March 29, 2011

Institutional Research

A123 Systems BUY

(AONE – $7.82) Price Target: $11

Robert D. Brown, CFA Raising Capital As Expected But We Question

Senior Research Analyst
612-334-6376 Convertible Debt For A Start-Up Growth Company;
rbrown@[Link] Maintain BUY On Growth Potential & Position;
[Link]
Lowering Price Target To $11
A123 Systems designs and manufactures rechargeable lithium-ion batteries and battery
systems focused on next-generation energy storage applications including hybrid vehicles
Changes Previous Current
and grid storage.
Rating: -- BUY
Fundamental Trend: -- Improving
Price Target: $12 $11 OUR CALL
FY11E Rev (MM): $214.1 $210.0 A123 is raising capital with an equity and convertible debt sale to bulk
FY12E Rev (MM): -- $472.0
FY11E EPS: ($1.84) ($1.61)
up its balance sheet and fund its capacity ramp. Although management
FY12E EPS: ($1.25) ($1.18) noted that Q1 is running weaker than expected, it reiterated its full-
year outlook as volume production is on-track for a mid-year ramp
Profile with the caveat that a single-source supplier of electrode coating
Price: $7.82
52 Week Range: $6.32 - $14.96
material in Japan is shut down. We had expected a capital raise this
Avg. Daily Vol: 1,449,543 year and believe this will help the company maintain its growth
Shares Out (MM): 105.0 trajectory.
Market Cap (MM): $821.1
Insiders Own: 24% However, we are disappointed to see convertible debt as part of the
Short Int.(MM) / % of float: 13.3 / 16% mix. While the convert pitch is enticing (low cost debt / selling equity
Tan. Book Val./Sh.: $3.68
Net Cash /Sh.: $1.70 at a premium), we think converts have a negative side as they tend to
Debt / Capital: 9% weigh on the upside in the stock price, create a large short position
LT EPS Growth: 30% from hedging, and essentially turn into debt if the business weakens,
Div / Yield: NA / NA
Year Ends: Dec
which magnifies the downside risk in the equity value (see ENER).
We would rather see a 100% equity offering.
Rev (MM) 2010A 2011E 2012E
Mar $24.5 $16.2 --
For now, we are optimistic on the growth trajectory for the company
Jun $22.6 $35.0 -- and believe the debt load can be supported at projected EBITDA
Sep $26.2 $65.0 -- levels. We are lowering our price target to reflect the higher debt level.
Dec $24.0 $93.8 -- We maintain our BUY rating as we believe the stock should trend
FY $97.3 $210.0 $472.0
higher as growth begins to accelerate starting in mid-2011 and several
EPS 2010A 2011E 2012E of the programs in the development pipeline start production in the
Mar ($0.28) ($0.55) -- next 12 months.
Jun ($0.33) ($0.38) --
Sep ($0.42) ($0.37) --
Dec ($0.43) ($0.34) -- INVESTMENT HIGHLIGHTS
FY ($1.46) ($1.61) ($1.18)  Announces Equity & Convertible Debt Offering – A123 Systems
FY P/E NM NM NM
announced it is selling 18 million shares and $125 million in
EBITDA ($120.6) ($137.7) ($73.2) convertible 5-year debt. We estimate a total net capital raise of
EV/EBITDA NM NM NM roughly $270 million assuming shoe exercise and a $7 deal price.
We believe pricing will be later this week.
Management
CEO Dave Vieau
 Q1 Running Below Guidance – The company indicated Q1
Interim-CFO John Granara revenue would be in the $16-$18 million range. This is below our
prior $18 million estimate and the company’s prior guidance of
upper-teens to low-20 million in revenue due to timing of shipments
ahead of an expected mid-year ramp.
 Notable Japan Supplier Risk Bears Watching – A123 announced
a sole-source supplier of electrode coating material located in Japan
had suspended production. Management noted its current inventory

SEE LAST PAGE FOR IMPORTANT DISCLOSURES Page 1 of 6

 March 29, 2011

plus the supplier's finished goods should sustain A123 through

September 2011. The company also noted that is working to qualify
a second source (4-6 week lead-time) and believes a restart at the
current supplier and/or the second supplier should enable it to
maintain production. With the expected second-half ramp in volume
production, we believe this risk bears watching.
 Adjusting Estimates; Lowering Price Target – We are reducing
our estimates as shown on page one as a result of the weaker Q1
results and a higher share count. We are lowering our price target to
$11 from $12 to reflect the incremental convertible debt expected,
which is detailed below.

STOCK OPPORTUNITY
We believe A123 Systems’ enabling technology for the next generation of
hybrid vehicles and innovative grid stabilization products will allow the
company to capture strong growth as these markets develop. The company
has a leading market position, differentiated technology, and a number of key
customer development and supply agreements in place and is now
undertaking a 21-fold increase in production capacity to meet anticipated
demand. We project that A123 can become a $2 billion revenue company
generating $1.30 per share in EPS as it expands capacity and captures growth
in its markets. We think the company can achieve these levels at a relatively
modest 3% adoption rate of HEV and EV vehicles, with AONE gaining a
13% share.
VALUATION
Our new 12-month price target of $11 is based on a 15x EV/EBITDA
multiple on our 2014 EBITDA estimate of $183 million as detailed in Figure
1. This includes the new convertible debt assumed as debt) and new shares
from the recently announced offing and uses $700 million of cash. We then
discount this result back three years at 20% to arrive at our price target. We
believe this is an appropriate multiple and methodology for an emerging
company with a rapid growth trajectory and technology barriers.

FY14E
EBITDA $182.7
(x) Assumed Multiple 15.0 x
(=) EV $2,740.2
(-) Debt $400.0
(+) Cash $60.0
(=) Market Cap $2,400.2
(/) Shares out 127.0
(/) Discount back by three years at 20% 1.7
(=) Price Target $11
Source: Craig-Hallum

Figure 1 – Price Target Justification

A123 Systems, Inc. Page 2 of 6

Institutional Research
 March 29, 2011

RISKS
We believe an investment in A123 Systems involves the following risks.
 Customer Concentration – The company is dependent on sales to a
small number of customers, with the top four customers representing
66% of revenue in 2009. Weakness at one customer could negatively
impact financial results.
 Emerging Technology With Unknown Market Acceptance – Forward
estimates are highly dependent on market acceptance of hybrid, plug-in
hybrid, and electric vehicles. If market acceptance does not materialize,
financial results will not meet expectations. The company is currently not
profitable and is cash-flow negative and reaching profitability is highly
dependent on improving factory utilization from increasing end-market
demand.
 Regulatory & Incentive – The company benefits from government
regulations and incentives that encourage the adoption of hybrid and
electric vehicles. Should these regulations become less restrictive or
incentives decline, we believe financial results could be negatively
affected.
 Competing Alternative Fuels – The company depends on meaningful
adoption of battery-powered vehicles. Advances in technologies using
competing alternative fuel and power sources such as natural gas,
hydrogen, fuel cells, ethanol, bio-diesel, or other new technologies which
improve their comparative advantages could slow the adoption of
battery-powered vehicles.
 Ability To Rapidly Scale-Up Production – A123 Systems is opening
new production facilities and rapidly increasing capacity to meet
anticipated demand. If the company is not able to scale up its current
manufacturing processes in the timeframes it plans or is not able to
obtain targeted yields and quality results, we believe financial results
could be negatively affected.

A123 Systems, Inc. Page 3 of 6

Institutional Research
 March 29, 2011

FINANCIALS
A123 Systems, Inc.
FISCAL YEAR ENDS DECEMBER

Fiscal Fiscal Fiscal Mar Jun Sep Dec Fiscal Mar Jun Sep Dec Fiscal Fiscal Fiscal Fiscal
($ millions) 2007A 2008A 2009A Q1-10A Q2-10A Q3-10A Q4-10A 2010A Q1-11E Q2-11E Q3-11E Q4-11E 2011E 2012E 2013E 2014E
Product 35.504 53.514 76.519 19.774 15.558 18.965 19.529 73.826 14.700 32.000 63.000 91.800 201.500 468.000 808.250 1,172.700
R&D Services 5.845 15.011 14.530 4.694 7.050 7.253 4.489 23.486 1.500 3.000 2.000 2.000 8.500 4.000 4.000 4.000
Total Revenue 41.349 68.525 91.049 24.468 22.608 26.218 24.018 97.312 16.200 35.000 65.000 93.800 210.000 472.000 812.250 1,176.700
Total Gross Profit (1.470) (12.244) (2.692) (2.041) (2.949) (3.075) (9.374) (17.439) (20.280) (12.200) (12.200) (8.780) (53.460) (10.900) 117.335 239.450
Expenses
R&D 13.241 36.953 48.286 14.116 13.832 16.019 16.756 60.723 16.800 16.900 16.900 17.000 67.600 68.600 69.781 74.677
Sales & marketing 4.307 8.851 8.455 2.800 3.366 3.506 4.439 14.111 4.400 4.500 4.500 4.600 18.000 18.600 20.040 22.026
G&A 13.336 21.544 26.004 8.240 8.804 9.860 9.149 36.053 9.300 9.500 9.600 9.700 38.100 39.600 41.083 47.068
Production Start-up 0.000 0.000 0.000 1.811 3.606 11.751 3.896 21.064 6.000 4.000 2.000 2.000 14.000 4.000 0.000 0.000
Total Operating Expenses 30.884 67.348 82.745 26.967 29.608 41.136 34.240 131.951 36.500 34.900 33.000 33.300 137.700 130.800 130.905 143.771
Income from Operations, reported (32.354) (79.592) (85.437) (29.008) (32.557) (44.211) (43.614) (149.390) (56.780) (47.100) (45.200) (42.080) (191.160) (141.700) (13.570) 95.679
EBITDA, excludes stock option expense (26.879) (66.928) (63.654) (22.772) (25.902) (36.486) (35.432) (120.592) (47.380) (33.600) (30.700) (26.580) (138.260) (77.700) 63.430 182.679
Interest and other (expense) income, net 1.013 0.446 (1.041) (0.218) (0.372) (0.199) (1.442) (2.231) (1.000) (1.000) (1.000) (1.000) (4.000) (8.000) (8.000) (8.000)
Gain (loss) on foreign exchange & other 0.502 (0.724) 0.682 0.245 (1.226) 0.800 (0.292) (0.473) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Unrealized loss on preferred stock warrant liability (0.057) (0.286) (0.515) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Pretax Income, GAAP (30.896) (80.156) (86.311) (28.981) (34.155) (43.610) (45.348) (152.094) (57.780) (48.100) (46.200) (43.080) (195.160) (149.700) (21.570) 87.679
Income Tax (benefit), reported 0.097 0.275 0.278 0.121 0.132 0.125 0.465 0.843 0.000 0.000 0.000 0.000 0.000 0.000 0.000 30.688
(Income) Loss attributable to non-controlling interest 0.027 (0.039) 0.810 0.077 0.069 0.079 0.152 0.377 0.100 0.100 0.100 0.100 0.400 0.400 0.400 0.400
Accretion to preferred (0.035) (0.042) (0.045) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Net Income, GAAP (31.001) (80.512) (85.824) (29.025) (34.218) (43.656) (45.661) (152.560) (57.680) (48.000) (46.100) (42.980) (194.760) (149.300) (21.170) 57.391
Net Income, adjusted for one-time items (31.001) (80.512) (85.824) (29.025) (34.086) (43.656) (45.661) (152.560) (57.680) (48.000) (46.100) (42.980) (194.760) (149.300) (21.170) 57.391
EPS, GAAP ($4.88) ($9.04) ($2.56) ($0.28) ($0.33) ($0.42) ($0.43) ($1.46) ($0.55) ($0.38) ($0.37) ($0.34) ($1.61) ($1.18) ($0.17) $0.45
Wtd. Avg. Shares Outstanding 6.351 8.904 33.471 103.312 104.333 104.743 105.046 104.364 105.146 125.946 126.046 126.146 120.821 126.271 126.596 126.996
Margin Analysis (% of Sales)
Product Gross Margin -7.9% -31.7% -9.5% -13.0% -22.0% -25.3% -49.5% -27.7% -140.0% -40.0% -20.0% -10.0% -27.4% -2.5% 14.4% 20.4%
R&D Services Gross Margin 23.0% 31.4% 31.4% 11.5% 6.7% 23.6% 6.4% 12.8% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Gross Margin -3.6% -17.9% -3.0% -8.3% -13.0% -11.7% -39.0% -17.9% -125.2% -34.9% -18.8% -9.4% -25.5% -2.3% 14.4% 20.3%
R&D 32.0% 53.9% 53.0% 57.7% 61.2% 61.1% 69.8% 62.4% 103.7% 48.3% 26.0% 18.1% 32.2% 14.5% 8.6% 6.3%
Sales & marketing 10.4% 12.9% 9.3% 11.4% 14.9% 13.4% 18.5% 14.5% 27.2% 12.9% 6.9% 4.9% 8.6% 3.9% 2.5% 1.9%
G&A 32.3% 31.4% 28.6% 33.7% 38.9% 37.6% 38.1% 37.0% 57.4% 27.1% 14.8% 10.3% 18.1% 8.4% 5.1% 4.0%
Operating margin -78.2% -116.2% -93.8% -118.6% -144.0% -168.6% -181.6% -153.5% -350.5% -134.6% -69.5% -44.9% -91.0% -30.0% -1.7% 8.1%
EBITDA margin, adjusted -65.0% -97.7% -69.9% -93.1% -114.6% -139.2% -147.5% -123.9% -292.5% -96.0% -47.2% -28.3% -65.8% -16.5% 7.8% 15.5%
Tax Rate -0.3% -0.3% -0.3% -0.4% -0.4% -0.3% -1.0% -0.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 35.0%
Net Margin -75.0% -117.5% -94.3% -118.6% -151.4% -166.5% -190.1% -156.8% -356.0% -137.1% -70.9% -45.8% -92.7% -31.6% -2.6% 4.9%
Growth Analysis (Yr/Yr)
Product Revenue 25.3% 50.7% 43.0% -1.7% -5.8% -5.2% -1.7% -3.5% -25.7% 105.7% 232.2% 370.1% 172.9% 132.3% 72.7% 45.1%
R&D Services Revenue -2.6% 156.8% -3.2% 51.5% 121.4% 102.1% -3.6% 61.6% -68.0% -57.4% -72.4% -55.4% -63.8% -52.9% 0.0% 0.0%
Total Net Revenue 20.4% 65.7% 32.9% 5.4% 14.7% 11.1% -2.1% 6.9% -33.8% 54.8% 147.9% 290.5% 115.8% 124.8% 72.1% 44.9%
R&D 49.6% 179.1% 30.7% 25.7% 19.4% 21.9% 35.8% 25.8% 19.0% 22.2% 5.5% 1.5% 11.3% 1.5% 1.7% 7.0%
Sales & marketing 180.2% 105.5% -4.5% 41.3% 49.9% 89.3% 86.8% 66.9% 57.1% 33.7% 28.4% 3.6% 27.6% 3.3% 7.7% 9.9%
G&A 117.6% 61.5% 20.7% 31.1% 42.7% 67.5% 19.4% 38.6% 12.9% 7.9% -2.6% 6.0% 5.7% 3.9% 3.7% 14.6%
Operating Income, adjusted NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
EBITDA, adjusted NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 188.0%
Net Income, adjusted NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
EPS, GAAP NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
KEY METRICS
Volume Shipped (MWh) 32.0 44.9 66.5 16.3 14.6 15.8 18.0 64.7 14.0 40.0 90.0 135.0 279.0 720.0 1,275.0 1,910.0
Product revenue / Wh $1.19 $1.15 $1.22 $1.07 $1.20 $1.08 $1.14 $1.05 $0.80 $0.70 $0.68 $0.72 $0.65 $0.63 $0.61
Annualized Capacity (MWh) NA 169 169 249 329 350 350 560 560 650 760 760 1,280 1,640 2,240
Utilization (shipped as % of ending capacity) NA 39.3% 38.5% 23.5% 19.2% 20.6% 18.5% 10.0% 28.6% 55.4% 71.1% 36.7% 56.3% 77.7% 85.3%

A123 Systems, Inc. Page 4 of 6

Institutional Research
 March 29, 2011

A123 Systems, Inc.

FISCAL YEAR ENDS DECEMBER

Fiscal Fiscal Fiscal Mar Jun Sep Dec Fiscal Mar Jun Sep Dec Fiscal Mar Jun Sep Dec Fiscal Fiscal Fiscal
($ millions) 2007A 2008A 2009A Q1-10A Q2-10A Q3-10A Q4-10A 2010A Q1-11E Q2-11E Q3-11E Q4-11E 2011E Q1-12E Q2-12E Q3-12E Q4-12E 2012E 2013E 2014E

CASH FLOW STATEMENT

NET INCOME ($30.993) ($80.431) ($86.589) ($29.102) ($34.287) ($43.735) ($45.813) ($152.937) ($57.780) ($48.100) ($46.200) ($43.080) ($195.160) ($47.950) ($39.600) ($34.600) ($27.550) ($149.700) ($21.570) $57.391
DEPRECIATION AND AMORT. $3.942 $8.156 $13.230 $3.749 $4.009 $4.476 $4.802 $17.036 $6.000 $10.000 $11.000 $12.000 $39.000 $12.000 $13.000 $14.000 $15.000 $54.000 $67.000 $77.000
CHANGES IN WORKING CAPITAL ($3.929) $28.172 ($9.936) ($1.665) ($5.464) $6.072 ($11.800) ($12.857) $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
OTHER $2.083 $9.158 $9.736 $3.053 $3.984 $2.493 $3.380 $12.910 $3.400 $3.500 $3.500 $3.500 $13.900 $2.500 $2.500 $2.500 $2.500 $10.000 $10.000 $10.000
NET CASH FROM OPERATIONS ($28.897) ($34.945) ($73.559) ($23.965) ($31.758) ($30.694) ($49.431) ($135.848) ($48.380) ($34.600) ($31.700) ($27.580) ($142.260) ($33.450) ($24.100) ($18.100) ($10.050) ($85.700) $55.430 $144.391

PP&E (CAP EX) ($14.918) ($40.921) ($39.411) ($13.885) ($47.102) ($46.793) ($61.500) ($169.280) ($80.000) ($90.000) ($95.000) ($95.000) ($360.000) ($65.000) ($50.000) ($50.000) ($40.000) ($205.000) ($160.000) ($160.000)
GRANT PROCEEDS TO OFFSET PP&E $0.000 $0.000 $0.000 $5.693 $20.626 $23.323 $31.000 $80.642 $84.640 $40.000 $45.000 $0.000 $169.640 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
ACQUISITIONS ($13.545) $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
OTHER $1.219 ($0.167) ($1.762) ($13.336) $0.394 ($3.569) ($8.000) ($24.511) $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
NET CASH FROM INVESTING ($27.244) ($41.088) ($41.173) ($21.528) ($26.082) ($27.039) ($38.500) ($113.149) $4.640 ($50.000) ($50.000) ($95.000) ($190.360) ($65.000) ($50.000) ($50.000) ($40.000) ($205.000) ($160.000) ($160.000)

COMMON STOCK $70.943 $114.819 $495.771 $0.503 $1.756 $0.808 $0.000 $3.067 $0.000 $136.000 $0.000 $0.000 $136.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
DEBT, incl capital lease ($0.909) $8.199 $1.765 ($2.845) ($1.388) ($1.463) $0.000 ($5.696) $0.000 $143.000 $233.000 $0.000 $376.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
GOVERNMENT GRANT PROCEEDS $0.000 $0.000 $3.900 $1.250 $0.000 $6.000 $2.000 $9.250 $2.000 $2.000 $0.000 $0.000 $4.000 $25.000 $0.000 $0.000 $0.000 $25.000 $25.000 $0.000
OTHER ($0.018) $0.166 $0.000 ($0.020) $0.020 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000
NET CASH FROM FINANCING $70.016 $123.184 $501.436 ($1.112) $0.388 $5.345 $2.000 $6.621 $2.000 $281.000 $233.000 $0.000 $516.000 $25.000 $0.000 $0.000 $0.000 $25.000 $25.000 $0.000

NET CHANGE IN CASH $13.875 $47.151 $386.704 ($46.605) ($57.452) ($52.388) ($85.931) ($242.376) ($41.740) $196.400 $151.300 ($122.580) $183.380 ($73.450) ($74.100) ($68.100) ($50.050) ($265.700) ($79.570) ($15.609)

BALANCE SHEET
Cash & Equivalents 23.359 70.510 457.122 410.517 353.326 300.833 216.841 216.841 175.101 371.501 522.801 400.221 400.221 326.771 252.671 184.571 134.521 134.521 54.951 39.343
Accounts Receivable 9.751 17.735 17.718 16.543 18.332 28.047 28.106 28.106
DSO's 86 94 71 61 73 96 105 105
Inventories 21.104 35.724 37.438 33.809 41.688 42.569 48.787 48.787
Days Inventory 180 161 146 115 147 131 131 155
Total Current Assets 59.685 129.836 522.915 470.061 421.668 381.602 311.107 311.107
NET PP&E 29.609 52.705 71.662 78.132 116.571 148.401 143.998 143.998
Intangibles & goodwill 14.252 11.970 10.835 10.459 10.311 10.214 9.994 9.994
Total Assets 105.146 208.960 618.090 596.430 593.850 585.497 576.158 576.158
Accounts Payable 9.111 19.471 16.475 17.127 29.595 42.844 38.768 38.768
Total Current Liabilities 29.958 60.491 52.491 50.688 77.494 108.733 119.215 119.215
Net Working Capital 29.727 69.345 470.424 419.373 344.174 272.869 191.892 191.892
Total ST & LT Debt 10.894 19.206 22.498 20.254 19.511 13.124 38.208 38.208 38.208 181.208 414.208 414.208 414.208 414.208 414.208 414.208 414.208 414.208 414.208 414.208
Deferred Revenue 4.300 39.078 33.685 28.573 27.406 37.803 40.945 40.945
Shareholders Equity (61.606) (132.557) 528.330 507.475 479.185 439.141 398.532 398.532
Tangible Book Value/share ($8.52) ($4.32) $4.96 $4.73 $3.72 $3.40 $3.08 $3.22
Book Value/shr. ($6.92) ($3.96) $5.06 $4.83 $3.80 $3.48 $3.16 $3.30

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 March 29, 2011

REQUIRED DISCLOSURES
A123 Systems AONE 3/28/2011 7.82 Initiate: June 9, 2010 – Rating: BUY – Price Target: $15
30
Update: November 10, 2010 – Rating: BUY – Price Target: $13
25 Update: March 1, 2011 – Rating: BUY – Price Target: $12
20 Update: March 29, 2011 – Rating: BUY – Price Target: $11
15

10

0
Sep-08

Nov-08

Jan-09

Sep-09

Nov-09

Jan-10

Sep-10

Nov-10

Jan-11
Jul-08

Jul-09

Jul-10
May-08

May-09

May-10
Mar-08

Mar-09

Mar-10

Mar-11
Source: Baseline
Ratings definitions:
Buy rated stocks generally have twelve month price targets that are more than 20% above the current price. Accumulate
rated stocks generally have twelve month price targets above the current price but lack a visible catalyst. This rating includes
Early View coverage. Neutral rated stocks generally have no price target and we would sell the stock.
Fundamental trend definitions:
Improving means growth rates of key business metrics are generally accelerating. Stable means growth rates of key
business metrics are generally steady. Mixed means growth rates of some key business metrics are positive but others are
negative. Declining means growth rates of key business metrics are generally decelerating.
Ratings Distribution (12/31/2010)

% Of Companies % With Investment

Rating Covered Banking Relationships
Buy 74% 10%
Hold 21% 6%
Sell 5% 22%
Total 100% 10%

Information about valuation methods and risks can be found in the “STOCK OPPORTUNITY”
and “RISKS” sections, respectively, of this report.
CHLM makes a market in this security.
CHLM expects to receive or intends to seek compensation for investment banking services from the subject company in the
next three months.
Analysts receive no direct compensation in connection with the firm’s investment banking business. Analysts may be eligible
for bonus compensation based on the overall profitability of the firm, which takes into account revenues from all of the firm’s
business, including investment banking.
OTHER DISCLOSURES
Although the statements of fact in this report have been obtained from and are based upon recognized statistical services,
issuer reports or communications, or other sources that Craig-Hallum believes to be reliable, we cannot guarantee their
accuracy. All opinions and estimates included in this report constitute Craig-Hallum's judgment as of the date of this report and
are subject to change without notice. Craig-Hallum may effect transactions as principal or agent in the securities mentioned
herein. The securities discussed or recommended in this report may be unsuitable for investors depending on their specific
investment objectives and financial position. This report is offered for informational purposes only, and does not constitute an
offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. Additional
information available upon request. Member SIPC.
REGULATION AC CERTIFICATION
I, Robert Brown, hereby certify that the views expressed in this research report accurately reflect my personal views about the
subject security and issuer. No part of my compensation was, is or will be directly or indirectly related to the specific
recommendations or views contained herein.

A123 Systems, Inc. Page 6 of 6

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