SATCON TECHNOLOGY CORP
10-Q, 2000-05-15
SEMICONDUCTORS & RELATED DEVICES
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
                         COMMISSION FILE NUMBER 1-11512

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

                         SATCON TECHNOLOGY CORPORATION

             (Exact name of registrant as specified in its charter)

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

     State of Incorporation: DELAWARE    I.R.S. Employer ID. No.: 04-2857552

                                161 FIRST STREET
                            CAMBRIDGE, MA 02142-1221
                    (Address of principal executive offices)

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

    Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X   No

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                         Common Stock, $0.01 Par Value,
                13,698,466 shares outstanding as of May 5, 2000.

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<PAGE>
                               TABLE OF CONTENTS

                         PART I: FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
ITEM 1: FINANCIAL STATEMENTS

Consolidated Balance Sheets (Unaudited).....................      1
Consolidated Statements of Operations (Unaudited)...........      2
Consolidated Statement of Changes in Stockholders' Equity
  (Unaudited)...............................................      3
Consolidated Statements of Cash Flows (Unaudited)...........      4
Notes to Interim Consolidated Financial Statements
  (Unaudited)...............................................      5

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS.................     11

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
  MARKET RISK...............................................     15

                      PART II: OTHER INFORMATION

Item 1. Legal Proceedings...................................     16
Item 2. Changes in Securities and Use of Proceeds...........     16
Item 3. Defaults Upon Senior Securities.....................     16
Item 4. Submission of Matters to a Vote of Security
  Holders...................................................     16
Item 5. Other Information...................................     17
Item 6. Exhibits and Reports on Form 8-K....................     17

Signature...................................................     18
Exhibit Index...............................................     19
</TABLE>
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               MARCH 31,     SEPTEMBER 30,
                                                                  2000           1999
                                                              ------------   -------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $  9,746,244   $  2,533,072
  Accounts receivable, net of allowance of $441,208 at
    March 31, 2000 and $386,686 at September 30, 1999.......     6,623,053      2,799,143
  Unbilled contract costs and fees, net of allowance of
    $746,121 at March 31, 2000 and September 30, 1999.......     1,255,581      1,462,201
  Inventory.................................................     7,613,256      3,697,972
  Loan to Beacon Power Corporation..........................       300,000             --
  Prepaid expenses and other current assets.................       535,771        349,070
                                                              ------------   ------------
  Total current assets......................................    26,073,905     10,841,458
  Property and equipment, net...............................     4,585,628      3,260,632
  Intangibles, net..........................................     9,732,692      3,194,609
  Other long-term assets....................................       219,771        103,675
                                                              ------------   ------------
    Total assets............................................  $ 40,611,996   $ 17,400,374
                                                              ============   ============
  LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                     STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  1,443,741   $  1,563,605
  Accrued payroll and payroll related expenses..............     1,015,331        479,888
  Deferred revenue..........................................       436,375        113,179
  Accrued loss in investment in Beacon Power Corporation....            --        202,829
  Other accrued expenses....................................     1,135,425        620,874
  Current portion of long-term debt.........................        16,848         16,226
                                                              ------------   ------------
    Total current liabilities...............................     4,047,720      2,996,601
Long-term liabilities:
  Long-term debt, net of current portion....................        25,602         33,871
  Other long-term liabilities...............................        29,735         29,735
                                                              ------------   ------------
    Total long-term liabilities.............................        55,337         63,606
Redeemable convertible preferred stock......................            --      4,894,112
Stockholders' equity:
  Preferred stock; $.01 par value, 1,000,000 shares
    authorized; none and 8,000 shares Series A redeemable
    convertible preferred stock issued and outstanding at
    March 31, 2000 and September 30, 1999, respectively.....            --             --
  Common stock, $.01 par value, 25,000,000 shares
    authorized; 13,663,382 and 9,617,009 shares issued at
    March 31, 2000 and September 30, 1999, respectively.....       136,634         96,170
  Additional paid-in capital................................    68,115,179     37,074,161
  Shares held in escrow, at market value; 42,860 shares at
    March 31, 2000 and September 30, 1999...................    (1,117,039)      (428,600)
  Amounts receivable from exercise of stock options.........      (700,001)    (1,816,667)
  Accumulated deficit.......................................   (29,656,796)   (25,229,305)
  Accumulated other comprehensive loss......................       (19,334)            --
  Treasury stock, at cost; 44,500 shares at March 31, 2000
    and September 30, 1999..................................      (249,704)      (249,704)
                                                              ------------   ------------
    Total stockholders' equity..............................    36,508,939      9,446,055
                                                              ------------   ------------
      Total liabilities, redeemable convertible preferred
        stock and stockholders' equity......................  $ 40,611,996   $ 17,400,374
                                                              ============   ============
</TABLE>

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

                                       1
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED           SIX MONTHS ENDED
                                                     MARCH 31,                   MARCH 31,
                                             -------------------------   -------------------------
                                                2000          1999          2000          1999
                                             -----------   -----------   -----------   -----------
<S>                                          <C>           <C>           <C>           <C>
Product revenue............................  $ 5,648,570   $ 1,772,226   $ 8,810,075   $ 3,766,753
Funded research and development revenue....    1,895,857     1,889,994     3,290,759     3,620,566
                                             -----------   -----------   -----------   -----------
  Total revenue............................    7,544,427     3,662,220    12,100,834     7,387,319
Cost of product revenue....................    4,885,985     1,915,144     7,887,163     3,438,821
                                             -----------   -----------   -----------   -----------
Gross margin...............................    2,658,442     1,747,076     4,213,671     3,948,498
Selling, general and administrative
  expenses.................................    2,420,168     1,028,748     4,452,704     2,018,328
Research and development expenses..........    1,892,822     1,465,434     3,616,017     2,894,375
Amortization of intangibles................      328,955        94,035       571,563       171,793
                                             -----------   -----------   -----------   -----------
Total operating expenses...................    4,641,945     2,588,217     8,640,284     5,084,496
                                             -----------   -----------   -----------   -----------
Operating loss.............................   (1,983,503)     (841,141)   (4,426,613)   (1,135,998)
Loss from Investment in Beacon Power
  Corporation..............................           --      (424,173)     (130,504)   (1,488,183)
Other income/(loss)........................       14,308        (9,012)       11,525        (9,012)
Interest income............................       86,033        11,803       120,156        32,070
Interest expense...........................       (1,147)      (28,548)       (2,055)      (28,548)
                                             -----------   -----------   -----------   -----------
Net loss...................................   (1,884,309)   (1,291,071)   (4,427,491)   (2,629,671)
Accretion of redeemable convertible
  preferred stock discount.................   (2,949,944)           --    (3,105,888)           --
                                             -----------   -----------   -----------   -----------
Net loss attributable to common
  stockholders.............................  $(4,834,253)  $(1,291,071)  $(7,533,379)  $(2,629,671)
                                             ===========   ===========   ===========   ===========
Net loss per weighted average share, basic
  and diluted..............................  $     (0.39)  $     (0.14)  $     (0.65)  $     (0.29)
                                             ===========   ===========   ===========   ===========
Weighted average number of common shares,
  basic and diluted........................   12,398,497     9,059,082    11,595,763     9,019,666
                                             ===========   ===========   ===========   ===========
</TABLE>

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

                                       2
<PAGE>
                         SATCON TECHNOLOGY CORPORATION
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                   AMOUNTS
                                                                                                 RECEIVABLE
                                                                         COMMON      COMMON         FROM
                                                          ADDITIONAL     SHARES       STOCK      EXERCISE OF
                                    COMMON      COMMON      PAID-IN     HELD IN      HELD IN        STOCK      ACCUMULATED
                                    SHARES      STOCK       CAPITAL      ESCROW      ESCROW        OPTIONS       DEFICIT
                                  ----------   --------   -----------   --------   -----------   -----------   ------------
<S>                               <C>          <C>        <C>           <C>        <C>           <C>           <C>
Balance, September 30, 1999.....   9,617,009   $96,170    $37,074,161    42,860    $  (428,600)  $(1,816,667)  $(25,229,305)
Net loss........................          --        --             --        --             --            --    (4,427,491)
Common stock issued in
  connection with Ling
  acquisition...................     770,000     7,700      7,748,656        --             --            --            --
Common stock issued in
  connection with MTI
  investment....................   1,030,000    10,300      6,964,926        --             --            --            --
Common stock issued in
  connection with NGC
  acquisition...................     578,761     5,788      5,465,770        --             --            --            --
Conversion of redeemable
  preferred stock into common
  stock.........................   1,025,641    10,256      7,989,744        --             --            --            --
Exercise of common stock
  options.......................     623,971     6,240      4,962,978        --             --     1,116,666            --
Exercise of common stock
  warrants......................      18,000       180        140,220        --             --            --            --
Valuation adjustment for common
  stock held in escrow..........          --        --        688,439        --       (688,439)           --            --
Amortization of deferred
  consulting expense related to
  shares held in escrow.........          --        --        186,173        --             --            --            --
Accretion of redeemable
  convertible preferred stock
  discount......................          --        --     (3,105,888)       --             --            --            --
Foreign currency translation
  adjustment....................          --        --             --        --             --            --            --
                                  ----------   --------   -----------    ------    -----------   -----------   ------------
Balance, March 31, 2000.........  13,663,382   $136,634   $68,115,179    42,860    $(1,117,039)  $  (700,001)  $(29,656,796)
                                  ==========   ========   ===========    ======    ===========   ===========   ============

<CAPTION>

                                   ACCUMULATED
                                      OTHER                                  TOTAL
                                  COMPREHENSIVE    TREASURY   TREASURY    STOCKHOLDERS
                                       LOSS         SHARES      STOCK        EQUITY
                                  --------------   --------   ---------   ------------
<S>                               <C>              <C>        <C>         <C>
Balance, September 30, 1999.....           --       44,500    $(249,704)  $ 9,446,055
Net loss........................           --           --           --    (4,427,491)
Common stock issued in
  connection with Ling
  acquisition...................           --           --           --     7,756,356
Common stock issued in
  connection with MTI
  investment....................           --           --           --     6,975,226
Common stock issued in
  connection with NGC
  acquisition...................           --           --           --     5,471,558
Conversion of redeemable
  preferred stock into common
  stock.........................           --           --           --     8,000,000
Exercise of common stock
  options.......................           --           --           --     6,085,884
Exercise of common stock
  warrants......................           --           --           --       140,400
Valuation adjustment for common
  stock held in escrow..........           --           --           --            --
Amortization of deferred
  consulting expense related to
  shares held in escrow.........           --           --           --       186,173
Accretion of redeemable
  convertible preferred stock
  discount......................           --           --           --    (3,105,888)
Foreign currency translation
  adjustment....................      (19,334)          --           --       (19,334)
                                     --------       ------    ---------   -----------
Balance, March 31, 2000.........     $(19,334)      44,500    $(249,704)  $36,508,939
                                     ========       ======    =========   ===========
</TABLE>

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

                                       3
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED MARCH 31,
                                                              ---------------------------
                                                                  2000           1999
                                                              ------------   ------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Net loss..................................................  $(4,427,491)   $(2,629,671)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
      Depreciation and amortization.........................      977,691        467,089
      Allowance for doubtful accounts.......................       54,522         48,164
      Allowance for inventory excess and obsolescence.......      150,000        491,071
      Loss from investment in Beacon Power Corporation......      130,504      1,488,183
      Loss on sale of marketable securities.................           --          9,012
      Non-cash compensation expense related to issuance of
        common stock options to non-employees...............           --         56,362
      Non-cash compensation expense related to common stock
        held in escrow......................................      186,173             --
    Changes in operating assets and liabilities, net of
      effects of acquisitions:
      Accounts receivable...................................   (1,941,409)        34,420
      Unbilled contract costs and fees......................      206,620     (1,357,776)
      Prepaid expenses and other current assets.............       73,538            390
      Inventory.............................................      268,707     (1,413,350)
      Other long-term assets................................      (76,281)       554,131
      Accounts payable......................................     (761,551)        14,115
      Accrued expenses and payroll..........................       47,920        127,789
      Other liabilities.....................................      309,696         39,478
                                                              -----------    -----------
    Total adjustments.......................................     (373,870)       559,078
                                                              -----------    -----------
Net cash used in operating activities.......................   (4,801,361)    (2,070,593)
                                                              -----------    -----------

Cash flows from investing activities:
  Sales and maturities of marketable securities.............           --        262,504
  Patent and intangible expenditures........................      (94,718)       (40,167)
  Purchase of property and equipment........................     (368,076)      (196,170)
  Cash used in acquisitions.................................      (24,054)      (245,876)
  Loan to Beacon Power Corporation..........................     (300,000)            --
  Investment in Beacon Power Corporation....................     (333,333)       (30,000)
                                                              -----------    -----------
Net cash used in investing activities.......................   (1,120,181)      (249,709)
                                                              -----------    -----------

Cash flows from financing activities:
  Borrowings under line of credit...........................           --      1,521,481
  Repayment of borrowings...................................       (7,647)      (100,000)
  Net proceeds from issuance of common stock................    6,975,226             --
  Proceeds from exercise of stock options and warrants......    6,226,284             --
  Purchase of treasury stock................................           --        (76,628)
  Deferred financing fees...................................      (39,815)            --
                                                              -----------    -----------
Net cash provided by financing activities...................   13,154,048      1,344,853
                                                              -----------    -----------
Effect of foreign currency exchange rates on cash and cash
  equivalents...............................................      (19,334)            --
                                                              -----------    -----------
Net increase/(decrease) in cash and cash equivalents........    7,213,172       (975,449)
Cash and cash equivalents at beginning of period............    2,533,072      1,201,610
                                                              -----------    -----------
Cash and cash equivalents at end of period..................  $ 9,746,244    $   226,161
                                                              ===========    ===========
</TABLE>

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

                                       4
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A.  BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements include the
accounts of SatCon Technology Corporation and its majority-owned subsidiaries
(collectively, the "Company") as of March 31, 2000 and have been prepared by the
Company in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All intercompany accounts and transactions have been
eliminated. These consolidated financial statements, which in the opinion of
management reflect all adjustments (including normal recurring adjustments)
necessary for a fair presentation, should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1999. Operating results for the
three-month and six-month periods ended March 31, 2000 are not necessarily
indicative of the results that may be expected for any future interim period or
for the entire fiscal year.

NOTE B.  SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

    Revenue from manufactured products is recognized upon shipment, or if the
product requires installation, then revenue is recognized upon installation of
the product. The Company provides for a warranty reserve at the time the product
revenue is recognized.

    The Company performs funded research and development in collaboration with
third parties under both cost reimbursement and fixed-price contracts. Cost
reimbursement contracts provide for the reimbursement of allowable costs and, in
some situations, the payment of a fee. These contracts may contain incentive
clauses providing for increases or decreases in the fee depending on how costs
compare with budget. On fixed-price contracts, revenue is generally recognized
on the percentage of completion method based upon the proportion of costs
incurred to the total estimated costs for the contract. Revenue from
reimbursement contracts is recognized as services are performed. In each form of
contract, the Company receives periodic progress payments or payment 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 and
contract costs indicate a loss, a provision for the entire loss on the contract
is recorded.

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

    Unbilled contract costs and fees represent revenue recognized in excess of
amounts billed due to contractual provisions or deferred costs that have not yet
been recognized as revenue or billed to the customer. These amounts included
retained fee and unliquidated costs totaling $163,689 and $282,746 at March 31,
2000 and September 30, 1999, respectively.

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.

                                       5
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

   NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

NOTE C.  SIGNIFICANT EVENTS

INVESTMENT IN BEACON POWER CORPORATION ("BEACON")

    During the six months ended March 31, 2000 and 1999, the Company recorded
losses from its investment in Beacon of $130,504 and $1,488,183, respectively.

    At March 31, 2000, the Company's investment in Beacon had been reduced to
zero. On January 7, 2000, the Company purchased from Beacon a convertible
promissory note with a principal amount of $200,000. The note bore interest at
12 1/2% per annum and was repaid on February 14, 2000. On February 25, 2000, the
Company purchased from Beacon a convertible promissory note with a principal
amount of $300,000 due and payable on the earlier of (i) the maturity date, as
defined (the "Maturity Date"), or (ii) upon the occurrence of an event of
default by Beacon. The note bears interest at 12 1/2% per annum; provided, that
if the note is not repaid in full on or prior to the Maturity Date, the interest
rate increases to 15% per annum (the "February 25, 2000 Note"'). Interest on the
February 25, 2000 Note is due and payable on the Maturity Date. At March 31,
2000 the Company did not accrue losses up to $300,000 relating to its share of
Beacon's losses incurred through March 31, 2000, as those amounts, including
interest, were repaid on April 27, 2000.

INVESTMENT FROM MECHANICAL TECHNOLOGY INCORPORATED

    On October 21, 1999, the Company received a $7,070,000 investment from
Mechanical Technology Incorporated ("MTI"). In consideration for MTI's
investment, MTI received 1,030,000 shares of the Company's common stock, $.01
par value per share (the "Common Stock"), at a discounted price of approximately
$6.80 per share, and warrants to purchase an additional 100,000 shares of the
Company's Common Stock at an exercise price of $8.80 per share. MTI funded
$2,570,000 of its investment in the Company on October 21, 1999 and received
370,800 of the 1,030,000 shares of the Company's Common Stock and a warrant to
purchase 36,000 of the 100,000 shares of the Company's Common Stock. MTI made
the remaining investment on January 31, 2000 of $4,500,000 and received the
remaining 659,200 shares of the Company's Common Stock and a warrant to purchase
the remaining 64,000 shares of the Company's Common Stock. The Company incurred
approximately $95,000 of legal, accounting, consultation and filing fees in
connection with this transaction. In addition, the Company received a warrant to
purchase 36,000 shares of MTI's Common Stock on October 21, 1999 and a warrant
to purchase 64,000 shares of MTI's Common Stock on January 31, 2000 at exercise
prices of $37.66 per share.

ACQUISITIONS

    On October 21, 1999, the Company acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. (collectively, "Ling Electronics") from MTI. In consideration
for the acquisition of Ling Electronics, MTI received $70,000 and 770,000 shares
of the Company's Common Stock valued at $9.8438 per share or

                                       6
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

   NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

$7,579,726. In addition, the Company has incurred approximately $177,000 of
legal, accounting, consultation and filing fees as a cost of this transaction.
The purchase price of the acquisition has been allocated as follows:

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

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

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED           SIX MONTHS ENDED
                                                     MARCH 31,                   MARCH 31,
                                             -------------------------   -------------------------
                                                2000          1999          2000          1999
                                             -----------   -----------   -----------   -----------
<S>                                          <C>           <C>           <C>           <C>
Revenue....................................  $ 7,544,427   $ 5,837,220   $12,240,423   $11,499,319
Operating loss.............................  $(1,983,503)  $(1,160,905)  $(4,746,818)  $(1,703,206)
Net loss...................................  $(1,884,309)  $(1,620,835)  $(4,746,375)  $(3,199,879)
Net loss attributable to common
  stockholders.............................  $(4,834,253)  $(1,620,835)  $(7,852,263)  $(3,199,879)
Net loss per share, basic and diluted......       $(0.39)       $(0.18)       $(0.68)       $(0.35)
</TABLE>

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

                                       7
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

   NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

warrant is exercisable upon the occurrence of certain defined events. The
purchase price of the asset purchase has been allocated as follows:

<TABLE>
<S>                                                           <C>
Inventory...................................................  $1,206,000
Property and equipment......................................   1,091,643
Intangibles.................................................   3,281,423
</TABLE>

    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.

PREFERRED STOCK CONVERSION

    On March 7, 2000, the preferred stockholders elected to convert all 8,000
shares of the redeemable preferred stock into 1,025,641 shares of the Company's
Common Stock, which resulted in the accretion of an additional $2,789,031 of the
discount on redeemable preferred stock during the three months ended March 31,
2000.

NOTE D.  LOSS PER SHARE

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

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED           SIX MONTHS ENDED
                                                    MARCH 31,                   MARCH 31,
                                            -------------------------   -------------------------
                                               2000          1999          2000          1999
                                            -----------   -----------   -----------   -----------
<S>                                         <C>           <C>           <C>           <C>
Net loss attributable to common
  stockholders............................  $(4,834,253)  $(1,291,071)  $(7,533,379)  $(2,629,671)
BASIC:
Common shares outstanding, beginning of
  period..................................   11,309,210     8,978,249     9,529,649     8,990,249
Weighted average common shares issued
  during the period.......................    1,089,287        83,333     2,066,114        41,667
Weighted average shares repurchased during
  the period..............................           --        (2,500)           --       (12,250)
                                            -----------   -----------   -----------   -----------
Weighted average shares
  outstanding--basic......................   12,398,497     9,059,082    11,595,763     9,019,666
                                            ===========   ===========   ===========   ===========
Net loss per weighted average share,
  basic...................................       $(0.39)       $(0.14)       $(0.65)       $(0.29)
                                            ===========   ===========   ===========   ===========
DILUTED:
Weighted average shares
  outstanding--basic......................   12,398,497     9,059,082    11,595,763     9,019,666
Weighted average common stock
  equivalents (a).........................           --            --            --            --
                                            -----------   -----------   -----------   -----------
Weighted average shares
  outstanding--diluted....................   12,398,497     9,059,082    11,595,763     9,019,666
                                            ===========   ===========   ===========   ===========
Net loss per weighted average share,
  diluted.................................       $(0.39)       $(0.14)       $(0.65)       $(0.29)
                                            ===========   ===========   ===========   ===========
</TABLE>

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

(a) As of March 31, 2000 and 1999, 2,646,624 and 1,374,616 common stock
    equivalents, respectively, were excluded from the weighted average common
    shares outstanding as their effect would be antidilutive.

                                       8
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

   NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

NOTE E.  INVENTORY

    Inventory consists of the following:

<TABLE>
<CAPTION>
                                                              MARCH 31,    SEPTEMBER 30,
                                                                 2000          1999
                                                              ----------   -------------
<S>                                                           <C>          <C>
Raw material................................................  $3,133,147    $1,139,064
Work-in-process.............................................   2,796,395     2,199,199
Finished goods..............................................   1,683,714       359,709
                                                              ----------    ----------
                                                              $7,613,256    $3,697,972
                                                              ==========    ==========
</TABLE>

NOTE F.  COMPREHENSIVE LOSS

    The Company's total comprehensive loss is as follows:

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED           SIX MONTHS ENDED
                                                     MARCH 31,                   MARCH 31,
                                             -------------------------   -------------------------
                                                2000          1999          2000          1999
                                             -----------   -----------   -----------   -----------
<S>                                          <C>           <C>           <C>           <C>
Net loss...................................  $(1,884,309)  $(1,291,071)  $(4,427,491)  $(2,629,671)
                                             ===========   ===========   ===========   ===========

Other comprehensive income/(loss), net of
  tax:
Unrealized gains/(losses) on securities....           --           961            --        (4,705)
Foreign currency translation adjustment....       (6,862)           --       (19,334)           --
                                             -----------   -----------   -----------   -----------
Other comprehensive income/(loss)..........       (6,862)          961       (19,334)       (4,705)
                                             -----------   -----------   -----------   -----------
Comprehensive loss.........................  $(1,891,171)  $(1,290,110)  $(4,446,825)  $(2,634,376)
                                             ===========   ===========   ===========   ===========
</TABLE>

NOTE G.  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.

    The Company provides research and development services in collaboration with
third-parties. Film Microelectronics, Inc designs and manufactures power
electronics products. The MagMotor Division and Ling Electronics specializes in
the engineering and manufacturing of motion control products.

    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.

                                       9
<PAGE>
                         SATCON TECHNOLOGY CORPORATION

   NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED          SIX MONTHS ENDED
                                                      MARCH 31,                  MARCH 31,
                                               ------------------------   ------------------------
                                                  2000          1999         2000          1999
                                               -----------   ----------   -----------   ----------
<S>                                            <C>           <C>          <C>           <C>
Research and development:
  Product revenue............................  $    62,486   $       --   $    62,486   $       --
  Funded research and development revenue....    1,895,857    1,889,994     3,290,759    3,620,566
                                               -----------   ----------   -----------   ----------
    Total revenue............................  $ 1,958,343   $1,889,994   $ 3,353,245   $3,620,566
                                               -----------   ----------   -----------   ----------
  Loss/(income) from operations, net of
    goodwill amortization....................  $  (414,428)  $   28,652   $(1,546,898)  $ (203,855)
                                               ===========   ==========   ===========   ==========

Power electronic products:
  Product revenue............................  $ 1,701,393   $1,270,434   $ 3,509,401   $2,488,816
                                               -----------   ----------   -----------   ----------
  Loss from operations, net of goodwill
    amortization.............................  $(1,005,793)  $ (561,375)  $(1,383,576)  $ (673,770)
                                               ===========   ==========   ===========   ==========

Motion control products:
  Product revenue............................  $ 3,884,691   $  501,792   $ 5,238,188   $1,277,937
                                               -----------   ----------   -----------   ----------
  Loss from operations, net of goodwill
    amortization.............................  $  (234,327)  $ (214,383)  $  (924,576)  $  (86,580)
                                               ===========   ==========   ===========   ==========
</TABLE>

    The following is a summary of the Company's long-lived assets by operating
segment:

<TABLE>
<CAPTION>
                                                      MARCH 31,    SEPTEMBER 30,
                                                         2000          1999
                                                      ----------   -------------
<S>                                                   <C>          <C>
Research and development:
  Long-lived assets.................................  $6,164,623    $1,717,228
                                                      ----------    ----------
Power electronic products:
  Long-lived assets.................................  $3,738,747    $3,978,027
                                                      ----------    ----------
Motion control products:
  Long-lived assets.................................  $4,634,721    $  863,661
                                                      ----------    ----------
</TABLE>

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

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED          SIX MONTHS ENDED
                                                      MARCH 31,                 MARCH 31,
                                               -----------------------   ------------------------
                                                  2000         1999         2000          1999
                                               ----------   ----------   -----------   ----------
<S>                                            <C>          <C>          <C>           <C>
Revenue by geographic region:
  United States..............................  $6,887,982   $3,662,220   $11,147,625   $7,387,319
  Europe.....................................     217,735           --       379,400           --
  Asia.......................................     395,324           --       426,241           --
  Rest of world..............................      43,386           --       147,568           --
                                               ----------   ----------   -----------   ----------
    Total revenue............................  $7,544,427   $3,662,220   $12,100,834   $7,387,319
                                               ==========   ==========   ===========   ==========
</TABLE>

                                       10
<PAGE>
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. The
factors include, without limitation, those set forth under the caption "Risk
Factors" of the Company's Registration on Form S-3, as amended (File
No. 333-94859), filed with the Securities and Exchange Commission on
February 8, 2000, which are expressly incorporated by reference herein.

OVERVIEW

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

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

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

    - Film Microelectronics, Inc.--a manufacturer of hybrid microelectronics,
      acquired in April 1997.

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

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

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

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

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

    On May 20, 1997, the Company formed Beacon Power Corporation ("Beacon"). On
October 23, 1998, Beacon completed a $4.8 million private placement of its
class D preferred stock and warrants to third-party investors, and the Company
relinquished significant control of Beacon. From June 1999 through March 31,
2000, Beacon was financed through the issuance of approximately $4.7 million of
bridge notes and warrants to its investors, including $1.0 million from the
Company. On April 7, 2000, Beacon issued 1,226,141 shares of its class E
preferred stock and 306,535 class E warrants in exchange for the conversion of
all of its outstanding bridge notes of which the Company received 347,407 shares
of Beacon's class E preferred stock and 86,852 class E warrants. On April 21,
2000, Beacon raised an additional

                                       11
<PAGE>
$4.1 million through the sale of additional bridge notes that are convertible
into Beacon's class F preferred stock. The Company did not participate in this
financing.

    The results of the Company's operations include 100% of the results of
Beacon from May 28, 1997 to October 23, 1998. As a result of the additional
investment in Beacon by outside third parties on October 23, 1998, the Company
began accounting for its investment in Beacon using the equity method. From the
period from October 23, 1998 to March 31, 1999, the Company included 50% of
Beacon's operating losses in its results. In June 1999, Beacon received $3.0
million of additional financing, including $1.0 million from the Company. As a
result of this additional financing, the Company has included 33% of Beacon's
operating losses in its results from June 1999 through December 31, 1999. As of
December 31, 1999, the book value of the Company's investment in Beacon had been
reduced to zero, and its share of Beacon's losses have exceeded its investment
as of that date. As of March 31, 2000, the Company has no obligations to provide
any additional funding to Beacon.

    The Company performs funded research and development in collaboration with
third parties under both cost reimbursement and fixed-price contracts. Cost
reimbursement contracts provide for the reimbursement of allowable costs, an in
some situations, the payment of a fee. These contracts may contain incentive
clauses providing for increases or decreases in fees depending on how costs
compare with a budget. On fixed-price contracts, revenue is 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. Revenue from manufactured products is
recognized upon shipment, or, if the product requires installation, the revenue
is recognized upon installation of the product.

    The Company has incurred significant costs to develop its technology and
products. These cost have exceeded total revenue. As a result, the Company has
incurred net losses in each of the past five fiscal years and for the six months
ended March 31, 2000. As of March 31, 2000, the Company had an accumulated
deficit of $29.7 million. The Company intends to significantly increase its
capital expenditures and operating expenses to rapidly expand its manufacturing
capabilities and for general corporate purposes, including product development
activities, sales and marketing and administrative activities. Because the
Company expects to continue to invest in its business ahead of anticipated
future revenues, the Company expects to incur operating losses for at least the
next two years.

RESULTS OF OPERATIONS

    COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999

    PRODUCT REVENUE.  Product revenue increased by $3.9 million or 219% from
$1.8 million to $5.6 million. This increase was attributable to $2.7 million in
revenue from Ling Electronics and a $1.1 million increase in revenue from the
Company's microelectronics products, high performance motors and magnetic
levitation products.

    FUNDED RESEARCH AND DEVELOPMENT REVENUE.  Funded research and development
revenue was substantially unchanged at $1.9 million for each period. During the
three months ended March 31, 2000 the Company devoted more resources to
internally funded research and development programs including development of
power conversion products for the distributed power generation market.

    GROSS MARGIN.  Gross margin increased by $911,000 or 52% from $1.7 million
to $2.7 million. Gross margin from products increased by $906,000 and gross
margin from product revenue as a percentage of product revenue increased to 14%
from (8%). The improvement in gross margin from product revenue as a percentage
of revenue is due to improved plant utilization at MagMotor due to higher
revenue and gross margin from Ling Electronics.

                                       12
<PAGE>
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased by $1.4 million or 135% from $1.0 million to
$2.4 million. The increase was primarily due to the inclusion of $725,000 of
costs from Ling Electronics, $300,000 of costs for facilities and staffing in an
effort to meet expected growth and demand for our products and in 1999, the
deferral of $400,000 of costs associated with a research and development
contract.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased by $427,000 or 29% from $1.5 million to $1.9 million. The increase was
attributable to the Company's increased focus on internally funded research and
development projects including the development of power conversion products for
the distributed power generation market.

    AMORTIZATION OF INTANGIBLES.  Amortization of intangibles increased by
$235,000 or 250% from $94,000 to $329,000. This increase was the result of
amortization of intangibles recorded in connection with the acquisitions of
Inductive and Lighthouse in January 1999, Ling Electronics in October 1999 and
certain intellectual property and other intangible assets from Northrop Grumman
Corporation in November 1999.

    LOSS FROM INVESTMENT IN BEACON POWER CORPORATION.  For the three months
ended March 31, 2000 the Company did not record a loss from its investment in
Beacon Power Corporation. For the three months ended March 31, 1999, the Company
recorded a loss of $424,000. As of December 31, 1999, the Company's investment
in Beacon had been reduced to zero and no additional losses were recorded during
the period from January 1, 2000 through March 31, 2000.

    OTHER INCOME (EXPENSE), NET.  Other income, net increased to $99,000 from
$26,000 of other expense, net. The increase was the result of an increase in
cash and cash equivalents being maintained in interest bearing accounts, offset
by interest expense associated with capital leases entered into during fiscal
year 1999.

    COMPARISON OF SIX MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999

    PRODUCT REVENUE.  Product revenue increased by $5.0 million or 134% from
$3.8 million to $8.8 million. This increase was attributable to $3.5 million in
revenue from Ling Electronics and a $1.5 million increase in revenue from the
Company's microelectronics products, high performance motors and magnetic
levitation products.

    FUNDED RESEARCH AND DEVELOPMENT REVENUE.  Funded research and development
revenue decreased by $330,000 or 9% from $3.6 million to $3.3 million. During
the six months ended March 31, 2000 the Company devoted more resources to
internally funded research and development programs including the development of
power conversion products for the distributed power generation market.

    GROSS MARGIN.  Gross margin increased by $265,000 or 7% from $3.9 million to
$4.2 million. Gross margin from products increased by $595,000 and gross margin
from product revenue as a percentage of product revenue increased to 10% from
9%. The improvement in gross margin from product revenue as a percentage of
product revenue is due to gross margin from Ling Electronics, offset by a
decrease in gross margin from the Company's microelectronics products, high
performance motors and magnetic levitation products.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased $2.4 million or 121% from $2.0 million to
$4.5 million. The increase was primarily due to $1.2 million of costs from Ling
Electronics, $600,000 of costs for facilities and staffing in an effort to meet
expected growth and demand for our products and in 1999, the deferral of
$700,000 of costs associated with a research and development contract.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased by $722,000 or 25% from $2.9 million to $3.6 million. The increase was
attributable to the Company's increased focus on

                                       13
<PAGE>
internally funded research projects including the development of power
conversion products for the distributed power generation market.

    AMORTIZATION OF INTANGIBLES.  Amortization of intangibles increased $400,000
or 233% from $172,000 to $572,000. This increase was the result of amortization
of intangibles recorded in connection with the acquisitions of Inductive and
Lighthouse in January 1999, Ling Electronics in October 1999 and certain
intellectual property and other intangible assets from Northrop Grumman
Corporation in November 1999.

    LOSS FROM INVESTMENT IN BEACON POWER CORPORATION.  Loss from investment in
Beacon decreased $1.4 million or 91% from $1.5 million to $131,000. As of
December 31, 1999, the Company's investment in Beacon had been reduced to zero
and no additional losses were recorded during the period from January 1, 2000 to
March 31, 2000.

    OTHER INCOME (EXPENSE), NET.  Other income, net increased to $130,000 from
$5,000 of other expense, net. The increase was the result of an increase in cash
and cash equivalents being maintained in interest bearing accounts, offset by
interest expense associated with capital leases entered into during fiscal year
1999.

LIQUIDITY AND CAPITAL RESOURCES

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

    As of March 31, 2000, the Company's cash and cash equivalents were
$9.7 million, an increase of $7.2 million from September 30, 1999. Cash used in
operating activities for the six months ended March 31, 2000 was $4.8 million as
compared to $2.1 million in 1999. Cash used in operating activities during the
six months ended March 31, 2000 was primarily attributable to the Company's net
loss and an increase in accounts receivable partially offset by depreciation and
amortization.

    Cash used in investing activities during the six months ended March 31, 2000
was $1.1 million as compared to $250,000 in 1999. Net cash used in investing
activities during the six months ended March 31, 2000 included capital
expenditures of $368,000, an investment in Beacon of $333,000 and a loan to
Beacon for $300,000, which was repaid on April 27, 2000. The Company estimates
that it will spend an additional $2.0 million on capital expenditures during the
next 12 months primarily at its Advanced Fuel Cell Division to expand its
capacity to manufacture its power conversion products. The Company expects these
additions will be financed from cash on hand and from lease financing.

    Cash provided by financing activities for the six months ended March 31,
2000 was $13.2 million as compared to $1.3 million in 1999. Net cash provided by
financing activities during the six months ended March 31, 2000 includes net
proceeds of $7.0 million from the sale of the Company's Common Stock and
$6.2 million from the exercise of Common Stock options and warrants.

    The Company has 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%
(10.5% as of March 31, 2000). At March 31, 2000, the Company had $2.7 million
available under the line of credit. During 2000, there have been no amount
borrowed under the line of credit

    The Company anticipates that the existing $9.7 million in cash and cash
equivalents will be sufficient to fund operations for at least the next twelve
months.

EFFECTS OF INFLATION

    The Company believes that inflation and changing prices over the past three
years have not had a significant impact on its net revenue or on its income from
continuing operations.

                                       14
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 (SFAS No. 137), "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which defers the effective date of Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities" to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure these instruments at fair value. We will adopt
SFAS No. 133 beginning in the first quarter of the fiscal year ending
September 30, 2001. The Company does not expect that the adoption of SFAS
No. 133 will have a material impact on its financial condition or results of
operations.

    In December 1999, the Securities and Exchange Commission issued Staff
Bulletin No. 101 (SAB No. 101), "Revenue Recognition." This bulletin, as
amended, establishes guidelines for revenue recognition and is effective for all
periods beginning after March 15, 2000. The Company does not expect that the
adoption of the guidance required by SAB No. 101 will have a material impact on
its financial condition or results of operations.

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

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company develops products in the United States and sells them worldwide.
As a result, the Company's financial results could be affected by factors such
as changes in foreign exchange rates or weak economic conditions in foreign
markets. Since the Company's sales are currently priced in U.S. dollars and are
translated to local currency amounts, a strengthening of the dollar could make
the Company's products less competitive in foreign markets. Interest income and
expense are sensitive to changes in the general level of U.S. interest rates,
particularly since the Company's investments are in short-term instruments and
the Company's available line of credit requires interest payments calculated at
variable rates. Based on the nature and current levels of the Company's
investments and debt, however, the Company has concluded that there is no
material market risk exposure.

                                       15
<PAGE>
                          PART II:  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS:

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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS:

RECENT SALES OF UNREGISTERED SECURITIES

    On October 21, 1999, in connection with an investment, the Company issued
370,800 shares of its Common Stock to Mechanical Technology Incorporated. In
addition, the Company issued to Mechanical Technology Incorporated a warrant to
purchase 36,000 shares of its Common Stock at an exercise price of $8.80 per
share. This warrant expires on October 21, 2003. On January 31, 2000, in
connection with a second closing of this investment, the Company issued 659,200
shares of its Common Stock and a warrant to purchase 64,000 shares of its Common
Stock at an exercise price of $8.80 per share. This warrant expires on
January 31, 2004. Both the Common Stock and the warrants were issued in reliance
upon the exemptions from registration under Section 4(2) of the Securities Act
of 1933, as amended, or Regulation D promulgated thereunder, relative to sales
by an issuer not involving any public offering.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES:

    Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

    At the Company's Annual Meeting of Stockholders (the "Annual Meeting") held
on March 15, 2000, the Company's stockholders approved the following:

<TABLE>
<CAPTION>
                                                               AGAINST/                 BROKER
PROPOSAL                                             FOR       WITHHELD    ABSTAIN    NON-VOTES
- --------                                          ----------   ---------   --------   ----------
<S>                                               <C>          <C>         <C>        <C>
(1) To elect the following Class III Directors:
   Marshall J. Armstrong........................  10,210,787          0    310,190            0
   Thomas A. Hurkmans...........................  10,210,687          0    310,290            0
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                               AGAINST/                 BROKER
PROPOSAL                                             FOR       WITHHELD    ABSTAIN    NON-VOTES
- --------                                          ----------   ---------   --------   ----------
<S>                                               <C>          <C>         <C>        <C>
</TABLE>

    The other directors of the Company, whose terms of office as directors
continued after the Annual Meeting are David B. Eisenhaure, James L. Kirtley,
Jr., Ph.D, Michael C. Turmelle and Alan P. Goldberg.

<TABLE>
<S>                                               <C>          <C>         <C>        <C>
(2) To approve an amendment to the Company's
    Certificate of Incorporation increasing from
    20,000,000 to 25,000,000 the number of
    authorized shares of Common Stock...........  10,211,184    299,443     10,350        2,500
(3) To approve the Company's 1999 Stock
    Incentive Plan..............................   6,803,079    511,356     18,140    3,190,902
(4) To ratify the selection of Arthur Andersen
    LLP as independent auditors for the fiscal
    year ending September 30, 2000..............  10,416,874     94,255      9,848        2,500
</TABLE>

ITEM 5.  OTHER INFORMATION:

    Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K:

(A)  EXHIBITS

<TABLE>
<S>          <C>
10.1         Change of Control Letter Agreement, dated March 22, 2000,
             between the Registrant and Sean F. Moran.
10.2         Demand Promissory Note, dated February 25, 2000, made in
             favor of the Registrant by Beacon Power Corporation in the
             amount of $300,000, together with First Amendment to Demand
             Promissory Note, dated March 16, 2000.

27           Financial Data Schedule.

99           Risk Factors are incorporated herein by reference to Exhibit
             99 to the Registrant's Quarterly Report on Form 10-Q for the
             period ended December 31, 1999.
</TABLE>

(B)  REPORTS ON FORM 8-K

    On January 4, 2000, the Company filed a Current Report on Form 8-K/A, dated
October 21, 1999, in connection with the Company's acquisition of Ling
Electronics, Inc. and Ling Electronics, Ltd. from Mechanical Technology
Incorporated.

                                       17
<PAGE>
                                   SIGNATURE

    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 THEREUNTO DULY AUTHORIZED.

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

                                                       By:                /s/ SEAN MORAN
                                                            -----------------------------------------
                                                               SEAN MORAN, CHIEF FINANCIAL OFFICER
                                                               (PRINCIPAL FINANCIAL AND ACCOUNTING
Date: May 15, 2000                                                           OFFICER)
</TABLE>

                                       18
<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER       EXHIBIT
- -------      ------------------------------------------------------------
<S>          <C>
10.1         Change of Control Letter Agreement, dated March 22, 2000,
             between the Registrant and Sean F. Moran.
10.2         Demand Promissory Note, dated February 25, 2000, made in
             favor of the Registrant by Beacon Power Corporation in the
             amount of $300,000, together with First Amendment to Demand
             Promissory Note, dated March 16, 2000.

27           Financial Data Schedule.

99           Risk Factors are incorporated herein by reference to Exhibit
             99 to the Registrant's Quarterly Report on Form 10-Q for the
             period ended December 31, 1999.
</TABLE>

                                       19

<PAGE>

                                                                   EXHIBIT 10.1

                        [SATCON LETTERHEAD APPEARS HERE]

March 22, 2000


Mr. Sean Moran
3 Creek Drive
Norfolk, MA  01801


Dear Sean:

         Please be advised that if within one year of the occurrence of a Change
in Control Event your employment with SatCon Technology Corporation (the
"Company") is terminated by the Company and there occurs an Involuntary
Termination of your employment, the Company shall continue to pay your salary as
in effect on the date of termination until the date one year after the date of
termination ("Continuation Payments"); PROVIDED, HOWEVER, as a condition to your
receipt of any Continuation Payments you execute and deliver a general release
to the Company in a form reasonably acceptable to the Company within 60 days of
your termination.

         For purposes of this letter, Change in Control Event and Involuntary
Termination shall be defined as follows:

         (a) A "Change in Control Event" shall mean:

              (i) the acquisition by an individual, entity or group (within the
                  meaning of Section 13(d)(3) or 14(d)(2) of the Securities
                  Exchange Act of 1934, as amended (the "Exchange Act")) (a
                  "Person") of beneficial ownership of any capital stock of the
                  Company if, after such acquisition, such Person beneficially
                  owns (within the meaning of Rule 13d-3 promulgated under the
                  Exchange Act) 50% or more of either (x) the then-outstanding
                  shares of common stock of the Company (the "Outstanding
                  Company Common Stock") or (y) the combined voting power of the
                  then-outstanding securities of the Company entitled to vote
                  generally in the election of directors (the "Outstanding
                  Company Voting Securities"); PROVIDED, HOWEVER, that for
                  purposes of this subsection (i), the following acquisitions
                  shall not constitute a Change in Control Event: (A) any
                  acquisition directly from the Company (excluding an
                  acquisition pursuant to the exercise, conversion or exchange
                  of any security exercisable for, convertible into or
                  exchangeable for common stock or voting securities of the
                  Company, unless the Person exercising, converting or
                  exchanging such security acquired such security directly from
                  the Company or an underwriter or agent of the Company), (B)
                  any acquisition by any employee benefit plan (or related
                  trust) sponsored or maintained by the Company or any
                  corporation controlled by the Company, or (C) any acquisition
                  by any corporation pursuant to a Business Combination (as


<PAGE>


                  defined below) which complies with clauses (x) and (y) of
                  subsection (iii) of this definition; or

              (ii)such time as the Continuing Directors (as defined below) do
                  not constitute a majority of the Board (or, if applicable, the
                  Board of Directors of a successor corporation to the Company),
                  where the term "Continuing Director" means at any date a
                  member of the Board (x) who was a member of the Board on the
                  date of this letter or (y) who was nominated or elected
                  subsequent to such date by at least a majority of the
                  directors who were Continuing Directors at the time of such
                  nomination or election or whose election to the Board was
                  recommended or endorsed by at least a majority of the
                  directors who were Continuing Directors at the time of such
                  nomination or election; PROVIDED, HOWEVER, that there shall be
                  excluded from this clause (y) any individual whose initial
                  assumption of office occurred as a result of an actual or
                  threatened election contest with respect to the election or
                  removal of directors or other actual or threatened
                  solicitation of proxies or consents, by or on behalf of a
                  person other than the Board; or

             (iii)the consummation of a merger, consolidation, reorganization,
                  recapitalization or statutory share exchange involving the
                  Company or a sale or other disposition of all or substantially
                  all of the assets of the Company (a "Business Combination"),
                  unless, immediately following such Business Combination, each
                  of the following two conditions is satisfied: (x) all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the Outstanding Company Common Stock and
                  Outstanding Company Voting Securities immediately prior to
                  such Business Combination beneficially own, directly or
                  indirectly, more than 50% of the then-outstanding shares of
                  common stock and the combined voting power of the
                  then-outstanding securities entitled to vote generally in the
                  election of directors, respectively, of the resulting or
                  acquiring corporation in such Business Combination (which
                  shall include, without limitation, a corporation which as a
                  result of such transaction owns the Company or substantially
                  all of the Company's assets either directly or through one or
                  more subsidiaries) (such resulting or acquiring corporation is
                  referred to herein as the "Acquiring Corporation") in
                  substantially the same proportions as their ownership of the
                  Outstanding Company Common Stock and Outstanding Company
                  Voting Securities, respectively, immediately prior to such
                  Business Combination and (y) no Person (excluding the
                  Acquiring Corporation or any employee benefit plan (or related
                  trust) maintained or sponsored by the Company or by the
                  Acquiring Corporation) beneficially owns, directly or
                  indirectly, 50% or more of the then-outstanding shares of
                  common stock of the Acquiring Corporation, or of the combined
                  voting power of the then-outstanding securities of such
                  corporation entitled to vote generally in the election of


<PAGE>


              directors (except to the extent that such ownership existed
              prior to the Business Combination).

         (b)  "Involuntary Termination" shall include (i) a material adverse
              change in the authority, duties or compensation of Sean Moran
              without your prior consent or (ii) the relocation of your place of
              work more than 100 miles from the Company's executive offices at
              the time of the Change of Control Event.

         If this is in accordance with your understanding, please indicate your
agreement by signing below. This letter shall be void if it is not countersigned
by you and returned to the Company within 10 days of the date of this letter.


                                                     Sincerely,


                                                     /s/ MICHAEL C. TURMELLE
                                                     --------------------------
                                                     Michael Turmelle
                                                     Chief Operating Officer


/s/ SEAN MORAN
- --------------------
Sean Moran



3/22/2000
- --------------------
Date


<PAGE>

                                                                   EXHIBIT 10.2
                             DEMAND PROMISSORY NOTE

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR
COMPLIANCE IS NOT REQUIRED.

$300,000.00                                       February 25, 2000

                                                             WOBURN, MA

     FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the
"Company"), promises to pay to the order of SatCon Technology Corporation, or
its registered assigns (the "Holder"), the principal sum of Three Hundred
Thousand Dollars ($300,000.00) together with interest thereon from the date
hereof until paid in full at the rate of 6% per annum.

     All unpaid principal, together with any accrued but unpaid interest and
other amounts payable hereunder, shall be due and payable on the earlier of (i)
the Conversion (as described in Section 2, below), or (ii) upon demand given by
Holder on or after the first Business Day which is at least thirty (30) days
after the date hereof. "Business Day" means any day other than a Saturday,
Sunday or other day on which the national or state banks located in the
Commonwealth of Massachusetts are authorized to be closed. The following is a
statement of the rights of the Holder and the conditions to which this Note is
subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

     1.   PREPAYMENT. This Note may be prepaid as a whole or in part at any time
without penalty or premium. Any such prepayment shall be applied first to the
payment of interest accrued on this Note and second to the payment of the
outstanding principal of this Note.

     2.   CONVERSION. If the Holder purchases Class E Preferred Stock of the
Company within thirty (30) days after the date hereof for cash or other
consideration (the "Funding"), the Holder will also apply the outstanding
principal and accrued interest under this Note to the simultaneous purchase of
additional Class E Preferred Stock, on substantially the same terms as in such
purchase for cash or other consideration.

     3.   SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
described in Sections 5 and 6 hereof, the rights and obligations of the Company
and the Holder of this Note shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties.

     4.   WAIVER AND AMENDMENT. Any provision of this Note may be amended,
waived or modified only as to the Holder of this Note upon the written consent
of the Company and the Holder.

     5.   TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF.
This Note may not be transferred in violation of any restrictive legend set
forth hereon. Each new Note issued upon transfer of this Note shall bear a
legend as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Subject to the foregoing, transfers
of this Note shall be registered upon registration books maintained for such
purpose by or on behalf of the


<PAGE>


Company. Prior to presentation of this Note for registration of transfer, the
Company shall treat the registered holder hereof as the owner and holder of this
Note for the purpose of receiving all payments of principal and interest hereon
and for all other purposes whatsoever, whether or not this Note shall be overdue
and the Company shall not be affected by notice to the contrary.

     6.   ASSIGNMENT BY THE COMPANY. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, as a whole or in part, by the Company, without the prior written
consent of the Holder.

     7.   TREATMENT OF NOTE. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

     8.   NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier, personal delivery or facsimile
transmission to, in the case of the Company, its main business address, or, in
the case of the Holder, to its address on the register maintained by the
Company. Any party hereto may by notice so given change its address or facsimile
number for future notice hereunder. Notice shall conclusively be deemed to have
been given when received.

     9.   EXPENSES; WAIVERS. If action is instituted to collect this Note, the
Company promises to pay all costs and expenses, including, without limitation,
reasonable attorneys' fees and costs, incurred in connection with such action.
The Company hereby waives notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor and all other notices or demands
relative to this instrument.

     10.  GOVERNING LAW. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without regard to conflict of
laws provisions of the Commonwealth of Massachusetts or of any other state. In
the event of any dispute among or between any of the parties to this Note
arising out of the terms of this Note, the parties hereby consent to the
exclusive jurisdiction of the federal and state courts located in the
Commonwealth of Massachusetts for resolution of such dispute, and agree not to
contest such exclusive jurisdiction or seek to transfer any action relating to
such dispute to any other jurisdiction.

     IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first written above.

                                               BEACON POWER CORPORATION

                                               By:/s/ WILLIAM E. STANTON

                                               Name:  WILLIAM STANTON

                                               Title: PRESIDENT & CEO


<PAGE>


                    FIRST AMENDMENT TO DEMAND PROMISSORY NOTE

     This First Amendment is entered into this March 16, 2000 by and between
Beacon Power Corporation, a Delaware corporation (the "COMPANY"), and SatCon
Technology Corporation, or its registered assigns (the "HOLDER").

     WHEREAS, the Company issued the Holder a certain Demand Promissory Note
dated February 25, 2000 (the "Note") made by the Company payable to the order of
the Holder in the original principal amount of $300,000; and

     WHEREAS, the Company and the Holder are desirous of amending the Note in
the manner set forth below;

     NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Holder agree
as follows:

     1.   The Note is hereby amended, by deleting the second introductory
paragraph (beginning "All unpaid principal...") thereof in its entirety and
replacing it with the following:

     All unpaid principal, together with any accrued but unpaid interest and
     other amounts payable hereunder, shall be due and payable on the earlier of
     (i) the Funding (as described in Section 2, below), or (ii) April 18, 2000.
     The following is a statement of the rights of the Holder and the conditions
     to which this Note is subject, and to which the Holder hereof, by the
     acceptance of this Note, agrees:

     2.   The Note is hereby further amended, by deleting the second paragraph
(beginning "If the Holder...") thereof in its entirety and replacing it with the
following:.

       2.   CONVERSION. If the Holder purchases Class F Preferred Stock of the
       Company at any time within thirty (30) days after the date hereof for
       cash or other consideration (the "Funding"), the Holder will also apply
       the outstanding principal and accrued interest under this Note to the
       simultaneous purchase of such Class F Preferred Stock, on substantially
       the same terms as in such purchase for cash or other consideration.

       3.   Except as specifically provided herein, all terms and conditions of
the Note shall remain in full force and effect and are hereby ratified and
confirmed. This First Amendment constitutes an amendment to and modification
of the Note and not a refinancing thereof. On and after the date hereof, each
reference in the Note to "this Note", "hereunder", "hereof" or words of like
import referring to the Note, shall mean and be a reference to the Note as
amended by this First Amendment.

     This First Amendment shall take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts as of the date first written above.

                                             BEACON POWER CORPORATION

                                             By: /s/ WILLIAM E. STANTON
                                             ------------------------------
                                             Title: PRES + CEO

                                             SATCON TECHNOLOGY CORPORATION

                                             By: /s/ DAVID B. EISENHAURE
                                             ------------------------------
                                             Title: PRESIDENT



<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          SEP-30-2000
<PERIOD-END>                               MAR-31-2000
<CASH>                                       9,746,244
<SECURITIES>                                         0
<RECEIVABLES>                                6,623,053
<ALLOWANCES>                                 (441,208)
<INVENTORY>                                  7,613,256
<CURRENT-ASSETS>                            26,073,905
<PP&E>                                       4,585,628<F1>
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                              40,611,996
<CURRENT-LIABILITIES>                        4,047,720
<BONDS>                                              0
                                0
                                          0
<COMMON>                                       136,654
<OTHER-SE>                                  36,372,285
<TOTAL-LIABILITY-AND-EQUITY>                40,611,996
<SALES>                                              0
<TOTAL-REVENUES>                            12,100,834
<CGS>                                                0
<TOTAL-COSTS>                                7,887,163
<OTHER-EXPENSES>                             8,640,284
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                            (4,427,491)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (4,427,491)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (4,427,491)
<EPS-BASIC>                                     (0.65)<F2>
<EPS-DILUTED>                                   (0.65)<F2>
<FN>
<F1>PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION AS REPORTED WITHIN THE
QUARTERLY REPORT ON FORM 10-Q ON THE BALANCE SHEET
<F2>IN ACCORDANCE WITH SFAS NO. 128 "EARNINGS PER SHARE - BASIC" IS REPORTED
AS THE VALUE OF (EPS-PRIMARY) TAB AND "EARNINGS PER SHARE - DILUTED" IS
REPORTED AS THE VALUE FOR (EPS-DILUTED) TAG
</FN>


</TABLE>


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