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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15 (d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 21, 1999

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)

0-6890 14-1462255

(Commission File Number) (I.R.S. Employer Identification No.)

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (518) 433-2170

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8-K

Item 2.................................................................................1

Item 7.................................................................................2

Item 7(a)..............................................................................2

Item 7(b)............................................................................35

Item 2. Acquisition or Disposition of Assets.

Item 7. Financial Statements and Exhibits.

1. Financial statements of businesses acquired, SatCon Technology

Corporation.

 

The Consolidated Financial Statements for SatCon Technology Corporation, as of the years ended September 30, 1999 and 1998 is attached hereto.

2. Unaudited Pro forma Combined Consolidated Financial Statements.
3. Exhibits.

CONSOLIDATED FINANCIAL STATEMENTS of SATCON TECHNOLOGY CORPORATION

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of

SatCon Technology Corporation:

We have audited the accompanying consolidated balance sheet of SatCon

Technology Corporation and its subsidiaries (a Delaware corporation) as of

September 30, 1999 and the related consolidated statements of operations,

changes in stockholders' equity and cash flows for the year then ended as

restated, see Note A. These financial statements are the responsibility of the

Company's management. Our responsibility is to express an opinion on these

financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing

standards. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,

in all material respects, the financial position of SatCon Technology

Corporation and its subsidiaries as of September 30, 1999, and the results of

their operations and their cash flows for the year then ended in conformity with

generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts

December 27, 1999

(except with respect to the

matter discussed in Note A, for which

the date is September 11, 2000)

3

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders

Of SatCon Technology Corporation:

In our opinion, the consolidated balance sheet as of September 30, 1998 and

the related consolidated statements of operations, of changes in stockholders'

equity and of cash flows for each of the two years in the period ended September

30, 1998 present fairly, in all material respects, the financial position,

results of operations and cash flows of SatCon Technology Corporation and its

subsidiaries at September 30, 1998 and for each of the two years in the period

ended September 30, 1998, in conformity with generally accepted accounting

principles. In addition, in our opinion, the financial statement schedule for

the years ended September 30, 1998 and 1997 presents fairly, in all material

respects, the information set forth therein when read in conjunction with the

related consolidated financial statements. These financial statements and

financial statement schedule are the responsibility of the Company's management;

our responsibility is to express an opinion on these financial statements and

financial statement schedule based on our audits. We conducted our audits of

these statements in accordance with generally accepted auditing standards, which

require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements, assessing the accounting principles

used and significant estimates made by management, and evaluating the overall

financial statement presentation. We believe that our audits provide a

reasonable basis for the opinion expressed above. We have not audited the

consolidated financial statements of SatCon Technology Corporation for any

period subsequent to September 30, 1998.

As discussed in Note A, the accompanying consolidated financial statements

for the year ended September 30, 1998 reflect revised accounting for the

recapitalization of Beacon Power Corporation.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts

December 17, 1998,

except to the restatement described in Note A, as to

which the date is September 11, 2000

4

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

SatCon Technology Corporation (the "Company" or "SatCon") was organized as a

Massachusetts corporation in February 1985 and reincorporated in Delaware in

1992. SatCon designs, develops and manufactures intelligent, electro-mechanical

products for aerospace, transportation, industrial and utility applications.

SatCon also designs, develops and manufactures power and energy management

products for telecommunications, silicon wafer manufacturing, factory

automation, aircraft and automotive applications. The Company's

electro-mechanical products are being developed for a wide variety of U.S.

government and commercial markets. For the government, the electro-mechanical

systems provide for applications ranging from satellite attitude control to

high-speed drives for shipboard systems. In the transportation segment, SatCon

is developing electric and hybrid electric drive components, auxiliary power

units and advanced steering, alternator and starter/generator systems. The

Company is working with major equipment producers to develop process equipment

drives, high speed and precision machine tools, manipulators and machinery

isolation equipment. The Company's electro-mechanical systems may offer

advantages to the utility industry in power generation, energy storage and power

quality. In the consumer market, SatCon is developing variable speed motors for

refrigeration equipment and other long-life, high-efficiency machinery.

RESTATEMENT

The financial statements for fiscal years 1998 and 1999 have been restated.

The Company has determined that the recapitalization of Beacon Power Corporation

on December 24, 1997 did not qualify as a divestiture of a subsidiary for

accounting purposes in accordance with SEC Staff Accounting Bulletin

No. 30/Topic 5E (SAB 30) "Accounting for Divestiture of a Subsidiary or Other

Business Operation" as the Company had not transferred the risk and other

incidents of ownership of Beacon Power with sufficient certainty. In accordance

with SAB 30, the Company has included 100% of Beacon Power's net loss in its

statements of operations from December 24, 1997 to May 1999 in a manner similar

to the equity method of accounting and has included the assets and liabilities

transferred to Beacon Power as separate components in its September 30, 1998

balance sheet. In June 1999 in connection with a bridge note financing at Beacon

Power, the Company determined that the risks and other incidents of ownership of

Beacon Power had passed with sufficient certainty to other investors and the

Company began accounting for its investment in Beacon Power under the equity

method of accounting. The Company has recorded the face value of and cumulative

dividends on Beacon Power's Class D preferred stock issued on October 23, 1998

as an additional investment in Beacon Power. As more fully discussed in Note F,

the Class D preferred stockholders have the right to require the Company to

purchase their shares of Class D preferred stock in certain events. While the

Company currently believes that the Class D preferred stockholders will not

exercise this right, the Company has recorded the face value and the cumulative

dividends as a liability.

The accompanying financial statements reflect the following changes:

- The Company's share of Beacon Power's net loss for fiscal 1998 and 1999

increased by $1,583,819 and $3,310,567, respectively.

- As of September 30, 1998, the Company wrote off all of its advances to

Beacon Power of $596,453 and recorded the assets and liabilities

transferred to Beacon Power of $576,786 and $1,564,152, respectively.

10

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

- As of September 30, 1999, the Company recorded its net investment balance

in Beacon Power of $414,729 and its contingent obligation to the Class D

preferred stockholders of Beacon Power of $5,309,115.

The as restated and as reported consolidated statements of operations data

and consolidated balance sheet data follows:

The financial statements for fiscal 1997, 1998 and 1999 had previously been

restated in connection with the initial audit of Beacon Power. For a discussion

of that restatement, see Management's Discussion and Analysis of Financial

Condition and Results of Operations and the Company's financial statements and

notes thereto included in the Amendment No. 1 to the Annual Report on Form 10-K

as filed on

11

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

August 15, 2000. The as reported financial information presented here includes

the effects of the August 15, 2000 restatement. The effect of this previous

restatement on net loss attributable to common stockholders was a decrease of

$1,327,679 or $0.14 per share and $1,031,506 or $0.11 per share in 1999 and

1998, respectively, and an increase of $1,565,497 or $0.20 per share in 1997.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of SatCon and its

majority-owned subsidiaries. All intercompany accounts and transactions have

been eliminated in consolidation.

REVENUE RECOGNITION

The Company performs research under cost-type, fixed-price, and

time-and-material contracts and sells product prototypes. On fixed-price

contracts, revenue is recognized on the percentage-of-completion method based on

the proportion of costs incurred to total estimated costs for each contract.

Revenue recognized in excess of amounts billed are classified in current assets

as unbilled contract costs. Certain contracts contain provisions for performance

incentives. Such incentives are included in revenue when realization is assured.

If a current contract estimate indicates a loss, a provision is made for the

total anticipated loss. 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. Revenue on time and material contracts is recognized as

services are provided.

The Company also designs and manufactures standard products such as

multi-chip modules and hybrids, custom electric motors, and integrated

suspension and motor systems. Revenue from product sales is recognized upon

shipment. The Company provides for warranty reserves at the time product is

shipped.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include demand deposits and highly liquid

investments with a maturity of three months or less when acquired. Cash

equivalents are stated at cost, which approximates market value.

MARKETABLE SECURITIES

The Company accounts for marketable securities in accordance with the

Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for

Certain Investments in Debt and Equity Securities."

Management determines the appropriate classification of its investments in

debt securities at the time of purchase and reevaluates such determination at

each balance sheet date. Debt securities for which the Company does not have the

intent or ability to hold to maturity are classified as available for sale.

Securities available for sale are carried at fair value, based on quoted

market prices, with the unrealized gains and losses, net of tax effect, reported

in a separate component of stockholders' equity, except for unrealized losses

determined to be permanent in nature. Such unrealized losses are included in the

determination of net income in the period in which management determines the

decline to be permanent. The Company is not actively involved in the purchase

and sale of investments classified as trading. At September 30, 1999 and 1998,

the Company had no investments that qualified as trading or held to maturity.

12

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The amortized cost of debt securities classified as available for sale is

adjusted for amortization of premiums and accretion of discounts to maturity or,

in the case of mortgage-backed securities, over the estimated life of the

security. Such amortization and interest are included in interest income.

Realized gains and losses are included in other income or expense. The cost of

securities sold is based on the specific identification method.

INVENTORY

Inventories are stated at the lower of cost or market and costs are

determined based on the first-in, first-out method of accounting and include

material, labor and manufacturing overhead costs.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization is

computed using the straight-line method over the asset's estimated useful life.

The estimated useful lives of property and equipment are as follows:

When assets are retired or otherwise disposed of, the cost and related

depreciation and amortization are eliminated from the accounts and any resulting

gain or loss is reflected in other income.

LONG-LIVED ASSETS

The Company periodically evaluates the potential impairment of its

long-lived assets whenever events or changes in circumstances indicate that the

carrying amount of an asset may not be recoverable. At the occurrence of a

certain event or change in circumstances or at each balance sheet date, the

Company evaluates the potential impairment of an asset based on future

undiscounted cash flows. In the event that impairment exists, the Company will

measure the amount of such impairment based on the present value of estimated

future cash flows using a discount rate commensurate with the risks involved.

Factors that management considers in performing this assessment include current

operating results, trends and prospects and, in addition, demand, competition

and other economic factors. At September 30, 1999 and 1998, the Company

determined that there had been no impairment of its long-lived assets, except as

in Note E.

Intangibles, which consist primarily of patents and trademarks, goodwill and

a non-compete agreement, are amortized on a straight-line basis over periods

ranging from 5 to 15 years. At September 30, 1999 and 1998, accumulated

amortization of intangibles amounted to $831,922 and $442,237, respectively.

DEFERRED REVENUE

Deferred revenue consists of payments received from customers in advance of

services performed or product shipped.

13

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

TREASURY STOCK

The Company is authorized to repurchase up to 5% of the Company's

outstanding shares of common stock through July 2000. Under the repurchase

program, the Company plans to purchase shares of the Company's outstanding

common stock on the open market from time-to-time, depending on market

conditions.

USE OF ESTIMATES

The preparation of financial statements, in conformity with generally

accepted accounting principles, requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenue and expenses during the period

reported. Actual results could differ from these estimates.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,

"Accounting for Income Taxes," which is the asset and liability method for

accounting and reporting for income taxes. Under SFAS No. 109, deferred tax

assets and deferred tax liabilities are recognized based on temporary

differences between the basis of assets and liabilities using statutory rates.

In addition, SFAS No. 109 requires a valuation allowance against net deferred

tax assets if, based upon the available evidence, it is more likely than not

that some or all of the deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation in accordance with SFAS No.

123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires that

companies recognize compensation expense for grants of stock, stock options, and

other equity instruments based on fair value, or, for grants to employees,

provide pro forma disclosure of net income and earnings per share in the notes

to the financial statements using the fair value method.

NET LOSS PER BASIC AND DILUTED COMMON SHARE

The Company reports net loss per basic and diluted common share in

accordance with SFAS No. 128, "Earnings Per Share," which establishes standards

for computing and presenting earnings per share. Basic earnings per share

excludes dilution and is computed by dividing income available to common

stockholders by the weighted-average number of common shares outstanding for the

period. Diluted earnings per share reflects the potential dilution that could

occur if securities or other contracts to issue common stock were exercised or

converted into common stock or resulted in the issuance of common stock that

then shared in the earnings of the Company.

CONCENTRATION OF CREDIT RISK

Financial instruments that subject the Company to concentrations of credit

risk consist principally of cash equivalents, investments in marketable

securities, trade accounts receivable, unbilled contract costs and amounts

receivable from exercise of stock options.

The Company's trade accounts receivable and unbilled contract costs and fees

are primarily from sales to U.S. government agencies and several commercial

customers. The Company does not require collateral

14

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

and has not historically experienced significant credit losses related to

receivables or unbilled contract costs and fees from individual customers or

groups of customers in any particular industry or geographic area.

The Company deposits its cash and invests in short-term investments and

marketable securities primarily through two regional commercial banks and an

investment company. Credit exposure to any one entity is limited by company

policy.

RESEARCH AND DEVELOPMENT COSTS

The Company expenses research and development costs as incurred.

COMPREHENSIVE LOSS

Comprehensive loss includes net loss, as well as other changes in

stockholders' equity, except stockholders' investments and distributions.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,

accounts receivable, unbilled contract costs and fees, accounts payable, debt

instruments and amounts receivable from exercise of stock options. The book

value of such financial instruments approximate their respective fair values due

to their short-term maturities.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform to current

year presentations. For all periods presented, expenses associated with funded

research and development activities have been reclassified as research and

development expenses from cost of revenue.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,

"Accounting for Derivative Instruments and Hedging Activities- Deferral of the

Effective Date of FASB Statement No. 133," which defers the effective date of

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to

all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.

133 establishes a new model for accounting for derivatives and hedging

activities. It requires an entity to recognize all derivatives as either assets

or liabilities in the statement of financial position and measure these

instruments at fair value. The Company will adopt SFAS No. 133 beginning in the

first quarter of the fiscal year ending September 30, 2001. Upon adoption of

SFAS No. 133, the Company will be required to record any unrealized gains or

losses on the fair value of its investment in derivatives in its results of

operations. Adoption of SFAS No. 133 is not currently expected to have a

material impact to the Company's consolidated financial position, results of

operations or cash flows.

B. MARKETABLE SECURITIES

At September 30, 1998, marketable securities have been categorized as

available for sale, and as a result, are stated at fair value.

15

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

B. MARKETABLE SECURITIES (CONTINUED)

As of September 30, 1998, marketable securities consisted of the following:

======== ======== ======= ========

The change in net unrealized losses during 1999, 1998 and 1997 were $10,380,

$23,312, and $32,866, respectively, and are included in the balance sheet in a

separate component of stockholders' equity, net of tax effect.

Proceeds from sales and maturities of marketable securities during 1999,

1998 and 1997 were $580,144, $1,340,609, and $2,079,064, respectively. Gross

realized losses from the sale of securities classified as available for sale

during 1999, 1998 and 1997 were $87,535, $0, and $0, respectively.

C. UNBILLED CONTRACT COSTS AND FEES

Unbilled contract costs and fees represent revenue recognized in excess of

amounts billed due to contractual provisions. These amounts included retained

fee and unliquidated costs totaling $282,746 and $363,087 at September 30, 1999

and 1998, respectively.

D. INVENTORY

Inventory consisted of the following:

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Depreciation expense for the years ended September 30, 1999, 1998, and 1997

was $633,964, $540,213, and $736,924, respectively.

As of September 30, 1999, there was $19,903 and $29,910 of capital leases

that were included in machinery and equipment and computer software,

respectively. As of September 30, 1998, there was no equipment under capital

lease.

During 1999 and 1997, the Company determined that certain of its machinery

and equipment with a net book value totaling $105,544 and $2,593,558,

respectively, was impaired based on a change in the needs of its customers and

such assets were written-off during 1999 and 1997, respectively.

F. INVESTMENT IN BEACON POWER CORPORATION

On May 28, 1997, SatCon Technology Corporation entered into a Securities

Purchase Agreement (the "Agreement"), dated as of May 28, 1997, by and among the

Company, Beacon Power Corporation ("Beacon Power"), a new wholly-owned

subsidiary of the Company, and Duquesne Enterprises ("Duquesne"). Pursuant to

the terms of the Agreement, Duquesne purchased from the Company and the Company

issued, sold and delivered to Duquesne 798,138 shares (the "Shares") of the

Company's Common Stock. The aggregate consideration received by the Company was

$5,000,000. In exchange for a capital contribution, the Company received all of

the capital stock of Beacon Power, consisting of 3,375,000 shares of Beacon

Power's Common Stock and 1,125,000 shares of Beacon Power's preferred stock, par

value $.01 per share, as adjusted to reflect a 1:1.125 stock split. Duquesne

also entered into agreements pursuant to which it will act as exclusive

distributor of Beacon Power's products, subject to certain exceptions, in seven

Mid-Atlantic States and the District of Columbia.

During a recapitalization of Beacon Power on December 24, 1997, Beacon Power

obtained equity financing from private investors and the Company converted a

significant portion of its ownership of Beacon Power to non-voting convertible

preferred stock and transferred certain assets and liabilities to Beacon Power.

The Company has determined that the recapitalization of Beacon Power on December

24, 1997 did not qualify as a divestiture of a subsidiary for accounting

purposes as described in SAB 30 as the Company had not transferred the risk and

other incidents of ownership of Beacon Power with sufficient certainty. In

accordance with SAB 30, the Company has included 100% of Beacon Power's net loss

in its statements of operations from December 24, 1997 to May 1999 in a manner

similar to the equity method of

17

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)

accounting and has included the assets and liabilities transferred to Beacon

Power as separate components in its September 30, 1998 balance sheet. The book

value of assets and liabilities transferred to Beacon Power on December 24, 1997

was as follows:

At September 30, 1998, the Company had amounts of $596,453 due from Beacon

Power. These amounts arose from transactions after December 24, 1997, whereby

the Company advanced money and made payments for certain expenses incurred by

Beacon Power. These advances have been written off as of September 30, 1998.

These advances were subsequently repaid in connection with the October 23, 1998

financing.

On October 23, 1998, the Company entered into a Securities Purchase

Agreement, by and among Beacon Power, Perseus Capital, L.L.C. ("Perseus"),

Duquesne, Micro Generation Technology Fund, L.L.C ("Micro", and together with

Perseus and Duquesne, the "Purchasers") and the Company. Pursuant to the terms

of the Agreement, (i) the Purchasers purchased from Beacon Power and Beacon

Power issued, sold and delivered to the Purchasers 1,900,000 shares (the

"Shares") of Beacon Power's Class D Redeemable Preferred Stock, $.01 par value

per share; (ii) the Class D redeemable preferred stock earns cumulative

dividends at an annual rate of 12.5%; (iii) the Purchasers have the right to

receive certain warrants to purchase shares of Beacon Power's common stock, $.01

par value per share ("Beacon Power's Common Stock"); (iv) the Company granted

the Purchasers the right (the "Put Right") to cause the Company, in

circumstances described below, to purchase all of the Shares and all of Beacon

Power's Common Stock issuable upon conversion of the Shares; and (v) upon

exercise of the Put Right pursuant to the terms of the Agreement, the Company

must pay the consideration contemplated by the Agreement in shares of the

Company's common stock, $.01 par value per share, valued at the average fair

value for the 15 trading days before and after notice of exercise of the Put

Right. The aggregate consideration received by Beacon Power was $4,750,000. The

Put Right is exercisable within 60 days of the second, third, fourth and fifth

anniversary of the closing date of the transaction, upon certain events of

bankruptcy of Beacon Power and upon the occurrence of certain going private

transactions involving the Company. The put right will terminate, if not

previously exercised, on the earlier of (i) October 23, 2003, (ii) upon the

listing of Beacon Power's common stock on the New York Stock Exchange or the

Nasdaq National Market, or (iii) with respect to put rights resulting from an

event described above, 100 days after the Purchasers receive written notice from

the Company requesting that the Purchasers either exercise or waive their put

rights resulting from that event. The Company has recorded the face value of and

cumulative dividends on Beacon Power's Class D preferred stock as an additional

investment in Beacon Power. While the Company currently believes that the Class

D preferred stockholders will not exercise the put right, the Company has

recorded the face value and the cumulative dividends as a liability. As of

September 30, 1999, the contingent obligation to the Class D preferred

stockholders is $5,309,115 consisting of $4,750,000 face value and $559,115 of

cumulative dividends. If the put right is exercised, the Company would

reclassify the value of

18

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)

the contingent obligation to the Class D preferred stockholders as common stock

and additional paid in capital.

Upon the conversion of Beacon Power's Class D redeemable preferred stock

into common stock, the Company's additional paid in capital will be written up

to reflect its beneficial interest in the proceeds of the Class D redeemable

preferred stock financing, in accordance with SEC Staff Accounting

Bulletin No. 51 "Accounting for Sales of Stock by a Subsidiary".

In June 1999, the Company committed to provide up to $1,000,000 of

additional financing to Beacon Power representing a minority share of a funding

commitment received by Beacon Power and therefore increased its investment in

Beacon Power and accrued the funding commitment of $1,000,000. As a result of

this financing, the Company determined that risks and other incidents of

ownership of Beacon Power had passed with sufficient certainty to other

investors and therefore, began accounting for its investment in Beacon Power

under the equity method. On June 22, 1999, the Company purchased from Beacon

Power a note (the "June 22, 1999 Note") with a principal amount of $125,000 due

and payable on the earlier of (i) September 22, 1999 ("Maturity Date") or

(ii) upon the occurrence of an event of default, as defined therein. The note

bears interest at 12 % per annum; provided that, if the note is not repaid in

full on or prior to Maturity Date, the interest rate would increase to 15% per

annum. The June 22, 1999 Note was issued pursuant to the terms of a Note

Purchase Agreement, dated as of June 22, 1999, by and among Beacon Power, the

Purchasers named therein, and the Company (the "Note Purchase Agreement").

Interest on the June 22, 1999 Note is payable on the Maturity Date.

On July 6, 1999, the Company purchased from Beacon Power an additional note

(the "July 6, 1999 Note") with a principal amount of $125,000 due and payable on

the earlier of (i) Maturity Date or (ii) upon the occurrence of an event of

default. The note bears interest at 12 % per annum; provided, that if the note

is not repaid in full on or prior to Maturity Date, the interest rate would

increase to 15% per annum (the "July 6, 1999 Note" and together with the

June 22, 1999 Note, the "Notes"). The July 6, 1999 Note was also issued pursuant

to the terms of the Note Purchase Agreement. Interest on the July 6, 1999 Note

is payable on the Maturity Date.

In August 1999, the Company exchanged in full the Notes and $83,333.33 for a

note with a principal amount of $333,333.33 ("Bridge Note") plus accrued

interest due and payable on the earlier of (i) the date of conversion of the

note as described below or (ii) upon the occurrence of an event of default. The

Bridge Note bears interest at 12 % per annum; provided that if the Funding Date

(as defined below) does not occur within six months, such interest rate shall

increase effective February 2, 2000 to 15% per annum. The Bridge Note was issued

pursuant to the terms of a Note and Warrant Purchase Agreement, dated as of

August 2, 1999, by and among Beacon Power, the Purchasers named therein, and the

Company (the "Note and Warrant Purchase Agreement"). Interest on the Bridge Note

is payable on the Maturity Date.

Pursuant to the terms of the Note and Warrant Purchase, the Company

purchased two (2) additional notes each with a principal amount of $333,333.33

on September 16, 1999 and October 19, 1999. The Bridge Note and the additional

notes each with a principal amount of $333,333.33 are collectively referred to

as the "Bridge Securities." At September 30, 1999, the Company has $333,333

payable under this commitment to Beacon Power.

In the event that Beacon Power obtains a funding commitment for at least $5

million of external funds within four months of the issuance of the first Bridge

Security and closes a funding pursuant to such commitment within six months of

the first issuance of the first Bridge Security (the date of such funding,

19

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F. INVESTMENT IN BEACON POWER CORPORATION (CONTINUED)

the "Funding Date"), all outstanding principal and interest on the Bridge

Securities will convert into equity of Beacon Power at a price and on terms that

are equivalent to the securities issued by Beacon Power pursuant to the funding

commitment. If Beacon Power does not obtain a qualified financing commitment

within the four-month period referred to above, or close such funding within the

six-month period referred to above, the Bridge Securities will convert into

securities of Beacon Power pursuant to terms to be agreed to with Beacon Power,

or if no terms are agreed to, the Company has the right to demand payment of all

principal and interest on the Bridge Securities.

Warrants to purchase shares of Beacon Power Securities were issued in

connection with each issuance of the Bridge Securities. The warrants are for the

purchase of the type of securities to be issued upon conversion of the Bridge

Securities or if such securities are not converted, Beacon Power common stock.

The number of shares of Beacon Power securities that will be subject to the

warrants will be determined by dividing (i) 25% of the principal amount of the

Bridge Securities issued by (ii) the price per share of the Bridge Securities,

or, if the Bridge Securities are not converted, $2.50.

G. LINE OF CREDIT

In December 1998, as modified, the Company obtained a $3,000,000 demand

discretionary line of credit with a bank. The line of credit bears interest at

the bank's prime rate plus 1 1/2% (9 3/4% as of September 30, 1999). Available

borrowings are based on a formula of eligible accounts receivable and inventory.

There were no amounts outstanding under the line of credit at September 30,

1999. During 1999, the maximum amount outstanding on the line of credit was

$2,657,234. The Company has pledged all assets of the Company as collateral

against this line of credit.

H. LONG-TERM DEBT

Long-term debt consists of the following:

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

H. LONG-TERM DEBT (CONTINUED)

At September 30, 1999, maturities of these obligations are as follows:

On March 1, 1999, the Company reached a definitive settlement arrangement

with Albert R. Snider (the "Settlement Agreement"), the holder of the note

payable which commenced on April 16, 1997, regarding the suit filed against Mr.

Snider for breach of certain representations made by him, including statements

of inventory balances in the Asset Purchase Agreement, dated as of April 3,

1997, between FMI and Mr. Snider relating to the purchase of the business of FMI

and a counterclaim filed by Mr. Snider seeking, among other things, payments

allegedly due from the Company under a promissory note.

Pursuant to the terms of the Settlement Agreement, the Company made a

$100,000 cash payment to Mr. Snider on March 9, 1999 and the parties executed

mutual general releases dismissing any and all claims between them. In addition,

the Settlement Agreement provides a right of first refusal in favor of the

Company with respect to certain shares of the Company's Common Stock,

beneficially owned by Mr. Snider. Concurrently with the execution of the

Settlement Agreement, the Company and Mr. Snider entered into a consulting

agreement pursuant to which Mr. Snider will perform certain consulting, advisory

and related services as the Company may reasonably request from time to time

between October 1, 1999 and October 1, 2002. In exchange for these services, the

Company issued 42,860 shares of its Common Stock to an escrow agent who will

release such shares to Mr. Snider or his nominees on January 2, 2001. The

Company has recorded these shares held in escrow at market value and as a

reduction to stockholders' equity as of September 30, 1999. The Company will

continue to mark-to-market these securities until such shares are released from

escrow.

The Company will amortize the market value of the common stock held in

escrow as consulting, advisory and related services expense as services are

provided between the period October 1, 1999 and October 1, 2002.

I. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its facilities under various operating leases that expire

through 2003. The Company has also entered into a master leasing agreement to

lease various items of equipment not to exceed $600,000. At September 30, 1999,

the availability under this facility has expired.

21

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

I. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Future minimum annual rentals under the lease agreements at September 30,

1999 are as follows:

Total rental expense including operating expenses and real estate taxes for

operating leases amounted to $1,683,749, $1,235,867, and $1,245,238 for the

years ended September 30, 1999, 1998 and 1997, respectively.

Certain of the facility leases contain escalation clauses, effective

October 1, 1998, rental expense has been recognized on a straight-line basis

over the remaining lease term. At September 30, 1999, deferred rent expense

amounted to $110,390.

In the fourth quarter of 1997, the Company decided to consolidate its

operating facility in Tucson, AZ with its facility in Cambridge, MA. As a

result, the Company accrued approximately $498,000, primarily related to the

buyout of the facility lease. At September 30, 1999 and 1998, the Company had a

reserve of $100,000, primarily related to the lease cancellation costs.

J. EMPLOYEE BENEFIT PLAN

The Company offers a 401(k) Employee Benefit Plan (the "Plan"). Under the

Plan, any regular employee, as defined by the Plan, who has completed six months

of service and has attained the age of 21 years is eligible to participate.

Under the terms of the Plan, an employee may defer up to 15% of his or her

compensation through contributions to the Plan. During 1999, the Company

extended the Plan to its wholly-owned subsidiaries. The Company made matching

contributions to the Plan of $218,729, $86,883 and $133,018 during 1999, 1998

and 1997, respectively.

22

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K. INCOME TAXES

The provision for income taxes consists of the following:

Deferred income taxes reflect the net tax effects of temporary differences

between the carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for income tax purposes. As of September 30, 1999

and 1998, the components of the net deferred tax assets/(liabilities) are as

follows:

The Company has placed a full valuation allowance against its net deferred

tax assets since the Company believes it is "more likely than not" that it will

not be able to utilize its deferred tax asset.

A decrease in net deferred tax assets and a decrease in the valuation

allowance in the amount of approximately $1,240,000 each has been made to

account for the recapitalization of Beacon Power Corporation during the year

ended September 30, 1998.

23

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K. INCOME TAXES (CONTINUED)

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

to the following:

At September 30, 1999, the Company had net operating loss carry-forwards of

approximately $16,550,000 and $7,976,000 for federal and state income tax

purposes, respectively. The federal net operating losses expire beginning

September 30, 2008 through 2019. The state net operating losses will expire

beginning September 30, 2000 through 2004. The use of these losses may be

limited due to ownership change limitations under Section 382 of the Code.

L. STOCKHOLDERS' EQUITY

STOCK OPTIONS

Under the Company's 1992, 1994, 1996 and 1998 Stock Option Plans, both

qualified and non-qualified stock options may be granted to certain officers,

employees, directors and consultants to purchase up to 1,550,000 shares of the

Company's common stock. At September 30, 1999, 1,450,000 of the 1,550,000 stock

options available for grant under the Company's 1992, 1994, 1996 and 1998 Stock

Option Plan have been granted.

During 1999, the Company adopted its 1999 Stock Option Plan that provides

for the grant to employees, officers, directors and consultants for qualified

and non-qualified stock options to purchase up to 1,500,000 shares of the

Company's common stock. At September 30, 1999, 816,898 of the 1,500,000 stock

options available for grant under the Company's 1999 Stock Option Plan have been

granted.

The 1992, 1994, 1996, 1998, and 1999 Stock Option Plans (collectively the

"Plans") are subject to the following provisions:

The aggregate fair market value (determined as of the date the option is

granted) of the common stock that any employee may purchase in any calendar year

pursuant to the exercise of qualified options may not exceed $100,000. No person

who owns, directly or indirectly, at the time of the granting of a qualified

option to him or her, more than 10% of the total combined voting power of all

classes of stock of the Company shall be eligible to receive any qualified

options under the Plans unless the option price is at least 110% of the fair

market value of the common stock subject to the option, determined on the date

of grant. Non-qualified options are not subject to this limitation.

Qualified options are issued only to employees of the Company, while

non-qualified options may be issued to non-employee directors, consultants, and

others, as well as to employees of the Company. Options granted under the Plans

may not be granted with an exercise price less than 100% of fair value of the

Company's common stock, as determined by the Board of Directors on the grant

date.

24

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. STOCKHOLDERS' EQUITY (CONTINUED)

Options under the Plans must be granted within 10 years from the effective

date of the Plan. Qualified options granted under the Plans cannot be exercised

more than 10 years from the date of grant, except that qualified options issued

to 10% or greater stockholders are limited to five-year terms. All options

granted under the Plans provide for the payment of the Company's exercise price

in cash, or by delivery to the Company of shares of common stock already owned

by the optionee having fair market value equal to the exercise price of the

options being exercised, or by a combination of such methods of payment.

The Plans contain antidilutive provisions authorizing appropriate

adjustments in certain circumstances. Shares of common stock subject to options

that expire without being exercised or that are canceled as a result of the

cessation of employment are available for further grants.

During 1999, the Company granted 755,000 non-qualified stock options to

consultants at exercise prices ranging from $5.75 to $10.00 per share of which

300,000 stock options were granted outside of the Plans.

A summary of the status of the Company's stock options as of September 30,

1999, 1998 and 1997 and changes for the years then ended are presented below.

The following table summarizes information about stock options outstanding

as of September 30, 1999.

An additional 683,102 shares were available under the 1999 Stock Option Plan

for future grants at September 30, 1999.

During 1999, the Company granted fully vested options to purchase 755,000

shares of the Company's common stock to consultants at prices ranging from $5.75

to $10.00 per share. The Company has recorded

25

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. STOCKHOLDERS' EQUITY (CONTINUED)

the fair value of the options, as determined by the Black-Scholes option pricing

model, of $2,152,277, to selling, general and administrative expenses during the

year ended September 30, 1999. As of September 30, 1999, options to purchase

450,000 shares at $7.00 per share have been exercised. As of September 30, 1999,

the Company received $1,333,333 of cash and the remaining amount due from the

shareholders is classified within stockholders' equity as amounts receivable

from exercise of stock options.

WARRANTS

On June 5, 1998, the Company issued to certain individuals, in settlement of

a claim asserted against the Company, Common Stock Purchase Warrants to purchase

up to 68,795 shares of common stock, as amended, at an exercise price of $11.43

per share. These warrants expired on November 11, 1999 unexercised.

On November 11, 1998, the Company issued common stock warrants to purchase

up to 67,125 shares of the Company's Common Stock at an exercise price of $11.43

per share. The Company has recorded the fair value of these warrants as

determined by the Black-Scholes option pricing model, of $56,362, to selling,

general and administrative expenses during the year ended September 30, 1999.

These warrants expired on November 11, 1999 unexercised.

On August 25, 1999, in connection with the $8 million private placement of

8,000 shares of the Company's Series A Convertible Preferred Stock, $0.01 par

value per share with Brown Simpson Strategic Growth Funds (See Note M), the

Company issued common stock warrants to purchase up to 120,000 and 675,000

shares of common stock at an exercise price of $7.80 and $8.54, respectively.

These warrants expire on August 25, 2003. At September 30, 1999, none of these

warrants have been exercised.

STOCK-BASED COMPENSATION

Had compensation cost for the Company's stock-based compensation been

determined based on fair value at the grant dates as calculated in accordance

with SFAS No. 123, the Company's net loss and loss per share for the years ended

September 30, 1999, 1998 and 1997 would have been increased to the pro forma

amounts indicated below:

The effects of applying SFAS No. 123 in this pro forma disclosure are not

indicative of future amounts. SFAS No. 123 does not apply to awards prior to

1996 and additional awards in future years are anticipated.

The fair value of each stock option is estimated on the date of the grant

using the Black-Scholes option-pricing model with the following weighted average

assumptions: an expected life of seven years, expected volatility of 80.0%, no

dividends, and risk-free interest rate of 6.08% for September 30, 1999; an

expected life of seven years, expected volatility of 57.9%, no dividends, and

risk-free interest rate of 5.76%

26

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. STOCKHOLDERS' EQUITY (CONTINUED)

for September 30, 1998; and an expected life of seven years, expected volatility

of 57.9%, no dividends, and risk-free interest rate of 6.125% for September 30,

1997. The weighted average price of the fair value of options granted for years

ended September 30, 1999, 1998 and 1997 are $5.21, $7.14 and $5.80,

respectively.

M. PREFERRED STOCK

The Company is authorized to issue up to 1,000,000 shares of Preferred

Stock, $.01 par value per share ("Preferred Stock"). The Preferred Stock may be

issued in one or more series, the terms of which may be determined at the time

of issuance by the Board of Directors, without further action by stockholders,

and may include voting rights (including the right to vote as a series on

particular matters), preferences as to dividends and liquidation, conversion and

redemption rights and sinking fund provisions

On August 25, 1999, the Company completed an $8 million private placement of

8,000 shares of its Series A Redeemable Convertible Preferred Stock, $0.01 par

value per share (the "Series A Preferred Stock"), with Brown Simpson Strategic

Growth Funds ("Brown Simpson"). The Series A Preferred Stock is initially

convertible into 1,025,641 shares of the Company's common stock, $0.01 par value

per share (the "Common Stock"), at an initial conversion price of $7.80 per

share. The Series A Preferred Stock is also subject to certain dilution

protection for a period of three years. Under certain circumstances, the Company

has the option to cause the Series A Preferred Stock to convert into shares of

Common Stock or otherwise be redeemed. At the end of seven years, the Company

must redeem any remaining shares of the Series A Preferred Stock for cash or, at

the Company's option, Common Stock with a then fair market value equal to the

original purchase price of the Series A Preferred Stock. The obligation at seven

years to redeem any remaining shares of the Series A Preferred Stock accelerates

to the fourth anniversary of the closing in the event that the average bid price

of the Company's Common Stock for the 60 "trading day" period immediately

preceeding the fourth anniversary is $5 per share or less. In the event of

certain changes in control events regarding the Company or if the Common Stock

is delisted, Brown Simpson has the right to cause the Series A Preferred Stock

to be redeemed.

In connection with the transaction, Brown Simpson also received warrants to

purchase up to 675,000 additional shares of Common Stock at $8.54 per share (the

"Brown Simpson Warrants"). The Brown Simpson Warrants expire on August 25, 2003.

The Company has valued these warrants at $1,818,558, based on the fair value of

these warrants, as determined by the Black-Scholes option pricing model and has

recorded this amount in addition to direct costs of $1,338,234 as transaction

costs of this preferred stock offering.

H.C. Wainwright & Co., Inc. ("H.C. Wainwright") served as placement agent

for the transaction and received a commission of $560,000 and warrants to

purchase 120,000 shares of the Company's Common Stock at $7.80 per share. These

warrants expire on August 25, 2003. H.C. Wainwright will also receive a future

fee in the amount of 4% of any monies received by the Company upon the exercise

of the Brown Simpson Warrants. The Company has recorded the fair value of these

warrants, as determined by the Black-Scholes option pricing model, of $550,734

as a transaction cost of this preferred stock offering.

The Company has valued the redeemable convertible preferred stock at

issuance to be $4,843,208 based on the relative fair market values of the

financial instruments issued in connection with this placement. The Company will

accrete the carrying value of the redeemable convertible preferred stock to its

redeemable value of $8,000,000 at August 25, 2003, in the event that the average

bid price for the 60

27

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

M. PREFERRED STOCK (CONTINUED)

trading days prior is $5.00 or less, using the effective interest method. As of

September 30, 1999, the Company has accreted $50,904 and recorded this as a

charge against additional paid-in capital.

N. SIGNIFICANT CUSTOMERS

Significant customers, defined as net revenues from those customers that

account for 10% or more of total net revenue in a fiscal year, were as follows:

O. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

NON-CASH INVESTING AND FINANCING ACTIVITIES

INTEREST AND INCOME TAXES PAID

Cash paid for interest and income taxes was as follows:

P. ACQUISITIONS

K&D MAGMOTOR CORPORATION

On January 23, 1997, the Company acquired substantially all of the assets

and assumed certain of the liabilities of K&D MagMotor Corporation ("MagMotor")

pursuant to the terms of an Asset Purchase Agreement, dated as of January 2,

1997, by and among the Company, MagMotor and MagMotor's principal stockholder

(the "Stockholder") (the "Asset Purchase Agreement"). The aggregate

consideration paid by the Company for the acquired assets of MagMotor was

approximately $210,000 in cash and 30,000 shares of the Company's common stock,

par value $.01 per share valued at $6.625 per share or $198,750.

28

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

P. ACQUISITIONS (CONTINUED)

MagMotor's assets, including machinery and equipment and inventory, were

recorded at their estimated market value of $250,000 and $160,000, respectively.

MagMotor is a manufacturer of custom electric motors targeting the factory

automation, medical, semi-conductor and packaging markets. The Company continues

to use the assets in the same manner in which they were used by MagMotor

immediately prior to the acquisition. The Company has included in its

consolidated results of operations the acquisition of MagMotor under the

purchase method of accounting.

The pro forma financial information has not been presented as the

acquisition of Magmotor is not material.

FILM MICROELECTRONICS, INC.

On April 16, 1997, the Company acquired substantially all of the assets of

Film Microelectronics, Inc. ("FMI"), pursuant to the Asset Purchase Agreement,

dated as of April 3, 1997, by and among the Company, FMI and FMI's principal

stockholder. In addition, the Company assumed trade payables aggregating

approximately $900,000 and the assumption of indebtedness of approximately $1

million. The aggregate consideration paid by the Company for the acquired assets

of FMI was 420,000 shares of the Company's common stock, par value $.01 per

share (the "Common Stock"), valued at $6.375 per share or $2,677,500.

FMI is a manufacturer of production and custom integrated circuits for the

communications, industrial, military and aerospace markets. The Company

continues to use the assets in the same manner in which they were used by FMI

immediately prior to the acquisition. FMI's assets have been recorded at their

estimated market values with the excess purchase price assigned to goodwill,

which is being amortized over 15 years.

The Company has included in its consolidated results of operations the

acquisition of FMI under the purchase method of accounting. The following

unaudited pro forma financial information combines SatCon and FMI's results of

operations as if the acquisition had taken place on October 1, 1996. The pro

forma results are not necessarily indicative of what the results of operations

actually would have been if the transaction had occurred on the applicable dates

indicated and are not intended to be indicative of future results of operations.

INDUCTIVE COMPONENTS, INC. AND LIGHTHOUSE SOFTWARE, INC.

On January 4, 1999, the Company's MagMotor subsidiary acquired substantially

all of the assets and assumed certain liabilities of Inductive Components, Inc.

and Lighthouse Software, Inc., pursuant to the terms of an Asset Purchase

Agreement, dated January 4, 1999, among MagMotor, the Company, Inductive

Components, Inc, Lighthouse Software, Inc. and Thomas Glynn, the sole

stockholder of Inductive and the

29

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

P. ACQUISITIONS (CONTINUED)

majority stockholder of Lighthouse. The aggregate consideration paid by the

Company for the acquired assets of Inductive Components, Inc. and Lighthouse

Software, Inc. was 100,000 shares of the Company's common stock, valued at

$5.6875 per share or $568,750. In addition, the Company assumed indebtedness of

approximately $246,000. The Company has included in its consolidated results of

operations the acquisition of Inductive and Lighthouse under the purchase method

of accounting. The purchase price has been allocated as follows:

The pro forma financial information has not been presented, as the

acquisitions of Inductive Components, Inc. and Lighthouse Software, Inc. are not

material.

HYCOMP, INC.

On April 12, 1999, the Company executed an agreement to purchase

substantially all of the assets and assume certain liabilities of HyComp, Inc.

("HyComp"). This agreement was dated March 31, 1999 and was by and between

HyComp and HyComp Acquisition Corp., a wholly-owned subsidiary of the Company.

The aggregate consideration paid by the Company for the acquired assets of

HyComp consisted of (i) $750,000 in cash; (ii) the assumption of certain

liabilities and obligations of HyComp in the amount of approximately $422,000;

(iii) transaction costs of $95,000; and (iv) a 5% royalty to HyComp on certain

sales through April 12, 2000. At September 30, 1999, the Company has recorded

$50,000 of accrued royalties. The Company has included in its consolidated

results of operations the acquisition of HyComp under the purchase method of

accounting. The purchase price has been allocated as follows:

The pro forma financial information has not been presented as the

acquisition of HyComp is not material.

30

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

P. ACQUISITIONS (CONTINUED)

Net cash paid for the acquisitions of K&D MagMotor Corporation, Film

Microelectronics, Inc., Inductive Components Inc., Lighthouse Software, Inc. and

HyComp, Inc. was as follows:

Q. EARNINGS PER SHARE

The following is the reconciliation of the numerators and denominators of

the basic and diluted per share computations of net loss:

At September 30, 1999, 1998 and 1997, 2,782,147, 884,758 and 1,000,427

options and warrants, respectively, were excluded from the diluted weighted

average common shares outstanding as their effect would be antidilutive.

31

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

R. COMPREHENSIVE LOSS

The Company's total comprehensive loss is as follows:

S. SEGMENT DISCLOSURES

As of October 1, 1998, the Company adopted SFAS No. 131, "Disclosure about

Segments of an Enterprise and Related Information". SFAS No. 131 establishes

annual and interim reporting standards for an enterprise's operating segments

and related disclosures about its products and services, geographical areas and

major customers. Operating segments are defined as components of an enterprise

about which separate financial information is available that is evaluated

regularly by the chief operating decision maker, or decision making group, in

deciding how to allocate resources and assess their performance.

The Company's organizational structure is based on strategic business units

that offer various products to the principal markets in which the Company's

products are sold. These business units equate to three reportable segments:

research and development, power electronic products and motion-control products.

SatCon Technolgy Corporation provides research and development services in

collaboration with third-parties. Film Microelectronics, Inc designs and

manufactures power electronics products. The Magmotor Division specializes in

the engineering and manufacturing of motion-control products. The Company's

principal operations and markets are located in North America.

The accounting policies of each of the segments are the same as those

described in the summary of significant accounting policies. The Company

evaluates performance based on revenue and profit and loss from operations

before income taxes, interest income, interest expense, other income and losses

and loss from investment in Beacon Power Corporation, excluding the effects of

amortization of intangible assets associated with acquisitions. Common costs not

directly attributable to a particular segment are allocated among segments based

on management's estimates.

32

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

S. SEGMENT DISCLOSURES (CONTINUED)

The following is a summary of the Company's operations by operating segment:

The following is a summary of the Company's long-lived assets excluding

assets transferred to Beacon Power Corporation and investment in Beacon Power

Corporation by operating segment:

T. SUBSEQUENT EVENTS

On October 21, 1999, the Company received an investment from Mechanical

Technology, Inc. ("MTI") of $7,000,000 in the Company. In consideration for

MTI's investment, MTI will receive 1,030,000 shares of the Company's common

stock at a discounted price of approximately $6.80 per share, $.01 par value per

share (the "Common Stock"), and warrants to purchase an additional 100,000

shares of the Company's Common Stock. MTI funded $2,570,000 of its investment in

the Company on October 21, 1999 and received 370,800 shares of the Company's

Common Stock and a warrant to purchase 36,000 shares of the Company's Common

Stock, and it will make the remaining investment by the end of January 2000. In

addition, the Company has received a warrant to purchase 36,000 shares of MTI's

Common Stock and will receive the remaining warrant to purchase 64,000 shares of

MTI's Common Stock by the end of

33

SATCON TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

T. SUBSEQUENT EVENTS (CONTINUED)

January 2000. The Company will record the fair value of the warrants received as

an asset and as additional paid in capital.

Additionally, the Company acquired Ling Electronics, Inc. and Ling

Electronics, Ltd. (collectively, "Ling Electronics") from MTI. In consideration

for the acquisition of Ling Electronics, MTI received $70,000 and 770,000 shares

of the Company's common stock, $.01 par value per share (the "Common Stock")

valued at $9.8438 per share or $7,579,726.

The following unaudited pro forma financial information combines SatCon and

Ling's results of operations as if the acquisition had taken place on

October 1, 1997. The pro forma results are not necessarily indicative of what

the results of operations actually would have been if the transaction had

occurred on the applicable dates indicated and are not intended to be indicative

of future results of operations.

On November 16, 1999, the Company purchased certain intellectual property,

equipment and other assets from Northrop Gruman Corporation ("NGC"). These

assets were used by NGC in connection with its power electronics products

business. The Company also entered into (i) a sublease with NGC pursuant it

entered into a five-year sublease for approximately 14,863 square feet of

rentable space in the Baltimore area and (ii) a three-year Transition Services

Agreement providing the Company access to certain test facilities and personnel

of NGC on a fee basis. In consideration for these foregoing acquisition and

agreements, NGC received 578,761 shares of the Company's common stock, $.01 par

value per share (the "Common Stock"), and warrants to purchase an additional

200,000 shares of the Company's Common Stock.

The pro forma financial information has not been presented, as the Company

views this transaction as the purchase of assets rather than as a business

combination.

34

36

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET

As of September 30, 1999

(Dollars in thousands)

37

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (Continued)

As of September 30, 1999

(Dollars in thousands)

38

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended September 30, 1999

(Dollars in thousands)

39

NOTES TO UNAUDITED PRO FORMA

COMBINED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of adjustments reflected in the unaudited pro forma combined consolidated balance sheet:

$2,288

41

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Registrant has duly caused this report to be signed on its behalf by the

undersigned hereunto duly authorized.

MECHANICAL TECHNOLOGY INCORPORATED

Date: December 22, 2000 By: /s/ Cynthia A. Scheuer

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

Cynthia A. Scheuer

Vice President and Chief Financial Officer

42