 per share for an aggregate gross purchase price of $10.0 million. These shares, not including accumulated dividends, are currently convertible into 9,615,384 shares of
common stock. The Company also issued warrants to purchase an aggregate of 15,262,072 shares of common stock. These warrants are exercisable for a seven-year term and had an initial
exercise price of $1.44 per share and were not exercisable until May 8, 2008. As a result of stockholder approval of the second closing and related matters on December 20, 2007, as
described below, the exercise price of these warrants was reduced to $1.25 per share. The Company considered this a cancellation and reissuance of new warrants and accounted for the change in the fair
value of the warrants in the allocation of net proceeds associated with the second closing and treated it as a deemed dividend to the Series C Preferred Stock holders. (See Accounting for the
Series C Preferred Stock below).

At
the second closing, which occurred on December 20, 2007, following stockholder approval, the Company issued 15,000 shares of Series C Preferred Stock for an aggregate
gross purchase price of $15.0 million, of which $10.0 million was paid through the cancellation of the promissory notes previously issued to the Investors on November 7, 2007.
These shares, not including accumulated dividends, are currently convertible into 14,423,076 shares of common stock. At this closing, the Company also issued warrants to purchase an aggregate of
4,449,467 shares of common stock at an exercise price of $1.25 per share. These warrants are exercisable for a seven-year term and are exercisable immediately.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

In
the purchase agreement, the Company also agreed to issue the Investors additional warrants in the event that the holders of certain existing warrants (none of whom are affiliated with
the Investors) exercise those warrants in the future. Upon such exercises, the Company will issue to the Investors additional warrants to purchase common stock equal to one-half of the
number of shares of common stock issued upon exercise of these existing warrants. The exercise price of these warrants will be $1.66 per share (during 2008, prior to the issuance of any such warrants,
the warrant holders agreed to change the exercise price to $1.66 per share from $1.25 per share).

During
the year ended December 31, 2009, existing warrants to purchase 956,060 shares of common stock were exercised resulting in the Company issuing 132,589 shares of common
stock (all warrants exercised in 2009 were exercised on a "cashless" basis resulting in fewer shares being issued). As a result of these exercises the Company issued to the Investors warrants to
purchase 66,295 shares of common stock at an exercise price of $1.66 per share. Of the remaining outstanding warrants, 17,911 expire in October 3, 2016 and 48,384 of these warrants expire in
December 31, 2016. On October 3, 2009
and December 31, 2009, the dates of issuance, the Company valued these warrants using a Black-Scholes option pricing model with the assumptions detailed below. After valuing these warrants the
Company allocated the calculated value to the relative fair value of each tranche of preferred stock. As a result, the Company recorded the allocated value of the warrant and the beneficial conversion
feature of $164,000 ($34,000 and $130,000) in the aggregate to the second closing of the Series C Preferred Stock. The Company recorded a deemed dividend on the Series C Preferred Stock
of $17,000 and $65,000 related to the beneficial conversion feature. SeeAccounting for the Series C Preferred Stockbelow.

During
the year ended December 31, 2008, existing warrants to purchase 271,151 shares of common stock were exercised resulting in the Company issuing 174,857 shares of common
stock (some warrants were exercised on a "cashless" basis resulting in fewer shares being issued). As a result of these exercises the Company issued to the Investors warrants to purchase 87,484 shares
of common stock at an exercise price of $1.66 per share. Of the remaining outstanding warrants, 77,379 of these warrants expire on June 28, 2015 and 10,105 of these warrants expire on
September 27, 2015. On June 28, 2008 and September 27, 2008, the dates of issuance, the Company valued these warrants using a Black-Scholes option pricing model with the
assumptions detailed below. After valuing these warrants the Company allocated the calculated value to the relative fair value of each tranche of preferred stock. As a result, the Company recorded the
allocated value of the warrant and the beneficial conversion feature of $252,000 ($232,000 and $20,000) in the aggregate to the second closing of the Series C Preferred Stock. The Company
recorded a deemed dividend on the Series C Preferred Stock of

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

$116,000
and $10,000 related to the beneficial conversion feature. SeeAccounting for the Series C Preferred Stockbelow.

Input

June 28,
2008

September 27,
2008

October 3,
2009

December 31,
2009Quoted Stock Price

$
3.01

$
2.10

$
2.01

$
2.82Exercise Price

$
1.66

$
1.66

$
1.66

$
1.66Time to Maturity (in years)


7.00


7.00


7.00


7.00Stock Volatility


84.65
%

85.44
%

82.66
%

81.55
%Risk-Free Rate


3.5
%

3.18
%

2.50
%

2.00
%Dividend Rate


0
%

0
%

0
%

0
%


As
of December 31, 2009, if all of the remaining existing warrants are exercised, the Company would need to issue warrants to purchase an additional 2,247,924 shares of common
stock to the Investors.

Dividends on Series C Preferred Stock

The shares of Series C Preferred Stock accrue a cumulative dividend at a rate of 5% per annum of the Stated Liquidation
Preference Amount, as defined below. Dividends on the Series C Preferred Stock shall be cumulative, shall accrue, whether or not declared, and be payable quarterly in cash or, at the Company's
option, added to the Stated Liquidation Preference Amount. So long as any shares of Series C Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Series B Preferred Stock (other than dividends or distributions paid on the Series B Preferred Stock in common stock in accordance with the terms
of the Series B Preferred Stock) or junior stock (other than dividends or distributions on common stock payable solely in shares of common stock), unless at the time of such dividend or
distribution the Company shall have paid all accrued and unpaid dividends on the outstanding shares of Series C Preferred Stock. In addition, so long as any shares of Series C Preferred
Stock are outstanding, the Company shall not declare, pay or set apart for payment any dividend or make any distribution on any common stock (other than dividends or distributions on common stock
payable solely in shares of common stock), unless at the time of such dividend or distribution the Company simultaneously pays a dividend or distribution on each outstanding share of Series C
Preferred Stock in an amount equal to the product of (i) the dividend or distribution payable on each share of common stock and (ii) the number of shares of common stock issuable upon
conversion of a share of Series C Preferred Stock, calculated on the record date for determination of holders entitled to receive such dividend or distribution.

Voting Rights

The holders of Series C Preferred Stock shall be entitled to notice of all meetings of stockholders in accordance with the
Company's bylaws. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in
lieu of meeting), each holder of outstanding shares of Series C Preferred Stock shall be entitled to cast the number of votes equal to quotient determined by dividing

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

(i) the
Series C Original Issue Price ($1,000 per share) of the shares of Series C Preferred Stock held by such holder as of the record date for determining stockholders entitled
to vote on such matter by (ii) $1.44 (as adjusted for any stock dividends, combinations, splits and the like with respect to shares of common stock). Except as provided by law or as described
below, holders of Series C Preferred Stock shall vote together with the holders of common stock as a single class.

The
Company is not permitted, without the affirmative vote or written consent of the holders of at least 67% of the outstanding Series C Preferred Stock (50% of the outstanding
Series C Preferred Stock with respect to items (4), (5) and (8) below), directly or indirectly, to take any of the following actions or agree to take any of the following
actions:



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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

Liquidation Preference

In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary (a
"Liquidation"), the holders of shares of the Series C Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its
stockholders before any payment shall be made to the holders of junior stock by reason of their ownership thereof, an amount per share equal to the greater of:



If
upon any such Liquidation, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred
Stock the full amount to which they shall be entitled and the holders of shares of parity stock the full amount to which they shall be entitled pursuant to the terms of such Parity Stock, the holders
of shares of Series C Preferred Stock and the holders of shares of parity stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The liquidation
payment with respect to each outstanding fractional share of Series C Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series C Preferred Stock. All payments shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the
holders of a majority of the shares of Series C Preferred Stock then outstanding) or a combination thereof; provided, however, that no cash shall be paid to holders of junior stock unless each
holder of the outstanding shares of Series C Preferred Stock has been paid in cash the full amount to which such holder shall be entitled. After payment of the full Series C Liquidation
Amount, such holders of shares of Series C Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

Conversion

The holder of Series C Preferred Stock shall have the following conversion rights:



At any time the holder of any such shares of Series C Preferred Stock may, at such holder's option, elect to convert all or any
portion of the shares of Series C Preferred Stock held by such person into a number of fully paid and nonassessable shares of common stock equal to the quotient of (i) the Stated
Liquidation Preference Amount of the shares of Series C Preferred Stock being converted divided by (ii) the conversion price then in effect as of the date of the delivery by such holder
of its notice of election to convert. The initial conversion price of the Series C Preferred Stock is $1.04 per share. The Series C Preferred Stock will receive weighted average
anti-dilution protection in the event

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

of
a dilutive issuance in accordance with a formula set forth in the Certificate of Designation, subject to certain exceptions.



At any time on or after November 8, 2009, if the average closing price of the Company's common stock for any immediately
preceding 180-day period exceeds $7.00 (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the
common stock), the Company will have the right, but not the obligation, to convert each outstanding share of Series C Preferred Stock into a number of fully paid and nonassessable shares of
common stock equal to the quotient of (i) the Stated Liquidation Preference Amount divided by (ii) the conversion price in effect as of the Company conversion date.

Redemption

At any time and from time to time on or after November 8, 2011 the holders of at least 66.7% of the then outstanding shares of
Series C Preferred Stock may elect to have all or any portion of the outstanding shares of Series C Preferred Stock redeemed. The Company shall effect the redemption on a redemption date
by paying cash or, at the Company's election, shares of common stock (valued in the manner described below).

If
such redemption shall be for cash, the Company shall effect the redemption, out of funds legally available therefor, by paying in cash in exchange for each share of Series C
Preferred Stock to be redeemed a sum equal to the product of (i) 1.2 multiplied by (ii) the Stated Liquidation Preference Amount.

If
such redemption shall be for shares of common stock, the Company shall effect the redemption by issuing, in exchange for each share of Series C Preferred Stock to be redeemed,
that number of shares of common stock equal to (A) the product of (i) 1.4 multiplied by (ii) the Stated Liquidation Preference Amount divided by (B) the fair market value
of the common stock, based on a 10 day volume weighted average, as of the redemption date.

Accounting for the Series C Preferred Stock

Initially, based on the accounting guidance available at the closing of the Series C Preferred Stock transaction (see
"Note G. Convertible Debt Instruments and Warrant Liabilities"), the Company accounted for the transaction by allocating the proceeds received net of transaction costs based on the relative
fair value of the redeemable convertible Series C Preferred Stock and the warrants issued to the Investors, and then to any beneficial conversion rights contained in the convertible redeemable
preferred securities as follows:

Security

Face
Value

Fair
Value

Allocation of
Proceeds, Net of
Transaction Costs

Beneficial
Conversion
Feature

Initial
Carrying
ValueRedeemable convertible Series C Preferred Stock

$
25,000,000

$
18,193,950

$
12,991,097

$
11,762,887

$
1,228,210Warrants




$
18,352,179

$
10,092,623








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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)

The Company classifies the Series C Preferred Stock as temporary equity.

The
re-pricing of the exercise price of the Tranche I warrants from $1.44 to $1.25, as described above, was treated as a cancellation of the original warrants issued
on November 8, 2007 and a re-issuance of new warrants on December 20, 2007. The difference in fair value of the warrant was included in the allocation of net proceeds
associated with the second closing of the Series C Preferred Stock on December 20, 2007. The Company treated this as a deemed dividend on the Series C Preferred Stock. The Company
recorded a discount, including the re-pricing and beneficial conversion feature of $11,762,887 and recorded a deemed dividend of $11,947,881 to the holders of the Series C Preferred
Stock, which included the initial allocation of the discount of $11,762,887 and $184,994 related to the accretion of the Series C Preferred Stock to its redemption value through the date that
holders of the Series C Preferred Stock may first exercise their redemption right. The Company is using the effective interest method to accrete the carrying value of the Series C
Preferred Stock through the earliest possible redemption date (November 8, 2011), at which time the value of the Series C Preferred Stock would be $30.0 million or 120% of its
face value and dividends.

The
components of the carrying value of the Series C Preferred Stock from inception on November 8, 2007, through the years ended December 31, 2007,
December 31, 2008 and December 31, 2009, are as follows:

TotalInitial carrying value November 8, 2007

$
1,228,210Deemed dividend through December 31, 2007


11,762,887Accretion of original carry value to redemption value through December 31, 2007


184,994Total

$
13,176,091Dividend through December 31, 2007


100,000Balance at December 31, 2007

$
13,276,091Accretion of original carry value to redemption value


2,848,502Dividend(1)


1,250,000Additional discount from issuance of warrants and beneficial conversion feature


(126,000
)Balance at December 31, 2008

$
17,248,593Accretion of original carry value to redemption value for the year ended December 31, 2009


3,694,550Dividend(1)


1,396,280Additional discount from issuance of warrants and beneficial conversion feature


(82,000
)Balance at December 31, 2009

$
22,257,423


(1)The
Company elected to add the dividend to the liquidation preference of the Series C Preferred Stock and it was recorded as a dividend to the
holders of the Series C Preferred Stock.


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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

I. REDEEMABLE CONVERTIBLE SERIES B AND SERIES C PREFERRED STOCK (Continued)




In
valuing the warrants associated with the Series C Preferred Stock the Company used the Black-Scholes option pricing model with the following range of assumptions:

November 8, 2007

December 20, 2007Assumptions:Expected life

4.0 years

5.2 yearsExpected volatility

70%

70%Dividends

none

noneRisk-free interest rate

3.64%

3.48%


The
Company currently designates these warrants as equity instruments; see "Warrant Liabilities" in Note C.

J. PRODUCT WARRANTIES

In its Renewable Energy Solutions division the Company provides a warranty to its customers for most of its products sold. In general the Company's warranties are for one year after the
sale of the product and five years for photovoltaic inverter product sales. The Company reviews its warranty liability quarterly. The Company's estimate for product warranties is based on an analysis
of actual expenses by specific product line and estimated future costs related to warranty. Factors taken into consideration when evaluating the Company's warranty reserve are (i) historical
claims for each product, (ii) the development stage of the product, (iii) volume increases, (iv) life of warranty and (v) other factors. To the extent actual experience
differs from the Company's estimate, the provision for product warranties will be adjusted in future periods. Such differences may be significant.

The
following is a summary of the Company's accrued warranty activity for the following periods:

Year Ended December 31,2009

2008

2007Balance at beginning of year

$
1,982,087

$
1,901,757

$
322,009Provision


1,204,690


2,340,594


1,746,231Usage


(1,317,198
)

(2,260,264
)

(166,483
)Balance at end of year

$
1,869,579

$
1,982,087

$
1,901,757


The
warranty reserve is included in other accrued expenses on the accompanying balance sheet.

K. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its facilities under various operating leases that expire through October 2016.

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

K. COMMITMENTS AND CONTINGENCIES (Continued)

Future
minimum annual rentals under lease agreements at December 31, 2009 are as follows:

Fiscal Year2010

$
1,246,1832011


907,0892012


386,9492013


243,5252014


251,643thereafter


411,287Total

$
3,446,676


Total
rental expense including operating expenses and real estate taxes for operating leases from continuing operations amounted to $1.1 million, $1.1 million and
$0.9 million, for the years ended December 31, 2009, 2008 and 2007, respectively.

Certain
of the facility leases contain escalation clauses, and rental expense has been recognized on a straight-line basis over the remaining lease term. At
December 31, 2009 and 2008 deferred rent expense amounted to approximately $0.1 million and $0.1 million, respectively.

Letters of Credit

The Company utilizes a standby letter of credit to satisfy a security deposit requirement and in some instances to satisfy warranty
commitments. Outstanding standby letters of credit as of December 31, 2009 and 2008 were $34,000, respectively. The Company is required
to pledge cash as collateral on these outstanding letters of credit. As of December 31, 2009 and 2008, the cash pledged as collateral for these letters of credit was $34,000, respectively, and
is included in restricted cash and cash equivalents on the balance sheet.

Employment Agreements

As of December 31, 2008 the Company had either terminated or given notice to certain employees that had employment agreements
with the Company that provided for severance payments and accelerated vesting of options upon termination of employment. As a result, the Company charged approximately $0.5 million to
restructuring during the year ended December 31, 2008. Approximately $0.3 million related to the employment contract of the former chief executive officer which represents amounts due
subsequent to March 1, 2009. The former chief executive officer provided services to the Company until March 1, 2009.

The
Company's employment arrangement with its current Chief Executive Officer provides that if his employment is terminated by the Company without cause or is constructively terminated
within one year following a "change of control" transaction, his salary and medical benefits will be continued for one year thereafter subject to his execution of a release agreement with the Company.

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

K. COMMITMENTS AND CONTINGENCIES (Continued)

Litigation

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 in which the Company is or may be a party that it believes could materially adversely affect the results of operations or financial condition.

L. EMPLOYEE BENEFIT PLAN

The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the Plan, any regular employee of the Company or its wholly owned US subsidiaries, as defined by the Plan, who has
attained the age of 21 years is eligible to participate. The Plan allows an employee to defer up to 100% of his or her compensation, as limited under IRC Section 402(g), through
contributions to the Plan. Prior to January 1, 2009, the Company matched 100% in the Company's common stock up to the first 6% of an employee's pay that he or she contributed to the Plan.
Participants were vested immediately in the matches of the Company common stock. The match contribution was determined and accrued in dollars and converted to shares of the Company's common stock
using the share price of the last business day of each fiscal quarter. The stock was issued as soon as practical in the following period. The table below details out the Company's matching
contributions made under the Plan, the number of shares of the Company's common stock issued under the Plan and the value of the common stock issued by the Company as matching contributions to the
Plan for the years ended December 31, 2008 and 2007, as follows:

Matching
Contribution $'s

Shares of
Common
Stock
Issued

Value of
Common
Stock
Issued $'sYear ended December 31, 2008

$
541,680


279,831

$
578,232Year ended December 31, 2007

$
559,144


474,379

$
567,161


The
value of the common stock issued as matching contributions was based on the closing price of the Company's common stock on the Nasdaq Stock Market for the last day of the fiscal
quarter in which the contributions were earned. Shares of common stock were transferred the first practical day following the end of the quarter in which the shares were earned. As of
January 1, 2009, the Company has elected to cease the matching in shares of its common stock. During January 2009, the Company issued 69,650 shares of common stock related to the final
distribution to its employees. The Company will provide for a 3% match to be paid in cash to all eligible participants on a quarterly basis. For the years ended December 31, 2009, 2008, and
2007, the Company incurred $304,867, $541,680, and $559,144, respectively, in 401k matching contribution expense.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

M. INCOME TAXES

The provision for income taxes consists of the following:

Year Ended December 31,2009

2008

2007Loss before income taxes:Continuing Operations:United States

$
(28,098,354
)
$
(9,379,900
)
$
(10,972,589
)Foreign


(1,864,704
)

(2,229,636
)

(5,992,916
)$
(29,963,058
)
$
(11,609,536
)
$
(16,965,505
)Discontinued Operations:United States

$
91,677

$
(1,595,284
)
$
(800,272
)Foreign








$
91,677

$
(1,595,284
)
$
(800,272
)Deferred income tax benefit / (provision)Federal

$
8,199,910

$
(1,557,838
)
$
(471,823
)Foreign


(273,604
)

(486,986
)

5,536,261State


589,512


(954,656
)

(511,877
)$
8,515,818

$
(2,999,480
)
$
4,552,561Change in valuation allowance for deferred tax assets

$
(8,515,818
)
$
2,999,480

$
(4,552,561
)Income tax expense, net, reported in the accompanying statement of operations

$


$


$



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 December 31, 2009 and 2008, the components of the net deferred tax assets/ (liabilities) are as follows:

Year Ended December 31,2009

2008Federal net operating loss carryforwards

$
45,996,750

$
38,488,382Foreign net operating loss carryforwards


4,775,671


5,049,275State net operating loss carryforwards, net of federal benefit


4,138,788


3,692,348Tax credits


957,551


1,120,696Depreciation and amortization


440,348


14,564Other


1,129,454


557,479Total

$
57,438,562

$
48,922,744Valuation allowance


(57,438,562
)

(48,922,744
)Net deferred income taxes

$


$



88

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

M. INCOME TAXES (Continued)

As
of December 31, 2009, the Company had U.S. federal and state net operating loss carry forwards of approximately $135.0 million and $68.0 million, respectively,
which may be available to offset future federal and state income tax liabilities. The federal net operating loss carryforwards expire at various dates beginning in 2010 through 2030 and the state net
operating loss carryforwards expire beginning in 2010 through 2030. The Company has foreign net operating loss carryforwards of approximately $14.0 million, which expire beginning in 2010
through 2020. The Company has federal and state tax credits of approximately $0.7 million and $0.2 million, respectively. The federal research and development credits begin to expire in
2010, and the state credits begin to expire in 2019.

Management
has evaluated the positive and negative evidence bearing upon the realizability of the Company's deferred tax assets. Management has determined that it is more likely than not
that the Company will not realize the benefits of federal deferred tax assets, and as a result, a full valuation allowance has been established.

At
December 31, 2009, $275,000 of federal and state net operating loss carryforwards relate to deductions for stock option compensation for which the associated tax benefit will
be credited to additional paid-in capital when realized. This amount is tracked separately and not included in the Company's deferred tax assets. Of the changes in the valuation allowance
described above for the period ended December 31, 2009, an immaterial amount relates to tax return deductions attributable to the exercise of non-qualifying stock options or
disqualifying dispositions of incentive stock options, and are not benefited through income.

The
tax years 1994 through 2009 remain open to examination by major taxing jurisdictions to which we are subject, which are primarily in the United States, as carry forward attributes
generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they are or will be used in a future period. We are currently not under
examination by the Internal Revenue Service or any other jurisdiction for any tax years. We did not recognize any interest and penalties associated with unrecognized tax benefits in the accompanying
financial statements. We would record any such interest and penalties as a component of interest expense. We do not expect any material changes to the unrecognized benefits within 12 months of
the reporting date. The Company had not recorded any adjustments upon adoption of Uncertainty in Income Taxes (as Amended) and no amount has been reflected in the Company's financial statements
related to uncertainty in income taxes.

Under
the Internal Revenue Code, certain substantial changes in the Company's ownership may result in an annual limitation on the amount of net operating loss and tax credit
carryforwards, which may be utilized in future periods.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

M. INCOME TAXES (Continued)

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

Year Ended December 31,2009

2008

2007Federal and foreign tax at statutory rate


34.0
%

34.0
%

34.0
%State taxes, net of federal benefit


1.3
%

6.5
%

6.7
%Expired net operating loss carryforwards



%

(54.2
)%


%Permanent items


(7.6
)%

(7.6
)%

(13.7
)%Other


1.1
%

(1.4
)%

(1.1
)%Change in valuation allowance


(28.8
)%

22.7
%

(25.9
)%Effective tax rate



%


%


%


N. STOCKHOLDERS' EQUITY

As of December 31, 2009, the Company has reserved 35,790,786 shares of common stock for issuance upon exercise of stock options and warrants and 9,386,947 shares for future
issuances under its stock plans. The Company has also reserved 251,678 shares of common stock for issuance upon conversion of the outstanding Series B Preferred Stock, which can be converted at
any time and 26,538,462 shares of common stock for the issuance upon conversion of the outstanding Series C Preferred Stock and dividends, which can be converted at any time. As of
December 31, 2009, holders of warrants to purchase an aggregate of 24,841,165 shares of the Company's common stock may exercise. As of December 31, 2009 there are 10,949,620 options to
purchase common stock outstanding.

Stock Option Plans

Under the Company's 2000, 2002 and 2005 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 shares of the Company's common stock. At December 31, 2009, 9,386,947 stock options are
available for future grants under the Plans.

The
Plans are subject to the following provisions:



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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

N. STOCKHOLDERS' EQUITY (Continued)



The
following table summarizes activity of the Company's stock plans since December 31, 2007:

Options OutstandingNumber of
Shares

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term
(years)

Aggregate
Intrinsic
ValueOutstanding at December 31, 2007


5,210,374

$
3.25


6.71

$
701,797Grants


6,739,520

$
2.03Exercises


(891,168
)
$
1.66Cancellations


(910,730
)
$
5.35Outstanding at December 31, 2008


10,147,996

$
2.39


8.09

$
382,951Grants


1,657,000

$
1.49Exercises


(126,250
)
$
1.59Cancellations


(729,126
)
$
4.27Outstanding at December 31, 2009


10,949,620

$
2.14


7.66

$
10,096,729Exercisable at December 31, 2009


5,322,244

$
2.44


6.67

$
4,631,057Exercisable at December 31, 2008


3,294,976

$
3.22


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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

N. STOCKHOLDERS' EQUITY (Continued)

Information
related to stock options outstanding as of December 31, 2009 is as follows:

Options Outstanding

Options ExercisableRange of Exercise Prices

Number of
Shares

Weighted
Average
Remaining
Contractual
Life
(years)

Weighted
Average
Exercise
Price

Exercisable
Number of
Shares

Exercisable
Weighted
Average
Exercise Price$0.41 to $1.39


1,631,200


7.62

$
1.15


799,950

$
1.15$1.41 to $1.89


1,528,750


7.74


1.62


772,250


1.56$1.90 to $1.90


4,857,520


8.32


1.90


1,828,508


1.90$1.91 to $2.46


1,686,150


7.33


2.25


921,473


2.17$2.50 to $12.61


1,138,500


6.02


3.64


892,563


3.94$17.56 to $17.56


100,000


0.28


17.56


100,000


17.56$17.75


7,500


0.86


17.75


7,500


17.75$0.41 to $17.75


10,949,620


7.66

$
2.14


5,322,244

$
2.44


As
of December 31, 2009, there was approximately $6.7 million of total unrecognized costs related to non-vested share-based compensation arrangements granted
under the Plans. That cost is expected to be recognized over a weighted average period of approximately 1.8 years, with approximately $2.7 million, $2.6 million,
$1.2 million and $0.1 million being recognized in 2010, 2011, 2012 and 2013, respectively. Options to purchase 126,250 shares were exercised during the year ended December 31,
2009; these options had an intrinsic value of approximately $0.3 million on their date of exercise. Options to purchase 891,168 shares were exercised during the year ended December 31,
2008; these options had an intrinsic value of approximately $0.5 million on their date of exercise.

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. As of
December 31, 2009 and 2008, there were 21,000 options outstanding, respectively, which are included in the above table.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

N. STOCKHOLDERS' EQUITY (Continued)

Warrants

The table below summarizes the Company's warrants currently outstanding as of December 31, 2009 and activity from
December 31, 2008:

Beginning of
Year Number
of Shares of
Common Stock
Underlying
Warrant









Remaining
Shares of
Common
Stock
underlying
the warrant2009 ActivityDate of
Warrant Issuance

Holder of Warrant

Exercise
Price $

Warrant
Issued

Warrants
Exercised or
Redeemed

Warrants
Expired

Term
(Years)December 22, 2004

December 2004 Financing Investors(4)


804,546

$
2.00





(804,546
)







5May 31, 2005

Silicon Valley Bank(4)


151,515

$
1.39





(151,515
)







10August 12, 2005

August 2005 Financing Investors


1,047,777

$
1.99











1,047,777


5August 12, 2005

Ardour Capital Investment, LLC


93,523

$
1.84











93,523


5July 19, 2006

Warrant A, July 2006 Private Placement(7)


2,090,911

$
1.82











2,090,911


7July 19, 2006

First Albany Warrants


218,182

$
1.87











218,182


5July 17, 2007

Warrant C, July 2006 Private Placement(7)


1,045,456

$
1.82











1,045,456


7November 8, 2007

Series C Preferred Warrants(2)


15,262,072

$
1.25
(1)










15,262,072


7December 20, 2007

Series C Preferred Warrants


4,449,467

$
1.25











4,449,467


7April 7, 2008

International Master Technologies(3)


100,000

$
1.84











100,000


5June 28, 2008

Series C Preferred Warrant


77,378

$
1.66











77,378


7September 27, 2008

Series C Preferred Warrant


10,105

$
1.66











10,105


7July 3, 2009

Series C Preferred Warrant(6)




$
1.80


380,000








380,000


7October 3, 2009

Series C Preferred Warrant(5)




$
1.66


17,910








17,910


7December 31, 2009

Series C Preferred Warrant(5)




$
1.66


48,384








48,384


7Total Warrants outstanding as of December 31, 2009



















24,841,165


(1)These
warrants originally had an exercise price of $1.44. Upon the second closing of the Series C Preferred Stock financing on December 20,
2007, these warrants were repriced to $1.25.(2)These
warrants vested in full on May 7, 2008, six months from their date of inception.(3)On
April 7, 2008, the Company issued a warrant to purchase 100,000 shares of common stock at a price of $1.84 per share, the closing price on the
date of issuance, in connection with a sales and marketing agreement. The Company recorded a charge to operations of approximately $121,000 related to the issuance of these warrants to the contractor.
These warrants are immediately exercisable and had no vesting provisions. The Company used a Black-Scholes Option pricing model to value these warrants with key inputs as follows:


Input

April 7, 2008Quoted Stock Price

$
1.84Exercise Price

$
1.84Time to Maturity (in years)


5.0Stock Volatility


80.6
%Risk-Free Rate


2.80
%Dividend Rate


0
%


(4)During
2009, warrants to purchase 956,060 shares of common stock were exercised on a "cashless" basis resulting in the Company issuing 132,589 shares of
common stock.


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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

N. STOCKHOLDERS' EQUITY (Continued)

(5)As
described above in Note I, the Company issued warrants to purchase 66,294 (17,910 and 48,384) and 87,484 (77,379 and 10,105) shares of common
stock at $1.66 per share to the Investors as a result of warrant exercises during the year ended December 31, 2009, and 2008, respectively. These warrants are immediately exercisable and have a
7 year life.(6)On
July 3, 2009, the Company issued warrants to purchase 380,000 shares of common stock at a price of $1.80 per share, the closing price on the date
of issuance, in connection with the modification of the anti-dilution provisions of the Investors' existing, and future, warrants to purchase common stock of the Company. The warrants were
immediately exercisable and had no vesting provisions. The Company recorded a charge to other income of approximately $0.5 million related to the issuance of these warrants to the Investors.
The Company used a Black-Scholes Option pricing model to value this warrant with key inputs as follows:


Input

July 3, 2009Quoted Stock Price

$
1.80Exercise Price

$
1.80Time to Maturity (in years)


7.0Stock Volatility


84
%Risk-Free Rate


2.0
%Dividend Rate


0
%


(7)During
the quarter ended March 29, 2008 Warrant As and Warrant Cs representing 303,031 and 151,516 shares of common stock, respectively, were
redeemed resulting in the Company paying to the redeeming warrant holders approximately $0.6 million cash in the aggregate.


A summary of the status of the Company's warrants as of the year ended December 31, 2009, 2008 and 2007 and the changes for these periods
are presented below. The actual common stock issued on warrants exercised in 2009, 2008 and 2007 is less than the table presented below due to cashless exercises of warrants in 2009 and 2008. The
actual common stock issued under warrant exercises for 2009 and 2008 and 2007 was 132,589, 174,967 and 0, respectively, and the Company received proceeds of $241,310 related to the 2008 exercises.

Year Ended
December 31, 2009

Year Ended
December 31, 2008

Year Ended
December 31, 2007Number of
Shares

Weighted
Average
Price

Number of
Shares

Weighted
Average
Price

Number of
Shares

Weighted
Average
PriceOutstanding at beginning of year


25,350,932

$
1.49


27,111,262

$
1.56


11,097,308

$
1.91Granted


446,294


1.78


187,483


1.76


21,529,726


1.30Exercised


(956,061
)

1.90


(271,261
)

2.00


(5,500,009
)

1.25Canceled / Expired(1)








(1,676,552
)

2.55


(15,763
)

1.59Outstanding at end of year


24,841,165

$
1.48


25,350,932

$
1.49


27,111,262

$
1.56


(1)Includes
303,031 Warrant As and 151,516 Warrant Cs which were redeemed for cash; see Note G. Convertible Debt Instruments and Warrant Liabilities for
more information.


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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

O. PREFERRED STOCK

The Company is authorized to issue up to 1,000,000 shares of Preferred Stock, $0.01 par value per
share. 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. See
Note I for a discussion of Series B Preferred Stock issued in October 2003 and Series C Preferred Stock issued in November and December 2007.

P. SHORT-TERM NOTES

On October 19, 2007, the Company entered into a Note Purchase Agreement with Rockport Capital Partners II, L.P. and NGP Energy Technology Partners, L.P. (the
"Investors") to lend the Company up to $10.0 million to provide funds to repurchase the Convertible Notes, among other things. Pursuant to the Note Purchase Agreement, on November 7,
2007, the Investors purchased from the Company promissory notes (the "Short-Term Notes") in an aggregate principal amount of $10.0 million. The Short-Term Notes bore
interest at 17% per annum. All unpaid principal, together with accrued but unpaid interest, was to be due and payable in full on February 19, 2008, unless prepaid earlier.

On
December 20, 2007, upon the second closing of the Series C Preferred Stock financing transaction, the Company paid $10.2 million to settle the outstanding amount
on the Short-Term Notes along with accrued interest. Payment was made by offsetting the amounts otherwise owed by the Investors in the Series C Preferred Stock financing
transaction.

On
October 1, 2009, the Company entered into a short-term loan agreement with the Bank for $1.3 million backed by a letter of credit from a customer. The short
term loan was repaid by the Company during the fourth quarter of 2009.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

Q. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Non-Cash Investing and Financing Activities

Year Ended December 31,2009

2008

2007Stock-based compensation(1)

$
3,562,779

$
2,752,570

$
1,671,243Common Stock issued in lieu of interest on redeemable convertible Series B Preferred Stock

$
86,370

$
133,666

$
137,856Common Stock issued in lieu of interest on Senior Secured Convertible Notes







$
518,165Amortization of debt discount associated with the valuation of the July 19, 2006 Senior Secured Convertible Notes







$
2,115,442Common stock issued related to 401(K) contributions

$
107,959

$
578,232

$
567,161Conversion of Series B Preferred Stock for common stock

$
1,075,000

$
250,000

$
25,000Common Stock issued to Note holders as incentive to accelerate pay off







$
914,999Valuation adjustment to the redeemable convertible Series B Preferred Stock as a result of its anti-dilution provisions







$
529,479Stock issued related to cancellation of Worcester Lease







$
1,122,000Conversion of Notes to Common Stock







$
525,000Issuance of Common Stock in lieu of principal payments on the Notes







$
3,809,446Accretion of redeemable convertible preferred stock discount and dividends

$
5,090,830

$
4,224,502

$
284,994Issuance of warrants and beneficial conversion feature

$
164,000

$
252,000

$
21,855,510


(1)Includes
$86,140, 168,275 and $258,155, related to discontinued operations for the year ended December 31, 2009, 2008 and 2007, respectively.


Interest and Income Taxes Paid

Cash paid for interest and income taxes was as follows:

Year Ended December 31,2009

2008

2007Interest

$
196,589

$
199,126

$
308,093Income taxes











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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

R. LOSS PER SHARE

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

Year EndedDecember 31,
2009

December 31,
2008

December 31,
2007Loss from continuing operations

$
(29,963,058
)
$
(11,609,536
)
$
(16,965,505
)Income (loss) from discontinued operations

$
91,677

$
(1,869,327
)
$
(800,272
)Gain on disposal of discontinued operations




$
274,043


Accretion and dividends and deemed dividends on Series C Preferred Stock

$
(5,172,830
)
$
(4,224,502
)
$
(12,047,881
)Net loss attributable to common shareholders

$
(35,044,211
)
$
(17,429,322
)
$
(29,813,658
)Basic and diluted:Common shares outstanding, beginning of period


51,479,822


49,803,979


40,105,073Weighted average common shares issued during the period


10,247,178


880,585


5,328,466Weighted average shares outstandingbasic and diluted


61,727,000


50,684,564


45,433,539Net loss per weighted average share, basic and diluted:From loss on continuing operations attributable to common stockholders

$
(0.57
)
$
(0.31
)
$
(0.64
)From loss on discontinued operations




$
(0.04
)
$
(0.02
)From gain on sale of discontinued operations




$
0.01


Net loss per weighted average share, basic and diluted

$
(0.57
)
$
(0.34
)
$
(0.66
)


As
of the year ended December 31, 2009, 2008 and 2007, shares of common stock issuable upon the exercise of options and warrants were excluded from the diluted average common
shares outstanding, as their effect would have been antidilutive. In addition, shares of common stock issuable upon the conversion of Series B Preferred Stock and Series C Preferred
Stock and related dividends were excluded from the diluted weighted average common shares outstanding as their effect would also have been anti-dilutive. Basic earnings per share excludes
dilution and is computed by dividing income attributable 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, except when the effect would be anti-dilutive.

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

R. LOSS PER SHARE (Continued)

The
table below summarizes the option and warrants and convertible preferred stock that were excluded from the calculation above due to their effect being antidilutive:

Year Ended December 31,2009

2008

2007Common Stock issuable upon the exercise of:Options


10,949,620


10,147,996


5,210,374Warrants


24,841,166


25,350,932


27,111,262Total Options and Warrants excluded


35,790,786


35,498,928


32,321,636Common Stock issuable upon the conversion of redeemable convertible Series B Preferred Stock


251,678


935,484


1,096,774Common Stock issuable upon the conversion of redeemable convertible Series C Preferred Stock


26,538,462


25,336,538


24,134,615


The
table below details out shares of common stock underlying securities for which the securities would have been considered dilutive at December 31, 2009, 2008 and
December 31, 2007 had the Company not been in a loss position:

# of Underlying Common SharesDecember 31,
2009

December 31,
2008

December 31,
2007Employee stock options


4,593,244


1,179,827


1,492,745Warrants to purchase common stock


24,841,165


19,863,054


4,640,824Series B Convertible Preferred Stock


251,678


935,484


1,096,774Series C Convertible Preferred Stock


26,538,462


25,336,538


24,134,615Total


56,224,549


47,314,903


31,364,958


S. SEGMENT DISCLOSURES

Following the sale in 2008 of its Electronics and Power Systems US segments and the classification in 2009 of its Applied Technology segment as part of discontinued operations, the
Company believes it operates in one business segment, Renewable Energy Solutions.

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Table of Contents

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

S. SEGMENT DISCLOSURES (Continued)

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

For the Year Ended December 31,2009

2008

2007Revenue by geographic region based on location of customer(1):United States

$
39,734,485

$
46,371,717

$
26,424,104China


4,324,000





Czech Republic


3,283,311


1,678,984


Belgium


2,421,607





South Korea





2,098,366


Spain





3,329,050Canada





343,195


5,836,683Rest of World


2,772,230


472,022


771,854Total Revenue

$
52,535,633

$
54,293,334

$
33,032,641


(1)Does
not include revenue from discontinued operations for all periods presented.


At December 31,2009

2008Long-lived assets by geographic region based on location of operations(2):United States

$
2,517,288

$
263,280Canada


2,116,638


1,580,999Total long-lived assets

$
4,633,926

$
1,844,279


(2)Does
not include assets from discontinued operations for all periods presented.


T. RESTRUCTURING COSTS

In August 2009, the Company eliminated certain positions within its operations and sales organizations in accordance with a plan of reorganization approved by the Board of Directors. As
a result of the 2009 restructuring the Company recorded approximately $0.3 million in payroll and related costs. As of December 31, 2009 approximately $38,000 remains to be paid to the
terminated employees. None of the terminated employees were required to provide any services to the Company subsequent to their receiving notification.

In
June 2008, the Company began its restructuring efforts by eliminating the position of divisional presidents in its Applied Technology and Renewable Energy Solutions divisions and
recorded a restructuring charge of approximately $0.6 million. During the third quarter of 2008 the Company consolidated its Applied Technology division into one facility. As a result, the
Company recorded an additional restructuring charge of approximately $0.5 million. These restructuring charges were comprised of approximately $0.8 million in employee severance, which
will be paid out over the term of

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

T. RESTRUCTURING COSTS (Continued)

each
specific employee agreement and $0.3 million in non-cash stock based compensation charges associated with the acceleration of certain unvested stock options and extensions of
time to exercise certain stock options from 90 days to 2 years. In addition, during the fourth quarter of 2008, as part of its restructuring efforts, the Company elected to terminate the
employment contract of its former president. As a result of this election, the Company recorded a restructuring charge of approximately $0.3 million, which will be paid in twenty six equal
bi-weekly installments beginning after March 1, 2009. As of December 31, 2009 and 2008, the accrued restructuring balance was approximately $38,000 and $0.6 million,
respectively.

During
2008, the Company sold its Electronics and Power Systems divisions and recorded in its loss on sale of discontinued operations approximately $0.2 million in restructuring
charges related to these sales. (See Footnote D "Discontinued Operations" above).

U. RECENT ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements and Disclosures.In April 2009, the FASB issued additional guidance on fair value measurements and disclosures.
Fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. The new guidance
requires an evaluation of whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability.
If there has been a significant decrease in activity, transactions or quoted prices may not be indicative of fair value and a significant adjustment may need to be made to those prices to estimate
fair value. Additionally, an entity must consider whether the observed transaction was orderly (that is, not distressed or forced). If the transaction was orderly, the obtained price can be considered
a relevant, observable input for determining fair value. If the transaction is not orderly, other valuation techniques must be used when estimating fair value.

In
August 2009, the FASB issued additional guidance on the fair value measurement of liabilities. The new guidance provides clarification on the measurement and reporting of a liability
in circumstances in which a quoted price in an active market for the identical liability is not available. This guidance is effective for the first reporting period beginning after August 2009. The
adoption of this guidance did not have a material impact on the Company's financial position or results of operations.

Financial Instruments.In April 2009, the FASB issued guidance to require disclosures about fair value of financial instruments in
interim financial
statements, in addition to the annual financial statements as already required. This guidance, which was applied by the Company prospectively as of June 30, 2009, did not have a material impact
on the Company's results of operations, cash flows or financial position. For financial assets and liabilities adopted see Note C Significant Accounting Policies and Basis of Presentation, Fair
Value Measurements.

In
April 2009, the FASB issued guidance to required disclosure about fair value of financial instruments, which amends previous guidance to require disclosures about fair value of
financial instruments in interim as well as annual financial statements. This guidance is effective for periods ending after June 15, 2009. Accordingly, the Company adopted this guidance on
March 29, 2009. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows. However, the adoption of the guidance
resulted in additional disclosures

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SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2009, 2008 AND 2007

U. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

with
respect to the fair value of the Company's financial instruments. See Note C Significant Accounting Policies and Basis of Presentation, Fair Value Measurements.

Derivatives and Hedging.On January 1, 2009, the Company adopted new disclosure requirements for derivative instruments and
hedging
activities. The new disclosure requirements will provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how
derivative instruments and related hedged items are accounted for; and (3) how derivative instruments and related hedged items affect an entity's financial position, financial performance and
cash flows. This guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments and disclosures about credit-risk-related contingent features in derivative instruments. This statement applies to all entities and all derivative
instruments. The adoption of this guidance did not have a material impact on the Company's financial position or results of operations.

Subsequent Events.In May 2009, the FASB issued guidance on subsequent events which establishes general standards of accounting for and
disclosure of
events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is based on the same principles as currently exist in auditing
standards and was issued by the FASB to include accounting guidance that originated as auditing standards into the body of authoritative literature issued by the FASB. The standard addresses the
period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should
make about events or transactions that occurred after the balance sheet date. The Company adopted this guidance during the quarterly period ended June 30, 2009.

Multiple-Deliverable Revenue Arrangemenets.In October 2009, the FASB issued a new accounting standard related to revenue recognition in
multiple-deliverable revenue arrangements and certain arrangements that include software elements. This standard eliminates the residual method of revenue
allocation by requiring entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The FASB also issued a new
accounting standard in October 2009, which changes revenue recognition for tangible products containing software and hardware elements. Under this standard, tangible products containing software and
hardware that function together to deliver the tangible products' essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the
multiple-element arrangements revenue recognition guidance discussed above. Both standards will be effective for the Company beginning January 1, 2011 (the first day of fiscal 2011). Early
adoption is permitted. The Company has elected to early adoption of this standard. The adoption of this guidance did not have a material impact on the Company's financial position or results of
operations.

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FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

Balance at
beginning
of period

Additions
charged to
costs and
expenses

Settlement
Amounts

Balance
at end
of periodYear Ended December 31, 2007:Allowance for uncollectible accounts

$
147,747


47,019


(70,487
)
$
124,279Reserve for product warranty expense

$
322,009


1,746,231


(166,483
)
$
1,901,757Accrued restructuring costs

$
1,200,326


81,644


(1,281,970
)
$
Year Ended December 31, 2008:Allowance for uncollectible accounts

$
124,279


80,142


(36,202
)
$
168,219Reserve for product warranty expense

$
1,901,757


2,340,594


(2,260,264
)
$
1,982,087Accrued restructuring costs

$



1,333,892


(731,110
)
$
602,782Year Ended December 31, 2009:Allowance for uncollectible accounts

$
168,219


28,690




$
196,909Reserve for product warranty expense

$
1,982,087


1,204,690


(1,317,198
)
$
1,869,579Accrued restructuring costs

$
602,782


260,685


(825,433
)
$
38,034


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Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we carried out an
evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (who is also currently acting as our interim principal financial officer) of the
effectiveness of our disclosure controls and procedures as of December 31, 2009. Based upon that evaluation, the Chief Executive Officer, acting as both the principal executive officer and the
principal financial officer, concluded that our disclosure controls and procedures are effective as of December 31, 2009.

Management's Annual Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our company's internal control over financial reporting is a process designed under the supervision of the
Chief Executive Officer and Corporate Controller to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:



There
are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management
assessed the effectiveness of our company's internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria
established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on management's assessment and those criteria, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2009.

Our
independent registered public accounting firm, Caturano and Company, P.C., has issued an audit report on our internal control over financial reporting as of December 31, 2009,
which is included herein.

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Changes in Internal Control Over Financial Reporting.

There
was no change in our internal control over financial reporting that occurred during the fourth quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

Item 9B.    OTHER INFORMATION.

On March 10, 2010, the Company entered into the Fifth Loan Modification Agreement with the Bank. The Fifth Loan Modification
Agreement amended certain provisions of the Loan Agreement. Among other modifications and amendments, (i) the term of the
Loan Agreement has been extended to October 18, 2011, (ii) the Company's tangible net worth covenant, as defined, has been set at approximately $7.5 million and (iii) the
Company's liquidity covenant, as defined, has been set at approximately $4.0 million. In addition to the above, pursuant to the terms of the Fifth Loan Modification Agreement, the Bank provided
the Company two additional tranches of term debt each in a maximum principal amount of $1,000,000, which, if drawn down, would reduce availability under the revolving credit line. The Company paid a
modification fee of $37,500 in connection with the Fifth Loan Modification Agreement.

PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required under this item is incorporated herein by reference to the information regarding directors, executive officers
and corporate governance included in our proxy statement for our 2010 Annual Meeting of Stockholders.

Item 11.    EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by reference to information regarding executive compensation included
in our 2010 proxy statement.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under this item is incorporated herein by reference to the information regarding security ownership of certain
beneficial owner and management and related stockholder matters included in our 2010 proxy statement.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this item is incorporated herein by reference to the information regarding certain relationships and
related transactions, and director independence included in our 2010 proxy statement.

Item 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required under this item is incorporated herein by reference to the information regarding principal accounting fees and
services included in our 2010 proxy statement.

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PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:





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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts on March 12, 2010.

SATCON TECHNOLOGY CORPORATIONBy:

/s/ CHARLES S. RHOADES Charles S. Rhoades President and Chief Executive Officer


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.

Signature

Title

Date/s/ CHARLES S. RHOADES Charles S. Rhoades

Chief Executive Officer, President and Director (Principal Executive and Interim Principal Financial Officer)

March 12, 2010/s/ JOHN W. PEACOCK John W. Peacock

Controller and Chief Accounting Officer (Principal Accounting Officer)

March 12, 2010/s/ JAMES L. KIRTLEY, JR. James L. Kirtley, Jr.

Director

March 12, 2010/s/ DAVID J. PREND David J. Prend

Director

March 12, 2010/s/ JOHN M. CARROLL John M. Carroll

Chairman of the Board

March 12, 2010/s/ DANIEL R. DWIGHT Daniel R. Dwight

Director

March 12, 2010/s/ PHILIP J. DEUTCH Philip J. Deutch

Director

March 12, 2010/s/ ROBERT G. SCHOENBERGER Robert G. Schoenberger

Director

March 12, 2010


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EXHIBIT INDEX

Exhibit No.

Description1.1

Underwriting Agreement, dated June 9, 2009, between the Company and Thomas Weisel Partners LLC and Ardour Capital Investments, LLC, as Underwriters, is incorporated herein by reference to Exhibits to the
Company's Current Report on Form 8-K dated June 9, 2009 (File No. 1-11512).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 (File No. 1-11512).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 (File No. 1-11512).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 (File No. 1-11512).3.6

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 fiscal year ended September 30, 2000 (File No. 1-11512).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 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 (File No. 1-11512).3.8

Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock of the Registrant, dated as of February 14, 2003, is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K dated February 18, 2003 (File No. 1-11512).3.9

Certificate of Designation of the Relative Rights and Preferences of the Series B Convertible Preferred Stock of the Registrant, dated as of October 31, 2003, is incorporated herein by reference to Exhibits
to the Registrant's Current Report on Form 8-K, as amended, dated October 31, 2003 (File No. 1-11512).3.10

Certificate of Amendment of Certificate of Incorporation of the Registrant, as filed with the Secretary of State of the State of Delaware on March 23, 2006, is incorporated herein by reference to Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 2006 (File No. 1-11512).3.11

Amendment to Bylaws of the Registrant (Adopted by the Board of Directors on February 27, 2007) is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated
February 27, 2007 (File No. 1-11512).


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Exhibit No.

Description3.12

Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock of the Registrant, as filed with the Delaware Secretary of State on November 8, 2007, is incorporated
herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated November 7, 2007 (File No. 11512).3.13

Certificate of Amendment of Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on December 20, 2007, is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated December 19, 2007 (File No. 1-11512).3.14

Certificate of Elimination of Series A Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware on December 20, 2007, is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated December 19, 2007 (File No. 1-11512).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

Key Employee 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

Amendment to Employment Agreement, dated March 31, 2004, between the Registrant and David B. Eisenhaure is incorporated herein by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 (File No. 1-11512).10.3

Amendment to Employee Agreement dated January 15, 2008, between the Registrant and David B. Eisenhaure is incorporated herein by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 (File No. 1-11512).10.4

Key Employee Agreement, dated September 13, 2007, between the Registrant and David E. O'Neil is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated
September 13, 2007 (File No. 1-11512).10.5

Amendment to Key Employee Agreement between Registrant and David E. O'Neil, dated June 5, 2008, is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 28, 2008 (File No. 1-11512).10.6

Charles S. Rhoades Employment Offer Letter, dated May 1, 2008, is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended June 28, 2008 (File
No. 1-11512).10.7

Charles S. Rhoades Incentive Stock Option Agreement, dated May 1, 2008, is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended June 28,
2008 (File No. 1-11512).10.8

2000 Stock Incentive Plan is incorporated herein by reference to Exhibit C to the Registrant's Preliminary Schedule 14A filed March 19, 2001 (File No. 1-11512).10.9

2002 Stock Incentive Plan is incorporated herein by reference to Exhibit A to the Registrant's Definitive Schedule 14A filed January 28, 2002 (File No. 1-11512).10.10

2005 Incentive Compensation Plan is incorporated herein by reference to Exhibit A to the Registrant's Definitive Schedule 14A filed April 14, 2005 (File No. 1-11512).


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Exhibit No.

Description10.11

Amendment No. 1 to the Registrant's 2005 Incentive Compensation Plan is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2007
(File No. 1-11512).10.12

Amendment No. 2 to the Registrant's 2005 Incentive Compensation Plan is incorporated herein by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2007 (File No. 1-11512).10.13

Registration Rights Agreement, dated as of October 31, 2003, by and 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/A dated October 31, 2003 (File No. 1-11512).10.14

Facilities Lease, dated May 12, 2004, between the Registrant and Zoom Group, LLC is incorporated herein by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the year ended
September 30, 2004 (File No. 1-11512).10.15

Loan and Security Agreement, dated February 26, 2008, by and among the Registrant, SatCon Power Systems, Inc., SatCon Electronics, Inc., SatCon Applied Technology, Inc., SatCon Power Systems
Canada LTD. and Silicon Valley Bank is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended March 29, 2008 (File No. 1-11512).10.16

Second Loan Modification Agreement, dated as of September 26, 2008, between Silicon Valley Bank and the Registrant, SatCon Power Systems, Inc., SatCon Applied Technology, Inc., SatCon Electronics,
 Inc., and SatCon Power Systems Canada Ltd. is incorporated herein by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the period ended September 27, 2008 (File No. 1-11512).10.17

Third Loan Modification Agreement, dated as of September 29, 2009, between Silicon Valley Bank and the Registrant, Satcon Power Systems, Inc., Satcon Applied Technology, Inc., Satcon Electronics,
 Inc., and Satcon Power Systems Canada Ltd. is incorporated herein by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the period ended October 3, 2009 (File No. 1-11512).10.18

Form of Satcon Technology Corporation 2005 Incentive Compensation Plan, Incentive Stock Option agreement for Directors and Officer's of the Registrant is incorporated herein by reference to Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 2005 (File No. 1-11512).10.19

Form of Satcon Technology Corporation 2005 Incentive Compensation Plan, Non-Qualified Stock Option agreement for Directors and Officer's of the Registrant is incorporated herein by reference to Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 2005 (File No. 1-11512).10.20

Form of Warrant to purchase shares of Common Stock of the Registrant issued on December 22, 2004 is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated
December 22, 2004 (File No. 1-11512).10.21

Form of Warrant to purchase shares of Common Stock of the Registrant issued on August 11, 2005 is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated
August 11, 2005 (File No. 1-11512).10.22

Form of Warrant A is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated July 19, 2006 (File No. 1-11512).


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Exhibit No.

Description10.23

Form of Warrant B is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated July 19, 2006 (File No. 1-11512).10.24

Modification, Termination and Release of Lease, dated as of December 22, 2006, between the Company and Paul E. Hanlon, Trustee of C&M Realty Trust is incorporated herein by reference to Exhibits to the
Registrants Current Report on Form 8-K dated December 20, 2006 (File No. 1-11512).10.25

Amendment and Exercise Agreement, dated as of July 17, 2007, by and among the Registrant and the entities identified on the signature pages thereto is incorporated by reference to Exhibits to the Registrant's
Current Report on Form 8-K dated July 17, 2007 (File No. 1-11512).10.26

Form of Warrant C is incorporated herein by reference to Exhibits to the Registrants Current Report on Form 8-K dated July 17, 2007 (File No. 1-11512).10.27

Offer to Sell Notes, dated as of October 19, 2007 by and among the Registrant and the entities identified on the signature pages thereto is herein incorporated by reference to the Registrant's Current Report on
Form 8-K dated October 19, 2007 and filed on October 22, 2007 (File No. 1-11512).10.28

Note Purchase Agreement, dated as of October 19, 2007, by and among the Registrant and the Purchasers named therein is herein incorporated by reference to the Registrant's Current Report on Form 8-K dated
October 19, 2007 and filed on October 25, 2007 (File No. 1-11512).10.29

Form of Note issued pursuant to Note Purchase Agreement, dated as of October 19, 2007, by and among the Registrant and the Purchasers named therein is herein incorporated by reference to Exhibit B of
Exhibits to the Registrant's Current Report on Form 8-K dated October 19, 2007 and filed on October 25, 2007 (File No. 1-11512).10.30

Stock and Warrant Purchase Agreement, dated as of November 8, 2007, by and among the Registrant and the Purchasers named therein is herein incorporated by reference to Exhibits to the Registrant's Current Report
on Form 8-K dated November 7, 2007 (File No. 1-11512).10.31

Form of Tranche 1 Warrant to Purchase Common Stock, dated as of November 8, 2007 is herein incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K dated November 7,
2007 (File No. 1-11512)10.32

Form of Tranche 2 Warrant and Additional Warrant to Purchase Common Stock is herein incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K dated November 7, 2007 (File
No. 1-11512).10.33

Agreement to Amend Warrants, dated July 3, 2009, between the Company and RockPort Capital Partners II, L.P. is incorporated herein by reference to Exhibits to the Company's Current Report on Form 8-K
dated July 3, 2009 (File No. 1-11512).10.34

Agreement to Amend Warrants, dated July 3, 2009, between the Company and NGP Energy Technology Partners, L.P. is incorporated herein by reference to Exhibits to the Company's Current Report on Form 8-K
dated July 3, 2009 (File No. 1-11512).10.35

Registration Rights Agreement dated as of November 8, 2007, by and among the Company and the Purchasers is herein incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K dated
November 7, 2007 (File No. 1-11512).


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Exhibit No.

Description10.36

First Amendment to Registration Rights Agreement, dated as of January 24, 2008, by and among the Registrant and the Purchasers is incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated January 24, 2008 (File No. 1-11512).10.37

Satcon 2008 Incentive Plan for Senior Management is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated September 24, 2008 (File No. 1-11512).10.38

Satcon 2009 Incentive Plan for Management is incorporated herein by reference to Exhibits to the Registrant's Current Report on Form 8-K dated February 24, 2009 (File No. 1-11512).10.39

Asset Purchase Agreement by and between the Registrant, Satcon Electronics, Inc. and Spectrum Microwave, Inc., dated September 25, 2008, is incorporated herein by reference to Exhibits to the
Registrant's Current Report on Form 8-K dated September 25, 2008 (File No. 1-11512).14.1

Code of Ethics is incorporated herein by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the year ended September 30, 2004 (File No. 1-11512).21.1

Subsidiaries of the Registrant.23.1

Consent of Caturano and Company, P.C.31.1

Certification by Principal Executive Officer and Interim Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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