EXHIBIT 99





                                  RISK FACTORS


WE EXPECT TO GENERATE A SIGNIFICANT PORTION OF OUR FUTURE REVENUES FROM SALES OF
OUR PRODUCTS TO THE DISTRIBUTED POWER AND POWER QUALITY MARKETS, AND NO
ASSURANCE CAN BE GIVEN THAT WE WILL REALIZE ANY OF THESE REVENUES.

On-site distributed power and power quality solutions, such as fuel cells and
microturbines, which utilize our products are relatively new methods of
producing electricity and have not historically accounted for much revenue in
the electricity generation market. We have no experience manufacturing large
volumes of our products for mass marketed fuel cell and microturbine systems,
and, as a result, we currently generate only limited revenues from these
products. Additionally, the existing market for these alternative distributed
power products is limited, and there can be no assurance that this market will
develop or that our products will be demanded in sufficient quantities to
generate our expected revenues. If any of the foregoing were to occur, we would
not achieve our anticipated levels of profitability and growth, and we may have
to refocus our business on other new or existing product lines.

WE CANNOT ASSURE MARKET ACCEPTANCE OR COMMERCIAL VIABILITY OF OUR DISTRIBUTED
POWER AND POWER QUALITY PRODUCTS.

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


                                       1




WE HAVE NO EXPERIENCE MANUFACTURING PRODUCTS FOR DISTRIBUTED POWER AND POWER
QUALITY SYSTEMS ON A COMMERCIAL BASIS.

     To date, we have focused primarily on research and development and have no
     experience manufacturing products for distributed power and power quality
     systems on a large scale commercial basis. We have acquired manufacturing
     capabilities and are also continuing to develop our manufacturing
     capabilities and processes. We do not know whether or when we will be able
     to fully develop efficient, low-cost manufacturing capability and processes
     that will enable us to meet the quality, price, engineering, design and
     production standards or production volumes required to successfully mass
     market our distributed power and power quality products. Even if we are
     successful in developing our manufacturing capability and processes, we do
     not know whether we will do so in time to meet our product
     commercialization schedule or to satisfy the requirements of our customers.

WE HAVE RECENT AND ANTICIPATED OPERATING LOSSES.

     We have recorded net losses for the fiscal years ended September 30, 1995,
1996, 1997, 1998, 1999, 2000, 2001 and for the six months ended March 30, 2002.
In order to achieve profitability, we must achieve all or some combination of
the following:

o    successfully compete in the market for distributed power and power quality
     products,

o    develop new products for our existing markets,

o    sell these products to existing and new customers,


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o    increase gross margins through higher volumes and manufacturing
     efficiencies,

o    control our operating expenses, and

o    develop and manage our distribution capability.

     If our revenue does not increase significantly or the increase in our
expenses is greater than expected, we may not achieve or sustain profitability
or generate positive cash flow in the future. We cannot assure you that we will
accomplish these objectives or be profitable in the future. We expect to
continue to incur operating losses at least through fiscal year 2002, and we may
never become profitable.

WE MAY NOT BE ABLE TO DEVELOP OR SELL OUR DISTRIBUTED POWER, POWER QUALITY AND
OTHER PRODUCTS UNDER DEVELOPMENT.

We have a number of potential products under development including our
residential fuel cell power conversion system and the converter, inverter and
controller contained in this conversion system. We face many technological
challenges that we must successfully address to complete our development
efforts. Our product development involves a high degree of risk and may require
significant capital resources to enable us to be a low-cost, high-volume
manufacturer of reliable products meeting our customers' needs. Returns to our
investors are dependent upon successful development and commercialization of our
potential products. For example, the successful development of our distributed
power and power quality products will require significant investment in research
and development before we can determine whether the development of our
technology was successful and whether the resulting products will be
commercially viable and accepted by the marketplace. In addition, many proposed
products based on our technologies will require significant additional
expenditures for research and development. We cannot assure you that any of the
products we are developing, or those that we develop in the future, will be
technologically feasible or accepted by the marketplace. Also, we cannot assure
you that any of our product development will be completed on schedule, or at all
and, as a result, you may lose all or part of your investment.

                                       3




WE ARE HEAVILY DEPENDENT ON CONTRACTS WITH THE U.S. GOVERNMENT, AND PARTICULARLY
THE U.S. DEPARTMENT OF ENERGY, FOR REVENUE TO DEVELOP OUR DISTRIBUTED POWER AND
POWER QUALITY PRODUCTS, AND THE LOSS OF ONE OF OUR GOVERNMENT CONTRACTS COULD
PRECLUDE US FROM ACHIEVING OUR ANTICIPATED LEVELS OF GROWTH AND REVENUES.

Our ability to develop and market our products is heavily dependent upon
maintaining our U.S. government contract revenue and research grants. Most of
our U.S. government contracts are funded incrementally on a year-to-year basis.
Approximately 14% of our revenue during fiscal year 2001 was derived from
government contracts and subcontracts. Any change in our relationship with the
U.S. government or its agencies whether as a result of market, economic, or
competitive pressures, including any decision by the U.S. government to alter
its commitment to our research and development efforts, could harm our business
and financial condition by depriving us of the resources necessary to develop
our distributed power and power quality products. Furthermore, contracts with
the U.S. government may be terminated or suspended by the U.S. government at any
time, with or without cause. There can be no assurance that our U.S. government
contracts will not be terminated or suspended in the future, or that contract
suspensions or terminations will not result in unreimbursable expenses or
charges or other adverse effects on us.

     The accuracy and appropriateness of our direct and indirect costs and
expenses under our contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge our cost estimates or allocations with respect to any such contract.
Additionally, a substantial portion of the payments to us under U.S. government
contracts are provisional payments that are subject to potential adjustment upon
audit by such agencies. Adjustments that result from inquiries or audits of our
contracts could have a material adverse impact on our financial condition or
results of operations. Since our inception, we have not experienced any material
adjustments as a result of any inquiries or audits, but there can be no
assurance that our contracts will not be subject to material adjustments in the
future.

     In the event that any of our government contracts are terminated for cause,
it could significantly affect our ability to obtain future government contracts
which could seriously harm our ability to develop our technologies and products.
In addition, our participation in various government business programs depends
upon our continuing eligibility under the regulations of the United States Small
Business Administration. Qualification under these regulations is based upon the
standard industrial classification of the product or service that is the subject
of the program and the level of our revenues and the number of our employees.
Although our current awards under government programs such as the Small Business
Innovative Research, or SBIR, program and small business procurement set-asides
and preferences will not be affected by increases in the level of our revenues
or the number of our employees, as we grow, we may lose our ability to
participate in these programs in the future. Under these circumstances, although
we will


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still be able to participate in general government contract and cooperative
agreement programs, we will lose our ability to benefit in the future from many
of the programs in which we have historically participated. During our fiscal
years ended September 30, 2000 and 2001, 5.8% and 4.4%, respectively, of our
revenues have been obtained under the SBIR program.

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

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

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

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


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

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

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

We currently own 73 U.S. patents which expire between 2007 and 2021. We also
have 11 patent applications pending with the U.S. Patent and Trademark Office.
As a qualifying small business from our inception to date, we have retained
commercial ownership rights to proprietary technology developed under various
U.S. government contracts and grants.

     Our patent and trade secret rights are of significant importance to us and
to our future prospects. Our ability to compete effectively against other
companies in our industry will depend, in part, on our ability to protect our
proprietary technology and systems designs relating to our distributed power and
power quality products. Although we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have been or will be successful in
doing so. Further, our competitors may independently develop or patent
technologies that are substantially equivalent or superior to ours. No assurance
can be given as to the issuance of additional patents or, if so issued, as to
their scope. Patents granted may not provide meaningful protection from
competitors. Even if a competitor's products were to infringe patents owned by
us, it would be costly for us to pursue our rights in an enforcement action, it
would divert funds



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and resources which otherwise could be used in our operations and there can be
no assurance that we would be successful in enforcing our intellectual property
rights. Because we intend to enforce our patents, trademarks and copyrights and
protect our trade secrets, we may be involved from time to time in litigation to
determine the enforceability, scope and validity of these rights. This
litigation could result in substantial costs to us and divert efforts by our
management and technical personnel. In addition, effective patent, trademark,
service mark, copyright and trade secret protection may not be available in
every country where we operate or sell our products.

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

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

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

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



                                       7



WE HAVE EXCLUSIVELY LICENSED OUR INTELLECTUAL PROPERTY RIGHTS FOR OUR FLYWHEEL
TECHNOLOGY FOR STATIONARY, TERRESTRIAL APPLICATIONS TO OUR AFFILIATE, BEACON
POWER CORPORATION, WHOM WE NO LONGER CONTROL, AND BEACON POWER'S DECISIONS
REGARDING THE USE OR DEVELOPMENT OF THIS INTELLECTUAL PROPERTY MAY NOT BE IN OUR
BEST INTEREST.

In 1997, we granted Beacon Power a perpetual, worldwide, royalty-free, exclusive
right and license to our flywheel technology for stationary, terrestrial
applications. In the future, we may not agree with strategic decisions made by
Beacon Power, including decisions relating to product development, marketing and
market focus, and we will be unable to alter any strategic decisions with which
we do not agree. There can be no assurance that Beacon Power will pursue market
opportunities that complement our products in a timely manner, or at all. As a
result, even though we developed the technology used by Beacon Power, we may not
be able to address the market demand for stationary, terrestrial flywheel energy
storage systems unless we develop or license alternative technology to meet the
needs of our customers. There can be no assurance that any alternative
technology will be developed or will be available to us under a license on
acceptable terms, or at all. In addition, we may not agree with the terms and
conditions of any future Beacon Power financings. We anticipate that our
economic stake in Beacon Power will continue to be substantially diluted in the
future as Beacon Power obtains additional public or private funding to pursue
its business plan.

WE CANNOT ASSURE MARKET ACCEPTANCE OR COMMERCIAL VIABILITY OF BEACON POWER'S
STATIONARY FLYWHEEL ENERGY STORAGE SYSTEM OR ANY OF ITS OTHER PRODUCTS.

The existing market for Beacon Power's alternative distributed power products is
limited, and there can be no assurance that this market will develop or that
Beacon Power's products will realize market acceptance or be demanded in
sufficient quantities to generate anticipated revenues. Even if market
acceptance is achieved, there can be no assurance that Beacon Power can
profitably compete in this market. In addition, Beacon Power's products may not
function as anticipated or may not compete effectively with other products
produced by their competitors, and we cannot assure you that Beacon Power's
products will meet the technical demands of their end-users or that they will
offer cost-effective advantages over existing technologies. If any of the
foregoing were to occur, Beacon Power would not achieve its anticipated levels
of profitability and growth which would diminish the value of our investment in
Beacon Power.

     Many proposed products based on technologies owned by or licensed to Beacon
Power will require significant additional capital expenditures for research and
development. We cannot assure you that any of the products Beacon Power is
developing, or those that they develop in the future, will be technologically


                                       8



feasible, suitable for specific commercial applications without design
modifications beyond anticipated changes to accommodate different markets or
accepted by the marketplace. In addition, we cannot assure you that Beacon
Power's product development will be completed on schedule, or at all. If Beacon
Power is unable to successfully develop and market, on a commercially viable
basis, its flywheel products, the value of our investment in Beacon Power could
be significantly diminished.

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

The loss of the services of one or several of our key employees or an inability
to attract, train and retain qualified and skilled employees, specifically
engineering and sales personnel, could result in the loss of customers or
otherwise inhibit our ability to operate and grow our business successfully. In
addition, our ability to successfully integrate acquired facilities or
businesses depends, in part, on our ability to retain and motivate key
management and employees hired by us in connection with these acquisitions. We
are particularly dependent upon the services of David B. Eisenhaure, our
president, chief executive officer, chairman of the board and founder, as a
result of his business and academic relationships, understanding of government
contracts and technical expertise. The loss of Mr. Eisenhaure's services would
have a material adverse effect on our business and results of operations,
including our ability to attract employees and obtain future contract research
and development.

WE EXPECT SIGNIFICANT COMPETITION FOR OUR PRODUCTS AND SERVICES.

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


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

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

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

From time to time, shipments can be delayed because of industry-wide or other
shortages of necessary materials and components from third-party suppliers. A
supplier's failure to develop and supply components in a timely manner, or to
supply components that meet our quality, quantity or cost requirements, or our
inability to obtain substitute sources of these components on a timely basis or
on terms acceptable to us, could impair our ability to manufacture our products.
In addition, to the extent the processes that our suppliers use to manufacture
components are proprietary, we may be unable to obtain comparable components
from alternative suppliers.

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

We do not usually obtain long-term purchase orders or commitments from our
customers. Instead, we work closely with our customers to develop non-binding
forecasts of the future volume of orders. Customers may cancel their orders,
change production quantities from forecasted volumes or delay production for a
number of reasons beyond our control. Significant or numerous cancellations,
reductions or delays in orders by our customers would reduce our net sales. From
time to time we make capital investments in anticipation of future business
opportunities like the significant investment we made to install a
semi-automated production line in our Marlborough, Massachusetts facility for
residential fuel cell power conversion systems. There can be no assurance



                                       10



that we will receive the anticipated business that supports these investments.
If we are unable to obtain this anticipated business, we may not be able to
successfully compete in our markets.

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

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

WE MAY NEED ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS AND MAY NOT BE
ABLE TO RAISE ADDITIONAL FUNDS ON TERMS ACCEPTABLE TO US, OR AT ALL.

If we are unable to increase our revenues and achieve positive cash flow, we
will need to raise additional funds. We may also need additional financing if
we:

o    need additional cash to fund research and development costs of products
     currently under development,

o    decide to expand faster than currently planned,

o    develop new or enhanced services or products ahead of schedule,



                                       11




o    need to respond to competitive pressures, or

o    decide to acquire complementary products, businesses or technologies.

     We cannot assure you that we will be able to raise additional funds on
terms acceptable to us, if at all. If future financing is not available or is
not available on acceptable terms, we may not be able to fund our future needs
which would significantly limit our ability to implement our business plan. In
addition, we may have to issue securities that may have rights, preferences and
privileges senior to our common stock.

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

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

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


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

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

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

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

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

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

OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS.

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


                                       13


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

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



                                       14



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

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

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

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

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

o    consumer reluctance to try a new product,

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



                                       15



o    regulatory requirements, and

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

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

A MASS MARKET FOR HYBRID-ELECTRIC VEHICLES MAY NEVER DEVELOP OR MAY TAKE LONGER
TO DEVELOP THEN WE ANTICIPATE.

     If a mass market fails to develop or develops more slowly than we
anticipate for hybrid-electric automobiles, we may be unable to recover the
expenditures we will have incurred to develop our products and may be unable to
achieve profitability in that portion of our business which could negatively
impact our overall profitability. Many factors which are out of our control may
have a negative effect on the development of a mass market for our
hybrid-electric vehicle components. These factors include:

o    the competitiveness of alternative fuel vehicles,

o    the availability, future costs and safety of hydrogen, natural gas or other
     potential alternative fuels,

o    consumer reluctance to adopt alternative fuel products,

o    original equipment manufacturer reluctance to replace current technology,



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o    consumer perceptions,

o    regulatory requirements, and

o    the emergence of newer, breakthrough technologies and products by our
     competitors in the alternative fuel vehicle market.

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

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

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

The growth of our distributed power generation business depends in large part on
the continued deregulation of the electric utility industry. Existing utility
companies, which have historically operated without competition, may attempt to
deter or delay the deregulation process. In addition,



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our customers may not be able to compete effectively against existing utility
companies in a deregulated market. Changes in federal and state regulation may
also have the effect of deterring further investment in research and development
of alternative energy sources, including fuel cells and microturbines. Any
changes in the deregulation process or procedures, the inability of our
customers to compete effectively against existing utility companies or changes
in federal or state regulation which deter further investment in alternative
energy sources would significantly limit the demand for our products and our
ability to generate anticipated levels of revenue.

OUR SHARE PRICE HAS BEEN SUBJECT TO EXTREME PRICE FLUCTUATIONS.

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

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

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

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



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

o    introduction and market acceptance of our customers' new products, and

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

Future quarterly fluctuations could be caused by these factors and:

o    our effectiveness in managing our manufacturing processes,

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

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

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

o    general economic conditions.



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

EXISTING STOCKHOLDERS CAN EXERT CONSIDERABLE CONTROL OVER US.

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

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

We have authorized 50,000,000 shares of our common stock, of which 16,539,597
shares were issued and outstanding as of March 30, 2002. Our board of directors
has the authority, without action or vote of our stockholders, to issue all or
part of any authorized but unissued shares. Such stock issuances may be made at
a price which reflects a discount from the then-current trading price of our
common stock. These issuances would dilute your percentage ownership interest,
which will have the effect of reducing your influence on matters on which our
stockholders vote, and might dilute the book value of our common stock. You may
incur additional dilution of net tangible book value if holders of stock
options, whether currently outstanding or subsequently granted, exercise their
options or if warrantholders exercise their warrants to purchase our common
stock.


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

In addition, as of March 30, 2002, we have reserved 3,948,532 shares of
common stock for issuance upon exercise of stock options and warrants and
1,021,589 shares for future issuances under our stock plans. As of March 30,
2002, holders of options and warrants to purchase an aggregate of 1,799,920
shares of our common stock may exercise those securities and transfer the
underlying common stock at any time subject, in some cases, to Rule 144. In
accordance with registration rights that we have granted to various
individuals and entities requiring us to register their shares for public
resale, we also have resale registration statements in effect registering
4,935,322 shares of our common stock. The market price of our common stock
could decline as a result of sales of a large number of shares of our common
stock in the market, or the perception that these sales could occur. These
sales might also make it more difficult for us to sell equity securities in
the future at a price that we think is appropriate, or at all.

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

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

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

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

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

o    limitations on who may call special meetings of stockholders.


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





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